<PAGE> 1
REGISTRATION NOS. 33-19836
811-5457
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2000.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 19 [X]
REGISTRATION STATEMENT [ ]
UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 19 [X]
(CHECK APPROPRIATE BOX OR BOXES)
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Keynote Series Account
(EXACT NAME OF REGISTRANT)
MONY LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1740 Broadway
New York, New York 10577
(ADDRESS AND DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
(212) 708-2000
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
FREDERICK C. TEDESCHI
VICE PRESIDENT AND CHIEF COUNSEL -- OPERATIONS
MONY LIFE INSURANCE COMPANY
1740 Broadway
New York, New York 10019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Approximate date of proposed public offering:
It is proposed that this filing will become effective on May 1, 2000
pursuant to paragraph (b) of Rule 485.
Diversified Investors Portfolios has also executed this Post-Effective
Amendment No. 18 to Registration Statement.
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<PAGE> 2
KEYNOTE
SERIES ACCOUNT
("KEYNOTE")
GROUP VARIABLE ANNUITY CONTRACTS
SECTIONS 401(a), 401(k), 403(b), 408(IRA), 457 AND NQDC
ISSUED BY
MONY LIFE INSURANCE COMPANY("MONY")
1740 BROADWAY, NEW YORK, NEW YORK 10019; (914) 697-8000
MONY Life Insurance Company was organized as a mutual life insurance company
under the laws of the State of New York in 1842 under the name The Mutual Life
Insurance Company of New York. In 1998 MONY converted to a stock company through
demutualization and was renamed MONY Life Insurance Company ("MONY"). The
demutualization did not have any material effect on the Group Variable Annuity
Contracts.
The Group Variable Annuity Contracts ("Contracts") described in this
Prospectus are designed and offered as funding vehicles for retirement plans
maintained by state educational organizations, certain tax-exempt organizations,
IRA Contractholders, taxed organizations in the case of the Section 401(a)
and/or Section 401(k) Contracts and corporate nonqualified deferred compensation
contracts ("NQDC"). The Section 401(k) Contract will fund the benefits for tax
qualified pension and profit-sharing plans from employee contributions of such
organizations and employer contributions, if any. The Section 403(b) Contract
will purchase tax-deferred annuities for the employees of these same
organizations. The Section 457 Contract will provide deferred compensation
eligible for deferred tax treatment. The Section 401(a) Contract will fund
benefits for tax-qualified pension and profit-sharing plans of such
organizations as well as taxed subsidiaries of such organizations and
stand-alone taxed organizations. The Section 408 (Individual Retirement Account
("IRA")) Contract is a Group Variable Annuity Contract which will provide for
on-going or rollover contributions, from employees of tax-exempt or taxed
organizations and from members and employees of associations. The NQDC Contract
will provide deferred compensation eligible for deferred tax treatment to
employees of taxed organizations. Section references are to the Internal Revenue
Code of 1986, as amended.
Insofar as possible, the provisions of the Contracts are identical, and the
information provided in this Prospectus is generally applicable to all
Contracts. However, whenever statutory or administrative considerations require
significant differences among the Contracts, such differences are explained
separately for each.
Purchase Payments under the Contracts are allocated to a segregated
investment account of MONY Life Insurance Company ("MONY"), which account has
been designated Keynote. Purchase Payments directed to Keynote may be allocated
among such of the Subaccounts in Keynote as are made available under the
Contracts. The assets in each Subaccount are invested in a series of Diversified
Investors Portfolios or in the Calvert Social Balanced Portfolio ("Calvert
Series") at their net asset value. (See "Diversified Investors Portfolios" at
page 12 and Calvert Series at page 11.) The six currently available Series of
Diversified Investors Portfolios are the Money Market Series, Intermediate
Government Bond Series, Core Bond Series (formerly Government/Corporate Bond
Series), Balanced Series, Value & Income Series, formerly Equity Income and
Equity Growth Series. The Calvert Series is an actively managed, diversified
portfolio of common and preferred stocks, bonds, and money market instruments
which offer income and capital growth opportunity and which satisfy the social
concern criteria established by the Calvert Series. A copy of the Calvert Series
Prospectus appears at the end of this Keynote Prospectus.
KEYNOTE SUBACCOUNTS WHICH INVEST IN DIVERSIFIED INVESTORS PORTFOLIOS DO SO
UNDER A CORE/FEEDER ARRANGEMENT. UNLIKE OTHER FUNDING VEHICLES INTO WHICH
PURCHASE PAYMENTS MAY BE INVESTED THROUGH VARIABLE ANNUITY CONTRACTS ISSUED BY
INSURANCE COMPANIES, DIVERSIFIED INVESTORS PORTFOLIOS OFFERS ITS INTERESTS FOR
SALE TO OTHER TYPES OF COLLECTIVE INVESTMENT VEHICLES IN ADDITION TO INSURANCE
COMPANY SEPARATE ACCOUNTS REGISTERED AS INVESTMENT COMPANIES UNDER THE
INVESTMENT COMPANY ACT OF 1940. SUCH INVESTORS MAY INCLUDE MUTUAL FUNDS, BANK
COLLECTIVE TRUSTS AND UNREGISTERED INSURANCE COMPANY SEPARATE ACCOUNTS. SEE
"DIVERSIFIED INVESTORS PORTFOLIOS -- CORE/FEEDER STRUCTURE" ON PAGE 29 HEREIN.
The value of the Accumulation Accounts maintained in Keynote will vary based
upon the investment experience of the Subaccounts to which Purchase Payments are
allocated. The investment experience of the Subaccounts will vary based on the
underlying investment performance of the series of Diversified Investors
Portfolios and the Calvert Series.
This Prospectus sets forth the basic information that a prospective
purchaser should know before investing. Please keep this Prospectus for future
reference.
A Statement of Additional Information dated May 1, 2000 incorporated herein
by reference, and containing additional information about the Contracts and
Diversified Investors Portfolios, has been filed with the Securities and
Exchange Commission. The Statement of Additional Information is available from
MONY without charge upon written request to the above address or by telephoning
(914) 697-8000. The Table of Contents of the Statement of Additional Information
can be found on page 50 of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy the Contracts in any jurisdiction in which such may not be lawfully
made.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS
PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED (OR PRECEDED) BY A CURRENT PROSPECTUS
FOR THE CALVERT SERIES.
DATED MAY 1, 2000
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Definitions................................................. 4
Synopsis.................................................... 6
Fee Table................................................... 6
The Contracts............................................... 7
Keynote..................................................... 8
Charges..................................................... 8
Credit And Allocation Of Purchase Payments.................. 8
Redemption.................................................. 9
Transfers................................................... 9
Payment Options............................................. 9
Substitution of Shares of Diversified Investors
Portfolios................................................ 9
Voting Rights............................................... 9
Death Benefit............................................... 9
Distribution Of The Contracts............................... 9
Condensed Financial Information............................. 10
MONY........................................................ 11
Keynote Series Account...................................... 11
Calvert Series.............................................. 11
Diversified Investors Portfolios............................ 12
The Transaction............................................. 13
Charges..................................................... 14
Charges for Mortality and Expense Risks..................... 14
Annual Contract Charge...................................... 14
Investment Management Fee................................... 14
Premium Tax................................................. 15
Summary Of The Contracts.................................... 16
Eligible Purchasers......................................... 16
Ownership................................................... 16
Purchase Payments........................................... 16
Employer Sponsored Plan Requirements........................ 16
Rights Of The Participant Under The Contract................ 16
Rights Upon Suspension Of Contract or Termination Of Plan... 17
403(b) Contract............................................. 17
401(a) Contract/401(k) Contract and NQDC.................... 17
457 and 408 (IRA) Contracts................................. 17
Failure Of Qualification.................................... 17
Transfers................................................... 17
Rights Reserved By MONY..................................... 18
Credit Of Purchase Payments................................. 18
Allocation Of Purchase Payments............................. 18
Determination Of Unit Values................................ 19
Death Benefit............................................... 19
Redemption During The Accumulation Period................... 20
Restrictions Under The Texas Optional Retirement Program.... 20
Payment Options............................................. 20
Annuity Purchase Date....................................... 20
Fixed Annuity............................................... 21
Fixed Annuity Options....................................... 21
Payments To A Beneficiary Following The Annuitant's Death... 22
Voting Rights............................................... 22
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Distribution Of The Contracts............................... 23
Federal Tax Status.......................................... 24
Tax Treatment of MONY....................................... 24
Taxation of Diversified Investors Portfolios................ 24
Section 403(b) Annuities.................................... 24
Section 401(a) Plans........................................ 25
Section 408 (IRA) Contracts................................. 26
Minimum Distribution Requirements........................... 26
Section 457 Plans........................................... 27
Non-Qualified Deferred Compensation Contracts............... 27
Income Tax Withholding...................................... 27
Performance Data............................................ 29
Diversified Investors Portfolios............................ 30
Core/Feeder Structure....................................... 30
Investment Objectives and Policies.......................... 31
Investment Techniques and Restrictions...................... 42
Management of Diversified Investors Portfolios.............. 44
Other Information Regarding Diversified Investors
Portfolios................................................ 47
Purchase and Redemption of Interests in Diversified
Investors Portfolios...................................... 47
Experts..................................................... 49
Legal Proceedings........................................... 50
Financial Statements........................................ 50
Additional Information...................................... 50
Miscellaneous............................................... 50
Table Of Contents Of Statement Of Additional Information.... 51
Request For Keynote Statement Of Additional Information..... 52
Appendix.................................................... 53
</TABLE>
3
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DEFINITIONS
As used in this Prospectus, the following terms have the indicated meaning:
ACCUMULATION ACCOUNT: an account maintained for each Participant in which
is recorded the number of Units held for his/her credit.
ACCUMULATION PERIOD: the accumulation period for each Participant is the
period during which Purchase Payments may be made on his/her behalf. It begins
when the Participant begins participation under the Plan and ends as of his/her
Annuity Purchase Date (See "Annuity Purchase Date" page 20), or earlier
termination of his/her Accumulation Account.
BALANCED SERIES: Diversified Investors Balanced Portfolio, a series of
Diversified Investors Portfolios.
CALVERT SERIES: the Calvert Social Balanced Portfolio, a series of Calvert
Variable Series, Inc., an open-end management investment company registered
under the Investment Company Act of 1940, as amended.
CONTRACT(S): the group variable annuity contract(s) offered by MONY to
Contractholders or IRA Contractholders as described in this Prospectus.
CONTRACTHOLDER: a state educational organization or certain tax-exempt
organization employer or employer association for affiliated employers, taxed
subsidiaries of tax-exempt organizations and taxed stand alone organizations.
CONTRACT YEAR: a period of 12 months measured from the date of the Contract
issued to or adopted by the Contractholder, and anniversaries thereof.
DIVERSIFIED: Diversified Investment Advisors, Inc., a registered investment
adviser under the Investment Advisers Act of 1940.
DIVERSIFIED INVESTORS PORTFOLIOS: Diversified Investors Portfolios, an
open-end diversified management investment company registered under the
Investment Company Act of 1940, as amended.
EQUITY GROWTH SERIES: Diversified Investors Equity Growth Portfolio, a
series of Diversified Investors Portfolios.
VALUE & INCOME SERIES: Diversified Investors Equity Income Portfolio, a
series of Diversified Investors Portfolios.
FIXED ANNUITY: an annuity with payments which remain fixed throughout the
payment period and which do not reflect the investment experience of a separate
account.
CORE BOND SERIES: Diversified Investors Core Bond Portfolio, a series of
Diversified Investors Portfolios.
INTERMEDIATE GOVERNMENT BOND SERIES: Diversified Investors Intermediate
Government Bond Portfolio, a series of Diversified Investors Portfolios.
IRA CONTRACTHOLDER: a tax-exempt or taxed organization or an association of
members who share a common interest.
MONEY MARKET SERIES: Diversified Investors Money Market Portfolio, a series
of Diversified Investors Portfolios.
NQDC: Non-qualified deferred compensation arrangement available to taxed
organizations only.
PARTICIPANT: an employee participating under a Contract issued to or
adopted by his/her employer.
PLAN: a retirement plan or program under which benefits are to be provided
pursuant to a Contract described herein.
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PORTFOLIO BUSINESS DAY: each day during which the Advisers of a Series are
open for business.
PURCHASE PAYMENT: the amount contributed and remitted to MONY by an
employer on behalf of a Participant.
SUBSTITUTION: the investment by Keynote Subaccounts in corresponding series
of Diversified Investors Portfolios of the proceeds received upon the redemption
by each Subaccount of shares of MONY Series Fund, Inc. in accordance with an
order of the Securities and Exchange Commission dated June 8, 1994.
SUBACCOUNT: a subdivision of Keynote which is available for the allocation
of Purchase Payments under the Contracts. Six Subaccounts invest in a
corresponding series of Diversified Investors Portfolios. The Calvert Series
Subaccount invests in the Calvert Series.
UNIT: the measure by which the value of an investor's interest in each
Subaccount is determined.
VALUATION DATE: each day at the close of business of the New York Stock
Exchange (currently at 4:00 p.m. New York City time), that the New York Stock
Exchange is open for trading or any other day on which there is sufficient
trading in securities of a series of Diversified Investors Portfolios or the
Calvert Series to affect materially the value of the Units of the corresponding
Subaccount. If the New York Stock Exchange extends its closing beyond 4:00 p.m.
New York City time, and continues to value after the time of closing of the
NYSE, MONY reserves the right to treat any payment or communication received
after 4:00 p.m. New York City time as being received as of the beginning of the
next day.
VALUATION PERIOD: The period between the ending of two successive Valuation
Dates.
NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
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SYNOPSIS
MONY LIFE INSURANCE COMPANY
KEYNOTE SERIES ACCOUNT
TABLE OF FEES(1)
<TABLE>
<S> <C>
Total Separate Account Annual Expenses (as a percentage of average
account values)
Mortality and Expense Risk Fees............................. 0.90%(2)
</TABLE>
(1) In addition to the mortality and expense risk fees, MONY reserves the
right to deduct an annual contract charge from a Participant's Accumulation
Account not to exceed $50. See "Charges -- Annual Contract Charge" at page 14.
(2) MONY reserves the right to charge maximum mortality and expense risk
fees of 1.25% upon notice.
Portfolio Company Annual Expenses:
DIVERSIFIED INVESTORS PORTFOLIOS AND CALVERT SOCIAL BALANCED PORTFOLIO
ANNUAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1999
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT CORE VALUE & EQUITY
MARKET BOND BOND BALANCED INCOME GROWTH CALVERT
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------ ------------ ------ -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee (After fee
reimbursements)(1)................... 0.25% 0.35% 0.35% 0.45% 0.45% 0.62% 0.70%
Other Expenses(2)...................... 0.03% 0.04% 0.02% 0.05% 0.02% 0.02% 0.16%
Reimbursement from MONY(3)............. (0.18)% -- -- -- -- (0.14)% --
----- ---- ---- ---- ----- ----- ----
Total Annual Expenses After Fee
Reimbursements(4).................... 0.10% 0.39% 0.37% 0.50% 0.47% 0.50% 0.86%
</TABLE>
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(1) The fees shown on the line "Management Fee" are the fees charged to each
series of Diversified Investors Portfolios by Diversified Investment
Advisors, Inc., after waiver. The expense table for Portfolio Company Annual
Expenses and the example reflect a voluntary undertaking by Diversified to
waive a portion of the investment advisory fees payable by series of
Diversified Investors Portfolios. Without such a waiver, the annual
investment advisory fee would be 0.25% for the Money Market Series, 0.35%
for the Intermediate Government Bond Series, 0.35% for the Core Bond Series,
0.45% for the Balanced Series, 0.45% for the Value & Income Series and 0.62%
for the Equity Growth Series. For the Calvert Series, the fees shown are
those charged by Calvert Asset Management Company to the Calvert Series.
(2) "Other Expenses" for each series of Diversified Investors Portfolios and for
the Calvert Series are actual for the year ended December 31, 1999.
(3) MONY has agreed to provide reimbursements to limit total Diversified
Investors Portfolios expenses for Keynote Participants in the Money Market
Series and the Equity Growth Series to .10% and .50%, respectively, of
average net assets of the applicable series with MONY reserving the right to
raise the limit upon notice.
(4) "Total Annual Expenses After Fee Reimbursements" for certain of the series
of Diversified Investors Portfolios reflect voluntary waivers and
reimbursements by Diversified. In the absence of such waivers and
reimbursements, "Total Annual Expenses After Fee Reimbursements" would be as
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follows for the following series: Money Market Series -- 0.28%; Intermediate
Government Bond Series -- 0.39%; Core Bond -- 0.38%; Balanced -- 0.48%;
Equity Income Series -- 0.47%; and Equity Growth Series -- 0.64%.
(5) Prior to August 17, 1999, Core Bond was named Diversified Investor
Government/Corporate Bond Series.
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly and indirectly and reflects
expenses of the separate account as well as the portfolio applicable company.
(See Charges at page 14 for a more complete description of applicable costs and
expenses.)
Example
If you (i) surrender your contract at the end of the applicable time
period, (ii) annuitize at the end of the applicable time period or (iii) do not
surrender your contract, you would pay the following expenses on a $1,000
investment, assuming a 5% annual rate of return.
<TABLE>
<CAPTION>
AFTER AFTER AFTER AFTER
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market............................................ $10 $32 $55 $122
Intermediate Government Bond............................ $13 $41 $71 $156
Core Bond............................................... $13 $41 $70 $155
Balanced................................................ $14 $44 $76 $166
Value & Income.......................................... $14 $43 $75 $165
Equity Growth........................................... $14 $44 $77 $168
Calvert Series.......................................... $17 $53 $91 $198
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. PREMIUM
TAXES MAY ALSO BE APPLICABLE.
THE CONTRACTS
The Group Variable Annuity Contract(s) ("Contract(s)") described in this
Prospectus are designed and offered as funding vehicles for retirement Plans
maintained by state educational organizations, certain tax-exempt organizations,
IRA Contractholders and for taxed organizations for Section 401(a) and/or
Section 401(k) Contracts and corporate nonqualified deferred compensation
Contracts ("NQDC"). The Section 401(k) Contract will fund the benefits for
tax-qualified pension and profit-sharing plans from employee/employer
contributions of such organizations. The Section 403(b) Contract will purchase
tax-deferred annuities for employees of these same organizations. The Section
457 Contract will provide deferred compensation eligible for deferred tax
treatment. The Section 401(a) Contract will fund benefits for tax-qualified
pension and profit-sharing Plans of such tax-exempt organizations as well as
taxed subsidiaries of these organizations and stand-alone taxed organizations;
the non-qualified deferred compensation Contracts ("NQDC") will fund benefits
for taxed organizations. The Section 408 (Individual Retirement Account ("IRA"))
Contract is a Group Variable Annuity Contract which will provide for on-going or
rollover contributions from employees of tax-exempt or taxed organizations and
from members and employees of associations. Section references are to the
Internal Revenue Code of 1986, as amended (the "Code").
Insofar as possible, the provisions of the Contracts are identical, and the
information provided in this Prospectus is generally applicable to all
Contracts. However, whenever statutory or administrative considerations require
significant differences among the Contracts, such differences are explained
separately for each.
With respect to Section 401(a), Section 401 (k) and NQDC Contracts, the
employer and/or the employee will make contributions pursuant to the terms and
conditions of the underlying retirement Plan. As to the Section 403(b) and
Section 457 Contracts, the employer will make Purchase Payments for each
participating employee pursuant to either a salary reduction agreement or an
agreement to
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forego a salary increase under which the employee decides the level and number
of Purchase Payments to his/her Accumulation Account, except with respect to
employer-sponsored Section 401(a) Plans under which the employer will make
contributions pursuant to the underlying retirement Plan. In the case of the
Section 408 IRA Contract, the employer will make Purchase Payments on behalf of
and as determined by each participating employee pursuant to a salary deduction
agreement.
KEYNOTE
Purchase Payments under the Contract(s) are allocated to Keynote which is a
separate account of MONY. Keynote is divided into Subaccounts, six of which
correspond to Diversified Investors Portfolios' Money Market, Intermediate
Government Bond, Core Bond, Balanced, Value & Income, and Equity Growth Series,
respectively. The Calvert Series Subaccount invests in the Calvert Series. The
assets in each Subaccount are invested in the corresponding series of
Diversified Investors Portfolios or the Calvert Series at their net asset value
(See "Diversified Investors Portfolios" at page 12 and "Calvert Series" at page
11.) Each series of Diversified Investors Portfolios is managed by Diversified
Investment Advisors, Inc. ("Diversified"). MONY Securities Corp., a wholly-owned
subsidiary of MONY, is the principal underwriter and distributor. The Calvert
Series is a series of Calvert Variable Series, Inc., (formerly, Acacia Capital
Corporation,) (the "Fund") a diversified open-end management company whose
investment adviser is Calvert Asset Management Company, Inc.
The value of a Participant's Accumulation Account maintained in Keynote
will vary based upon the investment experience of the series of Diversified
Investors Portfolios or the Calvert Series to which Purchase Payments are
allocated.
The Calvert Series is an actively managed portfolio of common and preferred
stocks, bonds, and money market instruments which offer income and capital
growth opportunity and which satisfy the social concern criteria established by
the Calvert Series. A copy of the Calvert Series Prospectus appears at the end
of this Keynote Prospectus. Diversified Investors Portfolios is an open-end,
diversified management investment company which has six series with differing
investment objectives available under the Contracts. See "Diversified Investors
Portfolios" at page 12 herein.
CHARGES
MONY makes daily charges against the net assets of Keynote at a maximum
annual rate of 1.25%, consisting of .80% for mortality risks and .45% for
administrative expense risks. The annual rate charged is 1.10% consisting of
.70% for mortality risks and .40% for administrative expense risk. However, MONY
reserves the right to charge a maximum fee of 1.25% upon notice thereafter. (See
"Charges -- Charges for Mortality and Expense Risks" on page 14.) In addition,
MONY reserves the right to deduct an annual contract charge, not to exceed $50,
from a Participant's Accumulation Account (See "Charges -- Annual Contract
Charge" on page 14.)
In addition to the charges set forth above, Diversified, which serves as an
investment adviser to each series of Diversified Investors Portfolios, and
Calvert Asset Management Company, Inc., which serves as investment adviser to
the Calvert Series, impose a charge against the net asset value of each series
of Diversified Investors Portfolios or the Calvert Series, as appropriate,
computed daily, for investment advisory services and other expenses.
Premium taxes may be payable on annuity considerations. (See "Premium Tax"
on page 15.)
CREDIT AND ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments will be credited to the Subaccounts designated by the
Participant in the form of Units. The number of Units credited will not change
but the dollar value of a Unit will vary depending upon the investment
experience of the series of Diversified Investors Portfolios or the Calvert
Series, as appropriate. (See "Credit of Purchase Payments" on page 18.)
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REDEMPTION
A Participant may redeem at any time prior to the time an annuity benefit
takes effect and prior to his death all or a portion of the Units credited to
his Accumulation Account without any charge, subject to any limitations in the
underlying Plan. There are no redemption charges. (See "Restrictions Under the
Texas Optional Retirement Program" on page 20, for withdrawal restrictions
applicable to Contracts issued under the Texas Optional Retirement Program.)
A penalty tax may be payable under the Code upon the redemption of amounts
from an Accumulation Account under the Contract and other significant withdrawal
restrictions may be imposed by the Code. (See, "Section 403(b) Annuities" on
page 24 and "Section 408 IRA Contracts" on page 26.)
TRANSFERS
A Participant may transfer all or a portion of his/her Accumulation Account
in Keynote among the various Subaccounts. No transfer charges are imposed, and
there is no limit to the number of transfers. While MONY has no present
intention to do so, it reserves the right to impose transfer charges at a later
date. Transfers may be made in writing or by telephone by calling (914)
697-8000. (See "Transfers" on page 17.) MONY reserves the right to discontinue
allowing telephone transfers.
PAYMENT OPTIONS
Unless a Fixed Annuity is elected, a Participant will receive a lump sum
payment at the end of the Accumulation Period. The Contracts may provide for
several Fixed Annuity options: Life Annuity, Life Annuity With Period Certain,
Specified Fixed Period Annuity, Contingent Annuity and Contingent Annuity With
Period Certain. For NQDC, an installment payment option may also be available.
(See "Payment Options" on page 20.)
VOTING RIGHTS
To the extent required by law, MONY will vote the interests in Diversified
Investors Portfolios and the Calvert Series held in Keynote in accordance with
the instructions received from Contractholders, IRA Contractholders and NQDC
Contractholders; the Contractholders will instruct MONY in accordance with the
instructions received from Participants. (See "Voting Rights" on page 22.)
DEATH BENEFIT
If a Participant dies before the Annuity Purchase Date, the Accumulation
Account value will be paid to his/her beneficiary in a lump sum. (See "Death
Benefit" on page 19.)
DISTRIBUTION OF THE CONTRACTS
MONY Securities Corp. ("MSC") will be the principal underwriter and
distributor of the Contracts which will be sold by registered representatives
who are also licensed insurance agents of MONY. The Contracts may also be sold
through other broker-dealers authorized by MSC and applicable law and who may be
insurance agents licensed by an insurance company other than MONY. (See
"Distribution of the Contracts" on page 23.)
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CONDENSED FINANCIAL INFORMATION
KEYNOTE SERIES ACCOUNT
ACCUMULATION UNIT VALUES
KEYNOTE SUBACCOUNT*
<TABLE>
<CAPTION>
UNIT VALUE
------------------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1990 1991 1992 1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........ $13.65 $18.32 $18.07 $19.67 $21.65 $25.58 $30.06 $37.99 $51.57
Money Market......... 11.81 12.49 12.90 13.20 13.65 14.35 15.00 15.71 16.45
Balanced............. 12.74 15.29 15.37 16.92 16.66 21.25 24.62 29.12 32.46
Core Bond............ 12.38 14.52 15.71 17.81 16.70 19.63 20.10 21.66 23.15
Value & Income....... 11.34 13.60 14.93 16.91 16.86 22.48 26.38 33.99 38.08
Intermediate
Government Bond..... 10.00 11.00 11.73 12.58 12.24 13.84 14,21 15.13 16.07
Calvert Series....... 10.26 11.91 12.75 13.36 13.11 16.87 18.83 22.41 26.13
<CAPTION>
UNIT VALUE UNITS OUTSTANDING
-------- ------------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1999 1990 1991 1992 1993 1994 1995 1996 1997
-------- --------- --------- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........ $70.57 429,986 1,334,644 2,115,942 2,907,819 994,859 201,470 237,959 242,846
Money Market......... 17.18 590,354 702,177 637,701 656,262 179,143 58,026 56,311 47,018
Balanced............. 35.91 322,563 814,494 1,268,765 1,835,594 762,735 145,593 156,241 163,289
Core Bond............ 22.75 97,161 493,084 328,126 471,446 125,870 24,207 25,670 26,763
Value & Income....... 40.87 7,198,970 7,227,359 6,883,795 7,852,650 2,135,776 571,730 489,820 474,554
Intermediate
Government Bond..... 16.18 -- 3,840,526 1,628,553 1,591,845 768,905 50,325 47,901 14,366
Calvert Series....... 29.06 16,681 180,569 355,343 685,428 291,806 19,147 25,095 26,219
<CAPTION>
UNITS OUTSTANDING
-------------------
DEC. 31, DEC. 31,
1998 1999
-------- --------
<S> <C> <C> <C>
Equity Growth........ 247,234 142,912
Money Market......... 40,999 13,122
Balanced............. 167,348 77,105
Core Bond............ 39,571 16,207
Value & Income....... 434,610 266,130
Intermediate
Government Bond..... 27,614 13,708
Calvert Series....... 31,111 15,386
</TABLE>
- ---------------
* The commencement date for the Intermediate Government Bond Subaccount is May
1, 1991.
Further information about the performance of Keynote is contained in the
Annual Report of Keynote which is available, free of charge, by contacting
MONY at the address or at the telephone number set forth on the cover of this
Prospectus.
10
<PAGE> 12
MONY
MONY Life Insurance Company formerly organized as a mutual life insurance
company, under the laws of the State of New York in 1842 converted to a stock
life insurance company through demutualization. Its principal place of business
is 1740 Broadway, New York, N.Y. 10019. MONY is currently licensed to sell life
insurance and annuities in all states of the United States, the District of
Columbia, Puerto Rico and the U.S. Virgin Islands.
KEYNOTE SERIES ACCOUNT
Keynote was established by MONY under New York Insurance Law on December
16, 1987 as a separate account. Keynote will hold assets that are segregated
from all of MONY's other assets and at present is used only to support the
Contracts. MONY is the legal holder of the assets in Keynote and will at all
times maintain assets in Keynote with a total market value at least equal to the
contract liabilities for Keynote. The obligations under the Contracts are
obligations of MONY. Income, gains, and losses, whether or not realized, from
assets allocated to Keynote, are, in accordance with the Contracts, credited to
or charged against Keynote without regard to other income, gains, or losses of
MONY. The assets in Keynote may not be charged with liabilities which arise from
any other business MONY conducts. Keynote assets may include accumulation of the
charges MONY makes against a Contract participating in Keynote. From time to
time, any such additional assets may be transferred in cash to MONY's general
account.
Keynote is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
Keynote. For state law purposes, Keynote is treated as a part or division of
MONY.
There are currently seven Subaccounts within Keynote which are available
for allocation of Purchase Payments under the Contracts. The Calvert Series
Subaccount invests only in the Calvert Social Balanced Portfolio (the "Calvert
Series"), a series of Calvert Variable Series, Inc. ("Calvert Variable"), an
open-end management investment company registered with the SEC under the 1940
Act. The six other Subaccounts invest in six respective series of Diversified
Investors Portfolios, an open-end diversified management investment company
registered with the SEC under the 1940 Act. Set forth below is a brief
description of the Calvert Series and Diversified Investors Portfolios. A full
description of the Calvert Series, its investment objectives, policies and
restrictions, its expenses, the risks attendant in investing therein and other
aspects of its operations is contained in the accompanying prospectus for the
Calvert Series. Full descriptions of the six series of Diversified Investors
Portfolios, their investment objectives, policies and restrictions, their
expenses, the risks attendant to investing therein and other aspects of their
operations are set forth herein under "Diversified Investors Portfolios" at page
12. Further disclosure appears in the Statement of Additional Information. Each
Participant should periodically consider his/her allocation among the
Subaccounts in light of current market conditions and the investment risks
attendant to investment in the various series of Diversified Investors
Portfolios and the Calvert Series.
CALVERT SERIES
The Calvert Series is a series of Calvert Variable Series, Inc. ("Calvert
Variable"), a Maryland corporation registered with the SEC under the 1940 Act as
an open-end management company, whose investment adviser is Calvert Asset
Management Company, Inc. The shares of the Fund are currently sold only to
insurance companies for allocation to their separate accounts to fund the
benefits under certain variable annuity and variable life insurance policies
issued by such companies. Because the Calvert Series sells its shares to
insurance companies offering both variable annuity and variable life insurance
policies, potential for conflict between the interests of Contractholders of
these contracts may arise. The Board of Directors of the Fund will monitor the
Calvert Series for the existence of any material irreconcilable conflict between
interests of Contractholders of all separate accounts investing
11
<PAGE> 13
in the Calvert Series. If it is determined by a majority of the Board of the
Fund that such conflict exists then MONY will take whatever steps are necessary
to eliminate the material conflict, including withdrawing the assets allocable
to some of the separate accounts from Calvert Series and reinvesting them in a
different investment medium. For additional risk disclosure, see the Calvert
Series prospectus which is contained in the last section of this Prospectus.
Keynote will purchase and redeem shares from the Calvert Series at net asset
value.
The investment objective of the Calvert Series is set forth in the
prospectus for the Calvert Series which appears at the end of this Prospectus.
Briefly, the objective is to achieve a total return above the rate of inflation
through an actively managed, diversified portfolio of common and preferred
stocks, bonds and money market instruments which offer income and capital growth
opportunity and which satisfy the social concern criteria established for the
Calvert Series. There can be no assurance that the objective of the Calvert
Series will be realized.
DIVERSIFIED INVESTORS PORTFOLIOS
Each of the other six Subaccounts of Keynote listed below invests
exclusively in the corresponding series of Diversified Investors Portfolios set
forth below:
<TABLE>
<CAPTION>
DIVERSIFIED SUBACCOUNT SERIES OF DIVERSIFIED INVESTORS PORTFOLIOS
---------------------- ------------------------------------------
<S> <C>
Keynote Money Market Subaccount.............. Diversified Investors Money Market Portfolio
(the "Money Market Series")
Keynote Intermediate Government Bond
Subaccount................................. Diversified Investors Intermediate Government
Bond Portfolio (the "Intermediate Government
Bond Series")
Keynote Core Bond Subaccount (formerly the
Keynote Long Term Bond Subaccount)......... Diversified Investors Core Bond Portfolio
(the "Core Bond Series")
Keynote Balanced Subaccount (formerly the
Keynote Diversified/Balanced Subaccount)... Diversified Investors Balanced Portfolio (the
"Balanced Series")
Keynote Value & Income Subaccount............ Diversified Investors Value & Income
Portfolio (the "Equity Income Series")
Keynote Equity Growth Subaccount............. Diversified Investors Equity Growth Portfolio
(the "Equity Growth Series")
</TABLE>
Diversified Investors Portfolios is registered with the SEC under the 1940
Act as an open-end diversified management investment company. This registration
does not involve supervision by the SEC of the management or investment
practices or policies of Diversified Investors Portfolios.
Diversified acts as investment adviser and administrator to each series of
Diversified Investors Portfolios. With respect to each series of Diversified
Investors Portfolios, Diversified has contracted for certain investment advisory
services with one or more subadvisers. Diversified and the subadviser or
subadvisers for a particular series of Diversified Investors Portfolios are
referred to herein collectively as the "Advisers". The investment objectives of
the series of Diversified Investors Portfolios currently available under the
Contracts through Subaccounts are described briefly below. There can be no
assurance that the investment objectives of any of the series will be met.
Money Market Series: To provide liquidity and as high a level of current
income as is consistent with the preservation of capital through investment in
domestic and foreign U.S. dollar-denominated money market obligations with
maturities of 397 days or less. An investor's interest in the Keynote Money
Market Subaccount is neither insured nor guaranteed by the U.S. Government.
Intermediate Government Bond Series: To provide as high a level of current
income as is consistent with the preservation of capital through investment in
U.S. Government and U.S. Government agency and instrumentality securities with
short and intermediate maturities and high quality short-term obligations.
12
<PAGE> 14
Core Bond Series: To achieve the maximum total return through investment
in investment grade debt securities, U.S. Government and U.S. Government agency
and instrumentality securities, collateralized mortgage obligations guaranteed
by these agencies and instrumentalities and high quality short-term obligations.
Balanced Series: To provide a high total return consistent with a broad
diversified mix of stocks, bonds and money market instruments.
Value & Income Series: To provide a high level of current income through
investment in a diversified portfolio of common stocks with relatively high
current yields; capital appreciation is a secondary objective.
Equity Growth Series: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks with potential
for above average growth in earnings; current income is a secondary objective.
See "Diversified Investors Portfolios" at page 12 and the Statement of
Additional Information for more information on each series.
THE TRANSACTION
On December 31, 1993, MONY and AEGON USA, Inc. ("AEGON") entered into a
transaction pursuant to which MONY sold its group pension operation to AEGON
(the "Transaction"). As a part of the Transaction, the Contracts may be
transferred through assumption reinsurance to AUSA Life Insurance Company, Inc.
("AUSA"), a New York domiciled stock life insurance company and an indirect,
wholly-owned subsidiary of AEGON. Subject to the receipt of any necessary state
insurance department approvals and authorizations each Contractholder will
receive materials relating to this assumption.
In addition, as a result of the Transaction, the group fixed annuity
contracts which have been issued by MONY to Contractholders may also be
transferred to AUSA through assumption reinsurance. Based upon regulatory and
other consideration, the transfer of any fixed contract may occur before,
concurrent with, or after the transfer of the companion variable Contract which
is offered through this Prospectus. Accordingly, all references in this
Prospectus to a companion fixed annuity contract shall refer to the fixed
contract issued by MONY or the fixed contract which has been assumed by AUSA, as
appropriate.
AUSA is a wholly-owned subsidiary of First AUSA Life Insurance Company, a
stock life insurance company which is wholly-owned by AEGON. AEGON is a
financial services holding company whose primary emphasis is on life and health
insurance and annuity and investment products. AEGON is a wholly-owned indirect
subsidiary of AEGON nv, a Netherlands corporation which is a publicly traded
international insurance group.
13
<PAGE> 15
CHARGES
CHARGES FOR MORTALITY AND EXPENSE RISKS
The maximum daily charges against Keynote for mortality and expense risks
assumed by MONY are computed and deducted from the value of the net assets of
Keynote. This maximum daily charge will be at the rate of 0.003425% (equivalent
to an annual rate of 1.25%) of the average daily net assets of Keynote. The
daily charge will be deducted from the net asset value of Keynote, and therefore
the Subaccounts, on each Valuation Date. Where the previous day (or days) was
not a Valuation Date, the deduction on the Valuation Date will be 0.003425%
multiplied by the number of days since the last Valuation Date. The sum of these
charges on an annual basis will not exceed 1.25% of the average net assets
invested in Keynote. Of this charge, MONY estimates that .80% is for mortality
risk and .45% is for expense risk. (The daily charge from Keynote based on an
annual mortality and expense risk rate of 1.10%, .70% for mortality risks and
.40% for administrative expense risks, which was effective May 1, 1994, is
0.030139%.)
The mortality risk is that individuals may live for a longer period of time
than projected and therefore a greater amount of annuity benefits than projected
will be payable. The expense risk is that expenses incurred in issuing and
administering the Contract will exceed the administrative expense charge
provided in the Contract. MONY believes that this level of charge is within the
range of industry practice for comparable group variable annuity contracts.
Sales distribution expenses and any other expenses in excess of the
described charges will be paid from MONY's general account and not directly from
Keynote or from the mortality and expense risk charges. However, asset charges
for MONY's assumption of mortality and expense risks might be a source of
contribution to the surplus in MONY's general account.
ANNUAL CONTRACT CHARGE
MONY reserves the right to deduct an annual contract charge from a
Participant's Accumulation Account to reimburse MONY for administrative expenses
relating to the maintenance of the Contracts. MONY has no present intention to
impose such a charge; however, MONY may, in the future, impose such a charge in
accordance with the provisions of the Contracts. Any such annual charge will not
exceed $50. MONY also reserves the right, if such a charge is imposed, to waive,
on a temporary or permanent basis, all or part of such charge for certain
classes of Contracts or for certain new classes of Contracts which may be sold
in the future. If imposed, this charge would represent reimbursement for
administrative costs expected to be incurred over the life of the Contracts.
MONY does not anticipate any profit from this charge.
INVESTMENT MANAGEMENT FEE
Because Keynote purchases interests in certain series of Diversified
Investors Portfolios and the Calvert Series, the net assets of Keynote will
reflect the investment management fee and other expenses incurred by those
series of Diversified Investors Portfolios and the Calvert Series.
Diversified serves as the investment adviser to each series of Diversified
Investors Portfolios. For information with respect to the arrangements under
which Diversified provides such advisory services,including charges and
arrangements with subadvisers, reference is made to the information set forth
under "Management of Diversified Investors Portfolios" at page 43.
Calvert Asset Management Company, Inc. ("CAMCO") (4550 Montgomery Avenue,
Suite 1000N, Bethesda, Maryland 20814) is the investment adviser to the Calvert
Series and provides day-to-day investment management services to the Calvert
Series. It has been managing mutual funds since 1976. CAMCO is the investment
adviser for over 25 mutual funds, including the first and largest family of
socially screened funds. As of December 31, 1998, CAMCO had $6 billion in assets
under management.
CAMCO uses a team approach to its management of the Calvert Series. Reno J.
Martini, Senior Vice President and Chief Investment Officer, heads this team and
oversees the management of all Calvert Funds for CAMCO. Mr. Martini has over 15
years of experience in the investment industry and has been the head of CAMCO's
asset management team since 1985.
14
<PAGE> 16
NCM Capital Management Group, Inc., 103 West Main Street, Durham, North
Carolina 27701, has managed part of the equity investments of the Calvert Series
since 1995. NCM is one of the largest minority-owned investment management firms
in the country and provides products in equity fixed income and balanced
portfolio management. It is also one of the industry leaders in the employment
and training of minority and women investment professionals.
NCM's portfolio management team consists of several members, headed by
Maceo K. Sloan. Mr. Sloan has more than 10 years of experience in the investment
industry, and is a frequent panelist on Wall Street Week with Louis Rukeyser.
Acacia has obtained an exemptive order from the Securities and Exchange
Commission to permit the Calvert Series, pursuant to approval by the Board of
Directors, to enter into and materially amend contracts with subadvisers without
shareholder approval.
PREMIUM TAX
Under the laws of certain jurisdictions, premium taxes are payable on
annuity considerations which can include Purchase Payments or the Accumulation
Account under the Contracts. Any applicable premium taxes will generally be
deducted when the Accumulation Account under a Contract is applied to purchase
an annuity. Under present laws, the range of premium taxes is from .5% to 3.5%.
Attached as an Appendix to this Prospectus is a schedule of applicable premium
taxes payable upon annuitization which are in effect as of the date of this
Prospectus. The laws of the various jurisdictions relating to annuity taxes and
the interpretations of such laws are subject to changes which may affect the
deductions, if any, under the Contracts for such taxes.
15
<PAGE> 17
SUMMARY OF THE CONTRACTS
ELIGIBLE PURCHASERS
State educational organizations and organizations that qualify for
tax-exempt status under Code Section 501(c)(3), including associations thereof
that qualify for tax-exempt status under Code Section 501(c)(3), are eligible
purchasers. In addition, any organization qualifying as an IRA Contractholder
may purchase an IRA Contract. Any type of non-profit organization as well as
taxed subsidiaries of tax-exempt organizations and taxed stand-alone
organizations may purchase a Section 401(a) and/or a Section 401(k) or an NQDC
Contract(s).
OWNERSHIP
The employer or association purchasing a Contract is the owner of the
Contract for the benefit of the Participants. The Contract will cover all
eligible Participants under a Plan. Each Participant will receive a certificate
at the time his/her first annuity payment becomes payable, or earlier, if
required by applicable law. The certificate summarizes the Participant's
benefits under the Contract.
PURCHASE PAYMENTS
With respect to the Section 401(a) Contract, the employer and/or employee
will make contributions pursuant to the underlying retirement Plan. The Section
401(k) and NQDC Contracts will accept employer and/or employee contributions
pursuant to the terms and conditions of the underlying Plan. As to the Section
403(b) Contract, the employer will make Purchase Payments in accordance with a
salary reduction agreement or an agreement to forego a salary increase, except
with respect to employer-sponsored Section 403(b) Plans under which the employer
will make contributions pursuant to the underlying retirement Plan. In the case
of the Section 408 IRA Contract, the employer will make Purchase Payments on
behalf of and as determined by each participating employee pursuant to a salary
reduction agreement. An Accumulation Account will be established for each
Participant which will record the number of Units held in each Subaccount.
Purchase Payments may be allocated among any of the Subaccounts.
All Purchase Payments in Keynote credited to an Accumulation Account are
vested and nonforfeitable. However, Purchase Payments made by employers,
including all such payments made under a Section 401(a) Contract, which are not
the result of a reduction in salary or a give up in salary agreement, under an
employer-sponsored Plan may be forfeitable but are generally subject to the
vesting requirements, where applicable, of the Employee Retirement Income
Security Act of 1974, as amended. In general, all Purchase Payments made to the
NQDC and Section 457 Contracts may be forfeitable even though partially or fully
vested.
EMPLOYER SPONSORED PLAN REQUIREMENTS
Since the Contracts are intended to implement the Plans of state
educational organizations, organizations that qualify for tax-exempt status
under Code Section 501(c)(3), IRA Contractholders and, in the case of Section
401(a) and/or Section 401(k) and NQDC Contracts, for taxed subsidiaries of such
organizations and stand-alone taxed organizations and since such Plans may be
sponsored by employers or associations who may have their own desires regarding
certain Plan details and the manner in which the Plan is to be administered,
there will be some variations in details in the Contract and Plan to reflect
such desires. Reference to the provisions of the Plan in which the individual is
a Participant must be made in all cases for particulars.
RIGHTS OF THE PARTICIPANT UNDER THE CONTRACT
There are no stipulated or required Purchase Payments to be made under the
Contract. Except for the 15 days prior to a Participant's Annuity Purchase Date
(See "Annuity Purchase Date" at page 20) during which no Purchase Payments will
be accepted by MONY, an employer may make Purchase Payments during a
Participant's Accumulation Period in the amount authorized by the Participant.
The Contract permits the Participant to elect his/her Annuity Purchase Date, to
allocate Purchase Payments, to redeem all or a portion of the Units in his/her
Accumulation Account, to designate beneficiaries, and to elect Fixed Annuity
options, except that employer-sponsored Plans may affect these rights.
16
<PAGE> 18
During a Participant's Accumulation Period, one's rights and those of the
Contractholder or IRA Contractholder shall be as set forth in the Contract and
Plan. On and after the Annuity Purchase Date, or on the Participant's death, if
earlier, all rights, as specified in the Contract and Plan, shall belong to the
Participant or beneficiary as the case may be.
RIGHTS UPON SUSPENSION OF CONTRACT OR TERMINATION OF PLAN
403(b) Contract
In the event that the making or receipt of all Purchase Payments under
certain 403(b) Contracts is discontinued or a Contractholder terminates its Plan
or discontinues Purchase Payments for a Participant, MONY shall give written
notice thereof to the appropriate Participant(s) together with notice of the
right of the Participant to elect to have the value of his/her Accumulation
Account applied under one of the following options: (1) to be held and
distributed by MONY in accordance with the terms of the Contract, (2) to be paid
to him/her in cash, or (3) in the event of suspension of the Contract or
termination of the Plan, to be transferred to an alternate funding agency (e.g.,
another insurance company). Certain other 403(b) Contracts require the
Contractholder, not MONY, to give written notice thereof to Participants.
401(a) Contract/401(k) Contract and NQDC Contracts
If the Contractholder terminates its Plan or discontinues Purchase
Payments, it is the Contractholder's responsibility, and not MONY's, to give
written notice thereof to the affected Participants. In such cases, the
Contractholder shall elect to have the entire balance held under the Contract
applied under one of the following options: (1) to be held and distributed by
MONY in accordance with the terms of the Contract; (2) to be transferred to an
alternate funding agency (e.g., another insurance company); or (3) to purchase
deferred, paid-up life annuity benefits for Participants.
457 and 408(IRA) Contracts
If the Contractholder or IRA Contractholder terminates its Plan or
discontinues Purchase Payments for a Participant, MONY shall give written notice
thereof to the appropriate Participant(s) together with notice of the right of
the Participant to elect to have the value of his/her Accumulation Account
applied under either of the following options: (1) to be held and distributed by
MONY in accordance with the terms of the Contract or (2) to be paid to him/her
in cash, except that, under the terms of certain 457 Contracts, the
Contractholder, not AUSA, shall give notice to affected Participants.
FAILURE OF QUALIFICATION
In the event that a Plan, Contractholder or IRA Contractholder or a
Participant thereunder becomes ineligible for any previously applicable tax
benefits under the Code, MONY upon notice thereof shall refuse during the period
of such ineligibility to accept Purchase Payments with respect to that Plan or
Participant. A failure of qualification under a particular Contract shall have
no effect on other issued and outstanding Contracts.
TRANSFERS
No transfers may be made between any of the Contracts; however, the
following transfers are permissible with respect to each Contract.
401(a), 401(k), 403(b), 457, 408(IRA) and NQDC Contracts
A Participant may transfer all or a portion of his/her Accumulation Account
in Keynote among the various Subaccounts. No transfer charges are imposed, and
there is no limit to the number of transfers permitted. While MONY has no
present intention to do so, MONY reserves the right to impose transfer charges
at a later date.
Transfers from the MONY Section 403(b), Section 401(a), Section 401(k) and
NQDC Group Fixed Annuity Contracts to a Participant's Accumulation Account under
the Keynote Contracts are permitted only to the Subaccounts which invest in the
Balanced Series, Equity Income Series, Equity Growth Series or Calvert Series.
Certain other restrictions which apply to transfers from the MONY Section
403(b), Section 401(a), Section 401(k) and NQDC Group Fixed Annuity and 408(IRA)
Contracts
17
<PAGE> 19
to the Keynote Contracts are contained in the MONY Section 403(b), Section
401(a), Section 401(k) and NQDC Group Fixed Annuity and Section 408(IRA)
Contracts.
Transfers may be made in writing or by telephoning (914) 697-8000.
Transfers are effective within 48 hours of receipt of instructions. All
Participants should be aware that a transfer authorized by telephone and
reasonably believed to be genuine by MONY may subject the Participant to risk of
loss if such instruction is subsequently found not to be genuine. MONY will
employ reasonable procedures, including requiring Participants to give certain
identification information and tape recording of telephone instructions, to
confirm that instructions communicated by telephone are genuine. To the extent
that MONY fails to use reasonable procedures to verify the genuineness of
telephone instructions, MONY may be liable for any losses due to telephone
instructions that prove to be fraudulent or unauthorized.
RIGHTS RESERVED BY MONY
Subject to compliance with applicable laws and, when required by law,
approval of the Contractholders, IRA Contractholders, NQDC Contractholders
and/or Participants and any appropriate regulatory authority, MONY reserves the
right to make the following changes:
(1) To operate Keynote in any form permitted under the 1940 Act or in any
other form permitted by law;
(2) To take any action necessary to comply with or obtain and continue any
exemptions from the 1940 Act;
(3) To transfer any assets in a Subaccount of Keynote to another Subaccount
of Keynote, or to one or more separate accounts, or to MONY's general
account to the extent permitted by law or to add, combine or remove
Subaccounts in a separate account;
(4) To substitute, for the interests in a series of Diversified Investors
Portfolios or the Calvert Series held in any Subaccount, interests in
another series of Diversified Investors Portfolios or interests in
another investment company or any other investment permitted by law;
and
(5) To make any necessary technical changes in the Contracts in order to
conform with any of the above-described actions or as may be required
or permitted by applicable laws affecting Keynote or the Contracts.
CREDIT OF PURCHASE PAYMENTS
A Participant's initial Purchase Payment will be credited to the
Participant's Accumulation Account to provide Units as of a Valuation Date for
the Valuation Period, not later than (1) two business days after receipt of the
Purchase Payment by MONY at 4 Manhattanville Road, Purchase, New York 10577, if
the contract application and/or Participant's enrollment form is complete upon
receipt, or (2) two business days after an application and/or enrollment form
which is incomplete upon receipt by MONY is made complete, provided that if such
information is not made complete within five business days after receipt, (i)
the prospective Participant will be informed of the reasons for the delay, and
(ii) the initial Purchase Payment will be returned immediately and in full,
unless the prospective Participant specifically consents to MONY retaining the
Purchase Payment until such information is made complete.
Subsequent Purchase Payments will be credited to the Participant's
Accumulation Account to provide Units as of the Valuation Date for the Valuation
Period in which the Purchase Payment is received in good order by MONY.
ALLOCATION OF PURCHASE PAYMENTS
Upon receipt of a Purchase Payment, it will be credited to the Subaccount
designated by the Participant in the form of Units. The number of Units to be
credited is determined by dividing the dollar amount allocated to the particular
Subaccount(s) by the Unit value of that Subaccount for the Valuation Date for
the Valuation Period on which the Purchase Payment is received. The number of
Units shall not be changed by any subsequent change in the value of a Unit, but
the dollar allocation
18
<PAGE> 20
value of a Unit will vary in amount depending upon the investment experience of
the applicable Subaccount.
Allocation instructions may be changed at any time by sending to MONY a
correctly completed allocation form. Any change in allocations will be effective
within 10 business days following receipt of the allocation form by MONY. If an
allocation form is incorrectly completed, Purchase Payments will be credited in
accordance with the most recent allocation form on record. MONY reserves the
right to limit a Participant's right to change allocation instructions to four
times a calendar year.
DETERMINATION OF UNIT VALUE
The Unit value for each of the Subaccounts was established at $10 for the
first Valuation Date. The Unit value for a Subaccount for any subsequent
Valuation Date is determined by subtracting (b) from (a) and dividing the result
by (c), where
(a) is the aggregate net asset value on the Valuation Date of all
investments by the Subaccount in the series of Diversified Investors
Portfolios or the Calvert Series in which the Subaccount invests, and
(b) is the mortality and expense risk charge accrued as of that Valuation
Date, and
(c) is the total number of Units held in the Subaccount on the Valuation
Date before the purchase or redemption of any Units on that Date.
DEATH BENEFIT
Under a Section 403(b), Section 457 and Section 408(IRA) Contract, if a
Participant dies before the Annuity Purchase Date (See "Annuity Purchase Date"
on page 20), the value of his/her Accumulation Account will be paid to the
beneficiary in a lump sum. If the beneficiary is under the age of 75 at the time
of the Participant's death, the beneficiary may elect to have this lump sum
applied to provide a Fixed Annuity. A lump sum payment to some extent may be
taxed as ordinary income to the beneficiary in the year received. A beneficiary
should consider the possible tax advantages to electing an annuity. (See
"Section 403(b) Annuities" on page 24). Under a Section 401(a) and/or Section
401(k) Contract, however, the underlying tax-qualified Plan is generally
required to provide that in the case of a married Participant, a survivorship
annuity death benefit will be paid to the surviving spouse if the Participant
dies prior to retirement. In each case involving a Section 401(a) and/or Section
401(k) Contract, reference must be made to the underlying Plan for particulars.
If the Participant dies before the Annuity Purchase Date, his/her entire
interest must generally be distributed within five (5) years after the date of
death, or if payable to a designated beneficiary must be annuitized over the
life of that designated beneficiary or over a period not extending beyond the
life expectancy of that beneficiary, within one year after the date of death. If
the beneficiary is the Participant's spouse, distributions are not required to
be made until the April 1st after the end of the calendar year in which the
Participant would have attained age 70 1/2; if the spouse dies before
distributions begin, the rules discussed above will apply as if the spouse were
the Participant (owner).
If a lump sum payment is elected, the Accumulation Account value will be
determined on the Valuation Date for the Valuation Period in which a certified
copy of the death certificate evidencing the Participant's death is received by
MONY. If a Fixed Annuity is elected, the Accumulation Account value will be
determined on the Valuation Date for the Valuation Period of the beneficiary's
Annuity Purchase Date. For Section 401(a) and/or Section 401(k) and NQDC
Contracts, the underlying Plan should be consulted to determine the options
available.
For NQDC Contracts, the remaining value will be paid to a designated
beneficiary. If no such beneficiary is so designated or in existence, the
remaining value will be paid in the following order: Participant's (1) spouse,
(2) children, (3) parents, (4) siblings and (5) estate.
For all Contracts except NQDC Contracts, the death benefit is guaranteed to
be not less than the total amount of all contributions, less any withdrawals,
made by the Participant.
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REDEMPTION DURING THE ACCUMULATION PERIOD
For Section 403(b), Section 457 and Section 408(IRA) Contracts and subject
to applicable federal tax law restrictions, a Participant at any time during
his/her Accumulation Period and prior to his/her death may redeem all or a
portion of the Units credited to the Accumulation Account. There is no
redemption charge. (See "Federal Tax Status" on page 24.)
The Accumulation Account value redeemed or the Units remaining after a
partial redemption will be determined on the Valuation Date for the Valuation
Period in which a written request for a redemption on a form approved by MONY is
received by MONY. The Accumulation Account will be reduced by the lesser of the
number of Units obtained by dividing the amount of the redemption request by the
Unit value for that day or the number of Units remaining in the Accumulation
Account.
A full or partial redemption payment will be made within seven days after
receipt of the written request. A request for a partial redemption must specify
the Subaccount(s) from which the partial withdrawal is to be made. Payment may
be postponed as permitted by the 1940 Act. Currently, deferment is permissible
only when the New York Stock Exchange is closed or trading is restricted, when
an emergency exists as a result of which disposal of the interests in
Diversified Investors Portfolios or Calvert Series held by Keynote is not
reasonably practicable or it is not reasonably practicable to determine fairly
the value of these assets, or when the SEC has provided for such deferment for
the protection of Participants.
A withdrawal will generally have federal income tax consequences which may
include penalties. (See "Federal Tax Status" on page 24.)
With respect to Section 401(a) and Section 401(k) or NQDC Contracts, the
ability to withdraw funds during the Accumulation Period is generally more
limited; however, in each instance the underlying Plan document should be
consulted to determine what options, if any, are available.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
The Teacher Retirement System of Texas permits Participants in the Texas
Optional Retirement Program ("ORP") to redeem their interest in a variable
annuity contract issued under the ORP only upon termination of employment in the
Texas public institutions of higher education, retirement or death. Accordingly,
a Participant in the ORP will be required to obtain a certificate of termination
from his/her employer before he/she can redeem his/her Accumulation Account.
PAYMENT OPTIONS
With respect to Section 403(b), Section 457 and Section 408(IRA) Contracts,
unless a Fixed Annuity as described at page 21 is elected, payment to the
Participant shall be made at the end of his/her Accumulation Period in a lump
sum calculated in the same manner as if a total withdrawal request of one's
Accumulation Account had been received by MONY on his/her Annuity Purchase Date.
(See above for, "Redemption During the Accumulation Period".) However, Section
401(a) and Section 401(k) and NQDC Contracts provide the funding for the Plans
and reference to the particular Plan must be made in each case for details. For
example, tax-qualified Plans must generally provide by law that in the case of a
married Participant who does not properly elect otherwise, retirement annuity
benefits will be paid in the form of a contingent annuity with a survivorship
annuity benefit for his surviving spouse at least equal to 50% of the amount
which would have been payable if the Participant were living. For NQDC
Contracts, the employer may also provide for installment payments without the
purchase of an annuity.
ANNUITY PURCHASE DATE
The Annuity Purchase Date is the first day of the month coincident with or
following the receipt by MONY of written notice, submitted through the
Participant's employer, of the Participant's retirement (i.e., the termination
of employment with his/her employer). Subject to the terms of the Plan, a
Participant may elect to retire at any time and receive annuity benefits. As a
general rule, benefits must begin no later than April 1 of the calendar year
following the year in which the Participant attains age 70 at which time an
election to receive an annuity or lump sum benefit must be made.
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<PAGE> 22
In the case of a beneficiary who elects a Fixed Annuity, the Annuity
Purchase Date will be the first day of the month following receipt by MONY of
the election of a Fixed Annuity; however, if any election is received during the
last 15 days of a month, the Annuity Purchase Date will be the first day of the
second month after receipt of the election.
For Section 408(IRA) Contracts, the Annuity Purchase Date is the date the
annuity first begins under the terms of the IRA Contract.
FIXED ANNUITY
Fixed Annuity payments are not made from Keynote but are made from the
general account of MONY which supports insurance and annuity obligations.
Because of exemptive and exclusionary provisions, Fixed Annuity payments and
interests in the general account have not been registered under the Securities
Act of 1933, nor is the general account registered as an investment company
under the 1940 Act. Accordingly, neither the general account nor any interests
therein are generally subject to the provisions of the 1933 or 1940 Acts. The
SEC staff has not reviewed the disclosures in this Prospectus that relate to the
Fixed Annuity payments and interests in the general account. Disclosures
regarding Fixed Annuity payments and the general account in this Prospectus,
however, may be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses.
A Fixed Annuity may not be elected if the initial monthly payment under the
form elected would be less than $20. Fixed Annuity payments will be made monthly
unless the annuitant elects to receive payments annually, semi-annually or
quarterly. Any such election must be made at the same time that the annuitant
elects to receive a Fixed Annuity and cannot be changed during the annuity
period. Once a Fixed Annuity takes effect, it may not be redeemed, surrendered
or changed to any other form of annuity.
FIXED ANNUITY OPTIONS
The following Fixed Annuity options may be available:
(i) Life Annuity -- Annuity payments will be made during the lifetime of
the annuitant. It would be possible for the annuitant to receive no
annuity payment if he/she died prior to the date of the first annuity
payment.
(ii) Life Annuity With Period Certain -- Annuity payments will be made
during the lifetime of the annuitant with the guarantee that if the
annuitant dies before a period certain elected, the beneficiary will
receive payments for the duration of the period. The period certain
may be any number of years between 5 and 20 inclusive.
(iii) Specified Fixed Period Annuity -- Annuity payments will be made for a
specified fixed period elected by the annuitant. If the annuitant
dies during the specified fixed period, the annuity payments for the
remainder of the period will be paid to the beneficiary. No annuity
payments are made after the expiration of the specified fixed period
even if the annuitant survives. The specified fixed period may be for
any number of years between 10 and 30 years inclusive.
(iv) Contingent Annuity -- Annuity payments will be made during the joint
lifetimes of the annuitant and a designated second person ("contingent
annuitant") with payments continued during the remaining lifetime of
the contingent annuitant. Annuity payments to the contingent annuitant
may be made in the same amount paid while both annuitants lived or a
lesser percentage of this amount. For Section 401(a) and/or Section
401(k) Contracts, in the absence of a proper election by the
Participant, a contingent annuity with a survivorship annuity benefit
for the surviving spouse at least equal to 50% of the amount which
would have been payable if the Participant were living will be the
normal form of benefit.
If the contingent annuitant dies before the first annuity payment to
the annuitant, the contingent annuity election will be void and the
annuitant will receive a Life Annuity. If the contingent annuitant dies
after the first annuity payment to the annuitant, but before the death
of the annuitant, annuity payments under the Contingent Annuity
election will be
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made to the annuitant during his/her lifetime. If the annuitant and the
contingent annuitant die before the date of the first annuity payment,
no annuity payments will be made.
(v) Contingent Annuity With Period Certain -- Annuity payments will be
made during the joint lifetimes of the annuitant and a designated
second person ("contingent annuitant"). Annuity payments to the
contingent annuitant may be in the same amount as paid to the
annuitant or a lessor percentage of that amount and will be made for a
period certain of any number of years between 5 and 20 years
inclusive.
The Life Annuity With Period Certain and the Specified Fixed Period Annuity
may only be elected for a number of years that will not exceed an annuitant's
life expectancy. The annuity benefit option elected by the Participant will
affect the level of annuity payments the Participant will receive. The longer
annuity payments are projected to continue based upon actuarial possibilities,
the lower annuity payments will be.
The annuity purchase rates for these Fixed Annuity benefits shall not
exceed, during the first 10 years of the Contracts, the maximum rates set forth
in the Contracts. Thereafter, the annuity purchase rate will be the rate
declared by MONY for all Fixed Annuity benefits purchased under the applicable
Contract in the same Contract Year in which the Annuity Purchase Date occurs.
The guaranteed level of Fixed Annuity payments will be determined based upon (i)
a Participant's Accumulation Account value on the Annuity Purchase Date, (ii)
the applicable annuity purchase rate on the Annuity Purchase Date which will
reflect the age of the Participant and (iii) the type of Fixed Annuity option
elected.
PAYMENTS TO A BENEFICIARY FOLLOWING THE ANNUITANT'S DEATH
If any annuity payment is payable to the beneficiary after the death of an
annuitant on or after his/her Annuity Purchase Date but during a period certain,
it shall be payable as each payment becomes due to the beneficiary. If the
benefit is payable to more than one beneficiary, it shall be paid in equal
shares to such beneficiaries, the survivors or survivor, unless the annuitant
has elected otherwise. Upon the death of the last surviving beneficiary, MONY
shall pay the commuted value of any remaining payments in a lump sum cash
payment to the estate of such last surviving beneficiary in lieu of any further
income payments.
The annuitant's beneficiary may direct in writing to MONY that any income
payable after the death of the annuitant or contingent annuitant be terminated
and a single commuted value be paid to the beneficiary. The commuted values
referred to above shall be based upon the value of the payments for the balance
of the period certain determined as of the date MONY receives written notice of
the beneficiary's election to receive the commuted value on the basis of the
interest rate (compounded annually) inherent in the annuity purchase rate
applied to provide the annuitant's Fixed Annuity.
VOTING RIGHTS
The assets held in the Subaccounts of Keynote will be invested in the
corresponding series of Diversified Investors Portfolios or the Calvert Series.
MONY is the legal holder of these interests and shares held in a Subaccount and
as such has the right to vote to elect the governing Boards of Diversified
Investors Portfolios and the Fund, to vote upon certain matters that are
required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund, and to vote upon any other matter that may be voted upon at a
shareholders' meeting. To the extent required by law, MONY will vote at regular
and special shareholder meetings in accordance with the instructions received
from Contractholders, IRA Contractholders and NQDC Contractholders. The record
date for any such vote shall be selected by the governing Boards of Diversified
Investors Portfolios or the Calvert Series. MONY will furnish Contractholders,
IRA Contractholders and NQDC Contractholders with the proper forms to enable
them to give it these instructions.
Each Contractholder, IRA Contractholder and NQDC Contractholder will have
the equivalent of one vote per $100 of the dollar value of the Accumulation
Accounts in a Contract held in each Subaccount of Keynote, with fractional votes
for amounts less than $100. These votes, represented as votes per $100 of
Accumulation Account value in each Subaccount of Keynote, are converted into a
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<PAGE> 24
proportionate number of votes in beneficial interests in a series of Diversified
Investors Portfolios or shares of the Calvert Series. Interests held in each
Subaccount for which no timely instructions from Contractholders, IRA
Contractholders or NQDC Contractholders are received will be voted by MONY in
the same proportion as those interests in that Subaccount for which instructions
are received. Should applicable federal securities laws or regulations permit,
MONY may elect to vote in its own right.
A Participant will have the right to instruct the Contractholder, IRA
Contractholder or NQDC Contractholder with respect to interests in the series of
Diversified Investors Portfolios or the Calvert Series attributable to his/her
portion of the Accumulation Account held in each Subaccount of Keynote. Each
Participant under the Contract shall receive a statement of the amount
attributable to his/her participation in each Subaccount of Keynote and stating
his/her right to instruct the Contractholder as to how to vote such interest.
MONY will provide voting instruction materials to the Contractholder, IRA
Contractholder or NQDC Contractholder and to the Participants.
The Contractholder, IRA Contractholder and NQDC Contractholder shall
provide voting instructions to MONY with respect to interests attributable to
the Accumulation Account values held in a Subaccount in accordance with
instructions received by Participants. For interests for which no timely
instructions from Participants are received, the Contractholder, IRA
Contractholder or NQDC Contractholder will instruct MONY to vote these interests
in the same proportion as those shares for which instructions from Participants
are received.
Matters on which the Contractholder, IRA Contractholder or NQDC
Contractholder may give voting instructions include the following: (1) election
of the governing Boards Diversified Investors Portfolios or the Fund; (2)
ratification of the independent accountant of Diversified Investors Portfolios
or the Calvert Series; (3) approval of any change in the Investment Advisory
Agreement or any Subadvisory Agreement for a series of Diversified Investors
Portfolios or the Calvert Series corresponding to the Contractholder's, IRA
Contractholder's or NQDC Contractholder's selected Subaccount(s); (4) any change
in the fundamental investment policies of a series of Diversified Investors
Portfolios or the Calvert Series corresponding to the Contractholder's, IRA
Contractholder's or NQDC Contractholder's selected Subaccount(s); and (5) any
other matter requiring a vote of the shareholders of Diversified Investors
Portfolios or the Calvert Series. With respect to approval of the Investment
Advisory Agreements or Subadvisory Agreements or any change in a fundamental
investment policy, Contractholders, IRA Contractholders and NQDC Contractholders
participating in that Subaccount will vote separately on the matter pursuant to
the requirements of Rule 18f-2 under the 1940 Act.
MONY may, if required by state insurance officials, disregard voting
instructions if those instructions would require voting to cause a change in the
subclassification or investment objectives or policies of one or more of the
series of Diversified Investors Portfolios or the Calvert Series, or to approve
or disapprove an investment adviser or principal underwriter for one or more
series of Diversified Investors Portfolios or the Calvert Series. In addition,
MONY may disregard voting instructions that would require changes in the
investment objectives or policies of any series of Diversified Investors
Portfolios or the Calvert Series or in an investment adviser or principal
underwriter for Diversified Investors Portfolios or the Calvert Series, if MONY
reasonably disapproves those changes in accordance with applicable federal
regulations. If MONY disregards voting instructions, it will advise
Contractholders, IRA Contractholders, NQDC Contractholders and Participants of
that action and its reasons for the action in the next semiannual report to
Contractholders, IRA Contractholders, NQDC Contractholders and Participants.
DISTRIBUTION OF THE CONTRACTS
MSC will act as the principal underwriter and the distributor of the
Contracts pursuant to an underwriting agreement, on behalf of Keynote, with
Diversified Investors Portfolios and the Calvert Series. MSC will perform all
sales, marketing and administrative functions relative to the Contracts which
participate in Keynote, with certain exceptions in connection with the use of
other authorized broker-dealers. MSC is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers. The Contracts are sold by individuals who are registered
representatives of MSC and who are also licensed as insurance agents for the
Company.
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The Contracts may also be sold through registered representatives of other
broker-dealers authorized by MSC and applicable law who may be insurance agents
licensed by an insurance company other than MONY. Commissions and other expenses
directly related to the sale of the Contracts will not exceed 8 percent of
Purchase Payments. Additional expense allowance may be paid for other services
not directly related to the sale of the Contracts. Such services include the
training of personnel and the production of promotional literature.
FEDERAL TAX STATUS
The ultimate effect of federal income taxes on Fixed Annuity payments and
on the economic benefit to the Participant, annuitant, payee and beneficiary
depends on the tax and employment status of the individual concerned.
The discussion which follows on the treatment of MONY and of the Contracts
under federal income tax law is general in nature, is based upon MONY's
understanding of current federal income tax laws, and is not intended as tax
advice. No representation is made regarding the likelihood of continuation of
the present federal income tax law or of the current interpretations by the
Internal Revenue Service. No attempt is made to consider any applicable state or
other tax laws. Each Contractholder, IRA Contractholder, NQDC Contractholders
and Participant contemplating investment in the Contracts should consult a
qualified tax adviser.
Participants receiving large distributions (generally those in excess of
$150,000 (as indexed) per year; or lump sum distributions in excess of $750,000
(as indexed)) from qualified retirement Plans, including those funded through
Section 401(a), Section 408(IRA) and Section 403(b) Contracts, may be subject to
a 15% excise tax on their distributions in excess of a specified amount. The
Small Business Job Protection Act of 1996 suspended the imposition of the excess
distribution excise tax in 1997, 1998 and 1999. Finally, the Taxpayer Relief Act
of 1997 has repealed the excise tax (and a related estate tax on excess
retirement accumulations) for all subsequent years.
TAX TREATMENT OF MONY
MONY is taxed as a life insurance company under Part I, Subchapter L of the
Code. Investment income from the assets of Keynote are reinvested and taken into
account in determining the value of Keynote. Under existing federal income tax
law, the investment income of Keynote, including realized capital gains, is
substantially not taxed to MONY.
TAXATION OF DIVERSIFIED INVESTORS PORTFOLIOS
Diversified Investors Portfolios is organized as a New York trust. None of
its series are subject to any income or franchise tax in the State of New York.
Each of its series, since it is taxed as a partnership, is not subject to
federal income taxation. MONY, as an investor in a series of Diversified
Investors Portfolios, will be taxable on its share (as determined in accordance
with the governing instruments of Diversified Investors Portfolios) of such
series' ordinary income and capital gain in determining its income tax
liability. The determination of such share will be made in accordance with the
Code and regulations promulgated thereunder. See "Tax Treatment of MONY" above.
SECTION 403(B) ANNUITIES
Purchase Payments made under a Contract meeting the requirements of Section
403(b) of the Code afford certain federal income tax benefits to employees of
state educational organizations, and organizations which are tax-exempt under
Section 501(c)(3) of the Code.
The employer may make contributions to the Contract or the employer may
agree with the Participant that in return for employer contributions to the
Contract, the Participant will take a reduction in salary or give up a salary
increase. The agreement may not be changed with respect to earnings of the
Participant while the agreement is in effect. The Participant can only make one
agreement with his/her employer during the year, but the Participant may
terminate the agreement at any time with respect to amounts not yet earned. No
federal income tax is payable by the Participant on increases in the value of
his/her Accumulation Account until payments are received by the Participant.
Purchase Payments meeting the requirements of Sections 402(g), 403(b) and
415 of the Code are not includable in the gross income of the Participant at the
time they are made. Under Sec-
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<PAGE> 26
tion 402(g) of the Code, Purchase Payments made under a reduction in salary or a
give up in salary increase agreement ("elective deferrals") are excluded from a
Participant's gross income to the extent of the lesser of $10,500 (as indexed)
or the Participant's exclusion allowance. The $10,500 (as indexed) limit will be
reduced on a dollar for dollar basis by employee pre-tax elective deferrals made
by that individual under a Section 401(k) Plan, a simplified employee pension
plan, or other tax deferred annuity. Under Section 403(b) of the Code, Purchase
Payments made under a reduction in salary or a give up in salary agreement
and/or contributed by the employer are excluded from a Participant's gross
income to the extent of the applicable "exclusion allowance". The "exclusion
allowance" is equal to 20% of a Participant's includable compensation (taxable
earnings) for the tax year, multiplied by the number of years of employment,
reduced by the total of Purchase Payments made in prior tax years.
When Fixed Annuity payments commence, or if the Participant obtains a
partial or full redemption of the Units credited to his/her Accumulation Account
under the Contract, the amount received will be includable as ordinary income in
the year received, except that such portion of any amount received as is deemed
to represent a return of Purchase Payments originally included as gross income
made by the Participant will not be taxed. Full redemptions do not qualify for
special capital gains treatment nor 5-year income averaging applicable to
qualified plan lump sum distributions. However if a Participant makes a full
redemption after attaining age 59 1/2 or on account of a separation from
service, he/she may delay including the distribution in income by making a
rollover transfer, subject to requirements set by the Code, to an Individual
Retirement Account or another Section 403(b) annuity. A partial redemption of at
least 50% of the balance to the credit of a Participant on account of a
separation from service may be rolled over to an Individual Retirement Account,
subject to requirements set by the Code.
If the Participant receives any amount under the Contract, the Participant
must pay an additional tax of 10% of the amount of the distribution includable
in gross income for the taxable year. This additional tax shall not apply to
distributions which are (1) made after the date on which the Participant attains
age 59 1/2, (2) made to a beneficiary on or after the death of the Participant,
(3) attributable to the Participant's becoming permanently disabled, (4) made
after separation from service in a series of substantially equal periodic
payments made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his beneficiary, (5)
made to a Participant after separation of service after attainment of age 55,
(6) made to a Participant for medical care (not to exceed the amount deductible
by the employee), or (7) paid to alternate payees under a qualified domestic
relations order.
Restrictions on Withdrawals of Elective Contributions. Effective January
1, 1989 and thereafter, any funds in the Participant's account balance other
than funds attributable to assets held at the close of the last year beginning
before January 1, 1989 will be restricted from withdrawal except upon attainment
of age 59 1/2, separation from service, death, disability or hardship (hardship
withdrawals are to be limited to the amount of the Participant's own
contributions exclusive of earnings). However, any funds in the Participant's
account balance attributable to employer contributions, if any, and the earnings
thereon will not be restricted unless specifically provided for by the
employer's plan.
In tax years beginning after 1988, Section 403(b) Plans (other than church
plans) will be subject to nondiscrimination and coverage requirements, as well
as special rules with respect to minimum distributions.
SECTION 401(A) PLANS
An employer maintaining a pension or profit sharing Plan which satisfies
the requirements of Section 401(a) of the Code may make contributions to the
Contract which are generally currently deductible by the employer and are not
currently taxed to the Participants. The Code prescribes various limitations on
the maximum amount which may be contributed on behalf of any Participant.
Generally, annual contributions on behalf of a Participant may not exceed the
lesser of $30,000 (as indexed) or 25% of such Participant's compensation. In the
case of a 401(k) plan, the annual deferral limit for the Participant's elective
contributions is $10,500 (as indexed). In addition, Participants may make
after-tax contributions to the Contract if their Section 401(a) Plan permits.
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When Fixed Annuity payments commence, or if the Participant obtains a
partial redemption of the units credited to his/her Accumulation Account under
the Contract, the amount received will be includable as ordinary income in the
year received, except that such portion of any amount received as is deemed to
represent a return of Participant after-tax Purchase Payments will not be taxed.
Full redemptions may qualify for special capital gains treatment or 5-year or
10-year income averaging if the payment constitutes a "lump sum distribution,"
as that term is defined in the Code and if certain conditions are met.
The special five-year forward averaging is available to a recipient of a
lump-sum distribution, received in a taxable year beginning before January 1,
2000, from a qualified retirement plan only if all these conditions are
satisfied: (1) The distribution is received on or after the employee has reached
age 59 1/2 (except for recipients making the ten-year forward averaging election
for employees who reached age 50 before 1986); (2) the recipient elects special
five-year forward averaging for the taxable year for all lump-sum distributions
received during that taxable year; and (3) no lump-sum distribution from the
same plan was rolled over tax-free into an IRA or another qualified plan.
The rules governing rollovers of distributions from a Section 401(a) Plan
are parallel to those dealing with distributions from Section 403(b) annuities.
(If the Participant receives a direct distribution from the plan, automatic
withholding of 20% will be made on the distribution -- even though it is
rendered not currently taxable by the Participant's subsequent rollover or
transfer of the gross amount to an IRA or another employer's plan.
Alternatively, the Participant may avoid the automatic 20% withholding by
directing the plan to transfer the amount involved directly to the IRA or
another employer's qualified plan. See "Income Tax Withholding" below.) In
addition, the 10% penalty on premature distributions from Section 403(b)
annuities is also applicable to Section 401(a) Plan distributions.
SECTION 408 (IRA) CONTRACTS
An individual, participating under a Contract which satisfies the
requirements of Section 408 of the Code, may make contributions to the Contract.
The Code prescribes various limitations on the maximum amounts which may be
contributed by or on behalf of the Participant and on the deductibility of the
contributions for federal income tax purposes. No federal income tax is payable
by the Participant on increases in the value of his/her Accumulation Account
until payments are received by the Participant.
When Fixed Annuity payments commence, or if the Participant obtains a
partial redemption of the units credited to his/her Accumulation Account under
the Contract, the amount received will be includable as ordinary income in the
year received, except that such portion of any amount received which is deemed
to represent a return of Participant nondeductible Purchase Payments will not be
taxed. Full or partial redemptions do not qualify for special capital gains
treatment nor 10-year income averaging applicable to certain qualified plan
distributions.
If the Participant receives any amount under the Contract prior to
attainment of age 59 1/2, the Participant must pay an additional excise tax of
10% of the amount of the distribution includable in gross income for the taxable
year. The additional tax shall not apply to distributions which are (1) made to
a beneficiary on or after the death of the Participant, (2) attributable to the
Participant's becoming permanently disabled, (3) made in a series of
substantially equal periodic payments made for the life (or life expectancy) of
the Participant or the joint lives (or joint life expectancies) of the
Participant and his/her beneficiary, (4) made for certain allowable medical care
expenses, (5) made for certain "qualified higher education expenses" or (6) made
as "qualified first time homebuyer distributions" (not to exceed $10,000 in the
aggregate). Any full or partial redemption will not be includable in ordinary
income if the Participant rolls over the distribution within 60 days to another
IRA.
MINIMUM DISTRIBUTION REQUIREMENTS
If the actual distributions from a qualified retirement plan, eligible
state or local government deferred compensation plan or an IRA are less than the
minimum required to be distributed commencing by April 1 in the calendar year
following the year the Participant attains age 70 1/2 (or, in the case of a
plan, the year of the Participant's retirement if still employed with the plan
sponsor at that
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age.) (see "Annuity Purchase Date" on page 20), the difference is considered to
be an excess accumulation and the IRS may impose a 50% excise tax on this excess
amount.
SECTION 457 PLANS
Section 457 of the Code allows employees of or independent contractors who
furnish services to a state or local government to establish an eligible
deferred compensation plan allowing the deferral of certain limited amounts of
compensation by way of salary reduction. Generally, the annual deferral limit is
the lesser of $8,000 (as indexed) or 33 1/3% of the Participant's includable
compensation. There is a "catch-up" provision which may permit a Participant to
defer a greater amount prior to retirement. State and local government includes
a state, a political subdivision of a state, any agency or instrumentality of
either of them, a tax-exempt rural electric cooperative or its tax-exempt
affiliates. Contributions are based on a special definition of compensation and
include any amounts contributed to a Section 403(b) tax sheltered annuity for
determining the contribution limits. All amounts deferred and property bought
with those amounts or income earned on those amounts remain the property of the
employer and are subject to the claims of its general creditors. However, under
the Small Business Job Protection Act of 1996 the assets of new eligible plans
of state and local governments must be held in trust for the "exclusive benefit"
of the Participant's (and their beneficiaries). Eligible plans existing before
the enactment of this law must comply with the trust and "exclusive benefit"
requirement by January 1, 1999. Distributions from a Section 457 plan are
subject to Section 401(a)(9) of the Code in addition to the rules applicable
under Section 457 of the Code and must begin no later than the April 1st of the
calendar year following the year in which the participant attains age 70 1/2
(or, if later, the year in which he retires).
NON-QUALIFIED DEFERRED COMPENSATION CONTRACTS
Taxed employers may establish a non-qualified deferred compensation
arrangement funded by non-qualified deferred compensation contracts allowing the
deferral of compensation through salary reduction. Such plans include, but are
not limited to, excess benefit plans, plans maintained by an employer primarily
for a select group of management or highly compensated employees, as well as
rabbi and secular trusts. Taxed employers for these non-qualified deferred
compensation plans include corporations, partnerships, S corporations and any of
their affiliates or subsidiaries. Contributions are determined on the plan's
definition of compensation. All amounts deferred by employees and any income
earned thereon remain the property of the employer and are subject to the claims
of its general creditors. In-service withdrawals from non-qualified deferred
compensation plans may be permitted for reasons of hardship under certain
conditions as specified in the plans. Distributions from these plans are
permitted when the Participant terminates employment, becomes permanently
disabled, retires, dies or as otherwise specified in the plan. As a general
rule, the Participant is subject to taxation upon receipt of the funds, and
there is usually no tax consequences to the employer, i.e., no deduction is
available for an employee's salary reduction agreement until paid out.
Such non-qualified deferred compensation arrangements for taxable employers
may be funded by either a Keynote Contract alone or by a Keynote Contract in
combination with a Fixed Annuity Contract.
INCOME TAX WITHHOLDING
Unless the Participant or payee elects to have no withholding, the taxable
portion of distributions under a Contract will be subject to income tax
withholding under federal and certain state laws. MONY will notify recipients of
taxable distributions under a Contract of their right to elect not to have
withholding apply.
For NQDC Contracts, Form W-2 withholding by the employer may be required.
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Effective January 1, 1992, distributions from qualified retirement plans
and Section 403(b) Contracts, other than individual retirement arrangements
("IRAs"), generally will be subject to mandatory federal income tax withholding
unless they either are:
1. Part of a series of substantially equal periodic payments (at
least annually) for the participant's life or life expectancy, the joint
lives or life expectancies of the participant and his/her beneficiary, or a
period certain of not less than 10 years, or
2. Required by the Code upon the participant's attainment of age 70
1/2 or death.
Such withholding will apply even if the distribution is rolled over into
another qualified plan including an IRA. The withholding can be avoided if the
participant's interest is directly transferred by the old plan to another
eligible qualified plan including an IRA. A direct transfer to the new plan can
be made only in accordance with the terms of the old plan. If withholding is not
avoided, the amount withheld may be subject to income tax and penalties unless
an equivalent amount is also rolled over into an IRA.
Pursuant to Revenue Ruling 90-24 of the Code, an exchange of a Section
403(b) annuity contract for another Section 403(b) annuity contract may qualify
as a tax-free exchange.
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PERFORMANCE DATA
From time to time the performance of one or more of the Subaccounts may be
advertised. The performance data contained in these advertisements is based upon
historical earnings and is not indicative of future performance. The data for
each Subaccount reflects the results of the corresponding series of Diversified
Investors Portfolios or the Calvert Series and recurring charges and deductions
borne by or imposed on the Subaccount and on the corresponding series of the
Diversified Investors Portfolios or the Calvert Series. Set forth below for each
Subaccount is the manner in which the data contained in such advertisements will
be calculated.
Money Market Subaccount. The performance data for this Subaccount will
reflect the "yield", "effective yield" and "total return". The "yield" of the
Subaccount refers to the income generated by an investment in the Subaccount
over the seven day period stated in the advertisement. This income is
"annualized", that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in the
Subaccount is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. The total return is calculated as shown below.
Intermediate Government Bond, Core Bond, Balanced, Value & Income, Equity
Growth and Calvert Series Subaccounts. The performance data for these
Subaccounts will reflect the "yield" and "total return". The "yield" of each of
these Subaccounts refers to the income generated by an investment in that
Subaccount over the 30 day period stated in the advertisement and is the result
of dividing that income by the value of the Subaccount. The value of each
Subaccount is the average daily number of Units outstanding multiplied by the
Unit Value on the last day of the period. The "yield" reflects deductions for
all charges, expenses, and fees of both the Series and the Subaccount Variable.
"average annual total return" for each of these Subaccounts and the Money Market
Subaccount refers to the return a Contractholder would receive during the period
indicated if a $1,000 Purchase Payment was made the indicated number of years
ago. It reflects historical investment results less charges and deductions of
both the Series and the Subaccount, with the distribution being made in cash
rather than in the form of one of the settlement options, at the close of the
period for which the "annualized total return" data is given.
Total return is historical in nature and is not intended to indicate future
performance. Total return will be quoted for the most recent one-year period,
and the average annual total return will be quoted for the most recent five- and
ten-year periods, or the period from the commencement of the public offering of
the Contracts, if shorter. Actual total return quotations may also be advertised
for other specified periods, such as calendar years and calendar quarters.
Cumulative total return for periods of more than one year may also be quoted.
These figures will be accompanied by the standard, average annual total return
quotations.
From time to time, any series of Diversified Investors Portfolios or the
Calvert Series may provide information concerning general economic conditions
and supply comparative performance data and rankings, with respect to comparable
investments for the same period, for unmanaged market indices such as the Dow
Jones Industrial Average and the Standard and Poor's 500, and from recognized
independent sources such as Bank Rate Monitor, Money, Forbes, Barron's, Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Frank Russell
Universe Data, Wiesenberger Investment Companies Service, Mutual Fund Values,
Mutual Fund Forecaster, VARDS and Morningstar.
In addition, reference may be made in advertisements to various indices
including, without limitation, the Standard & Poor's 500 Stock Index, Salomon
Brothers Broad Investment Grade Index and Lehman Brothers Government/Corporate
Bond Index, and Russell Price Driven Index, in order to provide the reader a
basis of comparison for performance.
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DIVERSIFIED INVESTORS PORTFOLIOS
Six Subaccounts of Keynote invest exclusively in corresponding series of
Diversified Investors Portfolios. Diversified Investors Portfolios is a trust
organized on September 1, 1993 under the laws of the State of New York and is
registered under the 1940 Act as an open-end, diversified management investment
company. The investment objectives of the series of Diversified Investors
Portfolios currently available under the Contracts through such Subaccounts are
as follows:
Money Market Series: To provide liquidity and as high a level of income as
is consistent with the preservation of capital, through investment in domestic
and foreign U.S. dollar-denominated money market obligations with maturities of
397 days or less. An investor's interest in the Money Market Series is neither
insured nor guaranteed by the U.S. Government.
Intermediate Government Bond Series: To provide as high a level of current
income as is consistent with preservation of capital, through investment in U.S.
Government and U.S. Government agency and instrumentality securities with short
and intermediate maturities, and high quality short-term obligations.
Core Bond Series: To achieve the maximum total return through investment
in investment grade debt securities, U.S. Government and U.S. Government agency
and instrumentality securities, collateralized mortgage obligations guaranteed
by these agencies or instrumentalities and high quality short-term obligations.
Balanced Series: To provide a high total return consistent with a broad
diversified mix of stocks, bonds and money market instruments.
Value & Income Series: To provide a high level of current income through
investment in a diversified portfolio of common stocks with relatively high
current yields; capital appreciation is a secondary objective.
Equity Growth Series: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks with potential
for above-average growth in earnings; current income is a secondary objective.
There can, of course, be no assurance that any series of Diversified
Investors Portfolios will achieve its investment objectives.
CORE/FEEDER STRUCTURE
Each Subaccount which invests in Diversified Investors Portfolios does so
through a two tier, core/feeder fund structure in which each Subaccount invests
in a corresponding series of Diversified Investors Portfolios.
In addition to selling beneficial interests to such Subaccounts,
Diversified Investors Portfolios may sell beneficial interests of its series to
other insurance company separate accounts, mutual funds, collective investment
vehicles or institutional investors. Such investors will invest in a series of
Diversified Investors Portfolios on the same terms and conditions as the
applicable Subaccount and will pay a proportionate share of the Series'
expenses. However, the other investors investing in such series are not required
to sell their shares at the same public offering price as the Subaccount due to
variations in sales commissions and other operating expenses. Therefore,
Contractholders should be aware that these differences may result in differences
in returns experienced by investors in the different entities that invest in
each series of Diversified Investors Portfolios.
Smaller entities investing in a series of Diversified Investors Portfolios
may be materially affected by the actions of larger entities investing in that
series. For example, if a large fund withdraws from a series of Diversified
Investors Portfolios, the remaining investors may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the affected
series may become less diverse, resulting in increased portfolio risk. (However,
this possibility also exists for any type of collective investment vehicle which
has institutional or other large investors.) Also, investors with a greater pro
rata ownership in a series of Diversified Investors Portfolios could have
effective voting control of the operations of that series. Whenever a Subaccount
is requested to vote on matters pertaining to a series of the Diversified
Investors Portfolios (other than a vote to continue a series upon
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the withdrawal of an investor in the series), MONY, as the legal owner of all
assets in the Subaccount, shall vote in accordance with the procedures set forth
under "Voting Rights" at page 22, including, to the extent required by law,
procedures through which MONY shall receive instructions with respect to such
vote from Contractholders and/or Participants. Certain changes in the investment
objectives, policies or restrictions of a series of Diversified Investors
Portfolios may require that MONY withdraw a Subaccount's interest in that
series. Any such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the series). If
securities are distributed, the Subaccount could incur brokerage or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Subaccount. Notwithstanding the above, there are
other ways for Diversified Investors Portfolios to meet redemption requests from
its investors, such as temporary borrowings.
INVESTMENT OBJECTIVES AND POLICIES
Each of the Subaccounts described above seeks to achieve its investment
objective by investing all of its assets in a corresponding series of
Diversified Investors Portfolios, which is a diversified, open-end management
investment company. The investment objective of each series of Diversified
Investors Portfolios may be changed without the approval of the investors in
that series, but not without written notice thereof to its investors (including
a Subaccount) 30 days prior to implementing the change. MONY may withdraw the
investment of a Subaccount from its corresponding series of Diversified
Investors Portfolios on any Portfolio Business Day (see page 46). Upon any such
withdrawal, MONY would consider what action might be taken, including the
investment of all the assets of the Subaccount in another pooled investment
entity having the same investment objective.
Each series of Diversified Investors Portfolios has a different investment
objective which it pursues through the investment policies described below.
Since each series of Diversified Investors Portfolios has a different investment
objective, each can be expected to have different investment results and be
subject to different market and financial risks. See "Investment Techniques and
Restrictions" herein and in the Statement of Additional Information for a
description of the fundamental policies of each series of Diversified Investors
Portfolios that cannot be changed without approval by the holders of a "majority
of the outstanding voting securities" (as defined in the 1940 Act) of such
series. Except as stated otherwise, all investment guidelines, policies and
restrictions of each series described herein and in the Statement of Additional
Information are non-fundamental.
Each series of Diversified Investors Portfolios has a different portfolio
turnover rate which is the percentage computed by dividing the lesser of
portfolio purchases or sales by the average value of the series in each case
excluding securities with maturities at the time of acquisition of one year or
less. Brokerage expenses can be expected to be higher as a result of higher
portfolio turnover rates. The rate of portfolio turnover is not a limiting
factor when it is deemed appropriate to purchase or sell securities of a series.
With respect to each series of Diversified Investors Portfolios,
Diversified has contracted for certain investment advisory services with one or
more subadvisers. Diversified and the subadviser(s) for a particular series of
Diversified Investors Portfolios are referred to herein collectively as the
"Advisers". There can be no guarantee that the investment objective of any of
the series of Diversified Investors Portfolios will be met. The following
sections describe the investment objective and policies of each series of
Diversified Investors Portfolio currently available under the Contracts through
Subaccounts.
MONEY MARKET SERIES. The investment objective of the Money Market Series
is to provide liquidity and as high a level of current income as is consistent
with the preservation of capital. The Money Market Series invests in high
quality short-term money market instruments. Securities in which the Money
Market Series invests may not earn as high a level of current income as
long-term or lower quality securities which generally have less liquidity,
greater market risk and more fluctuation in market value.
To achieve its investment objective, the Money Market Series invests in
U.S. dollar-denominated short-term money market obligations, including
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits, bankers' acceptances
and
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other short-term obligations issued by domestic banks and domestic branches and
subsidiaries of foreign banks, and high quality commercial paper and other
short-term corporate obligations, including those with floating or variable
rates of interest. In addition, the Money Market Series may lend its portfolio
securities, enter into repurchase agreements and reverse repurchase agreements,
and invest in securities issued by foreign banks and corporations outside the
United States. The Money Market Series reserves the right to concentrate 25% or
more of its total assets in obligations of banks.
In accordance with Rule 2a-7 under the 1940 Act, the Money Market Series
will maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 days or less and
invest only in U.S. dollar-denominated securities determined in accordance with
procedures established by the Board of Trustees of Diversified Investors
Portfolios (the "Board of Trustees") to present minimal credit risks and which
are rated in one of the two highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations (an "NRSRO")
(or one NRSRO if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Board of Trustees (collectively, "Eligible Securities").
Eligible Securities include "First Tier Securities" and "Second Tier
Securities." First Tier Securities include those that possess a rating in the
highest category in the case of a single-rated security or at least two ratings
in the highest rating category in the case of multiple-rated securities or, if
the securities do not possess a rating, are determined to be of comparable
quality by the Advisers pursuant to the guidelines adopted by the Board of
Trustees. All other Eligible Securities are Second Tier Securities. The Money
Market Series will invest at least 95% of its total assets in First Tier
Securities.
The NRSROs currently rating instruments of the type the Money Market Series
may purchase are Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P"), Duff & Phelps, Inc., Fitch Investors Service, Inc., IBCA
Limited, IBCA Inc. and Thomson BankWatch, Inc., and their rating criteria are
described in the Appendix to the Statement of Additional Information. The
Statement of Additional Information contains further information concerning the
rating criteria and other requirements governing the Money Market Series'
investments, including information relating to the treatment of securities
subject to a tender or demand feature and securities deemed to possess a rating
based on comparable rated securities of the same issuer.
In addition, the Money Market Series will not invest more than 5% of its
total assets in the securities (including the securities collateralizing a
repurchase agreement) of, or subject to puts (including letters of credit,
guaranties or other credit support) issued by, a single issuer, except that (i)
the Money Market Series may invest more than 5% of its total assets in a single
issuer for a period of up to three business days in certain limited
circumstances, (ii) the Money Market Series may invest in obligations issued or
guaranteed by the U.S. Government without any such limitation, and (iii) the
limitation with respect to puts does not apply to unconditional puts if no more
than 10% of the Money Market Series' total assets is invested in securities
issued or guaranteed by the issuer of the unconditional put. Investments in
Second Tier Securities will be limited to 5% of the Money Market Series' total
assets, with the investment in any one such issuer being limited to no more than
the greater of 1% of the Money Market Series' total assets or $1,000,000. As to
each security, these percentages are measured at the time the Money Market
Series purchases the security.
The Money Market Series seeks to achieve its investment objective through
investments in the following types of U.S. dollar-denominated money market
instruments.
BANK OBLIGATIONS. The Money Market Series may invest in U.S.
dollar-denominated certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations issued by banks. Certificates
of deposit are certificates evidencing the obligation of a bank to repay
funds deposited with it for a specified period of time. Such instruments
include Yankee Certificates of Deposit, which are certificates of deposit
denominated in U.S. dollars and issued in the United States by the domestic
branch of a foreign bank. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a
stated interest rate. Time deposits which may be held by the Money Market
Series are not insured by the Federal Deposit Insurance Corporation or any
other agency of the U.S. Government. The Money Market Series will not
invest more than
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10% of the value of its net assets in time deposits maturing in longer than
seven days and other instruments which are illiquid or not readily
marketable. The Money Market Series may also invest in certificates of
deposit and time deposits issued by foreign banks outside the United
States.
The Money Market Series may also invest in bankers' acceptances and other
short-term obligations. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of
the drawer to pay the face amount of the instrument upon maturity. The
other short-term obligations may include uninsured, direct obligations
which have either fixed, floating or variable interest rates.
To the extent the Money Market Series' investments are concentrated in the
banking industry, the Money Market Series will have correspondingly greater
exposure to the risk factors which are characteristic of such investments.
Sustained increases in interest rates can adversely affect the availability
or liquidity and cost of capital funds for a bank's lending activities, and
a deterioration in general economic conditions could increase the exposure
to credit losses. In addition, the value of and the investment return on
investments in the Money Market Series could be affected by economic or
regulatory developments in or related to the banking industry, which
industry also is subject to the effects of the concentration of loan
portfolios in leveraged transactions and in particular businesses, and
competition within the banking industry, as well as with other types of
financial institutions. The Money Market Series, however, will seek to
minimize its exposure to such risks by investing only in debt securities
which are determined to be of high quality.
U.S. GOVERNMENT AND AGENCY SECURITIES. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S.
Treasury securities, which differ only in their interest rates, maturities
and times of issuance. Treasury Bills have initial maturities of one year
or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of greater than ten years.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of
the U.S. Treasury; others, such as those of the Federal Home Loan Banks, by
the right of the issuer to borrow from the Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the
agency or instrumentality; and others, such as those issued by the Student
Loan Marketing Association, only by the credit of the agency or
instrumentality. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by
law. The Money Market Series will invest in such securities only when the
Advisers are satisfied that the credit risk with respect to the issuer is
minimal. The Money Market Series itself, and its share price and yield, are
not guaranteed by the U.S. Government. For additional information on U.S.
Government securities, see "Diversified Investors Portfolios" in the
Statement of Additional Information.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Money Market Series will consist only of U.S.
dollar-denominated direct obligations issued by domestic and foreign
entities. The other corporate obligations in which the Money Market Series
may invest consist of high quality, U.S. dollar-denominated short-term
bonds and notes issued by domestic corporations.
The Money Market Series may invest in commercial paper issued by major
corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) of the Securities Act of 1933, as amended (the "1933 Act").
Such commercial paper may be issued only to finance current transactions
and must mature in nine months or less. Trading of such commercial paper is
conducted primarily by institutional investors through investment dealers,
and individual investor participation in the commercial paper market is
very limited.
UNSECURED PROMISSORY NOTES. The Money Market Series also may purchase
unsecured promissory notes ("Notes") which are not readily marketable and
have not been registered under the
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1933 Act, provided such investments are consistent with the Money Market
Series' investment objective. The Notes purchased by the Money Market
Series will have remaining maturities of 13 months or less and will be
deemed by the Board of Trustees of Diversified Investors Portfolios, or by
the Advisers on its behalf, to present minimal credit risks and will meet
the quality criteria set forth above. The Money Market Series will invest
no more than 10% of its net assets in such Notes and in other securities
that are not readily marketable (which securities would include floating
and variable rate demand obligations as to which the Money Market Series
cannot exercise the demand feature described in the Statement of Additional
Information and as to which there is no secondary market).
RESTRICTED SECURITIES. The Money Market Series may invest in securities
that are subject to legal or contractual restrictions on resale. These
securities may be illiquid and, thus, the Money Market Series may not
purchase them to the extent that more than 10% of the value of its net
assets would be invested in illiquid securities. However, if a substantial
market of qualified institutional buyers develops pursuant to Rule 144A
under the 1933 Act for such securities held by the Money Market Series, the
Money Market Series intends to treat such securities as liquid securities
in accordance with procedures approved by the Board of Trustees of
Diversified Investors Portfolios. To the extent that for a period of time,
qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A, the Money Market Series' investing in such
securities may have the effect of increasing the level of illiquidity in
the Money Market Series during such period.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Repurchase
agreements involve the acquisition by the Money Market Series of an
underlying debt instrument subject to an obligation of the seller to
repurchase, and the Money Market Series to resell, the instrument at a
fixed price, usually not more than one week after its purchase. The Money
Market Series or a sub-custodian will have custody of securities acquired
by the Money Market Series under a repurchase agreement.
Repurchase agreements may be entered into for the Series with sellers which
are usually member banks of the Federal Reserve System or member firms of
the New York Stock Exchange (or a subsidiary thereof). Such transactions
afford an opportunity for the Series to earn a return on available cash
with minimal market risk. Certain costs may be incurred by the Money Market
Series in connection with the sale of the securities if the seller does not
repurchase them in accordance with the repurchase agreement. In addition,
if bankruptcy proceedings are commenced with respect to the seller of the
securities, realization on the securities by the Money Market Series may be
delayed or limited. The Money Market Series will consider on an ongoing
basis the creditworthiness of the institutions with which it enters into
repurchase agreements. Repurchase agreements are considered collateralized
loans under the 1940 Act.
The Money Market Series may borrow funds for temporary or emergency
purposes, such as meeting larger than anticipated redemption requests, and not
for leverage. One means of borrowing is by agreeing to sell portfolio securities
to financial institutions such as banks and broker-dealers and to repurchase
them at a mutually agreed date and price (a "reverse repurchase agreement"). At
the time the Money Market Series enters into a reverse repurchase agreement it
will place in a segregated custodial account cash, U.S. Government securities or
high-grade debt obligations having a value equal to the repurchase price,
including accrued interest. Reverse repurchase agreements involve the risk that
the market value of the securities sold by the Money Market Series may decline
below the repurchase price of those securities.
FOREIGN SECURITIES. The Money Market Series may invest in U.S.
dollar-denominated foreign securities issued outside the United States,
such as obligations of foreign branches and subsidiaries of domestic banks
and foreign banks, including Eurodollar certificates of deposit, Eurodollar
time deposits and Canadian time deposits, commercial paper of Canadian and
other foreign issuers, and U.S. dollar-denominated obligations issued or
guaranteed by one or more foreign governments or any of their agencies or
instrumentalities. Foreign securities may represent a greater degree of
risk than do securities of domestic issuers due to possible exchange rate
fluctuations, possible exchange controls, less publicly available
information, more volatile markets, less securities regulation, less
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favorable tax provisions (including possible withholding taxes), changes in
governmental administration or economic or monetary policy (in the United
States or abroad), war or expropriation. For a complete description of
foreign securities the Money Market Series may purchase, see "Diversified
Investors Portfolios -- Investment Policies" in the Statement of Additional
Information.
CERTAIN OTHER OBLIGATIONS. In order to allow for investments in new
instruments that may be created in the future, upon MONY supplementing this
Prospectus, the Money Market Series may invest in obligations other than
those listed previously, provided such investments are consistent with the
investment objective, policies and restrictions of the Money Market Series.
The Statement of Additional Information includes a discussion of additional
investment techniques such as zero coupon obligations, variable rate and
floating rate securities, participation interests, guaranteed investment
contracts and when-issued and forward commitment securities. The Statement
of Additional Information also includes a discussion of non-fundamental
investment policies, as well as a listing of specific investment
restrictions which constitute fundamental policies of the Money Market
Series and which cannot be changed without the approval of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940
Act) of the Money Market Series. See "Diversified Investors
Portfolios -- Investment Restrictions" in the Statement of Additional
Information.
INTERMEDIATE GOVERNMENT BOND SERIES. The investment objective of the
Intermediate Government Bond Series is to provide as high a level of current
income as is consistent with the preservation of capital. The yield of the
Intermediate Government Bond Fund Series normally is expected to be higher than
a money market fund but lower than a longer-term or lower quality bond fund. The
Intermediate Government Bond Series pursues its investment objective by
investing in U.S. Government obligations and high quality short-term obligations
(including repurchase agreements and reverse repurchase agreements).
The Advisers attempt to maintain the Intermediate Government Bond Series'
"duration" between one and five years, which means that the Intermediate
Government Bond Fund Series' overall sensitivity to interest rates should be
similar to that of bonds and notes with remaining average maturities from one to
five years. The Intermediate Government Bond Series' dollar-weighted average
maturity (or dollar-weighted average life in the case of mortgage-backed
securities) may be longer than four years from time to time, but will not exceed
ten years under normal conditions. The Intermediate Government Bond Series may
hold individual securities with remaining maturities of up to thirty years.
Since the value of fixed income securities generally fluctuates inversely
with changes in interest rates, the duration of the Intermediate Government Bond
Series will vary to reflect the Advisers' assessments of prospective changes in
interest rates. The Advisers' strategy will be to adjust the duration of the
Intermediate Government Bond Fund Series so that the Intermediate Government
Bond Series may benefit from relative price appreciation when interest rates
decline and may protect capital value when interest rates rise. The success of
this strategy will depend on the Advisers' ability to manage the Intermediate
Government Bond Fund Series through changes in interest rates, and there is a
risk that the value of the securities held by the Intermediate Government Bond
Series will decline.
The following is a discussion of the various investments of and techniques
employed by the Intermediate Government Bond Series. Additional information
about the investment policies of the Intermediate Government Bond Series appears
under "Diversified Investors Portfolios" in the Statement of Additional
Information.
U.S. GOVERNMENT AND AGENCY SECURITIES. The Intermediate Government Bond
Series may invest in U.S. Government securities. See "U.S. Government and
Agency Securities" above under Money Market Series.
The Intermediate Government Bond Series may invest a portion of its assets
in short-term U.S. Government securities with remaining maturities of one
year or less and repurchase agreements relating thereto. When the Advisers
believe market conditions warrant a temporary defensive
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position, the Intermediate Government Bond Series may invest up to 100% of
its assets in these instruments.
SHORT-TERM INSTRUMENTS. Cash, commercial paper, short-term obligations,
repurchase agreements or other forms of debt securities may be held to
provide a reserve for future purchases of securities during periods of
unusual market conditions or in order to reduce volatility, or as a
temporary defensive measure when the Advisers determine securities markets
to be overvalued. The Intermediate Government Bond Series limits its
short-term investments to those U.S. dollar-denominated instruments which
are determined by or on behalf of the Board of Trustees to present minimal
credit risks and which are of "high quality" as determined by a major
rating service or, in the case of instruments which are not rated, are of
comparable quality pursuant to procedures established by the Board of
Trustees. Investments in high quality short-term instruments may, in many
circumstances, result in a lower yield than would be available from
investments in instruments with a lower quality or longer term.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Repurchase
agreements and reverse repurchase agreements may be entered into for the
Intermediate Government Bond Series. See "Repurchase Agreements and Reverse
Repurchase Agreements" under Money Market Series.
The Intermediate Government Bond Series may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage.
RESTRICTED SECURITIES. The Intermediate Government Bond Series may not
invest more than 15% of its net assets in securities that are subject to
legal or contractual restrictions on resale unless a dealer or
institutional trading market in such securities exists, in which case such
restricted securities would be considered exempt from such 15% limit. Under
the supervision of the Board of Trustees, the Advisers determine the
liquidity of restricted securities and, through reports from the Advisers,
the Board of Trustees will monitor trading activity in restricted
securities. Because Rule 144A is relatively new, it is not possible to
predict how these markets will develop. If institutional trading in
restricted securities were to decline, the liquidity of the Intermediate
Government Bond Series could be adversely affected. See "Restricted
Securities" above under Money Market Series.
OPTIONS AND FUTURES CONTRACTS. The Intermediate Government Bond Series may
buy and sell options and futures contracts to manage its exposure to
changing interest rates and securities prices. Some options and futures
strategies, including selling futures, buying puts, and writing calls,
hedge the Intermediate Government Bond Series' investments against price
fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. The Intermediate Government
Bond Series may invest in options (including over-the-counter options) and
futures contracts based on any type of security or index related to its
investments.
Options and futures can be volatile investments, and involve certain risks.
If the Advisers apply a hedge at an inappropriate time or judge interest
rates incorrectly, options and futures strategies may lower the
Intermediate Government Bond Series' return. The costs of hedging are not
reflected in the Intermediate Government Bond Series' yield but are
reflected in the Intermediate Government Bond Series' total return. The
Intermediate Government Bond Series' could also experience losses if its
options and futures positions were poorly correlated with its other
investments, or if it could not close out its positions because of an
illiquid secondary market.
The Intermediate Government Bond Series currently does not intend to engage
in the writing of options, except for the purpose of terminating an
existing position or under the limited circumstances described under
"Diversified Investors Portfolios" in the Statement of Additional
Information. Nevertheless, the Intermediate Government Bond Series has the
authority to write options and may do so in the future if the Advisers
determine that such transactions are in the best interests of the
Intermediate Government Bond Series.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability of
suitable securities for the Intermediate Government Bond Series, the
Advisers may purchase securities for the Interme-
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diate Government Bond Series on a "when-issued" or on a "forward delivery"
basis, which means that the obligations would be delivered to the
Intermediate Government Bond Series at a future date beyond customary
settlement time. Under normal circumstances, the Intermediate Government
Bond Series would take delivery of such securities. In general, the
Intermediate Government Bond Series would not pay for the securities until
they are received, and would not start earning interest on the obligations
until the contractual settlement date. While awaiting delivery of the
obligations purchased on such basis, the Intermediate Government Bond
Series would establish a segregated account consisting of cash, cash
equivalents or high grade liquid debt securities equal to the amount of its
commitments to purchase "when-issued" securities. An increase in the
percentage of the Intermediate Government Bond Series' assets committed to
the purchase of securities on a "when-issued" basis may increase the
volatility of its net asset value.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Intermediate Government
Bond Series may also utilize the following investments and investment
techniques and practices: investments in foreign securities, options on
futures contracts, foreign currency exchange transactions, options on
foreign currencies. The Intermediate Government Bond Series does not intend
to utilize any of these investment practices to the extent of more than 5%
of its assets. See "Diversified Investors Portfolios" in the Statement of
Additional Information for further information.
CORE BOND SERIES. The investment objective of the Core Bond Series is to
achieve the maximum total return. The Core Bond Series' yield normally is
expected to be higher than a money market fund but lower than a longer-term or
lower quality bond fund. The Core Bond Series pursues its investment objective
by investing in investment grade debt securities, U.S. Government obligations,
including U.S. Government agency and instrumentality obligations and
collateralized mortgage obligations guaranteed by these agencies and high
quality short-term obligations (including repurchase agreements and reverse
repurchase agreements). At least 65% of the Series' assets is invested in U.S.
Government securities, corporate bonds and short-term instruments.
The Advisers attempt to maintain the Core Bond Series' "duration" between
three and ten years, which means that the Core Bond Series' overall sensitivity
to interest rates should be slightly more then that of bonds and notes with
remaining average maturities from three to fifteen years. The Core Bond Series'
dollar-weighted average maturity (or dollar-weighted average life in the case of
mortgage-backed securities) may be longer than fifteen years from time to time,
but will not exceed thirty years under normal conditions.
Since the value of fixed income securities generally fluctuates inversely
with changes in interest rates, the duration of the Core Bond Series will vary
to reflect the Advisers' assessments of prospective changes in interest rates.
The Advisers' strategy will be to adjust the duration of the Core Bond Series so
that the Core Bond Series may benefit from relative price appreciation when
interest rates decline and may protect capital value when interest rates rise.
The success of this strategy will depend on the Advisers' ability to manage the
Core Bond Series through changes in interest rates, and there is a risk that the
value of the securities held by the Core Bond Series will decline.
The following is a discussion of the various investments of and techniques
employed by the Core Bond Series. Additional information about the investment
policies of the Core Bond Series appears under "Diversified Investors
Portfolios" in the Statement of Additional Information.
U.S. GOVERNMENT AND AGENCY SECURITIES. The Core Bond Series may invest in
U.S. Government securities. See "U.S. Government and Agency Securities"
above under Money Market Series.
The Core Bond Series may invest a portion of its assets in short-term U.S.
Government securities with remaining maturities of one year or less and
repurchase agreements relating thereto. When the Advisers believe market
conditions warrant a temporary defensive position, the Core Bond Series may
invest up to 100% of its assets in these instruments.
CORPORATE BONDS. The Core Bond Series may purchase debt securities of
United States corporations only if they carry a rating of at least Baa from
Moody's or BBB from S&P or which, if not rated by these rating agencies,
are judged by the Advisers to be of comparable quality. Securities rated
Baa by Moody's or BBB by S&P may have speculative characteristics. Changes
in economic
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conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case for
higher grade securities. See the Appendix to the Statement of Additional
Information for an explanation of these ratings.
FOREIGN SECURITIES. The Core Bond Series may invest in securities of
foreign issuers. The Core Bond Series' investments in unlisted foreign
securities are subject to the overall restrictions applicable to
investments in illiquid securities. Foreign securities may represent a
greater degree of risk than do securities of domestic issuers due to
possible exchange rate fluctuations, possible exchange controls, less
publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions (including possible withholding
taxes), changes in governmental administration or economic or monetary
policy (in the United States or abroad), war or expropriation. Forward
foreign currency exchange contracts may also be entered into for the
purchase or sale of foreign currency solely for hedging purposes against
adverse rate changes. A currency exchange contract allows a definite price
in dollars to be fixed for foreign securities that have been purchased or
sold (but not settled) for the Core Bond Series. Entering into such
exchange contracts may result in the loss of all or a portion of the
benefits which otherwise could have been obtained from favorable movements
in exchange rates. In addition, entering into such contracts means
incurring certain transaction costs and bearing the risks of incurring
losses if rates do not move in the direction anticipated.
SHORT-TERM INSTRUMENTS. Cash, commercial paper, short-term obligations,
repurchase agreements, bank certificates of deposit or other forms of debt
securities may be held to provide a reserve for future purchases of
securities, during periods of unusual market conditions or in order to
reduce volatility, or as a temporary defensive measure when the Advisers
determine securities markets to be overvalued. See "Short-Term Instruments"
above under Intermediate Government Bond Series.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The Core Bond
Series may enter into repurchase agreements and reverse repurchase
agreements. See "Repurchase Agreements and Reverse Repurchase Agreements"
above under Money Market Series. The Core Bond Series may borrow Funds for
temporary or emergency purposes, such as meeting larger then anticipated
redemption requests, and not for leverage.
RESTRICTED SECURITIES. The Core Bond Series may not invest more than 15%
of its net assets in securities that are subject to legal or contractual
restrictions on resale. See "Restricted Securities" above under Money
Market Series.
OPTIONS AND FUTURES CONTRACTS. The Core Bond Series may buy and sell
options and futures contracts to manage its exposure to changing interest
rates and securities prices. See "Options and Futures Contracts" above
under Intermediate Government Bond Series. The Core Bond Series currently
does not intend to engage in the writing of options, except for the purpose
of terminating an existing position or under the limited circumstances
described in the Statement of Additional Information. Nevertheless, the
Core Bond Series has the authority to write options and may do so in the
future if the Advisers determine that such transactions are in the best
interests of the Core Bond Series.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability of
suitable securities for the Core Bond Series, the Advisers may purchase
securities for the Core Bond Series on a "when-issued" or on a "forward
delivery" basis, which means that the Securities would be delivered to the
Core Bond Series at a future date beyond customary settlement times. See
"Delayed Delivery Transactions" above under Intermediate Government Bond
Series.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Core Bond Series may also
utilize the following investments and investment techniques and practices:
options on futures contracts and options on foreign currencies. The Core
Bond Series does not intend to utilize any of these investments or
techniques to the extent of more than 5% of its assets. See the Statement
of Additional Information for further information.
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BALANCED SERIES. The investment objective of the Balanced Series is to
provide a high total investment return consistent with a broad diversified mix
of stocks, bonds and money market instruments. The Balanced Series pursues its
investment objective by investing in a managed mix of common stocks (and/or
equivalents including American Depository Receipts), preferred stocks, debt
securities of U.S. domiciled corporations, U.S. government securities,
commercial paper of U.S. corporations, and bank obligations. The Advisers will
determine the proportions of each type of investment to achieve an asset mix
they believe appropriate for an investor who desires diversification of
investment. The Balanced Series will vary the proportion of each type of asset
purchased according to the Advisers' interpretations of changes in economic
conditions and the sensitivity of each type of investment to those changes. The
Advisers seek to shift emphasis among stocks, bonds and short-term instruments
to maximize participation in positive markets and preservation of capital in
negative markets and otherwise in response to market conditions.
The Balanced Series policy is to invest its assets in a broad list of
equity and fixed income securities, such as common stocks, preferred stocks and
bonds, including short-term obligations. The list may be diversified not only by
companies and industries, but also by type of security. Some fixed income
securities may also have a right to purchase common stock by means of a
conversion privilege or attached warrants. The Balanced Series may vary the
percentage of assets invested in any one type of security in accordance with the
Advisers' interpretation of economic and market conditions, fiscal and monetary
policy, and underlying securities values. However, at least 25% of the total
assets of the Balanced Series are always invested in fixed income senior
securities including debt securities and preferred stock. In selecting common
stocks, emphasis is placed on investing in established companies with market
capitalizations of $100,000,000 or more and seasoned management teams. Most of
the Balanced Series' non-convertible long-term debt investments consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P), although unrated debt securities may be purchased and held if they are
judged by the Advisers to be of equivalent quality. Securities rated Baa by
Moody's or BBB by S&P may have speculative characteristics. Changes in economic
conditions or other circumstances may weaken more severely the capacity of
issuers of Baa or BBB securities to make principal and interest payments than in
the case for issuers of higher grade bonds. Less than 5% of the Balanced Series
investments consist of securities rated Baa by Moody's or BBB by S&P. For a
description of these ratings, see the Appendix to the Statement of Additional
Information.
The Balanced Series may invest a portion of its assets in short-term U.S.
Government securities with remaining maturities of one year or less and
repurchase agreements relating thereto. When the Advisers believe market
conditions warrant a temporary defensive position, the Balanced Series may
invest up to 100% of its assets in these instruments or other money market
instruments.
VALUE & INCOME SERIES. The investment objective of the Value & Income
Series is to provide a high level of current income through investment in a
diversified portfolio of common stocks with relatively high current yields;
capital appreciation is a secondary objective. The Value & Income Series seeks
to achieve its investment objective by investing primarily in a diversified
portfolio of stocks of companies which, in the opinion of the Advisers, are
fundamentally sound financially and which pay relatively high dividends on a
consistent basis. The Advisers attempt to manage the Value & Income Series so
that it will out-perform other equity income funds in negative markets. As a
result of this objective, the Income Series may underperform relative to other
equity income funds in positive markets. The Value & Income Series invests
primarily in common stocks listed on the New York Stock Exchange and on other
national securities exchanges and, to a lesser extent, in stocks that are traded
over-the-counter. The Value & Income Series also invests in bonds and short-term
obligations as well as securities convertible into common stocks, preferred
stocks, debt securities and short-term obligations. The Value & Income Series
allocates its investments among different industries and companies, and changes
its portfolio securities for investment considerations and not for trading
purposes.
The Value & Income Series' policy is to invest in a broad list of equity
and fixed income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Value & Income Series may vary
the percentage of
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assets invested in any one type of security in accordance with the Advisers'
interpretation of economic and market conditions, fiscal and monetary policy,
and underlying security values. It is contemplated that most of the Value &
Income Series' non-convertible long-term debt investments will consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P). However, the Value & Income Series may also invest not more than 25% of
its assets in fixed income securities which either are rated in lower than
"investment grade" categories by either Moody's or S&P or are unrated when, in
the opinion of the Advisers, such an investment presents a greater opportunity
to achieve the Value & Income Series' investment objective with comparable risk
to an investment in "investment grade" securities. Securities rated Baa by
Moody's or BBB by S&P may have speculative risk characteristics.
Non-Investment Grade Obligations. Non-investment grade obligations (those
that are rated Ba or lower by Moody's or BB or lower by S&P or comparable
unrated obligations), commonly referred to as "junk bonds", are speculative in
nature. Risks associated with junk bonds are (a) the relative youth and growth
of the market for such securities, (b) the sensitivity of such securities to
interest rate and economic changes, (c) the lower degree of protection of
principal and interest payments, (d) the relatively low trading market liquidity
for the securities, (e) the impact that legislation may have on the high yield
bond market (and, in turn, on the Value & Income Series' net asset value and
investment practices), and (f) the creditworthiness of the issuers of such
securities. During an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service their principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. An economic downturn could also disrupt the market for junk bonds and
adversely effect the value of outstanding bonds and the ability of the issuers
to repay principal and interest. If the issuer of a debt obligation held by the
Value & Income Series defaulted, the Value & Income Series could incur
additional expenses to seek recovery. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of junk bonds held by the Value & Income Series, especially
in a thinly traded market. For a description of ratings of debt obligations
which may be purchased by the Value & Income Series, see the Appendix to the
Statement of Additional Information.
EQUITY GROWTH SERIES. The investment objective of the Equity Growth Series
is to provide a high level of capital appreciation through investment in a
diversified portfolio of common stocks with potential for above average growth
in earnings and dividends; current income is a secondary objective. The Equity
Income seeks to achieve its investment objective by investing primarily in a
diversified portfolio of common stocks, but may also invest in other types of
securities such as preferred stocks, convertible and non-convertible bonds,
warrants and foreign securities including American Depository Receipts. Under
normal circumstances, at least 65% of the assets of the Equity Income are
invested in equity securities. This is a fundamental investment policy and may
not be changed without investor approval. The Equity Growth Series invests
primarily in stocks of companies that have a market value of all their issued
and outstanding common stock of $10 to $15 billion and preferred stocks and
common stocks listed on the New York Stock Exchange and on other national
securities exchanges and, to a lesser extent, in stocks that are traded
over-the-counter. The Equity Growth Series also invests in bonds and short-term
obligations as well as securities convertible into common stocks, preferred
stocks, debt securities and short-term obligations. The Equity Growth Series
allocates its investments among different industries and companies, and changes
its portfolio securities for investment considerations and not for trading
purposes.
The Equity Growth Series' policy is to invest in a broad list of equity and
fixed income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Equity Growth Series may vary the
percentage of assets invested in any one type of security in accordance with the
Adviser's interpretation of economic and market conditions, fiscal and monetary
policy, and underlying security values. It is contemplated that most of the
Equity Growth Series' non-convertible long-term debt investments will consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P). However, the
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Equity Growth Series may also invest not more than 25% of its assets in fixed
income securities which either are rated in lower than "investment grade"
categories by either Moody's or S&P or are unrated when, in the opinion of the
Adviser, such an investment presents a greater opportunity to achieve the Equity
Growth Series' investment objective with comparable risk to an investment in
"investment grade" securities. Such lower rated or unrated fixed income
securities have speculative risk characteristics. See "Non-Investment Grade
Obligations" above under Equity Income Series.
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INVESTMENT TECHNIQUES AND RESTRICTIONS
INVESTMENT TECHNIQUES FOR THE BALANCED SERIES, VALUE & INCOME SERIES AND EQUITY
GROWTH SERIES (COLLECTIVELY, THE "SERIES").
Foreign Securities. Each Series' current policy is not to invest more than
25% of its assets in securities of foreign issuers, including investments in
sponsored American Depository Receipts ("ADRs"). ADRs are receipts typically
issued by an American bank or trust company evidencing ownership of the
underlying foreign securities. Each Series' investments in unlisted foreign
securities, not including ADRs, are subject to the overall restrictions
applicable to investments in illiquid securities. Foreign securities, including
ADRs, may represent a greater degree of risk than do securities of domestic
issuers due to possible exchange rate fluctuations, possible exchange controls,
less publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions (including possible withholding
taxes), changes in governmental administration or economic or monetary policy
(in the United States or abroad), war or expropriation. Each Series may invest
up to 5% of its assets in closed-end investment companies which primarily hold
foreign securities. Forward foreign currency exchange contracts may also be
entered into for the purchase or sale of foreign currency solely for hedging
purposes against adverse rate changes. A currency exchange contract allows a
definite price in dollars to be fixed for foreign securities that have been
purchased or sold (but not settled) for each Series. Entering into such exchange
contracts may result in the loss of all or a portion of the benefits which
otherwise could have been obtained from favorable movements in exchange rates.
In addition, entering into such contracts means incurring certain transaction
costs and bearing the risk of incurring losses if rates do not move in the
direction anticipated.
Options and Futures Contracts. Each Series may enter into transactions in
futures contracts, options on futures contracts, options on securities indexes
and options on securities, for the purpose of hedging each Series' securities,
which would have the effect of reducing the volatility of its net asset value.
In general, each such transaction involves the establishment of a position which
is expected to move in a direction opposite to that of the security or
securities being hedged.
For example, each Series may sell futures contracts, or purchase put
options on futures contracts, securities indexes or securities for the purpose
of protecting against an anticipated decline in the value of securities held by
that Series. In the event that such decline occurs, and the hedging transaction
is successful, the reduced value of portfolio securities will be offset, in
whole or in part, by a corresponding gain on the futures or option position.
Conversely, when the Series is not fully invested in the securities market, and
it expects a significant market advance, it may purchase futures contracts or
call options on futures contracts, securities indexes or securities in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that that Series intends to purchase.
The Statement of Additional Information includes further information about
the transactions in futures and option contracts that may be entered into by
each Series.
Gain or loss to each Series on transactions in security index futures or
options will depend on price movements in the stock market generally (or in a
particular industry or segment of the market), rather than price movements of
individual securities. A securities index assigns relative values to the
securities included in the index and the index fluctuates with changes in the
market values of the securities so included. Some securities index futures or
options are based on broad market indexes, such as the Standard & Poor's 500 or
the New York Stock Exchange Composite Index. In contrast, certain exchanges
offer futures or options on narrower market indexes, such as the Standard &
Poor's 100 or indexes based on an industry or market segment, such as oil and
gas stocks. Options on indexes and options on securities are traded on
securities exchanges regulated by the SEC. Futures contracts and options on
futures contracts are traded only on designated contract markets regulated by
the Commodity Futures Trading Commission and through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees
performance between the clearing members which are parties to each contract.
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Each Series currently does not intend to engage in the writing of options,
except for the purpose of terminating an existing position or under the limited
circumstances described in the Statement of Additional Information.
Nevertheless, each Series has the authority to write options and may do so in
the future if the Advisers determine that such transactions are in the best
interests of the Series.
Short-Term Instruments. Each of the Series may invest in cash, commercial
paper, short-term obligations, repurchase agreements or other forms of debt
securities. See "Short-Term Instruments" above under Intermediate Government
Bond Series.
Repurchase Agreements and Reverse Repurchase Agreements. Each of the
Series may enter into repurchase agreements and reverse repurchase agreements
and may borrow funds for temporary or emergency purposes, such as meeting larger
than expected redemption requests, and not for leverage. See "Repurchase
Agreements and Reverse Repurchase Agreements" above under Intermediate
Government Bond Series.
Restricted Securities. Each of the Series may not invest more than 15% of
its net assets in securities that are subject to legal or contractual
restrictions on resale. See "Restricted Securities" above under Money Market
Bond Series.
Delayed Delivery Transactions. In order to help insure the availability of
suitable securities for each of the Series the Advisers may purchase securities
for each such Series on a "when-issued" or on a "forward delivery" basis. See
"Delayed Delivery Transactions" above under Intermediate Government Bond Series.
Changes to the securities of each Series are generally made without regard
to the length of time a security has been held, or whether a sale would result
in the recognition of a profit or loss. Therefore, the rate of portfolio
turnover is not a limiting factor to trading when such trading is deemed
appropriate. Each Series engages in trading if it believes a transaction net of
costs (including custodian charges) will help it achieve its investment
objectives. The amount of brokerage commissions and realized capital gains will
tend to increase as the level of portfolio activity increases. The primary
consideration in placing portfolio security transactions with broker-dealers for
execution is to obtain, and maintain the availability of, execution at the most
favorable prices and in the most effective manner possible. See "Portfolio
Transactions and Brokerage Commissions" in the Statement of Additional
Information.
INVESTMENT RESTRICTIONS FOR ALL SERIES OF DIVERSIFIED INVESTORS PORTFOLIOS
As "diversified" funds, no more than 5% of the assets of any series of
Diversified Investors Portfolios may be invested in the securities of one issuer
(other than U.S. Government securities), except that up to 25% of each series'
assets may be invested without regard to this limitation. No series of
Diversified Investors Portfolios will invest more than 25% of its assets in the
securities of issuers in any one industry. These are fundamental investment
policies which may not be changed without investor approval. As a nonfundamental
operating policy, no more than 15% (10% in the case of the Money Market Series)
of the net assets of any series may be invested in (i) securities the resale of
which is restricted under federal securities laws and (ii) illiquid or not
readily marketable securities (including repurchase agreements maturing in more
than seven days). Additional fundamental and operating policies of Diversified
Investors Portfolios are contained in the Statement of Additional Information.
LENDING OF PORTFOLIO SECURITIES
The Series have the authority to lend portfolio securities to brokers,
dealers and other financial organizations. By lending its securities, a Series
can increase its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in short-term
securities or obtaining yield in the form of interest paid when U.S. Government
obligations are used as collateral. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. A Series will adhere to the following conditions whenever its
securities are loaned: (i) the Series must receive at least 100% cash collateral
or equivalent securities from the borrower; (ii) the borrower must increase this
collateral whenever the market value of the loaned securities including accrued
interest exceeds the level of the collateral; (iii) the Series must be able to
terminate the loan at any time; (iv) the Series must receive reasonable interest
on the loan, as well as any dividends, interest or other
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distributions on the loaned securities, and any increase in market value; (v)
the Series may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower.
However, if a material event adversely affecting the loaned securities were to
occur, the Series would terminate the loan and regain the right to vote the
securities.
MANAGEMENT OF DIVERSIFIED INVESTORS PORTFOLIOS
The Board of Trustees of Diversified Investors Portfolios provides broad
supervision over the affairs of Diversified Investors Portfolios. For further
information about the Trustees of Diversified Investors Portfolios, see
"Diversified Investors Portfolios" in the Statement of Additional Information. A
majority of the Trustees of Diversified Investors Portfolios are not affiliated
with the Advisers.
INVESTMENT ADVISORY SERVICES. Diversified Investment Advisors, Inc.
("Diversified") manages the assets of each series of Diversified Investors
Portfolios pursuant to an Investment Advisory Agreement (the "Advisory
Agreement") with Diversified Investors Portfolios with respect to each series
and in accordance with the investment policies described herein and in the
Statement of Additional Information. Subject to such further policies as the
Board of Trustees of Diversified Investors Portfolios may determine, Diversified
provides general investment advice to each series. For its services under the
Advisory Agreement, Diversified receives from each series fees accrued daily and
paid monthly at an annual rate equal to the percentages specified in the table
below of the corresponding series' average daily net assets. Diversified is
currently waiving a portion of its investment advisory fee. Investment
management decisions are made by a committee of Diversified's personnel and not
by a particular individual.
Diversified is an indirect, wholly-owned subsidiary of AEGON USA, Inc.
("AEGON") which is a financial services holding company whose primary emphasis
is life and health insurance and annuity and investment products. AEGON is an
indirect, wholly-owned subsidiary of AEGON N.V., a Netherlands corporation which
is a publicly traded international insurance group. Diversified was incorporated
in 1992 for the purpose of acting as investment adviser to Diversified Investors
Portfolios. Accordingly, Diversified Investors Portfolios is the first family of
investment companies for which Diversified serves as investment adviser. It is
Diversified's responsibility to select, subject to the review and approval of
the Diversified Investors Portfolios' Board of Trustees, appropriate subadvisers
with distinguished backgrounds and to review such subadvisers' continued
performance.
For each series, Diversified has entered into an Investment Subadvisory
Agreement (each a "Subadvisory Agreement") with the subadvisers listed in the
table below (each a "Subadviser," and collectively the "Subadvisers"). For its
services under each Subadvisory Agreement, the Subadvisers receive a fee from
Diversified at an annual rate equal to the percentages specified in the table
below of the corresponding series' average daily net assets. Each fee will be
accrued monthly by multiplying the arithmetic average of the beginning and
ending monthly net assets in the series by the fee schedule and dividing by 12.
Each fee will be paid on a quarterly basis.
<TABLE>
<CAPTION>
COMPENSATION RATES(%)
DIVERSIFIED INVESTORS PORTFOLIO -------------------------
PORTFOLIO SERIES SUBADVISERS ADVISER(1) SUBADVISERS
--------------------- ---------------------------------- ---------- -----------
<S> <C> <C> <C>
Money Market Series Capital Management Group 0.25 0.05
Intermediate Government Bond Series Capital Management Group 0.35 0.15
Core Bond Series Payden & Rygel (2) 0.15
Balanced Series Aeltus Investment Management, Inc. 0.45 (3)
Payden & Rygel (2)
Value & Income Series Asset Management Group 0.45 (4)
Equity Growth Series Dresdner RCM Global 0.62 (5)
Investors, LLC
Montag & Caldwell, Inc.
</TABLE>
- ---------------
(1) The Adviser is currently waiving a portion of its fee. See
"Synopsis -- Table of Fees" at page 6 for a discussion of the fee waivers
currently in effect.
(2) For Aeltus, 0.20% on the first $200,000,000 of average net assets, 0.15% on
the next $300,000,000 of average net assets, 0.125% on the next $500,000,000
of average net assets, and 0.10% on all assets in excess of $1,000,000,000.
For Payden & Rygel, 0.20% on the first $50,000,000 of average net assets,
0.15% on the next $50,000,000 of average net assets, and 0.10% on all assets
in excess of $100,000,000.
(3) 0.35% on the first $50,000,000 of average net assets of the Balanced
Portfolio, 0.30% on the next $50,000,000 in assets and 0.25% on assets in
excess of $100,000,000.
(4) 0.25% on the first $100,000,000 of average net assets of the Equity Income
Portfolio and 0.20% on assets in excess of $100,000,000.
(5) 0.50% on the first $50,000,000 in assets, 0.25% on the next $50,000,000 in
assets; and 0.20% on assets in excess of $100,000,000.
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<PAGE> 46
Diversified has selected Subadvisers for each series which have been
approved by the Trustees of Diversified Investors Portfolios and the investors
in said series and has entered into an Investment Subadvisory Agreement with
each Subadviser. It is the responsibility of a Subadviser to make the day-
to-day investment decisions of the series and to place the purchase and sales
orders for securities transactions of such series, subject in all cases to the
general supervision of Diversified. Each Subadviser makes the investment
selections for its respective series consistent with the guidelines and
directions set by Diversified and the Board of Trustees of Diversified Investors
Portfolios. Each Subadviser furnishes at its own expense all services,
facilities and personnel necessary in connection with managing the corresponding
series' investments and effecting securities transactions for a series. The
subadvisers are as follows:
MONEY MARKET SERIES AND
INTERMEDIATE GOVERNMENT
BOND SERIES
Capital Management Group, a division of 1740
Advisers, Inc., a wholly-owned subsidiary of MONY
Life Insurance Company. Capital Management Group
has been a registered investment adviser since
1971. The address of Capital Management Group is
1740 Broadway, New York 10019.
The following representatives of Capital Management
Group are primarily responsible for the day-to-day
management of the Portfolios:
Money Market Series: David E. Wheeler, Investment
Vice President and Portfolio Manager, has been
responsible for the day-to-day management of the
Portfolio since 1997. Mr. Wheeler has been employed
by Capital Management Group since 1994 and was
employed at AIG Investment Advisers prior to 1994.
Intermediate Government Bond Series and Core Bond
Series: Gregory Staples, Vice President, has been
responsible for the day-to-day management of the
Intermediate Government Bond Portfolio since 1994.
Mr. Staples has been employed by Capital Management
Group since 1987.
CORE BOND SERIES:
Payden & Rygel. Payden was formed in 1984 and is
owned by certain of its employees. Payden (or its
predecessor) has been a registered investment
adviser since 1983. The principal business address
of Payden is 333 South Grand Avenue, 32nd Floor,
Los Angeles, California 90071.
BALANCED SERIES
AELTUS INVESTMENT
MANAGEMENT, INC.
PAYDEN & RYGEL:
Aeltus Investment Management, Inc. Aeltus was
formed in 1972 and is an indirect wholly-owned
subsidiary of Aetna Inc. Aeltus has been a
registered investment adviser since 1972. The
principal business address of Aeltus is 10 State
House Square, Hartford, Connecticut 06103-3602.
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<PAGE> 47
Geoffrey A. Brod, Portfolio Manager, has been
responsible for the day-to-day supervision of the
Balanced Fund on behalf of Aeltus since 1999 and
has been employed by Aeltus or its parent company
since 1966.
Payden & Rygel. Payden was formed in 1984 and is
owned by certain of its employees. Payden (or its
predecessor) has been a registered investment
adviser since 1983. The principal business address
of Payden is 333 South Grand Avenue, 32nd Floor,
Los Angeles, California 90071.
VALUE & INCOME SERIES:
Asset Management Group, a division of 1740
Advisers, Inc., which is a wholly-owned subsidiary
of MONY. Asset Management Group has been a
registered investment adviser since 1971. The
address of Asset Management Group is 1740 Broadway,
New York, New York 10019.
Investment management decisions at Asset Management
Group are made by committee and not by managers
individually.
EQUITY GROWTH SERIES:
Dresdner RCM Global Investors, LLC
Montag & Caldwell, Inc.
Dresdner RCM Global Investors, LLC was established
in 1996, when Dresdner Bank acquired RCM Capital
Management, LLC. Dresdner RCM has been a registered
investment adviser since 1972. The principal
address of Dresdner RCM is Four Embarcadero Center,
Suite 2900, San Francisco, California 94111.
Investment management decisions of Dresdner RCM are
made by committee and not by managers individually.
Montag & Caldwell Incorporated was established in
1945 and is owned by Alleghany Corporation. Montag
& Caldwell has been a registered investment adviser
since 1968. The principal address of Montag &
Caldwell is 3343 Peachtree Road, N.E., Suite 1100,
Atlanta, Georgia 30326-1022.
Investment management decisions of Montag &
Caldwell are made by committee and not by managers
individually.
ADMINISTRATOR. Pursuant to an Administrative Services Agreement (and the
Advisory Agreement), Diversified, as Administrator, provides Diversified
Investors Portfolios with general office facilities and supervises the overall
administration of Diversified Investors Portfolios, including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the independent contractors and agents of
Diversified Investors Portfolios; the preparation and filing of all documents
required for compliance by Diversified Investors Portfolios with applicable laws
and regulations; providing equipment and clerical personnel necessary for
maintaining the organization of Diversified Investors Portfolios; preparation of
certain documents in connection
46
<PAGE> 48
with meetings of Trustees and investors of Diversified Investors Portfolios; and
the maintenance of books and records of Diversified Investors Portfolios.
Diversified provides persons satisfactory to the Board of Trustees of
Diversified Investors Portfolios to serve as officers of Diversified Investors
Portfolios. Such officers, as well as certain other employees and Trustees of
Diversified Investors Portfolios, may be directors, officers or employees of
Diversified or its affiliates. The Administrator receives no additional fee for
its administrative services to Diversified Investors Portfolios.
EXPENSES. The expenses of Diversified Investors Portfolios include the
compensation of its Trustees who are not affiliated with the Adviser or
Diversified; governmental fees; interest charges; taxes; fees and expenses of
independent auditors, of legal counsel and of any transfer agent, depository,
registrar or dividend disbursing agent of Diversified Investors Portfolios;
insurance premiums; and expenses of calculating the net asset value of, and the
net income on, beneficial interests in the series of Diversified Investors
Portfolios. Expenses of Diversified Investors Portfolios also include the
expenses connected with the execution, recording and settlement of securities
transactions; fees and expenses of Diversified Investors Portfolios' custodian
for all services to the series of Diversified Investors Portfolios, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of preparing and mailing reports to investors and to governmental
officers and commissions; expenses of meetings of investors and Trustees of
Diversified Investors Portfolios; and the advisory fees payable to Diversified
under the Advisory Agreement.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT. Investors Bank &
Trust Company is the custodian of the securities held by Diversified Investors
Portfolios and is authorized to use the facilities of the Depository Trust
Company and the facilities of the book-entry system for the Federal Reserve
Bank. Investors Bank & Trust Company is the transfer agent and
dividend-disbursing agent for Diversified Investors Portfolios.
EXCLUSIVE PLACEMENT AGENT. Diversified Investors Portfolios has retained
the services of Diversified Investors Securities Corp., ("DISC") as Exclusive
Placement Agent. The principal business address of DISC is 4 Manhattanville
Road, Purchase, New York 10577. DISC receives no compensation as Exclusive
Placement Agent.
OTHER INFORMATION REGARDING
DIVERSIFIED INVESTORS PORTFOLIOS
PURCHASE AND REDEMPTION OF INTERESTS IN DIVERSIFIED INVESTORS
PORTFOLIOS. Beneficial interests in the series of Diversified Investors
Portfolios described in this Prospectus are currently being offered by DISC to
MONY for allocation to Subaccounts to fund benefits payable under the Contracts.
Investments in Diversified Investors Portfolios may only be made by investment
companies, insurance company separate accounts, common or commingled trust funds
or similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Prospectus does not constitute
an offer to sell, or the solicitation of an offer to buy, any beneficial
interests in the series of Diversified Investors Portfolios.
The net asset value of each series of Diversified Investors Portfolios is
determined each day during which the Advisers of that series are open for
business ("Portfolio Business Day"). This determination is made once each day as
of the close of regular trading on the New York Stock Exchange, currently 4:00
p.m., New York time (the "Valuation Time").
Each investor in a series of Diversified Investors Portfolios may add to or
reduce its investment in such series on each Portfolio Business Day. As of the
Valuation Time on each such day, the value of each investor's beneficial
interest in a series will be determined by multiplying the net asset value of
the series by the percentage, effective for that day, which represents that
investor's share of the aggregate beneficial interests in the series. Any
additions or reductions, which are to be effected as of the Valuation Time on
such day, will then be effected. The investor's percentage of the aggregate
beneficial interests in a series will then be recomputed as the percentage equal
to the fraction (i) the numerator of which is the value of such investor's
investment in the series as of the Valuation Time on such day plus or minus, as
the case may be, the amount of net additions to or reductions in the investor's
investment in the series effected as of the Valuation Time, and (ii) the
denominator of which is the aggregate net
47
<PAGE> 49
asset value of the series as of the Valuation Time on such day, plus or minus,
as the case may be, the amount of net additions to or reductions in the
aggregate net asset value of the series as of the Valuation Time on such day,
plus or minus as the case may be, the amount of net additions to or reductions
in the aggregate investments in the series by all investors in such series. The
percentage so determined will then be applied to determine the value of the
investor's interest in the series as of the Valuation time on the following
Portfolio Business Day.
An investor in a series of Diversified Investors Portfolios may withdraw
all or any portion of its investment at the net asset value next determined if a
withdrawal request in proper form is furnished by the investor to Diversified
Investors Portfolios by the designated cut-off time for each accredited
investor. The proceeds of a reduction or a withdrawal will be paid by
Diversified Investors Portfolios in federal funds normally on the Portfolio
Business Day the withdrawal is effected, but in any event within seven days.
Diversified Investors Portfolios, on behalf of each of its series, reserves the
right to pay redemptions in kind. Unless requested by an investor, Diversified
Investors Portfolios will not make a redemption in kind to the investor, except
in situations where that investor may make redemptions in kind. Diversified
Investors Portfolios, on behalf of each of its series, has elected, however, to
be governed by Rule 18f-1 under the 1940 Act, as a result of which Diversified
Investors Portfolios is obligated to redeem beneficial interests in each series
with respect to any one investor during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the series at the
beginning of the period. Investments in a series may not be transferred.
The right to redeem beneficial interests or to receive payment with respect
to any redemption may be suspended only (i) for any period during which trading
on the New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission or when the New York Stock Exchange is closed (other than
customary weekend and holiday closings), (ii) for any period during which an
emergency exists as defined by the Securities and Exchange Commission as a
result of which disposal of a series' securities or determination of the net
asset value of each series is not reasonably practicable, and (iii) for such
other periods as the Securities and Exchange Commission may by order permit for
the protection of investors in any series of Diversified Investors Portfolios.
NET ASSET VALUE. Diversified Investors Portfolios values the securities of
the Money Market Series based on the amortized cost method of valuation.
Securities of other series of Diversified Investors Portfolios are valued based
on their current market value when market quotations are available. Where market
quotations are not available, assets are valued at fair value as determined in
good faith under the direction of Diversified Investors Portfolios' Board of
Trustees. Debt obligations with 60 days or less remaining to maturity may be
valued by the amortized cost method, which the Diversified Investor Portfolios'
Trustees have determined to constitute fair value for such securities. For more
information on the valuation of portfolio securities, see "Diversified Investors
Portfolios" in the Statement of Additional Information.
TAXATION OF DIVERSIFIED INVESTORS PORTFOLIOS. Diversified Investors
Portfolios is organized as a New York trust. None of its series is subject to
any income or franchise tax in the State of New York. However, each investor in
a series will be taxable on its share (as determined in accordance with the
governing instruments of Diversified Investors Portfolio) of the series'
ordinary income and capital gain in determining its income tax liability. The
determination of such share will be made in accordance with the Code, and
regulations promulgated thereunder.
Diversified Investors Portfolios, since it is taxed as a partnership, is
not subject to federal income taxation. Instead, any investor in Diversified
Investors Portfolios must take into account, in computing its federal income tax
liability, its share of Diversified Investors Portfolios' income, gains, losses,
deductions, credits and tax preference items, without regard to whether it has
received any cash distributions from Diversified Investors Portfolios.
Withdrawals by any investor in Diversified Investors Portfolios from its
corresponding series generally will not result in recognizing any gain or loss
for federal income tax purposes, except that (1) gain will be recognized to the
extent that any cash distributed exceeds the basis of such investor's interest
in the series prior to the distribution, (2) income or gain will be realized if
the withdrawal is in liquidation of such investor's entire interest in the
series and includes a disproportionate share of any
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<PAGE> 50
unrealized receivables held by the series and (3) loss will be recognized if the
distribution is in liquidation of that entire interest and consists solely of
cash and/or unrealized receivables. The basis of any investor's interest in
Diversified Investors Portfolios generally equals the amount of cash and the
basis of any property that such investor invests in a series, increased by such
investor's share of income from that series and decreased by the amount of any
cash distributions and the basis of any property distributed from that series.
DESCRIPTION OF BENEFICIAL INTERESTS, VOTING RIGHTS AND
LIABILITIES. Diversified Investors Portfolios is organized as a series trust
under the laws of the State of New York. Under the Declaration of Trust, the
Trustees are authorized to issue beneficial interests in one or more series
(each a "Series"). Investment in each series may not be transferred, but an
investor may withdraw all or any portion of its investment at any time at net
asset value. Investors in a series (e.g., investment companies, insurance
company separate accounts and common and commingled trust funds) will each be
liable for all obligations of that series (and of no other series). However, the
risk of an investor in a series incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and the series itself was unable to meet its obligations. Investments in each
series have no preemptive or conversion rights and are fully paid and
nonassessable, except as set forth below.
Each investor is entitled to a vote in proportion to the amount of its
investment in each series. Investors in a series will vote as a separate class,
except as to voting for election of Trustees of Diversified Investors
Portfolios, as otherwise required by the 1940 Act, or if determined by the
Trustees of Diversified Investors Portfolios to be a matter which affects all
series. As to any matter which does not affect a particular series, only
investors in the one or more affected series are entitled to vote. Diversified
Investors Portfolios is not required and has no current intention of holding
special meetings of investors, but special meetings of investors will be held
when in the judgment of the Trustees of Diversified Investors Portfolios, it is
necessary or desirable to submit matters for an investor vote. Changes in
fundamental policies will be submitted to investors for approval. Investors
under certain circumstances (e.g., upon application and submission of certain
specified documents to the Trustees of Diversified Investors Portfolios by a
specified number of investors) have the right to communicate with other
investors in connection with requesting a meeting of investors for the purpose
of removing one or more Trustees of Diversified Investors Portfolios. Investors
also have the right to remove one or more Trustees of Diversified Investors
Portfolios without a meeting by a declaration in writing by a specified number
of investors. Upon liquidation of a series, investors would be entitled to share
pro rata in the net assets of that series (and no other series) available for
distribution to investors. See "Voting Rights" at page 22.
Each series determines its net income and realized capital gains, if any,
on each Portfolio Business Day and allocates all such income and gain pro rata
among the investors in such series at the time of such determination.
The "net income" of each series shall consist of (i) all income accrued,
less the amortization of any premium, on the assets of the series, less (ii) all
actual and accrued expenses of the series determined in accordance with
generally accepted accounting principles. Interest income includes discount
earned (including both original issue and market discount) on discount paper
accrued ratably to the date of maturity and any net realized gains or losses on
the assets of a series. All the net income of each series is allocated pro rata
among the investors in the series (and no other series).
Inquiries regarding the Diversified Investors Portfolios may be directed to
4 Manhattanville Road, Purchase, New York 10577 (914-697-8000).
EXPERTS
The balance sheets of MONY as of December 31, 1999 and 1998 and the related
statements of operations and cash flows for the years then ended, as well as the
statements of assets and liabilities for Keynote Series Account as of December
31, 1999, and the related statements of operations for the year then ended and
the statements of changes in net assets for the years ended December 31, 1998
and 1998 have been audited by PricewaterhouseCoopers LLP, independent
accountants, whose reports thereon
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<PAGE> 51
are set forth in the Statement of Additional Information. These financial
statements have been included in reliance on the report of the said firm, given
on the authority of that firm as experts in auditing and accounting.
LEGAL PROCEEDINGS
MONY is engaged in various kinds of routine litigation which, in the
opinion of management, are not of material importance in relation to the total
capital, results of operations, surplus or cash flows of MONY. There are no
legal proceedings to which Keynote is a party.
FINANCIAL STATEMENTS
The financial statements for MONY, included in the Statement of Additional
Information, should be distinguished from the financial statements of Keynote,
included in the Statement of Additional Information, and should be considered
only as bearing on the ability of MONY to meet its obligations under the
Contracts. The financial statements of MONY should not be considered as bearing
on the investment performance of the assets held in Keynote.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information set forth in the
registration statement, certain portions of which have been omitted (including
financial statements relating to MONY) pursuant to the rules and regulations of
the SEC. The omitted information may be obtained from the SEC's principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission.
For further information with respect to MONY, the Contracts offered by this
Prospectus and Diversified Investors Portfolios, including the Statement of
Additional Information (which includes financial statements relating to MONY),
contact MONY at its address or phone number set forth on the cover of this
Prospectus for requesting such statement.
For further information with respect to the Calvert Series, Calvert
Variable Series, Inc. or Calvert Asset Management Company, Inc., including a
Statement of Additional Information, contact the Fund at 4550 Montgomery Avenue,
Suite 1000N, Bethesda, Maryland 20814, or call (301) 951-4820.
MISCELLANEOUS
The Accounts are separate registered accounts of AUSA. There is a
possibility that one Account might become liable for a misstatement in this
Prospectus about the other Account. AUSA believes this possibility is remote.
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<PAGE> 52
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Independent Accountants..................................... 2
Sale of Contracts/Principal Underwriter..................... 2
Performance Data............................................ 2
Diversified Investors Portfolios............................ 5
Investment Objectives, Policies and Restrictions,........... 5
Determination of Net Asset Value; Valuation of Securities... 23
Management of Diversified Investors Portfolios.............. 23
Independent Accountants..................................... 26
Capital Stock and Other Securities.......................... 26
Taxation.................................................... 28
Financial Statements of MONY................................ 29
Appendix.................................................... A-1
</TABLE>
51
<PAGE> 53
REQUEST FOR KEYNOTE
STATEMENT OF ADDITIONAL INFORMATION
Detach and return in an envelope addressed:
MONY
c/o Diversified Investment Advisors, Inc.
4 Manhattanville Road
Purchase, New York 10577
Attn: Not-For-Profit Service
Please make sure that your name and the address to which you wish MONY to
send the current Keynote Statement of Additional Information appears below:
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Employer
- --------------------------------------------------------------------------------
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<PAGE> 54
APPENDIX
APPLICABLE PREMIUM TAX RATES
<TABLE>
<CAPTION>
PREMIUM TAX RATE PERCENT
--------------------------
QUALIFIED NON QUALIFIED
--------- -------------
<S> <C> <C>
California.................................................. .50% 2.35%
District of Columbia........................................ -- --
Kentucky.................................................... 2.00% 2.00%
Maine....................................................... -- 2.00%
Nevada...................................................... -- 3.50%
Puerto Rico................................................. 1.00% 1.00%
South Dakota................................................ -- 1.25%
West Virginia............................................... 1.00% 1.00%
Wyoming..................................................... -- 1.00%
</TABLE>
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<PAGE> 55
Information about contracts can also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. You can get information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can receive
copies of this information by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, DC 20549-6009.
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(This page intentionally left blank.)
<PAGE> 57
(This page intentionally left blank.)
<PAGE> 58
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
GROUP VARIABLE ANNUITY CONTRACTS
ISSUED BY
KEYNOTE SERIES ACCOUNT
AND
MONY LIFE INSURANCE COMPANY
1740 BROADWAY, NEW YORK, N.Y. 10019;
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT IT RELATES TO,
AND SHOULD BE READ IN CONJUNCTION WITH, THE PROSPECTUS DATED MAY 1, 2000 FOR THE
GROUP VARIABLE ANNUITY CONTRACTS ISSUED BY THE MUTUAL LIFE INSURANCE COMPANY OF
NEW YORK ("MONY") WHICH INVEST IN THE KEYNOTE SERIES ACCOUNT ("KEYNOTE"). THE
PROSPECTUS IS AVAILABLE, AT NO CHARGE, BY WRITING MONY AT 4 MANHATTANVILLE RD.,
PURCHASE, NEW YORK 10577 OR BY CALLING (914) 697-8000.
A SEPARATE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE WITHOUT CHARGE FOR
CALVERT VARIABLE SERIES, INC. OF WHICH THE CALVERT SOCIAL BALANCED PORTFOLIO IS
A PART BY WRITING TO CALVERT VARIABLE SERIES, INC. AT 4550 MONTGOMERY AVENUE,
SUITE 1000N, BETHESDA, MARYLAND 20814 OR BY TELEPHONING 301-951-4820.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Independent Accountants..................................... 2
Sale of Contract/Principal Underwriter...................... 2
Performance Data............................................ 2
Diversified Investors Portfolios............................ 5
Investment Objectives, Policies and Restrictions,......... 5
Determination of Net Asset Value; Valuation of
Securities............................................. 23
Management of Diversified Investors Portfolios............ 23
Independent Accountant.................................... 26
Capital Stock and Other Securities........................ 26
Taxation.................................................. 28
Financial Statements of MONY................................ 29
Appendix.................................................... A-1
</TABLE>
<PAGE> 59
INDEPENDENT ACCOUNTANTS
The financial statements of Keynote and MONY appearing on the following
pages have been audited by PricewaterhouseCoopers LLP, independent accountants,
and are included herein in reliance on the reports of PricewaterhouseCoopers LLP
given upon the authority of said firm as experts in accounting and auditing.
PricewaterhouseCoopers LLP is located at 1177 Avenue of the Americas, New York,
New York 10036.
SALE OF CONTRACTS/PRINCIPAL UNDERWRITER
MONY Securities Corp ("MSC") is the principal underwriter and distributor
of the Contracts which will be sold by registered representatives who are also
licensed insurance agents of MONY. The Contracts may also be sold through other
broker-dealers authorized by MSC and applicable law and who may be insurance
agents licensed by an insurance company other than MONY. MSC is registered with
the Securities and Exchange Commission as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc.
MSC will not receive underwriting commissions. Registration as a
broker-dealer does not mean that Securities and Exchange Commission ("the SEC")
has passed upon the financial standing, fitness or conduct of any broker or
dealer, or upon the merits of any security offering or upon any other matter
relating to the business of any broker or dealer.
PERFORMANCE DATA
MONEY MARKET SUBACCOUNT
For the seven day period ended December 31, 1999, the yield for the Money
Market Subaccount was 5.84% and the effective yield was 6.01%.
The yield is calculated by dividing the result of subtracting the value of
one Unit at the end of the seven day period ("Seventh Day Value") from the value
of one Unit at the beginning of the seven day period (""First Day Value") by the
First Day Value (the resulting quotient being the "Base Period Return") and
multiplying the Base Period Return by 365 divided by 7 to obtain the annualized
yield.
The effective yield is calculated by compounding the Base Period Return
calculated in accordance with the preceding paragraph, adding 1 to Base Period
Return, raising that sum to a power equal to 365 divided by 7 and subtracting 1
from the result.
As the Money Market Subaccount invests only in the Money Market Series (the
"Money Market Series") of Diversified Investors Portfolios, the First Day Value
reflects the net asset value of the interest in the Money Market Series held in
the Money Market Subaccount. The Seventh Day Value reflects increases or
decreases in the net asset value of the interest in the Money Market Series held
in the Money Market Subaccount due to the declaration of dividends, net
investment income and the daily charges and deductions from the Subaccount for
mortality and expense risk. Net investment income reflects earnings on
investments less expenses of the Money Market Series including the investment
management fee.
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<PAGE> 60
AVERAGE ANNUAL TOTAL RETURNS: The average annual total return for the
Subaccounts is shown for the periods indicated in the table below.
<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE FOR THE FOR THE PERIOD
YEAR 3 YEAR 5 YEAR 10 YEAR SINCE
ENDED ENDED ENDED ENDED INCEPTION
DEC. 31, DEC. 31, DEC. 31, DEC. 31, THROUGH
1999 1999 1999 1999 DEC. 31, 1999
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Subaccount:
Money Market(1)........................ 4.39% 4.61% 4.70% 4.52% 7.16%
Intermediate Government Bond(1)........ .71% 4.43% 5.74% N/A 6.01%
Core(1)................................ (1.74)% 4.22% 6.38% 6.78% 7.83%
Balanced(1)............................ 10.59% 13.40% 16.60% N/A 13.32%
Value & Income(1)...................... 7.35% 15.71% 19.38% 12.95% 13.93%
Equity Growth(1)....................... 36.36% 32.91% 26.66% N/A 20.70%
Calvert Series(2)...................... 11.22% 15.57% 17.29% 11.49% 11.13%
</TABLE>
- ---------------
(1) On January 3, 1994, each of the corresponding Pooled Separate Accounts of
MONY set forth below contributed all of its assets to the corresponding
Series of Diversified Investors Portfolios in which a corresponding Keynote
Subaccount invests its assets:
<TABLE>
<CAPTION>
MONY POOLED
SERIES SEPARATE ACCOUNT
------ ----------------
<S> <C>
Money Market................................ Pooled Account No. 4
Intermediate Government Bond................ Pooled Account No. 10d
Core Bond................................... Pooled Account No. 5
Balanced.................................... Pooled Account No. 14
Value & Income.............................. Pooled Account No. 6
Equity Growth............................... Pooled Account No. 1
</TABLE>
Total returns calculated for any period for the Money Market,
Intermediate Government Bond, Core Bond, Balanced, Value & Income
Subaccounts reflect the performance of the corresponding Pooled Separate
Account for any period prior to January 3, 1994 and the performance of the
corresponding series of Diversified Investors Portfolios thereafter. Such
total returns calculated for each of the Subaccounts reflect the
performance of the corresponding Pooled Separate Account only from the date
that such corresponding Pooled Separate Account utilized the services of
the same investment adviser as is presently providing such advice to the
corresponding Series of Diversified Investors Portfolios invested in by the
Subaccount. Such commencement dates are November 1978 for the Money Market
Subaccount, July 1990 for the Intermediate Government Bond Subaccount,
January 1978 for the Core Bond Subaccount, December 1992 for the Balanced
Subaccount and January 1978 for the Value & Income Subaccount, and February
1993 for the Equity Growth Subaccount. All total return percentages reflect
the historical rates of return for such period adjusted to assume that all
charges, expenses and fees of the applicable Subaccount and the
corresponding series of Diversified Investors Portfolios which are
presently in effect were deducted during such period.
(2) The average annual total returns for the Calvert Series Subaccount reflect
the average annual total returns of the Calvert Series. The commencement
date of the Calvert Series is September 30, 1986.
The table above assumes that a $1,000 payment was made to each Subaccount
at the beginning of the period shown, that no further payments were made, that
any distribution from the corresponding series (or its predecessor investment
vehicle) were reinvested, and that a Contractholder surrendered the Contract for
cash, rather than electing commencement of annuity benefits in the form of one
of the Settlement Options available, at the end of the period shown. The
annualized total return percentages shown in the table reflect the annualized
historical rates of return and deductions for all charges,
3
<PAGE> 61
expenses, and fees which would be imposed on the payment assumed by both the
corresponding series and Keynote.
OTHER SUBACCOUNTS
The yield for each of the Subaccounts other than the Money Market
Subaccount and the Calvert Subaccount is shown for the periods indicated in the
table below.
KEYNOTE SERIES ACCOUNT
YIELD FOR 30-DAY PERIOD*
<TABLE>
<CAPTION>
INTERMEDIATE
YIELD FOR 30 EQUITY VALUE & CORE GOVERNMENT
DAYS ENDED GROWTH INCOME BALANCED BOND BOND
------------ ------ ------- -------- ---- ------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999........................... N/A 1.57% 2.43% 6.92% 7.07%
</TABLE>
- ---------------
* The 30 day yield is not indicative of future performance.
The yield shown in the table above is computed by subtracting from the net
investment income of the underlying investment vehicle all charges, expenses and
fees as well as expenses imposed by Keynote and dividing the result by the value
of the Subaccount. For the underlying investment vehicle of the Equity Growth,
Equity Income and for the equity portion of the Balanced Subaccount, net
investment income is the net of the dividends accrued (1/360 of the stated
dividend rate multiplied by the number of days the particular security is in the
underlying investment vehicle) on all equity securities during the 30-day period
and expenses accrued for the period. It does not reflect capital gains or
losses. For the fixed income portion of the Balanced Subaccount, as well as the
Core Bond and Intermediate Government Bond Subaccounts, net investment income is
the net of interest earned on the obligations held by the underlying investment
vehicle of the applicable Subaccount and expenses accrued for the period
determined by (i) computing the yield to maturity based on the market value of
each obligation held in the underlying investment vehicle at the close of
business on the thirtieth day of the period, based on the purchase price plus
accrued interest); (ii) dividing the yield to maturity for each obligation by
360; (iii) multiplying that quotient by the market value of each obligation
(including actual accrued interest) for each day of the subsequent 30-day month
that the obligation is in the underlying investment vehicle; and (iv) totaling
the interest on each obligation. Discount or premium amortization is recomputed
at the beginning of each 30-day period and with respect to discount and premium
on mortgage or other receivables-backed obligations subject to monthly payment
of principal and interest, discount and premium is amortized on the remaining
security, based on the cost of the security, to the weighted average maturity
date, if available, or to the remaining term of the security, if the weighted
average maturity date is not available. Gain or loss attributable to actual
monthly paydowns is reflected as an increase or decrease in interest income
during that period.
The yield shown for each Subaccount reflects deductions for all charges,
expenses, and fees of both its underlying investment vehicle and Keynote.
Net investment income of the underlying investment vehicle less all charges
and expenses imposed by Keynote is divided by the product of the average daily
number of Units outstanding and the value of one Unit on the last day of the
period. The sum of the quotient and 1 is raised to the 6th power, 1 is
subtracted from the result, and then multiplied by 2.
4
<PAGE> 62
DIVERSIFIED INVESTORS PORTFOLIOS
Six series of Diversified Investors Portfolios are presently available for
investment under the Contracts through Subaccounts of Keynote. This section of
the Statement of Additional Information describes each such series, including
Diversified Investors Money Market Portfolio (the "Money Market Series"),
Diversified Investors Intermediate Government Bond Portfolio (the "Intermediate
Government Bond Series"), Diversified Investors Core Bond Portfolio (the "Core
Bond Series"), Diversified Investors Balanced Portfolio (the "Balanced Series"),
Diversified Investors Value & Income Portfolio (the "Equity Income Series") and
Diversified Investors Equity Growth Portfolio (the "Equity Growth Series"). The
series of Diversified Investors Portfolios available under the Contracts may be
collectively referred to herein as the "Series".
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objective of each Series is described in the Prospectus of
Keynote Series Account. There can, of course, be no assurance that a Series will
achieve its investment objective.
INVESTMENT POLICIES
The following discussion supplements the information regarding the
investment objective of each Series and the policies to be employed to achieve
this objective as set forth in the Prospectus of Keynote Series Account.
BANK OBLIGATIONS
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System. Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. In addition, state banks are
subject to Federal examination and to a substantial body of Federal law and
regulation. As a result of Federal or state laws and regulations, domestic
banks, among other things, generally are required to maintain specified levels
of reserves, are limited in the amounts which they can loan to a single
borrower, and are subject to other regulations designed to promote financial
soundness. However, not all of such laws and regulations apply to the foreign
branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as Certificates of Deposit
("CDs") and time deposits ("TDs"), may be general obligations of the parent
banks in addition to the issuing branch, or may be limited by the terms of a
specific obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to
5
<PAGE> 63
reserve requirements imposed by the Federal Reserve System or by the state in
which the branch is located if the branch is licensed in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Advisers carefully evaluate such investments on a
case-by-case basis.
U.S. GOVERNMENT AND AGENCY SECURITIES
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; others, such as those issued by
the Federal National Mortgage Association, by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality. While the U.S.
Government provides financial support to such U.S. Government-sponsored agencies
or instrumentalities, no assurance can be given that it will always do so, since
it is not so obligated by law. A Series will invest in such securities only when
the Advisers are satisfied that the credit risk with respect to the issuer is
minimal.
COMMERCIAL PAPER
Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Each Series may invest in commercial paper issued by major corporations in
reliance on the exemption from registration afforded by Section 3(a)(3) of the
Securities Act of 1933, as amended (the "1933 Act"). Such commercial paper may
be issued only to finance current transactions and must mature in nine months or
less. Trading of such commercial paper is conducted primarily by institutional
investors through investment dealers, and individual investor participation in
the commercial paper market is very limited.
LENDING OF PORTFOLIO SECURITIES
All Series have the authority to lend portfolio securities to brokers,
dealers and other financial organizations. By lending its securities, a Series
can increase its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in short-term
securities or obtaining yield in the form of interest paid by the borrower when
U.S. Government obligations are used as collateral. There may be risks of delay
in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. A Series will adhere to the following conditions
whenever its securities are loaned: (i) the
6
<PAGE> 64
Series must receive at least 100 percent cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase this collateral
whenever the market value of the securities including accrued interest rises
above the level of the collateral; (iii) the Series must be able to terminate
the loan at any time; (iv) the Series must receive reasonable interest on the
loan, as well as any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (v) the Series may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower. However, if a material event
adversely affecting the investment were to occur, the Series would terminate the
loan and regain the right to vote the securities.
VARIABLE RATE AND FLOATING RATE SECURITIES
Each Series may purchase floating and variable rate demand notes and bonds,
which are obligations ordinarily having stated maturities in excess of 397 days,
but which permit the holder to demand payment of principal at any time, or at
specified intervals not exceeding 397 days, in each case upon not more than 30
days' notice. Variable rate demand notes include master demand notes which are
obligations that permit a Series to invest fluctuating amounts, which may change
daily without penalty, pursuant to direct arrangements between the Series, as
lender, and the borrower. The interest rates on these notes fluctuate from time
to time. The issuer of such obligations normally has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of days'
notice to the holders of such obligations. The interest rate on a floating rate
demand obligation is based on a known lending rate, such as a bank's prime rate,
and is adjusted automatically each time such rate is adjusted. The interest rate
on a variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, a Series' right to
redeem is dependent on the ability of the borrower to pay principal and interest
on demand. Such obligations frequently are not rated by credit rating agencies
and a Series may invest in obligations which are not so rated only if the
Advisers determine that at the time of investment the obligations are of
comparable quality to the other obligations in which the Series may invest. The
Advisers, on behalf of a Series, will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations held by the Series. A Series will not invest more than 15% (10% in
the case of the Money Market Series) of the value of its net assets in floating
or variable rate demand obligations as to which it cannot exercise the demand
feature on not more than seven days' notice if there is no secondary market
available for these obligations, and in other securities that are not readily
marketable. See "Investment Restrictions" below.
PARTICIPATION INTERESTS
A Series may purchase from financial institutions participation interests
in securities in which such Series may invest. A participation interest gives a
Series an undivided interest in the security in the proportion that the Series'
participation interest bears to the total principal amount of the security.
These instruments may have fixed, floating or variable rates of interest, with
remaining maturities of 13 months or less. If the participation interest is
unrated, or has been given a rating below that which is permissible for purchase
by the Series, the participation interest will be backed by an irrevocable
letter of credit or guarantee of a bank, or the payment obligation otherwise
will be collateralized by U.S. Government securities, or, in the case of unrated
participation interests, the Advisers must have determined that the instrument
is of comparable quality to those instruments in which a Series may invest. For
certain participation interests, a Series will have the right to demand payment,
on not more than seven days' notice, for all or any part of the Series'
participation interest in the security, plus accrued interest. As to these
instruments, a Series intends to exercise its right to demand payment only
7
<PAGE> 65
upon a default under the terms of the security, as needed to provide liquidity
to meet redemptions, or to maintain or improve the quality of its investment
portfolio. A Series will not invest more than 15% (10% in the case of the Money
Market Series) of its net assets in participation interests that do not have
this demand feature, and in other securities that are not readily marketable.
See "Investment Restrictions" below.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The SEC has recently adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restriction on
their resale to the general public. Rule 144A establishes a "safe harbor" from
the registration requirements of the 1933 Act of resales of certain securities
to qualified institutional buyers. The Advisers anticipate that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this new regulation and the development of automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
The Advisers will monitor the liquidity of Rule 144A securities for each
Series under the supervision of the Diversified Investors Portfolio's Board of
Trustees. In reaching liquidity decisions, the Advisers will consider, among
other things, the following factors: (1) the frequency of trades and quotes for
the security, (2) the number of dealers and other potential purchasers wishing
to purchase or sell the security, (3) dealer undertakings to make a market in
the security and (4) the nature of the security and of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
UNSECURED PROMISSORY NOTES
A Series also may purchase unsecured promissory notes ("Notes") which are
not readily marketable and have not been registered under the 1933 Act, provided
such investments are consistent with the Series' investment objective. The Notes
purchased by a Series will have remaining maturities of 13 months or less and
will be deemed by the Board of Trustees of Diversified Investors Portfolios to
present minimal credit risks and will meet the quality criteria set forth above
under "Investment Policies." A Series will invest no more than 15% (10% in the
case of the Money Market Series) of its
8
<PAGE> 66
net assets in such Notes and in other securities that are not readily
marketable(which securities would include floating and variable rate demand
obligations as to which the Series cannot exercise the demand feature described
above and as to which there is no secondary market). See "Investment
Restrictions" below.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person purchases a security
and simultaneously commits to resell that security to the seller (which is
usually a member bank of the Federal Reserve System or a member firm of the New
York Stock Exchange (or a subsidiary thereof)) at an agreed-upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the seller to pay
the agreed-upon price, which obligation is in effect secured by the value of the
underlying security, usually U.S. Government or Government agency issues. Under
the Investment Company Act of 1940, as amended (the "1940 Act"), repurchase
agreements may be considered to be loans by the buyer. A Series' risk is limited
to the ability of the seller to pay the agreed upon amount on the delivery date.
If the seller defaults, the underlying security constitutes collateral for the
seller's obligation to pay although a Series may incur certain costs in
liquidating this collateral and in certain cases may not be permitted to
liquidate this collateral. All repurchase agreements entered into by a Series
are fully collateralized, with such collateral being marked to market daily.
A Series may borrow funds for temporary or emergency purposes, such as
meeting larger than anticipated redemption requests, and not for leverage, and
by agreeing to sell portfolio securities to financial institutions such as banks
and broker-dealers and to repurchase them at a mutually agreed date and price (a
"reverse repurchase agreement"). At the time a Series enters into a reverse
repurchase agreement it will place in a segregated custodial account cash, U.S.
Government securities or high-grade debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Series may
decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by a Series.
FOREIGN SECURITIES - ALL SERIES
Each Series may invest its assets in securities of foreign issuers.
Investing in securities issued by companies whose principal business activities
are outside the United States may involve significant risks not present in
domestic investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing and financial
reporting requirements comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, brokerage or other taxation, limitation on the removal of
funds or other assets of a Series, political or financial instability or
diplomatic and other developments which would affect such investments. Further,
economies of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for foreign
securities would be on exchanges or in over-the-counter markets located outside
the U.S. Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S., and securities of some foreign
issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. companies. Foreign security
trading practices, including those involving securities settlement where a
Series' assets may be released prior to receipt of payment, may expose a Series
to increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. In addition, foreign brokerage commissions are generally higher
than commis-
9
<PAGE> 67
sions on securities traded in the U.S. and may be non-negotiable. In general,
there is less overall governmental supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the U.S.
FOREIGN SECURITIES - MONEY MARKET SERIES
The Money Market Series may invest in foreign securities, including only
U.S. dollar-denominated obligations of foreign branches and subsidiaries of
domestic banks and foreign banks, such as Eurodollar certificates of deposit,
which are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, and Yankee CDs,
which are certificates of deposit issued by a U.S. branch of a foreign bank
denominated in U.S. dollars and held in the United States; Eurodollar time
deposits ("ETDs"), which are U.S. dollar-denominated deposits in a foreign
branch of a foreign or domestic bank, and Canadian time deposits, which are
essentially the same as ETDs except they are issued by branches of major
Canadian banks; high quality, U.S. dollar-denominated short-term bonds and notes
(including variable amount master demand notes) issued by foreign corporations,
including Canadian commercial paper, which is commercial paper issued by a
Canadian corporation or a Canadian counterpart of a U.S. corporation, and
Europaper, which is U.S. dollar-denominated commercial paper of a foreign
issuer; and U.S. dollar-denominated obligations issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Adviser to be of comparable quality
to the other obligations in which the Money Market Series may invest. Such
securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.
FOREIGN SECURITIES - SERIES OTHER THAN MONEY MARKET SERIES
Each Series' policy is not to invest more than 25% of its assets in
securities of foreign issuers; not more than 5% of a Series' assets may be
invested in closed-end investment companies which primarily hold foreign
securities. Investments in such companies may entail the risk that the market
value of such investments may be substantially less than their net asset value
and that there would be duplication of investment management and other fees and
expenses. Securities of foreign issuers include investments in sponsored
American Depository Receipts ("ADRs"). ADRs are depository receipts for
securities of foreign issuers and provide an alternative method for a Series to
make foreign investments. These securities will not be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities.
Each Series may invest in foreign securities that impose restrictions on
transfer within the United States or to United States persons. Although
securities subject to such transfer restrictions may be marketable abroad, they
may be less liquid than foreign securities of the same class that are not
subject to such restrictions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Because some Series may buy and sell securities denominated in currencies
other than the U.S. dollar and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, such Series from time to time may enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. Such Series either enter into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market or use
forward contracts to purchase or sell foreign currencies.
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A forward foreign currency exchange contract is an obligation by a Series
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. A Series maintains with its custodian a segregated
account of high grade liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Series' securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Series may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into the Advisers' long-term investment
decisions, the Series will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, the Advisers
believe that it is important to have the flexibility to enter into foreign
currency hedging transactions when they determine that the transactions would be
in a Series' best interest. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the Commodity Futures
Trading Commission ("CFTC"), the CFTC may in the future assert authority to
regulate forward contracts. In such event a Series' ability to utilize forward
contracts in the manner set forth herein and in the Prospectus may be
restricted. Forward contracts may reduce the potential gain from a positive
change in the relationship between the U.S. dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for a Series than if it had not entered into such contracts. The use
of foreign currency forward contracts may not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the prices of or rates of return on a
Series' foreign currency denominated portfolio securities and the use of such
techniques will subject a Series to certain risks.
The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated asset
that is the subject of the hedge generally will not be precise. In addition, a
Series may not always be able to enter into foreign currency forward contracts
at attractive prices and this will limit a Series' ability to use such contract
to hedge or cross-hedge its assets. Also, with regard to a Series' use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying a Series' cross-hedges and
the movements in the exchange rates of the foreign currencies in which a Series'
assets that are the subject of such cross-hedges are denominated.
GUARANTEED INVESTMENT CONTRACTS
Each Series may invest in guaranteed investment contracts ("GICs") issued
by insurance companies. Pursuant to such contracts, a Series makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the fund guaranteed interest. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expenses and
service costs
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allocable to it, and the charges will be deducted from the value of the deposit
fund. Because a Series may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, the GIC is considered an
illiquid investment and, together with other instruments in a Series which are
not readily marketable, will not exceed 15% (10% in the case of the Money Market
Series) of the Series' net assets. The term of a GIC will be thirteen months or
less. In determining average weighted portfolio maturity, a GIC will be deemed
to have a maturity equal to the longer of the period of time remaining until the
next readjustment of the guaranteed interest rate or the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
WHEN-ISSUED SECURITIES
Each Series may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, under normal circumstances, a Series would
take delivery of such securities. When a Series commits to purchase a security
on a "when-issued" or on a "forward delivery" basis, the Series establishes
procedures consistent with the relevant policies of the Securities and Exchange
Commission. Since those policies currently recommend that an amount of a Series'
assets equal to the amount of the purchase be held aside or segregated to be
used to pay for the commitment, the Series expects always to have cash, cash
equivalents, or high quality debt securities sufficient to cover any commitments
or to limit any potential risk. However, although a Series does not intend to
make such purchases for speculative purposes and intends to adhere to the
provisions of Securities and Exchange Commission policies, purchases of
securities on such bases may involve more risk than other types of purchases.
For example, a Series may have to sell assets which have been set aside in order
to meet redemptions. Also, if a Series determines it is advisable as a matter of
investment strategy to sell the "when-issued" or "forward delivery" securities,
the Series would be required to meet its obligations from the then available
cash flow or the sale of securities, or, although it would not normally expect
to do so, from the sale of the "when-issued" or "forward delivery" securities
themselves (which may have a value greater or less than the Series' payment
obligation).
ZERO COUPON OBLIGATIONS
Each Series may acquire zero coupon obligations when consistent with its
investment objective and policies. Such obligations have greater price
volatility than coupon obligations and will not result in payment of interest
until maturity. Since dividend income is accrued throughout the term of the zero
coupon obligation but is not actually received until maturity, a Series may have
to sell other securities to pay said accrued dividends prior to maturity of the
zero coupon obligation.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS - SERIES OTHER THAN MONEY
MARKET SERIES
GENERAL. The successful use of such instruments draws upon the Advisers'
skill and experience with respect to such instruments and usually depends on the
Advisers' ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Series may not achieve the anticipated benefits of futures contracts or options
on futures contracts or may realize losses and thus will be in a worse position
than if such strategies had not been used. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the price of the securities and currencies hedged or used for cover
will not be perfect and could produce unanticipated losses.
FUTURES CONTRACTS. A Series may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the CFTC, and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. A Series may enter
into futures contracts which are
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based on debt securities that are backed by the full faith and credit of the
U.S. Government, such as long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities and three-month U.S. Treasury Bills. A Series may also enter into
futures contracts which are based on bonds issued by entities other than the
U.S. Government.
At the same time a futures contract is purchased or sold, the Series must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Series would
provide or receive cash that reflects any decline or increase in the contract's
value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, a Series will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the case
of a Series which holds or intends to acquire fixed-income securities, is to
attempt to protect the Series from fluctuations in interest or foreign exchange
rates without actually buying or selling fixed-income securities or foreign
currencies. For example, if interest rates were expected to increase, a Series
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the debt
securities owned by the Series. If interest rates did increase, the value of the
debt securities in a Series would decline, but the value of the futures
contracts to the Series would increase at approximately the same rate, thereby
keeping the net asset value of the Series from declining as much as it otherwise
would have. The Series could accomplish similar results by selling debt
securities and investing in bonds with short maturities when interest rates are
expected to increase. However, since the futures market is more liquid than the
cash market, the use of futures contracts as an investment technique allows a
Series to maintain a defensive position without having to sell its portfolio
securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Series could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Series could then buy debt securities on
the cash market. To the extent a Series enters into futures contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Series' obligations with respect to such futures contracts will consist of cash,
cash equivalents or high quality liquid debt securities from its portfolio in an
amount equal to the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial and variation margin
payments made by the Series with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the
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futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the margin
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price distortions. Due to
the possibility of distortion, a correct forecast of general interest rate
trends by the Advisers may still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Advisers believe
that use of such contracts will benefit the Series, if the Advisers' investment
judgment about the general direction of interest rates is incorrect, a Series'
overall performance would be poorer than if it had not entered into any such
contract. For example, if a Series has hedged against the possibility of an
increase in interest rates which would adversely affect the price of debt
securities held by it and interest rates decrease instead, the Series will lose
part or all of the benefit of the increased value of its debt securities which
it has hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if a Series has insufficient cash, it may have
to sell debt securities to meet daily variation margin requirements. Such sales
of bonds may be, but will not necessarily be, at increased prices which reflect
the rising market. A Series may have to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. The Series intend to purchase and write
options on futures contracts for edging purposes. The purchase of a call option
on a futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when a Series is not fully invested it may
purchase a call option on a futures contract to hedge against a market advance
due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Series will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Series' portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Series will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of securities which the Series intends to purchase. If a put or call
option the Series has written is exercised, the Series will incur a loss which
will be reduced by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its portfolio securities
and changes in the value of its futures positions, the Series' losses from
existing options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Series may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk a Series assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees of Diversified Investors Portfolios has adopted the
requirement that futures contracts and options on futures contracts be used
either (i) as a hedge without regard to any quantitative limitation, or (ii) for
other purposes to the extent that immediately thereafter the aggregate
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amount of margin deposits on all (non-hedge) futures contracts of the Series and
premiums paid on outstanding (non-hedge) options on futures contracts owned by
the Series does not exceed 5% of the market value of the total assets of a
Series. In addition, the aggregate market value of the outstanding futures
contracts purchased by a Series may not exceed 50% of the market value of the
total assets of the Series. Neither of these restrictions will be changed by the
Board of Trustees of Diversified Investors Portfolios without considering the
policies and concerns of the various applicable federal and state regulatory
agencies.
OPTIONS ON FOREIGN CURRENCIES. A Series may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
a Series may purchase put options on the foreign currency. If the value of the
currency does decline, the Series will have the right to sell such currency for
a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Series may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to a Series deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, a Series could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
A Series may write options on foreign currencies for the same types of
hedging purposes. For example, where a Series anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Series
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Series to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Series would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Series also may be required to forego all or
a portion of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.
The Series intend to write covered call options on foreign currencies. A
call option written on a foreign currency by a Series is "covered" if the Series
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other foreign currency held in
its portfolio. A call option is also covered if the Series has a call on the
same foreign currency and in the same principal amount as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Series in cash, U.S. Government
securities and other high quality liquid debt securities in a segregated account
with its custodian.
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The Series also intend to write call options on foreign currencies that are
not covered for cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the Series
owns or has the right to acquire and which is denominated in the currency
underlying the option due to an adverse change in the exchange rate. In such
circumstances, a Series collateralizes the option by maintaining in a segregated
account with its custodian, cash or U.S. Government securities or other high
quality liquid debt securities in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES. Unlike transactions entered into by a Series in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a Series
to liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-traded currency options. A Series' ability to
terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, each Series will
treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to options written
with primary dealers in U.S. Government Securities pursuant to an agreement
requiring a closing purchase transaction at a
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formula price, the amount of illiquid securities may be calculated with
reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Series'
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
OPTIONS ON SECURITIES - SERIES OTHER THAN MONEY MARKET SERIES
The Series may write (sell) covered call and put options to a limited
extent on its portfolio securities ("covered options") in an attempt to increase
income. However, a Series may forgo the benefits of appreciation on securities
sold or may pay more than the market price on securities acquired pursuant to
call and put options written by the Series.
When a Series writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at the price specified in the
option (the "exercise price") by exercising the option at any time during the
option period. If the option expires unexercised, the Series will realize income
in an amount equal to the premium received for writing the option. If the option
is exercised, a decision over which a Series has no control, the Series must
sell the underlying security to the option holder at the exercise price. By
writing a covered call option, a Series forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security above the
exercise price.
When a Series writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Series at the specified
exercise price at any time during the option period. If the option expires
unexercised, the Series will realize income in the amount of the premium
received for writing the option. If the put option is exercised, a decision over
which a Series has no control, the Series must purchase the underlying security
from the option holder at the exercise price. By writing a covered put option, a
Series, in exchange for the net premium received, accepts the risk of a decline
in the market value of the underlying security below the exercise price. A
Series will only write put options involving securities for which a
determination is made at the time the option is written that the Series wishes
to acquire the securities at the exercise price.
A Series may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." Where a Series cannot effect a closing purchase transaction, it
may be forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying securities until
an option is exercised or expires.
When a Series writes an option, an amount equal to the net premium received
by the Series is included in the liability section of the Series' Statement of
Assets and Liabilities as a deferred credit. The amount of the deferred credit
will be subsequently marked to market to reflect the current market value of the
option written. The current market value of a traded option is the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price. If an option expires on its stipulated expiration date or if the Series
enters into a closing purchase transaction, the Series will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the premium received
when the option was sold), and the deferred credit related to such option will
be eliminated. If a call option is exercised, the Series will realize a gain or
loss from the sale of the underlying security and the proceeds of the sale will
be increased by the premium originally received. The writing of covered call
options may be deemed to involve the pledge of the securities against which the
option is being
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written. Securities against which call options are written will be segregated on
the books of the custodian for the Series.
A Series may purchase call and put options on any securities in which it
may invest. A Series would normally purchase a call option in anticipation of an
increase in the market value of such securities. The purchase of a call option
would entitle the Series, in exchange for the premium paid, to purchase a
security at a specified price during the option period. A Series would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
A Series would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a put
option would entitle a Series, in exchange for the premium paid, to sell a
security, which may or may not be held in the Series' portfolio, at a specified
price during the option period. The purchase of protective puts is designed
merely to offset or hedge against a decline in the market value of the Series'
portfolio securities. Put options also may be purchased by a Series for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Series does not own. A Series would ordinarily recognize a gain if the
value of the securities decreased below the exercise price sufficiently to cover
the premium and would recognize a loss if the value of the securities remained
at or above the exercise price. Gains and losses on the purchase of protective
put options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
The Series have adopted certain other nonfundamental policies concerning
option transactions which are discussed below. A Series' activities in options
may also be restricted by the requirements of the Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
The Series may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate over-the-
counter option positions is more limited than with exchange-traded option
positions because the predominant market is the issuing broker rather than an
exchange, and may involve the risk that broker-dealers participating in such
transactions will not fulfill their obligations. To reduce this risk, the Series
will purchase such options only from broker-dealers who are primary government
securities dealers recognized by the Federal Reserve Bank of New York and who
agree to (and are expected to be capable of) entering into closing transactions,
although there can be no guarantee that any such option will be liquidated at a
favorable price prior to expiration. The Advisers will monitor the
creditworthiness of dealers with whom a Series enters into such options
transactions under the general supervision of the Trustees of Diversified
Investors Portfolios.
OPTIONS ON SECURITIES INDICES - SERIES OTHER THAN MONEY MARKET SERIES
In addition to options on securities, the Series may also purchase and
write (sell) call and put options on securities indices. Such options give the
holder the right to receive a cash settlement during the term of the option
based upon the difference between the exercise price and the value of the index.
Such options will be used for the purposes described above under "Options on
Securities."
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<PAGE> 76
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Series generally will only purchase or write such an option if the Advisers
believe the option can be closed out.
Use of options on securities indices also entails the risk that trading in
such options may be interrupted if trading in certain securities included in the
index is interrupted. The Series will not purchase such options unless the
Advisers believe the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Series may not correlate precisely with movements in
the level of an index and, therefore, the use of options on indices cannot serve
as a complete hedge. Because options on securities indices require settlement in
cash, the Advisers may be forced to liquidate portfolio securities to meet
settlement obligations.
SHORT SALES "AGAINST THE BOX" - SERIES OTHER THAN MONEY MARKET SERIES
In a short sale, a Series sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. A Series may engage
in short sales only if at the time of the short sale it owns or has the right to
obtain, at no additional cost, an equal amount of the security being sold short.
This investment technique is known as a short sale "against the box".
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If a Series engages in a short sale, the collateral for the short
position will be maintained by its custodian or qualified sub-custodian. While
the short sale is open, a Series maintains in a segregated account an amount of
securities equal in kind and amount to the securities sold short or securities
convertible into or exchangeable for such equivalent securities. These
securities constitute the Series' long position.
The Series will not engage in short sales against the box for investment
purposes. A Series may, however, make a short sale as a hedge, when it believes
that the price of a security may decline, causing a decline in the value of a
security (or a security convertible or exchangeable for such security), or when
a Series wants to sell the security at an attractive current price, but also
wishes to defer recognition of gain or loss for federal income tax purposes or
for purposes of satisfying certain tests applicable to regulated investment
companies under the Code. In such case, any future losses in a Series' long
position should be reduced by a gain in the short position. Conversely, any gain
in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced depends upon the amount of the
security sold short relative to the amount a Series owns. There are certain
additional transaction costs associated with short sales against the box, but
the Series endeavor to offset these costs with the income from the investment of
the cash proceeds of short sales.
As a non-fundamental operating policy, the Advisers do not expect that more
than 40% of a Series' total assets would be involved in short sales against the
box. The Advisers do not currently intend to engage in such sales.
CERTAIN OTHER OBLIGATIONS
In order to allow for investments in new instruments that may be created in
the future, a Series may, upon supplementing this Statement of Additional
Information, invest in obligations other than those listed previously, provided
such investments are consistent with a Series' investment objective, policies
and restrictions.
RATING SERVICES
The ratings of rating services represent their opinions as to the quality
of the securities that they undertake to rate. It should be emphasized, however,
that ratings are relative and subjective and are
19
<PAGE> 77
not absolute standards of quality. Although these ratings are an initial
criterion for selection of portfolio investments, the Advisers also make their
own evaluations of these securities, subject to review by the Board of Trustees
of Diversified Investors Portfolios. After purchase by a Series, an obligation
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Series. Neither event would require a Series to dispose of
the obligation, but the Advisers will consider such an event in their
determination of whether a Series should continue to hold the obligation. A
description of the ratings used herein and in the Prospectus is set forth in the
Appendix to this Statement of Additional Information.
Except as stated otherwise, all investment policies and restrictions
described herein are non-fundamental, and may be changed without prior
shareholder approval.
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of each
Series and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Series. "Majority of the outstanding
voting securities" under the 1940 Act and as used in this Statement of
Additional Information and the Prospectus, means, with respect to a Series, the
lesser of (i) 67% or more of the total beneficial interests of the Series
present at a meeting if the holders of more than 50% of the total beneficial
interests of the Series are present or represented by proxy or (ii) more than
50% of the total beneficial interests of the Series. If a percentage or a rating
restriction on investment or utilization of assets is adhered to at the time an
investment is made or assets are so utilized, a later change in such percentage
resulting from changes in a Series' total assets or the value of a Series'
securities, or a later change in the rating of a portfolio security, will not be
considered a violation of the relevant policy.
As a matter of fundamental policy, no Series may:
(1) borrow money or mortgage or hypothecate assets of the Series,
except that in an amount not to exceed 1/3 of the current value of the
Series' assets (including such borrowing) less liabilities (not including
such borrowing), it may borrow money and enter into reverse repurchase
agreements, and except that it may pledge, mortgage or hypothecate not more
than 1/3 of such assets to secure such borrowings or reverse repurchase
agreements, provided that collateral arrangements with respect to options
and futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely for
the purpose of participating in a captive insurance company sponsored by
the Investment Company Institute;
(2) underwrite securities issued by other persons except insofar as
Diversified Investors Portfolios or a Series may technically be deemed an
underwriter under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except (a) through the lending of
portfolio securities and provided that any such loans not exceed 30% of the
Series' total assets (taken at market value), (b) through the use of
repurchase agreements or the purchase of short-term obligations or (c) by
purchasing debt securities of types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or commodity
contracts (except futures and option contracts), except in the ordinary
course of business a Series may hold and sell portfolio real estate
acquired as a result of a Series' ownership of securities;
(5) concentrate its investments in any particular industry (excluding
U.S. Government Securities), but if it is deemed appropriate for the
achievement of the Series' investment objective(s), up to 25% of its total
assets may be invested in any one industry (except that the
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<PAGE> 78
Money Market Series reserves the right to concentrate 25% or more of its
assets in obligations of domestic branches of domestic banks);
(6) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder, provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered to be the issuance
of a senior security for purposes of this restriction; or
(7) enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are not readily
marketable (which securities would include participation interests and
floating and variable rate demand obligations as to which no secondary
market exists and the Series cannot exercise a demand feature on not more
than seven days' notice), if, in the aggregate, more than 15% (10% in the
case of the Money Market Series) of its net assets would be so invested. A
Series may not invest in time deposits maturing in more than seven days.
State and Federal Restrictions. In order to comply with certain state and
federal statutes and policies each Series will not as a matter of operating
policy:
<TABLE>
<C> <S>
(i) borrow money for any purpose in excess of 10% of the Series'
total assets (taken at cost), except that the Series may
borrow for temporary or emergency purposes up to 1/3 of its
assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of
10% of the Series' net assets (taken at market value),
provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit
and variation margin, reverse repurchase agreements,
when-issued securities and other similar investment
techniques are not considered a pledge of assets for
purposes of this restriction;
(iii) purchase any security or evidence of interest therein on
margin, except that such short-term credit as may be
necessary for the clearance of purchases and sales of
securities may be obtained and except that deposits of
initial deposit and variation margin may be made in
connection with the purchase, ownership, holding or sale of
futures;
(iv) invest for the purpose of exercising control or management;
(v) purchase securities issued by any other investment company
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase
other than the customary broker's commission, or except when
such purchase, though not made in the open market, is part
of a plan of merger or consolidation; provided, however,
that securities of any investment company will not be
purchased for a Series if such purchase at the time thereof
would cause (a) more than 10% of the Series' total assets
(taken at the greater of cost or market value) to be
invested in the securities of such issuers; (b) more that 5%
of the Series' total assets (taken at the greater of cost or
market value) to be invested in any one investment company;
or (c) more than 3% of the outstanding voting securities of
any such issuer to be held for the Series; and provided
further that a Series may not purchase any security from any
open-end investment company;
(vi) purchase securities of any issuer if such purchase at the
time thereof would cause the Series to hold more than 10% of
any class of securities of such issuer, for which purposes
all indebtedness of an issuer shall be deemed a single class
and all preferred stock of an issuer shall be deemed a
single class, except that futures or option contracts shall
not be subject to this restriction;
</TABLE>
21
<PAGE> 79
<TABLE>
<C> <S>
(vii) purchase or retain in a Series' portfolio any securities
issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of
Diversified Investors Portfolios or is an officer or partner
of the Adviser or Subadviser, if after the purchase of the
securities of such issuer for a Series one or more of such
persons owns beneficially more than 1/2 of 1% of the shares
or securities, or both, all taken at market value, of such
issuer, and such persons owning more than 1/2 of 1% of such
shares or securities together own beneficially more than 5%
of such shares or securities, or both, all taken at market
value;
(viii) invest more than 5% of a Series' net assets in warrants
(valued at the lower of cost or market), but not more than
2% of a Series' net assets may be invested in warrants not
listed on the New York Stock Exchange or the American Stock
Exchange; or
(ix) make short sales of securities or maintain a short position
(excluding short sales if the Series owns an equal amount of
such securities or securities convertible into or
exchangeable for, without payment of any further
consideration, securities of equivalent kind and amount) if
such short sales represent more than 25% of the Series' net
assets (taken at market value); provided, however, that the
value of the Series' short sales of securities (excluding
U.S. Government Securities) of any one issuer may not be
greater than 2% of the value (taken at market value) of the
Series' net assets or more than 2% of the securities of any
class of any issuer.
</TABLE>
Policies (i) through (ix) may be changed by the Board of Trustees of
Diversified Investors Portfolios.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Portfolio changes are made without regard to the length of time a security
has been held, or whether a sale would result in the recognition of a profit or
loss. Therefore, the rate of portfolio turnover is not a limiting factor when
changes are appropriate. Portfolio trading is engaged in for a Series if the
Advisers believe that a transaction net of costs (including custodian charges)
will help achieve the Series' investment objectives.
A Series' purchases and sales of securities may be principal transactions,
that is, securities may be purchased directly from the issuer or from an
underwriter or market maker for the securities. There usually are no brokerage
commissions paid for such purchases and, therefore, the Series do not anticipate
paying brokerage commissions in such transactions. Any transactions for which a
Series pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and the
asked price.
Allocations of transactions, including their frequency, to various dealers
is determined by the Subadvisers in their best judgement and in a manner deemed
to be in the best interest of the investors in a Series rather than by any
formula. The primary consideration is prompt execution of orders in an effective
manner at the most favorable price.
Investment decisions for a Series will be made independently from those for
any other account or investment company that is or may in the future become
managed by the Advisers or their affiliates. If, however, a Series and other
investment companies or accounts managed by the Subadvisers are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by a Series or the size of the position obtainable for the Series. In
addition, when purchases or sales of the same security for a Series and for
other investment companies managed by the Subadvisers occur contemporaneously,
the purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales. Further-
22
<PAGE> 80
more, in certain circumstances affiliates of the Subadvisers whose investment
portfolios are managed internally, rather than by the Subadvisers, might seek to
purchase or sell the same type of investments at the same time as a Series. Such
an event might also adversely affect that Series.
DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES
Beneficial interests in each Series of Diversified Investors Portfolios are
issued solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the Act. of 1933 Act.
Portfolio securities are valued on the basis of market quotations when they
are readily available. Each Series values mortgage-backed and other debt
securities for which market quotations are not readily available at their fair
value as determined in good faith, utilizing procedures approved by the Board of
Trustees of Diversified Investors Portfolios, on the basis of valuations
provided either by dealers or a pricing service. Debt securities having a
remaining maturity of sixty days or less when purchased and debt securities
originally purchased with maturities in excess of sixty days but which currently
have maturities of sixty days or less are valued at cost adjusted for
amortization of premiums and accretion of discounts.
Interest rate futures contracts held by a Series are valued on the basis of
closing market quotations, which are normally available daily. When market
quotations are not readily available, the fair value of these contracts will be
determined in good faith utilizing procedures approved by the Board of Trustees
of Diversified Investors Portfolios.
A determination of value used in calculating net asset value must be a fair
value determination made in good faith utilizing procedures approved by
Diversified Investors Portfolios Board of Trustees. While no single standard for
determining fair value exists, as a general rule, the current fair value of a
security would appear to be the amount which a Series could expect to receive
upon its current sale. Some, but not necessarily all, of the general factors
which may be considered in determining fair value include: (i) the fundamental
analytical data relating to the investment; (ii) the nature and duration of
restrictions on disposition of the securities; and (iii) an evaluation of the
forces which influence the market in which these securities are purchased and
sold. Without limiting or including all of the specific factors which may be
considered in determining fair value, some of the specific factors include: type
of security, financial statements of the issuer, cost at date of purchase, size
of holding, discount from market value, value of unrestricted securities of the
same class at the time of purchase, special reports prepared by analysts,
information as to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the securities, price
and extent of public trading in similar securities of the issuer or comparable
companies, and other relevant matters.
MANAGEMENT OF DIVERSIFIED INVESTORS PORTFOLIOS
The Trustees and officers of Diversified Investors Portfolios and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate those Trustees who
are "interested persons" (as defined in the 1940 Act) of Diversified Investors
Portfolios. Unless otherwise indicated, the address of each Trustee and officer
of Diversified Investors Portfolios is 4 Manhattanville Road, Purchase, New York
10577.
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<PAGE> 81
TRUSTEES AND OFFICERS OF DIVERSIFIED INVESTORS PORTFOLIOS
TRUSTEES
<TABLE>
<CAPTION>
AGE
(AS OF
11/15/99)
---------
<S> <C> <C>
Tom A. Schlossberg*.................. 50 10/92 to present -- President, Chief Executive
(Managing Board Member) Officer and Chairman of the Managing board,
Diversified Investment Advisors, Inc.; 3/95 to
present -- President and Director, AUSA Life
Insurance Company, Inc.
Neal M. Jewell....................... 65 1/95 to present -- Consultant; 11/91 to 1/95 --
(Managing Board Member) Executive Vice President, American International
355 Thornridge Drive, Group Asset Management
Stamford, Connecticut 06903
Eugene M. Mannella................... 46 8/93 to present -- Vice President, Investment
(Managing Board Member) Management Services, Inc. 5/96 to
Two Orchard Neck Road, present -- President, Brooks Asset Management LLC
Center Moriches, New York 11934
Mark Mullin*......................... 36 4/95 to present -- Vice President and Chief
(Managing Board Member) Investment Officer, Diversified Investment Advisors,
Inc.; 4/93 to 4/95 -- Portfolio Manager, AEGON, Inc.
Patricia L. Sawyer................... 49 1990 to present -- President, Smith & Sawyer, Inc.;
(Managing Board Member) 1997 to present -- Partner, Smith & Sawyer LLC
Smith & Sawyer Inc.
230 Park Avenue
33rd Floor
New York, New York 10169
</TABLE>
OFFICERS
Mr. Schlossberg is President, Chief Executive Officer and Chairman of the
Board of Diversified Investors Portfolios.
<TABLE>
<CAPTION>
AGE
(AS OF
11/15/99)
---------
<S> <C> <C>
Robert F. Colby...................... 44 1/94 to present -- Vice President and General
Counsel, Diversified Investment Advisors, Inc.; 3/95
to present -- Vice President and Assistant
Secretary, AUSA Life Insurance Company, Inc.; 3/93
to present -- Vice President and Secretary,
Diversified Investors Securities Corp.; 3/93 to
6/99 -- Director, Diversified Investors' Securities
Corp.
</TABLE>
24
<PAGE> 82
<TABLE>
<CAPTION>
AGE
(AS OF
11/15/99)
---------
<S> <C> <C>
Alfred C. Sylvain.................... 48 11/93 to present -- Treasurer, Diversified Investors
Portfolios and The Diversified Investors Funds
Group; Vice President, Treasurer and Assistant
Secretary, Diversified Investment Advisors, Inc.;
1/94 to present -- Treasurer, Diversified Investors
Securities Corp.; 2/95 to 6/99 -- Director,
Diversified Investors Securities Corp.
John F. Hughes....................... 58 11/93 to present -- Vice President and Senior
Counsel, Diversified Investment Advisors, Inc.
</TABLE>
The Declaration of Trust provides that the Diversified Investors Portfolios
will indemnify its Trustees and officers as described below under "Description
of the Trust; Fund Shares."
INVESTMENT ADVISORY SERVICES
The Diversified Investment Advisors, Inc. ("Diversified") manages the
assets of each Series pursuant to an Investment Advisory Agreement (the
"Advisory Agreement") with Diversified Investors Portfolios with respect to that
Series and the investment policies described herein and in the Prospectus.
Subject to such further policies as the Diversified Investors Portfolios' Board
of Trustees may determine, the Diversified provides general investment advice to
each Series. For its services under each Advisory Agreement, Diversified
receives from each Series fees accrued daily and paid monthly at an annual rate
equal to the percentages specified in the table set forth in the Prospectus of
the corresponding Series' average daily net assets.
For each Series of Diversified Investors Portfolios, Diversified has
entered into an Investment Subadvisory Agreement (each a "Subadvisory
Agreement") with one or more of the subadvisers (each "Subadviser," and
collectively the "Subadvisers"). It is the responsibility of a Subadviser to
make the day to day investment decisions for its Series and to place the
purchase and sales orders for securities transactions of such Series, subject in
all cases to the general supervision of Diversified. Each Subadviser furnishes
at its own expense all services, facilities and personnel necessary in
connection with managing the corresponding Series' investments and effecting
securities transactions for a Series.
Each Advisory Agreement provides that Diversified or a Subadviser, as the
case may be, may render services to others. Each agreement is terminable without
penalty on not more than 60 days' nor less than 30 days' written notice by a
Series when authorized either by majority vote of the investors in the Series
(with the vote of each being in proportion to the amount of their investment) or
by a vote of a majority of its Board of Trustees of Diversified Investors
Portfolios, or by Diversified or a Subadviser on not more than 60 days' nor less
than 30 days' written notice, as the case may be, and will automatically
terminate in the event of its assignment. Each agreement provides that neither
Diversified nor Subadviser nor their personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in the execution of security transactions for the
corresponding Series, except for willful misfeasance, bad faith, gross
negligence or reckless disregard of its or their obligations and duties under
the Advisory Agreement and the Subadvisory Agreement, as the case may be.
Diversified's and Subadviser's fees are described in to the Prospectus.
Diversified, if required by applicable state law, shall reimburse a Series or
waive all or part of its fees up to, but not exceeding, its investment advisory
fees from the Series. Such reimbursement, if required, will be equal to the
combined aggregate annual expenses which exceed that expense limitation with the
lowest threshold prescribed by any state in which such Series is qualified for
offer or sale. Management of Diversified Investors Portfolios has been advised
that the lowest such threshold currently in effect is 2 1/2% of net assets up to
$30,000,000, 2% of the next $70,000,000 of net assets and 1/2% of net assets in
excess of that amount.
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<PAGE> 83
ADMINISTRATOR
The Administrative Services Agreement between Diversified, as
Administrator, and Diversified Investors Portfolios is described in the
Prospectus. The agreement provides that Diversified may render services to
others as administrator. In addition, the agreement terminates automatically if
it is assigned and may be terminated without penalty by majority vote of the
investors in Diversified Investors Portfolios (with the vote of each being in
proportion to the amount of their investment). The Administrative Services
Agreement also provides that neither Diversified nor its personnel shall be
liable for any error of judgment or mistake of law or for any act or omission in
connection with any Series, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their duties or obligations under said agreements.
CUSTODIAN AND TRANSFER AGENT
Pursuant to a Custodian Contract, Investors Bank & Trust Company acts as
the custodian of each Series' assets (the "Custodian"). The Custodian's business
address is 89 South Street, Boston, Massachusetts 02205-1537. The Custodian's
responsibilities include safeguarding and controlling cash and securities,
handling the receipt and delivery of securities, determining income and
collecting interest on the Series' investments, maintaining books of original
entry for portfolio accounting and other required books and accounts, and
calculating the daily net asset value of beneficial interests in each Series.
Securities held by a Series may be deposited into the Federal Reserve-Treasury
Department Book Entry System or the Depository Trust Company and may be held by
a subcustodian bank if such arrangements are reviewed and approved by the Board
of Trustees of Diversified Investors Portfolios. The Custodian does not
determine the investment policies of any Series or decide which securities any
Series will buy or sell. A Series may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities and foreign
exchange transactions. For its services, the Custodian will receive such
compensation as may from time to time be agreed upon by it and Diversified
Investors Portfolios.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, serves as the independent accountants for
Diversified Investors Portfolios providing audit and accounting services
including (i) audit of the annual financial statements, (ii) assistance and
consultation with respect to the filings with the Securities and Exchange
Commission and (iii) preparation of annual income tax returns.
The financial statements of Diversified Investors Portfolios included herein
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
CAPITAL STOCK AND OTHER SECURITIES
Diversified Investors Portfolios is organized as a trust under the law of
the State of New York. Under Diversified Investors Portfolios Declaration of
Trust, the Trustees are authorized to issue beneficial interest in one or more
Series. Currently there are nine active Series of Diversified Investors
Portfolios. Investors in a Series will be held personally liable for the
obligations and liabilities of that Series (and of no other Series), subject,
however, to indemnification by Diversified Investors Portfolios in the event
that there is imposed upon an investor a greater portion of the liabilities and
obligations of the Series than its proportionate beneficial interest in the
Series. The Declaration of Trust also provides that Diversified Investors
Portfolios shall maintain appropriate insurance (for example, a fidelity bond
and errors and omissions insurance) for the protection of Diversified Investors
Portfolios, its investors, Trustees, officers, employees and agents, and
covering possible tort and other liabilities. Thus, the risk of an investor
incurring financial loss on account of investor liability is limited to
circumstances in which both inadequate insurance existed and Diversified
Investors Portfolios itself was unable to meet its obligations.
26
<PAGE> 84
Investors in a Series are entitled to participate pro rata in distributions
of taxable income, loss, gain and credit of their respective Series only. Upon
liquidation or dissolution of a Series, investors are entitled to share pro rata
in that Series' (and no other Series) net assets available for distribution to
its investors. Diversified Investor Portfolios reserves the right to create and
issue additional Series of beneficial interest, in which case the beneficial
interests in each new Series would participate equally in the earnings,
dividends and assets of that particular Series only (and no other Series). Any
property of Diversified Investors Portfolios is allocated and belongs to a
specific Series to the exclusion of all other Series. All consideration received
by Diversified Investors Portfolios for the issuance and sale of beneficial
interests in a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings and proceeds
thereof, and any funds or payments derived from any reinvestment of such
proceeds, is held by the Trustees of Diversified Investors Portfolios in a
separate subtrust (a Series) for the benefit of investors in that Series and
irrevocably belongs to that Series for all purposes. Neither a Series no
investors in that Series possess any right to or interest in the assets
belonging to any other Series.
Investments in a Series have no preference, preemptive, conversion or
similar rights and are fully paid and nonassessable, except as set forth below.
Investments in a Series may not be transferred.
Each investor is entitled to a vote in proportion to the amount of its
investment in each Series. Investors in a Series do not have cumulative voting
rights, and investors holding more than 50% of the aggregate beneficial
interests in all outstanding Series may elect all of the Trustees if they choose
to do so and in such event other investors would not be able to elect any
Trustees. Investors in each Series will vote as a separate class except as to
voting for the election of Trustees, as otherwise required by the 1940 Act, or
if determined by the Trustees to be a matter which affects all Series. As to any
matter which does not affect the interest of a particular Series, only investors
in the one or more affected Series are entitled to vote. Diversified Investors
Portfolios is not required and has no current intention of holding annual
meetings of investors, but will hold special meetings of investors when in the
judgment of Trustees it is necessary or desirable to submit matters for an
investor vote. The Declaration of Trust may be amended without the vote of
investors, except that investors have the right to approve by affirmative
majority vote any amendment which would affect their voting rights, alter the
procedures to amend the Declaration of Trust, or as required by law or by
Diversified Investors Portfolios registration statement, or as submitted to them
by the Trustees. Any amendment submitted to investors which the Trustees
determine would affect the investors of any Series shall be authorized by vote
of the investors of such Series and no vote will be required of investors in a
Series not affected.
Diversified Investors Portfolios or any Series may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved (a)
at a meeting of investors by investors representing the lesser of (i) 67% or
more of the beneficial interest in the affected Series present or represented at
such meeting, if investors in more that 50% of all such beneficial interests are
present or represented by proxy, or (ii) more than 50% of all such beneficial
interests, or (b) by an instrument in writing without a meeting, consented to by
investors representing not less than a majority of the beneficial interest in
the affected Series. Diversified Investors Portfolios or any Series may also be
terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment), (ii) by the Trustees by written
notice to its investors, or (iii) upon the bankruptcy or expulsion of an
investor in the affected Series, unless the investors in such Series, by
majority vote, agree to continue the Series. Diversified Investors Portfolios
will be dissolved upon the dissolution of the last remaining Series.
The Declaration of Trust provides that obligations of Diversified Investors
Portfolios are not binding upon the Trustees individually but only upon the
property of Diversified Investors Portfolios and that the Trustees will not be
liable for any action or failure to act, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.
27
<PAGE> 85
The Declaration of Trust further provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with
Diversified Investors Portfolios, unless, as to liability to Diversified
Investors Portfolios or its investors, it is finally adjudicated that they
engaged in wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in their offices, or unless with respect to any other
matter it is finally adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interests of Diversified
Investors Portfolios. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
TAXATION
Diversified Investors Portfolios is organized as a New York trust. The
Trust and each Series are not subject to any income or franchise tax in the
State of New York or the Commonwealth of Massachusetts. However, each investor
in a Series will be taxable on its share (as determined in accordance with the
governing instruments of the Trust) of the Series' ordinary income and capital
gain in determining its income tax liability. The determination of such share
will be made in accordance with the Code and regulations promulgated thereunder.
Each Series, since it is taxed as a partnership, is not subject to federal
income taxation. Instead, and investor must take into account, in computing its
federal income tax liability, its share of the Series' income, gains, losses,
deductions, credits and tax preference items, without regard to whether it has
received any cash distributions from the Series.
Withdrawals by investors from each Series generally will not result in
their recognizing any gain or loss for federal income tax purposes, except that
(1) gain will be recognized to the extent that any cash distributed exceeds the
basis of the investor's interest in the Series prior to the distribution, (2)
income or gain will be realized if the withdrawal is in liquidation of the
investor's entire interest in the Series and includes a disproportionate share
of any unrealized receivables held by the Series, and (3) loss will be
recognized if the distribution is in liquidation of that entire interest and
consists solely of cash and/or unrealized receivables. The basis of an
investor's interest in a Series generally equals the amount of cash and the
basis of any property that the investor invests in the Series, increased by the
investor's share of income from the Series and decreased by the amount of any
cash distributions and the basis of any property distributed from the Series.
Each Series' taxable year-end will be December 31. Although, as described
above, the Series will not be subject to federal income tax, each will file
appropriate income tax returns.
It is intended that each Series' assets, income and distributions will be
managed in such a way that an investor in each Series will be able to satisfy
the requirements of Subchapter M of the Code.
HEDGING STRATEGIES
The use of hedging strategies, such as a Series' entering into interest
rate futures contracts and purchasing options thereon, involves complex rules
that will determine for income tax purposes the character and timing of
recognition of the income received in connection therewith. Income from the
disposition of futures contracts and options thereon will be subject to the
limitation that a Series must derive less than 30% of its gross income from the
sale or other disposition of securities, options or futures contracts held for
less than three months (the "Short-Short Limitation").
If certain requirements are satisfied, any increase in value on a position
that is part of a "designated hedge" will be offset by an decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the Short-Short
28
<PAGE> 86
Limitation is satisfied. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Series intends to qualify for this treatment when it engages in hedging
transactions, but at the present time it is not clear whether this treatment
will be available for all of a Series' hedging transactions. To the extent this
treatment is not available, a Series may be forced to defer the closing out of
certain options and futures contracts beyond the time when it otherwise would be
advantageous to do so, in order for an investor in the Series to qualify as a
Regulated Investment Company.
OTHER TAXATION
The investment by an investor in a Series does not cause the investor to be
liable for any income or franchise tax in the State of New York. Investors are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Series.
FINANCIAL STATEMENTS OF MONY
The financial statements of MONY that are included in this Statement of
Additional Information are different from the financial statements of Keynote.
The financial statements of MONY should be considered only as bearing upon the
ability of MONY to meet its obligations under the Contracts and should not be
considered as bearing on the investment performance of the assets held in
Keynote.
29
<PAGE> 87
APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
STANDARD & POOR'S BOND RATINGS
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt rated
"AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong. Debt rated "AA" has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree.
The rating "AA" may be modified by the addition of a plus or minus sign to
show relative standing within such category.
MOODY'S BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings: Aaa -
judged to be the best quality, carry the smallest degree of investment risk; Aa
- -judged to be of high quality by all standards.
FITCH INVESTORS SERVICE BOND RATINGS
AAA. Securities of this rating are regarded as strictly high-grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions, an liable to but slight market fluctuation other than through
changes in the money rate. The factor last named is of importance varying with
the length of maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public utility fields,
though some industrial obligations have this rating. The prime feature of an AAA
rating is showing of earnings several times or many times interest requirements
with such stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Other features may enter in, such
as a wide margin of protection through collateral security or direct lien on
specific property as in the case of high class equipment certificates or bonds
that are first mortgages on valuable real estate. Sinking funds or voluntary
reduction of the debt by call or purchase are often factors, while guarantee or
assumption by parties other than the original debtor may also influence the
rating.
AA. Securities in this group are of safety virtually beyond question, and
as a class are readily salable while many are highly active. Their merits are
not greatly unlike those of the AAA class, but a security so rated may be of
junior though strong lien--in many cases directly following an AAA security--or
the margin of safety is less strikingly broad. The issue may be the obligation
of a small company, strongly secured but influenced as to ratings by the lesser
financial power of the enterprise and more local type of market.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
A-1 MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset
A-1
<PAGE> 88
protection; broad margins in earnings coverage of fixed financial charges and
high internal cash generation; well-established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
FITCH-1, FITCH-2, DUFF 1 AND DUFF 2 COMMERCIAL PAPER RATINGS
Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for timely
payment. "Fitch-2" is considered very good grade paper and reflects an assurance
of timely payment only slightly less in degree than the strongest issue.
Commercial paper issues rate "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment, excellent
liquidity factors supported by strong fundamental protection factors, and risk
factors which are very small. Issues rated "Duff 2" have a good certainty of
timely payment, sound liquidity factors and company fundamentals, small risk
factors, and good access to capital markets.
A-2
<PAGE> 89
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 the Money Market,
Intermediate Government Bond, Core Bond Fund (formerly Government/Corporate
Bond), Balanced, Equity Income, Equity Growth and Calvert Subaccounts (seven of
the subaccounts constituting the Keynote Series Account) ("Keynote") at December
31, 1999, 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 accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 18, 2000
F-1
<PAGE> 90
KEYNOTE SERIES ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT CORE EQUITY EQUITY
MARKET BOND BOND BALANCED INCOME GROWTH CALVERT
SUBACCOUNT SUBACCOUNT SUBACCOUNT(1) SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------ ------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in the Funds, at
value (Notes 1 and 2)..... $225,516 $221,958 $369,010 $2,770,795 $10,893,942 $10,091,056 $447,524
Receivable for purchase of
units..................... -- -- -- 426 305 304 --
Receivable from MONY........ 2,205 -- -- -- -- -- --
-------- -------- -------- ---------- ----------- ----------- --------
Total assets...... 227,721 221,958 369,010 2,771,221 10,894,247 10,091,360 447,524
-------- -------- -------- ---------- ----------- ----------- --------
LIABILITIES:
Accrued expenses............ 2,343 170 285 2,087 16,919 6,140 337
-------- -------- -------- ---------- ----------- ----------- --------
NET ASSETS
ATTRIBUTABLE TO
ANNUITY
CONTRACTHOLDERS... $225,378 $221,788 $368,725 $2,769,134 $10,877,328 $10,085,220 $447,187
======== ======== ======== ========== =========== =========== ========
Accumulation units.......... 13,122 13,708 16,207 77,105 266,130 142,912 15,386
======== ======== ======== ========== =========== =========== ========
Unit value.................. $ 17.18 $ 16.18 $ 22.75 $ 35.91 $ 40.87 $ 70.57 $ 29.06
======== ======== ======== ========== =========== =========== ========
</TABLE>
- ---------------
(1) Formerly the Government/Corporate Bond Subaccount.
See notes to financial statements.
F-2
<PAGE> 91
KEYNOTE SERIES ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT CORE EQUITY EQUITY
MARKET BOND BOND BALANCED INCOME GROWTH CALVERT
SUBACCOUNT SUBACCOUNT SUBACCOUNT(1) SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------ ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Allocated net investment
income from Funds (Note
2)....................... $26,002 $ 16,954 $ 39,347 $ 102,186 $ 266,050 $ 13,456 $ --
Dividend income (Note 2)... -- -- -- -- -- -- 42,742
------- -------- -------- --------- ---------- ---------- --------
Total investment
income......... 26,002 16,954 39,347 102,186 266,050 13,456 42,742
------- -------- -------- --------- ---------- ---------- --------
EXPENSES: (NOTE 3)
Mortality and expense
risk.................. 4,784 2,804 6,032 36,725 134,362 88,766 5,637
Less expenses reimbursed
by MONY............... (927) -- -- -- -- -- --
------- -------- -------- --------- ---------- ---------- --------
Net expenses............. 3,857 2,804 6,032 36,725 134,362 88,766 5,637
------- -------- -------- --------- ---------- ---------- --------
Net investment income
(loss)................... 22,145 14,150 33,315 65,461 131,688 (75,310) 37,105
------- -------- -------- --------- ---------- ---------- --------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS: (NOTE 2)
Net realized gains
(losses) on
investments........... (108) 576 (20,784) 364,039 1,167,436 1,297,177 73,490
Net realized gains on
foreign currency
transactions.......... -- -- -- 4,104 -- -- --
Net change in unrealized
appreciation
(depreciation) on
investments........... -- (13,288) (27,313) (116,305) (25,408) 2,129,509 (57,573)
Net change in unrealized
appreciation on
translation of assets
and liabilities
denominated in foreign
currencies............ -- -- -- 1,165 -- -- --
------- -------- -------- --------- ---------- ---------- --------
Net realized and
unrealized gains
(losses) on
investments........... (108) (12,712) (48,097) 253,003 1,142,028 3,426,686 15,917
------- -------- -------- --------- ---------- ---------- --------
Net increase (decrease) in
net assets resulting from
operations............... $22,037 $ 1,438 $(14,782) $ 318,464 $1,273,716 $3,351,376 $ 53,022
======= ======== ======== ========= ========== ========== ========
</TABLE>
- ---------------
(1) Formerly the Government/Corporate Bond Subaccount.
See notes to financial statements.
F-3
<PAGE> 92
KEYNOTE SERIES ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT CORE EQUITY EQUITY
MARKET BOND BOND BALANCED INCOME GROWTH CALVERT
SUBACCOUNT SUBACCOUNT SUBACCOUNT(1) SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------ ------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income
(loss)................. $ 22,145 $ 14,150 $ 33,315 $ 65,461 $ 131,688 $ (75,310) $ 37,105
Net realized gains
(losses) on
investments............ (108) 576 (20,784) 364,039 1,167,436 1,297,177 73,490
Net realized gains on
foreign currency
transactions........... -- -- -- 4,104 -- -- --
Net change in unrealized
appreciation
(depreciation) on
investments............ -- (13,288) (27,313) (116,305) (25,408) 2,129,509 (57,573)
Net change in unrealized
appreciation on
translation of assets
and liabilities
denominated in foreign
currencies............. -- -- -- 1,165 -- -- --
--------- --------- --------- ----------- ----------- ----------- ---------
Net increase (decrease) in
net assets resulting from
operations............... 22,037 1,438 (14,782) 318,464 1,273,716 3,351,376 53,022
--------- --------- --------- ----------- ----------- ----------- ---------
FROM UNIT TRANSACTIONS:
Net proceeds from the
issuance of units...... 247,799 82,879 249,375 435,730 1,497,458 2,421,861 147,481
Net asset value of units
redeemed............... (719,011) (306,160) (782,101) (3,418,000) (8,441,622) (8,436,699) (566,330)
--------- --------- --------- ----------- ----------- ----------- ---------
Net (decrease) in net
assets from unit
transactions........... (471,212) (223,281) (532,726) (2,982,270) (6,944,164) (6,014,838) (418,849)
--------- --------- --------- ----------- ----------- ----------- ---------
Net (decrease) in net
assets................... (449,175) (221,843) (547,508) (2,663,806) (5,670,448) (2,663,462) (365,827)
NET ASSETS:
Beginning of year........ 674,553 443,631 916,233 5,432,940 16,547,776 12,748,682 813,014
--------- --------- --------- ----------- ----------- ----------- ---------
End of year.............. $ 225,378 $ 221,788 $ 368,725 $ 2,769,134 $10,877,328 $10,085,220 $ 447,187
========= ========= ========= =========== =========== =========== =========
Units outstanding beginning
of year.................. 40,999 27,614 39,571 167,348 434,610 247,234 31,111
Units issued during year... 14,910 5,131 10,774 13,137 36,924 42,966 5,462
Units redeemed during
year..................... (42,787) (19,037) (34,138) (103,380) (205,404) (147,288) (21,187)
--------- --------- --------- ----------- ----------- ----------- ---------
Units outstanding end of
year..................... 13,122 13,708 16,207 77,105 266,130 142,912 15,386
========= ========= ========= =========== =========== =========== =========
</TABLE>
- ---------------
(1) Formerly the Government/Corporate Bond Subaccount.
See notes to financial statements.
F-4
<PAGE> 93
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:
Net proceeds from the
issuance of units...... 351,264 400,239 482,639 991,140 2,543,029 2,349,988 221,361
Net asset value of units
redeemed............... (447,661) (189,534) (193,305) (859,331) (3,955,688) (2,132,347) (109,841)
--------- --------- --------- ---------- ----------- ----------- ---------
Net increase (decrease) in
net assets from unit
transactions........... (96,397) 210,705 289,334 131,809 (1,412,659) 217,641 111,520
--------- --------- --------- ---------- ----------- ----------- ---------
Net increase (decrease) in
net assets............. (64,167) 226,219 336,436 678,437 419,126 3,523,258 225,443
NET ASSETS:
Beginning of year......... 738,720 217,412 579,797 4,754,503 16,128,650 9,225,424 587,571
--------- --------- --------- ---------- ----------- ----------- ---------
End of year............... $ 674,553 $ 443,631 $ 916,233 $5,432,940 $16,547,776 $12,748,682 $ 813,014
========= ========= ========= ========== =========== =========== =========
Units outstanding beginning
of year................... 47,018 14,366 26,763 163,289 474,554 242,846 26,219
Units issued during year.... 21,781 25,480 21,432 32,232 70,782 54,850 9,502
Units redeemed during
year...................... (27,800) (12,232) (8,624) (28,173) (110,726) (50,462) (4,610)
--------- --------- --------- ---------- ----------- ----------- ---------
Units outstanding end of
year...................... 40,999 27,614 39,571 167,348 434,610 247,234 31,111
========= ========= ========= ========== =========== =========== =========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 94
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, ("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, a series of Calvert
Variable Series, Inc. ("Calvert" and collectively, the "Funds"). The respective
financial statements of the Funds are contained elsewhere in this report.
At December 31, 1999, each of the subaccounts' investment in the
corresponding Portfolios was as follows:
<TABLE>
<CAPTION>
PERCENTAGE INVESTMENT
SUBACCOUNT IN PORTFOLIO
---------- ---------------------
<S> <C>
Money Market............................. 0.05%
Intermediate Government Bond............. 0.13
Core Bond................................ 0.07
Balanced................................. 0.53
Equity Income............................ 0.77
Equity Growth............................ 0.79
</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 attributable to
Keynote. Based upon this expectation, no charges are currently being deducted
from Keynote for federal income tax purposes.
F-6
<PAGE> 95
KEYNOTE SERIES ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 income 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, 1999, and 1998, were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS 1999 AMOUNT 1998 AMOUNT
----------- ----------- -----------
<S> <C> <C>
Money Market....................................... $ 325,732 $ --
Intermediate Government Bond....................... 72,171 --
Core Bond.......................................... 354,671 10,172
Balanced........................................... 1,693,617 83,369
Equity Income...................................... 4,875,603 845,929
Equity Growth...................................... 5,225,413 135,469
Calvert............................................ 205,960 13,795
----------- ----------
$12,753,167 $1,088,734
=========== ==========
</TABLE>
The amounts related to these assumptions are reflected as redemptions in the
Statements of Changes in Net Assets.
F-7
<PAGE> 96
(This page intentionally left blank.)
F-8
<PAGE> 97
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 of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Diversified
Investors Portfolios (comprising, the Money Market Portfolio, High Quality Bond
Portfolio, Intermediate Government Bond Portfolio, Core Bond Portfolio (formerly
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, 1999, 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 accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 18, 2000
F-9
<PAGE> 98
FOURTH QUARTER 1999
ANNUAL ECONOMIC OVERVIEW
The major catalysts to economic growth in 1999 were the consumer and
technology sectors. Consumer confidence continued to rise, led by a strong labor
market, solid income gains and the wealth effect caused by ascending stock
prices. Consumer spending rose significantly in the fourth quarter at an
annualized 7% rate. The spending was broad based, ranging from clothing to
computers to housing. Retail sales for the quarter were up 2.7%, which was
largely attributable to a strong holiday season. For the year, retail sales
increased by 9.7%. After falling in 1998, sales of consumer non-durable goods
(items lasting shorter than three years) posted an increase of 9.6%. Although
the housing market is starting to feel the effects of higher interest rates,
homes are still being sold at a healthy pace. The volume in technology related
items increased by approximately 20% in 1999.
The strong economy continues to create an abundance of new jobs. On average
the economy added 223,000 new jobs a month. Income growth has obviously been a
beneficiary of the labor market as personal income increased by approximately
4%. The unemployment rate remains at a 30 year low of 4.1%, down from the 4.3%
level of 1998. With the four-week rolling initial unemployment claims steadily
remaining below the 300,000 level, the labor market will most likely continue to
be strong.
FINANCIAL MARKETS
The strength of the U.S. economy created a bearish tone to the bond market
and contributed to fears that the Federal Reserve Board will need to be more
aggressive with monetary policy to contain inflation. As a result, Treasury
yields rose between 43 to 78 basis points across the yield curve. Rising
interest rates caused the Lehman Brothers Aggregate Index to post a loss of .12%
for the quarter. For the year, the Index declined .82% as it suffered its worst
year since 1994 and its second worst year since 1973. Interest rates climbed
steadily throughout the year, with yields rising in ten of the twelve months
(January and September were the exceptions). For the year, the U.S. yield curve
rose between 139 to 180 basis points. The 1-year note rose by 144 basis points
to 5.73%, the 5-year Treasury rose 180 basis points to 6.34% and the 30-year
Treasury bond rose 139 basis points to 6.48%.
After getting a brief rest in September, interest rates continued their
upward climb after the October CPI report, which was up 1.1%, the highest
reading in nine years. This caused the Federal Reserve to adopt a tightening
bias. The bias set the stage for the Fed to raise the Fed Funds Rate an
additional 25 basis points to 5.50%, due to the aggressive pace of the economy
and left the door open for further rate hikes in the future. This marked the
third rate increase by the Fed during the year, essentially eliminating the
three rate reductions the Fed orchestrated in late 1998.
However, much like 1998 and 1997, the market's advance was very narrow in
breadth. For many stocks, the year 1999 was not very kind. In fact, the majority
of stocks that are not large cap growth-oriented never really recovered from
their steep declines in the spring to fall of 1998. The Value Line Composite
Index (an unweighted index of 1700 stocks) declined 1.4% in 1999 and was off
approximately 14% from its all-time high reached in April of 1998. Also, the
equally weighted version of the S&P 500 Index posted a return of 12.7%.
Interestingly, the most dramatic example of all these broadly based market
statistics is that, 61% of all NYSE stocks, 52% of the S&P 500 stocks and 48% of
NASDAQ stocks were down for the year. The best performing sector of the market
for the year was technology, with a return of 64.7%.
OUTLOOK FOR 2000
We believe that the economy will continue to expand, but not at its current
pace. Our forecast is that the economy will grow by approximately 3.5%. Our
estimate is based on the belief that if the economy continues to grow at its
current pace, the Federal Reserve will do whatever it believes necessary to slow
the economy to a more sustainable, i.e. non-inflationary rate of growth. The
non-
F-10
<PAGE> 99
inflationary rate of growth to be achieved depends significantly upon continued
strong productivity; the growth of the labor market and whether or not the Fed
subscribes to the new or old growth/inflation paradigm. It appears that the
inflation hawks had the upper hand in the last FOMC meeting. Therefore, we
believe that the Fed will most likely raise rates by at least 25 basis points at
its February meeting.
We believe that inflation will remain under control in 2000. Our estimate
for the year is in the 2.6% area. We do not believe that oil prices will
continue to significantly rise from their current levels and as mentioned above,
there do not appear to be any significant rumblings beneath the surface.
However, the wild card could be what impacts the recovering economies overseas,
particularly the emerging countries, have on commodity prices, which have been
depressed over the past few years.
Based on the above, we believe that long-term interest rates will trade in
a range of 6.4 - 7.0%. Bonds may overreact positively or negatively to each
economic report that is released. However, we do not believe that rates will
fall below this range until it appears certain that the economy is growing at a
more modest sustainable rate.
After the stock market's strong rally in the fourth quarter combined with
higher interest rates, we believe that the market is over-valued, particularly
the large cap growth sector, which is vulnerable to rising interest rates and/or
slowing profit growth. We also believe that the market is priced for perfection
with a significant amount of good news already discounted in the price of
stocks. Upside earnings surprises have also played a big part in the market's
advance, particularly in technology stocks. This may not be as much of a factor
in the next couple of quarters based on tougher comparisons in 2000. Remember
that earnings were depressed in 1998, which set the stage for stronger
comparisons in 1999. Technically, indicators such as advance decline ratio, new
highs vs. new lows, the put to call ratio and optimistic sentiment readings look
fairly weak, with a correction possible in late January. We believe that the
stocks that are currently the strongest could take the biggest hit, with the
bulk of remaining stocks, many of which have been through their own bear market,
performing relatively better.
Our general conclusion is that it is difficult to see significant upside in
the market without some corrective process, a shift in leadership and broadening
in breadth. The process could take the form of a flat consolidating market,
which would under go rapid rotation, or one that has a 10 - 15% decline in
prices.
MONEY MARKET
For the fourth quarter and for the year, money market securities, as
measured by the Salomon Brothers 3-Month T-Bill Index, performed the best,
posting returns of 1.24% for the quarter and 4.73% for the year. Throughout the
year, the average maturity of the portfolio was adjusted selectively to
capitalize on opportunities where the portfolio would be rewarded for duration
extension.
HIGH QUALITY BOND
The domestic economy enjoyed robust growth during the fourth quarter. The
Federal Reserve Board increased the Fed Funds rate by 25 basis points to 5.50%,
in an effort to reduce potential inflationary pressures. The strength of the
domestic economy created a bearish tone in the bond market and contributed to
fears that the Federal Reserve Board will need to be more aggressive with
monetary policy to contain inflation. Interestingly, the lower quality credits
(BBB) outperformed higher quality credits (AAA) in the quarter.
We were active in the domestic corporate and U.S. Government agency
sectors. We swapped out of several money market eligible securities into longer
term notes, thereby enhancing the yield of the portfolio and extending duration.
F-11
<PAGE> 100
While the Federal Reserve Board elected to leave short term interest rates
unchanged in December, tight labor markets, higher energy costs, and persistent
above trend growth will keep the Federal Reserve Board at a heightened state of
alert.
INTERMEDIATE GOVERNMENT BOND
The government bond market finished 1999 on the same notes that it followed
for much of the year: higher interest rates, lower bond prices, and for the most
part, disappointed investors. While rising interest rates earlier in the year
could be explained as a reversal of the 1998 crisis flight-to-Treasuries, by
late 1999 it was clear that the problem was an economy growing too quickly. A
Federal Reserve monetary tightening in November, the third of the year, seemed
to do little to cool off a hot stock market. US Government Agency securities
outperformed Treasuries, as yield risk premiums contracted.
Going into the new year, our investment view balances two realities:
inflation adjusted bond yields are now at levels that are very attractive by
most historical measures, yet the Fed has begun to make it clear that they will
not stop raising rates until the juggernaut economy slows. Our strategy is to
position the portfolio with a slightly long duration posture, to watch for early
signs of a slowdown, and to carefully add exposure on market weakness.
CORE BOND
Interest rates rose significantly in the fourth quarter as the yield on
10-year Treasuries jumped 56 basis points to 6.44%. The Federal Reserve
increased the Fed Funds rate 25 basis points to 5.50% and set the stage for
future hikes in the year 2000. Non-treasury sectors performed well throughout
the quarter as spreads tightened in response to strong investor demand for
higher yielding securities.
The fund benefited from a neutral duration position and an overweight to
mortgages and agencies. The overweight to agencies enhanced returns as spreads
continued to tighten from historically wide levels. Improving liquidity in
agencies and a reduction in Treasury supply has helped to boost investor demand
and support these spreads.
We believe mortgage spreads may continue to tighten going forward and will
look for opportunities to reduce the overweight position. Although interest rate
and yield curve related strategies do play a role in portfolio strategy, we
continue to emphasize sector-based strategies in the current environment.
HIGH YIELD BOND
The hybrid nature of high yield bonds -- part bond, part stock -- was
clearly illustrated by fourth quarter returns. Despite spiking interest rates,
which drove the 10-year Treasury to a 2.4% loss for the period, high yield bonds
remained in positive territory on the strength of the fourth quarter run-up in
equity prices. The spread between high yield bond and treasuries tightened by 37
basis point during the period.
Portfolio strategy remains focused on an overweighting in single B
securities, which offer greater sensitivity to economic as opposed to interest
rate activity. We increased our exposure to single B's during the quarter, from
49% of the portfolio at September 30th to nearly 61% by year-end.
We believe market returns will consist largely of income this year, with
the potential for several points of capital appreciation. While valuations are
clearly cheap relative to the strength in the economy, it is likely that a heavy
new issue calendar will constrain a significant upward move in prices, at least
over the near term. Nevertheless, returns should prove attractive compared to
other fixed income products.
F-12
<PAGE> 101
BALANCED
Interest rates rose significantly in the fourth quarter as the yield on
10-year Treasuries jumped 56 basis points to 6.44%. The Federal Reserve
increased the Fed Funds rate 25 basis points to 5.50% and set the stage for
future hikes in the year 2000. Non-treasury sectors performed well throughout
the quarter as spreads tightened in response to strong investor demand for
higher yielding securities. The fund benefited from a neutral duration position
and an overweight to mortgages and agencies; however, we believe mortgage
spreads may continue to tighten going forward and will look for opportunities to
reduce our overweight.
The equity market was propelled higher by technology shares (particularly
those associated with telecommunications and the Internet). The fund performed
extremely well as the quantitative model that we use in this strategy favored
technology shares such as Microsoft, Cisco Systems and QUALCOMM due to their
strong business momentum.
Going forward we are concerned by the extreme price appreciation in
technology shares in the fourth quarter, the recent back up in interest rates,
and to the extent that the bear market in bonds continues, we feel that these
issues will have a difficult time maintaining their current valuations.
EQUITY INCOME
The U.S. economy continued to roll ahead in the fourth quarter with little
evidence of slowdown. The stock market propelled by the "new economy" model of
growth, low inflation, budget surpluses, technology driven rising productivity
and increasing earnings continued to roar to new heights.
During the fourth quarter, the stock market had a very narrow focus on new
economy stocks -- technology and telecom equipment -- and almost complete
disinterest in everything else. Value stocks such as those held in the Equity
Income Fund were ignored and underperformed the market. As a result the
technology and internet stocks are richly valued and at all time highs, while
the energy, basic materials, capital goods and healthcare stocks, which are in
the Equity Income Fund are much more reasonably valued. World economies are
recovering, cyclical stocks should have good earnings recoveries, and many of
these stocks have already experienced bear market type declines over the past
year. Any shift in market focus away from the narrow leadership of the recent
past should benefit this portfolio.
EQUITY VALUE
As has been true for most of the year, the stock market was dominated by
large cap, momentum growth issues, primarily in Technology and
Communications/Internet related areas. These high P/ E stocks typically fall
outside of the Large Cap Value valuation discipline. Not being involved in this
area was the major cause of the Large Cap Value underperformance for the quarter
and the year. Not surprisingly, two of the issues that contributed the most in
the portfolio were in technology: Seagate Technology and Compaq Computer Corp.
We do not believe that the domination of growth stocks can be sustained
indefinitely. With interest rates and commodity prices on the rise, unemployment
at all time lows, and foreign stocks outperforming U.S. equities for the first
time since 1994, investors may be encouraged to look at other investment
opportunities in the near future. When this occurs, we expect growth stocks to
come under pressure and a rotation back to value to begin. At that time, we are
confident that the Large Cap Value portfolio will be rewarded, as it was during
the second quarter of 1999.
F-13
<PAGE> 102
GROWTH & INCOME
The fourth-quarter U.S. economy remained hot, as it had throughout 1999.
The Growth & Income portfolio outperformed the S&P 500 Index for the fourth
quarter as strong stock selection in the top-performing technology and consumer
staples sectors aided returns.
Telecommunications equipment stocks were particularly strong and their
spectacular gains were responsible for much of the portfolio's outperformance in
the technology sector. Additionally, electronic components stocks contributed
significantly to performance. In the consumer staples sector, cable and
broadcast television stocks were particularly strong, as were stocks in the
entertainment industry.
Although the U.S. economic growth may slow in 2000, it should remain
relatively robust. We anticipate further Fed rate hikes, particularly if rising
inflation causes the Fed to move to a tightening stance. We believe that
high-quality growth companies should continue to benefit from persistent demand
and visible earnings growth, particularly within the technology and consumer
sectors.
EQUITY GROWTH
Most of the major stock market indices rebounded sharply following a
difficult third quarter, as the U.S. economy continued to exhibit considerable
momentum and corporate profitability remained strong. During the quarter, select
global consumer growth companies began to perk up as foreign economies continued
to exhibit signs of recovery while healthcare stocks labored under the weight of
regulatory concerns.
The combination of industry selection and stock selection in
Electronics/New Technology had the largest positive impact on relative
performance during the period. This was due in large part to our holdings of
QUALCOMM and JDS Uniphase, up 272% and 183% respectively for the quarter.
While it appears that fears of a Y2K meltdown were overblown, there may
still be some minor dislocations to individual businesses. However, the impact
will not likely be material to the Financial markets as a whole. The outlook for
corporate profits is still positive which should help support share prices. The
prospects for the U.S. economy and U.S. stocks remain relatively solid.
SPECIAL EQUITY
During the fourth quarter, investors chose to shrug off interest rate
concerns and focus on strong economic growth. This was especially true in
December as the outlook for corporate earnings, especially in technology,
continued to improve. Additionally, the willingness to value Internet stocks
solely on revenue growth prospects led to more aggressive valuations for the
general market.
The portfolio capitalized on the overall market preference for technology
with strong stock selection. RSA Security Inc. and Cree Research Inc turned in
the strongest performances. Top contributors operate in high growth areas such
as network security and system management, specialty components, wireless
broadband and Internet commerce. Cellular telephone (Rural Cellular Corp.),
radio broadcasting (Emmis Communications, Salem Communications), and cable
television (Jones Intercable) issues remained as positive contributors.
We continue a diversified approach to our sector seeking attractive growth
opportunities in and out of technology. Looking forward, we hope for a level
playing field in terms of the valuation excesses evident in the
technology/internet world.
F-14
<PAGE> 103
AGGRESSIVE EQUITY
Strong economic conditions were evident in a market that generously
rewarded those companies with strong organic growth; overcoming continued
increases in interest rates. This growth was most pronounced in technology
stocks with exposure to communications systems and equipment.
The fund's performance this quarter was driven by technology stocks such as
Conexant Systems, Qlogic, and Optical Coating. The portfolio also benefited from
the continued wireless evolution, through holdings in Voicestream Wireless and
Western Wireless, along with QUALCOMM. These companies are all characterized by
strong organic growth well above market expectations.
We approach the new millennium with cautious optimism. Tremendous growth
opportunities exist in the stocks that we own. The continued application of
technology to all areas of the economy, and especially the expansion of the
Internet, drives this growth. Relative valuations in these issues depend on a
continued market focus on their outstanding prospects.
INTERNATIONAL EQUITY
Growth in Europe continues to improve on the heels of strong growth
elsewhere: in the U.S., where the economy shows no signs of slowing, in Latin
America, where Mexico has been especially strong and in Brazil where the economy
has been more resilient than expected. Asia has shown positive political changes
in Indonesia and important restructuring in the banking sector in Thailand and
Korea. In Japan, good returns from equities have been well received.
The exceptionally strong relative and absolute performance from the
portfolios is virtually all due to stock selection. The largest gains were in
the Capital Equipment sector: Murata Manufacturing returned over 133%, Rohm Co.
was up 96%, and Advantest was up 82% in the fourth quarter of the year. Stock
selection in Germany significantly added to performance: Mannesmann AG (4.2% of
the portfolio) was up 51% and Deutsche Telekom was up 71%. Overall, the
portfolio's holdings in Germany were up 43% in US$ terms versus the MSCI Germany
Index which was up 26% for the fourth quarter of 1999.
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<PAGE> 104
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY HIGH GOVERNMENT CORE EQUITY
MARKET QUALITY BOND BOND BOND(1) BALANCED INCOME
------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Securities, at cost.............. $415,263,610 $197,799,112 $214,415,564 $876,549,268 $553,441,870 $1,097,423,676
============ ============ ============ ============ ============ ==============
Securities, at market............ $415,263,610 $193,938,786 $209,472,055 $867,437,642 $595,865,015 $1,451,870,274
Repurchase agreements, at
value.......................... 78,083 8,884,965 63,303 7,418,922 25,289,441 --
Cash............................. 291,597 -- -- -- 3 80,040
Foreign currency holdings, at
value (Cost $190,024).......... -- -- -- -- -- --
Receivable for securities sold... -- 2,130 -- -- 8,279,745 --
Unrealized appreciation on
foreign currency forward
contracts...................... -- -- -- -- 109,351 --
Variation margin................. -- -- -- -- 62,050 --
Interest receivable.............. 1,244,489 2,245,776 2,412,256 7,648,925 2,091,181 6,258
Dividends receivable............. -- -- -- -- 279,965 2,132,682
Receivable from securities
lending........................ -- 37,300 12,237 32,743 19,827 7,275
Reimbursement from advisor....... -- -- 2,000 -- 27,558 1,087
------------ ------------ ------------ ------------ ------------ --------------
Total assets............. 416,877,779 205,108,957 211,961,851 882,538,232 632,024,136 1,454,097,616
------------ ------------ ------------ ------------ ------------ --------------
LIABILITIES:
Due to custodian................. -- -- -- -- -- --
Deposit for securities loaned.... -- 5,100,000 37,078,875 178,096,125 39,899,150 38,823,800
Payable for securities
purchased...................... -- -- -- 188,541,706 66,108,248 --
Unrealized depreciation on
foreign currency forward
contracts...................... -- -- -- -- 93,071 --
Investment advisory fees......... 95,324 74,369 54,270 150,871 201,349 538,990
Accrued expenses................. 13,628 28,491 24,321 28,086 138,415 100,596
------------ ------------ ------------ ------------ ------------ --------------
Total liabilities........ 108,952 5,202,860 37,157,466 366,816,788 106,440,233 39,463,386
------------ ------------ ------------ ------------ ------------ --------------
NET ASSETS............... $416,768,827 $199,906,097 $174,804,385 $515,721,444 $525,583,903 $1,414,634,230
============ ============ ============ ============ ============ ==============
NET ASSETS CONSIST OF:
Paid-in capital.................. $416,768,827 $203,766,423 $179,747,894 $524,833,070 $482,963,856 $1,060,187,632
Net unrealized appreciation
(depreciation) on securities
and futures.................... -- (3,860,326) (4,943,509) (9,111,626) 42,608,981 354,446,598
Net unrealized appreciation
(depreciation) on translation
of assets and liabilities in
foreign currencies............. -- -- -- -- 11,066 --
------------ ------------ ------------ ------------ ------------ --------------
NET ASSETS............... $416,768,827 $199,906,097 $174,804,385 $515,721,444 $525,583,903 $1,414,634,230
============ ============ ============ ============ ============ ==============
</TABLE>
- ---------------
(1) Formerly Government/Corporate Bond
See notes to financial statements.
F-16
<PAGE> 105
<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>
$439,999,063 $1,009,793,960 $ 922,144,435 $ 967,074,126 $214,782,159 $126,172,168 $392,288,113
============ ============== ============== ============== ============ ============ ============
$396,218,956 $1,381,453,305 $1,331,312,058 $1,216,019,459 $301,999,761 $119,621,721 $629,157,826
21,212,108 11,777,953 27,294,407 64,470,678 -- 2,447,625 13,474,597
-- -- -- -- -- -- --
-- -- -- -- -- -- 190,125
2,403,623 4,895,172 -- 8,425,470 8,115,674 475,444 --
-- -- -- -- -- -- --
-- -- -- -- -- -- --
5,517 23,325 14,499 23,089 6,214 3,007,064 11,949
1,046,553 484,819 462,484 443,076 23,052 -- 365,569
5,246 27,692 21,843 82,847 13,178 -- 27,997
-- -- -- -- -- -- --
------------ -------------- -------------- -------------- ------------ ------------ ------------
420,892,003 1,398,662,266 1,359,105,291 1,289,464,619 310,157,879 125,551,854 643,228,063
------------ -------------- -------------- -------------- ------------ ------------ ------------
-- -- -- -- 9,263,283 -- --
24,259,200 146,119,866 81,556,641 115,256,767 40,672,700 -- 48,296,127
2,300,061 9,663,859 10,002,725 2,259,614 -- 473,569 --
-- -- -- -- -- -- 1,832,309
194,557 618,500 656,480 780,615 210,439 61,423 359,980
33,897 23,598 20,291 133,342 37,035 26,454 26,006
------------ -------------- -------------- -------------- ------------ ------------ ------------
26,787,715 156,425,823 92,236,137 118,430,338 50,183,457 561,446 50,514,422
------------ -------------- -------------- -------------- ------------ ------------ ------------
$394,104,288 $1,242,236,443 $1,266,869,154 $1,171,034,281 $259,974,422 $124,990,408 $592,713,641
============ ============== ============== ============== ============ ============ ============
$437,884,395 $ 870,577,098 $ 857,701,531 $ 922,088,948 $172,756,820 $131,540,855 $357,676,654
(43,780,107) 371,659,345 409,167,623 248,945,333 87,217,602 (6,550,447) 236,869,713
-- -- -- -- -- -- (1,832,726)
------------ -------------- -------------- -------------- ------------ ------------ ------------
$394,104,288 $1,242,236,443 $1,266,869,154 $1,171,034,281 $259,974,422 $124,990,408 $592,713,641
============ ============== ============== ============== ============ ============ ============
</TABLE>
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<PAGE> 106
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY HIGH GOVERNMENT CORE EQUITY
MARKET QUALITY BOND BOND BOND(1) BALANCED INCOME
----------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income............... $19,781,570 $13,993,976 $10,125,089 $ 35,544,333 $10,844,737 $ 1,316,066
Dividend income............... -- -- -- -- 4,318,612 30,888,821
Less: withholding taxes....... -- -- -- -- (26,191) (17,687)
----------- ----------- ----------- ------------ ----------- ------------
Total income........... 19,781,570 13,993,976 10,125,089 35,544,333 15,137,158 32,187,200
----------- ----------- ----------- ------------ ----------- ------------
EXPENSES:
Investment advisory fees...... 925,652 794,958 605,483 1,995,476 2,284,131 6,502,830
Custody fees.................. 67,896 51,219 39,726 91,523 150,849 180,852
Professional fees............. 24,362 23,748 22,660 33,997 31,071 47,886
Reports to shareholders....... 962 738 476 1,682 1,447 3,826
Miscellaneous fees............ 2,764 2,651 2,593 2,981 161,810 3,228
----------- ----------- ----------- ------------ ----------- ------------
Total expenses......... 1,021,636 873,314 670,938 2,125,659 2,629,308 6,738,622
Expenses reimbursed by the
advisor..................... -- -- (490) -- (92,527) --
----------- ----------- ----------- ------------ ----------- ------------
Net expenses........... 1,021,636 873,314 670,448 2,125,659 2,536,781 6,738,622
----------- ----------- ----------- ------------ ----------- ------------
Net investment income (loss).... 18,759,934 13,120,662 9,454,641 33,418,674 12,600,377 25,448,578
----------- ----------- ----------- ------------ ----------- ------------
NET REALIZED AND UNREALIZED
GAINS (LOSSES) ON SECURITIES
AND FOREIGN CURRENCIES:
Net realized gains (losses) on
securities and futures...... (81,098) (77,003) 271,445 (16,710,925) 38,806,405 127,039,697
Net realized gains (losses) on
foreign currency
transactions................ -- -- -- -- 534,648 --
Net change in unrealized
appreciation (depreciation)
on securities and futures... -- (5,712,669) (6,973,210) (22,172,181) 4,464,554 (38,715,500)
Net change in unrealized
appreciation (depreciation)
on translation of assets
and liabilities in foreign
currencies.................. -- -- -- -- 11,066 --
----------- ----------- ----------- ------------ ----------- ------------
Net realized and unrealized
gains (losses) on securities
and foreign currencies........ (81,098) (5,789,672) (6,701,765) (38,883,106) 43,816,673 88,324,197
----------- ----------- ----------- ------------ ----------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................... $18,678,836 $ 7,330,990 $ 2,752,876 $ (5,464,432) $56,417,050 $113,772,775
=========== =========== =========== ============ =========== ============
</TABLE>
- ---------------
(1) Formerly Government/Corporate Bond
See notes to financial statements.
F-18
<PAGE> 107
<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>
$ 598,323 $ 1,107,550 $ 1,592,527 $ 4,458,799 $ 420,906 $10,184,587 $ 1,312,185
8,981,593 5,754,154 5,602,704 4,846,575 353,109 -- 6,120,134
-- -- (13,096) (15,515) -- -- (589,899)
------------ ------------ ------------ ------------ ----------- ----------- ------------
9,579,916 6,861,704 7,182,135 9,289,859 774,015 10,184,587 6,842,420
------------ ------------ ------------ ------------ ----------- ----------- ------------
2,378,610 5,981,552 5,900,858 7,623,496 1,394,114 617,744 3,213,534
86,621 151,123 133,895 237,804 35,046 44,037 430,572
27,545 36,273 26,676 42,812 22,154 22,238 30,087
1,146....... 1,737 1,591 2,184 155 282 832
2,847 2,948 2,813 135,604 2,514 2,561 2,795
------------ ------------ ------------ ------------ ----------- ----------- ------------
2,496,769 6,173,633 6,065,833 8,041,900 1,453,983 686,862 3,677,820
(109) (1,170) (33) (13,406) (13,847) (12,888) (500)
------------ ------------ ------------ ------------ ----------- ----------- ------------
2,496,660 6,172,463 6,065,800 8,028,494 1,440,136 673,974 3,677,320
------------ ------------ ------------ ------------ ----------- ----------- ------------
7,083,256 689,241 1,116,335 1,261,365 (666,121) 9,510,613 3,165,100
------------ ------------ ------------ ------------ ----------- ----------- ------------
18,628,659 140,686,075 112,928,394 167,967,618 26,650,206 (6,387,877) 26,587,874
-- -- -- -- -- -- (1,679,242)
(35,807,019) 152,827,628 214,814,984 70,038,822 65,836,552 (2,312,494) 206,238,143
-- -- -- -- -- -- (518,396)
------------ ------------ ------------ ------------ ----------- ----------- ------------
(17,178,360) 293,513,703 327,743,378 238,006,440 92,486,758 (8,700,371) 230,628,379
------------ ------------ ------------ ------------ ----------- ----------- ------------
$(10,095,104) $294,202,944 $328,859,713 $239,267,805 $91,820,637 $ 810,242 $233,793,479
============ ============ ============ ============ =========== =========== ============
</TABLE>
F-19
<PAGE> 108
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY HIGH GOVERNMENT CORE
MARKET QUALITY BOND BOND BOND(1) BALANCED
--------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss)............ $ 18,759,934 $ 13,120,662 $ 9,454,641 $ 33,418,674 $ 12,600,377
Net realized gains (losses) on
securities and futures................ (81,098) (77,003) 271,445 (16,710,925) 38,806,405
Net realized gains (losses) on foreign
currency transactions................. -- -- -- -- 534,648
Net change in unrealized appreciation
(depreciation) on securities and
futures............................... -- (5,712,669) (6,973,210) (22,172,181) 4,464,554
Net change in unrealized appreciation
(depreciation) on translation of
assets and liabilities in foreign
currencies............................ -- -- -- -- 11,066
--------------- ------------- ------------ ------------- -------------
Net increase (decrease) in net assets
resulting from operations............. 18,678,836 7,330,990 2,752,876 (5,464,432) 56,417,050
--------------- ------------- ------------ ------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from capital invested.......... 2,447,353,613 97,896,479 95,259,001 279,258,506 164,980,620
Value of capital withdrawn.............. (2,341,701,375) (132,784,506) (81,781,959) (310,008,160) (201,809,506)
--------------- ------------- ------------ ------------- -------------
Net increase (decrease) in net assets
resulting from capital transactions..... 105,652,238 (34,888,027) 13,477,042 (30,749,654) (36,828,886)
--------------- ------------- ------------ ------------- -------------
Net increase (decrease) in net assets..... 124,331,074 (27,557,037) 16,229,918 (36,214,086) 19,588,164
NET ASSETS:
Beginning of year....................... 292,437,753 227,463,134 158,574,467 551,935,530 505,995,739
--------------- ------------- ------------ ------------- -------------
End of year............................. $ 416,768,827 $ 199,906,097 $174,804,385 $ 515,721,444 $ 525,583,903
=============== ============= ============ ============= =============
</TABLE>
- ---------------
(1) Formerly Government/Corporate Bond
See notes to financial statements.
F-20
<PAGE> 109
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD
INCOME VALUE INCOME GROWTH EQUITY EQUITY BOND
-------------- ------------- -------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 25,448,578 $ 7,083,256 $ 689,241 $ 1,116,335 $ 1,261,365 $ (666,121) $ 9,510,613
127,039,697 18,628,659 140,686,075 112,928,394 167,967,618 26,650,206 (6,387,877)
-- -- -- -- -- -- --
(38,715,500) (35,807,019) 152,827,628 214,814,984 70,038,822 65,836,552 (2,312,494)
-- -- -- -- -- -- --
-------------- ------------- -------------- -------------- -------------- ------------- -------------
113,772,775 (10,095,104) 294,202,944 328,859,713 239,267,805 91,820,637 810,242
-------------- ------------- -------------- -------------- -------------- ------------- -------------
448,574,397 258,787,553 663,367,352 724,768,783 641,434,602 308,383,031 196,525,358
(514,820,438) (244,447,936) (486,602,314) (475,207,907) (633,758,010) (221,556,953) (167,216,173)
-------------- ------------- -------------- -------------- -------------- ------------- -------------
(66,246,041) 14,339,617 176,765,038 249,560,876 7,676,592 86,826,078 29,309,185
-------------- ------------- -------------- -------------- -------------- ------------- -------------
47,526,734 4,244,513 470,967,982 578,420,589 246,944,397 178,646,715 30,119,427
1,367,107,496 389,859,775 771,268,461 688,448,565 924,089,884 81,327,707 94,870,981
-------------- ------------- -------------- -------------- -------------- ------------- -------------
$1,414,634,230 $ 394,104,288 $1,242,236,443 $1,266,869,154 $1,171,034,281 $ 259,974,422 $ 124,990,408
============== ============= ============== ============== ============== ============= =============
<CAPTION>
INTERNATIONAL
EQUITY
--------------
<S> <C>
$ 3,165,100
26,587,874
(1,679,242)
206,238,143
(518,396)
--------------
233,793,479
--------------
1,014,210,775
(975,508,786)
--------------
38,701,989
--------------
272,495,468
320,218,173
--------------
$ 592,713,641
==============
</TABLE>
F-21
<PAGE> 110
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY HIGH GOVERNMENT CORPORATE
MARKET QUALITY BOND BOND BOND BALANCED
--------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss)............. $ 13,951,164 $ 12,701,342 $ 7,665,158 $27,460,446 $ 14,782,044
Net realized gains (losses) on
securities............................. (8,027) 414,827 855,222 4,853,795 20,266,279
Net realized gains on foreign currency
transactions........................... -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on securities........... -- 727,026 952,909 2,272,504 18,099,702
Net change in unrealized (depreciation)
on translation of assets and
liabilities
in foreign currencies.................. -- -- -- -- --
--------------- ------------- ------------ ------------ ------------
Net increase in net assets resulting from
operations............................. 13,943,137 13,843,195 9,473,289 34,586,745 53,148,025
--------------- ------------- ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from capital invested........... 1,190,514,074 102,204,372 87,113,056 251,884,825 182,220,839
Value of capital withdrawn............... (1,144,331,916) (106,753,871) (67,198,275) (96,168,925) (124,143,038)
--------------- ------------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from capital transactions...... 46,182,158 (4,549,499) 19,914,781 155,715,900 58,077,801
--------------- ------------- ------------ ------------ ------------
Net increase in net assets................. 60,125,295 9,293,696 29,388,070 190,302,645 111,225,826
NET ASSETS:
Beginning of year........................ 232,312,458 218,169,438 129,186,397 361,632,885 394,769,913
--------------- ------------- ------------ ------------ ------------
End of year.............................. $ 292,437,753 $ 227,463,134 $158,574,467 $551,935,530 $505,995,739
=============== ============= ============ ============ ============
</TABLE>
See notes to financial statements.
F-22
<PAGE> 111
<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>
$ 28,947,266 $ 5,424,433 $ 1,627,245 $ 1,181,223 $ 1,111,083 $ (149,096) $ 6,685,780 $ 2,883,477
110,650,921 44,679,908 19,534,576 61,370,721 17,684,596 1,181,993 (553,780) 10,177,768
-- -- -- -- -- -- -- 256,147
19,217,218 (13,627,414) 150,077,114 115,672,317 31,347,149 19,387,276 (5,046,919) 16,727,273
-- -- -- -- -- -- -- (2,957,713)
-------------- ------------- ------------- ------------- ------------- ------------ ------------ -------------
158,815,405 36,476,927 171,238,935 178,224,261 50,142,828 20,420,173 1,085,081 27,086,952
-------------- ------------- ------------- ------------- ------------- ------------ ------------ -------------
345,144,527 290,119,254 446,058,507 259,688,127 454,968,479 93,573,841 96,042,481 340,305,978
(351,923,605) (171,720,121) (222,289,389) (175,776,011) (324,409,684) (58,523,957) (41,956,712) (252,480,825)
-------------- ------------- ------------- ------------- ------------- ------------ ------------ -------------
(6,779,078) 118,399,133 223,769,118 83,912,116 130,558,795 35,049,884 54,085,769 87,825,153
-------------- ------------- ------------- ------------- ------------- ------------ ------------ -------------
152,036,327 154,876,060.. 395,008,053 262,136,377 180,701,623 55,470,057 55,170,850 114,912,105
1,215,071,169 234,983,715.. 376,260,408 426,312,188 743,388,261 25,857,650 39,700,131 205,306,068
-------------- ------------- ------------- ------------- ------------- ------------ ------------ -------------
$1,367,107,496 $389,859,775.. $ 771,268,461 $ 688,448,565 $ 924,089,884 $ 81,327,707 $ 94,870,981 $ 320,218,173
============== ============= ============= ============= ============= ============ ============ =============
</TABLE>
F-23
<PAGE> 112
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
COMMERCIAL PAPER -- 86.54%
$14,000,000 American Express Company,
5.70%, 04/06/00.............. $ 13,787,200
3,296,000 American General Finance Corp.,
5.78%, 02/23/00.............. 3,267,953
1,500,000 American Home Products Corp.,
5.68%, 02/25/00.............. 1,486,984
4,500,000 Aristar, Inc., 6.05%,
01/28/00..................... 4,479,581
2,700,000 Aristar, Inc., 6.15%,
01/31/00..................... 2,686,163
4,800,000 Aristar, Inc., 6.10%,
02/04/00..................... 4,772,346
5,000,000 Bank of New York,
5.76%, 02/24/00.............. 4,956,800
8,000,000 Bank One Corp.,
5.70%, 01/31/00.............. 7,962,000
18,300,000 Chevron Oil Finance Corp.,
5.00%, 01/05/00.............. 18,289,833
18,000,000 Citicorp, 6.01%, 02/10/00...... 17,879,800
1,760,000 Coca Cola Enterprises, Inc.,
5.85%, 01/13/00.............. 1,756,568
4,235,000 Coca Cola Enterprises, Inc.,
5.45%, 02/22/00.............. 4,201,661
2,000,000 Conagra, Inc., 6.37%,
01/05/00..................... 1,998,584
615,000 Country Wide Home Loans, 5.25%,
01/05/00..................... 614,641
2,700,000 Deere & Company,
6.00%, 02/08/00.............. 2,682,900
1,000,000 Disney (Walt) Company,
5.53%, 06/16/00.............. 974,347
4,150,000 Dominion Resources, Inc.,
6.80%, 01/25/00.............. 4,131,187
1,000,000 Enterprise Funding Corp.,
5.88%, 01/25/00.............. 996,080
5,805,000 Enterprise Funding Corp.,
5.95%, 01/28/00.............. 5,781,014
8,000,000 Finova Capital Corp.,
6.05%, 02/03/00.............. 7,955,633
18,700,000 Ford Motor Credit Corp.,
6.40%, 01/19/00.............. 18,640,160
6,500,000 GE Capital Corp.,
6.02%, 01/28/00.............. 6,470,652
700,000 GE Capital Corp.,
5.71%, 03/14/00.............. 691,895
10,000,000 General Electric Company,
5.76%, 02/18/00.............. 9,923,200
9,000,000 General Motors Acceptance
Corp., 5.90%, 02/08/00....... 8,943,950
8,000,000 General Motors Acceptance
Corp., 5.75%, 02/25/00....... 7,929,722
315,000 General Motors Corp.,
5.75%, 02/11/00.............. 312,937
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
COMMERCIAL PAPER (CONTINUED)
$ 1,200,000 General Motors Corp.,
5.75%, 02/15/00.............. $ 1,191,375
8,800,000 Golden Funding Corp.,
7.00%, 01/27/00.............. 8,755,511
8,225,000 Golden Funding Corp.,
5.87%, 01/28/00.............. 8,188,789
5,000,000 Heller Financial, 5.95%,
02/15/00..................... 4,962,813
2,200,000 Heller International Corp.,
5.85%, 02/25/00.............. 2,180,338
9,800,000 Heller International Corp.,
5.95%, 03/09/00.............. 9,689,859
7,700,000 Household International Corp.,
6.05%, 01/21/00.............. 7,674,120
9,300,000 Household International Corp.,
6.05%, 02/08/00.............. 9,240,609
4,500,000 International Bank for
Reconstruction and
Development, 5.73%,
10/15/00..................... 4,293,667
1,100,000 International Bank for
Reconstruction and
Development, 5.85%,
10/15/00..................... 1,048,553
1,530,000 Johnson Controls, Inc.,
5.93%, 01/27/00.............. 1,523,448
6,000,000 Lehman Brothers Holdings,
6.15%, 03/15/00.............. 6,003,843
900,000 MCI Worldcom, Inc.,
6.55%, 01/26/00.............. 895,906
3,445,000 Merrill Lynch & Company, Inc.,
5.86%, 01/31/00.............. 3,428,177
5,000,000 Merrill Lynch & Company, Inc.,
5.94%, 02/28/00.............. 4,952,150
5,150,000 Montauk Funding Corp.,
6.25%, 01/14/00.............. 5,138,377
6,200,000 Montauk Funding Corp.,
5.65%, 01/18/00.............. 6,183,458
3,750,000 Nabisco, Inc., 5.25%,
01/03/00..................... 3,748,906
5,700,000 Paccar Financial Group,
5.03%, 02/01/00.............. 5,675,312
2,600,000 Paccar Financial Group,
5.90%, 01/28/00.............. 2,588,495
10,000,000 Quebec Province Canada,
5.79%, 05/26/00.............. 9,765,183
8,000,000 Quebec Province Canada,
5.85%, 06/01/00.............. 7,802,400
18,000,000 Sears Roebuck & Company, 6.00%,
02/15/00..................... 17,865,000
15,087,000 Texaco, Inc., 5.90%,
01/13/00..................... 15,057,329
7,000,000 Toronto Dominion Bank,
6.25%, 01/10/00.............. 6,989,063
</TABLE>
See notes to financial statements.
F-24
<PAGE> 113
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
COMMERCIAL PAPER (CONTINUED)
$ 300,000 Trident Capital Finance, Inc.,
5.96%, 01/19/00.............. $ 299,106
7,100,000 Trident Capital Finance, Inc.,
6.55%, 01/19/00.............. 7,076,748
900,000 Trident Capital Finance, Inc.,
5.95%, 02/11/00.............. 893,901
15,000,000 Union Bancal Corp.,
5.25%, 05/08/00.............. 15,000,000
15,000,000 Wells Fargo Company,
5.87%, 03/03/00.............. 14,848,358
2,875,000 Windmill Funding Corp.,
6.59%, 01/10/00.............. 2,870,263
400,000 Windmill Funding Corp.,
5.84%, 01/12/00.............. 399,286
850,000 Windmill Funding Corp.,
5.87%, 01/12/00.............. 848,476
------------
TOTAL COMMERCIAL PAPER
(Cost $360,652,610)............ 360,652,610
------------
FEDERAL HOME LOAN BANK -- 3.12%
8,000,000 5.00%, 02/10/00................ 8,000,000
5,000,000 5.14%, 03/17/00................ 5,000,000
------------
TOTAL FEDERAL HOME LOAN BANK
(Cost $13,000,000)............. 13,000,000
------------
SHORT TERM CORPORATE NOTES -- 9.98%
1,800,000 Banc One, Floating Rate, 6.40%,
01/06/00+.................... 1,800,000
4,811,000 Capital One Funding Corp.,
Floating Rate,
6.40%, 01/06/00+............. 4,811,000
10,000,000 Dow Chemical Company, Floating
Rate,
5.5125%, 03/15/00+........... 10,000,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
SHORT TERM CORPORATE NOTES (CONTINUED)
$ 7,000,000 Goldman Sachs Group, Floating
Rate, 5.40%, 02/25/00+....... $ 7,000,000
9,000,000 Goldman Sachs Group, Floating
Rate, 6.2575%, 02/15/00+..... 9,000,000
9,000,000 Lehman Syndicated Loan Fund,
Floating Rate,
6.6125%, 03/15/00+........... 9,000,000
------------
TOTAL SHORT-TERM CORPORATE
NOTES (Cost $41,611,000)....... 41,611,000
------------
TOTAL SECURITIES (Cost
$415,263,610).................. 415,263,610
------------
REPURCHASE AGREEMENT -- 0.02%
78,083 With Investors Bank & Trust,
dated 12/31/99, 3.06%, due
01/03/00, repurchase proceeds
at maturity $78,102
(Collateralized by Fannie
Mae, 7.32%, due 08/01/27,
with a value of $82,047)
(Cost $78,083)............... 78,083
------------
Total Investments -- 99.66%
(Cost $415,341,693)............ 415,341,693
Other assets less
liabilities -- 0.34%........... 1,427,134
------------
NET ASSETS -- 100.00%.......... $416,768,827
============
The aggregate cost of securities for federal income tax
purposes at December 31, 1999, is $415,341,693.
</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, 1999.
See notes to financial statements.
F-25
<PAGE> 114
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 90.66%
AUTOMOBILES -- 2.48%
$ 5,000,000 DaimlerChrysler N.A. Holdings,
6.59%, 06/18/02.............. $ 4,952,355
------------
BANKS -- 13.74%
3,500,000 Bank of America Corp.
10.00%, 02/01/03............. 3,783,437
8,000,000 First Omni Bank, Series 96-A,
6.65%, 09/15/03.............. 7,989,200
3,750,000 First Union Corp.,
8.00%, 11/15/02.............. 3,826,511
3,120,000 Midland Bank PLC,
8.625%, 12/15/04............. 3,238,691
2,000,000 RBSG Capital Corp.,
10.125%, 03/01/04............ 2,182,180
1,810,338 Union Acceptance Corp.,
6.40%, 10/10/02.............. 1,807,586
4,700,000 Union Acceptance Corp.,
5.57%, 09/08/03.............. 4,635,845
------------
TOTAL BANKS.................... 27,463,450
------------
BROKERAGE -- 10.95%
5,000,000 Bear Stearns & Company,
6.45%, 08/01/02.............. 4,907,090
1,500,000 Bear Stearns & Company, 6.125%,
02/01/03..................... 1,447,559
7,000,000 Lehman Brothers Holdings Inc.,
6.00%, 02/26/01.............. 6,912,941
5,000,000 Merrill Lynch & Company, 5.75%,
11/04/02..................... 4,844,760
4,000,000 Morgan Stanley Dean Witter &
Company, 5.625%, 01/20/04.... 3,776,340
------------
TOTAL BROKERAGE................ 21,888,690
------------
FINANCE -- 17.69%
1,000,000 Abbey National First Capital,
8.20%, 10/15/04.............. 1,024,613
2,000,000 Associates Corp. N.A.,
6.15%, 01/13/03.............. 1,952,962
3,170,000 Associates Corp. N.A.,
6.01%, 02/07/03.............. 3,080,993
4,400,000 Associates Corp. N.A.,
7.80%, 09/15/04.............. 4,510,475
855,577 Copelco Capital Funding Corp.
II, 6.34%, 07/20/04.......... 854,713
5,000,000 Florida Windstorm Underwriting,
6.50%, 08/25/02.............. 4,864,645
2,000,000 Freddie Mac, 6.25%, 10/15/02... 1,979,330
5,000,000 General Motors Acceptance
Corp., 5.40%, 04/09/01....... 4,923,950
5,000,000 International Lease Finance,
5.45%, 02/08/02.............. 4,862,290
5,000,000 Norwest Financial, Inc.,
6.375%, 7/16/02.............. 4,907,775
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
FINANCE (CONTINUED)
$ 856,081 Textron Financial Corp.,
6.05%, 03/16/09.............. $ 853,170
1,453,233 Travelers Mortgage,
12.00%, 03/01/14............. 1,555,337
------------
TOTAL FINANCE.................. 35,370,253
------------
PRIVATE ASSET BACKED: BANKS -- 2.47%
1,244,138 Banc One Auto Grantor Trust,
6.27%, 11/20/03.............. 1,241,090
3,434,611 Banc One Auto Grantor Trust,
6.29%, 07/20/04.............. 3,416,339
281,782 Western Finance Grantor Trust,
5.875%, 03/01/02............. 281,447
------------
TOTAL PRIVATE ASSET BACKED:
BANKS.......................... 4,938,876
------------
PRIVATE ASSET BACKED: CREDIT CARDS -- 10.05%
3,900,000 Dayton Hudson Credit Card
Master Trust, Series 97-1A,
6.25%, 08/25/05.............. 3,832,296
4,000,000 Discover Card Master Trust I,
Series 98-6A, 5.85%,
01/17/06..................... 3,856,800
6,000,000 Proffitt's Credit Card Master
Trust, Series 98-2A,
6.00%, 09/15/04.............. 5,926,020
5,000,000 Sears Credit Account Master
Trust, Series 96-1A,
6.20%, 02/16/06.............. 4,966,950
1,500,000 Sears Credit Account Master
Trust, 7.00%, 07/16/08....... 1,505,145
------------
TOTAL PRIVATE ASSET BACKED:
CREDIT CARDS................... 20,087,211
------------
PRIVATE ASSET BACKED: FINANCE -- 7.02%
5,000,000 Caterpillar Financial Asset
Trust, 6.20%, 04/25/04 (a)... 4,938,750
726,272 Chase Manhattan Grantor Trust,
6.61%, 09/15/02.............. 727,260
2,472,163 Navistar Financial Corp.,
Series 98-A, Class A,
5.94%, 11/15/04.............. 2,451,768
412,359 Pemex Exp Grantor Trust,
7.66%, 08/15/01.............. 416,903
1,337,051 USAA Auto Loan Grantor Trust,
6.00%, 05/15/04.............. 1,330,847
4,204,185 USAA Auto Loan Grantor Trust,
6.10%, 02/15/06.............. 4,171,340
------------
TOTAL PRIVATE ASSET BACKED:
FINANCE........................ 14,036,868
------------
</TABLE>
See notes to financial statements.
F-26
<PAGE> 115
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: OTHER -- 2.74%
$ 3,500,000 Midstate Trust, Series 2-A4,
9.625%, 04/01/03............. $ 3,610,145
1,871,316 New York City Tax Lien Trust,
Series 98-1C, 6.12%,
07/25/06..................... 1,864,766
------------
TOTAL PRIVATE ASSET BACKED:
OTHER.......................... 5,474,911
------------
PRIVATE ASSET BACKED: PHARMACEUTICALS --
1.49%
2,849,891 Upjohn Company,
9.79%, 02/01/04.............. 2,973,377
------------
PRIVATE ASSET BACKED: RECEIVABLES -- 14.78%
858,702 Capital Equipment Receivable
Trust, Series 96-1,
6.28%, 06/15/00.............. 858,702
570,987 Chevy Chase Auto Receivable
Trust, 6.60%, 12/15/02....... 571,815
6,729,000 Compass Auto Receivables Trust,
Series 1998-A3,
5.90%, 05/15/04.............. 6,688,087
3,000,000 EAB Lease Receivables Trust,
5.66%, 09/15/02.............. 2,962,500
5,000,000 First Sierra Receivables,
5.73%, 07/15/04.............. 4,833,850
1,234,669 First Sierra Receivables II,
6.85%, 02/10/03.............. 1,235,397
542,080 Heller Equipment Asset
Receivables Trust, Series
1997-1, Class A2,
6.39%, 05/25/05.............. 538,974
6,989,187 Newcourt Receivables Asset
Trust, Series 1997-1, Class
A4, 6.193%, 05/20/05......... 6,945,365
5,000,000 Textron Financial Corp.
Receivable Trust, Series
1998-A, Class A2,
5.89%, 01/15/05.............. 4,913,700
------------
TOTAL PRIVATE ASSET BACKED:
RECEIVABLES.................... 29,548,390
------------
PRIVATE ASSET BACKED: RETAIL -- 2.37%
4,000,000 John Deere Capital Corp.,
6.90%, 10/18/02.............. 3,967,760
774,496 Premier Auto Trust,
6.40%, 10/06/01.............. 775,038
------------
TOTAL PRIVATE ASSET BACKED:
RETAIL......................... 4,742,798
------------
PRIVATE ASSET BACKED:
TRANSPORTATION -- 3.58%
7,083,050 Railcar Trust, 7.75%,
06/01/04..................... 7,151,047
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
REAL ESTATE -- 1.30%
$ 2,000,000 Camden Property Trust,
7.23%, 10/30/00.............. $ 1,997,000
367,229 Merrill Lynch Mortgage
Investors, Inc.,
10.35%, 05/15/09............. 374,761
232,000 Merrill Lynch Mortgage
Investors, Inc., 9.40%,
09/15/09..................... 237,100
------------
TOTAL REAL ESTATE.............. 2,608,861
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $184,960,190)............ 181,237,087
------------
US GOVERNMENT AGENCY SECURITIES -- 1.34%
FANNIE MAE -- 0.04%
2,891 PL# 6346, 6.75%, 02/01/03...... 2,897
74,873 PL# 137455, 7.00%, 04/01/04.... 72,413
------------
TOTAL FANNIE MAE............... 75,310
------------
FREDDIE MAC -- 0.63%
637,953 PL# 850082, 9.00%, 10/01/05.... 649,827
60,202 REMIC, Series MH-1, 10.15%,
04/15/06..................... 60,575
352,744 PL# D06777, 7.50%, 03/01/08.... 356,534
195,680 PL# 306816, 7.00%, 01/01/18.... 195,501
------------
TOTAL FREDDIE MAC.............. 1,262,437
------------
RESOLUTION TRUST CORP. -- 0.67%
1,339,531 Resolution Trust Corp.,
7.946%, 08/25/21............. 1,334,147
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost $2,700,525)... 2,671,894
------------
FOREIGN GOVERNMENT OBLIGATION -- 2.47%
5,000,000 Hydro Quebec, 6.36%, 01/15/02
(Cost $5,038,397)............ 4,929,805
------------
<CAPTION>
SHARES
------
REGULATED INVESTMENT COMPANIES -- 1.59%
251,216 Janus Money Market Fund(b)..... 251,216
2,927,478 Merrimac Cash Fund -- Premium
Class(b)..................... 2,927,478
------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost $3,178,694).... 3,178,694
------------
<CAPTION>
PRINCIPAL
---------
<C> <S> <C>
<C> <S> <C>
CERTIFICATES OF DEPOSIT -- 0.27%
$ 62,804 American Express Centurion
Bank, 6.15%, 01/26/00(b)..... 62,804
141,309 Den Danske Bank,
6.39%, 01/20/00(b)........... 141,309
141,309 Den Danske Bank,
6.41%, 01/27/00(b)........... 141,309
</TABLE>
See notes to financial statements.
F-27
<PAGE> 116
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CERTIFICATES OF DEPOSIT (CONTINUED)
$ 62,804 Royal Bank Of Scotland,
6.15%, 01/20/00(b)........... $ 62,804
141,309 Royal Bank Of Scotland,
6.31%, 01/27/00(b)........... 141,309
------------
TOTAL CERTIFICATES OF DEPOSITS
(Cost $549,535)................ 549,535
------------
TIME DEPOSITS -- 0.19%
371,771 BankBoston, N.A.,
4.68%, 01/03/00(b)
(Cost $371,771).............. 371,771
------------
SHORT TERM CORPORATE NOTES -- 0.50%
1,000,000 Prudential Securities, Inc.,
4.85%(++), 03/10/00(b) (Cost
$1,000,000).................. 1,000,000
------------
TOTAL SECURITIES (Cost
$197,799,112).................. 193,938,786
------------
REPURCHASE AGREEMENT -- 4.44%
8,884,965 With Morgan Stanley Dean Witter
& Company, dated 12/31/99,
2.03%, due 01/03/00,
repurchase proceeds at
maturity $8,886,468
(Collateralized by U.S.
Treasury Notes, 7.25% due
05/15/04, with a value of
$9,072,454) (Cost
$8,884,965).................. 8,884,965
------------
Total Investments -- 101.46%
(Cost $206,684,077)............ 202,823,751
Liabilities less other
assets -- (1.46%).............. (2,917,654)
------------
NET ASSETS -- 100.00%.......... $199,906,097
============
</TABLE>
The aggregate cost of securities for federal income tax purposes at December 31,
1999 is $206,684,077.
The following amount is based on cost for federal income tax purposes:
<TABLE>
<S> <C>
Gross unrealized appreciation......... $ 133,508
Gross unrealized depreciation......... (3,993,834)
------------
Net unrealized depreciation........... $ (3,860,326)
============
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(++) 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, 1999.
</TABLE>
See notes to financial statements.
F-28
<PAGE> 117
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
US TREASURY NOTES -- 29.27%
$ 2,500,000 8.875%, 05/15/00(a)............ $ 2,532,813
31,000,000 6.25%, 01/31/02(a)............. 31,000,000
5,000,000 5.625%, 12/31/02............... 4,904,690
11,000,000 6.50%, 10/15/06................ 10,969,068
2,000,000 4.75%, 11/15/08(a)............. 1,764,376
------------
TOTAL US TREASURY NOTES
(Cost $52,945,531)............. 51,170,947
------------
US GOVERNMENT AGENCY SECURITIES -- 64.24%
FANNIE MAE -- 7.82%
2,000,000 CMO, Series 94-75, 7.00%,
01/25/03..................... 1,986,740
2,000,000 5.75%, 04/15/03................ 1,941,808
3,000,000 5.125%, 02/13/04............... 2,814,837
2,000,000 5.875%, 04/23/04............... 1,921,000
5,000,000 Series 96-M7, Class B,
6.8654%, 06/17/11............ 4,999,250
------------
TOTAL FANNIE MAE............... 13,663,635
------------
FEDERAL HOME LOAN BANK -- 7.88%
5,000,000 7.39%, 08/22/01................ 5,063,235
4,000,000 4.875%, 01/22/02............... 3,869,968
3,000,000 5.125%, 02/26/02............... 2,912,508
2,000,000 5.50%, 01/21/03................ 1,934,710
------------
TOTAL FEDERAL HOME LOAN BANK... 13,780,421
------------
FREDDIE MAC -- 13.03%
7,000,000 6.00%, 07/20/01................ 6,936,496
7,000,000 6.30%, 06/01/04(a)............. 6,786,017
3,000,000 CMO, Series 1574,
6.50%, 02/15/21.............. 2,947,080
5,300,000 CMO, Series 1500,
7.00%, 06/15/22.............. 5,073,743
462,741 CMO, Series 31, Floating Rate,
6.90%(++), 08/25/23.......... 462,721
574,131 CMO, Series 1710, Floating
Rate, 7.00%(++), 02/15/24.... 574,499
------------
TOTAL FREDDIE MAC.............. 22,780,556
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 16.01%
3,134 PL# 209631, 7.50%, 04/15/02.... 3,172
13,569 PL# 328000, 7.50%, 06/15/07.... 13,787
6,415 PL# 328084, 7.50%, 07/15/07.... 6,518
10,021 PL# 335542, 7.50%, 08/15/07.... 10,182
85,322 PL# 335995, 7.50%, 08/15/07.... 86,692
29,131 PL# 322072, 7.50%, 08/15/07.... 29,599
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(CONTINUED)
$ 118,801 PL# 323189, 7.50%, 08/15/07.... $ 120,709
149,786 PL# 328188, 7.50%, 08/15/07.... 152,192
209,121 PL# 328192, 7.50%, 08/15/07.... 212,480
53,164 PL# 328200, 7.50%, 08/15/07.... 54,018
253,750 PL# 329060, 7.50%, 08/15/07.... 257,826
222,471 PL# 332267, 7.50%, 08/15/07.... 226,044
51,700 PL# 333320, 7.50%, 09/15/07.... 52,531
141,722 PL# 333709, 7.50%, 09/15/07.... 143,998
257,281 PL# 297619, 7.50%, 09/15/07.... 261,413
203,026 PL# 332704, 7.50%, 09/15/07.... 206,287
154,598 PL# 369749, 6.50%, 09/15/08.... 149,960
210,671 PL# 345975, 6.50%, 10/15/08.... 204,351
503,069 PL# 374726, 6.50%, 10/15/08.... 487,977
164,179 PL# 345973, 6.50%, 11/15/08.... 159,254
97,944 PL# 363874, 6.50%, 11/15/08.... 95,006
337,897 PL# 370448, 6.50%, 11/15/08.... 327,760
404,590 PL# 371094, 6.50%, 11/15/08.... 392,453
240,818 PL# 366531, 6.50%, 11/15/08.... 233,594
3,628,264 PL# 2483, 7.00%, 09/20/27...... 3,496,028
12,654,494 PL# 2631, 7.00%, 08/20/28...... 12,193,288
8,724,799 PL# 2645, 7.00%, 09/20/28...... 8,406,815
------------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION........... 27,983,934
------------
US TREASURY INFLATION INDEX -- 5.67%
10,000,000 3.625%, 01/15/08............... 9,916,192
------------
HOUSING AND URBAN DEVELOPMENT -- 2.83%
5,000,000 6.23%, 08/01/02................ 4,952,715
------------
TENNESSEE VALLEY AUTHORITY -- 2.91%
2,500,000 6.375%, 06/15/05............... 2,409,170
3,000,000 5.375%, 11/13/08............... 2,673,531
------------
TOTAL TENNESSEE VALLEY
AUTHORITY.................... 5,082,701
------------
US GOVERNMENT GUARANTEED BOND -- 8.09%
4,495,210 6.12%, 04/01/08................ 4,312,030
10,000,000 7.05%, 11/15/13................ 9,836,200
------------
TOTAL US GOVERNMENT GUARANTEED
BOND......................... 14,148,230
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost
$115,477,309).................. 112,308,384
------------
</TABLE>
See notes to financial statements.
F-29
<PAGE> 118
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 5.10%
FANNIE MAE -- 1.49%
$ 2,600,000 3.50%, 01/05/00................ $ 2,598,989
------------
FEDERAL HOME LOAN BANK -- 3.61%
6,400,000 5.77%, 03/24/00................ 6,314,860
------------
TOTAL SHORT TERM US GOVERNMENT
AGENCY SECURITIES
(Cost $8,913,849)............ 8,913,849
------------
CERTIFICATES OF DEPOSIT --2.29%
456,608 American Express Centurion
Bank, 6.15%, 01/26/00(b)..... 456,608
1,027,367 Den Danske Bank,
6.39%, 01/20/00(b)........... 1,027,367
1,027,367 Den Danske Bank,
6.41%, 01/27/00(b)........... 1,027,367
456,608 Royal Bank of Scotland,
6.15%, 01/20/00(b)........... 456,608
1,027,367 Royal Bank of Scotland,
6.31%, 01/27/00(b)........... 1,027,367
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $3,995,317).............. 3,995,317
------------
SHORT TERM CORPORATE NOTES -- 12.59%
5,000,000 Goldman Sachs & Company,
Floating Rate,
6.44625%(++), 02/04/00(b).... 5,000,000
5,000,000 JP Morgan Securities, Inc.,
Floating Rate,
4.605%(++), 07/07/00(b)...... 5,000,000
2,000,000 Morgan Stanley Dean Witter &
Company, Floating Rate,
4.60%(++), 01/11/00(b)....... 2,000,000
10,000,000 Prudential Securities, Inc.,
Floating Rate,
4.85%(++), 03/10/00(b)....... 10,000,000
------------
TOTAL SHORT TERM CORPORATE
NOTES
(Cost $22,000,000)............. 22,000,000
------------
<CAPTION>
SHARES
------
REGULATED INVESTMENT COMPANIES -- 0.57%
826,431 Janus Money Market Fund(b)..... 826,431
166,076 Merrimac Cash Fund -- Premium
Class(b)..................... 166,076
------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost $992,507)...... 992,507
------------
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
<C> <S> <C>
TIME DEPOSIT -- 5.77 %
$10,091,051 BankBoston N.A.,
4.68%, 01/03/00(b) (Cost
$10,091,051)................. $ 10,091,051
------------
TOTAL SECURITIES
(Cost $214,415,564)............ 209,472,055
------------
REPURCHASE AGREEMENT -- 0.04%
63,303 With Investors Bank & Trust,
dated 12/31/99, 3.06%, due
01/03/00, repurchase proceeds
at maturity $63,319
(Collateralized by Government
National Mortgage
Association, 6.75%, due
07/20/25, with a value of
$66,663) (Cost $63,303)...... 63,303
------------
Total Investments -- 119.87%
(Cost $214,478,867)............ 209,535,358
Liabilities less other
assets -- (19.87%)............. (34,730,973)
------------
NET ASSETS -- 100.00%.......... $174,804,385
============
</TABLE>
The aggregate cost of securities for federal income tax purposes at December 31,
1999 is $214,478,867.
The following amount is based on cost for federal income tax purposes:
<TABLE>
<S> <C>
Gross unrealized appreciation......... $ 92,888
Gross unrealized depreciation......... (5,036,397)
------------
Net unrealized depreciation........... $ (4,943,509)
============
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(++) 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, 1999.
</TABLE>
See notes to financial statements.
F-30
<PAGE> 119
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -------------
<C> <S> <C>
US TREASURY SECURITIES -- 39.70%
US TREASURY NOTES -- 35.90%
$95,000,000 6.25%, 08/31/00(a)............ $ 95,207,860
30,000,000 5.50%, 12/31/00(a)............ 29,821,890
40,000,000 6.125%, 12/31/01(a)........... 39,912,520
11,000,000 5.75%, 08/15/03(a)............ 10,769,693
10,000,000 5.625%, 05/15/08.............. 9,406,250
-------------
TOTAL US TREASURY NOTES....... 185,118,213
-------------
US TREASURY STRIPS -- 0.23%
4,900,000 0.00%, 08/15/20............... 1,214,901
-------------
US TREASURY BOND -- 3.57%
19,300,000 6.125%, 08/15/29.............. 18,401,353
-------------
TOTAL US TREASURY SECURITIES
(Cost $206,157,705)........... 204,734,467
-------------
US GOVERNMENT AGENCY SECURITIES -- 53.53%
FEDERAL HOME LOAN BANK -- 2.06%
11,000,000 4.875%, 01/22/02.............. 10,642,412
-------------
FANNIE MAE -- 18.52%
25,000,000 6.00%, 01/01/15............... 23,726,563
25,000,000 6.00%, 01/01/30............... 22,871,094
25,000,000 7.00%, 01/01/30............... 24,175,781
25,000,000 7.50%, 01/01/30............... 24,730,469
-------------
TOTAL FANNIE MAE.............. 95,503,907
-------------
FREDDIE MAC -- 12.84%
14,000,000 6.30%, 06/01/04(a)............ 13,572,034
1,452,815 Series 1377, Floating Rate,
7.00%, 09/15/07(++)......... 1,464,147
29,810,000 6.625%, 09/15/09.............. 28,878,527
4,000,000 Series 1666, Class E,
6.00%, 12/15/19............. 3,919,120
1,388,223 Series 31, Floating Rate,
6.90%, 08/25/23(++)......... 1,388,162
18,000,000 6.75%, 09/15/29............... 17,011,800
-------------
TOTAL FREDDIE MAC............. 66,233,790
-------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 19.59%
26,405,710 PL# 2631, 7.00%, 08/20/28..... 25,443,328
3,489,920 PL# 2645, 7.00%, 09/20/28..... 3,362,726
50,000,000 6.50%, 01/15/30............... 46,945,313
25,000,000 8.00%, 01/15/30............... 25,253,906
-------------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION.......... 101,005,273
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -------------
<C> <S> <C>
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
TENNESSEE VALLEY AUTHORITY -- 0.52%
$ 3,000,000 5.375%, 11/13/08.............. $ 2,673,531
-------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost
$281,092,517)................. 276,058,913
-------------
CORPORATE BONDS & NOTES -- 28.55%
AEROSPACE -- 1.84%
1,000,000 AMR Corp., 9.82%, 10/25/11.... 1,128,670
8,000,000 AMR Corp., 9.00%, 08/01/12.... 8,365,608
-------------
TOTAL AEROSPACE............... 9,494,278
-------------
BANKS -- 5.20%
10,000,000 Bank of America Corp.,
6.625%, 06/15/04............ 9,772,270
7,000,000 Inter-American Development
Bank, 8.875%, 08/22/01...... 7,240,758
10,000,000 Wells Fargo Company,
6.625%, 07/15/04............ 9,780,850
-------------
TOTAL BANKS................... 26,793,878
-------------
COMPUTER SOFTWARE AND SERVICES -- 1.74%
9,000,000 Sun Microsystems, Inc.,
7.35%, 08/15/04............. 8,964,981
-------------
COMPUTERS AND OFFICE EQUIPMENT -- 1.53%
9,000,000 International Business
Machines Corp., 5.375%,
02/01/09.................... 7,898,580
-------------
ELECTRIC -- INTEGRATED -- 1.91%
5,000,000 Edison Mission Energy -- 144A,
7.73%, 06/15/09............. 4,961,270
5,000,000 Texas Utilities Electric
Company, 7.17%, 08/01/07.... 4,880,365
-------------
TOTAL ELECTRIC --INTEGRATED... 9,841,635
-------------
FINANCE -- 7.24%
10,000,000 Associates Corp. N.A.,
6.25%, 11/01/08............. 9,213,440
10,000,000 General Motors Acceptance
Corp., 6.625%, 10/15/05..... 9,621,720
10,070,000 General Motors Acceptance
Corp., 6.175%, 05/15/33..... 9,161,283
10,000,000 Goldman Sachs & Company,
6.65%, 05/15/09............. 9,315,900
-------------
TOTAL FINANCE................. 37,312,343
-------------
FOOD AND BEVERAGE -- 0.95%
5,000,000 Diageo Capital PLC,
6.625%, 06/24/04............ 4,892,680
-------------
</TABLE>
See notes to financial statements.
F-31
<PAGE> 120
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -------------
<C> <S> <C>
CORPORATE BONDS & NOTES (CONTINUED)
MEDIA -- 1.96%
$10,000,000 Time Warner, Inc.,
7.75%, 06/15/05............. $ 10,133,280
-------------
SPECIAL PURPOSE ENTITY -- 1.65%
8,500,000 US West Capital Funding --
144A, Floating Rate,
6.57%, 06/15/00(++)......... 8,497,136
-------------
TELECOMMUNICATIONS -- 1.92%
10,000,000 AT&T Corp., 6.50%, 09/15/02... 9,912,500
-------------
TOBACCO -- 0.72%
4,000,000 Universal Corp.,
6.50%, 02/15/06............. 3,731,516
-------------
TRANSPORTATION -- 1.89%
10,000,000 Norfolk Southern Corp.,
7.70%, 05/15/17............. 9,763,730
-------------
TOTAL CORPORATE BONDS & NOTES
(Cost $149,836,220)........... 147,236,537
-------------
FOREIGN GOVERNMENT OBLIGATION -- 0.98%
5,000,000 Province of Ontario,
7.375%, 01/27/03
(Cost $5,108,100)........... 5,053,000
-------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 10.91%
FANNIE MAE -- 5.73%
30,000,000 5.54%, 02/08/00............... 29,552,183
-------------
FREDDIE MAC -- 5.18%
6,000,000 5.54%, 01/13/00............... 5,908,590
11,000,000 5.60%, 02/15/00............... 10,883,644
10,000,000 5.42%, 02/25/00............... 9,914,183
-------------
TOTAL FREDDIE MAC............. 26,706,417
-------------
TOTAL SHORT TERM US GOVERNMENT
AGENCY SECURITIES (Cost
$56,258,601).................. 56,258,600
-------------
<CAPTION>
SHARES
------
<C> <S> <C>
REGULATED INVESTMENT COMPANIES -- 7.32%
11,772,657 Janus Money Market Fund(b).... 11,772,657
25,993,451 Merrimac Cash Fund -- Premium
Class(b).................... 25,993,451
-------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost
$37,766,108).................. 37,766,108
-------------
<CAPTION>
PRINCIPAL VALUE
--------- -------------
<C> <S> <C>
CERTIFICATES OF DEPOSIT -- 14.37%
$ 503,414 American Express Centurion
Bank, 6.15%, 01/26/00(b).... $ 503,414
38,876,479 Bank of Nova Scotia,
6.05%, 01/26/00(b).......... 38,876,479
1,132,684 Den Danske Bank,
6.39%, 01/20/00(b).......... 1,132,684
1,132,684 Den Danske Bank,
6.41%, 01/27/00(b).......... 1,132,684
503,414 Royal Bank of Scotland,
6.15%, 01/20/00(b).......... 503,414
1,132,684 Royal Bank of Scotland,
6.31%, 01/27/00(b).......... 1,132,684
30,835,992 Toronto Dominion Bank,
6.40%, 02/24/00(b).......... 30,835,992
-------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $74,117,351)............ 74,117,351
-------------
TIME DEPOSIT -- 0.33%
1,712,666 BankBoston N.A.,
4.68%, 01/03/00(b)
(Cost $1,712,666)........... 1,712,666
-------------
SHORT TERM CORPORATE NOTES -- 12.51%
25,000,000 Bear Stearns & Company,
Floating Rate,
4.75%(++), 06/26/00(b)...... 25,000,000
15,000,000 Goldman Sachs & Company,
Floating Rate,
4.75%(++), 01/03/00(b)...... 15,000,000
7,000,000 JP Morgan Securities, Inc.,
Floating Rate,
4.605%(++), 07/07/00(b)..... 7,000,000
17,500,000 Prudential Securities, Inc.,
Floating Rate,
4.85%(++), 03/10/00(b)...... 17,500,000
-------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $64,500,000)...... 64,500,000
-------------
TOTAL SECURITIES (Cost
$876,549,268)................. 867,437,642
-------------
</TABLE>
See notes to financial statements.
F-32
<PAGE> 121
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -------------
<C> <S> <C>
z REPURCHASE AGREEMENT -- 1.44%
$ 7,418,922 With Investors Bank & Trust
dated 12/31/99, 3.06%, due
01/03/00, repurchase
proceeds at maturity
$7,420,814 (Collateralized
by Freddie Mac, 7.25%,
04/25/24, with a value of
$5,091,116, and Fannie Mae
Adjustable Rate Mortgage,
7.238%, 08/01/27, with a
value of $2,699,532) (Cost
$7,418,922)................. $ 7,418,922
-------------
Total Investments -- 169.64%
(Cost $883,968,190)........... 874,856,564
Liabilities less other
assets -- (69.64)%............ (359,135,120)
-------------
NET ASSETS -- 100.00%......... $ 515,721,444
=============
</TABLE>
The aggregate cost of securities for federal income tax purposes at December 31,
1999, is $884,547,998.
The following amount is based on cost for federal income tax purposes:
<TABLE>
<S> <C>
Gross unrealized appreciation......... $ 149,692
Gross unrealized depreciation......... (9,841,126)
-------------
Net unrealized depreciation........... $ (9,691,434)
=============
</TABLE>
- ---------------
(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, 1999.
See notes to financial statements.
F-33
<PAGE> 122
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK -- 61.18%
ADVERTISING -- 0.18%
7,600 Interpublic Group of Companies,
Inc. ........................ $ 438,425
4,800 Omnicom Group, Inc. ........... 480,000
------------
TOTAL ADVERTISING.............. 918,425
------------
AEROSPACE -- 0.62%
41,000 Boeing Company................. 1,704,063
4,600 General Dynamics Corp. ........ 242,650
1,700 Goodrich (B.F.) Company........ 46,750
2,000 Northrop Grumman Corp. ........ 108,125
2,700 Raytheon Company -- Class B.... 71,719
17,000 United Technologies Corp. ..... 1,105,000
------------
TOTAL AEROSPACE................ 3,278,307
------------
AGRICULTURE EQUIPMENT -- 0.05%
6,600 Deere & Company................ 286,275
------------
AIRLINES -- 0.04%
13,600 Southwest Airlines Company..... 220,150
------------
APPAREL -- 0.07%
1,500 Liz Claiborne, Inc. ........... 56,437
1,000 Russell Corp. ................. 16,750
300 Springs Industries, Inc. ...... 11,981
8,300 TJX Companies, Inc. ........... 169,631
2,900 V. F. Corp..................... 87,000
------------
TOTAL APPAREL.................. 341,799
------------
AUTOMOBILES: CARS -- 0.54%
29,900 Ford Motor Company............. 1,597,781
17,200 General Motors Corp. .......... 1,250,225
------------
TOTAL AUTOMOBILES: CARS........ 2,848,006
------------
AUTOMOBILES: TRUCKS -- 0.06%
200 NACCO Industries,
Inc. -- Class A.............. 11,112
3,500 Navistar International
Corp.(c)..................... 165,813
3,300 PACCAR, Inc. .................. 146,231
------------
TOTAL AUTOMOBILES: TRUCKS...... 323,156
------------
AUTOMOTIVE EQUIPMENT -- 0.29%
4,200 Autozone, Inc.(a)(c)........... 135,712
1,000 Cummins Engine Company, Inc. .. 48,313
4,800 Dana Corp. .................... 143,700
20,793 Delphi Automotive Systems
Corp. ....................... 327,490
5,600 Genuine Parts Company.......... 138,950
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
AUTOMOTIVE EQUIPMENT (CONTINUED)
2,600 Johnson Controls,
Inc. ........................ $ 147,875
6,400 Teradyne, Inc.(c).............. 422,400
2,900 TRW, Inc. ..................... 150,619
------------
TOTAL AUTOMOTIVE EQUIPMENT..... 1,515,059
------------
BANKS -- 2.75%
5,300 AmSouth Bancorporation......... 102,356
46,000 Bank of America Corp. ......... 2,308,625
20,400 Bank of New York Company,
Inc. ........................ 816,000
16,700 Bank One Corp. ................ 535,444
9,600 BB&T Corp. .................... 262,800
22,200 Chase Manhattan Corp. ......... 1,724,662
4,800 Comerica, Inc. ................ 224,100
8,300 Fifth Third Bancorp............ 609,013
26,345 Firstar Corp. ................. 556,538
27,756 Fleet Boston Financial
Corp. ....................... 966,256
4,800 Golden West Financial Corp. ... 160,800
7,150 Huntington Bancshares, Inc. ... 170,706
6,000 Keycorp........................ 132,750
14,600 Mellon Bank Corp. ............. 497,312
5,000 J.P. Morgan & Company.......... 633,125
6,000 Northern Trust Corp. .......... 318,000
7,900 PNC Bank Corp. ................ 351,550
2,500 Regions Financial Corp. ....... 62,812
5,100 SouthTrust Corp. .............. 192,844
4,300 State Street Corp. ............ 314,169
5,400 Summit Bancorp................. 165,375
7,700 SunTrust Banks, Inc. .......... 529,856
8,400 Synovus Financial Corp. ....... 166,950
1,700 Union Planters Corp. .......... 67,044
5,400 Wachovia Corp. ................ 367,200
15,900 Washington Mutual, Inc. ....... 413,400
44,200 Wells Fargo Company............ 1,787,337
------------
TOTAL BANKS.................... 14,437,024
------------
BUILDING MATERIALS -- 1.27%
79,950 Home Depot, Inc. .............. 5,481,572
16,900 Lowe's Companies, Inc. ........ 1,009,775
6,000 Masco Corp. ................... 152,250
2,100 Owens Corning.................. 40,556
------------
TOTAL BUILDING MATERIALS....... 6,684,153
------------
</TABLE>
See notes to financial statements.
F-34
<PAGE> 123
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
CHEMICALS -- 0.76%
6,700 Air Products and Chemicals,
Inc. ........................ $ 224,869
5,800 Dow Chemicals Company.......... 775,025
28,100 du Pont (E. I.) de Nemours..... 1,851,087
3,300 Engelhard Corp. ............... 62,287
1,000 FMC Corp.(c)................... 57,313
2,000 Grace (W.R.) & Company(c)...... 27,750
1,800 Great Lakes Chemical Corp. .... 68,738
3,000 Hercules, Inc. ................ 83,625
3,000 International Flavors &
Fragrances, Inc. ............ 113,250
4,600 Praxair, Inc. ................. 231,438
5,264 Rohm and Haas Company.......... 214,179
1,300 Sigma-Aldrich Corp. ........... 39,081
3,500 Union Carbide Corp. ........... 233,625
------------
TOTAL CHEMICALS................ 3,982,267
------------
COMMUNICATIONS EQUIPMENT -- 1.14%
6,400 ADC Telecommunications,
Inc.(c)...................... 464,400
3,200 Comverse Technology, Inc.(c)... 463,200
28,800 QUALCOMM, Inc.(c).............. 5,072,400
------------
TOTAL COMMUNICATIONS
EQUIPMENT...................... 6,000,000
------------
COMPUTERS AND OFFICE EQUIPMENT -- 2.88%
4,600 Apple Computer, Inc.(a)(c)..... 472,937
2,600 Avery-Dennison Corp. .......... 189,475
9,200 Gateway, Inc.(a)(c)............ 662,975
27,400 Hewlett-Packard Company........ 3,121,888
5,300 IKON Office Solutions, Inc. ... 36,106
48,500 International Business Machines
Corp. ....................... 5,238,000
3,700 Lexmark International Group,
Inc.(c)...................... 334,850
4,200 Network Appliance, Inc.(c)..... 348,862
7,200 Pitney Bowes, Inc. ............ 347,850
6,100 Seagate Technology, Inc.(c).... 284,031
52,000 Sun Microsystems, Inc.(c)...... 4,026,750
1,300 Tektronix, Inc. ............... 50,538
------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT...................... 15,114,262
------------
COMPUTER SOFTWARE AND SERVICES -- 10.28%
4,400 Adaptec, Inc.(c)............... 219,450
3,800 Adobe Systems, Inc. ........... 255,550
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
COMPUTER SOFTWARE AND SERVICES (CONTINUED)
107,500 America Online, Inc.(c)........ $ 8,109,531
16,500 Automatic Data Processing,
Inc. ........................ 888,938
6,000 BMC Software, Inc.(c).......... 479,625
121,600 Cisco Systems, Inc.(c)......... 13,026,400
2,600 Citrix Systems, Inc.(c)........ 319,800
14,200 Computer Associates
International, Inc. ......... 993,112
4,300 Computer Sciences Corp.(c)..... 406,888
5,200 Compuware Corp.(c)............. 193,700
12,700 Electronic Data Systems
Corp. ....................... 850,106
27,100 EMC Corp.(c)................... 2,960,675
14,900 First Data Corp. .............. 734,756
7,600 IMS Health, Inc. .............. 206,625
138,900 Microsoft Corp.(c)............. 16,216,575
9,700 Novell, Inc.(c)................ 387,394
37,500 Oracle Corp.(c)................ 4,202,344
7,800 Parametric Technology
Corp.(c)..................... 211,087
700 Shared Medical Systems
Corp. ....................... 35,656
8,100 Unisys Corp.(c)................ 258,694
7,100 Yahoo!, Inc.(c)................ 3,072,081
------------
TOTAL COMPUTER SOFTWARE AND
SERVICES....................... 54,028,987
------------
CONSTRUCTION -- 0.05%
2,200 Fluor Corp. ................... 100,925
1,300 Kaufman & Broad Home Corp. .... 31,444
2,000 Pulte Corp. ................... 45,000
2,400 Vulcan Materials Company(a).... 95,850
------------
TOTAL CONSTRUCTION............. 273,219
------------
CONSUMER GOODS AND SERVICES -- 4.37%
800 Alberto-Culver Company -- Class
B............................ 20,650
7,000 Avon Products, Inc. ........... 231,000
2,100 Brunswick Corp. ............... 46,725
15,700 Colgate-Palmolive Company...... 1,020,500
8,300 Eastman Kodak Company.......... 549,875
4,000 Ecolab, Inc. .................. 156,500
6,700 Fort James Corp. .............. 183,412
4,000 Fortune Brands, Inc. .......... 132,250
88,200 General Electric Company....... 13,648,950
13,000 Gillette Company............... 535,437
1,100 Jostens, Inc. ................. 26,744
</TABLE>
See notes to financial statements.
F-35
<PAGE> 124
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
CONSUMER GOODS AND SERVICES (CONTINUED)
15,200 Kimberly-Clark Corp. .......... $ 991,800
5,900 Leggett & Platt, Inc. ......... 126,481
2,800 Maytag Corp. .................. 134,400
1,200 National Service Industries,
Inc. ........................ 35,400
8,200 Newell Rubbermaid, Inc. ....... 237,800
6,900 Nike, Inc. -- Class B.......... 341,981
3,600 Paychex, Inc. ................. 144,000
34,600 Procter & Gamble Company....... 3,790,862
9,400 Ralston-Purina Corp. .......... 262,025
2,500 Stanley Works.................. 75,312
5,400 Tosco Corp. ................... 146,812
1,800 Tupperware Corp. .............. 30,488
17 Unilever N.V. (ADR)............ 925
1,800 Whirlpool Corp. ............... 117,112
------------
TOTAL CONSUMER GOODS AND
SERVICES....................... 22,987,441
------------
ELECTRONICS -- 0.41%
11,700 Emerson Electric Company....... 671,288
4,400 Rockwell International
Corp. ....................... 210,650
13,000 Solectron Corp.(c)............. 1,236,625
1,800 Thomas & Betts Corp. .......... 57,375
------------
TOTAL ELECTRONICS.............. 2,175,938
------------
ENVIRONMENTAL MANAGEMENT SERVICES -- 0.03%
9,000 Waste Management, Inc. ........ 154,688
------------
FINANCIAL SERVICES -- 4.09%
12,000 American Express Company....... 1,995,000
7,100 American General Corp. ........ 538,713
19,500 Associates First Capital
Corp. -- Class A............. 535,031
3,780 Bear Stearns Companies,
Inc. ........................ 161,595
8,800 Capital One Financial Corp. ... 424,050
119,800 Citigroup, Inc. ............... 6,656,387
2,600 Countrywide Credit Industries,
Inc. ........................ 65,650
1,900 Deluxe Corp. .................. 52,131
5,100 Dun & Bradstreet Corp. ........ 150,450
27,600 Fannie Mae..................... 1,723,275
6,200 Franklin Resources, Inc. ...... 198,788
18,800 Freddie Mac.................... 884,775
3,000 H & R Block, Inc. ............. 131,250
13,950 Household International,
Inc. ........................ 519,638
5,400 Lehman Brothers Holdings,
Inc. ........................ 457,313
3,100 MBIA, Inc. .................... 163,719
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
21,100 MBNA, Inc. .................... $ 574,975
3,100 MGIC Investment Corp. ......... 186,581
10,400 Merrill Lynch & Company,
Inc. ........................ 868,400
19,400 Morgan Stanley Dean Witter &
Company...................... 2,769,350
5,200 Paine Webber Group, Inc. ...... 201,825
5,000 Providian Financial Corp. ..... 455,313
5,100 SLM Holding Corp. ............. 215,475
37,300 Schwab (Charles) Corp. ........ 1,431,387
3,500 T. Rowe Price Assoc., Inc. .... 129,281
------------
TOTAL FINANCIAL SERVICES....... 21,490,352
------------
FOOD AND BEVERAGE -- 1.54%
12,500 Anheuser-Busch Companies,
Inc. ........................ 885,938
7,900 Bestfoods...................... 415,244
1,200 Brown-Forman Corp. --
Class B...................... 68,700
5,200 Campbell Soup Company.......... 201,175
33,200 Coca-Cola Company.............. 1,933,900
7,100 ConAgra, Inc.(a)............... 160,194
1,500 Coors (Adolph) -- Class B...... 78,750
8,600 General Mills, Inc. ........... 307,450
10,400 Heinz (H.J.) Company........... 414,050
11,600 Kellogg Company................ 357,425
3,700 Nabisco Group Holdings
Corp. ....................... 39,313
38,300 Pepsico, Inc. ................. 1,350,075
3,100 Quaker Oats Company............ 203,438
23,400 Sara Lee Corp. ................ 516,262
12,200 Seagrams Company, Ltd. ........ 548,238
3,700 SUPERVALU, Inc. ............... 74,000
8,900 Sysco Corp. ................... 352,106
2,500 Wrigley (Wm.) Jr. Company...... 207,344
------------
TOTAL FOOD AND BEVERAGE........ 8,113,602
------------
INSURANCE -- 1.53%
9,900 AFLAC, Inc. ................... 467,156
9,500 Allstate Corp. ................ 228,000
41,650 American International Group,
Inc. ........................ 4,503,406
7,400 Aon Corp.(a)................... 296,000
6,600 Cigna Corp. ................... 531,712
4,700 Cincinnati Financial Corp. .... 146,581
5,800 Hartford Financial Services
Group, Inc. ................. 274,775
3,300 Jefferson-Pilot Corp. ......... 225,225
</TABLE>
See notes to financial statements.
F-36
<PAGE> 125
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
INSURANCE (CONTINUED)
2,900 Loews Corp. ................... $ 175,994
7,000 Marsh & McLennan Companies,
Inc. ........................ 669,813
1,000 Progressive Corp. ............. 73,125
2,700 St. Paul Companies, Inc. ...... 90,956
4,200 Torchmark Corp. ............... 122,063
7,000 UNUMProvident Corp. ........... 224,437
------------
TOTAL INSURANCE................ 8,029,243
------------
LEISURE AND RECREATION -- 0.22%
16,500 Carnival Corp. ................ 788,906
3,500 Harrah's Entertainment,
Inc.(c)...................... 92,531
6,500 Marriott International, Inc. --
Class A...................... 205,156
5,700 Mirage Resorts, Inc.(c)........ 87,281
------------
TOTAL LEISURE AND RECREATION... 1,173,874
------------
MACHINERY AND OTHER PRODUCTS -- 0.12%
5,900 Dover Corp. ................... 267,713
2,400 Grainger (W.W.), Inc. ......... 114,750
4,400 Ingersoll -- Rand Company...... 242,275
1,100 Milacron, Inc. ................ 16,913
------------
TOTAL MACHINERY AND OTHER
PRODUCTS....................... 641,651
------------
MANUFACTURING -- 1.52%
6,500 Alcan Aluminium Ltd.(a)........ 267,719
1,000 Ball Corp. .................... 39,375
1,500 Bemis Company, Inc. ........... 52,312
700 Briggs & Stratton Corp. ....... 37,537
6,600 Corning, Inc. ................. 850,988
2,100 Crane Co. ..................... 41,737
2,900 Crown Cork & Seal Company...... 64,888
3,100 Danaher Corp. ................. 149,575
1,900 Eaton Corp. ................... 137,987
1,100 Fleetwood Enterprises, Inc. ... 22,688
21,275 Honeywell, Inc. ............... 1,227,302
2,300 ITT Industries, Inc. .......... 76,906
7,800 Illinois Tool Works, Inc. ..... 526,987
10,600 Minnesota Mining and
Manufacturing Company........ 1,037,475
4,700 Owens Illinois, Inc. .......... 117,794
3,200 Parker-Hannifin Corp. ......... 164,200
4,600 PPG Industries, Inc. .......... 287,788
2,600 Sealed Air Corp.(c)............ 134,712
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
MANUFACTURING (CONTINUED)
4,000 Sherwin-Williams Company....... $ 84,000
4,000 Textron, Inc. ................. 306,750
1,800 Timken Corp. .................. 36,787
59,064 Tyco International Ltd. ....... 2,296,113
------------
TOTAL MANUFACTURING............ 7,961,620
------------
MEDIA -- 1.17%
20,039 CBS Corp.(c)................... 1,281,244
8,900 Clear Channel
Communications(a)(c)......... 794,325
19,200 Comcast Corp. -- Special
Class A...................... 970,800
2,200 Dow Jones & Company, Inc. ..... 149,600
7,500 Gannett Company, Inc. ......... 611,719
2,400 Knight-Ridder, Inc. ........... 142,800
16,500 MediaOne Group, Inc.(c)........ 1,267,406
1,100 Meredith Corp. ................ 45,856
14,800 Viacom, Inc. -- Class B(c)..... 894,475
------------
TOTAL MEDIA.................... 6,158,225
------------
MEDICAL AND OTHER HEALTH SERVICES -- 0.20%
15,800 Columbia/HCA Healthcare
Corp. ....................... 463,138
11,800 HEALTHSOUTH Corp.(c)........... 63,425
4,200 Tenet Healthcare Corp.(c)...... 98,700
5,800 United HealthCare Corp. ....... 308,125
2,000 Wellpoint Health Networks,
Inc.(c)...................... 131,875
------------
TOTAL MEDICAL AND OTHER HEALTH
SERVICES....................... 1,065,263
------------
MEDICAL EQUIPMENT AND SUPPLIES -- 1.07%
5,000 Allergan, Inc. ................ 248,750
1,500 Bard (C.R.), Inc. ............. 79,500
1,700 Bausch & Lomb, Inc. ........... 116,344
7,800 Baxter International, Inc. .... 489,938
3,500 Biomet, Inc. .................. 140,000
12,000 Boston Scientific Corp.(c)..... 262,500
4,100 Guidant Corp.(a)(c)............ 192,700
36,600 Johnson & Johnson.............. 3,408,375
1,700 Mallinckrodt, Inc. ............ 54,081
15,700 Medtronic, Inc. ............... 572,069
1,400 PerkinElmer, Inc. ............. 58,362
------------
TOTAL MEDICAL EQUIPMENT AND
SUPPLIES....................... 5,622,619
------------
</TABLE>
See notes to financial statements.
F-37
<PAGE> 126
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
METALS AND MINING -- 0.47%
15,900 Alcoa, Inc.(a)................. $ 1,319,700
10,100 Barrick Gold Corp. ............ 178,644
4,200 Freeport-McMoRan Copper & Gold,
Inc. -- Class B(c)........... 88,725
6,600 Homestake Mining Company....... 51,562
4,300 INCO Ltd.(c)................... 101,050
2,300 Nucor Corp. ................... 126,069
2,200 Phelps Dodge Corp. ............ 147,675
1,800 Reynolds Metals Company........ 137,925
11,200 USX-Marathon Group............. 276,500
2,500 Worthington Industries,
Inc. ........................ 41,406
------------
TOTAL METALS AND MINING........ 2,469,256
------------
OIL AND GAS -- 4.49%
2,700 Amerada Hess Corp. ............ 153,225
3,600 Anadarko Petroleum Corp. ...... 122,850
4,000 Apache Corp. .................. 147,750
1,800 Ashland, Inc. ................. 59,287
14,600 Atlantic Richfield Co. ........ 1,262,900
2,900 Burlington Resources, Inc. .... 95,881
17,700 Chevron Corp. ................. 1,533,263
5,600 Coastal Corp. ................. 198,450
900 Columbia Energy Group.......... 56,925
12,000 Conoco, Inc. -- Class B........ 298,500
3,000 Consolidated Natural Gas
Company...................... 194,812
17,900 Enron Corp. ................... 794,313
143,000 Exxon-Mobil Corp. ............. 11,520,437
11,900 Halliburton Company............ 478,975
3,100 Kerr-McGee Corp. .............. 192,200
1,800 McDermott International,
Inc. ........................ 16,312
10,100 Occidental Petroleum Corp. .... 218,413
9,000 Phillips Petroleum Company..... 423,000
57,700 Royal Dutch Petroleum
Company...................... 3,487,244
14,800 Schlumberger Ltd. ............. 832,500
14,900 Texaco, Inc. .................. 809,256
2,865 Transocean Sedco Forex,
Inc. ........................ 96,524
7,300 Unocal Corp. .................. 245,006
11,400 Williams Companies, Inc. ...... 348,412
------------
TOTAL OIL AND GAS.............. 23,586,435
------------
PAPER AND FOREST PRODUCTS -- 0.53%
1,700 Boise Cascade Corp. ........... 68,850
2,700 Champion International
Corp. ....................... 167,231
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
PAPER AND FOREST PRODUCTS (CONTINUED)
7,400 Georgia-Pacific Group.......... $ 375,550
14,700 International Paper Company.... 829,631
3,400 Louisiana-Pacific Corp. ....... 48,450
3,200 Mead Corp. .................... 139,000
800 Potlatch Corp. ................ 35,700
1,700 Temple-Inland, Inc. ........... 112,094
2,900 Westvaco Corp. ................ 94,613
9,600 Weyerhaeuser Company........... 689,400
4,600 Willamette Industries, Inc. ... 213,613
------------
TOTAL PAPER AND FOREST
PRODUCTS....................... 2,774,132
------------
PHARMACEUTICALS -- 2.63%
18,600 American Home Products......... 733,537
12,800 Amgen, Inc.(c)................. 768,800
52,200 Bristol-Myers Squibb Company... 3,350,588
30,800 Merck & Company, Inc. ......... 2,065,525
9,000 Monsanto Company............... 320,625
13,600 Pharmacia & Upjohn, Inc. ...... 612,000
104,200 Pfizer, Inc. .................. 3,379,988
19,800 Schering-Plough Corp. ......... 835,313
21,500 Warner-Lambert Company......... 1,761,656
------------
TOTAL PHARMACEUTICALS.......... 13,828,032
------------
PUBLISHING -- 0.21%
4,700 McGraw-Hill Companies, Inc. ... 289,638
4,500 New York Times Company -- Class
A............................ 221,063
1,700 R.R. Donnelley and Sons
Company...................... 42,181
1,700 Times Mirror Company --
Class A...................... 113,900
8,300 Tribune Company................ 457,019
------------
TOTAL PUBLISHING............... 1,123,801
------------
RETAIL -- 3.13%
5,000 Bed Bath & Beyond, Inc.(c)..... 173,750
7,700 Best Buy Company, Inc.(c)...... 386,444
7,300 Circuit City Stores-Circuit
City Group................... 328,956
3,200 Consolidated Stores Corp.(c)... 52,000
6,000 Costco Wholesale Corp.(c)...... 547,500
5,300 CVS Corp. ..................... 211,669
15,600 Dayton-Hudson Corp. ........... 1,145,625
6,125 Dollar General Corp. .......... 139,344
</TABLE>
See notes to financial statements.
F-38
<PAGE> 127
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
RETAIL (CONTINUED)
9,400 Federated Department Stores,
Inc.(c)...................... $ 475,287
28,100 Gap, Inc. ..................... 1,292,600
1,200 Great Atlantic & Pacific Tea
Company, Inc. ............... 33,450
1,600 Harcourt General, Inc. ........ 64,400
17,800 Kmart Corp(c).................. 179,112
4,400 Kohl's Corp.(c)................ 317,625
23,400 Kroger Company(c).............. 441,675
7,900 Limited (The), Inc. ........... 342,169
1,000 Longs Drug Stores Corp. ....... 25,813
4,500 May Department Stores
Company...................... 145,125
3,300 Nordstrom, Inc. ............... 86,419
8,900 Office Depot, Inc.(c).......... 97,344
1,500 Pep Boys....................... 13,688
14,500 Sears, Roebuck & Co. .......... 441,344
12,700 Staples, Inc.(c)............... 263,525
7,300 Tandy Corp.(a)................. 359,069
117,200 Wal-Mart Stores, Inc. ......... 8,101,450
27,000 Walgreen Company............... 789,750
------------
TOTAL RETAIL................... 16,455,133
------------
RETAIL: RESTAURANTS -- 0.36%
3,800 Darden Restaurants, Inc. ...... 68,875
36,400 McDonald's Corp. .............. 1,467,375
7,000 Tricon Global Restaurants,
Inc.(c)...................... 270,375
5,200 Wendy's International, Inc. ... 107,250
------------
TOTAL RETAIL: RESTAURANTS...... 1,913,875
------------
RUBBER PRODUCTS -- 0.02%
2,400 Cooper Tire & Rubber Company... 37,350
2,100 Goodyear Tire & Rubber
Company...................... 59,194
------------
TOTAL RUBBER PRODUCTS.......... 96,544
------------
SCIENTIFIC & TECHNICAL INSTRUMENTS -- 0.08%
1,300 Millipore Corp. ............... 50,212
2,900 PE Corp.-PE Biosystems Group... 348,906
------------
TOTAL SCIENTIFIC & TECHNICAL
INSTRUMENTS.................... 399,118
------------
SEMICONDUCTORS -- 3.05%
2,200 Advanced Micro Devices,
Inc.(c)...................... 63,662
6,100 Analog Devices, Inc.(c)........ 567,300
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
SEMICONDUCTORS (CONTINUED)
17,000 Applied Materials, Inc.(c)..... $ 2,153,688
45,000 Intel Corp. ................... 3,704,063
2,800 KLA-Tencor Corp.(c)............ 311,850
6,300 LSI Logic Corp.(c)............. 425,250
7,400 Micron Technology, Inc.(c)..... 575,350
27,100 Motorola, Inc.(a).............. 3,990,475
4,800 National Semiconductor
Corp.(c)..................... 205,500
34,900 Texas Instruments, Inc. ....... 3,380,938
14,200 Xilinx, Inc.(c)................ 645,657
------------
TOTAL SEMICONDUCTORS........... 16,023,733
------------
TELECOMMUNICATIONS -- 7.32%
8,900 ALLTELL Corp. ................. 735,919
96,450 AT&T Corp. .................... 4,894,838
44,200 Bell Atlantic Corp. ........... 2,721,063
50,700 BellSouth Corp. ............... 2,373,394
2,050 CenturyTel, Inc. .............. 97,119
5,100 General Instrument Corp.(c).... 433,500
21,900 Global Crossings Ltd.(c)....... 1,095,000
28,800 GTE Corp. ..................... 2,032,200
91,400 Lucent Technologies, Inc. ..... 6,837,862
76,350 MCI Worldcom, Inc.(c).......... 4,051,322
9,300 Nextel Communications,
Inc. -- Class A(c)........... 959,062
47,500 Nortel Networks Corp. ......... 4,797,500
45,900 SBC Communications, Inc. ...... 2,237,625
4,000 Scientific-Atlanta, Inc. ...... 222,500
21,100 Sprint Corp. (FON Group)....... 1,420,294
15,000 Sprint Corp.
(PCS Group)(a)(c)............ 1,537,500
16,600 Tellabs, Inc.(c)............... 1,065,512
13,600 US WEST, Inc. ................. 979,200
------------
TOTAL TELECOMMUNICATIONS....... 38,491,410
------------
TOBACCO -- 0.17%
31,800 Philip Morris Companies,
Inc. ........................ 737,362
5,600 UST, Inc. ..................... 141,050
------------
TOTAL TOBACCO.................. 878,412
------------
TOOLS -- 0.05%
2,000 Black & Decker Corp. .......... 104,500
2,900 Cooper Industries, Inc. ....... 117,269
1,400 Snap-on, Inc. ................. 37,188
------------
TOTAL TOOLS.................... 258,957
------------
</TABLE>
See notes to financial statements.
F-39
<PAGE> 128
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
TOYS -- 0.03%
4,600 Hasbro, Inc. .................. $ 87,687
5,700 Toys "R" Us, Inc.(c)........... 81,581
------------
TOTAL TOYS..................... 169,268
------------
TRANSPORTATION -- 0.42%
4,500 AMR Corp.(c)................... 301,500
13,200 Burlington Northern Santa Fe... 320,100
5,500 CSX Corp. ..................... 172,563
5,100 Delta Air Lines, Inc. ......... 254,044
8,300 FDX Corp.(c)................... 339,781
4,800 Kansas City Southern
Industries, Inc. ............ 358,200
5,100 Norfolk Southern Corp. ........ 104,550
2,200 Ryder System, Inc. ............ 53,763
7,000 Union Pacific Corp. ........... 305,375
------------
TOTAL TRANSPORTATION........... 2,209,876
------------
UTILITIES -- 0.97%
5,400 AES Corp.(c)................... 403,650
4,300 Ameren Corp.(a)................ 140,825
5,900 American Electric Power
Company, Inc. ............... 189,537
2,400 Central & South West Corp. .... 48,000
1,200 CMS Energy Corp. .............. 37,425
2,500 Consolidated Edison, Inc. ..... 86,250
3,800 Constellation Energy Group..... 110,200
3,900 DTE Energy Company............. 122,362
5,800 Dominion Resources, Inc. ...... 227,650
9,100 Duke Energy Corp. ............. 456,138
8,100 Edison International........... 212,119
3,100 El Paso Energy Corp. .......... 120,319
7,600 Entergy Corp. ................. 195,700
7,400 FirstEnergy Corp. ............. 167,887
2,900 Florida Progress Corp. ........ 122,706
5,600 FPL Group, Inc. ............... 239,750
3,600 GPU, Inc. ..................... 107,775
500 Nicor, Inc. ................... 16,250
5,300 Peco Energy Company............ 184,175
11,900 PG & E Corp. .................. 243,950
4,100 PP & L Resources, Inc. ........ 93,787
1,100 Peoples Energy Corp. .......... 36,850
2,400 Pinnacle West Capital Corp. ... 73,350
5,800 Public Service Enterprise
Group, Inc.(a)............... 201,912
8,800 Reliant Energy, Inc. .......... 201,300
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
UTILITIES (CONTINUED)
7,000 Sempra Energy.................. $ 121,625
18,100 Southern Company............... 425,350
7,300 Texas Utilities Company........ 259,606
6,700 Unicom Corp. .................. 224,450
------------
TOTAL UTILITIES................ 5,070,898
------------
TOTAL COMMON STOCK (Cost
$275,325,047).................. 321,574,485
------------
PREFERRED STOCK -- 0.14%
OIL AND GAS
15,000 Tosco Financing Trust,
5.75%, (Cost $715,938)....... 710,625
------------
REGULATED INVESTMENT COMPANIES -- 0.47%
1,965,352 Janus Money Market Fund(b)..... 1,965,352
503,448 Merrimac Cash Fund -- Premium
Class(b)..................... 503,448
------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost $2,468,800).... 2,468,800
------------
<CAPTION>
PRINCIPAL
---------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 10.78%
AEROSPACE -- 0.56%
$ 3,000,000 Raytheon Company,
6.45%, 08/15/02(a)........... 2,932,140
------------
BANKS -- 1.30%
3,500,000 Home Savings of America,
6.50%, 08/15/04.............. 3,353,161
30,000,000 Spintab, 5.50%, 09/17/03....... 3,493,673
------------
TOTAL BANKS.................... 6,846,834
------------
COMPUTERS AND OFFICE EQUIPMENT -- 0.74%
1,240,000 Hewlett -- Packard Company,
0.00%, 10/14/17(a)........... 847,850
3,500,000 IBM Corp., Medium-Term Note,
5.40%, 01/26/09.............. 3,056,210
------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT...................... 3,904,060
------------
CONSTRUCTION -- 0.30%
1,250,000 Cemex SA, 10.75%, 07/15/00..... 1,269,999
300,000 Kaufman & Broad Home Corp.,
9.625%, 11/15/06 303,000
------------
TOTAL CONSTRUCTION............. 1,572,999
------------
ENVIRONMENTAL MANAGEMENT SERVICES -- 0.10%
600,000 Allied Waste North America,
7.875%, 01/01/09............. 530,250
------------
</TABLE>
See notes to financial statements.
F-40
<PAGE> 129
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
FINANCE -- 1.41%
$ 2,000,000 Ford Motor Credit Company,
7.50%, 01/15/03.............. $ 2,016,578
3,500,000 General Motors Acceptance
Corp., 6.625%, 10/20/03...... 3,433,661
2,000,000 MBNA Corp.,
6.963%, 09/12/02............. 1,961,232
------------
TOTAL FINANCE.................. 7,411,471
------------
LEISURE AND RECREATION -- 0.13%
350,000 Harrah's Operating Co., Inc.,
7.875%, 12/15/05............. 338,187
350,000 Mandalay Resort Group,
9.25%, 12/01/05.............. 355,688
------------
TOTAL LEISURE AND RECREATION... 693,875
------------
MACHINERY -- 0.11%
600,000 American Standard, Inc.,
7.375%, 02/01/08............. 550,500
------------
MANUFACTURING -- 0.21%
600,000 AK Steel Corp., 7.875%,
02/15/09..................... 567,000
600,000 Flag Limited, 8.25%,
01/30/08..................... 552,000
------------
TOTAL MANUFACTURING............ 1,119,000
------------
MEDIA -- 1.71%
500,000 Clear Channel Communications,
(Conv.) 2.625%, 04/01/03..... 739,375
500,000 Falcon Holding Group L.P.,
0.00%, 04/15/10.............. 374,375
750,000 Grupo Televisa S.A.,
11.375%, 05/15/03............ 798,750
400,000 Multicanal SA,
9.25%, 02/01/02.............. 372,000
350,000 Sinclair Broadcast Group,
9.00%, 07/15/07.............. 328,125
2,500,000 Time Warner Entertainment,
8.375%, 03/15/23............. 2,607,172
3,500,000 Walt Disney Company,
6.75%, 03/30/06.............. 3,420,991
350,000 Young Broadcasting, Inc.,
8.75%, 06/15/07.............. 331,625
------------
TOTAL MEDIA.................... 8,972,413
------------
MEDICAL AND OTHER HEALTH SERVICES -- 0.07%
350,000 Tenet Healthcare Corp.,
8.625%, 01/15/07............. 337,750
------------
METAL & GLASS CONTAINERS -- 0.06%
300,000 Owens-Illinois, Inc.
7.85%, 05/15/04.............. 290,332
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: FINANCE -- 1.04%
$ 4,000,000 GMAC Commercial Mortgage
Securities, Inc.
6.175%, 05/15/33............. $ 3,639,040
2,000,000 L.A. Arena Funding, LLC,
7.656%, 12/15/21............. 1,810,000
------------
TOTAL PRIVATE ASSET BACKED:
FINANCE........................ 5,449,040
------------
RETAIL -- 0.11%
600,000 K-Mart Corp.,
8.375%, 12/01/04............. 591,294
------------
SPECIAL PURPOSE ENTITIES -- 1.32%
3,500,000 Duke Capital Corp.,
7.50%, 10/01/09.............. 3,454,749
3,500,000 U.S. West Capital Funding,
6.571%, 06/15/00............. 3,498,820
------------
TOTAL SPECIAL PURPOSE
ENTITIES....................... 6,953,569
------------
TELECOMMUNICATIONS -- 0.96%
350,000 KPN/Qwest BV, 144A,
8.125%, 06/01/09............. 336,000
350,000 NTL, Inc., 10.00%, 02/15/07.... 359,625
600,000 Nextel Communications,
0.00%, 10/31/07.............. 429,000
3,500,000 Sprint Capital Corp.,
6.125%, 11/15/08............. 3,173,114
750,000 Telefonica de Argentina, 144A,
8.375%, 10/01/00............. 750,486
------------
TOTAL TELECOMMUNICATIONS....... 5,048,225
------------
TRANSPORTATION -- 0.65%
3,500,000 CSX Corp., 7.45%, 05/01/07..... 3,432,146
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $58,266,592)............. 56,635,898
------------
FOREIGN GOVERNMENT BONDS AND NOTES -- 2.60%
3,200,000 Deutschland Republic,
6.00%, 07/04/07.............. 3,353,299
6,500,000 New Zealand Government, 8.00%,
04/15/04..................... 3,499,925
750,000 Republic of Argentina, Floating
Rate, 9.25%, 02/23/01........ 740,625
553,500 Republic of Brazil, Floating
Rate, 7.375%, 01/01/01....... 547,273
750,000 Republic of Panama,
7.875%, 02/13/02............. 723,515
</TABLE>
See notes to financial statements.
F-41
<PAGE> 130
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
FOREIGN GOVERNMENT BONDS AND NOTES
(CONTINUED)
z$2,200,000 United Kingdom Gilts,
7.00%, 06/07/02.............. $ 3,586,517
1,250,000 United Mexican States, Floating
Rate, 7.439%, 06/27/02....... 1,225,296
------------
TOTAL FOREIGN GOVERNMENT BONDS
AND NOTES (Cost $14,374,292)... 13,676,450
------------
US GOVERNMENT SECURITIES -- 6.69%
US TREASURY BONDS -- 1.25%
6,900,000 6.125%, 08/15/29............... 6,578,722
------------
US TREASURY NOTES -- 5.44%
16,000,000 5.50%, 12/31/00(a)............. 15,905,008
13,000,000 5.50%, 02/28/03(a)............. 12,687,194
------------
TOTAL US TREASURY NOTES........ 28,592,202
------------
TOTAL US GOVERNMENT SECURITIES
(Cost $35,444,945)............. 35,170,924
------------
US GOVERNMENT AGENCY SECURITIES -- 16.15%
FANNIE MAE -- 9.82%
10,400,000 6.25%, 05/15/29................ 9,243,229
4,210,053 Series 1993-113,
7.20%, 07/25/23.............. 4,230,472
9,300,000 TBA, 6.00%, 01/01/15........... 8,826,281
9,600,000 TBA, 6.00%, 01/01/30........... 8,782,500
11,400,000 TBA, 7.00%, 01/01/30........... 11,024,156
9,600,000 TBA, 7.50%, 01/01/30........... 9,496,500
------------
TOTAL FANNIE MAE............... 51,603,138
------------
FREDDIE MAC -- 1.31%
7,300,000 6.75%, 09/15/29................ 6,899,230
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 5.02%
8,268,775 PL# 780743, 8.00%, 12/15/26.... 8,357,490
19,200,000 TBA, 6.50%, 01/15/30........... 18,027,000
------------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION........... 26,384,490
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost
$86,105,281)................... 84,886,858
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CERTIFICATES OF
DEPOSIT -- 6.26%
$ 491,338 American Express Centurion
Bank, 6.15%, 01/26/00(b)..... $ 491,338
13,167,550 Bank of Nova Scotia,
6.05%, 01/26/00(b)........... 13,167,550
1,105,510 Den Danske Bank,
6.39%, 01/20/00(b)........... 1,105,510
1,105,510 Den Danske Bank,
6.41%, 01/27/00(b)........... 1,105,510
491,338 Royal Bank Of Scotland PLC,
6.15%, 01/20/00(b)........... 491,338
1,105,510 Royal Bank Of Scotland PLC,
6.31%, 01/27/00(b)........... 1,105,510
15,417,996 Toronto Dominion Bank,
6.40%, 02/24/00(b)........... 15,417,996
------------
TOTAL CERTIFICATES OF DEPOSITS
(Cost $32,884,752)............. 32,884,752
------------
TIME DEPOSIT -- 0.10%
545,598 BankBoston, N.A.,
4.68%, 01/03/00(b)
(Cost $545,598).............. 545,598
------------
SHORT TERM CORPORATE NOTES -- 0.76%
2,000,000 First Union National Bank,
Floating Rate,
4.765%(++), 05/01/00(b)...... 2,000,000
2,000,000 Morgan Stanley Dean Witter &
Co., Floating Rate,
4.60%(++), 01/11/00(b)....... 2,000,000
------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $4,000,000)........ 4,000,000
------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 7.96%
FEDERAL HOME LOAN BANK -- 5.69%
30,000,000 5.75%, 01/21/00................ 29,904,167
------------
FEDERAL HOME LOAN MORTGAGE CORP. -- 2.27%
12,000,000 5.60%, 02/15/00................ 11,916,000
------------
TOTAL SHORT TERM US GOVERNMENT
AGENCY SECURITIES
(Cost $41,820,167)............. 41,820,167
------------
</TABLE>
See notes to financial statements.
F-42
<PAGE> 131
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
SHORT TERM US GOVERNMENT SECURITIES -- 0.28%
US TREASURY BILLS -- 0.28%
$ 300,000 4.70%, 02/17/00(d)............. $ 298,159
100,000 4.71%, 02/17/00(d)............. 99,385
200,000 4.82%, 02/17/00(d)............. 198,742
300,000 4.87%, 02/17/00(d)............. 298,093
500,000 5.00%, 02/17/00(d)............. 496,736
100,000 5.035%, 02/17/00(d)............ 99,343
------------
TOTAL US TREASURY BILLS (Cost
$1,490,458).................... 1,490,458
------------
TOTAL SECURITIES (Cost
$553,441,870).................. 595,865,015
------------
REPURCHASE AGREEMENT -- 4.81%
25,289,441 With Investors Bank & Trust,
dated 12/31/99, 3.06%, due
01/03/00, repurchase proceeds
at maturity $25,295,890,
(Collateralized by IMPAC
Secured Assets, 6.30% , due
01/25/30, with a value of
$20,013,500 and Small
Business Administration Loan,
6.00%, 07/25/22, with a value
of $6,540,413)
(Cost $25,289,441)........... 25,289,441
------------
Total Investments -- 118.18%
(Cost $578,731,311)............ 621,154,456
Liabilities less other
assets -- (18.18)%............. (95,570,553)
------------
NET ASSETS -- 100.00%.......... $525,583,903
============
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of securities for federal income tax
purposes at December 31,1999 is $584,766,764.
The following amount is based on cost for federal income
tax purposes:
Gross unrealized appreciation.......... $ 57,304,670
Gross unrealized depreciation.......... (20,916,978)
------------
Net unrealized appreciation............ $ 36,387,692
============
</TABLE>
- ---------------
(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, 1999.
(ADR) American Depository Receipt.
See notes to financial statements.
F-43
<PAGE> 132
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK -- 98.08%
AEROSPACE -- 3.64%
260,000 Northrop Grumman Corp. ...... $ 14,056,250
200,000 Textron, Inc. ............... 15,337,500
340,000 United Technologies Corp. ... 22,100,000
--------------
TOTAL AEROSPACE.............. 51,493,750
--------------
AUTOMOBILES -- 2.58%
330,000 Ford Motor Company........... 17,634,375
260,000 General Motors Corp. ........ 18,898,750
--------------
TOTAL AUTOMOBILES............ 36,533,125
--------------
BANKS -- 8.63%
210,000 Bank of America Corp. ....... 10,539,375
420,000 Bank of New York............. 16,800,000
195,000 Chase Manhattan Corp. ....... 15,149,062
500,000 Citigroup.................... 27,781,250
390,000 Fleet Boston Financial Group,
Inc. ...................... 13,576,875
50,000 JP Morgan & Company.......... 6,331,250
460,000 Mellon Financial Corp. ...... 15,668,750
400,000 Wells Fargo & Company........ 16,175,000
--------------
TOTAL BANKS.................. 122,021,562
--------------
CHEMICALS -- 3.40%
150,000 Dow Chemical Company......... 20,043,750
260,000 du Pont (E.I.) de Nemours.... 17,127,500
270,000 Rohm & Haas Company.......... 10,985,625
--------------
TOTAL CHEMICALS.............. 48,156,875
--------------
COMPUTERS AND OFFICE EQUIPMENT -- 2.32%
420,000 Pitney Bowes, Inc. .......... 20,291,250
550,000 Xerox Corp. ................. 12,478,125
--------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT.................... 32,769,375
--------------
CONSUMER GOODS AND SERVICES -- 9.90%
540,000 Avon Products, Inc. ......... 17,820,000
340,000 Colgate-Palmolive Company.... 22,100,000
380,000 Dana Corp. .................. 11,376,250
380,000 General Electric Company..... 58,805,000
190,000 Kimberly-Clark Corp. ........ 12,397,500
160,000 Procter & Gamble Company..... 17,530,000
--------------
TOTAL CONSUMER GOODS AND
SERVICES..................... 140,028,750
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
ELECTRONICS -- 3.14%
210,000 Eaton Corp. ................. $ 15,251,250
500,000 Edison International......... 13,093,750
280,000 Emerson Electric Company..... 16,065,000
--------------
TOTAL ELECTRONICS............ 44,410,000
--------------
INSURANCE -- 3.78%
350,000 Chubb Corp................... 19,709,375
270,000 CIGNA Corp................... 21,751,875
300,000 Lincoln National Corp........ 12,000,000
--------------
TOTAL INSURANCE.............. 53,461,250
--------------
MACHINERY -- 2.36%
340,000 Caterpiller Inc.............. 16,001,250
400,000 Deere & Co................... 17,350,000
--------------
TOTAL MACHINERY.............. 33,351,250
--------------
MANUFACTURING -- 2.48%
320,000 Honeywell International,
Inc........................ 18,460,000
170,000 Minnesota Mining &
Manufacturing Company...... 16,638,750
--------------
TOTAL MANUFACTURING.......... 35,098,750
--------------
MEDICAL PRODUCTS -- 2.56%
280,000 Baxter International, Inc.... 17,587,500
200,000 Johnson & Johnson............ 18,625,000
--------------
TOTAL MEDICAL PRODUCTS....... 36,212,500
--------------
METALS AND MINING -- 3.24%
260,000 Alcoa, Inc.(a)............... 21,580,000
190,000 Phelps Dodge Corp............ 12,753,750
150,000 Reynolds Metals Company...... 11,493,750
--------------
TOTAL METALS AND MINING...... 45,827,500
--------------
OIL AND GAS -- 16.69%
280,000 BP Amoco PLC -- (ADR)(a)..... 16,607,500
150,000 Atlantic Richfield Company... 12,975,000
410,000 Baker Hughes, Inc............ 8,635,625
165,000 Chevron Corp................. 14,293,125
440,000 CMS Energy Corp.............. 13,722,500
100,000 Consolidated Natural Gas..... 6,493,750
350,000 Diamond Offshore Drilling,
Inc........................ 10,696,875
370,000 El Paso Energy Corp.......... 14,360,625
350,000 Enron Corp.(a)............... 15,531,250
400,000 Exxon-Mobil Corp............. 32,225,000
270,000 Halliburton Company.......... 10,867,500
270,000 Kerr-McGee Corp.............. 16,740,000
</TABLE>
See notes to financial statements.
F-44
<PAGE> 133
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
OIL AND GAS (CONTINUED)
200,000 Royal Dutch Petroleum
Company.................... $ 12,087,500
170,000 Schlumberger, Ltd............ 9,562,500
200,000 Texaco, Inc.................. 10,862,500
290,000 Tidewater, Inc............... 10,440,000
32,912 Transocean Sedco Forex,
Inc........................ 1,108,723
620,000 Williams Companies, Inc...... 18,948,750
--------------
TOTAL OIL AND GAS............ 236,158,723
--------------
PAPER AND FOREST PRODUCTS -- 7.30%
300,000 Bowater, Inc................. 16,293,750
420,000 Georgia-Pacific Group........ 21,315,000
480,000 International Paper
Company.................... 27,090,000
290,000 Temple Inland, Inc........... 19,121,875
270,000 Weyerhauser Company.......... 19,389,375
--------------
TOTAL PAPER AND FOREST
PRODUCTS..................... 103,210,000
--------------
PHARMACEUTICALS -- 9.44%
370,000 Abbott Laboratories.......... 13,435,625
440,000 American Home Products
Corp....................... 17,352,500
280,000 Bristol-Myers Squibb
Company.................... 17,972,500
220,000 Lilly (Eli) & Company........ 14,630,000
300,000 Merck & Company, Inc......... 20,118,750
330,000 Pharmacia & Upjohn, Inc...... 14,850,000
280,000 SmithKline Beecham PLC
(ADR)(a)................... 18,042,500
210,000 Warner-Lambert Company....... 17,206,875
--------------
TOTAL PHARMACEUTICALS........ 133,608,750
--------------
PUBLISHING -- 1.09%
250,000 McGraw-Hill Companies,
Inc........................ 15,406,250
--------------
REAL ESTATE INVESTMENT TRUSTS -- 2.02%
220,000 Boston Properties, Inc. ..... 6,847,500
360,000 Crescent Real Estate Equity
Company.................... 6,615,000
320,000 Equity Office Properties..... 7,880,000
170,000 Equity Residential
Properties................. 7,256,875
--------------
TOTAL REAL ESTATE INVESTMENT
TRUSTS....................... 28,599,375
--------------
TELECOMMUNICATIONS -- 12.13%
480,000 AT & T Corp.................. 24,360,000
380,000 Bell Atlantic Corp........... 23,393,750
420,000 Bellsouth Corp............... 19,661,250
500,000 Global Crossing,
Ltd.(a)(c)................. 25,000,000
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
290,000 GTE Corp..................... $ 20,463,125
450,000 SBC Communications, Inc...... 21,937,500
300,000 Sprint Corp. (FON Group)..... 20,193,750
230,000 US West, Inc. ............... 16,560,000
--------------
TOTAL TELECOMMUNICATIONS..... 171,569,375
--------------
TOBACCO -- 0.21%
130,000 Philip Morris Companies,
Inc........................ 3,014,375
--------------
UTILITIES: ELECTRIC -- 1.17%
330,000 Duke Energy Corp............. 16,541,250
--------------
TOTAL COMMON STOCK (Cost
$1,033,026,187).............. 1,387,472,785
--------------
REGULATED INVESTMENT COMPANIES -- 0.51%
1,912,382 Janus Money Market Fund(b)... 1,912,382
5,317,006 Merrimac Cash Fund -- Premium
Class(b)................... 5,317,006
--------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost
$7,229,388)................ 7,229,388
--------------
<CAPTION>
PRINCIPAL
---------
<C> <S> <C>
COMMERCIAL PAPER -- 1.81%
$10,500,000 American Express Credit
Corp., 5.00%, 01/05/00..... 10,494,167
325,000 Conagra, Inc., 4.95%,
01/12/00................... 324,508
1,875,000 Edison Asset Securitization,
6.35%, 01/19/00............ 1,869,047
5,000,000 MCI Worldcom, Inc.,
5.60%, 01/27/00............ 4,979,778
100,000 Merrill Lynch & Company,
Inc., 5.68%, 01/31/00...... 99,527
3,800,000 Montauk Funding Corp. ,
5.70%, 01/18/00............ 3,789,772
325,000 Textron, Inc., 5.65%,
01/18/00................... 324,133
450,000 TRW, Inc., 5.95%, 01/14/00... 449,033
3,250,000 Windmill Funding Corp.,
6.32%, 01/12/00............ 3,243,724
--------------
TOTAL COMMERCIAL PAPER
(Cost $25,573,689)........... 25,573,689
--------------
CERTIFICATES OF
DEPOSIT -- 0.28%
453,762 American Express Centurion
Bank, 6.15%, 01/26/00(b)... 453,762
1,020,961 Den Danske Bank,
6.39%, 01/20/00(b)......... 1,020,961
1,075,715 Den Danske Bank,
6.41%, 01/27/00(b)......... 1,075,715
453,762 Royal Bank of Scotland,
6.15%, 01/20/00(b)......... 453,762
</TABLE>
See notes to financial statements.
F-45
<PAGE> 134
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
CERTIFICATES OF DEPOSIT (CONTINUED)
$ 1,017,961 Royal Bank of Scotland,
6.31%, 01/27/00(b)......... $ 1,017,961
--------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $4,022,161)............ 4,022,161
--------------
SHORT TERM CORPORATE NOTES -- 1.70%
3,000,000 Bank of Montreal, Floating
Rate,
4.33%(++), 04/05/00(b)..... 3,000,000
3,000,000 JP Morgan Securities, Inc.,
Floating Rate,
4.605%(++), 07/07/00(b).... 3,000,000
10,000,000 Morgan Stanley Dean Witter &
Company, Floating Rate,
4.605%(++), 01/03/00(b).... 10,000,000
3,000,000 Morgan Stanley Dean Witter &
Company, Floating Rate,
4.60%(++), 01/11/00(b)..... 3,000,000
5,000,000 Prudential Securities, Inc.,
Floating Rate,
4.85%(++), 03/10/00(b)..... 5,000,000
--------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $24,000,000)..... 24,000,000
--------------
TIME DEPOSIT -- 0.25%
3,572,251 BankBoston N.A., 4.68%,
01/03/00(b) (Cost
$3,572,251)................ 3,572,251
--------------
Total Investments -- 102.63%
(Cost $1,097,423,676)...... 1,451,870,274
Liabilities less other
assets -- (2.63)%.......... (37,236,044)
--------------
NET ASSETS -- 100.00%........ $1,414,634,230
==============
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of securities for federal
income tax purposes at December 31, 1999 is
$1,096,923,573. The following amount is
based on cost for federal income tax
purposes:
Gross unrealized appreciation.......... $385,296,368
Gross unrealized depreciation.......... (30,349,667)
------------
Net unrealized appreciation............ $354,946,701
============
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing securities.
(++) 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, 1999.
(ADR) American Depository Receipts.
See notes to financial statements.
F-46
<PAGE> 135
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK -- 94.38%
AEROSPACE -- 0.58%
19,100 Lockheed Martin Corp. ......... $ 417,813
29,000 United Technologies Corp. ..... 1,885,000
------------
TOTAL AEROSPACE................ 2,302,813
------------
AUTOMOBILES -- 1.42%
104,800 Ford Motor Company............. 5,600,250
------------
AUTOMOTIVE PRODUCTS -- 0.86%
216,000 Delphi Automotive Systems
Corp. ....................... 3,402,000
------------
BANKS -- 3.74%
41,800 Bank of America Corp. ......... 2,097,838
66,600 Household International,
Inc. ........................ 2,480,850
177,000 KeyCorp. ...................... 3,916,125
240,000 Washington Mutual, Inc. ....... 6,240,000
------------
TOTAL BANKS.................... 14,734,813
------------
CHEMICALS -- 7.80%
201,800 Air Products & Chemicals,
Inc. ........................ 6,772,912
77,900 Dow Chemical Company........... 10,409,387
117,500 PPG Industries, Inc. .......... 7,351,094
123,200 Praxair, Inc. ................. 6,198,500
------------
TOTAL CHEMICALS................ 30,731,893
------------
COMPUTERS AND OFFICE EQUIPMENT -- 4.06%
422,700 Compaq Computer Corp. ......... 11,439,319
98,200 Seagate Technology, Inc.(c).... 4,572,438
------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT...................... 16,011,757
------------
CONSUMER GOODS AND SERVICES -- 2.97%
85,900 Dana Corp. .................... 2,571,631
87,900 Eastman Kodak Company.......... 5,823,375
114,800 Newell Rubbermaid, Inc.(a)..... 3,329,200
------------
TOTAL CONSUMER GOODS AND
SERVICES....................... 11,724,206
------------
DEFENSE -- 1.03%
68,000 Raytheon Company -- Class A.... 1,687,250
89,200 Raytheon Company -- Class B.... 2,369,375
------------
TOTAL DEFENSE.................. 4,056,625
------------
ELECTRIC -- INTEGRATED -- 1.34%
151,100 Public Service Enterprise
Group, Inc.(a)............... 5,260,169
------------
ELECTRONICS -- 1.77%
121,400 Emerson Electric Company....... 6,965,325
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
ENVIRONMENTAL MANAGEMENT SERVICES -- 1.15%
264,400 Waste Management, Inc. ........ $ 4,544,375
------------
FINANCE -- 0.65%
42,500 Loews Corp. ................... 2,579,219
------------
FOOD AND BEVERAGE -- 8.63%
612,781 Archer-Daniels Midland
Company...................... 7,468,268
108,400 Bestfoods...................... 5,697,775
279,100 ConAgra, Inc.(a)............... 6,297,194
200,400 Heinz (H.J.) Company........... 7,978,425
221,600 Pepsi Bottling Group, Inc. .... 3,670,250
82,700 Pepsico, Inc. ................. 2,915,175
------------
TOTAL FOOD AND BEVERAGE........ 34,027,087
------------
INSURANCE -- 10.06%
119,700 Aetna, Inc. ................... 6,680,756
276,900 Allstate Corp. ................ 6,645,600
51,800 Aon Corp. ..................... 2,072,000
143,000 Chubb Corp. ................... 8,052,687
34,500 CIGNA Corp. ................... 2,779,406
211,000 St. Paul Companies............. 7,108,062
196,700 UnumProvident Corp. ........... 6,306,694
------------
TOTAL INSURANCE................ 39,645,205
------------
MACHINERY -- 2.93%
179,100 Crown Cork & Seal Company...... 4,007,363
173,900 Deere & Company................ 7,542,912
------------
TOTAL MACHINERY................ 11,550,275
------------
MANUFACTURING -- 1.49%
231,400 Masco Corp. ................... 5,871,775
------------
MEDICAL AND OTHER HEALTH SERVICES -- 3.65%
126,200 Baxter International, Inc. .... 7,926,937
274,000 Tenet Healthcare Corp.(c)...... 6,439,000
------------
TOTAL MEDICAL AND OTHER HEALTH
SERVICES....................... 14,365,937
------------
OIL AND GAS -- 15.17%
43,200 Amerada Hess Corp. ............ 2,451,600
193,600 Burlington Resources, Inc. .... 6,400,900
76,300 Chevron Corp. ................. 6,609,488
356,900 Conoco, Inc.(a)................ 8,833,275
180,600 Occidental Petroleum Corp. .... 3,905,475
62,000 Phillips Petroleum Company..... 2,914,000
134,200 Texaco, Inc. .................. 7,288,737
131,700 Tosco Corp. ................... 3,580,594
</TABLE>
See notes to financial statements.
F-47
<PAGE> 136
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
OIL AND GAS (CONTINUED)
305,900 Union Pacific Resources Group,
Inc. ........................ $ 3,900,225
199,100 Unocal Corp. .................. 6,682,294
291,700 USX-Marathon Group............. 7,201,344
------------
TOTAL OIL AND GAS.............. 59,767,932
------------
PAPER AND FOREST PRODUCTS -- 7.09%
89,000 Champion International
Corp. ....................... 5,512,438
242,900 Fort James Corp. .............. 6,649,387
117,800 Georgia-Pacific Group.......... 5,978,350
173,500 International Paper Company.... 9,791,906
------------
TOTAL PAPER AND FOREST
PRODUCTS....................... 27,932,081
------------
PHARMACEUTICALS -- 1.84%
199,200 Abbott Laboratories............ 7,233,450
------------
RETAIL -- 5.26%
174,200 Federated Department Stores,
Inc.(a)(c)................... 8,807,987
247,300 May Department Stores
Company...................... 7,975,425
192,400 TJX Companies, Inc. ........... 3,932,175
------------
TOTAL RETAIL................... 20,715,587
------------
TELECOMMUNICATIONS -- 2.60%
202,000 AT & T Corp. .................. 10,251,500
------------
TRANSPORTATION -- 4.55%
288,900 Burlington Northern Santa Fe
Corp. ....................... 7,005,825
147,600 CSX Corp. ..................... 4,630,950
307,500 Norfolk Southern Corp. ........ 6,303,750
------------
TOTAL TRANSPORTATION........... 17,940,525
------------
UTILITIES: ELECTRIC -- 3.74%
215,700 FirstEnergy Corp. ............. 4,893,694
111,900 FPL Group, Inc. ............... 4,790,719
142,300 Texas Utilities Company........ 5,060,544
------------
TOTAL UTILITIES: ELECTRIC...... 14,744,957
------------
TOTAL COMMON STOCK
(Cost $415,739,863)............ 371,959,756
------------
REGULATED INVESTMENT COMPANIES -- 1.26%
1,194,959 Janus Money Market Fund(b)..... 1,194,959
3,761,454 Merrimac Cash Fund -- Premium
Class(b)..................... 3,761,454
------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost $4,956,413).... 4,956,413
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CERTIFICATES OF
DEPOSIT -- 1.00%
$ 298,740 American Express Centurion
Bank, 6.15%, 01/26/00(b)..... $ 298,740
672,165 Den Danske Bank,
6.39%, 01/20/00(b)........... 672,165
2,011,871 Den Danske Bank,
6.41%, 01/27/00(b)........... 2,011,871
298,740 Royal Bank of Scotland,
6.15%, 01/20/00(b)........... 298,740
672,165 Royal Bank of Scotland,
6.31%, 01/27/00(b)........... 672,165
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $3,953,681).............. 3,953,681
------------
SHORT TERM CORPORATE NOTES -- 3.05%
2,000,000 JP Morgan Securities, Inc.,
Floating Rate,
4.605%(++), 07/07/00(b)...... 2,000,000
10,000,000 Prudential Securities, Inc.,
Floating Rate,
4.85%(++), 03/10/00(b)....... 10,000,000
------------
TOTAL SHORT TERM CORPORATE
NOTES
(Cost $12,000,000)............. 12,000,000
------------
TIME DEPOSIT -- 0.85%
3,349,106 BankBoston, N.A.,
4.68%, 01/03/00
(Cost $3,349,106)(b)......... 3,349,106
------------
TOTAL SECURITIES
(Cost $439,999,063)............ 396,218,956
------------
REPURCHASE AGREEMENT -- 5.38%
21,212,108 With Investors Bank & Trust
dated 12/31/99, 3.06%, due
01/03/00, repurchase proceeds
at maturity $21,217,517
(Collateralized by Freddie
Mac, 5.60%, due 12/15/08,
with a value of $7,930,276,
and Freddie Mac, 5.91%,
02/15/08, with a value of
$14,342,437) (Cost
$21,212,108)................. 21,212,108
------------
Total Investments -- 105.92%
(Cost $461,211,171)............ 417,431,064
Liabilities less other
assets -- (5.92)%.............. (23,326,776)
------------
NET ASSETS -- 100.00%.......... $394,104,288
============
</TABLE>
See notes to financial statements.
F-48
<PAGE> 137
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<C> <S> <C>
The aggregate cost of securities for federal income tax
purposes at December 31, 1999 is $463,436,425.
The following amount is based on cost for federal income
tax purposes:
Gross unrealized appreciation............ $ 15,450,263
Gross unrealized depreciation............ (61,455,624)
------------
Net unrealized depreciation.............. $(46,005,361)
============
</TABLE>
- ---------------
(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, 1999.
See notes to financial statements.
F-49
<PAGE> 138
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK -- 99.44%
ADVERTISING -- 1.80%
278,800 Interpublic Group, Inc....... $ 16,083,275
63,300 Omnicom Group, Inc.(a)....... 6,330,000
--------------
TOTAL ADVERTISING............ 22,413,275
--------------
AEROSPACE -- 0.89%
170,100 United Technologies Corp. ... 11,056,500
--------------
BANKS -- 3.60%
37,200 Comerica, Inc................ 1,526,681
157,100 Fifth Third Bancorp.......... 11,527,213
206,700 First Security Corp.......... 5,277,320
534,800 Firstar Corp................. 11,297,650
61,800 Northern Trust Corp. ........ 3,275,400
184,100 Wells Fargo Company.......... 7,444,544
73,900 Zions Bancorporation(a)...... 4,373,956
--------------
TOTAL BANKS.................. 44,722,764
--------------
BROADCAST SERVICES -- 4.55%
502,500 AT&T Corp. -- Liberty Media
Group -- Class A(a)(c)..... 28,516,875
194,900 Clear Channel Communications,
Inc.(a)(c)................. 17,394,825
210,600 Comcast Corp................. 10,648,463
--------------
TOTAL BROADCAST SERVICES..... 56,560,163
--------------
CHEMICALS -- 0.67%
166,400 Praxair, Inc. ............... 8,372,000
--------------
COMPUTER SOFTWARE AND SERVICES -- 15.96%
335,100 America Online, Inc.(c)...... 25,279,106
158,200 BMC Software, Inc.(c)........ 12,646,113
298,200 Cisco Systems, Inc.(c)....... 31,944,675
44,150 Comverse Technology,
Inc.(a)(c)................. 6,390,712
92,800 Electronic Data Systems
Corp. ..................... 6,211,800
534,700 Microsoft Corp.(c)........... 62,426,225
165,800 Oracle Corp.(c).............. 18,579,963
259,500 Sun Microsystems, Inc.(c).... 20,095,031
33,898 Yahoo!, Inc.(a)(c)........... 14,667,241
--------------
TOTAL COMPUTER SOFTWARE AND
SERVICES..................... 198,240,866
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
COMPUTERS AND OFFICE EQUIPMENT -- 4.19%
108,200 Apple Computer, Inc.(a)(c)... $ 11,124,312
30,700 Avery Dennison Corp.......... 2,237,262
252,700 Dell Computer Corp.(c)....... 12,887,700
140,800 EMC Corp.(a)(c).............. 15,382,400
39,200 Lexmark International Group,
Inc.(c).................... 3,547,600
47,700 Veritas Software Corp.(c).... 6,827,062
--------------
TOTAL COMPUTER AND OFFICE
EQUIPMENT.................... 52,006,336
--------------
CONSUMER GOODS AND SERVICES -- 5.83%
188,200 Colgate-Palmolive Company.... 12,233,000
336,500 General Electric Company..... 52,073,375
125,300 Kimberly-Clark Corp.......... 8,175,825
--------------
TOTAL CONSUMER GOODS AND
SERVICES..................... 72,482,200
--------------
ELECTRONICS -- 5.94%
83,200 JDS Uniphase Corp.(a)(c)..... 13,421,200
226,800 Motorola, Inc.(a)............ 33,396,300
58,500 Rockwell International
Corp....................... 2,800,688
163,400 Solectron Corp.(c)........... 15,543,425
89,400 Texas Instruments, Inc....... 8,660,625
--------------
TOTAL ELECTRONICS............ 73,822,238
--------------
FINANCIAL SERVICES -- 4.85%
97,400 American Express Company..... 16,192,750
125,400 Capital One Financial
Corp....................... 6,042,713
504,600 Citigroup, Inc. ............. 28,036,838
109,300 Providian Financial Corp..... 9,953,131
--------------
TOTAL FINANCIAL SERVICES..... 60,225,432
--------------
FOOD AND BEVERAGE -- 0.84%
68,900 Anheuser-Busch Companies,
Inc........................ 4,883,288
139,500 Sysco Corp................... 5,518,969
--------------
TOTAL FOOD AND BEVERAGE...... 10,402,257
--------------
INSURANCE -- 2.60%
120,700 American General Corp........ 9,158,112
214,500 American International
Group...................... 23,192,813
--------------
TOTAL INSURANCE.............. 32,350,925
--------------
LEISURE AND RECREATION -- 0.34%
88,400 Carnival Corp., Class A...... 4,226,625
--------------
</TABLE>
See notes to financial statements.
F-50
<PAGE> 139
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
MANUFACTURING -- 3.20%
54,900 Corning, Inc. ............... $ 7,078,669
79,500 Sealed Air Corp.(c).......... 4,119,094
735,400 Tyco International Ltd. ..... 28,588,675
--------------
TOTAL MANUFACTURING.......... 39,786,438
--------------
MEDIA -- 4.25%
215,900 CBS Corp.(c)................. 13,804,106
223,100 Time Warner, Inc. ........... 16,160,806
377,000 Viacom, Inc. Class B(c)...... 22,784,938
--------------
TOTAL MEDIA.................. 52,749,850
--------------
MEDICAL -- BIOMEDICAL -- 1.96%
221,100 Amgen, Inc.(c)............... 13,279,819
66,900 Biogen, Inc.(c).............. 5,653,050
50,000 Immunex Corp.(a)(c).......... 5,475,000
--------------
TOTAL MEDICAL --BIOMEDICAL... 24,407,869
--------------
MEDICAL PRODUCTS -- 1.82%
65,200 Bausch & Lomb, Inc. ......... 4,462,125
195,400 Johnson & Johnson............ 18,196,625
--------------
TOTAL MEDICAL PRODUCTS....... 22,658,750
--------------
OIL AND GAS -- 4.82%
127,200 Burlington Resources,
Inc. ...................... 4,205,550
412,800 Conoco, Inc.(a).............. 10,216,800
364,500 Enron Corp.(a)............... 16,174,688
223,300 Exxon Mobil Corp. ........... 17,989,606
186,700 Royal Dutch Petroleum
Company.................... 11,283,681
--------------
TOTAL OIL AND GAS............ 59,870,325
--------------
PAPER AND FOREST PRODUCTS -- 0.47%
80,900 Weyerhaeuser Company......... 5,809,631
--------------
PHARMACEUTICALS -- 4.86%
91,200 Allergan, Inc. .............. 4,537,200
191,500 Bristol-Myers Squibb
Company.................... 12,291,906
37,900 Genentech, Inc.(c)........... 5,097,550
449,400 Schering-Plough Corp. ....... 18,959,062
238,200 Warner-Lambert Company....... 19,517,512
--------------
TOTAL PHARMACEUTICALS........ 60,403,230
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
RETAIL -- 10.30%
51,700 Amazon.com, Inc. ............ $ 3,935,663
26,600 Costco Companies, Inc.(c).... 2,427,250
169,800 CVS Corp. ................... 6,781,388
171,500 Dayton Hudson Corp. ......... 12,594,531
212,400 Estee Lauder Companies --
Class A(a)................. 10,712,925
517,200 Home Depot, Inc. ............ 35,460,525
227,600 Tandy Corp.(a)............... 11,195,075
407,600 TJX Companies, Inc. ......... 8,330,325
526,500 Wal-Mart Stores, Inc. ....... 36,394,312
--------------
TOTAL RETAIL................. 127,831,994
--------------
SEMICONDUCTORS -- 3.00%
99,700 Applied Materials, Inc.(c)... 12,630,744
197,300 Intel Corp. ................. 16,240,256
182,600 Xilinx, Inc.(c).............. 8,302,603
--------------
TOTAL SEMICONDUCTORS......... 37,173,603
--------------
TELECOMMUNICATIONS -- 12.70%
151,900 ALLTEL Corp. ................ 12,560,231
306,400 Lucent Technologies.......... 22,922,550
106,500 MCI Worldcom, Inc.(c)........ 5,651,156
119,300 Nextel Communications,
Inc.(a)(c)................. 12,302,813
113,500 Nokia Corp. (ADR)(a)......... 21,565,000
41,200 Omnipoint Corp.(c)........... 4,969,750
114,400 QUALCOMM, Inc.(c)............ 20,148,700
241,700 SBC Communications, Inc. .... 11,782,875
407,600 Sprint Corp. (Fon Group)..... 27,436,575
102,500 Sprint Corp.
(PCS Group)(a)(c).......... 10,506,250
40,600 Tellabs, Inc.(c)............. 2,606,012
37,300 Voicestream Wireless
Corp.(a)(c)................ 5,308,256
--------------
TOTAL TELECOMMUNICATIONS..... 157,760,168
--------------
TOTAL COMMON STOCK
(Cost $863,674,094).......... 1,235,333,439
--------------
REGULATED INVESTMENT COMPANIES -- 3.63%
7,197,567 Janus Money Market Fund(b)... 7,197,567
37,773,007 Merrimac Cash Fund --
Premium Class(b)........... 37,773,007
--------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost
$44,970,574)................. 44,970,574
--------------
</TABLE>
See notes to financial statements.
F-51
<PAGE> 140
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
CERTIFICATES OF
DEPOSIT -- 1.87%
$ 2,955,336 American Express Centurion
Bank, 6.15%, 01/26/00(b)... $ 2,955,336
6,649,504 Den Danske Bank,
6.39%, 01/20/00(b)......... 6,649,504
4,048,633 Den Danske Bank,
6.41%, 01/27/00(b)......... 4,048,633
2,955,336 Royal Bank of Scotland,
6.15%, 01/20/00(b)......... 2,955,336
6,649,504 Royal Bank of Scotland,
6.31%, 01/27/00(b)......... 6,649,504
--------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $23,258,313)........... 23,258,313
--------------
SHORT TERM CORPORATE NOTES -- 6.24%
11,000,000 Bank of Montreal, Floating
Rate, 4.33%(++),
04/05/00(b)................ 11,000,000
8,000,000 First Union National Bank,
Floating Rate, 4.765%(++),
05/01/00(b)................ 8,000,000
1,000,000 Goldman Sachs & Company,
Floating Rate, 6.446%(++),
02/04/00(b)................ 1,000,000
15,000,000 JP Morgan Securities, Inc.,
Floating Rate, 4.605%(++),
07/07/00(b)................ 15,000,000
6,000,000 Morgan Stanley Dean Witter &
Company, Floating Rate,
4.60%(++), 01/11/00(b)..... 6,000,000
36,500,000 Prudential Securities, Inc.,
Floating Rate, 4.85%(++),
03/10/00(b)................ 36,500,000
--------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $77,500,000)..... 77,500,000
--------------
TIME DEPOSIT -- 0.03%
390,979 BankBoston N.A.,
4.68%, 01/03/00(b)
(Cost $390,979)............ 390,979
--------------
TOTAL SECURITIES
(Cost $1,009,793,960)........ 1,381,453,305
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 0.95%
$11,777,953 With Investors Bank & Trust,
dated 12/31/99, 3.06%, due
01/03/00, repurchase
proceeds at maturity
$11,780,956 (Collateralized
by Government National
Mortgage Association,
6.125%, due 10/20/23, with
a value of $8,688,771 and
Small Business
Administration Loan,
8.125%, due 04/25/24, with
a value of $3,678,080)
(Cost $11,777,953)......... $ 11,777,953
--------------
Total Investments -- 112.16%
(Cost $1,021,571,913)........ 1,393,231,258
Liabilities less other
assets -- (12.16)%........... (150,994,815)
--------------
NET ASSETS -- 100.00%........ $1,242,236,443
==============
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of securities for federal income tax
purposes at December 31, 1999 is $1,023,222,305.
The following amount is based on cost for federal income
tax purposes:
Gross unrealized appreciation.......... $386,580,829
Gross unrealized depreciation.......... (16,571,876)
------------
Net unrealized appreciation............ $370,008,953
============
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing securities.
(++) 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, 1999.
(ADR) American Depository Receipt
See notes to financial statements.
F-52
<PAGE> 141
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK -- 98.65%
ADVERTISING -- 2.17%
145,000 Clear Channel Communications,
Inc.(a)(c)................. $ 12,941,250
252,700 Interpublic Group, Inc. ..... 14,577,631
--------------
TOTAL ADVERTISING............ 27,518,881
--------------
BANKS -- 1.10%
125,000 Bank of New York............. 5,000,000
219,500 Wells Fargo Company.......... 8,876,031
--------------
TOTAL BANKS.................. 13,876,031
--------------
COMPUTER SOFTWARE AND SERVICES -- 14.36%
200,000 America Online, Inc.(c)...... 15,087,500
405,000 Cisco Systems, Inc.(c)....... 43,385,625
129,300 Electronic Arts(c)........... 10,861,200
548,100 Microsoft Corp.(c)........... 63,990,675
225,200 Oracle Corp.(c).............. 25,236,475
54,000 Yahoo!, Inc.(a)(c)........... 23,365,125
--------------
TOTAL COMPUTER SOFTWARE AND
SERVICES..................... 181,926,600
--------------
COMPUTERS AND OFFICE EQUIPMENT -- 7.01%
283,500 Dell Computer Corp.(c)....... 14,458,500
356,000 EMC/Mass Corp.(a)(c)......... 38,893,000
248,000 Hewlett-Packard Company...... 28,256,500
67,000 International Business
Machines................... 7,236,000
--------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT.................... 88,844,000
--------------
CONSUMER GOODS AND SERVICES -- 10.92%
173,000 Colgate-Palmolive Company.... 11,245,000
361,400 General Electric Company..... 55,926,650
664,800 Gillette Company............. 27,381,450
277,700 Newell Rubbermaid, Inc. ..... 8,053,300
326,100 Proctor & Gamble Company..... 35,728,331
--------------
TOTAL CONSUMER GOODS AND
SERVICES..................... 138,334,731
--------------
DEFENSE -- 0.50%
75,000 General Dynamics Corp. ...... 3,956,250
38,000 United Technologies Corp. ... 2,470,000
--------------
TOTAL DEFENSE................ 6,426,250
--------------
ELECTRONICS -- 2.36%
303,200 Electronic Data Systems
Corp. ..................... 20,295,450
102,500 Solectron Corp.(c)........... 9,750,313
--------------
TOTAL ELECTRONICS............ 30,045,763
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
FINANCE -- 2.26%
82,500 American Express Company..... $ 13,715,625
157,000 Citigroup, Inc. ............. 8,723,313
100,000 Fannie Mae................... 6,243,750
--------------
TOTAL FINANCE................ 28,682,688
--------------
FOOD AND BEVERAGE -- 4.41%
100,000 Anheuser-Busch Companies,
Inc. ...................... 7,087,500
182,400 Bestfoods.................... 9,587,400
485,500 Coca-Cola Company............ 28,280,375
200,000 Coca-Cola Enterprises,
Inc. ...................... 4,025,000
193,700 Pepsico, Inc. ............... 6,827,925
--------------
TOTAL FOOD AND BEVERAGE...... 55,808,200
--------------
INSURANCE -- 2.45%
287,550 American International
Group...................... 31,091,344
--------------
LEISURE AND RECREATION -- 1.80%
273,800 Carnival Corp. .............. 13,091,063
308,300 Marriot International --
Class A.................... 9,730,719
--------------
TOTAL LEISURE AND
RECREATION................... 22,821,782
--------------
MANUFACTURING -- 2.57%
55,000 Honeywell International,
Inc. ...................... 3,172,812
70,000 PE Corp-PE Biosystems
Group...................... 8,421,875
540,000 Tyco International Ltd. ..... 20,992,500
--------------
TOTAL MANUFACTURING.......... 32,587,187
--------------
MEDIA -- 0.45%
78,000 Time Warner, Inc. ........... 5,650,125
--------------
MEDICAL AND OTHER HEALTH SERVICES -- 4.01%
512,500 Boston Scientific Corp.(c)... 11,210,937
268,500 Johnson & Johnson............ 25,004,063
401,000 Medtronics, Inc. ............ 14,611,438
--------------
TOTAL MEDICAL AND OTHER
HEALTH SERVICES.............. 50,826,438
--------------
MEDICAL EQUIPMENT AND SUPPLIES -- 0.19%
50,000 Guidant Corp.(a)(c).......... 2,350,000
--------------
</TABLE>
See notes to financial statements.
F-53
<PAGE> 142
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
OIL AND GAS -- 0.69%
100,000 Conoco, Inc.(a).............. $ 2,475,000
140,000 Enron Corp.(a)............... 6,212,500
--------------
TOTAL OIL AND GAS............ 8,687,500
--------------
PHARMACEUTICALS -- 8.36%
377,800 Bristol-Myers Squibb
Company.................... 24,250,037
165,000 Lilly (Eli) & Company........ 10,972,500
100,000 Merck & Company, Inc. ....... 6,706,250
1,034,400 Pfizer, Inc. ................ 33,553,350
240,700 Schering-Plough Corp. ....... 10,154,531
37,000 Sepracor, Inc.(a)(c)......... 3,669,938
202,000 Warner-Lambert Company....... 16,551,375
--------------
TOTAL PHARMACEUTICALS........ 105,857,981
--------------
RESEARCH AND DEVELOPMENT -- 2.57%
430,000 Amgen, Inc.(c)............... 25,826,875
50,000 Genentech, Inc.(c)........... 6,725,000
--------------
TOTAL RESEARCH AND
DEVELOPMENT.................. 32,551,875
--------------
RESTAURANTS -- 2.11%
661,700 McDonald's Corp. ............ 26,674,781
--------------
RETAIL -- 8.76%
318,900 Circuit City Stores.......... 14,370,431
209,600 Costco Wholesale Corp.(c).... 19,126,000
65,000 Dayton-Hudson Corp. ......... 4,773,437
336,950 Gap Stores................... 15,499,700
575,500 Home Depot, Inc. ............ 39,457,719
100,000 Nike, Inc. -- Class B........ 4,956,250
88,000 Safeway, Inc.(c)............. 3,129,500
140,000 Wal-Mart Stores, Inc. ....... 9,677,500
--------------
TOTAL RETAIL................. 110,990,537
--------------
SEMICONDUCTORS -- 5.73%
45,000 Applied Materials, Inc.(c)... 5,700,937
438,600 Intel Corp. ................. 36,102,263
92,000 JDS Uniphase Corp.(a)(c)..... 14,840,750
60,000 STMicroelectronics N.V.(a)... 9,086,250
150,000 Xilinx, Inc.(c).............. 6,820,320
--------------
TOTAL SEMICONDUCTORS......... 72,550,520
--------------
TELECOMMUNICATIONS -- 13.87%
80,000 GTE Corp. ................... 5,645,000
259,000 Lucent Technologies.......... 19,376,437
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
840,850 MCI Worldcom, Inc.(c)........ $ 44,617,603
92,000 Motorola, Inc.(a)............ 13,547,000
70,000 Nextel Communications, Inc.
Class A(c)................. 7,218,750
158,000 Nokia Corp.(ADR)............. 30,020,000
41,000 Nortel Networks Corp. ....... 4,141,000
176,000 QUALCOMM, Inc.(c)............ 30,998,000
70,000 SBC Communications, Inc. .... 3,412,500
259,800 Tellabs, Inc.(c)............. 16,675,913
--------------
TOTAL TELECOMMUNICATIONS..... 175,652,203
--------------
TOTAL COMMON STOCK (Cost
$840,587,794)................ 1,249,755,417
--------------
REGULATED INVESTMENT COMPANIES -- 0.98%
4,017,316 Janus Money Market Fund(b)... 4,017,316
8,344,524 Merrimac Cash Fund --
Premium Class(b)........... 8,344,524
--------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost
$12,361,840)................. 12,361,840
--------------
<CAPTION>
PRINCIPAL
---------
<C> <S> <C>
CERTIFICATES OF DEPOSIT -- 0.90%
$ 1,004,329 American Express Centurion
Bank, 6.15%, 01/26/00(b)... 1,004,329
2,259,740 Den Danske Bank,
6.39%, 01/20/00(b)......... 2,259,740
4,860,611 Den Danske Bank,
6.41%, 01/27/00(b)......... 4,860,611
1,004,329 Royal Bank of Scotland,
6.15%, 01/20/00(b)......... 1,004,329
2,259,740 Royal Bank of Scotland,
6.31%, 01/27/00(b)......... 2,259,740
--------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $11,388,749)........... 11,388,749
--------------
SHORT TERM CORPORATE NOTES -- 4.10%
7,000,000 Bank of Montreal, Floating
Rate, 4.33%(++),
04/05/00(b)................ 7,000,000
4,000,000 Goldman Sachs & Company,
Floating Rate, 6.446%(++),
02/04/00(b)................ 4,000,000
6,000,000 JP Morgan Securities, Inc.,
Floating Rate, 4.605%(++),
07/07/00(b)................ 6,000,000
</TABLE>
See notes to financial statements.
F-54
<PAGE> 143
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
SHORT TERM CORPORATE NOTES (CONTINUED)
$ 5,000,000 Morgan Stanley Dean Witter &
Company, Floating Rate,
4.60%(++), 01/11/00(b)..... $ 5,000,000
30,000,000 Prudential Securities, Inc.,
Floating Rate, 4.85%(++),
03/10/00(b)................ 30,000,000
--------------
TOTAL SHORT TERM CORPORATE NOTES
(Cost $52,000,000)........... 52,000,000
--------------
TIME DEPOSIT -- 0.46%
5,806,052 BankBoston, N.A., 4.68%,
01/03/00(b) (Cost
$5,806,052)................ 5,806,052
--------------
TOTAL SECURITIES (Cost
$922,144,435)................ 1,331,312,058
--------------
REPURCHASE AGREEMENTS -- 2.15%
17,369,727 With Investors Bank & Trust,
dated 12/31/99, 3.06%, due
01/03/00, repurchase
proceeds at maturity
$17,374,156 (Collateralized
by Freddie Mac, 6.23%, due
03/25/22, with a value of
$5,464,526, and Ginnie Mae,
Adjustable Rate Mortgage,
6.375%, due 04/20/24, with
a value of $12,773,688)
(Cost $17,369,727)......... 17,369,727
9,924,680 With Morgan Stanley Dean
Witter & Company, dated
12/31/99, 2.03%, due
01/03/00, repurchase
proceeds at maturity
$9,926,359 (Collateralized
by U.S. Treasury Notes,
7.25%, due 05/15/04, with a
value of $10,125,693) (Cost
$9,924,680)................ 9,924,680
--------------
TOTAL REPURCHASE AGREEMENTS
(Cost $27,294,407)........... 27,294,407
--------------
Total Investments -- 107.24%
(Cost $949,438,842).......... 1,358,606,465
Liabilities less other
assets -- (7.24)%............ (91,737,311)
--------------
NET ASSETS -- 100.00%........ $1,266,869,154
==============
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of securities for federal income tax
purposes at December 31, 1999, is $953,944,640.
The following amount is based on cost for federal income
tax purposes:
Gross unrealized appreciation.......... $428,244,710
Gross unrealized depreciation.......... (23,582,885)
------------
Net unrealized appreciation............ $404,661,825
============
</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, 1999.
(ADR) American Depository Receipts.
</TABLE>
See notes to financial statements.
F-55
<PAGE> 144
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK -- 94.00%
ADVERTISING -- 0.80%
66,200 TMP Worldwide, Inc.(c)....... $ 9,400,400
--------------
AEROSPACE -- 0.94%
219,900 AAR Corp. ................... 3,944,456
146,700 REMEC, Inc.(c)............... 3,740,850
70,100 The Titan Corp.(c)........... 3,303,463
--------------
TOTAL AEROSPACE.............. 10,988,769
--------------
AIRLINES -- 0.14%
67,900 Atlantic Coast Airlines
Holdings, Inc.(a)(c)....... 1,612,625
--------------
AUTOMOTIVE SERVICES -- 0.06%
110,800 Keystone Automotive
Industries, Inc.(c)........ 650,950
--------------
BANKS -- 2.20%
246,503 Charter One Financials,
Inc. ...................... 4,714,370
143,139 Firstar Corp. ............... 3,023,811
138,160 First Washington Bancorp,
Inc. ...................... 2,037,860
173,010 Hudson United Bancorp. ...... 4,422,568
325,000 Peoples Bank................. 6,865,625
16,000 Silicon Valley
Bancshares(c).............. 792,000
145,400 Sterling Financial
Corp.(c)................... 1,672,100
73,304 Summit Bancorp. ............. 2,244,935
--------------
TOTAL BANKS.................. 25,773,269
--------------
BROADCASTING -- 1.64%
158,000 Acme Communications,
Inc.(c).................... 5,253,500
340,000 Metro-Goldwyn-Mayer,
Inc.(a)(c)................. 8,011,250
158,000 Salem Communications
Corp. -- Class A(c)........ 3,574,750
57,700 Spanish Broadcasting Systems,
Inc. -- Class A(c)......... 2,322,425
--------------
TOTAL BROADCASTING........... 19,161,925
--------------
BUILDING PRODUCTS -- 0.19%
186,800 U.S. Aggregates, Inc. ....... 2,241,600
--------------
BUSINESS SERVICES -- 5.57%
154,800 ABM Industries, Inc. ........ 3,154,050
219,700 AHL Services, Inc.(c)........ 4,586,237
75,500 Cornell Corrections,
Inc.(c).................... 632,313
94,350 Iron Mountain, Inc.(c)....... 3,709,134
171,900 Manpower, Inc. .............. 6,467,737
58,200 On Assignment, Inc.(c)....... 1,738,725
123,850 Optimal Robotics Corp.(c).... 4,613,413
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
BUSINESS SERVICES (CONTINUED)
273,700 Orthodontic Centers of
America, Inc.(c)........... $ 3,267,294
257,500 Protection One, Inc.(c)...... 498,906
36,900 RCM Technologies, Inc.(c).... 636,525
227,600 RSA Security, Inc.(c)........ 17,639,000
100,000 Reynolds & Reynolds
Company -- Class A......... 2,250,000
259,700 Sterling Commerce, Inc.(c)... 8,846,031
140,100 Superior Consultant Holdings
Corp.(c)................... 1,996,425
124,900 The InterCept Group,
Inc.(c).................... 3,707,969
60,000 Volt Information Sciences,
Inc.(c).................... 1,432,500
--------------
TOTAL BUSINESS SERVICES...... 65,176,259
--------------
CHEMICALS -- 0.20%
81,300 Chemed Corp. ................ 2,327,212
--------------
COMMERCIAL SERVICES -- 2.16%
103,800 Central Parking Corp.(a)..... 1,985,175
231,200 Coinmach Laundry
Corp.(a)(c)................ 2,456,500
115,600 F.Y.I., Inc.(c).............. 3,930,400
62,200 Innotrac Corp.(c)............ 855,250
197,000 Mac-Gray Corp.(c)............ 751,062
207,600 Marketing Specialists
Corp.(c)................... 778,500
43,100 MemberWorks, Inc.(c)......... 1,430,381
201,900 MPW Industrial Services
Group, Inc.(c)............. 1,602,581
116,561 Nova Corp.(c)................ 3,678,957
77,200 Pierce Leahy Corp.(c)........ 3,338,900
48,500 Student Advantage,
Inc.(a)(c)................. 1,076,094
270,000 The IT Group, Inc.(c)........ 2,480,625
196,200 Towne Services, Inc.(c)...... 784,800
115,500 United Road Services,
Inc.(c).................... 187,688
--------------
TOTAL COMMERCIAL SERVICES.... 25,336,913
--------------
COMMUNICATIONS -- 7.41%
195,500 Adelphia Communications
Corp. -- Class A(a)(c)..... 12,829,688
82,000 American Tower Corp. -- Class
A(a)(c).................... 2,506,125
315,000 Cabletron Systems, Inc.(c)... 8,190,000
73,500 Citadel Communications
Corp.(c)................... 4,768,312
169,900 Digital Microwave Corp.(c)... 3,982,031
</TABLE>
See notes to financial statements.
F-56
<PAGE> 145
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
COMMUNICATIONS (CONTINUED)
222,100 Emmis Communications
Corp. -- Class A(c)........ $ 27,682,677
100,600 Harmonic, Inc.(a)(c)......... 9,550,712
94,400 Insight Communications
Company, Inc.(c)........... 2,796,600
140,700 Inter-Tel, Inc. ............. 3,517,500
228,950 Performance Technologies,
Inc.(c).................... 3,978,006
55,000 Powerwave Technologies,
Inc.(a)(c)................. 3,210,625
186,697 Saga Communications,
Inc.(c).................... 3,780,614
--------------
TOTAL COMMUNICATIONS......... 86,792,890
--------------
COMPUTER AND SOFTWARE SERVICES -- 12.27%
216,600 Actuate Corp.(c)............. 9,286,725
84,650 Advent Software, Inc.(c)..... 5,454,634
67,000 Autoweb.com, Inc.(c)......... 728,625
143,200 Best Software, Inc.(c)....... 4,224,400
140,700 Bindview Development
Corp.(c)................... 6,991,031
18,100 Brio Technology, Inc.(c)..... 760,200
95,000 Broadbase Software,
Inc.(a)(c)................. 10,687,500
87,400 CACI International,
Inc.(c).................... 1,977,425
160,000 CNET, Inc.(a)(c)............. 9,080,000
32,171 DoubleClick, Inc.(c)......... 8,141,274
24,600 Exchange Applications,
Inc.(c).................... 1,374,525
145,000 GetThere.com, Inc.(a)(c)..... 5,836,250
232,100 Harbinger Corp.(c)........... 7,383,681
70,500 Legato Systems, Inc.(c)...... 4,851,281
18,900 Loislaw.com, Inc.(c)......... 739,462
85,000 Manugistics Group, Inc.(c)... 2,746,562
29,100 MedicaLogic, Inc.(c)......... 611,100
110,200 Metamor Worldwide, Inc.(c)... 3,209,575
39,100 MICROS Systems, Inc.(a)(c)... 2,893,400
100,000 Mission Critical Software,
Inc.(c).................... 7,000,000
56,100 Multex.com, Inc.(c).......... 2,110,763
18,650 Netegrity, Inc.(c)........... 1,061,884
73,600 Pinnacle Systems, Inc.(c).... 3,118,800
200,000 Policy Management Systems
Corp.(c)................... 5,112,500
11,700 Pomeroy Computer Resources,
Inc.(c).................... 155,025
31,205 PSINet, Inc.(a)(c)........... 1,926,909
66,000 Puma Technology, Inc.(c)..... 8,621,250
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
COMPUTER AND SOFTWARE SERVICES (CONTINUED)
72,300 QRS Corp.(c)................. $ 7,591,500
36,600 RadiSys Corp.(c)............. 1,866,600
267,800 Rational Software Corp.(c)... 13,155,675
200,000 Telescan, Inc.(c)............ 4,937,500
--------------
TOTAL COMPUTER AND SOFTWARE
SERVICES..................... 143,636,056
--------------
COMPUTERS AND OFFICE EQUIPMENT -- 1.30%
139,600 Cybex Computer Products
Corp.(c)................... 5,653,800
100,000 SanDisk Corp.(c)............. 9,625,000
--------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT.................... 15,278,800
--------------
CONSTRUCTION -- 0.14%
253,500 Michael Baker Corp.(c)....... 1,679,437
--------------
CONSUMER GOODS AND SERVICES -- 0.91%
329,800 Carriage Services, Inc.(c)... 1,958,187
64,350 Diamond Technology Partners,
Inc.(c).................... 5,530,078
67,600 Glacier Water Services,
Inc.(a)(c)................. 1,094,275
235,800 Helen of Troy Ltd.(c)........ 1,709,550
89,800 Pameco Corp.(c).............. 364,813
--------------
TOTAL CONSUMER GOODS AND
SERVICES..................... 10,656,903
--------------
EDUCATION -- 1.11%
89,100 Bright Horizons Family
Solutions, Inc.(c)......... 1,670,625
77,200 Career Education Corp.(c).... 2,962,550
197,200 Childrens Comprehensive
Services, Inc.(c).......... 1,109,250
471,765 ITT Educational Services,
Inc.(c).................... 7,282,872
--------------
TOTAL EDUCATION.............. 13,025,297
--------------
ELECTRONICS -- 3.82%
112,700 Aavid Thermal Technologies,
Inc.(c).................... 2,768,194
103,950 ACT Manufacturing, Inc.(c)... 3,898,125
51,100 ANADIGICS, Inc.(c)........... 2,411,281
55,100 BOLDER Technologies
Corp.(c)................... 702,525
19,900 FARO Technologies, Inc.(c)... 58,456
280,000 Genesis Microchip,
Inc.(a)(c)................. 5,915,000
107,550 Hughes Supply, Inc.(c)....... 2,319,047
</TABLE>
See notes to financial statements.
F-57
<PAGE> 146
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
ELECTRONICS (CONTINUED)
185,000 Maker Communications,
Inc.(c).................... $ 7,908,750
146,000 Power Integrations,
Inc.(c).................... 6,998,875
105,000 Rogers Corp.(c).............. 4,016,250
309,300 Sensormatic Electronics
Corp.(a)(c)................ 5,393,419
75,000 Thomas & Betts Corp. ........ 2,390,625
--------------
TOTAL ELECTRONICS............ 44,780,547
--------------
ENGINEERING -- 0.21%
111,800 URS Corp.(c)................. 2,424,663
--------------
ENVIRONMENTAL MANAGEMENT SERVICES -- 1.03%
275,320 Allied Waste Industries,
Inc.(c).................... 2,426,258
214,700 Capital Environmental
Resource, Inc.(c).......... 1,274,781
151,900 Casella Waste Systems,
Inc. -- Class A(a)(c)...... 2,867,112
203,000 Waste Connections, Inc.(c)... 2,930,813
223,100 Waste Industries, Inc.(c).... 2,523,819
--------------
TOTAL ENVIRONMENTAL
MANAGEMENT SERVICES.......... 12,022,783
--------------
EQUIPMENT RENTAL AND LEASING -- 1.08%
142,800 Aaron Rents, Inc. -- Class
B.......................... 2,534,700
140,000 Amplicon, Inc. .............. 1,522,500
145,000 Electro Rent Corp.(c)........ 1,685,625
177,900 Rent-A-Center, Inc.(a)(c).... 3,524,644
79,000 XTRA Corp.(c)................ 3,367,375
--------------
TOTAL EQUIPMENT RENTAL AND
LEASING...................... 12,634,844
--------------
FINANCE -- 2.07%
320,490 Allied Capital Corp. ........ 5,868,973
145,900 Cash American Investments,
Inc. ...................... 1,422,525
128,160 CCB Financial Corp. ......... 5,582,970
51,500 Creditrust Corp.(a)(c)....... 395,906
127,340 Metris Companies, Inc. ...... 4,544,446
114,100 NCO Group, Inc.(c)........... 3,437,263
90,000 Washington Mutual, Inc. ..... 2,340,000
48,800 Web Street, Inc.(c).......... 603,900
--------------
TOTAL FINANCE................ 24,195,983
--------------
FOOD AND BEVERAGE -- 2.64%
110,000 Applebees International,
Inc. ...................... 3,245,000
157,500 Benihana, Inc.(c)............ 2,273,906
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
FOOD AND BEVERAGE (CONTINUED)
82,000 CEC Entertainment, Inc.(c)... $ 2,326,750
132,300 Garden Fresh Restaurant
Corp.(c)................... 2,265,637
138,000 Morrison Management
Specialists, Inc. ......... 2,975,625
131,700 Outback Steakhouse,
Inc.(c).................... 3,415,969
59,200 P.F. Chang's China Bistro,
Inc.(c).................... 1,472,600
159,300 RARE Hospitality
International, Inc.(c)..... 3,447,348
476,600 Ruby Tuesday, Inc. .......... 8,668,163
90,800 Sylvan, Inc.(c).............. 771,800
--------------
TOTAL FOOD AND BEVERAGE...... 30,862,798
--------------
INDUSTRIAL AUTOMATION -- 0.46%
58,800 Brooks Automation, Inc.(c)... 1,914,675
52,400 PRI Automation, Inc.(a)(c)... 3,517,350
--------------
TOTAL INDUSTRIAL
AUTOMATION................... 5,432,025
--------------
INSURANCE -- 0.75%
103,300 Annuity and Life Re
(Holdings), Ltd. .......... 2,698,712
38,600 National Western Life
Insurance -- Class A(c).... 2,648,925
149,400 Penn-America Group, Inc. .... 1,157,850
141,600 Penn Treaty American
Corp.(a)(c)................ 2,230,200
--------------
TOTAL INSURANCE.............. 8,735,687
--------------
LEISURE AND
RECREATION -- 0.78%
173,000 American Coin
Merchandising(c)........... 475,750
108,000 Bally Total Fitness
Holdings(a)(c)............. 2,882,250
83,700 Isle of Capri Casinos,
Inc.(c).................... 1,103,794
232,000 Mandalay Resort
Group(a)(c)................ 4,669,000
--------------
TOTAL LEISURE AND
RECREATION................... 9,130,794
--------------
MACHINERY -- 1.14%
101,400 Asyst Technologies,
Inc.(c).................... 6,648,037
207,600 JLG Industries, Inc. ........ 3,308,625
100,000 Kennametal, Inc. ............ 3,362,500
--------------
TOTAL MACHINERY.............. 13,319,162
--------------
</TABLE>
See notes to financial statements.
F-58
<PAGE> 147
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
MAINTENANCE AND SERVICE -- 0.51%
266,600 Group Maintenance America
Corp.(c)................... $ 2,849,287
123,550 The Shaw Group, Inc.(c)...... 3,127,359
--------------
TOTAL MAINTENANCE AND
SERVICE...................... 5,976,646
--------------
MANUFACTURING -- 4.49%
300,900 Alpha Industries, Inc.(c).... 17,245,331
381,800 C&D Technology, Inc. ........ 16,226,500
85,000 E-Tek Dynamics, Inc.(c)...... 11,443,125
139,800 Lydall, Inc.(c).............. 926,175
151,800 Motorcar Parts and
Accessories, Inc.(c)....... 170,775
157,600 Rock of Ages Corp.(c)........ 719,050
140,600 Trex Company, Inc.(c)........ 3,761,050
177,075 Watsco, Inc. ................ 2,047,430
--------------
TOTAL MANUFACTURING.......... 52,539,436
--------------
MEDIA -- 3.15%
185,000 Cumulus Media, Inc. -- Class
A(c)....................... 9,388,750
614,400 Granite Broadcasting
Corp.(c)................... 6,220,800
126,450 Gray Communications Systems,
Inc. -- Class B............ 1,707,075
171,000 Houghton Mifflin Company..... 7,214,063
35,500 Liberty Digital, Inc. --
Class A(c)................. 2,635,875
126,500 NBC Internet, Inc. -- Class
A(c)....................... 9,772,125
--------------
TOTAL MEDIA.................. 36,938,688
--------------
MEDICAL AND OTHER HEALTH SERVICES -- 4.64%
229,400 American Retirement
Corp.(a)(c)................ 1,820,862
170,800 Brookdale Living Communities,
Inc.(c).................... 2,113,650
231,500 Caredata.com, Inc.(c)........ 1,533,687
267,000 Centennial Healthcare
Corp.(c)................... 801,000
99,600 drkoop.com, Inc.(a)(c)....... 1,182,750
25,916 Healtheon/WebMD
Corp.(a)(c)................ 971,850
168,800 Horizon Health Corp.(c)...... 1,202,700
99,500 Lifeline Systems, Inc.(c).... 1,492,500
106,600 National Dentex Corp.(c)..... 1,785,550
284,500 Orthalliance, Inc. -- Class
A(a)(c).................... 1,778,125
285,000 Owens & Minor Holding
Company.................... 2,547,188
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
MEDICAL AND OTHER HEALTH SERVICES (CONTINUED)
255,700 Prime Medical Service,
Inc.(c).................... $ 2,333,263
96,800 Province Healthcare
Company(c)................. 1,839,200
585,600 Quorum Health Group,
Inc.(c).................... 5,453,400
481,600 Res-Care, Inc.(a)(c)......... 6,140,400
157,100 Rural/Metro Corp.(c)......... 672,592
226,400 Shared Medical Systems
Corp. ..................... 11,532,250
254,000 Universal Health Services --
Class B(c)................. 9,144,000
--------------
TOTAL MEDICAL AND OTHER
HEALTH SERVICES.............. 54,344,967
--------------
MEDICAL EQUIPMENT AND SUPPLIES -- 1.31%
31,400 ArthroCare Corp.(c).......... 1,915,400
107,400 Candela Corp.(a)(c).......... 2,000,325
121,200 Closure Medical
Corp.(a)(c)................ 1,560,450
65,600 Cytyc Corp.(a)(c)............ 4,005,700
112,200 Molecular Devices Corp.(c)... 5,834,400
--------------
TOTAL MEDICAL EQUIPMENT AND
SUPPLIES..................... 15,316,275
--------------
METALS AND MINING -- 0.09%
78,600 Wolverine Tube, Inc.(c)...... 1,110,225
--------------
OIL AND GAS -- 2.54%
221,800 Berry Petroleum.............. 3,354,725
71,600 Devon Energy Corp. .......... 2,353,850
360,000 Marine Drilling Companies,
Inc.(c).................... 8,077,500
200,000 Pride International,
Inc.(c).................... 2,925,000
330,000 Rowan Companies, Inc.(c)..... 7,156,875
216,700 Tosco Corp. ................. 5,891,531
--------------
TOTAL OIL AND GAS............ 29,759,481
--------------
PHARMACEUTICALS -- 2.25%
52,700 Alkermes, Inc.(c)............ 2,588,888
57,900 Celgene Corp.(a)(c).......... 4,053,000
207,100 Duane Reade, Inc.(a)(c)...... 5,708,194
135,600 Jones Pharma, Inc. .......... 5,890,125
125,900 Medicis Pharmaceutical
Corp. -- Class A(c)........ 5,358,619
214,300 Natrol, Inc.(c).............. 1,500,100
71,400 Noven Pharmaceuticals,
Inc.(c).................... 1,294,125
--------------
TOTAL PHARMACEUTICALS........ 26,393,051
--------------
</TABLE>
See notes to financial statements.
F-59
<PAGE> 148
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS -- 1.24%
22,200 Alexandria Real Estate
Equities, Inc. ............ $ 706,238
108,569 Chateau Communities, Inc. ... 2,816,008
232,100 Equity Inns, Inc. ........... 1,566,675
77,700 Health Care Property
Investments, Inc. ......... 1,855,088
61,600 National Health Investors,
Inc. ...................... 916,300
129,400 Pacific Gulf Properties,
Inc. ...................... 2,620,350
97,900 Sovran Self Storage, Inc. ... 1,853,981
69,200 Sun Communities, Inc. ....... 2,227,375
--------------
TOTAL REAL ESTATE INVESTMENT
TRUSTS....................... 14,562,015
--------------
RESEARCH AND DEVELOPMENT -- 0.74%
104,900 Albany Molecular Research,
Inc.(c).................... 3,199,450
30,300 CuraGen Corp.(c)............. 2,113,425
223,000 Kendle International,
Inc.(c).................... 2,202,125
102,000 PAREXEL International
Corp.(c)................... 1,204,875
--------------
TOTAL RESEARCH AND
DEVELOPMENT.................. 8,719,875
--------------
RETAIL -- 2.79%
176,300 Blue Rhino Corp.(a)(c)....... 1,718,925
353,850 Consolidated Stores
Corp.(c)................... 5,750,063
50,925 Cost Plus, Inc.(c)........... 1,814,203
184,200 Duckwall-Alco Stores,
Inc.(c).................... 1,404,525
187,100 Fred's, Inc. ................ 2,981,906
98,600 Hibbet Sporting Goods,
Inc.(c).................... 1,676,200
196,400 Hot Topic, Inc.(a)(c)........ 4,566,300
108,300 Michael Anthony Jewelers,
Inc.(c).................... 318,131
164,900 Regis Corp. ................. 3,112,488
31,200 SCP Pool Corp.(c)............ 809,250
134,400 Shop At Home, Inc.(c)........ 1,335,600
145,500 The Men's Wearhouse,
Inc.(c).................... 4,274,063
66,600 Tweeter Home Entertainment
Group, Inc.(c)............. 2,364,300
208,100 U.S. Vision, Inc.(c)......... 533,256
--------------
TOTAL RETAIL................. 32,659,210
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
SECURITY -- 0.62%
128,000 Burns International Services
Corp.(c)................... $ 1,384,000
265,500 Pittston Brink's Group....... 5,841,000
--------------
TOTAL SECURITY............... 7,225,000
--------------
SEMICONDUCTORS -- 8.30%
67,800 American Xtal Technology,
Inc.(a)(c)................. 1,182,262
137,500 ATMI, Inc.(c)................ 4,546,094
69,700 Credence Systems Corp.(c).... 6,029,050
234,600 Cree Research, Inc.(a)(c).... 20,028,975
116,000 DuPont Photomasks, Inc.(c)... 5,597,000
230,000 Fairchild Semiconductor
Corp. -- Class A(c)........ 6,842,500
347,200 Integrated Device Technology,
Inc.(c).................... 10,068,800
85,000 National Semiconductor
Corp.(c)................... 3,639,063
300,000 PLX Technology, Inc.(c)...... 5,681,250
60,400 Qlogic Corp.(c).............. 9,656,450
105,000 TranSwitch Corp.(c).......... 7,619,063
62,000 TriQuint Semiconductor,
Inc.(c).................... 6,897,500
275,000 Varian Semiconductor
Equipment Associates,
Inc.(c).................... 9,350,000
--------------
TOTAL SEMICONDUCTORS......... 97,138,007
--------------
TELECOMMUNICATIONS -- 6.04%
119,600 Adaptive Broadband
Corp.(c)................... 8,827,975
94,400 CFW Communications Company... 3,280,400
176,700 Classic Communications,
Inc. -- Class A(a)(c)...... 6,460,594
234,100 Comdial Corp.(a)(c).......... 2,326,369
238,727 Davel Communications Group... 1,133,953
270,000 ICG Communications,
Inc.(c).................... 5,062,500
153,800 Leap Wireless International,
Inc.(c).................... 12,073,300
253,190 Metrocall, Inc.(c)........... 427,258
172,200 Metro One Telecommunications,
Inc.(c).................... 2,238,600
249,900 P-Com, Inc.(a)(c)............ 2,210,066
154,930 Price Communications
Corp.(c)................... 4,308,991
35,600 Primus Telecommunications
Group, Inc.(c)............. 1,361,700
</TABLE>
See notes to financial statements.
F-60
<PAGE> 149
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
93,600 Rural Cellular Corp. -- Class
A(c)....................... $ 8,470,800
79,500 SeaChange International,
Inc.(c).................... 2,812,313
61,800 Somera Communications,
Inc.(c).................... 768,638
135,000 Western Wireless Corp. --
Class A(c)................. 9,011,250
--------------
TOTAL TELECOMMUNICATIONS..... 70,774,707
--------------
TRANSPORT SERVICES -- 0.44%
105,200 Monaco Coach Corp.(c)........ 2,689,175
49,350 Oshkosh Truck Corp. ......... 1,446,572
4,000 Petroleum Helicopters, Inc.
(Voting)................... 37,000
96,200 Petroleum Helicopters, Inc.
(Non-Voting)............... 937,950
--------------
TOTAL TRANSPORT SERVICES..... 5,110,697
--------------
TRANSPORTATION: FREIGHT -- 3.12%
204,900 Air Express International
Corp. ..................... 6,620,831
430,000 Airborne Freight Corp. ...... 9,460,000
296,300 Circle International Group,
Inc. ...................... 6,592,675
148,700 CNF Transportation, Inc. .... 5,130,150
76,000 Forward Air Corp.(c)......... 3,296,500
115,474 Fritz Companies, Inc.(c)..... 1,212,477
238,300 Pittston BAX Group........... 2,531,938
65,000 Sea Containers Ltd.(a)....... 1,730,625
--------------
TOTAL TRANSPORTATION:
FREIGHT...................... 36,575,196
--------------
UTILITIES: ELECTRIC -- 0.71%
850,000 El Paso Electric
Company(c)................. 8,340,625
--------------
TOTAL COMMON STOCK
(Cost $851,817,359).......... 1,100,762,692
--------------
REGULATED INVESTMENT COMPANIES -- 1.61%
5,677,316 Janus Money Market Fund(b)... 5,677,316
13,207,608 Merrimac Cash Fund -- Premium
Class(b)................... 13,207,608
--------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost
$18,884,924)................. 18,884,924
--------------
<CAPTION>
PRINCIPAL
---------
<C> <S> <C>
CERTIFICATES OF
DEPOSIT -- 1.16%
$ 2,014,753 American Express Centurion
Bank, 6.15%, 01/26/00(b)... 2,014,753
3,193,490 Den Danske Bank, 6.39%,
01/20/00(b)................ 3,193,490
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
CERTIFICATES OF DEPOSIT (CONTINUED)
$ 3,193,490 Den Danske Bank, 6.41%,
01/27/00(b)................ $ 3,193,490
2,014,753 Royal Bank of Scotland,
6.15%, 01/20/00(b)......... 2,014,753
3,193,490 Royal Bank of Scotland,
6.31%, 01/27/00(b)......... 3,193,490
--------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $13,609,976)........... 13,609,976
--------------
TIME DEPOSITS -- 1.18%
13,761,867 BankBoston, N.A., 4.68%,
01/03/00(b) (Cost
$13,761,867)............... 13,761,867
--------------
SHORT TERM CORPORATE NOTES -- 5.89%
6,000,000 Bank of Montreal, Floating
Rate, 4.33%(++),
04/05/00(b)................ 6,000,000
10,000,000 First Union National Bank,
Floating Rate, 4.765%(++),
05/01/00(b)................ 10,000,000
7,000,000 JP Morgan Securities, Inc.,
Floating Rate, 4.605%(++),
07/07/00(b)................ 7,000,000
18,000,000 Morgan Stanley Dean Witter &
Company, Floating Rate,
4.60%(++), 01/11/00(b)..... 18,000,000
28,000,000 Prudential Securities, Inc.,
Floating Rate, 4.85%(++),
03/10/00(b)................ 28,000,000
--------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $69,000,000)..... 69,000,000
--------------
TOTAL SECURITIES
(Cost $967,074,126).......... 1,216,019,459
--------------
REPURCHASE AGREEMENTS -- 5.51%
21,761,202 With Investors Bank & Trust
dated 12/31/99, 3.06%, due
01/03/00, repurchase
proceeds at maturity,
$21,766,751 (Collateralized
by Freddie Mac, 7.70%, due
03/15/24, with a value of
$8,422,979, and Ginnie Mae,
Adjustable Rate Mortgage,
6.375%, due 04/20/22, with
a value of $14,428,376)
(Cost $21,761,202)......... 21,761,202
</TABLE>
See notes to financial statements.
F-61
<PAGE> 150
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
REPURCHASE AGREEMENTS (CONTINUED)
$ 9,935,394 With Investors Bank & Trust,
dated 12/31/99, 3.06%, due
01/03/00, repurchase
proceeds at maturity,
$9,937,927 (Collateralized
by Fannie Mae, 7.00%, due
04/01/09, with a value of
$4,323,381, and Student
Loan Marketing Association,
5.685%, due 10/25/05, with
a value of $6,108,855)
(Cost $9,935,394).......... $ 9,935,394
22,745,452 With Investors Bank & Trust,
dated 12/31/99, 3.06%, due
01/03/00, repurchase
proceeds at maturity
$22,751,252 (Collateralized
by Ginnie Mae, Adjustable
Rate Mortgage, 6.375% , due
01/20/24, with a value of
$17,640,747, and Small
Business Administration
Loan, 6.125%, due 03/25/24,
with a value of $6,241,978)
(Cost $22,745,452)......... 22,745,452
10,028,630 With Investors Bank & Trust,
dated 12/31/99, 3.06%, due
01/03/00, repurchase
proceeds at maturity
$10,031,187 (Collateralized
by various Small Business
Administration Loans,
8.125% - 8.375%, due
11/25/10 to 02/25/24, with
a total value of
$10,530,062) (Cost
$10,028,630)............... 10,028,630
--------------
TOTAL REPURCHASE AGREEMENTS
(Cost $64,470,678)........... 64,470,678
--------------
Total Investments -- 109.35%
(Cost $1,031,544,804)........ 1,280,490,137
Liabilities less other
assets -- (9.35)%............ (109,455,856)
--------------
NET ASSETS -- 100.00%........ $1,171,034,281
==============
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of securities for federal
income tax purposes at December 31, 1999,
is $1,036,760,410. The following amount is
based on cost for federal income tax
purposes:
Gross unrealized appreciation.......... $330,649,712
Gross unrealized depreciation.......... (86,919,985)
------------
Net unrealized appreciation............ $243,729,727
============
</TABLE>
- ---------------
(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, 1999.
See notes to financial statements.
F-62
<PAGE> 151
AGGRESSIVE EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK -- 100.52%
ACCOUNTING SERVICES -- 1.53%
150,000 Profit Recovery Group
International, Inc.(c)....... $ 3,984,375
------------
ADVERTISING -- 1.95%
88,000 Interpublic Group of Companies,
Inc. ........................ 5,076,500
------------
BANKS -- 1.56%
100,000 Wells Fargo Company............ 4,043,750
------------
COMMUNICATIONS EQUIPMENT -- 6.89%
60,000 Harmonic, Inc.(c).............. 5,696,250
70,000 Powerwave Technologies,
Inc.(c)...................... 4,086,250
46,200 QUALCOMM, Inc.(c).............. 8,136,975
------------
TOTAL COMMUNICATIONS
EQUIPMENT...................... 17,919,475
------------
COMPUTERS AND OFFICE EQUIPMENT -- 2.41%
80,920 Sun Microsystems, Inc.(c)...... 6,266,243
------------
COMPUTER SOFTWARE AND SERVICES -- 15.15%
31,500 America Online, Inc.(c)........ 2,376,281
62,000 Cisco Systems, Inc.(c)......... 6,641,750
11,000 Check Point Software
Technologies Ltd.(a)(c)...... 2,186,250
80,000 Entrust Technologies,
Inc.(c)...................... 4,795,000
41,000 Exodus Communications,
Inc.(c)...................... 3,641,313
28,500 Microsoft Corp.(c)............. 3,327,375
62,000 Siebel Systems, Inc.(c)........ 5,208,000
100,000 Synopsys, Inc.(c).............. 6,675,000
10,500 Yahoo!, Inc.(a)(c)............. 4,543,219
------------
TOTAL COMPUTER SOFTWARE AND
SERVICES....................... 39,394,188
------------
CONSUMER GOODS AND SERVICES -- 4.81%
51,500 General Electric Company....... 7,969,625
41,500 Procter & Gamble Company....... 4,546,844
------------
TOTAL CONSUMER GOODS AND
SERVICES....................... 12,516,469
------------
ELECTRONICS -- 4.33%
25,000 Oak Industries, Inc.(c)........ 2,653,125
46,500 Sanmina Corp. (a)(c)........... 4,644,188
41,500 Solectron Corp.(c)............. 3,947,687
------------
TOTAL ELECTRONICS.............. 11,245,000
------------
FINANCIAL SERVICES -- 1.69%
26,500 American Express Company....... 4,405,625
------------
INSURANCE -- 1.73%
41,500 American International Group... 4,487,188
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
MANUFACTURING -- 4.18%
36,000 Corning, Inc. ................. $ 4,641,750
21,000 Optical Coating Laboratory,
Inc. ........................ 6,216,000
------------
TOTAL MANUFACTURING............ 10,857,750
------------
MEDIA -- 8.46%
40,000 AMFM, Inc.(c).................. 3,130,000
150,000 AT & T Corp.-Liberty Media
Group -- Class A(a)(c)....... 8,512,500
51,500 Clear Channel
Communications(c)............ 4,596,375
114,000 Comcast Corp. -- Class A
(Special).................... 5,764,125
------------
TOTAL MEDIA.................... 22,003,000
------------
MEDICAL AND OTHER HEALTH SERVICES -- 2.34%
95,000 MedQuist, Inc.(c).............. 2,452,187
77,500 Medtronic, Inc. ............... 2,823,906
15,700 VISX, Inc.(c).................. 812,475
------------
TOTAL MEDICAL AND OTHER HEALTH
SERVICES....................... 6,088,568
------------
MEDICAL EQUIPMENT AND SUPPLIES -- 1.88%
80,000 ArthroCare Corp.(c)............ 4,880,000
------------
PHARMACEUTICALS -- 9.27%
36,000 Bristol-Myers Squibb Company... 2,310,750
26,000 Johnson & Johnson.............. 2,421,250
77,500 Jones Pharma, Inc. ............ 3,366,406
100,000 King Pharmaceuticals, Inc.
(a)(c)....................... 5,606,250
20,000 MedImmune, Inc.(c)............. 3,317,500
114,000 Pfizer, Inc. .................. 3,697,875
41,225 Warner-Lambert Company......... 3,377,873
------------
TOTAL PHARMACEUTICALS.......... 24,097,904
------------
RESTAURANTS -- 0.64%
41,500 McDonald's Corp. .............. 1,672,969
------------
RETAIL -- 5.26%
51,500 Costco Wholesale Corp.(c)...... 4,699,375
50,000 Dayton-Hudson Corp. ........... 3,671,875
77,250 Home Depot, Inc. .............. 5,296,453
------------
TOTAL RETAIL................... 13,667,703
------------
SCIENTIFIC EQUIPMENT -- 0.87%
100,000 Varian, Inc.(c)................ 2,250,000
------------
SEMICONDUCTORS -- 11.09%
103,500 Amkor Technology, Inc.(c)...... 2,923,875
31,000 Applied Materials, Inc.(c)..... 3,927,312
16,000 Broadcom Corp. -- Class A
(c).......................... 4,358,000
</TABLE>
See notes to financial statements.
F-63
<PAGE> 152
AGGRESSIVE EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
SEMICONDUCTORS (CONTINUED)
103,500 Conexant Systems, Inc.(a)(c)... $ 6,869,812
180,000 LTX Corp.(c)................... 4,027,500
42,000 QLogic Corp.(c)................ 6,714,750
------------
TOTAL SEMICONDUCTORS........... 28,821,249
------------
TELECOMMUNICATIONS -- 12.39%
61,000 Carrier Access Corp.(a)(c)..... 4,106,063
54,000 MCI Worldcom, Inc.(c).......... 2,865,375
84,325 Polycom, Inc.(c)............... 5,370,448
46,500 Tellabs, Inc.(c)............... 2,984,719
60,000 VoiceStream Wireless
Corp.(a)(c).................. 8,538,750
125,000 Western Wireless Corp. -- Class
A(c)......................... 8,343,750
------------
TOTAL TELECOMMUNICATIONS....... 32,209,105
------------
UTILITIES -- 2.09%
85,000 Calpine Corp.(c)............... 5,440,000
------------
TOTAL COMMON STOCK
(Cost $174,109,459)............ 261,327,061
------------
REGULATED INVESTMENT COMPANY -- 0.00%
3,455 Janus Money Market Fund(b)
(Cost $3,455)................ 3,455
------------
<CAPTION>
PRINCIPAL
---------
<C> <S> <C>
CERTIFICATES OF DEPOSIT -- 1.69%
$ 500,866 American Express Centurion
Bank, 6.15%, 01/26/00(b)..... 500,866
1,126,944 Den Danske Bank, 6.39%,
01/20/00(b).................. 1,126,944
1,126,944 Den Danske Bank, 6.41%,
01/27/00(b).................. 1,126,944
500,865 Royal Bank Of Scotland, 6.15%,
01/20/00(b).................. 500,865
1,126,944 Royal Bank Of Scotland, 6.31%,
01/27/00(b).................. 1,126,944
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $4,382,563).............. 4,382,563
------------
TIME DEPOSIT -- 0.30%
786,682 BankBoston, N.A., 4.68%,
01/03/00(b) (Cost
$786,682).................... 786,682
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
SHORT TERM CORPORATE NOTES -- 13.66%
$ 3,000,000 Bank of Montreal, Floating
Rate, 4.33%(++),
04/05/00(b).................. $ 3,000,000
2,000,000 First Union National Bank,
Floating Rate, 4.765%(++),
05/01/00(b).................. 2,000,000
11,500,000 JP Morgan Securities, Inc.,
Floating Rate, 4.605%(++),
07/07/00(b).................. 11,500,000
9,000,000 Morgan Stanley Dean Witter &
Company, Floating Rate,
4.60%(++), 01/11/00(b)....... 9,000,000
10,000,000 Prudential Securities, Inc.,
Floating Rate, 4.85%(++),
03/10/00(b).................. 10,000,000
------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $35,500,000)....... 35,500,000
------------
Total Investments -- 116.17%
(Cost $214,782,159)............ $301,999,761
Liabilities less other
assets -- (16.17%)............. (42,025,339)
------------
NET ASSETS -- 100.00%.......... $259,974,422
============
The aggregate cost of securities for federal income tax
purposes at December 31, 1999 is $214,903,431.
The following amount is based on cost for federal income
tax purposes:
Gross unrealized appreciation............ $ 91,065,180
Gross unrealized depreciation............ (3,968,850)
------------
Net unrealized appreciation.............. $ 87,096,330
============
</TABLE>
- ---------------
(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, 1999.
See notes to financial statements.
F-64
<PAGE> 153
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- --------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 95.70%
AEROSPACE -- 2.95%
$2,000,000 BE Aerospace, 8.00%, 03/01/08... $ 1,740,000
1,375,000 BE Aerospace, 9.50%, 11/01/08... 1,292,500
1,200,000 Compass Aerospace, 10.125%,
04/15/05...................... 660,000
------------
TOTAL AEROSPACE................. 3,692,500
------------
AUTOMOTIVE PARTS AND EQUIPMENT -- 1.38%
1,900,000 Accuride Corp., 9.25%,
02/01/08...................... 1,729,000
------------
AUTOMOTIVE RENTAL -- 3.24%
1,650,000 Avis Rent A Car, Inc., 11.00%,
05/01/09...................... 1,732,500
1,300,000 Budget Group, Inc., 9.125%,
04/01/06...................... 1,209,000
1,150,000 United Rentals, Inc., 9.25%,
01/15/09...................... 1,104,000
------------
TOTAL AUTOMOTIVE RENTAL......... 4,045,500
------------
BROADCASTING -- 2.87%
1,500,000 Echostar DBS Corp., 9.25%,
02/01/06...................... 1,507,500
2,100,000 Sinclair Broadcast Group,
10.00%, 09/30/05.............. 2,079,000
------------
TOTAL BROADCASTING.............. 3,586,500
------------
BUILDING PRODUCTS -- 0.84%
1,100,000 American Standard, Inc., 8.25%,
06/01/09...................... 1,054,625
------------
BUSINESS SERVICES -- 2.00%
1,600,000 Fisher Scientific International,
9.00%, 02/01/08............... 1,534,000
1,000,000 Fisher Scientific
International -- 144A, 9.00%,
02/01/08...................... 958,750
------------
TOTAL BUSINESS SERVICES......... 2,492,750
------------
CHEMICALS -- 4.56%
1,175,000 General Chemical Industrial
Products, 10.625%, 05/01/09... 1,163,250
1,150,000 Lyondell Chemical Company --
144A, 9.625%, 05/01/07........ 1,175,875
1,300,000 Octel Developments, PLC, 10.00%,
05/01/06...................... 1,287,000
2,000,000 ZSC Speciality Chemical PLC --
144A, 11.00%, 07/01/09........ 2,075,000
------------
TOTAL CHEMICALS................. 5,701,125
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- --------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
COMMERCIAL SERVICES -- 2.57%
$2,200,000 Mail-Well Corp., 8.75%,
12/15/08...................... $ 2,090,000
1,225,000 Pierce Leahy Command Company,
8.125%, 05/15/08.............. 1,120,875
------------
TOTAL COMMERCIAL SERVICES....... 3,210,875
------------
COMPUTER SOFTWARE AND SERVICES -- 2.13%
1,400,000 Psinet, Inc., 10.50%,
12/01/06...................... 1,410,500
1,300,000 Unisys Corp., 7.875%,
04/01/08...................... 1,254,500
------------
TOTAL COMPUTER SOFTWARE AND
SERVICES........................ 2,665,000
------------
CONSTRUCTION -- 5.07%
1,400,000 D.R. Horton, Inc., 8.375%,
06/15/04...................... 1,356,250
1,850,000 Kaufman and Broad Home Corp.,
7.75%, 10/15/04............... 1,739,000
1,700,000 Nortek, Inc., 8.875%,
08/01/08...................... 1,615,000
1,750,000 Toll Corp., 8.125%, 02/01/09.... 1,627,500
------------
TOTAL CONSTRUCTION.............. 6,337,750
------------
CONSUMER GOODS AND SERVICES -- 2.82%
1,800,000 Huntsman Packaging Corp.,
9.125%, 10/01/07.............. 1,782,000
1,800,000 Scotts Company -- 144A, 8.625%,
01/15/09...................... 1,746,000
------------
TOTAL CONSUMER GOODS AND
SERVICES........................ 3,528,000
------------
ENVIRONMENTAL MANAGEMENT SERVICES -- 1.59%
2,250,000 Allied Waste North America
Industries, Inc., 7.875%,
01/01/09...................... 1,988,438
------------
FINANCE -- 1.15%
1,500,000 Williams Scotsman, Inc., 9.875%,
06/01/07...................... 1,440,000
------------
FOOD AND BEVERAGE -- 3.05%
2,600,000 Canandaigua Brands, Inc., 8.50%,
03/01/09...................... 2,489,500
1,250,000 Chiquita Brands International,
Inc., 10.00%, 06/15/09........ 903,125
100,000 Cott Corp., 9.375%, 07/01/05.... 98,500
325,000 Delta Beverage Group, 9.75%,
12/15/03...................... 325,000
------------
TOTAL FOOD AND BEVERAGE......... 3,816,125
------------
</TABLE>
See notes to financial statements.
F-65
<PAGE> 154
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- --------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
INDUSTRIAL -- 12.34%
$1,000,000 AK Steel Corp., 9.125%,
12/15/06...................... $ 1,017,500
1,000,000 American Pacific Corp., 9.25%,
03/01/05...................... 1,005,000
1,300,000 Atlas Air, Inc. -- 144A, 9.375%,
11/15/06...................... 1,254,500
1,800,000 Building Materials Corp., 8.00%,
12/01/08...................... 1,629,000
450,000 Burke Industries, Inc., 10.00%,
08/15/07...................... 184,500
2,000,000 Carrols Corp., 9.50%,
12/01/08...................... 1,820,000
1,075,000 Classic Cable, Inc., 9.375%,
08/01/09...................... 1,056,187
1,125,000 Geologistics Corp., 9.75%,
10/15/07...................... 337,500
1,975,000 HMH Properties, 7.875%,
08/01/08...................... 1,760,219
1,850,000 Muzak LLC, 9.875%, 03/15/09..... 1,776,000
920,000 P&L Coal Holdings Corp., 8.875%,
05/15/08...................... 899,300
625,000 Pronet, Inc., 11.875%,
06/15/05...................... 425,000
1,100,000 Republic Group, Inc., 9.50%,
07/15/08...................... 1,034,000
1,300,000 Wesco Distribution, Inc.,
9.125%, 06/01/08.............. 1,222,000
------------
TOTAL INDUSTRIAL................ 15,420,706
------------
LEISURE AND RECREATION -- 8.63%
2,000,000 Bally Total Fitness Holding,
9.875%, 10/15/07.............. 1,940,000
2,025,000 Cinemark USA, 9.625%, 08/01/08.. 1,822,500
1,600,000 Harrahs Operating Company, Inc.,
7.875%, 12/15/05.............. 1,546,000
1,100,000 Mohegan Tribal Gaming, 8.75%,
01/01/09...................... 1,083,500
1,800,000 Park Place Entertainment Corp.,
7.875%, 12/15/05.............. 1,723,500
150,000 Riddell Sports, Inc., 10.50%,
07/15/07...................... 129,750
1,200,000 Six Flags Entertainment, 8.875%,
04/01/06...................... 1,171,500
1,400,000 Town Sports International,
9.75%, 10/15/04............... 1,365,000
------------
TOTAL LEISURE AND RECREATION.... 10,781,750
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- --------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
MACHINERY -- 2.94%
$1,975,000 Advanced Lighting Technologies,
Inc. -- 144A, 8.00%,
03/15/08...................... $ 1,678,750
2,000,000 National Equipment Services,
10.00%, 11/30/04.............. 2,000,000
------------
TOTAL MACHINERY................. 3,678,750
------------
MANAGEMENT SERVICES -- 1.13%
1,550,000 Iron Mountain, Inc., 8.25%,
07/01/11...................... 1,406,625
------------
MANUFACTURING -- 7.19%
2,100,000 AEP Industries, 9.875%,
11/15/07...................... 2,021,250
1,550,000 Consumers Packaging, Inc. --
144A, 9.75%, 02/01/07......... 1,085,000
625,000 Dyersburg Corp., 9.75%,
09/01/07...................... 250,000
700,000 Fedders North America, 9.375%,
8/15/07....................... 686,000
2,575,000 Federal-Mogul Corp., 7.50%,
01/15/09...................... 2,293,712
1,600,000 Mark IV Industries, Inc., 7.75%,
04/01/06...................... 1,496,240
1,150,000 Portola Packaging, 10.75%,
10/01/05...................... 1,150,000
------------
TOTAL MANUFACTURING............. 8,982,202
------------
MEDICAL AND OTHER HEALTH SERVICES -- 1.93%
2,500,000 Tenet Healthcare Corp., 8.625%,
01/15/07...................... 2,412,500
------------
METALS AND MINING -- 0.64%
800,000 Kaiser Aluminum and Chemicals,
10.875%, 10/15/06............. 802,000
------------
OIL AND GAS -- 3.46%
2,000,000 Gulf Canada Resources Ltd.,
9.25%, 01/15/04............... 2,020,000
2,375,000 Plains Resources, Inc., 10.25%,
03/15/06...................... 2,303,750
------------
TOTAL OIL AND GAS............... 4,323,750
------------
PAPER AND FOREST
PRODUCTS -- 0.55%
750,000 US Timberlands,
9.625%, 11/15/07.............. 692,812
------------
PUBLISHING -- 1.74%
2,175,000 American Media Operations, Inc.,
10.25%, 05/01/09.............. 2,180,438
------------
RETAIL -- 0.74%
1,000,000 Ameriking, Inc., 10.75%,
12/01/06...................... 920,000
------------
</TABLE>
See notes to financial statements.
F-66
<PAGE> 155
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- --------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
SPECIAL PURPOSE ENTITY -- 2.02%
$2,000,000 Caithness Coso Funding Corp.,
9.05%, 12/15/09............... $ 1,990,000
500,000 RBF Finance Company, 11.375%,
03/15/09...................... 535,000
------------
TOTAL SPECIAL PURPOSE ENTITY.... 2,525,000
------------
TELECOMMUNICATIONS -- 13.15%
1,300,000 Adelphia Communications Corp.,
9.375%, 11/15/09.............. 1,274,000
900,000 Call-Net Enterprises, Inc.,
9.375%, 05/15/09.............. 740,250
2,600,000 Charter Communications Holdings,
LLC, 8.625%, 04/01/09......... 2,401,750
1,900,000 Global Crossing Holding, LTD.,
9.625%, 05/15/08.............. 1,900,000
2,475,000 Intermedia Communications, Inc.,
9.50%, 03/01/09............... 2,363,625
2,000,000 Level 3 Communications, Inc.,
9.125%, 05/01/08.............. 1,885,000
1,650,000 McLeodUSA, Inc. 8.125%,
02/15/09...................... 1,538,625
2,000,000 Nextel Communications, 9.375%,
11/15/09...................... 1,960,000
700,000 Nextlink Communications, 9.625%,
10/01/07...................... 682,500
550,000 Nextlink Communications, 10.50%,
12/01/09...................... 558,250
500,000 Rural Cellular Corp., 9.625%,
05/15/08...................... 511,250
600,000 Voicestream Wireless Corp.,
10.375%, 11/15/09............. 618,000
------------
TOTAL TELECOMMUNICATIONS........ 16,433,250
------------
TRANSPORTATION -- 1.15%
1,500,000 American Commercial Lines, LLC,
10.25%, 06/30/08.............. 1,440,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- --------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
UTILITIES: ELECTRIC -- 1.87%
$2,200,000 AES Corp., 10.25%, 07/15/06..... $ 2,233,000
100,000 Calpine Corp., 9.25%,
02/01/04...................... 100,750
------------
TOTAL UTILITIES: ELECTRIC....... 2,333,750
------------
TOTAL SECURITIES (Cost
$126,172,168)................... 119,621,721
------------
REPURCHASE AGREEMENT -- 1.96%
2,447,625 With Investors Bank & Trust,
dated 12/31/99, 3.06%, due
01/03/00, repurchase proceeds
at maturity $2,448,249
(Collateralized by Fannie Mae
Adjustable Rate Mortgage,
6.437%, due 01/01/20, with a
value of $2,570,021) (Cost
$2,447,625)................... 2,447,625
------------
Total Investments -- 97.66%
(Cost $128,619,793)............. 122,069,346
Other assets less liabilities --
2.34%........................... 2,921,062
------------
NET ASSETS -- 100.00%........... $124,990,408
============
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of securities for federal income tax
purposes at December 31, 1999, is $128,673,751.
The following amount is based on cost for federal income
tax purposes:
Gross unrealized appreciation.......... $ 322,158
Gross unrealized depreciation.......... (6,926,563)
------------
Net unrealized depreciation............ $ (6,604,405)
============
</TABLE>
See notes to financial statements.
F-67
<PAGE> 156
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS -- 97.63%
AUTOMOBILE -- 3.32%
70,200 Bayerische Motoren Werke
AG(a).................... $ 2,181,205 GER
18,000 DaimlerChrysler AG........ 1,389,190 GER
97,000 Fiat SpA.................. 1,395,151 ITA
43,000 Fiat SpA.................. 1,221,854 ITA
135,900 GKN PLC................... 2,135,546 UK
218,000 Mitsubishi Motors
Corp.(c)................. 743,315 JPN
337,000 Nissan Motor Company,
Ltd.(c).................. 1,323,567 JPN
21,800 Peugeot SA................ 4,925,025 FRA
193,000 Suzuki Motor Corp. ....... 2,811,412 JPN
20,444 Valeo SA.................. 1,569,615 FRA
------------
TOTAL AUTOMOBILE.......... 19,695,880
------------
BANKS -- 6.62%
121,234 ABN AMRO Holding N.V. .... 3,013,526 NET
26,000 Allied Irish Banks PLC.... 294,476 IRE
281,490 Australia & New Zealand
Bank Group, Ltd. ........ 2,041,000 AUS
52,000 Banco Bilbao Vizcaya SA... 736,970 SPA
35,000 Bank of Scotland.......... 405,583 UK
18,265 Banque National de Paris
(BNP).................... 1,676,924 FRA
65,000 Canadian Imperial Bank of
Commerce................. 1,543,750 CDA
36,666 Deutsche Bank AG.......... 3,077,476 GER
127,050 ForeningsSparbanken --
Class A.................. 1,858,970 SWE
176,000 Fuji Bank, Ltd.(a)........ 1,707,464 JPN
3,020 Holderbank Financial
Glaris -- Class B........ 4,112,868 SWI
40,352 ING Groep N.V. ........... 2,424,263 NET
746,000 Keppel Tatlee Bank,
Ltd. .................... 1,647,839 SIN
343,600 Lloyds TSB Group PLC...... 4,289,021 UK
50,246 Royal Bank of Scotland
Group PLC................ 889,178 UK
185,000 Svenska Handelsbanken
AB -- Class A............ 2,317,088 SWE
275,000 Toyo Trust & Banking Co.,
Ltd. .................... 1,128,435 JPN
714,960 Turkiye Is Bankasi
(Isbank) (GDR)........... 2,752,596 TUR
487,329 Westpac Banking Corp. .... 3,350,436 AUS
------------
TOTAL BANKS............... 39,267,863
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
CHEMICALS -- 1.08%
70,905 DSM NV.................... $ 2,828,514 NET
162,000 Mitsui Chemicals, Inc. ... 1,302,577 JPN
300 Norsk Hydro ASA (ADR)..... 12,825 NOR
53,400 Norsk Hydro ASA........... 2,232,430 NOR
------------
TOTAL CHEMICALS........... 6,376,346
------------
COMPUTER EQUIPMENT -- 1.04%
45,000 Fujitsu, Ltd. ............ 2,048,751 JPN
14,300 Nidec Corporation......... 4,121,439 JPN
------------
TOTAL COMPUTER
EQUIPMENT................. 6,170,190
------------
COMPUTER SOFTWARE AND SERVICES -- 0.37%
20,000 Meitec Corp. ............. 635,044 JPN
68,000 Newbridge Networks
Corp.(c)................. 1,534,250 CDA
------------
TOTAL COMPUTER SOFTWARE
AND SERVICES.............. 2,169,294
------------
CONSTRUCTION -- 2.49%
7,700 Bouygues SA............... 4,869,880 FRA
134,000 Okumura Corp. ............ 451,660 JPN
22,000 Rohm Company, Ltd. ....... 9,027,403 JPN
7,444 Sanitec Oyj(c)............ 96,995 FIN
37,000 Sekisui House, Ltd. ...... 327,147 JPN
------------
TOTAL CONSTRUCTION........ 14,773,085
------------
CONSUMER GOODS AND SERVICES -- 9.72%
7,900 Christian Dior SA......... 1,947,871 FRA
153,300 Cifra SA (ADR)(a)(c)...... 3,072,454 MEX
76,000 Hennes & Mauritz.......... 2,535,398 SWE
53,000 Kao Corp. ................ 1,509,403 JPN
268,000 Nikon Corp. .............. 7,855,000 JPN
29,700 Nintendo Corp., Ltd. ..... 4,927,028 JPN
125,344 Reckitt Benckiser PLC..... 1,172,706 UK
6,500 Sony Corp. (ADR).......... 1,850,875 JPN
76,700 Sony Corp. ............... 22,705,378 JPN
35,000 Sony Music Entertainment,
Inc. .................... 6,968,881 JPN
380,000 Storehouse PLC............ 284,772 UK
20,000 TDK Corp. ................ 2,757,070 JPN
------------
TOTAL CONSUMER GOODS AND
SERVICES.................. 57,586,836
------------
</TABLE>
See notes to financial statements.
F-68
<PAGE> 157
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONICS -- 12.58%
19,800 ASM Lithography Holding
N.V.(c).................. $ 2,188,965 NET
79,200 ASM Lithography Holding
N.V.(a)(c)............... 9,009,000 NET
400,000 Caradon PLC............... 999,240 UK
18,500 Epcos AG(c)............... 1,390,693 GER
31,000 FANUC, Ltd. .............. 3,940,305 JPN
231,000 Hitachi, Ltd. ............ 3,701,244 JPN
271,000 Johnson Electric Holdings,
Ltd. .................... 1,739,603 HNG
17,500 Keyence Corp. ............ 7,095,401 JPN
74,000 Murata Manufacturing
Company, Ltd. ........... 17,351,372 JPN
392,000 NEC Corp. ................ 9,325,562 JPN
51,599 Samsung Electronics
(GDR)(a)................. 6,154,409 KOR
6,200 STMicroelectronics
N.V.(c).................. 949,540 NET
65,600 STMicroelectronics N.V. --
New York Shares(a)(c).... 9,934,300 NET
13,000 Taiyo Yuden Company,
Ltd. .................... 769,674 JPN
------------
TOTAL ELECTRONICS......... 74,549,308
------------
ENGINEERING -- 0.06%
24,261 Chudenko Corp. ........... 368,105 JPN
------------
ENVIRONMENTAL MANAGEMENT SERVICES -- 0.00%
900 Kurita Water Industries... 14,280 JPN
------------
FINANCE -- 3.22%
8,600 AIFUL Corp. .............. 1,050,266 JPN
2,284 CIE Financial Richemont... 5,422,019 SWI
64,100 De Beers Consolidated
Mines, Ltd. (ADR)........ 1,854,894 SOA
3,600 Fairfax Financial
Holdings, Ltd.(c)........ 608,961 CDA
115,396 Lend Lease Corp., Ltd. ... 1,611,344 AUS
6,800 Nichiei Company, Ltd. .... 147,487 JPN
152,000 Nomura Securities Co.,
Ltd. .................... 2,739,876 JPN
12,400 Orix Corp. ............... 2,788,803 JPN
6,000 Shohkoh Fund & Company,
Ltd. .................... 2,371,159 JPN
181,000 Wako Securities Company,
Ltd.(a)(c)............... 479,216 JPN
------------
TOTAL FINANCE............. 19,074,025
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE -- 3.86%
71,000 Asahi Breweries, Ltd. .... $ 775,519 JPN
676,000 Cadbury Schweppes PLC..... 4,074,793 UK
464,753 Coca-Cola Amatil, Ltd. ... 1,265,058 AUS
216,988 Coca-Cola Beverages
PLC(c)................... 411,756 AUS
333,200 Coca-Cola Beverages
PLC(c)................... 633,680 AUS
7,500 Groupe Danone............. 1,759,038 FRA
77,175 Heineken N.V. ............ 3,745,411 NET
30,000 Heineken N.V. -- Class
A........................ 1,050,912... NET
2,700 Louis Vuitton Moet
Hennessy................. 1,203,453 FRA
1,270 Nestle(a)................. 2,314,310 SWI
95,000 Panamerican Beverages,
Inc. -- Class A.......... 1,953,437 MEX
275,000 Tate & Lyle PLC........... 1,764,015 UK
265,000 Unilever PLC.............. 1,945,444 UK
------------
TOTAL FOOD AND BEVERAGE... 22,896,826
------------
INDUSTRIAL -- 3.59%
50,322 Advantest Corp. .......... 13,274,325 JPN
16,200 Compagnie de Saint-
Gobain................... 3,031,500 FRA
29,361 Preussag AG............... 1,665,362 GER
1,525 SGS Societe Generale de
Surveillance Holding
SA(c).................... 1,933,959 SWI
430,000 Tomkins PLC............... 1,386,062 UK
------------
TOTAL INDUSTRIAL.......... 21,291,208
------------
INSURANCE -- 2.42%
80,000 Assicurazioni Generali,
Ltd. .................... 2,630,040 ITA
480,000 Mitsui Marine and Fire
Insurance Company,
Ltd. .................... 2,841,888 JPN
629,030 QBE Insurance Group,
Ltd. .................... 2,922,348 AUS
407,964 Royal & Sun Alliance
Insurance Group PLC...... 3,100,200 UK
802 Schweizerische
Rueckversicherungs-
Gesellschaft(a).......... 1,638,839 SWI
210,000 Yasuda Fire and Marine
Insurance................ 1,185,870 JPN
------------
TOTAL INSURANCE........... 14,319,185
------------
</TABLE>
See notes to financial statements.
F-69
<PAGE> 158
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
INVESTMENT HOLDING COMPANIES -- 0.80%
325,000 Hutchison Whampoa......... $ 4,724,362 HNG
------------
LEISURE AND RECREATION -- 0.26%
32,500 Accor SA(a)............... 1,562,613 FRA
------------
MANUFACTURING -- 9.81%
26,549 ABB AB -- Class A(c)...... 3,230,034 SWI
1,041,100 Invensys PLC.............. 5,654,630 UK
106,161 Mannesmann AG............. 25,750,182 GER
80,000 Metra Oy.................. 1,483,408 FIN
120,863 Morgan Crucible Company
PLC...................... 562,956 UK
44,500 Pohang Iron & Steel
Company, Ltd. (ADR)(a)... 1,557,500 KOR
77,000 Siemens AG................ 9,801,499 GER
75,000 THK Company, Ltd.(a)...... 3,026,235 JPN
135,000 Thyssen Krupp AG(c)....... 4,079,619 GER
390,900 TI Group PLC.............. 2,992,574 UK
------------
TOTAL MANUFACTURING....... 58,138,637
------------
MEDIA -- 2.96%
176 Canal Plus................ 25,491 FRA
17,100 Grupo Televisa
(GDR)(a)(c).............. 1,167,075 MEX
140,137 News Corp., Ltd. ......... 1,356,204 AUS
29,750 News Corp., Ltd. (ADR).... 1,137,937 AUS
390,806 Reuters Group PLC......... 5,350,681 UK
433 Reuters Group PLC (ADR)... 34,992 UK
177,207 Singapore Press Holdings,
Ltd. .................... 3,839,828 SIN
176,224 Thomson Corp. ............ 4,614,073 CDA
------------
TOTAL MEDIA............... 17,526,281
------------
METALS AND MINING -- 1.60%
38,050 Broken Hill Proprietary
(ADR).................... 1,010,703 AUS
410,302 Broken Hill Proprietary... 5,369,786 AUS
43,663 Pechiney SA -- Class A.... 3,105,020 FRA
------------
TOTAL METALS AND MINING... 9,485,509
------------
OIL AND GAS -- 3.33%
583,600 Eni Spa................... 3,193,809 ITA
164,000 Enterprise Oil PLC........ 1,110,132 UK
880,000 Santos, Ltd. ............. 2,389,640 AUS
281,000 Sasol Beperk Ltd. ........ 2,304,565 SOA
395,000 Shell Transport &
Trading.................. 3,275,419 UK
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL AND GAS (CONTINUED)
16,000 Suncor Energy, Inc. ...... $ 665,875 CDA
19,300 Suncor Energy, Inc. ...... 805,775 CDA
48,000 Talisman Energy,
Inc.(c).................. 1,220,400 CDA
15,000 Total Fina S.A. -- Series
B........................ 1,992,073 FRA
29,500 Veba AG................... 1,432,564 GER
180,800 Woodside Petroleum,
Ltd. .................... 1,330,923 AUS
------------
TOTAL OIL AND GAS......... 19,721,175
------------
PAPER AND FOREST PRODUCTS -- 1.17%
189,000 Sumitomo Forestry......... 1,458,740 JPN
137,000 UPM-Kymmeme............... 5,492,604 FIN
------------
TOTAL PAPER AND FOREST
PRODUCTS.................. 6,951,344
------------
PHARMACEUTICALS -- 4.83%
31,062 AstraZeneca PLC (ADR)..... 1,296,838 UK
136,100 AstraZeneca PLC........... 5,632,975 UK
128,328 AstraZeneca PLC........... 5,407,691 UK
130,200 BOC Group................. 2,790,915 UK
3,244 Novartis AG............... 4,738,127 SWI
60,000 Sankyo Company, Ltd. ..... 1,231,008 JPN
105,480 Sanofi-Synthelabo SA(c)... 4,370,574 FRA
18,000 Shionogi & Company,
Ltd. .................... 218,241 JPN
60,000 Takeda Chemical
Industries, Ltd. ........ 2,960,286 JPN
------------
TOTAL PHARMACEUTICALS..... 28,646,655
------------
REAL ESTATE -- 0.56%
188,000 Cheung Kong Holdings,
Ltd. .................... 2,388,239 HNG
134,000 Mitsui Fudosan............ 905,947 JPN
------------
TOTAL REAL ESTATE......... 3,294,186
------------
RETAIL -- 0.22%
121,000 Kingfisher PLC............ 1,339,760 UK
------------
SEMICONDUCTORS -- 2.64%
114,300 Tokyo Electron, Ltd. ..... 15,633,817 JPN
------------
TELECOMMUNICATIONS -- 18.24%
6,819 Cable & Wireless HKT, Ltd.
(ADR)(a)................. 198,603 USA
641,600 Cable & Wireless HKT,
Ltd. .................... 1,852,941 HNG
55,000 Cable & Wireless PLC(a)... 929,868 UK
116,300 Deutsche Telekom AG....... 8,276,303 GER
48,800 Eircom PLC................ 211,792 IRE
</TABLE>
See notes to financial statements.
F-70
<PAGE> 159
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
13,400 Ericsson AB -- Class B.... $ 857,986 SWE
34,400 Ericsson L M Telephone
(ADR).................... 2,259,650 SWE
5,500 Korea Telecom Corp.
(ADR).................... 411,125 KOR
293 Nippon Telegraph and
Telephone Corp. ......... 5,017,614 JPN
26,400 Nokia Corp. (ADR)......... 5,016,000 FIN
106,800 Nokia Oyj................. 19,268,237 FIN
46,000 Nortel Networks Corp. .... 4,646,000 CDA
531 NTT Mobile Communications
Network, Inc. ........... 20,421,078 JPN
160,000 Portugal Telecom SA....... 1,746,416 POR
11,000 Societe Europeenne des
Satellites (FDR)......... 1,598,670 LUX
15,247 Swisscom AG............... 6,134,111 SWI
523,000 Telecom Italia Mobile..... 2,479,491 ITA
179,000 Telecom Italia Mobile..... 1,989,674 ITA
698,000 Telecom Italia Spa........ 4,232,602 ITA
102,555 Telecom Italia Spa(a)..... 1,439,072 ITA
260,861 Telefonica S.A.(c)........ 6,484,248 SPA
80,300 Telefonos De Mexico
(ADR)(a)................. 9,033,750 MEX
88,900 Teleglobe, Inc. .......... 2,015,265 CDA
3,800 Teleglobe, Inc. (ADR)..... 86,212 CDA
31,000 Vodafone AirTouch PLC
(ADR)(a)................. 1,534,500 UK
------------
TOTAL
TELECOMMUNICATIONS........ 108,141,208
------------
TIRE AND RUBBER -- 0.10%
26,000 Bridgestone Corp. ........ 571,540 JPN
------------
TRANSPORTATION -- 0.74%
130,000 Bombardier Inc., Class
B........................ 2,661,580 CDA
83,200 Bombardier Inc., Class
B........................ 1,699,743 CDA
------------
TOTAL TRANSPORTATION...... 4,361,323
------------
TOTAL COMMON STOCK
(Cost $341,050,434)....... 578,650,841
------------
PREFERRED STOCK -- 0.24%
CHEMICALS -- 0.24%
22,000 Henkel KGaA (Cost
$1,738,214).............. 1,459,751 GER
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
WARRANTS -- 0.01%
BANKS -- 0.01%
10,205 Banque National de Paris
CVG (expire 07/15/02)(c)
(Cost $547,301).......... $ 46,846 FRA
------------
<CAPTION>
PRINCIPAL
---------
<C> <S> <C> <C>
NON-CONVERTIBLE BOND -- 0.03%
CONSTRUCTION -- 0.03%
$ 146,785 Sekisui House, 2.50%,
01/31/02 (Cost
$160,403)................. 174,390 JPN
------------
CONVERTIBLE BONDS AND NOTES -- 0.09%
FOOD AND BEVERAGE -- 0.09%
215,285 Asahi Breweries Series 8,
0.90%, 12/26/01.......... 231,484 JPN
48,928 Asahi Breweries Series 9,
0.95%, 12/26/02.......... 53,000 JPN
225,071 Asahi Breweries Series 10,
1.00%, 12/26/03.......... 245,387 JPN
------------
TOTAL FOOD AND BEVERAGE
(Cost $495,634)........... 529,871
------------
<CAPTION>
SHARES
------
<C> <S> <C> <C>
REGULATED INVESTMENT COMPANIES -- 0.48%
2,378,970 Janus Money Market
Fund(b).................. 2,378,970 USA
500,000 Merrimac Cash Fund --
Premium Class(b)......... 500,000 USA
------------
TOTAL REGULATED INVESTMENT
COMPANIES
(Cost $2,878,970)......... 2,878,970
------------
<CAPTION>
PRINCIPAL
---------
<C> <S> <C> <C>
CERTIFICATES OF DEPOSIT -- 1.33%
$ 594,742 American Express Centurion
Bank, 6.15%,
01/26/00(b).............. 594,742 USA
2,677,877 Den Danske Bank, 6.39%,
01/20/00(b).............. 2,677,877 USA
1,338,171 Den Danske Bank, 6.41%,
01/27/00(b).............. 1,338,171 USA
594,742 Royal Bank of Scotland,
6.15%, 01/20/00(b)....... 594,742 USA
2,677,877 Royal Bank of Scotland,
6.31%, 01/27/00(b)....... 2,677,877 USA
------------
TOTAL CERTIFICATES OF
DEPOSIT
(Cost $7,883,409)......... 7,883,409
------------
</TABLE>
See notes to financial statements.
F-71
<PAGE> 160
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE COUNTRY
--------- ------------ -------
<C> <S> <C> <C>
TIME DEPOSIT -- 0.01%
$ 33,748 BankBoston, N.A., 4.68%,
01/03/00(b) (Cost
$33,748)................. $ 33,748 USA
------------
SHORT TERM CORPORATE NOTES -- 6.33%
10,500,000 JP Morgan Securities,
Inc., Floating Rate,
4.605%(++),
07/07/00(b).............. 10,500,000 USA
5,000,000 Morgan Stanley Dean Witter
& Company, Floating Rate,
4.60%(++), 01/11/00(b)... 5,000,000 USA
22,000,000 Prudential Securities,
Inc., Floating Rate,
4.85%(++), 03/10/00(b)... 22,000,000 USA
------------
TOTAL SHORT TERM CORPORATE
NOTES
(Cost $37,500,000)........ 37,500,000
------------
TOTAL SECURITIES
(Cost $392,288,113)....... 629,157,826
------------
REPURCHASE AGREEMENT -- 2.27%
13,474,597 With Investors Bank and
Trust, dated 12/31/99,
3.06%, due 01/03/00,
repurchase proceeds at
maturity $13,478,033
(Collateralized by Small
Business Administration
Loan, 8.125%, due
10/25/21, with a value of
$3,964,609, and a Fannie
Mae, 5.40%, due 06/25/23,
with a value of
$10,183,717) (Cost
$13,474,597)............. 13,474,597 USA
------------
Total Investments -- 108.42%
(Cost $405,762,710)....... 642,632,423
Liabilities less other
assets -- (8.42)%......... (49,918,782)
------------
NET ASSETS -- 100.00%.... $592,713,641
============
The aggregate cost of securities for
federal income tax purposes at
December 31, 1999 is $409,641,506. The
following amount is based on cost for
federal income tax purposes:
Gross unrealized appreciation........ $256,376,848
Gross unrealized depreciation........ (23,385,931)
------------
Net unrealized appreciation.......... $232,990,917
============
</TABLE>
- ---------------
(a) All or part of the security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing securities.
(++) 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, 1999.
(ADR) American Depository Receipt.
(FDR) Foreign Depository Receipt.
(GDR) Global Depository Receipt.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
COUNTRY COMPOSITION SECURITIES AT VALUE
------------------- -------------------
<S> <C>
Australia (AUS).................... 3.86%
Canada (CDA)....................... 3.44%
Finland (FIN)...................... 4.88%
France (FRA)....................... 4.99%
Germany (GER)...................... 9.42%
Hong Kong (HNG).................... 1.67%
Ireland (IRE)...................... 0.08%
Italy (ITA)........................ 2.89%
Japan (JPN)........................ 30.59%
Korea (KOR)........................ 1.27%
Luxembourg (LUX)................... 0.25%
Mexico (MEX)....................... 2.37%
Netherlands (NET).................. 5.47%
Norway (NOR)....................... 0.35%
Portugal (POR)..................... 0.27%
Singapore (SIN).................... 0.85%
South Africa (SOA)................. 0.65%
Spain (SPA)........................ 1.12%
Sweden (SWE)....................... 1.53%
Switzerland (SWI).................. 4.59%
Turkey (TUR)....................... 0.43%
United Kingdom (UK)................ 9.39%
United States (USA)................ 9.64%
-------
TOTAL PERCENTAGE................... 100.00%
=======
</TABLE>
See notes to financial statements.
F-72
<PAGE> 161
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 Core Bond Series (formerly 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 each 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
F-73
<PAGE> 162
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (Continued)
C. FOREIGN CURRENCY TRANSLATION (CONTINUED)
losses that arise from changes in the market value of investments. Such
fluctuations are included with net realized and unrealized gains or losses
on securities. Net realized gains and losses on foreign currency
transactions represent net exchange gains and losses on disposition of
foreign currencies and foreign currency forward contracts, and the
difference between the amount of investment income receivable and foreign
withholding taxes receivable recorded on the Series' books and the U.S.
dollar equivalent of amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets
and liabilities other than investments in securities at fiscal year end and
foreign currency forward contracts, resulting from changes in the
prevailing exchange rates.
D. FOREIGN CURRENCY FORWARD CONTRACTS
Each Series may enter into foreign currency forward contracts and
forward cross currency contracts in connection with settling planned
purchases or sales of securities or to hedge the currency exposure
associated with some or all of the Series' portfolio securities. A foreign
currency forward contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
foreign currency forward contract fluctuates with changes in forward
currency exchange rates. Foreign currency forward contracts are marked to
market daily and the change in value is recorded by the Series as an
unrealized gain or loss. When a foreign currency forward contract is
extinguished, through delivery or offset by entering into another foreign
currency forward contract, the Series records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value of the contract at the time it was extinguished. These
contracts may involve market risk in excess of the unrealized gain or loss
reflected in the Series' Statement of Assets and Liabilities and Statement
of Operations. In addition, the Series could be exposed to risk if the
counterparties are unable to meet the terms of the contracts or if the
value of the currency changes unfavorably to the U.S. dollar.
E. OPTIONS
Each Series, with the exception of the Money Market Series, may
purchase and write (sell) call and put options on securities indices for
the purpose of protecting against an anticipated decline in the value of
the securities held by that Series. Index options are marked to market
daily and the change in value is recorded by the Series as an unrealized
gain or loss. A realized gain or loss equal to the difference between the
exercise price and the value of the index is recorded by the Series upon
cash settlement of the option. The use of index options may expose the
Series to the risk that trading in such options may be interrupted if
trading in certain securities included in the index is interrupted or the
value of the securities in the index may not move in direct correlation
with the movements of the Series portfolio. In addition, there is the risk
the Series may not be able to enter into a closing transaction because of
an illiquid secondary market.
F. FUTURES CONTRACTS
Each Series may invest in futures contracts solely for the purpose of
hedging its existing portfolio securities, or securities that the Series
intends to purchase, against fluctuations in fair value caused by changes
in prevailing market or interest rates.
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Series agent in acquiring the
futures position). During the period the futures contract is open, changes
in the value of the contract are recognized as unrealized gains or losses
by "marking to market" on a daily basis to reflect the daily market value
of the contract.
F-74
<PAGE> 163
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (Continued)
F. FUTURES CONTRACTS (CONTINUED)
Variation margin payments are received or made by the Series each day,
depending upon the daily fluctuations in the fair value of the underlying
instrument. The Series recognizes a gain or loss equal to the daily
variation margin. When the contract is closed, the Series records a
realized gain or loss equal to the difference between the proceeds from (or
cost of) the closing transaction and the Series basis in the contract.
Should market conditions move unexpectedly, the Series may not achieve
the anticipated benefits of the financial futures contracts and may realize
a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates,
and the underlying hedged assets.
G. 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.
H. 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.
I. 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.
J. 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 income and
expenses during the reporting period. Actual results could differ from
those estimates.
F-75
<PAGE> 164
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (Continued)
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................................................ 21.73
High Quality Bond........................................... 42.02
Intermediate Government Bond................................ 39.73
Core Bond................................................... 30.54
Balanced.................................................... 56.67
Equity Income............................................... 53.89
Equity Value................................................ 18.51
Growth & Income............................................. 43.30
Equity Growth............................................... 56.12
Special Equity.............................................. 38.14
Aggressive Equity........................................... 36.96
High Yield Bond............................................. 24.39
International Equity........................................ 35.95
</TABLE>
The Advisor manages the assets of each Series of the Series Portfolio
pursuant to an Investment Advisory Agreement with the Series Portfolio. Subject
to such further policies as the Board of Trustees may determine, the Advisor
provides general investment advice to each Series. For its services, the Advisor
receives from each Series fees accrued daily and paid monthly at an annual rate
equal to the percentages specified in the table below of the corresponding
Series' average daily net assets. The Advisor is currently waiving a portion of
its investment advisory fee to certain Series.
For each Series, the Advisor has entered into Investment Subadvisory
Agreements with the subadvisors listed in the table below (each a "Subadvisor",
collectively the "Subadvisors"). It is the responsibility of a Subadvisor to
make the day-to-day investment decisions of the Series and to place the purchase
and sales orders for securities transactions of such Series, subject in all
cases to the general supervision of the Advisor. For its services the
Subadvisors receive a fee from the Advisor at an annual
F-76
<PAGE> 165
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (Continued)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
rate equal to the percentages specified in the table below of the corresponding
Series' average daily net assets.
<TABLE>
<CAPTION>
ADVISOR SUBADVISOR
PORTFOLIO SERIES PORTFOLIO SUBADVISORS FEE(%) FEE(%)
- ---------------- --------------------- ------- ----------
<S> <C> <C> <C>
Money Market Series....................... Capital Management Group 0.25 0.05
High Quality Bond Series.................. Merganser Capital Management
Corporation 0.35 (2)
Intermediate Government Bond Series....... Capital Management Group 0.35(1) 0.15
Core Bond Series.......................... Payden & Rygel Investment Counsel 0.35 (3)
Balanced Series........................... (4) 0.45(1) (5)
Equity Income Series...................... Asset Management Group 0.45 (6)
Equity Value Series....................... Ark Asset Management Company, Inc. 0.57(1) (7)
Growth & Income Series.................... Putnam Advisory Company, Inc. 0.60(1) (8)
Equity Growth Series...................... (9) 0.62(1) (10)
Special Equity Series..................... (11) 0.80(1) (12)
Aggressive Equity Series.................. McKinley Capital Management 0.97(1) (13)
High-Yield Bond Series.................... Delaware Investment Advisors 0.55(1) (14)
International Equity Series............... Capital Guardian Trust Company 0.75(1) (15)
</TABLE>
- ---------------
(1) The Advisor is currently waiving a portion of its fee.
(2) The High Quality Bond Series changed its fee schedule with Merganser
Capital Management on December 1, 1999. For the period from January 1
through November 30, 1999, the Subadvisor received 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. For the period from December 1
through December 31, 1999, Merganser Capital Management received 0.20% on
the first $100,000,000 in average daily net assets, 0.15% on the next
$100,000,000 in average daily net assets, 0.10% on the next $100,000,000 in
average daily net assets, and 0.05% on all daily average net assets in
excess of $300,000,000.
(3) The Core Bond Series (formerly Government/Corporate Bond), changed its
subadvisor on August 18, 1999 from Capital Management Group to Payden &
Rygel Investment Counsel. For the period from January 1 through August 17,
1999, the Subadvisor received 0.15% of average daily net assets. For the
period from August 18 through December 31, 1999, the net assets of the Core
Bond and Balanced Series -- fixed income securities, were combined to
determine the fee. 0.20% on the first $50,000,000 in average daily net
assets, 0.15% on the next $50,000,000 in average daily net assets, 0.10% on
the next $400,000,000 in average daily net assets, and 0.05% on all daily
average net assets in excess of $500,000,000 in accordance with the
subadvisory agreement.
(4) The Balanced Series changed subadvisors on March 31, 1999. Aeltus
Investment Management, Inc. and Payden & Rygel Investment Counsel replaced
Institutional Capital Corporation for equity and fixed income securities,
respectively.
(5) For the period from January 1 through March 30, 1999, 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. For the period from
March 31 through December 31, 1999, Aeltus Investment Management, Inc.
received 0.20% on the first $200,000,000 in average daily net assets, 0.15%
on the next $300,000,000 in average daily net assets, 0.125% on the next
$500,000,000 in average daily net assets, and 0.10% on all average daily
net assets in excess of $1,000,000,000. For the period from March 31
through August 17, 1999,
F-77
<PAGE> 166
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (Continued)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
Payden & Rygel Investment Counsel received 0.20% on the first $50,000,000
in average daily net assets, 0.15% on the next $50,000,000 of average daily
net assets, and 0.10% on all average daily net assets in excess of
$100,000,000. For the period from August 18 through December 31, 1999,
Payden & Rygel received a fee of 0.20% on the first $50,000,000 in average
daily net assets, 0.15% on the next $50,000,000 in average daily net
assets, 0.10% on the next $400,000,000 in average daily net assets, and
0.05% on all daily average net assets in excess of $500,000,000 on the
combined net assets of the Core Bond Series and the Balanced Series (fixed
income securities).
(6) 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.
(7) 0.45% on the first $100,000,000 in average daily net assets, and 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.
(8) 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.
(9) The Equity Growth Series has two subadvisors: Montag & Caldwell, Inc. and
Dresdner RCM Global Investors, Inc.
(10) 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.
(11) The Special Equity Series has four Subadvisors: Husic Capital; Robertson,
Stephens; Liberty Investment Management, Inc.; and Westport Asset
Management, Inc. On March 26, 1999, Robertson, Stephens replaced Ark Asset
Management Co., Inc. and on November 16, 1999, Husic Capital replaced
Pilgrim Baxter & Associates.
(12) 0.50% of average daily net assets for the two Subadvisors: Liberty
Investment Management, Inc., and Westport Asset Management.
For the period from January 1 through March 25, 1999, Ark Asset Management
Co., Inc. received 0.50% of average daily net assets. For the period from
March 26 through December 31, 1999, Robertson, Stephens received 0.50% on
the first $100,000,000 in average daily net assets, and 0.40% on all average
daily net assets in excess of $100,000,000. For the period from January 1
through November 15, 1999, Pilgrim Baxter & Associates, received 0.50% of
average daily net assets. For the period from November 16 through December
31, 1999, Husic Capital received 0.40% on the first $250,000,000 in average
daily net assets, 0.25% on the next $100,000,000 in average daily net
assets, and 0.20% on all average daily net assets in excess of $350,000,000.
(13) 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.
(14) 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.
(15) 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.
F-78
<PAGE> 167
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (Continued)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
For the period ended December 31, 1999, 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.
Core 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,
1999, amounted to $32,109.
4. SECURITIES LENDING
All but the High Yield Bond Series may lend its securities to certain
member firms of the New York Stock Exchange. The loans are collateralized at all
times with cash or securities with a market value at least equal to the market
value of the securities on loan. Any deficiencies or excess of collateral must
be delivered or transferred by the member firms no later than the close of
business on the next business day. As with other extensions of credit, the
Series may bear the risk of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. The Series
receives compensation, net of related expenses, for lending its securities which
is included in interest income on the Statements of Operations. At December 31,
1999, the Series loaned securities having market values as follows:
<TABLE>
<CAPTION>
MARKET VALUE COLLATERAL
------------ ------------
<S> <C> <C>
High Quality Bond Series.................................... $ 4,950,589 $ 5,100,000
Intermediate Government Bond Series......................... 36,036,130 37,078,875
Core Bond Series............................................ 174,374,302 178,096,125
Balanced Series............................................. 38,971,455 39,899,150
Equity Income Series........................................ 37,774,450 38,823,800
Equity Value Series......................................... 23,407,988 24,259,200
Growth & Income Series...................................... 142,298,143 146,119,866
Equity Growth Series........................................ 79,207,727 81,556,641
Special Equity Series....................................... 110,786,790 115,256,767
Aggressive Equity Series.................................... 39,738,750 40,672,700
International Equity Series................................. 46,700,352 48,296,127
</TABLE>
F-79
<PAGE> 168
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (Continued)
5. PURCHASE AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and proceeds from sales or
maturities (excluding short-term securities) for the year ended December 31,
1999, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C> <C> <C>
High Quality Bond Series........... Government Obligations $ 7,963,439 $ 18,378,186
Other 112,555,841 124,531,852
Intermediate Government Bond Government Obligations 73,227,101 38,000,668
Series...........................
Other 10,000,000 504,790
Core Bond Series................... Government Obligations 1,700,229,693 1,368,710,844
Other 277,627,355 428,568,240
Balanced Series.................... Government Obligations 624,796,062 664,679,086
Other 728,751,481 713,327,783
Equity Income Series............... Other 599,826,080 612,087,097
Equity Value Series................ Other 326,032,659 320,020,142
Growth & Income Series............. Other 1,015,736,628 842,248,718
Equity Growth Series............... Other 645,516,164 402,122,068
Special Equity Series.............. Other 1,518,506,457 1,501,352,759
Aggressive Equity Series........... Other 273,265,811 185,811,897
High-Yield Bond Series............. Other 196,264,932 148,264,159
International Equity Series........ Other 182,600,953 142,363,504
</TABLE>
6. FOREIGN CURRENCY FORWARD CONTRACTS
At December 31, 1999, the Balanced Series and the International Equity
Series had entered into foreign currency forward contracts which contractually
obligate each Series to deliver/receive currency at specified future dates. The
open contracts were as follows:
<TABLE>
<CAPTION>
FOREIGN IN EXCHANGE SETTLEMENT NET UNREALIZED
BALANCED CURRENCY FOR DATE VALUE APPRECIATION/(DEPRECIATION)
-------- ----------- ----------- ------------- ------------ ---------------------------
<S> <C> <C> <C> <C> <C>
SALE CONTRACTS:
British Pound
Sterling........... 2,230,000 $3,571,077 3/07/2000 $3,601,959 $ (30,882)
Euro................. 3,500,000 3,571,855 1/13/2000 3,530,575 41,280
New Zealand Dollar... 6,800,000 3,496,832 2/22/2000 3,559,021 (62,189)
Swedish Krona........ 30,000,000 3,609,891 2/17/2000 3,541,820 68,071
-----------
TOTAL...... $ 16,280
===========
<CAPTION>
INTERNATIONAL EQUITY
- --------------------
<S> <C> <C> <C> <C> <C>
SALE CONTRACTS:
Japanese Yen......... 332,578,560 $3,084,000 2/28/2000 $3,285,447 $ (201,447)
===========
</TABLE>
F-80
<PAGE> 169
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (Continued)
6. FOREIGN CURRENCY FORWARD CONTRACTS (CONTINUED)
FOREIGN CURRENCY CROSS CONTRACTS:
<TABLE>
<CAPTION>
SETTLEMENT PURCHASE SALE NET UNREALIZED
PURCHASE/SALE DATE CURRENT VALUE CURRENT SALE APPRECIATION/(DEPRECIATION)
------------- ----------- ------------- ------------ ---------------------------
<S> <C> <C> <C> <C> <C>
Euro/Australian
Dollar............. 01/19/2000 $2,626,404 $2,667,485 $ (41,081)
Euro/Canadian
Dollar............. 01/28/2000 951,975 1,033,826 (81,851)
Euro/Canadian
Dollar............. 03/07/2000 1,090,495 1,107,085 (16,590)
Euro/Canadian
Dollar............. 03/23/2000 1,832,776 1,956,048 (123,272)
Euro/British Pound... 01/28/2000 1,625,694 1,680,534 (54,840)
Euro/British Pound... 02/04/2000 438,750 451,710 (12,960)
Euro/Korean Won...... 03/31/2000 1,585,101 1,774,182 (189,081)
Euro/Japanese Yen.... 01/20/2000 5,757,432 6,420,481 (663,049)
Euro/Japanese Yen.... 01/20/2000 2,256,909 2,515,946 (259,037)
Euro/Japanese Yen.... 02/28/2000 2,738,832 2,829,768 (90,936)
Euro/Japanese Yen.... 05/26/2000 2,896,660 2,994,825 (98,165)
-----------
TOTAL...... $(1,630,862)
===========
</TABLE>
7. FUTURES CONTRACTS
At December 31, 1999, the Balanced Series entered into a futures contract.
The open contracts were as follows:
<TABLE>
<CAPTION>
EXPIRATION
BALANCED FUTURES DATE CONTRACTS UNREALIZED APPRECIATION
- ---------------- ----------- ------------- ---------------------------
<S> <C> <C> <C> <C> <C>
S&P 500 Future....... 03/17/2000 73 $ 185,836
===========
</TABLE>
8. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
RATIO OF NET
INVESTMENT RATIO OF NET
RATIO OF INCOME INVESTMENT
RATIO OF EXPENSES TO (LOSS) TO INCOME (LOSS)
FOR THE NET ASSETS, EXPENSES TO AVERAGE NET AVERAGE TO AVERAGE NET
YEAR END OF AVERAGE ASSETS (NET OF NET ASSETS (NET OF PORTFOLIO
ENDED YEAR NET ASSETS REIMBURSEMENTS) ASSETS REIMBURSEMENTS) TURNOVER
- ------------- -------------- ----------- --------------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET
12/31/1999 $ 416,768,827 0.28% 0.28% 5.06% 5.06% N/A
12/31/1998 292,437,753 0.28 0.28 5.32 5.32 N/A
12/31/1997 232,312,458 0.28 0.28 5.33 5.33 N/A
12/31/1996 185,012,254 0.30 0.30 5.19 5.19 N/A
12/31/1995 141,638,248 0.31 0.30 5.69* 5.70* N/A
HIGH QUALITY
BOND
12/31/1999 199,906,097 0.38 0.38 5.78 5.78 56%
12/31/1998 227,463,134 0.39 0.39 5.90 5.90 68
12/31/1997 218,169,438 0.39 0.39 6.12 6.12 62
12/31/1996 197,294,663 0.40 0.40 6.14 6.14 66
12/31/1995 172,526,103 0.41 0.40 5.82* 5.83* 25
</TABLE>
F-81
<PAGE> 170
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (Continued)
8. FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
RATIO OF NET
INVESTMENT RATIO OF NET
RATIO OF INCOME INVESTMENT
RATIO OF EXPENSES TO (LOSS) TO INCOME (LOSS)
FOR THE NET ASSETS, EXPENSES TO AVERAGE NET AVERAGE TO AVERAGE NET
YEAR END OF AVERAGE ASSETS (NET OF NET ASSETS (NET OF PORTFOLIO
ENDED YEAR NET ASSETS REIMBURSEMENTS) ASSETS REIMBURSEMENTS) TURNOVER
- ------------- -------------- ----------- --------------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTERMEDIATE
GOVERNMENT BOND
12/31/1999 174,804,385 0.39 0.39 5.46 5.46 25
12/31/1998 158,574,467 0.39 0.39 5.46 5.46 70
12/31/1997 129,186,397 0.41 0.39 5.61 5.62 45
12/31/1996 103,059,880 0.43 0.40 5.63 5.66 60
12/31/1995 85,991,614 0.45 0.40 5.52* 5.57* 59
CORE BOND**
12/31/1999 515,721,444 0.37 0.37 5.86 5.86 307
12/31/1998 551,935,530 0.38 0.38 5.98 5.98 102
12/31/1997 361,632,885 0.38 0.38 6.49 6.49 64
12/31/1996 322,676,017 0.39 0.39 6.30 6.30 146
12/31/1995 336,539,410 0.39 0.39 5.90 5.90 122
BALANCED
12/31/1999 525,583,903 0.52 0.50 2.46 2.48 256
12/31/1998 505,995,739 0.48 0.48 3.22 3.22 91
12/31/1997 394,769,913 0.48 0.48 3.55 3.55 87
12/31/1996 264,909,839 0.50 0.50 3.39 3.39 113
12/31/1995 167,032,955 0.54 0.50 4.15* 4.19* 124
EQUITY INCOME
12/31/1999 1,414,634,230 0.46 0.46 1.75 1.75 43
12/31/1998 1,367,107,496 0.47 0.47 2.23 2.23 31
12/31/1997 1,215,071,169 0.47 0.47 2.27 2.27 33
12/31/1996 956,820,669 0.48 0.48 2.97 2.97 26
12/31/1995 764,302,530 0.49 0.49 3.37 3.37 23
EQUITY VALUE+
12/31/1999 394,104,288 0.60 0.60 1.70 1.70 80
12/31/1998 389,859,775 0.61 0.60 1.46 1.47 107
12/31/1997 234,983,715 0.63 0.60 1.43 1.46 120
12/31/1996*** 29,033,513 1.06 0.60 1.60 2.07 65
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Ratios have been restated.
** Formerly Government/Corporate Bond.
*** Annualized (except for Portfolio turnover)
+ Commencement of Operations, April 19, 1996.
++ Commencement of Operations, August 22, 1995.
+++ Commencement of Operations, September 29, 1995.
(1) For the period January 1, 1996 -- November 14, 1996, the
expense cap was 75 bp.
For the period November 15, 1996 -- December 31, 1996, the
expense cap was 65 bp.
</TABLE>
F-82
<PAGE> 171
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (Continued)
8. FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
RATIO OF NET RATIO OF NET
INVESTMENT INVESTMENT
RATIO OF INCOME INCOME
RATIO OF EXPENSES TO (LOSS) TO (LOSS) TO
FOR THE NET ASSETS, EXPENSES TO AVERAGE NET AVERAGE AVERAGE NET
YEAR END OF AVERAGE ASSETS (NET OF NET ASSETS (NET OF PORTFOLIO
ENDED YEAR NET ASSETS REIMBURSEMENTS) ASSETS REIMBURSEMENTS) TURNOVER
- ------------- -------------- ----------- --------------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
GROWTH & INCOME
12/31/1999 $1,242,236,443 0.62% 0.62% 0.07% 0.07% 86%
12/31/1998 771,268,461 0.63 0.63 0.30 0.30 75
12/31/1997 376,260,408 0.64 0.64 0.65 0.65 87
12/31/1996 207,612,426 0.67 0.65 1.02 1.04 142
12/31/1995 124,811,731 0.68 0.65 1.47* 1.49* 155
EQUITY GROWTH
12/31/1999 1,266,869,154 0.64 0.64 0.12 0.12 44
12/31/1998 688,448,565 0.64 0.64 0.22 0.22 104
12/31/1997 426,312,188 0.65 0.65 0.43 0.43 91
12/31/1996 299,127,686 0.73 0.73(1) (0.17) (0.17) 133
12/31/1995 222,362,390 0.75 0.75 0.41 0.41 62
SPECIAL EQUITY
12/31/1999 1,171,034,281 0.84 0.84 0.13 0.13 171
12/31/1998 924,089,884 0.83 0.83 0.14 0.14 173
12/31/1997 743,388,261 0.84 0.84 0.41 0.41 146
12/31/1996 507,264,243 0.86 0.85 0.24 0.25 140
12/31/1995 315,458,225 0.88 0.85 0.30* 0.33* 155
AGGRESSIVE
EQUITY+
12/31/1999 259,974,422 1.01 1.00 (0.47) (0.46) 132
12/31/1998 81,327,707 1.10 1.00 (0.41) (0.31) 121
12/31/1997 25,857,650 1.33 1.00 (0.52) (0.19) 243
12/31/1996*** 15,479,130 1.59 1.00 (0.72) (0.13) 186
HIGH YIELD
BOND++
12/31/1999 124,990,408 0.61 0.60 8.45 8.46 145
12/31/1998 94,870,981 0.63 0.60 8.64 8.67 83
12/31/1997 39,700,131 0.74 0.60 8.46 8.60 109
12/31/1996 15,372,686 1.25 0.60 8.34 9.00 107
12/31/1995*** 8,997,595 1.32 0.60 7.73* 8.45* 21
INTERNATIONAL
EQUITY+++
12/31/1999 592,713,641 0.86 0.86 0.74 0.74 35
12/31/1998 320,218,173 0.88 0.87 1.05 1.06 33
12/31/1997 205,306,068 0.88 0.87 0.90 0.91 31
12/31/1996 148,184,897 0.96 0.90 1.12 1.18 29
12/31/1995*** 83,446,315 0.83 0.80 0.50* 0.53* 7
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Ratios have been restated.
** Formerly Government/Corporate Bond.
*** Annualized (except for Portfolio turnover)
+ Commencement of Operations, April 19, 1996.
++ Commencement of Operations, August 22, 1995.
+++ Commencement of Operations, September 29, 1995.
(1) For the period January 1, 1996 -- November 14, 1996, the
expense cap was 75 bp.
For the period November 15, 1996 -- December 31, 1996, the
expense cap was 65 bp.
</TABLE>
F-83
<PAGE> 172
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The MONY Life Insurance Company
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and comprehensive income, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of The MONY Life Insurance Company and Subsidiaries (the
"Company"), formerly known as The Mutual Life Insurance Company of New York and
subsidiaries, at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 10, 2000, except for Note 18(b)
as to which the date is March 27, 2000
and Note 23(c), as to which the date
is March 8, 2000.
F-84
<PAGE> 173
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
($ IN MILLIONS)
<S> <C> <C>
ASSETS
INVESTMENTS:
Fixed maturity securities available-for-sale, at fair
value..................................................... $ 3,066.7 $ 3,132.0
Equity securities available-for-sale, at fair value......... 519.8 457.2
Mortgage loans on real estate (Note 13)..................... 1,270.4 988.3
Policy loans................................................ 69.1 61.1
Real estate to be disposed of (Note 13)..................... 300.9 312.9
Real estate held for investment (Note 13)................... 46.2 321.3
Other invested assets....................................... 37.9 40.7
--------- ---------
5,311.0 5,313.5
========= =========
Cash and cash equivalents................................... 232.6 270.2
Accrued investment income................................... 74.6 68.9
Amounts due from reinsurers................................. 488.0 478.1
Deferred policy acquisition costs........................... 558.3 439.7
Other assets................................................ 365.4 325.6
Assets transferred in Group Pension Transaction (Note 10)... 5,109.8 5,751.8
Separate account assets..................................... 6,398.3 6,090.3
Closed Block assets (Note 20)............................... 6,182.1 6,161.2
--------- ---------
Total assets.............................................. $24,720.1 $24,899.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Future policy benefits...................................... $ 954.3 $ 960.0
Policyholders' account balances............................. 1,942.9 1,991.7
Other policyholders' liabilities............................ 120.4 104.8
Amounts due to reinsurers................................... 83.8 95.6
Accounts payable and other liabilities...................... 581.1 518.3
Short term debt (Note 16)................................... 53.4 --
Long term debt (Note 16).................................... 245.4 375.4
Current federal income taxes payable........................ 147.4 79.1
Liabilities transferred in Group Pension Transaction (Note
10)....................................................... 5,099.1 5,678.5
Separate account liabilities................................ 6,396.2 6,078.1
Closed Block liabilities (Note 20).......................... 7,303.3 7,290.7
--------- ---------
Total liabilities......................................... $22,927.3 $23,172.2
========= =========
Commitments and contingencies (Notes 9 and 18)
Common stock, $1.00 par value; 2.5 million shares
authorized and outstanding................................ $ 2.5 $ 2.0
Capital in excess of par.................................... 1,563.6 1,564.1
Retained earnings........................................... 256.1 8.6
Accumulated other comprehensive income...................... (29.4) 152.4
--------- ---------
Total shareholders' equity................................ 1,792.8 1,727.1
--------- ---------
Total liabilities and shareholders' equity................ $24,720.1 $24,899.3
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-85
<PAGE> 174
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1998
PRO FORMA*
1999 1998 1997 (UNAUDITED)
-------- -------- -------- -----------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Premiums......................................... $ 96.3 $ 621.7 $ 838.6 $ 77.9
Universal life and investment-type product policy
fees........................................... 196.3 151.6 127.3 151.6
Net Investment income (Note 11).................. 524.9 688.3 733.0 361.1
Net realized gains on investments (Note 11)...... 122.2 168.7 72.1 160.9
Group Pension Profits (Note 10).................. 63.0 56.8 60.0 56.8
Other income..................................... 195.8 162.6 145.4 161.3
Contribution from the Closed Block............... 44.8 5.7 -- 52.2
-------- -------- -------- --------
1,243.3 1,855.4 1,976.4 1,021.8
-------- -------- -------- --------
BENEFITS AND EXPENSES:
Benefits to policyholders........................ 147.0 679.8 840.1 124.4
Interest credited to policyholders' account
balances....................................... 106.6 112.7 125.9 105.0
Amortization of deferred policy acquisition
costs.......................................... 70.3 122.0 181.2 52.2
Dividends to policyholders....................... 1.9 195.8 224.3 3.3
Other operating costs and expenses............... 536.6 451.7 417.2 443.5
-------- -------- -------- --------
862.4 1,562.0 1,788.7 728.4
-------- -------- -------- --------
Income before income taxes & extraordinary
item........................................... 380.9 293.4 187.7 293.4
Income tax expense............................... 131.4 102.7 57.3 102.7
-------- -------- -------- --------
Income before extraordinary items................ 249.5 190.7 130.4 190.7
-------- -------- -------- --------
Extraordinary items (Note 4)..................... 2.0 27.2 13.3 --
-------- -------- -------- --------
Net income....................................... 247.5 163.5 117.1 190.7
-------- -------- -------- --------
Other comprehensive income, net (Note 11)........ (181.8) 34.3 33.0
-------- -------- --------
Comprehensive income............................. $ 65.7 $ 197.8 $ 150.1
======== ======== ========
</TABLE>
- ---------------
* The pro forma information gives effect to the transactions referred to in
Notes 1 and 22.
See accompanying notes to consolidated financial statements.
F-86
<PAGE> 175
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL OTHER TOTAL
COMMON IN EXCESS RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK OF PAR EARNINGS INCOME EQUITY
------ --------- --------- ------------- -------------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996............ $ $ $ 1,085.4 $ 85.1 $1,170.5
Comprehensive income:
Net income.......................... 117.1 117.1
Other comprehensive income:
Unrealized gains on investments,
net of unrealized losses,
reclassification adjustments,
and taxes (Note 11)............ 35.9 35.9
Minimum pension liability
adjustment..................... (2.9) (2.9)
------- --------
Other comprehensive income.......... 33.0 33.0
------- --------
Comprehensive income.................. 150.1
---- -------- --------- ------- --------
Balance, December 31, 1997............ 1,202.5 118.1 1,320.6
Demutualization Transaction........... 1,344.2 (1,357.4) (13.2)
Capital Contribution.................. 2.0 219.9 221.9
Comprehensive income:
Net income before demutualization... 154.9 154.9
Net income after demutualization.... 8.6 8.6
---- -------- --------- ------- --------
Net income for the year.......... 163.5 163.5
Other comprehensive income:
Unrealized losses on investments,
net of unrealized gains,
reclassification adjustments,
and taxes (Note 11)............ 31.4 31.4
Minimum pension liability
adjustment..................... 2.9 2.9
------- --------
Other comprehensive income.......... 34.3 34.3
---- -------- --------- ------- --------
Comprehensive income.................. 197.8
--------
Balance, December 31, 1998............ 2.0 1,564.1 8.6 152.4 1,727.1
Comprehensive income/(loss)
Net income.......................... 247.5 247.5
Other comprehensive income:
unrealized gains on investments,
net of unrealized losses,
reclassification adjustments, and
taxes (Note 11).................. (181.8) (181.8)
Change in number of authorized and
outstanding shares.................. 0.5 (0.5)
--------
Comprehensive income/(loss)........... 65.7
---- -------- --------- ------- --------
Balance, December 31, 1999............ $2.5 $1,563.6 $ 256.1 $ (29.4) $1,792.8
==== ======== ========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-87
<PAGE> 176
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES (SEE NOTE 4):
Net income................................................ $ 247.5 $ 163.5 $ 117.1
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to policyholders' account balances.... 105.0 110.6 122.3
Universal life and investment-type product policy fee
income............................................... (143.5) (123.6) (112.9)
Capitalization of deferred policy acquisition costs..... (148.8) (124.5) (141.0)
Amortization of deferred policy acquisition costs....... 70.3 122.0 181.2
Provision for depreciation and amortization............. 31.5 41.4 55.0
Provision for deferred federal income taxes............. 57.4 11.4 (50.2)
Net realized gains on investments....................... (122.2) (168.7) (72.1)
Non-cash distributions from investments................. (172.8) (35.1) (31.1)
Change in other assets and accounts payable and other
Liabilities.......................................... (26.4) (32.7) (177.5)
Change in future policy benefits........................ (3.7) 136.2 206.9
Change in other policyholders' liabilities.............. 15.6 32.9 (17.4)
Change in current federal income taxes payable.......... 103.5 (14.9) (11.2)
Initial cash transferred to the Closed Block............ -- (46.9) --
Contribution from the Closed Block...................... (44.8) (5.7) --
--------- --------- ---------
Net cash (used in)/provided by operating activities....... (31.4) 65.9 69.1
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities or repayments of:
Fixed maturities........................................ 689.4 887.3 952.0
Equity securities....................................... 328.1 177.4 246.7
Mortgage loans on real estate........................... 132.9 424.4 334.4
Real estate............................................. 350.7 578.3 430.8
Other invested assets................................... 18.7 46.0 5.0
Acquisitions of investments:
Fixed maturities........................................ (830.0) (1,479.7) (1,336.2)
Equity securities....................................... (152.0) (230.5) (211.5)
Mortgage loans on real estate........................... (412.0) (422.4) (183.1)
Real estate............................................. (44.5) (39.5) (52.7)
Other invested assets................................... (20.6) (2.1) (1.7)
Policy loans, net....................................... (7.8) (17.8) (15.9)
Other, net.............................................. 60.3 8.8 10.1
Property & equipment, net............................... (22.5) (30.9) (35.8)
Acquisition of subsidiaries, net of cash acquired....... -- (46.0) --
--------- --------- ---------
Net cash provided by/(used in) investing activities....... $ 90.7 $ (146.7) $ 142.1
========= ========= =========
</TABLE>
F-88
<PAGE> 177
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt........................................ $ -- $ -- $ 115.0
Repayments of debt...................................... (84.8) (61.3) (126.0)
Receipts from annuity and universal life policies
credited to policyholders' account balances.......... 1,851.5 1,254.0 1,226.4
Return of policyholders' account balances on annuity
policies and universal life policies................. (1,863.6) (1,377.0) (1,435.2)
Other................................................... 6.6
Capital Contribution (Note 4)............................. 0.0 221.9 0.0
--------- --------- ---------
Net cash (used in)/provided by financing activities....... (96.9) 37.6 (213.2)
--------- --------- ---------
Net (decrease)/increase in cash and cash equivalents...... (37.6) (43.2) (2.0)
Cash and cash equivalents, beginning of year.............. 270.2 313.4 315.4
--------- --------- ---------
Cash and cash equivalents, end of year.................... $ 232.6 $ 270.2 $ 313.4
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Income taxes.............................................. $ 20.1 $ 97.4 $ 114.6
Interest.................................................. $ 20.3 $ 20.3 $ 20.8
</TABLE>
See accompanying notes to consolidated financial statements.
F-89
<PAGE> 178
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
On November 16, 1998, pursuant to its Plan of Reorganization (the "Plan")
which was approved by the New York Superintendent of Insurance on the same day
(the "Plan Effective Date"), The Mutual Life Insurance Company of New York
("MONY") converted from a mutual life insurance company to a stock life
insurance company (the "Demutualization") and became a wholly owned subsidiary
of The MONY Group Inc., (the "MONY Group" or the "Holding Company"), a Delaware
corporation organized on June 24, 1997 for the purpose of becoming the parent
holding company of MONY. The MONY Group has no other operations or subsidiaries.
In connection with the Plan, MONY established a closed block, as more fully
discussed in Note 3, to fund the guaranteed benefits and dividends of certain
participating insurance policies and eligible policyholders received cash policy
credits, or shares of common stock of the MONY Group in exchange for their
membership interests in MONY (see Note 4). Also, on November 16, 1998, the MONY
Group consummated an initial public offering (the "Offerings") of approximately
12.9 million shares of its common stock (see Note 4) and MONY changed its name
to MONY Life Insurance Company (MONY Life Insurance Company and its subsidiaries
are hereafter collectively referred to as "MONY Life"). The shares of common
stock issued in the Offerings are in addition to approximately 34.3 million
shares of common stock of the MONY Group distributed to the aforementioned
eligible policyholders. The Plan and the Offerings are hereafter collectively
referred to as the "Transaction". During 1999, the Company increased the number
of its common shares authorized and outstanding from 2.0 million to 2.5 million
in order to comply with regulatory requirements.
MONY Life and its subsidiaries (hereafter collectively referred to as the
"Company"), is primarily engaged in the business of providing a wide range of
life insurance, annuity, and investment products to higher income individuals,
particularly family builders, pre-retirees, and small business owners (see Note
5). The Company distributes its products primarily through its career agency
sales force and various complementary distribution channels. These include sales
of mutual funds sold by Enterprise Capital Management through third-party broker
dealers, sales of protection products through brokerage general agencies, sales
of corporate-owned life insurance ("COLI") products by the Company's corporate
marketing team and sales of a variety of financial products and services through
the Company's Trusted Securities Advisors Corp. subsidiary. The Company
primarily sells its products in all 50 of the United States, the District of
Columbia, the U.S. Virgin Islands, Guam and the Commonwealth of Puerto Rico.
On December 31, 1998, MONY Life acquired Sagamore Financial Corporation,
the holding Company parent of U.S. Financial Life Insurance Company ("USFL") for
a purchase price of $48 million. USFL is a special-risk carrier based in Ohio,
which distributes its products in 41 states through brokerage general agencies.
The acquisition was accounted for as a purchase. In conjunction therewith, MONY
Life recorded $18.8 million of goodwill which will be amortized over 20 years.
2. INVESTMENT AGREEMENT:
On December 30, 1997, affiliates of Goldman, Sachs & Co. (the "Investors"),
one of the underwriters for the Offerings, entered into an investment agreement
with MONY (the "Investment Agreement"), pursuant to which: (i) the Investors
purchased, for $115.0 million (the "Consideration"), Surplus Notes issued by
MONY (the "MONY Notes") with an aggregate principal amount equal to the
Consideration (see Note 16), and (ii) the Investors purchased, for $10.0
million, warrants (the "Warrants") to purchase from the Holding Company (after
giving effect to the initial public offering) in the aggregate 7.0% of the fully
diluted Common Stock as of the first date following such effectiveness on which
shares of Common Stock were first issued to Eligible Policyholders (December 24,
1998).
F-90
<PAGE> 179
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. THE CLOSED BLOCK:
On November 16, 1998, the Company established a closed block (the "Closed
Block") of certain participating insurance policies as defined in the Plan (the
"Closed Block Business"). In conjunction therewith, the Company allocated assets
to the Closed Block expected to produce cash flows which, together with
anticipated revenues from the Closed Block Business, are reasonably expected to
be sufficient to support the Closed Block Business, including but not limited
to, provision for payment of claims and surrender benefits, certain expenses and
taxes, and for continuation of current payable dividend scales in effect at the
date of Demutualization, assuming the experience underlying such dividend scales
continues, and for appropriate adjustments in such scales if the experience
changes. The assets allocated to the Closed Block and the aforementioned
revenues inure solely to the benefit of the owners of policies included in the
Closed Block.
The assets and liabilities allocated to the Closed Block are recorded in
the Company's financial statements at their historical carrying values. The
carrying value of the assets allocated to the Closed Block are less than the
carrying value of the Closed Block liabilities at the Plan Effective Date. The
excess of the Closed Block liabilities over the Closed Block assets at the Plan
Effective Date represents the total estimated future post-tax contribution
expected to emerge from the operation of the Closed Block, which will be
recognized in the Company's income over the period the policies and the
contracts in the Closed Block remain in force.
To the extent that the actual cash flows, subsequent to the Plan Effective
Date, from the assets allocated to the Closed Block and the Closed Block
Business are, in the aggregate, more favorable than assumed in establishing the
Closed Block, total dividends paid to the Closed Block policyholders in future
years will be greater than the total dividends that would have been paid to such
policyholders if the current payable dividend scales had been continued.
Conversely, to the extent that the actual cash flows, subsequent to the Plan
Effective Date, from the assets allocated to the Closed Block and the Closed
Block Business are, in the aggregate, less favorable than assumed in
establishing the Closed Block, total dividends paid to the Closed Block
policyholders in future years will be less than the total dividends that would
have been paid to such policyholders if the current payable dividend scales had
been continued. Accordingly, the recognition of the aforementioned estimated
future post-tax contribution expected to emerge from the operation of the Closed
Block is not affected by the aggregate actual experience of the Closed Block
assets and the Closed Block Business subsequent to the Plan Effective Date,
except in the unlikely event that the Closed Block assets and the actual
experience of the Closed Block Business subsequent to the Plan Effective Date
are not sufficient to pay the guaranteed benefits on the Closed Block Policies,
in which case the Company will be required to fund any such deficiency from its
general account assets outside of the Closed Block.
In addition, MONY has undertaken to reimburse the Closed Block from its
general account assets outside the Closed Block for any reduction in principal
payments due on the Series A Notes (which have been allocated to the Closed
Block) pursuant to the terms thereof, as described in Note 10. Since the Closed
Block has been funded to provide for payment of guaranteed benefits and the
continuation of current payable dividends on the policies included therein, it
will not be necessary to use general funds to pay guaranteed benefits unless the
Closed Block Business experiences very substantial ongoing adverse experience in
investment, mortality, persistency or other experience factors. The Company
regularly (at least quarterly) monitors the experience from the Closed Block and
may make changes to the dividend scale, when appropriate, to ensure that the
profits are distributed to the Closed Block policyholders in a fair and
equitable manner. In addition, periodically the New York Insurance Department
requires the filing of an independent auditor's report on the operations of the
Closed Block.
F-91
<PAGE> 180
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of the Closed Block are presented as a single line item in the
Company's statements of income entitled, "Contribution from the Closed Block".
Prior to the establishment of the Closed Block the results of the assets and
policies comprising the Closed Block were reported in various line items in the
Company's income statements, including: premiums, investment income, net
realized gains and losses on investments, benefits, amortization of deferred
policy acquisition costs, etc. In addition, all assets and liabilities allocated
to the Closed Block will be reported in the Company's balance sheet separately
under the captions "Closed Block assets" and "Closed Block liabilities",
respectively. Accordingly, certain line items in the Company's financial
statements subsequent to the establishment of the Closed Block reflect material
reductions in reported amounts, as compared to years prior to the establishment
of the Closed Block, while having no effect on net income.
The pre-tax Contribution from the Closed Block includes only those
revenues, benefit payments, dividends, premium taxes, state guaranty fund
assessments, and investment expenses considered in funding the Closed Block.
However, many expenses associated with operating the Closed Block and
administering the policies included therein were excluded from and, accordingly,
are not funded in the Closed Block. These expenses are reported in the Company's
statement of operations, outside of the Contribution from the Closed Block,
consistent with how they are funded. Such expenses are reported in the separate
line items to which they apply based on the nature of such expenses. Federal
income taxes applicable to the Closed Block, which are funded in the Closed
Block, are reflected as a component of federal income tax expense in the
Company's statement of operations. Since many expenses related to the Closed
Block are funded outside the Closed Block, operating costs and expenses outside
the Closed Block are disproportionate to the level of business outside the
Closed Block.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"). The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. In the opinion of management these statements
include all normal recurring adjustments necessary to present fairly the
financial position, results of operations and cash flows of the Company for the
periods presented. Actual results could differ significantly from those
estimates. The most significant estimates made in conjunction with the
preparation of the Company's financial statements include those used in
determining (i) deferred policy acquisition costs, (ii) the liability for future
policy benefits, and (iii) valuation allowances for mortgage loans and real
estate to be disposed of, and impairment writedowns for real estate held for
investment. Certain reclassifications have been made in the amounts presented
for prior periods to conform those periods to the current presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and those partnerships in which the Company has a majority voting
interest. All significant intercompany accounts and transactions have been
eliminated.
Minority interest related to partnerships that are consolidated, which is
included in Accounts Payable and Other Liabilities, amounted to $17.4 million
and $33.5 million at December 31, 1999 and 1998, respectively.
F-92
<PAGE> 181
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transaction
Net proceeds from the Offerings totalled $282.5 million. Approximately
$60.6 million of the net proceeds were retained by the MONY Group and the
balance of approximately $221.9 million was contributed to MONY Life.
Of the net proceeds contributed by the MONY Group to MONY Life,
approximately $168.2 million is for use by MONY Life in its general operations,
approximately $13.2 million was used to fund policy credits required to be
credited to Eligible Policyholders pursuant to the Plan, and $40.5 million
represents a reimbursement for the estimated after-tax cost of expenses incurred
by MONY Life to effect the Demutualization, as required by the New York
Insurance Law.
Of the net proceeds retained by the MONY Group, approximately $2.5 million
was used to pay cash to Eligible Policyholders who received cash as described in
the Plan (other than pursuant to an expression of a preference to receive cash),
$10.0 million is for working capital for the MONY Group, $30.0 million is to be
used to pay dividends on the MONY Group's common stock and $18.1 million was
used by the MONY Group to pay cash to eligible policyholders pursuant to an
expression of a preference to receive cash in accordance with the Plan.
In connection with the Demutualization on the Plan Effective Date, eligible
policyholders received, in the aggregate, approximately $20.6 million of cash,
$13.2 million of policy credits and 34.3 million shares of common stock of the
MONY Group in exchange for their membership interests in MONY. In conjunction
with the Offerings, approximately 12.9 million shares of the common stock of
MONY Group were issued at an initial public offering of $23.50 per share. The
Demutualization was accounted for as a reorganization. Accordingly, the
Company's retained earnings at the Plan Effective Date (net of the
aforementioned cash payments and policy credits which were charged directly to
retained earnings) were reclassified to "Common stock" and "Capital in excess of
par".
In addition, the capital of the MONY Group includes $10.0 million relating
to the Warrants (see Note 2), which as a subsidiary of MONY prior to the Plan
Effective Date, was recorded in MONY's consolidated financial statements as
minority interest.
Valuation of Investments and Realized Gains and Losses
All of the Company's fixed maturity securities are classified as
available-for-sale and are reported at estimated fair value. The Company's
equity securities are comprised of investments in common stocks and limited
partnership interests. The Company's investments in common stocks are classified
as available-for-sale and are reported at estimated fair value. The Company
accounts for its investments in limited partnership interests in accordance with
the equity method of accounting or the cost method of accounting depending upon
the Company's percentage of ownership of the partnership and the date it was
acquired. In general, partnership interests acquired after May 18, 1995 are
accounted for in accordance with the equity method of accounting if the
Company's ownership interest exceeds 3 percent, whereas, if the partnership was
acquired prior to May 18, 1995, the equity method would be applied only if the
Company's ownership interest exceeded 20 percent. In all other circumstances the
Company accounts for its investment in limited partnership interests in
accordance with the cost method. Unrealized gains and losses on fixed maturity
securities and common stocks are reported as a separate component of other
comprehensive income, net of deferred income taxes and an adjustment for the
effect on deferred policy acquisition costs that would have occurred if such
gains and losses had been realized. The cost of fixed maturity securities and
common stock is adjusted for impairments in value deemed to be other than
temporary. These adjustments are reflected as realized losses on investments.
Realized gains and losses on sales of investments are determined on the basis of
specific identification.
F-93
<PAGE> 182
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage loans on real estate are stated at their unpaid principal
balances, net of valuation allowances. Valuation allowances are established for
the excess of the carrying value of a mortgage loan over its estimated fair
value when the loan is considered to be impaired. Mortgage loans are considered
to be impaired when, based on current information and events, it is probable
that the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Estimated fair value is based on either
the present value of expected future cash flows discounted at the loan's
original effective interest rate, or the loan's observable market price (if
considered to be a practical expedient), or the fair value of the collateral if
the loan is collateral dependent and if foreclosure of the loan is considered
probable. The provision for loss is reported as a realized loss on investment.
Loans in foreclosure and loans considered to be impaired, other than
restructured loans, are placed on non-accrual status. Interest received on
non-accrual status mortgage loans is included in investment income in the period
received. Interest income on restructured mortgage loans is accrued at the
restructured loans' interest rate.
Real estate held for investment, as well as related improvements, are
generally stated at cost less depreciation. Depreciation is determined using the
straight-line method over the estimated useful life of the asset (which may
range from 5 to 40 years). Cost is adjusted for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. In performing the review for recoverability, management
estimates the future cash flows expected from real estate investments, including
the proceeds on disposition. If the sum of the expected undiscounted future cash
flows is less than the carrying amount of the real estate, an impairment loss is
recognized. Impairment losses are based on the estimated fair value of the real
estate, which is generally computed using the present value of expected future
cash flows from the real estate discounted at a rate commensurate with the
underlying risks. Real estate acquired in satisfaction of debt is recorded at
estimated fair value at the date of foreclosure. Real estate that management
intends to sell is classified as "to be disposed of". Real estate to be disposed
of is reported at the lower of its current carrying value or estimated fair
value less estimated sales costs. Changes in reported values relating to real
estate to be disposed of and impairments of real estate held for investment are
reported as realized gains or losses on investments.
Policy loans are carried at their unpaid principal balances. Cash and cash
equivalents include cash on hand, amounts due from banks and highly liquid debt
instruments with an original maturity of three months or less.
Recognition of Insurance Revenue and Related Benefits
Premiums from participating and non-participating traditional life, health
and annuity policies with life contingencies are recognized as premium income
when due. Benefits and expenses are matched with such income so as to result in
the recognition of profits over the life of the contracts. This match is
accomplished by means of the provision for liabilities for future policy
benefits and the deferral and subsequent amortization of policy acquisition
costs.
Premiums from universal life and investment-type contracts are reported as
deposits to policyholders' account balances. Revenue from these types of
products consist of amounts assessed during the period against policyholders'
account balances for policy administration charges, cost of insurance and
surrender charges. Policy benefits charged to expense include benefit claims
incurred in the period in excess of the related policyholders' account balance.
F-94
<PAGE> 183
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Policy Acquisition Costs ("DAC")
The costs of acquiring new business, principally commissions, underwriting,
agency, and policy issue expenses, all of which vary with and are primarily
related to the production of new business, are deferred.
For participating traditional life policies, DAC is amortized over the
expected life of the contracts (30 years) as a constant percentage based on the
present value of estimated gross margins expected to be realized over the life
of the contracts using the expected investment yield. At December 31, 1999, the
expected investment yield was 7.31%, for the year 2000 with subsequent years
grading down to an ultimate aggregate yield of 7.12% in year 2013. Estimated
gross margins include anticipated premiums and investment results less claims
and administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends.
For universal life products and investment-type products, DAC is amortized
over the expected life of the contracts (ranging from 15 to 30 years) as a
constant percentage based on the present value of estimated gross profits
expected to be realized over the life of the contracts using the initial locked
in discount rate. The discount rate for all products is 8%. Estimated gross
profits arise principally from investment results, mortality and expense margins
and surrender charges.
DAC is subject to recoverability testing at the time of policy issuance and
loss recognition testing at the end of each accounting period. The effect on the
amortization of DAC of revisions in estimated experience is reflected in
earnings in the period such estimates are revised. In addition, the effect on
the DAC asset that would result from the realization of unrealized gains
(losses) is recognized through an offset to Other Comprehensive Income as of the
balance sheet date.
Future Policy Benefits and Policyholders' Account Balances
Future policy benefit liabilities for participating traditional life
policies are calculated using a net level premium method on the basis of
actuarial assumptions equal to guaranteed mortality and dividend fund interest
rates. The liability for annual dividends represents the accrual of annual
dividends earned. Dividend fund interest assumptions range from 2.0 percent to
5.5 percent.
Policyholders' account balances for universal life and investment-type
contracts represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals. The weighted
average interest crediting rate for universal life products was approximately
5.8%, 5.7% and 5.8% for the years ended December 31, 1999, 1998, and 1997,
respectively. The weighted average interest crediting rate for investment-type
products was approximately 5.1%, 5.2% and 5.4% for the years ended December 31,
1999, 1998, and 1997, respectively.
Dividends to Policyholders
Dividends to policyholders, which are substantially all on the Closed Block
Business (see Note 3) are determined annually by the Board of Directors of MONY
Life. The aggregate amount of policyholders' dividends is related to actual
interest, mortality and morbidity for the year.
Participating Business
At December 31, 1999 and 1998, participating business, substantially all of
which is in the Closed Block, represented approximately 63.5% and 72.6% of the
Company's life insurance in force, and 81.2% and 84.2% of the number of life
insurance policies in force, respectively. For each of the years ended December
31, 1999 and 1998, participating business, represented approximately 95.9% and
99.7%, respectively, of life insurance premiums.
F-95
<PAGE> 184
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Equipment, and Leasehold Improvements
Property, equipment and leasehold improvements, which are reported in Other
Assets, are stated at cost less accumulated depreciation and amortization.
Depreciation is determined using the straight-line method over the estimated
useful lives of the related assets which generally range from 3 to 40 years.
Amortization of leasehold improvements is determined using the straight-line
method over the lesser of the unexpired lease term or the estimated useful life
of the improvement.
Accumulated depreciation of property and equipment and amortization of
leasehold improvements was $38.3 million and $71.0 million at December 31, 1999
and 1998, respectively. Related depreciation and amortization expense was $16.6
million, $11.4 million, and $8.8 million for the years ended December 31, 1999,
1998, and 1997, respectively.
Federal Income Taxes
The Company files a consolidated federal income tax return with its life
and non-life affiliates except Sagamore Financial Corporation and its
subsidiaries. Deferred income tax assets and liabilities are recognized based on
the difference between financial statement carrying amounts and income tax bases
of assets and liabilities using enacted income tax rates and laws.
Reinsurance
The Company has reinsured certain of its life insurance and investment
contracts with other insurance companies under various agreements. Amounts due
from reinsurers are estimated based on assumptions consistent with those used in
establishing the liabilities related to the underlying reinsured contracts.
Policy and contract liabilities are reported gross of reserve credits. Gains on
reinsurance are deferred and amortized into income over the remaining life of
the underlying reinsured contracts.
In determining whether a reinsurance contract qualifies for reinsurance
accounting, Statement of Financial Accounting Standards ("SFAS") No. 113
requires that there be a "reasonable possibility" that the reinsurer may realize
a "significant loss" from assuming insurance risk under the contract. In making
this assessment, the Company projects the results of the policies reinsured
under the contract under various scenarios and assesses the probability of such
results actually occurring. The projected results represent the present value of
all the cash flows under the reinsurance contract. The Company generally defines
a "reasonable possibility" as having a probability of at least 10%. In assessing
whether the projected results of the reinsured business constitute a
"significant loss", the Company considers: (i) the ratio of the aggregate
projected loss, discounted at an appropriate rate of interest (the "aggregate
projected loss"), to an estimate of the reinsurer's investment in the contract,
as hereafter defined, and (ii) the ratio of the aggregate projected loss to an
estimate of the total premiums to be received by the reinsurer under the
contract discounted at an appropriate rate of interest.
The reinsurer's investment in a reinsurance contract consists of amounts
paid to the ceding company at the inception of the contract (e.g. expense
allowances and the excess of liabilities assumed by the reinsurer over the
assets transferred to the reinsurer under the contract) plus the amount of
capital required to support such business consistent with prudent business
practices, regulatory requirements, and the reinsurer's credit rating. The
Company estimates the capital required to support such business based on what it
considers to be an appropriate level of risk-based capital in light of
regulatory requirements and prudent business practices.
Separate Accounts
Separate accounts are established in conformity with insurance laws and are
generally not chargeable with liabilities that arise from any other business of
the Company. Separate account assets
F-96
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MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are subject to general account claims only to the extent that the value of such
assets exceeds the separate account liabilities. Investments held in separate
accounts and liabilities of the separate accounts are reported separately as
assets and liabilities. Substantially all separate account assets are reported
at estimated fair value. Investment income and gains or losses on the
investments of separate accounts accrue directly to contractholders and,
accordingly, are not reflected in the Company's consolidated statements of
income and cash flows. Fees charged to the separate accounts by the Company
(including mortality charges, policy administration fees and surrender charges)
are reflected in the Company's revenues.
Consolidated Statements of Cash Flows -- Non-cash Transactions
For the years ended December 31, 1999, 1998, and 1997, respectively, real
estate of $27.0 million, $5.0 million, and $14.4 million was acquired in
satisfaction of debt (including the Closed Block of $22.0 million). At December
31, 1999 and 1998, the Company owned real estate acquired in satisfaction of
debt of $121.0 million and $143.2 million, respectively. Other non-cash
transactions, which are reflected in the statement of cash flows as a
reconciling item from net income to net cash provided by operating activities,
consisted primarily of stock distributions from the Company's partnership
investments and payment-in-kind for interest due on certain fixed maturity
securities.
Extraordinary Item -- Demutualization Expenses
The accompanying consolidated statements of income and comprehensive income
reflect extraordinary charges (net of taxes) of $2.0 million and $27.2 million
for the year ended December 31, 1999 and 1998, respectively. Costs incurred in
1998 primarily include the fees of financial, legal, actuarial and accounting
advisors to the Company and to the New York Insurance Department as well as
printing and postage for communication with policyholders. Costs incurred in
1999 primarily relate to expenses incurred in connection with a commission-free
sale and purchase program (the "Program") offered to shareholders pursuant to
the Plan. Under the Program, shareholders who own fewer than 100 shares were
able to sell their shares or purchase additional shares to round up to 100
shares without incurring commissions.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires all derivatives to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. The corresponding derivative gains and
losses should be reported based on the hedge relationship that exists, if there
is one. Changes in the fair value of derivatives that are not designated as
hedges or that do not meet the hedge accounting criteria in SFAS 133, are
required to be reported in earnings. SFAS 133, as amended by SFAS 137, is
effective for all fiscal quarters of the fiscal years beginning after June 15,
2000. SFAS 137 delayed the effective date of SFAS 133 by one year. Adoption of
SFAS 133 is not expected to have a material effect on the Company's financial
condition or results of operations.
5. SEGMENT INFORMATION:
The Company's business activities consist of the following: protection
product operations, accumulation product operations, mutual fund operations,
securities broker-dealer operations, insurance brokerage operations, and certain
insurance lines of business no longer written by the Company (the "run-off
businesses"). These business activities represent the Company's operating
segments. Except as discussed below, these segments are managed separately
because they either provide different products
F-97
<PAGE> 186
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or services, are subject to different regulation, require different strategies,
or have different technology requirements.
Management considers the Company's mutual fund operations to be an integral
part of the products offered by the Company's accumulation products segment,
since substantially all the mutual funds sold by the Company are offered
through, and in conjunction with, the products marketed by the accumulation
products segment. Accordingly, for management purposes (including, performance
assessment and making decisions regarding the allocation of resources), the
Company aggregates its mutual fund operations with its accumulation products
segment.
Of the aforementioned segments, only the protection products segment and
the accumulation products segment qualify as reportable segments in accordance
with FASB Statement No. 131. All of the Company's other segments are combined
and reported in an other products segment.
Products comprising the protection products segment primarily include a
wide range of insurance products, including: whole life, term life, universal
life, variable universal life, corporate-owned life insurance, last survivor
variable universal life, last survivor universal life, group universal life and
special-risk products. In addition, included in the protection products segment
are: (i) the assets and liabilities transferred pursuant to the Group Pension
Transaction, as well as the Group Pension Profits (see Note 10), (ii) the Closed
Block assets and liabilities, as well as the Contribution from the Closed Block,
and (iii) the Company's disability income insurance business. Products
comprising the accumulation products segment primarily include flexible premium
variable annuities, single premium deferred annuities, immediate annuities,
proprietary mutual funds, investment management services, and certain other
financial services products. The Company's other products segment primarily
consists of the securities broker-dealer operation, the insurance brokerage
operation, and the run-off businesses. The securities broker-dealer operation
markets the Company's proprietary investment products and, in addition, provides
customers of the Company's protection and accumulation products access to other
non-proprietary investment products (including stocks, bonds, limited
partnership interests, tax-exempt unit investment trusts and other investment
securities). The insurance brokerage operation provides the Company's field
agency force with access to life, annuity, small group health and specialty
insurance products written by other carriers to meet the insurance and
investment needs of its customers. The run-off businesses primarily consist of
group life and health business, as well as group pension business that was not
included in the Group Pension Transaction (see Note 10).
Set forth in the table below is certain financial information with respect
to the Company's operating segments as of and for each of the years ended
December 31, 1999, 1998 and 1997, as well as amounts not allocated to the
segments. Except for various allocations discussed below, the accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. The Company evaluates the performance of each
operating segment based on profit or loss from operations before income taxes
and nonrecurring items (e.g. items of an unusual or infrequent nature). The
Company does not allocate certain non-recurring items to the segments. In
addition, all segment revenues are from external customers.
Assets have been allocated to the segments in amounts sufficient to support
the associated liabilities of each segment. In addition, capital is allocated to
each segment in amounts sufficient to maintain a targeted regulatory risk-based
capital ("RBC") level for each segment (see Note 19). Allocations of net
investment income and net realized gains on investments were based on the amount
of assets allocated to each segment. Other costs and operating expenses were
allocated to each of the segments based on: (i) a review of the nature of such
costs, (ii) time studies analyzing the amount of employee compensation costs
incurred by each segment, and (iii) cost estimates included in the Company's
product pricing. Substantially all non-cash transactions and impaired real
estate (including
F-98
<PAGE> 187
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
real estate acquired in satisfaction of debt) have been allocated to the
Protection Products segment (see Note 4).
Amounts reported as "unallocated amounts" in the table below primarily
relate to: (i) contracts issued by MONY Life relating to its employee benefit
plans, and (ii) a one-time restructuring charge in 1999 of $59.7 million pre-tax
relating to the Company's early retirement program (see Note 22).
SEGMENT SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C>
PREMIUMS:
Protection Products....................................... $ 82.0 $ 602.2 $ 817.0
Accumulation Products..................................... 0.9 2.6 5.0
Other Products............................................ 13.4 16.9 16.6
--------- --------- ---------
$ 96.3 $ 621.7 $ 838.6
--------- --------- ---------
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Protection Products....................................... $ 122.3 $ 86.2 $ 74.9
Accumulation Products..................................... 73.3 64.1 50.9
Other Products............................................ 0.7 1.3 1.5
--------- --------- ---------
$ 196.3 $ 151.6 $ 127.3
--------- --------- ---------
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON
INVESTMENTS:
Protection Products....................................... $ 445.1 $ 655.5 $ 611.9
Accumulation Products..................................... 132.4 136.3 131.4
Other Products............................................ 67.3 63.0 59.9
Unallocated amounts....................................... 2.3 2.2 1.9
--------- --------- ---------
$ 647.1 $ 857.0 $ 805.1
--------- --------- ---------
OTHER INCOME:
Protection Products(1)(7)................................. $ 123.0 $ 85.5 $ 94.9
Accumulation Products..................................... 95.1 72.8 52.1
Other Products............................................ 80.7 61.1 53.1
Unallocated amounts....................................... 4.8 5.7 5.3
--------- --------- ---------
$ 303.6 $ 225.1 $ 205.4
--------- --------- ---------
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS:
Protection Products....................................... $ 39.6 $ 92.4 $ 146.8
Accumulation Products..................................... 30.7 29.6 34.4
--------- --------- ---------
$ 70.3 $ 122.0 $ 181.2
--------- --------- ---------
BENEFITS TO POLICYHOLDERS:(2)
Protection Products....................................... $ 141.7 $ 663.4 $ 821.1
Accumulation Products..................................... 73.7 79.6 92.5
Other Products............................................ 33.7 41.6 45.2
Unallocated amounts....................................... 4.5 7.9 7.2
--------- --------- ---------
$ 253.6 $ 792.5 $ 966.0
--------- --------- ---------
</TABLE>
F-99
<PAGE> 188
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C>
OTHER OPERATING COSTS AND EXPENSES:
Protection Products....................................... $ 277.4 $ 287.1 $ 281.0
Accumulation Products..................................... 105.7 84.4 66.3
Other Products............................................ 93.1 80.2 66.2
Unallocated amounts....................................... 60.4 -- 3.7
--------- --------- ---------
$ 536.6 $ 451.7 $ 417.2
--------- --------- ---------
INCOME BEFORE INCOME TAXES:
Protection Products....................................... $ 315.0 $ 193.7 $ 129.0
Accumulation Products..................................... 89.6 80.5 44.1
Other Products............................................ 34.1 19.2 18.3
Unallocated amounts....................................... (57.8) -- (3.7)
--------- --------- ---------
$ 380.9 $ 293.4 $ 187.7
--------- --------- ---------
ASSETS:
Protection Products(3)(8)................................. $16,181.4 $16,580.9 $15,776.5
Accumulation Products..................................... 6,175.0 6,171.3 5,757.9
Other Products............................................ 1,187.6 1,256.2 1,234.2
Unallocated amounts....................................... 1,176.1 890.9 842.7
--------- --------- ---------
$24,720.1 $24,899.3 $23,611.3
--------- --------- ---------
DEFERRED POLICY ACQUISITION COSTS:
Protection Products(9).................................... $ 1,094.9 $ 857.6 $ 874.1
Accumulation Products..................................... 153.3 136.7 133.0
--------- --------- ---------
$ 1,248.2 $ 994.3 $ 1,007.1
--------- --------- ---------
POLICYHOLDERS' LIABILITIES:
Protection Products(4)(10)................................ $10,231.7 $10,267.0 $10,105.7
Accumulation Products..................................... 1,236.3 1,318.6 1,416.1
Other Products............................................ 418.9 455.6 513.4
Unallocated amounts....................................... 17.4 17.4 16.5
--------- --------- ---------
$11,904.3 $12,058.6 $12,051.7
--------- --------- ---------
SEPARATE ACCOUNT LIABILITIES:(5)
Protection Products(6).................................... $ 3,843.5 $ 4,056.8 $ 3,720.1
Accumulation Products..................................... 4,548.9 4,452.6 4,002.6
Other Products............................................ 604.2 621.9 547.7
Unallocated amounts....................................... 832.3 776.4 736.0
--------- --------- ---------
$ 9,828.9 $ 9,907.7 $ 9,006.4
========= ========= =========
</TABLE>
- ---------------
(1) Includes Group Pension Profits of $63.0 million, $56.8 million and $60.0
million for the years ended December 31, 1999, 1998 and 1997, respectively.
(See Note 10).
(2) Includes interest credited to policyholders' account balances.
(3) Includes assets transferred in the Group Pension Transaction of $5,109.8
million, $5,751.8 million and $5,714.9 million as of December 31, 1999,
1998 and 1997, respectively.
F-100
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MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) Includes policyholder liabilities transferred in the Group Pension
Transaction of $1,645.7 million, $1,824.9 million and $1,991.0 million as
of December 31, 1999, 1998 and 1997 respectively.
(5) Each segment includes separate account assets in an amount not less than
the corresponding liability reported.
(6) Includes separate account liabilities transferred in the Group Pension
Transaction of $3,432.7 million, $3,829.6 million and $3,614.0 million as
of December 31, 1999, 1998 and 1997, respectively.
(7) Includes $44.8 million and $5.7 million relating to the Contribution from
the Closed Block for the year ended December 31, 1999 and for period from
November 16, 1998 through December 31, 1998 and the year ended December 31,
1999, respectively (see Note 3 and Note 20).
(8) Includes Closed Block assets of $6,182.1 million and $6,161.2 million as of
December 31, 1999 and 1998, respectively (see Note 3 and Note 20).
(9) Includes deferred policy acquisition costs allocated to the Closed Block of
$689.9 million and $554.6 million as of December 31, 1999 and 1998,
respectively (see Note 3 and Note 20).
(10) Includes Closed Block policyholders' liabilities of $7,241.0 million and
$7,177.1 million as of December 31, 1999 and 1998, respectively (see Note 3
and Note 20).
Substantially all of the Company's revenues are derived in the United
States. Revenue derived from outside the United States is not material and
revenue derived from any single customer does not exceed 10 percent of total
consolidated revenues.
Following is a summary of revenues by product for the years ended December
31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
PREMIUMS:
Individual life(1)....................................... $ 81.9 $602.5 $742.4
Disability income insurance.............................. 0.6 0.2 74.6
Group insurance.......................................... 13.4 16.9 16.6
Other.................................................... 0.4 2.1 5.0
------ ------ ------
Total.................................................. $ 96.3 $621.7 $838.6
====== ====== ======
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Universal life........................................... $ 73.2 $ 55.4 $ 48.3
Variable universal life.................................. 37.6 20.4 17.8
Group universal life..................................... 11.5 10.4 8.7
Individual variable annuities............................ 72.8 63.4 50.0
Individual fixed annuities............................... 1.2 2.0 2.5
------ ------ ------
Total.................................................. $196.3 $151.6 $127.3
====== ====== ======
</TABLE>
- ---------------
(1) Excludes revenues from individual life in the Closed Block of $620.8 million
and $100.1 million, for the year ended December 31, 1999 and for the period
from November 16, 1998 through December 31, 1998.
F-101
<PAGE> 190
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEFERRED POLICY ACQUISITION COSTS:
Policy acquisition costs deferred and amortized in 1999, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ -------- --------
($ IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year............................ $439.7 $1,007.1 $1,095.2
Balance transferred to the Closed Block at November
16, 1998............................................ -- (562.3) --
------ -------- --------
439.7 444.8 1,095.2
------ -------- --------
Cost deferred during the year......................... 148.7 124.7 141.0
Amortized to expense during the year.................. (70.3) (122.0) (181.2)
Effect on DAC from unrealized gains (losses) (see Note
4).................................................. 40.2 (7.8) (47.9)
------ -------- --------
Balance, end of the year.............................. $558.3 $ 439.7 $1,007.1
====== ======== ========
</TABLE>
7. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS:
Pension Plans --
The Company has a qualified pension plan covering substantially all of its
salaried employees. The provisions of the plan provide both (a) defined benefit
accruals based on (i) years of service, (ii) the employee's final average annual
compensation and (iii) wage bases or benefits under Social Security and (b)
defined contribution accruals based on a Company matching contribution equal to
100% of the employee's elective deferrals under the incentive savings plan for
employees up to 3% of the employee's eligible compensation and an additional 2%
of eligible compensation for each active participant. Effective June 15, 1999,
prospective defined contribution accruals in the defined benefit plan ceased and
were redirected to the Investment Plan Supplement for Employees. The Company did
not make any contribution in the current year or prior year under Section 404 of
the Internal Revenue Code ("IRC") because the plan was fully funded under
Section 412 of the IRC.
During 1999, the Company amended its Qualified Pension plan which reduced
certain benefit liabilities payable thereunder. The amendment resulted in a
decrease of $27.0 million in the plan's projected benefit obligation.
In July 1999, the Company offered special benefits to its employees who
elected by August 15, 1999, voluntary termination of employment (special
termination benefits). The special termination benefits represented benefits in
excess of that which would normally be due to employees electing to retire
early. These excess benefits were calculated based on grants of additional years
of service and age used in the benefit calculation. All of the special
termination benefits relating to the Company's qualified plan, which aggregated
$30.6 million, will be paid from the Plan's assets. All the benefits paid
relating to the Company's non-qualified plan, which aggregated $19.4 million,
will be paid directly from the Company's assets. As a result of the
aforementioned early retirement offer, the Company recorded a charge of $59.7
million in 1999 which included the aforementioned expenses in addition to
severence and other related expenses and reflected this amount in Other
Operating Costs and Expenses.
The assets of the qualified pension plan are primarily invested in MONY
Pooled Accounts which include common stock, real estate, private placement debt
securities and bonds. At December 31, 1999 and 1998, $495.7 million and $457.3
million were invested in the MONY Pooled Accounts. Benefits of $40.4 million,
$26.3 million and $24.2 million were paid by this plan for the years ended
December 31, 1999, 1998, and 1997, respectively.
F-102
<PAGE> 191
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also sponsors a non-qualified employee excess pension plan,
which provides both defined benefits and defined contribution accruals in excess
of Internal Revenue Service limits to certain employees. The benefits are based
on years of service and the employees final average annual compensation. Pension
benefits are paid from Company's general accounts.
Postretirement Benefits --
The Company provides certain health care and life insurance benefits for
retired employees and field underwriters. The Company amortizes its unamortized
postretirement transition obligation over a period of twenty years.
Assumed health care cost trend rates typically have a significant effect on
the amounts reported for health care plans. However, under the Company's
postretirement healthcare plan, there is a per capita limit on the Company's
healthcare costs, as a result, a one-percentage point change in the assumed
healthcare cost trend rates would have an immaterial affect on amounts reported.
The following presents the change in the benefit obligation, change in plan
assets and other information with respect to the Company's qualified and
non-qualified defined benefit pension plans and other benefits which represents
the Company's postretirement benefit obligation:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- -----------------
1999 1998 1999 1998
------ ------ ------ -------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year........ $398.3 $390.1 $100.0 $ 101.1
Service cost................................... 11.7 14.4 2.0 1.3
Interest cost.................................. 27.3 26.3 7.2 6.4
Curtailment gain............................... (3.8) -- -- --
Terminated benefits............................ 50.0 -- -- --
Plan amendment................................. (27.0) -- -- --
Actuarial (gain)/loss.......................... (38.8) 2.0 (4.0) (3.0)
Benefits paid.................................. (44.4) (34.5) (7.5) (5.8)
------ ------ ------ -------
Benefit obligation at end of year.............. 373.3 398.3 97.7 100.0
------ ------ ------ -------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of
year......................................... $459.8 $432.5 $ -- $ --
Actual return on plan assets................... 77.4 56.7 -- --
Employer contribution.......................... 6.7 5.1 7.5 5.8
Benefits and expenses paid..................... (45.9) (34.5) (7.5) (5.8)
------ ------ ------ -------
Fair value of plan assets at end of year....... 498.0 459.8 -- --
------ ------ ------ -------
Funded status.................................. 124.7 61.5 (97.7) (100.0)
Unrecognized actuarial loss/(gain)............. (57.2) 16.4 7.4 11.1
Unamortized transition obligation.............. (13.0) (19.8) 39.4 42.7
Unrecognized prior service cost................ (15.6) 9.7 (1.0) --
------ ------ ------ -------
Net amount recognized.......................... $ 38.9 $ 67.8 $(51.9) $ (46.2)
====== ====== ====== =======
</TABLE>
F-103
<PAGE> 192
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- -----------------
1999 1998 1999 1998
------ ------ ------ -------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
AMOUNTS RECOGNIZED IN THE STATEMENT OF
FINANCIAL POSITION CONSIST OF:
Prepaid benefit cost........................... $ 93.8 $103.0 $ -- $ --
Accrued benefit liability...................... (55.0) (39.5) (51.9) (46.2)
Intangible asset............................... 0.1 1.4 -- --
Accumulated other comprehensive income......... -- 2.9 -- --
------ ------ ------ -------
Net amount recognized.......................... $ 38.9 $ 67.8 $(51.9) $ (46.2)
====== ====== ====== =======
</TABLE>
The Company's qualified plan had assets of $498.0 million and $459.8
million at December 31, 1999 and 1998, respectively. The projected benefit
obligation and accumulated benefit obligation for the qualified plan were $311.0
million and $285.4 million at December 31, 1999 and $350.8 million and $311.5
million at December 31, 1998, respectively.
The projected benefit obligation and accumulated benefit obligation for the
non-qualified defined benefit pension plan, which is unfunded, were $62.3
million and $55.0 million at December 31, 1999 and $47.5 million and $39.5
million at December 31, 1998, respectively.
<TABLE>
<CAPTION>
PENSION OTHER
BENEFITS BENEFITS
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate........................................... 8.0% 6.75% 8.0% 6.75%
Expected return on plan assets.......................... 10.0% 10.0% -- --
Rate of compensation increase........................... 5.0% 5.0% 5.0% 5.0%
</TABLE>
For measurements purposes, a 11% percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 6% percent for 2010 and remain at that level
thereafter.
Components of net periodic benefit cost for the pension and other
post-retirement plans are as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------ ---------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost.............................. $ 11.7 $ 14.4 $ 12.9 $ 2.0 $ 1.3 $ 1.0
Interest cost............................. 27.3 26.3 27.5 7.2 6.4 6.7
Expected return on plan assets............ (44.2) (41.8) (38.0) -- -- --
Amortization of prior service cost........ (0.8) 1.0 1.0 (0.1) -- --
Curtailment gain.......................... (3.8) -- -- -- -- --
Special Termination Benefits.............. 50.0 -- -- -- -- --
Recognized net actuarial loss............. -- -- 0.1 1.1 0.1 --
Amortization of Transition Items.......... (7.5) (7.5) (7.5) 3.1 3.1 3.1
------ ------ ------ ----- ----- -----
Net periodic benefit cost................. $ 32.7 $ (7.6) $ (4.0) $13.3 $10.9 $10.8
====== ====== ====== ===== ===== =====
</TABLE>
The Company also has a qualified money purchase pension plan covering
substantially all career field underwriters. Company contributions of 5% of
earnings plus an additional 2% of such earnings in
F-104
<PAGE> 193
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
excess of the social security wage base are made each year. In addition,
after-tax voluntary field underwriter contribution of up to 10% of earnings are
allowed. At December 31, 1999 and 1998, the fair value of plan assets was $250.3
million and $222.2 million, respectively. For the years ended December 31, 1999,
1998, and 1997, the Company contributed $3.1 million, $3.2 million and $3.3
million to the plan, respectively, which amounts are reflected in Other
Operating Costs and Expenses.
The Company has a non-qualified defined contribution plan, which is
unfunded. The non-qualified defined contribution plan projected benefit
obligation which equaled the accumulated benefit obligation was $62.2 million
and $48.4 million as of December 31, 1999 and 1998, respectively. The non-
qualified defined contribution plan's net periodic expense was $9.3 million,
$6.6 million and $9.4 million for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company also has incentive savings plans in which substantially all
employees and career field underwriters are eligible to participate. The Company
matches field underwriter contributions up to 2% of eligible compensation and
may also make an additional profit sharing contribution for non-officer
employees. As with the Employee Excess Plan, the Company also sponsors
non-qualified excess defined contribution plans for both the field underwriter
retirement plan and the incentive savings plan for field underwriters.
8. FEDERAL INCOME TAXES:
The Holding Company files a consolidated federal income tax return with its
life and non-life affiliates, except Sagamore Financial Corporation and its
subsidiaries.
Federal income taxes have been calculated in accordance with the provisions
of the Internal Revenue Code of 1986, as amended. A summary of the Federal
income tax expense (benefit) is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Federal income tax (benefit) expense:
Current................................................ $ 73.9 $ 84.6 $104.1
Deferred............................................... 57.5 18.1 (46.8)
------ ------ ------
Total............................................... $131.4 $102.7 $ 57.3
====== ====== ======
</TABLE>
Federal income taxes reported in the consolidated statements of income are
different from the amounts determined by multiplying the earnings before federal
income taxes by the statutory federal income tax rate of 35%. The sources of the
difference and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
($ IN MILLIONS)
<S> <C> <C> <C>
Tax at statutory rate..................................... $133.3 $102.7 $65.7
Differential earnings amount.............................. -- -- (5.8)
Dividends received deduction.............................. (1.7) (1.4) (0.5)
Other..................................................... (0.2) 1.4 (2.1)
------ ------ -----
Provision for income taxes................................ $131.4 $102.7 $57.3
====== ====== =====
</TABLE>
The Company's federal income tax returns for years through 1993 have been
examined by the Internal Revenue Service ("IRS"). No material adjustments were
proposed by the IRS as a result of these examinations. In the opinion of
management, adequate provision has been made for any additional taxes which may
become due with respect to open years.
F-105
<PAGE> 194
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred tax liabilities and assets at December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
($ IN MILLIONS)
<S> <C> <C>
Deferred policy acquisition costs........................... $145.0 $127.9
Fixed maturities and equity securities...................... 34.5 68.2
Other, net(1)............................................... 56.4 71.3
Nonlife subsidiaries........................................ 17.2 8.3
------ ------
Total deferred tax liabilities.............................. 253.1 275.7
------ ------
Policyholder and separate account liabilities............... 155.6 113.8
Accrued expenses............................................ 50.8 70.4
Deferred compensation and benefits.......................... 38.3 24.0
Policyholder dividends...................................... -- 39.8
Real estate and mortgages................................... 25.3 29.4
------ ------
Total deferred tax assets................................... 270.0 277.4
------ ------
Net deferred tax asset...................................... $ 16.9 $ 1.7
====== ======
</TABLE>
- ---------------
(1) Includes $3.8 million and $25.7 million at December 31, 1999 and 1998 of
deferred taxes relating to net unrealized gains on fixed maturity securities
in the AEGON Portfolio (see Note 10).
The Company is required to establish a valuation allowance for any portion
of the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that it will realize the
benefit of the deferred tax assets and, therefore, no such valuation allowance
has been established.
9. LEASES:
The Company has entered into various operating lease agreements for office
space, furniture and equipment. These leases have remaining non-cancelable lease
terms in excess of one year. Total rental expense for these operating leases
amounted to $29.6 million in 1999, $24.5 million in 1998 and $25.6 million in
1997. The future minimum rental obligations for the next five years and
thereafter under these leases are: $30.6 million for 2000, $28.2 million for
2001, $27.0 million for 2002, $25.4 million for 2003, $22.6 million for 2004,
and $154.4 for the years thereafter.
10. THE GROUP PENSION TRANSACTION:
On December 31, 1993 (the "Group Pension Transaction Date"), the Company
entered into an agreement (the "Agreement") with AEGON USA, Inc. ("AEGON") under
which the Company transferred a substantial portion of its group pension
business (hereafter referred to as the "Group Pension Transaction"), including
its full service group pension contracts, consisting primarily of tax-deferred
annuity, 401(k) and managed funds lines of business, to AEGON's wholly-owned
subsidiary, AUSA Life Insurance Company, Inc. ("AUSA"). The Company also
transferred to AUSA the corporate infrastructure supporting the group pension
business, including data processing systems, facilities and regional offices.
AUSA was newly formed by AEGON solely for the purpose of facilitating this
transaction. In connection with the transaction, the Company and AEGON have
entered into certain service agreements. These agreements, among other things,
provide that the Company will continue to manage the transferred assets, and
that AUSA will continue to provide certain administrative services to the
Company's remaining group pension contracts not included in the transfer.
F-106
<PAGE> 195
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the Agreement, MONY agreed to make a $200 million capital
investment in AEGON by purchasing $150 million face amount of Series A Notes and
$50 million face amount of Series B Notes (hereinafter referred to as the
"Notes"). The Series A Notes pay interest at 6.44 percent per annum and the
Series B Notes pay interest at 6.24 percent per annum. Both the Series A Notes
and the Series B Notes mature on December 31, 2002. MONY's investment in the
Series A Notes was intended to provide AEGON with the funding necessary to
capitalize AUSA.
In accordance with GAAP, the transaction did not constitute a sale because
the Company retained substantially all the risks and rewards associated with the
Existing Deposits. Accordingly, the Company continues to reflect the transferred
assets and liabilities on its balance sheet under separate captions entitled
"Assets transferred in Group Pension Transaction" and "Liabilities transferred
in Group Pension Transaction". In addition, the Company reports in its GAAP
earnings the profits from the Existing Deposits as discussed below.
Pursuant to the Agreement, MONY receives from AUSA (i) payments on an
annual basis through December 31, 2002 (the "Group Pension Payments") equal to
all of the earnings from the Existing Deposits, (ii) a final payment (the "Final
Value Payment") at December 31, 2002 based on the remaining fair value of the
Existing Deposits, and (iii) a contingent payment (the "New Business Growth
Payment") at December 31, 2002 based on new business growth subsequent to the
Transaction Date. However, the level of new business growth necessary for MONY
to receive the New Business Growth Payment makes it unlikely that MONY will ever
receive any such payment.
With respect to the Group Pension Payments, the annual results from the
Existing Deposits are measured on a basis in accordance with the Agreement (such
basis hereafter referred to as the "Earnings Formula") which is substantially
the same as GAAP, except that: (i) asset impairments on fixed maturity
securities are only recognized when such securities are designated with an NAIC
rating of "6", and (ii) no impairment losses are recognized on mortgage loans
until such loans are disposed of or at the time, and in the calculation, of the
Final Value Payment.
Earnings which emerge from the Existing Deposits pursuant to the
application of the Earnings Formula are recorded in the Company's financial
statements only after adjustments (primarily to recognize asset impairments in
accordance with SFAS Nos. 114 and 115) to reflect such earnings on a basis
entirely in accordance with GAAP (such earnings hereafter referred to as the
"Group Pension Profits"). Losses which arise from the application of the
Earnings Formula for any annual period will be reflected in the Company's
results of operations (after adjustments to reflect such losses in accordance
with GAAP) only up to the amount for which the Company is at risk (as described
below), which at any time is equal to the then outstanding principal amount of
the Series A Notes.
Operating losses reported in any annual period pursuant to the Earnings
Formula are carried forward to reduce any earnings in subsequent years reported
pursuant to the Earnings Formula. Any resultant deficit remaining at December
31, 2002 will be deducted from the Final Value Payment and New Business Growth
Payment, if any, due to the Company. If a deficit still remains, it will be
applied (as provided for in the Agreement) as an offset against the principal
payment due to the Company upon maturity of the Series A Notes.
For the years ended December 31, 1999, 1998 and 1997, AUSA reported
earnings to the Company pursuant to the application of the Earnings Formula of
$35.7 million, $49.8 million, and $55.7 million, respectively, and the Company
recorded Group Pension Profits of $63.0 million, $56.8 million and $60.0
million, respectively. In addition, the Company earned $12.8 million, $12.8
million, and $17.7 million of interest income on the Notes during the
aforementioned years. From 1994 through 1996, the Company reinvested an
aggregate of $169 million of the aforementioned profits and interest in
additional Series A notes (the "Additional Notes") with a face amount equal to
the amount reinvested. The Additional
F-107
<PAGE> 196
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes paid interest at 1% above the two-year U.S. Treasury rate in effect at the
time of their issuance. All of the Additional Notes were redeemed at face value
by AEGON during 1997. At December 31, 1999, the remaining Series A notes held by
the Company consisted of the $150.0 million face amount of Series A Notes it
acquired on December 31, 1993.
The following sets forth certain summarized financial information relating
to the Group Pension Transaction as of and for the periods indicated, including
information regarding: (i) the general account assets transferred to support the
Existing Deposits in the Group Pension Transaction (such assets hereafter
referred to as the "AEGON Portfolio"), (ii) the transferred separate account
assets and liabilities, and (iii) the components of revenue and expense
comprising the Group Pension Profits:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1999 1998
-------- --------
($ IN MILLIONS)
<S> <C> <C>
ASSETS:
General Account
Fixed maturities: available for sale, at estimated fair
value (amortized cost; $1,532.4 and $1,564.6,
respectively)........................................ $1,510.0 $1,620.2
Mortgage loans on real estate.......................... 98.5 214.8
Real estate held for investment........................ -- 37.9
Real estate to be disposed of.......................... 16.8 --
Cash and cash equivalents.............................. 25.3 21.7
Accrued investment income.............................. 26.5 27.6
-------- --------
Total general account assets........................... 1,677.1 1,922.2
Separate account assets................................... 3,432.7 3,829.6
-------- --------
Total assets......................................... $5,109.8 $5,751.8
======== ========
LIABILITIES:
General Account(1)
Policyholders' account balances........................ $1,645.7 $1,824.9
Other liabilities...................................... 20.7 24.0
-------- --------
Total general account liabilities.................... 1,666.4 1,848.9
Separate account liabilities(2)........................... 3,432.7 3,829.6
-------- --------
Total liabilities.................................... $5,099.1 $5,678.5
======== ========
</TABLE>
- ---------------
(1) Includes general account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $88.9 million
and $121.7 million as of December 31, 1999 and 1998, respectively.
(2) Includes separate account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $20.3 million
and $33.3 million as of December 31, 1999 and 1998, respectively.
F-108
<PAGE> 197
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C>
REVENUES:
Product policy fees......................................... $ 24.0 $ 23.3 $ 23.7
Net investment income....................................... 128.4 154.7 169.3
Net realized gains on investments........................... 18.9 7.2 7.1
------ ------ ------
Total revenues............................................ 171.3 185.2 200.1
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances........ 88.4 108.7 117.3
Other operating costs and expenses.......................... 19.9 19.7 22.8
------ ------ ------
Total benefits and expenses............................... 108.3 128.4 140.1
------ ------ ------
Group Pension Profits..................................... $ 63.0 $ 56.8 $ 60.0
====== ====== ======
</TABLE>
Fixed Maturity Securities
At December 31, 1999 and 1998, there were no fixed maturity securities in
the AEGON Portfolio deemed to have other than temporary impairments in value. In
addition, there were no fixed maturity securities at such dates which have been
non-income producing for the preceding twelve months.
At December 31, 1999 and 1998, there were no problem fixed maturities (as
hereafter defined -- see Note 12) held in the AEGON Portfolio. In addition, at
such dates the carrying value of potential problem fixed maturities held in the
AEGON Portfolio was $3.7 million. Also, none of the fixed maturity securities
held in the AEGON Portfolio at December 31, 1999 and 1998 or prior thereto had
been restructured.
The amortized cost and estimated fair value of fixed maturity securities
held in the AEGON Portfolio, by contractual maturity dates, (excluding scheduled
sinking funds), as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
($ IN MILLIONS)
<S> <C> <C>
Due in one year or less..................................... $ 91.5 $ 92.5
Due after one year through five years....................... 872.0 856.1
Due after five years through ten years...................... 269.7 262.8
Due after ten years......................................... 30.9 29.7
-------- --------
Subtotal.................................................... 1,264.1 1,241.1
Mortgage and asset backed securities........................ 268.3 268.9
-------- --------
Total..................................................... $1,532.4 $1,510.0
======== ========
</TABLE>
Fixed maturity securities that are not due at a single maturity date have
been included in the preceding table in the year of final maturity. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
The percentage of fixed maturities with a credit quality of Aaa, Aa or A
was 73.0% and 66.8% at December 31, 1999 and 1998, respectively. The percentage
of fixed maturities rated Baa was 24.6% and 29.3% at December 31, 1999 and 1998,
respectively. There were no fixed maturities in or near default.
F-109
<PAGE> 198
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net change in unrealized investment gains (losses) represents the only
component of other comprehensive income generated by the AEGON Portfolio for the
years ended December 31, 1999, 1998, 1997 and prior thereto. The net change in
unrealized investment gains (losses) was $(77.9) million, $(4.0) million and
$(1.5) million for the years ended December 31, 1999, 1998 and 1997,
respectively (see Note 11):
Mortgage Loans on Real Estate
Mortgage loans on real estate in the AEGON Portfolio at December 31, 1999
and 1998 consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1999 1998
------- -------
($ IN MILLIONS)
<S> <C> <C>
Mortgage loans.............................................. $102.8 $230.8
Valuation allowances........................................ (4.3) (16.0)
------ ------
Mortgage loans, net of valuation allowance.................. $ 98.5 $214.8
====== ======
</TABLE>
An analysis of the valuation allowances with respect to the AEGON Portfolio
for 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year.................................. $16.0 $13.6 $22.2
Increase (decrease) in allowance............................ (6.7) 2.9 (5.1)
Reduction due to pay downs and pay offs..................... (1.0) (0.5) (1.6)
Transfers to real estate.................................... (4.0) -- (1.9)
----- ----- -----
Balance, end of year........................................ $ 4.3 $16.0 $13.6
===== ===== =====
</TABLE>
Impaired mortgage loans along with related valuation allowances with
respect to the AEGON Portfolio at December 31, 1999, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1999 1998 1997
----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Investment in impaired mortgage loans (before valuation
allowances):
Loans that have valuation allowances.................... $34.3 $ 71.1 $ 56.6
Loans that do not have valuation allowances............. 4.4 4.4 45.8
----- ------ ------
Subtotal............................................. 38.7 75.5 102.4
Valuation allowances...................................... (2.7) (11.4) (5.8)
----- ------ ------
Impaired mortgage loans, net of valuation allowances...... $36.0 $ 64.1 $ 96.6
===== ====== ======
</TABLE>
Impaired mortgage loans that do not have valuation allowances are loans
where the net present value of the expected future cash flows related to the
loan or the fair value of the collateral equals or exceeds the recorded
investment in the loan. Such loans primarily consist of restructured loans.
During the years ended December 31, 1999, 1998, and 1997, the average
recorded investment in impaired mortgage loans with respect to the AEGON
Portfolio was approximately $50.0 million,
F-110
<PAGE> 199
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$80.4 million, and $116.3 million, respectively. For the years ended December
31, 1999, 1998, and 1997 approximately $2.9 million, $4.5 million, and $6.5
million, respectively, of interest income on impaired loans with respect to the
AEGON Portfolio was earned.
At December 31, 1999 and 1998, there were no mortgage loans which were
non-income producing for the twelve months preceding such dates with respect to
the AEGON Portfolio.
At December 31, 1999 and 1998 the AEGON Portfolio held restructured
mortgage loans of $36.0 million and $59.7 million, respectively. Interest income
of $2.9 million, $4.0 million, and $6.6 million was recognized on restructured
mortgage loans for the years ended December 31, 1999, 1998, and 1997,
respectively. Gross interest income on these loans that would have been recorded
in accordance with the original terms of such loans amounted to approximately
$3.9 million, $6.9 million, and $9.2 million for the years ended December 31,
1999, 1998, and 1997, respectively.
The following table presents the maturity distribution of mortgage loans
held in the AEGON Portfolio as of December 31, 1999 ($ in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
CARRYING % OF
VALUE TOTAL
-------- -----
<S> <C> <C>
Due in one year or less..................................... $27.9 28.3%
Due after one year through five years....................... 37.0 37.6
Due after five years through ten years...................... 33.6 34.1
----- -----
Total..................................................... $98.5 100.0%
===== =====
</TABLE>
Total problem, potential problem and restructured commercial mortgages as a
percentage of commercial mortgages were 36.6%, 29.9% and 27.8% at December 31,
1999, 1998 and 1997, respectively. Total valuation allowances as a percentage of
problem, potential problem and restructured commercial mortgages at carrying
value before valuation allowances were 7.0%, 15.1% and 5.7% as of December 31,
1999, 1998 and 1997, respectively.
Real Estate
As of December 31, 1999 and 1998, the AEGON Portfolio had real estate of
$16.8 million and $37.9 million, respectively, which are net of $2.4 million and
$18.2 million, respectively, of impairments taken upon foreclosure of mortgage
loans. Losses recorded during the years ended December 31, 1999, 1998 and 1997
related to impairments taken upon foreclosure were $0.0 million, $0.0 million,
and $4.3 million, respectively. For the year ended December 31, 1999, the real
estate balance of $16.8 million was classified as real estate to be disposed of.
For the year ended December 31, 1998, the balance of $37.9 million was
classified as real estate held for investment. During 1999, there was $0.4
million of losses recorded for valuation allowances on real estate to be
disposed of.
Real estate is net of accumulated depreciation of $1.0 million, and $2.5
million and valuation allowances of $0.4 million and $0.0 million at December
31, 1999 and 1998, respectively. Depreciation expense of $0.7 million, $1.1
million, and $1.4 million, was recorded for the years ended December 31, 1999,
1998, and 1997, respectively.
There was no real estate included in the AEGON Portfolio which was
non-income producing for the twelve months preceding December 31, 1999, 1998,
and 1997, respectively.
F-111
<PAGE> 200
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INVESTMENT INCOME, REALIZED AND UNREALIZED INVESTMENT GAINS (LOSSES), AND
COMPREHENSIVE INCOME:
Net investment income for the years ended December 31, 1999, 1998 and 1997
was derived from the following sources:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
NET INVESTMENT INCOME
Fixed maturities......................................... $226.1 $418.1 $422.5
Equity securities........................................ 194.2 53.6 53.5
Mortgage loans........................................... 87.1 118.7 137.1
Real estate.............................................. 34.1 44.4 56.2
Policy loans............................................. 4.4 72.5 82.2
Other investments (including cash and short-term)........ 14.4 23.1 22.4
------ ------ ------
Total investment income.................................. 560.3 730.4 773.9
Investment expenses...................................... 35.4 42.1 40.9
------ ------ ------
Net investment income.................................... $524.9 $688.3 $733.0
====== ====== ======
</TABLE>
Net realized gains (losses) on investments for the years ended December 31,
1999, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Fixed maturities......................................... $ (8.5) $ 8.3 $ 7.3
Equity securities........................................ 76.0 6.9 35.8
Mortgage loans........................................... (2.2) 5.4 10.4
Real estate.............................................. 52.1 127.6 20.1
Other investments assets................................. 4.8 20.5 (1.5)
------ ------ ------
Net realized gains on investments........................ $122.2 $168.7 $ 72.1
====== ====== ======
</TABLE>
Following is a summary of the change in unrealized investment gains
(losses), net of related deferred income taxes and adjustment for deferred
policy acquisition costs (see Note 4), which are reflected in Accumulated Other
Comprehensive Income for the periods presented. The net change in unrealized
investment gains (losses) and the change in the Company's minimum pension
liability
F-112
<PAGE> 201
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
represent the only components of other comprehensive income for the years ended
December 31, 1999, 1998 and 1997 as presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
OTHER COMPREHENSIVE INCOME
Change in unrealized gains (losses):
Fixed maturities........................................ $(458.9) $ 66.8 $ 98.7
Equity securities....................................... (25.3) 24.2 0.6
Other................................................... (3.6) (1.8) 3.7
------- ------ ------
Subtotal................................................ (487.8) 89.2 103.0
AEGON Portfolio (See Note 10)........................... (77.9) (4.0) (1.5)
------- ------ ------
Subtotal................................................ (565.7) 85.2 101.5
Effect on unrealized gains (losses) on investments
attributable to:
DAC................................................... 241.6 (6.7) (47.9)
Deferred federal income taxes......................... 114.1 (28.4) (17.7)
Net unrealized gains and DAC transferred to the Closed
Block................................................. 28.2 (18.7) --
------- ------ ------
Change in unrealized gains (losses) on investments,
net................................................... (181.8) 31.4 35.9
Minimum pension liability adjustment (See Note 7)....... -- 2.9 (2.9)
------- ------ ------
Other comprehensive income.............................. $(181.8) $ 34.3 $ 33.0
======= ====== ======
</TABLE>
The following table sets forth the reclassification adjustments required
for the years ended December 31, 1999, 1998, and 1997 to avoid double-counting
in comprehensive income items that are included as part of net income for a
period that also had been part of other comprehensive income in earlier periods:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
RECLASSIFICATION ADJUSTMENTS
Unrealized gains (losses) on Investments arising during
period................................................ $(135.3) $ 39.3 $ 53.5
Reclassification adjustment for gains included in net
income................................................ (46.5) (7.9) (17.6)
------- ------ ------
Unrealized gains (losses) on Investments, net of
reclassification adjustments.......................... $(181.8) $ 31.4 $ 35.9
======= ====== ======
</TABLE>
Unrealized gains (losses) on investments, (excluding net unrealized gains
(losses) and DAC on assets allocated to the Closed Block), reported in the above
table for the years ended December 31, 1999, 1998 and 1997 are net of income tax
expense (benefit) of ($139.2) million, $24.1 million, and $8.2 million,
respectively, and $242.0 million, $0.8 million, and $(30.2) million,
respectively, relating to the effect of such unrealized gains (losses) on DAC.
Reclassification adjustments, (excluding net unrealized gains (losses) and
DAC on assets allocated to the Closed Block), reported in the above table for
the years ended December 31, 1999, 1998 and 1997 are net of income tax expense
of $25.1 million, $4.3 million and $9.5 million, respectively, and $(0.4)
million, $(7.5) million and $(17.7) million, respectively, relating to the
effect of such amounts on DAC.
F-113
<PAGE> 202
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INVESTMENTS:
Fixed Maturity Securities Available-for-Sale:
The amortized cost, gross unrealized gains and losses, and estimated fair
value of fixed maturity securities available-for-sale as of December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------------- -------------- -------------- -------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- ----- ------ ------ ----- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US Treasury securities and
Obligations of US Government
agencies..................... $ 110.1 $ 63.8 $ -- $ 3.2 $ 3.2 $ -- $ 106.9 $ 67.0
Collateralized mortgage
obligations:
Government agency-backed..... 147.2 180.2 0.5 3.3 2.1 -- 145.6 183.5
Non-agency backed............ 101.0 85.7 0.9 3.4 2.0 -- 99.9 89.1
Other asset-backed securities:
Government agency-backed..... 16.4 20.0 0.3 1.0 0.2 -- 16.5 21.0
Non-agency backed............ 402.2 347.5 1.5 12.2 13.0 0.9 390.7 358.8
Foreign governments............ 20.9 16.6 3.7 1.2 0.2 0.6 24.4 17.2
Utilities...................... 347.3 339.4 2.6 13.2 14.4 5.1 335.5 347.5
Corporate bonds................ 1,995.5 1,953.8 9.4 79.3 78.4 9.0 1,926.5 2,024.1
-------- -------- ----- ------ ------ ----- -------- --------
Total bonds................ 3,140.6 3,007.0 18.9 116.8 113.5 15.6 3,046.0 3,108.2
Redeemable preferred stocks.... 22.4 23.5 -- 0.6 1.7 0.3 20.7 23.8
-------- -------- ----- ------ ------ ----- -------- --------
Total...................... $3,163.0 $3,030.5 $18.9 $117.4 $115.2 $15.9 $3,066.7 $3,132.0
======== ======== ===== ====== ====== ===== ======== ========
</TABLE>
The carrying value of the Company's fixed maturity securities at December
31, 1999 and 1998 is net of adjustments for impairments in value deemed to be
other than temporary of $16.2 million and $15.1 million, respectively.
At December 31, 1999 and 1998, there was $1.6 million and $0.0 million,
respectively of fixed maturity securities which had been non-income producing
for the twelve months preceding such dates.
The Company classifies fixed maturity securities which (i) are in default
as to principal or interest payments, or (ii) are to be restructured pursuant to
commenced negotiations, (iii) went into bankruptcy subsequent to acquisition, or
(iv) are deemed to have other than temporary impairments to value as "problem
fixed maturity securities". At December 31, 1999 and 1998, the carrying value of
problem fixed maturities held by the Company was $33.9 million. In addition, at
December 31, 1999 and 1998, the Company held $0.0 million and $8.6 million of
fixed maturity securities which had been restructured. Gross interest income
that would have been recorded in accordance with the original terms of
restructured fixed maturity securities amounted to $0.0 million and $0.9 million
for the years ended December 31, 1999 and 1998, respectively. Gross interest
income on these fixed maturity securities included in net investment income
aggregated $0.0 million and $1.3 million for the years ended December 31, 1999
and 1998, respectively.
F-114
<PAGE> 203
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated fair value of fixed maturity securities,
by contractual maturity dates (excluding scheduled sinking funds) as of December
31, 1999, are as follows:
<TABLE>
<CAPTION>
1999
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
($ IN MILLIONS)
<S> <C> <C>
Due in one year or less..................................... $ 138.6 $ 139.7
Due after one year through five years....................... 553.2 547.0
Due after five years through ten years...................... 1,243.3 1,193.4
Due after ten years......................................... 561.1 533.9
-------- --------
Subtotal.................................................. 2,496.2 2,414.0
Mortgage- and asset-backed securities....................... 666.8 652.7
-------- --------
Total..................................................... $3,163.0 $3,066.7
======== ========
</TABLE>
Fixed maturity securities that are not due at a single maturity date have
been included in the preceding table in the year of final maturity. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Proceeds from sales of fixed maturity securities including those in the
Closed Block during 1999, 1998 and 1997 were $632.8 million, $396.9 million and
$225.0 million, respectively. Gross gains of $6.9 million, $10.6 million, and
$5.2 million and gross losses of $19.4 million, $2.9 million, and $2.6 million
were realized on these sales, respectively.
Equity Securities
The cost, gross unrealized gains and losses, and estimated fair value of
marketable and nonmarketable equity securities at December 31, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------------- --------------- ------------- ---------------
1999 1998 1999 1998 1999 1998 1999 1998
------ ------ ------ ------ ----- ----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marketable equity
Securities................. $217.5 $233.6 $ 63.3 $ 48.7 $ 9.3 $ 6.7 $271.5 $275.6
Nonmarketable equity
Securities................. 178.5 128.2 84.4 65.7 14.6 12.3 248.3 181.6
------ ------ ------ ------ ----- ----- ------ ------
$396.0 $361.8 $147.7 $114.4 $23.9 $19.0 $519.8 $457.2
====== ====== ====== ====== ===== ===== ====== ======
</TABLE>
Proceeds from sales of equity securities during 1999, 1998 and 1997 were
$302.7 million, $165.0 million and $234.1 million, respectively. Gross gains of
$90.0 million, $24.4 million, and $44.4 million and gross losses of $12.4
million, $17.2 million, and $4.7 million were realized on these sales,
respectively.
F-115
<PAGE> 204
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. MORTGAGE LOANS ON REAL ESTATE AND REAL ESTATE:
Mortgage loans on real estate at December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
($ IN MILLIONS)
<S> <C> <C>
Commercial mortgage loans................................... $ 777.8 $ 546.1
Agricultural and other loans................................ 515.6 465.4
-------- --------
Total loans................................................. 1,293.4 1,011.5
Less: valuation allowances.................................. (23.0) (23.2)
-------- --------
Mortgage loans, net of valuation allowances................. $1,270.4 $ 988.3
======== ========
</TABLE>
An analysis of the valuation allowances for 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year................................ $23.2 $ 54.9 $ 67.0
Increase in allowance..................................... 3.2 11.9 1.4
Reduction due to pay downs and pay offs................... (1.2) (16.0) (12.7)
Transfers to real estate.................................. (2.2) (4.0) (0.8)
Transfers to the Closed Block............................. -- (23.6) --
----- ------ ------
Balance, end of year...................................... $23.0 $ 23.2 $ 54.9
===== ====== ======
</TABLE>
Impaired mortgage loans along with related valuation allowances as of
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
($ IN MILLIONS)
<S> <C> <C>
Investment in impaired mortgage loans (before valuation
allowances):
Loans that have valuation allowances........................ $109.1 $116.7
Loans that do not have valuation allowances................. 30.1 29.5
------ ------
Subtotal.................................................. 139.2 146.2
Valuation allowances........................................ (17.5) (10.9)
------ ------
Impaired mortgage loans, net of valuation allowances...... $121.7 $135.3
====== ======
</TABLE>
Impaired mortgage loans that do not have valuation allowances are loans
where the net present value of the expected future cash flows related to the
loan or the fair value of the collateral equals or exceeds the recorded
investment in the loan. Such loans primarily consist of restructured loans or
loans on which impairment writedowns were taken prior to the adoption of SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan".
During 1999 and 1998, the average recorded investment in impaired mortgage
loans was approximately $262.6 million and $300.1 million, respectively
including Closed Block mortgages. During 1999, 1998, and 1997, the Company
recognized $19.8 million, $24.2 million, and $28.5 million, respectively, of
interest income on impaired loans (see Note 20.)
At December 31, 1999 and 1998, the carrying values of mortgage loans which
were non-income producing for the twelve months preceding such dates were $21.0
million and $12.9 million, respectively.
F-116
<PAGE> 205
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999 and 1998, the Company had restructured mortgage loans
of $100.1 million (excluding the Closed Block) and $110.6 million, respectively.
Interest income of $6.3 million, $13.0 million and $20.3 million was recognized
on restructured mortgage loans in 1999, 1998, and 1997, respectively. Gross
interest income on these loans that would have been recorded in accordance with
the original terms of such loans amounted to approximately $11.6 million, $18.1
million, and $26.7 million in 1999, 1998 and 1997, respectively.
The following table summarizes the Company's real estate at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1999 1998
------- -------
($ IN MILLIONS)
<S> <C> <C>
Real estate to be disposed of(1)............................ $375.6 $393.7
Impairment writedowns....................................... (52.7) (50.2)
Valuation allowance......................................... (22.0) (30.6)
------ ------
Carrying value of real estate to be disposed of............. $300.9 $312.9
------ ------
Real estate held for investment(2).......................... $ 57.0 $381.9
Impairment writedowns....................................... (10.8) (60.6)
------ ------
Carrying value of real estate held for investment........... $ 46.2 $321.3
====== ======
</TABLE>
- ---------------
(1) Amounts presented as of December 31, 1999 and 1998 are net of $42.1 million
and $29.0 million, respectively, relating to impairments taken upon
foreclosure of mortgage loans.
(2) Amounts presented as of December 31, 1999 and 1998 are net of $5.9 million
and $26.8 million, respectively, relating to impairments taken upon
foreclosure of mortgage loans.
An analysis of the valuation allowances relating to real estate classified
as to be disposed of for the years ended December 31, 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year............................... $ 30.6 $ 82.7 $ 46.0
Increase due to transfers of properties to real estate to
be disposed of during the year......................... 11.0 1.7 66.1
Increases (decreases) in valuation allowances from the
end of the prior period on properties to be disposed
of..................................................... 1.1 5.0 (2.3)
Decrease as a result of transfers of valuation allowances
to held for investment................................. -- (13.5) --
Decrease as a result of sale............................. (20.7) (45.3) (27.1)
------ ------ ------
Balance, end of year..................................... $ 22.0 $ 30.6 $ 82.7
====== ====== ======
</TABLE>
Real estate is net of accumulated depreciation of $138.6 million and $290.1
million for 1999 and 1998, respectively, and depreciation expense recorded was
$8.5 million, $26.6 million and $45.1 million for the years ended December 31,
1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, the carrying value of real estate which was
non-income producing for the twelve months preceding such dates was $16.9
million and $12.5 million, respectively. Approximately 69.4% of such real estate
at December 31, 1999 consisted of land and the balance consisted of vacant
buildings.
F-117
<PAGE> 206
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying value of impaired real estate as of December 31, 1999 and 1998
was $84.2 million and $78.4 million, respectively. The depreciated cost of such
real estate as of December 31, 1999 and 1998 was $147.7 million and $189.1
million before impairment writedowns of $63.5 million and $110.7 million,
respectively. The aforementioned impairments occurred primarily as a result of
low occupancy levels and other market related factors. Losses recorded during
1999, 1998, and 1997 related to impaired real estate aggregated $0.0 million,
$5.9 million, and $0.0 million, respectively, and are included as a component of
net realized gains on investments. Substantially all impaired real estate is
allocated to the Protection Products segment.
14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Company's financial instruments
approximate their carrying amounts except for long-term debt as described below.
The methods and assumptions utilized in estimating the fair values of the
Company's financial instruments are summarized as follows:
Fixed Maturities and Equity Securities
The estimated fair values of fixed maturity securities are based upon
quoted market prices, where available. The fair values of fixed maturity
securities not actively traded and other non-publicly traded securities are
estimated using values obtained from independent pricing services or, in the
case of private placements, by discounting expected future cash flows using a
current market interest rate commensurate with the credit quality and term of
the investments. Equity securities primarily consist of investments in common
stocks and limited partnership interests. The fair values of the Company's
investment in common stocks are determined based on quoted market prices, where
available. The fair value of the Company's investments in limited partnership
interests are based on amounts reported by such partnerships to the Company.
Mortgage Loans
The fair values of mortgage loans are estimated by discounting expected
future cash flows, using current interest rates for similar loans to borrowers
with similar credit risk. Loans with similar characteristics are aggregated for
purposes of the calculations. The fair value of mortgages in process of
foreclosure is the estimated fair value of the underlying collateral.
Policy Loans
Policy loans are an integral component of insurance contracts and have no
maturity dates. Management has determined that it is not practicable to estimate
the fair value of policy loans.
Long-term Debt
The fair value of long-term debt at December 31, 1999 was $251.7 million
and is determined based on contractual cash flows discounted at market rates.
The estimated fair values for non-recourse mortgage debt are determined by
discounting contractual cash flows at a rate which takes into account the level
of current market interest rates and collateral risk.
Separate Account Assets and Liabilities
The estimated fair value of assets held in Separate Accounts is based on
quoted market prices. The fair value of liabilities related to Separate Accounts
is the amount payable on demand, which includes surrender charges.
F-118
<PAGE> 207
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment-Type Contracts
The fair values of annuities are based on estimates of the value of
payments available upon full surrender. The fair values of the Company's
liabilities under guaranteed investment contracts are estimated by discounting
expected cash outflows using interest rates currently offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
15. REINSURANCE:
Life insurance business is ceded on a yearly renewable term basis under
various reinsurance contracts. The Company's general practice is to retain no
more than $4.0 million of risk on any one person for individual products and
$6.0 million for last survivor products.
The Company has entered into coinsurance agreements with other insurers
related to a portion of its extended term insurance, guaranteed interest
contract and long-term disability claim liabilities and reinsures approximately
50% of its block of paid-up life insurance policies.
The following table summarizes the effect of reinsurance for the years
indicated:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- ------
($ IN MILLIONS)
<S> <C> <C> <C>
Direct premiums (includes $74.4, $78.4 and $78.1 of
accident and health premiums for 1999, 1998, and 1997,
respectively)......................................... $181.6 $ 728.7 $871.0
Reinsurance assumed..................................... 5.0 5.3 6.2
Reinsurance ceded (includes $(73.8), $(78.2), and $(3.5)
of accident and health premiums for 1999, 1998, and
1997, respectively)................................... (90.3) (112.3) (38.6)
------ ------- ------
Net premiums(1)....................................... $ 96.3 $ 621.7 $838.6
====== ======= ======
Universal life and investment type product policy fee
income ceded.......................................... $ 14.4 $ 8.9 $ 8.8
====== ======= ======
Policyholders' benefits ceded(2)........................ $ 38.2 $ 107.3 $ 69.0
====== ======= ======
Interest credited to policyholders' account balances
ceded................................................. $ 4.5 $ 6.5 $ 9.9
====== ======= ======
</TABLE>
- ---------------
(1) Excludes Closed Block direct premiums of $639.9 and $103.3 and reinsurance
ceded of $19.0 and $3.2 at December 31, 1999 and 1998, respectively.
(2) Excludes $21.8 million of Closed Block benefits ceded at December 31, 1999.
The Company is contingently liable with respect to ceded insurance should
any reinsurer be unable to meet its obligations under these agreements. To limit
the possibility of such losses, the Company evaluates the financial condition of
its reinsurers and monitors concentration of credit risk.
Effective December 31, 1997, the Company transferred all of its existing in
force disability income insurance business to a third party reinsurer under an
indemnity reinsurance contract and ceased writing new disability income
insurance business. As a result of this transaction, the Company recorded a loss
before tax of approximately $9.1 million for the year ended December 31, 1997.
F-119
<PAGE> 208
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. DEBT:
The Company's debt at December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
------ ------
($ IN MILLIONS)
<S> <C> <C>
Surplus notes............................................... $240.0 $231.7
Real estate mortgage encumbrances........................... 58.8 94.6
Other....................................................... -- 49.1
------ ------
$298.8 $375.4
====== ======
</TABLE>
Surplus Notes
On December 31, 1997, the Company issued the MONY Notes in connection with
the Investment Agreement (see Note 2). The MONY Notes have a face amount of
$115.0 million, a coupon rate of interest of 9.5% per annum, and mature on
December 30, 2012. Interest on the MONY Notes is payable semi-annually and
principal is payable at maturity. Payment of interest on the MONY Notes may only
be made upon the prior approval of the New York State Superintendent of
Insurance. For each of the years in the period ended December 31, 1999 and 1998,
the Company recorded interest expense of $10.9 million related the MONY Notes.
On August 15, 1994, the Company issued Surplus Notes due August 15, 2024
with a face amount of $125.0 million. The notes were issued at a discount of
approximately 42.1% from the principal amount payable at maturity, resulting in
net proceeds after issuance expenses of approximately $70.0 million. The amount
of such original issue discount represents a yield of 11.25% per annum for the
period from August 15, 1994 until August 15, 1999. Interest on the notes did not
accrue until August 15, 1999; thereafter, interest on the notes is scheduled to
be paid on February 15 and August 15 of each year, commencing February 15, 2000,
at a rate of 11.25% per annum.
Payment of interest on the Surplus Notes may only be made upon the prior
approval of the New York State Superintendent of Insurance. The Company
amortizes the discount using the interest method. For the years ended December
31, 1999, 1998, and 1997, the Company recorded interest expense of $13.5
million, $12.1 million, and $10.8 million, respectively, related to these notes.
Real Estate Mortgage Encumbrances
The Company has mortgage loans on certain of its real estate properties.
The interest rates on these loans range from 6.7% to 7.7%. Maturities range from
June 2000 to February 2002. For the years ended December 31, 1999, 1998 and
1997, interest expense on such mortgage loans aggregated $5.0 million, $9.0
million, and $12.3 million, respectively.
Other
During 1989, the Company entered into a transaction which is accounted for
as a financing arrangement involving certain real estate properties held for
investment. Pursuant to the terms of the agreement, the Company effectively
pledged the real estate properties as collateral for a loan of approximately
$35.0 million bearing simple interest at a rate of 8% per annum. The remaining
obligation of $44.1 was paid in full on December 1, 1999. At December 31, 1998,
the outstanding balance of the obligation including accrued interest was $42.4
million. Interest expense on the obligation of $3.4 million, $3.1 million, and
$3.0 million is reflected in Other Operating Costs and Expenses on the
statements of income for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-120
<PAGE> 209
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1988, the Company financed one of its real estate properties under a
sales/leaseback arrangement. The facility was sold for $66.0 million, $56.0
million of which was in the form of an interest bearing note receivable and
$10.0 million in cash. The note was originally due January 1, 2009, however, on
December 1, 1999, the remaining balance of the interest bearing note of $44.2
was paid in full as part of the sale of the property to a third party. The
transaction continues to be accounted for as a sale/leaseback arrangement, with
the proceeds received from the sale, amortized into income over the life of the
lease. The lease has a term of 20 years beginning December 21, 1988 and requires
minimum annual rental payments of $7.3 million in 2000, $7.4 million in 2001,
$7.6 million in 2002, $7.7 million in 2003, $7.9 million in 2004 and $33.1
million thereafter. The Company has the option to renew the lease at the end of
the lease term.
Prior to December 31, 1997, the Company had outstanding debt which
represented floating rate notes that were issued by a trust that qualified as a
Real Estate Mortgage Investment Conduit (REMIC) under Section 860 of the
Internal Revenue Code. For the year ended December 31, 1997, the Company
recorded interest expense of $0.8 million, related to the REMIC. The weighted
average interest rate on the notes for the year ended December 31, 1997 was
5.9%.
Prior to December 31, 1997, the Company had outstanding Eurobond debt. For
the year ended December 31, 1997 interest expense on the Eurobonds outstanding
aggregated $2.1 million. The weighted average interest rate on such debt for the
year ended December 31, 1997 was 8.13%.
At December 31, 1999, aggregate maturities of long-term debt based on
required principal payments for 2000 and the succeeding four years are $0.0
million, $0.0 million, $5.4 million, $0.0 million, and $0.0 million,
respectively, and $240.0 million thereafter.
17. OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK:
Financial Instruments with Off-Balance Sheet Risk:
Pursuant to a securities lending agreement with a major financial
institution, the Company from time to time lends securities to approved
borrowers. At December 31, 1999 and 1998, securities loaned by the Company under
this agreement had a fair value of approximately $42.6 million and $98.9
million, respectively. The minimum collateral on securities loaned is 102
percent of the market value of the loaned securities. Such securities are marked
to market on a daily basis and the collateral is correspondingly increased or
decreased.
Concentration of Credit Risk:
At December 31, 1999 and 1998, the Company had no single investment or
series of investments with a single issuer (excluding U.S. Treasury securities
and obligations of U.S. government agencies) exceeding 0.5% and 3.5%,
respectively, of total cash and invested assets.
The Company's fixed maturity securities are diversified by industry type.
The industries that comprise 10% or more of the carrying value of the fixed
maturity securities at December 31, 1999 are Non-Government
Asset/Mortgage-Backed of $490.6 million (16.0%), Consumer Goods and Services of
$462.0 million (15.1%), Public Utilities of $335.5 million (10.9%), Other
Manufacturing of $305.4 million (10.0%).
At December 31, 1998 the industries that comprise 10% or more of the
carrying value of the fixed maturity securities were Non-Government
Asset/Mortgage-Backed of $448.0 million (14.3%), Other Manufacturing of $391.3
million (12.5%), Consumer Goods and Services of $408.5 million (13.1%), and
Public Utilities of $347.5 million (11.1%).
F-121
<PAGE> 210
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company holds below investment grade fixed maturity securities with a
carrying value of $308.3 million at December 31, 1999. These investments consist
mostly of privately issued bonds which are monitored by the Company through
extensive internal analysis of the financial condition of the issuers and which
generally include protective debt covenants. At December 31, 1998, the carrying
value of the Company's investments in below investment grade fixed maturity
securities amounted to $252.0 million.
The Company has significant investments in commercial and agricultural
mortgage loans and real estate (including joint ventures and partnerships). The
locations of property collateralizing mortgage loans and real estate investment
carrying values at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
GEOGRAPHIC REGION
West........................................... $ 323.3 20.0% $ 315.8 19.5%
Mountain....................................... 319.7 19.8 392.5 24.2
Southeast...................................... 307.3 19.0 292.2 18.0
Midwest........................................ 290.4 17.9 220.7 13.6
Northeast...................................... 234.7 14.5 261.5 16.1
Southwest...................................... 142.1 8.8 139.8 8.6
-------- ----- -------- -----
Total........................................ $1,617.5 100.0% $1,622.5 100.0%
======== ===== ======== =====
</TABLE>
The states with the largest concentrations of mortgage loans and real
estate investments at December 31, 1999 are: California, $179.2 million (11.1%);
New York $158.7 million (9.8%); Arizona, $157.8 million (9.8%); Illinois, $97.1
million (6.0%); Texas, $92.0 million (5.7%); Georgia, $83.0 million (5.1%); and
Washington, $75.9 million (4.7%).
As of December 31, 1999 and 1998, the real estate and mortgage loan
portfolio was also diversified as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
PROPERTY TYPE:
Office buildings............................... $ 610.2 37.7% $ 585.4 36.1%
Agricultural................................... 510.1 31.5 459.7 28.4
Hotel.......................................... 182.4 11.3 264.9 16.3
Retail......................................... 112.6 7.0 164.1 10.1
Other.......................................... 95.6 5.9 72.7 4.5
Industrial..................................... 77.0 4.8 51.0 3.1
Apartment buildings............................ 29.6 1.8 24.7 1.5
-------- ----- -------- -----
Total........................................ $1,617.5 100.0% $1,622.5 100.0%
======== ===== ======== =====
</TABLE>
18. COMMITMENTS AND CONTINGENCIES:
a) Since late 1995 a number of purported class actions were commenced in
various state and federal courts against the Company alleging that the Company
engaged in deceptive sales practices in connection with the sale of whole and
universal life insurance policies from the early 1980s through the mid 1990s.
Although the claims asserted in each case are not identical, they seek
substantially the same relief under essentially the same theories of recovery
(i.e., breach of contract, fraud, negligent misrepresentation, negligent
supervision and training, breach of fiduciary duty, unjust enrichment and
F-122
<PAGE> 211
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
violation of state insurance and/or deceptive business practice laws).
Plaintiffs in these cases (including the Goshen case discussed below) seek
primarily equitable relief (e.g., reformation, specific performance, mandatory
injunctive relief prohibiting the Company from canceling policies for failure to
make required premium payments, imposition of a constructive trust and creation
of a claims resolution facility to adjudicate any individual issues remaining
after resolution of all class-wide issues) as opposed to compensatory damages,
although they also seek compensatory damages in unspecified amounts. The Company
has answered the complaints in each action, (except for one being voluntarily
held in abeyance), has denied any wrongdoing and has asserted numerous
affirmative defenses.
On June 7, 1996, the New York State Supreme Court certified one of those
cases the Goshen v. The Mutual Life Insurance Company of New York and MONY Life
Insurance Company of America, the Goshen case, being the first of the
aforementioned class actions filed, as a nationwide class consisting of all
persons or entities who have, or at the time of the policy's termination had, an
ownership interest in a whole or universal life insurance policy issued by the
Company and sold on an alleged "vanishing premium" basis during the period
January 1, 1982 to December 31, 1995. On March 27, 1997, the Company filed a
motion to dismiss or, alternatively, for summary judgment on all counts of the
complaint. All of the other putative class actions have been consolidated and
transferred by the Judicial Panel on Multidistrict Litigation to the United
States District Court for the District of Massachusetts, or are being
voluntarily held in abeyance pending the outcome of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted the Company's
motion for summary judgment and dismissed all claims filed in the Goshen case
against the Company on the merits. On December 20, 1999, the New York State
Court of Appeals affirmed the dismissal of all but one of the claims in the
Goshen case (a claim under New York's General Business Law), which has been
remanded back to the New York State Supreme Court for further proceedings
consistent with the opinion. The Company intends to defend itself vigorously
against the sole remaining claim. There can be no assurance that the present
litigation relating to sales practices will not have a material adverse effect
on the Company.
On November 16, 1999, the MONY Group, Inc. and MONY Life Insurance Company
were served with a complaint in an action entitled Calvin Chatlos, M.D., and
Alvin H. Clement, On Behalf of Themselves And All Others Similarly Situated v.
The MONY Life Insurance Company, The MONY Group Inc., and Neil D. Levin,
Superintendent, New York Department of Insurance, the Chatlos case, filed in the
United States District Court for the Southern District of New York. The action
purports to be brought as a class action on behalf of all individuals who had an
ownership interest in one or more in-force life insurance policies issued by
MONY Life Insurance Company as of November 16, 1998. The complaint alleges that
(i) the New York Superintendent of Insurance Neil D. Levin, violated Section
7312 of the New York Insurance Law by approving the plan of demutualization,
which plaintiffs claim was not fair and adequate, primarily because it allegedly
failed to provide for sufficient assets for the mechanism established under the
plan to preserve reasonable policyholder dividend expectations of the closed
block, and (ii) the Company violated Section 7312 by failing to develop and
submit to the Superintendent a plan of demutualization that was fair and
adequate. The plaintiffs seek equitable relief in the form of an order vacating
and/or modifying the Superintendent's order approving the plan of
demutualization and/or directing the Superintendent to order the Company to
increase the assets in the closed block, as well as unspecified monetary
damages, attorneys' fees and other relief.
In order to challenge successfully the New York Superintendent's approval
of the plan, plaintiffs would have to sustain the burden of showing that such
approval was arbitrary and capricious or an abuse of discretion, made in
violation of lawful procedures, affected by an error of law or not supported by
substantial evidence. In addition, Section 7312 provides that the Company may
ask the court to require the challenging party to give security for the
reasonable expenses, including attorneys' fees,
F-123
<PAGE> 212
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which may be incurred by the Company or the Superintendent or for which the
Company may become liable, to which security the Company shall have recourse in
such amount as the court shall determine upon the termination of the action.
On February 2, 2000, the District Court entered an order approving the
voluntary dismissal of the complaint. Under the terms of the order, plaintiffs
have six months from the date thereof to refile in state court, and defendants
have retained the right in any subsequent action to assert that plaintiffs'
claims were time-barred when initially asserted and/or barred by virtue of
plaintiffs' delay (laches) in bringing suit in the first place.
In addition to the matters discussed above, the Company is involved in
various other legal actions and proceedings in connection with its businesses.
The claimants in certain of these actions and proceedings seek damages of
unspecified amounts.
With respect to all of the other aforementioned pending litigation, the
Company recorded a provision, which is reflected in Other Operating Costs and
Expenses, of $1.7 million, $13.1 million, and $0.0 million during the years
ended December 31, 1999, 1998 and 1997, respectively. While the outcome of such
matters cannot be predicted with certainty, in the opinion of management, any
additional liability beyond that recorded in the consolidated financial
statements at December 31, 1999, resulting from the resolution of these matters
will not have a material adverse effect on the Company's consolidated financial
position or results of operations.
Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, such assessments will not have a
material adverse effect on the consolidated financial position and the results
of operations of the Company.
The Company maintains two lines of credit with domestic banks totaling
$150.0 million with scheduled renewal dates in September 2000 and September
2003. Under these lines of credit, the Company is required to maintain a certain
statutory tangible net worth and debt to capitalization ratio. The Company has
not borrowed against these lines of credit since their inception.
At December 31, 1999, the Company had commitments to issue $8.7 million of
fixed rate agricultural loans with periodic interest rate reset dates. The
initial interest rates on such loans range from approximately 7.25% to 8.75%. In
addition, the Company had commitments to issue $70.2 million of fixed rate
commercial mortgage loans with interest rates ranging from 7.00% to 8.92%. The
Company had commitments outstanding to purchase private fixed maturity
securities as of December 31, 1999 of $15.0 million with an interest rate of
9.0%. At December 31, 1999, the Company had commitments to contribute capital to
its equity partnership investments of $118.1 million.
b) Plaintiffs in the Chatlos case filed a new complaint in the Supreme
Court of the State of New York, New York County, on March 27,2000. Although the
Superintendent of Insurance remains a defendant in the new action, plaintiff
seeks only declaratory relief, rather than damages, from him. In addition,
plaintiffs have reformulated their claims against the Company. In the new
complaint, plaintiffs first seek a declaratory judgment that the Superintendent
of Insurance and the Company violated Section 7312 by withholding certain
information from the policyholders, thereby denying them their right to an
informed vote in connection with the demutualization. Second, plaintiffs seek an
award of unspecified damages against the Company for wrongfully denying
policyholders a fair and equitable amount for their membership interests. Third,
plaintiffs assert a breach of contract claim, claiming the Company breached its
contractual obligations to the policyholders by proposing a demutualization plan
that did not comply with New York law. Finally, plaintiffs claim that the
Company breached fiduciary duties allegedly owed to them by authorizing the
demutualization plan
F-124
<PAGE> 213
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
without regard to their interest. The Company believes the claims are without
merit and intends to defend itself vigorously.
19. STATUTORY FINANCIAL INFORMATION AND REGULATORY RISK-BASED CAPITAL
The combined statutory net income reported by the Company for the years
ended December 31, 1999, 1998, and 1997 was $131.0 million, $9.7 million, and
$88.5 million, respectively. The combined statutory surplus of the Company as of
December 31, 1999 and 1998 was $1,067.1 million and $1,015.8 million
respectively.
In March 1998, the National Association of Insurance Commissioners ("NAIC")
voted to adopt its Codification of Statutory Accounting Principles project
(referred to hereafter as "codification"). Codification is a modified form of
statutory accounting principles that will result in changes to the current NAIC
Accounting Practices and Procedures Manual applicable to insurance enterprises.
Although adoption of codification by all states is not a certainty, the NAIC has
recommended that all states enact codification as soon as practicable with an
effective date of January 1, 2001. It is currently anticipated that codification
will become an NAIC state accreditation requirement starting in 2002. In
addition, the American Institute of Certified Public Accountants and the NAIC
have agreed to continue to allow the use of certain permitted accounting
practices when codification becomes effective in 2001. Any accounting
differences from codification principles, however, must be disclosed and
quantified in the footnotes to the audited financial statements. Therefore,
codification will likely result in changes to what are currently considered
prescribed statutory insurance accounting practices.
Each insurance company's state of domicile imposes minimum risk-based
capital requirements. The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial balances
or various levels of activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio of the Company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level risk-based
capital, as defined by the NAIC. Companies below specific trigger points or
ratios are classified within certain levels, each of which requires specified
corrective action. Each of the Company's insurance subsidiaries exceed the
minimum risk based capital requirements.
As part of their routine regulatory oversight, the Department recently
completed an examination of MONY for each of the five years in the period ended
December 31, 1996, and the Arizona State Insurance Department recently completed
an examination of MONY's wholly owned life insurance subsidiary, MONY Life
Insurance Company of America, for each of the three years in the period ended
December 31, 1996. The reports did not cite any matter which would result in a
material effect on the Company's financial condition or results of operations.
F-125
<PAGE> 214
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. CLOSED BLOCK -- SUMMARY FINANCIAL INFORMATION
Summarized financial information of the Closed Block as of December 31,
1999 and December 31, 1998 and for the year ended December 31, 1999 and for the
period from November 16, 1998 (date of establishment of the Closed Block)
through December 31, 1998 is presented below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ -------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS:
Fixed Maturities:
Available for sale, at estimated fair value (amortized
cost, $3,423.0 and $3,433.9)........................ $3,479.5 $3,574.0
Mortgage loans on real estate............................ 443.0 431.7
Policy loans............................................. 1,199.1 1,208.4
Real estate to be disposed of............................ 22.1
Cash and cash equivalents................................ 111.3 134.4
Premiums receivable...................................... 14.2 16.8
Deferred policy acquisition costs........................ 689.9 554.6
Other assets............................................. 223.0 241.3
-------- --------
Total Closed Block assets........................... $6,182.1 $6,161.2
======== ========
LIABILITIES:
Future policy benefits................................... $6,781.5 $6,715.6
Policyholders' account balances.......................... 294.6 298.0
Other policyholders' liabilities......................... 164.9 163.5
Other liabilities........................................ 62.3 113.6
-------- --------
Total Closed Block liabilities...................... $7,303.3 $7,290.7
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NOVEMBER 16,
YEAR ENDED 1998 THROUGH
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
($ IN MILLIONS)
<S> <C> <C>
REVENUES:
Premiums................................................. $ 620.8 $100.1
Net investment income.................................... 375.1 46.6
Net realized gains (losses) on investments............... 2.9 2.4
Other Income............................................. 1.4 0.6
-------- ------
Total revenues...................................... 1,000.2 149.7
-------- ------
BENEFITS AND EXPENSES:
Benefits to policyholders................................ 640.1 110.0
Interest credited to policyholders' account balances..... 8.9 1.0
Amortization of deferred policy acquisition costs........ 67.5 9.0
Dividends to policyholders............................... 228.8 22.4
Other operating costs and expenses....................... 10.1 1.6
-------- ------
Total benefits and expenses......................... 955.4 144.0
-------- ------
Contribution from the Closed Block....................... $ 44.8 $ 5.7
======== ======
</TABLE>
The carrying value of the Closed Block fixed maturity securities at
December 31, 1999 and 1998 is net of adjustments for impairment of $3.0 million
and $0.0 million, respectively.
F-126
<PAGE> 215
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999 and December 31, 1998, there were no fixed maturities
which have been non-income producing for the twelve months preceding such dates.
At December 31, 1999 and December 31, 1998, there were problem fixed
maturities of $12.0 million and $0.0 million, respectively. There were no fixed
maturities which were restructured at December 31, 1999 and 1998.
The amortized cost and estimated fair value of fixed maturity securities in
the Closed Block, by contractual maturity dates, (excluding scheduled sinking
funds) as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
($ IN MILLIONS)
<S> <C> <C>
Due in one year or less..................................... $ 67.9 $ 68.7
Due after one year through five years....................... 953.5 941.0
Due after five years through ten years...................... 1,468.7 1,419.5
Due after ten years......................................... 592.7 564.5
-------- --------
Subtotal.................................................. 3,082.8 2,993.7
Mortgage and asset-backed-securities........................ 506.8 485.8
-------- --------
$3,589.6 $3,479.5
======== ========
</TABLE>
Fixed maturity securities that are not due at a single maturity date have
been included in the preceding table in the year of final maturity. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Mortgage loans on real estate in the Closed Block at December 31, 1999 and
December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
($ IN MILLIONS)
<S> <C> <C>
Commercial mortgage loans................................ $394.9 $382.0
Agricultural and other loans............................. 62.4 73.3
------ ------
Subtotal............................................... 457.3 455.3
Less: valuation allowances............................... 14.3 23.6
------ ------
Mortgage loans, net of valuation allowances.............. $443.0 $431.7
====== ======
</TABLE>
An analysis of the valuation allowances for the year ended December 31,
1999 and for the period from November 16, 1998 through December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
($ IN MILLIONS)
<S> <C> <C>
Beginning balance........................................... $23.6 $24.7
Increase (decrease) in allowance............................ 0.4 (0.8)
Reduction due to pay downs and pay offs..................... -- (0.3)
Transfer to real estate..................................... (9.7) --
----- -----
Balance, December 31........................................ $14.3 $23.6
===== =====
</TABLE>
F-127
<PAGE> 216
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impaired mortgage loans along with related valuation allowances were as
follows as of December 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
1999 1998
------ ------
($ IN MILLIONS)
<S> <C> <C>
Investment in impaired mortgage loans (before valuation
allowances):
Loans that have valuation allowances........................ $108.7 $117.9
------ ------
Loans that do not have valuation allowances................. 20.1 31.1
Subtotal.................................................. 128.8 149.0
------ ------
Valuation allowances........................................ (25.6) (17.5)
Impaired mortgage loans, net of valuation allowances........ $103.2 $131.5
====== ======
</TABLE>
Impaired mortgage loans that do not have valuation allowances are loans
where the net present value of the expected future cash flows related to the
loan or the fair value of the collateral equals or exceeds the recorded
investment in the loan. Such loans primarily consist of restructured loans or
loans on which impairment writedowns were taken prior to the adoption of SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan".
For the year ended December 31, 1999, the Closed Block's average recorded
investment in impaired mortgage loans was $117.4 million and the Closed Block
recognized $11.6 million on impaired loans. During the period from November 16,
1998 through December 31, 1998, the Closed Block's average recorded investment
in impaired mortgage loans was approximately $138.3 million and the Closed Block
recognized $1.8 million of interest income on impaired loans.
At December 31, 1999 and December 31, 1998 the carrying values of mortgage
loans in the Closed Block which were non-income producing for the twelve months
preceding such date was $0.0 million and $0.5 million.
At December 31, 1999 and December 31, 1998, the Closed Block had
restructured mortgage loans of $43.5 million and $54.8 million. Interest income
of $5.0 million and $0.7 million was recognized on such loans for the year ended
December 31, 1999 and during the period from November 16, 1998 through December
31, 1998, respectively. Gross interest income on these loans that would have
been recorded in accordance with the original terms of such loans amounted to
approximately $5.4 million and $0.8 million for the respective periods.
21. PRO FORMA INFORMATION (UNAUDITED)
The unaudited pro forma earnings information reported in the statements of
income and comprehensive income give effect to the Transaction as if it occurred
January 1, 1998. Accordingly, pro forma earnings reflect the elimination of
demutualization expenses, which were assumed to have been fully incurred prior
to January 1, 1998, and the elimination of the differential earnings (surplus)
tax applicable to mutual life insurance companies. MONY Life is no longer
subject to the differential earnings (surplus) tax as a stock life insurance
company.
The unaudited pro forma information is provided for informational purposes
only and should not be construed to be indicative of the Company's consolidated
results of operations had the Transaction been consummated on the date assumed,
and does not in any way represent a projection or forecast of the Company's
consolidated results of operations as of any future date or for any future
period.
F-128
<PAGE> 217
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma revenues and expenses of the Closed Block for the year ended
December 31, 1998, based on certain estimates and assumptions that management
believes are reasonable, as if the Closed Block had been established on January
1, 1998, are summarized below ($ in millions):
<TABLE>
<S> <C>
Premiums.................................................... $ 643.9
Net investment income....................................... 373.8
Net realized gains on investments........................... 10.2
Other income................................................ 1.9
--------
Total revenues............................................ 1,029.8
--------
Benefits to policyholders................................... 665.4
Interest credited to policyholders' account balances........ 8.7
Amortization of deferred policy acquisition costs........... 78.8
Dividends to policyholders.................................. 214.9
Other operating costs and expenses.......................... 9.8
--------
Total benefits and expenses............................... 977.6
--------
Contribution from the Closed Block..................... $ 52.2
========
</TABLE>
22. EARLY RETIREMENT PROGRAM
On June 30, 1999, the Company announced a voluntary early retirement
program for approximately 500 eligible employees of which 300 employees elected
to participate. The program is part of an overall companywide realignment of
staff and resources, which may also include the elimination and/or shifting of
certain job functions and the addition of employees with new skill sets. The
Company has recorded a one-time restructuring charge of $59.7 million pre-tax in
the third quarter of 1999.
23. SUBSEQUENT EVENTS
a) In January 2000, the New York Insurance Department approved, and MONY
Life paid, a dividend to MONY Group in the amount of $75 million.
b) On January 12, 2000, the Holding Company filed a registration statement
on Form S-3 with the Securities and Exchange Commission (the "SEC") to register
certain securities. This registration, known as a "Shelf Registration", provides
MONY Group with the ability to offer various securities to the public, when it
deems appropriate, to raise proceeds up to an amount not to exceed $1.0 billion
in the aggregate for all issuances of securities thereunder. It is the intention
of the MONY Group to use this facility to raise proceeds for mergers and
acquisitions and for other general corporate matters of MONY Group and its
subsidiaries, as it considers necessary.
c) On March 8, 2000, the Holding Company issued $300.0 million principal
amount of senior notes (the "Senior Notes") pursuant to the aforementioned Shelf
Registration. The Senior Notes mature on March 15, 2010 and bear interest at
8.35% per annum. The principal amount of the Senior Notes is payable at maturity
and interest is payable semi-annually. The net proceeds to the Company from the
issuance of the Senior Notes, after deducting underwriting commissions and other
expenses (primarily legal and accounting fees), were approximately $297.0
million. Approximately $267.6 million of the net proceeds from the issuance of
the Senior Notes was used by the Holding Company to finance the repurchase, on
March 8, 2000, by MONY Life of all of its outstanding $115.0 million face amount
9.5% coupon surplus notes, and a $116.5 million face amount of its $125.0
million face amount 11.25% coupon surplus notes (hereafter referred to as the
"9.5% Notes" and "11.25% Notes", respectively),
F-129
<PAGE> 218
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which were outstanding at December 31, 1999. See Note 16 to the Consolidated
Financial Statements. The balance of the net proceeds from the issuance of the
Senior Notes will be used by the Holding Company for general corporate purposes.
To finance MONY Life's repurchase of the 9.5% Notes and the 11.25% Notes,
the Holding Company, on March 8, 2000: (i) purchased two surplus notes from MONY
Life (hereafter referred to as the "Inter-Company Surplus Notes") to replace the
9.5% Notes and the 11.25% Notes. The term of the Inter-company Surplus Notes are
identical to the 9.5% Notes and 11.25% Notes, except that the Inter-company
Surplus Notes were priced to yield a current market rate of interest and the
inter-company surplus note issued to replace the $116.5 million face amount of
the 11.25% Notes was issued at a face amount of $100.0 million, and
(ii) contributed capital to MONY Life in the amount of $65.0 million.
As a result of the repurchase of the 9.5% Notes and the 11.25% Notes, MONY
Life will record an after-tax loss of approximately $36.1 million during the 1st
quarter of 2000. The loss resulted from the premium paid by MONY Life to the
holders of the 9.5% Notes and the 11.25% Notes reflecting the excess of their
fair value over their carrying value on MONY Life's books at the date of the
transaction of approximately $7.0 million and $48.5 million, respectively. This
loss will be reported, net of tax, as an extraordinary item on the MONY Life's
income statement in 2000.
F-130
<PAGE> 219
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) With respect to Keynote Series Account ("Keynote")
Report of Independent Accountants...................... F-1
Statements of Assets and Liabilities as of December 31,
1999.................................................. F-2
Statements of Operations for the year ended December
31, 1999.............................................. F-3
Statements of Changes in Net Assets for the year ended
December 31, 1999 and the year ended December 31,
1998.................................................. F-4
Notes to financial statements.......................... F-6
(2) With respect to the Diversified Investors Portfolios
Economic and Market Review............................. F-7
Report of Independent Accountants...................... F-13
Statement of Assets and Liabilities for the year ended
December 31, 1999..................................... F-14
Statement of Operations for the year ended December 31,
1999.................................................. F-16
Statements of Changes in Net Assets for the years ended
December 31, 1999 and 1998............................ F-18
Portfolio of Investments for December 31, 1999:
Money Market Portfolio................................. F-22
High Quality Bond Portfolio............................ F-24
Intermediate Government Bond Portfolio................. F-27
Government/Corporate Bond Portfolio.................... F-29
Balanced Fund Portfolio................................ F-33
Equity Income Portfolio................................ F-36
Equity Value Portfolio................................. F-40
Growth and Income Portfolio............................ F-42
Equity Growth Portfolio................................ F-45
Special Equity Portfolio............................... F-48
Aggressive Equity Portfolio............................ F-55
High Yield Bond Portfolio.............................. F-57
International Equity Portfolio......................... F-60
Notes to Financial Statements.......................... F-66
(3) With respect to MONY Life Insurance Company
Report of Independent Accountants...................... F-81
Assets and Liabilities for the year ended December 31,
1999.................................................. F-82
Statement of Operations for the year ended December 31,
1999.................................................. F-83
Statements of Changes in Net Assets for the years ended
December 31, 1999 and 1998............................ F-84
Notes to Financial Statements.......................... F-87
</TABLE>
(b) Exhibits
Any form of Form N-4 Exhibits (1) and (3) through (7), (9), (13) and (14)
previously filed with the Commission as part of the Registrant's N-4
Registration Statement-Registration No. 33-19836 under the Securities Act
of 1933 are incorporated herein by reference.
<TABLE>
<S> <C>
Exhibit (2) Not applicable.
Exhibit (8) Not applicable.
Exhibit(10) Consent of Independent Accountants.
Exhibit(11) Not applicable.
Exhibit(12) Not applicable.
Exhibit(16) Powers of Attorney.
</TABLE>
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<PAGE> 220
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
1. TRUSTEES
CLAUDE M. BALLARD Limited Partner, Goldman, Sachs & Company, New York, N.Y.
TOM H. BARRETT Former Chairman of the Board, President & Chief Executive
Officer, The Goodyear Tire & Rubber Company, Akron, Ohio.
DAVID L. CALL Ronald P. Lynch Dean Emeritus, Cornell University, College of
Agriculture and Life Sciences, Ithaca, New York.
G. ROBERT DURHAM Retired Chairman and Chief Executive Officer, Walter
Industries, Inc., Tampa, Florida and Retired Chairman and Chief Executive
Officer, Phelps Dodge Corporation.
JAMES B. FARLEY Retired Chairman and Chief Executive Office, MONY.
ROBERT HOLLAND, JR. President and Chief Executive Officer, WorkPlace
Integrators
JAMES L. JOHNSON Chairman Emeritus, GTE Corporation, Stamford, Connecticut.
ROBERT R. KILEY President and Chief Executive Officer, The New York City
Partnership and Chamber of Commerce, Inc., New York, NY.
JOHN R. MEYER Emeritus Professor, Harvard University, Cambridge,
Massachusetts.
PAUL A. MILLER Chairman of the Executive Committee, Pacific Enterprises,
Los Angeles, California.
JANE C. PFEIFFER Management Consultant, Greenwich, Connecticut.
THOMAS C. THEOBALD Managing Director, William Blair Capital Partners,
L.L.C., Chicago, Illinois, Chicago, Illinois.
2. OFFICER-DIRECTORS
MICHAEL I. ROTH, Director, Chairman and Chief Executive Officer, The MONY
Group Inc.; Director, Chairman and Chief Executive Officer, MONY; Director,
Chairman of the Board, and Chief Executive Officer, MONY Life Insurance Company
of America; Director, MONY CS, Inc., and 1740 Advisers, Inc.
SAMUEL J. FOTI, Director, President and Chief Operating Officer, The MONY
Group Inc.; Director, President and Chief Operating Officer, MONY; Director,
President and Chief Operating Officer, MONY Life Insurance Company of America;
Director, MONY Brokerage, Inc., Director and Chairman, MONY International
Holdings, Inc., MONY Life Insurance Company of the Americas, Ltd., and MONY Bank
& Trust Company of the Americas, Ltd.
KENNETH M. LEVINE, Director, Executive Vice President and Chief Investment
Officer, The MONY Group Inc.; Director, Executive Vice President and Chief
Investment Officer, MONY; Director, Chairman, and President, MONY Series Fund,
Inc.; Director and Executive Vice President, MONY Life Insurance Company of
America; Director, 1740 Advisers, Inc., MONY Funding, Inc., MONY Realty
Partners, Inc., and 1740 Ventures, Inc.
3. OTHER OFFICERS
RICHARD DADDARIO, Executive Vice President and Chief Financial Officer, The
MONY Group Inc.; Executive Vice President and Chief Financial Officer, MONY;
Vice President, MONY Advisers, Inc.; Director, Vice President and Controller,
MONY Life Insurance Company of America.
PHILLIP A. EISENBERG, Senior Vice President and Chief Actuary, MONY;
Director and Vice President, MONY Life Insurance Company of America.
STEPHEN J. HALL, Senior Vice President, MONY; Director, MONY Life Insurance
Company of America.
C-2
<PAGE> 221
DAVID V. WEIGEL, Vice President-Treasurer, The MONY Group Inc.; Vice
President -- Treasurer, MONY; Vice President and Treasurer, MONY Credit
Corporation, MONY Realty Partners, Inc., and 1740 Ventures, Inc.; Treasurer,
1740 Advisers, Inc., MONY Life Insurance Company of America, MONY Series Fund,
Inc., MONY Brokerage, Inc., MONY-Rockville/GP, Inc., MONY Bloomfield Hills,
Inc., and MONY Funding, Inc.
For more than the past five years, the principal occupation of each of the
officers listed above has been an officer of MONY.
The business address for all officers and officer-directors of the Company
is 1740 Broadway, New York, New York 10019.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
No person is directly or indirectly controlled by the Registrant. The
Registrant is a separate account of the Depositor.
The following is a diagram showing all corporations directly or indirectly
controlled or under common control with Depositor, showing the state or other
sovereign power under the laws of which each is organized and the percentage
ownership of voting securities giving rise to the control relationship. (See
diagram on following page.) Omitted from the diagram are subsidiaries of MONY
that, considered in the aggregate, would not constitute a "significant
subsidiary" of MONY (as that term is defined in Rule 8b-2 under Section 8 of the
Investment Company Act of 1940).
ITEM 27. NUMBER OF CONTRACTHOLDERS/PARTICIPANTS
As of March 31, 2000, there were 430 Contractholders.
C-3
<PAGE> 222
<TABLE>
<CAPTION>
ORGANIZATIONAL CHART - DECEMBER 31, 1999
<S> <C>
THE MONY GROUP INC.
13-3976138 DE
100% Owned
MONY LIFE INSURANCE COMPANY Sagamore Financial Corporation
NAIC Co. Code: 66370 13-1632487 N.Y. (Insurer) 31-1296919 OH
100% Owned 100% Owned --100% Owned-- --99% Owned--
MONY Life Insurance MONY International U.S. Financial Life Financial Marketing
Company of America Holdings, Inc. Insurance Company Agency, Inc.
Insurer 13-3790446 DE (Insurer) 31-1465146 OH
NAIC Co. Code: NAIC Co. Code:
78077 86-0222062 AZ 84530 38-2046096 OH
MONY Enterprise MONY Life
Series Accumulation Insurance
Fund, Trust Company of the
Inc. 58-6303987 Americas, Ltd.
13-3388742 MA 98-0152046
MD (Cayman Islands)
MONY Bank &
Trust Company of
the Americas, Ltd.
98-0152047
(Cayman Islands)
MONY International
Life Insurance Co.
Seguros de Vida S.A.
98-0157781 (Argentina)
--100% Owned--
1740 MONY 1740 MONY Enterprise MONY MONY
Ventures, Securities Advisers, Assets Capital Realty Brokerage,
Inc. Corporation Inc. Corp. Management Partners, Inc.
13-2848244 13-2645488 13-2645490 13-2662263 Inc. Inc. 22-3015130
58-1660289 13-3278496
NY NY NY NY GA DE DE
Trusted CFSB MONY Enterprise MBI
Advisors Insurance Benefits Fund Insurance
Brokerage Agency, Inc. Management Distributors, Agency of
Corp. Corp. Inc. Alabama, Inc.
41-1632897 04-3352838 13-3363383 22-1990598 62-1699522 AL
MN MA DE DE
MBI
Insurance
Agency of
Massachusetts,
Inc.
06-1496443 MA
MBI
Insurance
Agency of
New Mexico,
Inc.
62-1705422 NM
MBI
Insurance
Agency of
Ohio, Inc.
37-1562855 OH
MBI
Insurance
Agency of
Texas, Inc.
74-2861481 TX
MBI
Insurance
Agency of
Washington,
Inc.
91-1940542 WA
</TABLE>
<PAGE> 223
ITEM 28. INDEMNIFICATION
The By-Laws of The Mutual Life Insurance Company of New York provide, in
Article XVI, as follows:
Each person (and the heirs, executors and administrators of such
person) made or threatened to be made a party to any action, civil or
criminal, by reason of being or having been a trustee, officer, or employee
of the corporation (or by reason of serving any other organization at the
request of the corporation) shall be indemnified to the extent permitted by
the law of the State of New York and in the manner prescribed therein. To
this end, and as authorized by Chapter 513, 1986 Laws of New York, the
Board of Trustees may adopt all resolutions, authorize all agreements and
take all actions with respect to the indemnification of trustees and
officers, and the advance payment of their expenses in connection
therewith.
Insofar as indemnification for liability arising under the Securities Act
of 1933 ("1933 Act") may be permitted to directors, officers and controlling
persons, if any, of the Registrant pursuant to the above paragraph, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person, if any, of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will
(unless in the opinion of its counsel the matter has been settled by controlling
precedent) submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) MONY Securities Corp. ("MSC") is the principal underwriter of the
Registrant. The names, titles and principal business addresses of the officers
and directors of MSC are as stated on Forms U-4 of Form BD (File No. 8-15289) as
declared effective November 23, 1969, as amended, the text of which is herein
incorporated by reference. Diversified Investment Advisors, Inc., formerly owned
by MONY is now of an indirect, wholly-owned subsidiary of AEGON USA, Inc. MONY
continues to act as investment adviser and administrator to each series of
Diversified Investors Portfolios. With respect to each series of Diversified
Investors Portfolios, Diversified contracted for certain investment advisory
services with a subadviser.
(b) The names, titles and principal business addresses of the officers of
MSC are listed on Schedule A of Form BD for MSC (Registration No. 8-15289)
(originally filed on behalf of MONY Sales, Inc. on November 23, 1969) and Form
U-4 filed by each individual officer, the text of which is hereby incorporated
by reference.
(c) Refer to Prospectus pages 8 and 13, "Charges" and Part B, Statement of
Additional Information, page 3, "Sale of Contracts/Principal Underwriter" for
information regarding compensation.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books, and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
are primarily maintained by MONY Life Insurance Company, in whole or in part, at
its principal offices at 1740 Broadway, New York, New York 10019; and at its
Operations Center at 1 MONY Plaza, Syracuse, New York 13202.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
C-5
<PAGE> 224
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file post-effective amendments to the
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the group variable annuity contract may be
accepted;
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a Contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of Additional
Information;
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(e) Registrant hereby represents that the fees and charges deducted under
the Contracts in the aggregate, are reasonable in relation to the services
rendered; the expenses expected to be incurred and the risks assumed by the
insurance company.
C-6
<PAGE> 225
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements for effectiveness of this Post Effective Amendment to the
Registration Statement under Rule 485(b) under the Securities Act and has duly
caused this Post-Effective Amendment No. 19 to its Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, in the City
of New York, State of New York, on the 28th day of April, 2000.
KEYNOTE SERIES ACCOUNT
(Registrant)
By: /s/ KENNETH M. LEVINE
---------------------------------------
Kenneth M. Levine
MONY LIFE INSURANCE COMPANY
(Depositor)
By: /s/ MICHAEL I. ROTH
---------------------------------------
Michael I. Roth
Director, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirement of the Securities Act of 1933 this
Post-Effective Amendment No. 19 to its Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ MICHAEL I. ROTH Director, Chairman of the Board and April 28, 1999
- --------------------------------------------- Chief Executive Officer
(Michael I. Roth)
/s/ SAMUEL J. FOTI Director, President and Chief April 28, 2000
- --------------------------------------------- Operating Officer
(Samuel J. Foti)
/s/ KENNETH M. LEVINE Director, Executive Vice President April 28, 2000
- --------------------------------------------- and Chief Investment Officer
(Kenneth M. Levine)
/s/ RICHARD DADDARIO Executive Vice President and Chief April 28, 2000
- --------------------------------------------- Financial Officer
(Richard Daddario)
/s/ PHILLIP A. EISENBERG Senior Vice President and Chief April 28, 2000
- --------------------------------------------- Actuary
(Phillip A. Eisenberg)
*/s/ CLAUDE M. BALLARD, JR. Director April 28, 2000
- ---------------------------------------------
(Claude M. Ballard, Jr.)
*/s/ TOM H. BARRETT Director April 28, 2000
- ---------------------------------------------
(Tom H. Barrett)
*/s/ DAVID L. CALL Director April 28, 2000
- ---------------------------------------------
(David L. Call)
*/s/ G. ROBERT DURHAM Director April 28, 2000
- ---------------------------------------------
(G. Robert Durham)
</TABLE>
C-7
<PAGE> 226
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
*/s/ ROBERT HOLLAND, JR. Director April 28, 2000
- ---------------------------------------------
(Robert Holland, Jr.)
*/s/ JAMES L. JOHNSON Director April 28, 2000
- ---------------------------------------------
(James L. Johnson)
*/s/ JOHN R. MEYER Director April 28, 2000
- ---------------------------------------------
(John R. Meyer)
*/s/ JANE C. PFEIFFER Director April 28, 2000
- ---------------------------------------------
(Jane C. Pfeiffer)
*/s/ THOMAS C. THEOBALD Director April 28, 2000
- ---------------------------------------------
(Thomas C. Theobald)
</TABLE>
C-8
<PAGE> 227
SIGNATURES
Diversified Investors Portfolios has duly caused this Post Effective
Amendment No. 19 to the Registration Statement on Form N-4 of Keynote Series
Account to be signed on its behalf by the undersigned thereunto duly authorized,
in the County of Westchester, State of New York, on the 28th day of April, 2000.
DIVERSIFIED INVESTORS PORTFOLIOS
/s/ TOM A. SCHLOSSBERG
--------------------------------------
Tom A. Schlossberg
Trustee, President, Chief Executive
Officer
and Chairman of the Board of Trustees
of
the Portfolios
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 19 to its Registration Statement has been signed
below by the following persons in the capacities indicated on the 28th day of
April, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ TOM A. SCHLOSSBERG Trustee, President, April 28, 2000
- ----------------------------------------------------- Chief Executive Officer
Tom A. Schlossberg and Chairman of the
Board of Trustees of
the Portfolios
*/s/ NEAL M. JEWELL Trustee of the April 28, 2000
- ----------------------------------------------------- Portfolios
Neal M. Jewell
*/s/ EUGENE M. MANNELLA Trustee of the April 28, 2000
- ----------------------------------------------------- Portfolios
Eugene M. Mannella
*/s/ PATRICIA L. SAWYER Trustee of the April 28, 2000
- ----------------------------------------------------- Portfolios
Patricia L. Sawyer
*By /s/ ROBERT F. COLBY April 28, 2000
- -----------------------------------------------------
Robert F. Colby
Attorney-in-Fact
</TABLE>
C-9
<PAGE> 228
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
99.(10) Consent of Independent Accountants
99.(15) Powers of Attorney
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 19 to the
Registration Statement of Keynote Series Account on Form N-4 (File Nos.
33-19836 and 811-5457) of our reports dated February 18, 2000, on our audits of
the financial statements of Keynote Series Account and the financial statements
and financial highlights of Diversified Investors Portfolios. In addition, we
consent to the inclusion of our report dated February 10, 2000, except for Note
18(b) as to which the date is March 27, 2000 and Note 23(c) as to which the
date is March 8, 2000 on our audits of the consolidated financial statements of
MONY Life Insurance Company and Subsidiaries. We also consent to the reference
to our firm under the caption "Experts" in the Prospectus and under the caption
"Independent Accountants" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
New York, New York
April 28, 2000
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, TOM H. BARRETT,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 31st
day of August, 1990
/s/ Tom Barrett
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 31st day of August, 1990 before me personally came Tom H. Barrett,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, CLAUDE MARK BALLARD, JR.,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 31st
day of August, 1990
/s/ Claude Mark Ballard, Jr.
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 3rd day of August, 1990 before me personally came Claude Mark Ballard,
Jr., to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Rosemarie Tapia
-------------------------------
ROSEMARIE TAPIA
NOTARY PUBLIC, State of New York
No. 41-4876817
Qualified in Queens County
Term Expires November 24, 1990
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, DAVID L. CALL,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th
day of January, 1993
/s/ David L. Call
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF TOMPKINS )
On the 29th day of January, 1993 before me personally came David L. Call,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Janice H. Hatfield
-------------------------------
JANICE A. HATFIELD
NOTARY PUBLIC, State of New York
Qualified in Tompkins County
No. 4688232
My Commission Expires May 31, 1993
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, ROBERT HOLLAND, JR.,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 1st
day of October, 1990
/s/ Robert Holland, Jr.
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 1st day of October, 1990 before me personally came Robert Holland, Jr.,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, G. ROBERT DURHAM,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th
day of July, 1990
/s/ G. Robert Durham
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of July, 1990 before me personally came G. Robert Durham,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, JAMES L. JOHNSON,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th
day of July, 1990
/s/ James L. Johnson
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of July, 1990 before me personally came James L. Johnson,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, JOHN R. MEYER,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th
day of July, 1990
/s/ John R. Meyer
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of July, 1990 before me personally came John R. Meyer,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, JANE C. PFEIFFER,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th
day of July, 1990
/s/ Jane C. Pfeiffer
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of July, 1990 before me personally came Jane C. Pfeiffer,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, THOMAS C. THEOBALD,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 23rd
day of July, 1990
/s/ Thomas C. Theobald
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of July, 1990 before me personally came Thomas C. Theobald
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 10
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statement, and any and all amendments thereto, filed by Diversified Investors
Portfolios with the Securities and Exchange Commission under the Investment
Company Act of 1940 and any and all instruments which such attorneys and agents,
or any of them, deem necessary or advisable to enable the Company to comply with
such Act, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.
/s/ Neal M. Jewell
--------------------------------------
Neal M. Jewell
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Neal M. Jewell to
me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
[SEAL]
/s/ Catherine A. Mohr
<PAGE> 11
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statement, and any and all amendments thereto, filed by The Diversified
Investors Portfolios with the Securities and Exchange Commission under the
Investment Company Act of 1940 and any and all instruments which such attorneys
and agents, or any of them, deem necessary or advisable to enable the Company to
comply with such Act, the rules, regulations and requirements of the Securities
and Exchange Commission, and the securities or Blue Sky laws of any state or
other jurisdiction, and the undersigned hereby ratifies and confirms as his own
act and deed any and all acts that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.
/s/ Patricia L. Sawyer
--------------------------------------
Patricia L. Sawyer
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Patricia L. Sawyer
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
[SEAL]
/s/ Catherine A. Mohr
<PAGE> 12
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statement, and any and all amendments thereto, filed by Diversified
Investors Portfolios with the Securities and Exchange Commission under the
Investment Company Act of 1940 and any and all instruments which such attorneys
and agents, or any of them, deem necessary or advisable to enable the Company to
comply with such Act, the rules, regulations and requirements of the Securities
and Exchange Commission, and the securities or Blue Sky laws of any state or
other jurisdiction, and the undersigned hereby ratifies and confirms as his own
act and deed any and all acts that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.
/s/ Eugene M. Mannella
--------------------------------------
Eugene M. Mannella
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Eugene M. Mannella
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
[SEAL]
/s/ Catherine A. Mohr
<PAGE> 13
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statement, and any and all amendments thereto, filed by Diversified Investors
Portfolios with the Securities and Exchange Commission under the Investment
Company Act of 1940 and any and all instruments which such attorneys and agents,
or any of them, deem necessary or advisable to enable the Company to comply with
such Act, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.
/s/ Tom A. Schlossberg
--------------------------------------
Tom A. Schlossberg
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Tom Schlossberg to
me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
[SEAL]
/s/ Catherine A. Mohr
