<PAGE> 1
FILE NOS. 33-61810
811-7674
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1996
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 6 /X/
AND
REGISTRATION STATEMENT / /
UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 7 /X/
THE DIVERSIFIED INVESTORS
FUNDS GROUP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FOUR MANHATTANVILLE ROAD, PURCHASE, NEW YORK 10577
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 914-697-8000
ROBERT F. COLBY
DIVERSIFIED INVESTMENT ADVISORS, INC.
FOUR MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH
BINGHAM, DANA & GOULD LLP
150 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
It is proposed that this filing will become effective on May 1, 1996
pursuant to paragraph (b) of Rule 485.
The registrant has registered an indefinite amount of securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940. The Rule 24f-2 Notice
for the Registrant's most recent fiscal year was filed on February 23, 1996.
Diversified Investors Portfolios has also executed this registration
statement.
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<PAGE> 2
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THE DIVERSIFIED INVESTORS FUNDS GROUP
FORM N-1A
CROSS REFERENCE SHEET
------------------------------------------------------------
<TABLE>
<CAPTION>
PART A
ITEM NO. PROSPECTUS HEADINGS
- -------- -------------------
<S> <C> <C>
1. Cover Page...................................... Cover Page
2. Synopsis........................................ Expense Summary
3. Condensed Financial Information................. Condensed Financial Information
4. General Description of Registrant............... Cover Page; Management of the Trust
and Portfolio Series
5. Management of the Fund.......................... Management of the Trust and
Portfolio Series; Other Information
5A. Management's Discussion of Fund Performance..... Not applicable
6. Capital Stock and other Securities.............. Cover Page; Purchases and
Redemptions of Shares; Management
of the Trust and Portfolio Series;
Other Information
7. Purchase of Securities Being Offered............ Purchases and Redemptions of
Shares; Other Information
8. Redemption or Repurchase........................ Purchases and Redemptions of Shares
9. Pending Legal Proceedings....................... Not applicable
<CAPTION>
PART B STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION HEADINGS
- -------- -----------------------
<S> <C> <C>
10. Cover Page...................................... Cover Page
11. Table of Contents............................... Table of Contents
12. General Information and History................. Not Applicable
13. Investment Objectives and Policies.............. Investment Objectives, Policies and
Restrictions
</TABLE>
(i)
<PAGE> 3
------------------------------------------------------------
THE DIVERSIFIED INVESTORS FUNDS GROUP
------------------------------------------------------------
<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION HEADINGS
- -------- -----------------------
<S> <C> <C>
14. Management of the Fund.......................... Management of the Trust and
Portfolio Series
15. Control Persons and Principal Holders of
Securities...................................... See Prospectus -- "Management of
the Trust and Portfolio Series"
16. Investment Advisory and Other Services.......... Management of the Trust and
Portfolio Series; see Prospectus --
"Management of the Trust and
Portfolio Series"
17. Brokerage Allocation and Other Practices........ Investment Objectives, Policies and
Restrictions
18. Capital Stock and Other Securities.............. Taxation; Description of the Trust;
Fund Shares; see Prospectus --
"Management of the Trust and
Portfolio Series" and "Other
Information"
19. Purchase, Redemption and Pricing of Securities
Being Offered................................... Determination of Net Asset Value;
Valuation of Securities; see
Prospectus -- "Purchases and
Redemptions of Shares"
20. Tax Status...................................... Taxation; see Prospectus -- "Other
Information"
21. Underwriters.................................... See Prospectus -- "Management of
the Trust and Portfolio Series" and
"Purchases and Redemptions of
Shares"
22. Calculations of Yield Quotations of Money Market
Funds........................................... Performance Information
23. Financial Statements............................ Experts; Statements of Assets and
Liabilities; Reports of Independent
Accountants
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this registration statement.
(ii)
<PAGE> 4
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PROSPECTUS Dated May 1, 1996
- --------------------------------------------------------------------------------
THE DIVERSIFIED INVESTORS FUNDS GROUP
The Diversified Investors Funds Group (the "Trust") is an open-end
management investment company that seeks to provide investors with a broad range
of investment alternatives through its thirteen separate funds (the "Funds").
Each Fund is a separate mutual fund issuing its own shares. Diversified
Investment Advisors, Inc. ("Diversified") is the investment adviser (the
"Adviser") to each Fund and selects, subject to shareholder approval, separate
investment subadvisers (the "Subadvisers") that provide investment advice for
the Funds. The Trust seeks to achieve each Fund's investment objective by
investing all of the investable assets ("Assets") of that Fund in a
corresponding series of Diversified Investors Portfolios (the "Portfolio
Series"). The Portfolio Series (like the Trust) is a diversified, open-end
management investment company with separate series (the "Portfolios") which have
the same investment objectives as the Funds. The thirteen Funds offered for sale
by this Prospectus are as follows:
Diversified Investors Money Market Fund
Diversified Investors High Quality Bond Fund
Diversified Investors Intermediate Government Bond Fund
Diversified Investors Government/Corporate Bond Fund
Diversified Investors High-Yield Bond Fund
Diversified Investors Balanced Fund
Diversified Investors Equity Income Fund
Diversified Investors Equity Value Fund
Diversified Investors Growth & Income Fund
Diversified Investors Equity Growth Fund
Diversified Investors Special Equity Fund
Diversified Investors Aggressive Equity Fund
Diversified Investors International Equity Fund
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN
PORTFOLIOS OF SECURITIES, THE TRUST SEEKS TO ACHIEVE EACH FUND'S INVESTMENT
OBJECTIVES BY INVESTING ALL OF THAT FUND'S ASSETS IN A CORRESPONDING PORTFOLIO.
SEE "HUB AND SPOKE(R) STRUCTURE" ON PAGE 27 HEREIN. HUB AND SPOKE(R) IS A
REGISTERED SERVICE MARK OF SIGNATURE FINANCIAL GROUP, INC.
The Trust is designed to meet the long-term investment needs of, and will
be available only as a funding vehicle to, (i) certain employee retirement plans
of for-profit and not-for-profit entities including those having cash or
deferred arrangements and those covering self-employed individuals and
owner-employees (such as 401(k) Plans, 403(b) Plans, 457 Plans, Money Purchase
Plans, Profit Sharing Plans, Simplified Employee Pension Plans and Keogh Plans),
and (ii) qualified personal retirement plans such as IRAs and rollover IRAs
(collectively, "Qualified Investors").
This Prospectus sets forth information about the Trust and the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information,
contained in a "Statement of Additional Information," has been filed with the
Securities and Exchange Commission and is available upon request without charge
by calling the Trust at (914) 697-8000. The Statement of Additional Information,
which has the same date as this Prospectus, is incorporated by reference into
this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The Money Market Fund's net asset value per share will fluctuate. Many
money market funds declare a dividend of all investment income each day in order
to maintain a stable net asset value of $1.00 per share. The Money Market Fund
intends to declare dividends of all investment income and to distribute all net
realized capital gains or losses only once a year in December. Undeclared
investment income may cause the Money Market Fund's net asset value per share to
fluctuate. INVESTMENTS IN THE MONEY MARKET FUND ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT.
In pursuing its investment objective, the High-Yield Bond Fund may invest
significantly in lower rated bonds, commonly referred to as "junk bonds". Bonds
of this type are considered to be speculative with regard to the payment of
interest and return of principal. Investments in these types of securities have
special risks and therefore may not be suitable for all investors. Investors
should carefully assess the risks associated with an investment in this Fund.
<PAGE> 5
EXPENSE SUMMARY
The following tables provide (i) a summary of estimated expenses relating
to purchases and sales of shares of each Fund, and the aggregate annual
operating expenses for each Fund and its corresponding Portfolio, as a
percentage of average net assets of the Fund and as adjusted to give effect to
anticipated fee waivers, and (ii) an example illustrating the dollar cost of
such estimated expenses on a $1,000 investment in each Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases.............................................. None
Sales Load Imposed on Reinvested Dividends........................................... None
Deferred Sales Load.................................................................. None
Redemption Fee....................................................................... None
Exchange Fee......................................................................... None
</TABLE>
ANNUAL OPERATING EXPENSES
<TABLE>
<CAPTION>
INTER-
HIGH MEDIATE GOVERNMENT/ HIGH-
MONEY QUALITY GOVERNMENT CORPORATE YIELD BAL- EQUITY
MARKET BOND BOND BOND BOND ANCED INCOME
FUND FUND FUND FUND FUND FUND FUND
------ ------- ----------- ---------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees
(After Waiver)............................ .230% .350% .280% .350% .542% .430% .450%
Distribution
(Rule 12b-1) Fees......................... .250% .250% .250% .250% .250% .250% .250%
Other Expenses:
Administrative
Services Fees
(After Waiver)............................ .280% .290% .278% .270% .126% .290% .280%
Miscellaneous
Expenses(1)............................... .040% .110% .192% .120% .182% .130% .01%
Total Operating Expenses
(After Reimbursements
and Waivers)(2)........................... 0.800% 1.000% 1.000% 0.990% 1.100% 1.100% 0.990%
===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AGGRES- INTER-
EQUITY GROWTH & EQUITY SPECIAL SIVE NATIONAL
VALUE INCOME GROWTH EQUITY EQUITY EQUITY
FUND FUND FUND FUND FUND FUND
------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees
(After Waiver)......................................... .430% .580% .700% .760% .868% .750%
Distribution
(Rule 12b-1) Fees...................................... .250% .250% .250% .250% .250% .250%
Other Expenses:
Administrative
Services Fees
(After Waiver)......................................... .246% .280% .290% .280% .296% .195%
Miscellaneous
Expenses(1)............................................ .174% .040% .010% .210% .086% .205%
----- ----- ----- ----- ----- -----
Total Operating Expenses
(After Reimbursements
and Waivers)(2)........................................ 1.100% 1.150% 1.250% 1.500% 1.500% 1.400%
===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) "Miscellaneous Expenses" have been estimated for the Intermediate Government
Bond, High-Yield Bond, Equity Value, Aggressive Equity and International
Equity Fund based on a projected level of average daily net assets of
$50,000,000 per fund. "Miscellaneous Expenses" for the current fiscal year
for each fund are based on the actual average monthly net assets of $157
million for the Money Market fund, $289 million for the Government/Corporate
Bond fund, $159 million for the High Quality Bond fund, $136 million for the
Balanced fund, $643 million for the Equity Income fund, $106 million for the
Growth & Income fund, $182 million for the Equity Growth fund and $255
million for the Special Equity fund.
2
<PAGE> 6
(2) Without the voluntary reimbursements and waivers reflected in the table, the
Total Operating Expenses for the year ended December 31, 1995 would have
been 67.48% for the Money Market Fund, 91.16% for the High Quality Bond
Fund, 56.91% for the Government/Corporate Bond Fund, 9.95% for the Balanced
Fund, 17.88% for the Equity Income Fund, 21.71% for the Growth & Income
Fund, 14.34% for the Equity Growth Fund and 15.76% for the Special Equity
Fund.
(3) The International Equity Fund's total operating expenses may be higher than
those of many other mutual funds that invest exclusively in U.S. securities,
since certain costs of operation, such as advisory fees and custodian costs,
are expected to be higher for a fund investing in foreign securities.
EXAMPLE
A shareholder in a Fund would pay the following expenses on a $1,000
investment assuming (i) a 5% annual return on assets and (ii) redemption at the
end of each time period.
<TABLE>
<CAPTION>
AFTER AFTER AFTER AFTER
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund................................ $ 8 $26 $44 $ 99
High Quality Bond Fund........................... 10 32 55 122
Intermediate Government Bond Fund................ 10 32 -- --
Government/Corporate Bond Fund................... 10 32 55 121
High-Yield Bond Fund............................. 11 35 -- --
Balanced Fund.................................... 11 35 61 134
Equity Income Fund............................... 10 32 55 121
Equity Value Fund................................ 12 36 -- --
Growth & Income Fund............................. 12 37 63 140
Equity Growth Fund............................... 13 40 69 151
Special Equity Fund.............................. 15 47 82 179
Aggressive Equity Fund........................... 16 49 -- --
International Equity Fund........................ 14 44 77 168
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RETURNS, AND ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESSER
THAN THOSE SHOWN.
The purpose of the table is to assist investors in understanding the
various costs and expenses that shareholders will bear directly and indirectly.
The expense table and example reflect a voluntary undertaking by Diversified to
waive a portion of the investment advisory fees and administrative services
fees. Without such waiver, the annual administrative services fee would be .30%
for each Fund and the annual investment advisory fee would be .25% for the Money
Market Fund, .35% for the High Quality Bond Fund, .35% for the Intermediate
Government Bond Fund, .35% for the Government/Corporate Bond Fund, .55% for the
High-Yield Bond Fund, .45% for the Balanced Fund, .45% for the Equity Income
Fund, .57% for the Equity Value Fund, .60% for the Growth & Income Fund, .70%
for the Equity Growth Fund, .80% for the Special Equity Fund, .97% for the
Aggressive Equity Fund and .75% for the International Equity Fund.
The Trust has adopted a distribution plan (the "Distribution Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"1940 Act"). Under the Distribution Plan, the Trust may pay the Distributor in
anticipation of, or as reimbursement for, expenses incurred by the Distributor
in connection with the sale of shares of the Funds, a fee not to exceed on an
annual basis 0.25% of the average daily net assets of each Fund. Long term
shareholders may pay more than the economic equivalent of the maximum charges
permitted by the National Association of Securities Dealers, Inc.
For more information on the expenses of the Trust and the Portfolio Series,
see "Management of the Trust and Portfolio Series" herein.
The Trustees of the Trust believe that the aggregate per share expenses of
each Fund and its corresponding Portfolio will be less than or approximately
equal to the expenses which such Fund would incur if the Trust retained the
services of an investment adviser and the assets of such Fund were invested
directly in the types of securities being held by its corresponding Portfolio.
3
<PAGE> 7
THE DIVERSIFIED INVESTORS FUNDS GROUP
PROSPECTUS SUMMARY
Shares of the Funds are continuously sold only to Qualified Investors, as
defined on the cover page of this Prospectus. Qualified Investors include
certain group and individual employee retirement plans. If applicable,
participants in these employee retirement plans should obtain directly from
their plan administrator, and should read in conjunction with this Prospectus,
the materials provided by their plan administrator describing the procedures by
which Fund shares may be purchased and redeemed.
The thirteen Funds, their investment objectives and their Subadvisers are
as follows:
MONEY MARKET FUND. The investment objective of the Money Market Fund is 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.
The Subadviser to this Fund is Capital Management Group (a division of 1740
Advisers, Inc.). An investor's interest in the Money Market Fund is neither
insured nor guaranteed by the U.S. Government.
HIGH QUALITY BOND FUND. The investment objective of the High Quality Bond
Fund is to provide as high a level of current income as is consistent with the
preservation of capital through investment in high quality debt securities with
short and intermediate maturities. The Subadviser to this Fund is Merganser
Capital Management Corporation.
INTERMEDIATE GOVERNMENT BOND FUND. The investment objective of the
Intermediate Government Bond Fund is 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
intermediate maturities and high quality short-term obligations. The Subadviser
to this Fund is Capital Management Group (a division of 1740 Advisers, Inc.).
GOVERNMENT/CORPORATE BOND FUND. The investment objective of the
Government/Corporate Bond Fund is to achieve 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. The Subadviser to this Fund is Capital Management Group
(a division of 1740 Advisers, Inc.).
HIGH-YIELD BOND FUND. The investment objective of the High-Yield Bond Fund
is to provide a high level of current income from a diversified portfolio
consisting primarily of high-yielding, fixed-income and zero coupon securities,
such as bonds, debentures and notes, convertible securities and preferred
stocks. The Subadviser to this Fund is Delaware Investment Advisers (a division
of Delaware Management Company, Inc.).
BALANCED FUND. The investment objective of the Balanced Fund is to provide
a high total investment return consistent with a broad diversified mix of
stocks, bonds and money market instruments. The Subadviser to this Fund is
Institutional Capital Corporation.
EQUITY INCOME FUND. The investment objective of the Equity Income Fund 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 Subadviser to this Fund is Asset
Management Group (a division of 1740 Advisers, Inc.).
EQUITY VALUE FUND. The investment objective of the Equity Value Fund is to
provide a high total investment return through investment primarily in a
diversified portfolio of common stocks. The Fund emphasizes stocks which, in the
opinion of the Fund's investment subadviser, are trading at low valuations
relative to market and/or historical levels. The Subadviser to this Fund is Ark
Asset Management Co., Inc.
GROWTH & INCOME FUND. The investment objective of the Growth & Income Fund
is to provide current income and capital appreciation through investment
primarily in a diversified portfolio of securities selected for their potential
to generate current income or long term capital appreciation. The Subadviser to
this Fund is The Putnam Advisory Company, Inc.
4
<PAGE> 8
EQUITY GROWTH FUND. The investment objective of the Equity Growth Fund 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; current income is a secondary objective. The Subadviser to this
Fund is Jundt Associates, Inc.
SPECIAL EQUITY FUND. The investment objective of the Special Equity Fund
is to provide a high level of capital appreciation through investment in a
diversified portfolio of common stocks of small to medium size companies,
without consideration for current income. The Fund emphasizes stocks which, in
the opinion of the Fund's investment subadvisers, will present an opportunity
for significant increases in earnings, revenue and/or value. The Subadvisers to
this Fund are Ark Asset Management Co., Inc., Liberty Investment Management,
Inc., Pilgrim Baxter & Associates, Ltd. and Westport Asset Management, Inc.
AGGRESSIVE EQUITY FUND. The investment objective of the Aggressive Equity
Fund is to provide a high level of capital appreciation through investment in a
diversified portfolio of common stocks of small to medium size companies,
without consideration for current income. The Fund emphasizes stocks which, in
the opinion of the Fund's investment subadviser, present an opportunity for
significant increases in earnings, revenue and/or value. Unlike the Special
Equity Fund, the volatility of this Fund is not mitigated through the use of
multiple investment managers. The Subadviser to this Fund is McKinley Capital
Management, Inc.
INTERNATIONAL EQUITY FUND The investment objective of the International
Equity Fund is to provide a high level of long term capital appreciation through
investment in a diversified portfolio of securities of foreign issuers. The
Subadviser to this Fund is Capital Guardian Trust Company.
There can, of course, be no assurance that any Fund or Portfolio will
achieve its investment objective.
5
<PAGE> 9
CONDENSED FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The following table provides financial highlights for the Funds and periods
indicated. The Intermediate Government Bond Fund, High-Yield Bond Fund, Equity
Value Fund, Aggressive Equity Fund and International Equity Fund are newly
organized and, as such, have not issued financial statements. The information
below should be read in conjunction with the financial statements appearing in
the Annual Report to Shareholders of the Funds which is incorporated by
reference in the Statement of Additional Information. The financial statements
and notes, as well as the table below, covering periods through December 31,
1995 have been audited by Coopers & Lybrand L.L.P., independent accountants,
whose report is included in such Annual Report. A copy of the Annual Report may
be obtained without charge from the Funds' Distributor.
6
<PAGE> 10
<TABLE>
<CAPTION>
HIGH QUALITY BOND GOVERNMENT/
MONEY MARKET CORPORATE BOND
-------------------- ------------------- --------------------
1995 1994 1995 1994* 1995 1994*
-------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 9.61 $ 10.00 $ 9.87 $ 10.00 $ 9.91 $ 10.00
-------- ------- ------- ------- -------- -------
Income from investment operations:
Net investment income............. 0.31 0.66 0.42 0.18 0.30 0.19
Net gains on investments (both
realized and unrealized)........ 0.22 (0.39) 0.74 (0.12) 1.71 (0.09)
-------- ------- ------- ------- -------- -------
Total from investment operations... 0.53 0.27 1.16 0.06 2.01 0.10
-------- ------- ------- ------- -------- -------
Less: Dividends and distributions
from:
Net investment income............. (0.31) (0.66) (0.42) (0.18) (0.28) (0.19)
Net realized gain on
investments..................... -- -- -- -- (0.04) --
Tax return of capital............. -- -- -- (0.01) -- --
-------- ------- ------- ------- -------- -------
Total from dividends and
distributions..................... (0.31) (0.66) (0.42) (0.19) (0.32) (0.19)
-------- ------- ------- ------- -------- -------
Net asset value, end of period..... $ 9.83 $ 9.61 $ 10.61 $ 9.87 $ 11.60 $ 9.91
======== ======= ======= ======= ======== =======
Ratios/supplemental data:
Net assets end of period........... $113,491 $25,092 $71,167 $20,872 $175,079 $22,937
Ratio of expenses to average net
assets, including expenses of
the Portfolio..................... 67.48% 59.21% 91.16% 284.62%** 56.91% 257.24%**
Ratio of expenses to average net
assets, including expenses of the
Portfolio (net of
reimbursement).................... 0.76% 0.51% 1.00% 0.55%** 0.85% 0.54%**
Ratio of net investment income to
average net assets................ (61.47%) (55.80%) (83.53%) (279.12%)** (50.11%) (251.51%)**
Ratio of net investment income
to average net assets
(net of reimbursement)............ 5.24% 2.90% 6.63% 4.96%** 5.92% 5.18%**
Total return....................... 5.50% 3.45% 11.85% 0.67% 20.30% 1.10%
Portfolio Turnover Rate............ N/A N/A 25% 37% 122% 122%
<CAPTION>
BALANCED EQUITY INCOME GROWTH & INCOME EQUITY GROWTH
------------------- ------------------ ------------------ ---------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
-------- -------- -------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.05 $ 10.00 $ 9.93 $ 10.00 $ 10.22 $ 10.00 $ 11.35 $ 10.00
-------- -------- -------- ------- -------- ------- -------- --------
Income from investment operations:
Net investment income............. 0.24 0.07 0.16 0.09 0.06 0.03 0.01 (0.01)
Net gains on investments (both
realized and unrealized)........ 2.61 0.07 3.28 (0.07) 3.18 0.22 2.09 1.36
-------- -------- -------- ------- -------- ------- -------- --------
Total from investment operations... 2.85 0.14 3.44 0.02 3.24 0.25 2.10 1.35
-------- -------- -------- ------- -------- ------- -------- --------
Less: Dividends and distributions
from:
Net investment income............. (0.24) (0.07) (0.16) (0.09) (0.06) (0.03) (0.01) --
Net realized gain on
investments.................... (0.51) -- (0.04) -- (0.95) -- -- --
Tax return of capital............. (0.11) (0.02) (0.08) -- (0.98) -- (0.08) --
-------- -------- -------- ------- -------- ------- -------- --------
Total from dividends and
distributions..................... (0.86) (0.09) (0.28) (0.09) (1.99) (0.03) -- (1.23)
-------- -------- -------- ------- -------- ------- -------- --------
Net asset value, end of period..... $ 12.04 $ 10.05 $ 13.09 $ 9.93 $ 11.47 $ 10.22 $ 13.36 $ 11.35
======== ======== ======== ======= ======== ======= ======== ========
Ratios/supplemental data:
Net assets end of period........... $895,351 $151,629 $590,381 $70,855 $443,638 $60,475 $618,317 $120,370
Ratio of expenses to average net
assets, including expenses of
the Portfolio..................... 9.95% 71.47%** 17.88% 106.54%** 21.71% 140.33%** 14.34% 70.79%**
Ratio of expenses to average net
assets, including expenses of the
Portfolio (net of
reimbursement).................... 0.87% 0.49%** 0.90% 0.42%** 1.03% 0.43%** 1.01% 0.42%**
Ratio of net investment income to
average net assets................ (5.68%) (68.13%)** (14.15%) (103.39%)** (19.66%) (138.93%)** (13.13%) (71.00%)
Ratio of net investment income
to average net assets
(net of reimbursement)............ 3.40% 2.86%** 2.82% 2.74%** 1.02% 0.97%** 0.20% (0.21%)**
Total return....................... 28.47% 1.43% 34.62% 0.24% 32.11% 2.49% 18.50% 13.58%
Portfolio Turnover Rate............ 124% 118% 23% 30% 155% 21% 62% 75%
<CAPTION>
SPECIAL EQUITY
--------------------
1995 1994*
-------- -------
Net asset value, beginning of
period............................ $ 10.75 $ 10.00
-------- -------
Income from investment operations:
Net investment income............. 0.0 --
Net gains on investments (both
realized and unrealized)........ 4.43 0.84
-------- -------
Total from investment operations... 4.43 0.84
-------- -------
Less: Dividends and distributions
from:
Net investment income............. -- --
Net realized gain on
investments..................... (0.89) (0.09)
Tax return of capital............. (0.34) --
-------- -------
Total from dividends and
distributions..................... (0.09)
-------- -------
Net asset value, end of period..... $ 13.95 $ 10.75
======== =======
Ratios/supplemental data:
Net assets end of period........... $600,294 $87,705
Ratio of expenses to average net
assets, including expenses of
the Portfolio..................... 15.76% 99.91%**
Ratio of expenses to average net
assets, including expenses of the
Portfolio (net of
reimbursement).................... 1.33% 0.54%**
Ratio of net investment income to
average net assets................ (14.58%) (99.33%)**
Ratio of net investment income
to average net assets
(net of reimbursement)............ (0.18%) 0.04%**
Total return....................... 41.50% 8.54%
Portfolio Turnover Rate............ 155% 90%
</TABLE>
- ---------------
*For the period July 1, 1994 (commencement of operations) through December 31,
1994
**Annualized
7
<PAGE> 11
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
As noted above, the Funds seek to achieve their investment objectives by
investing all of their Assets in Portfolios with investment objectives that
correspond with their own. Each Fund has a different investment objective which
it pursues through the investment policies described below. Since each Fund has
a different investment objective, each can be expected to have different
investment results and to be subject to different market and financial risks.
Diversified has contracted with one or more Subadvisers for each Portfolio
for certain investment advisory services. Diversified and the Subadviser or
Subadvisers for a particular Portfolio are referred to herein collectively as
the "Advisers".
The investment objective of a Fund or a Portfolio may be changed without
the vote of the holders of the outstanding voting securities of such Fund or
Portfolio. Shareholders of a Fund will receive 30 days' prior written notice of
any change in the investment objective of that Fund or its corresponding
Portfolio. There can be no assurance that any investment objective of any Fund
or Portfolio will be met.
MONEY MARKET FUND. The investment objective of the Money Market Fund and
the Money Market Portfolio is to provide liquidity and as high a level of
current income as is consistent with the preservation of capital. The Money
Market Fund seeks to achieve its investment objective by investing all of its
Assets in the Money Market Portfolio.
The Money Market Portfolio invests in high quality short-term money market
instruments. Securities in which the Money Market Portfolio 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 Portfolio 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 other
short-term obligations issued by domestic banks and 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
Portfolio 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 Portfolio
reserves the right to concentrate 25% or more of its total assets in obligations
of domestic banks.
In accordance with Rule 2a-7 under the 1940 Act, the Money Market Portfolio
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 the Portfolio Series (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 Portfolio will invest at least 95% of its total assets in First Tier
Securities.
The NRSROs currently rating instruments of the type the Portfolio may
purchase are Moody's Investors Service, Inc., Standard & Poor's Ratings Group,
Duff & Phelps, Inc., Fitch Investors Service,
8
<PAGE> 12
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
Portfolio's 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 Portfolio 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 Portfolio
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 Portfolio
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 Portfolio's 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 Portfolio's total assets, with the investment in any one such issuer
being limited to no more than the greater of 1% of the Portfolio's total assets
or $1,000,000. As to each security, these percentages are measured at the time
the Portfolio purchases the security.
The Money Market Portfolio seeks to achieve its investment objective
through investments in the following types of U.S. dollar-denominated money
market instruments.
BANK OBLIGATIONS. The Portfolio may invest in U.S. dollar-denominated
certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations issued by domestic banks and domestic branches and
subsidiaries of foreign 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 Portfolio are not insured by the Federal Deposit
Insurance Corporation or any other agency of the U.S. Government. The
Portfolio will not invest more than 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 Portfolio may also invest
in certificates of deposit and time deposits issued by foreign banks
outside the United States.
The Portfolio 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 Portfolio's investments are concentrated in the
banking industry, the Portfolio 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 the
Fund's shares 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 Portfolio,
however, will seek to minimize its exposure to such risks by investing only
in debt securities which are determined to be of high quality.
9
<PAGE> 13
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 Portfolio 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, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Portfolio will consist only of U.S.
dollar-denominated direct obligations issued by domestic and foreign
entities. The other corporate obligations in which the Portfolio may invest
consist of high quality, U.S. dollar-denominated short-term bonds and notes
issued by domestic corporations.
The Portfolio 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 Portfolio 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 Portfolio's investment objective. The Notes purchased
by the Portfolio will have remaining maturities of 13 months or less and
will be deemed by the Board of Trustees, or by the Advisers on behalf of
the Board, to present minimal credit risks and will meet the quality
criteria set forth above. The Portfolio 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 Portfolio cannot exercise the demand
feature described in the Statement of Additional Information and as to
which there is no secondary market).
RESTRICTED SECURITIES. The Portfolio may invest in securities that
are subject to legal or contractual restrictions on resale. These
securities may be illiquid and, thus, the Portfolio 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 Portfolio, the Portfolio intends
to treat such securities as liquid securities in accordance with procedures
approved by the Board of Trustees. To the extent that for a period of time
qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A, the Portfolio's investing in such securities may
have the effect of increasing the level of illiquidity in the Portfolio
during such period.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Repurchase
agreements involve the acquisition by the Portfolio of an underlying debt
instrument subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the instrument at a fixed price usually not
10
<PAGE> 14
more than one week after its purchase. The Portfolio's custodian or a
sub-custodian will have custody of securities acquired by the Portfolio
under a repurchase agreement.
Repurchase agreements may be entered into for the Portfolio 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 Portfolio to earn a return on
available cash with minimal market risk. Certain costs may be incurred by
the Portfolio 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 Portfolio
may be delayed or limited. Repurchase agreements are considered
collateralized loans under the 1940 Act.
The Portfolio 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 the Portfolio 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 Portfolio may decline
below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by the Portfolio.
FOREIGN SECURITIES. The Portfolio 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
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 Portfolio may purchase, see "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 the Trust supplementing
this Prospectus, the Portfolio may invest in obligations other than those
listed previously, provided such investments are consistent with the
Portfolio's investment objective, policies and restrictions.
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
nonfundamental investment policies, as well as a listing of specific
investment restrictions which constitute fundamental policies of the Fund
or the Portfolio and 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 Fund or the Portfolio, respectively. See "Investment
Restrictions" in the Statement of Additional Information.
HIGH QUALITY BOND FUND. The investment objective of the High Quality Bond
Fund and the High Quality Bond Portfolio is to provide as high a level of
current income as is consistent with the preservation of capital. The yield of
the High Quality Bond Fund normally is expected to be higher than a money market
fund but lower than a longer-term or lower quality bond fund. Unlike a money
market fund, the Fund does not seek to maintain a stable net asset value and may
not be able to return dollar-for-dollar the money invested. The High Quality
Bond Fund seeks to achieve its investment objective by investing all of its
Assets in the High Quality Bond Portfolio.
11
<PAGE> 15
The High Quality Bond Portfolio pursues its investment objective by
investing at least 65% of its assets under normal circumstances in high quality
debt securities with short and intermediate maturities (including repurchase
agreements and reverse repurchase agreements).
The Advisers attempt to maintain the Portfolio's "duration" between one and
four years, which means that the Portfolio's overall sensitivity to interest
rates should be slightly more than that of bonds and notes with remaining
average maturities from one to four years. The Portfolio's dollar-weighted
average maturity (or dollar-weighted average life in the case of asset-backed
and mortgage-backed securities) may be longer than four years from time to time,
but will not exceed five years under normal conditions. The Portfolio may hold
individual securities with remaining maturities of up to thirty years.
The Portfolio seeks consistency of return with minimal exposure to negative
total returns on an annual basis. The Advisers' strategy is to position the
Portfolio in those high quality sectors of the fixed income market that offer
the most attractive yields on a risk-adjusted basis. The duration of the
Portfolio will be a function of the security and sector selection process and
market conditions in general. Since the value of fixed income securities
generally fluctuates inversely with changes in interest rates, the value of
securities held by the Fund will tend to decline during periods of rising
interest rates.
The Advisers normally will select only securities having a minimum
long-term quality rating of A-by Standard & Poor's Ratings Group ("S&P") or A3
by Moody's Investors Service, Inc. ("Moody's") at the time of purchase, or, in
the case of instruments that are not rated or are rated by other agencies (i.e.,
Fitch Investors Service, Inc., Duff & Phelps, Inc., etc.) are deemed by the
Advisers to be of similar quality. Money market securities will have a minimum
short-term rating of at least A-1 or P-1 by S&P or Moody's, respectively, or an
equivalent rating by other agencies. The Portfolio may continue to hold such
securities if their ratings are reduced after purchase.
The High Quality Bond Portfolio seeks to achieve its investment objective
through investments in the following types of instruments.
U.S. GOVERNMENT AND AGENCY SECURITIES. The Portfolio may invest in
U.S. Government securities and securities issued or guaranteed by its
agencies or instrumentalities. See "U.S. Government and Agency Securities"
above under Money Market Portfolio. These securities have varying degrees
of government backing. They may be backed by the credit of the government
as a whole or only by the issuing agency. For example, securities issued by
the Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association are supported by the agency's right to borrow money
from the U.S. Treasury under certain circumstances. U.S. Treasury bonds,
notes and bills, and some agency securities, such as those issued by the
Government National Mortgage Association, are backed by the full faith and
credit of the U.S. Government as to payment of principal and interest and
are the highest quality government securities. There is no assurance that
the U.S. Government will support obligations of its agencies unless it is
required to do so by law. The Fund itself, and its share price and yield,
are not guaranteed by the U.S. Government. For additional information on
U.S. Government securities, see the Statement of Additional Information.
The Portfolio 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 Portfolio may invest
up to 100% of its assets in these instruments.
CORPORATE BONDS. The Portfolio may purchase public or private
corporate bonds, issued by domestic or foreign issuers, that meet the
Portfolio's minimum credit quality criteria at the time of purchase. The
corporate bond market is customarily subdivided into several segments,
which include industrial, public utility, rail and transportation bonds,
and bonds issued by banks and other financial institutions.
12
<PAGE> 16
YANKEE BONDS AND EURODOLLAR BONDS. The Portfolio may purchase Yankee
and Eurodollar issues that meet its minimum credit quality standards.
Yankee issues are U.S. dollar denominated bonds issued in the United States
market by foreign issuers and are, therefore, subject to SEC regulations.
Issuers of yankee bonds include, among others, foreign corporations,
foreign governments and agencies, and multilateral lending institutions.
Eurodollar bonds are fixed income securities that are denominated in U.S.
dollars, are underwritten by an international syndicate, and are sold upon
issuance to non-U.S. investors. U.S.-based investors may purchase
eurodollar bonds in the secondary market after a seasoning period.
Eurodollar bonds are not subject to SEC regulations.
MORTGAGE PASS-THROUGHS AND COLLATERALIZED MORTGAGE OBLIGATIONS. The
Portfolio may purchase mortgage and mortgage-related securities such as
pass-throughs, collateralized mortgage obligations, and mortgage
derivatives that meet the Portfolio's minimum credit quality criteria
(collectively, "Mortgage Securities"). Mortgage pass-throughs are
securities that pass through to investors an undivided interest in a pool
of underlying mortgages. These may be issued or guaranteed by U.S.
government agencies, or may consist of whole loans originated and issued by
private limited purpose corporations or conduits.
Collateralized mortgage obligation bonds and mortgage derivatives are
obligations of special purpose corporations that are collateralized or
supported by mortgages or mortgage securities such as pass-throughs.
Principal prepayments on the underlying mortgages or loans may cause the
Mortgage Securities to be retired substantially earlier than their stated
maturities or final distribution dates, resulting in a loss to the
Portfolio of all or part of the premium, if any, which the Portfolio may
pay when investing in Mortgage Securities.
ASSET-BACKED SECURITIES. The Portfolio may purchase public or private
asset-backed securities of various types, which are fixed income securities
that are collateralized or "backed" by installment receivables (usually
consumer loans) for which some type of credit enhancement is provided.
Asset-backed securities that are eligible for purchase by the Portfolio
include securities backed by automobile receivables, credit card
receivables, home equity loans, manufactured housing loans, business and
recreational vehicle loans, computer leases, and agricultural equipment
loans.
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 Portfolio 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 (i.e., rated P-1 by
Moody's or A-1 by S&P) 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. The
Portfolio may enter into repurchase agreements and reverse repurchase
agreements. See "Repurchase Agreements and Reverse Repurchase Agreements"
under Money Market Fund. The Portfolio may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage.
RESTRICTED SECURITIES. The Portfolio may purchase securities in the
United States that are not registered for sale under federal securities
laws but which can be resold to institutions under Rule 144A under the 1933
Act. Provided that a dealer or institutional trading market in such
securities exists, these restricted securities are treated as exempt from
the Portfolio's 15% limit on illiquid securities. Under the supervision of
the Board of Trustees, the Advisers determine the
13
<PAGE> 17
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 Portfolio could
be adversely affected.
OPTIONS AND FUTURES CONTRACTS. The Portfolio 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 Portfolio's investments
against price fluctuations. Other strategies, including buying futures,
writing puts and buying calls, tend to increase market exposure. The
Portfolio 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
Fund's return. The costs of hedging are not reflected in the Fund's yield
but are reflected in the Fund's total return. The Fund could also
experience losses if the Portfolio's 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 Portfolio 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 Portfolio 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 Portfolio.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the
availability of suitable securities for the Portfolio, the Advisers may
purchase securities for the Portfolio on a "when-issued" or on a "forward
delivery" basis, which means that the obligations would be delivered to the
Portfolio at a future date beyond customary settlement time. Under normal
circumstances, the Portfolio would take delivery of such securities. In
general, the Portfolio 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 Portfolio 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 Portfolio's assets
committed to the purchase of securities on a "when-issued" basis may
increase the volatility of the Fund's net asset value.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Portfolio may also
utilize the following investments and investment techniques and practices:
investments in foreign securities, investments in securities denominated in
foreign currencies, options on futures contracts, foreign currency exchange
transactions and options on foreign currencies. The Portfolio does not
intend to utilize any of these investments or practices to the extent of
more than 5% of its assets. See the Statement of Additional Information for
further information.
INTERMEDIATE GOVERNMENT BOND FUND. The investment objective of the
Intermediate Government Bond Fund 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 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 Fund pursues its investment objective by investing
all of its Assets in the Intermediate Government Bond Portfolio.
The Intermediate Government Bond Portfolio pursues its investment objective
by investing in high quality U.S. Government obligations and high quality
short-term obligations (including repurchase agreements and reverse repurchase
agreements). The Intermediate Government Bond Portfolio normally will invest at
least 65% of its assets in U.S. Government obligations. The Advisers attempt to
14
<PAGE> 18
maintain the Intermediate Government Bond Portfolio's "duration" between one and
five years, which means that the Intermediate Government Bond Portfolio's
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 Portfolio's dollar-weighted average maturity (or dollar-weighted
average life in the case of mortgage-backed securities) may be longer than five
years from time to time, but will not exceed ten years or be less than 3 years
under normal conditions. The Intermediate Government Bond Portfolio 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
Portfolio 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 Portfolio so that the Intermediate Government Bond
Portfolio 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 Portfolio through changes in interest rates, and there is a risk
that the value of the securities held by the Intermediate Government Bond
Portfolio will decline.
The following is a discussion of the various investments of and techniques
employed by the Intermediate Government Bond Portfolio. Additional information
about the investment policies of the Intermediate Government Bond Portfolio
appears under "Diversified Investors Portfolios" in the Statement of Additional
Information.
U.S. GOVERNMENT AND AGENCY SECURITIES. The Intermediate Government
Bond Portfolio may invest in U.S. Government securities. See "U.S.
Government and Agency Securities" above under Money Market Fund. The
Intermediate Government Bond Portfolio 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
Portfolio 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. See "Short Term Instruments" above under High Quality
Bond Fund.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Repurchase
agreements and reverse repurchase agreements may be entered into by the
Intermediate Government Bond Portfolio. See "Repurchase Agreements and
Reverse Repurchase Agreements" above under Money Market Fund. The
Intermediate Government Bond Portfolio 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 Portfolio may
invest not 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 Fund.
OPTIONS AND FUTURES CONTRACTS. The Intermediate Government Bond
Portfolio 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 High Quality Bond Fund.
The Intermediate Government Bond Portfolio 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 Portfolio has
the authority to write
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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
Portfolio.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the
availability of suitable securities for the Intermediate Government Bond
Portfolio, the Advisers may purchase securities for the Intermediate
Government Bond Portfolio on a "when-issued" or on a "forward delivery"
basis, which means that the obligations would be delivered to the
Intermediate Government Bond Portfolio at a future date beyond customary
settlement time. See "Delayed Delivery Transactions" above under the High
Quality Bond Fund.
OTHER INVESTMENT AND INVESTMENT TECHNIQUES. The Intermediate
Government Bond Portfolio may, in each case up to 5% of the Portfolio's
assets, also utilize the following investments and investment techniques
and practices: investments in foreign securities, options on futures
contracts, foreign currency exchange transactions and options on foreign
currencies. See "Diversified Investors Portfolios" in the Statement of
Additional Information for further information.
GOVERNMENT/CORPORATE BOND FUND. The investment objective of the
Government/Corporate Bond Fund and the Government/Corporate Bond Portfolio is to
achieve the maximum total return. The Government/Corporate Bond Fund yield
normally is expected to be higher than a money market fund but lower than a
longer-term or lower quality bond fund. The Government/Corporate Bond Fund seeks
to achieve its investment objective by investing all of its Assets in the
Government/Corporate Bond Portfolio.
The Government/Corporate Bond Portfolio 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
instrumentalities, and high quality short-term obligations (including repurchase
agreements and reverse repurchase agreements). At least 65% of the Portfolio's
assets is invested in U.S. Government securities, corporate bonds and short-term
instruments.
The Advisers attempt to maintain the Government/Corporate Bond Portfolio's
"duration" between three and ten years, which means that the Portfolio's overall
sensitivity to interest rates should be slightly more than that of bonds and
notes with remaining average maturities from three to fifteen years. The
Government/Corporate Bond Portfolio's 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. The Government/Corporate Bond Portfolio 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 Portfolio will vary to
reflect the Advisers' assessments of prospective changes in interest rates. The
Advisers' strategy will be to adjust the duration of the Portfolio so that the
Government/Corporate Bond Portfolio 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 Portfolio through changes in interest rates, and there is a risk that
the value of the securities held by the Portfolio will decline.
The Government/Corporate Bond Portfolio seeks to achieve its investment
objective through investments in the following types of instruments.
U.S. GOVERNMENT AND AGENCY SECURITIES. The Government/Corporate Bond
Portfolio may invest in U.S. Government securities. See "U.S. Government
and Agency Securities" above under Money Market Fund. The Portfolio 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 Portfolio may invest up to 100% of its
assets in these instruments.
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CORPORATE BONDS. The Government/Corporate Bond Portfolio 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 condition or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade securities. See the Appendix to
the Statement of Additional Information for an explanation of these
ratings.
FOREIGN SECURITIES. The Government/Corporate Bond Portfolio may
invest in securities of foreign issuers. The Fund's investments in unlisted
foreign securities are subject to the overall restrictions applicable to
investments in illiquid securities. The Advisers do not intend to
concentrate more than 25% of such foreign investments in any one type of
instrument or in any foreign country. 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 Portfolio. 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 High Quality Bond Fund.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The
Government/Corporate Bond Portfolio may enter into repurchase agreements
and reverse repurchase agreements. See "Repurchase Agreements and Reverse
Repurchase Agreements" above under Money Market Fund. The Portfolio may
borrow funds for temporary or emergency purposes, such as meeting larger
than anticipated redemption requests, and not for leverage.
RESTRICTED SECURITIES. The Government/Corporate Bond Portfolio may
invest not more than 15% of its net assets in securities that are subject
to legal or contractual restrictions on resale. See "Restricted Securities"
above under High Quality Bond Fund.
OPTIONS AND FUTURES CONTRACTS. The Government/Corporate Bond Series
may buy and sell options and futures contracts to manage its exposure to
changing interest rates and securities prices. See "Options and Futures
Contracts" above under High Quality Bond Fund.
The Portfolio 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 Portfolio 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 Portfolio.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the
availability of suitable securities for the Government/Corporate Bond
Portfolio, the Advisers may purchase securities for the Portfolio on a
"when-issued" or on a "forward delivery" basis which means that the
securities
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<PAGE> 21
would be delivered to the Portfolio at a future date beyond customary
settlement times. See "Delayed Delivery Transactions" above under High
Quality Bond Fund.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Government/Corporate
Bond Portfolio may also utilize the following investments and investment
techniques and practices: options on futures contracts and options on
foreign currencies. The Portfolio 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.
HIGH-YIELD BOND FUND. The investment objective of the High-Yield Bond Fund
is to seek a high level of current income. The High-Yield Bond Fund seeks to
achieve its investment objective by investing all of its Assets in the
High-Yield Bond Portfolio.
The High-Yield Bond Portfolio pursues its investment objective by investing
in a diversified portfolio consisting primarily of high-yielding, fixed-income
and zero coupon securities, such as bonds, debentures and notes, convertible
securities and preferred stocks. The Portfolio may invest all or a substantial
portion of its assets in lower-rated debt securities, commonly referred to as
"junk bonds". Such investments may include foreign securities and obligations
issued or guaranteed by the U.S. government, any of its states or territories,
any foreign government or any of their respective subdivisions, agencies or
instrumentalities.
The High-Yield Bond Portfolio normally will invest at least 65% of its
assets in high-yielding, income producing debt securities and preferred stocks,
including convertible and zero coupon securities. Zero coupon securities are
debt securities that pay no cash income but are sold at substantial discounts
from their face value. Certain zero coupon securities also are sold at
substantial discounts but provide for the commencement of regular interest
payments at a deferred date. The Portfolio may invest up to 35% of its assets in
equity securities, including common stocks, warrants and rights.
Lower-rated debt securities usually are defined as securities rated Ba or
lower by Moody's or BB or lower by S&P. Lower-rated debt securities are
considered speculative and involve greater risk of default or price changes due
to changes in the issuer's creditworthiness than higher-rated securities and are
more sensitive to changes in the issuer's capacity to pay. Investing in
lower-rated debt securities is an aggressive approach to income investing. The
1980s saw a dramatic increase in the use of lower-rated debt securities to
finance highly leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of future performance of
lower-rated debt securities, especially during periods of economic recession. In
fact, from 1989 to 1991, the percentage of lower-rated debt securities that
defaulted rose significantly above prior levels.
Lower-rated debt securities may be thinly traded, which can adversely
affect the prices at which they can be sold and can result in high transaction
costs. If market quotations are not available, these lower-rated debt securities
will be valued in accordance with standards set by the Board of Trustees,
including the use of outside pricing services. Judgment plays a greater role in
valuing lower-rated debt securities than securities for which more extensive
quotations and last-sale information are available. Adverse publicity and
changing investor perceptions may affect the ability of outside pricing services
used by the Portfolio to value its portfolio securities, and the Portfolio's
ability to dispose of the lower-rated bonds. The market prices of lower-rated
debt securities may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates. During an
economic downturn or a prolonged period of rising interest rates, the ability of
issuers of lower-rated debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired. The Portfolio may choose,
at its own expense or in conjunction with others, to pursue litigation or
otherwise exercise its rights as a security holder to seek to protect the
interests of security holders if it determines this to be in the interest of
Portfolio investors.
The considerations discussed above for lower-rated debt securities also are
applicable to lower quality unrated debt instruments of all types, including
loans and other direct indebtedness of
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<PAGE> 22
businesses with poor credit standing. Unrated debt instruments are not
necessarily of lower quality than rated securities but they may not be
attractive to as many buyers.
The High-Yield Bond Portfolio may also seek to achieve its investment
objective through investments in the following types of instruments.
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 High Quality Bond Fund.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The
High-Yield Bond Portfolio may enter into repurchase agreements and reverse
repurchase agreements. See "Repurchase Agreements and Reverse Repurchase
Agreements" above under Money Market Fund. The Portfolio may borrow funds
for temporary or emergency purposes, such as meeting larger than
anticipated redemption requests, and not for leverage.
RESTRICTED SECURITIES. The High-Yield Bond Portfolio 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
High Quality Bond Fund.
OPTIONS AND FUTURES CONTRACTS. The High-Yield Bond Portfolio 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 High Quality Bond Fund.
The Portfolio currently does not intend to engage in the writing of
options, except under the limited circumstances described in the Statement
of Additional Information. Nevertheless, the Portfolio 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 Portfolio.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the
availability of suitable securities for the High-Yield Bond Portfolio, the
Advisers may purchase securities for the Portfolio on a "when-issued" or on
a "forward delivery" basis which means that the securities would be
delivered to the Portfolio at a future date beyond customary settlement
times. See "Delayed Delivery Transactions" above under High Quality Bond
Fund.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The High-Yield Bond
Portfolio may also utilize the following investments and investment
techniques and practices: options on futures contracts and options on
foreign currencies. The Portfolio does not intend to utilize any of these
investments or techniques to the extent of more than 5% of its assets. See
the Statement of Additional Information for further information.
BALANCED FUND. The investment objective of the Balanced Fund and the
Balanced Portfolio is to provide a high total investment return consistent with
a broad mix of stocks, bonds and money market instruments. The Balanced Fund
seeks to achieve its investment objective by investing all of its Assets in the
Balanced Portfolio.
The Balanced Portfolio 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 Portfolio 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.
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<PAGE> 23
The Balanced Portfolio's 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 Portfolio 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 Portfolio 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 Portfolio's 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 is
the case for issuers of higher grade bonds. Less than 5% of the Balanced
Portfolio's 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 Portfolio 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 Portfolio may invest up
to 100% of its assets in these instruments or other money market instruments.
EQUITY INCOME FUND. The investment objective of the Equity Income Fund and
the Equity Income Portfolio is to provide a high level of current income through
investment in a diversified portfolio of common stocks with relatively high
current yields; capital appreciation is a secondary objective. The Equity Income
Fund seeks to achieve its investment objective by investing all of its Assets in
the Equity Income Portfolio.
The Equity Income Portfolio 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 Portfolio so that it will outperform other equity income funds in negative
markets. As a result of this objective, the Portfolio may underperform relative
to other equity income funds in positive markets. The Portfolio invests
primarily in common stocks and preferred 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 Portfolio 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 Portfolio
allocates its investments among different industries and companies, and changes
its portfolio securities for investment considerations and not for trading
purposes.
The Equity Income Portfolio's 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 Portfolio may vary the percentage
of assets invested in any one type of security in accordance with the Advisers'
interpretation of economic and market conditions, fiscal and monetary policy,
and underlying security values.
EQUITY VALUE FUND. The investment objective of the Equity Value Fund and
the Equity Value Portfolio is to provide a high total investment return through
investment primarily in a diversified portfolio of common stocks. The Equity
Value Fund seeks to achieve its investment objective by investing all of its
Assets in the Equity Value Portfolio.
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<PAGE> 24
The Equity Value Portfolio 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 trading at low valuations relative to market
and/or historical levels. These stocks tend to have relatively low
price/earnings ratios and/or relatively low price/book value ratios. Low
price/earnings ratios or price/book value ratios means that the stock is less
expensive than average relative to the company's earnings or book value,
respectively. The Portfolio 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 Portfolio may also
invest in bonds and short-term obligations as well as securities convertible
into common stocks, preferred stocks, debt securities and short-term
obligations. The Portfolio allocates its investments among different industries
and companies, and changes its portfolio securities for investment
considerations and not for trading purposes.
The Equity Value Portfolio may 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 Portfolio may vary the percentage
of assets invested in any one type of security in accordance with the Advisers'
interpretation of economic and market conditions, fiscal and monetary policy,
and underlying security values.
GROWTH & INCOME FUND. The investment objective of the Growth & Income Fund
and the Growth & Income Portfolio is to provide current income and capital
appreciation. The Growth & Income Fund seeks to achieve its investment objective
by investing all of its Assets in the Growth & Income Portfolio.
The Growth & Income Portfolio seeks to achieve its investment objective by
investing primarily in a diversified portfolio of securities selected for their
potential to generate current income or long term capital appreciation. In
general, the objective of the Portfolio is to achieve greater potential for
capital appreciation than an income fund and less price volatility than a growth
fund. The Growth & Income Portfolio invests primarily in common stocks and
preferred 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 Portfolio 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 Portfolio allocates its investments
among different industries and companies and changes its portfolio securities
for investment considerations and not for trading purposes. In general, the
Portfolio seeks to invest in growing, financially stable and undervalued
companies.
The Growth & Income Portfolio's 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 Portfolio 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.
EQUITY GROWTH FUND. The investment objective of the Equity Growth Fund and
the Equity Growth Portfolio 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 Growth Fund seeks to achieve its investment
objective by investing all of its Assets in the Equity Growth Portfolio.
The Equity Growth Portfolio 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 ("ADRs"). Under normal circumstances, at least 65% of the
assets of the Portfolio are invested in equity securities. This is a fundamental
investment policy and may not be changed without investor approval. The Equity
Growth Portfolio 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
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<PAGE> 25
preferred 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 Portfolio 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 Portfolio allocates its investments
among different industries and companies, and changes its portfolio securities
for investment considerations and not for trading purposes.
The Equity Growth Portfolio's 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 Portfolio 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.
SPECIAL EQUITY FUND. The investment objective of the Special Equity Fund
and the Special Equity Portfolio is to provide a high level of capital
appreciation through investment in a diversified portfolio of common stocks of
small to medium size companies. The Special Equity Fund is designed for
investors in search of substantial long-term growth who can accept above-average
stock market risk and little or no current income. The Special Equity Fund seeks
to achieve its investment objective by investing all of its Assets in the
Special Equity Portfolio.
The Special Equity Portfolio seeks to achieve its investment objective by
investing primarily in a diversified portfolio of stocks of small to medium size
companies which, in the opinion of the Advisers, will present an opportunity for
significant increases in earnings and/or value, without consideration for
current income. The Portfolio's primary equity investments will be common stocks
of small and medium sized U.S. companies with market capitalizations of less
than $2 billion. Multiple managers are used to control the volatility often
associated with investments in small to medium size companies and to maximize
opportunities in positive markets. The Portfolio may also invest in bonds and
short-term obligations as well as securities convertible into common stocks,
preferred stocks, debt securities and short-term obligations. The Special Equity
Portfolio allocates its investments among different industries and companies,
and changes its portfolio securities for investment considerations and not for
trading purposes.
While the Special Equity Portfolio's policy is to invest its assets
primarily in common stocks with potential for above average growth in earnings,
appreciation may be sought in other types of securities such as preferred
stocks, convertible and non-convertible bonds, warrants and foreign securities
including American Depository Receipts. The Special Equity Portfolio 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. In selecting stocks, emphasis
is placed on investing in companies with small to medium market capitalizations,
i.e., the market value of all issued and outstanding common stock of the company
will be less than $2 billion. Investing in equity securities of small to medium
companies involves risks not typically associated with investment in comparable
securities of large companies. Such smaller and medium companies may have narrow
product lines and limited financial and managerial resources. Since the market
for the equity securities of small and medium companies is often characterized
by less information and liquidity than that for the equity securities of large
companies, securities of such small and medium companies may be subject to more
abrupt or erratic market movements than securities of large companies or market
averages in general. Therefore, an investment in the Special Equity Fund may be
subject to greater declines in value than an investment in an equity fund
investing in the equity securities of large companies.
AGGRESSIVE EQUITY FUND. The investment objective of the Aggressive Equity
Fund and the Aggressive Equity Portfolio is to provide a high level of capital
appreciation through investment primarily in a diversified portfolio of common
stocks of small to medium size companies. The Aggressive Equity Fund is designed
for investors in search of substantial long-term growth who can
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<PAGE> 26
accept above-average stock market risk and little or no current income. The
Aggressive Equity Fund seeks to achieve its investment objective by investing
all of its Assets in the Aggressive Equity Portfolio.
The Aggressive Equity Portfolio seeks to achieve its investment objective
by investing primarily in a diversified portfolio of stocks of small to medium
size companies which, in the opinion of the Advisers, present an opportunity for
significant increases in earnings, revenue and/or value, without consideration
for current income. The Portfolio's primary equity investments are common stocks
of small and medium sized U.S. companies with market capitalizations between
$750 million and $2.5 billion. The Portfolio may also invest in bonds and
short-term obligations as well as securities convertible into common stocks,
preferred stocks, debt securities and short-term obligations. The Aggressive
Equity Portfolio allocates its investments among different industries and
companies, and changes its portfolio securities for investment considerations
and not for trading purposes.
While the Aggressive Equity Portfolio's policy is to invest its assets
primarily in common stocks with potential for above average growth in earnings
and/or revenue, appreciation may be sought in other types of securities such as
preferred stocks, convertible and non-convertible bonds, warrants and foreign
securities including American Depository Receipts. The Aggressive Equity
Portfolio 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.
In selecting stocks, emphasis is placed on investing in companies with
consistent, above-average and accelerating profitability and growth. These
companies tend to have higher price/earnings ratios which means that the stock
is more expensive than average relative to the company's earnings. Investing in
equity securities of small to medium companies involves risks not typically
associated with investment in comparable securities of large companies. Such
smaller and medium companies may have narrow product lines and limited financial
and managerial resources. Since the market for the equity securities of small
and medium companies is often characterized by less information and liquidity
than that for the equity securities of large companies, securities of such small
and medium companies may be subject to more abrupt or erratic market movements
than securities of large companies or market averages in general. Therefore, an
investment in the Aggressive Equity Fund may be subject to greater declines in
value than an investment in an equity fund investing in the equity securities of
large companies.
INTERNATIONAL EQUITY FUND. The investment objective of the International
Equity Fund is to provide a high level of long-term capital appreciation through
investment in a diversified portfolio of securities of foreign issuers. The
International Equity Fund seeks to achieve its investment objective by investing
all of its Assets in the International Equity Portfolio.
The International Equity Portfolio seeks to achieve its investment
objective by investing primarily in foreign securities. Foreign securities are
defined as securities of issuers, wherever organized, which trade solely on a
foreign exchange or over-the-counter market, or, of issuers which in the
judgment of the Advisers, have their principal activities outside of the United
States. In determining whether an issuer's principal activities and interests
are outside the United States, the Advisers will look at such factors as the
location of the issuer's assets, operations, facilities, personnel, sales and
earnings. Under normal circumstances, at least 65% of the assets of the
Portfolio are invested in foreign equity securities. The Advisers will purchase
securities of companies in a minimum of 3 countries outside the United States.
The Advisers use an approach to investing looking to identify fundamental
values in stocks they select. Further, when allocating the Portfolio's
investments among geographic regions and individual countries, the Advisers
consider various criteria, such as prospects for relative economic growth among
countries, expected levels of inflation, government policies influencing
business conditions, and the outlook for currency relationships. The Portfolio
invests most of its assets in securities of issuers located in developed
countries in these geographic areas: Canada, the Far East, Australia and Europe.
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<PAGE> 27
The International Equity Portfolio may invest up to 10% of its assets in
securities of issuers in the world's emerging markets. Countries with emerging
markets include those that have an emerging stock market as defined by the
International Finance Corporation, those with low- to middle-income economies
according to the World Bank, and those listed in World Bank publications as
developing. While the Advisers believe that these investments present the
possibility for significant growth over the long-term, they also entail
significant risks. Many investments in emerging markets can be considered
speculative, and their prices can be much more volatile than those in the more
developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies.
The International Equity Portfolio may invest in all types of securities,
most of which are denominated in foreign currencies. While the Advisers expect
that opportunities for long term capital appreciation will come primarily from
common stocks, securities convertible into common stock, non-convertible
preferred stocks and depository receipts for these securities, the Portfolio may
also invest in any type or quality of debt securities if the Advisers believe
that doing so may result in long term growth. In addition, the Portfolio may
invest in high-yielding, lower rated debt securities. See the discussion of
lower rated debt securities above under High-Yield Bond Fund above. 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 on both a long and short term basis. 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 Portfolio. 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.
Investments in foreign equity and debt securities involve increased or
additional risks from those encountered when investing in securities of domestic
issuers. The Advisers evaluate the risks and opportunities when investing in
particular foreign securities. Such risks include (1) currency fluctuations; (2)
restrictions on, and costs associated with, the exchange of currencies; (3) the
difficulty in obtaining or enforcing a court judgment abroad; (4) reduced levels
of publicly available information concerning issuers; (5) restrictions on
foreign investment in other jurisdictions; (6) reduced levels of governmental
regulation of foreign securities markets; (7) difficulties in effecting the
repatriation of capital invested abroad; (8) difficulties in transaction
settlements and the effect of this delay on shareholder equity; (9) foreign
withholding taxes; (10) political, economic, and similar risks, including
expropriation and nationalization; (11) different accounting, auditing, and
financial standards; (12) price volatility; and (13) the diverse structure and
liquidity of various countries and regions.
CERTAIN INVESTMENT TECHNIQUES AND RESTRICTIONS
Following is a description of certain investment techniques employed by the
Balanced Portfolio, Equity Income Portfolio, Equity Value Portfolio, Growth &
Income Portfolio, Equity Growth Portfolio, Special Equity Portfolio, Aggressive
Equity Portfolio and International Equity Portfolio and certain types of
securities invested in by those Portfolios and associated risks. For information
relating to certain of these techniques and restrictions and how they relate to
the Money Market Fund, High Quality Bond Fund, Intermediate Government Bond
Fund, Government/Corporate Bond Fund and High-Yield Bond Fund see "Investment
Objectives and Policies of the Funds" above.
OPTIONS AND FUTURES CONTRACTS. Each Portfolio 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 Portfolio's
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.
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<PAGE> 28
For example, each Portfolio 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 Portfolio. 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 Portfolio 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 Portfolio 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 Portfolio.
Gain or loss to each Portfolio 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.
Each Portfolio 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 Portfolio 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 Fund.
SHORT-TERM INSTRUMENTS. Each of the Balanced Portfolio, Equity Income
Portfolio, Equity Value Portfolio, Growth & Income Portfolio, Equity Growth
Portfolio, Special Equity Portfolio, Aggressive Equity Portfolio and
International Equity Portfolio may invest in cash, commercial paper, short-term
obligations, repurchase agreements or other forms of debt securities (including,
without limitation, a short-term investment fund investing in any of such
securities). See "Short-Term Instruments" above under High Quality Bond Fund.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Each of the
Balanced Portfolio, Equity Income Portfolio, Equity Value Portfolio, Growth &
Income Portfolio, Equity Growth Portfolio, Special Equity Portfolio, Aggressive
Equity Portfolio and International Equity Portfolio may enter into repurchase
agreements and reverse repurchase agreements and may borrow funds for temporary
or emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage. See "Repurchase Agreements and Reverse
Repurchase Agreements" above under Money Market Fund.
RESTRICTED SECURITIES. Each of the Balanced Portfolio, Equity Income
Portfolio, Equity Value Portfolio, Growth & Income Portfolio, Equity Growth
Portfolio, Special Equity Portfolio, Aggressive Equity Portfolio and
International Equity Portfolio 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 High Quality Bond Fund.
DELAYED DELIVERY TRANSACTIONS. In order to help insure the availability of
suitable securities for each of the Balanced Portfolio, Equity Income Portfolio,
Equity Value Portfolio, Growth & Income Portfolio, Equity Growth Portfolio,
Special Equity Portfolio, Aggressive Equity Portfolio and International Equity
Portfolio, the Advisers may purchase securities for each such Portfolio on a
"when-
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<PAGE> 29
issued" or on a "forward delivery" basis. See "Delayed Delivery Transactions"
above under High Quality Bond Fund.
Changes to the securities of each Portfolio 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 Portfolio engages in trading if it believes a transaction net
of costs (including custodian charges) will help it achieve its investment
objective. The portfolio turnover rate for each Portfolio in 1995 is set forth
above under "Condensed Financial Information". 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.
Balanced Fund, Equity Income Fund, Equity Value Fund, Growth & Income Fund,
Equity Growth Fund, Special Equity Fund and Aggressive Equity Fund. Each such
Portfolio's 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.
The Advisers do not intend to concentrate more than 25% of such foreign
investments in any one type of instrument or in any foreign country. Each
Portfolio's 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 Portfolio 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
Portfolio. 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.
All Funds. As "diversified" funds, no more than 5% of the assets of any
Portfolio may be invested in the securities of one issuer (other than U.S.
Government securities), except that up to 25% of each Portfolio's assets may be
invested without regard to this limitation. No Portfolio 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 non-fundamental operating policy, no more than 15% (10% in the
case of the Money Market Portfolio) of the net assets of any Portfolio may be
invested in (i) securities the resale of which are subject to legal or
contractual restrictions 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 investment and
operating policies of the Portfolios are contained in the Statement of
Additional Information.
LENDING OF PORTFOLIO SECURITIES. The Portfolios may lend their portfolio
securities to brokers, dealers and other financial organizations. By lending its
securities, a Portfolio 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 Portfolio will adhere to the following conditions
whenever its securities are loaned: (i) the Portfolio must receive at least 100%
cash collateral or equivalent securities from the
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<PAGE> 30
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 Portfolio must be able to terminate the loan at any
time; (iv) the Portfolio 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 Portfolio 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 Portfolio would terminate the
loan and regain the right to vote the securities.
HUB & SPOKE(R) STRUCTURE
The Trust and the Portfolio Series have licensed certain proprietary
rights, know-how and financial services referred to as Hub and Spoke(R) from
Signature Financial Group, Inc. ("Signature"). The Trust invests in the
Portfolio Series through Signature's Hub and Spoke(R) mutual fund method. Hub
and Spoke(R) employs a two-tier, master/feeder fund structure. Hub and Spoke(R)
is a registered service mark of Signature.
In addition to selling beneficial interests to the Trust, the Portfolio
Series may sell beneficial interests of its Portfolios to other mutual funds,
insurance company separate accounts, collective investment vehicles or
institutional investors. Such investors will invest in the Portfolios on the
same terms and conditions as the Funds and will pay a proportionate share of the
Portfolios' expenses. However, the other investors investing in such Portfolios
are not required to sell their shares at the same public offering price as the
Funds due to variations in sales commissions and other operating expenses.
Therefore, all investors should be aware that these differences may result in
differences in returns experienced by investors in the different entities that
invest in each Portfolio. Information concerning other holders of interests in
the Portfolios is available from Diversified at (914) 697-8000.
The investment objective of a Fund may be changed without the approval of
the Fund's shareholders, but not without written notice thereof to shareholders
thirty days prior to implementing the change. If there were a change in a Fund's
investment objective, shareholders should consider whether that Fund remains an
appropriate investment in light of their then-current financial positions and
needs. The investment objective of a Portfolio may also be changed without the
approval of the investors in that Portfolio, but not without written notice
thereof to the investors in that Portfolio (and notice by the Trust to
shareholders of the Fund invested in that Portfolio) thirty days prior to
implementing the change. There can, of course, be no assurance that the
investment objective of either a Fund or a Portfolio will be achieved. See
"Investment Restrictions" herein and in the Statement of Additional Information
for a description of the fundamental policies of the Funds and the 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 the Funds or
Portfolios, respectively. Except as stated otherwise, all investment guidelines,
policies and restrictions described herein and in the Statement of Additional
Information are nonfundamental.
Smaller entities investing in a Portfolio may be materially affected by the
actions of larger entities investing in that Portfolio. For example, if a large
fund withdraws from a Portfolio, the remaining investors may experience higher
pro rata operating expenses, thereby producing lower returns. Additionally, the
affected Portfolio 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 Portfolio could have effective
voting control of the operations of that Portfolio. Whenever the Trust is
requested to vote on matters pertaining to a Portfolio (other than a vote to
continue a Portfolio upon the withdrawal of an investor in the Portfolio), the
Trust will hold a meeting of shareholders of the affected Funds and will cast
all of its votes in the same proportion as the votes of the Fund's shareholders.
Fund shareholders who do not vote will not affect the Trust's votes at the
Portfolio meeting. The percentage of the Trust's votes representing Fund
shareholders not voting will be voted by the Trustees of the
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<PAGE> 31
Trust in the same proportion as the Fund shareholders who do, in fact, vote.
Certain changes in the investment objectives, policies or restrictions of a
Portfolio may require that the Trust withdraw a Fund's interest in that
Portfolio. Any such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, a Fund 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 a Fund. Notwithstanding the above, there are other means for
meeting shareholders redemption requests such as temporary borrowings.
The Trust may withdraw the investment of a Fund from its corresponding
Portfolio at any time, if the Board of Trustees of the Trust determines that it
is in the best interests of the Fund to do so. Upon any such withdrawal, the
Board of Trustees of the Trust would consider what action might be taken,
including the investment of all the Assets of a Fund in another pooled
investment entity having the same investment objective as the Fund or the
retention of an investment adviser to manage the Fund's assets in accordance
with the investment policies described herein. In the event the event the
Trustees of the Trust were unable to find a substitute investment company in
which to invest the Fund's assets and were unable to secure directly the
services of an investment adviser and investment manager, the Trustees would
determine the best course of action.
MANAGEMENT OF THE TRUST AND PORTFOLIO SERIES
The Trust has not retained the services of an investment adviser since the
Trust seeks to achieve the investment objective of each Fund by investing all of
the Assets of each Fund in a corresponding Portfolio. The respective Boards of
Trustees of the Trust and of the Portfolio Series provide broad supervision over
the affairs of the Trust and of the Portfolio Series, respectively. The Trustees
of the Trust who are not "interested persons" of the Trust are separate from and
independent from the Trustees of the Portfolio Series who are not "interested
persons" of the Portfolio Series. For further information about the Trustees and
officers of the Trust and the Portfolio Series see "Management of the Trust and
Portfolio Series" in the Statement of Additional Information. A majority of each
of the Trust's and the Portfolio Series' Trustees are not affiliated with the
Advisers.
INVESTMENT ADVISORY SERVICES
Subject to such policies as the Board of Trustees of the Portfolio Series
may determine and pursuant to Investment Advisory Agreements (the "Advisory
Agreements") with the Portfolio Series with respect to each Portfolio,
Diversified manages the assets of each Portfolio in accordance with the
investment policies approved by the Board of Trustees. Subject to such policies,
Diversified provides general investment advice to each Portfolio. For its
services under the Advisory Agreements, Diversified receives from each Portfolio
fees accrued daily and paid monthly at an annual rate equal to the percentages
specified in the table below of the average daily net assets. Diversified is
currently waiving a portion of its investment advisory fees. Investment
management decisions are taken by a committee of Diversified's personnel and not
by a particular individual.
Management's discussion of the Funds' performance for the fiscal year ended
December 31, 1995 is included in the Funds' Annual Report to Shareholders, a
copy of which may be obtained free of charge from the Funds' Distributor.
For each Portfolio, 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 Portfolio's average net assets. Each fee will be
accrued monthly by multiplying the arithmetic average of the beginning and
ending monthly net assets in the Portfolio by the fee schedule and dividing by
12. Each fee will be paid on a quarterly basis.
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<TABLE>
<CAPTION>
DIVERSIFIED INVESTORS PORTFOLIO COMPENSATION RATE (%)
PORTFOLIO SUBADVISERS ADVISER(1) SUBADVISERS
- ------------------------------- ---------------------------- ------------ -----------
<S> <C> <C> <C>
Money Market Portfolio Capital Management Group 0.25 0.05
High Quality Bond Portfolio Merganser Capital 0.35 (2)
Management Corporation
Intermediate Government Bond Capital Management Group 0.35 0.15
Portfolio
Government/Corporate Bond Capital Management Group 0.35 0.15
Portfolio
High-Yield Bond Portfolio Delaware Investment Advisers 0.55 (3)
Balanced Portfolio Institutional Capital 0.45 (4)
Corporation
Equity Income Portfolio Asset Management Group 0.45 0.25
Equity Value Portfolio Ark Asset Management Co., 0.57 (5)
Inc.
Growth & Income Portfolio Putnam Advisory Company, 0.60 (6)
Inc.
Equity Growth Portfolio Jundt Associates, Inc. 0.70 0.625
Special Equity Portfolio (7) 0.80 0.50
Aggressive Equity Portfolio McKinley Capital Management 0.97 (8)
International Equity
Portfolio Capital Guardian Trust 0.75 (9)
</TABLE>
- ---------------
(1) The Adviser is currently waiving a portion of its fees. See "Fees and
Expenses" on page 3 for a discussion of the fee waivers currently in effect.
(2) 0.50% on the first $10,000,000 in assets, 0.375% on the next $15,000,000 in
assets, 0.25% on the next $75,000,000 in assets and 0.1875% on all assets in
excess of $100,000,000.
(3) 0.40% on the first $20,000,000 in assets, 0.30% on the next $20,000,000 in
assets and 0.20% on assets in excess of $40,000,000.
(4) 0.55% on the first $25,000,000 in assets, 0.45% on the next $25,000,000 in
assets and 0.35% on assets in excess of $50,000,000.
(5) 0.45% on the first $100,000,000 in assets, 0.40% on the next $50,000,000 in
assets and 0.35% on the next $50,000,000 in assets; when the Portfolio
achieves $200,000,000 in assets, the rate shall be 0.40% on assets up to
$200,000,000 and 0.35% on assets in excess of $200,000,000 so long as the
Portfolio continues to have more than $200,000,000 in assets.
(6) 0.30% on the first $100,000,000 in assets, 0.20% on assets in excess of
$100,000,000.
(7) The Special Equity Portfolio has four Subadvisers: Pilgrim Baxter &
Associates, Ltd.; Ark Asset Management Co., Inc.; Liberty Investment
Management, Inc.; and Westport Asset Management, Inc.
(8) 0.90% on the first $10,000,000 in assets, 0.80% on the next $15,000,000 in
assets, 0.60% on the next $25,000,000 in assets, 0.40% on the next
$50,000,000 in assets and 0.35% on assets in excess of $100,000,000.
(9) 0.75% on the first $25,000,000 in assets, 0.60% on the next $25,000,000 in
assets, 0.425% on the next $50,000,000 in assets and 0.375% on all assets in
excess of $250,000,000.
It is the responsibility of a Subadviser to make the day-to-day investment
decisions of the Portfolio and to place the purchase and sales orders for
securities transactions of such Portfolio, subject in all cases to the general
supervision of Diversified. Each Subadviser makes the investment selections for
its
29
<PAGE> 33
respective Portfolio consistent with the guidelines and directions set by
Diversified and the Board of Trustees of the Portfolio Series. Each Subadviser
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the corresponding Portfolio's investments and effecting
securities transactions for a Portfolio.
Diversified has entered into separate Subadvisory Agreements with respect
to each of the Money Market Portfolio, Intermediate Government Bond Portfolio
and Government/Corporate Bond Portfolio with Capital Management Group, a
division of 1740 Advisers, Inc., a wholly-owned subsidiary of The Mutual Life
Insurance Company of New York ("MONY"). The address of Capital Management Group
is 1740 Broadway, New York, New York 10019. Total assets under management by
Capital Management Group at December 31, 1995 were approximately $639 million,
of which $594 million were assets of registered investment companies. Investment
management decisions of Capital Management Group are made by committee and not
by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
Equity Income Portfolio with Asset Management Group, a division of 1740
Advisers, Inc. a wholly-owned subsidiary of MONY. The address of Asset
Management Group is 1740 Broadway, New York, New York 10019. Total assets under
management by Asset Management Group at December 31, 1995 were approximately
$1.0 billion, $910 million of which were assets of registered investment
companies. Investment management decisions of Asset Management Group are made by
committee and not by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
High Quality Bond Portfolio with Merganser Capital Management Corporation
("Merganser"). Merganser was formed in September 1987 and is owned by certain of
its employees. Total assets under management for all institutional bond clients
at December 31, 1995 were approximately $2.1 billion, $203.5 million of which
were assets of registered investment companies. The principal business address
of Merganser is One Cambridge Center, Cambridge, Massachusetts 02142. Investment
management decisions of Merganser are made by committee and not by managers
individually.
Diversified has entered into a Subadvisory Agreement with respect to the
High-Yield Bond Portfolio with Delaware Investment Advisers (a division of
Delaware Management Company, Inc.) ("Delaware"). Delaware was formed in February
1985 and is owned by Lincoln National Corp. Total assets under management for
all high-yield bond clients at December 31, 1995 were approximately $2.0
billion, $1.5 billion of which were assets of registered investment companies.
The principal business address of Delaware is 2005 Market Street, Philadelphia,
Pennsylvania 19103. Investment management decisions of Delaware are made by
committee and not by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
Balanced Portfolio with Institutional Capital Corporation ("Institutional
Capital"). Institutional Capital was formed in January 1970 and is owned by
certain of its employees. Total assets under management for all balanced clients
at December 31, 1995 were approximately $579 million, of which $183 million were
assets of registered investment companies. The principal business address of
Institutional Capital is 303 West Madison Street, Chicago, IL 60606. Investment
management decisions of Institutional Capital are made by committee and not by
managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
Equity Value Portfolio with Ark Asset Management Co., Inc. ("Ark"). Ark was
formed in July 1989 and is owned by Ark Asset Holdings, Inc. Ark Asset Holdings,
Inc. is owned by certain of its employees. The principal address of Ark is 55
Water Street, New York, NY 10041. Total assets under management for equity value
clients at December 31, 1995 were approximately $9.8 billion, $75 million of
which were assets of registered investment companies. Investment management
decisions of Ark are made by committee and not by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
Growth & Income Portfolio with Putnam Advisory Company, Inc. ("Putnam"). Putnam
was formed in 1937 and is owned by Marsh & McLennon Companies, Inc. The
principal address of Putnam is One Post Office Square,
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<PAGE> 34
Boston, MA 02109. Total assets under management for growth and income clients at
December 31, 1995 were approximately $868 million, $125 million of which were
assets of registered investment companies. Investment management decisions of
Putnam are made by committee and not by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
Equity Growth Portfolio with Jundt Associates, Inc. ("Jundt"). Jundt was formed
in December 1972 and is owned by certain of its employees. Total assets under
management for all core equity clients at December 31, 1995 were approximately
$2.4 billion, $363 million of which were assets of registered investment
companies. The principal business address of Jundt is 1550 Utica Avenue South,
Suite 950, St. Louis Park, MN 55416. Investment management decisions of Jundt
are made by committee and not by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
Aggressive Equity Portfolio with McKinley Capital Management, Inc. ("McKinley").
McKinley was formed in March 1991 and is owned by Robert Gillam. Total assets
under management for all aggressive equity clients at December 31, 1995 were
approximately $375 million, none of which were assets of registered investment
companies. The principal business address of McKinley is 3301 C Street,
Anchorage, Alaska 99503. Investment management decisions of McKinley are made by
committee and not by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
International Equity Portfolio with Capital Guardian Trust Company ("CGTC").
CGTC was formed in 1968 and is owned by The Capital Group Companies, Inc. The
principal address of CGTC is 333 South Hope Street, Los Angeles, California
90071. Total assets under management for all international equity clients by
CGTC at December 31, 1995 were approximately $15 billion, and total assets under
management of registered investment companies for which CGTC acts as subadviser
was $613 million as of that date. CGTC uses a system of multiple portfolio
managers pursuant to which the Portfolio is divided into segments that are
assigned to individual portfolio managers. With investment guidelines, each
portfolio manager makes individual decisions as to company, country, industry,
timing and percentage based on extensive field research and direct company
contact."
With respect to the Special Equity Portfolio, Diversified has entered into
Subadvisory Agreements with four Subadvisers as follows:
- Ark Asset Management Co., Inc. ("Ark") was formed in July 1989 and is
owned by Ark Asset Holdings, Inc. Ark Asset Holdings, Inc. is owned by certain
of its employees. Total assets under management for all small capitalization
clients at December 31, 1995 were approximately $1.7 billion, $83 million of
which were assets of registered investment companies. The principal business
address of Ark is 55 Water Street, New York, NY 10041.
- Liberty Investment Management, Inc. ("Liberty") was formed in 1994 and is
owned by certain of its employees. Liberty succeeded to certain of the
investment management businesses of Eagle Asset Management, Inc. Total assets
under management for all equity clients at December 31, 1995 were approximately
$401 million, $91 million of which were assets of registered investment
companies. The principal business address of Liberty is 880 Carillon Parkway,
St. Petersburg, FL 33716.
- Pilgrim Baxter & Associates, Ltd. ("Pilgrim") was formed in 1995 and is
owned by United Asset Management, Inc., a publicly-owned corporation. Pilgrim
succeeded to certain of the investment management businesses, and acquired the
corporate name of, Pilgrim Baxter & Associates, Ltd. in April 1995. Total assets
under management for all equity clients at December 31, 1995 were approximately
$4.7 billion, $2.6 billion of which were assets of registered investment
companies. The principal business address of Pilgrim is 1255 Drummers Lanes,
Wayne, PA 19087.
- Westport Asset Management, Inc. ("Westport") was formed in July 1993 and
is owned by certain of its employees. Total assets under management for all
equity clients at December 31, 1995 were approximately $520 million, $119
million of which were assets of registered investment companies. The principal
business address of Westport is 253 Riverside Avenue, Westport, CT 06880.
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<PAGE> 35
Investment management decisions by each of these Subadvisers are made by
committee and not by managers individually.
DISTRIBUTION PLAN AND AGREEMENT
The Trustees of the Trust have adopted a Distribution Plan in accordance
with Rule 12b-1 under the 1940 Act after having concluded that there is a
reasonable likelihood that the Distribution Plan will benefit the Funds and
their shareholders. As contemplated by the Distribution Plan, the Distributor
acts as the agent of the Funds in connection with the offering of shares of the
Funds pursuant to a Distribution Agreement.
Under the Distribution Plan, the Distributor may receive a fee from each
Fund at an annual rate not to exceed 0.25% of the Fund's average daily net
assets in anticipation of, or as reimbursement for, expenses incurred in
connection with the sale of shares of the Fund, such as (i) payments of
quarterly trail or maintenance commissions to registered representatives of the
Distributor or other broker-dealers in an amount not to exceed on an annual
basis 0.25% of the average daily net assets maintained in the Fund by their
customers, (ii) reimbursements of sales commissions advanced by the Distributor
to sales brokers, and (iii) advertising expenses and the expenses of printing
(excluding typesetting) and distributing prospectuses and reports used for sales
purposes, expenses of preparing and printing sales literature and other
distribution-related expenses. The Distributor provides to the Trustees of the
Trust a quarterly written report of amounts expended by it and the purposes for
which such expenditures were made.
ADMINISTRATOR
Pursuant to an Administrative and Transfer Agency Services Agreement with
the Trust and under the Advisory Agreement with the Portfolio Series,
Diversified, as Administrator, provides the Trust and the Portfolio Series with
general office facilities and supervises the overall administration of the Trust
and the Portfolio Series, 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 the Trust or the
Portfolio Series; the preparation and filing of all documents required for
compliance by the Trust or the Portfolio Series with applicable laws and
regulations; providing equipment and clerical personnel necessary for
maintaining the organization of the Trust or the Portfolio Series; preparation
of certain documents in connection with meetings of Trustees and shareholders of
the Trust and investors in the Portfolio Series; and the maintenance of books
and records of the Trust and the Portfolio Series. Diversified provides persons
satisfactory to the Board of Trustees of each of the Trust and the Portfolio
Series to serve as officers of the Trust or the Portfolio Series, as the case
may be. Such officers, as well as certain other employees and Trustees of the
Trust or the Portfolio Series, may be directors, officers or employees of
Diversified or its affiliates. In addition, Diversified provides transfer agency
services to the Trust. For providing these services and facilities and for
bearing the related expenses, Diversified, as Administrator, receives a fee from
each Fund accrued daily and paid monthly at an annual rate equal to 0.30% of the
average daily net assets of the Fund. The Administrator is currently waiving a
portion of its administrative services fee. Diversified acts as Administrator to
the Portfolios pursuant to the Advisory Agreement and receives no additional
compensation for providing such administrative services.
SERVICE AGENTS
All shareholders must be represented by Diversified or another Service
Agent that has entered into a Service Agreement with Diversified. Diversified
acts as a Service Agent pursuant to its Administrative Services Agreement with
the Trust and receives no additional compensation from the Funds for such
shareholder services. The service fees of any other Service Agents will be paid
by Diversified from its administrative services fees. The services provided by a
Service Agent may include establishing and maintaining shareholder accounts,
processing purchase and redemption transactions, arranging for bank wires,
answering client inquiries regarding the Trust, assisting clients in changing
account designations and addresses, providing periodic statements showing the
client's account balance,
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<PAGE> 36
transmitting proxy statements, periodic reports, updated Prospectuses and other
communications to shareholders and, with respect to meetings of shareholders,
collecting, tabulating and forwarding to the Trust executed proxies and
obtaining such other information and performing such other services as
Diversified or the Service Agent's clients may reasonably request and agree upon
with the Service Agent. Service Agents may separately charge their clients
additional fees only to cover provision of additional or more comprehensive
services not already provided under the Administrative Services Agreement with
Diversified, or of the type or scope not generally offered by a mutual fund,
such as enhanced retirement or trust reporting. Any Service Agent must agree to
transmit to shareholders who are its customers appropriate disclosures of any
fees that it may charge them directly.
PURCHASES AND REDEMPTIONS OF SHARES
PURCHASES
The Trust is designed to meet the long-term investment needs of, and will
be available only as a funding vehicle to, Qualified Investors (as defined on
the cover page of this Prospectus). The retirement plans which may invest in the
Funds are hereinafter referred to as "Plans" and the employees, self-employed
persons or individuals participating in such Plans are hereinafter referred to
as "Plan Participants". With respect to these Plans, the employer and/or the
Plan Participants will make contributions which may be invested in shares of the
Funds pursuant to the terms and conditions of the underlying Plan.
Shares of the Funds may be purchased without a sales charge on any day on
which the Adviser and applicable Subadviser or Subadvisers are open for business
("Fund Business Day") at the net asset value next determined after an order in
proper form is transmitted to and accepted by the Distributor. The procedure
through which a Qualified Investor or Plan Participant may transmit an order to
the Distributor will be set forth in the documents relating to the underlying
Plan. Plan Participants should contact their Plan administrator, if appropriate,
for further information on how to purchase shares of the Funds. In addition,
Qualified Investors and Plan Participants may call the Distributor at
914-697-8000 for information with respect to the proper procedure to transmit an
order; however, except for purchase orders in connection with exchanges from
other funds as described below under "Exchange Privileges", purchases may not be
effected through telephone orders. The minimum initial investment is $5,000 (the
Trust is currently waiving its minimum initial investment requirement) and there
is no minimum for subsequent investments. However, a particular Plan may impose
different minimum initial and minimum subsequent investment requirements.
Purchases will be effected on the same day the purchase order is received by the
Distributor provided such order is received prior to 4:00 p.m. New York time on
any day on which the New York Stock Exchange ("NYSE") is open for trading.
Shares earn dividends from and including the day the purchase is effected, but
not on the day of redemption.
Checks received from a Qualified Investor are invested in full and
fractional shares. If shares are purchased with a check that does not clear, the
purchase will be cancelled and any losses or fees incurred in the transaction
will be the responsibility of such Qualified Investor. Checks must be drawn on
or payable through a U.S. bank and be in U.S. dollars. If shares are purchased
by check and a redemption request relating to such shares is received within 15
days of a purchase, the Trust will release such redemption proceeds when the
check clears. It is possible, although unlikely, that this could take up to 15
days.
Underlying Plans which include fixed investment options issued by insurance
companies may restrict or prohibit the purchase of shares of certain of the
Funds with monies withdrawn from any such fixed interest investment option.
Each Fund reserves the right to cease offering its shares for sale at any
time or to reject any order for the purchase of its shares.
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<PAGE> 37
REDEMPTIONS
A Qualified Investor or Plan Participant may redeem all or any portion of
the shares in its account at any time at the net asset value next determined
after a redemption request in proper form is received and accepted by the
Distributor. The proper form for a redemption request may vary in accordance
with the terms of the underlying Plan through which a Qualified Investor or Plan
Participant invests in a Fund. Plan Participants should contact their Plan
administrator, if appropriate, for further information on how to redeem shares
of a Fund. In addition, Qualified Investors and Plan Participants may call the
Distributor at 914-697-8000 for information with respect to the proper procedure
to transmit a redemption request; however, except for redemption requests in
connection with loans under certain Plans and exchanges into other funds as
described below under "Exchange Privileges", redemptions may not be effected
through telephone requests.
Investment return and principal value of an investment in the Funds will
fluctuate, so that the value of shares redeemed may be more or less than the
Qualified Investor's cost. Redemptions of shares may be taxable events to
Qualified Investors otherwise subject to tax on which a Qualified Investor may
realize a gain or a loss. No Fund will make redemptions in kind.
Redemption proceeds normally will be paid or mailed within seven days
following receipt of a redemption request in good order; however, when the NYSE
is closed, when trading on the NYSE is restricted, or when the Securities and
Exchange Commission determines that an emergency exists to warrant such an
action, the Funds may suspend redemption rights or postpone the date of payment.
The Trust reserves the right to redeem shares in the account of any
Qualified Investor if at any time the total value of such account falls below
$1,000 for any reason other than a decrease in the net asset value of its
shares. A Qualified Investor will be notified that the value of its account is
less than the minimum amount and allowed 15 days to make an additional
investment before the redemption is processed. Shares will be redeemed at the
net asset value on the date of redemption.
SIGNATURE GUARANTEES. To protect Qualified Investors and the Trust from
fraud, signature guarantees are required for certain redemptions. Signature
guarantees enable the Trust to be sure that the entity requesting redemption is
the entity that is authorized to request redemption from that account. Signature
guarantees are required for: (1) any redemptions by mail if the proceeds are to
be paid to someone else or are to be sent to an address other than an investor's
address as shown on the Trust's records; (2) any redemptions by mail which
request that the proceeds be wired to a bank, (3) redemption requests for more
than $50,000; and (4) requests to transfer the registration of shares to another
owner. These requirements may be waived in certain instances.
The Trust will accept signature guarantees from all institutions which are
eligible to provide them under federal or state law, provided the individual
giving the signature guarantee is authorized to do so. Institutions which
typically are eligible to provide signature guarantees include commercial banks;
trust companies, brokers, dealers, national securities exchanges, savings and
loan associations and credit unions. A signature guarantee is not the same as a
notarized signature.
EXCHANGE PRIVILEGES
Subject to applicable legal constraints, Qualified Investors may exchange
their shares in a Fund for shares of other series of the Trust. In addition,
some underlying Plans may provide for exchange privileges with other investment
options available under such Plans. Underlying Plans which include fixed
investment options issued by insurance companies may restrict or prohibit
exchanges of shares of certain of the Funds for shares of other series of the
Trust if the shares of the Fund to be exchanged have been purchased with monies
withdrawn from any such fixed interest investment option.
There are no charges for exchanges. However, Plan Participants should
contact their Plan administrator, if appropriate, for further information
regarding exchanges. In addition, Qualified Investors and Plan Participants may
call the Distributor at 914-697-8000 for information with respect to the proper
procedures to effect such exchanges, including, when appropriate, the procedure
for
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<PAGE> 38
effecting such exchanges by telephone. Some Plans may impose charges and
additional restrictions. An exchange order is treated the same as a redemption
followed by a purchase and will be effected at the respective net asset values
of the shares involved.
All Qualified Investors and Plan Participants should be aware that an
exchange transaction authorized by telephone and reasonably believed to be
genuine by the Trust or the Distributor may subject the Qualified Investor or
Plan Participant to risk of loss if such instruction is subsequently found not
to be genuine. The Trust and the Distributor will employ reasonable procedures,
including requiring investors to give certain identification information and
tape recording of telephone instructions, to confirm that instructions
communicated by telephone are genuine. To the extent that the Trust or the
Distributor fail to use reasonable procedures to verify the genuineness of
telephone instructions, they may be liable for any losses due to telephone
instructions that prove to be fraudulent or unauthorized.
The Trust reserves the right to terminate or modify the exchange privilege
in the future.
PERFORMANCE INFORMATION
From time to time, the Trust may provide yield and/or total return
quotations for any of the Funds and may also quote fund rankings in the relevant
fund category from various sources, such as Russell Data Services (a division of
Frank Russell Company), Lipper Analytical Services, Inc., Weisenberger
Investment Company Service, Morningstar, Inc. and CDA. The current yield for a
Fund will be calculated by dividing net investment income per share during a
recent 30-day period by the net asset value per share on the last day of the
period and annualizing the resulting quotient. Total return quotations will
reflect the annual percentage change over stated periods in the value of an
investment in a Fund. Yield reflects only net income as of a stated time, while
total return reflects all components of investment return over a stated period
of time. A Fund's quotations may from time to time be used in advertisements,
shareholder reports or other communications to shareholders. For a discussion of
the manner in which a Fund will calculate its yield and total return, see the
Statement of Additional Information.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of a Fund's current yield or total return for
any prior period should not be considered a representation of what an investment
may earn or what an investor's yield or total return may be in any future
period.
OTHER INFORMATION
NET ASSET VALUE
The net asset value of shares of the Funds is determined each Fund Business
Day. This determination is made once each day as of the close of regular trading
on the NYSE, currently 4:00 p.m., New York time unless the Exchange closes
earlier, by dividing the value of a Fund's net assets (i.e., the value of its
investment in its Portfolio and other assets less its liabilities, including
expenses payable or accrued) by the number of shares of the Fund outstanding at
the time the determination is made.
Each Portfolio values its assets 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 the Portfolio Series' Board of Trustees. Debt obligations with 60 days or
less remaining to maturity may be valued by the amortized cost method which the
Portfolio Series' Trustees have determined to constitute fair value for such
securities.
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<PAGE> 39
DISTRIBUTIONS
The Funds intend to distribute all net investment income and net capital
gains (i.e., the excess of net long-term capital gains over net short-term
capital losses) to shareholders. Dividends from net investment income (which may
include net short-term capital gains) and distributions from net capital gains,
if any, are normally declared and paid once a year in December. "Net investment
income" includes all dividends, interest and other income earned by a Fund, net
of a Fund's expenses.
All dividends and distributions declared by a Fund will be reinvested in
additional shares of that Fund at net asset value determined on the business day
immediately following the record date of the distribution. A Fund may make
additional distributions if necessary to avoid a 4% federal excise tax on
certain undistributed income and capital gain.
TAX MATTERS
The following discussion is for general information only and, specifically,
does not purport to address the taxation of Qualified Investors in all
circumstances or of contributors to, participants in, and beneficiaries under
any Qualified Investor. A prospective investor should consult with its own
adviser as to the tax consequences of an investment in the Trust, including the
state and local tax treatment of distributions from a Fund.
Each Fund intends to elect to be, and to qualify to be treated as, a
separate "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). To so qualify, the Funds (through
their interest in the Portfolios) must meet certain income, distribution and
diversification requirements. Provided a Fund meets all such requirements, no
federal income or excise taxes will be required to be paid by that Fund on that
part of its investment company taxable income (consisting generally of net
income and net short-term capital gain, if any) and net capital gain that is
distributed to shareholders. A Fund's foreign source income may, however, be
subject to foreign taxes withheld at the source. The Trust is organized as a
Massachusetts business trust, and under current law the Funds will not be liable
for any income or franchise tax in the Commonwealth of Massachusetts as long as
the Funds qualify as a regulated investment companies under the Code. The
Portfolios will also not be required to pay any federal income or excise taxes.
Retirement plans satisfying all conditions applicable to them under the
Code which invest in the Fund generally will not be subject to federal tax
liability on either distributions from the Funds or redemptions of shares of the
Funds. Rather, participants in such Plans will be taxed when they begin taking
distributions from the investing Plan in accordance with the rules under the
Code governing the taxation of such distributions. Qualified Investors otherwise
generally exempt from federal taxation of their income might nevertheless be
taxed on distributions of the Funds, and on any gain realized on redemption of
Fund shares, where the Qualified Investor is subject to the unrelated business
taxable income provisions of the Code with respect to its investment in the
Funds because, e.g., its acquisition of shares in a Fund was financed with debt.
If, for any reason, a Qualified Investor is not exempt from income taxation
such Qualified Investor will be subject to tax on distributions received from
the Funds irrespective of the fact that such distributions are reinvested in
additional shares. Distributions to such Investors, other than of net capital
gains, will be taxable as ordinary income; distributions of net capital gains
would be taxable to such Investors as long-term capital gain without regard to
the length of time they have held shares in a Fund. Certain dividends declared
in October, November or December of a calendar year and paid to a Qualified
Investor which is subject to tax on the distribution in January of the
succeeding calendar year are taxable to such Investor as if paid on December 31
of the year in which they were declared.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Trust and its shareholders. Please refer
to the Statement of Additional Information for a more extensive discussion. In
addition, there may be other federal, state or local tax considerations
36
<PAGE> 40
applicable to a particular investor. Prospective shareholders are urged to
consult their own tax advisers concerning the tax consequences of an investment
in the Trust.
EXPENSES
The respective expenses of the Trust and the Portfolio Series include the
compensation of their respective Trustees who are not affiliated with the
Adviser or any Subadviser; governmental fees; interest charges; taxes; fees and
expenses of independent auditors, of legal counsel and of any transfer agent,
custodian, registrar or dividend disbursing agent of the Trust or the Portfolio
Series; insurance premiums; and expenses of calculating the net asset value of,
and the net income on, interests in the Portfolios and shares of the Funds.
Expenses of the Trust also include all fees under its Administrative
Services Agreement; expenses of distributing and redeeming shares and servicing
shareholder accounts; expenses of preparing, printing and mailing prospectuses,
reports, notices, proxy statements and reports to shareholders and to
governmental officers and commissions; expenses of shareholder and Trustee
meetings; expenses relating to the issuance, registration and qualification of
shares of the Funds and the preparation, printing and mailing of prospectuses
for such purposes; and membership dues in the Investment Company Institute
allocable to the Trust.
Expenses of the Portfolio Series also include expenses connected with the
execution, recording and settlement of security transactions; fees and expenses
of the Portfolio Series' custodian for all services to the 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; and
the advisory fees payable to the Adviser under the Advisory Agreements.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (par value $0.00001
per share) and to divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests in the
Trust. The Trust reserves the right to create and issue additional series of
shares, in which case the shares of each series would participate equally in the
earnings, dividends and assets of the particular series.
Each share of a Fund represents an equal proportionate interest in that
Fund with each other share. Shares have no preference, preemptive, conversion or
similar rights. Shares when issued are fully paid and nonassessable, except as
set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. The Trust is not required to hold,
and has no current intention of holding, annual meetings of shareholders
although the Trust will hold special meetings of Fund shareholders when in the
judgment of the Trustees of the Trust it is necessary or desirable to submit
matters for a shareholder vote. Shares of each Fund are entitled to vote
separately to approve amendments to the Trust's distribution plan or changes in
fundamental investment policies or restrictions for that Fund, but shares of all
Funds will vote together in the election or selection of Trustees and
independent accountants for the Trust. If requested to do so by 10% of the
Trust's outstanding shares, a meeting of Trust shareholders will be called for
the purpose of voting on the removal of a Trustee or Trustees. The Trust will
assist in shareholder communications as required by Section 16(c) of the 1940
Act.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the Trustees of the Trust believe that the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and a Fund
itself was unable to meet its obligations.
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The Portfolio Series is organized as a trust under the laws of the State of
New York. The Portfolio Series' Declaration of Trust provides that each Fund and
other entities investing in a Portfolio (e.g., other investment companies,
insurance company separate accounts and common and commingled trust funds) will
each be liable for all obligations of that Portfolio. However, the Trustees of
the Trust believe that the risk of the Funds incurring financial loss on account
of such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations. For more
information regarding the Trustees of the Trust and the Portfolio Series, see
"Management of the Trust and Portfolio Series" in the Statement of Additional
Information. The interests in the Portfolio Series are divided into the separate
Portfolios. Investors in each Portfolio will vote separately or together in the
same manner as shareholders of the Funds will vote with respect to the Trust.
Each investor in a Portfolio, including the Trust, may add to or reduce its
investment in a Portfolio on each day the Adviser and applicable Subadviser or
Subadvisers are open for business ("Portfolio Business Day"). As of the close of
regular trading on the NYSE, currently 4:00 p.m., New York time, on each such
day, the value of each investor's beneficial interest in a Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions, which are to be effected as of 4:00 p.m., New York time, on such
day, will then be effected. The investor's percentage of the aggregate
beneficial interests in the Portfolio 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 Portfolio as of 4:00 p.m., New York 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 Portfolio effected as of 4:00 p.m., New York time,
on such day, and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of 4:00 p.m., New York 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 Portfolio by all investors in the Portfolio. The percentage
so determined will then be applied to determine the value of the investor's
interest in the Portfolio as of 4:00 p.m., New York time, on the following
Portfolio Business Day.
------------------------
The Trust's Statement of Additional Information, dated May 1, 1996,
contains more detailed information about the Trust and the Portfolio Series,
including information related to (i) investment policies and restrictions, (ii)
the Trustees, officers, Adviser, Subadvisers and Administrator, (iii) portfolio
transactions and brokerage commissions, (iv) the Funds' shares, including rights
and liabilities of shareholders, (v) additional performance information,
including the method used to calculate yield and total rate of return and (vi)
the determination of the net asset value of shares of the Funds.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary......................................................... 2
Prospectus Summary...................................................... 4
Condensed Financial Information......................................... 6
Investment Objectives and Policies of the Funds......................... 8
Certain Investment Techniques and Restrictions.......................... 24
Hub & Spoke(R) Structure................................................ 27
Management of the Trust and Portfolio Series............................ 28
Purchases and Redemptions of Shares..................................... 33
Other Information....................................................... 35
</TABLE>
------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectus, Statement
of Additional Information or official sales literature in connection with the
offering of the Funds' shares and, if given or made, such other information or
representations must not be relied on as having been authorized by the Trust or
the Distributor. This Prospectus does not constitute an offer in any state in
which, or to any person to whom, such offer may not lawfully be made.
------------------------------------
<PAGE> 43
DIVERSIFIED INVESTORS FUNDS GROUP
4 Manhattanville Road, Purchase, New York 10577
(914) 697-8000
2808-Rev. 5/96
<PAGE> 44
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1996
THE DIVERSIFIED INVESTORS FUNDS GROUP
Diversified Investors Money Market Fund
Diversified Investors High Quality Bond Fund
Diversified Investors Intermediate Government Bond Fund
Diversified Investors Government/Corporate Bond Fund
Diversified Investors High-Yield Bond Fund
Diversified Investors Balanced Fund
Diversified Investors Equity Income Fund
Diversified Investors Equity Value Fund
Diversified Investors Growth & Income Fund
Diversified Investors Equity Growth Fund
Diversified Investors Special Equity Fund
Diversified Investors Aggressive Equity Fund
Diversified Investors International Equity Fund
The Diversified Investors Funds Group (the "Trust") is comprised of
thirteen funds. This Statement of Additional Information describes the shares of
each such fund, including Diversified Investors Money Market Fund (the "Money
Market Fund"), Diversified Investors High Quality Bond Fund (the "High Quality
Bond Fund"), Diversified Investors Intermediate Government Bond Fund (the
"Intermediate Government Bond Fund"), Diversified Investors Government/Corporate
Bond Fund (the "Government/Corporate Bond Fund"), Diversified Investors
High-Yield Bond Fund (the "High-Yield Bond Fund"), Diversified Investors
Balanced Fund (the "Balanced Fund"), Diversified Investors Equity Income Fund
(the "Equity Income Fund"), Diversified Investors Equity Value Fund (the "Equity
Value Fund"), Diversified Investors Growth & Income Fund (the "Growth & Income
Fund"), Diversified Investors Equity Growth Fund (the "Equity Growth Fund"),
Diversified Investors Special Equity Fund (the "Special Equity Fund"),
Diversified Investors Aggressive Equity Fund ("Aggressive Equity Fund") and
Diversified Investors International Equity Fund (the "International Equity
Fund") (each a "Fund", and collectively the "Funds").
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
------------------------------------------------------------------------------ ----
<S> <C>
The Trust..................................................................... 3
Investment Objective, Policies and Associated Risk Factors of the Funds....... 4
Performance Information....................................................... 21
Determination of Net Asset Value; Valuation of Securities..................... 25
Management of the Trust and Portfolio Series.................................. 27
Taxation...................................................................... 32
Distribution Plan............................................................. 34
Independent Accountants....................................................... 35
Description of the Trust; Fund Shares......................................... 35
Experts....................................................................... 36
Financial Statements.......................................................... 36
Appendix...................................................................... 37
</TABLE>
<PAGE> 45
The Diversified Investors Funds Group
Four Manhattanville Road
Purchase, New York 10577
914-697-8000
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the Funds'
Prospectus as amended from time to time ("Prospectus"). This Statement of
Additional Information should be read only in conjunction with the Prospectus, a
copy of which may be obtained by an investor without charge by contacting
Diversified Investors Securities Corp. ("DISC"), the Funds' Distributor, at the
address and telephone number shown above for The Diversified Investors Funds
Group. Terms used but not defined herein, which are defined in the Prospectus,
are used herein as defined in the Prospectus.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
2
<PAGE> 46
THE DIVERSIFIED INVESTORS FUNDS GROUP
THE TRUST
The Trust is an open-end diversified management investment company which
was organized as a business trust under the laws of the Commonwealth of
Massachusetts on April 23, 1993. Shares of the Trust are divided into thirteen
separate series described herein. Each such series or Fund seeks to achieve its
investment objective by investing all of its Assets in a corresponding
Portfolio, as follows:
<TABLE>
<CAPTION>
CORRESPONDING NAME OF PORTFOLIO
DIVERSIFIED INVESTORS FUND NAME IN DIVERSIFIED INVESTORS PORTFOLIOS
- ------------------------------- ---------------------------------------
<S> <C>
Money Market Fund................................................ Money Market Portfolio
High Quality Bond Fund........................................... High Quality Bond Portfolio
Intermediate Government Bond Fund................................ Intermediate Government Bond Portfolio
Government/Corporate Bond Fund................................... Government/Corporate Bond Portfolio
High-Yield Bond Fund............................................. High-Yield Bond Portfolio
Balanced Fund.................................................... Balanced Portfolio
Equity Income Fund............................................... Equity Income Portfolio
Equity Value Fund................................................ Equity Value Portfolio
Growth & Income Fund............................................. Growth & Income Portfolio
Equity Growth Fund............................................... Equity Growth Portfolio
Special Equity Fund.............................................. Special Equity Portfolio
Aggressive Equity Fund........................................... Aggressive Equity Portfolio
International Equity Fund........................................ International Equity Portfolio
</TABLE>
As of the date hereof, there are no other active series of the Trust.
However, additional series may be added from time to time. Each of the
Portfolios is a series of Diversified Investors Portfolios (the "Portfolio
Series").
Each Fund is designed to meet the long-term investment needs of, and will
be available only as a funding vehicle to, (i) certain employee retirement plans
of for-profit and not-for-profit entities including those having cash or
deferred arrangements and those covering self-employed individuals and
owner-employees (such as 401(k) Plans, 403(b) Plans, 457 Plans, Money Purchase
Plans, Profit Sharing Plans, Simplified Employee Pension Plans and Keogh Plans),
and (ii) qualified personal retirement plans such as IRAs and rollover IRAs
(collectively, "Qualified Investors").
The investment adviser of each Portfolio is Diversified Investment
Advisors, Inc. ("Diversified" or the "Adviser"). The subadviser (the
"Subadviser") of each Portfolio is set forth in the table below.
<TABLE>
<CAPTION>
CORRESPONDING
FUND PORTFOLIO SUBADVISER
- ---- -----------------------------------
<S> <C>
Money Market Fund.................................................. 1740 Advisers, Inc.
Merganser Capital Management
High Quality Bond Fund............................................. Corporation
Intermediate Government Bond Fund.................................. 1740 Advisers, Inc.
Government/Corporate Bond Fund..................................... 1740 Advisers, Inc.
High-Yield Bond Fund............................................... Delaware Investment Advisers
Balanced Fund...................................................... Institutional Capital Corporation
Equity Value Fund.................................................. ARK Asset Management Co., Inc.
Equity Income Fund................................................. 1740 Advisers, Inc.
Growth & Income Fund............................................... Putnam Advisory Company, Inc.
Equity Growth Fund................................................. Jundt Associates
Special Equity Fund................................................ see below(1)
Aggresive Equity Fund.............................................. McKinley Capital Management, Inc.
International Equity Fund.......................................... Capital Guardian Trust Company
</TABLE>
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(1) Diversified Investors Special Equity Fund has four Subadvisers: Pilgrim
Baxter & Associates; Ark Asset Management Co., Inc.; Liberty Investment
Management, Inc.; and Westport Asset Management, Inc.
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As to each Portfolio, the Adviser and its Subadviser or Subadvisers are
referred to herein collectively as the "Advisers."
INVESTMENT OBJECTIVE, POLICIES AND
ASSOCIATED RISK FACTORS
INVESTMENT OBJECTIVES
The investment objective of each Fund and Portfolio is described in the
Funds' Prospectus. There can, of course, be no assurance that a Fund or its
corresponding Portfolio will achieve their investment objective.
INVESTMENT POLICIES
Each Fund seeks to achieve its investment objective by investing all of its
Assets in its corresponding Portfolio, as shown above. The Trust may withdraw a
Fund's investment from its Portfolio at any time if the Board of Trustees of the
Trust determines that it is in the best interests of the Fund to do so.
Since the investment characteristics of each Fund correspond directly to
those of its corresponding Portfolio, the following supplements the discussions
of the various investments of and techniques employed by the Portfolios set
forth in the Prospectus of the Funds.
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 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
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(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 Portfolio 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 an agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
The Portfolios may purchase three types of commercial paper, as classified
by exemption from registration under the Securities Act of 1933, as amended (the
"1933 Act"). The three types include open market, privately placed, and letter
of credit commercial paper. Trading of such commercial paper is conducted
primarily by institutional investors through investment dealers or directly
through the issuers. Individual investor participation in the commercial paper
market is very limited.
OPEN MARKET. "Open market" commercial paper refers to the commercial paper
of any industrial, commercial, or financial institution which is openly traded,
including directly issued paper. "Open market" paper's 1933 Act exemption is
under Section 3(a)(3) which limits the use of proceeds to current transactions,
limits maturities to 270 days and requires that the paper contain no provision
for automatic rollovers.
PRIVATELY PLACED. "Privately placed" commercial paper relies on the
exemption from registration provided by Section 4(2), which exempts transactions
by an issuer not involving any public offering. The commercial paper may only be
offered to a limited number of accredited investors. "Privately placed"
commercial paper has no maturity restriction.
LETTER OF CREDIT. "Letter of credit" commercial paper is exempt from
registration under Section 3(a)(2) of the 1933 Act. It is backed by an
irrevocable or unconditional commitment by a bank to provide funds for repayment
of the notes. Unlike "open market" and "privately placed" commercial paper,
"letter of credit" paper has no limitations on purchases.
VARIABLE RATE AND FLOATING RATE SECURITIES
The Portfolios 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
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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 Portfolio to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements between the Portfolio, 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 collateralized 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 Portfolio's 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 Portfolio
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 Portfolio may invest. The Advisers, on behalf of
a Portfolio, will consider on an ongoing basis the creditworthiness of the
issuers of the floating and variable rate demand obligations held by the
Portfolio. The Portfolios will not invest more than 15% (10% in the case of the
Money Market Portfolio) of the value of their net assets in floating or variable
rate demand obligations as to which they 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 Portfolio may purchase from financial institutions participation
interests in securities in which such Portfolio may invest. A participation
interest gives a Portfolio an undivided interest in the security in the
proportion that the Portfolio's 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 Portfolio, 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 Portfolio may invest. For certain participation
interests, a Portfolio will have the right to demand payment, on not more than
seven days' notice, for all or any part of the Portfolio's participation
interest in the security, plus accrued interest. As to these instruments, a
Portfolio intends to exercise its right to demand payment only 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 Portfolio will not invest more than 15% (10% in the case of the Money Market
Portfolio) 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 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
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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 which, if possible at all, would result
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 Securities and Exchange Commission (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 for resales of certain securities to qualified institutional buyers.
The Advisers will monitor the liquidity of Rule 144A securities for each
Portfolio under the supervision of the Portfolio Series' 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 Portfolio 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 Portfolio's investment
objective. The Notes purchased by the Portfolio will have remaining maturities
of 13 months or less and will be deemed by the Board of Trustees of the
Portfolio Series to present minimal credit risks and will meet the quality
criteria set forth above under "Investment Policies." The Portfolio will invest
no more than 15% (10% in the case of the Money Market Portfolio) 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 Portfolio 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 Portfolio's 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 Portfolio 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 the Portfolios are fully collateralized, with such collateral being marked to
market daily.
The Portfolios 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
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agreed date and price (a "reverse repurchase agreement"). At the time a
Portfolio 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 Portfolio may decline below the repurchase price
of those securities.
FOREIGN SECURITIES -- ALL PORTFOLIOS
The Portfolios may invest their 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 Portfolio, 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 United States.
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 United States. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United States,
and securities of some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
United States companies. Foreign security trading practices, including those
involving securities settlement where a Portfolio's assets may be released prior
to receipt of payment, may expose a Portfolio 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 commissions on
securities traded in the United States 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 United States.
FOREIGN SECURITIES -- MONEY MARKET PORTFOLIO
The Money Market Portfolio may invest in the following foreign securities:
(i) U.S. dollar-denominated obligations of foreign branches and subsidiaries of
domestic banks and foreign banks (such as Eurodollar CDs, which are U.S.
dollar-denominated CDs issued by branches of foreign and domestic banks located
outside the United States; Eurodollar TDs ("ETDs"), which are U.S.
dollar-denominated deposits in a foreign branch of a foreign or domestic bank;
and Canadian TDs, which are essentially the same as ETDs except they are issued
by branches of major Canadian banks), (ii) 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 (iii) 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 Advisers
to be of comparable quality to the other obligations in which the Money Market
Portfolio 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 -- PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
Not more than 5% of a Portfolio's 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
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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 Portfolio 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.
The Portfolios 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 Portfolios 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, the Portfolios 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. The Portfolios 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.
A forward foreign currency exchange contract is an obligation by a
Portfolio 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 Portfolio 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 Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Portfolios 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. With respect to Portfolios other than the
International Equity Portfolio consideration of the prospect for currency
parities will be incorporated into the Advisers' long-term investment decisions.
Therefore these Portfolios 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 Portfolio's 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 Portfolio's ability to utilize
forward contracts in the manner set forth 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
Portfolio than if it had not entered into such contracts. The use of foreign
currency forward
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contracts may not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the prices of or rates of return on a Portfolio's foreign
currency denominated portfolio securities and the use of such techniques will
subject the Portfolio 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
Portfolio may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit a Portfolio's ability to use
such contract to hedge or cross-hedge its assets. Also, with regard to a
Portfolio's 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
Portfolio's crosshedges and the movements in the exchange rates of the foreign
currencies in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.
GUARANTEED INVESTMENT CONTRACTS
The Portfolios may invest in guaranteed investment contracts ("GICs")
issued by insurance companies. Pursuant to such contracts, a Portfolio 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 allocable to it, and the charges will be deducted
from the value of the deposit fund. Because a Portfolio 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 Portfolio which are not readily marketable, will not exceed 15%
(10% in the case of the Money Market Portfolio) of the Portfolio's net assets.
The term of a GIC will be 13 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
The Portfolios may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, under normal circumstances, the Portfolios
would take delivery of such securities. When a Portfolio commits to purchase a
security on a "when-issued" or on a "forward delivery" basis, the Portfolio
establishes procedures consistent with the relevant policies of the SEC. Since
those policies currently recommend that an amount of a Portfolio's assets equal
to the amount of the purchase be held aside or segregated to be used to pay for
the commitment, the Portfolio 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 Portfolio does not intend to make such
purchases for speculative purposes and intends to adhere to the provisions of
SEC policies, purchases of securities on such bases may involve more risk than
other types of purchases. For example, a Portfolio may have to sell assets which
have been set aside in order to meet redemptions. Also, if a Portfolio
determines it is advisable as a matter of investment strategy to sell the
"when-issued" or "forward delivery" securities, a Portfolio 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 Portfolio's payment obligation).
ZERO COUPON OBLIGATIONS
A Portfolio 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 Portfolio may
have to sell other securities to pay said accrued dividends prior to maturity of
the zero coupon obligation.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS --
PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
General. The successful use of such instruments draws upon the Advisers'
skill and experience with respect to such instruments. Should interest or
exchange rates move in an unexpected manner, a Portfolio 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 Portfolio 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 Portfolio may enter
into futures contracts which are 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
Portfolio may also enter into futures contracts which are based on bonds issued
by entities other than the U.S. Government.
Purchases or sales of stock index futures contracts are used to attempt to
protect the Portfolio's current or intended stock investments from broad
fluctuations in stock prices. For example, the Portfolio may sell stock index
futures contracts in anticipation of or during a decline in the market value of
the Portfolio's securities. If such decline occurs, the loss in value of
portfolio securities may be offset, in whole or part, by gains on the futures
position. When a Portfolio is not fully invested in the securities market and
anticipates a significant market advance, it may purchase stock index futures
contracts in order to gain rapid market exposure that may, in part or entirely,
offset increases in the cost of securities that the Portfolio intends to
purchase. As such purchases are made, the corresponding positions in stock index
futures contracts will be closed out. In a substantial majority of these
transactions, the Portfolio will purchase such securities upon termination of
the futures position, but under unusual market conditions, a long futures
position may be terminated without a related purchase of securities.
At the same time a futures contract is purchased or sold, the Portfolio
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 Portfolio
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 Portfolio will incur brokerage fees when it
purchases or sells futures contracts.
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The purpose of the acquisition or sale of a futures contract, in the case
of a Portfolio which holds or intends to acquire fixed-income securities, is to
attempt to protect the Portfolio 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
Portfolio 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 Portfolio. If interest rates did increase, the
value of the debt security in a Portfolio would decline, but the value of the
futures contracts to the Portfolio would increase at approximately the same
rate, thereby keeping the net asset value of the Portfolio from declining as
much as it otherwise would have. The Portfolio 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 Portfolio 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 Portfolio 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 Portfolio could then buy debt securities
on the cash market. To the extent a Portfolio enters into futures contracts for
this purpose, the assets in the segregated asset account maintained to cover the
Portfolio's 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 Portfolio 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 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 Portfolios, if the Advisers'
investment judgment about the general direction of interest rates is incorrect,
a Portfolio's overall performance would be poorer than if it had not entered
into any such contract. For example, if a Portfolio 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
Portfolio 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 Portfolio 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 Portfolio may have to sell
securities at a time when it may be disadvantageous to do so.
Options on Futures Contracts. The Portfolios intend to purchase and write
options on futures contracts for hedging 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 Portfolio 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.
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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 Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's 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 Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio 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 Portfolio's 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 Portfolio 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 Portfolio 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 the Portfolio Series 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 amount of margin
deposits on all (non-hedge) futures contracts of the Portfolio and premiums paid
on outstanding (non-hedge) options on futures contracts owned by the Portfolio
does not exceed 5% of the market value of the total assets of the Portfolio. In
addition, the aggregate market value of the outstanding futures contracts
purchased by the Portfolio may not exceed 50% of the market value of the total
assets of the Portfolio. Neither of these restrictions will be changed by the
Portfolio Series' Board of Trustees without considering the policies and
concerns of the various applicable federal and state regulatory agencies.
Options on Foreign Currencies. A Portfolio 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,
the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, a Portfolio 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, the Portfolio 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 the Portfolio 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, the Portfolio 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 Portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, where a Portfolio 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.
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Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio 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 Portfolio 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 Portfolio 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 Portfolios intend to write covered call options on foreign currencies.
A call option written on a foreign currency by a Portfolio is "covered" if the
Portfolio 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 Portfolio 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 Portfolio in cash,
U.S. Government securities and other high quality liquid debt securities in a
segregated account with its custodian.
The Portfolios 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
Portfolio 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, the Portfolio 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 Portfolio
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
Portfolio 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
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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 Portfolio's
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 Portfolio
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 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
Portfolio's 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 -- PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
The Portfolios may write (sell) covered call and put options to a limited
extent on its portfolio securities ("covered options"). However, a Portfolio may
forego 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 Portfolio.
When a Portfolio 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 Portfolio 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 Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, a Portfolio 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 Portfolio writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio 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 Portfolio has no control, the Portfolio must purchase the
underlying security from the option holder at the exercise price. By writing a
covered put option, a Portfolio, 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 Portfolio will only write put options involving
securities for which a determination is made at the time the option is written
that the Portfolio wishes to acquire the securities at the exercise price.
A Portfolio 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
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"closing purchase transaction." Where a Portfolio 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 Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's 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 Portfolio enters into a closing purchase transaction, the
Portfolio 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 Portfolio 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
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
A Portfolio may purchase call and put options on any securities in which it
may invest. A Portfolio 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 Portfolio, in exchange for the premium paid, to
purchase a security at a specified price during the option period. A Portfolio
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 Portfolio 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 Portfolio, in exchange for the premium paid, to sell
a security, which may or may not be held in the Portfolio's 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
Portfolio's portfolio securities. Put options also may be purchased by a
Portfolio for the purpose of affirmatively benefiting from a decline in the
price of securities which the Portfolio does not own. A Portfolio 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 Portfolios have adopted certain other nonfundamental policies
concerning option transactions which are discussed below. A Portfolio's
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 Portfolios 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
Portfolios 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
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Advisers will monitor the creditworthiness of dealers with whom a Portfolio
enters into such options transactions under the general supervision of the
Portfolio Series' Trustees.
OPTIONS ON SECURITIES INDICES -- PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
In addition to options on securities, the Portfolios 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."
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
Portfolios 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 Portfolios 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 Portfolios' securities 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" -- PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO
In a short sale, a fund sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. A Portfolio 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 Portfolio 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 Portfolio 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 Portfolio's long position.
The Portfolios will not engage in short sales against the box for
investment purposes. A Portfolio 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 Portfolio 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 Portfolio's 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
Portfolio owns. There are certain additional transaction costs associated with
short sales against the box, but the Portfolios endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales.
As a nonfundamental operating policy, the Advisers do not expect that more
than 40% of a Portfolio's total assets would be involved in short sales against
the box. The Advisers do not currently intend to engage in such sales.
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CERTAIN OTHER OBLIGATIONS
In order to allow for investments in new instruments that may be created in
the future, upon the Trust supplementing the Prospectus, a Portfolio or
Portfolios may invest in obligations other than those listed previously,
provided such investments are consistent with a Fund's and its corresponding
Portfolio's 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 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 the Portfolio Series.
After purchase by a Portfolio, an obligation may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Portfolio. Neither
event would require a Portfolio to dispose of the obligation, but the Advisers
will consider such an event in their determination of whether a Portfolio should
continue to hold the obligation. A description of the ratings used herein and in
the Funds' 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 nonfundamental, and may be changed without prior
shareholder approval.
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of each
Fund and each Portfolio and may not be changed with respect to the Fund or the
Portfolio without the approval of a "majority of the outstanding voting
securities" of the Fund or the Portfolio, as the case may be. "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 the Fund (or
the Portfolio), the lesser of (i) 67% or more of the outstanding voting
securities of the Fund (or of the total beneficial interests of the Portfolio)
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund (or of the total beneficial interests of the Portfolio)
are present or represented by proxy, or (ii) more than 50% of the outstanding
voting securities of the Fund (or of the total beneficial interests of the
Portfolio). Whenever the Trust is requested to vote on a fundamental policy of a
Portfolio, the Trust will hold a meeting of the corresponding Fund's
shareholders and will cast its vote as instructed by that Fund's shareholders.
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 Portfolio's total
assets or the value of a Portfolio's 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 Portfolio (or Fund) may (except that
no investment restriction of a Fund shall prevent a Fund from investing all of
its assets in an open-end investment company with substantially the same
investment objective as that Fund):
(1) borrow money or mortgage or hypothecate assets of the Portfolio
(Fund), except that in an amount not to exceed 1/3 of the current value of
the Portfolio's (Fund's) 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
the Portfolio Series or the Portfolio (the Trust or the Fund) may
technically be deemed an underwriter under the 1933 Act in selling a
portfolio security;
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<PAGE> 62
(3) make loans to other persons except (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such loans
not exceed 30% of the Portfolio's (Fund's) 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) in the ordinary course of
business (the Portfolio Series (Trust) may hold and sell, for the
Portfolio's (Fund's) portfolio, real estate acquired as a result of the
Portfolio's (Fund's) 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 Portfolio's (Fund's) investment objective(s), up to 25%
of its total assets may be invested in any one industry (except that the
Money Market Portfolio (Money Market Fund) reserves the freedom of action
to concentrate 25% or more of its assets in obligations of domestic
branches of domestic banks); or
(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.
State and Federal Restrictions. In order to comply with certain state and
federal statutes and policies each Portfolio (or the Trust, on behalf of each
Fund) will not as a matter of operating policy (except that no operating policy
shall prevent a Fund from investing all of its assets in an open-end investment
company with substantially the same investment objective as that Fund):
(i) borrow money for any purpose in excess of 10% of the Portfolio's
(Fund's) total assets (taken at cost), except that the Portfolio
(Fund) 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 Portfolio's (Fund's) 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 the
Portfolio (Fund) if such purchase at the time thereof would
cause (a) more than 10% of the Portfolio's (Fund's) 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
Portfolio's (Fund's) 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 Portfolio (Fund); and provided
further that the Portfolio (Fund) may not purchase any security
from any open-end investment company;
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<PAGE> 63
(vi) purchase securities of any issuer if such purchase at the time
thereof would cause the Portfolio (Fund) 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;
(vii) purchase or retain in the Portfolio's (Fund's) portfolio any
securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or
Trustee of the Portfolio Series (Trust), or is an officer or
partner of the Adviser or Subadviser, if after the purchase of
the securities of such issuer for the Portfolio (Fund) 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 the Portfolio's (Fund's) net assets in
warrants or rights (valued at the lower of cost or market), but
not more than 2% of the Portfolio's (Fund's) net assets may be
invested in warrants not listed on the New York Stock Exchange
or the American Stock Exchange;
(ix) make short sales of securities or maintain a short position
(excluding short sales if the Portfolio (Fund) 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 Portfolio's (Fund's) net assets
(taken at market value); provided, however, that the value of
the Portfolio's (Fund's) 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 Portfolio's
(Fund's) net assets or more than 2% of the securities of any
class of any issuer; or
(x) 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 that are not subject to the demand
feature described in the Fund's then-current Prospectus and
floating and variable rate demand obligations as to which no
secondary market exists and the Portfolio cannot exercise the
demand feature described in the Fund's then-current Prospectus
on not more than seven days' notice), if, in the aggregate, more
than 15% (10% in the case of the Money Market Portfolio(Fund))
of its net assets would be so invested. A Portfolio (Fund) may
not invest in TDs maturing in more than seven days.
Policies (i) through (x) may be changed by the Board of Trustees of the
Portfolio Series or the Trust.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Except as may be required to ensure satisfaction of certain tests
applicable to regulated investment companies under the Code, 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 Portfolio if the Advisers
believe that a transaction net of costs (including custodian charges) will help
achieve the Portfolio's investment objective.
A Portfolio's purchase 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 Portfolios do
not anticipate paying brokerage commissions in such transactions. Any
transactions for which a Portfolio 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.
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<PAGE> 64
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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio or the size of the position obtainable for the
Portfolio. In addition, when purchases or sales of the same security for a
Portfolio 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.
Furthermore, 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 Portfolio. Such an event might also adversely affect that Portfolio.
PERFORMANCE INFORMATION
MONEY MARKET FUND
For the Money Market Fund, yield is computed in accordance with a
standardized method which involves determining the net change in the value of a
hypothetical pre-existing Money Market Fund account having a balance of one
share at the beginning of a seven calendar day period for which yield is to be
quoted, dividing the net change by the value of the account at the beginning of
the period to obtain the base period return, and annualizing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of the
account reflects the value of additional shares purchased with dividends
declared on the original share and any such additional shares and fees that may
be charged to shareholder accounts, in proportion to the length of the base
period and the Money Market Fund's average account size, but does not include
realized gains and losses or unrealized appreciation and depreciation. Effective
annualized yield is computed by adding 1 to the base period return (calculated
as described above), raising that sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held by the Money Market Portfolio, portfolio
maturity and operating expenses. An investor's principal in the Money Market
Fund is not guaranteed. See "Determination of Net Asset Value" for a discussion
of the manner in which the Money Market Fund's price per share is determined.
From time to time, the Money Market Fund in its advertising and sales
literature may refer to the growth of assets managed or administered by the
Adviser over certain time periods.
Comparative performance information may be used from time to time in
advertising or marketing the Money Market Fund's shares, including data from
Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund Report. Morningstar,
Inc., CDA and other publications.
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<PAGE> 65
ALL FUNDS
STANDARD PERFORMANCE INFORMATION
From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner for each Fund:
TOTAL RETURN: The Fund's total return will be calculated for certain
periods by determining the average annual compounded rates of return over
those periods that would cause an investment of $1,000 (with all
distributions reinvested) to reach the value of that investment at the end
of the periods. The Fund may also calculate (i) a total return assuming an
initial account value of $1,000 and/or (ii) total rates of return which
represent aggregate performance over a period of year-by-year performance.
YIELD: The Fund's yield quotation will be based on the annualized net
investment income per share of the Fund over a 30-day period. The current
yield for the Fund is calculated by dividing the net investment income per
share of the Fund earned during the period by the net asset value per share
of the Fund on the last day of that period. The resulting figure is then
annualized. Net investment income per share is determined by dividing (i)
the dividends and interest earned during the period, minus accrued expenses
for the period, by (ii) the average number of Fund shares entitled to
receive dividends during the period multiplied by the net asset value per
share on the last day of the period.
Total returns calculated for any of the Funds for any period which includes
a period prior to the reorganization date will reflect the performance of the
corresponding Pooled Separate Account. The reorganization date is the date on
which the corresponding Pooled Separate Account of The Mutual Life Insurance
Company of New York ("MONY") set forth below contributed all of its assets to
the corresponding Portfolio of Diversified Investors Portfolios in which the
corresponding Fund invests its assets:
<TABLE>
<CAPTION>
FUND MONY POOLED SEPARATE ACCOUNT
- ---- ----------------------------
<S> <C>
Money Market Pooled Account No. 4
High Quality Bond Pooled Account No. 15
Intermediate Government Bond Pooled Account No. 10d
Government/Corporate Bond Pooled Account No. 5
Balanced Pooled Account No. 14
Equity Income Pooled Account No. 6
Growth & Income Pooled Account No. 10a
Equity Growth Pooled Account No. 1
Special Equity Pooled Account No. 10b
International Equity Pooled Account No. 12
</TABLE>
Such total returns calculated for each of the Funds will reflect the
performance of the corresponding Pooled Separate Account only from the date that
such corresponding Pooled Separate Account adopted investment objectives,
policies and practices substantially similar to those of the corresponding
Portfolio of Diversified Investors Portfolios invested in by the Fund. All total
return percentages for such periods will reflect the historical rates of return
of the corresponding Pooled Separate Account for such period adjusted to assume
that all charges, expenses and fees of the applicable Fund which are presently
in effect were deducted during such period. The corresponding Pooled Separate
Accounts were not registered under the Investment Company Act of 1940 and,
therefore, were not subject to certain investment restrictions imposed by that
Act. If the corresponding Pooled Separate Accounts had been registered under
that Act, investment performance might have been adversely affected.
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<PAGE> 66
As of December 31, 1995, the average annual total returns for each of the
Funds, including the pooled accounts noted above, were as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR 3 YEARS 5 YEARS 10 YEARS PERIOD SINCE
ENDED ENDED ENDED ENDED INCEPTION THROUGH
FUND 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
- ---- --------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Money Market.............................. 5.5% 3.8% 4.1% 5.6% 8.0%
High Quality Bond......................... 11.9% 6.0% 7.0% N/A 7.1%
Intermediate Government Bond.............. 13.4% 6.2% 7.6% N/A 7.9%
Government/Corporate Bond................. 20.3% 8.9% 10.1% 9.1% 9.2%
Balanced.................................. 28.5% 12.6% N/A N/A 12.9%
Equity Income............................. 34.6% 15.4% 15.2% 13.2% 13.7%
Growth & Income........................... 32.1% 10.4% 14.0% 12.7% 12.7%
Equity Growth............................. 18.5% N/A N/A N/A 10.2%
Special Equity............................ 41.5% 19.2% 20.2% 15.2% 15.2%
International Equity...................... 12.9% 15.6% N/A N/A 15.9%
</TABLE>
The average annual total returns for the High-Yield Bond Fund reflect
annualized returns for all private accounts and collective investment vehicles
managed by Delaware Investment Advisers during the periods indicated with
investment objectives, policies and restrictions substantially similar to the
High-Yield Bond Fund, and which have been managed as the High-Yield Bond Fund is
managed. These returns are adjusted to assume that all charges, expenses and
fees of the High-Yield Bond Fund which are presently in effect were deducted
during such periods. At December 31, 1995, the annualized total returns for the
High-Yield Bond Fund were as follows: 1 Year -- 14.3%; 3 Years -- 9.0%; 5
Years -- 14.0%; 10 Years -- 10.0%; and Since Inception -- 11.9%.
The average annual total returns for the Equity Value Fund reflect
annualized returns for all private accounts and collective investment vehicles
managed by ARK Asset Management Co., Inc. during the periods indicated with
investment objectives, policies and restrictions substantially similar to the
Equity Value Fund, and which have been managed as the Equity Value Fund is
expected to be managed. These returns are adjusted to assume that all charges,
expenses and fees of the Equity Value Fund which are presently in effect were
deducted during such periods. At December 31, 1995, the annualized total returns
for the Equity Value Fund were as follows: 1 Year -- 37.6%; 3 Years -- 17.5%; 5
Years -- 17.4%; 10 Years -- 15.4%; and Since Inception -- 16.5%.
The average annual total returns for the Aggressive Equity Fund reflect
annualized returns for all private accounts and collective investment vehicles
managed by McKinley Capital Management, Inc. during the periods indicated with
investment objectives, policies and restrictions substantially similar to the
Aggressive Equity Fund, and which have been managed as the Aggressive Equity
Fund is expected to be managed. These returns are adjusted to assume that all
charges, expenses and fees of the Aggressive Equity Fund which are presently in
effect were deducted during such periods. At December 31, 1995, the annualized
total returns for the Aggressive Equity Fund were as follows: 1 Year -- 40.0%; 3
Years -- 21.1%; 5 Years -- 31.7%; 10 Years -- N/A%; and Since
Inception -- 29.5%.
Effective November 14, 1995, Putnam Advisory Company, Inc. ("Putnam")
became the subadvisor to the Growth & Income Fund. The average annual total
returns at June 30, 1995 for all private accounts and collective investment
vehicles managed by Putnam with investment objectives, policies and restrictions
substantially similar to the Growth & Income Fund, adjusted to assume that all
charges, expenses and fees of the Growth & Income Fund presently in effect were
deducted, are as follows: 1 Year -- 37.2%; 3 Years -- 15.9%; 5 Years -- 18.7%;
and Since Inception -- 17.6%.
Any yield or total return quotation provided for the Fund should not be
considered as representative of the performance of the Fund in the future since
the net asset value of shares of the Fund will vary based not only on the type,
quality and maturities of the securities held in the Portfolio, but also on
changes in the current value of such securities and on changes in the expenses
of the Fund and the Portfolio. These factors
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<PAGE> 67
and possible differences in the methods used to calculate yields and total
return should be considered when comparing the yield and total return of the
Fund to yields and total rates of return published for other investment
companies or other investment vehicles. Total return reflects the performance of
both principal and income.
COMPARISON OF FUND PERFORMANCE
Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when comparing
performance of a Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or prospective
shareholders, a Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. A Portfolio may invest in
some instruments not eligible for inclusion in such an index, and may be
prohibited from investing in some instruments included in this index.
Evaluations of a Fund's performance made by independent sources may also be used
in advertisements concerning a Fund. Sources for a Fund's performance
information may include, but are not limited to, the following:
Asian Wall Street Journal, a weekly Asian newspaper that often reviews
U.S. mutual funds investing internationally.
Barron's, a Dow Jones and Company, Inc. business and financial weekly
that periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports
the performance rankings and ratings of a variety of mutual funds investing
abroad.
Changing Times, The Kiplinger Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
Consumer Digest, a monthly business/financial magazine that includes a
"Money Watch" section featuring financial news.
Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the
performance of the nation's money market funds, summarizing money market
fund activity, and including certain averages as performance benchmarks,
specifically "Donoghue's Money Fund Average" and "Donoghue's Government
Money Fund Average."
Financial Times, Europe's business newspaper, which features from time
to time articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a
"Market Watch" department reporting on activities in the mutual fund
industry.
Forbes, a national business publication that from time to time reports
the performance of specific investment companies in the mutual fund
industry.
Fortune, a national business publication that periodically rates the
performance of a variety of mutual funds.
Investor's Daily, a daily newspaper that features financial, economic
and business news.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
weekly publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both
specific funds and the mutual fund industry as a whole.
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<PAGE> 68
New York Times, a nationally distributed newspaper which regularly
covers financial news.
Personal Investing News, a monthly news publication that often reports
on investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that
includes a "Mutual Funds Outlook" section reporting on mutual fund
performance measures, yields, indices and portfolio holdings.
Success, a monthly magazine targeted to the world of entrepreneurs and
growing business, often featuring mutual fund performance data.
U.S. News and World Report, a national business weekly that
periodically reports mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.
Weisenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient
features, management results, income and dividend records, and price
ranges.
Working Women, a monthly publication that features a "Financial
Workshop" section reporting on the mutual fund/financial industry.
World Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES
The Trust determines the net asset value of the shares of each Fund each
day that the Advisers of the corresponding Portfolio are open for business. (As
a result, a Fund will normally determine its net asset value every weekday
except for the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas.) This
daily determination of net asset value is made as of the close of regular
trading on the New York Stock Exchange, currently 4:00 p.m., New York time
unless the Exchange closes earlier, by dividing the total assets of a Fund less
all of its liabilities, by the total number of shares of a Fund outstanding at
the time the determination is made. Purchases and redemptions will be effected
at the time of determination of net asset value next following the receipt of
any purchase or redemption order deemed to be in good order. (See "Purchases and
Redemptions of Shares" in the Prospectus.)
Trading in securities on most non-U.S. exchanges and over-the-counter
markets is normally completed before the close of regular trading on the New
York Stock Exchange and may also take place on days on which the New York Stock
Exchange is closed. If events materially affecting the value of non-U.S.
securities occur between the time when the exchange on which they are traded
closes and the time when a Fund's net asset value is calculated, such securities
will be valued at fair value in accordance with procedures established by and
under the general supervision of the Board of Trustees of the Portfolio Series.
Equity securities are valued at the last sale price on the exchange on
which they are primarily traded or at the ask price on the NASDAQ system for
unlisted national market issues, or at the last quoted bid price for securities
in which there were no sales during the day or for unlisted securities not
reported on the NASDAQ system. Bonds and other fixed income securities (other
than short-term obligations, but including listed issues) are valued on the
basis of valuations furnished by a pricing service, the use of which has been
approved by the Board of Trustees. In making such valuations, the pricing
service utilizes both dealer-supplied valuations and electronic data processing
techniques that take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data, without exclusive
reliance upon quoted prices or exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities. Short-term obligations which mature in 60 days or less are valued at
amortized cost, which
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<PAGE> 69
approximates fair value as determined by the Board of Trustees. Futures and
option contracts that are traded on commodities or securities exchanges are
normally valued at the settlement price on the exchange on which they are
traded. Portfolio securities (other than short-term obligations) for which there
are no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Board of Trustees.
Interest income on long-term obligations is determined on the basis of
interest accrued plus amortization of discount (generally, the difference
between issue price and stated redemption price at maturity) and premiums
(generally, the excess of purchase price over stated redemption price at
maturity). Interest income on short-term obligations is determined on the basis
of interest and discount accrued less amortization of premium.
Any assets or liabilities initially denominated in terms of foreign
currencies are translated into U.S. dollars at the official exchange rate or,
alternatively, at the mean of the current bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing service
that takes into account the quotes provided by a number of such major banks. If
neither of these alternatives is available or both are deemed not to provide a
suitable methodology for converting a foreign currency into U.S. dollars, the
Board of Trustees, in good faith, will establish a conversion rate for such
currency.
A determination of value used in calculating net asset value must be a fair
value determination made in good faith utilizing procedures approved by the
Portfolio Series' 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 Portfolio 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.
Each investor in each Portfolio, including the corresponding Fund, may add
to or reduce its investment in the Portfolio on each day that the Adviser and
the Subadviser of the Portfolio are open for business. As of 4:00 p.m. (New York
time) (or any earlier close of regular trading on the Exchange) on each such
day, the value of each investor's interest in a Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage representing
that investor's share of the aggregate beneficial interests in the Portfolio.
Any additions or reductions which are to be effected on that day will then be
effected. The investor's percentage of the aggregate beneficial interests in the
Portfolio 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
Portfolio as of 4:00 p.m. 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
Portfolio effected on such day, and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of 4:00 p.m. on such day plus or
minus, as the case may be, the amount of the net additions to or reductions in
the aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of the
investor's interest in a Portfolio as of 4:00 p.m. on the following day the New
York Stock Exchange is open for trading.
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<PAGE> 70
MANAGEMENT OF THE TRUST AND PORTFOLIO SERIES
The respective Trustees and officers of the Trust and the Portfolio Series
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 the Trust
or the Portfolio Series, as the case may be. Unless otherwise indicated, the
address of each Trustee and officer of the Trust and the Portfolio Series is
Four Manhattanville Road, Purchase, New York 10577.
TRUSTEES OF THE TRUST
<TABLE>
<S> <C>
Donald E. Flynn*..................... Vice President, AEGON USA, Inc., 1988 to present;
Executive Vice President, AEGON USA Investment
Management, Inc., 1988 to present; Vice President,
AEGON USA Managed Portfolios, Inc., 1988 to present.
Robert Lester Lindsay................ Retired; Executive Vice President, The Mutual Life
Insurance Company of New York (prior to July 1989);
His address is Two Huguenot Center, Tenafly, New
Jersey 07670-2520.
Nikhil Malvania...................... Partner, Deaner-Malvania Associates (since [ ] 1991);
Manager and Vice President, Strategic Planning
Associates (prior to [ 1991). His address is 88 Perry
Street, New York, New York 10014.
Joyce Galpern Norden................. 5/95 to present -- Co-Director, Urman's Health
Clinical Research Program Medical Center, University
of Pennsylvania. 10/93 to 5/95 -- Foundations
Director, American Jewish Committee; 2/91 to
9/93 -- Executive Director, Food-People Allied to
Combat Hunger Inc. Her address is Nine Evergreen Way,
North Tarrytown, New York 10591.
Tom A. Schlossberg*.................. President, Diversified, 10/92 to present; Executive
Vice President and Head of Pension Operations, The
Mutual Life Insurance Company of New York, 1/93 to
12/93.
</TABLE>
TRUSTEES OF THE PORTFOLIO SERIES
In addition to the Trustees below, Messrs. Schlossberg and Flynn serve as
Trustees of the Portfolio Series.
<TABLE>
<S> <C>
Neal M. Jewell....................... 1/95 to present -- Consultant, 11/91 to 1/95 Executive
Vice President, 1/90 to 10/91 -- Director of Oversees
Pensions, American International Group Asset
Management. His address is 355 Thornridge Drive,
Stamford, Connecticut 06903.
Eugene M. Mannella................... Vice President, Investment Management Services, Inc.
(since August 1993); Senior Vice President, Lehman
Brothers Inc. (May 1986 to August 1993). His address
is Two Orchard Neck Road, Center Moriches, New York
11934.
Patricia L. Sawyer................... Executive Vice President and Director, Robert L. Smith
& Co. (since July 1990); Vice President, American
Express (September 1988 to July 1990). Her address is
256 West 10th Street, New York, New York 10014.
</TABLE>
27
<PAGE> 71
OFFICERS
Mr. Schlossberg is President, Chief Executive Officer and Chairman of the
Board and Mr. Flynn is Vice President of the Trust and the Portfolio Series.
Each other officer also holds the same position indicated with the Trust and the
Portfolio Series.
<TABLE>
<S> <C>
Robert F. Colby Secretary; Vice President and Chief Corporate Counsel,
Mutual Life Insurance Company of New York, 4/93 to
12/93; Vice President and General Counsel, Diversified,
11/93 to present; Vice President of DISC, 11/93 to
present.
Alfred C. Sylvain Treasurer and Assistant Secretary; Vice President and
Treasurer of Diversified, 11/93 to present; Treasurer of
DISC., 11/93 to present; Vice President, Mutual Life
Insurance Company of New York, 1/91 to present.
John F. Hughes Assistant Secretary; Senior Counsel, Mutual Life
Insurance Company of New York, 1/88 to present; Vice
President and Senior Counsel, Diversified, 11/93 to
present; Assistant Secretary, DISC. 11/93 to present.
</TABLE>
The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers as described below under "Description of the Trust; Fund
Shares."
PRINCIPAL HOLDERS OF SECURITIES
At December 31, 1995, the following investors held more than 5% of the
outstanding shares of the following Funds.
Money Market Fund: Paula C. Mister, 3101 Jackson Ridge Court, Phoenix, MD 21131
(674 shares owned -- 5.8%), Patrick L. Applegate, 4001 Chesley Avenue,
Baltimore, MD 21206 (772 shares owned -- 6.7%); Joanne Green, 34 Barton Hill,
East Hampton, Connecticut 06424 (646 shares owned -- 24%).
Government/Corporate Bond Fund: Henry L. Gutman, 7704 Crossland Road, Baltimore,
MD 21208 (4,741 shares owned -- 31.4%); Helen P. Sigwad, 6G Fallen Tree Court,
Relay, MD 21227 (1,343 shares owned -- 8.9%).
Balanced Fund: David R. Berger, 360 Leatherwood Place, Baltimore, MD 21237
(4,588 shares owned -- 6.4%).
Equity Income Fund: Suzanne S. Stuntz, 5506 Southbend Road, Baltimore, MD 21209
(9,047 shares owned -- 21.1%).
Growth & Income Fund: Henry L. Gutman, 7704 Crossland Road, Baltimore, MD 21208
(3,459 shares owned -- 9.5%).
Special Equity Fund: Jack Blair, 13008 Coverbridge Road, Cellarsburg, IN 47172
(2,511 shares owned -- 6.0%).
At December 31, 1995, AUSA Life Insurance Company, Inc. ("AUSA"), 4
Manhattanville Road, Purchase, New York 10577 and The Mutual Life Insurance
Company ("MONY"), 1740 Broadway,
28
<PAGE> 72
New York, New York 10019 owned the following percentage interests of the
outstanding beneficial interests of the Portfolios indicated (all such interests
being held in separate accounts of AUSA and MONY, respectively):
<TABLE>
<CAPTION>
AUSA MONY
----- -----
<S> <C> <C>
Money Market 42.43% 47.40%
High Quality Bond 54.41 39.19
Intermediate Government Bond 63.72 30.44
Government/Corporate Bond 25.83 69.34
High-Yield Bond 73.21 6.33
Balanced 92.89 5.34
Equity Income 68.03 30.23
Growth & Income 72.63 21.16
Equity Growth 85.73 10.80
Special Equity 51.48 45.59
International Equity 41.39 50.01
</TABLE>
COMPENSATION
For the fiscal year ended December 31, 1995, the Trust provided the
following compensation to its Trustees.
<TABLE>
<CAPTION>
PENSION OR TOTAL
AGGREGATE RETIREMENT ESTIMATED COMPENSATION
NAME OF COMPENSATION BENEFITS ACCRUED ANNUAL FROM REGISTRANT
PERSON, FROM AS PART OF FUND BENEFITS UPON AND FUND COMPLEX
POSITION REGISTRANT EXPENSES RETIREMENT PAID TO TRUSTEES
- ---------------------------------------- ------------ ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Tom A. Schlossberg -0- None N/A -0-
Trustee
Donald E. Flynn -0- None N/A -0-
Trustee
Robert L. Lindsay $9,000 None N/A $9,000
Trustee
Nikhil Malvania $9,000 None N/A $9,000
Trustee
Joyce Galpern Norden $9,000 None N/A $9,000
Trustee
</TABLE>
For the fiscal year ended December 31, 1995, the Portfolio Series provided
the following compensation to its Trustees.
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
NAME OF COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND COMPLEX
PERSON, FROM AS PART OF FUND BENEFITS UPON PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- ---------------------------------------- ------------ ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Tom A. Schlossberg -0- None N/A -0-
Trustee
Donald E. Flynn -0- None N/A -0-
Trustee
Neal M. Jewell $ 10,000 None N/A $ 10,000
Trustee
Eugene M. Manella $ 10,000 None N/A $ 10,000
Trustee
Patricia L. Sawyer $ 10,000 None N/A $ 10,000
Trustee
</TABLE>
29
<PAGE> 73
INVESTMENT ADVISORY SERVICES
The Adviser manages the assets of each Portfolio pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Portfolio Series with
respect to that Portfolio and the investment policies described herein and in
the Prospectus for the corresponding Fund. Subject to such further policies as
the Portfolio Series's Board of Trustees may determine, the Adviser provides
general investment advice to each Portfolio.
For each Portfolio, the Adviser has entered into an Investment Subadvisory
Agreement (each a "Subadvisory Agreement") with each Subadviser.
Each Advisory Agreement provides that the Adviser 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
Portfolio when authorized either by majority vote of the investors in the
Portfolio (with the vote of each being in proportion to the amount of its
investment) or by a vote of a majority of the Board of Trustees of the Portfolio
Series, or by the Adviser 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
the Adviser 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 Portfolio, 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.
The Adviser's and Subadviser's fees are described in the Funds' Prospectus.
The Adviser, if required by applicable state law, shall reimburse a Fund or
waive all or part of its fees up to, but not exceeding, its investment advisory
fees from the corresponding Portfolio. Such reimbursement, if required, will be
equal to the combined aggregate annual expenses of the appropriate Fund and its
corresponding Portfolio which exceed that expense limitation with the lowest
threshold prescribed by any state in which such Fund is qualified for offer or
sale. Management of each of the Trust and the Portfolio series 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 1/2% of net assets
in excess of that amount.
Diversified is an investment firm dedicated to meeting the complete needs
of retirement plan sponsors and participants from pre- through post-retirement.
Diversified provides flexible, high-quality services coupled with the employment
of independent investment managers in an innovative investment structure.
Diversified services over $8 billion in retirement plan assets and has
offices in Boston, Charlotte, Chicago, Cincinnati, Dallas, Houston, New Orleans,
New York, Philadelphia, Portland and San Francisco. It maintains recordkeeping
for 300,000 participants and has 490 employees dedicated to retirement plan
investment and administration. Its employees average more than seven years of
retirement plan experience.
As experts in customizing retirement solutions, Diversified offers
comprehensive programs of high-quality investments and administrative services
to defined benefit, defined contribution and not-for-profit pension plan
sponsors. Diversified forms a partnership with its clients to provide
exceptional plan design, participant communication programs, recordkeeping
services and technical guidance.
Diversified's investment structure provides access to an array of
complementary investment alternatives representing the major asset classes along
the risk/reward spectrum. Subadvisers are selected from more than 2,000 highly
accomplished independent firms. Each subadviser's performance is carefully
monitored by Diversified taking into consideration fund performance in light of
investment objectives and policies and level of risk.
Through a rigorous portfolio manager selection process which includes
researching each subadviser's asset class, track record, organizational
structure, management team, consistency of performance and assets under
management, five to ten subadvisers are chosen. Out of that group, Diversified
then carefully chooses the three most qualified subadvisers based on performance
evaluation, ownership structure, personnel and philosophy to return for an
on-site visit and a quantitative and qualitative analysis by the investment
30
<PAGE> 74
committee. Out of those three subadvisers, Diversified then hires the most
qualified, independent subadviser for each Portfolio, subject to approval by the
Portfolio Series' Board of Trustees including a majority of the Trustees who are
not "interested persons" of the Portfolio Series.
Diversified brings comprehensive monitoring and control to the investment
management process. It seeks superior portfolio management and moves
purposefully in replacing managers when warranted. From a plan sponsor's
perspective, replacing a manager, and not the investment fund, is a key
advantage in avoiding the expense and difficulty of re-enrolling participants or
disrupting established plan administration. Replacing a Subadviser, however,
will necessitate a shareholder proxy solicitation which involves other expenses
to a Fund.
Highly disciplined manager evaluation on both a quantitative and
qualitative basis, is an ongoing process. Diversified's Manager Monitoring Group
gathers and analyzes performance and Diversified's Investment Committee reviews
it. Performance attribution, risk/return ratios and purchase/sale assessments
are prepared monthly and, each quarter, a more comprehensive review is completed
which consists of manager visits, fundamental analysis and statistical analysis.
Extensive quarterly analysis is conducted to ensure that the investment fund is
being managed in line with the stated objectives. Semiannually, the Investment
Committee reviews the back-up manager selection, regression analysis and
universe comparisons.
A number of "red flags" signal a more extensive and frequent manager
review. These flags consist of a return inconsistent with the investment
objective, changes in subadviser leadership, ownership or portfolio managers,
large changes in assets under management and changes in philosophy or
discipline. The immediate response to any red flag is to assess the potential
impact on the manager's ability to meet investment objectives. Diversified
monitors "back-up" additional independent managers for each investment so that,
should a manager change be warranted, the transition can be effected on a timely
basis.
ADMINISTRATOR
The Administrative Services Agreements between Diversified, as
Administrator, and each of the Portfolio Series and the Trust are described in
the Prospectus. Each agreement provides that Diversified may render services to
others as administrator. In addition, each agreement terminates automatically if
it is assigned and may be terminated without penalty, in the case of the
Portfolio Series, by majority vote of the Funds and of the other investors in
the Portfolio Series (with the vote of each being in proportion to the amount of
its investment) or, in the case of the Trust, by majority vote of the Trust's
shareholders, or by either party on not more than 60 days' nor less than 30
days' written notice. Each 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 Fund or
Portfolio, 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 the Administrative and Transfer Agency Services Agreement,
Diversified acts as transfer agent for each of the Funds (the "Transfer Agent").
The Transfer Agent maintains an account for each shareholder of a Fund, performs
other transfer agency functions, and acts as dividend disbursing agent for each
Fund.
Pursuant to two Custodian Agreements, Investors Bank & Trust Company acts
as the custodian of each Fund's assets, i.e., each Fund's interest in its
corresponding Portfolio, and as the custodian of each Portfolio's assets (the
"Custodian"). The Custodian's responsibilities include safeguarding and
controlling the Portfolios' cash and securities, handling the receipt and
delivery of securities, determining income and collecting interest on the
Portfolios' 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 Portfolio. Securities held by the
Portfolios 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 Trustees of the
Portfolio Series. The Custodian does not determine the investment
31
<PAGE> 75
policies of the Portfolios or decide which securities the Portfolios will buy or
sell. A Portfolio 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 the Trust and the Portfolio
Series.
TAXATION
Each Fund intends to qualify as a regulated investment company ("RIC") for
federal income tax purposes by meeting all applicable requirements of Subchapter
M of the Code, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions and the composition and holding period
of the Fund's portfolio assets. Because each Fund intends to distribute all of
its net investment income and net realized capital gains to its shareholders in
accordance with the timing requirements imposed by the Code, it is expected that
no Fund will be required to pay any federal income or excise taxes, although
foreign-source income may be subject to foreign withholding taxes. If a Fund
should fail to qualify as a "regulated investment company" in any year, the Fund
will incur a regular corporate federal income tax upon its taxable income
(thereby reducing the return realized by Fund shareholders) and Fund
distributions would constitute ordinary corporate dividends when issued to the
Qualified Investors. However, such Investors would not, in that event, incur any
income tax liability on such distributions provided they remain exempt from
federal income tax.
Under interpretations of the Internal Revenue Service (1) each Portfolio
will be treated for federal income tax purposes as a partnership which is not a
publicly traded partnership and (2) for purposes of determining whether a Fund
satisfies requirements of Subchapter M of the Code, the Fund, as an investor in
its corresponding Portfolio, will be deemed to own a proportionate share of that
Portfolio's assets and will be deemed to be entitled to the Portfolio's income
attributable to that share. The Portfolio Series has advised the Funds that it
intends to conduct the Portfolios' operations so as to enable investors,
including the Funds, to satisfy those requirements.
As RICs, the Funds will not be subject to federal income tax on their
investment company taxable income and net capital gain (the excess of net
longterm capital gain over net short-term capital loss), if any, that it
distributes to its shareholders. Thus, each Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gain.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, each Fund must, and intends to, distribute
during each calendar year substantially all of its ordinary income for that year
and of its capital gain in excess of its capital losses for the one-year period
ending on October 31 of that year, plus any undistributed ordinary income and
capital gains from previous years. For this and other purposes, a distribution
will be treated as paid on December 31 if it is declared by a Fund in October,
November or December with a record date in such a month and paid by the Fund
during January of the following calendar year. Accordingly, those distributions
will be taxable to shareholders for the taxable year in which that December 31
falls.
Each Fund is designed to meet the long-term investment needs of, and will
be available only to, certain individual and group retirement plans which,
subject to specific requirements, may qualify for tax-exempt status under the
Code. Each Fund has been designed and will be managed with the assumption that
all shareholders are such tax-qualified individual or group plans. Accordingly,
Fund shares are not appropriate investments for individuals or participants in
group plans which would be subject to tax liability upon the occurrence of
distributions from a Fund, including redemptions of shares and exchanges between
Funds. Potential shareholders should consult their tax advisors prior to
purchasing Fund shares to ensure that any such purchase will be carried out
through an appropriate individual or group retirement plan and will be
consistent with the terms and restrictions of such plan. Where applicable,
participants in group retirement
32
<PAGE> 76
plans should consult their plan administrator for additional information about
restrictions on investments and other terms of an underlying plan.
DISTRIBUTIONS
Tax-qualified retirement plans which invest in any Fund generally will not
be subject to tax liability on either distributions from a Fund or redemptions
of shares of a Fund. Rather, participants are taxed when they take distributions
from the underlying plan in accordance with the rules under the Code governing
the taxation of such distributions. Qualified Investors otherwise generally
exempt from federal taxation of their income might nevertheless be taxed on
distributions of the Fund, and any gain realized on redemption of Fund shares,
where the Investor is subject to the unrelated business taxable income
provisions of the Code with respect to its investment in the Fund because, e.g.,
its acquisition of shares in the Fund was financed with debt.
If, for any reason, a Qualified Investor is not exempt from income taxation
such Qualified Investor will be subject to tax on distributions received from
the Fund irrespective of the fact that such distributions are reinvested in
additional shares. Distributions to such Investors, other than of net capital
gains, will be taxable as ordinary income; distributions of net capital gains
would be taxable to such Investors as long-term capital gain without regard to
the length of time they have held in shares in the Fund. Certain dividends
declared in October, November or December of a calendar year and paid to a
Qualified Investor which is subject to tax on the distribution in January of the
succeeding calendar year are taxable to such Investor as if paid on December 31
of the year in which they were declared.
SALE OF SHARES
Any gain or loss realized by a shareholder subject to federal income tax
upon the sale or other disposition of shares of a Fund, or upon receipt of a
distribution in complete liquidation of a Fund, generally will be a capital gain
or loss that will be long-term or short-term depending upon the shareholder's
holding period for the shares. Any loss realized on a sale or exchange of a
Fund's shares by such a shareholder will be disallowed to the extent the shares
disposed of are replaced (including by shares acquired pursuant to reinvested
distribution) within a period of 61 days beginning 30 days before and ending 30
days after the disposition. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss. Any loss realized by such a
shareholder on a disposition of a Fund's shares held for six months or less will
be treated as a long-term capital loss to the extent of any distributions of net
capital gain received by the shareholder with respect to such shares.
FOREIGN SHAREHOLDERS
The tax consequences to a foreign shareholder of an investment in a Fund
may be different from those described herein. Foreign shareholders are advised
to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Fund.
TAXATION OF THE PORTFOLIO SERIES
The Portfolio Series, if treated for tax purposes as a partnership, would
not be subject to federal income taxation. Instead, a Fund would take into
account, in computing its federal income tax liability, its share of the
Portfolio Series's income, gains, losses, deductions, credits and tax preference
items, without regard to whether it has received any cash distributions from the
Portfolio Series.
Withdrawals by a Fund from its corresponding Portfolio generally will not
result in such Fund 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 a Fund's interest in its Portfolio prior to the
distribution, (2) income or gain will be realized if the withdrawal is in
liquidation of a Fund's entire interest in the Portfolio Series and includes a
disproportionate share of any unrealized receivables held by the Portfolio
Series, and (3) loss will be recognized if the distribution is in liquidation of
that entire interest and consists solely of cash and/or
33
<PAGE> 77
unrealized receivables. The basis of a Fund's interest in the Portfolio Series
generally equals the amount of cash and the basis of any property that the Fund
invests in its corresponding Portfolio, increased by the Fund's share of income
from that Portfolio and decreased by the amount of any cash distributions and
the basis of any property distributed from its corresponding Portfolio.
FOREIGN WITHHOLDING TAXES
Income received by a Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries; it is not
expected that the Portfolios or the Funds will be able to "pass through" to the
Fund shareholders subject to tax any foreign tax credits with respect to these
taxes.
Tax conventions between certain countries and the United States may reduce
or eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of assets to be invested in various
countries will vary.
HEDGING STRATEGIES
The use of hedging strategies, such as a Portfolio's entry 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.
The Portfolios will limit their activities in options, futures contracts
and forward contracts to the extent necessary to allow the Funds to qualify as
RICs. As a result, however, a Portfolio 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.
OTHER TAXATION
The Trust is organized as a Massachusetts business trust and, under current
law, neither the Trust nor any Fund is liable for any income or franchise tax in
the Commonwealth of Massachusetts, provided that each Fund continues to qualify
as a RIC for federal income tax purposes. The investment by each Fund in its
corresponding Portfolio does not cause a Fund to be liable for any income or
franchise tax in the State of New York.
The Portfolio Series is organized as a New York trust. The Portfolio Series
is not subject to any income or franchise tax in the State of New York or, so
long as it is treated as a partnership (not taxable as a publicly traded
partnership) for federal income tax purposes, the Commonwealth of Massachusetts.
Shareholders of the Funds may be subject to state and local taxes on a
Fund's distributions to them. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in a Fund.
DISTRIBUTION PLAN
The Trust has adopted a Distribution Plan (the "Distribution Plan") in
accordance with Rule 12b-1 under the 1940 Act after having concluded that there
is a reasonable likelihood that the Distribution Plan will benefit the Funds and
their shareholders. The Distribution Plan provides that the Distributor may
receive a fee from each Fund at an annual rate not to exceed 0.25% of that
Fund's average daily net assets in anticipation of, or as reimbursement for,
expenses incurred in connection with the sale of shares of the Fund, such as
advertising expenses and the expenses of printing (excluding typesetting) and
distributing Prospectuses and reports used for sales purposes, expenses of
preparing and printing of sales literature and other distribution-related
expenses.
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<PAGE> 78
The Distribution Plan will continue in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trust's Trustees and a majority of the Trust's Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the Distribution Plan or in any agreement related to such Plan
("Qualified Trustees"). The Distribution Plan requires that at least quarterly
the Trust and the Distributor shall provide to the Board of Trustees and the
Board of Trustees shall review a written report of the amounts expended (and the
purposes therefor) under the Distribution Plan. The Distribution Plan further
provides that the selection and nomination of the Trust's disinterested Trustees
shall be committed to the discretion of the Trust's disinterested Trustees then
in office. The Distribution Plan may be terminated with respect to a Fund at any
time by a vote of a majority of the Trust's Qualified Trustees or by vote of a
majority of the outstanding voting securities of that Fund. The Distribution
Plan may not be amended to increase materially the amount of permitted expenses
thereunder without the approval of a majority of the outstanding voting
securities of the Fund and may not be materially amended in any case without a
vote of the majority of both the Trust's Trustees and the Trust's Qualified
Trustees. The Distributor will preserve copies of any plan, agreement or report
made pursuant to the Distribution Plan for a period of not less than six years
from the date of the Distribution Plan, and for the first two years the
Distributor will preserve such copies in an easily accessible place.
As contemplated by the Distribution Plan, Diversified Investors Securities
Corp. acts as the agent of the Funds in connection with the offering of shares
of the Funds pursuant to a Distribution Agreement (the "Distribution
Agreement"). After the Prospectuses and periodic reports have been prepared, set
in type and mailed to existing shareholders, the Distributor pays for the
printing and distribution of copies of the Prospectuses and periodic reports
which are used in connection with the offering of shares of the Funds to
prospective investors. The Prospectus contains a description of fees payable to
the Distributor under the Distribution Agreement.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as the Funds' and the Portfolios'
independent accountants providing audit and accounting services including (i)
audit of the annual financial statements, (ii) assistance and consultation with
respect to the preparation of filings with the SEC and (iii) preparation of
annual income tax returns.
DESCRIPTION OF THE TRUST; FUND SHARES
The Trust is a Massachusetts business trust established under a Declaration
of Trust dated as of April 23, 1993. Its authorized capital consists of an
unlimited number of shares of beneficial interest of $0.00001 par value which
may be issued in separate series. Currently, the Trust has thirteen active
series, although additional series may be established from time to time. If
additional series are established, each share of a series will represent an
equal proportionate interest in that series with each other share of the series.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Trust. Expenses with respect to any two or more series are to
be allocated in proportion to the asset value of the respective series except
where allocations of direct expenses can otherwise be fairly made. The officers
of the Trust, subject to the general supervision of the Trustees, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the value of the underlying assets of such
shares available for distribution to shareholders.
Shares of the Trust entitle their holder to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved.
35
<PAGE> 79
The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust 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 the Trust unless, as
to liability to the Trust or its shareholders, it is finally adjudicated that
they engaged in willful 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 the
Trust. 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 willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of each Fund
and provides for indemnification and reimbursement of expenses out of Fund
property for any shareholder held personally liable for the obligations of a
particular Fund. The Declaration of Trust also provides for the maintenance, by
or on behalf of the Trust and the Funds, of appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Funds, their shareholders, Trustees, officers, employees and agents covering
possible tort and other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and a Fund itself was unable to meet
its obligations.
EXPERTS
The financial statements incorporated herein have been so included in
reliance on the report of Coopers & Lybrand L.L.P. independent accountants,
given on the authority of said firm as experts in auditing and accounting.
FINANCIAL STATEMENTS
The audited financial statements of the Trust (Statements of Assets and
Liabilities at December 31, 1995, Statements of Operations for the applicable
periods ended December 31, 1995, Statements of Changes in Net Assets for the
applicable periods ended December 31, 1995, Notes to Financial Statements,
Financial Highlights and Report of Independent Accountants) and the audited
financial statements of the Portfolio Series (Portfolio of Investments at
December 31, 1995, Statements of Assets and Liabilities at December 31, 1995,
Statements of Operations for the applicable periods ended December 31, 1995,
Statements of Changes in Net Assets for the applicable periods ended December
31, 1995, Notes to Financial Statements, Financial Highlights and Report of
Independent Accountants), each of which is included in the 1995 Annual Report to
Shareholders of the Trust are incorporated by reference into this Statement of
Additional Information. A copy of the Annual Report for the Trust accompanies
this Statement of Additional Information.
36
<PAGE> 80
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA -- Debt rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA -- Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A -- Debt rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debts in higher rated
categories.
BBB -- Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debts in this category than for debts in higher rated categories.
BB -- Debt rated BB is regarded as having less near-term vulnerability to
default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments.
Commercial Paper, including Tax Exempt
A -- Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are further
refined with the designations 1, 2, and 3 to indicate the relative degree of
safety.
A-1 -- This designation indicates that the degree of safety regarding
timely payment is very strong.
MOODY'S
Corporate and Municipal Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
37
<PAGE> 81
BA -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
Commercial Paper
PRIME-1 -- Issuers rated P-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 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.
38
<PAGE> 82
<TABLE>
<S> <C>
Investment Adviser of the Portfolio Series,
Administrator and Transfer Agent
Diversified Investment Advisors, Inc. THE DIVERSIFIED INVESTORS FUNDS GROUP
Four Manhattanville Road
Purchase, NY 10577
Diversified Investors Money Market Fund
Diversified Investors High Quality Bond Fund
Diversified Investors Intermediate
Government
Bond Fund
Diversified Investors Government/Corporate
Bond Fund
Diversified Investors High-Yield Bond Fund
Diversified Investors Balanced Fund
Diversified Investors Equity Income Fund
Diversified Investors Equity Value Fund
Diversified Investors Growth & Income Fund
Diversified Investors Equity Growth Fund
Diversified Investors Special Equity Fund
Diversified Investors Aggressive Equity Fund
Diversified Investors International Equity
Fund
Investment Subadvisers of the Portfolios
Diversified Investors Money Market Fund,
Diversified Investors Intermediate
Government Bond Fund and Diversified
Investors Government/Corporate Bond Fund
Capital Management Group
1740 Broadway
New York, NY 10019
Diversified Investors High Quality Bond Fund
Merganser Capital Management Corporation
One Cambridge Center
Cambridge, MA 02142
Diversified Investors High-Yield Bond Fund
Delaware Investment Advisers
2005 Market Street
Philadelphia, Pennsylvania 19103
Diversified Investors Balanced Fund
Institutional Capital Corporation
303 West Madison Street
Chicago, IL 60606
Diversified Investors Equity Income Fund
Asset Management Group
1740 Broadway
New York, NY 10019
Diversified Investors Equity Value Fund
ARK Asset Management Co., Inc.
One New York Plaza
New York, NY 10004
Diversified Investors Growth & Income Fund
Putnam Advisory Company, Inc.
One Post Office Square
Boston, MA 02109
</TABLE>
39
<PAGE> 83
Diversified Investors Equity Growth Fund
Jundt Associates, Inc.
1550 Utica Avenue South
Suite 950
St. Louis Park, MN 55416
Diversified Investors Special Equity Fund
Pilgrim Baxter & Associates
1255 Drummers Lane
Wayne, PA 19087
ARK Management Co., Inc.
One New York Plaza
New York, NY 10004
Liberty Investment Management, Inc.
880 Cerillon Parkway
St. Petersburg, FL 33716
Westport Asset Management, Inc.
53 Riverside Avenue
Westport, CT 06880
Diversified Investors Aggressive Equity Fund
McKinley Capital Management, Inc.
3301 C Street
Anchorage, Alaska 99503
Diversified Investors International Equity
Fund
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071
Distributor
Diversified Investors Securities Corp.
Four Manhattanville Road
Purchase, NY 10577
Custodian
Investors Bank & Trust Company
89 South Street
Boston, MA 02205-1537
Independent Accountants
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York 10019
40
<PAGE> 84
Diversifed Investors
Funds Group
--------------------
Money Market Fund
High Quality Bond Fund
Government/Corporate Bond Fund
Balanced Fund
Equity Income Fund
Growth and Income Fund
Equity Growth Fund
Special Equity Fund
[LOGO]
DIVERSIFED
INVESTMENT
ADVISORS
<PAGE> 85
This report is not to be construed as an offering for sale of shares of the
Diversifed Investors Funds Group, or as a solicitation as an offer to buy any
such shares unless preceded by or accompanied by a current prospectus which
contains the complete information of charges and expenses.
<PAGE> 86
GROWTH OF $10,000
<TABLE>
Equity
<S> <C> <C> <C>
$10,243 $10,900 $15,414 Special Equity
$10,300 $10,500 $14,427 S&P Index
$10,236 $10,000 $13,516 Equity Income
$10,142 $10,300 $13,609 Growth & Income
$10,455 $11,400 $13,516 Equity Growth
7/1/94 12/31/94 12/31/95
</TABLE>
GROWTH OF $10,000
<TABLE>
Balanced
<S> <C> <C> <C>
$10,300 $10,500 $14,427 S&P Index
$10,250 $10,100 $13,060 Balanced
$10,200 $10,100 $12,028 Lehman Gov/Cap Bond Index
7/1/94 12/31/94 12/31/95
</TABLE>
GROWTH OF $10,000
<TABLE>
Bond
<S> <C> <C> <C>
$10,178 $10,100 $12,158 Gov/Corp Bond
$10,200 $10,100 $12,028 Lehman Gov/Corp Bond Index
$10,037 $10,100 $11,262 High Quality
7/1/94 12/31/94 12/31/95
</TABLE>
The charts shown above represent the growth in value of an assumed investment of
$10,000 in the Diversified Investors Funds Group for the periods shown since
commencement of operations on July 1, 1994 through December 31, 1995. Figures
are based on total rates of return including reinvestment of dividends.
The index data was supplied by The Frank Russell Company. All indices are shown
for the period from June 30, 1994 through December 31, 1995 and reflect total
rates of returns.
Performance is not necessarily indicative of future performance.
1
<PAGE> 87
DIVERSIFIED INVESTORS FUNDS GROUP
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
HIGH GOVERNMENT/
MONEY QUALITY CORPORATE EQUITY GROWTH &
MARKET BOND BOND BALANCED INCOME INCOME
-------- ------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in Diversified Investors Portfolios, at value ...... $ 117,746 $ 77,992 $ 181,897 $ 908,053 $ 596,180 $ 451,018
Receivable for Fund shares sold ............................... 28 29 27 25 1,430 41
Receivable from investment advisor ............................ 3,236 2,717 2,899 0 1,400 909
--------- --------- --------- --------- --------- ---------
Total assets ............................................ 121,010 80,738 184,823 908,078 599,010 451,968
--------- --------- --------- --------- --------- ---------
LIABILITIES:
Payable for Fund shares repurchased ........................... 0 184 191 0 3 3
Accrued expenses:
Professional fees .......................................... 3,400 3,243 3,280 3,717 3,484 3,230
Directors fees ............................................. 0 2,451 2,471 1,986 668 1,024
Insurance .................................................. 1,111 719 762 1,394 1,134 850
Fund accounting fees ....................................... 672 672 672 672 672 672
Reports to shareholders .................................... 1,602 1,602 1,602 1,602 1,602 1,602
12 B-1 fees ................................................ 65 42 86 485 294 212
Registration fees .......................................... 641 641 641 642 641 641
Administrative ............................................. 28 17 39 203 131 96
Payable to investment advisor ................................. 0 0 0 2,026 0 0
--------- --------- --------- --------- --------- ---------
Total liabilities ....................................... 7,519 9,571 9,744 12,727 8,629 8,330
--------- --------- --------- --------- --------- ---------
Net assets .................................................... $ 113,491 $ 71,167 $ 175,079 $ 895,351 $ 590,381 $ 443,638
========= ========= ========= ========= ========= =========
Net assets consist of:
Paid-in capital ............................................ $ 113,500 69,492 167,025 858,080 534,460 455,109
Undistributed net investment income (loss) ................. 0 0 237 0 0 0
Accumulated net realized gain (loss) ....................... (9) 0 0 (164) 77 (485)
Net unrealized appreciation (depreciation) on investments .. 0 1,675 7,817 37,435 55,844 (10,986)
--------- --------- --------- --------- --------- ---------
Net assets .............................................. $ 113,491 $ 71,167 $ 175,079 $ 895,351 $ 590,381 $ 443,638
========= ========= ========= ========= ========= =========
Outstanding shares of capital stock of $.00001 par value per
share, unlimited number of shares of beneficial interest
authorized .................................................. 11,542 6,706 15,091 74,370 45,109 38,683
========= ========= ========= ========= ========= =========
Net asset value per share (net assets divided by shares
outstanding) ................................................ $ 9.83 $ 10.61 $ 11.60 $ 12.04 $ 13.09 $ 11.47
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
EQUITY SPECIAL
GROWTH EQUITY
-------- --------
<S> <C> <C>
ASSETS:
Investment in Diversified Investors Portfolios, at value......... $624,700 $608,831
Receivable for Fund shares sold.................................. 41 50
Receivable from investment advisor............................... 0 0
-------- --------
Total assets............................................... 624,741 608,881
-------- --------
LIABILITIES:
Payable for Fund shares repurchased.............................. 0 3
Accrued expenses:
Professional fees............................................. 1,769 2,915
Directors fees................................................ 0 1,048
Insurance..................................................... 967 727
Fund accounting fees.......................................... 672 672
Reports to shareholders....................................... 1,602 1,602
12 B-1 fees................................................... 317 294
Registration fees............................................. 642 641
Administrative................................................ 136 131
Payable to investment advisor.................................... 319 554
-------- --------
Total liabilities.......................................... 6,424 8,587
-------- --------
Net assets....................................................... $618,317 $600,294
======== ========
Net assets consist of:
Paid-in capital............................................... 587,269 560,300
Undistributed net investment income (loss).................... 0 0
Accumulated net realized gain (loss).......................... (7,927) (1,976)
Net unrealized appreciation (depreciation) on investments..... 38,975 41,970
-------- --------
Net assets................................................. $618,317 $600,294
======== ========
Outstanding shares of capital stock of $.00001 par value per
share, unlimited number of shares of beneficial interest
authorized..................................................... 46,276 43,043
======== ========
Net asset value per share (net assets divided by shares
outstanding)................................................... $ 13.36 $ 13.95
======== ========
</TABLE>
See notes to financial statements.
2
<PAGE> 88
DIVERSIFIED INVESTORS FUNDS GROUP
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HIGH GOVERNMENT/
MONEY QUALITY CORPORATE EQUITY GROWTH &
MARKET BOND BOND BALANCED INCOME INCOME
------- ------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Allocated Net Income from Diversified Investors Portfolios .......... $ 3,561 $ 3,097 $ 4,450 $ 17,743 $ 7,800 $ 2,678
-------- -------- -------- -------- -------- --------
Expenses: (Note 3)
Professional fees .................................................. 4,993 4,394 4,447 5,129 4,804 4,466
Directors fees ..................................................... 4,748 3,525 3,602 4,749 4,227 3,549
Insurance .......................................................... 3,327 2,468 2,498 3,376 2,989 2,506
Fund accounting fees ............................................... 11,322 11,322 11,322 11,322 11,322 11,322
Reports to shareholders ............................................ 2,051 2,051 2,051 2,051 2,051 2,051
12 B-1 fees ........................................................ 145 106 158 1,129 563 448
Registration fees .................................................. 15,141 15,141 15,141 15,141 15,141 15,141
Administrative ..................................................... 174 127 190 1,354 675 538
-------- -------- -------- -------- -------- --------
Total expenses before reimbursement from investment advisor ........ 41,901 39,134 39,409 44,251 41,772 40,021
Reimbursement from investment advisor .............................. 41,610 38,897 39,091 42,396 40,743 39,282
-------- -------- -------- -------- -------- --------
Net expenses ....................................................... 291 237 318 1,855 1,029 739
-------- -------- -------- -------- -------- --------
Net investment income (loss) ........................................ 3,270 2,860 4,132 15,888 6,771 1,939
-------- -------- -------- -------- -------- --------
Realized and unrealized gains (losses) on investments (Note 2)
Net realized gains (losses) on investments ......................... (2) (80) 436 46,806 5,403 60,927
Net increase (decrease) in unrealized appreciation on
investments ....................................................... 0 1,828 7,786 38,415 57,407 (11,518)
-------- -------- -------- -------- -------- --------
Net realized and unrealized gains (losses) on investments .......... (2) 1,748 8,222 85,221 62,810 49,409
-------- -------- -------- -------- -------- --------
Net increase in net assets resulting from operations ................ $ 3,268 $ 4,608 $ 12,354 $101,109 $ 69,581 $ 51,348
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
EQUITY SPECIAL
GROWTH EQUITY
------- -------
<S> <C> <C>
Allocated Net Income from Diversified Investors Portfolios........ $ 1,426 $ 1,409
------- -------
Expenses: (Note 3)
Professional fees................................................ 4,538 4,206
Directors fees................................................... 3,725 2,947
Insurance........................................................ 2,621 2,639
Fund accounting fees............................................. 11,322 11,322
Reports to shareholders.......................................... 2,051 2,051
12 B-1 fees...................................................... 724 622
Registration fees................................................ 15,141 15,141
Administrative................................................... 869 747
------- -------
Total expenses before reimbursement from investment advisor...... 40,991 39,675
Reimbursement from investment advisor............................ 40,157 37,802
------- -------
Net expenses..................................................... 834 1,873
------- -------
Net investment income (loss)...................................... 592 (464)
------- -------
Realized and unrealized gains (losses) on investments (Note 2)
Net realized gains (losses) on investments....................... 3,954 47,480
Net increase (decrease) in unrealized appreciation on
investments..................................................... 33,374 40,739
------- -------
Net realized and unrealized gains (losses) on investments........ 37,328 88,219
------- -------
Net increase in net assets resulting from operations.............. $37,920 $87,755
======= =======
</TABLE>
See notes to financial statements.
3
<PAGE> 89
DIVERSIFIED INVESTORS FUNDS GROUP
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HIGH GOVERNMENT/
MONEY QUALITY CORPORATE EQUITY
MARKET BOND BOND BALANCED INCOME
-------- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss)................................... $ 3,270 $ 2,860 $ 4,132 $ 15,888 $ 6,771
Net realized gains (losses) on investments..................... (2) (80) 436 46,806 5,403
Net increase (decrease) in unrealized appreciation on
investments.................................................. 0 1,828 7,786 38,415 57,407
-------- ------- ----------- -------- --------
Net increase in net assets resulting from operations........... 3,268 4,608 12,354 101,109 69,581
-------- ------- ----------- -------- --------
Dividends and distributions to shareholders from:
Net investment income.......................................... (3,270) (2,860) (3,895) (15,888) (6,771)
Net realized gains from investment transactions................ 0 0 (616) (33,999) (1,606)
Tax return of capital distribution............................. (20) (32) 0 (7,809) (3,588)
-------- ------- ----------- -------- --------
Total dividends and distributions.............................. (3,290) (2,892) (4,511) (57,696) (11,965)
-------- ------- ----------- -------- --------
From capital share transactions:
Proceeds from issuance of shares............................... 163,096 57,142 141,520 673,479 474,260
Proceeds from dividends reinvested............................. 3,290 2,892 4,511 57,696 11,965
Value of shares redeemed....................................... (77,965) (11,455) (1,732) (30,866) (24,315)
-------- ------- ----------- -------- --------
Net increase from capital share transactions................... 88,421 48,579 144,299 700,309 461,910
-------- ------- ----------- -------- --------
Total increase in net assets...................................... 88,399 50,295 152,142 743,722 519,526
Net assets:
Beginning of year.............................................. 25,092 20,872 22,937 151,629 70,855
-------- ------- ----------- -------- --------
End of year (including undistributed net investment income of
$237 in the Government/Corporate Bond Fund).................. $113,491 $71,167 $ 175,079 $895,351 $590,381
======== ======= ========= ======== ========
Shares beginning of year.......................................... 2,611 2,115 2,315 15,087 7,133
Shares issued during year......................................... 16,358 5,398 12,536 56,925 39,030
Shares received for reinvestment of dividends and distributions... 335 274 393 4,880 929
Shares redeemed during year....................................... (7,762) (1,081) (153) (2,522) (1,983)
-------- ------- ----------- -------- --------
Shares outstanding end of year.................................... 11,542 6,706 15,091 74,370 45,109
======== ======= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
GROWTH EQUITY SPECIAL
&INCOME GROWTH EQUITY
-------- -------- --------
<S> <C> <C> <C>
From operations:
Net investment income (loss)................................... $ 1,939 $ 592 $ (464)
Net realized gains (losses) on investments..................... 60,927 3,954 47,480
Net increase (decrease) in unrealized appreciation on
investments....................................................... (11,518) 33,374 40,739
-------- -------- --------
Net increase in net assets resulting from operations........... 51,348 37,920 87,755
-------- -------- --------
Dividends and distributions to shareholders from:
Net investment income.......................................... (1,939) (592) 0
Net realized gains from investment transactions................ (30,065) 0 (34,337)
Tax return of capital distribution............................. (31,070) (3,456) (13,116)
-------- -------- --------
Total dividends and distributions.............................. (63,074) (4,048) (47,453)
-------- -------- --------
From capital share transactions:
Proceeds from issuance of shares............................... 366,911 485,033 429,750
Proceeds from dividends reinvested............................. 63,074 4,048 47,453
Value of shares redeemed....................................... (35,096) (25,006) (4,916)
-------- -------- --------
Net increase from capital share transactions................... 394,889 464,075 472,287
-------- -------- --------
Total increase in net assets...................................... 383,163 497,947 512,589
Net assets:
Beginning of year.............................................. 60,475 120,370 87,705
-------- -------- --------
End of year (including undistributed net investment income of
$237 in the Government/Corporate Bond Fund).................. $443,638 $618,317 $600,294
======== ======== ========
Shares beginning of year.......................................... 5,918 10,602 8,155
Shares issued during year......................................... 30,176 37,337 31,730
Shares received for reinvestment of dividends and distributions... 5,629 317 3,534
Shares redeemed during year....................................... (3,040) (1,980) (376)
-------- -------- --------
Shares outstanding end of year.................................... 38,683 46,276 43,043
======== ======== ========
</TABLE>
See notes to financial statements.
4
<PAGE> 90
DIVERSIFIED INVESTORS FUNDS GROUP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, FOR THE PERIOD JULY 1, 1994* THROUGH DECEMBER 31,
1994 1994
------------ -----------------------------------------------------
HIGH GOVERNMENT/
MONEY QUALITY CORPORATE EQUITY GROWTH &
MARKET BOND BOND BALANCED INCOME INCOME
------------ ------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss)....................... $ 1,711 $ 390 $ 451 $ 998 $ 632 $ 164
Net realized gains (losses) on investments......... (7) (143) (296) (57) (87) (451)
Net increase (decrease) in unrealized appreciation
on investments................................... -- (153) 31 (980) (1,563) 532
------------ ------- ----------- -------- ------- --------
Net increase (decrease) in net assets resulting
from operations.................................. 1,704 94 186 (39) (1,018) 245
------------ ------- ----------- -------- ------- --------
Dividends and distributions to shareholders from:
Net investment income.............................. (1,711) (390) (451) (998) (632) (164)
Net realized gains from investment transactions.... -- -- -- -- -- --
Tax return of capital distribution................. (3) (15) (3) (321) (4) (2)
------------ ------- ----------- -------- ------- --------
Total dividends and distributions.................. (1,714) (405) (454) (1,319) (636) (166)
------------ ------- ----------- -------- ------- --------
From capital share transactions:
Proceeds from issuance of shares................... 110,912 20,778 22,751 152,847 71,873 60,230
Proceeds from dividends reinvested................. 1,714 405 454 1,319 636 166
Value of shares redeemed........................... (87,524) -- -- (1,179) -- --
------------ ------- ----------- -------- ------- --------
Net increase from capital share transactions....... 25,102 21,183 23,205 152,987 72,509 60,396
------------ ------- ----------- -------- ------- --------
Total increase in net assets........................... 25,092 20,872 22,937 151,629 70,855 60,475
Net Assets:
Beginning of period................................ -- -- -- -- -- --
------------ ------- ----------- -------- ------- --------
End of period...................................... $ 25,092 $20,872 $22,937 $151,629 $70,855 $60,475
============ ======= =========== ======== ======= ========
Shares issued during period............................ 11,068 2,074 2,269 15,072 7,069 5,902
Shares received for reinvestment of dividends and
distributions........................................ 178 41 46 132 64 16
Shares redeemed during period.......................... (8,635) -- -- (117) -- --
------------ ------- ----------- -------- ------- --------
Shares outstanding end of period....................... 2,611 2,115 2,315 15,087 7,133 5,918
============ ======= =========== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
EQUITY SPECIAL
GROWTH EQUITY
-------- -------
<S> <C> <C>
From operations:
Net investment income (loss)....................... $ (79) $ 11
Net realized gains (losses) on investments......... (1,160) 1,061
Net increase (decrease) in unrealized appreciation
on investments................................... 5,601 1,231
-------- -------
Net increase (decrease) in net assets resulting
from operations.................................. 4,362 2,303
-------- -------
Dividends and distributions to shareholders from:
Net investment income.............................. -- (3)
Net realized gains from investment transactions.... -- (757)
Tax return of capital distribution................. (45) --
-------- -------
Total dividends and distributions.................. (45) (760)
-------- -------
From capital share transactions:
Proceeds from issuance of shares................... 116,032 85,401
Proceeds from dividends reinvested................. 45 761
Value of shares redeemed........................... (24) --
-------- -------
Net increase from capital share transactions....... 116,053 86,162
-------- -------
Total increase in net assets........................... 120,370 87,705
Net Assets:
Beginning of period................................ -- --
-------- -------
End of period...................................... $120,370 $87,705
======== =======
Shares issued during period............................ 10,600 8,082
Shares received for reinvestment of dividends and
distributions........................................ 4 73
Shares redeemed during period.......................... (2) --
-------- -------
Shares outstanding end of period....................... 10,602 8,155
======== =======
</TABLE>
- ------------
* Commencement of operations.
See notes to financial statements.
5
<PAGE> 91
DIVERSIFIED INVESTORS FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Diversified Investors Funds Group (the "Trust"), a Massachusetts
business trust, is registered under the Investment Company Act of 1940 (the
"1940 Act"), as amended, as an open-end management investment company. The Trust
is composed of eight different series that are, in effect, separate investment
funds: the Money Market Fund, the High Quality Bond Fund, the
Government/Corporate Bond Fund, the Balanced Fund, the Equity Income Fund, the
Growth & Income Fund, the Equity Growth Fund and the Special Equity Fund
(collectively, the "Funds"). The Trust established and designated each of the
Funds as separate series on April 23, 1993. The Trust established and designated
three additional series, i.e. the Intermediate Government Bond Fund, the
High-Yield Bond Fund and the International Equity Fund on October 2, 1995. These
new Funds have not yet commenced operations. Each Fund seeks to achieve its
investment objective by investing all of its investable assets in a
corresponding series of Diversified Investors Portfolios (the "Series
Portfolio"). The Series Portfolio is an open-end management investment company
registered under the 1940 Act.
At December 31, 1995, each Fund's investment in the corresponding Series
Portfolios were as follows:
<TABLE>
<CAPTION>
FUND PERCENTAGE INVESTMENT IN SERIES PORTFOLIO
---- -----------------------------------------
<S> <C>
Money Market.............................. 0.08%
High Quality Bond......................... 0.05
Government/Corporate Bond................. 0.05
Balanced.................................. 0.54
Equity Income............................. 0.08
Growth & Income........................... 0.36
Equity Growth............................. 0.28
Special Equity............................ 0.19
</TABLE>
The financial statements of the Series Portfolio, including the Schedule of
Portfolio Investments, are contained elsewhere in this report and should be read
in conjunction with the Funds' financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATION:
The value of each Fund's investment in a corresponding series of the Series
Portfolio reflects that Fund's proportional interest in the net assets of the
corresponding series of the Series Portfolio.
Valuation of the securities held by the Series Portfolio is discussed in
Note 2A of the Series Portfolio's notes to financial statements which are
included elsewhere in this report.
B. INVESTMENT INCOME:
Each Fund earns income, net of expenses, daily on its investment in a
corresponding series of the Series Portfolio. All of the net investment income
and realized and unrealized gains and losses from the security transactions of
the Series Portfolio are allocated pro rata among the investors at the time of
such determination.
6
<PAGE> 92
DIVERSIFIED INVESTORS FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
C. ORGANIZATION EXPENSES:
Costs incurred by the Funds in connection with their organization and
initial registration were borne by Diversified Investment Advisors, Inc. (the
"Advisor").
D. DIVIDENDS AND DISTRIBUTION:
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Dividends from net investment income and distributions from net realized
capital gains will normally be declared annually and reinvested in additional
full and fractional shares.
Dividends and distributions are determined in accordance with U.S. federal
income tax regulations which may differ from generally accepted accounting
principles. For the year ended December 31, 1995 and 1994, distributions in
excess of tax basis earnings and profits were reported in the financial
statements as returns of capital.
E. FEDERAL INCOME TAXES:
Each Fund is a separate entity for federal income tax purposes and intends
to comply with the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its taxable income to
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund indicated below has capital loss
carryforwards at December 31, 1995 which are available to offset future realized
capital gains, if any:
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
------------ ----------
<S> <C> <C>
Equity Growth Fund 578 2002
7,214 2003
</TABLE>
F. OPERATING EXPENSES:
The Trust accounts separately for the assets, liabilities and operations of
each Fund. Expenses directly attributable to a Fund are charged to that Fund,
while expenses attributable to all Funds are allocated among them.
G. OTHER:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
3. FEES AND TRANSACTIONS WITH AFFILIATES
The Trust has entered into an Administrative Services Agreement with the
Advisor, an indirect, wholly-owned subsidiary of AEGON USA, Inc., under which
the Advisor provides administration, transfer agency and shareholder services.
For providing these services, facilities and for bearing the related expenses,
the Advisor receives a monthly fee from each Fund at an annual rate equal to
0.30% of the average daily net assets of each Fund during the month. The Advisor
has voluntarily undertaken to reimburse expenses of the Funds, to the extent
necessary, to limit expenses to a rate equal to the percentages specified in the
table below of the corresponding Funds' average daily net assets, excluding
7
<PAGE> 93
DIVERSIFIED INVESTORS FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FEES AND TRANSACTIONS WITH AFFILIATES--(CONTINUED)
the expenses of the Portfolio. The limit on expense of the Portfolios can be
found in Note 3 of their financial statement contained elsewhere in this report.
For the year ended December 31, 1995, the Advisor has voluntarily undertaken
to reimburse fees in accordance with the expense caps as follows:
<TABLE>
<CAPTION>
FUND EXPENSE CAP
---- -----------
<S> <C>
Money Market......................................... 50 basis points (b.p.)
High Quality Bond.................................... 60 b.p.
Government/Corporate Bond............................ 60 b.p.
Balanced............................................. 60 b.p.
Equity Income........................................ 50 b.p.
Growth & Income...................................... 50 b.p.
Equity Growth........................................ 50 b.p.
Special Equity....................................... 65 b.p.
</TABLE>
The Trust has also entered into a Distribution Agreement with Diversified
Investors Securities Corp. (the "Distributor"), a wholly-owned subsidiary of the
Advisor. Pursuant to Rule 12b-1 of the 1940 Act, the Distributor may receive a
fee from each Fund at an annual rate not to exceed 0.25% of the Fund's average
daily net assets as reimbursement for expenses incurred in connection with the
sale of shares of the Fund. The aggregate distribution fees incurred by the
Funds amounted to $3,895 for the year ended December 31, 1995.
Each of the Funds are subject to such limitations as may from time to time
be imposed by the Blue Sky Laws of states in which each of the Funds sells it
shares. Currently, the most restrictive jurisdiction imposes expense limitations
of 2.5% of the first $30,000,000 of the average daily net assets, 2.0% of the
next $70,000,000, and 1.5% of any excess over $100,000,000.
Certain trustees and officers of the Trust 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 Trust. Similarly, none of
the Trust's officers receive compensation from the Funds. Aggregate remuneration
incurred to non-affiliated trustees of the Trust for the year ended December 31,
1995 amounted to $31,072.
8
<PAGE> 94
DIVERSIFIED INVESTORS FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
HIGH QUALITY GOVERNMENT/ EQUITY
MONEY MARKET BOND CORPORATE BOND BALANCED INCOME
------------------- ------------------- -------------------- -------------------- --------
1995 1994 1995 1994* 1995 1994* 1995 1994* 1995
-------- ------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period. $ 9.61 $ 10.00 $ 9.87 $ 10.00 $ 9.91 $ 10.00 $ 10.05 $ 10.00 $ 9.93
-------- ------- ------- -------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment
income............. 0.31 0.66 0.42 0.18 0.30 0.19 0.24 0.07 0.16
Net gains on
investments (both
realized and
unrealized)...... 0.22 (0.39) 0.74 (0.12) 1.71 (0.09) 2.61 0.07 3.28
-------- ------- ------- -------- -------- -------- -------- -------- --------
Total from investment
operations.......... 0.53 0.27 1.16 0.06 2.01 0.10 2.85 0.14 3.44
-------- ------- ------- -------- -------- -------- -------- -------- --------
Less: Dividends and
distributions from:
Net investment
income............. (0.31) (0.66) (0.42) (0.18) (0.28) (0.19) (0.24) (0.07) (0.16)
Net realized gain on
investments........ -- -- -- -- (0.04) -- (0.51) -- (0.04)
Tax return of
capital............ -- -- -- (0.01) -- -- (0.11) (0.02) (0.08)
-------- ------- ------- -------- -------- -------- -------- -------- --------
Total from dividends
and distributions... (0.31) (0.66) (0.42) (0.19) (0.32) (0.19) (0.86) (0.09) (0.28)
-------- ------- ------- -------- -------- -------- -------- -------- --------
Net asset value, end
of period........... $ 9.83 $ 9.61 $ 10.61 $ 9.87 $ 11.60 $ 9.91 $ 12.04 $ 10.05 $ 13.09
======== ======= ======= ======== ======== ======== ======== ======== ========
Ratios/supplemental
data:
Net assets end of
period.............. $113,491 $25,092 $71,167 $ 20,872 $175,079 $ 22,937 $895,351 $151,629 $590,381
Ratio of expenses to
average net assets,
including expenses of
the Portfolio....... 67.48% 59.21% 91.16% 284.62%** 56.91% 257.24%** 9.95% 71.47%** 17.88%
Ratio of expenses to
average net assets,
including expenses of
the Portfolio (net of
reimbursement)...... 0.76% 0.51% 1.00% 0.55%** 0.85% 0.54%** 0.87% 0.49%** 0.90%
Ratio of net
investment income to
average net assets.. (61.47%) (55.80%) (83.53%) (279.12%)** (50.11%) (251.51%)** (5.68%) (68.13%)** (14.15%)
Ratio of net
investment income to
average net assets
(net of
reimbursement)...... 5.24% 2.90% 6.63% 4.96%** 5.92% 5.18%** 3.40% 2.86%** 2.82%
Total return.......... 5.50% 3.45% 11.85% 0.67% 20.30% 1.10% 28.47% 1.43% 34.62%
</TABLE>
<TABLE>
<CAPTION>
GROWTH & EQUITY SPECIAL
INCOME GROWTH EQUITY
-------------------- -------------------- -------------------
1994* 1995 1994* 1995 1994* 1995 1994*
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $ 10.00 $ 10.22 $ 10.00 $ 11.35 $ 10.00 $ 10.75 $ 10.00
-------- -------- -------- -------- -------- -------- -------
Income from investment
operations:
Net investment
income............. 0.09 0.06 0.03 0.01 (0.01) 0.0 --
Net gains on
investments (both
realized and
unrealized)...... (0.07) 3.18 0.22 2.09 1.36 4.43 0.84
-------- -------- -------- -------- -------- -------- -------
Total from investment
operations.......... 0.02 3.24 0.25 2.10 1.35 4.43 0.84
-------- -------- -------- -------- -------- -------- -------
Less: Dividends and
distributions from:
Net investment
income............. (0.09) (0.06) (0.03) (0.01) -- -- --
Net realized gain on
investments........ -- (0.95) -- -- -- (0.89) (0.09)
Tax return of
capital............ -- (0.98) -- (0.08) -- (0.34) --
-------- -------- -------- -------- -------- -------- -------
Total from dividends
and distributions... (0.09) (1.99) (0.03) (0.09) -- (1.23) (0.09)
-------- -------- -------- -------- -------- -------- -------
Net asset value, end
of period........... $ 9.93 $ 11.47 $ 10.22 $ 13.36 $ 11.35 $ 13.95 $ 10.75
======== ======== ======== ======== ======== ======== =======
Ratios/supplemental
data:
Net assets end of
period.............. $ 70,855 $443,638 $ 60,475 $618,317 $120,370 $600,294 $87,705
Ratio of expenses to
average net assets,
including expenses of
the Portfolio....... 106.54%** 21.71% 140.33%** 14.34% 70.79%** 15.76% 99.91%**
Ratio of expenses to
average net assets,
including expenses of
the Portfolio (net of
reimbursement)...... 0.42%** 1.03% 0.43%** 1.01% 0.42%** 1.33% 0.54%**
Ratio of net
investment income to
average net assets.. (103.39%)** (19.66%) (138.93%)** (13.13%) (71.00%)** (14.58%) (99.33%)**
Ratio of net
investment income to
average net assets
(net of
reimbursement)...... 2.74%** 1.02% 0.97%** 0.20% (0.21%)** (0.18%) 0.04%**
Total return.......... 0.24% 32.11% 2.49% 18.50% 13.58% 41.50% 8.54%
</TABLE>
- ------------
* For the period July 1, 1994 (commencement of operations) through December 31,
1994
** Annualized
9
<PAGE> 95
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Owners of Beneficial Interests of the
Diversified Investors Funds Group:
We have audited the accompanying statements of assets and liabilities of
Diversified Investors Funds Group (comprising, respectively, the Money Market
Fund, High Quality Bond Fund, Government/Corporate Bond Fund, Balanced Fund,
Equity Income Fund, Growth & Income Fund, Equity Growth Fund and Special Equity
Fund) (collectively the "Trust") as of December 31, 1995, and the related
statements of operations for the year then ended, and the statements of changes
in net assets and the financial highlights for each of the two years in the
period then ended, except for the High Quality Bond Fund, Government/Corporate
Bond Fund, Balanced Fund, Equity Income Fund, Growth & Income Fund, Equity
Growth Fund and Special Equity Fund, for which the periods were for the year
ended December 31, 1995 and for the period from July 1, 1994 (commencement of
operations) to December 31, 1994. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. Our procedures included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of securities owned
as of December 31, 1995, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the Funds constituting Diversified Investors Funds Group as of December
31, 1995, the results of their operations for the year then ended and the
changes in their net assets and the financial highlights for the periods
referred to above, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 20, 1996
10
<PAGE> 96
ECONOMIC AND MARKET REVIEW
The fourth quarter of 1995 was the grand finale to a year that displayed
extraordinary performance in the financial markets despite a slowing economic
tempo. The stock market, as measured by the S&P 500 Index, had a banner year by
posting a total return of 37.5%, its best return since 1958. Likewise, the bond
market, as measured by the Lehman Brothers Government/Corporate Index, enjoyed
its best return since 1985 by exhibiting a 19.3% return. This was in sharp
contrast to 1994, when the bond market suffered its worst return since 1969.
The catalyst which propelled the financial markets to new heights was
primarily an economy that did not grow rapidly, but rather at a modest pace,
which kept inflationary pressures minimal as measured by the Consumer Price and
Producer Price Indices. This "soft landing" scenario enabled interest rates to
fall throughout the yield curve. In fact, the yield on the 30 year Treasury Bond
fell 1.93% from 7.88% in December 1994 to 5.95% in December 1995. 1995 saw the
Federal Reserve change gears on its monetary policy from a tightening stance to
an easing as it reduced rates by 25 basis points in July and December. The stock
market took the lead from the bond market and reached new highs. Stocks were
also helped by very strong corporate earnings reports, based substantially on
productivity gains, and by a record year of mergers and acquisitions.
The only phenomenon to repeat from 1994 was the underperformance of the
small company stocks relative to their brethren large company stocks. This was
due to two factors. First, investors favored large multi-national corporations,
which benefited from a favorable currency scenario during the earlier part of
the year. Second, investors took a defensive posture toward the end of the year,
as they became concerned that the economy was slowing faster than anticipated
and that strong corporate earnings would not be sustained in the upcoming
quarters.
Finance was the best performing sector during the year. Falling interest
rates and significant consolidation were the primary reasons for the gains. For
the second year in a row, the consumer non-cyclical sector excelled as investors
favored drug stocks. The performance of these stocks was attributable to
strategic alliances and mergers, an abundance of new products in development,
and their ability to deliver consistent profits in an uncertain economic
environment.
Two sectors are worth noting. Technology, went from being the best performer
in the first three quarters, as earnings surged, to the worst performer in the
fourth quarter as disappointments mounted. Energy, is the other notable sector,
and it followed the exact opposite trend. A cold fall, early winter and higher
oil prices boosted this sector's results late in the year.
MONEY MARKET PORTFOLIO
The Federal Reserve successfully achieved its soft landing-slow growth goals
in 1995. Its proactive moves in 1994 to stem inflation were successful and
created a strong level of confidence in the Fed's ability to keep inflation
under control. This created an atmosphere that allowed long term interest rates
to drop. And, as the Fed became comfortable that balance was achieved, it
reduced the Fed Fund rate from 6.0% to 5.75%, signaling a more neutral policy.
As the end of 1995 approached, economic signs pointed to a sluggish economy and
the Federal Reserve eased rates another 25 basis points in December to end the
year with a Fed Funds rate of 5.50%.
From slow Christmas sales and other generally sluggish economic indicators,
it appears that 1996 will be at the slower end of the slow growth goal, making
it likely that the Federal Reserve will continue to ease short-term interest
rates in 1996. We expect the economy to continue to appear sluggish in 1996, and
for the Fed to continue easing interest rates through the end of the year. By
the end of 1996, interest rates could be as low as 4.50%.
The interest rate curve remains inverted with one month maturity investments
yielding more than the six month investments. The fear of interest rate
reductions creates the need to manage the Portfolio on a balanced basis. Short
maturity investments take advantage of current higher interest rates, while
11
<PAGE> 97
longer term investments, when not fully pricing in anticipated Fed easing, are
purchased to protect against interest rates falling even more precipitously. The
average maturity of the Portfolio has lengthened to 48.6 days as of December 29,
1995.
The Portfolio continues to be invested in high quality short-term
instruments, principally commercial paper. Our investment strategy is to
emphasize purchases of 30-90 day maturities to provide flexibility to respond to
any changes in the market place without sacrificing current income. The 30-day
and 7-day current yields of the Portfolio were 5.56% and 5.56%, respectively, as
of December 29, 1995.
HIGH QUALITY BOND PORTFOLIO
The last quarter of 1995 was indicative of what transpired for the year
ended 1995. The 30 year Treasury bond returned almost 9% and 33.5% for the
quarter and year, respectively, while the 90 day Treasury bill returned 1.4% and
almost 6% for the quarter and year, respectively. This is quite a difference
from year end 1994, which was the worst bond market since 1969.
The fourth quarter of 1995 was overshadowed by the balanced budget debate
between the White House and Congress. Although this was temporarily resolved
during November, the debate resurfaced in the later part of December. Despite
this, the Federal Open Market Committee (FOMC) met on December 19, and decided
to lower the Federal Funds rate by 25 basis points, to 5.50%. Federal Reserve
Chairman Greenspan stated that inflation has been somewhat more favorable than
originally anticipated. Economic indicators continued to show low inflation,
weakness in the housing, manufacturing, and retail sectors. Weak employment
reports also drove the actions by the Federal Reserve Board.
Throughout the fourth quarter, Treasury yields were driven lower across the
entire maturity spectrum. However, in November, the yield curve experienced a
slight inversion in the short end of the yield curve. At the end of the year,
the yield curve still remained inverted, with the one month maturity investments
yielding more than the six month.
Assets with longer-term maturities continued to outperform the shorter-term
maturities. Overall, corporates outperformed Treasuries and mortgages followed
by Yankees and asset-backed securities.
Looking forward to 1996, Merganser is expecting a sluggish economy with
gross domestic product (GDP) between 2%-2.5%. We even may see a slight downward
turn in the first quarter GDP due to the inclement weather and the partial
Government shutdown. CPI and PPI continue to indicate that inflation is
non-existent. It is anticipated that the Fed will ease again in the near term.
It will be hard to determine the Fed's next move utilizing economic data. Due to
the partial Government shutdown, economic data is simply not available.
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
The fourth quarter of 1995 saw a continuation of above average returns for
securities in this sector of the bond market. The Lehman Brothers Intermediate
Government Bond Index posted a 3.3% return for the three month period ended
December 31. 1995's performance of 14.4% represents the highest calendar
performance in 10 years.
During the quarter, the Federal Reserve once again cut short-term interest
rates citing minimal inflationary pressures in the economy as well as a slowing
in real business activity. Consumer Price Index and Producer Price Index reports
released during the period confirmed that prices were not trending higher. At
the same time, industrial production and capacity utilization levels fell, autos
were selling far slower than had been anticipated and retailers generally
reported sales levels well below what they had hoped for.
12
<PAGE> 98
The on-going budget debate in Washington resulted in a partial shutdown and
reopening of government functions in November and another partial shutdown in
December. A compromise that includes real deficit reduction through reduced
government spending would be a positive for bondholders. Less government
issuance would not only decrease supply in the marketplace but may also help to
keep inflation at acceptable levels.
For most of the quarter the Portfolio was slightly longer in duration than
its benchmark, the Lehman Brothers Intermediate Index. As the year ended, it was
being managed closer to that of the Index and will be kept there until
negotiations in Washington are completed. Although returns for the coming
quarters may not be as high as those of 1995, the outlook for bonds remains
positive.
GOVERNMENT/CORPORATE BOND PORTFOLIO
The rally in bonds that began in November 1994 remained intact through the
final quarter of 1995. Bonds, as measured by the Lehman Brothers Government/
Corporate Index, returned 4.7% for the quarter. This brought the total return
for 1995 to 19.2 %, the strongest calendar year performance since 1985.
Favorable conditions in bonds remained in place during the most recent
quarter. Evidence of a slowing economy and little sign of inflationary pressure
caused rates to be pushed lower, especially for securities with longer
maturities. As measured by the Consumer Price Index, prices paid by consumers
increased roughly 2% for the year, while producers paid just under 2% more for
their raw materials. Meanwhile, although some sectors of the economy showed some
signs of life at year-end, most sectors pointed toward slower growth in the
months ahead. For example, retail sales were much softer than had been
anticipated, especially during the holiday season. Auto sales were weaker than
expected and industrial production levels fell as manufacturers were operating
below full capacity. The Federal Reserve lowered the Fed Funds rate by 25 basis
points on December 18, as it acknowledged the slowdown in economic growth
coupled with minimal inflationary pressures.
The budget debate between the White House and the Republican controlled
Congress also received a lot of attention from the bond market. Early signs that
an agreement would be reached caused traders to push bond prices higher.
However, the negotiations broke down leading to the furlough of "non-essential"
government workers in November and December. The December shutdown stopped the
release of most of the government supplied economic data that traders use to
gauge the direction of the economy. Until the flow of this data resumes, traders
may be less likely to push bond prices higher.
The Portfolio was longer in duration than its benchmark, the Lehman Brothers
Government/ Corporate Index, when the quarter began. However, as the year ended
it was managed down to a duration closer to the Index. It will be kept there
until events settle in Washington and new trends are identified.
BALANCED PORTFOLIO
The stock and bond markets continued their advance in the fourth quarter as
the S&P 500 and the Lehman Government/Corporate Bond Indices returned 6.0% and
4.7%, respectively. These returns capped off a year that was one of the best in
recent history for the financial markets. For the year, the S&P 500 Index
returned 37.5%, its best year since 1958, while the 19.2% return for the Lehman
Index was its best since 1985. For the fourth quarter, the key drivers of the
financial markets were optimism for a budget resolution, lower interest rates,
and earnings reports that were, on balance, better than expected.
Asset allocation, bond return, and stock return were the major determinants
of fourth quarter performance for the Balanced Portfolio. Throughout most of the
quarter, the Portfolio continued to maintain a conservative asset allocation
relative to its benchmark. The equity exposure of the Portfolio averaged about
3% less than that of the benchmark, which detracted from total return in an
13
<PAGE> 99
environment where stocks continued to outperform bonds. Moreover, the
conservative posture of the Portfolio's fixed income segment was a slight
detractor from performance. The Portfolio's emphasis on safety and quality
during a period where riskier issues generally outperformed was the key factor.
The equity segment of the Portfolio, which had been particularly strong all
year, posted mixed results for the fourth quarter. The best performing groups
were finance and non-cyclical issues. Finance stocks benefited from lower
interest rates and continued merger activity while non-cyclical stocks moved
higher as investors sought out companies whose earnings are largely isolated
from the effects of a slowing economy.
EQUITY INCOME PORTFOLIO
The broad equity market, as measured by the S&P 500 Index, finished the
fourth quarter with a total return of about 6%. This brought to a close one of
the best years in recent history for stock investors as the market posted its
best annual return since the 1950's. Income oriented stock investors also fared
quite well. The Lipper Equity Income Fund Index returned about 5.2% in the
fourth quarter, bringing its 1995 performance to nearly 30%. This was the best
return for this index in its eleven year history. The key catalysts behind the
market's advance in the fourth quarter were optimism for a budget resolution,
lower interest rates, and earnings reports that were, on balance, better than
expected.
The Equity Income Fund posted strong results in the fourth quarter due to
its positions in the more defensive sectors of the market. Sectors such as
utilities and non-cyclicals are viewed as more defensive because these types of
companies have revenue streams which are, to a large extent, isolated from the
effects of a slowing economy. These were the two best performing sectors of the
Portfolio for the fourth quarter.
The utility sector of the Portfolio provided better than market returns due
to an emphasis on electric and telephone companies. Electric utility stocks
offered investors very attractive dividend yields relative to Treasury bonds and
the broad equity market as a whole. The relative safety of these dividend
oriented issues proved to be particularly attractive to investors who sought to
lock in profits for the year and reduce levels of portfolio risk. The
non-cyclical stocks in the Portfolio excelled last quarter after being fairly
strong all year. This group was led by positions in several drug companies which
all moved sharply higher. The key factors behind the advance were new product
offerings, earnings consistency, and merger activity throughout the industry.
GROWTH & INCOME PORTFOLIO
The broad stock market, as measured by the S&P 500 Index, returned 6.0% for
the fourth quarter, capping a banner year for the Index with a return of 37.5%.
This was the Index's best year since 1958, when it posted a return of 43.4%. The
fourth quarter's result was attributable to generally better than expected
earnings reports, a continued slowing of the economy, low interest rates and
moderate inflation. In an effort to boost economic growth, the Federal Reserve
lowered the Fed Funds Rate by 25 basis points in December, adding another spark
to stock returns.
Strong stock selection in the basic industry sector of the Portfolio caused
it to outperform the Index's respective sector's result by approximately 19% for
the quarter. This result was largely attributable to a significant
underweighting in paper, metal and chemical companies which have underperformed
due to minimal inflation pressures and the sluggish demand due to a slowing
economy. The Portfolio was helped by Avery Dennison Corp., Kimberly Clark Corp.
and Praxair, Inc. The main catalyst propelling these stocks was record third
quarter earnings reports.
The consumer cyclical sector also contributed positively to the Portfolio's
result led by Carnival Corp., McDonald's Corp., Rite Aid Corp. and Walgreen Co.
The common element which contributed positively were better than expected
earnings reports. Rite Aid Corp. also benefited from the company announcing that
it will acquire the Revco drug store chain. The Portfolio's underweighting in
retail
14
<PAGE> 100
related stocks helped its relative performance, as the retail sector has been
under pressure due to the extremely competitive environment combined with a
slowdown in consumer spending.
The Portfolio was also helped by outperformances from the consumer
non-cyclical and finance sectors. With the economy showing signs of slowing
down, investors became bearish about the upcoming earnings reports and rotated
into the companies whose earnings are not closely tied to movements of the
economy. As a result, drug, health care and consumer staples stocks outperformed
for the quarter. The finance sector was helped by falling interest rates, which
should continue to bode well for profits.
EQUITY GROWTH PORTFOLIO
Growth investing, as defined by the Russell 1000 Growth Index, posted its
best result in four years with a total return of 37.2%. However, in the fourth
quarter this Index lagged both the Russell Value and the S&P 500 Indices. In
addition, there were disparities within the growth discipline itself as more
aggressive strategies generally lagged the more conservative. For example, the
Lipper Growth and Capital Appreciation Indices lagged the Russell Growth by
about 3% in the fourth quarter as they are indicative of somewhat more
aggressive growth strategies. The Growth Portfolio's strong bias towards
companies with high revenue and earnings growth over the long-term was not
particularly well suited for this type of environment.
The sectors which most influenced the Growth Portfolio's fourth quarter
result were technology and non-cyclicals. Technology remains the largest sector
allocation in the Portfolio due to wireless communications and computer software
and networking investment themes. These issues met with selling pressure in the
fourth quarter due to warnings by management at bellwether companies such as
Nokia, IBM, and Motorola that slowing sales may lead to lower than expected
earnings in the near-term. These announcements created negative sentiment which
affected the entire technology sector. However, the long term prospects for
these industries remain quite favorable as they are still among the fastest
growing industries in the U.S.
The Portfolio's non-cyclical stocks were by far the best performing issues.
This group's relative strength arose from HMO companies, which posted large
gains in reaction to particularly strong earnings. This group also benefited
from market sentiment. In an environment where investors are concerned about a
slowing economy, these types of companies are attractive as the demand for their
products and services is relatively unaffected by macroeconomic factors.
SPECIAL EQUITY PORTFOLIO
Small company stocks, as measured by the Russell 2000 Index, returned 2.2%,
underperforming their brethren large company stocks, which returned 6.0%, as
measured by the S&P 500 Index, for the fourth quarter. This was primarily due to
investors flocking toward the larger, more stable earning companies in the wake
of an uncertain economic and profit outlook for the upcoming quarters. Moreover,
1995 was the second year in a row in which the small company stocks underscored
the larger companies.
The Special Equity Portfolio continued to demonstrate superior results
relative to its peers for both the fourth quarter and 1995 as a whole. The
Portfolio's strong stock selection among the consumer non-cyclical, finance and
industrial sectors were the primary drivers for the quarter's strong result.
The Consumer non-cyclical sector was the Portfolio's best performer during
the quarter by exceeding the Index's respective sector by approximately 10%.
Health care and consumer stocks were the primary catalysts for the strong
result. These stocks not only benefited from company specific events, but from
growing investor sentiment regarding anticipation of an economic slowdown.
Investors flocked to these stocks primarily because they tend to display
consistent earnings despite a slowdown in economic growth.
15
<PAGE> 101
The finance stocks did well because of a falling interest rate environment,
which bodes well for their earnings, and because of the continued consolidation
among banking stocks. The Portfolio was a benefactor of this merger activity as
Charter One Financial, Inc. merged with Firstfed of Michigan Corp., creating the
largest thrift in the Midwest. In addition, Premier Bancorp Inc. was purchased
by Banc One. Also, a potentially favorable tax change in the Congressional
budget, which could save substantial money for the savings and thrift industry,
helped returns of these companies as they become even more attractive as
takeover candidates.
HIGH YIELD BOND PORTFOLIO
The high yield bond market returned 3.1% in the fourth quarter, bringing
full year returns to 19.2%. 1995 represented the third best annual period for
the high yield sector since the inception of market indices in the early 1980's.
Falling interest rates, rising stock prices, and heavy investor demand provided
a steady backwind to the high yield market during the fourth quarter. With both
the S&P 500 and the 10-year Treasury Bond up nearly 6%, and high yield mutual
fund inflows crossing the $2.5B mark, the high yield sector returned a healthy
3.1% (about the same as third quarter). Consistent with the pattern throughout
the year, top rated BB issues outperformed all other quality tiers, returning
4.4% vs. 2.4% for B rated issues and 0.7% for the CCCs. By virtue of their
higher credit quality and longer average duration, BBs enjoyed greater interest
sensitivity and outperformed in synch with treasuries.
With surging debt and equity markets as a backdrop, high yield returns in
1995 were the best since 1991, and the third best ever. While 1996 broad market
returns are likely to prove subdued in comparison, the outlook for the high
yield sector remains positive, particularly relative to other fixed income
alternatives. Moderating economic growth and little inflationary pressure argue
for stable long-term interest rates, which means that returns will consist
principally of income. Given this scenario, the high yield sector should
outperform due to its significant yield advantage over similar duration
instruments.
INTERNATIONAL EQUITY PORTFOLIO
For the fourth quarter, the world's stock markets continued to show strength
as they had for the majority of the year. Whether measured in local currency or
U.S. dollars, 17 of the largest 22 markets were higher. The MSCI EAFE GDP Index
returned 3.50% for the quarter, and 11.62% for the year ending 1995.
Common themes for most of the world's markets during the fourth quarter:
slow economy, little or no concerns about inflation, and a declining interest
rate environment. Gross domestic product (GDP) growth measured against the
previous quarter was lower by about .5% in each of the major areas (USA, Japan,
and Major Europe).
Interest rates around the world continued to decline which, for the year as
a whole, has brought the yields on 10-year governments down by 100 to 200 basis
points. For the fourth quarter, the decline in interest rates was typically
about 50 to 100 basis points, except in Japan, which posted a rise of 22 basis
points.
The dollar was mixed against most major currencies during the fourth
quarter. The dollar gained against the Deutsch mark and yen. For the month of
December, however, the dollar generally declined. Concerns arising out of the
inconclusive budget debate in Washington was the major factor behind the
decline.
The Japanese market finished 1995 on a strong note, even though there were
very few economic statistics to prove that a recovery had actually commenced. In
fact, nominal GDP growth is weaker than at any time since 1931. The logical
explanation for the stock market's strength is a highly stimulative monetary and
fiscal policy which has been pursued since last summer. This may be a turning
point for
16
<PAGE> 102
Japan. The market history of the past 15 years suggests that the strong stock
market may be the best predictor of the economy.
In Europe, economic developments in the fourth quarter were mostly downbeat.
Manufacturing activity contracted, excess inventories having accumulated in the
United Kingdom (UK) and in Germany. The strikes in France during December will
have long-term effects there and in other neighboring countries. Investors in
Europe, however, were obviously focusing on prospects for 1996. Lower interest
rates were an important expectation. In the UK, forward rates were pricing in
additional rate cuts of about 75 basis points by mid-1996. Inflation data are
sufficiently good in Germany that investors widely expect the Bundesbank to
continue permitting small intermittent rate cuts.
17
<PAGE> 103
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
HIGH GOVERNMENT CORPORATE
MONEY MARKET QUALITY BOND BOND BOND BALANCED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at cost............... $141,642,545 $164,768,936 $ 94,192,491 $341,805,334 $198,158,473
------------ ------------ ------------ ------------ ------------
Investments, at market............. $141,642,545 $166,373,100 $ 95,259,796 $357,816,218 $212,478,597
Repurchase agreement, at value..... 56,639 4,459,931 82,793 86,916 5,702,169
Cash............................... 2,636 0 0 1,054 0
Receivable from custodian.......... 0 0 0 0 0
Foreign currency holdings, at value
(cost $693,265)................... 0 0 0 0 0
Receivable for securities sold..... 0 133,800 0 0 837,128
Interest receivable................ 0 2,097,824 761,765 4,277,561 989,678
Dividends receivable............... 0 0 0 0 147,754
Receivable from securities
lending............................ 0 0 2,307 6,231 10,650
Receivable for forward currency
contracts.......................... 0 0 0 0 0
Reimbursement from advisor......... 3,211 532 14,093 1,417 25,732
------------ ------------ ------------ ------------ ------------
Total assets.................. 141,705,031 173,065,187 96,120,754 362,189,397 220,191,708
------------ ------------ ------------ ------------ ------------
LIABILITIES:
Deposit for securities loaned...... 0 0 10,071,250 25,518,850 45,257,850
Payable for securities purchased... 0 453,494 338 0 7,806,862
Payable for forward currency
contracts.......................... 0 0 0 0 0
Accrued expenses:
Investment advisory fees.......... 29,753 48,735 25,897 90,155 60,959
Custody fees...................... 5,633 6,931 5,266 10,998 6,224
Professional fees................. 21,664 21,937 20,085 19,574 20,181
Printing fees..................... 2,971 1,961 998 3,253 1,115
Miscellaneous fees................ 6,762 6,026 5,306 7,157 5,562
------------ ------------ ------------ ------------ ------------
Total liabilities............. 66,783 539,084 10,129,140 25,649,987 53,158,753
------------ ------------ ------------ ------------ ------------
Net assets......................... $141,638,248 $172,526,103 $ 85,991,614 $336,539,410 $167,032,955
============ ============ ============ ============ ============
Net assets consist of:
Paid-in capital................... $141,638,248 $170,921,939 $ 84,924,309 $320,528,526 $152,712,831
Net unrealized appreciation on
investments, and translation of
assets and liabilities in
foreign currencies................. 0 1,604,164 1,067,305 16,010,884 14,320,124
------------ ------------ ------------ ------------ ------------
Net assets.................... $141,638,248 $172,526,103 $ 85,991,614 $336,539,410 $167,032,955
============ ============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
18
<PAGE> 104
<TABLE>
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL HIGH INTERNATIONAL
INCOME INCOME GROWTH EQUITY YIELD BOND EQUITY
- ------------ ------------ ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
$660,136,580 $108,334,032 $216,333,251 $275,177,944 $8,056,922 $ 78,000,625
- ------------ ------------ ------------ ------------ ---------- -------------
$805,216,482 $116,524,886 $255,883,019 $320,663,277 $8,218,968 $ 79,175,541
52,740 18,370,832 9,713,052 21,477,900 0 0
341 0 0 0 818,124 4,575,760
0 0 117,734 0 0 0
0 0 0 0 0 687,767
0 708,217 0 2,909,595 0 162,684
0 0 0 0 186,824 35,859
1,486,610 139,049 98,460 234,431 0 72,106
3,223 1,470 19,961 6,894 0 0
0 0 0 0 0 190,253
2,387 2,967 (1,228) 18,641 10,320 6,191
- ------------ ------------ ------------ ------------ ---------- -------------
806,761,783 135,747,421 265,830,998 345,310,738 9,234,236 84,906,161
- ------------ ------------ ------------ ------------ ---------- -------------
40,890,000 8,425,791 43,316,000 25,513,600 0 0
1,217,191 2,424,207 0 4,096,494 211,375 1,261,434
0 0 0 0 0 29,556
269,680 58,059 121,159 194,740 2,835 143,910
33,745 5,296 6,921 22,690 4,507 11,973
33,478 17,704 18,688 18,458 9,897 7,675
5,904 352 555 1,062 636 1,459
9,255 4,281 5,285 5,469 7,391 3,839
- ------------ ------------ ------------ ------------ ---------- -------------
42,459,253 10,935,690 43,468,608 29,852,513 236,641 1,459,846
- ------------ ------------ ------------ ------------ ---------- -------------
$764,302,530 $124,811,731 $222,362,390 $315,458,225 $8,997,595 $ 83,446,315
============ ============ ============ ============ ========== ============
$619,222,628 $116,620,877 $182,812,622 $269,972,892 $8,835,549 $ 82,111,576
145,079,902 8,190,854 39,549,768 45,485,333 162,046 1,334,739
- ------------ ------------ ------------ ------------ ---------- -------------
$764,302,530 $124,811,731 $222,362,390 $315,458,225 $8,997,595 $ 83,446,315
============ ============ ============ ============ ========== ============
</TABLE>
19
<PAGE> 105
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY HIGH GOVERNMENT CORPORATE
MARKET QUALITY BOND BOND BOND BALANCED
---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividend income........................ $ 0 $ 0 $ 0 $ 0 $ 1,737,553
Interest income........................ 9,420,480 10,560,001 4,881,454 19,315,534 4,608,571
---------- ------------ ------------ ----------- -----------
Total income....................... 9,420,480 10,560,001 4,881,454 19,315,534 6,346,124
---------- ------------ ------------ ----------- -----------
Expenses:
Investment advisory fees............... 391,657 562,958 286,019 1,011,116 639,345
Custody fees........................... 48,971 42,976 38,278 68,817 54,977
Professional fees...................... 25,341 25,441 22,529 25,811 24,073
Printing fees.......................... 3,953 2,942 1,979 4,234 2,096
Miscellaneous fees..................... 22,990 21,477 19,071 23,609 18,621
---------- ------------ ------------ ----------- -----------
Total Expenses..................... 492,912 655,794 367,876 1,133,587 739,112
Expenses waived by the investment
advisor................................. 22,086 9,897 44,808 0 51,146
---------- ------------ ------------ ----------- -----------
Net expenses....................... 470,826 645,897 323,068 1,133,587 687,966
---------- ------------ ------------ ----------- -----------
Net investment income................... 8,949,654 9,914,104 4,558,386 18,181,947 5,658,158
---------- ------------ ------------ ----------- -----------
Net realized and unrealized gains
(losses) on investments:
Net realized gains (losses) on
investments............................. (4,226) (634,835) 379,479 1,365,500 11,609,960
Net realized gains (losses) on foreign
currency transactions................ 0 0 0 0 0
Net unrealized appreciation on
investments............................. 0 7,048,911 5,777,385 29,472,541 17,788,835
Net increase in unrealized appreciation
on translation of assets and
liabilities in foreign currencies.... 0 0 0 0 0
---------- ------------ ------------ ----------- -----------
Net realized and unrealized gains
(losses) on investments................ (4,226) 6,414,076 6,156,864 30,838,041 29,398,795
---------- ------------ ------------ ----------- -----------
Net increase in net assets resulting
from operations........................ $8,945,428 $ 16,328,180 $ 10,715,250 $49,019,988 $35,056,953
========== ============ ============ =========== ===========
</TABLE>
- ------------
* August 22, 1995, Commencement of Operations
** September 29, 1995, Commencement of Operations
# Net of withholding taxes of $25,308
See Notes to Financial Statements.
20
<PAGE> 106
<TABLE>
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL HIGH INTERNATIONAL
INCOME INCOME GROWTH EQUITY YIELD BOND * EQUITY **
- ------------ ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 20,486,295 $ 1,626,970 $ 421,856 $ 1,688,432 $ 0 $ 198,388#
4,278,028 624,447 1,810,218 1,232,053 240,742 66,670
- ------------ ----------- ----------- ----------- ------------ -------------
24,764,323 2,251,417 2,232,074 2,920,485 240,742 265,058
- ------------ ----------- ----------- ----------- ------------ -------------
2,878,308 639,911 1,272,213 2,018,861 11,146 143,910
170,931 42,763 49,087 175,111 9,060 11,973
40,231 20,681 21,131 22,446 9,897 7,675
6,885 1,333 1,536 2,043 636 1,459
32,710 18,191 19,476 20,993 7,390 3,838
- ------------ ----------- ----------- ----------- ------------ -------------
3,129,065 722,879 1,363,443 2,239,454 38,129 168,855
0 28,140 0 82,511 20,785 6,191
- ------------ ----------- ----------- ----------- ------------ -------------
3,129,065 694,739 1,363,443 2,156,943 17,344 162,664
- ------------ ----------- ----------- ----------- ------------ -------------
21,635,258 1,556,678 868,631 763,542 223,398 102,394
- ------------ ----------- ----------- ----------- ------------ -------------
9,847,566 19,009,812 4,768,375 45,159,729 6,659 16,793
0 0 0 0 0 (8,241)
158,219,366 9,319,254 24,304,762 40,748,255 162,046 1,174,916
0 0 0 0 0 159,823
- ------------ ----------- ----------- ----------- ------------ -------------
168,066,932 28,329,066 29,073,137 85,907,984 168,705 1,343,291
- ------------ ----------- ----------- ----------- ------------ -------------
$189,702,190 $29,885,744 $29,941,768 $86,671,526 $392,103 $ 1,445,685
============ =========== =========== =========== ======== ===========
</TABLE>
See Notes to Financial Statements.
21
<PAGE> 107
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
HIGH GOVERNMENT CORPORATE
MONEY MARKET QUALITY BOND BOND BOND BALANCED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
From operations:
Net investment income...... $ 8,949,654 $ 9,914,104 $ 4,558,386 $ 18,181,947 $ 5,658,158
Net realized gains (losses)
on investments........... (4,226) (634,835) 379,479 1,365,500 11,609,960
Net realized gains (losses)
on foreign currency
transactions................ 0 0 0 0 0
Net unrealized appreciation
on investments........... 0 7,048,911 5,777,385 29,472,541 17,788,835
Net increase in unrealized
appreciation on
translation of assets and
liabilities in foreign
currencies.................. 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations... 8,945,428 16,328,180 10,715,250 49,019,988 35,056,953
------------ ------------ ------------ ------------ ------------
From capital transactions:
Proceeds from capital
invested.................... 393,166,782 141,659,639 38,046,469 151,446,357 80,590,418
Value of capital
withdrawn................... 421,983,754 129,457,932 49,408,845 110,912,327 74,123,531
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
net assets resulting from
capital transactions....... (28,816,972) 12,201,707 (11,362,376) 40,534,030 6,466,887
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
net assets................. (19,871,544) 28,529,887 (647,126) 89,554,018 41,523,840
Net assets:
Beginning of year.......... 161,509,792 143,996,216 86,638,740 246,985,392 125,509,115
------------ ------------ ------------ ------------ ------------
End of year................ $141,638,248 $172,526,103 $ 85,991,614 $336,539,410 $167,032,955
============ ============ ============ ============ ============
</TABLE>
- ------------
* August 22, 1995 Commencement of Operations
** September 29, 1995 Commencement of Operations
See notes to financial statements.
22
<PAGE> 108
<TABLE>
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL HIGH INTERNATIONAL
INCOME INCOME GROWTH EQUITY YIELD BOND * EQUITY **
- ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 21,635,258 $ 1,556,678 $ 868,631 $ 763,542 $ 223,398 $ 102,394
9,847,566 19,009,812 4,768,375 45,159,729 6,659 16,793
0 0 0 0 0 (8,241)
158,219,366 9,319,254 24,304,762 40,748,255 162,046 1,174,916
0 0 0 0 0 159,823
- ------------ ------------ ------------ ------------ ------------ -------------
189,702,190 29,885,744 29,941,768 86,671,526 392,103 1,445,685
- ------------ ------------ ------------ ------------ ------------ -------------
231,491,356 93,751,429 93,276,744 113,103,544 9,081,530 86,991,521
245,585,114 93,408,742 49,673,952 101,988,710 476,038 4,990,891
- ------------ ------------ ------------ ------------ ------------ -------------
(14,093,758) 342,687 43,602,792 11,114,834 8,605,492 82,000,630
- ------------ ------------ ------------ ------------ ------------ -------------
175,608,432 30,228,431 73,544,560 97,786,360 8,997,595 83,446,315
588,694,098 94,583,300 148,817,830 217,671,865 0 0
- ------------ ------------ ------------ ------------ ------------ -------------
$764,302,530 $124,811,731 $222,362,390 $315,458,225 $ 8,997,595 $ 83,446,315
============ ============ ============ ============ =========== ============
</TABLE>
23
<PAGE> 109
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
MONEY HIGH INTERMEDIATE GOVERNMENT/
MARKET QUALITY BOND GOVERNMENT BOND CORPORATE BOND BALANCED
------------ ------------ --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
From operations:
Net investment income ................. $ 5,160,230 $ 10,028,083 $ 4,037,896 $ 12,824,729 $ 3,614,958
Net realized gains (losses) on
investments .............................. (9,238) (2,474,325) (286,190) (5,306,941) 425,349
Net increase (decrease) in
unrealized appreciation on
investments .............................. 0 (5,444,747) (4,710,080) (13,461,657) (3,468,711)
------------- ------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ........... 5,150,992 2,109,011 (958,374) (5,943,869) 571,596
------------- ------------- ------------- ------------- -------------
From Capital Transactions:
Proceeds from capital
invested ................................. 439,406,062 324,614,137 118,805,465 292,110,188 212,140,323
Value of capital withdrawn ............ (283,047,262) (182,726,932) (31,208,351) (39,180,927) (87,202,804)
------------- ------------- ------------- ------------- -------------
Net increase in net assets
resulting from capital
transactions ............................. 156,358,800 141,887,205 87,597,114 252,929,261 124,937,519
------------- ------------- ------------- ------------- -------------
Net increase in net assets ............ 161,509,792 143,996,216 86,638,740 246,985,392 125,509,115
Net Assets:
Beginning of period ................... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
End of period ......................... $ 161,509,792 $ 143,996,216 $ 86,638,740 $ 246,985,392 $ 125,509,115
============= ============= ============= ============= =============
</TABLE>
See notes to financial statements.
24
<PAGE> 110
<TABLE>
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL
INCOME INCOME GROWTH EQUITY
- ------------ ------------ ------------ ------------
<S> <C> <C> <C>
$ 18,966,219 $ 1,333,425 $ 105,785 $ 607,963
(3,691,850) (3,271,268) (3,498,589) (4,329,355)
(13,139,464) (1,128,400) 15,245,006 4,737,078
- ------------ ------------ ------------ ------------
2,134,905 (3,066,243) 11,852,202 1,015,686
- ------------ ------------ ------------ ------------
672,360,914 138,102,752 256,748,572 320,045,388
(85,801,721) (40,453,209) (119,782,944) (103,389,209)
- ------------ ------------ ------------ ------------
586,559,193 97,649,543 136,965,628 216,656,179
- ------------ ------------ ------------ ------------
588,694,098 94,583,300 148,817,830 217,671,865
-- -- -- --
- ------------ ------------ ------------ ------------
$588,694,098 $ 94,583,300 $148,817,830 $217,671,865
============ ============ ============ ============
</TABLE>
25
<PAGE> 111
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ------------ ------------ ----------
<C> <S> <C> <C>
COMMERCIAL PAPER
$ 1,000,000 American Express Credit Corp, 5.60%, Due 02/02/96.... $ 994,711
1,000,000 American Express Credit Corp, 5.45%, Due 03/26/96.... 986,829
800,000 Associates Corp of North America, 5.71%, Due
01/22/96............................................. 797,081
2,000,000 Avco Financial Services Canada, 5.76%, Due 01/05/96.. 1,998,080
4,000,000 Avco Financial Services Canada, 5.60%, Due 03/06/96.. 3,958,311
5,000,000 Banco Real SA, 5.62%, Due 04/15/96................... 4,916,481
2,000,000 Bank of New York, 5.83%, Due 01/22/96................ 1,992,551
1,500,000 Bell South Telecom, 5.75%, Due 01/09/96.............. 1,497,605
3,500,000 CIT Group Holdings Inc, 5.80%, Due 01/31/96.......... 3,481,956
3,400,000 CIT Group Holdings Inc, 5.70%, Due 02/09/96.......... 3,377,928
2,000,000 Canadian Imperial Bank, 5.60%, Due 02/20/96.......... 1,983,822
5,000,000 Chevron UK Inc, 5.78%, Due 01/26/96.................. 4,978,325
5,000,000 Colonial Pipeline Company, 5.70%, Due 01/26/96....... 4,978,625
700,000 Colonial Pipeline Company, 5.67%, Due 02/16/96....... 694,708
700,000 Colonial Pipeline Company, 5.62%, Due 02/28/96....... 693,443
6,000,000 Commercial Credit Company, 5.76%, Due 01/16/96....... 5,983,680
3,900,000 Consolidation Coal Company, 5.70%, Due 01/12/96...... 3,891,973
1,300,000 Consolidation Coal Company, 5.79%, Due 01/08/96...... 1,298,118
1,900,000 Cooperative Finance Corp, 5.63%, Due 02/27/96........ 1,882,469
2,100,000 Cooperative Finance Corp, 5.50%, Due 02/27/96........ 2,081,071
4,300,000 Copley Financing Corporation, 5.75%, Due 01/24/96.... 4,282,830
3,092,000 Enterprise Funding Corporation, 5.78%, Due 01/10/96.. 3,086,539
3,000,000 Enterprise Funding Corporation, 5.78%, Due 01/12/96.. 2,993,738
1,000,000 Ford Motor Credit Corporation, 5.75%, Due 01/18/96... 996,965
2,400,000 Ford Motor Credit Corporation, 5.75%, Due 01/18/96... 2,392,716
700,000 Ford Motor Credit Corporation, 5.77%, Due 01/05/96... 699,327
3,200,000 General Electric Capital Corp, 5.75%, Due 01/19/96... 3,189,778
6,000,000 General Motors Acceptance Corp, 5.70%, Due 01/09/96.. 5,990,500
1,100,000 Household Finance Corp, 5.75%, Due 01/12/96.......... 1,097,716
200,000 Household Finance Corp, 5.77%, Due 01/26/96.......... 199,135
1,000,000 Household Finance Corp, 5.71%, Due 01/29/96.......... 995,242
4,000,000 Household Finance Corp--Canada, 5.75%, Due 01/03/96.. 3,997,444
2,800,000 JHM Funding Inc, 5.75%, Due 01/11/96................. 2,794,633
4,000,000 JHM Funding Inc, 5.73%, Due 01/23/96................. 3,984,720
5,000,000 Merrill Lynch and Company Inc, 5.75%, Due 01/24/96... 4,980,035
925,000 Midwest Funding Corp, 5.83%, Due 07/01/22 (a)........ 929,298
2,800,000 Morgan JP & Company, 5.77%, Due 01/08/96............. 2,795,961
5,000,000 National Westminster Bank Plc, 5.73%, Due 01/08/96... 4,992,837
3,600,000 Norwest Corp, 5.72%, Due 01/26/96.................... 3,584,556
6,000,000 Olympic, 5.825%, Due 12/15/96........................ 6,022,981
1,100,000 PHH Corp, 5.74%, Due 01/19/96........................ 1,096,492
1,200,000 PHH Corp, 5.75%, Due 01/23/96........................ 1,195,400
500,000 Rockwell International Corp, 5.70%, Due 01/26/96..... 497,863
1,000,000 Royal Bank of Canada, 5.70%, Due 01/29/96............ 995,250
</TABLE>
See notes to financial statements.
26
<PAGE> 112
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ------------ ------------ ----------
<C> <S> <C> <C>
COMMERCIAL PAPER--(CONTINUED)
$ 6,000,000 Seagram Joseph and Sons Inc, 5.70%, Due 01/18/96..... $ 5,981,950
500,000 Sears Roebuck Acceptance Corp, 5.70%, Due 01/16/96... 498,654
700,000 Sears Roebuck Acceptance Corp, 5.70%, Due 01/29/96... 696,676
3,200,000 Sears Roebuck Acceptance Corp, 5.70%, Due 02/02/96... 3,182,773
2,605,000 Toronto Dominion Bank, 5.68%, Due 01/08/96........... 2,601,301
400,000 Toronto Dominion Bank, 5.97%, Due 01/08/96........... 399,403
6,000,000 Transamerica Commercial Finance--Canada, 5.77%, Due
01/04/96............................................. 5,995,191
5,000,000 Wachovia Bank of N. Carolina, 5.75%, Due 01/11/96.... 5,031,943
------------
Total Commercial Paper (Cost $140,647,614)....... 140,647,614 99.30%
------------ ----------
BANKERS ACCEPTANCES
1,000,000 Republic National Bank New York NY, 5.53%,
Due 02/01/96 (cost $994,931)....................... 994,931 0.70%
------------ ----------
Total Securities (cost $141,642,545)................. 141,642,545 100.00%
------------ ----------
REPURCHASE AGREEMENT
56,630 Repurchase Agreement with Morgan Stanley,
dated 12/29/95, 5.65%, proceeds at maturity
$56,665, due 01/02/96. (Collateralized by US
Treasury Note, 7.25%, due 08/15/04 with a market
value of $57,874) (cost $56,639)................... 56,639 .04%
------------ ----------
Total Investments (cost $141,699,184)................ $141,699,184 100.04%
Liabilities Less Other Assets........................ (60,936) (.04)
------------ ----------
Net Assets........................................... $141,638,248 100.00%
============ ==========
</TABLE>
- ---------
(a) This interest rate is subject to change periodically based on the greater
of the 30 or 90 day Federal composite rate. This instrument resets on a
weekly basis. The rate shown was in effect as of December 31, 1995.
See notes to financial statements.
27
<PAGE> 113
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ------------ ------------ -----------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES
AUTO
$ 655,159 Chrysler Financial Corp 8.65% Due 10/15/96.............. $ 656,640
2,863,011 Ford Motor Company 6.27% Due 01/02/00................... 2,863,808
1,000,000 Ford Motor Credit 7.15% Due 01/26/00.................... 1,045,390
1,010,792 General Motors Acceptance Corp, Grantor Trust 1995-A
7.15% Due 03/15/00.................................... 1,029,401
------------
Total Auto.......................................... 5,595,239 3.24%
------------ -----------
BANKING
1,000,000 Banque National of Paris 9.875% Due 05/25/98............ 1,081,561
5,000,000 Discover Card Master Trust I 93-2A 5.40% Due 11/16/01... 4,989,646
1,000,000 European Investment Bank 6.60% Due 05/15/97............. 1,017,390
3,000,000 First Hawaiian Bank Medium Term Note 7.50%
Due 11/20/96.......................................... 3,038,605
3,523,095 Fleet Finance 1191-A 8.45% Due 04/15/06................. 3,630,089
2,000,000 Korean Development Bank 8.90% Due 03/12/96.............. 2,012,155
3,000,000 Korean Development Bank 7.73% Due 05/05/97.............. 3,072,088
98,730 Rochester Community Savings Bank Grantor Trust 1991-B
6.70% Due 04/15/97.................................... 98,792
391,458 Security Pacific Home Equity Loan 1991-2 8.10%
Due 06/15/20.......................................... 407,277
295,531 Shawmut REMIC Trust 6.40% Due 09/15/96.................. 294,879
2,887,902 Western Finance Grantor Trust 4.60% Due 04/01/99........ 2,859,339
4,000,000 Western Finance Grantor Trust 5.875% Due 03/01/02....... 4,021,237
------------
Total Banking....................................... 26,523,058 15.37%
------------ -----------
BUSINESS MACHINES
3,408,769 IBM Credit Receivable Lease Asset Master Trust 93-1A
4.55% Due 11/15/00.................................... 3,382,488
1,537,529 IBM Credit Receivable Lease Asset Master Trust 6.55%
Due 07/16/01.......................................... 1,567,403
------------
Total Business Machines............................. 4,949,891 2.87%
------------ -----------
CONSTRUCTION
3,655,000 Case Equipment Loan Trust 1194-C A2, 8.10%
Due 06/15/01.......................................... 3,814,575 2.21%
------------ -----------
CREDIT CARDS
2,540,000 First Chicago Master Trust 6.25% Due 08/15/99........... 2.567,888
1,000,000 Household Affinity Credit Card Master Trust 7.00%
Due 12/15/99.......................................... 1,026,650
1,000,000 Maryland Bank of North America Master Credit Card
Trust 1993-3A 5.40% Due 09/15/00...................... 996,190
6,000,000 National Credit Card Trust 1989 9.45% Due 12/31/97...... 6,094,735
5,000,000 Peoples' Bank Credit Card Trust Series 1993-1 4.80%
Due 12/15/99.......................................... 4,986,395
7,000,000 Private Label Credit Card Master Trust 7.15%
Due 06/20/01.......................................... 7,101,074
------------
Total Credit Cards.................................. 22,772,932 13.20%
------------ -----------
</TABLE>
See notes to financial statements.
28
<PAGE> 114
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ------------ ------------ -----------
<C> <S> <C> <C>
FINANCE
$ 1,250,000 Associates Corp of North America 8.89% Due 04/12/98..... $ 1,337,287
2,000,000 Associates Corp of North America 6.46% Due 09/18/00..... 2,047,959
4,000,000 Associates Corp of North America 5.99% Due 12/15/00..... 4,017,317
5,000,000 Carco 1994-3 8.125% Due 10/15/99........................ 5,209,375
1,000,000 British Gas Finance Inc. 8.75% Due 09/15/98............. 1,063,288
1,774,000 General Electric Capital Corp 9.375% Due 06/08/96....... 1,800,610
5,000,000 Lehman Brothers Inc. 7.625% Due 08/01/98................ 5,191,900
725,000 Lehman Medium Term Note 6.08% Due 07/08/98.............. 723,978
595,696 Merrill Lynch Mortgage Investors 10.10% Due 11/15/07.... 647,730
1,045,443 Merrill Lynch Mortgage Investors 10.35% Due 05/15/09.... 1,185,407
645,941 Merrill Lynch Mortgage Investors 9.40% Due 09/15/09..... 715,309
1,560,647 Merrill Lynch Mortgage Investors 9.00% Due 07/15/11..... 1,650,898
4,000,000 Navistar Finance 6.55% Due 11/20/01..................... 4,054,956
1,000,000 Norwest Financial 6.00% Due 08/15/97.................... 1,006,692
3,595,252 Resolution Trust Corp. 7.00% Due 02/15/04............... 3,612,487
2,347,954 Resolution Trust Corp. 6.77% Due 07/25/25............... 2,390,020
1,000,000 Signet Medium Term Note 1993-1A 5.20% Due 02/15/02...... 993,079
5,000,000 Salomon Brothers Medium Term Note 6.42% 01/15/96........ 5,001,740
------------
Total Finance....................................... 42,650,032 24.72%
------------ -----------
HOME EQUITY
74,262 First Interstate of California 8.90% Due 11/15/97....... 74,108 0.04%
------------ -----------
INSURANCE
38,892 Central Life Assurance Company 9.00% Due 11/01/96....... 39,091 0.02%
------------ -----------
MANUFACTURING
853,242 Chemical Financial Acceptance Corp. 90-1 9.40%
Due 03/17/97.......................................... 861,544
3,075,914 Chemical Financial Acceptance Corp. 9.25% Due 05/15/98 3,267,080
------------
Total Manufacturing................................. 4,128,624 2.39%
------------ -----------
REAL ESTATE
913,992 Daiwa Home Equity Loans 7.875% Due 11/25/19............. 924,658
4,295,583 Travelers Mortgage 12.00% Due 03/01/14.................. 4,822,604
103,337 US Home Equity Loan 9.25% Due 01/15/21.................. 103,124
789,634 US Home Equity Loan 8.50% Due 04/15/21.................. 810,329
------------
Total Real Estate................................... 6,660,715 3.86%
------------ -----------
RETAIL
2,750,000 Sears Credit Account 5.90% Due 11/16/98................. 2,756,295 1.60%
------------ -----------
SECURITY & COMMODITY BROKERS/DEALERS
6,250,000 Bear Stearns 7.625% Due 09/15/99........................ 6,602,406
5,000,000 Morgan Stanley 7.32% Due 01/15/97....................... 5,085,775
------------
Total Security & Commodity Brokers/Dealers.......... 11,688,181 6.78%
------------ -----------
Total Corporate Bonds and Notes (cost
$131,817,332)........................................... 131,652,741 76.31%
------------ -----------
FOREIGN GOVERNMENT DEBT
1,000,000 Kingdom of Denmark 7.75% Due 12/15/96................... 1,021,555
1,379,151 Pemex Exp Grantor Trust 7.66% Due 08/15/01.............. 1,447,055
7,000,000 Province of Ontario 7.75% Due 06/04/02.................. 7,681,233
5,000,000 Province of Quebec 9.125% Due 08/22/01.................. 5,665,625
------------
Total Foreign Government Debt (cost $15,265,413).... 15,815,468 9.17%
------------ -----------
</TABLE>
See notes to financial statements.
29
<PAGE> 115
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ------------ ----------
<C> <S> <C> <C>
U.S. GOVERNMENT SECURITY
$4,250,000 Midstate Trust II A3 9.35% Due 04/01/98
(cost $4,339,597)..................................... $ 4,555,745 2.64%
------------ ------
U.S. GOVERNMENT AGENCY
17,148 Federal Home Loan Mortgage Corp. 5.25% Due 07/01/97..... 15,670
3,202,226 Federal Home Loan Mortgage Corp. 9.00% Due 10/01/05..... 3,328,326
847,965 Federal Home Loan Mortgage Corp. REMIC Series MH-1
10.15% Due 04/15/06................................... 867,408
1,474,068 Federal Home Loan Mortgage Corp. 7.50% Due 03/01/08..... 1,504,654
585,098 Federal Home Loan Mortgage Corp. 6.50% Due 03/01/13..... 582,494
908,800 Federal Home Loan Mortgage Corp. 7.00% Due 01/01/18..... 919,714
1,779,984 Federal National Mortgage Association 8.00%
Due 07/25/97.......................................... 1,805,756
855,524 Federal National Mortgage Association 6.75%
Due 02/01/03.......................................... 856,267
418,353 Federal National Mortgage Association 7.00%
Due 04/01/04.......................................... 421,210
1,200,000 Guaranteed Export Certificates 4.61% Due 09/01/98....... 1,183,103
2,873,555 Guaranteed Export Certificates 4.813% Due 12/15/98...... 2,864,544
------------
Total U.S. Government Agency (cost $13,346,594)..... 14,349,146 8.32%
------------ ------
Total Securities (cost $164,768,936).................... 166,373,100 96.43%
------------ ------
REPURCHASE AGREEMENT
4,459,231 Repurchase Agreement with Morgan Stanley, dated
12/29/95, 5.65%, proceeds at maturity $4,461,992, due
01/02/96 (Collateralized by US Treasury Note, 7.25%,
due 08/15/04, with a market value of $4,557,181) (cost
$4,459,931)............................................. 4,459,931 2.59%
------------ ------
Total Investments (cost $169,228,867)................... 170,833,081 99.02%
Other Assets Less Liabilities........................... 1,693,072 .98%
------------ ------
Net Assets.............................................. $172,526,103 100.00%
============ ======
</TABLE>
The aggregate cost of securities for federal income tax purposes at December 31,
1995 is $169,228,867.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<S> <C>
Gross unrealized appreciation........................... $2,205,913
Gross unrealized depreciation........................... (601,749)
----------
Net unrealized appreciation............................. $1,604,164
==========
</TABLE>
See notes to financial statements.
30
<PAGE> 116
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
BANK NOTES
$4,000,000 Republic New York Securities Corp 6.15%
Due 2/12/96 (d)(g) (cost $4,000,636).................. $ 4,000,647 4.65%
----------- ----------
COMMERCIAL PAPER
4,000,000 Lehman Brothers Holdings, Inc. 4.90%
Due 04/25/96 (d)(g) (cost $4,000,636)................. 4,000,636 4.65%
----------- ----------
TIME DEPOSITS
413,885 First National Bank of Boston, Nassau 4.81%
Due 01/02/96 (d)(g)................................... 413,940
657,365 First Union Bank, Nassau 5.8125%
Due 01/02/96 (d)...................................... 657,470
1,000,000 Harris Bank and Trust, Nassau 5.8125%
Due 01/19/96 (d)...................................... 1,000,159
-----------
Total Time Deposits (cost $2,071,580)............... 2,071,569 2.41%
----------- ----------
SHORT-TERM OBLIGATIONS
100,000 Federal National Mortgage Association 5.57%
Due 01/03/96.......................................... 99,938
200,000 Federal National Mortgage Association 5.67%
Due 01/09/96.......................................... 199,685
2,700,000 Federal National Mortgage Association 5.45%
Due 01/12/96.......................................... 2,694,686
600,000 Federal National Mortgage Association 5.58%
Due 01/25/96.......................................... 597,582
300,000 Federal National Mortgage Association 5.59%
Due 01/29/96.......................................... 298,602
200,000 Federal National Mortgage Association 5.55%
Due 02/16/96.......................................... 198,520
2,300,000 Federal Home Loan Mortgage Corp. 5.57%
Due 01/05/96.......................................... 2,297,865
200,000 Federal Home Loan Mortgage Corp. 5.60%
Due 01/08/96.......................................... 199,720
200,000 Federal Home Loan Mortgage Corp. 5.60%
Due 01/16/96.......................................... 199,471
200,000 Federal Home Loan Mortgage Corp. 5.65%
Due 01/16/96.......................................... 199,466
900,000 Federal Home Loan Mortgage Corp. 5.64%
Due 01/16/96.......................................... 897,603
3,500,000 Federal Home Loan Mortgage Corp. 5.65%
Due 01/16/96.......................................... 3,490,662
300,000 Federal Home Loan Mortgage Corp. 5.55%
Due 01/16/96.......................................... 299,214
3,900,000 Federal Home Loan Mortgage Corp. 5.54%
Due 02/20/96.......................................... 3,868,791
200,000 Federal Home Loan Mortgage Corp. 5.67%
Due 01/22/96.......................................... 199,276
1,500,000 Federal Home Loan Mortgage Corp. 5.65%
Due 01/22/96.......................................... 1,494,585
500,000 Federal Home Loan Mortgage Corp. 5.45%
Due 01/22/96.......................................... 498,259
</TABLE>
See notes to financial statements.
31
<PAGE> 117
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
$ 500,000 Federal Home Loan Mortgage Corp. 5.55%
Due 01/24/96.......................................... $ 498,073
2,100,000 Federal Home Loan Mortgage Corp. 5.53%
Due 02/26/96.......................................... 2,081,290
-----------
Total Short-term Obligations (cost $20,313,288)..... 20,313,288 23.62%
----------- ----------
U.S. GOVERNMENT SECURITIES
5,000,000 U.S. Treasury Note 5.125%
Due 3/31/96........................................... 4,998,430
7,000,000 U.S. Treasury Note 7.75%
Due 12/31/99 (a)...................................... 7,599,375
5,500,000 U.S. Treasury Note 8.875%
Due 05/15/00.......................................... 6,245,938
6,000,000 U.S. Treasury Note 8.50%
Due 11/15/00.......................................... 6,796,865
2,000,000 U.S. Treasury Note 5.625%
Due 11/30/00(a)....................................... 2,020,000
-----------
Total U.S. Government Securities (cost
$29,473,700)............................................ 27,660,608 32.17%
----------- ----------
U.S. GOVERNMENT AGENCY
2,000,000 Student Loan Mortgage Association 6.52%
Due 09/26/00.......................................... 2,029,798
5,000,000 Federal Home Loan Bank 7.39%
Due 08/22/01.......................................... 5,402,410
3,000,000 Federal Home Loan Mortgage Corp 6.50%
Due 02/15/21.......................................... 3,036,837
5,300,000 Federal Home Loan Mortgage Corp 7.00%
Due 06/15/22.......................................... 5,492,597
1,627,397 Federal Home Loan Mortgage Corp 6.28%
Due 08/25/23 (f)...................................... 1,620,170
2,000,000 Federal Home Loan Mortgage Corp 6.50%
Due 02/15/24 (f)...................................... 2,005,238
2,000,000 Federal National Mortgage Assn 7.00%
Due 01/25/03.......................................... 2,059,658
3,000,000 Federal National Mortgage Assn 6.44%
Due 06/21/05.......................................... 3,120,687
12,481 Government National Mortgage Assn 7.50%
Due 04/15/02.......................................... 12,906
39,284 Government National Mortgage Assn 7.50%
Due 06/15/07.......................................... 40,622
14,393 Government National Mortgage Assn 7.50%
Due 07/15/07.......................................... 14,883
3,802,084 Government National Mortgage Assn 7.50%
Due 08/15/07.......................................... 3,931,592
1,672,796 Government National Mortgage Assn 7.50%
Due 09/15/07.......................................... 1,729,775
240,134 Government National Mortgage Assn 6.50%
Due 09/15/08.......................................... 242,386
1,344,200 Government National Mortgage Assn 6.50%
Due 10/15/08.......................................... 1,356,802
2,100,134 Government National Mortgage Assn 6.50%
Due 11/15/08.......................................... 2,119,822
</TABLE>
See notes to financial statements.
32
<PAGE> 118
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
$ 415,316 Government National Mortgage Assn 7.00%
Due 11/15/08.......................................... $ 419,210
2,500,000 Tennesee Valley Authority 6.375%
Due 06/15/05.......................................... 2,577,655
-----------
Total U.S. Government Agency (cost $34,332,651)..... 37,213,048 43.27%
----------- ----------
Total Securities (cost $94,192,491)..................... 95,259,796 110.77%
----------- ----------
REPURCHASE AGREEMENT
82,780 Repurchase agreement with Morgan Stanley, dated
12/29/95 5.65%, proceeds at maturity $82,831, due
01/02/96 (Collateralized by US Treasury Note, 7.25%,
Due 08/15/04, with a market value of $84,598) (cost
$82,793)................................................ 82,793 0.10%
----------- ----------
Total Investments (cost $94,275,284).................... $95,342,589 110.87%
Liabilities Less Other Assets........................... (9,350,975) (10.87)%
----------- ----------
Net Assets.............................................. $85,991,614 100.00%
=========== ==========
</TABLE>
The aggregate cost of securities for federal income tax purposes at
December 31, 1995 is $94,275,284.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation................. $ 1,222,622
Aggregate gross unrealized depreciation................. (155,317)
-----------
Net unrealized appreciation............................. $ 1,067,305
===========
</TABLE>
- ------------
(a) All or part of this security is on loan.
(d) Collateral for securities on loan.
(f) This interest rate is reset on a monthly basis. The rate shown was in
effect as of December 31, 1995.
(g) This interest rate is reset on a daily basis. The rate shown was in effect
as of December 31, 1995.
See notes to financial statements.
33
<PAGE> 119
GOVERNMENT/CORPORATE BOND FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ------------ -------------
<C> <S> <C> <C>
BANK NOTES
$ 4,000,000 Republic New York Securities Corp, 6.15%
Due 02/12/96 (d)(g) (cost $4,000,638)............. $ 4,000,649 1.19%
------------ -------------
TIME DEPOSITS
9,853,197 First National Bank of Boston, Nassau, 4.81%
Due 01/02/96 (d)(g)............................... 9,854,757
1,665,653 First Union Bank, Nassau, 5.8125%
Due 01/02/96 (d).................................. 1,665,919
10,000,000 Fleet Bank, Rhode Island, Cayman, 5.8125%
Due 01/31/96 (d).................................. 10,001,595
------------
Total Time Deposits (cost $21,522,282).......... 21,522,271 6.40%
------------ -------------
COMMERCIAL PAPER
4,000,000 American Express Credit Corp 5.45% Due 03/26/96..... 3,947,317
1,200,000 Associates Corp of North America 5.68%
Due 01/10/96...................................... 1,197,917
1,700,000 Associates Corp of North America 5.71%
Due 01/22/96...................................... 1,693,799
3,500,000 Avco Financial Services Canada 5.76% Due 01/05/96... 3,496,640
2,000,000 Avco Financial Services Canada 5.60% Due 03/06/96... 1,979,156
2,600,000 Avco Financial Services Canada 5.80% Due 01/12/96... 2,594,554
3,000,000 Bank of New York 5.73% Due 01/19/96................. 2,990,450
600,000 Bell South Telecom Inc 5.75% Due 01/09/96........... 599,042
1,900,000 Chevron UK Inc 5.60% Due 03/25/96................... 1,874,582
950,000 Colonial Pipeline Co 5.67% Due 02/16/96............. 942,818
300,000 Colonial Pipeline Co 5.62% Due 02/28/96............. 297,190
1,100,000 Commercial Credit Company 5.72% Due 01/17/96........ 1,096,854
1,100,000 Consolidation Coal Co 5.70% Due 01/12/96............ 1,097,736
1,300,000 Consolidation Coal Co 5.76% Due 01/04/96............ 1,298,960
1,800,000 Copley Financing Corp 5.78% Due 01/02/96............ 1,799,133
5,800,000 Dupont EI De Nemours & Co 5.67% Due 01/26/96........ 5,775,336
2,300,000 Enterprise Funding Corp 5.73% Due 01/26/96.......... 2,290,116
2,000,000 Ford Motor Credit Corp 5.75% Due 01/18/96........... 1,993,930
600,000 Ford Motor Credit Corp 5.77% Due 01/05/96........... 599,423
3,500,000 General Electric Capital Corp 5.63% Due 02/14/96.... 3,474,821
1,050,000 General Motors 5.83% Due 01/26/96................... 1,045,409
2,200,000 Goldman Sachs Group 5.75% Due 01/10/96.............. 2,196,134
1,200,000 Goldman Sachs Group 5.58% Due 01/19/96.............. 1,196,280
1,200,000 JHM Funding Inc 5.75% Due 01/12/96.................. 1,197,508
3,300,000 Merrill Lynch and Co Inc 5.73% Due 01/31/96......... 3,283,192
1,200,000 Cooperative Finance Corp 5.63% Due 02/27/96......... 1,188,928
2,100,000 Cooperative Finance Corp 5.50% Due 02/27/96......... 2,081,071
1,000,000 Norwest Corp 5.72% Due 01/26/96..................... 995,710
2,000,000 PHH Corp 5.68% Due 01/19/96......................... 1,993,689
400,000 PHH Corp 5.75% Due 01/23/96......................... 398,467
100,000 Prudential Funding Corp 5.78% Due 01/12/96.......... 99,791
300,000 Prudential Funding Corp 5.82% Due 01/02/96.......... 299,855
1,000,000 Royal Bank of Canada 5.70% Due 01/29/96............. 995,249
</TABLE>
See notes to financial statements.
34
<PAGE> 120
GOVERNMENT/CORPORATE BOND FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ----- -------------
<C> <S> <C> <C>
$ 1,000,000 Seagram Joseph and Sons Inc 5.70% Due 01/18/96...... $ 996,991
300,000 Sears Roebuck Acceptance Corp 5.70% Due 01/16/96.... 299,193
900,000 Sears Roebuck Acceptance Corp 5.70% Due 02/02/96.... 895,155
1,000,000 Transamerica Commercial Finance--Canada 5.77% Due
01/04/96............................................ 999,199
5,000,000 Xerox Credit Corp 5.67% Due 01/19/96................ 4,984,250
1,000,000 Xerox Credit Corp 5.65% Due 02/26/96................ 990,898
------------
Total Commercial Paper
(cost $67,176,743)............................ 67,176,743 19.96%
------------ -------------
SHORT TERM FLOATING RATE CORPORATE NOTE
142,000 Midwest Funding Corp, 5.83%, Due 07/01/22........... 142,660
1,000,000 Olympic, 5.825%, Due 12/15/96....................... 1,003,830
------------
Total Short Term Floating Rate Corporate Note
(cost $1,146,490)............................. 1,146,490 0.34%
------------ -------------
CORPORATE BONDS AND NOTES
AEROSPACE PRODUCTS
4,000,000 BF Goodrich 8.65% Due 04/15/25...................... 4,815,796
5,000,000 Boeing Company 8.625% Due 11/15/31.................. 6,404,210
------------
Total Aerospace Products........................ 11,220,006 3.33%
------------ -------------
BANKING
4,000,000 Bank Of New York 6.50% Due 12/01/03................. 4,074,108
5,000,000 Chase Manhattan Co 8.00% Due 05/01/05............... 5,241,120
5,000,000 Chase Manhattan Co 1995-1 6.00% Due 05/15/00 (f).... 4,997,995
5,000,000 International Bank Recon & Dev, 8.875%
Due 03/01/26...................................... 6,593,765
6,000,000 Swiss Bank Corp--NY 7.50% Due 07/15/25.............. 6,515,088
------------
Total Banking................................... 27,422,076 8.15%
------------ -------------
BEVERAGES
5,000,000 Seagrams (Joseph E.) & Sons 9.65% Due 08/15/18...... 6,742,045 2.00%
------------ -------------
CIGARETTES
5,000,000 American Brands 9.125% Due 03/01/16................. 5,245,220
5,000,000 RJR Nabisco Inc. 8.75% Due 04/15/04................. 5,131,805
------------
Total Cigarettes................................ 10,377,025 3.08%
------------ -------------
CONSUMER GOODS & SERVICES
5,200,000 Proctor & Gamble 9.36% Due 01/01/21................. 6,815,744 2.03%
------------ -------------
ELECTRICAL EQUIPMENT
5,000,000 Legrand 8.50% Due 02/15/25.......................... 5,998,615 1.78%
------------ -------------
FINANCE
5,000,000 Advanta Credit Card 6.12% Due 02/10/01 (f).......... 5,019,695
7,040,000 Discover Card Master Trust 1994--2A, 6.05%
Due 10/16/04 (e).................................. 7,087,654
6,000,000 Dow Capital BV 9.20% Due 06/01/10................... 7,318,182
5,000,000 General Electric Capital Corp 8.50% Due 07/24/08.... 5,978,205
6,000,000 Nationsbank Card Master Trust 6.45%
Due 04/15/03 (a).................................. 6,184,554
</TABLE>
See notes to financial statements.
35
<PAGE> 121
GOVERNMENT/CORPORATE BOND FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ------------ -------------
<C> <S> <C> <C>
$ 5,000,000 Paccar Financial Corp 5.52% Due 09/03/96............ $ 4,999,645
3,000,000 Standard Credit Card Master Trust 95-11, 6.00%
Due 11/15/00 (e).................................. 2,995,347
------------
Total Finance................................... 39,583,282 11.76%
------------ -------------
FOREIGN GOVERNMENT
5,000,000 Province of Quebec 7.50% Due 7/15/23................ 5,266,045 1.57%
------------ -------------
HOTELS
5,000,000 Marriott International Inc 7.875% Due 4/15/05....... 5,428,865 1.61%
------------ -------------
INSURANCE
5,000,000 Prudential Insurance 8.10% Due 7/15/15.............. 5,348,445 1.59%
------------ -------------
MEDICAL & OTHER HEALTH SERVICE
5,000,000 Columbia Healthcare 7.50% Due 12/15/23.............. 5,389,690 1.60%
------------ -------------
MOTOR VEHICLES & EQUIPMENT
5,000,000 Ford Holdings 9.375% Due 03/01/20................... 6,392,125
5,000,000 General Motors Acceptance Corp 8.40% Due 10/15/99... 5,352,775
5,000,000 General Motors Acceptance Corp 8.80% Due 03/01/21... 6,267,795
------------
Total Motor Vehicles & Equipment................ 18,012,695 5.35%
------------ -------------
OIL & GAS
5,000,000 Atlantic Richfield 9.00% Due 05/01/31 (a)........... 6,522,885
5,000,000 Occidental Petroleum 10.125% Due 09/15/09........... 6,490,545
4,000,000 Texaco Capital 9.75 Due 03/15/20.................... 5,464,416
------------
Total Oil & Gas................................. 18,477,846 5.49%
------------ -------------
PAPER & FOREST PRODUCTS
7,500,000 Westvaco 10.125% Due 06/01/19....................... 8,842,485 2.63%
------------ -------------
UTILITIES--ELECTRIC
3,000,000 Commonwealth Edison 7.00% Due 07/01/05.............. 3,111,426
10,000,000 Commonwealth Edison 8.125% Due 01/15/07............. 10,316,470
5,000,000 Hydro-Quebec 8.50% Due 12/01/29..................... 5,864,445
5,000,000 Texas Utilities Electric 7.875% Due 04/01/24........ 5,378,405
------------
Total Utilities--Electric....................... 24,670,746 7.33%
------------ -------------
Total Corporate Bonds and Notes
(cost $184,336,220)........................... 199,595,610 59.30%
------------ -------------
U.S. GOVERNMENT SECURITIES
5,000,000 U.S. Treasury Note 5.625% Due 11/30/00 (a).......... 5,050,000
10,000,000 U.S. Treasury Note 7.75% Due 12/31/99 (a)........... 10,856,250
------------
Total U.S. Government Securities
(cost $15,687,254)............................ 15,906,250 4.73%
------------ -------------
U.S. GOVERNMENT AGENCY
4,446,610 Federal Home Loan Mortgage Corp, 6.50%
Due 09/15/07 (f).................................. 4,474,401
5,000,000 Federal Home Loan Mortgage Corp, 6.00%,
Due 12/15/19...................................... 4,948,045
</TABLE>
See notes to financial statements.
36
<PAGE> 122
GOVERNMENT/CORPORATE BOND FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ------------ -------------
<C> <S> <C> <C>
$ 4,882,190 Federal Home Loan Mortgage Corp, 6.28%
Due 08/25/23 (f).................................. $ 4,860,509
6,345,486 Federal Home Loan Mortgage Corp, 6.50%
Due 02/15/24 (f).................................. 6,362,105
2,167,448 Federal National Mortgage Association, Strip P/O Due
12/25/18............................................ 2,137,189
2,773,885 Federal National Mortgage Association, Strip P/O
Due 08/25/23...................................... 2,661,014
2,697,297 Federal National Mortgage Association, 7.00%,
Due 12/01/25...................................... 2,718,364
986,958 Federal National Mortgage Association, 7.00%,
Due 10/01/25...................................... 994,668
1,945,480 Federal National Mortgage Association, 7.00%,
Due 08/01/25...................................... 1,960,678
201,418 Federal National Mortgage Association, 7.00%,
Due 09/01/25...................................... 202,992
3,968,852 Federal National Mortgage Association, 7.00%,
Due 11/01/25...................................... 3,999,857
17,187 Government National Mortgage Association, 8.00%, Due
01/01/24............................................ 17,897
23,569 Government National Mortgage Association, 8.00%, Due
03/01/24............................................ 24,541
445,051 Government National Mortgage Association, 8.00%, Due
04/01/24............................................ 463,409
1,517,910 Government National Mortgage Association, 8.00%, Due
06/01/24............................................ 1,580,523
398,824 Government National Mortgage Association, 8.00%, Due
07/01/24............................................ 415,276
579,120 Government National Mortgage Association, 8.00%, Due
08/01/24............................................ 603,009
557,429 Government National Mortgage Association, 8.00%, Due
09/01/24............................................ 580,423
399,700 Government National Mortgage Association, 8.00%, Due
10/01/24............................................ 416,188
403,353 Government National Mortgage Association, 8.00%, Due
02/01/25............................................ 419,991
557,857 Government National Mortgage Association, 8.00%, Due
09/01/25............................................ 580,869
3,000,000 Student Loan Mortgage Association 6.52%
Due 09/26/00...................................... 3,044,697
5,000,000 Student Loan Mortgage Association 4.40%
Due 05/25/04 (a)(f)............................... 5,001,560
------------
Total U.S. Government Agency
(cost $47,935,707)............................ 48,468,205 14.40%
------------ -------------
Total Securities (cost $341,805,334)............ 357,816,218 106.32%
------------ -------------
</TABLE>
See notes to financial statements.
37
<PAGE> 123
GOVERNMENT/CORPORATE BOND FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ------------ -------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT
$ 86,902 Repurchase Agreement with Morgan Stanley, dated
12/29/95 5.65%, proceeds at maturity $86,956, due
01/02/96 (Collateralized by US Treasury Note,
7.25%, due 08/15/04, with a market value of
$88,811) (cost $86,916)............................. $ 86,916 0.03%
------------ -------------
Total Investments (cost $341,892,250)............... $357,903,134 106.35%
Liabilities Less Other Assets....................... (21,363,724) (6.35)%
------------ -------------
Net Assets.......................................... $336,539,410 100.00%
============ =============
</TABLE>
The aggregate cost of securities for federal income tax purposes at
December 31, 1995 is $341,892,250.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<S> <C>
Gross unrealized appreciation....................... $ 16,047,094
Gross unrealized depreciation....................... (36,210)
------------
Net unrealized appreciation......................... $ 16,010,884
============
</TABLE>
- ------------
(a) All or part of this security is on loan.
(d) Collateral for securities on loan.
(e) Zero coupon bond.
(f) This interest rate is reset on a monthly basis. The rate shown was in
effect as of December 31, 1995.
(g) This interest rate is reset on a daily basis. The rate shown was in effect
as of December 31, 1995.
See notes to financial statements.
38
<PAGE> 124
BALANCED FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ------------ ---------------- -----------
<C> <S> <C> <C>
BANK NOTES
$ 10,000,000 Republic New York Securities Corp, 6.15%
Due 2/12/96 (d)(g) (cost $10,001,591).......... $ 10,001,619 5.99%
---------------- -----------
TIME DEPOSITS
7,422,703 First National Bank of Boston, Nassau, 4.81%
Due 01/02/96 (d)(g)............................ 7,423,856
2,954,047 First Union Bank, Nassau, 5.8125%
Due 01/02/96 (d)............................... 2,954,517
381,100 Fleet Bank, Massachusetts, Nassau, 5.84375%
Due 01/05/96 (d)............................... 381,160
10,500,000 Fleet Bank, Rhode Island, Cayman, 5.8125%
Due 01/31/96 (d)............................... 10,501,670
4,000,000 Harris Bank and Trust, Nassau, 5.8125%
Due 01/19/96 (d)............................... 4,000,636
----------------
Total Time Deposits (cost $25,261,867)...... 25,261,839 15.12%
---------------- -----------
COMMERCIAL PAPER
2,000,000 Dupont EI De Nemours, 5.69% Due 01/16/96......... 1,994,626
1,500,000 Ford Motor Credit, 5.52% Due 03/01/96............ 1,485,740
10,000,000 Lehman Brothers Holdings, Inc., 4.90%
Due 04/25/96 (d)(g)............................ 10,001,591
----------------
Total Commercial Paper
(cost $13,481,957)........................ 13,481,957 8.07%
---------------- -----------
U.S. GOVERNMENT SECURITIES
6,950,000 U.S. Treasury Note 6.875% Due 03/31/97 (a)....... 7,089,000
7,900,000 U.S. Treasury Note 6.375% Due 07/15/99........... 8,164,144
5,600,000 U.S. Treasury Note 8.50% Due 02/15/00............ 6,244,000
4,525,000 U.S. Treasury Note 7.50% Due 11/15/01............ 4,987,392
9,850,000 U.S. Treasury Note 5.75% Due 08/15/03 (a)........ 9,970,032
16,550,000 U.S. Treasury Note 7.875% Due 11/15/04 (a)....... 19,166,969
6,200,000 U.S. Treasury Note 6.50% Due 05/15/05 (a)........ 6,606,875
----------------
Total U.S. Government Securities
(cost $58,765,441)........................ 62,228,412 37.26%
---------------- -----------
<CAPTION>
SHARES COMMON STOCK
- ------------ ------------
<C> <S> <C> <C>
AIRCRAFT & PARTS
20,100 McDonnell Douglas................................ 1,849,200 1.11%
---------------- -----------
BROADCASTING
22,900 Capital Cities/ABC Inc........................... 2,825,288 1.69%
---------------- -----------
BUSINESS MACHINES
30,100 International Business Machines.................. 2,761,675
43,300 Silicon Graphics (c)............................. 1,190,750
34,600 Texas Instruments................................ 1,790,550
----------------
Total Business Machines..................... 5,742,975 3.44%
---------------- -----------
CHEMICALS & ALLIED PRODUCTS
22,750 Hoechst AG ADR................................... 3,091,554 1.85%
---------------- -----------
</TABLE>
See notes to financial statements.
39
<PAGE> 125
BALANCED FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ------------ ---------------- -----------
<C> <S> <C> <C>
COMMERCIAL BANKING
39,200 Bankamerica Corp................................. $ 2,538,200
37,700 Citicorp......................................... 2,535,325
39,300 Key Corp (new) (a)............................... 1,424,625
----------------
Total Commercial Banking.................... 6,498,150 3.89%
---------------- -----------
COMMUNICATIONS
27,500 I T T Corp. (new) (c)............................ 1,457,500
23,350 Motorola Inc. ................................... 1,330,950
38,000 Tele Danmark ADR................................. 1,049,750
----------------
Total Communications........................ 3,838,200 2.30%
---------------- -----------
DRUGS
19,550 American Home Products Corp. .................... 1,896,350
71,100 Ciba-Geigy Corp ADR (a).......................... 3,135,894
----------------
Total Drugs................................. 5,032,244 3.01%
---------------- -----------
FOOD AND BEVERAGE
29,350 Pepsico Inc. .................................... 1,639,931
35,800 Philip Morris Companies Inc ..................... 3,239,900
91,300 Sara Lee Corp.................................... 2,910,188
----------------
Total Food and Beverage..................... 7,790,019 4.67%
---------------- -----------
HOTELS
39,700 Carnival Corp. Cl A (a).......................... 967,688
36,600 Circus Circus Enterprises (c).................... 1,020,225
----------------
Total Hotels................................ 1,987,913 1.19%
---------------- -----------
INDUSTRIAL CHEMICALS
23,150 Dow Chemical Company............................. 1,629,181
38,150 E. I. Dupont de Nemours & Co. ................... 2,665,731
----------------
Total Industrial Chemicals.................. 4,294,912 2.57%
---------------- -----------
INDUSTRIAL MACHINERY
43,350 Deere & Co. ..................................... 1,528,088 0.91%
---------------- -----------
INSURANCE
66,350 Allstate Corp. .................................. 2,728,644
26,800 Transamerica Corp................................ 1,953,050
48,500 Travelers Inc. .................................. 3,049,438
----------------
Total Insurance............................. 7,731,132 4.63%
---------------- -----------
MANUFACTURING
23,600 American Standard Companies (c).................. 660,800
94,500 Philips Electronics N.V. ADR..................... 3,390,188
----------------
Total Manufacturing......................... 4,050,988 2.43%
---------------- -----------
MEDICAL & OTHER HEALTH SERVICES
63,600 Abbott Laboratories.............................. 2,655,300
49,300 Tenet Healthcare Corporation..................... 1,022,975
----------------
Total Medical & Other Health Service........ 3,678,275 2.20%
---------------- -----------
</TABLE>
See notes to financial statements.
40
<PAGE> 126
BALANCED FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ------------ ---------------- -----------
<S> <C> <C> <C>
MISCELLANEOUS
98,300 Canadian Pacific (a)............................. $ 1,781,688
24,700 ITT Industries Inc............................... 592,800
24,700 Unilever ADR (a)................................. 3,476,525
----------------
Total Miscellaneous......................... 5,851,013 3.50%
---------------- -----------
OIL & GAS
29,850 Amoco Corp. ..................................... 2,145,468
21,950 Atlantic Richfield Co. .......................... 2,430,962
19,850 Mobil Corp. ..................................... 2,223,200
----------------
Total Oil & Gas............................. 6,799,630 4.07%
---------------- -----------
PAPER & FOREST PRODUCTS
76,400 International Paper Co. ......................... 2,893,650
51,800 Weyerhaeuser Company............................. 2,240,350
----------------
Total Paper & Forest Products............... 5,134,000 3.07%
---------------- -----------
PERSONAL COMPUTERS
34,300 Compaq Computers (c)............................. 1,646,400 0.99%
---------------- -----------
PRINTING & PUBLISHING
46,450 Dun & Bradstreet Corp. .......................... 3,007,637
160,100 The News Corporation ADR (a)..................... 3,081,925
74,600 Time Warner Inc. ................................ 2,825,475
----------------
Total Printing & Publishing................. 8,915,037 5.34%
---------------- -----------
RAILROAD
31,450 Burlington Northern Santa Fe (a)................. 2,453,100
33,950 Union Pacific Corp (a)........................... 2,240,700
----------------
Total Railroad.............................. 4,693,800 2.81%
---------------- -----------
RETAIL SALES
15,600 Circuit City Stores Inc. ........................ 430,950
61,100 Federated Department Stores (a)(c)............... 1,680,250
----------------
Total Retail Sales.......................... 2,111,200 1.26%
---------------- -----------
TOYS
28,268 Mattel........................................... 869,240 0.52%
---------------- -----------
WASTE MANAGEMENT
89,300 WMX Technologies................................. 2,667,837 1.60%
---------------- -----------
Total Common Stock (cost $87,770,805)....... 98,627,095 59.05%
---------------- -----------
PREFERRED STOCK
-------------------------------------------------
CIGARETTES
451,400 RJR Nabisco Holdings CV, 9.25%, Series C
(cost $2,876,812).............................. 2,877,675 1.72%
---------------- -----------
Total Securities (cost $198,158,473)........ 212,478,597 127.21%
---------------- -----------
</TABLE>
See notes to financial statements.
41
<PAGE> 127
BALANCED FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ------------ ---------------- -----------
<S> <C> <C> <C>
REPURCHASE AGREEMENT
$ 5,701,274 Repurchase Agreement with Morgan Stanley dated
12/29/95 5.65%, proceeds at maturity
$5,704,853, due 01/02/96 (Collateralized by
US Treasury Note, 7.25%, due 08/15/04 with a
market value of $5,826,506)
(cost $5,702,169).............................. $ 5,702,169 3.41%
---------------- -----------
Total Investments (cost $203,860,642)............ $ 218,180,766 130.62%
Liabilities Less Other Assets.................... (51,147,811) (30.62)%
---------------- -----------
Net Assets....................................... $ 167,032,955 100.00%
================ ===========
The aggregate cost of securities for federal income tax purposes at December 31, 1995
is $203,942,187. The following amount is based on costs for federal income tax purposes:
Gross unrealized appreciation.................... $ 15,170,091
Gross unrealized depreciation.................... (931,512)
----------------
Net unrealized appreciation...................... $ 14,238,579
================
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(c) Non-income producing security.
(d) Collateral for securities on loan.
(g) This interest rate resets on a daily basis. The rate shown was in effect
as of December 31, 1995.
See notes to financial statements.
42
<PAGE> 128
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ------------ ------------ ----------
<C> <S> <C> <C>
TIME DEPOSITS
$ 29,950,949 First National Bank of Boston, Nassau, 4.81%
Due 01/02/96 (d)(g)................................ $ 29,955,665
2,668,951 First Union Bank, Nassau, 5.8125%,
Due 01/02/96 (d)................................... 2,669,371
3,270,100 Fleet Bank, Massachusetts, Nassau, 5.84375%,
Due 01/05/96 (d)................................... 3,270,615
------------
Total Time Deposits (cost $35,895,651)........... 35,895,651 4.70%
------------ ----------
COMMERCIAL PAPER
1,000,000 Avco Financial Services Canada, 5.76%, Due 01/05/96.. 999,040
2,000,000 Avco Financial Services Canada, 5.83%, Due 01/19/96.. 1,993,522
1,600,000 Bank One Corp, 5.72%, Due 01/12/96................... 1,596,695
6,000,000 Bank of New York, 5.73%, Due 01/19/96................ 5,980,900
100,000 Bank of New York, 5.85%, Due 01/19/96................ 99,675
2,000,000 Barclay's Bank PLC, 5.75%, Due 01/17/96.............. 2,012,778
1,500,000 Barclay's Bank PLC, 5.77%, Due 01/12/96.............. 1,496,875
1,200,000 British Columbia (Province), 5.72%, Due 01/12/96..... 1,197,522
2,400,000 British Columbia (Province), 5.67%, Due 02/01/96..... 2,387,526
3,000,000 Canadian Imperial Bank, 5.60%, Due 02/20/96.......... 2,975,733
800,000 Chevron UK Inc, 5.60%, Due 03/25/96.................. 789,298
2,600,000 Chevron Corp, 5.75%, Due 01/12/96.................... 2,594,601
1,750,000 Colonial Pipeline Co, 5.62%, Due 02/28/96............ 1,733,608
5,200,000 Commercial Credit Company, 5.72%, Due 01/17/96....... 5,185,128
1,000,000 Consolidation Coal Co, 5.70%, Due 01/12/96........... 997,941
7,300,000 Copley Financing Corporation, 5.82%, Due 01/19/96.... 7,276,397
700,000 Copley Financing Corporation, 5.75%, Due 01/24/96.... 697,205
1,482,000 Copley Financing Corporation, 5.78%, Due 01/02/96.... 1,481,286
2,300,000 Dupont EI De Nemours & Co, 5.67%, Due 01/26/96....... 2,290,219
2,700,000 Enterprise Funding Corp, 5.78%, Due 01/12/96......... 2,694,365
1,000,000 Enterprise Funding Corp, 5.73%, Due 01/26/96......... 995,702
2,000,000 Ford Motor Credit Corp, 5.75%, Due 01/18/96.......... 1,993,931
600,000 Ford Motor Credit Corp, 5.75%, Due 01/18/96.......... 598,179
1,600,000 Ford Motor Credit Corp, 5.92%, Due 01/02/96.......... 1,599,210
1,300,000 Ford Motor Credit Corp, 5.77%, Due 01/05/96.......... 1,298,750
200,000 General Motors Corp, 5.83%, Due 01/26/96............. 199,125
1,200,000 Goldman Sachs Group, 5.75%, Due 01/10/96............. 1,197,891
2,500,000 Goldman Sachs Group, 5.68%, Due 01/12/96............. 2,494,871
1,000,000 Household Finance Corp--Canada, 5.77%,
Due 01/26/96....................................... 995,672
1,000,000 Household Finance Corp--Canada, 5.75%,
Due 01/03/96....................................... 999,361
1,000,000 JHM Funding Inc, 5.75%, Due 01/11/96................. 998,083
1,400,000 JHM Funding Inc, 5.75%, Due 01/12/96................. 1,397,093
2,000,000 JHM Funding Inc, 5.73%, Due 01/23/96................. 1,992,360
5,000,000 Lehman Brothers Holdings, Inc, 4.90%,
Due 04/25/96 (d)(g)................................ 5,000,787
1,000,000 Merrill Lynch and Co Inc, 5.73%, Due 01/31/96........ 994,907
</TABLE>
See notes to financial statements.
43
<PAGE> 129
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ------------ ------------ ----------
COMMERCIAL PAPER--(CONTINUED)
<C> <S> <C> <C>
$ 4,200,000 JP Morgan & Co, 5.77%, Due 01/08/96.................. $ 4,193,942
2,600,000 PHH Corp, 5.68%, Due 01/19/96........................ 2,591,795
720,000 Paccar Financial Group, 5.63%, Due 02/27/96.......... 713,357
800,000 Prudential Funding Corp, 5.78%, Due 01/12/96......... 798,330
1,900,000 Prudential Funding Corp, 5.82%, Due 01/02/96......... 1,899,079
2,700,000 Prudential Insurance Corp, 5.75%, Due 01/16/96....... 2,692,669
5,000,000 Royal Bank of Canada, 5.70%, Due 01/29/96............ 4,976,250
1,600,000 Sears Roebuck Acceptance Corp, 5.70%, Due 02/02/96... 1,591,387
5,300,000 Toronto Dominion Bank, 5.68%, Due 01/08/96........... 5,292,474
995,000 Toronto Dominion Bank, 5.68%, Due 01/08/96........... 993,587
3,900,000 Transamerica Corp, 5.75%, Due 01/12/96............... 3,891,902
3,500,000 Transamerica Finance Group Inc, 5.71%, Due 01/25/96.. 3,485,567
5,000,000 Xerox Corp, 5.67%, Due 01/19/96...................... 4,984,251
------------
Total Commercial Paper (cost $107,340,826)....... 107,340,826 14.04%
------------ ----------
BANKERS ACCEPTANCES
2,000,000 Republic National Bank New York, 5.53%
Due 02/01/96 (cost $1,989,861)..................... 1,989,861 0.26%
------------ ----------
CONVERTIBLE BOND
----------------
COMMUNICATIONS EQUIPMENT
2,000,000 Motorola Inc., Lyon, Zero Coupon, Due 09/07/09 (e)
(cost $1,710,000).................................... 2,100,000 0.27%
------------ ----------
<CAPTION>
SHARES COMMON STOCK
- ------------ ------------
<C> <S> <C> <C>
AIRCRAFT & PARTS
185,000 General Electric..................................... 13,320,000
120,000 Northrop Grumman Corp................................ 7,680,000
100,000 Textron Inc.......................................... 6,750,000
90,000 United Technologies.................................. 8,538,750
------------
Total Aircraft & Parts........................... 36,288,750 4.75%
------------ ----------
AUTOMOBILE MAKER
85,000 Chrysler Corp........................................ 4,706,875 0.62%
------------ ----------
CHEMICALS & ALLIED PRODUCTS
70,000 Monsanto Company..................................... 8,575,000
30,000 Olin Corp............................................ 2,227,500
------------
Total Chemicals & Allied Products................ 10,802,500 1.41%
------------ ----------
CIGARETTES
110,000 American Brands Inc.................................. 4,908,750 0.64%
------------ ----------
COMMERCIAL BANKING
120,000 Banc One Corp........................................ 4,530,000
100,000 BankAmerica Corp..................................... 6,475,000
140,000 Bank of New York (a)................................. 6,825,000
70,000 Chase Manhattan Corp................................. 4,243,750
70,000 Chemical Banking Corp................................ 4,112,500
55,000 First Interstate Bancorp............................. 7,507,500
</TABLE>
See notes to financial statements.
44
<PAGE> 130
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ------------ ------------ ----------
<C> <S> <C> <C>
COMMERCIAL BANKING--(CONTINUED)
80,000 First Union Corp..................................... 4,450,000
50,000 NationsBank Corporation.............................. $ 3,481,250
------------
Total Commercial Banking......................... 41,625,000 5.45%
------------ ----------
COMMUNICATIONS EQUIPMENT
170,000 GTE Corp............................................. 7,480,000 0.98%
------------ ----------
CONSTRUCTION
80,000 Halliburton Company.................................. 4,050,000 0.53%
------------ ----------
COSMETICS
84,000 Avon Products Inc.................................... 6,331,500 0.83%
------------ ----------
DRUGS
90,000 American Home Products............................... 8,730,000
80,000 Bristol-Myers Squibb Company......................... 6,870,000
140,000 Grace W.R. & Company................................. 8,277,500
150,000 Merck & Company Inc.................................. 9,862,500
150,000 Pfizer Inc........................................... 9,450,000
180,000 Schering-Plough Corp................................. 9,855,000
140,000 Smithkline Beecham ADR (a)........................... 7,770,000
150,000 Pharmacia & Upjohn Inc............................... 5,812,500
80,000 Warner Lambert Company............................... 7,770,000
------------
Total Drugs...................................... 74,397,500 9.73%
------------ ----------
ELECTRICAL EQUIPMENT
60,000 AMP Inc.............................................. 2,302,500
110,000 Emerson Electric..................................... 8,992,500
150,000 General Signal....................................... 4,856,250
20,000 Hubbell Inc Cl B..................................... 1,315,000
100,000 Thomas & Betts Corp. (a)............................. 7,375,000
------------
Total Electrical Equipment....................... 24,841,250 3.25%
------------ ----------
FINANCE
100,000 GATX Corporation..................................... 4,862,500 0.64%
------------ ----------
FINANCIAL SERVICES
160,000 American Express Company............................. 6,620,000 0.87%
------------ ----------
FOOD AND BEVERAGE
120,000 Philip Morris Companies Inc.......................... 10,860,000
15,000 General Mills Co..................................... 866,250
------------
Total Food and Beverage.......................... 11,726,250 1.53%
------------ ----------
INDUSTRIAL CHEMICALS
30,000 Dow Chemical Company................................. 2,111,250
100,000 DuPont E.I. de Nemours & Co.......................... 6,987,500
100,000 Witco Corporation.................................... 2,925,000
------------
Total Industrial Chemicals....................... 12,023,750 1.57%
------------ ----------
INDUSTRIAL MACHINERY
140,000 Carpenter Technology................................. 5,757,500
</TABLE>
See notes to financial statements.
45
<PAGE> 131
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ------------ ------------ ----------
<C> <S> <C> <C>
INDUSTRIAL MACHINERY--(CONTINUED)
225,000 Deere & Co........................................... 7,931,250
160,000 Goulds Pumps......................................... $ 4,000,000
110,000 Harsco Corp.......................................... 6,393,750
------------
Total Industrial Machinery....................... 24,082,500 3.15%
------------ ----------
INSURANCE
130,000 Aetna Life & Casualty................................ 9,002,500
110,000 Allstate Corp........................................ 4,523,750
90,000 CIGNA Corp........................................... 9,292,500
150,000 Lincoln National Corp................................ 8,062,500
------------
Total Insurance.................................. 30,881,250 4.04%
------------ ----------
MACHINERY AND INDUSTRIAL EQUIPMENT
120,000 Cooper Industries Inc................................ 4,410,000 0.58%
------------ ----------
MEDICAL & OTHER HEALTH SERVICE
160,000 Baxter International, Inc............................ 6,700,000
130,000 U.S. Healthcare Inc. ................................ 6,045,000
Total Medical & Other Health Service............. 12,745,000 1.67%
------------ ----------
METAL MINING
180,000 Freeport McMoran Copper&Gold (a)..................... 5,040,000 0.66%
------------ ----------
MOTOR VEHICLES & EQUIPMENT
270,000 Dana Corp............................................ 7,897,500
200,000 Ford Motor........................................... 5,800,000
------------
Total Motor Vehicles & Equipment................. 13,697,500 1.79%
------------ ----------
OFFICE & BUSINESS EQUIPMENT
100,000 Harris Corp Inc...................................... 5,462,500
120,000 Honeywell Inc........................................ 5,835,000
100,000 Pitney Bowes Inc..................................... 4,700,000
85,000 Xerox Corp........................................... 11,645,000
------------
Total Office & Business Equipment................ 27,642,500 3.62%
------------ ----------
OIL & GAS
80,000 Amoco Corp........................................... 5,750,000
50,000 Atlantic Richfield................................... 5,537,500
50,000 British Petroleum PLC ADR............................ 5,106,281
130,000 Chevron Corp......................................... 6,825,000
90,000 Exxon Corp........................................... 7,211,250
100,000 Occidental Petroleum................................. 2,137,500
60,000 Royal Dutch Petroleum--NY Reg ADR (a)................ 8,467,500
150,000 Tenneco Inc.......................................... 7,443,750
85,000 Texaco Inc........................................... 6,672,500
------------
Total Oil & Gas.................................. 55,151,281 7.22%
------------ ----------
OIL AND GAS FIELD SERVICES
140,000 Dresser Industries Inc............................... 3,412,500
100,000 McDermott International Inc.......................... 2,200,000
</TABLE>
See notes to financial statements.
46
<PAGE> 132
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ------------ ------------ ----------
<C> <S> <C> <C>
OIL AND GAS FIELD SERVICES--(CONTINUED)
70,000 Mobil Corp........................................... $ 7,840,000
190,000 Williams Companies Inc............................... 8,336,250
------------
Total Oil And Gas Field Services................. 21,788,750 2.85%
------------ ----------
PAPER & FOREST PRODUCTS
130,000 Federal Paper Board Inc.............................. 6,743,750
110,000 Minnesota Mining & Manufacturing..................... 7,287,500
80,000 Union Camp Corp. (a)................................. 3,810,000
140,000 Weyerhaeuser Company................................. 6,055,000
------------
Total Paper & Forrest Products................... 23,896,250 3.13%
------------ ----------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES
130,000 Eastman Kodak Company................................ 8,710,000 1.14%
------------ ----------
PRINTING & PUBLISHING
120,000 Dun & Bradstreet Corp................................ 7,770,000
120,000 McGraw-Hill Inc...................................... 10,455,000
125,000 Readers Digest Association Inc....................... 6,406,250
------------
Total Printing & Publishing...................... 24,631,250 3.22%
------------ ----------
RAILROADS
85,000 Conrail Inc.......................................... 5,950,000
110,000 Norfolk Southern Corp................................ 8,731,250
------------
Total Railroads.................................. 14,681,250 1.92%
------------ ----------
REAL ESTATE/INVESTMENT TRUSTS
59,000 Avalon Properties Inc................................ 1,268,500
70,000 Bay Apartment Communities............................ 1,697,500
65,000 Developers Diversified Realty Corp................... 1,950,000
60,000 Equity Residential Properties........................ 1,837,500
64,000 Felcor Suite Hotels Inc.............................. 1,776,000
193,300 Health Care Property Invest Inc...................... 6,789,663
80,000 Healthcare Realty Trust.............................. 1,840,000
100,000 Irvine Apartment Communities......................... 1,925,000
40,000 Redwood Trust Co..................................... 730,000
------------
Total Real Estate/ Investment Trusts............. 19,814,163 2.59%
------------ ----------
REFINING OF NONFERROUS MATERIALS
133,100 Timken Company....................................... 5,091,075 0.67%
------------ ----------
RESIDENTIAL MORTGAGES
100,000 Federal National Mortgage Assoc...................... 12,412,500 1.62%
------------ ----------
RETAIL SALES
60,000 J.C. Penney & Co..................................... 2,857,500
50,000 May Dept Stores...................................... 2,112,500
50,000 Sears Roebuck........................................ 1,950,000
------------
Total Retail Sales............................... 6,920,000 0.91%
------------ ----------
</TABLE>
See notes to financial statements.
47
<PAGE> 133
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ------------ ------------ ----------
<C> <S> <C> <C>
SAVINGS & LOAN HOLDING COMPANIES
290,000 Great Western Financial.............................. $ 7,395,000
270,000 Ahmanson H F & Co.................................... 7,155,000
------------
Total Savings and Loan Holding Cos............... 14,550,000 1.90%
------------ ----------
TELECOMMUNICATIONS
101,000 Ameritech Corp....................................... 5,959,000
100,000 Bell Atlantic Corp. (a).............................. 6,687,500
180,000 Bellsouth Corp....................................... 7,830,000
100,000 NYNEX Corp........................................... 5,400,000
170,000 Pacific Telesis Group................................ 5,716,250
120,000 SBC Communications................................... 6,900,000
150,000 Sprint Corp.......................................... 5,981,250
180,000 US West Inc.......................................... 6,435,000
150,000 US West Media Group (c).............................. 2,850,000
------------
Total Telecommunications......................... 53,759,000 7.03%
------------ ----------
UTILITIES--ELECTRIC
125,000 American Electric Power Inc.......................... 5,062,500
150,000 Carolina Power & Light Co............................ 5,175,000
120,000 FPL Group Inc........................................ 5,565,000
190,000 Southern Company..................................... 4,678,750
------------
Total Utilities--Electric........................ 20,481,250 2.68%
------------ ----------
WHOLESALE TRADE
320,000 Ogden Corp........................................... 6,840,000 0.89%
------------ ----------
Total Common Stock (cost $513,200,242)........... 657,890,144 86.08%
------------ ----------
Total Securities (cost $660,136,580)................. 805,216,482 105.35%
------------ ----------
</TABLE>
See notes to financial statements.
48
<PAGE> 134
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ------------ ------------ ----------
<S> <C> <C> <C>
REPURCHASE AGREEMENT
$ 52,732 Repurchase agreement with Morgan Stanley, dated
12/29/95 5.65%, proceeds at maturity $52,765, Due
01/02/96 (Collateralized by US Treasury Note,
7.25%, due 08/15/04 with a market value of $53,891)
(cost $52,740)....................................... $ 52,740 0.01%
------------ ----------
Total Investments (cost $660,189,320)................ $805,269,222 105.36%
Liabilities Less Other Assets........................ (40,966,692) (5.36)%
------------ ----------
Net Assets........................................... $764,302,530 100.00%
============ ==========
The aggregate cost of securities for federal income tax
purposes at December 31, 1995 is $660,285,984.
The following amount is based on costs for federal
income tax purposes:
Gross unrealized appreciation........................ $169,674,387
Gross unrealized depreciation........................ (24,691,149)
------------
Net unrealized appreciation.......................... $144,983,238
============
</TABLE>
- ------------
(a) All or part of this security is on loan.
(c) Non-income producing security.
(d) Collateral for securities on loan.
(e) Zero coupon bond.
(g) This interest rate resets on a daily basis. The rate shown was in effect as
of December 31, 1995.
See notes to financial statements.
49
<PAGE> 135
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
TIME DEPOSITS
$ 6,420,627 First National Bank of Boston, Nassau, 4.81%
Due 01/02/96(d)(g).................................. $ 6,421,634
549,964 First Union Bank, Nassau, 5.8125% Due 01/02/96(d)..... 550,050
1,455,200 Fleet Bank, Massachusetts, Nassau, 5.84375%
Due 01/05/96(d)..................................... 1,455,429
------------
Total Time Deposits (cost $8,427,113)............. 8,427,113 6.75%
------------ ----------
<CAPTION>
SHARES COMMON STOCK
- ----------- ------------------------------------------------------
<C> <S> <C> <C>
AIRCRAFT & PARTS
19,000 Allied Signal Inc..................................... 902,500
23,200 Boeing Co............................................. 1,818,300
16,700 Lockheed Martin....................................... 1,319,300
13,000 Sundstrand Corp....................................... 914,875
------------
Total Aircraft & Parts............................ 4,954,975 3.97%
------------ ----------
ATHLETIC FOOTWEAR
19,300 Nike Inc.............................................. 1,343,763 1.08%
------------ ----------
AUTOMOTIVE PRODUCTS
29,000 General Motors Corp Cl E (a).......................... 1,508,000
24,700 General Motors Corp Cl H.............................. 1,213,388
------------
Total Automotive Products......................... 2,721,388 2.18%
------------ ----------
BEVERAGES
16,600 Anheuser Busch........................................ 1,110,125 0.89%
------------ ----------
BROADCASTING
9,000 Capital Cities/ABC Inc................................ 1,110,375
27,700 Viacom Inc Cl B(c).................................... 1,312,288
------------
Total Broadcasting................................ 2,422,663 1.94%
------------ ----------
CABLE & OTHER PAY TV SERVICES
30,500 Liberty Media Group Cl A.............................. 819,687 0.66%
------------ ----------
CIGARETTES
27,400 Philip Morris Co Inc.................................. 2,479,700 1.99%
------------ ----------
COMMERCIAL BANKING
22,500 Bank of Boston........................................ 1,040,625
26,300 Bankamerica Corp...................................... 1,702,925
2,400 Barnett Banks Inc..................................... 141,600
19,100 Chemical Banking Corp................................. 1,122,125
26,300 Citicorp.............................................. 1,768,675
20,600 Nationsbank Corp...................................... 1,434,275
------------
Total Commercial Banking.......................... 7,210,225 5.78%
------------ ----------
COMMUNICATION SYSTEMS
25,700 3 Com Corp............................................ 1,198,263
5,200 US Robotics Corp...................................... 456,300
------------
Total Communication Systems....................... 1,654,563 1.32%
------------ ----------
</TABLE>
See notes to financial statements.
50
<PAGE> 136
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
COMPUTER & OFFICE EQUIPMENT
12,300 Alco Standard Corp.................................... $ 561,187
26,600 CUC International Inc................................. 907,725
13,900 International Business Machines....................... 1,275,325
8,300 Xerox Corp............................................ 1,137,100
------------
Total Computer & Office Equipment................. 3,881,337 3.11%
------------ ----------
COMPUTER RELATED SERVICES
12,800 Ceridian Corp......................................... 528,000
15,600 Cisco Systems Inc(c).................................. 1,164,150
32,500 Honeywell............................................. 1,580,312
------------
Total Computer Related Services................... 3,272,462 2.62%
------------ ----------
CONSTRUCTION
18,600 Fluor Corp............................................ 1,227,600
18,200 Halliburton Co........................................ 921,375
------------
Total Construction................................ 2,148,975 1.72%
------------ ----------
CONSUMER GOODS & SERVICES
28,782 Kimberly-Clark Corp................................... 2,381,710
21,500 Procter & Gamble Company.............................. 1,784,500
------------
Total Consumer Goods & Services................... 4,166,210 3.34%
------------ ----------
CUTLERY, HANDTOOLS, GENERAL HARDWARE
31,200 Black & Decker Corp................................... 1,099,800 0.88%
------------ ----------
DRUGS
27,200 Eli Lilly & Co........................................ 1,530,000
22,500 Merck & Co Inc........................................ 1,479,375
49,300 Pharmacia & Upjohn Inc................................ 1,910,375
31,000 Smithkline Beecham ADR (a)............................ 1,720,500
------------
Total Drugs....................................... 6,640,250 5.32%
------------ ----------
ELECTRICAL EQUIPMENT
13,800 Cabletron Systems Communications (a).................. 1,117,800
18,100 Emerson Electric...................................... 1,479,675
21,400 Hewlett Packard....................................... 1,792,250
20,500 Linear Technology Corp................................ 804,625
19,300 LSI Logic(a)(c)....................................... 632,075
------------
Total Electrical Equipment........................ 5,826,425 4.67%
------------ ----------
FINANCE-SERVICES
21,400 First Data Corp....................................... 1,431,125
16,200 Franklin Resources Inc................................ 816,075
24,100 MBNA Corp............................................. 888,687
19,200 Merrill Lynch......................................... 979,200
------------
Total Finance--Services........................... 4,115,087 3.30%
------------ ----------
</TABLE>
See notes to financial statements.
51
<PAGE> 137
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
FOOD DISTRIBUTOR
7,700 IBP Inc............................................... $ 388,850
29,900 Nabisco Holdings Corp Cl A............................ 975,488
31,400 Pepsico Inc........................................... 1,754,475
------------
Total Food Distributor............................ 3,118,813 2.50%
------------ ----------
HEALTH CARE PRODUCTS
21,700 Amgen Inc(c).......................................... 1,288,437
23,000 Johnson & Johnson..................................... 1,969,375
------------
Total Health Care Products........................ 3,257,812 2.61%
------------ ----------
HOTELS
23,500 Marriott International inc............................ 898,875
33,400 Mirage Resorts Inc.................................... 1,152,300
------------
Total Hotels...................................... 2,051,175 1.64%
------------ ----------
INDUSTRIAL MACHINERY
26,900 Applied Materials Inc.(c)............................. 1,059,188 0.85%
------------ ----------
INSURANCE
14,575 American International Group.......................... 1,348,188
9,100 Cigna Corp............................................ 939,575
15,800 MGIC Investment(a).................................... 857,150
27,400 Travelers Inc......................................... 1,722,775
------------
Total Insurance................................... 4,867,688 3.90%
------------ ----------
MEDICAL EQUIPMENT
26,400 Baxter International Inc.............................. 1,105,500
19,300 Guidant Corp.......................................... 815,425
8,500 Medtronic Inc......................................... 474,938
------------
Total Medical Equipment........................... 2,395,863 1.92%
------------ ----------
METAL MINING
39,500 Freeport McMoran Copper & Gold(a)..................... 1,106,000 0.89%
------------ ----------
MISCELLANEOUS
12,500 Pioneer Hi-Bred International......................... 695,313 0.56%
------------ ----------
OIL & GAS
14,100 British Petroleum PLC ADR............................. 1,439,963
25,300 Enron................................................. 964,563
20,100 Exxon Corp............................................ 1,610,512
19,900 Mobil Corp............................................ 2,228,800
34,000 Total Petroleum ADR................................... 1,156,000
------------
Total Oil & Gas................................... 7,399,838 5.93%
------------ ----------
PHOTOGRAPHIC EQUIPMENT
18,100 Polaroid Corp......................................... 857,488 0.69%
------------ ----------
RAILROADS
17,300 Burlington Northern Sante Fe.......................... 1,349,400 1.08%
------------ ----------
</TABLE>
See notes to financial statements.
52
<PAGE> 138
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
RETAIL STORES
42,600 Federated Department Stores (a)(c).................... $ 1,171,500
20,100 Harcourt General Inc.................................. 841,688
29,900 Rite Aid Corp......................................... 1,024,075
18,300 Safeway Inc (a)(c).................................... 942,450
30,900 Sears Roebuck & Co.................................... 1,205,100
------------
Total Retail Stores............................... 5,184,813 4.15%
------------ ----------
SERVICES-HEALTH & ALLIED SERVICES
20,600 Columbia/HCA Healthcare Corp.......................... 1,045,450
13,600 HBO & Co.............................................. 1,042,100
------------
Total Services--Health & Allied Services.......... 2,087,550 1.67%
------------ ----------
SEMICONDUCTORS
18,400 Intel Corp............................................ 1,044,200 0.84%
------------ ----------
SOFTWARE MANUFACTURE
22,200 Microsoft Corp(c)..................................... 1,948,050
17,800 Parametric Technology Corp(c)......................... 1,183,700
13,900 Sybase Inc(c)......................................... 500,400
------------
Total Software Manufacture........................ 3,632,150 2.91%
------------ ----------
SPECIALTY CHEMICALS
8,100 Great Lakes Chemical Corp............................. 583,200
20,200 Pfizer................................................ 1,272,600
32,900 Praxair Inc........................................... 1,106,261
------------
Total Specialty Chemicals......................... 2,962,061 2.37%
------------ ----------
TELECOMMUNICATIONS
25,200 Bell Atlantic Corp(a)................................. 1,685,250
39,200 GTE Corp.............................................. 1,724,800
70,900 MCI Communications.................................... 1,852,261
40,600 Southwestern Bell Corp.(c)............................ 2,334,500
------------
Total Telecommunications.......................... 7,596,811 6.08%
------------ ----------
U.S. GOVERNMENT AGENCY
12,600 Federal National Mortgage Association................. 1,563,975 1.25%
------------ ----------
Total Common Stock (cost $99,906,919)............. 108,097,773 86.61%
------------ ----------
Total Securities (cost $108,334,032).............. 116,524,886 93.36%
------------ ----------
</TABLE>
See notes to financial statements.
53
<PAGE> 139
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ------------ ----------
REPURCHASE AGREEMENT
<C> <S> <C> <C>
$18,367,949 Repurchase Agreement with Morgan Stanley, dated
12/29/95 5.65%, proceeds at maturity $18,379,322,
due 01/02/96 (Collateralized by US Treasury Note,
7.25%, due 08/15/04 with a market value of
$18,771,414) (cost $18,370,832)....................... $ 18,370,832 14.72%
------------ ----------
Total Investments (cost $126,704,864)................. $134,895,718 108.08%
Liabilities Less Other Assets......................... (10,083,987) (8.08)%
------------ ----------
Net Assets............................................ $124,811,731 100.00%
============ ==========
The aggregate cost of securities for federal income tax
purposes at December 31, 1995 is $126,843,209.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation......................... $ 9,790,143
Gross unrealized depreciation......................... (1,737,634)
------------
Net unrealized appreciation........................... $ 8,052,509
============
</TABLE>
- ------------
(a) All or part of this security is on loan.
(c) Non-income producing security.
(d) Collateral for securities on loan.
(g) This interest rate resets on a daily basis. The rate shown was in
effect as of December 31, 1995.
See notes to financial statements.
54
<PAGE> 140
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ------------ -------------
<C> <S> <C> <C>
BANK NOTES
$ 2,000,000 Republic New York Securities Corp, 6.15%
Due 02/12/96 (d)(g) (cost $2,000,316)............. $ 2,000,316 0.90%
------------ -------------
COMMERCIAL PAPER
6,000,000 Lehman Brothers Holdings, Inc, 4.90%
Due 04/25/96 (d)(g) (cost $6,000,948)............. 6,000,948 2.70%
------------ -------------
TIME DEPOSITS
10,912,901 First National Bank of Boston, Nassau, 4.81%
Due 01/02/96 (d)(g)............................... 10,914,626
2,827,299 First Union Bank, Nassau, 5.81255 Due 01/02/96 (d).. 2,827,746
7,575,800 Fleet Bank, Massachusetts, Nassau, 5.84375%
Due 01/05/96 (d).................................. 7,576,998
14,000,000 Fleet Bank, Rhode Island, Cayman, 5.8125
Due 01/31/96 (d).................................. 14,002,213
------------
Total Time Deposits (cost $35,321,583).......... 35,321,583 15.88%
------------ -------------
</TABLE>
<TABLE>
<CAPTION>
SHARES COMMON STOCK
- ----------- ----------------------------------------------------
<C> <S> <C> <C>
ANIMAL SERVICES
159,050 Petsmart Inc. (a)(c)................................ 4,930,550 2.22%
------------ -------------
COMMUNICATIONS EQUIPMENT
147,000 3 Com Corp. (c)..................................... 6,853,875
29,800 Cascade Communications Corp (a)(c).................. 2,540,450
38,000 Motorola Inc........................................ 2,166,000
178,400 Tellabs Inc. (c).................................... 6,600,800
------------
Total Communications Equipment.................. 18,161,125 8.17%
------------ -------------
COMMUNICATIONS SERVICES
117,100 Mobile Telecommunications (c)....................... 2,503,013 1.13%
------------ -------------
CONSTRUCTION
179,000 Lowes Co's, Inc..................................... 5,996,500 2.70%
------------ -------------
EATING & DRINKING PLACES
328,200 Starbucks Corp. (a)(c).............................. 6,892,200 3.10%
------------ -------------
ELECTRICAL EQUIPMENT
93,200 Cisco Systems, Inc. (c)............................. 6,955,050
68,500 Intel Corp.......................................... 3,887,375
------------
Total Electrical Equipment...................... 10,842,425 4.87%
------------ -------------
</TABLE>
See notes to financial statements.
55
<PAGE> 141
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------
<C> <S> <C> <C>
FINANCIAL SERVICES
35,700 First Data Corp (a)................................. $ 2,387,438 1.07%
------------ -------------
FOOD AND BEVERAGE
196,900 Boston Chicken Inc. (a)(c).......................... 6,325,413 2.84%
------------ -------------
MEDICAL & OTHER HEALTH SERVICES
212,300 Healthsource Inc. (c)............................... 7,642,800
63,600 Medtronic Inc....................................... 3,553,650
107,800 Oxford Health Plans (c)............................. 7,963,725
------------
Total Medical & Other Health Services........... 19,160,175 8.62%
------------ -------------
OFFICE & BUSINESS EQUIPMENT
143,650 CUC International Inc............................... 4,902,056
64,300 Hewlett-Packard Inc................................. 5,385,125
224,700 Informix Corporation (c)............................ 6,741,000
73,600 Microsoft Corp. (c)................................. 6,458,400
180,900 Office Depot (c).................................... 3,572,775
189,650 Officemax Inc.(c)................................... 4,243,419
121,750 Oracle Systems Corp. (c)............................ 5,159,156
------------
Total Office & Business Equipment............... 36,461,931 16.40%
------------ -------------
PERSONAL SERVICES
137,000 H & R Block, Inc.................................... 5,548,500 2.49%
------------ -------------
RESEARCH, DEVELOPMENT & TESTING
149,400 Biogen, Inc. (c).................................... 9,188,100 4.13%
------------ -------------
RETAIL SALES
186,500 Autozone Inc. (a)(c)................................ 5,385,188
181,898 Home Depot.......................................... 8,708,367
266,462 Staples Inc. (c).................................... 6,495,010
------------
Total Retail Sales.............................. 20,588,565 9.26%
------------ -------------
SERVICES-HEALTH & ALLIED SERVICES
137,000 Boston Scientific Corp (a)(c)....................... 6,713,000
97,000 Genzyme Corp--General Division (c).................. 6,050,375
49,200 HBO & Co............................................ 3,769,950
88,000 United Healthcare Corp.............................. 5,764,000
------------
Total Services--Health & Allied Services........ 22,297,325 10.03%
------------ -------------
SOFTWARE DEVELOPMENT
60,500 Intuit Inc. (c)..................................... 4,719,000
46,300 Netcom On-Line Communication (a)(c)................. 1,666,800
28,800 Netscape Communications Corp (a)(c)................. 4,003,200
70,200 Peoplesoft Inc. (a)(c).............................. 3,018,600
69,500 Sybase Inc. (c)..................................... 2,502,000
------------
Total Software Development...................... 15,909,600 7.15%
------------ -------------
</TABLE>
See notes to financial statements.
56
<PAGE> 142
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------ -------------
<C> <S> <C> <C>
TELECOMMUNICATIONS
220,100 Airtouch Communications Inc. (c).................... $ 6,217,825
219,600 Ericsson L M Telephone ADR.......................... 4,282,200
134,300 Paging Network Inc. Telecom (c)..................... 3,273,562
123,600 Vodafone Group PLC ADR.............................. 4,356,900
205,300 Worldcom Inc........................................ 7,236,825
------------
Total Telecommunications........................ 25,367,312 11.41%
------------ -------------
Total Common Stock (cost $173,010,404).......... 212,560,172 95.59%
------------ -------------
Total Securities (cost $216,333,251)............ 255,883,019 115.07%
------------ -------------
PRINCIPAL
- -----------
REPURCHASE AGREEMENT
$ 9,711,528 Repurchase Agreement with Morgan Stanley, dated
12/29/95 5.65%, proceeds at maturity $9,717,624,
due 01/02/96 (Collateralized by US Treasury Note,
7.25%, due 08/15/04 with a market value of
$9,924,849) (cost $9,713,052)....................... 9,713,052 4.37%
------------ -------------
Total Investments (cost $226,046,303)........... $265,596,071 119.44%
Liabilities Less Other Assets................... (43,233,681) (19.44)%
------------ -------------
Net Assets...................................... $222,362,390 100.00%
============ =============
The aggregate cost of securities for federal income tax
purposes at December 31, 1995 is $226,046,303.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation....................... $ 44,075,286
Gross unrealized depreciation....................... (4,525,518)
------------
Net unrealized appreciation......................... $ 39,549,768
============
</TABLE>
- ------------
(a) All or part of this security is on loan
(c) Non-income producing security.
(d) Collateral for securities on loan.
(g) This interest rate resets on a daily basis. The rate shown was in
effect as of December 31, 1995.
See notes to financial statements.
57
<PAGE> 143
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
TIME DEPOSITS
$13,348,289 First National Bank of Boston, Nassau, 4.81%
Due 01/02/96 (d)(g).................................. $ 13,350,371
1,665,311 First Union Bank, Nassau, 5.8125%
Due 01/02/96 (d)..................................... 1,665,571
10,500,000 Fleet Bank, Rhode Island, Cayman, 5.8125%
Due 01/31/96 (d)..................................... 10,501,638
------------
Total Time Deposits (cost $25,517,580)............. 25,517,580 8.09%
------------ ----------
<CAPTION>
SHARES COMMON STOCK
- ----------- -------------------------------------------------------
<C> <S> <C> <C>
BANKING EQUITY
110,000 Peoples Bank Bridgeport................................ 2,090,000
162,300 Premier Bancorp........................................ 3,793,763
------------
Total Banking Equity............................... 5,883,763 1.87%
------------ ----------
BEVERAGES
12,400 Pete's Brewing Company (c)............................. 173,600 0.06%
------------ ----------
BOOKS
34,900 Gartner Group Inc. Cl A (a)(c)......................... 1,670,838 0.53%
------------ ----------
BROADCASTING
47,400 Granite Broadcasting Corp (a)(c)....................... 503,625
42,000 Heftel Broadcasting Corp. (c).......................... 735,000
73,700 Osborn Communications CP-New (c)....................... 626,450
------------
Total Broadcasting................................. 1,865,075 0.59%
------------ ----------
CABLE & OTHER PAY TV SERVICES
14,800 Cablevision Systems Corp. (c).......................... 802,900
21,400 Comcast UK Cable Partners (c).......................... 267,500
1,800 Jones Intercable Inc................................... 22,500
64,500 Jones Intercable Inc. Cl A............................. 798,188
------------
Total Cable & Other Pay TV Services................ 1,891,088 0.60%
------------ ----------
COMMERCIAL BANKING
11,300 Norwest Corporation.................................... 372,900 0.12%
------------ ----------
COMMUNICATIONS EQUIPMENT
25,700 Ascend Communications Inc (c).......................... 2,084,913
37,800 Picturetel Corp (a)(c)................................. 1,630,125
------------
Total Communications Equipment..................... 3,715,038 1.18%
------------ ----------
COMMUNICATIONS SERVICES
22,500 Arch Communications Group Inc (c)...................... 540,000
12,000 Cellular Communications of Puerto Rico (c)............. 333,000
11,100 CommNet Cellular Inc. (c).............................. 320,513
------------
Total Communications Services...................... 1,193,513 0.38%
------------ ----------
COMPUTER & OFFICE EQUIPMENT
16,000 Aaron Rents Inc Cl B................................... 288,000
52,600 Acxiom Corp. (c)....................................... 1,439,925
25,400 Altron Inc (c)......................................... 762,000
70,000 Amplicon Inc. ......................................... 1,120,000
</TABLE>
See notes to financial statements.
58
<PAGE> 144
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
COMPUTER & OFFICE EQUIPMENT--(CONTINUED)
14,000 Boise Cascade Office Products (c)...................... $ 598,500
12,400 Cisco Systems Inc (c).................................. 925,350
40,800 Compaq Computer (c).................................... 1,958,400
38,850 Corporate Express Inc. (c)............................. 1,170,356
12,200 CDW Computer Centers Inc. (a)(c)....................... 494,100
34,600 CUC International Inc. ................................ 1,180,725
46,400 Cambridge Tech Partners Inc. (c)....................... 2,668,000
51,200 Comverse Technology Inc (a)(c)......................... 1,024,000
16,200 Fair Issac & Company Inc. ............................. 419,175
28,150 Jack Henry & Associates................................ 696,712
43,950 McAfee Associates Inc. (c)............................. 1,928,306
41,300 National Computer System Inc. ......................... 779,538
13,300 Storemedia (c)......................................... 485,450
35,600 Telxon Corp............................................ 805,450
24,800 U. S. Office Products Co. (c).......................... 564,200
54,000 Zebra Technologies Corp. (c)........................... 1,836,000
------------
Total Computer & Office Equipment.................. 21,144,187 6.70%
------------ ----------
COMPUTER SERVICES
42,000 America On-Line Inc (a)(c)............................. 1,575,000
12,400 Cascade Communications Corp (a)(c)..................... 1,057,100
30,400 Ciber Inc (c).......................................... 710,600
21,000 DST Systems Inc (c).................................... 598,500
20,900 Diamond Multimedia Systems (c)......................... 749,787
------------
Total Computer Services............................ 4,690,987 1.49%
------------ ----------
CONSUMER GOODS & SERVICES
30,000 Alternative Resources Corp. (c)........................ 907,500
10,000 Armor All Products Corp. .............................. 181,250
36,800 Kimberly-Clark Corp.................................... 3,045,200
------------
Total Consumer Goods & Services.................... 4,133,950 1.31%
------------ ----------
DRUGS
58,400 American Safety Razor Company (c)...................... 459,900
27,200 Chiron Corp. (a)(c).................................... 3,005,600
42,200 Vitalink Pharmacy Services (c)......................... 981,150
------------
Total Drugs........................................ 4,446,650 1.41%
------------ ----------
EATING & DRINKING PLACES
25,238 Apple South Inc. ...................................... 542,606
29,700 Boston Chicken (a)(c).................................. 954,113
13,400 Papa John's International Inc (a)...................... 551,913
------------
Total Eating & Drinking Places..................... 2,048,632 0.65%
------------ ----------
EDUCATION
8,600 Apollo Group Inc Cl A (c).............................. 336,475
180,000 ITT Educational Services Inc. (c)...................... 4,432,500
152,500 Kinder Care Learning Centers (c)....................... 1,925,313
</TABLE>
See notes to financial statements.
59
<PAGE> 145
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
EDUCATION--(CONTINUED)
485,800 National Education Corp. .............................. $ 3,947,125
------------
Total Education.................................... 10,641,413 3.37%
------------ ----------
ELECTRICAL EQUIPMENT
26,600 Alantec Corp. (c)...................................... 1,549,450
39,700 Cable Design Technologies (c).......................... 1,746,800
48,350 Checkpoint Systems Inc. (c)............................ 1,807,081
48,900 Kemet Corp. (c)........................................ 1,167,488
13,100 Kent Electronics Corp. (c)............................. 764,712
85,000 Rogers Corp. .......................................... 1,848,750
7,300 Sterling Electronics................................... 125,013
34,700 Tencor Instruments (c)................................. 845,813
49,200 Ultratech Stepper Inc. (c)............................. 1,266,900
------------
Total Electrical Equipment......................... 11,122,007 3.53%
------------ ----------
ENVIRONMENTAL MANAGEMENT
51,200 United Waste Systems Inc. (c).......................... 1,907,200 0.61%
------------ ----------
FINANCE
73,000 Allied Capital Corporation (a)......................... 994,625
45,327 Allied Capital Lending Co.............................. 600,583
77,600 Cash American Investments Inc. ........................ 426,800
------------
Total Finance...................................... 2,022,008 0.64%
------------ ----------
FINANCIAL SERVICES
31,900 Concord EFS Inc. (c)................................... 1,347,775 0.43%
------------ ----------
FREIGHT AND CARGO
36,000 Fritz Companies Inc. (a)(c)............................ 1,494,000
169,700 Harper Group Inc. ..................................... 3,012,175
------------
Total Freight and Cargo............................ 4,506,175 1.43%
------------ ----------
GAMING
13,100 Anchor Gaming (c)...................................... 298,025
42,300 Harveys Casinos Resorts................................ 761,400
26,100 Scientific Games Holdings Corp (c)..................... 985,275
------------
Total Gaming....................................... 2,044,700 0.65%
------------ ----------
GROCERY STORES
44,000 Dairymart Coven Stores Cl A (c)........................ 247,500
37,700 General Nutrition Companies (c)........................ 867,100
19,400 Uni-Marts Inc.......................................... 160,050
------------
Total Grocery Stores............................... 1,274,650 0.40%
------------ ----------
HEALTH SERVICES & HOSPITAL SUPPLIES
52,900 Advocat Inc. (c)....................................... 588,513
24,000 Circon Corp (c)........................................ 486,000
14,700 Coherent Inc. (c)...................................... 595,350
27,500 Daig Corp (c).......................................... 632,500
21,100 Gulf South Medical Supply Inc. (c)..................... 638,275
</TABLE>
See notes to financial statements.
60
<PAGE> 146
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
HEALTH SERVICES & HOSPITAL SUPPLIES--(CONTINUED)
22,800 Neuromedical Systems Inc. (c).......................... $ 458,850
28,200 Orthodontic Centers Of America (c)..................... 1,360,650
46,400 Owen Healthcare Inc. (c)............................... 1,281,800
157,500 Owens & Minor Holding Co. ............................. 2,008,125
48,300 Physician Sales & Service (c).......................... 1,376,550
25,400 Quintiles Transnational Corp. (c)...................... 1,041,400
102,600 Unilab Corporation (c)................................. 275,738
97,200 Universal Health Services Cl B......................... 4,313,250
------------
Total Health Services & Hospital Supplies.......... 15,057,001 4.77%
------------ ----------
HORTICULTURAL SPECIALTIES
47,000 Sylvan Inc. (c)........................................ 558,125 0.18%
------------ ----------
HOTELS
12,400 HFS Inc................................................ 1,013,700 0.32%
------------ ----------
INDUSTRIAL MACHINERY
45,700 Applied Materials Inc. (c)............................. 1,799,438
17,600 Astec Industries (c)................................... 173,800
67,500 Electro Rent Corp. (c)................................. 1,468,125
13,400 MSC Industrial Direct Co. Cl A (a)(c).................. 368,500
------------
Total Industrial Machinery......................... 3,809,863 1.21%
------------ ----------
INSURANCE
56,800 American Travellers Corp. (a)(c)....................... 1,597,500
22,500 Intercargo Inc. ....................................... 225,000
38,600 National Western Life Insurance Cl A (c)............... 2,161,600
38,700 Western National Corp. ................................ 624,038
72,800 Willis Corroon Group ADR (a)........................... 846,300
------------
Total Insurance.................................... 5,454,438 1.73%
------------ ----------
MANUFACTURING
51,600 Blyth Industries Inc. (c).............................. 1,522,200
3,500 In Focus Systems Inc (c)............................... 126,438
32,900 Qualcomm Inc. (c)...................................... 1,414,700
22,000 Wolverine Tube Inc. (c)................................ 825,000
------------
Total Manufacturing................................ 3,888,338 1.23%
------------ ----------
MANUFACTURER OF INTEGRATED CIRCUITS
19,400 Hadco Corp (c)......................................... 545,625 0.17%
------------ ----------
MEDICAL & OTHER HEALTH SERVICE
15,299 Community Health Systems (c)........................... 545,027
27,000 Compdent Corp (c)...................................... 1,120,500
48,200 Genzyme Corp.--General Division (a).................... 3,006,475
9,500 Health Management Systems Inc (c)...................... 370,500
71,300 Healthsource Inc. (c).................................. 2,566,800
27,300 IDEXX Laboratories Inc. (c)............................ 1,283,100
26,500 Living Centers of America (c).......................... 927,500
60,500 Medpartners/Millikin Inc. (a)(c)....................... 1,996,500
</TABLE>
See notes to financial statements.
61
<PAGE> 147
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
MEDICAL & OTHER HEALTH SERVICE--(CONTINUED)
42,400 Omnicare Inc. (a)...................................... $ 1,897,400
16,000 Ornda Healthcorp (c)................................... 372,000
37,800 Oxford Health Plans.................................... 2,792,475
19,800 Pacificare Health Systems Cl B (c)..................... 1,722,600
13,850 Phycor Inc. (c)........................................ 700,291
26,600 Physician Reliance (c)................................. 1,057,350
22,200 Quorum Health Group Inc (c)............................ 488,400
32,800 Renal Treatment Centers Inc (c)........................ 1,443,200
23,000 Summit Care Corp. (c).................................. 526,125
------------
Total Medical & Other Health Service............... 22,816,243 7.23%
------------ ----------
MISCELLANEOUS
100,300 Alpha Industries Inc. ................................. 1,416,738
3,000 Delta & Pine Land Co. ................................. 110,250
32,300 Midwest Grain Products, Inc. (c)....................... 452,200
------------
Total Miscellaneous................................ 1,979,188 0.63%
------------ ----------
MOTOR VEHICLES AND EQUIPMENT
42,800 Discount Auto Parts Inc. (c)........................... 1,332,150 0.42%
------------ ----------
NON-DEPOSITORY CREDIT INSTITUTIONS
80,500 The Money Store Inc. .................................. 1,257,813 0.40%
------------ ----------
OIL & GAS
50,200 Berry Petroleum Cl A................................... 508,275
49,700 Daniel Industries...................................... 708,225
88,900 Tosco Corp. ........................................... 3,389,313
------------
Total Oil & Gas.................................... 4,605,813 1.46%
------------ ----------
PERSONAL CARE PRODUCTS
40,400 Helen of Troy LTD--New................................. 848,400 0.27%
------------ ----------
PERSONNEL SERVICES
31,800 Accustaff Inc (c)...................................... 1,399,200
32,575 Brandon System Corp. .................................. 834,734
51,600 Manpower Inc. ......................................... 1,451,250
23,100 Robert Half International Inc. ........................ 967,312
------------
Total Personnel Services........................... 4,652,496 1.47%
------------ ----------
PHOTORESIST REMOVAL EQUIPMENT
40,100 Gasonics International Corp (c)........................ 541,350 0.17%
------------ ----------
PLASTICS MATERIALS & SYNTHETIC
139,800 Lydall Inc. ........................................... 3,180,450 1.01%
------------ ----------
POLLUTION CONTROL
51,102 Tetra Tech Inc. (c).................................... 1,162,561
38,100 U.S. Filter Corp. (c).................................. 1,014,412
------------
Total Pollution Control............................ 2,176,973 0.69%
------------ ----------
PRINTING & PUBLISHING
50,800 ASM Lithography Holding NV (c)......................... 1,689,100
</TABLE>
See notes to financial statements.
62
<PAGE> 148
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
PRINTING & PUBLISHING--(CONTINUED)
19,600 Clear Channel Communications........................... $ 864,850
60,000 Houghton Mifflin Company............................... 2,580,000
25,700 Scholastic Corp. (c)................................... 1,998,175
235,000 Steck Vaughn Publishing Corp. (c)...................... 1,733,125
------------
Total Printing & Publishing........................ 8,865,250 2.81%
------------ ----------
RADIATION MONITORING SERVICE
27,800 Landauer Inc. ......................................... 604,650 0.19%
------------ ----------
RADIO, TV, CONSUMER ELECTRONICS & MUSIC
82,600 Cognex Corp. (c)....................................... 2,870,350 0.91%
------------ ----------
RAILROADS
19,500 Wisconsin Central Transport (c)........................ 1,282,125 0.41%
------------ ----------
REAL ESTATE INVESTMENT TRUST
99,800 Allied Capital Commercial Corp......................... 1,971,050
65,400 Equity Inns Inc........................................ 752,100
22,800 Health Care Property Invest Inc. ...................... 800,850
14,800 RFS Hotel Investors Inc................................ 227,550
26,800 Roc Communities Inc. .................................. 643,200
------------
Total Real Estate Investment Trust................. 4,394,750 1.39%
------------ ----------
RETAIL SALES
9,900 Baby Superstore (a)(c)................................. 564,300
62,700 Catherines Stores Corp. (c)............................ 517,275
86,200 Consolidated Stores Corp. (c).......................... 1,874,850
69,000 Fred's Inc. ........................................... 517,500
18,600 Gap Stores............................................. 781,200
29,000 Global Directmail Corp. (c)............................ 797,500
175,000 MacFrugals Bargains Close-Outs......................... 2,450,000
30,300 The Men's Wearhouse Inc (a)............................ 780,225
155,200 Michael Anthony Jewellers Inc. (c)..................... 407,400
23,700 Micro Warehouse Inc. (a)(c)............................ 1,025,025
41,700 Nautica Enterprises Inc (c)............................ 1,824,375
58,200 Pentech International Inc. (c)......................... 116,400
37,700 Sunglass Hut Inc. (c).................................. 895,375
13,100 Tandy Crafts Inc. ..................................... 103,162
81,900 Tommy Hilfiger Corp (c)................................ 3,470,512
52,600 Travel Ports of America (c)............................ 131,500
------------
Total Retail Sales................................. 16,256,599 5.15%
------------ ----------
SANITARY SERVICES
44,500 National Sanitary Supply (c)........................... 522,875
27,300 Sanifill Inc (c)....................................... 911,137
------------
Total Sanitary Services............................ 1,434,012 0.45%
------------ ----------
SAVINGS & LOAN HOLDING COMPANY
52,573 First Republic Bancorp Inc. ........................... 690,020 0.22%
------------ ----------
</TABLE>
See notes to financial statements.
63
<PAGE> 149
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
SAVINGS INSTITUTIONS
114,000 American Federal Bank.................................. $ 1,738,500
101,400 Charter One Finance Inc................................ 3,105,375
103,000 First Saving Bank of Washington........................ 1,351,875
140,000 Roosevelt Financial Group Inc. (a)..................... 2,712,500
60,000 Washington Mutual Inc (a).............................. 1,732,500
------------
Total Savings Institutions......................... 10,640,750 3.37%
------------ ----------
SECURITY SYSTEM SERVICES
753,692 Automated Security Holdings ADR........................ 565,267
9,000 Protection One Inc (c)................................. 92,250
130,000 Sensormatic Electronics Corp (a)....................... 2,258,750
------------
Total Security System Services..................... 2,916,267 0.92%
------------ ----------
SEMICONDUCTOR MANUFACTURER
20,000 FSI International Inc. (c)............................. 405,000
39,100 Input/Output Inc. (a)(c)............................... 2,258,025
17,500 Richardson Electronics................................. 188,125
36,700 Sierra Semiconductor (c)............................... 509,212
------------
Total Semiconductor Manufacturer................... 3,360,362 1.07%
------------ ----------
SERVICES-CLEANING & MAINTENANCE TO DWELLERS
28,800 ABM Industries Inc. ................................... 799,200 0.25%
------------ ----------
SEWER/DRAIN CLEANING SERVICE
23,900 Roto Rooter Inc. ...................................... 788,700 0.25%
------------ ----------
SOFTWARE MANUFACTURER
36,800 Actel Corp (c)......................................... 395,600
7,000 American Business Information (c)...................... 135,625
42,200 Astea International Inc (c)............................ 965,325
9,900 Broderbund Software Inc. (a)(c)........................ 601,425
4,900 Catalyst International Inc (c)......................... 56,350
93,200 Computer Associates Intl Inc. ......................... 5,300,750
43,600 Computron Software Inc (c)............................. 784,800
18,000 Dialogic Corp (c)...................................... 693,000
43,700 Electronics For Imaging (c)............................ 1,911,875
71,400 Hyperion Software Corp. (c)............................ 1,517,250
21,300 INSO Corp (a) (c)...................................... 905,250
18,600 Integrated Systems Inc (c)............................. 725,400
9,900 Intuit Inc (c)......................................... 772,200
16,600 Medic Computer Systems Inc. (c)........................ 1,004,300
60,500 Microsoft Corp (c)..................................... 5,308,875
51,900 Netmanage Inc (a)(c)................................... 1,206,675
30,500 Optical Data Systems Inc (c)........................... 770,125
42,000 Oracle Corporation (c)................................. 1,779,750
74,100 Parametric Technology Corp (a)......................... 4,927,650
20,600 Project Software & Development......................... 718,425
19,800 Remedy Corp (c)........................................ 1,173,150
26,600 Shiva Corp (a)(c)...................................... 1,935,150
</TABLE>
See notes to financial statements.
64
<PAGE> 150
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
SOFTWARE MANUFACTURER--(CONTINUED)
21,000 Sterling Software...................................... $ 1,309,875
16,700 Veritas Software Corp (c).............................. 634,600
------------
Total Software Manufacturer........................ 35,533,425 11.26%
------------ ----------
SPECIALTY CHEMICALS
29,100 Chemed Corp. .......................................... 1,131,262
37,600 IMC Global Inc......................................... 1,536,900
------------
Total Specialty Chemicals.......................... 2,668,162 0.85%
------------ ----------
TELECOMMUNICATIONS
36,500 ACC Corp. ............................................. 841,781
24,100 Allen Group............................................ 539,237
29,600 Aspect Telecommunications Corp (c)..................... 991,600
63,500 AT&T Capital Corp...................................... 2,428,875
11,575 Associated Group Inc.-Cl A (c)......................... 218,477
19,675 Associated Group Inc.-Cl B (c)......................... 373,825
65,000 Cabletron Systems Inc. (c)............................. 5,265,000
1,000 Cellular Communications Inc (c)........................ 49,750
59,975 Centennial Cellular Corp Cl A (c)...................... 1,027,072
78,400 Communications Central Inc. (c)........................ 352,800
53,000 Davel Communications Group (c)......................... 715,500
56,300 Premisys Communications Inc (a)(c)..................... 3,152,800
33,600 Pronet Inc. (c)........................................ 991,200
77,800 TPI Enterprises (c).................................... 243,125
32,000 VTEL Corp (c).......................................... 592,000
17,800 Worldcom Inc (c)....................................... 627,450
------------
Total Telecommunications........................... 18,410,492 5.84%
------------ ----------
TRANSPORTATION
92,000 Air Express International Corp. ....................... 2,116,000
100,000 Airborne Freight Corp. ................................ 2,662,500
105,700 Consolidated Freightways Inc. ......................... 2,801,050
33,300 Oxford Resources Corp. Cl A (c)........................ 749,250
129,700 Pittston Services Group................................ 4,069,337
------------
Total Transportation............................... 12,398,137 3.93%
------------ ----------
WIDE AREA NETWORKS
100,600 Stratacom Inc (a)(c)................................... 7,394,100
34,600 Sun Microsystems Inc (c)............................... 1,578,625
------------
Total Wide Area Networks........................... 8,972,725 2.84%
------------ ----------
Total Common Stocks (cost $249,235,219)................ 294,700,091 93.42%
------------ ----------
PREFERRED STOCK
TELECOMMUNICATIONS
9,094 Cellular Communications Inc. (c) (cost $425,145)....... 445,606 0.14%
------------ ----------
Total Securities (cost $275,177,944)................... 320,663,277 101.65%
------------ ----------
</TABLE>
See notes to financial statements.
65
<PAGE> 151
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ------------ ----------
REPURCHASE AGREEMENT
<C> <S> <C> <C>
$21,474,530 Repurchase Agreement with Morgan Stanley, dated
12/29/95 5.65%, proceeds at maturity $21,488,011,
due 01/02/96 (Collateralized by US Treasury Note,
7.25%, due 08/15/04 with a market value of
$21,946,233) (cost $21,477,900)...................... $ 21,477,900 6.81%
------------ ----------
Total Investments (cost $296,655,844).................. $342,141,177 108.46%
Liabilities in Excess of Other Assets.................. (26,682,952) (8.46)%
------------ ----------
Net Assets............................................. $315,458,225 100.00%
============ ==========
The aggregate cost of securities for federal income tax purposes
at December 31, 1995 is $297,912,599.
The following amount is based on costs for federal income tax
purposes:
Gross unrealized appreciation.......................... $ 59,947,614
Gross unrealized depreciation.......................... (15,719,036)
------------
Net unrealized appreciation............................ $ 44,228,578
============
</TABLE>
- ------------
(a) All or part of this security is on loan.
(c) Non-income producing security.
(d) Collateral for securities on loan.
(g) This interest rate resets on a daily basis. The rate shown was in
effect as of December 31, 1995.
See notes to financial statements.
66
<PAGE> 152
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES
AEROSPACE
$ 250,000 BE Aerospace 9.75% Due 03/01/03....................... $ 250,625 2.79%
------------ ----------
AMUSEMENT & RECREATION
250,000 ARA Group 8.50% Due 06/01/03.......................... 261,875
250,000 MGM Grand Hotel Finance Corp 11.75%
Due 05/01/99........................................ 265,000
------------
Total Amusement & Recreation...................... 526,875 5.86%
------------ ----------
AUTO PARTS
250,000 Exide Corp 10.75% Due 12/15/02........................ 271,563
250,000 SPX Corp 11.75% Due 06/01/02.......................... 267,500
------------
Total Auto Parts.................................. 539,063 5.99%
------------ ----------
BROADCASTING
200,000 Infinity Broadcasting 10.375% Due 03/15/02............ 214,500
250,000 Viacom International 8.00% Due 07/07/06............... 255,020
------------
Total Broadcasting................................ 469,520 5.22%
------------ ----------
CABLE TV SERVICES
250,000 Century Communications 9.75% Due 02/15/02............. 260,000
250,000 Continental Cablevision Inc 11.00% Due 06/01/07....... 278,750
50,000 Jones Intercable 9.625% Due 03/15/02.................. 53,688
125,000 Rogers Cablesystems 9.625% Due 08/01/02............... 131,250
25,000 Rogers Cablesystems Ltd. 11.00% Due 12/01/15.......... 26,875
250,000 TCI Communications 8.75% Due 08/01/15................. 275,248
------------
Total Cable TV Services........................... 1,025,811 11.40%
------------ ----------
CHEMICAL AND ALLIED PRODUCTS
250,000 AK Steel Holding Corp 10.75% Due 04/01/04............. 276,875
250,000 Freeport McMoran Resource Partners 8.75%
Due 02/15/04........................................ 256,250
75,000 IDEX Corp 9.75% Due 09/15/02.......................... 79,500
250,000 NL Industries Inc 11.75% Due 10/15/03................. 266,875
125,000 Sherritt Gordon Ltd 9.75% Due 04/01/03................ 132,187
------------
Total Chemical and Allied Products................ 1,011,687 11.24%
------------ ----------
COMMUNICATION EQUIPMENT
250,000 K-III Communications Corp 10.625% Due 05/01/02........ 267,500
250,000 Metrocall Inc 10.375% Due 10/01/07.................... 265,000
------------
Total Communication Equipment..................... 532,500 5.92%
------------ ----------
MANUFACTURING
250,000 American Standard Senior Notes 10.875%
Due 05/15/99........................................ 273,125
250,000 Huntsman Corp 10.625% Due 04/15/01.................... 280,000
250,000 Owens-Illinois Inc 11.00% Due 12/01/03................ 283,813
250,000 USG Corp 8.50% Due 08/01/05........................... 258,125
250,000 Westinghouse Air 9.375% Due 06/15/05.................. 254,688
------------
Total Manufacturing............................... 1,348,751 14.99%
------------ ----------
</TABLE>
See notes to financial statements.
67
<PAGE> 153
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ----------- ------------ ----------
<C> <S> <C> <C>
MEDICAL AND OTHER HEALTH SERVICES
$ 250,000 Abbey Healthcare 9.50% Due 11/01/02................... $ 265,000
250,000 Healthsound Rehabilitation 9.50% Due 04/01/01......... 266,875
70,000 Quorum Health 8.75% Due 11/01/05...................... 72,362
250,000 Tenet Healthcare Corp 8.625% Due 12/01/03............. 263,750
------------
Total Medical and Other Health Services........... 867,987 9.65%
------------ ----------
MISCELLANEOUS
216,458 Midland Cogeneration Venture 10.33% Due 07/23/02...... 228,274 2.54%
------------ ----------
OIL AND GAS
250,000 Ferrellgas LP/Fin Corp 10.00% Due 08/01/01............ 265,000
125,000 Gulf Canada Resources Ltd 9.25% Due 01/15/04.......... 129,457
80,000 Vintage Petroleum 9.00% Due 12/15/05.................. 80,700
------------
Total Oil & Gas................................... 475,157 5.28%
------------ ----------
PAPER PRODUCTS
25,000 Buckeye Cellulose Corp 8.50% Due 12/05/05............. 25,656
200,000 Container Corp of America 11.25% Due 05/01/04......... 204,000
125,000 Repap New Brunswick 9.875% Due 07/15/00............... 125,312
------------
Total Paper Products.............................. 354,968 3.94%
------------ ----------
PHARMACEUTICALS
60,000 Ivac Corp 9.25% Due 12/01/02.......................... 61,500 0.68%
------------ ----------
SECURITY SYSTEMS
250,000 ADT Operations 9.25% Due 08/01/03..................... 267,500 2.97%
------------ ----------
TRANSPORTATION
250,000 Viking Star Ship 9.625% Due 07/15/03.................. 258,750 2.88%
------------ ----------
Total Investments (cost $8,056,922)............... $ 8,218,968 91.35%
Other Assets Less Liabilities..................... 778,627 8.65%
------------ ----------
Net Assets........................................ $ 8,997,595 100.00%
============ ==========
</TABLE>
The aggregate cost of securities for federal income tax purposes at December 31,
1995 is $8,056,922. The following amount is based on costs for federal income
tax purposes.
<TABLE>
<C> <S> <C>
Aggregate gross unrealized appreciation............... $ 174,397
Aggregate gross unrealized depreciation............... (12,351)
------------
Net unrealized appreciation........................... $ 162,046
============
</TABLE>
See notes to financial statements.
68
<PAGE> 154
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS COUNTRY
- ------------ ------------ ---------- -------
<C> <S> <C> <C> <C>
CORPORATE BONDS AND NOTES
------------------------------------------------
$ 277,000 Bangkok Bank Public Co. 3.25%, Due 03/03/04..... $ 294,313 HK
200,000 British Air Capital 9.75%, Due 06/15/05......... 636,560 UK
15,000,000 Sekisui House 2.50%, Due 01/31/02............... 201,975 JPN
------------
Total Corporate Bonds and Notes
(cost $1,106,891)......................... 1,132,848 1.36%
------------ ----------
CONVERTIBLE BONDS
------------------------------------------------
2,000 Ericson LM 4.25%, Due 06/30/00.................. 5,375 SWE
390,000 Sumitomo Bank 3.125% Due 03/31/04............... 353,925 JPN
390,000 Renong Berhad 2.50% Due 01/15/05................ 437,288 MAL
------------
Total Convertible Bonds (cost $762,913)..... 796,588 0.95%
------------ ----------
<CAPTION>
SHARES/UNITS COMMON STOCKS AND WARRANTS
- ------------ ------------------------------------------------
<C> <S> <C> <C> <C>
AEROSPACE/DEFENSE
74,400 CAE Industries.................................. 565,702 0.68% GER
------------ ----------
AIRLINES
275,000 Citic Pacific LTD............................... 940,720 HK
17,000 British Airways PLC............................. 122,997 UK
1,100 Swissair (c).................................... 803,024 SWI
------------
Total Airlines.............................. 1,866,741 2.24%
------------ ----------
AMUSEMENT & RECREATION
162,000 Euro Disneyland SCA (c)......................... 369,344 0.44% FRA
------------ ----------
AUTO EQUIPMENT
5,900 Mannesmann AG................................... 1,881,781 GER
6,000 Valeo........................................... 278,260 FRA
------------
Total Auto Equipment........................ 2,160,041 2.59%
------------ ----------
BANKING
20,000 ABN AMRO Holdings............................... 912,046 NET
2,000 Banco Popular Espanola.......................... 368,788 SPA
48,000 Barclay's PLC................................... 550,738 UK
6,200 CS Holdings..................................... 637,161 SWI
900 Holderbank Finan Glaris Cl B.................... 692,217 SWI
22,600 International Nederlanden Group................. 1,511,375 NET
99,000 Morgan Crucible Company PLC..................... 590,228 UK
86,000 National Westminster............................ 866,562 UK
65,000 Overseas Chinese Bkng Corp...................... 813,378 SIN
12,000 Sumitomo Bank................................... 254,770 JPN
196,000 Westpac Banking Corp............................ 868,946 AUS
------------
Total Banking............................... 8,066,209 9.67%
------------ ----------
BEVERAGES
98,000 Amatil LTD Coca Cola............................ 782,197 AUS
116,000 Lion Nathan..................................... 276,799 NZL
21,000 Seagrams Co Ltd................................. 727,125 CAN
------------
Total Beverages............................. 1,786,121 2.14%
------------ ----------
</TABLE>
See notes to financial statements.
69
<PAGE> 155
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES/UNITS VALUE NET ASSETS COUNTRY
- ------------ ------------ ---------- -------
<C> <S> <C> <C> <C>
BROADCASTING
95,000 British Sky Broadcasting PLC.................... $ 599,574 UK
4,000 Canal Plus...................................... 750,862 FRA
17,100 Grupo Televisa--GDR............................. 384,750 MEX
13,000 Rogers Communications Cl B (c).................. 145,291 CAN
135,000 Television Broadcasts Ltd....................... 481,019 HK
35,000 Tokyo Broadcasting.............................. 576,818 JPN
------------
Total Broadcasting.......................... 2,938,314 3.52%
------------ ----------
BUILDING CONTRACTOR
52,000 Sekisui House LTD............................... 665,423 0.80% JPN
------------ ----------
BUILDING MATERIALS
74,000 Italcenenti Frabbriche Riunit................... 443,142 GER*
13,000 Tostem Corp..................................... 432,276 JPN
------------
Total Building Materials.................... 875,418 1.05%
------------ ----------
CHEMICALS
32,000 AGA AB.......................................... 441,814 SWE
1,900 Akzo Dutch...................................... 219,989 NET
20,000 Norsk Hydro..................................... 842,058 NOR
------------
Total Chemicals............................. 1,503,861 1.80%
------------ ----------
COMMUNICATIONS
84 DDI Corp........................................ 651,468 0.78% JPN
------------ ----------
CONSUMER GOODS
48,000 Nikon Corp...................................... 651,466 JPN
56,000 Reckitt and Colman PLC.......................... 619,920 UK
15,000 Sony Corp....................................... 900,131 JPN
37,000 Thorn EMI PLC................................... 871,457 UK
------------
Total Consumer Goods........................ 3,042,974 3.65%
------------ ----------
DRUGS
49,000 Astra AB........................................ 1,959,343 SWE
52,000 Banyu Pharmaceutical Co......................... 640,219 JPN
56,000 Sankyo Co Ltd................................... 1,259,502 JPN
------------
Total Drugs................................. 3,859,064 4.62%
------------ ----------
ELECTRIC UTILITIES
8,400 Asea--A......................................... 817,538 SWE
180,000 Hong Kong Electric.............................. 590,148 MAL
------------
Total Electric Utilities.................... 1,407,686 1.69%
------------ ----------
ELECTRONICS
900 BBC Brown Boveri & Cie.......................... 1,048,103 SWI
79,000 Bombardier Inc Cl B............................. 1,042,140 CAN
142,000 Hitachi LTD..................................... 1,431,672 JPN
26,000 Kokusai Electric................................ 544,440 JPN
17,000 Kyocera Corp.................................... 1,264,061 JPN
19,000 Murata Mfg Co Ltd............................... 699,939 JPN
19,000 Omron Corp...................................... 438,383 JPN
24,600 Philips Electronics N.V. ADR.................... 882,525 NET
------------
Total Electronics........................... 7,351,263 8.81%
------------ ----------
</TABLE>
See notes to financial statements.
70
<PAGE> 156
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES/UNITS VALUE NET ASSETS COUNTRY
- ------------ ------------ ---------- -------
<C> <S> <C> <C> <C>
ENGINEERING
17,000 Chudenko Corp................................... $ 583,411 0.70% JPN
------------ ----------
FINANCIAL SERVICES
3,000 Hong Leong Credit BHD........................... 14,888 MAL
16,800 HSBC Holdings PLC............................... 262,270 UK
20,450 Lend Lease Corp Ltd............................. 296,635 AUS
29,000 Nomura Securities Co Ltd........................ 632,563 JPN
15,000 Orix Corp....................................... 618,021 JPN
76,000 Wako Securities Co Ltd (c)...................... 674,888 JPN
------------
Total Financial Services.................... 2,499,265 3.00%
------------ ----------
FOOD & BEVERAGE
1,200 Nestle (Malaysia) Berhad........................ 8,791 MAL
1,200 Nestle.......................................... 1,330,725 SWI
------------
Total Food & Beverage....................... 1,339,516 1.61%
------------ ----------
FREIGHT TRANSPORTATION
122,000 Kawasaki Kisen (c).............................. 387,923 JPN
244,000 TNT Limited..................................... 346,651 AUS
------------
Total Freight Transportation................ 734,574 0.88%
------------ ----------
HOTELS
63,000 Forte PLC....................................... 323,272 0.39% UK
------------ ----------
INSURANCE
22,800 Alleanza Assicuraz.............................. 160,248 ITL
200 Baloise Holdings................................ 417,155 SWI
259,081 GIO Australian Holdings Ltd..................... 603,218 AUS
7,600 Mapfre Vida Seguros............................. 451,052 SPA
62,000 Mitsui Marine & Fire Ins........................ 442,376 JPN
327 Muenchener Rueckversicherungs................... 705,964 GER
20 Muenchener Rueckversicherungs--Warrants
(Expires 03/13/98)............................ 2,648 GER
71,000 Yasuda Fire & Marine Ins........................ 502,460 JPN
------------
Total Insurance............................. 3,285,121 3.94%
------------ ----------
INVESTMENT HOLDING COS
665,000 Brierley Investments Ltd........................ 526,015 NZL
337,000 Sime Darby Berhad............................... 895,948 MAL
1,000 UMW Holdings BHD Warrants (Expires 01/26/00).... 705 MAL
------------
Total Investment Holding Cos................ 1,422,668 1.70%
------------ ----------
MACHINERY PRODUCTION
11,400 ASM Lithography Holding NV (c).................. 379,050 NET
19,000 Atlas Copco AB--Cl A............................ 292,431 SWE
21,000 Atlas Copco AB--Cl B............................ 316,875 SWE
18,000 Mitsubishi Heavy................................ 941,463 JPN
100 Sidel........................................... 31,204 FRA
------------
Total Machinery Production.................. 1,961,023 2.35%
------------ ----------
METAL MINING
26,000 Inco Ltd........................................ 864,500 CAN
216,000 Placer Pacific Ltd.............................. 446,666 AUS
90,000 Western Mining Corp Holding Ltd................. 578,430 AUS
------------
Total Metal Mining.......................... 1,889,596 2.26%
------------ ----------
</TABLE>
See notes to financial statements.
71
<PAGE> 157
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES/UNITS VALUE NET ASSETS COUNTRY
- ------------ ------------ ---------- -------
<C> <S> <C> <C> <C>
METAL REFINERIES
17,000 Alcan Aluminum LTD.............................. $ 529,125 CAN
107,000 Kawasaki Steel.................................. 373,430 JPN
15,000 Pechiney........................................ 567,440 FRA
15,000 Pechiney Warrants (Expires 01/08/96)............ 31 FRA
9,900 Sandvik AB--A................................... 174,032 SWE
2,800 Sandvik AB--B (c)............................... 49,221 SWE
------------
Total Metal Refineries...................... 1,693,279 2.03%
------------ ----------
MOTOR VEHICLES
9,700 Autoliv AB...................................... 567,901 SWE
54,000 Mitsubishi Motor Corp (c)....................... 440,262 JPN
24,000 Toyota Motor Co................................. 509,539 JPN
2,300 Volkswagen AG................................... 772,946 GER
30,000 Volvo Aktiebolag B Free......................... 615,642 SWE
------------
Total Motor Vehicles........................ 2,906,290 3.48%
------------ ----------
OIL AND GAS
98,000 British Gas Corp................................ 386,473 UK
17,000 Repsol SA--ADR.................................. 558,875 SPA
6,200 Societe National Elf--Aquitaine................. 457,420 FRA
15,000 YPF Sociedad Anonima--ADR....................... 324,375 ARG
------------
Total Oil and Gas........................... 1,727,143 2.07%
------------ ----------
PERSONAL SERVICES
15,000 Secom Co Ltd.................................... 1,044,093 1.25% JPN
------------
PRINTING AND PUBLISHING
93,000 News Corp Ltd................................... 496,704 AUS
29,000 Singapore Press Holdings Ltd.................... 512,561 SIN
------------
Total Printing and Publishing............... 1,009,265 1.21%
------------ ----------
REAL ESTATE
62,000 City Developments............................... 451,472 SIN
82,000 Mitsui Fudosan.................................. 1,009,576 JPN
------------
Total Real Estate........................... 1,461,048 1.75%
------------ ----------
RESTAURANTS
24,000 Izumi (c)....................................... 530,479 0.64% JPN
------------ ----------
RETAIL SALES
13,000 Electrolux...................................... 534,538 SWE
12,700 Hennes & Mauritz................................ 709,046 SWE
------------
Total Retail Sales.......................... 1,243,584 1.49%
------------ ----------
SOFTWARE
4,900 SAP AG Vorzug (c)............................... 745,642 0.89% GER
------------ ----------
TELECOMMUNICATIONS
86,000 Cable and Wireless.............................. 614,203 UK
32,000 Ericsson AB (c)................................. 627,715 SWE
400,000 Hong Kong Telecom............................... 713,920 HK
800 Hong Kong Telecom--ADR.......................... 14,200 HK
209 Nippon Telegraph and Telephone Corp............. 1,691,829 JPN
8,300 Nokia AB K Shares (c)........................... 328,788 FIN
2,000 Rogers Cantel Mobile Comm--B (c)................ 53,000 CAN
</TABLE>
See notes to financial statements.
72
<PAGE> 158
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES/UNITS VALUE NET ASSETS COUNTRY
- ------------ ------------ ---------- -------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS--(CONTINUED)
253,000 Telecom Italia Mobile--drnc (c)................. $ 266,308 ITA
456,000 Telecom Italia Mobile (c)....................... 803,381 ITA
18,500 Telecomunicacoes Brasileiras--ADR............... 890,816 BRA
44,000 Telefonica De Espana............................ 609,316 SPA
25,600 Telefonos De Mexico ADR......................... 816,000 MEX
5,400 Vodafone Group PLC ADR.......................... 190,350 UK
------------
Total Telecommunications.................... 7,619,826 9.13%
------------ ----------
TELEPHONE UTILITIES
300 Tele Danmark B.................................. 16,403 DEN
34,600 Tele Danmark--ADR............................... 955,825 DEN
------------
Total Telephone Utilities................... 972,228 1.17%
------------ ----------
TEXTILES
28,000 Wacoal Corp..................................... 380,022 0.45% JPN
------------ ----------
TIRE PRODUCTION
81,000 Bridgestone Corp................................ 1,287,810 JPN
9,000 Michelin B...................................... 359,420 FRA
------------
Total Tire Production....................... 1,647,230 1.97%
------------ ----------
TOBACCO PRODUCTS
58,000 B.A.T. Industries............................... 511,037 0.61% UK
------------ ----------
TOYS AND GAMES
18,100 Nintendo Corp Ltd............................... 1,377,437 1.65% JPN
------------ ----------
WHOLESALERS
184,000 Hutchison Whampoa............................... 1,120,853 1.34% HK
------------ ----------
Total Common Stocks and Warrants (cost
$75,986,728).................................... 77,137,531 92.44%
------------ ----------
PREFERRED STOCK
------------------------------------------------
DRUGS AND COSMETICS
200 Wella AG (cost $144,093)........................ 108,574 0.13% GER
------------ ----------
Total Investments (cost $78,000,625)........ $ 79,175,541 94.88%
Total Assets Less Liabilities............... 4,270,774 5.12%
------------ ----------
Net Assets.................................. $ 83,446,315 100.00%
============ ==========
The aggregate cost of securities for federal income tax
purposes at December 31, 1995 is $78,000,625.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation................... $ 3,665,875
Gross unrealized depreciation................... $ (2,490,959)
------------
Net unrealized appreciation..................... $ 1,174,916
============
</TABLE>
* Traded on Italian exchange
- ------------
(c) Non-income producing security.
See notes to financial statements.
73
<PAGE> 159
COUNTRY COMPOSITION
<TABLE>
<S> <C>
Argentina......................................................... 0.42%
Australia......................................................... 5.58%
Brazil............................................................ 1.13%
Canada............................................................ 4.96%
Denmark........................................................... 1.23%
Finland........................................................... 0.42%
France............................................................ 3.55%
Germany........................................................... 5.33%
Hong Kong......................................................... 4.88%
Italy............................................................. 2.11%
Japan............................................................. 30.81%
Malasia........................................................... 1.71%
Mexico............................................................ 1.52%
Netherlands....................................................... 4.93%
Norway............................................................ 1.06%
New Zealand....................................................... 1.01%
Singapore......................................................... 2.24%
Spain............................................................. 2.51%
Sweden............................................................ 8.98%
Switzerland....................................................... 6.22%
Thailand.......................................................... 0.37%
United Kingdom.................................................... 9.03%
Total:...................................................... 100.00%
</TABLE>
74
<PAGE> 160
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 eleven different series that are, in effect, separate investment
funds: the Money Market Series, the High Quality Bond Series, the Intermediate
Government Bond Series, the Government/Corporate Bond Series, the Balanced
Series, the Equity Income Series, the Growth & Income Series, the Equity Growth
Series, the Special 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). On January
3, 1994 (commencement of operations for each series except the High-Yield Bond
Series and the International Equity Series), MONY Pooled Separate Accounts
transferred all of their investable assets at a market value of $1,183,075,019
to those Series with corresponding investment objectives in exchange for
interests in those Series. The High-Yield Bond Series and International Equity
Series commenced operations on August 22, 1995 and September 29, 1995,
respectively.
The International Equity Series was established by a redemption of assets
in-kind, valued at $77,137,079 from the Non-U.S. Equity Fund for Participant
Directed Plans within the Capital Guardian Collective Trust for Employee Benefit
Plans, a bank collective trust fund established and maintained by Capital
Guardian Trust Company, which were immediately invested at market value into the
Portfolio. The transaction resulted in a non-taxable event.
2. SIGNIFICANT ACCOUNTING POLICIES
A. Security Valuation:
Short-term securities having remaining maturities of 60 days or less are
valued at amortized cost or original cost plus accrued interest receivable, both
of which approximate value. The amortized cost of a security is determined by
valuing it at original cost and thereafter amortizing any discount or premium at
a constant rate until maturity. Securities traded on national securities
exchanges are valued at the last sales price as of the close of business on each
day or at the closing bid price for over-the-counter securities. Equity
securities are valued at the last sale price on the exchange on which they are
primarily traded or at the ask 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
deposited with a third party custodian, and pursuant to the terms of the
repurchase agreement must have an aggregate market value greater than or equal
to 102% and 105% of domestic and international securities, respectively, of the
repurchase price plus accrued interest at all times. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Series will require the seller to deposit additional collateral by
the next business day. If the request for additional collateral is not met or
the seller defaults on its repurchase obligation, the Series maintains the right
to
75
<PAGE> 161
DIVERSIFIED INVESTORS PORTFOLIOS--(CONTINUED)
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
sell the underlying securities at market value and may claim any resulting loss
against the seller. However, in the event of default or bankruptcy by the
seller, realization and/or retention of the collateral may be subject to legal
proceedings.
C. Foreign Currency Translation
The accounting records of the International Equity Series are maintained in
U.S. dollars. The market values of foreign securities, currency holdings and
other assets and liabilities are translated to U.S. dollars based on the
prevailing exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at prevailing exchange rates when accrued or
incurred. The Series does not isolate realized gains and losses attributable to
changes in exchange rates from gains and losses that arise from changes in the
market value of investments. Such fluctuations are included with net realized
and unrealized gains or losses on investments. Net realized gains and losses on
foreign currency transactions represent net exchange gains and losses on
disposition of foreign currencies, 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 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 forward foreign currency contracts, resulting from changes in the
exchange rate.
D. Forward Currency Contracts
The International Equity Series may enter into forward currency 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 forward currency
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 forward currency contract
fluctuates with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded by the
Series as an unrealized gain or loss. When a forward currency contract is
extinguished, through delivery or offset by entering into another forward
currency contract, the Series records a realized gain or loss equal to the
different between the value of the contract at the time it was opened and the
value of the contract at the time it was extinguished or offset. These contracts
may involve market risk in excess of the unrealized gain or loss reflected in
the Series' Statement of Assets and Liabilities and the 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. 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.
F. Security Transactions and Investment Income:
Security transactions are accounted for on a trade date basis (the day after
the date the order to buy or sell is executed). Dividend income is recorded on
the ex-dividend date. Interest income is recorded on the accrual basis and
includes amortization of premium and discount on investments. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
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.
76
<PAGE> 162
DIVERSIFIED INVESTORS PORTFOLIOS--(CONTINUED)
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
G. 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.
H. Other:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
3. FEES AND TRANSACTIONS WITH AFFILIATES
AUSA Life Insurance Company, Inc. ("AUSA") is the parent company of
Diversified Investment Advisors, Inc. (the "Advisor"). AUSA has sub-accounts
which invests in the corresponding Portfolios as follows:
<TABLE>
<CAPTION>
AUSA SUBACCOUNT PERCENTAGE INVESTMENT IN PORTFOLIO
- ---------------------------------------------------------------- ----------------------------------
<S> <C>
Money Market.................................................... 42.43%
High Quality Bond............................................... 54.41%
Intermediate Government Bond.................................... 63.72%
Government/Corporate Bond....................................... 25.83%
Balanced........................................................ 92.89%
Equity Income................................................... 68.02%
Growth & Income................................................. 72.63%
Equity Growth................................................... 85.74%
Special Equity.................................................. 51.48%
High Yield Bond................................................. 73.21%
International Equity............................................ 41.39%
</TABLE>
The Advisor manages the assets of each Series of the Series Portfolio
pursuant to an Investment Advisory Agreement (the "Advisory Agreement") with the
Series Portfolio with respect to each Series. Subject to such further policies
as the Board of Trustees may determine, the Advisor provides general investment
advice to each Series. For its services under the Advisory Agreement, the
Adviser 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.
For each Series, the Advisor has entered into an Investment Subadvisory
Agreement (each a "Subadvisory Agreement") 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 under each
77
<PAGE> 163
DIVERSIFIED INVESTORS PORTFOLIOS--(CONTINUED)
NOTES TO FINANCIAL STATEMENTS
3. FEES AND TRANSACTIONS WITH AFFILIATES--(CONTINUED)
Subadvisory Agreement, the Subadvisors receive a fee from the Advisor at an
annual rate equal to the percentages specified in the table below of the
corresponding Series' average net assets.
<TABLE>
<CAPTION>
DIVERSIFIED INVESTORS ADVISOR SUBADVISORS
PORTFOLIO SERIES PORTFOLIO SUBADVISORS FEE(1) 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 1740 Advisors, Inc. 0.35 0.15
Government/Corporate Bond Series Capital Management Group 0.35 0.15
Balanced Series Institutional Capital Corporation 0.45 (3)
Equity Income Series Asset Management Group 0.45 0.25
Growth & Income Series Munder Capital Management, Inc.
(1/1/95--11/13/95) 0.60 (4)
The Putnam Advisory Co Inc.
(11/14/95--12/31/95) 0.60 (4)
Equity Growth Series Jundt Associates, Inc. 0.70 0.63
Special Equity Series (5) 0.80 0.50
High-Yield Bond Series Delaware Investment Advisors 0.55 (6)
International Equity Series Capital Guardian Trust Co. 0.75 (7)
</TABLE>
- ------------
(1) The Advisor is currently waiving a portion of its fee.
(2) 0.50 on the first $10,000,000 in net assets, 0.375% on the next $15,000,000
in net assets, 0.25 on the next $75,000,000 in net assets and 0.1875% on all
net assets in excess of $100,000,000.
(3) 0.55% on the first $25,000,000 in net assets, 0.45% on the next $25,000,000
in net assets, and 0.35% on all net assets in excess of $50,000,000.
(4) Munder: 0.50% on the first $50,000,000 in net assets, 0.30% on the next
$25,000,000 in net assets, and 0.25% on net assets in excess of $75,000,000.
Putnam: 0.30% on the first $100,000,000 in net assets, 0.20% on net assets
in excess of $100,000,000.
(5) The Special Equity Series has four Subadvisors: Pilgrim Baxter & Associates,
Ltd., Ark Asset Management Co., Inc.; Liberty Investment Management, Inc.;
and Westport Asset Management, Inc.
(6) 0.40% on the first $20,000,000 in net assets, 0.30% on the next $20,000,000
in net assets, and 0.20% on all net assets in excess of $40,000,000.
(7) 0.75% on the first $25,000,000 in net assets, 0.60% on the next $25,000,000
to $50,000,000 in net assets, 0.425% on the next $50,000,000 to $250,000,000
in net assets and 0.375% on all net assets in excess of $250,000,000.
78
<PAGE> 164
DIVERSIFIED INVESTORS PORTFOLIOS--(CONTINUED)
NOTES TO FINANCIAL STATEMENTS
3. FEES AND TRANSACTIONS WITH AFFILIATES--(CONTINUED)
For the year ended December 31, 1995, the Advisor has voluntarily undertaken
to waive fees in accordance with the expense caps as follows:
<TABLE>
<CAPTION>
FUND EXPENSE CAP
- ---------------------------------------------------------------------- -----------------------
<S> <C>
Money Market Series................................................... 30 basis points (b.p.)
High Quality Bond Series.............................................. 40 b.p.
Intermediate Government Bond Series................................... 40 b.p.
Government/Corporate Bond Series...................................... 40 b.p.
Balanced Series....................................................... 50 b.p.
Equity Income Series.................................................. 50 b.p.
Growth & Income Series................................................ 65 b.p.
Equity Growth Series.................................................. 75 b.p.
Special Equity Series................................................. 85 b.p
High-Yield Bond Series................................................ 60 b.p.
International Equity Series........................................... 80 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.
4. FINANCIAL HIGHLIGHTS:
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF RATIO OF NET INVESTMENT
RATIO OF EXPENSES, INVESTMENT INCOME, NET
GROSS NET INCOME TO OF WAIVERS
EXPENSES OF WAIVERS PORTFOLIO TO PORTFOLIO
TO AVERAGE TO AVERAGE AVERAGE NET AVERAGE PORTFOLIO
NET ASSETS NET ASSETS ASSETS NET ASSETS TURNOVER
------------ ------------ ------------ ------------ ------------
1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Series..................... .31% .32% .30% .30% 5.70% 4.05% 5.69% 4.07% n/a n/a
High Quality Bond Series................ .41 .41 .40 .40 5.83 5.77 5.82 5.79 25% 37%
Intermediate Government Bond Series..... .45 .45 .40 .40 5.57 5.71 5.52 5.76 59 21
Government/Corporate Bond Series........ .39 .40 .39 .40 5.90 5.71 5.90 5.72 122 122
Balanced Series......................... .54 .53 .50 .50 4.19 3.57 4.15 3.61 124 118
Equity Income Series.................... .49 .49 .49 -- 3.37 3.43 3.37 3.43 23 30
Growth & Income Series.................. .68 .67 .65 .65 1.49 1.35 1.47 1.37 155 21
Equity Growth Series.................... .75 .76 .75 .75 .41 .08 .41 .11 62 75
Special Equity Series................... .88 .88 .85 .85 .33 .27 .30 .30 155 90
High-Yield Bond Series*................. 1.32 n/a .60 n/a 8.45 n/a 7.73 n/a 21 n/a
International Equity Series*............ .83 n/a .80 n/a .53 n/a .50 n/a 7 n/a
</TABLE>
- ------------
* Annualized (except "Portfolio Turnover")
5. SECURITIES LENDING
The Series may lend its securities to certain 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
79
<PAGE> 165
DIVERSIFIED INVESTORS PORTFOLIOS--(CONTINUED)
NOTES TO FINANCIAL STATEMENTS
5. SECURITIES LENDING--(CONTINUED)
lending its securities which is included in interest income on the Statement of
Operations. At December 31, 1995, the Series loaned securities having market
values as follows:
<TABLE>
<CAPTION>
MARKET VALUE COLLATERAL
------------ -----------
<S> <C> <C>
Intermediate Government Bond Series...................... $ 9,632,499 $10,072,779
Government/Corporate Bond Series......................... 24,882,591 25,522,680
Balanced Series.......................................... 44,855,823 45,264,696
Equity Income Series..................................... 32,341,850 40,895,567
Growth & Income Series................................... 9,295,738 8,426,958
Equity Growth Series..................................... 38,008,275 43,322,473
Special Equity Series.................................... 24,289,950 25,517,296
</TABLE>
6. PURCHASE AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and proceeds from sales or
maturities for the year ended December 31, 1995, except for the High-Yield Bond
Series and the International Equity Series, which commenced operations on August
22, 1995 and September 29, 1995, respectively, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C> <C>
High Quality Bond Government Obligations $ 7,485,156 $ 9,775,000
Other 90,987,861 27,551,146
Intermediate Government Government Obligations 39,072,203 46,901,641
Bond Other 2,483,850 0
Government/Corporate Government Obligations 197,580,983 209,414,611
Bond Other 122,386,994 79,397,548
Balanced Government Obligations 57,119,727 59,294,289
Other 126,156,208 110,742,597
Equity Income Other 134,758,652 150,097,939
Growth & Income Other 149,015,878 153,018,963
Equity Growth Other 140,230,205 97,274,051
Special Equity Other 377,723,502 364,616,633
High-Yield Bond Other 9,592,564 1,527,669
International Equity Other 10,480,055 4,995,961
</TABLE>
80
<PAGE> 166
DIVERSIFIED INVESTORS PORTFOLIOS--(CONTINUED)
NOTES TO FINANCIAL STATEMENTS
7. FORWARD CURRENCY CONTRACTS
At December 31, 1995, the International Equity Series had entered into
forward currency contracts which contractually obligate the Portfolio to
deliver/receive currency at specified future dates. The open contracts are as
follows:
<TABLE>
<CAPTION>
UNITS OF IN EXCHANGE NET UNREALIZED
VALUE DATE DELIVER/RECEIVE CURRENCY FOR APPR/(DEPR)
- ----------------- ----------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Buys
01/03/96 Spanish Peseta 2,110,172 $ 17,370 $ 24
01/24/96 Canadian Dollars 814,248 597,467 (748)
10/30/96 Japanese Yen 93,267,250 962,610 (21,277)
--------------
$(22,001)
--------------
Sells
01/02/96 Malaysian Ringgit 189 $ 74 $ 0
01/04/96 Japanese Yen 15,595,020 151,629 377
01/24/96 Canadian Dollars 814,248 593,000 (3,718)
03/11/96 German Marks 433,140 300,000 (3,813)
10/15/96 Japanese Yen 377,578,600 3,962,000 157,873
10/15/96 Japanese Yen 19,026,000 200,000 8,312
10/30/96 Japanese Yen 93,267,250 965,000 23,667
--------------
$182,697
--------------
</TABLE>
81
<PAGE> 167
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES AND OWNERS OF BENEFICIAL INTERESTS OF THE
DIVERSIFIED INVESTORS PORTFOLIOS:
We have audited the accompanying statements of assets and liabilities of
Diversified Investors Portfolios (comprising, respectively, the Money Market,
High Quality Bond, Intermediate Government Bond, Government/Corporate Bond,
Balanced, Equity Income, Growth and Income, Equity Growth, Special Equity,
High-Yield Bond and International Equity Portfolios) (collectively the "Series
Portfolios") as of December 31, 1995 and the related statements of operations
for the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended for each
Portfolio except the High-Yield Bond and International Equity Portfolios, for
which the periods were from August 22, 1995 and September 29, 1995 (commencement
of operations), respectively, to December 31, 1995. These financial statements
and financial highlights are the responsibility of the Series Portfolios
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. Our procedures included
confirmation of securities owned as of December 31, 1995 by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the Portfolios constituting Diversified Investors Portfolios as of
December 31, 1995, the results of their operations, the changes in their net
assets, and the financial highlights for the periods referred to above in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 12, 1996
82
<PAGE> 168
Diversifed Investors Securities Corporation
4 Manhattanville Road, Purchase, NY 10577
<PAGE> 169
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements -- 1995 Annual Report of Diversified Investors
Funds Group is incorporated herein by reference.
(b) Exhibits:
-- Any form of Form N-1A Exhibits (1) and (2) previously filed with the
Commission as part of Pre-Effective Amendment No. 1 dated April 29,
1993 to the Registrant's N-1A Registration Statement -- Registration
No. 33-61810 under the Securities Act of 1933 are incorporated herein
by reference.
-- Exhibit (1)(a) previously filed with the Commission as part of
Pre-Effective No. 1 dated November 26, 1993 to the Registrant's N-1A
Registration Statement -- Registration No. 33-61810 under the
Securities Act of 1933 is incorporated herein by reference.
-- Any form of Form N-1A Exhibits (6),(8) through (10) and (13) and (15)
previously filed with the Commission as part of Pre-Effective Amendment
No. 2 dated January 3, 1994 to the Registrant's N-1A Registration
Statement -- Registration No. 33-61810 under the Securities Act of 1933
are incorporated here by reference.
-- Exhibits (16.) and (17.) previously filed with the Commission as part
of Post-Effective Amendment No. 2 dated April 28, 1995 to the
Registrant's N-1A Registration Statement -- Registration No. 33-61810
under the Securities Act of 1933 are incorporated herein by reference.
11. Consent of Independent Auditors.
14. Powers of Attorney filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See "Management of the Trust and Portfolio Series Trustees and Officers of
the Trust" in the Statement of Additional Information filed as part of this
Registration Statement.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AS OF
TITLE OF CLASS DECEMBER 31, 1995*
-------------------------------------------------------------------- ------------------
<S> <C>
Diversified Investors Balanced Fund................................. 4
Diversified Investors Money Market Fund............................. 5
Diversified Investors Growth & Income Fund.......................... 4
Diversified Investors Equity Growth Fund............................ 4
Diversified Investors Equity Income Fund............................ 4
Diversified Investors Special Equity Fund........................... 4
Diversified Investors High Quality Bond Fund........................ 4
Diversified Investors Government/Corporate Bond Fund................ 4
Diversified Investors Intermediate Government Bond Fund............. 3
Diversified Investors High-Yield Bond Fund.......................... 3
Diversified Investors Equity Value Fund............................. 0
Diversified Investors Aggressive Equity Fund........................ 0
Diversified Investors International Equity Fund..................... 3
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article V of the Registrant's Declaration of Trust,
filed as Exhibit 1 to Pre-Effective Amendment No. 1 dated April 29, 1993 to
Registration Statement -- Registration No. 33-61810 under the Securities Act of
1933.
C-1
<PAGE> 170
Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to Trustees, officers and
controlling persons of the Trust pursuant to the Trust's Declaration of Trust,
or otherwise, the Trust has been advised that in the opinion of the SEC 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 Trust of expenses incurred or
paid by a Trustee, officer or controlling person of the Trust in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered, the
Trust 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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Diversified Investors Securities Corp. is the principal underwriter
(the "Distributor") of the Registrant. The Distributor also serves as the
exclusive placement agent for Diversified Investors Portfolios.
(b) The names, titles and principal business addresses of the officers and
directors of the Distributor are as stated on Form U-4 filed by each individual
officer and of Form BD including Schedule A thereof (File No. 8-45671) (filed on
August 31, 1993 and amended September 20, 1993), the text of which is herein
incorporated by reference.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Diversified Investment Advisors, Inc.
Four Manhattanville Road
Purchase, New York 10577
(administrator and transfer agent)
Diversified Investors Securities Corp.
Four Manhattanville Road
Purchase, New York 10577
(distributor)
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02205-1537
(custodian)
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) The Registrant undertakes to comply with Section 16(c) of the 1940 Act
as though such provisions of the 1940 Act were applicable to the Registrant,
except that the request referred to in the third full paragraph thereof may only
be made by shareholders who hold in the aggregate at least 10% of the
outstanding shares of the Registrant, regardless of the net asset value of
shares held by such requesting shareholders.
(b) 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.
C-2
<PAGE> 171
(c) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, 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 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 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 Act and will be governed by the final adjudication of
such issue.
C-3
<PAGE> 172
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements of Securities Act Rule 485(b) for the effectiveness of this
registration statement and has duly caused this Post-Effective Amendment No. 6
to its Registration Statement on Form N-1A ("Registration Statement") to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
County of Westchester and the State of New York, on the day of April,
1996.
THE DIVERSIFIED INVESTORS FUNDS GROUP
By: /s/ TOM A. SCHLOSSBERG
-----------------------------------------------
Tom A. Schlossberg
Trustee, President, Chief Executive Officer and
Chairman of the Board of Trustees
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 6 to its Registration Statement has been signed
below by the following persons in the capacities indicated on April , 1996.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ TOM A. SCHLOSSBERG Trustee, President, Chief Executive Officer and
- ------------------------------------------ Chairman of the Board of Trustees
Tom A. Schlossberg
*/s/ DONALD E. FLYNN Trustee
- ------------------------------------------
Donald E. Flynn
*/s/ ROBERT LESTER LINDSAY Trustee
- ------------------------------------------
Robert Lester Lindsay
*/s/ NIKHIL MALVANIA Trustee
- ------------------------------------------
Nikhil Malvania
*/s/ JOYCE GALPERN NORDEN Trustee
- ------------------------------------------
Joyce Galpern Norden
/s/ ALFRED C. SYLVAIN Treasurer and Principal Accounting Officer
- ------------------------------------------
Alfred C. Sylvain
*By: /s/ ROBERT F. COLBY
-------------------------------------
Robert F. Colby
Attorney-in-fact
</TABLE>
C-4
<PAGE> 173
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, Diversified Investors Portfolios certifies that it meets the requirements
of Securities Act Rule 485(b) for the effectiveness of this registration
statement and has duly caused this Post-Effective Amendment No. 6 to its
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the County of Westchester, State of New York, on the 30th
day of April, 1996.
DIVERSIFIED INVESTORS PORTFOLIOS
By /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. 6 to its Registration Statement has been signed
below by the following persons in the capacities indicated on April 30, 1996.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ TOM A. SCHLOSSBERG Trustee, President, Chief Executive Officer
- --------------------------------------------- and Chairman of the Board of Trustees of the
Tom A. Schlossberg Portfolios
*/s/ NEAL M. JEWELL Trustee of the Portfolios
- ---------------------------------------------
Neal M. Jewell
*/s/ EUGENE M. MANNELLA Trustee of the Portfolios
- ---------------------------------------------
Eugene M. Mannella
*/s/ PATRICIA L. SAWYER Trustee of the Portfolios
- ---------------------------------------------
Patricia L. Sawyer
/s/ ALFRED C. SYLVAIN Principal Accounting Officer
- ---------------------------------------------
Alfred C. Sylvain
*By /s/ ROBERT F. COLBY
- ---------------------------------------------
Robert F. Colby
Attorney-in-Fact
</TABLE>
C-5
<PAGE> 174
THE DIVERSIFIED INVESTORS FUNDS GROUP
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ----------- ----
<S> <C> <C>
99.(11) Consent of Independent Accountants.
99.(14) Powers of Attorney.
</TABLE>
C-6
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------
We consent to the incorporation by referencee in this Post-Effective Amendment
No. 6 to the Registration Statement on Form N-1A (File No. 33-61810) of our
reports dated February 20, 1996 and February 12, 1996, on our audits of the
financial statements and financial highlights of Diversified Investors Funds
Group and Diversified Investors Portfolios, respectively.
We also consent to the reference to our Firm in the Statement of Additional
Information under the captions "Independent Accountants" and "Experts."
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
New York, New York
April 30, 1996
<PAGE> 1
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 Funds Group (the "Trust") with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the Securities
Act of 1933 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
Acts, 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
<PAGE> 2
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 Funds Group (the "Trust") with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the Securities
Act of 1933 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
Acts, 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/ Donald E. Flynn
--------------------------------------
Donald E. Flynn
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Donald E. Flynn 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> 3
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 Funds Group (the "Trust") with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the Securities
Act of 1933 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
Acts, 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/ Joyce Narden
--------------------------------------
Joyce Narden
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Joyce Narden 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> 4
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 Funds Group (the "Trust") with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the Securities
Act of 1933 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
Acts, 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/ Robert L. Lindsay
--------------------------------------
Robert L. Lindsay
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Robert L. Lindsay
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> 5
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 Funds Group (the "Trust") with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the Securities
Act of 1933 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
Acts, 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/ Nikhil Malvania
--------------------------------------
Nikhil Malvania
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Nikhil Malvania 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> 6
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
<PAGE> 7
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> 8
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> 9
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> 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/ Donald E. Flynn
--------------------------------------
Donald E. Flynn
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Donald E. Flynn 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
