<PAGE> 1
Diversified Investors
Funds Group
1996 Annual Report
International Equity Fund
High Yield Bond Fund
Aggressive Equity
Special Equity Fund
Equity Growth Fund
Growth and Income Fund
Equity Value Fund
Equity Income Fund
Balanced Fund
Government/Corporate Bond Fund
Intermediate Government Fund
High Quality Bond Fund
Money Market Fund
[LOGO]
DIVERSIFIED
INVESTMENT
ADVISORS
<PAGE> 2
DIVERSIFIED INVESTORS FUNDS GROUP
AVERAGE ANNUAL TOTAL RETURNS
1996
EQUITY FUNDS
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD EQUITY IN- GROWTH & EQUITY SPECIAL EQ- S&P 500
(FISCAL YEAR COVERED) COME INCOME GROWTH UITY INDEX
<S> <C> <C> <C> <C> <C>
7/94 10,000 10,000 10,000 10,000 10,000
1994 10,024 10,250 11,359 10,857 10,492
1995 13,494 13,541 13,460 15,363 14,427
1996 15,910 16,467 15,874 19,321 17,781
</TABLE>
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) EQUITY VALUE AGGRESSIVE EQUITY S&P 500 INDEX
<S> <C> <C> <C>
6/96 10,000 10,000 10,000
1996 10,883 9,459 11,516
</TABLE>
BALANCED FUND
[GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROS.
MEASUREMENT PERIOD GOV/CORP. BOND
(FISCAL YEAR COVERED) BALANCED FUND S&P 500 INDEX INDEX
<S> <C> <C> <C>
7/94 10,000 10,000 10,000
1994 10,142 10,492 10,087
1995 13,029 14,427 12,029
1996 15,165 17,781 12,378
</TABLE>
The charts shown above represent the growth in value of an initial
hypothetical investment of $10,000 in each fund of the Diversified Investors
Fund Group for the period since inception through December 31, 1996.
All indices are shown for the period from the funds' inception through
December 31, 1996.
Past performance is not indicative of future performance.
1
<PAGE> 3
DIVERSIFIED INVESTORS FUNDS GROUP
AVERAGE ANNUAL TOTAL RETURNS
MONEY MARKET FUND
1996
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD SALOMON BROS. 3-MONTH
(FISCAL YEAR COVERED) MONEY MARKET FUND T-BILL INDEX
<S> <C> <C>
1/94 10,000 10,000
1994 10,346 10,422
1995 10,915 11,020
1996 11,446 11,598
</TABLE>
INTERNATIONAL EQUITY FUND
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD INTERNATIONAL EQUITY
(FISCAL YEAR COVERED) FUND MSCI GDP EAFE INDEX
<S> <C> <C>
1/96 10,000 10,000
1996 11,387 11,273
</TABLE>
The charts shown above represent the growth in value of an initial
hypothetical investment of $10,000 in each fund of the Diversified Investors
Fund Group for the period since inception through December 31, 1996.
All indices are shown for the period from the funds' inception through
December 31, 1996.
Past performance is not indicative of future performance.
2
<PAGE> 4
DIVERSIFIED INVESTORS FUNDS GROUP
AVERAGE ANNUAL TOTAL RETURNS
FIXED INCOME FUNDS
1996
[GRAPH]
<TABLE>
<CAPTION>
GOVERN- LEHMAN BROS.
MEASUREMENT PERIOD MENT/CORPORATE GOV/CORP. BOND
(FISCAL YEAR COVERED) HIGH QUALITY BOND BOND INDE X
<S> <C> <C> <C>
7/94 10,000 10,000 10,000
1994 10,067 10,111 10,087
1995 11,260 12,164 12,029
1996 11,768 12,498 12,378
</TABLE>
HIGH YIELD BOND FUND
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD LEHMAN BROS. GOV/CORP.
(FISCAL YEAR COVERED) HIGH YIELD BOND FUND BOND INDEX
<S> <C> <C>
1/96 10,000 10,000
1996 10,871 10,225
</TABLE>
INTERMEDIATE GOVERNMENT BOND FUND
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD INTERMEDIATE LEHMAN BROS. GOV/CORP.
(FISCAL YEAR COVERED) GOVERNMENT BOND FUND BOND INDEX
<S> <C> <C>
2/96 10,000 10,000
1996 10,355 10,447
</TABLE>
The charts shown above represent the growth in value of an initial
hypothetical investment of $10,000 in each fund of the Diversified Investors
Fund Group for the period since inception through December 31, 1996.
All indices are shown for the period from the funds' inception through
December 31, 1996.
Past performance is not indicative of future performance.
3
<PAGE> 5
DIVERSIFIED INVESTORS FUNDS GROUP
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
HIGH INTERMEDIATE GOVERNMENT/
MONEY QUALITY GOVERNMENT CORPORATE EQUITY EQUITY
MARKET BOND BOND BOND BALANCED INCOME VALUE
---------- -------- ------------ ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in Diversified Investors
Portfolios, at value.................. $3,752,992 $947,120 $891,670 $2,042,444 $5,144,165 $7,438,888 $383,740
Receivable for Fund shares sold......... 32,989 16,834 179 12,578 40,747 24,769 --
Receivable from investment advisor...... 13,525 10,138 11,204 10,515 12,028 14,986 11,531
---------- -------- -------- ---------- ---------- ---------- --------
Total assets................... 3,799,506 974,092 903,053 2,065,537 5,196,940 7,478,643 395,271
---------- -------- -------- ---------- ---------- ---------- --------
LIABILITIES:
Payable for Fund shares repurchased..... 33 -- -- -- 210 2,190 --
Accrued expenses:
Professional fees..................... 4,865 3,535 3,190 3,487 2,942 4,347 3,059
Trustee fees.......................... 1,637 1,124 481 1,250 1,777 3,015 264
Insurance fees........................ 1,901 232 529 554 2,578 3,766 231
Fund Accounting fees.................. 1,497 1,497 3,300 1,496 1,495 1,497 4,978
Reports to shareholders............... 1,911 41 620 433 888 2,222 303
Distribution fees..................... 1,933 435 419 795 2,712 3,477 143
Registration fees..................... 953 953 993 953 953 953 994
Administration fees................... 974 244 260 442 1,272 1,797 91
---------- -------- -------- ---------- ---------- ---------- --------
Total liabilities.............. 15,704 8,061 9,792 9,410 14,827 23,264 10,063
---------- -------- -------- ---------- ---------- ---------- --------
NET ASSETS.............................. $3,783,802 $966,031 $893,261 $2,056,127 $5,182,113 $7,455,379 $385,208
========== ======== ======== ========== ========== ========== ========
Net assets consist of:
Paid-in capital....................... $3,783,942 $963,848 $889,257 $2,044,751 $5,017,955 $7,030,266 $371,222
Undistributed net investment income... -- 219 -- 1,067 -- 8,029 296
Undistributed (accumulated) net
realized gains (losses)............. (140) -- -- (1,111) 2,987 3,469 (4)
Net unrealized appreciation
(depreciation) on investments....... -- 1,964 4,004 11,420 161,171 413,615 13,694
Net unrealized appreciation on
translation of assets and
liabilities in foreign currencies... -- -- -- -- -- -- --
---------- -------- -------- ---------- ---------- ---------- --------
NET ASSETS..................... $3,783,802 $966,031 $893,261 $2,056,127 $5,182,113 $7,455,379 $385,208
========== ======== ======== ========== ========== ========== ========
Outstanding shares of capital stock of
$.00001 par value per share, unlimited
number of shares of beneficial
interest authorized................... 374,174 88,671 87,487 175,879 390,399 488,902 35,828
========== ======== ======== ========== ========== ========== ========
Net asset value per share............... $ 10.11 $ 10.89 $ 10.21 $ 11.69 $ 13.27 $ 15.25 $ 10.75
========== ======== ======== ========== ========== ========== ========
</TABLE>
See notes to financial statements
4
<PAGE> 6
<TABLE>
<CAPTION>
GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD INTERNATIONAL
INCOME GROWTH EQUITY EQUITY BOND EQUITY
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$5,467,748 $3,853,966 $7,689,435 $323,296 $736,328 $ 2,371,416
20,106 8,217 53,759 -- 224 28,353
16,297 11,639 14,394 12,827 9,634 12,721
---------- ---------- ---------- -------- -------- ----------
5,504,151 3,873,822 7,757,588 336,123 746,186 2,412,490
---------- ---------- ---------- -------- -------- ----------
1,041 212 1,025 -- -- 84
4,002 3,169 3,661 3,027 3,112 3,679
3,210 -- 3,419 204 333 1,269
3,237 1,772 3,652 184 367 1,311
1,497 1,390 1,497 4,809 2,475 3,300
2,386 750 2,106 229 318 1,206
2,678 1,914 3,182 123 298 910
954 953 953 993 993 993
1,399 3,731 1,746 78 190 1,459
---------- ---------- ---------- -------- -------- ----------
20,404 13,891 21,241 9,647 8,086 14,211
---------- ---------- ---------- -------- -------- ----------
$5,483,747 $3,859,931 $7,736,347 $326,476 $738,100 $ 2,398,279
========== ========== ========== ======== ======== ==========
$5,367,353 $4,206,176 $7,439,142 $349,100 $722,790 $ 2,326,763
18,724 -- -- 316 1,011 --
11,409 -- (14,365) -- (807) (7,585)
86,261 (346,245) 311,570 (22,940) 15,106 78,137
-- -- -- -- -- 964
---------- ---------- ---------- -------- -------- ----------
$5,483,747 $3,859,931 $7,736,347 $326,476 $738,100 $ 2,398,279
========== ========== ========== ======== ======== ==========
397,951 266,262 452,759 34,618 69,114 212,884
========== ========== ========== ======== ======== ==========
$ 13.78 $ 14.50 $ 17.09 $ 9.43 $ 10.68 $ 11.27
========== ========== ========== ======== ======== ==========
</TABLE>
5
<PAGE> 7
DIVERSIFIED INVESTORS FUNDS GROUP
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HIGH INTERMEDIATE GOVERNMENT
MONEY QUALITY GOVERNMENT CORPORATE
MARKET BOND BOND(1) BOND BALANCED
------- ------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Allocated net income (loss) from Diversified Investors
Portfolios................................................ $71,242 $20,565 $13,636 $ 40,075 $ 85,336
------- ------- ------- ------- --------
Expenses: (Note 3)
Professional fees........................................ 5,413 4,105 4,050 4,339 5,930
Trustees fees............................................ 3,050 732 645 1,145 3,968
Insurance fees........................................... 2,486 610 529 956 3,312
Fund accounting fees..................................... 9,900 9,900 9,900 9,900 9,900
Reports to shareholders.................................. 3,650 534 758 1,388 5,422
Distribution fees........................................ 3,368 829 585 1,545 6,325
Registration fees........................................ 23,077 23,077 23,077 23,077 23,077
Administration fees...................................... 4,041 995 702 1,854 7,590
------- ------- ------- ------- --------
Total expenses before reimbursement from investment
advisor.................................................. 54,985 40,782 40,246 44,204 65,524
Reimbursement from investment advisor.................... 48,334 38,851 38,995 40,523 53,720
------- ------- ------- ------- --------
Net expenses............................................. 6,651 1,931 1,251 3,681 11,804
------- ------- ------- ------- --------
Net investment income (loss)............................... 64,591 18,634 12,385 36,394 73,532
------- ------- ------- ------- --------
Realized and unrealized gains (losses) on investments (Note
2)
Net realized gains (losses) on investments............... (131) (820) (389) (149) 264,051
Net realized gains on foreign currency transactions...... -- -- -- -- --
Net change in unrealized appreciation (depreciation) on
investments............................................ -- 289 4,004 3,603 123,736
Net change in unrealized appreciation (depreciation) on
translation of assets and liabilities in foreign
currencies............................................. -- -- -- -- --
------- ------- ------- ------- --------
Net realized and unrealized gains (losses) on
investments............................................ (131) (531) 3,615 3,454 387,787
------- ------- ------- ------- --------
Net increase (decrease) in net assets resulting from
operations............................................... $64,460 $18,103 $16,000 $ 39,848 $461,319
======= ======= ======= ======= ========
</TABLE>
- ---------------
(1) Commencement of operations February 22, 1996
(2) Commencement of operations June 13, 1996
(3) Commencement of operations June 11, 1996
(4) Commencement of operations January 30, 1996
(5) Commencement of operations January 18, 1996
See notes to financial statements
6
<PAGE> 8
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD INTERNATIONAL
INCOME VALUE(2) INCOME GROWTH EQUITY EQUITY(3) BOND(4) EQUITY(5)
-------- -------- -------- -------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 72,070 $ 981 $ 18,315 $ (3,649) $ 6,920 $ (360) $ 13,875 $ 4,162
------- -------- -------- -------- ------- ------- -------
6,651 3,848 6,184 5,196 6,419 3,816 3,941 4,579
5,247 277 5,062 4,165 4,834 220 440 1,571
4,371 231 3,685 2,281 4,035 184 367 1,311
9,900 6,628 9,900 9,900 9,900 8,109 9,075 9,900
6,265 330 5,282 3,501 5,864 263 526 1,879
6,293 154 4,767 4,124 6,061 141 387 1,288
23,077 23,077 23,077 23,077 23,077 23,077 23,077 23,077
7,552 185 5,720 4,949 7,274 169 465 1,546
------- -------- -------- -------- ------- ------- ------- -------
69,356 34,730 63,677 57,193 67,464 35,979 38,278 45,151
56,378 34,440 54,357 52,643 52,138 35,736 37,520 43,488
------- -------- -------- -------- ------- ------- ------- -------
12,978 290 9,320 4,550 15,326 243 758 1,663
------- -------- -------- -------- ------- ------- ------- -------
59,092 691 8,995 (8,199) (8,406) (603) 13,117 2,499
------- -------- -------- -------- ------- ------- ------- -------
111,136 6,142 245,458 664,603 325,617 21,420 (1,088) 13,712
-- -- -- -- -- -- -- 3,396
357,771 13,694 97,247 (385,220) 269,600 (22,940) 15,106 78,137
-- -- -- -- -- -- -- 964
------- -------- -------- -------- ------- ------- ------- -------
468,907 19,836 342,705 279,383 595,217 (1,520) 14,018 96,209
------- -------- -------- -------- ------- ------- ------- -------
$527,999 $ 20,527 $351,700 $271,184 $586,811 $ (2,123) $ 27,135 $98,708
======= ======== ======== ======== ======= ======= ======= =======
</TABLE>
7
<PAGE> 9
DIVERSIFIED INVESTORS FUNDS GROUP
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HIGH INTERMEDIATE GOVERNMENT/
MONEY QUALITY GOVERNMENT CORPORATE EQUITY EQUITY
MARKET BOND BOND(1) BOND BALANCED INCOME VALUE(2)
---------- -------- ------------ ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss).......... $ 64,591 $ 18,634 $ 12,385 $ 36,394 $ 73,532 $ 59,092 $ 691
Net realized gains (losses) on
investments......................... (131) (820) (389) (149) 264,051 111,136 6,142
Net realized gains on foreign currency
transactions........................ -- -- -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on investments....... -- 289 4,004 3,603 123,736 357,771 13,694
Net change in unrealized appreciation
on translation of assets and
liabilities in foreign currencies... -- -- -- -- -- -- --
---------- ---------- -------- ---------- ---------- ---------- --------
Net increase (decrease) in net assets
resulting from operations........... 64,460 18,103 16,000 39,848 461,319 527,999 20,527
---------- ---------- -------- ---------- ---------- ---------- --------
Dividends and distributions to
shareholders from:
Net investment income................. (64,451) (18,249) (12,303) (36,587) (73,532) (68,841) (395)
In excess of net investment income.... -- -- -- -- -- -- --
Net realized gains from investment
transactions........................ -- -- -- -- (188,578) (18,502) (4,303)
In excess of net realized gains.......
Tax return of capital................. (5,649) -- (673) -- -- -- --
---------- ---------- -------- ---------- ---------- ---------- --------
Total dividends and distributions..... (70,100) (18,249) (12,976) (36,587) (262,110) (87,343) (4,698)
---------- ---------- -------- ---------- ---------- ---------- --------
From capital share transactions:
Proceeds from issuance of shares...... 11,989,649 1,087,881 929,004 1,985,660 4,141,807 6,924,532 370,464
Proceeds from dividends and
distributions reinvested............ 70,100 18,249 12,976 36,587 262,110 87,343 4,698
Value of shares redeemed.............. (8,383,798) (211,120) (51,743) (144,460) (316,364) (587,533) (5,783)
---------- ---------- -------- ---------- ---------- ---------- --------
Net increase from capital share
transactions........................ 3,675,951 895,010 890,237 1,877,787 4,087,553 6,424,342 369,379
---------- ---------- -------- ---------- ---------- ---------- --------
Total increase in net assets............ 3,670,311 894,864 893,261 1,881,048 4,286,762 6,864,998 385,208
Net assets:
Beginning of year..................... 113,491 71,167 -- 175,079 895,351 590,381 --
---------- ---------- -------- ---------- ---------- ---------- --------
End of year........................... $3,783,802 $966,031 $893,261 $2,056,127 $5,182,113 $7,455,379 $385,208
========== ========== ======== ========== ========== ========== ========
Shares beginning of year................ 11,542 6,706 -- 15,091 74,370 45,109 --
Shares issued during year............... 1,175,725 99,550 91,285 170,137 320,635 477,665 35,966
Shares received on reinvestment of
dividends and distributions........... 6,941 1,675 1,270 3,124 19,737 5,686 438
Shares redeemed during year............. (820,034) (19,260) (5,068) (12,473) (24,343) (39,558) (576)
---------- ---------- -------- ---------- ---------- ---------- --------
Shares outstanding end of year.......... 374,174 88,671 87,487 175,879 390,399 488,902 35,828
========== ========== ======== ========== ========== ========== ========
</TABLE>
- ---------------
(1) Commencement of operations February 22, 1996
(2) Commencement of operations June 13, 1996
(3) Commencement of operations June 11, 1996
(4) Commencement of operations January 30, 1996
(5) Commencement of operations January 18, 1996
See notes to financial statements
8
<PAGE> 10
<TABLE>
<CAPTION>
GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD INTERNATIONAL
INCOME GROWTH EQUITY EQUITY(3) BOND(4) EQUITY(5)
---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 8,995 $ (8,199) $ (8,406) $ (603) $ 13,117 $ 2,499
245,458 664,603 325,617 21,420 (1,088) 13,712
-- -- -- -- -- 3,396
97,247 (385,220) 269,600 (22,940) 15,106 78,137
-- -- -- -- -- 964
---------- ---------- ---------- -------- -------- ----------
351,700 271,184 586,811 (2,123) 27,135 98,708
---------- ---------- ---------- -------- -------- ----------
(57,057) -- -- (1,515) (12,551) (2,866)
-- -- -- -- -- (7,585)
(7,997) (271,722) (158,686) -- -- (8,777)
(14,365)
-- (20,433) (12,961) -- -- (3,382)
---------- ---------- ---------- -------- -------- ----------
(65,054) (292,155) (186,012) (1,515) (12,551) (22,610)
---------- ---------- ---------- -------- -------- ----------
5,061,090 3,150,400 7,421,050 354,206 730,820 2,337,550
65,054 292,155 186,012 1,515 12,551 22,610
(372,681) (179,970) (871,808) (25,607) (19,855) (37,979)
---------- ---------- ---------- -------- -------- ----------
4,753,463 3,262,585 6,735,254 330,114 723,516 2,322,181
---------- ---------- ---------- -------- -------- ----------
5,040,109 3,241,614 7,136,053 326,476 738,100 2,398,279
443,638 618,317 600,294 -- -- --
---------- ---------- ---------- -------- -------- ----------
$5,483,747 $3,859,931 $7,736,347 $326,476 $738,100 $ 2,398,279
========== ========== ========== ======== ======== ==========
38,683 46,276 43,043 -- -- --
382,209 212,329 450,805 37,116 69,866 214,323
4,663 19,902 11,059 159 1,181 2,040
(27,604) (12,245) (52,148) (2,657) (1,933) (3,479)
---------- ---------- ---------- -------- -------- ----------
397,951 266,262 452,759 34,618 69,114 212,884
========== ========== ========== ======== ======== ==========
</TABLE>
9
<PAGE> 11
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 GROWTH & EQUITY SPECIAL
MARKET BOND BOND BALANCED INCOME INCOME GROWTH EQUITY
-------- -------- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income
(loss).................. $ 3,270 $ 2,860 $ 4,132 $ 15,888 $ 6,771 $ 1,939 $ 592 $ (464)
Net realized gains (losses)
on investments.......... (2) (80) 436 46,806 5,403 60,927 3,954 47,480
Net change in unrealized
appreciation
(depreciation) on
investments............. -- 1,828 7,786 38,415 57,407 (11,518) 33,374 40,739
-------- -------- -------- -------- -------- -------- -------- --------
Net increase in net assets
resulting from
operations.............. 3,268 4,608 12,354 101,109 69,581 51,348 37,920 87,755
-------- -------- -------- -------- -------- -------- -------- --------
Dividends and distributions
to shareholders from:
Net investment income...... (3,270) (2,860) (3,895) (15,888) (6,771) (1,939) (592) --
Net realized gains from
investment
transactions............ -- -- (616) (33,999) (1,606) (30,065) -- (34,337)
Tax return of capital...... (20) (32) -- (7,809) (3,588) (31,070) (3,456) (13,116)
-------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions.............. (3,290) (2,892) (4,511) (57,696) (11,965) (63,074) (4,048) (47,453)
-------- -------- -------- -------- -------- -------- -------- --------
From capital share
transactions:
Proceeds from issuance of
shares.................. 163,096 57,142 141,520 673,479 474,260 366,911 485,033 429,750
Proceeds from dividends and
distributions
reinvested.............. 3,290 2,892 4,511 57,696 11,965 63,074 4,048 47,453
Value of shares redeemed... (77,965) (11,455) (1,732) (30,866) (24,315) (35,096) (25,006) (4,916)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase from
capital share
transactions..... 88,421 48,579 144,299 700,309 461,910 394,889 464,075 472,287
-------- -------- -------- -------- -------- -------- -------- --------
Total increase in net
assets..................... 88,399 50,295 152,142 743,722 519,526 383,163 497,947 512,589
Net assets:
Beginning of year.......... 25,092 20,872 22,937 151,629 70,855 60,475 120,370 87,705
-------- -------- -------- -------- -------- -------- -------- --------
End of year................ $113,491 $ 71,167 $ 175,079 $895,351 $590,381 $443,638 $618,317 $600,294
======== ======== ======== ======== ======== ======== ======== ========
Shares beginning of year..... 2,611 2,115 2,315 15,087 7,133 5,918 10,602 8,155
Shares issued during year.... 16,358 5,398 12,536 56,925 39,030 30,176 37,337 31,730
Shares received for
reinvestment of dividends
and distributions.......... 335 274 393 4,880 929 5,629 317 3,534
Shares redeemed during
year....................... (7,762) (1,081) (153) (2,522) (1,983) (3,040) (1,980) (376)
-------- -------- -------- -------- -------- -------- -------- --------
Shares outstanding end of
year....................... 11,542 6,706 15,091 74,370 45,109 38,683 46,276 43,043
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements
10
<PAGE> 12
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 thirteen different series that are, in effect, separate
investment funds: the Money Market Fund, the High Quality Bond Fund, the
Intermediate Government Bond Fund, the Government/Corporate Bond Fund, the
Balanced Fund, the Equity Income Fund, the Equity Value Fund, the Growth &
Income Fund, the Equity Growth Fund, the Special Equity Fund, the Aggressive
Equity Fund, the High Yield Bond Fund and the International Equity Fund,
(collectively, the "Funds"). The Trust established and designated each of the
Funds as separate series on April 23, 1993, with the exception of the
Intermediate Government Bond Fund, the High Yield Bond Fund and the
International Equity Fund which were established on October 2, 1995, and the
Equity Value Fund and the Aggressive Equity Fund which were established on May
1, 1996. 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, 1996, each Fund's investment in the corresponding Series
Portfolio were as follows:
<TABLE>
<CAPTION>
PERCENTAGE INVESTMENT
FUND IN SERIES PORTFOLIO
------------------------------------------------------------------ ---------------------
<S> <C>
Money Market...................................................... 2.03%
High Quality Bond................................................. 0.48
Intermediate Government Bond...................................... 0.87
Government/Corporate Bond......................................... 0.63
Balanced.......................................................... 1.94
Equity Income..................................................... 0.78
Equity Value...................................................... 1.32
Growth & Income................................................... 2.63
Equity Growth..................................................... 1.29
Special Equity.................................................... 1.52
Aggressive Equity................................................. 2.09
High Yield Bond................................................... 4.79
International Equity.............................................. 1.60
</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 any 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.
11
<PAGE> 13
DIVERSIFIED INVESTORS FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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
shares.
Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions, distributions received on
portfolio securities and the different tax basis allocation methods for the
recognition of realized capital gains. The effect of these differences for the
period ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
INCREASED (DECREASED) INCREASED (DECREASED)
UNDISTRIBUTED NET ACCUMULATED NET INCREASED
INVESTMENT INCOME REALIZED GAINS (LOSSES) (DECREASED)
(LOSS) ON INVESTMENTS PAID-IN-CAPITAL
--------------------- ----------------------- ---------------
<S> <C> <C> <C>
Money Market......................... $ 5,509 $ -- $ (5,509)
High Quality Bond.................... (4,632) 5,286 (654)
Intermediate Government Bond......... 417 563 (980)
Government/Corporate Bond............ 1,023 (962) (61)
Balanced............................. (1,149) (71,173) 72,322
Equity Income........................ 6,946 (78,410) 71,464
Equity Value......................... 135 (1,978) 1,843
Growth & Income...................... 18,612 (177,393) 158,781
Equity Growth........................ 8,199 (364,521) 356,322
Special Equity....................... 8,406 (151,994) 143,588
Aggressive Equity.................... 919 (19,905) 18,986
High Yield Bond...................... 445 281 (726)
International Equity................. (2,853) (1,729) 4,582
</TABLE>
These reclassifications of the components of net assets reflected in the
statements of asset and liabilities did not affect net investment income (loss),
net realized gains (losses) on investments, or net assets.
. 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.
12
<PAGE> 14
DIVERSIFIED INVESTORS FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
E. Federal Income Taxes (Continued)
For federal income tax purposes, the Funds indicated below have capital
loss carryforwards at December 31, 1996 which are available to offset future
realized capital gains, if any:
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYFORWARD EXPIRATION DATE
------------ ---------------
<S> <C> <C>
Government/Corporate Bond......................... $1,111 2004
High Yield Bond................................... 804 2004
</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 the
expenses of the Portfolio. The limit on expenses of the Portfolio can be found
in note 3 of their financial statements contained elsewhere in this report.
For the year ended December 31, 1996, 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.
Intermediate Government Bond.................................... 60 b.p.
Government/Corporate Bond....................................... 60 b.p.
Balanced........................................................ 60 b.p.
Equity Income................................................... 50 b.p.
Equity Value.................................................... 50 b.p.
Growth & Income................................................. 50 b.p.
Equity Growth................................................... 60 b.p.
Special Equity.................................................. 65 b.p.
Aggressive Equity............................................... 50 b.p.
International Equity............................................ 50 b.p.
High Yield Bond................................................. 50 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
13
<PAGE> 15
DIVERSIFIED INVESTORS FUNDS GROUP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 $35,867 for the year ended
December 31, 1996.
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,
1996 amounted to $31,356.
14
<PAGE> 16
(This page intentionally left blank.)
15
<PAGE> 17
DIVERSIFIED INVESTORS FUNDS GROUP
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT
HIGH QUALITY BOND(1)
MONEY MARKET BOND ------------
-------------------------------- ------------------------------
FOR THE
FOR THE YEAR ENDED FOR THE YEAR ENDED YEAR ENDED
-------------------------------- ------------------------------ ------------
1996 1995 1994 1996 1995 1994** 1996
---------- -------- ------- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 9.83 $ 9.61 $ 10.00 $ 10.61 $ 9.87 $ 10.00 $ 10.00
---------- -------- ------- -------- ------ ------- --------
Income from investment operations:
Net investment income....................... 0.19 0.31 0.66 0.20 0.42 0.18 0.14
Net gains on investments (both realized and
unrealized)............................... 0.30 0.22 (0.39) 0.28 0.74 (0.12) 0.22
---------- -------- ------- -------- ------ ------- --------
Total from investment operations............. 0.49 0.53 0.27 0.48 1.16 0.06 0.36
---------- -------- ------- -------- ------ ------- --------
Less: Dividends and distributions from:
Net investment income....................... (0.19) (0.31) (0.66) (0.20) (0.42) (0.18) (0.14)
In excess of investment income.............. -- -- -- -- -- -- --
Net realized gain on investments............ -- -- -- -- -- -- --
In excess of net realized gains............. -- -- -- -- -- -- --
Tax return of capital....................... (0.02) -- -- -- -- (0.01) (0.01)
---------- -------- ------- -------- ------ ------- --------
Total from dividends and distributions....... (0.21) (0.31) (0.66) (0.20) (0.42) (0.19) (0.15)
---------- -------- ------- -------- ------ ------- --------
Net asset value, end of period............... $ 10.11 $ 9.83 $ 9.61 $ 10.89 $ 10.61 $ 9.87 $ 10.21
========== ======== ======= ======== ====== ======= ========
Ratios/supplemental data:
Net assets end of period..................... $3,783,802 $113,491 $25,092 $966,031 $71,167 $20,872 $893,261
Ratio of expenses to average net assets...... 4.35% 67.48% 59.21% 12.60% 91.16% 284.62%* 17.46%*
Ratio of expenses to average net assets (net
of reimbursement)........................... 0.80% 0.76% 0.51% 0.98% 1.00% 0.55%* 0.94%*
Ratio of net investment income to average net
assets...................................... 1.20% (61.47)% (55.80)% 6.03% (83.53)% (279.12)%* (11.28)%*
Ratio of net investment income to average net
assets (net of reimbursement)............... 4.76% 5.24% 2.90% 5.58% 6.63% 4.96%* 5.24%*
Total return................................. 4.87% 5.50% 3.45% 4.51% 11.85% 0.67% 4.15%*
<CAPTION>
GOVERNMENT/
CORPORATE BOND BALANCED
----------------------------------- --------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
----------------------------------- --------------------------------
1996 1995 1994** 1996 1995 1994**
---------- -------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 11.60 $ 9.91 $ 10.00 $ 12.04 $ 10.05 $ 10.00
---------- -------- ------- ---------- -------- --------
Income from investment operations:
Net investment income....................... 0.22 0.30 0.19 0.21 0.24 0.07
Net gains on investments (both realized and
unrealized)............................... 0.10 1.71 (0.09) 1.77 2.61 0.07
---------- -------- ------- ---------- -------- --------
Total from investment operations............. 0.32 2.01 0.10 1.98 2.85 0.14
---------- -------- ------- ---------- -------- --------
Less: Dividends and distributions from:
Net investment income....................... (0.23) (0.28) (0.19) (0.21) (0.24) (0.07)
In excess of investment income.............. -- -- -- -- -- --
Net realized gain on investments............ -- (0.04) -- (0.54) (0.51) --
In excess of net realized gains............. -- -- -- -- -- --
Tax return of capital....................... -- -- -- -- (0.11) (0.02)
---------- -------- ------- ---------- -------- --------
Total from dividends and distributions....... (0.23) (0.32) (0.19) (0.75) (0.86) (0.09)
---------- -------- ------- ---------- -------- --------
Net asset value, end of period............... $ 11.69 $ 11.60 $ 9.91 $ 13.27 $ 12.04 $ 10.05
========== ======== ======= ========== ======== ========
Ratios/supplemental data:
Net assets end of period..................... $2,056,127 $175,079 $22,937 $5,182,113 $895,351 $151,629
Ratio of expenses to average net assets...... 7.50% 56.91% 257.24%* 3.08% 9.95% 71.47%*
Ratio of expenses to average net assets (net
of reimbursement)........................... 0.99% 0.85% 0.54%* 0.97% 0.87% 0.49%*
Ratio of net investment income to average net
assets...................................... 0.66% (50.11)% (251.51)%* 0.78% (5.68)% (68.13)%*
Ratio of net investment income to average net
assets (net of reimbursement)............... 5.85% 5.92% 5.18%* 2.98% 3.40% 2.86%*
Total return................................. 2.74% 20.30% 1.10% 16.39% 28.47% 1.43%
</TABLE>
- ---------------
(1) Commencement of operations February 22, 1996
(2) Commencement of operations June 13, 1996
(3) Commencement of operations June 11, 1996
(4) Commencement of operations January 30, 1996
(5) Commencement of operation January 18, 1996
* All figures Annuallized
** Commencement of operations July 1, 1994
16
<PAGE> 18
<TABLE>
<CAPTION>
EQUITY
VALUE(2)
--------
EQUITY INCOME GROWTH & INCOME EQUITY GROWTH
------------------------------------ FOR THE ---------------------------------------- -------------------------
YEAR
FOR THE YEAR ENDED ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
------------------------------------ -------- ---------------------------------------- -------------------------
1996 1995 1994** 1996 1996 1995 1994** 1996 1995
---------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 13.09 $ 9.93 $ 10.00 $ 10.00 $ 11.47 $ 10.22 $ 10.00 $ 13.36 $ 11.35
-------- -------- ------- -------- ---------- -------- ---------- -------- --------
0.16 0.16 0.09 0.02 0.19 0.06 0.03 -- 0.01
2.18 3.28 (0.07) 0.86 2.29 3.18 0.22 2.41 2.09
-------- -------- ------- -------- ---------- -------- ---------- -------- --------
2.34 3.44 0.02 0.88 2.48 3.24 0.25 2.41 2.10
-------- -------- ------- -------- ---------- -------- ---------- -------- --------
(0.14) (0.16) (0.09) (0.01) (0.15) (0.06) (0.03) -- (0.01)
-- -- -- -- -- -- -- -- --
(0.04) (0.04) -- (0.12) (0.02) (0.95) -- (1.18) --
-- -- -- -- -- -- -- -- --
-- (0.08) -- -- -- (0.98) -- (0.09) (0.08)
-------- -------- ------- -------- ---------- -------- ---------- -------- --------
(0.18) (0.28) (0.09) (0.13) (0.17) (1.99) (0.03) (1.27) (0.09)
-------- -------- ------- -------- ---------- -------- ---------- -------- --------
$ 15.25 $ 13.09 $ 9.93 $ 10.75 $ 13.78 $ 11.47 $ 10.22 $ 14.50 $ 13.36
======== ======== ======= ======== ========== ======== ========== ======== ========
$7,455,379 $590,381 $ 70,855 $385,208 $5,483,747 $ 443,638 $ 60,475 $3,859,931 $ 618,317
3.22% 17.88% 106.54%* 56.35%* 3.99% 21.71% 140.33%* 4.34% 14.34%
1.00% 0.90% 0.42%* 1.07%* 1.14% 1.03% 0.43%* 1.20% 1.01%
0.11% (14.15)% (103.39)%* (54.60)%* (2.38)% (19.66)% (138.93)%* (3.64)% (13.13)%
2.33% 2.82% 2.74%* 1.09%* 0.47% 1.02% 0.97%* (0.50)% 0.20%
17.91% 34.62% 0.24% 16.61%* 21.61% 32.11% 2.49% 17.93% 18.50%
<CAPTION>
HIGH
YIELD
AGGRESSIVE BOND(4) INTERNATIONAL
EQUITY(3) -------- EQUITY(5)
SPECIAL EQUITY ---------- -------------
------------------------------------ FOR THE
FOR THE YEAR FOR THE YEAR
FOR THE YEAR ENDED YEAR ENDED ENDED ENDED
------------------------------------ ---------- -------- -------------
1994** 1996 1995 1994** 1996 1996 1996
---------- ---------- -------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.00 $ 13.95 $ 10.75 $ 10.00 $ 10.00 $ 10.00 $ 10.00
---------- ---------- -------- -------- -------- -------- ---------
(0.01) -- -- -- 0.05 0.21 0.01
1.36 3.58 4.43 0.84 (0.58) 0.66 1.37
---------- ---------- -------- -------- -------- -------- ---------
1.35 3.58 4.43 0.84 (0.53) 0.87 1.38
---------- ---------- -------- -------- -------- -------- ---------
-- -- -- -- (0.04) (0.19) (0.01)
-- (0.03) -- -- -- -- --
-- (0.38) (0.89) (0.09) -- -- (0.04)
-- -- -- -- -- -- (0.04)
-- (0.03) (0.34) -- -- -- (0.02)
---------- ---------- -------- -------- -------- -------- ---------
-- (0.44) (1.23) (0.09) (0.04) (0.19) (0.11)
---------- ---------- -------- -------- -------- -------- ---------
$ 11.35 $ 17.09 $ 13.95 $ 10.75 $ 9.43 $ 10.68 $ 11.27
========== ========== ======== ======== ======== ======== =========
$ 120,370 $7,736,347 $600,294 $ 87,705 $ 326,476 $738,100 $ 2,398,279
70.79%* 3.63% 15.76% 99.91%* 64.34%* 25.60%* 9.79%*
0.42%* 1.49% 1.33% 0.54%* 1.41%* 1.10%* 1.41%*
(71.00)%* (2.48)% (14.58)% (99.33)%* (64.36)%* (16.15)%* (7.91)%*
(0.21)%* (0.34)% (0.18)% 0.04%* (1.05)%* 8.35%* 0.48%*
13.58% 25.76% 41.50% 8.54% (9.51)%* 9.50%* 14.59%*
</TABLE>
17
<PAGE> 19
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 statement of assets and liabilities of
Diversified Investors Funds Group (comprising, respectively, the Money Market
Fund, High Quality Bond Fund, Intermediate Government Bond Fund,
Government/Corporate Bond Fund, Balanced Fund, Equity Income Fund, Equity Value
Fund, Growth & Income Fund, Equity Growth Fund, Special Equity Fund, Aggressive
Equity Fund, High Yield Bond Fund and International Equity Fund) (collectively
the "Funds") as of December 31, 1996, and the related statements of operations
for the year then ended for each of the Funds other than the Intermediate
Government Bond Fund, Equity Value Fund, Aggressive Equity Fund, High Yield Bond
Fund, International Equity Fund for which the periods were from February 22,
1996, June 13, 1996, June 11, 1996, January 30, 1996 and January 18, 1996
(commencement of operations), respectively, to December 31, 1996, the statements
of changes in net assets for each of the two years in the period then ended for
each of the Funds other than the Intermediate Government Bond Fund, Equity Value
Fund, Aggressive Equity Fund, High Yield Bond Fund, International Equity Fund
for which the periods were from February 22, 1996, June 13, 1996, June 11, 1996,
January 30, 1996 and January 18, 1996 (commencement of operations),
respectively, to December 31, 1996 and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, 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 the
respective Funds constituting Diversified Investors Funds Group as of December
31, 1996, 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, 1997
18
<PAGE> 20
ECONOMIC AND MARKET REVIEW
Economy The pace of the nation's economic growth slowed in the second half
of 1996. Final third quarter Gross Domestic Product was revised downward to 2.1%
from the previous estimate of 3.2%. While growth for the entire year is expected
to be above the Federal Reserve's targeted range of 2.0-2.25%, the moderate
growth in the second half of the year seems to have calmed the bond market.
Inflation as measured by both the Consumer Price and Producer Price Indices
remained under control despite some volatility attributable to the food and
energy components. As a result, the Federal Reserve left interest rates
unchanged at its November and December Federal Open Market Committee meetings.
The economy is growing at a moderate pace and inflation remains subdued. As
we enter 1997, the debate continues as to whether the economy and inflation are
accelerating, and the Federal Reserve needs to tighten; or whether the economy
is slowing, and the Federal Reserve needs to begin easing to avoid a recession
in 1997. We believe that economic growth and inflation may pick up during 1997.
This could result in higher interest rates as we move into the second quarter
and a possible Federal Reserve tightening.
Bonds Long term interest rates started the quarter at 6.92%. In October
and November the bond market rallied as interest rates fell across most of the
yield curve. The long bond fell to 6.36%, a drop of 56 basis points. The
catalysts for the rally were an economy demonstrating moderate growth,
accommodating Federal policy, and the maintenance of political balance between
Congress and the White House. The rally ended in December as interest rates rose
and the long bond finished the quarter at 6.64%. The decline was prompted by
investors who felt that the market had moved to an over bought level. For the
quarter, the Lehman Brothers Government/Corporate Index rose 3.1% to finish the
year with a return of 2.9%.
Long term interest rates should remain within a range of 6 1/4% to 7% until
there is more evidence that economic growth is either accelerating or slowing
significantly. If the economy slows, bonds will rally as rates drop below the 6%
level toward 5% to 5 1/2%. A more likely scenario is for growth and inflation to
pick up into the second quarter with the Fed eventually tightening. Bonds will
decline as rates move above 7%. Bonds should then rally later in the year as
higher rates slow economic activity.
Stocks U.S. stocks, as measured by the S&P 500 Index, returned a strong
8.3% in the fourth quarter, bringing the return for 1996 to 22.7%. The robust
performance by the market over the past two calendar years has only been matched
twice during the past 50 years. The rapid movement in the market during the
fourth quarter was brought about by generally better than expected earnings
reports for the prior quarter, a declining interest rate environment, and large
amounts of cash flowing into equity mutual funds.
The stock market should continue its upward momentum in early 1997 as the
economy grows moderately and interest rates remain stable. Large cap stocks
should continue to lead the market while international equities lag. Small cap
stocks could bounce back after their sluggish performance in the second half of
1996. As the stock market rallies to more overvalued levels, it becomes
increasingly more vulnerable to earnings disappointments. Only a moderately
growing economy with low inflation and steady to slightly declining interest
rates can sustain a prolonged stock market rally in 1997. More likely stronger
growth will unfold in about the second quarter and will result in a moderate
correction in the stock market.
MONEY MARKET PORTFOLIO
The Federal Reserve appears to have been very pleased with the soft landing
of the economy in 1996 that resulted from their interest rate changes in 1995.
With the one last tweak of interest rates in early 1996, placing the Fed Funds
rate at 5.25%, the Federal Reserve has sat back and watched the economy show
overall moderate growth through the past year. Employment and wages remain
strong, but have not skyrocketed out of control. Consumers have generally been
restrained although somewhat more optimistic in their buying patterns this year
as housing sales were sluggish until rates dropped toward the end of 1996, and
as consumers made only moderate increases in Christmas purchases.
The economy continues on its relatively steady moderate growth path.
Federal Reserve members are watching closely for a turn in the economy one way
or the other but overall, they seem to be relatively happy
19
<PAGE> 21
with the current economic course. With no pitfalls in sight, we expect the Fed
to remain steady with interest rates through most of 1997. Late 1997 data may
provide information that will lead to a very modest change in interest rates as
another pre-emptive move by the Fed.
The interest rate curve remains relatively flat. Investors are predicting a
steady course in interest rates by the Federal Reserve. We are therefore
generally running an average portfolio maturity of 45 days, while taking
advantage of market anomalies that periodically occur in one particular maturity
or another. At 12/31/96, the average maturity was 35 days, shorter than usual to
take advantage of the year end spike in short maturity interest rates.
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 5.18% and 5.19%, respectively as
of December 31, 1996, after changes imposed by the Portfolio. Of course, past
performance does not guarantee future investment results.
Investments made in the Money Market Portfolio are not insured nor
guaranteed by the U.S. government. There is no assurance that the Portfolio will
maintain a steady net asset value.
HIGH QUALITY BOND PORTFOLIO
High Quality Bond investors surely saved the best for last in 1996 as the
Portfolio enjoyed its highest quarterly returns of the year. The Merrill Lynch
1-3 Year Treasury Index posted a solid 1.9% return for the three month period,
helping to boost one year returns to 5%. The High Quality Bond Portfolio
outperformed the benchmark every quarter in 1996, culminating in a 5.5% return
for the year.
October opened the quarter with rising bond prices. Leading economic
indicators released during the month suggested a slowdown in economic activity
and benign inflation at both the producer and consumer levels, supporting the
bond market's rally. Economic indicators included an unexpectedly weak
employment report, lower employment costs, and declining housing starts, all
contributing to lower yields by the end of October.
The bond market viewed November's Election Day results favorably, as the
Democrats retained the White House, and Republicans held their majorities in the
House and Senate. Bond investors hoped the political mix would yield continued
slow growth and benign inflation, a mix that has worked nicely for bonds.
Investors were not disappointed as the continued slow growth/benign inflation
scenario fostered rising bond values. November's economic indicators reported a
slowdown in retail sales, a tame Consumer Price Index (CPI) report, and a fifth
straight month of declining existing home sales, driving yields down further.
December dampened the bond market's spirit. Federal Reserve Chairman Alan
Greenspan opened the month suggesting that values of U.S. assets were too high,
leaving investors worried about possible Federal Reserve tightening. Reports of
brisk holiday sales early in December suggested signs of accelerated economic
activity, forcing yields higher. Although the Federal Open Market Committee
(FOMC) left rates unchanged at its December 17th meeting, several month-end
indicators pointed towards accelerated growth. Higher than expected consumer
confidence, combined with a sharp resurgence of existing and new home sales,
contributed to lower bond prices by month end, dampening an overall positive
quarter.
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
Bonds, as measured by the Lehman Brothers Intermediate Government Index,
gained 2.3% for the three month period ending December 31, the highest calendar
quarterly return in 1996. The total return for bonds for the year ended December
31, 1996 was 4.1%. In contrast to last year, shorter-term securities generally
outperformed longer-term issues, which were much more affected by the rise in
interest rates over the period. Much of the performance in the fourth quarter
could be attributed to falling interest rates in October and November. There was
a back-up in rates in December due to renewed fears that strong economic
activity would be followed by a pick-up in inflation.
20
<PAGE> 22
The quarter began on a positive note for bond investors, as much of the
data released in October measuring levels of economic activity indicated a
continued slowing from the rapid advance of the second quarter. Reports on new
job creation, which probably raised inflation concerns among bond traders more
than any other indicator throughout the year, were far weaker than anticipated.
Moreover, closely watched measures of employment costs were lower as well.
Together with a drop in consumer confidence levels and slower home sales, bonds
in this sector had their best one month return since May, 1995. November was
similar in that generally weaker than expected economic data, coupled with
favorable inflation readings, pushed bond yields down, resulting in solid
returns for the month. December, however, was not as positive as the previous
two months. Bonds in most sectors posted negative returns. Many of the economic
releases in the last few weeks of the year pointed toward a possible rebound in
activity. Although inflation indicators remained within expectations, many bond
traders feared the prospect of stronger growth would finally cause inflation to
become a problem in the future.
The Portfolio maintained a duration slightly shorter than that of its
benchmark, the Lehman Intermediate Government Bond Index, throughout the fourth
quarter of this year. It is expected to be managed to a duration close to that
of its benchmark over the near term. The Portfolio will continue to eliminate
credit risk by seeking and holding only high quality Government issues.
GOVERNMENT/CORPORATE BOND PORTFOLIO
Although there were significant moves in bond yields this quarter, the
market did not experience the same day-to-day volatility associated with the
third quarter of 1996. Except for the very shortest maturities, bond prices
ended this period higher than where they started, which translated into positive
returns for investors. Bonds in the Lehman Brothers Government/Corporate Index
gained 3.1% for the three months ending December 31, bringing the total return
for 1996 to 2.9%. Returns in October and November were responsible for all of
this quarter's gain, as stronger than expected economic reports in December
caused the market to see negative returns.
Early in the quarter, the bond market continued a rally that began when the
Federal Open Market Committee (FOMC), the policy arm of the Federal Reserve
Bank, decided to leave interest rates unchanged at their September meeting. Bond
prices were bid higher as traders believed the long awaited, but never enacted,
bump-up in rates by the Fed would not happen this year. A hands-off policy by
the Federal Reserve, coupled with lackluster economic data, suggested slower
growth in the months ahead. October returns were the strongest in sixteen
months. In November, the market again saw weaker than expected employment
reports, lower consumer confidence levels, and no rebound in retail sales
figures. No increase in interest rates at the November FOMC meeting and strong
foreign demand for U.S. fixed income securities completed the picture, so that
bonds again had solid returns. There seemed, however, to be a dramatic
turnaround in market sentiment in December. Indicators on housing, employment,
and consumer confidence were all reported higher than anticipated. Continued
favorable inflation readings and a decision to leave rates unchanged at the
Federal Reserve's December meeting couldn't reverse the trend toward higher bond
yields. Returns for the month were negative due to concerns the tight labor
markets could result in wage inflation.
The Portfolio benefited from its overweighting of corporate issues relative
to the Index during the period. Generally, Government issues were not able to
match the returns of most of the corporate sectors. The Portfolio was maintained
at about the same duration as its benchmark index during the quarter, but may
extend relative to the benchmark should yields climb to levels where these bonds
could be considered undervalued.
HIGH YIELD BOND PORTFOLIO
As measured by the Salomon Brothers Cash Pay Index, the high yield bond
market returned 3.7% for the fourth quarter of 1996, beating most other fixed
income indices. For the year, bonds in this sector gained over 10%, more than
doubling the return of most investment-grade bond measures. Heavy investor
demand and a benign economic backdrop supported the advance. Credit quality had
a noticeable impact on return for the
21
<PAGE> 23
quarter. BB-rated issues returned 4.4%, outperforming both the lower quality B's
(3.9%), and lower rated CCC's (-3.1%) during the period.
Despite the compression of spreads during the year, demand for high yield
securities remains strong. Faced with an aging bull market in stocks and a
shortage of high income alternatives, investors have poured cash into high yield
mutual funds at an unparalleled rate. More new monies flowed into high yield
market this year than in any other year. Heavy investor demand and secular low
interest rates have also spurred new high yield issuance into record territory,
with $80 billion of new issues this year. Investor uncertainty regarding the
economy, stocks, and interest rates continues to benefit the high yield bond
market. While individuals in need of high income remain the market's core
constituency, both retail and institutional investors are increasingly embracing
high yield as a refuge. These bonds offer equity-like returns, but have risk
characteristics closer to investment grade debt issues. With a yield roughly
comparable to the long term return on common stocks, low correlation to the
broad stock and bond markets, and a roster of names familiar in most households,
the market is entering the mainstream of investment alternatives. The high yield
market has grown in size from $220 billion in 1991 to about $400 billion as of
year end. These issues now comprise 25% of the total corporate bonds
outstanding.
The outlook for the high yield market remains positive, particularly
relative to other fixed income investments. Investor demand for these securities
is likely to remain strong, especially in light of the recent volatility of the
broader stock and bond markets. The Portfolio remains defensively positioned
with respect to industry exposure, and slightly overweighted in top tier BB
rated issues relative to the Salomon Index.
BALANCED PORTFOLIO
Balanced portfolios, as measured by a 60/40 mix of the S&P 500 and the
Lehman Government/Corporate Index, posted their highest quarterly returns of the
year of 6.3%. Bonds had their strongest return in 1996 due to perceptions of
slowing growth and continued favorable inflation readings over the period.
Equity returns, however, were clearly the determining force for the strong gain
in the Index. As has been true for most of the year, stocks were helped by low
levels of interest rates over the period and a healthy growth in corporate
profits.
Asset allocation and equity sector returns had the greatest impact on the
quarterly results of the Balanced Fund. The Portfolio increased its equity
exposure throughout the quarter. This helped performance relative to the Index
in a period in which equities outperformed bonds. The Portfolio finished the
year with a 62% weighting in stocks, slightly higher than the benchmark's 60%.
Although the S&P 500 returned 8.4% for the quarter, financial and
technology issues gained 13.5% and 13.1% respectively. Financial institutions,
like banks, were positively impacted by lower interest rates over the last three
months. However, bank shares were bid higher more due to their improved balanced
sheets, solid dividend and earnings growth, and the reduction in loan losses.
The Balanced Portfolio was equally weighted versus the Index in this sector.
Individual issues that did well within the Portfolio during the quarter included
Travelers (23.5%) and Citicorp (14.2%).
Technology, up 40%, was the best performing sector of the market this year.
This industry continues to benefit from soaring demand, as companies are more
determined than ever to increase productivity. More than 50% of capital spending
by businesses is now technology related. The Portfolio was slightly
underweighted versus the Index over the quarter. However, impressive returns of
individual issues helped the technology sector to an overall 14.1% gain over the
past three months, with Nokia Corp. (30.2%) and International Business Machines
(22%) leading the way.
EQUITY INCOME PORTFOLIO
In the fourth quarter, equity income investing, as measured by the Lipper
Equity Income Index, posted its best results for the year with a total return of
about 7.5%. This puts the total return for the past year at 17.9% and brings
performance over the past two years to about 53%. The Index thus enjoyed its
best two year
22
<PAGE> 24
period since 1981-1982 when it returned over 60%. However, as in 1995, these
more conservative equity strategies failed to beat the rapidly advancing S&P 500
Index, which returned 23.3% for the year. The key factors behind the market's
advance in the fourth quarter were declining interest rates, fairly strong
corporate profits, and election results which preserved the political status quo
in Washington.
Fourth quarter performance of the Equity Income Portfolio was most
influenced by the technology, energy, and cyclical sectors. The technology
sector was a source of weakness due to a lack of exposure to some of the
sector's best performing industries, such as networking and software companies.
It is difficult to reconcile these types of holdings with the Portfolio's yield
oriented, value strategy, inasmuch as these industries predominantly contain
growth companies which pay little or no dividends.
The energy sector of the Portfolio underperformed due to stock selection.
Holdings in this area are biased toward oil and oil service companies, such as
Mobil, Chevron, and McDermott International, which were negatively impacted by
company specific news. Mobil underperformed following reports that declining
prices for some of its key chemical products, and shutdowns at several U.S.
refineries hurt earnings. Chevron, also hurt by lower chemical prices suffered a
decline in refining profits last quarter. McDermott International shares fell
after the company said it expects to report a fiscal second quarter loss and
could cut its dividend. This company has since been eliminated from the Equity
Income Portfolio.
The cyclical sector enhanced total return, as holdings in auto and rail
stocks rallied sharply. General Motors and Chrysler were both up over 16%. Both
companies announced that third quarter profits more than doubled and easily
topped analyst expectations. Conrail stock appreciated about 40% due to its
pending merger with CSX and was the Portfolio's best performer.
EQUITY VALUE PORTFOLIO
Value investing, as measured by the Russell 1000 Value Index, performed
well in the fourth quarter by posting a 9.8% return. This capped-off a very
strong year as the Index returned 21.6%. The quarter's strong result was largely
attributable to the energy, utility and finance sectors, which comprise
approximately 60% of the Index's total weight. The energy stocks benefited from
the rising cost of crude oil and from generally better than expected earnings
from oil producers and service companies. Investors believe that increased
global demand will add to already strong profit growth. The utility and finance
sectors, which tend to be very interest rate sensitive, ascended due to falling
bond yields. The finance sector also was aided by brokerage and investment
firms, which posted strong earnings.
Performance of the Portfolio was enhanced by the utility and consumer
non-cyclical sectors, while the basic industry and consumer cyclical sectors
detracted from the quarter's performance. The utility sector returned
approximately 13% for the Portfolio and was the best performer for the quarter.
The primary determinants were telephone stocks which bounced back after
underperforming the previous nine months. In an environment where interest rates
are falling, the dividend yield is enhanced making these stocks very attractive
to investors. In addition, Federal regulators moved to allow the regional
telephone companies to continue levying access charges on long distance
providers. Stocks which directly contributed were AT&T Corp., NYNEX Corp., and
GTE Corp.
The consumer non-cyclical sector, dominated by health care related
companies such as HMO's, ethical drug companies and acute care providers,
benefited from the November election as Washington was kept status-quo. A
Republican controlled Congress makes any kind of health care reform less likely.
Now that such a reform is put to rest, investors are confident that managed care
providers will be able to raise premiums more easily and spend less on care,
ultimately helping the bottom line.
The basic industry sector has not had the ability to raise prices and is
also ailing from unsatisfactory levels of demand. Moreover, profits are being
squeezed as rising cost of raw materials, particularly sources of energy, are
causing profit margins to fall. The consumer cyclical sector fell prey to
expectations that economic growth will continue to slow. Retailing in particular
detracted from sector returns since holiday sales were not as robust as
originally anticipated.
23
<PAGE> 25
GROWTH & INCOME PORTFOLIO
Growth & Income investors generally saw their best returns of the year in
the fourth quarter. The Lipper Growth & Income Index returned 7.8% for the
quarter and finished the year with a total return of over 20%. This marks only
the fourth time in the Index's 25 year history that it has gained over 20% for
two consecutive calendar years. Additionally, 1996 results compared favorably
with other investment styles, as measured by the Lipper Equity Income, Growth,
and Small Company Indices. One of the key factors in the relative strength of
Growth & Income funds in general was uncertainty over the state of the economy,
bringing investors' focus towards larger companies with stable earnings growth.
Typically, these companies are prominently represented in Growth & Income funds.
In the fourth quarter, the advance of the equity markets could be attributed to
an accommodative Federal Reserve, good earnings reports, and election results
which preserved the political balance in Washington.
Fourth quarter performance of the Growth & Income Portfolio was mixed as
weakness in the non-cyclical sector was mitigated by strength in the Portfolio's
basic industry and financial stocks. The non-cyclical area was hurt by stock
selection because company specific news on some larger holdings (Clorox and
Nike) was viewed unfavorably by investors. Clorox announced that it plans to
finance its proposed acquisition of Armor All Products with debt issuance. Some
felt that this may hurt its earnings somewhat in the near term. Nike shares
failed to keep pace with the market. Some analysts lowered their estimates for
fiscal second quarter earnings because of rising the company's operating costs.
Nike recently signed golf sensation Tiger Woods to a multimillion dollar
endorsement contract and also opened a new NikeTown store.
The basic industry sector was a source of value added. This can be
attributed to Putnam's strict growth criterion steering the Portfolio away from
the area's worst performing industries. The Portfolio had essentially no
exposure to specialty chemical and/or forest product stocks which were both
generally weak due to poor prospects for earnings growth. Finance stocks within
the Portfolio were particularly strong returning about 15% as a group. This
sector was led by money center banks such as BankAmerica and Citicorp which both
outperformed. These issues continue to benefit from stronger than anticipated
earnings and the positive sentiment created by declining interest rates.
EQUITY GROWTH PORTFOLIO
Growth Fund investing, as measured by the Lipper Growth Fund Index,
finished the year strongly with a fourth quarter total return of 5.8%. This
brings performance for all of 1996 to 17.5%. This performance is generally in
line with the 19.5% average return for equity funds tracked by Lipper, and is
well ahead of the average fixed income return of 4.7%. Moreover, annual results
were quite good relative to historical standards as calendar year returns for
the Growth Fund Index of better than 17% had occurred only twelve times since
1970. Some of the catalysts which propelled the equity markets to record highs
in the fourth quarter were declining interest rates, corporate profits generally
exceeding expectations, and mutual funds continuing to receive large cash flows
from investors.
Fourth quarter performance of the Growth Portfolio was most influenced by
the technology and consumer cyclical sectors. Technology was a source of value
added due to sector emphasis. Throughout the period, the Portfolio maintained a
relatively high weighting in this group, which generally outperformed. S&P 500
technology stocks returned about 13%, as investors, uncertain about the state of
the economy, focused on this group whose secular growth prospects still seem
relatively strong. Microsoft and 3Com were two of the Portfolio's best
performers in this sector. Microsoft, which had exhibited tremendous relative
strength all year, rallied an additional 25% in the fourth quarter due to
stronger than anticipated earnings. 3Com advanced about 22% after the company
stated that they expect increasing profit margins and sales growth for the next
few quarters.
The consumer cyclical sector of the Portfolio detracted from total return
from both sector allocation and stock selection perspectives. S&P 500 cyclical
stocks returned only 1.6% for the quarter and were among the broad market's
worst performing groups. This proved somewhat troublesome for the Portfolio,
which maintained a healthy allocation to the sector. In addition, company
specific news, particularly in the specialty
24
<PAGE> 26
retailing area, caused some issues to decline. Lowe's shares fell after the home
improvement retailer said fourth quarter earnings would fall below analysts'
expectations. CompUSA was hurt by slow sales growth for the quarter. Management
cited a shorter Christmas shopping season and consumer anticipation of new
products as key factors.
SPECIAL EQUITY PORTFOLIO
As the famous Hall of Fame catcher Yogi Berra once said, "It's deja-vu all
over again." There couldn't have been a more fitting phrase to summarize the
performance of small company stocks relative to their brethren large company
stocks, in 1996. The Russell 2000 Index, a small company index, returned 16.5%,
while the S&P 500 Index, a measure of large company stocks, returned 23.3%,
bettering the performance of small company stocks for the third consecutive
year. The relative underperformance of the small company stocks is largely
attributable to investors flocking to the comfort of more liquid, blue chip
names, due to uncertainty about the economy, interest rates, earnings, and to
relatively high valuations in the market. This frenzy for large company stocks
is not uncommon in late cycles of a bull market.
Despite this, 1996 was another year in which the Special Equity Portfolio
demonstrated superior results versus its benchmark, the Russell 2000 Index. More
impressive was the Portfolio's ability to post a return comparable to the S&P
500 Index. The multiple manager approach utilized within the Portfolio continues
to provide superior results, while reducing the risks associated with this style
of investing.
During the fourth quarter, the Portfolio was helped by the consumer
cyclical sector, while the industrial and basic industry sectors were primary
detractors. The consumer cyclical sector's outperformance was largely associated
with the Portfolio's exposure to air transportation, publishing and the trucking
stocks, with returns of approximately 11.7%, 12.5%, and 6.8%, respectively. The
air freight companies did well as volume either matched or exceeded investors
expected levels. The trucking and publishing stocks benefited from generally
strong earnings reports.
The largest detractor to performance was the industrial sector, led by
capital equipment, multiple industry and metal fabrication stocks. There was no
common underlying theme for this sector's performance as much as issues specific
to certain companies.
The basic industry sector's underperformance was linked to lackluster
levels of demand and a slowing global economic environment. The latter has made
it nearly impossible to raise prices on products that companies manufacture.
Moreover, the cost of materials needed to manufacture products, such as energy,
have increased, causing profit margins to decline.
AGGRESSIVE EQUITY PORTFOLIO
The fourth quarter proved turbulent for Aggressive Equity investors, as the
benchmark Russell 2000 Growth Index posted a .3% gain. October set the tone for
the quarter. Growth investors experienced broad losses largely due to investors
favoring more liquid, less volatile securities. Although November was more
profitable for Aggressive Equity investors, with positive returns, the trend
continued toward brand name blue chip issues, where returns were more favorable.
Growth oriented investors experienced a mediocre December, as the Russell 2000
Growth Index posted a gain of 2% for the final month of the year. Aggressive
Equity investments underperformed the benchmark for the quarter.
The Aggressive Equity Portfolio remained heavily weighted in technology,
and therefore did not partake in the gains of energy, the hottest sector of the
Russell 2000 Growth Index for the quarter. The Portfolio's technology issues had
mixed returns, with some stocks experiencing broad losses. Cascade
Communications, which makes equipment that links and routes phone calls within
computer networks, could not sustain blistering 1996 growth through the fourth
quarter, as the company announced lower than expected revenue. Sun Microsystems,
a supplier of high-performance workstations, received intense pressure from
rivals in the workstation market. Sun was prompted to slash prices, draining
profits and gross margins.
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<PAGE> 27
Although Aggressive Equity investors generally underperformed in the
quarter, several issues in the Portfolio managed to enjoy significant gains
because investors favored issues with larger market capitalizations. Stocks of
larger companies are perceived as being more liquid in today's volatile market.
Intel Corp. posted big gains for the Portfolio over the quarter, as technology
analysts expect increased earnings in 1997. The semiconductor company's earnings
are poised for large gains because many corporate customers are planning
upgrades. Dell Computer Corp. has already benefited from increased corporate
demand. Revenue jumped 42%, helped in part by an 80% increase in notebook
computer sales. Microsoft was also included in the list of large cap performers
as it expects to increase spending on research and development six-fold in 1997,
creating the world's largest computer science lab. The software leader will
continue to develop new internet products including technology for letting
people make video phone calls using the Internet.
The Portfolio also enjoyed strong performance from pharmaceutical companies
in the consumer non-cyclical sector. In a quest to reduce costs, many managed
health-care companies are recommending more use of medications. The expectation
is to avoid expensive surgery or long-term care by solving a medical problem
earlier through medication. Bristol-Myers Squibb, producing drugs to treat
cholesterol, and Pfizer, producing drugs to combat depression, enjoyed strong
fourth quarter performance. Pharmaceutical companies also rallied in response to
November's election results, where a Republican controlled Congress has dimmed
prospects for any efforts by President Clinton for health care reform in his
second term.
INTERNATIONAL EQUITY PORTFOLIO
U.S. investors in foreign markets experienced lackluster yet positive
returns as 1996 came to a close, with the Morgan Stanley Capital International
Europe, Australia, and Far East (MSCI EAFE) Index up 1.7% for the final quarter
of the year. Of the 22 countries which make up the Index, 20 had positive
returns as measured in U.S. dollars, and all but one were positive when viewed
in terms of local currency. Spain, Norway and Finland led the way while Japan
trailed, posting its second negative 1996 quarterly return.
Japanese market losses were intensified by an 11.1% depreciation of the
yen. This depreciation, together with an easing monetary policy and a good
economic rebound for the country, should have helped boost Japan's stock market
over the past year. However, overriding factors caused Japanese returns to
falter. Among these were lagging profit growth, sluggish economic and corporate
restructuring, and concern in the markets over a tighter fiscal policy in the
new year as the government moves to repair the worst fiscal deficit of the major
industrial countries. On a prospective basis, although Japan's prospects
currently appear dim, this is one country whose markets can gain if and when
interest rates rise since such a trend will signal a powerful economic recovery.
In Europe, the news over the past year has been dominated by the European
Union's execution of strategies that will eventually bring about a single
currency for all. Specifically, the emphasis was on "convergence" -- narrowing
the gap in interest rates among the 15 member countries. The goal is for the
Italian lira, for example, to be no different than Germany's deutsche mark by
the year 2000. A side effect of convergence measures was a huge bond market
rally across the Continent as rates fell, with stock markets consequently
posting healthy gains. Another overriding trend in Europe is the beginning of
American-style corporate restructuring. This is unfamiliar territory for
traditionally paternalistic European corporations. However, underperforming
businesses should benefit as companies opt to enhance shareholder value by
aggressively cutting costs.
Looking forward, it is possible that Alan Greenspan's question about
"irrational exuberance" as applied to the U.S. market could also be relevant to
most of the developed markets outside Japan. There are signs that European
economies are finally emerging from two sluggish years with low inflation and
monetary authorities therefore unlikely to hike interest rates. Looming over the
Continent is the threat of a U.S. market correction should the Federal Reserve
elect to tighten monetary policy. Whenever U.S. market returns faltered last
year in the face of a possible Fed tightening, Europe's markets also stumbled.
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27
<PAGE> 29
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY HIGH GOVERNMENT CORPORATE EQUITY
MARKET QUALITY BOND BOND BOND BALANCED INCOME
------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Securities, at cost.......... $185,029,634 $194,090,614 $ 118,789,459 $323,055,033 $273,163,752 $760,718,204
============ ============ ============ ============ ============ ============
Securities, at market........ $185,029,634 $194,122,807 $ 118,462,438 $328,052,630 $291,482,580 $989,350,281
Repurchase agreement, at
value....................... -- 4,346,634 35,994 52,064 2,456,326 26,914
Cash......................... 55,534 -- 272,437 -- -- 24,843
Foreign currency holdings, at
value (cost $612)...........
Receivable for securities
sold........................ -- 110,127 -- -- -- 452,910
Receivable for foreign
currency forward
contracts................... -- -- -- -- -- --
Interest receivable.......... 193 2,226,143 959,953 4,696,158 1,413,326 105
Dividends receivable......... -- -- -- -- 241,387 1,843,283
Receivable from securities
lending..................... -- 170 4,044 -- -- --
Reimbursement from advisor... -- -- 4,884 -- 14,213 1,087
------------ ------------ ------------ ------------ ------------ ------------
Total assets........ 185,085,361 200,805,881 119,739,750 332,800,852 295,607,832 991,699,423
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES:
Deposit for securities
loaned...................... -- 3,417,000 16,628,750 9,969,600 30,543,450 30,492,400
Payable for securities
loaned...................... -- -- -- 19,264 16,667 10,038
Payable for securities
purchased................... -- -- -- -- -- 3,890,433
Payable for foreign currency
forward contracts........... -- -- -- -- -- --
Payable to advisor........... 7,901 12,209 -- 2,904 -- --
Accrued expenses:
Investment advisory fees.... 43,277 63,279 34,105 98,085 106,456 385,563
Custody fees................ 3,324 -- -- 17,404 12,056 55,314
Professional fees........... 15,038 14,999 13,080 13,254 14,451 28,996
Reports to shareholders..... 1,323 1,360 633 1,501 1,619 6,120
Miscellaneous fees.......... 2,244 2,371 3,302 2,823 3,294 9,890
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities... 73,107 3,511,218 16,679,870 10,124,835 30,697,993 34,878,754
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS.......... $185,012,254 $197,294,663 $ 103,059,880 $322,676,017 $264,909,839 $956,820,669
============ ============ ============ ============ ============ ============
NET ASSETS CONSIST OF:
Paid-in capital............. $185,012,254 $197,262,470 $ 103,386,901 $317,678,420 $246,591,011 $728,188,592
Net unrealized appreciation
(depreciation) on
securities................ -- 32,193 (327,021) 4,997,597 18,318,828 228,632,077
Net unrealized appreciation
on translation of assets
and liabilities in foreign
currencies................ -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS.......... $185,012,254 $197,294,663 $ 103,059,880 $322,676,017 $264,909,839 $956,820,669
============ ============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
28
<PAGE> 30
<TABLE>
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD INTERNATIONAL
VALUE INCOME GROWTH EQUITY EQUITY BOND EQUITY
----------- ------------ ------------ ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$26,959,909 $192,911,663 $276,480,203 $446,828,750 $14,563,091 $12,969,120 $ 126,340,686
=========== ============ ============ ============ =========== =========== ============
$28,527,741 $214,948,333 $290,199,537 $524,487,533 $14,798,550 $13,341,450 $ 138,412,521
1,693,498 6,969,777 6,063,591 44,826,526 1,393,598 1,751,451 8,711,664
-- -- -- -- -- -- --
597
45,355 -- 3,678,252 1,702,254 -- -- 600,679
-- -- -- -- -- -- 425,249
-- -- 120 -- -- 306,105 37,258
54,436 256,354 213,394 330,003 200 -- 346,211
-- 5,282 23,099 5,466 -- -- --
25,881 -- -- 271,382 13,002 5,118 14,632
----------- ------------ ------------ ------------ ----------- ----------- ------------
30,346,911 222,179,746 300,177,993 571,623,164 16,205,350 15,404,124 148,548,811
----------- ------------ ------------ ------------ ----------- ----------- ------------
-- 13,875,100 -- 54,293,050 -- -- --
-- -- -- -- -- -- --
1,257,288 536,120 859,543 9,382,748 679,437 -- 132,503
-- -- -- -- -- -- 74,068
-- 7,664 10,867 -- -- -- --
14,349 114,836 156,083 629,284 13,188 7,137 95,010
21,977 16,805 5,450 27,902 14,270 114 33,450
10,996 12,433 13,515 14,293 10,838 16,648 21,121
189 1,420 1,552 6,574 86 121 152
8,599 2,942 3,297 5,070 8,401 7,418 7,610
----------- ------------ ------------ ------------ ----------- ----------- ------------
1,313,398 14,567,320 1,050,307 64,358,921 726,220 31,438 363,914
----------- ------------ ------------ ------------ ----------- ----------- ------------
$29,033,513 $207,612,426 $299,127,686 $507,264,243 $15,479,130 $15,372,686 $ 148,184,897
=========== ============ ============ ============ =========== =========== ============
$27,465,681 $185,575,756 $285,408,352 $429,605,460 $15,243,671 $15,000,356 $ 135,763,072
1,567,832 22,036,670 13,719,334 77,658,783 235,459 372,330 12,071,835
-- -- -- -- -- -- 349,990
----------- ------------ ------------ ------------ ----------- ----------- ------------
$29,033,513 $207,612,426 $299,127,686 $507,264,243 $15,479,130 $15,372,686 $ 148,184,897
=========== ============ ============ ============ =========== =========== ============
</TABLE>
29
<PAGE> 31
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY HIGH GOVERNMENT CORPORATE EQUITY
MARKET QUALITY BOND BOND BOND BALANCED INCOME
---------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income.................. $ -- $ -- $ -- $ -- $ 2,558,348 $ 24,105,695
Less withholding tax............. -- -- -- -- 29,310 27,363
Interest income.................. 9,760,937 11,653,443 5,846,155 23,444,967 6,061,234 5,661,475
----------- ----------- ------------ ------------ ------------ ------------
Total income.............. 9,760,937 11,653,443 5,846,155 23,444,967 8,590,272 29,739,807
----------- ----------- ------------ ------------ ------------ ------------
Expenses:
Investment advisory fees......... 445,832 627,049 340,989 1,232,524 995,489 3,895,211
Custody fees..................... 45,297 39,474 34,276 85,984 62,393 186,413
Professional fees................ 22,338 23,564 20,891 22,528 23,323 44,998
Reports to shareholders.......... 2,148 2,272 1,125 3,396 2,845 10,746
Miscellaneous fees............... 17,525 17,715 17,480 19,438 18,592 30,709
----------- ----------- ------------ ------------ ------------ ------------
Total expenses............ 533,140 710,074 414,761 1,363,870 1,102,642 4,168,077
Expenses waived by the investment
advisor.......................... 680 -- 27,685 -- -- --
----------- ----------- ------------ ------------ ------------ ------------
Net expenses.............. 532,460 710,074 387,076 1,363,870 1,102,642 4,168,077
----------- ----------- ------------ ------------ ------------ ------------
Net investment income (loss)....... 9,228,477 10,943,369 5,459,079 22,081,097 7,487,630 25,571,730
----------- ----------- ------------ ------------ ------------ ------------
Net realized and unrealized gains
(losses) on securities and
foreign currencies:
Net realized gains (losses) on
securities..................... (8,786) (34,374) (586,993) (913,114) 23,946,320 39,593,303
Net realized gains on foreign
currency transactions.......... -- -- -- -- -- --
Net change in unrealized
appreciation (depreciation) on
securities..................... -- (1,571,971) (1,394,326) (11,013,287) 3,998,704 83,552,175
Net change in unrealized
appreciation on translation of
assets and liabilities in
foreign currencies............. -- -- -- -- -- --
----------- ----------- ------------ ------------ ------------ ------------
Net realized and unrealized gains
(losses) on securities and
foreign currencies............... (8,786) (1,606,345) (1,981,319) (11,926,401) 27,945,024 123,145,478
----------- ----------- ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations........ $9,219,691 $ 9,337,024 $ 3,477,760 $ 10,154,696 $35,432,654 $148,717,208
=========== =========== ============ ============ ============ ============
</TABLE>
- ---------------
* Commencement of operations, April 19, 1996
See notes to financial statements.
30
<PAGE> 32
<TABLE>
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD INTERNATIONAL
VALUE* INCOME GROWTH EQUITY EQUITY* BOND EQUITY
---------- ----------- ----------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 288,192 $ 2,447,876 $ 800,318 $ 2,576,979 $ 7,542 $ -- $ 1,933,704
-- 11,760 -- 7,724 -- -- 193,860
41,011 480,282 596,092 1,850,409 19,676 983,639 421,402
----------
-
----------- ------------ ----------- ----------- ------------
329,203 2,916,398 1,396,410 4,419,664 27,218 983,639 2,161,246
----------
-
----------- ------------ ----------- ----------- ------------
84,055 1,052,349 1,730,632 3,255,893 95,060 60,742 799,760
41,576 84,559 55,663 194,409 28,524 43,101 185,048
17,932 21,706 22,507 25,638 17,734 18,462 25,981
305 2,444 3,022 9,078 164 150 1,542
14,699 17,978 18,845 21,673 14,482 15,131 16,596
----------
-
----------- ------------ ----------- ----------- ------------
158,567 1,179,036 1,830,669 3,506,691 155,964 137,586 1,028,927
70,088 39,117 1,462 47,350 57,964 72,277 69,256
----------
-
----------- ------------ ----------- ----------- ------------
88,479 1,139,919 1,829,207 3,459,341 98,000 65,309 959,671
----------
-
----------- ------------ ----------- ----------- ------------
240,724 1,776,479 (432,797) 960,323 (70,782) 918,330 1,201,575
----------
-
----------- ------------ ----------- ----------- ------------
910,307 16,329,122 64,682,669 55,282,281 594,156 (43,340) 2,640,559
-- -- -- -- -- -- 478,445
1,567,832 13,845,816 (25,830,434) 32,173,450 235,459 210,284 10,896,919
-- -- -- -- -- -- 190,167
----------
-
----------- ------------ ----------- ----------- ------------
2,478,139 30,174,938 38,852,235 87,455,731 829,615 166,944 14,206,090
----------
-
----------- ------------ ----------- ----------- ------------
$2,718,863 $31,951,417 $38,419,438 $88,416,054 $758,833 $1,085,274 $ 15,407,665
=========== ============ =========== =========== =========== ============
</TABLE>
31
<PAGE> 33
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY HIGH GOVERNMENT CORPORATE
MARKET QUALITY BOND BOND BOND BALANCED
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss)................. $ 9,228,477 $ 10,943,369 $ 5,459,079 $ 22,081,097 $ 7,487,630
Net realized gains (losses) on securities.... (8,786) (34,374) (586,993) (913,114) 23,946,320
Net realized gains on foreign currency
transactions............................... -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on securities............... -- (1,571,971) (1,394,326) (11,013,287) 3,998,704
Net change in unrealized appreciation on
translation of assets and liabilities in
foreign currencies......................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations................................. 9,219,691 9,337,024 3,477,760 10,154,696 35,432,654
------------ ------------ ------------ ------------ ------------
From capital transactions:
Proceeds from capital invested............... 574,726,828 132,353,083 50,100,883 107,972,231 106,232,881
Value of capital withdrawn................... 540,572,513 116,921,547 36,510,377 131,990,320 43,788,651
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from capital transactions.................... 34,154,315 15,431,536 13,590,506 (24,018,089) 62,444,230
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets.......... 43,374,006 24,768,560 17,068,266 (13,863,393) 97,876,884
Net assets:
Beginning of year............................ 141,638,248 172,526,103 85,991,614 336,539,410 167,032,955
------------ ------------ ------------ ------------ ------------
End of year.................................. $185,012,254 $197,294,663 $ 103,059,880 $322,676,017 $264,909,839
============ ============ ============ ============ ============
</TABLE>
- ---------------
* Commencement of operations, April 19, 1996
See notes to financial statements.
32
<PAGE> 34
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD INTERNATIONAL
INCOME VALUE* INCOME GROWTH EQUITY EQUITY* BOND EQUITY
------------ ----------- ------------ ------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 25,571,730 $ 240,724 $ 1,776,479 $ (432,797) $ 960,323 $ (70,782) 918,330 $ 1,201,575
39,593,303 910,307 16,329,122 64,682,669 55,282,281 594,156 (43,340) 2,640,559
-- -- -- -- -- -- -- 478,445
83,552,175 1,567,832 13,845,816 (25,830,434) 32,173,450 235,459 210,284 10,896,919
-- -- -- -- -- -- -- 190,167
------------ ----------- ------------ ------------ ----------- ------------ ------------ ------------
148,717,208 2,718,863 31,951,417 38,419,438 88,416,054 758,833 1,085,274 15,407,665
------------ ----------- ------------ ------------ ----------- ------------ ------------ ------------
293,027,464 28,849,346 146,312,325 136,832,312 247,735,078 20,875,494 7,896,234 77,505,278
249,226,533 2,534,696 95,463,047 98,486,454 144,345,114 6,155,197 2,606,417 28,174,361
------------ ----------- ------------ ------------ ----------- ------------ ------------ ------------
43,800,931 26,314,650 50,849,278 38,345,858 103,389,964 14,720,297 5,289,817 49,330,917
------------ ----------- ------------ ------------ ----------- ------------ ------------ ------------
192,518,139 29,033,513 82,800,695 76,765,296 191,806,018 15,479,130 6,375,091 64,738,582
764,302,530 -- 124,811,731 222,362,390 315,458,225 -- 8,997,595 83,446,315
------------ ----------- ------------ ------------ ----------- ------------ ------------ ------------
$956,820,669 $29,033,513 $207,612,426 $299,127,686 $507,264,243 $15,479,130 $15,372,686 $ 148,184,897
============ =========== ============ ============ =========== ============ ============ ============
</TABLE>
33
<PAGE> 35
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY HIGH GOVERNMENT CORPORATE
MARKET QUALITY BOND BOND BOND
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
From operations:
Net investment income........................ $ 8,949,654 $ 9,914,104 $ 4,558,386 $ 18,181,947
Net realized gains (losses) on securities.... (4,226) (634,835) 379,479 1,365,500
Net realized (losses) on foreign currency
transactions............................... -- -- -- --
Net change in unrealized appreciation on
securities................................. -- 7,048,911 5,777,385 29,472,541
Net change in unrealized appreciation on
translation of assets and liabilities in
foreign currencies......................... -- -- -- --
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations................................. 8,945,428 16,328,180 10,715,250 49,019,988
------------ ------------ ------------ ------------
From capital transactions:
Proceeds from capital invested............... 393,166,782 141,659,639 38,046,469 151,446,357
Value of capital withdrawn................... 421,983,754 129,457,932 49,408,845 110,912,327
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from capital transactions.................... (28,816,972) 12,201,707 (11,362,376) 40,534,030
------------ ------------ ------------ ------------
Net increase (decrease) in net assets.......... (19,871,544) 28,529,887 (647,126) 89,554,018
Net assets:
Beginning of year............................ 161,509,792 143,996,216 86,638,740 246,985,392
------------ ------------ ------------ ------------
End of year.................................. $141,638,248 $172,526,103 $ 85,991,614 $336,539,410
============ ============ ============ ============
</TABLE>
- ---------------
* Commencement of operations, August 22, 1995
** Commencement of operations September 29, 1995
See notes to financial statements.
34
<PAGE> 36
<TABLE>
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL HIGH YIELD INTERNATIONAL
BALANCED INCOME INCOME GROWTH EQUITY BOND* EQUITY**
------------ ------------ ------------ ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 5,658,158 $ 21,635,258 $ 1,556,678 $ 868,631 $ 763,542 $ 223,398 $ 102,394
11,609,960 9,847,566 19,009,812 4,768,375 45,159,729 6,659 16,793
-- -- -- -- -- -- (8,241)
17,788,835 158,219,366 9,319,254 24,304,762 40,748,255 162,046 1,174,916
-- -- -- -- -- -- 159,823
------------ ------------ ------------ ------------ --------- ---------- ------------
35,056,953 189,702,190 29,885,744 29,941,768 86,671,526 392,103 1,445,685
------------ ------------ ------------ ------------ --------- ---------- ------------
80,590,418 231,491,356 93,751,429 93,276,744 113,103,544 9,081,530 86,991,521
74,123,531 245,585,114 93,408,742 49,673,952 101,988,710 476,038 4,990,891
------------ ------------ ------------ ------------ --------- ---------- ------------
6,466,887 (14,093,758) 342,687 43,602,792 11,114,834 8,605,492 82,000,630
------------ ------------ ------------ ------------ --------- ---------- ------------
41,523,840 175,608,432 30,228,431 73,544,560 97,786,360 8,997,595 83,446,315
125,509,115 588,694,098 94,583,300 148,817,830 217,671,865 -- --
------------ ------------ ------------ ------------ --------- ---------- ------------
$167,032,955 $764,302,530 $124,811,731 $222,362,390 $315,458,225 $8,997,595 $ 83,446,315
============ ============ ============ ============ ========= ========== ============
</TABLE>
35
<PAGE> 37
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<C> <S> <C> <C>
COMMERCIAL PAPER
$6,200,000 American Express Credit Corp., 5.30%, 02/28/97.............. $ 6,147,057
2,000,000 Avco Financial Services Inc. -- Canada, 5.34%, 01/21/97..... 1,994,067
700,000 Avco Financial Services Inc. -- Canada, 5.32%, 01/23/97..... 697,724
6,500,000 Avco Financial Services Inc. -- Canada, 5.52%, 04/04/97..... 6,407,310
1,500,000 Banc One Corp., 5.46%, 01/06/97............................. 1,498,863
4,000,000 Banco Real S.A., 5.36%, 04/21/97............................ 3,934,489
5,500,000 Bank of New York, 5.30%, 01/10/97........................... 5,492,712
1,000,000 Bank of New York, 5.45%, 01/15/97........................... 997,881
7,800,000 Bell South Telecommunications Inc., 5.40%, 02/04/97......... 7,760,220
8,000,000 Chevron Transport Corp., 5.32%, 01/16/97.................... 7,982,266
400,000 CIT Group Holdings Inc., 5.48%, 01/31/97.................... 398,173
1,000,000 Conagra Inc., 6.20%, 01/07/97............................... 998,967
3,300,000 Cooperative Finance Corp., 5.50%, 02/14/97.................. 3,277,817
4,700,000 Du Pont (E.I.) de Nemours, 5.30%, 01/27/97.................. 4,686,161
1,485,000 Enterprise Funding Corp., 5.50%, 01/06/97................... 1,483,866
300,000 Enterprise Funding Corp., 5.77%, 01/07/97................... 299,711
2,800,000 Enterprise Funding Corp., 5.77%, 01/09/97................... 2,796,410
3,000,000 Ford Motor Credit Corp., 5.30%, 01/08/97.................... 2,996,909
4,400,000 Ford Motor Credit Corp., 5.32%, 02/03/97.................... 4,378,542
3,900,000 General Electric Capital Corp., 5.40%, 01/03/97............. 3,898,830
2,700,000 General Electric Capital Corp., 5.41%, 01/09/97............. 2,696,754
1,700,000 General Electric Capital Corp., 5.32%, 01/28/97............. 1,693,217
500,000 General Motors Acceptance Corp., 5.42%, 01/24/97............ 498,269
8,000,000 General Motors Acceptance Corp., 5.33%, 02/05/97............ 7,958,544
6,600,000 Goldman Sachs Group, L.P., 5.37%, 01/14/97.................. 6,587,202
700,000 Heller Financial Inc., 5.70%, 01/15/97...................... 698,448
100,000 Household Finance Corp., 5.45%, 01/14/97.................... 99,803
2,300,000 Household Finance Corp., 5.31%, 01/17/97.................... 2,294,572
8,000,000 Lucent Technologies, Inc., 5.28%, 01/28/97.................. 7,968,320
1,900,000 Merrill Lynch and Company, Inc., 5.44%, 01/21/97............ 1,894,258
6,000,000 Merrill Lynch and Company, Inc., 5.34%, 01/27/97............ 5,976,860
1,000,000 National Westminster Bank, 5.37%, 02/28/97.................. 991,349
6,600,000 Norwest Corp., 5.40%, 01/09/97.............................. 6,592,080
3,000,000 Paccar Financial Company, 5.44%, 01/03/97................... 2,999,093
1,800,000 Penney (JC) Funding Company, 5.30%, 01/30/97................ 1,792,315
8,500,000 Philip Morris Companies, 5.30%, 01/14/97.................... 8,483,732
1,700,000 Quebec Province, 5.30%, 01/23/97............................ 1,694,494
5,000,000 Royal Bank Of Canada, 5.40%, 01/15/97....................... 5,135,633
1,800,000 Sanwa Business Credit, 5.58%, 01/16/97...................... 1,795,815
</TABLE>
See notes to financial statements.
36
<PAGE> 38
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSSETS
- ---------- ------------ -------
<C> <S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
$6,200,000 Sears Roebuck Acceptance Corp., 5.34%, 02/06/97............. $ 6,166,892
2,800,000 Toronto Dominion Bank, 5.40%, 01/09/97...................... 2,796,640
Transamerica Commercial Finance -- Canada, 5.33%,
2,000,000 01/13/97.................................................... 1,996,447
Transamerica Commercial Finance -- Canada, 5.43%,
4,500,000 01/13/97.................................................... 4,491,855
------------
TOTAL COMMERCIAL PAPER (Cost $151,430,567).................. 151,430,567 81.85%
------------
CERTIFICATES OF DEPOSIT
5,300,000 Bank of Nova Scotia, 5.50%, 01/03/97........................ 5,374,494
Capital One Funding Corp., Floating Rate, 5.84%,
5,900,000 01/02/97+................................................... 5,926,388
7,000,000 JP Morgan, 5.52%, 01/06/97.................................. 7,132,509
9,000,000 Mellon Bank Corp., 5.40%, 02/07/97.......................... 9,112,050
------------
TOTAL CERTIFICATES OF DEPOSIT (Cost $27,545,441)............ 27,545,441 14.89%
------------
US GOVERNMENT AGENCY SECURITIES
6,000,000 Federal Home Loan Bank, 5.85%, 11/6/97 (Cost $6,053,626).... 6,053,626 3.27%
------------ -------
Total Investments (Cost $185,029,634)....................... 185,029,634 100.01%
Other assets less liabilities............................... (17,380) (0.01)%
------------ -------
NET ASSETS.................................................. $185,012,254 100.00%
============ =======
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31, 1996, is $185,029,634.
- ---------------
+ This interest rate is subject to change weekly based on the greater of the 30
day or 90 day Federal composite rate. The rate shown was in effect as of
December 31, 1996.
See notes to financial statements.
37
<PAGE> 39
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ---------- ------------ -------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES
BANKS
$2,000,000 Banque Nationale de Paris, 9.875%, 05/25/98................. $ 2,080,574
1,000,000.. European Investment Bank, 6.60%, 05/15/97................... 1,004,234
8,000,000 First Omni Bank, Series 96, Class A, 6.65%, 09/15/03........ 8,082,400
2,467,079 Fleet Finance, Series 90-1, 6.70%, 01/15/06................. 2,470,827
1,402,778 Fleet Finance, Series 91-A, 8.45%, 4/15/06.................. 1,425,770
3,000,000 Korea Development Bank, 7.73%, 05/05/97..................... 3,021,447
2,905,000 Korea Development Bank, 9.25%, 06/15/98..................... 3,022,769
1,260,000 Korea Development Bank, 7.90%, 02/01/02..................... 1,316,311
40,040 Shawmut REMIC Trust, 6.40%, 03/15/07........................ 39,814
7,634,344 Union Acceptance Corp., 6.40%, 10/10/02..................... 7,676,944
1,424,122 Western Finance Grantor Trust, 4.60%, 04/01/99.............. 1,416,574
2,625,433 Western Finance Grantor Trust, 5.875%, 03/01/02............. 2,623,831
------------
TOTAL BANKS................................................. 34,181,495 17.32%
------------
BROKERAGE
6,250,000 Bear Stearns & Company, 7.625%, 09/15/99.................... 6,437,869
725,000 Lehman Brothers, Inc., Medium -- Term Note, 6.08%,
07/08/98.................................................. 719,175
5,000,000 Lehman Brothers, Inc., 7.625%, 08/01/98..................... 5,094,730
1,520,000 Morgan Stanley, 8.875%, 10/15/01............................ 1,654,830
------------
TOTAL BROKERAGE............................................. 13,906,604.. 7.05%
------------
FINANCE
1,250,000 Associates Corp. of North America, 8.89%, 04/12/98.......... 1,294,660
2,000,000 Associates Corp. of North America, 6.46%, 09/18/00.......... 1,999,264
4,000,000 Associates Corp. of North America, 5.99%, 12/15/00.......... 3,929,016
1,000,000 Associates Corp. of North America, 6.01%, 02/07/03.......... 965,662
1,000,000 British Gas Finance, Inc., 8.75%, 09/15/98.................. 1,029,497
5,000,000 CARCO, Auto Loan Series 94-3, 8.125%, 10/15/99.............. 5,084,375
4,572,639 Chase Manhattan Auto Group Trust, 6.61%, 09/15/02........... 4,618,503
2,309,349 Chemical Financial Acceptance Corp., 9.25%, 05/15/98........ 2,396,984
624,449 Chemical Financial Acceptance Corp. Grantor Trust, 9.40%,
03/15/97.................................................. 623,112
1,000,000 Ford Motor Credit, 7.15%, 01/26/00.......................... 1,019,421
3,500,000 Ford Motor Credit, 5.99%, 02/27/01.......................... 3,421,807
4,000,000 Ford Motor Credit, 7.06%, 06/06/01.......................... 4,063,560
5,250,000 General Motors Acceptance Corp., 9.375%, 04/01/00........... 5,671,554
531,888 General Motors Acceptance Corp. Grantor Trust, Series 95,
Class A, 7.15%, 03/15/00.................................. 538,058
800,000 Government Export Trust, Series 93-2, 4.61%, 09/01/98....... 783,439
459,978 Merrill Lynch Mortgage Investors, Inc., 10.10%, 11/15/07.... 484,702
</TABLE>
See notes to financial statements.
38
<PAGE> 40
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ---------- ------------ -------
<C> <S> <C> <C>
FINANCE (CONTINUED)
$ 835,562 Merrill Lynch Mortgage Investors, Inc., 10.35%, 05/15/09.... $ 910,307
521,566 Merrill Lynch Mortgage Investors, Inc., 9.40%, 09/15/09..... 560,221
948,338 Merrill Lynch Mortgage Investors, Inc., 9.00%, 07/15/11..... 974,123
2,381,889 Navistar Finance, 6.55%, 11/20/01........................... 2,401,492
1,000,000 Norwest Financial, 6.00%, 08/15/97.......................... 1,001,604
1,137,453 Pemex Exp Grantor Trust, 7.66%, 08/15/01.................... 1,169,245
------------
TOTAL FINANCE............................................... 44,940,606.. 22.78%
------------
PRIVATE ASSET BACKED: CONSTRUCTION
5,507,243 Case Equipment Loan Trust, Series 1194-C, Class A2, 8.10%,
06/15/01.................................................. 5,618,599 2.85%
------------
PRIVATE ASSET BACKED: CREDIT CARDS
5,000,000 Discover Card Master Trust I, Series 93-2A, 5.40%,
11/16/01.................................................. 4,945,900
2,540,000 First Chicago Master Trust, 6.25%, 08/15/99................. 2,545,486
1,000,000 Household Affinity Credit Card Master Trust Fund, 7.00%,
12/15/99.................................................. 1,010,450
1,000,000 Maryland Bank of North America Master Credit Card, 93-3
Series A, 5.40%, 09/15/00................................. 989,090
2,333,333 Private Label Credit Card, 7.15%, 06/20/01.................. 2,340,847
1,000,000 Signet Credit Card Master Trust, 5.20%, 02/15/02............ 987,020
------------
TOTAL PRIVATE ASSET BACKED: CREDIT CARDS.................... 12,818,793 6.50%
------------
PRIVATE ASSET BACKED: RECEIVABLES
5,000,000 Capital Equipment Receivable Trust, Series 96-1, 6.28%,
06/15/00.................................................. 5,006,950
4,760,030 Chevy Chase Auto Receivable Trust, 6.00%, 12/15/01.......... 4,774,644
4,187,174 Chevy Chase Auto Receivable Trust, 6.60%, 12/15/02.......... 4,229,004
5,000,000 First Sierra Receivables II, 6.85%, 06/10/03................ 5,065,750
2,966,406 IBM Credit Receivable Lease Asset Master Trust, Series
93-1A, 4.55%, 11/15/00.................................... 2,945,908
1,065,204 IBM Credit Receivable Lease Asset Master Trust, 6.55%,
07/16/01.................................................. 1,073,662
3,573,295 Toyota Auto Receivable Trust, Series 96-AA, 6.30%,
07/20/01.................................................. 3,594,413
------------
TOTAL PRIVATE ASSET BACKED: RECEIVABLES..................... 26,690,331 13.53%
------------
REAL ESTATE
560,912 Daiwa Home Equity Loans, 7.875%, 11/25/19................... 559,840
1,311,066 Fleet Financial Home Equity, 5.45%, 03/20/23................ 1,309,021
4,897,377 GE Home Equity Loan, Series 91-1 A, 7.20%, 09/15/11......... 4,951,200
110,244 Security Pacific Home Equity Loan, Series 91-2, 8.10%,
06/15/20.................................................. 110,821
</TABLE>
See notes to financial statements.
39
<PAGE> 41
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ---------- ------------ -------
<C> <S> <C> <C>
REAL ESTATE (CONTINUED)
$3,306,281 Travelers Mortgage, 12.00%, 03/01/14........................ $ 3,812,823
42,294 US Home Equity Loan, 9.25%, 01/15/21........................ 42,206
375,982 US Home Equity Loan, 8.50%, 04/15/21........................ 380,700
------------
TOTAL REAL ESTATE........................................... 11,166,611 5.66%
------------ -------
TOTAL CORPORATE BONDS AND NOTES (Cost $148,701,242)......... 149,323,039 75.69%
------------ -------
US GOVERNMENT SECURITIES
5,000,000 US Treasury Note, 6.25%, 07/31/98........................... 5,023,435
5,000,000 US Treasury Note, 5.00%, 02/15/99(a)........................ 4,907,810
------------
TOTAL US GOVERNMENT SECURITIES (Cost $10,017,683)........... 9,931,245 5.03%
------------ -------
US GOVERNMENT AGENCY SECURITIES
FEDERAL HOME LOAN MORTGAGE CORP.
691,004 Federal Home Loan Mortgage Corp., PL# 306816, 7.00%,
01/01/18.................................................. 690,913
2,261,469 Federal Home Loan Mortgage Corp., PL# 850082, 9.00%,
10/01/05.................................................. 2,344,146
1,147,984 Federal Home Loan Mortgage Corp., PL# D0677, 7.50%,
03/01/08.................................................. 1,168,589
537,346 Federal Home Loan Mortgage Corp. REMIC, Series MH-1, 10.15%,
04/15/06.................................................. 537,930
239,143 Federal Home Loan Mortgage Corp., PL# 273991, 6.50%,
03/01/13.................................................. 237,670
------------
TOTAL FEDERAL HOME LOAN MORTGAGE CORP....................... 4,979,248 2.52%
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
275,541 Federal National Mortgage Association PL# 137455, 7.00%,
04/01/04.................................................. 277,053
356,190 Federal National Mortgage Association PL# 6346, 6.75%,
02/01/03.................................................. 356,169
659,259 Federal National Mortgage Association, 8.00%, 07/25/97...... 660,828
------------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION................. 1,294,050 0.66%
------------
OTHER AGENCIES
2,550,000 Midstate Trust II, Series A3, 9.35%, 04/01/98............... 2,600,771
1,810,333 Guaranteed Export Certificates, 4.813%, 12/15/98............ 1,771,227
------------
TOTAL OTHER AGENCIES........................................ 4,371,998 2.22%
------------
RESOLUTION TRUST CORP.
552,039 Resolution Trust Corp., 7.00%, 02/15/04..................... 552,744
3,145,438 Resolution Trust Corp., 7.92%, 08/25/21..................... 3,248,262
1,802,949 Resolution Trust Corp., Variable Rate, 6.75%, 07/25/27...... 1,801,994
------------
TOTAL RESOLUTION TRUST CORP................................. 5,603,000 2.84%
------------ -------
TOTAL US GOVERNMENT AGENCY SECURITIES (Cost $16,324,670).... 16,248,296 8.24%
------------ -------
</TABLE>
See notes to financial statements.
40
<PAGE> 42
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ---------- ------------ -------
<C> <S> <C> <C>
FOREIGN GOVERNMENT OBLIGATIONS
$5,000,000 Hydro Quebec, 6.36%, 01/15/02............................... $ 4,914,920
7,000,000 Province of Ontario, 7.375%, 01/27/03....................... 7,277,473
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $12,619,185)..... 12,192,393 6.18%
------------ -------
SHARES
- ----------
REGULATED INVESTMENT COMPANY
MONEY MARKET FUND
3,056,917 Merrimac Cash Fund -- Premium Class (Cost $3,056,917)(b).... 3,056,917 1.54%
------------ -------
PRINCIPAL
- ----------
COMMERCIAL PAPER
$3,000,000 Sanwa Bank NY Branch, Floating Rate, 5.66%, 01/10/97 (Cost
$3,010,336)............................................... 3,010,336 1.53%
------------ -------
TIME DEPOSIT
360,083 First National Bank of Boston, 7.10%, 01/02/97 (Cost
$360,581) (b)............................................. 360,581 0.18%
------------ -------
TOTAL SECURITIES (Cost $194,090,614)........................ 194,122,807 98.39%
------------ -------
REPURCHASE AGREEMENT
4,345,920 With Investors Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $4,347,347, 01/02/97
(Collateralized by Federal Home Loan Mortgage Corp., 7.76%
due 02/01/24 with a value of $4,563,552) (Cost
$4,346,634)............................................... 4,346,634 2.20%
------------ -------
Total Investments (Cost $198,437,248)....................... 198,469,441 100.59%
Other assets less liabilities............................... (1,174,778) (0.59)%
------------ -------
NET ASSETS.................................................. $197,294,663 100.00%
============ =======
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31,1996 is $198,437,248.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<C> <S> <C> <C>
Gross unrealized appreciation............................... $ 1,120,305
Gross unrealized depreciation............................... (1,088,112)
------------
Net unrealized appreciation................................. $ 32,193
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan
(b) Collateral for securities on loan
See notes to financial statements.
41
<PAGE> 43
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ----------- ------------ -------
<C> <S> <C> <C>
US GOVERNMENT SECURITIES
US TREASURY NOTES
$ 3,000,000 US Treasury Note, 5.375%, 11/30/97......................... $ 2,985,000
5,000,000 US Treasury Note, 5.875%, 04/30/98......................... 4,995,310
10,000,000 US Treasury Note, 5.25%, 07/31/98.......................... 9,900,000
9,000,000 US Treasury Note, 6.375%, 05/15/99(a)...................... 9,078,750
5,000,000 US Treasury Note, 6.00%, 08/15/99.......................... 4,998,435
7,000,000 US Treasury Note, 7.75%, 12/31/99.......................... 7,319,375
2,500,000 US Treasury Note, 8.875%, 05/15/00......................... 2,710,155
7,000,000 US Treasury Note, 6.25%, 10/31/01(a)....................... 7,004,375
TOTAL US TREASURY NOTES.................................... 48,991,400 47.54%
US TREASURY BOND
8,000,000 US Treasury Bond, 5.625%, 06/30/97......................... 8,000,000 7.76%
-----
TOTAL US GOVERNMENT SECURITIES (Cost $57,230,452).......... 56,991,400 55.30%
-----
US GOVERNMENT AGENCY SECURITIES
FEDERAL HOME LOAN BANK
5,000,000 Federal Home Loan Bank, 6.34%, 03/19/01.................... 4,946,765
5,000,000 Federal Home Loan Bank, 7.39%, 08/22/01.................... 5,198,920
TOTAL FEDERAL HOME LOAN BANK............................... 10,145,685 9.84%
FEDERAL HOME LOAN MORTGAGE CORP.
3,000,000 Federal Home Loan Mortgage Corp. REMIC, Series 1574, 6.50%,
02/15/21................................................. 2,937,210
5,300,000 Federal Home Loan Mortgage Corp. REMIC, Series 1500, 7.00%,
06/15/22................................................. 5,290,725
1,363,393 Federal Home Loan Mortgage Corp. REMIC, Series 31, Floating
Rate, 6.15%, 08/25/23.................................... 1,361,177
1,904,780 Federal Home Loan Mortgage Corp. REMIC, Series 1710, 6.00%,
02/15/24................................................. 1,911,260
TOTAL FEDERAL HOME LOAN MORTGAGE CORP...................... 11,500,372 11.16%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
2,000,000 Federal National Mortgage Association REMIC, Series 94-75,
7.00%, 01/25/03.......................................... 2,017,598
3,000,000 Federal National Mortgage Association, 6.44%, 06/21/05..... 2,955,744
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION................ 4,973,342 4.83%
</TABLE>
See notes to financial statements.
42
<PAGE> 44
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ----------- -----
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
$ 8,783 Government National Mortgage Association, PL# 209631,
7.50%, 04/15/02.......................................... $ 8,939
470,733 Government National Mortgage Association, PL# 297619,
7.50%, 09/15/07.......................................... 479,118
109,328 Government National Mortgage Association, PL# 322072,
7.50%, 08/15/07.......................................... 111,275
547,610 Government National Mortgage Association, PL# 323189,
7.50%, 08/15/07.......................................... 557,364
34,505 Government National Mortgage Association, PL# 328000,
7.50%, 06/15/07.......................................... 35,120
12,346 Government National Mortgage Association, PL# 328084,
7.50%, 07/15/07.......................................... 12,566
316,503 Government National Mortgage Association, PL# 328188,
7.50%, 08/15/07.......................................... 322,141
527,747 Government National Mortgage Association, PL# 328192,
7.50%, 08/15/07.......................................... 537,148
130,939 Government National Mortgage Association, PL# 328200,
7.50%, 08/15/07.......................................... 133,272
536,364 Government National Mortgage Association, PL# 329060,
7.50%, 08/15/07.......................................... 545,917
445,303 Government National Mortgage Association, PL# 332267,
7.50%, 08/15/07.......................................... 453,235
453,340 Government National Mortgage Association, PL# 332704,
7.50%, 09/15/07.......................................... 461,415
87,213 Government National Mortgage Association, PL# 333320,
7.50%, 09/15/07.......................................... 88,766
464,022 Government National Mortgage Association, PL# 333709,
7.50%, 09/15/07.......................................... 472,287
15,717 Government National Mortgage Association, PL# 335542,
7.50%, 08/15/07.......................................... 15,997
318,774 Government National Mortgage Association, PL# 335995,
7.50%, 08/15/07.......................................... 324,452
205,713 Government National Mortgage Association, PL# 369749,
6.50%, 09/15/08.......................................... 203,013
293,660 Government National Mortgage Association, PL# 345975,
6.50%, 10/15/08.......................................... 289,806
778,722 Government National Mortgage Association, PL# 374726,
6.50%, 10/15/08.......................................... 768,502
365,943 Government National Mortgage Association, PL# 345973,
6.50%, 11/15/08.......................................... 361,140
160,138 Government National Mortgage Association, PL# 363874,
6.50%, 11/15/08.......................................... 158,036
615,184 Government National Mortgage Association, PL# 370448,
6.50%, 11/15/08.......................................... 607,110
</TABLE>
See notes to financial statements.
43
<PAGE> 45
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ----------- -----
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 672,566 Government National Mortgage Association, PL# 371094,
6.50%, 11/15/08.......................................... $ 663,739
375,125 Government National Mortgage Association, PL# 366531,
7.00%, 11/15/08.......................................... 370,201
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION............. 7,980,559 7.74%
------------
STUDENT LOAN MARKETING ASSOCIATION
2,000,000 Student Loan Marketing Association, 6.52%, 9/26/00......... 1,999,918 1.94%
------------
TENNESSEE VALLEY AUTHORITY
2,500,000 Tennessee Valley Authority, 6.38%, 06/15/05................ 2,452,840 2.38%
------------ -----
TOTAL US GOVERNMENT AGENCY SECURITIES (Cost $39,140,685)... 39,052,716 37.89%
------------ -----
SHORT TERM US GOVERNMENT AGENCY SECURITIES
FEDERAL HOME LOAN MORTGAGE CORP.
700,000 Federal Home Loan Mortgage Corp., 5.37%, 01/02/97.......... 699,896
300,000 Federal Home Loan Mortgage Corp., 5.25%, 01/03/97.......... 299,912
700,000 Federal Home Loan Mortgage Corp., 5.42%, 01/06/97.......... 699,473
400,000 Federal Home Loan Mortgage Corp., 5.70%, 01/07/97.......... 399,620
100,000 Federal Home Loan Mortgage Corp., 5.33%, 01/13/97.......... 99,822
100,000 Federal Home Loan Mortgage Corp., 5.21%, 01/16/97.......... 99,783
------------
TOTAL FEDERAL HOME LOAN MORTGAGE CORP...................... 2,298,506 2.23%
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
1,100,000 Federal National Mortgage Association, 5.21%, 01/17/97..... 1,097,453
2,300,000 Federal National Mortgage Association, 5.20%, 01/24/97..... 2,292,359
100,000 Federal National Mortgage Association, 5.34%, 03/21/97..... 98,828
------------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION................ 3,488,640 3.39%
------------ -----
TOTAL SHORT TERM US GOVERNMENT AGENCY (Cost $5,787,146).. 5,787,146 5.62%
------------ -----
SHARES
- -----------
REGULATED INVESTMENT COMPANY
MONEY MARKET FUND
2,874,644 Merrimac Cash Fund -- Premium Class (Cost $2,874,644)(b)... 2,874,644 2.79%
------------ -----
PRINCIPAL
- -----------
COMMERCIAL PAPER
$ 4,000,000 Nomura Securities International, 7.20%, 04/23/97(b)........ $ 4,000,703
5,000,000 Republic New York Securities Corp., 7.15%, 07/15/97(b)..... 5,000,873
------------
TOTAL COMMERCIAL PAPER (Cost $9,001,576)................... 9,001,576 8.74%
------------ -----
</TABLE>
See notes to financial statements.
44
<PAGE> 46
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ----------- ------------ -------
<C> <S> <C> <C>
TIME DEPOSITS
$ 1,754,106 First National Bank of Boston, 7.10%, 01/02/97(b).......... $ 1,754,422
3,000,000 First Union National Bank of North Carolina, 6.25%,
01/02/97(b).............................................. 3,000,534
------------
TOTAL TIME DEPOSITS (Cost $4,754,956)...................... 4,754,956 4.61%
------------ -----
TOTAL SECURITIES (Cost $118,789,459)....................... 118,462,438 114.95%
------------ -----
REPURCHASE AGREEMENT
35,988 With Investors Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $36,000, 01/02/97
(Collateralized by Federal Home Loan Mortgage Corp.,
8.04%, due 01/01/23 with a value of $38,142) (Cost
$35,994)................................................. 35,994 0.03%
------------ -----
Total Investments (Cost $118,825,453)...................... 118,498,432 114.98%
Other assets less liabilities.............................. (15,438,552) (14.98)%
------------ -----
NET ASSETS................................................. $103,059,880 100.00%
============ =====
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31, 1996 is $118,825,453.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<C> <S> <C> <C>
Gross unrealized appreciation.............................. $ 269,710
Gross unrealized depreciation.............................. (596,731)
------------
Net unrealized depreciation................................ $ (327,021)
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan
(b) Collateral for securities on loan
See notes to financial statements.
45
<PAGE> 47
GOVERNMENT/CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ----------- ------------ -------
<C> <S> <C> <C>
US GOVERNMENT SECURITY
$ 5,000,000 US Treasury Note, 5.625%, 11/30/00 (cost $5,026,995)....... $ 4,909,375 1.52%
---------- -----
US GOVERNMENT AGENCY SECURITIES
FEDERAL HOME LOAN MORTGAGE CORP.
100,000 Federal Home Loan Mortgage Corp., 5.33%, 01/13/97.......... 99,822
5,000,000 Federal Home Loan Mortgage Corp., Series 1666, Class E,
6.00%, 12/15/19.......................................... 4,863,295
3,641,150 Federal Home Loan Mortgage Corp., Series 1377, 7.27%,
09/15/07................................................. 3,658,580
4,090,178 Federal Home Loan Mortgage Corp., Series 31, 6.15%,
08/25/23................................................. 4,083,531
5,937,562 Federal Home Loan Mortgage Corp., Series 1710, 6.00%,
02/15/24................................................. 5,957,761
946,485 Federal Home Loan Mortgage Corp., PL# 413611 7.00%,
01/15/26................................................. 926,075
972,603 Federal Home Loan Mortgage Corp., PL# 292340 7.00%,
02/15/26................................................. 951,630
972,579 Federal Home Loan Mortgage Corp., PL# 373622 7.00%,
03/15/26................................................. 951,607
973,829 Federal Home Loan Mortgage Corp., PL# 373637 7.00%,
03/15/26................................................. 952,829
----------
TOTAL FEDERAL HOME LOAN MORTGAGE CORP...................... 22,445,130 6.96%
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
100,000 Federal National Mortgage Association, 5.24%, 01/03/97..... 99,972
10,000,000 Federal National Mortgage Association, 6.25%, 10/28/98..... 10,000,000
1,486,796 Federal National Mortgage Association REMIC Series
1993-219, Class A, principal only, 08/25/23.............. 1,427,633
117,471 Federal National Conventional Loan, PL# 250510 7.00%,
12/01/25................................................. 114,938
----------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION................ 11,642,543 3.61%
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
973,450 Government National Mortgage Association, PL# 428420,
7.00%, 04/15/26.......................................... 952,459 0.30%
----------
STUDENT LOAN MARKETING ASSOCIATION
3,000,000 Student Loan Marketing Association, 6.52%, 09/26/00........ 2,999,877
5,000,000 Student Loan Marketing Association, Series 1996-2 A2,
5.81%, 07/27/09.......................................... 5,013,477
----------
TOTAL STUDENT LOAN MARKETING ASSOCIATION................... 8,013,354 2.48%
---------- -----
TOTAL US GOVERNMENT AGENCY SECURITIES (Cost $42,859,031)... 43,053,486 13.35%
---------- -----
CORPORATE BONDS AND NOTES
AEROSPACE
5,000,000 Boeing Company, 8.625%, 11/15/31........................... 5,871,180
</TABLE>
See notes to financial statements.
46
<PAGE> 48
GOVERNMENT/CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ----------- ---------- -----
<C> <S> <C> <C>
$ 5,000,000 Lockheed Martin, 6.85%, 05/15/01........................... $ 5,046,625
5,000,000 McDonnell Douglas, 6.875%, 11/01/06........................ 4,978,790
----------
TOTAL AEROSPACE............................................ 15,896,595 4.93%
----------
AUTOMOTIVE PRODUCTS
4,000,000 BF Goodrich, 8.65%, 04/15/25............................... 4,524,285
5,000,000 Ford Holdings, 9.375%, 03/01/20............................ 5,999,350
5,000,000 General Motors Corp., 8.80%, 03/01/21...................... 5,762,785
5,000,000 Universal Corp., 6.50%, 02/15/06........................... 4,720,805
----------
TOTAL AUTOMOTIVE PRODUCTS.................................. 21,007,225 6.51%
----------
BANKS
4,000,000 Bank of New York Company, 6.50%, 12/01/03.................. 3,919,856
5,000,000 BankAmerica Corp., 6.625%, 05/30/01........................ 5,006,120
10,000,000 Bankers Trust of New York, 6.75%, 10/03/01................. 10,015,770
5,000,000 BT Trust, 7.75%, 12/01/26.................................. 4,771,145
5,000,000 Chase Manhattan Corp., 8.00%, 05/01/05..................... 5,041,800
5,000,000 International Bank of Reconstruction & Development, 8.625%,
10/15/16................................................. 5,777,130
5,000,000 Midland Bank PLC, Floating Rate, 5.91%, 06/29/49........... 4,300,000
5,000,000 Swiss Bank Corp., 7.75%, 09/01/26.......................... 5,166,775
----------
TOTAL BANKS................................................ 43,998,596 13.64%
----------
CONSUMER GOODS AND SERVICES
5,200,000 Procter & Gamble, 9.36%, 01/01/21.......................... 6,318,359
5,000,000 RJR Nabisco, 8.75%, 04/15/04............................... 5,063,290
----------
TOTAL CONSUMER GOODS AND SERVICES.......................... 11,381,649 3.53%
----------
FINANCE
10,000,000 Associates Corp. N.A., 6.75%, 07/15/01..................... 10,048,680
5,000,000 Capital Equipment Receivables Trust 96-1 Class B, 6.57%,
03/15/01(a).............................................. 5,009,100
10,000,000 Chase Manhattan Credit Card Master Trust Series 1996-3
Class A, 7.04%, 02/15/00................................. 10,249,600
7,040,000 Discover Card Master Trust I Series 1994-2 Class A,
Floating Rate, 5.83%, 10/16/04........................... 7,103,642
6,000,000 Dow Capital BV, 9.20%, 06/01/10............................ 6,943,764
5,000,000 General Electric Capital Corp., 8.50%, 07/24/08............ 5,611,095
5,000,000 General Motors Acceptance Corp., Putable Asset Trust,
6.375%, 09/30/98......................................... 5,012,621
5,000,000 General Motors Acceptance Corp., 8.40%, 10/15/99........... 5,248,550
5,880,000 Structured Asset Securities Corp., Series 1996-CFL, Class
A-IC, 5.944%, 02/25/28................................... 5,765,134
</TABLE>
See notes to financial statements.
47
<PAGE> 49
GOVERNMENT/CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ----------- ---------- -----
<C> <S> <C> <C>
FINANCE (CONTINUED)
$ 3,000,000 Standard Credit Card Master Trust, Series 95-11, 5.59%,
11/15/00................................................. $ 3,000,600
10,000,000 Xerox Credit Corp., 6.78%, 05/21/01........................ 10,041,160
----------
TOTAL FINANCE.............................................. 74,033,946 22.94%
----------
FOOD AND BEVERAGE
5,000,000 Seagrams (Joseph) & Sons, 9.65%, 08/15/18.................. 6,196,946 1.92%
----------
INDUSTRIAL
5,000,000 Celulosa Arauco y Constitucion, 6.75%, 12/15/03............ 4,833,565
1,000,000 Eli Lilly, 6.770%, 01/01/36................................ 939,931
----------
TOTAL INDUSTRIAL........................................... 5,773,496 1.79%
----------
INSURANCE
5,000,000 Aetna Services, 7.625%, 08/15/26........................... 5,043,400
5,000,000 Prudential Insurance, 8.10%, 07/15/15(a)................... 5,052,515
----------
TOTAL INSURANCE............................................ 10,095,915 3.13%
----------
LEISURE AND RECREATION
7,000,000 Marriott International Inc., 7.875%, 04/15/05.............. 7,271,292 2.25%
----------
OIL AND GAS
5,000,000 Occidental Petroleum, 10.125%, 09/15/09.................... 6,170,535
4,000,000 Texaco Capital, 9.75%, 03/15/20............................ 5,069,432
----------
TOTAL OIL AND GAS.......................................... 11,239,967 3.48%
----------
PAPER AND FOREST PRODUCTS
5,000,000 Republic New York Corp., 7.00%, 03/22/11................... 4,910,475
8,000,000 Westvaco, 10.125%, 06/01/19................................ 8,871,200
----------
TOTAL PAPER AND FOREST PRODUCTS............................ 13,781,675 4.27%
----------
TELECOMMUNICATION
5,000,000 GTE South, 7.50%, 03/15/26................................. 4,941,835 1.53%
----------
UTILITIES
10,000,000 Commonwealth Edison, 8.125%, 01/15/07...................... 9,995,680
5,000,000 Commonwealth Edison, 8.50%, 07/15/22....................... 5,150,305
5,000,000 Philadelphia Electric, 5.375%, 08/15/98.................... 4,935,540
----------
TOTAL UTILITIES............................................ 20,081,525 6.23%
---------- -----
TOTAL CORPORATE BONDS & NOTES (Cost $240,779,900).......... 245,700,662 76.15%
---------- -----
COMMERCIAL PAPER
300,000 American Express Credit Corp., 5.33%, 01/09/97............. 299,645
2,000,000 Capital One Funding Corp., Floating Rate, 5.84%,
01/02/97................................................. 2,017,400
1,700,000 CIT Group Holdings, Inc., 5.48%, 01/31/97.................. 1,692,237
</TABLE>
See notes to financial statements.
48
<PAGE> 50
GOVERNMENT/CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ----------- ---------- -----
<C> <S> <C> <C>
$ 2,200,000 Enterprise Funding Corp., 5.77%, 01/09/97.................. $ 2,197,179
1,879,000 Enterprise Funding Corp., 5.31%, 02/07/97.................. 1,868,745
200,000 General Electric Capital, 5.50%, 01/27/97.................. 199,206
3,700,000 General Electric Capital, 5.40%, 01/23/97.................. 3,687,790
3,500,000 Heller International Corp., 5.70%, 01/21/97................ 3,488,917
300,000 Household Finance Corp., 5.45%, 01/14/97................... 299,410
1,100,000 Metlife Funding Inc., 5.29%, 01/10/97...................... 1,098,545
1,625,000 Morgan, J.P. & Company, 5.36%, 01/02/97.................... 1,624,760
850,000 Sears Roebuck Acceptance Corp., 5.40%, 01/07/97............ 849,235
5,100,000 Weyerhaeuser Mortgage Company, 5.90%, 01/07/97............. 5,094,985
----------
TOTAL COMMERCIAL PAPER (Cost $24,418,054).................. 24,418,054 7.56%
---------- -----
TIME DEPOSIT
9,473,024 First National Bank of Boston TBW-1, 7.10%, 01/02/97 (Cost
$9,474,477)(b)........................................... 9,474,477 2.94%
---------- -----
SHARES
- -----------
REGULATED INVESTMENT COMPANY
MONEY MARKET FUND
496,576 Merrimac Cash Fund -- Premium Class (Cost $496,576)(b)..... 496,576 0.15%
---------- -----
TOTAL SECURITIES (Cost $323,055,033)....................... 328,052,630 101.67%
---------- -----
PRINCIPAL
- -----------
REPURCHASE AGREEMENT
$ 52,055 With Investors Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $52,072, 01/02/97
(Collateralized by Federal Home Loan Mortgage Corp.,
7.78%, due 08/01/24, with a value of $55,032) (Cost
$52,064)................................................. 52,064 0.01%
---------- -----
Total Investments (Cost $323,107,097)...................... 328,104,694 101.68%
Other assets less liabilities.............................. (5,428,677) (1.68)%
---------- -----
Net Assets................................................. $322,676,017 100.00%
========== =====
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31, 1996 is $323,107,097.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<C> <S> <C> <C>
Gross unrealized appreciation.............................. $ 6,636,512
Gross unrealized depreciation.............................. (1,638,915)
------------
Net unrealized appreciation................................ $ 4,997,597
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan
(b) Collateral for securities on loan
See notes to financial statements.
49
<PAGE> 51
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- --------- ------------ -------
<C> <S> <C> <C>
COMMON STOCK
AEROSPACE
49,300 Boeing Company............................................... $ 5,244,288
44,750 Northrop Grumman Corp........................................ 3,703,063
------------
TOTAL AEROSPACE.............................................. 8,947,351 3.38%
------------
AUTOMOBILES
89,600 General Motors Corp.......................................... 4,995,200 1.89%
------------
BANKS
90,700 Banc One Corp................................................ 3,900,100
40,650 Citicorp..................................................... 4,186,950
127,000 C S Holding (ADR)............................................ 3,251,314
17,550 Wells Fargo & Company........................................ 4,734,113
------------
TOTAL BANKS.................................................. 16,072,477 6.07%
------------
CHEMICALS
58,900 Dow Chemical Company(a)...................................... 4,616,288
45,400 Du Pont (E.I.) De Nemours.................................... 4,284,625
55,250 Grace W.R.................................................... 2,859,188
111,700 Rhone Poulenc SA (ADR)(a)(c)................................. 3,783,838
------------
TOTAL CHEMICALS.............................................. 15,543,939 5.87%
------------
COMPUTER AND OFFICE EQUIPMENT
30,900 International Business Machines.............................. 4,665,900 1.76%
------------
DEFENSE
75,800 Raytheon Company............................................. 3,647,875 1.38%
------------
ENVIRONMENTAL MANAGEMENT
103,500 WMX Technologies............................................. 3,376,688 1.27%
------------
FINANCE
37,900 Loews Corp................................................... 3,572,075 1.35%
------------
INDUSTRIAL
64,200 Allegheny Teledyne, Inc.(a).................................. 1,476,600 0.56%
------------
INSURANCE
25,200 Aetna, Inc................................................... 2,016,000
85,650 Allstate, Corp............................................... 4,956,994
85,065 Travelers, Inc............................................... 3,859,804
------------
TOTAL INSURANCE.............................................. 10,832,798 4.09%
------------
</TABLE>
See notes to financial statements.
50
<PAGE> 52
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- --------- ------------ ------
<C> <S> <C> <C>
LEISURE AND RECREATION
114,200 Host Marriott Corp.(a)(c).................................... $ 1,827,200 0.69%
------------
MANUFACTURING
49,950 Hasbro, Inc.................................................. 1,941,806
35,435 Mattel....................................................... 983,321
121,300 Peninsular & Oriental (ADR)(a)(c)............................ 2,449,435
128,400 Philips Electronics N.V. (ADR)............................... 5,136,000
------------
TOTAL MANUFACTURING.......................................... 10,510,562 3.97%
------------
MEDIA
107,050 Dun & Bradstreet Corp........................................ 2,542,448
69,950 E.W. Scripps Company -- Class A.............................. 2,448,262
------------
TOTAL MEDIA.................................................. 4,990,710 1.88%
------------
MEDICAL AND OTHER HEALTH SERVICES
67,000 American Home Products Corp.................................. 3,927,875
41,800 Bristol-Myers Squibb Company................................. 4,545,753
114,100 Tenet Healthcare Corp.(a)(c)................................. 2,495,938
------------
TOTAL MEDICAL AND OTHER HEALTH SERVICES...................... 10,969,566 4.14%
------------
OIL AND GAS
61,350 Amoco Corp................................................... 4,938,675
37,900 AMR Corp.(c)................................................. 3,339,937
118,400 Elf Aquitaine (ADR)(a)....................................... 5,357,619
------------
TOTAL OIL AND GAS............................................ 13,636,231 5.15%
------------
PHARMACEUTICALS
105,119 Novartis AG (ADR)(a)......................................... 6,000,760 2.26%
------------
RETAIL
111,250 Federated Department Stores(c)............................... 3,796,406
168,000 Wal-Mart Stores, Inc. ....................................... 3,843,000
------------
TOTAL RETAIL................................................. 7,639,406 2.88%
------------
</TABLE>
See notes to financial statements.
51
<PAGE> 53
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- --------- ------------ -------
<C> <S> <C> <C>
TELECOMMUNICATIONS
52,300 General Instrument Corp.(c).................................. $ 1,130,988
76,500 ITT Corp.(c)................................................. 3,318,188
127,900 MCI Communications Corp. .................................... 4,180,731
52,900 Motorola, Inc. .............................................. 3,246,738
47,250 Nokia Corp. (ADR)............................................ 2,722,781
101,100 NYNEX Corp................................................... 4,865,437
152,650 Pacific Telesis Group........................................ 5,609,888
------------
TOTAL TELECOMMUNICATIONS..................................... 25,074,751 9.46%
------------
TRANSPORTATION
50,400 Burlington Northern Santa Fe................................. 4,353,300
85,600 Union Pacific Corp........................................... 5,146,700
------------
TOTAL TRANSPORTATION......................................... 9,500,000 3.59%
------------ ------
TOTAL COMMON STOCK (Cost $145,917,349)....................... 163,280,089 61.64%
------------ ------
REGULATED INVESTMENT COMPANY
MONEY MARKET FUND
6,661,725 Merrimac Cash Fund-Premium Class (Cost $6,661,725)(b)........ 6,661,725 2.51%
------------ ------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
- -----------
<C> <S> <C> <C>
US GOVERNMENT SECURITIES
US TREASURY BOND
$18,050,000 US Treasury Bond, 7.875%, 11/15/04......................... 19,697,063 7.44%
------------
US TREASURY NOTES
11,230,000 US Treasury Note, 7.125%, 10/15/98(a)...................... 11,454,600
9,000,000 US Treasury Note, 8.50%, 02/15/00.......................... 9,610,308
6,190,000 US Treasury Note, 7.50%, 05/15/02.......................... 6,545,925
21,060,000 US Treasury Note, 5.75%, 08/15/03.......................... 20,428,200
29,705,000 US Treasury Note, 6.50%, 05/15/05.......................... 29,918,490
------------
TOTAL US TREASURY NOTES.................................... 77,957,523 29.43%
------------ ------
TOTAL US GOVERNMENT SECURITIES (Cost $96,698,498).......... 97,654,586 36.87%
------------ ------
</TABLE>
See notes to financial statements.
52
<PAGE> 54
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ----------- ------------ -------
<C> <S> <C> <C>
CORPORATE NOTES
FINANCE
$ 8,000,000 Nomura Securities International, 7.20%, 04/23/97(b)........ $ 8,001,492
12,000,000 Republic New York Securities Corp., 7.15%, 07/15/97(b)..... 12,002,238
------------
TOTAL CORPORATE NOTES (Cost $20,003,730)................... 20,003,730 7.55%
------------ ------
TIME DEPOSIT
3,881,725 First National Bank of Boston, 7.10%, 01/02/97(b) (Cost
$3,882,450).............................................. 3,882,450 1.46%
------------ ------
TOTAL SECURITIES (Cost $273,163,752)....................... 291,482,580 110.03%
------------ ------
REPURCHASE AGREEMENT
2,455,923 With Investors Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $2,456,738, 01/02/97,
(Collateralized by Federal Home Loan Mortgage
Corporation, 8.10%, due 12/01/22, with a value of
$2,578,944) (Cost $2,456,326)............................ 2,456,326 0.93%
------------ ------
Total Investments (Cost $275,620,078)...................... 293,938,906 110.96%
Other assets less liabilities.............................. (29,029,067) (10.96)%
------------ ------
NET ASSETS................................................. $264,909,839 100.00%
============ ======
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31, 1996 is $276,099,585.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<S> <C>
Gross unrealized appreciation.............................. $ 19,889,279
Gross unrealized depreciation.............................. (2,049,958)
------------
Net unrealized appreciation................................ $ 17,839,321
============
</TABLE>
- ---------------
(a) All or part of this security is on loan
(b) Collateral for securities on loan
(c) Non-income producing security
(ADR) -- American Depository Receipt
See notes to financial statements.
53
<PAGE> 55
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ -------
<C> <S> <C> <C>
COMMON STOCK
AEROSPACE
120,000 Northrop Grumman Corp. .................................... $ 9,930,000
120,000 Textron, Inc. ............................................. 11,310,000
160,000 United Technologies........................................ 10,560,000
------------
TOTAL AEROSPACE............................................ 31,800,000 3.32%
------------
AUTOMOBILES
120,000 Chrysler Corp. ............................................ 3,960,000
130,000 Ford Motor Company......................................... 4,143,750
90,000 General Motors Corp. ...................................... 5,017,500
------------
TOTAL AUTOMOBILES.......................................... 13,121,250 1.37%
------------
BANKS
210,000 Banc One Corp. ............................................ 9,030,000
220,000 Bank of New York........................................... 7,425,000
130,000 BankAmerica Corp. ......................................... 12,967,500
100,000 Bankers Trust New York Corp. .............................. 8,625,000
110,000 Chase Manhattan Corp. ..................................... 9,817,500
130,000 First Union Corp. (N.E.)................................... 9,620,000
300,000 Great Western Financial.................................... 8,700,000
290,000 H. F. Ahmanson & Company................................... 9,425,000
110,000 Nationsbank Corp. ......................................... 10,752,500
40,000 Wells Fargo & Company...................................... 10,790,000
------------
TOTAL BANKS................................................ 97,152,500 10.15%
------------
CHEMICALS
80,000 Dow Chemical Company(a).................................... 6,270,000
120,000 Du Pont (E.I.) De Nemours.................................. 11,325,000
150,000 Merck & Company, Inc. ..................................... 11,887,500
325,000 Monsanto Company........................................... 12,634,375
220,000 Olin Corp.(a).............................................. 8,277,500
------------
TOTAL CHEMICALS............................................ 50,394,375 5.27%
------------
COMPUTERS AND OFFICE EQUIPMENT
230,000 General Signal(a).......................................... 9,832,500
140,000 Harris Corp., Inc. ........................................ 9,607,500
120,000 Honeywell, Inc. ........................................... 7,890,000
200,000 Pitney Bowes, Inc. ........................................ 10,900,000
230,000 Xerox Corp. ............................................... 12,103,750
------------
TOTAL COMPUTERS AND OFFICE EQUIPMENT....................... 50,333,750 5.26%
------------
</TABLE>
See notes to financial statements.
54
<PAGE> 56
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ ------
<C> <S> <C> <C>
CONSUMER GOODS AND SERVICES
220,000 Avon Products, Inc. ....................................... $ 12,567,500
130,000 Colgate-Palmolive Company.................................. 11,992,500
270,000 Dana Corp. ................................................ 8,808,750
150,000 Eastman Kodak Company...................................... 12,037,500
80,000 GATX Corp. ................................................ 3,880,000
250,000 General Electric Company................................... 24,718,750
140,000 Minnesota Mining & Manufacturing(a)........................ 11,602,500
320,000 Ogden Corp. ............................................... 6,000,000
------------
TOTAL CONSUMER GOODS AND SERVICES.......................... 91,607,500 9.57%
------------
ELECTRONICS
270,000 AMP, Inc. ................................................. 10,361,250
100,000 Eaton Corp. ............................................... 6,975,000
150,000 Emerson Electric........................................... 14,512,500
220,000 Thomas & Betts Corp. ...................................... 9,762,500
------------
TOTAL ELECTRONICS.......................................... 41,611,250 4.35%
------------
FINANCE
180,000 American Express Company................................... 10,170,000
290,000 Federal National Mortgage Association...................... 10,802,500
------------
TOTAL FINANCE.............................................. 20,972,500 2.19%
------------
INDUSTRIAL
120,000 Carpenter Technology....................................... 4,395,000
110,000 Reynolds Metals Company.................................... 6,201,250
170,000 Timken Company............................................. 7,798,750
90,000 USX-US Steel Group, Inc. .................................. 2,823,750
------------
TOTAL INDUSTRIAL........................................... 21,218,750 2.22%
------------
INSURANCE
95,000 Aetna, Inc. ............................................... 7,600,000
110,000 Allstate Corp. ............................................ 6,366,250
90,000 CIGNA Corp. ............................................... 12,296,250
180,000 Lincoln National Corp. .................................... 9,450,000
------------
TOTAL INSURANCE............................................ 35,712,500 3.73%
------------
MACHINERY
140,000 Cooper Industries, Inc. ................................... 5,897,500
210,000 Deere & Company............................................ 8,531,250
160,000 Goulds Pumps............................................... 3,670,000
110,000 Harsco Corp. .............................................. 7,535,000
------------
TOTAL MACHINERY............................................ 25,633,750 2.68%
------------
</TABLE>
See notes to financial statements.
55
<PAGE> 57
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ ------
<C> <S> <C> <C>
MEDICAL AND OTHER HEALTH SERVICES
150,000 Baxter International, Inc. ................................ $ 6,150,000
40,000 Meditrust Corp. ........................................... 1,600,000
------------
TOTAL MEDICAL AND OTHER HEALTH SERVICES.................... 7,750,000 0.81%
------------
METALS AND MINING
160,000 Freeport McMoran Copper & Gold -- Class A.................. 4,500,000
40,000 Phelps Dodge Corp. ........................................ 2,700,000
------------
TOTAL METALS AND MINING.................................... 7,200,000 0.75%
------------
OIL AND GAS
120,000 Amoco Corp.(a)............................................. 9,660,000
70,000 Atlantic Richfield Company................................. 9,275,000
80,544 British Petroleum PLC (ADR)................................ 11,386,908
150,000 Chevron Corp. ............................................. 9,750,000
140,000 Consolidated Natural Gas................................... 7,735,000
270,000 Dresser Industries, Inc. .................................. 8,370,000
151,160 El Paso Natural Gas Company................................ 7,633,580
110,000 Exxon Corp. ............................................... 10,780,000
80,000 Mobil Corp. ............................................... 9,780,000
180,000 Questar Corp. ............................................. 6,615,000
80,000 Royal Dutch Petroleum (ADR)(a)............................. 13,660,000
160,000 Sonat, Inc. ............................................... 8,240,000
120,000 Tenneco, Inc. ............................................. 5,415,000
120,000 Texaco, Inc. .............................................. 11,775,000
300,000 Williams Companies, Inc. .................................. 11,250,000
------------
TOTAL OIL AND GAS.......................................... 141,325,488 14.77%
------------
PAPER AND FOREST PRODUCTS
70,000 Georgia-Pacific Corp. ..................................... 5,040,000
130,000 International Paper Company(a)............................. 5,248,750
120,000 Union Camp Corp. .......................................... 5,730,000
160,000 Weyerhauser Company........................................ 7,580,000
------------
TOTAL PAPER AND FOREST PRODUCTS............................ 23,598,750 2.47%
------------
PHARMACEUTICALS
180,000 American Home Products Corp. .............................. 10,552,500
90,000 Bristol-Myers Squibb Company............................... 9,787,500
160,000 Eli Lilly & Company........................................ 11,680,000
90,000 Pfizer, Inc. .............................................. 7,458,750
100,000 Pharmacia & Upjohn, Inc. .................................. 3,962,500
80,000 Schering-Plough Corp. ..................................... 5,180,000
</TABLE>
See notes to financial statements.
56
<PAGE> 58
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ ------
<C> <S> <C> <C>
PHARMACEUTICALS (CONTINUED)
160,000 Smithkline Beecham PLC (ADR)............................... $ 10,880,000
160,000 Warner Lambert Company..................................... 12,000,000
------------
TOTAL PHARMACEUTICALS...................................... 71,501,250 7.47%
------------
PUBLISHING
120,000 Dun & Bradstreet Corp. .................................... 2,850,000
240,000 Mcgraw-Hill Companies, Inc. ............................... 11,070,000
------------
TOTAL PUBLISHING........................................... 13,920,000 1.45%
------------
REAL ESTATE INVESTMENT TRUST
80,000 Avalon Properties, Inc. ................................... 2,300,000
90,000 Bay Apartment Communities.................................. 3,240,000
70,000 Crescent Real Estate Equities.............................. 3,692,500
80,000 Developers Divers Realty Corp. ............................ 2,970,000
80,000 Equity Residential Properties.............................. 3,300,000
80,000 Felcor Suite Hotels, Inc. ................................. 2,830,000
200,000 Health Care Property Invest, Inc. ......................... 7,000,000
80,000 Healthcare Realty Trust.................................... 2,120,000
100,000 Irvine Apartment Communities............................... 2,500,000
45,000 Redwood Trust, Inc. ....................................... 1,676,250
------------
TOTAL REAL ESTATE INVESTMENT TRUST......................... 31,628,750 3.31%
------------
TELECOMMUNICATIONS
100,000 Ameritech Corp. ........................................... 6,062,500
100,000 Bell Atlantic Corp. ....................................... 6,475,000
160,000 Bellsouth Corp. ........................................... 6,460,000
160,000 GTE Corp. ................................................. 7,280,000
80,000 NYNEX Corp. ............................................... 3,850,000
170,000 Pacific Telesis Group...................................... 6,247,500
120,000 SBC Communications, Inc. .................................. 6,210,000
150,000 Sprint Corp. .............................................. 5,981,250
150,000 US West, Inc. ............................................. 4,837,500
------------
TOTAL TELECOMMUNICATIONS................................... 53,403,750 5.58%
------------
TOBACCO
160,000 American Brands, Inc. ..................................... 7,940,000
100,000 Philip Morris Companies, Inc. ............................. 11,262,500
------------
TOTAL TOBACCO.............................................. 19,202,500 2.01%
------------
</TABLE>
See notes to financial statements.
57
<PAGE> 59
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ ------
<C> <S> <C> <C>
TRANSPORTATION
53,584 Conrail, Inc. ............................................. $ 5,338,306
110,000 Norfolk Southern Corp. .................................... 9,625,000
100,000 Union Pacific Corp. ....................................... 6,012,500
------------
TOTAL TRANSPORTATION....................................... 20,975,806 2.19%
------------
UTILITIES
150,000 American Electric Power, Inc. ............................. 6,168,750
160,000 Carolina Power & Light..................................... 5,840,000
140,000 FPL Group, Inc. ........................................... 6,440,000
240,000 Southern Company........................................... 5,430,001
------------
TOTAL UTILITIES............................................ 23,878,751 2.50%
------------ ------
TOTAL COMMON STOCK (Cost $665,864,243)..................... 893,943,170 93.42%
------------ ------
PREFERRED STOCK
COMPUTERS AND OFFICE EQUIPMENT
15,000 Microsoft Corp., $2.196 Preferred Stock -- Class A (Cost
$1,201,225).............................................. 1,201,875 0.13%
------------ ------
REGULATED INVESTMENT COMPANY
MONEY MARKET FUND
6,275,504 Merrimac Cash Fund-Premium Class (Cost $6,275,504)(b)...... 6,275,504 0.66%
------------ ------
PRINCIPAL
- -----------
CONVERTIBLE BOND
COMMUNICATIONS EQUIPMENT
$ 2,000,000 Motorola, Inc., 0.00%, 09/07/09 (a) (cost $1,710,000)...... 2,262,500 0.24%
------------ ------
CORPORATE BONDS
FINANCE
20,000,000 Republic New York Securities Corp., 7.15%, 07/15/97 (Cost
$20,003,672) (b)......................................... 20,003,672 2.09%
------------ ------
COMMERCIAL PAPER
600,000 American Express Credit Corp., 5.33%, 01/09/97............. 599,289
3,000,000 Avco Financial Services -- Canada, 5.34%, 01/21/97......... 2,991,100
2,000,000 Avco Financial Services, Inc., 5.32%, 01/23/97............. 1,993,498
3,000,000 Banc One Corp., 5.46%, 01/06/97............................ 2,997,725
10,000,000 Barclay's Bank PLC, 5.29%, 01/06/97........................ 9,992,653
3,000,000 CIT Group Holdings, Inc., 5.48%, 01/31/97.................. 2,986,300
4,000,000 CIT Group Holdings, Inc., 5.33%, 01/06/97.................. 3,997,039
2,700,000 CIT Group Holdings, Inc., 5.35%, 02/25/97.................. 2,677,931
1,500,000 Enterprise, 5.77%, 01/09/97................................ 1,498,077
200,000 General Electric Capital Corp., 5.50%, 01/27/97............ 199,206
1,000,000 General Electric Capital Corp., 5.50%, 01/30/97............ 995,569
</TABLE>
See notes to financial statements.
58
<PAGE> 60
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ----------- ------------ -------
<C> <S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
$ 100,000 General Electric Capital Corp., 5.41%, 01/09/97............ $ 99,880
3,000,000 General Motors Acceptance Corp., 5.36%, 01/24/97........... 2,989,727
4,200,000 ITT Hartford, 5.30%, 01/24/97.............................. 4,185,778
4,000,000 Merrill Lynch and Company, Inc., 5.34%, 01/27/97........... 3,984,573
3,000,000 National Rural Utilities Corp., 5.30%, 01/10/97............ 2,996,025
2,000,000 Paccar Financial Company, 5.44%, 01/03/97.................. 1,999,395
1,600,000 Sears Roebuck Acceptance Corp., 5.40%, 01/07/97............ 1,598,560
4,000,000 Sony Capital Corp., 5.30%, 01/14/97........................ 3,992,345
5,300,000 Southwestern Bell Capital, 5.52%, 01/30/97................. 5,276,433
2,600,000 Weyerhaeuser Mortgage Company, 5.90%, 01/07/97............. 2,597,443
------------
TOTAL COMMERCIAL PAPER (Cost $60,648,546).................. 60,648,546 6.34%
------------ ------
TIME DEPOSIT
4,216,896 First National Bank of Boston, 7.10%, 01/02/97 (Cost
$4,217,670)(b)........................................... 4,217,670 0.44%
------------ ------
SHORT TERM US GOVERNMENT AGENCY SECURITIES
300,000 Federal Home Loan Mortgage Discount Note, 5.42%,
01/06/97................................................. 299,774
300,000 Federal National Mortgage Association, 5.24%, 01/03/97..... 299,914
200,000 Federal National Mortgage Association, 5.34%, 03/21/97..... 197,656
------------
TOTAL SHORT TERM US GOVERNMENT (Cost $797,344)............. 797,344 0.08%
------------ ------
TOTAL SECURITIES (Cost $760,718,204)....................... 989,350,281 103.40%
------------ ------
REPURCHASE AGREEMENT
26,910 With Investors Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $26,919, 01/02/97
(Collateralized by Federal National Mortgage Association,
7.92%, due 08/01/24 with a value of $28,562) (Cost
$26,914)................................................. 26,914 0.00%
------------ ------
Total Investments (Cost $760,745,118)...................... 989,377,195 103.40%
Other assets less liabilities.............................. (32,556,526) (3.40)%
------------ ------
NET ASSETS................................................. $956,820,669 100.00%
============ ======
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31,1996 is $760,484,068.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<C> <S> <C> <C>
Gross unrealized appreciation.............................. $231,988,767
Gross unrealized depreciation.............................. (3,095,640)
------------
Net unrealized appreciation................................ $228,893,127
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan
(b) Collateral for securities on loan
(ADR) -- American Depository Receipts
See notes to financial statements.
59
<PAGE> 61
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ---------- ----------- -------
<C> <S> <C> <C>
COMMON STOCK
AEROSPACE
3,600 Allied Signal, Inc. ......................................... $ 241,242 0.83%
AUTOMOBILES -----------
6,200 General Motors Corp. ........................................ 345,650
21,300 Ford Motor Company........................................... 678,938
-----------
TOTAL AUTOMOBILES............................................ 1,024,588 3.53%
BANKS -----------
2,300 Chase Manhattan Corp. ....................................... 205,275
6,500 First Chicago National Bank Corp. ........................... 349,375
-----------
TOTAL BANKS.................................................. 554,650 1.91%
CHEMICALS -----------
5,700 Du Pont (E.I.) de Nemours.................................... 537,937
7,300 Eastman Chemical Company..................................... 403,325
6,100 Hercules, Inc. .............................................. 263,825
4,700 PPG Industries, Inc. ........................................ 263,787
3,600 Union Carbide Corp. ......................................... 147,150
10,700 WMX Technologies............................................. 349,087
-----------
TOTAL CHEMICALS.............................................. 1,965,111 6.77%
COMPUTERS AND OFFICE EQUIPMENT -----------
12,600 Digital Equipment Corp.(c)................................... 458,325
4,400 International Business Machines.............................. 664,400
13,300 Xerox Corp. ................................................. 699,913
-----------
TOTAL COMPUTERS AND OFFICE EQUIPMENT......................... 1,822,638 6.28%
CONSTRUCTION -----------
4,600 Fluor Corp. ................................................. 288,650
9,200 Masco Corp. ................................................. 331,200
-----------
TOTAL CONSTRUCTION........................................... 619,850 2.13%
CONSUMER GOODS AND SERVICES -----------
3,000 Eastman Kodak Company........................................ 240,750
1,400 Kimberly-Clark Corp. ........................................ 133,350
-----------
TOTAL CONSUMER GOODS AND SERVICES............................ 374,100 1.29%
DEFENSE -----------
5,800 Raytheon Co. ................................................ 279,125 0.96%
ELECTRONICS -----------
12,000 AMP, Inc. ................................................... 460,500
5,700 Rockwell International Corp.(c).............................. 346,988
3,000 Texas Instruments............................................ 191,250
-----------
TOTAL ELECTRONICS............................................ 998,738 3.44%
-----------
</TABLE>
See notes to financial statements.
60
<PAGE> 62
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ---------- --------
---
<C> <S> <C> <C>
FINANCE
10,000 Dean Witter Discover & Company............................... $ 662,500
4,800 Loews Corp. ................................................. 452,400
TOTAL FINANCE................................................ 1,114,900 3.84%
FOOD AND BEVERAGE
6,700 Albertson's, Inc. ........................................... 238,688
6,100 Anheuser Busch Companies, Inc. .............................. 244,000
15,780 Archer Daniels Midland....................................... 347,160
1,800 CPC International, Inc. ..................................... 139,500
TOTAL FOOD AND BEVERAGE...................................... 969,348 3.34%
INSURANCE
9,800 Aetna, Inc. ................................................. 784,000
11,400 Allstate Corp. .............................................. 659,775
1,700 American International Group................................. 184,025
13,300 Chubb Corp. ................................................. 714,875
3,700 General Re Corp. ............................................ 583,675
3,500 UNUM Corp. .................................................. 252,875
TOTAL INSURANCE.............................................. 3,179,225 10.95%
MEDIA
12,200 Time Warner, Inc. ........................................... 457,500
14,500 US West Media Group(c)....................................... 268,250
TOTAL MEDIA.................................................. 725,750 2.50%
MEDICAL AND OTHER HEALTH SERVICES
2,600 Becton Dickinson & Company................................... 112,775
4,900 Cognizant Corp. ............................................. 161,710
19,700 Columbia/HCA Healthcare Corp. ............................... 802,775
16,800 Humana, Inc.(c).............................................. 321,300
8,200 United Healthcare Corp.(c)................................... 369,000
TOTAL MEDICAL AND OTHER HEALTH SERVICES...................... 1,767,560 6.09%
METALS AND MINING
4,500 Aluminum Company of America.................................. 286,875
8,000 LTV Corp. ................................................... 95,000
11,300 Newmont Mining............................................... 505,675
TOTAL METALS AND MINING...................................... 887,550 3.06%
OIL AND GAS
7,300 Amerada Hess Corp. .......................................... 422,488
3,400 Amoco Corp. ................................................. 273,740
3,800 Mobil Corp. ................................................. 464,550
23,900 Occidental Petroleum......................................... 558,662
</TABLE>
See notes to financial statements.
61
<PAGE> 63
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ---------- --------
---
<C> <S> <C> <C>
OIL AND GAS (CONTINUED)
900 Texaco, Inc. ................................................ $ 88,312
9,800 Union Pacific Resources Group................................ 286,650
-----------
TOTAL OIL AND GAS............................................ 2,094,402 7.21%
PAPER AND FOREST PRODUCTS -----------
10,200 Champion International....................................... 441,150
2,500 Georgia-Pacific Corp. ....................................... 180,000
3,600 International Paper Company.................................. 145,350
-----------
TOTAL PAPER AND FOREST PRODUCTS.............................. 766,500 2.64%
PHARMACEUTICALS -----------
4,300 Bristol-Myers Squibb Company................................. 467,650
14,300 Pharmacia & Upjohn, Inc. .................................... 566,638
-----------
TOTAL PHARMACEUTICALS........................................ 1,034,288 3.56%
RETAIL -----------
16,000 Dillard Department Stores.................................... 494,000
17,300 Federated Department Stores(c)............................... 590,363
8,600 May Department Stores........................................ 402,050
10,100 Sears Roebuck................................................ 465,863
-----------
TOTAL RETAIL................................................. 1,952,276 6.72%
TELECOMMUNICATIONS -----------
32,000 American Telephone & Telegraph Corp. ........................ 1,392,000
10,700 Frontier Corp. .............................................. 242,087
15,400 GTE Corp. ................................................... 700,700
9,500 ITT Corp.(c)................................................. 412,062
16,000 NYNEX Corp. ................................................. 770,000
10,300 SBC Communications, Inc. .................................... 533,025
5,800 Sprint Corp. ................................................ 231,275
40,400 Tele-Communications, Inc. Series A(c)........................ 527,725
-----------
TOTAL TELECOMMUNICATIONS..................................... 4,808,874 16.57%
TRANSPORTATION -----------
3,300 AMR Corp.(c)................................................. 290,813
1,100 Burlington Northern Santa Fe................................. 95,013
11,700 CSX Corp. ................................................... 494,325
4,000 Delta Air Lines, Inc. ....................................... 283,500
-----------
TOTAL TRANSPORTATION......................................... 1,163,651 4.01%
UTILITIES -----------
4,500 Texas Utilities Company...................................... 183,375 0.63%
----------- -------
TOTAL COMMON STOCK (Cost $26,959,909)........................ 28,527,741 98.26%
----------- -------
</TABLE>
See notes to financial statements.
62
<PAGE> 64
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
- ----------
<C> <S> <C> <C>
REPURCHASE AGREEMENT
$1,693,220 With Investors Bank & Trust dated 12/31/96, 5.91%, repurchase
proceeds at maturity $1,693,776, 01/02/97 (Collateralized by
Federal Home Loan Mortgage Corp., 7.65%, due 09/01/18 with a
value of $1,777,969) (Cost $1,693,498)....................... $ 1,693,498 5.83%
----------- -------
Total Investments (Cost $28,653,407)......................... 30,221,239 104.09%
Other assets less liabilities................................ (1,187,726) (4.09)%
----------- -------
NET ASSETS................................................... $29,033,513 100.00%
========== ======
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31, 1996 is $28,673,560.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<C> <S> <C> <C>
Gross unrealized appreciation................................ $ 2,162,357
Gross unrealized depreciation................................ (614,678)
-----------
Net unrealized appreciation.................................. $ 1,547,679
==========
</TABLE>
- ---------------
(c) Non-income producing security
See notes to financial statements.
63
<PAGE> 65
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
------------ -------
<C> <S> <C> <C>
COMMON STOCK
AEROSPACE
34,500 Boeing Company.............................................. $ 3,669,937
28,100 Textron, Inc................................................ 2,648,425
43,100 United Technologies......................................... 2,844,600
----------
TOTAL AEROSPACE............................................. 9,162,962 4.41%
----------
APPAREL
57,900 CVS Corp.(c)................................................ 2,395,612
40,700 Liz Claiborne............................................... 1,572,038
----------
TOTAL APPAREL............................................... 3,967,650 1.91%
----------
BANKS
38,100 Bank of Boston Corp......................................... 2,447,925
41,700 BankAmerica Corp............................................ 4,159,575
56,200 Barnett Banks, Inc.......................................... 2,311,225
25,500 Chase Manhattan Corp........................................ 2,275,875
37,200 Citicorp.................................................... 3,831,600
58,150 MBNA Corp................................................... 2,413,225
----------
TOTAL BANKS................................................. 17,439,425 8.40%
----------
CHEMICALS
40,600 Du Pont (E.I.) de Nemours................................... 3,831,625
50,700 Merck & Company, Inc........................................ 4,017,975
100,600 Monsanto Company............................................ 3,910,825
68,600 Praxair, Inc................................................ 3,164,175
31,300 Sherwin Williams Company.................................... 1,752,800
----------
TOTAL CHEMICALS............................................. 16,677,400 8.03%
----------
COMPUTER AND OFFICE EQUIPMENT
68,150 Computer Associates International, Inc...................... 3,390,462
59,900 EMC Corp.(c)................................................ 1,984,187
36,900 Intel Corp.(a).............................................. 4,831,594
51,800 Microsoft Corp.(c).......................................... 4,279,975
41,600 Peoplesoft(a)(c)............................................ 1,994,200
----------
TOTAL COMPUTER AND OFFICE EQUIPMENT......................... 16,480,418 7.94%
----------
COMPUTER AND SOFTWARE SERVICES
24,100 3Com Corp.(c)............................................... 1,768,338
58,700 Cisco Systems, Inc.(c)...................................... 3,734,787
32,300 Compaq Computer(c).......................................... 2,398,275
27,800 Computer Sciences Corp.(c).................................. 2,283,075
</TABLE>
See notes to financial statements.
64
<PAGE> 66
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
---------- ------
<C> <S> <C> <C>
COMPUTER AND SOFTWARE SERVICES (CONTINUED)
59,500 Honeywell, Inc.............................................. $ 3,912,125
30,700 Parametric Technology Corp.(c).............................. 1,577,213
----------
TOTAL COMPUTER AND SOFTWARE SERVICES........................ 15,673,813 7.55%
----------
CONSUMER GOODS AND SERVICES
41,700 Avon Products, Inc.......................................... 2,382,112
23,300 Clorox Company.............................................. 2,338,737
46,000 Eastman Kodak Company....................................... 3,691,500
47,900 General Electric Company.................................... 4,736,113
61,200 Gillette Company............................................ 4,758,300
57,900 Nike, Inc. -- Class B....................................... 3,459,525
67,200 Service Corporation International........................... 1,881,600
----------
TOTAL CONSUMER GOODS AND SERVICES........................... 23,247,887 11.20%
----------
ELECTRONICS
37,700 Texas Instruments........................................... 2,403,375 1.16%
----------
FINANCE
43,300 American Express Company.................................... 2,446,450
57,700 Federal National Mortgage Association....................... 2,149,325
23,800 Franklin Resources, Inc..................................... 1,627,325
58,700 First Data Corp............................................. 2,142,550
18,600 Household International, Inc................................ 1,715,850
25,700 Lowes Company, Inc.......................................... 912,350
----------
TOTAL FINANCE............................................... 10,993,850 5.30%
----------
FOOD AND BEVERAGE
28,000 Campbell Soup Company....................................... 2,247,000
33,300 Safeway, Inc.(a)(c)......................................... 1,423,575
----------
TOTAL FOOD AND BEVERAGE..................................... 3,670,575 1.77%
----------
INSURANCE
67,232 Travelers, Inc.............................................. 3,050,635 1.47%
----------
LEISURE AND RECREATION
25,200 HFS, Inc.(c)................................................ 1,505,700
40,600 Marriott International, Inc................................. 2,243,150
----------
TOTAL LEISURE AND RECREATION................................ 3,748,850 1.81%
----------
MACHINERY
51,000 Baker Hughes, Inc........................................... 1,759,500
29,800 Case Corp................................................... 1,624,100
----------
TOTAL MACHINERY............................................. 3,383,600 1.63%
----------
</TABLE>
See notes to financial statements.
65
<PAGE> 67
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
---------- ------
<C> <S> <C> <C>
MANUFACTURING
17,000 Armstrong World Industries, Inc............................. $ 1,181,500 0.57%
----------
MEDIA
31,100 Gannett Company, Inc........................................ 2,328,613
27,400 Tribune Company............................................. 2,161,175
----------
TOTAL MEDIA................................................. 4,489,788 2.16%
----------
MEDICAL AND OTHER HEALTH SERVICES
40,950 Cardinal Health, Inc.(a).................................... 2,385,337
44,600 Healthsouth Corp.(c)........................................ 1,722,675
41,000 HBO & Company............................................... 2,434,375
54,900 Johnson & Johnson........................................... 2,731,275
30,900 Medtronic, Inc.............................................. 2,101,200
18,100 Oxford Health Plans, Inc.(c)................................ 1,059,981
48,000 United States Surgical Corp.(a)............................. 1,890,000
----------
TOTAL MEDICAL AND OTHER HEALTH SERVICES..................... 14,324,843 6.90%
----------
OIL AND GAS
23,100 British Petroleum PLC (ADR)................................. 3,265,763
55,300 Enron Corp.................................................. 2,384,812
37,000 Halliburton Company......................................... 2,229,250
28,500 Schlumberger Ltd............................................ 2,846,438
54,000 Sonat, Inc.................................................. 2,781,000
----------
TOTAL OIL AND GAS........................................... 13,507,263 6.51%
----------
PHARMACEUTICALS
75,100 Abbott Laboratories......................................... 3,811,325
31,300 Eli Lilly & Company......................................... 2,284,900
46,600 Pfizer, Inc................................................. 3,861,975
49,900 Warner Lambert Company...................................... 3,742,500
----------
TOTAL PHARMACEUTICALS....................................... 13,700,700 6.60%
----------
RETAIL
52,700 CompUSA, Inc.(a)(c)......................................... 1,086,937
58,300 Dayton-Hudson Corp.......................................... 2,288,275
55,200 Federated Department Stores(c).............................. 1,883,700
44,000 Harcourt General, Inc....................................... 2,029,500
86,400 Sears Roebuck............................................... 3,985,200
39,500 TJX Companies, Inc.......................................... 1,871,313
48,400 Walgreen Company............................................ 1,936,000
----------
TOTAL RETAIL................................................ 15,080,925 7.26%
----------
</TABLE>
See notes to financial statements.
66
<PAGE> 68
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
---------- ------
<C> <S> <C> <C>
TELECOMMUNICATIONS
27,600 Cascade Communications Corp.(c)............................. $ 1,521,450
13,100 Cincinnati Bell, Inc........................................ 807,288
71,300 Sprint Corp................................................. 2,843,088
32,200 Tellabs, Inc.(c)............................................ 1,211,525
----------
TOTAL TELECOMMUNICATIONS.................................... 6,383,351 3.07%
----------
TOBACCO
73,600 RJR Holdings Group, Inc..................................... 2,502,400 1.20%
---------- ------
TOTAL COMMON STOCK (Cost $179,034,540)...................... 201,071,210 96.85%
---------- ------
REGULATED INVESTMENT COMPANY
MONEY MARKET FUND
7,833,262 Merrimac Cash Fund -- Premium Class (Cost $7,833,262)(b).... 7,833,262 3.77%
---------- ------
PRINCIPAL
COMMERCIAL PAPER
$4,000,000 Republic New York Securities Corp., 7.15%, 07/15/97
(Cost $4,001,339)(b)........................................ 4,001,339 1.93%
---------- ------
TIME DEPOSIT
2,041,838 First National Bank of Boston, 7.10%, 01/02/97 (Cost 2,042,522 0.98%
$2,042,522)(b)..............................................
---------- ------
TOTAL SECURITIES (Cost $192,911,663)........................ 214,948,333 103.53%
---------- ------
REPURCHASE AGREEMENT
6,968,633 With Investors Bank & Trust, dated 12/31/96, 5.91%,
repurchase
proceeds at maturity $6,970,921, 01/02/97 (Collateralized by
Federal Home Loan Mortgage Corp., 7.71% due 05/01/25
with a value of $7,317,773) (Cost $6,969,777)............... 6,969,777 3.36%
---------- ------
Total Investments (Cost $199,881,440)....................... 221,918,110 106.89%
Other assets less liabilities............................... (14,305,684) (6.89)%
---------- ------
NET ASSETS.................................................. $207,612,426 100.00%
========== ======
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31, 1996 is $200,071,840.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<C> <S> <C> <C>
Gross unrealized appreciation............................... $ 24,400,784
Gross unrealized depreciation............................... (2,554,514)
------------
Net unrealized appreciation................................. $ 21,846,270
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan
(b) Collateral for securities on loan
(c) Non-income producing security
See notes to financial statements.
67
<PAGE> 69
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ---------- ------------ ----------
<C> <S> <C> <C>
COMMON STOCK
AEROSPACE
73,600 Sundstrand Corp. ......................................... $ 3,128,000
49,000 Textron, Inc. ............................................ 4,618,250
119,000 United Technologies....................................... 7,854,000
----------
TOTAL AEROSPACE........................................... 15,600,250 5.22%
----------
APPAREL
68,400 Nine West Group, Inc.(c).................................. 3,172,050 1.06%
----------
BANKS
71,200 BankAmerica Corp. ........................................ 7,102,200
70,500 Chase Manhattan Corp. .................................... 6,292,125
59,100 Nationsbank Corp. ........................................ 5,777,025
----------
TOTAL BANKS............................................... 19,171,350 6.41%
----------
CHEMICALS
42,200 Grace W.R. ............................................... 2,183,850
108,600 Hercules, Inc. ........................................... 4,696,950
137,500 Merck & Company, Inc. .................................... 10,896,875
185,800 Monsanto Company.......................................... 7,222,975
136,500 Praxair, Inc. ............................................ 6,296,063
----------
TOTAL CHEMICALS........................................... 31,296,713 10.46%
----------
COMPUTER AND OFFICE EQUIPMENT
129,600 Corporate Express, Inc.(c)................................ 3,815,100 1.28%
----------
COMPUTER AND SOFTWARE SERVICES
175,600 3Com Corp.(c)............................................. 12,884,650
125,900 Adaptec, Inc.(c).......................................... 5,036,000
59,600 Computer Associates International, Inc. .................. 2,965,100
250,525 CUC International, Inc.(c)................................ 5,949,969
51,600 Honeywell, Inc. .......................................... 3,392,700
16,700 Rational Software Corp.(c)................................ 660,694
178,900 Peoplesoft(c)............................................. 8,576,018
----------
TOTAL COMPUTER AND SOFTWARE SERVICES...................... 39,465,131 13.19%
----------
CONSUMER GOODS AND SERVICES
107,300 Avon Products, Inc. ...................................... 6,129,512
117,700 Gillette Company.......................................... 9,151,175
203,600 Service Corporate International........................... 5,700,800
----------
TOTAL CONSUMER GOODS AND SERVICES......................... 20,981,487 7.01%
----------
</TABLE>
See notes to financial statements.
68
<PAGE> 70
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ---------- ---------- ------
<C> <S> <C> <C>
ELECTRONICS
110,300 Fore Systems, Inc.(c)..................................... $ 3,626,112
68,800 Intel Corp. .............................................. 9,008,500
90,000 Texas Instruments......................................... 5,737,500
----------
TOTAL ELECTRONICS......................................... 18,372,112 6.14%
----------
ENVIRONMENTAL MANAGEMENT
93,000 WMX Technologies.......................................... 3,034,125 1.01%
----------
FINANCIAL SERVICES
154,600 First Data Corp. ......................................... 5,642,900
83,800 Student Loan Marketing Association........................ 7,803,875
----------
TOTAL FINANCIAL SERVICES.................................. 13,446,775 4.50%
----------
FOOD AND BEVERAGE
108,500 Boston Chicken, Inc.(c)................................... 3,892,437 1.30%
----------
INSURANCE
163,630 Travelers, Inc. .......................................... 7,424,694 2.48%
----------
LEISURE AND RECREATION
103,000 HFS, Inc.(c).............................................. 6,154,250
237,600 Hilton Hotels............................................. 6,207,300
----------
TOTAL LEISURE AND RECREATION.............................. 12,361,550 4.13%
----------
MACHINERY
72,600 Thermo Electron Corp.(c).................................. 2,994,750 1.00%
----------
MEDICAL AND OTHER HEALTH SERVICES
81,100 Boston Scientific Corp.(c)................................ 4,866,000
117,700 Guidant Corp. ............................................ 6,708,900
134,500 HBO & Company............................................. 7,985,937
112,800 Medtronic, Inc. .......................................... 7,670,400
----------
TOTAL MEDICAL AND OTHER HEALTH SERVICES................... 27,231,237 9.10%
----------
PHARMACEUTICALS
114,700 American Home Products Corp. ............................. 6,724,287
96,800 Eli Lilly & Company....................................... 7,066,400
112,300 Schering-Plough Corp...................................... 7,271,425
----------
TOTAL PHARMACEUTICALS..................................... 21,062,112 7.04%
----------
RETAIL
231,300 Dayton-Hudson Corp. ...................................... 9,078,525
113,200 Home Depot, Inc. ......................................... 5,674,150
84,700 Kohls Corp.(c)............................................ 3,324,475
----------
TOTAL RETAIL.............................................. 18,077,150 6.04%
----------
</TABLE>
See notes to financial statements.
69
<PAGE> 71
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ---------- ---------- ------
<C> <S> <C> <C>
TELECOMMUNICATIONS
110,000 Ascend Communications, Inc.(c)............................ $ 6,833,750
117,700 Cascade Communications Corp.(c)........................... 6,488,212
----------
TOTAL TELECOMMUNICATIONS.................................. 13,321,962 4.45%
----------
TOBACCO
84,900 Philip Morris Companies, Inc. ............................ 9,561,864 3.20%
----------
TRANSPORTATION
68,500 Burlington Northern Santa Fe.............................. 5,916,688 1.99%
---------- ------
TOTAL SECURITIES (Cost $276,480,203)...................... 290,199,537 97.01%
---------- ------
PRINCIPAL
REPURCHASE AGREEMENT
$6,062,596 With Investors Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $6,064,586, 01/02/97,
(Collateralized by Federal Home Loan Mortgage Corp.,
7.78%, due 08/01/24 with a value of $6,366,113)
(Cost $6,063,591)......................................... 6,063,591 2.03%
---------- ------
Total Investments (Cost $282,543,794)..................... 296,263,128 99.04%
Other assets less liabilities............................. 2,864,558 0.96%
---------- ------
NET ASSETS................................................ $299,127,686 100.00%
========== ======
The aggregate cost of investments for federal income tax purposes at December 31, 1996 is
$282,543,794.
The following amount is based on costs for federal income tax purposes:
Gross unrealized appreciation............................. $20,146,269
Gross unrealized depreciation............................. (6,426,935)
----------
Net unrealized appreciation............................... $13,719,334
==========
</TABLE>
- ---------------
(c) Non-income producing security
See notes to financial statements.
70
<PAGE> 72
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ -------
<C> <S> <C> <C>
COMMON STOCK
ADVERTISING
27,700 Catalina Marketing Corp.(c)................................ $ 1,526,963
88,337 HA-LO Industries, Inc.(c).................................. 2,429,268
5,300 Snyder Communications, Inc.(c)............................. 143,100
------------
TOTAL ADVERTISING.......................................... 4,099,331 0.81%
------------
AEROSPACE
146,600 AAR Corp. ................................................. 4,434,650 0.87%
------------
APPAREL
74,700 Catherines Stores Corp.(c)................................. 410,850
13,800 Fila Holdings Spa (ADR)(a)................................. 802,125
61,700 Gadzooks, Inc.(c).......................................... 1,126,025
30,600 Gucci Group................................................ 1,954,575
3,600 Loehmann's, Inc.(c)........................................ 82,800
15,500 The Finish Line............................................ 327,438
------------
TOTAL APPAREL.............................................. 4,703,813 0.93%
------------
AUTOMOTIVE PRODUCTS
37,300 Donnelly Corp. ............................................ 913,850 0.18%
------------
BANKS
144,000 American Federal Bank...................................... 2,718,000
68,873 First Republic BanCorp, Inc.(c)............................ 1,153,623
125,600 First Savings Bank of Washington........................... 2,307,900
71,535 First Union Corp. ......................................... 5,293,590
158,330 HUBCO, Inc. ............................................... 3,879,085
116,400 Norwalk Savings Society(a)................................. 2,720,850
110,000 Peoples Bank............................................... 3,176,250
160,000 Roosevelt Financial Group, Inc. ........................... 3,360,000
145,400 Sterling Financial Corp.(c)................................ 2,053,775
------------
TOTAL BANKS................................................ 26,663,073 5.26%
------------
BUILDING MATERIALS
10,000 Penn-America Group, Inc.(c)................................ 161,250 0.03%
------------
BUSINESS SERVICES
80,800 Accustaff, Inc.(a)(c)...................................... 1,706,900
56,500 Alternative Resources Corp.(c)............................. 981,687
54,800 American Business Information(c)........................... 1,219,300
10,000 CSS Industries, Inc. ...................................... 260,000
30,000 F.Y.I., Inc. .............................................. 626,250
41,900 Iron Mountain, Inc.(c)..................................... 1,267,475
</TABLE>
See notes to financial statements.
71
<PAGE> 73
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ ------
<C> <S> <C> <C>
BUSINESS SERVICES (CONTINUED)
70,000 Labor Ready, Inc. ......................................... $ 945,000
51,600 Manpower, Inc. ............................................ 1,677,000
------------
TOTAL BUSINESS SERVICES.................................... 8,683,612 1.71%
------------
CHEMICALS
70,576 TETRA Tech, Inc.(c)........................................ 1,393,876 0.27%
------------
COMMERCIAL SERVICES
49,500 Greenwich Air Services -- Class B.......................... 1,101,375
128,300 Protection One, Inc.(a).................................... 1,266,962
------------
TOTAL COMMERCIAL SERVICES.................................. 2,368,337 0.47%
------------
COMPUTERS AND OFFICE EQUIPMENT
70,000 Amplicon, Inc. ............................................ 1,382,500
49,600 Applix, Inc.(c)............................................ 1,085,000
118,550 Cable Design Technologies(c)............................... 3,689,869
36,200 CIBER, Inc.(a)(c).......................................... 1,086,000
61,300 Compaq Computer(c)......................................... 4,551,525
39,500 Computer Associates International, Inc. ................... 1,965,125
65,100 Comverse Technology, Inc.(c)............................... 2,461,594
18,600 Documentum, Inc.(a)(c)..................................... 627,750
31,400 Encad, Inc.(c)............................................. 1,295,250
54,400 Intel Corp.(a)............................................. 7,123,000
10,500 Jaco Electronics, Inc. .................................... 89,250
101,100 May & Speh, Inc.(c)........................................ 1,238,475
72,500 National Data Corp. ....................................... 3,153,750
35,000 Pure Atria Corp.(c)........................................ 866,250
2,820 Radius, Inc.(c)............................................ 1,498
146,300 Seagate Technology, Inc.(a)(c)............................. 5,778,850
145,300 Sterling Commerce, Inc.(a)(c).............................. 5,121,825
121,000 US Office Products Company(a).............................. 4,129,125
35,100 Visio Corp.(a)(c).......................................... 1,737,450
------------
TOTAL COMPUTERS AND OFFICE EQUIPMENT....................... 47,384,086 9.34%
------------
COMPUTER SOFTWARE AND SERVICES
46,120 Aspen Technologies, Inc.(c)................................ 3,701,130
76,100 Cadence Design Systems, Inc.(c)............................ 3,024,975
131,500 Cambridge Technology Partners(c)........................... 4,413,469
28,500 INSO Corp.(a)(c)........................................... 1,132,875
53,300 JDA Software Group, Inc.(c)................................ 1,519,050
41,300 National Computer System, Inc. ............................ 1,053,150
52,800 Network Appliance, Inc.(c)................................. 2,686,200
</TABLE>
See notes to financial statements.
72
<PAGE> 74
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ ------
<C> <S> <C> <C>
COMPUTER SOFTWARE AND SERVICES (CONTINUED)
19,800 Parametric Technology Corp.(c)............................. $ 1,017,225
29,000 Platinum Entertainment(c).................................. 232,000
43,700 Project Software & Development(c).......................... 1,851,789
85,200 Rational Software Corp.(a)(c).............................. 3,370,725
24,400 Renaissance Solutions, Inc.(c)............................. 1,091,900
41,900 Sapient Corp.(c)........................................... 1,765,038
19,500 Scopus Technology, Inc.(c)................................. 906,750
18,800 Sterling Software(a)(c).................................... 594,550
69,900 Ultrak, Inc.(c)............................................ 2,131,950
33,600 Veritas Software Corp.(c).................................. 1,671,600
59,500 Whittman-Hart, Inc.(c)..................................... 1,524,688
68,200 Wind River Systems(c)...................................... 3,230,975
------------
TOTAL COMPUTER SOFTWARE AND SERVICES....................... 36,920,039 7.29%
------------
CONSTRUCTION
173,300 Daniel Industries.......................................... 2,556,175
90,000 Michael Baker Corp.(c)..................................... 573,750
------------
TOTAL CONSTRUCTION......................................... 3,129,925 0.62%
------------
CONSUMER GOODS AND SERVICES
67,500 Blyth Industries, Inc.(a)(c)............................... 3,079,687
38,900 Carriage Services, Inc.(c)................................. 870,387
39,500 CUC International, Inc.(c)................................. 938,125
83,300 Helen of Troy, Ltd. ....................................... 1,832,600
42,000 LSI LTG Systems, Inc. ..................................... 556,500
69,000 Parlux Fragrances, Inc.(c)................................. 284,625
------------
TOTAL CONSUMER GOODS AND SERVICES.......................... 7,561,924 1.49%
------------
EDUCATION
53,900 Alrenco, Inc.(c)........................................... 572,688
179,825 ITT Educational Services, Inc.(c).......................... 4,158,453
152,500 Kinder Care Learning Centers(c)............................ 2,859,375
32,700 Landauer, Inc. ............................................ 801,150
37,650 Learning Tree International(c)............................. 1,110,675
569,100 National Education Corp.(c)................................ 8,678,775
47,000 Sylvan, Inc.(c)............................................ 611,000
------------
TOTAL EDUCATION............................................ 18,792,116 3.70%
------------
ELECTRICAL EQUIPMENT
57,200 Sawtek, Inc.(c)............................................ 2,266,550 0.45%
------------
</TABLE>
See notes to financial statements.
73
<PAGE> 75
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ ------
<C> <S> <C> <C>
ELECTRONICS
200,600 Alpha Industries, Inc.(c).................................. $ 1,579,725
217,100 Charter Power Systems...................................... 6,621,550
67,500 Electro Rent Corp.(c)...................................... 1,679,062
104,600 Fore Systems, Inc.(c)...................................... 3,438,725
59,300 Gentex Corp.(c)............................................ 1,193,412
141,400 ILC Technology, Inc.(c).................................... 1,838,200
46,200 Input/Output, Inc.(c)...................................... 854,700
34,700 Perceptron, Inc. .......................................... 1,188,475
79,530 Richardson Electronics..................................... 656,123
40,000 Sanmina Corp.(a)(c)........................................ 2,260,000
65,730 Sterling Electronics(c).................................... 879,139
29,100 Uniphase Corp.(c).......................................... 1,527,750
36,800 Vitesse Semiconductor Corp.(c)............................. 1,674,400
------------
TOTAL ELECTRONICS.......................................... 25,391,261 5.01%
------------
ENGINEERING
19,500 Fluke Corp. ............................................... 870,187
105,000 Rogers Corp.(c)............................................ 2,848,125
111,500 URS Corp.(c)............................................... 1,003,500
------------
TOTAL ENGINEERING.......................................... 4,721,812 0.93%
------------
ENVIRONMENTAL MANAGEMENT SERVICES
114,900 ABM Industries, Inc. ...................................... 2,125,650
53,000 American Disposal Services(c).............................. 980,500
34,300 BHA Group, Inc. ........................................... 553,088
59,500 National Sanitary Supply................................... 780,938
54,000 Newpark Resources, Inc.(c)................................. 2,011,500
66,200 Republic Industries, Inc.(a)(c)............................ 2,064,613
30,000 Superior Services, Inc.(c)................................. 611,250
96,900 United Waste Systems, Inc.(c).............................. 3,330,938
96,550 US Filter Corp.(a)(c)...................................... 3,065,462
------------
TOTAL ENVIRONMENTAL MANAGEMENT SERVICES.................... 15,523,939 3.06%
------------
FINANCE
161,700 Allied Capital Advisers, Inc.(c)........................... 929,775
108,500 Allied Capital Commercial Corp. ........................... 2,522,625
83,500 Allied Capital Corp. ...................................... 1,315,125
85,392 Allied Capital Lending Company............................. 1,302,228
30,000 CACI International, Inc.(c)................................ 630,000
125,200 Cash American Investments, Inc. ........................... 1,064,200
106,470 Charter One Financial, Inc. ............................... 4,471,740
</TABLE>
See notes to financial statements.
74
<PAGE> 76
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ ------
<C> <S> <C> <C>
FINANCE (CONTINUED)
46,588 Concord EFS, Inc.(c)....................................... $ 1,316,097
80,100 ContiFinancial Corp.(c).................................... 2,893,613
28,000 Dollar Tree Stores, Inc.(c)................................ 1,071,000
27,500 Phoenix Duff & Phelps Corp. ............................... 195,937
42,700 Sirrom Capital Corp. ...................................... 1,569,225
95,500 The Money Store, Inc.(a)................................... 2,638,188
60,000 Washington Mutual, Inc. ................................... 2,598,750
------------
TOTAL FINANCE.............................................. 24,518,503 4.83%
------------
FOOD AND BEVERAGE
54,900 CKE Restaurants, Inc. ..................................... 1,976,400
21,200 Culligan Water Technologies(c)............................. 858,600
1,300 Dairymart Convenient Stores -- Class A(c).................. 5,850
27,200 Glacier Water Services, Inc.(c)............................ 622,200
52,000 Landry's Seafood Restaurants(c)............................ 1,111,500
238,300 Ruby Tuesday, Inc.(c)...................................... 4,408,550
26,700 Scotsman Industries, Inc. ................................. 630,788
------------
TOTAL FOOD AND BEVERAGE.................................... 9,613,888 1.90%
------------
FORESTRY PRODUCTS
31,000 Fibreboard Corp.(c)........................................ 1,046,250 0.21%
------------
FREIGHT AND CARGO
113,800 Air Express International Corp. ........................... 3,670,050
52,900 Atlas Air, Inc.(c)......................................... 2,525,975
105,474 Fritz Companies, Inc.(a)(c)................................ 1,344,794
238,700 Harper Group, Inc. ........................................ 5,669,125
40,500 Intercargo, Inc. .......................................... 346,781
190,050 Pittston Burlington Group.................................. 3,801,000
------------
TOTAL FREIGHT AND CARGO.................................... 17,357,725 3.42%
------------
INDUSTRIAL
27,000 Zoltek Companies, Inc.(a)(c)............................... 982,125 0.19%
------------
INSURANCE
80,000 HCC Insurance Holdings, Inc. .............................. 1,920,000
38,600 National Western Life Insurance -- Class A(c).............. 3,358,200
36,200 Penn Treaty American Corp. ................................ 941,200
66,400 Western National Corp. .................................... 1,278,200
208,800 Willis Corroon Group (ADR)................................. 2,401,200
------------
TOTAL INSURANCE............................................ 9,898,800 1.95%
------------
</TABLE>
See notes to financial statements.
75
<PAGE> 77
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ ------
<C> <S> <C> <C>
LEISURE AND RECREATION
46,700 Dover Downs Entertainment(c)............................... $ 834,762
61,300 Harveys Casinos Resorts.................................... 1,034,437
41,500 HFS, Inc.(c)............................................... 2,479,625
28,000 Nimbus CD International, Inc.(c)........................... 238,000
16,800 Sun International Hotels, Ltd.(a).......................... 613,200
------------
TOTAL LEISURE AND RECREATION............................... 5,200,024 1.03%
------------
MACHINERY
76,000 K-Tron International, Inc.(c).............................. 779,000
70,100 Varco International, Inc. ................................. 1,621,062
------------
TOTAL MACHINERY............................................ 2,400,062 0.47%
------------
MANUFACTURING
56,000 Chase Brass Industries, Inc.(c)............................ 1,113,000
52,700 DT Industries, Inc. ....................................... 1,844,500
139,800 Lydall, Inc.(c)............................................ 3,145,500
33,050 Watsco, Inc. .............................................. 954,319
------------
TOTAL MANUFACTURING........................................ 7,057,319 1.39%
------------
MEDIA
75,000 Golden Books Family Entertainment(c)....................... 834,375
119,800 Granite Broadcasting Corp.(a)(c)........................... 1,272,875
85,500 Houghton Mifflin Company................................... 4,841,437
19,500 Premiere Radio Networks, Inc.(c)........................... 246,187
50,500 Premiere Radio Networks -- Class A(c)...................... 637,562
308,600 Steck Vaughn Publishing Corp.(c)........................... 3,394,600
------------
TOTAL MEDIA................................................ 11,227,036 2.21%
------------
MEDICAL AND OTHER HEALTH SERVICES
128,600 Advocat, Inc.(c)........................................... 932,350
46,300 Chemed Corp. .............................................. 1,689,950
69,000 Community Care of America(c)............................... 284,625
72,600 Gulf South Medical Supply, Inc.(c)......................... 1,860,375
54,400 HBO & Company.............................................. 3,230,000
33,200 Hologic, Inc.(c)........................................... 821,700
61,300 Lifeline Systems, Inc.(c).................................. 1,072,750
39,900 Living Centers Of America(c)............................... 1,107,225
138,000 Morrison Health Care, Inc. ................................ 2,035,500
2,000 Neuromedical Systems, Inc. ................................ 26,500
83,700 Omnicare, Inc. ............................................ 2,688,862
60,100 Ornda HealthCorp.(c)....................................... 1,757,925
71,600 Orthodontic Centers Of America(a)(c)....................... 1,145,600
</TABLE>
See notes to financial statements.
76
<PAGE> 78
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ ------
<C> <S> <C> <C>
MEDICAL AND OTHER HEALTH SERVICES (CONTINUED)
285,000 Owens & Minor Holding Company.............................. $ 2,921,250
4,000 Pacificare Health Systems -- Class B....................... 341,000
48,600 Physician Sales & Service(c)............................... 698,625
36,100 Quintiles Transnational Corp.(a)(c)........................ 2,391,625
45,000 Quorum Health Group, Inc.(c)............................... 1,338,750
109,600 Renal Treatment Centers, Inc.(c)........................... 2,794,800
55,200 Retirement Care Associates(c).............................. 455,400
28,000 Summit Care Corp.(c)....................................... 458,500
48,400 Sunrise Assisted Living, Inc.(c)........................... 1,349,150
27,000 Target Therapeutics, Inc.(c)............................... 1,134,000
194,400 Universal Health Services -- Class B(c).................... 5,564,700
------------
TOTAL MEDICAL AND OTHER HEALTH SERVICES.................... 38,101,162 7.51%
------------
METALS AND MINING
38,500 Furon Company.............................................. 818,125
52,200 RMI Titanium Company(a)(c)................................. 1,468,125
29,300 Wolverine Tube, Inc.(c).................................... 1,032,825
------------
TOTAL METALS AND MINING.................................... 3,319,075 0.65%
------------
OIL AND GAS
87,900 Berry Petroleum............................................ 1,263,562
64,100 Pool Energy Services(c).................................... 985,537
49,000 Pride Petroleum Services, Inc.(a)(c)....................... 1,139,250
14,800 Schlumberger, Ltd. ........................................ 1,478,150
78,900 Tosco Corp. ............................................... 6,242,962
46,400 World Fuel Services Corp. ................................. 1,032,400
------------
TOTAL OIL AND GAS.......................................... 12,141,861 2.39%
------------
PHARMACEUTICALS
56,000 Applied Analytical Industries, Inc.(c)..................... 1,071,000
66,800 Dura Pharmaceuticals, Inc.(c).............................. 3,189,700
1,059 Gensia, Inc.(c)............................................ 4,898
27,300 Jones Medical Industries, Inc. ............................ 999,863
33,400 NCS HealthCare, Inc. -- Class A(c)......................... 972,775
26,500 Parexel International Corp.(c)............................. 1,368,062
------------
TOTAL PHARMACEUTICALS...................................... 7,606,298 1.50%
------------
REAL ESTATE INVESTMENT TRUST
115,900 Equity Inns, Inc. ......................................... 1,506,700
32,800 Health Care Property Investments, Inc. .................... 1,148,000
39,000 Remedy Corp.(c)............................................ 2,096,250
</TABLE>
See notes to financial statements.
77
<PAGE> 79
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ ------
<C> <S> <C> <C>
REAL ESTATE INVESTMENT TRUST (CONTINUED)
57,800 RFS Hotel Investors, Inc. ................................. $ 1,141,550
44,500 Roc Communities, Inc. ..................................... 1,234,875
35,000 Sun Communities, Inc. ..................................... 1,207,500
------------
TOTAL REAL ESTATE INVESTMENT TRUST......................... 8,334,875 1.64%
------------
RETAIL
29,000 ACC Corp. ................................................. 877,250
86,300 American Safety Razor Company(c)........................... 1,208,200
50,750 Chicago Miniature Lamp, Inc.(c)............................ 2,106,125
139,000 Consolidated Stores Corp.(c)............................... 4,465,375
75,100 Fred's, Inc. .............................................. 647,737
175,000 MacFrugals Bargains Close-Outs(c).......................... 4,571,875
155,200 Michael Anthony Jewelers, Inc.(c).......................... 475,300
43,000 Uni-Marts, Inc. ........................................... 247,250
57,200 Vitalink Pharmacy Services(a)(c)........................... 1,315,600
11,900 Wet Seal, Inc. -- Class A(c)............................... 254,362
------------
TOTAL RETAIL............................................... 16,169,074 3.19%
------------
SECURITY SYSTEMS
32,600 ADT, Ltd.(c)............................................... 745,725
78,000 Corestaff, Inc.(c)......................................... 1,847,625
201,000 Pittston Brink's Group..................................... 5,427,000
36,700 Quantum Corp.(a)(c)........................................ 1,050,538
309,300 Sensormatic Electronics Corp.(a)........................... 5,180,775
------------
TOTAL SECURITY SYSTEMS..................................... 14,251,663 2.81%
------------
TELECOMMUNICATIONS
82,700 Aaron Rents, Inc. -- Class B............................... 982,063
47,000 Act Networks, Inc.(c)...................................... 1,715,500
7,900 American Telephone & Telegraph Corp. ...................... 343,650
11,900 Andrew Corp.(c)............................................ 631,444
69,500 Arch Communications Group, Inc.(c)......................... 651,563
76,100 Ascend Communications, Inc.(c)............................. 4,727,712
67,200 Aspect Telecommunication Corp.(c).......................... 4,267,200
6,275 Associated Group, Inc. -- Class A(c)....................... 192,956
25,675 Associated Group, Inc. -- Class B(c)....................... 763,831
19,800 Cascade Communications Corp.(c)............................ 1,091,475
15,700 Cellular Communications of Puerto Rico(c).................. 310,075
131,575 Centennial Cellular Corp. -- Class A(c).................... 1,595,347
23,500 CFW Communications Company................................. 519,938
38,100 Commnet Cellular, Inc.(c).................................. 1,062,037
</TABLE>
See notes to financial statements.
78
<PAGE> 80
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ----------- ------------ -------
<C> <S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
124,400 Communications Central, Inc.(c)............................ $ 964,100
33,500 Data Transmission Network(c)............................... 745,375
62,000 Davel Communications Group(c).............................. 1,131,500
45,600 Davox Corp.(a)(c).......................................... 1,881,000
59,200 DSP Communications, Inc.(c)................................ 1,147,000
29,700 Emmis Broadcasting Corp. -- Class A........................ 972,675
55,000 Gray Communications System................................. 1,038,125
78,100 Inter Tel, Inc.(c)......................................... 1,483,900
119,400 Jones Intercable, Inc. -- Class A(c)....................... 1,238,775
102,800 Loral Space & Communications............................... 1,888,950
65,000 Midcom Communications, Inc.(c)............................. 552,500
120,200 Nokia Corp. (ADR).......................................... 6,926,525
4,300 Osborn Communications Corp.(c)............................. 64,030
74,500 P-Com, Inc.(c)............................................. 2,207,063
72,300 Premisys Communications, Inc.(c)........................... 2,440,124
109,100 Pronet, Inc.(c)............................................ 477,312
19,800 Qualcom, Inc.(c)........................................... 789,525
47,100 Saga Communications, Inc.(c)............................... 918,450
71,000 Sitel Corp.(c)............................................. 1,002,875
29,600 Vanguard Cellular Systems, Inc. -- Class A(c).............. 466,200
66,100 Wireless Telecom Group, Inc. .............................. 684,538
------------
TOTAL TELECOMMUNICATIONS................................... 47,875,333 9.44%
------------
TOBACCO
19,800 Philip Morris Companies, Inc. ............................. 2,229,975 0.44%
------------
TRANSPORTATION
215,000 Airborne Freight Corp. .................................... 5,025,625
198,700 CNF Transportation, Inc. .................................. 4,421,075
65,000 Sea Containers, Ltd. ...................................... 1,015,625
21,900 Seacor Holdings, Inc.(c)................................... 1,379,700
------------
TOTAL TRANSPORTATION....................................... 11,842,025 2.33%
------------
UTILITIES
600,000 El Paso Electric Company(c)................................ 3,900,000 0.77%
------------ ------
Total Common Stock (Cost $392,527,734)..................... 470,186,517 92.69%
------------ ------
REGULATED INVESTMENT COMPANY
MONEY MARKET FUND
22,801,372 Merrimac Cash Fund -- Premium Class (Cost
$22,801,372)(b).......................................... 22,801,372 4.49%
------------
</TABLE>
See notes to financial statements.
79
<PAGE> 81
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ----------- ------------ -------
<C> <S> <C> <C>
TIME DEPOSITS
$ 7,491,678 First National Bank of Boston, 7.10%, 01/02/97(b).......... $ 7,493,636
5,000,000 Harris Trust & Savings Bank, 6.50%, 01/02/97(b)............ 5,001,252
19,000,000 Republic New York Securities Corp., 7.15%, 07/15/97(b)..... 19,004,756
------------
TOTAL TIME DEPOSITS (Cost $31,499,644)..................... 31,499,644 6.21%
------------ -------
TOTAL SECURITIES (Cost $446,828,750)....................... 524,487,533 103.39%
------------ -------
REPURCHASE AGREEMENTS
23,538,299 With Investor's Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $23,546,027, 01/02/97
(Collateralized by various United States Government
Agency Obligations, 6.50% -- 7.99%, due 05/20/22 to
02/20/26, with a total value of $24,715,268) (Cost
$23,542,163)............................................. 23,542,163
12,756,338 With Investor's Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $12,760,526, 01/02/97
(Collateralized by Federal Home Loan Mortgage
Corporation, 8.21%, due 11/01/23 with a value of
$4,975,533 and Federal National Mortgage Association,
6.46%, due 01/25/25 with a value of $8,419,058) (Cost
$12,758,432)............................................. 12,758,432
4,016,318 With Investor's Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $4,017,636 01/02/97
(Collateralized by Federal National Mortgage Association,
6.91%, due 07/01/18 with a value of $4,217,753) (Cost
$4,016,977).............................................. 4,016,977
4,508,214 With Investor's Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $4,509,694 01/02/97
(Collateralized by Federal Home Loan Mortgage
Corporation, 7.41%, due 04/01/24 with a value of
$4,733,999) (Cost $4,508,954)............................ 4,508,954
------------
TOTAL REPURCHASE AGREEMENTS (Cost $44,826,526)............. 44,826,526 8.84%
------------ -------
Total Investments (Cost $491,655,276)...................... 569,314,059 112.23%
Other assets less liabilities.............................. (62,049,816) (12.23)%
------------ -------
NET ASSETS................................................. $507,264,243 100.00%
=========== ======
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31, 1996 is $494,020,516.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<C> <S> <C> <C>
Gross unrealized appreciation.............................. $ 94,819,037
Gross unrealized depreciation.............................. (19,525,494)
------------
Net unrealized appreciation................................ $ 75,293,543
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing security.
(ADR) -- American Depository Receipt
See notes to financial statements.
80
<PAGE> 82
AGGRESSIVE EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ---------- ----------- -------
<C> <S> <C> <C>
COMMON STOCK
BUILDING AND CONSTRUCTION
15,500 Eagle Hardware & Garden, Inc.(c)............................. $ 321,624 2.08%
----------
COMPUTERS AND OFFICE EQUIPMENT
9,000 Dell Computer Corp.(c)....................................... 478,125
7,300 Dynatech Corp.(c)............................................ 323,025
10,000 EMC Corp. ................................................... 331,250
11,400 Encad, Inc.(c)............................................... 470,250
20,000 Innovex, Inc. ............................................... 540,000
3,000 Intel Corp. ................................................. 392,813
3,000 Microsoft Corp.(c)........................................... 247,875
24,800 Siebel Systems, Inc.(c)...................................... 669,600
15,000 Sun Microsystems, Inc.(c).................................... 385,313
13,700 Tech Data Corp. ............................................. 375,038
7,000 Western Digital(c)........................................... 398,125
----------
TOTAL COMPUTERS AND OFFICE EQUIPMENT......................... 4,611,414 29.79%
----------
COMPUTER SOFTWARE AND SERVICES
8,000 3Com Corp.(c)................................................ 587,000
5,000 BMC Software, Inc.(c)........................................ 206,875
24,100 Chips & Tech, Inc.(c)........................................ 439,825
6,300 Compaq Computer(c)........................................... 467,775
10,000 Compuware Corp.(c)........................................... 501,250
4,000 Electronics for Imaging(c)................................... 329,000
6,000 McAfee Associates, Inc.(c)................................... 264,000
4,000 Parametric Technology Corp.(c)............................... 205,500
10,300 Scopus Technology, Inc.(c)................................... 478,950
----------
TOTAL COMPUTER SOFTWARE AND SERVICES......................... 3,480,175 22.48%
----------
ELECTRICAL EQUIPMENT
15,900 American Power Conversion Corp.(c)........................... 433,275
7,800 Microchip Technology, Inc.(c)................................ 396,825
8,000 Sanmina Corp.(c)............................................. 452,000
----------
TOTAL ELECTRICAL EQUIPMENT................................... 1,282,100 8.28%
----------
FINANCE
6,700 Student Loan Marketing Association........................... 623,938 4.03%
----------
MEDICAL AND OTHER HEALTH SERVICES
10,000 Jones Medical Industries, Inc. .............................. 366,250
40,000 Molecular Dynamics, Inc. .................................... 430,000
----------
TOTAL MEDICAL AND OTHER HEALTH SERVICES...................... 796,250 5.14%
----------
</TABLE>
See notes to financial statements.
81
<PAGE> 83
AGGRESSIVE EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS
- ---------- ---------- -----
<C> <S> <C> <C>
TECHNOLOGY
17,100 Boston Technology............................................ $ 491,625 3.18%
----------
TELECOMMUNICATIONS
15,000 ADC Telecommunications, Inc.(c).............................. 466,874
6,500 Ascend Communications, Inc.(c)............................... 403,813
15,000 Brightpoint, Inc.(c)......................................... 446,250
5,000 Cascade Communications Corp.(c).............................. 275,625
7,000 Cisco Systems, Inc.(c)....................................... 445,375
13,700 Digital Microwave Corp.(c)................................... 381,887
12,000 Pairgain Technologies, Inc.(c)............................... 365,250
10,800 Tellabs, Inc.(c)............................................. 406,350
----------
TOTAL TELECOMMUNICATIONS..................................... 3,191,424 20.62%
---------- -----
TOTAL SECURITIES (Cost $14,563,091).......................... 14,798,550 95.60%
---------- -----
PRINCIPAL
- ----------
REPURCHASE AGREEMENT
$1,393,369 With Investors Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $1,393,826, 01/02/97
(Collateralized by Federal National Mortgage Association,
6.55%, due 07/01/18 with a value of $1,463,118) (Cost
$1,393,598)................................................ 1,393,598 9.01%
---------- -----
Total Investments (Cost $15,956,689)......................... 16,192,148 104.61%
Other assets less liabilities................................ (713,018) (4.61)%
---------- -----
NET ASSETS................................................... $15,479,130 100.00%
========== =====
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31, 1996 is $15,956,689.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<C> <S> <C> <C>
Gross unrealized appreciation................................ $ 889,406
Gross unrealized depreciation................................ (653,947)
-----------
Net unrealized appreciation.................................. $ 235,459
==========
</TABLE>
- ---------------
(c) Non-income producing security
See notes to financial statements.
82
<PAGE> 84
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ---------- ----------- -------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES
AEROSPACE
$ 250,000 BE Aerospace, 9.75%, 03/01/03................................ $ 261,875 1.70%
-----------
AUTOMOTIVE PRODUCTS
225,000 Speedy Muffler King, Inc., 10.875%, 10/01/06................. 241,313 1.57%
-----------
APPAREL
300,000 William Carter, 10.375%, 12/01/06............................ 310,500 2.02%
-----------
BUSINESS SERVICES
180,000 Iron Mountain, 10.125%, 10/01/06............................. 190,800 1.24%
-----------
CHEMICAL
150,000 Collins & Aikman Products, 11.50%, 04/15/06.................. 163,313
80,000 Foamex Limited Partnership, 11.25%, 10/01/02................. 85,200
240,000 General Chemical, Inc., 9.25%, 08/15/03...................... 245,400
-----------
TOTAL CHEMICAL............................................... 493,913 3.22%
-----------
CONSTRUCTION
120,000 Toll Corp., 10.50%, 03/15/02................................. 124,200 0.81%
-----------
CONSUMER GOODS AND SERVICES
175,000 Purina Mills, 10.25%, 09/01/03............................... 180,687 1.18%
-----------
ELECTRONICS
100,000 Calpine Corp., 9.25%, 02/01/04............................... 99,875 0.65%
-----------
ENVIRONMENTAL MANAGEMENT
350,000 Allied Waste North America, 10.25%, 12/01/06................. 367,063 2.39%
-----------
FINANCE
320,000 Comcast Corp., 9.125%, 10/15/06.............................. 327,200
210,000 Costilla Energy, 10.25%, 10/01/06............................ 220,763
300,000 Hawk Corp., 10.25%, 12/01/03................................. 307,500
130,000 ISP Holdings, Inc., 9.75%, 02/15/02.......................... 135,525
400,000 Mesa Operating, 11.625%, 07/01/06............................ 276,000
205,000 Muzak LP/Capital, 10.00%, 10/01/03........................... 209,612
100,000 Primark Corp., 8.75%, 10/15/00............................... 101,000
150,000 Rayovac Corp., 10.25%, 11/01/06.............................. 153,750
-----------
TOTAL FINANCE................................................ 1,731,350 11.26%
-----------
FOOD AND BEVERAGE
250,000 Ameriking, Inc., 10.75%, 12/01/06............................ 258,750
100,000 Cott Corp., 9.375%, 07/01/05................................. 102,500
160,000 Jitney-Jungle Stores, 12.00%, 03/01/06....................... 169,600
</TABLE>
See notes to financial statements.
83
<PAGE> 85
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ---------- ----------- -------
<C> <S> <C> <C>
FOOD AND BEVERAGE (CONTINUED)
$ 150,000 Ralphs Grocery, 10.45%, 06/15/04............................. $ 159,375
120,000 Smith Food & Drug, 11.25%, 05/15/07.......................... 132,600
-----------
TOTAL FOOD AND BEVERAGE...................................... 822,825 5.35%
-----------
FOREST AND PAPER PRODUCTS
125,000 Repap New Brunswick, 9.875%, 07/15/00........................ 128,125
150,000 Scotts Company, 9.875%, 08/01/04............................. 156,750
-----------
TOTAL FOREST AND PAPER PRODUCTS.............................. 284,875 1.85%
-----------
INDUSTRIAL
200,000 Bell & Howell Company, 0.00%, 03/01/05....................... 145,500
300,000 Clark Materials, 10.75%, 11/15/06............................ 312,000
180,000 Oregon Steel Mills, 11.00%, 06/15/03......................... 191,250
140,000 Riverwood International, 10.25%, 04/01/06.................... 137,900
100,000 Schuller International Group, 10.875%, 12/15/04.............. 111,375
100,000 Teekay Shipping, 8.32%, 02/01/08............................. 99,625
280,000 Westpoint Stevens, 9.375%, 12/15/05.......................... 288,400
-----------
TOTAL INDUSTRIAL............................................. 1,286,050 8.37%
-----------
LEISURE AND RECREATION
200,000 Act III Theatres, 11.875%, 02/01/03.......................... 216,000
100,000 Host Marriott Travel Plaza, 9.50%, 05/15/05.................. 104,375
250,000 Trump Atlantic City, 11.25%, 05/01/06........................ 247,500
-----------
TOTAL LEISURE AND RECREATION................................. 567,875 3.69%
-----------
MACHINERY
100,000 Carrols Corp., 11.50%, 08/15/03.............................. 105,750
80,000 Clark USA, Inc., 10.875%, 12/01/05........................... 82,200
150,000 Mettler Toledo, 9.75%, 10/01/06.............................. 157,500
175,000 Scotsman Group, 9.50%, 12/15/00.............................. 180,687
-----------
TOTAL MACHINERY.............................................. 526,137 3.42%
-----------
MANUFACTURING
150,000 American Standard Senior Notes, 10.875%, 05/15/99............ 160,125
225,000 Buckeye Cellulose Corp., 8.50%, 12/05/05..................... 225,562
75,000 IDEX Corp., 9.75%, 09/15/02.................................. 78,750
190,000 Unisys Corp., 12.00%, 04/15/03............................... 203,300
250,000 Viking Star Ship, 9.625%, 07/15/03........................... 261,250
100,000 Westinghouse Air, 9.375%, 06/15/05........................... 102,500
-----------
TOTAL MANUFACTURING.......................................... 1,031,487 6.71%
-----------
MEDIA
100,000 ARA Group, 8.50%, 06/01/03................................... 104,182
</TABLE>
See notes to financial statements.
84
<PAGE> 86
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ---------- ----------- -------
<C> <S> <C> <C>
MEDIA (CONTINUED)
$ 200,000 Infinity Broadcasting, 10.375%, 03/15/02..................... $ 212,000
50,000 Jones Intercable, 9.625%, 03/15/02........................... 52,500
125,000 Rogers Cablesystems, Ltd., 11.00%, 12/01/15.................. 134,062
190,000 Rogers Cantel, 9.375%, 06/01/08.............................. 199,025
250,000 Viacom International, 8.00%, 07/07/06........................ 239,206
-----------
TOTAL MEDIA.................................................. 940,975 6.12%
-----------
MEDICAL AND OTHER HEALTH SERVICES
150,000 NL Industries, Inc., 11.75%, 10/15/03........................ 158,625
210,000 Owens & Minor, Inc., 10.875%, 06/01/06....................... 225,750
120,000 Quorum Health, 8.75%, 11/01/05............................... 123,150
-----------
TOTAL MEDICAL AND OTHER HEALTH SERVICES...................... 507,525 3.30%
-----------
METALS AND MINING
250,000 Freeport McMoran Resource Partners, 8.75%, 02/15/04.......... 259,756
180,000 Renco Metals Senior Notes, 11.50%, 07/01/03.................. 188,550
-----------
TOTAL METALS AND MINING...................................... 448,306 2.92%
-----------
OIL AND GAS
175,000 Gulf Canada Resources, Ltd., 9.25%, 01/15/04................. 185,500
230,000 Vintage Petroleum Senior Subordinated Notes, 9.00%,
12/15/05................................................... 235,750
-----------
TOTAL OIL AND GAS............................................ 421,250 2.74%
-----------
PUBLISHING
210,000 Hollinger International Publishing, 9.25%, 02/01/06.......... 207,900 1.35%
-----------
RETAIL
175,000 Finlay Fine Jewelry, 10.625%, 05/01/03....................... 182,875 1.19%
-----------
TELECOMMUNICATIONS
200,000 Allbritton Communications, 11.50%, 08/15/04.................. 211,000
250,000 Century Communications, 9.75%, 02/15/02...................... 257,500
200,000 Essex Group, 10.00%, 05/01/03................................ 207,500
250,000 Gray Communication System, Inc., 10.625%, 10/01/06........... 264,375
275,000 Jacor Communications, 9.75%, 12/15/06........................ 280,844
100,000 Lenfest Communications, 8.375%, 11/01/05..................... 96,625
50,000 Lenfest Communications, 10.50%, 06/15/06..................... 52,750
-----------
TOTAL TELECOMMUNICATIONS..................................... 1,370,594 8.92%
-----------
TRANSPORTATION
200,000 Sea Containers, 9.50%, 07/01/03.............................. 201,500 1.31%
-----------
UTILITIES -- ELECTRIC
200,000 California Energy Company, Inc., 9.875%, 6/30/03............. 211,000
</TABLE>
See notes to financial statements.
85
<PAGE> 87
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS
- ---------- ----------- -------
<C> <S> <C> <C>
UTILITIES -- ELECTRIC (CONTINUED)
$ 200,000 El Paso Electric Company, 8.90%, 02/01/06.................... $ 211,000
110,000 El Paso Electric Company, 9.40%, 05/01/11.................... 117,700
-----------
TOTAL UTILITIES -- ELECTRIC.................................. 539,700 3.51%
----------- -------
TOTAL SECURITIES (Cost $12,969,120).......................... 13,341,450 86.79%
----------- -------
REPURCHASE AGREEMENT
1,751,164 With Investors Bank & Trust, dated 12/31/96, 5.91%,
repurchase proceeds at maturity $1,751,739, 01/02/97
(Collateralized by Federal Home Loan Mortgage Corporation
6.84%, due 11/15/23, with a value of $1,843,413) (Cost
$1,751,451)................................................ 1,751,451 11.39%
----------- -------
Total Investments (Cost $14,720,571)......................... 15,092,901 98.18%
Other assets less liabilities................................ 279,785 1.82%
----------- -------
NET ASSETS................................................... $15,372,686 100.00%
=========== =======
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31, 1996 is $14,720,571.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<C> <S> <C> <C>
Gross unrealized appreciation................................ $ 397,366
Gross unrealized depreciation................................ (25,036)
-----------
Net unrealized appreciation.................................. $ 372,330
==========
</TABLE>
See notes to financial statements.
86
<PAGE> 88
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS COUNTRY
---------- ------------ -------- -------
<C> <S> <C> <C> <C>
COMMON STOCKS AND WARRANTS
AEROSPACE
99,400 CAE Industries.................................... $ 750,579 0.51% CDA
AUTOMOBILE
17,000 Daimler Benz AG(c)................................ 1,169,287 GER
50,000 Honda Motor Company, Ltd.......................... 1,425,860 JPN
67,000 Mitsubishi Motor Corp............................. 487,760 JPN
10,000 Peugeot SA(c)..................................... 1,123,349 FRA
131,000 Suzuki Motor Corp................................. 1,196,344 JPN
47,000 Toyota Motor Company.............................. 1,348,406 JPN
20,063 Valeo............................................. 1,234,946 FRA
2,400 Volkswagen AG..................................... 996,685 GER
25,000 Volvo Aktiebolag.................................. 551,038 SWE
-------------
TOTAL AUTOMOBILE.................................. 9,533,675 6.43%
-------------
BANKS
137,900 Allied Irish Banks PLC............................ 920,345 UK
15,000 Banco de Santander (ADR).......................... 952,500 SPA
2,000 Banco Popular Espanola............................ 392,081 SPA
19,000 Bangkok Bank Company, Ltd......................... 183,774 THA
330,000 Bank of Scotland.................................. 1,739,364 UK
21,000 Compagnie Financierede Suez(c).................... 891,099 FRA
11,000 CS Holdings....................................... 1,126,443 SWI
1,860 Holderbank Financial Glaris -- Class B............ 1,324,295 SWI
50,515 National Westminster Bank......................... 593,021 UK
27,500 Overseas Chinese Banking Corp..................... 342,073 SIN
101,800 Thai Farmers Bank(c).............................. 635,252 THA
23,000 The Bank of Tokyo Mitsubishi...................... 426,036 JPN
196,000 Westpac Banking Corp.............................. 1,114,613 AUS
-------------
TOTAL BANKS....................................... 10,640,896 7.18%
-------------
CHEMICALS
32,000 AGA AB -- Class B................................. 478,029 SWE
20,000 Norsk Hydro....................................... 1,080,592 NOR
-------------
TOTAL CHEMICALS................................... 1,558,621 1.05%
-------------
COMPUTER SOFTWARE AND SERVICES
7,000 Softbank Corp..................................... 493,925 0.33% JPN
-------------
CONSTRUCTION
22,000 Rohm Company...................................... 1,440,509 JPN
89,000 Sekisui House, Ltd.(c)............................ 904,792 JPN
-------------
TOTAL CONSTRUCTION................................ 2,345,301 1.58%
-------------
</TABLE>
See notes to financial statements.
87
<PAGE> 89
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS COUNTRY
---------- ------------- ------
<C> <S> <C> <C> <C>
CONSUMER GOODS AND SERVICES
17,000 Electrolux........................................ $ 985,935 SWE
20,482 EMI Group PLC..................................... 483,613 UK
32,000 Fuji Photo Film................................... 1,053,155 JPN
12,700 Hennes & Mauritz AB -- Class B.................... 1,755,822 SWE
33,000 Hoya Corp.(c)..................................... 1,293,613 JPN
24,000 Izumi............................................. 334,968 JPN
99,000 Nikon Corp........................................ 1,228,224 JPN
22,200 Nintendo Corp., Ltd............................... 1,585,577 JPN
73,203 Reckitt and Colman PLC............................ 905,711 UK
2,000 Secom Company, Ltd................................ 120,789 JPN
15,700 Sony Corp......................................... 1,026,647 JPN
175,346 Thorn PLC(c)...................................... 759,161 UK
-------------
TOTAL CONSUMER GOODS AND SERVICES................. 11,533,215 7.78%
-------------
ELECTRONICS
750 ABB AG............................................ 930,014 SWI
25,200 Bombardier, Inc. -- Class B....................... 465,149 CDA
80,000 Electrocomponents PLC............................. 631,120 UK
50,000 Hitachi Ltd....................................... 465,235 JPN
24,000 Komori Corp....................................... 508,658 JPN
12,000 Kyocera Corp...................................... 746,446 JPN
17,000 Murata Manufacturing Company, Ltd................. 563,883 JPN
28,000 Talisman Energy, Inc.(c).......................... 931,524 CDA
-------------
TOTAL ELECTRONICS................................. 5,242,029 3.54%
-------------
ENGINEERING
17,000 Chudenko Corp..................................... 489,186 0.33% JPN
-------------
ENVIRONMENTAL MANAGEMENT SERVICES
900 Kurita Water Industries........................... 18,144 0.01% JPN
-------------
FINANCE
62,600 HSBC Holdings PLC................................. 1,398,008 UK
55,953 Lend Lease Corp., Ltd............................. 1,084,358 AUS
130,000 Lloyds TSB Group PLC(c)........................... 958,841 UK
24,000 Nomura Securities Company, Ltd.................... 359,782 JPN
6,000 Shohkoh Fund...................................... 1,302,662 JPN
84,000 Wako Securities Company, Ltd...................... 434,213 JPN
-------------
TOTAL FINANCE..................................... 5,537,864 3.74%
-------------
FOOD AND BEVERAGE
98,000 Amatil Ltd., Coca Cola............................ 1,046,905 AUS
80,000 Cadbury Schweppes PLC............................. 674,936 UK
6,300 Heineken NV....................................... 1,113,776 NET
</TABLE>
See notes to financial statements.
88
<PAGE> 90
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS COUNTRY
---------- ------------- ------
<C> <S> <C> <C> <C>
FOOD AND BEVERAGE (CONTINUED)
45,000 Jusco Company..................................... $ 1,523,646 JPN
45,600 Lion Nathan....................................... 109,217 NZE
900 Nestle............................................ 963,193 SWI
21,000 Seagrams Company, Ltd............................. 813,750 CDA
-------------
TOTAL FOOD AND BEVERAGE........................... 6,245,423 4.22%
-------------
INDUSTRIAL
31,200 Advantest Corp.................................... 1,459,602 JPN
43,000 Alcan Aluminum, Ltd............................... 1,445,875 CDA
107,000 Kawasaki Steel.................................... 306,972 JPN
60,000 Reed International, Ltd.(c)....................... 1,127,400 UK
230,000 Western Mining Corp. Holding, Ltd................. 1,448,632 AUS
-------------
TOTAL INDUSTRIAL.................................. 5,788,481 3.91%
-------------
INSURANCE
161,210 Alleanza Assicuraz................................ 805,776 ITA
277,073 GIO Australian Holdings, Ltd...................... 708,586 AUS
12,000 Mapfre Vida Seguros............................... 830,290 SPA
62,000 Mitsui Marine & Fire Insurance.................... 332,779 JPN
78,000 Siebe PLC......................................... 1,446,931 UK
145,000 Yasuda Fire and Marine Insurance.................. 752,043 JPN
-------------
TOTAL INSURANCE................................... 4,876,405 3.29%
-------------
INVESTMENT HOLDING COMPANIES
395 Baloise Holdings.................................. 791,340 SWI
477,000 Brierley Investments, Ltd......................... 441,464 NZE
184,000 Hutchison Whampoa................................. 1,445,118 HNG
416,000 Sime Darby Berhad................................. 1,638,957 MAL
-------------
TOTAL INVESTMENT HOLDING COMPANIES................ 4,316,879 2.91%
-------------
LEISURE AND RECREATION
162,000 Euro Disneyland SCA(c)............................ 320,954 FRA
129,200 San Miquel Corp. -- Class B....................... 569,850 PHI
-------------
TOTAL LEISURE AND RECREATION...................... 890,804 0.60%
-------------
MANUFACTURING
16,600 ABB AB -- Class A................................. 1,871,990 SWE
19,800 ASM Lithography Holding NV(c)..................... 986,288 NET
8,400 Mannesmann AG..................................... 3,635,563 GER
151,000 Mitsubishi Heavy.................................. 1,196,856 JPN
99,000 Morgan Crucible Company PLC....................... 740,352 UK
10,600 Orkla Borregaard.................................. 672,317 NOR
</TABLE>
See notes to financial statements.
89
<PAGE> 91
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS COUNTRY
---------- ------------- ------
<C> <S> <C> <C> <C>
MANUFACTURING (CONTINUED)
30,800 Philips Electronics NV............................ $ 1,246,430 NET
24,600 Philips Electronics NV (ADR)...................... 984,000 NET
-------------
TOTAL MANUFACTURING............................... 11,333,796 7.65%
-------------
MEDIA
115,000 British Sky Broadcasting PLC...................... 1,027,284 UK
2,037 Canal Plus(c)..................................... 449,032 FRA
17,100 Grupo Televisa (GDR)(c)........................... 438,188 MEX
69,440 News Corp., Ltd................................... 366,213 AUS
30,000 News Corp., Ltd. (ADR)............................ 626,250 AUS
53,000 Rogers Communications -- Class B(c)............... 390,541 CDA
49,000 Singapore Press Holdings, Ltd..................... 966,814 SIN
100,000 Television Broadcasts, Ltd........................ 399,480 HNG
111,000 Thomson Corp...................................... 2,441,385 CDA
35,000 Tokyo Broadcasting................................ 533,729 JPN
-------------
TOTAL MEDIA....................................... 7,638,916 5.15%
-------------
MEDICAL AND OTHER HEALTH SERVICES
7,400 Synthelabo(c)..................................... 798,539 0.54% FRA
-------------
METALS AND MINING
46,000 Inco, Ltd......................................... 1,466,250 CDA
29,863 Pechiney SA -- Class A............................ 1,248,805 FRA
216,000 Placer Pacific, Ltd............................... 319,097 AUS
-------------
TOTAL METALS AND MINING........................... 3,034,152 2.05%
-------------
OIL AND GAS
98,000 British Gas Corp.................................. 375,663 UK
17,200 Societe Nationale ELF-Aquitaine................... 1,562,601 FRA
20,000 Suncor, Inc....................................... 827,500 CDA
15,000 YPF Sociedad Anonima -- (ADR)..................... 378,750 ARG
-------------
TOTAL OIL AND GAS................................. 3,144,514 2.12%
-------------
PHARMACEUTICALS
59,000 Astra AB.......................................... 2,911,969 SWE
8,000 Astra AB -- A Shares (ADR)(c)..................... 392,000 SWE
52,000 Banyu Pharmaceutical Company...................... 725,764 JPN
20,000 Hoechst AG........................................ 943,476 GER
3,600 Hoechst AG Warrant, (Expires: 3/19/99)............ 270,039 GER
1,275 Novartis AG....................................... 1,455,681 SWI
76,000 Sankyo Company, Ltd............................... 2,147,669 JPN
</TABLE>
See notes to financial statements.
90
<PAGE> 92
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS COUNTRY
---------- ------------- ------
<C> <S> <C> <C> <C>
PHARMACEUTICALS (CONTINUED)
600 Zeneca Group PLC (ADR)............................ $ 50,400 UK
50,800 Zeneca Group PLC.................................. 1,430,061 UK
-------------
TOTAL PHARMACEUTICALS............................. 10,327,059 6.97%
-------------
REAL ESTATE
62,000 City Developments................................. 558,465 SIN
103,000 Mitsui Fudosan.................................... 1,029,372 JPN
-------------
TOTAL REAL ESTATE................................. 1,587,837 1.07%
-------------
TELECOMMUNICATIONS
86,000 Cable & Wireless.................................. 718,195 UK
84 DDI Corp.......................................... 554,355 JPN
12,200 Deutsche Telekom AG(c)............................ 256,886 GER
50,000 Ericsson AB -- Class B Free....................... 1,545,100 SWE
20,000 Ericsson L M Telephone (ADR)...................... 603,750 SWE
790,000 Hong Kong Telecommunications, Ltd................. 1,271,505 HNG
800 Hong Kong Telecommunications, Ltd. (ADR).......... 13,000 HNG
23,800 Nokia AB -- Class A............................... 1,377,701 FIN
8,300 Nokia AB -- Class K............................... 479,018 FIN
15,000 Northern Telecom, Ltd............................. 928,125 CDA
22,300 Portugal Telecom SA (ADR)......................... 629,975 POR
350,000 Technology Resources Industries................... 690,130 MAL
456,000 Telecom Italia Mobile............................. 1,150,077 ITA
253,000 Telecom Italia Mobile DRNC........................ 360,221 ITA
18,500 Telecomunicacoes Brasileiras (ADR)................ 1,424,319 BRA
79,000 Telefonica........................................ 1,831,133 SPA
40,600 Telefonos De Mexico (ADR)......................... 1,339,800 MEX
23,000 Vodafone Group PLC (ADR).......................... 951,625 UK
-------------
TOTAL TELECOMMUNICATIONS.......................... 16,124,915 10.88%
-------------
TEXTILES
74,000 Italcenenti Fabbriche Riunit...................... 413,675 ITA
28,000 Wacoal Corp....................................... 308,778 JPN
-------------
TOTAL TEXTILES.................................... 722,453 0.49%
-------------
TIRE AND RUBBER
58,000 Bridgestone Corp.................................. 1,099,332 0.74% JPN
-------------
TOBACCO
74,100 B.A.T. Industries................................. 613,741 UK
47,000 Imasco, Ltd....................................... 1,152,149 CDA
-------------
TOTAL TOBACCO..................................... 1,765,890 1.19%
-------------
</TABLE>
See notes to financial statements.
91
<PAGE> 93
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
SHARES VALUE ASSETS COUNTRY
---------- ------------- ------
<C> <S> <C> <C> <C>
TRANSPORTATION
50,000 Brambles Industries, Ltd.......................... $ 974,945 AUS
189,000 Citic Pacific, Ltd................................ 1,097,088 HNG
122,000 Kawasaki Kisen.................................... 277,476 JPN
1,400 Swissair.......................................... 1,129,199 SWI
-------------
TOTAL TRANSPORTATION.............................. 3,478,708 2.35%
-------------
UTILITIES
336,200 Consolidated Electric Power Asia.................. 788,859 HNG
228,000 Hong Kong Electric................................ 757,530 HNG
79 Nippon Telegraph and Telephone Corp............... 597,587 JPN
300 Tele Danmark -- Class B........................... 16,528 DEN
34,600 Tele Danmark (ADR)................................ 942,850 DEN
550,000 Telicom Italia Spa(c)............................. 1,425,158 ITA
-------------
TOTAL UTILITIES................................... 4,528,512 3.06%
-------------
TOTAL COMMON STOCK AND WARRANTS
(Cost $123,595,817)............................. 135,846,050 91.67%
------------- ------
PREFERRED STOCKS
COMPUTER SOFTWARE AND SERVICES
4,900 Sap AG Vorzug..................................... 683,598 0.46% GER
-------------
PHARMACEUTICALS
200 Wella AG.......................................... 105,898 0.07% GER
-------------
TOTAL PREFERRED STOCKS (Cost $919,409)............ 789,496 0.53%
------------- ------
PRINCIPAL
----------
CORPORATE BONDS AND NOTES
NON-CONVERTIBLE BONDS AND NOTES
BANKS
$ 243,000 Bangkok Bank Public Company, 3.25%, 03/03/04...... 237,836 0.16% THA
-------------
CONSTRUCTION
150,830 Sekisui House 2.50%, 01/31/02..................... 162,825 0.11% JPN
-------------
TOTAL NON-CONVERTIBLE BONDS AND NOTES............. 400,661 0.27%
------------- ------
CONVERTIBLE BONDS AND NOTES
BANKS
136,661 Fujitsu Ltd. Series 8, 1.90%, 03/29/03............ 145,125 JPN
266,387 Fujitsu Ltd. Series 9, 1.95%, 03/31/03............ 282,576 JPN
192,638 Fujitsu Ltd. Series 10, 2.00%, 03/31/04........... 202,629 JPN
390,000 Renong Berhad, 2.50% 01/15/05..................... 453,863 MAL
-------------
1,084,193 0.73%
-------------
</TABLE>
See notes to financial statements.
92
<PAGE> 94
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
OF NET
PRINCIPAL VALUE ASSETS COUNTRY
---------- ------------ -------- -------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS
$ 2,000 Ericsson L M Tel, 4.25%, 06/30/00................. $ 8,375 0.01% SWE
-------------
TIRE AND RUBBER
270,976 Michelin CV, 6.00% 01/02/98....................... 283,746 0.19% FRA
-------------
TOTAL CONVERTIBLE BONDS AND NOTES................. 1,376,314 0.93%
------------- ------
TOTAL CORPORATE BONDS AND NOTES (Cost
$1,825,460)..................................... 1,776,975 1.20%
------------- ------
TOTAL SECURITIES (Cost $126,340,686).............. 138,412,521 93.40%
------------- ------
REPURCHASE AGREEMENT
With Investors Bank & Trust, dated 12/31/96,
5.91%, repurchase proceeds at maturity
$8,713,094, 01/02/97 (Collateralized by the
Federal Home Loan Mortgage Corp., 7.10%, due
05/25/23 with a value of $8,471,741 and Federal
National Mortgage Association, 6.77%, due
11/25/22 with a value of $677,555) (Cost
$8,711,664)..................................... 8,711,664 5.88% USA
8,710,234
------------- ------
Total Investments (Cost $135,052,350)............. 147,124,185 99.28%
Other assets less liabilities..................... 1,060,712 0.72%
------------- ------
NET ASSETS........................................ $148,184,897 100.00%
============= ======
</TABLE>
The aggregate cost of investments for federal income tax purposes at
December 31, 1996 is $135,240,256.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<C> <S> <C> <C> <C>
Gross unrealized appreciation..................... $ 18,055,498
Gross unrealized depreciation..................... (6,171,569)
------------
Net unrealized appreciation....................... $ 11,883,929
===========
</TABLE>
- ---------------
(c) Non-income producing security
(ADR) -- American Depository Receipt
(GDR) -- Global Depository Receipt
See notes to financial statements.
93
<PAGE> 95
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT OF TOTAL
COUNTRY COMPOSITION SECURITIES AT VALUE
- ---------------------------------------------------------------------------- -------------------
<S> <C>
Argentina (ARG)............................................................. 0.27%
Australia (AUS)............................................................. 5.56%
Brazil (BRA)................................................................ 1.03%
Canada (CDA)................................................................ 8.39%
Denmark (DEN)............................................................... 0.69%
Finland (FIN)............................................................... 1.34%
France (FRA)................................................................ 5.72%
Germany (GER)............................................................... 5.82%
Hong Kong (HNG)............................................................. 4.17%
Italy (ITA)................................................................. 3.00%
Japan (JPN)................................................................. 23.77%
Malaysia (MAL).............................................................. 2.01%
Mexico (MEX)................................................................ 1.28%
Netherlands (NET)........................................................... 3.13%
New Zealand (NZE)........................................................... 0.40%
Norway (NOR)................................................................ 1.27%
Philippines (PHI)........................................................... 0.41%
Portugal (POR).............................................................. 0.46%
Singapore (SIN)............................................................. 1.35%
Spain (SPA)................................................................. 2.89%
Sweden (SWE)................................................................ 8.02%
Switzerland (SWI)........................................................... 5.58%
Thailand (THA).............................................................. 0.76%
United Kingdom (UK)......................................................... 12.68%
------
TOTAL PERCENTAGE............................................................ 100.00%
======
</TABLE>
See notes to financial statements.
94
<PAGE> 96
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Diversified Investors Portfolios (the "Series Portfolio"), a series trust
organized on September 1, 1993, under the laws of the State of New York, is
composed of thirteen different series that are, in effect, separate investment
funds: the Money Market Series, the High Quality Bond Series, the Intermediate
Government Bond Series, the Government/Corporate Bond Series, the Balanced
Series, the Equity Income Series, the Equity Value Series, the Growth & Income
Series, the Equity Growth Series, the Special Equity Series, the Aggressive
Equity Series, the High-Yield Bond Series, and the International Equity Series
(each a "Series"). The Declaration of Trust permits the Board of Trustees to
issue an unlimited number of beneficial interests in each Series. Investors in a
Series (e.g., investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
that Series (and of no other Series). The High-Yield Bond Series and
International Equity Series commenced operations on August 22, 1995 and
September 29, 1995, respectively. The Equity Value Series and Aggressive Value
Series commenced operations on April 19, 1996.
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 was 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 bid price on the NASDAQ system for unlisted national market issues, or
at the last quoted bid price for securities not reported on the NASDAQ
system. Bonds are valued at the last available price provided by an
independent pricing service for securities traded on a national securities
exchange. Bonds that are listed on a national securities exchange but are
not traded and bonds that are regularly traded in the over-the-counter
market are valued at the mean of the last available bid and asked prices by
an independent pricing service. All other securities will be valued at
their fair value as determined by the Board of Trustees.
B. REPURCHASE AGREEMENTS
Each Series, along with other affiliated entities of the investment
advisor, may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Series investment advisor, subject to the
seller's agreement to repurchase and the Series agreement to resell such
securities at a mutually agreed upon price. Securities purchased subject to
repurchase agreements are segregated at the custodian, and pursuant to the
terms of the repurchase agreement must have an aggregate market value
greater than or equal to 102% and 105% of domestic and international
securities, respectively, of the repurchase price plus accrued interest at
all times. If the value of the underlying securities falls below the value
of the repurchase price plus accrued interest, the Series will require the
seller to deposit additional collateral by the next business day. If the
request for additional collateral is not met or the seller defaults on its
repurchase obligation, the Series maintains the right to sell the
underlying securities at market
95
<PAGE> 97
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
B. REPURCHASE AGREEMENTS (CONTINUED)
value and may claim any resulting loss against the seller. However, in the
event of default or bankruptcy by the seller, realization and/or retention
of the collateral may be subject to legal proceedings.
C. FOREIGN CURRENCY TRANSLATION
The accounting records of the International Equity Series are
maintained in U.S. dollars. The market values of foreign securities,
currency holdings and other assets and liabilities are translated to U.S.
dollars based on the prevailing exchange rates each business day. Income
and expenses denominated in foreign currencies are translated at prevailing
exchange rates when accrued or incurred. The Series does not isolate
realized gains and losses attributable to changes in exchange rates from
gains and losses that arise from changes in the market value of
investments. Such fluctuations are included with net realized and
unrealized gains or losses on investments. Net realized gains and losses on
foreign currency transactions represent net exchange gains and losses on
disposition of foreign currencies and foreign currency forward contracts
the difference between the amount of investment income receivable and
foreign withholding taxes receivable recorded on the Series' books and the
U.S. dollar equivalent of amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets
and liabilities other than investments in securities at fiscal year end and
foreign currency forward contracts, resulting from changes in the exchange
rate.
D. FOREIGN CURRENCY FORWARD CONTRACTS
Each Series may enter into foreign currency forward contracts and
forward cross currency contracts in connection with settling planned
purchases or sales of securities or to hedge the currency exposure
associated with some or all of the Series' portfolio securities. A foreign
currency forward contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
foreign currency forward contract fluctuates with changes in forward
currency exchange rates. Foreign currency forward contracts are marked to
market daily and the change in value is recorded by the Series as an
unrealized gain or loss. When a foreign currency forward is extinguished,
through delivery or offset by entering into another foreign currency
forward contract, the Series records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value of the contract at the time it was extinguished or offset. These
contracts may involve market risk in excess of the unrealized gain or loss
reflected in the Series' Statement of Assets and Liabilities and 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. OPTIONS
Each Series, with the exception of the Money Market Series, may
purchase and write (sell) call and put options on securities indices for
the purpose of protecting against an anticipated decline in the value of
the securities held by that Series. Index options are marked to market
daily and the change in value is recorded by the Series as an unrealized
gain or loss in the "Statement of Assets and Liabilities". A realized gain
or loss equal to the difference between the exercise price and the value of
the index is recorded by the Series upon cash settlement of the option. The
use of index options may expose the Series to the risk that trading in such
options may be interrupted if trading in certain securities included in the
index is interrupted or the value of the securities in the index may not
move in direct correlation with the movements of the Series portfolio. In
addition, there is the risk the Series may not be able to enter into a
closing transaction because of an illiquid secondary market.
96
<PAGE> 98
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
F. FEDERAL INCOME TAXES
It is the Series policy to comply with the applicable provisions of
the Internal Revenue Code. Therefore, no federal income tax provision is
required.
G. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on a trade date basis (the 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.
H. OPERATING EXPENSES
The Series Portfolio accounts separately for the assets, liabilities
and operations of each Series. Expenses directly attributable to a Series
are charged to that Series, while expenses attributable to all Series are
allocated among them.
I. OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
3. FEES AND TRANSACTIONS WITH AFFILIATES
AUSA Life Insurance Company, Inc. ("AUSA") is the parent company of
Diversified Investment Advisors, Inc. (the "Advisor"). AUSA has sub-accounts
which invest in the corresponding Portfolios as follows:
<TABLE>
<CAPTION>
PERCENTAGE INVESTMENT
AUSA SUBACCOUNT IN PORTFOLIO
------------------------------------------------------------------ -----------------------
<S> <C>
Money Market...................................................... 35.19%
High Quality Bond................................................. 60.79%
Intermediate Government Bond...................................... 54.59%
Government/Corporate Bond......................................... 26.46%
Balanced.......................................................... 48.20%
Equity Income..................................................... 67.31%
Equity Value...................................................... 74.79%
Growth & Income................................................... 64.43%
Equity Growth..................................................... 87.94%
Special Equity.................................................... 58.48%
Aggressive Equity................................................. 73.21%
High Yield Bond................................................... 65.69%
International Equity.............................................. 54.00%
</TABLE>
97
<PAGE> 99
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
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
Advisor receives from each Series fees accrued daily and paid monthly at an
annual rate equal to the percentages specified in the table below of the
corresponding Series' average daily net assets. The Advisor is currently waiving
a portion of its investment advisory fee.
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 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 daily net
assets.
<TABLE>
<CAPTION>
DIVERSIFIED INVESTORS PORTFOLIO ADVISOR SUBADVISORS
SERIES PORTFOLIO SUBADVISORS FEE FEE
- ----------------------------------- ------------------------------------- ------- -----------
<S> <C> <C> <C>
Money Market Series................ 1740 Advisors, Inc. 0.25%(1) 0.05%
High Quality Bond Series........... Merganser Capital Management
Corporation 0.35 (2)
Intermediate Government Bond
Series........................... 1740 Advisors, Inc. 0.35(1) 0.15
Government/Corporate Bond Series... 1740 Advisors, Inc. 0.35 0.15
Balanced Series.................... Institutional Capital Corporation 0.45 (3)
Equity Income Series............... 1740 Advisors, Inc. 0.45 0.25
Equity Value Series................ Ark Asset Management Co., Inc. 0.57(1) (4)
Growth & Income Series............. Putnam Advisory Company, Inc. 0.60(1) (5)
Equity Growth Series............... Jundt Associates, Inc.(6) 0.70 0.63
Chancellor LGT Asset Management 0.62(1) (7)
Special Equity Series.............. (8) 0.80(1) 0.50
Aggressive Equity Series........... McKinley Capital Management 0.97(1) (9)
High-Yield Bond Series............. Delaware Investment Advisors 0.55(1) (10)
International Equity Series........ Capital Guardian Trust Company 0.75(1) (11)
</TABLE>
- ---------------
(1) The Advisor is currently waiving a portion of its fee.
(2) 0.50% on the first $10,000,000 in average daily net assets, 0.375% on the
next $15,000,000 in average daily net assets, 0.25% on the next $75,000,000
in average daily net assets and 0.1875% on all average daily net assets in
excess of $100,000,000.
(3) 0.55% on the first $25,000,000 in average daily net assets, 0.45% on the
next $25,000,000 in average daily net assets, and 0.35% on all average
daily net assets in excess of $50,000,000.
(4) 0.45% on the first $100,000,000 in average daily net assets, 0.40% on the
next $50,000,000 in average daily net assets, and 0.35% on the next
$50,000,000 in average daily net assets. When average daily net assets
reach $200,000,000, 0.40% on the first $200,000,000 in average daily net
assets, and 0.35% on all average daily net assets in excess of
$200,000,000.
(5) 0.30% on the first $100,000,000 in average daily net assets, and 0.20% on
all average daily net assets in excess of $100,000,000.
98
<PAGE> 100
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
(6) Jundt Associates, Inc. served as the subadvisor from January 1, 1996 to
November 14, 1996. Chancellor LGT Asset Management assumed the role of
subadvisor on November 15, 1996.
(7) 0.50% on the first $50,000,000 in average daily net assets, 0.30% on the
next $75,000,000 in average daily net assets, 0.25% on the next $75,000,000
in average daily net assets, and 0.20% on all average daily net assets in
excess of $200,000,000
(8) 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.
(9) 0.90% on the first $10,000,000 in average daily net assets, 0.80% on the
next $15,000,000 in average daily net assets, 0.60% on the next $25,000,000
in average daily net assets, 0.40% on the next $50,000,000 in average daily
net assets, and 0.35% on all average daily net assets in excess of
$100,000,000.
(10) 0.40% on the first $20,000,000 in average daily net assets, 0.30% on the
next $20,000,000 in average daily net assets, and 0.20% on all average
daily net assets in excess of $40,000,000.
(11) 0.75% on the first $25,000,000 in average daily net assets, 0.60% on the
next $25,000,000 to $50,000,000 in average daily net assets, 0.425% on the
next $50,000,000 to $250,000,000 in average daily net assets and 0.375% on
all average daily net assets in excess of $250,000,000.
For the year ended December 31, 1996, except for the Equity Value Series
and the Aggressive Equity Series which commenced operations on April 19, 1996,
the Advisor has voluntarily undertaken to waive fees in accordance with the
expense caps as follows:
<TABLE>
<CAPTION>
FUND EXPENSE CAP
--------------------------------------------------------------- ------------------------
<S> <C>
Money Market Series............................................ 30 basis points (b.p.)
High Quality Bond Series....................................... 40 b.p.
Intermediate Government Bond Series............................ 40 b.p.
Government/Corporate Bond Series............................... 40 b.p.
Balanced Series................................................ 50 b.p.
Equity Income Series........................................... 50 b.p.
Equity Value Series............................................ 60 b.p.
Growth & Income Series......................................... 65 b.p.
Equity Growth Series........................................... 65 b.p.
Special Equity Series.......................................... 85 b.p.
Aggressive Equity Series....................................... 100 b.p.
High-Yield Bond Series......................................... 60 b.p.
International Equity Series.................................... 90 b.p.
</TABLE>
For the Equity Growth Series the expense cap in effect from January 1, 1996
through November 13, 1996 was 75 b.p. Effective November 14, 1996, the Board of
Trustees approved a change in the expense cap to 65 b.p.
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. SECURITIES LENDING
All but the High Yield Bond Series and the International Equity Series may
lend its securities to certain member firms of the New York Stock Exchange. The
loans are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. Any
deficiencies or
99
<PAGE> 101
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SECURITIES LENDING (CONTINUED)
excess of collateral must be delivered or transferred by the member firms no
later than the close of business on the next business day. As with other
extensions of credit, the Series may bear the risk of delay in recovery or even
loss of rights in the collateral should the borrower of the securities fail
financially. The Series receives compensation, net of related expenses, for
lending its securities which is included in interest income on the Statement of
Operations. At December 31, 1996, the Series loaned securities having market
values as follows:
<TABLE>
<CAPTION>
MARKET VALUE COLLATERAL
------------ -----------
<S> <C> <C>
High Quality Bond Series.......................................... $ 3,356,277 $ 3,417,498
Intermediate Government Bond Series............................... 16,286,002 16,631,176
Government/Corporate Bond Series.................................. 9,639,531 9,971,053
Balanced Series................................................... 29,502,418 30,547,905
Equity Income Series.............................................. 29,797,013 30,496,846
Growth & Income Series............................................ 13,582,731 13,877,123
Special Equity Series............................................. 52,667,156 54,301,016
</TABLE>
5. PURCHASE AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and proceeds from sales or
maturities for the year ended December 31, 1996, except for the Equity Value
Series and the Aggressive Equity Series which commenced operations on April 19,
1996, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C> <C>
High Quality Bond Series............... Government Obligations $ 24,055,385 $ 18,413,126
Other 107,974,326 90,098,879
Intermediate Government Bond Series.... Government Obligations 85,967,508 52,555,511
Government/Corporate Bond Series....... Government Obligations 253,871,378 267,895,236
Other 250,523,876 194,568,714
Balanced Series........................ Government Obligations 94,965,762 56,847,023
Other 218,627,035 187,325,555
Equity Income Series................... Other 316,278,763 202,011,989
Equity Value Series.................... Other 39,450,502 13,550,268
Growth & Income Series................. Other 302,171,234 239,501,492
Equity Growth Series................... Other 365,020,921 326,233,791
Special Equity Series.................. Other 623,318,934 536,845,348
Aggressive Equity Series............... Other 38,819,662 25,326,665
High-Yield Bond Series................. Other 15,888,442 10,927,076
International Equity Series............ Other 75,599,345 30,145,552
</TABLE>
100
<PAGE> 102
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FOREIGN CURRENCY FORWARD CONTRACTS
At December 31, 1996, the International Equity Series had entered into
Foreign Currency Forward contracts which contractually obligate the Series to
deliver/receive currency at specified future dates. The open contracts were as
follows:
<TABLE>
<CAPTION>
FOREIGN IN EXCHANGE SETTLEMENT NET UNREALIZED
CONTRACT CURRENCY FOR DATE VALUE APPRECIATION/DEPRECIATION
- --------------------------- ----------- ----------- ---------- ---------- -------------------------
<S> <C> <C> <C> <C> <C>
PURCHASES:
British Pounds............. 78,363 $ 132,504 01/08/97 $ 134,201 $ 1,697
Japanese Yen............... 42,075,400 371,875 01/16/97 364,092 (7,783)
Japanese Yen............... 18,835,455 166,996 02/12/97 163,637 (3,359)
Japanese Yen............... 58,450,000 532,477 03/10/97 509,543 (22,934)
Japanese Yen............... 25,950,000 236,403 03/10/97 226,221 (10,182)
Japanese Yen............... 15,300,000 148,558 05/19/97 134,633 (13,925)
Japanese Yen............... 15,228,000 136,942 05/19/97 134,000 (2,942)
Japanese Yen............... 11,700,000 112,587 05/30/97 103,113 (9,474)
Swiss Franc................ 212,205 159,376 01/17/97 158,501 (875)
--------
TOTAL................. $ (69,777)
========
SALES:
French Franc............... 1,359,776 269,028 02/25/97 262,809 6,219
German Duetsche Mark....... 360,849 241,000 01/21/97 234,656 6,344
German Duetsche Mark....... 499,636 333,418 02/14/97 325,399 8,019
German Duetsche Mark....... 293,580 197,153 02/25/97 191,326 5,827
German Duetsche Mark....... 176,371 115,388 03/13/97 115,049 339
Hong Kong Dollars.......... 2,479,747 319,000 11/14/97 320,571 (1,571)
Japanese Yen............... 26,566,167 230,309 01/07/97 229,565 744
Japanese Yen............... 42,075,400 381,463 01/16/97 364,092 17,371
Japanese Yen............... 18,835,455 169,887 02/12/97 163,637 6,250
Japanese Yen............... 116,897,000 1,100,000 03/10/97 1,019,060 80,940
Japanese Yen............... 51,879,030 483,000 03/10/97 452,260 30,740
Japanese Yen............... 26,008,697 239,000 04/08/97 227,565 11,435
Japanese Yen............... 30,528,000 300,000 05/19/97 268,633 31,367
Japanese Yen............... 35,139,000 340,000 05/30/97 309,682 30,318
Japanese Yen............... 141,296,127 1,299,000 10/31/97 1,272,179 26,821
Norwegian Krone............ 749,184 116,768 03/13/97 117,791 (1,023)
Swedish Krona.............. 404,853 59,934 03/13/97 59,553 381
Swiss Franc................ 212,205 169,000 01/17/97 158,501 10,499
Swiss Franc................ 1,055,900 843,573 02/04/97 789,995 53,578
Swiss Franc................ 202,530 159,951 02/19/97 151,721 8,230
Swiss Franc................ 342,230 272,000 02/19/97 256,375 15,625
Swiss Franc................ 327,680 260,809 02/25/97 245,601 15,208
Swiss Franc................ 627,708 510,000 03/27/97 471,692 38,308
Swiss Franc................ 319,023 259,000 04/09/97 240,011 18,989
--------
TOTAL................. $ 420,958
========
</TABLE>
101
<PAGE> 103
DIVERSIFIED INVESTORS PORTFOLIOS
FINANCIAL HIGHLIGHTS:
<TABLE>
<CAPTION>
RATIO OF GROSS RATIO OF EXPENSES, NET
EXPENSES OF WAIVERS TO AVERAGE
TO AVERAGE NET ASSETS NET ASSETS
---------------------- ----------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
---------------------- ----------------------
1996 1995 1994** 1996 1995 1994**
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Money Market Series......................... 0.30% 0.31% 0.32% 0.30% 0.30% 0.30%
High Quality Bond Series.................... 0.40 0.41 0.41 0.40 0.40 0.40
Intermediate Government Bond Series......... 0.43 0.45 0.45 0.40 0.40 0.40
Government/Corporate Bond Series............ 0.39 0.39 0.40 0.39 0.39 0.40
Balanced Series............................. 0.50 0.54 0.53 0.50 0.50 0.50
Equity Income Series........................ 0.48 0.49 0.49 0.48 0.49 n/a
Equity Value Series*+....................... 1.06 n/a n/a 0.60 n/a n/a
Growth & Income Series...................... 0.67 0.68 0.67 0.65 0.65 0.65
Equity Growth Series........................ 0.73 0.75 0.76 0.73(1) 0.75 0.75
Special Equity Series....................... 0.86 0.88 0.88 0.85 0.85 0.85
Aggressive Equity Series*+.................. 1.59 n/a n/a 1.00 n/a n/a
High-Yield Bond Series++.................... 1.25 1.32 n/a 0.60 0.60 n/a
International Equity Series+++.............. 0.96 0.83 n/a 0.90 0.80 n/a
</TABLE>
- ---------------
* Annualized (except "Portfolio Turnover")
** Commencement of Operations, January 3, 1994.
*** For fiscal years beginning on or after September 1, 1995,
the Portfolios are required to disclose their average commission
rate per share for trades on which a commission is charged.
+ Commencement of Operations, April 19, 1996.
++ Commencement of Operations, August 22, 1995.
+++ Commencement of Operations, September 29, 1995.
(1) For the period 1/1/96-11/14/96, expense cap was 75 bp.
For the period 11/15/96 - 12/31/96, expense cap was 65 bp.
102
<PAGE> 104
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF NET INVESTMENT
INVESTMENT INCOME, NET OF WAIVERS AVERAGE
INCOME TO PORTFOLIO TO PORTFOLIO AVERAGE COMMISSION RATE
AVERAGE NET ASSETS NET ASSETS PORTFOLIO TURNOVER PER SHARE***
---------------------- ---------------------- ---------------------- ---------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
---------------------- ---------------------- ---------------------- ---------------
1996 1995 1994** 1996 1995 1994** 1996 1995 1994** 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.19% 5.70% 4.05% 5.19% 5.69% 4.07% n/a n/a n/a n/a
6.14 5.83 5.77 6.14 5.82 5.79 66% 25% 37% n/a
5.63 5.57 5.71 5.66 5.52 5.76 60 59 21 n/a
6.30 5.90 5.71 6.30 5.90 5.72 146 122 122 n/a
3.39 4.19 3.57 3.39 4.15 3.61 113 124 118 $0.0372
2.97 3.37 3.43 2.97 3.37 3.43 26 23 30 0.0620
1.60 n/a n/a 2.07 n/a n/a 65 n/a n/a 0.0600
1.02 1.49 1.35 1.04 1.47 1.37 142 155 21 0.0476
(0.17) 0.41 0.08 (0.17) 0.41 0.11 133 62 75 0.0553
0.24 0.33 0.27 0.25 0.30 0.30 140 155 90 0.0507
(0.72) n/a n/a (0.13) n/a n/a 186 n/a n/a 0.0540
8.34 8.45 n/a 9.00 7.73 n/a 107 21 n/a n/a
1.12 0.53 n/a 1.18 0.50 n/a 29 7 n/a 0.0030
</TABLE>
103
<PAGE> 105
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
Portfolio, High Quality Bond Portfolio, Intermediate Government Bond Portfolio,
Government/Corporate Bond Portfolio, Balanced Portfolio, Equity Income
Portfolio, Equity Value Portfolio, Growth & Income Portfolio, Equity Growth
Portfolio, Special Equity Portfolio, Aggressive Equity Portfolio, High Yield
Bond Portfolio and International Equity Portfolio) (collectively the
"Portfolios") as of December 31, 1996, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended for each of the Portfolios other than the
Equity Value Portfolio and Aggressive Equity Portfolio for which the periods are
from April 19, 1996 (commencement of operations) to December 31, 1996 and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Portfolios'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
respective Portfolios constituting Diversified Investors Portfolios as of
December 31, 1996, 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 10, 1997
104
<PAGE> 106
This report is not to be construed as an
offering for sale of any shares of the
Diversified Investors Funds Group, or as a
solicitation as an offer to buy such shares
unless preceded by or accompanied by a
current prospectus which contains the com-
plete information of charges and expenses.
<PAGE> 107
DIVERSIFIED INVESTORS SECURITIES CORPORATION
4 Manhattanville Road, Purchase, New York 10577
2557 (2/97)
<PAGE> 108
BULK RATE
U.S. POSTAGE
PAID
NEW YORK,
N.Y.
PERMIT NO.
8048
