<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1996
REGISTRATION NOS. 33-73734
811-8264
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 6 /X/
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 6 /X/
(CHECK APPROPRIATE BOX OR BOXES.)
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DIVERSIFIED INVESTORS VARIABLE FUNDS
(EXACT NAME OF REGISTRANT)
AUSA LIFE INSURANCE COMPANY, INC.
(NAME OF DEPOSITOR)
4 MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
(ADDRESS AND DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
(914) 697-8000
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
ROBERT F. COLBY, ESQ.
AUSA LIFE INSURANCE COMPANY, INC.
4 MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
It is proposed that this filing will become effective on October 18, 1996
pursuant to paragraph (b) of Rule 485.
The registrant has registered an indefinite amount of securities (variable
annuity contracts) pursuant to Rule 24f-2 under the Investment Company Act of
1940. The Rule 24f-2 Notice was filed on February 23, 1996.
Diversified Investors Portfolios has also executed this Registration
Statement.
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CROSS REFERENCE SHEET
(REQUIRED BY RULES 481(A) AND 495)
PART A
<TABLE>
<CAPTION>
ITEM NO. LOCATION
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<S> <C>
Item 1. Cover Page..............................................................Cover Page
Item 2. Definitions............................................................Definitions
Item 3. Synopsis..................................................................Synopsis
Item 4. Condensed Financial Information....................Condensed Financial Information
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies.......................AUSA Life Insurance Company, Inc.,
Diversified Investors Variable Funds,
Diversified Investors Portfolios
Item 6. Deductions and Expenses....................................................Charges
Item 7. General Description of Variable Annuity Contracts.........Summary of The Contracts
Item 8. Annuity Period.....................................................Payment Options
Item 9. Death Benefit.............................Death Benefit; Payments To A Beneficiary
Following The Annuitant's Death
Item 10. Purchases and Contract Value...Credit of Purchase Payments; Allocation of Purchase
Payments; Determination of Unit Value
Item 11. Redemptions................Redemption During The Accumulation Period; Restrictions
Under The Texas Optional Retirement Program
Item 12. Taxes.........Federal Tax Status; Tax Treatment of AUSA; Section 403(b) Annuities;
Section 401(a) Plans; Section 408 (IRA) Contracts; Section 457 Plans;
Section 457(f) Plans; Section 72 Flexible Annuities; Non-Qualified Deferred
Compensation Contracts; Income Tax Withholding
Item 13. Legal Proceedings................................................Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information............................Table of Contents of Statement
of Additional Information
PART B
Item 15. Cover Page..............................................................Cover Page
Item 16. Table of Contents................................................Table of Contents
Item 17. General Information and History.................................... Not Applicable
Item 18. Services........................................................... Not Applicable
Item 19. Purchases and Securities Being Offered............................. Not Applicable
Item 20. Underwriters...............................Sale of Contracts/Principal Underwriter
Item 21. Calculation of Performance Data...................................Performance Data
Item 22. Annuity Payments................................................... Not Applicable
Item 23. Financial Statements........Financial Statements and Notes to Financial Statements
</TABLE>
PART C
INFORMATION REQUIRED TO BE INCLUDED IN PART C IS SET FORTH UNDER THE APPROPRIATE
ITEM, SO NUMBERED IN PART C OF THIS REGISTRATION STATEMENT.
<TABLE>
<S> <C>
Item 24. Financial Statements and Exhibits............................................. C-1
Item 25. Directors and Officers of the Depositor....................................... C-2
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant.................................................................. C-2
Item 27. Number of Contractowners...................................................... C-2
Item 28. Indemnification............................................................... C-2
Item 29. Principal Underwriters........................................................ C-2
Item 30. Location of Accounts and Records.............................................. C-3
Item 31. Management Services........................................................... C-3
Item 32. Undertakings.................................................................. C-3
</TABLE>
(i)
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DIVERSIFIED INVESTORS VARIABLE FUNDS
GROUP VARIABLE ANNUITY CONTRACTS
SECTIONS 401(A), 401(K), 403(B), 408(IRA), 457, 457(F), 72 (FLEXIBLE ANNUITIES)
AND NQDC
ISSUED BY
AUSA LIFE INSURANCE COMPANY, INC. ("AUSA")
4 MANHATTANVILLE ROAD, PURCHASE, NEW YORK 10577; (914) 697-8000
The Group Variable Annuity Contracts ("Contracts") described in this
Prospectus are designed and offered as funding vehicles for retirement Plans
maintained by state educational organizations, certain tax-exempt organizations,
IRA Contractholders, taxed organizations in the case of the Section 401(a)
and/or Section 401(k) Contracts and corporate non-qualified deferred
compensation contracts ("NQDC"). The Contracts described in this Prospectus
include certain group variable annuity contracts of the above described types
which were originally issued by The Mutual Life Insurance Company of New York
and which have been assumed by AUSA. See page 31 for a description of this
assumption reinsurance.
Insofar as possible, the provisions of the Contracts are identical, and the
information provided in this Prospectus is generally applicable to all
Contracts. However, whenever statutory or administrative considerations require
significant differences among the Contracts, such differences are explained
separately for each.
Purchase Payments under the Contracts are allocated to a segregated
investment account of AUSA Life Insurance Company, Inc. which account has been
designated the Diversified Investors Variable Funds. Purchase Payments directed
to the Diversified Investors Variable Funds may be allocated among such of the
Subaccounts in the Diversified Investors Variable Funds as are made available
under the Contracts. The assets in each Subaccount are invested in a series of
Diversified Investors Portfolios or in the Calvert Socially Responsible Series
("Calvert Series") at their net asset value. (See "Diversified Investors
Portfolios" at page 14 and Calvert Series at page 12.) The thirteen currently
available series of Diversified Investors Portfolios are the Money Market
Series, High Quality Bond Series, Intermediate Government Bond Series,
Government/Corporate Bond Series, High-Yield Bond Series, Balanced Series,
Equity Income Series, Equity Value Series, Growth & Income Series, Equity Growth
Series, Special Equity Series, Aggressive Equity Series and International Equity
Series. The Calvert Series is an actively managed, diversified portfolio of
common and preferred stocks, bonds, and money market instruments which offer
income and capital growth opportunity and which satisfy the social concern
criteria established by the Calvert Series. A copy of the Calvert Series
Prospectus appears at the end of this Diversified Investors Variable Funds
Prospectus.
SUBACCOUNTS OF DIVERSIFIED INVESTORS VARIABLE FUNDS WHICH INVEST IN
DIVERSIFIED INVESTORS PORTFOLIOS DO SO UNDER A "HUB AND SPOKE" ARRANGEMENT.
UNLIKE OTHER FUNDING VEHICLES INTO WHICH PURCHASE PAYMENTS MAY BE INVESTED
THROUGH VARIABLE ANNUITY CONTRACTS ISSUED BY INSURANCE COMPANIES, DIVERSIFIED
INVESTORS PORTFOLIOS OFFERS ITS INTERESTS FOR SALE TO OTHER TYPES OF COLLECTIVE
INVESTMENT VEHICLES IN ADDITION TO INSURANCE COMPANY SEPARATE ACCOUNTS
REGISTERED AS INVESTMENT COMPANIES UNDER THE INVESTMENT COMPANY ACT OF 1940.
SUCH INVESTORS MAY INCLUDE MUTUAL FUNDS, BANK COLLECTIVE TRUSTS AND UNREGISTERED
INSURANCE COMPANY SEPARATE ACCOUNTS. SEE "DIVERSIFIED INVESTORS PORTFOLIOS --
HUB AND SPOKE(R) STRUCTURE" ON PAGE 33 HEREIN. HUB AND SPOKE(R) IS A REGISTERED
SERVICE MARK OF SIGNATURE FINANCIAL GROUP, INC.
The value of the Accumulation Accounts maintained in the Diversified
Investors Variable Funds will vary based upon the investment experience of the
Subaccounts to which Purchase Payments are allocated. The investment experience
of the Subaccounts will vary based on the underlying investment performance of
the series of Diversified Investors Portfolios and the Calvert Series.
This Prospectus sets forth the basic information that a prospective
purchaser should know before investing. Please keep this Prospectus for future
reference.
A Statement of Additional Information dated October 18, 1996 incorporated
herein by reference, and containing additional information about the Contracts
and Diversified Investors Portfolios, has been filed with the Securities and
Exchange Commission. The Statement of Additional Information is available from
AUSA without charge upon written request to the above address or by telephoning
(914) 697-8000. The Table of Contents of the Statement of Additional Information
can be found on page 59 of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy the Contracts in any jurisdiction in which such may not be lawfully
made.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS
PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED (OR PRECEDED) BY A CURRENT PROSPECTUS
FOR THE CALVERT SERIES.
DATED OCTOBER 18, 1996
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Definitions........................................................................... 4
Synopsis.............................................................................. 6
Table of Fees....................................................................... 6
The Contracts....................................................................... 7
Diversified Investors Variable Funds................................................ 8
Charges............................................................................. 9
Credit And Allocation Of Purchase Payments.......................................... 9
Redemption.......................................................................... 9
Transfers........................................................................... 9
Payment Options..................................................................... 9
Voting Rights....................................................................... 9
Death Benefit....................................................................... 10
Distribution Of The Contracts....................................................... 10
Financial Information............................................................... 10
AUSA.................................................................................. 12
Diversified Investors Variable Funds.................................................. 12
Calvert Series...................................................................... 12
Diversified Investors Portfolios.................................................... 13
The Substitution.................................................................... 15
Charges............................................................................... 15
Charges for Mortality and Expense Risks............................................. 15
Annual Contract Charge.............................................................. 15
Investment Management Fee........................................................... 16
Premium Tax......................................................................... 17
Summary Of The Contracts.............................................................. 17
Eligible Purchasers................................................................. 17
Ownership........................................................................... 17
Purchase Payments................................................................... 17
Employer Sponsored Plan Requirements................................................ 18
Rights Of The Participant Under The Contract........................................ 18
Rights Upon Suspension Of Contract or Termination Of Plan........................... 18
403(b) Contract..................................................................... 18
401(a) Contract/401(k) Contract and NQDC............................................ 18
457, 457(f), Flexible Annuity, and 408 (IRA) Contracts.............................. 18
Failure Of Qualification............................................................ 19
Transfers........................................................................... 19
Rights Reserved By AUSA............................................................... 19
Credit Of Purchase Payments........................................................... 20
Allocation Of Purchase Payments..................................................... 20
Determination Of Unit Values........................................................ 20
Death Benefit......................................................................... 20
Redemption During The Accumulation Period............................................. 21
Restrictions Under The Texas Optional Retirement Program.............................. 22
Payment Options....................................................................... 22
Annuity Purchase Date............................................................... 22
</TABLE>
2
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Fixed Annuity....................................................................... 22
Fixed Annuity Options............................................................... 23
Payments To A Beneficiary Following The Annuitant's Death........................... 24
Voting Rights......................................................................... 24
Distribution Of The Contracts......................................................... 25
Federal Tax Status.................................................................... 25
Tax Treatment of AUSA............................................................... 26
Taxation of Diversified Investors Portfolios........................................ 26
Section 403(b) Annuities............................................................ 26
Section 401(a) Plans................................................................ 27
Section 408 (IRA) Contracts......................................................... 27
Minimum Distribution Requirements................................................... 28
Section 457 Plans................................................................... 28
Section 457(f) Plans................................................................ 28
Section 72 Flexible Annuities....................................................... 28
Non-Qualified Deferred Compensation Contracts....................................... 29
Income Tax Withholding.............................................................. 29
Assumption Reinsurance................................................................ 29
Performance Data...................................................................... 30
Diversified Investors Portfolios...................................................... 32
Hub & Spoke(R)...................................................................... 34
Investment Objectives and Policies.................................................. 34
Investment Techniques and Restrictions.............................................. 50
Management of Diversified Investors Portfolios...................................... 53
Other Information Regarding Diversified Investors Portfolios........................ 57
Purchase and Redemption of Interests in Diversified Investors Portfolios............ 57
Independent Accountants............................................................... 59
Legal Proceedings..................................................................... 60
Financial Statements.................................................................. 60
Additional Information................................................................ 60
Table Of Contents Of Statement Of Additional Information.............................. 61
Request For Diversified Investors Variable Funds Statement Of Additional
Information......................................................................... 62
APPENDIX.............................................................................. A-1
</TABLE>
3
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DEFINITIONS
As used in this Prospectus, the following terms have the indicated meaning:
ACCUMULATION ACCOUNT: an account maintained for each Participant in which
is recorded the number of Units held for his/her credit.
ACCUMULATION PERIOD: the accumulation period for each Participant is the
period during which Purchase Payments may be made on his/her behalf. It begins
when the Participant begins participation under the Plan and ends as of his/her
Annuity Purchase Date (See "Annuity Purchase Date" on page 23), or earlier
termination of his/her Accumulation Account.
AGGRESSIVE EQUITY SERIES: Diversified Investors Aggressive Equity
Portfolio, a series of Diversified Investors Portfolios.
BALANCED SERIES: Diversified Investors Balanced Portfolio, a series of
Diversified Investors Portfolios.
CALVERT SERIES: the Calvert Responsibly Invested Balanced Portfolio, a
series of Acacia Capital Corporation, an open-end management investment company
registered under the Investment Company Act of 1940, as amended.
CONTRACT(S): the group variable annuity contract(s) offered by AUSA to
Contractholders or IRA Contractholders as described in this Prospectus.
CONTRACTHOLDER: a state educational organization or certain tax-exempt
organization employer or employer association for affiliated employers, taxed
subsidiaries of tax-exempt organizations and taxed stand alone organizations.
CONTRACT YEAR: a period of 12 months measured from the date of the Contract
issued to or adopted by the Contractholder, and anniversaries thereof.
DIVERSIFIED: Diversified Investment Advisors, Inc., a registered investment
adviser under the Investment Advisers Act of 1940, as amended, and an affiliate
of AUSA.
DIVERSIFIED INTERNATIONAL SERIES: Diversified Investors International
Equity Portfolio, a series of Diversified Investors Portfolios.
DIVERSIFIED INVESTORS PORTFOLIOS: Diversified Investors Portfolios, an
open-end diversified management investment company registered under the
Investment Company Act of 1940, as amended.
EQUITY GROWTH SERIES: Diversified Investors Equity Growth Portfolio, a
series of Diversified Investors Portfolios.
EQUITY INCOME SERIES: Diversified Investors Equity Income Portfolio, a
series of Diversified Investors Portfolios.
EQUITY VALUE SERIES: Diversified Investors Equity Value Portfolio, a series
of Diversified Investors Portfolios.
FIXED ANNUITY: an annuity with payments which remain fixed throughout the
payment period and which do not reflect the investment experience of a separate
account.
GOVERNMENT/CORPORATE BOND SERIES: Diversified Investors
Government/Corporate Bond Portfolio, a series of Diversified Investors
Portfolios.
GROWTH & INCOME SERIES: Diversified Investors Growth & Income Portfolio, a
series of Diversified Investors Portfolios.
HIGH QUALITY BOND SERIES: Diversified Investors High Quality Bond
Portfolio, a series of Diversified Investors Portfolios.
HIGH-YIELD BOND SERIES: Diversified Investors High-Yield Bond Portfolio, a
series of Diversified Investors Portfolios.
4
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INTERMEDIATE GOVERNMENT BOND SERIES: Diversified Investors Intermediate
Government Bond Portfolio, a series of Diversified Investors Portfolios.
INTERNATIONAL EQUITY SERIES: Diversified Investors International Equity
Portfolio, a series of Diversified Investors Portfolios.
IRA CONTRACTHOLDER: a tax-exempt, or taxed organization or an association
of members who share a common interest.
MONEY MARKET SERIES: Diversified Investors Money Market Portfolio, a series
of Diversified Investors Portfolios.
NQDC: Non-qualified deferred compensation arrangement available to taxed
organizations only.
PARTICIPANT: an employee participating under a Contract issued to or
adopted by his/her employer or an individual participating under a Contract
issued to an IRA Contractholder.
PLAN: a retirement plan or program under which benefits are to be provided
pursuant to a Contract described herein or by a Participant.
PURCHASE PAYMENT: the amount contributed and remitted to AUSA by an
employer on behalf of a Participant.
SPECIAL EQUITY SERIES: Diversified Investors Special Equity Portfolio, a
series of Diversified Investors Portfolios.
SUBACCOUNT: a subdivision of Diversified Investors Variable Funds which is
available for the allocation of Purchase Payments under the Contracts. Thirteen
Subaccounts invest in a corresponding series of Diversified Investors
Portfolios. The Calvert Series Subaccount invests in the Calvert Series.
UNIT: the measure by which the value of an investor's interest in each
Subaccount is determined.
VALUATION DATE: each day at the close of business of the New York Stock
Exchange (currently at 4:00 p.m. New York City time), each day that the New York
Stock Exchange is open for trading, or any other day on which there is
sufficient trading in securities of a series of Diversified Investors Portfolios
or the Calvert Series to affect materially the value of the Units of the
corresponding Subaccount. If the New York Stock Exchange extends its closing
beyond 4:00 p.m. New York City time, and continues to value after the time of
closing of the New York Stock Exchange, AUSA reserves the right to treat any
payment or communication received after 4:00 p.m. New York City time as being
received as of the beginning of the next day.
VALUATION PERIOD: The period between the ending of two successive Valuation
Dates.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL IN SUCH STATE. NO PERSON IS AUTHORIZED TO MAKE
ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS.
5
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SYNOPSIS
AUSA LIFE INSURANCE COMPANY, INC.
DIVERSIFIED INVESTORS VARIABLE FUNDS
TABLE OF FEES(1)
Total Separate Account Annual Expenses (as a percentage of average account
value)
Mortality and Expense Risk Fees..........................................90%(2)
(1) In addition to the mortality and expense risk fees, AUSA reserves the
right to deduct an annual contract charge from a Participant's Accumulation
Account not to exceed $50. See "Charges -- Annual Contract Charge" at page 16.
(2) AUSA reserves the right to charge maximum mortality and expense risk
fees of up to 1.25% upon notice.
Portfolio Company Annual Expenses:
DIVERSIFIED INVESTORS PORTFOLIO AND
CALVERT SERIES
ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
HIGH INTERMEDIATE GOVERNMENT/
MONEY QUALITY GOVERNMENT CORPORATE HIGH-YIELD EQUITY
MARKET BOND BOND BOND BOND BALANCED INCOME
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------ ------- ------------- ----------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (After Fee .230% .350% .280% .350% .542% .430% .450%
Reimbursements)(1)...............
Other Expenses(2).................. .070% .050% .120% .040% .058% .070% .040%
Reimbursement from AUSA(3)......... (.200%) -- -- -- -- -- (.030%)
----- ---- ---- ---- ---- ---- ----
Total Annual Expenses After Fee .100% .400% .400% .390% .600% .500% .460%
Reimbursements...................
</TABLE>
<TABLE>
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL AGGRESSIVE INTERNATIONAL
VALUE INCOME GROWTH EQUITY EQUITY CALVERT EQUITY
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------ -------- ------ ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (After Fee
Reimbursements)(1)..................... .43% .580% .700% .760% .868% .70% .75%
Other Expenses(2)........................ .17% .070% .050% .090% .132% .13% .15%
Reimbursement from AUSA(3)............... -- -- (.250%) -- -- -- --
----- ---- ---- ---- ---- ---- ----
Total Annual Expenses After Fee
Reimbursements......................... .600% .650% .500% .850% 1.00% .830% .900%
</TABLE>
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(1) The fees shown on the line "Management Fees" are the fees charged to each
series of Diversified Investors Portfolios by Diversified after waiver. For
the Calvert Series, the fees shown are those charged by Calvert Asset
Management Company to the Calvert Series.
(2) "Other expenses" have been estimated for the current fiscal year based upon
the following projected level of average daily net assets for the following
series of Diversified Investors Portfolios: High Quality Bond Series -- $150
million; High-Yield Bond Series -- $50 million; Equity Value Series -- $50
million; Aggressive Equity Series -- $50 million; International Equity
Series -- $100 million. There can be no assurance that these levels of
average daily net assets will be achieved. If average net assets are lower
for any such series, "Other Expenses" may be a higher percentage than
indicated above of such series' average daily net assets. "Other Expenses"
for all other Series are actual for the year ended December 31, 1995.
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(3) AUSA has agreed to provide reimbursements to limit total expenses for
Diversified Investors Variable Funds Participants in the Money Market Series
and the Equity Growth Series to .100% and .500%, respectively, of average
net assets of the applicable series, with AUSA reserving the right to raise
the limit upon notice. Prior to May 1, 1996 AUSA also provided
reimbursements to limit total expenses for Participants in the Equity Income
Series to .460% of average net assets; effective May 1, 1996, AUSA
discontinued such reimbursements.
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly and indirectly and reflects
expenses of the separate account as well as the portfolio company. (See Charges
at page 16 for a more complete description of applicable costs and expenses.)
EXAMPLE
If you surrender your contract at the end of the applicable time period,
you would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets.
<TABLE>
<CAPTION>
AFTER AFTER AFTER AFTER
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market.......................................... $10.50 $ 32.76 $ 56.81 $ 125.77
High Quality Bond..................................... $13.65 $ 42.46 $ 73.40 $ 161.14
Intermediate Government Bond.......................... $13.65 $ 42.46 $ 73.40 $ 161.14
Government/Corporate Bond............................. $13.55 $ 42.13 $ 72.85 $ 159.97
High-Yield Bond....................................... $15.75 $ 48.89 $ 84.33 $ 184.13
Balanced.............................................. $14.70 $ 45.68 $ 78.88 $ 172.69
Equity Income......................................... $14.28 $ 44.39 $ 76.69 $ 168.08
Equity Value.......................................... $15.75 $ 48.89 $ 83.33 $ 184.13
Growth & Income....................................... $16.28 $ 50.49 $ 87.05 $ 189.81
Equity Growth......................................... $14.70 $ 45.68 $ 78.88 $ 172.69
Special Equity........................................ $18.38 $ 56.89 $ 97.87 $ 212.23
Calvert............................................... $18.17 $ 56.25 $ 96.79 $ 210.01
Aggressive Equity..................................... $19.95 $ 61.67 $105.93 $ 228.76
International Equity.................................. $18.90 $ 58.48 $100.56 $ 217.77
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. PREMIUM
TAXES MAY ALSO BE APPLICABLE.
The expense table for Portfolio Company Annual Expenses and the example
reflect a voluntary undertaking by Diversified to waive a portion of the
investment advisory fees payable by series of Diversified Investors Portfolios.
Without such a waiver, the annual investment advisory fee would be .25% for the
Money Market Series, .35% for the High Quality Bond Series, .35% for the
Intermediate Government Bond Series, .35% for the Government/Corporate Bond
Series, .54% for the High-Yield Bond Series, .45% for the Balanced Series, .45%
for the Equity Income Series, .43% for the Equity Value Series, .60% for the
Growth & Income
Series, .70% for the Equity Growth Series, .80% for the Special Equity Series,
.87% for the Aggressive Equity Series and 75% for the International Equity
Series.
THE CONTRACTS
The Group Variable Annuity Contract(s) ("Contract(s)") described in this
Prospectus are designed and offered as funding vehicles for retirement Plans
maintained by state educational organizations, certain tax-exempt organizations,
IRA Contractholders and for taxed organizations for Section 401(a) and/or
Section 401(k) Contracts and corporate non-qualified deferred compensation
Contracts ("NQDC"). The Section 401(k) Contract will fund the benefits for
tax-qualified pension and profit-sharing plans from employee/employer
contributions of such organizations. The Section 403(b) Contract will purchase
tax-deferred annuities for employees of these same organizations. The Section
457 Contract will provide deferred
7
<PAGE> 10
compensation eligible for deferred tax treatment and the Section 457(f) Contract
will provide deferred compensation which is not eligible for deferred tax
treatment to these same organizations. The Section 72 (flexible annuity)
Contract will fund after-tax benefits. The Section 401(a) Contract will fund
benefits for tax-qualified pension and profit-sharing Plans of such tax-exempt
organizations as well as taxed subsidiaries of these organizations and stand
alone taxed organizations; the NQDC Contracts will fund benefits for taxed
organizations. The Section 408 (Individual Retirement Account ("IRA")) Contract
is a Group Variable Annuity Contract which will provide for on-going or rollover
contributions from individuals who are eligible under Section 408 to make such
contributions. Section references are to the Internal Revenue Code of 1986, as
amended (the "Code").
Insofar as possible, the provisions of the Contracts are identical, and the
information provided in this Prospectus is generally applicable to all
Contracts. However, whenever statutory or administrative considerations require
significant differences among the Contracts, such differences are explained
separately for each.
With respect to the Section 401(a), Section 401(k) and NQDC Contracts, the
employer and/or the employee will make contributions pursuant to the terms and
conditions of the underlying retirement Plan. As to the Section 403(b), Section
457 and Section 457(f) Contracts, the employer will make Purchase Payments for
each participating employee pursuant to either a salary reduction agreement or
an agreement to forego a salary increase under which the employee decides the
level and number of Purchase Payments to his/her Accumulation Account, except
with respect to employer-sponsored Section 401(a) Plans under which the employer
will make contributions pursuant to the underlying retirement Plan. As to the
Section 72 flexible annuities Contract, the employer will make Purchase Payments
for each participating employee pursuant to a salary deduction agreement. In the
case of the Section 408 IRA Contract, Purchase Payments will be made by the
employer on behalf of and as determined by each participating employee pursuant
to a salary deduction agreement or by the Participant.
The Contracts described in this Prospectus include group variable annuity
contracts of the types described above which were originally issued by The
Mutual Life Insurance Company of New York and have been assumed by AUSA. (See
"Assumption Reinsurance" on page 31.)
DIVERSIFIED INVESTORS VARIABLE FUNDS
Purchase Payments under the Contract(s) are allocated to the Diversified
Investors Variable Funds which is a separate account of AUSA. Diversified
Investors Variable Funds is divided into Subaccounts, thirteen of which
correspond to Diversified Investors Portfolios' Money Market, High Quality Bond,
Intermediate Government Bond, Government/Corporate Bond, High-Yield Bond,
Balanced, Equity Income, Equity Value, Growth & Income, Equity Growth, Special
Equity, Aggressive Equity and International Equity Series, respectively. The
Calvert Series Subaccount invests in the Calvert Series. The assets in each
Subaccount are invested in the corresponding series of Diversified Investors
Portfolios or the Calvert Series at their net asset value. (See "Diversified
Investors Portfolios" at page 14 and "Calvert Series" at page 12.) Each series
of Diversified Investors Portfolios is managed by Diversified, an affiliate of
AUSA. Diversified Investors Securities Corp., a wholly-owned subsidiary of
Diversified, is the principal underwriter and distributor. The Calvert Series is
a series of Acacia Capital Corporation, an open-end management company whose
investment adviser is Calvert Asset Management Company, Inc.
The value of a Participant's Accumulation Account maintained in Diversified
Investors Variable Funds will vary based upon the investment experience of the
series of Diversified Investors Portfolios or the Calvert Series to which
Purchase Payments are allocated.
The Calvert Series is an actively managed portfolio of common and preferred
stocks, bonds, and money market instruments which offer income and capital
growth opportunity and which satisfy the social concern criteria established by
the Calvert Series. A copy of the Calvert Series Prospectus appears at the end
of this Diversified Investors Variable Funds Prospectus. Diversified Investors
Portfolios is an open-end, diversified management investment company which has
thirteen series with differing investment objectives available under the
Contracts. See "Diversified Investors Portfolios" at page 14 herein.
8
<PAGE> 11
CHARGES
AUSA makes daily charges against the net assets of Diversified Investors
Variable Funds at a maximum annual rate of 1.25%, consisting of .80% for
mortality risks and .45% for administrative expense risks. Currently, the annual
rate charged is .90% consisting of .60% for mortality risks and .30% for
administrative expense risk. However, AUSA reserves the right to charge a
maximum fee of 1.25% upon notice thereafter. (See "Charges -- Charges for
Mortality and Expense Risks" on page 16). In addition, AUSA reserves the right
to deduct an annual contract charge not to exceed $50 from a Participant's
Accumulation Account (see "Charges -- Annual Contract Charge" on page 16).
In addition to the charges set forth above, Diversified, which serves as
investment adviser to each series of Diversified Investors Portfolios and
Calvert Asset Management Company, Inc., which serves as investment adviser to
the Calvert Series, impose a charge against the net asset value of each series
of Diversified Investors Portfolios or the Calvert Series or the Scudder
International Series, as appropriate, computed daily, for investment advisory
services and other expenses.
Premium taxes may be payable on annuity considerations. (See
"Charges -- Premium Tax" on page 17).
CREDIT AND ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments will be credited to the Subaccounts designated by the
Participant in the form of Units. The number of Units credited will not change
but the dollar value of a Unit will vary depending upon the investment
experience of the series of Diversified Investors Portfolios or the Calvert
Series, as appropriate. (See "Credit of Purchase Payments" on page 21).
REDEMPTION
A Participant may redeem at any time prior to the time an annuity benefit
takes effect and prior to his death all or a portion of the Units credited to
his Accumulation Account without any charge, subject to any limitations in the
underlying Plan. There are no redemption charges. (See "Restrictions Under the
Texas Optional Retirement Program" on page 23 for withdrawal restrictions
applicable to Contracts issued under the Texas Optional Retirement Program.)
A penalty tax may be payable under the Code upon the redemption of amounts
from an Accumulation Account under a Contract and other significant withdrawal
restrictions may be imposed by the Code.
TRANSFERS
A Participant may transfer all or a portion of his/her Accumulation Account
in Diversified Investors Variable Funds among the various Subaccounts. No
transfer charges are imposed, and there is no limit to the number of transfers.
While AUSA has no present intention to do so, it reserves the right to impose
transfer charges at a later date. Transfers may be made in writing or by
telephone by calling (914) 697-8000. (See "Transfers" on page 20). AUSA reserves
the right to discontinue allowing telephone transfers.
PAYMENT OPTIONS
Unless a Fixed Annuity is elected, a Participant will receive a lump sum
payment at the end of the Accumulation Period. The Contracts may provide for
several Fixed Annuity options: Life Annuity, Life Annuity With Period Certain,
Specified Fixed Period Annuity, Contingent Annuity and Contingent Annuity With
Period Certain. For NQDC, an installment payment option may also be available.
(See "Payment Options" on page 23).
VOTING RIGHTS
To the extent required by law, AUSA will vote the interests in Diversified
Investors Portfolios and the Calvert Series held in Diversified Investors
Variable Funds in accordance with the instructions received from
9
<PAGE> 12
Contractholders, IRA Contractholders and NQDC Contractholders; the
Contractholders will instruct AUSA in accordance with the instructions received
from Participants. (See "Voting Rights" on page 25).
DEATH BENEFIT
If a Participant dies before the Annuity Purchase Date, the Accumulation
Account value will be paid to his/her beneficiary in a lump sum. (See "Death
Benefit" on page 21).
DISTRIBUTION OF THE CONTRACTS
Diversified Investors Securities Corp. ("DISC") will be the principal
underwriter and distributor of the Contracts which will be sold by registered
representatives who are also licensed insurance agents of AUSA. The Contracts
may also be sold through registered representatives of other broker-dealers
authorized by DISC and applicable law who may be insurance agents licensed by an
insurance company other than AUSA. (See "Distribution of the Contracts" on page
26).
FINANCIAL INFORMATION
Information about the performance of Diversified Investors Variable Funds
is contained in the Annual Report of Diversified Investors Variable Funds which
is available, free of charge, by contacting AUSA at the address or telephone
number set forth on the cover of this Prospectus.
10
<PAGE> 13
CONDENSED FINANCIAL INFORMATION
DIVERSIFIED INVESTORS VARIABLE FUNDS
ACCUMULATION UNIT VALUES
FINANCIAL HIGHLIGHTS
The following financial highlights of Diversified Investors Variable Funds
have been audited by Coopers & Lybrand L.L.P., Independent Accountants, whose
report thereon, appears in the Statement of Additional Information.
For one Accumulation Unit outstanding throughout the period:
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
GOVERNMENT CORPORATE BOND
MONEY MARKET BOND BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- --------------- --------------- ------
1995 1994* 1995 1994* 1995 1994* 1995
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......................... $13.65 $13.44 $12.24 $12.33 $16.70 $16.76 $16.66
------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income......................................... 0.59 0.22 0.57 0.24 0.84 0.32 0.50
Net realized and unrealized gains (losses) on investments..... 0.11 (0.01) 1.03 (0.33) 2.09 (0.38) 4.09
------- ------- ------- ------- ------- ------- -------
---- ---- ---- ---- ----- --- -----
Total from investment operations.............................. 0.70 0.21 1.60 (0.09) 2.93 (0.06) 4.59
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period................................ $14.35 $13.65 $13.84 $12.24 $19.63 $16.70 $21.25
======= ======= ======= ======= ======= ======== =======
Ratio of net investment income to average net assets (net of
reimbursements)***(1)........................................ 5.05% 4.65% 4.81% 5.64% 5.41% 5.64% 3.09%
Ratio of expenses to average net assets (net of
reimbursements)***(1)........................................ 0.71% 0.73% 0.93% 0.95% 0.90% 0.94% 9.10%
Ratio of net investment income to average net assets***....... 4.85% 4.43% 4.81% 5.64% 5.41% 5.64% 3.09%
Ratio of expenses to average net assets***.................... 0.91% 0.94% 0.93% 0.95% 0.90% 0.94% 0.91%
<CAPTION>
GROWTH & EQUITY
EQUITY INCOME INCOME GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- --------------- ---------------
1994* 1995 1994* 1995 1994** 1995 1994*
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......................... $16.85 $16.86 $17.21 $10.14 $10.31 $21.65 $20.67
------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income......................................... 0.20 0.46 0.18 0.03 0.03 (0.02) (0.02)
Net realized and unrealized gains (losses) on investments..... (0.39) 5.16 (0.53) 3.12 (0.20) 3.95 1.00
------- ------- ------- ------- ------- ------- -------
Total from investment operations.............................. (0.19) 5.62 (0.35) 3.15 (0.17) 3.93 0.98
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period................................ $16.66 $22.48 $16.86 $13.29 $10.14 $25.58 $21.65
======= ======= ======= ======= ======= ======= =======
Ratio of net investment income to average net assets (net of
reimbursements)***(1)........................................ 3.47% 2.55% 3.09% 0.47% 0.85% -0.11% -0.27%
Ratio of expenses to average net assets (net of
reimbursements)***(1)........................................ 0.95% 0.85% 0.95% 0.89% 0.80% 0.66% 0.93%
Ratio of net investment income to average net assets***....... 3.47% 2.50% 30.9% 0.47% 0.85% -0.36% -0.27%
Ratio of expenses to average net assets***.................... 0.95% 0.90% 0.95% 0.89% 0.80% 0.91% 0.93%
<CAPTION>
SPECIAL INTERNATIONAL
EQUITY CALVERT EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- --------------- ---------------
1995 1994** 1995 1994* 1995 1994**
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......................... $10.63 $10.47 $13.11 $13.28 $ 9.56 $10.18
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income......................................... (0.04) -- 0.90 0.66 (0.05) (0.03)
Net realized and unrealized gains (losses) on investments..... 4.29 0.16 2.86 (0.83) 1.02 (0.59)
------ ------ ------ ------ ------ ------
Total from investment operations.............................. 4.25 0.16 3.76 (0.17) (0.62) 0.97
------ ------ ------ ------ ------ ------
Net asset value, end of period................................ $14.88 $10.63 $16.87 $13.11 $10.53 $ 9.56
====== ====== ====== ====== ====== ======
Ratio of net investment income to average net assets (net of
reimbursements)***(1)........................................ -0.59% 0.05% 7.00% 11.76% -0.83% -0.81%
Ratio of expenses to average net assets (net of
reimbursements)***(1)........................................ 0.87% 0.80% 0.88% 0.76% 0.90% 0.81%
Ratio of net investment income to average net assets***....... -0.59% 0.05% 7.00% 11.76% -0.83% -0.81%
Ratio of expenses to average net assets***.................... 0.87% 0.80% 0.88% 0.76% 0.90% 0.81%
</TABLE>
- ---------------
* For the period August 18, 1994 (commencement of operations) to December 31,
1994
** For the period August 24, 1994 (commencement of operations) to December 31,
1994
*** All ratios for 1994 are annualized
(1) See Note 4
11
<PAGE> 14
AUSA
AUSA Life Insurance Company, Inc. is a stock life insurance company which
was organized under the laws of the State of New York. Its principal place of
business is 4 Manhattanville Road, Purchase, N.Y. 10577; (914) 697-8000.
Effective July 1, 1996 Life Investors Insurance Company of America merged
with AUSA Life Insurance Company, Inc. At that time the statutory-basis assets,
liabilities and surplus of such company were $688,233,328.64, $635,188,675.56
and $53,044,653.08, respectively.
DIVERSIFIED INVESTORS VARIABLE FUNDS
Diversified Investors Variable Funds was established by AUSA under New York
Insurance Law on November 30, 1993 as a separate account. Diversified Investors
Variable Funds will hold assets that are segregated from all of AUSA's other
assets and at present is used only to support the Contracts. AUSA is the legal
holder of the assets in Diversified Investors Variable Funds and will at all
times maintain assets in Diversified Investors Variable Funds with a total
market value at least equal to the contract liabilities for Diversified
Investors Variable Funds. The obligations under the Contracts are obligations of
AUSA. Income, gains, and losses, whether or not realized, from assets allocated
to Diversified Investors Variable Funds, are, in accordance with the Contracts,
credited to or charged against Diversified Investors Variable Funds without
regard to other income, gains, or losses of AUSA. The assets in Diversified
Investors Variable Funds may not be charged with liabilities which arise from
any other business AUSA conducts. Diversified Investors Variable Funds assets
may include accumulation of the charges AUSA makes against a Contract
participating in Diversified Investors Variable Funds. From time to time, any
such additional assets may be transferred in cash to AUSA's general account.
Diversified Investors Variable Funds is registered with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of 1940, as
amended, ("1940 Act") as a unit investment trust, which is a type of investment
company. This does not involve any supervision by the SEC of the management or
investment policies or practices of Diversified Investors Variable Funds. For
state law purposes, Diversified Investors Variable Funds is treated as a part or
division of AUSA.
There are currently fourteen Subaccounts within Diversified Investors
Variable Funds which are available for allocation of Purchase Payments under the
Contracts. The Calvert Series Subaccount invests only in the Calvert Responsibly
Invested Balanced Portfolio (the "Calvert Series"), a series of Acacia Capital
Corporation, an open-end management investment company registered with the SEC
under the 1940 Act. The thirteen other Subaccounts invest in thirteen respective
series of Diversified Investors Portfolios, an open-end diversified management
investment company registered with the SEC under the 1940 Act. Set forth below
is a brief description of the Calvert Series and the thirteen series of
Diversified Investors Portfolios. A full description of the Calvert Series, its
investment objectives, policies and restrictions, its expenses, the risks
attendant in investing therein and other aspects of its operations are contained
in the accompanying prospectus for the Calvert Series. Full descriptions of the
thirteen series of Diversified Investors Portfolios, their investment
objectives, policies and restrictions, their expenses, the risks attendant to
investing therein and other aspects of their operations are set forth herein
under "Diversified Investors Portfolios" at page . Further disclosure appears
in the Statement of Additional Information. Each Participant should periodically
consider his/her allocation among the Subaccounts in light of current market
conditions and the investment risks attendant to investment in the various
series of Diversified Investors Portfolios and the Calvert Series.
CALVERT SERIES
The Calvert Series is a series of Acacia Capital Corporation ("Acacia"), a
Maryland Corporation registered with the SEC under the 1940 Act as an open-end
management company, whose investment adviser is Calvert Asset Management
Company, Inc. The shares of Acacia are currently sold only to insurance
companies for allocation to their separate accounts to fund the benefits under
certain variable annuity and variable life insurance policies issued by such
companies. Because the Calvert Series sells its shares to
12
<PAGE> 15
insurance companies offering both variable annuity and variable life insurance
policies, potential for conflict between the interests of Contractholders of
these contracts may arise. The Board of Directors of Acacia will monitor the
Calvert Series for the existence of any material irreconcilable conflicts
between interests of Contractholders of all separate accounts investing in the
Calvert Series. If it is determined by a majority of the Board of Directors of
Acacia that such material conflict exists, then AUSA will take whatever steps
are necessary to eliminate the material conflict including withdrawing the
assets allocable to the Calvert Series and reinvesting them in a different
investment medium. For additional risk exposure, see the Calvert Series
prospectus which follows this prospectus. The Calvert Series Subaccount of
Diversified Investors Variable Funds will purchase and redeem shares from the
Calvert Series at net asset value.
The investment objective of the Calvert Series is set forth in the
prospectus for the Calvert Series which appears at the end of this Diversified
Investors Variable Funds prospectus. Briefly, the objective is to achieve a
total return above the rate of inflation through an actively managed,
diversified portfolio of common and preferred stocks, bonds and money market
instruments which offer income and capital growth opportunity and which satisfy
the social concern criteria established for the Calvert Series. There can be no
assurance that the objective of the Calvert Series will be realized.
DIVERSIFIED INVESTORS PORTFOLIOS
Each of the other thirteen Subaccounts of Diversified Investors Variable
Funds listed below invests exclusively in the corresponding series of
Diversified Investors Portfolios set forth below:
<TABLE>
<CAPTION>
DIVERSIFIED SUBACCOUNT SERIES OF DIVERSIFIED INVESTORS PORTFOLIOS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Diversified Investors Variable Funds
Money Market Subaccount.................... Diversified Investors Money Market Portfolio
(the "Money Market Series")
Diversified Investors Variable Funds
High Quality Bond Subaccount............... Diversified Investors High Quality Bond
Portfolio (the "High Quality Bond Series")
Diversified Investors Variable Funds
Intermediate Government Bond Subaccount.... Diversified Investors Intermediate Government
Bond Portfolio (the "Intermediate Government
Bond Series")
Diversified Investors Variable Funds
Government/Corporate Bond Subaccount....... Diversified Investors Government/Corporate
Bond Portfolio (the "Government/Corporate
Bond Series")
Diversified Investors Variable Funds
High-Yield Bond Subaccount................. Diversified Investors High-Yield Bond
Portfolio (the "High-Yield Bond Series")
Diversified Investors Variable Funds
Balanced Subaccount........................ Diversified Investors Balanced Portfolio (the
"Balanced Series")
Diversified Investors Variable Funds
Equity Value Subaccount.................... Diversified Investors Equity Value Portfolio
(the "Equity Value Series")
Diversified Investors Variable Funds
Equity Income Subaccount................... Diversified Investors Equity Income Portfolio
(the "Equity Income Series")
Diversified Investors Variable Funds
Growth & Income Subaccount................. Diversified Investors Growth & Income
Portfolio (the "Growth & Income Series")
Diversified Investors Variable Funds
Equity Growth Subaccount................... Diversified Investors Equity Growth Portfolio
(the "Equity Growth Series")
Diversified Investors Variable Funds
Special Equity Subaccount.................. Diversified Investors Special Equity
Portfolio (the "Special Equity Series")
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
DIVERSIFIED SUBACCOUNT SERIES OF DIVERSIFIED INVESTORS PORTFOLIOS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Diversified Investors Variable Funds
Aggressive Equity Subaccount............... Diversified Investors Aggressive Equity
Portfolio (the "Aggressive Equity Series")
Diversified Investors Variable Funds
International Equity Subaccount............ Diversified Investors International Equity
Portfolio (the "International Equity Series")
</TABLE>
Diversified Investors Portfolios is registered with the SEC under the 1940
Act as an open-end diversified management investment company. This registration
does not involve supervision by the SEC of the management or investment
practices or policies of Diversified Investors Portfolios.
Diversified acts as investment adviser and administrator to each series of
Diversified Investors Portfolios. Diversified has contracted with one or more
subadvisers for certain investment advisory services for each series.
Diversified and the subadviser or subadvisers for a particular series of
Diversified Investors Portfolios are referred to herein collectively as the
"Advisers". The investment objectives of the series of Diversified Investors
Portfolios currently available under the Contracts through Diversified
Subaccounts are described briefly below. There can be no assurance that the
investment objectives of any of the series will be met.
MONEY MARKET SERIES: To provide liquidity and as high a level of current
income as is consistent with the preservation of capital through investment in
domestic and foreign U.S. dollar-denominated money market obligations with
maturities of 397 days or less. An investor's interest in the Diversified
Investors Variable Funds Money Market Subaccount is neither insured nor
guaranteed by the U.S. Government.
HIGH QUALITY BOND SERIES: To provide as high a level of current income as
is consistent with the preservation of capital through investment in high
quality debt securities with short and intermediate maturities.
INTERMEDIATE GOVERNMENT BOND SERIES: To provide as high a level of current
income as is consistent with the preservation of capital through investment in
U.S. Government and U.S. Government agency and instrumentality securities with
intermediate maturities and high quality short-term obligations.
GOVERNMENT/CORPORATE BOND SERIES: To achieve the maximum total return
through investment in investment grade debt securities, U.S. Government and U.S.
Government agency and instrumentality securities collateralized mortgage
obligations guaranteed by these agencies and instrumentalities and high quality
short-term obligations.
HIGH-YIELD BOND SERIES: To provide a high level of current income from a
diversified portfolio consisting primarily of high-yielding, fixed-income and
zero coupon securities, such as bonds, debentures and notes, convertible
securities and preferred stocks.
BALANCED SERIES: To provide a high total return consistent with a broad
diversified mix of stocks, bonds and money market instruments.
EQUITY INCOME SERIES: To provide a high level of current income through
investment in a diversified portfolio of common stocks with relatively high
current yields; capital appreciation is a secondary objective.
EQUITY VALUE SERIES: To provide a high total investment return through
investment in a diversified portfolio of common stocks. The Series emphasizes
stocks which, in the opinion of the Equity Value Series' Advisers, are trading
at low valuations relative to market and/or historical levels.
GROWTH & INCOME SERIES: To provide current income and capital appreciation
through investment primarily in a diversified portfolio of securities selected
for their potential to generate current income or long term capital
appreciation.
EQUITY GROWTH SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks with potential
for above average growth in earnings; current income is a secondary objective.
SPECIAL EQUITY SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks of small to
medium size companies without consideration for current income. The Series
emphasizes stocks which, in the opinion of the Special Equity Series' Advisers,
will present an opportunity for significant increases in earnings and/or value.
14
<PAGE> 17
AGGRESSIVE EQUITY SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks of small to
medium size companies without consideration for current income. The Series
emphasizes stocks which, in the opinion of the Aggressive Equity Series'
Advisers, present an opportunity for significant increases in earning, revenue
and/or value.
INTERNATIONAL EQUITY SERIES: To provide a high level of long term capital
appreciation through investment in a diversified portfolio of securities of
foreign issuers.
See "Diversified Investors Portfolios" at page 32 and the Statement of
Additional Information for more information on each of the series of Diversified
Investors Portfolios described above.
THE SUBSTITUTION
Prior to October 18, 1996, Purchase Payments allocated by Participants to
the International Equity Subaccount were invested in shares of the International
Portfolio of Scudder Variable Life Investment Fund (the "Scudder International
Fund"). On August 28, 1996, the SEC issued an order pursuant to certain
provisions of the 1940 Act approving the substitution within the International
Equity Subaccount of interests in the International Equity Series for the shares
of the Scudder International Fund held by such Subaccount. In accordance with
such SEC order, AUSA effected the redemption of the shares of the Scudder
International Fund held by it in the International Equity Subaccount and
immediately invested the proceeds received from such redemption in the
International Equity Series.
CHARGES
CHARGES FOR MORTALITY AND EXPENSE RISKS
The maximum daily charges against Diversified Investors Variable Funds for
mortality and expense risks assumed by AUSA are computed and deducted from the
value of the net assets of Diversified Investors Variable Funds. The maximum
daily charge will be at the rate of 0.003425% (equivalent to an annual rate of
1.25%) of the average daily net assets of Diversified Investors Variable Funds.
The daily charge will be deducted from the net asset value of each Subaccount of
Diversified Investors Variable Funds on each Valuation Date. Where the previous
day (or days) was not a Valuation Date, the maximum deduction on the Valuation
Date will be 0.003425% multiplied by the number of days since the last Valuation
Date. The sum of these charges on an annual basis will not exceed 1.25% of the
average net assets invested in Diversified Investors Variable Funds. Of this
charge, AUSA estimates that .80% is for mortality risk and .45% is for expense
risk. (The daily charge from Diversified Investors Variable Funds based on an
annual mortality and expense risk rate of .90%, .60% for mortality risks and
.30% for administrative expense risks, is 0.002466%).
The mortality risk is that individuals may live for a longer period of time
than projected and therefore a greater amount of annuity benefits than projected
will be payable. The expense risk is that expenses incurred in issuing and
administering the Contract will exceed the administrative expense charge
provided in the Contract. AUSA believes that this level of charge is within the
range of industry practice for comparable group variable annuity contracts.
Sales distribution expenses and any other expenses in excess of the
described charges will be paid from AUSA's general account and not directly from
Diversified Investors Variable Funds or from the mortality and expense risk
charges. However, asset charges for AUSA's assumption of mortality and expense
risks might be a source of contribution to the surplus in AUSA's general
account.
ANNUAL CONTRACT CHARGE
AUSA reserves the right to deduct an annual contract charge from a
Participant's Accumulation Account to reimburse AUSA for administrative expenses
relating to the maintenance of the Contracts. AUSA has no present intention to
impose such a charge, however, AUSA may, in the future, impose such a charge in
accordance with the provisions of the Contracts. Any such annual charge will not
exceed $50. AUSA also
15
<PAGE> 18
reserves the right, if such a charge is imposed, to waive, on a temporary or
permanent basis, all or part of such charge for certain classes of Contracts or
for certain new classes of Contracts which may be sold in the future. If
imposed, this charge would represent reimbursement for administrative costs
expected to be incurred over the life of the Contracts. AUSA does not anticipate
any profit from this charge.
INVESTMENT MANAGEMENT FEE
Because Diversified Investors Variable Funds purchases interests in certain
series of Diversified Investors Portfolios and the Calvert Series, the net
assets of Diversified Investors Variable Funds will reflect the investment
management fee and other expenses incurred by these series of Diversified
Investors Portfolios and the Calvert Series.
Diversified serves as the investment adviser to each series of Diversified
Investors Portfolios. For information with respect to the arrangements under
which Diversified provides such advisory services, including charges and
arrangements with subadvisers, reference is made to the information set forth
under "Management of Diversified Investors Portfolios" at page 51.
The Calvert Series' investment adviser is the Calvert Asset Management
Company, Inc. ("Investment Adviser") which is located at 4550 Montgomery Avenue,
Suite 1000N, Bethesda, Maryland 20814. The Investment Adviser is a wholly-owned
subsidiary of Calvert Group, Ltd., which is in turn a wholly-owned subsidiary of
Acacia Mutual Life Insurance Company. Pursuant to its investment advisory
agreement with the Calvert Series, the Investment Adviser manages the
fixed-income investments of the Calvert Series and is responsible for the
overall management of the business affairs of the Calvert Series subject to the
direction and authority of the Board of Directors of Acacia. The subadvisor to
the Calvert Series is NCM Capital Management Group, Inc. ("NCM"). Pursuant to
its Investment Subadvisory Agreement with the Investment Adviser, NCM manages
the equity portion of investments for the Calvert Series. NCM is an
employee-owned subsidiary of Sloan Financial Group. Sloan Financial Group is
controlled by Maceo K. Sloan and Justin K. Beckett and is one of the largest
minority-owned investment management firms in the country. The Investment
Adviser receives from the Calvert Series a monthly base fee, computed on a daily
basis at an annual rate of 0.70% of the average daily net assets of the Calvert
Series. The Investment Adviser pays NCM a base fee of 0.25% of one-half of the
Calvert Series' net assets. In addition, the Investment Adviser and NCM may earn
(or have their fees reduced by) performance fee adjustments based on the extent
to which performance of the Calvert Series exceeds or trails the Lipper Balanced
Funds Index. Payment of the performance fee adjustment begins July 1, 1996. The
specific adjustments are as follows:
INVESTMENT ADVISER'S PERFORMANCE FEE ADJUSTMENT
<TABLE>
<CAPTION>
PERFORMANCE VERSUS THE PERFORMANCE FEE
LIPPER BALANCED FUND INDEX ADJUSTMENT
-------------------------- ---------------
<S> <C> <C>
6% to <12% 0.05%
12% to <18% 0.10%
18% or more 0.15%
</TABLE>
NCM'S PERFORMANCE FEE ADJUSTMENT
<TABLE>
<CAPTION>
PERFORMANCE VERSUS THE PERFORMANCE FEE
LIPPER BALANCED FUND INDEX ADJUSTMENT
-------------------------- ---------------
<S> <C> <C>
6% to <12% 0.05%
12% to <18% 0.10%
18% or more 0.15%
</TABLE>
The performance fee adjustment to NCM is paid out of the fee the Investment
Adviser receives from the Calvert Series. The initial performance period will be
the twelve month period between July 1, 1995 and July 1, 1996. Each month an
additional month's performance will be factored into the calculation until a
total of 36 months comprises the performance computation period. Payment by the
Calvert Series of the
16
<PAGE> 19
performance fee adjustment will be conditioned on (i) the performance of the
Calvert Series as a whole having exceeded the Lipper Balanced Fund Index and
(ii) payment of the performance fee adjustment not causing the Calvert Series'
performance to fall below the Lipper Balanced Fund Index.
PREMIUM TAX
Under the laws of certain jurisdictions, premium taxes are payable on
annuity considerations which can include Purchase Payments or the Accumulation
Account under the Contracts. Any applicable premium taxes will generally be
deducted when the Accumulation Account under a Contract is applied to purchase
an annuity. Under present laws, the range of premium taxes is from .5% to 4.0%.
Attached as an Appendix to this Prospectus is a schedule of applicable premium
taxes payable upon annuitization which are in effect as of the date of this
Prospectus. The laws of the various jurisdictions relating to annuity taxes and
the interpretations of such laws are subject to changes which may affect the
deductions, if any, under the Contracts for such taxes.
SUMMARY OF THE CONTRACTS
ELIGIBLE PURCHASERS
State educational organizations and organizations that qualify for
tax-exempt status under Code Section 501(c)(3), including associations thereof
that qualify for tax-exempt status under Code Section 501(c)(3), are eligible
purchasers. In addition, any organization qualifying as an IRA Contractholder
may purchase or hold an IRA Contract. Any type of non-profit organization as
well as taxed subsidiaries of tax-exempt organizations and taxed stand-alone
organizations may purchase a Section 401(a) and/or a Section 401(k) or an NQDC
Contract(s).
OWNERSHIP
The organization purchasing or holding a Contract is the owner of the
Contract for the benefit of the Participants. The Contract will cover all
eligible Participants under a Plan. Each Participant will receive a certificate
at the time his/her first annuity payment becomes payable, or earlier, if
required by applicable law. The certificate summarizes the Participant's
benefits under the Contract.
PURCHASE PAYMENTS
With respect to the Section 401(a) Contract, the employer and/or employee
will make contributions pursuant to the underlying retirement Plan. The Section
401(k) and NQDC Contracts will accept employer and/or employee contributions
pursuant to the terms and conditions of the underlying Plan. As to the Section
403(b) Contract, the employer will make Purchase Payments in accordance with a
salary reduction agreement or an agreement to forego a salary increase, except
with respect to employer-sponsored Section 403(b) Plans under which the employer
will make contributions pursuant to the underlying retirement Plan. As to the
Section 72 flexible annuities Contract, the employer will make Purchase Payments
for each participating employee pursuant to a salary deduction agreement. In the
case of the Section 408 IRA Contract, Purchase Payments will be made by the
employer on behalf of and as determined by each participating employee pursuant
to a salary deduction agreement or by the Participant. An Accumulation Account
will be established for each Participant which will record the number of Units
held in each Subaccount. Purchase Payments may be allocated among any of the
Subaccounts.
All Purchase Payments in Diversified Investors Variable Funds credited to
an Accumulation Account are vested and nonforfeitable. However, Purchase
Payments made by employers, including all such payments made under a Section
401(a) Contract, which are not the result of a reduction in salary or a give up
in salary agreement, under an employer-sponsored Plan may be forfeitable but are
generally subject to the vesting requirements, where applicable, of the Employee
Retirement Income Security Act of 1974, as amended. In general, all Purchase
Payments made to NQDC, Section 457 and Section 457(b) Contracts may be
forfeitable even though partially or fully vested.
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<PAGE> 20
EMPLOYER SPONSORED PLAN REQUIREMENTS
Since the Contracts are intended to implement the Plans of state
educational organizations, organizations that qualify for tax-exempt status
under Code Section 501(c)(3), IRA Contractholders and, in the case of Section
401(a) and/or Section 401(k) and NQDC Contracts, for taxed subsidiaries of such
organizations and stand-alone taxed organizations and since such Plans may be
sponsored by employers or associations who may have their own desires regarding
certain Plan details and the manner in which the Plan is to be administered,
there will be some variations in details in the Contract and Plan to reflect
such desires. Reference to the provisions of the Plan in which the individual is
a Participant must be made in all cases for particulars.
RIGHTS OF THE PARTICIPANT UNDER THE CONTRACT
There are no stipulated or required Purchase Payments to be made under the
Contract. Except for the 15 days prior to a Participant's Annuity Purchase Date
(See "Annuity Purchase Date" on page 23) during which no Purchase Payments will
be accepted by AUSA, during a Participant's Accumulation Period Purchase
Payments may be made in the amount authorized by the Participant. The Contract
permits the Participant to elect his/her Annuity Purchase Date, to allocate
Purchase Payments, to redeem all or a portion of the Units in his/her
Accumulation Account, to designate beneficiaries, and to elect Fixed Annuity
options, except that employer-sponsored Plans may affect these rights.
During a Participant's Accumulation Period, one's rights and those of the
Contractholder or IRA Contractholder shall be as set forth in the Contract and
Plan. On and after the Annuity Purchase Date, or on the Participant's death, if
earlier, all rights, as specified in the Contract and Plan, shall belong to the
Participant or beneficiary as the case may be.
RIGHTS UPON SUSPENSION OF CONTRACT OR TERMINATION OF PLAN
403(b) Contract
In the event that the making or receipt of all Purchase Payments under
certain 403(b) Contracts is discontinued or a Contractholder terminates its Plan
or discontinues Purchase Payments for a Participant, AUSA shall give written
notice thereof to the appropriate Participant(s) together with notice of the
right of the Participant to elect to have the value of his/her Accumulation
Account applied under one of the following options: (1) to be held and
distributed by AUSA in accordance with the terms of the Contract, (2) to be paid
to him/her in cash, or (3) in the event of suspension of the Contract or
termination of the Plan, to be transferred to an alternate funding agency (e.g.,
another insurance company). Certain other 403(b) Contracts require the
Contractholder, not AUSA, to give written notice thereof to Participants.
401(a) Contract/401(k) Contract and NQDC Contracts
If the Contractholder terminates its Plan or discontinues Purchase
Payments, it is the Contractholder's responsibility, and not AUSA's, to give
written notice thereof to the affected Participants. In such cases, the
Contractholder shall elect to have the entire balance held under the Contract
applied under one of the following options: (1) to be held and distributed by
AUSA in accordance with the terms of the Contract; (2) to be transferred to an
alternate funding agency (e.g., another insurance company); or (3) to purchase
deferred, paid-up life annuity benefits for Participants.
457, 457(f), Flexible Annuity, and 408(IRA) Contracts
If the Contractholder or IRA Contractholder terminates its Plan or
discontinues Purchase Payments for a Participant, AUSA shall give written notice
thereof to the appropriate Participant(s) together with notice of the right of
the Participant to elect to have the value of his/her Accumulation Account
applied under either of the following options: (1) to be held and distributed by
AUSA in accordance with the terms of the Contract or (2) to be paid to him/her
in cash, except that, under the terms of certain 457 Contracts, the
Contractholder, not AUSA, shall give notice to affected Participants.
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<PAGE> 21
FAILURE OF QUALIFICATION
In the event that a Plan, Contractholder or IRA Contractholder or a
Participant, thereunder becomes ineligible for any previously applicable tax
benefits under the Code, AUSA upon notice thereof shall refuse during the period
of such ineligibility to accept Purchase Payments with respect to that Plan or
Participant. A failure of qualification under a particular Contract shall have
no effect on other issued and outstanding Contracts.
TRANSFERS
No transfers may be made between any of the Contracts; however, the
following transfers are permissible with respect to each Contract.
401(a), 401(k), 403(b), 457, 457(f), Flexible Annuity, 408(IRA) and NQDC
Contracts
A Participant may transfer all or a portion of his/her Accumulation Account
in Diversified Investors Variable Funds among the various Subaccounts. No
transfer charges are imposed, and there is no limit to the number of transfers
permitted. While AUSA has no present intention to do so, AUSA reserves the right
to impose transfer charges at a later date.
Transfers from the Section 403(b), 401(a) and (k) and NQDC Group Fixed
Annuity Contracts to a Participant's Accumulation Account under the Diversified
Investors Variable Funds Contracts are permitted only to the Subaccounts which
invest in the Balanced Series, Equity Income Series, Growth & Income Series,
Equity Growth Series, Special Equity Series, Calvert Series or International
Equity Series. Certain other restrictions which apply to transfers from the AUSA
Section 403(b), Section 401(a), Section 401(k), NQDC and Section 408(IRA) Group
Fixed Annuity Contracts to the Diversified Investors Variable Funds Contracts
are contained in the AUSA Section 403(b) and Section 401(a) and NQDC and
408(IRA) Group Fixed Annuity Contracts.
Transfers may be made in writing or by telephoning (914) 697-8000.
Transfers are effective within 48 hours of receipt of instructions. All
Participants should be aware that a transfer authorized by telephone and
reasonably believed to be genuine by AUSA may subject the Participant to risk of
loss if such instruction is subsequently found not to be genuine. AUSA will
employ reasonable procedures, including requiring Participants to give certain
identification information and tape recording of telephone instructions, to
confirm that instructions communicated by telephone are genuine. To the extent
that AUSA fails to use reasonable procedures to verify the genuineness of
telephone instructions, AUSA may be liable for any losses due to telephone
instructions that prove to be fraudulent or unauthorized.
RIGHTS RESERVED BY AUSA
Subject to compliance with applicable laws and, when required by law,
approval of the Contractholders, IRA Contractholders, NQDC Contractholders
and/or Participants and any appropriate regulatory authority, AUSA reserves the
right to make the following changes:
(1) To operate Diversified Investors Variable Funds in any form permitted
under the 1940 Act or in any other form permitted by law;
(2) To take any action necessary to comply with or obtain and continue any
exemptions from the 1940 Act;
(3) To transfer any assets in a Subaccount to another Subaccount or to one
or more separate accounts, or to AUSA's general account to the extent
permitted by law or to add, combine or remove Subaccounts in a separate
account;
(4) To substitute, for the interests in a series of Diversified Investors
Portfolios or the Calvert Series held in any Subaccount, interests in
another series of Diversified Investors Portfolios or interests in
another investment company or any other investment permitted by law;
and
19
<PAGE> 22
(5) To make any necessary technical changes in the Contracts in order to
conform with any of the above-described actions or as may be required
or permitted by applicable laws affecting Diversified Investors
Variable Funds or the Contracts.
CREDIT OF PURCHASE PAYMENTS
A Participant's initial Purchase Payment will be credited to the
Participant's Accumulation Account to provide Units as of a Valuation Date for
the Valuation Period, not later than (1) two business days after receipt of the
Purchase Payment by AUSA at 4 Manhattanville Road, Purchase, New York 10577, if
the contract application and/or Participant's enrollment form is complete upon
receipt, or (2) two business days after an application and/or enrollment form
which is incomplete upon receipt by AUSA is made complete, provided that if such
information is not made complete within five business days after receipt, (i)
the prospective Participant will be informed of the reasons for the delay, and
(ii) the initial Purchase Payment will be returned immediately and in full,
unless the prospective Participant specifically consents to AUSA retaining the
Purchase Payment until such information is made complete.
Subsequent Purchase Payments will be credited to the Participant's
Accumulation Account to provide Units as of the Valuation Date for the Valuation
Period in which the Purchase Payment is received in good order by AUSA.
ALLOCATION OF PURCHASE PAYMENTS
Upon receipt of a Purchase Payment, it will be credited to the Subaccount
designated by the Participant in the form of Units. The number of Units to be
credited is determined by dividing the dollar amount allocated to the particular
Subaccount(s) by the Unit value of that Subaccount for the Valuation Date for
the Valuation Period on which the Purchase Payment is received. The number of
Units shall not be changed by any subsequent change in the value of a Unit, but
the dollar allocation value of a Unit will vary in amount depending upon the
investment experience of the applicable Subaccount.
Allocation instructions may be changed at any time by sending to AUSA a
correctly completed allocation form. Any change in allocations will be effective
within 10 business days following receipt of the allocation form by AUSA. If an
allocation form is incorrectly completed, Purchase Payments will be credited in
accordance with the most recent allocation form on record. AUSA reserves the
right to limit a Participant's right to change allocation instructions to four
times a calendar year.
DETERMINATION OF UNIT VALUE
The Unit value for a Subaccount for any Valuation Date is determined by
subtracting (b) from (a) and dividing the result by (c), where
(a) is the aggregate net asset value on the Valuation Date of all
investments by the Subaccount in the series of Diversified Investors
Portfolios or the Calvert Series, in which the Subaccount invests, and
(b) is the mortality and expense risk charge accrued as of that Valuation
Date; and,
(c) is the total number of Units held in the Subaccount on the Valuation
Date before the purchase or redemption of any Units on that Date.
DEATH BENEFIT
Under Section 403(b), Section 457, Section 457(f), flexible annuity and
408(IRA) Contract, if a Participant dies before the Annuity Purchase Date (See
"Annuity Purchase Date" on page 23), the value of his/her Accumulation Account
will be paid to the beneficiary in a lump sum. If the beneficiary is under the
age of 75 at the time of the Participant's death, the beneficiary may elect to
have this lump sum applied to provide a Fixed Annuity. A lump sum payment to
some extent may be taxed as ordinary income to the beneficiary in the year
received. A beneficiary should consider the possible tax advantages to electing
an
20
<PAGE> 23
annuity. (See "Section 403(b) Annuities" on page 27). Under Section 401(a)
and/or Section 401(k) Contracts, however, the underlying tax-qualified Plan is
generally required to provide that in the case of a married Participant, a
survivorship annuity death benefit will be paid to the surviving spouse if the
Participant dies prior to retirement. In each case involving Section 401(a)
and/or Section 401(k) Contracts, reference must be made to the underlying Plan
for particulars.
If the Participant dies before the Annuity Purchase Date, his/her entire
interest must generally be distributed within five years after the date of
death, or if payable to a designated beneficiary must be annuitized over the
life of that designated beneficiary or over a period not extending beyond the
life expectancy of that beneficiary, within one year after the date of death. If
the beneficiary is the Participant's spouse, distributions are not required to
be made until the April 1st after the end of the calendar year in which the
Participant would have attained age 70 1/2; if the spouse dies before
distributions begin, the rules discussed above will apply as if the spouse were
the Participant (owner).
If a lump sum payment is elected, the Accumulation Account value will be
determined on the Valuation Date for the Valuation Period in which a certified
copy of the death certificate evidencing the Participant's death is received by
AUSA. If a Fixed Annuity is elected, the Accumulation Account value will be
determined on the Valuation Date for the Valuation Period of the beneficiary's
Annuity Purchase Date. For Section 401(a) and/or Section 401(k) and NQDC
Contracts, the underlying Plan should be consulted to determine the options
available.
For NQDC Contracts, the remaining value will be paid to a designated
beneficiary. If no such beneficiary is so designated or in existence, the
remaining value will be paid in the following order: Participant's (1) spouse,
(2) children, (3) parents, (4) siblings and (5) estate.
For all Contracts except NQDC Contracts, the death benefit is guaranteed to
be not less than the total amount of all contributions, less any withdrawals,
made by the Participant.
REDEMPTION DURING THE ACCUMULATION PERIOD
For Section 403(b), Section 457, Section 457(f), flexible annuity and
Section 408(IRA) Contracts and subject to applicable federal tax law
restrictions, a Participant at any time during his/her Accumulation Period and
prior to his/her death may redeem all or a portion of the Units credited to the
Accumulation Account. There is no redemption charge. (See "Federal Tax Status"
on page 27).
The Accumulation Account value redeemed or the Units remaining after a
partial redemption will be determined on the Valuation Date for the Valuation
Period in which a written request for a redemption on a form approved by AUSA is
received by AUSA. The Accumulation Account will be reduced by the lesser of the
number of Units obtained by dividing the amount of the redemption request by the
Unit value for that day or the number of Units remaining in the Accumulation
Account.
A full or partial redemption payment will be made within seven days after
receipt of the written request. A request for a partial redemption must specify
the Subaccount(s) from which the partial withdrawal is to be made. Payment may
be postponed as permitted by the 1940 Act. Currently, deferment is permissible
only when the New York Stock Exchange is closed or trading is restricted, when
an emergency exists as a result of which disposal of interests in Diversified
Investors Portfolios or the Calvert Series held by Diversified Investors
Variable Funds is not reasonably practicable or it is not reasonably practicable
to determine fairly the value of these assets, or when the SEC has provided for
such deferment for the protection of Participants.
A withdrawal will generally have federal income tax consequences which may
include penalties. (See "Federal Tax Status" on page 27).
With respect to Section 401(a), Section 401(k) and NQDC Contracts, the
ability to withdraw funds during the Accumulation Period is generally more
limited; however, in each instance the underlying Plan document should be
consulted to determine what options, if any, are available.
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<PAGE> 24
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
The Texas Optional Retirement Program ("Program") imposes on participants
in such Program certain restrictions on withdrawal, which affect redemptions
with respect to any variable annuity contract issued under the Program. Under
section 830.104 of the Texas Government Code, such participant in the Program,
in order to withdraw accumulated contributions from the retirement system, must
complete the required application form prescribed by the board of trustees. A
person who withdraws contributions pursuant to section 830.104 relinquishes all
accrued rights in the retirement system.
Nothing in section 830.105 of the Texas Government Code, entitled
Termination of Participation, precludes the election by a participant to
withdraw accumulated contributions pursuant to section 830.104. However, section
830.105 restricts the availability of an annuity purchased under the Program to
situations where the participant attains age 70 1/2 or terminates participation
in the Program by: death, retirement, or termination of employment in all
institutions of higher education.
PAYMENT OPTIONS
With respect to Section 403(b), Section 457, Section 457(f), flexible
annuity and Section 408(IRA) Contracts, unless a Fixed Annuity as described
below is elected, payment to the Participant shall be made at the end of his/her
Accumulation Period in a lump sum calculated in the same manner as if a total
withdrawal request of one's Accumulation Account had been received by AUSA on
his/her Annuity Purchase Date. (See page for "Redemption During the Accumulation
Period"). However, Section 401(a), Section 401(k) and NQDC Contracts provide the
funding for the Plans and reference to the particular Plan must be made in each
case for details. For example, tax-qualified Plans must generally provide by law
that in the case of a married Participant who does not properly elect otherwise,
retirement annuity benefits will be paid in the form of a contingent annuity
with a survivorship annuity benefit for his surviving spouse at least equal to
50% of the amount which would have been payable if the Participant were living.
For NQDC Contracts, the employer may also provide for installment payments
without the purchase of an annuity.
ANNUITY PURCHASE DATE
The Annuity Purchase Date is the first day of the month coincident with or
following the receipt by AUSA of written notice, submitted through the
Participant's employer, of the Participant's retirement (i.e., the termination
of employment with his/her employer). Subject to the terms of the Plan, a
Participant may elect to retire at any time and receive annuity benefits. As a
general rule, benefits must begin no later than April 1 of the calendar year
following the year in which the Participant attains age 70 1/2 at which time an
election to receive an annuity or lump sum benefit must be made.
In the case of a beneficiary who elects a Fixed Annuity, the Annuity
Purchase Date will be the first day of the month following receipt by AUSA of
the election of a Fixed Annuity; however, if any election is received during the
last 15 days of a month, the Annuity Purchase Date will be the first day of the
second month after receipt of the election.
For Section 408(IRA) Contracts, the Annuity Purchase Date is the date the
annuity first begins under the terms of the IRA Contract.
FIXED ANNUITY
Fixed Annuity payments are not made from Diversified Investors Variable
Funds but are made from the general account of AUSA which supports insurance and
annuity obligations. Because of exemptive and exclusionary provisions, Fixed
Annuity payments and interests in the general account have not been registered
under the Securities Act of 1933, as amended, (the "1933 Act") nor is the
general account registered as an investment company under the 1940 Act.
Accordingly, neither the general account nor any interests therein are generally
subject to the provisions of the 1933 or 1940 Acts. The SEC staff has not
reviewed the disclosures in this Prospectus that relate to the Fixed Annuity
payments and interests in the general account. Disclosures regarding Fixed
Annuity payments and the general account in this Prospectus, however, may be
22
<PAGE> 25
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
A Fixed Annuity may not be elected if the initial monthly payment under the
form elected would be less than $20. Fixed Annuity payments will be made monthly
unless the annuitant elects to receive payments annually, semi-annually or
quarterly. Any such election must be made at the same time that the annuitant
elects to receive a Fixed Annuity and cannot be changed during the annuity
period. Once a Fixed Annuity takes effect, it may not be redeemed, surrendered
or changed to any other form of annuity.
FIXED ANNUITY OPTIONS
The following Fixed Annuity options may be available:
i) Life Annuity -- Annuity payments will be made during the lifetime of
the annuitant. It would be possible for the annuitant to receive no
annuity payment if he/she died prior to the date of the first annuity
payment.
ii) Life Annuity With Period Certain -- Annuity payments will be made
during the lifetime of the annuitant with the guarantee that if the
annuitant dies before a period certain elected, the beneficiary will
receive payments for the duration of the period. The period certain
may be any number of years between 5 and 20 inclusive.
iii) Specified Fixed Period Annuity -- Annuity payments will be made for a
specified fixed period selected by the annuitant. If the annuitant
dies during the specified fixed period, the annuity payments for the
remainder of the period will be paid to the beneficiary. No annuity
payments are made after the expiration of the specified fixed period
even if the annuitant survives. The specified fixed period may be for
any number of years between 10 and 30 years inclusive.
iv) Contingent Annuity -- Annuity payments will be made during the joint
lifetimes of the annuitant and a designated second person ("contingent
annuitant") with payments continued during the remaining lifetime of
the contingent annuitant. Annuity payments to the contingent annuitant
may be made in the same amount paid while both annuitants lived or a
lesser percentage of this amount. For Section 401(a) and/or Section
401(k) Contracts, in the absence of a proper election by the
Participant, a contingent annuity with a survivorship annuity benefit
for the surviving spouse at least equal to 50% of the amount which
would have been payable if the Participant were living will be the
normal form of benefit.
If the contingent annuitant dies before the first annuity payment to
the annuitant, the contingent annuity election will be void and the
annuitant will receive a Life Annuity. If the contingent annuitant dies
after the first annuity payment to the annuitant, but before the death
of the annuitant, annuity payments under the Contingent Annuity
election will be made to the annuitant during his/her lifetime. If the
annuitant and the contingent annuitant die before the date of the first
annuity payment, no annuity payments will be made.
v) Contingent Annuity With Period Certain -- Annuity payments will be made
during the joint lifetimes of the annuitant and a designated second
person ("contingent annuitant"). Annuity payments to the contingent
annuitant may be in the same amount as paid to the annuitant or a
lessor percentage of that amount and will be made for a period certain
of any number of years between 5 and 20 years inclusive.
The Life Annuity With Period Certain and the Specified Fixed Period Annuity
may only be elected for a number of years that will not exceed an annuitant's
life expectancy. The annuity benefit option elected by the Participant will
affect the level of annuity payments the Participant will receive. The longer
annuity payments are projected to continue based upon actuarial possibilities,
the lower annuity payments will be.
The annuity purchase rates for these Fixed Annuity benefits shall not
exceed, during the initial period set forth in the Contract, the maximum rates
set forth in the Contract. Thereafter, the annuity purchase rate will be the
rate in effect as declared by AUSA. The guaranteed level of Fixed Annuity
payments will be
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<PAGE> 26
determined based upon (i) a Participant's Accumulation Account value on the
Annuity Purchase Date, (ii) the applicable annuity purchase rate on the Annuity
Purchase Date which will reflect the age of the Participant and (iii) the type
of Fixed Annuity option elected.
PAYMENTS TO A BENEFICIARY FOLLOWING THE ANNUITANT'S DEATH
If any annuity payment is payable to the beneficiary after the death of an
annuitant on or after his/her Annuity Purchase Date but during a period certain,
it shall be payable as each payment becomes due to the beneficiary. If the
benefit is payable to more than one beneficiary, it shall be paid in equal
shares to such beneficiaries, the survivors or survivor, unless the annuitant
has elected otherwise. Upon the death of the last surviving beneficiary, AUSA
shall pay the commuted value of any remaining payments in a lump sum cash
payment to the estate of such last surviving beneficiary in lieu of any further
income payments.
The annuitant's beneficiary may direct in writing to AUSA that any income
payable after the death of the annuitant or contingent annuitant be terminated
and a single commuted value be paid to the beneficiary. The commuted values
referred to above shall be based upon the value of the payments for the balance
of the period certain determined as of the date AUSA receives written notice of
the beneficiary's election to receive the commuted value on the basis of the
interest rate (compounded annually) inherent in the annuity purchase rate
applied to provide the annuitant's Fixed Annuity.
VOTING RIGHTS
The assets held in the Subaccounts of Diversified Investors Variable Funds
will be invested in the corresponding series of Diversified Investors Portfolios
or the Calvert Series . AUSA is the legal holder of these interests and shares
held in a Subaccount and as such has the right to vote to elect the governing
Boards of Diversified Investors Portfolios and Acacia to vote upon certain
matters that are required by the 1940 Act to be approved or ratified by the
shareholders of a mutual fund, and to vote upon any other matter that may be
voted upon at a shareholders' meeting. To the extent required by law, AUSA will
vote at regular and special shareholder meetings in accordance with the
instructions received from Contractholders, IRA Contractholders and NQDC
Contractholders. The record date for any such vote shall be selected by the
governing Boards of Diversified Investors Portfolios or Acacia. AUSA will
furnish Contractholders, IRA Contractholders and NQDC Contractholders with the
proper forms to enable them to give it these instructions.
Each Contractholder, IRA Contractholder and NQDC Contractholder will have
the equivalent of one vote per $100 of the dollar value of the Accumulation
Accounts in a Contract held in each Subaccount of Diversified Investors Variable
Funds, with fractional votes for amounts less than $100. These votes,
represented as votes per $100 of Accumulation Account value in each Subaccount
of Diversified Investors Variable Funds, are converted into a proportionate
number of votes in beneficial interests in a series of Diversified Investors
Portfolios or shares of the Calvert Series. Interests held in each Subaccount
for which no timely instructions from Contractholders, IRA Contractholders or
NQDC Contractholders are received will be voted by AUSA in the same proportion
as those interests in that Subaccount for which instructions are received.
Should applicable federal securities laws or regulations permit, AUSA may elect
to vote in its own right.
A Participant will have the right to instruct the Contractholder, IRA
Contractholder or NQDC Contractholder with respect to interests in the series of
Diversified Investors Portfolios or the Calvert Series attributable to his/her
portion of the Accumulation Account held in each Subaccount of Diversified
Investors Variable Funds. Each Participant under the Contract shall receive a
statement of the amount attributable to his/her participation in each Subaccount
and stating his/her right to instruct the Contractholder as to how to vote such
interest. AUSA will provide voting instruction materials to the Contractholder,
IRA Contractholder or NQDC Contractholder and to the Participants.
The Contractholder, IRA Contractholder and NQDC Contractholder shall
provide voting instructions to AUSA with respect to interests attributable to
the Accumulation Account values held in a Subaccount in accordance with
instructions received by Participants. For interests for which no timely
instructions from
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<PAGE> 27
Participants are received, the Contractholder, IRA Contractholder or NQDC
Contractholder will instruct AUSA to vote these interests in the same proportion
as those shares for which instructions from Participants are received.
Matters on which the Contractholder, IRA Contractholder or NQDC
Contractholder may give voting instructions include the following: (1) election
of the governing Boards of Diversified Investors Portfolios or Acacia; (2)
ratification of the independent accountant of a series of Diversified Investors
Portfolios or the Calvert Series corresponding to the Contractholder's, IRA
Contractholder's or NQDC Contractholder's selected Subaccount(s); (3) approval
of any change in the Investment Advisory Agreement or any Subadvisory Agreement
for a series of Diversified Investors Portfolios or the Calvert Series
corresponding to the Contractholder's, IRA Contractholder's or NQDC
Contractholder's selected Subaccount(s); (4) any change in the fundamental
investment policies of a series of Diversified Investors Portfolios or the
Calvert Series corresponding to the Contractholder's, IRA Contractholder's or
NQDC Contractholder's selected Subaccount(s); and (5) any other matter requiring
a vote of the shareholders of Diversified Investors Portfolios or the Calvert
Series. With respect to approval of the Investment Advisory Agreements or
Subadvisory Agreements or any change in a fundamental investment policy,
Contractholders, IRA Contractholders and NQDC Contractholders participating in
that Subaccount will vote separately on the matter pursuant to the requirements
of Rule 18f-2 under the 1940 Act.
AUSA may, if required by state insurance officials, disregard voting
instructions if those instructions would require voting to cause a change in the
subclassification or investment objectives or policies of one or more of the
series of Diversified Investors Portfolios or the Calvert Series, or to approve
or disapprove an investment adviser or principal underwriter for one or more
series of Diversified Investors Portfolios or the Calvert Series. In addition,
AUSA may disregard voting instructions that would require changes in the
investment objectives or policies of any series of Diversified Investors
Portfolios or the Calvert Series or in an investment adviser or principal
underwriter for Diversified Investors Portfolios or the Calvert Series, if AUSA
reasonably disapproves those changes in accordance with applicable federal
regulations. If AUSA disregards voting instructions, it will advise
Contractholders, IRA Contractholders, NQDC Contractholders and Participants of
that action and its reasons for the action in the next semiannual report to
Contractholders, IRA Contractholders, NQDC Contractholders and Participants.
DISTRIBUTION OF THE CONTRACTS
DISC will act as the principal underwriter and the distributor of the
Contracts. DISC will perform all sales, marketing and administrative functions
relative to the Contracts which participate in Diversified Investors Variable
Funds, with certain exceptions in connection with the use of other authorized
broker-dealers. DISC is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended, and is a member of the National Association of
Securities Dealers, Inc. The Contracts are sold by individuals who are
registered representatives of DISC and who are also licensed as insurance agents
for AUSA. The Contracts may also be sold through registered representatives of
other broker-dealers authorized by DISC and applicable law who may be insurance
agents licensed by an insurance company other than AUSA. Commissions and other
expenses directly related to the sale of the Contracts will not exceed 8 percent
of Purchase Payments. Additional expense allowance may be paid for other
services not directly related to the sale of the Contracts. Such services
include the training of personnel and the production of promotional literature.
FEDERAL TAX STATUS
The ultimate effect of federal income taxes on Fixed Annuity payments and
on the economic benefit to the Participant, annuitant, payee and beneficiary
depends on the tax and employment status of the individual concerned.
The discussion which follows on the treatment of AUSA and of the Contracts
under federal income tax law is general in nature, is based upon AUSA's
understanding of current federal income tax laws, and is not
25
<PAGE> 28
intended as tax advice. No representation is made regarding the likelihood of
continuation of the present federal income tax law or of the current
interpretations by the Internal Revenue Service. No attempt is made to consider
any applicable state or other tax laws. Each Contractholder, IRA Contractholder,
NQDC Contractholders and Participant contemplating investment in the Contracts
should consult a qualified tax adviser.
Participants receiving large distributions (generally those in excess of
$150,000 per year; or lump sum distributions in excess of $150,000) from
qualified retirement Plans, including those funded through Section 401(a),
Section 408(IRA) and Section 403(b) Contracts, may be subject to a 15% excise
tax on their distributions in excess of a specified amount.
TAX TREATMENT OF AUSA
AUSA is taxed as a life insurance company under the Code. Investment income
from the assets of Diversified Investors Variable Funds are reinvested and taken
into account in determining the value of Diversified Investors Variable Funds.
Under existing federal income tax law, the investment income of Diversified
Investors Variable Funds, including realized capital gains, is substantially not
taxed to AUSA.
TAXATION OF DIVERSIFIED INVESTORS PORTFOLIOS
Diversified Investors Portfolios is organized as a New York trust. None of
its series are subject to any income or franchise tax in the State of New York.
AUSA, as an investor in a series of Diversified Investors Portfolios will be
taxable on its share (as determined in accordance with the governing instruments
of Diversified Investors Portfolios) of such series' ordinary income and capital
gain in determining its income tax liability. The determination of such share
will be made in accordance with the Code and regulations promulgated thereunder.
See "Tax Treatment of AUSA" above.
SECTION 403(B) ANNUITIES
Purchase Payments made under a Contract meeting the requirements of Section
403(b) of the Code afford certain federal income tax benefits to employees of
state educational organizations, and organizations which are tax-exempt under
Section 501(c)(3) of the Code.
The employer may make contributions to the Contract or the employer may
agree with the Participant that in return for employer contributions to the
Contract, the Participant will take a reduction in salary or give up a salary
increase. The agreement may not be changed with respect to earnings of the
Participant while the agreement is in effect. The Participant can only make one
agreement with his/her employer during the year, but the Participant may
terminate the agreement at any time with respect to amounts not yet earned. No
federal income tax is payable by the Participant on increases in the value of
his/her Accumulation Account until payments are received by the Participant.
Purchase Payments meeting the requirements of Sections 402(g), Section
403(b) and Section 415 of the Code are not includable in the gross income of the
Participant at the time they are made. Under Section 402(g) of the Code,
Purchase Payments made under a reduction in salary or a give up in salary
increase agreement ("elective deferrals") are excluded from a Participant's
gross income to the extent of the lesser of $9,500 or the Participant's
exclusion allowance. The $9,500 limit will be reduced on a dollar for dollar
basis by employee pre-tax elective deferrals made by that individual under a
Section 401(k) Plan, a simplified employee pension plan, or other tax deferred
annuity. Under Section 403(b) of the Code, Purchase Payments made under a
reduction in salary or a give up in salary agreement and/or contributed by the
employer are excluded from a Participant's gross income to the extent of the
applicable "exclusion allowance". The "exclusion allowance" is equal to 20% of a
Participant's includable compensation (taxable earnings) for the tax year,
multiplied by the number of years of employment, reduced by the total of
Purchase Payments made in prior tax years.
When Fixed Annuity payments commence, or if the Participant obtains a
partial or full redemption of the Units credited to his/her Accumulation Account
under the Contract, the amount received will be includable
26
<PAGE> 29
as ordinary income in the year received, except that such portion of any amount
received as is deemed to represent a return of Purchase Payments originally
included as gross income made by the Participant will not be taxed. Full
redemptions do not qualify for special capital gains treatment nor 5-year income
averaging applicable to qualified plan lump sum distributions. However, if a
Participant makes a full redemption after attaining age 59 1/2 or on account of
a separation from service, he/she may delay including the distribution in income
by making a rollover transfer, subject to requirements set by the Code, to an
Individual Retirement Account or another Section 403(b) annuity. A partial
redemption of at least 50% of the balance to the credit of a Participant on
account of a separation from service may be rolled over to an Individual
Retirement Account, subject to requirements set by the Code.
If the Participant receives any amount under the Contract, the Participant
must pay an additional tax of 10% of the amount of the distribution includable
in gross income for the taxable year. This additional tax shall not apply to
distributions which are (1) made after the date on which the Participant attains
age 59 1/2, (2) made to a beneficiary on or after the death of the Participant,
(3) attributable to the Participant's becoming permanently disabled, (4) made
after separation from service in a series of substantially equal periodic
payments made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his beneficiary, (5)
made to a Participant after separation of service after attainment of age 55,
(6) made to a Participant for medical care (not to exceed the amount deductible
by the employee), or (7) paid to alternate payees under a qualified domestic
relations order.
RESTRICTIONS ON WITHDRAWALS OF ELECTIVE CONTRIBUTIONS. Effective January 1,
1989 and thereafter, any funds in the Participant's account balance other than
funds attributable to assets held at the close of the last year beginning before
January 1, 1989 will be restricted from withdrawal except upon attainment of age
59 1/2, separation from service, death, disability or hardship (hardship
withdrawals are to be limited to the amount of the Participant's own
contributions exclusive of earnings). However, any funds in the Participant's
account balance attributable to employer contributions, if any, and the earnings
thereon will not be restricted unless specifically provided for by the
employer's plan.
In tax years beginning after 1988, Section 403(b) Plans (other than church
plans) will be subject to nondiscrimination and coverage requirements, as well
as special rules with respect to minimum distributions.
SECTION 401(A) PLANS
An employer maintaining a pension or profit sharing Plan which satisfies
the requirements of Section 401(a) of the Code may make contributions to the
Contract which are generally currently deductible by the employer and are not
currently taxed to the Participants. The Code prescribes various limitations on
the maximum amount which may be contributed on behalf of any Participant. In
addition, Participants may make after-tax contributions to the Contract if their
Section 401(a) Plan permits.
When Fixed Annuity payments commence, or if the Participant obtains a
partial redemption of the Units credited to his/her Accumulation Account under
the Contract, the amount received will be includable as ordinary income in the
year received, except that such portion of any amount received as is deemed to
represent a return of Participant after-tax Purchase Payments will not be taxed.
Full redemptions may qualify for special capital gains treatment or 5-year or
10-year income averaging if the payment constitutes a "lump sum distribution,"
as that term is defined in the Code.
The rules governing rollovers of distributions from a Section 401(a) Plan
are parallel to those dealing with distributions from Section 403(b) annuities.
In addition, the 10% penalty on premature distributions from Section 403(b)
annuities is also applicable to Section 401(a) Plan distributions.
SECTION 408 (IRA) CONTRACTS
An individual, participating under a Contract which satisfies the
requirements of Section 408 of the Code, may make contributions to the Contract.
The Code prescribes various limitations on the maximum amounts which may be
contributed by or on behalf of the Participant and on the deductibility of the
contributions for
27
<PAGE> 30
federal income tax purposes. No federal income tax is payable by the Participant
on increases in the value of his/her Accumulation Account until payments are
received by the Participant.
When Fixed Annuity payments commence, or if the Participant obtains a
partial redemption of the Units credited to his/her Accumulation Account under
the Contract, the amount received will be includable as ordinary income in the
year received, except that such portion of any amount received which is deemed
to represent a return of Participant non-deductible Purchase Payments will not
be taxed. Full or partial redemptions do not qualify for special capital gains
treatment nor 10-year income averaging applicable to certain qualified plan
distributions.
If the Participant receives any amount under the Contract prior to
attainment of age 59 1/2, the Participant must pay an additional excise tax of
10% of the amount of the distribution includable in gross income for the taxable
year. The additional tax shall not apply to distributions which are (1) made to
a beneficiary on or after the death of the Participant, (2) attributable to the
Participant's becoming permanently disabled or (3) made in a series of
substantially equal periodic payments made for the life (or life expectancy) of
the Participant or the joint lives (or joint life expectancies) of the
Participant and his/her beneficiary. Any full or partial redemption will not be
includable in ordinary income if the Participant rolls over the distribution
within 60 days to another IRA.
MINIMUM DISTRIBUTION REQUIREMENTS
If the actual distributions from a qualified retirement plan, eligible
state or local government deferred compensation plan or an IRA are less than the
minimum required to be distributed commencing by April 1 in the calendar year
following the year the Participant attains age 70 1/2 (see "Annuity Purchase
Date", on page 23) the difference is considered to be an excess accumulation and
the IRS may impose a 50% excise tax on this excess amount.
SECTION 457 PLANS
Section 457 of the Code allows employees of or independent contractors who
furnish services to a state or local government to establish a deferred
compensation plan allowing the deferral of certain limited amounts of
compensation by way of salary reduction. State and local government includes a
state, a political subdivision of a state, any agency or instrumentality of
either of them, a tax-exempt rural electric cooperative or its tax-exempt
affiliates. Contributions are based on a special definition of compensation and
include any amounts contributed to a Section 403(b) tax sheltered annuity for
determining the contribution limits. All amounts deferred and all property
bought with those amounts or income earned on those amounts remain the property
of the employer and are subject to the claims of its general creditors.
Distributions from a Section 457 Plan are subject to Section 401(a)(9) of the
Code in addition to the rules applicable under Section 457 of the Code and must
begin no later than the April 1st of the calendar year following the year in
which the participant attains age 70 1/2.
SECTION 457(F) PLANS
In the case of a Plan for an eligible employer providing for the deferral
of compensation for an employee but which is not eligible for deferred tax
treatment, the compensation shall be included in the gross income of the
Participant or beneficiary for the first taxable year in which there is no
substantial risk of forfeiture of the rights to such compensation and taxed in
accordance with Section 72 of the Code.
SECTION 72 FLEXIBLE ANNUITIES
The term annuity includes all periodic payments resulting from the
systematic liquidation of a principal sum. Section 72 determines what portion of
each payment is excludable from gross income as a return of the purchaser's
investment and what portion is taxed as interest earned on that investment.
Section 72 of the Code places a penalty on premature distributions but
generally exempts qualified distributions from a qualified retirement plan.
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<PAGE> 31
NON-QUALIFIED DEFERRED COMPENSATION CONTRACTS
Taxed employers may establish a non-qualified deferred compensation
arrangement funded by non-qualified deferred compensation contracts allowing the
deferral of compensation through salary reduction. Such Plans include, but are
not limited to, excess benefit plans, plans maintained by an employer primarily
for a select group of management or highly compensated employees, as well as
rabbi and secular trusts. Taxed employers for these non-qualified deferred
compensation Plans include corporations, partnerships, S corporations and any of
their affiliates or subsidiaries. Contributions are determined on the Plan's
definition of compensation. All amounts deferred by employees and any income
earned thereon remain the property of the employer and are subject to the claims
of its general creditors. In-service withdrawals from deferred compensation
Plans may be permitted for reasons of hardship under certain conditions as
specified in the Plans. Distributions from these Plans are permitted when the
Participant terminates employment, becomes permanently disabled, retires, dies
or as otherwise specified in the Plan. As a general rule, the Participant is
subject to taxation upon receipt of the funds, and there is usually no tax
consequences to the employer, i.e., no deduction is available for an employee's
salary reduction agreement until paid out.
Such non-qualified deferred compensation arrangements for taxable employers
may be funded by either a Diversified Investors Variable Funds Contract alone or
by a Diversified Investors Variable Funds Contract in combination with a Fixed
Annuity Contract.
INCOME TAX WITHHOLDING
Unless the Participant or payee elects to have no withholding, the taxable
portion of distributions under a Contract will be subject to income tax
withholding under federal and certain state laws. AUSA will notify recipients of
taxable distributions under a Contract of their right to elect not to have
withholding apply.
For NQDC Contracts, no withholding is made and no election is needed.
Effective January 1, 1992, distributions from qualified retirement plans
and Section 403(b) Contracts, other than individual retirement arrangements
("IRAs") generally are subject to mandatory federal income tax withholding
unless they either are:
1. Part of a series of substantially equal periodic payments (at least
annually) for the participant's life or life expectancy, the joint lives or
life expectancies of the participant and his/her beneficiary, or a period
certain of not less than 10 years, or
2. Required by the Code upon the participant's attainment of age
70 1/2 or death.
Such withholding will apply even if the distribution is rolled over into
another qualified plan including an IRA. The withholding can be avoided if the
participant's interest is directly transferred by the old plan to another
eligible qualified plan including an IRA. A direct transfer to the new plan can
be made only in accordance with the terms of the old plan. If withholding is not
avoided, the amount withheld may be subject to income tax and penalties.
Pursuant to Revenue Ruling 90-24 of the Code, an exchange of a Section
403(b) annuity contract for another Section 403(b) annuity contract may qualify
as a tax-free exchange.
ASSUMPTION REINSURANCE
The Contracts described in this Prospectus include group variable annuity
contracts which were originally issued by The Mutual Life Insurance Company of
New York ("MONY") and are assumed by AUSA pursuant to certain assumption
reinsurance agreements executed by MONY and AUSA effective December 31, 1993.
Pursuant to the terms of these agreements and applicable state insurance laws,
affected MONY contractholders may elect to participate and "opt in" or choose to
remain contractholders of MONY and "opt out" of the assumption. All affected
MONY contractholders shall receive a Notice of Election which describes the
assumption and procedures for opting in or opting out. This Prospectus should be
read carefully
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<PAGE> 32
before deciding whether to opt in. In certain jurisdictions a contractholder
that fails to opt out may be deemed under the terms of the assumption to have
opted in.
The former holders of MONY contracts who opt in to the assumption of their
contracts by AUSA will experience no differences in the terms or charges under
the Contracts. All investment options available to MONY contractholders will be
available under the Contracts under Subaccounts which correspond to investment
options under the MONY contracts. In addition, such assumed AUSA Contractholders
may be able to direct the investment of their funds into certain additional
investment options which were not available under the MONY contracts.
PERFORMANCE DATA
From time to time the performance of one or more of the Subaccounts may be
advertised. The performance data contained in these advertisements is based upon
historical earnings and is not indicative of future performance. The data for
each Subaccount reflects the results of the corresponding series of Diversified
Investors Portfolios or the Calvert Series and recurring charges and deductions
borne by or imposed on the Subaccount and on the corresponding series of the
Diversified Investors Portfolios or the Calvert Series. Set forth below for each
Subaccount is the manner in which the data contained in such advertisements will
be calculated.
MONEY MARKET SUBACCOUNT. The performance data for this Subaccount will
reflect the "yield", "effective yield" and "total return". The "yield" of the
Subaccount refers to the income generated by an investment in the Subaccount
over the seven day period stated in the advertisement. This income is
"annualized", that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in the
Subaccount is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. The total return is calculated as shown below.
INTERMEDIATE GOVERNMENT BOND, HIGH QUALITY BOND, GOVERNMENT/CORPORATE BOND,
HIGH-YIELD BOND, BALANCED, EQUITY INCOME, EQUITY VALUE, GROWTH & INCOME, EQUITY
GROWTH, SPECIAL EQUITY, AGGRESSIVE EQUITY, CALVERT SERIES AND INTERNATIONAL
EQUITY SERIES SUBACCOUNTS. The performance data for these Subaccounts will
reflect the "yield" and "total return". The "yield" of each of these Subaccounts
refers to the income generated by an investment in that Subaccount over the 30
day period stated in the advertisement and is the result of dividing that income
by the value of the Subaccount. The value of each Subaccount is the average
daily number of Units outstanding multiplied by the Unit Value on the last day
of the period. The "yield" reflects deductions for all charges, expenses, and
fees of both the Series and the Subaccount. "Annualized total return" for each
of these Subaccounts and the Money Market Subaccount refers to the return a
Contractholder would receive during the period indicated if a $1,000 Purchase
Payment was made the indicated number of years ago. It reflects historical
investment results less charges and deductions of both the Series and the
Subaccount, with the distribution being made in cash rather than in the form of
one of the settlement options, at the close of the period for which the
"annualized total return" data is given.
Total return is historical in nature and is not intended to indicate future
performance. Total return will be quoted for the most recent one-year period,
and the annualized total return will be quoted for the most recent five- and
ten-year periods, or the period from the commencement of the public offering of
the Contracts, if shorter.
Actual total return quotations may also be advertised for other specified
periods, such as calendar years and calendar quarters. Cumulative total return
for periods of more than one year may also be quoted. These figures will be
accompanied by the standard, annualized total return quotations.
From time to time, any series of Diversified Investors Portfolios or the
Calvert Series may provide information concerning general economic conditions
and supply comparative performance data and rankings, with respect to comparable
investments for the same period, for unmanaged market indices such as the Dow
30
<PAGE> 33
Jones Industrial Average and the Standard and Poor's 500, and from recognized
independent sources such as Donoghue's Money Fund Report, Bank Rate Monitor,
Money, Forbes, Barron's, Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Frank Russell Universe Data, Wiesenberger Investment
Companies Service, Mutual Fund Values, Mutual Fund Forecaster, VARDS and
Morningstar.
In addition, reference may be made in advertisements to various indices
including, without limitation, the Standard & Poor's 500 Stock Index, Salomon
Brothers Broad Investment Grade Index and Lehman Brothers Government/Corporate
Bond Index, and Russell Price Driven Index, in order to provide the reader a
basis of comparison for performance.
AVERAGE ANNUAL TOTAL RETURNS: The annualized total return for the
Subaccounts is shown for the periods indicated in the table below.
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE FOR THE FOR THE SINCE
FOR THE 3 YEARS 5 YEARS 10 YEARS INCEPTION
YEAR ENDED ENDED ENDED ENDED THROUGH
12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Subaccount:
Money Market(1)........................... 5.12% 3.59% 3.84% 5.41% 7.77%
High Quality Bond(1)...................... 9.84% 5.22% 6.43% N/A 6.59%
Intermediate Government Bond(1)........... 13.02% 5.86% 7.30% N/A 7.53%
Government/Corporate Bond(1).............. 17.50% 7.86% 9.35% 8.56% 8.75%
High-Yield Bond(4)........................ 13.9% 8.6% 13.6% 9.5% 11.6%
Balanced(1)............................... 27.55% 12.15% N/A N/A 12.43%
Equity Income(1).......................... 33.33% 14.76% 14.67% 12.77% 13.21%
Equity Value(4)........................... 56.7% 17.0% 17.0% 15.1% 16.1%
Growth & Income(1)(3)..................... 31.30% 9.78% 13.44% 12.25% 12.25%
Equity Growth(1).......................... 18.15% N/A N/A N/A 10.04%
Special Equity(1)......................... 40.01% 18.57% 19.75% 14.84% 14.84%
Aggressive Equity(4)...................... 39.5% 20.6% 31.2% N/A 29.1%
International Equity(1)................... 12.4% 15.1% N/A N/A 15.4%
Calvert(2)................................ 28.83% 9.77% 10.45% N/A 9.78%
</TABLE>
- ---------------
(1) Each of the corresponding Pooled Separate Accounts of The Mutual Life
Insurance Company of New York ("MONY") set forth below contributed all of
its assets to, and thereby established, the corresponding Series of
Diversified Investors Portfolios in which a corresponding Subaccount invests
its assets:
<TABLE>
<CAPTION>
MONY POOLED
SERIES SEPARATE ACCOUNT
--------------------------------------------- -----------------------
<S> <C>
Money Market................................. Pooled Account No. 4
High Quality Bond............................ Pooled Account No. 15
Intermediate Government Bond................. Pooled Account No. 10d
Government/Corporate Bond.................... Pooled Account No. 5
Balanced..................................... Pooled Account No. 14
Equity Income................................ Pooled Account No. 6
Equity Growth................................ Pooled Account No. 1
Growth & Income.............................. Pooled Account No. 10a
Special Equity............................... Pooled Account No. 10b
International Equity......................... Pooled Account No. 12
</TABLE>
Total returns calculated for any period for each of the Money Market,
High Quality Bond, Intermediate Government Bond, Government/Corporate Bond,
Balanced, Equity Income, Growth & Income, Equity Growth, Special Equity and
International Equity Subaccounts reflect the performance of
31
<PAGE> 34
the corresponding Pooled Separate Account for any period prior to its
establishment and the performance of the corresponding series of
Diversified Investors Portfolios thereafter. Such total returns calculated
for each of the Subaccounts reflect the performance of the corresponding
Pooled Separate Account only from the date that such corresponding Pooled
Separate Account adopted investment objectives, policies and practices
substantially similar to those of the corresponding series of Diversified
Investors Portfolios invested in by the Subaccount. All total return
percentages reflect the historical rates of return for such period adjusted
to assume that all charges, expenses and fees of the applicable Subaccount
and the corresponding series of Diversified Investors Portfolios which are
presently in effect were deducted during such period. The corresponding
Pooled Separate Accounts were not registered under the Investment Company
Act of 1940 and, therefore, were not subject to certain investment
restrictions imposed by the Act. If the corresponding Pooled Separate
Accounts had been registered under the Act, investment performance might
have been adversely affected.
(2) The annualized total returns for the Calvert Series Subaccount reflect the
annualized total returns of the Calvert Series. The commencement date of the
Calvert Series is September 30, 1986.
(3) Effective November 14, 1995, Putnam Advisory Company, Inc. ("Putnam") became
the subadvisor to the Growth & Income Fund. The average annual total returns
at December 31, 1995 for all private accounts and collective investment
vehicles managed by Putnam with investment objectives, policies and
restrictions substantially similar to the Growth & Income Fund, adjusted to
assume that all charges, expenses and fees of the Growth & Income Fund
presently in effect were deducted, are as follows: 1 Year -- 36.7%; 3
Years -- 15.5%; 10 Years -- 18.2%; and Since Inception -- 17.1%;.
(4) The average annual total returns for the High-Yield Bond Series reflect
annualized returns for all private accounts and collective investment
vehicles managed by Delaware Investment Advisers during the periods
indicated with investment objectives, policies and restrictions
substantially similar to the High-Yield Bond Series, and which have been
managed as the High-Yield Bond Series is managed. These returns are adjusted
to assume that all charges, expenses and fees of the High-Yield Series which
are presently in effect were deducted during such periods. The average
annual total returns for the Equity Value Series reflect annualized returns
for all private accounts and collective investment vehicles managed by ARK
Asset Management Co., Inc. during the periods indicated with investment
objectives, policies and restrictions substantially similar to the Equity
Value Series, and which have been managed as the Equity Value Series is
expected to be managed. These returns are adjusted to assume that all
charges, expenses and fees of the Equity Value Series which are presently in
effect were deducted during such periods. The average annual total returns
for the Aggressive Equity Series reflect annualized returns for all private
accounts and collective investment vehicles managed by McKinley Capital
Management, Inc. during the periods indicated with investment objectives,
policies and restrictions substantially similar to the Aggressive Equity
Series, and which have been managed as the Aggressive Equity Fund is
expected to be managed. These returns are adjusted to assume that all
charges, expenses and fees of the Aggressive Equity Series which are
presently in effect were deducted during such periods.
The table above assumes that a $1,000 payment was made to each Subaccount
at the beginning of the period shown, that no further payments were made, that
any distribution from the corresponding series (or its predecessor investment
vehicle) were reinvested, and that a Contractholder surrendered the Contract for
cash, rather than electing commencement of annuity benefits in the form of one
of the Settlement Options available, at the end of the period shown. The average
annual total return percentages shown in the table reflect the annualized
historical rates of return and deductions for all charges, expenses, and fees
which would be imposed on the payment assumed by both the corresponding series
and Diversified Investors Variable Funds.
DIVERSIFIED INVESTORS PORTFOLIOS
Thirteen Subaccounts of Diversified Investors Variable Funds invest
exclusively in corresponding series of Diversified Investors Portfolios.
Diversified Investors Portfolios is a trust organized on September 1, 1993 under
the laws of the State of New York and is registered under the 1940 Act as an
open-end, diversified
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management investment company. The investment objectives of the series of
Diversified Investors Portfolios currently available under the Contracts through
such Subaccounts are as follows:
MONEY MARKET SERIES: To provide liquidity and as high a level of income as
is consistent with the preservation of capital through investment in domestic
and foreign U.S. dollar-denominated money market obligations with maturities of
397 days or less. An investor's interest in the Money Market Series is neither
insured nor guaranteed by the U.S. Government.
HIGH QUALITY BOND SERIES: To provide as high a level of current income as
is consistent with the preservation of capital through investment in high
quality debt securities with short and intermediate maturities.
INTERMEDIATE GOVERNMENT BOND SERIES: To provide as high a level of current
income as is consistent with preservation of capital through investment in U.S.
Government and U.S. Government agency and instrumentality securities with
intermediate maturities, and high quality short-term obligations.
GOVERNMENT/CORPORATE BOND SERIES: To achieve maximum total return through
investment in investment grade debt securities, U.S. Government and U.S.
Government agency and instrumentality securities collateralized mortgage
obligations guaranteed by these agencies and instrumentalities and high quality
short-term obligations.
HIGH-YIELD BOND SERIES: To provide a high level of current income from a
diversified portfolio consisting primarily of high-yielding, fixed-income and
zero coupon securities, such as bonds, debentures and notes, convertible
securities and preferred stocks.
BALANCED SERIES: To provide a high total investment return consistent with
a broad diversified mix of stocks, bonds and money market instruments.
EQUITY INCOME SERIES: To provide a high level of current income through
investment in a diversified portfolio of common stocks with relatively high
current yields; capital appreciation is a secondary objective.
EQUITY VALUE SERIES: To provide a high total investment return through
investment in a diversified portfolio of common stocks. The series emphasizes
stocks which, in the opinion of the Equity Value Series' Advisers, are trading
at low valuations relative to market and/or historical levels.
GROWTH & INCOME SERIES: To provide current income and capital appreciation
through investment primarily in a diversified portfolio of securities selected
for their potential to generate current income or long term capital
appreciation.
EQUITY GROWTH SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks with potential
for above-average growth in earnings; current income is a secondary objective.
SPECIAL EQUITY SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks of small to
medium size companies without consideration for current income. The Series
emphasizes stocks which, in the opinion of the Series' Advisers, will present an
opportunity for significant increases in earnings and/or value.
AGGRESSIVE EQUITY SERIES: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks of small to
medium size companies. The Series emphasizes stocks without consideration for
current income which, in the opinion of the Aggressive Equity Series' Advisers,
present an opportunity for significant increases in earning, revenue and/or
value.
INTERNATIONAL EQUITY SERIES: To provide a high level of long term capital
appreciation through investment in a diversified portfolio of securities of
foreign issuers.
There can, of course, be no assurance that any series of Diversified
Investors Portfolios will achieve its investment objectives.
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HUB AND SPOKE(R)STRUCTURE
AUSA and Diversified Investors Portfolios have licensed certain proprietary
rights, know-how and financial services referred to as Hub and Spoke(R) from
Signature Financial Group, Inc. ("Signature"). Each Subaccount which invests in
a series of Diversified Investors Portfolio (the "spoke" or feeder fund) invests
in such corresponding series of Diversified Investors Portfolios (the "hub" or
master fund) through Signature's Hub and Spoke(R) method. Hub and Spoke employs
a two-tier, master/feeder fund structure. Hub and Spoke(R) is a registered
service mark of Signature.
In addition to selling beneficial interests to such Subaccounts,
Diversified Investors Portfolios may sell beneficial interests of its series to
other insurance company separate accounts, mutual funds, collective investment
vehicles or institutional investors. Such investors will invest in a series of
Diversified Investors Portfolios on the same terms and conditions as the
applicable Subaccount and will pay a proportionate share of the series'
expenses. However, the other investors investing in such series are not required
to sell their shares at the same public offering price as the Subaccount due to
variations in sales commissions and other operating expenses. Therefore,
Contractholders should be aware that these differences may result in differences
in returns experienced by investors in the different entities that invest in
each series of Diversified Investors Portfolios.
Smaller entities investing in a series of Diversified Investors Portfolios
may be materially affected by the actions of larger entities investing in that
series. For example, if a large fund withdraws from a series of Diversified
Investors Portfolios, the remaining investors may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the affected
series may become less diverse, resulting in increased portfolio risk. (However,
this possibility also exists for any type of collective investment vehicle which
has institutional or other large investors.) Also, investors with a greater pro
rata ownership in a series of Diversified Investors Portfolios could have
effective voting control of the operations of that series. Whenever a Subaccount
is requested to vote on matters pertaining to a series of the Diversified
Investors Portfolios (other than a vote to continue a series upon the withdrawal
of an investor in the series), AUSA, as the legal owner of all assets in the
Subaccount, shall vote in accordance with the procedures set forth under "Voting
Rights" at page , including, to the extent required by law, procedures through
which AUSA shall receive instructions with respect to such vote from
Contractholders and/or Participants. Certain changes in the investment
objectives, policies or restrictions of a series of Diversified Investors
Portfolios may require that AUSA withdraw a Subaccount's interest in that
series. Any such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the series). If
securities are distributed, the Subaccount could incur brokerage or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Subaccount. Notwithstanding the above, there are
other ways for Diversified Investors Portfolios to meet redemption requests from
its investors, such as temporary borrowings.
INVESTMENT OBJECTIVES AND POLICIES
Each of the Subaccounts described above seeks to achieve its investment
objective by investing all of its assets in a corresponding series of
Diversified Investors Portfolios, which is a diversified, open-end management
investment company. The investment objective of each series of Diversified
Investors Portfolios may be changed without the approval of the investors in
that series, but not without written notice thereof to its investors (including
the Subaccount) 30 days prior to implementing the change. AUSA may withdraw the
investment of a Subaccount from its corresponding series of Diversified
Investors Portfolios on any Portfolio Business Day (see page 55). Upon any such
withdrawal, AUSA would consider what action might be taken, including the
investment of all the assets of such Subaccount in another pooled investment
entity having the same investment objective.
Each series of Diversified Investors Portfolios has a different investment
objective which it pursues through the investment policies described below.
Since each series of Diversified Investors Portfolios has a different investment
objective, each can be expected to have different investment results and be
subject to different market and financial risks. See "Investment Techniques and
Restrictions" herein and in the
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Statement of Additional Information for a description of the fundamental
policies of each series of Diversified Investors Portfolios that cannot be
changed without approval by the holders of a "majority of the outstanding voting
securities" (as defined in the 1940 Act) of such series. Except as stated
otherwise, all investment guidelines, policies and restrictions of each series
described herein and in the Statement of Additional Information are
non-fundamental.
Each series of Diversified Investors Portfolios has a different portfolio
turnover rate which is the percentage computed by dividing the lesser of
portfolio purchases or sales by the average value of the series in each case
excluding securities with maturities at the time of acquisition of one year or
less. Brokerage expenses can be expected to be higher as a result of higher
portfolio turnover rates. The rate of portfolio turnover is not a limiting
factor when it is deemed appropriate to purchase or sell securities of a series.
With respect to each series of Diversified Investors Portfolios,
Diversified has contracted for certain investment advisory services with one or
more subadvisers. Diversified and the subadvisers for a particular series of
Diversified Investors Portfolios are referred to herein collectively as the
"Advisers". There can be no guarantee that the investment objective of any of
the series of Diversified Investors Portfolios will be met. The following
sections describe the investment objective and policies of each series of
Diversified Investors Portfolio currently available under the Contracts through
Subaccounts.
MONEY MARKET SERIES. The investment objective of the Money Market Series is
to provide liquidity and as high a level of current income as is consistent with
the preservation of capital. The Money Market Series invests in high quality
short-term money market instruments. Securities in which the Money Market Series
invests may not earn as high a level of current income as long-term or lower
quality securities which generally have less liquidity, greater market risk and
more fluctuation in market value.
To achieve its investment objective, the Money Market Series invests in
U.S. dollar-denominated short-term money market obligations, including
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits, bankers' acceptances
and other short-term obligations issued by domestic banks and domestic branches
and subsidiaries of foreign banks, and high quality commercial paper and other
short-term corporate obligations, including those with floating or variable
rates of interest. In addition, the Money Market Series may lend its portfolio
securities, enter into repurchase agreements and reverse repurchase agreements,
and invest in securities issued by foreign banks and corporations outside the
United States. The Money Market Series reserves the right to concentrate 25% or
more of its total assets in obligations of domestic banks.
In accordance with Rule 2a-7 under the 1940 Act, the Money Market Series
will maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 days or less and
invest only in U.S. dollar-denominated securities determined in accordance with
procedures established by the Board of Trustees of Diversified Investors
Portfolios (the "Board of Trustees") to present minimal credit risks and which
are rated in one of the two highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations (an "NRSRO")
(or one NRSRO if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Board of Trustees (collectively, "Eligible Securities").
Eligible Securities include "First Tier Securities" and "Second Tier
Securities." First Tier Securities include those that possess a rating in the
highest category in the case of a single-rated security or at least two ratings
in the highest rating category in the case of multiple-rated securities or, if
the securities do not possess a rating, are determined to be of comparable
quality by the Advisers pursuant to the guidelines adopted by the Board of
Trustees. All other Eligible Securities are Second Tier Securities. The Money
Market Series will invest at least 95% of its total assets in First Tier
Securities.
The NRSROs currently rating instruments of the type the Money Market Series
may purchase are Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P"), Duff & Phelps, Inc., Fitch Investors Service, Inc., IBCA
Limited, IBCA Inc. and Thomson BankWatch, Inc., and their rating criteria are
described in the Appendix to the Statement of Additional Information. The
Statement of
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Additional Information contains further information concerning the rating
criteria and other requirements governing the Money Market Series' investments,
including information relating to the treatment of securities subject to a
tender or demand feature and securities deemed to possess a rating based on
comparable rated securities of the same issuer.
In addition, the Money Market Series will not invest more than 5% of its
total assets in the securities (including the securities collateralizing a
repurchase agreement) of, or subject to puts (including letters of credit,
guaranties or other credit support) issued by, a single issuer, except that (i)
the Money Market Series may invest more than 5% of its total assets in a single
issuer for a period of up to three business days in certain limited
circumstances, (ii) the Money Market Series may invest in obligations issued or
guaranteed by the U.S. Government without any such limitation, and (iii) the
limitation with respect to puts does not apply to unconditional puts if no more
than 10% of the Money Market Series' total assets is invested in securities
issued or guaranteed by the issuer of the unconditional put. Investments in
Second Tier Securities will be limited to 5% of the Money Market Series' total
assets, with the investment in any one such issuer being limited to no more than
the greater of 1% of the Money Market Series' total assets or $1,000,000. As to
each security, these percentages are measured at the time the Money Market
Series purchases the security.
The Money Market Series seeks to achieve its investment objective through
investments in the following types of U.S. dollar-denominated money market
instruments.
BANK OBLIGATIONS. The Money Market Series may invest in U.S.
dollar-denominated certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations issued by domestic banks and
domestic branches and subsidiaries of foreign banks. Certificates of
deposit are certificates evidencing the obligation of a bank to repay funds
deposited with it for a specified period of time. Such instruments include
Yankee Certificates of Deposit which are certificates of deposit
denominated in U.S. dollars and issued in the United States by the domestic
branch of a foreign bank. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a
stated interest rate. Time deposits which may be held by the Money Market
Series are not insured by the Federal Deposit Insurance Corporation or any
other agency of the U.S. Government. The Money Market Series will not
invest more than 10% of the value of its net assets in time deposits
maturing in longer than seven days and other instruments which are illiquid
or not readily marketable. The Money Market Series may also invest in
certificates of deposit and time deposits issued by foreign banks outside
the United States.
The Money Market Series may also invest in bankers' acceptances and other
short-term obligations. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of
the drawer to pay the face amount of the instrument upon maturity. The
other short-term obligations may include uninsured, direct obligations
which have either fixed, floating or variable interest rates.
To the extent the Money Market Series' investments are concentrated in the
banking industry, the Money Market Series will have correspondingly greater
exposure to the risk factors which are characteristic of such investments.
Sustained increases in interest rates can adversely affect the availability
or liquidity and cost of capital funds for a bank's lending activities, and
a deterioration in general economic conditions could increase the exposure
to credit losses. In addition, the value of and the investment return on
investments in the Money Market Series could be affected by economic or
regulatory developments in or related to the banking industry, which
industry also is subject to the effects of the concentration of loan
portfolios in leveraged transactions and in particular businesses, and
competition within the banking industry, as well as with other types of
financial institutions. The Money Market Series, however, will seek to
minimize its exposure to such risks by investing only in debt securities
which are determined to be of high quality.
U.S. GOVERNMENT AND AGENCY SECURITIES. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S.
Treasury securities, which differ only in their interest rates, maturities
and times of issuance. Treasury Bills have initial maturities of one year
or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of greater than ten years.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentali-
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ties, for example, Government National Mortgage Association pass-through
certificates are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the
agency or instrumentality; and others, such as those issued by the Student
Loan Marketing Association, only by the credit of the agency or
instrumentality. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by
law. The Money Market Series will invest in such securities only when the
Advisers are satisfied that the credit risk with respect to the issuer is
minimal. The Money Market Series itself, and its share price and yield, are
not guaranteed by the U.S. Government. For additional information on U.S.
Government securities, see "Diversified Investors Portfolios" in the
Statement of Additional Information.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Money Market Series will consist only of U.S.
dollar-denominated direct obligations issued by domestic and foreign
entities. The other corporate obligations in which the Money Market Series
may invest consist of high quality, U.S. dollar-denominated short-term
bonds and notes issued by domestic corporations.
The Money Market Series may invest in commercial paper issued by major
corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) of the 1933 Act. Such commercial paper may be issued only
to finance current transactions and must mature in nine months or less.
Trading of such commercial paper is conducted primarily by institutional
investors through investment dealers, and individual investor participation
in the commercial paper market is very limited.
UNSECURED PROMISSORY NOTES. The Money Market Series also may purchase
unsecured promissory notes ("Notes") which are not readily marketable and
have not been registered under the 1933 Act, provided such investments are
consistent with the Money Market Series' investment objective. The Notes
purchased by the Money Market Series will have remaining maturities of 13
months or less and will be deemed by the Board of Trustees, or by the
Advisers on its behalf, to present minimal credit risks and will meet the
quality criteria set forth above. The Money Market Series will invest no
more than 10% of its net assets in such Notes and in other securities that
are not readily marketable (which securities would include floating and
variable rate demand obligations as to which the Money Market Series cannot
exercise the demand feature described in the Statement of Additional
information and as to which there is no secondary market).
RESTRICTED SECURITIES. The Money Market Series may invest in securities
that are subject to legal or contractual restrictions on resale. These
securities may be illiquid and, thus, the Money Market Series may not
purchase them to the extent that more than 10% of the value of its net
assets would be invested in illiquid securities. However, if a substantial
market of qualified institutional buyers develops pursuant to Rule 144A
under the 1933 Act for such securities held by the Money Market Series, the
Money Market Series intends to treat such securities as liquid securities
in accordance with procedures approved by the Board of Trustees. To the
extent that for a period of time, qualified institutional buyers cease
purchasing such restricted securities pursuant to Rule 144A, the Money
Market Series' investing in such securities may have the effect of
increasing the level of illiquidity in the Money Market Series during such
period.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Repurchase
agreements involve the acquisition by the Money Market Series of an
underlying debt instrument subject to an obligation of the seller to
repurchase, and the Money Market Series to resell, the instrument at a
fixed price, usually not more than one week after its purchase. The Money
Market Series or a sub-custodian will have custody of securities acquired
by the Money Market Series under a repurchase agreement.
Repurchase agreements may be entered into for the Series with sellers which
are usually member banks of the Federal Reserve System or member firms of
New York Stock Exchange (or a subsidiary thereof).
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Such transactions afford an opportunity for the Series to earn a return on
available cash with minimal market risk. Certain costs may be incurred by
the Money Market Series in connection with the sale of the securities if
the seller does not repurchase them in accordance with the repurchase
agreement. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the securities, realization on the securities by
the Money Market Series may be delayed or limited. The Money Market Series
will consider on an ongoing basis the creditworthiness of the institutions
with which it enters into repurchase agreements. Repurchase agreements are
considered collateralized loans under the 1940 Act.
The Money Market Series may borrow funds for temporary or emergency
purposes, such as meeting larger than anticipated redemption requests, and
not for leverage. One means of borrowing is by agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and
to repurchase them at a mutually agreed date and price (a "reverse
repurchase agreement"). At the time the Money Market Series enters into a
reverse repurchase agreement it will place in a segregated custodial
account cash, U.S. Government securities or high-grade debt obligations
having a value equal to the repurchase price, including accrued interest.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Money Market Series may decline below the repurchase
price of those securities. Reverse repurchase agreements are considered to
be borrowings by the Money Market Series.
FOREIGN SECURITIES. The Money Market Series may invest in U.S.
dollar-denominated foreign securities issued outside the United States,
such as obligations of foreign branches and subsidiaries of domestic banks
and foreign banks, including Eurodollar certificates of deposit, Eurodollar
time deposits and Canadian time deposits, commercial paper of Canadian and
other foreign issuers, and U.S. dollar-denominated obligations issued or
guaranteed by one or more foreign governments or any of their agencies or
instrumentalities. The Advisers do not intend to concentrate more than 25%
of such foreign investments in any one type of instrument or in any foreign
country. Foreign securities may represent a greater degree of risk than do
securities of domestic issuers due to less publicly available information,
more volatile markets, less securities regulation, less favorable tax
provisions (including possible withholding taxes), changes in governmental
administration or economic or monetary policy (in the United States or
abroad), war or expropriation. For a complete description of foreign
securities the Money Market Series may purchase, see "Investment Policies"
in the Statement of Additional Information.
CERTAIN OTHER OBLIGATIONS. In order to allow for investments in new
instruments that may be created in the future, upon AUSA supplementing this
Prospectus, the Money Market Series may invest in obligations other than
those listed previously, provided such investments are consistent with the
investment objective, policies and restrictions of the Money Market Series.
The Statement of Additional Information includes a discussion of additional
investment techniques such as zero coupon obligations, variable rate and
floating rate securities, participation interests, guaranteed investment
contracts and when-issued and forward commitment securities. The Statement
of Additional Information also includes a discussion of non-fundamental
investment policies, as well as a listing of specific investment
restrictions which constitute fundamental policies of the Money Market
Series which cannot be changed without the approval of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940
Act) of the Money Market Series. See "Diversified Investors Portfolios --
Investment Restrictions" in the Statement of Additional Information.
HIGH QUALITY BOND SERIES. The investment objective of the High Quality Bond
Series is to provide as high a level of current income as is consistent with the
preservation of capital. The yield of the High Quality Bond Series normally is
expected to be higher than a money market fund but lower than a longer-term or
lower quality bond fund. Unlike a money market fund, the Series does not seek to
maintain a stable net asset value and may not be able to return
dollar-for-dollar the money invested.
The High Quality Bond Series pursues its investment objective by investing
at least 65% of its assets under normal circumstances in high quality debt
securities with short and intermediate maturities (including repurchase
agreements and reverse repurchase agreements).
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The Advisers attempt to maintain the Series' "duration" between one and
four years, which means that the Series' overall sensitivity to interest rates
should be slightly more than that of bonds and notes with remaining average
maturities from one to four years. The Series' dollar-weighted average maturity
(or dollar-weighted average life in the case of asset-backed and mortgage-backed
securities) may be longer than four years from time to time, but will not exceed
five years under normal conditions. The Series may hold individual securities
with remaining maturities of up to thirty years.
The Series seeks consistency of return with minimal exposure to negative
total returns on an annual basis. The Advisers' strategy is to position the
Series in those high quality sectors of the fixed income market that offer the
most attractive yields on a risk-adjusted basis. The duration of the Series will
be a function of the security and sector selection process and market conditions
in general. Since the value of fixed income securities generally fluctuates
inversely with changes in interest rates, the value of securities held by the
Series will tend to decline during periods of rising interest rates.
The Advisers normally will select only securities having a minimum
long-term quality rating of A- by Standard & Poor's Ratings Group ("S&P") or A3
by Moody's Investors Service, Inc. ("Moody's") will at the time of purchase, or,
in the case of instruments that are not rated or are rated by other agencies
(i.e., Fitch Investors Service, Inc., Duff & Phelps, Inc., etc.) are deemed by
the Advisers to be of similar quality. Money market securities will have a
minimum short-term rating of at least A-1 or P-1 by S&P or Moody's,
respectively, or an equivalent rating by other agencies. The Series may continue
to hold such securities if their ratings are reduced after purchase.
The High Quality Bond Series seeks to achieve its investment objective
through investments in the following types of instruments.
U.S. GOVERNMENT AND AGENCY SECURITIES. The Series may invest in U.S.
Government securities and securities issued or guaranteed by its agencies
or instrumentalities. See "U.S. Government and Agency Securities" above
under Money Market Series.
The Series may invest a portion of its assets in short-term U.S. Government
securities with remaining maturities of one year or less and repurchase
agreements relating thereto. When the Advisers believe market conditions
warrant a temporary defensive position, the Series may invest up to 100% of
its assets in these instruments.
CORPORATE BONDS. The Series may purchase public or private corporate bonds,
issued by domestic or foreign issuers, that meet the Series' minimum credit
quality criteria at the time of purchase. The corporate bond market is
customarily subdivided into several segments, which include industrial,
public utility, rail and transportation bonds, and bonds issued by banks
and other financial institutions.
YANKEE BONDS AND EURODOLLAR BONDS. The Series may purchase Yankee and
Eurodollar issues that meet its minimum credit quality standards. Yankee
issues are dollar denominated bonds issued in the United States market by
foreign issuers and are, therefore, subject to SEC regulations. Issuers of
yankee bonds include, among others, foreign corporations, foreign
governments and agencies, and multilateral lending institutions. Eurodollar
bonds are fixed income securities that are denominated in dollars, are
underwritten by an international syndicate, and are sold upon issuance to
non-U.S. investors. U.S.-based investors may purchase eurodollar bonds in
the secondary market after a seasoning period. Eurodollar bonds are not
subject to SEC regulations.
MORTGAGE PASS-THROUGHS AND COLLATERALIZED MORTGAGE OBLIGATIONS. The Series
may purchase mortgage and mortgage-related securities such as
pass-throughs, collateralized mortgage obligations, and mortgage
derivatives that meet the Series' minimum credit quality criteria
(collectively, "Mortgage Securities"). Mortgage pass-throughs are
securities that pass through to investors an undivided interest in a pool
of underlying mortgages. These may be issued or guaranteed by U.S.
government agencies, or may consist of whole loans originated and issued by
private limited purpose corporations or conduits. Collateralized mortgage
obligation bonds and mortgage derivatives are obligations of special
purpose corporations that are collateralized or supported by mortgages or
mortgage securities such as pass throughs. Principal prepayments on the
underlying mortgages or loans may cause the Mortgage
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Securities to be retired substantially earlier than their stated maturities
or final distribution dates, resulting in a loss to the Series of all or
part of the premium, if any, which the Series may pay when investing in
Mortgage Securities.
ASSET-BACKED SECURITIES. The Series may purchase public or private
asset-backed securities of various types, which are fixed income securities
that are collateralized or "backed" by installment receivables (usually
consumer loans) for which some type of credit enhancement is provided.
Asset-backed securities that are eligible for purchase by the Series
include securities backed by automobile receivables, credit card
receivables, home equity loans, manufactured housing loans, business and
recreational vehicle loans, computer leases, and agricultural equipment
loans.
SHORT-TERM INSTRUMENTS. Cash, commercial paper, short-term obligations,
repurchase agreements or other forms of debt securities may be held to
provide a reserve for future purchases of securities during periods of
unusual market conditions or in order to reduce volatility, or as a
temporary defensive measure when the Advisers determine securities markets
to be overvalued. The Series limits its short-term investments to those
U.S. dollar-denominated instruments which are determined by or on behalf of
the Board of Trustees of Diversified Investors Portfolios (the "Board of
Trustees") to present minimal credit risks and which are of "high quality"
as determined by a major rating service (i.e., rated P-1 by Moody's or A-1
by S&P) or, in the case of instruments which are not rated, are of
comparable quality pursuant to procedures established by the Board of
Trustees. Investments in high quality short-term instruments may, in many
circumstances, result in a lower yield than would be available from
investments in instruments with a lower quality or longer term.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The Series may
enter into repurchase agreements and reverse repurchase agreements. See
"Repurchase Agreements and Reverse Repurchase Agreements" above under Money
Market Series.
The High Quality Bond Series may borrow funds for temporary or emergency
purposes, such as meeting larger than anticipated redemption requests, and
not for leverage. One means of borrowing is by agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and
to repurchase them at a mutually agreed date and price (a "reverse
repurchase agreement"). At the time the High Quality Bond Series enters
into a reverse repurchase agreement it will place in a segregated custodial
account: cash, U.S. Government securities or high-grade debt obligations
having a value equal to the repurchase price, including accrued interest.
Reverse repurchase agreements are considered to be borrowings by the High
Quality Bond Series.
RESTRICTED SECURITIES. The Series may purchase securities in the United
States that are not registered for sale under federal securities laws but
which can be resold to institutions under SEC Rule 144A. Provided that a
dealer or institutional trading market in such securities exists, these
restricted securities are treated as exempt from the Series' 15% limit on
illiquid securities. Under the supervision of the Board of Trustees, the
Advisers determine the liquidity of restricted securities and, through
reports from the Advisers, the Board of Trustees will monitor trading
activity in restricted securities. Because Rule 144A is relatively new, it
is not possible to predict how these markets will develop. If institutional
trading in restricted securities were to decline, the liquidity of the
Series could be adversely affected.
OPTIONS AND FUTURES CONTRACTS. The Series may buy and sell options and
futures contracts to manage its exposure to changing interest rates and
securities prices. Some options and futures strategies, including selling
futures, buying puts, and writing calls, hedge the Series' investments
against price fluctuations. Other strategies, including buying futures,
writing puts and buying calls, tend to increase market exposure. The Series
may invest in options (including over-the-counter options) and futures
contracts based on any type of security or index related to its
investments.
Options and futures can be volatile investments, and involve certain risks.
If the Advisers apply a hedge at an inappropriate time or judge interest
rates incorrectly, options and futures strategies may lower the Series'
return. The costs of hedging are not reflected in the Series' yield but are
reflected in the Series' total return. The Series could also experience
losses if the Series' options and futures positions were
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poorly correlated with its other investments, or if it could not close out
its positions because of an illiquid secondary market.
The Series currently does not intend to engage in the writing of options,
except for the purpose of terminating an existing position or under the
limited circumstances described in the Statement of Additional Information.
Nevertheless, the Series has the authority to write options and may do so
in the future if the Advisers determine that such transactions are in the
best interests of the Series.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability of
suitable securities for the Series, the Advisers may purchase securities
for the Series on a "when-issued" or on a "forward delivery" basis, which
means that the obligations would be delivered to the Series at a future
date beyond customary settlement time. Under normal circumstances, the
Series would take delivery of such securities. In general, the Series would
not pay for the securities until they are received, and would not start
earning interest on the obligations until the contractual settlement date.
While awaiting delivery of the obligations purchased on such basis, the
Series would establish a segregated account consisting of cash, cash
equivalents or high grade liquid debt securities equal to the amount of its
commitments to purchase "when-issued" securities. An increase in the
percentage of the Series' assets committed to the purchase of securities on
a "when-issued" basis may increase the volatility of its net asset value.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Series may also utilize
the following investments and investment techniques and practices:
investments in securities denominated in foreign currencies, options on
futures contracts, foreign currency exchange transactions and options on
foreign currencies. The Series does not intend to utilize any of these
investments or practices to the extent of more than 5% of its assets. See
the Statement of Additional Information for further information.
INTERMEDIATE GOVERNMENT BOND SERIES. The investment objective of the
Intermediate Government Bond Series is to provide as high a level of current
income as is consistent with the preservation of capital. The yield of the
Intermediate Government Bond Series normally is expected to be higher than a
money market fund but lower than a longer-term or lower quality bond fund. The
Intermediate Government Bond Series pursues its investment objective by
investing in high quality U.S. Government obligations and high quality
short-term obligations (including repurchase agreements and reverse repurchase
agreements).
The Advisers attempt to maintain the Intermediate Government Bond Series'
"duration" between one and five years, which means that the Intermediate
Government Bond Series' overall sensitivity to interest rates should be similar
to that of bonds and notes with remaining average maturities from one to five
years. The Intermediate Government Bond Series' dollar-weighted average maturity
(or dollar-weighted average life in the case of mortgage-backed securities) may
be longer than five years from time to time, but will not exceed ten years under
normal conditions. The Intermediate Government Bond Series may hold individual
securities with remaining maturities of up to thirty years.
Since the value of fixed-income securities generally fluctuates inversely
with changes in interest rates, the duration of the Intermediate Government Bond
Series will vary to reflect the Advisers' assessments of prospective changes in
interest rates. The Advisers' strategy will be to adjust the duration of the
Intermediate Government Bond Series so that the Intermediate Government Bond
Series may benefit from relative price appreciation when interest rates decline
and may protect capital value when interest rates rise. The success of this
strategy will depend on the Advisers' ability to manage the Intermediate
Government Bond Series through changes in interest rates, and there is a risk
that the value of the securities held by the Intermediate Government Bond Series
will decline.
The following is a discussion of the various investments of and techniques
employed by the Intermediate Government Bond Series. Additional information
about the investment policies of the Intermediate Government Bond Series appears
under "Diversified Investors Portfolios" in the Statement of Additional
Information.
U.S. GOVERNMENT AND AGENCY SECURITIES. The Intermediate Government Bond
Series may invest in U.S. Government securities. See "U.S. Government and
Agency Securities" above under Money Market Series.
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The Intermediate Government Bond Series may invest a portion of its assets
in short-term U.S. Government securities with remaining maturities of one
year or less and repurchase agreements relating thereto. When the Advisers
believe market conditions warrant a temporary defensive position, the
Series may invest up to 100% of its assets in these instruments.
SHORT-TERM INSTRUMENTS. Cash, commercial paper, short-term obligations,
repurchase agreements or other forms of debt securities may be held to
provide a reserve for future purchases of securities during periods of
unusual market conditions or in order to reduce volatility, or as a
temporary defensive measure when the Advisers determine securities markets
to be overvalued. See "Short-Term Instruments" above under the High Quality
Bond Series.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Repurchase
agreements and reverse repurchase agreements may be entered into the
Intermediate Government Bond Series. See "Repurchase Agreements and Reverse
Repurchase Agreements" under Money Market Series.
The Intermediate Government Bond Series may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Intermediate
Government Bond Series may decline below the repurchase price of those
securities. Reverse repurchase agreements are considered to be borrowings
by the Intermediate Government Bond Series.
RESTRICTED SECURITIES. The Intermediate Government Bond Series may not
invest more than 15% of its net assets in securities that are subject to
legal or contractual restrictions on resale. See "Restricted Securities"
above under High Quality Bond Series.
OPTIONS AND FUTURES CONTRACTS. The Intermediate Government Bond Series may
buy and sell options and futures contracts to manage its exposure to
changing interest rates and securities prices. See "Options and Futures
Contracts" above under High Quality Bond Series.
Options and futures can be volatile investments, and involve certain risks.
If the Advisers apply a hedge at an inappropriate time or judge interest
rates incorrectly, options and futures strategies may lower the
Intermediate Government Bond Series' return. The costs of hedging are not
reflected in the Intermediate Government Bond Series' yield but are
reflected in the Intermediate Government Bond Series' total return. The
Intermediate Government Bond Series could also experience losses if its
options and futures positions were poorly correlated with its other
investments, or if it could not close out its positions because of an
illiquid secondary market.
The Intermediate Government Bond Series currently does not intend to engage
in the writing of options, except for the purpose of terminating an
existing position or under the limited circumstances described under
"Diversified Investors Portfolios" in the Statement of Additional
Information. Nevertheless, the Intermediate Government Bond Series has the
authority to write options and may do so in the future if the Advisers
determine that such transactions are in the best interests of the
Intermediate Government Bond Series.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability of
suitable securities for the Intermediate Government Bond Series, the
Advisers may purchase securities for the Intermediate Government Bond
Series on a "when-issued" or on a "forward delivery" basis, which means
that the obligations would be delivered to the Intermediate Government Bond
Series at a future date beyond customary settlement time. See "Delayed
Delivery Transactions" above under High Quality Bond Series.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Intermediate Government
Bond Series may, in each case up to 5% of the Series' assets, also utilize
the following investments and investment techniques and practices:
investments in foreign securities, options on futures contracts, foreign
currency exchange transactions and options on foreign currencies. The
Intermediate Government Bond Series does not intend to utilize any of these
investment practices to the extent of more than 5% of its assets. See
"Diversified Investors Portfolios" in the Statement of Additional
Information for further information.
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GOVERNMENT/CORPORATE BOND SERIES. The investment objective of the
Government/Corporate Bond Series is to achieve the maximum total return. The
Government/Corporate Bond Series' yield normally is expected to be higher than a
money market fund but lower than a longer-term or lower quality bond fund. The
Government/Corporate Bond Series pursues its investment objective by investing
in investment grade debt securities, U.S. Government obligations, including U.S.
Government agency and instrumentality obligations, collateralized mortgage
obligations guaranteed by these agencies and instrumentalities and high quality
short-term obligations (including repurchase agreements and reverse repurchase
agreements). At least 65% of the Government Corporate Bond Series' assets is
invested in U.S. Government securities, corporate bonds and short-term
instruments.
The Advisers attempt to maintain the Government/Corporate Bond Series'
"duration" between three and ten years, which means that the Government
Corporate Bond Series' overall sensitivity to interest rates should be slightly
more than that of bonds and notes with remaining average maturities from three
to fifteen years. The Government/Corporate Bond Series' dollar-weighted average
maturity (or dollar-weighted average life in the case of mortgage-backed
securities) may be longer than fifteen years from time to time, but will not
exceed thirty years under normal conditions. The Government/Corporate Bond
Series may hold individual securities with remaining maturities of up to thirty
years.
Since the value of fixed income securities generally fluctuates inversely
with changes in interest rates, the duration of the Government/Corporate Bond
Series will vary to reflect the Advisers' assessments of prospective changes in
interest rates. The Advisers' strategy will be to adjust the duration of the
Government/Corporate Bond Series so that the Government/Corporate Bond Series
may benefit from relative price appreciation when interest rates decline and may
protect capital value when interest rates rise. The success of this strategy
will depend on the Advisers' ability to manage the Government/Corporate Bond
Series through changes in interest rates, and there is a risk that the value of
the securities held by the Government/Corporate Bond Series will decline.
The following is a discussion of the various investments of and techniques
employed by the Government/Corporate Bond Series. Additional information about
the investment policies of the Government/Corporate Bond Series appears under
"Diversified Investors Portfolios" in the Statement of Additional Information.
U.S. GOVERNMENT AND AGENCY SECURITIES. The Government/Corporate Bond Series
may invest in U.S. Government securities. See "U.S. Government and Agency
Securities" above under Money Market Series.
The Government/Corporate Bond Series may invest a portion of its assets in
short-term U.S. Government securities with remaining maturities of one year
or less and repurchase agreements relating thereto. When the Advisers
believe market conditions warrant a temporary defensive position, the
Government/Corporate Bond Series may invest up to 100% of its assets in
these instruments.
CORPORATE BONDS. The Government/Corporate Bond Series may purchase debt
securities of United States corporations only if they carry a rating of at
least Baa from Moody's or BBB from S&P or which, if not rated by these
rating agencies, are judged by the Advisers to be of comparable quality.
Securities rated Baa by Moody's or BBB by S&P may have speculative
characteristics. Changes in economic condition or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade securities. See the Appendix to
the Statement of Additional Information for an explanation of these
ratings.
FOREIGN SECURITIES. The Government/Corporate Bond Series may invest in
securities of foreign issuers. The Government/Corporate Bond Series'
investments in unlisted foreign securities are subject to the overall
restrictions applicable to investments in illiquid securities. The Advisers
do not intend to concentrate more than 25% of such foreign investments in
any one type of instrument or in any foreign country. Foreign securities
may represent a greater degree of risk than do securities of domestic
issuers due to possible exchange rate fluctuations, possible exchange
controls, less publicly available information, more volatile markets, less
securities regulation, less favorable tax provisions (including possible
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withholding taxes), changes in governmental administration or economic or
monetary policy (in the United States or abroad), war or expropriation.
Forward foreign currency exchange contracts may also be entered into for
the purchase or sale of foreign currency solely for hedging purposes
against adverse rate changes. A currency exchange contract allows a
definite price in dollars to be fixed for foreign securities that have been
purchased or sold (but not settled) for the Government/Corporate Bond
Series. Entering into such exchange contracts may result in the loss of all
or a portion of the benefits which otherwise could have been obtained from
favorable movements in exchange rates. In addition, entering into such
contracts means incurring certain transaction costs and bearing the risks
of incurring losses if rates do not move in the direction anticipated.
SHORT-TERM INSTRUMENTS. Cash, commercial paper, short-term obligations,
repurchase agreements, bank certificates of deposit or other forms of debt
securities may be held to provide a reserve for future purchases of
securities, during periods of unusual market conditions or in order to
reduce volatility, or as a temporary defensive measure when the Advisers
determine securities markets to be overvalued. See "Short Term Instruments"
above under High Quality Bond Series.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The
Government/Corporate Bond Series may enter into repurchase agreements and
reverse repurchase agreements. See "Repurchase Agreements and Reverse
Repurchase Agreements" above under Money Market Series. The
Government/Corporate Bond Series may borrow funds for temporary or
emergency purposes, such as meeting longer then anticipated redemption
requests, and not for leverage.
RESTRICTED SECURITIES. The Government/Corporate Bond Series may not invest
more than 15% of its net assets in securities that are subject to legal or
contractual restrictions on resale. See "Restricted Securities" above under
High Quality Bond Series.
OPTIONS AND FUTURES CONTRACTS. The Government/Corporate Bond Series may
buy and sell options and futures contracts to manage its exposure to
changing interest rates and securities prices. See "Options and Futures
Contracts" above under High Quality Bond Series.
The Series currently does not intend to engage in the writing of options,
except for the purpose of terminating an existing position or under the
limited circumstances described in the Statement of Additional Information.
Nevertheless, the Series has the authority to write options and may do so
in the future if the Advisers determine that such transactions are in the
best interests of the Series.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability of
suitable securities for the Government/Corporate Bond Series, the Advisers
may purchase securities for the Government/Corporate Bond Series on a
"when-issued" or on a "forward delivery" basis which means that the
Securities would be delivered to the Government/Corporate Bond Series at a
future date beyond customary settlement times. See "Delayed Delivery
Transactions" above under High Quality Bond Series.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Government/Corporate Bond
Series may, in each case up to 5% of the Series' assets, also utilize the
following investments and investment techniques and practices: options on
futures contracts and options on foreign currencies. The
Government/Corporate Bond Series does not intend to utilize any of these
investments or techniques to the extent of more than 5% of its assets. See
the Statement of Additional Information for further information.
HIGH-YIELD BOND SERIES. The investment objective of the High-Yield Bond
Series is to seek a high level of current income. The High-Yield Bond Series
pursues its investment objective by investing in a diversified portfolio
consisting primarily of high-yielding, fixed-income and zero coupon securities,
such as bonds, debentures and notes, convertible securities and preferred
stocks. The Series may invest all or a substantial portion of its assets in
lower-rated debt securities, commonly referred to as "junk bonds". Such
investments may include foreign securities and obligations issued or guaranteed
by the U.S. government, any of its states or territories, any foreign government
or any of their respective subdivisions, agencies or instrumentalities.
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The High-Yield Bond Series normally will invest at least 65% of its assets
in high-yielding, income producing debt securities and preferred stocks,
including convertible and zero coupon securities. Zero coupon securities are
debt securities that pay no cash income but are sold at substantial discounts
from their fact value. Certain zero coupon securities also are sold at
substantial discounts but provide for the commencement of regular interest
payments at a deferred date. The Series may invest up to 35% of its assets in
equity securities, including common stocks, warrants and rights.
Lower-rated debt securities usually are defined as securities rated Ba or
lower by Moody's or BB or lower by S&P. Lower-rated debt securities are
considered speculative and involve greater risk of default or price changes due
to changes in the issuer's creditworthiness than higher-rated securities and are
more sensitive to changes in the issuer's capacity to pay. Investing in
lower-rated debt securities is an aggressive approach to income investing. The
1980s saw a dramatic increase in the use of lower-rated debt securities to
finance highly leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of future performance of
lower-rated debt securities, especially during period of economic recession. In
fact, from 1989 to 1991, the percentage of lower-rated debt securities that
defaulted rose significantly above prior levels.
Lower-rated debt securities may be thinly traded, which can adversely
affect the prices at which they can be sold and can result in high transaction
costs. If market quotations are not available, these lower-rated debt securities
will be valued in accordance with standards set by the Board of Trustees,
including the use of outside pricing services. Judgment plays a greater role in
valuing lower-rated debt securities than securities for which more extensive
quotations and last-sale information are available. Adverse publicity and
changing investor perceptions may affect the ability of outside pricing services
used by the Series to value its portfolio securities, and the Series' ability to
dispose of the lower-rated bonds. The market prices of lower-rated debt
securities may decline significantly in periods of general economic difficulty,
which may follow periods of rising interest rates. During an economic downturn
or a prolonged period of rising interest rates, the ability of issuers of
lower-rated debt to service their payment obligations, meet projected goals, or
obtain additional financing may be impaired. The Series may choose, at its own
expense or in conjunction with others, to pursue litigation or otherwise
exercise its rights as a security holder to seek to protect the interests of
security holders if it determines this to be in the interest of Series
investors.
The considerations discussed above for lower-rated debt securities also are
applicable to lower quality unrated debt instruments of all types, including
loans and other direct indebtedness of businesses with poor credit standing.
Unrated debt instruments are not necessarily of lower quality than rated
securities but they may not be attractive to as many buyers.
The High-Yield Bond Series may also seek to achieve its investment
objective through investments in the following types of instruments.
SHORT-TERM INSTRUMENTS. Cash, commercial paper, short-term obligations,
repurchase agreements, bank certificates of deposit or other forms of debt
securities may be held to provide a reserve for future purchases of
securities, during periods of unusual market conditions or in order to
reduce volatility, or as a temporary defensive measure when the Advisers
determine securities markets to be overvalued. See "Short Term Instruments"
above under High Quality Bond Series.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The High-Yield
Bond Series may enter into repurchase agreements and reverse repurchase
agreements. See "Repurchase Agreements and Reverse Repurchase Agreements"
under Money Market Series. The Series may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage.
RESTRICTED SECURITIES. The High-Yield Bond Series may not invest more than
15% of its net assets in securities that are subject to legal or
contractual restrictions on resale. See "Restricted Securities" above under
High Quality Bond Series.
OPTIONS AND FUTURES CONTRACTS. The High-Yield Bond Series may buy and sell
options and futures contracts to manage its exposure to changing interest
rates and securities prices. See "Options and Futures Contracts" above
under High Quality Bond Series.
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The Series currently does not intend to engage in the writing of options,
except under the limited circumstances described in the Statement of
Additional Information. Nevertheless, the Series has the authority to write
options and may do so in the future if the Advisers determine that such
transactions are in the best interests of the Series.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability of
suitable securities for the High-Yield Bond Series, the Advisers may
purchase securities for the Series on a "when-issued" or on a "forward
delivery" basis which means that the securities would be delivered to the
Series at a future date beyond customary settlement times. See "Delayed
Delivery Transactions" above under High Quality Bond Series.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The High-Yield Bond Series
may also utilize the following investments and investment techniques and
practices: options on futures contracts and options on foreign currencies.
The Series does not intend to utilize any of these investments or
techniques to the extent of more than 5% of its assets. See the Statement
of Additional Information for further information.
BALANCED SERIES. The investment objective of the Balanced Series is to
provide a high total investment return consistent with a broad mix of stocks,
bonds and money market instruments. The Balanced Series pursues its investment
objective by investing in a managed mix of common stocks (and/or equivalents
including American Depository Receipts), preferred stocks, debt securities of
U.S. domiciled corporations, U.S. government securities, commercial paper of
U.S. corporations, and bank obligations. The Advisers will determine the
proportions of each type of investment to achieve an asset mix they believe
appropriate for an investor who desires diversification of investment. The
Balanced Series will vary the proportion of each type of asset purchased
according to the Advisers' interpretations of changes in economic conditions and
the sensitivity of each type of investment to those changes. The Advisers seek
to shift emphasis among stocks, bonds and short-term instruments to maximize
participation in positive markets and preservation of capital in negative
markets and otherwise in response to market conditions.
The Balanced Series' policy is to invest its assets in a broad list of
equity and fixed-income securities, such as common stocks, preferred stocks and
bonds, including short-term obligations. The list may be diversified not only by
companies and industries, but also by type of security. Some fixed-income
securities may also have a right to purchase common stock by means of a
conversion privilege or attached warrants. The Balanced Series may vary the
percentage of assets invested in any one type of security in accordance with the
Advisers' interpretation of economic and market conditions, fiscal and monetary
policy, and underlying securities values. However, at least 25% of the total
assets of the Balanced Series are always invested in fixed-income senior
securities including debt securities and preferred stock. In selecting common
stocks, emphasis is placed on investing in established companies with market
capitalizations, $100,000,000 or more and seasoned management teams. Most of the
Balanced Series' non-convertible long-term debt investments consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P), although unrated debt securities may be purchased and held if they are
judged by the Advisers to be of equivalent quality. Securities rated Baa by
Moody's or BBB by S&P may have speculative characteristics. Changes in economic
conditions or other circumstances may weaken more severely the capacity of
issuers of Baa or BBB securities to make principal and interest payments than in
the case for issuers of higher grade bonds. Less than 5% of the Balanced Series
investments consist of securities rated Baa by Moody's or BBB by S&P. For a
description of these ratings, see the Appendix to the Statement of Additional
Information.
The Balanced Series may invest a portion of its assets in short-term U.S.
Government securities with remaining maturities of one year or less and
repurchase agreements relating thereto. When the Advisers believe market
conditions warrant a temporary defensive position, the Balanced Series may
invest up to 100% of its assets in these instruments or other money market
instruments.
EQUITY INCOME SERIES. The investment objective of the Equity Income Series
is to provide a high level of current income through investment in a diversified
portfolio of common stocks with relatively high current yields; capital
appreciation is a secondary objective. The Equity Income Series seeks to achieve
its investment objective by investing primarily in a diversified portfolio of
stocks of companies which, in the opinion of the Advisers, are fundamentally
sound financially and which pay relatively high dividends on a consistent basis.
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The Advisers attempt to manage the Equity Income Series so that it will out
perform other equity income funds in negative markets. As a result of this
objective, the Equity Income Series may underperform relative to other equity
income funds in positive markets. The Equity Income Series invests primarily in
common stocks and preferred stocks listed on the New York Stock Exchange and on
other national securities exchanges and, to a lesser extent, in stocks that are
traded over-the-counter. The Equity Income Series also invests in bonds and
short-term obligations as well as securities convertible into common stocks,
preferred stocks, debt securities and short-term obligations. The Equity Income
Series allocates its investments among different industries and companies, and
changes its portfolio securities for investment considerations and not for
trading purposes.
The Equity Income Series' policy is to invest in a broad list of equity and
fixed-income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed-income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Equity Income Series may vary the
percentage of assets invested in any one type of security in accordance with the
Advisers' interpretation of economic and market conditions, fiscal and monetary
policy, and underlying security values.
EQUITY VALUE SERIES. The investment objective of the Equity Value Series
is to provide a high total investment return through investment in a diversified
portfolio of common stocks. The Equity Value Series seeks to achieve its
investment objective by investing primarily in a diversified portfolio of stocks
of companies which, in the opinion of the Advisers, are trading at low
valuations relative to market and/or historical levels. These stocks tend to
have relatively low price/earnings ratios and/or relatively low price/book value
ratios. Low price/earnings ratios or price/book value ratios means that the
stock is less expensive than average relative to the company's earnings or book
value, respectively. The Series invests primarily in common stocks listed on the
New York Stock Exchange and on other national securities exchanges and, to a
lesser extent, in stocks that are traded over-the-counter. The Series may also
invest in bonds and short-term obligations as well as securities convertible
into common stocks, preferred stocks, debt securities and short-term
obligations. The Series allocates its investments among different industries and
companies, and changes its portfolio securities for investment considerations
and not for trading purposes.
The Equity Income Portfolio's policy is to invest in a broad list of equity
and fixed-income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed-income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Portfolio may vary the percentage
of assets invested in any one type of security in accordance with the Advisers'
interpretation of economic and market conditions, fiscal and monetary policy,
and underlying security values.
GROWTH & INCOME SERIES. The investment objective of the Growth & Income
Series is to provide current income and capital appreciation. The Growth &
Income Series seeks to achieve its investment objective by investing primarily
in a diversified portfolio of securities selected for their potential to
generate current income or long term capital appreciation. In general, the
objective of the Growth & Income Series is to achieve greater potential for
capital appreciation than an income fund and less price volatility than a growth
fund. The Growth & Income Series invests primarily in common stocks and
preferred stocks listed on the New York Stock Exchange and on other national
securities exchanges and, to a lesser extent, in stocks that are traded
over-the-counter. The Growth & Income Series also invests in bonds and
short-term obligations as well as securities convertible into common stocks,
preferred stocks, debt securities and short-term obligations. The Growth &
Income Series allocates its investments among different industries and
companies, and changes its portfolio securities for investment considerations
and not for trading purposes. In general, the Growth & Income Series seeks to
invest in growing, financially stable and undervalued companies.
The Growth & Income Series' policy is to invest in a broad list of equity
and fixed income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Growth & Income Series may vary
the percentage of assets invested in any
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one type of security in accordance with the Advisers' interpretation of economic
and market conditions, fiscal and monetary policy, and underlying securities
values.
EQUITY GROWTH SERIES. The investment objective of the Equity Growth Series
is to provide a high level of capital appreciation through investment in a
diversified portfolio of common stocks with potential for above average growth
in earnings and dividends; current income is a secondary objective. The Equity
Growth Series seeks to achieve its investment objective by investing primarily
in a diversified portfolio of common stocks, but may also invest in other types
of securities such as preferred stocks, convertible and non-convertible bonds,
warrants and foreign securities including American Depository Receipts. Under
normal circumstances, at least 65% of the assets of the Equity Growth Series are
invested in equity securities. This is a fundamental investment policy and may
not be changed without investor approval. The Equity Growth Series invests
primarily in stocks of companies that have a market value of all their issued
and outstanding common stock of $10 to $15 billion and preferred stocks listed
on the New York Stock Exchange and on other national securities exchanges and,
to a lesser extent, in stocks that are traded over-the-counter. The Equity
Growth Series also invests in bonds and short-term obligations as well as
securities convertible into common stocks, preferred stocks, debt securities and
short-term obligations. The Equity Growth Series allocates its investments among
different industries and companies, and changes its portfolio securities for
investment considerations and not for trading purposes.
The Equity Growth Series' policy is to invest in a broad list of equity and
fixed-income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed-income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Equity Growth Series may vary the
percentage of assets invested in any one type of security in accordance with the
Adviser's interpretation of economic and market conditions, fiscal and monetary
policy, and underlying security values.
SPECIAL EQUITY SERIES. The investment objective of the Special Equity
Series is to provide a high level of capital appreciation through investment in
a diversified portfolio of common stocks of small to medium size companies. The
Special Equity Series is designed for investors in search of substantial
long-term growth who can accept above-average stock market risk and little or no
current income. The Special Equity Series seeks to achieve its investment
objective by investing primarily in a diversified portfolio of stocks of small
to medium size companies which, in the opinion of the Advisers, will present an
opportunity for significant increases in earnings and/or value, without
consideration for current income. The Special Equity Series' primary equity
investments will be common stocks of small and medium sized U.S. companies with
market capitalizations of less than $2 billion. Multiple managers are used to
control the volatility often associated with investments in small to medium size
companies and to maximize opportunities in positive markets. The Special Equity
Series may also invest in bonds and short-term obligations as well as securities
convertible into common stocks, preferred stocks, debt securities and short-term
obligations. The Special Equity Series allocates its investments among different
industries and companies, and changes its portfolio securities for investment
considerations and not for trading purposes.
While the Special Equity Series' policy is to invest its assets primarily
in common stocks with potential for above average growth in earnings,
appreciation may be sought in other types of securities such as preferred
stocks, convertible and non-convertible bonds, warrants and foreign securities
including American Depository Receipts. The Special Equity Series may vary the
percentage of assets invested in any one type of security in accordance with the
Advisers' interpretation of economic and market conditions, fiscal and monetary
policy, and underlying securities values. In selecting stocks, emphasis is
placed on investing in companies with small to medium market capitalizations,
i.e., the market value of all issued and outstanding common stock of the company
will be less than $2 billion. Investing in equity securities of small to medium
companies involves risks not typically associated with investment in comparable
securities of large companies. Such smaller and medium companies may have narrow
product lines and limited financial and managerial resources. Since the market
for the equity securities of small and medium companies is often characterized
by less information and liquidity than that for the equity securities of large
companies, securities of such small and medium companies may be subject to more
abrupt or erratic market movements than securities of large companies or market
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averages in general. Therefore, an investment in the Special Equity Series may
be subject to greater declines in value than an investment in an equity fund
investing in the equity securities of large companies.
AGGRESSIVE EQUITY SERIES. The investment objective of the Aggressive
Equity Series is to provide a high level of capital appreciation through
investment in a diversified portfolio of common stocks of small to medium size
companies. The Aggressive Equity Series is designed for investors in search of
substantial long-term growth who can accept above-average stock market risk and
little or no current income. The Aggressive Equity Series seeks to achieve its
investment objective by investing primarily in a diversified portfolio of stocks
of small to medium size companies which, in the opinion of the Advisers, will
present an opportunity for significant increases in earnings, revenue and/or
value, without consideration for current income. The Series' primary equity
investments common stocks of small and medium sized U.S. companies with market
capitalizations between $750 million and $2.5 billion. The Series may also
invest in bonds and short-term obligations as well as securities convertible
into common stocks, preferred stocks, debt securities and short-term
obligations. The Aggressive Equity Series allocates its investments among
different industries and companies, and changes its portfolio securities for
investment considerations and not for trading purposes.
While the Aggressive Equity Series' policy is to invest its assets
primarily in common stocks with potential for above average growth in earnings
and/or revenue, appreciation may be sought in other types of securities such as
preferred stocks, convertible and non-convertible bonds, warrants and foreign
securities including American Depository Receipts. The Aggressive Equity Series
may vary the percentage of assets invested in any one type of security in
accordance with the Advisers' interpretation of economic and market conditions,
fiscal and monetary policy, and underlying securities values.
In selecting stocks, emphasis is placed on investing in companies with
consistent, above-average and accelerating profitability and growth. These
companies tend to have higher price/earnings ratios which means that the stock
is more expensive than average relative to the company's earnings. Investing in
equity securities of small to medium companies involves risks not typically
associated with investment in comparable securities of large companies. Such
smaller and medium companies may have narrow product lines and limited financial
and managerial resources. Since the market for the equity securities of small
and medium companies is often characterized by less information and liquidity
than that for the equity securities of large companies, securities of such small
and medium companies may be subject to more abrupt or erratic market movements
than securities of large companies or market averages in general. Therefore, an
investment in the Aggressive Equity Fund may be subject to greater declines in
value than an investment in an equity fund investing in the equity securities of
large companies.
INTERNATIONAL EQUITY SERIES. The investment objective of the International
Equity Series is to provide a high level of long-term capital appreciation
through investment in a diversified portfolio of securities of foreign issuers.
The International Equity Series seeks to achieve its investment objective by
investing primarily in foreign securities. Foreign securities are defined as
securities of issuers, wherever organized, which trade solely on a foreign
exchange or over-the-counter market, or, of issuers which in the judgment of the
Advisers, have their principal activities outside of the United States. In
determining whether an issuer's principal activities and interests are outside
the United States, the Advisers will look at such factors as the location of the
issuer's assets, operations, facilities, personnel, sales and earnings. Under
normal circumstances, at least 65% of the assets of the Portfolio are invested
in foreign equity securities. The Advisers will purchase securities of companies
in a minimum of 3 countries outside the United States.
The Advisers use an approach to investing looking to identify fundamental
values in stocks they select. Further, when allocating the Series' investments
among geographic regions and individual countries, the Advisers consider various
criteria, such as prospects for relative economic growth among countries,
expected levels of inflation, government policies influencing business
conditions, and the outlook for currency relationships. The Series invests most
of its assets in securities of issuers located in developed countries in these
geographic areas: Canada, the Far East, Australia and Europe.
The International Equity Series may invest up to 10% of its assets in
securities of issuers in the world's emerging markets. Countries with emerging
markets include those that have an emerging stock market as defined by the
International Finance Corporation, those with low- to middle-income economies
according to
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<PAGE> 52
the World Bank, and those listed in World Bank publications as developing. While
the Advisers believe that these investments present the possibility for
significant growth over the long-term, they also entail significant risks. Many
investments in emerging markets can be considered speculative, and their prices
can be much more volatile than those in the more developed nations of the world.
This difference reflects the greater uncertainties of investing in less
established markets and economies.
The International Equity Series may invest in all types of securities, most
of which are denominated in foreign currencies. While the Advisers expect that
opportunities for long term capital appreciation will come primarily from common
stocks, securities convertible into common stock, non-convertible preferred
stocks and depository receipts for these securities, the Series may also invest
in any type or quality of debt securities if the Advisers believe that doing so
may result in long term growth. In addition, the Series may invest in high-
yielding, lower rated debt securities. See the discussion of lower rated debt
securities above under High-Yield Bond Series above. Forward foreign currency
exchange contracts may also be entered into for the purchase or sale of foreign
currency solely for hedging purposes against adverse rate changes on both a long
and short term basis. A currency exchange contract allows a definite price in
dollars to be fixed for foreign securities that have been purchased or sold (but
not settled) for the Series. Entering into such exchange contracts may result in
the loss of all or a portion of the benefits which otherwise could have been
obtained from favorable movements in exchange rates. In addition, entering into
such contracts means incurring certain transaction costs and bearing the risk of
incurring losses if rates do not move in the direction anticipated.
Investments in foreign equity and debt securities involve increased or
additional risks from those encountered when investing in securities of domestic
issuers. The Advisers evaluate the risks and opportunities when investing in
particular foreign securities. Such risks include (1) currency fluctuations; (2)
restrictions on, and costs associated with, the exchange of currencies; (3) the
difficulty in obtaining or enforcing a court judgment abroad; (4) reduced levels
of publicly available information concerning issuers; (5) restrictions on
foreign investment in other jurisdictions; (6) reduced levels of governmental
regulation of foreign securities markets; (7) difficulties in effecting the
repatriation of capital invested abroad; (8) difficulties in transaction
settlements and the effect of this delay on shareholder equity; (9) foreign
withholding taxes; (10) political, economic, and similar risks, including
expropriation and nationalization; (11) different accounting, auditing, and
financial standards; (12) price volatility; and (13) the diverse structure and
liquidity of various countries and regions.
INVESTMENT TECHNIQUES AND RESTRICTIONS
INVESTMENT TECHNIQUES FOR THE BALANCED SERIES, EQUITY INCOME SERIES, EQUITY
VALUE SERIES, GROWTH & INCOME SERIES, EQUITY GROWTH SERIES SPECIAL EQUITY
SERIES, AGGRESSIVE EQUITY SERIES AND INTERNATIONAL EQUITY SERIES.
OPTIONS AND FUTURES CONTRACTS. Each Series may enter into transactions in
futures contracts, options on futures contracts, options on securities indexes
and options on securities, for the purpose of hedging each Series' securities,
which would have the effect of reducing the volatility of its net asset value.
In general, each such transaction involves the establishment of a position which
is expected to move in a direction opposite to that of the security or
securities being hedged.
For example, each Series may sell futures contracts, or purchase put
options on futures contracts, securities indexes or securities for the purpose
of protecting against an anticipated decline in the value of securities held by
that Series. In the event that such decline occurs, and the hedging transaction
is successful, the reduced value of portfolio securities will be offset, in
whole or in part, by a corresponding gain on the futures or option position.
Conversely, when the Series is not fully invested in the securities market, and
it expects a significant market advance, it may purchase futures contracts or
call options on futures contracts, securities indexes or securities in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that that Series intends to purchase.
The Statement of Additional Information includes further information about
the transactions in futures and option contracts that may be entered into by
each Series.
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Gain or loss to each Series on transactions in securities index futures or
options will depend on price movements in the stock market generally (or in a
particular industry or segment of the market), rather than price movements of
individual securities. A securities index assigns relative values to the
securities included in the index and the index fluctuates with changes in the
market values of the securities so included. Some securities index futures or
options are based on broad market indexes, such as the Standard & Poor's 500 or
the New York Stock Exchange Composite Index. In contrast, certain exchanges
offer futures or options on narrower market indexes, such as the Standard &
Poor's 100 or indexes based on an industry or market segment, such as oil and
gas stocks. Options on indexes and options on securities are traded on
securities exchanges regulated by the SEC. Futures contracts and options on
futures contracts are traded only on designated contract markets regulated by
the Commodity Futures Trading Commission and through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees
performance between the clearing members which are parties to each contract.
Each Series currently does not intend to engage in the writing of options,
except for the purpose of terminating an existing position or under the limited
circumstances described in the Statement of Additional Information.
Nevertheless, each Series has the authority to write options and may do so in
the future if the Advisers determine that such transactions are in the best
interests of the Series.
SHORT-TERM INSTRUMENTS. Each of the Balanced Series, Equity Income Series,
Equity Value Series, Growth & Income Series, Equity Growth Series, Special
Equity Series, Aggressive Equity Series and International Equity Series may
invest in cash, commercial paper, short-term obligations, repurchase agreements
or other forms of debt securities. See "Short-Term Instruments" above under High
Quality Bond Series.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Each of the
Balanced Series, Equity Income Series, Equity Value Series, Growth & Income
Series, Equity Growth Series, Special Equity Series, Aggressive Equity Series
and International Equity Series may enter into repurchase agreements and reverse
repurchase agreements and may borrow Funds for temporary or emergency purposes,
such as meeting larger then anticipated redemption requests, and not for
leverage. See "Repurchase Agreements and Reverse Repurchase Agreements" above
under Money Market Series.
RESTRICTED SECURITIES. Each of the Balanced Series, Equity Income Series,
Equity Value Series, Growth & Income Series, Equity Growth Series, Special
Equity Series, Aggressive Equity Series and International Equity Series may not
invest more than 15% of its net assets in securities that are subject to legal
or contractual restrictions on resale. See "Restricted Securities" above under
High Quality Bond Series.
DELAYED DELIVERY TRANSACTIONS. In order to help insure the availability of
suitable securities for each of the Balanced Series, Equity Income Series,
Equity Value Series, Growth & Income Series, Equity Growth Series, Special
Equity Series, Aggressive Equity Series and International Equity Series, the
Advisers may purchase securities for each such Series on a "when-issued" or on a
"forward delivery" basis. See "Delayed Delivery Transactions" above under High
Quality Bond Series.
Changes to the securities of each Series are generally made without regard
to the length of time a security has been held, or whether a sale would result
in the recognition of a profit or loss. Therefore, the rate of portfolio
turnover is not a limiting factor to trading when such trading is deemed
appropriate. Each Series engages in trading if it believes a transaction net of
costs (including custodian charges) will help it achieve its investment
objective. The portfolio turnover rate for the common stock portion of the
Balanced Series and for each Series as a whole is expected to be less than 100%
annually. The amount of brokerage commissions and realized capital gains will
tend to increase as the level of portfolio activity increases. The primary
consideration in placing portfolio security transactions with broker-dealers for
execution is to obtain, and maintain the availability of, execution at the most
favorable prices and in the most effective manner possible. See "Portfolio
Transactions and Brokerage Commissions" in the Statement of Additional
Information.
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INVESTMENT TECHNIQUES FOR THE BALANCED SERIES, EQUITY INCOME SERIES, EQUITY
VALUE SERIES, GROWTH & INCOME SERIES, EQUITY GROWTH SERIES, SPECIAL EQUITY
SERIES AND AGGRESSIVE EQUITY SERIES. Each Series' current policy is not to
invest more than 25% of its assets in securities of foreign issuers, including
investments in sponsored American Depository Receipts ("ADRs"). ADRs are
receipts typically issued by an American bank or trust company evidencing
ownership of the underlying foreign securities. The Advisers do not intend to
concentrate more than 25% of such foreign investments in any one type of
instrument or in any foreign country. Each such Series' investments in unlisted
foreign securities, not including ADRs, are subject to the overall restrictions
applicable to investments in illiquid securities. Foreign securities, including
ADRs, may represent a greater degree of risk than do securities of domestic
issuers due to possible exchange rate fluctuations, possible exchange controls,
less publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions (including possible withholding
taxes), changes in governmental administration or economic or monetary policy
(in the United States or abroad), war or expropriation. Each Series may invest
up to 5% of its assets in closed-end investment companies which primarily hold
foreign securities. Forward foreign currency exchange contracts may also be
entered into for the purchase or sale of foreign currency solely for hedging
purposes against adverse rate changes. A currency exchange contract allows a
definite price in dollars to be fixed for foreign securities that have been
purchased or sold (but not settled) for each Series. Entering into such exchange
contracts may result in the loss of all or a portion of the benefits which
otherwise could have been obtained from favorable movements in exchange rates.
In addition, entering into such contracts means incurring certain transaction
costs and bearing the risk of incurring losses if rates do not move in the
direction anticipated.
INVESTMENT RESTRICTIONS FOR ALL SERIES OF DIVERSIFIED INVESTORS PORTFOLIO.
As "diversified" funds, no more than 5% of the assets of any series of
Diversified Investors Portfolios may be invested in the securities of one issuer
(other than U.S. Government securities), except that up to 25% of each series'
assets may be invested without regard to this limitation. No series of
Diversified Investors Portfolios will invest more than 25% of its assets in the
securities of issuers in any one industry. These are fundamental investment
policies which may not be changed without investor approval. As a
non-fundamental operating policy, no more than 15% (10% in the case of the Money
Market Series) of the net assets of any series may be invested in (i) securities
the resale of which is restricted under federal securities laws and (ii)
illiquid or not readily marketable securities (including repurchase agreements
maturing in more than seven days). Additional fundamental and operating policies
of Diversified Investors Portfolios are contained in the Statement of Additional
Information.
LENDING OF PORTFOLIO SECURITIES
The Series have the authority to lend portfolio securities to brokers,
dealers and other financial organizations. By lending its securities, a Series
can increase its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in short-term
securities or obtaining yield in the form of interest paid when U.S. Government
obligations are used as collateral. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. A Series will adhere to the following conditions whenever its
securities are loaned: (i) the Series must receive at least 100% cash collateral
or equivalent securities from the borrower; (ii) the borrower must increase this
collateral whenever the market value of the loaned securities including accrued
interest exceeds the level of the collateral; (iii) the Series must be able to
terminate the loan at any time; (iv) the Series must receive reasonable interest
on the loan, as well as any dividends, interest or other distributions on the
loaned securities, and any increase in market value; (v) the Series may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower. However, if a material event
adversely affecting the loaned securities were to occur, the Series would
terminate the loan and regain the right to vote the securities.
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MANAGEMENT OF DIVERSIFIED INVESTORS PORTFOLIOS
The Board of Trustees of Diversified Investors Portfolios provides broad
supervision over the affairs of Diversified Investors Portfolios. For further
information about the Board of Trustees, see "Diversified Investors Portfolios"
in the Statement of Additional Information. A majority of the Board of Trustees
are not affiliated with the Advisers.
INVESTMENT ADVISORY SERVICES. Diversified Investment Advisors, Inc.
("Diversified") manages the assets of each series of Diversified Investors
Portfolios pursuant to an Investment Advisory Agreement (the "Advisory
Agreement") with Diversified Investors Portfolios with respect to each series
and in accordance with the investment policies described herein and in the
Statement of Additional Information. Subject to such further policies as the
Board of Trustees may determine, Diversified provides general investment advice
to each series. For its services under the Advisory Agreements, Diversified
receives from each series fees accrued daily and paid monthly at an annual rate
equal to the percentages specified in the table below of the corresponding
series' average daily net assets. Diversified is currently waiving a portion of
its investment advisory fee. Investment management decisions are taken by a
committee of Diversified's personnel and not by a particular individual.
Diversified is an indirect, wholly-owned subsidiary of AEGON USA, Inc.
("AEGON") which is a financial services holding company whose primary emphasis
is life and health insurance and annuity and investment products. AEGON is an
indirect, wholly-owned subsidiary of AEGON N.V., a Netherlands corporation which
is a publicly traded international insurance group. Diversified was incorporated
in 1992 for the purpose of acting as investment adviser to Diversified Investors
Portfolios. Accordingly, Diversified Investors Portfolios is the first family of
investment companies for which Diversified serves as investment adviser. It is
Diversified's responsibility to select, subject to the review and approval of
the Diversified Investors Portfolios' Board of Trustees, appropriate subadvisers
with distinguished backgrounds and to review such subadviser's continued
performance.
For each series, Diversified has entered into an Investment Subadvisory
Agreement (each a "Subadvisory Agreement") with the subadvisers listed in the
table below (each a "Subadviser," and collectively the "Subadvisers"). For its
services under each Subadvisory Agreement, the Subadvisers receive a fee from
Diversified at an annual rate equal to the percentages specified in the table
below of the corresponding series' average daily net assets. Each fee will be
accrued monthly by multiplying the arithmetic average of the
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beginning and ending monthly net assets in the series by the fee schedule and
dividing by 12. Each fee will be paid on a quarterly basis.
<TABLE>
<CAPTION>
COMPENSATION RATES(%)
DIVERSIFIED INVESTORS PORTFOLIO -------------------------
PORTFOLIO SERIES SUBADVISERS ADVISER(1) SUBADVISERS
- --------------------------------------- ---------------------------------- ---------- ----------
<S> <C> <C> <C>
Money Market Series Capital Management Group 0.25 0.05
High Quality Bond Series Merganser Capital Management 0.35 (2)
Corporation
Intermediate Government Bond Series Capital Management Group 0.35 0.15
Government/Corporate Bond Series Capital Management Group 0.35 0.15
High-Yield Bond Series Delaware Investment Advisers 0.55 (3)
Balanced Series Institutional Capital Corporation 0.45 (4)
Equity Income Series Asset Management Group 0.45 0.25
Equity Value Series Ark Asset Management Co., Inc. 0.57 (5)
Growth & Income Series Putnam Advisory Company, Inc. 0.60 (6)
Equity Growth Series Jundt Associates, Inc. 0.70 0.625
Special Equity Series (7) 0.80 0.50
Aggressive Equity Series McKinley Capital Management Inc. 0.97 (8)
International Equity Series Capital Guardian Trust Company 0.75 (9)
</TABLE>
- ---------------
(1) The Adviser is currently waiving a portion of its fee. See "Fees and
Expenses" on page 6 for a discussion of the fee waivers currently in effect.
(2) 0.50% on the first $10,000,000 in assets, 0.375% on the next $15,000,000 in
assets, 0.25% on the next $75,000,000 in assets and 0.1875% on all assets in
excess of $100,000,000.
(3) 0.40% on the first $20,000,000 in assets, 0.30% on the next $20,000,000 in
assets and 0.20% on assets in excess of $40,000,000.
(4) 0.55% on the first $25,000,000 in assets, 0.45% on the next $25,000,000 in
assets and 0.35% on assets in excess of $50,000,000.
(5) 0.45% on the first $100,000,000 in assets, 0.40% on the next $50,000,000 in
assets and 0.35% on the next $50,000,000 in assets; when the Portfolio
achieves $200,000,000 in assets, the rate shall be 0.40% on assets up to
$200,000,000 and 0.35% on assets in excess of $200,000,000 so long as the
Portfolio continues to have more than $200,000,000 in assets.
(6) 0.30% on the first $100,000,000 in assets, 0.20% on assets in excess of
$100,000,000.
(7) The Special Equity Portfolio has four Subadvisers: Pilgrim Baxter &
Associates, Ltd.; Ark Asset Management Co., Inc.; Liberty Investment
Management, Inc.; and Westport Asset Management, Inc.
(8) 0.90% on the first $10,000,000 in assets, 0.80% on the next $15,000,000 in
assets, 0.60% on the next $25,000,000 in assets, 0.40% on the next
$50,000,000 in assets and 0.35% on assets in excess of $100,000,000.
(9) 0.75% on the first $25,000,000 in assets, 0.60% on the next $25,000,000 in
assets, 0.425% on the next $200,000,000 in assets and 0.375% on all assets
in excess of $250,000,000.
It is the responsibility of a Subadviser to make the day-to-day investment
decisions of the series and to place the purchase and sales orders for
securities transactions of such series, subject in all cases to the general
supervision of Diversified. Each Subadviser makes the investment selections for
its respective series consistent with the guidelines and directions set by
Diversified and the Board of Trustees of Diversified Investors
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Portfolios. Each Subadviser furnishes at its own expense all services,
facilities and personnel necessary in connection with managing the corresponding
series' investments and effecting securities transactions for a series.
Diversified has entered into a Subadvisory Agreement with respect to the
High Quality Bond Series with Merganser Capital Management Corporation
("Merganser"). Merganser was formed in September 1987 and is owned by certain of
its employees. Total assets under management for all institutional bond clients
at December 31, 1995 were approximately $2.1 billion, $203.5 million of which
were assets of registered investment companies. The principal business address
of Merganser is One Cambridge Center, Cambridge, Massachusetts 02142. Investment
management decisions of Merganser are made by committee and not by managers
individually.
Diversified has entered into separate Subadvisory Agreements with respect
to each of the Money Market Series, Intermediate Government Bond Series and
Government/Corporate Bond Series with Capital Management Group, a division of
1740 Advisers, Inc., a wholly-owned subsidiary of MONY. The address of Capital
Management Group is 1740 Broadway, New York, New York 10019. Total assets under
management by Capital Management Group at December 31, 1995 were approximately
$639 million, of which $594 million were assets of registered investment
companies. Investment management decisions of Capital Management Group are made
by committee and not by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
Equity Income Series with Asset Management Group, a division of 1740 Advisers,
Inc. a wholly-owned subsidiary of MONY. The address of Asset Management Group is
1740 Broadway, New York, New York 10019. Total assets under management by Asset
Management Group at December 31, 1995 were approximately $1.0 billion, $910
million of which were assets of registered investment companies. Investment
management decisions of Asset Management Group are made by committee and not by
managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
High-Yield Bond Series with Delaware Investment Advisers (a division of Delaware
Management Company, Inc.) ("Delaware"). Delaware was formed in February 1985 and
is owned by Lincoln National Corp. Total assets under management for all
high-yield bond clients at December 31, 1995 were approximately $2 billion, $1.5
billion of which were assets of registered investment companies. The principal
business address of Delaware is 2005 Market Street, Philadelphia, Pennsylvania
19103. Investment management decisions of Delaware are made by committee and not
by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
Balanced Series with Institutional Capital Corporation ("Institutional
Capital"). Institutional Capital was formed in January 1970 and is owned by
certain of its employees. Total assets under management for all balanced clients
at December 31, 1995 were approximately $579 million, $183 million of which were
assets of registered investment companies. The principal business address of
Institutional Capital is 303 West Madison Street, Chicago, IL 60606. Investment
management decisions of Institutional Capital are made by committee and not by
managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
Equity Value Series with Ark Asset Management Co., Inc. ("Ark"). Ark was formed
in July 1989 and is owned by Ark Asset Holdings, Inc. Ark Assets Holdings, Inc.
is owned by certain of the employees. The principal address of Ark is 55 Water
Street, New York, NY 10041. Total assets under management for equity value
clients at December 31, 1995 were approximately $9.8 billion, $75 million of
which were assets of registered investment companies. Investment management
decisions of Ark are made by committee and not by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
Growth & Income Series with Putnam Advisory Company, Inc. ("Putnam"). Putnam was
formed in 1937 and is owned by Marsh & McLennon Companies, Inc. The principal
address of Putnam is One Post Office Square, Boston, MA 02109. Total assets
under management for growth and income clients at December 31, 1995 were
approximately $868 billion, $125 billion of which were assets of registered
investment companies. Investment management decisions of Putnam are made by
committee and not by managers individually.
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Diversified has entered into a Subadvisory Agreement with respect to the
Equity Growth Series with Jundt Associates, Inc. ("Jundt"). Jundt was formed in
December 1972 and is owned by certain of its employees. Total assets under
management for all core equity clients at December 31, 1995 were approximately
$2.4 billion, $363 million of which were assets of registered investment
companies. The principal business address of Jundt is 1550 Utica Avenue South,
Suite 950, St. Louis Park, MN 55416. Investment management decisions of Jundt
are made by committee and not by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
Aggressive Equity Portfolio with McKinley Capital Management, Inc. ("McKinley").
McKinley was formed in March 1991 and is owned by Robert Gillam. Total assets
under management for all aggressive equity clients at December 31, 1995 were
approximately $375 million, none of which were assets of registered investment
companies. The principal business address of McKinley is 3301 C Street,
Anchorage, Alaska 99503. Investment management decisions of McKinley are made by
committee and not by managers individually.
Diversified has entered into a Subadvisory Agreement with respect to the
International Equity Portfolio with Capital Guardian Trust Company ("CGTC").
CGTC was formed in 1968 and is owned by The Capital Group Companies, Inc. The
principal address of CGTC is 333 South Hope Street, Los Angeles, California
90071. Total assets under management for all international equity clients by
CGTC at December 31, 1995 were approximately $15 billion, and total assets under
management of registered investment companies for which CGTC acts as subadviser
was $613 million as of that date. CGTC uses a system of multiple portfolio
managers pursuant to which the Portfolio is divided into segments that are
assigned to individual portfolio managers. With investment guidelines, each
portfolio manager makes individual decisions as to company, country, industry,
timing and percentage based on extensive field research and direct company
contact.
With respect to the Special Equity Series, Diversified has entered into
Subadvisory Agreements with four Subadvisers as follows:
- Ark Asset Management Co., Inc. ("Ark") was formed in July 1989 and is
owned by Ark Asset Holdings, Inc. Ark Asset Holdings, Inc. is owned by
certain of its employees. Total assets under management for all small
capitalization clients at December 31, 1995 were approximately $1.7
billion, $83 million of which were assets of registered investment
companies. The principal business address of Ark is 55 Water Street, New
York, NY 10041.
- Liberty Investment Management, Inc. ("Liberty") was formed in 1994 and is
owned by certain of its employees. Liberty succeeded to certain of the
investment management businesses of Eagle Asset Management, Inc. Total
assets under management for all equity clients at December 31, 1995 were
approximately $401 million, $91 million of which were assets of
registered investment companies. The principal business address of
Liberty is 880 Carillon Parkway, St. Petersburg, FL 33716.
- Pilgrim Baxter & Associates, Ltd. ("Pilgrim") was formed in 1995 and is
owned by United Asset Management, Inc., a publicly-owned corporation.
Pilgrim succeeded to certain of the investment management businesses, and
acquired the corporate name of, Pilgrim Baxter & Associates, Ltd. in
April 1995. Total assets under management for all equity clients at
December 31, 1995 were approximately $4.7 billion, $2.6 billion of which
were assets of registered investment companies. The principal business
address of Pilgrim is 1255 Drummers Lanes, Wayne, PA 19087.
- Westport Asset Management, Inc. ("Westport") was formed in July 1993 and
is owned by certain of its employees. Total assets under management for
all equity clients at December 31, 1995 were approximately $520 million,
$119 million of which were assets of registered investment companies. The
principal business address of Westport is 253 Riverside Avenue, Westport,
CT 06880.
Investment management decisions by each of these Subadvisers are made by
committee and not by managers individually.
ADMINISTRATOR. Pursuant to an Administrative Services Agreement,
Diversified, as Administrator, provides Diversified Investors Portfolios with
general office facilities and supervises the overall administration of
Diversified Investors Portfolios, including, among other responsibilities, the
negotiation of contracts and fees
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with, and the monitoring of performance and billings of, the independent
contractors and agents of Diversified Investors Portfolios; the preparation and
filing of all documents required for compliance by Diversified Investors
Portfolios with applicable laws and regulations; providing equipment and
clerical personnel necessary for maintaining the organization of Diversified
Investors Portfolios; preparation of certain documents in connection with
meetings of Trustees and investors of Diversified Investors Portfolios; and the
maintenance of books and records of Diversified Investors Portfolios.
Diversified provides persons satisfactory to the Board of Trustees of
Diversified Investors Portfolios to serve as officers of Diversified Investors
Portfolios. Such officers, as well as certain other employees and Trustees of
Diversified Investors Portfolios, may be directors, officers or employees of
Diversified or its affiliates. The Administrator receives no additional fee for
its administrative services to Diversified Investors Portfolios.
EXPENSES. The expenses of Diversified Investors Portfolios include the
compensation of its Trustees who are not affiliated with the Adviser or
Diversified; governmental fees; interest charges; taxes; fees and expenses of
independent auditors, of legal counsel and of any transfer agent, depository,
registrar or dividend disbursing agent of Diversified Investors Portfolios;
insurance premiums; and expenses of calculating the net asset value of, and the
net income on, beneficial interests in the series of Diversified Investors
Portfolios. Expenses of Diversified Investors Portfolios also include the
expenses connected with the execution, recording and settlement of securities
transactions; fees and expenses of Diversified Investors Portfolios' custodian
for all services to the series of Diversified Investors Portfolios, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of preparing and mailing reports to investors and to governmental
officers and commissions; expenses of meetings of investors and Trustees of
Diversified Investors Portfolios; and the advisory fees payable to Diversified
under the Advisory Agreement.
CUSTODIAN AND DIVIDEND DISBURSING AGENT. Investors Bank & Trust Company is
the custodian of the securities held by Diversified Investors Portfolios and is
authorized to use the facilities of the Depository Trust Company and the
facilities of the book-entry system for the Federal Reserve Bank. Investors Bank
& Trust Company is also dividend-disbursing agent for Diversified Investors
Portfolios.
EXCLUSIVE PLACEMENT AGENT. Diversified Investors Portfolios has retained
the services of Diversified Investors Securities Corp., ("DISC") as Exclusive
Placement Agent. The principal business address of DISC is 4 Manhattanville
Road, Purchase, New York 10577. DISC receives no compensation as Exclusive
Placement Agent.
OTHER INFORMATION REGARDING
DIVERSIFIED INVESTORS PORTFOLIOS
PURCHASE AND REDEMPTION OF INTERESTS IN DIVERSIFIED INVESTORS
PORTFOLIOS. Beneficial interests in the series of Diversified Investors
Portfolios are described in this Prospectus currently being offered by DISC to
AUSA for allocation to the appropriate Diversified Subaccount to fund benefits
payable under the Contracts. Investments in Diversified Investors Portfolios may
only be made by investment companies, insurance company separate accounts,
common or commingled trust funds or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Prospectus does not constitute an offer to sell, or the solicitation of an
offer to buy, any beneficial interests in any of the series of Diversified
Investors Portfolios.
The net asset value of each series is determined each day during which the
Advisers of that series are open for business ("Portfolio Business Day"). This
determination is made once each day as of 4:00 p.m., New York time (the
"Valuation Time").
Each investor in a series of Diversified Investors Portfolios may add to or
reduce its investment in such series on each Portfolio Business Day. As of the
Valuation Time on each such day, the value of each investor's beneficial
interest in a series will be determined by multiplying the net asset value of
the series by the percentage, effective for that day, which represents that
investor's share of the aggregate beneficial interests in the series. Any
additions or reductions, which are to be effected as of the Valuation Time on
such day, will then be effected. The investor's percentage of the aggregate
beneficial interests in a series will then be
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recomputed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in the series as of the Valuation Time
on such day plus or minus, as the case may be, the amount of net additions to or
reductions in the investor's investment in the series effected as of the
Valuation Time, and (ii) the denominator of which is the aggregate net asset
value of the series as of the Valuation Time on such day, plus or minus, as the
case may be, the amount of net additions to or reductions in the aggregate net
asset value of the series as of the Valuation Time on such day, plus or minus as
the case may be, the amount of net additions to or reductions in the aggregate
investments in the series by all investors in such series. The percentage so
determined will then be applied to determine the value of the investor's
interest in the series as of the Valuation time on the following Portfolio
Business Day.
An investor in a series of Diversified Investors Portfolios may withdraw
all or any portion of its investment at the net asset value next determined if a
withdrawal request in proper form is furnished by the investor to Diversified
Investors Portfolios by the designated cut-off time for each accredited
investor. The proceeds of a reduction or a withdrawal will be paid by
Diversified Investors Portfolios in federal funds normally on the Portfolio
Business Day the withdrawal is effected, but in any event within seven days.
Diversified Investors Portfolios, on behalf of each of its series, reserves the
right to pay redemptions in kind. Unless requested by an investor, Diversified
Investors Portfolios will not make a redemption in kind to the investor, except
in situations where that investor may make redemptions in kind. Diversified
Investors Portfolios, on behalf of each of its series, has elected, however, to
be governed by Rule 18f-1 under the 1940 Act, as a result of which Diversified
Investors Portfolios is obligated to redeem beneficial interests in each series
with respect to any one investor during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the series at the
beginning of the period. Investments in a series may not be transferred.
The right to redeem beneficial interests or to receive payment with respect
to any redemption may be suspended only (i) for any period during which trading
on the New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission or when the New York Stock Exchange is closed (other than
customary weekend and holiday closings), (ii) for any period during which an
emergency exists as defined by the Securities and Exchange Commission as a
result of which disposal of a series' securities or determination of the net
asset value of each series is not reasonably practicable, and (iii) for such
other periods as the SEC may by order permit for the protection of investors in
any series of Diversified Investors Portfolios.
NET ASSET VALUE. Diversified Investors Portfolios values the securities of
the Money Market Series based on the amortized cost method of valuation.
Securities of other series of Diversified Investors Portfolios are valued based
on their current market value when market quotations are available. Where market
quotations are not available, assets are valued at fair value as determined in
good faith under the direction of the Board of Trustees of Diversified Investors
Portfolios. Debt obligations with 60 days or less remaining to maturity may be
valued by the amortized cost method, which the Board of Trustees of Diversified
Investors Portfolios has determined to constitute fair value for such
securities. For more information on the valuation of portfolio securities, see
"Diversified Investors Portfolios" in the Statement of Additional Information.
TAXATION OF DIVERSIFIED INVESTORS PORTFOLIOS. Diversified Investors
Portfolios is organized as a New York trust. None of its series is subject to
any income or franchise tax in the State of New York. However, each investor in
a series will be taxable on its share (as determined in accordance with the
governing instruments of Diversified Investors Portfolio) of the series'
ordinary income and capital gain in determining its income tax liability. The
determination of such share will be made in accordance with the Code, and
regulations promulgated thereunder.
Diversified Investors Portfolios, since it is taxed as a partnership, is
not subject to federal income taxation. Instead, any investor in Diversified
Investors Portfolios must take into account, in computing its federal income tax
liability, its share of Diversified Investors Portfolios' income, gains, losses,
deductions, credits and tax preference items, without regard to whether it has
received any cash distributions from Diversified Investors Portfolios.
Withdrawals by any investor in Diversified Investors Portfolios from its
corresponding series generally will not result in recognizing any gain or loss
for federal income tax purposes, except that (1) gain will be
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recognized to the extent that any cash distributed exceeds the basis of such
investor's interest in the series prior to the distribution, (2) income or gain
will be realized if the withdrawal is in liquidation of such investor's entire
interest in the series and includes a disproportionate share of any unrealized
receivables held by the series and (3) loss will be recognized if the
distribution is in liquidation of that entire interest and consists solely of
cash and/or unrealized receivables. The basis of any investor's interest in
Diversified Investors Portfolios generally equals the amount of cash and the
basis of any property that such investor invests in a series, increased by such
investor's share of income from that series and decreased by the amount of any
cash distributions and the basis of any property distributed from that series.
DESCRIPTION OF BENEFICIAL INTERESTS, VOTING RIGHTS AND
LIABILITIES. Diversified Investors Portfolios is organized as a series trust
under the laws of the State of New York. Under the Declaration of Trust, the
Trustees are authorized to issue beneficial interests in one or more series.
Investment in each series may not be transferred, but an investor may withdraw
all or any portion of its investment at any time at net asset value. Investors
in a series (e.g., investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
that series (and of no other series). However, the risk of an investor in a
series incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the series itself
was unable to meet its obligations. Investments in each series have no
preemptive or conversion rights and are fully paid and nonassessable, except as
set forth below.
Each investor is entitled to a vote in proportion to the amount of its
investment in each series. Investors in a series will vote as a separate class,
except as to voting for election of Trustees of Diversified Investors
Portfolios, as otherwise required by the 1940 Act, or if determined by the
Trustees of Diversified Investors Portfolios to be a matter which affects all
series. As to any matter which does not affect a particular series, only
investors in the one or more affected series are entitled to vote. Diversified
Investors Portfolios is not required and has no current intention of holding
special meetings of investors, but special meetings of investors will be held
when in the judgment of the Trustees of Diversified Investors Portfolios it is
necessary or desirable to submit matters for an investor vote. Changes in
fundamental policies will be submitted to investors for approval. Investors
under certain circumstances (e.g., upon application and submission of certain
specified documents to the Trustees by a specified number of investors) have the
right to communicate with other investors in connection with requesting a
meeting of investors for the purpose of removing one or more Trustees of
Diversified Investors Portfolios. Investors also have the right to remove one or
more Trustees of Diversified Investors Portfolios without a meeting by a
declaration in writing by a specified number of investors. Upon liquidation of a
series, investors would be entitled to share pro rata in the net assets of that
series (and no other series) available for distribution to investors. See Voting
Rights at page 25.
Each series determines its net income and realized capital gains, if any,
on each Portfolio Business Day (as defined below) and allocates all such income
and gain pro rata among the investors in such series at the time of such
determination.
The "net income" of each series shall consist of (i) all income accrued,
less the amortization of any premium, on the assets of the series, less (ii) all
actual and accrued expenses of the series determined in accordance with
generally accepted accounting principles. Interest income includes discount
earned (including both original issue and market discount) on discount paper
accrued ratably to the date of maturity and any net realized gains or losses on
the assets of a series. All the net income of each series is allocated pro rata
among the investors in the series (and no other series).
Inquiries regarding Diversified Investors Portfolios may be directed to 4
Manhattanville Road, Purchase, New York 10577 (914-697-8000).
INDEPENDENT ACCOUNTANTS
The financial statements of AUSA included in the Statement of Additional
Information have been audited by Ernst & Young LLP, independent auditors, Des
Moines, Iowa. The 1995 financial statements (and the statement of changes in net
assets for the applicable periods ending December 31, 1994) of Diversified
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Investors Variable Funds and Diversified Investors Portfolios included in the
Statement of Additional Information have been audited by Coopers & Lybrand
L.L.P., independent accountants, New York, New York.
LEGAL PROCEEDINGS
There are no material legal proceedings to which AUSA or Diversified
Investors Variable Funds is a party.
FINANCIAL STATEMENTS
The financial statements for AUSA, included in the Statement of Additional
Information, should be distinguished from the financial statements of
Diversified Investors Variable Funds and should be considered only as bearing on
the ability of AUSA to meet its obligations under the Contracts. The financial
statements of AUSA should not be considered as bearing on the investment
performance of the assets held in Diversified Investors Variable Funds.
ADDITIONAL INFORMATION
This prospectus does not contain all the information set forth in the
registration statement, certain portions of which have been omitted (including
financial statements relating to AUSA) pursuant to the rules and regulations of
the SEC. The omitted information may be obtained from the SEC's principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission.
For further information with respect to AUSA, the Contracts offered by this
Prospectus and Diversified Investors Portfolios, including the Statement of
Additional Information (which includes financial statements relating to AUSA),
contact AUSA at its address or phone number set forth on the cover of this
Prospectus.
For further information with respect to the Calvert Series, Acacia Capital
Corporation or Calvert Asset Management Company, Inc., including a Statement of
Additional Information, contact Acacia Capital Corporation at 4550 Montgomery
Avenue, Suite 1000N, Bethesda, Maryland 20814, or call (301) 951-4820.
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TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Independent Accountants............................................................... 2
Sale of Contracts/Principal Underwriter............................................... 2
Texas Optional Retirement Program..................................................... 2
Performance Data...................................................................... 2
Diversified Investors Portfolios...................................................... 3
Investment Objectives, Policies and Restrictions...................................... 3
Determination of Net Asset Value; Valuation of Securities............................. 19
Management of Diversified Investors Portfolios........................................ 21
Independent Accountants............................................................... 23
Capital Stock and Other Securities.................................................... 23
Taxation.............................................................................. 25
Financial Statements of AUSA.......................................................... 26
Appendix.............................................................................. A-1
Index to Financial Statements......................................................... B-1
</TABLE>
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REQUEST FOR DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
Detach and return in an envelope addressed to:
AUSA
4 Manhattanville Road
Purchase, New York 10577
Please make sure that your name and the address to which you wish AUSA to
send the current Diversified Investors Variable Funds Statement of Additional
Information appears below:
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Employer
- --------------------------------------------------------------------------------
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APPENDIX
APPLICABLE PREMIUM TAX RATES
<TABLE>
<CAPTION>
PREMIUM TAX RATE PERCENT
-----------------------------
QUALIFIED NON-QUALIFIED
--------- -------------
<S> <C> <C>
California.......................................................... .50% 2.35%
District of Columbia................................................ 2.25% 2.25%
Kentucky............................................................ 2.00% 2.00%
Maine............................................................... -- 2.00%
Nevada.............................................................. -- 3.50%
Pennsylvania........................................................ -- 2.00%
Puerto Rico......................................................... 1.00% 1.00%
South Dakota........................................................ -- 1.25%
West Virginia....................................................... 1.00% 1.00%
Wyoming............................................................. -- 1.00%
</TABLE>
A-1
<PAGE> 66
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 18, 1996
GROUP VARIABLE ANNUITY CONTRACTS
ISSUED BY
DIVERSIFIED INVESTORS VARIABLE FUNDS
AND
AUSA LIFE INSURANCE COMPANY, INC.
4 MANHATTANVILLE ROAD, PURCHASE, N.Y. 10577; (914) 697-8000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT IT RELATES TO,
AND SHOULD BE READ IN CONJUNCTION WITH, THE PROSPECTUS DATED MAY 1, 1996 FOR THE
GROUP VARIABLE ANNUITY CONTRACTS ISSUED BY AUSA LIFE INSURANCE COMPANY, INC.
("AUSA") WHICH INVEST IN DIVERSIFIED INVESTORS VARIABLE FUNDS ("THE FUNDS") .
THE PROSPECTUS IS AVAILABLE, AT NO CHARGE, BY WRITING AUSA LIFE AT 4
MANHATTANVILLE RD., PURCHASE, NEW YORK 10577 OR BY CALLING (914) 697-8000.
A SEPARATE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE WITHOUT CHARGE FOR
ACACIA CAPITAL CORPORATION OF WHICH THE CALVERT RESPONSIBLY INVESTED BALANCED
PORTFOLIO IS A PART BY WRITING TO ACACIA CAPITAL CORPORATION AT 4550 MONTGOMERY
AVENUE, SUITE 1000N, BETHESDA, MARYLAND 20814 OR BY TELEPHONING 301-951-4820.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Independent Accountants............................................................... 2
Sale of Contract/Principal Underwriter................................................ 2
Texas Optional Retirement Program..................................................... 2
Performance Data...................................................................... 2
Diversified Investors Portfolios...................................................... 3
Investment Objectives, Policies and Restrictions.................................... 3
Determination of Net Asset Value; Valuation of Securities........................... 19
Management of Diversified Investors Portfolios...................................... 21
Independent Accountants............................................................. 23
Capital Stock and Other Securities.................................................. 23
Taxation............................................................................ 25
Financial Statements of AUSA.......................................................... 26
Appendix.............................................................................. A-1
Index To Financial Statements......................................................... B-1
</TABLE>
<PAGE> 67
INDEPENDENT ACCOUNTANTS
The 1995 financial statements (and the statement of changes in net assets
for the applicable periods ending December 31, 1994) of Diversified Investors
Variable Funds and Diversified Investors Portfolios appearing on the following
pages have been audited by Coopers & Lybrand L.L.P., independent accountants,
New York, New York. The financial statements of AUSA appearing on the following
pages have been audited by Ernst & Young LLP, independent auditors, Des Moines,
Iowa.
SALE OF CONTRACTS/PRINCIPAL UNDERWRITER
Diversified Investors Securities Corp. ("DISC") is the principal
underwriter and distributor of the Contracts which will be sold by registered
representatives who are also licensed insurance agents of AUSA. The Contracts
may also be sold through other broker-dealers authorized by DISC and applicable
law and who may be insurance agents licensed by an insurance company other than
AUSA. DISC is registered with the Securities and Exchange Commission as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc.
DISC will not receive underwriting commissions. Registration as a
broker-dealer does not mean that the SEC has passed upon the financial standing,
fitness or conduct of any broker or dealer, or upon the merits of any security
offering or upon any other matter relating to the business of any broker or
dealer.
TEXAS OPTIONAL RETIREMENT PROGRAM
Participants in the Texas Optional Retirement Program (the "Program") are
subject to certain restrictions pertaining to redemptions. (See "Restrictions
Under The Texas Optional Retirement Program" in the prospectus). Pursuant to
Rule 6c-7 of the Investment Company Act of 1940, as amended, ("1940 Act"), the
Registrant hereby represents that Rule 6c-7 of the 1940 Act is being relied upon
and that the provisions of paragraphs (a) through (d) of each Rule have been
complied with.
PERFORMANCE DATA
MONEY MARKET SUBACCOUNT
For the seven day period ended December 31, 1995, the yield for the Money
Market Subaccount was -- 4.84% and the effective yield was 4.95%.
The yield is calculated by dividing the result of subtracting the value of
one Unit at the end of the seven day period ("Seventh Day Value") from the value
of one Unit at the beginning of the seven day period ("First Day Value") by the
First Day Value (the resulting quotient being the "Base Period Return") and
multiplying the Base Period Return by 365 divided by 7 to obtain the annualized
yield.
The effective yield is calculated by compounding the Base Period Return
calculated in accordance with the preceding paragraph, adding 1 to Base Period
Return, raising that sum to a power equal to 365 divided by 7 and subtracting 1
from the result.
As the Money Market Subaccount invests only in the Money Market Series (the
"Money Market Series") of Diversified Investors Portfolios, the First Day Value
reflects the net asset value of the interest in the Money Market Series held in
the Money Market Subaccount. The Seventh Day Value reflects increases or
decreases in the net asset value of the interest in the Money Market Series held
in the Money Market Subaccount due to the declaration of dividends, net
investment income and the daily charges and deductions from the Subaccount for
mortality and expense risk. Net investment income reflects earnings on
investments less expenses of the Money Market Series including the investment
management fee.
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DIVERSIFIED INVESTORS PORTFOLIOS
The thirteen series of Diversified Investors Portfolios which are described
in this Statement of Additional Information are presently available for
investment under the Contracts through corresponding Subaccounts of Diversified
Investors Variable Funds. This section of the Statement of Additional
Information describes each such series, including Diversified Investors Money
Market Portfolio (the "Money Market Series), Diversified Investors High Quality
Bond Portfolio (the "High Quality Bond Series"), Diversified Investors
Intermediate Government Bond Portfolio (the "Intermediate Government Bond
Series"), Diversified Investors Government/Corporate Bond Portfolio (the
"Government/Corporate Bond Series"), Diversified Investors High-Yield Bond
Series (the "High-Yield Bond Series"), Diversified Investors Balanced Portfolio
(the "Balanced Series"), Diversified Investors Equity Income Portfolio (the
"Equity Income Series"), Diversified Investors Equity Value Portfolio (the
"Equity Value Series"), Diversified Investors Growth & Income Portfolio (the
"Growth & Income Series"), Diversified Investors Equity Growth Portfolio (the
"Equity Growth Series"), Diversified Investors Special Equity Portfolio (the
"Special Equity Series"), Diversified Investors Aggressive Equity Portfolio (the
"Aggressive Equity Series") and Diversified Investors International Equity
Portfolio (the "International Equity Series"). These series of Diversified
Investors Portfolios available under the Contracts may be collectively referred
to herein as the "Series".
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objective of each Series is described in the Prospectus of
Diversified Investors Variable Funds. There can, of course, be no assurance that
a Series will achieve its investment objective.
INVESTMENT POLICIES
The following discussion supplements the information regarding the
investment objective of each Series and the policies to be employed to achieve
this objective as set forth in the Prospectus of Diversified Investors Variable
Funds.
BANK OBLIGATIONS
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System. Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. In addition, state banks are
subject to Federal examination and to a substantial body of Federal law and
regulation. As a result of Federal or state laws and regulations, domestic
banks, among other things, generally are required to maintain specified levels
of reserves, are limited in the amounts which they can loan to a single
borrower, and are subject to other regulations designed to promote financial
soundness. However, not all of such laws and regulations apply to the foreign
branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as Certificates of Deposit
("CDs") and time deposits ("TDs"), may be general obligations of the parent
banks in addition to the issuing branch, or may be limited by the terms of a
specific obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
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Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Advisers carefully evaluate such investments on a
case-by-case basis.
U.S. GOVERNMENT AND AGENCY SECURITIES
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; others, such as those issued by
the Federal National Mortgage Association, by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality. While the U.S.
Government provides financial support to such U.S. Government-sponsored agencies
or instrumentalities, no assurance can be given that it will always do so, since
it is not so obligated by law. A Portfolio will invest in such securities only
when the Advisers are satisfied that the credit risk with respect to the issuer
is minimal.
COMMERCIAL PAPER
Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Each Series may invest in commercial paper issued by major corporations in
reliance on the exemption from registration afforded by Section 3(a)(3) of the
Securities Act of 1933, as amended (the "1933 Act"). Such commercial paper may
be issued only to finance current transactions and must mature in nine months or
less. Trading of such commercial paper is conducted primarily by institutional
investors through investment dealers, and individual investor participation in
the commercial paper market is very limited.
VARIABLE RATE AND FLOATING RATE SECURITIES
Each Series may purchase floating and variable rate demand notes and bonds,
which are obligations ordinarily having stated maturities in excess of 397 days,
but which permit the holder to demand payment of principal at any time, or at
specified intervals not exceeding 397 days, in each case upon not more than 30
days' notice. Variable rate demand notes include master demand notes which are
obligations that permit a Series to invest fluctuating amounts, which may change
daily without penalty, pursuant to direct arrangements between the Series, as
lender, and the borrower. The interest rates on these notes fluctuate from time
to time.
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The issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, a Series' right to
redeem is dependent on the ability of the borrower to pay principal and interest
on demand. Such obligations frequently are not rated by credit rating agencies
and a Series may invest in obligations which are not so rated only if the
Advisers determine that at the time of investment the obligations are of
comparable quality to the other obligations in which the Series may invest. The
Advisers, on behalf of a Series, will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations held by the Series. A Series will not invest more than 15% (10% in
the case of the Money Market Series) of the value of its net assets in floating
or variable rate demand obligations as to which it cannot exercise the demand
feature on not more than seven days' notice if there is no secondary market
available for these obligations, and in other securities that are not readily
marketable. See "Investment Restrictions" below.
PARTICIPATION INTERESTS
A Series may purchase from financial institutions participation interests
in securities in which such Series may invest. A participation interest gives a
Series an undivided interest in the security in the proportion that the Series'
participation interest bears to the total principal amount of the security.
These instruments may have fixed, floating or variable rates of interest, with
remaining maturities of 13 months or less. If the participation interest is
unrated, or has been given a rating below that which is permissible for purchase
by the Series, the participation interest will be backed by an irrevocable
letter of credit or guarantee of a bank, or the payment obligation otherwise
will be collateralized by U.S. Government securities, or, in the case of unrated
participation interests, the Advisers must have determined that the instrument
is of comparable quality to those instruments in which a Series may invest. For
certain participation interests, a Series will have the right to demand payment,
on not more than seven days' notice, for all or any part of the Series'
participation interest in the security, plus accrued interest. As to these
instruments, a Series intends to exercise its right to demand payment only upon
a default under the terms of the security, as needed to provide liquidity to
meet redemptions, or to maintain or improve the quality of its investment
portfolio. A Series will not invest more than 15% (10% in the case of the Money
Market Series) of its net assets in participation interests that do not have
this demand feature, and in other securities that are not readily marketable.
See "Investment Restrictions" below.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
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In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The SEC has recently adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restriction on
their resale to the general public. Rule 144A establishes a "safe harbor" from
the registration requirements of the 1933 Act of resales of certain securities
to qualified institutional buyers. The Advisers anticipate that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this new regulation and the development of automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
The Advisers will monitor the liquidity of Rule 144A securities for each
Series under the supervision of the Diversified Investors Portfolio's Board of
Trustees. In reaching liquidity decisions, the Advisers will consider, among
other things, the following factors: (1) the frequency of trades and quotes for
the security, (2) the number of dealers and other potential purchasers wishing
to purchase or sell the security, (3) dealer undertakings to make a market in
the security and (4) the nature of the security and of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
UNSECURED PROMISSORY NOTES
A Series also may purchase unsecured promissory notes ("Notes") which are
not readily marketable and have not been registered under the 1933 Act, provided
such investments are consistent with the Series' investment objective. The Notes
purchased by a Series will have remaining maturities of 13 months or less and
will be deemed by the Board of Trustees of Diversified Investors Portfolios to
present minimal credit risks and will meet the quality criteria set forth above
under "Investment Policies." A Series will invest no more than 15% (10% in the
case of the Money Market Series) of its net assets in such Notes and in other
securities that are not readily marketable (which securities would include
floating and variable rate demand obligations as to which the Series cannot
exercise the demand feature described above and as to which there is no
secondary market). See "Investment Restrictions" below.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person purchases a security
and simultaneously commits to resell that security to the seller (which is
usually a member bank of the Federal Reserve System or a member firm of the New
York Stock Exchange (or a subsidiary thereof)) at an agreed-upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the seller to pay
the agreed-upon price, which obligation is in effect secured by the value of the
underlying security, usually U.S. Government or Government agency issues. Under
the Investment Company Act of 1940, as amended (the "1940 Act"), repurchase
agreements may be considered to be loans by the buyer. A Series' risk is limited
to the ability of the seller to pay the agreed upon amount on the delivery date.
If the seller defaults, the underlying security constitutes collateral for the
seller's obligation to pay although a Series may incur certain costs in
liquidating this collateral and in certain cases may not be permitted to
liquidate this collateral. All repurchase agreements entered into by a Series
are fully collateralized, with such collateral being marked to market daily.
A Series may borrow funds for temporary or emergency purposes, such as
meeting larger than anticipated redemption requests, and not for leverage, and
by agreeing to sell portfolio securities to financial institutions such as banks
and broker-dealers and to repurchase them at a mutually agreed date and price (a
"reverse repurchase agreement"). At the time a Series enters into a reverse
repurchase agreement it will place in a
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segregated custodial account cash, U.S. Government securities or high-grade debt
obligations having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Series may decline below the repurchase price of
those securities. Reverse repurchase agreements are considered to be borrowings
by a Series.
FOREIGN SECURITIES -- ALL SERIES
Each Series may invest its assets in securities of foreign issuers.
Investing in securities issued by companies whose principal business activities
are outside the United States may involve significant risks not present in
domestic investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing and financial
reporting requirements comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, brokerage or other taxation, limitation on the removal of
funds or other assets of a Series, political or financial instability or
diplomatic and other developments which would affect such investments. Further,
economies of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for foreign
securities would be on exchanges or in over-the-counter markets located outside
the U.S. Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S., and securities of some foreign
issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. companies. Foreign security
trading practices, including those involving securities settlement where a
Series' assets may be released prior to receipt of payment, may expose a Series
to increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. In addition, foreign brokerage commissions are generally higher
than commissions on securities traded in the U.S. and may be non-negotiable. In
general, there is less overall governmental supervision and regulation of
foreign securities exchanges, brokers and listed companies than in the U.S.
FOREIGN SECURITIES -- MONEY MARKET SERIES
The Money Market Series may invest in foreign securities, including only
U.S. dollar-denominated obligations of foreign branches and subsidiaries of
domestic banks and foreign banks, such as Eurodollar certificates of deposit,
which are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, and Yankee CDs,
which are certificates of deposit issued by a U.S. branch of a foreign bank
denominated in U.S. dollars and held in the United States; Eurodollar time
deposits ("ETD"), which are U.S. dollar-denominated deposits in a foreign branch
of a foreign or domestic bank, and Canadian time deposits, which are essentially
the same as ETDs except they are issued by branches of major Canadian banks;
high quality, U.S. dollar-denominated short-term bonds and notes (including
variable amount master demand notes) issued by foreign corporations including
Canadian commercial paper, which is commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation, and Europaper,
which is U.S. dollar-denominated commercial paper of a foreign issuer; and U.S.
dollar-denominated obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Adviser to be of comparable quality
to the other obligations in which the Money Market Series may invest. Such
securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.
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FOREIGN SECURITIES -- SERIES OTHER THAN MONEY MARKET SERIES
Not more than 5% of a Series' assets may be invested in closed-end
investment companies which primarily hold foreign securities. Investments in
such companies may entail the risk that the market value of such investments may
be substantially less than their net asset value and that there would be
duplication of investment management and other fees and expenses.
Securities of foreign issuers include investments in sponsored American
Depository Receipts ("ADRs"). ADRs are depository receipts for securities of
foreign issuers and provide an alternative method for a Series to make foreign
investments. These securities will not be denominated in the same currency as
the securities into which they may be converted. Generally, ADRs, in registered
form, are designed for use in U.S. securities markets. ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities.
Each Series may invest in foreign securities that impose restrictions on
transfer within the United States or to United States persons. Although
securities subject to such transfer restrictions may be marketable abroad, they
may be less liquid than foreign securities of the same class that are not
subject to such restrictions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Because some Series may buy and sell securities denominated in currencies
other than the U.S. dollar and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, such Series from time to time may enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. Such Series either enter into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market or use
forward contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a Series
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. A Series maintains with its custodian a segregated
account of high grade liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Series' securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Series may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. With respect to Series other than the
International Equity Series, consideration of the prospect for currency parities
will be incorporated into the Advisers' long-term investment decisions.
Therefore, these Series will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, the Advisers
believe that it is important to have the flexibility to enter into foreign
currency hedging transactions when they determine that the transactions would be
in a Series' best interest. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
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While these contracts are not presently regulated by the Commodity Futures
Trading Commission ("CFTC"), the CFTC may in the future assert authority to
regulate forward contracts. In such event a Series' ability to utilize forward
contracts in the manner set forth herein and in the Prospectus may be
restricted. Forward contracts may reduce the potential gain from a positive
change in the relationship between the U.S. dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for a Series than if it had not entered into such contracts. The use
of foreign currency forward contracts may not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the prices of or rates of return on a
Series' foreign currency denominated portfolio securities and the use of such
techniques will subject a Series to certain risks.
The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated asset
that is the subject of the hedge generally will not be precise. In addition, a
Series may not always be able to enter into foreign currency forward contracts
at attractive prices and this will limit a Series' ability to use such contract
to hedge or cross-hedge its assets. Also, with regard to a Series' use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying a Series' cross-hedges and
the movements in the exchange rates of the foreign currencies in which a Series'
assets that are the subject of such cross-hedges are denominated.
GUARANTEED INVESTMENT CONTRACTS
Each Series may invest in guaranteed investment contracts ("GICs") issued
by insurance companies. Pursuant to such contracts, a Series makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the fund guaranteed interest. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expenses and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. Because a Series may not receive the principal amount of a
GIC from the insurance company on seven days' notice or less, the GIC is
considered an illiquid investment and, together with other instruments in a
Series which are not readily marketable, will not exceed 15% (10% in the case of
the Money Market Series) of the Series' net assets. The term of a GIC will be
thirteen months or less. In determining average weighted portfolio maturity, a
GIC will be deemed to have a maturity equal to the longer of the period of time
remaining until the next readjustment of the guaranteed interest rate or the
period of time remaining until the principal amount can be recovered from the
issuer through demand.
WHEN-ISSUED SECURITIES
Each Series may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, under normal circumstances, a Series would
take delivery of such securities. When a Series commits to purchase a security
on a "when-issued" or on a "forward delivery" basis, the Series establishes
procedures consistent with the relevant policies of the Securities and Exchange
Commission. Since those policies currently recommend that an amount of a Series'
assets equal to the amount of the purchase be held aside or segregated to be
used to pay for the commitment, the Series expects always to have cash, cash
equivalents, or high quality debt securities sufficient to cover any commitments
or to limit any potential risk. However, although a Series does not intend to
make such purchases for speculative purposes and intends to adhere to the
provisions of Securities and Exchange Commission policies, purchases of
securities on such bases may involve more risk than other types of purchases.
For example, a Series may have to sell assets which have been set aside in order
to meet redemptions. Also, if a Series determines it is advisable as a matter of
investment strategy to sell the "when-issued" or "forward delivery" securities,
the Series would be required to meet its obligations from the then available
cash flow or the sale of securities, or, although it would not normally expect
to do so, from the sale of the "when-issued" or "forward delivery" securities
themselves (which may have a value greater or less than the Series' payment
obligation).
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ZERO COUPON OBLIGATIONS
Each Series may acquire zero coupon obligations when consistent with its
investment objective and policies. Such obligations have greater price
volatility than coupon obligations and will not result in payment of interest
until maturity. Since dividend income is accrued throughout the term of the zero
coupon obligation but is not actually received until maturity, a Series may have
to sell other securities to pay said accrued dividends prior to maturity of the
zero coupon obligation.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- SERIES OTHER THAN THE
MONEY MARKET SERIES
GENERAL. The successful use of such instruments draws upon the Advisers'
skill and experience with respect to such instruments and usually depends on the
Advisers' ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Series may not achieve the anticipated benefits of futures contracts or options
on futures contracts or may realize losses and thus will be in a worse position
than if such strategies had not been used. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the price of the securities and currencies hedged or used for cover
will not be perfect and could produce unanticipated losses.
FUTURES CONTRACTS. A Series may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the CFTC, and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. A Series may enter
into futures contracts which are based on debt securities that are backed by the
full faith and credit of the U.S. Government, such as long-term U.S. Treasury
Bonds, Treasury Notes, Government National Mortgage Association modified
pass-through mortgage-backed securities and three-month U.S. Treasury Bills. A
Series may also enter into futures contracts which are based on bonds issued by
entities other than the U.S. Government.
At the same time a futures contract is purchased or sold, the Series must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Series would
provide or receive cash that reflects any decline or increase in the contract's
value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, a Series will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the case
of a Series which holds or intends to acquire fixed-income securities, is to
attempt to protect the Series from fluctuations in interest or foreign exchange
rates without actually buying or selling fixed-income securities or foreign
currencies. For example, if interest rates were expected to increase, a Series
might enter into futures contracts for the sale of debt
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securities. Such a sale would have much the same effect as selling an equivalent
value of the debt securities owned by the Series. If interest rates did
increase, the value of the debt securities in a Series would decline, but the
value of the futures contracts to the Series would increase at approximately the
same rate, thereby keeping the net asset value of the Series from declining as
much as it otherwise would have. The Series could accomplish similar results by
selling debt securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the futures market is
more liquid than the cash market, the use of futures contracts as an investment
technique allows a Series to maintain a defensive position without having to
sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Series could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Series could then buy debt securities on
the cash market. To the extent a Series enters into futures contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Series' obligations with respect to such futures contracts will consist of cash,
cash equivalents or high quality liquid debt securities from its portfolio in an
amount equal to the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial and variation margin
payments made by the Series with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Advisers may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the Advisers believe
that use of such contracts will benefit the Series, if the Advisers' investment
judgment about the general direction of interest rates is incorrect, a Series'
overall performance would be poorer than if it had not entered into any such
contract. For example, if a Series has hedged against the possibility of an
increase in interest rates which would adversely affect the price of debt
securities held by it and interest rates decrease instead, the Series will lose
part or all of the benefit of the increased value of its debt securities which
it has hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if a Series has insufficient cash, it may have
to sell debt securities to meet daily variation margin requirements. Such sales
of bonds may be, but will not necessarily be, at increased prices which reflect
the rising market. A Series may have to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. The Series intend to purchase and write
options on futures contracts for hedging purposes. The purchase of a call option
on a futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when a Series is not fully invested it may
purchase a call option on a futures contract to hedge against a market advance
due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Series will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Series' portfolio holdings.
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The writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Series will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Series intends to
purchase. If a put or call option the Series has written is exercised, the
Series will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Series' losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Series may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk a Series assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees of Diversified Investors Portfolios has adopted the
requirement that futures contracts and options on futures contracts be used
either (i) as a hedge without regard to any quantitative limitation, or (ii) for
other purposes to the extent that immediately thereafter the aggregate amount of
margin deposits on all (non-hedge) futures contracts of the Series and premiums
paid on outstanding (non-hedge) options on futures contracts owned by the Series
does not exceed 5% of the market value of the total assets of a Series. In
addition, the aggregate market value of the outstanding futures contracts
purchased by a Series may not exceed 50% of the market value of the total assets
of the Series. Neither of these restrictions will be changed by the Board of
Trustees of Diversified Investors Portfolios without considering the policies
and concerns of the various applicable federal and state regulatory agencies.
OPTIONS ON FOREIGN CURRENCIES. A Series may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
a Series may purchase put options on the foreign currency. If the value of the
currency does decline, the Series will have the right to sell such currency for
a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Series may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to a Series deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, a Series could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
A Series may write options on foreign currencies for the same types of
hedging purposes. For example, where a Series anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Series
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Series to hedge such
increased cost up to the
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amount of the premium. As in the case of other types of options, however, the
writing of a foreign currency option will constitute only a partial hedge up to
the amount of the premium, and only if rates move in the expected direction. If
this does not occur, the option may be exercised and the Series would be
required to purchase or sell the underlying currency at a loss which may not be
offset by the amount of the premium. Through the writing of options on foreign
currencies, the Series also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
exchange rates.
The Series intend to write covered call options on foreign currencies. A
call option written on a foreign currency by a Series is "covered" if the Series
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other foreign currency held in
its portfolio. A call option is also covered if the Series has a call on the
same foreign currency and in the same principal amount as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Series in cash, U.S. Government
securities and other high quality liquid debt securities in a segregated account
with its custodian.
The Series also intend to write call options on foreign currencies that are
not covered for cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the Series
owns or has the right to acquire and which is denominated in the currency
underlying the option due to an adverse change in the exchange rate. In such
circumstances, a Series collateralizes the option by maintaining in a segregated
account with its custodian, cash or U.S. Government securities or other high
quality liquid debt securities in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES. Unlike transactions entered into by a Series in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a Series
to liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it
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determines that foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would result in
undue burdens on the OCC or its clearing member, impose special procedures on
exercise and settlement, such as technical changes in the mechanics of delivery
of currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-traded currency options. A Series' ability to
terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, each Series will
treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to options written
with primary dealers in U.S. Government Securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Series'
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
OPTIONS ON SECURITIES -- SERIES OTHER THAN MONEY MARKET SERIES
The Series may write (sell) covered call and put options to a limited
extent on its portfolio securities ("covered options") in an attempt to increase
income. However, a Series may forgo the benefits of appreciation on securities
sold or may pay more than the market price on securities acquired pursuant to
call and put options written by the Series.
When a Series writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at the price specified in the
option (the "exercise price") by exercising the option at any time during the
option period. If the option expires unexercised, the Series will realize income
in an amount equal to the premium received for writing the option. If the option
is exercised, a decision over which a Series has no control, the Series must
sell the underlying security to the option holder at the exercise price. By
writing a covered call option, a Series forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security above the
exercise price.
When a Series writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Series at the specified
exercise price at any time during the option period. If the option expires
unexercised, the Series will realize income in the amount of the premium
received for writing the option. If the put option is exercised, a decision over
which a Series has no control, the Series must purchase the underlying security
from the option holder at the exercise price. By writing a covered put option, a
Series, in exchange for the net premium received, accepts the risk of a decline
in the market value of the underlying security below the exercise price. A
Series will only write put options involving securities for which a
determination is made at the time the option is written that the Series wishes
to acquire the securities at the exercise price.
A Series may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." Where a Series cannot effect a closing purchase transaction, it
may be forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying securities until
an option is exercised or expires.
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When a Series writes an option, an amount equal to the net premium received
by the Series is included in the liability section of the Series' Statement of
Assets and Liabilities as a deferred credit. The amount of the deferred credit
will be subsequently marked to market to reflect the current market value of the
option written. The current market value of a traded option is the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price. If an option expires on its stipulated expiration date or if the Series
enters into a closing purchase transaction, the Series will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the premium received
when the option was sold), and the deferred credit related to such option will
be eliminated. If a call option is exercised, the Series will realize a gain or
loss from the sale of the underlying security and the proceeds of the sale will
be increased by the premium originally received. The writing of covered call
options may be deemed to involve the pledge of the securities against which the
option is being written. Securities against which call options are written will
be segregated on the books of the custodian for the Series.
A Series may purchase call and put options on any securities in which it
may invest. A Series would normally purchase a call option in anticipation of an
increase in the market value of such securities. The purchase of a call option
would entitle the Series, in exchange for the premium paid, to purchase a
security at a specified price during the option period. A Series would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
A Series would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a put
option would entitle a Series, in exchange for the premium paid, to sell a
security, which may or may not be held in the Series' portfolio, at a specified
price during the option period. The purchase of protective puts is designed
merely to offset or hedge against a decline in the market value of the Series'
portfolio securities. Put options also may be purchased by a Series for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Series does not own. A Series would ordinarily recognize a gain if the
value of the securities decreased below the exercise price sufficiently to cover
the premium and would recognize a loss if the value of the securities remained
at or above the exercise price. Gains and losses on the purchase of protective
put options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
The Series have adopted certain other nonfundamental policies concerning
option transactions which are discussed below. A Series' activities in options
may also be restricted by the requirements of the Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
The Series may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Series will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Advisers will monitor
the creditworthiness of dealers with whom a Series enters into such options
transactions under the general supervision of the Trustees of Diversified
Investors Portfolios.
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OPTIONS ON SECURITIES INDICES -- SERIES OTHER THAN MONEY MARKET SERIES
In addition to options on securities, the Series may also purchase and
write (sell) call and put options on securities indices. Such options give the
holder the right to receive a cash settlement during the term of the option
based upon the difference between the exercise price and the value of the index.
Such options will be used for the purposes described above under "Options on
Securities."
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Series generally will only purchase or write such an option if the Advisers
believe the option can be closed out.
Use of options on securities indices also entails the risk that trading in
such options may be interrupted if trading in certain securities included in the
index is interrupted. The Series will not purchase such options unless the
Advisers believe the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Series may not correlate precisely with movements in
the level of an index and, therefore, the use of options on indices cannot serve
as a complete hedge. Because options on securities indices require settlement in
cash, the Advisers may be forced to liquidate portfolio securities to meet
settlement obligations.
SHORT SALES "AGAINST THE BOX" -- SERIES OTHER THAN MONEY MARKET SERIES
In a short sale, a Series sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. A Series may engage
in short sales only if at the time of the short sale it owns or has the right to
obtain, at no additional cost, an equal amount of the security being sold short.
This investment technique is known as a short sale "against the box".
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If a Series engages in a short sale, the collateral for the short
position will be maintained by its custodian or qualified sub-custodian. While
the short sale is open, a Series maintains in a segregated account an amount of
securities equal in kind and amount to the securities sold short or securities
convertible into or exchangeable for such equivalent securities. These
securities constitute the Series' long position.
The Series will not engage in short sales against the box for investment
purposes. A Series may, however, make a short sale as a hedge, when it believes
that the price of a security may decline, causing a decline in the value of a
security (or a security convertible or exchangeable for such security), or when
a Series wants to sell the security at an attractive current price, but also
wishes to defer recognition of gain or loss for federal income tax purposes or
for purposes of satisfying certain tests applicable to regulated investment
companies under the Code. In such case, any future losses in a Series' long
position should be reduced by a gain in the short position. Conversely, any gain
in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced depends upon the amount of the
security sold short relative to the amount a Series owns. There are certain
additional transaction costs associated with short sales against the box, but
the Series endeavor to offset these costs with the income from the investment of
the cash proceeds of short sales.
As a non-fundamental operating policy, the Advisers do not expect that more
than 40% of a Series' total assets would be involved in short sales against the
box. The Advisers do not currently intend to engage in such sales.
CERTAIN OTHER OBLIGATIONS
In order to allow for investments in new instruments that may be created in
the future, a Series may, upon supplementing this Statement of Additional
Information, invest in obligations other than those listed previously, provided
such investments are consistent with a Series' investment objective, policies
and restrictions.
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RATING SERVICES
The ratings of rating services represent their opinions as to the quality
of the securities that they undertake to rate. It should be emphasized, however,
that ratings are relative and subjective and are not absolute standards of
quality. Although these ratings are an initial criterion for selection of
portfolio investments, the Advisers also make their own evaluations of these
securities, subject to review by the Board of Trustees of Diversified Investors
Portfolios. After purchase by a Series, an obligation may cease to be rated or
its rating may be reduced below the minimum required for purchase by the Series.
Neither event would require a Series to dispose of the obligation, but the
Advisers will consider such an event in their determination of whether a Series
should continue to hold the obligation. A description of the ratings used herein
and in the Prospectus is set forth in the Appendix to this Statement of
Additional Information.
Except as stated otherwise, all investment policies and restrictions
described herein are non-fundamental, and may be changed without prior
shareholder approval.
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of each
Series and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Series. "Majority of the outstanding
voting securities" under the 1940 Act and as used in this Statement of
Additional Information and the Prospectus, means, with respect to a Series, the
lesser of (i) 67% or more of the total beneficial interests of the Series
present at a meeting if the holders of more than 50% of the total beneficial
interests of the Series are present or represented by proxy or (ii) more than
50% of the total beneficial interests of the Series. If a percentage or a rating
restriction on investment or utilization of assets is adhered to at the time an
investment is made or assets are so utilized, a later change in such percentage
resulting from changes in a Series' total assets or the value of a Series'
securities, or a later change in the rating of a portfolio security, will not be
considered a violation of the relevant policy.
As a matter of fundamental policy, no Series may:
(1) borrow money or mortgage or hypothecate assets of the Series,
except that in an amount not to exceed 1/3 of the current value of the
Series' assets (including such borrowing) less liabilities (not including
such borrowing), it may borrow money and enter into reverse repurchase
agreements, and except that it may pledge, mortgage or hypothecate not more
than 1/3 of such assets to secure such borrowings or reverse repurchase
agreements, provided that collateral arrangements with respect to options
and futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely for
the purpose of participating in a captive insurance company sponsored by
the Investment Company Institute;
(2) underwrite securities issued by other persons except insofar as
Diversified Investors Portfolios or a Series may technically be deemed an
underwriter under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except (a) through the lending of
portfolio securities and provided that any such loans not exceed 30% of the
Series' total assets (taken at market value), (b) through the use of
repurchase agreements or the purchase of short-term obligations or (c) by
purchasing debt securities of types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or commodity
contracts (except futures and option contracts), except in the ordinary
course of business a Series may hold and sell portfolio real estate
acquired as a result of a Series' ownership of securities;
(5) concentrate its investments in any particular industry (excluding
U.S. Government Securities), but if it is deemed appropriate for the
achievement of the Series' investment objective(s), up to 25% of its total
assets may be invested in any one industry (except that the Money Market
Series reserves the right to concentrate 25% or more of its assets in
obligations of domestic branches of domestic banks);
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(6) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder, provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered to be the issuance
of a senior security for purposes of this restriction; or
(7) enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are not readily
marketable (which securities would include participation interests and
floating and variable rate demand obligations as to which no secondary
market exists and the Series cannot exercise a demand feature on not more
than seven days' notice), if, in the aggregate, more than 15% (10% in the
case of the Money Market Series) of its net assets would be so invested. A
Series may not invest in time deposits maturing in more than seven days.
State and Federal Restrictions. In order to comply with certain state and
federal statutes and policies each Series will not as a matter of operating
policy:
<TABLE>
<C> <S>
(i) borrow money for any purpose in excess of 10% of the Series' total assets (taken
at cost), except that the Series may borrow for temporary or emergency purposes
up to 1/3 of its assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the Series'
net assets (taken at market value), provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, reverse repurchase agreements, when issued securities and
other similar investment techniques are not considered a pledge of assets for
purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin, except that
such short-term credit as may be necessary for the clearance of purchases and
sales of securities may be obtained and except that deposits of initial deposit
and variation margin may be made in connection with the purchase, ownership,
holding or sale of futures;
(iv) invest for the purpose of exercising control or management;
(v) purchase securities issued by any other investment company except by purchase in
the open market where no commission or profit to a sponsor or dealer results
from such purchase other than the customary broker's commission, or except when
such purchase, though not made in the open market, is part of a plan of merger
or consolidation; provided, however, that securities of any investment company
will not be purchased for a Series if such purchase at the time thereof would
cause (a) more than 10% of the Series' total assets (taken at the greater of
cost or market value) to be invested in the securities of such issuers; (b) more
that 5% of the Series' total assets (taken at the greater of cost or market
value) to be invested in any one investment company; or (c) more than 3% of the
outstanding voting securities of any such issuer to be held for the Series; and
provided further that a Series may not purchase any security from any open-end
investment company;
(vi) purchase securities of any issuer if such purchase at the time thereof would
cause the Series to hold more than 10% of any class of securities of such
issuer, for which purposes all indebtedness of an issuer shall be deemed a
single class and all preferred stock of an issuer shall be deemed a single
class, except that futures or option contracts shall not be subject to this
restriction;
(vii) purchase or retain in a Series' portfolio any securities issued by an issuer any
of whose officers, directors, trustees or security holders is an officer or
Trustee of Diversified Investors Portfolios or is an officer or partner of the
Adviser or Subadviser, if after the purchase of the securities of such issuer
for a Series one or more of such persons owns beneficially more than 1/2 of 1%
of the shares or securities, or both, all taken at market value, of such issuer,
and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities, or both,
all taken at market value;
</TABLE>
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<TABLE>
<C> <S>
(viii) invest more than 5% of a Series' net assets in warrants or rights (valued at the
lower of cost or market), but not more than 2% of a Series' net assets may be
invested in warrants not listed on the New York Stock Exchange or the American
Stock Exchange; or
(ix) make short sales of securities or maintain a short position (excluding short
sales if the Series owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, securities of equivalent kind and amount) if such short sales
represent more than 25% of the Series' net assets (taken at market value);
provided, however, that the value of the Series' short sales of securities
(excluding U.S. Government Securities) of any one issuer may not be greater than
2% of the value (taken at market value) of the Series' net assets or more than
2% of the securities of any class of any issuer.
</TABLE>
Policies (i) through (ix) may be changed by the Board of Trustees of
Diversified Investors Portfolios.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Portfolio changes are made without regard to the length of time a security
has been held, or whether a sale would result in the recognition of a profit or
loss. Therefore, the rate of portfolio turnover is not a limiting factor when
changes are appropriate. Portfolio trading is engaged in for a Series if the
Advisers believe that a transaction net of costs (including custodian charges)
will help achieve the Series' investment objectives.
A Series' purchases and sales of securities may be principal transactions,
that is, securities may be purchased directly from the issuer or from an
underwriter or market maker for the securities. There usually are no brokerage
commissions paid for such purchases and, therefore, the Series do not anticipate
paying brokerage commissions in such transactions. Any transactions for which a
Series pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and the
asked price.
Allocations of transactions, including their frequency, to various dealers
is determined by the Subadvisers in their best judgement and in a manner deemed
to be in the best interest of the investors in a Series rather than by any
formula. The primary consideration is prompt execution of orders in an effective
manner at the most favorable price.
Investment decisions for a Series will be made independently from those for
any other account or investment company that is or may in the future become
managed by the Advisers or their affiliates. If, however, a Series and other
investment companies or accounts managed by the Subadvisers are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by a Series or the size of the position obtainable for the Series. In
addition, when purchases or sales of the same security for a Series and for
other investment companies managed by the Subadvisers occur contemporaneously,
the purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales. Furthermore, in
certain circumstances affiliates of the Subadvisers whose investment portfolios
are managed internally, rather than by the Subadvisers, might seek to purchase
or sell the same type of investments at the same time as a Series. Such an event
might also adversely affect that Series.
DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES
Beneficial interests in each Series of Diversified Investors Portfolios are
issued solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act.
Portfolio securities are valued on the basis of market quotations when they
are readily available. Each Series values mortgage-backed and other debt
securities for which market quotations are not readily available at their fair
value as determined in good faith, utilizing procedures approved by the Board of
Trustees of Diversified Investors Portfolios, on the basis of valuations
provided either by dealers or a pricing service. Debt
19
<PAGE> 85
securities having a remaining maturity of sixty days or less when purchased and
debt securities originally purchased with maturities in excess of sixty days but
which currently have maturities of sixty days or less are valued at cost
adjusted for amortization of premiums and accretion of discounts.
Interest rate futures contracts held by a Series are valued on the basis of
closing market quotations, which are normally available daily. When market
quotations are not readily available, the fair value of these contracts will be
determined in good faith utilizing procedures approved by the Board of Trustees
of Diversified Investors Portfolios.
A determination of value used in calculating net asset value must be a fair
value determination made in good faith utilizing procedures approved by
Diversified Investors Portfolios Board of Trustees. While no single standard for
determining fair value exists, as a general rule, the current fair value of a
security would appear to be the amount which a Series could expect to receive
upon its current sale. Some, but not necessarily all, of the general factors
which may be considered in determining fair value include: (i) the fundamental
analytical data relating to the investment; (ii) the nature and duration of
restrictions on disposition of the securities; and (iii) an evaluation of the
forces which influence the market in which these securities are purchased and
sold. Without limiting or including all of the specific factors which may be
considered in determining fair value, some of the specific factors include: type
of security, financial statements of the issuer, cost at date of purchase, size
of holding, discount from market value, value of unrestricted securities of the
same class at the time of purchase, special reports prepared by analysts,
information as to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the securities, price
and extent of public trading in similar securities of the issuer or comparable
companies, and other relevant matters.
20
<PAGE> 86
MANAGEMENT OF DIVERSIFIED INVESTORS PORTFOLIOS
The Trustees and officers of Diversified Investors Portfolios and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate those Trustees who
are "interested persons" (as defined in the 1940 Act) of Diversified Investors
Portfolios. Unless otherwise indicated, the address of each Trustee and officer
of Diversified Investors Portfolios is 4 Manhattanville Road, Purchase, New York
10577.
TRUSTEES AND OFFICERS OF DIVERSIFIED INVESTORS PORTFOLIOS
TRUSTEES
Tom A. Schlossberg*........ President, Diversified, 10/92 to present; Executive
Vice President and Head of Pension Operations,
Mutual Life Insurance Company of New York, 1/89 to
12/93.
Donald E. Flynn*........... Vice President, AEGON USA, Inc., 1988 to present;
Executive Vice President, AEGON USA Investment
Management, Inc., 1988 to present; Vice President,
AEGON USA Managed Portfolios, Inc., 1988 to
present.
Neal M. Jewell............. Consultant, January 1995; former Executive Vice
President, American International Group Asset
Management (since November 1991); Director of
Oversees Pensions, American International Group
Asset Management (December 1990 to October 1991);
Executive Vice President Pensions, Mutual of New
York (prior to June 1989). His address is 355
Thornridge Drive, Stamford, Connecticut 06903.
Eugene M. Mannella......... Vice President, Investment Management Services,
Inc. (since August 1993); Senior Vice President,
Lehman Brothers Inc. (May 1986 to August 1993). His
address is Two Orchard Neck Road, Center Moriches,
New York 11934.
Patricia L. Sawyer......... Executive Vice President and Director, Robert L.
Smith & Co. (since July 1990); Vice President,
American Express (September 1988 to July 1990). Her
address is 256 East 10th Street, New York, New York
10014.
OFFICERS
Mr. Schlossberg is President, Chief Executive Officer and Chairman of the
Board of Diversified Investors Portfolios.
Robert F. Colby............ Secretary; Vice President and Chief Corporate
Counsel, Mutual Life Insurance Company of New York,
1/88 to 12/93; Vice President and General Counsel,
Diversified, 11/93 to present.
Alfred C. Sylvain.......... Treasurer and Assistant Secretary; Vice President
and Treasurer of Diversified, 11/93 to present;
Vice President, Mutual Life Insurance Company of
New York, 1/88 to present.
John F. Hughes............. Assistant Secretary; Senior Counsel, Mutual Life
Insurance Company of New York, 1/88 to present;
Vice President and Senior Counsel, Diversified,
11/93 to present.
The Declaration of Trust provides that the Diversified Investors Portfolios
will indemnify its Trustees and officers as described below under "Description
of the Trust; Fund Shares."
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<PAGE> 87
For the fiscal year ended December 31, 1995, the Diversified Investors
Portfolios provided the following compensation to its trustees.
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM REGISTRANT
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF BENEFITS UPON COMPLEX PAID
NAME OF PERSON, POSITION FROM REGISTRANT FUND EXPENSES RETIREMENT TO TRUSTEES
- ----------------------------------- --------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Tom A. Schlossberg................. -0- None N/A -0-
Trustee
Donald E. Flynn.................... -0- None N/A -0-
Trustee
Neal M. Jewell..................... $10,000 None N/A $ 10,000
Trustee
Eugene M. Mannella................. $10,000 None N/A $ 10,000
Trustee
Patricia L. Sawyer................. $10,000 None N/A $ 10,000
Trustee
</TABLE>
INVESTMENT ADVISORY SERVICES
The Adviser manages the assets of each Series pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with Diversified Investors
Portfolios with respect to that Series and the investment policies described
herein and in the Prospectus. Subject to such further policies as the
Diversified Investors Portfolios' Board of Trustees may determine, the Adviser
provides general investment advice to each Series. For its services under each
Advisory Agreement, Diversified receives from each Series fees accrued daily and
paid monthly at an annual rate equal to the percentages specified in the table
of the corresponding Series' average daily net assets set forth in the
Prospectus.
For each Series of Diversified Investors Portfolios, Diversified has
entered into an Investment Subadvisory Agreement (each a "Subadvisory
Agreement") with one or more subadvisers (each "Subadviser," and collectively
the "Subadvisers").
It is the responsibility of a Subadviser to make the day to day investment
decisions for its Series and to place the purchase and sales orders for
securities transactions of such Series, subject in all cases to the general
supervision of Diversified. Each Subadviser furnishes at its own expense all
services, facilities and personnel necessary in connection with managing the
corresponding Series' investments and effecting securities transactions for a
Series.
Each Advisory Agreement provides that Diversified or a Subadviser, as the
case may be, may render services to others. Each agreement is terminable without
penalty on not more than 60 days' nor less than 30 days' written notice by a
Series when authorized either by majority vote of the investors in the Series
(with the vote of each being in proportion to the amount of their investment) or
by a vote of a majority of its Board of Trustees, or by Diversified or a
Subadviser on not more than 60 days' nor less than 30 days' written notice, as
the case may be, and will automatically terminate in the event of its
assignment. Each agreement provides that neither Diversified nor Subadviser nor
their personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in the
execution of security transactions for the corresponding Series, except for
willful misfeasance, bad faith, gross negligence or reckless disregard of its or
their obligations and duties under the Advisory Agreement and the Subadvisory
Agreement, as the case may be.
Diversified's and each Subadviser's fees are described in the Prospectus.
Diversified, if required by applicable state law, shall reimburse a Series or
waive all or part of its fees up to, but not exceeding, its investment advisory
fees from the Series. Such reimbursement, if required, will be equal to the
combined aggregate annual expenses which exceed that expense limitation with the
lowest threshold prescribed by any state in which such Series is qualified for
offer or sale. Management of Diversified Investors Portfolios has
22
<PAGE> 88
been advised that the lowest such threshold currently in effect is 2 1/2% of net
assets up to $30,000,000, 2% of the next $70,000,000 of net assets and 1/2% of
net assets in excess of that amount.
ADMINISTRATOR
The Administrative Services Agreement between Diversified, as
Administrator, and Diversified Investors Portfolios is described in the
Prospectus. The agreement provides that Diversified may render services to
others as administrator. In addition, the agreement terminates automatically if
it is assigned and may be terminated without penalty by majority vote of the
investors in Diversified Investors Portfolios (with the vote of each being in
proportion to the amount of their investment). The Administrative Services
Agreement also provides that neither Diversified nor its personnel shall be
liable for any error of judgment or mistake of law or for any act or omission in
connection with any Series, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their duties or obligations under said agreements.
CUSTODIAN
Pursuant to a Custodian Contract, Investors Bank & Trust Company acts as
the custodian of each Series' assets (the "Custodian"). The Custodian's business
address is 89 South Street, Boston, Massachusetts 02205-1537. The Custodian's
responsibilities include safeguarding and controlling cash and securities,
handling the receipt and delivery of securities, determining income and
collecting interest on the Series' investments, maintaining books of original
entry for portfolio accounting and other required books and accounts, and
calculating the daily net asset value of beneficial interests in each Series.
Securities held by a Series may be deposited into the Federal Reserve-Treasury
Department Book Entry System or the Depository Trust Company and may be held by
a subcustodian bank if such arrangements are reviewed and approved by the Board
of Trustees of Diversified Investors Portfolios. The Custodian does not
determine the investment policies of any Series or decide which securities any
Series will buy or sell. A Series may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities and foreign
exchange transactions. For its services, the Custodian will receive such
compensation as may from time to time be agreed upon by it and Diversified
Investors Portfolios.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., serves as the independent accountants for
Diversified Investors Portfolios providing audit and accounting services
including (i) audit of the annual financial statements, (ii) assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission and (iii) preparation of annual income tax returns.
CAPITAL STOCK AND OTHER SECURITIES
Diversified Investors Portfolios is organized as a trust under the law of
the State of New York. Under Diversified Investors Portfolios' Declaration of
Trust, the Trustees are authorized to issue beneficial interests in one or more
Series. Currently there are eleven active series of Diversified Investors
Portfolios. Investors in a Series will be held personally liable for the
obligations and liabilities of that Series (and of no other Series), subject,
however, to indemnification by Diversified Investors Portfolios in the event
that there is imposed upon an investor a greater portion of the liabilities and
obligations of the Series than its proportionate beneficial interest in the
Series. The Declaration of Trust also provides that Diversified Investors
Portfolios shall maintain appropriate insurance (for example, a fidelity bond
and errors and omissions insurance) for the protection of Diversified Investors
Portfolios, its investors, Trustees of Diversified Investors Portfolios,
officers, employees and agents, and covering possible tort and other
liabilities. Thus, the risk of an investor incurring financial loss on account
of investor liability is limited to circumstances in which both inadequate
insurance existed and Diversified Investors Portfolios itself was unable to meet
its obligations.
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<PAGE> 89
Investors in a Series are entitled to participate pro rata in distributions
of taxable income, loss, gain and credit of their respective Series only. Upon
liquidation or dissolution of a Series, investors are entitled to share pro rata
in that Series' (and no other Series) net assets available for distribution to
its investors. Diversified Investor Portfolios reserves the right to create and
issue additional Series of beneficial interest, in which case the beneficial
interests in each new Series would participate equally in the earnings,
dividends and assets of that particular Series only (and no other Series). Any
property of Diversified Investors Portfolios is allocated and belongs to a
specific Series to the exclusion of all other Series. All consideration received
by Diversified Investors Portfolios for the issuance and sale of beneficial
interests in a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings and proceeds
thereof, and any funds or payments derived from any reinvestment of such
proceeds, is held by the Trustees of Diversified Investors Portfolios in a
separate subtrust (a Series) for the benefit of investors in that Series and
irrevocably belongs to that Series for all purposes. Neither a Series no
investors in that Series possess any right to or interest in the assets
belonging to any other Series.
Investments in a Series have no preference, preemptive, conversion or
similar rights and are fully paid and nonassessable, except as set forth below.
Investments in a Series may not be transferred.
Each investor is entitled to a vote in proportion to the amount of its
investment in each Series. Investors in a Series do not have cumulative voting
rights, and investors holding more than 50% of the aggregate beneficial
interests in all outstanding Series may elect all of the Trustees if they choose
to do so and in such event other investors would not be able to elect any
Trustees. Investors in each Series will vote as a separate class except as to
voting for the election of Trustees, as otherwise required by the 1940 Act, or
if determined by the Trustees to be a matter which affects all Series. As to any
matter which does not affect the interest of a particular Series, only investors
in the one or more affected Series are entitled to vote. Diversified Investors
Portfolios is not required and has no current intention of holding annual
meetings of investors, but will hold special meetings of investors when in the
judgment of Trustees it is necessary or desirable to submit matters for an
investor vote. The Declaration of Trust may be amended without the vote of
investors, except that investors have the right to approve by affirmative
majority vote any amendment which would affect their voting rights, alter the
procedures to amend the Declaration of Trust, or as required by law or by
Diversified Investors Portfolios' registration statement, or as submitted to
them by the Trustees. Any amendment submitted to investors which the Trustees
determine would affect the investors of any Series shall be authorized by vote
of the investors of such Series and no vote will be required of investors in a
Series not affected.
Diversified Investors Portfolios or any Series may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved (a)
at a meeting of investors by investors representing the lesser of (i) 67% or
more of the beneficial interest in the affected Series present or represented at
such meeting, if investors in more that 50% of all such beneficial interests are
present or represented by proxy, or (ii) more than 50% of all such beneficial
interests, or (b) by an instrument in writing without a meeting, consented to by
investors representing not less than a majority of the beneficial interest in
the affected Series. Diversified Investors Portfolios or any Series may also be
terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment), (ii) by the Trustees by written
notice to its investors, or (iii) upon the bankruptcy or expulsion of an
investor in the affected Series, unless the investors in such Series, by
majority vote, agree to continue the Series. Diversified Investors Portfolios
will be dissolved upon the dissolution of the last remaining Series.
The Declaration of Trust provides that obligations of Diversified Investors
Portfolios are not binding upon the Trustees individually but only upon the
property of Diversified Investors Portfolios and that the Trustees will not be
liable for any action or failure to act, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.
The Declaration of Trust further provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with
24
<PAGE> 90
Diversified Investors Portfolios, unless, as to liability to Diversified
Investors Portfolios or its investors, it is finally adjudicated that they
engaged in wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in their offices, or unless with respect to any other
matter it is finally adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interests of Diversified
Investors Portfolios. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
TAXATION
Diversified Investors Portfolios is organized as a New York trust. The
Trust and each Series are not subject to any income or franchise tax in the
State of New York. However, each investor in a Series will be taxable on its
share (as determined in accordance with the governing instruments of the Trust)
of the Series' ordinary income and capital gain in determining its income tax
liability. The determination of such share will be made in accordance with the
Code and regulations promulgated thereunder.
Each Series, since it is taxed as a partnership, is not subject to federal
income taxation. Instead, and investor must take into account, in computing its
federal income tax liability, its share of the Series' income, gains, losses,
deductions, credits and tax preference items, without regard to whether it has
received any cash distributions from the Series.
Withdrawals by investors from each Series generally will not result in
their recognizing any gain or loss for federal income tax purposes, except that
(1) gain will be recognized to the extent that any cash distributed exceeds the
basis of the investor's interest in the Series prior to the distribution, (2)
income or gain will be realized if the withdrawal is in liquidation of the
investor's entire interest in the Series and includes a disproportionate share
of any unrealized receivables held by the Series, and (3) loss will be
recognized if the distribution is in liquidation of that entire interest and
consists solely of cash and/or unrealized receivables. The basis of an
investor's interest in a Series generally equals the amount of cash and the
basis of any property that the investor invests in the Series, increased by the
investor's share of income from the Series and decreased by the amount of any
cash distributions and the basis of any property distributed from the Series.
Each Series' taxable year-end will be December 31. Although, as described
above, the Series will not be subject to federal income tax, each will file
appropriate income tax returns.
It is intended that each Series' assets, income and distributions will be
managed in such a way that an investor in each Series will be able to satisfy
the requirements of Subchapter M of the Code.
There are certain tax issues that will be relevant to only certain of the
investors, specifically investors that are segregated asset accounts and
investors who contribute assets rather than cash to a Series. It is intended
that such segregated asset accounts will be able to satisfy diversification
requirements applicable to them and that such contributions of assets will not
be taxable provided certain requirements are met. Such Investors are advised to
consult their own tax advisors as to the tax consequences of an investment in a
Series.
HEDGING STRATEGIES
The use of hedging strategies, such as a Series' entering into interest
rate futures contracts and purchasing options thereon, involves complex rules
that will determine for income tax purposes the character and timing of
recognition of the income received in connection therewith. Income from the
disposition of futures contracts and options thereon will be subject to the
limitation that a Series must derive less than 30% of its gross income from the
sale or other disposition of securities, options or futures contracts held for
less than three months (the "Short-Short Limitation").
If certain requirements are satisfied, any increase in value on a position
that is part of a "designated hedge" will be offset by an decrease in value
(whether realized or not) of the offsetting hedging position
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<PAGE> 91
during the period of the hedge for purposes of determining whether the
Short-Short Limitation is satisfied. Thus, only the net gain (if any) from the
designated hedge will be included in gross income for purposes of that
limitation. Each Series intends to qualify for this treatment when it engages in
hedging transactions, but at the present time it is not clear whether this
treatment will be available for all of a Series' hedging transactions. To the
extent this treatment is not available, a Series may be forced to defer the
closing out of certain options and futures contracts beyond the time when it
otherwise would be advantageous to do so, in order for an investor in the Series
to qualify as a RIC.
OTHER TAXATION
The investment by an investor in a Series does not cause the investor to be
liable for any income or franchise tax in the State of New York. Investors are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Series.
FINANCIAL STATEMENTS OF AUSA
The financial statements of AUSA that are included in this Statement of
Additional Information are different from the financial statements of
Diversified Investors Variable Funds. The financial statements of AUSA should be
considered only as bearing upon the ability of AUSA to meet its obligations
under the Contracts and should not be considered as bearing on the investment
performance of the assets held in the Diversified Investors Variable Funds.
26
<PAGE> 92
APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
STANDARD & POOR'S BOND RATINGS
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt rated
"AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong. Debt rated "AA" has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree.
The rating "AA" may be modified by the addition of a plus or minus sign to
show relative standing within such category.
MOODY'S BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings:
Aaa -- judged to be the best quality, carry the smallest degree of investment
risk; Aa -- judged to be of high quality by all standards.
FITCH INVESTORS SERVICE BOND RATINGS
AAA. Securities of this rating are regarded as strictly high-grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions, an
liable to but slight market fluctuation other than through changes in the money
rate. The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong companies, and are
most numerous in the railway and public utility fields, though some industrial
obligations have this rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Other features may enter in, such as a wide margin
of protection through collateral security or direct lien on specific property as
in the case of high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary reduction of the
debt by call or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the rating.
AA. Securities in this group are of safety virtually beyond question, and
as a class are readily salable while many are highly active. Their merits are
not greatly unlike those of the AAA class, but a security so rated may be of
junior though strong lien--in many cases directly following an AAA security--or
the margin of safety is less strikingly broad. The issue may be the obligation
of a small company, strongly secured but influenced as to ratings by the lesser
financial power of the enterprise and more local type of market.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
A-1
<PAGE> 93
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
FITCH-1, FITCH-2, DUFF 1 AND DUFF 2 COMMERCIAL PAPER RATINGS
Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for timely
payment. "Fitch-2" is considered very good grade paper and reflects an assurance
of timely payment only slightly less in degree than the strongest issue.
Commercial paper issues rate "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment, excellent
liquidity factors supported by strong fundamental protection factors, and risk
factors which are very small. Issues rated "Duff 2" have a good certainty of
timely payment, sound liquidity factors and company fundamentals, small risk
factors, and good access to capital markets.
A-2
<PAGE> 94
FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
(1)(a) With respect to Diversified Investors Variable Funds ("the Funds").
Report of Independent Accountants.................................................... F-1
Statements of assets and liabilities as of December 31, 1995......................... F-2
Statements of operations for the year ended December 31, 1995........................ F-3
Statements of changes in net assets for the year ended December 31, 1995 and the
applicable periods ended December 31, 1994......................................... F-4
Notes to financial statements........................................................ F-6
(1)(b) Statements of assets and liabilities as of June 30, 1996 (unaudited).......... F-10
Statements of operations for the Period Ended June 30, 1996 (unaudited).............. F-12
Statements of changes in net assets for the Period Ended June 30, 1996 (unaudited)... F-14
Notes to financial statements (unaudited)............................................ F-17
(2)(a) With respect to Diversified Investors Portfolios
Report of Independent Accountants.................................................... F-29
Statements of Assets and Liabilities for the year ended December 31, 1995............ F-30
Statement of Operations for the applicable periods ended December 31, 1995........... F-31
Statements of Changes in Net Assets for the applicable periods ended December 31,
1995 and the year ended December 31, 1994.......................................... F-32
Portfolio of Investments for the year ended December, 31, 1995....................... F-34
Money Market Portfolio............................................................... F-35
High Quality Bond Portfolio.......................................................... F-36
Intermediate Government Bond Portfolio............................................... F-40
Government/Corporate Bond Portfolio.................................................. F-43
Balanced Fund Portfolio.............................................................. F-48
Equity Income Portfolio.............................................................. F-52
Growth and Income Portfolio.......................................................... F-59
Equity Growth Portfolio.............................................................. F-64
Special Equity Portfolio............................................................. F-67
High Yield Bond Portfolio............................................................ F-77
International Equity Portfolio....................................................... F-80
Notes to Financial Statements........................................................ F-88
(2)(b) With respect to Money Market Portfolio, High Quality Bond Portfolio,
Intermediate Government Bond Portfolio, Government/Corporate Bond Portfolio,
Balanced Portfolio, Equity Income Portfolio, Equity Value Portfolio, Growth and
Income Portfolio, Equity Growth Portfolio, Special Equity Portfolio, Aggressive
Equity, High Yield Bond Portfolio and International Equity Fund.
Statements of assets and liabilities as of June 30, 1996 (unaudited)................. F-95
Statements of operations For the Period Ended June 30, 1996 (unaudited).............. F-97
Statements of changes in net assets For the Period Ended June 30, 1996 (unaudited)... F-99
Portfolio of Investments for the Period Ended June 30, 1996 (unaudited).............. F-104
Notes to Financial Statements (unaudited)............................................ F-159
(3) With respect to AUSA Life Insurance Company, Inc. ("AUSA")
Report of Independent Auditors....................................................... F-166
Balance Sheets -- Statutory Basis at December 31, 1995 and 1994...................... F-167
Statements of Operations -- Statutory Basis for the year ended December 31, 1995 and
1994............................................................................... F-169
Statements of Changes in Capital and Surplus -- Statutory Basis for the year ended
December 31, 1995 and 1994......................................................... F-170
Statements of Cash Flows -- Statutory Basis for the year ended December 31, 1995 and
1994............................................................................... F-171
Notes to Financial Statements -- Statutory Basis..................................... F-172
Financial Statement Schedules........................................................ F-173
</TABLE>
B-1
<PAGE> 95
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of the
AUSA Life Insurance Company, Inc. and the
Contractholders of Diversified Investors Variable Funds:
We have audited the accompanying statements of assets and liabilities of
Diversified Investors Variable Funds (comprising, respectively, the Money
Market, Intermediate Government Bond, Government/Corporate Bond, Balanced,
Equity Income, Growth Income, Equity Growth, Special Equity, Calvert and Scudder
International Equity Subaccounts) as of December 31, 1995, and the related
statements of operations and changes in net assets, and the financial highlights
for each period presented. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. 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, 1995, by correspondence with the custodians. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective subaccounts constituting Diversified Investors Variable
Funds as of December 31, 1995, the results of their operations, the changes in
their net assets, and the financial highlights for the periods referred to above
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 13, 1996
F-1
<PAGE> 96
DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
DIVERSIFIED INVESTORS PORTFOLIOS
---------------------------------------------------------------------
INTERMEDIATE GOVERNMENT/
MONEY GOVERNMENT CORPORATE EQUITY
MARKET BOND BOND BALANCED INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in the Funds, at value (Notes 1 and 2)....... $14,658,170 $18,159,152 $12,515,927 $63,882,239 $190,338,686
Receivable for subscription of units..................... 36,423 21,780 30,925 202,472 245,668
----------- ----------- ----------- ----------- ------------
Total assets............................................ 14,694,593 18,180,932 12,546,852 64,084,711 190,584,354
----------- ----------- ----------- ----------- ------------
LIABILITIES:
Payable for redemption of units.......................... 0 1,380 3,376 28,438 79,151
Accrued expenses......................................... 8,803 12,876 8,772 44,960 101,589
----------- ----------- ----------- ----------- ------------
Total liabilities....................................... 8,803 14,256 12,148 73,398 180,740
----------- ----------- ----------- ----------- ------------
Net assets attributable to annuity contractholders...... $14,685,790 $18,166,676 $12,534,704 $64,011,313 $190,403,614
=========== =========== =========== =========== ============
Accumulation units....................................... 1,023,590 1,313,065 638,648 3,011,719 8,469,952
=========== =========== =========== =========== ============
Unit value............................................... $ 14.35 $ 13.84 $ 19.63 $ 21.25 $ 22.48
=========== =========== =========== =========== ============
<CAPTION>
DIVERSIFIED INVESTORS PORTFOLIOS
--------------------------------------- SCUDDER
GROWTH & EQUITY SPECIAL INTERNATIONAL
INCOME GROWTH EQUITY CALVERT EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in the Funds, at value (Notes 1 and 2)....... $5,140,543 $113,978,053 $10,825,872 $17,707,211 $ 6,456,425
Receivable for subscription of units..................... 31,447 224,121 56,821 51,126 47,794
---------- ------------ ----------- ----------- ----------
Total assets............................................ 5,171,990 114,202,174 10,882,693 17,758,337 6,504,219
---------- ------------ ----------- ----------- ----------
LIABILITIES:
Payable for redemption of units.......................... 974 48,391 889 149 486
Accrued expenses......................................... 3,341 59,827 7,161 12,407 4,392
---------- ------------ ----------- ----------- ----------
Total liabilities....................................... 4,315 108,218 8,050 12,556 4,878
---------- ------------ ----------- ----------- ----------
Net assets attributable to annuity contractholders...... $5,167,675 $114,093,956 $10,874,643 $17,745,781 $ 6,499,341
========== ============ =========== =========== ==========
Accumulation units....................................... 388,800 4,460,273 730,748 1,052,208 617,428
========== ============ =========== =========== ==========
Unit value............................................... $ 13.29 $ 25.58 $ 14.88 $ 16.87 $ 10.53
========== ============ =========== =========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE> 97
DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
DIVERSIFIED INVESTORS PORTFOLIOS
-------------------------------------------------------------------
INTERMEDIATE GOVERNMENT/
MONEY GOVERNMENT CORPORATE EQUITY
MARKET BOND BOND BALANCED INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Allocated income from Diversified Investors Portfolios (Note
2)......................................................... $688,543 $ 890,335 $ 623,403 $ 1,951,016 $ 5,209,350
Dividend income (Note 2).................................... 0 0 0 0 0
-------- ---------- ---------- ----------- -----------
Total investment income.................................... 688,543 890,335 623,403 1,951,016 5,209,350
-------- ---------- ---------- ----------- -----------
Expenses (Note 3):
Mortality and expense risk................................. 108,605 143,713 89,245 442,768 1,376,390
Less expenses reimbursed by AUSA........................... 23,601 0 0 0 75,741
-------- ---------- ---------- ----------- -----------
Net expenses............................................... 85,004 143,713 89,245 442,768 1,300,649
-------- ---------- ---------- ----------- -----------
Net investment income (loss)................................ 603,539 746,622 534,158 1,508,248 3,908,701
-------- ---------- ---------- ----------- -----------
Realized and unrealized gains (losses) on investments (Note
2):
Net realized gains (losses) on investments................. (339) 77,297 50,050 4,286,978 2,577,701
Net increase (decrease) in unrealized appreciation on
investments.............................................. 0 1,119,694 996,478 5,671,255 37,923,714
-------- ---------- ---------- ----------- -----------
Net realized and unrealized gains (losses) on investments... (339) 1,196,991 1,046,528 9,958,233 40,501,415
-------- ---------- ---------- ----------- -----------
Net increase in net assets resulting from operations........ $603,200 $1,943,613 $1,580,686 $11,466,481 $44,410,116
======== ========== ========== =========== ===========
<CAPTION>
Diversified Investors Portfolios
--------------------------------
SCUDDER
GROWTH & EQUITY SPECIAL INTERNATIONAL
INCOME GROWTH EQUITY CALVERT EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Investment income:
Allocated income from Diversified Investors Portfolios (Note
2)......................................................... $ 31,950 $ 501,142 $ 12,984 $ 0 $ 0
Dividend income (Note 2).................................... 0 0 0 1,066,091 2,542
-------- ----------- ---------- ---------- --------
Total investment income.................................... 31,950 501,142 12,984 1,066,091 2,542
-------- ----------- ---------- ---------- --------
Expenses (Note 3):
Mortality and expense risk................................. 20,964 825,151 40,010 119,492 34,386
Less expenses reimbursed by AUSA........................... 0 227,156 0 0 0
-------- ----------- ---------- ---------- --------
Net expenses............................................... 20,964 597,995 40,010 119,492 34,386
-------- ----------- ---------- ---------- --------
Net investment income (loss)................................ 10,986 (96,853) (27,026 ) 946,599 (31,844)
-------- ----------- ---------- ---------- --------
Realized and unrealized gains (losses) on investments (Note
2):
Net realized gains (losses) on investments................. 685,410 2,442,805 850,109 756,235 6,827
Net increase (decrease) in unrealized appreciation on
investments.............................................. (79,577) 12,687,743 705,769 1,631,822 422,407
-------- ----------- ---------- ---------- --------
Net realized and unrealized gains (losses) on investments... 605,833 15,130,548 1,555,878 2,388,057 429,234
-------- ----------- ---------- ---------- --------
Net increase in net assets resulting from operations........ $616,819 $15,033,695 $1,528,852 $3,334,656 $ 397,390
======== =========== ========== ========== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 98
DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
DIVERSIFIED INVESTORS PORTFOLIOS
-----------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT/
MONEY GOVERNMENT CORPORATE EQUITY GROWTH &
MARKET BOND BOND BALANCED INCOME INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss)......................... $ 603,539 $ 746,622 $ 534,158 $1,508,248 $ 3,908,701 $ 10,986
Net realized gains (losses) on investments........... (339) 77,297 50,050 4,286,978 2,577,701 685,410
Net increase (decrease) in unrealized appreciation on
investments........................................ 0 1,119,694 996,478 5,671,255 37,923,714 (79,577)
---------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting from
operations......................................... 603,200 1,943,613 1,580,686 11,466,481 44,410,116 616,819
---------- ----------- ----------- ----------- ----------- -----------
From unit transactions (Note 4):
Net proceeds from the issuance of units.............. 12,706,887 11,817,737 6,353,831 32,300,710 61,691,825 4,932,557
Net asset value of units redeemed.................... (6,640,069) (2,696,134) (1,845,514) (8,928,089) (22,667,336) (680,846)
---------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets from unit transactions..... 6,066,818 9,121,603 4,508,317 23,372,621 39,024,489 4,251,711
---------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets............................ 6,670,018 11,065,216 6,089,003 34,839,102 83,434,605 4,868,530
Net assets:
Beginning of year.................................... 8,015,772 7,101,460 6,445,701 29,172,211 106,969,009 299,145
------------ ----------- ------------ ------------ ------------ -----------
End of year.......................................... $14,685,790 $18,166,676 $12,534,704 $64,011,313 $190,403,614 $5,167,675
========== =========== =========== =========== ============ ===========
Units outstanding beginning of year................... 587,295 580,105 385,881 1,750,876 6,344,534 29,489
Units issued during year.............................. 911,106 938,737 352,907 1,728,730 3,297,278 415,475
Units redeemed during year............................ (474,811) (205,777) (100,140) (467,887) (1,171,860) (56,164)
---------- ----------- ----------- ----------- ------------ -----------
Units outstanding end of year......................... 1,023,590 1,313,065 638,648 3,011,719 8,469,952 388,800
========== =========== =========== =========== ============ ===========
<CAPTION>
DIVERSIFIED
INVESTORS PORTFOLIO
------------------------- SCUDDER
EQUITY SPECIAL INTERNATIONAL
GROWTH EQUITY CALVERT EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss)......................... $ (96,853) $ (27,026) $ 946,599 $ (31,844)
Net realized gains (losses) on investments........... 2,442,805 850,109 756,235 6,827
Net increase (decrease) in unrealized appreciation on
investments........................................ 12,687,743 705,769 1,631,822 422,407
----------- ---------- ----------- ---------
Net increase in net assets resulting from
operations......................................... 15,033,695 1,528,852 3,334,656 397,390
----------- ---------- ----------- ---------
From unit transactions (Note 4):
Net proceeds from the issuance of units.............. 53,802,815 9,355,594 9,140,477 5,377,149
Net asset value of units redeemed.................... (15,634,374) (897,441) (2,268,091) (826,569)
----------- ---------- ----------- ---------
Net increase in net assets from unit transactions..... 38,168,441 8,458,153 6,872,386 4,550,580
----------- ---------- ----------- ---------
Net increase in net assets............................ 53,202,136 9,987,005 10,207,042 4,947,970
Net assets:
Beginning of year.................................... 60,891,820 887,638 7,538,739 1,551,371
----------- ---------- ----------- ---------
End of year.......................................... $114,093,956 $10,874,643 $17,745,781 $6,499,341
=========== ========== =========== =========
Units outstanding beginning of year................... 2,812,266 83,503 575,200 162,316
Units issued during year.............................. 2,313,863 711,286 626,721 537,369
Units redeemed during year............................ (665,856) (64,041) (149,713) (82,257)
----------- ---------- ----------- ---------
Units outstanding end of year......................... 4,460,273 730,748 1,052,208 617,428
=========== ========== =========== =========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 99
DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DIVERSIFIED INVESTORS PORTFOLIOS
-----------------------------------------------------------------------
FOR THE PERIOD AUGUST 18, 1994* THROUGH DECEMBER 31, 1994
-----------------------------------------------------------------------
MONEY INTERMEDIATE GOVERNMENT/ EQUITY
MARKET GOVERNMENT BOND CORPORATE BALANCED INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss)......................... $ 75,083 $ 79,574 $ 69,464 $ 204,439 $ 669,293
Net realized gains (losses) on investments........... (113) 689 (56,967) 14,307 7,264
Net increase (decrease) in unrealized appreciation on
investments........................................ 0 (76,469) 42,725 (436,273) (3,423,467)
---------- ---------- ---------- ----------- ------------
Net increase (decrease) in net assets resulting from
operations......................................... 74,970 3,794 55,222 (217,527) (2,746,910)
---------- ---------- ---------- ----------- ------------
From unit transactions:
Net proceeds from the issuance of units.............. 8,312,365 7,527,162 6,737,812 31,111,015 113,434,098
Net asset value of units redeemed.................... (371,563) (429,496) (347,333) (1,721,277) (3,718,179)
---------- ---------- ---------- ----------- ------------
Net increase in net assets from unit transactions.... 7,940,802 7,097,666 6,390,479 29,389,738 109,715,919
---------- ---------- ---------- ----------- ------------
Net assets end of period.............................. $8,015,772 $ 7,101,460 $6,445,701 $29,172,211 $106,969,009
========== ========== ========== =========== ============
Units issued during the period........................ 614,681 615,322 406,852 1,854,069 6,563,713
Units redeemed during the period...................... (27,386) (35,217) (20,971) (103,193) (219,179)
---------- ---------- ---------- ----------- ------------
Units outstanding end of period....................... 587,295 580,105 385,881 1,750,876 6,344,534
========== ========== ========== =========== ============
- ---------------
* Commencement of operations.
<CAPTION>
Diversified Investors Portfolio
-------------------------------------
FOR THE PERIOD
AUGUST 24, AUGUST 18, AUGUST 24, AUGUST 18, AUGUST 24,
1994* 1994* 1994* 1994* 1994*
THROUGH DECEMBER 31, 1994
------------------------------------------------------------------
SCUDDER
GROWTH & EQUITY SPECIAL INTERNATIONAL
INCOME GROWTH EQUITY CALVERT EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss)......................... $ 391 ($ 33,159) $ 64 $ 219,472 ($ 1,923)
Net realized gains (losses) on investments........... (680) (651,406) 8,817 (954) (24)
Net increase (decrease) in unrealized appreciation on
investments........................................ 2,190 288,214 2,163 (266,714) (50,808)
-------- ----------- -------- ---------- ----------
Net increase (decrease) in net assets resulting from
operations......................................... 1,901 (396,351) 11,044 (48,196) (52,755)
-------- ----------- -------- ---------- ----------
From unit transactions:
Net proceeds from the issuance of units.............. 308,974 63,704,643 890,956 8,000,765 1,640,352
Net asset value of units redeemed.................... (11,730) (2,416,472) (14,362) (413,830) (36,226)
-------- ----------- -------- ---------- ----------
Net increase in net assets from unit transactions.... 297,244 61,288,171 876,594 7,586,935 1,604,126
-------- ----------- -------- ---------- ----------
Net assets end of period.............................. $299,145 $60,891,820 $887,638 $7,538,739 $ 1,551,371
======== =========== ======== ========== ==========
Units issued during the period........................ 30,644 2,925,280 84,857 606,742 166,014
Units redeemed during the period...................... (1,155) (113,014) (1,354) (31,542) (3,698)
-------- ----------- -------- ---------- ----------
Units outstanding end of period....................... 29,489 2,812,266 83,503 575,200 162,316
======== =========== ======== ========== ==========
- ---------------
* Commencement of operations.
</TABLE>
See notes to financial statements.
F-5
<PAGE> 100
DIVERSIFIED INVESTORS VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Diversified Investors Variable Funds ("DIVF") is a separate investment
account established on November 30, 1993 by AUSA Life Insurance Company, Inc.
("AUSA") under the laws of the State of New York.
DIVF operates as a unit investment trust under the Investment Company Act
of 1940, as amended (the "1940 Act"). DIVF holds assets that are segregated from
all of AUSA's other assets and, at present, is used as an investment vehicle
under certain tax-deferred annuity contracts issued by AUSA to fund retirement
plans maintained by certain not-for-profit and other organizations ("Group
Plans"). AUSA is the legal owner of the assets in DIVF.
DIVF had no assets or operations until August 18, 1994 (commencement of
operations). There are currently ten subaccounts within DIVF which are available
to contractholders of Group Plans, and each invests only in a corresponding
portfolio of Diversified Investors Portfolios (the "Portfolios"), the Calvert
Responsibly Invested Balanced Portfolio, a Series of Acacia Capital Corporation
("Calvert") or the International Portfolio of the Scudder Variable Life
Investment Fund ("Scudder") (collectively referred to as the "Funds"). The
respective financial statements of the Funds are contained elsewhere in this
report. Three additional subaccounts of DIVF have been established and
registered under the 1940 Act but have not commenced operations, i.e., the High
Quality Bond, High Yield Bond and International Equity Subaccounts.
At December 31, 1995, each DIVF Subaccount's investment in the
corresponding Portfolios was as follows:
<TABLE>
<CAPTION>
PERCENTAGE INVESTMENT
SUBACCOUNT IN PORTFOLIO
------------------------------------------------------ ---------------------
<S> <C>
Money Market.......................................... 10.35%
Intermediate Government Bond.......................... 21.12
Government/Corporate Bond............................. 3.72
Balanced.............................................. 38.25
Equity Income......................................... 24.90
Growth & Income....................................... 4.12
Equity Growth......................................... 51.26
Special Equity........................................ 3.43
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
A. INVESTMENTS:
The investment by DIVF in the Portfolios reflects DIVF's proportionate
interest in the net assets of the Portfolios. The investment in shares of
Calvert and Scudder is stated at net asset value. DIVF subaccounts which invest
in Calvert and Scudder record their security transactions at the prior day's
ending net asset value per share. Valuation of securities held in each of the
Portfolios is discussed in Note 2A of the Portfolios' Notes to Financial
Statements which are included elsewhere in this report. A description of
portfolio valuation accounting policies for Calvert and Scudder can be found in
Note A of their financial statements contained elsewhere in this report.
B. INVESTMENT INCOME:
Each DIVF subaccount earns income, net of expenses, daily on its investment
in the corresponding Portfolio. All of the net investment income and realized
and unrealized gains and losses from the security transactions of the
corresponding Portfolios are allocated pro rata among the investors at the time
of such
F-6
<PAGE> 101
DIVERSIFIED INVESTORS VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
determination. Dividend income is recorded on the ex-dividend date. Realized
gains and losses from the sale of investments are determined on the basis of
identified cost.
C. FEDERAL INCOME TAXES:
The operations of DIVF form a part of, and are taxed with, the operations
of AUSA. AUSA does not expect, based upon current tax law, to incur any income
tax upon the earnings or realized capital gains attributed to DIVF. Based upon
this expectation, no charges are currently being deducted from DIVF for federal
income tax purposes.
D. OTHER:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities 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
Certain subaccounts of DIVF purchase interests in the Portfolios;
therefore, the net assets of those DIVF Subaccounts reflect the investment
management fees charged by Diversified Investment Advisors, Inc. (an affiliate
of AUSA), the investment advisor, which provides investment advice and related
services for the Portfolios.
AUSA has voluntarily undertaken to reimburse certain subaccounts, a portion
of the expenses that the Portfolios incurred in the determination of net
investment income allocable to the subaccounts. In accordance with the above
undertaking, AUSA has determined to limit all such expenses of the Money Market,
Equity Income, Equity Growth and Scudder International Equity Subaccounts to
0.10%, 0.46%. 0.50% and 1.02%, respectively, of average net assets. As a result
of the above, AUSA reimbursed fees of $23,601, $75,741, and $227,156 for the
Money Market, Equity Income and Equity Growth Subaccounts, respectively.
In addition, AUSA charges a daily mortality and risk fee computed at 0.90%
of average net assets, however, AUSA reserves the right to charge a maximum rate
of 1.25% upon written notice. Although annuity payments differ according to the
investments performance of the DIVF Subaccounts, they are not affected by
mortality and expense risk because AUSA assumes the mortality and risk expense
under the contract.
F-7
<PAGE> 102
DIVERSIFIED INVESTORS VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. GROUP PLAN ASSUMPTIONS
On December 31, 1993, AUSA entered into an agreement with The Mutual Life
Insurance Company of New York ("MONY") pursuant to which certain contracts
issued by MONY to Group Plans may be transferred through assumption reinsurance
to AUSA subject to receipt of any necessary state insurance department approvals
and authorizations. The assumption reinsurance of any Group Plan to AUSA will
result in the transfer of the applicable assets out of a corresponding MONY
separate account and into DIVF. Assets transferred from MONY pursuant to this
assumption reinsurance transaction for the years ended December 31, 1995 and
1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
SUBACCOUNTS AMOUNT AMOUNT
-------------------------------------------- ---------- -----------
<S> <C> <C>
Money Market................................ $1,867,363 $ 7,329,470
Intermediate Government Bond................ 8,782,763 7,009,246
Government/Corporate Bond................... 1,841,524 6,122,972
Balanced.................................... 11,617,343 28,079,379
Equity Income............................... 29,614,226 108,398,220
Equity Growth............................... 19,543,177 57,640,191
Calvert..................................... 3,908,172 7,327,885
---------- -----------
$77,174,568 $221,907,363
========== ===========
</TABLE>
The amounts related to these assumptions are included as proceeds from the
issuance of units in the Statements of Changes in Net Assets.
F-8
<PAGE> 103
DIVERSIFIED INVESTORS VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. FINANCIAL HIGHLIGHTS
For one Accumulation Unit outstanding throughout the period:
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT GOVERNMENT/
MONEY MARKET BOND CORPORATE BOND BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- --------------- --------------- ----------
1995 1994* 1995 1994* 1995 1994* 1995
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......................... $13.65 $13.44 $12.24 $12.33 $16.70 $16.76 $16.66
------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income......................................... 0.59 0.22 0.57 0.24 0.84 0.32 0.50
Net realized and unrealized gains (losses) on investments..... 0.11 (0.01) 1.03 (0.33) 2.09 (0.38) 4.09
------ ------ ------ ------ ------ ------ ------
Total from investment operations.............................. 0.70 0.21 1.60 (0.09) 2.93 (0.06) 4.59
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period................................ $14.35 $13.65 $13.84 $12.24 $19.63 $16.70 $21.25
====== ====== ====== ====== ====== ====== ======
Ratio of net investment income to average net assets (net of
reimbursements)***(1)........................................ 5.05% 4.65% 4.81% 5.64% 5.41% 5.64% 3.09%
Ratio of expenses to average net assets (net of
reimbursements)***(1)........................................ 0.71% 0.73% 0.93% 0.95% 0.90% 0.94% 9.10%
Ratio of net investment income to average net assets***....... 4.85% 4.43% 4.81% 5.64% 5.41% 5.64% 3.09%
Ratio of expenses to average net assets***.................... 0.91% 0.94% 0.93% 0.95% 0.90% 0.94% 0.91%
<CAPTION>
GROWTH & EQUITY
BALANCED EQUITY INCOME INCOME GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- --------------- --------------- ---------------
1994* 1995 1994* 1995 1994** 1995 1994*
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......................... $16.85 $16.86 $17.21 $10.14 $10.31 $21.65 $20.67
------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income......................................... 0.20 0.46 0.18 0.03 0.03 (0.02) (0.02)
Net realized and unrealized gains (losses) on investments..... (0.39) 5.16 (0.53) 3.12 (0.20) 3.95 1.00
------ ------ ------ ------ ------ ------ ------
Total from investment operations.............................. (0.19) 5.62 (0.35) 3.15 (0.17) 3.93 0.98
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period................................ $16.66 $22.48 $16.86 $13.29 $10.14 $25.58 $21.65
====== ====== ====== ====== ====== ====== ======
Ratio of net investment income to average net assets (net of
reimbursements)***(1)........................................ 3.47% 2.55% 3.09% 0.47% 0.85% -0.11% -0.27%
Ratio of expenses to average net assets (net of
reimbursements)***(1)........................................ 0.95% 0.85% 0.95% 0.89% 0.80% 0.66% 0.93%
Ratio of net investment income to average net assets***....... 3.47% 2.50% 30.9% 0.47% 0.85% -0.36% -0.27%
Ratio of expenses to average net assets***.................... 0.95% 0.90% 0.95% 0.89% 0.80% 0.91% 0.93%
<CAPTION>
SCUDDER
SPECIAL INTERNATIONAL
EQUITY CALVERT EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------- --------------- ---------------
1995 1994** 1995 1994* 1995 1994**
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......................... $10.63 $10.47 $13.11 $13.28 $ 9.56 $10.18
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income......................................... (0.04) -- 0.90 0.66 (0.05) (0.03)
Net realized and unrealized gains (losses) on investments..... 4.29 0.16 2.86 (0.83) 1.02 (0.59)
------ ------ ------ ------ ------ ------
Total from investment operations.............................. 4.25 0.16 3.76 (0.17) (0.62) 0.97
------ ------ ------ ------ ------ ------
Net asset value, end of period................................ $14.88 $10.63 $16.87 $13.11 $10.53 $ 9.56
====== ====== ====== ====== ====== ======
Ratio of net investment income to average net assets (net of
reimbursements)***(1)........................................ -0.59% 0.05% 7.00% 11.76% -0.83% -0.81%
Ratio of expenses to average net assets (net of
reimbursements)***(1)........................................ 0.87% 0.80% 0.88% 0.76% 0.90% 0.81%
Ratio of net investment income to average net assets***....... -0.59% 0.05% 7.00% 11.76% -0.83% -0.81%
Ratio of expenses to average net assets***.................... 0.87% 0.80% 0.88% 0.76% 0.90% 0.81%
</TABLE>
- ---------------
* For the period August 18, 1994 (commencement of operations) to December 31,
1994
** For the period August 24, 1994 (commencement of operations) to December 31,
1994
*** All ratios for 1994 are annualized
(1) See Note 4
F-9
<PAGE> 104
DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Diversified Investors Portfolios
-----------------------------------------------------------------------------------
Money Intermediate Government/ Equity
Market Government Bond Corporate Bond Balanced Income
Subaccount Subaccount Subaccount Subaccount Subaccount
-------------- ---------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Assets:
Investment in Diversified
Investors Portfolios, at
value (Notes 1 and 2).......... $ 16,091,068 $ 18,694,861 $ 14,209,675 $ 78,648,772 $ 225,334,242
-------------- ---------------- --------------- -------------- ----------------
Total assets.............. 16,091,068 18,694,861 14,209,675 78,648,772 225,334,242
-------------- ---------------- --------------- -------------- ----------------
Liabilities:
Accrued expenses............... 18,536 26,949 20,060 111,452 313,609
-------------- ---------------- --------------- -------------- ----------------
Total liabilities......... 18,536 26,949 20,060 111,452 313,609
-------------- ---------------- --------------- -------------- ----------------
Net assets attributable to
annuity contractholders...... $ 16,072,532 $ 18,667,912 $ 14,189,615 $ 78,537,320 $ 225,020,633
-------------- ---------------- --------------- -------------- ----------------
-------------- ---------------- --------------- -------------- ----------------
Accumulation units............. 1,095,598 1,358,426 737,986 3,523,278 9,395,167
-------------- ---------------- --------------- -------------- ----------------
-------------- ---------------- --------------- -------------- ----------------
Unit value..................... $ 14.67 $ 13.74 $ 19.23 $ 22.29 $ 23.95
-------------- ---------------- --------------- -------------- ----------------
-------------- ---------------- --------------- -------------- ----------------
</TABLE>
See notes to financial statements.
F-10
<PAGE> 105
<TABLE>
<CAPTION>
Diversified Investors Portfolios
- -------------------------------------------------------------------------- Scudder
Equity Growth & Equity Special Aggressive International
Value Income Growth Equity Equity Calvert Equity
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,561 $ 13,011,470 $ 144,468,419 $ 29,882,188 $ 12,904 $ 19,887,632 $ 11,734,120
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
5,561 13,011,470 144,468,419 29,882,188 12,904 19,887,632 11,734,120
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
-- 17,221 230,161 40,446 -- 28,474 16,006
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
-- 17,221 230,161 40,446 -- 28,474 16,006
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
$ 5,561 $ 12,994,249 $ 144,238,258 $ 29,841,742 $ 12,904 $ 19,859,158 $ 11,718,114
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
559 885,722 4,994,671 1,701,226 1,294 1,147,080 1,023,526
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
$ 9.95 $ 14.67 $ 28.88 $ 17.54 $ 9.97 $ 17.31 $ 11.45
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
</TABLE>
F-11
<PAGE> 106
DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENTS OF OPERATIONS
For the Period Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Diversified Investors Portfolios
------------------------------------------------------------------------------
Money Intermediate Government/ Equity
Market Government Bond Corporate Bond Balanced Income
Subaccount Subaccount Subaccount Subaccount Subaccount
----------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Investment income:
Allocated income (loss) from
Diversified Investors Portfolios
(Note 2).......................... $ 415,679 $ 513,758 $ 411,101 $ 1,277,379 $ 3,199,658
Dividend income..................... -- -- -- -- --
----------- ---------------- --------------- -------------- --------------
Total investment income
(loss)................ 415,679 513,758 411,101 1,277,379 3,199,658
----------- ---------------- --------------- -------------- --------------
Expenses (Note 3)...................
Mortality and expense risk..... 72,243 82,831 59,879 324,112 936,549
Less expenses reimbursed by
AUSA........................... 15,799 -- -- -- 29,025
----------- ---------------- --------------- -------------- --------------
Net expenses................... 56,444 82,831 59,879 324,112 907,524
----------- ---------------- --------------- -------------- --------------
Net investment income (loss)........ 359,235 430,927 351,222 953,267 2,292,134
----------- ---------------- --------------- -------------- --------------
Realized and unrealized gains
(losses) on investments (Note 2)
Net realized gains (losses) on
investments......................... (187) (118,565) (25,513) 5,217,454 6,316,929
Net increase (decrease) in
unrealized appreciation
(depreciation) on
investments.................. -- (441,149) (595,030) (2,852,516) 4,262,412
----------- ---------------- --------------- -------------- --------------
Net realized and unrealized
gains (losses) on
investments.................. (187) (559,714) (620,543) 2,364,938 10,579,341
----------- ---------------- --------------- -------------- --------------
Net increase (decrease) in net
assets resulting from
operations........................ $ 359,048 $ (128,787) $ (269,321) $ 3,318,205 $ 12,871,475
----------- ---------------- --------------- -------------- --------------
----------- ---------------- --------------- -------------- --------------
</TABLE>
- ---------------
* May 10, 1996, Commencement of Operations
See notes to financial statements.
F-12
<PAGE> 107
<TABLE>
<CAPTION>
Diversified Investors Portfolios
- -------------------------------------------------------------------- Scudder
Equity Growth & Equity Special Aggressive International
Value * Income Growth Equity Equity * Calvert Equity
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------- ----------- -------------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
$ 10 $ 54,648 $ (164,057) $ 22,013 $ (12) $ -- $ --
-- -- -- -- -- -- 196,980
- ----------- ----------- -------------- ------------- ----------- ----------- ------------
10 54,648 (164,057) 22,013 (12) -- 196,980
- ----------- ----------- -------------- ------------- ----------- ----------- ------------
-- 41,264 568,279 86,371 -- 84,669 41,252
-- -- 82,524 -- -- -- --
- ----------- ----------- -------------- ------------- ----------- ----------- ------------
-- 41,264 485,755 86,371 -- 84,669 41,252
- ----------- ----------- -------------- ------------- ----------- ----------- ------------
10 13,384 (649,812) (64,358) (12) (84,669) 155,728
- ----------- ----------- -------------- ------------- ----------- ----------- ------------
8 235,474 4,027,898 1,792,838 (512) 53,240 20,930
(94) 594,630 12,277,724 1,320,880 84 510,792 598,372
- ----------- ----------- -------------- ------------- ----------- ----------- ------------
(86) 830,104 16,305,622 3,113,718 (428) 564,032 619,302
- ----------- ----------- -------------- ------------- ----------- ----------- ------------
$ (76) $ 843,488 $ 15,655,810 $ 3,049,360 $ (440) $ 479,363 $ 775,030
- ----------- ----------- -------------- ------------- ----------- ----------- ------------
- ----------- ----------- -------------- ------------- ----------- ----------- ------------
</TABLE>
F-13
<PAGE> 108
DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Diversified Investors Portfolios
--------------------------------------------------------------------------------
Intermediate
Money Government Government Equity
Market Bond Corporate Bond Balanced Income
Subaccount Subaccount Subaccount Subaccount Subaccount
-------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
From operations:
Net investment income
(loss)....................... $ 359,235 $ 430,927 $ 351,222 $ 953,267 $ 2,292,134
Net realized gains (losses)
on investments............. (187) (118,565) (25,513) 5,217,454 6,316,929
Net increase (decrease) in
unrealized appreciation
(depreciation) on
investments................ -- (441,149) (595,030) (2,852,516) 4,262,412
-------------- -------------- -------------- -------------- ----------------
Net increase (decrease) in
net assets resulting from
operations................. 359,048 (128,787) (269,321) 3,318,205 12,871,475
From unit transactions (Note 4):
Net proceeds from the
issuance of units.......... 8,024,774 2,038,041 3,075,312 16,746,898 33,913,431
Net asset value of units
redeemed................... (6,997,080) (1,408,018) (1,151,080) (5,539,096) (12,167,887)
-------------- -------------- -------------- -------------- ----------------
Net increase in net assets
from unit transactions..... 1,027,694 630,023 1,924,232 11,207,802 21,745,544
-------------- -------------- -------------- -------------- ----------------
Net increase in net assets........ 1,386,742 501,236 1,654,911 14,526,007 34,617,019
Net assets:
Beginning of period.......... 14,685,790 18,166,676 12,534,704 64,011,313 190,403,614
-------------- -------------- -------------- -------------- ----------------
End of period................ $ 16,072,532 $ 18,667,912 $ 14,189,615 $ 78,537,320 $ 225,020,633
-------------- -------------- -------------- -------------- ----------------
-------------- -------------- -------------- -------------- ----------------
Units outstanding beginning of
period........................ 1,023,590 1,313,065 638,648 3,011,719 8,469,952
Units issued during period........ 554,680 148,035 159,260 764,247 1,445,369
Units redeemed during period...... (482,672) (102,674) (59,922) (252,688) (520,154)
-------------- -------------- -------------- -------------- ----------------
Units outstanding end of period... 1,095,598 1,358,426 737,986 3,523,278 9,395,167
-------------- -------------- -------------- -------------- ----------------
-------------- -------------- -------------- -------------- ----------------
</TABLE>
- ---------------
* May 10, 1996, Commencement of Operations
See notes to financial statements.
F-14
<PAGE> 109
<TABLE>
<CAPTION>
Diversified Investors Portfolios
- -------------------------------------------------------------------------- Scudder
Equity Growth & Equity Special Aggressive International
Value* Income Growth Equity Equity* Calvert Equity
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
$ 10 $ 13,384 $ (649,812) $ (64,358) $ (12) $ (84,669) $ 155,728
8 235,474 4,027,898 1,792,838 (512) 53,240 20,930
(94) 594,630 12,277,724 1,320,880 84 510,792 598,372
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
(76) 843,488 15,655,810 3,049,360 (440) 479,363 775,030
5,637 7,849,016 25,553,328 17,445,035 13,344 3,116,505 5,329,504
-- (865,930) (11,064,836) (1,527,296) -- (1,482,491) (885,761)
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
5,637 6,983,086 14,488,492 15,917,739 13,344 1,634,014 4,443,743
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
5,561 7,826,574 30,144,302 18,967,099 12,904 2,113,377 5,218,773
-- 5,167,675 114,093,956 10,874,643 -- 17,745,781 6,499,341
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
$ 5,561 $ 12,994,249 $ 144,238,258 $ 29,841,742 $ 12,904 $ 19,859,158 $ 11,718,114
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
-- 388,800 4,460,273 730,748 -- 1,052,208 617,428
559 558,286 948,273 1,067,546 1,294 181,117 487,201
-- (61,364) (413,875) (97,068) -- (86,245) (81,103)
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
559 885,722 4,994,671 1,701,226 1,294 1,147,080 1,023,526
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
- ----------- -------------- ---------------- -------------- ----------- -------------- --------------
</TABLE>
F-15
<PAGE> 110
(This page is intentionally left blank.)
F-16
<PAGE> 111
DIVERSIFIED INVESTORS VARIABLE FUNDS
Notes To Financial Statements
(Unaudited)
1. Organization and Business
Diversified Investors Variable Funds ("DIVF") is a separate investment
account established on November 30, 1993 by AUSA Life Insurance Company, Inc.
("AUSA") under the laws of the State of New York.
DIVF operates as a unit investment trust under the Investment Company Act
of 1940, as amended (the "1940 Act"). DIVF holds assets that are segregated
from all of AUSA's other assets and, at present, is used as an investment
vehicle under certain tax-deferred annuity contracts issued by AUSA to fund
retirement plans maintained by certain not-for-profit and other organizations
("Group Plans"). AUSA is the legal holder of the assets in DIVF.
DIVF had no assets or operations until August 18, 1994 (commencement of
operations). There are currently 12 subaccounts within DIVF which are available
to contractholders of Group Plans, and each invests only in a corresponding
portfolio of Diversified Investors Portfolios (the "Portfolios"), the Calvert
Responsibly Invested Balanced Portfolio, a Series of Acacia Capital Corporation
("Calvert") or the International Portfolio of the Scudder Variable Life
Investment Fund ("Scudder") (collectively referred to as the "Funds"). The
respective financial statements of the Funds are contained elsewhere in this
report. Three additional subaccounts of DIVF have been established and
registered under the 1940 Act but have not commenced operations, i.e., the High
Quality Bond, High Yield Bond and International Equity subaccounts.
At June 30, 1996, each DIVF Subaccount's investment in the corresponding
Portfolios was as follows:
<TABLE>
<CAPTION>
Percentage Investment in
Subaccount Portfolio
- ----------------------------------------------------------- ---------------------------------
<S> <C>
Money Market............................................... 11.70%
Intermediate Government Bond............................... 20.55
Government/Corporate Bond.................................. 3.77
Balanced................................................... 36.12
Equity Income.............................................. 27.23
Equity Value............................................... 0.03
Growth & Income............................................ 6.83
Equity Growth.............................................. 54.92
Special Equity............................................. 6.76
Aggressive Equity.......................................... 0.08
</TABLE>
2. Significant Accounting Policies
A. Investments:
The investment by DIVF in the Portfolios reflects DIVF's proportionate
interest in the net assets of the Portfolios. The investment in shares of
Calvert and Scudder is stated at net asset value. DIVF subaccounts which invest
in Calvert and Scudder record their security transactions at the prior day's
ending net asset value per share. Valuation of securities held in each of the
Portfolios is discussed in Note 2A of the Portfolios' Notes to Financial
Statements which are included elsewhere in this report. A description of
portfolio valuation for Calvert and Scudder can be found in Note A of their
financial statements contained elsewhere in this report.
F-17
<PAGE> 112
DIVERSIFIED INVESTORS VARIABLE FUNDS
Notes To Financial Statements--(cont'd)
(Unaudited)
B. Investment Income:
Each DIVF subaccount earns income, net of expenses, daily on its
investment in the corresponding Portfolio. All of the net investment income and
realized and unrealized gain and loss from the security transactions of the
corresponding Portfolios are allocated pro rata among the investors at the time
of such determination. Dividend income is recorded on the ex-dividend date.
Realized gain and loss from the sale of investments are determined on the basis
of identified cost.
C. Federal Income Taxes:
The operations of DIVF form a part of, and are taxed with, the operations
of AUSA. AUSA does not expect, based upon current tax law, to incur any income
tax upon the earnings or realized capital gains attributed to DIVF. Based upon
this expectation, no charges are currently being deducted from DIVF for Federal
income tax purposes.
D. Other:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Fees and Transactions with Affiliates
Because certain subaccounts of DIVF purchase interests in Diversified
Investors Portfolios, the net assets of those DIVF Subaccounts reflect the
investment management fee charged by Diversified Investment Advisors, Inc. (an
affiliate of AUSA), the investment advisor, which provides investment advice
and related services for Diversified Investors Portfolios.
Daily charges to DIVF for mortality and expense risks assumed by AUSA are
computed at an annual rate of 0.90%; however, AUSA reserves the right to charge
maximum fees of 1.25% upon written notice.
AUSA has voluntarily undertaken to waive fees of the Money Market, Equity
Income, Equity Growth and Scudder International Equity Subaccounts, to the
extent necessary, to limit all expenses (other than mortality and expense risk
charges) to 0.10%, 0.46%, 0.50% and 1.02%, respectively, of average net assets.
As of May 1, 1996 AUSA discontinued reimbursement for the Equity Income
Subaccount. AUSA reserves the right to raise these limits upon written notice.
4. Group Plan Assumptions
On December 31, 1993, AUSA entered into an agreement with The Mutual Life
Insurance Company of New York ("MONY") pursuant to which certain contracts
issued by MONY to Group Plans may be transferred through assumption reinsurance
to AUSA subject to receipt of any necessary state insurance department
approvals and authorizations. The assumption reinsurance of any Group Plan to
AUSA will result in the transfer of the applicable assets out of a
corresponding MONY separate
F-18
<PAGE> 113
DIVERSIFIED INVESTORS VARIABLE FUNDS
Notes To Financial Statements--(cont'd)
(Unaudited)
account and into DIVF. Assets transferred from MONY pursuant to this assumption
reinsurance transaction were as follows:
<TABLE>
<CAPTION>
For the period For the year
ended ended
Subaccount June 30, 1996 December 31, 1995
- --------------------------------------------------------- -------------- ------------------
<S> <C> <C>
Money Market............................................. $ 17,001 $ 1,867,363
Intermediate Government Bond............................. 10,488 8,782,763
Government/Corporate Bond................................ 18,168 1,841,524
Balanced................................................. 19,616 11,617,343
Equity Income............................................ 432,827 29,614,226
Equity Growth............................................ 94,561 19,543,177
Calvert.................................................. 2,476 3,908,172
-------------- ------------------
$ 595,137 $ 77,174,568
-------------- ------------------
-------------- ------------------
</TABLE>
The amounts related to these assumptions are reflected as proceeds from
the issuance of units on the Statements of Changes in Net Assets.
F-19
<PAGE> 114
DIVERSIFIED INVESTORS VARIABLE FUNDS
Notes To Financial Statements--(cont'd)
(Unaudited)
5. Financial Highlights
For one Accumulating Unit outstanding throughout the period:
<TABLE>
<CAPTION>
Diversified Investors Portfolios
------------------------------------------------------------------------------------------------
Intermediate Government/
Money Market Government Corporate Bond
Subaccount Subaccount Subaccount
----------------------------------- ----------------------------------- ----------------------
For the For the For the For the For the For the
Period Year Period Year Period Year
Ended Ended Ended Ended Ended Ended
6/30/96 12/31/95 12/31/94** 6/30/96 12/31/95 12/31/94** 6/30/96 12/31/95
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 14.35 $ 13.65 $ 13.44 $ 13.84 $ 12.24 $ 12.33 $ 19.63 $ 16.70
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
Income from investment
operations:
Net investment income
(loss)............... 0.32 0.59 0.22 0.32 0.57 0.24 0.50 0.84
Net gains (loss) on
investments, (both
realized and
unrealized).......... -- 0.11 (0.01) (0.42) 1.03 (0.33) (0.90) 2.09
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
Total increase
(decrease) from
investment
operations........... 0.32 0.70 0.21 (0.10) 1.60 (0.09) (0.40) 2.93
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
Net asset value, end
of period............ $ 14.67 $ 14.35 $ 13.65 $ 13.74 $ 13.84 $ 12.24 $ 19.23 $ 19.63
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
Ratio of net income
(loss) to average net
assets
(net of
reimbursement)+...... 4.58% 5.05% 4.65% 4.74% 4.81% 5.64% 5.34% 5.41%
Ratio of expenses to
average net assets
(net of
reimbursement)+...... 1.02% 0.71% 0.73% 1.32% 0.93% 0.95% 1.29% 0.90%
Ratio of net income
(loss) to average net
assets............... 4.37% 4.85% 4.43% 4.74% 4.81% 5.64% 5.34% 5.41%
Ratio of expenses to
average net assets... 1.22% 0.91% 0.94% 1.32% 0.93% 0.95% 1.29% 0.90%
</TABLE>
<TABLE>
<CAPTION>
Balanced Equity Income
Subaccount Subaccount
----------------------------------- -----------------------------------
For the For the For the For the
Period Year Period Year
Ended Ended Ended Ended
12/31/94** 6/30/96 12/31/95 12/31/94** 6/30/96 12/31/95 12/31/94**
----------- --------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 16.76 $ 21.25 $ 16.66 $ 16.85 $ 22.48 $ 16.86 $ 17.21
----------- --------- ----------- ----------- --------- ----------- -----------
Income from investment
operations:
Net investment income
(loss)............... 0.32 0.29 0.50 0.20 0.26 0.46 0.18
Net gains (loss) on
investments, (both
realized and
unrealized).......... (0.38) 0.75 4.09 (0.39) 1.21 5.16 (0.53)
----------- --------- ----------- ----------- --------- ----------- -----------
Total increase
(decrease) from
investment
operations........... (0.06) 1.04 4.59 (0.19) 1.47 5.62 (0.35)
----------- --------- ----------- ----------- --------- ----------- -----------
Net asset value, end
of period............ $ 16.70 $ 22.29 $ 21.25 $ 16.66 $ 23.95 $ 22.48 $ 16.86
----------- --------- ----------- ----------- --------- ----------- -----------
----------- --------- ----------- ----------- --------- ----------- -----------
Ratio of net income
(loss) to average net
assets
(net of
reimbursement)+...... 5.64% 2.68% 3.09% 3.47% 2.24% 2.55% 3.09%
Ratio of expenses to
average net assets
(net of
reimbursement)+...... 0.94% 1.40% 0.91% 0.95% 1.36% 0.85% 0.95%
Ratio of net income
(loss) to average net
assets............... 5.64% 2.68% 3.09% 3.47 2.20% 2.50% 3.09%
Ratio of expenses to
average net assets... 0.94% 1.40% 0.91% 0.95% 1.38% 0.90% 0.95%
</TABLE>
- --------------
* May 10, 1996, Commencement of Operations
** For the period August 18, 1994 (Commencement of Operations) to December 31,
1994.
*** For the period August 24, 1994 (Commencement of Operatins) to December 31,
1994.
+ All Ratios for 1994 and Annualized.
F-20
<PAGE> 115
DIVERSIFIED INVESTORS VARIABLE FUNDS
Notes To Financial Statements--(cont'd)
(Unaudited)
<TABLE>
<CAPTION>
Diversified Investors Portfolios
- --------------------------------------------------------------------------------------------------------------------------
Equity
Value* Growth & Income Equity Growth Special Equity
Subaccount Subaccount Subaccount Subaccount
- ----------- ----------------------------------- ----------------------------------- -----------------------------------
For the For the For the For the For the For the For the
Period Period Year Period Year Period Year
Ended Ended Ended Ended Ended Ended Ended
6/30/96 6/30/96 12/31/95 12/31/94*** 6/30/96 12/31/95 12/31/94*** 6/30/96 12/31/95 12/31/94***
- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
$ 10.00 $ 13.29 $ 10.14 $ 10.31 $ 25.58 $ 21.65 $ 20.67 $ 14.88 $ 10.63 $ 10.47
- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
0.01 0.02 0.03 0.03 (0.14) (0.02) (0.02) (0.06) (0.04) --
(0.06) 1.36 3.12 (0.20) 3.44 3.95 1.00 2.72 4.29 0.16
- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
(0.05) 1.38 3.15 (0.17) 3.30 3.93 0.98 2.66 4.25 0.16
- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
9.95
$ $ 14.67 $ 13.29 $ 10.14 $ 28.88 $ 25.58 $ 21.65 $ 17.54 $ 14.88 $ 10.63
- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
1.59% 0.31% 0.47% 0.85% (1.04)% (0.11)% (0.27)% (0.67)% (0.59)% 0.05%
0.61% 1.57% 0.89% 0.80% 1.53% 0.66% (0.27)% 1.75% 0.87% 0.80%
1.59% 0.31% 0.47% 0.85% (1.16)% (0.36)% 0.93% (0.67)% (0.59)% 0.05%
0.83% 1.57% 0.89% 80% 1.65% 0.91% 0.27% 1.75% 0.87% 0.80%
</TABLE>
<TABLE>
<CAPTION>
Scudder
Aggressive International
Equity* Calvert Series Equity Series
Subaccount!4] Subaccount Subaccount
- ----------- ----------------------------------- -----------------------------------
For the For the For the For the For the
Period Period Year Period Year
Ended Ended Ended Ended Ended
6/30/96 6/30/96 12/31/95 12/31/94*** 6/30/96 12/31/95 12/31/94***
- ----------- --------- ----------- ----------- --------- ----------- -----------
<C> <C> <C>
$ 10.00 $ 16.87 $ 13.11 $ 13.28 $ 10.53 $ 9.56 $ 10.18
- ----------- --------- ----------- ----------- --------- ----------- -----------
(0.01) (0.08) 0.90 0.66 0.19 (0.05) (0.03)
(0.02) 0.52 2.86 (0.83) 0.73 1.02 (0.59)
- ----------- --------- ----------- ----------- --------- ----------- -----------
(0.03) 0.44 3.76 (0.17) 0.92 0.97 (.62)
- ----------- --------- ----------- ----------- --------- ----------- -----------
$ 9.97 $ 17.31 $ 16.87 $ 13.11 $ 11.45 $ 10.53 $ 9.56
- ----------- --------- ----------- ----------- --------- ----------- -----------
- ----------- --------- ----------- ----------- --------- ----------- -----------
(0.76)% (0.92)% 7.00% 11.76% 3.17% (0.83)% (0.81)%
0.85% 0.92% 0.88% 0.76% 0.83% 0.90% 0.81%
(0.76)% (0.92)% 7.00% 11.76% 3.17% (0.83)% (0.81)%
0.85% 0.92% 0.88% 0.76% 0.83% 0.90% 0.81%
</TABLE>
F-21
<PAGE> 116
Economic and Market Review
Over the last three months, investors were busy analyzing numerous
economic reports in an attempt to decide the fate of short-term interest rates.
The general conclusion is that the economy is running on all cylinders and the
only questions remaining are: when will the Federal Reserve raise interest
rates? and by how much? The strength of the economy is primarily attributable
to a resurgence in consumer confidence.
Despite rising interest rates on mortgages, the housing market showed
remarkable strength, as did the retail sector with generally better than
expected comparable same store sales. Both of these events boosted new factory
orders. Perhaps the increase in consumer spending and confidence is directly
correlated to a buoyant labor market, as the economy created more jobs than
anticipated, and to a decrease in the nation's unemployment rate. Most
important, inflation, as measured by both the Producer Price Index and the
Consumer Price Index, seems to be behaving nicely. In fact, producer prices
actually fell in June for the first time in three months. However, many
skeptics believe that inflation, constrained over the past few years by
marginal wage pressures and commodity prices, now present the main economic
risk on the horizon.
During the quarter, the stock market, as measured by the S&P 500 Index,
continued its trend upward by returning 4.5%. The bond market's return, as
measured by the Lehman Brothers Government/Corporate Index was 0.4%
The stock market's climb during the quarter was attributable to exploding
retail demand as individuals continued to pour money into mutual funds. Net
sales persisted at a record pace as $124 billion was deposited into equity
mutual funds through May (a level nearly matching the full year 1995). In
addition, investors were pleasantly surprised with the release of the first
quarter's earnings reports, as the majority of the companies in the S&P 500
posted better than expected results. Small company stocks, as measured by the
Russell 2000 Index, returned 5.0%, outperforming their bethren large company
stocks. The relative outperformance of small companies was attributable to
their ability to grow profits at a faster pace, the recent strength in the U.S.
economy, and a resurgence in the value of the dollar versus other major
currencies.
Investors, worried that the stronger than expected growth in the economy
would potentially lead to inflationary pressures, bid down the prices on bonds.
As in the first quarter, yields continued to rise across the maturity spectrum.
In terms of maturities, the shortest maturities performed best.
Money Market Portfolio
During the second quarter of 1996, the economy showed continued, if not
accelerating growth. In particular, the employment and housing sectors as well
as consumer spending proved that the economy was more resilient than had
previously been expected.
These areas of growth, and most importantly their potential effect on
wages in the labor market, led to widespread speculation by investors that
inflation concerns would lead the Federal Reserve to tighten credit.
Consequently, the rates on benchmark 30-day commercial paper moved upward
from 5.25% at the beginning of April to 5.38% at the end of the quarter.
Current economic growth, while moving upwards, has not yet been threatening
enough to stimulate action by the Fed. However, continued strength could lead
to a 25 basis point tightening by the Fed sometime in the third quarter.
The Portfolio continues to be invested in high-quality short-term
instruments, principally commercial paper. Maturities will be kept short to
provide flexibility should higher rates appear. The average maturity of the
portfolio has shortened slightly, to 30.5 days as of June 28, 1996.
F-22
<PAGE> 117
High Quality Bond Portfolio
Interest rates rose across the maturity spectrum during the second
quarter. The rise in interest rates, thus causing the prices of bonds to fall,
was largely attributable to the belief that the greater than anticipated
strength in the economy would eventually create inflationary pressures.
Early in the quarter, Treasury prices fell in response to the continued
strength in the consumer sector, primarily from buoyant housing and retail
markets, renewed vigor in the manufacturing sector led by durable goods orders,
and an unexpected increase in construction spending. In addition, there were
two other economic statistics released in April that significantly affected the
bond market. First, the employment report, released on April 5, indicated that
job growth remained strong and unemployment was low. Secondly, the Producer
Price Index was reported higher than expected. This in and of itself was not
significant, but when coupled with a surge in commodity prices and a tight
labor market, initiated speculation that inflation was not far behind.
A sharp rise in consumer confidence, and the unexpectedly strong first
quarter Gross Domestic Product report, send yields soaring from 6.84% to 7.12%
during the first three trading days in May. Supply created by the Treasury's
quarterly refunding kept yields above 7.00% until May 10. A calming inflation
report sparked a rally that brought bond yields down to 6.85%. Yields
fluctuated in a very narrow range of 6.82% to 6.86% for the rest of the month.
The month of June was turning out to be a replay of the prior months, but
a late rally across the maturity spectrum during the last week caused the bond
market to post positive results. This late rally was attributable to optimism
that the Federal Reserve Board will leave monetary policy unchanged at its
meeting in early July.
Merganser's outlook over the next 12-18 months is for the economy to grow
at a moderate 2.5% - 3.0% rate. They believe that the economy has some residual
steam, with inflation remaining under control.
Intermediate Government Bond Portfolio
The Lehman Brothers Intermediate Government Index returned .67% for the
three month period ending in June although much of the positive return could be
attributed to a strong rally on the final day of the quarter. The bond market
witnessed a dramatic steepening of the yield curve during this period as
long-term rates increased much more than short-term rates. Therefore, as was
true for the first quarter of 1996, shorter-term issues generally outperformed
their longer-term counterparts.
The quarter started off on a down note for bondholders as most of the
economic reports released suggested an economy that was growing rapidly. The
employment report in April indicated the economy added almost three times as
many jobs as analysts expected. Bond prices dropped driving the yield on the
30-year Treasury up to almost 7% on fears that a much stronger economy would
bring with it higher inflation, which erodes the value of any fixed income
investment. Data released in mid-April, confirming that inflation was not yet a
problem, caused bonds to rally somewhat until month end. However, in late April
and early May, bond prices once again came under pressure due to a sharp rise
in consumer confidence levels as well as the release of a much higher than
anticipated first quarter GDP figure. Once again though, inflation indicators
(CPI, PPI) were reported at levels below traders' expectations, and bonds
recouped some of their losses. June activity followed the trend set in the
previous two months as very strong economic reports released early in the month
pushed bond prices lower. The number of new jobs added for the month was more
than twice the anticipated number and the housing sector remained strong
despite increasing interest rates. The yield on the 30-year Treasury rose to
7.2%, the highest level in over a year. Inflation levels remained subdued
despite the apparent increase in economic activity, but traders were now
apprehensive that the Federal Reserve might attempt to slow down the economy by
bumping up short-term interest rates at its meeting in early July. However, as
the month ended traders stepped in and bought bonds at levels they thought
represented a good value, confident that the Fed would not take action at its
upcoming meeting.
F-23
<PAGE> 118
The Portfolio has maintained a duration very close to that of its
benchmark, the Lehman Intermediate Government Bond Index, throughout the second
quarter of this year. The Portfolio will continue to seek high quality
Government issues, and it is expected to maintain a duration close to that of
its benchmark over the near term.
Government/Corporate Bond Portfolio
Due to a significant rally during the final few days of June, bonds in
this segment of the market managed to post a positive return for the three
month period ending June 20th. As measured by the Lehman Brothers
Government/Corporate Index, bonds returned .47% during the second quarter.
Consistent with the first quarter of 1996, shorter duration issues generally
outperformed those with longer durations as interest rates went higher.
Most of the economic data released during the period pointed toward an
economy that seemed to be expanding at a healthy rate, and many bond traders
expected it to continue to do so. For example, the housing sector remained
strong even though mortgage rates were pushed higher, and manufacturing was
making a comeback due to a need for businesses to replenish inventories that
were at low levels. However, the single biggest factor driving interest rates
higher over the past few months was the much larger than anticipated creation
of new jobs. Traders feared the large employment gains, coupled with the other
indicators of accelerating growth, might signal the end of the period of
favorable inflation readings. In addition to the large number of jobs being
created, reports show employers are also increasing compensation. In that the
labor market is tight currently (unemployment 5.3%), employers may be raising
salaries in order to keep and/or attract qualified workers. It may be just a
matter of time until the increased costs are reflected in the inflation
indicators. The Federal Reserve has been watching closely for any signs of
higher inflation. If these costs are passed on to the consumer, the Fed may
take action to slow the pace of growth by increasing short-term interest rates.
The Portfolio was kept at a slightly shorter duration than its benchmark
during the quarter, the Lehman Brothers Government/Corporate Index, and has
outperformed as interest rates climbed higher. Also benefiting the portfolio
was exposure to the asset backed and mortgage sectors relative to the Index as
these were the two best performing sectors of the investment grade market. The
Portfolio will be managed to a duration at or slightly below that of its Index
until clearer evidence emerges as to the strength and direction of the economy.
Balanced Portfolio
Balanced investors continued to earn fair returns in the second quarter as
the Lipper Balanced Fund Index gained 2.2%--this puts its year-to-date total
return at about 4.5%. However, there continues to be a wide discrepancy between
stock and bond asset classes. The broad stock and bond markets, as defined by
the S&P 500 and Lehman Government/Corporate Bond Indices, returned 4.5% and
0.5% respectively. Stocks have now outperformed for six consecutive quarters
and hold a 34.6% advantage for the entire period. This environment has clearly
favored portfolios with a strong equity bias. Some of the key factors behind
the equity market's relative strength were earnings that generally surpassed
expectations, data releases indicative of a fairly healthy economy, and cash
flows to equity mutual funds continuing at a record pace. A short-term
technical rally late in the quarter enabled the bond market to post a slightly
positive return. However, many bond investors continue to be concerned about
the strength of the recent economic data and the prospect of tighter monetary
policy going forward.
The second quarter results of the Balanced Portfolio were most impacted by
asset allocation and equity segment results. The Portfolio's increasingly
conservative asset allocation had a slightly negative impact on total return
for the quarter. The reduction in equity exposure by about 7% during the
quarter detracted from return as stocks continued to outperform. This move was
based on the view that stronger than expected economic growth may bring even
higher interest rates. Higher rates hurt the equity markets, as they lower
corporate profits and provide more competition for investors' funds.
F-24
<PAGE> 119
Equity segment results were greatly influenced by investment style. Value
oriented strategies, such as that utilized in the Portfolio, underperformed
their more aggressive, growth counterparts due to the fact that technology and
non-cyclical sectors led the market. It is very difficult for value managers to
get participation in these sectors as they typically carry the highest
valuations in the market.
Equity Income Portfolio
Income oriented stock investors generally realized fair returns in the
second quarter. The Lipper Equity Income Fund Index has now returned 7.1%
year-to-date after the most recent quarterly return of 2.7%. Moreover, equity
income funds generally underperformed more aggressive capital appreciation and
small company funds, whose comparable indices returned 4.5% and 8.1% for the
quarter, respectively. These results show how the market was led by smaller,
growth oriented companies for most of the period. However, the nearly 40% total
return for the Equity Income Index over the past sixteen months is still quite
high by historical standards, inasmuch as these portfolios are considered among
the least risky equity funds. Some of the key catalysts behind the market's
advance in the second quarter were earnings reports that were somewhat stronger
than anticipated, government data releases indicative of a healthy U.S.
economy, and several mergers which served to expand valuations in several
sectors.
Second quarter performance of the Equity Income Portfolio was also
impacted by sector allocation and stock selection. The Portfolio's
underweighted positions in technology and consumer non-cyclicals hurt relative
results as these two areas were the best performing groups of the broad market.
However, this result is in line with expectations, as it is very difficult to
reconcile these growth oriented and lower yielding companies with the
conservative, dividend oriented strategy of the Portfolio.
The benefits from superior stock selection were evident in the utility
sector. A bias toward large telecommunication companies paid off as this
industry is currently benefiting from a more relaxed regulatory environment due
to the telecommunications reform bill; improved earnings resulting from leaner
cost structures, and large mergers boosting valuations. The Portfolio
participated in this group through Pacific Telesis, Bellsouth, and Sprint which
all returned over 11% for the quarter.
Equity Value Portfolio
Stock selection among the finance, consumer cyclical and utility sectors,
outweighed positive sector selection, particularly in the energy sector.
The finance sector was the largest detractor to performance. The June
labor report, which was stronger than expected, caused interest rates to rise
threatening profits among insurers and brokerage firms, which comprise
approximately 80% of this sector's weighting. In addition, an underweighted
position in the banking stocks also hindered the Portfolio's relative
performance. The Portfolio's underweighted position in banks is largely due to
relatively high multiples.
The consumer cyclical sector's underperformance was attributable to the
retail, media and entertainment stocks. After a strong showing, investors took
profits from the retail stocks. Additionally, these stocks sold off as
investors believe that a slowing economy in the second half of the year would
crimp profits. The media and entertainment stocks have been weak for quite some
time reflecting over capacity in these areas.
Growth & Income Portfolio
The stock market, as measured by the S&P 500 Index, continued its upward
pattern by returning 4.5% for the quarter. As in the prior quarter, the
market's performance was buoyed by exploding demand in retail mutual funds. Net
sales persisted at a record pace, with over $100 billion flowing into equity
mutual funds through May. In addition, generally better-than-expected earnings
reports released early in the quarter were greeted positively by investors.
The Portfolio benefited from strong stock selection in the consumer
cyclical and technology sectors, while the utility sector detracted from
performance.
F-25
<PAGE> 120
The consumer cyclical sector benefited from its relative overweighted
position in retail stocks. This group's performance was largely attributable to
stronger than expected consumer spending, which was a result of improving
incomes and job prospects, as the economy continued to show signs of resurging.
In addition, solid earnings reports and positive comparable same store sales
released during the quarter made investors believe that stronger earnings
reports were on the way. Portfolio stocks such as Dayton Hudson Corp., TJX
Company, Inc. and Home Depot led the way.
Despite a late quarter sell-off, the Portfolio's technology sector
contributed positively to performance as it was the best performing sector for
the quarter. The Portfolio's exposure in the telecommunication equipment area
and computer software companies were the primary drivers. Telecommunication
stocks such as Cascade Communications, Tellabs, Inc., and US Robotics, Inc.
benefited from the introduction of new products, and announced acquisitions
that will enhance and complement existing products and better-than-expected
earnings. Microsoft Corp. led the software manufacturers. The company's stock
price reached an all-time high after it received commitments for its new
Windows NT product and a solid earnings report.
Stock selection in the utility sector detracted from performance impacted
largely by MCI Corp. and SBC Communications, Inc. MCI Corp. stock price fell.
The company will most likely report that volume growth will fall approximately
7% as the company steers away from carrying other long distance company calls
and a contracting customer base. SBC Communications, Inc. fell after it
announced plans to purchase Pacific Telesis Group for an estimated $16.5
million.
Equity Growth Portfolio
Growth investing continued to do fairly well in the second quarter as the
Russell 1000 Growth Index and the Lipper Growth Fund Index returned 6.4% and
3.3%, respectively. These returns were quite strong relative to value
investing, the other major investment style, which returned only 1.7% as
measured by the Russell 1000 Value Index. One of the main factors behind the
relative strength of growth investing was the uncertainty regarding the
economy. Investors, unsure of the prospects for the economy, turned to sectors
which offered the best growth potential regardless of economic conditions. This
resulted in the non-cyclical and technology sectors, the primary domain of most
growth strategies, leading the market with returns of 8.0% and 7.5%
respectively. Although growth portfolios led the market, most other equity
indices continued to post good returns in the second quarter. Some of the key
catalysts to this advance were earnings reports that were somewhat better than
anticipated, strong cash flows to equity mutual funds, and several large
mergers that helped raise valuations.
The Growth Portfolio's holdings in the technology sector had the largest
impact on second quarter total return. This sector currently comprises about
36% of total equities but is diversified among several industries within the
broad technology group. Some of the best performers were computer networking,
telecommunications infrastructure, and internet companies. The networking area
was led by 3Com and Cisco Systems, which both returned over 14% for the quarter
on good earnings reports. The Portfolio's telecommunications stocks continued
to outperform as rising call volume and increasing demand for data transmission
technology resulted in generally good earnings for this group as well. Finally,
internet companies UUNET and Netscape both saw their stocks rise dramatically,
due to a corporate takeover and the announcements of key strategic alliances,
respectively.
Special Equity Portfolio
Small company stocks, as measured by the Russell 2000 Index, outperformed
their brethren large company stocks, as measured by the S&P 500 Index. Small
company and large company stock returns were 5.0% and 4.5%, respectively. This
relative outperformance was primarily attributable to: small companies being
able to grow profits at a faster pace, the recent strength of the US economy,
and a resurgence in the value of the U.S. dollar versus other major currencies.
F-26
<PAGE> 121
The Special Equity Portfolio continues to demonstrate superior results
relative to its benchmark, the Russell 2000 Index. Strong stock selection in
the technology and business equipment and services sectors were the primary
catalysts to performance.
The outperformance of the technology sector was specifically due to a lack
of exposure in the semiconductor stocks, which significantly underperformed for
the quarter, and to stock selection in the communication equipment and computer
software companies. The underperformance in the semiconductor stocks was due to
lower expected earnings resulting from a substantial inventory correction. The
Portfolio strategically eliminated these stocks late in 1995. The communication
equipment stocks responded well to the rapid changes in the communication
industry, as a result of new government legislation and the popularity among
Internet users. The software stocks have also responded to the Internet arena
as these companies are learning that they can cater to this market by making
little changes to existing products. In addition, corporate America continues
to expand data capabilities, which also benefited these stocks.
The business service and equipment sector's strong result was primarily
attributable to vocational education stocks, such as ITT Educational Services
and National Education Corp. In addition, the computer service company
Cambridge Technology Partners, and security service and product company
Checkpoint Systems, boosted performance. The vocational training stocks have
benefited from an indirect play from the growth in the technology field, as
people are continually receiving the required training needed to perform their
responsibilities. Checkpoint Systems rose after reporting better than expected
earnings, as did Cambridge Technology Partners.
Aggressive Equity Portfolio
July was a very difficult month for aggressively invested portfolios,
particularly those focused on smaller cap, technology stocks. The NASDAQ
market, where many of these companies trade, experienced a sharp correction in
July (-10%) due to an abrupt shift in investor sentiment. Investors turned
bearish on technology issues as a result of disappointing earnings from
industry leaders such as Hewlett-Packard, Motorola, and Texas Instruments. Also
contributing to the correction were signs of speculative excesses in the IPO
market.
Sector emphasis was the key factor in terms of performance attribution.
Small cap technology stocks, as measured by the technology sector of the
Russell 2000, returned -13.8% in July. This obviously hurt the Portfolio as the
vast majority of funds are invested in this sector as it offers fundamentals
consistent with rapid earnings acceleration.
High Yield Bond Portfolio
As measured by the Salomon Brothers Cash Pay Index, high yield bonds
returned about 1.4% for the second quarter of 1996, well ahead of most other
fixed income indices. Strong mutual fund inflows combined with positive company
specific news were, however, partially offset by the negative effect of rising
interest rates and heavy new supply during the period. Consistent with the high
yield sector in the first quarter of this year, the lower rated, shorter
duration issues generally outperformed all other high yield issues.
The Treasury market continued its influence on the high yield market
during the second quarter. Accelerating economic growth was apparent in many of
the economic indicators released during the period. The housing sector
continued to exhibit strength, retailers were doing better and the
manufacturing sector was trending upwards. This evidence of stronger growth had
traders concerned that inflationary pressures would soon enter the equation.
Thus, yields were pushed up on both investment and non-investment grade bonds.
However, while the ten year Treasury fell 2.45% in price, high yield prices
fell by just 1%. High yield issues were supported by investors who believed
upbeat first quarter earnings reports and stronger economic activity would
positively impact credit quality and valuations.
Credit quality had a noticeable effect on return for the quarter. The CCC
rated sector, which benefits most from an expanding economy, returned 2.2%. B
rated issues returned 1.9%, and the higher
F-27
<PAGE> 122
quality BB issues returned .7%. Demonstrating the diversification benefits of
investing in this asset class, the high yield market has returned 2.8% in 1996
while the ten year Treasury's return was -5%.
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. Under either of the most likely
economic scenarios--continued acceleration or moderating growth--a portfolio
consisting of BB and B rated securities is likely to outperform similar
duration investment grade instruments by virtue of their relative credit safety
and yield premium.
International Equity Portfolio
The International equity market, as measured by the Morgan Stanley Capital
International Gross Domestic Product Europe, Australia, Far East Index,
continued its upward trend by returning 2.5% for the quarter. In fact, 17 of
the 22 countries that comprise the Index posted positive returns in U.S.
dollars. The best performers were Italy, Spain and Ireland, while the
traditional market favorites such as Hong Kong, Germany and Japan were
laggards.
The Italian market not only gained a remarkable 11% in local currency, but
the lira was the world's strongest currency. The Italian market reacted very
positive to its election which ended with a moderate left wing government led
by Mr. Prodi who seems determined to implement a wide range of reforms to bring
the public sector deficits under control. Ireland is a model for what good
policies consistently pursued can achieve. Over the last ten years, admittedly
with the help of substantial European Union aid, the country has transformed
itself from a debt-ridden agricultural backwater to the fastest growing economy
in Europe, combined with healthy public finances and minimal inflation.
Politics have also been important in the third best performer, Spain.
Looking more broadly in Europe, the European markets are balanced between
generally gloomy economic news and difficult profit comparisons on one hand,
and easy money policies on the other. The inventory adjustment which weighed on
the economies over the last 12 months appears to have come to an end, but there
are very few signs of economic recovery. In these circumstances, the central
banks continue to reduce interest rates by small amounts. Corporate
restructuring and the concept of shareholder value, which have been so
important in the American market in the last ten years, are increasingly the
subject of discussion in Europe.
Across the world in Japan, there is also some tentative discussion of
restructuring and return on equity. More important in the shorter term is that
the Japanese economic recovery is finally underway. First quarter gross
domestic product figures showed an unexpectedly 12.7% (annualized) growth, with
a particularly encouraging improvement in consumption. The market was also
aided by corporate profits which started to recover from very depressed levels.
Japan also seems to be reaching the bottom of the banking and real estate
crisis.
F-28
<PAGE> 123
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Owners of Beneficial Interests of the
Diversified Investors Portfolios:
We have audited the accompanying statements of assets and liabilities of
Diversified Investors Portfolios (comprising, respectively, the Money Market,
High Quality Bond, Intermediate Government Bond, Government/Corporate Bond,
Balanced, Equity Income, Growth and Income, Equity Growth, Special Equity, High-
Yield Bond and International Equity Portfolios) (collectively the "Series
Portfolios") as of December 31, 1995 and the related statements of operations
for the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended for each
Portfolio except the High-Yield Bond and International Equity Portfolios, for
which the periods were from August 22, 1995 and September 29, 1995 (commencement
of operations), respectively, to December 31, 1995. These financial statements
and financial highlights are the responsibility of the Series Portfolios
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. Our procedures included
confirmation of securities owned as of December 31, 1995 by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the Portfolios constituting Diversified Investors Portfolios as of
December 31, 1995, the results of their operations, the changes in their net
assets, and the financial highlights for the periods referred to above in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 12, 1996
F-29
<PAGE> 124
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY HIGH GOVERNMENT CORPORATE
MARKET QUALITY BOND BOND BOND BALANCED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at cost.......................... $141,642,545 $164,768,936 $94,192,491 $341,805,334 $198,158,473
------------ ------------ ----------- ------------ ------------
Investments, at market........................ $141,642,545 $166,373,100 $95,259,796 $357,816,218 $212,478,597
Repurchase agreement, at value................ 56,639 4,459,931 82,793 86,916 5,702,169
Cash.......................................... 2,636 0 0 1,054 0
Receivable from custodian..................... 0 0 0 0 0
Foreign currency holdings, at value (cost
$693,265).................................... 0 0 0 0 0
Receivable for securities sold................ 0 133,800 0 0 837,128
Interest receivable........................... 0 2,097,824 761,765 4,277,561 989,678
Dividends receivable.......................... 0 0 0 0 147,754
Receivable from securities lending............ 0 0 2,307 6,231 10,650
Receivable for forward currency contracts..... 0 0 0 0 0
Reimbursement from advisor.................... 3,211 532 14,093 1,417 25,732
------------ ------------ ----------- ------------ ------------
Total assets............................... 141,705,031 173,065,187 96,120,754 362,189,397 220,191,708
------------ ------------ ----------- ------------ ------------
LIABILITIES:
Deposit for securities loaned................. 0 0 10,071,250 25,518,850 45,257,850
Payable for securities purchased.............. 0 453,494 338 0 7,806,862
Payable for forward currency contracts........ 0 0 0 0 0
Accrued expenses:
Investment advisory fees..................... 29,753 48,735 25,897 90,155 60,959
Custody fees................................. 5,633 6,931 5,266 10,998 6,224
Professional fees............................ 21,664 21,937 20,085 19,574 20,181
Printing fees................................ 2,971 1,961 998 3,253 1,115
Miscellaneous fees........................... 6,762 6,026 5,306 7,157 5,562
------------ ------------ ----------- ------------ ------------
Total liabilities.......................... 66,783 539,084 10,129,140 25,649,987 53,158,753
------------ ------------ ----------- ------------ ------------
Net assets.................................... $141,638,248 $172,526,103 $85,991,614 $336,539,410 $167,032,955
============ ============ =========== ============ ============
Net assets consist of:
Paid-in capital.............................. $141,638,248 $170,921,939 $84,924,309 $320,528,526 $152,712,831
Net unrealized appreciation on investments,
and translation of assets and liabilities
in foreign currencies...................... 0 1,604,164 1,067,305 16,010,884 14,320,124
------------ ------------ ----------- ------------ ------------
Net assets................................. $141,638,248 $172,526,103 $85,991,614 $336,539,410 $167,032,955
============ ============ =========== ============ ============
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL HIGH
INCOME INCOME GROWTH EQUITY YIELD BOND
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at cost.......................... $660,136,580 $108,334,032 $216,333,251 $275,177,944 $8,056,922
------------ ------------ ------------ ------------ ----------
Investments, at market........................ $805,216,482 $116,524,886 $255,883,019 $320,663,277 $8,218,968
Repurchase agreement, at value................ 52,740 18,370,832 9,713,052 21,477,900 0
Cash.......................................... 341 0 0 0 818,124
Receivable from custodian..................... 0 0 117,734 0 0
Foreign currency holdings, at value (cost
$693,265).................................... 0 0 0 0 0
Receivable for securities sold................ 0 708,217 0 2,909,595 0
Interest receivable........................... 0 0 0 0 186,824
Dividends receivable.......................... 1,486,610 139,049 98,460 234,431 0
Receivable from securities lending............ 3,223 1,470 19,961 6,894 0
Receivable for forward currency contracts..... 0 0 0 0 0
Reimbursement from advisor.................... 2,387 2,967 (1,228) 18,641 10,320
------------ ------------ ------------ ------------ ----------
Total assets............................... 806,761,783 135,747,421 265,830,998 345,310,738 9,234,236
------------ ------------ ------------ ------------ ----------
LIABILITIES:
Deposit for securities loaned................. 40,890,000 8,425,791 43,316,000 25,513,600 0
Payable for securities purchased.............. 1,217,191 2,424,207 0 4,096,494 211,375
Payable for forward currency contracts........ 0 0 0 0 0
Accrued expenses:
Investment advisory fees..................... 269,680 58,059 121,159 194,740 2,835
Custody fees................................. 33,745 5,296 6,921 22,690 4,507
Professional fees............................ 33,478 17,704 18,688 18,458 9,897
Printing fees................................ 5,904 352 555 1,062 636
Miscellaneous fees........................... 9,255 4,281 5,285 5,469 7,391
------------ ------------ ------------ ------------ ----------
Total liabilities.......................... 42,459,253 10,935,690 43,468,608 29,852,513 236,641
------------ ------------ ------------ ------------ ----------
Net assets.................................... $764,302,530 $124,811,731 $222,362,390 $315,458,225 $8,997,595
============ ============ ============ ============ ==========
Net assets consist of:
Paid-in capital.............................. $619,222,628 $116,620,877 $182,812,622 $269,972,892 $8,835,549
Net unrealized appreciation on investments,
and translation of assets and liabilities
in foreign currencies...................... 145,079,902 8,190,854 39,549,768 45,485,333 162,046
------------ ------------ ------------ ------------ ----------
Net assets................................. $764,302,530 $124,811,731 $222,362,390 $315,458,225 $8,997,595
============ ============ ============ ============ ==========
<CAPTION>
INTERNATIONAL
EQUITY
-------------
<S> <C>
ASSETS:
Investments, at cost.......................... $78,000,625
-----------
Investments, at market........................ $79,175,541
Repurchase agreement, at value................ 0
Cash.......................................... 4,575,760
Receivable from custodian..................... 0
Foreign currency holdings, at value (cost
$693,265).................................... 687,767
Receivable for securities sold................ 162,684
Interest receivable........................... 35,859
Dividends receivable.......................... 72,106
Receivable from securities lending............ 0
Receivable for forward currency contracts..... 190,253
Reimbursement from advisor.................... 6,191
-----------
Total assets............................... 84,906,161
-----------
LIABILITIES:
Deposit for securities loaned................. 0
Payable for securities purchased.............. 1,261,434
Payable for forward currency contracts........ 29,556
Accrued expenses:
Investment advisory fees..................... 143,910
Custody fees................................. 11,973
Professional fees............................ 7,675
Printing fees................................ 1,459
Miscellaneous fees........................... 3,839
-----------
Total liabilities.......................... 1,459,846
-----------
Net assets.................................... $83,446,315
===========
Net assets consist of:
Paid-in capital.............................. $82,111,576
Net unrealized appreciation on investments,
and translation of assets and liabilities
in foreign currencies...................... 1,334,739
-----------
Net assets................................. $83,446,315
===========
</TABLE>
See notes to financial statements.
F-30
<PAGE> 125
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<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............................. $ 0 $ 0 $ 0 $ 0 $ 1,737,553 $ 20,486,295
Interest income............................. 9,420,480 10,560,001 4,881,454 19,315,534 4,608,571 4,278,028
---------- ----------- ----------- ----------- ----------- ------------
Total income.............................. 9,420,480 10,560,001 4,881,454 19,315,534 6,346,124 24,764,323
---------- ----------- ----------- ----------- ----------- ------------
Expenses:
Investment advisory fees.................... 391,657 562,958 286,019 1,011,116 639,345 2,878,308
Custody fees................................ 48,971 42,976 38,278 68,817 54,977 170,931
Professional fees........................... 25,341 25,441 22,529 25,811 24,073 40,231
Printing fees............................... 3,953 2,942 1,979 4,234 2,096 6,885
Miscellaneous fees.......................... 22,990 21,477 19,071 23,609 18,621 32,710
---------- ----------- ----------- ----------- ----------- ------------
Total Expenses............................ 492,912 655,794 367,876 1,133,587 739,112 3,129,065
Expenses waived by the investment advisor... 22,086 9,897 44,808 0 51,146 0
---------- ----------- ----------- ----------- ----------- ------------
Net expenses.............................. 470,826 645,897 323,068 1,133,587 687,966 3,129,065
---------- ----------- ----------- ----------- ----------- ------------
Net investment income........................ 8,949,654 9,914,104 4,558,386 18,181,947 5,658,158 21,635,258
---------- ----------- ----------- ----------- ----------- ------------
Net realized and unrealized gains (losses) on
investments:
Net realized gains (losses) on
investments............................... (4,226) (634,835) 379,479 1,365,500 11,609,960 9,847,566
Net realized gains (losses) on foreign
currency transactions..................... 0 0 0 0 0 0
Net unrealized appreciation on
investments............................... 0 7,048,911 5,777,385 29,472,541 17,788,835 158,219,366
Net increase in unrealized appreciation on
translation of assets and liabilities in
foreign currencies........................ 0 0 0 0 0 0
---------- ----------- ----------- ----------- ----------- ------------
Net realized and unrealized gains (losses) on
investments................................. (4,226) 6,414,076 6,156,864 30,838,041 29,398,795 168,066,932
---------- ----------- ----------- ----------- ----------- ------------
Net increase in net assets resulting from
operations.................................. $8,945,428 $16,328,180 $10,715,250 $49,019,988 $35,056,953 $189,702,190
========== =========== =========== =========== =========== ============
- ---------------
* August 22, 1995, Commencement of Operations
** September 29, 1995, Commencement of Operations
# Net of withholding taxes of $25,308
<CAPTION>
GROWTH & EQUITY SPECIAL HIGH INTERNATIONAL
INCOME GROWTH EQUITY YIELD BOND* EQUITY**
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividend income............................. $ 1,626,970 $ 421,856 $ 1,688,432 $ 0 $ 198,388#
Interest income............................. 624,447 1,810,218 1,232,053 240,742 66,670
----------- ----------- ----------- -------- ----------
Total income.............................. 2,251,417 2,232,074 2,920,485 240,742 265,058
----------- ----------- ----------- -------- ----------
Expenses:
Investment advisory fees.................... 639,911 1,272,213 2,018,861 11,146 143,910
Custody fees................................ 42,763 49,087 175,111 9,060 11,973
Professional fees........................... 20,681 21,131 22,446 9,897 7,675
Printing fees............................... 1,333 1,536 2,043 636 1,459
Miscellaneous fees.......................... 18,191 19,476 20,993 7,390 3,838
----------- ----------- ----------- -------- ----------
Total Expenses............................ 722,879 1,363,443 2,239,454 38,129 168,855
Expenses waived by the investment advisor... 28,140 0 82,511 20,785 6,191
----------- ----------- ----------- -------- ----------
Net expenses.............................. 694,739 1,363,443 2,156,943 17,344 162,664
----------- ----------- ----------- -------- ----------
Net investment income........................ 1,556,678 868,631 763,542 223,398 102,394
----------- ----------- ----------- -------- ----------
Net realized and unrealized gains (losses) on
investments:
Net realized gains (losses) on
investments............................... 19,009,812 4,768,375 45,159,729 6,659 16,793
Net realized gains (losses) on foreign
currency transactions..................... 0 0 0 0 (8,241)
Net unrealized appreciation on
investments............................... 9,319,254 24,304,762 40,748,255 162,046 1,174,916
Net increase in unrealized appreciation on
translation of assets and liabilities in
foreign currencies........................ 0 0 0 0 159,823
----------- ----------- ----------- -------- ----------
Net realized and unrealized gains (losses) on
investments................................. 28,329,066 29,073,137 85,907,984 168,705 1,343,291
----------- ----------- ----------- -------- ----------
Net increase in net assets resulting from
operations.................................. $29,885,744 $29,941,768 $86,671,526 $ 392,103 $ 1,445,685
=========== =========== =========== ======== ==========
- ---------------
* August 22, 1995, Commencement of Operation
** September 29, 1995, Commencement of Operat
# Net of withholding taxes of $25,308
</TABLE>
See notes to financial statements.
F-31
<PAGE> 126
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HIGH INTERMEDIATE GOVERNMENT/
MONEY QUALITY GOVERNMENT CORPORATE
MARKET BOND BOND BOND BALANCED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
From operations:
Net investment income........................ $ 8,949,654 $ 9,914,104 $ 4,558,386 $18,181,947 $ 5,658,158
Net realized gains (losses) on investments... (4,226) (634,835) 379,479 1,365,500 11,609,960
Net realized gains (losses) on foreign
currency transactions...................... 0 0 0 0 0
Net unrealized appreciation on investments... 0 7,048,911 5,777,385 29,472,541 17,788,835
Net increase in unrealized appreciation on
translation of assets and liabilities in
foreign currencies......................... 0 0 0 0 0
------------ ----------- ------------ ------------ --------------
Net increase in net assets resulting from
operations................................. 8,945,428 16,328,180 10,715,250 49,019,988 35,056,953
------------ ----------- ------------ ------------ --------------
From capital transactions:
Proceeds from capital invested............... 393,166,782 141,659,639 38,046,469 151,446,357 80,590,418
Value of capital withdrawn................... 421,983,754 129,457,932 49,408,845 110,912,327 74,123,531
------------ ----------- ------------ ------------ --------------
Net increase (decrease) in net assets
resulting from capital transactions.......... (28,816,972) 12,201,707 (11,362,376) 40,534,030 6,466,887
------------ ----------- ------------ ------------ --------------
Net increase (decrease) in net assets......... (19,871,544) 28,529,887 (647,126) 89,554,018 41,523,840
Net assets:
Beginning of year............................ 161,509,792 143,996,216 86,638,740 246,985,392 125,509,115
------------ ----------- ------------ ------------ --------------
End of year................................... $141,638,248 $172,526,103 $ 85,991,614 $336,539,410 $167,032,955
============ =========== ============ ============ ==============
- ---------------
* August 22, 1995 Commencement of Operations
** September 29, 1995 Commencement of Operations.
<CAPTION>
HIGH
EQUITY GROWTH & EQUITY SPECIAL YIELD
INCOME INCOME GROWTH EQUITY BOND*
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
From operations:
Net investment income........................ $ 21,635,258 $ 1,556,678 $ 868,631 $ 763,542 $ 223,398
Net realized gains (losses) on investments... 9,847,566 19,009,812 4,768,375 45,159,729 6,659
Net realized gains (losses) on foreign
currency transactions...................... 0 0 0 0 0
Net unrealized appreciation on investments... 158,219,366 9,319,254 24,304,762 40,748,255 162,046
Net increase in unrealized appreciation on
translation of assets and liabilities in
foreign currencies......................... 0 0 0 0 0
------------ ----------- ---------- ----------- ---------
Net increase in net assets resulting from
operations................................. 189,702,190 29,885,744 29,941,768 86,671,526 392,103
------------ ----------- ---------- ----------- ---------
From capital transactions:
Proceeds from capital invested............... 231,491,356 93,751,429 93,276,744 113,103,544 9,081,530
Value of capital withdrawn................... 245,585,114 93,408,742 49,673,952 101,988,710 476,038
------------ ----------- ---------- ----------- ---------
Net increase (decrease) in net assets
resulting from capital transactions.......... (14,093,758) 342,687 43,602,792 11,114,834 8,605,492
------------ ----------- ---------- ----------- ---------
Net increase (decrease) in net assets......... 175,608,432 30,228,431 73,544,560 97,786,360 8,997,595
Net assets:
Beginning of year............................ 588,694,098 94,583,300 148,817,830 217,671,865 0
------------ ----------- ---------- ----------- ---------
End of year................................... $764,302,530 $124,811,731 $222,362,390 $315,458,225 $8,997,595
============ =========== ========== =========== =========
- ---------------
* August 22, 1995 Commencement of Operations
** September 29, 1995 Commencement of Operatio
<CAPTION>
INTERNATIONAL
EQUITY**
-------------
<S> <C>
From operations:
Net investment income........................ $ 102,394
Net realized gains (losses) on investments... 16,793
Net realized gains (losses) on foreign
currency transactions...................... (8,241)
Net unrealized appreciation on investments... 1,174,916
Net increase in unrealized appreciation on
translation of assets and liabilities in
foreign currencies......................... 159,823
-----------
Net increase in net assets resulting from
operations................................. 1,445,685
-----------
From capital transactions:
Proceeds from capital invested............... 86,991,521
Value of capital withdrawn................... 4,990,891
-----------
Net increase (decrease) in net assets
resulting from capital transactions.......... 82,000,630
-----------
Net increase (decrease) in net assets......... 83,446,315
Net assets:
Beginning of year............................ 0
-----------
End of year................................... $83,446,315
===========
- ---------------
* August 22, 1995 Commencement of Operations
** September 29, 1995 Commencement of Operatio
</TABLE>
See notes to financial statements.
F-32
<PAGE> 127
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
HIGH GOVERNMENT CORPORATE
MONEY MARKET QUALITY BOND BOND BOND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
From operations:
Net investment income.................................. $ 5,160,230 $10,028,083 $ 4,037,896 $ 12,824,729
Net realized gains (losses) on investments............. (9,238) (2,474,325) (286,190) (5,306,941)
Net increase (decrease) in unrealized appreciation on
investments.......................................... 0 (5,444,747) (4,710,080) (13,461,657)
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 5,150,992 2,109,011 (958,374) (5,943,869)
------------ ------------ ------------ ------------
From Capital Transactions:
Proceeds from capital invested......................... 439,406,062 324,614,137 118,805,465 292,110,188
Value of capital withdrawn............................. (283,047,262) (182,726,932) (31,208,351) (39,180,927)
------------ ------------ ------------ ------------
Net increase in net assets resulting from capital
transactions......................................... 156,358,800 141,887,205 87,597,114 252,929,261
------------ ------------ ------------ ------------
Net increase in net assets............................. 161,509,792 143,996,216 86,638,740 246,985,392
Net Assets:
Beginning of period.................................... -- -- -- --
------------ ------------ ------------ ------------
End of period.......................................... $161,509,792 $143,996,216 $ 86,638,740 $246,985,392
============ ============ ============ ============
<CAPTION>
EQUITY GROWTH & EQUITY
BALANCED INCOME INCOME GROWTH
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
From operations:
Net investment income.................................. $ 3,614,958 $ 18,966,219 $ 1,333,425 $ 105,785
Net realized gains (losses) on investments............. 425,349 (3,691,850) (3,271,268) (3,498,589)
Net increase (decrease) in unrealized appreciation on
investments.......................................... (3,468,711) (13,139,464) (1,128,400) 15,245,006
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations... 571,596 2,134,905 (3,066,243) 11,852,202
------------ ------------ ------------ ------------
From Capital Transactions:
Proceeds from capital invested......................... 212,140,323 672,360,914 138,102,752 256,748,572
Value of capital withdrawn............................. (87,202,804) (85,801,721) (40,453,209) (119,782,944)
------------ ------------ ------------ ------------
Net increase in net assets resulting from capital
transactions......................................... 124,937,519 586,559,193 97,649,543 136,965,628
------------ ------------ ------------ ------------
Net increase in net assets............................. 125,509,115 588,694,098 94,583,300 148,817,830
Net Assets:
Beginning of period.................................... -- -- -- --
------------ ------------ ------------ ------------
End of period.......................................... $125,509,115 $588,694,098 $ 94,583,300 $148,817,830
============ ============ ============ ============
<CAPTION>
SPECIAL
EQUITY
------------
<S> <C>
From operations:
Net investment income.................................. $ 607,963
Net realized gains (losses) on investments............. (4,329,355)
Net increase (decrease) in unrealized appreciation on
investments.......................................... 4,737,078
------------
Net increase in net assets resulting from operations... 1,015,686
------------
From Capital Transactions:
Proceeds from capital invested......................... 320,045,388
Value of capital withdrawn............................. (103,389,209)
------------
Net increase in net assets resulting from capital
transactions......................................... 216,656,179
------------
Net increase in net assets............................. 217,671,865
Net Assets:
Beginning of period.................................... --
------------
End of period.......................................... $217,671,865
============
</TABLE>
See notes to financial statements.
F-33
<PAGE> 128
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ----------- ----------
<C> <S> <C> <C>
COMMERCIAL PAPER
$1,000,000 American Express Credit Corp, 5.60%, Due 02/02/96...... $ 994,711
1,000,000 American Express Credit Corp, 5.45%, Due 03/26/96...... 986,829
800,000 Associates Corp of North America, 5.71%, Due
01/22/96............................................... 797,081
2,000,000 Avco Financial Services Canada, 5.76%, Due 01/05//96... 1,998,080
4,000,000 Avco Financial Services Canada, 5.60%, Due 03/06/96.... 3,958,311
5,000,000 Banco Real SA, 5.62%, Due 04/15/96..................... 4,916,481
2,000,000 Bank of New York, 5.83%, Due 01/22/96.................. 1,992,551
1,500,000 Bell South Telecom, 5.75%, Due 01/09/96................ 1,497,605
3,500,000 CIT Group Holdings Inc, 5.80%, Due 01/31/96............ 3,481,956
3,400,000 CIT Group Holdings Inc, 5.70%, Due 02/09/96............ 3,377,928
2,000,000 Canadian Imperial Bank, 5.60%, Due 02/20/96............ 1,983,822
5,000,000 Chevron UK Inc, 5.78%, Due 01/26/96.................... 4,978,325
5,000,000 Colonial Pipeline Company, 5.70%, Due 01/26/96......... 4,978,625
700,000 Colonial Pipeline Company, 5.67%, Due 02/16/96......... 694,708
700,000 Colonial Pipeline Company, 5.62%, Due 02/28/96......... 693,443
6,000,000 Commercial Credit Company, 5.76%, Due 01/16/96......... 5,983,680
3,900,000 Consolidation Coal Company, 5.70%, Due 01/12/96........ 3,891,973
1,300,000 Consolidation Coal Company, 5.79%, Due 01/08/96........ 1,298,118
1,900,000 Cooperative Finance Corp, 5.63%, Due 02/27/96.......... 1,882,469
2,100,000 Cooperative Finance Corp, 5.50%, Due 02/27/96.......... 2,081,071
4,300,000 Copley Financing Corporation, 5.75%, Due 01/24/96...... 4,282,830
3,092,000 Enterprise Funding Corporation, 5.78%, Due 01/10/96.... 3,086,539
3,000,000 Enterprise Funding Corporation, 5.78%, Due 01/12/96.... 2,993,738
1,000,000 Ford Motor Credit Corporation, 5.75%, Due 01/18/96..... 996,965
2,400,000 Ford Motor Credit Corporation, 5.75%, Due 01/18/96..... 2,392,716
700,000 Ford Motor Credit Corporation, 5.77%, Due 01/05/96..... 699,327
3,200,000 General Electric Capital Corp, 5.75%, Due 01/19/96..... 3,189,778
6,000,000 General Motors Acceptance Corp, 5.70%, Due 01/09/96.... 5,990,500
1,100,000 Household Finance Corp, 5.75%, Due 01/12/96............ 1,097,716
200,000 Household Finance Corp, 5.77%, Due 01/26/96............ 199,135
1,000,000 Household Finance Corp, 5.71%, Due 01/29/96............ 995,242
4,000,000 Household Finance Corp--Canada, 5.75%, Due 01/03/96.... 3,997,444
2,800,000 JHM Funding Inc, 5.75%, Due 01/11/96................... 2,794,633
4,000,000 JHM Funding Inc, 5.73%, Due 01/08/96................... 3,984,720
5,000,000 Merrill Lynch and Company Inc, 5.75%, Due 01/24/96..... 4,980,035
925,000 Midwest Funding Corp, 5.83%, Due 07/01/22(a)........... 929,298
2,800,000 Morgan JP & Company, 5.77%, Due 01/08/96............... 2,795,961
5,000,000 National Westminster Bank Plc, 5.73%, Due 01/08/96..... 4,992,837
3,600,000 Norwest Corp, 5.72%, Due 01/26/96...................... 3,584,556
6,000,000 Olympic, 5.825%, Due 12/15/96.......................... 6,022,981
1,100,000 PHH Corp, 5.74%, Due 01/19/96.......................... 1,096,492
</TABLE>
F-34
<PAGE> 129
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ----------- ----------
<C> <S> <C> <C>
COMMERCIAL PAPER--(CONTINUED)
$1,200,000 PHH Corp, 5.75%, Due 01/23/96.......................... $ 1,195,400
500,000 Rockwell International Corp, 5.70%, Due 01/26/96....... 497,863
1,000,000 Royal Bank of Canada, 5.70%, Due 01/29/96.............. 995,250
6,000,000 Seagram Joseph and Sons Inc, 5.70%, Due 01/18/96....... 5,981,950
500,000 Sears Roebuck Acceptance Corp, 5.70%, Due 01/16/96..... 498,654
700,000 Sears Roebuck Acceptance Corp, 5.70%, Due 01/29/96..... 696,676
3,200,000 Sears Roebuck Acceptance Corp, 5.70%, Due 02/02/96..... 3,182,773
2,605,000 Toronto Dominion Bank, 5.68%, Due 01/08/96............. 2,601,301
400,000 Toronto Dominion Bank, 5.97%, Due 01/08/96............. 399,403
6,000,000 Transamerica Commercial Finance--Canada, 5.77%, Due
01/04/96............................................... 5,995,191
5,000,000 Wachovia Bank of N. Carolina, 5.75%, Due 01/11/96...... 5,031,943
-----------
Total Commercial Paper (Cost $140,647,614)............. 140,647,614 99.30%
----------- ------
BANKERS ACCEPTANCES
1,000,000 Republic National Bank New York NY, 5.53%, Due 02/01/96
(cost $994,931)........................................ 994,931 0.70%
----------- ------
Total Securities (cost $141,642,545)................... 141,642,545 100.00%
----------- ------
REPURCHASE AGREEMENT
56,630 Repurchase Agreement with Morgan Stanley, dated
12/29/95, 5.65%, proceeds at maturity $56,665, due
01/02/96. (Collateralized by US Treasury Note, 7.25%,
due 08/15/04 with a market value of $57,874) (cost
$56,639)............................................... 56,639 .04%
----------- ------
Total Investments (cost $141,699,184).................. $141,699,184 100.04%
Liabilities Less Other Assets.......................... (60,936) (.04)
----------- ------
Net Assets............................................. $141,638,248 100.00%
=========== ======
</TABLE>
- ---------------
(a) This interest rate is subject to change periodically based on the greater of
the 30 or 90 day Federal composite rate. This instrument resets on a weekly
basis. The rate shown was in effect as of December 31, 1995.
See notes to financial statements.
F-35
<PAGE> 130
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ----------- ----------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES
AUTO
$ 655,159 Chrysler Financial Corp 8.65% Due 10/15/96.............. $ 656,640
2,863,011 Ford Motor Company 6.27% Due 01/02/00................... 2,863,808
1,000,000 Ford Motor Credit 7.15% Due 01/26/00.................... 1,045,390
1,010,792 General Motors Acceptance Corp, Grantor Trust 1995-A
7.15% Due 03/15/00...................................... 1,029,401
------------
Total Auto.............................................. 5,595,239 3.24%
------------ -------
BANKING
1,000,000 Banque National of Paris 9.875% Due 05/25/98............ 1,081,561
5,000,000 Discover Card Master Trust I 93-2A 5.40% Due 11/16/01... 4,989,646
1,000,000 European Investment Bank 6.60% Due 05/15/97............. 1,017,390
3,000,000 First Hawaiian Bank Medium Term Note 7.50% Due
11/20/96................................................ 3,038,605
3,523,095 Fleet Finance 1191-A 8.45% Due 04/15/06................. 3,630,089
2,000,000 Korean Development Bank 8.90% Due 03/12/96.............. 2,012,155
3,000,000 Korean Development Bank 7.73% Due 05/05/97.............. 3,072,088
98,730 Rochester Community Savings Bank Grantor Trust 1991-B
6.70% Due 04/15/97...................................... 98,792
391,458 Security Pacific Home Equity Loan 1991-2 8.10% Due
06/15/20................................................ 407,277
295,531 Shawmut REMIC Trust 6.40% Due 09/15/96.................. 294,879
2,887,902 Western Finance Grantor Trust 4.60% Due 04/01/99........ 2,859,339
4,000,000 Western Finance Grantor Trust 5.875% Due 03/01/02....... 4,021,237
------------
Total Banking........................................... 26,523,058 15.37%
------------ -------
BUSINESS MACHINES
3,408,769 IBM Credit Receivable Lease Asset Master Trust 93-1A
4.55% Due 11/15/00...................................... 3,382,488
1,537,529 IBM Credit Receivable Lease Asset Master Trust 6.55%
Due 07/16/01............................................ 1,567,403
------------
Total Business Machines................................. 4,949,891 2.87%
------------ -------
CONSTRUCTION
3,655,000 Case Equipment Loan Trust 1194-C A2, 8.10% Due
06/15/01................................................ 3,814,575 2.21%
------------ -------
CREDIT CARDS
2,540,000 First Chicago Master Trust 6.25% Due 08/15/99........... 2.567,888
1,000,000 Household Affinity Credit Card Master Trust 7.00%
Due 12/15/99............................................ 1,026,650
1,000,000 Maryland Bank of North America Master Credit Card Trust
1993-3A 5.40% Due 09/15/00.............................. 996,190
6,000,000 National Credit Card Trust 1989 9.45% Due 12/31/97...... 6,094,735
5,000,000 Peoples' Bank Credit Card Trust Series 1993-1 4.80%
Due 12/15/99............................................ 4,986,395
7,000,000 Private Label Credit Card Master Trust 7.15% Due
06/20/01................................................ 7,101,074
------------
Total Credit Cards...................................... 22,772,932 13.20%
------------ -------
</TABLE>
F-36
<PAGE> 131
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ----------- ----------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
FINANCE
$1,250,000 Associates Corp of North America 8.89% Due 04/12/98..... $ 1,337,287
2,000,000 Associates Corp of North America 6.46% Due 09/18/00..... 2,047,959
4,000,000 Associates Corp of North America 5.99% Due 12/15/00..... 4,017,317
5,000,000 Carco 1994-3 8.125% Due 10/15/99........................ 5,209,375
1,000,000 British Gas Finance Inc. 8.75% Due 09/15/98............. 1,063,288
1,774,000 General Electric Capital Corp 9.375% Due 06/08/96....... 1,800,610
5,000,000 Lehman Brothers Inc. 7.625% Due 08/01/98................ 5,191,900
725,000 Lehman Medium Term Note 6.08% Due 07/08/98.............. 723,978
595,696 Merrill Lynch Mortgage Investors 10.10% Due 11/15/07.... 647,730
1,045,443 Merrill Lynch Mortgage Investors 10.35% Due 05/15/09.... 1,185,407
645,941 Merrill Lynch Mortgage Investors 9.40% Due 09/15/09..... 715,309
1,560,647 Merrill Lynch Mortgage Investors 9.00% Due 07/15/11..... 1,650,898
4,000,000 Navistar Finance 6.55% Due 11/20/01..................... 4,054,956
1,000,000 Norwest Financial 6.00% Due 08/15/97.................... 1,006,692
3,595,252 Resolution Trust Corp. 7.00% Due 02/15/04............... 3,612,487
2,347,954 Resolution Trust Corp. 6.77% Due 07/25/25............... 2,390,020
1,000,000 Signet Medium Term Note 1993-1A 5.20% Due 02/15/02...... 993,079
5,000,000 Salomon Brothers Medium Term Note 6.42% 01/15/96........ 5,001,740
------------
Total Finance........................................... 42,650,032 24.72%
------------ -------
HOME EQUITY
74,262 First Interstate of California 8.90% Due 11/15/97....... 74,108 0.04%
------------ -------
INSURANCE
38,892 Central Life Assurance Company 9.00% Due 11/01/96....... 39,091 0.02%
------------ -------
MANUFACTURING
853,242 Chemical Financial Acceptance Corp. 90-1 9.40% Due
03/17/97................................................ 861,544
3,075,914 Chemical Financial Acceptance Corp. 9.25% Due
05/15/98................................................ 3,267,080
------------
Total Manufacturing..................................... 4,128,624 2.39%
------------ -------
REAL ESTATE
913,992 Daiwa Home Equity Loans 7.875% Due 11/25/19............. 924,658
4,295,583 Travelers Mortgage 12.00% Due 03/01/14.................. 4,822,604
103,337 US Home Equity Loan 9.25% Due 01/15/21.................. 103,124
789,634 US Home Equity Loan 8.50% Due 04/15/21.................. 810,329
------------
Total Real Estate....................................... 6,660,715 3.86%
------------ -------
RETAIL
2,750,000 Sears Credit Account 5.90% Due 11/16/98................. 2,756,295 1.60%
------------ -------
</TABLE>
F-37
<PAGE> 132
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ----------- ----------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
SECURITY & COMMODITY BROKERS/DEALERS
$6,250,000 Bear Stearns 7.625% Due 09/15/99........................ $ 6,602,406
5,000,000 Morgan Stanley 7.32% Due 01/15/97....................... 5,085,775
------------
Total Security & Commodity Brokers/Dealers.............. 11,688,181 6.78%
------------ -------
Total Corporate Bonds and Notes (cost $131,817,332)..... 131,652,741 76.31%
------------ -------
FOREIGN GOVERNMENT DEBT
1,000,000 Kingdom of Denmark 7.75% Due 12/15/96................... 1,021,555
1,379,151 Pemex Exp Grantor Trust 7.66% Due 08/15/01.............. 1,447,055
7,000,000 Province of Ontario 7.75% Due 06/04/02.................. 7,681,233
5,000,000 Province of Quebec 9.125% Due 08/22/01.................. 5,665,625
------------
Total Foreign Government Debt (cost $15,265,413)........ 15,815,468 9.17%
------------ -------
U.S. GOVERNMENT SECURITY
4,250,000 Midstate Trust II A3 9.35% Due 04/0/98 (cost
$4,339,597)............................................. 4,555,745 2.64%
------------ -------
U.S. GOVERNMENT AGENCY
17,148 Federal Home Loan Mortgage Corp. 5.25% Due 07/01/97..... 15,670
3,202,226 Federal Home Loan Mortgage Corp. 9.00% Due 10/01/05..... 3,328,326
847,965 Federal Home Loan Mortgage Corp. REMIC Series MH-1
10.15% Due 04/15/06..................................... 867,408
1,474,068 Federal Home Loan Mortgage Corp. 7.50% Due 03/01/08..... 1,504,654
585,098 Federal Home Loan Mortgage Corp. 6.50% Due 03/01/13..... 582,494
908,800 Federal Home Loan Mortgage Corp. 7.00% Due 01/01/18..... 919,714
1,779,984 Federal National Mortgage Association 8.00% Due
07/25/97................................................ 1,805,756
855,524 Federal National Mortgage Association 6.75% Due
02/01/03................................................ 856,267
418,353 Federal National Mortgage Association 7.00% Due
04/01/04................................................ 421,210
1,200,000 Guaranteed Export Certificates 4.61% Due 09/01.98....... 1,183,103
2,873,555 Guaranteed Export Certificates 4.813% Due 12/15/98...... 2,864,544
------------
Total U.S. Government Agency (cost $13,346,594)......... 14,349,146 8.32%
------------ -------
Total Securities (cost $164,768,936).................... 166,373,100 96.43%
------------ -------
</TABLE>
F-38
<PAGE> 133
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ----------- ----------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
REPURCHASE AGREEMENT
$4,459,231 Repurchase Agreement with Morgan Stanley, dated
12/29/95, 5.65%, proceeds at maturity $4,461,992, due
01/02/96 (Collateralized by US Treasury Note, 7.25%, due
08/15/04, with a market value of $4,557,181) (cost
$4,459,931)............................................. $ 4,459,931 2.59%
------------ -------
Total Investments (cost $169,228,867)................... 170,833,081 99.02%
Other Assets Less Liabilities........................... 1,693,072 .98%
------------ -------
Net Assets.............................................. $172,526,103 100.00%
============ =======
The aggregate cost of securities for federal income tax
purposes at December 31, 1995 is $169,228,867.
The following amount is based on costs for federal income tax
purposes:
Gross unrealized appreciation........................... $ 2,205,913
Gross unrealized depreciation........................... (601,749)
------------
Net unrealized appreciation............................. $ 1,604,164
============
</TABLE>
See notes to financial statements.
F-39
<PAGE> 134
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ---------- ----------
<C> <S> <C> <C>
BANK NOTES
$4,000,000 Republic New York Securities Corp 6.15% Due 2/12/96(d)(g)
(cost $4,000,636)...................................... $4,000,647 4.65%
------------ -------
COMMERCIAL PAPER
4,000,000 Lehman Brothers Holdings, Inc. 4.90% Due 04/25/96(d)(g)
(cost $4,000,636)...................................... 4,000,636 4.65%
------------ -------
TIME DEPOSITS
413,885 First National Bank of Boston, Nassau 4.81% Due 01/02/96
(d)(g)................................................. 413,940
657,365 First Union Bank, Nassau 5.8125% Due 01/02/96(d)......... 657,470
1,000,000 Harris Bank and Trust, Nassau 5.8125% Due 01/19/96(d).... 1,000,159
------------
Total Time Deposits (cost $2,071,580).................... 2,071,569 2.41%
------------ -------
SHORT-TERM OBLIGATIONS
100,000 Federal National Mortgage Association 5.57% Due
01/03/96............................................... 99,938
200,000 Federal National Mortgage Association 5.67% Due
01/09/96............................................... 199,685
2,700,000 Federal National Mortgage Association 5.45% Due
01/12/96............................................... 2,694,686
600,000 Federal National Mortgage Association 5.58% Due
01/25/96............................................... 597,582
300,000 Federal National Mortgage Association 5.59% Due
01/29/96............................................... 298,602
200,000 Federal National Mortgage Association 5.55% Due
02/16/96............................................... 198,520
2,300,000 Federal Home Loan Mortgage Corp. 5.57% Due 01/05/96...... 2,297,865
200,000 Federal Home Loan Mortgage Corp. 5.60% Due 01/08/96...... 199,720
200,000 Federal Home Loan Mortgage Corp. 5.60% Due 01/16/96...... 199,471
200,000 Federal Home Loan Mortgage Corp. 5.65% Due 01/16/96...... 199,466
900,000 Federal Home Loan Mortgage Corp. 5.64% Due 01/16/96...... 897,603
3,500,000 Federal Home Loan Mortgage Corp. 5.65% Due 01/16/96...... 3,490,662
300,000 Federal Home Loan Mortgage Corp. 5.55% Due 01/16/96...... 299,214
3,900,000 Federal Home Loan Mortgage Corp. 5.54% Due 02/20/96...... 3,868,791
200,000 Federal Home Loan Mortgage Corp. 5.67% Due 01/22/96...... 199,276
1,500,000 Federal Home Loan Mortgage Corp. 5.65% Due 01/22/96...... 1,494,585
500,000 Federal Home Loan Mortgage Corp. 5.45% Due 01/22/96...... 498,259
500,000 Federal Home Loan Mortgage Corp. 5.55% Due 01/24/96...... 498,073
2,100,000 Federal Home Loan Mortgage Corp. 5.53% Due 02/26/96...... 2,081,290
------------
Total Short-term Obligations (cost $20,313,288).......... 20,313,288 23.62%
------------ -------
U.S. GOVERNMENT SECURITIES
5,000,000 U.S. Treasury Note 5.125% Due 3/31/96.................... 4,998,430
7,000,000 U.S. Treasury Note 7.75% Due 12/31/99(a)................. 7,599,375
5,500,000 U.S. Treasury Note 8.875% Due 05/15/00................... 6,245,938
</TABLE>
F-40
<PAGE> 135
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ----------- ----------
<C> <S> <C> <C>
U.S. GOVERNMENT SECURITIES--(CONTINUED)
$6,000,000 U.S. Treasury Note 8.50% Due 11/15/00.................... $6,796,865
2,000,000 U.S. Treasury Note 5.625% Due 11/30/00(a)................ 2,020,000
------------
Total U.S. Government Securities (cost $29,473,700)...... 27,660,608 32.17%
------------ -------
U.S. GOVERNMENT AGENCY
2,000,000 Student Loan Mortgage Association 6.52% Due 09/26/00..... 2,029,798
5,000,000 Federal Home Loan Bank 7.39% Due 08/22/01................ 5,402,410
3,000,000 Federal Home Loan Mortgage Corp 6.50% Due 02/15/21....... 3,036,837
5,300,000 Federal Home Loan Mortgage Corp 7.00% Due 06/15/22....... 5,492,597
1,627,397 Federal Home Loan Mortgage Corp 6.28% Due 08/25/23(f).... 1,620,170
2,000,000 Federal Home Loan Mortgage Corp 6.50% Due 02/15/24(f).... 2,005,238
2,000,000 Federal National Mortgage Assn 7.00% Due 01/25/03........ 2,059,658
3,000,000 Federal National Mortgage Assn 6.44% Due 06/21/05........ 3,120,687
12,481 Government National Mortgage Assn 7.50% Due 04/15/02..... 12,906
39,284 Government National Mortgage Assn 7.50% Due 06/15/07..... 40,622
14,393 Government National Mortgage Assn 7.50% Due 07/15/07..... 14,883
3,802,084 Government National Mortgage Assn 7.50% Due 08/15/07..... 3,931,592
1,672,796 Government National Mortgage Assn 7.50% Due 09/15/07..... 1,729,775
240,134 Government National Mortgage Assn 6.50% Due 09/15/08..... 242,386
1,344,200 Government National Mortgage Assn 6.50% Due 10/15/08..... 1,356,802
2,100,134 Government National Mortgage Assn 6.50% Due 11/15/08..... 2,119,822
415,316 Government National Mortgage Assn 7.00% Due 11/15/08..... 419,210
2,500,000 Tennesee Valley Authority 6.375% Due 06/15/05............ 2,577,655
------------
Total U.S. Government Agency (cost $34,332,651).......... 37,213,048 43.27%
------------ -------
Total Securities (cost $94,192,491)...................... 95,259,796 110.77%
------------ -------
REPURCHASE AGREEMENT
82,780 Repurchase agreement with Morgan Stanley, dated 12/29/95
5.65%, proceeds at maturity $82,831, due 01/02/96
(Collateralized by US Treasury Note, 7.25%, Due
08/15/04, with a market value of $84,598) (cost
$82,793)............................................... 82,793 0.10%
------------ -------
Total Investments (cost $94,275,284)..................... $95,342,589 110.87%
Liabilities Less Other Assets............................ (9,350,975) (10.87)%
------------ -------
Net Assets............................................... $85,991,614 100.00%
============ =======
</TABLE>
F-41
<PAGE> 136
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ----------- ----------
<S> <C> <C>
REPURCHASE AGREEMENT--(CONTINUED)
The aggregate cost of securities for federal income tax purposes
at December $31, 1995 is $94,275,284.
The following amount is based on costs for federal income tax purposes:
Aggregate gross unrealized appreciation.................. $1,222,622
Aggregate gross unrealized depreciation.................. (155,317)
------------
Net unrealized appreciation.............................. $1,067,305
============
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(d) Collateral for securities on loan.
(f) This interest rate is reset on a monthly basis. The rate shown was in effect
as of December 31, 1995.
(g) This interest rate is reset on a daily basis. The rate shown was in effect
as of December 31, 1995.
See notes to financial statements.
F-42
<PAGE> 137
GOVERNMENT/CORPORATE BOND FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
BANK NOTES
$4,000,649 Republic New York Securities Corp, 6.15% Due
02/12/96(d)(g) (cost $4,000,638)..................... $ 4,000,649 1.19%
----------- ------
TIME DEPOSITS
9,853,197 First National Bank of Boston, Nassau, 4.81% Due
01/02/96(d)(g)....................................... 9,854,757
1,665,653 First Union Bank, Nassau, 5.8125% Due 01/02/96(d)...... 1,665,919
10,000,000 Fleet Bank, Rhode Island, Cayman, 5.8125% Due
01/31/96(d).......................................... 10,001,595
-----------
Total Time Deposits (cost $21,522,282)................. 21,522,271 6.40%
----------- ------
COMMERCIAL PAPER
4,000,000 American Express Credit Corp 5.45% Due 03/26/96........ 3,947,317
1,200,000 Associates Corp of North America 5.68% Due 01/10/96.... 1,197,917
1,700,000 Associates Corp of North America 5.71% Due 01/22/96.... 1,693,799
3,500,000 Avco Financial Services Canada 5.76% Due 01/05/96...... 3,496,640
2,000,000 Avco Financial Services Canada 5.60% Due 03/06/96...... 1,979,156
2,600,000 Avco Financial Services Canada 5.80% Due 01/12/96...... 2,594,554
3,000,000 Bank of New York 5.73% Due 01/19/96.................... 2,990,450
600,000 Bell South Telecom Inc 5.75% Due 01/09/96.............. 599,042
1,900,000 Chevron UK Inc 5.60% Due 03/25/96...................... 1,874,582
950,000 Colonial Pipeline Co 5.67% Due 02/16/96................ 942,818
300,000 Colonial Pipeline Co 5.62% Due 02/28/96................ 297,190
1,100,000 Commercial Credit Company 5.72% Due 01/17/96........... 1,096,854
1,100,000 Consolidation Coal Co 5.70% Due 01/12/96............... 1,097,736
1,300,000 Consolidation Coal Co 5.76% Due 01/04/96............... 1,298,960
1,800,000 Copley Financing Corp 5.78% Due 01/02/96............... 1,799,133
5,800,000 Dupont EI De Nemours & Co 5.67% Due 01/26/96........... 5,775,336
2,300,000 Enterprise Funding Corp 5.73% Due 01/26/96............. 2,290,116
2,000,000 Ford Motor Credit Corp 5.75% Due 01/18/96.............. 1,993,930
600,000 Ford Motor Credit Corp 5.77% Due 01/05/96.............. 599,423
3,500,000 General Electric Capital Corp 5.63% Due 02/14/96....... 3,474,821
1,050,000 General Motors 5.83% Due 01/26/96...................... 1,045,409
2,200,000 Goldman Sachs Group 5.75% Due 01/10/96................. 2,196,134
1,200,000 Goldman Sachs Group 5.58% Due 01/19/96................. 1,196,280
1,200,000 JHM Funding Inc 5.75% Due 01/12/96..................... 1,197,508
3,300,000 Merrill Lynch and Co Inc 5.73% Due 01/31/96............ 3,283,192
1,200,000 Cooperative Finance Corp 5.63% Due 02/27/96............ 1,188,928
2,100,000 Cooperative Finance Corp 5.50% Due 02/27/96............ 2,081,071
1,000,000 Norwest Corp 5.72% Due 01/27/96........................ 995,710
2,000,000 PHH Corp 5.68% Due 01/19/96............................ 1,993,689
400,000 PHH Corp 5.75% Due 01/23.96............................ 398,467
100,000 Prudential Funding Corp 5.78% Due 01/12/96............. 99,791
300,000 Prudential Funding Corp 5.82% Due 01/02/96............. 299,855
</TABLE>
F-43
<PAGE> 138
GOVERNMENT/CORPORATE BOND FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ----------- ----------
<C> <S> <C> <C>
COMMERCIAL PAPER--(CONTINUED)
$1,000,000 Royal Bank of Canada 5.70% Due 01/29/96................ $ 995,249
1,000,000 Seagram Joseph and Sons Inc 5.70% Due 01/18/96......... 996,991
300,000 Sears Roebuck Acceptance Corp 5.70% Due 01/16/96....... 299,193
900,000 Sears Roebuck Acceptance Corp 5.70% Due 02/02/96....... 895,155
1,000,000 Transamerica Commercial Finance--Canada 5.77%
Due 01/04/96......................................... 999,199
5,000,000 Xerox Credit Corp 5.67% Due 01/19/96................... 4,984,250
1,000,000 Xerox Credit Corp 5.65% Due 02/26/96................... 990,898
-----------
Total Commercial Paper (cost $67,176,743).............. 67,176,743 19.96%
----------- ------
SHORT TERM FLOATING RATE CORPORATE NOTE
142,000 Midwest Funding Corp, 5.83%, Due 07/01/22.............. 142,660
1,000,000 Olympic, 5.825%, Due 12/15/96.......................... 1,003,830
-----------
Total Short Term Floating Rate Corporate Note
(cost $1,146,490).................................... 1,146,490 0.34%
----------- ------
CORPORATE BONDS AND NOTES
AEROSPACE PRODUCTS
4,000,000 BF Goodrich 8.65% Due 04/15/25......................... 4,815,796
5,000,000 Boeing Company 8.625% Due 11/15/31..................... 6,404,210
-----------
Total Aerospace Products............................... 11,220,006 3.33%
----------- ------
BANKING
4,000,000 Bank Of New York 6.50% Due 12/01/03.................... 4,074,108
5,000,000 Chase Manhattan Co 8.00% Due 05/01/05.................. 5,241,120
5,000,000 Chase Manhattan Co 1995-1 6.00% Due 05/15/00(f)........ 4,997,995
5,000,000 International Bank Recon & Dev, 8.875% Due 03/01/26.... 6,593,765
6,000,000 Swiss Bank Corp--NY 7.50% Due 07/15/25................. 6,515,088
-----------
Total Banking.......................................... 27,422,076 8.15%
----------- ------
BEVERAGES
5,000,000 Seagrams (Joseph E.) & Sons 9.65% Due 08/15/18......... 6,742,045 2.00%
----------- ------
CIGARETTES
5,000,000 American Brands 9.125% Due 03/01/16.................... 5,245,220
5,000,000 RJR Nabisco Inc. 8.75% Due 04/15/04.................... 5,131,805
-----------
Total Cigarettes....................................... 10,377,025 3.08%
----------- ------
CONSUMER GOODS & SERVICES
5,200,000 Proctor & Gamble 9.36% Due 01/01/21.................... 6,815,744 2.03%
----------- ------
ELECTRICAL EQUIPMENT
5,000,000 Legrand 8.50% Due 02/15/25............................. 5,998,615 1.78%
----------- ------
</TABLE>
F-44
<PAGE> 139
GOVERNMENT/CORPORATE BOND FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ----------- ----------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
FINANCE
$5,000,000 Advanta Credit Card 6.12% Due 02/10/01(f).............. $ 5,019,695
7,040,000 Discover Card Master Trust 1994--2A, 6.05%
Due 10/16/04(e)...................................... 7,087,654
6,000,000 Dow Capital BV 9.20% Due 06/01/10...................... 7,318,182
5,000,000 General Electric Capital Corp 8.50% Due 07/24/08....... 5,978,205
6,000,000 Nationsbank Card Master Trust 6.45% Due 04/15/03(a).... 6,184,554
5,000,000 Paccar Financial Corp 5.52% Due 09/03/96............... 4,999,645
3,000,000 Standard Credit Card Master Trust 95-11, 6.00%
Due 11/15/00(e)...................................... 2,995,347
-----------
Total Finance.......................................... 39,583,282 11.76%
----------- ------
FOREIGN GOVERNMENT
5,000,000 Province of Quebec 7.50% Due 7/15/23................... 5,266,045 1.57%
----------- ------
HOTELS
5,000,000 Marriott International Inc 7.875% Due 4/15/05.......... 5,428,865 1.61%
----------- ------
INSURANCE
5,000,000 Prudential Insurance 8.10% Due 7/15/15................. 5,348,445 1.59%
----------- ------
MEDICAL & OTHER HEALTH SERVICE
5,000,000 Columbia Healthcare 7.50% Due 12/15/23................. 5,389,690 1.60%
----------- ------
MOTOR VEHICLES & EQUIPMENT
5,000,000 Ford Holdings 9.375% Due 03/01/20...................... 6,392,125
5,000,000 General Motors Acceptance Corp 8.40% Due 10/15/99...... 5,352,775
5,000,000 General Motors Acceptance Corp 8.80% Due 03/01/21...... 6,267,795
-----------
Total Motor Vehicles & Equipment....................... 18,012,695 5.35%
----------- ------
OIL & GAS
5,000,000 Atlantic Richfield 9.00% Due 05/01/31(a)............... 6,522,885
5,000,000 Occidental Petroleum 10.125% Due 09/15/09.............. 6,490,545
4,000,000 Texaco Capital 9.75 Due 03/15/20....................... 5,464,416
-----------
Total Oil & Gas........................................ 18,477,846 5.49%
----------- ------
PAPER & FOREST PRODUCTS
7,500,000 Westvaco 10.125% Due 06/01/19.......................... 8,842,485 2.63%
----------- ------
UTILITIES--ELECTRIC
3,000,000 Commonwealth Edison 7.00% Due 07/01/05................. 3,111,426
10,000,000 Commonwealth Edison 8.125% Due 01/15/07................ 10,316,470
5,000,000 Hydro-Quebec 8.50% Due 12/01/29........................ 5,864,445
5,000,000 Texas Utilities Electric 7.875% Due 04/01/24........... 5,378,405
-----------
Total Utilities--Electric.............................. 24,670,746 7.33%
----------- ------
Total Corporate Bonds and Notes (cost $184,336,220).... 199,595,610 59.30%
----------- ------
</TABLE>
F-45
<PAGE> 140
GOVERNMENT/CORPORATE BOND FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ----------- ------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
U.S. GOVERNMENT SECURITIES
$5,000,000 U.S. Treasury Note 5.625% Due 11/30/00(a).............. $ 5,050,000
10,000,000 U.S. Treasury Note 7.75% Due 12/31/99(a)............... 10,856,250
-----------
Total U.S. Government Securities (cost
$15,687,254)..................................... 15,906,250 4.73%
----------- ------
U.S. GOVERNMENT AGENCY
4,446,610 Federal Home Loan Mortgage Corp, 6.50% Due
09/15/07(f).......................................... 4,474,401
5,000,000 Federal Home Loan Mortgage Corp, 6.00%, Due 12/15/19... 4,948,045
4,882,190 Federal Home Loan Mortgage Corp, 6.28% Due
08/25/23(f).......................................... 4,860,509
6,345,486 Federal Home Loan Mortgage Corp, 6.50% Due
02/15/24(f).......................................... 6,362,105
2,167,448 Federal National Mortgage Association, Strip P/O
Due 12/25/18......................................... 2,137,189
2,773,885 Federal National Mortgage Association, Strip P/O
Due 08/25/23......................................... 2,661,014
2,697,297 Federal National Mortgage Association, 7.00%,
Due 12/01/25......................................... 2,718,364
986,958 Federal National Mortgage Association, 7.00%,
Due 10/01/25......................................... 994,668
1,945,480 Federal National Mortgage Association, 7.00%,
Due 08/01/25......................................... 1,960,678
201,418 Federal National Mortgage Association, 7.00%,
Due 09/01/25......................................... 202,992
3,968,852 Federal National Mortgage Association, 7.00%,
Due 11/01/25......................................... 3,999,857
17,187 Government National Mortgage Association, 8.00%,
Due 01/01/24......................................... 17,897
23,569 Government National Mortgage Association, 8.00%,
Due 03/01/24......................................... 24,541
445,051 Government National Mortgage Association, 8.00%,
Due 04/01/24......................................... 463,409
1,517,910 Government National Mortgage Association, 8.00%,
Due 06/01/24......................................... 1,580,523
398,824 Government National Mortgage Association, 8.00%,
Due 07/01/24......................................... 415,276
579,120 Government National Mortgage Association, 8.00%,
Due 08/01/24......................................... 603,009
557,429 Government National Mortgage Association, 8.00%,
Due 09/01/24......................................... 580,423
</TABLE>
F-46
<PAGE> 141
GOVERNMENT/CORPORATE BOND FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ----------- ------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
U.S. GOVERNMENT AGENCY--(CONTINUED)
$ 399,700 Government National Mortgage Association, 8.00%,
Due 10/01/24......................................... $ 416,188
403,353 Government National Mortgage Association, 8.00%,
Due 02/01/25......................................... 419,991
557,857 Government National Mortgage Association, 8.00%,
Due 09/01/25......................................... 580,869
3,000,000 Student Loan Mortgage Association 6.52% Due 09/26/00... 3,044,697
5,000,000 Student Loan Mortgage Association 4.40% Due
05/25/04(a)(f)....................................... 5,001,560
-----------
Total U.S. Government Agency (cost $47,935,707).... 48,468,205 14.40%
-----------
Total Securities (cost $341,805,334)............... 357,816,218 106.32%
----------- ------
REPURCHASE AGREEMENT
86,902 Repurchase Agreement with Morgan Stanley, dated
12/29/95 5.65%, proceeds at maturity $86,956, due
01/02/96 (Collateralized by US Treasury Note, 7.25%,
due 08/15/04, with a market value of $88,811) (cost
$86,916)............................................. 86,916 0.03%
----------- ------
Total Investments (cost $341,892,250).............. $357,903,134 106.35%
Liabilities Less Other Assets...................... (21,363,724) (6.35)%
----------- ------
Net Assets......................................... $336,539,410 100.00%
=========== ======
The aggregate cost of securities for federal income tax purposes
at December 31, 1995 is $341,892,250.
The following amount is based on costs for federal income tax purposes:
Gross unrealized appreciation.......................... $16,047,094
Gross unrealized depreciation.......................... (36,210)
-----------
Net unrealized appreciation............................ $16,010,884
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(d) Collateral for securities on loan.
(e) Zero coupon bond.
(f) This interest rate is reset on a monthly basis. The rate shown was in effect
as of December 31, 1995.
(g) This interest rate is reset on a daily basis. The rate shown was in effect
as of December 31, 1995.
See notes to financial statements.
F-47
<PAGE> 142
BALANCED FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
BANK NOTES
$10,000,000 Republic New York Securities Corp, 6.15%
Due 2/12/96(d)(g) (cost $10,001,591)................... $10,001,619 5.99%
----------- ------
TIME DEPOSITS
7,422,703 First National Bank of Boston, Nassau, 4.81%
Due 01/02/96(d)(g)..................................... 7,423,856
2,954,047 First Union Bank, Nassau, 5.8125% Due 01/02/96(d)...... 2,954,517
381,100 Fleet Bank, Massachusetts, Nassau, 5.84375%
Due 01/05/96(d)........................................ 381,160
10,500,000 Fleet Bank, Rhode Island, Cayman, 5.8125%
Due 01/31/96(d)........................................ 10,501,670
4,000,000 Harris Bank and Trust, Nassau, 5.8125% Due
01/19/96(d)............................................ 4,000,636
-----------
Total Time Deposits (cost $25,261,867)............. 25,261,839 15.12%
----------- ------
COMMERCIAL PAPER
2,000,000 Dupont EI De Nemours, 5.69% Due 01/16/96............... 1,994,626
1,500,000 Ford Motor Credit, 5.52% Due 03/01/96.................. 1,485,740
10,000,000 Lehman Brothers Holdings, Inc., 4.90% Due
04/25/96(d)(g)......................................... 10,001,591
-----------
Total Commercial Paper (cost $13,481,957).......... 13,481,957 8.07%
----------- ------
U.S. GOVERNMENT SECURITIES
6,950,000 U.S. Treasury Note 6.875% Due 03/31/97(a).............. 7,089,000
7,900,000 U.S. Treasury Note 6.375% Due 07/15/99................. 8,164,144
5,600,000 U.S. Treasury Note 8.50% Due 02/15/00.................. 6,244,000
4,525,000 U.S. Treasury Note 7.50% Due 11/15/01.................. 4,987,392
9,850,000 U.S. Treasury Note 5.75% Due 08/15/03(a)............... 9,970,032
16,550,000 U.S. Treasury Note 7.875% Due 11/15/04(a).............. 19,166,969
6,200,000 U.S. Treasury Note 6.50% Due 05/15/05(a)............... 6,606,875
-----------
Total U.S. Government Securities (cost
$58,765,441)..................................... 62,228,412 37.26%
----------- ------
<CAPTION>
SHARES
------
<C> <S> <C> <C>
COMMON STOCK
AIRCRAFT & PARTS
20,100 McDonnell Douglas...................................... 1,849,200 1.11%
----------- ------
BROADCASTING
22,900 Capital Cities/ABC Inc................................. 2,825,288 1.69%
----------- ------
BUSINESS MACHINES
30,100 International Business Machines........................ 2,761,675
43,300 Silicon Graphics(c).................................... 1,190,750
34,600 Texas Instruments...................................... 1,790,550
-----------
Total Business Machines............................ 5,742,975 3.44%
----------- ------
CHEMICALS & ALLIED PRODUCTS
22,750 Hoechst AG ADR......................................... 3,091,554 1.85%
----------- ------
</TABLE>
F-48
<PAGE> 143
BALANCED FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
COMMERCIAL BANKING
39,200 Bankamerica Corp....................................... $ 2,538,200
37,700 Citicorp............................................... 2,535,325
39,300 Key Corp (new)(a)...................................... 1,424,625
-----------
Total Commercial Banking........................... 6,498,150 3.89 %
----------- ------
COMMUNICATIONS
27,500 I T T Corp. (new)(c)................................... 1,457,500
23,350 Motorola Inc........................................... 1,330,950
38,000 Tele Danmark ADR....................................... 1,049,750
-----------
Total Communications............................... 3,838,200 2.30%
----------- ------
DRUGS
19,550 American Home Products Corp............................ 1,896,350
71,100 Ciba-Geigy Corp ADR(a)................................. 3,135,894
-----------
Total Drugs........................................ 5,032,244 3.01%
----------- ------
FOOD AND BEVERAGE
29,350 Pepsico Inc. .......................................... 1,639,931
35,800 Philip Morris Companies Inc............................ 3,239,900
91,300 Sara Lee Corp.......................................... 2,910,188
-----------
Total Food and Beverage............................ 7,790,019 4.67%
----------- ------
HOTELS
39,700 Carnival Corp. Cl A(a)................................. 967,688
36,600 Circus Circus Enterprises(c)........................... 1,020,225
-----------
Total Hotels....................................... 1,987,913 1.19%
----------- ------
INDUSTRIAL CHEMICALS
23,150 Dow Chemical Company................................... 1,629,181
38,150 E. I. Dupont de Nemours & Co........................... 2,665,731
-----------
Total Industrial Chemicals......................... 4,294,912 2.57%
----------- ------
INDUSTRIAL MACHINERY
43,350 Deere & Co............................................. 1,528,088 0.91%
----------- ------
INSURANCE
66,350 Allstate Corp.......................................... 2,728,644
26,800 Transamerica Corp...................................... 1,953,050
48,500 Travelers Inc. ........................................ 3,049,438
-----------
Total Insurance.................................... 7,731,132 4.63%
----------- ------
MANUFACTURING
23,600 American Standard Companies(c)......................... 660,800
94,500 Philips Electronics N.V. ADR........................... 3,390,188
-----------
Total Manufacturing................................ 4,050,988 2.43%
----------- ------
</TABLE>
F-49
<PAGE> 144
BALANCED FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
MEDICAL & OTHER HEALTH SERVICES
63,600 Abbott Laboratories.................................... $ 2,655,300
49,300 Tenet Healthcare Corporation........................... 1,022,975
-----------
Total Medical & Other Health Service............... 3,678,275 2.20 %
----------- ------
MISCELLANEOUS
98,300 Canadian Pacific(a).................................... 1,781,688
24,700 ITT Industries Inc..................................... 592,800
24,700 Unilever ADR(a)........................................ 3,476,525
-----------
Total Miscellaneous................................ 5,851,013 3.50 %
----------- ------
OIL & GAS
29,850 Amoco Corp............................................. 2,145,468
21,950 Atlantic Richfield Co. ................................ 2,430,962
19,850 Mobil Corp............................................. 2,223,200
-----------
Total Oil & Gas.................................... 6,799,630 4.07 %
----------- ------
PAPER & FOREST PRODUCTS
76,400 International Paper Co. ............................... 2,893,650
51,800 Weyerhaeuser Company................................... 2,240,350
-----------
Total Paper & Forest Products...................... 5,134,000 3.07 %
----------- ------
PERSONAL COMPUTERS
34,300 Compaq Computers(c).................................... 1,646,400 0.99 %
----------- ------
PRINTING & PUBLISHING
46,450 Dun & Bradstreet Corp. ................................ 3,007,637
160,100 The News Corporation ADR(a)............................ 3,081,925
74,600 Time Warner Inc. ...................................... 2,825,475
-----------
Total Printing & Publishing........................ 8,915,037 5.34 %
----------- ------
RAILROAD
31,450 Burlington Northern Santa Fe(a)........................ 2,453,100
33,950 Union Pacific Corp(a).................................. 2,240,700
-----------
Total Railroad..................................... 4,693,800 2.81 %
----------- ------
RETAIL SALES
15,600 Circuit City Stores Inc. .............................. 430,950
61,100 Federated Department Stores(a)(c)...................... 1,680,250
-----------
Total Retail Sales................................. 2,111,200 1.26 %
----------- ------
TOYS
28,268 Mattel................................................. 869,240 0.52 %
----------- ------
</TABLE>
F-50
<PAGE> 145
BALANCED FUND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
WASTE MANAGEMENT
89,300 WMX Technologies....................................... $ 2,667,837 1.60 %
----------- ------
Total Common Stock (cost $87,770,805).............. 98,627,095 59.05 %
----------- ------
PREFERRED STOCK
CIGARETTES
451,400 RJR Nabisco Holdings CV, 9.25%, Series C (cost
$2,876,812)............................................ 2,877,675 1.72%
----------- ------
Total Securities (cost $198,158,473)............... 212,478,597 127.21%
----------- ------
<CAPTION>
PRINCIPAL
- ----------
<C> <S> <C> <C>
REPURCHASE AGREEMENT
$5,701,274 Repurchase Agreement with Morgan Stanley dated 12/29/95
5.65%, proceeds at maturity $5,704,853, due 01/02/96
(Collateralized by US Treasury Note, 7.25%, due
08/15/04 with a market value of $5,826,506) (cost
$5,702,169)............................................ $ 5,702,169 3.41%
----------- ----------
Total Investments (cost $203,860,642).............. $218,180,766 130.62%
Liabilities Less Other Assets...................... (51,147,811) (30.62)%
----------- ----------
Net Assets......................................... $167,032,955 100.00%
=========== ========
The aggregate cost of securities for federal income tax purposes
at December 31, 1995 is $203,942,187.
The following amount is based on costs for federal income tax purposes:
Gross unrealized appreciation.......................... $15,170,091
Gross unrealized depreciation.......................... (931,512)
-----------
Net unrealized appreciation............................ $14,238,579
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(c) Non-income producing security.
(d) Collateral for securities on loan.
(g) This interest rate resets on a daily basis. The rate shown was in effect as
of December 31, 1995.
F-51
<PAGE> 146
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
TIME DEPOSITS
$29,950,949 First National Bank of Boston, Nassau, 4.81%
Due 01/02/96(d)(g)..................................... $29,955,665
2,668,951 First Union Bank, Nassau, 5.8125%, Due 01/02/96(d)..... 2,669,371
3,270,100 Fleet Bank, Massachusetts, Nassau, 5.84375%,
Due 01/05/96(d)........................................ 3,270,615
-----------
Total Time Deposits (cost $35,895,651).............. 35,895,651 4.70%
----------- ------
COMMERCIAL PAPER
1,000,000 Avco Financial Services Canada, 5.76%, Due 01/05/96.... 999,040
2,000,000 Avco Financial Services Canada, 5.83%, Due 01/19/96.... 1,993,522
1,600,000 Bank One Corp, 5.72%, Due 01/12/96..................... 1,596,695
6,000,000 Bank of New York, 5.73%, Due 01/19/96.................. 5,980,900
100,000 Bank of New York, 5.85%, Due 01/19/96.................. 99,675
2,000,000 Barclay's Bank PLC, 5.75%, Due 01/17/96................ 2,012,778
1,500,000 Barclay's Bank PLC, 5.77%, Due 01/12/96................ 1,496,875
1,200,000 British Columbia (Province), 5.72%, Due 01/12/96....... 1,197,522
2,400,000 British Columbia (Province), 5.67%, Due 02/01/96....... 2,387,526
3,000,000 Canadian Imperial Bank, 5.60%, Due 02/20/96............ 2,975,733
800,000 Chevron UK Inc, 5.60%, Due 03/25/96.................... 789,298
2,600,000 Chevron Corp, 5.75%, Due 01/12/96...................... 2,594,601
1,750,000 Colonial Pipeline Co, 5.62%, Due 02/28/96.............. 1,733,608
5,200,000 Commercial Credit Company, 5.72%, Due 01/17/96......... 5,185,128
1,000,000 Consolidation Coal Co, 5.70%, Due 01/12/96............. 997,941
7,300,000 Copley Financing Corporation, 5.82%, Due 01/19/96...... 7,276,397
700,000 Copley Financing Corporation, 5.75%, Due 01/24/96...... 697,205
1,482,000 Copley Financing Corporation, 5.78%, Due 01/02/96...... 1,481,286
2,300,000 Dupont EI De Nemours & Co, 5.67%, Due 01/26/96......... 2,290,219
2,700,000 Enterprise Funding Corp, 5.78%, Due 01/12/96........... 2,694,365
1,000,000 Enterprise Funding Corp, 5.73%, Due 01/26/96........... 995,702
2,000,000 Ford Motor Credit Corp, 5.75%, Due 01/18/96............ 1,993,931
600,000 Ford Motor Credit Corp, 5.75%, Due 01/18/96............ 598,179
1,600,000 Ford Motor Credit Corp, 5.92%, Due 01/02/96............ 1,599,210
1,300,000 Ford Motor Credit Corp, 5.77%, Due 01/05/96............ 1,298,750
200,000 General Motors Corp, 5.83%, Due 01/26/96............... 199,125
1,200,000 Goldman Sachs Group, 5.75%, Due 01/10/96............... 1,197,891
2,500,000 Goldman Sachs Group, 5.68%, Due 01/12/96............... 2,494,871
1,000,000 Household Finance Corp--Canada, 5.77%, Due 01/26/96.... 995,672
1,000,000 Household Finance Corp--Canada, 5.75%, Due 01/03/96.... 999,361
1,000,000 JHM Funding Inc, 5.75%, Due 01/11/96................... 998,083
1,400,000 JHM Funding Inc, 5.75%, Due 01/12/96................... 1,397,093
2,000,000 JHM Funding Inc, 5.73%, Due 01/23/96................... 1,992,360
5,000,000 Lehman Brothers Holdings, Inc, 4.90%, Due 04/25/96
(d)(g)................................................. 5,000,787
</TABLE>
F-52
<PAGE> 147
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ----------- ----------
<C> <S> <C> <C>
COMMERCIAL PAPER--(CONTINUED)
$1,000,000 Merrill Lynch and Co Inc, 5.73%, Due 01/31/96.......... $ 994,907
4,200,000 JP Morgan & Co, 5.77%, Due 01/08/96.................... 4,193,942
2,600,000 PHH Corp, 5.68%, Due 01/19/96.......................... 2,591,795
720,000 Paccar Financial Group, 5.63%, Due 02/27/96............ 713,357
800,000 Prudential Funding Corp, 5.78%, Due 01/12/96........... 798,330
1,900,000 Prudential Funding Corp, 5.82%, Due 01/02/96........... 1,899,079
2,700,000 Prudential Insurance Corp, 5.75%, Due 01/16/96......... 2,692,669
5,000,000 Royal Bank of Canada, 5.70%, Due 01/29/96.............. 4,976,250
1,600,000 Sears Roebuck Acceptance Corp, 5.70%, Due 02/02/96..... 1,591,387
5,300,000 Toronto Dominion Bank, 5.68%, Due 01/08/96............. 5,292,474
995,000 Toronto Dominion Bank, 5.68%, Due 01/08/96............. 993,587
3,900,000 Transamerica Corp, 5.75%, Due 01/12/96................. 3,891,902
3,500,000 Transamerica Finance Group Inc, 5.71%, Due 01/25/96.... 3,485,567
5,000,000 Xerox Corp, 5.67%, Due 01/19/96........................ 4,984,251
-----------
Total Commercial Paper (cost $107,340,826).......... 107,340,826 14.04%
----------- ------
BANKERS ACCEPTANCES
2,000,000 Republic National Bank New York, 5.53%
Due 02/01/96 (cost $1,989,861)......................... 1,989,861 0.26%
----------- ------
CONVERTIBLE BOND
COMMUNICATIONS EQUIPMENT
2,000,000 Motorola Inc., Lyon, Zero Coupon,
Due 09/07/09(e) (cost $1,710,000)...................... 2,100,000 0.27%
----------- ------
<CAPTION>
SHARES
<C> <S> <C> <C>
COMMON STOCK
AIRCRAFT & PARTS
185,000 General Electric....................................... 13,320,000
120,000 Northrop Grumman Corp. ................................ 7,680,000
100,000 Textron Inc............................................ 6,750,000
90,000 United Technologies.................................... 8,538,750
-----------
Total Aircraft & Parts.............................. 36,288,750 4.75%
----------- ------
AUTOMOBILE MAKER
85,000 Chrysler Corp.......................................... 4,706,875 0.62%
----------- ------
CHEMICALS & ALLIED PRODUCTS
70,000 Monsanto Company....................................... 8,575,000
30,000 Olin Corp.............................................. 2,227,500
-----------
Total Chemicals & Allied Products................... 10,802,500 1.41%
----------- ------
</TABLE>
F-53
<PAGE> 148
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
CIGARETTES
110,000 American Brands Inc.................................... $ 4,908,750 0.64%
----------- ------
COMMERCIAL BANKING
120,000 Banc One Corp.......................................... 4,530,000
100,000 BankAmerica Corp....................................... 6,475,000
140,000 Bank of New York(a).................................... 6,825,000
70,000 Chase Manhattan Corp................................... 4,243,750
70,000 Chemical Banking Corp.................................. 4,112,500
55,000 First Interstate Bancorp............................... 7,507,500
80,000 First Union Corp....................................... 4,450,000
50,000 NationsBank Corporation................................ 3,481,250
-----------
Total Commercial Banking............................ 41,625,000 5.45%
----------- ------
COMMUNICATIONS EQUIPMENT
170,000 GTE Corp............................................... 7,480,000 0.98%
----------- ------
CONSTRUCTION
80,000 Halliburton Company.................................... 4,050,000 0.53%
----------- ------
COSMETICS
84,000 Avon Products Inc...................................... 6,331,500 0.83%
----------- ------
DRUGS
90,000 American Home Products................................. 8,730,000
80,000 Bristol-Myers Squibb Company........................... 6,870,000
140,000 Grace W.R. & Company................................... 8,277,500
150,000 Merck & Company Inc.................................... 9,862,500
150,000 Pfizer Inc............................................. 9,450,000
180,000 Schering-Plough Corp................................... 9,855,000
140,000 Smithkline Beecham ADR(a).............................. 7,770,000
150,000 Pharmacia & Upjohn Inc................................. 5,812,500
80,000 Warner Lambert Company................................. 7,770,000
-----------
Total Drugs......................................... 74,397,500 9.73%
----------- ------
ELECTRICAL EQUIPMENT
60,000 AMP Inc................................................ 2,302,500
110,000 Emerson Electric....................................... 8,992,500
150,000 General Signal......................................... 4,856,250
20,000 Hubbell Inc Cl B....................................... 1,315,000
100,000 Thomas & Betts Corp.(a)................................ 7,375,000
-----------
Total Electrical Equipment.......................... 24,841,250 3.25%
----------- ------
FINANCE
100,000 GATX Corporation....................................... 4,862,500 0.64%
----------- ------
</TABLE>
F-54
<PAGE> 149
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
FINANCIAL SERVICES
160,000 American Express Company............................... $ 6,620,000 0.87%
----------- ------
FOOD AND BEVERAGE
120,000 Philip Morris Companies Inc............................ 10,860,000
15,000 General Mills Co....................................... 866,250
-----------
Total Food and Beverage............................. 11,726,250 1.53%
----------- ------
INDUSTRIAL CHEMICALS
30,000 Dow Chemical Company................................... 2,111,250
100,000 DuPont E.I. de Nemours & Co............................ 6,987,500
100,000 Witco Corporation...................................... 2,925,000
-----------
Total Industrial Chemicals.......................... 12,023,750 1.57%
----------- ------
INDUSTRIAL MACHINERY
140,000 Carpenter Technology................................... 5,757,500
225,000 Deere & Co............................................. 7,931,250
160,000 Goulds Pumps........................................... 4,000,000
110,000 Harsco Corp............................................ 6,393,750
-----------
Total Industrial Machinery.......................... 24,082,500 3.15%
----------- ------
INSURANCE
130,000 Aetna Life & Casualty.................................. 9,002,500
110,000 Allstate Corp. ........................................ 4,523,750
90,000 CIGNA Corp. ........................................... 9,292,500
150,000 Lincoln National Corp. ................................ 8,062,500
-----------
Total Insurance..................................... 30,881,250 4.04%
----------- ------
MACHINERY AND INDUSTRIAL EQUIPMENT
120,000 Cooper Industries Inc. ................................ 4,410,000 0.58%
----------- ------
MEDICAL & OTHER HEALTH SERVICE
160,000 Baxter International, Inc. ............................ 6,700,000
130,000 U.S. Healthcare Inc. .................................. 6,045,000
Total Medical & Other Health Service................ 12,745,000 1.67%
----------- ------
METAL MINING
180,000 Freeport McMoran Copper & Gold(a)...................... 5,040,000 0.66%
----------- ------
MOTOR VEHICLES & EQUIPMENT
270,000 Dana Corp ............................................. 7,897,500
200,000 Ford Motor............................................. 5,800,000
-----------
Total Motor Vehicles & Equipment.................... 13,697,500 1.79%
----------- ------
</TABLE>
F-55
<PAGE> 150
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
OFFICE & BUSINESS EQUIPMENT
100,000 Harris Corp Inc. ...................................... $ 5,462,500
120,000 Honeywell Inc. ........................................ 5,835,000
100,000 Pitney Bowes Inc. ..................................... 4,700,000
85,000 Xerox Corp............................................. 11,645,000
-----------
Total Office & Business Equipment................... 27,642,500 3.62%
----------- ------
OIL & GAS
80,000 Amoco Corp. ........................................... 5,750,000
50,000 Atlantic Richfield..................................... 5,537,500
50,000 British Petroleum PLC ADR.............................. 5,106,281
130,000 Chevron Corp. ......................................... 6,825,000
90,000 Exxon Corp............................................. 7,211,250
100,000 Occidental Petroleum................................... 2,137,500
60,000 Royal Dutch Petroleum--NY Reg ADR(a)................... 8,467,500
150,000 Tenneco Inc. .......................................... 7,443,750
85,000 Texaco Inc. ........................................... 6,672,500
-----------
Total Oil & Gas..................................... 55,151,281 7.22%
----------- ------
OIL AND GAS FIELD SERVICES
140,000 Dresser Industries Inc. ............................... 3,412,500
100,000 McDermott International Inc. .......................... 2,200,000
70,000 Mobil Corp............................................. 7,840,000
190,000 Williams Companies Inc. ............................... 8,336,250
-----------
Total Oil And Gas Field Services.................... 21,788,750 2.85%
----------- ------
PAPER & FOREST PRODUCTS
130,000 Federal Paper Board Inc. .............................. 6,743,750
110,000 Minnesota Mining & Manufacturing....................... 7,287,500
80,000 Union Camp Corp.(a).................................... 3,810,000
140,000 Weyerhaeuser Company................................... 6,055,000
-----------
Total Paper & Forrest Products...................... 23,896,250 3.13%
----------- ------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES
130,000 Eastman Kodak Company.................................. 8,710,000 1.14%
----------- ------
PRINTING & PUBLISHING
120,000 Dun & Bradstreet Corp.................................. 7,770,000
120,000 McGraw-Hill Inc. ...................................... 10,455,000
125,000 Readers Digest Association Inc. ....................... 6,406,250
-----------
Total Printing & Publishing......................... 24,631,250 3.22%
----------- ------
</TABLE>
F-56
<PAGE> 151
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
RAILROADS
85,000 Conrail Inc. .......................................... $ 5,950,000
110,000 Norfolk Southern Corp. ................................ 8,731,250
-----------
Total Railroads...................................... 14,681,250 1.92 %
----------- ------
REAL ESTATE/INVESTMENT TRUSTS
59,000 Avalon Properties Inc. ................................ 1,268,500
70,000 Bay Apartment Communities.............................. 1,697,500
65,000 Developers Diversified Realty Corp..................... 1,950,000
60,000 Equity Residential Properties.......................... 1,837,500
64,000 Felcor Suite Hotels Inc. .............................. 1,776,000
193,300 Health Care Property Invest Inc. ...................... 6,789,663
80,000 Healthcare Realty Trust................................ 1,840,000
100,000 Irvine Apartment Communities........................... 1,925,000
40,000 Redwood Trust Co....................................... 730,000
-----------
Total Real Estate/ Investment Trusts................. 19,814,163 2.59%
----------- ------
REFINING OF NONFERROUS MATERIALS
133,100 Timken Company......................................... 5,091,075 0.67%
----------- ------
RESIDENTIAL MORTGAGES
100,000 Federal National Mortgage Assoc. ...................... 12,412,500 1.62%
----------- ------
RETAIL SALES
60,000 J.C. Penney & Co. ..................................... 2,857,500
50,000 May Dept Stores........................................ 2,112,500
50,000 Sears Roebuck.......................................... 1,950,000
-----------
Total Retail Sales................................... 6,920,000 0.91%
----------- ------
SAVINGS & LOAN HOLDING COMPANIES
290,000 Great Western Financial................................ 7,395,000
270,000 Ahmanson H F & Co...................................... 7,155,000
-----------
Total Savings and Loan Holding Cos................... 14,550,000 1.90%
----------- ------
TELECOMMUNICATIONS
101,000 Ameritech Corp......................................... 5,959,000
100,000 Bell Atlantic Corp.(a)................................. 6,687,500
180,000 Bellsouth Corp......................................... 7,830,000
100,000 NYNEX Corp............................................. 5,400,000
170,000 Pacific Telesis Group.................................. 5,716,250
120,000 SBC Communications..................................... 6,900,000
150,000 Sprint Corp............................................ 5,981,250
180,000 US West Inc............................................ 6,435,000
150,000 US West Media Group(c)................................. 2,850,000
-----------
Total Telecommunications............................. 53,759,000 7.03%
----------- ------
</TABLE>
F-57
<PAGE> 152
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
--------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
UTILITIES--ELECTRIC
125,000 American Electric Power Inc............................ $ 5,062,500
150,000 Carolina Power & Light Co.............................. 5,175,000
120,000 FPL Group Inc.......................................... 5,565,000
190,000 Southern Company....................................... 4,678,750
-----------
Total Utilities--Electric............................ 20,481,250 2.68 %
----------- ------
WHOLESALE TRADE
320,000 Ogden Corp............................................. 6,840,000 0.89 %
----------- ------
Total Common Stock (cost $513,200,242)............... 657,890,144 86.08 %
----------- ------
Total Securities (cost $660,136,580)................. 805,216,482 105.35 %
----------- ------
<CAPTION>
PRINCIPAL
<C> <S> <C> <C>
REPURCHASE AGREEMENT
$ 52,732 Repurchase agreement with Morgan Stanley, dated
12/29/95 5.65%, proceeds at maturity $52,765, Due
01/02/96 (Collateralized by US Treasury Note, 7.25%,
due 08/15/04 with a market value of $53,891) (cost
$52,740)............................................... $ 52,740 0.01%
----------- ------
Total Investments (cost $660,189,320)................ $805,269,222 105.36%
Liabilities Less Other Assets........................ (40,966,692) (5.36)%
----------- ------
Net Assets........................................... $764,302,530 100.00%
=========== ======
The aggregate cost of securities for federal income tax purposes
at December 31, 1995 is $660,285,984.
The following amount is based on costs for federal income tax purposes:
Gross unrealized appreciation.......................... $169,674,387
Gross unrealized depreciation.......................... (24,691,149)
-----------
Net unrealized appreciation............................ $144,983,238
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(c) Non-income producing security.
(d) Collateral for securities on loan.
(e) Zero coupon bond.
(g) This interest rate resets on a daily basis. The rate shown was in effect as
of December 31, 1995.
F-58
<PAGE> 153
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
TIME DEPOSITS
$6,420,627 First National Bank of Boston, Nassau, 4.81%
Due 01/02/96(d)(g)..................................... $ 6,421,634
549,964 First Union Bank, Nassau, 5.8125% Due 01/02/96(d)...... 550,050
1,455,200 Fleet Bank, Massachusetts, Nassau, 5.84375%
Due 01/05/96(d)........................................ 1,455,429
-----------
Total Time Deposits(cost $8,427,113)................ 8,427,113 6.75%
----------- ------
<CAPTION>
SHARES
<C> <S> <C> <C>
COMMON STOCK
AIRCRAFT & PARTS
19,000 Allied Signal Inc...................................... 902,500
23,200 Boeing Co.............................................. 1,818,300
16,700 Lockheed Martin........................................ 1,319,300
13,000 Sundstrand Corp........................................ 914,875
-----------
Total Aircraft & Parts.............................. 4,954,975 3.97%
----------- ------
ATHLETIC FOOTWEAR
19,300 Nike Inc............................................... 1,343,763 1.08%
----------- ------
AUTOMOTIVE PRODUCTS
29,000 General Motors Corp Cl E(a)............................ 1,508,000
24,700 General Motors Corp Cl H............................... 1,213,388
-----------
Total Automotive Products........................... 2,721,388 2.18%
----------- ------
BEVERAGES
16,600 Anheuser Busch......................................... 1,110,125 0.89%
----------- ------
BROADCASTING
9,000 Capital Cities/ABC Inc................................. 1,110,375
27,700 Viacom Inc Cl B(c)..................................... 1,312,288
-----------
Total Broadcasting.................................. 2,422,663 1.94%
----------- ------
CABLE & OTHER PAY TV SERVICES
30,500 Liberty Media Group Cl A............................... 819,687 0.66%
----------- ------
CIGARETTES
27,400 Philip Morris Co Inc................................... 2,479,700 1.99%
----------- ------
COMMERCIAL BANKING
22,500 Bank of Boston......................................... 1,040,625
26,300 Bankamerica Corp....................................... 1,702,925
2,400 Barnett Banks Inc...................................... 141,600
19,100 Chemical Banking Corp.................................. 1,122,125
26,300 Citicorp............................................... 1,768,675
20,600 Nationsbank Corp....................................... 1,434,275
-----------
Total Commercial Banking............................ 7,210,225 5.78%
----------- ------
</TABLE>
F-59
<PAGE> 154
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
COMMUNICATION SYSTEMS
25,700 3 Com Corp............................................. $ 1,198,263
5,200 US Robotics Corp....................................... 456,300
-----------
Total Communication Systems......................... 1,654,563 1.32%
----------- ------
COMPUTER & OFFICE EQUIPMENT
12,300 Alco Standard Corp..................................... 561,187
26,600 CUC International Inc.................................. 907,725
13,900 International Business Machines........................ 1,275,325
8,300 Xerox Corp............................................. 1,137,100
-----------
Total Computer & Office Equipment................... 3,881,337 3.11%
----------- ------
COMPUTER RELATED SERVICES
12,800 Ceridian Corp.......................................... 528,000
15,600 Cisco Systems Inc(c)................................... 1,164,150
32,500 Honeywell.............................................. 1,580,312
-----------
Total Computer Related Services..................... 3,272,462 2.62%
----------- ------
CONSTRUCTION
18,600 Fluor Corp............................................. 1,227,600
18,200 Halliburton Co......................................... 921,375
-----------
Total Construction.................................. 2,148,975 1.72%
----------- ------
CONSUMER GOODS & SERVICES
28,782 Kimberly-Clark Corp.................................... 2,381,710
21,500 Procter & Gamble Company............................... 1,784,500
-----------
Total Consumer Goods & Services..................... 4,166,210 3.34%
----------- ------
CUTLERY, HANDTOOLS, GENERAL HARDWARE
31,200 Black & Decker Corp.................................... 1,099,800 0.88%
----------- ------
DRUGS
27,200 Eli Lilly & Co......................................... 1,530,000
22,500 Merck & Co Inc......................................... 1,479,375
49,300 Pharmacia & Upjohn Inc................................. 1,910,375
31,000 Smithkline Beecham ADR(a).............................. 1,720,500
-----------
Total Drugs......................................... 6,640,250 5.32%
----------- ------
ELECTRICAL EQUIPMENT
13,800 Cabletron Systems Communications(a).................... 1,117,800
18,100 Emerson Electric....................................... 1,479,675
21,400 Hewlett Packard........................................ 1,792,250
20,500 Linear Technology Corp................................. 804,625
19,300 LSI Logic(a)(c)........................................ 632,075
-----------
Total Electrical Equipment.......................... 5,826,425 4.67%
----------- ------
</TABLE>
F-60
<PAGE> 155
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
FINANCE--SERVICES
21,400 First Data Corp........................................ $ 1,431,125
16,200 Franklin Resources Inc................................. 816,075
24,100 MBNA Corp.............................................. 888,687
19,200 Merrill Lynch.......................................... 979,200
-----------
Total Finance--Services............................. 4,115,087 3.30%
----------- ------
FOOD DISTRIBUTOR
7,700 IBP Inc................................................ 388,850
29,900 Nabisco Holdings Corp Cl A............................. 975,488
31,400 Pepsico Inc............................................ 1,754,475
-----------
Total Food Distributor.............................. 3,118,813 2.50%
----------- ------
HEALTH CARE PRODUCTS
21,700 Amgen Inc(c)........................................... 1,288,437
23,000 Johnson & Johnson...................................... 1,969,375
-----------
Total Health Care Products.......................... 3,257,812 2.61%
----------- ------
HOTELS
23,500 Marriott International inc............................. 898,875
33,400 Mirage Resorts Inc..................................... 1,152,300
-----------
Total Hotels........................................ 2,051,175 1.64%
----------- ------
INDUSTRIAL MACHINERY
26,900 Applied Materials Inc.(c).............................. 1,059,188 0.85%
----------- ------
INSURANCE
14,575 American International Group........................... 1,348,188
9,100 Cigna Corp............................................. 939,575
15,800 MGIC Investment(a)..................................... 857,150
27,400 Travelers Inc.......................................... 1,722,775
-----------
Total Insurance..................................... 4,867,688 3.90%
----------- ------
MEDICAL EQUIPMENT
26,400 Baxter International Inc............................... 1,105,500
19,300 Guidant Corp........................................... 815,425
8,500 Medtronic Inc.......................................... 474,938
-----------
Total Medical Equipment............................. 2,395,863 1.92%
----------- ------
METAL MINING
39,500 Freeport McMoran Copper & Gold(a)...................... 1,106,000 0.89%
----------- ------
MISCELLANEOUS
12,500 Pioneer Hi-Bred International.......................... 695,313 0.56%
----------- ------
</TABLE>
F-61
<PAGE> 156
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
OIL & GAS
14,100 British Petroleum PLC ADR.............................. $ 1,439,963
25,300 Enron.................................................. 964,563
20,100 Exxon Corp............................................. 1,610,512
19,900 Mobil Corp............................................. 2,228,800
34,000 Total Petroleum ADR................................. 1,156,000
-----------
Total Oil & Gas..................................... 7,399,838 5.93 %
----------- ------
PHOTOGRAPHIC EQUIPMENT
18,100 Polaroid Corp.......................................... 857,488 0.69%
----------- ------
RAILROADS
17,300 Burlington Northern Sante Fe........................... 1,349,400 1.08%
----------- ------
RETAIL STORES
42,600 Federated Department Stores(a)(c)...................... 1,171,500
20,100 Harcourt General Inc................................... 841,688
29,900 Rite Aid Corp.......................................... 1,024,075
18,300 Safeway Inc(a)(c)...................................... 942,450
30,900 Sears Roebuck & Co..................................... 1,205,100
-----------
Total Retail Stores................................. 5,184,813 4.15%
----------- ------
SERVICES--HEALTH & ALLIED SERVICES
20,600 Columbia/HCA Healthcare Corp. ......................... 1,045,450
13,600 HBO & Co............................................... 1,042,100
-----------
Total Services--Health & Allied Services............ 2,087,550 1.67%
----------- ------
SEMICONDUCTORS
18,400 Intel Corp............................................. 1,044,200 0.84%
----------- ------
SOFTWARE MANUFACTURE
22,200 Microsoft Corp(c)...................................... 1,948,050
17,800 Parametric Technology Corp(c).......................... 1,183,700
13,900 Sybase Inc(c).......................................... 500,400
-----------
Total Software Manufacture.......................... 3,632,150 2.91%
----------- ------
SPECIALTY CHEMICALS
8,100 Great Lakes Chemical Corp.............................. 583,200
20,200 Pfizer................................................. 1,272,600
32,900 Praxair Inc............................................ 1,106,261
-----------
Total Specialty Chemicals........................... 2,962,061 2.37%
----------- ------
</TABLE>
F-62
<PAGE> 157
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
TELECOMMUNICATIONS
25,200 Bell Atlantic Corp(a).................................. $ 1,685,250
39,200 GTE Corp............................................... 1,724,800
70,900 MCI Communications..................................... 1,852,261
40,600 Southwestern Bell Corp.(c)............................. 2,334,500
-----------
Total Telecommunications............................ 7,596,811 6.08 %
----------- ------
U.S. GOVERNMENT AGENCY
12,600 Federal National Mortgage Association.................. 1,563,975 1.25 %
----------- ------
Total Common Stock (cost $99,906,919)............... 108,097,773 86.61 %
----------- ------
Total Securities (cost $108,334,032)................ 116,524,886 93.36 %
----------- ------
<CAPTION>
PRINCIPAL
<C> <S> <C> <C>
REPURCHASE AGREEMENT
$18,367,949 Repurchase Agreement with Morgan Stanley, dated
12/29/95 5.65%, proceeds at maturity $18,379,322, due
01/02/96 (Collateralized by US Treasury Note, 7.25%, due
08/15/04 with a market value of $18,771,414) (cost
$18,370,832)........................................... $18,370,832 14.72 %
----------- ------
Total Investments (cost $126,704,864)............... $134,895,718 108.08 %
Liabilities Less Other Assets....................... (10,083,987) (8.08 )%
----------- ------
Net Assets.......................................... $124,811,731 100.00 %
=========== ======
The aggregate cost of securities for federal income tax purposes
at December 31, 1995 is $126,843,209.
The following amount is based on costs for federal income tax purposes:
Gross unrealized appreciation.......................... $ 9,790,143
Gross unrealized depreciation.......................... (1,737,634)
-----------
Net unrealized appreciation............................ $ 8,052,509
-----------
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(c) Non-income producing security.
(d) Collateral for securities on loan.
(g) This interest rate resets on a daily basis. The rate shown was in effect as
of December 31, 1995.
See notes to financial statements.
F-63
<PAGE> 158
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
BANK NOTES
$2,000,000 Republic New York Securities Corp, 6.15% Due
02/12/96(d)(g)(cost $2,000,316)........................ $ 2,000,316 0.90%
----------- ------
COMMERCIAL PAPER
6,000,000 Lehman Brothers Holdings, Inc, 4.90% Due 04/25/96(d)(g)
(cost $6,000,948)...................................... 6,000,948 2.70%
----------- ------
TIME DEPOSITS
10,912,901 First National Bank of Boston, Nassau, 4.81% Due
01/02/96(d)(g)......................................... 10,914,626
2,827,299 First Union Bank, Nassau, 5.81255 Due 01/02/96(d)...... 2,827,746
7,575,800 Fleet Bank, Massachusetts, Nassau, 5.84375% Due
01/05/96(d)............................................ 7,576,998
14,000,000 Fleet Bank, Rhode Island, Cayman, 5.8125 Due
01/31/96(d)............................................ 14,002,213
-----------
Total Time Deposits (cost $35,321,583)............... 35,321,583 15.88%
----------- ------
<CAPTION>
SHARES
<C> <S> <C> <C>
COMMON STOCK
ANIMAL SERVICES
159,050 Petsmart Inc.(a)(c).................................... 4,930,550 2.22%
----------- ------
COMMUNICATIONS EQUIPMENT
147,000 3 Com Corp.(c)......................................... 6,853,875
29,800 Cascade Communications Corp(a)(c)...................... 2,540,450
38,000 Motorola Inc........................................... 2,166,000
178,400 Tellabs Inc.(c)........................................ 6,600,800
-----------
Total Communications Equipment....................... 18,161,125 8.17%
----------- ------
COMMUNICATIONS SERVICES
117,100 Mobile Telecommunications(c)........................... 2,503,013 1.13%
----------- ------
CONSTRUCTION
179,000 Lowes Co's, Inc........................................ 5,996,500 2.70%
----------- ------
EATING & DRINKING PLACES
328,200 Starbucks Corp.(a)(c).................................. 6,892,200 3.10%
----------- ------
ELECTRICAL EQUIPMENT
93,200 Cisco Systems, Inc.(c)................................. 6,955,050
68,500 Intel Corp............................................. 3,887,375
-----------
Total Electrical Equipment........................... 10,842,425 4.87%
----------- ------
FINANCIAL SERVICES
35,700 First Data Corp(a)..................................... 2,387,438 1.07%
----------- ------
FOOD AND BEVERAGE
196,900 Boston Chicken Inc.(a)(c).............................. 6,325,413 2.84%
----------- ------
</TABLE>
F-64
<PAGE> 159
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
MEDICAL & OTHER HEALTH SERVICES
212,300 Healthsource Inc.(c)................................... $ 7,642,800
63,600 Medtronic Inc.......................................... 3,553,650
107,800 Oxford Health Plans(c)................................. 7,963,725
-----------
Total Medical & Other Health Services................ 19,160,175 8.62 %
----------- ------
OFFICE & BUSINESS EQUIPMENT
143,650 CUC International Inc.................................. 4,902,056
64,300 Hewlett-Packard Inc.................................... 5,385,125
224,700 Informix Corporation(c)................................ 6,741,000
73,600 Microsoft Corp.(c)..................................... 6,458,400
180,900 Office Depot(c)........................................ 3,572,775
189,650 Officemax Inc.(c)...................................... 4,243,419
121,750 Oracle Systems Corp.(c)................................ 5,159,156
-----------
Total Office & Business Equipment.................... 36,461,931 16.40%
----------- ------
PERSONAL SERVICES
137,000 H & R Block, Inc....................................... 5,548,500 2.49%
----------- ------
RESEARCH, DEVELOPMENT & TESTING
149,400 Biogen, Inc.(c)........................................ 9,188,100 4.13%
----------- ------
RETAIL SALES
186,500 Autozone Inc.(a)(c).................................... 5,385,188
181,898 Home Depot............................................. 8,708,367
266,462 Staples Inc.(c)........................................ 6,495,010
-----------
Total Retail Sales................................... 20,588,565 9.26%
----------- ------
SERVICES--HEALTH & ALLIED SERVICES
137,000 Boston Scientific Corp(a)(c)........................... 6,713,000
97,000 Genzyme Corp--General Division(c)...................... 6,050,375
49,200 HBO & Co............................................... 3,769,950
88,000 United Healthcare Corp................................. 5,764,000
-----------
Total Services--Health & Allied Services............. 22,297,325 10.03%
----------- ------
SOFTWARE DEVELOPMENT
60,500 Intuit Inc.(c)......................................... 4,719,000
46,300 Netcom On-Line Communication(a)(c)..................... 1,666,800
28,800 Netscape Communications Corp(a)(c)..................... 4,003,200
70,200 Peoplesoft Inc.(a)(c).................................. 3,018,600
69,500 Sybase Inc.(c)......................................... 2,502,000
-----------
Total Software Development........................... 15,909,600 7.15%
----------- ------
</TABLE>
F-65
<PAGE> 160
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
TELECOMMUNICATIONS
220,100 Airtouch Communications Inc.(c)........................ $ 6,217,825
219,600 Ericsson L M Telephone ADR............................. 4,282,200
134,300 Paging Network Inc. Telecom(c)......................... 3,273,562
123,600 Vodafone Group PLC ADR................................. 4,356,900
205,300 Worldcom Inc........................................... 7,236,825
-----------
Total Telecommunications............................. 25,367,312 11.41 %
----------- ----------
Total Common Stock (cost $173,010,404)............... 212,560,172 95.59 %
----------- ----------
Total Securities (cost $216,333,251)................. 255,883,019 115.07 %
----------- ----------
<CAPTION>
PRINCIPAL
- ----------
<C> <S> <C> <C>
REPURCHASE AGREEMENT
$9,711,528 Repurchase Agreement with Morgan Stanley, dated
12/29/95 5.65%, proceeds at maturity $9,717,624, due
01/02/96
(Collateralized by US Treasury Note, 7.25%, due
08/15/04 with a market value of $9,924,849) (cost
$9,713,052)............................................ 9,713,052 4.37 %
----------- ----------
Total Investments (cost $226,046,303).................. $265,596,071 119.44 %
Liabilities Less Other Assets.......................... (43,233,681) (19.44 )%
----------- ----------
Net Assets............................................. $222,362,390 100.00 %
=========== ========
The aggregate cost of securities for federal income tax purposes
at December 31, 1995 is $226,046,303.
The following amount is based on costs for federal income tax purposes:
Gross unrealized appreciation.......................... $44,075,286
Gross unrealized depreciation.......................... (4,525,518)
-----------
Net unrealized appreciation............................ $39,549,768
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(c) Non-income producing security.
(d) Collateral for securities on loan.
(g) This interest rate resets on a daily basis. The rate shown was in effect as
of December 31, 1995.
See notes to financial statements.
F-66
<PAGE> 161
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
TIME DEPOSITS
$13,348,289 First National Bank of Boston, Nassau, 4.81%
Due 01/02/96(d)(g)..................................... $13,350,371
1,665,311 First Union Bank, Nassau, 5.8125% Due 01/02/96(d)...... 1,665,571
10,500,000 Fleet Bank, Rhode Island, Cayman, 5.8125% Due
01/31/96(d)............................................ 10,501,638
-----------
Total Time Deposits(cost $25,517,580)............... 25,517,580 8.09%
----------- ------
<CAPTION>
SHARES
<C> <S> <C> <C>
COMMON STOCK
BANKING EQUITY
110,000 Peoples Bank Bridgeport................................ 2,090,000
162,300 Premier Bancorp........................................ 3,793,763
-----------
Total Banking Equity................................ 5,883,763 1.87%
----------- ------
BEVERAGES
12,400 Pete's Brewing Company(c).............................. 173,600 0.06%
----------- ------
BOOKS
34,900 Gartner Group Inc. Cl A(a)(c).......................... 1,670,838 0.53%
----------- ------
BROADCASTING
47,400 Granite Broadcasting Corp(a)(c)........................ 503,625
42,000 Heftel Broadcasting Corp.(c)........................... 735,000
73,700 Osborn Communications CP--New(c)....................... 626,450
-----------
Total Broadcasting.................................. 1,865,075 0.59%
----------- ------
CABLE & OTHER PAY TV SERVICES
14,800 Cablevision Systems Corp.(c)........................... 802,900
21,400 Comcast UK Cable Partners(c)........................... 267,500
1,800 Jones Intercable Inc................................... 22,500
64,500 Jones Intercable Inc. Cl A............................. 798,188
-----------
Total Cable & Other Pay TV Services................. 1,891,088 0.60%
----------- ------
COMMERCIAL BANKING
11,300 Norwest Corporation.................................... 372,900 0.12%
----------- ------
COMMUNICATIONS EQUIPMENT
25,700 Ascend Communications Inc(c)........................... 2,084,913
37,800 Picturetel Corp(a)(c).................................. 1,630,125
-----------
Total Communications Equipment...................... 3,715,038 1.18%
----------- ------
COMMUNICATIONS SERVICES
22,500 Arch Communications Group Inc(c)....................... 540,000
12,000 Cellular Communications of Puerto Rico(c).............. 333,000
11,100 CommNet Cellular Inc.(c)............................... 320,513
-----------
Total Communications Services....................... 1,193,513 0.38%
----------- ------
</TABLE>
F-67
<PAGE> 162
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
COMPUTER & OFFICE EQUIPMENT
16,000 Aaron Rents Inc C1 B................................... $ 288,000
52,600 Acxiom Corp.(c)........................................ 1,439,925
25,400 Altron Inc(c).......................................... 762,000
70,000 Amplicon Inc........................................... 1,120,000
14,000 Boise Cascade Office Products(c)....................... 598,500
12,400 Cisco Systems Inc(c)................................... 925,350
40,800 Compaq Computer(c)..................................... 1,958,400
38,850 Corporate Express Inc.(c).............................. 1,170,356
12,200 CDW Computer Centers Inc.(a)(c)........................ 494,100
34,600 CUC International Inc. ................................ 1,180,725
46,400 Cambridge Tech Partners Inc.(c)........................ 2,668,000
51,200 Comverse Technology Inc(a)(c).......................... 1,024,000
16,200 Fair Issac & Company Inc. ............................. 419,175
28,150 Jack Henry & Associates................................ 696,712
43,950 McAfee Associates Inc.(c).............................. 1,928,306
41,300 National Computer System Inc. ......................... 779,538
13,300 Storemedia(c).......................................... 485,450
35,600 Telxon Corp............................................ 805,450
24,800 U. S. Office Products Co.(c)........................... 564,200
54,000 Zebra Technologies Corp.(c)............................ 1,836,000
-----------
Total Computer & Office Equipment................... 21,144,187 6.70%
----------- ------
COMPUTER SERVICES
42,000 America On-Line Inc(a)(c).............................. 1,575,000
12,400 Cascade Communications Corp(a)(c)...................... 1,057,100
30,400 Ciber Inc(c)........................................... 710,600
21,000 DST Systems Inc(c)..................................... 598,500
20,900 Diamond Multimedia Systems(c).......................... 749,787
-----------
Total Computer Services............................. 4,690,987 1.49%
----------- ------
CONSUMER GOODS & SERVICES
30,000 Alternative Resources Corp.(c)......................... 907,500
10,000 Armor All Products Corp. .............................. 181,250
36,800 Kimberly-Clark Corp.................................... 3,045,200
-----------
Total Consumer Goods & Services..................... 4,133,950 1.31%
----------- ------
DRUGS
58,400 American Safety Razor Company(c)....................... 459,900
27,200 Chiron Corp.(a)(c)..................................... 3,005,600
42,200 Vitalink Pharmacy Services(c).......................... 981,150
-----------
Total Drugs......................................... 4,446,650 1.41%
----------- ------
</TABLE>
F-68
<PAGE> 163
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
EATING & DRINKING PLACES
25,238 Apple South Inc. ...................................... $ 542,606
29,700 Boston Chicken(a)(c)................................... 954,113
13,400 Papa John's International Inc(a)....................... 551,913
-----------
Total Eating & Drinking Places....................... 2,048,632 0.65%
----------- ------
EDUCATION
8,600 Apollo Group Inc C1 A(c)............................... 336,475
180,000 ITT Educational Services Inc.(c)....................... 4,432,500
152,500 Kinder Care Learning Centers(c)........................ 1,925,313
485,800 National Education Corp................................ 3,947,125
-----------
Total Education...................................... 10,641,413 3.37%
----------- ------
ELECTRICAL EQUIPMENT
26,600 Alantec Corp.(c)....................................... 1,549,450
39,700 Cable Design Technologies(c)........................... 1,746,800
48,350 Checkpoint Systems Inc.(c)............................. 1,807,081
48,900 Kemet Corp.(c)......................................... 1,167,488
13,100 Kent Electronics Corp.(c).............................. 764,712
85,000 Rogers Corp. .......................................... 1,848,750
7,300 Sterling Electronics................................... 125,013
34,700 Tencor Instruments(c).................................. 845,813
49,200 Ultratech Stepper Inc.(c).............................. 1,266,900
-----------
Total Electrical Equipment........................... 11,122,007 3.53%
----------- ------
ENVIRONMENTAL MANAGEMENT
51,200 United Waste Systems Inc.(c)........................... 1,907,200 0.61%
----------- ------
FINANCE
73,000 Allied Capital Corporation(a).......................... 994,625
45,327 Allied Capital Lending Co.............................. 600,583
77,600 Cash American Investments Inc. ........................ 426,800
-----------
Total Finance........................................ 2,022,008 0.64%
----------- ------
FINANCIAL SERVICES
31,900 Concord EFS Inc.(c).................................... 1,347,775 0.43%
----------- ------
FREIGHT AND CARGO
36,000 Fritz Companies Inc.(a)(c)............................. 1,494,000
169,700 Harper Group Inc. ..................................... 3,012,175
-----------
Total Freight and Cargo.............................. 4,506,175 1.43%
----------- ------
</TABLE>
F-69
<PAGE> 164
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
GAMING
13,100 Anchor Gaming(c)....................................... $ 298,025
42,300 Harveys Casinos Resorts................................ 761,400
26,100 Scientific Games Holdings Corp(c)...................... 985,275
-----------
Total Gaming......................................... 2,044,700 0.65%
----------- ------
GROCERY STORES
44,000 Dairymart Coven Stores C1 A(c)......................... 247,500
37,700 General Nutrition Companies(c)......................... 867,100
19,400 Uni-Marts Inc.......................................... 160,050
-----------
Total Grocery Stores................................. 1,274,650 0.40%
----------- ------
HEALTH SERVICES & HOSPITAL SUPPLIES
52,900 Advocat Inc.(c)........................................ 588,513
24,000 Circon Corp(c)......................................... 486,000
14,700 Coherent Inc.(c)....................................... 595,350
27,500 Daig Corp(c)........................................... 632,500
21,100 Gulf South Medical Supply Inc.(c)...................... 638,275
22,800 Neuromedical Systems Inc.(c)........................... 458,850
28,200 Orthodontic Centers Of America(c)...................... 1,360,650
46,400 Owen Healthcare Inc.(c)................................ 1,281,800
157,500 Owens & Minor Holding Co............................... 2,008,125
48,300 Physician Sales & Service(c)........................... 1,376,550
25,400 Quintiles Transnational Corp.(c)....................... 1,041,400
102,600 Unilab Corporation(c).................................. 275,738
97,200 Universal Health Services C1 B......................... 4,313,250
-----------
Total Health Services & Hospital Supplies............ 15,057,001 4.77%
----------- ------
HORTICULTURAL SPECIALTIES
47,000 Sylvan Inc.(c)......................................... 558,125 0.18%
----------- ------
HOTELS
12,400 HFS Inc................................................ 1,013,700 0.32%
----------- ------
INDUSTRIAL MACHINERY
45,700 Applied Materials Inc.(c).............................. 1,799,438
17,600 Astec Industries(c).................................... 173,800
67,500 Electro Rent Corp.(c).................................. 1,468,125
13,400 MSC Industrial Direct Co. C1 A(a)(c)................... 368,500
-----------
Total Industrial Machinery........................... 3,809,863 1.21%
----------- ------
</TABLE>
F-70
<PAGE> 165
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
INSURANCE
56,800 American Travellers Corp.(a)(c)........................ $ 1,597,500
22,500 Intercargo Inc......................................... 225,000
38,600 National Western Life Insurance C1 A(c)................ 2,161,600
38,700 Western National Corp.................................. 624,038
72,800 Willis Corroon Group ADR(a)............................ 846,300
-----------
Total Insurance..................................... 5,454,438 1.73%
----------- ------
MANUFACTURING
51,600 Blyth Industries Inc.(c)............................... 1,522,200
3,500 In Focus Systems Inc(c)................................ 126,438
32,900 Qualcomm Inc.(c)....................................... 1,414,700
22,000 Wolverine Tube Inc.(c)................................. 825,000
-----------
Total Manufacturing................................. 3,888,338 1.23%
----------- ------
MANUFACTURER OF INTEGRATED CIRCUITS
19,400 Hadco Corp(c).......................................... 545,625 0.17%
----------- ------
MEDICAL & OTHER HEALTH SERVICE
15,299 Community Health Systems(c)............................ 545,027
27,000 Compdent Corp(c)....................................... 1,120,500
48,200 Genzyme Corp.--General Division(a)..................... 3,006,475
9,500 Health Management Systems Inc(c)....................... 370,500
71,300 Healthsource Inc.(c)................................... 2,566,800
27,300 IDEXX Laboratories Inc.(c)............................. 1,283,100
26,500 Living Centers of America(c)........................... 927,500
60,500 Medpartners/Millikin Inc.(a)(c)........................ 1,996,500
42,400 Omnicare Inc.(a)....................................... 1,897,400
16,000 Ornda Healthcorp(c).................................... 372,000
37,800 Oxford Health Plans.................................... 2,792,475
19,800 Pacificare Health Systems C1 B(c)...................... 1,722,600
13,850 Phycor Inc.(c)......................................... 700,291
26,600 Physician Reliance(c).................................. 1,057,350
22,200 Quorum Health Group Inc(c)............................. 488,400
32,800 Renal Treatment Centers Inc(c)......................... 1,443,200
23,000 Summit Care Corp.(c)................................... 526,125
-----------
Total Medical & Other Health Service................ 22,816,243 7.23%
----------- ------
MISCELLANEOUS
100,300 Alpha Industries Inc................................... 1,416,738
3,000 Delta & Pine Land Co................................... 110,250
32,300 Midwest Grain Products, Inc.(c)........................ 452,200
-----------
Total Miscellaneous................................. 1,979,188 0.63%
----------- ------
</TABLE>
F-71
<PAGE> 166
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ----------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
MOTOR VEHICLES AND EQUIPMENT
42,800 Discount Auto Parts Inc.(c)............................ $ 1,332,150 0.42%
----------- ------
NON-DEPOSITORY CREDIT INSTITUTIONS
80,500 The Money Store Inc.................................... 1,257,813 0.40%
----------- ------
OIL & GAS
50,200 Berry Petroleum Cl A................................... 508,275
49,700 Daniel Industries...................................... 708,225
88,900 Tosco Corp............................................. 3,389,313
-----------
Total Oil & Gas..................................... 4,605,813 1.46%
----------- ------
PERSONAL CARE PRODUCTS
40,400 Helen of Troy LTD--New................................. 848,400 0.27%
----------- ------
PERSONNEL SERVICES
31,800 Accustaff Inc(c)....................................... 1,399,200
32,575 Brandon System Corp.................................... 834,734
51,600 Manpower Inc........................................... 1,451,250
23,100 Robert Half International Inc.......................... 967,312
-----------
Total Personnel Services............................ 4,652,496 1.47%
----------- ------
PHOTORESIST REMOVAL EQUIPMENT
40,100 Gasonics International Corp(c)......................... 541,350 0.17%
----------- ------
PLASTICS MATERIALS & SYNTHETIC
139,800 Lydall Inc............................................. 3,180,450 1.01%
----------- ------
POLLUTION CONTROL
51,102 Tetra Tech Inc.(c)..................................... 1,162,561
38,100 U.S. Filter Corp.(c)................................... 1,014,412
-----------
Total Pollution Control............................. 2,176,973 0.69%
----------- ------
PRINTING & PUBLISHING
50,800 ASM Lithography Holding NV(c).......................... 1,689,100
19,600 Clear Channel Communications........................... 864,850
60,000 Houghton Mifflin Company............................... 2,580,000
25,700 Scholastic Corp.(c).................................... 1,998,175
235,000 Steck Vaughn Publishing Corp.(c)....................... 1,733,125
-----------
Total Printing & Publishing......................... 8,865,250 2.81%
----------- ------
RADIATION MONITORING SERVICE
27,800 Landauer Inc. ......................................... 604,650 0.19%
----------- ------
RADIO, TV, CONSUMER ELECTRONICS & MUSIC
82,600 Cognex Corp.(c)........................................ 2,870,350 0.91%
----------- ------
RAILROADS
19,500 Wisconsin Central Transport(c)......................... 1,282,125 0.41%
----------- ------
</TABLE>
F-72
<PAGE> 167
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
REAL ESTATE INVESTMENT TRUST
99,800 Allied Capital Commercial Corp......................... $ 1,971,050
65,400 Equity Inns Inc........................................ 752,100
22,800 Health Care Property Invest Inc. ...................... 800,850
14,800 RFS Hotel Investors Inc................................ 227,550
26,800 Roc Communities Inc. .................................. 643,200
-----------
Total Real Estate Investment Trust.................. 4,394,750 1.39 %
----------- ------
RETAIL SALES
9,900 Baby Superstore(a)(c).................................. 564,300
62,700 Catherines Stores Corp.(c)............................. 517,275
86,200 Consolidated Stores Corp.(c)........................... 1,874,850
69,000 Fred's Inc. ........................................... 517,500
18,600 Gap Stores............................................. 781,200
29,000 Global Directmail Corp.(c)............................. 797,500
175,000 MacFrugals Bargains Close-Outs......................... 2,450,000
30,300 The Men's Wearhouse Inc(a)............................. 780,225
155,200 Michael Anthony Jewellers Inc.(c)...................... 407,400
23,700 Micro Warehouse Inc.(a)(c)............................. 1,025,025
41,700 Nautica Enterprises Inc(c)............................. 1,824,375
58,200 Pentech International Inc.(c).......................... 116,400
37,700 Sunglass Hut Inc.(c)................................... 895,375
13,100 Tandy Crafts Inc. ..................................... 103,162
81,900 Tommy Hilfiger Corp(c)................................. 3,470,512
52,600 Travel Ports of America(c)............................. 131,500
-----------
Total Retail Sales.................................. 16,256,599 5.15%
----------- ------
SANITARY SERVICES
44,500 National Sanitary Supply(c)............................ 522,875
27,300 Sanifill Inc(c)........................................ 911,137
-----------
Total Sanitary Services............................. 1,434,012 0.45%
----------- ------
SAVINGS & LOAN HOLDING COMPANY
52,573 First Republic Bancorp Inc. ........................... 690,020 0.22%
----------- ------
SAVINGS INSTITUTIONS
114,000 American Federal Bank.................................. 1,738,500
101,400 Charter One Finance Inc................................ 3,105,375
103,000 First Saving Bank of Washington........................ 1,351,875
140,000 Roosevelt Financial Group Inc.(a)...................... 2,712,500
60,000 Washington Mutual Inc(a)............................... 1,732,500
-----------
Total Savings Institutions.......................... 10,640,750 3.37%
----------- ------
</TABLE>
F-73
<PAGE> 168
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
SECURITY SYSTEM SERVICES
753,692 Automated Security Holdings ADR........................ $ 565,267
9,000 Protection One Inc(c).................................. 92,250
130,000 Sensormatic Electronics Corp(a)........................ 2,258,750
-----------
Total Security System Services...................... 2,916,267 0.92 %
----------- ------
SEMICONDUCTOR MANUFACTURER
20,000 FSI International Inc.(c).............................. 405,000
39,100 Input/Output Inc.(a)(c)................................ 2,258,025
17,500 Richardson Electronics................................. 188,125
36,700 Sierra Semiconductor(c)................................ 509,212
-----------
Total Semiconductor Manufacturer.................... 3,360,362 1.07%
----------- ------
SERVICES--CLEANING & MAINTENANCE TO DWELLERS
28,800 ABM Industries Inc..................................... 799,200 0.25%
----------- ------
SEWER/DRAIN CLEANING SERVICE
23,900 Roto Rooter Inc........................................ 788,700 0.25%
----------- ------
SOFTWARE MANUFACTURER
36,800 Actel Corp(c).......................................... 395,600
7,000 American Business Information(c)....................... 135,625
42,200 Astea International Inc(c)............................. 965,325
9,900 Broderbund Software Inc.(a)(c)......................... 601,425
4,900 Catalyst International Inc(c).......................... 56,350
93,200 Computer Associates Intl Inc........................... 5,300,750
43,600 Computron Software Inc(c).............................. 784,800
18,000 Dialogic Corp(c)....................................... 693,000
43,700 Electronics For Imaging(c)............................. 1,911,875
71,400 Hyperion Software Corp.(c)............................. 1,517,250
21,300 INSO Corp(a)(c)........................................ 905,250
18,600 Integrated Systems Inc(c).............................. 725,400
9,900 Intuit Inc(c).......................................... 772,200
16,600 Medic Computer Systems Inc.(c)......................... 1,004,300
60,500 Microsoft Corp(c)...................................... 5,308,875
51,900 Netmanage Inc(a)(c).................................... 1,206,675
30,500 Optical Data Systems Inc(c)............................ 770,125
42,000 Oracle Corporation(c).................................. 1,779,750
74,100 Parametric Technology Corp(a).......................... 4,927,650
20,600 Project Software & Development......................... 718,425
19,800 Remedy Corp(c)......................................... 1,173,150
</TABLE>
F-74
<PAGE> 169
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
SOFTWARE MANUFACTURER -- (CONTINUED)
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
SOFTWARE MANUFACTURER--(CONTINUED)
26,600 Shiva Corp(a)(c)....................................... $ 1,935,150
21,000 Sterling Software...................................... 1,309,875
16,700 Veritas Software Corp(c)............................... 634,600
-----------
Total Software Manufacturer......................... 35,533,425 11.26 %
----------- ------
SPECIALTY CHEMICALS
29,100 Chemed Corp............................................ 1,131,262
37,600 IMC Global Inc......................................... 1,536,900
-----------
Total Specialty Chemicals........................... 2,668,162 0.85%
----------- ------
TELECOMMUNICATIONS
36,500 ACC Corp............................................... 841,781
24,100 Allen Group............................................ 539,237
29,600 Aspect Telecommunications Corp(c)...................... 991,600
63,500 AT&T Capital Corp...................................... 2,428,875
11,575 Associated Group Inc.--Cl A(c)......................... 218,477
19,675 Associated Group Inc.--Cl B(c)......................... 373,825
65,000 Cabletron Systems Inc.(c).............................. 5,265,000
1,000 Cellular Communications Inc(c)......................... 49,750
59,975 Centennial Cellular Corp Cl A(c)....................... 1,027,072
78,400 Communications Central Inc.(c)......................... 352,800
53,000 Davel Communications Group(c).......................... 715,500
56,300 Premisys Communications Inc(a)(c)...................... 3,152,800
33,600 Pronet Inc.(c)......................................... 991,200
77,800 TPI Enterprises(c)..................................... 243,125
32,000 VTEL Corp(c)........................................... 592,000
17,800 Worldcom Inc(c)........................................ 627,450
-----------
Total Telecommunications............................ 18,410,492 5.84%
----------- ------
TRANSPORTATION
92,000 Air Express International Corp......................... 2,116,000
100,000 Airborne Freight Corp.................................. 2,662,500
105,700 Consolidated Freightways Inc........................... 2,801,050
33,300 Oxford Resources Corp. Cl A(c)......................... 749,250
129,700 Pittston Services Group................................ 4,069,337
-----------
Total Transportation................................ 12,398,137 3.93%
----------- ------
</TABLE>
F-75
<PAGE> 170
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES VALUE NET ASSETS
- ---------- ----------- ----------
<C> <S> <C> <C>
COMMON STOCK--(CONTINUED)
WIDE AREA NETWORKS
100,600 Stratacom Inc(a)(c).................................... $ 7,394,100
34,600 Sun Microsystems Inc(c)................................ 1,578,625
-----------
Total Wide Area Networks............................ 8,972,725 2.84 %
----------- ------
Total Common Stocks (cost $249,235,219)................ 294,700,091 93.42 %
----------- ------
PREFERRED STOCK
TELECOMMUNICATIONS
9,094 Cellular Communications Inc.(c) (cost $425,145)........ 445,606 0.14%
----------- ------
Total Securities (cost $275,177,944)................ 320,663,277 101.65%
----------- ------
PRINCIPAL
- -----------
REPURCHASE AGREEMENT
$21,474,530 Repurchase Agreement with Morgan Stanley, dated
12/29/95 5.65%, proceeds at maturity $21,488,011, due
01/02/96 (Collateralized by US Treasury Note, 7.25%,
due 08/15/04 with a market value of $21,946,233) (cost
$21,477,900)........................................... $21,477,900 6.81%
----------- ------
Total Investments (cost $296,655,844)............... $342,141,177 108.46%
Liabilities in Excess of Other Assets............... (26,682,952) (8.46)%
----------- ------
Net Assets.......................................... $315,458,225 100.00%
=========== ======
The aggregate cost of securities for federal income tax
purposes at December 31, 1995 is $297,912,599.
The following amount is based on costs for federal income tax purposes:
Gross unrealized appreciation.......................... $59,947,614
Gross unrealized depreciation.......................... (15,719,036)
-----------
Net unrealized appreciation............................ $44,228,578
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(c) Non-income producing security.
(d) Collateral for securities on loan.
(g) This interest rate resets on a daily basis. The rate shown was in effect as
of December 31, 1995.
See notes to financial statements.
F-76
<PAGE> 171
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- -------- --------- ----------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES
AEROSPACE
$250,000 BE Aerospace 9.75% Due 03/01/03............................. $250,625 2.79%
------------ ----
AMUSEMENT & RECREATION
250,000 ARA Group 8.50% Due 06/01/03................................ 261,875
250,000 MGM Grand Hotel Finance Corp 11.75% Due 05/01/99............ 265,000
------------
Total Amusement & Recreation............................. 526,875 5.86%
------------ ----
AUTO PARTS
250,000 Exide Corp 10.75% Due 12/15/02.............................. 271,563
250,000 SPX Corp 11.75% Due 06/01/02................................ 267,500
------------
Total Auto Parts......................................... 539,063 5.99%
------------ ----
BROADCASTING
200,000 Infinity Broadcasting 10.375% Due 03/15/02.................. 214,500
250,000 Viacom International 8.00% Due 07/07/06..................... 255,020
------------
Total Broadcasting....................................... 469,520 5.22%
------------ ----
CABLE TV SERVICES
250,000 Century Communications 9.75% Due 02/15/02................... 260,000
250,000 Continental Cablevision Inc 11.00% Due 06/01/07............. 278,750
50,000 Jones Intercable 9.625% Due 03/15/02........................ 53,688
125,000 Rogers Cablesystems 9.625% Due 08/01/02..................... 131,250
25,000 Rogers Cablesystems Ltd. 11.00% Due 12/01/15................ 26,875
250,000 TCI Communications 8.75% Due 08/01/15....................... 275,248
------------
Total Cable TV Services.................................. 1,025,811 11.40%
------------ -----
CHEMICAL AND ALLIED PRODUCTS
250,000 AK Steel Holding Corp 10.75% Due 04/01/04................... 276,875
250,000 Freeport McMoran Resource Partners 8.75% Due 02/15/04....... 256,250
75,000 IDEX Corp 9.75% Due 09/15/02................................ 79,500
250,000 NL Industries Inc 11.75% Due 10/15/03....................... 266,875
125,000 Sherritt Gordon Ltd 9.75% Due 04/01/03...................... 132,187
------------
Total Chemical and Allied Products....................... 1,011,687 11.24%
------------ -----
COMMUNICATION EQUIPMENT
250,000 K-III Communications Corp 10.625% Due 05/01/02.............. 267,500
250,000 Metrocall Inc 10.375% Due 10/01/07.......................... 265,000
------------
Total Communication Equipment............................ 532,500 5.92%
------------ ----
</TABLE>
F-77
<PAGE> 172
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- ---------- ----------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
MANUFACTURING
$250,000 American Standard Senior Notes 10.875% Due 05/15/99......... $273,125
250,000 Huntsman Corp 10.625% Due 04/15/01.......................... 280,000
250,000 Owens-Illinois Inc 11.00% Due 12/01/03...................... 283,813
250,000 USG Corp 8.50% Due 08/01/05................................. 258,125
250,000 Westinghouse Air 9.375% Due 06/15/05........................ 254,688
------------
Total Manufacturing...................................... 1,348,751 14.99%
------------ -----
MEDICAL AND OTHER HEALTH SERVICES
250,000 Abbey Healthcare 9.50% Due 11/01/02......................... 265,000
250,000 Healthsound Rehabilitation 9.50% Due 04/01/01............... 266,875
70,000 Quorum Health 8.75% Due 11/01/05............................ 72,362
250,000 Tenet Healthcare Corp 8.625% Due 12/01/03................... 263,750
------------
Total Medical and Other Health Services.................. 867,987 9.65%
------------ ----
MISCELLANEOUS
216,458 Midland Cogeneration Venture 10.33% Due 07/23/02............ 228,274 2.54%
------------ ----
OIL AND GAS
250,000 Ferrellgas LP/Fin Corp 10.00% Due 08/01/01.................. 265,000
125,000 Gulf Canada Resources Ltd 9.25% Due 01/15/04................ 129,457
80,000 Vintage Petroleum 9.00% Due 12/15/05........................ 80,700
------------
Total Oil & Gas.......................................... 475,157 5.28%
------------ ----
PAPER PRODUCTS
25,000 Buckeye Cellulose Corp 8.50% Due 12/05/05................... 25,656
200,000 Container Corp of America 11.25% Due 05/01/04............... 204,000
125,000 Repap New Brunswick 9.875% Due 07/15/00..................... 125,312
------------
Total Paper Products..................................... 354,968 3.94%
------------ ----
PHARMACEUTICALS
60,000 Ivac Corp 9.25% Due 12/01/02................................ 61,500 0.68%
------------ ----
SECURITY SYSTEMS
250,000 ADT Operations 9.25% Due 08/01/03........................... 267,500 2.97%
------------ ----
</TABLE>
F-78
<PAGE> 173
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS
- --------- --------- ----------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES--(CONTINUED)
TRANSPORTATION
$250,000 Viking Star Ship 9.625% Due 07/15/03........................ $258,750 2.88%
------------ ------
Total Investments (cost $8,056,922)...................... $8,218,968 91.35%
Other Assets Less Liabilities............................ 778,627 8.65%
------------ ------
Net Assets............................................... $8,997,595 100.00%
============ ======
The aggregate cost of securities for federal income tax purposes
at December 31, 1995 is $8,056,922.
The following amount is based on costs for federal income tax purposes.
Aggregate gross unrealized appreciation..................... $174,397
Aggregate gross unrealized depreciation..................... (12,351)
------------
Net unrealized appreciation................................. $162,046
------------
</TABLE>
See notes to financial statements.
F-79
<PAGE> 174
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
PRINCIPAL VALUE NET ASSETS COUNTRY
- ---------- ---------- ---------- -------
<C> <S> <C> <C> <C>
CORPORATE BONDS AND NOTES
$ 277,000 Bangkok Bank Public Co. 3.25%, Due 03/03/04...... $ 294,313 HK
200,000 British Air Capital 9.75%, Due 06/15/05.......... 636,560 UK
15,000,000 Sekisui House 2.50%, Due 01/31/02................ 201,975 JPN
------------
Total Corporate Bonds and Notes (cost
$1,106,891)................................... 1,132,848 1.36%
------------ -------
CONVERTIBLE BONDS
2,000 Ericson LM 4.25%, Due 06/30/00................... 5,375 SWE
390,000 Sumitomo Bank 3.125% Due 03/31/04................ 353,925 JPN
390,000 Renong Berhad 2.50% Due 01/15/05................. 437,288 MAL
------------
Total Convertible Bonds (cost $762,913)....... 796,588 0.95%
------------ -------
SHARES/UNITS
COMMON STOCKS AND WARRANTS
AEROSPACE/DEFENSE
74,400 CAE Industries................................... 565,702 0.68% GER
------------ -------
AIRLINES
275,000 Citic Pacific LTD................................ 940,720 HK
17,000 British Airways PLC.............................. 122,997 UK
1,100 Swissair(c)...................................... 803,024 SWI
------------
Total Airlines................................ 1,866,741 2.24%
------------ -------
AMUSEMENT & RECREATION
162,000 Euro Disneyland SCA(c)........................... 369,344 0.44% FRA
------------ -------
AUTO EQUIPMENT
5,900 Mannesmann AG.................................... 1,881,781 GER
6,000 Valeo............................................ 278,260 FRA
------------
Total Auto Equipment.......................... 2,160,041 2.59%
------------ -------
BANKING
20,000 ABN AMRO Holdings................................ 912,046 NET
2,000 Banco Popular Espanola........................... 368,788 SPA
48,000 Barclay's PLC.................................... 550,738 UK
6,200 CS Holdings...................................... 637,161 SWI
900 Holderbank Finan Glaris Cl B..................... 692,217 SWI
22,600 International Nederlanden Group.................. 1,511,375 NET
99,000 Morgan Crucible Company PLC...................... 590,228 UK
86,000 National Westminster............................. 866,562 UK
65,000 Overseas Chinese Bkng Corp....................... 813,378 SIN
12,000 Sumitomo Bank.................................... 254,770 JPN
196,000 Westpac Banking Corp............................. 868,946 AUS
------------
Total Banking................................. 8,066,209 9.67%
------------ -------
</TABLE>
F-80
<PAGE> 175
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES/UNITS VALUE NET ASSETS COUNTRY
- ------------ ----------- ---------- -------
<C> <S> <C> <C> <C>
COMMON STOCKS AND WARRANTS--(CONTINUED)
BEVERAGES
98,000 Amatil LTD Coca Cola............................. $ 782,197 AUS
116,000 Lion Nathan...................................... 276,799 NZL
21,000 Seagrams Co Ltd.................................. 727,125 CAN
------------
Total Beverages............................... 1,786,121 2.14%
------------ -------
BROADCASTING
95,000 British Sky Broadcasting PLC..................... 599,574 UK
4,000 Canal Plus....................................... 750,862 FRA
17,100 Grupo Televisa--GDR.............................. 384,750 MEX
13,000 Rogers Communications Cl B(c).................... 145,291 CAN
135,000 Television Broadcasts Ltd........................ 481,019 HK
35,000 Tokyo Broadcasting............................... 576,818 JPN
------------
Total Broadcasting............................ 2,938,314 3.52%
------------ -------
BUILDING CONTRACTOR
52,000 Sekisui House LTD................................ 665,423 0.80% JPN
------------ -------
BUILDING MATERIALS
74,000 Italcenenti Frabbriche Riunit.................... 443,142 GER*
13,000 Tostem Corp...................................... 432,276 JPN
------------
Total Building Materials...................... 875,418 1.05%
------------ -------
CHEMICALS
32,000 AGA AB........................................... 441,814 SWE
1,900 Akzo Dutch....................................... 219,989 NET
20,000 Norsk Hydro...................................... 842,058 NOR
------------
Total Chemicals............................... 1,503,861 1.80%
------------ -------
COMMUNICATIONS
84 DDI Corp......................................... 651,468 0.78% JPN
------------ -------
CONSUMER GOODS
48,000 Nikon Corp....................................... 651,466 JPN
56,000 Reckitt and Colman PLC........................... 619,920 UK
15,000 Sony Corp........................................ 900,131 JPN
37,000 Thorn EMI PLC.................................... 871,457 UK
------------
Total Consumer Goods.......................... 3,042,974 3.65%
------------ -------
DRUGS
49,000 Astra AB......................................... 1,959,343 SWE
52,000 Banyu Pharmaceutical Co.......................... 640,219 JPN
56,000 Sankyo Co Ltd.................................... 1,259,502 JPN
------------
Total Drugs................................... 3,859,064 4.62%
------------ -------
</TABLE>
F-81
<PAGE> 176
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES/UNITS VALUE NET ASSETS COUNTRY
- ------------ ----------- ---------- -------
<C> <S> <C> <C> <C>
COMMON STOCKS AND WARRANTS--(CONTINUED)
ELECTRIC UTILITIES
8,400 Asea--A.......................................... $ 817,538 SWE
180,000 Hong Kong Electric............................... 590,148 MAL
------------
Total Electric Utilities...................... 1,407,686 1.69%
------------ -------
ELECTRONICS
900 BBC Brown Boveri & Cie........................... 1,048,103 SWI
79,000 Bombardier Inc Cl B.............................. 1,042,140 CAN
142,000 Hitachi LTD...................................... 1,431,672 JPN
26,000 Kokusai Electric................................. 544,440 JPN
17,000 Kyocera Corp..................................... 1,264,061 JPN
19,000 Murata Mfg Co Ltd................................ 699,939 JPN
19,000 Omron Corp....................................... 438,383 JPN
24,600 Philips Electronics N.V. ADR..................... 882,525 NET
------------
Total Electronics............................. 7,351,263 8.81%
------------ -------
ENGINEERING
17,000 Chudenko Corp.................................... 583,411 0.70% JPN
------------ -------
FINANCIAL SERVICES
3,000 Hong Leong Credit BHD............................ 14,888 MAL
16,800 HSBC Holdings PLC................................ 262,270 UK
20,450 Lend Lease Corp Ltd.............................. 296,635 AUS
29,000 Nomura Securities Co Ltd......................... 632,563 JPN
15,000 Orix Corp........................................ 618,021 JPN
76,000 Wako Securities Co Ltd(c)........................ 674,888 JPN
------------
Total Financial Services...................... 2,499,265 3.00%
------------ -------
FOOD & BEVERAGE
1,200 Nestle (Malaysia) Berhad......................... 8,791 MAL
1,200 Nestle........................................... 1,330,725 SWI
------------
Total Food & Beverage......................... 1,339,516 1.61%
------------ -------
FREIGHT TRANSPORTATION
122,000 Kawasaki Kisen(c)................................ 387,923 JPN
244,000 TNT Limited...................................... 346,651 AUS
------------
Total Freight Transportation.................. 734,574 0.88%
------------ -------
HOTELS
63,000 Forte PLC........................................ 323,272 0.39% UK
------------ -------
</TABLE>
F-82
<PAGE> 177
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES/UNITS VALUE NET ASSETS COUNTRY
- ------------ ---------- ---------- -------
<C> <S> <C> <C> <C>
COMMON STOCKS AND WARRANTS--(CONTINUED)
INSURANCE
22,800 Alleanza Assicuraz............................... $ 160,248 ITL
200 Baloise Holdings................................. 417,155 SWI
259,081 GIO Australian Holdings Ltd...................... 603,218 AUS
7,600 Mapfre Vida Seguros.............................. 451,052 SPA
62,000 Mitsui Marine & Fire Ins......................... 442,376 JPN
327 Muenchener Rueckversicherungs.................... 705,964 GER
20 Muenchener Rueckversicherungs--Warrants
(Expires 03/13/98)............................... 2,648 GER
71,000 Yasuda Fire & Marine Ins......................... 502,460 JPN
------------
Total Insurance............................... 3,285,121 3.94%
------------ -------
INVESTMENT HOLDING COS
665,000 Brierley Investments Ltd......................... 526,015 NZL
337,000 Sime Darby Berhad................................ 895,948 MAL
1,000 UMW Holdings BHD Warrants (Expires 01/26/00)..... 705 MAL
------------
Total Investment Holding Cos.................. 1,422,668 1.70%
------------ -------
MACHINERY PRODUCTION
11,400 ASM Lithography Holding NV(c).................... 379,050 NET
19,000 Atlas Copco AB--Cl A............................. 292,431 SWE
21,000 Atlas Copco AB--Cl B............................. 316,875 SWE
18,000 Mitsubishi Heavy................................. 941,463 JPN
100 Sidel............................................ 31,204 FRA
------------
Total Machinery Production.................... 1,961,023 2.35%
------------ -------
METAL MINING
26,000 Inco Ltd......................................... 864,500 CAN
216,000 Placer Pacific Ltd............................... 446,666 AUS
90,000 Western Mining Corp Holding Ltd.................. 578,430 AUS
------------
Total Metal Mining............................ 1,889,596 2.26%
------------ -------
METAL REFINERIES
17,000 Alcan Aluminum LTD............................... 529,125 CAN
107,000 Kawasaki Steel................................... 373,430 JPN
15,000 Pechiney......................................... 567,440 FRA
15,000 Pechiney Warrants (Expires 01/08/96)............. 31 FRA
9,900 Sandvik AB--A.................................... 174,032 SWE
2,800 Sandvik AB--B(c)................................. 49,221 SWE
------------
Total Metal Refineries........................ 1,693,279 2.03%
------------ -------
</TABLE>
F-83
<PAGE> 178
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES/UNITS VALUE NET ASSETS COUNTRY
- ------------ ----------- ---------- -------
<C> <S> <C> <C> <C>
COMMON STOCKS AND WARRANTS--(CONTINUED)
MOTOR VEHICLES
9,700 Autoliv AB....................................... $ 567,901 SWE
54,000 Mitsubishi Motor Corp(c)......................... 440,262 JPN
24,000 Toyota Motor Co.................................. 509,539 JPN
2,300 Volkswagen AG.................................... 772,946 GER
30,000 Volvo Aktiebolag B Free.......................... 615,642 SWE
------------
Total Motor Vehicles.......................... 2,906,290 3.48%
------------ -------
OIL AND GAS
98,000 British Gas Corp................................. 386,473 UK
17,000 Repsol SA--ADR................................... 558,875 SPA
6,200 Societe National Elf--Aquitaine.................. 457,420 FRA
15,000 YPF Sociedad Anonima--ADR........................ 324,375 ARG
------------
Total Oil and Gas............................. 1,727,143 2.07%
------------ -------
PERSONAL SERVICES
15,000 Secom Co Ltd..................................... 1,044,093 1.25% JPN
------------ -------
PRINTING AND PUBLISHING
93,000 News Corp Ltd.................................... 496,704 AUS
29,000 Singapore Press Holdings Ltd..................... 512,561 SIN
------------
Total Printing and Publishing................. 1,009,265 1.21%
------------ -------
REAL ESTATE
62,000 City Developments................................ 451,472 SIN
82,000 Mitsui Fudosan................................... 1,009,576 JPN
------------
Total Real Estate............................. 1,461,048 1.75%
------------ -------
RESTAURANTS
24,000 Izumi(c)......................................... 530,479 0.64% JPN
------------ -------
RETAIL SALES
13,000 Electrolux....................................... 534,538 SWE
12,700 Hennes & Mauritz................................. 709,046 SWE
------------
Total Retail Sales............................ 1,243,584 1.49%
------------ -------
SOFTWARE
4,900 SAP AG Vorzug(c)................................. 745,642 0.89% GER
------------ -------
</TABLE>
F-84
<PAGE> 179
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES/UNITS VALUE NET ASSETS COUNTRY
- ------------ ---------- ---------- -------
<C> <S> <C> <C> <C>
COMMON STOCKS AND WARRANTS--(CONTINUED)
TELECOMMUNICATIONS
86,000 Cable and Wireless............................... $ 614,203 UK
32,000 Ericsson AB(c)................................... 627,715 SWE
400,000 Hong Kong Telecom................................ 713,920 HK
800 Hong Kong Telecom--ADR........................... 14,200 HK
209 Nippon Telegraph and Telephone Corp.............. 1,691,829 JPN
8,300 Nokia AB K Shares(c)............................. 328,788 FIN
253,000 Telecom Italia Mobile--drnc(c)................... 266,308 ITA
456,000 Telecom Italia Mobile(c)......................... 803,381 ITA
18,500 Telecomunicacoes Brasileiras--ADR................ 890,816 BRA
44,000 Telefonica De Espana............................. 609,316 SPA
25,600 Telefonos De Mexico ADR.......................... 816,000 MEX
5,400 Vodafone Group PLC ADR........................... 190,350 UK
------------
Total Telecommunications...................... 7,619,826 9.13%
------------ -------
TELEPHONE UTILITIES
300 Tele Danmark B................................... 16,403 DEN
34,600 Tele Danmark--ADR................................ 955,825 DEN
------------
Total Telephone Utilities..................... 972,228 1.17%
------------ -------
TEXTILES
28,000 Wacoal Corp...................................... 380,022 0.45% JPN
------------ -------
TIRE PRODUCTION
81,000 Bridgestone Corp................................. 1,287,810 JPN
9,000 Michelin B....................................... 359,420 FRA
------------
Total Tire Production......................... 1,647,230 1.97%
------------ -------
TOBACCO PRODUCTS
58,000 B.A.T. Industries................................ 511,037 0.61% UK
------------ -------
TOYS AND GAMES
18,100 Nintendo Corp Ltd................................ 1,377,437 1.65 % JPN
------------ -------
</TABLE>
F-85
<PAGE> 180
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
SHARES/UNITS VALUE NET ASSETS COUNTRY
- ------------ ---------- ---------- -------
<C> <S> <C> <C> <C>
COMMON STOCKS AND WARRANTS--(CONTINUED)
WHOLESALERS
184,000 Hutchison Whampoa................................ $1,120,853 1.34% HK
------------ -------
Total Common Stocks and Warrants
(cost $75,986,728)............................ 77,137,531 92.44%
------------ -------
PREFERRED STOCK
DRUGS AND COSMETICS
200 Wella AG (cost $144,093)......................... 108,574 0.13% GER
------------ -------
Total Investments (cost $78,000,625).......... $79,175,541 94.88%
Total Assets Less Liabilities................. 4,270,774 5.12%
------------ -------
Net Assets....................................... $83,446,315 100.00%
============ =======
The aggregate cost of securities for federal income tax purposes
at December 31, 1995 is $78,000,625.
The following amount is based on costs for federal income tax purposes:
Gross unrealized appreciation.................... $3,665,875
Gross unrealized depreciation.................... $(2,490,959)
------------
Net unrealized appreciation...................... $1,174,916
============
* Traded on Italian exchange
</TABLE>
- ---------------
(c) Non-income producing security.
See notes to financial statements.
F-86
<PAGE> 181
COUNTRY COMPOSITION
<TABLE>
<S> <C>
Argentina.......................................................................... 0.42%
Australia.......................................................................... 5.58%
Brazil............................................................................. 1.13%
Canada............................................................................. 4.96%
Denmark............................................................................ 1.23%
Finland............................................................................ 0.42%
France............................................................................. 3.55%
Germany............................................................................ 5.33%
Hong Kong.......................................................................... 4.88%
Italy.............................................................................. 2.11%
Japan.............................................................................. 30.81%
Malasia............................................................................ 1.71%
Mexico............................................................................. 1.52%
Netherlands........................................................................ 4.93%
Norway............................................................................. 1.06%
New Zealand........................................................................ 1.01%
Singapore.......................................................................... 2.24%
Spain.............................................................................. 2.51%
Sweden............................................................................. 8.98%
Switzerland........................................................................ 6.22%
Thailand........................................................................... 0.37%
United Kingdom..................................................................... 9.03%
Total:........................................................................ 100.00%
</TABLE>
F-87
<PAGE> 182
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Diversified Investors Portfolios (the "Series Portfolio"), a series trust
organized on September 1, 1993 under the laws of the State of New York, is
composed of eleven different series that are, in effect, separate investment
funds: the Money Market Series, the High Quality Bond Series, the Intermediate
Government Bond Series, the Government/Corporate Bond Series, the Balanced
Series, the Equity Income Series, the Growth & Income Series, the Equity Growth
Series, the Special Equity Series, the High-Yield Bond Series, and the
International Equity Series (each a "Series"). The Declaration of Trust permits
the Board of Trustees to issue an unlimited number of beneficial interests in
each Series. Investors in a Series (e.g., investment companies, insurance
company separate accounts and common and commingled trust funds) will each be
liable for all obligations of that Series (and of no other Series). On January
3, 1994 (commencement of operations for each series except the High-Yield Bond
Series and the International Equity Series), MONY Pooled Separate Accounts
transferred all of their investable assets at a market value of $1,183,075,019
to those Series with corresponding investment objectives in exchange for
interests in those Series. The High-Yield Bond Series and International Equity
Series commenced operations on August 22, 1995 and September 29, 1995,
respectively.
The International Equity Series was established by a redemption of assets
in-kind, valued at $77,137,079 from the Non-U.S. Equity Fund for Participant
Directed Plans within the Capital Guardian Collective Trust for Employee Benefit
Plans, a bank collective trust fund established and maintained by Capital
Guardian Trust Company, which were immediately invested at market value into the
Portfolio. The transaction resulted in a non-taxable event.
2. SIGNIFICANT ACCOUNTING POLICIES
A. Security Valuation:
Short-term securities having remaining maturities of 60 days or less are
valued at amortized cost or original cost plus accrued interest receivable, both
of which approximate value. The amortized cost of a security is determined by
valuing it at original cost and thereafter amortizing any discount or premium at
a constant rate until maturity. Securities traded on national securities
exchanges are valued at the last sales price as of the close of business on each
day or at the closing bid price for over-the-counter securities. Equity
securities are valued at the last sale price on the exchange on which they are
primarily traded or at the ask price on the NASDAQ system for unlisted national
market issues, or at the last quoted bid price for securities not reported on
the NASDAQ system. Bonds are valued at the last available price provided by an
independent pricing service for securities traded on a national securities
exchange. Bonds that are listed on a national securities exchange but are not
traded and bonds that are regularly traded in the over-the-counter market are
valued at the mean of the last available bid and asked prices by an independent
pricing service. All other securities will be valued at their fair value as
determined by the Board of Trustees.
B. Repurchase Agreements:
Each Series, along with other affiliated entities of the investment
advisor, may enter into repurchase agreements with financial institutions deemed
to be creditworthy by the Series investment advisor, subject to the seller's
agreement to repurchase and the Series agreement to resell such securities at a
mutually agreed upon price. Securities purchased subject to repurchase
agreements are deposited with a third party custodian, and pursuant to the terms
of the repurchase agreement must have an aggregate market value greater than or
equal to 102% and 105% of domestic and international securities, respectively,
of the repurchase price plus accrued interest at all times. If the value of the
underlying securities falls below the value of the repurchase price plus accrued
interest, the Series will require the seller to deposit additional collateral by
the next business day. If the request for additional collateral is not met or
the seller defaults on its repurchase obligation, the Series maintains the right
to sell the underlying securities at market value and may claim any resulting
loss
F-88
<PAGE> 183
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
against the seller. However, in the event of default or bankruptcy by the
seller, realization and/or retention of the collateral may be subject to legal
proceedings.
C. Foreign Currency Translation:
The accounting records of the International Equity Series are maintained in
U.S. dollars. The market values of foreign securities, currency holdings and
other assets and liabilities are translated to U.S. dollars based on the
prevailing exchange rates each business day. Income and expenses denominated in
foreign currencies are translated at prevailing exchange rates when accrued or
incurred. The Series does not isolate realized gains and losses attributable to
changes in exchange rates from gains and losses that arise from changes in the
market value of investments. Such fluctuations are included with net realized
and unrealized gains or losses on investments. Net realized gains and losses on
foreign currency transactions represent net exchange gains and losses on
disposition of foreign currencies, the difference between the amount of
investment income receivable and foreign withholding taxes receivable recorded
on the Series' books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end and forward foreign currency contracts, resulting from changes in the
exchange rate.
D. Forward Currency Contracts:
The International Equity Series may enter into forward currency contracts
and forward cross currency contracts in connection with settling planned
purchases or sales of securities or to hedge the currency exposure associated
with some or all of the Series' portfolio securities. A forward currency
contract is an agreement between two parties to buy and sell a currency at a set
price on a future date. The market value of a forward currency contract
fluctuates with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded by the
Series as an unrealized gain or loss. When a forward currency contract is
extinguished, through delivery or offset by entering into another forward
currency contract, the Series records a realized gain or loss equal to the
different between the value of the contract at the time it was opened and the
value of the contract at the time it was extinguished or offset. These contracts
may involve market risk in excess of the unrealized gain or loss reflected in
the Series' Statement of Assets and Liabilities and the Statement of Operations.
In addition, the Series could be exposed to risk if the counterparties are
unable to meet the terms of the contracts or if the value of the currency
changes unfavorably to the U.S. dollar.
E. Federal Income Taxes:
It is the Series policy to comply with the applicable provisions of the
Internal Revenue Code. Therefore, no federal income tax provision is required.
F. Security Transactions and Investment Income:
Security transactions are accounted for on a trade date basis (the day
after the date the order to buy or sell is executed). Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discount on investments. Realized
gains and losses from securities transactions are recorded on the identified
cost basis.
All of the net investment income and realized and unrealized gains and
losses from security transactions are determined on each valuation day and
allocated pro rata among the investors in a Series at the time of such
determination.
F-89
<PAGE> 184
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
G. Operating Expenses:
The Series Portfolio accounts separately for the assets, liabilities and
operations of each Series. Expenses directly attributable to a Series are
charged to that Series, while expenses attributable to all Series are allocated
among them.
H. Other:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
3. FEES AND TRANSACTIONS WITH AFFILIATES
AUSA Life Insurance Company, Inc. ("AUSA") is the parent company of
Diversified Investment Advisors, Inc. (the "Advisor"). AUSA has sub-accounts
which invests in the corresponding Portfolios as follows:
<TABLE>
<CAPTION>
PERCENTAGE INVESTMENT
AUSA SUBACCOUNT IN PORTFOLIO
--------------------------------------------------------------------- ---------------------
<S> <C>
Money Market......................................................... 42.43%
High Quality Bond.................................................... 54.41%
Intermediate Government Bond......................................... 63.72%
Government/Corporate Bond............................................ 25.83%
Balanced............................................................. 92.89%
Equity Income........................................................ 68.02%
Growth & Income...................................................... 72.63%
Equity Growth........................................................ 85.74%
Special Equity....................................................... 51.48%
High Yield Bond...................................................... 73.21%
International Equity................................................. 41.39%
</TABLE>
The Advisor manages the assets of each Series of the Series Portfolio
pursuant to an Investment Advisory Agreement (the "Advisory Agreement") with the
Series Portfolio with respect to each Series. Subject to such further policies
as the Board of Trustees may determine, the Advisor provides general investment
advice to each Series. For its services under the Advisory Agreement, the
Adviser receives from each Series fees accrued daily and paid monthly at an
annual rate equal to the percentages specified in the table below of the
corresponding Series' average daily net assets. The Advisor is currently waiving
a portion of its investment advisory fee.
For each Series, the Advisor has entered into an Investment Subadvisory
Agreement (each a "Subadvisory Agreement") with the subadvisors listed in the
table below (each a "Subadvisor", collectively the "Subadvisors"). It is the
responsibility of a Subadvisor to make the day-to-day investment decisions of
the Series and to place the purchase and sales orders for securities
transactions of such series, subject in all cases to the general supervision of
the Advisor. For its services under each Subadvisory Agreement, the Subadvisors
F-90
<PAGE> 185
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
receive a fee from the Advisor at an annual rate equal to the percentages
specified in the table below of the corresponding Series' average net assets.
<TABLE>
<CAPTION>
ADVISOR SUBADVISORS
DIVERSIFIED INVESTORS PORTFOLIO SERIES PORTFOLIO SUBADVISORS FEE(1) FEE
---------------------------------------- -------------------------------- ------- -----------
<S> <C> <C> <C>
Money Market Series..................... Capital Management Group 0.25% 0.05%
High Quality Bond Series................ Merganser Capital Management
Corporation 0.35 (2)
Intermediate Government Bond Series..... 1740 Advisors, Inc. 0.35 0.15
Government/Corporate Bond Series........ Capital Management Group 0.35 0.15
Balanced Series......................... Institutional Capital
Corporation 0.45 (3)
Equity Income Series.................... Asset Management Group 0.45 0.25
Growth & Income Series.................. Munder Capital Management, Inc.
(1/1/95--11/13/95) 0.60 (4)
The Putnam Advisory Co Inc.
(11/14/95--12/31/95) 0.60 (4)
Equity Growth Series.................... Jundt Associates, Inc. 0.70 0.63
Special Equity Series................... (5) 0.80 0.50
High-Yield Bond Series.................. Delaware Investment Advisors 0.55 (6)
International Equity Series............. Capital Guardian Trust Co. 0.75 (7)
</TABLE>
- ---------------
(1) The Advisor is currently waiving a portion of its fee.
(2) 0.50 on the first $10,000,000 in net assets, 0.375% on the next $15,000,000
in net assets, 0.25 on the next $75,000,000 in net assets and 0.1875% on
all net assets in excess of $100,000,000.
(3) 0.55% on the first $25,000,000 in net assets, 0.45% on the next $25,000,000
in net assets, and 0.35% on all net assets in excess of $50,000,000.
(4) Munder: 0.50% on the first $50,000,000 in net assets, 0.30% on the next
$25,000,000 in net assets, and 0.25% on net assets in excess of
$75,000,000. Putnam: 0.30% on the first $100,000,000 in net assets, 0.20%
on net assets in excess of $100,000,000.
(5) The Special Equity Series has four Subadvisors: Pilgrim Baxter & Associates,
Ltd., Ark Asset Management Co., Inc.; Liberty Investment Management, Inc.;
and Westport Asset Management, Inc.
(6) 0.40% on the first $20,000,000 in net assets, 0.30% on the next $20,000,000
in net assets, and 0.20% on all net assets in excess of $40,000,000.
(7) 0.75% on the first $25,000,000 in net assets, 0.60% on the next $25,000,000
to $50,000,000 in net assets, 0.425% on the next $50,000,000 to
$250,000,000 in net assets and 0.375% on all net assets in excess of
$250,000,000.
F-91
<PAGE> 186
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
For the year ended December 31, 1995, the Advisor has voluntarily
undertaken to waive fees in accordance with the expense caps as follows:
<TABLE>
<CAPTION>
FUND EXPENSE CAP
------------------------------------------------------------------- ----------------------
<S> <C>
Money Market Series................................................ 30 basis points (b.p.)
High Quality Bond Series........................................... 40 b.p.
Intermediate Government Bond Series................................ 40 b.p.
Government/Corporate Bond Series................................... 40 b.p.
Balanced Series.................................................... 50 b.p.
Equity Income Series............................................... 50 b.p.
Growth & Income Series............................................. 65 b.p.
Equity Growth Series............................................... 75 b.p.
Special Equity Series.............................................. 85 b.p
High-Yield Bond Series............................................. 60 b.p.
International Equity Series........................................ 80 b.p.
</TABLE>
Certain trustees and officers of the Series Portfolio are also directors,
officers or employees of the Advisor or its affiliates. None of the trustees so
affiliated receive compensation for services as trustees of the Series
Portfolio. Similarly, none of the Series Portfolio officers receive compensation
from the Series Portfolio.
4. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF RATIO OF NET INVESTMENT
RATIO OF EXPENSES, INVESTMENT INCOME, NET
GROSS NET OF INCOME TO OF WAIVERS
EXPENSES WAIVERS TO PORTFOLIO TO PORTFOLIO
TO AVERAGE AVERAGE AVERAGE NET AVERAGE PORTFOLIO
NET ASSETS NET ASSETS ASSETS NET ASSETS TURNOVER
------------- ------------- ------------- ------------- -------------
1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Series............... .31% .32% .30% .30% 5.70% 4.05% 5.69% 4.07% n/a n/a
High Quality Bond Series.......... .41 .41 .40 .40 5.83 5.77 5.82 5.79 25% 37%
Intermediate Government Bond
Series.......................... .45 .45 .40 .40 5.57 5.71 5.52 5.76 59 21
Government/Corporate Bond
Series.......................... .39 .40 .39 .40 5.90 5.71 5.90 5.72 122 122
Balanced Series................... .54 .53 .50 .50 4.19 3.57 4.15 3.61 124 118
Equity Income Series.............. .49 .49 .49 -- 3.37 3.43 3.37 3.43 23 30
Growth & Income Series............ .68 .67 .65 .65 1.49 1.35 1.47 1.37 155 21
Equity Growth Series.............. .75 .76 .75 .75 .41 .08 .41 .11 62 75
Special Equity Series............. .88 .88 .85 .85 .33 .27 .30 .30 155 90
High-Yield Bond Series*........... 1.32 n/a .60 n/a 8.45 n/a 7.73 n/a 21 n/a
International Equity Series*...... .83 n/a .80 n/a .53 n/a .50 n/a 7 n/a
</TABLE>
- ---------------
* Annualized (except "Portfolio Turnover")
5. SECURITIES LENDING
The Series may lend its securities to certain firms of the New York Stock
Exchange. The loans are collateralized at all times with cash or securities with
a market value at least equal to the market value of the securities on loan. Any
deficiencies or excess of collateral must be delivered or transferred by the
member firms no later than the close of business on the next business day. As
with other extensions of credit, the Series may bear the risk of delay in
recovery or even loss of rights in the collateral should the borrower of the
F-92
<PAGE> 187
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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, 1995, the Series loaned securities
having market values as follows:
<TABLE>
<CAPTION>
MARKET
VALUE COLLATERAL
---------- ----------
<S> <C> <C>
Intermediate Government Bond Series..................... $9,632,499 $10,072,779
Government/Corporate Bond Series........................ 24,882,591 25,522,680
Balanced Series......................................... 44,855,823 45,264,696
Equity Income Series.................................... 32,341,850 40,895,567
Growth & Income Series.................................. 9,295,738 8,426,958
Equity Growth Series.................................... 38,008,275 43,322,473
Special Equity Series................................... 24,289,950 25,517,296
</TABLE>
6. PURCHASE AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and proceeds from sales or
maturities for the year ended December 31, 1995, except for the High-Yield Bond
Series and the International Equity Series, which commenced operations on August
22, 1995 and September 29, 1995, respectively, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- -----------
<S> <C> <C> <C>
High Quality Bond.................... Government Obligations $ 7,485,156 $ 9,775,000
Other 90,987,861 27,551,146
Intermediate Government Bond......... Government Obligations 39,072,203 46,901,641
Other 2,483,850 0
Government/Corporate Bond............ Government Obligations 197,580,983 209,414,611
Other 122,386,994 79,397,548
Balanced............................. Government Obligations 57,119,727 59,294,289
Other 126,156,208 110,742,597
Equity Income........................ Other 134,758,652 150,097,939
Growth & Income...................... Other 149,015,878 153,018,963
Equity Growth........................ Other 140,230,205 97,274,051
Special Equity....................... Other 377,723,502 364,616,633
High-Yield Bond...................... Other 9,592,564 1,527,669
International Equity................. Other 10,480,055 4,995,961
</TABLE>
F-93
<PAGE> 188
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. FORWARD CURRENCY CONTRACTS
At December 31, 1995, the International Equity Series had entered into
forward currency contracts which contractually obligate the Portfolio to
deliver/receive currency at specified future dates. The open contracts are as
follows:
<TABLE>
<CAPTION>
IN NET
UNITS OF EXCHANGE UNREALIZED
VALUE DATE DELIVER/RECEIVE CURRENCY FOR APPR/(DEPR)
------------------------------ ------------------ ---------- --------- -----------
<S> <C> <C> <C> <C>
Buys
01/03/96...................... Spanish Peseta 2,110,172 $ 17,370 $ 24
01/24/96...................... Canadian Dollars 814,248 597,467 (748)
10/30/96...................... Japanese Yen 93,267,250 962,610 (21,277)
-----------
($ 22,001)
-----------
Sells
01/02/96...................... Malaysian Ringgit 189 $ 74 $ 0
01/04/96...................... Japanese Yen 15,595,020 151,629 377
01/24/96...................... Canadian Dollars 814,248 593,000 (3,718)
03/11/96...................... German Marks 433,140 300,000 (3,813)
10/15/96...................... Japanese Yen 377,578,600 3,962,000 157,873
10/15/96...................... Japanese Yen 19,026,000 200,000 8,312
10/30/96...................... Japanese Yen 93,267,250 965,000 23,667
-----------
$ 182,697
-----------
</TABLE>
F-94
<PAGE> 189
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Intermediate Government/
Money High Government Corporate Equity
Market Quality Bond Bond Bond Balanced Income
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at cost........ $ 137,557,989 $ 170,802,435 $ 126,880,568 $ 424,859,559 $ 290,476,627 $ 664,072,694
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
Investments, at market (Note
2)........................ $ 137,557,989 $ 169,531,984 $ 125,622,486 $ 424,894,620 $ 297,039,104 $ 827,414,656
Repurchase agreement, at
value..................... 65,243 1,012,512 48,474 15,194 5,125,633 32,854
Cash........................ -- 2,520 4,272 7,064 35,194 15,728
Receivable for securities
sold...................... -- 130,443 -- -- 4,715,158 8,359,870
Receivable for forward
currency contracts........ -- -- -- -- -- --
Interest receivable......... -- 2,096,827 1,235,944 4,871,524 1,571,816 --
Dividends receivable........ -- -- -- -- 130,541 1,452,810
Receivable from securities
lending................... -- 5,540 1,094 4,086 30,342 11,412
Reimbursement from
advisor..................... -- -- 6,501 1,743 18,407 6,869
------------- ------------- ------------- ------------- ------------- -------------
Total assets.......... 137,623,232 172,779,826 126,918,771 429,794,231 308,666,195 837,294,199
------------- ------------- ------------- ------------- ------------- -------------
LIABILITIES:
Deposit for securities
loaned.................... -- 9,514,650 35,893,750 52,256,250 85,726,849 8,944,200
Payable for securities
purchased................. -- -- -- -- 5,011,068 --
Payable for forward currency
contracts................. -- -- -- -- -- --
Payable for shares
repurchased............... -- -- 338 -- -- --
Payable to advisor.......... 6,240 109,177 -- -- -- --
Accrued expenses:
Investment advisory
fees................. 57,845 93,712 53,428 209,574 157,653 606,912
Custody fees............ 3,848 2,387 2,543 19,377 11,383 56,035
Professional fees....... 11,819 11,805 10,429 12,601 11,517 23,690
Reports to
shareholders......... 1,239 1,277 695 2,725 1,476 5,920
Miscellaneous fees...... 10,341 1,800 1,969 2,228 2,286 2,229
------------- ------------- ------------- ------------- ------------- -------------
Total
liabilities................. 91,332 9,734,808 35,963,152 52,502,755 90,922,232 9,638,986
------------- ------------- ------------- ------------- ------------- -------------
Net assets.................. $ 137,531,900 $ 163,045,018 $ 90,955,619 $ 377,291,476 $ 217,743,963 $ 827,655,213
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
Net assets consist of:
Paid-in capital......... $ 137,531,900 $ 164,315,469 $ 92,213,701 $ 377,256,415 $ 211,181,486 $ 664,313,251
Net unrealized
appreciation
(depreciation) on
investments, and
translation of assets
and liabilities in
foreign currencies.... -- (1,270,451) (1,258,082) 35,061 6,562,477 163,341,962
------------- ------------- ------------- ------------- ------------- -------------
Net assets......... $ 137,531,900 $ 163,045,018 $ 90,955,619 $ 377,291,476 $ 217,743,963 $ 827,655,213
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
See notes to financial statements.
F-95
<PAGE> 190
<TABLE>
<CAPTION>
Equity Growth & Equity Special Aggressive High Yield International
Value Income Growth Equity Equity Bond Equity
------------- -------------- -------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 15,904,433 $ 161,814,858 $ 215,342,107 $ 356,424,333 $ 15,290,049 $ 10,288,502 $ 89,469,597
------------- -------------- -------------- -------------- ------------- ------------- --------------
------------- -------------- -------------- -------------- ------------- ------------- --------------
$ 15,828,138 $ 180,278,224 $ 275,996,486 $ 430,611,973 $ 16,726,450 $ 10,122,132 $ 95,467,804
1,402,167 15,423,094 18,828,043 46,181,174 5,243,168 -- --
2,763 3,357 3,498 4,017 -- 1,618,658 7,396,129
53,681 148,102 231,280 1,359,535 656,326 264,875 163,848
-- -- -- -- -- -- 880,090
-- -- 35,947 -- -- 249,809 61,802
31,147 240,635 52,683 268,296 375 -- 353,844
-- 1,241 52,300 15,933 -- -- --
17,187 5,586 -- -- 16,952 11,759 45,606
------------- -------------- -------------- -------------- ------------- ------------- --------------
17,335,083 196,100,239 295,200,237 478,440,928 22,643,271 12,267,233 104,369,123
------------- -------------- -------------- -------------- ------------- ------------- --------------
-- 3,597,800 31,838,735 31,000,946 -- -- --
145,136 1,843,320 -- 4,695,925 5,641,737 1,400,387 765,922
-- -- -- -- -- -- 283,543
-- -- -- -- -- -- --
-- 11,814 19,928
14,336 167,045 283,153 551,424 20,364 9,241 121,948
1,048 9,893 9,591 19,802 740 -- 35,932
9,145 2,467 11,202 12,304 9,131 11,737 14,370
107 1,150 1,636 2,837 78 148 --
7,239 2,201 2,362 2,906 7,207 7,967 6,978
------------- -------------- -------------- -------------- ------------- ------------- --------------
177,011 5,623,876 32,158,493 36,306,072 5,679,257 1,429,480 1,228,693
------------- -------------- -------------- -------------- ------------- ------------- --------------
$ 17,158,072 $ 190,476,363 $ 263,041,744 $ 442,134,856 $ 16,964,014 $ 10,837,753 $ 103,140,430
------------- -------------- -------------- -------------- ------------- ------------- --------------
------------- -------------- -------------- -------------- ------------- ------------- --------------
$ 17,234,367 $ 172,012,997 $ 202,387,365 $ 367,947,216 $ 15,527,613 $ 11,004,123 $ 96,547,018
(76,295) 18,463,366 60,654,379 74,187,640 1,436,401 (166,370) 6,593,412
------------- -------------- -------------- -------------- ------------- ------------- --------------
$ 17,158,072 $ 190,476,363 $ 263,041,744 $ 442,134,856 $ 16,964,014 $ 10,837,753 $ 103,140,430
------------- -------------- -------------- -------------- ------------- ------------- --------------
------------- -------------- -------------- -------------- ------------- ------------- --------------
</TABLE>
F-96
<PAGE> 191
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF OPERATIONS
For the Period Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Intermediate Government/
Money High Government Corporate Equity
Market Quality Bond Bond Bond Balanced Income
------------ ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income (Note 2):
Dividend income............. $ -- $ -- $ -- $ -- $ 1,309,563 $ 11,622,339
Less Withholding Tax..... -- -- -- -- 9,882 8,733
Interest income............. 4,029,400 5,286,475 2,774,417 11,820,818 2,711,669 2,899,314
------------ ------------- ------------- -------------- ------------- -------------
Total income............. 4,029,400 5,286,475 2,774,417 11,820,818 4,011,350 14,512,920
------------ ------------- ------------- -------------- ------------- -------------
Expenses:
Investment advisory fees.... 184,202 286,441 162,617 631,865 446,066 1,844,838
Custody fees................ 23,923 23,409 19,181 50,270 30,952 97,432
Professional fees........... 10,715 11,505 10,220 12,451 11,533 23,090
Reports to shareholders..... 855 1,024 566 2,305 1,332 5,157
Miscellaneous fees.......... 8,100 8,297 7,770 9,773 8,651 13,064
------------ ------------- ------------- -------------- ------------- -------------
Total expenses........... 227,795 330,676 200,354 706,664 498,534 1,983,581
Expenses waived by the
investment advisor............ 9,550 14,522 15,691 25,742 7,016 46,840
Net expenses............. 218,245 316,154 184,663 680,922 491,518 1,936,741
------------ ------------- ------------- -------------- ------------- -------------
Net investment income (loss).... 3,811,155 4,970,321 2,589,754 11,139,896 3,519,832 12,576,179
------------ ------------- ------------- -------------- ------------- -------------
Net realized and unrealized
gains (losses) on investments:
Net realized gains (losses)
on investments.............. (1,771) 235,780 (573,024) (704,264) 14,358,120 24,542,271
Net realized (loss) on
foreign currency
transactions............. -- -- -- -- -- --
Net unrealized appreciation
(depreciation) on
investments.............. -- (2,874,615) (2,325,387) (15,975,824) (7,757,647) 18,262,060
Net increase in unrealized
appreciation on
translation of assets and
liabilities in foreign
currencies............... -- -- -- -- -- --
------------ ------------- ------------- -------------- ------------- -------------
Net realized and unrealized
gains (losses) on
investments................... (1,771) (2,638,835) (2,898,411) (16,680,088) 6,600,473 42,804,331
------------ ------------- ------------- -------------- ------------- -------------
Net increase (decrease) in net
assets resulting from
operations.................... $ 3,809,384 $ 2,331,486 $ (308,657) $ (5,540,192) $ 10,120,305 $ 55,380,510
------------ ------------- ------------- -------------- ------------- -------------
------------ ------------- ------------- -------------- ------------- -------------
</TABLE>
- ---------------
* April 19, 1996 Commencement of Operations
See notes to financial statements.
F-97
<PAGE> 192
<TABLE>
<CAPTION>
Equity Growth & Equity Special Aggressive High Yield International
Value* Income Growth Equity Equity* Bond Equity
--------- ------------- ------------- ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 67,321 $ 1,171,731 $ 203,784 $ 1,055,479 $ 1,215 $ -- $1,103,663
452 2,730 -- 6,621 -- -- 132,868
196 240,807 238,715 872,619 732 432,353 168,131
--------- ------------- ------------- ------------- ------------ ----------- ------------
67,065 1,409,808 442,499 1,921,477 1,947 432,353 1,138,926
--------- ------------- ------------- ------------- ------------ ----------- ------------
15,522 461,373 812,912 1,460,066 22,285 27,437 341,942
1,048 39,620 31,043 89,923 740 20,956 106,017
9,183 10,643 11,432 13,628 9,160 8,864 12,354
107 1,104 1,564 2,700 78 66 644
7,238 8,390 8,919 10,230 7,205 7,193 7,858
--------- ------------- ------------- ------------- ------------ ----------- ------------
33,098 521,130 865,870 1,576,547 39,468 64,516 468,815
17,187 23,010 2,697 30,402 16,952 34,594 62,659
--------- ------------- ------------- ------------- ------------ ----------- ------------
15,911 498,120 863,173 1,546,145 22,516 29,922 406,156
--------- ------------- ------------- ------------- ------------ ----------- ------------
51,154 911,688 (420,674) 375,332 (20,569) 402,431 732,770
--------- ------------- ------------- ------------- ------------ ----------- ------------
44,319 3,862,020 7,572,610 31,575,957 (543,670) 28,472 925,745
-- -- -- -- -- -- (3,852)
(76,295) 10,272,512 21,104,611 28,702,307 1,436,401 (328,416) 4,823,291
-- -- -- -- -- -- 435,382
--------- ------------- ------------- ------------- ------------ ----------- ------------
(31,976) 14,134,532 28,677,221 60,278,264 892,731 (299,944) 6,180,566
--------- ------------- ------------- ------------- ------------ ----------- ------------
$ 19,178 $ 15,046,220 $ 28,256,547 $ 60,653,596 $ 872,162 $ 102,487 $6,913,336
--------- ------------- ------------- ------------- ------------ ----------- ------------
--------- ------------- ------------- ------------- ------------ ----------- ------------
</TABLE>
F-98
<PAGE> 193
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Intermediate Government/
Money High Government Corporate Equity
Market Quality Bond Bond Bond Balanced Income
------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income
(loss)................ $ 3,811,155 $ 4,970,321 $ 2,589,754 $ 11,139,896 $ 3,519,832 $ 12,576,179
Net realized gains
(losses) on
investments........... (1,771) 235,780 (573,024) (704,264) 14,358,120 24,542,271
Net realized (loss) on
foreign currency
transactions.......... -- -- -- -- -- --
Net unrealized
appreciation
(depreciation) on
investments........... -- (2,874,615) (2,325,387) (15,975,824) (7,757,647) 18,262,060
Net increase in
unrealized
appreciation on
translation of assets
and liabilities in
foreign currencies.... -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 3,809,384 2,331,486 (308,657) (5,540,192) 10,120,305 55,380,510
------------- ------------- ------------- ------------- ------------- --------------
From capital transactions:
Proceeds from capital
invested.............. 241,237,410 63,296,550 25,812,053 72,008,232 61,289,658 131,241,991
Value of capital
withdrawn............. (249,153,142) (75,109,121) (20,539,391) (25,715,974) (20,698,955) (123,269,818)
------------- ------------- ------------- ------------- ------------- --------------
Net increase (decrease) in
net assets resulting from
capital transactions...... (7,915,732) (11,812,571) 5,272,662 46,292,258 40,590,703 7,972,173
------------- ------------- ------------- ------------- ------------- --------------
Net increase (decrease) in
net assets............... (4,106,348) (9,481,085) 4,964,005 40,752,066 50,711,008 63,352,683
Net assets:
Beginning of period..... 141,638,248 172,526,103 85,991,614 336,539,410 167,032,955 764,302,530
------------- ------------- ------------- ------------- ------------- --------------
End of period........... $ 137,531,900 $ 163,045,018 $ 90,955,619 $ 377,291,476 $ 217,743,963 $ 827,655,213
------------- ------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- ------------- --------------
</TABLE>
- ---------------
* April 19, 1996 Commencement of Operations
See notes to financial statements.
F-99
<PAGE> 194
<TABLE>
<CAPTION>
Equity Growth & Equity Special Aggressive High Yield International
Value* Income Growth Equity Equity* Bond Equity
------------ ------------- ------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
$ 51,154 $ 911,688 $ (420,674) $ 375,332 $ (20,569) $ 402,431 $ 732,770
44,319 3,862,020 7,572,610 31,575,957 (543,670) 28,472 925,745
-- -- -- -- -- -- (3,852)
(76,295) 10,272,512 21,104,611 28,702,307 1,436,401 (328,416) 4,823,291
-- -- -- -- -- -- 435,382
------------ ------------- ------------- ------------- ------------ ------------ -------------
19,178 15,046,220 28,256,547 60,653,596 872,162 102,487 6,913,336
------------ ------------- ------------- ------------- ------------ ------------ -------------
17,708,452 76,639,265 62,536,681 120,944,021 16,724,362 2,264,426 24,753,684
(569,558) (26,020,853) (50,113,874) (54,920,986) (632,510) (526,755) (11,972,905)
------------ ------------- ------------- ------------- ------------ ------------ -------------
17,138,894 50,618,412 12,422,807 66,023,035 16,091,852 1,737,671 12,780,779
------------ ------------- ------------- ------------- ------------ ------------ -------------
17,158,072 65,664,632 40,679,354 126,676,631 16,964,014 1,840,158 19,694,115
-- 124,811,731 222,362,390 315,458,225 -- 8,997,595 83,446,315
------------ ------------- ------------- ------------- ------------ ------------ -------------
$ 17,158,072 $ 190,476,363 $ 263,041,744 $ 442,134,856 $ 16,964,014 $ 10,837,753 $ 103,140,430
------------ ------------- ------------- ------------- ------------ ------------ -------------
------------ ------------- ------------- ------------- ------------ ------------ -------------
</TABLE>
F-100
<PAGE> 195
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended December 31, 1995
<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.................. $ 8,949,654 $ 9,914,104 $ 4,558,386 $ 18,181,947 $ 5,658,158
Net realized gains (losses) on
investments.......................... (4,226) (634,835) 379,479 1,365,500 11,609,960
Net realized gains (losses) on foreign
currency transactions................ -- -- -- -- --
Net unrealized appreciation on
investments.......................... -- 7,048,911 5,777,385 29,472,541 17,788,835
Net increase in unrealized appreciation
on translation of assets and
liabilities in foreign currencies.... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations...................... 8,945,428 16,328,180 10,715,250 49,019,988 35,056,953
------------- ------------- ------------- ------------- -------------
From capital transactions:
Proceeds from capital invested......... 393,166,782 141,659,639 38,046,469 151,446,357 80,590,418
Value of capital withdrawn............. 421,983,754 129,457,932 49,408,845 110,912,327 74,123,531
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from capital transactions..... (28,816,972) 12,201,707 (11,362,376) 40,534,030 6,466,887
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets...... (19,871,544) 28,529,887 (647,126) 89,554,018 41,523,840
Net assets:
Beginning of year...................... 161,509,792 143,996,216 86,638,740 246,985,392 125,509,115
------------- ------------- ------------- ------------- -------------
End of year............................ $ 141,638,248 $ 172,526,103 $ 85,991,614 $ 336,539,410 $ 167,032,955
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
- ---------------
* August 22, 1995 Commencement of Operations
** September 29, 1995 Commencement of Operations
See notes to financial statements.
F-101
<PAGE> 196
<TABLE>
<CAPTION>
Equity Growth & Equity Special High Yield International
Value* Income Growth Equity Bond * Equity **
------------- ------------- ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$ 21,635,258 $ 1,556,678 $ 868,631 $ 763,542 $ 223,398 $ 102,394
9,847,566 19,009,812 4,768,375 45,159,729 6,659 16,793
-- -- -- -- -- (8,241)
158,219,366 9,319,254 24,304,762 40,748,255 162,046 1,174,916
-- -- -- -- -- 159,823
------------- ------------- ------------- ------------- ------------ --------------
189,702,190 29,885,744 29,941,768 86,671,526 392,103 1,445,685
------------- ------------- ------------- ------------- ------------ --------------
231,491,356 93,751,429 93,276,744 113,103,544 9,081,530 86,991,521
245,585,114 93,408,742 49,673,952 101,988,710 476,038 4,990,891
------------- ------------- ------------- ------------- ------------ --------------
(14,093,758) 342,687 43,602,792 11,114,834 8,605,492 82,000,630
------------- ------------- ------------- ------------- ------------ --------------
175,608,432 30,228,431 73,544,560 97,786,360 8,997,595 83,446,315
588,694,098 94,583,300 148,817,830 217,671,865 -- --
------------- ------------- ------------- ------------- ------------ --------------
$ 764,302,530 $ 124,811,731 $ 222,362,390 $ 315,458,225 $ 8,997,595 $ 83,446,315
------------- ------------- ------------- ------------- ------------ --------------
------------- ------------- ------------- ------------- ------------ --------------
</TABLE>
F-102
<PAGE> 197
Money Market Portfolio
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
US Government Agency Securities
$ 100,000 Federal Home Loan Mortgage Corp., 5.23%, 07/15/96................... $ 99,767
100,000 Federal Home Loan Mortgage Corp., 5.28%, 07/22/96................... 99,663
----------------
Total US Government Agency Securities
(Cost $199,430).............................................. 199,430 0.15%
---------------- -----------
Commercial Paper
800,000 American Express Credit Corp., 5.34%, 07/15/96...................... 798,101
3,900,000 American Express Credit Corp., 5.27%, 07/24/96...................... 3,885,727
100,000 American Express Credit Corp., 5.29%, 09/11/96...................... 98,912
5,000,000 Avco Financial Services, Canada 5.34%, 07/08/96..................... 4,993,325
4,700,000 Banco Real S.A., 5.30%, 10/02/96.................................... 4,634,265
5,000,000 Bank Of New York, 5.29%, 07/31/96................................... 4,976,489
3,000,000 Bank Of Nova Scotia, 5.29%, 11/25/96................................ 2,934,316
2,700,000 Bell South Telecommunications Inc., 5.45%, 07/09/96................. 2,695,913
1,600,000 Canadian Wheat Board, 5.35%, 07/26/96............................... 1,593,580
6,000,000 Capital One Funding Corp., 5.50%, 07/05/96.......................... 6,024,525
6,700,000 Colonial Pipeline Co., 5.27%, 07/02/96.............................. 6,697,058
5,000,000 Columbus Certificates, 5.33%, 07/03/96.............................. 4,997,039
1,220,000 Cooperative Finance Corp., 5.30%, 07/10/96.......................... 1,218,024
5,000,000 Copley Financing Corp., 5.36%, 07/19/96............................. 4,985,111
2,000,000 Enterprise Funding Corp., 5.40%, 07/24/96........................... 1,992,500
4,600,000 Enterprise Funding Corp., 5.35%, 08/23/96........................... 4,562,402
4,200,000 General Electric Capital Corp., 5.34%, 07/16/96..................... 4,189,409
6,500,000 General Motors Acceptance Corp., 5.35%, 08/28/96.................... 6,442,041
1,500,000 Household Finance Corp., 5.28%, 08/20/96............................ 1,488,560
3,600,000 JHM Funding Inc., 5.30%, 07/18/96................................... 3,589,930
2,300,000 JHM Funding Inc., 5.33%, 07/18/96................................... 2,293,530
5,000,000 Lucent Technologies Inc., 5.27%, 08/02/96........................... 4,975,114
1,200,000 Merrill Lynch and Co. Inc., 5.33%, 08/08/96......................... 1,192,894
2,100,000 Norwest Corp., 5.27%, 07/17/96...................................... 2,094,466
1,700,000 NYNEX Corp., 5.42%, 07/29/96........................................ 1,692,322
2,900,000 Penney (JC) Funding Corp., 5.28%, 07/12/96.......................... 2,894,471
2,100,000 Pepsico Inc., 5.37%, 09/25/96....................................... 2,072,435
4,600,000 Prudential Funding Corp., 5.30%, 08/05/96........................... 4,574,942
1,700,000 Prudential Funding Corp., 5.39%, 08/16/96........................... 1,687,783
4,900,000 Quebec Province, 5.35%, 10/22/96.................................... 4,816,258
6,000,000 Royal Bank Of Canada, 5.19%, 07/01/96............................... 5,998,270
3,500,000 Seagram and Sons Inc., 5.37%, 07/22/96.............................. 3,487,992
300,000 Sears Roebuck Acceptance Corp., 5.29%, 07/01/96..................... 299,912
1,300,000 Sears Roebuck Acceptance Corp., 5.35%, 07/09/96..................... 1,298,068
2,200,000 Sears Roebuck Acceptance Corp., 5.38%, 07/25/96..................... 2,191,452
2,000,000 Sears Roebuck Acceptance Corp., 5.30%, 09/04/96..................... 1,980,272
6,400,000 SmithKline Beecham Corp., 5.26%, 07/10/96........................... 6,389,713
200,000 SmithKline Beecham Corp., 5.27%, 07/16/96........................... 199,502
3,000,000 Toronto Dominion Bank, 5.29%, 07/15/96.............................. 2,992,947
2,600,000 Walt Disney Company, 5.28%, 09/13/96................................ 2,571,018
</TABLE>
See notes to financial statements.
F-103
<PAGE> 198
Money Market Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
Commercial Paper--(cont'd)
$ 2,000,000 Whirlpool Corp., 5.39%, 07/26/96.................................... $ 1,991,915
2,500,000 Whirlpool Finance Inc., 5.40%, 07/25/96............................. 2,490,250
4,400,000 Xerox Corp., 5.35%, 08/05/96........................................ 4,375,806
----------------
Total Commercial Paper (Cost $137,358,559)..................... 137,358,559 99.87%
---------------- -----------
Repurchase Agreement
65,234 Repurchase Agreement with Investors Bank & Trust, dated 06/28/96,
5.03%, proceeds at maturity $65,262, due 07/01/96 (Collateralized
by Federal National Mortgage Association, 6.253%, due 06/01/26
with a market value of $70,000) (Cost $65,243).................... 65,243 0.05%
---------------- -----------
Total Investments (Cost $137,623,232)............................... 137,623,232 100.07%
Liabilities in excess of Assets..................................... (91,332) (0.07)%
---------------- -----------
Net Assets.......................................................... $ 137,531,900 100.00%
---------------- -----------
---------------- -----------
</TABLE>
See notes to financial statements.
F-104
<PAGE> 199
High Quality Bond Portfolio
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
US Government Securities
$ 5,000,000 US Treasury Note, 5.875%, 04/30/98 (a).............................. $ 4,981,250
5,000,000 US Treasury Note, 5.00%, 02/15/99 (a)............................... 4,851,555
----------------
Total US Government Securities (Cost $9,986,951)............... 9,832,805 6.03%
---------------- -----------
US Government Agency Securities
Federal Home Loan Mortgage Corp.
6,611 Federal Home Loan Mortgage Corp., Pl# 230115, 5.25%, 07/01/97....... 5,755
2,671,876 Federal Home Loan Mortgage Corp., Pl# 850082, 9.00%, 10/01/05....... 2,751,202
680,546 Federal Home Loan Mortgage Corp., REMIC Series MH-1, 10.15%,
04/15/06............................................................ 687,548
1,307,539 Federal Home Loan Mortgage Corp., Pl# 0677, 7.50%, 03/01/08......... 1,317,698
395,316 Federal Home Loan Mortgage Corp., Pl# 273991, 6.50%, 03/01/13....... 392,754
807,058 Federal Home Loan Mortgage Corp., Pl# 306816, 7.00%, 01/01/18....... 799,867
----------------
Total Federal Home Loan Mortgage Corp.......................... 5,954,824 3.65%
----------------
Federal National Mortgage Association
1,230,790 Federal National Mortgage Association, REMIC Series 119G, 8.00%,
07/25/97............................................................ 1,238,235
550,014 Federal National Mortgage Association, Pl# 6346, 6.75%, 02/01/03.... 549,612
331,466 Federal National Mortgage Association, Pl# 137455, 7.00%,
04/01/04............................................................ 332,042
----------------
Total Federal National Mortgage Association.................... 2,119,889 1.30%
----------------
Resolution Trust Funding Corporation
2,053,357 Resolution Trust Corp., 6.77% 07/25/25.............................. 2,039,423
1,885,729 Resolution Trust Corp., 7.00%, 02/15/04............................. 1,888,213
----------------
Total Resolution Trust Funding Corporation..................... 3,927,636 2.41%
---------------- -----------
Total US Government Agency Securities
(Cost $14,326,620)........................................... 12,002,349 7.36%
---------------- -----------
Short Term Obligations
Commercial Paper
3,000,000 Bank Of Tokyo, 5.38%, 07/01/96...................................... 2,999,104 1.84%
----------------
Time Deposits
2,514,650 Bank Of Boston (Nassau), 5.725%, 07/01/96 (d)....................... 2,516,038 1.54%
---------------- -----------
Total Short Term Obligations (Cost $5,515,142)................. 5,515,142 3.38%
---------------- -----------
Corporate Bonds and Notes
Banks
1,000,000 Banque National of Paris, 9.875%, 05/25/98.......................... 1,049,508
5,000,000 Chevy Chase Receivable Trust, 6.60%, 12/15/02....................... 5,017,188
1,000,000 European Investment Bank, 6.60%, 05/15/97........................... 1,006,595
</TABLE>
See notes to financial statements.
F-105
<PAGE> 200
High Quality Bond Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
Banks--(cont'd)
$ 4,000,000 First Hawaiian Bank, Medium-Term Note, 7.50%,
11/20/96.......................................................... $ 4,023,332
2,408,235 Fleet Finance, Series 1191-A, 8.45%, 04/15/06....................... 2,456,638
3,000,000 Korea Development Bank, 7.73%, 05/05/97............................. 3,039,447
750,000 Korea Development Bank, 7.90%, 02/01/02............................. 769,561
153,469 Shawmut REMIC Trust, 6.40%, 09/15/96................................ 151,054
2,099,171 Western Finance Grantor Trust, 4.60%, 04/01/99...................... 2,076,728
3,344,374 Western Finance Grantor Trust, 5.875%, 03/01/02..................... 3,321,094
----------------
Total Banks.................................................... 22,911,145 14.05%
----------------
Brokerage
6,250,000 Bear Stearns, 7.625%, 09/15/99...................................... 6,397,444
725,000 Lehman Brothers Inc., Medium-Term Note, 6.08%,
07/08/98.......................................................... 712,305
5,000,000 Lehman Brothers Inc., 7.625%, 08/01/98.............................. 5,090,155
526,778 Merrill Lynch Mortgage Investors, 10.10%, 11/15/07.................. 558,605
940,652 Merrill Lynch Mortgage Investors, 10.35%, 05/15/09.................. 1,029,251
584,530 Merrill Lynch Mortgage Investors, 9.40%, 09/15/09................... 628,042
1,235,385 Merrill Lynch Mortgage Investors, 9.00%, 07/15/11................... 1,278,796
----------------
Total Brokerage................................................ 15,694,598 9.63%
----------------
Export
1,000,000 Guaranteed Export Certificates, Series 93-2, 4.61%,
09/01/98.......................................................... 986,182
2,341,944 Guaranteed Export Certificates, 4.813%, 12/15/98.................... 2,258,636
----------------
Total Export................................................... 3,244,818 1.99%
----------------
Finance
1,250,000 Associates Corp of North America, 8.89%, 04/12/98................... 1,303,649
2,000,000 Associates Corp of North America, 6.46%, 09/18/00................... 1,973,878
4,000,000 Associates Corp of North America, 5.99%, 12/15/00................... 3,870,916
1,000,000 British Gas Finance Inc., 8.75%, 09/15/98........................... 1,035,259
5,000,000 CARCO, 8.125%, 10/15/99............................................. 5,093,750
727,346 Chemical Financial Acceptance Corp., 9.40%, 03/17/97................ 728,975
2,642,657 Chemical Financial Acceptance Corp., 9.25%, 05/15/98................ 2,753,302
533,831 Chrysler Financial Corp, 8.65%, 10/15/96............................ 533,649
3,974,464 Ford Motor Credit Co., 6.27%, 01/02/00.............................. 3,978,057
1,000,000 Ford Motor Credit Co., 7.15%, 01/26/00.............................. 1,010,269
3,000,000 Ford Motor Credit Co., 5.99%, 02/27/01.............................. 2,885,487
742,991 General Motors Acceptance Corp, Grantor Trust, Series 95-A, 7.15%,
03/15/00......................................................... 751,230
3,200,394 Navistar Finance, 6.55%, 11/20/01................................... 3,246,508
1,000,000 Norwest Financial, 6.00%, 08/15/97.................................. 997,916
1,258,302 Pemex Exp Grantor Trust, 7.66%, 08/15/01............................ 1,284,862
1,000,000 Signet Medium-Term Note, Series 93-1A, 5.20%,
02/15/02.......................................................... 975,979
----------------
Total Finance.................................................. 32,423,686 19.89%
----------------
</TABLE>
See notes to financial statements.
F-106
<PAGE> 201
High Quality Bond Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
Paper and Forest Products
$ 5,000,000 First Sierra Receivables LI, 6.85%, 06/10/03........................ $ 5,007,422 3.07%
----------------
Private Asset Backed: Construction
5,915,000 Case Equipment Loan Trust, Series 1194-C A2, 8.10%, 06/15/01........ 6,067,246 3.72%
----------------
Private Asset Backed: Credit Cards
5,000,000 Discover Card Master Trust I, Series 93-2A, 5.40%,
11/16/01.......................................................... 4,894,845
2,540,000 First Chicago Master Trust, 6.25%, 08/15/99......................... 2,543,223
1,000,000 Household Affinity Credit Card Master Trust, 7.00%,
12/15/99.......................................................... 1,012,549
1,000,000 Maryland Bank of NA Master Credit Card Trust, Series 93-3A, 5.40%,
09/15/00............................................................ 978,819
3,000,000 National Credit Card Trust, 9.45%, 12/31/97......................... 3,015,957
2,500,000 Peoples' Bank Credit Card Trust, Series 93-1, 4.80%,
12/15/99.......................................................... 2,493,597
5,833,333 Private Label Credit Card Master Trust, 7.15%, 06/20/01............. 5,865,411
1,250,000 Sears Credit Account, 5.90%, 11/16/98............................... 1,250,161
----------------
Total Private Asset Backed: Credit Cards....................... 22,054,562 13.53%
----------------
Private Asset Backed: Receivables
3,755,647 IBM Credit Receivable Lease Asset Master Trust, 4.55%, 11/15/00..... 3,713,291
1,673,579 IBM Credit Receivable Lease Asset Master Trust, 6.55%, 07/16/01..... 1,676,841
----------------
Total Private Asset Backed: Receivables........................ 5,390,132 3.30%
----------------
Real Estate
729,841 Daiwa Home Equity Loans, 7.875%, 11/25/19........................... 732,563
3,400,000 Midstate Trust II, Series A3, 9.35%, 04/01/98....................... 3,548,226
243,091 Security Pacific Home Equity Loan, Series 91-2, 8.10%, 06/15/20..... 245,052
3,761,184 Travelers Mortgage Corp., 12.00%, 03/01/14.......................... 4,188,564
69,173 US Home Equity Loan, 9.25%, 01/15/21................................ 69,022
569,717 US Home Equity Loan, 8.50%, 04/15/21................................ 578,815
----------------
Total Real Estate.............................................. 9,362,242 5.74%
----------------
Utilities: Electric
5,000,000 Hydro Quebec, 6.36%, 01/15/02....................................... 4,843,750 2.97%
---------------- -----------
Total Corporate Bonds and Notes (Cost $125,343,175)............ 126,999,601 77.89%
---------------- -----------
Foreign Government Obligations
1,000,000 Kingdom of Denmark, 7.75%, 12/15/96................................. 1,009,474
7,000,000 Province Of Ontario, 7.375%, 01/27/03............................... 7,172,613
----------------
Total Foreign Government Obligations
(Cost $8,630,547)............................................ 8,182,087 5.02%
---------------- -----------
Shares
- -------------
Common Stock
Investments
7,000,000 Janus Institutional Money Market Fund (d)........................... 7,000,000 4.30%
---------------- -----------
Total Common Stock (Cost $7,000,000)........................... 7,000,000 4.30%
---------------- -----------
</TABLE>
See notes to financial statements.
F-107
<PAGE> 202
High Quality Bond Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C>
Repurchase Agreement
$ 1,012,371 Repurchase Agreement with Investors Bank & Trust, dated 06/28/96,
5.03%, proceeds at maturity $1,012,795, due 07/01/96
(Collateralized by Federal Home Loan Mortgage Corporation, 7.915%,
due
06/01/26 with a market value of $1,200,000) (Cost $1,012,512)..... $ 1,012,512 0.62%
---------------- -----------
Total Investments (Cost $171,814,947)............................... 170,544,496 104.60%
Liabilities in excess of Assets..................................... (7,499,478) (4.60)%
---------------- -----------
Net Assets.......................................................... $ 163,045,018 100.00%
---------------- -----------
---------------- -----------
The aggregate cost of securities for Federal Income tax purposes at June 30, 1996 is $171,814,947.
The following amount is based on costs for Federal Income tax purposes:
Gross unrealized appreciation....................................... $ 592,907
Gross unrealized depreciation....................................... (1,863,358)
----------------
Net unrealized depreciation......................................... $ (1,270,451)
----------------
----------------
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(d) Collateral for securities on loan.
See notes to financial statements.
F-108
<PAGE> 203
Intermediate Government Bond Portfolio
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
Short Term Obligations
Commercial Paper
$ 5,000,000 AT&T Capital Corp., 5.4948%, 10/17/96 (d)........................... $ 5,000,666
5,000,000 Republic New York Securities Corp, 5.755%,
11/08/96 (d)...................................................... 5,000,666
----------------
Total Commercial Paper......................................... 10,001,332 11.00%
----------------
Time Deposits
5,393,750 Bank Of Boston (Nassau), 5.725%, 07/01/96 (d)....................... 5,394,469
4,500,000 First Union National Bank of North Carolina (Nassau), 5.50%,
07/01/96 (d)........................................................ 4,500,599
5,500,000 Harris Trust & Savings Bank (Nassau), 5.375%, 07/01/96 (d).......... 5,500,732
5,500,000 Norwest Bank Minnesota, N.A. (Nassau), 5.375%, 07/01/96 (d)......... 5,500,732
----------------
Total Time Deposits............................................ 20,896,532 22.97%
---------------- -----------
Total Short Term Obligations (Cost $30,897,864)................ 30,897,864 33.97%
---------------- -----------
US Government Securities
US Treasury Note
3,000,000 US Treasury Note, 5.375%, 11/30/97.................................. 2,974,683
5,000,000 US Treasury Note, 5.875%, 04/30/98 (a).............................. 4,981,250
10,000,000 US Treasury Note, 5.25%, 07/31/98 (a)............................... 9,828,110
9,000,000 US Treasury Note, 6.375%, 05/15/99 (a).............................. 9,022,500
7,000,000 US Treasury Note, 7.75%, 12/31/99 (a)............................... 7,295,302
2,500,000 US Treasury Note, 8.875%, 05/15/00.................................. 2,707,027
----------------
Total US Treasury Note......................................... 36,808,872 40.47%
----------------
US Treasury Bond
8,000,000 US Treasury Bond, 5.625%, 06/30/97 (a).............................. 7,985,000 8.78%
---------------- -----------
Total US Government Securities (Cost $45,336,058).............. 44,793,872 49.25%
---------------- -----------
US Government Agency Securities
Federal Home Loan Bank
5,000,000 Federal Home Loan Bank, REMIC Series KJ-2001, 6.34%, 03/19/01....... 4,902,440
5,000,000 Federal Home Loan Bank, REMIC Series ZZ01, 7.39%, 08/22/01.......... 5,133,850
----------------
Total Federal Home Loan Bank................................... 10,036,290 11.04%
----------------
Federal Home Loan Mortgage Corp.
100,000 Federal Home Loan Mortgage Corp., 5.23%, 07/15/96................... 99,767
800,000 Federal Home Loan Mortgage Corp., 5.25%, 07/18/96................... 797,783
100,000 Federal Home Loan Mortgage Corp., 5.26%, 07/22/96................... 99,664
100,000 Federal Home Loan Mortgage Corp., 5.28%, 07/22/96................... 99,663
3,000,000 Federal Home Loan Mortgage Corp., 5.30%, 07/31/96................... 2,985,866
3,000,000 Federal Home Loan Mortgage Corp., REMIC Series 1574, 6.50%,
02/15/21............................................................ 2,883,657
</TABLE>
See notes to financial statements.
F-109
<PAGE> 204
Intermediate Government Bond Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
Federal Home Loan Mortgage Corp--(cont'd)
$ 5,300,000 Federal Home Loan Mortgage Corp., REMIC Series 1500, 7.00%,
06/15/22............................................................ $ 5,164,580
1,481,012 Federal Home Loan Mortgage Corp., REMIC Series 31, 5.90%,
08/25/23............................................................ 1,469,281
2,000,000 Federal Home Loan Mortgage Corp., REMIC Series 1710, 6.00%,
02/15/24............................................................ 2,007,618
----------------
Total Federal Home Loan Mortgage Corp.......................... 15,607,879 17.16%
----------------
Federal National Mortgage Association
200,000 Federal National Mortgage Association, 5.28%, 07/12/96.............. 199,618
880,000 Federal National Mortgage Association, 5.27%, 07/23/96.............. 876,909
400,000 Federal National Mortgage Association, 5.27%, 07/30/96.............. 398,185
2,000,000 Federal National Mortgage Association, REMIC Series 94-75, 7.00%,
01/25/03............................................................ 1,993,698
3,000,000 Federal National Mortgage Association, Medium Term Note, 7.00%,
06/15/05............................................................ 2,887,377
----------------
Total Federal National Mortgage Association.................... 6,355,787 6.99%
----------------
Tennessee Valley Authority
2,500,000 Tennessee Valley Authority, Series A, 6.375%, 06/15/05.............. 2,395,645 2.63%
----------------
Government National Mortgage Association
10,090 Government National Mortgage Association, Pl# 209631, 7.50%,
04/15/02............................................................ 10,162
38,002 Government National Mortgage Association, Pl# 328000, 7.50%,
06/15/07............................................................ 38,275
13,952 Government National Mortgage Association, Pl# 328084, 7.50%,
07/15/07............................................................ 14,052
582,321 Government National Mortgage Association, Pl# 323189, 7.50%,
08/15/07............................................................ 586,506
125,974 Government National Mortgage Association, Pl# 322072, 7.50%,
08/15/07............................................................ 126,880
366,172 Government National Mortgage Association, Pl# 328188, 7.50%,
08/15/07............................................................ 368,803
581,652 Government National Mortgage Association, Pl# 328192, 7.50%,
08/15/07............................................................ 585,832
136,336 Government National Mortgage Association, Pl# 328200, 7.50%,
08/15/07............................................................ 137,316
592,386 Government National Mortgage Association, Pl# 329060, 7.50%,
08/15/07............................................................ 596,644
495,570 Government National Mortgage Association, Pl# 332267, 7.50%,
08/15/07............................................................ 499,131
17,525 Government National Mortgage Association, Pl# 335542, 7.50%,
08/15/07............................................................ 17,651
347,060 Government National Mortgage Association, Pl# 335995, 7.50%,
08/15/07............................................................ 349,554
511,489 Government National Mortgage Association, Pl# 297619, 7.50%,
09/15/07............................................................ 511,489
495,007 Government National Mortgage Association, Pl# 332704, 7.50%,
09/15/07............................................................ 498,564
89,838 Government National Mortgage Association, Pl# 333320, 7.50%,
09/15/07............................................................ 90,483
</TABLE>
See notes to financial statements.
F-110
<PAGE> 205
Intermediate Government Bond Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C>
Government National Mortgage Association--(cont'd)
$ 493,785 Government National Mortgage Association, Pl# 333709, 7.50%,
09/15/07............................................................ $ 497,334
211,375 Government National Mortgage Association, Pl# 369749, 6.50%,
09/15/08............................................................ 204,967
436,953 Government National Mortgage Association, Pl# 345975, 6.50%,
10/15/08............................................................ 423,707
799,831 Government National Mortgage Association, Pl# 374726, 6.50%,
10/15/08............................................................ 775,586
172,989 Government National Mortgage Association, Pl# 363874, 6.50%,
11/15/08............................................................ 167,746
660,753 Government National Mortgage Association, Pl# 370448, 6.50%,
11/15/08............................................................ 640,725
690,900 Government National Mortgage Association, Pl# 371094, 6.50%,
11/15/08............................................................ 669,958
389,406 Government National Mortgage Association, Pl# 345973, 6.50%,
11/15/08............................................................ 377,602
402,691 Government National Mortgage Association, Pl# 366531, 7.00%,
11/15/08............................................................ 390,484
----------------
Total Government National Mortgage Association................. 8,579,451 9.43%
----------------
Student Loan Marketing Association
2,000,000 Student Loan Marketing Association, 6.52%, 09/26/00................. 1,955,698 2.15%
---------------- -----------
Total US Government Agency Securities
(Cost $45,646,646)........................................... 44,930,750 49.40%
---------------- -----------
Common Stock
Shares
- -------------
Investments
5,000,000 Janus Institutional Money Market Fund (d)........................... 5,000,000 5.50%
---------------- -----------
Total Common Stock (Cost $5,000,000)........................... 5,000,000 5.50%
---------------- -----------
Principal
- -------------
Repurchase Agreement
$ 48,467 Repurchase Agreement with Investors Bank & Trust, dated 06/28/96,
5.03%, proceeds at maturity $48,487, due 07/01/96 (Collateralized
by Federal National Mortgage Association, 6.253%, due 06/01/26
with a market value of $50,000) (Cost $48,474).................... 48,474 0.05%
---------------- -----------
Total Investments (Cost $126,929,042).......................... 125,670,960 138.17%
Liabilities in excess of Assets................................ (34,715,341) (38.17)%
---------------- -----------
Net Assets..................................................... $ 90,955,619 100.00%
---------------- -----------
---------------- -----------
The aggregate cost of securities for Federal Income tax purposes at June
30, 1996 is $126,929,042.
The following amount is based on costs for Federal Income tax purposes:
Aggregate gross unrealized appreciation............................. $ 41,183
Aggregate gross unrealized depreciation............................. (1,299,265)
----------------
Net unrealized depreciation......................................... $ (1,258,082)
----------------
----------------
</TABLE>
- ---------------
(a) All or part of this security is on loan
(d) Collateral for securities on loan
See notes to financial statements.
F-111
<PAGE> 206
Government/Corporate Bond Portfolio
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
US Government Securities
$ 5,000,000 US Treasury Note, 6.00%, 05/31/98 (a).............................. $ 4,989,060
15,000,000 US Treasury Note, 7.75%, 12/31/99 (a).............................. 15,632,790
5,000,000 US Treasury Note, 5.625%, 11/30/00................................. 4,839,060
18,000,000 US Treasury Note, 6.375%, 03/31/01 (a)............................. 17,915,598
10,000,000 US Treasury Note, 6.50%, 05/31/01 (a).............................. 10,000,000
5,000,000 US Treasury Note, 6.875%, 05/15/06 (a)............................. 5,054,680
----------------
Total US Government Securities (Cost $58,942,616)................ 58,431,188 15.49%
---------------- -----------
US Government Agency Securities
Federal Home Loan Mortgage Corp.
300,000 Federal Home Loan Mortgage Corp., 5.28%, 07/22/96.................. 298,988
100,000 Federal Home Loan Mortgage Corp., 5.30%, 07/31/96.................. 99,528
3,992,182 Federal Home Loan Mortgage Corp., Series 1377-F, 6.00%, 09/15/07 (e) 4,021,920
4,443,037 Federal Home Loan Mortgage Corp., Series 31-F, 5.90%, 08/25/23 (e). 4,407,843
5,000,000 Federal Home Loan Mortgage Corp., Series 1666-E, 6.00%, 02/15/24... 4,767,145
6,345,486 Federal Home Loan Mortgage Corp., Series 1710-AC, 6.00%, 02/15/24 (e) 6,369,656
----------------
Total Federal Home Loan Mortgage Corp............................ 19,965,080 5.29%
----------------
Federal National Mortgage Association
10,000,000 Federal National Mortgage Association, 6.25%, 10/28/98............. 9,933,860
2,986 Federal National Mortgage Association, REMIC Series G93-37 A,
12/25/18 (f)....................................................... 2,972
2,014,734 Federal National Mortgage Association, REMIC Series 93-219 A,
08/25/23 (f)....................................................... 1,899,529
118,072 Federal National Mortgage Association, Pl# 250510, 7.00%,
12/01/25........................................................... 113,607
----------------
Total Federal National Mortgage Association...................... 11,949,968 3.17%
----------------
Government National Mortgage Association
978,346 Government National Mortgage Association, Pl # 413611, 7.00%,
01/15/26........................................................... 938,287
978,182 Government National Mortgage Association, Pl # 292340, 7.00%,
02/15/26........................................................... 938,129
978,233 Government National Mortgage Association, Pl # 373622, 7.00%,
03/15/26........................................................... 938,178
978,483 Government National Mortgage Association, Pl # 373637, 7.00%,
03/15/26........................................................... 938,418
978,427 Government National Mortgage Association, Pl # 428420, 7.00%,
04/15/26........................................................... 938,364
----------------
Total Government National Mortgage Association................... 4,691,376 1.24%
----------------
</TABLE>
See notes to financial statements.
F-112
<PAGE> 207
Government/Corporate Bond Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Student Loan Marketing Association
$ 3,000,000 Student Loan Marketing Association, Medium Term Note, 6.52%,
09/26/00........................................................... $ 2,933,547
5,000,000 Student Loan Marketing Association, REMIC Series 96-2 A2, 5.81%,
07/27/09 (e)....................................................... 5,011,523
----------------
Total Student Loan Marketing Association......................... 7,945,070 2.11%
---------------- -----------
Total US Government Agency Securities
(Cost $44,733,463)............................................ 44,551,494 11.81%
---------------- -----------
Short Term Obligations
Commercial Paper
1,000,000 American Express Credit Corp., 5.34%, 07/19/96..................... 997,033
4,000,000 AT&T Capital Corp., 5.495%, 10/17/96 (d)........................... 4,000,576
4,000,000 Barclay's Bank PLC, 5.30%, 07/08/96................................ 3,994,700
2,000,000 Capital One Funding Corp., 5.50%, 07/05/96......................... 2,015,765
1,000,000 Enterprise Funding Corp., 5.40%, 07/24/96.......................... 996,250
150,000 Ford Motor Credit Company, 5.36%, 07/29/96......................... 149,330
300,000 General Electric Capital Corp., 5.34%, 07/16/96.................... 299,244
500,000 General Motors Acceptance Corp., 5.42%, 07/26/96................... 497,967
4,800,000 Household Finance Corp., 5.28%, 08/20/96........................... 4,763,392
2,500,000 Lucent Technologies, Inc., 5.32%, 07/10/96......................... 2,495,936
5,000,000 Mellon Bank Corp., 5.32%, 07/08/96................................. 4,993,350
600,000 Merrill Lynch and Company Inc., 5.30%, 07/03/96.................... 599,646
2,200,000 Merrill Lynch and Company Inc., 5.33%, 08/08/96.................... 2,186,971
3,200,000 Metlife, 5.32%, 07/15/96........................................... 3,192,434
6,300,000 Norwest Corp., 5.27%, 07/17/96..................................... 6,283,400
750,000 PHH Corp., 5.33%, 07/16/96......................................... 748,113
200,000 Prudential Funding Corp., 5.39%, 08/16/96.......................... 198,563
9,000,000 Republic New York Securities Corp., 5.755%, 11/08/ 96 (d).......... 9,001,296
250,000 Sears Roebuck Acceptance, 5.29%, 07/01/96.......................... 249,926
200,000 Sears Roebuck Acceptance, 5.35%, 07/09/96.......................... 199,703
2,000,000 Whirlpool Corp., 5.39%, 07/26/96................................... 1,991,915
500,000 Xerox Corp., 5.35%, 08/05/96....................................... 497,250
----------------
Total Commercial Paper........................................... 50,352,760 13.35%
----------------
Time Deposits
19,756,250 Bank of Boston (Nassau), 5.725%, 07/01/96 (d)...................... 19,759,094
1,000,000 First Union National Bank of North Carolina (Nassau), 5.50%,
07/01/96 (d)....................................................... 1,000,144
2,500,000 Norwest Bank Minnesota , N.A. (Nassau), 5.375%, 07/ 01/96 (d)...... 2,500,360
----------------
Total Time Deposits.............................................. 23,259,598 6.16%
---------------- -----------
Total Short Term Obligations (Cost $73,612,358).................. 73,612,358 19.51%
---------------- -----------
</TABLE>
See notes to financial statements.
F-113
<PAGE> 208
Government/Corporate Bond Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Corporate Bonds and Notes
Aerospace
$ 5,000,000 Lockheed Martin, 6.85%, 05/15/01................................... $ 4,976,010
5,000,000 Boeing Company, 8.625%, 11/15/31................................... 5,611,825
----------------
Total Aerospace.................................................. 10,587,835 2.81%
----------------
Banks
5,000,000 BankAmerica Corporation, 6.625%, 05/30/01.......................... 4,945,340
4,000,000 Bank Of New York, 6.50%, 12/01/03.................................. 3,846,420
5,000,000 Chase Manhattan Corp., 8.00%, 05/01/05............................. 5,064,810
5,000,000 International Bank of Reconstruction & Development, 8.625%,
10/15/16........................................................... 5,634,390
5,000,000 Midland Bank PLC, 5.91%, 06/29/49 (e).............................. 4,183,000
5,000,000 Republic New York Corp., 7.00%, 03/22/11........................... 4,773,555
5,000,000 Swiss Bank Corp., 7.50%, 07/15/25.................................. 4,890,355
----------------
Total Banks...................................................... 33,337,870 8.84%
----------------
Consumer Goods and Services
5,200,000 Proctor & Gamble, 9.36%, 01/01/21.................................. 6,206,710
5,000,000 RJR Nabisco Inc., 8.75%, 04/15/04.................................. 5,036,105
----------------
Total Consumer Goods and Services................................ 11,242,815 2.98%
----------------
Finance
5,000,000 Advanta Credit Card, 6.12%, 02/10/01............................... 5,020,845
5,100,000 American Express Credit Corp., 5.29%, 09/11/96..................... 5,044,544
6,000,000 Dow Capital BV, 9.20%, 06/01/10.................................... 6,813,072
5,000,000 Ford Holdings, 9.375%, 03/01/20.................................... 5,746,000
5,000,000 General Electric Capital Corp., 8.50%, 07/24/08.................... 5,496,425
5,000,000 General Motors Acceptance Corp., 8.40%, 10/15/99................... 5,229,555
5,000,000 General Motors Acceptance Corp., 8.80%, 03/01/21................... 5,596,535
5,000,000 Paccar Financial Corp., 5.52%, 09/03/96............................ 5,000,665
5,000,000 Smurfit Capital Funding PLC, 7.50%, 11/20/25....................... 4,649,135
4,000,000 Texaco Capital Corp., 9.75, 03/15/20............................... 4,913,824
10,000,000 Xerox Credit Corp., 6.78%, 05/21/01................................ 9,913,281
----------------
Total Finance.................................................... 63,423,881 16.81%
----------------
Food and Beverage
2,900,000 Pepsico Inc, 5.37%, 09/25/96....................................... 2,861,933
5,000,000 Seagrams (Joseph E.) & Sons, 9.65%, 08/15/18....................... 6,069,795
----------------
Total Food and Beverage.......................................... 8,931,728 2.37%
----------------
Leisure and Recreation
5,000,000 Marriott International Inc, 7.875%, 04/15/05....................... 5,094,480 1.35%
----------------
Insurance
5,000,000 Prudential Insurance, 8.10%, 07/15/15.............................. 4,928,345 1.31%
----------------
</TABLE>
See notes to financial statements.
F-114
<PAGE> 209
Government/Corporate Bond Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Industrial
$ 5,000,000 Celara, 6.75%, 12/15/03............................................ $ 4,677,845 1.24%
----------------
Medical and Other Health Services
5,000,000 Columbia Healthcare, 7.50%, 12/15/23............................... 4,853,425
1,000,000 Eli Lilly, 6.77%, 01/01/36......................................... 899,437
----------------
Total Medical and Other Health Services.......................... 5,752,862 1.52%
----------------
Oil & Gas
5,000,000 Apache Corporation, 7.95%, 04/15/26................................ 4,921,760
5,000,000 Occidental Petroleum, 10.125%, 09/15/09............................ 5,987,880
----------------
Total Oil & Gas.................................................. 10,909,640 2.89%
----------------
Paper & Forest Products
7,500,000 Westvaco, 10.125%, 06/01/19........................................ 8,320,208 2.21%
----------------
Private Asset Backed: Credit Card
5,000,000 Advanta Credit Card Master Trust, Series 96-CA, 5.667%, 11/15/03
(e)................................................................ 4,991,695
10,000,000 Chase Manhattan Credit Card Master Trust,
Series 96-3A, 7.04%, 02/15/04.................................... 10,126,563
7,040,000 Discover Card Master Trust, Series 94-2A, 5.85%, 10/ 16/04 (e)..... 7,097,299
5,880,000 Structured Asset Securities Corp., Series 96-C,
Class A-1C, 5.944%, 02/25/28..................................... 5,678,951
3,000,000 Standard Credit Card Master Trust, Series 95-11, 5.59%, 11/15/00... 2,997,387
----------------
Total Private Asset Backed: Credit Card.......................... 30,891,895 8.19%
----------------
Tire and Rubber
4,000,000 BF Goodrich, 8.65%, 04/15/25....................................... 4,381,796 1.16%
----------------
Utilities: Electric
10,000,000 Commonwealth Edison, 8.125%, 01/15/07.............................. 9,846,590
5,000,000 Commonwealth Edison, 8.50%, 07/15/22............................... 4,963,005
5,000,000 Hydro-Quebec, 8.50%, 12/01/29...................................... 5,319,345
5,000,000 Philadelphia Electric, 5.375%, 08/15/98............................ 4,877,905
----------------
Total Utilities: Electric........................................ 25,006,845 6.63%
----------------
Utilities: Telephone
5,000,000 GTE South, 7.50%, 03/15/26......................................... 4,811,535 1.28%
---------------- -----------
Total Corporate Bonds and Notes (Cost $231,571,122).............. 232,299,580 61.57%
---------------- -----------
Shares
- --------------
Common Stock
Investments
16,000,000 Janus Institutional Money Market Fund (d).......................... 16,000,000 4.24%
---------------- -----------
Total Common Stock (Cost 16,000,000)............................. 16,000,000 4.24%
---------------- -----------
</TABLE>
See notes to financial statements.
F-115
<PAGE> 210
Government/Corporate Bond Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- --------- ---------------- -----------
<S> <C> <C>
Repurchase Agreement
$ 15,192 Repurchase Agreement with Investors Bank & Trust, dated 06/28/96, 5.03%,
proceeds at maturity $15,198, due 07/ 01/96 (Collateralized by Federal
National Mortgage Association, 6.253%, due 06/01/26 with a market
value of $20,000) (Cost $15,194)...................................... $ 15,194 0.01 %
---------------- -----------
Total Investments (Cost $424,874,753)................................. 424,909,814 112.63 %
Liabilities in excess of Assets.................................... (47,618,338) (12.63)%
---------------- -----------
Net Assets......................................................... $ 377,291,476 100.00 %
---------------- -----------
---------------- -----------
The aggregate cost of securities for Federal Income tax purposes at June
30, 1996 is $424,874,753.
The following amount is based on costs for Federal Income tax purposes:
Gross unrealized appreciation........................................... $ 4,393,152
Gross unrealized depreciation........................................... (4,358,091)
----------------
Net unrealized appreciation............................................. $ 35,061
----------------
----------------
</TABLE>
- ---------------
(a) All or part of this security is on loan
(d) Collateral for securities on loan
(e) Floating rate security. The rate shown was in effect at June 30,
1996
(f) Zero coupon bond
See notes to financial statements.
F-116
<PAGE> 211
Balanced Portfolio
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
US Government Securities
$ 18,050,000 US Treasury Bond, 7.875%, 11/15/04 (a)............................. $ 19,403,750
10,400,000 US Treasury Note, 6.375%, 7/15/99 (a).............................. 10,422,734
12,000,000 US Treasury Note, 8.500%, 2/15/00.................................. 12,802,500
18,700,000 US Treasury Note, 7.500%, 5/15/02 (a).............................. 19,559,004
16,350,000 US Treasury Note, 5.750%, 8/15/03 (a).............................. 15,558,022
24,775,000 US Treasury Note, 6.500%, 5/15/05 (a).............................. 24,426,564
----------------
Total US Government Securities (Cost $102,877,770)............ 102,172,574 46.92%
---------------- -----------
Short Term Obligations
Commercial Paper
13,500,000 AT&T Capital Corp., 5.495%, 10/17/96 (d)........................... 13,502,065
11,000,000 Republic New York Securities Corp, 5.375%,
11/08/96 (d)..................................................... 11,001,683
1,000,000 Walt Disney Company, 5.26%, 07/01/96............................... 995,178
----------------
Total Commercial Paper........................................ 25,498,926 11.71%
----------------
Time Deposits
14,726,849 Bank of Boston (Nassau), 5.725%, 07/01/96 (d)...................... 14,729,102
14,000,000 First Union National Bank of North Carolina (Nassau), 5.50%,
07/01/96 (d)....................................................... 14,002,142
4,500,000 Harris Trust & Savings Bank (Nassau), 5.3750%, 07/ 01/96 (d)....... 4,500,688
14,000,000 Norwest Bank Minnesota, N.A. (Nassau), 5.375%, 07/ 01/96 (d)....... 14,002,142
----------------
Total Time Deposits........................................... 47,234,074 15.63%
---------------- -----------
Total Short Term Obligations (Cost $72,733,000)............... 72,733,000 33.40%
---------------- -----------
Shares Common Stock
Aerospace
30,800 Boeing Company..................................................... 2,683,450
19,300 Northrop Grumman Corp.............................................. 1,314,813
----------------
Total Aerospace............................................... 3,998,263 1.84%
----------------
Automobiles
70,500 General Motors Corp................................................ 3,692,438 1.70%
----------------
Banks
25,850 Citicorp........................................................... 2,135,856
36,200 KeyCorp. .......................................................... 1,402,750
12,650 Wells Fargo & Company.............................................. 3,021,769
----------------
Total Banks................................................... 6,560,375 3.01%
----------------
Chemicals
41,100 Du Pont (E.I.) De Nemours.......................................... 3,252,038
22,700 Duracell International Inc......................................... 978,938
94,050 Hoechst AG-ADR..................................................... 3,188,248
24,750 Grace W.R. & Company............................................... 1,754,156
----------------
Total Chemicals............................................... 9,173,380 4.21%
----------------
</TABLE>
See notes to financial statements.
F-117
<PAGE> 212
Balanced Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Computer and Office Equipment
28,050 Compaq Computer (c)................................................ $ 1,381,463
32,750 International Business Machine..................................... 3,242,250
47,450 Silicon Graphics (c)............................................... 1,138,800
----------------
Total Computer and Office Equipment........................... 5,762,513 2.65%
----------------
Food and Beverage
26,400 American Home Products Corp........................................ 1,587,300
8,800 Kroger Company..................................................... 347,600
----------------
Total Food and Beverage....................................... 1,934,900 0.89%
----------------
Insurance
90,250 Allstate Corp. .................................................... 4,117,655
60,250 Travelers Inc. .................................................... 2,748,906
----------------
Total Insurance............................................... 6,866,561 3.15%
----------------
Investments
14,000,000 Janus Institutional Money Market Fund (d).......................... 14,000,000 6.43%
----------------
Leisure & Recreation
46,400 Carnival Corp...................................................... 1,339,800
35,300 Harrah's Entertainment Inc......................................... 997,225
36,900 Hasbro Inc......................................................... 1,319,175
54,400 Loews Corp......................................................... 4,290,800
10,700 Marriott International Inc......................................... 575,125
29,835 Mattel............................................................. 854,027
72,200 Time Warner Inc.................................................... 2,833,850
----------------
Total Leisure & Recreation.................................... 12,210,002 5.61%
----------------
Manufacturing
45,400 Allegheny Ludlum Corp. (a)......................................... 856,925
32,250 Aluminum Company of America........................................ 1,850,343
94,200 Philips Electronic N.V............................................. 3,073,274
----------------
Total Manufacturing........................................... 5,780,542 2.65%
----------------
Media
66,000 Dun & Bradstreet Corp.............................................. 4,125,000
69,100 E.W. Scripps Company............................................... 3,221,787
174,000 The News Corp. (a)................................................. 3,501,750
----------------
Total Media................................................... 10,848,537 4.98%
----------------
Medical and Other Health Services
82,000 Abbott Laboratories................................................ 3,567,000
35,950 Bristol-Myers Squibb Company....................................... 3,235,500
63,150 Ciba-Geigy Corp.................................................... 3,847,091
36,700 Tenet Healthcare Corp. (c)......................................... 784,463
----------------
Total Medical and Other Health Services....................... 11,434,054 5.25%
----------------
Oil and Gas
38,600 Amoco Corp......................................................... 2,793,675
26,550 Mobil Corp......................................................... 2,976,919
----------------
Total Oil and Gas............................................. 5,770,594 2.65%
----------------
</TABLE>
See notes to financial statements.
F-118
<PAGE> 213
Balanced Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C>
Retail
53,150 Federated Department Stores (c).................................... $ 1,813,744 0.83%
----------------
Telecommunications
62,700 AT&T Corp.......................................................... 3,887,400
41,400 ITT Industries Inc................................................. 1,040,175
49,700 Nokia Corp......................................................... 1,838,900
104,050 Pacific Telesis Group.............................................. 3,511,688
----------------
Total Telecommunications...................................... 10,278,163 4.72%
----------------
Tobacco
36,100 Philip Morris Companies Inc........................................ 3,754,400 1.72%
----------------
Transportation: Air
34,000 Trans World Airlines (c)........................................... 484,500 0.22%
----------------
Transportation: Rail
28,850 Burlington Northern Santa Fe....................................... 2,333,244
28,650 Conrail, Inc....................................................... 1,901,644
50,600 Union Pacific Corp................................................. 3,535,676
----------------
Total Transportation: Rail.................................... 7,770,564 3.57%
---------------- -----------
Total Common Stock (Cost $114,865,857)........................ 122,133,530 56.09%
---------------- -----------
Principal
- -------------
Repurchase Agreement
$ 5,124,917 Repurchase Agreement with Investors Bank & Trust, dated 06/28/96,
5.03%, proceeds at maturity $5,127,066, due 07/01/96
(Collateralized by Federal National Mortgage Association, 6.253%,
due 06/01/26 with a market value of $6,325,000) (Cost
$5,125,633)......................................................... 5,125,633 2.35%
---------------- -----------
Total Investments (Cost $295,602,260)............................... 302,164,737 138.77%
Liabilities in excess of Assets..................................... (84,420,774) (38.77)%
---------------- -----------
Net Assets.......................................................... $ 217,743,963 100.00%
---------------- -----------
---------------- -----------
The aggregate cost of securities for Federal Income tax purposes at June 30,
1996 is $295,602,260.
The following amount is based on costs for Federal Income tax purposes:
Gross unrealized appreciation....................................... $ 9,357,933
Gross unrealized depreciation....................................... (2,795,456)
----------------
Net unrealized appreciation......................................... $ 6,562,477
----------------
----------------
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(c) Non-income producing security.
(d) Collateral for securities on loan
See notes to financial statements.
F-119
<PAGE> 214
Equity Income Portfolio
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
US Government Securities
$ 200,000 Federal Home Loan Mortgage Corp., 5.30%, 07/31/96................... $ 199,058
100,000 Federal Home Loan Mortgage Corp., 5.29%, 07/31/96................... 99,530
----------------
Total US Government Securities (Cost $298,588)................. 298,588 0.01%
---------------- -----------
Short Term Obligations
Commercial Paper
2,700,000 American Express Credit Corp., 5.27%, 07/24/96...................... 2,690,119
1,700,000 American Express Credit Corp., 5.29%, 09/11/96...................... 1,681,515
4,000,000 Associates Corporate NA, 5.29%, 09/06/96............................ 3,959,443
500,000 Associates Corporate NA, 5.36%, 07/17/96............................ 498,660
1,755,000 Associates Corporate NA, 5.36%, 07/17/96............................ 1,750,297
3,500,000 AT&T Capital Corp., 5.495%, 10/17/96 (d)............................ 3,500,505
1,000,000 AVCO Financial Services, 5.34%, 07/08/96............................ 998,665
3,100,000 Bell South Telecommunications Inc., 5.45%, 07/09/96................. 3,095,307
3,545,000 Cooperative Finance Corp., 5.35%, 08/08/96.......................... 3,523,927
940,000 Enterprise Funding Corp., 5.35%, 08/23/96........................... 932,317
2,500,000 Enterprise Funding Corp., 5.29%, 08/27/96........................... 2,478,326
1,550,000 Household Finance Corp., 5.29%, 07/31/96............................ 1,542,710
4,200,000 Household Finance Corp., 5.28%, 08/20/96............................ 4,167,968
4,400,000 JHM Funding Inc., 5.30%, 07/18/96................................... 4,387,692
5,000,000 JHM Funding Inc., 5.30%, 07/18/96................................... 4,986,014
3,000,000 Mellon Bank Corp., 5.32%, 07/08/96.................................. 2,996,010
1,800,000 Metlife, 5.32%, 07/15/96............................................ 1,795,744
4,600,000 Norwest Corp., 5.27%, 07/17/96...................................... 4,587,879
3,000,000 Philip Morris Companies Inc., 5.30%, 07/16/96....................... 2,992,492
6,000,000 Philip Morris Companies Inc., 5.30%, 08/01/96....................... 5,970,850
1,000,000 Prudential Funding Corp., 5.35%, 08/12/96........................... 993,460
240,000 Prudential Funding Corp., 5.39%, 08/16/96........................... 238,275
4,000,000 Republic New York Securities Corp., 5.755%,
11/08/96 (d)...................................................... 4,000,577
5,500,000 Seagram's and Sons Inc., 5.37%, 07/22/96............................ 5,481,130
1,400,000 Sears Roebuck Acceptance Corp., 5.35%, 07/09/96..................... 1,397,920
1,000,000 Sears Roebuck Acceptance Corp., 5.30%, 09/04/96..................... 990,136
1,100,000 Toronto Dominion Bank, 5.29%, 07/15/96.............................. 1,097,414
5,300,000 Walt Disney Company, 5.28%, 07/10/96................................ 5,291,449
3,300,000 Xerox Corp., 5.35%, 08/05/96........................................ 3,281,855
----------------
Total Commercial Paper......................................... 81,308,655 9.82%
----------------
Time Deposits
1,444,200 Bank of Boston (Nassau), 5.725%, 07/01/96 (d)....................... 1,444,408 0.17%
---------------- -----------
Total Short Term Obligations (Cost $82,753,064)................ 82,753,064 10.00%
---------------- -----------
Corporate Bond
Communications Equipment
2,000,000 Motorola Inc., 09/07/09 (f)......................................... 2,300,000 0.28%
---------------- -----------
Total Corporate Bond (Cost $1,710,000)......................... 2,300,000 0.28%
---------------- -----------
</TABLE>
See notes to financial statements.
F-120
<PAGE> 215
Equity Income Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
Common Stock
Aerospace
120,000 Northrop Grumman Corp............................................... $ 8,175,000
320,000 Ogden Corp.......................................................... 5,800,000
100,000 Textron Inc......................................................... 7,987,500
80,000 United Technologies................................................. 9,200,000
----------------
Total Aerospace................................................ 31,162,500 3.77%
----------------
Automobiles
80,000 Chrysler Corp....................................................... 4,960,000
150,000 Ford Motor Company.................................................. 4,856,250
90,000 General Motors Corp................................................. 4,713,750
----------------
Total Automobiles.............................................. 14,530,000 1.76%
----------------
Banks
150,000 Banc One Corp....................................................... 5,100,000
110,000 Bank of New York.................................................... 5,637,500
90,000 Bankamerica Corp.................................................... 6,817,500
65,000 Bankers Trust New York Corp......................................... 4,801,875
120,000 Chase Manhattan Corp................................................ 8,475,000
100,000 First Union Corp. (N.E.)............................................ 6,087,500
80,000 Nationsbank Corp.................................................... 6,610,000
25,000 Wells Fargo & Company............................................... 5,971,875
----------------
Total Banks.................................................... 49,501,250 5.98%
----------------
Chemicals
80,000 Dow Chemical Company................................................ 6,080,000
110,000 Du Pont (E.I.) De Nemours........................................... 8,703,750
130,000 Grace W.R. & Company................................................ 9,213,750
325,000 Monsanto Company.................................................... 10,562,500
63,000 OLIN Corp........................................................... 5,622,750
----------------
Total Chemicals................................................ 40,182,750 0.68%
----------------
Construction
140,000 Carpenter Technology................................................ 4,480,000
100,000 GATX Corp........................................................... 4,825,000
50,000 Halliburton Company................................................. 2,775,000
160,000 USX-US Steel Group Inc.............................................. 4,540,000
----------------
Total Construction............................................. 16,620,000 2.01%
----------------
Consumer Goods & Services
200,000 Avon Products Inc................................................... 9,025,000
80,000 Colgate--Palmolive Company.......................................... 6,780,000
270,000 Dana Corp........................................................... 8,370,000
130,000 Eastman Kodak Company............................................... 10,107,500
185,000 General Electric Company............................................ 16,002,500
----------------
Total Consumer Goods & Services................................ 50,285,000 1.93%
----------------
</TABLE>
See notes to financial statements.
F-121
<PAGE> 216
Equity Income Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
Containers and Packaging
90,000 Stone Container Corp................................................ $ 1,237,500
150,000 Union Camp Corp..................................................... 7,312,500
----------------
Total Containers and Packaging................................. 8,550,000 0.01%
----------------
Electronics
190,000 AMP Inc............................................................. 7,623,750
60,000 Eaton Corp.......................................................... 3,517,500
120,000 Emerson Electric.................................................... 10,845,000
200,000 Thomas & Betts Corp................................................. 7,500,000
----------------
Total Electronics.............................................. 29,486,250 3.56%
----------------
Finance
270,000 Ahmanson (HF) & Company............................................. 7,290,000
160,000 American Express Company............................................ 7,140,000
290,000 Federal National Mortgage Association............................... 9,715,000
290,000 Great Western Financial............................................. 6,923,750
----------------
Total Finance.................................................. 31,068,750 3.75%
----------------
Insurance
95,000 Aetna Life & Casualty............................................... 6,792,500
110,000 Allstate Corp....................................................... 5,018,750
70,000 Cigna Corp.......................................................... 8,251,250
120,000 Lincoln National Corp............................................... 5,550,000
----------------
Total Insurance................................................ 25,612,500 3.09%
----------------
Machinery
210,000 Deere & Company..................................................... 8,400,000
163,000 General Signal...................................................... 6,173,625
160,000 Goulds Pumps........................................................ 4,100,000
110,000 Harsco Corp......................................................... 7,397,500
30,000 TRW, Inc............................................................ 2,696,250
----------------
Total Machinery................................................ 28,767,375 3.48%
----------------
Media
100,000 Readers Digest Association Inc...................................... 4,250,000
120,000 Dun & Bradstreet Corp............................................... 7,500,000
240,000 McGraw--Hill Companies Inc.......................................... 10,980,000
----------------
Total Media.................................................... 22,730,000 2.75%
----------------
Medical and Other Health Services
130,000 Baxter International, Inc........................................... 6,142,500
40,000 Meditrust Corp...................................................... 1,335,000
130,000 US Healthcare Inc................................................... 7,150,000
----------------
Total Medical and Other Health Services........................ 14,627,500 1.61%
----------------
</TABLE>
See notes to financial statements.
F-122
<PAGE> 217
Equity Income Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
Metals and Mining
180,000 Freeport McMoran Resources.......................................... $ 5,377,500
110,000 Minnesota Mining and Manufacturing.................................. 7,590,000
60,000 Phelps Dodge Corp................................................... 3,742,500
120,000 Reynolds Metals Company............................................. 6,255,000
150,000 Timken Company...................................................... 5,812,500
----------------
Total Metals and Mining........................................ 28,777,500 0.70%
----------------
Office Equipment
100,000 Harris Corp. Inc.................................................... 6,100,000
120,000 Honeywell Inc....................................................... 6,540,000
120,000 Pitney Bowes Inc.................................................... 5,730,000
270,000 Xerox Corp.......................................................... 14,445,000
----------------
Total Office Equipment......................................... 32,815,000 3.96%
----------------
Oil & Gas
90,000 Amoco Corp.......................................................... 6,513,750
65,000 Atlantic Richfield Company.......................................... 7,702,500
60,774 British Petroleum PLC............................................... 6,495,253
150,000 Chevron Corp........................................................ 8,850,000
40,000 Consolidated Natural Gas............................................ 2,090,000
200,000 Dresser Industries Inc.............................................. 5,900,000
120,000 Exxon Corp.......................................................... 10,425,000
200,000 McDermott International Inc......................................... 4,175,000
70,000 Mobil Corp.......................................................... 7,848,750
17,000 Noram Energy Corp................................................... 184,875
50,000 Questar Corp........................................................ 1,700,000
60,000 Royal Dutch Petroleum (a)........................................... 9,225,000
40,000 Sonat Inc........................................................... 1,800,000
150,000 Tenneco Inc......................................................... 7,668,750
90,000 Texaco Inc.......................................................... 7,548,750
200,000 Williams Companies Inc.............................................. 9,900,000
100,000 WITCO Corp.......................................................... 3,437,500
----------------
Total Oil and Gas.............................................. 101,465,128 12.26%
----------------
Paper & Forest Products
80,000 Georgia--Pacific Corp. 5,680,000
170,000 International Paper Company......................................... 6,268,750
180,000 Weyerhauser Company................................................. 7,650,000
----------------
Total Paper & Forest Products.................................. 19,598,750 3.40%
----------------
Pharmacueticals
160,000 American Home Products Corp......................................... 9,620,000
80,000 Bristol--Myers Squibb Company....................................... 7,200,000
100,000 Merck & Company Inc................................................. 6,462,500
90,000 Pfizer Inc.......................................................... 6,423,750
170,000 Pharmacia & UpJohn Inc.............................................. 7,543,750
100,000 Schering--Plough Corp............................................... 6,275,000
</TABLE>
See notes to financial statements.
F-123
<PAGE> 218
Equity Income Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
Pharmaceuticals--(cont'd)
160,000 SmithKline Beecham PLC.............................................. $ 8,700,000
160,000 Warner Lambert Company.............................................. 8,800,000
----------------
Total Pharmacueticals.......................................... 61,025,000 8.49%
----------------
Real Estate
59,000 Avalon Properties Inc............................................... 1,283,250
70,000 Bay Apartment Communities........................................... 1,811,250
65,000 Developers Divers Realty Corp....................................... 2,071,875
60,000 Equity Residential Properties....................................... 1,972,500
64,000 Felcor Suite Hotels Inc. (a)........................................ 1,952,000
200,000 Health Care PPTY Investment Inc..................................... 6,750,000
80,000 Healthcare Realty Trust............................................. 1,900,000
100,000 Irvine Apartment Communities........................................ 2,012,500
45,000 Redwood Trust Inc................................................... 1,260,000
----------------
Total Real Estate.............................................. 21,013,375 2.54%
----------------
Retail
90,000 May Department Stores............................................... 3,937,500
80,000 Penney (JC) Company Inc............................................. 4,200,000
----------------
Total Retail................................................... 8,137,500 0.98%
----------------
Tire and Rubber
140,000 Cooper Industries Inc. (a) 5,810,000 0.70%
----------------
Tobacco
140,000 American Brands, Inc................................................ 6,352,500
100,000 Philip Morris Companies Inc......................................... 10,400,000
----------------
Total Tobacco.................................................. 16,752,500 2.02%
----------------
Transportation: Airline
150,000 US West, Inc........................................................ 4,781,250 0.58%
----------------
Transportation: Railroads
95,000 Conrail Inc......................................................... 6,305,626
110,000 Norfolk Southern Corp............................................... 9,322,500
----------------
Total Transportation: Railroads................................ 15,628,126 1.89%
----------------
Utilities: Electric
150,000 American Electric Power Inc......................................... 6,393,750
160,000 Carolina Power & Limited Company.................................... 6,080,000
110,000 FPL Group Inc....................................................... 5,060,000
210,000 Southern Company.................................................... 5,171,250
----------------
Total Utilities: Electric...................................... 22,705,000 2.74%
----------------
Utilities: Telephone
80,000 Ameritech Corp...................................................... 4,750,000
70,000 Bell Atlantic Corp.................................................. 4,462,500
120,000 Bell South Corp..................................................... 5,085,000
120,000 GTE Corp............................................................ 5,370,000
80,000 NYNEX Corp.......................................................... 3,800,000
</TABLE>
See notes to financial statements.
F-124
<PAGE> 219
Equity Income Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C>
Utilities: Telephone--(cont'd)
170,000 Pacific Telesis Group............................................... $ 5,737,500
100,000 SBC Communications Inc. (a)......................................... 4,925,000
150,000 Sprint Corp......................................................... 6,300,000
----------------
Total Utilities: Telephone..................................... 40,430,000 5.21%
---------------- -----------
Total Common Stock (Cost $579,311,042).............................. 742,063,004 89.66%
---------------- -----------
Principal
- -------------
Repurchase Agreement
$ 32,849 Repurchase Agreement with Investors Bank & Trust, dated 06/28/96,
5.03%, proceeds at maturity $32,861, due 07/01/96 (Collateralized
by Federal National Mortgage Association, 6.253%, due 06/01/26
with a market value of $35,000) (Cost $32,854).................... 32,854 0.01%
---------------- -----------
Total Investments (cost $664,105,548)............................... 827,447,510 99.98%
Assets in excess of Liabilities..................................... 207,703 0.02%
---------------- -----------
Net Assets.......................................................... $ 827,655,213 100.00%
---------------- -----------
---------------- -----------
The aggregate cost of securities for Federal Income tax purposes
at June 30, 1996 is $664,105,548.
The following amount is based on costs for Federal Income tax purposes:
Gross unrealized appreciation....................................... $ 169,812,296
Gross unrealized depreciation....................................... (6,470,334)
----------------
Net unrealized appreciation......................................... $ 163,341,962
----------------
----------------
</TABLE>
- ---------------
(a) All or part of this security is on loan
(d) Collateral for secuities on loan
(f) Zero Coupon
See notes to financial statements.
F-125
<PAGE> 220
Equity Value Portfolio
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- ------------- -------------- -----------
<S> <C> <C> <C>
Common Stock
Aerospace
5,800 Allied Signal Inc. ................................................... $ 331,325
1,600 General Dynamics...................................................... 99,200
5,000 Rockwell International................................................ 286,250
--------------
Total Aerospace....................................................... 716,775 4.18%
--------------
Automobiles
4,100 General Motors Corp. ................................................. 214,737 1.25%
--------------
Banks
3,300 Chase Manhattan Corp. ................................................ 233,062
6,100 First Chicago National Corp. ......................................... 238,662
1,400 Nations Bank Corp. ................................................... 115,675
--------------
Total Banks........................................................... 587,399 3.42%
--------------
Chemicals
2,200 Air Products and Chemicals ........................................... 127,050
3,700 Du Pont (E.I.) De Nemours............................................. 292,762
1,300 Eastman Chemical Company.............................................. 79,137
3,600 PPG Industry.......................................................... 175,500
7,300 WMX Technologies...................................................... 239,075
--------------
Total Chemicals....................................................... 913,524 5.32%
--------------
Computer and Office Equipment
5,700 AMP Inc. ............................................................. 228,713
6,600 Digital Equipment Corp. (c)........................................... 297,000
6,800 International Business Machine........................................ 673,200
2,900 Texas Instruments..................................................... 144,638
8,600 Xerox Corp. .......................................................... 460,100
--------------
Total Computer and Office Equipment................................... 1,803,651 10.51%
--------------
Construction
1,500 Deere and Company..................................................... 60,000
6,900 MASCO Corp. .......................................................... 208,725
--------------
Total Construction.................................................... 268,725 1.57%
--------------
Consumer Goods and Services
1,000 Eastman Kodak Company................................................. 77,750
1,500 General Electric Company.............................................. 129,750
3,400 Kimberly-Clark Corp. ................................................. 262,650
--------------
Total Consumer Goods and Services..................................... 470,150 2.74%
--------------
Defense
1,500 Raytheon Company...................................................... 77,438 0.45%
--------------
Equipment Lease
3,800 Ryder System.......................................................... 106,875 0.62%
--------------
Finance
3,300 American Express Company.............................................. 147,263
]6,400 Dean Witter Discover and Company...................................... 366,400
--------------
Total Finance......................................................... 513,663 2.99%
--------------
Food and Beverage
5,300 Archer Daniels Midland................................................ 101,363
2,700 CPC International Inc. ............................................... 194,400
--------------
Total Food and Beverage............................................... 295,763 1.72%
--------------
</TABLE>
See notes to financial statements.
F-126
<PAGE> 221
Equity Value Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- ------------- -------------- -----------
<S> <C> <C> <C>
Insurance
3,400 Aetna Life and Casualty............................................... $ 243,100
13,000 Allstate Corp. ....................................................... 593,125
2,000 American International Group.......................................... 197,250
6,200 Chubb Corp. .......................................................... 309,225
2,100 General Re Corp. ..................................................... 319,725
3,500 Unum Corp. ........................................................... 217,875
--------------
Total Insurance....................................................... 1,880,300 10.96%
--------------
Leisure and Entertainment
2,200 Loews Corp. .......................................................... 173,525
8,000 Time Warner Inc. ..................................................... 314,000
--------------
Total Leisure and Entertainmnet....................................... 487,525 2.84%
--------------
Media
3,200 Dun and Bradstreet Corp. ............................................. 200,000
18,200 Tele-Communications,Inc. ............................................. 329,875
--------------
Total Media........................................................... 529,875 3.09%
--------------
Medical and Other Health Services
6,400 Columbia/HCA Healthcare Corp. ........................................ 341,600
9,100 Humana, Inc. ......................................................... 162,662
4,300 Tenet Healthcare Corp. (c)............................................ 91,913
--------------
Total Medical and Other Health Services............................... 596,175 3.47%
--------------
Metals and Mining
5,000 LTV Corp. ............................................................ 56,875
3,400 Newmont Mining........................................................ 167,875
--------------
Total Metals and Mining............................................... 224,750 1.31%
--------------
Oil and Gas
4,000 Amerada Hess Corp. ................................................... 214,500
2,400 Atlantic Richfield Company............................................ 284,400
3,700 British Petroleum PLC (ADR)........................................... 395,438
3,000 Burlington Resources Inc. ............................................ 129,000
2,400 Dresser Industries, Inc. ............................................. 70,800
2,400 Exxon Corp. .......................................................... 208,500
2,200 Mobil Corp. .......................................................... 246,675
11,900 Occidental Petroleum.................................................. 294,525
2,000 Oryx Energy Company................................................... 32,500
6,700 Panenergy Corp. ...................................................... 220,263
3,200 Union Pacific Resources Group......................................... 85,600
3,700 Unocal Corp. ......................................................... 124,875
9,400 USX-Marathon Group.................................................... 189,175
--------------
Total Oil and Gas..................................................... 2,496,251 14.55%
--------------
Paper and Forest Products
4,200 Champion International................................................ 175,350
2,500 International Paper Company........................................... 92,187
--------------
Total Paper and Forest Products....................................... 267,537 1.56%
--------------
Pharmaceuticals
5,400 Bristol-Myers Squibb Company.......................................... 486,000
2,100 Pharmacia and Upjohn Inc. ............................................ 93,188
--------------
Total Pharmaceuticals................................................. 579,188 3.38%
--------------
</TABLE>
See notes to financial statements.
F-127
<PAGE> 222
Equity Value Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- ------------- -------------- -----------
<S> <C> <C>
Retail
3,900 Dillard Department Stores............................................. $ 142,350
4,200 Federated Department Stores (c)....................................... 143,325
4,000 May Department Stores................................................. 175,000
2,300 Penney (JC) Company, Inc. ............................................ 120,750
--------------
Total Retail.......................................................... 581,425 3.39%
--------------
Telecommunications
10,200 AT & T Corp. ......................................................... 632,400
3,700 GTE Corp. ............................................................ 165,575
5,900 MCI Communications Corp. ............................................. 151,187
200 NYNEX Corp. .......................................................... 9,500
5,600 SBC Communications, Inc. ............................................. 275,800
9,600 Sprint Corp. ......................................................... 403,200
11,100 US West Media Group (c)............................................... 202,575
--------------
Total Telecommunications.............................................. 1,840,237 10.73%
--------------
Tire and Rubber
1,600 Goodyear Tire and Rubber Company...................................... 77,200 0.45%
--------------
Transportation: Rail
3,300 CSX Corp. ............................................................ 159,225
2,000 Union Pacific Corp. .................................................. 139,750
--------------
Total Transportation: Rail............................................ 298,975 1.75%
-------------- -----------
Total Common Stock (Cost $15,904,433)................................. 15,828,138 92.25%
-------------- -----------
Principal
- --------------
Repurchase Agreement
$ 1,401,971 Repurchase Agreement with Investors bank & Trust, dated 06/28/96,
5.03%, proceeds at maturity $1,402,558, due 07/01/96
(Collateralized by Federal Home Loan Mortgage Corporation, 7.915%,
due 11/01/ 23 with a market value of $1,500,000) (Cost
$1,402,167)......................................................... 1,402,167 8.17%
-------------- -----------
Total Investments (Cost $17,306,600)................................ 17,230,305 100.42%
Liabilities in excess of Assets..................................... (72,233) (0.42)%
-------------- -----------
Net Assets.......................................................... $ 17,158,072 100.00%
-------------- -----------
-------------- -----------
The aggregate cost of securities for Federal Income tax purposes at June 30,
1996 is $17,306,600.
The following amount is based on costs for Federal Income tax purposes:
Gross unrealized appreciation....................................... $ 388,500
Gross unrealized depreciation....................................... (464,795)
--------------
Net unrealized depreciation......................................... $ (76,295)
--------------
--------------
</TABLE>
- ---------------
(c) Non-income producing security
See notes to financial statements.
F-128
<PAGE> 223
Growth and Income Portfolio
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Short Term Obligations
Commercial Paper
$ 1,500,000 AT&T Capital Corp., 5.495%, 10/17/96 (d)........................... $ 1,500,225
----------------
Time Deposits
2,097,800 Bank of Boston (Nassau), 5.725%, 07/01/96 (d)...................... 2,098,114
----------------
Total Short Term Obligations (Cost $3,598,339)................ 3,598,339 1.89%
---------------- -----------
Shares
- --------------
Common Stock
Aerospace
50,100 Boeing Company..................................................... 4,364,963
22,500 Textron Inc........................................................ 1,797,188
15,600 United Technologies................................................ 1,794,000
----------------
Total Aerospace............................................... 7,956,151 4.18%
----------------
Apparel
18,100 Gucci Group........................................................ 1,167,450 0.61%
----------------
Automobiles
25,400 General Motors Corp................................................ 1,527,175 0.80%
----------------
Banks
45,200 Bank of Boston Corp................................................ 2,237,400
38,600 BankAmerica Corp................................................... 2,923,950
39,200 Chase Manhattan Corp............................................... 2,768,500
56,700 Citicorp........................................................... 4,684,837
33,700 Nationsbank Corp................................................... 2,784,462
----------------
Total Banks................................................... 15,399,149 8.08%
----------------
Chemicals
38,100 Du Pont (E.I.) De Nemours.......................................... 3,014,662
119,500 Monsanto Company................................................... 3,883,750
48,000 Praxair Inc........................................................ 2,028,000
----------------
Total Chemicals............................................... 8,926,412 4.69%
----------------
Computers and Office Equipment
73,700 Cisco Systems Inc.................................................. 4,173,262
36,900 Hewlett Packard.................................................... 3,676,162
52,700 Honeywell.......................................................... 2,872,150
30,600 Intel Corp......................................................... 2,247,187
----------------
Total Computers and Office Equipment.......................... 12,968,761 6.81%
----------------
Computer Software and Services
33,100 Cadence Design Systems, Inc........................................ 1,117,125
43,800 Computer Associates International, Inc............................. 3,120,750
23,700 Computer Sciences Corp. (c)........................................ 1,771,575
42,400 Electronic Data Systems Corp....................................... 2,279,000
36,200 Microsoft Corp. (c)................................................ 4,348,525
55,100 Parametric Technology Corp......................................... 2,389,963
34,700 Peoplesoft......................................................... 2,472,375
----------------
Total Computer Software and Services.......................... 17,499,313 9.19%
----------------
</TABLE>
See notes to financial statements.
F-129
<PAGE> 224
Growth and Income Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Construction
48,200 Case Corporation................................................... $ 2,313,600
34,700 Caterpiller Tractor Inc............................................ 2,350,925
51,200 Halliburton Company................................................ 2,841,600
----------------
Total Construction............................................ 7,506,125 3.94%
----------------
Consumer Goods and Services
9,300 Clorox Company..................................................... 824,212
36,100 Eastman Kodak Company.............................................. 2,806,775
33,800 Nike Inc........................................................... 3,472,950
19,600 Sherwin Williams Company........................................... 911,400
----------------
Total Consumer Goods and Services............................. 8,015,337 4.21%
----------------
Finance
36,800 First Data Corp.................................................... 3,169,075
23,700 Franklin Resources Inc............................................. 1,445,700
26,600 J.P. Morgan & Company Inc.......................................... 2,251,025
77,050 MBNA Corp.......................................................... 2,195,925
----------------
Total Finance................................................. 9,061,725 4.76%
----------------
Food and Beverage
135,500 Pepsico Inc........................................................ 4,793,313 2.52%
----------------
Insurance
21,375 American International Group....................................... 2,108,109
60,150 Travelers Inc...................................................... 2,744,344
----------------
Total Insurance............................................... 4,852,453 2.55%
----------------
Leisure and Recreation
45,300 Harrah's Entertainment Inc......................................... 1,279,725
26,100 Marriott International Inc......................................... 1,402,875
33,500 Mirage Resorts Inc. (c)............................................ 1,809,000
----------------
Total Leisure and Recreation.................................. 4,491,600 2.36%
----------------
Media
25,500 Gannett Company Inc................................................ 1,804,125
44,600 Liberty Media Group, (c)........................................... 1,181,900
39,418 Walt Disney Company................................................ 2,478,407
----------------
Total Media................................................... 5,464,432 2.87%
----------------
Medical and Other Health Services
26,200 Becton Dickinson & Company......................................... 2,102,550
31,500 HBO & Company...................................................... 2,134,125
30,000 Medtronic Inc...................................................... 1,680,000
32,800 Service Corp International......................................... 1,886,000
18,800 US Robotics Corp................................................... 1,607,400
----------------
Total Medical and Other Health Services....................... 9,410,075 4.94%
----------------
Metals and Mining
43,300 Freeport McMoran Resources......................................... 1,293,588 0.68%
----------------
</TABLE>
See notes to financial statements.
F-130
<PAGE> 225
Growth and Income Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Oil and Gas
20,700 British Petroleum PLC (ADR)........................................ $ 2,212,313
37,100 Enron.............................................................. 1,516,463
22,200 Schlumberger Ltd................................................... 1,870,350
42,200 Sonat Inc.......................................................... 1,899,000
----------------
Total Oil and Gas............................................. 7,498,126 3.93%
----------------
Pharmaceuticals
28,200 Amgen Inc.......................................................... 1,522,800
35,100 Eli Lilly & Company................................................ 2,281,500
77,300 Johnson & Johnson.................................................. 3,826,350
38,200 Pfizer Inc......................................................... 2,726,525
79,700 Pharmacia & Upjohn Inc............................................. 3,536,688
31,900 Warner Lambert Company............................................. 1,754,500
----------------
Total Pharmaceuticals......................................... 15,648,363 8.21%
----------------
Retail
25,300 Dayton-Hudson Corp................................................. 2,609,062
62,900 Federated Department Stores (c).................................... 2,146,462
38,900 Home Depot......................................................... 2,100,600
59,400 Officemax Inc...................................................... 1,418,175
58,600 Safeway Inc. (a)................................................... 1,933,800
90,400 Sears Roebuck & Company............................................ 4,395,700
32,000 TJX Cos Inc........................................................ 1,080,000
49,600 Walgreen Company................................................... 1,661,600
----------------
Total Retail.................................................. 17,345,399 9.10%
----------------
Telecommunications
30,900 Ascend Communications Inc.......................................... 1,738,125
27,000 Cascade Communications Corp. (a)................................... 1,836,000
25,500 Tellabs Inc. (c)................................................... 1,705,313
----------------
Total Telecommunications...................................... 5,279,438 2.77%
----------------
Tobacco
33,700 Philip Morris Company Inc.......................................... 3,504,800 1.84%
----------------
Transportation: Rail
23,800 Burlington Northern Sante Fe....................................... 1,924,825 1.01%
----------------
Utilities: Telephone
57,500 GTE Corp........................................................... 2,573,125
100,400 MCI Communications Corp............................................ 2,572,750
----------------
Total Utilities: Telephone.................................... 5,145,875 2.70%
---------------- -----------
Total Common Stock (Cost $158,216,519)........................ 176,679,885 92.75%
---------------- -----------
</TABLE>
See notes to financial statements.
F-131
<PAGE> 226
Growth and Income Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C>
Repurchase Agreement
$ 3,720,965 Repurchase Agreement with Investors Bank & Trust, dated 06/28/96,
5.03%, proceeds at maturity $3,722,525, due 07/01/96
(Collateralized by
Federal National Mortgage Association, 7.50%,
due 02/01/10 with a market value of $4,000,000)
(Cost $3,721,485).............................................. $ 3,721,485
11,700,000 Repurchase Agreement with Morgan Stanley, dated 06/28/96, 4.95%,
proceeds at maturity $11,704,826, due 07/01/96 (Collateralized
by US Treasury Note, 8.00%, due 02/15/19 with a market value of
$12,105,268) (Cost $11,701,609)............................... 11,701,609
----------------
Total Repurchase Agreement (Cost $15,423,094)............... 15,423,094 8.10%
---------------- -----------
Total Investments (Cost $177,237,952)....................... 195,701,318 102.74%
Liabilities in excess of Assets............................. (5,224,955) (2.74)%
---------------- -----------
Net Assets.................................................. $ 190,476,363 100.00%
---------------- -----------
---------------- -----------
The aggregate cost of securities for Federal Income tax purposes at June
30, 1996 is $177,237,952.
The following amount is based on costs for Federal Income tax purposes:
Gross unrealized appreciation............................... $ 19,628,086
Gross unrealized depreciation............................... (1,164,720)
----------------
Net unrealized appreciation................................. $ 18,463,366
----------------
----------------
</TABLE>
- ---------------
(a) All or part of this security is on loan
(c) Non-income producing security
(d) Collateral for securities on loan
See notes to financial statements.
F-132
<PAGE> 227
Equity Growth Portfolio
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Short Term Obligations
Commercial Paper
$ 6,000,000 AT&T Capital Corp., 5.495%, 10/17/96 (d)........................... $ 6,001,246
1,000,000 Republic New York Securities Corp., 5.775%,
11/08/96 (d)..................................................... 1,000,207
----------------
Total Commercial Paper........................................ 7,001,453 2.66%
----------------
Time Deposits
14,338,735 Bank of Boston (Nassau), 5.725%, 07/01/96 (d)...................... 14,341,742
500,000 First Union National Bank of North Carolina (Nassau), 5.375%,
07/01/96 (d)....................................................... 500,104
----------------
Total Time Deposits........................................... 14,841,816 5.64%
---------------- -----------
Total Short Term Obligations (Cost $21,843,269)............... 21,843,269 8.30%
---------------- -----------
Corporate Bonds and Notes
Medical and Other Health Services
2,099,000 Phycor Inc., 4.50%, 02/15/03....................................... 2,419,098 0.92%
---------------- -----------
Total Corporate Bonds and Notes (Cost $2,128,829)............. 2,419,098 0.92%
---------------- -----------
Common Stock
Computer and Office Equipment
50,400 Hewlett-Packard Inc................................................ 5,021,100 1.91%
----------------
Computer Software and Services
43,900 Computer Sciences Corp. (c)........................................ 3,281,525
101,900 Intuit Inc......................................................... 4,814,775
68,700 Microsoft Corp. (c)................................................ 8,252,588
86,700 Netscape Communications Corp. (a).................................. 5,397,075
217,875 Oracle Systems Corp................................................ 8,592,445
71,300 Peoplesoft Inc..................................................... 5,080,125
57,400 UUNET Technologies (c)............................................. 3,802,750
----------------
Total Computer Software and Services.......................... 39,221,283 14.91%
----------------
Consumer Goods and Services
73,250 CUC International Inc.............................................. 2,600,375
242,100 Lowes Co's Inc..................................................... 8,745,862
----------------
Total Consumer Goods and Services............................. 11,346,237 4.31%
----------------
Finance
36,300 First Data Corp.................................................... 2,890,387 1.10%
----------------
Food and Beverage
193,300 Boston Chicken Inc. (a) (c)........................................ 6,282,250
366,100 Starbucks Corp..................................................... 10,342,325
----------------
Total Food and Beverage....................................... 16,624,575 6.32%
----------------
Investments
10,000,000 Janus Institutional Money Market Fund (d).......................... 10,000,000 3.80%
----------------
</TABLE>
See notes to financial statements.
F-133
<PAGE> 228
Equity Growth Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Medical & Other Health Services
125,800 Biogen Inc......................................................... $ 6,903,275
142,000 Boston Scientific Corp. (a) (c).................................... 6,390,000
98,600 Genzyme Corp. (c).................................................. 4,954,650
99,800 HBO & Co........................................................... 6,761,450
45,700 Medtronic Inc...................................................... 2,559,200
110,400 Oxford Health Plans................................................ 4,540,200
25,950 Phycor Inc......................................................... 986,100
77,400 United Healthcare Corp............................................. 3,908,700
----------------
Total Medical & Other Health Services......................... 37,003,575 14.07%
----------------
Oil and Gas
79,200 Baker Hughes Inc................................................... 2,603,700
29,200 Schlumberger Ltd................................................... 2,460,100
80,800 Smith International................................................ 2,434,100
----------------
Total Oil and Gas............................................. 7,497,900 2.85%
----------------
Pharmaceuticals
116,300 Eli Lilly & Company................................................ 7,559,500
110,300 Merck & Co. Inc.................................................... 7,128,137
----------------
Total Pharmaceuticals......................................... 14,687,637 5.58%
----------------
Retail
222,900 Autozone Inc. (c).................................................. 7,745,775
84,798 Home Depot......................................................... 9,979,092
72,300 Kohls Corporation.................................................. 2,647,987
161,650 Petsmart Inc. (c).................................................. 7,718,788
192,750 Officemax Inc...................................................... 4,601,906
406,143 Staples Inc. (a)................................................... 7,919,789
----------------
Total Retail.................................................. 40,613,337 15.44%
----------------
Telecommunications
117,700 3 Com Corp......................................................... 5,384,775
223,700 Airtouch Communications Inc. (c)................................... 6,319,525
147,000 Cascade Communications Corp. (a)................................... 9,996,000
140,600 Cisco Systems Inc.................................................. 7,961,475
77,600 LCI International Inc. (a)......................................... 2,434,700
122,000 MFS Communications Co. Inc. (a).................................... 4,590,250
171,300 Paging Network Inc................................................. 4,111,200
124,600 Tellabs Inc. (c)................................................... 8,332,625
86,200 US Robotics Corporation............................................ 7,370,100
186,500 Worldcom Inc. (c).................................................. 10,327,438
----------------
Total Telecommunications...................................... 66,828,088 25.41%
---------------- -----------
Total Common Stock (Cost $191,370,009)........................ 251,734,119 95.70%
---------------- -----------
</TABLE>
See notes to financial statements.
F-134
<PAGE> 229
Equity Growth Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C>
Repurchase Agreement
$ 18,825,413 Repurchase Agreement with Investors Bank & Trust, dated 06/28/96,
5.03%, proceeds at maturity $18,833,304, due 07/01/96
(Collateralized by Federal National Mortgage Association, 7.00%,
due 02/20/96 with a market value of $9,300,000, Federal National
Mortgage Association, 5.73%, due 02/01/26 with a market value of
$4,200,000, Government National Mortgage Association, 7.50%, due
05/20/25 with a market value of $4,500,000, and Governement
National Mortgage Association, 7.00%, due 04/01/09 with a market
value of $1,500,000, for a total market value of $19,500,000)
(Cost $18,828,043)............................................... $ 18,828,043 7.16%
---------------- -----------
Total Investments (Cost $234,170,150)......................... 294,824,529 112.08%
Liabilities in excess of Assets............................... (31,782,785) (12.08)%
---------------- -----------
Net Assets.................................................... $ 263,041,744 100.00%
---------------- -----------
---------------- -----------
The aggregate cost of securities for Federal Income tax purposes at June
30, 1996 is $234,170,150.
The following amount is based on costs for Federal Income tax purposes:
Gross unrealized appreciation...................................... $ 62,006,226
Gross unrealized depreciation...................................... (1,351,847)
----------------
Net unrealized appreciation........................................ $ 60,654,379
----------------
----------------
</TABLE>
- ---------------
(d) Collateral for securities on loan
See notes to financial statements.
F-135
<PAGE> 230
Special Equity Portfolio
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Short Term Obligations
Commercial Paper
$ 6,500,000 AT&T Capital Corp., 5.495%,
10/17/96 (d)..................................................... $ 6,501,460 1.47%
Time Deposits
16,500,946 Bank of Boston (Nassau), 5.725%,
07/01/96 (d)..................................................... 16,504,654 3.73%
---------------- -----------
Total Short Term Obligations (Cost $23,006,114)............... 23,006,114 5.20%
---------------- -----------
Shares
- --------------
Common Stock
Advertising
51,050 Ha-Lo Industries Inc............................................... 1,327,300 0.30%
----------------
Aeropace
144,600 AAR Corp........................................................... 2,946,225 0.67%
----------------
Automotive Products
10,000 Armor All Products Corp............................................ 148,750
35,600 Autozone Inc. (c).................................................. 1,237,100
24,300 Wolverine Tube Inc. (c)............................................ 850,500
----------------
Total Automotive Products..................................... 2,236,350 0.51%
----------------
Banks
114,000 American Federal Bank.............................................. 1,909,500
60,788 Banc One Corp...................................................... 2,066,792
63,873 First Republic Bancorp Inc. (c).................................... 982,047
103,000 First Saving Bank of Washington.................................... 1,609,375
87,500 Norwalk Savings Society............................................ 1,903,125
110,000 Peoples Bank Bridgeport............................................ 2,447,500
140,000 Roosevelt Financial Group Inc...................................... 2,695,000
60,000 Washington Mutual Inc. (a)......................................... 1,792,500
----------------
Total Banks................................................... 15,405,839 3.48%
----------------
Business Services
191,300 Accustaff Inc...................................................... 5,212,925
37,100 Alternative Resources Corp. (c).................................... 1,363,425
35,800 Career Horizons Inc................................................ 1,253,000
41,900 Iron Mountain Inc. (c)............................................. 879,900
51,600 Manpower Inc....................................................... 2,025,300
67,275 McAfee Associates Inc.............................................. 3,296,475
----------------
Total Business Services....................................... 14,031,025 3.17%
----------------
Chemicals
13,400 Monsanto Company................................................... 435,500
63,877 TETRA Tech Inc..................................................... 1,277,539
----------------
Total Chemicals............................................... 1,713,039 0.39%
----------------
</TABLE>
See notes to financial statements.
F-136
<PAGE> 231
Special Equity Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Commercial Services
14,500 Greenwich Air Services............................................. $ 268,250
80,000 Protection One Inc. (c)............................................ 1,310,000
----------------
Total Commerical Services..................................... 1,578,250 0.36%
----------------
Computers and Office Equipment
111,300 3 Com Corp......................................................... 5,091,975
33,100 Acxiom Corp........................................................ 1,129,538
52,800 American Business Information...................................... 963,600
70,000 Amplicon Inc....................................................... 1,172,500
14,500 Cabletron Systems Inc.............................................. 995,063
68,000 Ciber Inc.......................................................... 1,496,000
133,600 Cisco Systems Inc.................................................. 7,565,100
90,000 Converse Technology Inc. (a) (c)................................... 2,745,000
51,325 Concord EFS Inc.................................................... 1,822,038
44,500 Electronics for Imaging............................................ 3,087,188
24,600 Fair Issac & Company Inc........................................... 1,088,550
87,300 May & Speh Inc. (c)................................................ 1,374,975
11,100 Medic Computer Systems Inc. (c).................................... 900,488
31,400 National Data Corp................................................. 1,075,450
35,500 Pomeroy Computer Resources (c)..................................... 532,500
22,000 Renaissance Solutions Inc. (c)..................................... 624,250
52,300 Stratacom Inc...................................................... 2,941,875
23,000 Summit Care Corp. (c).............................................. 506,000
67,700 US Office Products Company (a) (c)................................. 2,843,400
12,200 Wind River Systems................................................. 420,900
32,600 Zebra Technologies Corp............................................ 578,650
----------------
Total Computers and Office Equipment.......................... 38,955,040 8.81%
----------------
Computer Software and Services
20,600 Aspen Technologies, Inc. (c)....................................... 1,133,000
49,600 Astea International Inc............................................ 1,202,800
20,000 Computer Associates International, Inc............................. 1,425,000
35,000 Computer Horizons Corp............................................. 1,382,500
4,900 Cytyc Corporation (c).............................................. 126,788
31,900 Dialogic Corp. (c)................................................. 1,902,038
23,900 INSO Corp. (a)..................................................... 1,251,763
42,100 Integrated Systems Inc............................................. 1,686,631
45,500 JDA Software Group Inc. (c)........................................ 938,438
44,500 Macromedia Inc..................................................... 973,438
24,200 MDL Information Systems Inc. (c)................................... 719,950
38,800 Metromail Corp. (c)................................................ 868,150
17,800 Netscape Communications Corp. (a).................................. 1,108,050
64,600 Newbridge Network Corp. (c)........................................ 4,231,300
89,100 Parametric Technology Corp......................................... 3,864,713
41,600 Peoplesoft......................................................... 2,964,000
26,500 Project Software & Development..................................... 1,242,188
</TABLE>
See notes to financial statements.
F-137
<PAGE> 232
Special Equity Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Computer Software and Services--(cont'd)
26,400 Pure Software Inc. (c)............................................. $ 897,600
27,300 Rational Software Corp. (c)........................................ 1,467,375
7,900 Sapient Corporation (c)............................................ 333,775
58,800 Scopus Technology Inc. (c)......................................... 911,400
64,400 Sterling Software (c).............................................. 4,958,800
48,150 TCSI Corporation................................................... 1,161,619
28,300 Veritas Software Corp. (c)......................................... 1,216,900
26,400 Visio Corp. (c).................................................... 950,400
----------------
Total Computer Software and Services.......................... 38,918,616 8.80%
----------------
Construction
123,300 Daniel Industries.................................................. 1,787,850
18,300 Fibreboard Corp. (c)............................................... 505,538
----------------
Total Construction............................................ 2,293,388 0.52%
----------------
Consumer Goods and Services
35,600 CUC International Inc.............................................. 1,263,800
69,000 Parlux Fragrances Inc.............................................. 698,625
22,800 USA Detergents Inc................................................. 909,150
----------------
Total Consumer Goods and Services............................. 2,871,575 0.65%
----------------
Education
48,000 Alrenco Inc. (c)................................................... 864,000
40,038 Apple South Inc.................................................... 1,071,003
186,750 ITT Educational Services Inc....................................... 5,392,406
152,500 Kinder Care Learning Centers (c)................................... 2,344,688
31,500 Landauer Inc....................................................... 665,438
485,800 National Education Corp. (c)....................................... 6,922,650
47,000 Sylvan Inc. (c).................................................... 628,625
----------------
Total Education............................................... 17,888,810 4.05%
----------------
Electrical Equipment
33,600 California Amplifier, Inc.......................................... 772,800
144,900 Cambridge Tech Partners Inc........................................ 4,419,450
38,500 Etec Systems Inc. (c).............................................. 856,625
----------------
Total Electrical Equipment.................................... 6,048,875 1.37%
----------------
Electronics
100,300 Alpha Industries Inc. (c).......................................... 890,163
24,500 Analog Devices Inc................................................. 624,750
54,100 Charter Power Systems.............................................. 1,879,975
67,500 Electro Rent Corp.................................................. 1,670,625
50,000 Gentex Corp........................................................ 975,000
93,400 ILC Technology Inc. (c)............................................ 1,085,775
86,900 Input/Output Inc................................................... 2,813,388
49,030 Richardson Electronics............................................. 465,785
44,200 SDL Inc ........................................................... 1,226,550
</TABLE>
See notes to financial statements.
F-138
<PAGE> 233
Special Equity Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Electronics--(cont'd)
279,300 Sensormatic Electronics Corp. (a).................................. $ 4,573,538
62,600 Sterling Electronics............................................... 845,100
29,800 Uniphase Corp...................................................... 1,057,900
----------------
Total Electronics............................................. 18,108,549 4.10%
----------------
Engineering
7,200 Fluke Corporation.................................................. 290,700
106,500 URS Corp. (c)...................................................... 838,688
----------------
Total Engineering............................................. 1,129,388 0.26%
----------------
Environmental Management
30,800 ABM Industries Inc................................................. 1,205,050
15,700 BHA Group, Inc..................................................... 208,025
44,500 National Sanitary Supply........................................... 589,625
23,900 Roto Rooter Inc.................................................... 824,550
21,500 Sanifill Inc. (c).................................................. 1,058,875
20,000 Superior Services Inc. (c)......................................... 340,000
48,500 US Filter Corp. (a) (c)............................................ 1,685,375
129,600 United Waste Systems Inc. (a)...................................... 4,179,600
----------------
Total Environmental Management................................ 10,091,100 2.28%
----------------
Finance
63,500 AT&T Capital Corp.................................................. 2,778,125
64,392 Allied Capital Lending Co.......................................... 845,145
109,600 Cash American Investments Inc...................................... 712,400
101,400 Charter One Finance Inc............................................ 3,536,325
50,700 Contifinancial Corporation (c)..................................... 1,495,650
316,950 Home Financial Corp................................................ 4,120,350
95,200 Phoenix Duff & Phelps Corp......................................... 714,000
47,800 RFS Hotel Investors Inc............................................ 740,900
77,000 The Money Store Inc................................................ 1,703,625
----------------
Total Finance................................................. 16,646,520 3.77%
----------------
Food and Beverage
24,000 Dairymart Coven Stores Class A (c)................................. 141,000
15,200 Glacier Water Services Inc. (c).................................... 298,300
29,100 Landry's Seafood Restaurants (c)................................... 720,225
32,300 Midwest Grain Products Inc......................................... 419,900
8,900 Pete's Brewing Company............................................. 133,500
238,300 Ruby Tuesday Inc................................................... 5,391,538
----------------
Total Food and Beverage....................................... 7,104,463 1.61%
----------------
Insurance
101,200 American Travellers Corp........................................... 2,327,600
62,200 HCC Insurance Holding Inc.......................................... 1,399,500
40,500 Intercargo Inc..................................................... 349,313
</TABLE>
See notes to financial statements.
F-139
<PAGE> 234
Special Equity Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Insurance--(cont'd)
38,600 National Western Life Insurance Class A (c)........................ $ 2,576,550
47,600 Western National Corp.............................................. 874,650
208,800 Willis Corroon Group (ADR)......................................... 2,479,500
----------------
Total Insurance............................................... 10,007,113 2.26%
----------------
Investments
8,000,000 Janus Institutional Money Market Fund (d).......................... 8,000,000 1.81%
----------------
Leisure and Recreation
37,900 Harrah's Entertainment Inc......................................... 1,070,675
59,300 Harveys Casinos Resorts............................................ 1,260,125
15,600 HFS Inc............................................................ 1,092,000
20,000 International Game Technology...................................... 337,500
15,000 Nimbus CD International Inc. (c)................................... 196,875
12,200 Sun International Hotels Ltd....................................... 591,700
19,100 West Marine Inc. (c)............................................... 1,365,650
----------------
Total Leisure and Recreation.................................. 5,914,525 1.34%
----------------
Manufacturing
16,600 Astec Industries (c)............................................... 153,550
54,000 Chase Brass Industries Inc. (c).................................... 1,005,750
6,700 Delta & Pine Land Co............................................... 283,075
44,700 DT Industries Inc.................................................. 815,775
139,800 Lydall Inc. (c).................................................... 3,075,600
39,800 NN Ball & Roller Inc............................................... 825,850
24,200 Scotsman Industries Inc............................................ 487,025
20,550 Watsco Inc......................................................... 431,550
----------------
Total Manufacturing........................................... 7,078,175 1.60%
----------------
Media
21,400 Comcast UK Cable Partners (c)...................................... 272,850
48,900 Granite Broadcasting Corp. (a) (c)................................. 632,644
73,500 Houghton Mifflin Company........................................... 3,656,625
14,650 Jack Henry & Associates............................................ 498,100
83,300 Jones Intercable Inc. Class A (c).................................. 1,114,138
103,000 Osborn Communications (c).......................................... 1,133,000
281,300 Steck Vaughn Publishing Corp. (c).................................. 3,516,250
----------------
Total Media................................................... 10,823,607 2.45%
----------------
Medical and Other Health Services
72,400 Advocat Inc. (c)................................................... 687,800
40,000 Chemed Corp........................................................ 1,495,000
26,500 Coherent Inc. (c).................................................. 1,378,000
21,500 Community Care Of America (c)...................................... 258,000
28,300 Conmed Corporation................................................. 753,488
28,900 Genzyme Corp. (c).................................................. 1,452,225
28,000 Gulf South Medical Supply Inc. (c)................................. 1,092,000
</TABLE>
See notes to financial statements.
F-140
<PAGE> 235
Special Equity Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Medical and Other Health Services--(cont'd)
16,700 HBO & Company...................................................... $ 1,131,425
20,100 Healthsource Inc................................................... 351,750
23,600 Hologic Inc........................................................ 1,044,300
50,800 Lifeline Systems Inc. (c).......................................... 679,450
35,500 Living Centers of America (c)...................................... 1,220,313
21,700 Lunar Corp......................................................... 748,650
41,300 National Computer System Inc....................................... 882,788
8,900 Neuromedical Systems Inc. (a) (c).................................. 133,500
63,200 Omnicare Inc. (a).................................................. 1,674,800
46,100 Ornda Healthcorp (c)............................................... 1,106,400
35,800 Orthodontic Centers Of Amererica................................... 948,700
265,000 Owens & Minor Holding Co........................................... 3,080,625
22,300 Oxford Health Plans (c)............................................ 917,088
39,300 Oxford Resources Corp. Class A..................................... 913,725
76,400 Physician Reliance (a)............................................. 1,699,900
56,200 Physician Sales & Service.......................................... 1,362,850
37,900 Physicians Resource Group Inc. (c)................................. 1,264,913
21,500 Quintiles Transnational Corp....................................... 1,413,625
34,600 Quorum Health Group Inc. (c)....................................... 912,575
89,300 Renal Treatment Centers Inc........................................ 2,567,375
54,600 Retirement Care Associates......................................... 600,600
102,600 Unilab Corporation (c)............................................. 160,313
194,400 Universal Health Services Class B (a).............................. 5,078,700
----------------
Total Medical and Other Health Services....................... 37,010,878 8.37%
----------------
Metals and Mining
24,500 Furon Company...................................................... 606,375
85,000 Rogers Corp........................................................ 2,114,375
----------------
Total Metals and Mining....................................... 2,720,750 0.62%
----------------
Oil & Gas
87,900 Berry Petroleum Class A............................................ 999,863
16,700 Chesapeake Energy Corp. (a)........................................ 1,500,913
34,000 Pride Petroleum Services Inc. (c).................................. 484,500
88,900 Tosco Corp......................................................... 4,467,225
46,400 World Fuel Services Corp........................................... 841,000
----------------
Total Oil & Gas............................................... 8,293,501 1.88%
----------------
Pharmaceuticals
28,900 Dura Pharmaceuticals, Inc. (c)..................................... 1,618,400
52,200 Vitalink Pharmacy Services (c)..................................... 1,213,650
----------------
Total Pharmaceuticals......................................... 2,832,050 0.64%
----------------
Real Estate Investment Trust
108,500 Allied Capital Commercial Corp..................................... 2,142,875
78,500 Allied Capital Corp. (a)........................................... 1,079,375
</TABLE>
See notes to financial statements.
F-141
<PAGE> 236
Special Equity Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Real Estate Investment Trust--(cont'd)
99,900 Equity Inns Inc.................................................... $ 1,148,850
30,800 Health Care Property Invest Inc.................................... 1,039,500
19,900 Remedy Corp........................................................ 1,452,700
44,500 Roc Communities Inc................................................ 1,062,438
30,000 Sun Communities Inc................................................ 806,250
----------------
Total Real Estate Investment Trust............................ 8,731,988 1.97%
----------------
Retail
32,700 ACC Corp. (c)...................................................... 1,590,038
80,300 American Safety Razor Company (c).................................. 813,038
61,000 Blyth Industries Inc............................................... 2,767,875
74,700 Catherines Stores Corp. (c)........................................ 737,663
15,600 Chicago Minature Lamp Inc . (c).................................... 592,800
111,200 Consolidated Stores Corp. (c)...................................... 4,086,600
75,100 Fred's Inc......................................................... 826,100
8,600 Gadzooks Inc....................................................... 277,350
14,500 Gucci Group........................................................ 935,250
40,400 Helen of Troy Ltd (c).............................................. 1,151,400
175,000 MacFrugals Bargains Close-Outs (c)................................. 3,106,250
155,200 Michael Anthony Jewellers Inc. (c)................................. 514,100
11,100 Nautica Enterprises Inc............................................ 319,125
29,200 Pentech International Inc. (c)..................................... 51,100
52,100 Sunglass Hut Inc................................................... 1,269,938
11,700 The Men's Wearhouse Inc............................................ 377,325
69,500 Tommy Hilfiger Corp. (c)........................................... 3,726,938
52,600 Travel Ports of America (A)........................................ 157,800
15,600 Wet Seal Inc. (c).................................................. 371,475
----------------
Total Retail.................................................. 23,672,165 5.35%
----------------
Security Systems
753,692 Automated Security Holdings (ADR) (c).............................. 847,904
64,600 Qualcomm Inc. (c).................................................. 3,431,875
----------------
Total Security Systems........................................ 4,279,779 0.96%
----------------
Telecommunciations
68,000 Aaron Rents Inc. Class B........................................... 858,500
6,900 Adtran Inc. (c).................................................... 489,038
44,600 Arch Communications Group Inc. (c)................................. 830,675
84,600 Ascend Communications Inc.......................................... 4,758,750
35,600 Aspect Telecommunications Corp. (a)................................ 1,762,200
6,275 Associated Group Inc. Class A (c).................................. 189,819
25,675 Associated Group Inc. Class B (c).................................. 767,041
55,550 Cable Design Technologies.......................................... 1,819,263
17,000 Cellular Communications of Puerto Rico (c)......................... 552,500
84,575 Centennial Cellular Corp. Class A (c).............................. 1,427,203
</TABLE>
See notes to financial statements.
F-142
<PAGE> 237
Special Equity Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C> <C>
Telecommunciations--(cont'd)
14,100 CommNet Cellular Inc. (c).......................................... $ 423,000
121,600 Communications Central Inc. (c).................................... 942,400
55,000 Davel Communications Group (c)..................................... 1,086,250
21,600 DSP Communications, Inc............................................ 1,109,700
17,000 E Z Communications Inc. (c)........................................ 403,750
29,100 Emmis Broadcasting Corp. Class A (c)............................... 1,455,000
95,700 Glenayre Technologies, Inc......................................... 4,785,000
23,200 Globalstar Telecommunication (c)................................... 1,026,600
12,200 Intelcom Group Inc. (c)............................................ 305,000
64,300 Inter Tel Inc. (c)................................................. 1,683,856
11,100 ITT Corp. (c)...................................................... 735,375
53,400 Loral Space & Communications (c)................................... 727,575
94,600 MFS Communications Company, Inc. (a)............................... 3,559,305
23,700 Octel Communication................................................ 468,075
35,400 P-Com Inc.......................................................... 1,115,100
26,700 Pairgain Technologies Inc.......................................... 1,655,400
56,400 Picturetel Corp.................................................... 2,220,750
176,200 Pittston Services Group............................................ 5,131,825
64,000 Premisys Communications Inc........................................ 3,904,000
78,100 Pronet Inc. (c).................................................... 956,725
23,400 Tellabs Inc. (c)................................................... 1,564,875
25,900 Teltrend Inc. (c).................................................. 1,003,625
29,600 Vanguard Cellular Systems Inc. (c)................................. 643,800
28,900 Westell Technologies Inc........................................... 1,134,325
----------------
Total Telecommunications...................................... 51,496,300 11.64%
----------------
Transportation
104,200 Air Express International Corp. (a)................................ 2,943,650
215,000 Airborne Freight Corp.............................................. 5,590,000
42,100 Atlas Air Inc. (c)................................................. 2,420,750
105,700 Consolidated Freightways Inc....................................... 2,232,913
65,374 Fritz Companies Inc................................................ 2,108,312
45,200 Global Directmail Corp. (c)........................................ 1,785,400
194,700 Harper Group Inc................................................... 3,796,650
190,050 Pittston Burlington Group.......................................... 4,109,831
65,000 Sea Containers Ltd................................................. 1,235,000
----------------
Total Transportation.......................................... 26,222,506 5.92%
----------------
Veterinary Services
33,400 Veterinary Centers of America (c).................................. 747,325 0.17%
---------------- -----------
Total Common Stocks (Cost $332,993,074)....................... 407,125,014 92.08%
---------------- -----------
Preferred Stock
-------------------------------------------------------------------
Telecommunications
9,094 Cellular Communications Inc. (c)................................... $ 480,845 0.11%
---------------- -----------
Total Preferred Stock (Cost $425,145).............................. 480,845 0.11%
---------------- -----------
</TABLE>
See notes to financial statements.
F-143
<PAGE> 238
Special Equity Portfolio
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- -------------- ---------------- -----------
<S> <C> <C>
Repurchase Agreement
$ 46,174,825 Repurchase Agreement with Morgan Stanley, dated
06/28/96, 4.95%, proceeds at maturity $46,193,872, due 07/01/96
(Collateralized by US Treasury Note, 8.00%, due 02/15/19 with a
market value of $7,336,807) (Cost $46,181,174)................... $ 46,181,174 10.45%
---------------- -----------
Total Investments (Cost $402,605,507) 476,793,147 107.84%
Liabilities in Excess of Assets (34,658,291) (7.84)%
---------------- -----------
Net Assets......................................................... $ 442,134,856 100.00%
---------------- -----------
---------------- -----------
The cost for Federal Income tax purposes at June 30, 1996 is $402,605,507.
The following amount is based on costs for Federal Income tax purposes:
Gross unrealized appreciation...................................... $ 87,411,606
Gross unrealized depreciation...................................... (13,223,966)
----------------
Net unrealized appreciation........................................ $ 74,187,640
----------------
----------------
</TABLE>
- ---------------
(a) All or part of this security is on loan
(c) Non--income producing securities
(d) Collateral for securities on loan.
See notes to financial statements.
F-144
<PAGE> 239
Aggressive Equity
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- ------------- -------------- -----------
<S> <C> <C> <C>
Common Stock
Communications Equipment
7,500 Andrew Corp........................................................... $ 403,125
10,000 Ascend Communications Inc. ........................................... 562,500
5,000 Cascade Communications Corp. ......................................... 340,000
10,000 Cisco Systems Inc. ................................................... 566,250
7,500 Glenayre Technologies Inc. ........................................... 375,000
6,000 Pairgain Technologies Inc. ........................................... 372,000
7,500 Stanford Telecommunications (c)....................................... 421,875
10,000 Tellabs Inc. (c)...................................................... 668,750
--------------
Total Communications Equipment........................................ 3,709,500 21.87%
--------------
Computer and Office Equipment
3,000 Ceridian Corp. ....................................................... 151,500
5,000 HNC Software Inc. .................................................... 231,250
6,000 Intel Corp. .......................................................... 440,625
5,000 Microsoft Corp. ...................................................... 600,625
10,000 P-Com Inc. ........................................................... 315,000
7,500 Project Software and Development...................................... 351,562
15,800 Radisys Corp. ........................................................ 537,200
10,000 Software 2000 Inc. ................................................... 161,250
7,500 Sun Microsystems Inc. ................................................ 441,563
--------------
Total Computer and Office Equipment................................... 3,230,575 19.04%
--------------
Computer Software and Services
10,000 Adaptec Inc. ......................................................... 473,750
10,000 Compuware Corp. ...................................................... 392,500
7,000 Electronics for Imaging............................................... 485,625
7,500 McAfee Associates Inc. ............................................... 367,500
10,000 Oracle Corp. ......................................................... 394,375
7,000 Peoplesoft............................................................ 498,750
10,000 Rational Software Corp. .............................................. 537,500
6,000 Reynolds & Reynolds Inc. ............................................. 319,500
6,000 SunGard Data Systems.................................................. 240,000
--------------
Total Computer Software and Services.................................. 3,709,500 21.87%
--------------
Electrical Equipment
20,000 Amati Communications Corp. ........................................... 397,500
10,000 Fore Systems Inc. .................................................... 361,250
10,000 Newbridge Network Corp. .............................................. 655,000
--------------
Total Electrical Equipment............................................ 1,413,750 8.34%
--------------
Environmental Management
10,000 United Waste Systems Inc. ............................................ 322,500 1.90%
--------------
Industrial and Commercial Machine Equipment
15,000 Cognos Inc. .......................................................... 345,000
6,000 Shiva Corp. .......................................................... 480,000
--------------
Total Industrial and Commercial Machine Equipment..................... 825,000 4.86%
--------------
</TABLE>
F-145
<PAGE> 240
Aggressive Equity
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Shares Value Net Assets
- ------------- -------------- -----------
<S> <C> <C>
Medical & Other Health Services
5,000 Access Health Inc. ................................................... $ 236,250
10,000 Galileo Electro Optics Corp. ......................................... 240,000
5,000 Guidant Corp. ........................................................ 246,250
7,500 HBO & Company......................................................... 508,125
7,500 Jones Medical Industries Inc. ........................................ 249,375
10,000 Safeskin Corp. ....................................................... 415,000
--------------
Total Medical & Other Health Services................................. 1,895,000 11.17%
--------------
Telecommunications
10,000 Aspect Telecommunication Corp. ....................................... 495,000
15,000 DSP Communications Inc. .............................................. 770,625
10,000 US Long Distance Corp. (c)............................................ 355,000
--------------
Total Telecommunications.............................................. 1,620,625 9.55%
-------------- -----------
Total Common Stock (Cost $15,290,049)................................. 16,726,450 98.60%
-------------- -----------
Principal
- -------------
Repurchase Agreement
$ 5,242,436 Repurchase Agreement with Investors Bank & Trust, dated 06/28/96,
5.03%, proceeds at maturity $5,244,633, due 07/01/96 (Collateralized
by Federal Home Loan Mortgage Corp, 7.604%, due 11/01/22 with a
market value of $2,500,000, and Federal Home Loan Mortgage Corp,
7.877%, due 12/01/22 with a market value of $3,200,000, for a total
market value of $5,700,000)
(Cost $5,243,168)................................................... 5,243,168 30.91%
-------------- -----------
Total Investments (Cost $20,533,217).................................. 21,969,618 129.51%
Liabilities in excess of Assets....................................... (5,005,604) (29.51)%
-------------- -----------
Net Assets............................................................ $ 16,964,014 100.00%
-------------- -----------
-------------- -----------
The aggregate cost of securities for Federal Income tax purposes at June 30,
1996 is $20,533,217.
The following amount is based on costs for Federal Income tax purposes:
Gross unrealized appreciation......................................... $ 1,575,483
Gross unrealized depreciation......................................... (139,082)
--------------
Net unrealized appreciation........................................... $ 1,436,401
--------------
--------------
</TABLE>
- ---------------
(c) Non-income producing security
F-146
<PAGE> 241
High Yield Bond Portfolio
Portfolio of Investment
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
Corporate Bonds and Notes
Aerospace
$ 250,000 BE Aerospace, 9.75%, 03/01/03....................................... $ 255,000 2.35%
----------------
Building and Construction
120,000 Toll Corp., 10.50%, 03/15/02........................................ 124,200 1.15%
----------------
Chemicals
140,000 General Chemical Inc., 9.25%, 08/15/03.............................. 138,250 1.28%
----------------
Containers and Packages
200,000 Container Corporation of America, 11.25%, 05/01/04.................. 206,000
100,000 Sea Containers, 9.50%, 07/01/03..................................... 99,750
150,000 Stone Container Corp., 10.75%, 10/01/02............................. 151,500
----------------
Total Containers and Packages.................................. 457,250 4.22%
----------------
Finance
250,000 Ferrellgas LP Financial Corp., 10.00%, 08/01/01..................... 258,125
136,000 GI Holdings, 10/01/98 (f)........................................... 109,480
130,000 GI Holdings, 10.00%, 02/15/06....................................... 126,750
400,000 Mesa Operating, 11.625%, 07/01/06................................... 236,000
100,000 Primark Corp., 8.75%, 10/15/00...................................... 99,375
----------------
Total Finance.................................................. 829,730 7.66%
----------------
Food and Beverage
100,000 Cott Corp., 9.375%, 07/01/05........................................ 95,625
150,000 Ralphs Grocery, 10.45%, 06/15/04.................................... 143,625
120,000 Smith Food & Drug, 11.25%, 05/15/07................................. 121,500
----------------
Total Food and Beverage........................................ 360,750 3.33%
----------------
Freight and Cargo
100,000 Teekay Shipping, 8.32%, 02/01/08.................................... 93,250 0.86%
----------------
Industrial
100,000 Calpine Corp., 9.25%, 02/01/04...................................... 93,500
100,000 Carrols Corp., 11.50%, 08/15/03..................................... 101,500
80,000 Foamex Limited Partnership, 11.25%, 10/01/02........................ 82,400
180,000 Oregon Steel Mills, 11.00%, 06/15/03................................ 184,725
140,000 Riverwood International, 10.25%, 04/01/06........................... 138,950
100,000 Samsonite Corp., 11.125%, 07/15/05.................................. 103,000
100,000 Schuller International Group, 10.875%, 12/15/04..................... 107,125
100,000 Scotsman Group, 9.50%, 12/15/00..................................... 100,500
100,000 Westpoint Stevens, 9.375%, 12/15/05................................. 97,000
----------------
Total Industrial............................................... 1,008,700 9.31%
----------------
Leisure & Recreation
200,000 Act III Theatres, 11.875%, 02/01/03................................. 216,000
100,000 AIM Management Group, 9.00%, 11/15/03............................... 99,500
150,000 Aztar Corp., 11.00%, 10/01/02....................................... 155,625
100,000 Host Marriott, 9.50%, 05/15/05...................................... 95,625
110,000 Jitney-Jungle Stores, 12.00%, 03/01/06.............................. 112,200
150,000 Trump Atlantic City, 11.25%, 05/01/06............................... 150,750
----------------
Total Leisure & Recreation..................................... 829,700 7.66%
----------------
</TABLE>
See notes to financial statements.
F-147
<PAGE> 242
High Yield Bond Portfolio
Portfolio of Investment--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C> <C>
Manufacturing
$ 250,000 American Standard, 10.88%, 05/15/99................................. $ 263,750
225,000 Buckeye Cellulose Corp., 8.50%, 12/05/05............................ 213,750
75,000 Idex Corp., 9.75%, 09/15/02......................................... 76,875
250,000 Viking Star Ship, 9.625%, 07/15/03.................................. 253,750
100,000 Westinghouse Air, 9.375%, 06/15/05.................................. 102,000
----------------
Total Manufacturing............................................ 910,125 8.40%
----------------
Media
100,000 ARA Group, 8.50%, 06/01/03.......................................... 99,250
100,000 Groupe Videotron, 10.625%, 02/15/05................................. 104,750
200,000 Infinity Broadcasting, 10.38%, 03/15/02............................. 211,250
50,000 Jones Intercable, 9.63%, 03/15/02................................... 50,750
25,000 Rogers Cablesystems Ltd, 11.00%, 12/01/15........................... 25,688
125,000 Rogers Cablesystems Ltd, 9.625%, 08/01/02........................... 123,437
150,000 Tele-Communications Inc., 7.875%, 02/15/26.......................... 131,903
250,000 Viacom International, 8.00%, 07/07/06............................... 232,485
----------------
Total Media.................................................... 979,513 9.04%
----------------
Medical & Other Health Services
210,000 Owens & Minor, 10.875%, 06/01/06.................................... 213,150
120,000 Quorum Health, 8.75%, 11/01/05...................................... 117,000
----------------
Total Medical & Other Health Services.......................... 330,150 3.05%
----------------
Metals and Mining
250,000 Freeport McMoran Resources, 8.75%, 02/15/04......................... 252,575
100,000 Renco Metals Inc., 12.00%, 07/15/00................................. 112,500
180,000 Renco Metals Inc., 11.50%, 07/01/03................................. 187,326
----------------
Total Metals and Mining........................................ 552,401 5.10%
----------------
Oil and Gas
175,000 Gulf Canada Resources Limited, 9.25%, 01/15/04...................... 169,750
25,000 Louis Dreyfus Natural Gas, 9.25%, 06/15/04.......................... 25,438
80,000 Vintage Pettro, 9.00%, 12/15/05..................................... 75,200
----------------
Total Oil and Gas.............................................. 270,388 2.49%
----------------
Paper & Forest Products
100,000 Crown Paper Company, 11.00%, 09/01/05............................... 95,000
125,000 REPAP New Brunswick, 9.875%, 07/15/00............................... 123,750
----------------
Total Paper & Forest Products.................................. 218,750 2.02%
----------------
Pharmaceutical
210,000 Ivac Corp., 9.25%, 03/15/02......................................... 208,950 1.93%
----------------
Publisher
110,000 Hollinger International Publishing, 9.25%, 02/01/06................. 100,925 0.92%
----------------
Retail
75,000 Finlay Fine Jewelry, 10.625%, 05/01/03.............................. 75,000 0.69%
----------------
</TABLE>
See notes to financial statements.
F-148
<PAGE> 243
High Yield Bond Portfolio
Portfolio of Investment--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of
Principal Value Net Assets
- ------------- ---------------- -----------
<S> <C> <C>
Telecommunications
$ 200,000 Allbritton Communications, 11.50%, 08/15/04......................... $ 203,500
200,000 Bell & Howell Company, 11.50%, 03/01/05............................. 136,500
250,000 Century Communications, 9.75%, 02/15/02............................. 248,750
200,000 Essex Group, 10.00%, 05/01/03....................................... 198,500
250,000 K-III Communications Corp., 10.625%, 05/01/02....................... 260,625
100,000 Lenfest Communications, 8.375%, 11/01/05............................ 91,125
250,000 Metocall Inc., 10.38%, 10/01/07..................................... 233,750
100,000 Paging Network, 10.125%, 08/01/07................................... 98,500
190,000 Rogers Cantel, 9.375%, 06/01/08..................................... 183,825
360,000 Teleport Communications, 07/01/07................................... 212,850
----------------
Total Telecommunications....................................... 1,867,925 17.23%
----------------
Utilities: Electric
200,000 California Energy Company Inc., 9.875%, 06/30/03.................... 204,500
200,000 El Paso Electric Company, 8.90%, 02/01/06........................... 197,500
110,000 El Paso Electric Company, 9.40%, 05/01/11........................... 109,175
----------------
Total Utilities: Electric...................................... 511,175 4.71%
---------------- -----------
Total Corporate Bonds and Notes (Cost $10,288,502)............. 10,122,132 93.40%
---------------- -----------
Total Investments (Cost $10,288,502)........................... 10,122,132 93.40%
Assets in excess of Liabilities................................ 715,621 6.60%
---------------- -----------
Net Assets..................................................... $ 10,837,753 100.00%
---------------- -----------
---------------- -----------
The aggregate cost of securities for Federal Income tax purposes at June
30, 1996 is $10,288,502.
The following amount is based on costs for Federal Income tax purposes:
Aggregate gross unrealized appreciation........................ $ 37,198
Aggregate gross unrealized depreciation........................ (203,568)
----------------
Net unrealized depreciation.................................... $ (166,370)
----------------
----------------
</TABLE>
- ---------------
(f) Zero coupon
See notes to financial statements.
F-149
<PAGE> 244
International Equity Fund
Portfolio of Investments
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of Country
Principle Value Net Assets Code
- ----------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Corporate Bonds and Notes
------------------------------------------------------------
Nonconvertible Bonds and Notes
Bank
$ 277,000 Bangkok Bank Public Co., 3.25%, 03/03/04.................... $ 315,780 0.31% TH
----------------
Construction
136,861 Sekisui House, Ltd., 2.50%, 01/31/02........................ 185,025 0.18% JP
----------------
Finance
310,400 British Air Capital, 9.75%, 06/15/05........................ 756,700 0.73% UK
---------------- -----------
Total Nonconvertible Bonds and Notes................... 1,257,505 1.22%
---------------- -----------
Convertible Bonds and Notes
Banks
390,000 Sumitomo Bank, 3.125% , 03/31/04............................ 327,356 JP
54,745 Fujitsu 10, 2.00%, 03/31/04................................. 60,720 JP
390,000 Renong Berhad, 2.50% 01/15/05............................... 439,725 MA
----------------
Total Banks............................................ 827,801 0.80%
----------------
Communications
2,000 Ericson LM, 4.25%, 06/30/00................................. 5,811 0.01% SW
----------------
Tire and Rubber
271,718 Michelin, 6.00%, 01/02/98................................... 305,937 0.29% FR
---------------- -----------
Total Convertible Bonds................................ 1,139,549 1.10%
---------------- -----------
Total Corporate Bonds and Notes
(Cost $2,229,228).................................... 2,397,054 2.32%
---------------- -----------
Shares
- -----------
Common Stocks, Warrants, and Rights
------------------------------------------------------------
Aerospace
99,400 CAE Industries.............................................. 827,361 0.80% GE
----------------
Automobiles
23,400 Autoliv AB.................................................. 712,877 NE
1,200 Daimler-Benz Ag............................................. 643,699 GE
1,200 Daimler-Benz Ag--Rights, (expires, 7/9/96).................. -- GE
107,000 Kawasaki Steel.............................................. 385,339 JP
5,900 Mannesmann AG............................................... 2,031,089 GE
54,000 Mitsubishi Motor Corp....................................... 472,640 JP
66,000 Suzuki Motor Corp........................................... 866,507 JP
32,000 Toyota Motor Company........................................ 799,405 JP
11,000 Valeo....................................................... 588,665 FR
900 Volkswagen AG............................................... 334,956 GE
30,000 Volvo Aktiebolag B.......................................... 682,692 SW
----------------
Total Automobiles...................................... 7,517,869 7.29%
----------------
</TABLE>
See notes to financial statements.
F-150
<PAGE> 245
International Equity Fund
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of Country
Shares Value Net Assets Code
- ----------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Banks
15,000 ABN AMRO Holdings........................................... $ 804,932 NE
2,000 Banco Popular Espanola...................................... 356,288 SP
19,000 Bangkok Bank Co., Ltd....................................... 257,330 UK
70,000 Barclay's PLC............................................... 838,313 UK
9,000 CS Holdings................................................. 855,676 SZ
1,210 Holderbank Financial Glaris Class B......................... 966,731 SZ
69,000 National Westminster Bank................................... 660,427 SI
25,000 Overseas Chinese Banking Corp............................... 292,253 SI
2,500 Overseas Chinese Banking Corp.--Rights, (Expires: 7/9/96)... 1,150 SI
28,000 The Bank Of Tokyo--Mitsubishi............................... 648,421 JP
196,000 Westpac Banking Corp........................................ 868,496 AU
----------------
Total Banks............................................ 6,550,017 6.35%
----------------
Building Materials
74,000 Italcenenti Frabbriche Riunit............................... 593,754 0.58% GE
----------------
Chemicals
32,000 AGA AB...................................................... 549,770 SW
1,900 Akzo Dutch.................................................. 227,625 NE
99,000 Morgan Crucible Company PLC................................. 649,143 UK
20,000 Norsk Hydro................................................. 979,014 NO
----------------
Total Chemicals........................................ 2,405,552 2.33%
----------------
Construction
15,000 Rohm Company................................................ 990,140 JP
66,000 Sekisui House, Ltd.......................................... 752,176 JP
4,000 Softbank Corp............................................... 696,562 JP
----------------
Total Construction..................................... 2,438,878 2.36%
----------------
Consumer Goods and Services
89,000 Hutchison Whampoa........................................... 559,944 HK
44,000 Nikon Corp.................................................. 505,463 JP
56,000 Reckitt and Colman PLC...................................... 588,202 UK
9,000 Secom Company Ltd........................................... 594,084 JP
9,700 Sony Corp................................................... 637,636 JP
25,346 Thorn EMI PLC............................................... 706,522 UK
----------------
Total Consumer Goods and Services...................... 3,591,851 3.48%
----------------
</TABLE>
See notes to financial statements.
F-151
<PAGE> 246
International Equity Fund
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of Country
Shares Value Net Assets Code
- ----------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Electronics
750 BBC Brown Boveri & Cie...................................... $ 927,582 SZ
79,000 Bomardier Inc., Class B..................................... 1,184,768 CA
24,000 Fuji Photo Film............................................. 757,099 JP
75,000 Hitachi Ltd................................................. 697,470 JP
12,000 Kyocera Corp................................................ 847,909 JP
17,000 Murata Manufacturing Company, Ltd........................... 643,226 JP
8,800 Philips Electronics N.V..................................... 286,120 NE
24,600 Philips Electronics N.V. ADR................................ 802,575 NE
----------------
Total Electronics...................................... 6,146,749 5.96%
----------------
Engineering
17,000 Chudenko Corp............................................... 616,876 JP
27,000 Transocean Drilling (c)..................................... 700,318 JP
----------------
Total Engineering...................................... 1,317,194 1.28%
----------------
Entertainment
162,000 Euro Disneyland SCA (c)..................................... 445,257 FR
18,100 Nintendo Corp., Ltd......................................... 1,346,589 JP
56,000 Thompson Corp............................................... 887,064 UK
----------------
Total Entertainment.................................... 2,678,910 2.60%
----------------
Environmental Management
20,900 Kurita Water Industries..................................... 508,773 0.49% JP
----------------
Financial Services
17,100 Grupo Televisa--GDS......................................... 525,825 MX
3,000 Hong Kong Credit Berhad..................................... 14,187 HK
42,600 HSBC Holdings PLC........................................... 665,225 UK
24,000 Komori Corp................................................. 612,682 JP
20,953 Lend Lease Corp., Ltd....................................... 321,576 AU
24,000 Nomura Securities Company, Ltd.............................. 468,264 JP
12,400 Orix Corp................................................... 459,001 AU
53,000 Siebe PLC................................................... 753,512 UK
30,000 Swedish Match AB............................................ 93,135 SW
76,000 Wako Securities Company, Ltd................................ 607,681 JP
----------------
Total Financial Services............................... 4,521,088 4.38%
----------------
Food and Beverages
98,000 Amatil Ltd., Coca Cola...................................... 1,089,858 AU
35,500 Cadbury Schweppes PLC....................................... 280,486 UK
2,300 Heineken NV................................................. 513,903 NZ
24,000 Izumi....................................................... 479,206 JP
116,000 Lion Nathan................................................. 302,772 NZ
1,200 Nestle...................................................... 1,370,041 SZ
1,200 Nestle (Malaysia) Berhad.................................... 9,666 MA
21,000 Seagram and Sons Company, Ltd............................... 706,125 CA
----------------
Total Food and Beverages............................... 4,752,057 4.61%
----------------
</TABLE>
See notes to financial statements.
F-152
<PAGE> 247
International Equity Fund
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of Country
Shares Value Net Assets Code
- ----------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Insurance
101,100 Alleanza Assicuraz.......................................... $ 654,895 IT
395 Baloise Holdings............................................ 858,393 SZ
267,825 GIO Australian Holdings, Ltd................................ 659,760 AU
12,000 Mapfre Vida Seguros......................................... 673,889 SP
62,000 Mitsui Marine & Fire Insurance.............................. 492,348 JP
327 Muenchener Rueckversicherungs............................... 668,119 GE
20 Muenchener Rueckversicherungs Warrant, (Expires:
03/13/98)................................................... 2,483 GE
95,000 Yasuda Fire and Marine Insurance............................ 709,365 JP
----------------
Total Insurance........................................ 4,719,252 4.58%
----------------
Investment Holding Companies
477,000 Brierley Investments, Ltd................................... 450,908 NZ
337,000 Sime Darby Berhad........................................... 931,872 MA
----------------
Total Investment Holding Companies..................... 1,382,780 1.34%
----------------
Machinery Production
19,800 ASM Lithography Holding NV (c).............................. 811,800 NE
15,000 Atlas Copco AB--Class A..................................... 279,180 SW
151,000 Mitsubishi Heavy............................................ 1,311,994 JP
100 Sidel....................................................... 25,427 FR
----------------
Total Machinery Production............................. 2,428,401 2.35%
----------------
Media
95,000 British Sky Broadcasting PLC................................ 649,487 JP
2,000 Canal Plus.................................................. 489,113 FR
135,000 Television Broadcasts, Ltd.................................. 506,642 HK
35,000 Tokyo Broadcasting.......................................... 619,063 JP
----------------
Total Media............................................ 2,264,305 2.20%
----------------
Metals and Mining
17,000 Alcan Aluminum, Ltd......................................... 518,500 CA
26,000 Inco, Ltd................................................... 838,500 CA
21,500 Pechiney SA................................................. 868,254 FR
216,000 Placer Pacific, Ltd......................................... 314,496 AU
90,000 Western Mining Corp. Holding, Ltd........................... 644,589 AU
----------------
Total Metals and Mining................................ 3,184,339 3.09%
----------------
Oil and Gas
98,000 British Gas Corp............................................ 274,086 UK
15,600 Societe National Elf-Aquitaine.............................. 1,147,252 FR
15,000 YPF Sociedad Anonima--ADR................................... 337,500 AR
----------------
Total Oil and Gas...................................... 1,758,838 1.71%
----------------
</TABLE>
See notes to financial statements.
F-153
<PAGE> 248
International Equity Fund
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of Country
Shares Value Net Assets Code
- ----------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Pharmaceuticals
49,000 Astra AB.................................................... $ 2,163,673 SW
52,000 Banyu Pharmaceutical Co..................................... 734,854 JP
20,000 Hoechst Ag.................................................. 675,364 GE
3,600 Hoechst Warrant, (Expires: 3/19/99)......................... 101,588 GE
74,000 Sankyo Company, Ltd......................................... 1,916,089 JP
6,900 Synthelabo.................................................. 583,031 FR
200,000 Technology Resources Industry (c)........................... 697,320 MA
24,800 Zeneca Group PLC............................................ 548,727 UK
----------------
Total Pharmaceuticals.................................. 7,420,646 7.19%
----------------
Publishing
93,207 News Corporation, Ltd....................................... 528,911 AU
30,000 News Corporation, Ltd.--ADR................................. 705,000 AU
29,000 Singapore Press Holdings, Ltd............................... 569,134 SI
----------------
Total Publishing....................................... 1,803,045 1.75%
----------------
Real Estate
62,000 City Developments........................................... 483,191 SI
77,000 Mitsui Fudosan.............................................. 1,039,007 JP
----------------
Total Real Estate...................................... 1,522,198 1.48%
----------------
Retail
13,000 Electrolux.................................................. 653,381 SW
12,700 Hennes and Mauritz.......................................... 1,177,082 SW
----------------
Total Retail........................................... 1,830,463 1.77%
----------------
Semiconductor
18,200 Advantest Corp.............................................. 721,816 0.70% JP
----------------
Telecommunications
86,000 Cable and Wireless.......................................... 569,243 UK
84 DDI Corp.................................................... 732,156 JP
32,000 Ericsson AB................................................. 689,626 SW
400,000 Hong Kong Telecommunications................................ 718,280 HK
800 Hong Kong Telecommunications--ADR........................... 14,400 HK
79 Nippon Telegraph and Telephone Corp......................... 584,857 JP
8,300 Nokia AB--Class K........................................... 303,172 FI
10,800 Nokia AB--Class A........................................... 397,511 FI
53,000 Rogers Communications--Class B (c).......................... 497,507 FI
709,000 Telecom Italia Mobile....................................... 1,363,710 IT
18,500 Telecomunicacoes Brasileiras--ADR........................... 1,322,933 BR
44,000 Telefonica De Espana........................................ 809,912 SP
25,600 Telefonos De Mexico ADR..................................... 857,600 MX
18,000 Vodafone Group PLC ADR...................................... 663,750 UK
----------------
Total Telecommunications............................... 9,524,657 9.23%
----------------
Textiles
28,000 Wacoal Corp................................................. 380,372 0.36% JP
----------------
</TABLE>
See notes to financial statements.
F-154
<PAGE> 249
International Equity Fund
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of Country
Shares Value Net Assets Code
- ----------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Tire and Rubber
81,000 Bridgestone Corp............................................ $ 1,543,463 JP
6,000 Michelin--Class B........................................... 293,235 FR
----------------
Total Tire and Rubber.................................. 1,836,698 1.78%
----------------
Tobacco
58,000 B.A.T. Industries........................................... 451,500 0.44% UK
----------------
Transportation: Air
17,000 British Airways PLC......................................... 146,336 UK
109,000 Citic Pacific, Ltd.......................................... 440,752 SI
1,100 Swissair (c)................................................ 1,064,283 SZ
----------------
Total Transportation: Air.............................. 1,651,371 1.60%
----------------
Transportation: Freight
122,000 Kawasaki Kisen (c).......................................... 411,555 0.40% JP
----------------
Utilities: Electric
10,400 Asea........................................................ 1,101,835 SW
401,600 Consolidated Electric Power Asia............................ 664,086 HK
228,000 Hong Kong Electric.......................................... 695,126 HK
----------------
Total Utilities: Electric.............................. 2,461,047 2.39%
----------------
Utilities: Telephone
15,000 Northern Telecom, Ltd....................................... 815,625 AU
22,300 Portugal Telecom S.A. ADR................................... 585,375 PT
34,600 Tele Danmark--ADR........................................... 877,975 DE
300 Tele Danmark--Class B....................................... 15,018 DE
----------------
Total Utilities: Telephone............................. 2,293,993 2.23%
---------------- -----------
Total Common Stocks, Warrants, and Rights
(Cost $85,918,854)................................... 91,897,329 89.10%
---------------- -----------
Preferred Stock
------------------------------------------------------------
Pharmaceuticals
200 Wella AG.................................................... 116,875 0.11% GE
----------------
</TABLE>
See notes to financial statements.
F-155
<PAGE> 250
International Equity Fund
Portfolio of Investments--(Cont'd)
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent of Country
Shares Value Net Assets Code
- ----------- ---------------- ----------- ---------
<S> <C> <C> <C>
Computer Software and Services
4,900 SAP AG Vorzug............................................... $ 728,171 GE
244,000 TNT Ltd..................................................... 328,375 NZ
----------------
Total Computer Software and Services................... 1,056,546 1.03%
---------------- -----------
Total Preferred Stock (Cost $1,321,515)................ 1,173,421 1.14%
---------------- -----------
Total Investments (Cost $89,469,597)................... 95,467,804 92.56%
Assets in Excess of Liabilities........................ 7,672,626 7.44%
---------------- -----------
Net Assets............................................. $ 103,140,430 100.00%
---------------- -----------
---------------- -----------
The aggregate cost of securities for Federal Income tax purposes
at June 30, 1996 is $89,469,597.
The following amount is based on costs for Federal Income tax
purposes:
Gross unrealized appreciation............................... $ 8,515,396
Gross unrealized depreciation............................... (2,517,189)
----------------
Net unrealized appreciation................................. $ 5,998,207
----------------
----------------
</TABLE>
- ---------------
(c) Non-income producing security.
See notes to financial statements.
F-156
<PAGE> 251
Country Composition
(Unaudited)
<TABLE>
<S> <C>
Argentina (AR)............................................................................. 0.33%
Australia (AU)............................................................................. 6.21%
Brazil (BR)................................................................................ 1.28%
Canada (CA)................................................................................ 3.15%
Denmark (DE)............................................................................... 0.87%
Finland (FI)............................................................................... 1.16%
France (FR)................................................................................ 4.60%
Germany (GE)............................................................................... 6.51%
Hong Kong (HK)............................................................................. 3.08%
Italy (IT)................................................................................. 1.96%
Japan (JP)................................................................................. 27.20%
Malasia (MA)............................................................................... 2.02%
Mexico (MX)................................................................................ 1.34%
Netherlands (NE)........................................................................... 3.53%
Norway (NO)................................................................................ 0.95%
New Zealand (NZ)........................................................................... 1.55%
Portugal (PT).............................................................................. 0.57%
Singapore (SI)............................................................................. 2.37%
Spain (SP)................................................................................. 1.78%
Sweden (SW)................................................................................ 7.17%
Switzerland (SZ)........................................................................... 5.86%
Thailand (TH).............................................................................. 0.31%
United Kingdom (UK)........................................................................ 8.76%
United States (US)......................................................................... 7.44%
----------
Total:.............................................................................. 100.00%
----------
----------
</TABLE>
F-157
<PAGE> 252
DIVERSIFIED INVESTORS PORTFOLIOS
Notes To Financial Statements
(Unaudited)
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). On January 3, 1994 (commencement of
operations for each series except the Equity Value Series, Aggressive Equity
Series, High-Yield Bond Series and the International Equity Series), MONY
Pooled Separate Accounts transferred all of their investable assets at a
market value of $1,183,075,019 to those Series with corresponding investment
objectives in exchange for interests in those Series. The High-Yield Bond
Series and International Equity Series commenced operations on August 22, 1995
and September 29, 1995, respectively. The 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 resulted in a non-taxable event.
2. Significant Accounting Policies
A. Security Valuation:
Short-term securities having remaining maturities of 60 days or less are
valued at amortized cost or original cost plus accrued interest receivable,
both of which approximate market. The amortized cost of a security is
determined by valuing it at original cost and thereafter amortizing any
discount or premium at a constant rate until maturity. Securities traded on
national securities exchanges are valued at the last sales price as of the
close of business on each day or at the closing bid price for over-the-counter
securities. Equity securities are valued at the last sale price on the
exchange on which they are primarily traded or at the ask price on the NASDAQ
system for unlisted national market issues, or at the last quoted bid price
for securities not reported on the NASDAQ system. Bonds are valued at the last
available price provided by an independent pricing service for securities
traded on a national securities exchange. Bonds that are listed on a national
securities exchange but are not traded and bonds that are regularly traded in
the over-the-counter market are valued at the mean of the last available bid
and asked prices by an independent pricing service. All other securities will
be valued at their fair value as determined by the Board of Trustees.
B. Repurchase Agreements:
Each Series, along with other affiliated entities of the investment
advisor, may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Series investment advisor, subject to the
seller's agreement to repurchase and the Series agreement to resell such
securities at a mutually agreed upon price. Securities purchased subject to
repurchase agreements are deposited with a third party custodian, and pursuant
to the terms of the repurchase agreement must have an aggregate market value
greater than or equal to 102% and 105% of domestic and international
securities, respectively, of the repurchase price plus accrued interest at all
times. If the value of the
F-158
<PAGE> 253
DIVERSIFIED INVESTORS PORTFOLIOS
Notes To Financial Statements--(Cont'd)
(Unaudited)
underlying securities falls below the value of the repurchase price plus
accrued interest, the Series will require the seller to deposit additional
collateral by the next business day. If the request for additional collateral
is not met or the seller defaults on its repurchase obligation, the Series
maintains the right to sell the underlying securities at market value and may
claim any resulting loss against the seller. However, in the event of default
or bankruptcy by the seller, realization and/or retention of the collateral
may be subject to legal proceedings.
C. Foreign Currency Translation:
The accounting records of the International Equity Series are maintained
in U.S. dollars. The market values of foreign securities, currency holdings
and other assets and liabilities are translated to U.S. dollars based on the
prevailing exchange rates each business day. Income and expenses denominated
in foreign currencies are translated at prevailing exchange rates when accrued
or incurred. The Series does not isolate realized gains and losses
attributable to changes in exchange rates from gains and losses that arise
from changes in the market value of investments. Such fluctuations are
included with net realized and unrealized gains or losses on investments. Net
realized gains and losses on foreign currency transactions represent net
exchange gains and losses on disposition of foreign currencies, the difference
between the amount of investment income receivable and foreign withholding
taxes receivable recorded on the Series' books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the value of assets and liabilities other than
investments in securities at fiscal year end, resulting from changes in the
exchange rate.
D. Forward Currency Contracts:
The International Equity Series may enter into forward currency contracts
and forward cross currency contracts in connection with settling planned
purchases or sales of securities or to hedge the currency exposure associated
with some or all of the Series' portfolio securities. A forward currency
contract is an agreement between two parties to buy and sell a currency at a
set price on a future date. The market value of a forward currency contract
fluctuates with changes in forward currency exchange rates. Forward currency
contracts are marked to market daily and the change in value is recorded by
the Series as an unrealized gain or loss. When a forward currency contract is
extinguished, through delivery or offset by entering into another forward
currency contract, the Series records a realized gain or loss equal to the
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. Federal Income Taxes:
It is the Series policy to comply with the applicable provisions of the
Internal Revenue Code. Therefore, no federal income tax provision is required.
F. Security Transactions and Investment Income:
Security transactions are accounted for on a trade date basis (the day
after the date the order to buy or sell is executed). Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discount on investments.
Realized gains and losses from securities transactions are recorded on the
identified cost basis.
F-159
<PAGE> 254
DIVERSIFIED INVESTORS PORTFOLIOS
Notes To Financial Statements--(Cont'd)
(Unaudited)
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.
G. Operating Expenses:
The Series Portfolio accounts separately for the assets, liabilities and
operations of each Series. Expenses directly attributable to a Series are
charged to that Series, while expenses attributable to all Series are
allocated among them.
H. Other:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of liabilities at the date of the
financial statements and the reported amounts of 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 in
AUSA Subaccount Portfolio
- ----------------------------------------------------------- --------------------------------
<S> <C>
Money Market Series........................................ 40.84%
High Quality Bond Series................................... 46.84%
Intermediate Government Bond Series........................ 58.13%
Government/Corporate Bond Series........................... 27.38%
Balanced Series............................................ 89.77%
Equity Income Series....................................... 69.82%
Equity Value Series........................................ 48.45%
Growth & Income Series..................................... 71.14%
Equity Growth Series....................................... 89.36%
Special Equity Series...................................... 53.73%
Aggressive Equity Series................................... 47.09%
High Yield Bond Series..................................... 44.55%
International Equity Series................................ 29.39%
</TABLE>
The Advisor manages the assets of each Series of the Series Portfolio
pursuant to an Investment Advisory Agreement (the "Advisory Agreement") with
the Series Portfolio with respect to each Series. Subject to such further
policies as the Board of Trustees may determine, the Advisor provides general
investment advice to each Series. For its services under the Advisory
Agreement, the Adviser receives from each Series fees accrued daily and paid
monthly at an annual rate equal to the percentages specified in the table
below of the corresponding Series' average daily net assets. The Advisor is
currently waiving a portion of its investment advisory fee.
For each Series, the Advisor has entered into an Investment Subadvisory
Agreement (each a "Subadvisory Agreement") with the subadvisors listed in the
table below (each a "Subadvisor", collectively the "Subadvisors"). It is the
responsibility of a Subadvisor to make the day-to-day investment decisions of
the Series and to place the purchase and sales orders for securities
transactions of such series, subject in all cases to the general supervision
of the Advisor. For its services under each
F-160
<PAGE> 255
DIVERSIFIED INVESTORS PORTFOLIOS
Notes To Financial Statements--(Cont'd)
(Unaudited)
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 Advisor Subadvisors
Portfolio Series Portfolio Subadvisors Fee(1) Fee
- ------------------------------------------------ --------------------------------------- ------------- -------------
<S> <C> <C> <C>
Money Market Series............................. Capital Management Group 0.25% 0.05%
High Quality Bond Series........................ Merganser Capital
Management Corporation 0.35 (2)
Intermediate Government Bond Series............. Capital Management Group 0.35 0.15
Government/Corporate Bond Series................ Capital Management Group 0.35 0.15
Balanced Series................................. Institutional Capital
Corporation 0.45 (3)
Equity Income Series............................ Asset Management Group 0.45 0.25
Equity Value Series............................. Ark Asset Managment Co., Inc. 0.57 (4)
Growth & Income Series.......................... Putnam Advisory Company, Inc. 0.60 (5)
Equity Growth Series............................ Jundt Associates, Inc. 0.70 0.63
Special Equity Series........................... (6) 0.80 0.50
Aggressive Equity Series........................ McKinley Capital Management 0.97 (7)
High-Yield Bond Series.......................... Delaware Investment Advisers 0.55 (8)
International Equity Series..................... Capital Guardian Trust Company 0.75 (9)
</TABLE>
- ---------------
(1) The Advisor is currently waiving a portion of its fee.
(2) 0.50 on the first $10,000,000 in net assets, 0.375% on the next
$15,000,000
in net assets, 0.25 on the next $75,000,000 in net assets and 0.1875% on
all net assets in excess of $100,000,000.
(3) 0.55% on the first $25,000,000 in net assets, 0.45% on the next
$25,000,000 in net assets, and 0.35% on all net assets in excess of
$50,000,000.
(4) 0.45% on the first $100,000,000 in assets, 0.40% on the next $50,000,000
in assets and 0.35% on the nest $50,000,000 in assets; when the Portfolio
achieves $200,000,000 in assets, the rate shall be 0.40% on assets up to
$200,000,000 and 0.35% on assets in excess of $200,000,000 so long as the
Portfolio continues to have more than $200,000,000 in assets
(5) 0.30% on the first $100,000,000 in net assets, 0.20% on net assets in
excess of $100,000,000.
(6) 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.
(7) 0.90% on the first $10,000,000 in assets, 0.80% on the next $15,000,000 in
assets, 0.60% on the next $25,000,000 in assets, 0.40% on the next
$50,000,000 in assets and 0.35% on assets in excess of $100,000,000.
(8) 0.40% on the first $20,000,000 in net assets, 0.30% on the next
$20,000,000 in net assets, and 0.20% on all net assets in excess of
$40,000,000.
(9) 0.75% on the first $25,000,000 in net assets, 0.60% on the next
$25,000,000 to $50,000,000 in net assets, 0.425% on the next $50,000,000
to $250,000,000 in net assets and 0.375% on all net assets in excess of
$250,000,000.
F-161
<PAGE> 256
DIVERSIFIED INVESTORS PORTFOLIOS
Notes To Financial Statements--(Cont'd)
(Unaudited)
For the period ended June 30, 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 (bp)
High Quality Bond Series............................................ 40 bp
Intermediate Government Bond Series................................. 40 bp
Government/Corporate Bond Series.................................... 40 bp
Balanced Series..................................................... 50 bp
Equity Income Series................................................ 50 bp
Equity Value Series................................................. 60 bp
Growth & Income Series.............................................. 65 bp
Equity Growth Series................................................ 75 bp
Special Equity Series............................................... 85 bp
Aggressive Equity Series............................................ 100 bp
High-Yield Bond Series.............................................. 60 bp
International Equity Series......................................... 80 bp
</TABLE>
Certain trustees and officers of the Series Portfolio are also directors,
officers or employees of the Advisor or its affiliates. None of the trustees
so affiliated receive compensation for services as trustees of the Series
Portfolio. Similarly, none of the Series Portfolio officers receive
compensation from the Series Portfolio.
4. Financial Highlights
<TABLE>
<CAPTION>
Ratio of Net
Investment
Income to
Ratio of Expenses, Net Portfolio
Ratio of Gross Expenses of Waivers to Average Average Net
to Average Net Assets Net Assets Assets
----------------------------------- --------------------- ---------------
For the
For the Year Ended
For the Year Ended For the For the
Period Ended -------- Period Ended -------- Period Ended
June 30, 1996 1995 1994 June 30, 1996 1995 1994 June 30, 1996
------------- --------- --------- --------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Money Market Series............. .31% .31% .32% .30% .30% .30% 5.26%
High Quality Bond Series........ .41 .41 .41 .39 .40 .40 6.11
Intermediate Government Bond
Series........................... .44 .45 .45 .40 .40 .40 5.65
Government/Corporate Bond
Series........................... .40 .39 .40 .38 .39 .40 6.25
Balanced Series................. .51 .54 .53 .50 .50 .50 3.61
Equity Income Series............ .49 .49 .49 .48 .49 -- 3.12
Equity Value Series *........... 1.00 -- .67 .48 -- .65 1.54
Growth & Income Series.......... .68 .68 .76 .65 .65 .75 1.19
Equity Growth Series............ .75 .75 .88 .74 .75 .85 (.36)
Special Equity Series........... .86 .88 -- .84 .85 -- .21
Aggressive Equity Series *...... 1.41 -- -- .80 -- -- (.73)
High-Yield Bond Series.......... 1.31 1.32 -- .61 .60 -- 8.16
International Equity Series..... 1.01 .83 -- .88 .80 -- 1.58
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net Investment
Income, Net of Waivers
to Portfolio Average
Net Assets Portfolio Turnover
----------------------------------- ----------------------------
For the
For the For the Year Ended
Year Ended For the Year Ended For the
-------- Period Ended -------- Period Ended -----------
1995 1994 June 30, 1996 1995 1994 June 30, 1996 1995
--------- --------- ------------- --------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Money Market Series............. 5.70% 4.05% 5.24% 5.69% 4.07% -- --
High Quality Bond Series........ 5.83 5.77 6.09 5.82 5.79 129% 25%
Intermediate Government Bond
Series........................... 5.57 5.71 5.62 5.52 5.76 98 59
Government/Corporate Bond
Series........................... 5.90 5.71 6.24 5.90 5.72 95 122
Balanced Series................. 4.19 3.57 3.60 4.15 3.61 53 124
Equity Income Series............ 3.37 3.43 3.11 3.37 3.43 71 23
Equity Value Series *........... -- 1.35 1.02 -- 1.37 13 --
Growth & Income Series.......... 1.49 .08 1.16 1.47 .11 63 155
Equity Growth Series............ .41 .27 (.36) .41 .30 29 62
Special Equity Series........... .33 -- .19 .30 -- 60 155
Aggressive Equity Series *...... -- -- (1.34) -- -- 28 --
High-Yield Bond Series.......... 8.45 -- 7.46 7.73 -- 70 21
International Equity Series..... .53 -- 1.45 .50 -- 14 7
</TABLE>
<TABLE>
<CAPTION>
1994
-----------
<S> <C>
Money Market Series............. --
High Quality Bond Series........ 37%
Intermediate Government Bond
Series........................... 21
Government/Corporate Bond
Series........................... 122
Balanced Series................. 118
Equity Income Series............ 30
Equity Value Series *........... 21
Growth & Income Series.......... 75
Equity Growth Series............ 90
Special Equity Series........... --
Aggressive Equity Series *...... --
High-Yield Bond Series.......... --
International Equity Series..... --
</TABLE>
- ---------------
* Annualized (except "Portfolio Turnover")
5. Securities Lending
The Series may lend its securities to certain firms of the New York Stock
Exchange. The loans are collateralized at all times with cash or securities
with a market value at least equal to the market value of the securities on
loan. Any deficiencies or excess of collateral must be delivered or
transferred by the member firms no later than the close of business on the
next business day. As with other extensions of credit, the Series may bear the
risk of delay in recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. The Series receives compensation,
net of related expenses, for
F-162
<PAGE> 257
DIVERSIFIED INVESTORS PORTFOLIOS
Notes To Financial Statements--(Cont'd)
(Unaudited)
lending its securities which is included in interest income on the Statement
of Operations. At June 30, 1996, the Series loaned securities having market
values as follows:
<TABLE>
<CAPTION>
Market Value Collateral
-------------- --------------
<S> <C> <C>
High Quality Bond Series.................................... $ 9,392,883 $ 9,514,650
Intermediate Government Bond Series......................... 34,954,923 35,893,750
Government/Corporate Bond Series............................ 50,975,425 52,256,250
Balanced Series............................................. 64,654,409 85,726,849
Equity Income Series........................................ 8,654,350 8,944,200
Growth & Income Series...................................... 3,674,600 3,597,800
Equity Growth Series........................................ 32,311,381 31,838,735
Special Equity Series....................................... 31,806,900 31,000,946
</TABLE>
6. Purchase and Sales of Investments
The aggregate cost of investments purchased and proceeds from sales or
maturities for the period ended June 30, 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 $ 75,009,856 $ 36,203,226
...................................... Other 167,430,246 177,127,989
Intermediate Government Bond Series............. Government Obligations 164,919,383 91,635,796
Government/Corporate Bond Series................ Government Obligations 217,185,029 395,170,974
...................................... Other 127,255,378 109,963,248
Balanced Series................................. Government Obligations 60,066,148 15,819,922
...................................... Other 101,196,996 89,984,709
Equity Income Series............................ Other 614,974,715 580,549,234
Equity Value Series............................. Other 18,132,688 2,239,292
Growth & Income Series.......................... Other 156,471,246 98,290,687
Equity Growth Series............................ Other 79,295,888 67,401,753
Special Equity Series........................... Other 298,875,020 222,832,646
Aggressive Equity Series........................ Other 19,274,103 3,984,554
High-Yield Bond Series.......................... Other 9,041,467 6,983,381
International Equity Series..................... Other 24,499,104 12,925,524
</TABLE>
F-163
<PAGE> 258
DIVERSIFIED INVESTORS PORTFOLIOS
Notes To Financial Statements--(Cont'd)
(Unaudited)
7. Forward Currency Contracts
At June 30, 1996, the International Equity Series had entered into
forward currency contracts which contractually obligate the Portfolio to
deliver/receive currency at specified future dates. The open contracts are as
follows:
<TABLE>
<CAPTION>
In Exchange Settlement Unrealized
Contract Foreign Currency For Date Value Appreciation/Depreciation
- ------------------------ ---------------- ------------- ----------- ------------- ------------------------
Purchases:
<S> <C> <C> <C> <C> <C>
German Deutsche Mark.... 623,831 $ 410,334 07/01/96 $ 409,464 $ (870)
Japanese Yen............ 27,041,925 255,540 07/05/96 246,983 (9,557)
Japanese Yen............ 27,041,925 260,369 07/05/96 246,983 (13,386)
Japanese Yen............ 54,811,440 509,447 07/05/96 500,612 (8,835)
Japanese Yen............ 86,801,400 806,030 08/16/96 797,679 (8,351)
Japanese Yen............ 66,522,200 656,815 10/15/96 616,489 (40,326)
Japanese Yen............ 19,026,000 187,855 10/15/96 176,322 (11,533)
Japanese Yen............ 150,000,000 1,461,561 10/15/96 1,390,112 (71,449)
Japanese Yen............ 46,783,000 456,464 10/15/96 433,558 (22,906)
Japanese Yen............ 93,267,250 962,610 10/30/96 866,260 (96,330)
-------------
Total $ (283,543)
-------------
-------------
Sales:
Canadian Dollar......... 1,066,524 $ 783,000 07/23/96 $ 782,564 $ 436
Canadian Dollar......... 549,098 403,600 07/24/96 402,910 690
Canadian Dollar......... 408,390 300,000 07/29/96 299,696 304
German Deutsche Mark.... 623,831 424,000 07/01/96 409,464 14,536
German Deutsche Mark.... 414,250 270,398 07/11/96 272,062 (1,664)
Japanese Yen............ 54,083,850 530,000 07/05/96 493,966 36,034
Japanese Yen............ 54,811,440 538,000 07/05/96 500,612 37,388
Japanese Yen............ 86,801,400 830,000 08/16/96 797,679 32,321
Japanese Yen............ 115,409,370 1,126,000 10/08/96 1,068,434 57,566
Japanese Yen............ 55,923,000 541,548 10/08/96 517,722 23,826
Japanese Yen............ 377,578,600 3,962,000 10/15/96 3,499,176 462,822
Japanese Yen............ 19,026,000 200,000 10/15/96 176,322 23,678
Japanese Yen............ 96,931,000 948,630 10/15/96 898,300 50,330
Japanese Yen............ 66,833,000 650,000 10/15/96 619,369 30,631
Japanese Yen............ 93,267,250 965,000 10/30/96 866,280 98,720
Japanese Yen............ 30,528,000 300,000 05/19/97 291,499 8,501
Japanese Yen............ 35,139,000 340,000 05/30/97 336,029 3,971
-------------
Total $ 880,090
-------------
-------------
</TABLE>
F-164
<PAGE> 259
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
AUSA Life Insurance Company, Inc.
We have audited the accompanying statutory-basis balance sheets of AUSA
Life Insurance Company, Inc. as of December 31, 1995 and 1994, and the
statutory-basis statements of operations, changes in capital and surplus and
cash flows for the years then ended. Our audits also included the
statutory-basis financial statement schedules required by Regulation S-X,
Article 7. These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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.
The Company presents its financial statements in conformity with accounting
practices prescribed or permitted by the Department of Insurance of the State of
New York. The variances between such practices and generally accepted accounting
principles are described in Note 1. The effects of these variances have not been
determined but we believe they are material.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of AUSA Life
Insurance Company, Inc. at December 31, 1995 and 1994, or the results of its
operations or its cash flows for the years then ended.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of AUSA Life Insurance
Company, Inc. at December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
practices prescribed or permitted by the Department of Insurance of the State of
New York. Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic statutory-basis financial statements taken
as a whole, present fairly in all material respects information set forth
therein.
ERNST & YOUNG LLP
Des Moines, Iowa
February 23, 1996
F-165
<PAGE> 260
AUSA LIFE INSURANCE COMPANY, INC.
BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments................................... $ 112,379 $ 89,532
Bonds............................................................. 2,523,719 2,099,349
Stocks:
Preferred...................................................... 236 236
Common, at market (cost: $141 in 1995 and 1994)................ 346 274
Mortgage loans on real estate..................................... 768,424 862,352
Real estate acquired in satisfaction of debt...................... 29,333 10,485
Policy loans...................................................... 25 24
Other invested assets............................................. 723 --
---------- ----------
Total cash and invested assets...................................... 3,435,185 3,062,252
Accrued investment income........................................... 51,281 47,156
Federal income taxes recoverable.................................... 12 12
Receivable from affiliates.......................................... 1,932 --
Other assets........................................................ 6,189 1,690
Separate account assets............................................. 4,249,345 2,907,674
---------- ----------
Total admitted assets............................................... $7,743,944 $6,018,785
========== ==========
</TABLE>
See accompanying notes.
F-166
<PAGE> 261
AUSA LIFE INSURANCE COMPANY, INC.
BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---------- ----------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life........................................................... $ 356 $ 199
Annuity........................................................ 122,145 7,572
Accident and health............................................ 4,354 --
Policy and contract claim reserves:
Life........................................................... 3 3
Accident and health............................................ 152 --
Other policyholders' funds........................................ 2,991,630 2,761,658
Remittances and items not allocated............................... 24,147 16,763
Asset valuation reserve........................................... 35,160 25,552
Interest maintenance reserve...................................... 3,399 1,314
Payable to affiliates............................................. -- 7,858
Short-term note payable to affiliate.............................. 15,200 5,200
Deferred income................................................... 19,182 26,592
Payable under assumption reinsurance agreement.................... 73,546 85,612
Other liabilities................................................. 21,559 4,656
Separate account liabilities...................................... 4,230,472 2,891,976
---------- ----------
Total liabilities................................................... 7,541,305 5,834,955
Commitments and contingencies
Capital and surplus:
Common stock, $125 par value, 20 shares authorized, issued and
outstanding.................................................... 2,500 2,500
Paid-in surplus................................................... 251,150 210,150
Unassigned surplus (deficit)...................................... (51,011) (28,820)
---------- ----------
Total capital and surplus........................................... 202,639 183,830
---------- ----------
Total liabilities and capital and surplus........................... $7,743,944 $6,018,785
========== ==========
</TABLE>
See accompanying notes.
F-167
<PAGE> 262
AUSA LIFE INSURANCE COMPANY, INC.
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life......................................................... $ 180 $ 10
Annuity...................................................... 1,107,020 426,329
Accident and health.......................................... 213 --
Net investment income........................................... 268,678 254,539
Amortization of interest maintenance reserve.................... 1,987 158
Commissions and expense allowances on reinsurance ceded......... 8,793 11,191
---------- ----------
1,386,871 692,957
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits........................ 221 8
Surrender benefits........................................... 764,290 453,799
Other benefits............................................... 1,931 870
Increase (decrease) in aggregate reserves for policies and
contracts:
Life....................................................... 157 (1)
Annuity.................................................... 114,209 2,722
Accident and health........................................ 175 --
Increase in liability for premium and other deposit type
funds....................................................... 229,962 34,294
---------- ----------
1,110,945 491,692
Insurance expenses:
Commissions.................................................. 83,579 91,312
General insurance expenses................................... 63,316 57,207
Taxes, licenses and fees..................................... 421 131
Transfers to separate accounts............................... 139,912 63,209
Other expenses............................................... 11........ --
---------- ----------
287,239 211,859
---------- ----------
1,398,184 703,551
---------- ----------
Loss from operations before federal income taxes and net realized
capital losses on investments................................... (11,313) (10,594)
Federal income tax expense........................................ -- --
---------- ----------
Loss from operations before net realized capital losses on
investments..................................................... (11,313) (10,594)
Net realized capital losses on investments (net of amounts
transferred to interest maintenance reserve).................... (3,432) (928)
---------- ----------
Net loss.......................................................... $ (14,745) $ (11,522)
========== ==========
</TABLE>
See accompanying notes.
F-168
<PAGE> 263
AUSA LIFE INSURANCE COMPANY, INC.
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADDITIONAL UNASSIGNED TOTAL
COMMON PAID-IN SURPLUS CAPITAL AND
STOCK CAPITAL (DEFICIT) SURPLUS
------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994...................... $2,500 $210,150 $ (4,297) $ 208,353
Net loss for 1994............................. -- -- (11,522) (11,522)
Net unrealized capital losses................. -- -- (35) (35)
Increase in non-admitted assets............... -- -- (855) (855)
Increase in asset valuation reserve........... -- -- (12,809) (12,809)
Seed money contributed to separate account.... -- -- (15,000) (15,000)
Increase in surplus in separate account....... -- -- 15,698 15,698
------ -------- --------- --------
Balance at December 31, 1994.................... 2,500 210,150 (28,820) 183,830
Capital contribution.......................... -- 41,000 -- 41,000
Net loss for 1995............................. -- -- (14,745) (14,745)
Net unrealized capital gains.................. -- -- 172 172
Increase in non-admitted assets............... -- -- (61) (61)
Increase in asset valuation reserve........... -- -- (9,608) (9,608)
Surplus effect of reinsurance................. -- -- (70) (70)
Redemption of separate account seed money..... -- -- (1,000) (1,000)
Increase in surplus in separate account....... -- -- 3,121 3,121
------ -------- --------- --------
Balance at December 31, 1995.................... $2,500 $251,150 $ (51,011) $ 202,639
====== ======== ========= ========
</TABLE>
See accompanying notes.
F-169
<PAGE> 264
AUSA LIFE INSURANCE COMPANY, INC.
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
SOURCES OF CASH
Premiums and other considerations, net of reinsurance............. $1,116,102 $ 438,260
Net investment income............................................. 265,966 246,801
---------- ----------
1,382,068 685,061
Life and accident and health claims............................... (215) (10)
Surrender benefits and other fund withdrawals..................... (764,290) (453,799)
Other benefits to policyholders................................... (1,931) (868)
Commissions, other expenses and other taxes....................... (160,462) (63,919)
Net transfers to separate accounts................................ (139,912) (63,209)
Federal income taxes, excluding tax on capital gains.............. -- (62)
Net increase in policy loans...................................... (1) (6)
Increase in remittances and items not allocated................... 7,384 10,340
---------- ----------
Net cash provided by operations................................... 322,641 113,528
Proceeds from investments sold, matured or repaid:
Bonds........................................................... 432,605 421,275
Common stocks................................................... -- 2,022
Mortgage loans.................................................. 138,243 189,421
Real estate..................................................... 4,952 32
Other, net...................................................... 5 (48)
---------- ----------
Total cash from investments....................................... 575,805 612,702
Capital contribution.............................................. 41,000 --
Cash received in connection with a reinsurance transaction........ 38 --
Issuance of intercompany notes payable, net....................... 10,000 5,200
Other sources..................................................... 22,224 14,695
---------- ----------
Total sources of cash............................................. 971,708 746,125
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds........................................................... 878,082 1,038,312
Common stocks................................................... -- 27
Mortgage loans.................................................. 54,140 1,544
Other invested assets........................................... 725 --
---------- ----------
Total investments acquired........................................ 932,947 1,039,883
Seed money contributed to separate accounts....................... 1,000 15,000
Other applications................................................ 14,914 4,229
---------- ----------
Total applications of cash........................................ 948,861 1,059,112
---------- ----------
Net change in cash and short-term investments..................... 22,847 (312,987)
Cash and short-term investments at beginning of year.............. 89,532 402,519
---------- ----------
Cash and short-term investments at end of year.................... $ 112,379 $ 89,532
========== ==========
</TABLE>
See accompanying notes.
F-170
<PAGE> 265
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AUSA Life Insurance Company, Inc. ("the Company") is a stock life insurance
company and is a wholly-owned subsidiary of First AUSA Life Insurance Company
("First AUSA") which, in turn, is a wholly-owned subsidiary of AEGON USA
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of The Netherlands. Effective September 24, 1993, First
AUSA purchased from The Dreyfus Corporation ("Dreyfus"), its entire interest in
Dreyfus Life Insurance Company, a stock life insurance company. At the time of
purchase, the Company had total assets and capital and surplus of approximately
$17 million and $11 million, respectively. Effective September 27, 1993, Dreyfus
Life Insurance Company changed its name to AUSA Life Insurance Company, Inc. On
December 31, 1993, the Company entered into an assumption reinsurance agreement
with Mutual of New York ("MONY") to transfer certain group pension business of
MONY to the Company.
During 1995, the Board of Directors adopted a resolution calling for the
merger of all the assets and liabilities of International Life Investors
Insurance Company, an affiliate, into the Company. This merger is expected to
occur in 1996.
FINANCIAL STATEMENTS
The accompanying financial statements present the condition of the Company
at December 31, 1995 and 1994 and the results of its operations for the year
ended December 31, 1995 and 1994. Results of operations for 1993 are not
included, as the Company believes such data would not provide a meaningful
comparison with respect to financial results after the date of the acquisition.
NATURE OF BUSINESS
The Company primarily sells group fixed and variable annuities. The Company
is licensed in 47 states and the District of Columbia and is actively in the
process of becoming licensed in all 50 states. Sales of the Company's products
are primarily through brokers.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract reserves, guarantee fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and assumptions
utilized which could have a material impact on the financial statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Department of Insurance of
the State of New York, which practices differ in some respects from generally
accepted accounting principles. The more significant of these differences are as
follows: (a) bonds are generally carried at amortized cost rather than
segregating the portfolio into held-to-maturity (carried at amortized cost),
available-for-sale (carried at fair value), and trading (reported at fair value)
classifications; (b) acquisition costs of acquiring new business are charged to
current operations as incurred rather than deferred and amortized over the life
of the policies; (c) policy reserves on traditional life products are based on
statutory mortality rates and interest which may differ from reserves based on
F-171
<PAGE> 266
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
reasonable assumptions of expected mortality, interest, and withdrawals which
include a provision for possible unfavorable deviation from such assumptions;
(d) policy reserves on certain investment products use discounting methodologies
utilizing statutory interest rates rather than full account values; (e)
reinsurance amounts are netted against the corresponding receivable or payable
rather than shown as gross amounts on the balance sheet; (f) deferred income
taxes are not provided for the difference between the financial statement and
income tax bases of assets and liabilities; (g) net realized gains or losses
attributed to changes in the level of interest rates in the market are deferred
and amortized over the remaining life of the bond or mortgage loan, rather than
recognized as gains or losses in the statement of operations when the sale is
completed; (h) declines in the estimated realizable value of investments are
provided for through the establishment of a formula-determined statutory
investment reserve (carried as a liability) changes to which are charged
directly to surplus, rather than through recognition in the statement of
operations for declines in value, when such declines are judged to be other than
temporary; (i) certain assets designated as "nonadmitted assets" have been
charged to surplus rather than being reported as assets; (j) revenues for
universal life and investment products consist of premiums received rather than
policy charges for the cost of insurance, policy administration charges,
amortization of policy initiation fees and surrender charges assessed; (k)
pension expense is recorded as amounts are paid; (l) adjustments to federal
income taxes of prior years are charged or credited directly to unassigned
surplus, rather than reported as a component of expense in the statement of
operations; and (m) gains or losses on dispositions of business are charged or
credited directly to unassigned surplus rather than being reported in the
statement of operations. The effects of these variances have not been determined
by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in
the process of recodifying statutory accounting practices, the result of which
is expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1996,
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that the Company uses to
prepare its statutory-basis financial statements.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office
of the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortized costs for bonds and mortgage loans on real
estate that were acquired through the reinsurance agreement, described earlier,
were initially recorded at market value, consistent with the aforementioned
agreement and as prescribed by the Department of Insurance of the State of New
York. Amortization is computed using methods which result in a level yield over
the expected life of the security. The Company reviews its prepayment
assumptions on mortgage and other asset backed securities at regular intervals
and adjusts amortization rates retrospectively when such assumptions are changed
due to experience and/or expected future patterns. Investments in preferred
stocks in good standing are reported at cost. Investments in preferred stocks
not in good standing are reported at the lower of cost or market. Common stocks,
which may include shares of mutual funds (money market and other), are carried
at market. Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other invested assets consist principally of
F-172
<PAGE> 267
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
investments in various joint ventures and are recorded at equity in underlying
net assets. Other "admitted assets" are valued, principally at cost, as required
or permitted by New York Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses, net of amounts attributed to changes in the
general level of interest rates. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 1, 1995 and 1994, the
Company excluded investment income due and accrued of $183 and $774,
respectively, with respect to such practices.
MONY entered into foreign exchange interest rate swap agreements to modify
the interest characteristics of certain of its outstanding fixed maturity
securities from a fixed rate in a foreign currency to a fixed rate in U.S.
Dollars prior to the reinsurance assumption agreement. These agreements were
assigned to the Company in connection with the reinsurance assumption agreement.
The interest rate swap agreements involve the exchange of a fixed rate in a
foreign currency for fixed rate interest payments in U. S. Dollars over the life
of the agreement without an exchange of the underlying principal amount of
$32,500 at December 31, 1995 and 1994. The differential to be paid or received
is accrued as incurred and recognized as an adjustment to interest related to
the underlying fixed maturity. The related amount payable to or receivable from
counterparties is included in other liabilities or assets. The fair values of
the swap agreements are not recognized in the financial statements.
Deferred income for unrealized gains and losses on the securities valued at
market at the time of the assumption reinsurance agreement (described in Note 4)
are returned to Mutual of New York at the time of realization pursuant to the
agreement.
AGGREGATE POLICY RESERVES
Life and annuity benefit reserves are developed by actuarial methods and
are determined based on published tables using statutorily specified interest
rates and valuation methods that will provide, in the aggregate, reserves that
are greater than or equal to the minimum required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941 and 1958 Commissioners' Standard Ordinary Mortality
and American Experience Mortality Tables. The reserves are calculated using
interest rates ranging from 2.50 to 4.00 percent and are computed principally on
the Net Level Premium Valuation and the Commissioners' Reserve Valuation
Methods.
Deferred annuity and other policyholders' funds reserves are calculated
according to the Commissioners' Annuity Reserve Valuation Method including
excess interest reserves to cover situations where the future interest
guarantees plus the decrease in surrender charges are in excess of the maximum
valuation rates of interest. Reserves for immediate annuities and supplementary
contracts with and without life contingencies
F-173
<PAGE> 268
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
are equal to the present value of future payments assuming interest rates
ranging from 5.50 to 7.50 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims
reported to the Company and claims incurred but not yet reported through the
statement date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
SEPARATE ACCOUNT
Assets held in trust for purchases of separate account contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. Income and gains and losses with respect to these assets
accrue to the benefit of the policyholders. The Company received separate
account premiums of $536,128 and $180,789 in 1995 and 1994, respectively. The
assets in the separate accounts for the variable annuities and participating
annuities are held at a market value of $3,650,091 and $2,398,125 for the years
ended December 31, 1995 and 1994, respectively. The separate account assets in
the fixed government accounts and stable fund accounts are carried at an
amortized cost of $599,254 and $509,549 for the years ended December 31, 1995
and 1994, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 financial statements
to conform to the 1995 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures About Derivative Financial Instruments and Fair
Value of Financial Instruments, requires additional disclosures about
derivatives. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 and No. 119 exclude certain financial instruments and
all nonfinancial instruments from their disclosure requirements and allows
companies to forego the disclosures when those estimates can only be made at
excessive cost. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
F-174
<PAGE> 269
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents, short-term investments: The carrying amounts
reported in the statutory-basis balance sheet for these instruments
approximate their fair values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality, and maturity of the investments. The fair values for equity
securities are based on quoted market prices and are recognized in the
statutory-basis balance sheet.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Interest rate swap: Estimated fair value of the foreign currency interest
rate swap is based upon the pricing differential for similar swap
agreements. The fair value of the interest rate swap has been included with
the fair value of the underlying fixed maturities.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying
values of the Company's financial instruments subject to the provisions of SFAS
No. 107 and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
----------------------- -----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds........................................... $2,523,719 $2,605,786 $2,099,349 $1,976,667
Preferred stocks................................ 236 180 236 162
Common stock.................................... 346 346 274 274
Mortgage loans on real estate................... 768,424 806,395 862,352 851,352
Policy loans.................................... 25 25 24 24
Cash and short-term investments................. 112,379 112,379 89,532 89,532
Separate account assets......................... 4,249,345 4,261,843 2,907,674 2,876,170
LIABILITIES
Investment contract liabilities................. 3,113,766 3,077,557 2,771,701 2,685,570
Separate account annuities...................... 4,237,983 4,219,281 2,886,836 2,841,006
</TABLE>
F-175
<PAGE> 270
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS
The carrying value and estimated market value of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Bonds:
United States Government and agencies........ $ 81,460 $ 1,010 $ 21 $ 82,449
State, municipal and other government........ 20,584 871 14 21,441
Public utilities............................. 169,422 3,105 498 172,029
Industrial and miscellaneous................. 1,482,600 51,205 7,727 1,526,078
Mortgage-backed securities................... 769,653 36,675 2,539 803,789
---------- -------- --------- ----------
2,523,719 92,866 10,799 2,605,786
Preferred stocks............................... 236 -- 56 180
---------- -------- --------- ----------
$2,523,955 $ 92,866 $ 10,855 $2,605,966
========== ======== ========= ==========
DECEMBER 31, 1994
Bonds:
United States Government and agencies........ $ 101,024 $ 247 $ 7,604 $ 93,667
State, municipal and other government........ 23,270 -- 1,903 21,367
Public utilities............................. 162,527 15 14,017 148,525
Industrial and miscellaneous................. 1,448,647 3,569 82,144 1,370,072
Mortgage-backed securities................... 363,881 377 21,222 343,036
---------- -------- --------- ----------
2,099,349 4,208 126,890 1,976,667
Preferred stocks............................... 236 -- 74 162
---------- -------- --------- ----------
$2,099,585 $ 4,208 $126,964 $1,976,829
========== ======== ========= ==========
</TABLE>
The carrying value and estimated market value of bonds at December 31,
1995, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
Due in one year or less.............................................. $ 62,034 $ 62,250
Due after one year through five years................................ 795,601 808,309
Due after five years through ten years............................... 773,886 809,464
Due after ten years.................................................. 122,545 121,974
---------- ----------
1,754,066 1,801,997
Mortgage-backed securities........................................... 769,653 803,789
---------- ----------
$2,523,719 $2,605,786
========== ==========
</TABLE>
F-176
<PAGE> 271
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-------- --------
<S> <C> <C>
Interest on bonds and notes...................................... $180,500 $145,612
Mortgage loans................................................... 98,653 117,859
Real estate...................................................... 2,400 322
Dividends on equity investments.................................. 19 51
Interest on policy loans......................................... 1 1
Other investment loss............................................ (3,927) (2,458)
-------- --------
Gross investment income.......................................... 277,646 261,387
Investment expenses.............................................. 8,968 6,848
-------- --------
Net investment income............................................ $268,678 $254,539
======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-------- --------
<S> <C> <C>
Proceeds......................................................... $432,605 $421,275
======== ========
Gross realized gains............................................. $ 7,214 $ 7,643
Gross realized losses............................................ 13,407 13,681
-------- --------
Net realized losses.............................................. $ (6,193) $ (6,038)
======== ========
</TABLE>
At December 31, 1995, investments with an aggregate carrying value of
$2,089 were on deposit with regulatory authorities or were restrictively held in
bank custodial accounts for the benefit of such regulatory authorities as
required by statute.
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
----------------------
YEAR ENDED DECEMBER 31
1995 1994
-------- -------
<S> <C> <C>
Debt securities................................................... $ (6,193) $(6,038)
Short-term investments............................................ 2 (48)
Mortgage loans on real estate..................................... (3,650) 1,067
Real estate....................................................... (628) --
Other invested assets............................................. 11,109 5,412
-------- --------
640 393
Tax effect........................................................ -- --
Transfer to interest maintenance reserve.......................... (4,072) (1,321)
-------- --------
Total realized losses............................................. $ (3,432) $ (928)
======== ========
</TABLE>
F-177
<PAGE> 272
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CHANGE IN
UNREALIZED
----------------
YEAR ENDED
DECEMBER 31
1995 1994
----- ----
<S> <C> <C>
Debt securities........................................................ $(750) $ --
Equity securities...................................................... 72 (35)
----- ----
Change in unrealized depreciation...................................... $(678) $(35)
===== ====
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
---------------
1995 1994
---- ----
<S> <C> <C>
Unrealized gains........................................................ $205 $133
Unrealized losses....................................................... -- --
---- ----
Net unrealized gains.................................................... $205 $133
==== ====
</TABLE>
During 1995, the Company issued mortgage loans with interest rates ranging
from 7.41% to 9.86%. The maximum percentage of any one loan to the value of the
underlying real estate at origination was 86%. Mortgage loans with a carrying
value of $13,780 were non-income producing for the previous twelve months.
Accrued interest of $150 related to these mortgage loans was excluded from
investment income. The Company refinanced the mortgage loans of two properties
with an aggregate carrying value of $23,378 to reduce the interest rates, as a
result of the current interest rate environment. The Company requires all
mortgage loans to carry fire insurance equal to the value of the underlying
property.
During 1995 and 1994, there were $14,264 and $10,587, respectively, in
foreclosed mortgage loans that were transferred to real estate. At December 31,
1995 and 1994, the Company held a mortgage loan loss reserve in the asset
valuation reserve of $9,921 and $9,061, respectively.
At December 31, 1995, the mortgage loan portfolio is diversified by
geographic region and specific collateral property type as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION PROPERTY TYPE DISTRIBUTION
- --------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
South Atlantic......................... 31.1% Retail................................. 36.7%
E. North Central....................... 20.7 Office................................. 33.2
Mountain............................... 15.6 Apartment.............................. 17.2
New England............................ 11.5 Other.................................. 10.4
W. North Central....................... 9.8 Industrial............................. 2.5
W. South Central....................... 8.3
Pacific................................ 3.0
</TABLE>
F-178
<PAGE> 273
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
At December 31, 1995, the Company had the following investments, excluding
U. S. Government guaranteed or insured issues, which individually represented
more than ten percent of capital and surplus and the asset valuation reserve:
<TABLE>
<CAPTION>
CARRYING
DESCRIPTION OF SECURITY VALUE
- ---------------------------------------------------------------------------------- --------
<S> <C>
Bonds:
Falcon Telecable................................................................ $44,370
Connecticut National Bank....................................................... 36,220
Green Tree Financial Corporation................................................ 35,831
Standard Credit Card............................................................ 32,629
PSEG Capital.................................................................... 28,783
Chemical Banking................................................................ 26,166
Triax Association............................................................... 25,000
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to meet
its obligation under the reinsurance treaty.
Premiums earned reflect the following reinsurance assumed and ceded amounts
for the year ended December 31:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Direct premiums.................................................... $1,105,029 $295,678
Reinsurance assumed................................................ 35,847 130,665
Reinsurance ceded.................................................. (33,463) (4)
---------- --------
Net premiums earned................................................ $1,107,413 $426,339
========== ========
</TABLE>
The aggregate reserves for policies and contracts were reduced for reserve
credits for reinsurance ceded at December 31, 1995 and 1994 of $32,948 and $0,
respectively.
On December 31, 1993, the Company and MONY entered into an assumption
reinsurance agreement whereby, all of the general account liabilities were
novated to the Company from MONY as state approvals were received.
In accordance with the agreement, MONY will receive payments relating to
the performance of the assets and liabilities that exist at the date of closing
for a period of nine years. These payments will be reduced for certain
administrative expenses as defined in the agreement. The Company will recognize
operating gains and losses on renewal premiums received after December 31, 1993
of the business in-force at December 31, 1993, and on all new business written
after that date. At the end of nine years, the Company will purchase from MONY
the remaining transferred business inforce based upon a formula described in the
agreement. At December 31, 1995 and 1994, the Company owed MONY $73,546 and
$85,612, respectively, which represents the amount earned by MONY under the gain
sharing calculation and certain fees for investment management services for the
respective years.
F-179
<PAGE> 274
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. REINSURANCE--(CONTINUED)
In connection with the transaction, MONY purchased $150,000 and $50,000 in
Series A and Series B notes, respectively, of AEGON. The proceeds were used to
enhance the surplus of the Company. Both the Series A and Series B notes bear a
market rate of interest and mature in nine years.
AEGON provides general and administrative services for the transferred
business under a related agreement with MONY. The agreement specifies prescribed
rates for expenses to administer the business up to certain levels. In addition,
AEGON also provides investment management services on the assets underlying the
new pension business written by the Company while MONY continues to provide
investment management services for assets supporting the remaining policy
liabilities which were transferred at December 31, 1993.
On October 1, 1995, the Company entered into a reinsurance agreement with a
non-affiliate. As a result, the Company received $4,242 of assets, including $38
of cash and $4,312 of liabilities. The difference between the assets and the
liabilities of $70 was charged directly to unassigned surplus.
5. INCOME TAXES
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to loss from operations before taxes and
realized capital losses for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
1995 1994
------- -------
<S> <C> <C>
Computed tax benefit at federal statutory rate (35%)................... $(3,959) $(3,708)
Tax reserve adjustment................................................. 184 121
Deferred acquisition cost--tax basis................................... 596 6
Carryforward of current year operating loss............................ 3,351 3,460
Other items--net....................................................... (172) 121
------- -------
Federal income tax expense............................................. $ -- $ --
======= =======
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($800 at December 31, 1995). To the extent dividends are paid from the
amount accumulated in the policyholders' surplus account, net earnings would be
reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $280.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $19,400 which expire through 2010.
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
relate to liabilities established on a variety of the Company's products that
are not subject to significant mortality or morbidity risk; however,
F-180
<PAGE> 275
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
there may be certain restrictions placed upon the amount of funds that can be
withdrawn without penalty. The amount of reserves on these products, by
withdrawal characteristics, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------
PERCENT
AMOUNT OF TOTAL
---------- ----------
<S> <C> <C>
Subject to discretionary withdrawal with market value adjustment.... $ 506,683 16.1%
Subject to discretionary withdrawal at book value less surrender
charge............................................................ 1,892,739 60.1%
Subject to discretionary withdrawal at market value................. 2 0.0%
Subject to discretionary withdrawal at book value (minimal or no
charges
or adjustments)................................................... 523,843 16.7%
Not subject to discretionary withdrawal provision................... 223,617 7.1%
---------- -----
3,146,884 100.0%
Less reinsurance ceded.............................................. 32,948
----------
Total policy reserves on annuities and deposit fund liabilities..... $3,113,936
==========
</TABLE>
Separate and variable account assets held by the Company represent
contracts where the benefit is determined by the performance of the investments
held in the separate account. There may be certain restrictions placed upon the
amount of funds that can be withdrawn without penalty. The amount of separate
account liabilities on these products, by withdrawal characteristics, are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
---------- -------------- ----------
<S> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................................ $ 290,684 $ -- $ 290,684
Subject to discretionary withdrawal at book value less
surrender charge....................................... 280,770 -- 280,770
Subject to discretionary withdrawal at market value...... 97,049 1,492,670 1,589,719
Not subject to discretionary withdrawal.................. 2,076,810 -- 2,076,810
---------- ---------- ----------
$2,745,313 $1,492,670 $4,237,983
========== ========== ==========
</TABLE>
At December 31, 1995 and 1994, the Company had insurance in force
aggregating $52 and $65, respectively, in which the gross premiums are less than
the net premiums required by the valuation standards established by the
Insurance Division, Department of Commerce, of the State of Iowa.
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to
the amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities. The Company is not entitled to pay out any dividends in 1996
without prior approval.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the FASB
87
F-181
<PAGE> 276
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
expense as a percent of salaries. The benefits are based on years of service and
the employee's compensation during the highest five consecutive years of
employment. The Company was allocated no pension expense for the years ended
December 31, 1995 and 1994. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k) of
the Internal Revenue Service Code. Employees of the Company who customarily work
at least 1,000 hours during each calendar year and meet the other eligibility
requirements, are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement Income Security Act of 1974. The Company
was allocated no expense for the years ended December 31, 1995 and 1994.
AEGON sponsors supplemental retirement plans to provide the Company's
senior management with benefits in excess of normal pension benefits. The plans
are noncontributory and benefits are based on years of service and the
employee's compensation level. The plans are unfunded and nonqualified under the
Internal Revenue Service Code. In addition, AEGON has established incentive
deferred compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been accrued
or funded as deemed appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans
sponsored by AEGON that provide postretirement medical, dental and life
insurance benefits to employees meeting certain eligibility requirements.
Portions of the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company was allocated no expense for the years ended December 31, 1995 and 1994.
9. RELATED PARTY TRANSACTIONS
In accordance with an agreement between AEGON and the Company, AEGON will
ensure the maintenance of certain minimum tangible net worth, operating leverage
and liquidity levels of the Company, as defined in the agreement, through the
contribution of additional capital by the Company's parent as needed.
The Company is allocated administrative and benefit expenses from the
parent for employee related costs, as all employees are considered employees of
the parent, not employees of the Company.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1995 and
1994, the Company paid $2,212 and $0, respectively, for these services, which
approximates their costs to the affiliates.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rates ranging from 5.00% to 5.85% at December 31,
1995. During 1995 and 1994, the Company paid interest of $193 and $43,
respectively, to affiliates.
F-182
<PAGE> 277
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for compensatory
and punitive damages, in addition to contract liability, it is management's
opinion, after consultation with counsel and a review of available facts, that
damages arising from such demands will not be material to the Company's
financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. In accordance with the purchase agreement,
assessments related to periods prior to the purchase of the Company will be paid
by Dreyfus. Assessments attributable to business reinsured from MONY for
premiums received prior to the date of the transaction will be paid by MONY. The
Company will be responsible for assessments, if any, attributable to premium
income after the date of purchase. The guaranty fund expense was $15 and $0 for
the years ended December 31, 1995 and 1994, respectively.
F-183
<PAGE> 278
AUSA LIFE INSURANCE COMPANY, INC.
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
SHOWN IN THE
MARKET BALANCE SHEET
TYPE OF INVESTMENT COST (1) VALUE (2)
- ---------------------------------------------------- ----------- ---------- ---------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and government agencies
and authorities................................ $ 499,932 $ 517,318 $ 499,232
States, municipalities and political
subdivisions................................... 5,068 5,444 5,062
Foreign governments............................... 15,980 15,996 15,522
Public utilities.................................. 172,286 172,029 169,422
All other corporate bonds......................... 1,853,621 1,894,999 1,834,481
Redeemable preferred stock.......................... 236 180 236
---------- ---------- ----------
Total fixed maturities.............................. 2,547,123 2,605,966 2,523,955
EQUITY SECURITIES
Common stocks--industrial, miscellaneous and all
other............................................. 141 346 346
---------- ---------- ----------
Total equity securities............................. 141 346 346
Mortgage loans on real estate....................... 768,424 768,424
Real estate......................................... 29,333 29,333
Policy loans........................................ 25 25
Cash and short-term investments..................... 112,379 112,379
---------- ----------
Total investments................................... $ 3,457,425 $ 3,434,462
========== ==========
</TABLE>
- ---------------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
(2) Amounts differ from cost as certain bonds have been adjusted to reflect
other than temporary declines in value charged to surplus, as prescribed by
the NAIC.
F-184
<PAGE> 279
AUSA LIFE INSURANCE COMPANY, INC.
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
FUTURE BENEFITS,
POLICY CLAIMS
BENEFITS POLICY AND NET LOSSES AND OTHER
AND UNEARNED CONTRACT PREMIUM INVESTMENT SETTLEMENT OPERATING PREMIUMS
EXPENSES PREMIUMS LIABILITIES REVENUE INCOME EXPENSES EXPENSES WRITTEN
-------- -------- ---------- ---------- ---------- ------------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER
31, 1995
Individual life...... $ 354 $ -- $ 3 $ 180 $ 47 $ 4 $ 4 $ --
Individual health.... 4,021 333 152 213 85 386 62 --
Group life and
health............. 2 -- -- -- -- -- -- 195
Annuity.............. 122,145 -- -- 1,107,020 268,546 1,110,555 287,173 1,606,197
-------- ---- ---- ---------- -------- ---------- -------- ----------
$126,522 $ 333 $155 $1,107,413 $ 268,678 $ 1,110,945 $ 287,239 $1,606,392
======== ==== ==== ========== ======== ========== ======== ==========
DECEMBER 31, 1994
Individual life...... $ 197 $ -- $ 3 $ 10 $ 19 $ 5 $ 2 $ --
Individual health.... -- -- -- -- -- -- -- --
Group life and
health............. 2 -- -- -- -- -- -- --
Annuity.............. 7,572 -- -- 426,329 254,520 491,686 211,857 426,329
-------- ---- ---- ---------- -------- ---------- -------- ----------
$ 7,771 $ -- $ 3 $ 426,339 $ 254,539 $ 491,691 $ 211,859 $ 426,329
======== ==== ==== ========== ======== ========== ======== ==========
</TABLE>
F-185
<PAGE> 280
AUSA LIFE INSURANCE COMPANY, INC.
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE IV
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE OF
CEDED TO FROM AMOUNT
GROSS OTHER OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
---------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Life insurance in force........ $ 629 $ 150 $ -- $ 479 --%
========== ======= ======== ========== ==
Premiums:
Individual life.............. $ 184 $ 4 $ -- $ 180 --%
Individual health............ -- -- -- -- --
Group life and health........ -- -- -- -- --
Annuity...................... 1,105,029 33,459 35,847 1,107,233 3
--
---------- ------- -------- ----------
$1,104,845 $33,463 $ 35,847 $1,107,413 3%
========== ======= ======== ========== ==
YEAR ENDED DECEMBER 31, 1994
Life insurance in force........ $ 681 $ 150 $ -- $ 531 --%
========== ======= ======== ========== ==
Premiums:
Individual life.............. $ 14 $ 4 $ -- $ 10 --%
Individual health............ -- -- -- -- --
Group life and health........ -- -- -- -- --
Annuity...................... 295,664 -- 130,665 426,329 31
--
---------- ------- -------- ----------
$ 295,678 $ 4 $130,665 $ 426,339 31%
========== ======= ======== ========== ==
</TABLE>
F-186
<PAGE> 281
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
The following Financial Statements
<TABLE>
<S> <C>
(1)(a) With respect to Diversified Investors Variable Funds ("the Funds").
Report of Independent Accountants.................................................... F-1
Statements of assets and liabilities as of December 31, 1995......................... F-2
Statements of operations for the year ended December 31, 1995........................ F-3
Statements of changes in net assets for the year ended December 31, 1995 and the
applicable periods ended December 31, 1994......................................... F-4
Notes to financial statements........................................................ F-6
(1)(b) Statements of assets and liabilities as of June 30, 1996 (unaudited).......... F-10
Statements of operations for the Period Ended June 30, 1996 (unaudited).............. F-12
Statements of changes in net assets for the Period Ended June 30, 1996 (unaudited)... F-14
Notes to financial statements (unaudited)............................................ F-17
(2)(a) With respect to Diversified Investors Portfolios
Report of Independent Accountants.................................................... F-29
Statements of Assets and Liabilities for the year ended December 31, 1995............ F-30
Statement of Operations for the applicable periods ended December 31, 1995........... F-31
Statements of Changes in Net Assets for the applicable periods ended December 31,
1995 and the year ended December 31, 1994.......................................... F-32
Portfolio of Investments for the year ended December, 31, 1995....................... F-34
Money Market Portfolio............................................................... F-35
High Quality Bond Portfolio.......................................................... F-36
Intermediate Government Bond Portfolio............................................... F-40
Government/Corporate Bond Portfolio.................................................. F-43
Balanced Fund Portfolio.............................................................. F-48
Equity Income Portfolio.............................................................. F-52
Growth and Income Portfolio.......................................................... F-59
Equity Growth Portfolio.............................................................. F-64
Special Equity Portfolio............................................................. F-67
High Yield Bond Portfolio............................................................ F-77
International Equity Portfolio....................................................... F-80
Notes to Financial Statements........................................................ F-88
(2)(b) With respect to Money Market Portfolio, High Quality Bond Portfolio,
Intermediate Government Bond Portfolio, Government/Corporate Bond Portfolio,
Balanced Portfolio, Equity Income Portfolio, Equity Value Portfolio, Growth and
Income Portfolio, Equity Growth Portfolio, Special Equity Portfolio, Aggressive
Equity, High Yield Bond Portfolio and International Equity Fund.
Statements of assets and liabilities as of June 30, 1996 (unaudited)................. F-95
Statements of operations For the Period Ended June 30, 1996 (unaudited).............. F-97
Statements of changes in net assets For the Period Ended June 30, 1996 (unaudited)... F-99
Portfolio of Investments for the Period Ended June 30, 1996 (unaudited).............. F-104
Notes to Financial Statements (unaudited)............................................ F-159
(3) With respect to AUSA Life Insurance Company, Inc. ("AUSA")
Report of Independent Auditors....................................................... F-166
Balance Sheets -- Statutory Basis at December 31, 1995 and 1994...................... F-167
</TABLE>
C-1
<PAGE> 282
<TABLE>
<S> <C>
Statements of Operations -- Statutory Basis for the year ended December 31, 1995 and
1994............................................................................... F-169
Statements of Changes in Capital and Surplus -- Statutory Basis for the year ended
December 31, 1995 and 1994......................................................... F-170
Statements of Cash Flows -- Statutory Basis for the year ended December 31, 1995 and
1994............................................................................... F-171
Notes to Financial Statements -- Statutory Basis..................................... F-172
Financial Statement Schedules........................................................ F-173
</TABLE>
(b) Exhibits
Any form of Form N-4 Exhibits (1) and (3) through (7) and (9) previously
filed with the Commission as part of Pre-Effective Amendment No. 1 dated
July 7, 1994 to the Registrant's N-4 Registration
Statement -- Registration No. 33-73734 under the Securities Act of 1933
are incorporated herein by reference.
Exhibits (4), (13) and (14) filed with the Commission as part of
Post-Effective Amendment No. 1 dated April 28, 1995 to the Registrant's
N-4 Registration Statement -- Registration No. 33-73734 under the
Securities Act of 1933 are incorporated herein by reference.
(2) Not applicable.
(8) Not applicable.
(10) Opinions and Consents of Independent Accountants.
(11) Not applicable.
(12) Not applicable.
(15) Powers of Attorney filed herewith.
ITEM 25. DIRECTORS AND OFFICERS OF AUSA
The Directors and officers of AUSA are set forth below.
DIRECTORS
Andrew R. Baer............. KEKST & COMPANY, 437 Madison Ave., New York, New
York 10022.
William L. Busler.......... AEGON USA, Inc., 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499.
Jack R. Dykhouse........... AEGON USA, Inc. 9151 Grapevine Highway, North
Richland Hills, Texas 76180.
Peter P. Post.............. EMMERLING POST, Inc., 135 East 55th Street, New
York, New York 10022.
Cor H. Verhagen............ AEGON INSURANCE GROUP, 51 JFK Parkway, Short Hills,
New Jersey 07078.
Professor E. Kirby
Warren..................... COLUMBIA UNIVERSITY SCHOOL OF BUSINESS, 725 Uris
Hall, 116th Street & Broadway, New York, New York
10027.
Steven E. Frushtick........ WIENER, FRUSHTICK & STRAUB, 500 Fifth Avenue, New
York, New York 10110.
Vice Admiral Thor Hanson... National Multiple Sclerosis Society, 900 Birdseye
Road, P.O. Box 112, Orient, New York 11957-0112.
B. Larry Jenkins........... Monumental Life Insurance Company, 2 East Chase
Street, Baltimore, Maryland 21202.
C-2
<PAGE> 283
DIRECTOR-OFFICERS
Larry G. Brown............. Chairman of the Board and Secretary, AEGON USA,
Inc., 111 North Charles Street, Baltimore, Maryland
21201.
Vera F. Mihaic............. Vice President, INTERNATIONAL LIFE INVESTORS
INSURANCE Company 666 Fifth Avenue New York, New
York 10103-0001.
Tom Schlossberg............ President, DIVERSIFIED INVESTMENT ADVISORS, Inc., 4
Manhattanville Road, Purchase, New York 10577.
Douglas C. Kolsrud......... Chief Actuary, AEGON USA, Inc., 4333 Edgewood Road,
N.E., Cedar Rapids, Iowa 52499.
ITEM 26. PERSONS CONTROLLED BY OR UNDER CONTROL WITH THE DEPOSITOR OR
REGISTRANT
No person is directly or indirectly controlled by the Registrant. The
Registrant is a separate account of the Depositor.
The diagram on the next page shows all corporations directly or indirectly
controlled or under common control with the Depositor, showing the state or
other sovereign power under the laws of which each is organized and the
percentage ownership of voting securities giving rise to the control
relationship. (See diagram on following page.)
ITEM 27. AS OF JANUARY 31, 1996 THERE WERE 1322 CONTRACTHOLDERS.
ITEM 28. INDEMNIFICATION
Any person made a party to any action, suit, or proceeding by reason of the
fact that he, his testator or intestate, is or was a director, officer, or
employee of the Company or of any Company which he served as such at the request
of the Company, shall be indemnified by the Company against the reasonable
expenses, including attorney's fees, actually and necessarily incurred by him in
connection with the defense of such action, suite or proceeding, or in
connection with appeal therein, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such officer,
Director, or employee is liable for negligence or misconduct in the performance
of his duties. The Company may also reimburse to any Director, officer, or
employee the reasonable costs of settlement of any such action, suit, or
proceeding, if it shall be found by a majority of a committee composed of the
Directors not involved in the matter in controversy (whether or not a quorum)
that it was in the interest of the Company that such settlement be made and that
such Director, officer or employee was not guilty of negligence or misconduct.
The amount to be paid by way of indemnity shall be determined and paid, in each
instance, pursuant to action of the Board of Directors, and the stockholders
shall be given notice thereof in accordance with applicable provisions of law.
Such right of indemnification shall not be deemed exclusive of any other rights
to which such Director, officer, or employee may be entitled.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Diversified Investors Securities Corp. ("DISC") is the principal
underwriter of the Registrant. The names, titles and principal business
addresses of the officers and directors of "DISC" are as stated on Forms U-4 of
Form BD (File No. 8-45671) as declared effective May 18, 1993, as amended, the
text of which is herein incorporated by reference. Diversified Investment
Advisors, Inc. an affiliate of AUSA, acts as investment advisor and
administrator to each series of Diversified Investors Portfolios. With respect
to each series of Diversified Investors Portfolios, Diversified has contracted
for certain investment advisory services with one or more subadvisors.
(b) The names, titles and principal business addresses of the officers of
DISC are listed on Schedule A of Form BD for DISC (Registration No. 8-45691) and
Form U-4 filed by each individual officer, the text of which is hereby
incorporated by reference.
C-3
<PAGE> 284
GRAPH
C-3A
<PAGE> 285
FOOTNOTES
(1) 150,000 shares of Class B Non-Voting Common Stock owned by Ennia
Reinsurance Antilles N.V.
(2) Ordinary common stock is allowed 60% of total cumulative vote.
Participating common stock is allowed 40% total cumulative vote.
(3) Denotes relationships as advisor, administrator, sponsor, underwriter or
general partner.
(4) First AUSA Life Insurance Company owns 12.89%. PFL Life Insurance Company
owns 13.11%. Bankers United Life Assurance Company owns 4.86%.
(5) PFL Life Insurance Company owns 16.73%. Bankers United Life Assurance
Company owns 3.77%. Life Investors Insurance Company of America owns 3.38%.
AEGON USA Realty Advisors, Inc. owns 1.97%. First AUSA Life Insurance
Company owns .18%.
(6) Class B Common Stock is allocated 75% of total cumulative vote. Class A
Common Stock is allocated 25% of total cumulative vote.
(7) 50% of Idex Management, Inc. is owned by Janus Capital Corporation, a
Colorado corporation.
(8) RCC Group: FGH Realty Credit Corp., FGH USA, Inc., RCC North America, Inc.,
FGH USA Realty, Inc., FGH Eastern Region, Inc., FGH Appraisal Services,
Inc., FGH Western Region, Inc., ALH Properties, Inc., First FGP, Inc.,
Second FGP, Inc., Third FGP, Inc., Fourth FGP, Inc. Fifth FGP, Inc., Sixth
FGP, Inc., Seventh FGP, Inc., FGP Midwood, Inc., FGP Parsippany, Inc., ALH
Properties Two, Inc., ALH Properties Three, Inc., ALH Properties Four,
Inc., ALH Properties Five, Inc., ALH Properties Six, Inc., ALH Properties
Seven, Inc., ALH Properties Eight, Inc., ALH Properties Nine, Inc., ALH
Properties Ten, Inc., ALH Properties Eleven, Inc., ALH Properties Twelve,
Inc., ALH Properties Thirteen, Inc., ALH Properties Fourteen, Inc., ALH
Properties Fifteen, Inc., ALH Properties Sixteen, Inc., ALH Properties
Seventeen, Inc., FGP Keene, Inc., FGP Broadway, Inc., FGP West Street,
Inc., FGP West Street Two, Inc., FGP 90 West Street, Inc., FGP Branford,
Inc., FGP Franklin, Inc., FGP Bala, Inc., FGP Twenty-One, Inc., FGP
Twenty-Two, Inc., FGP Twenty-Three, Inc., FGP Twenty-Four, Inc., FGP
Twenty-Five, Inc., FGP Schenectady, Inc., FGP Country Estates, Inc., FGP
Eleventh Street, Inc., FGP 109th Street, Inc., FGP Seventy-Second Street,
Inc., FGP Gaithersburg, Inc., FGP West 32nd Street, Inc., FGP Beekman,
Inc., Dutch Hotel Management, Inc., FGP Landmark, Inc., FGP Islandia, Inc.,
FGP Bridgeport, Inc., FGP Varick, Inc., FGP Real Property Management, Inc.,
FGP Union Gardens, Inc., FGP Burkewood, Inc., FGP Stamford, Inc., FGP
Meadow Lane, Inc., FGP Main Street, Inc., FGP Property Services, Inc., FGP
Merrick, Inc., FGP West 14th Street, Inc., FGP 106 Fulton, Inc., FGP Bush
Terminal, Inc., FGP Northern Boulevard, Inc., FGP Seventh Avenue, Inc., FGP
Parsons, Inc., FGP City Hall, Inc., FGP West 88th Street, Inc., FGP
Lincoln, Inc., FGP Emerson, Inc., FGP Brooke, Inc., FGP 86th Street, Inc.,
FGP Edison, Inc., FGP Rider Avenue, Inc., FGP Remson, Inc., and FGP
Rockbeach, Inc.
(9) Subsidiaries of ISI Insurance Agency, Inc. are: ISI Insurance Agency of
Ohio, Inc., ISI Insurance Agency of Massachusetts, Inc., and ISI Insurance
Agency of Texas, Inc.
(10) Subsidiaries of Associated Mariner Agency, Inc. are Associated Mariner
Agency of Hawaii, Inc., Associated Mariner Insurance Agency of
Massachusetts, Inc., Associated Mariner Agency Ohio, Inc., Associated
Mariner Agency Texas, Inc., and Associated Mariner Agency New Mexico, Inc.
(11) Owns 50% interest in DJA Partners, a Delaware general partnership.
(12) Owns 49% of Melson Technologies Consulting, Inc., a Delaware corporation.
* Includes qualifying shares for Directors.
(c) Refer to Prospectus pages 8 and 15, "Charges" and Part B, Statement of
Additional Information, page 2, "Sale of Contracts/Principal Underwriter" for
information regarding compensation.
C-4
<PAGE> 286
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books, and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
are primarily maintained by AUSA Insurance Company, Inc. in whole or in part, at
its principal offices at 4 Manhattanville Road, Purchase, NY 10577.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file post-effective amendments to the
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the group variable annuity contract may be
accepted;
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a Contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of Additional
Information;
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(e) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-5
<PAGE> 287
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant (certifies that it meets the
requirements of Securities Act Rule 485(b) for the effectiveness of this
registration statement) has duly caused this Post-Effective Amendment No. 6 to
its Registration Statement to be signed on its behalf, by the undersigned
thereunto duly authorized, in the County of Westchester and the State of New
York, on this 17th day of October, 1996.
DIVERSIFIED INVESTORS VARIABLE FUNDS
(Registrant)
By: /s/ TOM A. SCHLOSSBERG
------------------------------------
Tom A. Schlossberg
AUSA LIFE INSURANCE COMPANY, INC.
(Depositor)
By: /s/ TOM A. SCHLOSSBERG
------------------------------------
Tom A. Schlossberg
(Director and President)
Pursuant to the requirement of the Securities Act of 1933 this
Post-Effective Amendment No. 6 to its Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- --------------------------------- -----------------
<C> <S> <C>
/s/ TOM A. SCHLOSSBERG Director and President October 17, 1996
- -------------------------------------
(Tom A. Schlossberg)
*/s/ ANDREW R. BAER Director October 17, 1996
- -------------------------------------
(Andrew R. Baer)
*/s/ LARRY G. BROWN Director October 17, 1996
- -------------------------------------
(Larry G. Brown)
*/s/ WILLIAM L. BUSLER Director October 17, 1996
- -------------------------------------
(William L. Busler)
*/s/ JACK R. DYKHOUSE Director October 17, 1996
- -------------------------------------
(Jack R. Dykhouse)
*/s/ STEVEN E. FRUSCHTICK Director October 17, 1996
- -------------------------------------
(Steven E. Fruschtick)
*/s/ CARL T. HANSON Director October 17, 1996
- -------------------------------------
(Carl T. Hanson)
By: /s/ TOM A. SCHLOSSBERG October 17, 1996
- -------------------------------------
Tom A. Schlossberg
Attorney-in-Fact
</TABLE>
C-6
<PAGE> 288
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- --------------------------------- -----------------
<C> <S> <C>
*/s/ B. LARRY JENKINS Director October 17, 1996
- -------------------------------------
(B. Larry Jenkins)
*/s/ DOUGLAS C. KOLSRUD Director October 17, 1996
- -------------------------------------
(Douglas C. Kolsrud)
*/s/ VERA F. MIHAIC Director October 17, 1996
- -------------------------------------
(Vera F. Mihaic)
*/s/ PETER P. POST Director October 17, 1996
- -------------------------------------
(Peter P. Post)
*/s/ COR H. VERHAGEN Director October 17, 1996
- -------------------------------------
(Cor H. Verhagen)
*/s/ E. KIRBY WARREN Director October 17, 1996
- -------------------------------------
(E. Kirby Warren)
*By: /s/ TOM A. SCHLOSSBERG
- -------------------------------------
Tom A. Schlossberg
Attorney-in-Fact
</TABLE>
C-7
<PAGE> 289
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------- -------------
<C> <S> <C>
99.(10) Consent of Independent Accountants
99.(15) Powers of Attorney
</TABLE>
C-8
<PAGE> 1
[LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Accountants" and to the use of our report dated February 23, 1996 with respect
to the statutory-basis financial statements of AUSA Life Insurance Company,
Inc., included in Amendment No. 6 to Registration Statement (Form N-4 No. 33-
73734) and related Prospectus of Diversified Investors Variable Funds.
ERNST & YOUNG LLP
Des Moines, Iowa
October 11, 1996
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------
We consent to the inclusion in this Post-Effective Amendment No. 6 to the
Registration Statement on Form N-4 (File No. 33-73734) of our reports dated
February 13, 1996 and February 12, 1996 on our audits of the financial
statements and financial highlights of Diversified Investors Variable Funds and
Diversified Investors Portfolio, respectively.
We also consent to the references to our Firm in the Prospectus and in the
Statement of Additional Information under the captions "Independent
Accountants."
/s/ COOPERS & LYBRAND L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
New York, New York
October 16, 1996
<PAGE> 1
Exhibit 99.(15)
<PAGE> 2
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints K. Rone Baldwin,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the
Registration Statement, and any and all amendments thereto, filed by The
Diversified Investors Variable Funds (the "Company") with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the Securities
Act of 1933 and any and all instruments which such attorneys and agents, or any
of them, deem necessary or advisable to enable the Company to comply with such
Acts, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 30th
day of November, 1993.
/s/ Tom A. Schlossberg
--------------------------------------
Tom A. Schlossberg
<PAGE> 3
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg, K.
Rone Baldwin, Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each
of them, with full powers of substitution as his true and lawful attorneys and
agents to execute in his name and on his behalf in any and all capacities the
Registration Statement, and any and all amendments thereto, filed by The
Diversified Investors Variable Funds (the "Company") with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the Securities
Act of 1933 and any and all instruments which such attorneys and agents, or any
of them, deem necessary or advisable to enable the Company to comply with such
Acts, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 30th
day of November, 1993.
/s/ Neal M. Jewell
--------------------------------------
Neal M. Jewell
<PAGE> 4
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg, K.
Rone Baldwin, Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each
of them, with full powers of substitution as his true and lawful attorneys and
agents to execute in his name and on his behalf in any and all capacities the
Registration Statement, and any and all amendments thereto, filed by The
Diversified Investors Variable Funds (the "Company") with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the Securities
Act of 1933 and any and all instruments which such attorneys and agents, or any
of them, deem necessary or advisable to enable the Company to comply with such
Acts, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 30th
day of November, 1993.
/s/ Eugene M. Mannella
--------------------------------------
Eugene M. Mannella
<PAGE> 5
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg, K.
Rone Baldwin, Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each
of them, with full powers of substitution as his true and lawful attorneys and
agents to execute in his name and on his behalf in any and all capacities the
Registration Statement, and any and all amendments thereto, filed by The
Diversified Investors Variable Funds (the "Company") with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the Securities
Act of 1933 and any and all instruments which such attorneys and agents, or any
of them, deem necessary or advisable to enable the Company to comply with such
Acts, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 30th
day of November, 1993.
/s/ Patricia L. Sawyer
--------------------------------------
Patricia L. Sawyer
<PAGE> 6
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg, K.
Rone Baldwin, Robert F. Colby and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the
Registration Statement, and any and all amendments thereto, filed by The
Diversified Investors Variable Funds (the "Company") with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the Securities
Act of 1933 and any and all instruments which such attorneys and agents, or any
of them, deem necessary or advisable to enable the Company to comply with such
Acts, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 30th
day of November, 1993.
/s/ Alfred J. Sylvain
--------------------------------------
Alfred J. Sylvain
<PAGE> 7
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred J. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the
Registration Statement, and any and all amendments thereto, filed by The
Diversified Investors Variable Funds (the "Company") with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the Securities
Act of 1933 and any and all instruments which such attorneys and agents, or any
of them, deem necessary or advisable to enable the Company to comply with such
Acts, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 30th
day of November, 1993.
/s/ K. Rone Baldwin
--------------------------------------
K. Rone Baldwin
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director of AUSA Life Insurance
Company, Inc. whose signature appears below constitutes and appoints Tom A.
Schlossberg and Craig D. Vermie and each of them, with full and several power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign one or more Registration Statements on Form N-4 under the
Investment Company Act of 1940 and Securities Act of 1933 (or such other form or
forms as the Securities and Exchange Commission may prescribe) relating to
certain group variable annuity contracts funded by the Diversified Investors
Variable Funds, a separate account of AUSA Life Insurance Company, Inc. which
will be registered as a unit investment trust under the Investment Company Act
of 1940, any or all amendments, including post-effective amendments, and
supplements to any such Registration Statements, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
/s/ HARRY W. ALBRIGHT /s/ E. KIRBY WARREN
- ----------------------------------- -----------------------------------
Harry W. Albright E. Kirby Warren
/s/ LARRY G. BROWN /s/ ANDREW R. BAER
- ----------------------------------- -----------------------------------
Larry G. Brown Andrew R. Baer
/s/ TOM A. SCHLOSSBERG /s/ WILLIAM L. BUSLER
- ----------------------------------- -----------------------------------
Tom A. Schlossberg William L. Busler
/s/ PATRICK E. FALCONIO /s/ JACK R. DYKHOUSE
- ----------------------------------- ------------------------------------
Patrick E. Falconio Jack R. Dykhouse
/s/ CARL T. HANSON /s/ STEVEN E. FRUSHTICK
- ----------------------------------- ------------------------------------
Carl T. Hanson Steven E. Frushtick
/s/ VERA F. MIHAIC /s/ DOUGLAS C. KOLSRUD
- ----------------------------------- ------------------------------------
Vera F. Mihaic Douglas C. Kolsrud
/s/ B. LARRY JENKINS /s/ PETER P. POST
- ----------------------------------- ------------------------------------
B. Larry Jenkins Peter P. Post
/s/ COR H. VERHAGEN
- -----------------------------------
Cor H. Verhagen