UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811 - 07717
The Diversified Investors Strategic
Variable Funds
(Exact name of Registrant as specified in
charter)
Address of Registrant: 4 Manhattanville Road
Purchase, NY
Name and address of agent for service: Joseph Carusone
4 Manhattanville Road
Purchase, NY 10577
Registrant's telephone number, including area code: (914) 697-8586
Date of fiscal year end: December 31, 2006
Date of reporting period: December 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
THE DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
DIVERSIFIED INVESTORS VARIABLE FUNDS
DIVERSIFIED INVESTORS
STRATEGIC VARIABLE FUNDS
ANNUAL REPORT
December 31, 2006
International Equity |
|
Special Equity |
|
Aggressive Equity |
|
Equity Growth |
|-- Intermediate/Long
Growth & Income | Horizon
| --------------------------
Value & Income |
|
Balanced |-- Intermediate Horizon
| --------------------------
Calvert |
|
High Yield Bond |
|-- Short Horizon
Core Bond | --------------------------
|
Intermediate Govt. Bond |
|
High Quality Bond |
|
Money Market |
[DIVERSIFIED INVESTMENT ADVISORS Logo]
_________________________________________________
This report is not to be construed as an offering for sale of any contracts
participating in the Subaccounts (Series) of the Diversified Investors Variable
Funds or the Diversified Investors Strategic Variable Funds, or as a
solicitation of an offer to buy contracts unless preceded by or accompanied by a
current prospectus which contains complete information about charges and
expenses.
This is a combined annual report for the subaccounts of the Diversified
Investors Variable Funds and the Diversified Investors Strategic Variable Funds.
THE DIVERSIFIED INVESTORS VARIABLE FUNDS AND STRATEGIC VARIABLE FUNDS
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
DIVERSIFIED INVESTORS VARIABLE FUNDS:
An Explanation of Fund Expenses............................. 2
Statements of Assets and Liabilities........................ 4
Statements of Operations.................................... 6
Statements of Changes in Net Assets -- December 31, 2006.... 8
Statements of Changes in Net Assets -- December 31, 2005.... 10
CALVERT SUBACCOUNT:
Statement of Assets and Liabilities....................... 12
Statement of Operations................................... 13
Statements of Changes in Net Assets....................... 14
Notes to Financial Statements............................... 15
Report of Independent Registered Public Accounting Firm..... 22
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS:
An Explanation of Fund Expenses............................. 23
Statements of Assets and Liabilities........................ 24
Statements of Operations.................................... 25
Statements of Changes in Net Assets -- December 31, 2006.... 26
Statements of Changes in Net Assets -- December 31, 2005.... 27
PORTFOLIOS OF INVESTMENTS:
Short Horizon Strategic Variable Fund..................... 28
Intermediate Horizon Strategic Variable Fund.............. 29
Intermediate Long Horizon Strategic Variable Fund......... 30
Portfolio Composition....................................... 31
Notes to Financial Statements............................... 32
Report of Independent Registered Public Accounting Firm..... 38
APPROVAL OF INVESTMENT ADVISORY CONTRACTS................... 39
TRUSTEES INFORMATION........................................ 40
DIVERSIFIED INVESTORS PORTFOLIOS:
Management Review........................................... 42
Statements of Assets and Liabilities........................ 52
Statements of Operations.................................... 56
Statements of Changes in Net Assets -- December 31, 2006.... 60
Statements of Changes in Net Assets -- December 31, 2005.... 64
PORTFOLIOS OF INVESTMENTS:
Money Market Portfolio.................................... 68
High Quality Bond Portfolio............................... 70
Intermediate Government Bond Portfolio.................... 77
Core Bond Portfolio....................................... 79
Total Return Bond Portfolio............................... 95
High Yield Bond Portfolio................................. 105
Balanced Portfolio........................................ 114
Value & Income Portfolio.................................. 127
Value Portfolio........................................... 130
Growth & Income Portfolio................................. 132
Equity Growth Portfolio................................... 137
Aggressive Equity Portfolio............................... 140
Mid-Cap Value Portfolio................................... 142
Mid-Cap Growth Portfolio.................................. 148
Small-Cap Value Portfolio................................. 150
Special Equity Portfolio.................................. 153
Small-Cap Growth Portfolio................................ 164
International Equity Portfolio............................ 168
Summary of Footnotes and Abbreviations to Portfolios........ 173
Portfolio Composition....................................... 174
Notes to Financial Statements............................... 176
Report of Independent Registered Public Accounting Firm..... 200
Approval of Investment Advisory Contracts................... 201
Trustees Information........................................ 206
CALVERT SOCIAL BALANCED PORTFOLIO ANNUAL REPORT............. I
</Table>
DIVERSIFIED INVESTORS VARIABLE FUNDS
AN EXPLANATION OF FUND EXPENSES
(UNAUDITED)
As a unitholder in a unit investment trust (a "Trust") invested in a
corresponding series of the Diversified Investors Portfolios, you will bear the
ongoing costs of managing the corresponding portfolio in which your Trust
invests (such as the investment advisor's fee and other expenses). You will also
bear the cost of operating the Trust.
The first column in the table shown below assumes an investment of $1,000 on
July 1, 2006. The second column will show your ending balance (per $1,000) on
December 31, 2006. The third column will show how much of your investment (per
$1,000) went to the ongoing costs of both your Trust and its corresponding
portfolio. The figures in both of these columns are based on the actual total
return and the actual expenses incurred for the period July 1, 2006 - December
31, 2006. In order to approximate how much you paid in expenses during the six
months, divide your balance by 1,000, and multiply the result by the dollar
amount shown under the heading "Expenses Paid During the Period July 1, 2006 -
December 31, 2006 (Based on actual returns and expenses)".
The fourth and fifth columns will also show your ending balance (per $1,000) on
December 31, 2006 and how much of your investment (per $1,000) went to the
ongoing costs of both your Trust and its corresponding portfolio, but assumes a
total annual return rate of 5% before expenses. Since the 5% is hypothetical,
the ending account values and the expenses paid for the period July 1,
2006 - December 31, 2006 will not be the actual values per $1,000 of your
investment. This information is presented so you may compare the cost of owning
a Diversified Investors Variable Fund against the cost of owning other funds.
Other funds should provide this information based on a hypothetical annual
return of 5% before expenses in their most recent report in order for you to
make a fair comparison.
<Table>
<Caption>
EXPENSES PAID
ENDING ACCOUNT DURING THE PERIOD
EXPENSES PAID VALUE JULY 1, 2006 -
ENDING ACCOUNT DURING THE PERIOD DECEMBER 31, 2006 DECEMBER 31, 2006
VALUE JULY 1, 2006 - (BASED ON (BASED ON
BEGINNING DECEMBER 31, 2006 DECEMBER 31, 2006 HYPOTHETICAL 5% HYPOTHETICAL 5%
ACCOUNT (BASED ON ACTUAL (BASED ON ACTUAL ANNUAL RETURNS ANNUAL RETURNS
VALUE RETURNS AND RETURNS AND BEFORE ACTUAL BEFORE ACTUAL
TRUST NAME JULY 1, 2006 EXPENSES) EXPENSES)(1)(2) EXPENSES) EXPENSES)(1)(2)
- ---------- ------------ ----------------- ------------------- ----------------- -------------------
Money Market......... $1,000 $1,019.88 $ 6.96 $1,018.04 $6.95
High Quality Bond.... 1,000 1,025.76 7.50 1,017.53 7.47
Intermediate Gov't
Bond............... 1,000 1,032.14 7.60 1,017.45 7.55
Core Bond............ 1,000 1,039.00 7.56 1,017.51 7.48
High Yield Bond...... 1,000 1,065.27 8.73 1,016.48 8.35
Balanced............. 1,000 1,092.48 8.35 1,016.95 8.05
Value & Income....... 1,000 1,135.32 8.38 1,017.08 7.92
Growth & Income...... 1,000 1,098.53 9.09 1,016.27 8.73
Equity Growth........ 1,000 1,067.63 9.00 1,016.23 8.78
Aggressive Equity.... 1,000 1,057.61 9.75 1,015.46 9.55
Special Equity....... 1,000 1,072.21 10.03 1,015.25 9.76
International
Equity............. 1,000 1,153.25 10.63 1,015.06 9.94
Calvert(4)........... 1,000 1,078.46 5.70 1,019.45 5.54
<Caption>
ANNUALIZED
EXPENSE
TRUST NAME RATIO(1)(3)
- ---------- -----------
Money Market......... 1.38%
High Quality Bond.... 1.48
Intermediate Gov't
Bond............... 1.50
Core Bond............ 1.49
High Yield Bond...... 1.70
Balanced............. 1.60
Value & Income....... 1.57
Growth & Income...... 1.74
Equity Growth........ 1.75
Aggressive Equity.... 1.90
Special Equity....... 1.94
International
Equity............. 1.98
Calvert(4)........... 1.10
</Table>
- ---------------
(1) These figures reflect the expenses of both the Trust and its corresponding
portfolio.
(2) Expenses are equal to each Trust's annualized expense ratio multiplied by
the average account value over the period, divided by 365, multiplied by 182
(to reflect the one-half year period).
(3) Please be aware that the expense ratios shown in this column may not match
the expense ratios shown in each Trust's financial highlights, as the
expense ratios in the financial highlights reflect the actual expense ratios
for the period January 1, 2006 - December 31, 2006.
(4) Does not include expenses incurred by the Calvert Social Balanced Portfolio.
2
(This page intentionally left blank)
3
DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
<Table>
<Caption>
HIGH INTERMEDIATE
MONEY QUALITY GOVERNMENT CORE HIGH YIELD
MARKET BOND BOND BOND BOND
----------- ----------- ------------ ----------- ----------
ASSETS:
Investment in the Portfolios, at
value (Notes 1 and 2)........... $38,669,077 $27,379,802 $24,609,637 $62,794,346 $5,933,270
Receivable for units sold......... 313,603 7,177 10,827 32,674 --
----------- ----------- ----------- ----------- ----------
Total assets...................... 38,982,680 27,386,979 24,620,464 62,827,020 5,933,270
----------- ----------- ----------- ----------- ----------
LIABILITIES:
Payable for units redeemed........ 70,853 39,924 24,085 55,574 30
Accrued mortality and expense
risk............................ 34,005 23,965 21,534 55,061 5,154
----------- ----------- ----------- ----------- ----------
Total liabilities................. 104,858 63,889 45,619 110,635 5,184
----------- ----------- ----------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO ANNUITY
CONTRACTHOLDERS................. $38,877,822 $27,323,090 $24,574,845 $62,716,385 $5,928,086
=========== =========== =========== =========== ==========
ACCUMULATION UNITS................ 1,942,788 1,825,981 1,195,685 1,978,729 315,785
=========== =========== =========== =========== ==========
UNIT VALUE........................ $ 20.01 $ 14.96 $ 20.55 $ 31.70 $ 18.77
=========== =========== =========== =========== ==========
</Table>
See notes to financial statements.
4
<Table>
<Caption>
VALUE & GROWTH & EQUITY AGGRESSIVE SPECIAL INTERNATIONAL
BALANCED INCOME INCOME GROWTH EQUITY EQUITY EQUITY
----------- ------------ ------------ ------------ ----------- ------------ -------------
$83,415,211.. $391,082,990 $140,607,876 $195,820,841 $58,260,269 $128,672,015 $109,716,328
68,900..... 149,975 71,746 61,572 31,846 51,681 77,131
----------- ------------ ------------ ------------ ----------- ------------ ------------
83,484,111.. 391,232,965 140,679,622 195,882,413 58,292,115 128,723,696 109,793,459
----------- ------------ ------------ ------------ ----------- ------------ ------------
84,988..... 225,247 164,941 193,368 26,038 27,348 20,154
72,902..... 339,287 123,269 172,125 51,815 113,125 94,697
----------- ------------ ------------ ------------ ----------- ------------ ------------
157,890.... 564,534 288,210 365,493 77,853 140,473 114,851
----------- ------------ ------------ ------------ ----------- ------------ ------------
$83,326,221.. $390,668,431 $140,391,412 $195,516,920 $58,214,262 $128,583,223 $109,678,608
=========== ============ ============ ============ =========== ============ ============
1,998,021.. 6,151,482 4,957,141 3,834,162 3,562,360 3,279,983 4,116,402
=========== ============ ============ ============ =========== ============ ============
$41.70...... $ 63.51 $ 28.32 $ 50.99 $ 16.34 $ 39.20 $ 26.64
=========== ============ ============ ============ =========== ============ ============
</Table>
5
DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
<Table>
<Caption>
HIGH INTERMEDIATE
MONEY QUALITY GOVERNMENT CORE HIGH YIELD
MARKET BOND BOND BOND BOND
---------- ---------- ------------ ---------- ----------
NET INVESTMENT INCOME ALLOCATED FROM
PORTFOLIOS (NOTE 2):
Interest income....................... $1,927,559 $1,059,579 $1,205,595 $3,054,247 $380,449
Securities lending income (net)....... -- 728 5,365 4,815 --
Dividend income....................... -- -- -- -- 2,350
Expenses (net of reimbursement)....... (105,753) (91,749) (98,277) (240,676) (26,757)
---------- ---------- ---------- ---------- --------
Net investment income (loss) allocated
from Portfolios..................... 1,821,806 968,558 1,112,683 2,818,386 356,042
---------- ---------- ---------- ---------- --------
EXPENSES (NOTE 4):
Mortality and expense risk............ 420,044 264,602 269,465 689,092 49,694
---------- ---------- ---------- ---------- --------
NET INVESTMENT INCOME (LOSS).......... 1,401,762 703,956 843,218 2,129,294 306,348
---------- ---------- ---------- ---------- --------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS (NOTE 2):
Net realized gains (losses) allocated
from Portfolios..................... 136 (104,617) (512,870) (279,407) 45,061
Change in net unrealized appreciation
(depreciation) allocated from
Portfolios.......................... -- 182,533 233,252 10,014 123,206
---------- ---------- ---------- ---------- --------
Net realized and unrealized gains
(losses) on investments............. 136 77,916 (279,618) (269,393) 168,267
---------- ---------- ---------- ---------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........... $1,401,898 $ 781,872 $ 563,600 $1,859,901 $474,615
========== ========== ========== ========== ========
</Table>
See notes to financial statements.
6
<Table>
<Caption>
VALUE & GROWTH & EQUITY AGGRESSIVE SPECIAL INTERNATIONAL
BALANCED INCOME INCOME GROWTH EQUITY EQUITY EQUITY
---------- ----------- ----------- ----------- ---------- ----------- -------------
$1,657,886 $ 354,800 $ 60,428 $ 222,345 $ 28,473 $ 126,824 $ 58,417
13,190 74,707 14,217 41,629 12,743 109,880 59,689
947,031 6,627,307 2,305,519 1,884,040 318,090 1,224,399 2,346,218
(406,161) (1,724,331) (861,879) (1,296,851) (458,044) (1,086,242) (811,624)
---------- ----------- ----------- ----------- ---------- ----------- -----------
5,332,483 1,518,285 851,163 (98,738) 374,861 1,652,700
2,211,946
---------- ----------- ----------- ----------- ---------- ----------- -----------
892,926 3,986,986 1,499,344 2,213,118 629,657 1,411,550 1,029,325
---------- ----------- ----------- ----------- ---------- ----------- -----------
1,319,020 1,345,497 18,941 (1,361,955) (728,395) (1,036,689) 623,375
---------- ----------- ----------- ----------- ---------- ----------- -----------
26,956,536 10,638,852 12,061,476 4,197,002 14,081,122 10,464,907
3,707,674
36,496,645 3,151,739 (5,263,510) (448,224) (392,530) 10,757,560
3,141,595
---------- ----------- ----------- ----------- ---------- ----------- -----------
63,453,181 13,790,591 6,797,966 3,748,778 13,688,592 21,222,467
6,849,269
---------- ----------- ----------- ----------- ---------- ----------- -----------
8,168,289 $64,798,678 $13,809,532 $ 5,436,011 $3,020,383 $12,651,903 $21,845,842
$
========== =========== =========== =========== ========== =========== ===========
</Table>
7
DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2006
<Table>
<Caption>
HIGH INTERMEDIATE
MONEY QUALITY GOVERNMENT CORE HIGH YIELD
MARKET BOND BOND BOND BOND
------------ ------------ ------------ ------------ -----------
FROM OPERATIONS:
Net investment income
(loss)...................... $ 1,401,762 $ 703,956 $ 843,218 $ 2,129,294 $ 306,348
Net realized gains (losses)
allocated from Portfolios... 136 (104,617) (512,870) (279,407) 45,061
Change in net unrealized
appreciation (depreciation)
allocated from Portfolios... -- 182,533 233,252 10,014 123,206
------------ ------------ ----------- ------------ -----------
Net increase (decrease) in net
assets resulting from
operations.................. 1,401,898 781,872 563,600 1,859,901 474,615
------------ ------------ ----------- ------------ -----------
FROM UNIT TRANSACTIONS (NOTE
5):
Units sold.................... 63,065,155 15,433,238 5,544,894 9,610,860 2,147,609
Units redeemed................ (63,026,049) (13,148,988) (7,220,403) (14,572,667) (1,040,873)
------------ ------------ ----------- ------------ -----------
Net increase (decrease) in net
assets resulting from unit
transactions................ 39,106 2,284,250 (1,675,509) (4,961,807) 1,106,736
------------ ------------ ----------- ------------ -----------
Total increase (decrease) in
net assets.................. 1,441,004 3,066,122 (1,111,909) (3,101,906) 1,581,351
NET ASSETS:
Beginning of year............. 37,436,818 24,256,968 25,686,754 65,818,291 4,346,735
------------ ------------ ----------- ------------ -----------
End of year................... $ 38,877,822 $ 27,323,090 $24,574,845 $ 62,716,385 $ 5,928,086
============ ============ =========== ============ ===========
Units outstanding beginning of
year........................ 1,940,304 1,673,643 1,279,147 2,139,744 256,503
Units sold.................... 3,296,081 1,049,182 274,983 310,410 117,968
Units redeemed................ (3,293,597) (896,844) (358,445) (471,425) (58,686)
------------ ------------ ----------- ------------ -----------
Units outstanding end of
year........................ 1,942,788 1,825,981 1,195,685 1,978,729 315,785
============ ============ =========== ============ ===========
</Table>
See notes to financial statements.
8
<Table>
<Caption>
VALUE & GROWTH & EQUITY AGGRESSIVE SPECIAL INTERNATIONAL
BALANCED INCOME INCOME GROWTH EQUITY EQUITY EQUITY
------------ ------------ ------------ ------------ ------------ ------------ -------------
$ 1,319,020 $ 1,345,497 $ 18,941 $ (1,361,955) $ (728,395) $ (1,036,689) $ 623,375
3,707,674 26,956,536 10,638,852 12,061,476 4,197,002 14,081,122 10,464,907
36,496,645 3,151,739 (5,263,510) (448,224) (392,530) 10,757,560
3,141,595
------------ ------------ ------------ ------------ ------------ ------------ ------------
64,798,678 13,809,532 5,436,011 3,020,383 12,651,903 21,845,842
8,168,289
------------ ------------ ------------ ------------ ------------ ------------ ------------
9,290,245 39,545,298 17,884,163 17,957,692 11,911,490 22,556,921 28,033,993
(17,165,428) (64,990,387) (29,767,160) (43,119,033) (15,684,911) (30,740,457) (21,021,275)
------------ ------------ ------------ ------------ ------------ ------------ ------------
) (25,445,089) (11,882,997) (25,161,341) (3,773,421) (8,183,536) 7,012,718
(7,875,183
------------ ------------ ------------ ------------ ------------ ------------ ------------
293,106 39,353,589 1,926,535 (19,725,330) (753,038) 4,468,367 28,858,560
83,033,115 351,314,842 138,464,877 215,242,250 58,967,300 124,114,856 80,820,048
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 83,326,221 $390,668,431 $140,391,412 $195,516,920 $ 58,214,262 $128,583,223 $109,678,608
============ ============ ============ ============ ============ ============ ============
2,200,757 6,603,906 5,405,715 4,347,218 3,799,795 3,500,514 3,820,571
237,184 685,962 674,381 365,213 750,698 602,929 1,186,769
(439,920) (1,138,386) (1,122,955) (878,269) (988,133) (823,460) (890,938)
------------ ------------ ------------ ------------ ------------ ------------ ------------
1,998,021 6,151,482 4,957,141 3,834,162 3,562,360 3,279,983 4,116,402
============ ============ ============ ============ ============ ============ ============
</Table>
9
DIVERSIFIED INVESTORS VARIABLE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2005
<Table>
<Caption>
HIGH INTERMEDIATE
MONEY QUALITY GOVERNMENT CORE
MARKET BOND BOND BOND BALANCED
------------ ----------- ------------ ------------ ------------
FROM OPERATIONS:
Net investment income
(loss)...................... $ 748,656 $ 508,980 $ 624,359 $ 1,795,393 $ 964,180
Net realized gains (losses)
allocated from Portfolios... (58) (121,700) (453,457) (317,746) 5,252,552
Change in net unrealized
appreciation (depreciation)
allocated from Portfolios... -- (190,503) (112,971) (684,883) (2,648,159)
------------ ----------- ----------- ------------ ------------
Net increase (decrease) in net
assets resulting from
operations.................. 748,598 196,777 57,931 792,764 3,568,573
------------ ----------- ----------- ------------ ------------
FROM UNIT TRANSACTIONS (NOTE
5):
Units sold.................... 45,062,203 5,085,234 5,173,446 13,367,109 10,189,249
Units redeemed................ (48,631,868) (5,440,530) (8,953,380) (10,191,307) (19,302,872)
------------ ----------- ----------- ------------ ------------
Net increase (decrease) in net
assets resulting from unit
transactions................ (3,569,665) (355,296) (3,779,934) 3,175,802 (9,113,623)
------------ ----------- ----------- ------------ ------------
Total increase (decrease) in
net assets.................. (2,821,067) (158,519) (3,722,003) 3,968,566 (5,545,050)
NET ASSETS:
Beginning of year............. 40,257,885 24,415,487 29,408,757 61,849,725 88,578,165
------------ ----------- ----------- ------------ ------------
End of year................... $ 37,436,818 $24,256,968 $25,686,754 $ 65,818,291 $ 83,033,115
============ =========== =========== ============ ============
Units outstanding beginning of
year........................ 2,129,128 1,698,725 1,467,906 2,036,065 2,451,834
Units sold.................... 2,361,827 352,726 258,187 437,231 280,468
Units redeemed................ (2,550,651) (377,808) (446,946) (333,552) (531,545)
------------ ----------- ----------- ------------ ------------
Units outstanding end of
year........................ 1,940,304 1,673,643 1,279,147 2,139,744 2,200,757
============ =========== =========== ============ ============
</Table>
See notes to financial statements.
10
<Table>
<Caption>
VALUE & GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD INTERNATIONAL
INCOME INCOME GROWTH EQUITY EQUITY BOND EQUITY
------------ ------------ ------------ ------------ ------------ ---------- -------------
$ 945,769 $ (196,629) $ (1,612,935) $ (1,169,423) $ (692,049) $ 274,241 $ 697,089
31,008,302 7,331,974 9,361,543 14,231,152 3,875,791 28,143 3,802,936
(12,747,803) 638,669 4,339,209 (2,635,436) 553,656 (205,536) 2,845,069
------------ ------------ ------------ ------------ ------------ ---------- ------------
19,206,268 7,774,014 12,087,817 10,426,293 3,737,398 96,848 7,345,094
------------ ------------ ------------ ------------ ------------ ---------- ------------
37,212,740 19,225,540 20,115,332 21,327,873 9,886,890 659,762 13,552,575
(52,393,574) (27,281,312) (40,385,678) (24,954,226) (13,995,272) (999,385) (13,866,081)
------------ ------------ ------------ ------------ ------------ ---------- ------------
(15,180,834) (8,055,772) (20,270,346) (3,626,353) (4,108,382) (339,623) (313,506)
------------ ------------ ------------ ------------ ------------ ---------- ------------
4,025,434 (281,758) (8,182,529) 6,799,940 (370,984) (242,775) 7,031,588
347,289,408 138,746,635 223,424,779 117,314,916 59,338,284 4,589,510 73,788,460
------------ ------------ ------------ ------------ ------------ ---------- ------------
$351,314,842 $138,464,877 $215,242,250 $124,114,856 $ 58,967,300 $4,346,735 $ 80,820,048
============ ============ ============ ============ ============ ========== ============
6,901,393 5,739,439 4,783,781 3,617,451 4,092,218 276,841 3,836,891
730,716 793,773 433,578 644,513 695,062 39,514 703,864
(1,028,203) (1,127,497) (870,141) (761,450) (987,485) (59,852) (720,184)
------------ ------------ ------------ ------------ ------------ ---------- ------------
6,603,906 5,405,715 4,347,218 3,500,514 3,799,795 256,503 3,820,571
============ ============ ============ ============ ============ ========== ============
</Table>
11
DIVERSIFIED INVESTORS VARIABLE FUNDS
CALVERT SUBACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
<Table>
ASSETS:
Investments, at value (Notes 2 and 6)....................... $42,246,532
Receivable for units sold................................... 28,098
-----------
Total assets................................................ 42,274,630
-----------
LIABILITIES:
Payable for units redeemed.................................. 12,925
Payable for securities purchased............................ 15,173
Accrued mortality and expense risk.......................... 37,055
-----------
Total liabilities........................................... 65,153
-----------
NET ASSETS ATTRIBUTABLE TO ANNUITY CONTRACTHOLDERS.......... $42,209,477
===========
ACCUMULATION UNITS.......................................... 1,346,851
===========
UNIT VALUE.................................................. $ 31.34
===========
INVESTMENTS, AT COST........................................ $39,939,482
===========
</Table>
See notes to financial statements.
12
DIVERSIFIED INVESTORS VARIABLE FUNDS
CALVERT SUBACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
<Table>
INVESTMENT INCOME (NOTE 2):
Dividend income............................................. $1,672,807
EXPENSES (NOTE 4):
Mortality and expense risk.................................. 455,264
----------
NET INVESTMENT INCOME (LOSS)................................ 1,217,543
----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS (NOTE
2):
Net realized gains (losses) from securities................. (400,182)
Change in net unrealized appreciation (depreciation) on
securities................................................ 2,207,136
----------
Net realized and unrealized gains (losses) on investments... 1,806,954
----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $3,024,497
==========
</Table>
See notes to financial statements.
13
DIVERSIFIED INVESTORS VARIABLE FUNDS
CALVERT SUBACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
2006 2005
----------- -----------
FROM OPERATIONS:
Net investment income (loss)................................ $ 1,217,543 $ 298,072
Net realized gains (losses) from securities................. (400,182) (273,588)
Change in net unrealized appreciation (depreciation) on
securities................................................ 2,207,136 1,788,103
----------- -----------
Net increase (decrease) in net assets resulting from
operations................................................ 3,024,497 1,812,587
----------- -----------
FROM UNIT TRANSACTIONS (NOTE 5):
Units sold.................................................. 5,358,290 6,411,494
Units redeemed.............................................. (8,439,577) (6,302,427)
----------- -----------
Net increase (decrease) in net assets from unit
transactions.............................................. (3,081,287) 109,067
----------- -----------
Total increase (decrease) in net assets..................... (56,790) 1,921,654
NET ASSETS:
Beginning of year........................................... 42,266,267 40,344,613
----------- -----------
End of year................................................. $42,209,477 $42,266,267
=========== ===========
Units outstanding beginning of year......................... 1,451,064 1,447,441
Units sold.................................................. 180,528 227,718
Units redeemed.............................................. (284,741) (224,095)
----------- -----------
Units outstanding end of year............................... 1,346,851 1,451,064
=========== ===========
</Table>
See notes to financial statements.
14
DIVERSIFIED INVESTORS VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Diversified Investors Variable Funds (individually, a "Subaccount" and
collectively, the "DIVF") is a separate investment account established on
November 30, 1993, by Transamerica Financial Life Insurance Company, Inc.
("TFLIC"), a wholly-owned subsidiary of AEGON USA, Inc. ("AEGON"), under the
laws of the State of New York. AEGON 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 NV, a
corporation based in the Netherlands which is a publicly traded international
insurance group.
DIVF operates as a unit investment trust under the Investment Company Act of
1940, as amended. DIVF holds assets that are segregated from all of TFLIC's
other assets and, at present, is used as an investment vehicle under certain
tax-deferred annuity contracts issued by TFLIC to fund retirement plans
maintained by certain not-for-profit and other organizations ("Group Plans").
TFLIC is the legal holder of the assets in DIVF.
DIVF commenced operations on August 18, 1994. There are currently thirteen
Subaccounts within DIVF which are available to contractholders of Group Plans.
Twelve of the Subaccounts invest in a corresponding portfolio of Diversified
Investors Portfolios (the "Portfolios"). The thirteenth Subaccount is a fund of
fund and invests in the Calvert Social Balanced Portfolio, a series of Calvert
Variable Series, Inc. ("Calvert"). The financial statements of the Portfolios
and Calvert accompany this report.
At December 31, 2006, each of the DIVF Subaccounts' investment in the
corresponding Portfolios was as follows:
<Table>
<Caption>
PERCENTAGE INVESTMENT
SUBACCOUNT IN PORTFOLIO
- ---------- ---------------------
Money Market................................................ 4.18
High Quality Bond........................................... 3.35
Intermediate Government Bond................................ 16.33
Core Bond................................................... 3.02
High Yield Bond............................................. 1.18
Balanced.................................................... 21.86
Value & Income.............................................. 11.05
Growth & Income............................................. 12.13
Equity Growth............................................... 7.75
Aggressive Equity........................................... 15.22
Special Equity.............................................. 10.62
International Equity........................................ 5.22
</Table>
For information regarding each Portfolio's investments, please refer to the
Portfolio Composition section of the Portfolios' financial statements or
Calvert's investments in the Asset Allocation section of Calvert's financial
statements which accompany this report.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by DIVF in the preparation of its financial statements. The policies
are in conformity with accounting principles generally accepted in the United
States of America.
15
DIVERSIFIED INVESTORS VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. INVESTMENTS:
The investment by DIVF in the Portfolios reflects DIVF's proportionate interest
in the net assets of the Portfolios. Valuation of securities held in each of the
Portfolios is discussed in Note 2A of the Portfolios' Notes to Financial
Statements which accompanies this report.
The Calvert Subaccount is valued at the net asset value per share determined as
of the close of business of the New York Stock Exchange (typically, 4:00 P.M.
Eastern time) on the valuation date. A description of the portfolio valuation
policy for Calvert can be found in Note A of Calvert's Notes to Financial
Statements which accompanies this report.
B. INVESTMENT INCOME:
Each DIVF Subaccount, except the Calvert Subaccount, is allocated its share of
income and expenses of its corresponding Portfolio. All of the investment income
and expenses and realized and unrealized gains and losses from the security
transactions of the corresponding Portfolio are allocated pro rata among the
investors and are recorded by the Subaccounts on a daily basis.
For the Calvert Subaccount, dividend income is recorded on the ex-dividend date
and 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
TFLIC. TFLIC does not expect, based upon current tax law, to incur any income
tax upon the earnings or realized capital gains attributable 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 accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
3. INVESTMENT TRANSACTIONS
Purchases and sales of shares in Calvert were $3,318,231 and $5,183,352
respectively.
4. FEES AND TRANSACTIONS WITH AFFILIATES
All Subaccounts, except the Calvert Subaccount, purchase interests in the
Portfolios. The net assets of those Subaccounts reflect the investment
management fee charged by Diversified Investment Advisors, Inc. ("Diversified")
(an affiliate of TFLIC), the investment advisor, which provides investment
advice and related services to the Portfolios. Diversified is an indirect,
wholly-owned subsidiary of AEGON.
TFLIC reserves the right to deduct an annual contract charge from a
participant's account to reimburse TFLIC for administrative expenses relating to
the maintenance of the group variable annuity contracts. TFLIC has no present
intention to impose such a charge but may do so in the future. Any such annual
charge will not exceed $50.
16
DIVERSIFIED INVESTORS VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
Daily charges to DIVF for mortality and expense risks assumed by TFLIC were
computed at an annual rate of 1.10%; however, TFLIC reserves the right to charge
maximum fees of 1.25% upon written notice.
5. GROUP PLAN ASSUMPTIONS
On December 31, 1993, TFLIC entered into an agreement with MONY Life Insurance
Company ("MONY") pursuant to which certain contracts issued by MONY to Group
Plans may be transferred through assumption reinsurance to TFLIC subject to
receipt of any necessary state insurance department approvals and
authorizations. The assumption reinsurance of any Group Plan to TFLIC will
result in the transfer of the applicable assets out of a corresponding MONY
separate account and into DIVF. There were no assets transferred to TFLIC
pursuant to this assumption reinsurance agreement for the years ended December
31, 2006 and December 31, 2005.
The amounts related to assumptions, if any, would be reflected in the net
proceeds from units sold in the Statements of Changes in Net Assets.
6. PORTFOLIO INVESTMENTS
Calvert invests in the Calvert Social Balanced Portfolio. At December 31, 2006,
it holds 20,811,100 shares with a market value of $42,246,532.
7. LEGAL AND REGULATORY MATTERS
Diversified Investors Securities Corp. ("DISC") is the distributor for each of
the Subaccounts and a subsidiary of the Series Portfolio's investment advisor,
Diversified Investment Advisors, Inc. ("DIA").
On February 18, 2005, DISC was notified by NASD Staff that it had made a
preliminary determination to recommend disciplinary action against DISC
regarding certain matters. In February 2006, DISC settled an administrative
proceeding with the NASD regarding agreements with two customers who were
permitted to engage in market timing activity in the Diversified Investors
International Equity Fund from July 1, 2003 through October 24, 2003. The
settlement also addressed alleged deficiencies in DISC's procedures relating to
the retention of e-mail communications. Under the terms of the Letter of
Acceptance, Waiver and Consent ("AWC") with the NASD, under which DISC neither
admitted nor denied the allegations or findings, DISC consented to the following
sanctions: (i) censure; (ii) a fine of $1.3 million; (iii) restitution of
approximately $949,011 to the Diversified International Equity Portfolio for
losses attributable to the trading described in the AWC; and (iv) agreement to
make certifications to the NASD regarding the review and establishment of
procedures relating to e-mail retention and to the enforcement of the Funds'
policies and procedures relating to market timing. The restitution payment of
$949,011 referred to above was made on February 14, 2006.
DISC and DIA have also responded to requests for information from various
governmental and self-regulatory agencies in connection with investigations
related to mutual fund trading activities. DISC and DIA have cooperated fully
with each request.
Although it is not anticipated that these developments will have an adverse
effect on the Subaccounts, there can be no assurance at this time.
8. CONCENTRATIONS AND INDEMNIFICATIONS
From time to time, the DIVF may have a concentration of several unitholders
holding a significant percentage of units outstanding. Investment activities of
these unitholders could have a material impact on DIVF.
In the normal course of business, DIVF enter into contracts that contain a
variety of representations and warranties which provide general
indemnifications. DIVF's maximum exposure under these arrangements is unknown as
this would involve future claims that may be made against DIVF that have not yet
occurred. However, based on experience, DIVF expects the risk of loss to be
remote.
17
DIVERSIFIED INVESTORS VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. FINANCIAL HIGHLIGHTS
For an accumulation unit outstanding throughout the year:
<Table>
<Caption>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
----------------------------
NET NET REALIZED TOTAL INCOME
UNIT VALUE, INVESTMENT AND UNREALIZED (LOSS) FROM
BEGINNING INCOME GAINS (LOSSES) INVESTMENT UNIT VALUE,
FOR THE YEAR ENDED OF YEAR (LOSS)(A) ON INVESTMENTS OPERATIONS END OF YEAR
- ------------------ ------------ ---------- -------------- ------------ -----------
MONEY MARKET
12/31/2006......................... $19.29 $0.72 $ 0.00(c) $ 0.72 $20.01
12/31/2005......................... 18.91 0.38 (0.00)(c) 0.38 19.29
12/31/2004......................... 18.84 0.06 0.01 0.07 18.91
12/31/2003......................... 18.81 0.03 (0.00)(c) 0.03 18.84
12/31/2002......................... 18.67 0.15 (0.01) 0.14 18.81
HIGH QUALITY BOND
12/31/2006......................... 14.49 0.43 0.04 0.47 14.96
12/31/2005......................... 14.37 0.31 (0.19) 0.12 14.49
12/31/2004......................... 14.32 0.27 (0.22) 0.05 14.37
12/31/2003......................... 14.15 0.30 (0.13) 0.17 14.32
12/31/2002......................... 13.47 0.45 0.23 0.68 14.15
INTERMEDIATE GOVERNMENT BOND
12/31/2006......................... 20.08 0.69 (0.22) 0.47 20.55
12/31/2005......................... 20.03 0.46 (0.41) 0.05 20.08
12/31/2004......................... 19.94 0.27 (0.18) 0.09 20.03
12/31/2003......................... 19.84 0.36 (0.26) 0.10 19.94
12/31/2002......................... 18.52 0.54 0.78 1.32 19.84
CORE BOND
12/31/2006......................... 30.76 1.05 (0.11) 0.94 31.70
12/31/2005......................... 30.38 0.88 (0.50) 0.38 30.76
12/31/2004......................... 29.35 0.75 0.28 1.03 30.38
12/31/2003......................... 28.36 0.70 0.29 0.99 29.35
12/31/2002......................... 26.24 1.02 1.10 2.12 28.36
HIGH YIELD BOND
12/31/2006......................... 16.95 1.21 0.61 1.82 18.77
12/31/2005......................... 16.58 1.10 (0.73) 0.37 16.95
12/31/2004......................... 15.17 1.09 0.32 1.41 16.58
12/31/2003......................... 11.99 1.07 2.11 3.18 15.17
12/31/2002......................... 11.87 0.95 (0.83) 0.12 11.99
BALANCED
12/31/2006......................... 37.73 0.63 3.34 3.97 41.70
12/31/2005......................... 36.13 0.42 1.18 1.60 37.73
12/31/2004......................... 33.73 0.38 2.02 2.40 36.13
12/31/2003......................... 28.97 0.33 4.43 4.76 33.73
12/31/2002......................... 32.55 0.47 (4.05) (3.58) 28.97
VALUE & INCOME
12/31/2006......................... 53.20 0.21 10.10 10.31 63.51
12/31/2005......................... 50.32 0.14 2.74 2.88 53.20
12/31/2004......................... 45.06 0.32 4.94 5.26 50.32
12/31/2003......................... 36.00 0.32 8.74 9.06 45.06
12/31/2002......................... 42.95 0.34 (7.29) (6.95) 36.00
</Table>
18
<Table>
<Caption>
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------------------
EXPENSES,
EXPENSES, INCLUDING EXPENSES NET NET INVESTMENT
INCLUDING OF THE PORTFOLIO INVESTMENT INCOME (LOSS)
NET ASSETS, TOTAL EXPENSES OF (NET OF INCOME (NET OF PORTFOLIO
END OF YEAR RETURN THE PORTFOLIO REIMBURSEMENTS) (LOSS) REIMBURSEMENTS) TURNOVER(B)
------------ ------ ------------- ------------------ ------------- --------------- -----------
$ 38,877,822 3.73% 1.38% 1.38% 3.67% 3.67% N/A
37,436,818 2.01 1.38 1.22 1.86 2.02 N/A
40,257,885 0.37 1.38 1.11 0.07 0.34 N/A
44,852,848 0.16 1.36 1.22 0.03 0.17 N/A
48,563,760 0.75 1.38 1.20 0.60 0.78 N/A
27,323,090 3.24 1.48 1.48 2.93 2.93 55%
24,256,968 0.84 1.49 1.49 2.15 2.15 58
24,415,487 0.35 1.48 1.48 1.86 1.86 48
25,677,769 1.20 1.48 1.48 2.10 2.10 50
21,846,053 5.05 1.48 1.48 3.27 3.27 54
24,574,845 2.34 1.51 1.50(d) 3.43 3.44 525
25,686,754 0.25 1.50 1.50 2.32 2.32 756
29,408,757 0.45 1.52 1.50(d) 1.35 1.37 554
34,530,489 0.50 1.49 1.49 1.79 1.79 392
43,274,632 7.13 1.49 1.49 2.81 2.81 134
62,716,385 3.06 1.48 1.48 3.40 3.40 487(e)
65,818,291 1.25 1.49 1.49 2.89 2.89 1003(e)
61,849,725 3.51 1.49 1.49 2.52 2.52 885(e)
63,545,946 3.49 1.49 1.49(d) 2.43 2.43 922(e)
54,824,483 8.08 1.49 1.49 3.78 3.78 462
5,928,086 10.74 1.69 1.69 6.78 6.78 93
4,346,735 2.23 1.70 1.70 6.63 6.63 68
4,589,510 9.29 1.70 1.70(d) 6.97 6.97 80
4,091,738 26.52 1.71 1.70(d) 8.02 8.03 136
5,221,809 1.01 1.71 1.70 8.04 8.05 95
83,326,221 10.52 1.63 1.60(d) 1.60 1.63 224(e)
83,033,115 4.43 1.64 1.60(d) 1.11 1.15 367(e)
88,578,165 7.12 1.62 1.60(d) 1.09 1.11 338(e)
89,699,459 16.43 1.61 1.60(d) 1.05 1.06 377(e)
79,573,766 (11.00) 1.62 1.60(d) 1.53 1.55 289
390,668,431 19.38 1.58 1.58 0.37 0.37 31
351,314,842 5.72 1.58 1.58 0.28 0.28 89
347,289,408 11.67 1.58 1.58 0.68 0.68 44
317,902,738 25.17 1.57 1.57 0.82 0.82 70
259,445,696 (16.18) 1.58 1.58 0.86 0.86 31
</Table>
19
DIVERSIFIED INVESTORS VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. FINANCIAL HIGHLIGHTS (CONTINUED)
For an accumulation unit outstanding throughout the year:
<Table>
<Caption>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
----------------------------
NET NET REALIZED TOTAL INCOME
UNIT VALUE, INVESTMENT AND UNREALIZED (LOSS) FROM
BEGINNING INCOME GAINS (LOSSES) INVESTMENT UNIT VALUE,
FOR THE YEAR ENDED OF YEAR (LOSS)(A) ON INVESTMENTS OPERATIONS END OF YEAR
- ------------------ ----------- ---------- -------------- ------------ -----------
GROWTH & INCOME
12/31/2006.......................... $25.61 $ 0.00(c) $ 2.71 $ 2.71 $28.32
12/31/2005.......................... 24.17 (0.04) 1.48 1.44 25.61
12/31/2004.......................... 22.06 0.03 2.08 2.11 24.17
12/31/2003.......................... 17.96 (0.02) 4.12 4.10 22.06
12/31/2002.......................... 23.46 (0.07) (5.43) (5.50) 17.96
EQUITY GROWTH
12/31/2006.......................... 49.51 (0.33) 1.81 1.48 50.99
12/31/2005.......................... 46.70 (0.35) 3.16 2.81 49.51
12/31/2004.......................... 43.82 (0.20) 3.08 2.88 46.70
12/31/2003.......................... 35.00 (0.28) 9.10 8.82 43.82
12/31/2002.......................... 46.26 (0.29) (10.97) (11.26) 35.00
AGGRESSIVE EQUITY
12/31/2006.......................... 15.52 (0.20) 1.02 0.82 16.34
12/31/2005.......................... 14.50 (0.18) 1.20 1.02 15.52
12/31/2004.......................... 13.08 (0.21) 1.63 1.42 14.50
12/31/2003.......................... 10.32 (0.20) 2.96 2.76 13.08
12/31/2002.......................... 14.21 (0.20) (3.69) (3.89) 10.32
SPECIAL EQUITY
12/31/2006.......................... 35.46 (0.30) 4.04 3.74 39.20
12/31/2005.......................... 32.43 (0.33) 3.36 3.03 35.46
12/31/2004.......................... 29.11 (0.28) 3.60 3.32 32.43
12/31/2003.......................... 20.44 (0.27) 8.94 8.67 29.11
12/31/2002.......................... 27.32 (0.25) (6.63) (6.88) 20.44
INTERNATIONAL EQUITY
12/31/2006.......................... 21.15 0.16 5.33 5.49 26.64
12/31/2005.......................... 19.23 0.18 1.74 1.92 21.15
12/31/2004.......................... 16.25 0.13 2.85 2.98 19.23
12/31/2003.......................... 12.30 0.00(c) 3.95 3.95 16.25
12/31/2002.......................... 14.97 (0.04) (2.63) (2.67) 12.30
CALVERT
12/31/2006.......................... 29.13 0.87 1.34 2.21 31.34
12/31/2005.......................... 27.87 0.21 1.05 1.26 29.13
12/31/2004.......................... 26.03 0.17 1.67 1.84 27.87
12/31/2003.......................... 22.05 0.20 3.78 3.98 26.03
12/31/2002.......................... 25.38 0.37 (3.70) (3.33) 22.05
</Table>
- ---------------
(a) Calculated based upon average units outstanding.
(b) Portfolio turnover of the Portfolio or Calvert.
(c) Amount rounds to less than one penny per share.
(d) Includes reimbursement of fees at the underlying Portfolio level.
(e) Includes the effect of buying and selling TBA securities used in dollar roll
transactions at the underlying Portfolio level. Refer to Note 2I of the
Portfolio's Notes to Financial Statements, which accompany this report.
(f) Ratios exclude expenses incurred by the Calvert Social Balanced Portfolio.
20
<Table>
<Caption>
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------------------
EXPENSES,
EXPENSES, INCLUDING EXPENSES NET NET INVESTMENT
INCLUDING OF THE PORTFOLIO INVESTMENT INCOME (LOSS)
NET ASSETS, TOTAL EXPENSES OF (NET OF INCOME (NET OF PORTFOLIO
END OF YEAR RETURN THE PORTFOLIO REIMBURSEMENTS) (LOSS) REIMBURSEMENTS) TURNOVER(B)
------------ ------ ------------- ------------------ ------------- --------------- -----------
$140,391,412 10.58% 1.73% 1.73% 0.01% 0.01% 73%
138,464,877 5.96 1.74 1.74 (0.15) (0.15) 79
138,746,635 9.56 1.74 1.74 0.12 0.12 184
130,636,290 22.83 1.73 1.73(d) (0.08) (0.08) 100
100,189,150 (23.44) 1.76 1.75(d) (0.33) (0.32) 115
195,516,920 2.99 1.74 1.74 (0.68) (0.68) 84
215,242,250 6.02 1.75 1.75 (0.77) (0.77) 76
223,424,779 6.57 1.75 1.75 (0.45) (0.45) 129
223,128,369 25.20 1.75 1.70 (0.76) (0.71) 61
165,484,094 (24.34) 1.75 1.60 (0.89) (0.74) 75
58,214,262 5.28 1.91 1.90(d) (1.28) (1.27) 147
58,967,300 7.03 1.91 1.90(d) (1.25) (1.24) 187
59,338,284 10.86 2.06 2.05(d) (1.59) (1.58) 252
55,827,123 26.74 2.11 2.10(d) (1.72) (1.71) 165
42,349,073 (27.38) 2.11 2.10(d) (1.70) (1.69) 87
128,583,223 10.55 1.95 1.95 (0.81) (0.81) 86
124,114,856 9.34 1.95 1.95(d) (1.01) (1.01) 92
117,314,916 11.41 1.94 1.94 (0.95) (0.95) 103
105,781,184 42.42 1.95 1.95(d) (1.13) (1.13) 103
69,607,014 (25.18) 1.95 1.95 (1.06) (1.06) 109
109,678,608 25.96 1.97 1.97(d) 0.67 0.67 81
80,820,048 9.98 1.98 1.98(d) 0.95 0.95 94
73,788,460 18.34 1.97 1.97 0.75 0.75 171
60,723,598 32.11 1.97 1.97(d) 0.03 0.03 23
47,525,206 (17.84) 1.98 1.98 (0.26) (0.26) 25
42,209,477 7.59 1.10(f) 1.10(f) 2.94 2.94 8
42,266,267 4.52 1.10(f) 1.10(f) 0.73 0.73 7
40,344,613 7.07 1.10(f) 1.10(f) 0.65 0.65 8
36,545,466 18.05 2.03 2.03 0.86 0.86 374
30,880,782 (13.12) 2.01 2.01 0.69 0.69 552
</Table>
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Transamerica Financial Life Insurance Company, Inc.
and the Contractholders of Diversified Investors Variable Funds:
In our opinion, the accompanying statements of assets and liabilities and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of the Money Market, High Quality Bond, Intermediate Government Bond,
Core Bond, High Yield Bond, Balanced, Value & Income, Growth & Income, Equity
Growth, Aggressive Equity, Special Equity, International Equity, and Calvert
Subaccounts; (constituting the Diversified Investors Variable Funds, hereafter
referred to as the "Funds") at December 31, 2006, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the transfer agent, provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
New York, New York
February 28, 2007
22
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
AN EXPLANATION OF FUND EXPENSES
(UNAUDITED)
As a unitholder in an open-end management investment company (a "Fund") invested
in underlying subaccounts of the Diversified Investors Variable Funds ("DIVF"),
a unit investment trust, you will bear the ongoing costs of managing the
corresponding subaccounts in which your Fund invests. You will also bear the
cost of operating the Fund.
The first column in the table shown below assumes an investment of $1,000 on
July 1, 2006. The second column will show your ending balance (per $1,000) on
December 31, 2006. The third column will show how much of your investment (per
$1,000) went to the ongoing costs of both your Fund and its investments in DIVF.
The figures in both of these columns are based on the actual total return and
the actual expenses incurred for the period July 1, 2006 -- December 31, 2006.
In order to approximate how much you paid in expenses during the six months,
divide your balance by 1,000, and multiply the result by the dollar amount shown
under the heading "Expenses Paid During the Period July 1, 2006 -- December 31,
2006 (Based on actual returns and expenses)".
The fourth and fifth columns will also show your ending balance (per $1,000) on
December 31, 2006 and how much of your investment (per $1,000) went to the
ongoing costs of both your Fund and its investments in DIVF, but assumes a total
annual return rate of 5% before expenses. Since the 5% is hypothetical, the
ending account values and the expenses paid for the period July 1,
2006 -- December 31, 2006 will not be the actual values per $1,000 of your
investment. This information is presented so you may compare the cost of owning
a Diversified Investors Strategic Variable Fund against the cost of owning other
funds. Other funds should provide this information based on a hypothetical
annual return of 5% before expenses in their most recent report in order for you
to make a fair comparison.
<Table>
<Caption>
-----------------------------------------------------------
EXPENSES PAID
ENDING ACCOUNT DURING THE PERIOD
VALUE JULY 1, 2006 --
DECEMBER 31, 2006 DECEMBER 31, 2006
BEGINNING ACCOUNT (BASED ON ACTUAL (BASED ON ACTUAL
VALUE RETURNS AND RETURNS AND
FUND NAME JULY 1, 2006 EXPENSES) EXPENSES)(1)(2)
- ---------------------------------------------------------------------------------------
Short Horizon $1,000 $1,043.51 $1.02
- ---------------------------------------------------------------------------------------
Intermediate Horizon $1,000 $1,071.25 $1.03
- ---------------------------------------------------------------------------------------
Intermediate Long $1,000 $1,084.75 $1.04
Horizon
- ---------------------------------------------------------------------------------------
<Caption>
----------------------------------------------------
EXPENSES PAID
ENDING ACCOUNT DURING THE PERIOD
VALUE JULY 1, 2006 --
DECEMBER 31, 2006 DECEMBER 31, 2006
(BASED ON (BASED ON
HYPOTHETICAL 5% HYPOTHETICAL 5%
ANNUAL RETURNS ANNUAL RETURNS ANNUALIZED
BEFORE ACTUAL BEFORE ACTUAL EXPENSE
FUND NAME EXPENSES) EXPENSES)(1)(2) RATIO(1)
- ------------------------------------------------------------------------------
Short Horizon $1,023.93 $1.01 0.20%
- ------------------------------------------------------------------------------
Intermediate Horizon $1,023.93 $1.01 0.20%
- ------------------------------------------------------------------------------
Intermediate Long $1,023.93 $1.01 0.20%
Horizon
- ------------------------------------------------------------------------------
</Table>
(1) These figures exclude fees and expenses of the underlying investments in
DIVF.
(2) Expenses are equal to each Fund's annualized expense ratio multiplied by the
average account value over the period, divided by 365, multiplied by 182 (to
reflect the one-half year period).
23
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
<Table>
<Caption>
SHORT INTERMEDIATE INTERMEDIATE
HORIZON HORIZON LONG HORIZON
STRATEGIC STRATEGIC STRATEGIC
VARIABLE FUND VARIABLE FUND VARIABLE FUND
------------- ------------- -------------
ASSETS:
Investments in affiliates, at value (Notes 1 and 2)...... $10,206,579 $29,960,976 $47,300,976
Receivable for securities sold........................... 60,818 -- --
Receivable for units sold................................ 7,140 46,547 209,299
----------- ----------- -----------
Total assets............................................. 10,274,537 30,007,523 47,510,275
----------- ----------- -----------
LIABILITIES:
Payable for securities purchased......................... 31,030 41,379 198,638
Payable for units redeemed............................... 36,928 5,168 10,661
Accrued investment advisory fees......................... 1,667 4,769 7,499
----------- ----------- -----------
Total liabilities........................................ 69,625 51,316 216,798
----------- ----------- -----------
NET ASSETS............................................... $10,204,912 $29,956,207 $47,293,477
=========== =========== ===========
Accumulation units....................................... 654,393 1,717,863 2,548,307
=========== =========== ===========
UNIT VALUE............................................... $ 15.59 $ 17.44 $ 18.56
=========== =========== ===========
NET ASSETS CONSIST OF:
Cost of accumulation units............................... $ 7,850,307 $21,699,647 $34,766,316
Undistributed (accumulated) net realized gains
(losses)............................................... 1,396,699 2,760,223 3,269,679
Undistributed (accumulated) net investment income
(loss)................................................. (121,959) (369,181) (502,005)
Net unrealized appreciation (depreciation) on
investments............................................ 1,079,865 5,865,518 9,759,487
----------- ----------- -----------
NET ASSETS............................................... $10,204,912 $29,956,207 $47,293,477
=========== =========== ===========
INVESTMENTS IN AFFILIATES, AT COST....................... $ 9,126,714 $24,095,458 $37,541,489
=========== =========== ===========
</Table>
See notes to financial statements.
24
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
<Table>
<Caption>
SHORT INTERMEDIATE INTERMEDIATE
HORIZON HORIZON LONG HORIZON
STRATEGIC STRATEGIC STRATEGIC
VARIABLE FUND VARIABLE FUND VARIABLE FUND
------------- ------------- -------------
INVESTMENT ADVISORY FEES (NOTE 3)........................ $(21,116) $ (58,249) $ (91,328)
-------- ---------- ----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS IN
AFFILIATES (NOTE 2):
Net realized gains (losses) on investments in
affiliates............................................. 577,976 778,609 1,483,061
Change in net unrealized appreciation (depreciation) on
investments in affiliates.............................. (89,554) 1,607,120 3,049,486
-------- ---------- ----------
Net realized and unrealized gains (losses) on investments
in affiliates.......................................... 488,422 2,385,729 4,532,547
-------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. $467,306 $2,327,480 $4,441,219
======== ========== ==========
</Table>
See notes to financial statements.
25
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2006
<Table>
<Caption>
SHORT INTERMEDIATE INTERMEDIATE
HORIZON HORIZON LONG HORIZON
STRATEGIC STRATEGIC STRATEGIC
VARIABLE FUND VARIABLE FUND VARIABLE FUND
------------- ------------- -------------
FROM OPERATIONS:
Investment advisory fees.................................... $ (21,116) $ (58,249) $ (91,328)
Net realized gains (losses) on investments in affiliates.... 577,976 778,609 1,483,061
Change in net unrealized appreciation (depreciation) on
investments in affiliates................................. (89,554) 1,607,120 3,049,486
----------- ----------- ------------
Net increase (decrease) in net assets resulting from
operations................................................ 467,306 2,327,480 4,441,219
----------- ----------- ------------
FROM UNIT TRANSACTIONS:
Units sold.................................................. 3,665,902 7,153,984 9,813,099
Units redeemed.............................................. (5,502,368) (8,806,580) (12,402,021)
----------- ----------- ------------
Net increase (decrease) in net assets resulting from unit
transactions.............................................. (1,836,466) (1,652,596) (2,588,922)
----------- ----------- ------------
Total increase (decrease) in net assets..................... (1,369,160) 674,884 1,852,297
NET ASSETS:
Beginning of year........................................... 11,574,072 29,281,323 45,441,180
----------- ----------- ------------
End of year................................................. $10,204,912 $29,956,207 $ 47,293,477
=========== =========== ============
Units outstanding beginning of year......................... 776,216 1,817,622 2,694,280
Units sold.................................................. 242,449 432,083 564,861
Units redeemed.............................................. (364,272) (531,842) (710,834)
----------- ----------- ------------
Units outstanding end of year............................... 654,393 1,717,863 2,548,307
=========== =========== ============
</Table>
See notes to financial statements.
26
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2005
<Table>
<Caption>
SHORT INTERMEDIATE INTERMEDIATE
HORIZON HORIZON LONG HORIZON
STRATEGIC STRATEGIC STRATEGIC
VARIABLE FUND VARIABLE FUND VARIABLE FUND
------------- ------------- -------------
FROM OPERATIONS:
Investment advisory fees.................................... $ (21,104) $ (56,662) $ (82,965)
Net realized gains (losses) on investments in affiliates.... 107,702 11,318 332,033
Change in net unrealized appreciation (depreciation) on
investments in affiliates................................. 82,296 1,152,015 1,869,113
----------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations................................................ 168,894 1,106,671 2,118,181
----------- ----------- -----------
FROM UNIT TRANSACTIONS:
Units sold.................................................. 5,106,113 6,857,218 10,967,621
Units redeemed.............................................. (3,892,234) (7,402,589) (7,767,095)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from unit
transactions.............................................. 1,213,879 (545,371) 3,200,526
----------- ----------- -----------
Total increase (decrease) in net assets..................... 1,382,773 561,300 5,318,707
NET ASSETS:
Beginning of year........................................... 10,191,299 28,720,023 40,122,473
----------- ----------- -----------
End of year................................................. $11,574,072 $29,281,323 $45,441,180
=========== =========== ===========
Units outstanding beginning of year......................... 694,223 1,853,382 2,497,752
Units sold.................................................. 346,649 441,480 680,542
Units redeemed.............................................. (264,656) (477,240) (484,014)
----------- ----------- -----------
Units outstanding end of year............................... 776,216 1,817,622 2,694,280
=========== =========== ===========
</Table>
See notes to financial statements.
27
SHORT HORIZON STRATEGIC VARIABLE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
- ------ -----------
INVESTMENTS
175,694 Diversified Investors Variable Funds -- Core Bond........... $ 5,568,686
6,857 Diversified Investors Variable Funds -- Equity Growth....... 349,649
5,508 Diversified Investors Variable Funds -- Growth & Income..... 155,981
169,024 Diversified Investors Variable Funds -- High Quality Bond... 2,529,201
50,848 Diversified Investors Variable Funds -- High Yield Bond..... 954,560
6,501 Diversified Investors Variable Funds -- International
Equity.................................................... 173,222
1,275 Diversified Investors Variable Funds -- Money Market........ 25,516
2,249 Diversified Investors Variable Funds -- Special Equity...... 88,156
5,694 Diversified Investors Variable Funds -- Value & Income...... 361,608
-----------
Total Investments -- 100.0% (Cost $9,126,714)............... 10,206,579
Liabilities less other assets -- (0.0%)..................... (1,667)
-----------
NET ASSETS -- 100.0%........................................ $10,204,912
===========
The aggregate cost of investments for federal income tax purposes at December 31,
2006 is $9,126,714.
The following amount is based on cost for federal income tax purposes:
Net unrealized appreciation................................. $ 1,079,865
===========
</Table>
See notes to financial statements.
28
INTERMEDIATE HORIZON STRATEGIC VARIABLE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
- ------ -----------
INVESTMENTS
266,362 Diversified Investors Variable Funds -- Core Bond........... $ 8,442,432
92,831 Diversified Investors Variable Funds -- Equity Growth....... 4,733,749
74,984 Diversified Investors Variable Funds -- Growth & Income..... 2,123,539
282,352 Diversified Investors Variable Funds -- High Quality Bond... 4,224,981
77,028 Diversified Investors Variable Funds -- High Yield Bond..... 1,446,033
89,877 Diversified Investors Variable Funds -- International
Equity.................................................... 2,394,714
24,778 Diversified Investors Variable Funds -- Money Market........ 495,850
30,931 Diversified Investors Variable Funds -- Special Equity...... 1,212,549
76,954 Diversified Investors Variable Funds -- Value & Income...... 4,887,129
-----------
Total Investments -- 100.0% (Cost $24,095,458).............. 29,960,976
Liabilities less other assets -- (0.0%)..................... (4,769)
-----------
NET ASSETS -- 100.0%........................................ $29,956,207
===========
The aggregate cost of investments for federal income tax purposes at December 31,
2006 is $24,095,458.
The following amount is based on cost for federal income tax purposes:
Net unrealized appreciation................................. $ 5,865,518
===========
</Table>
See notes to financial statements.
29
INTERMEDIATE LONG HORIZON STRATEGIC VARIABLE FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
- ------ -----------
INVESTMENTS
240,925 Diversified Investors Variable Funds -- Core Bond........... $ 7,636,182
203,842 Diversified Investors Variable Funds -- Equity Growth....... 10,394,613
163,941 Diversified Investors Variable Funds -- Growth & Income..... 4,642,795
255,340 Diversified Investors Variable Funds -- High Quality Bond... 3,820,782
69,726 Diversified Investors Variable Funds -- High Yield Bond..... 1,308,956
197,775 Diversified Investors Variable Funds -- International
Equity.................................................... 5,269,567
43,902 Diversified Investors Variable Funds -- Money Market........ 878,537
67,178 Diversified Investors Variable Funds -- Special Equity...... 2,633,534
168,736 Diversified Investors Variable Funds -- Value & Income...... 10,716,010
-----------
Total Investments -- 100.0% (Cost $37,541,489).............. 47,300,976
Liabilities less other assets -- (0.0%)..................... (7,499)
-----------
NET ASSETS -- 100.0%........................................ $47,293,477
===========
The aggregate cost of investments for federal income tax purposes at December 31,
2006 is $37,541,489.
The following amount is based on cost for federal income tax purposes:
Net unrealized appreciation................................. $ 9,759,487
===========
</Table>
See notes to financial statements.
30
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
PORTFOLIO COMPOSITION
DECEMBER 31, 2006
The following charts summarize the portfolio composition of each Fund by asset
type.
<Table>
SHORT HORIZON STRATEGIC VARIABLE FUND
Money Market Fund........................................... 0.2%
Fixed Income Funds.......................................... 88.7
Domestic Equity Funds....................................... 9.4
International Equity Funds.................................. 1.7
Liabilities less other assets............................... (0.0)*
-----
100.0%
=====
INTERMEDIATE HORIZON STRATEGIC VARIABLE FUND
Money Market Fund........................................... 1.7%
Fixed Income Funds.......................................... 47.1
Domestic Equity Funds....................................... 43.2
International Equity Funds.................................. 8.0
Liabilities less other assets............................... (0.0)*
-----
100.0%
=====
INTERMEDIATE LONG HORIZON STRATEGIC VARIABLE FUND
Money Market Fund........................................... 1.9%
Fixed Income Funds.......................................... 27.0
Domestic Equity Funds....................................... 60.0
International Equity Funds.................................. 11.1
Liabilities less other assets............................... (0.0)*
-----
100.0%
=====
</Table>
- ---------------
* Amount rounds to less than 0.05%.
See notes to financial statements.
31
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Diversified Investors Strategic Variable Funds (the "Separate Account"), a
separate account of Transamerica Financial Life Insurance Company ("TFLIC"), is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as a management investment company. The Separate Account is composed of
three different subaccounts that are, in effect, separate investment funds:
Short Horizon Strategic Variable Fund ("Short Horizon"), Intermediate Horizon
Strategic Variable Fund ( "Intermediate Long Horizon"), and Intermediate Long
Horizon Strategic Variable Fund ("Intermediate Long Horizon") (individually, a
"Subaccount" and collectively, the "Subaccounts"). The Separate Account
established and designated each of the Subaccounts as separate subaccounts on
April 15, 1996 and commenced operations on January 2, 1997. Each Subaccount
seeks to achieve its investment objective by investing all of its investable
assets among certain Diversified Investors Variable Funds ("DIVF"). DIVF is a
separate investment account offering thirteen subaccounts, each with a different
investment objective. DIVF seeks to achieve its investment objective by
investing all of its investable assets in the Series Portfolios. The financial
statements of DIVF, which commenced operations on August 18, 1994, accompany
this report. DIVF commenced operations August 18, 1994. DIVF operates as a unit
investment trust under the 1940 Act.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Separate Account in the preparation of its financial statements.
The policies are in conformity with accounting principles generally accepted in
the United States of America.
A. INVESTMENT VALUATION:
The value of each Subaccount's investment in a corresponding subaccount of DIVF
is valued at the unit value per share determined as of the close of business of
the New York Stock Exchange (typically, 4:00 P.M. Eastern time) on the valuation
date.
B. OPERATING EXPENSES:
The Separate Account accounts separately for the assets, liabilities and
operations of each Subaccount. Each Subaccount will indirectly bear its share of
fees and expenses incurred by DIVF.
C. FEDERAL INCOME TAXES:
The operations of the Separate Account form a part of, and are taxed with, the
operations of TFLIC, a wholly-owned subsidiary of AEGON USA, Inc. ("AEGON").
AEGON 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 NV, a corporation based in the Netherlands
which is a publicly traded international insurance group. TFLIC does not expect,
based upon current tax law, to incur any income tax upon the earnings or
realized capital gains attributable to the Separate Account. Based upon this
expectation, no charges are currently being deducted from the Separate Account
for federal income tax purposes.
D. OTHER:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
32
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FEES AND TRANSACTIONS WITH AFFILIATES
The Separate Account has entered into an Investment Advisory Agreement with
Diversified Investment Advisors, Inc. (the "Advisor"), an indirect, wholly-owned
subsidiary of AEGON under which the Advisor provides general investment advice
to each Subaccount. For providing these services and facilities and for bearing
the related expenses, the Advisor receives a monthly fee from each Subaccount at
an annual rate equal to 0.20% of the average daily net assets of each
Subaccount.
The Advisor is also advisor to DIVF. In addition, TFLIC deducts a mortality and
expense risk charge at an annual rate equivalent to 1.10% of the average daily
net assets from DIVF. TFLIC reserves the right to charge maximum fees of 1.25%
upon notice.
TFLIC bears sales distribution expenses and any other expenses in excess of the
mortality and expense risk charge. TFLIC reserves the right to deduct an annual
contract charge from a participant's account to reimburse TFLIC for
administrative expenses relating to the maintenance of the group variable
annuity contracts. TFLIC has no present intention to impose such a charge but
may do so in the future. Any such annual charge will not exceed $50.
Certain trustees and officers of the Separate Account are also directors,
officers or employees of the Advisor or its affiliates. None of the
non-independent trustees so affiliated receive compensation for services as
trustees of the Separate Account. Similarly, none of the Separate Account's
officers receive compensation from the Subaccounts. The independent trustees are
also trustees of the affiliated Subaccounts for which they receive fees.
4. PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and proceeds from sales for the year
ended December 31, 2006 were as follows:
<Table>
<Caption>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- -----------
Short Horizon............................................... $ 9,143,728 $11,001,538
Intermediate Horizon........................................ 16,139,009 17,849,874
Intermediate Long Horizon................................... 28,694,838 31,375,004
</Table>
5. LEGAL AND REGULATORY MATTERS
Diversified Investors Securities Corp. ("DISC") is the distributor for each of
the Subaccounts and a subsidiary of the Series Portfolio's investment advisor,
Diversified Investment Advisors, Inc. ("DIA").
On February 18, 2005, DISC was notified by NASD Staff that it had made a
preliminary determination to recommend disciplinary action against DISC
regarding certain matters. In February 2006, DISC settled an administrative
proceeding with the NASD regarding agreements with two customers who were
permitted to engage in market timing activity in the Diversified Investors
International Equity Fund from July 1, 2003 through October 24, 2003. The
settlement also addressed alleged deficiencies in DISC's procedures relating to
the retention of e-mail communications. Under the terms of the Letter of
Acceptance, Waiver and Consent ("AWC") with the NASD, under which DISC neither
admitted nor denied the allegations or findings, DISC consented to the following
sanctions: (i) censure; (ii) a fine of $1.3 million; (iii) restitution of
approximately $949,011 to the Diversified International Equity Fund for losses
attributable to the trading described in the AWC; and (iv) agreement to make
certifications to the NASD regarding the review and establishment of procedures
relating to e-mail retention and to the enforcement of the Funds' policies and
procedures relating to market timing. The restitution payment of $949,011
referred to above was made on February 14, 2006.
33
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LEGAL AND REGULATORY MATTERS (CONTINUED)
DISC and DIA have also responded to requests for information from various
governmental and self-regulatory agencies in connection with investigations
related to mutual fund trading activities. DISC and DIA have cooperated fully
with each request.
Although it is not anticipated that these developments will have an adverse
effect on the Subaccounts, there can be no assurance at this time.
6. CONCENTRATIONS AND INDEMNIFICATIONS
From time to time, the Subaccounts may have a concentration of several
unitholders holding a significant percentage of units outstanding. Investment
activities of these unitholders could have a material impact on the Subaccounts.
In the normal course of business, the Subaccounts enter into contracts that
contain a variety of representations and warranties which provide general
indemnifications. The Subaccounts' maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the
Subaccounts that have not yet occurred. However, based on experience, the
Subaccounts expect the risk of loss to be remote.
7. PROXY VOTING POLICIES AND PROCEDURES (UNAUDITED)
Since each Subaccount invests all its assets among DIVF which, in turn, invests
all its assets in a corresponding portfolio of Diversified Investors Portfolios
("Portfolios"), the Subaccounts themselves do not vote on proxies. A description
of the proxy voting policies and procedures is included in the Statement of
Additional Information, which is available without charge, upon request: (i) by
calling 1-800-755-5803; (ii) on the Advisor's website at www.divinvest.com
(Click on the icon for Participants, then click on Fund Information, choose
Investment Funds, click on a Fund, then click on the Fund Information tab) or
(iii) on the SEC's website at www.sec.gov. In addition, the Portfolios are
required to file Form N-PX, with its complete proxy voting record for the twelve
months ended June 30, no later than August 31 of each year. The Portfolios'
filing for the twelve months ended June 30, 2006 is available without charge,
upon request.
8. QUARTERLY PORTFOLIOS (UNAUDITED)
The Subaccounts will file their portfolios of investments for the first and
third quarters (March 31 and September 30, respectively) with the SEC by May 30
and November 29, respectively, each year on Form N-Q. The Subaccounts' Form N-Q
is available on the SEC's website at www.sec.gov. The Subaccounts' Form N-Q may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
For information on the operation of the SEC's Public Reference Room, call
1-800-SEC-0330. You may also obtain a copy of Form N-Q without charge, upon
request, by calling 1-800-755-5803. Form N-Q for the corresponding Portfolios is
also available without charge on the SEC website, at the SEC's Public Reference
Room, or by calling 1-800-755-5803.
34
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. FINANCIAL HIGHLIGHTS
For an accumulation unit outstanding throughout the year:
<Table>
<Caption>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
---------------------------
NET TOTAL
UNIT NET REALIZED AND INCOME UNIT NET
FOR THE VALUE, INVESTMENT UNREALIZED (LOSS) FROM VALUE, ASSETS,
YEAR BEGINNING INCOME GAINS (LOSSES) INVESTMENT END OF TOTAL END OF
ENDED OF YEAR (LOSS)(A) ON INVESTMENTS OPERATIONS YEAR RETURN YEAR
------- --------- ---------- -------------- ----------- ------ ------ -----------
SHORT HORIZON STRATEGIC VARIABLE FUND
12/31/2006 $14.91 $(0.03) $ 0.71 $ 0.68 $15.59 4.56% $10,204,912
12/31/2005 14.68 (0.03) 0.26 0.23 14.91 1.57 11,574,072
12/31/2004 14.14 (0.03) 0.57 0.54 14.68 3.82 10,191,299
12/31/2003 13.34 (0.03) 0.83 0.80 14.14 6.00 10,505,127
12/31/2002 12.95 (0.03) 0.42 0.39 13.34 3.01 9,085,611
INTERMEDIATE HORIZON STRATEGIC VARIABLE FUND
12/31/2006 16.11 (0.03) 1.36 1.33 17.44 8.26 29,956,207
12/31/2005 15.50 (0.03) 0.64 0.61 16.11 3.94 29,281,323
12/31/2004 14.52 (0.03) 1.01 0.98 15.50 6.75 28,720,023
12/31/2003 12.58 (0.03) 1.97 1.94 14.52 15.42 25,770,371
12/31/2002 13.67 (0.03) (1.06) (1.09) 12.58 (7.97) 20,134,380
INTERMEDIATE LONG HORIZON STRATEGIC VARIABLE FUND
12/31/2006 16.87 (0.03) 1.72 1.69 18.56 10.02 47,293,477
12/31/2005 16.06 (0.03) 0.84 0.81 16.87 5.04 45,441,180
12/31/2004 14.83 (0.03) 1.26 1.23 16.06 8.29 40,122,473
12/31/2003 12.39 (0.03) 2.47 2.44 14.83 19.69 34,716,992
12/31/2002 14.28 (0.03) (1.86) (1.89) 12.39 (13.24) 23,622,845
<Caption>
RATIOS TO AVERAGE
NET ASSETS
---------------------
NET
FOR THE INVESTMENT PORTFOLIO
YEAR INCOME TURNOVER
ENDED EXPENSES (LOSS) RATE
------- -------- ---------- ---------
SHORT HORIZON STRATEG
12/31/2006 0.20% (0.20)% 86%
12/31/2005 0.20 (0.20) 46
12/31/2004 0.20 (0.20) 50
12/31/2003 0.20 (0.20) 109
12/31/2002 0.20 (0.20) 55
INTERMEDIATE HORIZON
12/31/2006 0.20 (0.20) 55
12/31/2005 0.20 (0.20) 29
12/31/2004 0.20 (0.20) 28
12/31/2003 0.20 (0.20) 87
12/31/2002 0.20 (0.20) 53
INTERMEDIATE LONG HOR
12/31/2006 0.20 (0.20) 63
12/31/2005 0.20 (0.20) 25
12/31/2004 0.20 (0.20) 34
12/31/2003 0.20 (0.20) 98
12/31/2002 0.20 (0.20) 49
</Table>
- ---------------
(a) Calculated based upon average units outstanding.
35
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INVESTMENTS IN AFFILIATES
The market value of investments in affiliates (as defined in the 1940 Act,
"Affiliated Companies" are those in which the Trust is under common control with
an affiliated entity) at December 31, 2006 totaled $10,206,579, $29,960,976 and
$47,300,976 for Short Horizon, Intermediate Horizon, and Intermediate Long
Horizon, respectively.
Affiliates and the gain/(loss) from sales of affiliates are as follows:
<Table>
<Caption>
BEGINNING UNITS UNITS ENDING PURCHASE SALE GAIN/(LOSS)
UNITS PURCHASED SOLD UNITS COST COST ON SALES
--------- --------- ------- ------- ----------- ----------- -----------
SHORT HORIZON
- -------------
INVESTMENTS:
Diversified Investors Variable Funds --
Core Bond................................. 204,779 12,309 41,394 175,694 $ 382,032 $ 1,036,998 $ 235,654
Diversified Investors Variable Funds --
Equity Growth............................. 8,396 854 2,393 6,857 40,830 93,352 24,451
Diversified Investors Variable Funds --
Growth & Income........................... 6,074 846 1,412 5,508 22,579 27,488 9,331
Diversified Investors Variable Funds --
High Quality Bond......................... 200,896 105,230 137,102 169,024 1,533,783 1,881,386 122,701
Diversified Investors Variable Funds --
High Yield Bond........................... 64,043 3,547 16,742 50,848 63,672 198,757 94,389
Diversified Investors Variable Funds --
International Equity...................... 9,375 798 3,672 6,501 18,803 48,141 36,368
Diversified Investors Variable Funds --
Money Market.............................. 1,639 359,122 359,486 1,275 7,030,093 7,036,199 4,446
Diversified Investors Variable Funds --
Special Equity............................ 2,114 730 595 2,249 27,611 13,800 8,287
Diversified Investors Variable Funds --
Value & Income............................ 7,590 417 2,313 5,694 24,325 87,441 42,349
----------- ----------- ----------
$ 9,143,728 $10,423,562 $ 577,976
=========== =========== ==========
</Table>
36
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INVESTMENTS IN AFFILIATES (CONTINUED)
Affiliates and the gain/(loss) from sales of affiliates are as follows:
<Table>
<Caption>
BEGINNING UNITS UNITS ENDING PURCHASE SALE GAIN/(LOSS)
UNITS PURCHASED SOLD UNITS COST COST ON SALES
--------- --------- ------- ------- ----------- ----------- -----------
INTERMEDIATE HORIZON
- --------------------------
INVESTMENTS:
Diversified Investors Variable Funds --
Core Bond................................. 283,617 16,413 33,668 266,362 $ 504,171 $ 876,458 $ 169,424
Diversified Investors Variable Funds --
Equity Growth............................. 97,595 5,573 10,337 92,831 278,056 604,987 (88,793)
Diversified Investors Variable Funds --
Growth & Income........................... 72,979 9,207 7,202 74,984 245,278 261,093 (69,668)
Diversified Investors Variable Funds --
High Quality Bond......................... 278,399 182,154 178,201 282,352 2,659,642 2,375,825 229,697
Diversified Investors Variable Funds --
High Yield Bond........................... 86,378 4,781 14,131 77,028 84,029 172,167 78,183
Diversified Investors Variable Funds --
International Equity...................... 110,088 5,457 25,668 89,877 127,541 545,508 52,246
Diversified Investors Variable Funds --
Money Market.............................. 12,676 594,412 582,310 24,778 11,635,852 11,385,733 12,091
Diversified Investors Variable Funds --
Special Equity............................ 25,142 8,416 2,627 30,931 326,384 50,940 47,111
Diversified Investors Variable Funds --
Value & Income............................ 92,051 4,922 20,019 76,954 278,056 798,554 348,318
----------- ----------- ----------
$16,139,009 $17,071,265 $ 778,609
=========== =========== ==========
</Table>
<Table>
<Caption>
BEGINNING UNITS UNITS ENDING PURCHASE SALE GAIN/(LOSS)
UNITS PURCHASED SOLD UNITS COST COST ON SALES
--------- --------- ------- ------- ----------- ----------- -----------
INTERMEDIATE LONG HORIZON
- --------------------
INVESTMENTS:
Diversified Investors Variable Funds --
Core Bond................................. 265,730 19,733 44,538 240,925 $ 609,898 $ 1,149,212 $ 237,015
Diversified Investors Variable Funds --
Equity Growth............................. 208,165 16,540 20,863 203,842 797,938 1,287,198 (253,488)
Diversified Investors Variable Funds --
Growth & Income........................... 155,172 26,941 18,172 163,941 714,403 553,339 (65,755)
Diversified Investors Variable Funds --
High Quality Bond......................... 272,762 320,123 337,545 255,340 4,710,468 4,719,317 247,485
Diversified Investors Variable Funds --
High Yield Bond........................... 80,130 5,727 16,131 69,726 101,649 190,008 97,345
Diversified Investors Variable Funds --
International Equity...................... 231,422 16,020 49,667 197,775 373,390 774,942 389,592
Diversified Investors Variable Funds --
Money Market.............................. 28,795 1,010,862 995,755 43,902 19,856,944 19,536,264 21,755
Diversified Investors Variable Funds --
Special Equity............................ 52,317 19,018 4,157 67,178 732,210 82,931 71,347
Diversified Investors Variable Funds --
Value & Income............................ 195,045 14,061 40,370 168,736 797,938 1,598,732 737,765
----------- ----------- ----------
$28,694,838 $29,891,943 $1,483,061
=========== =========== ==========
</Table>
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and the Contractholders of Diversified Investors
Strategic Variable Funds:
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Short Horizon
Strategic Variable Fund, Intermediate Horizon Strategic Variable Fund, and
Intermediate Long Horizon Strategic Variable Fund; (constituting the Diversified
Investors Strategic Variable Funds, hereafter referred to as the "Funds") at
December 31, 2006, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2006 by correspondence with the
transfer agent, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 28, 2007
38
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
APPROVAL OF INVESTMENT ADVISORY CONTRACTS
DECEMBER 31, 2006
(UNAUDITED)
Diversified Investment Advisers, Inc. ("Diversified") manages the assets of each
Subaccount pursuant to an Investment Advisory Agreement with Transamerica
Financial Life Insurance Company ("TFLIC") with respect to such Subaccount.
A discussion of the Managing Members' considerations and determinations with
respect to the continuation of existing Investment Advisory Agreements between
Diversified and TFLIC is included in the Subaccounts' Semi-Annual Report for
such period.
39
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
TRUSTEES INFORMATION
(UNAUDITED)
Each Strategic Variable Fund is supervised by the Board of Trustees of the
Diversified Investors Strategic Variable Funds.
The respective Trustees and officers of each Subaccount and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Unless otherwise indicated, the address of each
Trustee and officer of the Subaccounts is c/o Diversified Investment Advisors,
Inc., Four Manhattanville Road, Purchase, New York 10577. Additional information
about the Diversified Investors Trustees may be found in the Statement of
Additional Information, which is available without charge upon request by
calling 1-800-755-5801.
OFFICERS AND INTERESTED TRUSTEES:
<Table>
<Caption>
POSITION(S), LENGTH OF PRINCIPAL OCCUPATIONS DURING
NAME AND AGE TIME SERVED PAST 5 YEARS, DIRECTORSHIPS HELD
- ------------ ---------------------- -----------------------------------
Elizabeth L. Belanger.................. Assistant Secretary 05/2005 to present -- Vice
DOB: January 7, 1972 since 2005 President and Senior Counsel,
Diversified Investment Advisors,
Inc.; 11/2003 to
05/2005 -- Director of Compliance,
Domini Social Investments LLC;
09/1997-10/2003 -- Associate,
Bingham McCutchen LLP; 04/2006 to
present -- Director, Transamerica
Financial Life Insurance Company.
Joseph P. Carusone..................... Treasurer since 2001 Vice President and Director,
DOB: September 8, 1965 Diversified Investment Advisors,
Inc.; 2004 to present -- Director,
Transamerica Financial Life
Insurance Company; 01/2007 to
present -- President, Diversified
Investors Securities Corp.
Robert F. Colby........................ Secretary since 1993 Senior Vice President and General
DOB: November 1, 1955 Counsel, Diversified Investment
Advisors, Inc.; Vice President,
Diversified Investors Securities
Corp.; Vice President, Assistant
Secretary, and Director,
Transamerica Financial Life
Insurance Company, Inc.
Suzanne Montemurro..................... Assistant Treasurer Vice President and Director,
DOB: August 13, 1964 since 2002 Diversified Investment Advisors,
Inc.
Mark Mullin............................ President since 2002 Chairman of the Board and Chief
DOB: February 16, 1963 Trustee since 1998 Executive Officer, Diversified
Investment Advisors, Inc.; 02/2002
to present -- Director,
Transamerica Financial Life
Insurance Company.
Quedel Principal....................... Assistant Secretary Vice President and Senior Counsel,
DOB: February 4, 1966 since 2004 Diversified Investment Advisors,
Inc.; Director, Diversified
Investors Securities Corp.
Rick Resnik............................ Chief Compliance Chief Compliance Officer,
DOB: January 24, 1967 Officer since 2004 Diversified Investment Advisors,
Inc.; Director, Vice President, and
Chief Compliance Officer,
Diversified Investors Securities
Corp.
</Table>
40
DIVERSIFIED INVESTORS STRATEGIC VARIABLE FUNDS
TRUSTEES INFORMATION (CONTINUED)
(UNAUDITED)
DISINTERESTED TRUSTEES:
<Table>
<Caption>
POSITION(S), LENGTH OF PRINCIPAL OCCUPATIONS DURING
NAME AND AGE TIME SERVED PAST 5 YEARS, DIRECTORSHIPS HELD
- ------------ ---------------------- -----------------------------------
Neal M. Jewell......................... Trustee since 1993 10/2004 to present -- Retired;
DOB: February 12, 1935 01/1996 to 10/2004 -- Independent
Trustee, EACM Select Managers
Equity Fund
Mitchell Johnson....................... Trustee since 2006 07/1994 to present -- Private
DOB: March 1, 1942 Investor, MAJ Capital Management;
06/1996 to present -- Director,
Federal Agriculture Mortgage
Corporation; 02/2005 to
present -- Trustee, Advisors Inner
Circle Funds, Advisors Inner Circle
Funds II, and Bishop Street Funds
(family of mutual funds); 12/1997
to 02/2004 -- Trustee, Citizens
Funds (family of mutual funds)
Eugene M. Mannella..................... Trustee since 1993 1/2006 to present -- Consultant
DOB: February 1, 1954 (self- employed); 08/1993 to
12/2005 -- President, International
Fund Services, Inc.
Joyce Galpern Norden................... Trustee since 1993 6/2004 to present -- Retired;
DOB: June 1, 1939 09/1996 to 6/2004 -- Vice
President, Institutional
Advancement, Reconstructionist
Rabbinical College
Lowell W. Robinson..................... Trustee since 2006 12/2006 to present -- Chief
DOB: January 20, 1949 Financial and Chief Administrative
Officer, MIVA, Inc. (on-line direct
marketing); 2004 to
2006 -- President, LWR Advisors LLC
(consulting); 2002 to
2004 -- Special Counsel to the
President, Polytechnic University;
2002 to 2004 -- Senior Executive
Vice President and Chief Financial
Officer, Hotjobs.com; 2004 to
present -- Director, Jones Apparel
Group; 2004 to present -- Director,
International Wire Group, Inc.;
2004 to present -- Director,
Independent Wireless One Corp.;
2002 to 2003 -- Director, Edison
Schools, Inc. (school management)
Patricia L. Sawyer..................... Trustee since 1993, President and Executive Search
DOB: July 1, 1950 Chairperson of Audit Consultant, Smith & Sawyer LLC
Committee since 2003
</Table>
41
DIVERSIFIED INVESTORS PORTFOLIOS
MANAGEMENT REVIEW
DECEMBER 31, 2006
(UNAUDITED)
PLEASE NOTE THAT ANY PERFORMANCE FIGURES DISCUSSED BELOW REPRESENT PAST
PERFORMANCE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT
RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
VISIT WWW.DIVINVEST.COM FOR PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT
MONTH-END. THE RETURN PROVIDED FOR A PARTICULAR ISSUER HELD BY A SERIES
REPRESENTS THE RETURN FROM THE SECURITY FOR THE ACTUAL PERIOD HELD BY THE
SERIES, WHICH MAY BE SHORTER THAN THE TWELVE-MONTH REPORTING PERIOD.
MONEY MARKET SERIES
In 2006, the Money Market Series returned 4.86%, beating its benchmark, the
Citigroup Treasury Bill 3-month Index, which returned 4.76%.
The money market sector in general and our portfolio benefited from rising
yields on Treasury Bills and Notes which mirrored the Federal Reserve raising
the federal funds rate 100 basis points throughout 2006 to 5.25%. Additionally,
the Series benefited from strategic duration positioning that took advantage of
changes in Federal Reserve Monetary Policy and overall market sentiment
throughout the year.
From a sector perspective, the positions in corporate commercial paper
(specifically extendable commercial notes) and asset-backed commercial paper
contributed positively to performance.
HIGH QUALITY BOND SERIES
The High Quality Bond Series returned 4.38% for the year, outpacing the 3.96%
return of the Merrill Lynch 1-3 Year Treasury Index and the 3.97% return of the
Morningstar Short Term Bond Universe Median. The Series' yield component was the
key driver of total return for 2006, representing about 85% of the total excess
return versus the index, while spread tightening made up the remaining 15%.
Given the rise in interest rates throughout the year, shorter-duration assets
outperformed longer-duration assets. Therefore, securities with less than
one-year duration contributed to the total return, while three-year-plus
duration exposure detracted from performance.
The commercial mortgage-backed sector was the best performer in terms of
absolute total return, followed by the asset-backed, residential
mortgage-backed, domestic corporate and agency sectors. Compared with a
duration-neutral Treasury, the commercial mortgage-backed sector had the best
excess returns, followed by the residential mortgage, corporate, asset-backed,
and agency sectors. Lower than expected interest rate volatility during the year
contributed to favorable performance in the residential mortgage sector. Despite
negative headlines, the fixed-rate home equity sector was one of the top
performers in the asset-backed segment.
The combination of strong demand, a dearth of new issuance in the consumer
asset-backed segment and good collateral performance kept spreads in the
asset-backed sector at or near record tight levels throughout the year. The
financial services sector performed well as a result of strong earnings.
INTERMEDIATE GOVERNMENT BOND SERIES
The Intermediate Government Bond Series returned 3.48% for the year, trailing
the 3.84% return of the Lehman Brothers Intermediate Government Bond Index and
the 3.97% return of the Morningstar Short Term Bond Universe Median. In the
first half of 2006, the Series underperformed its benchmark due to incorrect
yield curve positioning and an overweight in the agency mortgage-backed
securities (MBS) sector. In the first quarter, the Series' manager expected the
yield curve to flatten, as the Federal Reserve continued to increase
42
DIVERSIFIED INVESTORS PORTFOLIOS
MANAGEMENT REVIEW (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
its short-term federal funds rate. After flattening the first few months of the
year, however, the yield curve steepened dramatically due to higher interest
rates, which were led by increased inflation. The Series' manager changed the
yield curve trade position at a loss during the second quarter, which
contributed to the Series underperforming the Index for that quarter.
In addition to the Series' yield curve position, the Series' significant
overweight in MBS detracted from performance. Agency MBS began 2006 as
apparently one of the most attractive bond market sectors. Priced at a
significant discount, the sector appeared to have an attractive yield advantage
over comparable-maturity Treasury issues. For that reason, the Series' manager
overweighted the sector, which paid off handsomely for the first six weeks of
the year, but the Series' manager failed to take profits in late February and
March, as MBS returns fell. As a result, the Series gave back much of its gains
from this sector.
Although yield spreads generally widened for most of the first half of 2006, the
manager felt rates would likely come down in the second half of the year, and
result in tight spreads. The Series' manager therefore expected the spread
sectors -- commercial mortgage backed securities (CMBS), asset-backed securities
(ABS), MBS and agency bonds -- to outperform Treasuries during the second half
of the year. This strategy helped the Series from then on. The Series benefited
from overweights in MBS and CMBS. The manager also added to returns with some
tactical duration trades driven by their proprietary models.
CORE BOND SERIES
The Core Bond Series returned 4.17% for the year, trailing the 4.33% return of
the Lehman Aggregate Bond Index but outperforming the 3.94% return of the
Morningstar Intermediate Term Bond Universe. Interest rates across the yield
curve were volatile during the past year. The 10-year Treasury yield ended the
year at 4.70%, 31 basis points (0.31%) higher than a year earlier. During this
period, however, the 10-year Treasury yield varied from 4.33% in January to a
high of 5.25% in June. Over this period, the yield curve flattened, as yields at
the shorter end of the curve rose. The spread between 2-year and 10-year
Treasury yields was -11 basis points at year end. All component sectors of the
Lehman Aggregate Bond Index outperformed duration-adjusted Treasuries during the
year.
The Series received a boost from its short duration position, its overweight to
commercial mortgage-backed securities and its high yield allocation. However,
the Series' underweight to corporate bonds and agency securities took away from
performance, as both sectors outperformed Treasuries. The managers' mortgage
security selection also detracted from performance.
TOTAL RETURN BOND SERIES
The Total Return Bond Series returned 4.96% for the year, exceeding the 4.33%
return of the Lehman Brothers Aggregate Bond Index and the 3.94% return of the
Morningstar Intermediate Term Bond Universe Median. Strategies produced mixed
but generally positive results for the last quarter of the year. A long duration
posture detracted from returns in the first half of the year, as interest rates
rose more than expected, but the Series recovered most of those losses as rates
declined in the second half. The Series' yield curve exposure was partly
centered on the front end of the yield curve, which hurt results as short-term
rates moved higher than expected. Overweight exposure to the mortgage-backed
sector was a positive, thanks to tighter spreads and low volatility. An
underweight to investment grade credits was a modest negative as the sector
outperformed, but an overweight to lower-quality credits added to returns as
they outperformed. A moderate exposure to Treasury inflation-protected
securities hurt performance due to a weaker than expected inflation adjustment
and a modest tightening of breakeven spreads. The Series' exposure to high-yield
debt was rewarded as yield spreads narrowed, in particular on General Motors and
Ford issues. A modest exposure to
43
DIVERSIFIED INVESTORS PORTFOLIOS
MANAGEMENT REVIEW (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
emerging market debt added to returns. Non-dollar bond exposure contributed to
returns as the manager's decision to retain some currency exposure benefited
from a weak dollar, and the bond market selection was good.
HIGH YIELD BOND SERIES
The High Yield Bond Series returned 11.99% for the year, surpassing the 11.77%
return of the Merrill Lynch High Yield Master II Index and the 9.93% return of
the Morningstar High Yield Bond Universe Median. Credit selection was the
driving force behind the Series' strong annual performance.
Specific credits that contributed to performance were issues from health care
company HCA, Inc. and telecommunications firm Adelphia. Underweight positions
relative to the benchmark in issues from Ford and General Motors were a slight
drag on performance. Bonds from these two companies performed strongly in 2006.
Underweighted positions in health care, utilities, energy and technology
detracted slightly from performance. However, strong credit selection within
these sectors contributed to results. In general, the managers enjoyed good
selection within these tough industries. Overweighted industries that
contributed to performance versus the benchmark were building materials, gaming,
publishing and retailing. The Series' emphasis on B-rated debt contributed to
performance, as this credit sector outperformed BB debt. Underweighted ratings
sectors also were top performers. BB bonds made up about 12% of the portfolio
and returned 12%, while these comprised about 38% of the index and returned
9.6%.
The Series' overall short duration positioning versus the benchmark hurt
performance slightly. However, bonds with short duration (relative to the
benchmark index) comprised about 17% of the portfolio and returned 10.1%. The
benchmark had an allocation of only 3.7% to these bonds, which produced returns
of 4.7%.
BALANCED SERIES
The Balanced Series returned 11.74% for the year, beating the 11.12% return of
the hybrid benchmark; 60% S&P 500 Index and 40% Lehman Brothers Aggregate Index.
The Series also outpaced the 11.12% return of the Morningstar Moderate
Allocation Universe Median. Keeping pace with the benchmark was a welcome result
in 2006 as it was a difficult year for actively managed funds as few matched the
performance of U.S. equity indexes.
Regarding the equity portion, returns to the investment themes were positive
overall for 2006. Valuation was the biggest contributor to relative performance
as inexpensive companies outperformed their more richly valued industry
counterparts. Management impact, momentum and profitability also contributed
positively to excess returns, albeit less significantly. On the downside,
earnings quality detracted from relative returns, while analyst sentiment was
essentially flat for the year.
Among sectors, stock selection was positive overall for the year. The Series'
holdings in the materials and information technology sectors outpaced their
peers in the benchmark. Meanwhile, positions in the energy and healthcare
sectors lagged their peers in the benchmark for the period.
Regarding the fixed income portion, a long duration posture detracted from
returns in the first half of the year as interest rates rose more than expected,
but the Series recovered most of those losses as rates declined in the second
half. A modestly bulleted yield curve exposure centered on the front end of the
yield curve suffered as short-term rates moved higher than expected. Overweight
exposure to the mortgage-backed sector was a
44
DIVERSIFIED INVESTORS PORTFOLIOS
MANAGEMENT REVIEW (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
positive, thanks to tighter spreads and low volatility. Underweight exposure to
investment grade credits was a modest negative as the sector outperformed, but
an overweight to lower quality credits added to returns since they outperformed.
A moderate exposure to Treasury inflation-protected securities detracted from
performance due to a weaker than expected inflation adjustment for the period
and a modest tightening of breakeven spreads. An emphasis on high-yield debt was
substantially rewarded as spreads narrowed, in particular on General Motors and
Ford issues. A modest exposure to emerging market debt added to returns as
spreads tightened. Non-dollar bond exposure contributed positively to returns,
as the decision to retain some currency exposure benefited from a weak dollar,
and the foreign bond markets selected for the portfolio outperformed their
domestic counterparts.
VALUE & INCOME SERIES
The Value & Income Series returned 20.68% for the year, short of the 22.25%
return of the Russell 1000 Value Index but surpassing the 18.27% return of the
Morningstar Large Value Universe Median. This was a difficult year for actively
managed funds as a majority of them underperformed U.S. equity indexes. The main
reason the Series trailed its large capitalization value benchmark was sector
allocation. The Series had a substantial underweight position in energy stocks,
which performed well, and a significant overweight allocation to the information
technology sector, which had returns slightly below the overall market. The
Series benefited somewhat from its sizeable underweight in financials, as that
sector's returns were also a notch below the benchmark average.
Stock selection overall was neutral, but that was largely because positive stock
selection in the consumer discretionary sector was offset by negative results in
health care. Also noteworthy was good stock selection in energy, which more than
offset the Series' poor sector selection there. All benchmark sectors had
double-digit gains for the year, with telecommunication services stocks leading
the way, posting a gain of 39%. The Series' performance in, and allocation to,
that sector were very close to the benchmark's.
Underexposure to oil giant ExxonMobil Corp. (+39%) was the most significant
detractor from the Series' relative performance. Although the stock's return was
very solid, thanks to increased oil production and record high oil prices
mid-year, the Series lost out relative to the benchmark by being substantially
underweighted to Exxon. Drug maker Watson Pharmaceuticals (-20%) increased its
revenues, but its profit declined mainly because of lower pricing for generic
drugs. Trucking firm Con-way, Inc. (formerly CNF, Inc.) (-21%) saw business
revenues and profits decline as the trucking industry was hurt generally by the
housing-related economic slowdown. In addition, the firm lost market share in
its core less-than-truckload business. Electronics manufacturing services
provider Solectron (-12%) experienced a decline in profits due to increased
competition and thin profit margins.
Personal computer and printer maker Hewlett Packard Co. (+45%) had a good year,
enjoying growth in its businesses and a reorganization that left it with a
healthier balance sheet.
VALUE SERIES
The Value Series returned 15.44% for the year, lagging the 22.25% return of the
Russell 1000 Value Index and the 18.27% return of the Morningstar Large Value
Universe Median. This was a difficult year for actively managed funds as a
majority of them underperformed U.S. equity indexes. The main reason the Series
trailed its large capitalization value benchmark was stock selection. This was
particularly true in the consumer discretionary and financials sectors. In the
consumer discretionary sector, the Series completely missed out on the
benchmark's 23% gain in this sector, as the Series' sector holdings had a
negative return. In financials, the Series trailed the benchmark sector's
returns by 6.8%. But this more modest underperformance had a major
45
DIVERSIFIED INVESTORS PORTFOLIOS
MANAGEMENT REVIEW (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
impact, as the Series and benchmark have a high concentration of financial
stocks -- a 28.6% weighting in the Series versus 36.6% in the benchmark. In the
telecommunications services and energy sectors, substantial underperformance had
less of an effect on overall Series returns because of small sector weightings.
However, in energy, the Series also was significantly underweighted versus the
benchmark, compounding the impact of stock selection. In information technology,
a performance gap and an overweighted position in a poor performing sector took
away from returns.
The Series did have positive results in three sectors -- consumer staples,
health care and materials. In consumer staples, good stock selection added to
the benefit of overweighting a strong performing sector. In health care, the
Series' underweighting of a relatively weak sector in which it had good stock
selection helped the Series' performance relative to the index, but didn't do
much for absolute returns.
Very large positions in two of the worst performing stocks -- CA, Inc. (-19%)
and Centex Corp. (-21%) -- had a major negative impact on performance. CA
(formerly Computer Associates), which makes IT management software, had a
difficult year as it encountered delays in bookings and had to bear the costs of
a major restructuring and share buybacks. Shares of homebuilder Centex mirrored
the decline of the housing market in 2006. Its net order fell almost 30% from
the previous year. St. Joe Co. (-19%), a real estate operating company, was also
hurt as the housing market languished.
GROWTH & INCOME SERIES
The Growth & Income Series returned 11.77% for the year, trailing the 15.79%
return of the S&P 500 Index and the 14.31% return of the Morningstar Large Blend
Universe Median. This was a tough year for actively managed funds as a majority
of them underperformed U.S. equity indexes. Most of the Series' underperformance
can be attributed to stock selection, which was most pronounced in the
information technology, health care and consumer discretionary sectors. The
Series felt this most strongly in the information technology sector, where an
overweighted position magnified the impact. The energy sector also took away
from relative returns as the Series lagged the benchmark sector there as well,
to a lesser extent.
The Series made up some ground against the index in the materials and financials
sectors. In materials, the Series gained 33%, far surpassing the benchmark
sector's 18.6% return. The Series' financial holdings outperformed the benchmark
sector by a much more modest 1.1%, contributing to returns on a smaller scale.
Flash storage device maker Sandisk Corp. (-32%) suffered from strong price
competition and weakening product demand. Stock performance of Qualcomm, Inc.
(-11%), which provides software for wireless voice and data communications, was
held back by a legal battle with Nokia, its largest customer, over royalty
payments. Diversified technology company Corning, Inc. (-5%) saw a decline in
its shares as a result of weakness in its fiber optic business late in the year.
Shares of oil giant ExxonMobil Corp. (39%) had their best year in a quarter
century as the firm increased its oil production and crude oil prices hit an
all-time high during the summer. Investment management company, Merrill Lynch &
Co. Inc. (+39%), joined other Wall Street investment firms in posting strong
revenue growth in 2006.
EQUITY GROWTH SERIES
The Equity Growth Series gained 4.12% for the year, trailing the 9.07% return of
the Russell 1000 Growth Index and the 7.01% return of the Morningstar Large
Growth Universe Median. This was a tough year for actively managed funds as a
majority of them underperformed U.S. equity indexes. The Series underperformed
its large capitalization growth benchmark primarily because of poor stock
selection relative to
46
DIVERSIFIED INVESTORS PORTFOLIOS
MANAGEMENT REVIEW (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
the index. This was most pronounced in the health care and information
technology sectors, where a double-digit return differential between the Series'
holdings and those in the benchmark sector had a major impact on overall return.
Each of these sectors took about 3% off the Series' relative return. Also
hurting performance to a lesser extent was a combination of poor sector
allocation and weak stock selection in the energy and industrials sectors. On
the positive side, the Series benefited from positive stock selection in the
consumer discretionary and financials sectors. In both of these cases, the
impact was heightened by an overweighted position in each sector versus the
benchmark. Even stronger relative performance by the Series in the materials and
telecommunications services was muted by having very slight exposure to these
two sectors.
Stock performance of Qualcomm, Inc. (-11%), which provides software for wireless
voice and data communications, was held back by a legal battle with Nokia, its
largest customer, over royalty payments. UnitedHealth Group, Inc. (-13%), a
diversified health care management services company, was hurt by the need to
adjust its profits as it corrected improper stock options grants. Flash storage
device maker Sandisk Corp. (-32%) suffered from strong price competition and
weakening product demand. Diversified technology company Corning, Inc. (-30%)
saw a decline in its shares as a result of weakness in its fiber optic business
late in the year.
On the plus side, investment banking powerhouse Goldman Sachs Group (+57%)
recorded strong earnings growth in almost all its businesses. Shares of casino
resort owners Wynn Resorts Ltd. (+83%) and Las Vegas Sands Corp. (+79%) almost
doubled.
AGGRESSIVE EQUITY SERIES
The Aggressive Equity Series gained 6.46% for the year, underperforming the
9.07% return of the Russell 1000 Growth Index and the 7.01% return of the
Morningstar Large Growth Universe Median. This was a tough year for actively
managed funds as a majority of them underperformed U.S. equity indexes. The
Series lagged its large capitalization growth benchmark mainly because of weak
stock selection relative to the index. Two sectors in particular had an
impact -- health care and information technology. In both cases, weak stock
selection was compounded to a degree by sector allocation. The impact of being
4.7% off the benchmark information technology sector's 6.9% return was magnified
by the Series' large (36%) allocation to the sector. The Series also lost ground
to the index in the consumer staples and energy sectors. In consumer staples,
poor stock selection was partly countered by positive sector allocation -- the
Series had a substantially underweighted position in a sector where its holdings
lost 20.6%. In energy, the opposite was true. Very positive stock selection was
more than negated by a sizeable underweight to the sector.
In several sectors, the Series performed well, which limited the negative impact
of the weaker sectors. Strong selection made a big difference in the financials
sector, as the Series surpassed the benchmark sector's 17.4% return by 11.3%.
This was added to by a slight overweight to financials. The same scenario was
true, but to a modest degree, in the consumer discretionary sector. In
industrials, solid stock selection (17% versus the benchmark sector's 11.3%
return) was partly countered by an underweighted allocation.
Integrated circuit manufacturer Silicon Laboratories (-45%) hurt the Series'
performance more than any other single holding, as sales of its products to
Samsung, its largest customer, declined. Silicon Labs also faced a patent
infringement lawsuit from Analog Devices. Online commerce firm eBay (-26%) was
punished for missing revenue and earnings targets. Internet portal Yahoo! Inc.
(-30%) faced the consequences of not living up to expected advertising revenue.
UnitedHealth Group, Inc. (-19%), a diversified health care management services
company, was hurt by the need to adjust its profits as it corrected improper
stock options grants.
47
DIVERSIFIED INVESTORS PORTFOLIOS
MANAGEMENT REVIEW (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
MID-CAP VALUE SERIES
The Mid-Cap Value Series gained 18.33% for the year, trailing the 20.22% return
of the Russell Midcap Value Index but outpacing the 15.61% return of the
Morningstar Mid Value Universe Median. Although the Series performed well in
absolute terms, it lagged its benchmark's stronger gains. The Series was hurt by
its sector allocation -- overweighting a few relatively poorer performing
sectors, including health care (+9%), consumer discretionary (+15%) and
information technology (+10%), and underweighting some top performing sectors,
namely consumer staples (+34%), materials (+25%) and telecommunications services
(43%). However, good stock selection, particularly in the industrials and
information technology sectors, eased the impact of having disappointing sector
selection. Stock selection was also strong in the energy sector.
In the relatively poor performing health care sector, weak stock selection
compounded the Series' overweighted position. Similarly, Series performance
lagged the benchmark in the consumer discretionary and consumer staples sectors
because of slightly negative stock selection multiplying the impact of poor
sector weightings. On the positive side, however, the opposite was true in the
industrials and, to a lesser extent, the utilities sectors. In these areas, good
stock selection magnified positive sector allocation. In technology, strong
stock selection more than made up for the Series' overweighted position in a
sector with relatively weak performance.
The largest individual detractor from performance was Boston Scientific (-34%),
which manufactures and sells a wide range of medical devices. Boston Scientific
was hurt by safety concerns related to drug-coated stents, including one of the
firm's best-selling products. LSI Logic (-8%), which makes semiconductors and
high-performance storage systems, experienced setbacks in consumer electronics
as Apple Computer and Sony announced they'd no longer use LSI chips in certain
products. Comverse Technology, Inc. (-16%), a telecommunications systems,
software and services provider, stumbled after accounting irregularities came to
light, compounding fraud involving the company's stock options.
MID-CAP GROWTH SERIES
The Mid-Cap Growth Series gained 2.17% for the year, lagging the 10.66% return
of the Russell Midcap Growth Index and the 8.74% return of the Morningstar Mid
Growth Universe Median. Stock selection was the primary reason for the Series'
trailing performance for the year; especially in the industrials, consumer
discretionary, information technology and telecommunications services sectors.
The weak results in these sectors were partially countered by positive
performance among holdings in the energy and health care sectors. In addition,
the Series lost further ground against the index by underweighting strong
performing sectors, including the materials (+31% in the benchmark), financials
(+19%) and utilities (+27%) sectors, and by overweighting sub-par sectors, such
as health care (+6%) and energy (-1%). However, the Series' performance was
helped by significantly overweighting the top performing telecommunications
services (+34%) sector.
Among individual holdings, Silicon Laboratories (-33%), an integrated circuit
manufacturer, had the greatest negative impact on the Series' performance, as
sales of its products to Samsung, its largest customer, declined. Silicon Labs
also faced a patent infringement lawsuit from Analog Devices. Intermec, Inc.
(-31%), a maker of wired and wireless products and services, had a disappointing
year, as sales and profits declined. Checkfree Corp. (-14%), an electronic
payment processing company, lost ground after announcing an earnings outlook
below market expectations.
Shares of Celgene (+78%), the maker of the once-banned Thalidomide drug, soared
after the Food and Drug Administration approved the drug to treat newly
diagnosed multiple myeloma, a common form of blood cancer. Akamai Technologies,
Inc. (+99%), whose services support the flow of content through the Internet,
48
DIVERSIFIED INVESTORS PORTFOLIOS
MANAGEMENT REVIEW (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
consistently beat earnings expectations thanks, in part, to the sweeping growth
of broadband Internet connection. American Tower Corp. (+38%), which leases
antenna space on wireless and broadcast communications towers, performed well as
a result of robust demand for its services and despite concern over its stock
options granting practices.
SMALL-CAP VALUE SERIES
The Small-Cap Value Series gained 9.64% for the year, lagging the 23.48% return
of the Russell 2000 Value Index and the 16.57% return of the Morningstar Small
Value Universe Median. The Series' disappointing results relative to its
benchmark were primarily due to stock selection, which was compounded by
overweighting certain weaker sectors and being underweighted in some leading
sectors. Within the index, the materials (+46%), telecommunications services
(+53%), industrials (+29%), consumer staples (+27%) and utilities (+26%) sectors
had strong performance. Unfortunately, the Series missed out on the materials
sector's results, largely by having a low weighting within the sector, but also
because of stock selection within this sector. Stock selection was also the
primary reason for meager results within industrials. The Series had no holdings
in telecommunication services, the top performing sector. The housing market
slowdown weighed on several key holdings. One bright spot was the energy sector,
in which the Series had strong returns and overweighted the sector compared to
the benchmark.
Watsco, Inc. (-20%), a supplier of air conditioning and heating equipment, was
hurt indirectly by the decline in the housing market, as it led to a slowdown in
sales of the firm's products. Accredited Home Lenders (-45%), a provider of
sub-prime residential mortgages, also was adversely affected by the slowdown in
housing, as delinquencies and losses rose. Homebuilder, Meritage Homes Corp.
(-24%), was another victim of the weak housing market. Matria Healthcare, Inc.
(-26%), which manages the treatment of long-term illnesses, saw its share price
decline after business deals were delayed in the aftermath of a major
acquisition.
Digital River, Inc. (+88%), which provides outsourced e-commerce solutions,
enjoyed very healthy business growth. Immucor (+88%), which sells products and
systems that support blood transfusions, benefited from strong sales growth.
Apparel firm Phillips Van Heusen Co. (+56%) enjoyed healthy sales expansion,
particularly in its Calvin Klein brand.
SPECIAL EQUITY SERIES
The Special Equity Series gained 11.77% for the year, trailing the 18.37% return
of the Russell 2000 Index but surpassing the 10.34% return of the Morningstar
Small Growth Universe Median. This was a tough year for actively managed funds
as a majority of them underperformed U.S. equity indexes. The Series
underperformed its benchmark primarily because of relatively weak stock
selection. Sector allocation also detracted from results, but to a lesser
degree. The sectors where relative results hurt performance the most were
information technology, industrials, materials, financials and health care. In
information technology, the Series fell 4.8% short of the benchmark sector's
13.6% return. This performance shortfall was slightly magnified by the Series'
modest overweighting to this sector. In the financial sector, the Series had
good absolute returns (15.9%). However, this didn't measure up to the financials
sector's 19.4% return in the benchmark. Similarly, the Series' 14.9% return in
industrials looked solid enough, but not when compared with the 22.1% return of
industrials within the benchmark. The Series' materials holdings had the largest
relative underperformance, as their 22.4% gain was roughly half of the
benchmark's 41.1% return from this sector. Fortunately, the Series had a modest
allocation to materials stocks.
Among detracting stocks, Hovnanian Enterprises (-32%), a homebuilder, was
brought down by the residential housing market slump. Slower sales were
compounded by material price increases. Meritage
49
DIVERSIFIED INVESTORS PORTFOLIOS
MANAGEMENT REVIEW (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
Homes Corp. (-24%), another homebuilder, suffered a similar fate, as slowing
demand, higher cancellations and rising inventories created a major challenge.
Optimal Group, Inc. (-60%), an electronic payments firm that serves the online
gambling industry among others, saw its shares tumble in early October as a
result of anti-Internet gambling legislation passed by Congress. Openwave
Systems, Inc. (-65%), which provides software for the mobile and wireline
communications industries, had its share price decline substantially, reflecting
its problems with revenue and earnings shortfalls, and cash flow shortages. On
top of these, an investigation into the company's stock options granting
practices found irregularities.
Polycom, Inc. (+102%) was a major bright spot for the Series on consistently
strong financial results. The company provides communications equipment that
enables enterprise users to conduct video, voice, data and Web communications.
Acuity Brands, Inc. (+66%), which produces lighting equipment and specialty
chemical products, posted solid sales and earnings gains partly due to higher
selling prices in its branded lighting fixtures business. Nutritional supplement
maker NBTY, Inc. (+156%), had a stellar year, as it trimmed costs through
strategic store closures, benefited from stabilizing materials costs and had
increased product demand, thanks to aging baby boomers, who have an increased
appetite for NBTY's supplements. Belden CDT, Inc. (+61%), which makes high-speed
electronic cables, performed well as it enjoyed strong global demand and
restructured its operations, opening some plants and closing others around the
world.
SMALL-CAP GROWTH SERIES
The Small-Cap Growth Series returned 8.71% for the year, trailing the 13.35%
return of the Russell 2000 Growth Index and the 10.34% return of the Morningstar
Small Growth Universe Median. The Series' underperformance relative to its
benchmark was mainly due to the manager's stock selection, particularly in the
information technology sector, as well as sector allocation to a lesser degree.
About three-quarters of the Series' performance gap relative to its index came
in information technology, where the benchmark sector gained 10.1%, but the
Series' holdings only managed a 2.6% return. The impact of this gap was
magnified by the large allocation to this sector, both in the Series' portfolio
(29%) and in the benchmark (25%). Relative performance was also adversely
affected by stock selection in the financials and consumer discretionary
sectors. Financials stocks in the benchmark gained 17.4%, while the Series'
financial holdings returned just 6.4%. Consumer discretionary stocks in the
benchmark gained 11.7% overall, while the Series' holdings in this sector
returned 9.2%. The relative performance gap was larger in utilities (-48.5%) and
consumer staples (-20.6%), but the impact was muted because these sectors have
very small allocations in the Series and its index.
On the positive side, the Series enjoyed strong performance in the energy,
materials and industrials sectors. The Series' energy holdings doubled the
returns of the benchmark sector (+32.8% vs. +16.2%). However, the positive
impact was limited by relatively modest allocations to this sector. In
industrials, however, a 4.7% outperformance by the Series (+21.6% vs. +16.9%)
resulted in a slightly more significant impact.
Individual stocks that hurt performance were led by Aspect Medical Systems, Inc.
(-45%) a provider of anesthesia monitoring devices. Aspect was sold off by
investors in mid-2006, when growth in its revenues and earnings slowed to more
sustainable levels and its valuation contracted significantly. Housevalues, Inc.
(-38%), an online real estate information service, was affected by the decline
in the housing market. Shares of Neoware, Inc. (-47%), a provider of thin client
computing solutions, fell after it announced lower than expected sales to
existing customers. Escala Group, Inc. (-71%), a global stamp and coin auction
house, saw its fortunes tumble with a probe into its operations by Spanish
authorities last May and a subsequent SEC investigation.
50
DIVERSIFIED INVESTORS PORTFOLIOS
MANAGEMENT REVIEW (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
General Cable Corp. (+122%), a wire and cable manufacturer, experienced healthy
growth in its business and recorded strong returns. Priceline.com, Inc. (+95%),
an online travel company, enjoyed strong growth in its business amid positive
electronic commerce market trends. Shares of New River Pharmaceutical (+109%), a
specialty pharmaceutical company, rose sharply when it announced in October that
the FDA approved its drug, NRP104, to treat attention-deficit/hyperactivity
disorder (ADHD) in children aged 6-12.
INTERNATIONAL EQUITY SERIES
The International Equity Series gained 27.31% for the year, surpassing the
26.23% return of the MSCI World ex-US Index and the 24.82% return of the
Morningstar Foreign Large Blend Universe Median. The year was an outstanding one
for international stocks generally, with every country in the benchmark posting
gains, and the Series had strong results, outperforming the index because of
strong stock selection. Within the index, leading countries included Spain
(+50%), Portugal (+48%), Ireland (+48%), Singapore (+47%), Norway (+46%) and
Sweden (+45%). The Series scored its biggest country gains against the benchmark
in France, Canada, Switzerland and the United Kingdom, with stock selection
playing the key role in all cases. The Series' best relative stock selection, on
a country basis, occurred in Austria and Hong Kong. Stock selection fell
significantly short in Israel, Luxembourg, Singapore and South Korea.
The financials and industrials sectors contributed the most to performance on a
relative basis, with materials and consumer staples stocks playing a supporting
role. In financials, a substantial overweighting in the high performing sector
resulted in a strong contribution to absolute and relative returns. The Series'
financials stocks gained 34% and just over one-third of the Series was allocated
to the sector, almost 5% more than the benchmark. In the industrials sector, the
Series gained 47%, almost 22% more than the benchmark index. But the impact of
this performance was muted by the Series' underweighted position in industrials.
Relative performance was weakest in the consumer discretionary sector, which was
the only sector with weak stock selection relative to the index. In the
utilities sector, the Series' 49% returns were slightly below the benchmark
sector's gains. Although utilities had a slightly negative impact on the Series'
relative performance, the sector contributed handsomely to absolute gains.
Active currency management played a minor positive role in the Series'
performance, making good results even better.
51
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
<Table>
<Caption>
HIGH INTERMEDIATE
MONEY QUALITY GOVERNMENT
MARKET BOND BOND
------------ ------------ ------------
ASSETS:
Securities, at value, including investments held as
collateral for securities out on loan (Notes 2 and
4).................................................. $776,087,009 $820,061,958 $177,856,976
Repurchase agreements (cost equals market)............ 147,506,245 8,819,366 --
Cash.................................................. -- -- --
Restricted cash....................................... -- -- --
Cash at broker........................................ -- -- --
Foreign currency holdings, at value
(cost $42,451,477, $190,725, and $379,672,
respectively)....................................... -- -- --
Receivable for securities sold........................ -- -- 2,132,391
Unrealized appreciation on foreign currency
forward contracts (Note 10)......................... -- -- --
Unrealized appreciation on open swap contracts........ -- -- --
Variation margin...................................... -- -- --
Interest receivable................................... 2,576,512 5,498,730 1,441,704
Dividends receivable.................................. -- -- --
Foreign tax reclaim receivable........................ -- -- --
Receivable from Advisor............................... -- -- 4,146
Receivable from securities lending (net).............. -- 2,054 1,247
------------ ------------ ------------
Total assets.......................................... 926,169,766 834,382,108 181,436,464
------------ ------------ ------------
LIABILITIES:
Due to Advisor........................................ -- -- --
Due to Custodian...................................... -- -- 1,226,256
Due to Broker for swap contracts...................... -- -- --
Collateral for securities out on loan................. -- 8,411,400 29,452,986
Payable for securities purchased...................... -- 8,069,478 --
Securities sold short, at value (proceeds
$162,196,673)....................................... -- -- --
Written options, at value
(premium $601,920, $22,396 and $36,146,
respectively)....................................... -- -- --
Unrealized depreciation on open swap contracts........ -- -- --
Unrealized depreciation on foreign currency
forward contracts (Note 10)......................... -- -- --
Variation margin...................................... -- -- --
Investment advisory fees.............................. 184,382 231,576 43,365
Accrued expenses...................................... 44,775 46,468 32,689
Contingent liability (Note 6)......................... -- -- --
------------ ------------ ------------
Total liabilities..................................... 229,157 16,758,922 30,755,296
------------ ------------ ------------
NET ASSETS............................................ $925,940,609 $817,623,186 $150,681,168
============ ============ ============
SECURITIES, AT COST................................... $776,087,009 $826,867,778 $177,844,104
============ ============ ============
</Table>
See notes to financial statements.
52
<Table>
<Caption>
TOTAL
CORE RETURN HIGH YIELD VALUE &
BOND BOND BOND BALANCED INCOME VALUE
-------------- ------------ ------------ ------------ -------------- ------------
$2,394,052,362 $149,220,111 $462,350,593 $421,371,197 $3,647,543,518 $112,083,662
20,094,880 25,011,936 25,159,129 15,905,785 74,170,734 9,130,521
3,331 -- -- -- -- --
-- -- -- 140,600 -- --
-- 352,213 -- 459,080 -- --
186,318 -- 370,032 -- --
41,003,303
334,720,004 686,771 6,700,000 2,807,120 33,257,440 75,619
40,930 -- 58,946 -- --
684,559
3,458,124 -- -- -- -- --
14,537 -- -- -- -- --
15,159,390 942,514 8,376,189 1,235,368 37,008 3,451
-- -- -- 366,906 4,071,873 99,803
-- -- -- -- 1,160 --
-- 12,754 -- -- -- 5,680
-- -- -- 3,068 16,885 4,718
-------------- ------------ ------------ ------------ -------------- ------------
2,809,190,490 176,453,547 502,585,911 442,718,102 3,759,098,618 121,403,454
-------------- ------------ ------------ ------------ -------------- ------------
-- -- 1,531 11,529 -- --
24,892 138 -- -- -- --
4,300,000 -- -- -- -- --
958,807 4,274,335 -- 8,381,259 186,521,888 15,388,046
562,280,950 51,398,541 -- 52,363,642 32,218,958 4,675,305
161,260,541 -- -- -- -- --
19,656 -- 31,140 -- --
621,654
152,220 -- -- -- -- --
27,484 -- 38,897 -- --
1,068,876
-- 40,002 -- 47,918 -- --
584,169 32,383 218,560 138,076 1,261,807 35,883
116,932 24,581 35,764 56,840 152,239 21,314
-- -- -- -- -- --
-------------- ------------ ------------ ------------ -------------- ------------
731,369,041 55,817,120 255,855 61,069,301 220,154,892 20,120,548
-------------- ------------ ------------ ------------ -------------- ------------
$2,077,821,449 $120,636,427 $502,330,056 $381,648,801 $3,538,943,726 $101,282,906
============== ============ ============ ============ ============== ============
$2,411,315,857 $149,309,902 $448,608,719 $385,165,390 $2,983,135,311 $105,737,336
============== ============ ============ ============ ============== ============
</Table>
53
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
GROWTH & EQUITY AGGRESSIVE
INCOME GROWTH EQUITY
-------------- -------------- ------------
ASSETS:
Securities, at value, including investments held as
collateral for securities out on loan (Notes 2
and 4)........................................... $1,205,774,643 $2,633,306,100 $428,584,855
Repurchase agreements (cost equals market)......... 23,960,361 22,518,208 --
Cash............................................... -- -- --
Restricted cash.................................... 560,000 -- --
Foreign currency holdings, at value
(cost $3,407,804)................................ -- -- --
Receivable for securities sold..................... 14,293,832 48,856,082 5,640,594
Unrealized appreciation on foreign currency
forward contracts (Note 10)...................... -- -- --
Interest receivable................................ 13,080 26,052 7,031
Dividends receivable............................... 1,623,692 2,459,711 320,383
Foreign tax reclaim receivable..................... -- 230,517 15,799
Receivable from Advisor............................ -- -- 3,259
Receivable from securities lending (net)........... 33,601 15,339 10,376
-------------- -------------- ------------
Total assets....................................... 1,246,259,209 2,707,412,009 434,582,297
-------------- -------------- ------------
LIABILITIES:
Due to Advisor..................................... -- -- --
Due to Custodian................................... 2,341,575 -- 1,066,035
Collateral for securities out on loan.............. 67,965,319 158,227,226 48,209,289
Payable for securities purchased................... 16,302,551 20,892,335 2,370,696
Unrealized depreciation on foreign currency
forward contracts (Note 10)...................... -- -- --
Variation margin................................... 11,130 -- --
Investment advisory fees........................... 557,078 1,259,873 238,505
Accrued expenses................................... 61,311 115,119 29,864
Contingent liability (Note 6)...................... -- -- --
-------------- -------------- ------------
Total liabilities.................................. 87,238,964 180,494,553 51,914,389
-------------- -------------- ------------
NET ASSETS......................................... $1,159,020,245 $2,526,917,456 $382,667,908
============== ============== ============
SECURITIES, AT COST................................ $1,059,990,583 $2,310,397,936 $373,809,334
============== ============== ============
</Table>
See notes to financial statements.
54
<Table>
<Caption>
MID-CAP MID-CAP SMALL-CAP SPECIAL SMALL-CAP INTERNATIONAL
VALUE GROWTH VALUE EQUITY GROWTH EQUITY
-------------- ------------ ------------ -------------- ------------ --------------
$1,037,462,871 $353,559,372 $277,839,453 $1,431,161,493 $167,367,521 $2,206,716,021
16,312,237 6,350,435 33,538 33,160,557 618,612 29,549,256
-- -- -- 257 -- --
-- -- -- -- -- --
-- -- -- -- -- 3,410,666
1,441,900 1,546,225 2,074,821 4,148,139 4,155,481 10,765,445
-- -- -- -- -- 11,580
20,561 8,087 6,192 40,120 2,181 25,648
1,469,952 75,567 335,420 1,171,071 42,961 1,278,936
54 562 -- -- -- 701,355
28,997 -- 8,928 -- -- 1,424
10,692 7,297 14,113 96,490 5,968 33,180
-------------- ------------ ------------ -------------- ------------ --------------
1,056,747,264 361,547,545 280,312,465 1,469,778,127 172,192,724 2,252,493,511
-------------- ------------ ------------ -------------- ------------ --------------
-- 20 -- 9,503 1,049 --
-- -- 5,426 -- -- --
118,672,540 49,693,823 42,425,935 245,040,504 14,398,521 149,080,031
527,957 1,729,565 1,360,601 12,276,758 2,571,980 745,568
-- -- -- -- -- 20,237
-- -- -- 7,230 -- --
498,094 180,623 158,568 785,029 111,007 1,243,098
74,468 34,453 45,217 102,644 107,163 252,104
-- -- -- -- -- --
-------------- ------------ ------------ -------------- ------------ --------------
119,773,059 51,638,484 43,995,747 258,221,668 17,189,720 151,341,038
-------------- ------------ ------------ -------------- ------------ --------------
$ 936,974,205 $309,909,061 $236,316,718 $1,211,556,459 $155,003,004 $2,101,152,473
============== ============ ============ ============== ============ ==============
$ 938,275,057 $316,444,007 $265,948,032 $1,275,741,323 $152,667,543 $1,701,116,773
============== ============ ============ ============== ============ ==============
</Table>
55
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
<Table>
<Caption>
HIGH INTERMEDIATE
MONEY QUALITY GOVERNMENT
MARKET BOND BOND
----------- ----------- ------------
INVESTMENT INCOME (NOTE 2):
Interest income.......................................... $44,452,023 $35,751,097 $ 9,136,357
Securities lending income (net).......................... -- 24,018 40,281
Dividend income.......................................... -- -- --
Less: foreign withholding taxes.......................... -- -- --
----------- ----------- -----------
Total income............................................. 44,452,023 35,775,115 9,176,638
----------- ----------- -----------
EXPENSES (NOTE 2):
Investment advisory fees................................. 2,202,129 2,841,710 655,441
Custody fees............................................. 160,517 182,519 71,525
Audit fees............................................... 28,312 30,221 28,458
Legal fees............................................... 5,988 5,666 91
Reports to shareholders.................................. 6,532 7,088 2,156
Other fees............................................... 35,439 28,272 10,403
----------- ----------- -----------
Total expenses........................................... 2,438,917 3,095,476 768,074
Expenses reimbursed by the Advisor....................... -- -- (19,189)
----------- ----------- -----------
Net expenses............................................. 2,438,917 3,095,476 748,885
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS)............................. 42,013,106 32,679,639 8,427,753
----------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
(NOTE 2):
Net realized gains (losses) on transactions from:
Securities............................................. 3,069 (3,537,144) (4,284,109)
Swap contracts......................................... -- -- --
Futures................................................ -- -- --
Written options........................................ -- -- --
Foreign currency transactions.......................... -- -- --
Change in net unrealized appreciation (depreciation) on:
Securities............................................. -- 5,974,556 1,003,748
Futures................................................ -- -- --
Written options........................................ -- -- --
Short sales............................................ -- -- --
Swap contracts......................................... -- -- --
Foreign currency translations.......................... -- -- --
----------- ----------- -----------
Net realized and unrealized gains (losses) on
investments............................................ 3,069 2,437,412 (3,280,361)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. $42,016,175 $35,117,051 $ 5,147,392
=========== =========== ===========
</Table>
See notes to financial statements.
56
<Table>
<Caption>
TOTAL
CORE RETURN HIGH YIELD VALUE &
BOND BOND BOND BALANCED INCOME VALUE
------------ ---------- ----------- ----------- ------------ -----------
$100,030,761 $4,274,424 $38,194,970 $ 7,934,822 $ 3,146,286 $ 115,225
155,926 4,540 -- 63,334 659,690 21,987
-- 10,463 241,618 4,527,328 58,839,770 932,577
-- -- -- -- (181,737) (2,556)
------------ ---------- ----------- ----------- ------------ -----------
100,186,687 4,289,427 38,436,588 12,525,484 62,464,009 1,067,233
------------ ---------- ----------- ----------- ------------ -----------
7,179,850 292,277 2,501,348 1,750,841 14,430,364 271,289
567,838 91,537 133,254 158,618 567,328 76,845
36,820 32,463 29,353 30,210 40,597 32,396
14,355 183 6,828 7,740 63,176 577
17,791 714 3,836 79,138 28,511 492
59,413 1,827 15,145 29,435 118,622 1,379
------------ ---------- ----------- ----------- ------------ -----------
7,876,067 419,001 2,689,764 2,055,982 15,248,598 382,978
-- (84,971) -- (111,017) -- (85,418)
------------ ---------- ----------- ----------- ------------ -----------
7,876,067 334,030 2,689,764 1,944,965 15,248,598 297,560
------------ ---------- ----------- ----------- ------------ -----------
92,310,620 3,955,397 35,746,824 10,580,519 47,215,411 769,673
------------ ---------- ----------- ----------- ------------ -----------
(15,300,239) 326,862 4,415,516 17,865,917 237,630,133 3,727,354
(2,724,944) -- -- -- -- --
8,144,851 15,462 -- (45,252) -- --
536,040 31,702 -- 60,625 -- --
264,388 (31,694) (4,253) (117,991) -- --
181,854 (63,335) 11,570,829 14,431,295 327,033,667 5,766,022
(2,947,122) (15,115) -- 21,196 -- --
(136,174) 2,740 -- 5,006 -- --
1,503,739 -- -- -- -- --
3,305,904 -- -- -- -- --
(1,473,081) 6,996 2,243 50,342 -- (33)
------------ ---------- ----------- ----------- ------------ -----------
(8,644,784) 273,618 15,984,335 32,271,138 564,663,800 9,493,343
------------ ---------- ----------- ----------- ------------ -----------
$ 83,665,836 $4,229,015 $51,731,159 $42,851,657 $611,879,211 $10,263,016
============ ========== =========== =========== ============ ===========
</Table>
57
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2006
<Table>
<Caption>
GROWTH & EQUITY AGGRESSIVE
INCOME GROWTH EQUITY
------------ ------------ -----------
INVESTMENT INCOME (NOTE 2):
Interest income........................................ $ 542,281 $ 2,798,683 $ 187,339
Securities lending income (net)........................ 120,308 517,754 83,417
Dividend income........................................ 19,598,532 23,943,252 2,103,310
Less: foreign withholding taxes........................ (57,498) (230,565) (17,764)
------------ ------------ -----------
Total income........................................... 20,203,623 27,029,124 2,356,302
------------ ------------ -----------
EXPENSES (NOTE 2):
Investment advisory fees............................... 6,951,959 15,649,351 2,893,873
Custody fees........................................... 268,010 438,759 101,985
Audit fees............................................. 33,204 37,980 28,001
Legal fees............................................. 7,219 16,014 2,341
Reports to shareholders................................ 11,857 22,109 5,154
Other fees............................................. 48,244 100,337 21,111
------------ ------------ -----------
Total expenses......................................... 7,320,493 16,264,550 3,052,465
Expenses reimbursed by the Advisor..................... -- -- (46,094)
------------ ------------ -----------
Net expenses........................................... 7,320,493 16,264,550 3,006,371
------------ ------------ -----------
NET INVESTMENT INCOME (LOSS)........................... 12,883,130 10,764,574 (650,069)
------------ ------------ -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
(NOTE 2):
Net realized gains (losses) on transactions from:
Securities........................................... 90,273,462 151,657,940 27,520,364
Swap contracts....................................... -- -- --
Futures.............................................. 126,420 -- --
Written options...................................... -- -- --
Foreign currency transactions........................ -- 893 --
Change in net unrealized appreciation (depreciation)
on:
Securities........................................... 26,080,459 (62,370,923) (3,115,975)
Futures.............................................. 27,131 -- --
Written options...................................... -- -- --
Short sales.......................................... -- -- --
Swap contracts....................................... -- -- --
Foreign currency translations........................ 87 15 --
------------ ------------ -----------
Net realized and unrealized gains (losses) on
investments.......................................... 116,507,559 89,287,925 24,404,389
------------ ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS........................................... $129,390,689 $100,052,499 $23,754,320
============ ============ ===========
</Table>
See notes to financial statements.
58
<Table>
<Caption>
MID-CAP MID-CAP SMALL-CAP SPECIAL SMALL-CAP INTERNATIONAL
VALUE GROWTH VALUE EQUITY GROWTH EQUITY
------------ ------------ ----------- ------------ ----------- -------------
$ 1,398,162 $ 366,784 $ 573,275 $ 1,717,706 $ 166,371 $ 1,175,079
102,487 79,893 70,393 1,062,342 183,022 1,204,108
13,173,618 906,921 2,026,508 11,474,009 575,134 51,564,534
(16,385) (2,585) -- (8,995) (1,752) (4,266,663)
------------ ------------ ----------- ------------ ----------- ------------
14,657,882 1,351,013 2,670,176 14,245,062 922,775 49,677,058
------------ ------------ ----------- ------------ ----------- ------------
5,255,372 2,197,122 1,958,558 10,061,755 1,316,369 14,074,761
212,710 61,001 57,960 406,594 127,801 2,040,711
26,168 24,536 24,354 34,542 24,120 41,733
13,093 6,223 6,844 24,381 13,669 12,887
22,761 2,534 20,403 58,095 71,100 16,282
24,903 10,633 7,760 52,069 16,767 67,707
------------ ------------ ----------- ------------ ----------- ------------
5,555,007 2,302,049 2,075,879 10,637,436 1,569,826 16,254,081
(64,153) (13,549) (45,617) -- (208,084) (1,424)
------------ ------------ ----------- ------------ ----------- ------------
5,490,854 2,288,500 2,030,262 10,637,436 1,361,742 16,252,657
------------ ------------ ----------- ------------ ----------- ------------
9,167,028 (937,487) 639,914 3,607,626 (438,967) 33,424,401
------------ ------------ ----------- ------------ ----------- ------------
62,499,240 15,761,237 20,567,140 138,381,086 (3,321,892) 212,988,414
-- -- -- -- -- --
-- -- -- 303,934 -- --
-- -- -- -- -- --
234 -- -- -- -- 617,122
59,305,077 (10,452,049) (1,285,523) (3,739,450) 14,657,485 209,750,250
-- -- -- 103,313 -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- 6 -- 57,605
------------ ------------ ----------- ------------ ----------- ------------
121,804,551 5,309,188 19,281,617 135,048,889 11,335,593 423,413,391
------------ ------------ ----------- ------------ ----------- ------------
$130,971,579 $ 4,371,701 $19,921,531 $138,656,515 $10,896,626 $456,837,792
============ ============ =========== ============ =========== ============
</Table>
59
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2006
<Table>
<Caption>
HIGH INTERMEDIATE
MONEY QUALITY GOVERNMENT
MARKET BOND BOND
--------------- ------------- -------------
FROM OPERATIONS:
Net investment income (loss)..................... $ 42,013,106 $ 32,679,639 $ 8,427,753
Net realized gains (losses) on transactions from:
Securities..................................... 3,069 (3,537,144) (4,284,109)
Swap contracts................................. -- -- --
Futures........................................ -- -- --
Written options................................ -- -- --
Foreign currency transactions.................. -- -- --
Change in net unrealized appreciation
(depreciation) on:
Securities..................................... -- 5,974,556 1,003,748
Futures........................................ -- -- --
Written options................................ -- -- --
Short sales.................................... -- -- --
Swap contracts................................. -- -- --
Foreign currency translations.................. -- -- --
--------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations................................ 42,016,175 35,117,051 5,147,392
--------------- ------------- -------------
FROM TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Contributions.................................... 3,826,219,117 473,191,503 61,946,831
Withdrawals...................................... (3,708,071,941) (479,084,534) (177,519,578)
--------------- ------------- -------------
Net increase (decrease) in net assets resulting
from transactions in investors' beneficial
interests...................................... 118,147,176 (5,893,031) (115,572,747)
--------------- ------------- -------------
Net increase (decrease) in net assets............ 160,163,351 29,224,020 (110,425,355)
NET ASSETS:
Beginning of year................................ 765,777,258 788,399,166 261,106,523
--------------- ------------- -------------
End of year...................................... $ 925,940,609 $ 817,623,186 $ 150,681,168
=============== ============= =============
</Table>
See notes to financial statements.
60
<Table>
<Caption>
TOTAL
CORE RETURN HIGH YIELD VALUE &
BOND BOND BOND BALANCED INCOME VALUE
-------------- ------------ ------------- ------------- --------------- ---------------
$ 92,310,620 $ 3,955,397 $ 35,746,824 $ 10,580,519 $ 47,215,411 $ 769,673
(15,300,239) 326,862 4,415,516 17,865,917 237,630,133 3,727,354
(2,724,944) -- -- -- -- --
8,144,851 15,462 -- (45,252) -- --
536,040 31,702 -- 60,625 -- --
264,388 (31,694) (4,253) (117,991) -- --
181,854 (63,335) 11,570,829 14,431,295 327,033,667 5,766,022
(2,947,122) (15,115) -- 21,196 -- --
(136,174) 2,740 -- 5,006 -- --
1,503,739 -- -- -- -- --
3,305,904 -- -- -- -- --
(1,473,081) 6,996 2,243 50,342 -- (33)
-------------- ------------ ------------- ------------- --------------- ---------------
83,665,836 4,229,015 51,731,159 42,851,657 611,879,211 10,263,016
-------------- ------------ ------------- ------------- --------------- ---------------
642,373,668 97,088,124 179,319,765 89,543,901 898,961,139 71,879,254
(701,111,090) (50,753,571) (144,748,123) (161,494,412) (989,956,921) (15,997,876)
-------------- ------------ ------------- ------------- --------------- ---------------
(58,737,422) 46,334,553 34,571,642 (71,950,511) (90,995,782) 55,881,378
-------------- ------------ ------------- ------------- --------------- ---------------
24,928,414 50,563,568 86,302,801 (29,098,854) 520,883,429 66,144,394
2,052,893,035 70,072,859 416,027,255 410,747,655 3,018,060,297 35,138,512
-------------- ------------ ------------- ------------- --------------- ---------------
$2,077,821,449 $120,636,427 $ 502,330,056 $ 381,648,801 $ 3,538,943,726 $ 101,282,906
============== ============ ============= ============= =============== ===============
</Table>
61
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2006
<Table>
<Caption>
GROWTH & EQUITY AGGRESSIVE
INCOME GROWTH EQUITY
-------------- -------------- -------------
FROM OPERATIONS:
Net investment income (loss)...................... $ 12,883,130 $ 10,764,574 $ (650,069)
Net realized gains (losses) on transactions from:
Securities...................................... 90,273,462 151,657,940 27,520,364
Swap contracts.................................. -- -- --
Futures......................................... 126,420 -- --
Written options................................. -- -- --
Foreign currency transactions................... -- 893 --
Change in net unrealized appreciation
(depreciation) on:
Securities...................................... 26,080,459 (62,370,923) (3,115,975)
Futures......................................... 27,131 -- --
Written options................................. -- -- --
Short sales..................................... -- -- --
Swap contracts.................................. -- -- --
Foreign currency translations................... 87 15 --
-------------- -------------- -------------
Net increase (decrease) in net assets resulting
from operations................................. 129,390,689 100,052,499 23,754,320
-------------- -------------- -------------
FROM TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Contributions..................................... 289,738,820 619,135,082 140,452,458
In-Kind Transfer (Note 2O)........................ -- -- --
Withdrawals....................................... (438,868,133) (779,652,186) (163,667,930)
-------------- -------------- -------------
Net increase (decrease) in net assets resulting
from
transactions in investors' beneficial
interests....................................... (149,129,313) (160,517,104) (23,215,472)
-------------- -------------- -------------
Net increase (decrease) in net assets............. (19,738,624) (60,464,605) 538,848
NET ASSETS:
Beginning of year................................. 1,178,758,869 2,587,382,061 382,129,060
-------------- -------------- -------------
End of year....................................... $1,159,020,245 $2,526,917,456 $ 382,667,908
============== ============== =============
</Table>
See notes to financial statements.
62
<Table>
<Caption>
MID-CAP MID-CAP SMALL-CAP SPECIAL SMALL-CAP INTERNATIONAL
VALUE GROWTH VALUE EQUITY GROWTH EQUITY
------------- ------------- ------------ -------------- ------------ --------------
$ 9,167,028 $ (937,487) $ 639,914 $ 3,607,626 $ (438,967) $ 33,424,401
62,499,240 15,761,237 20,567,140 138,381,086 (3,321,892) 212,988,414
-- -- -- -- -- --
-- -- -- 303,934 -- --
-- -- -- -- -- --
234 -- -- -- -- 617,122
59,305,077 (10,452,049) (1,285,523) (3,739,450) 14,657,485 209,750,250
-- -- -- 103,313 -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- 6 -- 57,605
------------- ------------- ------------ -------------- ------------ --------------
4,371,701 19,921,531 138,656,515 10,896,626 456,837,792
130,971,579
------------- ------------- ------------ -------------- ------------ --------------
367,313,600 128,657,239 73,958,616 448,521,133 56,928,632 652,020,924
-- -- -- (80,105,926) -- --
(202,842,512) (106,070,321) (76,312,650) (592,187,172) (45,725,788) (729,492,392)
------------- ------------- ------------ -------------- ------------ --------------
22,586,918 (2,354,034) (223,771,965) 11,202,844 (77,471,468)
164,471,088
------------- ------------- ------------ -------------- ------------ --------------
295,442,667 26,958,619 17,567,497 (85,115,450) 22,099,470 379,366,324
641,531,538 282,950,442 218,749,221 1,296,671,909 132,903,534 1,721,786,149
------------- ------------- ------------ -------------- ------------ --------------
$ 936,974,205 $ 309,909,061 $236,316,718 $1,211,556,459 $155,003,004 $2,101,152,473
============= ============= ============ ============== ============ ==============
</Table>
63
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2005
<Table>
<Caption>
HIGH INTERMEDIATE
MONEY QUALITY GOVERNMENT
MARKET BOND BOND
--------------- ------------- -------------
FROM OPERATIONS:
Net investment income (loss)..................... $ 24,112,234 $ 24,280,048 $ 8,765,600
Net realized gains (losses) on transactions from:
Securities..................................... (1,321) (3,873,615) (4,498,062)
Futures........................................ -- -- --
Written options................................ -- -- --
Foreign currency transactions.................. -- -- --
Change in net unrealized appreciation
(depreciation) on:
Securities..................................... -- (5,794,902) (713,722)
Futures........................................ -- -- --
Written options................................ -- -- --
Short sales.................................... -- -- --
Foreign currency translations.................. -- -- --
--------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations................................ 24,110,913 14,611,531 3,553,816
--------------- ------------- -------------
FROM TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Contributions.................................. 3,000,861,945 394,658,991 134,271,687
Withdrawals.................................... (3,068,547,985) (311,465,734) (133,221,631)
--------------- ------------- -------------
Net increase (decrease) in net assets resulting
from transactions in investors' beneficial
interests...................................... (67,686,040) 83,193,257 1,050,056
--------------- ------------- -------------
Net increase (decrease) in net assets............ (43,575,127) 97,804,788 4,603,872
NET ASSETS:
Beginning of year................................ 809,352,385 690,594,378 256,502,651
--------------- ------------- -------------
End of year...................................... $ 765,777,258 $ 788,399,166 $ 261,106,523
=============== ============= =============
</Table>
- ---------------
(1) Commencement of Operations, May 6, 2005.
See notes to financial statements.
64
<Table>
<Caption>
TOTAL
CORE RETURN VALUE & GROWTH &
BOND BOND(1) BALANCED INCOME VALUE(1) INCOME
-------------- ----------- ------------ -------------- ----------- --------------
$ 73,863,332 $ 1,586,790 $ 9,237,946 $ 39,423,154 $ 156,224 $ 10,673,040
(6,477,165) (410,160) 25,146,537 256,256,688 262,769 61,012,020
2,212,048 38,572 520,728 -- -- (61,117)
864,930 28,041 104,520 -- -- --
(6,020,058) 112,407 (155,938) -- -- (187)
(26,483,597) (26,456) (13,066,904) (101,548,512) 580,304 6,508,944
470,718 13,410 (125,867) -- -- (23,415)
116,440 -- -- -- -- --
(878,427) -- (31,741) -- -- --
5,644,968 2,388 504,647 -- -- (711)
-------------- ----------- ------------ -------------- ----------- --------------
43,313,189 1,344,992 22,133,928 194,131,330 999,297 78,108,574
-------------- ----------- ------------ -------------- ----------- --------------
746,674,137 95,063,361 126,239,193 844,155,946 46,721,034 276,213,786
(392,462,176) (26,335,494) (157,352,155) (725,690,301) (12,581,819) (311,511,925)
-------------- ----------- ------------ -------------- ----------- --------------
354,211,961 68,727,867 (31,112,962) 118,465,645 34,139,215 (35,298,139)
-------------- ----------- ------------ -------------- ----------- --------------
397,525,150 70,072,859 (8,979,034) 312,596,975 35,138,512 42,810,435
1,655,367,885 -- 419,726,689 2,705,463,322 -- 1,135,948,434
-------------- ----------- ------------ -------------- ----------- --------------
$2,052,893,035 $70,072,859 $410,747,655 $3,018,060,297 $35,138,512 $1,178,758,869
============== =========== ============ ============== =========== ==============
</Table>
65
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2005
<Table>
<Caption>
EQUITY MID-CAP MID-CAP
GROWTH VALUE GROWTH
-------------- ------------- ------------
FROM OPERATIONS:
Net investment income (loss)....................... $ 8,012,738 $ 6,538,965 $ (872,544)
Net realized gains (losses) on transactions from:
Securities....................................... 106,473,301 58,473,413 16,182,706
Futures.......................................... -- -- --
Foreign currency transactions.................... -- -- --
Change in net unrealized appreciation
(depreciation) on:
Securities....................................... 60,565,829 (13,904,553) 17,077,446
Futures.......................................... -- -- --
Written options.................................. -- -- --
Foreign currency translations.................... (108) -- --
-------------- ------------- ------------
Net increase (decrease) in net assets resulting
from operations.................................. 175,051,760 51,107,825 32,387,608
-------------- ------------- ------------
FROM TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS:
Contributions.................................... 722,199,519 288,221,115 101,501,469
Withdrawals...................................... (600,429,165) (112,508,081) (61,039,507)
-------------- ------------- ------------
Net increase (decrease) in net assets resulting
from transactions in investors' beneficial
interests........................................ 121,770,354 175,713,034 40,461,962
-------------- ------------- ------------
Net increase (decrease) in net assets.............. 296,822,114 226,820,859 72,849,570
NET ASSETS:
Beginning of year.................................. 2,290,559,947 414,710,679 210,100,872
-------------- ------------- ------------
End of year........................................ $2,587,382,061 $ 641,531,538 $282,950,442
============== ============= ============
</Table>
See notes to financial statements.
66
<Table>
<Caption>
SMALL-CAP SPECIAL SMALL-CAP AGGRESSIVE HIGH YIELD INTERNATIONAL
VALUE EQUITY GROWTH EQUITY BOND EQUITY
------------ -------------- ------------ ------------- ------------ --------------
$ 196,879 $ 1,169,845 $ (483,033) $ (523,061) $ 29,366,845 $ 30,549,125
10,466,324 150,782,575 17,043,638 25,848,657 2,376,419 79,654,574
-- 180,475 -- -- -- --
-- (347) -- -- 88,320 (1,029,821)
(18,234,057) (26,525,774) (14,455,154) 4,064,836 (18,982,146) 64,809,780
-- (137,225) -- -- -- --
-- -- -- -- -- --
-- 122 -- -- 31 (260,276)
------------ -------------- ------------ ------------- ------------ --------------
(7,570,854) 125,469,671 2,105,451 29,390,432 12,849,469 173,723,382
------------ -------------- ------------ ------------- ------------ --------------
95,676,461 417,698,258 55,270,954 136,961,726 141,534,891 506,290,794
(42,092,335) (474,026,762) (32,902,023) (181,949,965) (90,129,641) (359,845,971)
------------ -------------- ------------ ------------- ------------ --------------
53,584,126 (56,328,504) 22,368,931 (44,988,239) 51,405,250 146,444,823
------------ -------------- ------------ ------------- ------------ --------------
46,013,272 69,141,167 24,474,382 (15,597,807) 64,254,719 320,168,205
172,735,949 1,227,530,742 108,429,152 397,726,867 351,772,536 1,401,617,944
------------ -------------- ------------ ------------- ------------ --------------
$218,749,221 $1,296,671,909 $132,903,534 $ 382,129,060 $416,027,255 $1,721,786,149
============ ============== ============ ============= ============ ==============
</Table>
67
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
COMMERCIAL PAPER -- 44.4%
$ 24,200,000 Abbey National NA LLC,
5.24%, 03/19/07............. $ 23,921,992
35,920,000 Bank of America Corp.,
5.25%, 01/31/07............. 35,752,373
34,610,000 Barclays US Funding LLC,
5.25%, 02/12/07............. 34,387,919
16,920,000 Chariot Funding LLC -- 144A,
5.33%, 01/16/07............. 16,877,413
17,910,000 Chariot Funding LLC -- 144A,
5.30%, 01/30/07............. 17,828,261
33,420,000 Ciesco LLC -- 144A,
5.26%, 01/26/07............. 33,288,283
37,660,000 Citigroup Funding, Inc.,
5.25%, 02/22/07............. 37,363,427
29,860,000 HBOS Treasury Services PLC,
5.22%, 03/09/07............. 29,561,251
21,400,000 ING (US) Funding LLC,
5.24%, 01/16/07............. 21,347,098
36,280,000 JPMorgan Chase & Company,
5.23%, 03/13/07............. 35,895,241
25,687,000 Jupiter Securitization Corp. -- 144A,
5.24%, 03/05/07............. 25,444,204
16,210,000 Old Line Funding
Corp. -- 144A,
5.25%, 01/10/07............. 16,183,997
37,150,000 Sheffield Receivables -- 144A,
5.28%, 01/10/07............. 37,090,121
19,360,000 The Bear Stearns Companies,
Inc.,
5.24%, 02/28/07............. 19,190,923
17,990,000 The Bear Stearns Companies,
Inc.,
5.25%, 02/28/07............. 17,832,587
8,910,000 Windmill Funding
Corp. -- 144A,
5.26%, 01/25/07............. 8,876,152
------------
TOTAL COMMERCIAL PAPER (Cost
$410,841,242)............... 410,841,242
------------
YANKEE CERTIFICATES OF DEPOSIT -- 15.5%
24,880,000 Bank of Montreal,
5.31%, 01/22/07............. 24,880,000
34,670,000 Calyon NY Branch,
5.34%, 05/04/07............. 34,670,000
21,180,000 Royal Bank of Canada,
5.30%, 04/05/07............. 21,180,000
36,700,000 Societe Generale NY Branch,
5.30%, 02/01/07............. 36,700,000
26,370,000 UBS AG Stamford Branch,
5.31%, 01/05/07............. 26,370,000
------------
TOTAL YANKEE CERTIFICATES OF
DEPOSIT (Cost
$143,800,000)............... 143,800,000
------------
MEDIUM TERM CORPORATE NOTES -- 1.5%
13,660,000 Greenwich Capital Holdings
FSG, Variable Rate,
5.29%, 02/13/07(1) (Cost
$13,660,000)................ 13,660,000
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 6.5%
FEDERAL HOME LOAN BANK -- 2.8%
$ 26,210,000 5.41%, 12/28/07............... $ 26,210,000
------------
FREDDIE MAC -- 3.7%
33,900,000 4.93%, 01/18/07............... 33,811,795
------------
TOTAL SHORT TERM US GOVERNMENT
AGENCY SECURITIES
(Cost $60,021,795).......... 60,021,795
------------
SHORT TERM CORPORATE NOTES -- 15.9%
5,790,000 American Express Bank FSB,
Variable Rate,
5.43%, 11/21/07(1).......... 5,795,724
16,900,000 American Express Credit,
Series MTNB, Variable Rate,
5.45%, 04/05/07(1).......... 16,900,000
10,440,000 Canadian Imperial Bank of
Commerce NY, Variable Rate,
5.33%, 09/21/07(1).......... 10,440,000
34,000,000 Goldman Sachs Group LP -- 144A,
Series MTN, Variable Rate,
5.47%, 09/14/07(1).......... 34,036,888
32,730,000 HSBC Finance Corp., Series
MTN, Variable Rate,
5.41%, 06/01/07(1).......... 32,741,360
14,000,000 Merrill Lynch & Company, Inc.,
Series MNT5, Variable Rate,
5.60%, 02/07/07(1).......... 14,000,000
33,850,000 Morgan Stanley, Variable Rate,
5.38%, 02/02/07(1).......... 33,850,000
------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $147,763,972)... 147,763,972
------------
TOTAL SECURITIES (Cost
$776,087,009)............... 776,087,009
------------
REPURCHASE AGREEMENTS -- 15.9%
18,000,000 With Barclays Bank Agency
Mortgage, dated 12/29/06,
5.30%, due 01/02/07,
repurchase proceeds at
maturity $18,010,600
(Collateralized by Federal
Home Loan Bank, 5.19%, due
06/18/08, with a value of
$18,363,335)................ 18,000,000
27,640,000 With Credit Suisse Agency
Mortgage, dated 12/29/06,
5.32%, due 01/02/07,
repurchase proceeds at
maturity $27,656,338
(Collateralized by various
Fannie Maes, 4.00%-6.50%,
due 07/01/19-12/01/36, with
a total value of $28,194,059
and Freddie Mac Gold, 9.00%,
due 03/17/08, with a value
of $736).................... 27,640,000
</Table>
See notes to financial statements.
68
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
REPURCHASE AGREEMENTS (CONTINUED)
$ 56,245 With Investors Bank & Trust,
dated 12/29/06, 4.76%, due
01/02/07, repurchase
proceeds at maturity $56,275
(Collateralized by Small
Business Administration,
8.25%, due 09/25/28, with a
value of $59,058)........... $ 56,245
101,810,000 With Warburg Dillon Reed,
dated 12/29/06, 5.31%, due
01/02/07, repurchase
proceeds at maturity
$101,870,068 (Collateralized
by various Fannie Maes,
5.50%-6.50%, due
10/01/08-10/01/36, with a
total value of $97,290,347
and Freddie Mac Gold, 5.50%,
due 06/01/36, with a value
of $6,556,116).............. 101,810,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $147,506,245)......... 147,506,245
------------
Total Investments -- 99.7%
(Cost $923,593,254)......... 923,593,254
Other assets less
liabilities -- 0.3%......... 2,347,355
------------
NET ASSETS -- 100.0%.......... $925,940,609
============
</Table>
The aggregate cost of securities for federal income tax purposes at
December 31, 2006 is $923,593,254.
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
69
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
US TREASURY SECURITIES -- 2.4%
US TREASURY NOTES
$10,000,000 4.88%, 05/31/08(8)............. $ 9,998,440
9,500,000 5.00%, 07/31/08(8)............. 9,518,563
------------
TOTAL US TREASURY SECURITIES
(Cost $19,508,234)........... 19,517,003
------------
US GOVERNMENT AGENCY SECURITIES -- 19.3%
ASSET BACKED: MORTGAGE AND HOME
EQUITY -- 12.6%
5,400,000 Fannie Mae, Series 2003-32,
Class PE,
4.00%, 03/25/26.............. 5,280,536
1,674,851 Fannie Mae, Series 2003-34,
Class GT,
4.00%, 01/25/27.............. 1,649,646
1,405,456 Fannie Mae, Series 2003-46,
Class PQ,
3.00%, 06/25/19.............. 1,399,333
2,550,000 Fannie Mae, Series 2003-62,
Class OD,
3.50%, 04/25/26.............. 2,456,761
1,596,505 Fannie Mae, Series 2003-63,
Class GU,
4.00%, 07/25/33.............. 1,571,369
1,044,409 Fannie Mae, Series 2003-67,
Class GL,
3.00%, 01/25/25.............. 1,021,243
5,392,013 Fannie Mae, Series 2003-69,
Class GJ,
3.50%, 12/25/31.............. 5,121,996
3,819,569 Fannie Mae, Series 2003-92,
Class KQ,
3.50%, 06/25/23.............. 3,747,167
1,143,622 Fannie Mae, Series 2004-21,
Class QA,
4.00%, 11/25/17.............. 1,136,789
2,974,914 Fannie Mae, Series 2004-70,
Class DN,
4.00%, 12/25/29.............. 2,856,360
5,547,799 Fannie Mae, Series 2004-80,
Class LG,
4.00%, 10/25/16.............. 5,418,061
6,621,529 Federal Home Loan Bank, Series
00-0582, Class H,
4.75%, 10/25/10.............. 6,577,694
4,657,848 Federal Home Loan Bank, Series
1Y-9009, Class A,
4.06%, 08/25/09.............. 4,531,213
2,415,300 Federal Home Loan Bank, Series
3Q-9009, Class 1,
3.92%, 09/25/09.............. 2,349,109
8,228,486 Freddie Mac, Series 2416, Class
PE,
6.00%, 10/15/21.............. 8,320,982
1,216,040 Freddie Mac, Series 2454, Class
BG,
6.50%, 08/15/31.............. 1,224,807
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
ASSET BACKED: MORTGAGE AND HOME EQUITY
(CONTINUED)
$ 2,236,039 Freddie Mac, Series 2614, Class
JA,
3.76%, 03/15/29.............. $ 2,144,523
5,820,982 Freddie Mac, Series 2625, Class
JD,
3.25%, 07/15/17.............. 5,487,983
5,202,571 Freddie Mac, Series 2627, Class
KP,
2.87%, 12/15/16.............. 4,901,504
5,982,138 Freddie Mac, Series 2630, Class
HC,
4.00%, 01/15/17.............. 5,797,149
5,800,000 Freddie Mac, Series 2631, Class
CD,
4.00%, 10/15/26.............. 5,630,305
5,980,713 Freddie Mac, Series 2637,
Class A,
3.38%, 03/15/18.............. 5,625,746
4,592,442 Freddie Mac, Series 2672, Class
HA,
4.00%, 09/15/16.............. 4,444,250
2,483,811 Freddie Mac, Series 2760, Class
EA,
4.50%, 04/15/13.............. 2,465,057
2,057,812 Freddie Mac, Series 2782, Class
HE,
4.00%, 09/15/17.............. 1,981,826
4,634,447 Freddie Mac, Series 3056, Class
AP,
5.50%, 01/15/27.............. 4,646,755
5,650,000 Government National Mortgage
Association, Series 2006-67,
Class A,
3.95%, 11/16/30.............. 5,508,753
------------
103,296,917
------------
ASSET BACKED: US GOVERNMENT AGENCIES -- 0.6%
5,000,000 Student Loan Marketing
Association Student Loan
Trust -- 144A, Series 2003-4,
Class A5B,
3.39%, 03/15/33.............. 4,836,325
------------
FANNIE MAE -- 3.0%
7,000,000 3.00%, 03/02/07................ 6,975,177
3,800,000 5.00%, 09/15/08................ 3,797,306
700,586 PL# 254062, 6.00%, 10/01/11.... 706,807
1,670,129 PL# 254754, 4.50%, 05/01/10.... 1,643,368
2,438,903 PL# 254758, 4.50%, 06/01/13.... 2,390,316
1,221,393 PL# 254805, 5.00%, 06/01/13.... 1,211,311
2,350,065 PL# 254807, 5.00%, 07/01/13.... 2,330,664
612,106 PL# 323743, 5.00%, 04/01/14.... 605,717
349,999 PL# 429168, 6.00%, 05/01/13.... 355,576
189,128 PL# 50903, 6.00%, 09/01/08..... 189,625
261,911 PL# 50973, 6.00%, 01/01/09..... 262,600
372,572 PL# 517699, 6.00%, 07/01/14.... 378,454
</Table>
See notes to financial statements.
70
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 1,141,735 PL# 545038, 6.00%, 09/01/14.... $ 1,159,637
2,649,752 PL# 555154, 5.50%, 12/01/22.... 2,638,466
134,664 PL# 609771, 6.00%, 09/01/08.... 135,037
------------
24,780,061
------------
FEDERAL HOME LOAN BANK -- 1.5%
7,500,000 4.00%, 04/25/07................ 7,472,820
4,883,950 Series 6T-9009,
3.84%, 11/25/09.............. 4,724,398
------------
12,197,218
------------
FREDDIE MAC -- 0.6%
4,555,000 4.25%, 02/28/07................ 4,548,468
------------
FREDDIE MAC GOLD -- 0.8%
137,124 PL# E00532, 6.50%, 02/01/13.... 140,270
238,871 PL# E00542, 6.50%, 04/01/13.... 244,374
648,278 PL# E00676, 5.50%, 06/01/14.... 650,797
990,704 PL# E89557, 5.50%, 04/01/17.... 992,698
3,471,186 PL# G40426, 5.50%, 03/01/11.... 3,496,215
808,486 PL# M90802, 4.00%, 03/01/08.... 798,840
------------
6,323,194
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 0.2%
1,840,044 PL# 436708, 5.75%, 12/15/22.... 1,857,248
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES
(Cost $160,257,557).......... 157,839,431
------------
CORPORATE BONDS AND NOTES -- 76.3%
BANKS -- 8.7%
5,000,000 American Express Bank FSB,
Series BKNT, Floating Rate,
5.41%, 06/22/09(3)........... 5,004,160
4,700,000 American Express Centurion
Bank, Series BKNT,
4.38%, 07/30/09.............. 4,618,403
4,330,000 Bank of America Corp.,
7.13%, 03/01/09.............. 4,491,002
1,375,000 Bank of America Corp.,
7.80%, 02/15/10.............. 1,477,526
6,000,000 Bank of Montreal-Chicago,
7.80%, 04/01/07.............. 6,031,464
4,600,000 Bank of Scotland -- 144A
(United Kingdom),
3.50%, 11/30/07.............. 4,525,558
13,100,000 Bank One Corp.,
2.63%, 06/30/08.............. 12,601,898
2,650,000 BankBoston NA, Series BKNT,
6.38%, 04/15/08.............. 2,684,636
2,000,000 HBOS Treasury Services PLC --
144A (United Kingdom),
3.75%, 09/30/08.............. 1,948,422
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 3,025,000 National City Bank, Series
BKNT,
4.25%, 01/29/10.............. $ 2,931,192
3,630,000 US Bank NA, Series BKNT,
4.13%, 03/17/08.............. 3,572,675
3,125,000 Wachovia Corp.,
5.63%, 12/15/08.............. 3,141,734
7,000,000 Wachovia Corp., Floating Rate,
5.44%, 07/20/07(3)........... 7,006,384
3,000,000 Wells Fargo & Company,
4.20%, 01/15/10.............. 2,924,640
8,500,000 Wells Fargo & Company, Floating
Rate,
5.43%, 03/23/10(2)........... 8,513,235
------------
71,472,929
------------
EQUIPMENT RENTAL AND LEASING -- 1.3%
6,675,000 International Lease Finance
Corp.,
6.38%, 03/15/09.............. 6,822,217
4,000,000 International Lease Finance
Corp.,
4.75%, 07/01/09.............. 3,953,412
------------
10,775,629
------------
FINANCIAL SERVICES -- 8.7%
2,050,000 Caterpillar Financial Services
Corp., Series MTND,
9.50%, 02/06/07.............. 2,054,395
2,900,000 Caterpillar Financial Services
Corp., Series MTNF,
3.10%, 05/15/07.............. 2,876,063
5,000,000 Citigroup, Inc.,
3.50%, 02/01/08.............. 4,911,305
8,472,000 Citigroup, Inc.,
4.63%, 08/03/10.............. 8,327,060
8,155,000 Credit Suisse First Boston USA,
Inc.,
4.70%, 06/01/09.............. 8,078,017
1,000,000 General Electric Capital Corp.,
Series MTNA,
8.70%, 03/01/07.............. 1,004,968
2,500,000 General Electric Capital Corp.,
Series MTNA,
4.00%, 06/15/09.............. 2,435,588
1,500,000 Goldman Sachs Group, Inc.,
4.50%, 06/15/10.............. 1,469,264
8,000,000 Goldman Sachs Group, Inc.,
Series MTNB, Floating Rate,
5.77%, 10/07/11(2)........... 8,092,224
8,060,000 Lehman Brothers Holdings, Inc.,
7.00%, 02/01/08.............. 8,198,341
2,750,000 Lehman Brothers Holdings, Inc.,
Series MTNG,
3.95%, 11/10/09.............. 2,659,954
7,775,000 Merrill Lynch & Company, Inc.,
Series MTNC,
4.83%, 10/27/08.............. 7,728,622
</Table>
See notes to financial statements.
71
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
$ 6,000,000 Merrill Lynch & Company, Inc.,
Series MTNC,
4.13%, 01/15/09.............. $ 5,882,046
2,425,000 Morgan Stanley,
3.63%, 04/01/08.............. 2,376,641
2,354,000 Morgan Stanley,
3.88%, 01/15/09.............. 2,296,612
2,750,000 The Bear Stearns Companies,
Inc.,
2.88%, 07/02/08.............. 2,657,804
------------
71,048,904
------------
INSURANCE -- 2.5%
10,000,000 MetLife Global Funding
I -- 144A, Series MTN,
5.75%, 07/25/11.............. 10,199,770
2,500,000 New York Life Global
Funding -- 144A,
3.88%, 01/15/09.............. 2,433,953
5,000,000 New York Life Global Funding --
144A, Floating Rate,
5.43%, 02/26/07(2)........... 5,001,225
2,785,000 Prudential Financial, Inc.,
Series MTN,
3.75%, 05/01/08.............. 2,720,034
------------
20,354,982
------------
MACHINERY -- 0.3%
2,000,000 Caterpillar, Inc.,
7.25%, 09/15/09.............. 2,101,170
------------
MANUFACTURING -- 0.6%
4,700,000 Siemens Financiering NV -- 144A
(the Netherlands), Floating
Rate,
5.42%, 08/14/09(2)........... 4,703,520
------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 0.6%
2,525,000 Abbott Laboratories,
3.50%, 02/17/09.............. 2,444,644
2,500,000 Abbott Laboratories,
5.38%, 05/15/09.............. 2,516,215
------------
4,960,859
------------
PRIVATE ASSET BACKED: AUTOMOBILES/MOTOR
VEHICLES, AUTOMOTIVE EQUIPMENT AND
REPAIRS -- 14.8%
4,500,000 Bay View Auto Trust, Series
2005-LJ1, Class A4,
4.09%, 05/25/12.............. 4,408,001
2,500,000 BMW Vehicle Owner Trust, Series
2006-A, Class A4,
5.07%, 08/25/11.............. 2,494,207
3,000,000 Capital Auto Receivables Asset
Trust, Series 2005-1, Class
A4,
4.05%, 07/15/09.............. 2,980,921
2,669,033 Capital One Auto Finance Trust,
Series 2005-A, Class A3,
4.28%, 07/15/09.............. 2,660,471
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: AUTOMOBILES/MOTOR
VEHICLES, AUTOMOTIVE EQUIPMENT AND REPAIRS
(CONTINUED)
$ 2,000,000 Capital One Auto Finance Trust,
Series 2005-BSS, Class A3,
4.08%, 11/15/09.............. $ 1,991,091
1,962,802 Capital One Auto Finance Trust,
Series 2005-C, Class A3,
4.61%, 07/15/10.............. 1,955,984
3,500,000 Capital One Prime Auto
Receivables Trust, Series
2004-3, Class A4,
3.69%, 06/15/10.............. 3,429,904
3,149,387 Capital One Prime Auto
Receivables Trust, Series
2006-1, Class A2,
5.04%, 11/15/08.............. 3,148,785
4,500,000 Carmax Auto Owner Trust, Series
2004-2, Class A4,
3.46%, 09/15/11.............. 4,406,917
3,100,000 Carmax Auto Owner Trust, Series
2005-2, Class A4,
4.34%, 09/15/10.............. 3,051,382
696,082 Chase Manhattan Auto Owner
Trust, Series 2004-A, Class
CTFS,
2.58%, 09/15/10.............. 681,880
3,500,000 Chase Manhattan Auto Owner
Trust, Series 2005-A, Class
CTFS,
4.04%, 04/15/11.............. 3,457,069
2,000,000 Chase Manhattan Auto Owner
Trust, Series 2006-A, Class
A4,
5.36%, 01/15/13.............. 2,012,181
2,500,000 Chase Manhattan Auto Owner
Trust, Series 2006-A, Class
CTFS,
5.47%, 01/15/13.............. 2,509,377
3,200,000 Chase Manhattan Auto Owner
Trust, Series 2006-B, Class
A4,
5.11%, 04/15/14.............. 3,207,717
7,500,000 Fifth Third Auto Trust, Series
2004-A, Class A4,
3.70%, 10/20/11.............. 7,401,262
2,250,000 Ford Credit Auto Owner Trust,
Series 2005-B, Class B,
4.64%, 04/15/10.............. 2,232,630
1,000,000 Ford Credit Auto Owner Trust,
Series 2005-B, Class C,
4.83%, 08/15/10.............. 995,067
2,400,000 Ford Credit Auto Owner Trust,
Series 2005-C, Class A3,
4.30%, 08/15/09.............. 2,380,373
3,600,000 Ford Credit Auto Owner Trust,
Series 2005-C, Class B,
4.52%, 09/15/10.............. 3,550,900
4,348,597 Ford Credit Auto Owner Trust,
Series 2006-A, Class A2A,
5.04%, 09/15/08.............. 4,347,192
</Table>
See notes to financial statements.
72
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: AUTOMOBILES/MOTOR
VEHICLES, AUTOMOTIVE EQUIPMENT AND REPAIRS
(CONTINUED)
$ 1,722,067 Franklin Auto Trust, Series
2003-1, Class A4,
2.27%, 05/20/11.............. $ 1,704,086
526,974 Franklin Auto Trust, Series
2004-1, Class A2,
3.57%, 03/16/09.............. 526,072
2,439,591 Harley-Davidson Motorcycle
Trust, Series 2004-1, Class
A2,
2.53%, 11/15/11.............. 2,381,583
5,000,000 Hertz Vehicle Financing LLC --
144A, Series 2005-2A, Class
A2,
4.93%, 02/25/10.............. 4,973,738
2,000,000 Hertz Vehicle Financing LLC --
144A, Series 2005-2A, Class
A4,
5.01%, 02/25/11.............. 1,993,558
4,500,000 Honda Auto Receivables Owner
Trust, Series 2006-1, Class
A3,
5.07%, 02/18/10.............. 4,494,931
3,000,000 Hyundai Auto Receivables Trust,
Series 2006-B, Class B,
5.19%, 05/15/13.............. 3,001,698
3,500,000 Long Beach Auto Receivables
Trust, Series 2005-B, Class
A3,
4.41%, 05/15/10.............. 3,476,842
1,686,778 Long Beach Auto Receivables
Trust, Series 2006-A, Class
A2,
5.36%, 11/15/09.............. 1,687,769
116,828 National City Auto Receivables
Trust, Series 2004-A, Class
A3,
2.11%, 07/15/08.............. 116,750
4,000,000 Nissan Auto Receivables Owner
Trust, Series 2006-B, Class
A2,
5.18%, 08/15/08.............. 4,000,398
3,250,000 Onyx Acceptance Owner Trust,
Series 2005-A, Class A4,
3.91%, 09/15/11.............. 3,195,028
9,600,000 Susquehanna Auto Lease Trust --
144A, Series 2005-1, Class
A3,
4.43%, 06/16/08.............. 9,539,825
2,000,000 Susquehanna Auto Lease Trust --
144A, Series 2005-1, Class B,
4.71%, 07/14/08.............. 1,984,700
3,000,000 Susquehanna Auto Lease Trust --
144A, Series 2005-1, Class C,
5.09%, 11/14/08.............. 2,974,643
3,500,458 WFS Financial Owner Trust,
Series 2004-1, Class A4,
2.81%, 08/22/11.............. 3,443,358
4,419,084 World Omni Auto Receivables
Trust, Series 2006-A, Class
A2,
5.05%, 10/15/08.............. 4,419,369
4,550,000 World Omni Auto Receivables
Trust, Series 2006-B, Class
A4,
5.12%, 06/15/12.............. 4,556,552
------------
121,774,211
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: CREDIT CARDS -- 5.3%
$ 8,000,000 Cabela's Master Credit Card
Trust -- 144A, Series
2006-3A, Class A1,
5.26%, 10/15/14.............. $ 8,061,250
7,000,000 Capital One Multi-Asset
Execution Trust, Series
2006-A6, Class A6,
5.30%, 02/18/14.............. 7,081,435
6,435,000 Citibank Credit Card Issuance
Trust, Series 2004-A1, Class
A1,
2.55%, 01/20/09.............. 6,429,991
8,000,000 Citibank Credit Card Issuance
Trust, Series 2006-A4, Class
A4,
5.45%, 05/10/13.............. 8,113,471
1,925,000 Citibank Credit Card Issuance
Trust, Series 2006-B2, Class
B2,
5.15%, 03/07/11.............. 1,922,633
2,385,000 Discover Card Master Trust I,
Series 2002-2, Class A,
5.15%, 10/15/09.............. 2,386,014
1,550,000 Discover Card Master Trust I,
Series 2002-2, Class B,
5.45%, 10/15/09.............. 1,550,318
8,000,000 GE Capital Credit Card Master
Note Trust, Series 2006-1,
Class A,
5.08%, 09/15/12.............. 8,015,258
------------
43,560,370
------------
PRIVATE ASSET BACKED: FINANCIAL
SERVICES -- 5.8%
1,388,022 Caterpillar Financial Asset
Trust, Series 2004-A, Class
A3,
3.13%, 01/26/09.............. 1,377,860
5,000,000 Caterpillar Financial Asset
Trust, Series 2005-A, Class
A4,
4.10%, 06/25/10.............. 4,928,601
3,000,000 Caterpillar Financial Asset
Trust, Series 2006-A, Class
B,
5.71%, 06/25/12.............. 3,045,849
2,524,309 Community Program Loan Trust,
Series 1987-A, Class A4,
4.50%, 10/01/18.............. 2,485,422
6,398,023 Greenwich Capital Commercial
Funding Corp., Series
2005-GG5, Class A1,
4.79%, 04/10/37.............. 6,341,235
6,821,102 Greenwich Capital Commercial
Funding Corp., Series
2006-GG7, Class A1,
5.74%, 12/10/10.............. 6,914,323
1,171,308 Morgan Stanley Capital I,
Series 2003-T11, Class A1,
3.26%, 06/13/41.............. 1,144,773
995,125 Morgan Stanley Capital I,
Series 2004-T13, Class A1,
2.85%, 09/13/45.............. 967,670
6,435,459 Morgan Stanley Capital I,
Series 2005-HQ5, Class A1,
4.52%, 01/14/42.............. 6,352,342
</Table>
See notes to financial statements.
73
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: FINANCIAL SERVICES
(CONTINUED)
$ 2,443,250 Morgan Stanley Capital I,
Series 2005-HQ6, Class A1,
4.65%, 08/13/42.............. $ 2,411,621
4,949,613 Morgan Stanley Capital I,
Series 2006-HQ10, Class A1,
5.13%, 11/12/41.............. 4,935,414
4,337,648 Morgan Stanley Capital I,
Series 2006-IQ11, Class A1,
5.55%, 10/15/42.............. 4,362,077
2,007,165 Public Service New Hampshire
Funding LLC, Series 2001-1,
Class A2,
5.73%, 11/01/10.............. 2,018,005
------------
47,285,192
------------
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY -- 13.5%
2,186,048 American General Mortgage Loan
Trust, Series 2006-1, Class
A1,
5.75%, 12/25/35.............. 2,183,492
880,240 Banc of America Commercial
Mortgage, Inc., Series
2002-2, Class A1,
3.37%, 07/11/43.............. 874,943
1,677,118 Banc of America Commercial
Mortgage, Inc., Series
2003-2, Class A1,
3.41%, 03/11/41.............. 1,639,246
5,000,000 Banc of America Commercial
Mortgage, Inc., Series
2006-4, Class A2,
5.52%, 07/10/46.............. 5,057,559
751,806 Bear Stearns Commercial
Mortgage Securities, Inc.,
Series 1998-C1, Class A1,
6.34%, 06/16/30.............. 753,496
270,068 Bear Stearns Commercial
Mortgage Securities, Inc.,
Series 1999-C1, Class A1,
5.91%, 02/14/31.............. 270,298
789,254 Bear Stearns Commercial
Mortgage Securities, Inc.,
Series 2001-TOP4, Class A1,
5.06%, 11/15/16.............. 785,386
2,038,521 Bear Stearns Commercial
Mortgage Securities, Inc.,
Series 2002-PBW1, Class A1,
3.97%, 11/11/35.............. 1,991,183
1,390,123 Bear Stearns Commercial
Mortgage Securities, Inc.,
Series 2004-PWR5, Class A1,
3.76%, 07/11/42.............. 1,356,970
1,699,296 Bear Stearns Commercial
Mortgage Securities, Inc.,
Series 2005-PWR9, Class A1,
4.50%, 09/11/42.............. 1,672,485
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 3,678,090 Bear Stearns Commercial
Mortgage Securities, Inc.,
Series 2006-T22, Class A1,
5.42%, 04/12/38.............. $ 3,692,181
3,571,688 Citigroup/Deutsche Bank
Commercial Mortgage Trust,
Series 2005-CD1, Class A1,
5.05%, 07/15/44.............. 3,554,980
1,164,835 Commercial Mortgage Pass-
Through Certificates, Series
2004-LB2A, Class A1,
2.96%, 03/10/39.............. 1,136,596
4,378,468 Credit Suisse First Boston
Mortgage Securities Corp.,
Series 2001-CP4, Class A2,
5.87%, 12/15/35.............. 4,387,343
1,874,403 Credit Suisse First Boston
Mortgage Securities Corp.,
Series 2003-C3, Class A1,
2.08%, 05/15/38.............. 1,827,328
1,236,744 Credit Suisse First Boston
Mortgage Securities Corp.,
Series 2004-C1, Class A1,
2.25%, 01/15/37.............. 1,219,146
406,607 GE Capital Commercial Mortgage
Corp., Series 2001-3, Class
A1,
5.56%, 06/10/38.............. 409,347
5,507,915 GE Capital Commercial Mortgage
Corp., Series 2002-1A, Class
A2,
5.99%, 12/10/35.............. 5,588,595
3,394,725 GE Capital Commercial Mortgage
Corp., Series 2002-3A, Class
A1,
4.23%, 12/10/37.............. 3,323,502
1,693,528 GE Capital Commercial Mortgage
Corp., Series 2004-C3, Class
A1,
3.75%, 07/10/39.............. 1,659,234
1,797,290 GE Capital Commercial Mortgage
Corp., Series 2005-C1, Class
A1,
4.01%, 06/10/48.............. 1,761,698
2,034,795 GMAC Mortgage Corp. Loan Trust,
Series 2004-GH1, Class A2,
4.39%, 12/25/25.............. 2,016,001
774,126 Interstar Millennium Trust,
Series 2003-3G, Class A2
(Australia), Floating Rate,
5.62%, 09/27/35(2)........... 776,575
1,315,642 Interstar Millennium Trust,
Series 2004-2G, Class A
(Australia), Floating Rate,
5.56%, 03/14/36(2)........... 1,318,883
715,241 JPMorgan Chase Commercial
Mortgage Securities Corp.,
Series 2002-C2, Class A1,
4.33%, 12/12/34.............. 698,988
3,530,240 JPMorgan Chase Commercial
Mortgage Securities Corp.,
Series 2005-LDP4, Class A1,
4.61%, 10/15/42.............. 3,491,819
</Table>
See notes to financial statements.
74
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 1,173,412 LB-UBS Commercial Mortgage
Trust, Series 2003-C1, Class
A1,
2.72%, 03/15/27.............. $ 1,147,936
1,850,000 LB-UBS Commercial Mortgage
Trust, Series 2003-C1, Class
A2,
3.32%, 03/15/27.............. 1,807,970
2,095,049 LB-UBS Commercial Mortgage
Trust, Series 2003-C3, Class
A1,
2.60%, 05/15/27.............. 2,039,198
3,000,000 LB-UBS Commercial Mortgage
Trust, Series 2003-C5, Class
A2,
3.48%, 07/15/27.............. 2,919,997
1,054,214 LB-UBS Commercial Mortgage
Trust, Series 2004-C8, Class
A1,
3.94%, 12/15/29.............. 1,037,741
842,632 LB-UBS Commercial Mortgage
Trust, Series 2005-C5, Class
A1,
4.74%, 09/15/40.............. 834,972
4,243,132 LB-UBS Commercial Mortgage
Trust, Series 2005-C7, Class
A1,
4.99%, 11/15/30.............. 4,222,613
7,526,944 Nomura Home Equity Loan, Inc.,
Series 2006-AF1, Class A1,
6.03%, 10/25/36.............. 7,515,184
2,300,000 Permanent Financing PLC, Series
7, Class 2A (United Kingdom),
Floating Rate,
5.39%, 09/10/14(2)........... 2,300,585
3,000,000 Popular ABS Mortgage Pass-
Through Trust, Series 2005-3,
Class AF3,
4.44%, 07/25/35.............. 2,952,675
6,297,034 Structured Adjustable Rate
Mortgage Loan, Series
2005-23, Class 1A3,
5.45%, 01/25/36.............. 6,287,379
6,567,682 Structured Adjustable Rate
Mortgage Loan, Series 2006-1,
Class 5A1,
5.25%, 02/25/36.............. 6,527,169
2,922,893 Wachovia Bank Commercial
Mortgage Trust, Series
2003-4, Class A1,
3.00%, 04/15/35.............. 2,858,822
7,810,039 Washington Mutual Mortgage
Pass-Through Certificates,
WMALT Series 2005-8, Class
1A8,
5.50%, 10/25/35.............. 7,810,438
1,708,639 Wells Fargo Mortgage Backed
Securities Trust, Series
2003-11, Class 1A1,
3.50%, 10/25/18.............. 1,680,784
5,139,504 Wells Fargo Mortgage Backed
Securities Trust, Series
2005-9, Class 1A1,
4.75%, 10/25/35.............. 5,061,383
------------
110,452,120
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: OTHER -- 7.0%
$ 5,000,000 ALG Student Loan Trust -- 144A,
Series 2006-1A, Class A1,
Floating Rate,
5.39%, 10/28/18(2)........... $ 5,003,625
1,089,122 Bear Stearns Asset Backed
Securities, Inc., Series
2003-AC3, Class A1,
4.00%, 07/25/33.............. 1,065,959
3,388,368 California Infrastructure PG&E
Corp., Series 1997-1, Class
A8,
6.48%, 12/26/09.............. 3,415,922
215,883 CIT Equipment Collateral,
Series 2004-VT1, Class A3,
2.20%, 03/20/08.............. 215,191
7,170,000 CIT Equipment Collateral,
Series 2006-VT1, Class A3,
5.13%, 12/21/09.............. 7,165,463
758,213 CIT RV Trust, Series 1998-A,
Class A5,
6.12%, 11/15/13.............. 758,838
1,997,562 CNH Equipment Trust, Series
2004-A, Class A3B,
2.94%, 10/15/08.............. 1,984,182
3,000,000 CNH Equipment Trust, Series
2006-B, Class B,
5.36%, 06/17/13.............. 3,015,311
1,596,462 Connecticut RRB Special Purpose
Trust CL&P1, Series 2001-1,
Class A3,
5.73%, 03/30/09.............. 1,598,389
1,598,460 Crusade Global Trust, Series
2004-2, Class A1 (Australia),
Floating Rate,
5.51%, 11/19/37(2)........... 1,601,015
5,500,000 GE Equipment Midticket LLC,
Series 2006-1, Class A2,
5.10%, 05/15/09.............. 5,492,368
3,248,313 Goal Capital Funding Trust,
Series 2006-1, Class A1,
Floating Rate,
5.37%, 08/25/20(2)........... 3,251,006
3,750,000 Great America Leasing
Receivables -- 144A, Series
2006-1, Class A3,
5.34%, 01/15/10.............. 3,754,250
7,000,000 John Deere Owner Trust, Series
2006-A, Class A3,
5.38%, 07/15/10.............. 7,023,424
2,524,929 Marlin Leasing Receivables
LLC -- 144A, Series 2005-1A,
Class A2,
4.49%, 01/15/08.............. 2,521,509
3,501,000 Marlin Leasing Receivables
LLC -- 144A, Series 2006-1A,
Class A4,
5.33%, 09/16/13.............. 3,499,906
2,461,375 Nelnet Student Loan Corp.,
Series 2001-A, Class A1,
5.76%, 07/01/12.............. 2,473,918
</Table>
See notes to financial statements.
75
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: OTHER (CONTINUED)
$ 801,669 PBG Equipment Trust, Series 1A,
Class A,
6.27%, 01/20/12.............. $ 802,665
2,400,000 Providian Gateway Master
Trust -- 144A, Series
2004-FA, Class A,
3.65%, 11/15/11.............. 2,365,126
------------
57,008,067
------------
PRIVATE ASSET BACKED: TRANSPORTATION -- 0.9%
2,150,000 E-Trade RV and Marine Trust,
Series 2004-1, Class A3,
3.62%, 10/08/18.............. 2,074,189
4,750,879 Railcar Leasing LLC, Series 1,
Class A2,
7.13%, 01/15/13.............. 4,942,838
------------
7,017,027
------------
PRIVATE ASSET BACKED: UTILITIES -- 0.2%
1,601,700 PECO Energy Transition Trust,
Series 1999-A, Class A6,
6.05%, 03/01/09.............. 1,604,743
------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 1.1%
8,575,000 Sprint Capital Corp.,
7.63%, 01/30/11.............. 9,189,287
------------
UTILITIES -- 5.0%
6,725,000 Alabama Power Company, Series
G,
5.38%, 10/01/08.............. 6,727,273
5,125,000 Consolidated Edison Company of
New York, Inc.,
4.70%, 06/15/09.............. 5,068,348
2,900,000 Dominion Resources, Inc.,
4.13%, 02/15/08.............. 2,857,474
8,170,000 Exelon Generation Company LLC,
6.95%, 06/15/11.............. 8,615,037
1,625,000 FirstEnergy Corp., Series B,
6.45%, 11/15/11.............. 1,696,328
3,195,000 Northern States Power
Company -- Minnesota,
6.88%, 08/01/09.............. 3,309,231
5,200,000 Northern States Power
Company -- Wisconsin,
7.64%, 10/01/08.............. 5,385,942
6,664,000 Ohio Edison,
4.00%, 05/01/08.............. 6,541,995
450,000 Xcel Energy, Inc.,
3.40%, 07/01/08.............. 436,981
------------
40,638,609
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $628,297,566).......... 623,947,619
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
FOREIGN GOVERNMENT OBLIGATIONS -- 0.5%
$ 4,000,000 Province of Ontario (Canada),
5.50%, 10/01/08 (Cost
$4,111,482).................. $ 4,024,572
------------
MUNICIPAL BONDS -- 0.8%
TEXAS
6,350,000 Brazos Texas Higher Education
Authority, Revenue Bond,
Series A-5,
4.91%, 12/01/40
(Cost $6,281,539)............ 6,321,933
------------
SECURITIES LENDING COLLATERAL -- 1.0%
8,411,400 Securities Lending Collateral
Investment (Note 4)
(Cost $8,411,400)............ 8,411,400
------------
TOTAL SECURITIES
(Cost $826,867,778).......... 820,061,958
------------
REPURCHASE AGREEMENTS -- 1.1%
8,819,366 With Investors Bank and Trust,
dated 12/29/06, 4.76%, due
01/02/07, repurchase proceeds
at maturity $8,824,031
(Collateralized by Fannie Mae
Adjustable Rate Mortgage,
5.85%, due 03/25/33, with a
value of $9,260,334)
(Cost $8,819,366)............ 8,819,366
------------
Total Investments -- 101.4%
(Cost $835,687,144).......... 828,881,324
Liabilities less other
assets -- (1.4)%............. (11,258,138)
------------
NET ASSETS -- 100.0%........... $817,623,186
============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $835,687,144.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation.......... $ 1,255,281
Gross unrealized depreciation.......... (8,061,101)
------------
Net unrealized depreciation............ $ (6,805,820)
============
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
76
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
US TREASURY SECURITIES -- 30.8%
US TREASURY NOTES
$ 6,640,000 4.00%, 06/15/09(8)............. $ 6,527,691
15,472,000 3.63%, 07/15/09................ 15,068,892
5,844,000 4.88%, 05/31/11(8)............. 5,886,007
5,675,000 4.63%, 10/31/11(8)............. 5,656,159
11,013,000 4.88%, 02/15/12(8)............. 11,117,117
2,144,000 5.13%, 05/15/16(8)............. 2,209,075
------------
TOTAL US TREASURY SECURITIES
(Cost $46,460,908)........... 46,464,941
------------
US GOVERNMENT AGENCY SECURITIES -- 53.5%
FANNIE MAE -- 42.2%
21,670,000 3.88%, 07/15/08................ 21,294,762
20,241,000 6.00%, 05/15/11................ 21,095,777
6,869,000 5.25%, 09/15/16................ 7,006,407
1,377,938 PL# 783602, Variable Rate,
4.88%, 04/01/35(1)........... 1,360,497
2,659,401 PL# 819657, Variable Rate,
4.84%, 03/01/35(1)........... 2,625,208
3,743,434 PL# 820406,
5.00%, 04/01/20.............. 3,681,351
320,060 PL# 821139,
5.00%, 05/01/20.............. 314,752
2,104,944 PL# 833731,
5.00%, 07/01/20.............. 2,070,035
2,562,623 PL# 841029, Variable Rate,
5.09%, 10/01/35(1)........... 2,556,624
1,241,290 PL# 903374, Variable Rate,
5.54%, 10/01/36(1)........... 1,248,316
242,992 PL# 905549,
5.00%, 11/01/21.............. 238,932
------------
63,492,661
------------
FEDERAL HOME LOAN BANK -- 5.7%
5,580,000 4.13%, 04/18/08................ 5,510,947
3,100,000 5.40%, 12/11/08................ 3,090,474
------------
8,601,421
------------
FREDDIE MAC -- 5.6%
454,473 PL# 1G1232, Variable Rate,
5.57%, 10/01/36(1)........... 457,268
3,866,498 PL# 1G1286, Variable Rate,
5.58%, 11/01/36(1)........... 3,890,639
2,964,993 PL# 1G1319, Variable Rate,
5.61%, 11/01/36(1)........... 2,979,771
1,167,766 PL# 1K1226, Variable Rate,
5.26%, 02/01/36(1)........... 1,162,689
------------
8,490,367
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost
$80,502,874)................. $ 80,584,449
------------
CORPORATE BONDS AND NOTES -- 10.4%
PRIVATE ASSET BACKED: MORTGAGE
AND HOME EQUITY
$ 1,044,000 Ameriquest Mortgage Securities,
Inc., Series 2003-IA1, Class
A4,
4.97%, 11/25/33.............. 1,032,491
1,284,000 Banc of America Commercial
Mortgage, Inc., Series
2005-6, Class A4, Variable
Rate,
5.18%, 09/10/47(1)........... 1,276,667
1,489,000 Citigroup Commercial Mortgage
Trust, Series 2004-C2, Class
A5,
4.73%, 10/15/41.............. 1,435,351
2,044,000 Citigroup/Deutsche Bank
Commercial Mortgage Trust,
Series 2006-CD2, Class A2,
5.41%, 01/15/46.............. 2,057,420
1,380,000 Citigroup/Deutsche Bank
Commercial Mortgage Trust,
Series 2006-CD2, Class A4,
Variable Rate,
5.36%, 01/15/46(1)(8)........ 1,388,853
2,588,000 Commercial Mortgage Pass-
Through Certificates, Series
2005-C6, Class A5A,
5.12%, 06/10/44.............. 2,553,199
2,627,000 JPMorgan Chase Commercial
Mortgage Securities Corp.,
Series 2005-LDP3, Class A4A,
4.94%, 08/15/42.............. 2,555,353
1,241,000 JPMorgan Chase Commercial
Mortgage Securities Corp.,
Series 2006-LDP9, Class A3,
5.34%, 05/15/47.............. 1,237,151
1,317,000 Merrill Lynch/Countrywide
Commercial Mortgage Trust,
Series 2006-4, Class A3,
5.17%, 12/12/49.............. 1,298,885
792,000 Renaissance Home Equity Loan
Trust, Series 2006-2, Class
AF3,
5.80%, 08/25/36.............. 796,458
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $15,704,564)........... 15,631,828
------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 3.8%
FANNIE MAE -- 2.9%
2,503,000 5.17%, 01/17/07................ 2,496,106
1,849,000 5.13%, 01/22/07................ 1,842,940
------------
4,339,046
------------
</Table>
See notes to financial statements.
77
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES (CONTINUED)
FREDDIE MAC -- 0.9%
$ 141,000 Series RB,
5.15%, 01/18/07.............. $ 140,617
1,249,000 Series RB,
5.15%, 02/01/07.............. 1,243,109
------------
1,383,726
------------
TOTAL SHORT TERM US GOVERNMENT
AGENCY SECURITIES
(Cost $5,722,772)............ 5,722,772
------------
SECURITIES LENDING COLLATERAL -- 19.5%
29,452,986 Securities Lending Collateral
Investment (Note 4)
(Cost $29,452,986)........... 29,452,986
------------
Total Investments -- 118.0%
(Cost $177,844,104).......... 177,856,976
Liabilities less other
assets -- (18.0)%............ (27,175,808)
------------
NET ASSETS -- 100.0%........... $150,681,168
============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $177,870,337.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation............. $318,728
Gross unrealized depreciation............. (332,089)
--------
Net unrealized depreciation............... $(13,361)
========
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
78
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US TREASURY SECURITIES -- 6.3%
US TREASURY BONDS -- 0.3%
$ 4,500,000 6.25%, 08/15/23............. $ 5,180,980
390,000 4.50%, 02/15/36(8).......... 370,988
--------------
5,551,968
--------------
US TREASURY INFLATION INDEX -- 1.7%
10,084,783 2.00%, 07/15/14............. 9,791,306
5,163,864 2.50%, 07/15/16............. 5,204,612
22,308,950 2.00%, 01/15/26............. 20,987,859
--------------
35,983,777
--------------
US TREASURY NOTES -- 3.3%
44,045,000 4.88%, 08/15/16............. 44,585,256
25,690,000 4.63%, 11/15/16............. 25,529,463
--------------
70,114,719
--------------
US TREASURY STRIPS -- 1.0%
12,125,000 Zero coupon, 11/15/21....... 5,842,480
38,580,000 Zero coupon, 11/15/27....... 13,988,683
--------------
19,831,163
--------------
TOTAL US TREASURY SECURITIES
(Cost $131,972,814)....... 131,481,627
--------------
US GOVERNMENT AGENCY SECURITIES -- 54.3%
ASSET BACKED: MORTGAGE AND HOME
EQUITY -- 6.7%
52,887,921 Fannie Mae IO Strips, Series
360, Class 2,
5.00%, 08/01/35........... 12,786,327
24,524,658 Fannie Mae IO Strips, Series
378, Class 4,
5.00%, 11/01/35........... 5,907,742
2,428,778 Fannie Mae, Series 1999-7,
Class AB,
6.00%, 03/25/29........... 2,453,246
8,956,387 Fannie Mae, Series 2003-35,
Class TE,
5.00%, 05/25/18........... 8,776,391
5,014,015 Fannie Mae, Series 2004-101,
Class AR,
5.50%, 01/25/35........... 5,031,834
6,204,838 Fannie Mae, Series 2004-60,
Class LB,
5.00%, 04/25/34........... 6,095,740
7,294,548 Fannie Mae, Series 2004-99,
Class A0,
5.50%, 01/25/34........... 7,278,202
14,488,082 Fannie Mae, Series 2005-47,
Class PA,
5.50%, 09/25/24........... 14,489,692
6,803,850 Fannie Mae, Series 2005-51,
Class TA,
5.50%, 12/25/33........... 6,796,720
4,285,196 Fannie Mae, Series 2005-57,
Class PA,
5.50%, 05/25/27........... 4,290,645
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
ASSET BACKED: MORTGAGE AND HOME EQUITY
(CONTINUED)
$ 251,416 Fannie Mae, Series 2005-70,
Class NA,
5.50%, 08/25/35........... $ 251,739
9,124,887 Fannie Mae, Series 2005-80,
Class PB,
5.50%, 04/25/30........... 9,153,255
6,043,824 Freddie Mac, Series 2825,
Class VP,
5.50%, 06/15/15........... 6,078,073
4,281,049 Freddie Mac, Series 2877,
Class PA,
5.50%, 07/15/33........... 4,290,267
8,549,496 Freddie Mac, Series 2927,
Class BA,
5.50%, 10/15/33........... 8,580,283
13,431,634 Freddie Mac, Series 2984,
Class NA,
5.50%, 04/15/26........... 13,461,467
6,338,003 Freddie Mac, Series 2996,
Class MK,
5.50%, 06/15/35........... 6,361,755
16,075,394 Freddie Mac, Series 3138,
Class PA,
5.50%, 02/15/27........... 16,122,744
--------------
138,206,122
--------------
ASSET BACKED: US GOVERNMENT AGENCIES -- 0.2%
1,971,854 Small Business
Administration, Series
2002-P10B, Class I,
5.20%, 08/01/12........... 1,977,634
2,334,847 Small Business
Administration, Series
2004-P10A,
4.50%, 02/10/14........... 2,265,693
--------------
4,243,327
--------------
FANNIE MAE -- 37.8%
25,850,000 2.71%, 01/30/07............. 25,801,066
14,090,000 2.35%, 04/05/07............. 13,990,341
25,000,000 4.38%, 12/17/07............. 24,804,575
14,550,000 7.25%, 01/15/10............. 15,490,206
14,850,000 4.63%, 06/01/10............. 14,689,783
4,100,000 5.25%, 08/01/12............. 4,124,871
10,200,000 4.63%, 05/01/13............. 9,899,753
308,153 PL# 252571,
7.00%, 07/01/29........... 317,786
4,961 PL# 252716,
7.00%, 09/01/29........... 5,116
1,172 PL# 253264,
7.00%, 05/01/30........... 1,207
1,024 PL# 253346,
7.50%, 06/01/30........... 1,066
14,708 PL# 253479,
7.00%, 10/01/30........... 15,149
35,274 PL# 253990,
7.00%, 09/01/16........... 36,276
</Table>
See notes to financial statements.
79
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 27,105 PL# 254008,
7.00%, 10/01/31........... $ 27,901
377,257 PL# 254346,
6.50%, 06/01/32........... 386,022
323,998 PL# 254406,
6.50%, 08/01/32........... 331,526
15,545 PL# 255032,
5.50%, 12/01/18........... 15,585
210,668 PL# 255950,
6.00%, 09/01/15........... 213,899
632,684 PL# 256137,
6.00%, 02/01/16........... 642,386
699,549 PL# 256335,
6.00%, 07/01/16........... 710,277
936,989 PL# 323842,
5.50%, 07/01/14........... 941,290
51,533 PL# 323967,
7.00%, 10/01/29........... 53,144
2,505,382 PL# 357327,
5.00%, 01/01/18........... 2,471,569
5,056 PL# 492742,
7.00%, 05/01/29........... 5,214
5,001 PL# 503916,
7.50%, 06/01/29........... 5,221
2,218 PL# 508415,
7.00%, 08/01/29........... 2,287
12,444 PL# 515946,
7.00%, 10/01/29........... 12,833
443 PL# 524164,
7.00%, 11/01/29........... 457
114,176 PL# 524657,
7.00%, 01/01/30........... 117,596
24,299 PL# 526053,
7.00%, 12/01/29........... 25,059
519 PL# 527717,
7.50%, 01/01/30........... 542
7,960 PL# 528107,
7.00%, 02/01/30........... 8,209
1,312 PL# 531092,
7.50%, 10/01/29........... 1,370
11,281 PL# 531497,
7.00%, 02/01/30........... 11,619
6,490 PL# 531735,
7.00%, 02/01/30........... 6,684
951 PL# 533841,
7.50%, 12/01/30........... 991
25,355 PL# 535030,
7.00%, 12/01/29........... 26,148
37,886 PL# 535103,
7.00%, 01/01/15........... 38,997
9,652 PL# 535159,
7.00%, 02/01/30........... 9,954
44,591 PL# 535195,
7.00%, 03/01/30........... 45,985
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 14,759 PL# 535277,
7.00%, 04/01/30........... $ 15,220
462,065 PL# 535675,
7.00%, 01/01/16........... 475,312
1,013 PL# 535722,
7.00%, 02/01/31........... 1,043
6,812 PL# 535723,
7.00%, 02/01/31........... 7,016
1,583 PL# 535811,
6.50%, 04/01/31........... 1,621
104,794 PL# 535880,
7.00%, 02/01/31........... 108,013
1,523 PL# 540211,
7.50%, 06/01/30........... 1,586
5,978 PL# 542999,
7.50%, 08/01/30........... 6,227
105,078 PL# 545194,
7.00%, 08/01/31........... 108,160
128,892 PL# 545249,
5.50%, 10/01/16........... 129,302
655,811 PL# 545298,
5.50%, 11/01/16........... 657,899
6,863 PL# 545363,
5.50%, 11/01/16........... 6,885
2,529,706 PL# 545411,
5.50%, 01/01/17........... 2,537,760
32,394 PL# 545477,
7.00%, 03/01/32........... 33,334
255,184 PL# 545759,
6.50%, 07/01/32........... 261,112
995,336 PL# 545760,
6.50%, 07/01/32........... 1,018,461
187,213 PL# 545762,
6.50%, 07/01/32........... 191,563
34,694 PL# 545815,
7.00%, 07/01/32........... 35,712
66,613 PL# 548822,
7.00%, 08/01/30........... 68,609
42,108 PL# 549659,
7.00%, 02/01/16........... 43,304
14,812 PL# 549962,
7.00%, 10/01/30........... 15,256
47,103 PL# 549975,
7.00%, 10/01/30........... 48,514
5,755 PL# 550440,
7.00%, 02/01/16........... 5,918
38 PL# 550544,
7.50%, 09/01/30........... 39
52,915 PL# 554493,
7.00%, 10/01/30........... 54,500
288,057 PL# 555114,
5.50%, 12/01/17........... 288,834
33,781 PL# 555144,
7.00%, 10/01/32........... 34,799
</Table>
See notes to financial statements.
80
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 446,607 PL# 555254,
6.50%, 01/01/33........... $ 457,357
256,926 PL# 555798,
6.50%, 05/01/33........... 263,110
1,614 PL# 558362,
7.50%, 11/01/30........... 1,681
606 PL# 558519,
7.50%, 11/01/30........... 631
5,894 PL# 559277,
7.00%, 10/01/30........... 6,071
40,977 PL# 559313,
7.00%, 12/01/30........... 42,205
1,281 PL# 559741,
7.50%, 01/01/31........... 1,333
26,145 PL# 560384,
7.00%, 11/01/30........... 26,928
1,453 PL# 560596,
7.50%, 01/01/31........... 1,513
2,854 PL# 561678,
7.50%, 12/01/30........... 2,973
1,496 PL# 564080,
7.50%, 12/01/30........... 1,558
11,005 PL# 564183,
7.00%, 12/01/30........... 11,335
1,738 PL# 564529,
7.50%, 12/01/30........... 1,811
13,765 PL# 566658,
7.00%, 02/01/31........... 14,169
92,463 PL# 572453,
5.50%, 04/01/16........... 92,758
6,429 PL# 575285,
7.50%, 03/01/31........... 6,691
7,155 PL# 579161,
6.50%, 04/01/31........... 7,327
509,090 PL# 580165,
5.50%, 09/01/16........... 510,711
14,348 PL# 580179,
7.00%, 10/01/16........... 14,756
704 PL# 580377,
7.50%, 04/01/31........... 733
57,505 PL# 580515,
5.50%, 04/01/16........... 57,688
9,686 PL# 584811,
7.00%, 05/01/31........... 9,971
136,831 PL# 585248,
7.00%, 06/01/31........... 140,929
227,882 PL# 589120,
5.50%, 11/01/16........... 228,608
1,132 PL# 589405,
7.50%, 06/01/31........... 1,178
10,299 PL# 589893,
7.00%, 06/01/31........... 10,601
4,698 PL# 592129,
7.50%, 06/01/31........... 4,890
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 8,358 PL# 596895,
6.50%, 07/01/31........... $ 8,559
11,790 PL# 598125,
7.00%, 09/01/16........... 12,124
11,173 PL# 602148,
5.50%, 09/01/16........... 11,208
72,252 PL# 604517,
5.50%, 11/01/16........... 72,482
8,605 PL# 606551,
6.50%, 10/01/31........... 8,813
3,086 PL# 606600,
7.00%, 10/01/31........... 3,177
52,931 PL# 607386,
5.50%, 11/01/16........... 53,099
76,460 PL# 607493,
5.50%, 11/01/16........... 76,703
22,477 PL# 610128,
7.00%, 10/01/31........... 23,136
208,812 PL# 610579,
5.50%, 12/01/16........... 209,477
20,192 PL# 611323,
7.00%, 10/01/16........... 20,766
31,309 PL# 612071,
5.50%, 11/01/16........... 31,409
200,511 PL# 614506,
5.50%, 11/01/16........... 201,150
2,025,582 PL# 619054,
5.50%, 02/01/17........... 2,031,048
6,337 PL# 622119,
6.50%, 01/01/32........... 6,489
254,431 PL# 624035,
6.50%, 01/01/32........... 261,031
12,723 PL# 629236,
6.50%, 02/01/32........... 13,018
751,252 PL# 631321,
5.50%, 02/01/17........... 753,279
59,543 PL# 631606,
5.50%, 03/01/17........... 59,703
51,877 PL# 632269,
7.00%, 05/01/32........... 53,398
8,397 PL# 634563,
6.50%, 03/01/32........... 8,592
61,221 PL# 634949,
7.00%, 05/01/32........... 62,996
272,966 PL# 635164,
6.50%, 08/01/32........... 279,308
2,514 PL# 644932,
6.50%, 07/01/32........... 2,572
5,591 PL# 647556,
7.00%, 01/01/30........... 5,766
520,622 PL# 648795,
6.50%, 08/01/32........... 532,718
184,903 PL# 650206,
5.50%, 01/01/18........... 185,402
</Table>
See notes to financial statements.
81
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 71,219 PL# 650291,
6.50%, 07/01/32........... $ 72,874
36,988 PL# 650891,
6.50%, 07/01/32........... 37,848
263,716 PL# 651649,
6.50%, 08/01/32........... 269,843
1,105,321 PL# 652127,
6.50%, 06/01/32........... 1,131,001
3,511 PL# 663353,
6.50%, 09/01/32........... 3,593
41,270 PL# 664188,
5.50%, 09/01/17........... 41,382
73,920 PL# 664194,
5.50%, 09/01/17........... 74,119
468,004 PL# 670402,
6.50%, 06/01/32........... 478,877
219,503 PL# 675314,
5.50%, 12/01/17........... 220,096
330,499 PL# 676800,
5.50%, 01/01/18........... 331,391
498,693 PL# 679631,
5.50%, 02/01/18........... 499,801
8,932 PL# 681343,
5.50%, 02/01/18........... 8,952
415,138 PL# 683199,
5.50%, 02/01/18........... 416,060
3,546,627 PL# 684231,
5.00%, 01/01/18........... 3,498,761
5,868,984 PL# 687889,
5.50%, 03/01/33........... 5,810,992
908,105 PL# 688521,
5.00%, 03/01/18........... 895,026
940,755 PL# 691189,
6.50%, 09/01/36........... 958,786
925,064 PL# 694200,
4.50%, 05/01/18........... 895,336
5,630 PL# 694372,
6.50%, 11/01/32........... 5,761
319,971 PL# 694380,
5.00%, 03/01/18........... 315,362
87,126 PL# 695925,
5.50%, 05/01/18........... 87,319
1,519,444 PL# 701161,
4.50%, 04/01/18........... 1,469,853
10,972 PL# 701236,
5.50%, 05/01/18........... 10,996
4,964,418 PL# 703443,
5.00%, 05/01/18........... 4,892,917
9,305 PL# 708637,
5.50%, 06/01/18........... 9,325
602,043 PL# 711636,
4.50%, 05/01/18........... 582,394
5,037,919 PL# 711997,
4.50%, 09/01/18........... 4,873,492
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 2,433,472 PL# 720317,
5.00%, 07/01/18........... $ 2,398,424
15,616 PL# 725071,
5.50%, 12/01/18........... 15,651
9,524,033 PL# 725162,
6.00%, 02/01/34........... 9,607,310
19,224,694 PL# 725206,
5.50%, 02/01/34........... 19,034,731
13,484 PL# 725269,
5.50%, 03/01/19........... 13,520
250,223 PL# 725407,
6.50%, 01/01/34........... 256,245
351,958 PL# 725418,
6.50%, 05/01/34........... 360,429
5,494,169 PL# 725519,
5.50%, 05/01/19........... 5,508,998
5,603,021 PL# 725704,
6.00%, 08/01/34........... 5,652,013
13,201,351 PL# 725717,
4.00%, 08/01/19........... 12,445,637
12,272,367 PL# 725946,
5.50%, 11/01/34........... 12,144,633
16,690 PL# 732724,
5.50%, 08/01/18........... 16,727
4,892,630 PL# 735454,
5.50%, 11/01/18........... 4,905,835
29,322,883 PL# 735504,
6.00%, 04/01/35........... 29,599,636
1,319,338 PL# 735611,
5.50%, 03/01/20........... 1,322,899
113,873,722 PL# 735989,
5.50%, 02/01/35........... 112,771,912
180,715 PL# 738632,
5.00%, 11/01/18........... 178,112
11,432 PL# 741355,
5.50%, 10/01/18........... 11,458
5,884,156 PL# 743575,
5.00%, 11/01/18........... 5,799,408
10,923,627 PL# 745140,
5.00%, 11/01/35........... 10,552,819
13,671,814 PL# 745193,
5.50%, 06/01/20........... 13,708,713
25,596,387 PL# 745412,
5.50%, 12/01/35........... 25,329,973
22,950,397 PL# 745832,
6.00%, 04/01/21........... 23,299,145
6,451,709 PL# 745833,
6.00%, 01/01/21........... 6,554,504
603,946 PL# 748257,
4.50%, 10/01/18........... 584,234
6,592 PL# 748655,
6.50%, 09/01/33........... 6,732
2,801 PL# 749118,
5.50%, 11/01/18........... 2,807
</Table>
See notes to financial statements.
82
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 17,980 PL# 749153,
5.50%, 11/01/18........... $ 18,019
10,529 PL# 753643,
5.50%, 11/01/18........... 10,553
20,066 PL# 755167,
5.50%, 11/01/18........... 20,110
152,209 PL# 757687,
5.50%, 07/01/34........... 150,624
13,898 PL# 759423,
5.50%, 01/01/19........... 13,912
12,025 PL# 761018,
5.50%, 12/01/18........... 12,052
36,510 PL# 761808,
5.50%, 05/01/18........... 36,609
531,674 PL# 766312,
5.50%, 03/01/19........... 532,223
257,243 PL# 768313,
5.50%, 01/01/19........... 257,814
232,291 PL# 781889,
5.50%, 03/01/17........... 233,030
6,666,666 PL# 806549, Variable Rate,
4.57%, 01/01/35(1)........ 6,609,379
1,472,454 PL# 826273,
6.00%, 07/01/20........... 1,492,420
1,835,733 PL# 831361,
5.50%, 03/01/21........... 1,836,039
82,846 PL# 831500,
6.00%, 05/01/16........... 84,117
5,668,160 PL# 831511,
6.00%, 06/01/16........... 5,755,086
935,720 PL# 849239,
5.50%, 01/01/21........... 935,847
9,676,693 PL# 850867, Variable Rate,
5.64%, 01/01/36(1)........ 9,693,921
980,801 PL# 870770,
6.50%, 07/01/36........... 999,600
924,126 PL# 880770,
5.50%, 05/01/21........... 924,280
124,254 PL# 881578,
5.50%, 05/01/21........... 124,275
942,584 PL# 885071,
5.50%, 05/01/21........... 942,741
928,697 PL# 887841,
6.50%, 09/01/36........... 946,497
7,653,886 PL# 891814,
6.50%, 07/01/36........... 7,800,586
2,991,286 PL# 892817,
6.50%, 08/01/36........... 3,048,619
984,058 PL# 892970,
6.50%, 09/01/36........... 1,002,920
997,154 PL# 892975,
6.50%, 09/01/36........... 1,016,266
967,111 PL# 893596,
6.50%, 09/01/36........... 985,647
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 928,594 PL# 893628,
6.50%, 09/01/36........... $ 946,392
955,508 PL# 893833,
6.50%, 10/01/36........... 973,822
997,409 PL# 894979,
6.50%, 09/01/36........... 1,016,526
1,994,893 PL# 894985,
6.50%, 09/01/36........... 2,033,129
991,300 PL# 895303,
6.50%, 09/01/36........... 1,010,300
971,908 PL# 900290,
6.50%, 09/01/36........... 990,536
968,460 PL# 900340,
6.50%, 09/01/36........... 987,022
947,360 PL# 900961,
6.50%, 09/01/36........... 965,518
929,093 PL# 901110,
6.50%, 09/01/36........... 946,900
3,000,000 TBA,
4.50%, 01/01/22........... 2,894,064
40,900,000 TBA,
5.00%, 01/01/22........... 40,209,813
96,400,000 TBA,
5.50%, 01/01/22........... 96,400,001
24,000,000 TBA,
6.00%, 01/01/22........... 24,337,488
23,000,000 TBA,
5.00%, 01/01/37........... 22,209,375
32,000,000 TBA,
5.50%, 01/01/37........... 31,630,016
46,000,000 TBA,
6.00%, 01/01/37........... 46,316,251
7,000,000 TBA,
6.50%, 01/01/37........... 7,133,434
--------------
784,811,333
--------------
FEDERAL HOME LOAN BANK -- 0.9%
18,840,000 4.00%, 02/01/08............. 18,608,701
--------------
FREDDIE MAC -- 2.8%
16,800,000 4.75%, 06/28/12............. 16,640,131
5,648,266 PL# 1B2853, Variable Rate,
4.29%, 04/01/35(1)........ 5,539,770
11,834,930 PL# 1G1119, Variable Rate,
4.76%, 09/01/35(1)........ 11,600,572
8,775,000 PL# 1G2555, Variable Rate,
6.04%, 11/01/36(1)........ 8,866,182
15,850,000 Series MTN,
5.00%, 12/14/18........... 15,510,794
--------------
58,157,449
--------------
FREDDIE MAC GOLD -- 4.9%
255,840 PL# A32037,
5.00%, 03/01/35........... 247,021
27,299 PL# A38585,
5.50%, 10/01/35........... 27,011
</Table>
See notes to financial statements.
83
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FREDDIE MAC GOLD (CONTINUED)
$ 427,133 PL# B10307,
4.50%, 10/01/18........... $ 412,791
522,608 PL# B11431,
4.50%, 12/01/18........... 505,061
3,740,099 PL# B11446,
5.00%, 12/01/18........... 3,683,934
51,178 PL# B13285,
4.50%, 04/01/19........... 49,396
725,469 PL# B14218,
4.50%, 05/01/19........... 700,198
1,048,108 PL# B14518,
4.50%, 01/01/20........... 1,011,598
1,620,163 PL# B17118,
4.50%, 11/01/19........... 1,563,727
23,892 PL# B17892,
4.50%, 10/01/19........... 23,090
799,661 PL# B19028,
4.50%, 03/01/20........... 771,061
4,960,677 PL# B19043,
4.50%, 03/01/20........... 4,783,262
24,866 PL# B19177,
4.50%, 05/01/20........... 23,977
979,219 PL# B19187,
4.50%, 04/01/20........... 944,198
194,293 PL# B19188,
4.50%, 05/01/20........... 187,344
208,885 PL# B19272,
4.50%, 05/01/20........... 201,415
539,041 PL# B19621,
5.00%, 07/01/20........... 529,787
1,053,583 PL# C01271,
6.50%, 12/01/31........... 1,078,625
3,208,528 PL# C57150,
6.00%, 05/01/31........... 3,243,016
4,078 PL# C67653,
7.00%, 06/01/32........... 4,194
56,452 PL# C67868,
7.00%, 06/01/32........... 58,053
14,038 PL# C67999,
7.00%, 06/01/32........... 14,436
114,798 PL# C68001,
7.00%, 06/01/32........... 118,052
145,637 PL# C90229,
7.00%, 08/01/18........... 150,947
21,283 PL# E00570,
6.00%, 09/01/13........... 21,602
452,074 PL# E00592,
6.00%, 12/01/13........... 458,937
22,021 PL# E00720,
6.00%, 07/01/14........... 22,358
21,504 PL# E01007,
6.00%, 08/01/16........... 21,825
70,734 PL# E01095,
6.00%, 01/01/17........... 71,782
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FREDDIE MAC GOLD (CONTINUED)
$ 440,471 PL# E01490,
5.00%, 11/01/18........... $ 433,921
856,931 PL# E01538,
5.00%, 12/01/18........... 844,082
32,240 PL# E01638,
4.00%, 04/01/19........... 30,395
28,620 PL# E69171,
6.00%, 02/01/13........... 29,059
24,351 PL# E73319,
6.00%, 11/01/13........... 24,724
35,143 PL# E73769,
6.00%, 12/01/13........... 35,681
18,917 PL# E75990,
6.00%, 04/01/14........... 19,196
29,306 PL# E76341,
6.00%, 04/01/14........... 29,748
50,657 PL# E76730,
6.00%, 05/01/14........... 51,421
38,963 PL# E76731,
6.00%, 05/01/14........... 39,551
29,541 PL# E78995,
6.00%, 11/01/14........... 29,987
250,897 PL# E84191,
6.00%, 07/01/16........... 254,602
4,536 PL# E84758,
5.50%, 07/01/16........... 4,547
18,982 PL# E85885,
6.00%, 11/01/16........... 19,262
281,792 PL# E86502,
5.50%, 12/01/16........... 282,515
5,064 PL# E86565,
5.50%, 12/01/16........... 5,077
248,840 PL# E87961,
6.00%, 02/01/17........... 252,515
400,066 PL# E88001,
6.00%, 02/01/17........... 405,896
43,920 PL# E88452,
6.00%, 03/01/17........... 44,560
306,628 PL# E88749,
6.00%, 03/01/17........... 311,156
555,064 PL# E88789,
6.00%, 04/01/17........... 563,153
147,097 PL# E88979,
5.50%, 04/01/17........... 147,393
297,812 PL# E89282,
6.00%, 04/01/17........... 302,152
650,264 PL# E89336,
6.00%, 05/01/17........... 659,740
27,429 PL# E89653,
6.00%, 04/01/17........... 27,834
462,453 PL# E89913,
6.00%, 05/01/17........... 469,192
808,359 PL# E91644,
5.50%, 10/01/17........... 809,985
</Table>
See notes to financial statements.
84
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FREDDIE MAC GOLD (CONTINUED)
$ 267,269 PL# E91754,
5.50%, 10/01/17........... $ 267,807
359,808 PL# E91774,
5.50%, 10/01/17........... 360,532
173,170 PL# E91968,
5.50%, 10/01/17........... 173,519
344,551 PL# E92113,
5.50%, 10/01/17........... 345,244
24,489 PL# E95352,
4.50%, 04/01/18........... 23,666
52,586 PL# E98821,
4.50%, 09/01/18........... 50,821
1,400,337 PL# G01391,
7.00%, 04/01/32........... 1,441,738
17,393 PL# G11111,
6.00%, 04/01/16........... 17,654
116,918 PL# G11394,
4.50%, 05/01/18........... 112,992
7,292,950 PL# G11618,
4.50%, 05/01/18........... 7,052,909
448,103 PL# G11639,
4.50%, 12/01/19........... 432,494
3,217,074 PL# G11681,
5.00%, 04/01/20........... 3,165,239
9,066,704 PL# G11720,
4.50%, 08/01/20........... 8,750,881
14,037,906 PL# G11769,
5.00%, 10/01/20........... 13,796,910
208,786 PL# G18052,
4.50%, 05/01/20........... 201,319
2,770,409 PL# J00156,
5.00%, 10/01/20........... 2,722,847
665,330 PL# J00726,
5.00%, 12/01/20........... 653,908
3,312,736 PL# M80813,
4.00%, 04/01/10........... 3,238,179
3,000,000 TBA,
5.50%, 01/01/22........... 2,998,125
28,000,000 TBA,
6.00%, 01/01/37........... 28,210,001
--------------
101,072,827
--------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 0.9%
122,706 PL# 3173,
6.50%, 12/20/31........... 125,682
1,074 PL# 434615,
7.00%, 11/15/29........... 1,111
187,085 PL# 435071,
7.00%, 03/15/31........... 193,401
23,837 PL# 493966,
7.00%, 06/15/29........... 24,647
64,242 PL# 494742,
7.00%, 04/15/29........... 66,424
1,318 PL# 530260,
7.00%, 02/15/31........... 1,363
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(CONTINUED)
$ 219,160 PL# 531025,
6.00%, 04/15/32........... $ 222,589
704 PL# 538271,
7.00%, 11/15/31........... 728
84,284 PL# 538312,
6.00%, 02/15/32........... 85,602
121,769 PL# 543989,
7.00%, 03/15/31........... 125,880
797 PL# 547545,
7.00%, 04/15/31........... 824
321,918 PL# 550985,
7.00%, 10/15/31........... 332,785
250 PL# 551549,
7.00%, 07/15/31........... 259
24,177 PL# 552413,
7.00%, 02/15/32........... 24,990
96,968 PL# 554808,
6.00%, 05/15/31........... 98,502
68,498 PL# 555360,
6.00%, 06/15/31........... 69,581
74,846 PL# 555733,
6.00%, 03/15/32........... 76,016
459 PL# 557664,
7.00%, 08/15/31........... 475
55,227 PL# 557678,
7.00%, 08/15/31........... 57,091
3,844 PL# 561050,
7.00%, 05/15/31........... 3,974
639 PL# 561996,
7.00%, 07/15/31........... 660
11,468 PL# 563346,
7.00%, 09/15/31........... 11,855
47,698 PL# 563599,
7.00%, 06/15/32........... 49,302
89,593 PL# 564086,
7.00%, 07/15/31........... 92,617
43,998 PL# 564300,
6.00%, 08/15/31........... 44,694
8,550 PL# 564706,
7.00%, 07/15/31........... 8,839
83,567 PL# 565808,
6.00%, 11/15/31........... 84,888
202,832 PL# 567622,
6.00%, 04/15/32........... 206,005
86,659 PL# 569567,
7.00%, 01/15/32........... 89,573
65,322 PL# 570517,
6.00%, 01/15/32........... 66,344
39,787 PL# 572821,
6.00%, 12/15/31........... 40,416
86,488 PL# 574873,
6.00%, 12/15/31........... 87,856
84,124 PL# 575906,
6.00%, 01/15/32........... 85,440
</Table>
See notes to financial statements.
85
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(CONTINUED)
$ 35,148 PL# 576323,
6.00%, 12/15/31........... $ 35,704
1,291 PL# 579377,
7.00%, 04/15/32........... 1,334
235,703 PL# 581015,
7.00%, 02/15/32........... 243,629
88,391 PL# 581070,
6.00%, 02/15/32........... 89,774
74,772 PL# 582956,
7.00%, 02/15/32........... 77,287
269,332 PL# 587122,
7.00%, 06/15/32........... 278,389
4,998 PL# 587494,
7.00%, 06/15/32........... 5,166
948 PL# 589696,
7.00%, 05/15/32........... 980
42,986 PL# 592030,
6.00%, 02/15/32........... 43,659
17,934 PL# 780802,
6.50%, 05/15/28........... 18,459
30,453 PL# 781113,
7.00%, 11/15/29........... 31,488
183,989 PL# 781148,
6.00%, 07/15/29........... 187,070
94,192 PL# 781276,
6.50%, 04/15/31........... 96,897
27,632 PL# 781287,
7.00%, 05/15/31........... 28,571
43,402 PL# 781324,
7.00%, 07/15/31........... 44,872
237,729 PL# 781328,
7.00%, 09/15/31........... 245,808
179,146 PL# 781330,
6.00%, 09/15/31........... 182,133
48,194 PL# 781496,
6.50%, 09/15/32........... 49,549
63,633 PL# 781548,
7.00%, 11/15/32........... 65,786
36,055 PL# 781584,
7.00%, 05/15/32........... 37,277
6,992,074 PL# 80916,
3.75%, 05/20/34........... 6,873,422
8,000,000 TBA,
6.00%, 01/01/37........... 8,112,495
--------------
19,130,162
--------------
RESOLUTION FUNDING STRIPS -- 0.1%
1,200,000 Zero coupon, 07/15/18....... 678,732
1,200,000 Zero coupon, 10/15/18....... 669,893
--------------
1,348,625
--------------
TOTAL US GOVERNMENT AGENCY SECURITIES
(Cost $1,129,343,115)..... 1,125,578,546
--------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES -- 52.3%
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 0.0%
$ 280,000 Daimler Chrysler NA Holding,
4.05%, 06/04/08........... $ 274,111
--------------
BANKS -- 7.5%
85,000 BAC Capital Trust XI,
6.63%, 05/23/36........... 92,040
404,000 Bank of America Corp.,
4.50%, 08/01/10........... 395,289
15,675,000 Bank of America Corp.,
Floating Rate,
5.38%, 03/24/09(2)........ 15,699,735
1,250,000 Bank of Scotland -- 144A
(United Kingdom),
3.50%, 11/30/07........... 1,229,771
2,000,000 BankBoston NA, Series BKNT,
6.38%, 03/25/08........... 2,024,352
26,675,000 Barclays Bank PLC New York,
Series YCD, Floating Rate,
5.37%, 03/13/09(2)........ 26,700,821
6,250,000 Depfa ACS Bank -- 144A
(Ireland),
4.25%, 08/16/10........... 6,081,194
3,850,000 Deutsche Bank AG New York,
Series YCD, Variable Rate,
5.34%, 03/15/07(1)........ 3,849,792
2,850,000 HBOS Treasury Services
PLC -- 144A
(United Kingdom),
3.75%, 09/30/08........... 2,776,501
11,200,000 HSBC Bank USA NA, Series CD,
3.87%, 06/07/07........... 11,129,496
2,600,000 JPMorgan Chase & Company,
5.35%, 03/01/07........... 2,599,579
1,495,000 JPMorgan Chase & Company,
3.63%, 05/01/08........... 1,460,856
2,100,000 JPMorgan Chase & Company,
5.75%, 10/15/08........... 2,111,787
1,100,000 JPMorgan Chase & Company,
7.00%, 11/15/09(4) (6).... 1,152,267
36,375,000 Rabobank Nederland -- 144A,
(the Netherlands),
Floating Rate,
5.37%, 04/06/09(2)........ 36,407,155
2,990,000 SunTrust Banks, Inc.,
3.63%, 10/15/07........... 2,950,236
2,000,000 SunTrust Banks, Inc.,
4.00%, 10/15/08........... 1,955,316
1,535,000 SunTrust Banks, Inc., Series
CD,
4.42%, 06/15/09........... 1,505,609
2,275,000 Swedish Export Credit
(Sweden),
2.88%, 01/26/07........... 2,271,824
2,150,000 The Bank of New York
Company, Inc., Series
BKNT,
3.80%, 02/01/08........... 2,115,744
</Table>
See notes to financial statements.
86
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 980,000 UBS Preferred Funding Trust
I, Variable Rate,
8.62%, perpetual (1)...... $ 1,083,423
490,000 US Bancorp, Series MTNN,
3.95%, 08/23/07........... 485,785
3,040,000 US Bank NA,
2.40%, 03/12/07........... 3,021,359
4,315,000 US Bank NA, Series BKNT,
4.40%, 08/15/08........... 4,260,726
540,000 Wachovia Bank NA, Series
BKNT,
4.38%, 08/15/08........... 532,510
9,125,000 Wachovia Bank NA, Series
DPNT, Floating Rate,
5.41%, 03/23/09(2)........ 9,131,816
2,340,000 Wachovia Corp.,
6.30%, 04/15/08........... 2,366,896
2,760,000 Wells Fargo & Company,
4.20%, 01/15/10........... 2,690,669
4,090,000 Wells Fargo & Company,
4.63%, 08/09/10........... 4,016,977
4,525,000 Wells Fargo & Company,
4.88%, 01/12/11........... 4,484,108
--------------
156,583,633
--------------
BROADCAST SERVICES/MEDIA -- 0.9%
320,000 British Sky Broadcasting
Group Financing
PLC -- 144A (United
Kingdom),
6.50%, 10/15/35........... 317,489
5,374,000 Comcast Cable Communications
Holdings,
8.38%, 03/15/13........... 6,128,853
1,800,000 Comcast Cable
Communications, Inc.,
6.75%, 01/30/11........... 1,887,692
965,000 Comcast Corp.,
7.05%, 03/15/33........... 1,035,060
465,000 Cox Communications, Inc.,
7.75%, 11/01/10........... 500,513
30,000 Echostar DBS Corp.,
6.38%, 10/01/11........... 29,888
195,000 Echostar DBS Corp.,
7.00%, 10/01/13........... 195,731
200,000 Echostar DBS Corp.,
7.13%, 02/01/16........... 201,000
1,070,000 News America Holdings,
7.63%, 11/30/28........... 1,203,216
260,000 News America, Inc.,
7.28%, 06/30/28........... 280,595
1,675,000 TCI Communications, Inc.,
7.13%, 02/15/28........... 1,792,895
725,000 Time Warner Entertainment,
8.38%, 07/15/33........... 878,832
1,910,000 Time Warner, Inc.,
7.57%, 02/01/24........... 2,104,150
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
BROADCAST SERVICES/MEDIA (CONTINUED)
$ 2,760,000 Time Warner, Inc.,
6.95%, 01/15/28........... $ 2,904,475
--------------
19,460,389
--------------
CHEMICALS -- 0.1%
590,000 Lyondell Chemical Company,
8.00%, 09/15/14........... 615,075
980,000 Lyondell Chemical Company,
8.25%, 09/15/16........... 1,033,900
--------------
1,648,975
--------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 0.0%
345,000 Seagate Technology HDD
Holdings (Cayman Islands),
6.80%, 10/01/16(8)........ 348,450
--------------
CONSTRUCTION SERVICES AND SUPPLIES -- 0.1%
2,875,000 Belvoir Land LLC -- 144A,
5.40%, 12/15/47........... 2,633,615
--------------
ELECTRONICS -- 0.0%
155,000 L-3 Communications Corp.,
Series B,
6.38%, 10/15/15........... 154,225
--------------
EQUIPMENT RENTAL AND LEASING -- 0.0%
225,000 United Rentals North
America, Inc.,
6.50%, 02/15/12........... 223,313
--------------
FINANCIAL SERVICES -- 6.4%
390,000 American Real Estate
Partners, LP/American Real
Estate Finance Corp.,
8.13%, 06/01/12........... 404,625
225,000 American Real Estate
Partners, LP/American Real
Estate Finance Corp.,
7.13%, 02/15/13........... 227,250
9,050,000 Citigroup, Inc.,
3.50%, 02/01/08........... 8,889,462
14,330,000 Citigroup, Inc.,
3.63%, 02/09/09(4) (6).... 13,913,155
820,000 Citigroup, Inc.,
6.20%, 03/15/09........... 836,503
8,000,000 Citigroup, Inc.,
4.13%, 02/22/10........... 7,766,000
2,300,000 Citigroup, Inc.,
6.13%, 08/25/36........... 2,403,332
8,225,000 Eksportfinans ASA, Series
MTN (Norway),
3.38%, 01/15/08........... 8,068,454
2,675,000 Ford Motor Credit Company,
5.80%, 01/12/09........... 2,627,661
14,675,000 General Electric Capital
Corp.,
5.00%, 11/15/11........... 14,582,958
</Table>
See notes to financial statements.
87
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
$ 2,000,000 General Electric Capital
Corp., Series MTNA,
6.50%, 12/10/07........... $ 2,022,392
11,925,000 General Electric Capital
Corp., Series MTNA,
4.13%, 09/01/09........... 11,634,054
22,250,000 General Electric Capital
Corp., Series MTNA,
Variable Rate,
5.42%, 01/15/08(1)........ 22,277,856
2,925,000 HSBC Finance Corp.,
6.50%, 11/15/08........... 2,991,348
7,310,000 Morgan Stanley,
5.05%, 01/21/11........... 7,269,071
425,000 Morgan Stanley,
6.75%, 04/15/11........... 449,630
17,410,000 Morgan Stanley, Series MTN,
Floating Rate,
5.40%, 03/07/08(2)........ 17,428,610
350,000 Nationwide Building
Society -- 144A (United
Kingdom),
2.63%, 01/30/07........... 349,326
4,000,000 Nationwide Building
Society -- 144A (United
Kingdom),
3.50%, 07/31/07........... 3,957,432
355,000 Nationwide Building
Society -- 144A (United
Kingdom),
4.25%, 02/01/10........... 344,171
1,000,000 The Bear Stearns Companies,
Inc., Series MTNB,
4.55%, 06/23/10........... 979,413
2,475,000 TIAA Global Markets -- 144A,
3.88%, 01/22/08........... 2,434,502
1,955,000 USAA Capital Corp., Series
MTNB,
4.00%, 12/10/07........... 1,928,983
--------------
133,786,188
--------------
INSURANCE -- 0.7%
1,775,000 ASIF Global Financial
XXIII -- 144A,
3.90%, 10/22/08........... 1,732,327
2,000,000 Berkshire Hathaway Finance
Corp.,
3.40%, 07/02/07........... 1,982,780
2,850,000 Berkshire Hathaway Finance
Corp.,
3.38%, 10/15/08........... 2,763,314
2,815,000 Berkshire Hathaway Finance
Corp.,
4.13%, 01/15/10........... 2,737,776
4,455,000 MetLife, Inc., Variable
Rate,
6.40%, 12/15/66(1)........ 4,490,440
1,600,000 New York Life Global
Funding -- 144A,
3.88%, 01/15/09........... 1,557,730
--------------
15,264,367
--------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
LEISURE AND RECREATION -- 0.1%
$ 400,000 Harrah's Operating Company,
Inc.,
5.75%, 10/01/17........... $ 335,758
760,000 MGM MIRAGE,
6.00%, 10/01/09........... 761,900
325,000 Mohegan Tribal Gaming
Authority,
6.13%, 02/15/13........... 324,188
465,000 TDS Investor Corp. -- 144A,
9.88%, 09/01/14........... 469,650
--------------
1,891,496
--------------
MACHINERY -- 0.1%
2,150,000 Atlantic Marine,
Inc. -- 144A,
5.34%, 12/01/50........... 2,043,726
--------------
MANUFACTURING -- 0.1%
395,000 Briggs & Stratton Corp.,
8.88%, 03/15/11........... 429,563
1,575,000 Tyco International Group SA
(Luxembourg),
6.38%, 10/15/11........... 1,649,916
--------------
2,079,479
--------------
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 0.3%
1,536,000 Triad Hospitals, Inc.,
7.00%, 11/15/13........... 1,553,280
3,600,000 WellPoint, Inc.,
5.95%, 12/15/34........... 3,553,985
1,295,000 WellPoint, Inc.,
5.85%, 01/15/36........... 1,262,335
--------------
6,369,600
--------------
METALS AND MINING -- 0.1%
85,000 International Steel Group,
6.50%, 04/15/14........... 87,763
1,999,000 Ispat Inland ULC (Canada),
9.75%, 04/01/14........... 2,236,837
--------------
2,324,600
--------------
OIL, COAL AND GAS -- 0.6%
25,000 ANR Pipeline Company,
9.63%, 11/01/21........... 33,301
10,000 ANR Pipeline Company,
7.38%, 02/15/24........... 11,261
210,000 Chesapeake Energy Corp.,
6.38%, 06/15/15........... 208,950
90,000 Chesapeake Energy Corp.,
6.25%, 01/15/18........... 87,075
275,000 Chesapeake Energy Corp.,
6.88%, 11/15/20........... 271,563
270,000 Colorado Interstate Gas,
6.80%, 11/15/15........... 282,091
230,000 Compton Petroleum Finance
Corp. (Canada),
7.63%, 12/01/13........... 223,100
</Table>
See notes to financial statements.
88
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
OIL, COAL AND GAS (CONTINUED)
$ 1,425,000 Consolidated Natural Gas,
Series A,
5.00%, 03/01/14........... $ 1,376,435
365,000 El Paso Natural Gas,
8.63%, 01/15/22........... 443,872
15,000 El Paso Natural Gas,
8.38%, 06/15/32........... 18,239
2,600,000 Enterprise Products
Operating LP,
4.95%, 06/01/10........... 2,558,071
1,225,000 Enterprise Products
Operating LP, Series B,
4.00%, 10/15/07........... 1,210,242
190,000 KCS Energy, Inc.,
7.13%, 04/01/12........... 185,725
725,000 Northwest Pipeline Corp.,
8.13%, 03/01/10........... 758,531
1,890,000 Sabine Pass LNG, LP -- 144A,
7.50%, 11/30/16........... 1,887,638
200,000 Suncor Energy, Inc.
(Canada),
5.95%, 12/01/34........... 201,895
35,000 Targa Resources,
Inc. -- 144A,
8.50%, 11/01/13........... 35,438
935,000 Transcontinental Gas Pipe
Line Corp., Series B,
8.88%, 07/15/12........... 1,061,225
480,000 Williams Companies, Inc.,
7.63%, 07/15/19........... 516,000
225,000 Williams Companies, Inc.,
7.75%, 06/15/31........... 237,375
--------------
11,608,027
--------------
PAPER AND FOREST PRODUCTS -- 0.1%
590,000 Bowater Canada Finance
(Canada),
7.95%, 11/15/11........... 581,150
400,000 Catalyst Paper Corp., Series
D (Canada),
8.63%, 06/15/11........... 407,000
880,000 Domtar, Inc. (Canada),
7.13%, 08/15/15........... 866,800
--------------
1,854,950
--------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 0.3%
170,000 Bio-Rad Laboratories, Inc.,
7.50%, 08/15/13........... 175,950
530,000 Bio-Rad Laboratories, Inc.,
6.13%, 12/15/14........... 515,425
3,075,000 Bristol-Myers Squibb,
5.88%, 11/15/36........... 3,036,414
600,000 Bristol-Myers Squibb,
6.88%, 08/01/97........... 641,845
1,580,000 Wyeth,
6.00%, 02/15/36(8)........ 1,622,924
--------------
5,992,558
--------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRINTING AND PUBLISHING -- 0.1%
$ 1,070,000 Idearc, Inc. -- 144A,
8.00%, 11/15/16........... $ 1,091,400
--------------
PRIVATE ASSET BACKED: AUTOMOBILES/MOTOR
VEHICLES, AUTOMOTIVE EQUIPMENT AND
REPAIRS -- 3.5%
13,690,744 Daimler Chrysler Auto Trust,
Series 2005-B, Class A3,
4.04%, 09/08/09........... 13,602,924
14,770,000 Daimler Chrysler Auto Trust,
Series 2006-B, Class A3,
5.33%, 08/08/10........... 14,809,204
11,364,156 Ford Credit Auto Owner
Trust, Series 2005-A,
Class A3,
3.48%, 11/15/08........... 11,300,481
9,215,910 Ford Credit Auto Owner
Trust, Series 2005-B,
Class A3,
4.17%, 01/15/09........... 9,171,764
18,911,000 Nissan Auto Receivables
Owner Trust, Series
2006-B, Class A4,
5.22%, 11/15/11........... 18,989,015
5,644,455 Wachovia Auto Owner Trust,
Series 2004-A, Class A3,
3.19%, 06/20/08........... 5,627,511
--------------
73,500,899
--------------
PRIVATE ASSET BACKED: BANKS -- 0.2%
3,983,047 Bank of America Alternative
Loan Trust, Series 2004-7,
Class 4A1,
5.00%, 08/25/19........... 3,895,918
--------------
PRIVATE ASSET BACKED: CREDIT CARDS -- 3.9%
14,000,000 American Express Credit
Account Master Trust,
Series 2005-3, Class A,
Floating Rate,
5.35%, 01/18/11(3)........ 13,986,287
12,075,000 Chase Issuance Trust, Series
2004-A9, Class A9,
3.22%, 06/15/10........... 11,895,217
14,950,000 Citibank Credit Card
Issuance Trust, Series
2004-A1, Class A1,
2.55%, 01/20/09........... 14,938,363
14,850,000 Citibank Credit Card
Issuance Trust, Series
2004-A4, Class A4,
3.20%, 08/24/09........... 14,661,055
15,125,000 Citibank Credit Card
Issuance Trust, Series
2006-A2, Class A2,
4.85%, 02/10/11........... 15,055,203
11,500,000 MBNA Credit Card Master Note
Trust, Series 2003-A6,
Class A6,
2.75%, 10/15/10........... 11,137,928
--------------
81,674,053
--------------
</Table>
See notes to financial statements.
89
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: FINANCIAL
SERVICES -- 2.5%
$ 2,805,000 Greenwich Capital Commercial
Funding Corp., Series
2004-GG1, Class A4,
4.76%, 06/10/36........... $ 2,769,082
11,200,000 Greenwich Capital Commercial
Funding Corp., Series
2005-GG3, Class A3,
4.57%, 08/10/42........... 10,881,518
882,468 Morgan Stanley Capital I,
Series 1998-WF1, Class A2,
6.55%, 03/15/30........... 886,448
2,914,103 Morgan Stanley Capital I,
Series 1999-FNV1, Class
A2,
6.53%, 03/15/31........... 2,963,944
5,930,235 SLM Student Loan Trust,
Series 2005-5, Class A1,
Floating Rate,
5.38%, 01/25/18(2)........ 5,936,531
14,200,000 SLM Student Loan Trust,
Series 2005-6, Class A5B,
Floating Rate,
5.39%, 07/27/26(2)........ 14,220,105
14,030,000 Washington Mutual Asset
Securities Corp. -- 144A,
Series 2005-C1A, Class A2,
5.15%, 05/25/36........... 13,991,555
--------------
51,649,183
--------------
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY -- 20.7%
7,195,808 ACE Securities Corp., Series
2006-HE1, Class A2A,
Floating Rate,
5.43%, 02/25/36(3)........ 7,201,784
11,960,000 Banc of America Commercial
Mortgage, Inc., Series
2000-1, Class A2A,
7.33%, 11/15/31........... 12,515,782
8,849,023 Banc of America Commercial
Mortgage, Inc., Series
2001-1, Class A2,
6.50%, 04/15/36........... 9,191,031
16,715,000 Banc of America Commercial
Mortgage, Inc., Series
2002-2, Class A3,
5.12%, 07/11/43........... 16,623,571
11,170,000 Banc of America Commercial
Mortgage, Inc., Series
2002-PB2, Class A4,
6.19%, 06/11/35........... 11,623,604
625,833 Bear Stearns Commercial
Mortgage Securities, Inc.,
Series 2001, Class A1,
6.08%, 02/15/35........... 633,933
2,545,000 Bear Stearns Commercial
Mortgage Securities, Inc.,
Series 2005-PWR8, Class
A4,
4.67%, 06/11/41........... 2,437,970
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 6,246,161 Carrington Mortgage Loan
Trust, Series 2006-OPT1,
Class A1, Floating Rate,
5.41%, 02/25/36(3)........ $ 6,251,405
3,475,000 Chase Commercial Mortgage
Securities Corp., Series
2000-3, Class A2,
7.32%, 10/15/32........... 3,681,327
5,237,351 Commercial Mortgage
Acceptance Corp., Series
1998-C2, Class A2,
6.03%, 09/15/30........... 5,260,589
2,482,799 Countrywide Asset-Backed
Certificates, Series
2004-13, Class AV4,
Floating Rate,
5.64%, 06/25/35(3)........ 2,485,495
1,438,993 Countrywide Asset-Backed
Certificates, Series
2005-12,
Class 2A1, Floating Rate,
5.46%, 02/25/36(3)........ 1,440,007
2,480,167 Countrywide Asset-Backed
Certificates, Series
2005-BC5, Class 3A1,
Floating Rate,
5.45%, 01/25/36(3)........ 2,481,981
6,033,845 Countrywide Asset-Backed
Certificates, Series
2005-IM3, Class A1,
Floating Rate,
5.47%, 03/25/36(3)........ 6,038,484
4,931,406 Countrywide Asset-Backed
Certificates, Series
2006-IM1, Class A1,
Floating Rate,
5.44%, 04/25/36(3)........ 4,935,246
22,729,657 Credit Suisse First Boston
Mortgage Securities Corp.,
Series 1998-C2, Class A2,
6.30%, 11/11/30........... 23,054,544
14,955,000 Credit Suisse First Boston
Mortgage Securities Corp.,
Series 2002-CKS4, Class
A2,
5.18%, 11/15/36........... 14,890,597
13,110,000 Credit Suisse First Boston
Mortgage Securities Corp.,
Series 2003-C3, Class A5,
3.94%, 05/15/38........... 12,183,210
7,998,213 Credit Suisse Mortgage
Capital Certificates,
Series 2006-3, Class 1A1A,
Floating Rate,
5.41%, 04/25/36(3)........ 8,005,537
4,604,922 DLJ Commercial Mortgage
Corp., Series 2000-CKP1,
Class A1B,
7.18%, 11/10/33........... 4,859,500
10,667,808 Fieldstone Mortgage
Investment Corp., Series
2006-1, Class A1, Floating
Rate,
5.43%, 05/25/36(3)........ 10,675,831
</Table>
See notes to financial statements.
90
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 9,743,330 First Franklin Mortgage Loan
Asset Backed Certificates,
Series 2006-FF4, Class A1,
Floating Rate,
5.42%, 03/25/36(3)........ $ 9,751,657
12,570,000 First Union National Bank
Commercial Mortgage,
Series 2001-C2, Class A2,
6.66%, 01/12/43........... 13,195,776
10,380,000 GE Capital Commercial
Mortgage Corp., Series
2002-1A,
Class A3,
6.27%, 12/10/35........... 10,851,325
11,875,000 GE Capital Commercial
Mortgage Corp., Series
2002-2A, Class A3,
5.35%, 08/11/36........... 11,938,179
6,077,844 GMAC Commercial Mortgage
Securities, Inc., Series
1999-C2, Class A2,
6.95%, 09/15/33........... 6,269,233
6,122,415 GMAC Commercial Mortgage
Securities, Inc., Series
1999-C3, Class A2,
7.18%, 08/15/36........... 6,344,931
3,175,000 GS Mortgage Securities Corp.
II, Series 2005-GG4, Class
A4A,
4.75%, 07/10/39........... 3,060,404
11,626,774 Harborview Mortgage Loan
Trust, Series 2006-11,
Class A1A, Floating Rate,
5.49%, 12/19/36(3)........ 11,638,777
10,490,000 JPMorgan Chase Commercial
Mortgage Securities Corp.,
Series 2001-C1, Class A3,
5.86%, 10/12/35........... 10,744,951
6,650,000 JPMorgan Chase Commercial
Mortgage Securities Corp.,
Series 2001-CIB2, Class
A3,
6.43%, 04/15/35........... 6,949,886
9,444,379 JPMorgan Chase Commercial
Mortgage Securities Corp.,
Series 2001-CIBC, Class
A3,
6.26%, 03/15/33........... 9,740,834
9,350,000 JPMorgan Chase Commercial
Mortgage Securities Corp.,
Series 2005-CB12, Class
A4,
4.90%, 09/12/37........... 9,079,098
10,900,000 JPMorgan Chase Commercial
Mortgage Securities Corp.,
Series 2006-CB17, Class
A4,
5.43%, 12/12/43........... 10,962,094
18,955,561 JPMorgan Mortgage Trust,
Series 2006-A2, Class 4A1,
Floating Rate,
3.88%, 08/25/34(3)........ 18,577,454
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 7,215,725 LB Commercial Conduit
Mortgage Trust, Series
1998-C4, Class A1B,
6.21%, 10/15/35........... $ 7,300,149
12,900,000 LB-UBS Commercial Mortgage
Trust, Series 2000-C3,
Class A2,
7.95%, 05/15/25........... 13,799,521
6,830,000 LB-UBS Commercial Mortgage
Trust, Series 2000-C4,
Class A2,
7.37%, 08/15/26........... 7,237,225
7,395,000 LB-UBS Commercial Mortgage
Trust, Series 2003-C7,
Class A3,
4.56%, 09/15/27........... 7,224,713
9,100,000 LB-UBS Commercial Mortgage
Trust, Series 2004-C8,
Class A4,
4.51%, 12/15/29........... 8,825,815
11,910,000 LB-UBS Commercial Mortgage
Trust, Series 2006-C7,
Class A3,
5.35%, 11/15/38........... 11,917,145
11,086,750 New Century Home Equity Loan
Trust, Series 2006-1,
Class A2A, Floating Rate,
5.41%, 05/25/36(3)........ 11,094,802
12,401,789 Popular ABS Mortgage
Pass-Through Trust, Series
2006-D, Class A1, Floating
Rate,
5.38%, 11/25/36(3)........ 12,408,638
7,866,161 Residential Asset Mortgage
Products, Inc., Series
2006-RS2, Class A1,
Floating Rate,
5.43%, 03/25/36(3)........ 7,872,632
12,740,189 Residential Asset
Securitization Trust,
Series 2005-A14, Class A4,
5.50%, 12/25/35........... 12,745,819
9,360,043 Salomon Brothers Mortgage
Securities VII, Series
1999-C1, Class A2,
Floating Rate,
7.08%, 05/18/32(3)........ 9,594,968
9,099,504 Salomon Brothers Mortgage
Securities VII, Series
2001-C2, Class A3,
6.50%, 10/13/11........... 9,547,022
4,602,748 Structured Asset Investment
Loan Trust, Series 2006-2,
Class A1, Floating Rate,
5.41%, 04/25/36(3)........ 4,605,929
--------------
429,750,405
--------------
</Table>
See notes to financial statements.
91
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: OTHER -- 0.7%
$ 4,652,304 Structured Asset Securities
Corp. -- 144A, Series
2003-AL2, Class A,
3.36%, 01/25/31........... $ 4,268,924
10,463,992 Terra LNR, Ltd. -- 144A,
Series 2006-1A, Class A1,
Floating Rate (Cayman
Islands),
5.48%, 06/15/17(3)........ 10,463,992
--------------
14,732,916
--------------
PRIVATE ASSET BACKED: UTILITIES -- 0.4%
8,000,000 Peco Energy Transition
Trust, Series 2000-A,
Class A4,
7.65%, 03/01/10........... 8,496,537
--------------
REAL ESTATE INVESTMENT TRUSTS -- 0.4%
910,000 AvalonBay Communities,
Series MTN,
6.63%, 09/15/11........... 956,986
725,000 The Rouse Company,
3.63%, 03/15/09........... 689,811
4,135,000 The Rouse Company,
5.38%, 11/26/13........... 3,863,766
2,200,000 The Rouse Company/TRC
Co-issuer, Inc. -- 144A,
6.75%, 05/01/13........... 2,220,354
--------------
7,730,917
--------------
RETAIL -- 0.1%
430,000 Federated Department Stores,
Inc.,
6.79%, 07/15/27........... 431,170
395,000 May Department Stores
Company,
6.65%, 07/15/24........... 392,365
295,000 May Department Stores
Company,
6.70%, 07/15/34........... 291,884
--------------
1,115,419
--------------
SEMICONDUCTORS -- 0.2%
1,760,000 Freescale Semiconductor --
144A,
9.13%, 12/15/14(12)....... 1,757,800
700,000 Freescale Semiconductor --
144A, Floating Rate,
9.24%, 12/15/14(2)........ 697,375
945,000 Momentive Performance
Materials -- 144A,
10.13%, 12/01/14.......... 954,450
--------------
3,409,625
--------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 1.6%
625,000 America Movil SA de CV
(Mexico),
6.38%, 03/01/35........... 612,902
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS EQUIPMENT AND SERVICES
(CONTINUED)
$ 810,000 Cincinnati Bell, Inc.,
7.25%, 07/15/13........... $ 842,400
550,000 Intelsat Bermuda,
Ltd. -- 144A (Bermuda),
9.25%, 06/15/16........... 594,000
2,350,000 New England Telephone &
Telegraph,
7.88%, 11/15/29........... 2,571,097
970,000 New Jersey Bell Telephone,
7.85%, 11/15/29........... 1,088,397
545,000 PanAmSat Corp. -- 144A,
9.00%, 06/15/16........... 579,744
860,000 Qwest Corp.,
7.88%, 09/01/11........... 920,200
675,000 Qwest Corp., Floating Rate,
8.61%, 06/15/13(2)........ 734,063
50,000 Rogers Wireless, Inc.
(Canada),
7.25%, 12/15/12........... 53,250
990,000 Rogers Wireless, Inc.
(Canada),
7.50%, 03/15/15........... 1,079,100
1,115,000 Sprint Capital Corp.,
8.75%, 03/15/32........... 1,345,824
1,725,000 Telecom Italia Capital
(Luxembourg),
5.25%, 10/01/15........... 1,614,096
1,105,000 Telecom Italia Capital
(Luxembourg),
6.00%, 09/30/34........... 1,005,401
1,825,000 Telecom Italia Capital
(Luxembourg),
7.20%, 07/18/36........... 1,912,584
75,000 Telefonica Emisiones SAU
(Spain),
6.42%, 06/20/16........... 77,508
2,950,000 Telefonica Emisiones SAU
(Spain),
7.05%, 06/20/36........... 3,143,449
850,000 Telefonica Europe BV (the
Netherlands),
7.75%, 09/15/10........... 913,671
215,000 Verizon Maryland, Inc.,
Series B,
5.13%, 06/15/33........... 176,956
1,470,000 Vodafone Group PLC (United
Kingdom),
5.00%, 12/16/13........... 1,422,798
500,000 Vodafone Group PLC (United
Kingdom),
5.00%, 09/15/15........... 476,783
7,910,000 Vodafone Group PLC (United
Kingdom), Floating Rate,
5.45%, 12/28/07(2)........ 7,916,075
890,000 Wind Acquisition Finance
SA -- 144A (Luxembourg),
10.75%, 12/01/15.......... 1,016,825
1,375,000 Windstream Corp. -- 144A,
8.13%, 08/01/13........... 1,495,313
</Table>
See notes to financial statements.
92
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS EQUIPMENT AND SERVICES
(CONTINUED)
$ 945,000 Windstream Corp. -- 144A,
8.63%, 08/01/16........... $ 1,039,500
--------------
32,631,936
--------------
TRANSPORTATION -- 0.0%
560,000 Overseas Shipholding Group,
7.50%, 02/15/24........... 571,900
--------------
UTILITIES -- 0.6%
346,407 AES Ironwood LLC,
8.86%, 11/30/25........... 390,574
235,000 AES Red Oak LLC, Series B,
9.20%, 11/30/29........... 266,138
2,735,000 Centerpoint Energy, Inc.,
Series B,
7.25%, 09/01/10........... 2,883,970
299,756 Elwood Energy LLC,
8.16%, 07/05/26........... 314,675
1,000,000 Florida Power & Light,
5.63%, 04/01/34........... 986,867
126,000 Homer City Funding LLC,
8.14%, 10/01/19........... 137,970
83,088 Homer City Funding LLC,
8.73%, 10/01/26........... 95,966
195,000 Midwest Generation LLC,
8.75%, 05/01/34........... 212,550
438,270 Midwest Generation LLC,
Series B,
8.56%, 01/02/16........... 483,467
560,000 NRG Energy, Inc.,
7.38%, 02/01/16........... 564,200
445,000 Orion Power Holdings, Inc.,
12.00%, 05/01/10.......... 507,300
545,000 Reliant Energy, Inc.,
6.75%, 12/15/14........... 535,463
5,325,000 TXU Corp., Series O,
4.80%, 11/15/09........... 5,223,499
--------------
12,602,639
--------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $1,100,451,964)..... 1,087,395,449
--------------
FOREIGN GOVERNMENT OBLIGATIONS -- 0.7%
9,700,000 AID-Israel (Israel),
5.50%, 09/18/23........... 10,117,459
2,930,000 Province of Manitoba
(Canada),
6.38%, 09/01/15(23)....... 1,996,952
3,365,000 Province of Ontario, Series
GMTN (Canada),
6.25%, 06/16/15(23)....... 2,278,778
510,000 United Mexican States
(Mexico), Series MTN,
8.30%, 08/15/31........... 653,310
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
FOREIGN GOVERNMENT OBLIGATIONS (CONTINUED)
$ 260,000 United Mexican States
(Mexico), Series MTNA,
7.50%, 04/08/33........... $ 307,450
--------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $15,154,914)........ 15,353,949
--------------
CONTRACTS
PURCHASED PUT
OPTIONS -- 0.0%
416 US Treasury Note (10 Year)
March Future, Expiring
February 2007 @ 106
(Cost $234,759)........... 84,500
--------------
PRINCIPAL
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 1.2%
FEDERAL HOME LOAN BANK
$ 25,500,000 4.80%, 01/02/07
(Cost $25,489,800)........ 25,489,800
--------------
SHORT TERM CORPORATE NOTES -- 0.4%
7,750,000 AT&T, Inc. -- 144A,
4.21%, 06/05/07
(Cost $7,709,684)......... 7,709,684
--------------
SECURITIES LENDING COLLATERAL -- 0.0%
958,807 Securities Lending
Collateral Investment
(Note 4)
(Cost $958,807)........... 958,807
--------------
TOTAL SECURITIES
(Cost $2,411,315,857)..... 2,394,052,362
--------------
REPURCHASE AGREEMENTS -- 1.0%
20,094,880 With Investors Bank and
Trust, dated 12/29/06,
4.76%, due 01/02/07,
repurchase proceeds at
maturity $20,105,508
(Collateralized by Fannie
Mae Adjustable Rate
Mortgage, 4.85%, due
10/01/35, with a value of
$21,099,624) (Cost
$20,094,880).............. 20,094,880
--------------
Total Investments before
Call and Put Options
Written and Securities
Sold Short -- 116.2%
(Cost $2,431,410,737)..... 2,414,147,242
--------------
CONTRACTS
CALL OPTIONS WRITTEN -- (0.0)%
(34,200,000) Expiring 12/13/07. If
exercised the Series pays
4.40%, and receives
floating 3 month LIBOR,
expiring 12/17/17,
European Style
(Premium $229,140)........ (144,119)
--------------
</Table>
See notes to financial statements.
93
CORE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
CONTRACTS VALUE
- --------- --------------
PUT OPTIONS WRITTEN -- (0.0)%
(34,200,000) Expiring 12/13/07. If
exercised the Series pays
floating 3 month LIBOR,
and receives 5.40%,
expiring 12/17/17,
European Style
(Premium $372,780)........ $ (477,535)
--------------
<Caption>
PRINCIPAL
- ---------
SECURITIES SOLD SHORT -- (7.8)%
$(145,500,000) Fannie Mae, TBA,
5.50%, 01/11/07........... (143,817,729)
(1,900,000) Fannie Mae, TBA,
5.00%, 01/17/07........... (1,867,937)
(3,000,000) Freddie Mac Gold, TBA,
6.00%, 01/11/07........... (3,022,500)
(6,500,000) Freddie Mac Gold, TBA,
4.50%, 01/17/07........... (6,264,375)
(6,400,000) Freddie Mac Gold, TBA,
5.00%, 01/17/07........... (6,288,000)
--------------
TOTAL SECURITIES SOLD SHORT
(Proceeds $162,196,673)... (161,260,541)
--------------
Total Investments net of
Call and Put Options
Written and Securities
Sold
Short -- 108.4%
(Cost $2,268,612,144)..... 2,252,265,047
Liabilities less other
assets -- (8.4)%.......... (174,443,598)
--------------
NET ASSETS -- 100.0%........ $2,077,821,449
==============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $2,268,726,644.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation.......... $ 9,326,419
Gross unrealized depreciation.......... (25,788,016)
------------
Net unrealized depreciation............ $(16,461,597)
============
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
94
TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
US TREASURY SECURITIES -- 15.4%
US TREASURY BONDS -- 2.9%
$ 200,000 8.00%, 11/15/21................ $ 265,188
1,910,000 6.00%, 02/15/26................ 2,166,806
550,000 6.13%, 11/15/27(8)............. 638,301
512,000 4.50%, 02/15/36(8)............. 487,041
------------
3,557,336
------------
US TREASURY INFLATION INDEX -- 4.1%
255,787 0.88%, 04/15/10................ 242,578
1,179,987 2.38%, 04/15/11................ 1,175,655
454,686 1.63%, 01/15/15................ 428,116
134,944 1.88%, 07/15/15................ 129,362
213,629 2.00%, 01/15/16................ 206,336
2,449,461 2.50%, 07/15/16................ 2,468,789
192,805 2.38%, 01/15/25................ 192,015
81,382 2.00%, 01/15/26................ 76,563
------------
4,919,414
------------
US TREASURY NOTES -- 7.9%
2,880,000 3.38%, 02/15/08................ 2,830,614
3,340,000 3.75%, 05/15/08................ 3,289,903
810,000 4.50%, 02/15/09................ 805,349
2,000,000 4.88%, 08/15/09................ 2,006,642
220,000 4.50%, 02/28/11(8)............. 218,445
20,000 4.63%, 10/31/11(8)............. 19,934
240,000 4.50%, 11/15/15(8)............. 236,381
100,000 4.63%, 11/15/16(8)............. 99,375
------------
9,506,643
------------
US TREASURY STRIPS -- 0.5%
1,495,000 Zero coupon, 11/15/24.......... 622,805
------------
TOTAL US TREASURY SECURITIES
(Cost $18,731,994)........... 18,606,198
------------
US GOVERNMENT AGENCY SECURITIES -- 53.2%
FANNIE MAE -- 30.9%
230,000 5.00%, 09/15/08................ 229,837
60,000 5.40%, 04/13/09................ 60,020
483,340 PL# 735809, Variable Rate,
4.48%, 08/01/35(1)........... 479,979
35,590 PL# 759626,
6.00%, 02/01/34.............. 35,911
43,343 PL# 795774,
6.00%, 10/01/34.............. 43,681
188,983 PL# 796050,
6.00%, 08/01/34.............. 190,458
1,481,170 PL# 796278,
6.00%, 12/01/34.............. 1,492,734
57,271 PL# 801516, Variable Rate,
4.73%, 08/01/34(1)........... 56,934
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 634,351 PL# 809169,
6.00%, 01/01/35.............. $ 639,303
119,054 PL# 810896, Variable Rate,
4.85%, 01/01/35(1)........... 118,435
24,055 PL# 820426,
6.00%, 03/01/35.............. 24,231
494,667 PL# 893681,
6.00%, 10/01/36.............. 498,171
893,334 PL# 893923,
6.00%, 10/01/36.............. 899,662
1,195,957 PL# 894005,
6.00%, 10/01/36.............. 1,204,428
1,500,000 TBA,
5.00%, 01/01/22.............. 1,474,688
3,100,000 TBA,
5.50%, 01/01/22.............. 3,100,000
100,000 TBA,
6.00%, 01/01/22.............. 101,406
14,670,000 TBA,
5.00%, 01/01/37.............. 14,165,718
1,100,000 TBA,
5.50%, 01/01/37.............. 1,087,282
6,000,000 TBA,
6.00%, 01/01/37.............. 6,041,250
4,460,000 TBA,
6.50%, 01/01/37.............. 4,545,017
1,000,000 TBA,
5.00%, 02/01/37.............. 965,625
------------
37,454,770
------------
FEDERAL AGRICULTURAL MORTGAGE CORP. -- 0.1%
80,000 4.25%, 07/29/08................ 79,008
------------
FEDERAL HOME LOAN BANK -- 1.1%
100,000 5.10%, 09/19/08................ 100,097
260,000 5.40%, 01/02/09................ 259,733
60,000 4.75%, 12/16/16................ 58,860
680,000 5.50%, 07/15/36................ 712,186
140,000 Series VB15,
5.00%, 12/21/15.............. 139,950
------------
1,270,826
------------
FREDDIE MAC -- 1.2%
430,000 4.38%, 11/16/07................ 426,936
720,000 4.75%, 01/18/11................ 715,877
131,412 PL# 1B2694, Variable Rate,
4.35%, 12/01/34(1)........... 129,296
160,000 Series MTN,
5.55%, 12/11/08.............. 159,971
------------
1,432,080
------------
</Table>
See notes to financial statements.
95
TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FREDDIE MAC GOLD -- 1.3%
$ 300,000 TBA,
5.00%, 01/01/22.............. $ 294,750
1,300,000 TBA,
5.00%, 01/01/37.............. 1,254,500
------------
1,549,250
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 18.2%
706,899 PL# 605617,
5.00%, 07/15/34.............. 688,176
1,527,547 PL# 612902,
5.00%, 07/15/33.............. 1,487,908
639,457 PL# 636084,
5.00%, 01/15/35.............. 622,165
1,903,038 PL# 644631,
5.00%, 09/15/35.............. 1,851,575
120,000 TBA,
5.00%, 01/01/37.............. 116,700
1,500,000 TBA,
5.50%, 01/01/37.............. 1,492,968
13,450,000 TBA,
6.00%, 01/01/37.............. 13,639,134
2,000,000 TBA,
6.50%, 01/01/37.............. 2,051,876
------------
21,950,502
------------
TENNESSEE VALLEY AUTHORITY -- 0.4%
440,000 5.98%, 04/01/36................ 489,995
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost
$64,546,970)................. 64,226,431
------------
CORPORATE BONDS AND NOTES -- 48.0%
ADVERTISING -- 0.1%
90,000 Lamar Media Corp., Series B,
6.63%, 08/15/15.............. 89,663
------------
AEROSPACE AND DEFENSE -- 0.0%
45,000 DRS Technologies, Inc.,
6.63%, 02/01/16.............. 45,563
------------
AUTOMOBILE: RENTAL -- 0.0%
15,000 Hertz Corp. -- 144A,
8.88%, 01/01/14.............. 15,788
------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 1.6%
60,000 Daimler Chrysler NA Holding,
4.05%, 06/04/08.............. 58,738
250,000 Daimler Chrysler NA Holding,
5.88%, 03/15/11.............. 251,172
950,000 Ford Motor Company,
7.45%, 07/16/31(8)........... 750,500
840,000 General Motors Corp.,
8.25%, 07/15/23(8)........... 785,400
60,000 Visteon Corp.,
8.25%, 08/01/10.............. 58,800
------------
1,904,610
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
BANKS -- 2.8%
$ 360,000 Bank of America Corp.,
5.38%, 08/15/11(8)........... $ 362,856
160,000 Glitnir Banki HF -- 144A
(Iceland),
6.33%, 07/28/11.............. 164,452
130,000 Glitnir Banki HF -- 144A
(Iceland), Variable Rate,
6.69%, 06/15/16(1)........... 134,336
200,000 Kaupthing Bank -- 144A
(Iceland),
7.13%, 05/19/16.............. 212,500
280,000 Kaupthing Bank -- 144A
(Iceland), Floating Rate,
6.06%, 04/12/11(2)........... 282,269
280,000 Landisbanki Islands HF -- 144A
(Iceland),
6.10%, 08/25/11.............. 284,953
100,000 Mitsubishi UFJ Financial Group
Capital Financial I, Ltd.
(Cayman Islands),
Variable Rate,
6.35%, perpetual(1).......... 101,669
10,000 Rabobank Capital Funding Trust
II -- 144A, Variable Rate,
5.26%, perpetual(1).......... 9,794
20,000 Rabobank Capital Funding Trust
III -- 144A,
Variable Rate,
5.25%, perpetual(1).......... 19,319
230,000 Resona Preferred Global
Securities -- 144A (Cayman
Islands),
Variable Rate,
7.19%, perpetual(1).......... 240,369
300,000 Shinsei Financial, Ltd. -- 144A
(Cayman Islands),
Variable Rate,
6.42%, perpetual(1).......... 300,177
90,000 Wachovia Capital Trust III,
Variable Rate,
5.80%, perpetual(1).......... 90,827
620,000 Wachovia Corp.,
5.25%, 08/01/14.............. 613,392
445,000 Wells Fargo & Company,
5.30%, 08/26/11.............. 447,230
100,000 Wells Fargo Capital X,
5.95%, 12/15/36.............. 98,347
------------
3,362,490
------------
</Table>
See notes to financial statements.
96
TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
BROADCAST SERVICES/MEDIA -- 1.8%
$ 10,000 Clear Channel Communications,
Inc.,
4.63%, 01/15/08.............. $ 9,907
20,000 Clear Channel Communications,
Inc.,
6.25%, 03/15/11.............. 19,454
90,000 Clear Channel Communications,
Inc.,
5.50%, 09/15/14.............. 76,034
50,000 Clear Channel Communications,
Inc.,
4.90%, 05/15/15.............. 39,934
80,000 Comcast Cable Communications,
8.88%, 05/01/17.............. 96,514
630,000 Comcast Corp.,
6.50%, 01/15/15.............. 657,438
210,000 Comcast Corp.,
5.88%, 02/15/18.............. 208,163
80,000 Cox Communications, Inc.,
3.88%, 10/01/08.............. 77,865
85,000 Echostar DBS Corp.,
7.00%, 10/01/13.............. 85,319
40,000 Echostar DBS Corp.,
7.13%, 02/01/16.............. 40,200
40,000 Kabel Deutschland GMBH
(Germany),
10.63%, 07/01/14............. 44,550
100,000 Liberty Media Corp.,
7.88%, 07/15/09.............. 104,782
120,000 News America, Inc.,
6.20%, 12/15/34.............. 116,202
40,000 Quebecor Media, Inc. (Canada),
7.75%, 03/15/16.............. 41,050
60,000 Rogers Cable, Inc. (Canada),
6.75%, 03/15/15.............. 62,120
20,000 Sinclair Broadcast Group,
8.00%, 03/15/12.............. 20,750
50,000 Time Warner Entertainment,
8.38%, 07/15/33.............. 60,609
210,000 Time Warner, Inc.,
6.88%, 05/01/12.............. 222,164
50,000 Time Warner, Inc.,
7.70%, 05/01/32.............. 56,582
80,000 Viacom, Inc.,
5.75%, 04/30/11.............. 80,117
------------
2,119,754
------------
CHEMICALS -- 0.1%
30,000 Georgia Gulf Corp. -- 144A,
9.50%, 10/15/14.............. 29,400
30,000 Lyondell Chemical Company,
8.00%, 09/15/14.............. 31,275
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
CHEMICALS (CONTINUED)
$ 15,000 Lyondell Chemical Company,
8.25%, 09/15/16.............. $ 15,825
44,000 Westlake Chemical Corp.,
6.63%, 01/15/16.............. 42,790
------------
119,290
------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 0.0%
10,000 Electronic Data Systems,
7.13%, 10/15/09.............. 10,432
40,000 Sungard Data Systems, Inc.,
10.25%, 08/15/15(8).......... 42,900
------------
53,332
------------
CONSTRUCTION SERVICES AND SUPPLIES -- 0.1%
30,000 Beazer Homes USA, Inc.,
8.63%, 05/15/11.............. 31,050
40,000 Jacuzzi Brands, Inc.,
9.63%, 07/01/10.............. 42,700
------------
73,750
------------
CONSUMER GOODS AND SERVICES -- 0.3%
380,000 Altria Group, Inc.,
7.00%, 11/04/13.............. 413,440
------------
CONTAINERS AND PACKAGING -- 0.0%
40,000 Graham Packaging Company,
9.88%, 10/15/14(8)........... 40,600
------------
ENVIRONMENTAL WASTE MANAGEMENT AND RECYCLING
SERVICES -- 0.3%
320,000 Waste Management, Inc.,
6.38%, 11/15/12.............. 335,521
------------
EQUIPMENT RENTAL AND LEASING -- 0.2%
210,000 International Lease Finance
Corp. E-Capital Trust
II -- 144A, Variable Rate,
6.25%, 12/21/65(1)........... 213,693
------------
FINANCIAL SERVICES -- 5.9%
90,000 Aiful Corp. -- 144A (Japan),
5.00%, 08/10/10.............. 87,407
500,000 Citigroup, Inc.,
5.10%, 09/29/11.............. 498,401
80,000 Countrywide Financial Corp.,
Series MTN, Floating Rate,
5.50%, 01/05/09(2)........... 80,027
340,000 Countrywide Financial Corp.,
Series MTNA,
4.50%, 06/15/10.............. 331,734
100,000 Countrywide Financial Corp.,
Series MTNB, Floating Rate,
5.47%, 06/18/08(2)........... 100,026
120,000 Countrywide Home Loans, Series
MTNB, Floating Rate,
5.53%, 02/27/08(2)........... 120,150
50,000 Credit Suisse USA, Inc.,
5.50%, 08/16/11.............. 50,596
</Table>
See notes to financial statements.
97
TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
$ 1,465,000 Ford Motor Credit Company,
5.80%, 01/12/09.............. $ 1,439,073
120,000 Ford Motor Credit Company,
7.38%, 10/28/09.............. 120,331
90,000 General Electric Capital Corp.,
Series MTNA,
4.25%, 01/15/08.............. 89,203
280,000 General Electric Capital Corp.,
Series MTNA,
4.13%, 09/01/09.............. 273,169
120,000 General Motors Acceptance
Corp.,
6.13%, 08/28/07.............. 120,042
800,000 General Motors Acceptance
Corp.,
5.85%, 01/14/09.............. 797,345
30,000 General Motors Acceptance
Corp., Series GM,
6.31%, 11/30/07.............. 29,819
60,000 General Motors Acceptance
Corp., Series MTN,
4.38%, 12/10/07.............. 59,178
40,000 GMAC LLC,
5.13%, 05/09/08.............. 39,585
600,000 GMAC LLC, Series MTN, Floating
Rate,
6.27%, 01/16/07(2)........... 600,002
250,000 HSBC Finance Corp.,
4.63%, 01/15/08.............. 248,389
650,000 JPMorgan Chase & Company,
5.13%, 09/15/14.............. 640,160
260,000 JPMorgan Chase & Company,
5.15%, 10/01/15.............. 255,584
380,000 Lehman Brothers E-Capital Trust
I, Floating Rate,
6.16%, 08/19/65(2)........... 383,834
130,000 Lehman Brothers Holdings, Inc.,
4.00%, 01/22/08.............. 128,241
80,000 Lehman Brothers Holdings, Inc.,
4.50%, 07/26/10.............. 78,039
30,000 Morgan Stanley,
3.63%, 04/01/08.............. 29,402
320,000 Morgan Stanley, Series MTN,
5.63%, 01/09/12.............. 325,626
90,000 Morgan Stanley, Series MTNF,
Floating Rate,
5.82%, 10/18/16(2)........... 90,669
190,000 The Goldman Sachs Group, Inc.,
4.50%, 06/15/10.............. 186,107
50,000 The Goldman Sachs Group, Inc.,
5.00%, 01/15/11.............. 49,625
------------
7,251,764
------------
FOOD AND BEVERAGE -- 0.1%
60,000 Kraft Foods, Inc.,
5.63%, 11/01/11.............. 60,701
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
FUNERAL SERVICES -- 0.0%
$ 50,000 Service Corp. International,
7.63%, 10/01/18.............. $ 53,250
------------
INSURANCE -- 0.0%
20,000 ASIF Global Financing XIX --
144A,
4.90%, 01/17/13.............. 19,529
------------
LEISURE AND RECREATION -- 0.4%
35,000 AMC Entertainment, Inc.,
11.00%, 02/01/16............. 39,463
15,000 Boyd Gaming Corp.,
6.75%, 04/15/14.............. 15,038
40,000 Boyd Gaming Corp.,
7.13%, 02/01/16.............. 40,000
60,000 Inn of The Mountain Gods,
12.00%, 11/15/10............. 65,100
60,000 Mandalay Resort Group,
9.50%, 08/01/08.............. 63,300
130,000 MGM MIRAGE,
7.63%, 01/15/17.............. 130,974
30,000 River Rock Entertainment
Authority,
9.75%, 11/01/11.............. 31,950
90,000 Station Casinos, Inc.,
7.75%, 08/15/16.............. 91,125
------------
476,950
------------
MANUFACTURING -- 0.5%
120,000 Tyco International Group SA
(Luxembourg),
6.38%, 10/15/11.............. 125,708
440,000 Tyco International Group SA
(Luxembourg),
6.00%, 11/15/13.............. 455,894
------------
581,602
------------
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 0.5%
75,000 DaVita, Inc.,
7.25%, 03/15/15.............. 76,875
6,000 HCA, Inc.,
6.30%, 10/01/12.............. 5,505
70,000 HCA, Inc.,
6.25%, 02/15/13.............. 62,125
110,000 HCA, Inc.,
6.75%, 07/15/13.............. 99,000
34,000 HCA, Inc.,
6.50%, 02/15/16(8)........... 28,815
10,000 HCA, Inc. -- 144A,
9.13%, 11/15/14.............. 10,713
100,000 HCA, Inc. -- 144A,
9.25%, 11/15/16.............. 107,375
</Table>
See notes to financial statements.
98
TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
MEDICAL EQUIPMENT, SUPPLIES, AND SERVICES
(CONTINUED)
$ 70,000 HCA, Inc. -- 144A,
9.63%, 11/15/16.............. $ 75,425
125,000 Tenet Healthcare Corp.,
9.88%, 07/01/14.............. 127,812
------------
593,645
------------
METALS AND MINING -- 0.2%
230,000 Vale Overseas, Ltd.
(Cayman Islands),
6.88%, 11/21/36.............. 237,049
------------
OFFICE EQUIPMENT, SUPPLIES, AND
SERVICES -- 0.0%
40,000 Xerox Corp.,
6.75%, 02/01/17.............. 42,000
------------
OIL, COAL AND GAS -- 3.9%
210,000 Amerada Hess Corp.,
7.30%, 08/15/31.............. 235,076
15,000 AmeriGas Partners LP/AmeriGas
Eagle Finance Corp.,
7.13%, 05/20/16.............. 15,075
200,000 Anadarko Finance Company,
Series B,
7.50%, 05/01/31.............. 227,598
180,000 Anadarko Petroleum Corp.,
5.95%, 09/15/16.............. 180,706
320,000 Anadarko Petroleum Corp.,
6.45%, 09/15/36.............. 324,431
130,000 Apache Finance Canada (Canada),
4.38%, 05/15/15.............. 119,840
55,000 Chesapeake Energy Corp.,
6.38%, 06/15/15.............. 54,725
150,000 ChevronTexaco Capital Company
(Canada),
3.50%, 09/17/07.............. 148,265
390,000 Conoco, Inc.,
6.95%, 04/15/29.............. 444,317
170,000 Devon Energy Corp.,
7.95%, 04/15/32.............. 207,583
50,000 El Paso Corp., Series MTN,
7.80%, 08/01/31.............. 54,875
130,000 El Paso Corp., Series MTN,
7.75%, 01/15/32.............. 143,000
110,000 El Paso Natural Gas,
8.38%, 06/15/32.............. 133,753
90,000 Kerr-McGee Corp.,
6.95%, 07/01/24.............. 96,098
330,000 Kerr-McGee Corp.,
7.88%, 09/15/31.............. 394,857
30,000 Kinder Morgan Energy
Partners, LP,
6.30%, 02/01/09.............. 30,413
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
OIL, COAL AND GAS (CONTINUED)
$ 120,000 Kinder Morgan Energy
Partners, LP,
6.75%, 03/15/11.............. $ 124,972
70,000 Opti Canada, Inc. (Canada) --
144A,
8.25%, 12/15/14.............. 72,275
45,000 Peabody Energy Corp., Series B,
6.88%, 03/15/13.............. 46,350
120,000 Pemex Project Funding Master
Trust,
7.38%, 12/15/14.............. 132,420
40,000 Pemex Project Funding Master
Trust,
6.63%, 06/15/35.............. 40,970
180,000 Petrobas International Finance
Company (Cayman Islands),
6.13%, 10/06/16.............. 182,700
70,000 Pogo Producing Company,
6.88%, 10/01/17.............. 67,200
25,000 Semgroup LP -- 144A,
8.75%, 11/15/15.............. 25,250
65,000 Suburban Propane Partners,
6.88%, 12/15/13.............. 64,025
270,000 TNK-BP Finance SA -- 144A
(Luxembourg),
7.50%, 07/18/16.............. 287,888
20,000 Vintage Petroleum,
8.25%, 05/01/12.............. 20,991
50,000 Western Oil Sands, Inc.
(Canada),
8.38%, 05/01/12.............. 55,750
80,000 Williams Companies, Inc.,
8.75%, 03/15/32.............. 90,800
370,000 Williams Companies, Inc.,
Series A,
7.50%, 01/15/31.............. 385,725
270,000 XTO Energy, Inc.,
7.50%, 04/15/12.............. 293,664
------------
4,701,592
------------
PAPER AND FOREST PRODUCTS -- 0.4%
410,000 Weyerhaeuser Company,
6.75%, 03/15/12.............. 430,463
------------
PRINTING AND PUBLISHING -- 0.1%
50,000 Idearc, Inc. -- 144A,
8.00%, 11/15/16.............. 51,000
40,000 Reader's Digest Association,
Inc.,
6.50%, 03/01/11.............. 41,300
------------
92,300
------------
</Table>
See notes to financial statements.
99
TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: BANKS -- 1.0%
$ 384,318 Washington Mutual Bank, Series
2005-AR13, Class A1A1,
Floating Rate,
5.64%, 10/25/45(3)........... $ 385,075
447,444 Washington Mutual Bank, Series
2005-AR15, Class A1A2,
Floating Rate,
5.63%, 11/25/45(3)........... 449,452
314,248 Washington Mutual Bank, Series
2005-AR8, Class 2A1A,
Floating Rate,
5.64%, 07/25/45(3)........... 315,503
------------
1,150,030
------------
PRIVATE ASSET BACKED: FINANCIAL
SERVICES -- 1.8%
368,729 Lehman XS Trust, Series
2005-5N, Class 1A1, Floating
Rate,
5.65%, 11/25/35(3)........... 369,981
265,428 Lehman XS Trust, Series
2005-7N, Class 1A1B, Floating
Rate,
5.65%, 12/25/35(3)........... 266,667
755,293 Lehman XS Trust, Series
2006-GP4, Class 3A1A,
Floating Rate,
5.42%, 08/25/46(3)........... 755,179
140,000 Morgan Stanley Capital I,
Series 2005-HQ6, Class A4A,
4.99%, 08/13/42.............. 136,866
630,000 Morgan Stanley Capital I,
Series 2006-IQ12, Class A4,
5.33%, 12/15/43.............. 628,652
------------
2,157,345
------------
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY -- 22.0%
374,531 Accredited Mortgage Loan Trust,
Series 2005-3, Class A1,
Floating Rate,
5.59%, 09/25/35(3)........... 375,096
160,446 Adjustable Rate Mortgage Trust,
Series 2004-2, Class 7A2,
Floating Rate,
5.77%, 02/25/35(3)........... 160,775
154,883 Adjustable Rate Mortgage Trust,
Series 2004-5, Class 7A2,
Floating Rate,
5.73%, 04/25/35(3)........... 155,113
438,350 American Home Mortgage
Investment Trust, Series
2005-4, Class 1A1, Floating
Rate,
5.64%, 11/25/45(3)........... 440,396
400,000 Banc of America Commercial
Mortgage, Inc., Series
2005-3, Class A4,
4.67%, 07/10/43.............. 382,786
670,476 Banc of America Mortgage
Securities, Series 2005-A,
Class 2A1,
4.46%, 02/25/35.............. 655,248
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 686,623 Bear Stearns Alt-A Trust,
Series 2004-11, Class 2A2,
Floating Rate,
4.95%, 11/25/34(3)........... $ 698,932
1,200,000 Bear Stearns Mortgage Funding
Trust, Series 2006-AR5, Class
1A1, Floating Rate,
5.51%, 05/25/36(3)(14)....... 1,199,940
51,252 Chevy Chase Mortgage Funding
Corp. -- 144A, Series
2003-2A, Class A1, Floating
Rate,
5.73%, 05/25/34(3)........... 51,288
425,709 Countrywide Alternative Loan
Trust, Series 2005-36, Class
3A1, Floating Rate,
4.96%, 08/25/35(3)........... 422,116
1,162,956 Countrywide Alternative Loan
Trust, Series 2005-38, Class
A3, Floating Rate,
5.67%, 09/25/35(3)........... 1,167,761
281,401 Countrywide Alternative Loan
Trust, Series 2005-44, Class
1A1, Floating Rate,
5.68%, 10/25/35(3)........... 282,046
487,378 Countrywide Alternative Loan
Trust, Series 2005-59, Class
1A1, Floating Rate,
5.65%, 11/20/35(3)........... 489,296
453,977 Countrywide Alternative Loan
Trust, Series 2005-J12, Class
2A1, Floating Rate,
5.62%, 08/25/35(3)........... 455,153
1,359,996 Countrywide Alternative Loan
Trust, Series 2006-OA2, Class
A5, Floating Rate,
5.58%, 05/20/46(3)........... 1,362,342
632,450 Countrywide Alternative Loan
Trust, Series 2006-OA6, Class
1A1A, Floating Rate,
5.56%, 07/25/46(3)........... 631,713
224,530 Countrywide Asset-Backed
Certificates, Series 2005-11,
Class AF1, Floating Rate,
5.53%, 02/25/36(3)........... 224,733
130,000 Countrywide Asset-Backed
Certificates, Series 2005-4,
Class AF3,
4.46%, 10/25/35.............. 128,636
855,078 Countrywide Home Equity Loan
Trust -- 144A, Series
2006-RES, Class 4Q1B,
Floating Rate,
5.65%, 12/15/33(3)........... 856,681
286,355 Countrywide Home Equity Loan
Trust, Series 2005-G, Class
2A, Floating Rate,
5.58%, 12/15/35(3)........... 286,847
</Table>
See notes to financial statements.
100
TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 447,227 Countrywide Home Loans -- 144A,
Series 2005-R3, Class AF,
Floating Rate,
5.72%, 09/25/35(3)........... $ 449,936
300,078 Countrywide Home Loans, Series
2004-23, Class A,
Floating Rate,
7.41%, 11/25/34(3)........... 305,877
809,603 Countrywide Home Loans, Series
2005-3, Class 1A2, Floating
Rate,
5.64%, 04/25/35(3)........... 812,682
593,441 Credit Suisse Mortgage Capital
Certificates -- 144A, Series
2006-CF2, Class A1, Floating
Rate,
5.58%, 05/25/36(3)........... 593,412
141,785 First Franklin Mortgage Loan
Asset Backed Certificates,
Series 2004-FF10, Class A2,
Floating Rate,
5.75%, 12/25/32(3)........... 142,100
210,000 GE Capital Commercial Mortgage
Corp., Series 2005-C4, Class
A4, Floating Rate,
5.33%, 11/10/45(3)........... 211,059
351,797 GMAC Mortgage Corp. Loan Trust,
Series 2003-AR2, Class 1A1,
Floating Rate,
5.53%, 12/19/33(3)........... 357,763
357,247 GMAC Mortgage Corp. Loan Trust,
Series 2005-AR1, Class 3A,
Floating Rate,
4.67%, 03/18/35(3)........... 352,706
766,132 Greenpoint Mortgage Funding
Trust, Series 2006-AR4, Class
A1A, Floating Rate,
5.45%, 09/25/46(3)........... 766,270
200,000 GS Mortgage Securities Corp.
II, Series 2005-GG4, Class
AABA,
4.68%, 07/10/39.............. 194,355
144,807 Impac CMB Trust, Series
2003-10, Class 1A1, Floating
Rate,
6.05%, 10/25/33(3)........... 144,956
1,149,852 Impac CMB Trust, Series 2004-2,
Class A1, Floating Rate,
5.87%, 04/25/34(3)........... 1,150,745
236,346 Impac CMB Trust, Series 2004-6,
Class 1A1, Floating Rate,
5.75%, 10/25/34(3)........... 237,438
124,351 IndyMac Index Mortgage Loan
Trust, Series 2005-AR15,
Class A2,
5.10%, 09/25/35.............. 120,776
296,000 IXIS Real Estate Capital Trust,
Series 2006-HE1, Class A1,
Floating Rate,
5.44%, 03/25/36(3)........... 296,202
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 361,313 JPMorgan Mortgage Trust, Series
2004-A3, Class 1A1, Floating
Rate,
4.30%, 07/25/34(3)........... $ 358,692
100,000 LB-UBS Commercial Mortgage
Trust, Series 2005-C3, Class
A5,
4.74%, 07/15/30.............. 96,194
100,000 LB-UBS Commercial Mortgage
Trust, Series 2005-C3, Class
AAB,
4.66%, 07/15/30.............. 97,122
200,000 LB-UBS Commercial Mortgage
Trust, Series 2005-C5, Class
A4,
4.95%, 09/15/40.............. 195,187
500,000 Merrill Lynch Mortgage
Investors, Inc., Series
2005-A4, Class 2A2,
4.46%, 07/25/35.............. 486,992
400,000 Merrill Lynch Mortgage
Investors, Inc., Series
2005-A5, Class A3,
4.44%, 06/25/35.............. 393,048
220,000 Merrill Lynch Mortgage Trust,
Series 2006-C1, Class A4,
Floating Rate,
5.66%, 05/12/39(3)........... 226,533
294,753 MLCC Mortgage Investors, Inc.,
Series 2003-F, Class A1,
Floating Rate,
5.67%, 10/25/28(3)........... 294,777
584,707 Prime Mortgage Trust -- 144A,
Series 2006-DR1, Class 1A1,
5.50%, 05/25/35.............. 580,677
289,902 Prime Mortgage Trust -- 144A,
Series 2006-DR1, Class 1A2,
6.00%, 05/25/35.............. 291,691
1,273,130 Prime Mortgage Trust -- 144A,
Series 2006-DR1, Class 2A1,
5.50%, 05/25/35.............. 1,261,978
1,078,026 Prime Mortgage Trust -- 144A,
Series 2006-DR1, Class 2A2,
6.00%, 05/25/35.............. 1,074,986
1,200,000 Residential Accredited Loans,
Inc., Series 2006-Q10, Class
A1, Floating Rate,
5.51%, 01/25/37(3)........... 1,199,880
355,103 Structured Adjustable Rate
Mortgage Loan, Series
2005-15, Class 1A1,
5.06%, 07/25/35.............. 352,297
228,395 Structured Asset Mortgage
Investments, Inc., Series
2003-AR4, Class A1, Floating
Rate,
5.70%, 01/19/34(3)........... 228,952
646,107 Structured Asset Mortgage
Investments, Inc., Series
2006-AR6, Class 1A3, Floating
Rate,
5.51%, 12/25/35(3)........... 647,755
</Table>
See notes to financial statements.
101
TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 753,964 Thornburg Mortgage Securities
Trust, Series 2005-4, Class
A4, Floating Rate,
5.55%, 12/25/35(3)........... $ 753,731
949,391 Thornburg Mortgage Securities
Trust, Series 2006-1, Class
A3, Floating Rate,
5.52%, 01/25/36(3)........... 948,673
582,167 Zuni Mortgage Loan Trust,
Series 2006-0A1, Class A1,
Floating Rate,
5.45%, 08/25/36(3)........... 581,806
------------
26,634,146
------------
PRIVATE ASSET BACKED: OTHER -- 0.6%
700,000 SLM Student Loan Trust, Series
2006-5, Class A2,
Floating Rate,
5.37%, 07/25/17(2)........... 700,425
------------
REAL ESTATE DEVELOPMENT AND SERVICES -- 0.1%
35,000 Forest City Enterprises, Inc.,
7.63%, 06/01/15.............. 35,875
30,000 Forest City Enterprises, Inc.,
6.50%, 02/01/17.............. 29,550
------------
65,425
------------
REAL ESTATE INVESTMENT TRUSTS -- 0.1%
40,000 Host Marriott LP, Series Q,
6.75%, 06/01/16.............. 40,250
10,000 Ventas Realty LP/Ventas Capital
Corp.,
9.00%, 05/01/12.............. 11,350
30,000 Ventas Realty LP/Ventas Capital
Corp.,
6.50%, 06/01/16.............. 30,900
------------
82,500
------------
SCIENTIFIC AND TECHNICAL INSTRUMENTS -- 0.0%
10,000 Cie Generale de Geophysique
(France),
7.50%, 05/15/15.............. 10,100
------------
SEMICONDUCTORS -- 0.0%
15,000 NXP BV/NXP Funding LLC
(the Netherlands) -- 144A,
7.88%, 10/15/14(8)........... 15,581
------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 1.6%
90,000 AT&T, Inc.,
5.10%, 09/15/14.............. 87,522
10,000 Bellsouth Corp.,
4.75%, 11/15/12.............. 9,662
55,000 Cincinnati Bell, Inc.,
7.00%, 02/15/15.............. 55,344
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS EQUIPMENT AND SERVICES
(CONTINUED)
$ 185,000 Deutsche Telecom International
Finance BV (the Netherlands),
5.75%, 03/23/16.............. $ 182,604
40,000 Intelsat Bermuda, Ltd. -- 144A
(Bermuda),
9.25%, 06/15/16.............. 43,200
55,000 Intelsat, Ltd. (Bermuda),
7.63%, 04/15/12.............. 51,563
100,000 Koninklijke KPN NV (the
Netherlands),
8.00%, 10/01/10.............. 107,986
115,000 Koninklijke KPN NV (the
Netherlands),
8.38%, 10/01/30.............. 132,127
300,000 Nextel Communications, Inc.,
Series E,
6.88%, 10/31/13.............. 303,406
190,000 Qwest Communications
International, Inc., Floating
Rate,
8.87%, 02/15/09(2)........... 193,325
150,000 Sprint Capital Corp.,
8.38%, 03/15/12.............. 166,884
40,000 Sprint Capital Corp.,
8.75%, 03/15/32.............. 48,281
280,000 Sprint Nextel Corp.,
6.00%, 12/01/16.............. 273,396
190,000 Telecom Italia Capital
(Luxembourg),
5.25%, 10/01/15.............. 177,785
40,000 Verizon Global Funding Corp.,
7.38%, 09/01/12.............. 43,784
20,000 Windstream Corp. -- 144A,
8.63%, 08/01/16.............. 22,000
------------
1,898,869
------------
TRANSPORTATION -- 0.3%
40,000 Gulfmark Offshore, Inc.,
7.75%, 07/15/14.............. 41,000
70,000 Horizon Lines LLC,
9.00%, 11/01/12.............. 73,850
90,000 OMI Corp. (Marshall Islands),
7.63%, 12/01/13.............. 92,475
130,000 Teekay Shipping Corp.
(Marshall Islands),
8.88%, 07/15/11.............. 140,238
50,000 Union Pacific Corp.,
5.38%, 05/01/14.............. 49,717
------------
397,280
------------
UTILITIES -- 1.2%
85,000 AES Corp.,
7.75%, 03/01/14.............. 90,100
30,000 Dominion Resources, Inc.,
4.75%, 12/15/10.............. 29,336
100,000 Dominion Resources, Inc.,
5.70%, 09/17/12(8)........... 101,255
</Table>
See notes to financial statements.
102
TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
UTILITIES (CONTINUED)
$ 190,000 Exelon Corp.,
5.63%, 06/15/35.............. $ 179,586
70,000 FirstEnergy Corp., Series B,
6.45%, 11/15/11.............. 73,073
440,000 FirstEnergy Corp., Series C,
7.38%, 11/15/31.............. 502,611
30,000 NRG Energy, Inc.,
7.25%, 02/01/14.............. 30,300
30,000 NRG Energy, Inc.,
7.38%, 02/01/16.............. 30,225
20,000 Oncor Electric Delivery
Company,
6.38%, 01/15/15.............. 20,648
180,000 Pacific Gas & Electric Company,
6.05%, 03/01/34.............. 182,149
90,000 TXU Corp., Series P,
5.55%, 11/15/14.............. 85,891
100,000 TXU Corp., Series R,
6.55%, 11/15/34.............. 94,023
------------
1,419,197
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $57,647,313)........... 57,859,237
------------
<Caption>
SHARES
------
CONVERTIBLE PREFERRED STOCKS -- 0.2%
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS
9,300 General Motors Corp., Series A,
4.50% (Cost $217,415)........ 235,104
------------
<Caption>
PRINCIPAL
---------
CONVERTIBLE BONDS -- 0.1%
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS
$ 80,000 Ford Motor Company,
4.25%, 12/15/36 (Cost
$80,000)..................... 85,900
------------
MUNICIPAL BONDS -- 0.6%
VIRGINIA
729,916 Virginia State Housing
Development Authority, Series
C, Revenue Bond,
6.00%, 06/25/34 (Cost
$717,919).................... 729,937
------------
FOREIGN GOVERNMENT OBLIGATIONS -- 2.4%
320,000 Bundesrepublic Deutschland
(Germany), Series 04,
3.75%, 01/04/15(19).......... 416,559
10,000 Federal Republic of Brazil
(Brazil),
8.88%, 04/15/24.............. 12,485
35,000 Federal Republic of Brazil
(Brazil),
10.13%, 05/15/27............. 49,263
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
FOREIGN GOVERNMENT OBLIGATIONS (CONTINUED)
$ 286,000 Federal Republic of Brazil
(Brazil),
11.00%, 08/17/40(8).......... $ 379,308
59,648 Government of Canada Real
Return Bonds (Canada),
4.00%, 12/01/31(17).......... 74,218
25,000 Republic of Colombia
(Colombia),
11.75%, 02/25/20............. 36,438
100,000 Republic of Colombia
(Colombia), Series MTN,
7.38%, 09/18/37.............. 107,600
94,000 Republic of Panama (Panama),
7.13%, 01/29/26.............. 101,990
1,060,000 Russian Federation
(Russia) -- 144A,
5.00%, 03/31/30.............. 1,199,200
8,000 United Mexican States (Mexico),
5.63%, 01/15/17.............. 8,028
90,000 United Mexican States (Mexico),
Series MTN,
8.30%, 08/15/31.............. 115,290
332,000 United Mexican States (Mexico),
Series MTNA,
7.50%, 04/08/33.............. 392,590
------------
TOTAL FOREIGN GOVERNMENT
OBLIGATIONS (Cost
$2,783,956).................. 2,892,969
------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 0.3%
FEDERAL HOME LOAN BANK
310,000 Series 633,
4.80%, 02/15/07 (Cost
$310,000).................... 310,000
------------
SECURITIES LENDING COLLATERAL -- 3.5%
4,274,335 Securities Lending Collateral
Investment (Note 4)
(Cost $4,274,335)............ 4,274,335
------------
TOTAL SECURITIES (Cost
$149,309,902)................ 149,220,111
------------
REPURCHASE AGREEMENTS -- 20.7%
25,011,936 Investors Bank and Trust, dated
12/29/06, 4.76%, due
01/02/07, repurchase proceeds
at maturity $25,025,164
(Collateralized by Freddie
Mac Adjustable Rate Mortgage,
5.85%, due 10/01/36 with a
value of $24,921,304 and
Government National Mortgage
Association Adjustable Rate
Mortgage, 5.38%, due
03/20/24, with a value of
$1,341,228)
(Cost $25,011,936)........... 25,011,936
------------
Total Investments before Call
and Put Options
Written -- 144.4% (Cost
$174,321,838)................ 174,232,047
------------
</Table>
See notes to financial statements.
103
TOTAL RETURN BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
CONTRACTS VALUE
--------- ------------
CALL OPTIONS WRITTEN -- (0.0)%
(25) US Treasury Note (10 Year)
March Future, Expiring
February 2007 @ 110.......... $ (1,953)
(1) US Treasury Note (10 Year)
March Future, Expiring
February 2007 @ 111.......... (31)
------------
TOTAL CALL OPTIONS WRITTEN
(Premium $6,964)............. (1,984)
------------
PUT OPTIONS WRITTEN -- (0.0)%
(25) US Treasury Note (10 Year)
March Future, Expiring
February 2007 @ 106.......... (5,078)
(26) US Treasury Note (10 Year)
March Future, Expiring
February 2007 @ 107.......... (12,594)
------------
TOTAL PUT OPTIONS WRITTEN
(Premium $15,432)............ (17,672)
------------
Total Investments net of Call
and Put Options
Written -- 144.4% (Cost
$174,299,442)................ 174,212,391
Liabilities less other
assets -- (44.4)%............ (53,575,964)
------------
NET ASSETS -- 100.0%........... $120,636,427
============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $174,320,904.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation............ $ 776,631
Gross unrealized depreciation............ (885,144)
---------
Net unrealized depreciation.............. $(108,513)
=========
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
104
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES -- 85.3%
ADVERTISING -- 1.7%
$ 3,745,000 Advanstar Communications, Inc.,
10.75%, 08/15/10............. $ 4,049,281
470,000 Affinion Group, Inc.,
10.13%, 10/15/13............. 500,550
945,000 Affinion Group, Inc.,
11.50%, 10/15/15............. 1,004,063
645,000 Lamar Media Corp., Series B,
6.63%, 08/15/15.............. 642,581
1,305,000 RH Donnelley Corp.,
6.88%, 01/15/13.............. 1,257,694
660,000 RH Donnelley Corp., Series A-1,
6.88%, 01/15/13.............. 636,075
720,000 RH Donnelley Corp., Series A-2,
6.88%, 01/15/13.............. 693,900
------------
8,784,144
------------
AEROSPACE AND DEFENSE -- 0.5%
575,000 Argo-Tech Corp.,
9.25%, 06/01/11.............. 623,875
415,000 Armor Holdings, Inc.,
8.25%, 08/15/13.............. 433,675
450,000 CPI Holdco, Inc., Floating
Rate,
11.30%, 02/01/15(11)......... 464,625
980,000 DRS Technologies, Inc.,
7.63%, 02/01/18.............. 1,014,300
------------
2,536,475
------------
AGRICULTURAL EQUIPMENT -- 1.2%
3,035,000 Case New Holland, Inc.,
9.25%, 08/01/11.............. 3,228,481
2,780,000 Case New Holland, Inc.,
7.13%, 03/01/14.............. 2,835,600
------------
6,064,081
------------
AGRICULTURE -- 0.3%
675,000 The Mosaic Company -- 144A,
7.38%, 12/01/14.............. 696,094
675,000 The Mosaic Company -- 144A,
7.63%, 12/01/16.............. 702,844
------------
1,398,938
------------
AIRLINES -- 0.2%
610,374 Continental Airlines, Inc.,
Series 2001-1,
7.03%, 06/15/11.............. 608,466
500,000 Delta Air Lines, Inc.,
7.90%, 12/15/09(9)........... 337,500
------------
945,966
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
APPAREL: MANUFACTURING AND RETAIL -- 4.2%
$ 2,135,000 Hanesbrands, Inc. -- 144A,
Floating Rate,
8.74%, 12/15/14(11).......... $ 2,183,038
4,035,000 Levi Strauss & Company,
12.25%, 12/15/12............. 4,509,112
690,000 Levi Strauss & Company,
9.75%, 01/15/15.............. 746,925
2,110,000 Levi Strauss & Company,
8.88%, 04/01/16.............. 2,215,500
2,940,000 Levi Strauss & Company,
Floating Rate,
10.12%, 04/01/12(2).......... 3,031,875
2,695,000 Oxford Industries, Inc.,
8.88%, 06/01/11.............. 2,796,063
2,920,000 Perry Ellis International,
Inc., Series B,
8.88%, 09/15/13.............. 2,934,600
1,830,000 Phillips Van-Heusen Corp.,
7.25%, 02/15/11.............. 1,875,750
685,000 Phillips Van-Heusen Corp.,
8.13%, 05/01/13.............. 722,675
------------
21,015,538
------------
AUTOMOBILE: RENTAL -- 0.6%
2,545,000 Hertz Corp. -- 144A,
8.88%, 01/01/14.............. 2,678,612
475,000 Rental Service Corp. -- 144A,
9.50%, 12/01/14.............. 492,813
------------
3,171,425
------------
AUTOMOBILE: RETAIL -- 0.1%
660,000 AutoNation, Inc., Floating
Rate,
7.37%, 04/15/13(2)........... 666,600
------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 1.5%
2,610,000 Collins & Aikman Products
Company, Series B,
9.75%, 02/15/10.............. 2,681,774
395,000 Commercial Vehicle Group,
8.00%, 07/01/13.............. 388,088
1,000,000 Tenneco Automotive, Inc.,
8.63%, 11/15/14.............. 1,025,000
2,195,000 Tenneco Automotive, Inc.,
Series B,
10.25%, 07/15/13............. 2,414,500
775,000 Titan International,
Inc. -- 144A,
8.00%, 01/15/12.............. 783,719
354,000 TRW Automotive, Inc.,
11.00%, 02/15/13............. 389,843
------------
7,682,924
------------
</Table>
See notes to financial statements.
105
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
BROADCAST SERVICES/MEDIA -- 6.0%
$ 620,000 Adelphia Communications,
10.25%, 11/01/06(9)(13)...... $ 565,750
840,000 Adelphia Communications,
10.25%, 06/15/11(9).......... 802,200
305,000 Adelphia Communications, Series
B,
9.25%, 10/01/02(9)(13)....... 279,075
2,075,000 Cablevision Systems Corp.,
Class B, Floating Rate,
9.87%, 04/01/09(11).......... 2,199,500
1,530,000 CCH I LLC/CCH I Capital Corp.,
11.00%, 10/01/15............. 1,577,813
5,970,000 CCO Holdings LLC/Capital Corp.,
8.75%, 11/15/13.............. 6,231,187
980,000 CSC Holdings, Inc.,
7.25%, 07/15/08.............. 993,475
105,000 CSC Holdings, Inc., Series B,
8.13%, 07/15/09.............. 109,331
635,000 CSC Holdings, Inc., Series B,
8.13%, 08/15/09.............. 661,194
135,000 CSC Holdings, Inc., Series B,
7.63%, 04/01/11.............. 138,206
4,700,000 Insight Communications Company,
Inc.,
12.25%, 02/15/11............. 4,934,999
1,235,000 Kabel Deutschland GMBH
(Germany),
10.63%, 07/01/14............. 1,375,481
715,000 LBI Media, Inc.,
10.13%, 07/15/12............. 762,369
570,000 LBI Media, Inc.,
zero coupon, 10/15/13(7)..... 493,763
1,215,000 Mediacom Broadband LLC/
Mediacom Broadband Corp. --
144A,
8.50%, 10/15/15.............. 1,236,263
1,880,000 Rainbow National Services
LLC -- 144A,
8.75%, 09/01/12.............. 1,985,750
2,670,000 Rainbow National Services
LLC -- 144A,
10.38%, 09/01/14............. 2,980,387
2,885,000 Sirius Satellite Radio, Inc.,
9.63%, 08/01/13.............. 2,852,544
185,000 XM Satellite Radio, Inc.,
9.75%, 05/01/14.............. 185,925
------------
30,365,212
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
CHEMICALS -- 3.2%
$ 1,381,000 Crystal US Holdings 3
LLC/Crystal US Sub 3
Corp. --
Series B,
zero coupon, 10/01/14(7)..... $ 1,194,565
1,210,000 Equistar Chemical/Funding,
10.63%, 05/01/11............. 1,294,700
1,086,000 Huntsman LLC,
11.63%, 10/15/10............. 1,191,885
1,160,000 Ineos Group Holdings PLC --
144A (United Kingdom),
8.50%, 02/15/16.............. 1,113,600
320,000 Lyondell Chemical Company,
11.13%, 07/15/12............. 345,600
1,301,000 Lyondell Chemical Company,
10.50%, 06/01/13............. 1,437,605
1,865,000 Lyondell Chemical Company,
8.00%, 09/15/14.............. 1,944,263
930,000 Lyondell Chemical Company,
8.25%, 09/15/16.............. 981,150
830,000 Nova Chemicals Corp. (Canada),
Floating Rate,
8.50%, 11/15/13(11).......... 834,150
2,900,000 OM Group, Inc.,
9.25%, 12/15/11.............. 3,048,625
1,375,000 Reichhold Industries,
Inc. -- 144A,
9.00%, 08/15/14.............. 1,354,375
1,148,000 Rockwood Specialties Corp.,
10.63%, 05/15/11............. 1,228,360
------------
15,968,878
------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 1.9%
475,000 Activant Solutions,
Inc. -- 144A,
9.50%, 05/01/16.............. 444,125
1,800,000 Interface, Inc.,
10.38%, 02/01/10............. 1,998,000
170,000 Interface, Inc.,
9.50%, 02/01/14.............. 179,350
1,125,000 Sungard Data Systems, Inc.,
9.13%, 08/15/13.............. 1,186,875
840,000 Sungard Data Systems, Inc.,
Floating Rate,
9.97%, 08/15/13(11).......... 876,750
4,325,000 UGS Corp.,
10.00%, 06/01/12............. 4,735,875
------------
9,420,975
------------
CONSTRUCTION SERVICES AND SUPPLIES -- 2.2%
1,775,000 Dayton Superior Corp.,
10.75%, 09/15/08............. 1,863,750
775,000 ESCO Corp. -- 144A,
8.63%, 12/15/13.............. 800,188
</Table>
See notes to financial statements.
106
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
CONSTRUCTION SERVICES AND SUPPLIES
(CONTINUED)
$ 775,000 ESCO Corp. -- 144A, Floating
Rate,
9.24%, 12/15/13(2)........... $ 790,500
1,306,000 Goodman Global Holdings, Series
B, Floating Rate,
8.36%, 06/15/12(11).......... 1,328,855
650,000 Interline Brands, Inc.,
8.13%, 06/15/14.............. 671,125
3,660,000 Nortek, Inc.,
8.50%, 09/01/14.............. 3,605,099
1,555,000 Panolam Industries
International -- 144A,
10.75%, 10/01/13............. 1,644,413
330,000 Stanley-Martin Communities LLC,
9.75%, 08/15/15.............. 262,350
------------
10,966,280
------------
CONSUMER GOODS AND SERVICES -- 0.3%
815,000 Amscan Holdings, Inc.,
8.75%, 05/01/14.............. 797,681
755,000 Steinway Musical Instruments --
144A,
7.00%, 03/01/14.............. 741,788
------------
1,539,469
------------
CONTAINERS AND PACKAGING -- 1.1%
745,000 BPC Holding Corp./Berry Plastic
Corp. -- 144A,
8.88%, 09/15/14.............. 759,900
555,000 BPC Holding Corp./Berry Plastic
Corp. -- 144A, Floating Rate,
9.24%, 09/15/14(2)........... 564,713
1,055,000 Intertape Polymer US, Inc.,
8.50%, 08/01/14.............. 957,413
400,000 Jefferson Smurfit Corp.,
7.50%, 06/01/13.............. 378,000
990,206 Pliant Corp.,
11.85%, 06/15/09(14)......... 1,080,625
2,015,000 Stone Container Finance Company
of Canada (Canada),
7.38%, 07/15/14.............. 1,884,024
------------
5,624,675
------------
DISTRIBUTION -- 0.2%
916,000 Jafra Cosmetics International,
10.75%, 05/15/11............. 983,555
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
EDUCATION -- 1.0%
$ 1,700,000 Education Management
LLC -- 144A,
8.75%, 06/01/14.............. $ 1,768,000
2,335,000 Education Management
LLC -- 144A,
10.25%, 06/01/16............. 2,480,938
740,000 Knowledge Learning Center -- 144A,
7.75%, 02/01/15.............. 712,250
------------
4,961,188
------------
ELECTRONICS -- 0.1%
550,000 Muzak LLC,
10.00%, 02/15/09............. 528,688
------------
ENERGY SERVICES -- 0.3%
1,360,000 Verasun Energy Corp.,
9.88%, 12/15/12.............. 1,448,400
------------
ENVIRONMENTAL WASTE MANAGEMENT AND RECYCLING
SERVICES -- 1.4%
1,160,000 Aleris International,
Inc. -- 144A,
9.00%, 12/15/14.............. 1,171,600
2,560,000 Aleris International,
Inc. -- 144A,
10.00%, 12/15/16............. 2,579,200
1,150,000 Allied Waste North America,
Inc.,
7.25%, 03/15/15.............. 1,157,188
1,800,000 Waste Services, Inc.,
9.50%, 04/15/14.............. 1,885,500
------------
6,793,488
------------
EQUIPMENT RENTAL AND LEASING -- 0.1%
365,000 United Rentals North America, Inc.,
7.75%, 11/15/13.............. 368,194
------------
FINANCIAL SERVICES -- 5.1%
1,335,000 BCP US Crystal Holdings Corp.,
9.63%, 06/15/14.............. 1,481,850
1,765,000 Ford Motor Credit Company,
6.63%, 06/16/08.............. 1,764,396
3,090,000 Ford Motor Credit Company,
7.38%, 10/28/09.............. 3,098,522
1,465,000 Ford Motor Credit Company,
7.88%, 06/15/10.............. 1,478,267
100,000 Ford Motor Credit Company,
9.88%, 08/10/11.............. 107,051
5,220,000 Ford Motor Credit Company,
Floating Rate,
8.37%, 11/02/07(2)........... 5,302,184
2,400,000 Ford Motor Credit Company,
Floating Rate,
8.11%, 01/13/12(2)........... 2,381,124
470,000 General Motors Acceptance
Corp.,
5.85%, 01/14/09.............. 468,440
</Table>
See notes to financial statements.
107
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
$ 170,000 General Motors Acceptance
Corp.,
7.00%, 02/01/12.............. $ 175,572
5,375,000 General Motors Acceptance
Corp.,
8.00%, 11/01/31.............. 6,188,780
935,000 GMAC LLC,
5.13%, 05/09/08.............. 925,300
2,380,000 Residential Capital
Corp. -- 144A, Floating Rate,
7.20%, 04/17/09(2)........... 2,393,147
------------
25,764,633
------------
FOOD AND BEVERAGE -- 2.6%
3,725,000 ASG Consolidated LLC/ASG
Finance, Inc.,
zero coupon, 11/01/11(7)..... 3,333,875
2,475,000 Dean Foods Company,
7.00%, 06/01/16.............. 2,512,125
2,350,000 Dole Foods Company,
8.63%, 05/01/09.............. 2,347,063
1,415,000 Pierre Foods, Inc.,
9.88%, 07/15/12.............. 1,464,525
3,240,000 Pinnacle Foods Holding Corp.,
8.25%, 12/01/13.............. 3,333,150
------------
12,990,738
------------
FUNERAL SERVICES -- 0.2%
1,090,000 Service Corp. International,
7.00%, 06/15/17.............. 1,109,075
------------
INSURANCE -- 0.5%
2,615,000 Multiplan, Inc. -- 144A,
10.38%, 04/15/16............. 2,615,000
------------
LEISURE AND RECREATION -- 10.7%
2,365,000 AMC Entertainment, Inc.,
9.88%, 02/01/12.............. 2,495,075
820,000 AMC Entertainment, Inc.,
11.00%, 02/01/16............. 924,550
270,000 AMC Entertainment, Inc.,
Floating Rate,
9.62%, 08/15/10(2)........... 280,463
1,225,000 Buffalo Thunder Development
Authority -- 144A,
9.38%, 12/15/14.............. 1,249,500
1,105,000 CCM Merger, Inc. -- 144A,
8.00%, 08/01/13.............. 1,085,663
1,200,000 Chukchansi Economic Development
Authority -- 144A, Floating
Rate,
8.88%, 11/15/12(11).......... 1,239,000
181,058 Eldorado Casino Shreveport,
10.00%, 08/01/12............. 172,910
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
LEISURE AND RECREATION (CONTINUED)
$ 2,240,000 Galaxy Entertainment Finance --
144A (Hong Kong),
9.88%, 12/15/12.............. $ 2,410,800
1,000,000 Galaxy Entertainment Finance --
144A (Hong Kong), Floating
Rate,
10.35%, 12/15/10(11)......... 1,065,000
3,025,000 GreekTown Holdings -- 144A,
10.75%, 12/01/13............. 3,176,249
1,042,004 HRP Myrtle Beach
Holdings/CA -- 144A,
14.50%, 04/01/14(12)......... 1,099,314
945,000 HRP Myrtle Beach
Operations/CA -- 144A,
12.50%, 04/01/13............. 948,544
1,730,000 HRP Myrtle Beach
Operations/CA -- 144A,
Floating Rate,
10.12%, 04/01/12(11)......... 1,738,650
1,955,000 Inn of The Mountain Gods,
12.00%, 11/15/10............. 2,121,175
1,410,000 Las Vegas Sands Corp.,
6.38%, 02/15/15.............. 1,372,988
890,000 Majestic Holdco LLC -- 144A,
zero coupon, 10/15/11(7)..... 600,750
3,245,000 Marquee Holdings, Inc.,
zero coupon, 08/15/14(7)..... 2,737,969
1,500,000 MGM MIRAGE,
6.63%, 07/15/15.............. 1,436,250
460,000 Mohegan Tribal Gaming
Authority,
8.00%, 04/01/12.............. 481,275
2,275,000 OED Corp./Diamond JO,
8.75%, 04/15/12.............. 2,263,625
1,330,000 San Pasqual Casino -- 144A,
8.00%, 09/15/13.............. 1,373,225
455,000 Station Casinos, Inc.,
6.00%, 04/01/12.............. 433,956
250,000 Station Casinos, Inc.,
7.75%, 08/15/16.............. 253,125
695,000 The Majestic Star Casino LLC,
9.50%, 10/15/10.............. 733,225
905,000 The Majestic Star Casino LLC/
Majestic Star Casino Capital
Corp. II,
9.75%, 01/15/11.............. 900,475
7,865,000 Trump Entertainment Resorts,
Inc.,
8.50%, 06/01/15.............. 7,864,999
1,550,000 Tunica-Biloxi Gaming
Authority -- 144A,
9.00%, 11/15/15.............. 1,612,000
375,000 Turning Stone Resort Casino --
144A,
9.13%, 09/15/14.............. 385,313
</Table>
See notes to financial statements.
108
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
LEISURE AND RECREATION (CONTINUED)
$ 2,915,000 Universal City Development
Partners, Ltd.,
11.75%, 04/01/10............. $ 3,137,268
3,340,000 Universal City Florida,
Floating Rate,
10.12%, 05/01/10(2).......... 3,465,249
1,897,000 Waterford Gaming LLC -- 144A,
8.63%, 09/15/12.............. 2,015,563
2,585,000 Wynn Las Vegas LLC/Capital
Corp.,
6.63%, 12/01/14.............. 2,581,769
------------
53,655,917
------------
MACHINERY -- 1.1%
2,075,000 Allis Chalmers Energy, Inc. -- 144A,
9.00%, 01/15/14.............. 2,095,750
1,010,000 Altra Industrial Motion,
9.00%, 12/01/11.............. 1,035,250
830,000 Chart Industries, Inc. -- 144A,
9.13%, 10/15/15.............. 879,800
905,000 Stewart & Stevenson
LLC -- 144A,
10.00%, 07/15/14............. 954,775
305,000 The Manitowoc Company, Inc.,
10.50%, 08/01/12............. 329,019
------------
5,294,594
------------
MANUFACTURING -- 0.7%
2,105,000 Amsted Industries,
Inc. -- 144A,
10.25%, 10/15/11............. 2,262,875
675,000 Bombardier, Inc. -- 144A (Canada),
8.00%, 11/15/14.............. 695,250
10,000 Koppers, Inc.,
9.88%, 10/15/13.............. 10,925
380,000 Nutro Products, Inc. -- 144A,
Floating Rate,
9.40%, 10/15/13(11).......... 395,200
720,000 Venture Holdings Trust, Series
B,
9.50%, 07/01/05(9)(13)....... 3,600
------------
3,367,850
------------
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 5.0%
1,485,000 Accellent, Inc.,
10.50%, 12/01/13............. 1,548,113
2,235,000 AMR Holding Company/Emcare
Holding Company,
10.00%, 02/15/15............. 2,430,562
1,035,000 CDRV Investors, Inc.,
zero coupon, 01/01/15(7)..... 807,300
270,000 Concentra Operating Corp.,
9.50%, 08/15/10.............. 284,850
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES (CONTINUED)
$ 220,000 Concentra Operating Corp.,
9.13%, 06/01/12.............. $ 232,100
205,000 HCA, Inc.,
8.75%, 09/01/10.............. 214,225
3,165,000 HCA, Inc. -- 144A,
9.25%, 11/15/16.............. 3,398,418
1,440,000 HCA, Inc. -- 144A,
9.63%, 11/15/16.............. 1,551,600
870,000 Inverness Medical Innovations,
8.75%, 02/15/12.............. 909,150
910,000 National Mentor
Holdings -- 144A,
11.25%, 07/01/14............. 971,425
1,170,000 Norcross Safety Products LLC --
Series B,
9.88%, 08/15/11.............. 1,251,900
985,000 Res-Care, Inc.,
7.75%, 10/15/13.............. 1,014,550
2,192,207 Safety Products Holdings,
Series B,
11.75%, 01/01/12(12)(14)..... 2,367,583
945,000 Triad Hospitals, Inc.,
7.00%, 05/15/12.............. 966,263
1,115,000 Triad Hospitals, Inc.,
7.00%, 11/15/13.............. 1,127,544
575,000 US Oncology Holdings, Inc.,
Floating Rate,
10.68%, 03/15/15(11)......... 593,688
1,570,000 US Oncology, Inc.,
9.00%, 08/15/12.............. 1,664,200
1,775,000 US Oncology, Inc.,
10.75%, 08/15/14............. 1,970,250
1,985,000 VWR International, Inc.,
8.00%, 04/15/14.............. 2,054,475
------------
25,358,196
------------
METALS AND MINING -- 2.0%
645,000 AK Steel Corp.,
7.88%, 02/15/09.............. 648,225
1,405,000 FMG Finance Property, Ltd. --
144A (Australia),
10.63%, 09/01/16............. 1,513,888
870,000 FMG Finance Property, Ltd. --
144A (Australia), Floating
Rate,
9.37%, 09/01/11(2)........... 872,175
1,349,000 Ispat Inland ULC (Canada),
9.75%, 04/01/14.............. 1,509,501
1,063,000 Mueller Group, Inc.,
10.00%, 05/01/12............. 1,161,328
831,000 Mueller Holdings NA, Inc.,
zero coupon, 04/15/14(7)..... 752,055
</Table>
See notes to financial statements.
109
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
METALS AND MINING (CONTINUED)
$ 1,580,000 Novelis, Inc. -- 144A (Canada),
8.25%, 02/15/15.............. $ 1,536,550
2,050,000 RathGibson, Inc.,
11.25%, 02/15/14............. 2,183,249
------------
10,176,971
------------
OIL, COAL AND GAS -- 4.9%
415,000 Alpha Natural Resources,
10.00%, 06/01/12............. 452,350
490,000 Clayton William Energy,
7.75%, 08/01/13.............. 454,475
320,000 Copano Energy LLC,
8.13%, 03/01/16.............. 332,800
1,895,000 Dynegy Holdings, Inc.,
8.38%, 05/01/16.............. 1,999,225
1,550,000 Dynegy Holdings, Inc.,
7.63%, 10/15/26.............. 1,511,250
740,000 El Paso Corp.,
9.63%, 05/15/12.............. 843,600
160,000 El Paso Production Holding
Company,
7.75%, 06/01/13.............. 168,200
685,000 Encore Acquisition Corp.,
7.25%, 12/01/17.............. 666,163
695,000 Giant Industries, Inc.,
8.00%, 05/15/14.............. 754,944
1,305,000 Inergy LP/Inergy Finance Corp.,
6.88%, 12/15/14.............. 1,288,688
135,000 Inergy LP/Inergy Finance Corp.,
8.25%, 03/01/16.............. 142,425
380,000 Northwest Pipeline Corp.,
8.13%, 03/01/10.............. 397,575
1,055,000 Ocean Rig Norway AS -- 144A
(Norway),
8.38%, 07/01/13.............. 1,128,850
1,930,000 Opti Canada, Inc. (Canada) --
144A,
8.25%, 12/15/14.............. 1,992,725
525,000 Parker Drilling Company,
9.63%, 10/01/13.............. 578,156
175,000 Petrobras International Finance
(Cayman Islands),
7.75%, 09/15/14.............. 195,563
4,215,000 Petrohawk Energy Corp.,
9.13%, 07/15/13.............. 4,446,824
1,015,000 Quicksilver Resources, Inc.,
7.13%, 04/01/16.............. 997,238
440,000 Ram Energy, Inc.,
11.50%, 02/15/08............. 456,500
480,000 Regency Energy
Partners -- 144A,
8.38%, 12/15/13.............. 483,600
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
OIL, COAL AND GAS (CONTINUED)
$ 2,535,000 Semgroup LP -- 144A,
8.75%, 11/15/15.............. $ 2,560,349
290,000 SESI LLC,
6.88%, 06/01/14.............. 290,000
2,360,000 United Refining Company,
10.50%, 08/15/12............. 2,489,800
------------
24,631,300
------------
PAPER AND FOREST PRODUCTS -- 1.9%
740,000 Domtar, Inc. (Canada),
7.13%, 08/01/15.............. 728,900
115,000 Georgia-Pacific Corp.,
9.50%, 12/01/11.............. 126,500
3,590,000 MDP Acquisitions PLC (Ireland),
9.63%, 10/01/12.............. 3,823,350
3,910,000 NewPage Corp.,
10.00%, 05/01/12............. 4,144,600
665,000 NewPage Corp., Floating Rate,
11.62%, 05/01/12(2).......... 721,525
------------
9,544,875
------------
PRINTING AND PUBLISHING -- 2.1%
3,300,000 American Media Operations,
Inc., Series B,
10.25%, 05/01/09............. 3,205,125
2,281,634 CanWest Media, Inc. (Canada),
8.00%, 09/15/12.............. 2,392,864
410,000 CBD Media LLC/CBD Finance,
Inc.,
8.63%, 06/01/11.............. 422,300
1,241,000 Dex Media West Finance Company,
Series B,
9.88%, 08/15/13.............. 1,358,895
1,145,000 Idearc, Inc. -- 144A,
8.00%, 11/15/16.............. 1,167,900
475,000 MediaNews Group, Inc.,
6.88%, 10/01/13.............. 432,250
290,000 Medimedia USA, Inc. -- 144A,
11.38%, 11/15/14............. 305,225
1,000,000 Primedia, Inc., Floating Rate,
10.75%, 05/15/10(2).......... 1,045,000
------------
10,329,559
------------
REAL ESTATE DEVELOPMENT AND SERVICES -- 0.2%
915,000 HydroChem Industrial Services,
Inc. -- 144A,
9.25%, 02/15/13.............. 924,150
------------
REAL ESTATE INVESTMENT TRUSTS -- 0.2%
950,000 Host Hotels & Resorts
LP -- 144A,
6.88%, 11/01/14.............. 966,625
------------
</Table>
See notes to financial statements.
110
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
RETAIL -- 7.1%
$ 1,125,000 Bon-Ton Department Stores,
Inc.,
10.25%, 03/15/14............. $ 1,155,938
480,000 General Nutrition Centers,
Inc.,
8.50%, 12/01/10.............. 495,600
515,000 General Nutrition Centers,
Inc.,
8.63%, 01/15/11.............. 544,613
2,415,000 GNC Parent Corp. -- 144A,
Floating Rate,
12.14%, 12/01/11(11)......... 2,427,075
4,540,000 GSC Holdings Corp.,
8.00%, 10/01/12.............. 4,766,999
4,090,000 GSC Holdings Corp.,
Floating Rate,
9.25%, 10/01/11(2)........... 4,263,824
480,000 Linens 'n Things, Inc.,
Floating Rate,
11.00%, 01/15/14(2).......... 468,000
3,055,000 Michaels Stores, Inc. -- 144A,
10.00%, 11/01/14............. 3,192,475
1,150,000 Michaels Stores, Inc. -- 144A,
11.38%, 11/01/16............. 1,204,625
3,175,000 Neiman Marcus Group, Inc.,
9.00%, 10/15/15.............. 3,480,594
525,000 Neiman Marcus Group, Inc.,
10.38%, 10/15/15............. 586,688
2,910,000 Rite Aid Corp.,
8.13%, 05/01/10.............. 2,986,388
4,885,000 Rite Aid Corp. -- 144A,
6.13%, 12/15/08.............. 4,842,255
1,920,000 Sally Holdings LLC -- 144A,
9.25%, 11/15/14.............. 1,965,600
2,900,000 Sally Holdings LLC -- 144A,
10.50%, 11/15/16............. 2,972,500
480,000 Toys "R" Us, Inc.,
7.38%, 10/15/18.............. 391,200
------------
35,744,374
------------
RETAIL: RESTAURANTS -- 1.0%
1,140,000 Buffets, Inc. -- 144A,
12.50%, 11/01/14............. 1,154,250
1,720,000 El Pollo Loco, Inc.,
11.75%, 11/15/13............. 1,874,800
1,740,000 NPC International, Inc., Series
WI,
9.50%, 05/01/14.............. 1,792,200
------------
4,821,250
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
RUBBER PRODUCTS -- 0.3%
$ 675,000 The Goodyear Tire & Rubber
Company -- 144A,
8.63%, 12/01/11.............. $ 700,313
960,000 The Goodyear Tire & Rubber
Company -- 144A, Floating
Rate,
9.14%, 12/01/09(11).......... 968,400
------------
1,668,713
------------
SEMICONDUCTORS -- 0.5%
635,000 Avago Technologies Finance
Pte., Ltd. -- 144A
(Singapore),
10.13%, 12/01/13............. 681,038
1,155,000 Freescale
Semiconductor -- 144A,
8.88%, 12/15/14.............. 1,156,443
480,000 Freescale
Semiconductor -- 144A,
9.13%, 12/15/14(12).......... 479,400
------------
2,316,881
------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 7.0%
1,460,000 Centennial Cellular/Communications,
10.13%, 06/15/13............. 1,580,450
2,025,000 Digicel, Ltd. -- 144A
(Bermuda),
9.25%, 09/01/12.............. 2,171,813
755,000 General Cable Corp.,
9.50%, 11/15/10.............. 804,075
3,600,000 Intelsat Bermuda, Ltd. -- 144A
(Bermuda),
9.25%, 06/15/16.............. 3,887,999
5,000,000 Intelsat Bermuda, Ltd.
(Bermuda),
5.25%, 11/01/08.............. 4,887,499
2,520,000 Intelsat Subsidiary Holding
Company, Ltd. (Bermuda),
Floating Rate,
10.48%, 01/15/12(11)......... 2,554,650
1,000,000 IWO Holdings, Inc.,
14.00%, 01/15/11(9)(14)...... --
185,000 IWO Holdings, Inc., Floating
Rate,
9.12%, 01/15/12(2)........... 189,625
1,210,000 Level 3 Financing,
Inc. -- 144A,
9.25%, 11/01/14.............. 1,240,250
1,790,000 NTL Cable PLC (United Kingdom),
8.75%, 04/15/14.............. 1,881,738
460,000 Qwest Capital Funding, Inc.,
7.00%, 08/03/09.............. 470,350
290,000 Qwest Communications
International, Series B,
7.50%, 11/01/08.............. 295,800
1,745,000 Qwest Communications
International, Series B,
7.50%, 02/15/14.............. 1,806,075
515,000 Qwest Corp.,
8.88%, 03/15/12.............. 576,156
</Table>
See notes to financial statements.
111
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES (CONTINUED)
$ 470,000 Qwest Corp.,
7.63%, 06/15/15.............. $ 505,250
110,000 Qwest Corp.,
7.20%, 11/10/26.............. 111,375
2,430,000 Qwest Corp., Floating Rate,
8.61%, 06/15/13(2)........... 2,642,625
140,000 Rogers Wireless, Inc. (Canada),
8.00%, 12/15/12.............. 150,150
1,065,000 Rogers Wireless, Inc. (Canada),
Floating Rate,
8.49%, 12/15/10(2)........... 1,088,963
450,000 Telemig Celular Participacoes
SA/Amazonia Cel -- 144A
(Brazil),
8.75%, 01/20/09.............. 471,375
1,590,000 Ubiquitel Operating Company,
9.88%, 03/01/11.............. 1,725,150
2,650,000 West Corp. -- 144A,
9.50%, 10/15/14.............. 2,663,250
1,360,000 Windstream Corp. -- 144A,
8.13%, 08/01/13.............. 1,479,000
1,870,000 Windstream Corp. -- 144A,
8.63%, 08/01/16.............. 2,057,000
------------
35,240,618
------------
TRANSPORTATION -- 1.8%
497,000 H-Lines Finance Holding,
zero coupon, 04/01/13(7)..... 464,695
1,277,000 Horizon Lines LLC,
9.00%, 11/01/12.............. 1,347,235
705,000 Kansas City Southern,
9.50%, 10/01/08.............. 740,250
1,200,000 Kansas City Southern de Mexico,
S de RL de CV -- 144A
(Mexico),
7.63%, 12/01/13.............. 1,203,000
2,230,000 Sabre Holdings Corp.,
7.35%, 08/01/11.............. 2,157,443
2,325,000 TFM, SA de CV (Mexico),
9.38%, 05/01/12.............. 2,493,562
610,000 TFM, SA de CV (Mexico),
12.50%, 06/15/12............. 661,850
------------
9,068,035
------------
UTILITIES -- 2.3%
400,000 AES Corp. -- 144A,
8.75%, 05/15/13.............. 430,500
310,000 AES Corp. -- 144A,
9.00%, 05/15/15.............. 334,800
466,190 AES Eastern Energy, Series
99-A,
9.00%, 01/02/17.............. 522,424
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
UTILITIES (CONTINUED)
$ 2,750,000 Mission Energy Holding Company,
13.50%, 07/15/08............. $ 3,045,625
660,000 NRG Energy, Inc.,
7.25%, 02/01/14.............. 666,600
995,000 NRG Energy, Inc.,
7.38%, 02/01/16.............. 1,002,463
2,400,000 NRG Energy, Inc.,
7.38%, 01/15/17.............. 2,412,000
2,015,000 Orion Power Holdings, Inc.,
12.00%, 05/01/10............. 2,297,100
820,000 Reliant Energy, Inc.,
9.25%, 07/15/10.............. 865,100
------------
11,576,612
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $416,257,617).......... 428,401,059
------------
LOAN PARTICIPATIONS -- 4.9%
2,010,000 BLB Worldwide Holdings,
9.70%, 06/30/12.............. 2,040,150
4,180,000 HCA, Inc.,
8.09%, 11/01/13.............. 4,231,146
3,260,000 Hit Entertainment, Inc.,
Tranche LN227528,
10.86%, 02/05/13............. 3,301,770
2,100,000 Houghton Mifflin, Inc.,
11.07%, 12/21/07............. 2,113,125
1,400,000 M Holdings,
8.65%, 12/13/08.............. 1,400,000
7,000,000 Nielsen Finance LLC,
8.13%, 08/09/13.............. 7,057,359
420,000 Ply Gem Industries,
11.12%, 10/31/11............. 423,806
1,040,000 Rental Services Corp.,
8.87%, 11/21/13.............. 1,050,888
2,780,000 Sand Ridge Energy/Riata
Energy, Inc.,
11.00%, 11/21/07............. 2,807,800
------------
TOTAL LOAN PARTICIPATIONS (Cost
$24,166,828)................. 24,426,044
------------
<Caption>
SHARES
------
COMMON STOCKS -- 0.4%
LEISURE AND RECREATION -- 0.4%
970 HRP -- Class B*(14)............ 10
1,100 Shreveport Gaming Holdings,
Inc.*(14).................... 19,635
104,876 Trump Entertainment Resorts,
Inc.*........................ 1,912,937
------------
1,932,582
------------
</Table>
See notes to financial statements.
112
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
UTILITIES -- 0.0%
550,000 Mirant Corp. (Escrow
Certificates)*............... $ 8,124
1,220,000 Mirant Corp. (Escrow
Certificates)*............... 15,250
------------
23,374
------------
TOTAL COMMON STOCKS (Cost
$1,393,596).................. 1,955,956
------------
CONVERTIBLE PREFERRED STOCKS -- 0.9%
OIL, COAL AND GAS -- 0.5%
5,273 Chesapeake Energy
Corp. -- 144A,
5.00%........................ 537,846
21,865 Chesapeake Energy Corp.,
4.50%........................ 2,101,227
------------
2,639,073
------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 0.4%
38,375 Crown Castle International
Corp.,
6.25%........................ 2,105,828
------------
TOTAL CONVERTIBLE PREFERRED
STOCKS (Cost $4,427,021)..... 4,744,901
------------
WARRANTS -- 0.1%
1,125 American Tower Corp.,
Expires 08/01/08*............ 592,108
1,000 IPCS, Inc. -- 144A,
Expires 07/15/10*(14)(27).... --
1,000 IWO Holdings, Inc.,
Expires 01/15/11*(14)(27).... --
250 Ubiquitel, Inc. -- 144A,
Expires 04/15/10*(14)(27).... --
------------
TOTAL WARRANTS (Cost
$75,402)..................... 592,108
------------
<Caption>
PRINCIPAL
---------
CONVERTIBLE BONDS -- 0.4%
AEROSPACE AND DEFENSE -- 0.2%
$ 1,305,000 L-3 Communications
Corp. -- 144A,
3.00%, 08/01/35.............. 1,376,775
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CONVERTIBLE BONDS (CONTINUED)
BROADCAST SERVICES/MEDIA -- 0.2%
$ 1,000,000 XM Satellite Radio Holdings,
Inc.,
1.75%, 12/01/09.............. $ 853,750
------------
TOTAL CONVERTIBLE BONDS (Cost
$2,288,255).................. 2,230,525
------------
TOTAL SECURITIES (Cost
$448,608,719)................ 462,350,593
------------
REPURCHASE AGREEMENTS -- 5.0%
25,159,129 With Investors Bank and Trust,
dated 12/29/06, 4.76%, due
01/02/07, repurchase proceeds
at maturity $25,172,435
(Collateralized by Fannie Mae
Adjustable Rate Mortgage,
5.85%, due 12/25/33, with a
value of $25,578,992 and
Small Business
Administration, 8.63%, due
10/25/15, with a value of
$838,093) (Cost
$25,159,129)................. 25,159,129
------------
Total Investments -- 97.0%
(Cost $473,767,848).......... 487,509,722
Other assets less
liabilities -- 3.0%.......... 14,820,334
------------
NET ASSETS -- 100.0%........... $502,330,056
============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $473,804,079.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation........... $15,712,800
Gross unrealized depreciation........... (2,007,157)
-----------
Net unrealized appreciation............. $13,705,643
===========
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
113
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS -- 60.4%
AEROSPACE AND DEFENSE -- 1.9%
21,450 Lockheed Martin Corp. ......... $ 1,974,901
26,471 Northrop Grumman Corp. ........ 1,792,087
33,650 Raytheon Company............... 1,776,720
20,200 The Boeing Company............. 1,794,568
------------
7,338,276
------------
AGRICULTURE -- 0.5%
36,600 Monsanto Company............... 1,922,598
------------
APPAREL: MANUFACTURING AND RETAIL -- 0.1%
7,800 American Eagle Outfitters,
Inc. ........................ 243,438
------------
AUTOMOBILE: RETAIL -- 0.4%
66,700 AutoNation, Inc.*(8)........... 1,422,044
------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 0.2%
12,400 Autoliv, Inc. (Sweden) ........ 747,720
------------
BANKS -- 3.9%
83,312 Bank of America Corp. ......... 4,448,027
16,500 Hudson City Bancorp, Inc. ..... 229,020
11,000 UnionBanCal Corp. ............. 673,750
69,682 US Bancorp..................... 2,521,792
58,645 Wachovia Corp. ................ 3,339,833
98,600 Wells Fargo & Company.......... 3,506,216
------------
14,718,638
------------
BROADCAST SERVICES/MEDIA -- 3.3%
57,650 CBS Corp. -- Class B........... 1,797,527
6,500 Clear Channel Communications,
Inc. ........................ 231,010
51,200 Comcast Corp. -- Class A*...... 2,167,296
6,130 Liberty Media Holding Corp. --
Capital -- Series A*......... 600,617
22,500 The DIRECTV Group, Inc.*....... 561,150
26,700 The McGraw-Hill Companies,
Inc. ........................ 1,816,134
77,500 The Walt Disney Company........ 2,655,925
135,190 Time Warner, Inc. ............. 2,944,439
------------
12,774,098
------------
BUSINESS SERVICES AND SUPPLIES -- 1.2%
8,500 CSG Systems International,
Inc.*........................ 227,205
63,500 First Data Corp. .............. 1,620,520
18,100 Manpower, Inc. ................ 1,356,233
20,700 Moody's Corp. ................. 1,429,542
------------
4,633,500
------------
CHEMICALS -- 0.3%
17,200 Ashland, Inc. ................. 1,189,896
------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 4.7%
30,200 Cadence Design Systems,
Inc.*........................ $ 540,882
28,800 Computer Sciences Corp.*....... 1,537,056
16,500 Electronic Data Systems
Corp. ....................... 454,575
83,587 Hewlett-Packard Company........ 3,442,948
13,250 International Business Machines
Corp. ....................... 1,287,238
33,600 Intuit, Inc.*.................. 1,025,136
20,600 Lexmark International, Inc. --
Class A*..................... 1,507,920
154,450 Microsoft Corp. ............... 4,611,876
88,000 Oracle Corp.*.................. 1,508,320
306,800 Sun Microsystems, Inc.*........ 1,662,856
21,100 Western Digital Corp.*......... 431,706
------------
18,010,513
------------
CONSUMER GOODS AND SERVICES -- 2.9%
38,350 Altria Group, Inc. ............ 3,291,197
17,600 American Greetings Corp. --
Class A...................... 420,112
30,450 Colgate-Palmolive Company...... 1,986,558
36,298 Procter & Gamble Company....... 2,332,872
9,200 Reynolds American, Inc. ....... 602,324
21,100 The Estee Lauder Companies,
Inc. -- Class A.............. 861,302
3,000 United Parcel Service, Inc. --
Class B...................... 224,940
25,300 UST, Inc. ..................... 1,472,460
------------
11,191,765
------------
DISTRIBUTION -- 0.1%
7,400 Tech Data Corp.*............... 280,238
------------
DIVERSIFIED OPERATIONS AND SERVICES -- 2.0%
204,300 General Electric Company....... 7,602,003
------------
ELECTRONICS -- 0.7%
45,700 Emerson Electric Company....... 2,013,999
23,300 Synopsys, Inc.*................ 622,809
------------
2,636,808
------------
FINANCIAL SERVICES -- 5.0%
6,700 American Express Company....... 406,489
6,920 Ameriprise Financial, Inc. .... 377,140
83,599 Citigroup, Inc. ............... 4,656,463
44,800 Countrywide Financial Corp. ... 1,901,760
22,100 Janus Capital Group, Inc. ..... 477,139
91,100 JPMorgan Chase & Company....... 4,400,130
31,200 Merrill Lynch & Company,
Inc. ........................ 2,904,720
36,100 Morgan Stanley................. 2,939,623
</Table>
See notes to financial statements.
114
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
7,100 T Rowe Price Group, Inc. ...... $ 310,767
12,350 Washington Mutual, Inc. ....... 561,802
------------
18,936,033
------------
FOOD AND BEVERAGE -- 1.6%
50,950 Archer-Daniels-Midland
Company...................... 1,628,362
27,100 General Mills, Inc. ........... 1,560,960
10,800 PepsiCo, Inc. ................. 675,540
23,050 The Coca-Cola Company.......... 1,112,163
68,000 Tyson Foods, Inc. -- Class
A(8)......................... 1,118,600
------------
6,095,625
------------
INSURANCE -- 3.7%
16,100 Ambac Financial Group, Inc. ... 1,434,027
28,103 American International Group,
Inc. ........................ 2,013,861
10,600 CIGNA Corp. ................... 1,394,642
46,700 Genworth Financial, Inc. --
Class A...................... 1,597,607
5,900 Loews Corp. ................... 244,673
21,502 MBIA, Inc. .................... 1,570,936
30,200 MetLife, Inc. ................. 1,782,102
12,100 Principal Financial Group,
Inc. ........................ 710,270
14,600 Radian Group, Inc. ............ 787,086
31,500 The St. Paul Travelers
Companies, Inc. ............. 1,691,235
28,400 WR Berkley Corp. .............. 980,084
------------
14,206,523
------------
INTERNET SERVICES -- 2.2%
160,450 Cisco Systems, Inc.*........... 4,385,099
5,200 Google, Inc. -- Class A*....... 2,394,496
8,000 IAC/InterActive Corp.*(8)...... 297,280
65,800 Symantec Corp.*................ 1,371,930
------------
8,448,805
------------
LEISURE AND RECREATION -- 0.8%
19,800 Carnival Corp. (Panama)(8)..... 971,190
4,900 Choice Hotels International,
Inc. ........................ 206,290
35,700 Marriott International, Inc. --
Class A...................... 1,703,604
------------
2,881,084
------------
MACHINERY -- 0.2%
13,900 Terex Corp.*................... 897,662
------------
MANUFACTURING -- 0.5%
13,000 SPX Corp. ..................... 795,080
30,700 Tyco International, Ltd.
(Bermuda).................... 933,280
------------
1,728,360
------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 2.6%
24,000 Humana, Inc.*.................. $ 1,327,440
73,350 Johnson & Johnson.............. 4,842,567
30,800 McKesson Corp. ................ 1,561,560
37,550 Medtronic, Inc. ............... 2,009,301
------------
9,740,868
------------
METALS AND MINING -- 0.6%
4,300 Newmont Mining Corp. .......... 194,145
26,800 Nucor Corp. ................... 1,464,888
12,300 Southern Copper Corp.(8)....... 662,847
------------
2,321,880
------------
OIL, COAL AND GAS -- 6.0%
10,400 Anadarko Petroleum Corp. ...... 452,608
24,914 Apache Corp. .................. 1,657,030
21,000 ChevronTexaco Corp. ........... 1,544,130
40,262 ConocoPhillips................. 2,896,851
27,350 Devon Energy Corp. ............ 1,834,638
123,750 Exxon Mobil Corp. ............. 9,482,962
21,400 Marathon Oil Corp. ............ 1,979,500
41,200 Schlumberger, Ltd. (Netherlands
Antilles).................... 2,602,192
14,700 XTO Energy, Inc. .............. 691,635
------------
23,141,546
------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 4.3%
34,700 Abbott Laboratories............ 1,690,237
33,900 AmerisourceBergen Corp. ....... 1,524,144
37,834 Amgen, Inc.*................... 2,584,441
16,600 Biogen Idec, Inc.*............. 816,554
6,200 Celgene Corp.*................. 356,686
12,000 Forest Laboratories, Inc.*..... 607,200
37,400 King Pharmaceuticals, Inc.*.... 595,408
71,200 Merck & Company, Inc. ......... 3,104,320
183,260 Pfizer, Inc. .................. 4,746,434
9,700 Wyeth.......................... 493,924
------------
16,519,348
------------
REAL ESTATE INVESTMENT TRUSTS -- 0.7%
11,400 Equity Office Properties
Trust........................ 549,138
4,700 New Century Financial
Corp.(8)..................... 148,473
25,900 ProLogis....................... 1,573,943
5,000 Public Storage, Inc. .......... 487,500
------------
2,759,054
------------
RETAIL -- 1.5%
49,400 Circuit City Stores, Inc. ..... 937,612
14,800 Costco Wholesale Corp. ........ 782,476
40,500 Dillard's, Inc. -- Class
A(8)......................... 1,416,284
</Table>
See notes to financial statements.
115
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
RETAIL (CONTINUED)
36,000 Office Depot, Inc.*............ $ 1,374,120
5,872 The Home Depot, Inc. .......... 235,820
18,570 Wal-Mart Stores, Inc. ......... 857,563
------------
5,603,875
------------
RETAIL: RESTAURANTS -- 0.8%
33,750 Darden Restaurants, Inc. ...... 1,355,738
32,100 Starbucks Corp.*............... 1,136,982
7,800 YUM! Brands, Inc. ............. 458,640
------------
2,951,360
------------
RETAIL: SUPERMARKETS -- 0.4%
47,700 Safeway, Inc.(8)............... 1,648,512
------------
SCIENTIFIC AND TECHNICAL INSTRUMENTS -- 0.3%
34,800 Applera Corp.-Applied
Biosystems Group............. 1,276,812
------------
SEMICONDUCTORS -- 1.2%
102,300 Atmel Corp.*................... 618,915
36,050 Intel Corp. ................... 730,013
94,800 Micron Technology, Inc.*....... 1,323,408
61,550 Texas Instruments, Inc. ....... 1,772,640
------------
4,444,976
------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 3.3%
4,000 ALLTEL Corp. .................. 241,920
108,500 AT&T, Inc. .................... 3,878,874
34,600 BellSouth Corp. ............... 1,630,006
34,250 CenturyTel, Inc. .............. 1,495,355
10,907 Embarq Corp. .................. 573,272
103,350 Motorola, Inc. ................ 2,124,876
18,500 Polycom, Inc.*................. 571,835
54,650 Sprint Nextel Corp. ........... 1,032,339
29,100 UTStarcom, Inc.*(8)............ 254,625
16,200 Verizon Communications,
Inc. ........................ 603,288
------------
12,406,390
------------
TRANSPORTATION -- 0.7%
6,800 Burlington Northern Santa Fe
Corp. ....................... 501,908
45,900 CSX Corp. ..................... 1,580,337
5,750 Norfolk Southern Corp. ........ 289,168
3,400 Union Pacific Corp. ........... 312,868
------------
2,684,281
------------
UTILITIES -- 1.8%
6,600 American Electric Power
Company, Inc. ............... 281,028
31,600 Duke Energy Corp. ............. 1,049,436
1,090 Dynegy, Inc. -- Class A*....... 7,892
17,400 Edison International........... 791,352
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
UTILITIES (CONTINUED)
9,250 Entergy Corp. ................. $ 853,960
6,200 FirstEnergy Corp. ............. 373,302
35,350 PG&E Corp. .................... 1,673,116
31,700 TXU Corp. ..................... 1,718,456
------------
6,748,542
------------
TOTAL COMMON STOCKS
(Cost $194,279,459).......... 230,153,071
------------
CONVERTIBLE PREFERRED STOCKS -- 0.1%
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS
20,200 General Motors Corp., Series A,
4.50% (Cost $472,230)........ 510,656
------------
WARRANTS -- 0.0%
789 Raytheon Company, Expires
06/16/11*
(Cost $0).................... 14,139
------------
<Caption>
PRINCIPAL
---------
US TREASURY SECURITIES -- 3.5%
US TREASURY BONDS -- 1.2%
$ 500,000 8.00%, 11/15/21................ 662,969
2,730,000 6.00%, 02/15/26................ 3,097,059
748,000 4.50%, 02/15/36(8)............. 711,536
------------
4,471,564
------------
US TREASURY INFLATION INDEX -- 1.7%
319,734 0.88%, 04/15/10................ 303,223
1,932,737 2.38%, 04/15/11................ 1,925,642
919,947 1.63%, 01/15/15................ 866,188
259,508 1.88%, 07/15/15................ 248,772
437,430 2.00%, 01/15/16................ 422,497
1,949,571 2.50%, 07/15/16................ 1,964,954
310,631 2.38%, 01/15/25................ 309,357
183,110 2.00%, 01/15/26................ 172,267
270,202 3.88%, 04/15/29................ 340,349
------------
6,553,249
------------
US TREASURY NOTES -- 0.2%
265,000 3.38%, 02/15/08................ 260,456
380,000 4.50%, 02/28/11(8)............. 377,313
40,000 4.63%, 10/31/11(8)............. 39,867
230,000 4.63%, 11/15/16(8)............. 228,563
------------
906,199
------------
US TREASURY STRIPS -- 0.4%
3,270,000 Zero coupon, 11/15/24.......... 1,362,256
------------
TOTAL US TREASURY SECURITIES
(Cost $13,345,058)........... 13,293,268
------------
</Table>
See notes to financial statements.
116
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
US GOVERNMENT AGENCY SECURITIES -- 20.9%
ASSET BACKED: MORTGAGE AND HOME
EQUITY -- 0.7%
$ 600,000 Fannie Mae Grantor Trust,
Series 2001-T2, Class B,
6.02%, 11/25/10.............. $ 619,989
234,099 Fannie Mae, Series 1999-7,
Class AB,
6.00%, 03/25/29.............. 236,457
760,000 Fannie Mae, Series 2003-35,
Class TE,
5.00%, 05/25/18.............. 744,727
474,938 Fannie Mae, Series 2004-60,
Class LB,
5.00%, 04/25/34.............. 466,588
601,018 Fannie Mae, Series 2004-99,
Class A0,
5.50%, 01/25/34.............. 599,671
------------
2,667,432
------------
FANNIE MAE -- 10.9%
350,000 5.00%, 09/15/08................ 349,752
70,000 5.40%, 04/13/09................ 70,023
138,943 PL# 535675,
7.00%, 01/01/16.............. 142,926
956 PL# 549906,
7.50%, 09/01/30.............. 996
2,771 PL# 552549,
7.50%, 09/01/30.............. 2,886
591 PL# 558384,
7.50%, 01/01/31.............. 615
2,489 PL# 568677,
7.50%, 01/01/31.............. 2,592
893 PL# 572762,
7.50%, 03/01/31.............. 930
15,952 PL# 582178,
7.50%, 06/01/31.............. 16,602
13,238 PL# 594316,
6.50%, 07/01/31.............. 13,556
2,555 PL# 602859,
6.50%, 10/01/31.............. 2,616
14,707 PL# 614924,
7.00%, 12/01/16.............. 15,125
1,173,826 PL# 735809, Variable Rate,
4.47%, 08/01/35(1)........... 1,165,663
86,187 PL# 745000,
6.00%, 10/01/35.............. 86,816
57,966 PL# 779545,
6.00%, 06/01/34.............. 58,419
44,855 PL# 785183,
6.00%, 07/01/34.............. 45,205
354,182 PL# 787311,
6.00%, 06/01/34.............. 356,947
2,711,027 PL# 790915,
6.00%, 09/01/34.............. 2,732,193
1,777,081 PL# 792113,
6.00%, 09/01/34.............. 1,790,955
60,751 PL# 793193,
5.50%, 07/01/19.............. 60,814
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 370,976 PL# 793693,
6.00%, 08/01/34.............. $ 373,872
114,542 PL# 801516, Variable Rate,
4.73%, 08/01/34(1)........... 113,868
476,216 PL# 810896, Variable Rate,
4.85%, 01/01/35(1)........... 473,741
1,070,149 PL# 835136,
6.00%, 09/01/35.............. 1,077,963
1,378,567 PL# 844183,
6.00%, 11/01/35.............. 1,388,633
791,467 PL# 893681,
6.00%, 10/01/36.............. 797,073
1,588,150 PL# 893923,
6.00%, 10/01/36.............. 1,599,399
1,893,598 PL# 894005,
6.00%, 10/01/36.............. 1,907,011
1,100,000 TBA,
5.00%, 01/01/22.............. 1,081,438
2,200,000 TBA,
5.50%, 01/01/22.............. 2,200,000
200,000 TBA,
6.00%, 01/01/22.............. 202,812
13,530,000 TBA,
5.00%, 01/01/37.............. 13,064,907
1,000,000 TBA,
5.50%, 01/01/37.............. 988,438
5,640,000 TBA,
6.50%, 01/01/37.............. 5,747,510
4,000,000 TBA,
5.00%, 02/01/37.............. 3,862,500
------------
41,794,796
------------
FEDERAL AGRICULTURAL MORTGAGE CORP. -- 0.1%
220,000 4.25%, 07/29/08................ 217,272
------------
FEDERAL HOME LOAN BANK -- 0.7%
200,000 5.10%, 09/19/08................ 200,194
300,000 5.40%, 01/02/09................ 299,692
90,000 4.75%, 12/16/16................ 88,289
1,790,000 5.50%, 07/15/36................ 1,874,728
210,000 Series VB15,
5.00%, 12/21/15.............. 209,925
------------
2,672,828
------------
FREDDIE MAC -- 0.8%
1,060,000 4.38%, 11/16/07................ 1,052,446
1,460,000 4.75%, 01/18/11................ 1,451,639
430,000 5.63%, 11/23/35................ 415,767
210,000 Series MTN,
5.55%, 12/11/08.............. 209,962
------------
3,129,814
------------
</Table>
See notes to financial statements.
117
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FREDDIE MAC GOLD -- 0.5%
$ 900,000 TBA,
5.00%, 01/01/22.............. $ 884,250
1,000,000 TBA,
5.00%, 01/01/37.............. 965,000
------------
1,849,250
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 6.9%
3,391 PL# 461836,
7.00%, 01/15/28.............. 3,505
1,519 PL# 596647,
7.00%, 09/15/32.............. 1,571
231,979 PL# 604404,
5.00%, 06/15/33.............. 225,959
684,289 PL# 604845,
5.00%, 12/15/33.............. 666,532
850,215 PL# 608280,
5.00%, 09/15/33.............. 828,153
835,892 PL# 615892,
5.00%, 08/15/33.............. 814,202
889,279 PL# 616832,
5.00%, 01/15/35.............. 865,230
796,688 PL# 620521,
5.00%, 08/15/33.............. 776,015
833,781 PL# 637934,
5.00%, 01/15/35.............. 811,233
886,941 PL# 639093,
5.00%, 01/15/35.............. 862,955
484,444 PL# 639865,
5.00%, 06/15/35.............. 471,344
111,081 PL# 781881,
5.00%, 03/15/35.............. 108,120
510,000 TBA,
5.00%, 01/01/37.............. 495,975
1,000,000 TBA,
5.50%, 01/01/37.............. 995,312
18,450,000 TBA,
6.00%, 01/01/37.............. 18,709,444
------------
26,635,550
------------
RESOLUTION FUNDING STRIPS -- 0.1%
250,000 Zero coupon, 07/15/18.......... 141,403
250,000 Zero coupon, 10/15/18.......... 139,561
------------
280,964
------------
TENNESSEE VALLEY AUTHORITY -- 0.2%
630,000 5.98%, 04/01/36................ 701,584
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES
(Cost $80,298,247)........... 79,949,490
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES -- 21.1%
ADVERTISING -- 0.0%
$ 40,000 Lamar Media Corp.,
7.25%, 01/01/13.............. $ 40,950
60,000 Lamar Media Corp., Series B,
6.63%, 08/15/15.............. 59,775
------------
100,725
------------
AEROSPACE AND DEFENSE -- 0.0%
25,000 DRS Technologies, Inc.,
6.63%, 02/01/16.............. 25,313
------------
AUTOMOBILE: RENTAL -- 0.0%
35,000 Hertz Corp. -- 144A,
8.88%, 01/01/14.............. 36,838
------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 0.5%
45,000 Daimler Chrysler NA Holding,
4.05%, 06/04/08.............. 44,054
300,000 Daimler Chrysler NA Holding,
5.88%, 03/15/11.............. 301,406
580,000 Ford Motor Company,
7.45%, 07/16/31(8)........... 458,200
970,000 General Motors Corp.,
8.25%, 07/15/23(8)........... 906,950
50,000 Visteon Corp.,
8.25%, 08/01/10.............. 49,000
------------
1,759,610
------------
BANKS -- 1.2%
450,000 Bank of America Corp.,
5.38%, 08/15/11(8)........... 453,569
325,000 Deutsche Bank AG New York,
Series YCD, Variable Rate,
5.34%, 03/15/07(1)........... 324,982
270,000 First Union National Bank,
Series BKNT,
5.80%, 12/01/08.............. 272,946
160,000 Glitnir Banki HF -- 144A
(Iceland),
6.33%, 07/28/11.............. 164,452
380,000 Glitnir Banki HF -- 144A
(Iceland), Variable Rate,
6.69%, 06/15/16(1)........... 392,676
130,000 Kaupthing Bank -- 144A
(Iceland),
7.13%, 05/19/16.............. 138,125
600,000 Kaupthing Bank -- 144A
(Iceland), Floating Rate,
6.06%, 04/12/11(2)........... 604,863
510,000 Landisbanki Islands HF -- 144A
(Iceland),
6.10%, 08/25/11.............. 519,021
20,000 Rabobank Capital Funding Trust
II -- 144A, Variable Rate,
5.26%, perpetual(1).......... 19,587
</Table>
See notes to financial statements.
118
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 40,000 Rabobank Capital Funding Trust
III -- 144A, Variable Rate,
5.25%, perpetual (1)......... $ 38,639
235,000 Resona Preferred Global
Securities -- 144A (Cayman
Islands), Variable Rate,
7.19%, perpetual(1).......... 245,594
300,000 Shinsei Financial, Ltd. -- 144A
(Cayman Islands),
Variable Rate,
6.42%, perpetual(1).......... 300,177
215,000 SunTrust Banks, Inc., Series
CD,
4.42%, 06/15/09.............. 210,883
220,000 Wachovia Capital Trust III,
Variable Rate,
5.80%, perpetual(1).......... 222,020
540,000 Wachovia Corp.,
5.25%, 08/01/14.............. 534,246
175,000 Wells Fargo & Company,
5.30%, 08/26/11.............. 175,877
100,000 Wells Fargo Capital X,
5.95%, 12/15/36.............. 98,347
------------
4,716,004
------------
BROADCAST SERVICES/MEDIA -- 0.6%
20,000 Clear Channel Communications,
Inc.,
4.63%, 01/15/08.............. 19,814
100,000 Clear Channel Communications,
Inc.,
4.25%, 05/15/09.............. 96,905
170,000 Clear Channel Communications,
Inc.,
5.50%, 09/15/14.............. 143,620
60,000 Clear Channel Communications,
Inc.,
4.90%, 05/15/15.............. 47,921
150,000 Comcast Cable Communications,
8.88%, 05/01/17.............. 180,964
240,000 Comcast Corp.,
6.50%, 01/15/15.............. 250,452
20,000 Comcast Corp.,
5.88%, 02/15/18.............. 19,825
180,000 Cox Communications, Inc.,
3.88%, 10/01/08.............. 175,197
40,000 CSC Holdings, Inc.,
7.88%, 02/15/18.............. 40,100
15,000 CSC Holdings, Inc.,
7.63%, 07/15/18.............. 14,681
10,000 CSC Holdings, Inc., Series B,
7.63%, 04/01/11.............. 10,238
70,000 DIRECTV Holdings LLC/ DIRECTV
Financing Company,
Inc.,
8.38%, 03/15/13.............. 73,150
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
BROADCAST SERVICES/MEDIA (CONTINUED)
$ 30,000 Echostar DBS Corp.,
7.00%, 10/01/13.............. $ 30,113
90,000 Echostar DBS Corp.,
7.13%, 02/01/16.............. 90,450
75,000 Kabel Deutschland GMBH
(Germany),
10.63%, 07/01/14............. 83,531
280,000 Liberty Media Corp.,
7.88%, 07/15/09.............. 293,391
10,000 Liberty Media Corp.,
5.70%, 05/15/13.............. 9,471
35,000 News America, Inc.,
6.20%, 12/15/34.............. 33,892
30,000 Quebecor Media, Inc. (Canada),
7.75%, 03/15/16.............. 30,788
10,000 Rogers Cable, Inc. (Canada),
5.50%, 03/15/14.............. 9,612
35,000 Rogers Cable, Inc. (Canada),
6.75%, 03/15/15.............. 36,237
10,000 Sinclair Broadcast Group,
8.00%, 03/15/12.............. 10,375
80,000 Time Warner Entertainment,
8.38%, 07/15/33.............. 96,975
350,000 Time Warner, Inc.,
6.88%, 05/01/12.............. 370,273
75,000 Time Warner, Inc.,
7.70%, 05/01/32.............. 84,873
130,000 Viacom, Inc.,
5.75%, 04/30/11.............. 130,189
------------
2,383,037
------------
CHEMICALS -- 0.0%
30,000 Georgia Gulf Corp. -- 144A,
9.50%, 10/15/14.............. 29,400
30,000 Lyondell Chemical Company,
8.00%, 09/15/14.............. 31,275
15,000 Lyondell Chemical Company,
8.25%, 09/15/16.............. 15,825
6,000 Rhodia SA (France),
10.25%, 06/01/10............. 6,870
27,000 Westlake Chemical Corp.,
6.63%, 01/15/16.............. 26,258
------------
109,628
------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 0.0%
20,000 Electronic Data Systems,
7.13%, 10/15/09.............. 20,863
40,000 Sungard Data Systems, Inc.,
9.13%, 08/15/13.............. 42,200
------------
63,063
------------
CONSTRUCTION SERVICES AND SUPPLIES -- 0.0%
65,000 K Hovnanian Enterprises, Inc.,
6.25%, 01/15/15.............. 62,075
------------
</Table>
See notes to financial statements.
119
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
CONSUMER GOODS AND SERVICES -- 0.1%
$ 400,000 Altria Group, Inc.,
7.00%, 11/04/13.............. $ 435,200
------------
ENVIRONMENTAL WASTE MANAGEMENT AND RECYCLING
SERVICES -- 0.1%
160,000 Waste Management, Inc.,
6.50%, 11/15/08.............. 163,078
270,000 Waste Management, Inc.,
6.38%, 11/15/12.............. 283,095
------------
446,173
------------
EQUIPMENT RENTAL AND LEASING -- 0.1%
250,000 International Lease Finance
Corp. E-Capital Trust
II -- 144A,
Variable Rate,
6.25%, 12/21/65(1)........... 254,397
------------
FINANCIAL SERVICES -- 3.2%
200,000 Aiful Corp. -- 144A (Japan),
5.00%, 08/10/10.............. 194,237
560,000 Citigroup, Inc.,
5.10%, 09/29/11.............. 558,209
760,000 Countrywide Financial Corp.,
Series MTNA,
4.50%, 06/15/10.............. 741,524
120,000 Countrywide Financial Corp.,
Series MTNB, Floating Rate,
5.47%, 06/18/08(2)........... 120,031
100,000 Countrywide Financial Corp.,
Series MTNB, Floating Rate,
5.50%, 01/05/09(2)........... 100,034
280,000 Countrywide Home Loans, Series
MTNB, Floating Rate,
5.53%, 02/27/08(2)........... 280,350
100,000 Credit Suisse USA, Inc.,
5.50%, 08/16/11.............. 101,192
10,000 E*TRADE Financial Corp.,
7.38%, 09/15/13.............. 10,450
2,645,000 Ford Motor Credit Company,
5.80%, 01/12/09.............. 2,598,190
220,000 Ford Motor Credit Company,
7.38%, 10/28/09.............. 220,607
129,000 Ford Motor Credit Company --
144A, Floating Rate,
10.61%, 06/15/11(2).......... 137,843
210,000 General Electric Capital Corp.,
Series MTNA,
4.25%, 01/15/08.............. 208,141
300,000 General Electric Capital Corp.,
Series MTNA,
4.13%, 09/01/09.............. 292,681
800,000 General Motors Acceptance
Corp.,
6.13%, 08/28/07.............. 800,282
1,130,000 General Motors Acceptance
Corp.,
5.85%, 01/14/09.............. 1,126,249
110,000 General Motors Acceptance
Corp., Series GM,
6.31%, 11/30/07.............. 109,336
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
$ 120,000 General Motors Acceptance
Corp., Series MTN,
4.38%, 12/10/07.............. $ 118,356
160,000 General Motors Acceptance
Corp., Series MTN, Floating
Rate,
6.52%, 09/23/08(2)........... 160,991
80,000 GMAC LLC,
5.13%, 05/09/08.............. 79,170
560,000 HSBC Finance Corp.,
4.63%, 01/15/08.............. 556,391
490,000 JPMorgan Chase & Company,
5.13%, 09/15/14.............. 482,582
290,000 JPMorgan Chase & Company,
5.15%, 10/01/15.............. 285,075
810,000 Lehman Brothers E-Capital Trust
I, Floating Rate,
6.16%, 08/19/65(2)........... 818,172
290,000 Lehman Brothers Holdings, Inc.,
4.00%, 01/22/08.............. 286,077
180,000 Lehman Brothers Holdings, Inc.,
4.50%, 07/26/10.............. 175,587
170,000 Mitsubishi UFJ Financial Group
Capital Financial I, Ltd.
(Cayman Islands), Variable
Rate,
6.35%, perpetual(1).......... 172,838
70,000 Morgan Stanley,
3.63%, 04/01/08.............. 68,604
260,000 Morgan Stanley, Series MTN,
5.63%, 01/09/12.............. 264,571
100,000 Morgan Stanley, Series MTNF,
Floating Rate,
5.82%, 10/18/16(2)........... 100,744
520,000 Sigma Finance, Inc. -- 144A,
Series MTN1, Variable Rate,
8.50%, 08/11/16(1)........... 519,371
170,000 The Goldman Sachs Group, Inc.,
4.50%, 06/15/10.............. 166,517
120,000 The Goldman Sachs Group, Inc.,
5.00%, 01/15/11.............. 119,100
------------
11,973,502
------------
FOOD AND BEVERAGE -- 0.0%
130,000 Kraft Foods, Inc.,
5.63%, 11/01/11.............. 131,519
------------
FUNERAL SERVICES -- 0.0%
10,000 Service Corp. International,
7.00%, 06/15/17.............. 10,175
40,000 Service Corp. International,
7.63%, 10/01/18.............. 42,600
------------
52,775
------------
INSURANCE -- 0.0%
40,000 ASIF Global Financing XIX --
144A,
4.90%, 01/17/13.............. 39,058
------------
</Table>
See notes to financial statements.
120
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
LEISURE AND RECREATION -- 0.1%
$ 20,000 AMC Entertainment, Inc.,
11.00%, 02/01/16(8).......... $ 22,550
25,000 Boyd Gaming Corp.,
6.75%, 04/15/14.............. 25,063
80,000 Boyd Gaming Corp.,
7.13%, 02/01/16.............. 79,999
30,000 Inn of The Mountain Gods,
12.00%, 11/15/10............. 32,550
25,000 MGM MIRAGE,
6.00%, 10/01/09.............. 25,063
50,000 MGM MIRAGE,
8.50%, 09/15/10.............. 53,750
15,000 MGM MIRAGE,
6.63%, 07/15/15.............. 14,363
55,000 MGM MIRAGE,
7.63%, 01/15/17.............. 55,413
15,000 Mohegan Tribal Gaming
Authority,
6.13%, 02/15/13.............. 14,963
90,000 Station Casinos, Inc.,
7.75%, 08/15/16.............. 91,124
10,000 Station Casinos, Inc. -- 144A,
6.88%, 03/01/16.............. 9,025
------------
423,863
------------
MANUFACTURING -- 0.2%
270,000 Tyco International Group SA
(Luxembourg),
6.38%, 10/15/11.............. 282,843
530,000 Tyco International Group SA
(Luxembourg),
6.00%, 11/15/13.............. 549,145
------------
831,988
------------
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 0.2%
30,000 DaVita, Inc.,
7.25%, 03/15/15.............. 30,750
10,000 Fresenius Medical Care Capital
Trust II,
7.88%, 02/01/08.............. 10,175
11,000 HCA, Inc.,
6.30%, 10/01/12.............. 10,093
130,000 HCA, Inc.,
6.25%, 02/15/13.............. 115,375
160,000 HCA, Inc.,
6.75%, 07/15/13.............. 144,000
40,000 HCA, Inc.,
5.75%, 03/15/14.............. 33,300
66,000 HCA, Inc.,
6.50%, 02/15/16(8)........... 55,935
20,000 HCA, Inc. -- 144A,
9.13%, 11/15/14.............. 21,425
160,000 HCA, Inc. -- 144A,
9.25%, 11/15/16.............. 171,800
100,000 HCA, Inc. -- 144A,
9.63%, 11/15/16.............. 107,750
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
MEDICAL EQUIPMENT, SUPPLIES, AND SERVICES
(CONTINUED)
$ 60,000 Tenet Healthcare Corp.,
6.38%, 12/01/11.............. $ 55,200
30,000 Tenet Healthcare Corp.,
6.50%, 06/01/12.............. 27,300
------------
783,103
------------
METALS AND MINING -- 0.1%
350,000 Vale Overseas, Ltd. (Cayman
Islands),
6.88%, 11/21/36.............. 360,726
------------
OFFICE EQUIPMENT, SUPPLIES, AND
SERVICES -- 0.0%
50,000 Xerox Corp.,
6.75%, 02/01/17.............. 52,500
------------
OIL, COAL AND GAS -- 2.0%
250,000 Amerada Hess Corp.,
7.30%, 08/15/31.............. 279,853
30,000 AmeriGas Partners LP/AmeriGas
Eagle Finance Corp.,
7.13%, 05/20/16.............. 30,150
210,000 Anadarko Finance Company,
Series B,
7.50%, 05/01/31.............. 238,978
150,000 Anadarko Petroleum Corp.,
5.95%, 09/15/16.............. 150,588
40,000 Anadarko Petroleum Corp.,
6.45%, 09/15/36.............. 40,554
290,000 Apache Finance Canada (Canada),
4.38%, 05/15/15.............. 267,336
45,000 Chesapeake Energy Corp.,
7.75%, 01/15/15.............. 47,081
5,000 Chesapeake Energy Corp.,
6.38%, 06/15/15.............. 4,975
20,000 Chesapeake Energy Corp.,
6.25%, 01/15/18.............. 19,350
340,000 ChevronTexaco Capital Company
(Canada),
3.50%, 09/17/07.............. 336,068
390,000 Conoco, Inc.,
6.95%, 04/15/29.............. 444,317
40,000 Devon Energy Corp.,
7.95%, 04/15/32.............. 48,843
200,000 El Paso Corp., Series MTN,
7.80%, 08/01/31.............. 219,500
130,000 El Paso Corp., Series MTN,
7.75%, 01/15/32.............. 143,000
330,000 El Paso Natural Gas,
8.38%, 06/15/32.............. 401,260
500,000 El Paso Performance-Link --
144A,
7.75%, 07/15/11.............. 531,250
450,000 Gaz Capital SA/Gazprom OAO --
144A (Luxembourg),
6.21%, 11/22/16.............. 454,275
80,000 Kerr-McGee Corp.,
6.95%, 07/01/24.............. 85,420
</Table>
See notes to financial statements.
121
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
OIL, COAL AND GAS (CONTINUED)
$ 920,000 Kerr-McGee Corp.,
7.88%, 09/15/31.............. $ 1,100,815
50,000 Kinder Morgan Energy Partners,
LP,
6.30%, 02/01/09.............. 50,688
240,000 Kinder Morgan Energy Partners,
LP,
6.75%, 03/15/11.............. 249,943
55,000 Opti Canada, Inc. (Canada) --
144A,
8.25%, 12/15/14.............. 56,788
40,000 Peabody Energy Corp., Series B,
6.88%, 03/15/13.............. 41,200
310,000 Pemex Project Funding Master
Trust,
7.38%, 12/15/14.............. 342,085
290,000 Petrobas International Finance
Company (Cayman Islands),
6.13%, 10/06/16.............. 294,350
45,000 Pogo Producing Company,
6.88%, 10/01/17.............. 43,200
30,000 Pride International, Inc.,
7.38%, 07/15/14.............. 31,125
25,000 Semgroup LP -- 144A,
8.75%, 11/15/15.............. 25,250
95,000 Suburban Propane Partners,
6.88%, 12/15/13.............. 93,575
310,000 TNK-BP Finance SA -- 144A
(Luxembourg),
7.50%, 07/18/16.............. 330,538
80,000 Western Oil Sands, Inc.
(Canada),
8.38%, 05/01/12.............. 89,200
20,000 Williams Companies, Inc.,
7.75%, 06/15/31.............. 21,100
510,000 Williams Companies, Inc.,
Series A,
7.50%, 01/15/31.............. 531,675
190,000 XTO Energy, Inc.,
7.50%, 04/15/12.............. 206,653
------------
7,250,983
------------
PAPER AND FOREST PRODUCTS -- 0.0%
110,000 Weyerhaeuser Company,
6.75%, 03/15/12.............. 115,490
------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 0.0%
40,000 AmerisourceBergen Corp.,
5.88%, 09/15/15.............. 39,311
------------
PRINTING AND PUBLISHING -- 0.0%
45,000 Idearc, Inc. -- 144A,
8.00%, 11/15/16.............. 45,900
20,000 Reader's Digest Association,
Inc.,
6.50%, 03/01/11.............. 20,650
------------
66,550
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: BANKS -- 0.9%
$ 580,049 Washington Mutual Bank, Series
2005-AR1, Class A1A,
Floating Rate,
5.67%, 01/25/45(3)........... $ 582,621
896,742 Washington Mutual Bank, Series
2005-AR13, Class A1A1,
Floating Rate,
5.64%, 10/25/45(3)........... 898,508
960,795 Washington Mutual Bank, Series
2005-AR13, Class A1B3,
Floating Rate,
5.71%, 10/25/45(3)........... 966,163
1,044,035 Washington Mutual Bank, Series
2005-AR15, Class A1A2,
Floating Rate,
5.63%, 11/25/45(3)........... 1,048,722
------------
3,496,014
------------
PRIVATE ASSET BACKED: FINANCIAL
SERVICES -- 0.8%
860,367 Lehman XS Trust,
Series 2005-5N, Class 1A1,
Floating Rate,
5.65%, 11/25/35(3)........... 863,289
579,115 Lehman XS Trust,
Series 2005-7N, Class 1A1B,
Floating Rate,
5.65%, 12/25/35(3)........... 581,818
1,138,605 Lehman XS Trust, Series
2006-GP4, Class 3A1A,
Floating Rate,
5.42%, 08/25/46(3)........... 1,138,432
300,000 Morgan Stanley Capital I,
Series 2005-HQ6, Class A4A,
4.99%, 08/13/42.............. 293,284
------------
2,876,823
------------
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY -- 9.4%
936,327 Accredited Mortgage Loan Trust,
Series 2005-3, Class A1,
Floating Rate,
5.59%, 09/25/35(3)........... 937,739
401,114 Adjustable Rate Mortgage Trust,
Series 2004-2, Class 7A2,
Floating Rate,
5.77%, 02/25/35(3)........... 401,939
387,206 Adjustable Rate Mortgage Trust,
Series 2004-5, Class 7A2,
Floating Rate,
5.73%, 04/25/35(3)........... 387,782
280,000 Banc of America Commercial
Mortgage, Inc., Series
2005-5, Class A4,
5.12%, 09/10/15.............. 275,948
1,481,283 Banc of America Mortgage
Securities, Series 2005-A,
Class 2A1,
4.46%, 02/25/35.............. 1,447,640
</Table>
See notes to financial statements.
122
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 196,050 Chevy Chase Mortgage Funding
Corp -- 144A, Series 2003-3A,
Class A1, Floating Rate,
5.70%, 07/25/34(3)........... $ 196,148
425,709 Countrywide Alternative Loan
Trust, Series 2005-36,
Class 3A1, Floating Rate,
4.96%, 08/25/35(3)........... 422,116
1,133,677 Countrywide Alternative Loan
Trust, Series 2005-56,
Class 4A1, Floating Rate,
5.63%, 11/25/35(3)........... 1,137,644
1,218,445 Countrywide Alternative Loan
Trust, Series 2005-59,
Class 1A1, Floating Rate,
5.65%, 11/20/35(3)........... 1,223,239
583,778 Countrywide Asset-Backed
Certificates, Series 2005-11,
Class AF1, Floating Rate,
5.53%, 02/25/36(3)........... 584,306
390,000 Countrywide Asset-Backed
Certificates, Series 2005-4,
Class AF3,
4.46%, 10/25/35.............. 385,909
668,161 Countrywide Home Equity Loan
Trust, Series 2005-G,
Class 2A, Floating Rate,
5.58%, 12/15/35(3)........... 669,309
1,043,530 Countrywide Home Loans -- 144A,
Series 2005-R3, Class AF,
Floating Rate,
5.72%, 09/25/35(3)........... 1,049,850
330,832 First Franklin Mortgage Loan
Asset Backed Certificates,
Series 2004-FF10, Class A2,
Floating Rate,
5.75%, 12/25/32(3)........... 331,568
889,441 GMAC Commercial Mortgage
Securities, Inc., Series
1999-C2, Class A2,
6.95%, 09/15/33.............. 917,449
1,071,741 GMAC Mortgage Corp. Loan Trust,
Series 2005-AR1,
Class 3A, Floating Rate,
4.67%, 03/18/35(3)........... 1,058,118
1,500,000 GMAC Mortgage Corp. Loan Trust,
Series 2006-HE1,
Class A, Floating Rate,
5.56%, 11/25/36(3)........... 1,501,542
1,956,387 GSAMP Trust -- 144A, Series
2006-SD2, Class A1,
Floating Rate,
5.46%, 05/25/46(3)........... 1,956,309
362,016 Impac CMB Trust, Series
2003-10, Class 1A1, Floating
Rate,
6.05%, 10/25/33(3)........... 362,391
447,994 Impac CMB Trust, Series 2004-2,
Class A1, Floating Rate,
5.87%, 04/25/34(3)........... 448,342
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 551,475 Impac CMB Trust, Series 2004-6,
Class 1A1, Floating Rate,
5.75%, 10/25/34(3)........... $ 554,023
240,929 IndyMac Index Mortgage Loan
Trust, Series 2005-AR15,
Class A2,
5.10%, 09/25/35.............. 234,004
1,080,000 JPMorgan Chase Commercial
Mortgage Securities Corp.,
Series 2005-CB12, Class A4,
4.90%, 09/12/37.............. 1,048,709
903,282 JPMorgan Mortgage Trust, Series
2004-A3, Class 1A1,
Floating Rate,
4.30%, 07/25/34(3)........... 896,729
870,000 LB-UBS Commercial Mortgage
Trust, Series 2005-C1,
Class A3,
4.55%, 02/15/30.............. 844,150
1,098,000 Merrill Lynch Mortgage
Investors, Inc., Series
2005-A4, Class 2A2,
4.46%, 07/25/35.............. 1,069,434
1,300,000 Merrill Lynch Mortgage
Investors, Inc., Series
2005-A5, Class A3,
4.44%, 06/25/35.............. 1,277,407
500,000 Merrill Lynch Mortgage Trust,
Series 2006-C1, Class A4,
Floating Rate,
5.66%, 05/12/39(3)........... 514,847
401,935 MLCC Mortgage Investors, Inc.,
Series 2003-F, Class A1,
Floating Rate,
5.67%, 10/25/28(3)........... 401,969
464,792 Opteum Mortgage Acceptance
Corp., Series 2005-4,
Class 1A1A, Floating Rate,
5.52%, 11/25/35(3)........... 465,231
974,511 Prime Mortgage Trust -- 144A,
Series 2006-DR1, Class 1A1,
5.50%, 05/25/35.............. 967,796
483,169 Prime Mortgage Trust -- 144A,
Series 2006-DR1, Class 1A2,
6.00%, 05/25/35.............. 486,151
1,958,662 Prime Mortgage Trust -- 144A,
Series 2006-DR1, Class 2A1,
5.50%, 05/25/35.............. 1,941,504
1,764,042 Prime Mortgage Trust -- 144A,
Series 2006-DR1, Class 2A2,
6.00%, 05/25/35.............. 1,759,068
2,150,267 Residential Accredit Loans,
Inc., Series 2005-Q03,
Class A1, Floating Rate,
5.75%, 10/25/45(3)........... 2,157,825
1,065,308 Structured Adjustable Rate
Mortgage Loan, Series
2005-15, Class 1A1,
5.06%, 07/25/35.............. 1,056,891
</Table>
See notes to financial statements.
123
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
PRIVATE ASSET BACKED: MORTGAGE AND HOME
EQUITY (CONTINUED)
$ 539,842 Structured Asset Mortgage
Investments, Inc., Series
2003-AR4, Class A1, Floating
Rate,
5.70%, 01/19/34(3)........... $ 541,158
2,278,539 Thornburg Mortgage Securities
Trust, Series 2006-1,
Class A3, Floating Rate,
5.52%, 01/25/36(3)........... 2,276,814
1,247,501 Zuni Mortgage Loan Trust,
Series 2006-0A1, Class A1,
Floating Rate,
5.45%, 08/25/36(3)........... 1,246,727
------------
35,435,725
------------
REAL ESTATE INVESTMENT TRUSTS -- 0.0%
50,000 Host Marriott LP, Series Q,
6.75%, 06/01/16.............. 50,313
50,000 Ventas Realty LP/Ventas Capital
Corp.,
6.75%, 06/01/10.............. 51,750
40,000 Ventas Realty LP/Ventas Capital
Corp.,
7.13%, 06/01/15.............. 42,200
------------
144,263
------------
RETAIL -- 0.0%
20,000 JC Penney & Company, Inc.,
7.40%, 04/01/37.............. 21,871
------------
RETAIL: SUPERMARKETS -- 0.0%
100,000 Delhaize America, Inc.,
9.00%, 04/15/31.............. 119,231
------------
SCIENTIFIC AND TECHNICAL INSTRUMENTS -- 0.0%
25,000 Cie Generale de Geophysique
(France),
7.50%, 05/15/15.............. 25,250
------------
SEMICONDUCTORS -- 0.0%
40,000 MagnaChip Semiconductor, Ltd.,
Floating Rate,
8.61%, 12/15/11(2)........... 34,600
15,000 NXP BV/NXP Funding LLC
(the Netherlands) -- 144A,
7.88%, 10/15/14.............. 15,581
------------
50,181
------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 0.8%
190,000 AT&T, Inc.,
5.10%, 09/15/14.............. 184,769
55,000 Cincinnati Bell, Inc.,
7.00%, 02/15/15.............. 55,344
15,000 Citizens Communications
Company,
9.25%, 05/15/11.............. 16,669
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS EQUIPMENT AND SERVICES
(CONTINUED)
$ 10,000 Citizens Communications
Company,
9.00%, 08/15/31.............. $ 10,900
180,000 Deutsche Telecom International
Finance BV (the Netherlands),
5.75%, 03/23/16.............. 177,668
45,000 Intelsat Bermuda, Ltd. -- 144A
(Bermuda),
9.25%, 06/15/16.............. 48,600
220,000 Koninklijke KPN NV (the
Netherlands),
8.38%, 10/01/30.............. 252,764
10,000 Nextel Communications, Inc.,
Series D,
7.38%, 08/01/15.............. 10,264
580,000 Nextel Communications, Inc.,
Series E,
6.88%, 10/31/13.............. 586,586
60,000 Nextel Communications, Inc.,
Series F,
5.95%, 03/15/14.............. 58,513
780,000 Qwest Communications
International, Inc., Floating
Rate,
8.87%, 02/15/09(2)........... 793,650
105,000 Qwest Corp.,
7.88%, 09/01/11.............. 112,350
40,000 Rogers Wireless, Inc. (Canada),
6.38%, 03/01/14.............. 40,700
270,000 Sprint Capital Corp.,
8.38%, 03/15/12.............. 300,392
60,000 Sprint Capital Corp.,
8.75%, 03/15/32.............. 72,421
240,000 Sprint Nextel Corp.,
6.00%, 12/01/16.............. 234,340
200,000 Telecom Italia Capital
(Luxembourg),
5.25%, 10/01/15.............. 187,142
50,000 Verizon Global Funding Corp.,
7.38%, 09/01/12.............. 54,730
10,000 Verizon New York, Inc., Series
A,
6.88%, 04/01/12.............. 10,379
25,000 Windstream Corp. -- 144A,
8.63%, 08/01/16.............. 27,500
------------
3,235,681
------------
TRANSPORTATION -- 0.1%
85,000 OMI Corp. (Marshall Islands),
7.63%, 12/01/13.............. 87,338
20,000 Teekay Shipping Corp. (Marshall
Islands),
8.88%, 07/15/11.............. 21,575
110,000 Union Pacific Corp.,
5.38%, 05/01/14.............. 109,377
------------
218,290
------------
</Table>
See notes to financial statements.
124
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
CORPORATE BONDS AND NOTES (CONTINUED)
UTILITIES -- 0.7%
$ 760,000 AES Corp.,
7.75%, 03/01/14.............. $ 805,599
70,000 Dominion Resources, Inc.,
4.75%, 12/15/10.............. 68,452
220,000 Dominion Resources, Inc.,
5.70%, 09/17/12(8)........... 222,762
40,000 Exelon Corp.,
5.63%, 06/15/35.............. 37,808
160,000 FirstEnergy Corp., Series B,
6.45%, 11/15/11.............. 167,023
470,000 FirstEnergy Corp., Series C,
7.38%, 11/15/31.............. 536,880
50,000 Midwest Generation LLC,
8.75%, 05/01/34.............. 54,500
37,566 Midwest Generation LLC, Series
B,
8.56%, 01/02/16.............. 41,440
80,000 NRG Energy, Inc.,
7.25%, 02/01/14.............. 80,800
40,000 Oncor Electric Delivery
Company,
6.38%, 01/15/15.............. 41,296
130,000 Pacific Gas & Electric Company,
6.05%, 03/01/34.............. 131,552
210,000 TXU Corp., Series P,
5.55%, 11/15/14.............. 200,412
160,000 TXU Corp., Series R,
6.55%, 11/15/34.............. 150,436
------------
2,538,960
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $80,323,666)........... 80,675,720
------------
CONVERTIBLE BONDS -- 0.0%
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS
100,000 Ford Motor Company,
4.25%, 12/15/36
(Cost $100,000).............. 107,375
------------
MUNICIPAL BONDS -- 0.4%
VIRGINIA
1,565,361 Virginia State Housing
Development Authority, Series
C, Revenue Bond,
6.00%, 06/25/34
(Cost $1,539,633)............ 1,565,408
------------
FOREIGN GOVERNMENT OBLIGATIONS -- 1.3%
450,000 AID-Israel (Israel),
5.50%, 04/26/24.............. 468,755
510,000 Bundesrepublic Deutschland
(Germany), Series 04,
3.75%, 01/04/15(19).......... 663,890
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
FOREIGN GOVERNMENT OBLIGATIONS (CONTINUED)
$ 97,000 Federal Republic of Brazil
(Brazil),
10.13%, 05/15/27............. $ 136,528
342,000 Federal Republic of Brazil
(Brazil),
11.00%, 08/17/40(8).......... 453,578
59,648 Government of Canada Real
Return Bonds (Canada),
4.00%, 12/01/31(17).......... 74,218
230,000 Republic of Colombia
(Colombia), Series MTN,
7.38%, 09/18/37.............. 247,480
206,000 Republic of Panama (Panama),
7.13%, 01/29/26.............. 223,510
1,510,000 Russian Federation (Russia) --
144A,
5.00%, 03/31/30.............. 1,708,295
16,000 United Mexican States (Mexico),
5.63%, 01/15/17.............. 16,056
270,000 United Mexican States (Mexico),
Series MTN,
8.30%, 08/15/31.............. 345,870
414,000 United Mexican States (Mexico),
Series MTNA,
7.50%, 04/08/33.............. 489,555
------------
TOTAL FOREIGN GOVERNMENT
OBLIGATIONS
(Cost $4,532,762)............ 4,827,735
------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 0.2%
FEDERAL HOME LOAN BANK
710,000 Series 633,
4.80%, 02/15/07
(Cost $710,000).............. 710,000
------------
SHORT TERM US TREASURY SECURITY -- 0.3%
US TREASURY BILL
1,185,000 4.87%, 01/11/07
(Cost $1,183,076)............ 1,183,076
------------
SECURITIES LENDING COLLATERAL -- 2.2%
8,381,259 Securities Lending Collateral
Investment (Note 4)
(Cost $8,381,259)............ 8,381,259
------------
TOTAL SECURITIES
(Cost $385,165,390).......... 421,371,197
------------
</Table>
See notes to financial statements.
125
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
REPURCHASE AGREEMENTS -- 4.2%
$15,905,785 With Investors Bank and Trust,
dated 12/29/06, 4.76%, due
01/02/07, repurchase proceeds
at maturity $15,914,197
(Collateralized by Fannie Mae
Adjustable Rate Mortgage,
5.85%, due 01/25/33, with a
value of $16,304,160 and
Government National Mortgage
Association, 6.38%, due
07/20/34, with a value of
$396,914) (Cost
$15,905,785)................. $ 15,905,785
------------
Total Investments before Call
and Put Options
Written -- 114.6%
(Cost $401,071,175).......... 437,276,982
------------
<Caption>
CONTRACTS
---------
CALL OPTIONS WRITTEN -- (0.0)%
(41) US Treasury Note (10 Year)
March Future, Expiring
February 2007 @ 110.......... (3,203)
(1) US Treasury Note (10 Year)
March Future, Expiring
February 2007 @ 111.......... (31)
------------
TOTAL CALL OPTIONS WRITTEN
(Premium $11,337)............ (3,234)
------------
PUT OPTIONS WRITTEN -- (0.0)%
(42) US Treasury Note (10 Year)
March Future, Expiring
February 2007 @ 106.......... (8,531)
</Table>
<Table>
<Caption>
CONTRACTS VALUE
--------- ------------
PUT OPTIONS WRITTEN (CONTINUED)
(40) US Treasury Note (10 Year)
March Future, Expiring
February 2007 @ 107.......... $ (19,375)
------------
TOTAL PUT OPTIONS WRITTEN
(Premium $24,809)............ (27,906)
------------
Total Investments net of Call
and Put Options
Written -- 114.6%
(Cost $401,035,029).......... 437,245,842
Liabilities less other
assets -- (14.6)%............ (55,597,041)
------------
NET ASSETS -- 100.0%........... $381,648,801
============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $401,859,928.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation........... $38,596,924
Gross unrealized depreciation........... (3,211,010)
-----------
Net unrealized appreciation............. $35,385,914]
===========
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
126
VALUE & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS -- 97.8%
ADVERTISING -- 0.7%
2,014,400 The Interpublic Group of
Companies, Inc.*(8)....... $ 24,656,256
--------------
AEROSPACE AND DEFENSE -- 1.3%
300,000 Northrop Grumman Corp. ..... 20,310,000
274,000 The Boeing Company.......... 24,342,160
--------------
44,652,160
--------------
APPAREL: MANUFACTURING AND RETAIL -- 0.3%
320,000 Limited Brands, Inc. ....... 9,260,800
--------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 0.9%
104,000 BorgWarner, Inc. ........... 6,138,080
146,600 DaimlerChrysler AG
(Germany)(8).............. 9,002,706
360,800 General Motors Corp.(8)..... 11,083,776
45,000 Toyota Motor Corp. (ADR)
(Japan)................... 6,043,950
--------------
32,268,512
--------------
BANKS -- 3.8%
1,126,082 Bank of America Corp. ...... 60,121,518
587,200 National City Corp.(8)...... 21,468,032
215,800 SunTrust Banks, Inc. ....... 18,224,310
420,000 Wachovia Corp. ............. 23,919,000
265,600 Wells Fargo & Company....... 9,444,736
--------------
133,177,596
--------------
BROADCAST SERVICES/MEDIA -- 5.6%
813,500 CBS Corp. -- Class B........ 25,364,930
1,031,900 Clear Channel
Communications, Inc. ..... 36,673,726
700,365 Comcast Corp. -- Class A*... 29,646,450
645,000 Comcast Corp. -- Special
Class A*.................. 27,012,600
165,000 The Walt Disney Company..... 5,654,550
3,470,200 Time Warner, Inc. .......... 75,580,956
--------------
199,933,212
--------------
BUSINESS SERVICES AND SUPPLIES -- 0.1%
125,000 Accenture, Ltd. -- Class A
(Bermuda)................. 4,616,250
--------------
CHEMICALS -- 0.5%
200,000 EI du Pont de Nemours and
Company................... 9,742,000
200,000 The Dow Chemical Company.... 7,988,000
--------------
17,730,000
--------------
COMPUTER EQUIPMENT, SOFTWARE AND SERVICES --
6.2%
1,744,800 Electronic Data Systems
Corp. .................... 48,069,240
959,900 Hewlett-Packard Company..... 39,538,281
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
COMPUTER EQUIPMENT, SOFTWARE AND SERVICES
(CONTINUED)
686,200 International Business
Machines Corp. ........... $ 66,664,330
680,000 Microsoft Corp. ............ 20,304,800
8,067,700 Sun Microsystems, Inc.*..... 43,726,934
--------------
218,303,585
--------------
CONSUMER GOODS AND SERVICES -- 4.9%
525,000 Altria Group, Inc. ......... 45,055,500
1,079,200 Avon Products, Inc. ........ 35,656,768
524,900 Kimberly-Clark Corp. ....... 35,666,955
428,000 Procter & Gamble Company.... 27,507,560
115,000 The Black & Decker Corp. ... 9,196,550
320,000 The Clorox Company.......... 20,528,000
--------------
173,611,333
--------------
CONTAINERS AND PACKAGING -- 0.2%
440,000 Owens-Illinois, Inc.*....... 8,118,000
--------------
DIVERSIFIED OPERATIONS AND SERVICES -- 2.1%
1,880,800 General Electric Company.... 69,984,568
44,600 Textron, Inc. .............. 4,182,142
--------------
74,166,710
--------------
ELECTRONICS -- 2.6%
125,116 Arrow Electronics, Inc.*.... 3,947,410
1,121,400 Flextronics International,
Ltd. (Singapore)*......... 12,873,672
1,939,177 Sanmina-SCI Corp.*.......... 6,690,161
9,744,905 Solectron Corp.*............ 31,378,594
866,900 Sony Corp. (ADR) (Japan).... 37,129,327
--------------
92,019,164
--------------
ENVIRONMENTAL WASTE MANAGEMENT AND RECYCLING
SERVICES -- 0.5%
504,200 Waste Management, Inc. ..... 18,539,434
--------------
FINANCIAL SERVICES -- 13.8%
410,600 American Express Company.... 24,911,102
345,800 Capital One Financial
Corp. .................... 26,564,356
1,632,500 Citigroup, Inc. ............ 90,930,250
96,600 Countrywide Financial
Corp. .................... 4,100,670
1,286,300 Fannie Mae.................. 76,393,357
399,900 Freddie Mac................. 27,153,210
2,521,640 JPMorgan Chase & Company.... 121,795,212
1,085,800 Merrill Lynch & Company,
Inc. ..................... 101,087,980
84,000 The Goldman Sachs Group,
Inc. ..................... 16,745,400
--------------
489,681,537
--------------
FOOD AND BEVERAGE -- 2.9%
265,000 Kellogg Company............. 13,265,900
1,239,500 Kraft Foods, Inc. -- Class
A(8)...................... 44,250,150
</Table>
See notes to financial statements.
127
VALUE & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE (CONTINUED)
3,000 Molson Coors Brewing
Company -- Class B........ $ 229,320
255,000 PepsiCo, Inc. .............. 15,950,250
1,093,305 Sara Lee Corp. ............. 18,618,984
190,000 The Coca-Cola Company....... 9,167,500
--------------
101,482,104
--------------
INSURANCE -- 9.2%
623,600 Aetna, Inc. ................ 26,927,048
1,185,100 American International
Group, Inc. .............. 84,924,266
550,000 Genworth Financial, Inc. --
Class A................... 18,815,500
109,400 MBIA, Inc. ................. 7,992,764
450,200 MetLife, Inc.(8)............ 26,566,302
61,566 PartnerRE, Ltd.
(Bermuda)(8).............. 4,373,033
170,000 RenaissanceRe Holdings, Ltd.
(Bermuda)................. 10,200,000
986,900 The Chubb Corp. ............ 52,216,879
145,000 The Hartford Financial
Services Group, Inc. ..... 13,529,950
1,168,338 The St. Paul Travelers
Companies, Inc. .......... 62,728,067
238,000 XL Capital, Ltd. -- Class A
(Cayman Islands).......... 17,140,760
--------------
325,414,569
--------------
INTERNET SERVICES -- 0.4%
500,000 Cisco Systems, Inc.*........ 13,665,000
--------------
MANUFACTURING -- 2.4%
48,000 Cooper Industries, Ltd. --
Class A (Bermuda)......... 4,340,640
140,000 Eaton Corp. ................ 10,519,600
758,600 Honeywell International,
Inc. ..................... 34,319,064
592,950 Smurfit-Stone Container
Corp.*.................... 6,261,552
147,700 SPX Corp. .................. 9,033,332
725,500 Tyco International, Ltd.
(Bermuda)................. 22,055,200
--------------
86,529,388
--------------
MEDICAL EQUIPMENT, SUPPLIES,
AND SERVICES -- 2.0%
1,184,100 Boston Scientific Corp.*.... 20,342,838
371,000 Medco Health Solutions,
Inc.*..................... 19,826,240
4,310,000 Tenet Healthcare
Corp.*(8)................. 30,040,700
--------------
70,209,778
--------------
METALS AND MINING -- 1.0%
390,000 Mittal Steel Company NV --
Class A (the
Netherlands)(8)........... 16,450,200
280,200 United States Steel
Corp. .................... 20,493,828
--------------
36,944,028
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
OIL, COAL AND GAS -- 9.2%
275,000 BP PLC (ADR) (United
Kingdom).................. $ 18,452,500
1,259,500 ChevronTexaco Corp. ........ 92,611,035
1,242,602 ConocoPhillips.............. 89,405,214
1,354,800 Exxon Mobil Corp. .......... 103,818,324
78,000 Occidental Petroleum
Corp. .................... 3,808,740
234,600 Total SA (ADR) (France)..... 16,872,432
--------------
324,968,245
--------------
PAPER AND FOREST PRODUCTS -- 1.0%
1,180,700 MeadWestvaco Corp. ......... 35,491,842
--------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 5.8%
385,800 AmerisourceBergen Corp. .... 17,345,568
503,800 Merck & Company, Inc. ...... 21,965,680
2,509,100 Millennium Pharmaceuticals,
Inc.*(8).................. 27,349,190
3,140,300 Pfizer, Inc. ............... 81,333,770
891,800 Watson Pharmaceuticals,
Inc.*..................... 23,213,554
646,600 Wyeth....................... 32,924,872
--------------
204,132,634
--------------
PRINTING AND PUBLISHING -- 0.3%
34,382 Idearc, Inc.*(8)............ 985,044
500,000 The Reader's Digest
Association, Inc. ........ 8,350,000
--------------
9,335,044
--------------
RETAIL -- 1.6%
454,662 Federated Department Stores,
Inc. ..................... 17,336,262
922,600 Office Depot, Inc.*......... 35,215,642
92,000 Target Corp. ............... 5,248,600
--------------
57,800,504
--------------
RETAIL: RESTAURANTS -- 0.9%
705,000 McDonald's Corp. ........... 31,252,650
--------------
RETAIL: SUPERMARKETS -- 1.3%
819,925 Safeway, Inc. .............. 28,336,608
779,350 The Kroger Company.......... 17,979,605
--------------
46,316,213
--------------
SEMICONDUCTORS -- 1.7%
2,131,600 Intel Corp. ................ 43,164,900
659,900 Intersil Corp. -- Class A... 15,784,808
--------------
58,949,708
--------------
TELECOMMUNICATIONS EQUIPMENT
AND SERVICES -- 7.8%
2,514,046 Alcatel-Lucent (ADR)
(France).................. 35,749,734
2,424,900 AT&T, Inc.(8)............... 86,690,176
</Table>
See notes to financial statements.
128
VALUE & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS EQUIPMENT
AND SERVICES (CONTINUED)
109,400 BellSouth Corp. ............ $ 5,153,834
214,500 Crown Castle International
Corp.*.................... 6,928,350
1,529,200 Nokia Oyj (ADR)............. 31,073,344
6,631,800 Qwest Communications
International, Inc.*(8)... 55,508,166
1,178,800 Sprint Nextel Corp. ........ 22,267,532
887,652 Verizon Communications,
Inc. ..................... 33,056,160
--------------
276,427,296
--------------
TOYS -- 0.9%
1,417,100 Mattel, Inc. ............... 32,111,486
--------------
TRANSPORTATION -- 2.8%
386,200 Con-way, Inc. .............. 17,008,248
2,105,200 CSX Corp. .................. 72,482,036
191,380 Norfolk Southern Corp. ..... 9,624,500
--------------
99,114,784
--------------
UTILITIES -- 3.1%
310,000 Allegheny Energy, Inc.*..... 14,232,100
1,060,180 American Electric Power
Company, Inc. ............ 45,142,464
224,800 Constellation Energy
Group..................... 15,481,976
225,000 Entergy Corp. .............. 20,772,000
305,800 Wisconsin Energy Corp. ..... 14,513,268
--------------
110,141,808
--------------
TOTAL COMMON STOCKS
(Cost $2,796,613,423)..... 3,461,021,630
--------------
<Caption>
PRINCIPAL VALUE
--------- --------------
SECURITIES LENDING COLLATERAL -- 5.3%
$186,521,888 Securities Lending
Collateral Investment
(Note 4) (Cost
$186,521,888)............. $ 186,521,888
--------------
TOTAL SECURITIES
(Cost $2,983,135,311)..... 3,647,543,518
--------------
REPURCHASE AGREEMENTS -- 2.1%
74,170,734 With Investors Bank & Trust,
dated 12/29/06, 4.76%,
due 01/02/07, repurchase
proceeds at maturity
$74,209,962
(Collateralized by Fannie
Mae Adjustable Rate
Mortgage, 4.28%, due
03/01/34, with a value of
$9,353,891, Freddie Mac
Adjustable Rate Mortgage,
5.65%, due 08/15/36, with
a value of $66,197,101 and
Small Business
Administration,
8.88%, due 07/25/16, with
a value of $2,328,279)
(Cost $74,170,734)........ 74,170,734
--------------
Total Investments -- 105.2%
(Cost $3,057,306,045)..... 3,721,714,252
Liabilities less other
assets -- (5.2)%.......... (182,770,526)
--------------
NET ASSETS -- 100.0%........ $3,538,943,726
==============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $3,065,846,281.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation.......... $720,698,403
Gross unrealized depreciation.......... (64,830,432)
------------
Net unrealized appreciation............ $655,867,971
============
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
129
VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS -- 95.5%
ADVERTISING -- 3.8%
28,200 RH Donnelley Corp. ............ $ 1,768,986
167,800 The Interpublic Group of
Companies, Inc.*(8).......... 2,053,872
------------
3,822,858
------------
AEROSPACE AND DEFENSE -- 4.0%
11,000 Lockheed Martin Corp. ......... 1,012,770
44,700 Northrop Grumman Corp. ........ 3,026,190
------------
4,038,960
------------
AGRICULTURE -- 0.6%
30,400 The Mosaic Company*............ 649,344
------------
AUTOMOBILE: RENTAL -- 0.2%
11,510 Avis Budget Group, Inc. ....... 249,652
------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 1.0%
12,700 Magna International, Inc. --
Class A (Canada)(8).......... 1,022,985
------------
BANKS -- 3.7%
33,155 Bank of America Corp. ......... 1,770,145
17,100 Comerica, Inc. ................ 1,003,428
13,200 KeyCorp........................ 501,996
8,300 UnionBanCal Corp. ............. 508,375
------------
3,783,944
------------
BUSINESS SERVICES AND SUPPLIES -- 0.4%
15,300 First Data Corp. .............. 390,456
------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 14.5%
31,000 BMC Software, Inc.*............ 998,200
221,866 CA, Inc. ...................... 5,025,265
182,000 Electronic Data Systems
Corp. ....................... 5,014,100
118,800 Microsoft Corp. ............... 3,547,368
------------
14,584,933
------------
CONSTRUCTION SERVICES AND SUPPLIES -- 6.0%
72,900 Centex Corp.(8)................ 4,102,083
61,100 Pulte Homes, Inc. ............. 2,023,632
------------
6,125,715
------------
CONSUMER GOODS AND SERVICES -- 3.0%
11,900 Altria Group, Inc. ............ 1,021,258
72,960 Unilever PLC (ADR) (United
Kingdom)..................... 2,029,747
------------
3,051,005
------------
ENVIRONMENTAL WASTE MANAGEMENT AND RECYCLING
SERVICES -- 1.5%
41,500 Waste Management, Inc. ........ 1,525,955
------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES -- 8.3%
46,800 Freddie Mac.................... $ 3,177,720
72,800 JPMorgan Chase & Company....... 3,516,240
5,900 Prudential Financial, Inc. .... 506,574
27,500 Washington Mutual, Inc. ....... 1,250,975
------------
8,451,509
------------
INSURANCE -- 13.5%
9,300 Assurant, Inc. ................ 513,825
50,600 Conseco, Inc.*................. 1,010,988
88,300 Genworth Financial, Inc. --
Class A...................... 3,020,743
42,800 MetLife, Inc. ................. 2,525,628
5,400 The Hartford Financial Services
Group, Inc. ................. 503,874
65,700 The St. Paul Travelers
Companies, Inc. ............. 3,527,433
77,100 UnumProvident Corp. ........... 1,602,138
14,100 XL Capital, Ltd. -- Class A
(Cayman Islands)............. 1,015,482
------------
13,720,111
------------
LEISURE AND RECREATION -- 2.3%
15,700 Harrah's Entertainment,
Inc. ........................ 1,298,704
30,820 Wyndham Worldwide Corp.*....... 986,856
------------
2,285,560
------------
MANUFACTURING -- 6.2%
39,100 Flowserve Corp.*............... 1,973,377
140,000 Tyco International, Ltd.
(Bermuda).................... 4,256,000
------------
6,229,377
------------
MEDICAL EQUIPMENT, SUPPLIES,
AND SERVICES -- 1.1%
156,400 Tenet Healthcare Corp.*(8)..... 1,090,108
------------
METALS AND MINING -- 3.3%
110,300 Alcoa, Inc. ................... 3,310,103
------------
OIL, COAL AND GAS -- 1.5%
24,600 Petro-Canada (Canada).......... 1,009,584
8,100 Sunoco, Inc. .................. 505,116
------------
1,514,700
------------
PAPER AND FOREST PRODUCTS -- 1.2%
17,900 Weyerhaeuser Company........... 1,264,635
------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 2.0%
85,200 Schering-Plough Corp. ......... 2,014,128
------------
</Table>
See notes to financial statements.
130
VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
REAL ESTATE DEVELOPMENT AND SERVICES -- 3.0%
49,925 Realogy Corp.*................. $ 1,513,726
29,100 The St. Joe Company(8)......... 1,558,887
------------
3,072,613
------------
RETAIL -- 4.6%
77,200 The Home Depot, Inc.(8)........ 3,100,352
33,100 Wal-Mart Stores, Inc. ......... 1,528,558
------------
4,628,910
------------
RETAIL: RESTAURANTS -- 1.5%
11,500 McDonald's Corp. .............. 509,795
17,200 YUM! Brands, Inc. ............. 1,011,360
------------
1,521,155
------------
RETAIL: SUPERMARKETS -- 1.5%
43,300 Safeway, Inc.(8)............... 1,496,448
------------
UTILITIES -- 6.8%
69,800 Exelon Corp. .................. 4,319,922
46,500 FPL Group, Inc.(8)............. 2,530,530
------------
6,850,452
------------
TOTAL COMMON STOCKS
(Cost $90,349,290)........... 96,695,616
------------
<Caption>
PRINCIPAL
---------
SECURITIES LENDING COLLATERAL -- 15.2%
$15,388,046 Securities Lending Collateral
Investment (Note 4)
(Cost $15,388,046)........... 15,388,046
------------
TOTAL SECURITIES
(Cost $105,737,336).......... 112,083,662
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
REPURCHASE AGREEMENTS -- 9.0%
$ 9,130,521 With Investors Bank and Trust,
dated 12/29/06, 4.76%, due
01/02/07, repurchase proceeds
at maturity $9,135,350
(Collateralized by Small
Business Administration,
8.07%, due 07/25/29, with a
value of $9,587,047) (Cost
$9,130,521).................. $ 9,130,521
------------
Total Investments -- 119.7%
(Cost $114,867,857).......... 121,214,183
Liabilities less other
assets -- (19.7)%............ (19,931,277)
------------
NET ASSETS -- 100.0%........... $101,282,906
============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $115,182,318.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation............ $6,708,491
Gross unrealized depreciation............ (676,626)
----------
Net unrealized appreciation.............. $6,031,865
==========
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
131
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS -- 98.1%
AEROSPACE AND DEFENSE -- 3.0%
61,800 Goodrich Corp. .............. $ 2,814,990
75,500 Lockheed Martin Corp. ....... 6,951,285
125,200 Northrop Grumman Corp. ...... 8,476,040
125,400 Raytheon Company............. 6,621,120
90,200 The Boeing Company........... 8,013,368
33,000 United Technologies Corp. ... 2,063,160
--------------
34,939,963
--------------
AGRICULTURE -- 0.3%
65,800 Monsanto Company............. 3,456,474
--------------
AIRLINES -- 0.3%
69,700 US Airways Group, Inc.*(8)... 3,753,345
--------------
APPAREL: MANUFACTURING AND RETAIL -- 1.1%
57,000 American Eagle Outfitters,
Inc. ...................... 1,778,970
31,400 Jones Apparel Group, Inc. ... 1,049,702
176,600 The Gap, Inc. ............... 3,443,700
265,500 Urban Outfitters, Inc.*(8)... 6,114,465
--------------
12,386,837
--------------
AUTOMOBILE: RETAIL -- 0.2%
108,000 AutoNation, Inc.*............ 2,302,560
--------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 0.4%
79,000 Autoliv, Inc. (Sweden)....... 4,763,700
--------------
BANKS -- 6.2%
174,000 Bank of America Corp. ....... 9,289,860
65,200 Comerica, Inc. .............. 3,825,936
92,200 Commerce Bancorp, Inc. -- New
Jersey(8).................. 3,251,894
12,400 Credicorp, Ltd. (Bermuda).... 507,656
70,700 IndyMac Bancorp, Inc.(8)..... 3,192,812
115,000 KeyCorp...................... 4,373,450
145,700 National City Corp.(8)....... 5,326,792
37,400 Regions Financial Corp. ..... 1,398,760
44,300 SunTrust Banks, Inc. ........ 3,741,135
15,200 UnionBanCal Corp. ........... 931,000
285,600 US Bancorp................... 10,335,864
185,385 Wachovia Corp. .............. 10,557,676
421,000 Wells Fargo & Company........ 14,970,760
--------------
71,703,595
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
BROADCAST SERVICES/MEDIA -- 4.3%
100,282 CBS Corp. -- Class B......... $ 3,126,793
56,100 Clear Channel Communications,
Inc. ...................... 1,993,794
58,600 Comcast Corp. -- Class
A*(8)...................... 2,480,538
17,205 Liberty Media
Corp. - Capital -- Series
A*......................... 1,685,746
21,100 News Corp. -- Class B........ 469,686
33,100 Rogers Communications,
Inc. -- Class B
(Canada)(8)................ 1,972,760
120,100 Shaw Communications, Inc. --
Class B (Canada)(8)........ 3,808,371
179,100 The DIRECTV Group, Inc.*..... 4,466,754
39,800 The McGraw-Hill
Companies, Inc. ........... 2,707,196
133,100 The Walt Disney Company...... 4,561,337
846,700 Time Warner, Inc. ........... 18,441,126
94,100 Viacom, Inc. -- Class B*..... 3,860,923
--------------
49,575,024
--------------
BUSINESS SERVICES AND SUPPLIES -- 1.1%
22,100 Dun & Bradstreet Corp.*...... 1,829,659
201,500 First Data Corp. ............ 5,142,280
23,700 Moody's Corp. ............... 1,636,722
95,200 Paychex, Inc. ............... 3,764,208
--------------
12,372,869
--------------
CHEMICALS -- 0.6%
26,800 Ashland, Inc. ............... 1,854,024
46,400 EI du Pont de Nemours and
Company.................... 2,260,144
102,400 Methanex Corp. (Canada)...... 2,802,688
--------------
6,916,856
--------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 8.0%
42,100 Apple Computer, Inc.*........ 3,571,764
107,700 Cadence Design Systems,
Inc.*...................... 1,928,907
49,200 Computer Sciences Corp.*..... 2,625,804
243,900 Electronic Arts, Inc.*....... 12,282,804
20,500 Electronic Data Systems
Corp. ..................... 564,775
338,200 Hewlett-Packard Company...... 13,930,458
91,700 Ingram Micro, Inc. -- Class
A*......................... 1,871,597
22,400 International Business
Machines Corp. ............ 2,176,160
66,600 Intuit, Inc.*................ 2,031,966
64,600 Lexmark International,
Inc. -- Class A*........... 4,728,720
</Table>
See notes to financial statements.
132
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
COMPUTER EQUIPMENT, SOFTWARE AND SERVICES
(CONTINUED)
24,900 Mentor Graphics Corp.*....... $ 448,947
1,192,500 Microsoft Corp. ............. 35,608,050
87,900 Oracle Corp.*................ 1,506,606
188,300 SanDisk Corp.*............... 8,102,549
340,200 Sun Microsystems, Inc.*...... 1,843,884
--------------
93,222,991
--------------
CONSUMER GOODS AND SERVICES -- 4.6%
152,700 Altria Group, Inc. .......... 13,104,714
21,700 American Greetings Corp. --
Class A.................... 517,979
51,200 Colgate-Palmolive Company.... 3,340,288
24,900 FedEx Corp. ................. 2,704,638
6,300 Loews Corp.-Carolina Group... 407,736
82,300 NBTY, Inc.*.................. 3,421,211
179,405 Procter & Gamble Company..... 11,530,359
104,200 Reynolds American, Inc. ..... 6,821,974
29,900 The Clorox Company........... 1,918,085
73,000 The Estee Lauder Companies,
Inc. -- Class A(8)......... 2,979,860
58,800 United Parcel Service,
Inc. -- Class B............ 4,408,824
30,800 UST, Inc. ................... 1,792,560
--------------
52,948,228
--------------
CONTAINERS AND PACKAGING -- 0.4%
7,700 Greif, Inc. -- Class A....... 911,680
89,600 Pactiv Corp.*................ 3,197,824
--------------
4,109,504
--------------
DISTRIBUTION -- 0.0%
7,500 CDW Corp. ................... 527,400
--------------
DIVERSIFIED OPERATIONS AND SERVICES -- 2.2%
599,200 General Electric Company..... 22,296,232
34,400 Textron, Inc. ............... 3,225,688
--------------
25,521,920
--------------
EDUCATION -- 0.1%
12,700 ITT Educational Services,
Inc.*...................... 842,899
--------------
ELECTRONICS -- 0.6%
87,900 Avnet, Inc.*................. 2,244,087
77,800 Emerson Electric Company..... 3,428,646
39,500 Synopsys, Inc.*.............. 1,055,835
--------------
6,728,568
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
ENVIRONMENTAL WASTE MANAGEMENT AND RECYCLING
SERVICES -- 0.0%
9,400 Republic Services, Inc. ..... $ 382,298
--------------
FINANCIAL SERVICES -- 10.5%
156,900 American Express Company..... 9,519,123
77,300 AmeriCredit Corp.*(8)........ 1,945,641
50,100 Ameriprise Financial,
Inc. ...................... 2,730,450
478,300 Citigroup, Inc. ............. 26,641,309
190,000 Countrywide Financial
Corp. ..................... 8,065,500
20,400 Janus Capital Group, Inc. ... 440,436
440,300 JPMorgan Chase & Company..... 21,266,490
95,400 Lehman Brothers Holdings,
Inc. ...................... 7,452,648
154,600 Merrill Lynch & Company,
Inc. ...................... 14,393,260
177,000 Morgan Stanley............... 14,413,110
10,831 T Rowe Price Group, Inc. .... 474,073
68,100 The First Marblehead
Corp.(8)................... 3,721,665
26,400 The Goldman Sachs Group,
Inc. ...................... 5,262,840
79,000 Washington Mutual, Inc. ..... 3,593,710
156,000 Western Union Company........ 3,497,520
--------------
123,417,775
--------------
FOOD AND BEVERAGE -- 2.7%
86,200 Archer-Daniels-Midland
Company.................... 2,754,952
158,900 ConAgra Foods, Inc. ......... 4,290,300
54,800 General Mills, Inc. ......... 3,156,480
47,000 HJ Heinz Company............. 2,115,470
65,700 Kraft Foods, Inc. -- Class
A(8)....................... 2,345,490
163,800 PepsiCo, Inc. ............... 10,245,690
125,100 The Coca-Cola Company........ 6,036,075
54,400 Tyson Foods, Inc. -- Class
A(8)....................... 894,880
--------------
31,839,337
--------------
INSURANCE -- 4.7%
56,000 Aetna, Inc. ................. 2,418,080
28,700 Ambac Financial Group,
Inc. ...................... 2,556,309
47,700 American International Group,
Inc. ...................... 3,418,182
39,800 Assurant, Inc. .............. 2,198,950
14,300 Axis Capital Holdings, Ltd.
(Bermuda).................. 477,191
21,600 CIGNA Corp. ................. 2,841,912
78,000 Genworth Financial, Inc. --
Class A.................... 2,668,380
50,400 Hanover Insurance Group,
Inc. ...................... 2,459,520
165,100 Loews Corp. ................. 6,846,697
38,052 MBIA, Inc. .................. 2,780,079
</Table>
See notes to financial statements.
133
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
35,400 MGIC Investment Corp. ....... $ 2,213,916
13,400 Nationwide Financial
Services, Inc. -- Class
A.......................... 726,280
66,800 Odyssey Re Holdings Corp. ... 2,491,640
26,100 Principal Financial Group,
Inc. ...................... 1,532,070
122,114 Radian Group, Inc. .......... 6,583,166
40,100 The Allstate Corp. .......... 2,610,911
17,700 The Chubb Corp. ............. 936,507
130,800 The PMI Group, Inc.(8)....... 6,169,836
15,400 The St. Paul Travelers
Companies, Inc. ........... 826,826
5,900 Unitrin, Inc. ............... 295,649
54,000 WR Berkley Corp. ............ 1,863,540
--------------
54,915,641
--------------
INTERNET SERVICES -- 2.9%
530,200 Cisco Systems, Inc.*......... 14,490,366
94,800 eBay, Inc.*.................. 2,850,636
32,038 Google, Inc. -- Class A*..... 14,752,858
25,700 IAC/InterActive Corp.*(8).... 955,012
--------------
33,048,872
--------------
LEISURE AND RECREATION -- 0.9%
50,500 Carnival Corp. (Panama)(8)... 2,477,025
14,400 Choice Hotels International,
Inc. ...................... 606,240
112,700 Starwood Hotels & Resorts
Worldwide, Inc. ........... 7,043,750
--------------
10,127,015
--------------
MACHINERY -- 0.4%
33,400 Caterpillar, Inc. ........... 2,048,422
31,400 Deere & Company.............. 2,985,198
--------------
5,033,620
--------------
MANUFACTURING -- 1.4%
54,200 3M Company................... 4,223,806
27,700 Furniture Brands
International, Inc.(8)..... 449,571
90,100 Honeywell International,
Inc. ...................... 4,076,124
35,200 Parker Hannifin Corp. ....... 2,706,176
10,600 SPX Corp. ................... 648,296
69,500 The Timken Company........... 2,028,010
55,800 Tyco International, Ltd.
(Bermuda).................. 1,696,320
--------------
15,828,303
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 4.5%
24,400 Becton, Dickinson and
Company.................... $ 1,711,660
83,000 Cardinal Health, Inc. ....... 5,347,690
9,600 Dade Behring Holdings,
Inc. ...................... 382,176
39,800 Humana, Inc.*................ 2,201,338
241,000 Johnson & Johnson............ 15,910,820
5,400 Laboratory Corp. of America
Holdings*.................. 396,738
110,700 McKesson Corp. .............. 5,612,490
142,200 Medco Health Solutions,
Inc.*...................... 7,599,168
17,900 Medtronic, Inc. ............. 957,829
227,400 St Jude Medical, Inc.*....... 8,313,744
8,100 Universal Health Services,
Inc. -- Class B............ 448,983
39,200 WellPoint, Inc.*............. 3,084,648
--------------
51,967,284
--------------
METALS AND MINING -- 1.2%
130,200 Alcoa, Inc. ................. 3,907,302
7,100 Newmont Mining Corp. ........ 320,565
82,800 Nucor Corp. ................. 4,525,848
21,100 Phelps Dodge Corp. .......... 2,526,092
79,400 Steel Dynamics, Inc. ........ 2,576,530
--------------
13,856,337
--------------
OIL, COAL AND GAS -- 9.2%
42,800 Apache Corp. ................ 2,846,628
45,700 Baker Hughes, Inc. .......... 3,411,962
41,900 Cameron International
Corp.*..................... 2,222,795
156,900 ChevronTexaco Corp. ......... 11,536,857
182,486 ConocoPhillips............... 13,129,868
46,400 Devon Energy Corp. .......... 3,112,512
44,500 EnCana Corp. (Canada)........ 2,044,775
5,700 EOG Resources, Inc. ......... 355,965
578,600 Exxon Mobil Corp. ........... 44,338,118
70,200 Holly Corp. ................. 3,608,280
101,000 Marathon Oil Corp. .......... 9,342,500
51,400 Petro-Canada (Canada)........ 2,109,456
119,900 Schlumberger, Ltd.
(Netherlands Antilles)..... 7,572,884
44,000 Smith International, Inc. ... 1,807,080
--------------
107,439,680
--------------
PAPER AND FOREST PRODUCTS -- 0.1%
25,500 International Paper
Company.................... 869,550
--------------
</Table>
See notes to financial statements.
134
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 7.3%
82,900 Abbott Laboratories.......... $ 4,038,059
33,700 Allergan, Inc. .............. 4,035,238
135,800 AmerisourceBergen Corp. ..... 6,105,568
132,000 Amgen, Inc.*................. 9,016,920
116,800 Biogen Idec, Inc.*........... 5,745,392
86,800 Celgene Corp.*............... 4,993,604
39,800 Eli Lilly and Company........ 2,073,580
30,100 Forest Laboratories, Inc.*... 1,523,060
68,400 Genentech, Inc.*............. 5,549,292
56,300 Gilead Sciences, Inc.*....... 3,655,559
162,100 Merck & Company, Inc. ....... 7,067,560
34,000 Millennium Pharmaceuticals,
Inc.*(8)................... 370,600
884,300 Pfizer, Inc. ................ 22,903,370
82,400 Schering-Plough Corp. ....... 1,947,936
30,600 Sepracor, Inc.*.............. 1,884,348
68,700 Wyeth........................ 3,498,204
--------------
84,408,290
--------------
REAL ESTATE DEVELOPMENT AND SERVICES -- 0.5%
39,600 Brookfield Asset Management,
Inc. -- Class A (Canada)... 1,907,928
40,600 Jones Lang LaSalle,
Inc.(8).................... 3,742,102
--------------
5,650,030
--------------
REAL ESTATE INVESTMENT TRUSTS -- 0.4%
41,600 Equity Office Properties
Trust...................... 2,003,872
11,800 Kimco Realty Corp. .......... 530,410
32,200 New Century Financial
Corp.(8)................... 1,017,198
6,600 ProLogis..................... 401,082
3,000 SL Green Realty Corp. ....... 398,340
--------------
4,350,902
--------------
RETAIL -- 3.8%
68,700 Advance Auto Parts, Inc. .... 2,442,972
68,700 Big Lots, Inc.*.............. 1,574,604
81,303 Circuit City Stores, Inc. ... 1,543,131
51,900 Costco Wholesale Corp. ...... 2,743,953
53,100 Dillard's, Inc. -- Class
A(8)....................... 1,856,907
143,600 Dollar General Corp. ........ 2,306,216
34,200 JC Penney Company, Inc. ..... 2,645,712
38,300 Kohl's Corp.*................ 2,620,869
70,400 Lowe's Companies, Inc. ...... 2,192,960
63,600 Office Depot, Inc.*.......... 2,427,612
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
RETAIL (CONTINUED)
21,600 Sears Holdings Corp.*(8)..... $ 3,627,288
232,200 Staples, Inc. ............... 6,199,740
10,100 The Home Depot, Inc.(8)...... 405,616
88,300 Walgreen Company............. 4,052,087
161,500 Wal-Mart Stores, Inc. ....... 7,458,070
--------------
44,097,737
--------------
RETAIL: RESTAURANTS -- 0.5%
56,800 Darden Restaurants, Inc. .... 2,281,656
10,600 McDonald's Corp. ............ 469,898
69,600 Starbucks Corp.*............. 2,465,232
--------------
5,216,786
--------------
RETAIL: SUPERMARKETS -- 1.0%
159,300 Safeway, Inc.(8)............. 5,505,408
242,100 The Kroger Company........... 5,585,247
--------------
11,090,655
--------------
SEMICONDUCTORS -- 2.5%
357,000 Atmel Corp.*................. 2,159,850
130,900 Broadcom Corp. -- Class A*... 4,229,379
71,700 Intel Corp. ................. 1,451,925
183,500 Micron Technology, Inc.*..... 2,561,660
274,800 National Semiconductor
Corp. ..................... 6,237,960
430,400 Texas Instruments, Inc. ..... 12,395,520
--------------
29,036,294
--------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 5.7%
20,900 Anixter International,
Inc.*...................... 1,134,870
150,500 AT&T, Inc.(8)................ 5,380,375
229,300 BellSouth Corp. ............. 10,802,323
133,300 CenturyTel, Inc. ............ 5,819,878
378,700 Corning, Inc.*............... 7,085,477
12,205 Embarq Corp. ................ 641,495
81,199 JDS Uniphase Corp.*.......... 1,352,775
387,500 Level 3 Communications,
Inc.*(8)................... 2,170,000
175,300 Motorola, Inc. .............. 3,604,168
343,500 QUALCOMM, Inc. .............. 12,980,865
91,800 Sprint Nextel Corp. ......... 1,734,102
25,900 Telephone and Data Systems,
Inc. ...................... 1,407,147
</Table>
See notes to financial statements.
135
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES (CONTINUED)
11,000 Telephone and Data Systems,
Inc. -- Special Common
Shares..................... $ 545,600
62,700 UTStarcom, Inc.*(8).......... 548,625
297,000 Verizon Communications,
Inc. ...................... 11,060,280
--------------
66,267,980
--------------
TOYS -- 0.3%
141,600 Hasbro, Inc. ................ 3,858,600
--------------
TRANSPORTATION -- 1.2%
5,600 Burlington Northern Santa Fe
Corp. ..................... 413,336
76,400 CSX Corp. ................... 2,630,452
104,200 Norfolk Southern Corp. ...... 5,240,218
13,700 Overseas Shipholding Group,
Inc. ...................... 771,310
53,700 Union Pacific Corp. ......... 4,941,474
--------------
13,996,790
--------------
UTILITIES -- 3.0%
19,000 AGL Resources, Inc. ......... 739,290
22,000 Alliant Energy Corp. ........ 830,940
94,400 American Electric Power
Company, Inc. ............. 4,019,552
8,400 DTE Energy Company(8)........ 406,644
54,800 Duke Energy Corp. ........... 1,819,908
126,600 Edison International......... 5,757,768
38,700 Energen Corp. ............... 1,816,578
58,300 Entergy Corp. ............... 5,382,256
44,000 FirstEnergy Corp. ........... 2,649,240
114,500 PG&E Corp. .................. 5,419,285
38,200 Pinnacle West Capital
Corp. ..................... 1,934,448
78,600 TXU Corp. ................... 4,260,906
--------------
35,036,815
--------------
TOTAL COMMON STOCKS
(Cost $992,025,264)........ 1,137,809,324
--------------
<Caption>
PRINCIPAL VALUE
--------- --------------
SECURITIES LENDING COLLATERAL -- 5.9%
$67,965,319 Securities Lending Collateral
Investment (Note 4)
(Cost $67,965,319)......... $ 67,965,319
--------------
TOTAL SECURITIES
(Cost $1,059,990,583)...... 1,205,774,643
--------------
REPURCHASE AGREEMENTS -- 2.1%
23,960,361 With Investors Bank and
Trust, dated 12/29/06,
4.76%, due 01/02/07,
repurchase proceeds at
maturity $23,973,033
(Collateralized by Freddie
Mac Adjustable Rate
Mortgage,
5.70%, due 05/15/36, with a
value of $23,036,034 and
Small Business
Administration,
8.13%, due 01/25/27, with a
value of $2,122,345)
(Cost $23,960,361)......... 23,960,361
--------------
Total Investments -- 106.1%
(Cost $1,083,950,944)...... 1,229,735,004
Liabilities less other
assets -- (6.1)%........... (70,714,759)
--------------
NET ASSETS -- 100.0%......... $1,159,020,245
==============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $1,089,902,981.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation.......... $156,191,994
Gross unrealized depreciation.......... (16,359,971)
------------
Net unrealized appreciation............ $139,832,023
============
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
136
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS -- 97.9%
AEROSPACE AND DEFENSE -- 4.0%
322,244 General Dynamics Corp. ..... $ 23,958,841
251,022 Goodrich Corp. ............. 11,434,052
339,056 Lockheed Martin Corp. ...... 31,216,886
188,275 The Boeing Company.......... 16,726,351
266,480 United Technologies
Corp. .................... 16,660,330
--------------
99,996,460
--------------
AGRICULTURE -- 1.4%
672,994 Monsanto Company............ 35,352,375
--------------
AIRLINES -- 0.6%
283,064 US Airways Group,
Inc.*(8).................. 15,242,996
--------------
APPAREL: MANUFACTURING AND RETAIL -- 1.5%
716,820 The Gap, Inc. .............. 13,977,990
1,078,020 Urban Outfitters,
Inc.*(8).................. 24,826,801
--------------
38,804,791
--------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 2.1%
395,751 Toyota Motor Corp. (ADR)
(Japan)................... 53,153,317
--------------
BANKS -- 4.4%
400,665 Commerce Bancorp, Inc. --
New Jersey(8)............. 14,131,455
60,410,000 Industrial and Commercial
Bank of China -- Class H
(China)................... 37,512,092
514,743 UBS AG (Switzerland)........ 31,054,445
808,290 Wells Fargo & Company....... 28,742,792
--------------
111,440,784
--------------
BROADCAST SERVICES/MEDIA -- 3.2%
1,085,562 Comcast Corp. -- Class A*... 45,951,839
887,000 Time Warner, Inc. .......... 19,318,860
389,097 Viacom, Inc. -- Class B*.... 15,964,650
--------------
81,235,349
--------------
BUSINESS SERVICES AND SUPPLIES -- 1.0%
368,150 First Data Corp. ........... 9,395,188
386,270 Paychex, Inc. .............. 15,273,116
--------------
24,668,304
--------------
CHEMICALS -- 0.4%
188,244 EI du Pont de Nemours and
Company................... 9,169,365
--------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 8.3%
171,508 Apple Computer, Inc.*....... 14,550,739
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
COMPUTER EQUIPMENT, SOFTWARE AND SERVICES
(CONTINUED)
990,147 Electronic Arts, Inc.*...... $ 49,863,803
523,013 Hewlett-Packard Company..... 21,542,905
3,113,090 Microsoft Corp. ............ 92,956,868
764,215 SanDisk Corp.*(8)........... 32,884,171
--------------
211,798,486
--------------
CONSTRUCTION SERVICES AND SUPPLIES -- 0.7%
319,198 Lennar Corp. -- Class A..... 16,745,127
--------------
CONSUMER GOODS AND SERVICES -- 7.3%
401,630 Altria Group, Inc. ......... 34,467,887
453,428 FedEx Corp. ................ 49,251,349
1,190,971 Procter & Gamble Company.... 76,543,706
121,300 The Clorox Company.......... 7,781,395
217,545 United Parcel Service,
Inc. -- Class B........... 16,311,524
--------------
184,355,861
--------------
DIVERSIFIED OPERATIONS AND SERVICES -- 2.5%
1,350,497 General Electric Company.... 50,251,993
139,510 Textron, Inc. .............. 13,081,853
--------------
63,333,846
--------------
FINANCIAL SERVICES -- 7.8%
545,280 American Express Company.... 33,082,138
343,825 Citigroup, Inc. ............ 19,151,053
442,391 Lehman Brothers Holdings,
Inc. ..................... 34,559,584
199,405 Merrill Lynch & Company,
Inc. ..................... 18,564,606
207,790 Morgan Stanley.............. 16,920,340
307,874 The Goldman Sachs Group,
Inc. ..................... 61,374,681
633,205 Western Union Company....... 14,196,456
--------------
197,848,858
--------------
FOOD AND BEVERAGE -- 3.4%
1,033,580 PepsiCo, Inc. .............. 64,650,429
447,715 The Coca-Cola Company....... 21,602,249
--------------
86,252,678
--------------
INSURANCE -- 1.2%
144,440 MGIC Investment Corp. ...... 9,033,278
187,299 Radian Group, Inc. ......... 10,097,289
219,305 The PMI Group, Inc.(8)...... 10,344,617
--------------
29,475,184
--------------
INTERNET SERVICES -- 4.8%
2,369,066 Cisco Systems, Inc.*........ 64,746,574
</Table>
See notes to financial statements.
137
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
INTERNET SERVICES (CONTINUED)
384,883 eBay, Inc.*................. $ 11,573,432
96,873 Google, Inc. -- Class A*.... 44,608,079
--------------
120,928,085
--------------
LEISURE AND RECREATION -- 6.0%
142,558 Four Seasons Hotels, Inc.
(Canada)(8)............... 11,688,330
439,066 Las Vegas Sands Corp.*...... 39,287,625
645,163 MGM MIRAGE*................. 37,000,098
457,475 Starwood Hotels & Resorts
Worldwide, Inc. .......... 28,592,188
377,502 Wynn Resorts, Ltd.(8)....... 35,428,563
--------------
151,996,804
--------------
MANUFACTURING -- 0.4%
132,490 3M Company.................. 10,324,946
--------------
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 7.7%
472,500 Johnson & Johnson........... 31,194,450
577,330 Medco Health Solutions,
Inc.*..................... 30,852,515
923,271 St Jude Medical, Inc.*...... 33,754,788
1,585,327 UnitedHealth Group, Inc. ... 85,179,619
158,950 WellPoint, Inc.*............ 12,507,776
--------------
193,489,148
--------------
METALS AND MINING -- 0.4%
308,235 Alcoa, Inc. ................ 9,250,132
--------------
OIL, COAL AND GAS -- 2.7%
185,515 Baker Hughes, Inc. ......... 13,850,550
170,180 Cameron International
Corp.*.................... 9,028,049
608,062 Schlumberger, Ltd.
(Netherlands Antilles).... 38,405,196
178,518 Smith International,
Inc. ..................... 7,331,734
--------------
68,615,529
--------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 9.0%
249,592 Abbott Laboratories......... 12,157,626
136,720 Allergan, Inc. ............. 16,370,853
264,139 Amgen, Inc.*................ 18,043,335
361,240 Biogen Idec, Inc.*.......... 17,769,396
192,445 Celgene Corp.*.............. 11,071,361
161,816 Eli Lilly and Company....... 8,430,614
1,003,498 Genentech, Inc.*............ 81,413,792
267,137 Genzyme Corp.*.............. 16,450,296
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT (CONTINUED)
231,768 Gilead Sciences, Inc.*...... $ 15,048,696
168,765 Merck & Company, Inc. ...... 7,358,154
334,755 Schering-Plough Corp. ...... 7,913,608
125,876 Sepracor, Inc.*............. 7,751,444
175,730 Wyeth....................... 8,948,172
--------------
228,727,347
--------------
RETAIL -- 6.4%
278,882 Advance Auto Parts, Inc. ... 9,917,044
582,978 Dollar General Corp. ....... 9,362,627
1,355,533 Lowe's Companies, Inc. ..... 42,224,852
87,895 Sears Holdings Corp.*(8).... 14,760,207
942,770 Staples, Inc. .............. 25,171,959
325,412 Target Corp. ............... 18,564,755
358,395 Walgreen Company............ 16,446,747
528,605 Wal-Mart Stores, Inc. ...... 24,410,979
--------------
160,859,170
--------------
RETAIL: RESTAURANTS -- 0.9%
674,442 Starbucks Corp.*............ 23,888,736
--------------
SEMICONDUCTORS -- 3.1%
531,320 Broadcom Corp. -- Class
A*........................ 17,166,949
1,115,700 National Semiconductor
Corp. .................... 25,326,390
1,241,170 Texas Instruments, Inc. .... 35,745,696
--------------
78,239,035
--------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 3.8%
1,578,698 Corning, Inc.*.............. 29,537,440
329,500 JDS Uniphase Corp.*(8)...... 5,489,470
1,573,100 Level 3 Communications,
Inc.*(8).................. 8,809,360
1,394,595 QUALCOMM, Inc. ............. 52,701,745
--------------
96,538,015
--------------
TRANSPORTATION -- 2.9%
468,154 Burlington Northern Santa Fe
Corp. .................... 34,554,447
421,579 Union Pacific Corp. ........ 38,793,699
--------------
73,348,146
--------------
TOTAL COMMON STOCKS
(Cost $2,152,170,710)..... 2,475,078,874
--------------
</Table>
See notes to financial statements.
138
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
SECURITIES LENDING COLLATERAL -- 6.3%
$158,227,226 Securities Lending
Collateral Investment
(Note 4)
(Cost $158,227,226)....... $ 158,227,226
--------------
TOTAL SECURITIES
(Cost $2,310,397,936)..... 2,633,306,100
--------------
REPURCHASE AGREEMENTS -- 0.9%
22,518,208 With Investors Bank and
Trust, dated 12/29/06,
4.76%, due 01/02/07,
repurchase proceeds at
maturity $22,530,118
(Collateralized by Fannie
Mae Adjustable Rate
Mortgage, 4.18%, due
07/01/33, with a value of
$14,769,866 and Small
Business Administration,
8.12%, due 07/25/29, with
a value of $8,874,253)
(Cost $22,518,208)........ 22,518,208
--------------
Total Investments -- 105.1%
(Cost $2,332,916,144)..... 2,655,824,308
Liabilities less other
assets -- (5.1)%.......... (128,906,852)
--------------
NET ASSETS -- 100.0%........ $2,526,917,456
==============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $2,341,238,670.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation.......... $356,402,147
Gross unrealized depreciation.......... (41,816,509)
------------
Net unrealized appreciation............ $314,585,638
============
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
139
AGGRESSIVE EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS -- 99.4%
ADVERTISING -- 1.4%
83,220 Focus Media Holding, Ltd. (ADR)
(China)*..................... $ 5,524,976
------------
AGRICULTURE -- 2.3%
27,490 Bunge, Ltd. (Bermuda).......... 1,993,300
132,140 Monsanto Company............... 6,941,314
------------
8,934,614
------------
AIRLINES -- 1.2%
88,670 US Airways Group, Inc.*(8)..... 4,774,880
------------
APPAREL: MANUFACTURING AND RETAIL -- 2.9%
124,220 Coach, Inc.*................... 5,336,491
46,470 Polo Ralph Lauren Corp. ....... 3,608,860
45,970 Under Armour, Inc. -- Class
A*(8)........................ 2,319,187
------------
11,264,538
------------
BANKS -- 1.4%
91,220 UBS AG (Switzerland)........... 5,503,303
------------
BROADCAST SERVICES/MEDIA -- 2.6%
137,700 Comcast Corp. -- Class A*...... 5,828,841
198,720 News Corp. -- Class A.......... 4,268,506
------------
10,097,347
------------
BUSINESS SERVICES AND SUPPLIES -- 3.7%
325,800 ABB, Ltd. (ADR) (Switzerland).. 5,857,884
60,640 Global Payments, Inc. ......... 2,807,632
121,000 Monster Worldwide, Inc.*....... 5,643,440
------------
14,308,956
------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 11.3%
99,610 Apple Computer, Inc.*.......... 8,450,911
213,000 Dell, Inc.*.................... 5,344,170
88,560 Electronic Arts, Inc.*......... 4,459,882
90,700 Network Appliance, Inc.*....... 3,562,696
228,000 Qimonda AG (ADR) (Germany)*.... 3,992,280
191,410 Salesforce.com, Inc.*(8)....... 6,976,894
95,230 SanDisk Corp.*................. 4,097,747
1,121,700 Sun Microsystems, Inc.*........ 6,079,614
------------
42,964,194
------------
CONSUMER GOODS AND SERVICES -- 1.2%
73,490 Nutri/System, Inc.*(8)......... 4,658,531
------------
DIVERSIFIED OPERATIONS AND SERVICES -- 4.6%
477,100 General Electric Company....... 17,752,891
------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
ELECTRONICS -- 1.0%
38,100 Harman International
Industries, Inc. ............ $ 3,806,571
------------
ENERGY SERVICES -- 1.2%
120,300 SunPower Corp. -- Class
A*(8)........................ 4,471,551
------------
FINANCIAL SERVICES -- 7.8%
14,300 Chicago Mercantile Exchange
Holdings, Inc.(8)............ 7,289,425
17,600 IntercontinentalExchange,
Inc.*........................ 1,899,040
165,800 Nasdaq Stock Market,
Inc.*(8)..................... 5,104,982
370,540 The Charles Schwab Corp. ...... 7,166,244
41,510 The Goldman Sachs Group,
Inc. ........................ 8,275,018
------------
29,734,709
------------
FOOD AND BEVERAGE -- 1.2%
145,930 Archer-Daniels-Midland
Company...................... 4,663,923
------------
INTERNET SERVICES -- 10.8%
101,000 Akamai Technologies,
Inc.*(8)..................... 5,365,120
568,490 Cisco Systems, Inc.*........... 15,536,831
63,600 F5 Networks, Inc.*............. 4,719,756
33,400 Google, Inc. -- Class A*....... 15,380,032
------------
41,001,739
------------
LEISURE AND RECREATION -- 3.7%
140,200 International Game
Technology................... 6,477,240
85,170 Las Vegas Sands Corp.*......... 7,621,012
------------
14,098,252
------------
MACHINERY -- 1.4%
55,700 Deere & Company................ 5,295,399
------------
MANUFACTURING -- 2.9%
68,200 Precision Castparts Corp.(8)... 5,338,696
112,100 Roper Industries, Inc. ........ 5,631,904
------------
10,970,600
------------
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 4.2%
161,300 Baxter International, Inc. .... 7,482,707
71,100 Covance, Inc.*................. 4,188,501
45,200 Intuitive Surgical, Inc.*(8)... 4,334,680
------------
16,005,888
------------
METALS AND MINING -- 1.1%
107,800 Cameco Corp. (Canada)(8)....... 4,360,510
------------
</Table>
See notes to financial statements.
140
AGGRESSIVE EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
OIL, COAL AND GAS -- 2.8%
108,300 Cameron International Corp.*... $ 5,745,315
106,600 XTO Energy, Inc. .............. 5,015,530
------------
10,760,845
------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 8.5%
43,670 Allergan, Inc. ................ 5,229,046
98,012 Celgene Corp.*................. 5,638,630
151,250 Gilead Sciences, Inc.*......... 9,820,663
58,150 Roche Holding AG (ADR)
(Switzerland)................ 5,233,500
105,100 Shire PLC (ADR)
(United Kingdom)............. 6,490,976
------------
32,412,815
------------
REAL ESTATE DEVELOPMENT AND SERVICES -- 1.7%
191,950 CB Richard Ellis Group, Inc. --
Class A*..................... 6,372,740
------------
RETAIL: RESTAURANTS -- 1.3%
140,210 Starbucks Corp.*............... 4,966,238
------------
SCIENTIFIC AND TECHNICAL INSTRUMENTS -- 2.6%
94,600 Applera Corp.-Applied
Biosystems Group............. 3,470,874
142,110 Thermo Fisher Scientific,
Inc.*........................ 6,436,162
------------
9,907,036
------------
SEMICONDUCTORS -- 7.3%
181,310 Broadcom Corp. -- Class A*..... 5,858,126
166,680 KLA-Tencor Corp. .............. 8,292,330
188,300 NVIDIA Corp.*.................. 6,968,983
231,900 Texas Instruments, Inc. ....... 6,678,720
------------
27,798,159
------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 6.3%
164,270 Crown Castle International
Corp.*....................... 5,305,921
216,286 JDS Uniphase Corp.*(8)......... 3,603,325
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES (CONTINUED)
83,490 NII Holdings, Inc.*............ $ 5,380,095
246,000 Nokia Oyj (ADR) (Finland)...... 4,998,720
37,500 Research In Motion, Ltd.
(Canada)*.................... 4,791,750
------------
24,079,811
------------
TRANSPORTATION -- 1.0%
95,000 CH Robinson Worldwide,
Inc.(8)...................... 3,884,550
------------
TOTAL COMMON STOCKS
(Cost $325,600,045).......... 380,375,566
------------
PRINCIPAL
SECURITIES LENDING COLLATERAL -- 12.6%
$48,209,289 Securities Lending Collateral
Investment (Note 4)
(Cost $48,209,289)........... 48,209,289
------------
Total Investments -- 112.0%
(Cost $373,809,334).......... 428,584,855
Liabilities less other
assets -- (12.0)%............ (45,916,947)
------------
NET ASSETS -- 100.0%........... $382,667,908
============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $374,726,801.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation........... $58,374,996
Gross unrealized depreciation........... (4,516,942)
-----------
Net unrealized appreciation............. $53,858,054
===========
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
141
MID-CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS -- 97.9%
ADVERTISING -- 0.2%
20,393 RH Donnelley Corp............. $ 1,279,253
66,062 The Interpublic Group of
Companies, Inc.*(8)......... 808,599
------------
2,087,852
------------
AEROSPACE AND DEFENSE -- 1.6%
333,768 Goodrich Corp. ............... 15,203,132
------------
AGRICULTURAL EQUIPMENT -- 0.4%
123,905 AGCO Corp.*................... 3,833,621
------------
AGRICULTURE -- 0.1%
2,479 Monsanto Company.............. 130,222
20,416 The Mosaic Company*........... 436,086
------------
566,308
------------
AIRLINES -- 0.4%
35,700 Alaska Air Group, Inc.*....... 1,410,149
16,212 AMR Corp.*.................... 490,089
14,142 Continental Airlines, Inc. --
Class B*(8)................. 583,358
121,900 ExpressJet Holdings, Inc.*.... 987,390
1,967 UAL Corp.*.................... 86,548
9,639 US Airways Group, Inc.*(8).... 519,060
------------
4,076,594
------------
APPAREL: MANUFACTURING AND RETAIL -- 1.4%
74,500 Foot Locker, Inc. ............ 1,633,785
114,000 Jones Apparel Group, Inc. .... 3,811,020
46,400 Kellwood Company(8)........... 1,508,928
29,767 Liz Claiborne, Inc. .......... 1,293,674
60,100 The Cato Corp. -- Class A..... 1,376,891
43,374 VF Corp. ..................... 3,560,138
------------
13,184,436
------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 2.7%
97,600 ArvinMeritor, Inc. ........... 1,779,248
52,900 Autoliv, Inc.(Sweden)......... 3,189,870
115,766 Ford Motor Company(8)......... 869,403
263,958 Genuine Parts Company......... 12,519,527
5,089 Johnson Controls, Inc.(8)..... 437,247
53,100 Navistar International
Corp.*...................... 1,775,133
91,400 Oshkosh Truck Corp. .......... 4,425,588
------------
24,996,016
------------
BANKS -- 8.6%
94,507 Comerica, Inc. ............... 5,545,671
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
BANKS (CONTINUED)
21,300 Downey Financial Corp.(8)..... $ 1,545,954
389,600 Hudson City Bancorp, Inc. .... 5,407,648
201,566 Huntington Bancshares,
Inc. ....................... 4,787,193
125,100 KeyCorp....................... 4,757,553
221,200 Marshall & Ilsley Corp.(8).... 10,641,932
277,800 Mellon Financial Corp.(8)..... 11,709,269
84,200 People's Bank................. 3,757,004
145,100 PNC Financial Services Group,
Inc. ....................... 10,743,204
92,402 Regions Financial Corp. ...... 3,455,835
129,100 State Street Corp. ........... 8,706,504
132,300 UnionBanCal Corp. ............ 8,103,375
35,800 United Bankshares, Inc. ...... 1,383,670
------------
80,544,812
------------
BROADCAST SERVICES/MEDIA -- 0.4%
86,800 Tribune Company(8)............ 2,671,704
166,400 Westwood One, Inc. ........... 1,174,784
------------
3,846,488
------------
BUSINESS SERVICES AND SUPPLIES -- 4.1%
169,800 Convergys Corp.*.............. 4,037,844
6,639 Diebold, Inc.(8).............. 309,377
102,270 Dun & Bradstreet Corp.*....... 8,466,933
393,400 First Data Corp. ............. 10,039,568
8,975 Fluor Corp.(8)................ 732,809
48,800 John H Harland Company........ 2,449,760
156,200 Manpower, Inc. ............... 11,704,066
7,622 Ritchie Brothers Auctioneers,
Inc. (Canada)............... 408,082
------------
38,148,439
------------
CHEMICALS -- 3.8%
8,114 Cabot Corp. .................. 353,527
46,950 Eastman Chemical Company...... 2,784,605
29,600 FMC Corp. .................... 2,265,880
11,806 Imperial Chemical Industries
PLC (ADR) (United
Kingdom).................... 418,287
146,500 PolyOne Corp.*................ 1,098,750
85,251 PPG Industries, Inc. ......... 5,473,967
173,200 Rohm and Haas Company(8)...... 8,853,983
92,600 Sensient Technologies
Corp. ...................... 2,277,960
57,100 Spartech Corp. ............... 1,497,162
144,000 Syngenta AG (ADR)
(Switzerland)............... 5,348,160
</Table>
See notes to financial statements.
142
MID-CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
CHEMICALS (CONTINUED)
67,007 The Lubrizol Corp. ........... $ 3,359,061
63,400 The Valspar Corp. ............ 1,752,376
2,036 Tronox, Inc. -- Class B....... 32,148
------------
35,515,866
------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 4.1%
39,735 BMC Software, Inc.*........... 1,279,467
225,749 Computer Sciences Corp.*(8)... 12,048,224
52,652 Electronic Data Systems
Corp. ...................... 1,450,563
70,900 Lexmark International, Inc. --
Class A*.................... 5,189,880
391,600 NCR Corp.*.................... 16,744,816
76,600 Western Digital Corp.*........ 1,567,236
------------
38,280,186
------------
CONSTRUCTION SERVICES AND SUPPLIES -- 2.1%
261,550 American Standard Companies,
Inc. ....................... 11,992,068
34,700 Beazer Homes USA, Inc.(8)..... 1,631,247
18,449 Chicago Bridge & Iron Company
NV (the Netherlands)........ 504,396
5,214 Insituform Technologies,
Inc. -- Class A*............ 134,834
28,500 KB Home(8).................... 1,461,480
118,600 Masco Corp.(8)................ 3,542,582
11,068 USG Corp.*(8)................. 606,526
------------
19,873,133
------------
CONSUMER GOODS AND SERVICES -- 2.0%
55,900 Blyth, Inc. .................. 1,159,925
90,906 Eastman Kodak Company(8)...... 2,345,375
66,800 Fortune Brands, Inc.(8)....... 5,704,053
30,306 Loews Corp.-Carolina Group.... 1,961,404
3,970 Mohawk Industries, Inc.*(8)... 297,194
46,900 Newell Rubbermaid, Inc. ...... 1,357,755
11,684 Reynolds American, Inc.(8).... 764,951
23,100 The Black & Decker Corp. ..... 1,847,307
63,800 Tupperware Corp. ............. 1,442,518
27,061 Whirlpool Corp. .............. 2,246,604
------------
19,127,086
------------
CONTAINERS AND PACKAGING -- 2.1%
355,100 Ball Corp. ................... 15,482,360
59,900 Owens-Illinois, Inc.*......... 1,105,155
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
CONTAINERS AND PACKAGING (CONTINUED)
77,700 Sonoco Products Company....... $ 2,957,262
------------
19,544,777
------------
DIVERSIFIED OPERATIONS AND SERVICES -- 1.8%
36,600 LandAmerica Financial Group,
Inc.(8)..................... 2,309,826
150,684 Textron, Inc. ................ 14,129,639
------------
16,439,465
------------
EDUCATION -- 0.4%
99,600 Apollo Group, Inc. -- Class
A*.......................... 3,881,412
------------
ELECTRONICS -- 1.2%
118,400 Amphenol Corp. -- Class
A(8)........................ 7,350,272
335,200 Sanmina-SCI Corp.*............ 1,156,440
476,138 Solectron Corp.*.............. 1,533,164
99,500 Vishay Intertechnology,
Inc.*....................... 1,347,230
------------
11,387,106
------------
ENERGY SERVICES -- 0.2%
16,234 Ballard Power Systems, Inc.
(Canada)*(8)................ 92,371
3,039 Energy Conversion Devices,
Inc.*(8).................... 103,265
8,484 FuelCell Energy, Inc.*(8)..... 54,807
36,655 McDermott International, Inc.
(Panama)*................... 1,864,274
11,191 Plug Power, Inc.*............. 43,533
------------
2,158,250
------------
EQUIPMENT RENTAL AND LEASING -- 0.2%
60,300 United Rentals North America,
Inc.*(8).................... 1,533,429
------------
FINANCIAL SERVICES -- 3.9%
36,400 Advanta Corp. -- Class B...... 1,588,132
25,200 AG Edwards, Inc. ............. 1,594,908
80,700 AmeriCredit Corp.*(8)......... 2,031,219
163,200 Ameriprise Financial, Inc. ... 8,894,400
350,700 Amvescap PLC (ADR)
(United Kingdom)............ 8,644,755
23,924 Amvescap PLC
(United Kingdom)............ 279,185
70,000 CIT Group, Inc. .............. 3,903,900
363,600 E*TRADE Financial Corp.*...... 8,151,912
80,500 Friedman, Billings, Ramsey
Group, Inc. -- Class A(8)... 644,000
54,800 H&R Block, Inc.(8)............ 1,262,592
------------
36,995,003
------------
</Table>
See notes to financial statements.
143
MID-CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE -- 2.0%
10,575 Archer-Daniels-Midland
Company..................... $ 337,977
173,623 Del Monte Foods Company....... 1,915,062
141,400 McCormick & Company, Inc. .... 5,452,384
14,635 Reddy Ice Holdings, Inc. ..... 377,876
177,700 Sysco Corp. .................. 6,532,251
53,200 The Pepsi Bottling Group,
Inc. ....................... 1,644,412
131,488 Tyson Foods, Inc. -- Class
A(8)........................ 2,162,978
------------
18,422,940
------------
INSURANCE -- 7.6%
39,164 Ace, Ltd. (Cayman Islands).... 2,372,163
2,035 Ambac Financial Group,
Inc. ....................... 181,257
327,036 Aon Corp. .................... 11,557,453
27,061 Axis Capital Holdings, Ltd.
(Bermuda)................... 903,026
14,800 CIGNA Corp. .................. 1,947,236
64,680 Cincinnati Financial Corp. ... 2,930,651
10,944 Conseco, Inc.*................ 218,661
30,137 Everest Re Group, Ltd.
(Bermuda)................... 2,956,741
70,100 Horace Mann Educators
Corp. ...................... 1,416,020
46,133 Lincoln National Corp. ....... 3,063,231
41,675 Loews Corp. .................. 1,728,262
196,470 MBIA, Inc. ................... 14,354,099
56,300 MGIC Investment Corp.(8)...... 3,521,002
92,000 Nationwide Financial Services,
Inc. -- Class A............. 4,986,400
28,626 PartnerRE, Ltd.
(Bermuda)(8)................ 2,033,305
25,100 Principal Financial Group,
Inc.(8)..................... 1,473,370
71,500 Radian Group, Inc. ........... 3,854,565
78,200 SAFECO Corp. ................. 4,891,410
12,175 Torchmark Corp. .............. 776,278
30,100 Unitrin, Inc. ................ 1,508,311
19,065 Willis Group Holdings, Ltd.
(Bermuda)................... 757,071
46,215 XL Capital, Ltd. -- Class A
(Cayman Islands)............ 3,328,404
------------
70,758,916
------------
INTERNET SERVICES -- 0.1%
22,509 McAfee, Inc.*................. 638,805
------------
LEISURE AND RECREATION -- 0.4%
31,859 Hilton Hotels Corp. .......... 1,111,879
49,083 Regal Entertainment Group --
Class A(8).................. 1,046,450
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
LEISURE AND RECREATION (CONTINUED)
30,014 Royal Caribbean Cruises, Ltd.
(Liberia)................... $ 1,241,979
------------
3,400,308
------------
MACHINERY -- 0.3%
11,191 Dover Corp. .................. 548,583
13,036 Rockwell Automation, Inc. .... 796,238
8,975 Terex Corp.*.................. 579,606
7,746 The Manitowoc Company,
Inc. ....................... 460,345
------------
2,384,772
------------
MANUFACTURING -- 4.0%
137,100 Carlisle Companies, Inc. ..... 10,762,349
7,871 Cooper Industries,
Ltd. -- Class A (Bermuda)... 711,775
32,900 Crane Company................. 1,205,456
16,112 Eaton Corp. .................. 1,210,656
42,200 EnPro Industries, Inc.*....... 1,401,462
70,600 Furniture Brands
International, Inc.(8)...... 1,145,838
158,840 Ingersoll-Rand Company,
Ltd. -- Class A (Bermuda)... 6,215,409
86,300 Leggett & Platt, Inc. ........ 2,062,570
115,600 Precision Castparts Corp. .... 9,049,168
28,800 SPX Corp. .................... 1,761,408
83,400 Tredegar Corp. ............... 1,885,674
------------
37,411,765
------------
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 4.3%
163,101 Boston Scientific Corp.*...... 2,802,075
114,000 CR Bard, Inc.(8).............. 9,458,581
136,100 Dade Behring Holdings,
Inc. ....................... 5,418,141
25,092 Health Management Associates,
Inc. -- Class A............. 529,692
15,005 Health Net, Inc.*............. 730,143
18,407 Humana, Inc.*................. 1,018,091
60,700 Invacare Corp. ............... 1,490,185
31,400 Kindred Healthcare, Inc.*..... 792,850
5,089 McKesson Corp. ............... 258,012
208,470 Omnicare, Inc.(8)............. 8,053,196
156,900 Quest Diagnostics, Inc. ...... 8,315,700
23,000 Universal Health Services,
Inc. -- Class B............. 1,274,890
------------
40,141,556
------------
</Table>
See notes to financial statements.
144
MID-CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
METALS AND MINING -- 0.7%
10,575 Freeport-McMoRan Copper &
Gold, Inc. -- Class B(8).... $ 589,345
67,862 Nucor Corp. .................. 3,709,337
6,207 Phelps Dodge Corp. ........... 743,102
20,700 United States Steel Corp. .... 1,513,998
------------
6,555,782
------------
OFFICE EQUIPMENT, SUPPLIES, AND
SERVICES -- 0.3%
145,100 IKON Office Solutions,
Inc. ....................... 2,375,287
7,009 Pitney Bowes, Inc. ........... 323,746
1,132 Xerox Corp.*.................. 19,187
------------
2,718,220
------------
OIL, COAL AND GAS -- 9.3%
22,646 BJ Services Company........... 663,981
17,260 Cameron International
Corp.*...................... 915,643
67,990 El Paso Corp. ................ 1,038,887
27,175 Enbridge, Inc. (Canada)(8).... 934,820
216,933 ENSCO International, Inc. .... 10,859,666
177,300 Equitable Resources, Inc. .... 7,402,275
21,171 GlobalSantaFe Corp. (Cayman
Islands).................... 1,244,431
54,994 Hess Corp. ................... 2,726,053
54,599 Marathon Oil Corp.(8)......... 5,050,408
14,263 Nabors Industries, Ltd.
(Bermuda)*.................. 424,752
57,100 National Fuel Gas Company..... 2,200,634
5,400 National-Oilwell Varco,
Inc.*....................... 330,372
17,580 Newfield Exploration
Company*.................... 807,801
189,500 ONEOK, Inc. .................. 8,171,240
167,500 Patterson-UTI Energy, Inc. ... 3,891,025
24,850 Pioneer Natural Resources
Company..................... 986,297
263,684 Questar Corp. ................ 21,898,955
12,570 Smith International,
Inc.(8)..................... 516,250
42,307 Southwestern Energy
Company*(8)................. 1,482,860
4,693 Suncor Energy, Inc.
(Canada).................... 370,325
63,166 Sunoco, Inc. ................. 3,939,032
33,000 Swift Energy Company*......... 1,478,730
379,500 The Williams Companies,
Inc. ....................... 9,912,540
13,370 Weatherford International,
Ltd. (Bermuda)*............. 558,732
------------
87,805,709
------------
PAPER AND FOREST PRODUCTS -- 0.3%
13,406 Bowater, Inc.(8).............. 301,635
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
PAPER AND FOREST PRODUCTS (CONTINUED)
65,639 MeadWestvaco Corp. ........... $ 1,973,109
6,516 Temple-Inland, Inc. .......... 299,931
------------
2,574,675
------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 2.9%
14,267 AmerisourceBergen Corp. ...... 641,444
6,639 Hospira, Inc.*................ 222,938
192,700 King Pharmaceuticals, Inc.*... 3,067,784
197,900 Millipore Corp.*(8)........... 13,180,139
36,534 Mylan Laboratories, Inc. ..... 729,219
103,100 Novo Nordisk A/S (ADR)
(Denmark)................... 8,622,253
9,222 Watson Pharmaceuticals,
Inc.*....................... 240,049
------------
26,703,826
------------
PRINTING AND PUBLISHING -- 0.5%
80,000 Gannett Company, Inc. ........ 4,836,800
------------
REAL ESTATE DEVELOPMENT AND SERVICES -- 0.9%
181,750 Brookfield Asset Management,
Inc. -- Class A
(Canada)(8)................. 8,756,715
------------
REAL ESTATE INVESTMENT TRUSTS -- 2.3%
56,100 American Home Mortgage
Investment Corp.(8)......... 1,970,232
210,000 Anthracite Capital, Inc. ..... 2,673,300
3,039 Boston Properties, Inc. ...... 340,003
24,724 Crescent Real Estate Equities
Company..................... 488,299
60,000 Entertainment Properties
Trust....................... 3,506,400
21,894 Equity Residential............ 1,111,121
84,700 Hospitality Properties
Trust....................... 4,025,791
114,600 HRPT Properties Trust......... 1,415,310
113,900 Innkeepers USA Trust.......... 1,765,450
27,700 PS Business Parks, Inc. ...... 1,958,667
38,998 RAIT Investment Trust......... 1,344,651
22,634 Rayonier, Inc. ............... 929,126
------------
21,528,350
------------
RETAIL -- 1.9%
61,000 Borders Group, Inc.(8)........ 1,363,350
445,400 Dollar Tree Stores, Inc.*..... 13,406,540
31,245 Family Dollar Stores, Inc. ... 916,416
25,339 Federated Department Stores,
Inc. ....................... 966,176
20,000 JC Penney Company, Inc.(8).... 1,547,200
------------
18,199,682
------------
</Table>
See notes to financial statements.
145
MID-CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
RETAIL: RESTAURANTS -- 1.2%
84,500 Ruby Tuesday, Inc.(8)......... $ 2,318,680
151,700 YUM! Brands, Inc. ............ 8,919,960
------------
11,238,640
------------
RETAIL: SUPERMARKETS -- 0.2%
45,500 SUPERVALU, Inc. .............. 1,626,625
------------
RUBBER PRODUCTS -- 0.2%
94,600 The Goodyear Tire & Rubber
Company*(8)................. 1,985,654
------------
SCIENTIFIC AND TECHNICAL INSTRUMENTS -- 0.9%
365,600 PerkinElmer, Inc. ............ 8,127,288
------------
SEMICONDUCTORS -- 2.2%
37,273 Intersil Corp. -- Class
A(8)........................ 891,570
1,172,200 LSI Logic Corp.*(8)........... 10,549,800
16,481 Microchip Technology, Inc. ... 538,929
51,176 National Semiconductor
Corp. ...................... 1,161,695
49,200 Novellus Systems, Inc.*(8).... 1,693,464
290,000 STMicroelectronics NV
(the Netherlands)(8)........ 5,336,000
------------
20,171,458
------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 0.9%
114,514 CenturyTel, Inc. ............. 4,999,681
40,595 Citizens Communications
Company..................... 583,350
4,467 Embarq Corp. ................. 234,786
95,221 Qwest Communications
International, Inc.*(8)..... 797,000
91,405 Tellabs, Inc.*................ 937,815
67,539 Windstream Corp. ............. 960,405
------------
8,513,037
------------
TOOLS -- 0.1%
19,926 The Stanley Works............. 1,002,079
------------
TOYS -- 0.6%
15,866 Hasbro, Inc. ................. 432,349
222,600 Mattel, Inc. ................. 5,044,116
------------
5,476,465
------------
TRANSPORTATION -- 1.2%
31,300 Arkansas Best Corp. .......... 1,126,800
116,712 CSX Corp. .................... 4,018,394
73,700 Sabre Holdings Corp. -- Class
A........................... 2,350,293
57,200 Swift Transportation Company,
Inc.*....................... 1,502,644
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
TRANSPORTATION (CONTINUED)
57,500 YRC Worldwide, Inc.*(8)....... $ 2,169,475
------------
11,167,606
------------
UTILITIES -- 10.9%
70,400 AGL Resources, Inc. .......... 2,739,264
87,700 Allegheny Energy, Inc.*....... 4,026,307
73,100 Alliant Energy Corp. ......... 2,760,987
153,379 American Electric Power
Company, Inc. .............. 6,530,878
686,705 CMS Energy Corp.*(8).......... 11,467,974
17,587 Consolidated Edison, Inc. .... 845,407
133,453 Constellation Energy Group.... 9,190,908
24,109 DPL, Inc. .................... 669,748
71,774 DTE Energy Company(8)......... 3,474,579
29,276 Edison International.......... 1,331,472
42,193 Energy East Corp. ............ 1,046,386
140,200 FPL Group, Inc.(8)............ 7,629,684
21,033 MDU Resources Group, Inc. .... 539,286
15,374 Mirant Corp.*................. 485,357
186,961 NiSource, Inc.(8)............. 4,505,760
27,900 OGE Energy Corp. ............. 1,116,000
242,800 PG&E Corp. ................... 11,491,724
125,445 Pinnacle West Capital
Corp. ...................... 6,352,535
325,237 PPL Corp. .................... 11,656,494
24,800 Progress Energy, Inc. ........ 1,217,184
135,900 Puget Energy, Inc. ........... 3,446,424
28,661 Reliant Energy, Inc.*......... 407,273
13,158 SCANA Corp. .................. 534,478
16,358 Sempra Energy(8).............. 915,557
244,868 TECO Energy, Inc.(8).......... 4,219,076
200,588 Xcel Energy, Inc.(8).......... 4,625,559
------------
103,226,301
------------
TOTAL COMMON STOCKS
(Cost $817,402,104)......... 916,597,385
------------
<Caption>
PRINCIPAL
---------
CONVERTIBLE BONDS -- 0.0%
TELECOMMUNICATIONS EQUIPMENT AND SERVICES
$ 251,000 Qwest Communications
International, Inc., 3.50%,
11/15/25
(Cost $401,223)............. 393,756
------------
</Table>
See notes to financial statements.
146
MID-CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
SHORT TERM COMMERCIAL PAPER -- 0.2%
$ 1,800,000 Ebury Financial, Ltd. (Cayman
Islands),
5.40%, 01/02/07
(Cost $1,799,190)........... $ 1,799,190
------------
SECURITIES LENDING COLLATERAL -- 12.7%
118,672,540 Securities Lending Collateral
Investment (Note 4)
(Cost $118,672,540)......... 118,672,540
------------
TOTAL SECURITIES
(Cost $938,275,057)......... 1,037,462,871
------------
REPURCHASE AGREEMENTS -- 1.7%
16,312,237 With Investors Bank and Trust,
dated 12/29/06, 4.76%, due
01/02/07, repurchase
proceeds at maturity
$16,320,864 (Collateralized
by various Fannie Mae
Adjustable Rate Mortgages,
4.65%-5.85%, due
03/25/33-07/01/34 with a
total value of $14,238,224,
and Small Business
Administration, 8.13%, due
01/25/24 with a value of
$2,889,625)
(Cost $16,312,237).......... 16,312,237
------------
Total Investments -- 112.5%
(Cost $954,587,294)......... 1,053,775,108
Liabilities less other
assets -- (12.5)%........... (116,800,903)
------------
NET ASSETS -- 100.0%.......... $936,974,205
============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $956,340,133.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation.......... $108,267,335
Gross unrealized depreciation.......... (10,832,360)
------------
Net unrealized appreciation............ $ 97,434,975
============
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
147
MID-CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS -- 98.1%
ADVERTISING -- 2.5%
120,000 Lamar Advertising Company --
Class A*..................... $ 7,846,800
------------
AGRICULTURE -- 1.2%
168,000 The Mosaic Company*............ 3,588,480
------------
AIRLINES -- 1.9%
408,000 JetBlue Airways Corp.*(8)...... 5,793,600
------------
APPAREL: MANUFACTURING AND RETAIL -- 2.5%
76,000 Coach, Inc.*................... 3,264,960
71,416 The Children's Place Retail
Stores, Inc.*(8)............. 4,536,344
------------
7,801,304
------------
BUSINESS SERVICES AND SUPPLIES -- 6.2%
124,000 Fiserv, Inc.*.................. 6,500,080
56,245 Fluor Corp.(8)................. 4,592,404
68,000 Global Payments, Inc. ......... 3,148,400
66,340 Manpower, Inc. ................ 4,970,856
------------
19,211,740
------------
CHEMICALS -- 2.2%
94,000 Albemarle Corp. ............... 6,749,200
------------
COMMERCIAL SERVICES -- 1.0%
50,000 Alliance Data Systems Corp.*... 3,123,500
------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 7.8%
298,000 Activision, Inc.*(8)........... 5,137,520
70,000 Cognizant Technology Solutions
Corp. -- Class A*............ 5,401,200
155,961 FactSet Research Systems,
Inc. ........................ 8,808,677
120,000 Network Appliance, Inc.*....... 4,713,600
------------
24,060,997
------------
CONSTRUCTION SERVICES AND SUPPLIES -- 1.5%
167,000 Chicago Bridge & Iron Company
NV (the Netherlands)......... 4,565,780
------------
CONSUMER GOODS AND SERVICES -- 3.9%
77,000 Energizer Holdings, Inc.*...... 5,466,230
161,620 Herbalife, Ltd. (Cayman
Islands)*.................... 6,490,659
------------
11,956,889
------------
CORRECTIONAL FACILITIES -- 1.9%
133,000 Corrections Corp. of
America*..................... 6,015,590
------------
ENERGY SERVICES -- 2.0%
123,800 McDermott International, Inc.
(Panama)*.................... 6,296,468
------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES -- 6.0%
240,000 Amvescap PLC (ADR) (United
Kingdom)..................... $ 5,916,000
146,255 Lazard, Ltd. -- Class A
(Bermuda)(8)................. 6,923,712
132,470 T Rowe Price Group, Inc. ...... 5,798,212
------------
18,637,924
------------
INTERNET SERVICES -- 6.9%
98,185 Akamai Technologies, Inc.(8)... 5,215,587
120,000 Digital River, Inc.*........... 6,694,800
59,000 Equinix, Inc.*(8).............. 4,461,580
67,000 F5 Networks, Inc.*............. 4,972,070
------------
21,344,037
------------
LEISURE AND RECREATION -- 2.6%
230,015 Hilton Hotels Corp. ........... 8,027,524
------------
MANUFACTURING -- 4.3%
79,000 Precision Castparts Corp. ..... 6,184,120
141,368 Roper Industries, Inc. ........ 7,102,328
------------
13,286,448
------------
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 7.1%
38,000 CR Bard, Inc. ................. 3,152,860
108,280 Hologic, Inc.*(8).............. 5,119,478
37,000 Intuitive Surgical, Inc.*(8)... 3,548,300
63,000 ResMed, Inc.*(8)............... 3,100,860
221,445 VCA Antech, Inc.*.............. 7,128,315
------------
22,049,813
------------
OIL, COAL AND GAS -- 5.5%
129,075 Cameron International Corp.*... 6,847,429
127,000 Newfield Exploration
Company*..................... 5,835,650
127,715 Southwestern Energy
Company*(8).................. 4,476,411
------------
17,159,490
------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 5.5%
159,255 Celgene Corp.*................. 9,161,940
126,000 Shire PLC (ADR)
(United Kingdom)............. 7,781,760
------------
16,943,700
------------
REAL ESTATE DEVELOPMENT AND SERVICES -- 1.9%
176,715 CB Richard Ellis Group, Inc. --
Class A*..................... 5,866,938
------------
RETAIL -- 3.9%
114,862 GameStop Corp. -- Class
A*(8)........................ 6,330,045
</Table>
See notes to financial statements.
148
MID-CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
RETAIL (CONTINUED)
207,000 The TJX Companies, Inc. ....... $ 5,895,360
------------
12,225,405
------------
RETAIL: SUPERMARKETS -- 1.0%
93,000 Safeway, Inc. ................. 3,214,080
------------
SCIENTIFIC AND TECHNICAL INSTRUMENTS -- 7.9%
232,000 Applera Corp. -- Applied
Biosystems Group............. 8,512,080
40,000 Mettler-Toledo International,
Inc.*........................ 3,154,000
139,000 Thermo Fisher Scientific,
Inc.*........................ 6,295,310
130,000 Trimble Navigation, Ltd.*...... 6,594,900
------------
24,556,290
------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 9.2%
213,921 American Tower Corp. -- Class
A*........................... 7,974,975
182,320 Crown Castle International
Corp.*....................... 5,888,936
74,742 Harris Corp. .................. 3,427,668
96,000 NeuStar, Inc. -- Class A*...... 3,114,240
121,415 NII Holdings, Inc.*............ 7,823,983
------------
28,229,802
------------
TOYS -- 1.7%
195,000 Hasbro, Inc. .................. 5,313,750
------------
TOTAL COMMON STOCKS
(Cost $266,750,184).......... 303,865,549
------------
<Caption>
PRINCIPAL
---------
SECURITIES LENDING COLLATERAL -- 16.0%
$49,693,823 Securities Lending Collateral
Investment (Note 4)
(Cost $49,693,823)........... 49,693,823
------------
TOTAL SECURITIES
(Cost $316,444,007).......... 353,559,372
------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- ------------
REPURCHASE AGREEMENTS -- 2.0%
$ 6,350,435 With Investors Bank and Trust,
dated 12/29/06, 4.76%, due
01/02/07, repurchase proceeds
at maturity $6,353,794
(Collateralized by Small
Business Administration,
9.13%, due 03/25/15, with a
value of $6,667,957) (Cost
$6,350,435).................. $ 6,350,435
------------
Total Investments -- 116.1%
(Cost $322,794,442).......... 359,909,807
Liabilities less other
assets -- (16.1)%............ (50,000,746)
------------
NET ASSETS -- 100.0%........... $309,909,061
============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $322,807,910.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation........... $38,690,012
Gross unrealized depreciation........... (1,588,115)
-----------
Net unrealized appreciation............. $37,101,897
===========
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
149
SMALL-CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS -- 99.6%
AEROSPACE AND DEFENSE -- 2.4%
49,154 Moog, Inc. -- Class A*......... $ 1,877,191
72,700 United Industrial Corp. ....... 3,689,525
------------
5,566,716
------------
APPAREL: MANUFACTURING AND RETAIL -- 2.7%
103,600 K-Swiss, Inc. -- Class A....... 3,184,664
38,772 Phillips-Van Heusen Corp. ..... 1,945,191
102,614 Stein Mart, Inc. .............. 1,360,662
------------
6,490,517
------------
AUTOMOBILE: RETAIL -- 1.3%
102,300 Sonic Automotive, Inc. ........ 2,970,792
------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 4.6%
44,300 BorgWarner, Inc. .............. 2,614,586
67,400 Oshkosh Truck Corp. ........... 3,263,508
224,499 Spartan Motors, Inc. .......... 3,407,895
51,300 Winnebago Industries,
Inc.(8)...................... 1,688,283
------------
10,974,272
------------
BANKS -- 10.7%
71,400 BankUnited Financial Corp. --
Class A...................... 1,996,344
203,200 Brookline Bancorp, Inc. ....... 2,676,144
105,500 Citizens Banking Corp. --
Michigan(8).................. 2,795,750
128,300 Corus Bankshares, Inc.(8)...... 2,959,881
209,800 First Commonwealth Financial
Corp.(8)..................... 2,817,614
85,300 Franklin Bank Corp. -- Houston,
Texas*....................... 1,752,062
70,173 Oriental Financial Group,
Inc. -- Puerto Rico(8)....... 908,740
40,600 Pacific Capital Bancorp........ 1,363,348
44,400 PFF Bancorp, Inc. ............. 1,532,244
21,300 Sterling Financial Corp. --
Spokane...................... 720,153
118,500 Washington Federal, Inc. ...... 2,788,305
88,400 Whitney Holding Corp. ......... 2,883,608
------------
25,194,193
------------
BROADCAST SERVICES/MEDIA -- 1.1%
206,400 Journal Communications, Inc. --
Class A...................... 2,602,704
------------
BUSINESS SERVICES AND SUPPLIES -- 0.5%
29,300 Administaff, Inc.(8)........... 1,253,161
------------
COLLECTIBLES -- 0.7%
50,300 Sotheby's...................... 1,560,306
------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 3.2%
55,500 Checkpoint Systems, Inc.*...... 1,121,100
181,654 Digi International, Inc.*...... 2,505,009
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
COMPUTER EQUIPMENT, SOFTWARE AND SERVICES
(CONTINUED)
76,400 MTS Systems Corp. ............. $ 2,950,568
64,800 Smith Micro Software, Inc.*.... 919,512
------------
7,496,189
------------
CONSTRUCTION SERVICES AND SUPPLIES -- 3.8%
60,100 Granite Construction, Inc. .... 3,024,232
40,700 Hovnanian Enterprises, Inc. --
Class A*(8).................. 1,379,730
26,500 Meritage Homes Corp.*.......... 1,264,580
46,200 Standard Pacific Corp.(8)...... 1,237,698
46,900 Universal Forest Products,
Inc. ........................ 2,186,478
------------
9,092,718
------------
CONSUMER GOODS AND SERVICES -- 0.4%
16,900 The Scotts Miracle-Gro
Company -- Class A........... 872,885
------------
DISTRIBUTION -- 1.0%
51,353 Watsco, Inc. .................. 2,421,807
------------
DIVERSIFIED OPERATIONS AND SERVICES -- 0.8%
40,300 ESCO Technologies, Inc.*....... 1,831,232
------------
EDUCATION -- 0.8%
51,062 School Specialty, Inc.*(8)..... 1,914,314
------------
ELECTRONICS -- 1.5%
49,900 Benchmark Electronics, Inc.*... 1,215,564
147,500 Sonic Solutions*(8)............ 2,404,250
------------
3,619,814
------------
ENGINEERING -- 0.5%
29,100 URS Corp.*..................... 1,246,935
------------
EQUIPMENT RENTAL AND LEASING -- 0.7%
59,700 Aaron Rents, Inc. ............. 1,718,166
------------
FINANCIAL SERVICES -- 3.4%
27,170 Accredited Home Lenders Holding
Company*(8).................. 741,198
52,000 Asset Acceptance Capital
Corp.*....................... 874,640
140,176 Calamos Asset Management,
Inc. -- Class A.............. 3,760,922
39,600 Eaton Vance Corp. ............. 1,307,196
41,893 Raymond James Financial,
Inc. ........................ 1,269,777
------------
7,953,733
------------
FOOD AND BEVERAGE -- 1.0%
66,300 United Natural Foods,
Inc.*(8)..................... 2,381,496
------------
FUNERAL SERVICES -- 1.3%
293,800 Service Corp. International.... 3,011,450
------------
INSURANCE -- 5.4%
72,850 American Physicians Capital,
Inc.*........................ 2,916,914
77,419 Delphi Financial Group, Inc. --
Class A...................... 3,132,373
</Table>
See notes to financial statements.
150
SMALL-CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
20,900 Philadelphia Consolidated
Holding Corp.*............... $ 931,304
12,900 Protective Life Corp. ......... 612,750
43,700 State Auto Financial Corp. .... 1,517,701
90,600 The Commerce Group, Inc. ...... 2,695,350
29,000 United Fire & Casualty
Company...................... 1,022,250
------------
12,828,642
------------
INTERNET SERVICES -- 1.0%
25,000 Digital River, Inc.*........... 1,394,750
60,200 eCollege.com, Inc.*(8)......... 942,130
------------
2,336,880
------------
LEISURE AND RECREATION -- 2.0%
101,492 The Marcus Corp. .............. 2,596,165
58,800 WMS Industries, Inc.*.......... 2,049,768
------------
4,645,933
------------
MACHINERY -- 2.4%
112,200 Applied Industrial
Technologies, Inc. .......... 2,951,982
51,200 Bucyrus International, Inc. --
Class A...................... 2,650,112
------------
5,602,094
------------
MANUFACTURING -- 2.5%
76,636 CIRCOR International, Inc. .... 2,819,438
60,900 FLIR Systems, Inc.*(8)......... 1,938,447
63,800 Hexcel Corp.*(8)............... 1,110,758
------------
5,868,643
------------
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 11.3%
41,100 AMERIGROUP Corp.*.............. 1,475,079
45,800 Centene Corp.*................. 1,125,306
16,600 Covance, Inc.*................. 977,906
40,900 Healthways, Inc.*(8)........... 1,951,339
88,700 Immucor, Inc.*................. 2,592,701
73,300 Magellan Health Services,
Inc.*........................ 3,168,026
74,700 Matria Healthcare, Inc.*(8).... 2,146,131
75,800 Owens & Minor, Inc.(8)......... 2,370,266
75,700 Sunrise Senior Living, Inc.*... 2,325,504
120,500 Syneron Medical, Ltd.
(Israel)*(8)................. 3,269,165
53,150 United Surgical Partners
International, Inc.*......... 1,506,803
78,200 West Pharmaceutical Services,
Inc. ........................ 4,006,186
------------
26,914,412
------------
OFFICE EQUIPMENT, SUPPLIES, AND
SERVICES -- 1.3%
141,800 Global Imaging Systems,
Inc.*........................ 3,112,510
------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
OIL, COAL AND GAS -- 10.9%
32,200 Cabot Oil & Gas Corp. ......... $ 1,952,930
79,900 Frontier Oil Corp. ............ 2,296,326
44,039 Headwaters, Inc.*(8)........... 1,055,174
53,100 Holly Corp. ................... 2,729,340
78,900 National Fuel Gas Company(8)... 3,040,806
37,500 Oceaneering International,
Inc.*........................ 1,488,750
22,800 ONEOK, Inc. ................... 983,136
41,100 Penn Virginia Corp. ........... 2,878,644
36,300 Swift Energy Company*.......... 1,626,603
25,000 The Houston Exploration
Company*..................... 1,294,500
57,000 Tidewater, Inc. ............... 2,756,520
81,100 World Fuel Services Corp. ..... 3,605,706
------------
25,708,435
------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 4.2%
141,445 Exponent, Inc.*................ 2,639,363
145,127 Mannatech, Inc.(8)............. 2,137,721
149,990 Perrigo Company................ 2,594,827
71,900 PRA International*............. 1,816,913
53,500 Salix Pharmaceuticals, Ltd.*... 651,095
66,900 VaxGen, Inc.*.................. 127,110
------------
9,967,029
------------
REAL ESTATE INVESTMENT TRUSTS -- 5.3%
80,395 Getty Realty Corp.(8).......... 2,484,206
57,600 Healthcare Realty Trust,
Inc. ........................ 2,277,504
109,700 National Retail Properties,
Inc.(8)...................... 2,517,615
63,100 Rayonier, Inc. ................ 2,590,255
47,900 Sovran Self Storage, Inc. ..... 2,743,712
------------
12,613,292
------------
RETAIL -- 2.8%
216,000 EZCORP, Inc. -- Class A*....... 3,510,000
20,200 Guitar Center, Inc.*........... 918,292
44,800 The Pantry, Inc.*(8)........... 2,098,432
------------
6,526,724
------------
RETAIL: RESTAURANTS -- 1.0%
30,250 Brinker International, Inc. ... 912,340
57,400 Sonic Corp.*................... 1,374,730
------------
2,287,070
------------
RETAIL: SUPERMARKETS -- 0.9%
54,109 Weis Markets, Inc. ............ 2,170,312
------------
SCIENTIFIC AND TECHNICAL INSTRUMENTS -- 0.7%
31,200 Itron, Inc.*................... 1,617,408
------------
</Table>
See notes to financial statements.
151
SMALL-CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS -- 1.0%
173,700 OmniVision Technologies,
Inc.*(8)..................... $ 2,371,005
------------
TOOLS -- 0.4%
21,200 Snap-on, Inc. ................. 1,009,968
------------
TRANSPORTATION -- 1.3%
82,768 Arkansas Best Corp. ........... 2,979,648
------------
UTILITIES -- 2.8%
76,900 American States Water Company.. 2,969,878
31,800 PNM Resources, Inc. ........... 988,980
64,500 UIL Holdings Corp. ............ 2,721,255
------------
6,680,113
------------
TOTAL COMMON STOCKS
(Cost $223,522,097).......... 235,413,518
------------
<Caption>
PRINCIPAL
---------
SECURITIES LENDING COLLATERAL -- 18.0%
$42,425,935 Securities Lending Collateral
Investment (Note 4)
(Cost $42,425,935)........... 42,425,935
------------
TOTAL SECURITIES
(Cost $265,948,032).......... 277,839,453
------------
REPURCHASE AGREEMENTS -- 0.0%
33,538 With Investors Bank and Trust,
dated 12/29/06, 4.76%, due
01/02/07, repurchase proceeds
at maturity $33,555
(Collateralized by Small
Business Administration,
8.13%, due 04/25/27, with a
value of $35,214) (Cost
$33,538)..................... 33,538
------------
Total Investments -- 117.6%
(Cost $265,981,570).......... 277,872,991
Liabilities less other
assets -- (17.6)%............ (41,556,273)
------------
NET ASSETS -- 100.0%........... $236,316,718
============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $266,403,112.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation........... $19,367,277
Gross unrealized depreciation........... (7,897,398)
-----------
Net unrealized appreciation............. $11,469,879
===========
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
152
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS -- 97.9%
ADVERTISING -- 0.3%
112,100 Catalina Marketing Corp. ... $ 3,082,750
--------------
AEROSPACE AND DEFENSE -- 0.8%
121,820 BE Aerospace, Inc.*......... 3,128,338
34,180 HEICO Corp.(8).............. 1,327,209
7,200 Innovative Solutions and
Support, Inc.*(8)......... 122,616
3,300 K&F Industries Holdings,
Inc.*..................... 74,943
84,950 Moog, Inc. -- Class A*...... 3,244,241
90,100 Orbital Sciences Corp.*..... 1,661,444
11,000 Teledyne Technologies,
Inc.*..................... 441,430
4,500 United Industrial Corp. .... 228,375
--------------
10,228,596
--------------
AGRICULTURAL EQUIPMENT -- 0.0%
7,900 Lindsay Corp. .............. 257,935
--------------
AIRLINES -- 0.7%
238,950 AirTran Holdings,
Inc.*(8).................. 2,805,273
14,900 Alaska Air Group, Inc.*..... 588,550
90,800 Continental Airlines,
Inc. -- Class B*(8)....... 3,745,500
220,400 ExpressJet Holdings,
Inc.*..................... 1,785,240
6,600 Republic Airways Holdings,
Inc.*..................... 110,748
--------------
9,035,311
--------------
APPAREL: MANUFACTURING AND RETAIL -- 4.9%
122,210 Cache, Inc.*................ 3,084,580
67,710 Carter's, Inc.*............. 1,726,605
45,900 Charlotte Russe Holding,
Inc.*..................... 1,411,425
2,150 Columbia Sportswear
Company................... 119,755
129,200 Crocs, Inc.*(8)............. 5,581,440
59,700 Deckers Outdoor Corp.*(8)... 3,579,015
6,800 Guess?, Inc.*............... 431,324
128,420 Iconix Brand Group, Inc.*... 2,490,064
87,753 Jos A Bank Clothiers,
Inc.*(8).................. 2,575,551
94,500 Kellwood Company(8)......... 3,073,140
43,000 Mothers Work, Inc.*......... 1,693,770
109,800 Payless ShoeSource, Inc.*... 3,603,636
105,550 Phillips-Van Heusen
Corp. .................... 5,295,444
407,250 Quiksilver, Inc.*(8)........ 6,414,187
9,400 Skechers USA, Inc. -- Class
A*........................ 313,114
160,500 Stage Stores, Inc. ......... 4,877,595
111,900 Stein Mart, Inc. ........... 1,483,794
8,700 Steven Madden, Ltd. ........ 305,283
131,200 The Cato Corp. -- Class A... 3,005,792
7,000 The Dress Barn, Inc.*....... 163,310
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
APPAREL: MANUFACTURING AND RETAIL
(CONTINUED)
54,700 The Gymboree Corp.*......... $ 2,087,352
61,900 The Talbots, Inc. .......... 1,491,790
157,100 The Wet Seal, Inc. -- Class
A*........................ 1,047,857
41,600 Urban Outfitters,
Inc.*(8).................. 958,048
85,700 Wolverine World Wide,
Inc. ..................... 2,444,164
--------------
59,258,035
--------------
AUTOMOBILE: RENTAL -- 0.0%
30,200 Hertz Global Holdings,
Inc.*..................... 525,178
--------------
AUTOMOBILE: RETAIL -- 0.1%
29,100 Group 1 Automotive, Inc. ... 1,505,052
--------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS -- 0.6%
10,900 Accuride Corp.*............. 122,734
65,800 Aftermarket Technology
Corp.*.................... 1,400,224
6,300 Commercial Vehicle Group,
Inc.*..................... 137,340
120,010 Midas, Inc.*................ 2,760,230
56,850 Modine Manufacturing
Company................... 1,422,956
25,000 Standard Motor Products,
Inc. ..................... 374,500
43,400 Winnebago Industries,
Inc.(8)................... 1,428,294
--------------
7,646,278
--------------
BANKS -- 6.1%
10,310 1st Source Corp. ........... 331,260
78,000 AMCORE Financial, Inc. ..... 2,548,260
12,800 Ameris Bancorp.............. 360,704
1,400 Anchor BanCorp Wisconsin,
Inc. ..................... 40,348
1,545 Arrow Financial Corp. ...... 38,270
141,200 Astoria Financial Corp. .... 4,258,591
17,900 BancFirst Corp. ............ 966,600
16,800 BancorpSouth, Inc. ......... 450,576
2,900 Bank Mutual Corp. .......... 35,119
12,875 Bank of Granite Corp. ...... 244,239
3,300 BankFinancial Corp. ........ 58,773
55,273 BankUnited Financial
Corp. -- Class A.......... 1,545,433
7,000 Cadence Financial Corp. .... 151,690
7,100 Camden National Corp. ...... 327,452
1,800 Capital Corp of the West.... 57,762
5,200 Center Financial Corp. ..... 124,644
9,200 Chittenden Corp. ........... 282,348
6,300 Citizens Banking Corp. --
Michigan(8)............... 166,950
1,400 Citizens First Bancorp,
Inc. ..................... 43,036
</Table>
See notes to financial statements.
153
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
BANKS (CONTINUED)
25,500 City Bank -- Lynwood,
Washington................ $ 912,900
19,400 City Holding Company........ 793,266
2,900 Coastal Financial Corp. .... 48,575
18,100 Columbia Banking System,
Inc. ..................... 635,672
2,200 Community Bancorp*.......... 66,418
13,500 Community Bank System,
Inc. ..................... 310,500
10,300 Community Trust Bancorp,
Inc. ..................... 427,759
81,900 Corus Bankshares, Inc.(8)... 1,889,433
27,800 Dime Community Bancshares... 389,478
65,700 East West Bancorp, Inc. .... 2,327,094
3,400 Financial Institutions,
Inc. ..................... 78,370
12,500 First Charter Corp. ........ 307,500
5,100 First Citizens Bancshares,
Inc. -- Class A........... 1,033,464
1,500 First Community Bancshares,
Inc. ..................... 59,340
68,300 First Financial
Bancorp(8)................ 1,134,463
19,200 First Financial Bankshares,
Inc. ..................... 803,712
2,200 First Financial Corp. ...... 77,990
12,400 First Financial Holdings,
Inc. ..................... 485,832
27,900 First Indiana Corp. ........ 707,544
63,750 First Midwest Bancorp,
Inc. ..................... 2,465,850
2,900 First Place Financial
Corp. .................... 68,121
1,200 First Regional Bancorp*..... 40,908
4,100 First State Bancorp......... 101,475
39,700 Flagstar Bancorp, Inc. ..... 589,148
127,100 Fremont General Corp.(8).... 2,060,291
38,699 Frontier Financial
Corp.(8).................. 1,131,172
4,000 Great Southern Bancorp,
Inc.(8)................... 118,040
39,700 Greater Bay Bancorp......... 1,045,301
38,400 Hancock Holding Company..... 2,029,056
14,075 Horizon Financial Corp. .... 338,645
12,200 Independent Bank Corp. --
Massachusetts............. 439,566
5,775 Independent Bank Corp. --
Michigan.................. 146,050
13,800 Integra Bank Corp. ......... 379,776
81,000 International Bancshares
Corp. .................... 2,503,710
9,500 ITLA Capital Corp. ......... 550,145
7,000 Kearny Financial Corp. ..... 112,420
20,200 KNBT Bancorp, Inc. ......... 337,946
8,800 Lakeland Financial Corp. ... 224,664
1,650 Macatawa Bank Corp. ........ 35,079
2,400 MAF Bancorp, Inc. .......... 107,256
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
BANKS (CONTINUED)
2,730 MainSource Financial Group,
Inc. ..................... $ 46,246
57,350 MB Financial, Inc. ......... 2,156,934
2,400 Nara Bancorp, Inc. ......... 50,208
3,399 National Penn Bancshares,
Inc. ..................... 68,830
3,000 NBT Bancorp, Inc. .......... 76,530
145,050 NewAlliance Bancshares,
Inc. ..................... 2,378,820
13,200 OceanFirst Financial
Corp. .................... 302,676
6,600 Old National Bancorp........ 124,872
12,600 Old Second Bancorp, Inc. ... 369,180
43,500 Oriental Financial Group,
Inc. -- Puerto Rico(8).... 563,325
90,700 Pacific Capital Bancorp..... 3,045,705
1,400 Park National Corp. ........ 138,600
3,400 Partners Trust Financial
Group, Inc. .............. 39,576
3,400 People's Bancorp, Inc. ..... 100,980
42,600 PFF Bancorp, Inc. .......... 1,470,126
1,500 Preferred Bank -- Los
Angeles, California....... 90,135
33,080 PrivateBancorp, Inc.(8)..... 1,377,120
4,400 Provident Bankshares
Corp. .................... 156,640
1,400 Provident Financial
Holdings, Inc. ........... 42,686
26,200 S&T Bancorp, Inc. .......... 908,354
5,000 Sandy Spring Bancorp,
Inc. ..................... 190,900
15,800 Santander BanCorp -- Puerto
Rico(8)................... 282,030
3,700 SCBT Financial Corp. ....... 154,401
13,700 Signature Bank*............. 424,426
7,400 Simmons First National
Corp. -- Class A.......... 233,470
4,900 Smithtown Bancorp, Inc. .... 132,888
6,450 Sterling Bancshares, Inc. --
Texas..................... 83,979
7,500 Sterling Financial Corp. --
Pennsylvania.............. 177,525
96,750 Sterling Financial Corp. --
Spokane................... 3,271,117
9,500 Suffolk Bancorp............. 362,235
76,500 SVB Financial Group*........ 3,566,429
11,800 SY Bancorp, Inc. ........... 330,400
7,100 Taylor Capital Group,
Inc. ..................... 259,931
36,300 TierOne Corp. .............. 1,147,443
10,400 TrustCo Bank Corp. NY....... 115,648
43,300 Trustmark Corp. ............ 1,416,343
2,500 Univest Corp. of
Pennsylvania.............. 76,200
</Table>
See notes to financial statements.
154
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
BANKS (CONTINUED)
12,450 Union Bankshares Corp. ..... $ 380,846
39,000 United Bankshares, Inc. .... 1,507,350
24,200 United Community Financial
Corp. .................... 296,208
11,100 USB Holding Company,
Inc. ..................... 267,510
13,000 Washington Trust Bancorp,
Inc. ..................... 362,570
1,900 Wauwatosa Holdings, Inc.*... 33,858
9,400 WesBanco, Inc. ............. 315,182
3,000 West Bancorp................ 53,340
11,300 West Coast Bancorp.......... 391,432
45,050 Westamerica Bancorp......... 2,280,882
6,700 Western Alliance Bancorp*... 232,959
20,450 Wintrust Financial Corp. ... 982,009
15,700 WSFS Financial Corp. ....... 1,050,801
--------------
73,233,839
--------------
BROADCAST SERVICES/MEDIA -- 0.6%
2,900 4Kids Entertainment,
Inc.*..................... 52,838
83,300 Citadel Broadcasting
Company................... 829,668
69,150 CKX, Inc.*(8)............... 811,130
71,300 Cumulus Media, Inc. -- Class
A*........................ 740,807
46,400 Entercom Communications
Corp. .................... 1,307,552
12,200 Gray Television, Inc. ...... 89,426
107,900 Martha Stewart Living
Omnimedia, Inc. -- Class
A(8)...................... 2,363,010
95,700 Sinclair Broadcast Group,
Inc. -- Class A........... 1,004,850
15,400 Westwood One, Inc. ......... 108,724
--------------
7,308,005
--------------
BUSINESS SERVICES AND SUPPLIES -- 3.7%
48,400 Acxiom Corp. ............... 1,241,460
49,350 Administaff, Inc.(8)........ 2,110,700
17,400 Ambassadors Group, Inc. .... 528,090
114,978 Barrett Business Services,
Inc. ..................... 2,692,785
136,000 CSG Systems International,
Inc.*..................... 3,635,280
16,800 Diamond Management &
Technology Consultants,
Inc. ..................... 208,992
38,200 First Consulting Group,
Inc.*..................... 525,632
156,370 FirstService Corp.
(Canada)*................. 3,612,147
22,400 Forrester Research, Inc.*... 607,264
94,700 Global Payments, Inc. ...... 4,384,609
14,700 Heidrick & Struggles
International, Inc.*...... 622,692
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
BUSINESS SERVICES AND SUPPLIES (CONTINUED)
10,500 Huron Consulting Group,
Inc.*..................... $ 476,070
63,500 John H Harland Company(8)... 3,187,700
101,000 LightBridge, Inc.*.......... 1,367,540
66,450 MAXIMUS, Inc. .............. 2,045,331
98,400 MoneyGram International,
Inc.(8)................... 3,085,824
65,930 Portfolio Recovery
Associates, Inc.*(8)...... 3,078,272
106,500 Spherion Corp.*............. 791,295
136,400 Symyx Technologies, Inc.*... 2,944,876
80,100 TeleTech Holdings, Inc.*.... 1,912,788
10,700 The Corporate Executive
Board Company(8).......... 938,390
93,800 UniFirst Corp. ............. 3,602,858
22,500 Vertrue, Inc.*.............. 864,225
--------------
44,464,820
--------------
CHEMICALS -- 1.5%
76,900 Compass Minerals
International, Inc. ...... 2,426,964
92,700 HB Fuller Company........... 2,393,514
25,100 Innospec, Inc. ............. 1,168,405
77,300 OM Group, Inc.*............. 3,500,144
30,300 Pioneer Companies, Inc.*.... 868,398
75,000 PolyOne Corp.*.............. 562,500
67,200 Spartech Corp. ............. 1,761,984
121,100 Tetra Tech, Inc.*........... 2,190,699
51,600 The Valspar Corp. .......... 1,426,224
80,500 US BioEnergy Corp.*......... 1,368,500
30,800 Westlake Chemical
Corp.(8).................. 966,504
--------------
18,633,836
--------------
COMMERCIAL SERVICES -- 0.5%
9,800 Central Parking Corp.(8).... 176,400
7,800 Coinmach Service Corp. --
Class A................... 92,820
13,300 DynCorp International,
Inc. -- Class A*.......... 211,071
130,880 HMS Holdings Corp.*......... 1,982,832
3,700 ICT Group, Inc.*............ 116,883
26,400 Jackson Hewitt Tax Service,
Inc. ..................... 896,808
7,500 Standard Parking Corp.*..... 288,075
63,670 Steiner Leisure, Ltd.
(Bahama Islands)*......... 2,896,985
--------------
6,661,874
--------------
</Table>
See notes to financial statements.
155
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 5.9%
162,920 Advent Software, Inc.*(8)... $ 5,749,447
105,900 Agilysys, Inc. ............. 1,772,766
76,100 Altiris, Inc.*.............. 1,931,418
64,230 American Reprographics
Company*.................. 2,139,501
18,800 Ansoft Corp.*............... 522,640
22,600 Aspen Technology,
Inc.*(8).................. 249,052
27,600 Avocent Corp.*(8)........... 934,260
27,500 Black Box Corp. ............ 1,154,725
8,200 Blackbaud, Inc. ............ 213,200
239,300 Brocade Communications
Systems, Inc.*............ 1,964,653
117,050 Checkpoint Systems, Inc.*... 2,364,410
12,800 COMSYS IT Partners, Inc.*... 258,688
164,740 Concur Technologies,
Inc.*(8).................. 2,642,430
155,080 Cray, Inc.*................. 1,842,350
15,000 Digi International, Inc.*... 206,850
61,100 Digimarc Corp.*............. 538,902
90,700 Electronics For Imaging,
Inc.*..................... 2,410,806
12,950 FactSet Research Systems,
Inc. ..................... 731,416
9,800 IHS, Inc. -- Class A*....... 386,904
66,900 Imation Corp. .............. 3,106,167
5,700 Infocrossing, Inc.*(8)...... 92,910
6,300 Interactive Intelligence,
Inc.*..................... 141,246
7,100 Isilon Systems, Inc. ....... 195,960
46,200 Jack Henry & Associates,
Inc. ..................... 988,680
6,800 JDA Software Group, Inc.*... 93,636
89,600 Keane, Inc.*................ 1,067,136
30,577 L-1 Identity Solutions,
Inc.*(8).................. 462,630
43,900 Manhattan Associates,
Inc.*..................... 1,320,512
82,300 Mentor Graphics Corp.*...... 1,483,869
30,800 MicroStrategy, Inc. -- Class
A*(8)..................... 3,511,508
45,800 MTS Systems Corp. .......... 1,768,796
357,900 Red Hat, Inc.*(8)........... 8,231,699
3,700 SPSS, Inc.*................. 111,259
139,500 Sybase, Inc.*............... 3,445,650
123,800 Sykes Enterprises, Inc.*.... 2,183,832
49,000 Synaptics, Inc.*............ 1,454,810
46,200 Systems Xcellence, Inc.
(Canada)*................. 931,854
135,000 THQ, Inc.*(8)............... 4,390,200
26,600 Transaction Systems
Architects, Inc. -- Class
A*........................ 866,362
10,600 Tyler Technologies, Inc.*... 149,036
22,800 Western Digital Corp.*...... 466,488
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
COMPUTER EQUIPMENT, SOFTWARE AND SERVICES
(CONTINUED)
420,800 Wind River Systems,
Inc.*(8).................. $ 4,313,200
76,400 Xyratex, Ltd. (Bermuda)*.... 1,648,712
--------------
70,440,570
--------------
CONSTRUCTION SERVICES AND SUPPLIES -- 2.4%
22,000 BlueLinx Holdings, Inc. .... 228,800
2,200 Brookfield Homes Corp.(8)... 82,610
38,000 Eagle Materials, Inc. ...... 1,642,740
27,200 Granite Construction,
Inc. ..................... 1,368,704
88,150 Hovnanian Enterprises,
Inc. -- Class A*(8)....... 2,988,285
81,200 Matrix Service Company*..... 1,307,320
101,000 Meritage Homes Corp.*....... 4,819,720
90,650 Simpson Manufacturing
Company, Inc.(8).......... 2,869,073
130,400 Standard Pacific Corp.(8)... 3,493,416
93,510 Team, Inc.*................. 3,256,953
56,825 Technical Olympic USA,
Inc. ..................... 577,910
9,000 The Ryland Group, Inc.(8)... 491,580
104,550 Trex Company, Inc.*(8)...... 2,393,150
24,600 Washington Group
International, Inc.*...... 1,470,834
106,650 WCI Communities, Inc.*(8)... 2,045,547
--------------
29,036,642
--------------
CONSUMER GOODS AND SERVICES -- 3.1%
6,200 Blyth, Inc. ................ 128,650
57,400 Central Garden & Pet
Company*.................. 2,779,308
27,100 Chattem, Inc.*(8)........... 1,357,168
15,600 FTD Group, Inc.*............ 279,084
129,050 Helen Of Troy, Ltd.
(Bermuda)*................ 3,130,753
45,150 Herbalife, Ltd. (Cayman
Islands)*................. 1,813,224
83,100 NBTY, Inc.*................. 3,454,467
65,500 Nutri/System, Inc.*(8)...... 4,152,045
137,300 Playtex Products, Inc.*..... 1,975,747
19,700 Prestige Brands Holdings,
Inc.*..................... 256,494
145,040 Rollins, Inc. .............. 3,206,834
203,450 Tempur-Pedic International,
Inc.*(8).................. 4,162,587
69,300 The Scotts Miracle-Gro
Company -- Class A........ 3,579,345
123,950 The Yankee Candle Company,
Inc. ..................... 4,249,006
</Table>
See notes to financial statements.
156
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
CONSUMER GOODS AND SERVICES (CONTINUED)
76,199 Vector Group, Ltd.(8)....... $ 1,352,532
1,900 WD-40 Company............... 66,253
30,250 Weight Watchers
International, Inc. ...... 1,589,033
--------------
37,532,530
--------------
CONTAINERS AND PACKAGING -- 0.0%
3,300 Greif, Inc. -- Class A...... 390,720
--------------
DISTRIBUTION -- 1.0%
60,570 Central European
Distribution Corp.*....... 1,798,929
17,600 Houston Wire & Cable
Company*(8)............... 367,840
61,450 United Stationers, Inc.*.... 2,869,101
108,750 Universal Corp. ............ 5,329,837
46,800 Watsco, Inc. ............... 2,207,088
--------------
12,572,795
--------------
DIVERSIFIED OPERATIONS AND SERVICES -- 0.4%
30,600 Compass Diversified Trust... 524,790
66,700 LandAmerica Financial Group,
Inc.(8)................... 4,209,437
14,800 Resource America, Inc. --
Class A................... 390,720
--------------
5,124,947
--------------
EDUCATION -- 0.2%
58,700 School Specialty,
Inc.*(8).................. 2,200,663
3,800 Strayer Education, Inc. .... 402,990
--------------
2,603,653
--------------
ELECTRONICS -- 2.8%
110,899 Belden CDT, Inc. ........... 4,335,041
107,800 Benchmark Electronics,
Inc.*..................... 2,626,008
493,150 Flextronics International,
Ltd. (Singapore)*......... 5,661,361
40,050 Harman International
Industries, Inc. ......... 4,001,396
2,900 Littelfuse, Inc.*........... 92,452
128,300 Micrel, Inc.*............... 1,383,074
198,800 Nam Tai Electronics, Inc.
(British Virgin
Islands).................. 3,019,772
39,100 Park Electrochemical
Corp. .................... 1,002,915
597,950 Sanmina-SCI Corp.*.......... 2,062,928
563,100 Solectron Corp.*............ 1,813,182
58,650 Sonic Solutions*(8)......... 955,995
111,780 SRS Labs, Inc.*............. 1,209,460
138,450 Synopsys, Inc.*............. 3,700,769
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
ELECTRONICS (CONTINUED)
22,700 Technitrol, Inc. ........... $ 542,303
143,800 TTM Technologies, Inc.*..... 1,629,254
--------------
34,035,910
--------------
ENERGY SERVICES -- 0.3%
27,850 Energy Conversion Devices,
Inc.*(8).................. 946,343
53,300 SunPower Corp. -- Class
A*(8)..................... 1,981,161
38,000 VeraSun Energy Corp.*(8).... 750,500
--------------
3,678,004
--------------
ENGINEERING -- 0.3%
10,700 EMCOR Group, Inc.*.......... 608,295
72,750 URS Corp.*.................. 3,117,338
--------------
3,725,633
--------------
ENVIRONMENTAL WASTE MANAGEMENT AND RECYCLING
SERVICES -- 0.5%
261,800 Allied Waste Industries,
Inc.*..................... 3,217,522
60,400 Metal Management, Inc. ..... 2,286,140
--------------
5,503,662
--------------
EQUIPMENT RENTAL AND LEASING -- 0.4%
75,300 Aaron Rents, Inc.(8) ....... 2,167,134
103,500 Rent-A-Center, Inc.*........ 3,054,285
--------------
5,221,419
--------------
FINANCIAL SERVICES -- 5.3%
46,750 Accredited Home Lenders
Holding Company*(8)....... 1,275,340
18,950 Affiliated Managers Group,
Inc.*(8).................. 1,992,214
219,100 Asset Acceptance Capital
Corp.*.................... 3,685,262
96,900 ASTA Funding, Inc.(8)....... 2,949,636
87,483 Calamos Asset Management,
Inc. -- Class A........... 2,347,169
292,550 E*TRADE Financial Corp.*.... 6,558,971
129,850 Eaton Vance Corp. .......... 4,286,349
31,600 Federal Agricultural
Mortgage Corp. -- Class
C......................... 857,308
8,800 Federated Investors, Inc. --
Class B................... 297,264
12,300 Financial Federal Corp. .... 361,743
1,400 GAMCO Investors, Inc. --
Class A................... 53,844
79,590 Greenhill & Company,
Inc.(8)................... 5,873,741
21,940 International Securities
Exchange Holdings,
Inc.(8)................... 1,026,573
</Table>
See notes to financial statements.
157
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
91,620 Investment Technology Group,
Inc.*..................... $ 3,928,666
268,300 Jefferies Group, Inc. ...... 7,195,805
253,300 Knight Capital Group,
Inc. -- Class A*.......... 4,855,760
19,500 Morningstar, Inc.*.......... 878,475
92,970 NewStar Financial, Inc.*.... 1,715,297
18,150 Nuveen Investments -- Class
A......................... 941,622
100,900 Ocwen Financial Corp.*...... 1,600,274
53,010 optionsXpress Holdings,
Inc. ..................... 1,202,797
148,050 Raymond James Financial,
Inc. ..................... 4,487,395
19,500 Susquehanna Bancshares,
Inc. ..................... 524,160
17,050 The Student Loan Corp. ..... 3,534,465
119,750 TradeStation Group, Inc.*... 1,646,563
1,400 US Global Investors, Inc. --
Class A*(8)............... 94,150
41,100 W Holding Company, Inc. --
Puerto Rico(8)............ 244,956
--------------
64,415,799
--------------
FOOD AND BEVERAGE -- 0.6%
38,900 Boston Beer Company, Inc. --
Class A*.................. 1,399,622
1,500 Coca-Cola Bottling
Company................... 102,645
1,900 Farmer Brothers Company..... 40,565
108,900 Lance, Inc. ................ 2,186,712
36,400 Nash Finch Company(8)....... 993,720
5,400 Ralcorp Holdings, Inc.*..... 274,806
7,400 Reddy Ice Holdings, Inc. ... 191,068
235,940 SunOpta, Inc.
(Canada)*(8).............. 2,076,272
--------------
7,265,410
--------------
INSURANCE -- 4.2%
26,800 American Physicians Capital,
Inc.*..................... 1,073,072
211,454 Amerisafe, Inc.*............ 3,269,079
216,110 AmTrust Financial Services,
Inc.(8)................... 1,847,741
208,000 Assured Guaranty, Ltd.
(Bermuda)................. 5,532,800
156,925 Delphi Financial Group,
Inc. -- Class A........... 6,349,185
1,400 EMC Insurance Group,
Inc. ..................... 47,768
3,800 FBL Financial Group, Inc. --
Class A................... 148,504
95,570 First Mercury Financial
Corp.*.................... 2,247,806
4,800 FPIC Insurance Group,
Inc.*(8).................. 187,056
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
5,700 Horace Mann Educators
Corp. .................... $ 115,140
32,600 Infinity Property & Casualty
Corp. .................... 1,577,514
41,400 IPC Holdings, Ltd.
(Bermuda)................. 1,302,030
1,800 James River Group, Inc.*.... 58,176
450 National Western Life
Insurance Company -- Class
A......................... 103,563
8,900 Ohio Casualty Corp. ........ 265,309
35,700 OneBeacon Insurance Group,
Ltd. (Bermuda)*........... 999,600
127,608 Philadelphia Consolidated
Holding Corp.*............ 5,686,212
108,350 Platinum Underwriters
Holdings, Ltd.
(Bermuda)................. 3,352,349
25,900 Presidential Life Corp. .... 568,505
54,450 Protective Life Corp. ...... 2,586,375
47,200 Safety Insurance Group,
Inc. ..................... 2,393,512
110,290 Security Capital Assurance,
Ltd. (Bermuda)............ 3,069,371
90,100 State Auto Financial
Corp. .................... 3,129,173
53,400 United Fire & Casualty
Company................... 1,882,350
133,900 Universal American Financial
Corp.*.................... 2,495,896
6,700 Zenith National Insurance
Corp. .................... 314,297
--------------
50,602,383
--------------
INTERNET SERVICES -- 3.5%
165,550 aQuantive, Inc.*............ 4,082,462
88,750 CheckFree Corp.*(8)......... 3,564,200
301,530 CNET Networks, Inc.*(8)..... 2,740,908
16,670 Ctrip.com International,
Ltd. (ADR) (Cayman
Islands)(8)............... 1,041,542
66,960 DealerTrack Holdings,
Inc.*..................... 1,969,963
4,000 Digital River, Inc.*........ 223,160
200,600 EarthLink, Inc.*............ 1,424,260
21,514 Equinix, Inc.*(8)........... 1,626,889
198,400 eResearch Technology,
Inc.*(8).................. 1,335,232
116,740 j2 Global Communications,
Inc.*(8).................. 3,181,165
166,659 Marchex, Inc. -- Class
B*(8)..................... 2,229,897
407,500 Move, Inc.*................. 2,245,325
263,180 Online Resources Corp.*..... 2,687,068
108,200 Perficient, Inc.*........... 1,775,562
45,200 Priceline.com, Inc.*(8)..... 1,971,172
94,570 RADVision, Ltd. (Israel)*... 1,898,966
</Table>
See notes to financial statements.
158
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
INTERNET SERVICES (CONTINUED)
129,000 RealNetworks, Inc.*......... $ 1,411,260
221,800 SonicWALL, Inc.*............ 1,867,556
8,400 TheStreet.com, Inc. ........ 74,760
191,200 United Online, Inc.(8)...... 2,539,136
64,140 WebEx Communications,
Inc.*(8).................. 2,237,845
--------------
42,128,328
--------------
LEISURE AND RECREATION -- 1.7%
298,460 Century Casinos, Inc.*...... 3,330,814
121,200 Dover Downs Gaming &
Entertainment, Inc. ...... 1,620,444
11,800 Interstate Hotels & Resorts,
Inc.*..................... 88,028
53,710 Life Time Fitness, Inc.*.... 2,605,472
107,300 Live Nation, Inc.*.......... 2,403,520
69,700 Monarch Casino & Resort,
Inc.*..................... 1,664,436
44,650 Pinnacle Entertainment,
Inc.*..................... 1,479,701
132,920 Scientific Games Corp. --
Class A*.................. 4,018,171
100,630 The9, Ltd. (ADR) (Cayman
Islands)*(8).............. 3,242,299
--------------
20,452,885
--------------
MACHINERY -- 1.5%
10,500 Applied Industrial
Technologies, Inc. ....... 276,255
115,025 Bucyrus International,
Inc. -- Class A(8)........ 5,953,694
3,800 Chart Industries, Inc.*..... 61,598
11,700 Columbus McKinnon Corp.*.... 245,934
233,204 Flow International
Corp.*(8)................. 2,569,908
28,900 Intevac, Inc.*.............. 749,955
104,850 Joy Global, Inc. ........... 5,068,449
11,500 Middleby Corp.*(8).......... 1,203,705
6,000 Nordson Corp. .............. 298,980
29,290 Regal-Beloit Corp. ......... 1,538,018
--------------
17,966,496
--------------
MANUFACTURING -- 4.2%
97,950 Acuity Brands, Inc. ........ 5,097,318
4,600 AEP Industries, Inc.*....... 245,226
81,300 Albany International
Corp. -- Class A(8)....... 2,675,583
12,300 American Woodmark Corp.(8).. 514,755
58,800 AO Smith Corp. ............. 2,208,528
52,450 AptarGroup, Inc. ........... 3,096,648
1,400 AZZ, Inc.*.................. 71,680
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
MANUFACTURING (CONTINUED)
79,500 Carlisle Companies, Inc. ... $ 6,240,750
52,900 Ceradyne, Inc.*(8).......... 2,988,850
7,800 CIRCOR International,
Inc. ..................... 286,962
5,200 Coherent, Inc.*............. 164,164
137,650 Deswell Industries, Inc.
(Hong Kong)............... 1,569,210
5,200 EnPro Industries, Inc.*..... 172,692
152,950 FLIR Systems, Inc.*(8)...... 4,868,399
44,000 Freightcar America,
Inc.(8)................... 2,439,800
47,600 Harsco Corp. ............... 3,622,360
200,000 Hexcel Corp.*(8)............ 3,482,000
24,700 Kaydon Corp. ............... 981,578
10,100 LSI Industries, Inc. ....... 200,485
98,900 Matthews International
Corp. -- Class A.......... 3,891,715
56,000 PW Eagle, Inc.(8)........... 1,932,000
1,900 RBC Bearings, Inc.*......... 54,454
18,700 Rofin-Sinar Technologies,
Inc.*..................... 1,130,602
108,700 The Timken Company.......... 3,171,866
--------------
51,107,625
--------------
MEDICAL EQUIPMENT, SUPPLIES, AND
SERVICES -- 7.9%
182,930 American Medical Systems
Holdings, Inc.*........... 3,387,864
201,000 AMERIGROUP Corp.*........... 7,213,889
176,100 AMN Healthcare Services,
Inc.*..................... 4,849,794
133,700 AmSurg Corp.*(8)............ 3,075,100
152,326 AngioDynamics, Inc.*........ 3,273,486
89,200 Apria Healthcare Group,
Inc.*..................... 2,377,180
43,210 ArthroCare Corp.*(8)........ 1,724,943
28,300 Bruker BioSciences Corp.*... 212,533
195,500 Centene Corp.*.............. 4,803,435
7,000 Conceptus, Inc.*............ 149,030
87,600 Covance, Inc.*.............. 5,160,515
84,210 Cutera, Inc.*............... 2,273,670
15,700 DJO, Inc.*.................. 672,274
359,450 Five Star Quality Care,
Inc.*(8).................. 4,007,868
54,200 Haemonetics Corp.*.......... 2,440,084
147,200 Healthspring, Inc.*......... 2,995,520
75,850 Healthways, Inc.*(8)........ 3,618,804
50,200 ICON PLC (ADR) (Ireland)*... 1,892,540
17,700 ICU Medical, Inc.*.......... 720,036
8,600 inVentiv Health, Inc.*...... 304,010
35,250 Kyphon, Inc.*(8)............ 1,424,100
</Table>
See notes to financial statements.
159
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
MEDICAL EQUIPMENT, SUPPLIES, AND SERVICES
(CONTINUED)
275,250 LeMaitre Vascular, Inc.*.... $ 1,651,500
23,600 Lincare Holdings, Inc.*..... 940,224
61,800 Luminex Corp.*.............. 784,860
29,600 Magellan Health Services,
Inc.*..................... 1,279,312
5,800 MedCath Corp.*.............. 158,688
8,100 Meridian Bioscience,
Inc. ..................... 198,693
133,950 Micrus Endovascular
Corp.*.................... 2,555,766
25,800 Molina Healthcare, Inc.*.... 838,758
36,100 Nighthawk Radiology
Holdings, Inc.*(8)........ 920,550
228,653 NovaMed, Inc.*.............. 1,730,903
80,630 NuVasive, Inc.*............. 1,862,553
441,910 Orthovita, Inc.*............ 1,604,133
82,371 PolyMedica Corp.(8)......... 3,328,612
28,500 PSS World Medical,
Inc.*(8).................. 556,605
49,080 ResMed, Inc.*(8)............ 2,415,718
48,600 STERIS Corp. ............... 1,223,262
94,200 Sunrise Senior Living,
Inc.*..................... 2,893,824
37,900 Techne Corp.*............... 2,101,555
7,800 The Advisory Board
Company*.................. 417,612
71,550 The Cooper Companies,
Inc. ..................... 3,183,975
283,570 The Spectranetics Corp.*.... 3,201,505
10,300 Universal Health Services,
Inc. -- Class B........... 570,929
52,350 Vital Images, Inc.*......... 1,821,780
14,210 Vital Signs, Inc. .......... 709,363
16,000 Zoll Medical Corp.*......... 931,840
--------------
94,459,195
--------------
METALS AND MINING -- 1.5%
110,100 AK Steel Holding Corp.*..... 1,860,690
75,900 Chaparral Steel Company..... 3,360,093
80,800 Mueller Industries, Inc. ... 2,561,360
258,050 Novelis, Inc. (Canada)...... 7,186,693
110,100 Steel Dynamics, Inc. ....... 3,572,745
--------------
18,541,581
--------------
OFFICE EQUIPMENT, SUPPLIES, AND
SERVICES -- 0.7%
80,800 Acco Brands Corp.*.......... 2,138,776
53,850 Herman Miller, Inc. ........ 1,957,986
73,800 IKON Office Solutions,
Inc. ..................... 1,208,106
158,850 Knoll, Inc. ................ 3,494,700
--------------
8,799,568
--------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
OIL, COAL AND GAS -- 5.7%
109,400 Aegean Marine Petroleum
Network, Inc. (Marshall
Islands)*................. $ 1,794,160
45,100 Alon USA Energy, Inc. ...... 1,186,581
2,900 Basic Energy Services,
Inc.*..................... 71,485
135,850 Cabot Oil & Gas Corp.(8).... 8,239,302
135,600 Cal Dive International,
Inc.*..................... 1,701,780
11,860 Core Laboratories NV (the
Netherlands)*(8).......... 960,660
66,840 Dril-Quip, Inc.*............ 2,617,454
198,750 Encore Acquisition
Company*(8)............... 4,875,338
16,900 EXCO Resources, Inc.*....... 285,779
27,300 FMC Technologies, Inc.*..... 1,682,499
22,300 Global Industries, Ltd.*.... 290,792
67,400 Grant Prideco, Inc.*........ 2,680,498
218,500 Grey Wolf, Inc.*............ 1,498,910
13,200 Harvest Natural Resources,
Inc.*..................... 140,316
113,700 Headwaters, Inc.*(8)........ 2,724,252
39,000 Helix Energy Solutions
Group, Inc.*(8)........... 1,223,430
4,800 MarkWest Hydrocarbon,
Inc. ..................... 233,040
121,054 Oceaneering International,
Inc.*..................... 4,805,844
99,060 Oil States International,
Inc.*..................... 3,192,704
75,500 ONEOK, Inc. ................ 3,255,560
8,750 Patterson-UTI Energy,
Inc. ..................... 203,263
7,800 Penn Virginia Corp. ........ 546,312
73,700 Range Resources Corp. ...... 2,023,802
17,400 Southwest Gas Corp. ........ 667,638
73,200 St Mary Land & Exploration
Company(8)................ 2,696,688
95,180 Superior Energy Services,
Inc.*..................... 3,110,482
134,100 Swift Energy Company*....... 6,009,020
75,600 TETRA Technologies, Inc.*... 1,933,848
57,400 The Houston Exploration
Company*.................. 2,972,172
16,400 The Meridian Resource
Corp.*.................... 50,676
107,400 Whiting Petroleum
Corp.*(8)................. 5,004,840
--------------
68,679,125
--------------
PAPER AND FOREST PRODUCTS -- 0.1%
23,100 Buckeye Technologies,
Inc.*..................... 276,738
37,500 Rock-Tenn Company -- Class
A......................... 1,016,625
--------------
1,293,363
--------------
</Table>
See notes to financial statements.
160
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 4.3%
143,000 Affymetrix, Inc.*(8)........ $ 3,297,580
119,400 Albany Molecular Research,
Inc.*..................... 1,260,864
241,200 Alkermes, Inc.*............. 3,224,844
87,200 Bradley Pharmaceuticals,
Inc.*(8).................. 1,794,576
12,600 Caraco Pharmaceutical
Laboratories, Ltd.*....... 176,400
123,050 Cephalon, Inc.*(8).......... 8,663,950
228,000 Cubist Pharmaceuticals,
Inc.*..................... 4,129,080
93,550 Dendreon Corp.*(8).......... 390,104
169,950 DepoMed, Inc.*(8)........... 586,328
22,400 Digene Corp.*............... 1,073,408
268,200 Enzon Pharmaceuticals,
Inc.*..................... 2,282,382
47,000 Geron Corp.*(8)............. 412,660
39,800 Human Genome Sciences,
Inc.*(8).................. 495,112
43,240 K-V Pharmaceutical
Company -- Class A*....... 1,028,247
11,800 LifeCell Corp.*............. 284,852
9,500 Ligand Pharmaceuticals,
Inc. -- Class B*.......... 104,025
448,300 Medarex, Inc.*(8)........... 6,630,357
20,462 Metabasis Therapeutics,
Inc.*..................... 153,874
36,500 New River Pharmaceuticals,
Inc.*(8).................. 1,996,915
61,900 Noven Pharmaceuticals,
Inc.*..................... 1,575,355
34,000 Pain Therapeutics,
Inc.*(8).................. 302,600
187,672 Pharmaceutical Product
Development, Inc. ........ 6,046,792
62,200 Regeneron Pharmaceuticals,
Inc.*..................... 1,248,354
57,100 Savient Pharmaceuticals,
Inc.*..................... 640,091
69,600 Sciele Pharma, Inc.*(8)..... 1,670,400
182,400 Solexa, Inc.*............... 2,398,560
30,100 Trimeris, Inc.*(8).......... 382,571
--------------
52,250,281
--------------
PRINTING AND PUBLISHING -- 0.4%
199,000 Bowne & Company, Inc. ...... 3,172,060
900 Consolidated Graphics,
Inc.*..................... 53,163
106,650 Valassis Communications,
Inc.*(8).................. 1,546,425
--------------
4,771,648
--------------
REAL ESTATE INVESTMENT TRUSTS -- 5.5%
161,350 Acadia Realty Trust......... 4,036,977
2,400 Agree Realty Corp. ......... 82,488
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
31,800 Associated Estates Realty
Corp. .................... $ 436,932
4,500 BNP Residential Properties,
Inc. ..................... 108,675
61,800 CapitalSource, Inc.(8)...... 1,687,758
52,050 Cousins Properties, Inc. ... 1,835,804
58,300 DiamondRock Hospitality
Company................... 1,049,983
120,300 Equity Inns, Inc. .......... 1,919,988
180,300 FelCor Lodging Trust,
Inc. ..................... 3,937,752
62,200 Franklin Street Properties
Corp. .................... 1,309,310
21,100 Getty Realty Corp. ......... 651,990
49,800 Gramercy Capital Corp. ..... 1,538,322
30,900 Highwoods Properties,
Inc. ..................... 1,259,484
26,600 Home Properties, Inc. ...... 1,576,582
68,700 Innkeepers USA Trust........ 1,064,850
18,600 Investors Real Estate
Trust..................... 190,836
118,400 KKR Financial Corp. ........ 3,171,936
69,200 LTC Properties, Inc. ....... 1,889,852
64,450 Maguire Properties, Inc. ... 2,578,000
42,600 Mid-America Apartment
Communities, Inc. ........ 2,438,424
9,900 Mission West Properties,
Inc. ..................... 129,690
81,200 National Retail Properties,
Inc.(8)................... 1,863,540
105,100 NorthStar Realty Finance
Corp. .................... 1,741,507
156,700 OMEGA Healthcare Investors,
Inc. ..................... 2,776,724
36,600 Pennsylvania Real Estate
Investment Trust.......... 1,441,308
73,450 PS Business Parks, Inc. .... 5,193,649
57,700 RAIT Investment Trust....... 1,989,496
126,150 Realty Income Corp.(8)...... 3,494,355
6,300 Resource Capital Corp. ..... 106,785
22,700 Saul Centers, Inc. ......... 1,252,813
36,700 SL Green Realty Corp. ...... 4,873,026
40,700 Sovran Self Storage,
Inc. ..................... 2,331,296
6,300 Tanger Factory Outlet
Centers, Inc. ............ 246,204
24,400 Taubman Centers, Inc. ...... 1,240,984
171,750 U-Store-It Trust............ 3,529,462
34,500 Washington Real Estate
Investment Trust.......... 1,380,000
--------------
66,356,782
--------------
REGISTERED INVESTMENT COMPANIES -- 0.3%
181,400 Ares Capital Corp.(8)....... 3,466,554
</Table>
See notes to financial statements.
161
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
REGISTERED INVESTMENT COMPANIES (CONTINUED)
22,100 MCG Capital Corp. .......... $ 449,072
--------------
3,915,626
--------------
RETAIL -- 1.3%
183,600 Big Lots, Inc.*(8).......... 4,208,112
11,400 Books-A-Million, Inc. ...... 258,552
176,750 Casey's General Stores,
Inc. ..................... 4,162,463
155,650 Circuit City Stores,
Inc. ..................... 2,954,237
130,200 EZCORP, Inc. -- Class A*.... 2,115,750
50,900 Longs Drug Stores Corp. .... 2,157,142
--------------
15,856,256
--------------
RETAIL: RESTAURANTS -- 1.8%
10,000 Bob Evans Farms, Inc. ...... 342,200
100,950 Brinker International,
Inc. ..................... 3,044,652
48,900 CEC Entertainment, Inc.*.... 1,968,225
74,400 Domino's Pizza, Inc. ....... 2,083,200
10,200 IHOP Corp. ................. 537,540
33,400 Jack in the Box, Inc.*...... 2,038,736
16,850 Panera Bread Company --
Class A*(8)............... 942,084
91,100 Papa John's International,
Inc.*..................... 2,642,811
21,800 PF Chang's China Bistro,
Inc.*(8).................. 836,684
85,800 RARE Hospitality
International, Inc.*...... 2,825,394
171,025 Sonic Corp.*................ 4,096,048
--------------
21,357,574
--------------
RETAIL: SUPERMARKETS -- 0.0%
21,900 Spartan Stores, Inc. ....... 458,367
--------------
SCIENTIFIC AND TECHNICAL INSTRUMENTS -- 0.9%
98,770 Cymer, Inc.*................ 4,340,942
51,700 FEI Company*................ 1,363,329
10,472 Itron, Inc.*................ 542,868
6,800 Molecular Devices Corp.*.... 143,276
66,800 Varian, Inc.*............... 2,991,972
31,200 Woodward Governor Company... 1,238,952
--------------
10,621,339
--------------
SEMICONDUCTORS -- 2.6%
6,200 Actel Corp.*................ 112,592
271,550 Altera Corp.*............... 5,344,104
310,550 Brooks Automation, Inc.*.... 4,471,920
101,400 Cree, Inc.*(8).............. 1,756,248
11,800 Diodes, Inc.*............... 418,664
104,100 Emulex Corp.*............... 2,030,991
</Table>
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS (CONTINUED)
7,100 Hittite Microwave Corp.*.... $ 229,472
640,200 Lattice Semiconductor
Corp.*.................... 4,148,496
14,600 MKS Instruments, Inc.*...... 329,668
7,150 Novellus Systems,
Inc.*(8).................. 246,103
211,000 Pixelworks, Inc.*........... 483,190
255,010 Silicon Image, Inc.*........ 3,243,727
137,330 Silicon Motion Technology
Corp. (ADR) (Taiwan)*..... 2,179,427
371,950 Skyworks Solutions, Inc.*... 2,633,406
21,150 Teradyne, Inc.*(8).......... 316,404
75,200 Varian Semiconductor
Equipment Associates,
Inc.*..................... 3,423,104
--------------
31,367,516
--------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 3.4%
37,000 Anaren, Inc.*............... 657,120
95,760 Atheros
Communications*(8)........ 2,041,603
57,300 Atlantic Tele-Network,
Inc. ..................... 1,678,890
213,850 Avaya, Inc.*................ 2,989,623
25,100 Cbeyond, Inc.*(8)........... 767,809
96,600 Cincinnati Bell, Inc.*...... 441,462
19,200 CommScope, Inc.*(8)......... 585,216
21,500 Consolidated Communications
Holdings, Inc. ........... 449,350
82,400 CT Communications, Inc. .... 1,888,608
146,000 Ditech Networks, Inc.*...... 1,010,320
79,100 Dobson Communications
Corp. -- Class A*......... 688,961
109,200 FairPoint Communications,
Inc. ..................... 2,069,340
15,000 General Communication,
Inc. -- Class A*.......... 235,950
82,300 InterDigital Communications
Corp.*(8)................. 2,761,165
30,100 Iowa Telecommunications
Services, Inc. ........... 593,271
17,900 North Pittsburgh Systems,
Inc. ..................... 432,106
96,260 Occam Networks, Inc.*....... 1,588,290
91,650 Oplink Communications,
Inc.*..................... 1,884,324
351,250 Polycom, Inc.*.............. 10,857,137
650,400 RF Micro Devices, Inc.*..... 4,416,216
18,100 SBA Communications Corp. --
Class A*.................. 497,750
4,000 Shenandoah
Telecommunications
Company................... 188,040
25,000 Syniverse Holdings, Inc.*... 374,750
</Table>
See notes to financial statements.
162
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ --------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES (CONTINUED)
114,720 Time Warner Telecom, Inc. --
Class A*(8)............... $ 2,286,370
13,100 USA Mobility, Inc. ......... 293,047
--------------
41,676,718
--------------
TOOLS -- 0.3%
68,300 Snap-on, Inc. .............. 3,253,812
--------------
TOYS -- 0.3%
124,200 Marvel Entertainment,
Inc.*(8).................. 3,342,222
--------------
TRANSPORTATION -- 0.8%
12,600 American Commercial Lines,
Inc.*..................... 825,426
86,520 American Railcar Industries,
Inc. ..................... 2,945,141
5,100 Atlas Air Worldwide
Holdings, Inc.*........... 226,950
103,400 Genesee & Wyoming, Inc. --
Class A*.................. 2,713,216
18,400 GulfMark Offshore, Inc.*.... 688,344
2,900 Saia, Inc.*................. 67,309
93,900 Vitran Corp., Inc. -- Class
A (Canada)*............... 1,631,043
--------------
9,097,429
--------------
UTILITIES -- 2.0%
45,750 Atmos Energy Corp. ......... 1,459,883
55,700 Avista Corp. ............... 1,409,767
75,300 Black Hills Corp. .......... 2,781,582
3,400 Central Vermont Public
Service Corp. ............ 80,070
5,800 El Paso Electric Company*... 141,346
2,400 Middlesex Water Company..... 44,952
32,750 New Jersey Resources
Corp. .................... 1,590,995
91,200 Nicor, Inc.(8).............. 4,268,160
205,050 PNM Resources, Inc. ........ 6,377,055
61,200 Unisource Energy Corp. ..... 2,235,636
65,400 Westar Energy, Inc. ........ 1,697,784
47,450 WGL Holdings, Inc. ......... 1,545,921
--------------
23,633,151
--------------
TOTAL COMMON STOCKS
(Cost $1,029,958,303)..... 1,185,378,473
--------------
</Table>
<Table>
<Caption>
PRINCIPAL VALUE
--------- --------------
SHORT TERM US TREASURY SECURITY -- 0.1%
US TREASURY BILL
$ 750,000 4.79%, 03/15/07(5)
(Cost $742,516)........... $ 742,516
--------------
SECURITIES LENDING COLLATERAL -- 20.2%
245,040,504 Securities Lending
Collateral Investment
(Note 4)
(Cost $245,040,504)....... 245,040,504
--------------
TOTAL SECURITIES
(Cost $1,275,741,323)..... 1,431,161,493
--------------
REPURCHASE AGREEMENTS -- 2.7%
33,160,557 With Investors Bank and
Trust, dated 12/29/06,
4.76%,
due 01/02/07, repurchase
proceeds at maturity
$33,178,095
(Collateralized by Fannie
Mae Adjustable Rate
Mortgage, 4.73%, due
08/01/35, with a value of
$20,378,623, Freddie Mac
Adjustable Rate Mortgage,
5.53%, due 04/01/36, with
a value of $446,252 and
various Small Business
Administrations,
8.13%-8.88%, due
04/25/16-09/25/28, with a
total value of
$13,993,709) (Cost
$33,160,557).............. 33,160,557
--------------
Total Investments -- 120.9%
(Cost $1,308,901,880)..... 1,464,322,050
Liabilities less other
assets -- (20.9)%......... (252,765,591)
--------------
NET ASSETS -- 100.0%........ $1,211,556,459
==============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $1,313,994,328.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation.......... $186,991,184
Gross unrealized depreciation.......... (36,663,462)
------------
Net unrealized appreciation............ $150,327,722
============
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
163
SMALL-CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS -- 98.7%
ADVERTISING -- 0.6%
100,400 24/7 Real Media, Inc.*...................................... $ 908,620
------------
AEROSPACE AND DEFENSE -- 1.8%
44,900 K&F Industries Holdings, Inc.*.............................. 1,019,679
21,120 Moog, Inc. -- Class A*...................................... 806,573
22,700 Teledyne Technologies, Inc.*................................ 910,951
------------
2,737,203
------------
AIRLINES -- 1.2%
22,700 Alaska Air Group, Inc.*..................................... 896,650
36,400 SkyWest, Inc. .............................................. 928,564
------------
1,825,214
------------
APPAREL: MANUFACTURING AND RETAIL -- 3.3%
20,200 Carter's, Inc.*............................................. 515,100
38,800 Maidenform Brands, Inc.*.................................... 703,056
20,200 Phillips-Van Heusen Corp. .................................. 1,013,434
7,062 Shoe Carnival, Inc.*........................................ 223,159
12,600 Skechers USA, Inc. -- Class A*.............................. 419,706
32,293 The Dress Barn, Inc.*....................................... 753,396
8,200 The Men's Wearhouse, Inc. .................................. 313,732
77,500 The Wet Seal, Inc. -- Class A*.............................. 516,925
24,400 Wolverine World Wide, Inc. ................................. 695,888
------------
5,154,396
------------
AUTOMOBILE: RETAIL -- 1.9%
29,500 Asbury Automotive Group, Inc. .............................. 695,020
32,000 Copart, Inc.*............................................... 960,000
18,600 Group 1 Automotive, Inc. ................................... 961,992
11,300 Sonic Automotive, Inc. ..................................... 328,152
------------
2,945,164
------------
BANKS -- 3.7%
24,320 1st Source Corp. ........................................... 781,402
59,000 First BanCorp -- Puerto Rico................................ 562,270
2,771 First Citizens Bancshares, Inc. -- Class A.................. 561,515
12,300 Greene County Bancshares, Inc. ............................. 488,679
34,400 Hanmi Financial Corp. ...................................... 775,032
23,300 Prosperity Bancshares, Inc. ................................ 804,083
26,500 Sun Bancorp, Inc. -- New Jersey*............................ 558,355
21,000 Umpqua Holdings Corp. ...................................... 618,030
17,200 United Community Banks, Inc. -- Georgia..................... 555,904
------------
5,705,270
------------
BROADCAST SERVICES/MEDIA -- 0.5%
43,300 Cox Radio, Inc. -- Class A*................................. 705,790
------------
BUSINESS SERVICES AND SUPPLIES -- 1.9%
16,100 CRA International, Inc.*.................................... 843,640
22,100 CSG Systems International, Inc.*............................ 590,733
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
BUSINESS SERVICES AND SUPPLIES (CONTINUED)
31,000 FTI Consulting, Inc.*....................................... $ 864,590
53,012 The Standard Register Company............................... 636,144
------------
2,935,107
------------
CHEMICALS -- 1.8%
4,300 Albemarle Corp. ............................................ 308,740
32,700 HB Fuller Company........................................... 844,314
39,600 Sensient Technologies Corp. ................................ 974,160
24,100 Spartech Corp. ............................................. 631,902
------------
2,759,116
------------
COLLECTIBLES -- 0.4%
19,900 Sotheby's................................................... 617,298
------------
COMMERCIAL SERVICES -- 1.3%
130,400 CBIZ, Inc.*................................................. 908,888
25,400 Steiner Leisure, Ltd. (Bahama Islands)*..................... 1,155,700
------------
2,064,588
------------
COMPUTER EQUIPMENT, SOFTWARE AND SERVICES -- 12.2%
95,976 Actuate Corp.*.............................................. 570,097
31,300 Altiris, Inc.*.............................................. 794,394
21,200 ANSYS, Inc.*................................................ 921,988
65,132 Aspen Technology, Inc.*..................................... 717,755
28,400 Avocent Corp.*.............................................. 961,340
28,087 Blackbaud, Inc. ............................................ 730,262
57,736 Captaris, Inc.*............................................. 448,609
29,600 COMSYS IT Partners, Inc.*................................... 598,216
63,600 Digi International, Inc.*................................... 877,044
59,800 Epicor Software Corp.*...................................... 807,898
20,800 Hyperion Solutions Corp.*................................... 747,552
48,100 Insight Enterprises, Inc.*.................................. 907,647
72,000 Interwoven, Inc.*........................................... 1,056,240
13,000 Komag, Inc.*................................................ 492,440
18,900 Kronos, Inc.*............................................... 694,386
13,300 Manhattan Associates, Inc.*................................. 400,064
57,400 Mentor Graphics Corp.*...................................... 1,034,922
69,100 Nuance Communications, Inc.*(8)............................. 791,886
60,200 Omnicell, Inc.*............................................. 1,121,525
15,300 Open Text Corp. ............................................ 310,590
40,700 OPNET Technologies, Inc.*................................... 588,115
52,500 Quest Software, Inc.*....................................... 769,125
81,000 Radiant Systems, Inc.*...................................... 845,640
23,786 The Ultimate Software Group, Inc.*.......................... 553,262
24,800 THQ, Inc.*(8)............................................... 806,496
27,400 Xyratex, Ltd. (Bermuda)*.................................... 591,292
------------
19,138,785
------------
</Table>
See notes to financial statements.
164
SMALL-CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
CONSTRUCTION SERVICES AND SUPPLIES -- 0.9%
32,800 Interline Brands, Inc.*..................................... $ 737,016
10,700 NCI Building Systems, Inc.*................................. 553,725
2,206 The Genlyte Group, Inc.*.................................... 172,311
------------
1,463,052
------------
CONSUMER GOODS AND SERVICES -- 2.1%
31,300 Fossil, Inc.*............................................... 706,754
27,000 Jarden Corp.*(8)............................................ 939,330
11,300 NBTY, Inc.*................................................. 469,741
70,100 Prestige Brands Holdings, Inc.*............................. 912,702
13,200 Select Comfort Corp.*(8).................................... 229,548
------------
3,258,075
------------
CORRECTIONAL FACILITIES -- 0.4%
13,450 Corrections Corp. of America*............................... 608,344
------------
DISTRIBUTION -- 0.9%
86,900 Bell Microproducts, Inc.*................................... 612,645
16,500 United Stationers, Inc.*.................................... 770,385
------------
1,383,030
------------
ELECTRONICS -- 2.3%
81,318 Aeroflex, Inc.*............................................. 953,047
60,330 CTS Corp. .................................................. 947,181
82,900 Methode Electronics, Inc. .................................. 897,807
32,300 Technitrol, Inc. ........................................... 771,647
------------
3,569,682
------------
ENERGY SERVICES -- 0.5%
52,600 EnerSys*.................................................... 841,600
------------
ENVIRONMENTAL WASTE MANAGEMENT AND
RECYCLING SERVICES -- 0.4%
16,400 Metal Management, Inc. ..................................... 620,740
------------
EQUIPMENT RENTAL AND LEASING -- 0.4%
19,100 Aaron Rents, Inc. .......................................... 549,698
------------
FINANCIAL SERVICES -- 0.6%
36,200 Interactive Data Corp. ..................................... 870,248
------------
FOOD AND BEVERAGE -- 1.8%
32,800 M&F Worldwide Corp.*........................................ 828,528
16,600 Ralcorp Holdings, Inc.*..................................... 844,774
36,500 Sanderson Farms, Inc.(8).................................... 1,105,585
------------
2,778,887
------------
INSURANCE -- 6.9%
19,200 Delphi Financial Group, Inc. -- Class A..................... 776,832
15,300 FBL Financial Group, Inc. -- Class A........................ 597,924
18,400 FPIC Insurance Group, Inc.*................................. 717,048
26,500 Harleysville Group, Inc. ................................... 922,730
24,900 Infinity Property & Casualty Corp. ......................... 1,204,911
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
26,200 IPC Holdings, Ltd. (Bermuda)................................ $ 823,990
21,300 Ohio Casualty Corp. ........................................ 634,953
15,000 ProAssurance Corp.*......................................... 748,800
17,800 Safety Insurance Group, Inc. ............................... 902,638
12,575 Selective Insurance Group, Inc. ............................ 720,422
24,400 The Commerce Group, Inc. ................................... 725,900
17,400 Triad Guaranty, Inc.*(8).................................... 954,738
19,800 Zenith National Insurance Corp. ............................ 928,818
------------
10,659,704
------------
INTERNET SERVICES -- 4.9%
50,059 Harris Interactive, Inc.*................................... 252,297
58,247 LivePerson, Inc.*........................................... 304,632
38,500 NETGEAR, Inc.*.............................................. 1,010,625
45,900 Packeteer, Inc.*............................................ 624,240
24,100 Priceline.com, Inc.*(8)..................................... 1,051,001
47,600 RADVision, Ltd. (Israel)*................................... 955,808
106,400 SonicWALL, Inc.*............................................ 895,888
75,300 TIBCO Software, Inc.*....................................... 710,832
52,600 Vignette Corp.*............................................. 897,882
24,600 WebEx Communications, Inc.*(8).............................. 858,294
------------
7,561,499
------------
LEISURE AND RECREATION -- 0.9%
26,900 Ameristar Casinos, Inc. .................................... 826,906
42,800 Dover Downs Gaming & Entertainment, Inc. ................... 572,236
------------
1,399,142
------------
MACHINERY -- 2.5%
38,400 Columbus McKinnon Corp.*.................................... 807,168
59,200 Flow International Corp.*(8)................................ 652,384
18,700 Gardner Denver, Inc.*....................................... 697,697
18,700 Regal-Beloit Corp. ......................................... 981,937
27,518 Tennant Company............................................. 798,022
------------
3,937,208
------------
MANUFACTURING -- 4.2%
10,000 Ameron International Corp. ................................. 763,700
15,700 AptarGroup, Inc. ........................................... 926,928
39,060 Barnes Group, Inc. ......................................... 849,555
24,900 EnPro Industries, Inc.*..................................... 826,929
26,700 FLIR Systems, Inc.*(8)...................................... 849,861
19,800 Matthews International Corp. -- Class A..................... 779,130
46,700 Mueller Water Products, Inc. -- Class A..................... 694,429
26,400 RBC Bearings, Inc.*......................................... 756,624
------------
6,447,156
------------
</Table>
See notes to financial statements.
165
SMALL-CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
MEDICAL EQUIPMENT, SUPPLIES, AND SERVICES -- 8.7%
31,300 Allscripts Healthcare Solutions, Inc.*(8)................... $ 844,787
17,066 Amedisys, Inc.*(8).......................................... 560,959
34,600 Aspect Medical Systems, Inc.*............................... 650,826
52,793 Bruker BioSciences Corp.*................................... 396,475
32,500 Cross Country Healthcare, Inc.*............................. 709,150
3,158 Emergency Medical Services LP -- Class A*................... 66,255
54,400 Five Star Quality Care, Inc.*(8)............................ 606,560
15,210 Genesis HealthCare Corp.*................................... 718,368
29,100 Healthcare Services Group, Inc. ............................ 842,736
28,400 Hologic, Inc.*.............................................. 1,342,752
19,500 Illumina, Inc.*(8).......................................... 766,545
23,100 inVentiv Health, Inc.*...................................... 816,585
21,200 LHC Group, Inc.*............................................ 604,412
14,900 LifePoint Hospitals, Inc.*.................................. 502,130
26,800 Matria Healthcare, Inc.*(8)................................. 769,964
72,800 Natus Medical, Inc.*........................................ 1,209,208
60,494 Phase Forward, Inc.*........................................ 906,200
62,243 Third Wave Technologies*.................................... 299,389
17,700 West Pharmaceutical Services, Inc........................... 906,771
------------
13,520,072
------------
METALS AND MINING -- 2.2%
28,200 Brush Engineered Materials, Inc.*........................... 952,314
9,000 Carpenter Technology Corp. ................................. 922,680
17,600 Chaparral Steel Company..................................... 779,152
113,100 Northgate Minerals Corp. (Canada)*.......................... 393,588
31,600 Stillwater Mining Company*.................................. 394,684
------------
3,442,418
------------
OFFICE EQUIPMENT, SUPPLIES, AND SERVICES -- 0.5%
28,600 Ennis, Inc. ................................................ 699,556
------------
OIL, COAL AND GAS -- 4.4%
20,100 Alon USA Energy, Inc. ...................................... 528,831
25,900 Bill Barrett Corp.*(8)...................................... 704,739
23,200 Comstock Resources, Inc.*................................... 720,592
5,400 Core Laboratories NV (the Netherlands)*..................... 437,400
25,700 Headwaters, Inc.*........................................... 615,772
95,100 Parker Drilling Company*.................................... 776,967
58,200 PetroQuest Energy, Inc.*.................................... 741,468
18,300 Superior Energy Services, Inc.*............................. 598,044
13,000 Swift Energy Company*....................................... 582,530
17,900 TETRA Technologies, Inc.*................................... 457,882
13,490 World Fuel Services Corp. .................................. 599,765
------------
6,763,990
------------
PAPER AND FOREST PRODUCTS -- 0.5%
64,400 Buckeye Technologies, Inc.*................................. 771,512
------------
</Table>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS/RESEARCH AND DEVELOPMENT -- 6.8%
87,900 Albany Molecular Research, Inc.*............................ $ 928,224
66,300 Arena Pharmaceuticals, Inc.*(8)............................. 855,933
26,681 Bradley Pharmaceuticals, Inc.*(8)........................... 549,095
69,200 Dynavax Technologies Corp.*(8).............................. 635,256
18,900 New River Pharmaceuticals, Inc.*(8)......................... 1,034,019
16,000 PAREXEL International Corp.*................................ 463,520
59,200 PDL BioPharma, Inc.*........................................ 1,192,288
43,100 Pharmanet Development Group, Inc.*.......................... 951,217
33,400 Pharmion Corp.*............................................. 859,716
47,900 Sciele Pharma, Inc.*........................................ 1,149,600
17,500 United Therapeutics Corp.*.................................. 951,475
64,800 ViroPharma, Inc.*........................................... 948,672
------------
10,519,015
------------
PRINTING AND PUBLISHING -- 0.5%
12,251 Consolidated Graphics, Inc.*................................ 723,667
------------
REAL ESTATE INVESTMENT TRUSTS -- 0.3%
21,800 Extra Space Storage, Inc. .................................. 398,068
------------
RETAIL -- 0.6%
22,700 Longs Drug Stores Corp. .................................... 962,026
------------
RETAIL: RESTAURANTS -- 1.0%
16,300 Bob Evans Farms, Inc. ...................................... 557,786
10,900 Jack in the Box, Inc.*...................................... 665,336
12,086 RARE Hospitality International, Inc.*....................... 397,992
------------
1,621,114
------------
RETAIL: SUPERMARKETS -- 0.9%
21,400 Ingles Markets, Inc. -- Class A............................. 637,506
37,600 Spartan Stores, Inc. ....................................... 786,968
------------
1,424,474
------------
SCIENTIFIC AND TECHNICAL INSTRUMENTS -- 1.4%
46,990 Input/Output, Inc.*(8)...................................... 640,474
41,100 Newport Corp.*.............................................. 861,045
14,400 Trimble Navigation, Ltd.*................................... 730,512
------------
2,232,031
------------
SECURITY SERVICES -- 0.7%
39,000 Macrovision Corp.*.......................................... 1,102,140
------------
SEMICONDUCTORS -- 4.6%
66,300 ANADIGICS, Inc.*(8)......................................... 587,418
50,000 Brooks Automation, Inc.*.................................... 720,000
28,700 Emulex Corp.*............................................... 559,937
45,300 Kopin Corp.*................................................ 161,721
70,836 MIPS Technologies, Inc.*.................................... 587,939
57,360 O2Micro International, Ltd. (ADR) (Cayman Islands)*......... 490,428
52,200 Photronics, Inc.*........................................... 852,948
70,200 Silicon Image, Inc.*........................................ 892,944
</Table>
See notes to financial statements.
166
SMALL-CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS (CONTINUED)
24,900 Standard Microsystems Corp.*................................ $ 696,702
23,900 Tessera Technologies, Inc.*................................. 964,126
146,000 TriQuint Semiconductor, Inc.*............................... 657,000
------------
7,171,163
------------
TELECOMMUNICATIONS EQUIPMENT AND SERVICES -- 3.5%
24,400 ADTRAN, Inc. ............................................... 553,880
25,418 General Cable Corp.*........................................ 1,111,021
25,200 General Communication, Inc. -- Class A*..................... 396,396
28,900 NICE Systems, Ltd. (ADR) (Israel)*.......................... 889,542
41,600 Oplink Communications, Inc.*................................ 855,296
53,268 Radyne Corp.*............................................... 572,098
70,400 Sirenza Microdevices, Inc.*(8).............................. 553,344
40,177 Tollgrade Communications, Inc*.............................. 424,671
------------
5,356,248
------------
TRANSPORTATION -- 1.8%
10,100 GulfMark Offshore, Inc.*.................................... 377,841
16,500 Hornbeck Offshore Services, Inc.*........................... 589,050
33,700 Hub Group, Inc. -- Class A*................................. 928,435
31,800 Kansas City Southern*....................................... 921,564
------------
2,816,890
------------
TOTAL COMMON STOCKS (Cost $138,269,022)..................... 152,969,000
------------
<Caption>
PRINCIPAL VALUE
--------- ------------
SECURITIES LENDING COLLATERAL -- 9.3%
$14,398,521 Securities Lending Collateral Investment (Note 4) (Cost
$14,398,521).............................................. $ 14,398,521
------------
TOTAL SECURITIES
(Cost $152,667,543)....................................... 167,367,521
------------
REPURCHASE AGREEMENTS -- 0.4%
618,612 With Investors Bank and Trust, dated 12/29/06, 4.76%, due
01/02/07, repurchase proceeds at maturity $618,939
(Collateralized by Small Business Administration, 8.63%,
due 05/25/14, with a value of $649,543) (Cost $618,612)... 618,612
------------
Total Investments -- 108.4%
(Cost $153,286,155)....................................... 167,986,133
Liabilities less other assets -- (8.4)%..................... (12,983,129)
------------
NET ASSETS -- 100.0%........................................ $155,003,004
============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $153,819,825.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation........... $16,485,664
Gross unrealized depreciation........... (2,319,356)
-----------
Net unrealized appreciation............. $14,166,308
===========
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
See notes to financial statements.
167
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE COUNTRY
------ -------------- -------
COMMON STOCKS -- 97.9%
AEROSPACE AND DEFENSE -- 0.1%
176,662 Rolls-Royce Group PLC....................................... $ 1,548,786 BRI
1,227 Safran SA................................................... 28,474 FRA
--------------
1,577,260
--------------
AGRICULTURE -- 1.1%
11,951,000 Chaoda Modern Agriculture (Holdings), Ltd. ................. 7,697,634 CAY
51,600 Potash Corp. of Saskatchewan, Inc.(8)....................... 7,403,568 CDA
47,803 Syngenta AG................................................. 8,893,673 SWI
--------------
23,994,875
--------------
AIRLINES -- 1.3%
3,537,400 Qantas Airways, Ltd. ....................................... 14,575,528 AUS
148,500 Ryanair Holdings PLC (ADR)*(8).............................. 12,102,750 IRE
103,500 Singapore Airlines, Ltd. ................................... 1,180,929 SIN
--------------
27,859,207
--------------
APPAREL: MANUFACTURING AND RETAIL -- 0.3%
288,800 Benetton Group SpA.......................................... 5,512,592 ITA
--------------
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE EQUIPMENT AND REPAIRS -- 6.8%
127,500 Alpine Electronics, Inc. ................................... 1,902,777 JPN
648,000 Calsonic Kansei Corp. ...................................... 3,789,824 JPN
244,600 DaimlerChrysler AG.......................................... 15,110,982 GER
1,702,000 Fuji Heavy Industries, Ltd.(8).............................. 8,738,473 JPN
10,200 Georg Fischer AG............................................ 6,608,863 SWI
1,726,700 GKN PLC..................................................... 9,398,843 BRI
351,600 Honda Motor Company, Ltd. .................................. 13,886,139 JPN
1,442,800 Nissan Motor Company, Ltd. ................................. 17,373,492 JPN
329,100 Suzuki Motor Corp.(8)....................................... 9,291,845 JPN
695,900 Toyota Motor Corp. ......................................... 46,547,322 JPN
104,788 Valeo SA*................................................... 4,361,400 FRA
51,600 Volkswagen AG(8)............................................ 5,850,361 GER
--------------
142,860,321
--------------
BANKS -- 18.1%
369,060 ABN AMRO Holding NV......................................... 11,862,776 NET
279,900 Banco Bilbao Vizcaya Argentaria SA.......................... 6,739,352 SPA
927,600 Banco Comercial
Portugues SA -- Class R................................... 3,428,539 POR
</Table>
<Table>
<Caption>
SHARES VALUE COUNTRY
------ -------------- -------
COMMON STOCKS (CONTINUED)
BANKS (CONTINUED)
1,009,800 Banco Santander Central Hispano SA.......................... $ 18,848,429 SPA
2,469,900 Barclays PLC................................................ 35,303,269 BRI
312,600 BNP Paribas SA.............................................. 34,105,327 FRA
266,800 Canadian Imperial Bank of Commerce(8)....................... 22,489,765 CDA
427,900 Commonwealth Bank of Australia.............................. 16,712,507 AUS
357,700 Credit Suisse Group......................................... 25,025,790 SWI
169,200 Danske Bank A/S............................................. 7,518,269 DEN
19,400 Deutsche Bank AG............................................ 2,595,213 GER
83,901 Dexia....................................................... 2,298,135 BEL
250,800 DNB NOR ASA................................................. 3,559,758 NOR
139,529 Erste Bank der oesterreichischen Sparkassen AG.............. 10,701,163 AST
89,200 ForeningsSparbanken AB...................................... 3,237,856 SWE
367,000 Fortis...................................................... 15,657,694 BEL
1,107,700 HBOS PLC.................................................... 24,551,683 BRI
253,800 Laurentian Bank of Canada(8)................................ 6,583,587 CDA
2,574,600 Lloyds TSB Group PLC........................................ 28,809,697 BRI
614 Mitsubishi UFJ Financial Group, Inc. ....................... 7,584,387 JPN
231,600 National Bank of Canada(8).................................. 13,075,971 CDA
1,472,300 Nordea Bank AB.............................................. 22,688,984 SWE
462,300 SanPaolo IMI SpA............................................ 10,740,560 ITA
153,700 Societe Generale............................................ 26,091,871 FRA
97,236 Standard Chartered PLC...................................... 2,840,590 BRI
377 Sumitomo Mitsui Financial Group, Inc. ...................... 3,864,880 JPN
225,061 UBS AG...................................................... 13,677,281 SWI
--------------
380,593,333
--------------
BROADCAST SERVICES/MEDIA -- 0.7%
334,200 Rogers Communications, Inc. -- Class B...................... 9,944,466 CDA
143,800 Vivendi Universal SA........................................ 5,620,665 FRA
--------------
15,565,131
--------------
BUSINESS SERVICES AND SUPPLIES -- 0.3%
1,220,000 Marubeni Corp. ............................................. 6,192,009 JPN
--------------
CHEMICALS -- 1.9%
45,100 Akzo Nobel NV............................................... 2,751,078 NET
6,140 Arkema*..................................................... 315,532 FRA
</Table>
See notes to financial statements.
168
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE COUNTRY
------ -------------- -------
COMMON STOCKS (CONTINUED)
CHEMICALS (CONTINUED)
56,300 Ciba Specialty Chemicals AG................................. $ 3,744,863 SWI
264,800 Methanex Corp.(8)........................................... 7,243,596 CDA
1,102,800 Mitsubishi Chemical Holdings Corp. ......................... 6,950,128 JPN
171,800 Nova Chemicals Corp.(8)..................................... 4,787,978 CDA
597,500 Sumitomo Bakelite Company, Ltd.(8).......................... 4,127,095 JPN
136,949 Symrise AG*................................................. 3,525,201 GER
56,279 Wacker Chemie AG*........................................... 7,323,616 GER
--------------
40,769,087
--------------
COMPUTER EQUIPMENT, SOFTWARE AND
SERVICES -- 1.5%
1,137,600 CGI Group, Inc.*............................................ 7,930,959 CDA
771,656 Logitech International SA*.................................. 22,259,917 SWI
66,900 Open Text Corp.*............................................ 1,372,249 CDA
--------------
31,563,125
--------------
CONSTRUCTION SERVICES AND SUPPLIES -- 2.1%
353,700 Barratt Developments PLC.................................... 8,552,926 BRI
8,800 Cementos Portland Valderrivas SA............................ 1,150,028 SPA
15,600 Ciments Francais SA......................................... 2,996,249 FRA
139,900 Compagnie de Saint-Gobain................................... 11,754,563 FRA
644,700 George Wimpey PLC........................................... 7,050,072 BRI
367,700 Hanson PLC.................................................. 5,547,266 BRI
43,500 Lafarge SA.................................................. 6,471,479 FRA
91,000 Maeda Road Construction Company, Ltd. ...................... 659,913 JPN
--------------
44,182,496
--------------
CONSUMER GOODS AND SERVICES -- 2.8%
302,100 Electrolux AB -- Series B(8)................................ 6,045,574 SWE
129,600 Husqvarna AB -- Class B*.................................... 2,025,606 SWE
3,769 Japan Tobacco, Inc. ........................................ 18,210,790 JPN
273,641 Reckitt Benckiser PLC....................................... 12,505,317 BRI
191,119 Swatch Group AG............................................. 8,548,203 SWI
621,600 Swedish Match AB............................................ 11,622,171 SWE
--------------
58,957,661
--------------
DIVERSIFIED OPERATIONS AND SERVICES -- 1.3%
189,300 BASF AG..................................................... 18,454,042 GER
376,899 Brambles, Ltd.*............................................. 3,816,992 AUS
334,000 Sumitomo Corp. ............................................. 4,998,563 JPN
--------------
27,269,597
--------------
</Table>
<Table>
<Caption>
SHARES VALUE COUNTRY
------ -------------- -------
COMMON STOCKS (CONTINUED)
ELECTRONICS -- 2.5%
2,020,800 Hon Hai Precision Industry Company, Ltd. ................... $ 14,418,782 TWN
209,000 Hosiden Corp. .............................................. 2,251,485 JPN
512,175 Koninklijke (Royal) Philips Electronics NV.................. 19,316,080 NET
11,571 Samsung Electronics Company, Ltd. .......................... 7,626,906 KOR
226,000 Sharp Corp. ................................................ 3,893,114 JPN
810,100 Toshiba Tec Corp. .......................................... 4,172,861 JPN
--------------
51,679,228
--------------
ENERGY SERVICES -- 0.8%
686,298 ABB, Ltd. .................................................. 12,306,616 SWI
90,100 Vestas Wind Systems A/S*.................................... 3,808,132 DEN
--------------
16,114,748
--------------
ENGINEERING -- 0.3%
241,113 SNC-Lavalin Group, Inc. .................................... 6,506,733 CDA
--------------
FINANCIAL SERVICES -- 6.2%
535,600 Alliance & Leicester PLC.................................... 11,934,261 BRI
983,100 Bradford & Bingley PLC...................................... 9,051,888 BRI
711,000 Daiwa Securities Group, Inc................................. 7,976,009 JPN
98,579 Deutsche Boerse AG.......................................... 18,142,614 GER
226,900 Hitachi Capital Corp. ...................................... 4,328,079 JPN
319,800 Irish Life & Permanent PLC.................................. 8,822,977 IRE
52,351 KBC GROEP NV................................................ 6,419,942 BEL
1,339,569 Man Group PLC............................................... 13,711,085 BRI
51,800 Muenchener Rueckversicherungs-Gesellschaft AG............... 8,917,936 GER
1,053,200 Nomura Holdings, Inc. ...................................... 19,868,358 JPN
26,200 Orix Corp. ................................................. 7,584,471 JPN
132,700 Promise Company, Ltd. ...................................... 4,125,793 JPN
38,300 Sanyo Shinpan Finance Company, Ltd. ........................ 954,241 JPN
119,100 Sun Life Financial, Inc.(8)................................. 5,037,098 CDA
98,300 Takefuji Corp. ............................................. 3,890,534 JPN
--------------
130,765,286
--------------
FOOD AND BEVERAGE -- 2.4%
585,700 Asahi Breweries, Ltd. ...................................... 9,375,728 JPN
73,300 Fomento Economico Mexicano SA de CV (ADR)................... 8,485,208 MEX
</Table>
See notes to financial statements.
169
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE COUNTRY
------ -------------- -------
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE (CONTINUED)
29,350 Nestle SA................................................... $ 10,429,668 SWI
1,537,300 Northern Foods PLC.......................................... 3,454,013 BRI
224,207 Royal Numico NV............................................. 12,060,551 NET
389,900 Tate & Lyle PLC............................................. 5,866,915 BRI
--------------
49,672,083
--------------
INSURANCE -- 5.9%
119,761 Admiral Group PLC........................................... 2,577,068 BRI
48,746 Allianz SE.................................................. 9,958,366 GER
874,200 Aviva PLC................................................... 14,070,039 BRI
91,100 CNP Assurances.............................................. 10,173,705 FRA
1,939,300 Friends Provident PLC....................................... 8,239,814 BRI
516,000 ING Groep NV................................................ 22,879,687 NET
1,003,300 Milano Assicurazioni SpA.................................... 8,178,208 ITA
1,472,000 Old Mutual PLC.............................................. 5,022,192 BRI
1,467,700 Promina Group, Ltd. ........................................ 8,017,021 AUS
5,458,900 Royal & Sun Alliance Insurance Group PLC.................... 16,300,002 BRI
94,700 Swiss Re.................................................... 8,051,637 SWI
36,300 Zurich Financial Services AG................................ 9,771,358 SWI
--------------
123,239,097
--------------
INTERNET SERVICES -- 0.9%
26,200 Baidu.com, Inc. (ADR)*(8)................................... 2,953,264 CAY
70,381 Iliad SA(8)................................................. 6,113,244 FRA
20,263 Rakuten, Inc.*.............................................. 9,449,993 JPN
--------------
18,516,501
--------------
LEISURE AND RECREATION -- 1.1%
321,941 Aristocrat Leisure, Ltd. ................................... 4,040,574 AUS
2,583,287 EMI Group PLC............................................... 13,403,901 BRI
255,300 TUI AG(8)................................................... 5,102,313 GER
--------------
22,546,788
--------------
MACHINERY -- 1.2%
191,600 Komatsu, Ltd. .............................................. 3,888,190 JPN
122,800 MAN AG...................................................... 11,097,512 GER
103,500 Mori Seiki Company, Ltd.(8)................................. 2,317,781 JPN
15,900 Rieter Holding AG........................................... 8,318,629 SWI
--------------
25,622,112
--------------
MANUFACTURING -- 1.0%
82,432 Alstom*..................................................... 11,175,234 FRA
704,000 Kurabo Industries, Ltd. .................................... 1,827,957 JPN
</Table>
<Table>
<Caption>
SHARES VALUE COUNTRY
------ -------------- -------
COMMON STOCKS (CONTINUED)
MANUFACTURING (CONTINUED)
655,000 Nippon Paint Company, Ltd................................... $ 3,434,478 JPN
1,155,936 Tomkins PLC................................................. 5,562,116 BRI
--------------
21,999,785
--------------
MEDICAL EQUIPMENT, SUPPLIES, AND SERVICES -- 0.7%
34,320 Essilor International SA CIE Generale D'Optique............. 3,690,020 FRA
36,810 Nobel Biocare Holding AG.................................... 10,882,891 SWI
--------------
14,572,911
--------------
METALS AND MINING -- 6.3%
93,400 Alcan, Inc. ................................................ 4,547,659 CDA
1,257,100 BlueScope Steel, Ltd. ...................................... 8,553,556 AUS
196,900 Cameco Corp.(8)............................................. 7,964,605 CDA
285,100 Companhia Vale do Rio Doce (ADR)............................ 8,478,874 BRA
218,100 JFE Holdings, Inc. ......................................... 11,234,427 JPN
37,300 Norddeutsche Affinerie AG................................... 1,046,305 GER
331,500 Rautaruukki Oyj............................................. 13,193,537 FIN
76,700 Russel Metals, Inc. ........................................ 1,756,112 CDA
99,475 Salzgitter AG............................................... 13,006,451 GER
308,300 Sims Group, Ltd. ........................................... 4,920,671 AUS
341,100 ThyssenKrupp AG(8).......................................... 16,070,102 GER
72,660 Vallourec SA................................................ 21,130,037 FRA
165,600 voestalpine AG.............................................. 9,349,534 AST
203,469 Xstrata PLC................................................. 10,159,004 BRI
--------------
131,410,874
--------------
OFFICE EQUIPMENT, SUPPLIES, AND SERVICES -- 0.5%
95,000 Brother Industries, Ltd. ................................... 1,286,038 JPN
315,000 Ricoh Company, Ltd. ........................................ 6,432,083 JPN
3,314,500 TPV Technology, Ltd. ....................................... 2,096,517 HNG
--------------
9,814,638
--------------
OIL, COAL AND GAS -- 7.0%
1,176,600 BP PLC...................................................... 13,073,967 BRI
988,200 Cosmo Oil Company, Ltd.(8).................................. 4,019,065 JPN
635,400 Eni SpA..................................................... 21,371,599 ITA
2,063,000 Nippon Oil Corp. ........................................... 13,798,983 JPN
227,500 Norsk Hydro ASA............................................. 7,060,118 NOR
173,100 Oao Gazprom (ADR)........................................... 8,045,688 SUR
1,754,000 Osaka Gas Company, Ltd. .................................... 6,529,322 JPN
287,000 Repsol YPF SA............................................... 9,925,984 SPA
1,290,100 Royal Dutch Shell PLC -- Class B............................ 45,215,684 BRI
</Table>
See notes to financial statements.
170
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE COUNTRY
------ -------------- -------
COMMON STOCKS (CONTINUED)
OIL, COAL AND GAS (CONTINUED)
64,900 Showa Shell Sekiyu KK....................................... $ 726,413 JPN
245,600 Total SA.................................................... 17,717,764 FRA
--------------
147,484,587
--------------
PAPER AND FOREST PRODUCTS -- 0.5%
379,000 Hokuetsu Paper Mills, Ltd.(8)............................... 2,140,145 JPN
301,800 Norbord, Inc. .............................................. 2,305,911 CDA
1,263,000 Oji Paper Company, Ltd. .................................... 6,707,416 JPN
--------------
11,153,472
--------------
PHARMACEUTICALS/RESEARCH AND
DEVELOPMENT -- 2.2%
338,900 Biovail Corp.(8)............................................ 7,149,115 CDA
131,200 Daiichi Sanyko Company, Ltd. ............................... 4,101,206 JPN
216,100 Eisai Company, Ltd. ........................................ 11,875,921 JPN
528,100 Elan Corp. PLC (ADR)*(8).................................... 7,789,475 IRE
173,800 GlaxoSmithKline PLC......................................... 4,573,637 BRI
476,000 Tanabe Seiyaku Company, Ltd. ............................... 6,219,739 JPN
56,725 UCB SA(8)................................................... 3,890,007 BEL
--------------
45,599,100
--------------
PRINTING AND PUBLISHING -- 0.5%
505,300 Quebecor World, Inc. ....................................... 5,849,633 CDA
439,000 Toppan Printing Company, Ltd. .............................. 4,847,242 JPN
--------------
10,696,875
--------------
REAL ESTATE DEVELOPMENT AND SERVICES -- 2.0%
249,443 British Land Company PLC.................................... 8,371,337 BRI
7,094,000 Shun Tak Holdings, Ltd. .................................... 10,853,091 HNG
356,000 Sumitomo Realty & Development Company, Ltd. ................ 11,427,419 JPN
49,441 Unibail..................................................... 12,080,476 FRA
--------------
42,732,323
--------------
RETAIL -- 2.7%
853,725 Boots Group PLC............................................. 13,999,595 BRI
1,884,058 Carphone Warehouse PLC...................................... 11,583,415 BRI
1,918,071 Debenhams PLC............................................... 7,126,219 BRI
1,912,500 Dixons Group PLC............................................ 7,171,053 BRI
590,900 JJB Sports PLC.............................................. 2,721,801 BRI
</Table>
<Table>
<Caption>
SHARES VALUE COUNTRY
------ -------------- -------
COMMON STOCKS (CONTINUED)
RETAIL (CONTINUED)
1,791,719 Kesa Electricals PLC........................................ $ 11,901,520 BRI
10,300 Valora Holding AG........................................... 2,829,647 SWI
--------------
57,333,250
--------------
RETAIL: RESTAURANTS -- 0.1%
112,200 Plenus Company, Ltd. ....................................... 2,324,045 JPN
--------------
RETAIL: SUPERMARKETS -- 1.1%
2,931,020 Tesco PLC................................................... 23,214,001 BRI
--------------
SEMICONDUCTORS -- 1.5%
3,372,061 ARM Holdings PLC............................................ 8,302,638 BRI
444,657 ASML Holding NV*............................................ 11,058,505 NET
222,700 Elpida Memory, Inc.*........................................ 12,238,629 JPN
--------------
31,599,772
--------------
TELECOMMUNICATIONS EQUIPMENT AND
SERVICES -- 5.7%
329,600 America Movil SA de CV -- Series L (ADR).................... 14,904,512 MEX
3,064,800 BT Group PLC................................................ 18,092,648 BRI
277,800 Deutsche Telekom AG......................................... 5,075,265 GER
159,600 Elcoteq Network Corp. -- Class A............................ 2,060,450 FIN
1,765,000 MobileOne, Ltd. ............................................ 2,474,165 SIN
2,600 Nippon Telegraph and Telephone Corp. ....................... 12,802,823 JPN
373,400 Nokia Oyj (ADR)............................................. 7,587,488 FIN
8,407 NTT DoCoMo, Inc. ........................................... 13,281,089 JPN
187,500 Research In Motion, Ltd.*................................... 23,958,751 CDA
20,800 Swisscom AG................................................. 7,873,615 SWI
270,300 Telenor ASA................................................. 5,082,864 NOR
1,646,500 Vodafone Group PLC.......................................... 4,561,744 BRI
395,600 VTech Holdings, Ltd. ....................................... 2,441,253 BER
--------------
120,196,667
--------------
TOYS -- 1.0%
78,300 Nintendo Company, Ltd. ..................................... 20,330,826 JPN
--------------
TRANSPORTATION -- 0.8%
2,535,000 Neptune Orient Lines, Ltd................................... 3,454,377 SIN
1,367,100 Orient Overseas International, Ltd. ........................ 8,700,031 BER
286,731 Toll Holdings, Ltd. ........................................ 4,135,069 AUS
--------------
16,289,477
--------------
UTILITIES -- 4.7%
95,900 ATCO, Ltd. -- Class I....................................... 4,138,959 CDA
118,900 Chubu Electric Power Company, Inc. ......................... 3,556,859 JPN
349,857 Endesa SA................................................... 16,547,323 SPA
</Table>
See notes to financial statements.
171
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2006
<Table>
<Caption>
SHARES VALUE COUNTRY
------ -------------- -------
COMMON STOCKS (CONTINUED)
UTILITIES (CONTINUED)
1,130,300 Energias de Portugal SA..................................... $ 5,729,482 POR
314,200 Hokkaido Electric Power Company, Inc........................ 8,026,285 JPN
248,000 Kyushu Electric Power Company, Inc. ........................ 6,543,591 JPN
709,312 Scottish Power PLC.......................................... 10,388,470 BRI
222,700 Shikoku Electric Power Company, Inc.(8)..................... 5,305,277 JPN
604,300 The Kansai Electric Power Company, Inc...................... 16,300,181 JPN
295,595 Veolia Environment.......................................... 22,787,690 FRA
--------------
99,324,117
--------------
TOTAL COMMON STOCKS (Cost $1,552,036,742)................... 2,057,635,990
--------------
RIGHTS -- 0.0%
AUTOMOBILES/MOTOR VEHICLES, AUTOMOTIVE
EQUIPMENT AND REPAIRS
390,900 TI Automotive, Ltd. -- Class A*(14)(27) (Cost $0)........... -- BRI
--------------
<Caption>
PRINCIPAL
---------
SECURITIES LENDING COLLATERAL -- 7.1%
$149,080,031 Securities Lending Collateral Investment (Note 4) (Cost
$149,080,031)............................................. 149,080,031 USA
--------------
TOTAL SECURITIES (Cost $1,701,116,773)...................... 2,206,716,021
--------------
REPURCHASE AGREEMENTS -- 1.4%
29,549,256 With Investors Bank and Trust, dated 12/29/06, 4.76%, due
01/02/07, repurchase proceeds at maturity $29,564,884
(Collateralized by Fannie Mae Adjustable Rate Mortgage,
4.40%, due 02/01/34, with a value of $12,628,519 and
Freddie Mac Adjustable Rate Mortgage, 5.95%, due 12/15/32,
with a value of $18,398,200) (Cost $29,549,256)........... 29,549,256 USA
--------------
Total Investments -- 106.4% (Cost $1,730,666,029)........... 2,236,265,277
Liabilities less other assets -- (6.4)%..................... (135,112,804)
--------------
NET ASSETS -- 100.0%........................................ $2,101,152,473
==============
</Table>
The aggregate cost of securities for federal income tax purposes at December 31,
2006 is $1,746,694,307.
The following amounts are based on cost for federal income tax purposes:
<Table>
Gross unrealized appreciation......... $517,975,058
Gross unrealized depreciation......... (28,404,088)
------------
Net unrealized appreciation........... $489,570,970
============
</Table>
- ---------------
See summary of footnotes and abbreviations to portfolios.
<Table>
<Caption>
PERCENT OF TOTAL
COUNTRY COMPOSITION INVESTMENTS AT VALUE
- ------------------- --------------------
Australia (AUS)...................... 2.90%
Austria (AST)........................ 0.90
Belgium (BEL)........................ 1.26
Bermuda (BER)........................ 0.59
Brazil (BRA)......................... 0.38
Canada (CDA)......................... 6.71
Cayman Islands (CAY)................. 0.48
Denmark (DEN)........................ 0.51
Finland (FIN)........................ 1.02
France (FRA)......................... 8.79
Germany (GER)........................ 6.32
Hong Kong (HNG)...................... 0.49
Ireland (IRE)........................ 1.28
Italy (ITA).......................... 2.05
Japan (JPN).......................... 19.47
Mexico (MEX)......................... 1.05
Norway (NOR)......................... 0.70
Portugal (POR)....................... 0.41
Russia (SUR)......................... 0.36
Singapore (SIN)...................... 0.32
South Korea (KOR).................... 0.34
Spain (SPA).......................... 2.38
Sweden (SWE)......................... 2.04
Switzerland (SWI).................... 7.57
Taiwan (TWN)......................... 0.64
The Netherlands (NET)................ 3.57
United Kingdom (BRI)................. 19.48
United States (USA).................. 7.99
------
TOTAL PERCENTAGE..................... 100.00%
======
</Table>
See notes to financial statements.
172
DIVERSIFIED INVESTORS PORTFOLIOS
PORTFOLIOS OF INVESTMENTS
SUMMARY OF FOOTNOTES AND ABBREVIATIONS TO PORTFOLIOS
DECEMBER 31, 2006
Footnotes:
* Non-income producing security.
144A All or a portion of this security is a 144A or private placement security
and can only be sold to qualified institutional buyers. Unless otherwise
indicated, these securities have been determined to be liquid under
procedures established by the Board of Trustees.
1) Variable rate security. The rate shown was in effect at December 31, 2006.
2) Quarterly reset provision. The rate shown was in effect at December 31,
2006.
3) Monthly reset provision. The rate shown was in effect at December 31,
2006.
4) Security is segregated as collateral for written options.
5) Security is segregated as initial margin for futures contracts.
6) Security is segregated as collateral for swap contracts.
7) Represents a zero coupon bond which will convert to an interest bearing
security at a later date.
8) All or part of this security is on loan.
9) Bond is in default.
10) Variable rate security. Interest rate is based on the credit rating of the
issuer. The rate shown was in effect at December 31, 2006.
11) Floating rate security. The interest rate is subject to change
semi-annually based on the London Interbank Offered Rate ("LIBOR"). The
rate shown was in effect at
December 31, 2006.
12) PIK ("Payment-In-Kind") bond. These bonds pay interest in the form of
additional bonds.
13) Security was in bankruptcy reorganization at the time of maturity.
Recovery will be determined at the conclusion of the bankruptcy.
14) Fair valued at December 31, 2006.
Following are the market values (as determined by fair valuation) and the
corresponding percentage of Portfolio assets of all fair valued securities
at December 31, 2006.
<Table>
<Caption>
SERIES MARKET VALUE PERCENTAGE
------ ------------ ----------
Total Return Bond $1,199,940 0.69%
High Yield Bond 3,467,853 0.71
</Table>
15) Principal amount for this security is denominated in Australian Dollars.
16) Principal amount for this security is denominated in
British Pounds.
17) Principal amount for this security is denominated in
Canadian Dollars.
18) Principal amount for this security is denominated in
Danish Krone.
19) Principal amount for this security is denominated in Euros.
20) Principal amount for this security is denominated in
Hong Kong Dollars.
21) Principal amount for this security is denominated in
Japanese Yen.
22) Principal amount for this security is denominated in
Mexican Pesos.
23) Principal amount for this security is denominated in
New Zealand Dollars.
24) Principal amount for this security is denominated in
Swedish Krona.
25) Principal amount for this security is denominated in
Swiss Francs.
26) Principal amount for this security is denominated in
Taiwan Dollars.
27) Illiquid security. Refer to Note 2M.
Abbreviations:
ADR American Depository Receipt.
FDR Foreign Depository Receipt.
GDR Global Depository Receipt.
IO Interest Only represents the right to receive the monthly interest payment
on an underlying pool of mortgage loans. The face amount shown represents
the par value on the underlying pool. The yields on these securities
generally exceed yields on other mortgage-backed securities because their
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped. These securities are subject
to accelerated principal paydowns as a result of prepayment or refinancing
of the underlying pool of mortgage instruments. As a result, interest
income may be reduced considerably.
TBA To be announced. Securities are purchased on a forward commitment basis with
approximate principal amount and general stated maturity date. The actual
principal amount and maturity date will be determined upon settlement when
the specific mortgage pools are assigned.
- ---------------
- Securities issued by companies registered outside the United States are
denoted with their domestic country in parenthesis.
- Fixed income securities designated as "perpetual" are securities that make
(or are scheduled to make) a steady payment of interest. They do not have
a maturity date, and the interest payments are indefinite.
- Footnotes and abbreviations may or may not appear in each portfolio of
investments.
See notes to financial statements.
173
DIVERSIFIED INVESTORS PORTFOLIOS
PORTFOLIO COMPOSITION
DECEMBER 31, 2006
The following charts summarize the portfolio composition of each Series by asset
type.
<Table>
MONEY MARKET SERIES
Commercial Paper................................ 44.4%
Repurchase Agreements/Cash Equivalents.......... 15.9
Short Term Corporate Notes...................... 15.9
Yankee Certificates of Deposit.................. 15.5
Short Term US Government Agency Securities...... 6.5
Medium Term Corporate Notes..................... 1.5
Other assets less liabilities................... 0.3
-----
100.0%
=====
HIGH QUALITY BOND SERIES
Corporate Bonds and Notes....................... 76.3%
US Government Agency Securities................. 19.3
US Treasury Securities.......................... 2.4
Repurchase Agreements/Cash Equivalents.......... 1.1
Securities Lending Collateral................... 1.0
Municipal Bonds................................. 0.8
Foreign Government Obligations.................. 0.5
Liabilities less other assets................... (1.4)
-----
100.0%
=====
INTERMEDIATE GOVERNMENT BOND SERIES
US Government Agency Securities................. 53.5%
US Treasury Securities.......................... 30.8
Securities Lending Collateral................... 19.5
Corporate Bonds and Notes....................... 10.4
Short Term US Government Agency Securities...... 3.8
Liabilities less other assets................... (18.0)
-----
100.0%
=====
CORE BOND SERIES
US Government Agency Securities................. 54.3%
Corporate Bonds and Notes....................... 52.3
US Treasury Securities.......................... 6.3
Short Term US Government Agency Securities...... 1.2
Repurchase Agreements/Cash Equivalents.......... 1.0
Foreign Government Obligations.................. 0.7
Short Term Corporate Notes...................... 0.4
Securities Lending Collateral................... 0.0*
Purchased Put Options........................... 0.0*
Call Options Written............................ (0.0)*
Put Options Written............................. (0.0)*
Securities Sold Short........................... (7.8)
Liabilities less other assets................... (8.4)
-----
100.0%
=====
TOTAL RETURN BOND SERIES
US Government Agency Securities................. 53.2%
Corporate Bonds and Notes....................... 48.0
Repurchase Agreement/Cash Equivalents........... 20.7
US Treasury Securities.......................... 15.4
Securities Lending Collateral................... 3.5
Foreign Government Obligations.................. 2.4
Municipal Bonds................................. 0.6
Short Term US Government Agency Securities...... 0.3
Convertible Preferred Stocks.................... 0.2
Convertible Bonds............................... 0.1
Call Options Written............................ (0.0)*
Put Options Written............................. (0.0)*
Liabilities less other assets................... (44.4)
-----
100.0%
=====
HIGH YIELD BOND SERIES
Corporate Bonds and Notes....................... 85.3%
Repurchase Agreements/Cash Equivalents.......... 5.0
Loan Participations............................. 4.9
Convertible Preferred Stocks.................... 0.9
Common Stocks................................... 0.4
Convertible Bonds............................... 0.4
Warrants........................................ 0.1
Other assets less liabilities................... 3.0
-----
100.0%
=====
BALANCED SERIES
Common Stocks................................... 60.4%
Corporate Bonds and Notes....................... 21.1
US Government Agency Securities................. 20.9
Repurchase Agreements/Cash Equivalents.......... 4.2
US Treasury Securities.......................... 3.5
Securities Lending Collateral................... 2.2
Foreign Government Obligations.................. 1.3
Municipal Bonds................................. 0.4
Short Term US Treasury Securities............... 0.3
Short Term US Government Agency Securities...... 0.2
Convertible Preferred Stock..................... 0.1
Convertible Bonds............................... 0.0*
Warrants........................................ 0.0*
Call Options Written............................ (0.0)*
Put Options Written............................. (0.0)*
Liabilities less other assets................... (14.6)
-----
100.0%
=====
</Table>
See notes to financial statements.
174
DIVERSIFIED INVESTORS PORTFOLIOS
PORTFOLIO COMPOSITION (CONTINUED)
DECEMBER 31, 2006
The following charts summarize the portfolio composition of each Series by asset
type.
<Table>
VALUE & INCOME SERIES
Common Stocks................................... 97.8%
Securities Lending Collateral................... 5.3
Repurchase Agreements/Cash Equivalents.......... 2.1
Liabilities less other assets................... (5.2)
-----
100.0%
=====
VALUE SERIES
Common Stocks................................... 95.5%
Securities Lending Collateral................... 15.2
Repurchase Agreements/Cash Equivalents.......... 9.0
Liabilities less other assets................... (19.7)
-----
100.0%
=====
GROWTH & INCOME SERIES
Common Stocks................................... 98.1%
Securities Lending Collateral................... 5.9
Repurchase Agreements/Cash Equivalents.......... 2.1
Liabilities less other assets................... (6.1)
-----
100.0%
=====
EQUITY GROWTH SERIES
Common Stocks................................... 97.9%
Securities Lending Collateral................... 6.3
Repurchase Agreements/Cash Equivalents.......... 0.9
Liabilities less other assets................... (5.1)
-----
100.0%
=====
AGGRESSIVE EQUITY SERIES
Common Stocks................................... 99.4%
Securities Lending Collateral................... 12.6
Liabilities less other assets................... (12.0)
-----
100.0%
=====
MID-CAP VALUE SERIES
Common Stocks................................... 97.9%
Securities Lending Collateral................... 12.7
Repurchase Agreements/Cash Equivalents.......... 1.7
Short Term Commercial Paper..................... 0.2
Convertible Bonds............................... 0.0*
Liabilities less other assets................... (12.5)
-----
100.0%
=====
MID-CAP GROWTH SERIES
Common Stock.................................... 98.1%
Securities Lending Collateral................... 16.0
Repurchase Agreements/Cash Equivalents.......... 2.0
Liabilities less other assets................... (16.1)
-----
100.0%
=====
SMALL-CAP VALUE SERIES
Common Stocks................................... 99.6%
Securities Lending Collateral................... 18.0
Repurchase Agreements/Cash Equivalents.......... 0.0*
Liabilities less other assets................... (17.6)
-----
100.0%
=====
SPECIAL EQUITY SERIES
Common Stocks................................... 97.9%
Securities Lending Collateral................... 20.2
Repurchase Agreements/Cash Equivalents.......... 2.7
Short Term US Treasury Securities............... 0.1
Liabilities less other assets................... (20.9)
-----
100.0%
=====
SMALL-CAP GROWTH SERIES
Common Stocks................................... 98.7%
Securities Lending Collateral................... 9.3
Repurchase Agreements/Cash Equivalents.......... 0.4
Liabilities less other assets................... (8.4)
-----
100.0%
=====
INTERNATIONAL EQUITY SERIES
Common Stocks................................... 97.9%
Securities Lending Collateral................... 7.1
Repurchase Agreements/Cash Equivalents.......... 1.4
Rights.......................................... 0.0*
Liabilities less other assets................... (6.4)
-----
100.0%
=====
</Table>
- ---------------
* Amount rounds to less than 0.05%.
See notes to financial statements.
175
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 eighteen different series that are, in effect, separate investment
funds: the Money Market Portfolio, the High Quality Bond Portfolio, the
Intermediate Government Bond Portfolio, the Core Bond Portfolio, the Total
Return Bond Portfolio, the High Yield Bond Portfolio, the Balanced Portfolio,
the Value & Income Portfolio, the Value Portfolio, the Growth & Income
Portfolio, the Equity Growth Portfolio, the Aggressive Equity Portfolio, the
Mid-Cap Value Portfolio, the Mid-Cap Growth Portfolio, the Small-Cap Value
Portfolio, the Special Equity Portfolio, the Small-Cap Growth Portfolio, and the
International Equity Portfolio (each a "Series"). The Declaration of Trust
permits the Board of Trustees to issue an unlimited number of beneficial
interests in each Series. Investors in a Series (e.g., investment companies,
insurance company separate accounts and common and commingled trust funds) will
each be liable for all obligations of that Series (and of no other Series).
The investment objectives of each Series are as follows:
Money Market -- The Series' goal is to provide liquidity and as high a level of
income as is consistent with the preservation of capital.
High Quality Bond -- The Series' goal is to provide a high risk-adjusted return
while focusing on the preservation of capital.
Intermediate Government Bond -- The Series' goal is to provide as high a level
of current income as is consistent with the preservation of capital.
Core Bond -- The Series' goal is to achieve maximum total return.
Total Return Bond -- The Series' goal is to maximize long-term total return.
High Yield Bond -- The Series' goal is to provide a high level of current
income.
Balanced -- The Series' goal is to provide a high total investment return
through investment in a broadly diversified portfolio of stocks, bonds and money
market instruments.
Value & Income -- The Series' goal is to provide a high level of current income
through investment in a broadly diversified portfolio of common stocks with
relatively high current yield. Capital appreciation is a secondary goal.
Value -- The Series' goal is to provide capital appreciation. Dividend income is
a secondary goal.
Growth & Income -- The Series' goal is to provide capital appreciation and
current income.
Equity Growth -- The Series' goal is to provide a high level of capital
appreciation through investment in a diversified portfolio of common stocks with
a potential for above-average growth in earnings. Current income is a secondary
goal.
Aggressive Equity -- The Series' goal is to provide a high level of capital
appreciation primarily through investing in a diversified portfolio of common
stocks.
Mid-Cap Value -- The Series' goal is to provide a high total investment return
through investments primarily in a diversified portfolio of common stocks.
Mid-Cap Growth -- The Series' goal is to provide a high total investment return
through investments primarily in a diversified portfolio of common stocks.
Small-Cap Value -- The Series' goal is to provide a high total investment return
through investments primarily in a diversified portfolio of common stocks.
176
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND BUSINESS (CONTINUED)
Special Equity -- The Series' goal is to provide a high level of capital
appreciation through investment in a diversified portfolio of common stocks of
small to medium size companies.
Small-Cap Growth -- The Series' goal is to provide a high total investment
return through investments primarily in a diversified portfolio of common
stocks.
International Equity -- The Series' goal is to provide a high level of long-term
capital appreciation through investment in a diversified portfolio of securities
of foreign issuers.
2. SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION:
Short-term securities having remaining maturities of 60 days or less are valued
at amortized cost, which approximates market value. The amortized cost of a
security is determined by valuing it at original cost and thereafter amortizing
any discount or premium at a constant rate until maturity. Equity securities are
valued at the last sale price on the exchange on which they are primarily traded
or at the last quoted bid price for securities in which there were no sales
during the day or for unlisted securities. Portfolio securities listed on the
NASDAQ National Market and NASDAQ Small Cap Market for which reliable market
quotations are available are valued at the official closing price or, if there
is no official closing price on that day at the last sale price. Bonds are
valued at the mean of the last available bid and asked prices by an independent
pricing service. Futures and option contracts that are traded on commodities or
securities exchanges are normally valued at the last settlement price on the
exchange on which they are traded. When valuations are not readily available,
securities will be valued at their fair value as determined by the Board of
Trustees. Unlisted securities are valued at the last sales price provided by an
independent pricing agent or the principal market maker.
Trading in securities on most foreign exchanges and over-the counter markets is
normally completed before the close of the domestic market and may also take
place on days when the domestic market is closed. Events or circumstances
affecting the values of portfolio securities that occur between the closing of
their principal markets and the time the net asset value is determined may be
reflected in the calculation of net asset value when the investment advisor
deems that the particular event or circumstance would materially affect its
asset value. In accordance with procedures adopted by the Board of Trustees, the
International Equity Series applies fair value pricing on a daily basis for all
non-US and non-Canadian equity securities held in its portfolio by utilizing the
quotations of an independent pricing service, unless the Series' investment
advisor determines that use of another valuation methodology is appropriate. The
pricing service uses statistical analyses and quantitative models to adjust
local market prices using factors such as subsequent movement and changes in the
prices of indices, securities and exchange rates in other markets, in
determining fair value each day.
B. REPURCHASE AGREEMENTS:
Each Series, along with other affiliated entities of the investment advisor, may
enter into repurchase agreements with financial institutions deemed to be
creditworthy by the Series' investment advisor, subject to the seller's
agreement to repurchase and the Series agreement to resell such securities at a
mutually agreed upon price. Securities purchased subject to repurchase
agreements are segregated at the custodian and, pursuant to the terms of the
repurchase agreements, must have an aggregate market value greater than or equal
to 102% for domestic securities and 105% for international securities of the
repurchase price at all times. If the value of the underlying securities falls
below the value of the repurchase price, 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.
177
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. FOREIGN CURRENCY TRANSLATION:
The accounting records of each Series are maintained in US dollars. The market
values of foreign securities, currency holdings and other assets and liabilities
denominated in a foreign currency are translated to US dollars based on the
prevailing exchange rates each business day. Income, expenses, purchases, and
sales of investment securities denominated in foreign currencies are translated
at prevailing exchange rates when accrued or incurred.
Each 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 securities. Net realized gains and losses on
foreign currency transactions represent net foreign exchange gains and losses on
disposition of foreign currencies and foreign currency forward and spot
contracts, and the difference between the amount of investment income receivable
and foreign withholding taxes payable recorded on each Series' books and the US
dollar equivalent of amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities (other than investments in securities) and foreign currency forward
and spot contracts, resulting from changes in the prevailing exchange rates.
D. FOREIGN CURRENCY FORWARD, SPOT, AND CROSS CURRENCY CONTRACTS:
Each Series, with the exception of the Money Market Series, may enter into
foreign currency forward contracts, spot, and cross currency contracts in
connection with settling planned purchases or sales of securities or to hedge
the currency exposure associated with those series that participate in such
contracts. A foreign currency forward contract is an agreement between two
parties to buy and sell a currency at a set price on a future date. A spot
contract is also an agreement to buy and sell a currency, but will settle within
a week or less from the date it is entered into. The market value of a foreign
currency forward, spot, or cross currency contract fluctuates with changes in
forward currency exchange rates. Foreign currency forward, spot, and cross
currency contracts are marked to market daily and the change in value is
recorded by the Series as an unrealized foreign exchange gain or loss. When a
foreign currency forward, spot, or cross currency contract is extinguished,
through delivery or by entering into another offsetting foreign currency
forward, spot, or cross 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. These
contracts may involve market risk in excess of the unrealized gain or loss
reflected in the Series' Statement of Assets and Liabilities and Statement of
Operations. In addition, the Series could be exposed to risk if the
counterparties are unable to meet the terms of the contracts or if the value of
the currency changes unfavorably to the US dollar.
As of December 31, 2006, the Core Bond Series, Total Return Bond Series,
Balanced Series, and International Equity Series each had outstanding foreign
currency forward contracts as listed in Note 10.
E. WRITTEN OPTIONS:
Each Series, with the exception of the Money Market Series, may write or
purchase options for the purpose of either hedging its exposure to the market
fluctuations of the portfolio, or an individual security position. When a Series
writes an option, an amount equal to the premium received by the Series is
recorded as an asset and corresponding liability. The amount of the liability is
adjusted daily to reflect the current market value of the written option and the
change is recorded in a corresponding unrealized gain or loss account. These
options are settled for cash and subject the Series to unknown risk of loss. The
Series, however, are not subject to credit risk on written options, as the
counterparty has already performed its obligation by paying the premium at the
inception of the contract. When a written option expires on its stipulated
expiration date, or when a closing
178
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
transaction is entered into, the related liability is extinguished and the
Series realizes a gain or loss contingent on whether the cost of the closing
transaction exceeds the premium received when the option was written.
Transactions in options written for the year ended December 31, 2006:
<Table>
<Caption>
CORE BOND TOTAL RETURN BOND BALANCED
---------------------- -------------------- --------------------
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS PREMIUMS CONTRACTS PREMIUMS CONTRACTS PREMIUMS
---------- --------- --------- -------- --------- --------
Written call options outstanding
at December 31, 2005........... 172 $ 98,503 -- $ -- -- $ --
Call options written............. 34,200,364 405,683 268 69,361 427 107,397
Call options terminated in
closing purchase
transactions................... (536) (275,046) (242) (62,397) (385) (96,060)
Call options expired............. -- -- -- -- -- --
---------- --------- ---- -------- ---- --------
Written call options outstanding
at December 31, 2006........... 34,200,000 $ 229,140 26 $ 6,964 42 $ 11,337
========== ========= ==== ======== ==== ========
Written put options outstanding
at December 31, 2005........... 172 $ 87,812 -- $ -- -- $ --
Put options written.............. 34,200,570 609,700 195 53,322 402 106,866
Put options terminated in closing
purchase transactions.......... (742) (324,732) (144) (37,890) (320) (82,057)
Put options expired.............. -- -- -- -- -- --
---------- --------- ---- -------- ---- --------
Written put options outstanding
at December 31, 2006........... 34,200,000 $ 372,780 51 $ 15,432 82 $ 24,809
========== ========= ==== ======== ==== ========
</Table>
F. FUTURES CONTRACTS:
Each Series, with the exception of the Money Market Series, may enter into
futures contracts for the purpose of hedging its existing portfolio securities,
or securities that the Series intends to purchase, against fluctuations in
market value caused by changes in prevailing market or interest rates. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marking to market" on a daily
basis to reflect the daily market value of the contract.
Variation margin payments are received or made by each Series each day,
depending upon the daily fluctuations in the market value of the underlying
instrument. Each Series recognizes an unrealized gain or loss equal to the daily
variation margin. When the contract is closed, the Series records a realized
gain or loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the basis in the contract.
Should market conditions move unexpectedly, the Series may not achieve the
anticipated benefits of the futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates, and the underlying hedged
assets. These contracts may involve market risk in excess of the unrealized
gains or losses reflected in the Series' Statement of Assets and Liabilities.
Use of long futures contracts subjects the Series to risk of loss in excess of
amounts shown on the Statement of Assets and Liabilities up to the notional
value of the futures contracts. Use of short futures contracts subjects the
Series to unlimited risk of loss. The Series may enter into futures contracts on
exchanges or boards of trade. In that case, the exchange or board of trade acts
as the counterparty to each futures transaction; therefore, the Series' credit
risk is limited to failure of the exchange or board of trade.
179
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Open futures contracts as of December 31, 2006:
<Table>
<Caption>
VALUE AS OF NET UNREALIZED
NUMBER OF EXPIRATION DECEMBER 31, APPRECIATION/
SERIES CONTRACTS DESCRIPTION DATE 2006 (DEPRECIATION)
- ------ ----------- ----------------------------------- -------------- ------------ --------------
Core Bond............ 1,716 Long US Long Bond Future March 2007 $191,226,750 $(5,122,600)
1,278 Long US Treasury Notes 10 Year Future March 2007 137,345,063 (1,080,024)
812 Short 90 Day Euro Future June 2007 192,383,100 822,265
1,071 Short 90 Day Euro Future September 2007 254,134,913 652,341
4,181 Short US Treasury Note 5 Year Future March 2007 439,266,313 2,326,393
--------------
$(2,401,625)
==============
Total Return Bond.... 57 Long 90 Day LIBOR Future September 2007 $ 6,733,838 $ (5,170)
45 Long Euro Bund Future March 2007 5,221,350 (51,219)
35 Long US Treasury Note 2 Year Future March 2007 7,141,094 (18,988)
120 Long US Treasury Note 5 Year Future March 2007 12,607,500 (46,983)
9 Short US Long Bond Future March 2007 1,002,938 15,916
149 Short US Treasury Note 10 Year Future (a) March 2007 16,012,844 104,739
--------------
$ (1,705)
==============
Balanced............. 72 Long 90 Day LIBOR Future September 2007 $ 8,505,900 $ (6,546)
57 Long Euro Bund Future March 2007 6,613,710 (64,872)
8 Long S&P 500 Future March 2007 571,400 1,184
68 Long US Treasury Note 2 Year Future March 2007 13,874,125 (36,684)
96 Long US Treasury Note 5 Year Future March 2007 10,086,000 (35,402)
17 Short US Long Bond Future March 2007 1,894,438 30,142
193 Short US Treasury Note 10 Year Future (a) March 2007 20,741,469 132,949
--------------
$ 20,771
==============
Growth & Income...... 42 Long S&P 500 Future March 2007 $ 2,999,850 $ 8,196
==============
Special Equity....... 2 Long Russell 2000 Future March 2007 $ 794,900 $ 6,023
==============
</Table>
(a) Segregated as collateral for put options written as shown on each respective
Series Portfolio of Investments.
The Core Bond Series and Special Equity Series have segregated securities as
collateral for their respective open futures contracts. The segregated
securities are identified within each Series' portfolio of investments. The
Total Return Bond Series has segregated $352,213 of cash, the Balanced Series
has segregated $459,080 of cash and has restricted cash of $140,600 as
collateral for their respective open future contracts. The Growth & Income
Series has restricted cash of $560,000 as collateral for open futures contracts.
G. SWAPS
The Series, with the exception of the Money Market Series, may engage in various
swap transactions, including interest rate, currency exchange rate, equity index
and total return swaps, for hedging purposes, or as alternatives to direct
investments. Unrealized gains are reported as an asset and unrealized losses are
reported as a liability on the Statement of Assets and Liabilities. The change
in value of swaps, including accruals of periodic amounts of interest to be paid
or received on swaps, is reported as unrealized gains or losses in the Statement
of Operations. A realized gain or loss is recorded upon payment or receipt of a
periodic payment or termination of the swap agreements. Swap agreements are
stated at fair value. Notional principal amounts are
180
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
used to express the extent of involvement in these transactions, but the amounts
potentially subject to credit risk are much smaller.
Outstanding swap agreements as of December 31, 2006:
INTEREST RATE SWAPS
CORE BOND
<Table>
<Caption>
NOTIONAL
PAYMENTS MADE BY PAYMENTS RECEIVED TERMINATION AMOUNT VALUE
SWAP COUNTERPARTY THE SERIES BY THE SERIES DATE (USD) (USD)
- ----------------- ---------------- ----------------- ----------- ------------ ----------
Citigroup Global
Markets............... 3 month LIBOR 5.18% semi-annual 09/18/10 $100,000,000 $1,566,000
Citigroup Global
Markets............... 3 month LIBOR 5.16% semi-annual 11/07/10 66,900,000 131,124
Citigroup Global
Markets............... 3 month LIBOR 4.95% semi-annual 12/12/11 23,600,000 (152,220)
Wachovia Securities..... 3 month LIBOR 5.20% semi-annual 09/07/11 100,000,000 1,761,000
----------
$3,305,904
==========
</Table>
H. SHORT SALES:
Each Series, with the exception of the Money Market Series, may sell securities
short. A short sale is a transaction in which a Series sells securities it does
not own, but has borrowed, in anticipation of a decline in the market price of
the securities. The Series is obligated to replace the borrowed securities at
the market price at the time of replacement. The Series' obligation to replace
the securities borrowed in connection with a short sale will be fully secured by
collateral deposited with the custodian. In addition, the Series will consider
the short sale to be a borrowing by the Series that is subject to the asset
coverage requirements of the Investment Company Act of 1940, as amended. Short
sales by the Series involve certain risks and special considerations. Possible
losses from short sales differ from losses that could be incurred from a
purchase of a security because losses from short sales may be unlimited, whereas
losses from purchases can not exceed the total amount invested.
I. DOLLAR ROLLS:
Each Series, with the exception of the Money Market Series, may enter into
dollar rolls (principally using TBA's) in which the Series sells mortgage-backed
securities for delivery in the current month and simultaneously contract to
repurchase similar, but not identical, securities at an agreed-upon price on a
fixed date. The Series account for such dollar rolls as purchases and sales and
receive compensation as consideration for entering into the commitment to
repurchase. The Series maintains liquid securities having a value not less than
the repurchase price (including accrued interest) for such dollar rolls. The
market value of the securities that the Series is required to purchase may
decline below the agreed upon repurchase price of those securities.
J. 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.
Each Series may be subject to foreign taxes on income, gains on investments or
currency repatriation, a portion of which may be recoverable. Each Series will
accrue such taxes and recoveries as applicable, based upon their current
interpretation of tax rules and regulations that exist in the markets in which
they invest.
181
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
K. SECURITY TRANSACTIONS AND INVESTMENT INCOME:
Security transactions are accounted for on a trade date basis (the date the
order to buy or sell is executed). Dividend income less foreign taxes withheld,
if any, is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and includes amortization of premiums and accretion of discounts
on investments. Realized gains and losses from securities transactions are
recorded on the identified cost basis.
Purchases of TBA, when-issued or delayed delivery securities may be settled a
month or more after the trade date. Interest income is not accrued until
settlement date.
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.
L. 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 all Series based on their relative net assets, or another methodology that
is appropriate based on the circumstances.
M. RESTRICTED AND ILLIQUID SECURITIES:
Each Series is permitted to invest in securities that are subject to legal or
contractual restrictions on resale or are illiquid. Restricted securities
generally may be resold in transactions exempt from registration. A security may
be considered illiquid if it lacks a readily available market or if its
valuation has not changed for a certain period of time. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt sale
at the current valuation may be difficult.
N. OTHER:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
O. IN-KIND REDEMPTION
During the fiscal year ended December 31, 2006, the Special Equity Series
delivered securities (redemption in-kind) in exchange for the redemption of
units. The source of the redemption in-kind was three contractholders who were
invested in an insurance company separate account established by MONY Life
Insurance Company ("Separate Account"). The Separate Account invested all its
assets in the Special Equity Series. Collectively, the value of the
contractholders' accounts represented 5.91% of the Special Equity Series at the
time of the redemption. The financial statements of the Separate Account are not
included in these financial statements. Cash and securities were transferred as
detailed below:
<Table>
<Caption>
TOTAL VALUE OF CASH
DATE AND SECURITIES TRANSFERRED GAIN ON TRANSFER
- ---- -------------------------- ----------------
March 7, 2006 $80,105,926 $14,871,899
</Table>
P. RECENT ACCOUNTING PRONOUNCEMENTS:
In July 2006, the Financial Accounting Standards Board issued Interpretation No.
48, "Accounting for Uncertainty in Income Taxes -- an Interpretation of FASB
Statement No. 109" (the "Interpretation"). The Interpretation establishes for
all entities, including pass-through entities such as the Series, a minimum
threshold for financial statement recognition of the benefit of positions taken
in filing tax returns (including
182
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
whether an entity is taxable in a particular jurisdiction), and requires certain
expanded tax disclosures. The Interpretation is effective June 30, 2007, and is
to be applied to all open tax years as of the date of effectiveness. Management
has recently begun to evaluate the application of the Interpretation to the
Series, and is not in a position at this time to estimate the significance of
its impact, if any, on the Series' financial statements.
In September 2006, Statement of Financial Accounting Standards No. 157 "Fair
Value Measurements" (SFAS 157), was issued and is effective for fiscal years
beginning after November 15, 2007. SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. Management is currently evaluating the impact the adoption of SFAS
157 will have on the Series' financial statement disclosures.
3. FEES AND TRANSACTIONS WITH AFFILIATES
Transamerica Financial Life Insurance Company, Inc. ("TFLIC"), a wholly-owned
subsidiary of AEGON USA, Inc. ("AEGON"), is an affiliate of Diversified
Investment Advisors, Inc. (the "Advisor"). The Advisor is an indirect,
wholly-owned subsidiary of AEGON, 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 NV, a
corporation based in the Netherlands which is a publicly traded international
insurance group. TFLIC has sub-accounts which invest in the corresponding Series
as follows:
<Table>
<Caption>
TFLIC SUB-ACCOUNT INVESTMENT IN SERIES
- ----------------- --------------------
Money Market................................................ 7.15%
High Quality Bond........................................... 9.67
Intermediate Government Bond................................ 26.60
Core Bond................................................... 7.91
High Yield Bond............................................. 6.24
Balanced.................................................... 30.12
Value & Income.............................................. 19.68
Growth & Income............................................. 21.98
Equity Growth............................................... 15.58
Aggressive Equity........................................... 22.71
Mid-Cap Value............................................... 3.76
Mid-Cap Growth.............................................. 0.25
Small-Cap Value............................................. 0.09
Special Equity.............................................. 24.55
Small-Cap Growth............................................ 0.02
International Equity........................................ 11.91
</Table>
The Advisor manages the assets of each Series of the Series Portfolio pursuant
to an Investment Advisory Agreement with the Series Portfolio. Subject to such
further policies as the Board of Trustees may determine, the Advisor provides
general investment advice to each Series. For its services, the Advisor receives
from each Series fees, accrued daily and payable 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 fees for certain Series.
For each Series, the Advisor has entered into Investment Subadvisory Agreements
with the subadvisors listed in the table below (each a "Subadvisor",
collectively the "Subadvisors"). It is the responsibility of each 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. Payment of fees to the
Subadvisors is the responsibility of the Advisor, and is not an additional
expense of a Series.
183
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
For its services, the Advisor receives a fee from each Series, and the
Subadvisors receive a fee from the Advisor, at an annual rate equal to the
percentages specified in the table below of the portion of the corresponding
Series' average daily net assets which they subadvise.
<Table>
<Caption>
ADVISOR SUBADVISOR
SERIES SERIES SUBADVISOR FEE (%) FEE (%)
- ------ ------------------------------------------ ------- ----------
Money Market..................... GE Asset Management, Inc. 0.25 0.05
High Quality Bond................ Merganser Capital Management, LP 0.35 (2)
Intermediate Government Bond..... Allegiance Investment Management, LLC 0.35(1) (3)
Core Bond........................ BlackRock Financial Management, Inc. 0.35 (4)
Total Return Bond................ (5) 0.35(1) (6)
High Yield Bond.................. Eaton Vance Management 0.55 (7)
Balanced......................... (8) 0.45(1) (9)
Value & Income................... (10) 0.45 (11)
Value............................ Hotchkis and Wiley Capital Management, LLC 0.50(1) (12)
Growth & Income.................. (13) 0.60 (14)
Equity Growth.................... (15) 0.62 (16)
Aggressive Equity................ Turner Investment Partners, Inc. 0.77(1) (17)
Mid-Cap Value.................... (18) 0.67(1) (19)
Mid-Cap Growth................... Columbus Circle Investors 0.72(1) (20)
Small-Cap Value.................. (21) 0.82(1) (22)
Special Equity................... (23) 0.80 (24)
Small-Cap Growth................. Perimeter Capital Management 0.87(1) (25)
International Equity............. (26) 0.75(1) (27)
</Table>
- ---------------
(1) The Advisor is currently voluntarily waiving a portion of its fee.
(2) 0.20% on the first $100,000,000 in average daily net assets, 0.15% on the
next $100,000,000 in average daily net assets, 0.10% on the next
$100,000,000 in average daily net assets and 0.05% on all average daily net
assets in excess of $300,000,000.
(3) Allegiance Investment Management, LLC received 0.35% on the first
$20,000,000 in average daily net assets, 0.25% on the next $30,000,000 in
average daily net assets, 0.20% on the next $50,000,000 in average daily
net assets and 0.05% on all average daily net assets in excess of
$100,000,000. Effective January 22, 2006 the Intermediate Government Bond
Series terminated Stephens Capital Management as subadvisor. For the period
January 1, 2006 to January 22, 2006, Stephens Capital Management received
0.10% on all average daily net assets.
(4) 0.12% on the first $1,000,000,000 in average daily net assets and 0.05% on
all average daily net assets in excess of $1,000,000,000.
(5) The Total Return Bond Series has two subadvisors: Western Asset Management
Company and Western Asset Management Company, Ltd. which manages fixed
income and foreign fixed income securities, respectively. Net assets are
aggregated between Total Return Bond and Balanced.
(6) Western Asset Management Company and Western Asset Management Company, Ltd.
received 0.30% on the first $100,000,000 in average daily net assets and
0.15% on all average daily net assets in excess of $100,000,000.
(7) 0.35% on the first $20,000,000 in average daily net assets, 0.25% on the
next $20,000,000 in average daily net assets, 0.20% on the next $85,000,000
in average daily net assets and 0.15% on all average daily net assets in
excess of $125,000,000.
184
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
(8) The Balanced Series has three subadvisors: Goldman Sachs Asset Management,
LP, Western Asset Management Company and Western Asset Management Company,
Ltd. which manage equity, fixed income and foreign fixed income securities,
respectively.
(9) Goldman Sachs Asset Management, LP received 0.14% on the first $500,000,000
in combined average daily net assets of the Balanced Series and the Growth
& Income Series, 0.12% on the next $1,000,000,000 in combined average daily
net assets and 0.10% on all combined average daily net assets in excess of
$1,500,000,000. Western Asset Management Company and Western Asset
Management Company, Ltd. received 0.30% on the first $100,000,000 in
average daily net assets and 0.15% on all average daily net assets in
excess of $100,000,000. Net assets are aggregated between Total Return Bond
and Balanced.
(10) The Value & Income Series has two subadvisors: TCW Investment Management
Company and AllianceBernstein LP.
During the year ended December 31, 2006, the Value & Income Series executed
$81,397,109 of purchase transactions and $72,199,335 of sales transactions
through Sanford C. Bernstein & Company, LLC, an affiliate of Alliance
Capital Management, LP. Commissions paid for such transactions amounted to
$160,776.
(11) TCW Investment Management Company received 0.70% on the first $25,000,000
in average daily net assets, 0.50% on the next $75,000,000 in average daily
net assets, 0.30% on the next $400,000,000 in average daily net assets and
0.10% on all average daily net assets in excess of $500,000,000.
AllianceBernstein LP received 0.27% on the first $300,000,000 in average
daily net assets, 0.16% on the next $700,000,000 in average daily net
assets and 0.13% on all average daily net assets in excess of
$1,000,000,000.
(12) 0.75% on the first $15,000,000 in average daily net assets, 0.50% on the
next $35,000,000 in average daily net assets, 0.35% on the next
$100,000,000 in average daily net assets and 0.25% on all average daily net
assets in excess of $150,000,000.
(13) The Growth & Income Series has three subadvisors: Ark Asset Management,
Inc., Goldman Sachs Asset Management, LP and Aronson + Johnson + Ortiz, LP.
During the year ended December 31, 2006, the Growth & Income Series
executed $68,514,233 of purchase transactions and $75,200,134 of sales
transactions through Goldman Sachs & Company, an affiliate of Goldman Sachs
Asset Management, LP. Commissions paid for such transactions amounted to
$56,801. The Growth & Income Series also executed $17,924,470 of purchase
transactions and $10,429,805 of sales transactions through Goldman Sachs
Execution and Clearing LP, an affiliate of Goldman Sachs Asset Management,
LP. Commissions paid for such transactions amounted to $24,326.
(14) Ark Asset Management, Inc. received 0.20% on the first $750,000,000 in
combined average daily net assets of the Growth & Income Series and the
Equity Growth Series, 0.18% on the next $250,000,000 in combined average
daily net assets and 0.15% on all combined average daily net assets in
excess of $1,000,000,000. Goldman Sachs Asset Management, LP received 0.14%
on the first $500,000,000 in combined average daily net assets of the
Balanced Series and the Growth & Income Series, 0.12% on the next
$1,000,000,000 in combined average daily net assets and 0.10% on all
combined average daily net assets in excess of $1,500,000,000. Aronson +
Johnson + Ortiz, LP received 0.30% on the first $250,000,000 in average
daily net assets, 0.20% on the next $250,000,000 in average daily net
assets and 0.15% on all average daily net assets in excess of $500,000,000.
If assets are less than $100,000,000, then Aronson + Johnson + Ortiz, LP
will receive 0.55% on the first $50,000,000 in average daily net assets and
0.35% on all average daily net assets in excess of $50,000,000.
(15) The Equity Growth Series has two subadvisors: Ark Asset Management, Inc.
and Marsico Capital Management, LLC.
185
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
During the year ended December 31, 2006, the Equity Growth Series executed
$12,515,974 of purchase transactions and $34,543,830 of sales transactions
through Bank of America Securities, LLC, an affiliate of Marsico Capital
Management, LLC. Commissions paid for such transactions amounted to $53,044.
(16) Ark Asset Management, Inc. received 0.20% on the first $750,000,000 in
combined average daily net assets of the Growth & Income Series and the
Equity Growth Series, 0.18% on the next $250,000,000 in combined average
daily net assets and 0.15% on all combined average daily net assets in
excess of $1,000,000,000. Marsico Capital Management, LLC received 0.30% on
the first $1,000,000,000 in average daily net assets and 0.25% on all
average daily net assets in excess of $1,000,000,000. If assets are greater
than $2,000,000,000, then Marsico Capital Management, LLC will receive
0.27% on all average daily net assets.
(17) 0.35% on the first $100,000,000 in average daily net assets, 0.30% on the
next $200,000,000 in average daily net assets, 0.25% on the next
$200,000,000 in average daily net assets and 0.20% on all average daily net
assets in excess of $500,000,000.
(18) The Mid-Cap Value Series has three subadvisors: LSV Asset Management,
Cramer, Rosenthal, McGlynn, LLC, and RiverSource Investments, LLC.
(19) Cramer Rosenthal McGlynn, LLC received 0.70% on the first $25,000,000 in
average daily net assets, 0.40% on the next $25,000,000 in average daily
net assets, 0.35% on the next $50,000,000 in average daily net assets,
0.25% on the next $200,000,000 in average daily net assets and 0.20% on all
average daily net assets in excess of $300,000,000. LSV Asset Management
received 0.50% on the first $100,000,000 in average daily net assets, 0.40%
on the next $100,000,000 in average daily net assets, 0.35% on the next
$600,000,000 in average daily net assets, and 0.33% on all average daily
net assets in excess of $800,000,000. In determining the basis point fee
applicable to the Series, the combined average daily net assets of the
Series and the portion of the International Equity Series managed by LSV
Asset Management were applied to the fee schedule. For the period October
2, 2006 to December 31, 2006, RiverSource Investments, LLC received 0.425%
on the first $250,000,000 in average daily net assets, 0.40% on the next
$250,000,000 in average daily net assets, and 0.375% on all average daily
net assets in excess of $500,000,000.
(20) 0.40% on the first $135,000,000 in average daily net assets and 0.35% on
all average daily net assets in excess of $135,000,000.
(21) The Small-Cap Value Series has two subadvisors: EARNEST Partners, LLC and
Mesirow Financial Investment Management, Inc.
(22) EARNEST Partners, LLC received 0.50% on all average daily net assets. For
the period October 2, 2006 to December 31, 2006, Mesirow Financial
Investment Management, Inc. received 0.75% on the first $50,000,000 of
average daily net assets and 0.45% on all average daily net assets in
excess of $50,000,000.
(23) The Special Equity Series has five subadvisors: EARNEST Partners, LLC,
Wellington Management Company, LLP, RS Investment Management Co., LLC,
Mazama Capital Management, LLC, and INVESCO Institutional (NA), Inc.
("INVESCO").
(24) Wellington Management Company, LLP received 0.45% on the first $200,000,000
of average daily net assets and 0.375% on average daily net assets in
excess of $200,000,000. EARNEST Partners, LLC received 0.50% of average
daily net assets. RS Investment Management, Co. LLC received 0.50% on the
first $100,000,000 in average daily net assets and 0.40% on all average
daily net assets in excess of $100,000,000. For the portion of the
portfolio invested in accordance with a small-cap core strategy, INVESCO
received 0.55% on the first $100,000,000 in average daily net assets, 0.45%
on the next $100,000,000 in average daily net assets, 0.30% on the next
$100,000,000 in average daily net assets and 0.20% on all average daily net
assets in excess of $300,000,000. For the period May 23, 2006 to December
31, 2006, for the portion of the portfolio invested in accordance with a
small-cap value
186
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
strategy, INVESCO received 0.41% on the first $100,000,000 in average daily
net assets, 0.34% on the next $100,000,000 in average daily net assets, 0.22%
on the next $100,000,000 and 0.20% on all average daily net assets in excess
of $300,000,000. Mazama Capital Management, LLC received 0.55% of average
daily net assets.
(25) Perimeter Capital Management received 0.80% on the first $10,000,000 in
average daily net assets, 0.64% on the next $40,000,000 in average daily
net assets, and 0.48% on all average daily net assets in excess of
$50,000,000. Effective July 24, 2006 the Small-Cap Growth Series terminated
Trusco Capital Management, Inc. as subadvisor. For the period January 1,
2006 to July 24, 2006, Trusco Capital Management, Inc. received the same
fee schedule listed above.
(26) The International Equity Series has two subadvisors: LSV Asset Management
and Wellington Management Company, LLP.
(27) LSV Asset Management received 0.45% on the first $100,000,000 in average
daily net assets, 0.40% on the next $100,000,000 in average daily net
assets, 0.37% on the next $400,000,000 in average daily net assets, 0.35%
on the next $200,000,000 in average daily net assets and 0.33% on all
average daily net assets in excess of $800,000,000. Wellington Management
Company, LLP received 0.375% on the first $400,000,000 in average daily net
assets, 0.35% on the next $600,000,000 in average daily net assets and
0.325% on all average daily net assets in excess of $1,000,000,000.
For the year ended December 31, 2006, the Advisor has voluntarily undertaken to
waive fees to the extent the expenses of a Series exceed the following expense
caps (as a proportion of average daily net assets):
<Table>
<Caption>
SERIES EXPENSE CAP
- ------ ----------------------
Money Market................................................ 30 basis points (b.p.)
High Quality Bond........................................... 40 b.p.
Intermediate Government Bond................................ 40 b.p.
Core Bond................................................... 40 b.p.
Total Return Bond........................................... 40 b.p.
High Yield Bond............................................. 60 b.p.
Balanced.................................................... 50 b.p.
Value & Income.............................................. 50 b.p.
Value....................................................... 55 b.p.
Growth & Income............................................. 65 b.p.
Equity Growth............................................... 65 b.p.
Aggressive Equity........................................... 80 b.p.
Mid-Cap Value............................................... 70 b.p.
Mid-Cap Growth.............................................. 75 b.p.
Small-Cap Value............................................. 85 b.p.
Special Equity.............................................. 85 b.p.
Small-Cap Growth............................................ 90 b.p.
International Equity........................................ 90 b.p.
</Table>
Certain trustees and officers of the Series Portfolio and of the funds that
invest in the Series Portfolio are also directors, officers or employees of the
Advisor or its affiliates. None of the non-independent trustees so affiliated
receive compensation for services as trustees of the Series Portfolio or the
funds that invest in the Series Portfolio. Similarly, none of the Series
Portfolio officers receive compensation from the Series Portfolio. Aggregate
remuneration earned by non-affiliated trustees of the Series Portfolio from the
Series Portfolio for the year ended December 31, 2006 amounted to $249,276.
187
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SECURITIES LENDING
Each Series may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least 102% for domestic securities and 105%
for international securities of 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.
During the term of the loan, a Series receives payments from borrowers
equivalent to the dividends, interest, and any other distributions that would
have been earned on securities lent while simultaneously seeking to earn income
on the investment of cash collateral in accordance with investment guidelines
contained in the Securities Lending Agreement. For loans secured by cash, each
Series retains the interest on cash collateral investments but is required to
pay the borrower a rebate for the use of the cash collateral. For loans secured
by collateral other than cash, the borrower pays a securities loan fee to the
lending agent.
Any compensation (net of related expenses) received by a Series for lending its
securities, as described above, is reported on its respective Statement of
Operations. This includes interest income on short term investments purchased
with cash collateral received.
At December 31, 2006, the Series loaned securities having market values as
follows:
<Table>
<Caption>
CASH COLLATERAL
SERIES MARKET VALUE RECEIVED
- ------ ------------ ---------------
High Quality Bond........................................... $ 8,245,280 $ 8,411,400
Intermediate Government Bond................................ 28,660,668 29,452,986
Core Bond................................................... 937,548 958,807
Total Return Bond........................................... 4,175,549 4,274,335
Balanced.................................................... 8,147,993 8,381,259
Value & Income.............................................. 178,352,319 186,521,888
Value....................................................... 14,752,499 15,388,046
Growth & Income............................................. 65,940,916 67,965,319
Equity Growth............................................... 153,603,563 158,227,226
Aggressive Equity........................................... 46,847,850 48,209,289
Mid-Cap Value............................................... 114,577,775 118,672,540
Mid-Cap Growth.............................................. 48,290,937 49,693,823
Small-Cap Value............................................. 40,731,141 42,425,935
Special Equity.............................................. 236,102,650 245,040,504
Small-Cap Growth............................................ 13,716,685 14,398,521
International Equity........................................ 142,317,183 149,080,031
</Table>
188
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189
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SECURITIES LENDING (CONTINUED)
Each Series has invested the cash collateral received from securities loaned in
the following short term securities:
<Table>
<Caption>
HIGH INTERMEDIATE
QUALITY GOVERNMENT CORE TOTAL RETURN VALUE &
BOND BOND BOND BOND BALANCED INCOME VALUE
---------- ------------ -------- ------------ ---------- ------------ -----------
Abbey National PLC, Time Deposit,
5.28%, 01/05/07.................. $ 364,379 $ 1,275,892 $ 41,534 $ 185,163 $ 363,074 $ 8,080,064 $ 666,606
Bank of America, Floating Rate
Note, 5.31%(1), 03/08/07......... 364,379 1,275,892 41,534 185,163 363,074 8,080,064 666,606
Bank of America, Floating Rate
Note, 5.31%(1), 07/10/07......... 437,256 1,531,072 49,842 222,195 435,688 9,696,077 799,926
Bank of Nova Scotia, Time Deposit,
5.29%, 01/30/07.................. 109,314 382,768 12,461 55,549 108,922 2,424,019 199,981
Bank of Nova Scotia, Time Deposit,
5.30%, 02/27/07.................. 182,189 637,947 20,768 92,581 181,536 4,040,032 333,302
Bank of the West (The), Time
Deposit, 5.29%, 01/17/07......... 182,189 637,947 20,768 92,581 181,536 4,040,032 333,302
Barclays, Time Deposit, 5.30%,
01/02/07......................... 291,503 1,020,715 33,228 148,130 290,459 6,464,052 533,284
Barclays, Time Deposit, 5.32%,
02/13/07......................... 182,189 637,947 20,768 92,581 181,536 4,040,032 333,302
Calyon, Time Deposit, 5.30%,
02/05/07......................... 109,314 382,768 12,461 55,549 108,922 2,424,019 199,981
Canadian Imperial Bank of
Commerce, Time Deposit, 5.31%,
01/29/07......................... 291,503 1,020,715 33,228 148,130 290,459 6,464,052 533,284
Citigroup, Time Deposit, 5.31%,
03/05/07......................... 182,189 637,947 20,768 92,581 181,536 4,040,032 333,302
Citigroup, Time Deposit, 5.31%,
03/16/07......................... 182,189 637,947 20,768 92,581 181,536 4,040,032 333,302
Commonwealth Bank of Australia,
Commercial Paper, 5.29%,
01/08/07......................... 361,499 1,265,807 41,207 183,699 360,204 8,016,192 661,335
Credit Suisse First Boston Corp.,
Time Deposit, 5.30%, 01/05/07.... 182,189 637,947 20,768 92,581 181,536 4,040,032 333,302
Credit Suisse First Boston Corp.,
Time Deposit, 5.30%, 01/12/07.... 218,627 765,536 24,921 111,099 217,844 4,848,038 399,963
Dexia Group, Time Deposit, 5.29%,
01/16/07......................... 145,752 510,357 16,614 74,065 145,229 3,232,026 266,643
First Tennessee National Corp.,
Time Deposit, 5.29%, 01/18/07.... 335,229 1,173,821 38,212 170,350 334,027 7,433,659 613,276
Fortis Bank, Time Deposit, 5.30%,
01/02/07......................... 182,189 637,947 20,768 92,581 181,536 4,040,032 333,302
Fortis Bank, Time Deposit, 5.32%,
01/03/07......................... 109,314 382,768 12,461 55,549 108,922 2,424,019 199,981
HBOS Halifax Bank of Scotland,
Time Deposit, 5.30%, 01/08/07.... 182,189 637,947 20,768 92,581 181,536 4,040,032 333,302
HBOS Halifax Bank of Scotland,
Time Deposit, 5.30%, 01/25/07.... 109,314 382,768 12,461 55,549 108,922 2,424,019 199,981
HBOS Halifax Bank of Scotland,
Time Deposit, 5.31%, 03/14/07.... 291,503 1,020,715 33,228 148,130 290,459 6,464,052 533,284
Lloyds TSB Bank, Time Deposit,
5.30%, 02/26/07.................. 218,627 765,536 24,921 111,099 217,844 4,848,038 399,963
Merrimac Cash Fund-Premium Class,
5.11%, 01/02/07.................. 240,490 842,090 27,413 122,207 239,629 5,332,843 439,959
Rabobank Nederland, Time Deposit,
5.25%, 01/02/07.................. 145,752 510,357 16,614 74,065 145,229 3,232,026 266,643
Rabobank Nederland, Time Deposit,
5.30%, 03/05/07.................. 182,189 637,947 20,768 92,581 181,536 4,040,032 333,302
Royal Bank of Canada, Time
Deposit, 5.31%, 02/14/07......... 291,503 1,020,715 33,228 148,130 290,459 6,464,052 533,284
Royal Bank of Canada, Time
Deposit, 5.31%, 02/15/07......... 364,379 1,275,892 41,534 185,163 363,074 8,080,064 666,606
Royal Bank of Scotland, Time
Deposit, 5.28%, 01/11/07......... 182,189 637,947 20,768 92,581 181,536 4,040,032 333,302
Royal Bank of Scotland, Time
Deposit, 5.31%, 01/11/07......... 218,627 765,536 24,921 111,099 217,844 4,848,038 399,963
Royal Bank of Scotland, Time
Deposit, 5.29%, 01/16/07......... 109,314 382,768 12,461 55,549 108,922 2,424,019 199,981
Royal Bank of Scotland, Time
Deposit, 5.29%, 02/09/07......... 109,314 382,768 12,461 55,549 108,922 2,424,019 199,981
Societe Generale, Time Deposit,
5.31%, 01/02/07.................. 327,941 1,148,304 37,382 166,646 326,767 7,272,057 599,944
Societe Generale, Time Deposit,
5.27%, 01/19/07.................. 291,503 1,020,715 33,228 148,130 290,459 6,464,052 533,284
Svenska Handlesbanken, Time
Deposit, 5.25%, 01/02/07......... 4,414 15,456 502 2,243 4,399 97,879 8,075
UBS AG, Time Deposit, 5.29%,
01/02/07......................... 145,752 510,357 16,614 74,065 145,229 3,232,026 266,643
UBS AG, Time Deposit, 5.30%,
01/04/07......................... 437,256 1,531,071 49,842 222,195 435,688 9,696,077 799,926
UBS AG, Time Deposit, 5.30%,
01/05/07......................... 145,752 510,357 16,614 74,065 145,229 3,232,026 266,643
---------- ----------- -------- ---------- ---------- ------------ -----------
$8,411,400 $29,452,986 $958,807 $4,274,335 $8,381,259 $186,521,888 $15,388,046
========== =========== ======== ========== ========== ============ ===========
</Table>
Information pertaining to the investment of the cash collateral is
shown on each Series' Portfolio of Investments.
- ---------------
(1) Variable Rate Security. The rate shown was in effect at
December 31, 2006.
190
<Table>
<Caption>
GROWTH & EQUITY AGGRESSIVE MID-CAP MID-CAP SMALL-CAP SPECIAL SMALL-CAP
INCOME GROWTH EQUITY VALUE GROWTH VALUE EQUITY GROWTH
----------- ------------ ----------- ------------ ----------- ----------- ------------ -----------
$ 2,944,235 $ 6,854,349 $ 2,088,410 $ 5,140,853 $ 2,152,719 $ 1,837,878 $ 10,615,072 $ 623,739
2,944,235 6,854,349 2,088,410 5,140,853 2,152,719 1,837,878 10,615,072 623,739
3,533,081 8,225,219 2,506,092 6,169,024 2,583,262 2,205,452 12,738,085 748,487
883,270 2,056,304 626,523 1,542,256 645,816 551,363 3,184,521 187,122
1,472,117 3,427,175 1,044,205 2,570,427 1,076,360 918,938 5,307,535 311,869
1,472,117 3,427,175 1,044,205 2,570,427 1,076,360 918,938 5,307,535 311,869
2,355,387 5,483,479 1,670,728 4,112,683 1,722,175 1,470,301 8,492,056 498,991
1,472,117 3,427,175 1,044,205 2,570,427 1,076,360 918,938 5,307,535 311,869
883,270 2,056,304 626,523 1,542,256 645,816 551,363 3,184,521 187,122
2,355,387 5,483,479 1,670,728 4,112,683 1,722,175 1,470,301 8,492,056 498,991
1,472,117 3,427,175 1,044,205 2,570,427 1,076,360 918,938 5,307,535 311,869
1,472,117 3,427,175 1,044,205 2,570,427 1,076,360 918,938 5,307,535 311,869
2,920,960 6,800,166 2,071,901 5,100,215 2,135,702 1,823,349 10,531,158 618,808
1,472,117 3,427,175 1,044,205 2,570,427 1,076,360 918,938 5,307,535 311,869
1,766,541 4,112,610 1,253,046 3,084,512 1,291,632 1,102,726 6,369,042 374,243
1,177,694 2,741,740 835,364 2,056,342 861,088 735,152 4,246,029 249,496
2,708,696 6,306,001 1,921,337 4,729,585 1,980,502 1,690,847 9,765,865 573,840
1,472,117 3,427,175 1,044,205 2,570,427 1,076,360 918,938 5,307,535 311,869
883,270 2,056,304 626,523 1,542,256 645,816 551,363 3,184,521 187,122
1,472,117 3,427,175 1,044,205 2,570,427 1,076,360 918,938 5,307,535 311,869
883,270 2,056,304 626,523 1,542,256 645,816 551,363 3,184,521 187,122
2,355,387 5,483,479 1,670,728 4,112,683 1,722,175 1,470,301 8,492,056 498,991
1,766,541 4,112,610 1,253,046 3,084,512 1,291,632 1,102,726 6,369,042 374,243
1,943,195 4,523,870 1,378,351 3,392,964 1,420,795 1,212,999 7,005,946 411,668
1,177,694 2,741,740 835,363 2,056,342 861,088 735,152 4,246,029 249,497
1,472,117 3,427,175 1,044,205 2,570,427 1,076,360 918,938 5,307,535 311,869
2,355,387 5,483,479 1,670,728 4,112,683 1,722,175 1,470,301 8,492,056 498,991
2,944,235 6,854,349 2,088,410 5,140,853 2,152,719 1,837,878 10,615,072 623,739
1,472,117 3,427,175 1,044,205 2,570,427 1,076,360 918,938 5,307,535 311,869
1,766,541 4,112,610 1,253,046 3,084,512 1,291,632 1,102,726 6,369,042 374,243
883,270 2,056,304 626,523 1,542,256 645,816 551,363 3,184,521 187,122
883,270 2,056,304 626,523 1,542,256 645,816 551,363 3,184,521 187,122
2,649,811 6,168,914 1,879,569 4,626,768 1,937,447 1,654,089 9,553,563 561,365
2,355,387 5,483,479 1,670,728 4,112,683 1,722,175 1,470,301 8,492,056 498,991
35,666 83,031 25,298 62,276 26,077 22,264 128,588 7,556
1,177,694 2,741,740 835,363 2,056,342 861,088 735,152 4,246,029 249,497
3,533,081 8,225,219 2,506,092 6,169,024 2,583,262 2,205,452 12,738,085 748,487
1,177,694 2,741,740 835,363 2,056,342 861,088 735,152 4,246,029 249,497
----------- ------------ ----------- ------------ ----------- ----------- ------------ -----------
$67,965,319 $158,227,226 $48,209,289 $118,672,540 $49,693,823 $42,425,935 $245,040,504 $14,398,521
=========== ============ =========== ============ =========== =========== ============ ===========
<Caption>
INTERNATIONAL
EQUITY
-------------
$ 6,458,095
6,458,095
7,749,715
1,937,428
3,229,048
3,229,048
5,166,476
3,229,048
1,937,428
5,166,477
3,229,048
3,229,048
6,407,044
3,229,048
3,874,858
2,583,240
5,941,448
3,229,048
1,937,428
3,229,048
1,937,428
5,166,477
3,874,858
4,262,343
2,583,240
3,229,048
5,166,476
6,458,095
3,229,048
3,874,858
1,937,428
1,937,428
5,812,286
5,166,476
78,231
2,583,240
7,749,715
2,583,240
------------
$149,080,031
============
</Table>
191
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and proceeds from sales or
maturities (excluding short-term securities) for the year ended December 31,
2006 were as follows:
<Table>
<Caption>
COST OF PROCEEDS
SERIES PURCHASES FROM SALES
- ------ --------------- ---------------
High Quality Bond................... US Government Obligations $ 89,809,478 $ 97,753,605
Other
409,631,851 341,214,599
Intermediate Government Bond........ US Government Obligations 855,678,815 891,486,813
Other
27,388,864 51,570,747
Core Bond........................... US Government Obligations 10,620,693,671 10,768,427,933
Other
706,662,057 460,979,391
Total Return Bond................... US Government Obligations 471,566,859 434,922,870
Other
43,858,510 15,779,633
High Yield Bond..................... Other 395,886,276 399,943,292
Balanced............................ US Government Obligations 800,452,734 790,750,198
Other
140,335,248 201,117,890
Value & Income...................... Other 982,039,339 1,034,280,364
Value............................... Other 92,660,391 39,617,703
Growth & Income..................... Other 838,188,264 988,115,002
Equity Growth....................... Other 2,076,008,340 2,249,025,763
Aggressive Equity................... Other 550,985,741 574,925,341
Mid-Cap Value....................... Other 784,847,234 605,054,203
Mid-Cap Growth...................... Other 471,868,733 449,598,988
Small-Cap Value..................... Other 245,248,093 238,432,009
Special Equity...................... Other 1,060,582,599 1,283,915,589
Small-Cap Growth.................... Other 269,771,031 256,014,697
International Equity................ Other 1,508,957,814 1,551,967,256
</Table>
6. LEGAL AND REGULATORY MATTERS
On December 12, 2003, the Series Portfolio received a copy of a complaint (the
"Complaint") filed in the United States Bankruptcy Court for the Southern
District of New York styled Enron Corp. v. J. P. Morgan Securities, Inc. et al.
The Complaint names as defendants the Intermediate Government Bond Portfolio and
the Value & Income Portfolio (the "Subject Portfolios") and alleges that Enron
Corp. ("Enron") transferred to the defendants, including the Subject Portfolios,
over $1 billion in the aggregate for the purpose of prepaying certain commercial
paper issued by Enron (the "Notes") and held by the defendants prior to the
filing by Enron for bankruptcy protection under Chapter 11 of Title 11 of the
Bankruptcy Code (the "Bankruptcy Code"). The Complaint seeks to hold the
defendants, including the Subject Portfolios, liable for these transfers as
preferential transfers or as fraudulent transfers under the Bankruptcy Code.
Although the Complaint does not specify the amount of each transfer in dispute,
it appears that the sale by the Intermediate Government Bond Portfolio of
approximately $2.4 million of the Notes on or about October 30, 2001 and the
sale by the Value & Income Portfolio of approximately $10.3 million of the Notes
on or about October 30, 2001 are in dispute. The Complaint seeks to require the
Subject Portfolios to repay to Enron the full amounts of these transfers, in
which event the Subject Portfolios would be granted unsecured claims against the
Enron bankruptcy estate in the amounts of the repayments. The Subject Portfolios
moved to dismiss all counts of the Complaint, contending, among other things,
that section 546 (e) of the Bankruptcy Code provides a complete defense. The
Bankruptcy Court denied the motion on July 1, 2005. Accordingly, the Subject
Portfolios filed an answer to the Complaint on July 29, 2005. Discovery is
underway. Depositions began in September 2006 and are scheduled to conclude in
October 2007. The Subject Portfolios and their counsel have reviewed the
192
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LEGAL AND REGULATORY MATTERS (CONTINUED)
Subject Portfolios' records concerning the factual background of the allegations
in the Complaint, and have considered remaining potential defenses to the
allegations in the Complaint. Because discovery is still ongoing, the Subject
Portfolios are unable to predict whether Enron will prevail, in whole or in
part, in its claims against the Subject Portfolios, and therefore have not
recorded a liability in the financial statements for any potential loss period.
Diversified Investors Securities Corp. ("DISC") is the distributor for each of
the Series and a subsidiary of the Series Portfolio's investment advisor,
Diversified Investment Advisor, Inc. ("DIA").
On February 18, 2005, DISC was notified by NASD Staff that it had made a
preliminary determination to recommend disciplinary action against DISC
regarding certain matters. In February 2006, DISC settled an administrative
proceeding with the NASD regarding agreements with two customers who were
permitted to engage in market timing activity in the Diversified Investors
International Equity Fund from July 1, 2003 through October 24, 2003. the
settlement also addressed alleged deficiencies in DISC's procedures relating to
the retention of e-mail communications. Under the terms of the Letter of
Acceptance, Waiver and Consent ("AWC") with the NASD, under which DISC neither
admitted nor denied the allegations or findings, DISC consented to the following
sanctions: (i) censure; (ii) a fine of $1.3 million; (iii) restitution of
approximately $949,011 to the Diversified International Equity Portfolio for
losses attributable to the trading described in the AWC; and (iv) agreement to
make certifications to the NASD regarding the review and establishment of
procedures relating to e-mail retention and to the enforcement of the Funds'
policies and procedures relating to market timing. The restitution payment of
$949,011 referred to above was made on February 14, 2006.
DISC and DIA have also responded to requests for information from various
governmental and self-regulatory agencies in connection with investigations
related to mutual fund trading activities. DISC and DIA have cooperated fully
with each request. Although it is not anticipated that these developments will
have an adverse effect on the Series Portfolio, there can be no assurance at
this time.
7. PROXY VOTING POLICIES AND PROCEDURES (UNAUDITED)
A description of the Series Portfolio's proxy voting policies and procedures is
included in the Statement of Additional Information ("SAI"), which is available
without charge, upon request: (i) by calling 1-800-755-5803; (ii) on the Series
Portfolio's website at www.divinvest.com (Click on the icon for Participants,
then click on Fund Information, choose Investment Funds, click on a Fund, then
click on the Fund Information tab) or (iii) on the SEC's website at www.sec.gov.
In addition, the Series Portfolio is required to file Form N-PX, with its
complete proxy voting record for the twelve months ended June 30, no later than
August 31 of each year. The Series Portfolio's filing for the twelve months
ended June 30, 2006, will available without charge, upon request.
8. QUARTERLY PORTFOLIOS (UNAUDITED)
The Series Portfolio will file its portfolios of investments for the first and
third quarters (March 31 and September 30, respectively) with the SEC by May 30
and November 29, respectively, each year on Form N-Q. The Series Portfolio's
Form N-Q is available on the SEC's website at www.sec.gov. The Series
Portfolio's Form N-Q may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. For information on the operation of the SEC's Public
Reference Room, call 1-800-SEC-0330. You may also obtain a copy of Form N-Q
without charge, upon request, by calling 1-800-755-5803.
193
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CONCENTRATIONS AND INDEMNIFICATIONS
Some Series may have elements of risk not typically associated with investments
in the United States of America due to concentrated investments in a limited
number of countries or regions, which may vary throughout the year. Such
concentrations may subject the Series to additional risks resulting from
political or economic conditions in such countries or regions and the possible
imposition of adverse governmental laws or currency exchange restrictions could
cause the securities and their markets to be less liquid and their prices more
volatile than those of comparable US securities.
As of December 31, 2006, the Aggressive Equity Series and Mid-Cap Growth Series
invested approximately 11.38% and 10.55%, respectively, of its portfolio in
issuers outside the United States.
As of December 31, 2006, substantially all of the International Equity Series'
net assets consist of securities of issuers that are denominated in foreign
currencies. Changes in currency exchange rates will affect the value of, and
investment income from, such securities.
As of December 31, 2006, the International Equity Series invested approximately
19.47% and 19.48%, respectively, of its portfolio in issuers in Japan and United
Kingdom, respectively.
The ability of the issuers of debt, asset-backed and mortgage-backed securities
to meet their obligations may be affected by the economic and political
developments in a specific industry or region. The value of asset-backed and
mortgage-backed securities can be significantly affected by changes in interest
rates or rapid principal payments including prepayments.
Credit risk is measured by the loss a Series would record if its counter-parties
failed to perform pursuant to the terms of their obligations to the Series.
Since certain Series enters into various types of debt obligations including
private placements, swaps, forward currency contracts, spot contracts, forward
commitments and over-the-counter options, credit exposure exists with
counterparties.
In the normal course of business, the Series Portfolio enters into contracts
that contain a variety of representations and warranties which provide general
indemnifications. The Series Portfolio's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be made
against the Series Portfolio that have not yet occurred. However, based on
experience, the Series Portfolio expects the risk of loss to be remote.
10. FOREIGN CURRENCY FORWARD, SPOT AND CROSS CURRENCY CONTRACTS
At December 31, 2006, the Core Bond Series, Total Return Bond Series, Balanced
Series, and International Equity Series had entered into foreign currency
forward, spot and cross currency contracts which contractually obligate each
portfolio to deliver/receive currency at specified future dates. The open
contracts were as follows:
<Table>
<Caption>
NET UNREALIZED
FOREIGN IN EXCHANGE SETTLEMENT VALUE APPRECIATION/
CURRENCY FOR DATE AT 12/31/06 (DEPRECIATION)
----------- ----------- ---------- ----------- --------------
CORE BOND
PURCHASE CONTRACTS:
Euro.......................... 15,710,000 $20,150,573 01/10/07 $20,744,751 $ 594,178
New Zealand Dollar............ 5,812,792 4,003,561 01/10/07 4,093,942 90,381
-----------
TOTAL......................... $ 684,559
===========
SALE CONTRACTS:
Euro.......................... 15,710,000 $20,212,800 01/10/07 $20,744,751 $ (531,951)
New Zealand Dollar............ 11,358,753 7,463,030 01/10/07 7,999,955 (536,925)
-----------
TOTAL......................... $(1,068,876)
===========
</Table>
194
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. FOREIGN CURRENCY FORWARD, SPOT AND CROSS CURRENCY CONTRACTS (CONTINUED)
<Table>
<Caption>
NET UNREALIZED
FOREIGN IN EXCHANGE SETTLEMENT VALUE APPRECIATION/
CURRENCY FOR DATE AT 12/31/06 (DEPRECIATION)
----------- ----------- ---------- ----------- --------------
TOTAL RETURN BOND
PURCHASE CONTRACTS:
Canadian Dollar............... 153,287 $ 136,014 02/07/07 $ 131,586 $ (4,428)
Euro.......................... 770,000 990,389 02/07/07 1,018,093 27,704
Japanese Yen.................. 110,028,000 933,049 02/07/07 928,672 (4,377)
-----------
TOTAL......................... $ 18,899
===========
SALE CONTRACTS:
Canadian Dollar............... 445,069 $ 395,285 02/07/07 $ 382,059 $ 13,226
Euro.......................... 302,634 381,464 02/07/07 400,143 (18,679)
-----------
TOTAL......................... $ (5,453)
===========
BALANCED
PURCHASE CONTRACTS:
Euro.......................... 1,200,000 $ 1,543,464 02/07/07 $ 1,586,639 $ 43,175
Japanese Yen.................. 179,574,000 1,522,807 02/07/07 1,515,663 (7,144)
-----------
TOTAL......................... $ 36,031
===========
SALE CONTRACTS:
Canadian Dollar............... 530,717 $ 471,353 02/07/07 $ 455,582 $ 15,771
Euro.......................... 514,478 648,490 02/07/07 680,243 (31,753)
-----------
TOTAL......................... $ (15,982)
===========
INTERNATIONAL EQUITY
PURCHASE CONTRACTS:
Australian Dollar............. 3,922 $ 3,089 01/03/07 $ 3,095 $ 6
Euro.......................... 21,617 28,528 01/04/07 28,536 8
Japanese Yen.................. 1,131,540 9,502 01/04/07 9,508 6
Japanese Yen.................. 15,127,670 127,129 01/09/07 127,186 57
-----------
$ 77
===========
SALE CONTRACTS:
Australian Dollar............. 313,159 $ 247,079 01/03/07 $ 247,192 $ (113)
Euro.......................... 1,556,527 2,043,610 01/02/07 2,054,693 (11,083)
Euro.......................... 1,608,058 2,116,462 01/03/07 2,122,717 (6,255)
Great British Pounds.......... 445,060 870,551 01/02/07 871,428 (877)
Great British Pounds.......... 585,033 1,148,887 01/03/07 1,145,494 3,393
Great British Pounds.......... 460,993 902,353 01/04/07 902,631 (278)
Hong Kong Dollars............. 4,036,068 519,322 01/02/07 518,888 434
Japanese Yen.................. 316,962,299 2,671,113 01/05/07 2,663,437 7,676
-----------
TOTAL......................... $ (7,103)
===========
</Table>
<Table>
<Caption>
NET UNREALIZED
PURCHASE SALE APPRECIATION/
SETTLEMENT DATE CURRENT VALUE CURRENT VALUE (DEPRECIATION)
--------------- ------------- ------------- --------------
FOREIGN CROSS CURRENCY CONTRACTS:
PURCHASE/SALE
Japanese Yen/Swiss Franc................... 01/05/07 $498,486 $500,117 $(1,631)
=======
</Table>
195
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. FINANCIAL HIGHLIGHTS
<Table>
<Caption>
RATIOS TO AVERAGE NET ASSETS
---------------------------------------------------------
NET NET INVESTMENT
FOR THE NET EXPENSES INVESTMENT INCOME (LOSS) NET ASSETS,
YEAR NET (NET OF INCOME (NET OF PORTFOLIO END OF TOTAL
ENDED EXPENSES REIMBURSEMENTS) (LOSS) REIMBURSEMENTS) TURNOVER YEAR RETURN
------- -------- --------------- ---------- --------------- --------- -------------- ------
MONEY MARKET
12/31/2006 0.28% 0.28% 4.77% 4.77% N/A $ 925,940,609 4.86%
12/31/2005 0.28 0.28 2.97 2.97 N/A 765,777,258 3.00
12/31/2004 0.28 0.28 1.17 1.17 N/A 809,352,385 1.17
12/31/2003 0.28 0.28 1.11 1.11 N/A 799,572,598 1.11
12/31/2002 0.28 0.28 1.70 1.70 N/A 864,772,946 1.72
HIGH QUALITY BOND
12/31/2006 0.38 0.38 4.03 4.03 55% 817,623,186 4.38
12/31/2005 0.39 0.39 3.25 3.25 58 788,399,166 1.95
12/31/2004 0.38 0.38 2.96 2.96 48 690,594,378 1.48
12/31/2003 0.38 0.38 3.19 3.19 50 622,748,334 2.34
12/31/2002 0.38 0.38 4.36 4.36 54 439,015,018 6.21
INTERMEDIATE GOVERNMENT BOND
12/31/2006 0.41 0.40 4.49 4.50 525 150,681,168 3.48
12/31/2005 0.40 0.40 3.45 3.45 756 261,106,523 1.34
12/31/2004 0.42 0.40 2.46 2.48 554 256,502,651 1.59
12/31/2003 0.38 0.38 2.91 2.91 392 265,519,988 1.60
12/31/2002 0.39 0.39 3.93 3.93 134 358,005,390 8.31
CORE BOND
12/31/2006 0.38 0.38 4.50 4.50 487(a) 2,077,821,449 4.17
12/31/2005 0.39 0.39 3.99 3.99 1,003(a) 2,052,893,035 2.38
12/31/2004 0.39 0.39 3.62 3.62 885(a) 1,655,367,885 4.65
12/31/2003 0.39 0.39 3.52 3.52 922(a) 1,468,787,007 4.64
12/31/2002 0.39 0.39 4.85 4.85 462 999,624,604 9.24
TOTAL RETURN BOND
12/31/2006 0.50 0.40 4.64 4.74 470(a) 120,636,427 4.96
12/31/2005(1) 0.55* 0.40* 3.93* 4.08* 327(a) 70,072,859 2.35
</Table>
196
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
RATIOS TO AVERAGE NET ASSETS
---------------------------------------------------------
NET NET INVESTMENT
FOR THE NET EXPENSES INVESTMENT INCOME (LOSS) NET ASSETS,
YEAR NET (NET OF INCOME (NET OF PORTFOLIO END OF TOTAL
ENDED EXPENSES REIMBURSEMENTS) (LOSS) REIMBURSEMENTS) TURNOVER YEAR RETURN
------- -------- --------------- ---------- --------------- --------- -------------- ------
HIGH YIELD BOND
12/31/2006 0.59% 0.59% 7.86% 7.86% 93% $ 502,330,056 11.99%
12/31/2005 0.60 0.60 7.74 7.74 68 416,027,255 3.34
12/31/2004 0.60 0.60 8.06 8.06 80 351,772,536 10.32
12/31/2003 0.61 0.60 9.07 9.08 136 282,700,774 27.91
12/31/2002 0.61 0.60 9.15 9.16 95 208,085,535 2.19
BALANCED
12/31/2006 0.53 0.50 2.69 2.72 224(a) 381,648,801 11.74
12/31/2005 0.54 0.50 2.21 2.25 367(a) 410,747,655 5.59
12/31/2004 0.52 0.50 2.19 2.21 338(a) 419,726,689 8.31
12/31/2003 0.51 0.50 2.15 2.16 377(a) 434,085,832 17.69
12/31/2002 0.52 0.50 2.63 2.65 289 375,745,612 (10.01)
VALUE & INCOME
12/31/2006 0.48 0.48 1.47 1.47 31 3,538,943,726 20.68
12/31/2005 0.48 0.48 1.38 1.38 89 3,018,060,297 6.88
12/31/2004 0.48 0.48 1.79 1.79 44 2,705,463,322 12.91
12/31/2003 0.47 0.47 1.91 1.91 70 2,198,085,735 26.52
12/31/2002 0.48 0.48 1.97 1.97 31 1,553,159,805 (15.25)
VALUE
12/31/2006 0.71 0.55 1.26 1.42 74 101,282,906 15.44
12/31/2005(1) 1.18* 0.55* 1.15* 1.78* 21 35,138,512 9.47
GROWTH & INCOME
12/31/2006 0.63 0.63 1.11 1.11 73 1,159,020,245 11.77
12/31/2005 0.64 0.64 0.96 0.96 79 1,178,758,869 7.12
12/31/2004 0.64 0.64 1.22 1.22 184 1,135,948,434 10.79
12/31/2003 0.63 0.63 1.02 1.02 100 1,063,389,332 24.16
12/31/2002 0.66 0.65 0.77 0.78 115 799,621,503 (22.57)
</Table>
197
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
RATIOS TO AVERAGE NET ASSETS
---------------------------------------------------------
NET NET INVESTMENT
FOR THE NET EXPENSES INVESTMENT INCOME (LOSS) NET ASSETS,
YEAR NET (NET OF INCOME (NET OF PORTFOLIO END OF TOTAL
ENDED EXPENSES REIMBURSEMENTS) (LOSS) REIMBURSEMENTS) TURNOVER YEAR RETURN
------- -------- --------------- ---------- --------------- --------- -------------- ------
EQUITY GROWTH
12/31/2006 0.64% 0.64% 0.43% 0.43% 84% $2,526,917,456 4.12%
12/31/2005 0.65 0.65 0.34 0.34 76 2,587,382,061 7.18
12/31/2004 0.65 0.65 0.68 0.68 129 2,290,559,947 7.75
12/31/2003 0.65 0.65 0.34 0.34 61 1,975,636,700 26.48
12/31/2002 0.65 0.65 0.22 0.22 75 1,146,889,083 (23.60)
AGGRESSIVE EQUITY
12/31/2006 0.81 0.80 (0.18) (0.17) 147 382,667,908 6.46
12/31/2005 0.81 0.80 (0.15) (0.14) 187 382,129,060 8.20
12/31/2004 0.95 0.94 (0.49) (0.48) 252 397,726,867 12.14
12/31/2003 1.01 1.00 (0.61) (0.60) 165 371,333,010 28.12
12/31/2002 1.01 1.00 (0.60) (0.59) 87 312,299,599 (26.56)
MID-CAP VALUE
12/31/2006 0.71 0.70 1.16 1.17 80 936,974,205 18.33
12/31/2005 0.72 0.70 1.26 1.28 112 641,531,538 9.77
12/31/2004 0.71 0.70 0.78 0.79 147 414,710,679 25.47
12/31/2003 0.75 0.70 0.51 0.56 156 216,193,119 41.63
12/31/2002 1.02 0.70 0.20 0.52 156 47,629,380 (15.09)
MID-CAP GROWTH
12/31/2006 0.75 0.75 (0.31) (0.31) 151 309,909,061 2.17
12/31/2005 0.76 0.75 (0.39) (0.38) 142 282,950,442 13.42
12/31/2004 0.79 0.75 (0.33) (0.29) 223 210,100,872 15.38
12/31/2003 0.81 0.75 (0.37) (0.31) 100 165,747,874 26.91
12/31/2002 0.96 0.75 (0.62) (0.41) 138 44,270,757 (25.29)
</Table>
198
DIVERSIFIED INVESTORS PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
RATIOS TO AVERAGE NET ASSETS
---------------------------------------------------------
NET NET INVESTMENT
FOR THE NET EXPENSES INVESTMENT INCOME (LOSS) NET ASSETS,
YEAR NET (NET OF INCOME (NET OF PORTFOLIO END OF TOTAL
ENDED EXPENSES REIMBURSEMENTS) (LOSS) REIMBURSEMENTS) TURNOVER YEAR RETURN
------- -------- --------------- ---------- --------------- --------- -------------- ------
SMALL-CAP VALUE
12/31/2006 0.87% 0.85% 0.25% 0.27% 105% $ 236,316,718 9.64%
12/31/2005 0.88 0.85 0.07 0.10 143 218,749,221 (4.70)
12/31/2004 0.89 0.85 0.27 0.31 42 172,735,949 21.75
12/31/2003 0.94 0.85 1.19 1.28 40 100,887,458 41.10
12/31/2002(2) 1.39* 0.85* (0.17)* 0.37* 26 17,920,226 (21.90)
SPECIAL EQUITY
12/31/2006 0.85 0.85 0.29 0.29 86 1,211,556,459 11.77
12/31/2005 0.85 0.85 0.09 0.09 92 1,296,671,909 10.53
12/31/2004 0.84 0.84 0.15 0.15 103 1,227,530,742 12.63
12/31/2003 0.85 0.85 (0.02) (0.02) 103 1,270,601,125 43.96
12/31/2002 0.84 0.84 0.05 0.05 109 1,005,958,858 (24.33)
SMALL-CAP GROWTH
12/31/2006 1.04 0.90 (0.43) (0.29) 173 155,003,004 8.71
12/31/2005 0.98 0.90 (0.49) (0.41) 183 132,903,534 0.55
12/31/2004 0.97 0.90 (0.58) (0.51) 84 108,429,152 11.94
12/31/2003 1.02 0.90 (0.29) (0.17) 81 83,589,643 39.31
12/31/2002(2) 1.48* 0.90* (1.03)* (0.45)* 68 16,521,455 (15.98)
INTERNATIONAL EQUITY
12/31/2006 0.87 0.87 1.78 1.78 81 2,101,152,473 27.31
12/31/2005 0.88 0.88 2.03 2.03 94 1,721,786,149 11.20
12/31/2004 0.87 0.87 1.85 1.85 171 1,401,617,944 19.66
12/31/2003 0.86 0.86 1.11 1.11 23 1,049,033,896 33.52
12/31/2002 0.87 0.87 0.83 0.83 25 656,888,348 (16.90)
</Table>
- ---------------
(a) Portfolio turnover calculation includes effect of buying and selling TBA
securities used in dollar roll transactions. Refer to Note 2I.
* Annualized.
(1) Commencement of Operations, May 6, 2005.
(2) Commencement of Operations, April 15, 2002.
199
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Owners of Beneficial Interests
of the Diversified Investors Portfolios:
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Money Market Portfolio, High
Quality Bond Portfolio, Intermediate Government Bond Portfolio, Core Bond
Portfolio, Total Return Bond Portfolio, High Yield Bond Portfolio, Balanced
Portfolio, Value & Income Portfolio, Value Portfolio, Growth & Income Portfolio,
Equity Growth Portfolio, Aggressive Equity Portfolio, Mid-Cap Value Portfolio,
Mid-Cap Growth Portfolio, Small-Cap Value Portfolio, Special Equity Portfolio,
Small-Cap Growth Portfolio and International Equity Portfolio (constituting the
Diversified Investors Portfolios, hereafter referred to as the "Portfolios") at
December 31, 2006, the results of each of their operations, the changes in each
of their net assets, and the financial highlights for the periods presented, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Portfolios'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2006 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 27, 2007
200
DIVERSIFIED INVESTORS PORTFOLIOS
APPROVAL OF INVESTMENT ADVISORY CONTRACTS
DECEMBER 31, 2006
(UNAUDITED)
Diversified Investment Advisors, Inc. ("Diversified") manages the assets of each
series of Diversified Investors Portfolios (each, a "Portfolio") pursuant to an
Investment Advisory Agreement (the "Diversified Advisory Agreement") with
Diversified Investors Portfolios. For each Portfolio, Diversified has entered
into an Investment Subadvisory Agreement (each, a "Subadvisory Agreement") with
one or more Subadvisers.
A discussion of the Board's considerations and determinations with respect to
the continuation of existing Diversified Advisory Agreements and Subadvisory
Agreements and the approval of new Subadvisory Agreements during the six-month
period ended June 30, 2006 is included in the Funds' Semi-Annual Report for such
period.
Additionally, five new Subadvisory Agreements were approved during the six-month
period ended December 31, 2006.
CORE BOND PORTFOLIO. BlackRock Advisors, Inc. ("BlackRock Advisors"), a
Delaware corporation, became subadviser for the Core Bond Portfolio on December
3, 2001. On September 29, 2006, BlackRock, Inc. ("BlackRock"), the owner of 100%
of the beneficial interest in the Core Bond Portfolio's subadviser at that time,
BlackRock Advisors, acquired Merrill Lynch Investment Managers ("MLIM") in
exchange for giving Merrill Lynch & Co., Inc. ("Merrill Lynch") a 49.8% interest
in the combined company. This transaction constituted an "assignment" within the
meaning of the Investment Company Act of 1940, as amended (the "1940 Act"),
which resulted in the termination of the subadvisory agreement with BlackRock
Advisors (the "Original BlackRock Subadvisory Agreement"). As part of the
transaction, BlackRock Advisors transferred a number of its sub-advisory
agreements to BlackRock Financial Management, Inc. ("BlackRock Financial
Management"), including the Original BlackRock Subadvisory Agreement.
The Board met on August 22, 2006, prior to the close of the transaction, and
approved a new subadvisory agreement with BlackRock Financial Management (the
"New BlackRock Subadvisory Agreement"), which took effect upon the closing of
the transaction. At the meeting, the Board of Trustees received presentations
from Diversified and representatives of BlackRock Financial Management.
Discussed below are some of the material factors considered by the Board.
The Board considered information with respect to BlackRock Financial Management,
the rationale, structure and results of the proposed transaction between
BlackRock and MLIM and whether the New BlackRock Subadvisory Agreement was in
the best interests of the Core Bond Portfolio and its holders of beneficial
interests. The Board noted that the combination of BlackRock and MLIM is
expected to achieve scale in multiple products and markets, and result in a
combined company with assets of approximately $1 trillion. The Board considered
BlackRock's investment philosophy of emphasizing relative value, with value
added primarily through sector and sub-sector rotation and security selection
and portfolio duration controlled within a narrow band. The Board also
considered the competitive performance of BlackRock against its benchmark and
noted that the proposed transaction between BlackRock and MLIM is anticipated to
result in the incorporation of each side's strengths.
The Board considered that the Portfolio's portfolio management team was not
expected to change as a result of the proposed transaction. The Board also noted
that, other than the effective and termination dates and the identity of the
BlackRock-affiliated subadviser, the New BlackRock Subadvisory Agreement was
identical to the Original BlackRock Subadvisory Agreement, which the Board had
recently approved. In their deliberations, the Board also considered information
that had been received by the Board in connection with the Board's most recent
approval of the Original BlackRock Subadvisory Agreement, in addition to
information provided in connection with the Board's evaluation of the terms and
conditions of the New BlackRock Subadvisory Agreement.
201
DIVERSIFIED INVESTORS PORTFOLIOS
APPROVAL OF INVESTMENT ADVISORY CONTRACTS (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
Based upon its review and the representations made to it, the Board, including
all of the Trustees who are not "interested persons" (as defined in the 1940
Act) of any party to the New Subadvisory Agreement (the "Independent Trustees"),
concluded that (a) the terms of the New BlackRock Subadvisory Agreement are
reasonable, fair and in the best interests of the Core Bond Portfolio and its
holders of beneficial interests, and (b) the fee provided in the New BlackRock
Subadvisory Agreement is fair and reasonable in light of the usual and customary
charges made for services of the same nature and quality. Accordingly, after
consideration of the above factors, and such other factors and information as it
deemed relevant, the Board, including all of the Independent Trustees, approved
the New BlackRock Subadvisory Agreement with BlackRock Financial Management.
MID-CAP VALUE PORTFOLIO. At a meeting held on August 22, 2006, the Board of
Trustees approved the appointment of RiverSource Investments, LLC
("RiverSource") as an additional subadviser to the Mid-Cap Value Portfolio. The
Board of Trustees approved an Investment Subadvisory Agreement between
Diversified and RiverSource (the "RiverSource Subadvisory Agreement"), following
presentations by Diversified and representatives of RiverSource. Discussed below
are some of the material factors considered by the Board.
The Board considered the imminent capacity restraints of the Mid-Cap Value
Portfolio's current subadvisers, and the resulting need to hire a third
subadviser for the Portfolio. The Board noted that Diversified had identified
and interviewed several advisers in an effort to locate a subadviser with an
investment strategy that would complement the current subadvisers in the
management of the Mid-Cap Value Portfolio, with sufficient capacity and with a
demonstrable disciplined sub-style.
The Board considered information with respect to RiverSource and whether the
RiverSource Subadvisory Agreement was in the best interests of the Mid-Cap Value
Portfolio and its holders of beneficial interests. As part of their
deliberations, the Board took into account the nature and quality of the
anticipated services to be provided by RiverSource and reviewed and discussed
information regarding RiverSource's fees and composite performance, as compared
to funds with similar investment objectives and the Russell Mid-Cap Value Index.
The Board considered RiverSource's investment philosophy, which emphasizes a
disciplined contrarian process with longer time horizons and a focus on
opportunistic deep value. The Board also reviewed the major components of
RiverSource's investment model, which employs a thematic top-down and bottom-up
approach by industry, focusing on growth features of stocks. In evaluating
RiverSource's ability to provide services to the Mid-Cap Value Portfolio, the
Board also considered information as to RiverSource's business organization,
financial resources, personnel, philosophy and other matters.
The Board reviewed the qualifications, backgrounds and responsibilities of the
senior personnel of RiverSource and the portfolio management team that would be
primarily responsible for the day-to-day management of the Mid-Cap Value
Portfolio. The Board received and considered information regarding the nature,
extent and quality of services expected to be provided to the Mid-Cap Value
Portfolio by RiverSource under the RiverSource Subadvisory Agreement and also
considered the financial resources available to RiverSource. The Board reviewed
and considered the subadvisory fee that would be payable by Diversified to
RiverSource in light of the nature, extent and quality of the management
services expected to be provided by RiverSource and the subadvisory fee paid to
subadvisers of funds with similar mandates. The Board noted that Diversified,
and not the Mid-Cap Value Portfolio, will pay the subadvisory fee to
RiverSource. The Board recognized that RiverSource may realize economies of
scale as the assets of the Mid-Cap Value Portfolio and the portion of the
Portfolio allocated to RiverSource by Diversified grow. The Board noted that the
terms and conditions of the RiverSource Subadvisory Agreement were substantially
similar to the subadvisory agreement with LSV Asset Management and Cramer
Rosenthal McGlynn, LLC, the Mid-Cap Value Portfolio's other subadvisers.
Based upon its review and the representations made to it, the Board, including
all of the Independent Trustees, concluded that (a) the terms of the RiverSource
Subadvisory Agreement are reasonable, fair and in the best
202
DIVERSIFIED INVESTORS PORTFOLIOS
APPROVAL OF INVESTMENT ADVISORY CONTRACTS (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
interests of the Mid-Cap Value Portfolio and its holders of beneficial
interests, and (b) the fee provided in the RiverSource Subadvisory Agreement is
fair and reasonable in light of the usual and customary charges made for
services of the same nature and quality. Accordingly, after consideration of the
above factors, and such other factors and information as it deemed relevant, the
Board, including all of the Independent Trustees, approved the RiverSource
Subadvisory Agreement.
SMALL-CAP VALUE PORTFOLIO. At a meeting held on August 22, 2006, the Board of
Trustees approved the appointment of Mesirow Financial Investment Management,
Inc. ("Mesirow") as an additional subadviser to the Small-Cap Value Portfolio.
The Board of Trustees approved an Investment Subadvisory Agreement between
Diversified and Mesirow (the "Mesirow Subadvisory Agreement"), following
presentations by Diversified and representatives of Mesirow. Discussed below are
some of the material factors considered by the Board.
The Board considered the capacity restraints of the Small-Cap Value Portfolio's
current subadviser, and the resulting need to hire a second subadviser for the
Portfolio. Diversified reviewed with the Board its search process and criteria.
The Board considered information with respect to Mesirow and whether the Mesirow
Subadvisory Agreement was in the best interests of the Small-Cap Value Portfolio
and its holders of beneficial interests. As part of their deliberations, the
Board took into account the nature and quality of the anticipated services to be
provided by Mesirow and reviewed and discussed information regarding Mesirow's
fees and the performance of Mesirow funds with similar investment objectives as
the Portfolio as compared to the Russell 2000 Value Index, the Russell Index and
the Small-Cap Value Portfolio. The Board considered Mesirow's investment
philosophy that a diversified portfolio of undervalued securities should
outperform the market over time as well as preserve principal in a difficult
market environment. The Board reviewed Mesirow's investment strategy, which
employs a three stage process comprising of the identification of undervalued
companies based on historical capital markets research, detailed analysis of
company financial statements and operations and portfolio selection, trading and
monitoring. The Board also reviewed the major components of Mesirow's investment
model, which utilizes a fundamental bottom-up approach to investing, with
stronger emphasis on dividend yield. In evaluating Mesirow's ability to provide
services to the Portfolio, the Trustees also considered information as to
Mesirow's financial resources, portfolio holdings, institutional client list,
personnel, financial sector allocations, compliance program and other matters.
Based upon its review and the representations made to it, the Board, including
all of the Independent Trustees, concluded that (a) the terms of the Mesirow
Subadvisory Agreement are reasonable, fair and in the best interests of the
Small-Cap Value Portfolio and its holders of beneficial interests, and (b) the
fee provided in the Mesirow Subadvisory Agreement is fair and reasonable in
light of the usual and customary charges made for services of the same nature
and quality. Accordingly, after consideration of the above factors, and such
other factors and information as it deemed relevant, the Board, including all of
the Independent Trustees, approved the Mesirow Subadvisory Agreement.
SPECIAL EQUITY PORTFOLIO. RS Investment Management, L.P., a California limited
partnership, became a subadviser to the Special Equity Portfolio on March 26,
1999. On August 31, 2006, Guardian Investor Services LLC, a wholly owned
subsidiary of The Guardian Life Insurance Company of America, acquired a
majority interest in RS Investment Management Co. LLC ("RS"), the general
partner of, and owner of 99.9% of the beneficial interest in the Special Equity
Portfolio's subadviser at that time, RS Investment Management, L.P. This
transaction constituted an "assignment" within the meaning of the 1940 Act,
which resulted in the termination of the original subadvisory agreement with RS
Investment Management, L.P. (the "Original RS Subadvisory Agreement"). In
connection with the transaction, RS undertook a reorganization in which all
investment advisory activities, including the activities of RS Investment
Management, L.P., were consolidated under RS. This transaction did not result in
a change in the composition of the RS portfolio
203
DIVERSIFIED INVESTORS PORTFOLIOS
APPROVAL OF INVESTMENT ADVISORY CONTRACTS (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
management teams or investment professional compensation and did not materially
impact the business or investment strategy of RS.
The Board met on July 26, 2006, prior to the close of the transaction, and
approved a new subadvisory agreement with RS (the "New RS Subadvisory
Agreement"), which took effect upon the closing of the transaction. At the
meeting, the Board of Trustees received presentations from Diversified and
representatives of RS. Discussed below are some of the material factors
considered by the Board.
The Trustees considered information with respect to RS, the performance results
of the Special Equity Portfolio, the rationale, structure and results of the
acquisition and whether the New RS Subadvisory Agreement was in the best
interests of the Special Equity Portfolio and its holders of beneficial
interests. The Trustees considered that all portfolio managers of RS, who were
employed by RS prior to the acquisition, were to enter into five-year employment
agreements in connection with the acquisition. The Trustees noted that, after
the acquisition, RS portfolio management teams and investment professional
compensation was expected to remain unchanged and no material impact on the
business or investment strategy of RS was expected. The Trustees noted that RS
would retain operational and investment management autonomy after the
acquisition. The Trustees also noted that, other than the effective and
termination dates, the New RS Subadvisory Agreement was identical to the
Original RS Subadvisory Agreement, which the Trustees had recently approved.
Based upon its review and the representations made to it, the Board of Trustees,
including all of the Independent Trustees, concluded that (a) the terms of the
New RS Subadvisory Agreement are reasonable, fair and in the best interests of
the Special Equity Portfolio and its holders of beneficial interests, and (b)
the fee provided in the New RS Subadvisory Agreement is fair and reasonable in
light of the usual and customary charges made for services of the same nature
and quality. Accordingly, after consideration of the above factors, and such
other factors and information as it deemed relevant, the Board of Trustees,
including all of the Independent Trustees, approved the New RS Subadvisory
Agreement.
SMALL-CAP GROWTH PORTFOLIO. At a meeting held on July 20, 2006, the Board of
Trustees considered the termination of Trusco Capital Management, Inc.
("Trusco") as the subadviser to the Small-Cap Growth Portfolio and the
appointment of Perimeter Capital Partners, LLC ("Perimeter") as interim
subadviser to the Portfolio. The Trustees reviewed the Small-Cap Growth
Portfolio's performance and considered the ability of Trusco to continue to
effectively manage the Portfolio. The Board noted the performance of the
Small-Cap Growth Portfolio and based on Diversified's recommendation, the Board
authorized Diversified to terminate the Subadvisory Agreement with Trusco (the
"Trusco Subadvisory Agreement"). Accordingly, effective July 24, 2006,
Diversified terminated the Trusco Subadvisory Agreement. At Diversified's
recommendation, the Small-Cap Growth Portfolio entered into an interim
Subadvisory Agreement with Perimeter, whereby Perimeter became interim
subadviser of the Small-Cap Growth Portfolio effective July 24, 2006 for a
period no longer than 150 days in reliance on Rule 15a-4 under the Investment
Company Act of 1940.
At a meeting held on November 28, 2006, the Board of Trustees considered the
appointment of Perimeter under a standard contractual term, and approved an
Investment Subadvisory Agreement between Perimeter and Diversified with respect
to the Small-Cap Growth Portfolio (the "Perimeter Subadvisory Agreement"),
following presentations by Diversified and representatives of Perimeter. The
Perimeter Subadvisory Agreement shall remain in force for an initial term of two
years, unless otherwise terminated in accordance with the terms of the
Agreement. Discussed below are some of the material factors considered by the
Board.
The Board considered Perimeter's performance as interim subadviser of the
Small-Cap Growth Portfolio since July 24, 2006. The Board considered information
with respect to Perimeter and whether the Perimeter Subadvisory Agreement was in
the best interests of the Small-Cap Growth Portfolio and its holders of
204
DIVERSIFIED INVESTORS PORTFOLIOS
APPROVAL OF INVESTMENT ADVISORY CONTRACTS (CONTINUED)
DECEMBER 31, 2006
(UNAUDITED)
beneficial interests. As part of their deliberations, the Board took into
account the nature and quality of the services currently provided and to be
provided by Perimeter. The Board considered the performance of the Small-Cap
Growth Portfolio while Perimeter was interim subadviser as compared to the
Portfolio's benchmark, the Russell 2000 Growth Index. The Board considered
Perimeter's investment philosophy, the foundation of which is a bottom-up
approach to fundamental research and analysis. The Board noted Perimeter's
investment process in which fundamental research is obtained, organized and
prioritized and a research team then assesses the results of the fundamental
research in the context of competitive positioning, industry/business cycle
analyses, peer comparison, valuation analysis and viability of a company's
business model. The Board reviewed Perimeter's investment strategy, which is
earnings-growth focused, uses diversification to control risk, employs sell
discipline as a critical link to successful stock selection and looks for style
specific results. In evaluating Perimeter's ability to provide services to the
Small-Cap Growth Portfolio, the Trustees also considered information as to
Perimeter's financial resources, portfolio holdings, investment advisory fees,
personnel, compliance policies and procedures and other matters.
The Board reviewed the qualifications, backgrounds and responsibilities of the
senior personnel of Perimeter and the portfolio management team that would be
primarily responsible for the day-to-day management of the Small-Cap Growth
Portfolio. The Board received and considered information regarding the nature,
extent and quality of services expected to be provided to the Small-Cap Growth
Portfolio by Perimeter under the Perimeter Subadvisory Agreement. The Board
reviewed and considered the subadvisory fee that would be payable by Diversified
to Perimeter in light of the nature, extent and quality of the management
services expected to be provided by Perimeter and the subadvisory fee paid to
subadvisers of funds with similar mandates. The Board noted that Diversified,
and not the Small-Cap Growth Portfolio, will pay the subadvisory fee to
Perimeter. The Board recognized that Perimeter may realize economies of scale as
the assets of the Small-Cap Growth Portfolio and the portion of the Portfolio
allocated to Perimeter by Diversified grow. The Board noted that the terms and
conditions of the Perimeter Subadvisory Agreement were substantially similar to
the Trusco Subadvisory Agreement.
Based upon its review and the representations made to it, the Board, including
all of the Independent Trustees, concluded that (a) the terms of the Perimeter
Subadvisory Agreement are reasonable, fair and in the best interests of the
Small-Cap Growth Portfolio and its holders of beneficial interests, and (b) the
fee provided in the Perimeter Subadvisory Agreement is fair and reasonable in
light of the usual and customary charges made for services of the same nature
and quality. Accordingly, after consideration of the above factors, and such
other factors and information as it deemed relevant, the Board, including all of
the Independent Trustees, approved the Perimeter Subadvisory Agreement.
* * * * *
No single factor reviewed by the Board was identified as the principal factor in
determining whether to approve a New Subadvisory Agreement, and each Board
member attributed different weight to the various factors. The Independent
Trustees discussed the proposed approval of each New Subadvisory Agreement in
private sessions with their independent legal counsel at which no
representatives of Diversified or the applicable subadviser were present.
205
DIVERSIFIED INVESTORS PORTFOLIOS
TRUSTEES INFORMATION
(UNAUDITED)
Each portfolio is supervised by the Board of Trustees of Diversified Investors
Portfolios. The respective Trustees and officers of each Series and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Unless otherwise indicated, the
address of each Trustee and officer of Diversified Investors Portfolios is c/o
Diversified Investment Advisors, Inc., Four Manhattanville Road, Purchase, New
York 10577. Additional information about Diversified Investors Portfolios'
Trustees may be found in Diversified Investors Portfolios' Statement of
Additional Information, which is available without charge upon request by
calling 1-800-755-5801.
OFFICERS AND INTERESTED TRUSTEES:
<Table>
<Caption>
POSITION(S), LENGTH OF PRINCIPAL OCCUPATIONS DURING
NAME AND AGE TIME SERVED PAST 5 YEARS, DIRECTORSHIPS HELD
- ------------ ---------------------- -----------------------------------
Elizabeth L. Belanger.................. Assistant Secretary 05/2005 to present -- Vice
DOB: January 7, 1972 since 2005 President and Senior Counsel,
Diversified Investment Advisors,
Inc.; 11/2003 to
05/2005 -- Director of Compliance,
Domini Social Investments LLC;
09/1997-10/2003 -- Associate,
Bingham McCutchen LLP; 04/2006 to
present -- Director, Transamerica
Financial Life Insurance Company.
Joseph P. Carusone..................... Treasurer since 2001 Vice President and Director,
DOB: September 8, 1965 Diversified Investment Advisors,
Inc.; 2004 to present -- Director,
Transamerica Financial Life
Insurance Company; 01/2007 to
present -- President, Diversified
Investors Securities Corp.
Robert F. Colby........................ Secretary since 1993 Senior Vice President and General
DOB: November 1, 1955 Counsel, Diversified Investment
Advisors, Inc.; Vice President,
Diversified Investors Securities
Corp.; Vice President, Assistant
Secretary, and Director,
Transamerica Financial Life
Insurance Company, Inc.
Suzanne Montemurro..................... Assistant Treasurer Vice President and Director,
DOB: August 13, 1964 since 2002 Diversified Investment Advisors,
Inc.
Mark Mullin............................ President since 2002 Chairman of the Board and Chief
DOB: February 16, 1963 Trustee since 1998 Executive Officer, Diversified
Investment Advisors, Inc.; 02/2002
to present -- Director,
Transamerica Financial Life
Insurance Company.
Quedel Principal....................... Assistant Secretary Vice President and Senior Counsel,
DOB: February 4, 1966 since 2004 Diversified Investment Advisors,
Inc.; Director, Diversified
Investors Securities Corp.
Rick Resnik............................ Chief Compliance Chief Compliance Officer,
DOB: January 24, 1967 Officer since 2004 Diversified Investment Advisors,
Inc.; Director, Vice President, and
Chief Compliance Officer,
Diversified Investors Securities
Corp.
</Table>
206
DIVERSIFIED INVESTORS PORTFOLIOS
TRUSTEES INFORMATION (CONTINUED)
(UNAUDITED)
DISINTERESTED TRUSTEES:
<Table>
<Caption>
POSITION(S), LENGTH OF PRINCIPAL OCCUPATIONS DURING
NAME AND AGE TIME SERVED PAST 5 YEARS, DIRECTORSHIPS HELD
- ------------ ---------------------- -----------------------------------
Neal M. Jewell......................... Trustee since 1993 10/2004 to present -- Retired;
DOB: February 12, 1935 01/1996 to 10/2004 -- Independent
Trustee, EACM Select Managers
Equity Fund
Mitchell Johnson....................... Trustee since 2006 07/1994 to present -- Private
DOB: March 1, 1942 Investor, MAJ Capital Management;
06/1996 to present -- Director,
Federal Agriculture Mortgage
Corporation; 02/2005 to
present -- Trustee, Advisors Inner
Circle Funds, Advisors Inner Circle
Funds II, and Bishop Street Funds
(family of mutual funds); 12/1997
to 02/2004 -- Trustee, Citizens
Funds (family of mutual funds)
Eugene M. Mannella..................... Trustee since 1993 1/2006 to present -- Consultant
DOB: February 1, 1954 (self- employed); 08/1993 to
12/2005 -- President, International
Fund Services, Inc.
Joyce Galpern Norden................... Trustee since 1993 6/2004 to present -- Retired;
DOB: June 1, 1939 09/1996 to 6/2004 -- Vice
President, Institutional
Advancement, Reconstructionist
Rabbinical College
Lowell W. Robinson..................... Trustee since 2006 12/2006 to present -- Chief
DOB: January 20, 1949 Financial and Chief Administrative
Officer, MIVA, Inc. (on-line direct
marketing); 2004 to
2006 -- President, LWR Advisors LLC
(consulting); 2002 to
2004 -- Special Counsel to the
President, Polytechnic University;
2002 to 2004 -- Senior Executive
Vice President and Chief Financial
Officer, Hotjobs.com; 2004 to
present -- Director, Jones Apparel
Group; 2004 to present -- Director,
International Wire Group, Inc.;
2004 to present -- Director,
Independent Wireless One Corp.;
2002 to 2003 -- Director, Edison
Schools, Inc. (school management)
Patricia L. Sawyer..................... Trustee since 1993, President and Executive Search
DOB: July 1, 1950 Chairperson of Audit Consultant, Smith & Sawyer LLC
Committee since 2003
</Table>
207
TRANSAMERICA FINANCIAL LIFE INSURANCE COMPANY, INC.
4 Manhattanville Road, Purchase, New York 10577
(914) 697-8000
DISTRIBUTOR:
Diversified Investors Securities Corp. (DISC)
4 Manhattanville Road, Purchase, New York 10577
914-697-8000
2873 (2/07)
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, Registrant had adopted a
code of ethics (the "Code") that applies to the Registrant's principal executive
officer ("PEO"), principal financial officer ("PFO"), and Assistant Treasurer
("AT"). There were no amendments to the Code during the period covered by the
report. A copy of the Code of Ethics is attached as an exhibit to this Form
N-CSR.
The Registrant did not grant any waivers, including implicit waivers, from any
provisions of the Code to the PEO, PFO, or AT, during the period covered by this
report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has one audit committee
financial expert serving on its audit committee. The audit committee financial
expert is Eugene M. Mannella, who is an independent trustee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. - The aggregate fees billed for professional services rendered
by PricewaterhouseCoopers ("PWC") for the audit of the Registrant's financial
statements and services that are normally provided by the accountant in
connection with statutory and regulatory filings for 2006 and 2005 were $15,000
and $14,400, respectively.
(b) AUDIT RELATED FEES. - No such fees were billed by PWC for 2006 or 2005.
(c) TAX FEES. - No such fees were billed by PWC for 2006 or 2005.
(d) ALL OTHER FEES - The aggregate non-audit fees billed by PWC for services
rendered were $32,756 and $0 in 2006 and 2005, respectively. The fees rendered
were in connection with a profitability study approved by the Audit Committee
related to the investment advisory contract renewal process. The fees were paid
by the Registrant's advisor, Diversified Investment Advisors.
(e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICY. The Audit Committee is required to
pre-approve audit and non-audit services performed for the Funds by the
independent accountant in order to assure that the provision of such services
does not impair the accountant's independence. The Audit Committee also is
required to pre-approve non-audit services performed by the Funds' independent
accountant for the Funds investment adviser, and certain of the adviser's
affiliates that provide ongoing services to the Funds, if the services to be
provided by the accountant relate directly to the operations and financial
reporting of the Funds. The pre-approval of these services also is intended to
assure that the provision of the services does not impair the accountant's
independence.
Unless a type of service to be provided by the independent accountant has
received pre-approval, it will require separate pre-approval by the Audit
Committee. Also, any proposed services exceeding pre-approved cost levels will
require separate pre-approval by the Audit Committee. When considering services
for pre-approval the Audit committee will take into account such matters as it
deems appropriate or advisable, including applicable rules regarding auditor
independence.
The Audit Committee may delegate pre-approval authority to one or more of its
members. The member or members to whom such authority is delegated shall report
any pre-approval decisions to the Audit Committee at its next scheduled meeting.
Requests or applications to provide services that require separate approval by
the Audit Committee will be submitted to the Audit Committee by both the
independent accountant and the Funds' treasurer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.
Management will promptly report to the Chair of the Audit Committee any
violation of this Policy which it becomes aware.
(e) (2) 100% of services described in paragraphs (b) through (d) were approved
by the Audit Committee.
(f) Not applicable.
(g) The aggregate non-audit fees billed to the Registrant's investment advisor,
Diversified Investment Advisors ("DIA") for 2006 and 2005, were $269,000 and
$254,000, respectively. The fees rendered were in connection with the
examination of DIA's record-keeping operations (SAS-70), and in connection with
the review of DIA's Transfer Agent's internal control structure. All such fees
were incurred by and paid for by DIA.
(h) PWC provided non-audit services to DIA in 2006 and 2005 that were not
required to be pre-approved by the Registrant's audit committee because the
services were not directly related to the operation of the Registrant's funds.
The Board of Trustees will consider PWC's independence and will consider whether
the provision of these non-audit services to DIA is compatible with maintaining
PWC's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the Registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the Registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The Registrant's principal executive officer and principal financial officer
are aware of no changes in the Registrant's internal control over financial
reporting that occurred during the Registrant's most recent fiscal six-month
period that has materially affected, or is likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) Code of Ethics, attached.
(a) (2) Separate certifications by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(a) (3) Not applicable.
(b) A certification by the Registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Diversified Investors Strategic Variable Funds
By /s/ Mark Mullin
----------------------------------
Mark Mullin
Principal Executive Officer
Date March 2, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ Mark Mullin
----------------------------------
Mark Mullin
Principal Executive Officer
Date March 2, 2007
By /s/ Joseph Carusone
----------------------------------
Joseph Carusone
Principal Financial Officer
Date March 2, 2007