<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN DIVERSIFIED FUND
July 17, 1998
Dear Shareholder:
We are pleased to report that the J.P. Morgan Diversified Fund earned a strong
absolute return during a period that was characterized by volatility both at
home and abroad. For the 12 months ended June 30, 1998, the fund returned
18.06%. The fund's Diversified Benchmark* returned 20.38%, and the fund's peers,
as measured by the Lipper Balanced Fund Average, returned 17.58%.
The fund's net asset value per share increased from $13.89 at June 30, 1997, to
$15.06 on June 30, 1998. The fund made distributions during the year of
approximately $0.53 per share from ordinary income, approximately $0.28 per
share from short-term capital gains, and approximately $0.38 per share from
long-term capital gains, of which $0.19 per share represents distributions of
20% rate gains. In addition, the fund's net assets advanced from approximately
$70.3 million on June 30, 1997, to approximately $227.1 million at the end of
the year under review. The net assets of The Diversified Portfolio, in which the
fund invests, totaled approximately $559.1 million on June 30, 1998.
The report that follows includes an interview with John M. Devlin, a member of
the portfolio management team for The Diversified Portfolio. This interview is
designed to answer commonly asked questions about the fund, elaborate on what
happened during the reporting period, and provide an outlook for the coming
months.
As chairman and president of Asset Management Services, we appreciate your
investment in the fund. If you have any comments or questions, please call your
Morgan representative or J.P. Morgan Funds Services at (800) 521-5411.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan &Co. Incorporated
* Comprises 52% S&P 500 Index, 35% Salomon Brothers Broad Investment Grade Bond
Index, 10% MSCI EAFE Index, and 3% Russell 2000 Index.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS . . . .1 FUND FACTS AND HIGHLIGHTS . . . . . .7
FUND PERFORMANCE . . . . . . . . .2 SPECIAL FUND-BASED SERVICES . . . . .8
PORTFOLIO MANAGER Q&A. . . . . . .3 FINANCIAL STATEMENTS . . . . . . . 10
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at right shows that $10,000 invested on September 30, 1993,*
would have grown to $19,286 on June 30, 1998.
Another way to look at performance is to review a fund's average annual
total return. This figure takes the fund's actual (or cumulative) return and
shows what would have happened if the fund had achieved that return by
performing at a constant rate each year. Average annual total returns represent
the average yearly change of a fund's value over various time periods, typically
one, five, or ten years (or since inception). Total returns for periods of less
than one year are not annualized and provide a picture of how a fund has
performed over the short term.
GROWTH OF $10,000 SINCE FUND INCEPTION*
SEPTEMBER 30, 1993 - JUNE 30, 1998
[GRAPH]
<TABLE>
<CAPTION>
Inception Jun-95 Jun-96 Jun-97 Jun-98
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Diversified Fund $10,000 $11,633 $13,554 $16,336 $19,286
Diversified Benchmark** 10,000 11,734 13,732 16,796 20,220
S&P 500 Index 10,000 12,462 15,703 21,151 27,531
Lipper Balanced Fund Average 10,000 11,300 13,071 15,604 18,356
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- ------------------------------
THREE SIX ONE THREE SINCE
AS OF JUNE 30, 1998 MONTHS MONTHS YEAR YEARS INCEPTION*
- --------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
J.P. MORGAN DIVERSIFIED FUND 2.50% 11.27% 18.06% 18.35% 14.84%
DIVERSIFIED BENCHMARK** 2.51% 12.27% 20.38% 19.89% 15.98%
S&P 500 INDEX 3.30% 17.71% 30.16% 30.24% 23.76%
LIPPER BALANCED FUND AVERAGE 1.15% 8.95% 17.58% 17.77% 13.92%
</TABLE>
*REFLECTS PERFORMANCE OF THE J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND FROM
SEPTEMBER 10, 1993, THROUGH DECEMBER 15, 1993 (COMMENCEMENT OF OPERATIONS).
THE PERFORMANCE FOR SUCH PERIOD REFLECTS THE DEDUCTION OF THE EXPENSES OF
THE J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND, WHICH WERE LOWER THAN THE
EXPENSES OF THE FUND. ALL RETURNS ARE CALCULATED FROM SEPTEMBER 30, 1993.
THE AVERAGE ANNUAL TOTAL RETURN SINCE SEPTEMBER 10, 1993, IS 14.44%.
**COMPRISES 52% S&P 500 INDEX, 35% SALOMON BROTHERS BROAD INVESTMENT GRADE
BOND INDEX, 10% MSCI EAFE INDEX, AND 3% RUSSELL 2000 INDEX.
THE S&P 500 INDEX IS AN UNMANAGED INDEX WHICH MEASURES PERFORMANCE OF 500 WIDELY
HELD U.S. LARGE-CAP STOCKS. THE S&P 500 INDEX DOES NOT INCLUDE FEES OR OPERATING
EXPENSES, AND ARE NOT AVAILABLE FOR ACTUAL INVESTMENT.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF FUND DISTRIBUTIONS, AND REFLECT REIMBURSEMENT
OF FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN
SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. LIPPER ANALYTICAL SERVICES, INC. IS A
LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with JOHN M. DEVLIN JR., who has been a member of the
portfolio management team for The Diversified Portfolio since December of 1993.
John joined J.P. Morgan in 1986. At Morgan, he was on special assignment in the
Frankfurt office and, prior to that, spent six years on the fixed-income trading
desk as a mortgage and corporate specialist. Before joining Morgan, John was a
pension fund manager and Treasury manager during his 12 years with U.S. Steel.
He earned a degree in Finance from Georgetown in 1967, and an MBA from Pace
University in 1976. He was an adjunct professor of Finance at Pace University
for 10 years. This interview took place on July 14, 1998, and reflects John's
views on that date.
WHAT WERE THE MAJOR MARKET EVENTS OF THE PAST 12 MONTHS?
JMD: For almost exactly one year, trouble in the Asian markets has dominated
the world economic scene. The difficulties began last July with Thailand, and
quickly spread to the rest of the region. Japan's economy has been doing poorly
for some time, and that had a negative effect on the entire region.
The turmoil in Asia caused a flight to quality -- investors began moving their
money to areas they viewed as more secure, insulated somewhat from the
uncertainty of the world markets. U.S. large-cap stocks, and global fixed-income
markets have benefited from the resulting influx of capital.
In addition to sending huge flows of cash to the U.S. stock market, Asia has
prolonged the bull market in the U.S. by removing one of the main sources of
risk -- higher interest rates. Because of the crisis in Asia, economic activity
has slowed from a torrid pace that, left unchecked, might have forced the
Federal Reserve to raise short-term interest rates. In the absence of any
tightening by the Fed, U.S. stock prices have continued to rise.
HOW DID THE MARKETS IN WHICH THE PORTFOLIO INVESTS BEHAVE DURING THE 12 MONTHS
UNDER REVIEW?
JMD: In addition to the effect Asia has had on U.S. large-cap stocks, the blue
chip averages have benefited from several other factors. Lower commodity prices
throughout the world are helping to keep inflation under control. Large U.S.
companies are buying back their own stock at a rapid pace, seeing their own
stock as the best use of their excess cash. A wave of corporate mergers has
resulted in fewer shares of stock available to meet investor demand. It has also
served to drive stock prices even higher. What's more, investors continue to
pour money into the equity markets by funding their 401(k) retirement plans.
3
<PAGE>
The U.S. fixed-income market is enjoying a low and stable inflation environment,
low interest rates, a hands-off Fed, and a dramatic improvement in the federal
budget deficit. On the other hand, a low unemployment rate and strong domestic
economy are creating nervousness about the potential for inflation to rise and
for the Fed to raise short-term rates. The key factor influencing the bond
market right now is economic growth. To the extent that growth slows before
inflation picks up, rates could head even lower. However, if domestic growth
continues at its current pace, the potential for inflation to accelerate will
increase, and interest rates could head back up. It remains to be seen which
scenario will materialize.
In international markets, European stocks have done well in spite of Asia's
difficulties. Optimism over European Monetary Union is fueling the rise, as is
corporate restructuring similar to what the U.S. experienced several years ago.
We view Europe as far less overvalued than most developed markets, given that
earnings should be improving.
U.S. small-cap stocks have suffered over the past year, lagging their large-cap
brethren by a wide margin. The flight to quality is causing investors to ignore
small stocks because of the perceived instability of smaller companies. However,
since the second quarter of 1997, earnings growth rates for small-cap stocks
have surpassed those of large-cap stocks. In addition, the strength of the U.S.
dollar looms as a potential drag on large multinational companies. This could
benefit small caps relative to large caps, because the overseas profits of
multinational companies lose value when translated back into U.S. dollars in a
strong dollar environment.
HOW DID THE J.P. MORGAN DIVERSIFIED FUND PERFORM DURING THE PAST 12 MONTHS?
JMD: I am pleased to report that the fund is surpassing its peers for the 12
months ended June 30, 1998. The fund returned 18.06% for the year, versus 17.58%
for the Lipper Balanced Fund Average. However, the fund lagged its Diversified
Benchmark, which returned 20.38% for the 12 months.
Our underperformance relative to the benchmark was due mainly to our asset
allocation decisions. Our normal asset mix reflects our long-term belief in the
relative rewards and risks of the four asset classes in which we invest. It also
represents what we view as a sensibly diversified portfolio of investments.
However, we adjusted our asset mix in response to what we viewed as changes in
the relative valuations of these asset classes. (See pie charts on page 7.) All
of our asset allocation decisions are based on valuation -- we seek to buy
securities that we believe are undervalued and sell those that look fully valued
or overvalued -- but the markets have been ignoring traditional measures of
valuation.
We decided to underweight large-cap stocks because the S&P 500 Index has looked
overvalued to us for some time. Earnings projections for many large companies
seem too optimistic in light of the trouble in Asia and the strong U.S. dollar.
However, in a momentum-driven market fueled by a flight to quality, large caps
have continued to dominate.
4
<PAGE>
Our decision to overweight U.S. bonds added significantly to the portfolio's
returns, as that market benefited from the conditions discussed above. We also
overweighted international stocks, which helped the portfolio. We view Europe as
being in the early stages of its economic cycle, and the markets have thus far
confirmed our view.
Our overweighted position in U.S. small-cap stocks held the portfolio back
somewhat. These stocks are exhibiting historically low valuations relative to
large caps. In fact, the price/earnings ratio on the small-cap Russell 2000
Index is the lowest it's been versus the P/E of the S&P 500 since the early
1980s. We believe that reasonable domestic growth, combined with a strong
dollar, is likely to create significant opportunities for small stocks relative
to large. Our view is that small caps will continue to grow appreciably faster
throughout the remainder of 1998. Because of these views, we have retained an
overweight position in small caps. However, investors continue to ignore these
stocks in favor of large-caps, and the portfolio suffered as a result.
HOW EFFECTIVE WERE OUR SECURITY SELECTION DECISIONS?
JMD: Our individual security selection was quite good over the last 12 months.
Our large-cap stocks have been beating the market, as have our small caps.
Among the large-cap stocks we held, one of the big winners for us was
Warner-Lambert Co. Sales of the company's two new drugs, Lipitor, a
cholesterol-reducing drug, and Rezulin, a diabetes drug, continue to exceed
expectations.
Another top performer for the portfolio was Tyco International, Ltd., a
diversified industrial company and industry leader in several businesses. Tyco's
management team is very focused on containing costs and has made several
strategic acquisitions over the last year. Tyco's most recent purchase, U.S.
Surgical Corp., which was announced in May, is also its largest to date.
In the small-cap sector, DeKalb Genetics Corp. has been one of our largest
positions for some time. It's also been one of our most successful holdings. The
company creates valuable agricultural genetics and biotechnology for seed corn
products, and holds several important patents. This is a growing business, and
we knew that DeKalb was well-positioned to benefit from the industry
consolidation that we expected. In February, DeKalb, recognizing the economies
of scale needed to succeed, put itself up for sale. In mid-May, Monsanto agreed
to acquire DeKalb for $100 per share. We tendered our shares for cash at that
price.
We maintained a long duration position in the fixed-income portion of the
portfolio. Across sectors, we continue to reduce our total
below-investment-grade exposures, as we also reduced positions in
investment-grade corporates and emerging market debt. On the plus side, we added
to positions in high-grade asset-backed securities and agency mortgages.
5
<PAGE>
WHAT IS OUR OUTLOOK FOR THE COMING MONTHS?
JMD: The U.S. large-cap market is hitting record highs -- as is investor
enthusiasm. We believe, however, that other asset classes offer more relative
value these days. Market volatility has risen appreciably over the last 18
months. Fundamentals are also starting to deteriorate. Earnings growth rates are
no longer as high as they were, and that may start to cause investor concern.
Finally, the chance of an economic downturn is rising, if for no other reason
than the fact that we're in the eighth year of an economic expansion, and
expansions don't last forever. In light of these conditions, we continue to
overweight U.S. small-cap stocks and fixed-income securities. We believe these
asset classes offer growth without exposing our shareholders to excessive
amounts of risk.
6
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Diversified Fund seeks to provide a high total return from a
diversified portfolio of equity and fixed-income securities. It is designed for
investors who wish to invest for long-term objectives, such as retirement, and
who seek over time to attain real appreciation of their investments, but with
somewhat less price fluctuation than a portfolio consisting solely of equity
securities.
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
12/15/93
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 6/30/98
$227,063,713
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 6/30/98
$559,065,388
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
QUARTERLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/98
EXPENSE RATIO
The fund's current annualized expense ratio of 0.98% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services, after reimbursement. The fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for buying,
selling, or safekeeping fund shares, or for wiring redemption proceeds from the
fund.
FUND HIGHLIGHTS
ALL DATA AS OF JUNE 30, 1998
DIVERSIFIED STRATEGY
[CHART]
<TABLE>
<S> <C>
U.S. LARGE-CAP EQUITIES 52.0%
FIXED INCOME 35.0%
INTERNATIONAL EQUITIES 10.0%
U.S. SMALL-CAP EQUITIES 3.0%
</TABLE>
ASSET ALLOCATION AS OF 6/30/98
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
U.S. LARGE-CAP EQUITIES 45.2%
FIXED INCOME 37.9%
INTERNATIONAL EQUITIES 10.6%
U.S. SMALL-CAP EQUITIES 5.0%
SHORT-TERM & OTHER INVESTMENTS 1.3%
</TABLE>
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
(EXCLUDING SHORT-TERM INVESTMENTS) % OF TOTAL INVESTMENTS
- ----------------------------------------------------------------
<S> <C>
U.S. TREASURY BOND, 8.50% DUE 2/15/20 2.5%
U.S. TREASURY NOTE, 6.63% DUE 6/30/01 2.1%
GOVERNMENT OF FRANCE, 4.75% DUE 3/12/02 1.8%
GERMAN UNITY FUND, 8.50% DUE 02/20/01 1.8%
FNMA REMIC, 6.50% DUE 1/25/23 1.4%
EXXON CORP. 1.3%
BRISTOL-MYERS SQUIBB CO. 1.0%
GENERAL ELECTRIC CO. 1.0%
U.S. TREASURY NOTE, 6.88% DUE 5/15/06 1.0%
INTEL CORP. 1.0%
</TABLE>
7
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- Create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives.
- Make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends.
- Make investments through the diversified family of J.P. Morgan mutual
funds.
PAAS is available to clients who invest a minimum of $500,000 in the J.P. Morgan
Funds.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow
tax-deferred until retirement, the IRA enables more of your dollars to work for
you longer. Morgan offers an IRA Rollover plan that helps you to build
well-balanced long-term investment portfolios, diversified across a wide array
of mutual funds. From money markets to emerging markets, J.P. Morgan Funds
provide an excellent way to help you accumulate long-term wealth for
retirement.
8
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW YORK
SERVES AS INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY
AS SHAREHOLDER SERVICING AGENT. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE
NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE
PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL
COST.
References to specific securities and their issuers are for illustrative
purposes only and are not intended to be, and should not be interpreted as,
recommendations to purchase or sell such securities. Opinions expressed herein
are based on current market conditions and are subject to change without notice.
The fund invests through a master portfolio (another fund with the same
objective). The portfolio invests in foreign securities, which are subject to
special risks. Prospective investors should refer to the prospectus for a
discussion of these risks.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
9
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Diversified Portfolio
("Portfolio"), at value $227,081,506
Receivable for Shares of Beneficial Interest Sold 99,818
Receivable for Expense Reimbursements 18,462
Deferred Organization Expenses 3,121
Prepaid Trustees' Fees 381
Prepaid Expenses and Other Assets 93
------------
Total Assets 227,203,381
------------
LIABILITIES
Shareholder Servicing Fee Payable 45,895
Payable for Shares of Beneficial Interest
Redeemed 38,790
Administrative Services Fee Payable 5,237
Administration Fee Payable 341
Fund Services Fee Payable 185
Accrued Expenses 49,220
------------
Total Liabilities 139,668
------------
NET ASSETS
Applicable to 15,076,552 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $227,063,713
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $15.06
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $196,932,790
Undistributed Net Investment Income 124,131
Accumulated Net Realized Gain on Investment 3,582,467
Net Unrealized Appreciation of Investment 26,424,325
------------
Net Assets $227,063,713
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income (Net of Foreign
Withholding Tax of $2,461) $ 3,903,968
Allocated Dividend Income (Net of Foreign
Withholding Tax of $53,693) 1,425,974
Allocated Portfolio Expenses (Net of
Reimbursement of $77,105) (917,464)
-----------
Net Investment Income Allocated from
Portfolio 4,412,478
FUND EXPENSES
Shareholder Servicing Fee $352,054
Administrative Services Fee 41,692
Registration Fees 33,610
Transfer Agent Fees 31,361
Printing Expenses 21,568
Professional Fees 15,366
Amortization of Organization Expenses 6,863
Fund Services Fee 4,318
Administration Fee 3,367
Trustees' Fees and Expenses 828
Miscellaneous 6,883
--------
Total Fund Expenses 517,910
Less: Reimbursement of Expenses (55,495)
--------
NET FUND EXPENSES 462,415
-----------
NET INVESTMENT INCOME 3,950,063
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 4,691,054
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 16,433,434
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $25,074,551
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 3,950,063 $ 1,824,215
Net Realized Gain on Investment Allocated from
Portfolio 4,691,054 3,370,108
Net Change in Unrealized Appreciation of
Investment Allocated from Portfolio 16,433,434 6,451,745
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 25,074,551 11,646,068
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (4,765,734) (1,470,823)
Net Realized Gain (3,891,110) (1,827,802)
-------------- --------------
Total Distributions to Shareholders (8,656,844) (3,298,625)
-------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 159,371,573 23,003,598
Reinvestment of Dividends and Distributions 8,354,482 3,173,662
Cost of Shares of Beneficial Interest Redeemed (27,418,102) (17,385,015)
-------------- --------------
Net Increase from Transactions in Shares of
Beneficial Interest 140,307,953 8,792,245
-------------- --------------
Total Increase in Net Assets 156,725,660 17,139,688
NET ASSETS
Beginning of Fiscal Year 70,338,053 53,198,365
-------------- --------------
End of Fiscal Year (including undistributed net
investment income of $124,131 and $1,143,038,
respectively) $ 227,063,713 $ 70,338,053
-------------- --------------
-------------- --------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 15, 1993
FOR THE FISCAL YEAR ENDED JUNE 30, (COMMENCEMENT OF
-------------------------------------- OPERATIONS) THROUGH
1998 1997 1996 1995 JUNE 30, 1994
-------- ------- ------- ------- -------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.89 $ 12.22 $ 11.20 $ 9.81 $ 10.00
-------- ------- ------- ------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.33 0.37 0.30 0.28 0.09
Net Realized and Unrealized Gain (Loss) on
Investment 2.03 2.02 1.48 1.37 (0.27)
-------- ------- ------- ------- -------------------
Total from Investment Operations 2.36 2.39 1.78 1.65 (0.18)
-------- ------- ------- ------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.53) (0.32) (0.32) (0.20) (0.01)
Net Realized Gain (0.66) (0.40) (0.44) (0.06) --
-------- ------- ------- ------- -------------------
Total Distributions to Shareholders (1.19) (0.72) (0.76) (0.26) (0.01)
-------- ------- ------- ------- -------------------
NET ASSET VALUE, END OF PERIOD $ 15.06 $ 13.89 $ 12.22 $ 11.20 $ 9.81
-------- ------- ------- ------- -------------------
-------- ------- ------- ------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 18.06% 20.52% 16.51% 17.08% (1.82%)(a)
Net Assets, End of Period (in thousands) $227,064 $70,338 $53,198 $22,396 $ 7,023
Ratios to Average Net Assets
Expenses 0.98% 0.98% 0.98% 0.98% 0.98%(b)
Net Investment Income 2.81% 3.00% 3.04% 3.39% 2.80%(b)
Expenses without Reimbursement 1.07% 1.25% 1.36% 1.89% 2.50%(b)
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Diversified Fund (the "fund") is a separate series of the J.P.
Morgan Funds, a Massachusetts business trust (the "trust"), which was organized
on November 4, 1992. The trust is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company. The
fund commenced operations on December 15, 1993. Prior to January 1, 1998, the
trust's and the fund's names were The JPM Pierpont Funds and The JPM Pierpont
Diversified Fund, respectively.
The fund invests all of its investable assets in The Diversified Portfolio (the
"portfolio"), a no-load diversified, open-end management investment company
having the same investment objective as the fund. The value of such investment
included in the Statement of Assets and Liabilities reflects the fund's
proportionate interest in the net assets of the portfolio (41% at June 30,
1998). The performance of the fund is directly affected by the performance of
the portfolio. The financial statements of the portfolio, including the Schedule
of Investments, are included elsewhere in this report and should be read in
conjunction with the fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the fund:
a) Valuation of securities by the portfolio is discussed in Note 1a of the
portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the portfolio is allocated pro rata among the fund and other
investors in the portfolio at the time of such determination.
c) Substantially all the fund's net investment income is declared and paid as
dividends quarterly. Distributions to shareholders of net realized capital
gains, if any, are declared and paid annually.
d) The fund incurred organization expenses in the amount of $34,724, which
are being deferred and amortized on a straight-line basis over period not
to exceed five years beginning with the commencement of operations of the
fund.
e) Expenses incurred by the trust with respect to any two or more funds in
the trust are allocated in proportion to the net assets of each fund in
the trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
f) The fund is treated as a separate entity for federal income tax purposes
and intends to comply with the provisions of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and to
distribute substantially all of its income, including net realized capital
gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
g) The fund accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital
14
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
Gain, and Return of Capital Distributions by Investment Companies." The
effect of applying this statement was to increase Paid-in Capital by
$1,886, decrease Undistributed Net Income by $203,236 and increase
Accumulated Net Realized Gain on Investment by $201,350. The adjustments
are primarily attributable to foreign currency gains. Net investment
income, net realized gains and net assets were not affected by this
change.
h) The Fund incurred approximately $22,185 of foreign currency losses in the
period from November 1, 1997 to June 30, 1998. These losses were deferred
for tax purposes until July 1, 1998.
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the
fiscal year ended June 30, 1998, the fee for these services amounted to
$3,367.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan"), under which Morgan is responsible for certain aspects of the
administration and operation of the fund. Under the Services Agreement,
the fund has agreed to pay Morgan a fee equal to its allocable share of an
annual complex-wide charge. This charge is calculated based on the
aggregate average daily net assets of the portfolio and the other
portfolios in which the trust and the J.P. Morgan Institutional Funds
(formerly The JPM Institutional Funds) invest (the "master portfolios")
and J.P. Morgan Series Trust (formerly JPM Series Trust) in accordance
with the following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their aggregate average
daily net assets in excess of $7 billion less the complex-wide fees
payable to FDI. The portion of this charge payable by the fund is
determined by the proportionate share that its net assets bear to the net
assets of the trust, the master portfolios, other investors in the master
portfolios for which Morgan provides similar services, and J.P. Morgan
Series Trust. For the fiscal year ended June 30, 1998, the fee for these
services amounted to $41,692.
In addition, Morgan has agreed to reimburse the fund to the extent
necessary to maintain the total operating expenses of the fund, including
the expenses allocated to the fund from the portfolio, at no more than
0.98% of the average daily net assets of the fund through October 31,
1998. For the fiscal year ended June 30, 1998, Morgan has agreed to
reimburse the fund $55,495 for expenses under this agreement.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance service to fund shareholders. The agreement
15
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
provides for the fund to pay Morgan a fee for these services which is
computed daily and paid monthly at an annual rate of 0.25% of the average
daily net assets of the fund. For the fiscal year ended June 30, 1998, the
fee for these services amounted to $352,054.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the services agreement with Schwab is
terminated for reasons other than a breach by Schwab and the relationship
between the trust and Morgan is terminated, the fund would be responsible
for the ongoing payments to Schwab with respect to pre-termination shares.
d) The trust, on behalf of the fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the trustees in exercising their
overall supervisory responsibilities for the trust's affairs. The trustees
of the trust represent all the existing shareholders of Group. The fund's
allocated portion of Group's costs in performing its services amounted to
$4,318 for the fiscal year ended June 30, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Institutional Funds, the master
portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the fund's allocated portion
of the total fees and expenses. The trust's Chairman and Chief Executive
Officer also serves as Chairman of Group and receives compensation and
employee benefits from Group in his role as Group's Chairman. The
allocated portion of such compensation and benefits included in the Fund
Services Fee shown in the financial statements was $900.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the fund were as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------- --------------
<S> <C> <C>
Shares sold...................................... 11,308,454 1,823,251
Reinvestment of dividends and distributions...... 600,582 262,972
Shares redeemed.................................. (1,897,662) (1,374,588)
-------------- --------------
Net Increase..................................... 10,011,374 711,635
-------------- --------------
-------------- --------------
</TABLE>
From time to time, the fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the fund and portfolio.
16
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
4. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 28, 1997, with unaffiliated lenders. Additionally, since all
of the investable assets of the fund are in the portfolio, the portfolio is
party to certain covenants of the Agreement. The maximum borrowing under the
Agreement was $100,000,000. The Agreement expired on May 27, 1998, however, the
fund as party to the Agreement has extended the Agreement and will continue its
participation therein for an additional 364 days until May 26, 1999. The maximum
borrowing under the new agreement is $150,000,000. The purpose of the Agreement
is to provide another alternative for settling large fund shareholder
redemptions. Interest on any such borrowings outstanding will approximate market
rates. The funds pay a commitment fee at an annual rate of 0.065% on the unused
portion of the committed amount which is allocated to the funds in accordance
with procedures established by their respective trustees or directors. There
were no outstanding borrowings pursuant to the Agreement at June 30, 1998.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Diversified Fund
(Formerly The JPM Pierpont Diversified Fund)
In our opinion, the accompanying statement 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
J.P. Morgan Diversified Fund (one of the series constituting part of J.P. Morgan
Funds), hereafter referred to as the "fund", at June 30, 1998, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the four years in the period then ended and for the period December 15, 1993
(commencement of operations) through June 30, 1994, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
August 18, 1998
18
<PAGE>
The Diversified Portfolio
Annual Report June 30, 1998
(The following pages should be read in conjunction
with the J.P. Morgan Diversified Fund
Annual Financial Statements)
19
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
EQUITIES (59.8%)
COMMON STOCK (59.4%)
FOREIGN COMMON STOCK (10.9%)
AUSTRALIA (0.2%)
AMP Ltd. (Insurance)+(s)......................... 3,787 $ 44,322
Broken Hill Proprietary Company Ltd. (Metals &
Mining)(s)..................................... 24,700 208,782
Mayne Nickless Ltd. (Commercial Services)(s)..... 37,853 200,415
National Australia Bank Ltd. (Banking)(s)........ 15,500 204,444
Westpac Banking Corp. Ltd. (Banking)(s).......... 23,545 143,615
WMC Ltd. (Metals & Mining)(s).................... 49,800 149,875
-------------
951,453
-------------
AUSTRIA (0.1%)
Bank Austria AG (Banking)(s)..................... 6,800 488,353
-------------
BELGIUM (0.0%)
PetroFina SA (Oil-Production)(s)................. 600 246,305
-------------
DENMARK (0.1%)
Danisco A/S (Food, Beverages & Tobacco)(s)....... 2,000 134,361
GN Store Nord A/S (Telecommunications-
Equipment)(s).................................. 6,600 201,541
-------------
335,902
-------------
FRANCE (1.4%)
Carrefour SA (Retail)(s)......................... 723 457,403
Compagnie de Saint Gobain SA (Building
Materials)(s).................................. 1,362 252,530
Elf Aquitaine SA (Oil-Services)(s)............... 3,410 479,406
Groupe Danone (Food, Beverages & Tobacco)(s)..... 1,300 358,434
Lagardere S.C.A. (Multi - Industry)(s)........... 10,079 419,595
Paribas (Financial Services)(s).................. 7,620 815,434
PSA Peugeot Citroen (Automotive)(s).............. 1,445 310,700
Rhodia SA (Chemicals)(s)......................... 13,175 367,399
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FRANCE (CONTINUED)
Rhone-Poulenc SA (Chemicals)(s).................. 5,700 $ 321,484
Sanofi SA (Pharmaceuticals)(s)................... 3,137 368,904
SGS Thomson Microelectronics NV
(Electronics)+(s).............................. 9,149 648,417
Societe Generale, Class A (Banking)(s)........... 3,470 721,431
Total SA, B Shares (Oil-Services)(s)............. 5,444 707,735
Union des Assurances Federales (Insurance)(s).... 940 148,167
Vivendi (Utilities)(s)........................... 6,102 1,302,951
-------------
7,679,990
-------------
GERMANY (1.4%)
Bayer AG (Chemicals)(s).......................... 7,100 367,384
Bilfinger & Berger Bau AG (Construction &
Housing)(s).................................... 2,300 78,810
Deutsche Bank AG (Banking)(s).................... 7,900 667,877
Deutsche Lufthansa AG (Airlines)(s).............. 17,600 443,161
Dresdner Bank AG (Banking)(s).................... 12,900 696,801
Henkel KGAA (Chemicals)(s)....................... 4,470 370,966
Karstadt AG (Retail)(s).......................... 600 291,684
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance)(s)................................. 2,911 1,444,990
RWE AG (Utilities)(s)............................ 16,500 976,270
SAP AG (Computer Software)(s).................... 830 503,508
Schering AG (Pharmaceuticals)(s)................. 3,600 423,815
SGL Carbon AG (Chemicals)(s)..................... 1,500 174,678
Siemens AG (Electrical Equipment)(s)............. 5,440 331,969
SKW Trostberg AG (Chemicals)(s).................. 3,900 140,441
VEBA AG (Utilities)(s)........................... 9,430 633,966
Volkswagen AG (Automotive)(s).................... 433 418,119
-------------
7,964,439
-------------
HONG KONG (0.1%)
Dickson Concepts International Ltd. (Wholesale &
International Trade)(s)........................ 67,500 94,082
Hong Kong Electric Holdings Ltd. (Electric)(s)... 42,500 131,637
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
HONG KONG (CONTINUED)
HSBC Holdings PLC (Banking)(s)................... 2,800 $ 68,477
Hutchison Whampoa Ltd. (Multi-Industry)(s)....... 26,000 137,238
Sun Hung Kai Properties Ltd. (Real Estate)(s).... 28,000 118,886
-------------
550,320
-------------
IRELAND (0.1%)
CRH PLC (Building Materials)(s).................. 9,800 139,018
Greencore Group PLC (Food, Beverages &
Tobacco)(s).................................... 28,100 152,860
Irish Life PLC (Insurance)(s).................... 17,700 162,944
Jefferson Smurfit Group PLC (Forest Products &
Paper)(s)...................................... 60,200 178,854
-------------
633,676
-------------
ITALY (0.4%)
Assicurazioni Generali (Insurance)(s)............ 11,400 370,690
ENI SPA (Oil-Services)(s)........................ 83,000 543,979
Istituto Bancario San Paolo di Torino
(Banking)(s)................................... 37,100 535,352
Telecom Italia SPA - RNC (Telecommunication
Services)(s)................................... 214,181 1,036,836
-------------
2,486,857
-------------
JAPAN (1.7%)
Asahi Bank Ltd. (Banking)(s)..................... 58,000 254,927
Bridgestone Corp. (Chemicals)(s)................. 14,000 330,871
Canon Sales Co., Inc. (Retail)(s)................ 8,000 108,715
Canon, Inc. (Electronics)(s)..................... 9,000 204,273
DDI Corp. (Telecommunications)(s)................ 69 240,134
Ebara Corp. (Machinery)(s)....................... 20,000 177,829
Fanuc Ltd. (Machinery)(s)........................ 5,500 190,222
Fujitsu Ltd. (Computer Systems)(s)............... 33,000 347,156
Hitachi Ltd. (Electrical Equipment)(s)........... 21,000 136,938
Honda Motor Co. Ltd. (Automotive)(s)............. 8,000 284,757
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
JAPAN (CONTINUED)
Ishihara Sangyo Kaisha Ltd. (Chemicals)+(s)...... 15,000 $ 20,752
Ito-Yokado Co. Ltd. (Retail)(s).................. 5,000 235,256
Japan Tobacco, Inc. (Food, Beverages &
Tobacco)(s).................................... 16 108,254
Kawasaki Steel Corp. (Metals & Mining)(s)........ 126,000 226,970
Mitsubishi Chemical Corp. (Chemicals)(s)......... 106,000 191,707
Mitsubishi Corp. (Wholesale & International
Trade)(s)...................................... 31,000 192,096
Mitsubishi Estate Co. Ltd. (Real Estate)(s)...... 31,000 272,508
Mitsui Mining & Smelting Co. Ltd. (Metals &
Mining)(s)..................................... 37,000 153,561
Mitsui Trust & Banking Co. Ltd. (Banking)(s)..... 67,000 157,863
Nichiei Co. Ltd. (Financial Services)(s)......... 3,100 210,858
Nintendo Co. Ltd. (Retail)(s).................... 2,200 203,696
Nippon Steel Corp. (Metals & Mining)(s).......... 39,000 68,566
Nippon Telegraph & Telephone Corp.
(Telecommunications)(s)........................ 57 472,313
Nippon Yusen Kabushiki Kaisha
(Transportation)(s)............................ 54,000 182,873
Nishimatsu Construction Co. Ltd. (Construction &
Housing)(s).................................... 42,000 205,786
Nomura Securities Co. Ltd. (Financial
Services)(s)................................... 17,000 197,824
Pioneer Electronic Corp. (Electronics)(s)........ 11,000 210,037
Ricoh Co. Ltd. (Electrical Equipment)(s)......... 17,000 178,960
Rohm Co. Ltd. (Electrical Equipment)(s).......... 2,000 205,354
San-In Godo Bank Ltd. (Banking)(s)............... 6,000 39,039
Sanwa Bank Ltd. (Banking)(s)..................... 13,000 116,244
Sekisui Chemical Co. Ltd. (Chemicals)(s)......... 35,000 179,054
Shin-Etsu Chemical Co. Ltd. (Chemicals)(s)....... 11,000 190,222
Shohkoh Fund & Co. Ltd. (Financial
Services)(s)................................... 100 24,570
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
JAPAN (CONTINUED)
Sony Corp. (Electronics)(s)...................... 5,400 $ 464,964
Sony Music Entertainment, Inc. (Entertainment,
Leisure & Media)(s)............................ 6,500 275,858
Sumitomo Forestry Co. Ltd. (Forest Products &
Paper)(s)...................................... 12,000 67,356
Takeda Chemical Industries Ltd. (Chemicals)(s)... 16,000 425,406
Takefuji Corp. (Financial Services)(s)........... 2,800 129,121
The Kagawa Bank Ltd. (Banking)(s)................ 2,000 9,742
Toho Bank Ltd. (Banking)(s)...................... 17,000 68,228
Tokyo Steel Manufacturing Co. Ltd. (Metals &
Mining)(s)..................................... 12,000 61,736
Tostem Corp. (Construction & Housing)(s)......... 14,000 181,374
Toyota Motor Corp. Ltd. (Automotive)(s).......... 23,000 594,949
West Japan Railway Co. (Railroads)(s)............ 61 221,083
Yamanouchi Pharmaceutical Co. Ltd.
(Pharmaceuticals)(s)........................... 12,000 249,883
-------------
9,269,885
-------------
MALAYSIA (0.0%)
Malakoff Berhad (Agriculture)(s)................. 12,000 22,134
-------------
NETHERLANDS (1.3%)
ASM Lithography Holding NV
(Semiconductors)+(s)........................... 14,700 435,026
De Boer Unigro NV (Retail)(s).................... 6,178 326,481
ING Groep NV (Financial Services)(s)............. 11,007 720,734
Koninklijke PTT Nederland NV
(Telecommunications)(s)........................ 10,900 419,556
Philips Electronics NV (Electronics)(s).......... 9,396 789,843
Royal Dutch Petroleum Co. (Oil-Services)(s)...... 12,040 667,632
Royal Dutch Petroleum Co. (ADR) (Oil-Services)... 14,900 816,706
TNT Post Group NV (Transport & Services)+(s)..... 10,900 278,632
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
NETHERLANDS (CONTINUED)
Unilever NV (ADR) (Food, Beverages & Tobacco).... 29,600 $ 2,336,550
Vedior NV (Business & Public Services)(s)........ 4,307 121,754
Vendex NV (Retail)(s)............................ 4,365 164,152
Wolters Kluwer NV (Broadcasting &
Publishing)(s)................................. 1,515 207,936
-------------
7,285,002
-------------
NEW ZEALAND (0.1%)
Brierley Investments Ltd. (Financial
Services)(s)................................... 96,000 47,839
Fletcher Challenge Building Division Ltd.
(Building Materials)(s)........................ 32,300 40,240
Fletcher Challenge Paper Division Ltd. (Forest
Products & Paper)(s)........................... 93,100 103,420
Lion Nathan Ltd. (Food, Beverages &
Tobacco)(s).................................... 28,000 62,207
Telecom Corp. of New Zealand Ltd.
(Telecommunications)(s)........................ 42,200 173,929
-------------
427,635
-------------
NORWAY (0.1%)
Kvaerner ASA, Series B (Capital Goods)(s)........ 7,000 216,197
Norsk Hydro ASA (Oil-Services)(s)................ 4,000 175,929
Nycomed Amersham PLC (Medical Supplies)(s)....... 25,840 191,943
-------------
584,069
-------------
SINGAPORE (0.0%)
City Developments Ltd. (Real Estate)(s).......... 19,000 53,081
Singapore Airlines Ltd. (Airlines)(s)............ 35,000 163,660
Singapore Press Holdings Ltd. (Broadcasting &
Publishing)(s)................................. 1,932 12,922
United Overseas Bank Ltd. (Banking)(s)........... 28,000 87,009
-------------
316,672
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
SPAIN (0.3%)
Acerinox SA (Metals & Mining)(s)................. 1,670 $ 222,754
Banco Bilbao Vizcaya SA (Banking)(s)............. 5,460 280,686
Iberdrola SA (Electric)(s)....................... 51,400 836,018
Vallehermoso SA (Real Estate)(s)................. 4,521 166,558
-------------
1,506,016
-------------
SWEDEN (0.3%)
Autoliv, Inc. (SDR) (Automotive Supplies)(s)..... 13,800 441,257
Stora Kopparbergs Bergslags Aktiebolag, A Shares
(Forest Products & Paper)(s)................... 31,600 497,282
Gambro AB, B Shares (Health Services)(s)......... 14,925 273,237
Skandia Forsakrings AB (Insurance)(s)............ 26,485 378,597
-------------
1,590,373
-------------
SWITZERLAND (0.9%)
ABB AG (Machinery)(s)............................ 180 265,821
Nestle SA (Food, Beverages & Tobacco)(s)......... 605 1,294,709
Novartis AG (Pharmaceuticals)(s)................. 272 452,612
Roche Holding AG (Pharmaceuticals)(s)............ 80 785,595
UBS AG (Banking)+(s)............................. 4,280 1,591,443
Zurich Versicherungs - Gesellschaft
(Insurance)(s)................................. 1,200 765,817
-------------
5,155,997
-------------
UNITED KINGDOM (2.4%)
Bass PLC (Food, Beverages & Tobacco)(s).......... 9,142 171,296
BAT Industries PLC (Food, Beverages &
Tobacco)(s).................................... 26,300 263,289
Billiton PLC (Metals & Mining)(s)................ 90,100 182,653
British Airways PLC (Airlines)(s)................ 27,500 297,556
British Petroleum Co. PLC (Oil-Services)(s)...... 19,607 285,923
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
British Sky Broadcasting Group PLC (Broadcasting
& Publishing)(s)............................... 21,000 $ 150,841
British Telecommunications PLC
(Telecommunications)(s)........................ 36,900 455,600
Burmah Castrol PLC (Oil-Production)(s)........... 5,700 101,572
Cable & Wireless PLC (Telecommunications)(s)..... 40,000 485,867
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)(s).................................... 16,500 255,343
Compass Group PLC (Food, Beverages &
Tobacco)(s).................................... 32,200 370,170
Diageo PLC (Food, Beverages & Tobacco)(s)........ 36,412 431,349
Glaxo Wellcome PLC (Pharmaceuticals)(s).......... 30,500 915,497
Glynwed International PLC (Metals & Mining)(s)... 45,000 185,078
Great Universal Stores PLC (Retail)(s)........... 25,300 333,483
HSBC Holdings PLC (75p) (Banking)(s)............. 22,600 573,540
Kingfisher PLC (Retail)(s)....................... 11,100 178,721
Lloyds TSB Group PLC (Banking)(s)................ 76,800 1,074,460
LucasVarity PLC (Automotive Supplies)(s)......... 86,100 341,905
MEPC PLC (Real Estate)(s)........................ 23,200 203,997
MFI Furniture Group PLC (Household
Products)(s)................................... 110,117 116,669
National Power PLC (Electric)(s)................. 34,000 319,951
Northern Rock PLC (Financial Services)(s)........ 14,000 123,803
Nycomed Amersham PLC (Medical Supplies)(s)....... 12,045 89,683
Pilkington PLC (Building Materials)(s)........... 70,200 129,427
Prudential Corp. PLC (Insurance)(s).............. 30,000 395,184
Racal Electronic PLC (Telecommunications-
Equipment)(s).................................. 30,200 171,070
Rank Group PLC (Entertainment, Leisure &
Media)(s)...................................... 28,600 156,996
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Reed International PLC (Broadcasting &
Publishing)(s)................................. 20,000 $ 180,865
RMC Group PLC (Building Materials)(s)............ 11,000 190,693
Royal & Sun Alliance Insurance Group PLC
(Insurance)(s)................................. 35,000 361,772
Royal Bank of Scotland Group PLC (Banking)(s).... 24,200 419,928
Sainsbury (J.) PLC (Retail)(s)................... 32,200 286,895
Sears PLC (Retail)(s)............................ 101,000 90,865
Shell Transport & Trading Co.
(Oil-Services)(s).............................. 59,500 418,944
Smith & Nephew PLC (Medical Supplies)(s)......... 56,000 139,920
SmithKline Beecham PLC (Pharmaceuticals)(s)...... 26,000 317,332
Tomkins PLC (Multi - Industry)(s)................ 38,500 208,932
Unilever PLC (Food, Beverages & Tobacco)(s)...... 29,400 312,964
Vickers PLC (Capital Goods)(s)................... 56,200 206,293
Vodafone Group PLC (Telecommunications)(s)....... 39,200 497,406
Wessex Water PLC (Water)(s)...................... 43,700 332,485
Zeneca Group PLC (Pharmaceuticals)(s)............ 13,300 570,754
-------------
13,296,971
-------------
TOTAL FOREIGN COMMON STOCK (COST
$51,966,677).................................. 60,792,049
-------------
UNITED STATES (48.5%)
BASIC INDUSTRIES (2.1%)
AGRICULTURE (0.1%)
Dekalb Genetics Corp., Class B................... 5,600 529,900
Pioneer Hi-Bred International, Inc............... 1,900 78,612
-------------
608,512
-------------
CHEMICALS (1.1%)
Albemarle Corp................................... 13,000 286,812
Crompton & Knowles Corp.......................... 3,500 88,156
Cytec Industries, Inc.+.......................... 1,700 75,225
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
CHEMICALS (CONTINUED)
Dow Chemical Co.................................. 8,700 $ 841,181
E.I. du Pont de Nemours & Co..................... 43,400 3,238,725
General Chemical Group, Inc...................... 2,100 58,275
Geon Co.......................................... 3,900 89,456
Georgia Gulf Corp................................ 1,500 34,219
Lyondell Petrochemical Co........................ 2,900 88,269
Minerals Technologies, Inc....................... 1,100 55,962
OM Group, Inc.................................... 600 24,750
Praxair, Inc..................................... 6,100 285,556
Rohm & Haas Co................................... 2,300 239,056
Solutia, Inc..................................... 4,500 129,094
Union Carbide Corp............................... 6,200 330,925
Wellman, Inc..................................... 1,000 22,687
-------------
5,888,348
-------------
FOREST PRODUCTS & PAPER (0.4%)
American Pad & Paper Co.+........................ 23,600 106,200
Boise Cascade Corp............................... 4,100 134,275
Bowater, Inc..................................... 2,800 132,300
Caraustar Industries, Inc........................ 8,800 252,725
Champion International Corp...................... 3,000 147,562
Georgia-Pacific Group............................ 6,900 406,669
Louisiana Pacific Corp........................... 7,700 140,525
Mead Corp........................................ 7,600 241,300
Stone Container Corp.+........................... 16,500 257,812
Temple-Inland, Inc............................... 4,300 231,662
Union Camp Corp.................................. 5,200 258,050
Universal Forest Products, Inc................... 7,200 117,675
-------------
2,426,755
-------------
METALS & MINING (0.5%)
Alcan Aluminum Ltd............................... 15,800 436,475
Allegheny Teledyne, Inc.......................... 12,300 281,362
Aluminum Company of America (ALCOA).............. 11,700 771,469
Commercial Metals Co............................. 12,600 387,450
Freeport-McMoRan Copper & Gold, Inc., Class A.... 6,800 96,900
Freeport-McMoRan Copper & Gold, Inc., Class B.... 500 7,594
Mueller Industries, Inc.+........................ 14,400 534,600
Reynolds Metals Co............................... 4,800 268,500
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
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THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
METALS & MINING (CONTINUED)
Schnitzer Steel Industries, Inc., Class A........ 4,400 $ 103,400
Steel Technologies, Inc.......................... 10,400 105,950
-------------
2,993,700
-------------
TOTAL BASIC INDUSTRIES......................... 11,917,315
-------------
CONSUMER GOODS & SERVICES (10.6%)
APPARELS & TEXTILES (0.1%)
Ashworth, Inc.+.................................. 11,900 165,112
Fruit of the Loom, Inc., Class A+................ 6,000 199,125
Genesco, Inc.+................................... 6,200 101,137
Reebok International Ltd.+....................... 4,500 124,594
Unifi, Inc....................................... 5,300 181,525
-------------
771,493
-------------
AUTOMOTIVE (0.9%)
Amcast Industrial Corp........................... 3,700 68,912
Chrysler Corp.................................... 47,400 2,672,175
Cooper Tire & Rubber Co.......................... 6,500 134,062
Echlin, Inc...................................... 8,300 407,219
Geniune Parts Co................................. 12,000 414,750
Goodyear Tire and Rubber Co...................... 14,000 902,125
Lear Corp.+...................................... 7,800 400,237
Sonic Automotive, Inc.+.......................... 3,900 64,106
-------------
5,063,586
-------------
BROADCASTING & PUBLISHING (0.7%)
Banta Corp....................................... 5,200 159,575
Comcast Corp., Class A........................... 28,900 1,173,159
Cox Communications, Inc., Class A+............... 3,100 150,156
Digital Generation Systems, Inc.+................ 900 3,262
Emmis Broadcasting Corp., Class A+............... 1,600 76,750
Gannett Co., Inc................................. 1,400 99,487
HA-LO Industries, Inc............................ 2,300 71,587
Journal Register Co.+............................ 1,100 18,425
R.R. Donnelley & Sons Co......................... 11,400 521,550
Tele-Communications TCI Ventures Group, Series
A+............................................. 32,300 647,009
The Times Mirror Co., Class A.................... 6,600 414,975
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BROADCASTING & PUBLISHING (CONTINUED)
The Washington Post Co., Class B................. 700 $ 403,200
Tribune Co....................................... 400 27,525
Ziff-Davis, Inc.+................................ 4,200 58,275
-------------
3,824,935
-------------
EDUCATION (0.0%)
ITT Educational Services, Inc.+.................. 900 29,025
-------------
ENTERTAINMENT, LEISURE & MEDIA (1.5%)
Cinar Films, Inc., Class B+...................... 1,600 30,400
Circus Circus Enterprises, Inc.+................. 7,800 132,112
Education Management Corp.+...................... 2,100 69,300
Hasbro, Inc...................................... 15,200 597,550
Imax Corp.+...................................... 4,200 95,287
International Game Technology.................... 9,400 227,950
Mattel, Inc...................................... 35,600 1,506,325
MGM Grand, Inc.+................................. 4,600 145,187
Mirage Resorts, Inc.+............................ 14,900 317,556
Seagram Company Ltd.(i).......................... 28,700 1,174,906
Steiner Leisure Ltd.+(i)......................... 2,575 78,216
Time Warner, Inc................................. 43,600 3,725,075
Viacom, Inc., Class B+........................... 2,300 133,975
-------------
8,233,839
-------------
FOOD, BEVERAGES & TOBACCO (2.5%)
American Italian Pasta Co., Class A+............. 1,900 70,775
Anheuser Busch Companies, Inc.................... 19,000 896,562
Beringer Wine Estates Holdings, Inc., Class B+... 1,700 74,853
Campbell Soup Co................................. 16,000 850,000
Coca-Cola Co..................................... 37,300 3,189,150
General Mills, Inc............................... 6,100 417,087
H.J. Heinz Company............................... 15,400 864,325
Kellogg Co....................................... 14,400 540,900
PepsiCo, Inc..................................... 56,800 2,339,450
Philip Morris Companies, Inc..................... 78,500 3,090,938
Ralston-Ralston Purina Group..................... 7,200 841,050
Sara Lee Corp.................................... 18,100 1,012,469
-------------
14,187,559
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
HOUSEHOLD APPLIANCES & FURNISHINGS (0.2%)
Aaron Rents, Inc................................. 5,700 $ 114,000
Bush Industries, Inc., Class A................... 11,000 239,250
Furniture Brands International, Inc.+............ 4,300 120,669
Leggett & Platt, Inc............................. 16,600 415,000
Stanley Furniture Co., Inc.+..................... 2,200 56,512
Whirlpool Corp................................... 6,100 419,375
-------------
1,364,806
-------------
HOUSEHOLD PRODUCTS (0.9%)
Bush Boake Allen, Inc.+.......................... 4,200 123,112
Procter & Gamble Co.............................. 52,000 4,735,250
Rubbermaid, Inc.................................. 7,200 238,950
-------------
5,097,312
-------------
PERSONAL CARE (0.4%)
Gillette Co...................................... 43,600 2,471,575
-------------
RESTAURANTS & HOTELS (0.7%)
Applebee's International, Inc.................... 1,200 26,887
Candlewood Hotel Company, Inc.+.................. 4,200 31,762
Extended Stay America, Inc.+..................... 9,300 104,625
Friendly Ice Cream Corp.+........................ 2,400 40,350
McDonald's Corp.................................. 47,300 3,263,700
Papa John's International, Inc.+................. 3,100 122,353
Showbiz Pizza Time, Inc.+........................ 2,200 88,687
-------------
3,678,364
-------------
RETAIL (2.7%)
Albertson's, Inc................................. 3,400 176,162
American Stores Co............................... 17,400 420,862
AutoZone, Inc.+.................................. 11,700 373,669
Best Buy Co., Inc.+.............................. 7,100 256,487
Central Garden & Pet Co.+........................ 4,400 136,675
Circuit City Stores, Inc......................... 7,200 337,500
CompUSA, Inc.+................................... 12,200 220,362
Corporate Express, Inc.+......................... 8,800 111,375
Dayton Hudson Corp............................... 31,300 1,518,050
Delia's, Inc.+................................... 2,500 39,844
Dillard's, Inc., Class A......................... 7,800 323,212
Federated Department Stores, Inc.+............... 16,200 871,762
Fingerhut Companies, Inc......................... 800 26,400
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
RETAIL (CONTINUED)
Garden Ridge Corp.+.............................. 12,100 $ 235,572
General Nutrition Companies, Inc.+............... 6,000 187,125
Guitar Center, Inc.+............................. 2,800 84,525
Hannaford Brothers Co............................ 4,600 202,400
Home Depot, Inc.................................. 8,600 714,337
Kmart Corp.+..................................... 38,000 731,500
Kroger Co.+...................................... 18,900 810,337
Let's Talk Cellular & Wireless, Inc.+............ 1,300 16,819
Lithia Motors, Inc., Class A+.................... 3,400 49,725
May Department Stores Co......................... 13,100 858,050
Nine West Group, Inc.+........................... 1,400 37,537
O'Reilly Automotive, Inc.+....................... 100 3,587
Pacific Sunwear of California+................... 1,425 49,964
Party City Corp.+................................ 4,900 142,712
Safeway, Inc.+................................... 35,100 1,428,131
Sears, Roebuck & Co.............................. 28,800 1,758,600
ShopKo Stores, Inc.+............................. 4,300 146,200
Sunglass Hut International, Inc.+................ 7,500 82,734
TJX Companies, Inc............................... 23,400 564,525
Toys 'R' Us, Inc.+............................... 21,500 506,594
Urban Outfitters, Inc.+.......................... 17,200 314,975
Wal-Mart Stores, Inc............................. 19,300 1,172,475
-------------
14,910,784
-------------
TOTAL CONSUMER GOODS & SERVICES................ 59,633,278
-------------
ENERGY (3.5%)
GAS EXPLORATION (0.1%)
Devon Energy Corp................................ 3,200 111,800
Newfield Exploration Co.+........................ 4,500 111,937
Patterson Energy, Inc.+.......................... 11,600 113,644
St. Mary Land & Exploration Co................... 2,400 57,975
Tesoro Petroleum Corp.+.......................... 3,200 50,800
Union Pacific Resources Group, Inc............... 14,600 256,412
-------------
702,568
-------------
GAS - PIPELINES (0.1%)
Columbia Energy Group............................ 4,500 250,312
K N Energy, Inc.................................. 2,300 124,631
-------------
374,943
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
OIL PRODUCTION (2.8%)
Anadarko Petroleum Corp.......................... 2,400 $ 161,250
Ashland, Inc..................................... 4,300 221,987
Atlantic Richfield Co............................ 16,000 1,250,000
Chevron Corp..................................... 21,100 1,752,619
Exxon Corp....................................... 100,100 7,138,381
Mobil Corp....................................... 38,300 2,934,738
Phillips Petroleum Co............................ 15,200 732,450
Plains Resources, Inc.+.......................... 3,300 58,987
Snyder Oil Corp.................................. 2,100 41,869
Sun Co., Inc..................................... 1,300 50,456
Texaco, Inc...................................... 15,200 907,250
Unocal Corp...................................... 800 28,600
Valero Energy Corp............................... 3,300 109,725
Vintage Petroleum, Inc........................... 4,400 83,050
-------------
15,471,362
-------------
OIL SERVICES (0.5%)
Baker Hughes, Inc................................ 2,600 89,862
Cooper Cameron Corp.+............................ 3,100 158,100
Diamond Offshore Drilling, Inc................... 4,000 160,000
Dril-Quip, Inc.+................................. 2,500 65,625
ENSCO International, Inc......................... 5,900 102,512
Input/Output, Inc.+.............................. 5,300 94,406
National-Oilwell, Inc.+.......................... 4,300 115,294
R&B Falcon Corp.+................................ 6,700 151,587
Schlumberger Ltd.+............................... 19,100 1,304,769
Tosco Corp....................................... 9,100 267,312
-------------
2,509,467
-------------
TOTAL ENERGY................................... 19,058,340
-------------
FINANCE (9.1%)
BANKING (3.6%)
Ahmanson, (H.F.) and Co.......................... 4,300 305,300
Associated Banc-Corp............................. 2,400 90,375
Banc One Corp.................................... 1,600 89,300
Bank of Commerce................................. 3,200 59,900
Bank United Corp., Class A....................... 5,600 268,450
BankAmerica Corp................................. 29,900 2,584,481
Bankers Trust Corp............................... 3,200 371,400
Banknorth Group, Inc............................. 7,000 258,562
Charter One Financial, Inc....................... 4,800 161,550
Chase Manhattan Corp............................. 300 22,650
City National Corp............................... 1,900 70,181
Colonial BancGroup, Inc.......................... 7,500 241,875
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BANKING (CONTINUED)
Commercial Federal Corp.......................... 3,200 $ 101,200
Community First Bankshares, Inc.................. 4,900 129,391
Compass Bancshares, Inc.......................... 2,700 121,500
Dime Bancorp, Inc................................ 4,900 146,694
First Alliance Corp.+............................ 700 5,053
First American Corp.............................. 4,200 202,256
First Chicago NBD Corp........................... 10,500 930,562
First Commercial Corp............................ 2,600 180,456
First Hawaiian, Inc.............................. 900 32,850
First International Bancorp, Inc................. 1,400 20,212
First Tennessee National Corp.................... 6,800 214,625
First Union Corp................................. 39,936 2,326,281
Firstar Corp..................................... 5,400 205,200
FirstFed Financial Corp.+........................ 4,800 249,600
Flagstar Bancorp, Inc............................ 5,300 129,519
Fleet Financial Group, Inc....................... 6,200 517,700
GBC Bancorp...................................... 4,000 106,250
Golden West Financial Corp....................... 2,300 244,519
GreenPoint Financial Corp........................ 3,200 120,400
Hamilton Bancorp, Inc.+.......................... 1,200 43,050
HUBCO, Inc....................................... 3,981 142,694
Huntington Bancshares, Inc....................... 7,700 258,431
Imperial Bancorp+................................ 900 27,000
InterWest Bancorp, Inc........................... 1,600 69,600
Irwin Financial Corp............................. 2,400 70,200
KeyCorp.......................................... 16,600 591,375
Long Island Bancorp, Inc......................... 3,000 182,062
M & T Bank Corp.................................. 300 166,200
Marshall & Ilsley Corp.+......................... 200 10,225
MBNA Corp........................................ 7,800 257,400
Mercantile Bancorporation, Inc................... 5,300 266,987
Mercantile Bankshares Corp....................... 2,900 100,866
National Commerce Bancorporation................. 6,200 259,625
NationsBank Corp................................. 34,800 2,662,200
Norwest Corp..................................... 6,600 246,675
Pacific Century Financial Corp................... 3,400 81,600
Peoples Heritage Financial Group, Inc............ 3,400 80,431
Prime Bancshares, Inc............................ 2,100 53,287
Provident Financial Group, Inc................... 1,600 73,100
Republic Banking Corp. of Florida................ 2,900 46,037
Republic New York Corp........................... 3,400 213,987
Southtrust Corp.................................. 7,700 335,431
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BANKING (CONTINUED)
Southwest Bancorporation of Texas, Inc.+......... 3,800 $ 71,725
Sovereign Bancorp, Inc........................... 5,900 96,244
Star Banc Corp................................... 300 19,162
Sterling Bancshares, Inc......................... 1,750 27,672
Summit Bancshares, Inc........................... 1,000 20,875
Sun Bancorp, Inc.+............................... 735 19,386
TCF Financial Corp............................... 5,600 165,200
Trustco Bank Corp................................ 3,995 105,867
Union Planters Corp.............................. 3,400 199,962
Washington Federal, Inc.......................... 2,200 60,912
Washington Mutual, Inc........................... 13,800 599,006
Wells Fargo & Co................................. 5,600 2,066,400
Wilmington Trust Corp............................ 1,300 79,219
-------------
20,278,385
-------------
FINANCIAL SERVICES (3.1%)
American Express Co.............................. 16,400 1,869,600
Amresco, Inc.+................................... 2,500 72,656
Associates First Capital Corp., Class A.......... 13,700 1,053,188
Bear Stearns Companies, Inc...................... 5,800 329,875
Beneficial Corp.................................. 2,000 306,375
Capital One Financial Corp....................... 2,900 360,144
Citicorp......................................... 21,100 3,149,175
ContiFinancial Corp.+............................ 2,000 46,250
Edwards (A.G.), Inc.............................. 4,500 192,094
Equifax, Inc..................................... 12,200 443,012
Federal Home Loan Mortgage Corp.................. 26,900 1,265,981
Federal National Mortgage Association............ 41,100 2,496,825
Finova Group, Inc................................ 2,200 124,575
Household International, Inc..................... 10,200 507,450
Investors Financial Services Corp................ 700 37,144
Litchfield Financial Corp........................ 6,260 131,069
Morgan Stanley, Dean Witter, Discover & Co....... 23,800 2,174,725
Ocwen Financial Corp.+........................... 3,200 86,000
Travelers Group, Inc............................. 38,100 2,309,813
Waddell & Reed Financial, Inc., Class A.......... 1,900 45,481
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
WBK STRYPES Trust(s)............................. 2,600 $ 78,487
Willis Lease Finance Corp.+...................... 6,400 147,200
-------------
17,227,119
-------------
INSURANCE (2.0%)
Allstate Corp.................................... 17,900 1,638,969
AMBAC, Inc....................................... 3,100 181,350
American International Group, Inc................ 29,600 4,321,600
Annuity and Life Re (Holdings), Ltd.+(i)......... 6,000 133,875
Capital Re Corp.................................. 13,850 992,006
CIGNA Corp....................................... 10,200 703,800
Financial Security Assurance Holdings Ltd........ 1,600 94,000
Fremont General Corp............................. 1,200 65,025
General Re Corp.................................. 1,800 456,300
Marsh & McLennan Companies, Inc.................. 11,850 716,184
MBIA, Inc........................................ 4,600 344,425
Ohio Casualty Corp............................... 1,300 57,444
PMI Group, Inc................................... 1,900 139,412
RenaissanceRE Holdings Ltd.(i)................... 10,000 463,125
Safeco Corp...................................... 5,600 254,275
St. Paul Companies, Inc.......................... 6,900 290,231
Torchmark Corp................................... 800 36,600
Transamerica Corp................................ 200 23,025
Travelers Prop. Casualty Corp., Class A.......... 2,800 120,050
UNUM Corp........................................ 6,400 355,200
-------------
11,386,896
-------------
REAL ESTATE INVESTMENT TRUSTS (0.4%)
American General Hospitality Corp................ 6,500 138,125
Arden Realty, Inc................................ 9,300 240,637
Brandywine Realty Trust.......................... 2,500 55,938
Burnham Pacific Properties, Inc.................. 7,900 112,081
Camden Property Trust............................ 3,943 117,304
CBL & Associates Properties, Inc................. 3,900 94,575
Correctional Properties Trust.................... 900 18,225
Cousins Properties, Inc.......................... 4,600 137,425
Developers Diversified Realty Corp............... 1,400 54,863
ElderTrust....................................... 2,100 36,094
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
Entertainment Properties Trust................... 2,500 $ 45,625
Hanover Capital Mortgage Holdings, Inc........... 1,600 17,000
Impac Commercial Holdings, Inc................... 1,900 27,313
LaSalle Hotel Properties......................... 2,600 44,038
Manufactured Home Communities, Inc............... 3,900 94,088
Merry Land & Investment Company, Inc............. 3,800 80,038
Mills Corp....................................... 2,200 52,800
National Golf Properties, Inc.................... 2,800 84,175
Post Properties, Inc............................. 7,222 278,047
Sunstone Hotel Investors, Inc.+.................. 4,400 58,575
Tower Realty Trust, Inc.......................... 2,800 62,650
Urban Shopping Centers, Inc...................... 2,300 72,450
Weeks Corp....................................... 5,700 180,263
-------------
2,102,329
-------------
TOTAL FINANCE.................................. 50,994,729
-------------
HEALTHCARE (6.0%)
BIOTECHNOLOGY (0.2%)
Affymetrix, Inc.+................................ 800 19,300
Applied Analytical Industries, Inc.+............. 6,800 98,175
ArQule, Inc.+.................................... 1,600 20,750
Aurora Biosciences Corp.+........................ 2,500 14,844
Genome Therapeutics Corp.+....................... 4,100 18,386
Human Genome Sciences, Inc.+..................... 5,700 203,597
IDEC Pharmaceuticals Corp.+...................... 2,800 65,625
Incyte Pharmaceuticals, Inc.+.................... 3,400 116,238
Millennium Pharmaceuticals, Inc.+................ 2,800 39,725
Novoste Corp.+................................... 2,600 57,363
SangStat Medical Corp.+.......................... 6,000 188,625
-------------
842,628
-------------
HEALTH SERVICES (0.7%)
Abbott Laboratories.............................. 9,800 400,575
Aetna, Inc....................................... 7,500 570,938
Alternative Living Services, Inc.+............... 2,570 69,390
Boron, LePore & Associates, Inc.+................ 900 34,144
Columbia / HCA Healthcare Corp................... 700 20,388
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
HEALTH SERVICES (CONTINUED)
Endocardial Solutions, Inc.+..................... 2,800 $ 29,750
Health Care & Retirement Corp.+.................. 3,000 118,313
Humana, Inc.+.................................... 15,700 489,644
Lifeline Systems, Inc.+.......................... 3,300 61,875
Mariner Health Group, Inc.+...................... 11,500 191,547
Monarch Dental Corp.+............................ 2,400 37,800
Pediatrix Medical Group, Inc.+................... 2,100 78,094
Perkin-Elmer Corp................................ 3,900 242,531
ProMedCo Management Co.+......................... 5,000 50,625
Renal Care Group, Inc.+.......................... 2,300 101,488
Sierra Health Services, Inc.+.................... 10,950 275,803
Sunrise Assisted Living, Inc.+................... 1,600 55,050
Tenet Healthcare Corp.+.......................... 20,900 653,125
United Healthcare Corp........................... 10,400 660,400
-------------
4,141,480
-------------
MEDICAL SUPPLIES (0.6%)
Bausch & Lomb, Inc............................... 3,200 160,400
Boston Scientific Corp.+......................... 11,500 823,688
CONMED Corp.+.................................... 2,100 48,563
Focal, Inc.+..................................... 2,400 23,850
Kensey Nash Corp.+............................... 9,100 85,881
Medtronic, Inc................................... 13,500 860,625
Physio-Control International Corp.+.............. 2,000 52,688
ResMed, Inc.+.................................... 1,400 63,744
Sola International, Inc.+........................ 4,300 140,556
Stryker Corp..................................... 5,200 199,550
Symphonix Devices, Inc.+......................... 1,100 13,028
United States Surgical Corp...................... 9,300 424,313
Ventana Medical Systems, Inc.+................... 16,800 471,450
Vital Signs, Inc................................. 1,000 18,219
-------------
3,386,555
-------------
PHARMACEUTICALS (4.5%)
Alza Corp.+...................................... 10,200 441,150
American Home Products Corp...................... 82,400 4,264,200
Bristol-Myers Squibb Co.......................... 50,000 5,746,875
Chiron Corp.+.................................... 10,700 168,191
Forest Laboratories, Inc.+....................... 8,200 293,150
Johnson & Johnson................................ 24,900 1,836,375
Kos Pharmaceuticals, Inc.+....................... 6,000 61,125
Ligand Pharmaceuticals, Class B+................. 8,300 106,084
Merck & Company, Inc............................. 13,400 1,792,250
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
PHARMACEUTICALS (CONTINUED)
Monsanto Co...................................... 44,700 $ 2,497,613
Pfizer, Inc...................................... 17,100 1,858,556
Schering-Plough Corp............................. 19,800 1,814,175
U.S. Bioscience, Inc.+........................... 2,800 22,925
Warner-Lambert Co................................ 60,600 4,204,125
Watson Pharmaceuticals, Inc.+.................... 5,600 261,450
-------------
25,368,244
-------------
TOTAL HEALTHCARE............................... 33,738,907
-------------
INDUSTRIAL PRODUCTS & SERVICES (4.6%)
BUILDING MATERIALS (0.0%)
Owens Corning.................................... 4,400 179,575
Rock of Ages Corp.+.............................. 2,000 31,125
The Sherwin-Williams Co.......................... 900 29,813
-------------
240,513
-------------
BUSINESS & PUBLIC SERVICES (0.0%)
Comfort Systems USA, Inc.+....................... 3,200 74,800
Service Experts, Inc.+........................... 4,800 165,600
-------------
240,400
-------------
CAPITAL GOODS (0.3%)
ABC Rail Products Corp.+......................... 2,100 36,488
Applied Power, Inc., Class A..................... 2,900 99,688
Cincinnati Milacron, Inc......................... 2,100 51,056
Collins & Aikman Corp.+.......................... 2,500 18,594
Eaton Corp....................................... 4,300 334,325
Foster Wheeler Corp.............................. 2,100 45,019
IDEX Corp........................................ 6,400 220,800
MagneTek, Inc.+.................................. 16,700 263,025
Modine Manufacturing Co.......................... 9,100 315,372
Shaw Group, Inc.+................................ 5,000 130,000
Wabash National Corp............................. 10,400 267,800
-------------
1,782,167
-------------
COMMERCIAL SERVICES (0.2%)
Equity Corp. International+...................... 2,600 62,400
Hospitality Worldwide Services+.................. 800 7,200
Pinkerton's, Inc.+............................... 2,550 52,913
Service Corp. International...................... 21,200 908,950
Wackenhut Corrections Corp.+..................... 2,100 49,088
-------------
1,080,551
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
CONSTRUCTION & HOUSING (0.1%)
D.R. Horton, Inc................................. 21,176 $ 442,049
-------------
DIVERSIFIED MANUFACTURING (2.9%)
AlliedSignal, Inc................................ 49,700 2,205,438
Cooper Industries, Inc........................... 6,900 379,069
Eastman Kodak Co................................. 25,300 1,848,481
General Electric Co.............................. 61,900 5,632,900
Harris Corp...................................... 9,600 429,000
Illinois Tool Works, Inc......................... 4,000 266,750
Intermet Corp.................................... 24,200 440,138
ITT Industries, Inc.............................. 11,000 411,125
Johnson Controls, Inc............................ 6,700 383,156
Parker Hannifin Corp............................. 3,100 118,188
Rockwell International Corp...................... 9,900 475,819
Sensormatic Electronics Corp.+................... 3,300 46,200
Tenneco, Inc..................................... 13,400 510,038
Tyco International Ltd........................... 43,900 2,765,700
Xerox Corp....................................... 100 10,163
-------------
15,922,165
-------------
ELECTRICAL EQUIPMENT (0.4%)
Advanced Lighting Technologies, Inc.+............ 600 14,025
Anixter International, Inc.+..................... 9,000 171,563
Caterpillar, Inc................................. 18,300 967,613
Emerson Electric Co.............................. 14,400 869,400
W.W. Grainger, Inc............................... 7,400 368,613
-------------
2,391,214
-------------
MACHINERY (0.1%)
Deere & Co....................................... 5,900 311,963
Sauer, Inc....................................... 3,800 53,438
-------------
365,401
-------------
PACKAGING & CONTAINERS (0.2%)
Gaylord Container Corp., Class A+................ 8,600 66,113
Ivex Packaging Corp.+............................ 2,000 46,500
Kimberly-Clark Corp.............................. 21,400 981,725
-------------
1,094,338
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
POLLUTION CONTROL (0.4%)
American Disposal Services, Inc.+................ 2,200 $ 103,194
Browning-Ferris Industries, Inc.................. 12,300 427,425
Sevenson Environmental Services, Inc............. 1,840 15,640
Tetra Technologies, Inc.+........................ 8,100 133,650
Waste Management, Inc............................ 42,100 1,473,500
-------------
2,153,409
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 25,712,207
-------------
TECHNOLOGY (7.6%)
AEROSPACE (0.7%)
Boeing Co........................................ 78,600 3,502,613
Coltec Industries, Inc.+......................... 11,400 226,575
L-3 Communications Holdings, Inc.+............... 500 16,344
Orbital Sciences Corp.+.......................... 5,200 194,513
Raytheon Co., Class A............................ 400 23,050
-------------
3,963,095
-------------
COMPUTER PERIPHERALS (0.3%)
Bolder Technologies Corp.+....................... 2,400 30,150
EMC Corp./Mass+.................................. 25,500 1,142,719
HMT Technology Corp.+............................ 11,400 95,119
Hutchinson Technology, Inc.+..................... 1,900 52,250
Pinnacle Systems, Inc.+.......................... 3,900 125,288
Quantum Corp.+................................... 6,300 130,528
-------------
1,576,054
-------------
COMPUTER SOFTWARE (1.6%)
Aspect Development, Inc.+........................ 1,700 128,456
Aspen Technologies, Inc.+........................ 3,200 162,200
Autodesk, Inc.................................... 1,900 73,209
Avid Technology, Inc.+........................... 2,300 77,122
CNET, Inc.+...................................... 1,600 109,500
Computer Associates International, Inc........... 27,700 1,539,081
Edify Corp.+..................................... 8,500 86,063
Informix Corp.+.................................. 7,000 55,234
Inktomi Corp.+................................... 200 7,938
Integrated Systems, Inc.+........................ 3,200 49,000
Macromedia, Inc.+................................ 6,200 116,056
MAPICS, Inc.+.................................... 6,700 132,116
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMPUTER SOFTWARE (CONTINUED)
Metro Information Services, Inc.+................ 3,700 $ 144,531
Microsoft Corp.+................................. 41,000 4,444,656
MicroStrategy, Inc.+............................. 200 5,688
Oracle Corp.+.................................... 49,600 1,216,750
Parametric Technology Co.+....................... 11,500 311,578
Symantec Corp.+.................................. 2,600 67,763
Transaction Systems Architects, Inc., Class A+... 2,800 107,888
Verio, Inc.+..................................... 600 14,963
-------------
8,849,792
-------------
COMPUTER SYSTEMS (1.5%)
3Com Corp.+...................................... 7,300 224,247
Compaq Computer Corp............................. 54,200 1,537,925
International Business Machines Corp............. 45,800 5,258,413
International Network Services+.................. 4,000 162,875
Radiant Systems, Inc.+........................... 4,700 69,031
Sun Microsystems, Inc.+.......................... 19,300 838,947
-------------
8,091,438
-------------
ELECTRONICS (1.0%)
8 x 8, Inc.+..................................... 5,100 25,022
Bay Networks, Inc.+.............................. 10,200 328,950
Cisco Systems, Inc.+............................. 52,000 4,788,875
Integrated Device Technology, Inc.+.............. 9,000 64,266
Quickturn Design System, Inc.+................... 6,300 46,266
Tektronix, Inc................................... 2,300 81,363
Veeco Instruments, Inc.+......................... 1,300 32,338
-------------
5,367,080
-------------
INFORMATION PROCESSING (0.2%)
Computer Horizons Corp.+......................... 350 12,983
Condor Technology Solutions, Inc.+............... 7,000 101,938
CSG Systems International, Inc.+................. 2,100 98,306
Excel Switching Corp.+........................... 4,400 109,725
First Data Corp.................................. 21,900 729,544
ONSALE, Inc.+.................................... 2,000 49,313
Pegasus Systems, Inc.+........................... 2,500 63,906
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
INFORMATION PROCESSING (CONTINUED)
Remedy Corp.+.................................... 4,100 $ 69,828
Sapient Corp.+................................... 2,500 131,406
-------------
1,366,949
-------------
SEMICONDUCTORS (1.6%)
American Xtal Technology, Inc.+.................. 1,200 17,475
Applied Materials, Inc.+......................... 15,800 466,594
ARM Holdings plc (Spons. ADR)+(i)................ 300 18,206
ATMI, Inc.+...................................... 4,300 64,769
Exar Corp.+...................................... 2,100 43,969
Genesis Microchip, Inc.+......................... 200 1,588
Integrated Silicon Solution, Inc.+............... 4,300 29,966
Intel Corp....................................... 74,000 5,482,938
Motorola, Inc.................................... 29,400 1,545,338
National Semiconductor Corp.+.................... 1,100 14,506
SDL, Inc.+....................................... 4,300 103,200
SIPEX Corp.+..................................... 2,400 51,525
Texas Instruments, Inc........................... 19,900 1,160,419
Xilinx, Inc.+.................................... 3,400 115,706
-------------
9,116,199
-------------
TELECOMMUNICATION EQUIPMENT (0.5%)
ANTEC Corp.+..................................... 3,600 83,813
Lucent Technologies, Inc......................... 31,600 2,628,725
P-COM, Inc.+..................................... 3,900 35,770
Proxim, Inc.+.................................... 3,600 60,075
-------------
2,808,383
-------------
TELECOMMUNICATION SERVICES (0.2%)
Airtouch Communications, Inc.+................... 6,700 391,531
Concentric Network Corp.+........................ 7,100 214,997
Davox Corp.+..................................... 3,700 80,706
Exodus Communications, Inc.+..................... 200 8,938
Glenayre Technologies, Inc.+..................... 8,800 95,150
MetroNet Communications Corp., Class B+.......... 3,600 101,250
Natural Microsystems Corp.+...................... 2,300 37,016
Omnipoint Corp.+................................. 4,600 105,656
Omtool, Ltd.(i).................................. 2,000 15,188
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TELECOMMUNICATION SERVICES (CONTINUED)
Premiere Technologies, Inc.+..................... 3,800 $ 31,528
SkyTel Communications, Inc.+..................... 6,100 142,969
-------------
1,224,929
-------------
TOTAL TECHNOLOGY............................... 42,363,919
-------------
TRANSPORTATION (0.5%)
AIRLINES (0.0%)
ASA Holdings, Inc................................ 1,600 79,500
Southwest Airlines Co............................ 1,600 47,400
-------------
126,900
-------------
RAILROADS (0.4%)
Burlington Northern Sante Fe Corp................ 6,900 677,494
CSX Corp......................................... 9,900 450,450
Genesee & Wyoming, Inc., Class A+................ 2,900 55,463
Norfolk Southern Corp............................ 17,100 509,794
Union Pacific Corp............................... 11,200 494,200
Wisconsin Central Transportation Corp.+.......... 1,700 37,241
-------------
2,224,642
-------------
TRUCK & FREIGHT CARRIERS (0.1%)
Allied Holdings, Inc.+........................... 5,300 111,631
American Freightways Corp.+...................... 6,600 66,206
CNF Transportation, Inc.......................... 2,100 89,250
Consolidated Freightways Corp.+.................. 600 8,363
FDX Corp.+....................................... 1,600 100,400
Jevic Transportation, Inc.+...................... 400 4,475
Ryder System, Inc................................ 3,300 104,156
Werner Enterprises, Inc.......................... 10,125 193,008
-------------
677,489
-------------
TOTAL TRANSPORTATION........................... 3,029,031
-------------
UTILITIES (4.5%)
ELECTRIC (1.1%)
Allegheny Energy, Inc............................ 6,700 201,838
Ameren Corp...................................... 5,900 234,525
Baltimore Gas & Electric Co...................... 8,100 251,606
Central & South West Corp........................ 29,900 803,563
Central Hudson Gas & Electric Corp............... 8,000 366,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
ELECTRIC (CONTINUED)
Cinergy Corp..................................... 8,600 $ 301,000
Cleco Corp....................................... 7,100 211,225
CMS Energy Corp.................................. 5,500 242,000
Dominion Resources, Inc.......................... 9,300 378,975
Duke Power Co.................................... 1,700 100,725
Entergy Corp..................................... 13,500 388,125
GPU, Inc......................................... 7,000 264,688
New England Electric System...................... 3,500 151,375
Northern States Power Co......................... 8,600 246,175
P P & L Resources, Inc........................... 9,200 208,725
Peco Energy Co................................... 12,200 356,088
Potomac Electric Power Co........................ 5,600 140,350
Southern Co...................................... 7,000 193,813
Teco Energy, Inc................................. 5,000 134,063
Texas Utilities Co............................... 13,400 557,775
Western Resources, Inc........................... 3,400 131,963
Wisconsin Energy Corp............................ 6,000 182,250
-------------
6,046,847
-------------
NATURAL GAS (0.4%)
Atmos Energy Corp................................ 6,700 204,350
Consolidated Natural Gas Co...................... 5,200 306,150
El Paso Natural Gas Co........................... 6,600 252,450
Enron Corp....................................... 15,200 821,750
Indiana Energy, Inc.............................. 2,700 80,663
Public Service Company of North Carolina, Inc.... 1,400 30,450
Wicor, Inc....................................... 13,600 314,500
-------------
2,010,313
-------------
TELEPHONE (3.0%)
Ameritech Corp................................... 2,700 121,163
AT & T Corp...................................... 29,600 1,690,900
Bell Atlantic Corp............................... 53,400 2,436,375
Bellsouth Corp................................... 25,000 1,678,125
Cincinnati Bell, Inc............................. 6,900 197,513
Frontier Corp.................................... 8,000 252,000
GTE Corp......................................... 46,800 2,603,250
ICG Communications, Inc.+........................ 1,000 36,531
Intermedia Communications, Inc.+................. 2,800 117,338
ITC DeltaCom, Inc.+.............................. 400 17,088
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TELEPHONE (CONTINUED)
MCI Communications Corp.......................... 17,000 $ 987,594
NEXTLINK Communications, Inc., Class A+.......... 800 30,275
SBC Communications, Inc.......................... 94,900 3,796,000
Sprint Corp...................................... 9,700 683,850
WorldCom, Inc.+.................................. 42,200 2,040,106
-------------
16,688,108
-------------
WATER (0.0%)
American States Water Co......................... 3,100 84,088
E'Town Corp...................................... 3,100 116,250
-------------
200,338
-------------
TOTAL UTILITIES................................ 24,945,606
-------------
TOTAL UNITED STATES COMMON STOCK (COST
$198,128,020)................................. 271,393,332
-------------
TOTAL COMMON STOCK (COST $250,094,697)......... 332,185,381
-------------
</TABLE>
<TABLE>
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.3%)
INDUSTRIAL PRODUCTS & SERVICES (0.3%)
Home Ownership Funding, (144A) 13.331%
(Industrial Products & Services)
(COST $2,002,080).............................. 2,000 1,912,908
-------------
PREFERRED STOCK (0.1%)
AUSTRALIA (0.1%)
News Corp. Ltd. (Broadcasting & Publishing)(s)... 46,100 326,581
-------------
GERMANY (0.0%)
Volkswagen AG (Automotive)(s).................... 292 201,242
-------------
TOTAL PREFERRED STOCK (COST $368,628).......... 527,823
-------------
TOTAL EQUITY SECURITIES (COST $252,465,405).... 334,626,112
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FIXED INCOME SECURITIES (37.4%)
CERTIFICATE OF DEPOSIT-DOMESTIC (0.2%)
Mercantile Safe Deposit & Trust, 6.16% due
08/16/99 (Banking)
(COST $1,000,000).............................. $ 1,000,000 $ 1,003,600
-------------
CERTIFICATES OF DEPOSIT-FOREIGN (0.4%)
Canadian Imperial Bank of Commerce New York,
6.20% due 08/01/00 (Canada)(s)
(COST $2,000,391).............................. 2,000,000 2,013,720
-------------
CONVERTIBLE BONDS (0.0%)
(IN JPY)
------------
JAPAN (0.0%)
Sanwa International Finance Trust, 1.25% due
07/31/05 (Financial Services)(s)............... 21,000,000 154,718
Yamanouchi Pharmaceutical Co. Ltd., 1.25% due
03/31/14 (Commercial Services)................. 10,000,000 105,198
-------------
TOTAL CONVERTIBLE BONDS (COST $273,630)........ 259,916
-------------
COLLATERALIZED OBLIGATIONS (6.6%)
(IN USD)
------------
FINANCE (6.6%)
American Southwest Financial Corp., REMIC:
Support Bond, Series 60, Class D, Callable,
8.90% due 03/01/18............................. 1,734,580 1,817,597
BA Mortgage Securities, Inc., REMIC: Subordinated
Bond, Series 1997-1, Class B2, Callable, 7.50%
due 07/25/26................................... 247,410 251,585
Bear Stearns Structured Securities Inc., REMIC:
Sequential Payer, Series 1997-2, Class 1A5,
Callable, (144A), 7.00% due 08/25/36........... 2,500,000 2,506,250
BTC Mortgage Investors Trust, Series 1997-S1,
Class B, (144A), 6.45% due 12/31/09............ 500,000 500,781
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCE (CONTINUED)
Chase Commercial Mortgage Securities Corp.,
Subordinated Bond, Series 1996-2, Class F,
Callable, (144A), 6.90% due 11/19/06........... $ 250,000 $ 237,070
Countrywide Home Loans, REMIC: Sequential Payer,
Series 1998-5, Class A, Callable, 6.75% due
05/25/28....................................... 1,123,800 1,116,601
CS First Boston Mortgage Securities Corp.,
Sequential Payer, Series 1997-C2, Class A1,
Callable, 6.40% due 02/17/04................... 1,192,624 1,207,159
CS First Boston Mortgage Securities Corp.,
Subordinated Bond, Series 1997-C2, Class B,
Callable, 6.72% due 11/17/07................... 600,000 617,437
Deutsche Mortgage & Asset Receiving Corp.,
Sequential Payer, Series 1998-C1, Class A1,
Callable, 6.22% due 09/15/07................... 1,975,028 1,989,995
Deutsche Mortgage & Asset Receiving Corp.,
Sequential Payer, Series 1998-C1, Class A2,
Callable, 6.54% due 02/15/08................... 2,000,000 2,042,969
Federal Home Loan Mortgage Corp., Sequential
Payer, Series 2019, Class C, 6.50% due
02/15/19....................................... 1,250,000 1,242,578
First Union - Lehman Brothers Commercial Mortgage
Securities Corp., Subordinated Bond, Series
1997-C2, Class E, Callable, 7.12% due
11/18/12....................................... 300,000 295,687
GE Capital Mortgage Services, Inc., REMIC:
Subordinated Bond, NAS, Series 1995-10, Class
B2, Callable, 7.00% due 10/25/10............... 253,684 256,035
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCE (CONTINUED)
GE Capital Mortgage Services, Inc., REMIC:
Subordinated Bond, Series 1997-12, Class B3,
Callable, (144A), 7.00% due 12/25/27........... $ 398,252 $ 367,387
GE Capital Mortgage Services, Inc., REMIC:
Subordinated Bond, Series 1998-1, Class B3,
Callable, 6.75% due 01/25/28................... 99,482 93,741
GMAC Commercial Mortgage Securities, Inc.,
Sequential Payer, Series 1997-C1, Class A3,
Callable, 6.87% due 08/15/07................... 2,400,000 2,506,500
Green Tree Financial Corp., Sequential Payer,
Series 1992-1, Class A3, Callable, 6.70% due
10/15/17....................................... 881,754 886,383
Green Tree Financial Corp., Sequential Payer,
Series 1994-1, Class A4, Callable, 7.20% due
04/15/19....................................... 3,000,000 3,096,720
Green Tree Home Improvement Loan Trust,
Sequential Payer, Series 1997-E, Class HEA2,
Callable, 6.39% due 01/15/29................... 2,000,000 2,011,220
J.P. Morgan Commercial Mortgage Finance Corp.,
Subordinated Bond, CSTR, Series 1996-C2, Class
E, Callable, (144A), 8.64% due 11/25/27........ 250,000 261,172
Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, Callable, 7.93% due 06/15/21................ 215,280 214,069
Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
Callable, 7.12% due 06/18/29................... 1,000,000 947,187
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCE (CONTINUED)
Morgan Stanley Capital I, REMIC: Subordinated
Bond, CSTR, Series 1997-RR, Class D, Callable,
(144A), 7.76% due 04/30/39..................... $ 800,000 $ 771,250
Morgan Stanley Capital I, Sequential Payer,
Series 1998-WF1, Class A1, Callable, 6.25% due
07/15/07(t).................................... 3,076,642 3,118,945
Morgan Stanley Capital I, Subordinated Bond,
Series 1995-GAL1, Class E, Callable, (144A),
8.25% due 08/15/05............................. 250,000 254,258
Morgan Stanley Capital I, Subordinated Bond,
Series 1997-HF1, Class F, Callable, (144A),
6.86% due 02/15/10............................. 1,000,000 935,313
Mortgage Capital Funding, Inc., Sequential Payer,
Series 1997-MC2, Class A1, Callable, 6.53% due
01/20/07....................................... 482,185 490,021
Norwest Asset Securities Corp., REMIC:
Subordinated Bond, NAS, Series 1998-4, Class
2B3, Callable, (144A), 6.75% due 02/25/28...... 150,000 133,943
Norwest Asset Securities Corp., REMIC:
Subordinated Bond, NAS, Series 1998-5, Class
B3, Callable, (144A), 6.75% due 03/25/28....... 249,630 222,795
Ocwen Residential MBS Corp., REMIC, Series
1998-R1, Class A1, Callable, (144A), 4.00% due
10/25/40....................................... 1,228,415 1,209,029
Premier Auto Trust, Sequential Payer, Series
1993-6, Class A2, Callable, 4.65% due
11/02/99....................................... 174,194 173,069
Premier Auto Trust, Sequential Payer, Series
1998-3, Class A4, Callable, 5.96% due
10/08/02....................................... 1,400,000 1,404,156
Sears Credit Account Master Trust, Series 1996-1,
Class A, Callable, 6.20% due 02/16/06.......... 1,400,000 1,408,531
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
35
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCE (CONTINUED)
The Money Store Home Equity Trust, TAC(11),
Sequential Payer, AS, Series 1997-D, Class AF4,
Callable, 6.44% due 09/15/24................... $ 800,000 $ 801,750
World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1996-A, Class A1,
Callable, 6.30% due 06/25/02................... 338,163 338,521
World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1997-A, Class A2,
Callable, 6.75% due 06/25/03................... 1,199,379 1,223,859
-------------
TOTAL COLLATERALIZED OBLIGATIONS (COST
$36,477,282).................................. 36,951,563
-------------
CORPORATE OBLIGATIONS (6.4%)
BASIC INDUSTRIES (0.2%)
CHEMICALS (0.1%)
Solutia, Inc., Callable, 6.72% due 10/15/37...... 650,000 666,997
-------------
FOREST PRODUCTS & PAPER (0.0%)
Buckeye Technologies, Inc., Callable 12/15/00,
8.50% due 12/15/05............................. 200,000 204,500
-------------
METALS & MINING (0.1%)
P & L Coal Holdings Corp., Callable 05/15/03,
(144A), 9.63% due 05/15/08..................... 300,000 308,250
Ryerson Tull, Inc., Callable, 9.13% due
07/15/06....................................... 200,000 215,750
-------------
524,000
-------------
1,395,497
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
CONSUMER GOODS & SERVICES (0.7%)
APPARELS & TEXTILES (0.1%)
Fruit of the Loom, Inc., 7.88% due 10/15/99...... $ 175,000 $ 176,913
Fruit of the Loom, Inc., 6.50% due 11/15/03...... 75,000 72,495
Westpoint Stevens, Inc., Callable, (144A), 7.88%
due 06/15/05................................... 600,000 600,000
-------------
849,408
-------------
AUTOMOTIVE SUPPLIES (0.1%)
Federal-Mogul Corp., Callable, 7.75% due
07/01/06....................................... 470,000 475,226
-------------
BROADCASTING & PUBLISHING (0.1%)
Capstar Broadcasting Partners, Callable 07/01/02,
9.25% due 07/01/07............................. 250,000 261,250
Fox Family Worldwide, Inc., Callable 11/01/02,
9.25% due 11/01/07............................. 400,000 398,000
-------------
659,250
-------------
ENTERTAINMENT, LEISURE & MEDIA (0.3%)
Fox/Liberty Networks LLC, Callable 08/15/02,
8.88% due 08/15/07............................. 250,000 253,125
Jacor Communications Co., Series B, Callable
06/15/02, 8.75% due 06/15/07................... 300,000 312,000
Lamar Advertising Co., Callable 09/15/02, 8.63%
due 09/15/07................................... 550,000 563,062
Outdoor Systems, Inc., Callable 06/15/02, 8.88%
due 06/15/07................................... 300,000 311,250
-------------
1,439,437
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
36
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FOOD, BEVERAGES & TOBACCO (0.1%)
Aurora Foods, Inc., (144A), Callable 07/01/03,
8.75% due 07/01/08............................. $ 200,000 $ 202,250
Tricon Global Restaurants, Callable, 7.45% due
05/15/05....................................... 500,000 505,895
-------------
708,145
-------------
RETAIL (0.0%)
Federated Department Stores, Inc., 8.13% due
10/15/02....................................... 200,000 214,276
-------------
4,345,742
-------------
ENERGY (0.5%)
NATURAL GAS (0.2%)
Columbia Gas System, Inc., Series B, 6.61% due
11/28/02....................................... 500,000 507,080
National Fuel Gas Co., Series D, MTN, 6.21% due
08/12/27....................................... 500,000 505,990
-------------
1,013,070
-------------
OIL PRODUCTION (0.1%)
Ocean Energy, Inc., Series B, Callable 07/15/02,
8.88% due 07/15/07............................. 400,000 418,000
Plains Resources, Inc., Series D, Callable
03/15/01, 10.25% due 03/15/06.................. 250,000 260,625
-------------
678,625
-------------
OIL SERVICES (0.2%)
Oil Purchase Co., Sinking Fund, (144A), 7.10% due
04/30/02....................................... 971,295 965,224
-------------
2,656,919
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCE (2.0%)
BANKING (0.7%)
Amsouth Bank of Alabama, Callable 02/01/08, 6.45%
due 02/01/18................................... $ 500,000 $ 503,330
First Union Corp., 6.55% due 10/15/35............ 2,800,000 2,904,076
Union Bank of Switzerland - New York, 7.75% due
09/01/26....................................... 375,000 433,132
-------------
3,840,538
-------------
FINANCIAL SERVICES (1.3%)
Associates Corp. North America, 5.96% due
05/15/37....................................... 610,000 613,337
FCB/NC Capital Trust I, Callable 03/01/08,
(144A), 8.05% due 03/01/28..................... 600,000 622,506
FCB/SC Capital Trust I, Callable 03/15/08,
(144A), 8.25% due 03/15/28..................... 1,250,000 1,289,138
First Union Institutional Capital II, Callable
01/01/07, 7.85% due 01/01/27................... 1,000,000 1,095,190
Ford Motor Credit Co., 8.63% due 01/24/00........ 1,140,000 1,182,038
Keystone Financial Mid Atlantic Funding, 6.50%
due 05/31/08................................... 1,000,000 1,003,210
Safeco Capital Trust 1, Callable 07/15/07, 8.07%
due 07/15/37................................... 900,000 972,189
Sun Healthcare Group, Inc., Callable 05/01/03,
(144A), 9.38% due 05/01/08..................... 300,000 302,250
Sun World International, Inc., Series B, Callable
04/15/01, 11.25% due 04/15/04.................. 250,000 269,688
-------------
7,349,546
-------------
11,190,084
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
37
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
HEALTHCARE (0.2%)
HEALTH SERVICES (0.2%)
Genesis Health Ventures Inc., Callable 06/15/00,
9.75% due 06/15/05............................. $ 250,000 $ 256,250
Tenet Healthcare Corp., 8.00% due 01/15/05....... 285,000 295,542
Tenet Healthcare Corp., Callable 01/15/02, 8.63%
due 01/15/07................................... 240,000 249,137
Tenet Healthcare Corp., Callable, (144A), 7.63%
due 06/01/08................................... 175,000 175,933
-------------
976,862
-------------
INDUSTRIAL PRODUCTS & SERVICES (0.0%)
DIVERSIFIED MANUFACTURING (0.0%)
Polymer Group Inc., Series B, Callable 07/01/02,
9.00% due 07/01/07............................. 250,000 254,375
-------------
TECHNOLOGY (0.6%)
ELECTRONICS (0.5%)
Sensormatic Electronics Corp., Callable, (144A),
7.74% due 03/29/06(f).......................... 3,000,000 2,842,890
-------------
TELECOMMUNICATION SERVICES (0.1%)
McLeodUSA, Inc., Callable 07/15/02, 9.25% due
07/15/07....................................... 250,000 258,750
Qwest Communications International Inc., Series
B, Callable 04/01/02, 10.88% due 04/01/07...... 250,000 289,688
-------------
548,438
-------------
3,391,328
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TRANSPORTATION (0.8%)
TRANSPORT & SERVICES (0.8%)
Atlantic Express Transportation Corp., Callable
02/01/01, 10.75% due 02/01/04.................. $ 250,000 $ 266,250
Enterprise Rent-a-Car USA Finance Co., (144A),
6.38% due 05/15/03............................. 2,000,000 1,995,200
Williams Companies, Inc., 6.13% due 02/01/01..... 2,000,000 2,002,000
-------------
4,263,450
-------------
UTILITIES (1.4%)
ELECTRIC (0.7%)
Calpine Corp., (144A), 7.88% due 04/01/08........ 250,000 246,875
PECO Energy Capital Trust III, Series D, 7.38%
due 04/06/28................................... 1,300,000 1,338,077
Texas Utilities Electric Co., 8.00% due
06/01/02....................................... 2,000,000 2,128,600
-------------
3,713,552
-------------
TELEPHONE (0.7%)
SBC Communications, Inc., 6.13% due 02/15/08..... 1,500,000 1,492,365
SBC Communications, Inc., Callable 11/01/07,
7.25% due 11/01/27............................. 1,000,000 1,038,550
US West Capital Funding, Inc., Callable, 6.25%
due 07/15/05................................... 1,300,000 1,294,527
-------------
3,825,442
-------------
7,538,994
-------------
TOTAL CORPORATE OBLIGATIONS
(COST $35,555,891)............................ 36,013,251
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
38
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FOREIGN CORPORATE OBLIGATIONS (3.6%)
AUSTRALIA (0.7%)
Australian Gas Light Co. Ltd., (144A), 6.40% due
04/15/08 (Gas-Pipelines)....................... $ 1,600,000 $ 1,600,400
St. George Bank Ltd., (144A), 7.15% due 06/18/07
(Banking)...................................... 2,250,000 2,361,015
-------------
3,961,415
-------------
CANADA (0.8%)
Cott Corp., Callable 07/01/00, 8.50% due 05/01/07
(Food, Beverages & Tobacco).................... 250,000 246,250
Express Pipeline LP, Series B, Sinking Fund,
Callable, (144A), 7.39% due 12/31/17
(Oil-Production)............................... 250,000 246,250
Hydro Quebec, Series GF, 8.88% due 03/01/26
(Water)........................................ 1,800,000 2,335,086
McKesson Finance of Canada, (144A), 6.55% due
11/01/02 (Financial Services).................. 750,000 758,700
Rogers Cablesystems Ltd., Callable 12/01/02,
10.00% due 12/01/07 (Telecommunications)....... 250,000 277,500
Rogers Cantel, Inc., Callable 10/01/02, 8.30% due
10/01/07 (Telecommunications).................. 250,000 243,125
Teekay Shipping Corp., Sinking Fund, 8.32% due
02/01/08 (Transport & Services)................ 500,000 516,250
-------------
4,623,161
-------------
CHINA (0.1%)
Guangdong International Trust & Investment Corp.,
(144A), 8.75% due 10/24/16 (Financial
Services)...................................... 400,000 309,632
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
DENMARK (0.5%)
Den Danske Bank, (144A), 7.25% due 06/15/05
(Banking)(s)................................... $ 2,500,000 $ 2,615,475
-------------
MALAYSIA (0.1%)
Petroliam Nasional Berhad, (144A), 7.75% due
08/15/15 (Gas Exploration)..................... 375,000 307,571
-------------
MEXICO (0.3%)
Axa SA de CV, (144A), 9.00% due 08/04/04
(Electrical Equipment)......................... 300,000 279,000
Copamex Industrias SA de CV, Series B, Callable
04/30/02, 11.38% due 04/30/04 (Forest Products
& Paper)....................................... 120,000 124,800
Grupo Imsa SA de CV, Callable 09/30/02, 8.93% due
09/30/04 (Industrial Products & Services)...... 250,000 238,625
Petroleos Mexicanos, MTN, 7.60% due 06/15/00
(Oil-Production)............................... 1,300,000 1,303,250
-------------
1,945,675
-------------
NORWAY (0.5%)
Norsk Hydro ASA, Callable, 6.80% due 01/15/28
(Oil-Services)................................. 2,500,000 2,509,500
-------------
PHILIPPINES (0.0%)
Philippine Long Distance Telephone Co., 10.63%
due 06/02/04 (Telephone)....................... 150,000 153,000
Philippine Long Distance Telephone Co., Series E,
MTN, 7.85% due 03/06/07 (Telephone)............ 120,000 104,178
-------------
257,178
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
39
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
SOUTH KOREA (0.2%)
Export Import Bank Korea, 7.10% due 03/15/07
(Banking)...................................... $ 500,000 $ 429,235
Korea Development Bank, 6.25% due 05/01/00
(Banking)...................................... 500,000 456,270
Korea Electric Power Corp., 6.00% due 12/01/26
(Electric)..................................... 500,000 416,795
-------------
1,302,300
-------------
UNITED KINGDOM (0.2%)
Abbey National First Capital BV, 8.20% due
10/15/04 (Financial Services).................. 1,000,000 1,101,100
-------------
VENEZUELA (0.2%)
BTM Curacao Holdings NV, 6.41% due 09/29/49
(Financial Services)........................... 1,200,000 1,134,000
-------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$19,765,318).................................. 20,067,007
-------------
GOVERNMENT OBLIGATIONS (3.5%)
(IN FRF)
------------
FRANCE (1.8%)
Government of France, 4.75% due 03/12/02......... 58,100,000 9,752,796
-------------
(IN DEM)
------------
GERMANY (1.7%)
German Unity Fund, 8.50% due 02/20/01............ 15,685,000 9,615,028
-------------
TOTAL GOVERNMENT OBLIGATIONS (COST
$19,543,887).................................. 19,367,824
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
SOVEREIGN BONDS (0.2%)
<CAPTION>
(IN USD)
------------
<S> <C> <C>
MEXICO (0.2%)
United Mexican States Global Bonds, 11.38% due
09/15/16....................................... $ 195,000 $ 217,230
United Mexican States Global Bonds, 11.50% due
05/15/26....................................... 750,000 852,750
-------------
1,069,980
-------------
POLAND (0.0%)
Republic of Poland, Bearer, PDI, Callable
10/27/98, Sinking Fund, 4.00% due 10/27/14..... 250,000 225,000
-------------
TOTAL SOVEREIGN BONDS (COST $1,168,049)........ 1,294,980
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (8.2%)
FEDERAL HOME LOAN MORTGAGE CORP. (1.2%)
7.00% due 03/15/11............................... 2,750,000 2,830,218
8.00% due 11/01/26............................... 1,822,854 1,883,592
8.50% due 09/01/01............................... 10,799 11,116
8.50% due 07/01/02............................... 460,155 473,714
Remic: Series 1998-11, Sequential Payer, 6.00%
due 03/18/28................................... 1,530,226 1,377,693
-------------
6,576,333
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (3.4%)
6.50% due 05/01/27............................... 135,394 134,808
6.50% due 03/01/28(t)............................ 4,340,235 4,321,268
7.00% due 01/01/13 TBA .......................... 4,000,000 4,072,500
8.00% due 12/01/26............................... 2,988,496 3,092,645
Remic PAC-1, Series 1994-51, Class PH, 6.50% due
01/25/23....................................... 7,400,000 7,496,570
-------------
19,117,791
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
40
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (3.6%)
7.00% due 05/15/23............................... $ 371,089 $ 376,773
7.00% due 06/15/23............................... 1,116,300 1,133,599
7.00% due 07/15/23............................... 1,346,159 1,366,906
7.00% due 01/15/24............................... 489,515 497,036
7.00% due 02/15/24............................... 356,078 361,615
7.00% due 04/15/24............................... 239,245 242,958
7.50% due 01/15/27............................... 641,963 659,399
7.50% due 09/15/27............................... 188,493 193,646
7.50% due 02/15/28............................... 2,509,308 2,577,928
7.50% due 03/15/28............................... 1,994,074 2,048,891
7.50% due 04/15/28............................... 3,259,841 3,349,445
7.50% due 05/15/28............................... 2,136,782 2,195,542
8.50% due 06/15/27............................... 795,799 838,931
8.50% due 09/15/27............................... 3,870,772 4,080,507
-------------
19,923,176
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST
$44,901,745).................................. 45,617,300
-------------
U.S. TREASURY OBLIGATIONS (8.3%)
U.S. TREASURY BONDS (4.1%)
6.50% due 11/15/26(s)............................ 2,125,000 2,357,964
6.75% due 08/15/26............................... 4,571,000 5,229,361
8.50% due 02/15/20............................... 10,287,000 13,770,690
12.00% due 08/15/13(t)........................... 1,060,000 1,570,591
-------------
22,928,606
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
U.S. TREASURY NOTES (4.2%)
6.25% due 02/28/02(s)............................ $ 4,460,000 $ 4,558,700
6.63% due 06/30/01(d)(t)......................... 11,305,000 11,630,020
6.88% due 05/15/06(s)............................ 5,200,000 5,627,440
7.88% due 11/15/04(s)............................ 1,305,000 1,465,032
-------------
23,281,192
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$43,504,518).................................. 46,209,798
-------------
TOTAL FIXED INCOME SECURITIES (COST
$204,190,711)................................. 208,798,959
-------------
SHORT-TERM INVESTMENTS (1.2%)
OTHER INVESTMENT COMPANIES (0.0%)
Seven Seas Money Market Fund, 5.30% due
07/01/98....................................... 3,084 3,084
-------------
REPURCHASE AGREEMENT (1.1%)
Goldman Sachs Repurchase Agreement, 5.70% dated
6/30/98, due 7/01/98, proceeds $5,958,943
(collateralized by $78,000 Federal National
Mortgage Association, 5.44% due 1/24/01, valued
at $79,359; $5,815,000 Federal Home Loan Bank,
6.515% due 1/14/05, valued at $6,002,588)...... 5,958,000 5,958,000
-------------
TIME DEPOSITS (0.0%)
State Street Bank & Trust Co. London, 3.00% due
07/01/98....................................... 264,000 264,000
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
41
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.1%)
Bills, 4.20% due 08/20/98(s)(y).................. $ 710,000 $ 705,081
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$6,930,156)................................... 6,930,165
-------------
TOTAL INVESTMENTS (COST $463,586,272)
(98.4%)...................................... 550,355,236
OTHER ASSETS IN EXCESS OF LIABILITIES (1.6%)...................
8,710,152
-------------
NET ASSETS (100.0%)............................................ $ 559,065,388
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $464,021,699 for federal income tax
purposes at June 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $94,601,309 and $8,267,772, respectively, resulting in net
unrealized appreciation of $86,333,537.
+ Non-income producing security.
(d) Delayed delivery securities.
(f) Fair valued security. Approximately 0.5% of the market value of the
securities have been valued at fair value. (See Note 1a)
(i) Foreign security.
(s) Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$36,829,151 of the market value has been segregated.
(t) All or a portion of the security has been segregated as collateral for when
issued/TBA securities.
(y) Yield to maturity.
144A - Securities restricted for resale to Qualified Institutional Buyers
ADR - American Depositary Receipt
AS - Accelerated Security
CSTR - Collateral Strip Rate
DEM - German Mark
FRF - French Franc
JPY - Japanese Yen
MTN - Medium Term Note
NAS - Non-accelerated security
PDI - Past Due Interest
REMIC - Real Estate Mortgage Investment Conduit
SDR - Swedish Depositary Receipt
Spon. ADR - Sponsored ADR
TAC - Targeted Amortization Class
TBA - Securities purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date. The actual principal amount and
maturity date will be determined upon settlement..
USD - United States Dollar
The Accompanying Notes are an Integral Part of the Financial Statements.
42
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
PORTFOLIO
-----------------
<S> <C>
U.S. Government Agency/Treasury Obligations....... 16.8%
Financial Services................................ 12.5%
Banking........................................... 7.0%
Pharmaceuticals................................... 5.1%
Food & Beverages.................................. 3.9%
Government Obligations............................ 3.5%
Telephone......................................... 3.5%
Oil-Production.................................... 3.3%
Retail............................................ 3.2%
Diversified Manufacturing......................... 2.9%
Insurance......................................... 2.8%
Electric.......................................... 2.1%
Electronics....................................... 1.9%
Chemicals......................................... 1.8%
Entertainment..................................... 1.8%
Oil-Services...................................... 1.8%
Semi-Conductors................................... 1.8%
Computer Software................................. 1.7%
Computer Systems.................................. 1.5%
Automotive........................................ 1.3%
Broadcasting & Publishing......................... 1.0%
Health Services................................... 1.0%
Household Products................................ 1.0%
Natural Gas....................................... 1.0%
Metals & Mining................................... 0.9%
Transport & Services.............................. 0.9%
Aerospace......................................... 0.7%
Forest Products & Paper........................... 0.7%
Restaurants & Hotels.............................. 0.7%
Telecommunications................................ 0.7%
Certificate of Deposit............................ 0.6%
Electrical Equipment.............................. 0.6%
Medical Supplies.................................. 0.6%
Telecommunications Equipment...................... 0.6%
Personal Care..................................... 0.5%
Utilities......................................... 0.5%
Water............................................. 0.5%
Miscellaneous..................................... 6.2%
Short Term Investments............................ 1.1%
-----------------
100.0%
-----------------
-----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
43
<PAGE>
THE DIVERSIFIED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $463,586,272 ) $550,355,236
Cash 11,985
Foreign Currency at Value (Cost $3,013,850 ) 2,989,778
Receivable for Investments Sold 15,202,658
Interest Receivable 2,580,073
Unrealized Appreciation of Forward Foreign
Currency Contracts 807,573
Dividends Receivable 395,112
Foreign Tax Reclaim Receivable 130,315
Receivable for Expense Reimbursement 62,279
Variation Margin Receivable 48,067
Prepaid Trustees' Fees 2,298
Prepaid Expenses and Other Assets 508
------------
Total Assets 572,585,882
------------
LIABILITIES
Payable for Investments Purchased 12,868,084
Advisory Fee Payable 267,479
Unrealized Depreciation of Forward Foreign
Currency Contracts 263,062
Custody Fee Payable 89,900
Administrative Services Fee Payable 12,973
Fund Services Fee Payable 460
Administration Fee Payable 293
Accrued Expenses 18,243
------------
Total Liabilities 13,520,494
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $559,065,388
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
44
<PAGE>
THE DIVERSIFIED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $149,765 ) $ 4,256,231
Interest Income (Net of Foreign Withholding Tax
of $6,331 ) 11,947,277
-----------
Investment Income 16,203,508
EXPENSES
Advisory Fee $ 2,359,972
Custodian Fees and Expenses 455,436
Administrative Services Fee 127,584
Fund Services Fee 13,886
Administration Fee 8,817
Trustees' Fees and Expenses 2,677
Amortization of Organization Expenses 999
Miscellaneous 67,459
-----------
Total Expenses 3,036,830
Less: Reimbursement of Expenses (247,773)
-----------
NET EXPENSES 2,789,057
-----------
NET INVESTMENT INCOME 13,414,451
NET REALIZED GAIN (LOSS) ON
Investment Transactions 22,716,818
Futures Contracts 428,702
Foreign Currency Contracts and Transactions (170,930)
-----------
Net Realized Gain 22,974,590
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments 37,643,407
Futures Contracts 102,829
Foreign Currency Contracts and Translations 671,516
-----------
Net Change in Unrealized Appreciation 38,417,752
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $74,806,793
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
45
<PAGE>
THE DIVERSIFIED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 13,414,451 $ 9,646,581
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 22,974,590 20,441,920
Net Change in Unrealized Appreciation of
Investments, Futures and Foreign Currency
Contracts and Translations 38,417,752 26,949,621
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 74,806,793 57,038,122
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 230,295,407 132,528,025
Withdrawals (53,675,147) (127,909,364)
-------------- --------------
Net Increase from Investors' Transactions 176,620,260 4,618,661
-------------- --------------
Total Increase in Net Assets 251,427,053 61,656,783
NET ASSETS
Beginning of Fiscal Year 307,638,335 245,981,552
-------------- --------------
End of Fiscal Year $ 559,065,388 $ 307,638,335
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR ENDED JULY 8, 1993
JUNE 30, (COMMENCEMENT OF
------------------------- OPERATIONS) THROUGH
1998 1997 1996 1995 JUNE 30, 1994
---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65% 0.65% 0.65% 0.65% 0.70%(a)
Net Investment Income 3.13% 3.33% 3.35% 3.71% 2.88%(a)
Expenses without Reimbursement 0.71% 0.80% 0.82% 0.97% 1.18%(a)
Portfolio Turnover 82% 100% 144% 136% 115%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
46
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Diversified Portfolio (the "portfolio") is registered under the Investment
Company Act of 1940, as amended, as a no-load diversified, open-end management
investment company which was organized as a trust under the laws of the State of
New York on January 29, 1993. The portfolio commenced operations on July 8,
1993. The portfolio's investment objective is to provide a high total return
from a diversified portfolio of equity and fixed income securities. The
portfolio may invest in international markets. The Declaration of Trust permits
the trustees to issue an unlimited number of beneficial interests in the
portfolio.
Investments in emerging and international markets may involve certain
considerations and risks not typically associated with investments in the United
States. Future economic and political developments in emerging market and
foreign countries could adversely affect the liquidity or value, or both, of
such securities in which the portfolio is invested. The ability of the issuers
of debt, asset-backed and mortgage securities held by the portfolio to meet
their obligations may be affected by economic and political developments in a
specific industry or region. The value of asset-backed and mortgage securities
can be significantly affected by changes in interest rates or rapid principal
repayments including pre-payments.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the portfolio's trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
short-term portfolio securities with a remaining maturity of less than 60
days are valued by the amortized cost method.
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 on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the portfolio's trustees.
The portfolio's custodian or designated subcustodians, as the case may be
under tri-party repurchase agreements, takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the
portfolio. It is the policy of the portfolio to value the underlying
collateral daily on a mark-
47
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
to-market basis to determine that the value, including accrued interest,
is at least equal to the repurchase price plus accrued interest. In the
event of default of the obligation to repurchase, the portfolio has the
right to liquidate the collateral and apply the proceeds in satisfaction
of the obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal
proceedings.
b) The books and records of the portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expense are
translated at the exchange rates prevailing on the respective dates of
such transactions. Translation gains and losses resulting from changes in
exchange rates during the reporting period and gains and losses realized
upon settlement of foreign currency transactions are reported in the
Statement of Operations. Although the net assets of the portfolio are
presented at the exchange rates and market values prevailing at the end of
the period, the portfolio does not isolate the portion of the results of
operations arising as a result of changes in foreign exchange rates from
the fluctuations arising from changes in the market prices of securities
during the period.
c) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount become known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
d) The portfolio incurred organization expenses in the amount of $5,000,
which are being deferred and amortized on a straight-line basis over a
period not to exceed five years beginning with the commencement of
operations of the portfolio.
e) The portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily at the current foreign exchange
rates, and the change in the market value is recorded by the portfolio as
unrealized appreciation or depreciation of forward foreign currency
contract translations. At June 30, 1998, the portfolio had open forward
currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 6/30/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
Australian Dollar 1,183,556, expiring 07/24/98... $ 734,281 $ 728,118 $ (6,163)
</TABLE>
48
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 6/30/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
Austrian Schilling 3,774,880 for PTE 55,000,000,
expiring 07/24/98............................... $ 301,812 $ 301,479 $ (333)
Belgian Franc 12,303,740, expiring 07/24/98...... $ 331,485 $ 331,115 $ (370)
British Pound 1,168,351, expiring 07/24/98....... 1,945,924 1,946,863 939
British Pound 213,650 for DEM 642,944, expiring
07/24/98........................................ 358,632 357,924 (708)
British Pound 853,634 for JPY 193,292,114,
expiring 07/24/98............................... 1,403,793 1,428,501 24,708
Danish Krone 1,805,309, expiring 07/24/98........ 262,007 262,778 771
Finnish Markka 3,958,828 for JPY 100,000,000,
expiring 07/24/98............................... 741,084 740,499 (585)
Finnish Markka 1,059,483 for SEK 1,530,000,
expiring 07/24/98............................... 194,139 195,473 1,334
French Franc 1,068,820, expiring 07/24/98........ 176,307 177,041 734
German Mark 15,512,756, expiring 07/24/98........ 8,670,054 8,606,827 (63,227)
German Mark 650,416 for SEK 2,789,208, expiring
07/24/98........................................ 362,385 373,169 10,784
German Mark 12,486,069, expiring 7/30/98......... 6,936,705 6,930,106 (6,599)
Hong Kong Dollar 1,150,591, expiring 07/24/98.... 148,349 148,173 (176)
Italian Lira 761,598,418, expiring 07/24/98...... 426,463 428,609 2,146
Japanese Yen 928,321,776, expiring 07/24/98...... 6,667,687 6,693,843 26,156
Malaysian Ringgit 1,988,550, expiring 07/24/98... 515,369 473,710 (41,659)
Netherlands Guilder 1,538,929, expiring
07/24/98........................................ 755,599 757,630 2,031
New Zealand Dollar 277,094 expiring 07/24/98..... 143,341 143,341 --
Norwegian Krone 2,929,166, expiring 07/24/98..... 392,297 381,952 (10,345)
Norwegian Krone 2,648,627 for DEM 627,969,
expiring 07/24/98............................... 354,276 351,236 (3,040)
Portuguese Escudo 55,000,000, expiring
07/24/98........................................ 296,845 298,018 1,173
Singapore Dollar 298,723, expiring 07/24/98...... 174,071 176,611 2,540
Spanish Peseta 64,035,893, expiring 07/24/98..... 417,009 418,643 1,634
Swedish Krona 5,302,961, expiring 07/24/98....... 669,349 665,589 (3,760)
Swedish Krona 4,268,424 for GBP 341,086, expiring
07/24/98........................................ 552,948 520,326 (32,622)
</TABLE>
49
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 6/30/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
Swiss Franc 1,095,111, expiring 07/24/98......... $ 720,117 $ 723,726 $ 3,609
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- ------------------------------------------------- -----------
<S> <C> <C> <C>
Australian Dollar 993,857, expiring 07/24/98..... 618,348 615,667 2,681
Austrian Schilling 3,200,000, expiring 07/24/98.. 252,715 252,350 365
British Pound 129,558, expiring 07/24/98......... 211,291 215,886 (4,595)
Danish Krone 2,270,322, expiring 07/24/98........ 330,541 330,465 76
Finnish Markka 1,360,000, expiring 07/24/98...... 249,061 248,216 845
French Franc 9,726,671, expiring 07/24/98........ 1,619,259 1,611,143 8,116
French Franc 51,144,401, expiring 7/31/98........ 8,633,001 8,475,293 157,708
French Franc 8,345,546, expiring 10/08/98........ 1,386,787 1,386,787 --
German Mark 10,346,474, expiring 07/24/98........ 5,803,540 5,790,391 13,149
German Mark 29,276,407, expiring 7/30/98......... 16,527,557 16,249,198 278,359
German Mark 893,788, expiring 10/08/98........... 498,099 498,099 --
Irish Pound 192,944, expiring 07/24/98........... 268,617 268,998 (381)
Italian Lira 1,100,000,000, expiring 07/24/98.... 632,547 619,053 13,494
Japanese Yen 340,995,518, expiring 07/24/98...... 2,543,648 2,465,802 77,846
Malaysian Ringgit 853,265, expiring 07/24/98..... 214,033 203,264 10,769
Netherlands Guilder 1,485,048, expiring
07/24/98........................................ 740,081 731,103 8,978
New Zealand Dollar 845,714, expiring 07/24/98.... 465,608 438,301 27,307
Singapore Dollar 762,457, expiring 07/24/98...... 475,495 450,780 24,715
Spanish Peseta 20,906,345, expiring 07/24/98..... 136,448 136,678 (230)
Swiss Franc 1,402,653, expiring 07/24/98......... 943,308 926,971 16,337
--------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $544,511
--------
--------
</TABLE>
f) Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place is fixed when the
portfolio enters into the contract. Upon entering into such a contract,
the portfolio is required to pledge to the broker an amount of cash and/or
liquid securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the portfolio agrees to receive
from, or pay to, the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are
known as "variation margin" and are recorded by the portfolio as
unrealized gains or losses. When the contract is closed, the portfolio
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 at the time when
it was closed. The portfolio invests in futures contracts for the purpose
of hedging its existing portfolio securities, or securities the
50
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
portfolio intends to purchase, against fluctuations in value caused by
changes in prevailing market interest rates or securities movements. 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, and the possible inability of counterparties to
meet the terms of their contracts. Open futures contracts as of June 30,
1998 are summarized as follows:
SUMMARY OF OPEN CONTRACTS AT JUNE 30, 1998
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
Australian All Ordinary Index, expiring September
1998............................................ 34 $ 41,366 $ 1,376,367
CAC 40 Index, expiring July 1998................. 12 (151) 1,675,232
DAX Index, expiring September 1998............... 5 (15,280) 1,642,603
Financial Times-Stock Exchange 100 - Share Index,
expiring September 1998......................... 26 (5,440) 2,560,898
Hang Seng Index, expiring July 1998.............. 5 1,739 276,377
IBEX 35 Index, expiring July 1998................ 23 (9,516) 1,522,050
Topix Index, expiring September 1998............. 20 37,128 1,727,420
U.S. Thirty Year Bond, expiring September 1998... 90 40,866 11,082,571
U.S. Ten Year Note, expiring September 1998...... 2 363 227,325
-------------- -------------- ----------------
Totals........................................... 217 $ 91,075 $ 22,090,843
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS SHORT (DEPRECIATION) OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
U.S. Five Year Note, expiring September 1998..... 27 $ (3,115) $ 2,958,448
</TABLE>
g) The portfolio may enter into commitments to buy and sell investments to
settle on future dates as part of its normal investment activities. These
commitments are reported at market value in the financial statements.
Credit risk exists on these commitments to the extent of any unrealized
gains on the underlying securities purchased and any unrealized losses on
the underlying securities sold. Market risk exists on these commitments to
the same extent as if the security were owned on a settled basis and gains
and losses are recorded and reported in the same manner. However, during
the commitment period, these investments earn no interest or dividends.
h) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
51
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the portfolio pays Morgan at an annual rate of 0.55% of the portfolio's
average daily net assets. For the fiscal year ended June 30, 1998, such
fees amounted to $2,359,972.
b) The portfolio, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as the co-administrator and
exclusive placement agent. Under a Co-Administration Agreement between FDI
and the portfolio, FDI provides administrative services necessary for the
operations of the portfolio, furnishes office space and facilities
required for conducting the business of the portfolio and pays the
compensation of the portfolio's officers affiliated with FDI. The
portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses.
The amount allocable to the portfolio is based on the ratio of the
portfolio's net assets to the aggregate net assets of the portfolio and
certain other investment companies subject to similar agreements with FDI.
For the fiscal year ended June 30, 1998, the fee for these services
amounted to $8,817.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for certain
aspects of the administration and operation of the portfolio. Under the
Services Agreement, the portfolio has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and the other portfolios for which Morgan acts as investment
advisor (the "master portfolios") and J.P. Morgan Series Trust (formerly
JPM Series Trust) in accordance with the following annual schedule: 0.09%
on the first $7 billion of their aggregate average daily net assets and
0.04% of their aggregate average daily net assets in excess of $7 billion
less the complex-wide fees payable to FDI. The portion of this charge
payable by the portfolio is determined by the proportionate share that its
net assets bear to the net assets of the master portfolios, other
investors in the master portfolios for which Morgan provides similar
services, and J.P. Morgan Series Trust. For the fiscal year ended June 30,
1998, the fee for these services amounted to $127,584.
In addition, Morgan has agreed to reimburse the portfolio to the extent
necessary to maintain the total operating expenses of the portfolio at no
more than 0.65% of the average daily net assets of the portfolio through
October 31, 1998. For the fiscal year ended June 30, 1998, Morgan has
agreed to reimburse the portfolio $247,773 for expenses under this
agreement.
d) The portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the trustees in exercising their overall supervisory
responsibilities for the portfolio's affairs. The trustees of the
portfolio represent all the existing shareholders of Group. The
portfolio's allocated portion of Group's costs in performing its services
amounted to $13,886 for the fiscal year ended June 30, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, the master portfolios and J.P. Morgan Series Trust.
The Trustees' Fees and Expenses shown in the financial statements
represents the portfolio's allocated portion of the total fees and
expenses. The portfolio's Chairman and Chief Executive Officer also serves
52
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
as Chairman of Group and receives compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $2,900.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $169,698,656 $150,976,765
Corporate, Collateralized Obligations and Other
Securities...................................... 355,078,700 184,168,490
------------ ------------
$524,777,356 $335,145,255
------------ ------------
------------ ------------
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the fund's Notes to the Financial
Statements which are included elsewhere in this report.
53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Diversified Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The Diversified Portfolio (the "portfolio")
at June 30, 1998, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the supplementary data for each of the four years in the period then ended
and for the period July 8, 1993 (commencement of operations) through June 30,
1994, in conformity with generally accepted accounting principles. These
financial statements and supplementary data (hereafter referred to as "financial
statements") are the responsibility of the portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1998 by correspondence with the custodians and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
August 18, 1998
54
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
CALIFORNIA MONEY MARKET FUND
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TOTAL RETURN BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
JAPAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
FOR MORE INFORMATION ON THE J.P. MORGAN
FUNDS, CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
J.P. MORGAN
DIVERSIFIED
FUND
ANNUAL REPORT
JUNE 30, 1998
F285A-986
JP285ANNU0898
