<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (17.7%)
FINANCIAL SERVICES (17.7%)
$ 1,499,996 AFC Home Equity Loan Trust, Series 1997-3, Class
1A4, 7.07%
due 09/27/27................................... Aaa/AAA $ 1,521,559
867,027 Bear Stearns Structured Securities Inc.,
Sequential Payer, Series 1997-2,
Class 1A1, Callable, (144A), 7.00% due
08/25/36....................................... Aaa/NR 870,549
2,771,255 CS First Boston Mortgage Securities Corp.,
Sequential Payer, Series 1997-C1, Class A1A,
Callable, 6.96% due 01/20/04 (t)............... Aaa/AAA 2,831,011
1,529,854 Deutsche Mortgage & Asset Receiving Corp., Series
98-C1, 6.22%
due 06/15/31................................... Aaa/NR 1,530,212
354,265 Fleetwood Credit Corp. Grantor Trust, Sequential
Payer, Series 1994-A,
Class A, Callable, 4.70% due 07/15/09.......... Aaa/AAA 346,669
327,923 Green Tree Financial Corporation, Series 1995-8,
Class A2, Callable, 6.15% due 12/15/26......... Aaa/AAA 328,739
1,500,000 Green Tree Home Equity Loan Trust, Sequential
Payer, Series 1998-A,
Class A2, Callable, 6.04% due 06/15/29......... NR/AAA 1,490,100
203,186 Green Tree Home Improvement Loan Trust,
Sequential Payer, Series 1995-D, Class A2,
Callable, 6.25% due 09/15/25................... Aaa/NR 204,303
979,186 Green Tree Recreational, Equipment & Consumer
Trust, Sequential Payer, Series 1998-A, Class
A1C, Callable, 6.18% due 06/15/19.............. NR/AAA 978,268
979,448 Merrill Lynch Mortgage Investors, Inc.,
Sequential Payer, Series 1997-C2, Class A1,
6.46% due 12/10/29............................. Aaa/AAA 989,089
164,310 Merrill Lynch Mortgage Investors, Inc.,
Collateral Strip Interest,
Series 1994-C1, Class A, Callable, 8.66% due
11/25/20....................................... NR/AAA 164,567
222,110 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, Callable, 8.25% due 06/15/21................ Ba3/NR 220,722
1,000,000 Morgan Stanley Capital I, Sequential Payer, Class
1997-ALIC, Class A1B, Callable, 6.44% due
01/15/28....................................... Aaa/NR 997,500
1,000,000 Mortgage Capital Funding, Inc., Sequential Payer,
Series 1998-MCI, Class 1, 6.417% due
03/18/30....................................... NR/AAA 1,005,000
195,299 Newcourt Receivables Asset Trust, Sequential
Payer, Series 1996-1, Class A, Callable, 6.79%
due 08/20/03................................... NR/AAA 196,313
329,890 Newcourt Receivables Asset Trust, Sequential
Payer, Series 1996-3, Class A, Callable, 6.24%
due 12/20/04................................... NR/AAA 330,251
400,000 Niantic Bay Fuel Trust, 9.02% due 06/05/98....... NR/NR 397,000
2,582,658 Residential Funding Mortgage Securities I, REMIC:
Sequential Payer,
Series 1998-S7, Class A1, Callable, 6.50% due
03/25/13 (t)................................... NR/AAA 2,571,763
686,098 Salomon Brothers Mortgage Securities VII Inc.,
Sequential Payer, Series 1997-HUD1, Class A1,
Callable, 6.97% due 12/25/30................... Aaa/NR 690,880
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$17,654,962)............................... 17,664,495
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
CORPORATE OBLIGATIONS (32.8%)
APPARELS & TEXTILES (1.5%)
$ 1,000,000 Fruit of the Loom Inc., 7.875% due 10/15/99...... Ba1/BBB- $ 1,012,600
400,000 Westpoint Stevens Inc., Callable, 9.375% due
12/15/05 (s)................................... B2/BB- 435,000
-------------
1,447,600
-------------
BANKING (4.4%)
2,000,000 Banc One Corp, MTN, 6.25% due 10/01/01........... Aa3/AA- 2,004,080
1,000,000 Citicorp, Series F, MTN, 6.38% due 11/12/02...... Aa3/A+ 1,006,790
1,250,000 First Chicago NBD Corp., 8.875% due 03/15/02
(s)............................................ A2/A 1,359,750
-------------
4,370,620
-------------
CHEMICALS (1.0%)
1,000,000 Cytec Industries, Inc., Callable, 6.50% due
03/15/03 (s)................................... Baa2/BBB 992,880
-------------
COMPUTER SYSTEMS (0.8%)
750,000 Computer Associates Intl., Inc., Callable,
(144A), 6.25% due 04/15/03..................... Baa1/A- 745,575
-------------
FINANCIAL SERVICES (15.7%)
610,000 Associates Corp. North America, 5.96% due
05/15/37....................................... Aa3/AA- 613,477
1,250,000 Banesto Delaware Inc., 8.25% due 07/28/02 (t).... A3/NR 1,333,537
1,500,000 Beneficial Corp., MTN, 8.20% due 03/15/02........ A2/A 1,597,725
1,750,000 CIT Group Holdings, MTN, 7.125% due 06/17/02
(s)............................................ Aa3/A+ 1,806,683
1,300,000 General Motors Acceptance Corp., MTN, 6.85% due
04/17/01....................................... A3/A 1,324,492
800,000 Homeside Lending Inc., MTN, 6.875% due
06/30/02....................................... Baa2/BBB 813,904
1,000,000 Household Finance Corp., Series E, MTN, 6.125%
due 02/27/03................................... A2/A 988,830
2,000,000 ICI Investments, Series E, MTN, 6.75% due
08/07/02 (s)................................... Baa1/A- 2,026,380
1,000,000 National City Capital Trust I, Callable, Putable,
6.75% due 06/01/29 (v)......................... NR/A- 1,007,300
1,100,000 Sears Roebuck Acceptance Corp., Series 2, MTN,
6.85% due 07/03/01 (s)......................... A2/A- 1,120,108
1,000,000 Sears Roebuck Acceptance Corp., Series 3, MTN,
7.24% due 04/21/03 (s)......................... A2/A- 1,035,130
1,000,000 Sears Roebuck Acceptance Corp., Series 3, MTN,
7.03% due 06/04/03 (s)......................... A2/A- 1,029,620
1,000,000 Westinghouse Credit Corp., MTN, 9.01% due
05/18/98....................................... Ba1/BB 1,001,300
-------------
15,698,486
-------------
FOREST PRODUCTS & PERSONAL CARE (1.5%)
1,375,000 Georgia-Pacific Corp., 9.95% due 06/15/02........ Baa2/BBB- 1,541,705
-------------
HEALTH & PERSONAL CARE (0.5%)
500,000 Playtex Products, Inc., Callable 12/15/98, 9.00%
due 12/15/03................................... B2/B 512,500
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
HEALTH SERVICES (0.6%)
$ 500,000 Tenet Healthcare Corp., Callable 03/01/00,
10.125% due 03/01/05........................... Ba3/NR $ 556,615
-------------
MISCELLANEOUS (1.0%)
1,000,000 Beckman Instruments Inc., Callable, (144A), 7.10%
due 03/04/03 (t)............................... Ba1/BB+ 996,550
-------------
OIL-SERVICES (1.0%)
1,000,000 Oil Purchase Co., Sinking Fund, (144A), 7.10% due
04/30/02....................................... Baa3/BBB 1,002,500
-------------
PACKAGING & CONTAINERS (1.0%)
500,000 Stone Container Corp., Callable 02/01/99, 9.875%
due 02/01/01................................... B2/B 514,375
500,000 Stone Container Corp., Series B, Callable
12/05/97, 12.25% due 04/01/02.................. B3/B- 515,625
-------------
1,030,000
-------------
TELECOMMUNICATIONS (2.9%)
1,350,000 MCI Communications Corp., Callable, Putable,
6.125% due 04/15/02 (v)........................ Baa2/A 1,342,724
1,500,000 TCI Communications Inc., Series B, MTN, 7.35% due
08/27/01....................................... Baa3/BBB- 1,550,055
-------------
2,892,779
-------------
TELEPHONE (0.9%)
865,000 US West Capital Funding Inc., 6.85% due
01/15/02....................................... Baa1/BBB+ 878,935
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$32,717,279)............................... 32,666,745
-------------
FOREIGN CORPORATE OBLIGATIONS (13.2%)
AUSTRALIA (1.4%)
BANKING
1,250,000 Westpac Banking Ltd., 9.125% due 08/15/01 (s).... A1/A+ 1,356,738
-------------
BRAZIL (0.4%)
BANKING
200,000 Banco do Brasil S.A., (144A), 9.00% due
08/05/98....................................... NR/NR 201,004
FINANCIAL SERVICES
200,000 Safra Leasing S.A., (144A), 8.125% due
06/16/05....................................... B1/NR 192,000
-------------
393,004
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
CANADA (0.2%)
FOREST PRODUCTS & PAPER
$ 200,000 Canadian Pacific Forest Products Ltd., 9.25% due
06/15/02....................................... Baa3/NR $ 214,132
-------------
CAYMAN ISLANDS (0.7%)
FINANCIAL SERVICES
715,000 Cheung Kong Finance Cayman, 5.50% due 09/30/98... NR/NR 704,275
-------------
JAPAN (1.0%)
ELECTRIC
1,000,000 Chugoku Electric Power Co., 8.00% due 02/23/00... Aa1/AA 1,029,375
-------------
MEXICO (1.0%)
BANKING
1,000,000 Banco Nacional de Comercio Exterior SNC, Series
E, MTN, 8.00%
due 04/14/00................................... Ba2/BB 1,007,500
-------------
NETHERLANDS (2.6%)
FINANCIAL SERVICES
1,000,000 Ford Capital BV, 9.50% due 08/09/00.............. A1/A 1,065,000
1,500,000 Westdeutsche Landesbank Girozentale, Curacao NV,
Series E, MTN,
Callable 05/20/99, 7.25% due 05/20/02.......... Aa1/AA+ 1,518,750
-------------
2,583,750
-------------
PANAMA (2.0%)
BANKING
1,000,000 Banco Latinoamericano de Exportaciones, S.A.,
(144A), 6.55%
due 04/15/03................................... Baa2/BBB 989,150
1,000,000 Banco Latinoamericano de Exportaciones, S.A..
(144A), 6.64%
due 09/30/02................................... Baa2/BBB 995,150
-------------
1,984,300
-------------
SOUTH KOREA (1.0%)
BANKING
1,000,000 Export Import Bank of Korea, 9.00% due
05/01/98....................................... Ba1/BB+ 1,000,000
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
UNITED KINGDOM (2.1%)
TELEPHONE
$ 1,000,000 British Telecom Finance Inc., Callable 02/15/99,
9.625% due 02/15/19 (s)........................ Aa1/AAA $ 1,073,090
1,000,000 Cable & Wireless Communications Inc., Callable,
6.375% due 03/06/03............................ Baa1/A- 998,820
-------------
2,071,910
-------------
VENEZUELA (0.8%)
FINANCIAL SERVICES
800,000 Corporacion Andina de Fomento, 7.375% due
07/21/00....................................... A3/BBB+ 816,056
-------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$13,168,641)............................... 13,161,040
-------------
FOREIGN GOVERNMENT OBLIGATIONS (8.2%)
CANADA (2.1%)
2,000,000 Province of Quebec, 9.125% due 03/01/00 (t)...... A2/A+ 2,103,940
-------------
FRANCE (3.0%)
FRF 18,000,000 Government of France, 4.75% due 03/12/02......... Aaa/AAA 3,008,792
-------------
GERMANY (3.1%)
DEM 5,000,000 Government of Germany, 8.50% due 02/20/01........ Aaa/AAA 3,079,134
-------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$8,211,549)................................ 8,191,866
-------------
SOVEREIGN BONDS (0.5%)
PANAMA (0.5%)
515,000 Republic of Panama, (144A), 7.875% due 02/13/02
(cost $519,402)................................ Ba1/BB+ 515,000
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (21.6%)
FEDERAL HOME LOAN MORTGAGE CORP. (3.6%)
571,236 7.00% due 08/15/02............................... 578,325
2,983,750 REMIC: Sequential Payer, Series 2019, Class B,
6.50% due 07/15/16 (t)......................... 2,979,088
-------------
3,557,413
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (11.1%)
46,528 8.00% due 12/01/07............................... 47,885
710,321 8.00% due 12/01/09............................... 731,513
401,879 8.00% due 05/01/10............................... 413,846
82,396 8.50% due 08/01/05............................... 85,429
8,150,000 TBA, May, 7.00% due 5/15/13...................... 8,300,266
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
- --------------------------- ------------------------------------------------- -------------
<C> <S> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 1,442,264 IO, 7.50% due 12/31/99........................... $ 351,101
1,442,264 PO, Zero Coupon, due 12/31/99 (t)................ 1,129,031
-------------
11,059,071
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (6.9%)
942,549 6.00% due 07/20/27............................... 958,455
408,978 7.00% due 03/15/09............................... 418,071
409,445 7.00% due 07/15/09............................... 418,641
5,000,000 TBA, April, 7.50% due 05/15/28................... 5,135,938
-------------
6,931,105
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $21,499,747).......................... 21,547,589
-------------
U.S. TREASURY OBLIGATIONS (4.1%)
U.S. TREASURY NOTES
2,000,000 6.25% due 08/31/02 (t)........................... 2,043,820
1,900,000 7.875% due 08/15/01.............................. 2,025,609
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$4,078,423)................................. 4,069,429
-------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- --------------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK (0.5%)
FINANCIAL SERVICES (0.5%)
19,774 Equity Residential Properties Trust, Series A,
Callable 06/01/00, 9.375% (cost $514,915)...... 511,652
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::}
- ---------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (18.4%)
COMMERCIAL PAPER -- DOMESTIC (12.4%)
$ 2,000,000 CVS Corp., 5.80% due 5/14/98 (y)................. 1,995,847
3,000,000 CVS Corp., 5.80% due 5/18/98 (y)................. 2,991,854
1,750,000 Sumitomo Capital, 5.90% due 6/4/98 (y)........... 1,745,625
2,000,000 Texas Utilities Co., 5.83% due 5/13/98 (s) (y)... 1,996,114
1,676,000 Union Pacific Resources Group, 5.76% due 5/18/98
(y)............................................ 1,671,441
2,000,000 Williams Holdings of Delaware, 5.00% due 5/1/98
(t) (y)........................................ 2,000,000
-------------
TOTAL COMMERCIAL PAPER (COST $12,403,296).... 12,400,881
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
- --------------------------- ------------------------------------------------- -------------
<C> <S> <C>
OTHER INVESTMENT COMPANIES (0.0%)
$ 202 Seven Seas Money Market Fund (cost $202)......... $ 202
-------------
</TABLE>
<TABLE>
<C> <S> <C>
REPURCHASE AGREEMENT (6.0%)
5,996,000 Goldman Sachs Repurchase Agreement, 5.52% dated
4/30/98 due 5/1/98, proceeds $5,996,919,
(collateralized by $3,909,000 FHLMC, 6.62% due
3/17/08, valued at $3,869,696; $2,255,000 FHLB,
5.53% due 1/15/03, valued at $2,249,861) (cost
$5,996,000).................................... 5,996,000
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$18,399,498)................................ 18,397,083
-------------
TOTAL INVESTMENTS (COST $116,764,416) (117.0%)... 116,724,899
LIABILITIES IN EXCESS OF OTHER ASSETS (-17.0%)... (16,993,784)
-------------
NET ASSETS (100.0%).............................. $ 99,731,115
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $116,790,823 for federal income tax
purposes at April 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $248,998 and $314,923, respectively, resulting in net
unrealized depreciation of $65,925.
{::} Denominated in USD unless otherwise indicated.
(s) Security is fully or partially segragated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$14,231,493 of the market value has been segregated.
(t) All or a portion of the security has been segregated as collateral for TBA
securities.
(v) Rate shown reflects current rate on variable rate instrument.
(y) Yield to Maturity
Abbreviations used in the schedule of investments are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
CSTR - Collateral Strip Rate
DEM - German Mark
FRF - French Franc
IO - Interest Only
MTN - Medium Term Note
NR - Not Rated
PO - Principal Only
REMIC - Real Estate Mortgage Investment Conduit
TBA - Security purchased on a forward commitment basis with an appropriate
amount and no definitive maturity. The actual principal amount and maturity will
be determined upon settlement date.
USD - United States Dollar
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $116,764,416 ) $116,724,899
Receivable for Investments Sold 1,752,850
Interest Receivable 1,410,258
Unrealized Appreciation of Forward Foreign
Currency Contracts 66,945
Receivable for Expense Reimbursement 12,834
Deferred Organization Expenses 255
Prepaid Trustees' Fees 47
Prepaid Expenses and Other Assets 52
------------
Total Assets 119,968,140
------------
LIABILITIES
Payable for Investments Purchased 20,059,069
Variation Margin Payable 103,985
Advisory Fee Payable 19,791
Unrealized Depreciation of Forward Foreign
Currency Contracts 7,395
Administrative Services Fee Payable 2,304
Custody Fee Payable 555
Fund Services Fee Payable 315
Administration Fee Payable 83
Accrued Expenses 43,528
------------
Total Liabilities 20,237,025
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $ 99,731,115
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $2,533,848
EXPENSES
Advisory Fee $ 98,805
Custodian Fees and Expenses 22,515
Professional Fees and Expenses 16,794
Administrative Services Fee 11,786
Fund Services Fee 1,181
Administration Fee 814
Amortization of Organization Expense 679
Trustees' Fees and Expenses 450
Miscellaneous 3,983
--------
Total Expenses 157,007
Less: Reimbursement of Expenses (58,203)
--------
NET EXPENSES 98,804
----------
NET INVESTMENT INCOME 2,435,044
NET REALIZED GAIN (LOSS) ON
Investment Transactions 58,902
Futures Contracts 39,747
Foreign Currency Contracts and Transactions (40,616)
--------
Net Realized Gain 58,033
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments (85,727)
Futures Contracts 3,333
Foreign Currency Contracts and Translations 51,705
--------
Net Change in Unrealized Depreciation (30,689)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $2,462,388
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1997
------------ ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 2,435,044 $ 2,273,493
Net Realized Gain on Investments and Foreign
Currency Contracts and Translations 58,033 79,239
Net Change in Unrealized Depreciation of
Investments and Foreign Currency Contracts and
Translations (30,689) (139,526)
------------ ----------------
Net Increase in Net Assets Resulting from
Operations 2,462,388 2,213,206
------------ ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 68,461,410 30,736,099
Withdrawals (13,144,504) (17,029,595)
------------ ----------------
Net Increase from Investors' Transactions 55,316,906 13,706,504
------------ ----------------
Total Increase in Net Assets 57,779,294 15,919,710
NET ASSETS
Beginning of Period 41,951,821 26,032,111
------------ ----------------
End of Period $ 99,731,115 $ 41,951,821
------------ ----------------
------------ ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FISCAL YEAR ENDED JULY 8, 1993
SIX MONTHS ENDED OCTOBER 31, (COMMENCEMENT OF
APRIL 30, 1998 ------------------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 1995 1994 OCTOBER 31, 1993
---------------- ---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.25%(a) 0.25% 0.38% 0.42% 0.36% 0.37%(a)
Net Investment Income 6.16%(a) 6.17% 5.65% 6.11% 5.01% 3.99%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.15%(a) 0.30% 0.23% 0.04% 0.05% 1.00%(a)
Portfolio Turnover 198%(b) 219% 191% 177% 230% 116%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Short Term Bond Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a no-load, 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 while attempting to limit the likelihood of negative quarterly returns.
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 each 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-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.
26
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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 expenses 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. 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 $5,380.
Morgan Guaranty Trust Company of New York ("Morgan") has paid the
organization expenses of the fund. The fund has agreed to reimburse Morgan
for these costs 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 fund.
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 April 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 4/30/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
French Franc 12,076,130 expiring 05/20/98........ $ 1,977,716 $ 2,009,041 $ 31,325
Japanese Yen 265,000,000 expiring 07/01/98....... 2,018,279 2,023,246 4,967
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- ------------------------------------------------- -------------------
<S> <C> <C> <C>
French Franc 12,076,130 expiring 05/20/98........ $ 2,001,646 $2,009,041 $ (7,395)
French Franc 18,300,000 expiring 07/31/98........ 3,072,429 3,056,667 15,762
German Mark 5,627,639 expiring 07/30/98.......... 3,159,642 3,151,612 8,030
Japanese Yen 265,000,000 expiring 07/01/98....... 2,030,107 2,023,246 6,861
--------------
Net Unrealized Appreciation on Forward Foreign
Currency Contracts.............................. $ 59,550
--------------
--------------
</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 contract. Upon entering into such a contract the
portfolio is required to pledge to the
27
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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 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 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. Futures transactions
during the six months ended April 30,1998 are summarized as follows:
SUMMARY OF OPEN CONTRACTS AT APRIL 30, 1998
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS SHORT (DEPRECIATION) OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
U.S. Five Year Note, expiring June 1998.......... 176 $ 4,360 $ 19,169,111
U.S. Two Year Note, expiring June 1998........... 15 (1,027) 3,118,269
--------------- -------------- ----------------
Totals........................................... 191 $ 3,333 $ 22,287,380
--------------- -------------- ----------------
--------------- -------------- ----------------
</TABLE>
g) The fund 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.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with Morgan. Under the
terms of the agreement, the portfolio pays Morgan at an annual rate of
0.25% of the portfolio's average daily net assets. For the six months
ended April 30,1998, such fees amounted to $98,805.
b) The portfolio 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 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 six months ended April 30,1998, the fee for
theses services amounted to $814.
28
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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 six months ended April 30,
1998, the fee for these services amounted to $11,786.
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 0.25% of the average daily net assets of the portfolio through
February 28, 1999. For the six months ended April 30, 1998, Morgan has
agreed to reimburse the portfolio $58,202 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 $1,181 for the six months ended April 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
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 $200.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $ 94,707,572 $ 85,316,746
Corporate and Collateralized Mortgage
Obligations..................................... 114,325,361 61,937,824
------------ ------------
$209,032,933 $147,254,570
------------ ------------
------------ ------------
</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.
29
