<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
CERTIFICATES OF DEPOSIT-FOREIGN (1.9%)
BANKING (1.9%)
$ 5,000,000 Canadian Imperial Bank of Commerce, 6.475% due
01/24/00
(cost $5,062,932).............................. Aa3/AA- $ 5,088,000
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (18.8%)
FINANCIAL SERVICES (18.8%)
3,000,000 Advanta Mortgage Loan Trust, Sequential Payer,
Series 1997-4, Class A4, AS, Callable, 6.66%
due 03/25/22................................... Aaa/AAA 3,074,670
644,279 Bear Stearns Structured Securities, Inc., REMIC:
Sequential Payer, Series 1997-2, Class 1A1,
Callable, (144A), 7.00% due 08/25/36........... Aaa/NR 645,386
1,000,000 CIT RV Trust, Sequential Payer, Series 1997-A,
Class A5, Callable, 6.25% due 11/17/08......... Aaa/AAA 1,024,500
953,888 Commercial Mortgage Acceptance Corp., Sequential
Payer, Series 1997-ML1, Class A1, Partially
Callable, 6.50% due 11/15/04................... Aaa/AAA 979,673
2,599,184 CS First Boston Mortgage Securities Corp.,
Sequential Payer, Series 1997-C1, Class A1A,
Callable, 6.96% due 01/20/04 (t)............... Aaa/AAA 2,677,160
1,488,346 Deutsche Mortgage & Asset Receiving Corp.,
Sequential Payer, Series 1998-C1, Class A1,
Partially Callable, 6.22% due 09/15/07......... Aaa/NR 1,508,578
2,000,000 EQCC Home Equity Loan Trust, Sequential Payer,
Series 1998-1, Class A2F, AS, Callable, 6.136%
due 04/15/09................................... Aaa/AAA 2,020,360
301,168 Fleetwood Credit Corp. Grantor Trust, Sequential
Payer, Series 1994-A, Class A, Callable, 4.70%
due 07/15/09................................... Aaa/AAA 297,316
1,814,486 Fleetwood Credit Corp. Grantor Trust, Sequential
Payer, Series 1997-B, Class A, Callable, 6.40%
due 05/15/13................................... Aaa/AAA 1,862,932
4,800,000 Green Tree Financial Corp., Sequential Payer,
Series 1996-7, Class A4, Callable, 6.80% due
10/15/27....................................... Aaa/AAA 4,960,896
2,500,000 Green Tree Financial Corp., Sequential Payer,
Series 1998-2, Class A4, Callable, 6.08% due
07/01/09....................................... Aaa/AAA 2,565,800
835,917 Green Tree Recreational, Equipment & Consumer
Trust, Sequential Payer, Series 1998-A, Class
A1C, Callable, 6.18% due 06/15/19.............. NR/AAA 835,917
686,353 Green Tree Recreational, Equipment, & Consumer
Trust, Sequential Payer, Series1997-C, Class
A1, Callable, 6.49% due 02/15/18............... NR/AAA 689,064
948,038 Merrill Lynch Mortgage Investors, Inc.,
Sequential Payer, Series 1997-C2, Class A1,
Partially Callable, 6.46% due 12/10/29......... Aaa/AAA 974,849
79,555 Merrill Lynch Mortgage Investors, Inc., Series
1994-C1, Class A, Callable, CSTR, 8.70% due
11/25/20....................................... NR/AAA 79,455
194,958 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, Callable, 8.076% due 06/15/21............... Ba3/NR 187,586
1,000,000 Morgan Stanley Capital I, Sequential Payer,
Series 1997-ALIC, Class A1B, Callable, 6.44%
due 11/15/02................................... Aaa/NR 1,010,000
961,033 Morgan Stanley Capital I, Sequential Payer,
Series 1998-HF1, Class A1, Partially Callable,
6.19% due 01/15/07............................. NR/AAA 976,350
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 225,428 Morgan Stanley Capital I, Sequential Payer,
Series 1998-WF2, Class A1, Partially Callable,
6.34% due 11/15/07............................. NR/NR $ 231,275
1,086,662 Mortgage Capital Funding, Inc., Sequential Payer,
Series 1997-MC1, Class A1, Partially Callable,
7.154% due 01/20/05............................ Aaa/NR 1,128,346
970,016 Mortgage Capital Funding, Inc., Sequential Payer,
Series 1998-MC1, Class A1, Partially Callable,
6.417% due 06/18/07............................ NR/AAA 994,570
115,441 Newcourt Receivables Asset Trust, Sequential
Payer, Series 1996-1, Class A, Callable, 6.79%
due 08/20/03................................... NR/AAA 116,983
221,464 Newcourt Receivables Asset Trust, Sequential
Payer, Series 1996-3, Class A, Callable, 6.24%
due 12/20/04................................... NR/AAA 222,502
1,233,000 Premier Auto Trust, Sequential Payer, Series
1996-3, Class A4, Callable, 6.75% due
11/06/00....................................... Aaa/AAA 1,257,549
2,500,000 Premier Auto Trust, Sequential Payer, Series
1996-4, Class A4, Callable, 6.40% due
10/06/01....................................... Aaa/AAA 2,535,350
5,000,000 Premier Auto Trust, Sequential Payer, Series
1997-2, Class A4, Callable, 6.25% due
06/06/01....................................... Aaa/AAA 5,182,000
2,412,731 Residential Funding Mortgage Securities I, REMIC:
Sequential Payer, Series 1998-S7, Class A1,
Callable, 6.50% due 03/25/13 (t)............... NR/AAA 2,422,910
473,112 Salomon Brothers Mortgage Securities VII, Inc.,
REMIC: Sequential Payer, Series 1997-HUD1,
Class A1, Callable, 6.97% due 12/25/30......... Aaa/NR 474,592
916,667 Sears Credit Acct Master Trust, Series 1994-1,
Class A, Callable, 7.00% due 01/15/04.......... Aaa/AAA 931,242
2,212,856 The Money Store Home Equity Trust, Sequential
Payer, Series 1997-C, Class AF2, AS, Callable,
6.31% due 05/15/08............................. Aaa/AAA 2,234,786
1,000,000 The Money Store Home Equity Trust, Series 1997-B,
Class A8, Callable, NAS, 6.90% due 07/15/38.... Aaa/AAA 1,028,020
2,500,000 Toyota Auto Lease Trust, Sequential Payer, Series
1997-A, Class A2, Callable, 6.35% due
04/26/04....................................... Aaa/AAA 2,538,600
2,000,000 UCFC Home Equity Loan, Sequential Payer,
Series1997-A1, Class A3, AS, Callable, 6.975%
due 04/15/16................................... Aaa/AAA 2,059,000
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$49,117,761)............................... 49,728,217
-------------
CORPORATE OBLIGATIONS (24.8%)
APPARELS & TEXTILES (0.4%)
300,000 Fruit of the Loom, Inc., Refunding, 6.50% due
11/15/03....................................... Ba1/BB+ 290,424
700,000 Fruit of the Loom, Inc., Refunding, 7.875% due
10/15/99....................................... Ba1/BB- 709,688
-------------
1,000,112
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
BANKING (3.5%)
$ 2,000,000 Banc One Corp., MTN, 6.25% due 10/01/01.......... Aa3/A+ $ 2,055,340
1,250,000 First Chicago NBD Corp., Refunding, 8.875% due
03/15/02....................................... A1/A 1,390,787
2,000,000 Nationsbank N.A., 6.75% due 08/15/00............. Aa1/AA- 2,064,580
1,000,000 Nationsbank N.A., Refunding, 8.375% due 03/15/02
(s)............................................ Aa3/A 1,081,360
2,500,000 Nationsbank N.A., Series D, Callable 10/06/00,
MTN, 7.02% due 10/06/05........................ Aa3/A 2,620,450
-------------
9,212,517
-------------
BROADCASTING & PUBLISHING (0.6%)
500,000 Continental Cablevision, Inc., Callable 06/01/99,
Refunding, 11.00% due 06/01/07................. Ba2/BBB- 541,875
1,000,000 TCI Communications, Inc., Series C, MTN, 6.46%
due 03/06/00................................... Baa3/BBB- 1,018,860
-------------
1,560,735
-------------
CHEMICALS (0.4%)
1,000,000 Cytec Industries, Inc., Callable, 6.50% due
03/15/03....................................... Baa2/BBB 954,700
-------------
ELECTRIC (0.4%)
1,000,000 Niagara Mohawk Power Corp., Series B, Callable,
7.00% due 10/01/00............................. Ba3/BB- 1,018,430
-------------
ENTERTAINMENT, LEISURE & MEDIA (0.6%)
1,500,000 News America Holdings, Inc., Refunding, 8.625%
due 02/01/03................................... Baa3/BBB- 1,664,655
-------------
FINANCIAL SERVICES (13.3%)
610,000 Associates Corp. N.A., Putable, 5.96% due
05/15/37....................................... Aa3/AA- 626,848
1,250,000 Banesto Delaware, Inc., Refunding, 8.25% due
07/28/02 (t)................................... A2/NR 1,307,425
1,500,000 Beneficial Corp., MTN, 8.20% due 03/15/02........ A2/A 1,614,120
1,000,000 Beneficial Corp., Series H, MTN, 6.71% due
12/15/03 (s)................................... A2/A 1,066,780
5,000,000 Caterpillar Financial Services Corp., Series F,
MTN, 5.89% due 02/15/00........................ A2/A+ 5,062,750
5,000,000 Caterpillar Financial Services Corp., Series F,
MTN, 6.75% due 06/01/00........................ A2/A+ 5,141,400
1,000,000 Chrysler Financial Co., LLC, Series Q, MTN, 6.61%
due 06/16/00................................... A2/A+ 1,020,430
1,200,000 CIT Group, Inc., MTN, 5.85% due 05/26/00......... Aa3/A+ 1,206,864
1,750,000 CIT Group, Inc., MTN, 7.125% due 06/17/02........ Aa3/A+ 1,830,955
2,500,000 Commercial Credit Co., Refunding, 5.75% due
07/15/00....................................... Aa3/A+ 2,521,425
2,000,000 Enterprise Rent-a-Car USA Finance Co., (144A),
6.375% due 05/15/03 (t)........................ Baa2/BBB 2,021,940
3,000,000 Ford Motor Credit Co., 6.85% due 08/15/00........ A1/A 3,082,290
500,000 GS Escrow Corp., Callable, (144A), 7.00% due
08/01/03....................................... Ba1/BB+ 519,475
1,000,000 Heller Financial, Inc., Series H, MTN, 6.14% due
04/13/00....................................... A3/A- 1,008,850
800,000 Homeside Lending, Inc., MTN, 6.875% due
06/30/02....................................... A1/A+ 839,408
1,500,000 Household Finance Corp., Series E, MTN, 5.52% due
06/17/05 (v)................................... A2/A 1,476,750
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 1,000,000 National City Capital Trust I, Callable, Putable,
6.75% due 06/01/29 (v)......................... NR/A- $ 1,007,623
500,000 National Westminster Bank, Refunding, 9.375% due
11/15/03....................................... Aa3/AA- 576,470
2,000,000 Prudential Funding Corp., MTN, (144A), 6.00% due
05/11/01....................................... A2/A+ 2,037,780
1,100,000 Sears Roebuck Acceptance Corp., Series 2, MTN,
6.85% due 07/03/01............................. A2/A- 1,140,348
-------------
35,109,931
-------------
FOREST PRODUCTS & PAPER (0.6%)
1,375,000 Georgia-Pacific Corp., Refunding, 9.95% due
06/15/02....................................... Baa2/BBB- 1,568,573
-------------
GAS-PIPELINES (0.8%)
1,000,000 Enron Corp., Callable, 6.50% due 08/01/02........ Baa2/BBB+ 1,032,280
1,150,000 KN Energy, Inc., Callable, Putable, 6.30% due
03/01/21....................................... Baa2/BBB- 1,178,279
-------------
2,210,559
-------------
HEALTH & PERSONAL CARE (0.2%)
500,000 Playtex Family Products Corp., Callable 12/15/98,
Refunding, 9.00% due 12/15/03 (s).............. B2/B 499,375
-------------
METALS & MINING (0.4%)
1,150,000 Ryerson Tull, Inc., Callable, 8.50% due
07/15/01....................................... Baa3/BBB 1,174,438
-------------
MISCELLANEOUS (1.1%)
3,000,000 Xerox Corp., Series E, MTN, 5.75% due 07/21/00... A2/A 3,030,000
-------------
OIL-SERVICES (0.9%)
1,500,000 Occidental Petroleum Corp., Series B, Callable
9/15/99, MTN, 8.50% due 09/15/04............... Baa2/BBB 1,535,520
918,268 Oil Purchase Co., Sinking Fund, (144A), 7.10% due
04/30/02 (s)................................... Baa3/BBB 780,528
-------------
2,316,048
-------------
PACKAGING & CONTAINERS (0.3%)
500,000 Stone Container Corp., Callable 02/01/99,
Refunding, 9.875% due 02/01/01 (s)............. B2/B 477,500
500,000 Stone Container Corp., Callable 12/21/98, 12.25%
due 04/01/02 (s)............................... B3/B- 460,000
-------------
937,500
-------------
TELECOMMUNICATIONS (0.4%)
1,000,000 Cox Communications, Inc., 6.375% due 06/15/00.... Baa2/A- 1,020,840
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TELEPHONE (0.5%)
$ 1,350,000 MCI WorldCom, Inc., Callable, Putable, 6.125% due
04/15/12 (s)(v)................................ Baa2/BBB+ $ 1,372,302
-------------
WATER (0.4%)
1,000,000 U.S. Filter Corp., Callable, Putable, (144A),
6.375% due 05/15/11 (v)........................ Ba1/BBB 1,008,430
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$65,280,559)............................... 65,659,145
-------------
FOREIGN CORPORATE OBLIGATIONS (5.5%)
AUSTRALIA (0.8%)
BANKING
2,000,000 Westpac Banking Ltd., Refunding, 9.125% due
08/15/01....................................... A1/A+ 2,197,800
-------------
MEXICO (0.4%)
BANKING
1,000,000 Banco Nacional de Comercio Exterior SNC, Series
E, MTN, 8.00% due 04/14/00 (s)................. Ba2/BB 1,000,000
-------------
NETHERLANDS (1.8%)
FINANCIAL SERVICES
1,000,000 Ford Capital BV, 9.50% due 08/09/00.............. A1/A 1,072,500
2,000,000 ICI Investments BV, Series E, MTN, 6.75% due
08/07/02....................................... Baa1/A- 2,071,250
1,500,000 Westdeutsche Landesbank Girozentale, Curacao NV,
Series E, MTN, Callable 05/20/99, 7.25% due
05/20/02....................................... Aa1/AA+ 1,592,813
-------------
4,736,563
-------------
PANAMA (0.7%)
BANKING
1,000,000 Banco Latinoamericano de Exportaciones, S.A.,
Series 107, (144A), 6.64% due 09/30/02 (s)..... Baa1/BBB 975,850
1,000,000 Banco Lationamericano de Exportaciones, S.A.,
(144A), 6.55% due 04/15/03 (s)................. Baa1/BBB 921,250
-------------
1,897,100
-------------
UNITED KINGDOM (1.2%)
BANKING
1,000,000 Barclays Bank PLC, 5.875% due 07/15/00........... A1/A 1,013,820
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TELEPHONE
$ 1,000,000 British Telecom Finance, Inc., Callable 02/15/99,
Refunding, 9.625% due 02/15/19................. Aa1/AAA $ 1,059,890
1,000,000 Cable & Wireless Communications, Inc., Callable,
6.375% due 03/06/03 (s)........................ Baa1/A- 1,018,410
-------------
3,092,120
-------------
VENEZUELA (0.6%)
FINANCIAL SERVICES
1,550,000 Corporacion Andina de Fomento, 7.375% due
07/21/00....................................... A3/BBB+ 1,560,230
-------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$14,373,881)............................... 14,483,813
-------------
FOREIGN GOVERNMENT OBLIGATIONS (11.0%)
CANADA (0.4%)
1,000,000 Province of Quebec, 7.50% due 07/15/02........... A2/A+ 1,070,110
-------------
FRANCE (1.1%)
FRF 15,000,000 Government of France, 4.75% due 03/12/02......... NR/NR 2,796,940
-------------
GERMANY (9.5%)
DEM 30,700,000 German Unity Fund, 8.00% due 01/21/02............ NR/NR 20,987,213
DEM 6,125,000 German Unity Fund, 8.50% due 02/20/01............ NR/NR 4,106,936
-------------
25,094,149
-------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$28,760,088)............................... 28,961,199
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (30.9%)
FEDERAL HOME LOAN MORTGAGE CORP. (2.5%)
512,907 REMIC: Sequential Payer, Series 1980, Class VA,
Partially Callable, 7.00% due 08/15/02......... 521,570
3,000,000 REMIC: Sequential Payer, Series 2019, Class B,
Partially Callable, 6.50% due 07/15/16 (t)..... 3,015,938
3,129,194 REMIC: Sequential Payer, Series 2061, Class VJ,
Partially Callable, 6.50% due 03/20/03......... 3,206,446
-------------
6,743,954
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (18.5%)
1,895,501 6.50% due 11/20/04............................... 1,931,338
195,750 6.50% due 05/01/28............................... 197,214
127,137 6.50% due 07/01/28............................... 128,088
792,451 6.50% due 09/01/28............................... 798,394
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
- ---------------- ------------------------------------------------- -------------
<C> <S> <C> <C>
$ 76,531 8.50% due 08/01/05............................... $ 79,348
1,267,120 IO, Series 292, Class 2, 7.50% due 11/01/27...... 167,893
1,267,120 PO, Series 292, Class 1, 7.081% due 11/01/27
(t)............................................ 1,131,300
20,000,000 TBA, November, 6.50% due 12/01/13................ 20,293,750
24,000,000 TBA, November, 6.50% due 12/01/28................ 24,187,500
-------------
48,914,825
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (9.9%)
832,427 6.625% due 07/20/27.............................. 842,312
336,926 7.00% due 03/15/09............................... 345,333
396,320 7.00% due 07/15/09............................... 406,399
371,665 7.00% due 02/15/27............................... 380,559
278,563 7.00% due 09/15/27............................... 285,396
289,316 7.00% due 10/15/27............................... 296,419
287,103 7.00% due 02/15/28............................... 293,991
1,099,316 7.00% due 03/15/28............................... 1,125,716
294,245 7.00% due 04/15/28............................... 301,322
3,995,667 7.00% due 06/15/28............................... 4,091,762
1,405,861 7.00% due 07/15/28............................... 1,439,686
1,827,468 7.00% due 08/15/28............................... 1,871,435
3,218,679 7.00% due 09/15/28............................... 3,296,121
10,920,000 TBA, November, 7.00% due 12/01/28................ 11,103,456
-------------
26,079,907
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $81,652,708)......................... 81,738,686
-------------
U.S. TREASURY OBLIGATIONS (17.5%)
U.S. TREASURY NOTES
40,000,000 5.75% due 08/15/03 (s)(t)........................ 42,385,200
1,700,000 6.25% due 02/28/02 (s)........................... 1,796,203
1,900,000 7.875% due 08/15/01.............................. 2,072,672
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$46,301,277)............................... 46,254,075
-------------
<CAPTION>
SHARES SECURITY DESCRIPTION VALUE
- ---------------- ------------------------------------------------- -------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.3%)
FINANCIAL SERVICES (0.3%)
19,774 Equity Residential Properties Trust, Series A,
Callable 06/01/00, 9.375%...................... 503,001
10,000 TCI Communications Financing II, Callable
05/31/01, 10.00%............................... 271,250
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$787,415).................................. 774,251
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
- --------------------------- ------------------------------------------------- -------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (7.3%)
OTHER INVESTMENT COMPANIES (0.0%)
$ 508 Seven Seas Money Market Fund (cost $508)......... $ 508
-------------
REPURCHASE AGREEMENT (7.3%)
19,421,000 Goldman Sachs Repurchase Agreement, 5.38% dated
10/30/98 due 11/02/98, proceeds $19,429,707,
(collateralized by $15,365,000 U.S. Treasury
Bond, 7.50% due 11/15/16, valued at
$19,810,358) (cost $19,421,000)................ 19,421,000
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$19,421,508)............................... 19,421,508
-------------
TOTAL INVESTMENTS (COST $310,758,129) (118.0%)... 312,108,894
LIABILITIES IN EXCESS OF OTHER ASSETS (-18.0%)... (47,625,915)
-------------
NET ASSETS (100.0%).............................. $ 264,482,979
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $310,763,398 for federal income tax
purposes at October 31, 1998, the aggregate gross unrealized appreciation and
depreciation was $2,759,937, and $1,414,441, respectively, resulting in net
unrealized appreciation of $1,345,496.
{::} Denominated in USD unless otherwise indicated.
(s) Security is fully or partially segregated with custodian as collateral for
futures contracts or with brokers as initial margin for futures contracts.
$41,653,573 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 or floating rate instrument or
instrument with step coupon rate.
Abbreviations used in the schedule of investments are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
AS - Accelerated Security
CSTR - Collateral Strip Rate
DEM - German Mark
FRF - French Franc
IO - Interest Only
MTN - Medium Term Note
NAS - Non-Accelerated Security
NR - Not Rated
PO - Principal Only
Refunding - Bonds for which the issuer has issued new bonds and cancelled the
old issue.
REMIC - Real Estate Mortgage Investment Conduit
TBA - Security 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.
25
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $310,758,129 ) $312,108,894
Receivable for Investments Sold 8,562,785
Interest Receivable 3,796,808
Unrealized Appreciation of Forward Foreign
Currency Contracts 638,191
Variation Margin Receivable 59,062
Receivable for Expense Reimbursement 45,616
Prepaid Trustees' Fees 595
Prepaid Expenses and Other Assets 1,187
------------
Total Assets 325,213,138
------------
LIABILITIES
Payable to Custodian 5,802
Payable for Investments Purchased 60,618,413
Advisory Fee Payable 56,169
Custody Fee Payable 20,361
Administrative Services Fee Payable 6,331
Administration Fee Payable 561
Fund Services Fee Payable 230
Accrued Expenses 22,292
------------
Total Liabilities 60,730,159
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $264,482,979
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income $ 29,422
Interest Income 7,820,401
-----------
Investment Income 7,849,823
EXPENSES
Advisory Fee $ 322,384
Custodian Fees and Expenses 76,595
Administrative Services Fee 37,243
Professional Fees and Expenses 36,098
Fund Services Fee 3,458
Administration Fee 2,401
Amortization of Organization Expenses 933
Trustees' Fees and Expenses 830
Miscellaneous 8,700
----------
Total Expenses 488,642
Less: Reimbursement of Expenses (166,257)
----------
NET EXPENSES 322,385
-----------
NET INVESTMENT INCOME 7,527,438
NET REALIZED GAIN (LOSS) ON
Investment Transactions 1,919,903
Futures Contracts (304,389)
Foreign Currency Contracts and Transactions (535,548)
----------
Net Realized Gain 1,079,966
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments 1,304,555
Futures Contracts 21,455
Foreign Currency Contracts and Translations 630,899
----------
Net Change in Unrealized Appreciation 1,956,909
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $10,564,313
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 7,527,438 $ 2,273,493
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 1,079,966 79,239
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations 1,956,909 (139,526)
---------------- ----------------
Net Increase in Net Assets Resulting from
Operations 10,564,313 2,213,206
---------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 263,906,334 30,736,099
Withdrawals (51,939,489) (17,029,595)
---------------- ----------------
Net Increase from Investors' Transactions 211,966,845 13,706,504
---------------- ----------------
Total Increase in Net Assets 222,531,158 15,919,710
NET ASSETS
Beginning of Fiscal Year 41,951,821 26,032,111
---------------- ----------------
End of Fiscal Year $ 264,482,979 $ 41,951,821
---------------- ----------------
---------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
OCTOBER 31,
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.25% 0.25% 0.38% 0.42% 0.36%
Net Investment Income 5.84% 6.17% 5.65% 6.11% 5.01%
Expenses without Reimbursement 0.38% 0.55% 0.61% 0.46% 0.41%
Portfolio Turnover 381% 219% 191% 177% 230%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 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, 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
29
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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.
b) The books and records of the portfolio are maintained in U.S. dollars. The
market value of foreign 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. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount becomes 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 $5,380 which
were deferred and are being 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.
30
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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 October 31, 1998, the portfolio had open forward
foreign currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR
SETTLEMENT VALUE AT NET UNREALIZED
SALES CONTRACTS VALUE 10/31/98 APPRECIATION
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
German Mark 43,940,068, expiring 2/12/99......... $27,243,082 $26,651,827 $ 591,255
French Franc 15,169,273, expiring 2/12/99........ 2,789,392 2,742,456 46,936
--------------
Net Unrealized Appreciation on Forward Foreign
Currency Contracts.............................. $ 638,191
--------------
--------------
</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 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. Open futures contracts at October 31,
1998 are summarized as follows:
SUMMARY OF OPEN CONTRACTS AT OCTOBER 31, 1998
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS SHORT (DEPRECIATION) OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
U.S. Ten Year Note, expiring December 1998....... 70 $ 21,455 $ 8,443,330
--------------- -------------- ----------------
--------------- -------------- ----------------
</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
31
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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) Prior to October 28, 1998, the portfolio had an Investment Advisory
Agreement with Morgan Guaranty Trust Company of New York ("Morgan"), a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan").
Under the terms of the agreement, the portfolio paid Morgan at an annual
rate of 0.25% of the portfolio's average daily net assets. Effective
October 28, 1998, the portfolio's Investment Advisor is J.P. Morgan
Investment Management Inc. ("JPMIM"), an affiliate of Morgan and a wholly
owned subsidiary of J.P. Morgan, and the terms of the agreement will
remain the same. For the fiscal year ended October 31, 1998, such fees
amounted to $322,384.
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 October 31, 1998, the fee for theses services
amounted to $2,401.
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 certain other portfolios for which JPMIM acts as investment
advisor (the "master portfolios") and J.P. Morgan 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 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 October 31, 1998, the fee for
these services amounted to $37,243.
32
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
In addition, J.P. 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. This reimbursement arrangement can be changed
or terminated at any time after February 28, 1999 at the option of J.P.
Morgan. For the fiscal year ended October 31, 1998, J.P. Morgan has agreed
to reimburse the portfolio $166,257 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 $3,458 for the fiscal year ended October 31, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of 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 $720.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $446,146,075 $333,251,314
Corporate, Collateralized Mortgage Obligations,
and Other Securities............................ 291,606,598 153,357,436
------------ ------------
$737,752,673 $486,608,750
------------ ------------
------------ ------------
</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.
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Short Term Bond 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 Short Term Bond Portfolio (the
"portfolio") at October 31, 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 its supplementary data for each of the five years in the
period then ended, 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 October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1998
34
