<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (29.9%)
FINANCIAL SERVICES (29.9%)
$ 3,000,000 Advanta Mortgage Loan Trust, Sequential Payer,
Series 1997-4, Class A4, 6.660% due 03/25/22... Aaa/AAA $ 2,942,917
2,500,000 Americredit Automobile Receivables Trust,
Sequential Payer, Series 1999-B, Class A4,
5.960% due 03/12/06............................ Aaa/AAA 2,434,375
4,000,000 AT&T Universal Card Master Trust, Series 1995-2,
Class A, 5.950% due 10/17/02................... Aaa/AAA 3,987,480
161,828 Bear Stearns Structured Securities, Inc., REMIC:
Sequential Payer, Series 1997-2, Class 1A1,
(144A), 7.000% due 08/25/36.................... Aaa/NR 161,373
10,000,000 Capital Auto Receivables Asset Trust, Sequential
Payer, Series 1999-2, Class A5, 6.450% due
01/15/05....................................... Aaa/NR 9,953,125
10,000,000 Chase Credit Card Master Trust, Series 1997-2,
Class A, 6.300% due 04/15/03................... Aaa/AAA 10,003,100
2,480,269 Chase Manhattan Bank - First Union National,
Sequential Payer, Series 1999-1, Class A1,
7.134% due 07/15/07............................ NR/AAA 2,486,470
2,000,000 CIT RV Trust, Series 1999-A, 7.210% due
11/15/19....................................... Baa3/BBB 1,926,875
2,750,000 Comed Transitional Funding Trust, Sequential
Payer, Series 1998-1, Class A5, 5.440% due
03/25/07....................................... Aaa/AAA 2,593,387
894,489 Commercial Mortgage Acceptance Corp., Sequential
Payer, Series 1997-ML1, Class A1, 6.500% due
11/15/04....................................... Aaa/AAA 877,857
8,000,000 Distribution Financial Services Trust, Sequential
Payer, Series 1999-3, Class A4, 6.650% due
03/15/11....................................... AAA/Aaa 7,975,000
7,412,186 First Union - Lehman Brothers - Bank of America,
REMIC: Sequential Payer, Series 1998-C2, Class
A1, 6.280% due 06/18/07........................ Aaa/AAA 7,199,086
5,000,000 First USA Credit Card Master Trust, Series
1994-7, Class B, 5.838% due 06/17/02........... Aa3/A+ 5,000,000
3,500,000 First USA Credit Card Master Trust, Series
1999-4, Class C, 6.059% due 01/19/05........... NR/BBB 3,467,187
3,421,789 Green Tree Financial Corp., Sequential Payer,
Series 1996-7, Class A4, 6.800% due 10/15/27... Aaa/AAA 3,423,911
4,900,000 Green Tree Financial Corp., Sequential Payer,
Series 1998-2, Class A4, 6.080% due 07/01/09... Aaa/AAA 4,881,625
436,381 Green Tree Recreational Equipment & Consumer
Trust, Sequential Payer, Series 1997-C, Class
A1, 6.490% due 02/15/18........................ NR/AAA 433,260
5,000,000 MBNA Master Credit Card Trust, Series 1996-K,
Class A, 5.536% due 03/15/06(v)................ Aaa/AAA 4,987,500
2,500,000 MBNA Master Credit Card Trust, Series 1996-L,
Class B, 5.693% due 11/15/01(v)................ A2/A+ 2,498,425
156,028 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, (144A), 7.878% due 06/15/21 (v)............. Ba2/NR 142,644
5,000,000 Metris Master Trust, Series 1996-1, Class B,
6.800% due 02/20/02............................ A2/A 5,001,550
1,000,000 Morgan Stanley Capital I, Sequential Payer,
Series 1997, Class A1B, 6.440% due 11/15/02.... Aaa/NR 997,812
2,530,000 Newcourt Equipment Trust Securities, Sequential
Payer, Series 1999-1, Class A2, 6.310% due
08/20/01....................................... Aaa/AAA 2,525,256
5,000,000 Peco Energy Transition Trust, Series 1999-A,
Class A5, 5.260% due 03/01/09 (v).............. Aaa/AAA 4,951,550
4,717,157 Providian Home Equity Loan Trust, Series 1999-1,
Class A, 5.699% due 06/25/25(v)................ Aaa/AAA 4,708,289
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 1,007,555 Residential Funding Mortgage Securities I, REMIC:
Sequential Payer, Series 1998-S7, Class A1,
6.500% due 03/25/13............................ NR/AAA $ 983,303
7,000,000 Sears Credit Account Master Trust, Series 1995-5,
Class A , 6.050% due 01/15/08.................. Aaa/AAA 6,864,340
4,000,000 Sears Credit Account Master Trust, Series 1999-1,
Class A, 5.650% due 03/17/09................... Aaa/AAA 3,770,000
4,800,000 Sears Credit Account Master Trust, Series 1999-2,
Class A, 6.350% due 02/15/07................... Aaa/AAA 4,766,250
856,731 UCFC Home Equity Loan, Sequential Payer,
Series1997-A1, Class A3, 6.975% due 04/15/16... Aaa/AAA 855,810
5,000,000 WFS Financial Owner Trust, Sequential Payer,
Series 1999-B, Class A3, 6.320% due 10/20/03... Aaa/AAA 4,957,812
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$118,563,000).............................. 117,757,569
------------
CORPORATE OBLIGATIONS (31.7%)
AEROSPACE (0.2%)
1,000,000 Lockheed Martin Corp., 7.450% due 06/15/04....... Baa3/BBB- 1,002,130
------------
BANKING (8.4%)
1,250,000 Banesto Delaware, Inc., 8.250% due 07/28/02...... A2/NR 1,278,012
2,500,000 Bank One Corp., 6.875% due 08/01/06.............. Aa3/A+ 2,457,087
1,000,000 BankAmerica Corp., 8.375% due 03/15/02........... Aa3/A 1,034,350
10,500,000 Chase Manhattan Corp., MTN, Series C, 5.730% due
11/24/00 (v)................................... Aa3/A+ 10,571,925
5,000,000 Comerica Bank, 5.410% due 06/12/00 (v)........... A1/A 4,996,797
1,250,000 First Chicago NBD Corp., 8.875% due 03/15/02..... A1/A 1,309,162
5,000,000 Fleet National Bank, 5.438% due 02/01/02......... A1/A+ 4,990,250
500,000 National Westminster Bank, 9.375% due 11/15/03... Aa3/AA- 538,975
1,000,000 Nationsbank Corp., Series E, MTN, 5.750% due
01/25/01....................................... Aa2/A+ 993,550
5,000,000 U.S. National Bank Association, 5.478% due
07/18/01....................................... Aa3/A+ 4,987,600
------------
33,157,708
------------
CHEMICALS (0.2%)
1,000,000 Cytec Industries, Inc., 6.500% due 03/15/03...... Baa2/BBB 948,870
------------
COMMERCIAL SERVICES (0.8%)
3,000,000 Cendant Corp., 7.750% due 12/01/03............... Baa1/BBB 2,979,540
------------
ELECTRIC (0.2%)
756,098 Niagara Mohawk Power Corp., Series B, 7.000% due
10/01/00....................................... Baa3/BBB- 758,230
------------
ENTERTAINMENT, LEISURE & MEDIA (0.4%)
1,500,000 News America Holdings, Inc., 8.625% due
02/01/03....................................... Baa3/BBB- 1,557,960
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (15.3%)
$ 5,000,000 Associates Corp. N.A., 5.500% due 02/15/04....... Aa3/AA- $ 4,753,100
5,000,000 Associates Corp. N.A., 5.613% due 06/14/01(v).... Aa3/AA- 4,999,783
610,000 Associates Corp. N.A., 5.960% due 05/15/37....... Aa3/AA- 609,884
5,000,000 AT&T Capital Corp., Series F, MTN, 6.963% due
06/14/00 (v)................................... A1/BBB 5,029,500
1,500,000 Beneficial Corp., MTN, 8.200% due 03/15/02....... A2/A 1,547,820
1,000,000 Beneficial Corp., Series H, MTN, 6.710% due
12/15/03....................................... A2/A 991,860
1,500,000 Case Credit Corp., Series B, MTN, 6.240% due
11/06/00....................................... Baa1/BBB+ 1,498,260
1,000,000 Chrysler Financial Co., LLC, Series Q, MTN,
6.610% due 06/16/00............................ A1/A+ 1,002,440
2,000,000 CIT Group Holdings, MTN, 6.500% due 06/14/02..... A1/A+ 1,986,260
2,000,000 Enterprise Rent-a-Car USA Finance Co., (144A),
6.375% due 05/15/03............................ Baa2/BBB+ 1,942,240
5,000,000 ERP Operating Ltd. Partnership, 6.231% due
08/21/03 (v)................................... A3/BBB+ 4,997,500
5,000,000 Finova Capital Corp., Series D, MTN, 5.633% due
08/14/01 (v)................................... Baa1/A- 5,004,050
2,500,000 Ford Motor Credit Co., 6.446% due 07/16/02 (v)... A1/A 2,513,425
4,500,000 Ford Motor Credit Co., MTN, 5.663% due 03/19/02
(v)............................................ A1/A 4,506,480
1,000,000 General Motors Acceptance Corp., MTN, 5.800% due
02/23/01....................................... A2/A 990,570
5,000,000 Greyhound Financial Corp., 7.250% due 04/01/01... Baa1/A- 5,023,950
500,000 GS Escrow Corp., 7.000% due 08/01/03............. Ba1/BB+ 478,330
1,000,000 Heller Financial, Inc., Series I, MTN, 5.480% due
02/05/01....................................... A3/A- 986,210
500,000 Heller Financial, Inc., Series I, MTN, 6.500% due
07/22/02....................................... A3/A- 493,595
800,000 Homeside Lending, Inc., MTN, 6.875% due
06/30/02....................................... A1/A+ 796,904
3,000,000 Household Finance Corp., MTN, 5.623% due
12/01/00....................................... A2/A 3,007,620
2,500,000 Household Finance Corp., Series E, MTN, 5.820%
due 06/17/05 (v)............................... A2/A 2,494,525
1,000,000 Sears Roebuck Acceptance Corp., Series 3, MTN,
6.860% due 10/02/01............................ A2/A- 999,270
1,000,000 Security Pacific Corp, Series I, MTN, 6.000% due
05/01/00....................................... Aa2/A+ 999,090
2,500,000 TXU Eastern Funding, (144A), 6.150% due
05/15/02....................................... Baa1/BBB+ 2,462,950
------------
60,115,616
------------
FOREST PRODUCTS & PAPER (0.4%)
1,375,000 Georgia-Pacific Corp., 9.950% due 06/15/02....... Baa2/BBB- 1,468,170
------------
GAS-PIPELINES (0.5%)
1,000,000 Enron Corp., 6.500% due 08/01/02................. Baa2/BBB+ 986,280
1,150,000 K N Energy, Inc., 6.300% due 03/01/01............ Baa2/BBB- 1,136,292
------------
2,122,572
------------
HEALTH & PERSONAL CARE (0.1%)
500,000 Playtex Family Products Corp., 9.000% due
12/15/03....................................... B2/B 488,750
------------
METALS & MINING (0.3%)
1,150,000 Ryerson Tull, Inc., 8.500% due 07/15/01.......... Baa3/BBB 1,138,500
------------
OIL-PRODUCTION (0.2%)
1,000,000 Williams Companies, Inc., 6.125% due 02/15/02.... Baa2/BBB- 983,310
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
OIL-SERVICES (0.3%)
$ 500,000 Occidental Petroleum Corp., 6.750% due
11/15/02....................................... Baa3/BBB $ 494,130
696,580 Oil Purchase Co., (144A), 7.100% due 04/30/02.... Ba2/BBB- 651,302
------------
1,145,432
------------
PACKAGING & CONTAINERS (0.3%)
500,000 Stone Container Corp., 9.875% due 02/01/01....... B2/B 501,250
500,000 Stone Container Corp., 12.250% due 04/01/02
(v)............................................ B3/B- 501,250
------------
1,002,500
------------
RAILROADS (1.9%)
5,000,000 CSX Corp., MTN, Series C, 5.790% due 06/15/00
(v)............................................ Baa2/BBB 5,006,100
2,500,000 Norfolk Southern Corp., 6.875% due 05/01/01...... Baa1/BBB+ 2,499,850
------------
7,505,950
------------
TELECOMMUNICATIONS (2.2%)
2,500,000 MCI Worldcom, Inc., 6.125% due 08/15/01.......... A3/A- 2,487,975
6,000,000 MCI Worldcom, Inc., (144A), 5.645% due 08/17/00
(v)............................................ A3/A- 6,004,680
------------
8,492,655
------------
TOTAL CORPORATE OBLIGATIONS (COST
$125,807,557).............................. 124,867,893
------------
FOREIGN CORPORATE OBLIGATIONS (2.8%)
CANADA (1.1%)
TRANSPORT & SERVICES
4,500,000 Laidlaw, Inc., 8.750% due 01/01/00............... Baa3/BBB 4,508,640
------------
MEXICO (0.3%)
BANKING
1,000,000 Banco Nacional de Comercio Exterior SNC, Series
E, MTN, 8.000% due 04/14/00.................... Ba2/BB 1,002,500
------------
NETHERLANDS (0.5%)
FINANCIAL SERVICES
2,000,000 ICI Investments BV, Series E, MTN, 6.750% due
08/07/02....................................... Baa1/A- 1,972,000
------------
PANAMA (0.5%)
BANKING
1,000,000 Banco Latinoamericano de Exportaciones, S.A.,
(144A), 6.550% due 04/15/03.................... Baa1/BBB 946,930
1,000,000 Banco Latinoamericano de Exportaciones, S.A.,
Series 107, (144A), 6.640% due 09/30/02........ Baa1/BBB 963,480
------------
1,910,410
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
VENEZUELA (0.4%)
FINANCIAL SERVICES
$ 1,550,000 Corporacion Andina de Fomento, 7.375% due
07/21/00....................................... A3/A $ 1,540,064
------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$11,093,037)............................... 10,933,614
------------
FOREIGN GOVERNMENT OBLIGATIONS (0.3%)
CANADA (0.3%)
1,000,000 Province of Quebec, 7.500% due 07/15/02 (cost
$1,034,890).................................... A2/A+ 1,022,740
------------
PRIVATE PLACEMENT (1.5%)
FINANCIAL SERVICES (0.9%)
3,500,000 Newcourt Credit Group, Inc., Series A, 7.125% due
12/17/03....................................... A1/BBB 3,497,725
------------
MISCELLANEOUS (0.2%)
454,545 Allied Waste Industries, Inc., Term Loan B,
8.313% due 07/30/09 (v)........................ NR/NR 436,364
127,273 Allied Waste Industries, Inc., Term Loan C,
8.563% due 07/30/09 (v)........................ NR/NR 122,182
254,545 Allied Waste Industries, Inc., Term Loan C1,
8.563% due 09/07/30 (v)........................ NR/NR 244,364
90,909 Allied Waste Industries, Inc., Term Loan C2,
8.500% due 09/07/30 (v)........................ NR/NR 87,273
72,727 Allied Waste Industries, Inc., Term Loan C3,
8.313% due 09/07/30 (v)........................ NR/NR 69,818
------------
960,001
------------
TELECOMMUNICATION SERVICES (0.4%)
1,500,000 Charter Communications, 8.010% due 03/18/08
(v)............................................ NR/NR 1,490,625
------------
TOTAL PRIVATE PLACEMENT (COST $6,125,370).... 5,948,351
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (16.7%)
FEDERAL HOME LOAN MORTGAGE CORP. (1.3%)
389,961 REMIC: Sequential Payer, Series 1980, Class VA,
7.000% due 08/15/02............................ 392,399
2,446,773 REMIC: Sequential Payer, Series 2019, Class B,
6.500% due 07/15/16............................ 2,436,814
2,493,806 REMIC: Sequential Payer, Series 2061, Class VJ,
6.500% due 03/20/03............................ 2,458,719
------------
5,287,932
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (12.8%)
1,632,881 6.500% due 11/20/04.............................. 1,616,552
175,221 6.500% due 05/01/28.............................. 167,883
111,172 6.500% due 07/01/28.............................. 106,516
783,327 6.500% due 08/01/28.............................. 750,522
62,947 8.500% due 08/01/05.............................. 64,241
28,540,000 TBA, 6.500% due 10/01/29......................... 27,349,311
9,990,000 TBA, 7.500% due 10/01/29......................... 10,011,878
10,000,000 TBA, 8.000% due 10/01/29......................... 10,189,100
------------
50,256,003
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (2.6%)
$ 10,000,000 6.500% due 11/15/29.............................. $ 9,568,700
20,159 7.000% due 03/15/09.............................. 20,229
252,873 7.000% due 03/15/09.............................. 253,740
305,674 7.000% due 07/15/09.............................. 306,722
263,990 7.000% due 10/15/28.............................. 258,956
------------
10,408,347
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $65,838,385)......................... 65,952,282
------------
U.S. TREASURY OBLIGATIONS (10.6%)
U.S. TREASURY NOTES (10.6%)
400,000 5.250% due 05/15/04.............................. 388,688
350,000 5.880% due 02/15/00(s)........................... 350,602
40,625,000 6.250% due 02/28/02(s)........................... 40,973,969
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$41,735,122)............................... 41,713,259
------------
<CAPTION>
SHARES
- -------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.2%)
FINANCE (0.2%)
19,774 Equity Residential Properties Trust, Series A,
9.375%......................................... Baa1/BBB 473,340
10,000 TCI Communications Financing II, 10.000%......... A3/A 263,125
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$787,415).................................. 736,465
------------
<CAPTION>
PRINCIPAL
AMOUNT
- -------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (19.7%)
CERTIFICATE OF DEPOSIT-DOMESTIC (0.2%)
$ 1,000,000 Dresdner Bank NY, Series CD, 4.95% due
11/09/99....................................... 999,954
------------
COMMERCIAL PAPER-DOMESTIC (8.5%) (Y)
9,000,000 Case Credit Corp., 6.20% due 2/15/00............. 8,820,900
5,000,000 Case Credit Corp., 6.41% due 4/04/00............. 4,858,500
5,000,000 CSX Corp., 5.79% due 2/15/00..................... 4,902,500
2,500,000 MCI Worldcom, Inc., 5.384% due 2/08/00........... 2,500,000
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ------------- ------------------------------------------------- ------------
<C> <S> <C> <C>
COMMERCIAL PAPER-DOMESTIC (CONTINUED)
$ 5,000,000 MCI Worldcom, Inc., 5.81% due 1/27/00............ $ 4,921,500
5,000,000 Texas Utilities Co., 5.80% due 2/15/00........... 4,902,500
2,500,000 Williams Holding, Inc., 5.63% due 1/25/00........ 2,459,500
------------
33,365,400
------------
OTHER INVESTMENT COMPANIES (0.0%)
291 SSGA Money Market Fund........................... 291
------------
REPURCHASE AGREEMENT (11.0%)
14,485,000 Goldman Sachs Repurchase Agreement, 5.180% dated
10/29/99 due 11/01/99, proceeds $14,491,253,
(collateralized by $14,396,000 U.S. Treasury
Note, 5.750% due 11/15/00, valued at
$14,775,014)................................... 14,485,000
14,484,000 State Street Bank and Trust Repurchase Agreement,
5.180% dated 10/29/99 due 11/01/99, proceeds
$14,490,252, (collateralized by $14,520,000
U.S. Treasury Note, 5.750% due 06/30/01, valued
at $14,774,100)................................ 14,484,000
14,485,000 Westdeutsche Landesbank Repurchase Agreement,
5.210% dated 10/29/99 due 11/01/99, proceeds
$14,491,289, (collateralized by $14,536,000
U.S. Treasury Note, 5.750% due 11/30/02, valued
at $14,774,851)................................ 14,485,000
------------
43,454,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$77,877,885)............................... 77,819,645
------------
TOTAL INVESTMENTS (COST $448,862,661) (113.4%)................. 446,751,818
LIABILITIES IN EXCESS OF OTHER ASSETS (-13.4%)................. (52,930,083)
------------
NET ASSETS (100.0%)............................................ $393,821,735
============
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $448,869,969 for federal income
tax purposes at October 31, 1999, the aggregate gross unrealized appreciation
and depreciation was $423,485 and $2,541,636, respectively, resulting in net
unrealized depreciation of $2,118,151.
(s) Security is fully or partially segregated with custodian as collateral for
future contracts or with broker as initial margin for futures contracts
$41,324,571 of the market value has been segregated.
(v) Rate shown reflects current rate on variable or floating rate instrument or
investment with step coupon rate.
(y) Yield to maturity.
Abbreviations used in the schedule of investment are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
CSTR - Collateral Strip Rate.
MTN - Medium Term Note.
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 will be determined upon settlement date.
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $448,862,661) $446,751,818
Interest Receivable 3,181,213
Unrealized Appreciation of Forward Foreign
Currency Contracts 1,171,586
Receivable for Expense Reimbursement 14,026
Prepaid Trustees' Fees 2,252
Prepaid Expenses and Other Assets 1,407
------------
Total Assets 451,122,302
------------
LIABILITIES
Payable for Investments Purchased 56,105,645
Unrealized Depreciation of Forward Foreign
Currency Contracts 915,745
Variation Margin Payable 118,318
Advisory Fee Payable 81,698
Custody Fee Payable 22,715
Administrative Services Fee Payable 8,225
Administration Fee Payable 361
Fund Services Fee Payable 220
Accrued Expenses 47,640
------------
Total Liabilities 57,300,567
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $393,821,735
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $18,603,733
Dividend Income 71,345
-----------
Investment Income 18,675,078
EXPENSES
Advisory Fee $ 807,631
Custodian Fees and Expenses 146,300
Administrative Services Fee 83,666
Professional Fees and Expenses 38,348
Printing Expenses 8,215
Fund Services Fee 6,343
Administration Fee 4,065
Trustees' Fees and Expenses 1,154
Miscellaneous 246
----------
Total Expenses 1,095,968
Less: Reimbursement of Expenses (171,744)
----------
NET EXPENSES 924,224
-----------
NET INVESTMENT INCOME 17,750,854
NET REALIZED GAIN (LOSS) ON
Investment Transactions (6,905,026)
Futures Contracts 2,058,956
Foreign Currency Contracts and Transactions 1,055,060
----------
Net Realized Loss (3,791,010)
NET CHANGE IN UNREALIZED DEPRECIATION OF
Investments (3,461,606)
Futures Contracts (93,207)
Foreign Currency Contracts and Translations (375,058)
----------
Net Change in Unrealized Depreciation (3,929,871)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $10,029,973
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<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, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 17,750,854 $ 7,527,438
Net Realized Gain (Loss) on Investments, Futures
and Foreign Currency Contracts and Transactions (3,791,010) 1,079,966
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations (3,929,871) 1,956,909
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 10,029,973 10,564,313
--------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 312,753,504 263,906,334
Withdrawals (193,444,721) (51,939,489)
--------------- ---------------
Net Increase from Investors' Transactions 119,308,783 211,966,845
--------------- ---------------
Total Increase in Net Assets 129,338,756 222,531,158
NET ASSETS
Beginning of Fiscal Year 264,482,979 41,951,821
--------------- ---------------
End of Fiscal Year $ 393,821,735 $ 264,482,979
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.29% 0.25% 0.25% 0.38% 0.42%
Net Investment Income 5.49% 5.84% 6.17% 5.65% 6.11%
Expenses without Reimbursement 0.34% 0.38% 0.55% 0.61% 0.46%
Portfolio Turnover 398% 381% 219% 191% 177%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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, 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, consistent with low volatility of principal. 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 backed 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 backed
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 portfolio values securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available mean of the bid and asked
prices on such exchange, if such exchange or market constitutes the
broadest and most representative market for the security. Securities
listed on a foreign exchange are valued at the last traded price or, in
the absence of recorded trades, at the readily available mean of the bid
and asked prices on such exchange available before the time when net
assets are valued. Independent pricing service procedures may also include
the use of prices based on yields or prices of securities of comparable
quality, coupon, maturity and type, indications as to values from dealers,
operating data, and general market conditions. Unlisted securities are
valued at the average of the quoted bid and asked price in the
over-the-counter market provided by a principal market maker or dealer. If
prices are not supplied by the portfolio's independent pricing service or
principal market maker or dealer, such securities are priced using fair
values in accordance with procedures adopted by the portfolio's trustees.
All short-term securities with a remaining maturity of sixty days or less
are valued using 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
27
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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 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. 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 may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates and to enhance returns. 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.
e) 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,
28
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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.
f) 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.
g) 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 J.P. Morgan
Investment Management Inc. ("JPMIM"), a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the
agreement, the portfolio pays JPMIM at an annual rate of 0.25% of the
portfolio's average daily net assets. For the fiscal year ended
October 31, 1999, such fees amounted to $807,631.
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, 1999, the fee for these services
amounted to $4,065.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan Guaranty Trust Company of New York ("Morgan"), a
wholly owned subsidiary of J.P. 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
29
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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 30, 1999, the fee for these services
amounted to $83,666.
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 0.30% of the average daily net assets of the portfolio.
Prior to March 1, 1999, the percentage was .25%. This reimbursement
arrangement can be changed or terminated at any time at the option of
J.P. Morgan. For the fiscal year ended October 31, 1999, J.P. Morgan has
agreed to reimburse the portfolio $171,744 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 $6,343 for the fiscal year ended October 31, 1999.
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 $1,200.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $ 952,429,056 $ 966,977,290
Corporate and Collateralized Obligations......... 368,673,619 259,082,540
-------------- --------------
$1,321,102,675 $1,226,059,830
============== ==============
</TABLE>
At October 31, 1999, the portfolio had open forward foreign currency contracts
as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 10/31/99 (DEPRECIATION)
- ------------------ ----------- ----------- --------------
<S> <C> <C> <C>
Euro 17,377,281, expiring 11/02/99............... $18,472,050 $18,269,394 $ (202,656)
Euro 23,700,000, expiring 11/10/99............... 25,643,400 24,930,311 (713,089)
</TABLE>
30
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
SETTLEMENT VALUE AT APPRECIATION/
SALES CONTRACTS VALUE 10/31/99 (DEPRECIATION)
- --------------- ----------- ----------- --------------
<S> <C> <C> <C>
Euro 17,377,281, expiring 11/02/99............... $18,674,803 $18,269,394 $ 405,409
Euro 23,700,000, expiring 11/10/99............... 25,696,488 24,930,311 766,177
-------------
Net Unrealized Appreciation on Forward Foreign
Currency Contracts.............................. $ 255,841
=============
</TABLE>
At October 31, 1999, the portfolio had open futures contracts as follows:
<TABLE>
<CAPTION>
MARKET VALUE
CONTRACTS SHORT DEPRECIATION OF CONTRACTS
--------------- ------------ ------------
<S> <C> <C> <C>
U.S. Five Year Treasury Note, expiring December
1999............................................ 170 $ 22,145 $18,352,032
U.S. Ten Year Treasury Note, expiring December
1999............................................ 89 33,776 9,764,969
U.S. Ten Year Treasury Note, expiring March
2000............................................ 33 15,831 3,231,937
-------------- ----------- -----------
Totals........................................... 292 $ 71,752 $31,348,938
============== =========== ===========
</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.
31
<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, 1999, and 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 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, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
32
