<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
EQUITIES (65.3%)
COMMON STOCK (64.9%)
FOREIGN COMMON STOCK (12.4%)
AUSTRALIA (0.2%)
AMP Ltd. (Insurance)(s)+......................... 8,287 $ 105,089
Australia & New Zealand Banking Group Ltd.
(Banking)(s)................................... 14,800 96,950
Brambles Industries Ltd. (Commercial
Services)(s)................................... 4,720 115,079
Broken Hill Proprietary Company Ltd. (Metals &
Mining)(s)..................................... 13,700 100,996
Foster's Brewing Group Ltd. (Food, Beverages &
Tobacco)(s).................................... 43,400 117,660
Lend Lease Corp. Ltd. (Financial Services)(s).... 11,000 148,433
National Australia Bank Ltd. (Banking)(s)........ 15,600 235,383
Pioneer International Ltd. (Building
Materials)(s).................................. 48,811 103,289
Telstra Corp. Ltd. (Telecommunication
Services)(s)+.................................. 32,100 150,226
WMC Ltd. (Metals & Mining)(s).................... 31,800 95,964
Woolworths Ltd. (Retail)(s)...................... 26,600 90,648
-------------
1,359,717
-------------
AUSTRIA (0.1%)
Bank Austria AG (Banking)(s)..................... 10,320 525,069
-------------
BELGIUM (0.0%)
Delhaize-Le Lion SA (Retail)(s).................. 2,530 223,889
-------------
DENMARK (0.1%)
Danisco A/S (Food, Beverages & Tobacco)(s)....... 7,400 401,141
GN Store Nord A/S (Telecommunications-
Equipment)(s).................................. 6,600 233,331
-------------
634,472
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINLAND (0.1%)
MeritaNordbanken Oyj (Banking)(s)................ 65,100 $ 414,004
Nokia Oyj, A Shares (Telecommunications-
Equipment)(s).................................. 1,900 232,655
-------------
646,659
-------------
FRANCE (1.2%)
AXA (Insurance)(s)............................... 2,300 333,512
Canal Plus (Broadcasting & Publishing)(s)........ 820 223,863
Carrefour SA (Retail)(s)......................... 463 349,695
Compagnie de Saint Gobain SA (Building
Materials)(s).................................. 1,862 263,000
Compagnie Financiere de Paribas (Financial
Services)(s)................................... 8,370 727,766
Elf Aquitaine SA (Oil-Services)(s)............... 6,610 764,421
Groupe Danone (Food, Beverages & Tobacco)(s)..... 1,300 372,359
Lagardere S.C.A. (Multi - Industry)(s)........... 10,079 428,528
Rhodia SA (Chemicals)(s)+........................ 16,175 246,128
Rhone-Poulenc SA (Chemicals)(s).................. 5,700 293,469
Sanofi SA (Pharmaceuticals)(s)................... 2,500 411,743
Societe Generale, Class A (Banking)(s)........... 1,265 204,945
STMicroelectronics NV (Electronics)(s)+.......... 8,014 631,249
Total SA, B Shares (Oil-Services)(s)............. 7,666 776,754
Vivendi (Utilities)(s)........................... 5,032 1,306,192
-------------
7,333,624
-------------
GERMANY (1.2%)
Allianz AG (Insurance)(s)........................ 690 253,127
BASF AG (Chemicals)(s)........................... 12,700 484,964
HypoVereinsbank AG (Banking)(s).................. 9,313 729,708
Bilfinger & Berger Bau AG (Construction &
Housing)(s).................................... 7,700 196,485
Deutsche Bank AG (Banking)(s).................... 2,791 164,307
Deutsche Lufthansa AG (Airlines)(s).............. 7,600 167,923
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
GERMANY (CONTINUED)
Hochtief AG (Construction & Housing)(s).......... 3,200 $ 124,885
Karstadt AG (Retail)(s).......................... 1,000 522,358
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance)(s)................................. 3,128 1,515,616
RWE AG (Utilities)(s)............................ 16,500 903,994
SAP AG (Computer Software)(s).................... 530 229,117
SGL Carbon AG (Chemicals)(s)..................... 2,700 162,111
Siemens AG (Electrical Equipment)(s)............. 8,440 544,753
SKW Trostberg AG (Chemicals)(s).................. 3,900 99,518
VEBA AG (Utilities)(s)........................... 12,130 726,114
Volkswagen AG (Automotive)(s).................... 4,147 331,157
-------------
7,156,137
-------------
HONG KONG (0.0%)
CLP Holdings Ltd. (Electric)(s).................. 12,500 62,282
Hutchison Whampoa Ltd. (Multi - Industry)(s)..... 10,000 70,672
Sun Hung Kai Properties Ltd. (Real Estate)(s).... 11,000 80,224
-------------
213,178
-------------
IRELAND (0.1%)
CRH PLC (Building Materials)(s).................. 9,800 169,496
Greencore Group PLC (Food, Beverages &
Tobacco)(s).................................... 28,100 129,880
Irish Life PLC (Insurance)(s).................... 14,700 138,519
Jefferson Smurfit Group PLC (Forest Products &
Paper)(s)...................................... 60,200 108,607
-------------
546,502
-------------
ITALY (0.6%)
Assicurazioni Generali SPA (Insurance)(s)........ 11,400 477,047
Banca Fideuram SPA (Financial Services)(s)....... 90,511 648,000
ENI SPA (Oil-Services)(s)........................ 75,200 492,549
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
ITALY (CONTINUED)
Telecom Italia SPA - RNC (Telecommunication
Services)(s)................................... 263,081 $ 1,659,321
Unicredito Italiano SPA (Financial
Services)(s)................................... 76,979 457,282
-------------
3,734,199
-------------
JAPAN (2.0%)
Asahi Bank Ltd. (Banking)(s)..................... 96,000 352,351
Bridgestone Corp. (Chemicals)(s)................. 9,000 204,660
Canon, Inc. (Electronics)(s)..................... 7,000 149,871
DDI Corp. (Telecommunications)(s)................ 92 342,564
Ebara Corp. (Machinery)(s)....................... 27,000 232,906
Fanuc Ltd. (Machinery)(s)........................ 6,900 236,736
Fujitsu Ltd. (Computer Systems)(s)............... 33,000 440,306
Honda Motor Co. Ltd. (Automotive)(s)............. 14,000 460,475
Ishihara Sangyo Kaisha Ltd. (Chemicals)(s)+...... 15,000 24,602
Ito - Yokado Co. Ltd. (Retail)(s)................ 5,000 350,188
Japan Tobacco, Inc. (Food, Beverages &
Tobacco)(s).................................... 35 350,631
Kawasaki Steel Corp. (Metals & Mining)(s)........ 150,000 224,741
Kyocera Corp. (Electronics)(s)................... 4,200 222,294
Minebea Co. Ltd. (Capital Goods)(s).............. 21,000 240,912
Mitsubishi Chemical Corp. (Chemicals)(s)......... 141,000 297,509
Mitsubishi Corp. (Wholesale & International
Trade)(s)...................................... 56,000 322,705
Mitsubishi Estate Co. Ltd. (Real Estate)(s)...... 17,000 152,673
Mitsui Trust & Banking Co. Ltd. (Banking)(s)..... 96,000 109,791
Nichiei Co. Ltd. (Financial Services)(s)......... 4,100 327,138
Nippon Telegraph & Telephone Corp.
(Telecommunications)(s)........................ 106 819,457
Nippon Yusen Kabushiki Kaisha (Transport &
Services)(s)................................... 72,000 227,879
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
JAPAN (CONTINUED)
Nishimatsu Construction Co. Ltd. (Construction &
Housing)(s).................................... 56,000 $ 327,669
Nomura Securities Co. Ltd. (Financial
Services)(s)................................... 23,000 200,848
Osaka Gas Co. Ltd. (Natural Gas)(s).............. 38,000 131,050
Pioneer Electronic Corp. (Electronics)(s)........ 7,000 117,601
Ricoh Co. Ltd. (Electrical Equipment)(s)......... 22,000 203,233
Rohm Co. Ltd. (Electrical Equipment)(s).......... 4,000 364,905
San-In Godo Bank Ltd. (Banking)(s)............... 6,000 40,001
Sekisui Chemical Co. Ltd. (Chemicals)(s)......... 28,000 188,658
Shohkoh Fund & Co. Ltd. (Financial
Services)(s)................................... 100 32,270
Sony Corp. (Electronics)(s)...................... 5,500 401,298
Sony Music Entertainment, Inc. (Entertainment,
Leisure & Media)(s)............................ 9,600 442,567
Sumitomo Trust & Banking Co. Ltd. (Banking)(s)... 60,000 159,579
Suzuki Motor Corp. (Automotive)(s)............... 17,000 201,956
Taiheiyo Cement Corp. (Building Materials)(s).... 36,000 90,322
Takashimaya Co. Ltd. (Retail)(s)................. 19,000 160,191
Takeda Chemical Industries Ltd. (Chemicals)(s)... 18,000 694,170
Takefuji Corp. (Financial Services)(s)........... 3,800 277,934
The Kagawa Bank Ltd. (Banking)(s)................ 3,000 17,022
Toho Bank Ltd. (Banking)(s)...................... 17,000 70,534
Tokyo Electric Power Co., Inc. (Electric)(s)..... 10,900 269,609
Tokyo Steel Manufacturing Co. Ltd. (Metals &
Mining)(s)..................................... 21,400 107,383
Tostem Corp. (Construction & Housing)(s)......... 19,000 377,316
Toyota Motor Corp. Ltd. (Automotive)(s).......... 21,000 571,560
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
JAPAN (CONTINUED)
West Japan Railway Co. (Railroads)(s)............ 93 $ 412,246
Yamanouchi Pharmaceutical Co. Ltd.
(Pharmaceuticals)(s)........................... 11,000 354,975
-------------
12,305,286
-------------
NETHERLANDS (2.1%)
Heineken NV (Food, Beverages & Tobacco)(s)....... 7,660 461,232
ING Groep NV (Financial Services)(s)............. 5,407 329,894
KPN NV (Telecommunication Services)(s)........... 6,860 343,609
Laurus NV (Retail)(s)............................ 20,250 511,465
Philips Electronics NV (Electronics)(s).......... 11,596 778,559
Royal Dutch Petroleum Co. (Oil-Services)(s)...... 7,740 385,625
Royal Dutch Petroleum Co. (ADR) (Oil-Services)... 124,200 5,946,075
TNT Post Group NV (Transport & Services)(s)...... 10,968 353,586
Unilever NV (ADR) (Food, Beverages & Tobacco).... 29,600 2,454,950
Vedior NV (Business & Public Services)(s)........ 8,007 157,864
Vendex NV (Retail)(s)............................ 14,013 340,493
Wolters Kluwer NV (Broadcasting &
Publishing)(s)................................. 1,515 324,366
-------------
12,387,718
-------------
NEW ZEALAND (0.1%)
Fletcher Challenge Building Division Ltd.
(Building Materials)(s)........................ 32,300 49,994
Fletcher Challenge Paper Division Ltd. (Forest
Products & Paper)(s)........................... 93,100 62,460
Lion Nathan Ltd. (Food, Beverages &
Tobacco)(s).................................... 28,000 71,442
Telecom Corp. of New Zealand Ltd.
(Telecommunications)(s)........................ 42,200 183,913
-------------
367,809
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
NORWAY (0.0%)
Nycomed Amersham PLC (Medical Supplies)(s)....... 33,040 $ 229,843
-------------
PORTUGAL (0.1%)
Banco Pinto & Sotto Mayor SA (Banking)(s)........ 14,800 280,610
-------------
SPAIN (0.4%)
Acerinox SA (Metals & Mining)(s)................. 8,350 194,767
Actividades de Construccion y Servicios SA
(Construction & Housing)(s).................... 9,726 384,396
Iberdrola SA (Electric)(s)....................... 42,800 801,983
Telefonica SA (Telecommunications)(s)+........... 15,200 676,908
Vallehermoso SA (Real Estate)(s)................. 13,563 194,316
-------------
2,252,370
-------------
SWEDEN (0.5%)
ABB AB, A Shares (Machinery)(s).................. 34,700 370,308
Autoliv, Inc. (SDR) (Automotive Supplies)(s)..... 22,700 814,961
Ericsson LM, B Shares (Telecommunications-
Equipment)(s).................................. 26,200 623,845
Gambro AB, B Shares (Pharmaceuticals)(s)......... 14,925 162,037
Skandia Forsakrings AB (Insurance)(s)............ 14,990 229,320
Stora Enso Oyj, A Shares (Forest Products &
Paper)(s)+..................................... 22,873 197,533
Stora Enso Oyj, R Shares (Forest Products &
Paper)(s)+..................................... 42,440 371,751
Volvo AB, B Shares (Automotive)(s)............... 8,700 199,641
-------------
2,969,396
-------------
SWITZERLAND (1.1%)
Nestle SA (Food, Beverages & Tobacco)(s)......... 745 1,621,827
Novartis AG (Pharmaceuticals)(s)................. 582 1,144,100
Roche Holding AG (Pharmaceuticals)(s)............ 115 1,403,295
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
SWITZERLAND (CONTINUED)
Swisscom AG (Telecommunication Services)(s)+..... 1,700 $ 711,695
UBS AG (Banking)(s).............................. 2,480 761,976
Zurich Allied AG (Insurance)(s).................. 1,600 1,184,726
-------------
6,827,619
-------------
UNITED KINGDOM (2.5%)
Allied Zurich PLC (Insurance)(s)+................ 11,650 175,322
Barclays PLC (Banking)(s)........................ 11,000 238,838
Bass PLC (Food, Beverages & Tobacco)(s).......... 18,142 262,908
Billiton PLC (Metals & Mining)(s)................ 137,100 273,728
British Airways PLC (Airlines)(s)................ 32,500 223,864
British American Tobacco PLC (Food, Beverages &
Tobacco)(s).................................... 11,650 102,731
British Petroleum Co. PLC (Oil-Services)(s)...... 52,141 777,299
British Sky Broadcasting Group PLC (Broadcasting
& Publishing)(s)............................... 18,000 136,565
British Telecommunications PLC
(Telecommunications)(s)........................ 47,400 712,931
Cable & Wireless PLC (Telecommunications)(s)..... 57,500 704,120
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)(s).................................... 19,500 334,174
Compass Group PLC (Food, Beverages &
Tobacco)(s).................................... 35,200 402,347
Diageo PLC (Food, Beverages & Tobacco)(s)........ 39,412 437,704
Glaxo Wellcome PLC (Pharmaceuticals)(s).......... 32,400 1,116,955
Glynwed International PLC (Metals & Mining)(s)... 74,000 205,612
Great Universal Stores PLC (Retail)(s)........... 30,900 326,462
Hays PLC (Commercial Services)(s)................ 19,000 167,545
HSBC Holdings PLC (75p) (Banking)(s)............. 13,500 372,408
Kingfisher PLC (Retail)(s)....................... 34,900 378,594
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Lloyds TSB Group PLC (Banking)(s)................ 99,800 $ 1,423,024
LucasVarity PLC (Automotive Supplies)(s)......... 73,100 244,464
MEPC PLC (Real Estate)(s)........................ 25,643 170,659
MFI Furniture Group PLC (Household
Products)(s)................................... 110,117 64,124
National Power PLC (Electric)(s)................. 59,584 514,515
Northern Rock PLC (Financial Services)(s)........ 9,000 84,005
Nycomed Amersham PLC (Medical Supplies)(s)....... 13,045 90,073
Ocean Group PLC (Transport & Services)(s)........ 9,900 124,525
Pearson PLC (Broadcasting & Publishing)(s)....... 12,800 254,891
Pilkington PLC (Building Materials)(s)........... 163,200 162,919
Prudential Corp. PLC (Insurance)(s).............. 33,000 504,125
Racal Electronic PLC (Telecommunications-
Equipment)(s).................................. 41,000 237,391
Reed International PLC (Broadcasting &
Publishing)(s)................................. 10,000 79,530
RMC Group PLC (Building Materials)(s)............ 11,000 150,624
Royal & Sun Alliance Insurance Group PLC
(Insurance)(s)................................. 49,000 399,478
Royal Bank of Scotland Group PLC (Banking)(s).... 22,200 363,454
Sainsbury (J.) PLC (Retail)(s)................... 34,200 277,112
Shell Transport & Trading Co. PLC
(Oil-Services)(s).............................. 16,800 103,422
Smith & Nephew PLC (Medical Supplies)(s)......... 4,000 12,179
SmithKline Beecham PLC (Pharmaceuticals)(s)...... 48,600 683,273
Tomkins PLC (Multi-Industry)(s).................. 66,000 314,059
Unilever PLC (Food, Beverages & Tobacco)(s)...... 25,900 291,736
Vickers PLC (Capital Goods)(s)................... 37,466 111,581
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Vodafone Group PLC (Telecommunications)(s)....... 33,200 $ 540,229
Zeneca Group PLC (Pharmaceuticals)(s)............ 12,100 527,860
-------------
15,079,359
-------------
TOTAL FOREIGN COMMON STOCK (COST
$64,813,804).................................. 75,073,456
-------------
UNITED STATES (52.5%)
BASIC INDUSTRIES (1.8%)
AGRICULTURE (0.1%)
Pioneer Hi-Bred International, Inc............... 12,400 334,800
-------------
CHEMICALS (0.8%)
Crompton & Knowles Corp.......................... 3,500 72,406
Cytec Industries, Inc.+.......................... 1,700 36,125
Dow Chemical Co.................................. 17,500 1,591,406
E.I. du Pont de Nemours & Co..................... 21,100 1,119,619
General Chemical Group, Inc...................... 3,000 41,625
Geon Co.......................................... 8,100 186,300
Georgia Gulf Corp................................ 1,500 24,094
IMC Global, Inc.................................. 1,900 40,612
Lyondell Chemical Co............................. 8,400 151,200
Minerals Technologies, Inc....................... 900 36,844
Praxair, Inc..................................... 11,400 401,850
Rohm & Haas Co................................... 16,400 494,050
Solutia, Inc..................................... 10,600 237,175
Union Carbide Corp............................... 6,300 267,750
Wellman, Inc..................................... 100 1,019
-------------
4,702,075
-------------
FOREST PRODUCTS & PAPER (0.4%)
Boise Cascade Corp............................... 4,100 127,100
Bowater, Inc..................................... 3,600 149,175
Caraustar Industries, Inc........................ 10,800 307,800
Champion International Corp...................... 4,800 194,400
Fort James Corp.................................. 3,400 136,000
Georgia-Pacific Group............................ 7,200 421,650
Louisiana-Pacific Corp........................... 7,400 135,512
Temple-Inland, Inc............................... 4,300 255,044
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FOREST PRODUCTS & PAPER (CONTINUED)
Union Camp Corp.................................. 5,900 $ 398,250
Universal Forest Products, Inc................... 8,900 178,278
-------------
2,303,209
-------------
METALS & MINING (0.5%)
Alcan Aluminum Ltd............................... 31,300 847,056
Allegheny Teledyne, Inc.......................... 23,800 486,412
Aluminum Company of America (ALCOA)+............. 1,000 74,562
Commercial Metals Co............................. 10,600 294,150
Freeport-McMoRan Copper & Gold, Inc., Class A.... 4,800 46,500
Mueller Industries, Inc.+........................ 16,600 337,187
Reynolds Metals Co............................... 9,900 521,606
Schnitzer Steel Industries, Inc., Class A........ 4,300 62,484
Steel Technologies, Inc.......................... 3,000 20,625
USEC, Inc........................................ 12,300 170,662
-------------
2,861,244
-------------
TOTAL BASIC INDUSTRIES......................... 10,201,328
-------------
CONSUMER GOODS & SERVICES (11.0%)
APPARELS & TEXTILES (0.1%)
Columbia Sportwear Co.+.......................... 2,200 36,987
Fruit of the Loom, Inc., Class A+................ 6,000 82,875
Interface, Inc................................... 3,400 31,556
Reebok International Ltd.+....................... 4,500 66,937
Unifi, Inc....................................... 5,300 103,681
-------------
322,036
-------------
AUTOMOTIVE (0.7%)
Amcast Industrial Corp........................... 4,100 78,412
Cooper Tire & Rubber Co.......................... 6,500 132,844
Dana Corp........................................ 18,901 772,589
Ford Motor Co.................................... 15,100 886,181
General Motors Corp.............................. 2,700 193,219
General Motors Corp., Class H.................... 4,500 178,594
Genuine Parts Co................................. 13,300 444,719
Goodyear Tire and Rubber Co...................... 17,600 887,700
Lear Corp.+...................................... 8,700 334,950
Sonic Automotive, Inc.+.......................... 4,900 168,744
-------------
4,077,952
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BROADCASTING & PUBLISHING (1.5%)
Banta Corp....................................... 2,900 $ 79,387
Comcast Corp., Class A........................... 36,900 2,166,722
Emmis Broadcasting Corp., Class A+............... 2,100 91,087
Gannett Co., Inc................................. 12,200 786,900
HA-LO Industries, Inc.+.......................... 4,700 176,837
Journal Register Co.+............................ 1,200 18,000
Knight Ridder, Inc............................... 6,400 327,200
New York Times Co................................ 23,100 801,281
R.R. Donnelley & Sons Co......................... 13,200 578,325
Tele-Communications TCI Ventures Group, Series
A+............................................. 62,200 1,471,419
Tele-Communications, Inc., Series A+............. 22,000 1,217,563
Times Mirror Co., New Shares..................... 3,600 201,600
Tribune Co., New Shares.......................... 10,000 660,000
Washington Post Co., Class B..................... 1,100 635,731
-------------
9,212,052
-------------
EDUCATION (0.0%)
ITT Educational Services, Inc.+.................. 4,600 156,400
-------------
ENTERTAINMENT, LEISURE & MEDIA (0.9%)
Cinar Films, Inc., Class B+...................... 3,800 95,712
Circus Circus Enterprises, Inc.+................. 7,800 89,212
Education Management Corp.+...................... 6,400 150,600
Hasbro, Inc...................................... 16,000 578,000
Imax Corp.+...................................... 4,600 145,762
International Game Technology.................... 18,500 449,781
Mattel, Inc...................................... 37,400 853,187
MGM Grand, Inc.+................................. 3,701 100,390
Mirage Resorts, Inc.+............................ 29,600 442,150
Seagram Company Ltd.(i).......................... 57,200 2,173,600
Steiner Leisure Ltd.+(i)......................... 3,475 111,091
Ticketmaster Online-CitySearch, Inc., Class B+... 300 17,100
Time Warner, Inc................................. 7,000 434,437
-------------
5,641,022
-------------
FOOD, BEVERAGES & TOBACCO (2.9%)
American Italian Pasta Co., Class A+............. 2,800 73,850
Anheuser Busch Companies, Inc.................... 4,400 288,750
Beringer Wine Estates Holdings, Inc., Class B+... 1,900 84,609
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FOOD, BEVERAGES & TOBACCO (CONTINUED)
Bestfoods........................................ 3,900 $ 207,675
Campbell Soup Co................................. 21,300 1,171,500
Coca-Cola Co..................................... 52,000 3,477,500
Coors (Adolph) Co., Class B...................... 1,000 56,469
General Mills, Inc............................... 6,400 497,600
Hershey Foods Corp............................... 6,500 404,219
Nabisco Holdings Corp., Class A.................. 2,000 83,000
PepsiCo, Inc..................................... 68,400 2,800,125
Philip Morris Companies, Inc..................... 116,300 6,222,050
Ralston-Ralston Purina Group..................... 21,600 699,300
Sara Lee Corp.................................... 38,700 1,090,856
-------------
17,157,503
-------------
HOUSEHOLD APPLIANCES & FURNISHINGS (0.2%)
Bush Industries, Inc., Class A................... 5,300 65,919
Furniture Brands International, Inc.+............ 4,300 117,175
Leggett & Platt, Inc............................. 22,500 495,000
Select Comfort Corp.+............................ 400 10,675
Stanley Furniture Co., Inc.+..................... 4,900 90,650
Whirlpool Corp................................... 8,700 481,762
-------------
1,261,181
-------------
HOUSEHOLD PRODUCTS (1.0%)
Bush Boake Allen, Inc.+.......................... 4,900 172,725
Colgate-Palmolive Co............................. 1,100 102,162
Procter & Gamble Co.............................. 61,800 5,643,113
-------------
5,918,000
-------------
PERSONAL CARE (0.1%)
Gillette Co...................................... 16,700 806,819
-------------
RESTAURANTS & HOTELS (0.3%)
CEC Entertainment, Inc.+......................... 2,500 69,375
Extended Stay America, Inc.+..................... 9,900 103,950
Hilton Hotels Corp............................... 16,800 321,300
McDonald's Corp.................................. 13,900 1,065,088
P.F. Chang's China Bistro, Inc.+................. 800 17,950
Papa John's International, Inc.+................. 1,700 74,906
-------------
1,652,569
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
RETAIL (3.3%)
American Stores Co............................... 45,100 $ 1,665,881
AutoZone, Inc.+.................................. 14,000 461,125
Circuit City Stores, Inc......................... 9,100 454,431
CompUSA, Inc.+................................... 12,200 159,362
Corporate Express, Inc.+......................... 8,800 45,375
Costco Companies, Inc.+.......................... 19,000 1,374,531
Dayton Hudson Corp............................... 41,000 2,224,250
Dillard's, Inc., Class A......................... 9,800 278,075
Federated Department Stores, Inc.+............... 19,300 840,756
Fingerhut Companies, Inc......................... 5,400 83,362
Gap, Inc......................................... 15,000 843,750
Garden Ridge Corp.+.............................. 12,100 109,656
General Nutrition Companies, Inc.+............... 6,500 105,422
Hannaford Brothers Co............................ 4,600 243,800
Home Depot, Inc.................................. 19,000 1,162,563
J.C. Penney Co., Inc............................. 4,800 225,000
Kmart Corp.+..................................... 44,700 684,469
Kroger Co.+...................................... 6,100 369,050
Lithia Motors, Inc., Class A+.................... 4,300 70,681
Lowe's Companies, Inc............................ 4,300 220,106
May Department Stores Co......................... 17,900 1,080,713
Nine West Group, Inc.+........................... 1,400 21,787
O'Reilly Automotive, Inc.+....................... 700 32,944
PETsMART, Inc.+.................................. 7,400 80,012
Safeway, Inc.+................................... 6,000 365,625
School Specialty, Inc.+.......................... 2,500 53,750
Sears, Roebuck & Co.............................. 35,700 1,517,250
ShopKo Stores, Inc.+............................. 5,400 179,550
TJX Companies, Inc............................... 29,000 841,000
Toys 'R' Us, Inc.+............................... 25,200 425,250
Urban Outfitters, Inc.+.......................... 6,800 118,362
Wal-Mart Stores, Inc............................. 46,700 3,803,131
-------------
20,141,019
-------------
TOTAL CONSUMER GOODS & SERVICES................ 66,346,553
-------------
ENERGY (2.4%)
GAS EXPLORATION (0.1%)
Devon Energy Corp................................ 4,000 122,750
Newfield Exploration Co.+........................ 7,700 160,737
St. Mary Land & Exploration Co................... 3,100 57,931
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
GAS EXPLORATION (CONTINUED)
Tesoro Petroleum Corp.+.......................... 4,000 $ 48,500
Union Pacific Resources Group, Inc............... 34,500 312,656
-------------
702,574
-------------
GAS - PIPELINES (0.1%)
Columbia Energy Group............................ 5,800 334,950
El Paso Energy Corp.............................. 8,400 292,425
K N Energy, Inc.................................. 3,000 109,125
-------------
736,500
-------------
OIL PRODUCTION (2.1%)
Atlantic Richfield Co............................ 17,900 1,167,975
Exxon Corp....................................... 69,300 5,067,563
Mobil Corp....................................... 46,500 4,051,313
Occidental Petroleum Corp........................ 2,400 40,500
Phillips Petroleum Co............................ 26,500 1,129,563
Tosco Corp....................................... 21,500 556,312
Unocal Corp...................................... 17,600 513,700
Valero Energy Corp............................... 3,300 70,125
-------------
12,597,051
-------------
OIL SERVICES (0.1%)
Diamond Offshore Drilling, Inc................... 4,200 99,487
ENSCO International, Inc......................... 8,600 91,912
Global Marine, Inc.+............................. 10,300 94,631
Input/Output, Inc.+.............................. 7,800 57,037
National-Oilwell, Inc.+.......................... 4,100 45,869
R&B Falcon Corp.+................................ 15,600 118,950
Smith International, Inc.+....................... 1,900 47,856
-------------
555,742
-------------
TOTAL ENERGY................................... 14,591,867
-------------
FINANCE (8.7%)
BANKING (3.9%)
Associated Banc-Corp............................. 2,800 95,637
BancorpSouth, Inc................................ 1,200 21,675
BancWest Corp.................................... 900 43,200
Bank of Commerce................................. 4,000 66,500
Bank One Corp.................................... 11,400 582,112
Bank United Corp., Class A....................... 6,500 254,516
BankAmerica Corp................................. 78,100 4,695,763
BankBoston Corp.................................. 12,100 471,144
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BANKING (CONTINUED)
Bankers Trust Corp............................... 4,300 $ 367,381
Banknorth Group, Inc............................. 7,000 263,375
Charter One Financial, Inc....................... 6,400 177,400
Chase Manhattan Corp............................. 11,100 755,494
Colonial BancGroup, Inc.......................... 17,600 211,200
Commercial Federal Corp.......................... 4,000 92,750
Community First Bankshares, Inc.................. 6,800 143,012
Compass Bancshares, Inc.......................... 3,100 117,994
Crestar Financial Corp........................... 10,000 720,000
Dime Bancorp, Inc................................ 4,900 129,544
First American Corp.............................. 4,800 213,000
First Union Corp................................. 44,000 2,675,760
First Virginia Banks, Inc........................ 800 37,600
FirstFed Financial Corp.+........................ 12,100 216,287
Flagstar Bancorp, Inc............................ 6,600 176,137
GBC Bancorp...................................... 4,100 105,191
Golden West Financial Corp....................... 2,600 238,387
GreenPoint Financial Corp........................ 4,300 151,037
Hamilton Bancorp, Inc.+.......................... 1,400 36,837
Hibernia Corp., Class A.......................... 7,000 121,625
HUBCO, Inc....................................... 4,600 139,294
Huntington Bancshares, Inc....................... 3,300 99,516
Irwin Financial Corp............................. 1,300 35,019
KeyCorp.......................................... 19,700 630,400
M & T Bank Corp.................................. 100 51,894
Marshall & Ilsley Corp........................... 5,200 301,112
Mellon Bank Corp................................. 11,700 804,375
Mercantile Bancorporation, Inc................... 6,700 309,037
Mercantile Bankshares Corp....................... 2,900 111,559
National Commerce Bancorporation................. 15,800 293,781
North Fork Bancorporation, Inc................... 1,200 28,725
Pacific Century Financial Corp................... 3,400 82,875
Peoples Heritage Financial Group, Inc............ 3,400 68,106
PNC Bank Corp.................................... 14,000 757,750
Prime Bancshares, Inc............................ 2,700 46,069
Provident Financial Group, Inc................... 1,900 71,369
Republic Banking Corp. of Florida................ 3,900 41,072
Republic New York Corp........................... 4,800 218,700
Southtrust Corp.................................. 7,200 265,725
Southwest Bancorporation of Texas, Inc.+......... 2,200 39,187
Sovereign Bancorp, Inc........................... 7,600 107,825
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BANKING (CONTINUED)
Summit Bancorp................................... 400 $ 17,475
Summit Bancshares, Inc........................... 1,100 20,487
Sun Bancorp, Inc.+............................... 1,200 22,275
TCF Financial Corp............................... 5,600 135,450
TeleBanc Financial Corp.+........................ 2,200 75,212
Trustco Bank Corp................................ 3,514 105,420
U.S. Bancorp..................................... 27,700 983,350
Union Planters Corp.............................. 5,700 258,281
Washington Federal, Inc.......................... 2,200 59,125
Washington Mutual, Inc........................... 26,800 1,023,425
Wells Fargo & Co................................. 73,900 2,951,381
Westamerica Bancorporation....................... 2,100 77,241
-------------
23,413,070
-------------
FINANCIAL SERVICES (2.7%)
Allied Capital Corp.............................. 2,400 41,625
American Express Co.............................. 18,700 1,912,075
Amresco, Inc.+................................... 4,500 39,516
ARM Financial Group, Inc., Class A............... 3,900 86,531
Associates First Capital Corp., Class A.......... 30,800 1,305,150
Astoria Financial Corp........................... 3,400 156,187
Bear Stearns Companies, Inc...................... 5,800 216,775
Capital One Financial Corp....................... 2,700 310,500
CIT Group, Inc., Class A......................... 3,200 101,800
Citigroup, Inc................................... 103,100 5,103,450
Equifax, Inc..................................... 23,100 789,731
Equitable Companies, Inc......................... 2,100 121,537
Federal National Mortgage Association............ 30,900 2,286,600
FINOVA Group, Inc................................ 2,500 134,844
Heller Financial, Inc............................ 1,600 47,000
Household International, Inc..................... 21,900 867,795
Investors Financial Services Corp................ 700 41,781
Lehman Brothers Holdings, Inc.................... 4,600 202,687
Litchfield Financial Corp........................ 7,260 139,755
Merrill Lynch & Co., Inc......................... 2,900 193,575
Morgan Stanley, Dean Witter, Discover & Co....... 26,200 1,860,200
Ocwen Financial Corp.+........................... 7,900 97,269
Paine Webber Group, Inc.......................... 1,000 38,625
Waddell & Reed Financial, Inc., Class A.......... 300 7,106
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
Waddell & Reed Financial, Inc., Class B.......... 1,400 $ 32,550
Willis Lease Finance Corp.+...................... 7,400 117,475
-------------
16,252,139
-------------
INSURANCE (1.8%)
Allstate Corp.................................... 67,700 2,614,913
Ambac Financial Group, Inc....................... 5,600 337,050
American International Group, Inc................ 14,600 1,410,725
Annuity and Life Re (Holdings) Ltd.+(i).......... 4,400 117,700
Aon Corp......................................... 8,600 476,225
Capital Re Corp.................................. 14,800 296,925
Chubb Corp....................................... 6,900 447,638
Financial Security Assurance Holdings Ltd........ 1,600 86,800
Fremont General Corp............................. 5,000 123,750
Marsh & McLennan Companies, Inc.................. 20,000 1,168,750
MBIA, Inc........................................ 7,700 504,831
Mercury General Corp............................. 4,100 179,631
MONY Group, Inc.+................................ 500 15,656
Ohio Casualty Corp............................... 1,300 53,544
PMI Group, Inc................................... 1,500 74,063
RenaissanceRE Holdings Ltd.(i)................... 10,800 395,550
Safeco Corp...................................... 11,300 485,547
St. Paul Companies, Inc.......................... 19,200 667,200
Torchmark Corp................................... 600 21,188
Transamerica Corp................................ 3,100 358,050
Travelers Property Casualty Corp, Class A........ 5,200 161,200
UNUM Corp........................................ 11,000 642,125
-------------
10,639,061
-------------
REAL ESTATE INVESTMENT TRUSTS (0.3%)
Arden Realty, Inc................................ 5,400 125,213
Burnham Pacific Properties, Inc.................. 9,900 119,419
CBL & Associates Properties, Inc................. 3,000 77,438
Charles E. Smith Residential Realty, Inc......... 1,400 44,975
Cousins Properties, Inc.......................... 5,400 174,150
ElderTrust....................................... 1,700 19,550
Federal Realty Investment Trust.................. 400 9,450
LaSalle Hotel Properties......................... 3,000 31,125
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
Macerich Co...................................... 3,000 $ 76,875
Manufactured Home Communities, Inc............... 4,400 110,275
MeriStar Hospitality Corp........................ 6,986 129,678
Mills Corp....................................... 2,500 49,688
National Golf Properties, Inc.................... 3,200 92,600
Post Properties, Inc............................. 6,222 239,158
Weeks Corp....................................... 6,600 186,038
-------------
1,485,632
-------------
TOTAL FINANCE.................................. 51,789,902
-------------
HEALTHCARE (7.0%)
BIOTECHNOLOGY (0.8%)
Affymetrix, Inc.+................................ 800 19,325
Amgen, Inc.+..................................... 16,500 1,724,250
Applied Analytical Industries, Inc.+............. 8,500 148,750
Genzyme Corp.-General Division+.................. 22,800 1,133,588
Genzyme Molecular Oncology+...................... 2,464 7,622
Human Genome Sciences, Inc.+..................... 6,600 234,094
IDEC Pharmaceuticals Corp.+...................... 2,700 127,069
Immunex Corp.+................................... 8,900 1,114,725
Incyte Pharmaceuticals, Inc...................... 2,600 97,013
Millennium Pharmaceuticals, Inc.+................ 5,400 139,388
SangStat Medical Corp.+.......................... 7,500 160,313
-------------
4,906,137
-------------
HEALTH SERVICES (0.8%)
Aetna, Inc....................................... 10,100 794,113
Alternative Living Services, Inc.+............... 7,470 255,848
Columbia / HCA Healthcare Corp................... 45,600 1,128,600
Eclipsys Corp.+.................................. 800 23,150
Endocardial Solutions, Inc.+..................... 3,500 34,563
HCR Manor Care, Inc.+............................ 7,700 226,188
HEALTHSOUTH Corp.+............................... 9,700 149,744
Humana, Inc.+.................................... 15,700 279,656
IDX Systems Corp.+............................... 1,600 70,500
Lifeline Systems, Inc.+.......................... 900 22,725
Pediatrix Medical Group, Inc.+................... 2,900 173,819
Perkin-Elmer Corp................................ 3,900 380,494
Renal Care Group, Inc.+.......................... 4,300 124,700
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
HEALTH SERVICES (CONTINUED)
Sierra Health Services, Inc.+.................... 100 $ 2,106
Sunrise Assisted Living, Inc.+................... 1,300 67,194
Tenet Healthcare Corp.+.......................... 22,300 585,375
United Healthcare Corp........................... 14,200 611,488
-------------
4,930,263
-------------
MEDICAL SUPPLIES (0.3%)
Bausch & Lomb, Inc............................... 3,900 234,000
Boston Scientific Corp.+......................... 28,600 766,838
CONMED Corp.+.................................... 3,000 98,625
Focal, Inc.+..................................... 3,100 29,644
Kensey Nash Corp.+............................... 9,000 73,969
Medtronic, Inc................................... 3,000 222,750
ResMed, Inc.+.................................... 1,500 68,063
Sola International, Inc.+........................ 5,400 93,150
Stryker Corp..................................... 100 5,506
Ventana Medical Systems, Inc.+................... 9,200 198,375
Vital Signs, Inc................................. 1,100 19,353
-------------
1,810,273
-------------
PHARMACEUTICALS (5.1%)
ALZA Corp.+...................................... 42,200 2,204,950
American Home Products Corp...................... 98,300 5,535,519
Bristol-Myers Squibb Co.......................... 55,800 7,466,738
Chiron Corp.+.................................... 25,500 666,984
Forest Laboratories, Inc.+....................... 33,000 1,755,188
Johnson & Johnson................................ 7,800 654,225
Kos Pharmaceuticals, Inc.+....................... 5,400 31,556
Ligand Pharmaceuticals, Class B+................. 10,500 121,734
MedImmune, Inc.+................................. 8,400 837,375
Merck & Co., Inc................................. 15,800 2,333,463
Monsanto Co...................................... 87,100 4,137,250
Pfizer, Inc...................................... 13,000 1,630,688
U.S. Bioscience, Inc.+........................... 3,500 25,156
Warner-Lambert Co................................ 44,700 3,360,881
-------------
30,761,707
-------------
TOTAL HEALTHCARE............................... 42,408,380
-------------
INDUSTRIAL PRODUCTS & SERVICES (5.4%)
AEROSPACE (0.0%)
Boeing Co........................................ 2,700 88,088
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BUILDING MATERIALS (0.1%)
Owens Corning.................................... 4,400 $ 155,925
Rock of Ages Corp.+.............................. 2,300 32,200
Sherwin-Williams Co.............................. 19,800 581,625
-------------
769,750
-------------
BUSINESS & PUBLIC SERVICES (0.0%)
Century Business Services, Inc.+................. 1,600 23,050
Comfort Systems USA, Inc.+....................... 3,700 66,138
Service Experts, Inc.+........................... 3,200 93,600
-------------
182,788
-------------
CAPITAL GOODS (0.2%)
ABC Rail Products Corp.+......................... 2,700 33,159
Applied Power, Inc., Class A..................... 2,200 83,050
Eaton Corp....................................... 6,200 438,263
Foster Wheeler Corp.............................. 2,100 27,694
IDEX Corp........................................ 8,100 198,450
MagneTek, Inc.+.................................. 8,000 92,500
Modine Manufacturing Co.......................... 9,500 343,781
Shaw Group, Inc.+................................ 5,300 42,400
Wabash National Corp............................. 6,100 123,906
-------------
1,383,203
-------------
COMMERCIAL SERVICES (0.5%)
Cendant Corp.+................................... 65,400 1,246,688
On Assignment, Inc.+............................. 1,700 58,066
Pinkertons, Inc.+................................ 2,950 62,872
Service Corp. International...................... 42,400 1,613,850
Source Information Management Co.+............... 3,300 37,950
Wackenhut Corrections Corp.+..................... 2,700 77,288
-------------
3,096,714
-------------
CONSTRUCTION & HOUSING (0.1%)
D.R. Horton, Inc................................. 13,676 314,548
-------------
DIVERSIFIED MANUFACTURING (3.3%)
AlliedSignal, Inc................................ 56,300 2,494,794
AptarGroup, Inc.................................. 1,800 50,513
Coltec Industries, Inc.+......................... 11,400 222,300
Cooper Industries, Inc........................... 10,100 481,644
Eastman Kodak Co................................. 23,700 1,706,400
General Electric Co.............................. 68,000 6,940,250
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
DIVERSIFIED MANUFACTURING (CONTINUED)
Harris Corp...................................... 9,600 $ 351,600
Illinois Tool Works, Inc......................... 4,500 261,000
Intermet Corp.................................... 9,100 118,869
ITT Industries, Inc.............................. 11,900 473,025
Johnson Controls, Inc............................ 8,500 501,500
National Service Industries, Inc................. 1,100 41,800
Parker Hannifin Corp............................. 9,600 314,400
Rockwell International Corp...................... 11,700 568,181
Sensormatic Electronics Corp.+................... 3,300 22,894
Tenneco, Inc..................................... 17,000 579,063
Tyco International Ltd........................... 62,800 4,737,475
Xerox Corp....................................... 1,200 141,600
-------------
20,007,308
-------------
ELECTRICAL EQUIPMENT (0.2%)
Anixter International, Inc.+..................... 10,700 217,344
Caterpillar, Inc................................. 9,500 437,000
Emerson Electric Co.............................. 3,300 199,650
W.W. Grainger, Inc............................... 8,600 357,975
-------------
1,211,969
-------------
MACHINERY (0.1%)
Deere & Co....................................... 17,500 579,688
Milacron Inc..................................... 2,100 40,425
Sauer, Inc....................................... 4,400 33,275
-------------
653,388
-------------
PACKAGING & CONTAINERS (0.4%)
Ivex Packaging Corp.+............................ 4,000 93,000
Kimberly-Clark Corp.............................. 27,800 1,515,100
Smurfit-Stone Container Corp.+................... 29,304 462,454
-------------
2,070,554
-------------
POLLUTION CONTROL (0.5%)
Browning-Ferris Industries, Inc.................. 18,300 520,406
Tetra Technologies, Inc.+........................ 8,100 88,594
Waste Management, Inc............................ 56,800 2,648,300
-------------
3,257,300
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 33,035,610
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TECHNOLOGY (11.5%)
AEROSPACE (0.3%)
L-3 Communications Holdings, Inc.+............... 2,200 $ 102,438
Orbital Sciences Corp.+.......................... 5,900 261,075
Raytheon Co., Class A............................ 30,100 1,555,794
-------------
1,919,307
-------------
COMPUTER PERIPHERALS (1.8%)
Bolder Technologies Corp.+....................... 2,400 29,400
Cisco Systems, Inc.+............................. 82,900 7,696,747
EMC Corp./Mass+.................................. 26,800 2,278,000
HMT Technology Corp.+............................ 13,200 169,125
Hutchinson Technology, Inc.+..................... 3,200 113,300
Maxtor Corp.+.................................... 13,800 194,063
Pinnacle Systems, Inc.+.......................... 4,000 141,750
-------------
10,622,385
-------------
COMPUTER SOFTWARE (1.9%)
Aspect Development, Inc.+........................ 2,900 129,594
Aspen Technologies, Inc.+........................ 4,500 64,969
Autodesk, Inc.................................... 1,900 81,047
Avid Technology, Inc.+........................... 2,100 49,219
BroadVision, Inc.+............................... 4,300 139,078
CNET, Inc.+...................................... 1,200 63,938
Computer Associates International, Inc........... 21,300 907,913
Concord Communications, Inc.+.................... 400 22,900
Concur Technologies, Inc.+....................... 300 9,066
Exchange Applications, Inc.+..................... 300 5,869
HNC Software, Inc.+.............................. 5,100 206,231
Legato Systems, Inc.+............................ 2,200 144,994
Macromedia, Inc.+................................ 4,500 151,453
MAPICS, Inc.+.................................... 8,400 140,175
Metro Information Services, Inc.+................ 3,600 106,425
Microsoft Corp.+................................. 51,400 7,120,506
MicroStrategy, Inc.+............................. 3,600 112,500
Network Associates, Inc.+........................ 4,600 305,181
New Era of Networks, Inc.+...................... 1,900 83,363
Oracle Corp.+.................................... 28,900 1,247,216
PeopleSoft, Inc.+................................ 10,800 204,188
Symantec Corp.+.................................. 2,600 56,388
Transaction Systems Architects, Inc., Class A+... 2,600 130,813
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMPUTER SOFTWARE (CONTINUED)
TSI International Software Ltd.+................. 1,000 $ 48,375
Visio Corp.+..................................... 3,600 130,613
-------------
11,662,014
-------------
COMPUTER SYSTEMS (2.4%)
3Com Corp.+...................................... 17,700 793,734
Cognex Corp.+.................................... 2,400 47,850
Compaq Computer Corp............................. 79,600 3,338,225
Digital River, Inc.+............................. 1,500 53,625
Equant NV-NY Registered Shares+(i)............... 1,000 67,813
International Business Machines Corp............. 47,000 8,683,237
Sun Microsystems, Inc.+.......................... 20,400 1,745,475
-------------
14,729,959
-------------
ELECTRONICS (0.0%)
Integrated Device Technology, Inc.+.............. 10,100 61,705
Quickturn Design System, Inc.+................... 5,100 72,834
Veeco Instruments, Inc.+......................... 2,100 111,038
-------------
245,577
-------------
INFORMATION PROCESSING (0.2%)
Condor Technology Solutions, Inc.+............... 6,000 59,625
CSG Systems International, Inc.+................. 2,800 220,850
Excel Switching Corp.+........................... 5,100 194,597
First Data Corp.................................. 24,000 760,500
Pegasus Systems, Inc.+........................... 2,300 82,513
Visual Networks, Inc.+........................... 1,000 37,469
-------------
1,355,554
-------------
SEMICONDUCTORS (2.3%)
Applied Mircro Circuits Corp.+................... 2,900 98,600
ATMI, Inc.+...................................... 6,500 164,531
Exar Corp.+...................................... 3,400 54,825
Intel Corp....................................... 78,200 9,269,144
Motorola, Inc.................................... 29,800 1,819,663
SDL, Inc.+....................................... 4,400 173,938
SIPEX Corp.+..................................... 3,600 127,688
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
SEMICONDUCTORS (CONTINUED)
Texas Instruments, Inc........................... 21,000 $ 1,796,813
Xilinx, Inc.+.................................... 3,800 247,356
-------------
13,752,558
-------------
TELECOMMUNICATION EQUIPMENT (1.0%)
ANTEC Corp.+..................................... 3,100 62,581
Lucent Technologies, Inc......................... 51,900 5,709,000
Proxim, Inc.+.................................... 4,100 109,547
Tekelec+......................................... 1,300 21,572
-------------
5,902,700
-------------
TELECOMMUNICATION SERVICES (1.6%)
Airtouch Communications, Inc.+................... 9,000 649,125
America Online, Inc.+............................ 2,100 336,000
Concentric Network Corp.+........................ 9,000 300,656
Exodus Communications, Inc.+..................... 4,000 258,250
Global Crossing Ltd.+(i)......................... 2,800 126,175
MCI WorldCom, Inc.+.............................. 106,300 7,630,347
MetroNet Communications Corp., Class B+.......... 7,000 234,500
Teligent, Inc., Class A+......................... 2,900 83,556
-------------
9,618,609
-------------
TOTAL TECHNOLOGY............................... 69,808,663
-------------
TRANSPORTATION (0.6%)
AIRLINES (0.0%)
AMR Corp.+....................................... 2,800 166,250
Southwest Airlines Co............................ 400 8,975
-------------
175,225
-------------
RAILROADS (0.4%)
Burlington Northern Sante Fe Corp................ 22,200 749,250
CSX Corp......................................... 11,300 468,950
Genesee & Wyoming, Inc., Class A+................ 2,900 36,613
Norfolk Southern Corp............................ 7,800 247,163
Union Pacific Corp............................... 12,800 576,800
Wisconsin Central Transportation Corp.+.......... 1,700 29,059
-------------
2,107,835
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TRANSPORT & SERVICES (0.0%)
C.H. Robinson Worldwide, Inc..................... 4,300 $ 111,397
-------------
TRUCK & FREIGHT CARRIERS (0.2%)
Allied Holdings, Inc.+........................... 6,600 94,875
American Freightways Corp.+...................... 2,800 32,288
CNF Transportation, Inc.......................... 2,100 78,881
Consolidated Freightways Corp.+.................. 600 9,638
FDX Corp.+....................................... 4,500 400,500
Jevic Transportation, Inc.+...................... 400 3,050
Ryder System, Inc................................ 3,300 85,800
Werner Enterprises, Inc.......................... 11,025 195,005
-------------
900,037
-------------
TOTAL TRANSPORTATION........................... 3,294,494
-------------
UTILITIES (4.1%)
ELECTRIC (1.1%)
Allegheny Energy, Inc............................ 8,600 296,700
Ameren Corp...................................... 6,700 286,006
Baltimore Gas & Electric Co...................... 10,400 321,100
Central & South West Corp........................ 37,900 1,039,881
Central Hudson Gas & Electric Corp............... 4,900 219,275
Cinergy Corp..................................... 7,300 250,938
Cleco Corp....................................... 6,000 205,875
CMS Energy Corp.................................. 7,100 343,906
Edison International............................. 21,300 593,738
Entergy Corp..................................... 17,300 538,463
GPU, Inc......................................... 7,700 340,244
Illinova Corp.................................... 5,000 125,000
New England Electric System...................... 4,200 202,125
Northeast Utilities+............................. 9,600 153,600
Northern States Power Co......................... 10,500 291,375
PP&L Resources, Inc.............................. 11,700 326,138
Texas Utilities Co............................... 18,400 859,050
Western Resources, Inc........................... 4,600 152,950
Wisconsin Energy Corp............................ 8,100 254,644
-------------
6,801,008
-------------
NATURAL GAS (0.4%)
Atmos Energy Corp................................ 6,700 216,075
Consolidated Natural Gas Co...................... 6,700 361,800
Enron Corp....................................... 23,000 1,312,454
Public Service Company of North Carolina, Inc.... 2,800 72,800
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
NATURAL GAS (CONTINUED)
Wicor, Inc....................................... 8,600 $ 187,588
-------------
2,150,717
-------------
TELEPHONE (2.6%)
Ameritech Corp................................... 13,800 874,575
AT & T Corp...................................... 74,800 5,628,700
Bell Atlantic Corp............................... 47,600 2,522,800
Cincinnati Bell, Inc............................. 5,300 200,406
Frontier Corp.................................... 8,600 292,400
GTE Corp......................................... 75,000 4,875,000
Intermedia Communications, Inc.+................. 1,900 32,894
ITC DeltaCom, Inc................................ 900 13,669
NEXTLINK Communications, Inc., Class A+.......... 1,300 37,213
SBC Communications, Inc.......................... 26,800 1,437,150
-------------
15,914,807
-------------
WATER (0.0%)
American States Water Co......................... 2,300 62,675
E'Town Corp...................................... 2,100 99,488
-------------
162,163
-------------
TOTAL UTILITIES................................ 25,028,695
-------------
TOTAL UNITED STATES COMMON STOCK (COST
$228,833,540)................................. 316,505,492
-------------
TOTAL COMMON STOCK (COST $293,647,344)......... 391,578,948
-------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
CONVERTIBLE PREFERRED STOCKS (0.3%)
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (0.3%)
Home Ownership Funding, (144A) 13.331%
(Industrial Products & Services)............... 2,000 $ 1,889,146
-------------
(IN JPY)
------------
JAPAN (0.0%)
AB International Cayman Trust, 0.500%
(Banking)...................................... 8,000,000 57,980
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$2,050,683)................................... 1,947,126
-------------
PREFERRED STOCK (0.0%)
(IN USD)
------------
AUSTRALIA (0.0%)
News Corp. Ltd. (Broadcasting & Publishing)(s)... 32,200 196,120
-------------
GERMANY (0.0%)
Volkswagen AG (Automotive)(s).................... 3,308 164,851
-------------
TOTAL PREFERRED STOCK (COST $333,216).......... 360,971
-------------
RIGHTS (0.0%)
SPAIN (0.0%)
Telefonica SA (Telecommunications)(s) (cost
$14,374)....................................... 15,200 13,517
-------------
TOTAL EQUITY SECURITIES (COST $296,045,617).... 393,900,562
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FIXED INCOME SECURITIES (31.8%)
CONVERTIBLE BONDS (0.1%)
(IN JPY)
------------
JAPAN (0.1%)
Sanwa International Finance Trust, 1.25% due
07/31/05 (Financial Services).................. 18,000,000 $ 124,472
Yamanouchi Pharmaceutical Co. Ltd., 1.25% due
03/31/14 (Commercial Services)................. 10,000,000 161,795
-------------
286,267
-------------
TOTAL CONVERTIBLE BONDS (COST $248,639)........ 286,267
-------------
COLLATERIZED OBLIGATIONS (4.7%)
(IN USD)
------------
FINANCE (4.7%)
American Southwest Financial Corp., Support Bond,
Series 60, Class D, Callable, 8.90% due
03/01/18....................................... $ 1,525,528 1,615,519
BA Mortgage Securities, Inc., Subordinated Bond,
NAS Series 1997-1, Class B2, Callable, 7.50%
due 07/25/26................................... 245,732 211,714
Bear Stearns Structured Securities Inc.,
Sequential Payer, Series 1997-2, Class 1A5,
Callable, (144A), 7.00% due 08/25/36........... 2,500,000 2,516,797
BTC Mortgage Investors Trust, Series 1997-S1,
Class B (144A), 6.45% due 12/31/09............. 500,000 500,000
Chase Commercial Mortgage Securities Corp.,
Subordinated Bond, Series 1996-2, Class F,
Callable, (144A), 6.90% due 11/19/06........... 250,000 214,375
Countrywide Home Loans, Sequential Payer, Series
1998-5, Class A, Callable, 6.75% due
05/25/28....................................... 986,030 981,254
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCE (CONTINUED)
CS First Boston Mortgage Securities Corp.,
Sequential Payer, Series 1997-C2, Class A1,
Callable, 6.40% due 02/17/04................... $ 1,132,801 $ 1,157,228
CS First Boston Mortgage Securities Corp.,
Subordinated Bond, Series 1997-C2, Class B,
Callable, 6.72% due 11/17/07................... 600,000 627,188
Deutsche Mortgage & Asset Receiving Corp.,
Sequential Payer, Series 1998-C1, Class A1,
Partially Callable, 6.22% due 09/15/07......... 1,920,334 1,943,138
First Union - Lehman Brothers Commercial Mortgage
Securities Corp., Subordinated Bond, Series
1997-C2, Class E, Partially Callable, 7.12% due
11/18/12....................................... 300,000 269,156
GE Capital Mortgage Services, Inc., REMIC:
Subordinated Bond, NAS, Series 1997-12, Class
B3, Callable, (144A), 7.00% due 12/25/27....... 396,728 305,480
GE Capital Mortgage Services, Inc., Subordinated
Bond, NAS, Series 1995-10, Class B2, Callable,
7.00% due 10/25/10............................. 240,076 233,436
GE Capital Mortgage Services, Inc., Subordinated
Bond, NAS, Series 1998-1, Class B3, Callable,
6.75% due 01/25/13............................. 97,832 80,955
Green Tree Financial Corp., Sequential Payer,
Series 1992-1, Class A3, Callable, 6.70% due
10/15/17....................................... 467,492 468,792
Green Tree Financial Corp., Sequential Payer,
Series 1994-1, Class A4, Callable, 7.20% due
04/15/19....................................... 3,000,000 3,078,090
Green Tree Financial Corp., Sequential Payer,
Series 1996-3, Class A5, Callable, 7.35% due
05/15/27....................................... 616,000 639,544
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCE (CONTINUED)
Green Tree Home Improvement Loan Trust,
Sequential Payer, AS, Series 1997-E, Class
HEA2, Callable, 6.39% due 01/15/29............. $ 2,000,000 $ 2,046,520
J.P. Morgan Commercial Mortgage Finance Corp.,
Subordinated Bond, CSTR, Series 1996-C2, Class
E, Callable, (144A), 8.68% due 11/25/27(j)..... 250,000 224,023
Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, Callable 8.05% due 06/15/21................. 190,054 179,274
Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
Partially Callable, 7.12% due 06/18/29......... 1,000,000 770,781
Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1998-WF1, Class A1, Partially Callable,
6.25% due 07/15/07(t).......................... 1,672,440 1,699,094
Morgan Stanley Capital I, Inc., Subordinated
Bond, CSTR, Series 1997-RR, Class D, Callable,
(144A), 7.76% due 04/30/39..................... 800,000 646,750
Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1995-GAL1, Class E, Callable,
(144A), 8.25% due 08/15/05..................... 250,000 221,914
Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-HF1, Class F, Partially
Callable, (144A), 6.86% due 02/15/10........... 1,000,000 771,563
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCE (CONTINUED)
Mortgage Capital Funding, Inc., Sequential Payer,
Series 1997-MC2, Class A1, Partially Callable,
6.53% due 01/20/07............................. $ 466,949 $ 480,082
Norwest Asset Securities Corp., Subordinated
Bond, NAS, Series 1998-4, Class 2B3, Callable,
(144A), 6.75% due 02/25/28..................... 148,749 115,983
Norwest Asset Securities Corp., Subordinated
Bond, NAS, Series 1998-5, Class B3, Callable,
(144A), 6.75% due 03/25/28..................... 248,292 193,372
Ocwen Residential MBS Corp., Series 1998-R1,
Class A1, Callable, (144A), 4.00% due
10/25/40....................................... 1,177,463 1,178,751
Premier Auto Trust, Sequential Payer, Series
1998-3, Class A4, Callable, 5.96% due
10/08/02....................................... 1,400,000 1,439,676
Sears Credit Account Master Trust, Series 1996-1,
Class A, Callable, 6.20% due 02/16/06.......... 1,400,000 1,425,830
The Money Store Home Equity Trust, TAC (11)
Sequential Payer, AS, Series 1997-D, Class AF4,
Callable, 6.44% due 09/15/24................... 800,000 807,250
World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1996-A, Class A1,
Callable, 6.30% due 06/25/02(s)................ 120,727 120,727
World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1997-A, Class A2,
Callable, 6.75% due 06/25/03................... 1,194,850 1,226,597
-------------
28,390,853
-------------
TOTAL COLLATERIZED OBLIGATIONS (COST
$28,567,051).................................. 28,390,853
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
CORPORATE OBLIGATIONS (8.6%)
BASIC INDUSTRIES (0.2%)
CHEMICALS (0.1%)
Lyondell Chemical Co., Refunding, 9.80% due
02/01/20....................................... $ 500,000 $ 511,775
Solutia, Inc., Callable, Putable 6.72% due
10/15/37....................................... 350,000 371,749
-------------
883,524
-------------
METALS & MINING (0.1%)
P&L Coal Holdings Corp., Series B, Partially
Callable 05/15/03, 9.63% due 05/15/08.......... 300,000 304,500
Ryerson Tull, Inc., Callable, 9.13% due
07/15/06....................................... 200,000 214,750
-------------
519,250
-------------
1,402,774
-------------
CONSUMER GOODS & SERVICES (0.7%)
APPARELS & TEXTILES (0.0%)
Westpoint Stevens, Inc., Callable, 7.88% due
06/15/05....................................... 200,000 205,000
-------------
AUTOMOTIVE SUPPLIES (0.0%)
Federal-Mogul Corp., Callable, 7.75% due
07/01/06....................................... 270,000 270,837
-------------
BROADCASTING & PUBLISHING (0.4%)
Capstar Broadcasting Partners, Partially Callable
07/01/02, 9.25% due 07/01/07................... 250,000 260,000
Fox Family Worldwide, Inc., Partially Callable
11/01/02, 9.25% due 11/01/07................... 400,000 395,000
TCI Communications, Inc., Refunding, 7.88% due
08/01/13....................................... 1,250,000 1,465,625
-------------
2,120,625
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (0.1%)
Fox/Liberty Networks LLC, Partially Callable
08/15/02, 8.88% due 08/15/07................... $ 250,000 $ 255,000
Lamar Advertising Co., Callable 09/15/02, 8.63%
due 09/15/07................................... 300,000 310,125
-------------
565,125
-------------
FOOD, BEVERAGES & TOBACCO (0.2%)
Aurora Foods, Inc., Series B, Callable 07/01/03,
8.75% due 07/01/08............................. 200,000 208,250
J Seagram & Sons, 7.60% due 12/15/28............. 750,000 753,390
-------------
961,640
-------------
RETAIL (0.0%)
Federated Department Stores, Inc., 8.13% due
10/15/02....................................... 200,000 214,556
-------------
4,337,783
-------------
ENERGY (0.7%)
NATURAL GAS (0.2%)
Columbia Gas System, Inc., 6.61% due 11/28/02.... 500,000 520,960
National Fuel Gas Co., Series D, MTN, Putable,
6.21% due 08/12/27............................. 500,000 518,415
-------------
1,039,375
-------------
OIL PRODUCTION (0.1%)
Ocean Energy, Inc., Series B, Callable 07/15/02,
8.88% due 07/15/07............................. 400,000 396,000
Plains Resources, Inc., Series D, Callable
03/15/01, 10.25% due 03/15/06.................. 250,000 250,000
-------------
646,000
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
OIL SERVICES (0.4%)
Lasmo (USA) Inc., Callable 7.30% due 11/15/27.... $ 2,000,000 $ 1,852,660
Oil Purchase Co., Sinking Fund, (144A), 7.10% due
10/31/02....................................... 864,300 812,442
-------------
2,665,102
-------------
4,350,477
-------------
FINANCE (4.6%)
BANKING (0.6%)
First Union Corp., Putable, 6.55% due
10/15/35(t).................................... 2,800,000 2,926,504
Union Bank of Switzerland - New York, 7.75% due
09/01/26....................................... 375,000 419,171
-------------
3,345,675
-------------
FINANCIAL SERVICES (4.0%)
Associates Corp. N.A., 6.25% due 11/01/08........ 800,000 830,656
Associates Corp. N.A., Putable, 5.96% due
05/15/37....................................... 610,000 627,934
FCB/NC Capital Trust I, Callable 03/01/08, 8.05%
due 03/01/28................................... 600,000 648,486
FCB/SC Capital Trust I, Callable 03/15/08, 8.25%
due 03/15/28................................... 1,250,000 1,417,613
First Union Institutional Capital II, Callable
01/01/07, 7.85% due 01/01/27................... 1,000,000 1,090,720
Ford Motor Credit Co., MTN, 5.99% due
02/27/01(s).................................... 3,000,000 3,036,900
General Motors Acceptance Corp., MTN, 8.50% due
01/19/01....................................... 2,000,000 2,114,400
Golden State Holdings, Inc., Callable, 7.13% due
08/01/05....................................... 500,000 498,065
Keystone Financial Mid Atlantic Funding, 6.50%
due 05/31/08................................... 1,000,000 1,053,550
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
Norwest Financial, Inc., Callable 07/15/07, 7.20%
due 04/01/04(t)................................ $ 3,000,000 $ 3,205,980
Phillips 66 Capital Trust II, Callable 01/15/07,
8.00% due 01/15/37............................. 1,000,000 1,045,720
Safeco Capital Trust I, Callable 07/15/07, 8.07%
due 07/15/37................................... 900,000 952,812
Sun Healthcare Group, Inc., Callable 05/01/03,
(144A), 9.38% due 05/01/08..................... 210,000 168,525
Sun World International, Inc., Series B, Callable
04/15/01, 11.25% due 04/15/04.................. 250,000 264,375
Toyota Motor Credit Corp., 5.63% due 11/13/03.... 7,000,000 7,060,340
-------------
24,016,076
-------------
27,361,751
-------------
HEALTHCARE (0.0%)
HEALTH SERVICES (0.0%)
Genesis Health Ventures, Callable 06/15/00, 9.75%
due 06/15/05................................... 250,000 247,812
-------------
INDUSTRIAL PRODUCTS & SERVICES (0.0%)
DIVERSIFIED MANUFACTURING (0.0%)
Polymer Group, Inc., Series B, Partially Callable
07/01/02, 9.00% due 07/01/07................... 250,000 246,875
-------------
TECHNOLOGY (0.6%)
ELECTRONICS (0.5%)
Sensormatic Electronics Corp., Callable, (144A),
7.74% due 03/29/06(f).......................... 3,000,000 2,818,020
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TELECOMMUNICATION SERVICES (0.1%)
McLeodUSA, Inc., Callable 07/15/02, 9.25% due
07/15/07....................................... $ 200,000 $ 207,250
Qwest Communications International, Inc., Series
B, Partially Callable 04/01/02, 10.88% due
04/01/07....................................... 130,000 149,663
-------------
356,913
-------------
3,174,933
-------------
TRANSPORTATION (1.0%)
TRANSPORT & SERVICES (1.0%)
Atlantic Express Transportation Corp., Partially
Callable 02/01/01, 10.75% due 02/01/04......... 250,000 253,750
Enterprise Rent-a-Car USA Finance Co., (144A),
6.38% due 05/15/03............................. 2,000,000 2,001,200
Union Pacific Corp., 5.78% due 10/15/01(s)....... 1,750,000 1,729,158
Williams Companies, Inc., 6.13% due
02/01/01(s).................................... 2,000,000 2,002,780
-------------
5,986,888
-------------
UTILITIES (0.8%)
ELECTRIC (0.2%)
PECO Energy Capital Trust III, Series D, 7.38%
due 04/06/28................................... 1,300,000 1,328,145
-------------
NATURAL GAS (0.2%)
Atmos Energy Corp., Callable, 6.75% due
07/15/28....................................... 1,200,000 1,158,276
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TELEPHONE (0.4%)
SBC Communications, Inc., Callable 11/01/07,
7.25% due 11/01/27............................. $ 1,000,000 $ 1,063,160
US West Capital Funding, Inc., Callable, 6.25%
due 07/15/05(s)................................ 1,300,000 1,353,196
-------------
2,416,356
-------------
4,902,777
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$51,414,138).................................. 52,012,070
-------------
FOREIGN CORPORATE OBLIGATIONS (2.3%)
AUSTRALIA (0.6%)
Australian Gas Light Co. Ltd., (144A), 6.40% due
04/15/08 (Gas-Pipelines)(s).................... 1,600,000 1,620,384
St. George Funding Co., Callable 06/30/07,
(144A), 8.49% due 12/31/49 (Financial
Services)(v)................................... 2,000,000 1,800,000
-------------
3,420,384
-------------
CANADA (0.4%)
Cott Corp., Callable 07/01/00, 8.50% due 05/01/07
(Food, Beverages & Tobacco).................... 250,000 233,125
Express Pipeline LP, Series B, Callable, Sinking
Fund, (144A), 7.39% due 12/31/19
(Oil-Production)............................... 249,800 235,436
McKesson Finance of Canada, (144A), 6.55% due
11/01/02 (Financial Services).................. 750,000 767,145
Rogers Cablesystems Ltd., Callable 12/01/02,
10.00% due 12/01/07 (Telecommunications)....... 250,000 281,563
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
35
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
CANADA (CONTINUED)
Rogers Cantel, Inc., Callable 10/01/02, 8.30% due
10/01/07 (Telecommunications).................. $ 250,000 $ 249,375
Teekay Shipping Corp., Sinking Fund, 8.32% due
02/01/08 (Transport & Services)................ 500,000 496,875
-------------
2,263,519
-------------
DENMARK (0.4%)
Den Danske Bank, (144A), 7.25% due 06/15/05
(Banking)...................................... 2,500,000 2,686,175
-------------
HONG KONG (0.0%)
Bangkok Bank Public Co. Ltd, (144A), 7.25% due
09/15/05 (Banking)............................. 60,000 41,025
Bangkok Bank Public Co. Ltd, (144A), 8.38% due
01/15/27 (Banking)............................. 12,000 6,945
-------------
47,970
-------------
MEXICO (0.2%)
Petroleos Mexicanos, MTN, 7.60% due 06/15/00
(Oil-Production)............................... 1,300,000 1,290,250
-------------
NORWAY (0.4%)
Norsk Hydro ASA, Callable, 6.80% due 01/15/28
(Multi - Industry)............................. 2,500,000 2,465,000
-------------
SOUTH KOREA (0.1%)
Korea Development Bank, 6.25% due 05/01/00
(Banking)...................................... 500,000 482,395
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
UNITED KINGDOM (0.2%)
Abbey National First Capital BV, 8.20% due
10/15/04 (Financial Services).................. $ 1,000,000 $ 1,125,200
Orange PLC, Callable 08/01/03, 8.00% due 08/01/08
(Telephone).................................... 200,000 200,500
-------------
1,325,700
-------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$13,619,738).................................. 13,981,393
-------------
GOVERNMENT OBLIGATIONS (0.3%)
SUPRANATIONAL OBLIGATION (0.3%)
Inter-American Development Bank, 5.38% due
11/18/08 (COST $1,890,576)..................... 1,900,000 1,914,687
-------------
SOVEREIGN BONDS (0.0%)
POLAND (0.0%)
Republic of Poland, Bearer, PDI, Callable
4/27/99, Sinking Fund, 5.00% due 10/27/14(v)
(COST $212,477)................................ 250,000 232,500
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (8.6%)
FEDERAL HOME LOAN MORTGAGE CORP. (1.0%)
8.50% due 09/01/01............................... 7,989 8,214
8.50% due 07/01/02............................... 366,669 377,043
Gold, 8.00% due 11/01/26......................... 1,559,667 1,612,462
Sequential Payer, Series 2019, Class C, Partially
Callable, 6.50% due 02/15/19................... 1,250,000 1,255,078
Sequential Payer, Series 1980, Class VB, 7.00%
due 03/15/11................................... 2,750,000 2,812,315
-------------
6,065,112
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (5.6%)
6.50% due 02/01/13............................... 4,802 4,870
6.50% due 03/01/28(t)............................ 4,131,789 4,158,770
8.00% due 12/01/26............................... 1,909,758 1,973,448
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
36
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
PAC-1, Series 1994-51, Class PH, 6.50% due
01/25/23....................................... $ 7,400,000 $ 7,607,718
Sequential Payer, Series 1998-11, Class Z, 6.00%
due 03/18/28................................... 1,576,710 1,449,612
TBA, January, 6.00% due 12/01/99................. 11,419,000 11,251,280
TBA, January, 6.50% due 12/01/99................. 7,000,000 7,035,000
-------------
33,480,698
-------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (2.0%)
7.00% due 01/15/28............................... 76,237 78,013
7.00% due 03/15/28............................... 770,320 788,221
7.00% due 04/15/28............................... 215,178 220,217
7.00% due 06/15/28............................... 215,332 220,375
7.00% due 09/15/28............................... 3,650,897 3,736,328
7.00% due 11/15/28............................... 4,198,069 4,296,472
8.50% due 06/15/27............................... 525,959 556,575
8.50% due 09/15/27............................... 2,226,994 2,355,625
TBA, January, 7.00% due 12/15/99................. 60,000 61,388
-------------
12,313,214
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST
$51,105,607).................................. 51,859,024
-------------
U.S. TREASURY OBLIGATIONS (7.2%)
U.S. TREASURY BONDS (2.2%)
6.00% due 02/15/26............................... 4,675,000 5,111,131
6.50% due 11/15/26(t)............................ 1,000,000 1,164,860
6.75% due 08/15/26(s)............................ 4,276,000 5,124,487
12.00% due 08/15/13(t)........................... 1,060,000 1,618,016
-------------
13,018,494
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
U.S. TREASURY NOTES (5.0%)
5.38% due 06/30/03(s)............................ $ 1,420,000 $ 1,460,953
5.63% due 05/15/08............................... 285,000 304,138
5.75% due 08/15/03(s)............................ 370,000 386,317
6.13% due 08/15/07............................... 8,140,000 8,906,055
6.25% due 02/28/02(s)............................ 8,280,000 8,658,644
6.63% due 03/31/02............................... 70,000 74,016
6.63% due 06/30/01(s)............................ 5,555,000 5,814,030
6.88% due 05/15/06(s)............................ 2,479,000 2,807,889
7.88% due 11/15/04(s)............................ 1,705,000 1,974,561
-------------
30,386,603
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$41,829,745).................................. 43,405,097
-------------
TOTAL FIXED INCOME SECURITIES (COST
$188,887,971)................................. 192,081,891
-------------
</TABLE>
<TABLE>
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.4%)
OTHER INVESTMENT COMPANIES (0.0%)
SSGA Money Market Fund, 4.87% due 01/04/99(y).... 759 759
-------------
REPURCHASE AGREEMENT (3.3%)
Goldman Sachs Repurchase Agreement, 4.25% dated
12/31/98, due 01/04/99, proceeds $19,804,348
(collateralized by $20,653,000 U.S. Treasury
Bill, 4.41% due 07/01/99, valued at
$20,190,972)................................... 19,795,000 19,795,000
-------------
TIME DEPOSITS (0.0%)
State Street Bank & Trust Co. London, 2.75% due
01/04/99....................................... 231,000 231,000
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
37
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.1%)
Bills, 4.41% due 02/04/99(y)..................... $ 510,000 $ 507,722
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$20,534,481).................................. 20,534,481
-------------
TOTAL INVESTMENTS (COST $505,468,069) (100.5%).................
606,516,934
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.5%)..................
(2,981,140)
-------------
NET ASSETS (100.0%)............................................ $ 603,535,794
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $506,044,180 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized appreciation
and depreciation was $113,480,726 and $13,007,972, respectively, resulting
in net unrealized appreciation of $100,472,754.
+ Non-income producing security.
(f) Fair valued security. Approximately 0.5% of the market value of the
securities have been valued at fair value. (See Note 1a.)
(i) Foreign security.
(j) The security is issued by a related party of J.P. Morgan.
(s) Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$79,460,450 of the market value has been segregated.
(t) All or a portion of the security has been segregated as collateral for TBA
securities and when issued securities.
(v) Rate shown reflects current rate on variable or floating rate instrument or
instrument with step coupon rate.
(y) Yield to maturity.
144A - Securities restricted for resale to Qualified Institutional Buyers.
ADR - American Depositary Receipt
AS - Accelerated Security
CSTR - Collateral Strip Rate
JPY - Japanese Yen
MTN - Medium Term Note
NAS - Non-accelerated security
PAC - Planned Amortization Class
PDI - Past Due Interest
REMIC - Real Estate Mortgage Investment Conduit
SDR - Swedish Depositary Receipt
TAC - Targeted Amortization Class
TBA - Securities purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date. The actual principal amount
and maturity date will be determined upon settlement date.
USD - United States Dollar
The Accompanying Notes are an Integral Part of the Financial Statements.
38
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
PORTFOLIO
-----------------
<S> <C>
U.S. Government Agency/Treasury Obligations....... 15.7%
Financial Services................................ 12.5%
Banking........................................... 6.4%
Pharmaceuticals................................... 6.0%
Food & Beverages.................................. 4.3%
Retail............................................ 3.9%
Diversified Manufacturing......................... 3.3%
Telephone......................................... 3.0%
Insurance......................................... 2.6%
Computer Systems.................................. 2.5%
Oil-Production.................................... 2.4%
Semi-Conductors................................... 2.3%
Broadcasting & Publishing......................... 2.1%
Oil-Services...................................... 2.1%
Computer Software................................. 2.0%
Telecommunications Services....................... 1.9%
Computer Peripherals.............................. 1.8%
Electric.......................................... 1.6%
Chemicals......................................... 1.4%
Telecommunications Equipment...................... 1.2%
Transport & Services.............................. 1.2%
Entertainment..................................... 1.1%
Automotive........................................ 1.0%
Household Products................................ 1.0%
Telecommunications................................ 0.9%
Health Services................................... 0.9%
Electronics....................................... 0.9%
Metals & Mining................................... 0.8%
Natural Gas....................................... 0.7%
Commercial Services............................... 0.6%
Multi-Industry.................................... 0.5%
Pollution......................................... 0.5%
Forest Products & Paper........................... 0.5%
Utilities......................................... 0.5%
Miscellaneous..................................... 6.5%
Short-Term Investments............................ 3.4%
-----------------
100.0%
-----------------
-----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
39
<PAGE>
THE DIVERSIFIED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $505,468,069 ) $606,516,934
Foreign Currency at Value (Cost $3,355,833 ) 3,332,181
Receivable for Investments Sold 11,840,517
Interest Receivable 2,255,622
Unrealized Appreciation of Forward Foreign
Currency Contracts 559,620
Dividends Receivable 506,013
Foreign Tax Reclaim Receivable 118,199
Receivable for Expense Reimbursement 58,667
Variation Margin Receivable 14,631
Prepaid Trustees' Fees 2,172
Prepaid Expenses and Other Assets 4,345
------------
Total Assets 625,208,901
------------
LIABILITIES
Payable for Investments Purchased 20,868,272
Unrealized Depreciation of Forward Foreign
Currency Contracts 278,485
Advisory Fee Payable 271,884
Custody Fee Payable 134,186
Payable to Custodian 82,269
Administrative Services Fee Payable 13,408
Fund Services Fee Payable 479
Administration Fee Payable 100
Accrued Expenses 24,024
------------
Total Liabilities 21,673,107
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $603,535,794
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
40
<PAGE>
THE DIVERSIFIED PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $46,652 ) $ 2,591,803
Interest Income (Net of Foreign Withholding Tax
of $180 ) 6,549,488
-----------
Investment Income 9,141,291
EXPENSES
Advisory Fee $ 1,554,481
Custodian Fees and Expenses 275,605
Administrative Services Fee 79,377
Professional Fees and Expenses 25,427
Fund Services Fee 7,487
Administration Fee 4,799
Printing Expenses 4,351
Trustees' Fees and Expenses 3,595
Insurance Expense 1,034
Amortization of Organization Expense 18
-----------
Total Expenses 1,956,174
Less: Reimbursement of Expenses (119,060)
-----------
NET EXPENSES 1,837,114
-----------
NET INVESTMENT INCOME 7,304,177
NET REALIZED GAIN (LOSS) ON
Investment Transactions 14,963,315
Futures Contracts (625,326)
Foreign Currency Contracts and Transactions (253,374)
-----------
Net Realized Gain 14,084,615
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments 14,279,901
Futures Contracts (100,066)
Foreign Currency Contracts and Translations (297,772)
-----------
Net Change in Unrealized Appreciation 13,882,063
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $35,270,855
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
41
<PAGE>
THE DIVERSIFIED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
DECEMBER 31, 1998 YEAR ENDED
(UNAUDITED) JUNE 30, 1998
----------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 7,304,177 $ 13,414,451
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 14,084,615 22,974,590
Net Change in Unrealized Appreciation of
Investments, Futures and Foreign Currency
Contracts and Translations 13,882,063 38,417,752
----------------- --------------
Net Increase in Net Assets Resulting from
Operations 35,270,855 74,806,793
----------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 65,123,800 230,295,407
Withdrawals (55,924,249) (53,675,147)
----------------- --------------
Net Increase from Investors' Transactions 9,199,551 176,620,260
----------------- --------------
Total Increase in Net Assets 44,470,406 251,427,053
NET ASSETS
Beginning of Period 559,065,388 307,638,335
----------------- --------------
End of Period $ 603,535,794 $ 559,065,388
----------------- --------------
----------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FISCAL YEAR JULY 8, 1993
SIX MONTHS ENDED ENDED JUNE 30, (COMMENCEMENT OF
DECEMBER 31, 1998 ------------------------- OPERATIONS) THROUGH
(UNAUDITED) 1998 1997 1996 1995 JUNE 30, 1994
----------------- ---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.65%(a) 0.65% 0.65% 0.65% 0.65% 0.70%(a)
Net Investment Income 2.58%(a) 3.13% 3.33% 3.35% 3.71% 2.88%(a)
Expenses without Reimbursement 0.69%(a) 0.71% 0.80% 0.82% 0.97% 1.18%(a)
Portfolio Turnover 54%(b) 82% 100% 144% 136% 115%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
42
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Diversified Portfolio (the "portfolio") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a no-load diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York on January 29, 1993. The portfolio commenced operations on
July 8, 1993. The portfolio's investment objective is to provide a high total
return from a diversified portfolio of equity and fixed income securities. The
Portfolio may invest in international markets. The Declaration of Trust permits
the trustees to issue an unlimited number of beneficial interests in the
portfolio.
Investments in emerging and international markets may involve certain
considerations and risks not typically associated with investments in the United
States. Future economic and political developments in emerging market and
foreign countries could adversely affect the liquidity or value, or both, of
such securities in which the portfolio is invested. The ability of the issuers
of debt, asset-backed and mortgage securities held by the portfolio to meet
their obligations may be affected by economic and political developments in a
specific industry or region. The value of asset-backed and mortgage securities
can be significantly affected by changes in interest rates or rapid principal
repayments including pre-payments.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the portfolio's trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
short-term portfolio securities with a remaining maturity of less than 60
days are valued by the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the portfolio's trustees.
The portfolio's custodian or designated subcustodians, as the case may be
under tri-party repurchase agreements, takes possession of the collateral
pledged for investments in repurchase agreements on
43
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 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 investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expense are
translated at the exchange rates prevailing on the respective dates of
such transactions. Translation gains and losses resulting from changes in
exchange rates during the reporting period and gains and losses realized
upon settlement of foreign currency transactions are reported in the
Statement of Operations. Although the net assets of the portfolio are
presented at the exchange rates and market values prevailing at the end of
the period, the portfolio does not isolate the portion of the results of
operations arising as a result of changes in foreign exchange rates from
the fluctuations arising from changes in the market prices of securities
during the period.
c) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount 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 $5,000 which
were deferred and were 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 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 and spot foreign
currency contract translations. At December 31, 1998, the portfolio had
open forward currency contracts as follows:
44
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
VALUE 12/31/98 (DEPRECIATION)
----------- ----------- --------------
<S> <C> <C> <C>
PURCHASE CONTRACTS
Australian Dollar 675,388, expiring 01/22/99..... $ 424,201 $ 414,349 $ (9,852)
Belgian Franc 13,720,975, expiring 01/22/99...... 403,558 399,955 (3,603)
British Pound 43,526, expiring 01/22/99.......... 73,737 72,366 (1,371)
French Franc 29,482,266, expiring 02/12/99....... 5,343,313 5,289,037 (54,276)
German Mark 5,120,457, expiring 01/22/99......... 3,138,690 3,077,640 (61,050)
German Mark 618,834 for GBP 218,461, expiring
01/25/99........................................ 368,224 377,052 8,828
German Mark 8,731,254, expiring 02/12/99......... 5,304,206 5,253,427 (50,779)
Hong Kong Dollar 1,479,238, expiring 01/22/99.... 190,648 190,931 283
Japanese Yen 430,031,512, expiring 01/22/99...... 3,698,548 3,823,637 125,089
Japanese Yen 111,320,000 for GBP 566,644,
expiring 01/22/99............................... 949,181 996,889 47,708
Netherlands Guilder 782,212, expiring 01/22/99... 421,496 417,250 (4,246)
Spanish Peseta 22,873,115, expiring 01/22/99..... 161,876 161,609 (267)
Swiss Franc 531,555, expiring 01/22/99........... 398,021 387,926 (10,095)
Swiss Franc 210,797 for FIM 795,843, expiring
01/22/99........................................ 158,121 154,606 (3,515)
Swiss Franc 501,517 for SEK 2,860,000, expiring
01/22/99........................................ 366,805 379,627 12,822
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
VALUE
----------
<S> <C> <C> <C>
SALES CONTRACTS
Australian Dollar 319,811, expiring 01/22/99..... $ 202,536 $ 196,203 $ 6,333
British Pound 729,184, expiring 01/22/99......... 1,222,736 1,212,335 10,401
Danish Krone 1,100,000, expiring 01/22/99........ 171,142 172,940 (1,798)
French Franc 29,482,266, expiring 02/12/99....... 5,421,328 5,289,037 132,291
German Mark 8,312,219, expiring 01/22/99......... 4,930,000 4,996,041 (66,041)
German Mark 8,731,254, expiring 02/12/99......... 5,349,049 5,253,427 95,622
Hong Kong Dollar 1,700,000, expiring 01/22/99.... 218,847 219,426 (579)
Japanese Yen 38,000,000, expiring 01/22/99....... 328,576 337,878 (9,302)
New Zealand Dollar 568,620, expiring 01/22/99.... 305,747 300,487 5,260
Swedish Krona 5,041,891, expiring 01/22/99....... 650,633 622,624 28,009
Swiss Franc 2,644,055, expiring 01/22/99......... 2,014,880 1,929,617 85,263
--------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $281,135
--------
--------
</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
45
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
securities index. The price at which the purchase and sale will take place
is fixed when the portfolio enters into the contract. Upon entering into
such a contract, the portfolio is required to pledge to the broker an
amount of cash and/or liquid securities equal to the minimum "initial
margin" requirements of the exchange. Pursuant to the contract, the
portfolio agrees to receive from, or pay to, the broker an amount of cash
equal to the daily fluctuation in the value of the contract. Such receipts
or payments are known as "variation margin" and are recorded by the
portfolio as unrealized gains or losses. When the contract is closed, the
portfolio records a realized gain or loss equal to the difference between
the value of the contract at the time it was opened and the value at the
time when it was closed. The portfolio invests in futures contracts for
the purpose of hedging its existing portfolio securities, or securities
the 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. At December 31, 1998, the portfolio had
open futures contracts as follows:
SUMMARY OF OPEN CONTRACTS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
Australian All Ordinary Index, expiring March
1999............................................ 30 $ 29,518 $ 1,287,021
CAC 40 Index, expiring January 1999.............. 3 5,185 100,224
DAX Index, expiring March 1999................... 1 21,246 279,267
Financial Times-Stock Exchange 100 - Share Index,
expiring March 1999............................. 8 10,537 770,768
Hang Seng Index, expiring January 1999........... 12 (30,147) 813,921
U.S. Five Year Note, expiring March 1999......... 216 (138,773) 24,621,023
-------------- -------------- ----------------
Totals........................................... 270 $ (102,434) $ 27,872,224
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS SHORT (DEPRECIATION) OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
Topix Index, expiring March 1999................. 7 $ 10,928 $ (679,054)
U.S. Ten Year Note, expiring March 1999.......... 28 (16,793) (3,319,582)
U.S. Thirty Year Bond, expiring March 1999....... 46 96,193 5,974,130
--------------- -------------- ----------------
Totals........................................... 81 $ 90,328 $ 1,975,494
--------------- -------------- ----------------
--------------- -------------- ----------------
</TABLE>
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 may
46
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
be subject to taxes imposed by countries in which it invests. Such taxes
are generally based on income and/or capital gains earned. Taxes are
accrued and applied to net investment income, net realized capital gains
and unrealized appreciation, as applicable, as to the income and/or
capital gains are earned.
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 0.55% 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 six months ended December 31, 1998, such fees
amounted to $1,554,481.
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 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 six months ended December 31, 1998,
the fee for these services amounted to $4,799.
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 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 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 December 31, 1998, the fee
for these services amounted to $79,377.
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 0.65% of the average daily net assets of the fund. This
reimbursement arrangement can be terminated at any time at the option of
J.P. Morgan. For the six months ended December 31, 1998, J.P. Morgan has
agreed to reimburse the portfolio $119,060 for expenses under this
agreement.
47
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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 $7,487 for the six months ended December 31, 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 $1,600.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $265,219,684 $247,010,545
Corporate and Collateralized Obligations......... 43,429,765 48,149,476
------------ ------------
$308,649,449 $295,160,021
------------ ------------
------------ ------------
</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.
48
