(front cover)
J.P. Morgan
Diversified Fund
Semi-annual Report
December 31, 2000
LETTER TO THE SHAREHOLDERS
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January 23, 2001
Dear Shareholder,
Navigating through the financial markets during the last half of 2000 was no
simple task. Reports of slower U.S. economic growth, a drastic revaluation of
many technology stocks, and a change in the Federal Reserve's interest rate bias
made this a challenging time for both equity and fixed-income investors. For
the six months ended December 31, 2000, the J.P. Morgan Diversified Fund had a
total return of -4.06%.
The Fund's benchmark and peer group, as measured by the Lipper Balanced
Funds Average, fared little better. The benchmark (comprised of 52% S&P 500
Index, 35% Saloman Smith Barney Broad Investment Grade Bond Index, 10% MSCI EAFE
Index, and 3% Russell 2000 Index) had a total return of -3.28% for the six
months ended December 31, 2000, while the Fund's peer group had a total return
of 0.03% for the same time period.
The Fund's net asset value (NAV) on December 31, 2000, was $15.20, down from
$16.61 at the start of the fiscal year. During the period, the Fund made
distributions of approximately $0.31 per share from ordinary income,
approximately $0.19 per share from short-term capital gains, and approximately
$0.23 per share from long-term capital gains. The Fund's total net assets were
approximately $327.4 million on December 31, 2000, a decrease from
approximately $358.5 million at the start of the fiscal year.
This report includes an interview with John Devlin, a member of the
portfolio management team for The J.P. Morgan Diversified Portfolio. John
discusses the financial markets in detail, and explains the factors that
influenced investment performance during the period. John also provides insight
in regard to positioning the Fund for the coming months.
As chairman and president of Asset Management Services, we appreciate your
investment in the Portfolio. If you have any comments or questions, please
contact your Morgan representative, or call J.P. Morgan Funds Services at (800)
521-5411.
Sincerely yours,
/signature/ /signature/
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
TABLE OF CONTENTS
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Letter to the Shareholders 1
Fund Performance 2
Portfolio Manager Q&A 3
Fund Facts & Highlights 5
Financial Statements 6
1
FUND PERFORMANCE
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EXAMINING PERFORMANCE
One way to look atperformance is to review a fund's average annual total return.
This calculation takes the fund's actual return and shows what would have
happened if the fund had achieved that return by performing at a constant rate
each year. Average annual total returns represent the average yearly change of
a fund's value over various time periods,typically one,five, and ten years,(or
since inception).Total returns for periods of less than one year are not
annualized and provide a picture of how a fund has performed over the short-term
PERFORMANCE
TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
-------------------- -----------------------------------------
SIX ONE THREE FIVE SINCE
MONTHS YEAR YEARS YEARS INCEPTION*
AS OF DECEMBER 31, 2000
J.P. Morgan Diversified Fund (4.06)% (4.24)% 8.86% 11.63% 11.74%
Lipper Balanced Funds Average** 0.03% 1.51% 7.88% 11.39% 11.22%
Diversified Benchmark*** (3.28)% (2.30)% 10.12% 13.06% 12.87%
S&P 500 Index (8.72)% (9.11)% 12.26% 18.33% 17.94%
Salomon Smith Barney Broad
Investment Grade Index 7.38% 11.59% 6.36% 6.45% 6.46%
MSCI EAFE Index (10.53)% (14.17)% 9.35% 7.13% 7.65%
Russell 2000 Index (5.88)% (3.02)% 4.65% 10.31% 10.88%
* Reflects the performance of the J.P. Morgan Institutional Diversified Fund,
a separate feeder fund investing in the same master portfolio, from September
10, 1993 (the J.P. Morgan Institutional Diversified Fund's inception date) to
December 15, 1993 (the inception date of the J.P. Morgan Diversified Fund). The
performance for that period reflects the deduction of the expenses of the J.P.
Morgan Institutional Diversified Fund, which were lower than the expenses of the
J.P. Morgan Diversified Fund. Therefore, had the J.P. Morgan Diversified Fund
existed during this period, its returns would have been lower. For the purposes
of comparison, the "since inception" returns are calculated from September 30,
1993, the first date when data for the J.P. Morgan Institutional Diversified
Fund, its benchmark, and its Lipper category were all available. The total
return for the J.P. Morgan Institutional Diversified Fund from September 10,
1993 to December 15, 1993 and the J.P. Morgan Diversified Fund's return from
December 15, 1993 through December 31, 2000 was 11.50%.
** Describes the average total return for all funds in the indicated Lipper
category, as defined by Lipper Inc., and does not take into account applicable
sales charges. Lipper Analytical Services, Inc. is a leading source for fund
data.
*** Comprises 52% S&P Index, 35% Salomon Smith Barney Broad Investment Grade
Bond Index, 10% MSCI EAFE Index, and 3% Russell 200 Index. The benchmark does
not include fees or operating expenses, and is not available for actual
investment.
The S&P 500 Index, Salomon Smith Barney Broad Investment Grade Bond Index,
MSCI EAFE Index, and Russell 2000 Index are unmanaged indices that measure
performance based on the average performance of 500 widely held U.S. large-cap
stocks; of approximately 4,700 individually priced investment-grade bonds rated
BBB or better; of nearly 1,100 stocks traded in Europe, Australasia, and the Far
East; and of 2,000 U.S. small-cap companies, respectively. The indices do not
include fees or operating expense, and are not available for actual investment.
Past performance is no guarantee of future results. Fund returns are net of
fees, assume the reinvestment of distributions and reflect reimbursement of
certain fund and portfolio expenses as described in the prospectus. Had expenses
not been subsidized, returns would have been lower.
2
PORTFOLIO MANAGER Q&A
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[photo of John M. Devlin, Jr.]
The following is an interview with JOHN M. DEVLIN, JR., vice president, and
a member of the portfolio management team for The Diversified Portfolio since
December 1993. John joined Morgan in 1986, starting on the fixed-income trading
desk as a mortgage and corporate specialist before going on special assignment
in the Frankfurt office. Before joining Morgan, John was a pension and Treasury
fund manager at U.S. Steel. He earned an undergraduate degree in Finance from
Georgetown University and an M.B.A. from Pace University, where he also served
as an adjunct professor of Finance for 10 years. This interview took place on
January 20, 2001, and reflects John's views on that date.
WHAT WENT ON IN THE CAPITAL MARKETS DURING THE LAST SIX MONTHS?
A number of events had an impact on the capital markets in the latter half
of 2000. The slowing of the U.S. economy during the late summer accelerated
sharply during the fourth quarter. The Federal Reserve, which had progressively
tightened U.S. monetary policy during the first half of the year, moved to an
easing bias in December, then cut interest rates by half a percentage point in
January. Investors abandoned technology, media and telecommunications stocks for
the tried-and-true companies of the old economy, sending the NASDAQ down 50%
from its all-time high in March. In the fixed income market, Treasuries were
scarce as the government continued its buyback program. And in the wake of a
series of earnings surprises, the credit quality of corporate and high yield
bonds deteriorated.
TELL US A LITTLE MORE ABOUT WHAT HAPPENED IN THE EQUITY MARKETS.
Actually, in many ways, it was a relatively benign year. There were no big
economic crises anywhere in the world and no hedge fund failures. However, a
number of smaller events took center stage-- the Microsoft antitrust action, for
example, and the litigation against Philip Morris and other tobacco
manufacturers. Less clear was the impact of the SEC's new full disclosure rule,
which went into effect in October. Analysts were worried that the rule might
keep them from getting the information they need to forecast stock performance
As the economy began to slow in the third quarter, investors began to
question the business plans of dot-com stocks. Because companies like
Priceline.com and eToys derive most of their revenue from advertising,
stockholders were concerned about their ability to turn a profit or to continue
to obtain financing. Investors were also worried that large capitalization
companies would be unable to sustain their earnings growth and severely punished
any company that failed to meet earnings expectations.
Investors sought safety in old economy stocks, which outperformed other
issues during the second half of 2000. For the first time in years, utilities
(until the supply and demand problems in California) and insurance stocks gained
more than technology, media and telecommunications stocks. After sharp
corrections in 1999 and early 2000, these old economy stocks were now seen to
have attractive valuations.
HOW DID THE FIXED INCOME MARKETS FARE?
In March 2000, the Treasury began its bond buyback program. The result: an
inverted Treasury yield curve in which short-term rates are higher than
long-term rates. As corporate profits declined sharply during the fourth
quarter, the credit quality in the high-yield and investment-grade corporate
sectors deteriorated. These sectors also suffered because of a lack of
liquidity in the market. One cause was the decline over the past several years
in the number of broker-dealers participating in the market.
Another was high short-term rates, which made it expensive for dealers to
finance inventory and led them to minimize their positions. In addition,
traditional portfolio buyers--insurance companies for example--were less willing
to step in.
HOW WAS THE PORTFOLIO POSITIONED?
On the equity side of the portfolio, we were underweighted in large cap
equities and slightly overweighted in both small cap and international stocks.
We adopted this strategy because small capitalization stocks and international
equities were cheaper than large cap equities. Our underweighting of large
3
PORTFOLIO MANAGER Q&A
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(Continued)
cap equities, which fell in value during the last half of 2000, had a
positive impact on performance.
In the fixed income portfolio, we moved to a long duration posture on the
Treasury yield curve in anticipation of a decline in interest rates. During the
summer, we maintained an underweighting in corporate bonds and invested instead
in Treasuries and AAA mortgage-backed securities because of their shorter
duration. All these decisions benefited performance.
WHICH PARTICULAR STOCKS HELPED OR HURT PERFORMANCE OVER THIS REPORTING PERIOD?
A number of large cap stocks contributed to our performance, including Sun
Microsystems, Alza Corp., Allstate and Comcast. The portfolio also benefited
from our decision not to hold or to take only small positions in such poor
performers such as Lucent, AT&T, Coca-Cola, and Xerox. Major detractors were
holdings in EMC Corp., Dell Computer and Level 3, coupled with an underweighting
in Qualcomm and Boeing.
WHAT IS YOUR OUTLOOK OVER THE NEAR TERM? AND HOW ARE YOU POSITIONING THE
PORTFOLIO?
The Diversified Fund brings together in a single fund the best of J.P.
Morgan's fundamental research capabilities in both equities and fixed income.
Based on that research, we have moved into 2001 with a tactical allocation of
asset classes that are very close to the strategic normals for the Fund.
In particular, for the first half of 2001, we expect U.S. economic data to
continue to disappoint and the growth of the economy to sink well below its
potential. However, we think financial conditions in the U.S. will improve with
short-term interest rates falling, the dollar weakening, and a fiscal boost,
such as a tax cut, provided by the federal government. Since the Fed eased
interest rates at the beginning of 2001, the two to 30-year Treasury yield
curve has turned slightly positive. We expect the yield curve to continue to
normalize as the Fed lowers rates a full percentage point over the next several
months. Falling mortgage rates and some easing of the tightness in corporate
credit should lead to some economic reacceleration by the end of 2001. We also
see modest increases in stock prices and a narrowing of yield spreads on riskier
assets such as high yield bonds.
We believe European economic growth will exceed that of the U.S. during
2001. The Eurodollar should gain strength, which will have some negative impact
but will give the European Community a better sense of well-being. Japan's
economic growth remains extremely narrow, a situation we do not expect to
improve.
4
FUND FACTS
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INVESTMENT OBJECTIVE
J.P. Morgan Diversified Fund seeks to provide a high total return from a
diversified portfolio of stocks and bonds. It is designed for investors who wish
to invest for long-term objectives, such as retirement, and who seek over time
to attain real appreciation of their investments, but with somewhat less price
fluctuation than a portfolio consisting solely of equity securities.
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Inception Date: 12/15/1993
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Fund Net Assets as of 12/31/2000:
$327,441,102
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Portfolio Net Assets as of 12/31/2000:
$949,076,175
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Income Payable Dates
(if applicable): QUARTERLY
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Capital Gain Payable Dates
(if applicable): 12/20/2000
EXPENSE RATIOS
The Fund's current annualized expense ratio of 0.97% covers shareholders'
expenses for custody, tax reporting, investment advisory, and shareholder
services, after reimbursement. The Fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for buying,
selling or safekeeping fund shares, or for wiring redemption proceeds from the
Fund.
PORTFOLIO HIGHLIGHTS
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All data as of December 31, 2000
DIVERSIFIED STRATEGY
[data from pie chart]
U.S. Large-Cap Equities 52%
Fixed Income 35%
International Equities 10%
U.S. Small-Cap Equities 3%
ASSET ALLOCATION AS OF 12/31/2000
[data from pie chart]
U.S. Large-Cap Equities 46.9%
Fixed Income 33.0%
International Equities 9.5%
Short-Term & Other Investments 7.4%
U.S. Small-Cap Equities 3.2%
TOP 10 HOLDINGS % OF TOTAL
(EXCLUDING SHORT-TERM INVESTMENTS) INVESTMENTS
- -----------------------------------------------------
FNMA, TBA, 7.00%, 1/1/31 2.9%
General Electric Co. (U.S.) 2.0%
Citigroup Inc. 1.5%
U.S. Treasury Bonds, 6.50%, 11/15/26 1.4%
Exxon Mobil Corp. 1.3%
Cisco Systems Inc. 1.3%
U.S. Treasury Bonds, 6.00%, 2/15/26 1.3%
Pfizer, Inc. 1.1%
FHLMC, 6.88%, 9/15/10 1.1%
Merck & Co., Inc. 1.1%
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT INSURED BY THE FDIC,
ARE NOT BANK DEPOSITS OR OTHER OBLIGATIONS OF THE FINANCIAL INSTITUTION AND ARE
NOT GUARANTEED BY THE FINANCIAL INSTITUTION. SHARES OF THE FUND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
References to specific securities and their issuers are for illustrative
purposes only and are not intended to be, and should not be interpreted as,
recommendations to purchase or sell securities. Opinions expressed herein and
other Fund data presented are based on current market conditions and are
subject to change without notice. The Fund invests in foreign securities which
involve special risks including economic and political instability and currency
fluctuations; prospective investors should refer to Fund discussion of these
risks. The Fund invests through a master portfolio (another Fund with the same
objective).
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
5
J.P. MORGAN DIVERSIFIED FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
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DECEMBER 31, 2000
ASSETS
Investment in The Diversified Portfolio ("Portfolio"), at value $327,543,617
Prepaid Trustees' Fees and Expenses 449
Prepaid Expenses and Other Assets 497
----------------
TOTAL ASSETS 327,544,563
----------------
LIABILITIES
Shareholder Servicing Fee Payable 69,118
Administrative Services Fee Payable 6,584
Fund Services Fee Payable 204
Administration Fee Payable 117
Accrued Expenses and Other Liabilities 27,438
----------------
TOTAL LIABILITIES 103,461
----------------
NET ASSETS
Applicable to 21,535,238 Shares of Beneficial Interest Outstanding
(par value $0.001, unlimited shares authorized) $327,441,102
================
Net Asset Value, Offering and Redemption Price Per Share $15.20
================
ANALYSIS OF NET ASSETS
Paid-in Capital $300,662,569
Undistributed Net Investment Income 108,846
Accumulated Net Realized Loss on Investment (2,343,139)
Net Unrealized Appreciation on Investment 29,012,826
----------------
NET ASSETS $327,441,102
================
6 The Accompanying Notes are an Integral Part of the Financial Statements.
J.P. MORGAN DIVERSIFIED FUND
STATEMENT OF OPERATIONS (UNAUDITED)
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FOR THE SIX MONTHS ENDED DECEMBER 31, 2000
INVESTMENT INCOME
INCOME
Allocated Investment Income from Portfolio $ 5,955,267
Allocated Portfolio Expenses (1,149,569)
----------------
Investment Income 4,805,698
----------------
FUND EXPENSES
Shareholder Servicing Fee 442,122
Administrative Services Fee 42,308
Financial and Fund Accounting Services Fee 25,206
Transfer Agent Fees 19,359
Registration Fees 17,211
Printing Expenses 8,654
Professional Fees 6,705
Fund Services Fee 2,409
Administration Fee 1,869
Trustees' Fees and Expenses 1,527
Miscellaneous 6,374
----------------
Total Fund Expenses 573,744
----------------
NET INVESTMENT INCOME 4,231,954
----------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM PORTFOLIO (1,888,145)
----------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
ON INVESTMENT ALLOCATED FROM PORTFOLIO (16,765,810)
----------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(14,422,001)
================
The Accompanying Notes are an Integral Part of the Financial Statements. 7
J.P. MORGAN DIVERSIFIED FUND
STATEMENT OF CHANGES IN NET ASSETS
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FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 (UNAUDITED)
AND THE YEAR ENDED JUNE 30, 2000
INCREASE (DECREASE) IN NET ASSETS DECEMBER 31, 2000 JUNE 30, 2000
FROM OPERATIONS
Net Investment Income $ 4,231,954 $ 7,232,323
Net Realized Gain (Loss) on Investment Allocated from Portfolio (1,888,145) 10,552,155
Net Change in Unrealized Appreciation (Depreciation) on
Investment Allocated from Portfolio (16,765,810) 4,740,251
-------------------- -----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (14,422,001) 22,524,729
-------------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (6,322,419) (5,267,216)
Net Realized Gain (8,728,875) (10,741,495)
------------------- ------------------
Total Distributions to Shareholders (15,051,294) (16,008,711)
------------------- ------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 49,496,643 167,393,396
Reinvestment of Distributions 14,897,219 15,834,355
Cost of Shares of Beneficial Interest Redeemed (65,979,111) (97,570,139)
------------------- ------------------
Net Increase (Decrease) from Transactions in
Shares of Beneficial Interest (1,585,249) 85,657,612
------------------- ------------------
Total Increase (Decrease) in Net Assets (31,058,544) 92,173,630
------------------- ------------------
NET ASSETS
Beginning of Period 358,499,646 266,326,016
------------------- ------------------
End of Period $327,441,102 $358,499,646
=================== ==================
Undistributed Net Investment Income $108,846 $2,199,311
=================== ==================
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Shares of Beneficial Interest Sold 3,031,964 10,253,653
Shares of Beneficial Interest Reinvested 986,896 966,810
Shares of Beneficial Interest Redeemed (4,066,578) (5,911,802)
------------------- ------------------
Net Increase (Decrease) in Shares of Beneficial Interest (47,718) 5,308,661
=================== ==================
8 The Accompanying Notes are an Integral Part of the Financial Statements.
J.P. MORGAN DIVERSIFIED FUND
FINANCIAL HIGHLIGHTS
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SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD ARE AS FOLLOWS:
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED JUNE 30
DECEMBER 31, 2000 ------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
--------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $16.61 $16.36 $15.06 $13.89 $12.22 $11.20
--------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.21 0.36 0.34 0.33 0.37 0.30
Net Realized and Unrealized Gain (Loss)
on Investment (0.89) 0.70 1.61 2.03 2.02 1.48
--------------------------------------------------------------------------
Total From Investment Operations (0.68) 1.06 1.95 2.36 2.39 1.78
--------------------------------------------------------------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.31) (0.26) (0.35) (0.53) (0.32) (0.32)
Net Realized Gain (0.42) (0.55) (0.30) (0.66) (0.40) (0.44)
--------------------------------------------------------------------------
Total Distributions to Shareholders (0.73) (0.81) (0.65) (1.19) (0.72) (0.76)
--------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $15.20 $16.61 $16.36 $15.06 $13.89 $12.22
==========================================================================
RATIOS AND SUPPLEMENTAL DATA
Total Return (4.06)%(a) 6.61% 13.35% 18.06% 20.52% 16.51%
Net Assets, End of Period (in thousands) $327,441 $358,500 $266,326 $227,064 $70,338 $53,198
Ratios to Average Net Assets
Net Expenses 0.97%(b) 0.96% 0.98% 0.98% 0.98% 0.98%
Net Investment Income 2.39%(b) 2.19% 2.22% 2.81% 3.00% 3.04%
Expenses without Reimbursement 0.97%(b) 0.98% 1.01% 1.07% 1.25% 1.36%
(a) Not annualized
(b) Annualized
The Accompanying Notes are an Integral Part of the Financial Statements. 9
J.P. MORGAN DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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DECEMBER 31, 2000
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1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--J.P. Morgan Diversified Fund (the "Fund") is a separate
series of J.P. Morgan Funds, a Massachusetts business trust (the "Trust"),
which was organized on November 4, 1992. The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund commenced operations on December 15, 1993.
The Fund invests all of its investable assets in The Diversified Portfolio
(the "Portfolio"), a diversified open-end management investment company having
the same investment objective as the Fund. The value of such investment included
in the Statement of Assets and Liabilities reflects the Fund's proportionate
interest in the net assets of the Portfolio (approximately 34.5% at December 31,
2000). The performance of the Fund is directly affected by the performance of
the Portfolio. The financial statements of the Portfolio, including the
Schedule of Investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures. Actual amounts could differ from those estimates. The following
is a summary of the significant accounting policies of the Fund:
SECURITY VALUATION--Valuation of securities by the Portfolio is discussed in
Note 1 of the Portfolio's Notes to Financial Statements that are included
elsewhere in this report.
INVESTMENT INCOME--The Fund earns income, net of expenses, daily on its
investment in the Portfolio. All net investment income, realized and unrealized
gains and losses of the Portfolio are allocated pro-rata among the Fund and
other investors in the Portfolio at the time of such determination.
EXPENSES--Expenses incurred by the Trust with respect to any two or more
Funds in the Trust are allocated in proportion to the net assets of each Fund in
the Trust, except where allocations of direct expenses to each Fund can
otherwise be made fairly.
INCOME TAX STATUS--It is the Fund's policy to distribute all net investment
income and net realized gains to shareholders and to otherwise qualify as a
regulated investment company under the provisions of the Internal Revenue Code.
Accordingly, no provision has been made for federal or state income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to a shareholder are recorded
on the ex-dividend date. Distributions from net investment income are declared
and paid quarterly. Distributions from net realized gains, if any, are paid
annually.
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2. TRANSACTIONS WITH AFFILIATES
ADMINISTRATIVE SERVICES--The Trust has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan") under which Morgan is responsible for certain aspects of the
administration and operation of the Fund. Under the Services Agreement, the
Trust 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 Trust and certain other registered investment companies
for which J.P. Morgan Investment Management, Inc. ("JPMIM") acts as investment
advisor 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 Funds Distributor, Inc. The portion of this charge
payable by the Fund is determined by the proportionate share that its net assets
bear to the net assets of the Trust and certain other investment companies for
which Morgan provides similar services.
ADMINISTRATION--The Trust has retained Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, to serve as the co-administrator and distributor for
the Fund. Under a Co-Administration Agreement between FDI and the Trust, FDI
provides administrative services necessary for the operations of the Fund,
furnishes office space and facilities, required for conducting the business of
the Fund and pays the compensation of the Fund's officers affiliated with FDI.
The Fund has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The portion
of this charge payable by the Fund is determined by the proportionate share that
its net assets bear to the net assets of the Trust and certain other investment
companies for which FDI provides similar services.
10
J.P. MORGAN DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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(Continued)
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
SHAREHOLDER SERVICING--The Trust has a Shareholder Servicing Agreement with
Morgan under which Morgan provides account administration and personal account
maintenance service to Fund shareholders. The agreement provides for the Fund to
pay Morgan a fee for these services that is computed daily and paid monthly at
an annual rate of 0.25% of the average daily net assets of the Fund.
FUND SERVICES--The Trust has a Fund Services Agreement with Pierpont Group,
Inc. ("PGI") to assist the Trustees in exercising their overall supervisory
responsibilities for the Trust's affairs. The Trustees of the Trust represent
all the existing shareholders of PGI.
TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for
serving on the boards of the Trust, the J.P. Morgan Institutional Funds, and
other registered investment companies in which they invest. The Trustees' Fees
and Expenses shown in the financial statements represent the Fund's allocated
portion of the total Trustees' Fees and Expenses. The Trust's Chairman and Chief
Executive Officer also serves as Chairman of PGI and receives compensation and
employee benefits from PGI. The allocated portion of such compensation and
benefits included in the Fund Services Fee shown on the Statement of Operations
was $500.
- --------------------------------------------------------------------------------
3. BANK LOANS
The Fund may borrow money for temporary or emergency purposes, such as
funding shareholder redemptions. Effective May 23, 2000, the Fund, along with
certain other Funds managed by JPMIM, entered into a $150,000,000 bank line of
credit agreement with DeutscheBank. Borrowings under the agreement will bear
interest at approximate market rates. A commitment fee is charged at an annual
rate of 0.085% on the unused portion of the committed amount.
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4. CONCENTRATIONS OF RISK
From time to time, the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund.
- --------------------------------------------------------------------------------
5. CORPORATE EVENT
The merger of J.P. Morgan & Co. Incorporated, the former parent company of
the fund's advisor, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and
into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P.
Morgan Chase & Co. will be the new parent company of JPMIM, which will continue
to serve as the fund's advisor.
11
THE DIVERSIFIED PORTFOLIO
Semi-annual Report December 31, 2000
(unaudited)
(The following pages should be read in conjunction with J.P. Morgan Diversified
Fund Semi-annual Financial Statements)
12
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2000
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 4.9%
$2,075,700 AmeriCredit Automobile Receivables Trust,
Series 2000 A, Class A2 SEQ, 6.54%,
10/14/02 $ 2,075,377
10,000,000 Associates Automobile Receivables Trust,
Series 2000-2, Class A3 SEQ, 6.82%,
2/15/05 10,153,130
3,204,198 Capital Auto Receivables Asset Trust, Series
1999-1, Class A2 SEQ, 5.58%, 6/15/02 3,194,168
5,050,000 CNH Equipment Trust, Series 2000 A, Class
A3 SEQ, 7.14%, 8/15/04 5,116,761
3,200,000 Daimler-Benz Vehicle Trust, Series 1998 A,
Class A4 SEQ, 5.22%, 12/22/03 3,174,976
1,894,058 EQCC Home Equity Loan Trust, Series 1997-3,
Class A8, 6.41%, 12/15/04 1,906,483
3,500,000 First USA Credit Card Master Trust, Series
1997-6, Class A, 6.42%, 3/17/05 3,522,960
5,000,000 Ford Credit Auto Owner Trust, Series 2000 D,
Class A4 SEQ, 7.13%, 7/15/04 5,096,095
4,810,000 Green Tree Home Improvement Loan Trust,
Series 1999 E, Class A3 SEQ, 7.18%,
6/15/15 4,808,499
6,700,000 LB Commercial Conduit Mortgage Trust,
Series 1998 C1, Class A3 SEQ, 6.48%,
1/18/08 6,708,375
3,265,000 Residential Asset Securities Corp., Series
2000 KS5, Class AI1 SEQ, 7.21%, 9/25/16 3,278,354
---------------------
TOTAL ASSET-BACKED SECURITIES 49,035,178
---------------------
(Cost $48,316,519)
COLLATERALIZED MORTGAGE OBLIGATIONS - 5.7%
5,300,000 Asset Securitization Corp., Series 1997 D5,
Class A1D SEQ, 6.85%, 2/14/41 5,339,750
8,000,000 Chase Manhattan Bank-First Union National
Bank, Series 1999-1, Class A2 SEQ, 7.44%,
7/15/09 8,462,504
3,600,000 Commercial Mortgage Acceptance Corp.,
Series 1998 C2, Class A2 SEQ, 6.03%,
3/15/08 3,520,127
480,000 CS First Boston Mortgage Securities Corp.,
Series 1999 C1, Class A2 SEQ, 7.29%,
9/15/09 501,900
5,470,705 First Nationwide Trust, Series 1999-4, Class
3PA1, SEQ, 6.50%, 10/19/29 5,364,683
8,000,000 First Union Commercial Mortgage Securities,
Inc., Series 1997 C1, Class A3 SEQ,
7.38%, 4/18/07 8,402,504
199,528 GE Capital Mortgage Services, Inc., Series
1995-10, Class B2, 7.00%, 10/25/10 191,377
3,000,000 LB-UBS Commerical Mortgage Trust, Series
2000 C3, Class A2 SEQ, 7.95%, 1/15/10 3,277,500
6,000,000 Merrill Lynch Mortgage Investors, Inc.,
Series 1998 C2, Class A2 SEQ, 6.39%,
2/15/30 5,969,064
SHARES/PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
$4,598,397 Morgan Stanley Capital I, Series 1999 WF1,
Class A1 SEQ, 5.91%, 4/15/08 $ 4,571,124
120,000 PNC Mortgage Acceptance Corp., Series
2000 C2, Class A2 SEQ, 7.30%, 9/12/10 125,426
8,220,000 PNC Mortgage Acceptance Corp., Series
2000 C1, Class A2 SEQ, 7.61%, 2/15/10 8,751,735
2,500,000 SACO I Inc. Series 1997-2, Class 1A5 SEQ,
7.00%, 8/25/36 2,402,735
---------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 56,880,429
---------------------
(Cost $54,444,185)
COMMON STOCKS - 59.6%
CAPITAL MARKETS - 1.1%
SECURITIES & ASSET MANAGEMENT - 1.1%
3,800 American Capital Strategies 95,713
12,200 Edwards (A.G.), Inc. 578,738
7,800 Espeed Inc.(+) 122,363
13,931 Fimatex(i)(s)(+) 90,118
38,700 Goldman Sachs Group, Inc. (The) 4,138,480
9,000 John Hancock Financial Services, Inc. 338,625
14,100 Lehman Brothers Holdings Inc. 953,512
50,600 Merrill Lynch & Co., Inc. 3,450,287
11,100 Ocwen Financial Corp.(+) 70,763
5,700 Stilwell Financial Inc. 224,794
30,600 TD Waterhouse Group, Inc.(+) 405,450
3,700 W.P. Stewart & Co., Ltd.(+) 96,200
---------------------
10,565,043
---------------------
COMPUTER HARDWARE - 3.3%
COMPUTER HARDWARE & BUSINESS MACHINES - 3.3%
13,258 Avaya Inc.(+) 136,723
349,400 Cisco Systems Inc.(+) 13,364,550
151,800 Compaq Computer Corp. 2,284,590
120,300 Dell Computer Corp.(+) 2,097,731
88,500 EMC Corp. (Mass.)(+) 5,885,250
34,000 Hewlett-Packard Co. 1,073,125
9,200 Lexar Media Inc.(+) 8,625
6,800 M-Systems Flash Disk Pioneers(+) 94,775
14,400 Network Appliances, Inc.(+) 924,300
7,800 Optimal Robotics Corp.(+) 261,788
7,800 Pitney Bowes, Inc. 258,375
16,100 Quantum Corp. - DLT & Storage Systems(+) 214,331
2,500 Redback Networks Inc.(+) 102,500
214,900 Sun Microsystems, Inc.(+) 5,990,338
7,784 Trintech Group Plc ADR(i)(s)(+) 89,160
---------------------
32,786,161
---------------------
CONSUMER CYCLICAL - 2.2%
AIRLINES - 0.3%
8,200 AMR Corp.(+) 321,338
21,000 Singapore Airlines Ltd.(i)(s) 208,305
The Accompanying Notes are an Integral Part of the Financial Statements. 13
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
10,800 SkyWest, Inc. $ 310,500
54,400 Southwest Airlines Co. 1,824,031
---------------------
2,664,174
---------------------
APPAREL & TEXTILES - 0.1%
3,100 Coach, Inc.(+) 89,125
14,200 Jones Apparel Group, Inc.(+) 457,063
8,400 NIKE, Inc. 468,825
4,000 Skechers U.S.A. Inc.(+) 62,000
4,800 Vans, Inc.(+) 81,300
24,400 Wellman Inc. 344,650
---------------------
1,502,963
---------------------
CONSUMER DURABLES - 0.5%
41,704 Carphone Warehouse Group Plc(i)(s)(+) 121,468
6,908 Christian Dior S.A.(i)(s) 331,099
5,000 Fuji Photo Film Co. Ltd.(i)(s) 209,282
2,784 Genset S.A.(i)(s)(+) 115,009
36,826 Koninklijke Philips Electronics NV(i)(s) 1,349,123
45,000 Matsushita Electric Industrial Co., Ltd.(i)(s) 1,075,744
2,600 Nintendo Co., Ltd.(i)(s) 409,580
4,000 Pioneer Corp(i)(s) 106,830
9,600 Sony Corp.(i)(s) 664,098
209 The Swatch Group AG, B Shares(i)(s) 261,169
---------------------
4,643,402
---------------------
HOTELS - 0.2%
57,700 Hilton Hotels Corp. 605,850
22,000 Marriott International, Inc. 929,500
26,200 Starwood Hotels & Resorts Worldwide, Inc. 923,550
---------------------
2,458,900
---------------------
MOTOR VEHICLES & PARTS - 1.0%
2,500 Borg-Warner Automotive, Inc. 100,000
6,300 Daimlerchrysler AG(i)(s) 264,634
24,900 Dana Corp. 381,281
65,500 Delphi Automotive Systems 736,875
87,600 Ford Motor Co. 2,053,124
4,000 Fuji Heavy Industries Ltd.(i)(s) 24,308
57,200 General Motors Corp. 2,913,624
4,500 Gentex Corp.(+) 83,813
11,000 Honda Motor Co., Ltd.(i)(s) 410,333
11,700 Johnson Controls, Inc. 608,400
7,400 Monaco Coach Corp.(+) 130,888
114,000 Nissan Motor Co., Ltd.(i)(s)(+) 656,848
2,196 PSA Peugeot Citreon(i)(s) 499,569
29,500 Toyota Motor Corp.(i)(s) 942,863
---------------------
9,806,560
---------------------
PUBLISHING - 0.0%(z)
2,100 Knight-Ridder, Inc. 119,438
5,400 New York Times Co. (The) Cl A 216,338
---------------------
335,776
---------------------
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
RESTAURANTS - 0.1%
1,600 California Pizza Kitchen Inc.(+) $ 45,200
31,700 McDonald's Corp. 1,077,800
---------------------
1,123,000
---------------------
22,534,775
---------------------
CONSUMER SERVICES - 2.0%
ENTERTAINMENT - 0.4%
5,600 American Classic Voyages Co.(+) 78,400
84,200 Viacom, Inc. Cl B(+) 3,936,349
---------------------
4,014,749
---------------------
LEISURE - 0.5%
18,415 Amadeus Global Travel Distribution S.A.(i)(s)(+) 136,587
7,500 Anchor Gaming(+) 292,500
6,800 Concord Camera Corp.(+) 112,200
30,600 Eastman Kodak Co. 1,204,875
50,918 Granada Compass Plc(i)(s)(+) 545,686
10,500 Harley-Davidson, Inc. 417,375
27,500 Hasbro, Inc. 292,188
71,300 Hilton Group Plc(i)(s) 222,580
14,000 International Game Technology(+) 672,000
8,400 Mattel, Inc. 121,296
1,300 Namco Ltd.(i)(s) 23,905
1,600 Oriental Land Co., Ltd.(i)(s) 107,180
7,600 Penn National Gaming Inc.(+) 77,425
10,568 Scottish & Newcastle Plc(i)(s) 74,189
12,400 Station Casinos, Inc.(+) 185,225
7,300 WMS Industries Inc.(+) 146,913
---------------------
4,632,124
---------------------
MEDIA - 1.1%
69,800 AT&T Corp. - Liberty Media Group Cl A(+) 946,663
27,012 British SKY Broadcasting Plc(i)(s) 452,285
87,100 Comcast Corp. Cl A(+) 3,636,425
11,400 Fox Entertainment Group, Inc. Cl A(+) 203,775
10,100 Gannett Co., Inc. 636,931
8,200 HEARST-ARGYLE Television Inc.(+) 167,588
11,981 Pearson Plc(i)(s) 284,538
15,000 Singapore Press Holdings(i)(s) 221,453
85,300 Time Warner Inc. 4,456,071
5,039 VNU NV(i)(s) 247,668
---------------------
11,253,397
---------------------
19,900,270
---------------------
CONSUMER STABLE - 3.7%
FOOD & BEVERAGE - 1.8%
15,000 Ajinomoto Co., Inc.(i)(s) 195,053
49,000 Asahi Breweries, Ltd.(i)(s) 499,869
34,415 British American Tobacco Plc(i)(s) 262,032
29,600 Cadbury Schweppes Plc(i)(s) 204,702
59,600 Coca-Cola Co. (The) 3,631,874
83,167 Foster's Brewing Group Ltd.(i)(s) 218,119
20,900 Gallagher Group Plc(i)(s) 132,674
14 The Accompanying Notes are an Integral Part of the Financial Statements.
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
1,900 General Mills, Inc. $ 84,669
2,629 Groupe Danone(i)(s) 396,411
7,412 Heineken Holding NV(i)(s) 313,154
4,208 Heineken NV(i)(s) 254,629
36,700 Heinz (H.J.) Co. 1,740,956
2,000 Hershey Foods Corp. 128,750
11,000 KAO Corp.(i)(s) 319,790
7,900 Keebler Foods Co. 327,356
24,700 Kellogg Co. 648,375
114,916 Lion Nathan Ltd.(i)(s) 258,827
808 Nestle S.A.(i)(s)(+) 1,884,752
17,000 Nippon Meat Packers, Inc.(i)(s) 231,629
6,610 Numico NV(i)(s) 332,641
27,800 PepsiCo, Inc. 1,377,838
13,000 Quaker Oats Co. (The) 1,265,875
24,800 Reckitt Benckiser Plc(i)(s) 341,532
28,000 Snow Brand Milk Products Co., Ltd.(i)(s) 96,357
42,700 Unilever NV New York Shares(i) 2,687,431
35,900 Unilever Plc(i)(s) 307,255
---------------------
18,142,550
---------------------
HOME PRODUCTS - 1.0%
8,200 Alberto-Culver Co. Cl B 351,063
16,500 Clorox Co. 585,750
17,200 Estee Lauder Companies, Inc. 753,575
91,900 Gillette Co. 3,319,888
69,600 Procter & Gamble Co. (The) 5,459,249
---------------------
10,469,525
---------------------
TOBACCO - 0.9%
203,800 Philip Morris Companies Inc. 8,967,199
---------------------
37,579,274
---------------------
ENERGY - 4.3%
ENERGY RESERVES & PRODUCTION - 2.9%
6,500 Abraxas Petroleum Corp.(+) 28,438
9,100 Anadarko Petroleum Corp. 646,828
300 Apache Corp. 21,019
69,500 Chevron Corp. 5,868,406
3,200 Devon Energy Corp. 195,104
3,000 Evergreen Resources, Inc.(+) 115,875
154,000 Exxon Mobil Corp. 13,388,375
10,400 Newfield Exploration Co.(+) 493,350
143,300 Royal Dutch Petroleum Co. New York Shares(i) 8,678,606
8,500 Spinnaker Exploration Co.(+) 361,250
5,900 Westport Resources Corp.(+) 129,431
300 Williams Companies, Inc. (The) 11,981
---------------------
29,938,663
---------------------
OIL REFINING - 0.3%
5,000 Conoco Inc. Cl A 143,125
40,200 Texaco Inc. 2,497,425
---------------------
2,640,550
---------------------
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
OIL SERVICES - 1.1%
33,600 Baker Hughes Inc. $ 1,396,500
245,982 BP Amoco Plc(i)(s) 1,984,022
23,426 Broken Hill Proprietary Co.(i)(s)(+) 246,743
11,900 Cooper Cameron Corp.(+) 786,144
6,200 Core Laboratories NV(+) 169,338
2,400 Diamond Offshore Drilling, Inc. 96,000
111,211 ENI SpA(i)(s) 710,013
6,200 Global Industries, Ltd.(+) 84,863
48,200 Global Marine Inc.(+) 1,367,675
4,300 Gulf Island Fabrication, Inc.(+) 78,206
2,600 Halliburton Co. 94,250
28,800 McDermott International, Inc. 309,600
14,300 National-Oilwell, Inc.(+) 553,231
22,840 Repsol YPF S.A.(i)(s) 364,977
11,482 Royal Dutch Petroleum Co.(i)(s) 703,516
11,393 Total Fina Elf S.A. Cl B(i)(s)(+) 1,694,349
---------------------
10,639,427
---------------------
43,218,640
---------------------
FINANCE - 9.5%
BANKS - 5.0%
35,800 Amsouth Bancorp. 545,950
35,100 Australia & New Zealand Banking
Group Ltd.(i)(s) 280,457
65,709 Banco Bilbao Vizcaya Argentaria
S.A.(i)(s) 977,831
58,900 Bank of America Corp. 2,702,038
36,000 Bank of Fukuoka Ltd.(i)(s) 153,835
45,000 Bank of Tokyo-Mitsubishi, Ltd.(i)(s) 448,030
100,700 Bank One Corp. 3,688,137
9,300 Banknorth Group Inc. 185,419
26,400 Barclays Plc(i)(s) 817,040
11,830 BNP Paribas(i)(s) 1,038,499
294,600 Citigroup Inc. 15,043,012
5,700 City National Corp. 221,231
20,511 Commerzbank AG(i)(s) 594,859
31,900 Commonwealth Bank of Australia(i)(s) 547,779
70,246 Credito Emiliano SpA(i)(s) 307,339
13,379 DBS Group Holdings Ltd.(i)(s) 151,227
17,667 Dresdner Bank AG(i)(s) 770,474
111,900 First Union Corp. 3,112,219
1,000 Fleet Boston Financial Corp. 37,563
20,900 Hang Seng Bank Ltd.(i)(s) 281,350
8,200 Hibernia Corp. Cl A 104,550
136,567 HSBC Holdings Plc(i)(s) 2,010,422
1,100 Irwin Financial Corp. 23,306
38,900 KeyCorp 1,089,200
42,465 Lloyds TSB Group Plc(i)(s) 449,070
101 Mizuho Holdings Inc.(i)(s) 626,165
22,300 National Commerce Bancorp. 551,925
The Accompanying Notes are an Integral Part of the Financial Statements. 15
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
10,600 Net.B@nk, Inc.(+) $ 69,563
7,800 Pacific Century Financial Corp. 137,963
35,100 PNC Bank Corp. 2,564,494
35,600 Royal Bank of Scotland Plc(i)(s) 841,213
42,000 Sumitomo Bank Ltd.(i)(s) 431,401
65,000 Sumitomo Trust & Banking Co., Ltd.(i)(s) 442,250
20,000 Summit Bancorp 763,750
8,600 SunTrust Banks, Inc. 541,800
160,800 U.S. Bancorp 4,693,349
10,328 UBS AG(i)(s) 1,685,749
106,406 Unicredito Italiano SpA(i)(s) 556,456
---------------------
49,486,915
---------------------
FINANCIAL SERVICES - 4.0%
7,300 3I Group Plc(i)(s) 134,987
1,850 Aiful Corp.(i)(s) 151,143
18,200 Allied Capital Corp. 379,925
16,400 American Express Co. 900,975
9,000 AmeriCredit Corp.(+) 245,250
13,000 Amvescap Plc(i)(s) 266,796
22,100 AON Corp. 756,925
44,000 Capital One Financial Corp. 2,895,750
105,300 Cendant Corp.(+) 1,013,513
32,200 CIT Group Inc. 648,025
2,295 Consors Discount-Broker AG(i)(s)(+) 130,146
21,900 Countrywide Credit Industries, Inc. 1,100,475
10,300 Doral Financial Corp. 249,131
29,800 Fannie Mae 2,585,150
24,400 Federal Home Loan Mortgage Corp. 1,680,550
418,400 General Electric Co. (U.S.) 20,057,049
6,800 Household International, Inc. 374,000
18,297 ING Groep NV(i)(s) 1,461,561
5,000 MBNA Corp. 184,688
10,100 Medallion Financial Corp. 147,713
13,200 NextCard Inc.(+) 105,600
54,000 Nomura Securities Co., Ltd.(i)(s) 971,716
1,700 Orix Corp.(i)(s) 170,595
3,300 Promise Co., Ltd.(i)(s) 234,063
59,000 Providian Financial Corp. 3,392,499
---------------------
40,238,225
---------------------
THRIFTS - 0.5%
5,100 Bank United Corp. 347,756
20,400 Dime Bancorp, Inc. 603,075
10,500 GreenPoint Financial Corp. 429,844
8,000 Sovereign Bancorp Inc. 65,000
59,600 Washington Mutual, Inc. 3,162,524
6,500 Waypoint Financial Corp.(+) 71,500
---------------------
4,679,699
---------------------
94,404,839
---------------------
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
HEALTH SERVICES & SYSTEMS - 2.0%
MEDICAL PRODUCTS & SUPPLIES - 1.4%
46,000 Abbott Laboratories $ 2,228,125
11,500 Bard (C.R.), Inc. 535,469
33,100 Becton Dickinson & Co. 1,146,088
51,600 Boston Scientific Corp.(+) 706,275
1,000 Ciphergen Biosystems Inc.(+) 13,250
7,500 Cyberonics, Inc.(+) 174,375
27,300 Guidant Corp.(+) 1,472,494
9,500 I-STAT Corp.(+) 251,156
55,700 Johnson & Johnson 5,851,980
6,500 Medtronic, Inc. 392,438
3,600 Physiometrix, Inc.(+) 57,375
14,600 St. Jude Medical, Inc.(+) 896,988
10,500 Staar Surgical Co.(+) 131,906
1,000 Wilson Greatbatch Technologies Inc.(+) 28,250
---------------------
13,886,169
---------------------
MEDICAL PROVIDERS & SERVICES - 0.6%
2,400 Accredo Health Inc.(+) 120,450
2,600 Aetna Inc.(+) 106,763
5,900 Charles River Laboratories(+) 161,513
4,500 Deltagen Inc.(+) 46,969
64,600 HCA - The Healthcare Co. 2,843,045
20,300 Hooper Holmes, Inc. 224,518
8,900 Omnicare, Inc. 192,463
55,400 Tenet Healthcare Corp.(+) 2,461,837
7,600 Triad Hospitals Inc.(+) 247,475
---------------------
6,405,033
---------------------
20,291,202
---------------------
INDUSTRIAL CYCLICAL - 7.2%
CHEMICALS - 1.2%
47,400 Air Products & Chemicals, Inc. 1,943,399
9,600 Albemarle Corp. 237,600
18,895 BASF AG(i)(s) 854,542
15,493 Bayer AG(i)(s) 812,688
57,700 Dow Chemical Co. 2,113,262
18,120 GenTek Inc. 298,980
15,700 Georgia Gulf Corp. 267,881
2,800 Minerals Technologies Inc. 95,725
208,000 Mitsubishi Chemical Corp.(i)(s) 548,231
22,400 PPG Industries, Inc. 1,037,400
28,800 Praxair, Inc. 1,278,000
45,400 Rohm and Haas Co. 1,648,587
943 Syngenta AG(i)(s)(+) 50,627
36,000 Tokuyama Corp.(i)(s) 141,856
---------------------
11,328,778
---------------------
CONSTRUCTION & REAL PROPERTY - 0.1%
6,000 Catellus Development Corp.(+) 105,000
8,750 Elcor Corp. 147,656
28,000 Mitsubishi Estate Co. Ltd.(i)(s) 299,124
16 The Accompanying Notes are an Integral Part of the Financial Statements.
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
90,000 Nishimatsu Construction Co., Ltd.(i)(s) $ 307,356
27,000 Sekisui House, Ltd.(i)(s) 247,067
6,024 Vinci S.A.(i)(s) 370,455
---------------------
1,476,658
---------------------
DEFENSE/AEROSPACE - 0.5%
35,721 Bae Systems Plc(i)(s) 203,815
20,000 Boeing Co. 1,320,000
4,600 Ectel Ltd.(+) 52,613
13,327 European Aeronautic Defence and Space
Co.(i)(s)(+) 296,044
4,200 Goodrich (B.F.) Co. (The) 152,775
57,900 Honeywell Inc. 2,739,393
2,800 Innovative Solutions(+) 49,044
---------------------
4,813,684
---------------------
ELECTRICAL EQUIPMENT - 2.1%
3,903 ABB Ltd.(i)(s) 416,071
14,100 Advanced Fibre Communications, Inc.(+) 254,681
22,500 Agilent Technologies, Inc.(+) 1,231,875
4,068 Alcatel Optronics(i)(s)(+) 179,548
6,200 August Technology Corp.(+) 80,213
2,300 Bruker Daltronics Inc.(+) 54,194
13,500 C-Cube Microsystems Inc.(+) 166,219
1,700 Caliper Technologies Corp.(+) 79,900
59,900 Chubb Plc(s)(+) 141,362
7,800 CIENA Corp.(+) 633,750
62,200 Corning Inc. 3,284,937
3,300 DDi Corp.(+) 89,925
6,600 Dover Corp. 267,713
14,400 Eaton Corp. 1,082,700
38,751 Ericsson LM Cl B(i)(s) 441,496
4,600 Garmin Ltd.(+) 90,850
64,000 Hitachi, Ltd.(i)(s) 570,508
1,900 L-3 Communications Holdings, Inc.(+) 146,300
30,600 Level 3 Communications, Inc.(+) 1,004,063
28,400 Marconi Plc(i)(s) 304,998
9,300 Meade Corp.(+) 61,031
1,800 Millipore Corp. 113,400
3,000 Molecular Devices Corp.(+) 205,313
37,000 NEC Corp.(i)(s) 677,145
39,002 Nokia Oyj(i)(s) 1,739,362
115,200 Nortel Networks Corp. 3,693,599
5,000 Omron Corp.(i)(s) 103,984
7,500 Oplink Communications Inc.(+) 135,469
3,000 Polycom, Inc.(+) 96,563
2,900 Power-One Inc.(+) 114,006
21,400 QUALCOMM Inc.(+) 1,758,812
3,817 Siemens AG(i)(s) 498,851
6,800 Tellabs, Inc.(+) 384,200
2,900 Transgenomic, Inc.(+) 30,450
1,100 Ulticom Inc.(+) 37,469
---------------------
20,170,957
---------------------
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES - 0.0%(z)(
1,800 Eden Bioscience Corp.(+) $ 53,888
---------------------
FOREST PRODUCTS & PAPER - 0.4%
15,500 Buckeye Technologies Inc.(+) 217,969
19,200 Caraustar Industries Inc. 180,000
61,463 CSR Ltd.(i)(s) 159,796
5,300 Georgia-Pacific Corp. 164,963
59,100 Hanson Plc(i)(s) 405,181
12,800 Kimberly-Clark Corp. 904,832
6,603 Lafarge S.A.(i)(s) 553,608
24,800 Pactiv Corp.(+) 306,900
34,200 Smurfit-Stone Container Corp.(+) 510,863
49,960 Stora Enso Oyj R Shares(i)(s) 590,381
2,900 Temple-Inland Inc. 155,513
26,000 Tostem Corp.(i)(s) 323,065
---------------------
4,473,071
---------------------
HEAVY ELECTRICAL EQUIPMENT - 0.1%
5,100 Active Power Inc.(+) 111,881
15,200 Cooper Industries, Inc.(+) 698,250
7,800 Emerson Electric Co. 614,738
---------------------
1,424,869
---------------------
HEAVY MACHINERY - 0.1%
12,200 Deere & Co. 558,913
24,000 Ebara Corp.(i)(s) 260,806
59,000 Kubota Corp.(i)(s) 179,790
17,526 Smiths Group Plc(s) 211,516
1,828 Technip S.A.(i)(s) 265,335
---------------------
1,476,360
---------------------
INDUSTRIAL PARTS - 1.4%
1,800 Applied Industrial Technologies, Inc. 37,013
10,125 Autoliv, Inc. SDR(i)(s) 158,815
4,800 Capstone Turbine Corp.(+) 134,400
27,800 Caterpillar Inc. 1,315,288
5,100 Flowserve Corp.(+) 109,013
4,600 Idex Corp. 152,375
8,100 Illinois Tool Works Inc. 482,456
28,400 Ingersoll-Rand Co. 1,189,250
14,300 ITT Industries, Inc. 554,125
6,400 Kennametal Inc. 186,400
6,000 Mettler-Toledo International, Inc.(+) 326,250
29,000 Minebea Co., Ltd.(i)(s) 268,669
15,600 Parker-Hannifin Corp. 688,350
9,200 Shaw Group Inc. (The)(+) 460,000
29,000 Sumitomo Rubber Industries, Ltd.(i)(s) 121,384
114,800 Tyco International Ltd. 6,371,399
6,300 United Technologies Corp.(+) 495,338
---------------------
13,050,525
---------------------
INDUSTRIAL SERVICES - 0.4%
5,000 Gatx Corp. 249,375
The Accompanying Notes are an Integral Part of the Financial Statements. 17
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
1,300 Macnica Inc.(i)(s) $ 99,037
88,000 Mitsubishi Corp.(i)(s) 648,827
15,300 On Assignment Inc.(+) 436,050
24,838 Vivendi Environnement(i)(s)(+) 1,084,374
25,610 Vivendi Universal(i)(s) 1,685,532
---------------------
4,203,195
---------------------
MINING & METALS - 0.4%
7,104 Acerinox S.A.(i)(s) 216,768
70,300 Alcoa Inc. 2,355,049
76,200 Billiton Plc(i) 293,646
39,900 Glynwed International Plc(i)(s) 115,022
294,000 Kawasaki Steel Corp.(i)(s) 303,783
8,100 Mueller Industries, Inc.(+) 217,181
11,000 Nippon Sheet Glass Co., Ltd.(i)(s) 134,273
300 Phelps Dodge Corp. 16,744
9,500 Tokyo Steel Manufacturing Co., Ltd.(i)(s) 42,342
14,000 Valmont Industries, Inc. 257,250
24,836 WMC Ltd.(i)(s) 105,667
---------------------
4,057,725
---------------------
MULTI-INDUSTRY - 0.1%
37,600 Hutchison Whampoa Ltd.(i)(s) 468,801
10,938 Johnson Matthey Plc(i)(s) 172,361
5,184 Lagardere S.C.A.(i)(s) 300,790
46,300 Southcorp Ltd.(i)(s) 125,906
---------------------
1,067,858
---------------------
RAILROADS - 0.3%
40,100 Burlington Northern Santa Fe Corp. 1,135,331
24,000 Nippon Express Co., Ltd.(i)(s) 145,009
28,300 Union Pacific Corp. 1,436,225
147 West Japan Railway Co.(i)(s) 650,044
---------------------
3,366,609
---------------------
TRUCKING & SHIPPING & AIR FREIGHT - 0.1%
17,000 C.H. Robinson Worldwide, Inc. 534,438
11,800 FedEx Corp.(+) 471,528
117,000 Nippon Yusen Kabushiki Kaisha(i)(s) 483,573
---------------------
1,489,539
---------------------
72,453,716
---------------------
INSURANCE - 2.9%
LIFE & HEALTH INSURANCE - 1.1%
20,900 Aflac Inc. 1,508,719
29,200 American General Corp. 2,379,799
16,100 CIGNA Corp. 2,130,030
19,500 Lincoln National Corp. 922,594
12,400 MetLife, Inc. 434,000
1,600 MIIX Group Inc. 12,000
5,400 Nationwide Financial Services Inc. 256,500
11,900 Protective Life Corp. 383,775
3,700 Stancorp Financial Group 176,675
19,100 Torchmark Corp. 734,156
3,201 Zurich Financial Services AG(i)(s)(+) 1,929,884
---------------------
10,868,132
---------------------
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
PROPERTY AND CASUALTY INSURANCE - 1.8%
5,522 Allianz AG(i)(s) $ 2,066,538
52,400 Allstate Corp. 2,282,674
20,600 Ambac Financial Group, Inc. 1,201,238
59,000 American International Group, Inc. 5,815,187
5,000 American Physicians Capital, Inc.(+) 82,813
25,018 AMP Ltd.(i)(s) 281,096
4,600 Berkley (W.R.) Corp. 217,063
1,500 Cincinnati Financial Corp. 59,344
28,100 Hartford Financial Services Group Inc. (The) 1,984,563
123,700 Legal & General Group Plc(i)(s) 340,891
12,600 MBIA Inc. 933,975
20,950 Mediolanum SpA(i)(s) 266,915
5,700 Renaissancere Holdings Ltd. 446,381
60,727 Royal & Sun Alliance Insurance Group(i)(s) 519,740
59,997 Skandia Forsakrings AB(i)(s) 976,052
34,000 Tokio Marine & Fire Insurance Co., Ltd.(i)(s) 389,720
---------------------
17,864,190
---------------------
28,732,322
---------------------
PHARMACEUTICALS - 5.8%
BIOTECHNOLOGY - 0.0%(z)
2,800 Harvard Bioscience, Inc.(+) 27,650
700 Specialty Laboratories, Inc.(+) 23,188
---------------------
50,838
---------------------
DRUGS - 5.8%
1,500 3 Dimensional Pharmaceutical, Inc.(+) 22,219
4,000 Abgenix, Inc.(+) 236,250
1,900 Adolar Corp.(+) 41,800
13,100 Akorn Inc.(+) 85,969
34,300 Alza Corp.(+) 1,457,750
56,800 American Home Products Corp. 3,609,640
19,400 Amgen Inc.(+) 1,240,388
1,500 Arena Pharmaceuticals, Inc.(+) 23,250
4,100 Astrazeneca Plc(i)(s) 206,684
6,600 Bindley Western Industries Inc. 274,313
64,300 Bristol-Myers Squibb Co. 4,754,180
8,300 Celltech Group Plc(i)(s)(+) 146,660
3,200 COR Therapeutics, Inc.(+) 112,600
1,200 Durect Corp.(+) 14,400
3,300 Enzon, Inc.(+) 204,806
5,100 Forest Laboratories, Inc. Cl A(+) 677,663
2,000 Gilead Sciences, Inc.(+) 165,875
94,563 Glaxosmithkline Plc(i)(s)(+) 2,669,516
9,000 Human Genome Sciences, Inc.(+) 623,813
800 IDEC Pharmaceuticals Corp.(+) 151,650
2,000 Immunogen Inc.(+) 42,875
4,713 Inhale Therapeutic Systems Inc.Inc.(+) 238,007
6,600 Isis Pharmaceuticals, Inc.(+) 70,125
25,000 Ligand Pharmaceuticals Inc. Cl B(+) 350,000
46,400 Lilly (Eli) & Co. 4,318,100
1,700 Maxygen Inc.(+) 41,650
18 The Accompanying Notes are an Integral Part of the Financial Statements.
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
7,900 Medarex Inc.(+) $ 321,925
3,600 MediChem Life Sciences, Inc.(+) 16,650
115,600 Merck & Co., Inc. 10,823,049
6,700 Neurocrine Biosciences Inc.(+) 221,938
943 Novartis AG(i)(s) 1,667,198
2,357 Novo Nordisk A/S Cl B(i)(s) 422,486
23,337 Nycomed Amersham Plc(i)(s) 194,330
1,000 OSI Pharmaceuticals, Inc.(+) 80,125
241,200 Pfizer, Inc. 11,095,199
58,200 Pharmacia Corp. 3,550,200
4,791 POZEN Inc.(+) 87,436
2,200 Priority Healthcare Corp. Cl B(+) 89,788
119 Roche Holding AG(i)(s)(+) 1,212,397
5,000 Sankyo Co. Ltd.(i)(s) 119,965
7,881 Schering AG(i)(s) 447,658
81,200 Schering-Plough Corp. 4,608,099
21,000 Takeda Chemical Industries, Ltd.(i)(s) 1,243,082
2,500 Trimeris Inc.(+) 137,188
4,500 Vertex Pharmaceuticals, Inc.(+) 321,750
2,000 Yamanouchi Pharmaceutical Co. Ltd.(i)(s) 86,515
---------------------
58,527,161
---------------------
58,577,999
---------------------
REAL ESTATE INVESTMENT TRUSTS - 0.2%
REAL ESTATE INVESTMENT TRUST - 0.2%
7,900 Canary Wharf Group Plc(i)(s)(+) 57,524
5,000 Centerpoint Properties Corp. 236,250
7,000 Cheung Kong Holdings Ltd.(i)(s) 89,520
38,000 City Developments(i)(s) 176,413
11,450 Cousins Properties Inc. 319,884
4,700 General Growth Properties, Inc. 170,081
4,100 Manufactured Home Communities, Inc. 118,900
10,600 Mission West Properties Inc. 147,075
9,922 Post Properties, Inc. 372,695
60,000 Sun Hung Kai Properties Ltd.(i)(s) 598,086
---------------------
2,286,428
---------------------
RETAIL - 3.2%
CLOTHING STORES - 0.5%
28,200 Abercrombie & Fitch Co. Cl A(+) 564,000
220 Compagnie Financiere Richemont AG
A Units(i)(s) 588,522
37,000 Gap, Inc. (The) 943,500
51,200 Limited., Inc. (The) 873,600
13,000 Pacific Sunwear of California, Inc.(+) 333,125
51,900 TJX Companies, Inc. (The) 1,440,225
---------------------
4,742,972
---------------------
DEPARTMENT STORES - 1.6%
7,995 Carrefour S.A.(i)(s) 502,174
34,830 Dixons Group Plc(i)(s) 116,534
47,200 Federated Department Stores, Inc.(+) 1,652,000
6,000 Ito-Yokado Co., Ltd.(i)(s) 299,475
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
14,000 Marui Co., Ltd.(i)(s) $ 211,471
32,700 May Department Stores Co. (The) 1,070,925
60,953 MFI Furniture Group Plc(i)(s) 62,455
91,600 Target Corp. 2,954,100
204,000 Tesco Plc(i)(s) 831,083
19,000 UNY Co., Ltd.(i)(s) 202,977
157,300 Wal-Mart Stores, Inc. 8,356,562
---------------------
16,259,756
---------------------
GROCERY STORES - 0.3%
64,200 Kroger Co. (The)(+) 1,737,413
26,700 Safeway Inc.(+) 1,668,750
---------------------
3,406,163
---------------------
SPECIALTY STORES - 0.8%
4,500 Best Buy Co., Inc.(+) 133,031
2,300 BJ's Wholesale Club Inc.(+) 88,263
6,200 Cost Plus, Inc.(+) 182,125
13,700 Genesco Inc.(+) 334,794
14,900 Grainger (W.W.), Inc. 543,850
101,900 Home Depot, Inc. 4,655,555
37,700 Lowe's Companies, Inc. 1,677,650
6,700 School Specialty Inc.(+) 134,419
7,900 Walgreen Co. 330,319
---------------------
8,080,006
---------------------
32,488,897
---------------------
SEMICONDUCTORS - 2.6%
SEMICONDUCTOR - 2.6%
2,200 Advantest Corp.(i)(s) 206,130
9,960 Agfa Gevaert NV(i)(s) 237,428
2,900 Alliance Fiber Optics Products Inc.(+) 17,400
52,400 Altera Corp.(+) 1,378,775
17,800 Analog Devices, Inc.(+) 911,138
43,400 Applied Materials, Inc.(+) 1,657,337
11,800 ARM Holdings Plc(i)(s)(+) 89,183
4,900 AXT, Inc.(+) 162,006
5,100 Bookham Technology Plc(i)(s)(+) 72,367
7,100 Broadcom Corp.(+) 596,400
6,200 Cypress Semiconductor Corp.(+) 122,063
10,300 Exar Corp.(+) 319,139
2,700 Fanuc Ltd.(i)(s) 183,704
34,000 Fujitsu Ltd.(i)(s) 501,366
6,000 hi/fn, Inc.(+) 165,000
248,200 Intel Corp. 7,461,512
77,300 JDS Uniphase Corp.(+) 3,222,443
2,200 JNI Corp.(+) 49,913
12,900 Lattice Semiconductor Corp.(+) 237,038
26,900 Linear Technology Corp. 1,244,125
13,300 Maxim Integrated Products, Inc.(+) 635,906
17,100 Micron Technology, Inc.(+) 607,050
2,700 Murata Manufacturing Co., Ltd.(i)(s) 316,813
9,900 PMC-Sierra, Inc.(+) 778,388
The Accompanying Notes are an Integral Part of the Financial Statements. 19
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
29,000 Ricoh Co., Ltd.(i)(s) $ 535,814
16,000 Silicon Image Inc.(+) 87,000
13,409 Spirent Plc(i)(s) 122,173
1,000 TDK Corp.(i)(s) 97,373
52,900 Texas Instruments Inc. 2,506,137
31,100 Xilinx, Inc.(+) 1,434,488
---------------------
25,955,609
---------------------
SOFTWARE & SERVICES - 4.3%
COMPUTER SOFTWARE - 3.2%
9,600 Adobe Systems Inc.(+) 558,600
25,600 BEA Systems, Inc.(+) 1,723,200
8,800 Certicom Corp.(+) 179,300
6,100 Citrix Systems, Inc.(+) 137,250
9,700 click2learn.com, Inc.(+) 94,575
5,000 Eclipsys Corp.(+) 122,500
37,900 Gemstar International Group Ltd.(+) 1,748,137
7,100 Informatica Corp.(+) 280,894
58,300 International Business Machines Corp. 4,955,499
5,000 Internet Security Systems(+) 392,188
4,700 Metasolv Software Inc.(+) 42,888
180,200 Microsoft Corp.(+) 7,816,174
14,000 NCR Corp. 687,750
292,000 Oracle Corp.(+) 8,486,249
24,200 Parametric Technology Corp.(+) 325,188
13,600 Peregrine Systems, Inc.(+) 268,600
2,700 Precise Software Solutions Ltd.(+) 66,825
3,100 Rational Software Corp.(+) 120,706
5,900 SeeBeyond Technology Corp.(+) 60,475
4,700 Siebel Systems, Inc.(+) 317,838
8,000 Smart Force Plc ADR(i)(+) 300,500
2,910 Software AG(i)(s)(+) 225,839
5,300 Synquest Inc.(+) 39,088
2,800 Telecommunication Systems Inc.(+) 9,450
3,400 TIBCO Software Inc.(+) 162,988
8,000 U.S. Wireless Corp.(+) 35,000
38,000 Veritas Software Corp.(+) 3,324,999
3,200 Watchguard Tech Inc.(+) 101,200
5,300 Webtrends Corp.(+) 153,369
4,800 Wind River Systems, Inc.(+) 163,800
6,900 Witness Systems Inc.(+) 93,150
---------------------
32,994,219
---------------------
INFORMATION SERVICES - 0.6%
421 Adecco S.A.(i)(s) 264,992
26,000 Automatic Data Processing, Inc. 1,646,125
37,267 Autostrade Concessioni e Costruzioni
Autostrade SpA(i)(s) 246,674
5,000 Corillian Corp.(+) 60,000
3,100 Costar Group Inc.(+) 73,238
3,800 DiamondCluster International, Inc. Cl A 115,900
6,225 eFunds Corp.(+) 57,192
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
1,500 Exelixis Inc.(+) $ 21,938
36,757 Getronics NV(i)(s) 216,035
5,200 Getty Images Inc.(+) 166,400
51,200 Hays Plc(i)(s) 295,193
1,000 Hitachi Software Engineering Co., Ltd.(i)(s) 72,680
6,042 Intershop Communications AG(i)(s)(+) 189,582
8,040 Logica Plc(i)(s) 210,157
4,850 Obie Media Corp.(+) 37,284
74,300 QXL.com Ricardo Plc(i)(s)(+) 9,988
11,400 Railtrack Group Plc(i)(s) 157,506
15,882 Reuters Group Plc(i)(s) 268,772
1,800 SBA Communications Corp.(+) 73,913
20,100 Severn Trent Plc(i)(s) 223,367
250 SGS Societe Generale de Surveillance
Holding S.A.(i)(s) 362,542
2,200 Softbank Corp.(i)(s) 76,480
10,500 Source Information Management Co.(+) 39,375
6,300 Symyx Technologies Inc.(+) 226,800
27,650 Tele1 Europe Holding AB(i)(s)(+) 133,334
9,520 Tietoenator Oyj(i)(s) 270,825
28 TNT Post Group NV(i)(s) 677
1,400 Wireless Facilities, Inc.(+) 50,750
---------------------
5,567,719
---------------------
INTERNET - 0.5%
22,700 Akamai Technologies, Inc.(+) 478,119
61,600 America Online, Inc.(+) 2,143,679
19,700 Ameritrade Holding Corp. Cl A(+) 137,900
6,100 Apropos Technology, Inc.(+) 43,463
2,700 Clarent Corp.(+) 30,544
11,500 Digitalthink Inc.(+) 196,219
40,600 E*trade Group Inc.(+) 299,425
1,500 E.piphany, Inc.(+) 80,906
8,400 eBay Inc.(+) 277,200
8,600 Ibasis Inc.(+) 35,475
1,300 Inet Technologies Inc.(+) 52,650
2,000 internet.com Corp.(+) 11,875
1,300 Interwoven Inc.(+) 85,719
2,950 Netegrity Inc.(+) 160,406
1,600 Nuance Communications(+) 69,000
8,500 Saba Software, Inc.(+) 133,875
1,200 SafeNet, Inc.(+) 56,400
150,000 Sunevision Holdings Ltd.(i)(s)(+) 54,328
7,500 Tumbleweed Communications Corp.(+) 128,320
3,800 Yahoo! Inc.(+) 114,238
---------------------
4,589,741
---------------------
43,151,679
---------------------
TELECOMMUNICATIONS - 3.5%
TELEPHONE - 2.2%
79,600 AT&T Corp. 1,378,075
47,300 BellSouth Corp. 1,936,344
400 Ectel Ltd.(+) 4,575
20 The Accompanying Notes are an Integral Part of the Financial Statements.
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
14,300 FLAG Telecom Holdings Ltd.(+) $ 89,375
67,000 Global Crossing Ltd.(+) 958,938
6,600 ITXC Corp.(+) 45,788
104,800 Qwest Communications International Inc.(+) 4,296,799
149,400 SBC Communications Inc.(+) 7,133,849
75,148 Telenor ASA(i)(s)(+) 327,231
61,700 Telstra Corp. Ltd.(i)(s) 220,203
6,600 Turnstone Systems Inc.(+) 49,088
100,100 Verizon Communications 5,017,512
1,300 Williams Communications Group Inc.(+) 15,275
74,200 WorldCom, Inc.(+) 1,043,438
---------------------
22,516,490
---------------------
WIRELESS TELECOMMUNICATIONS - 1.3%
1,100 Boston Communications Group, Inc.(+) 30,663
19,600 British Telecommunications Plc(i)(s) 167,456
8,152 Cable & Wireless Plc(i)(s) 109,952
7,793 Carrier1 International S.A.(i)(s)(+) 139,017
42,000 China Mobile (Hong Kong) Ltd.(i)(s)(+) 229,388
14 DDI Corp.(i)(s) 67,548
14,320 Deutsche Telekom AG(i)(s) 431,576
87,900 Nextel Communications, Inc.(+) 2,175,524
188 Nippon Telegraph and Telephone Corp.(i)(s) 1,354,851
59,581 Royal KPN NV(i)(s) 685,816
75,500 SmarTone Telecommunications Holding Ltd.(i)(s) 108,896
24,600 Sonera Oyj(i)(s) 445,761
76,400 Sprint Corp. (PCS Group)(+) 1,561,425
12,799 Telecel-Comunicacoes Pessoais, S.A.(i)(s)(+) 139,394
7,653 Telecom Corp. of New Zealand(i)(s) 16,289
70,351 Telecom Italia SpA(i)(s) 778,082
84,523 Telefonica S.A.(i)(s)(+) 1,396,681
841,957 Vodafone Group Plc(i)(s) 3,087,384
---------------------
12,925,703
---------------------
35,442,193
---------------------
UTILITIES - 1.8%
ELECTRICAL UTILITY - 1.4%
15,300 Ameren Corp. 708,581
17,600 Cinergy Corp. 618,200
14,000 Cleco Corp. 766,500
35,700 CMS Energy Corp.(+) 1,131,244
14,800 Consolidated Edison, Inc. 569,800
18,100 DTE Energy Co. 704,769
8,200 Dynegy Inc. Cl A 459,713
57,200 Entergy Corp. 2,420,274
14,800 FPL Group, Inc. 1,061,900
12,800 GPU Inc. 471,200
107,500 Hong Kong Electric Holdings Ltd.(i)(s) 396,928
32,500 PG&E Corp. 650,000
11,900 Pinnacle West Capital Corp. 566,738
SHARES/PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
25,500 Progress Energy, Inc. $ 1,254,281
6,100 Reliant Energy, Inc. 264,206
24,700 Texas Utilities Co. 1,094,519
12,300 Wisconsin Energy Corp. 277,519
20,300 XCEL Energy Inc. 589,969
---------------------
14,006,341
---------------------
GAS & WATER UTILITIES - 0.4%
10,600 Atmos Energy Corp. 258,375
82,911 BG Group Plc(i)(s) 324,461
56,000 British Energy Plc(i)(s) 215,803
12,707 E.ON AG(i)(s) 773,086
48,851 Iberdrola S.A.(i)(s) 612,300
5,700 Kinder Morgan, Inc. 297,469
21,300 NiSource Inc. 654,975
89,000 Osaka Gas Co., Ltd.(i)(s) 270,429
49,600 ScottishPower Plc(i)(s) 391,910
15,500 Tokyo Electric Power Co.(i)(s) 384,785
78,000 Tokyo Gas Co., Ltd.(i)(s) 230,858
---------------------
4,414,451
---------------------
18,420,792
---------------------
TOTAL COMMON STOCKS 598,789,839
---------------------
(Cost $520,756,620)
CORPORATE BONDS - 5.2%
CONSUMER SERVICES - 1.0%
MEDIA - 1.0%
$ 750,000 Adelphia Communications Corp., 9.38%,
11/15/09 660,000
825,000 AT&T Corp. - Liberty Media Group, 8.25%,
2/1/30 756,599
1,850,000 Clear Channel Communications, 7.65%,
9/15/10 1,867,039
1,000,000 Comcast Cable Communications, 6.20%,
11/15/08 960,820
1,000,000 Lamar Media Corp., 8.63%, 9/15/07 1,000,000
1,850,000 TCI Communications Inc., 7.88%, 2/15/26 1,737,409
2,500,000 Time Warner Inc., 8.11%, 8/15/06 2,676,175
---------------------
9,658,042
---------------------
ENERGY - 0.6%
ENERGY RESERVES & PRODUCTION - 0.1%
1,425,000 Amerada Hess Corp., 7.88%, 10/1/29 1,494,013
---------------------
OIL SERVICES - 0.5%
2,000,000 Dynegy Holdings Inc., 6.88%, 7/15/02 2,003,480
705,000 Dynegy Holdings Inc., 7.45%, 7/15/06 719,156
2,000,000 Phillips Petroleum Co., 8.75%, 5/25/10 2,288,480
---------------------
5,011,116
---------------------
6,505,129
---------------------
The Accompanying Notes are an Integral Part of the Financial Statements. 21
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
FINANCE - 2.1%
BANKS - 1.0%
$ 560,000 Bank One Capital III, 8.75%, 9/1/30 $ 553,347
1,600,000 Capital One Bank, 8.25%, 6/15/05 1,623,088
3,000,000 Citigroup Inc., 7.25%, 10/1/10 3,102,870
1,250,000 FCB/SC Capital Trust I, 8.25%, 3/15/28 1,096,238
3,195,000 First Union National Bank, 7.80%, 8/18/10 3,296,026
---------------------
9,671,569
---------------------
FINANCIAL SERVICES - 1.1%
640,000 Comdisco, Inc., 6.38%, 11/30/01 582,400
2,000,000 ERAC USA Finance Co., 144A, 6.38%,
5/15/03 1,954,180
2,485,000 Ford Motor Credit Co., 7.88%, 6/15/10 2,556,245
2,000,000 Household Finance Corp., 8.00%, 7/15/10 2,120,180
750,000 McKesson Financial of Canada, 144A, 6.55%,
11/1/02 725,205
396,603 Oil Purchase Co., 144A, 7.10%, 4/30/02 376,773
530,000 Provident Financing Trust I, 7.41%, 3/15/38 385,893
1,810,000 St. George Funding Co. LLC, 144A, 8.49%,
12/31/49 1,547,622
1,785,000 UBS Preferred Funding Trust I, VRN, 8.62%,
10/29/49 1,879,605
---------------------
12,128,103
---------------------
21,799,672
---------------------
INDUSTRIAL CYCLICAL - 0.5%
CHEMICALS - 0.2%
1,590,000 Rohm & Haas Co., 7.85%, 7/15/29 1,605,900
---------------------
INDUSTRIAL SERVICES - 0.1%
845,000 Comdisco Inc., 9.50%, 8/15/03 667,550
---------------------
RAILROADS - 0.1%
1,750,000 Union Pacific Corp., 5.78%, 10/15/01 1,736,438
---------------------
TRUCKING & SHIPPING & AIR FREIGHT - 0.1%
200,000 Atlantic Express, 10.75%, 2/1/04 151,000
802,903 FedEx Corp., Series 1999-1, Class C, 8.25%,
1/15/19 862,542
---------------------
1,013,542
---------------------
5,023,430
---------------------
RETAIL - 0.1%
GROCERY STORES - 0.1%
995,000 Kroger Co., 8.00%, 9/15/29 1,027,745
---------------------
SEMICONDUCTORS - 0.1%
SEMICONDUCTOR - 0.1%
750,000 Charter Communications Holdings, LLC,
8.25%, 4/1/07 682,500
---------------------
TELECOMMUNICATIONS - 0.6%
TELEPHONE - 0.6%
1,500,000 AT&T Corp., 6.00%, 3/15/09 1,341,690
1,985,000 COX Communications Inc., 7.75%, 11/1/10 2,054,852
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
$1,300,000 Qwest Capital Funding Inc., 6.25%, 7/15/05 $ 1,268,280
835,000 Williams Communications Group, 10.70%,
10/1/07 642,950
---------------------
5,307,772
---------------------
UTILITIES - 0.2%
ELECTRICAL UTILITY - 0.2%
1,600,000 Dominion Resources Inc., Series 2000 A,
8.13%, 6/15/10 1,729,456
---------------------
TOTAL CORPORATE BONDS 51,733,746
---------------------
(Cost $51,680,506)
FOREIGN CORPORATE BONDS - 1.3%
FINANCE - 0.3%
BANKS - 0.1%
1,000,000 Royal Bank of Scotland Group Plc, 7.82%,
11/29/49 1,020,160
---------------------
FINANCIAL SERVICES - 0.2%
1,445,000 HSBC Capital Funding LP, VRN, 144A,
10.18%, 12/29/49 1,659,192
---------------------
2,679,352
---------------------
INSURANCE - 0.2%
LIFE & HEALTH INSURANCE - 0.2%
2,155,000 Axa, 8.60%, 12/15/30 2,225,641
---------------------
SOFTWARE & SERVICES - 0.2%
INFORMATION SERVICES - 0.2%
1,770,000 Marconi Corp. Plc, 8.38%, 9/15/30 1,611,638
---------------------
TELECOMMUNICATIONS - 0.6%
TELEPHONE - 0.6%
1,170,000 Deutsche Telekom International Finance BV,
7.75%, 6/15/05 1,190,229
2,000,000 Deutsche Telekom International Finance BV,
8.00%, 6/15/10 2,031,320
770,000 Global Crossing Holding Ltd., 9.13%,
11/15/06 731,500
1,250,000 Koninklijke KPN NV, 144A, 8.38%, 10/1/30 1,143,688
1,000,000 Telefonica Europe BV, 7.75%, 9/15/10 1,012,600
---------------------
6,109,337
---------------------
TOTAL FOREIGN CORPORATE BONDS 12,625,968
---------------------
(Cost $12,620,270)
MORTGAGE PASS THRU - 8.2%
6,495,000 FHLMC, 6.90%, 12/1/10 6,721,312
3,384,747 FNMA, 6.50%, 3/1/28 3,340,339
2,145,030 FNMA, 6.00%, 12/1/28 2,077,311
108,203 FNMA, 6.00%, 1/1/29 104,787
1,085,000 FNMA, 7.13%, 1/15/30 1,214,516
22 The Accompanying Notes are an Integral Part of the Financial Statements.
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
$10,335,000 FNMA, TBA, 7.00%, 1/1/16 $ 10,444,861
10,432,000 FNMA, TBA, 7.50%, 1/1/30 10,585,246
1,960,000 FNMA, TBA, 6.00%, 1/1/31 1,897,535
28,925,000 FNMA, TBA, 7.00%, 1/1/31 28,970,124
233,139 GNMA, 8.50%, 6/15/27 240,497
664,662 GNMA, 8.50%, 9/15/27 685,639
692,567 GNMA, 8.50%, 9/15/27 714,424
7,423,616 GNMA, 6.50%, 12/15/28 7,340,101
7,855,000 GNMA, TBA, 7.00%, 1/1/31 7,889,405
---------------------
TOTAL MORTGAGE PASS THRU 82,226,097
---------------------
(Cost $81,095,787)
PREFERRED STOCKS - 0.1%
CONSUMER SERVICES - 0.1%
LEISURE - 0.0%(z)
2,100 AMCV Capital Trust I, 7.00%, 2/15/15 58,275
---------------------
MEDIA - 0.1%
64,500 News Corp. Ltd.(i)(s) 458,743
---------------------
TOTAL PREFERRED STOCKS 517,018
---------------------
(Cost $489,147)
SOVEREIGN GOVERNMENTS AND AGENCIES - 0.5%
ARGENTINA - 0.1%
$ 252,000 Republic of Argentina, 7.63%, 3/27/01 229,068
390,000 Republic of Argentina, 11.75%, 4/7/09 362,700
417,600 Republic of Argentina FRB, 7.63%, 3/30/01 379,598
365,000 Republic of Argentina, Series BGL5, 11.38%,
1/30/17 325,215
---------------------
1,296,581
---------------------
BRAZIL - 0.3%
350,000 Federal Republic of Brazil, 14.50%, 10/15/09 385,000
708,061 Federal Republic of Brazil, 4.50%, 4/15/14 547,419
775,000 Federal Republic of Brazil, 11.00%, 8/17/40 631,237
425,000 Federal Republic of Brazil Discount Bonds,
Series 30 Year ZL, 7.63%, 4/15/01 324,063
---------------------
1,887,719
---------------------
BULGARIA - 0.0%(z)
195,000 Bulgaria Government International Bond
Discount Bonds, VRN, 7.75%, 1/28/01 148,200
---------------------
COLOMBIA - 0.0%(z)
385,000 Republic of Colombia, 9.75%, 4/23/09 323,400
---------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
MEXICO - 0.0%(z)
$ 155,000 United Mexican States, 9.88%, 2/1/10 $ 166,780
175,000 United Mexican States, Series XW, 10.38%,
2/17/09 191,450
---------------------
358,230
---------------------
PERU - 0.0%(z)
95,000 Peru PDI, 4.50%, 3/7/17 61,275
---------------------
QATAR - 0.0%(z)
225,000 State of Qatar, 144A, 9.75%, 6/15/30 225,000
---------------------
RUSSIA - 0.1%
390,000 Russian Federation, 12.75%, 6/24/28 322,725
870,000 Russian Federation, 2.50%, 3/31/30 325,163
450,000 Russian Federation, VRN, 8.25%, 3/31/10 280,688
---------------------
928,576
---------------------
TURKEY - 0.0%(z)
175,000 Republic of Turkey, 12.38%, 6/15/09 162,750
---------------------
TOTAL SOVEREIGN GOVERNMENTS AND AGENCIES 5,391,731
---------------------
(Cost $5,372,606)
U.S. GOVERNMENT AGENCY SECURITIES - 2.4%
10,260,000 FHLMC, 6.88%, 9/15/10 10,925,258
7,460,000 FNMA, 7.00%, 7/15/05 7,829,494
4,740,000 FNMA, 7.13%, 6/15/10 5,123,656
---------------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES 23,878,408
---------------------
(Cost $22,771,418)
U.S. TREASURY SECURITIES - 4.7%
1,235,000 U.S. Treasury Bonds, 8.88%, 2/15/19 1,697,162
3,845,000 U.S. Treasury Bonds, 8.00%, 11/15/21 4,975,661
12,650,000 U.S. Treasury Bonds, 6.00%, 2/15/26 13,329,938
1,100,000 U.S. Treasury Bonds, 6.75%, 8/15/26 1,272,909
12,360,000 U.S. Treasury Bonds, 6.50%, 11/15/26 13,881,763
3,165,000 U.S. Treasury Bonds, 5.25%, 2/15/29 3,031,975
4,000,000 U.S. Treasury Notes, 6.13%, 12/31/01 4,022,480
640,000 U.S. Treasury Notes, 6.00%, 8/15/04 658,099
660,000 U.S. Treasury Notes, 5.75%, 8/15/10 691,660
9,170,000 U.S. Treasury Notes, PO, 5.63%, 11/15/15(y) 4,016,735
---------------------
TOTAL U.S. TREASURY SECURITIES 47,578,382
---------------------
(Cost $43,544,855)
SHORT-TERM INVESTMENTS - 7.4%
INVESTMENT COMPANIES - 7.4%
6,472,260 Hamilton Money Fund 6,472,260
67,411,956 J.P. Morgan Institutional Prime Money
Market Fund(a) 67,411,956
---------------------
73,884,216
---------------------
The Accompanying Notes are an Integral Part of the Financial Statements. 23
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 0.0%(z)
$ 490,000 U.S. Treasury Bills,
5.84%, 3/22/01(s)(y) $ 483,880
---------------------
TOTAL SHORT-TERM INVESTMENTS 74,368,096
---------------------
(Cost $74,367,812)
TOTAL INVESTMENT SECURITIES - 100.0% $1,003,024,892
=====================
(Cost $915,459,724)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
VALUE AT UNREALIZED
CONTRACTS SETTLEMENT CONTRACTUAL DECEMBER 31, APPRECIATION
TO BUY DATE VALUE 2000 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------
343,092,340 JPY for
3,470,000 EUR 3/21/01 $3,268,960 $3,043,414 $(225,546)
17,111,801 EUR 3/21/01 15,432,151 16,120,401 688,250
660,000 GBP 3/21/01 982,707 987,181 4,474
72,965,200 JPY 3/21/01 670,000 647,241 (22,759)
10,216,658 SEK 3/21/01 1,069,827 1,088,294 18,467
-----------------------------------------------------------
$21,423,645 $21,886,531 $462,886
===========================================================
VALUE AT UNREALIZED
CONTRACTS SETTLEMENT SETTLEMENT DECEMBER 31, APPRECIATION
TO SELL DATE VALUE 2000 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------
1,000,000 AUD 3/21/01 $ 546,080 $ 555,990 $ (9,910)
5,124,320 CHF 3/21/01 3,033,937 3,183,543 (149,606)
3,750,000 EUR 3/21/01 3,406,587 3,532,738 (126,151)
805,374 GBP 3/21/01 1,168,300 1,204,621 (36,321)
615,947,814 JPY 3/21/01 5,614,839 5,463,789 151,050
-----------------------------------------------------------
$13,769,743 $13,940,681 $(170,938)
===========================================================
FUTURES CONTRACTS
UNREALIZED
EXPIRATION UNDERLYING FACE APPRECIATION
PURCHASED DATE AMOUNT AT VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------------------
164 Dow Jones Stoxx 50 March 2001 $ 7,409,332 $ (20,222)
217 US Two Year Note March 2001 44,084,908 394,589
338 US Five Year Note March 2001 35,004,125 788,350
-------------------------------------------
$86,498,365 $1,162,717
===========================================
UNREALIZED
EXPIRATION UNDERLYING FACE APPRECIATION
SOLD DATE AMOUNT AT VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------------------
1 FTSE 100 Index March 2001 $ 92,621 $ 2,499
7 SPI 200 Index March 2001 315,539 (2,857)
5 Topix Index March 2001 561,515 (12,024)
360 US Ten Year Note March 2001 37,749,377 (800,776)
43 US Long Bond March 2001 4,498,875 (120,838)
-------------------------------------------
$43,217,927 $(933,996)
===========================================
COMMON STOCKS COUNTRIES % OF TOTAL INVESTMENTS
- ----------------------------------------------------------
Australia 0.2%
Finland 0.3%
France 0.9%
Germany 0.8%
Hong Kong 0.2%
Italy 0.3%
Japan 2.3%
Netherlands 0.6%
Singapore 0.1%
Spain 0.4%
Sweden 0.2%
Switzerland 1.0%
United Kingdom 2.2%
United States 50.1%
FOREIGN BONDS & SOVEREIGN
GOVERNMENTS COUNTRIES % OF TOTAL INVESTMENTS
- ----------------------------------------------------------
Argentina 0.1%
Bermuda 0.1%
Brazil 0.3%
Russia 0.1%
France 0.2%
Netherlands 0.5%
United Kingdom 0.5%
ADR - American Depositary Receipt
FRB - Floating Rate Bond
PO - Principal Only
SDR - Swedish Depository Receipt
SEQ - Sequential Payer
TBA - Securities purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date. The actual principal amount and
maturity will be determined upon settlement.
VRN - Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average maturity.
144A - Securities restricted for resale to Qualified Institutional Buyers
(a) Money market mutual fund registered under the Investment Co. Act of 1940,
as amended, and advised by J.P. Morgan Investment Management, Inc.
(i) Foreign security
(s) Security is fully or partially segregated with custodian as collateral for
futures
or with brokers as initial margin for futures contracts.
(y) Yield to maturity
(z) Category is less than 0.05% of total investment securities.
(+) Non-income producing security
24 The Accompanying Notes are an Integral Part of the Financial Statements.
THE DIVERSIFIED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2000
ASSETS
Investments at Value (Cost $915,459,724)
$1,003,024,892
Foreign Currency at Value (Cost $1,260,223) 1,284,829
Receivable for Investments Sold 6,163,051
Dividend and Interest Receivable 4,413,075
Unrealized Appreciation of Forward Foreign Currency Contracts 862,241
Foreign Tax Reclaim Receivable 199,715
Variation Margin Receivable 81,933
Receivable for Expense Reimbursement 28,103
Prepaid Expenses and Other Assets 1,381
-----------------
TOTAL ASSETS 1,016,059,220
----------------
LIABILITIES
Payable for Investments Purchased 65,347,875
Unrealized Depreciation of Forward Foreign Currency Contracts 570,293
Advisory Fee Payable 461,335
Due to Custodian 392,754
Administrative Services Fee Payable 19,975
Fund Services Fee Payable 625
Administration Fee Payable 602
Accrued Expenses and Other Liabilities 189,586
----------------
TOTAL LIABILITIES 66,983,045
----------------
NET ASSETS
Applicable to Investors' Beneficial Interests $ 949,076,175
================
The Accompanying Notes are an Integral Part of the Financial Statements. 25
THE DIVERSIFIED PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 2000
INVESTMENT INCOME
INCOME
Interest Income $13,319,014
Dividend Income (Net of Foreign Withholding Tax of $26,191) 3,664,039
Dividend Income from Affiliated Investment 132,435
-------------
Investment Income 17,115,488
-------------
EXPENSES
Advisory Fee 2,791,562
Custodian Fees and Expenses 420,427
Administrative Services Fee 121,367
Professional Fee 25,053
Printing Expenses 8,149
Fund Services Fee 6,852
Trustees' Fees and Expenses 5,735
Administration Fee 3,037
Insurance Expenses 898
-------------
Total Expenses 3,383,080
Less: Reimbursement of Expenses (83,963)
-------------
Net Expenses 3,299,117
-------------
NET INVESTMENT INCOME 13,816,371
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON
Investment Transactions (4,978,261)
Futures Contracts (2,224,834)
Foreign Currency Contracts and Transactions 1,342,373
-------------
Net Realized Loss (5,860,722)
-------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON
Investments (49,056,009
Futures Contracts 623,668
Foreign Currency Contracts and Translations 503,247
-------------
Net Change in Unrealized Appreciation (Depreciation) (47,929,094
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(39,973,44
=============
26 The Accompanying Notes are an Integral Part of the Financial Statements.
THE DIVERSIFIED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED) AND THE YEAR ENDED JUNE 30, 2000
INCREASE (DECREASE) IN NET ASSETS DECEMBER 31, 2000 JUNE 30, 2000
FROM OPERATIONS
Net Investment Income $ 13,816,371 $ 24,000,368
Net Realized Gain (Loss) on Investments, Futures Contracts
and Foreign Currency Contracts and Transactions (5,860,722) 31,839,696
Net Change in Unrealized Appreciation (Depreciation) on
Investments, Futures Contracts and Foreign Currency
Contracts and Translations (47,929,094) 10,705,620
------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (39,973,445) 66,545,684
------------------ ------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions 196,842,472 239,595,249
Withdrawals (190,892,521) (196,922,291)
------------------ ------------------
Net Increase from Transactions in Investors'
Beneficial Interest 5,949,951 42,672,958
------------------ ------------------
Total Increase (Decrease) in Net Assets (34,023,494) 109,218,642
------------------ ------------------
NET ASSETS
Beginning of Period 983,099,669 873,881,027
------------------ ------------------
End of Period $949,076,175 $983,099,669
================== ==================
SUPPLEMENTARY DATA
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED JUNE 30
DECEMBER 31, 2000 --------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
--------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.65%(a) 0.64% 0.65% 0.65% 0.65% 0.65%
Net Investment Income 2.72%(a) 2.50% 2.55% 3.13% 3.33% 3.35%
Expenses without Reimbursement 0.67%(a) 0.66% 0.68% 0.71% 0.80% 0.82%
Portfolio Turnover 115%(b) 217% 144% 82% 100% 144%
(a) Annualized
(b) Not Annualized
The Accompanying Notes are an Integral Part of the Financial Statements. 27
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--The Diversified Portfolio (the "Portfolio") is registered
under the Investment Company Act of 1940, as amended, as a no-load diversified,
open-end management investment company which was organized as a trust (the
"Trust") under the laws of the State of New York on January 29, 1993. The
Portfolio commenced operations on September 10, 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.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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:
SECURITY VALUATIONS--Equity securities traded on principal securities
exchanges are valued at the last reported sales price, or mean of the latest bid
and asked prices when no last sales price is available. Securities traded
over-the-counter and certain foreign securities are valued at the quoted bid
price from a market maker or dealer. When valuations are not readily available,
securities are valued at fair value as determined in accordance with
procedures adopted by the Trustees.
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 when 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 adopted by the Trustees.
Fixed income securities, (other than convertible bonds), with a maturity of
60 days or more held by Funds other than money market funds will be valued each
day based on readily available market quotations received from independent or
affiliated commercial pricing services. Such pricing services will generally
provide bidside quotations. Convertible bonds are valued at the last sale price
on the primary exchange on which the bond is principally traded. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Trustees. All short-term
securities with a remaining maturity of sixty days or less are valued using the
amortized cost method.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the
trade date. Realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date or as of the time that the relevant
ex-dividend and amount becomes known. Interest income is recorded on the
accrual basis and includes accretion of discounts and amortization of premiums
FUTURES CONTRACTS--The Portfolio may enter into futures contracts in order
to hedge 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 and to manage exposure to changing
interest rates and securities prices. The risks of entering into futures
contracts include the possibility that the change in value of the contract may
not correlate with the changes in value of the underlying securities. Upon
entering into a futures contract, the Portfolio is required to deposit either
cash or securities in an amount equal to a certain percentage of the contract
value (initial margin). Subsequent payments (variation margin) are made or
received daily, in cash, by the Portfolio. The variation margin is equal to the
daily change in the contract value and is recorded as unrealized gain or loss.
The Portfolio will recognize a gain or loss when the contract is closed or
expires.
FOREIGN CURRENCY TRANSACTIONS--All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. Realized
and unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates and 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 from changes in
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities during the period.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Portfolio may enter into
forward foreign currency exchange contracts to facilitate transactions of
securities denominated in a foreign currency, to manage the Portfolio's exposure
to foreign currency exchange fluctuations or to adjust the Portfolio's exposure
relative to the benchmark.
28
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined daily using prevailing exchange rates. The Portfolio
bears the risk of an unfavorable change in the foreign currency exchange rate
underlying the forward contract. Additionally, losses may arise if the
counterparties do not perform under the contract terms.
COMMITMENTS--The Portfolio may enter into commitments to buy and sell
investments to settle on future dates as part of their normal investment
activities. These commitments are reported at market value in the financial
statements. Credit risk exists on these commitments to the extent of any
unrealized gains on the underlying securities purchased and any unrealized
losses on the underlying securities sold. Market risk exists on these
commitments to the same extent as if the securities were owned on a settled
basis and gains and losses are recorded and reported in the same manner.
However, during the commitment period, these investments earn no interest or
dividends.
RESTRICTED AND ILLIQUID SECURITIES--The Portfolio is permitted to invest in
securities that are subject to legal or contractual restrictions on resale or
are illiquid. Restricted securities generally may be resold in transactions
exempt from registration. A security may be considered illiquid if it lacks a
readily available market or if its valuation has not changed for a certain
period of time. Disposal of these securities may involve time-consuming
negotiations and expense, and prompt sale at the current valuation may be
difficult. At the end of the period, the Portfolio had no investments in
restricted and illiquid securities (excluding 144A issues).
INCOME TAX STATUS--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.
FOREIGN TAXES--The Portfolio may be subject to foreign taxes on income,
gains on investments or currency repatriation, a portion of which may be
recoverable. The Portfolio will accrue such taxes and recoveries as applicable,
based upon their current interpretation of tax rules and regulations that exist
in the markets in which they invest.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
ADVISORY--The Portfolio has an Investment Advisory Agreement with J.P.
Morgan Investment Management, Inc. ("JPMIM"), an affiliate of Morgan Guaranty
Trust Company of New York ("Morgan") and a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the agreement, the
Portfolio pays JPMIM at an annual rate of 0.55% of the Portfolio's average
daily net assets.
The Portfolio may invest in one or more affiliated money market funds: J.P.
Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax
Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund
and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed
to reimburse its advisory fee from the Portfolio in an amount to offset any
investment advisory, administrative fee and shareholder servicing fees related
to a Portfolio investment in an affiliated money market fund.
ADMINISTRATIVE SERVICES--The Portfolio has an Administrative Services
Agreement (the "Services Agreement") with Morgan under which Morgan is
responsible for certain aspects of the administration and operation of the
Portfolio. Under the Services Agreement, the Portfolio has agreed to pay Morgan
a fee equal to its allocable share of an annual complex-wide charge. This charge
is calculated based on the aggregate average daily net assets of the Portfolio
and certain other registered investment companies for which JPMIM acts as
investment advisor 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 Funds Distributor, Inc. 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 Trust and certain other investment
companies for which Morgan provides similar services.
Morgan has agreed to reimburse the Portfolio to the extent the total
operating expenses (excluding interest, taxes and extraordinary expenses) of the
Portfolio exceed 0.65% of the Portfolio's average daily net assets through
October 31, 2001.
ADMINISTRATION--The Portfolio has retained Funds Distributor, Inc. ("FDI"),
a registered broker-dealer, to serve as the co-administrator and distributor
for the Fund. Under a Co-Administration Agreement between FDI and
29
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 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 Trust and certain other investment companies for which FDI
provides similar services.
FUND SERVICES--The Portfolio has a Fund Services Agreement with Pierpont
Group, Inc. ("PGI") 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 PGI.
TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for
serving on the boards of the Portfolio, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, and other registered investment companies in which they
invest. The Trustees' Fees and Expenses shown in the financial statements
represent the Fund's allocated portion of the total Trustees' Fees and Expenses.
The Trust's Chairman and Chief Executive Officer also serves as Chairman of
PGI and receives compensation and employee benefits from PGI. The allocated
portion of such compensation and benefits included in the Fund Services Fee
shown on the Statement of Operations was $1,300.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
During the six months ended December 31, 2000, the Portfolio purchased
$451,240,010 of investment securities and sold $373,876,239 of investment
securities other than U.S. government securities and short-term investments.
Purchases and sales of U.S. government securities were $675,175,269 and
$716,465,629, respectively.
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4. CREDIT AGREEMENT
The Portfolio is party to a revolving line of credit agreement (the
"Agreement") as discussed more fully in Note 3 of the Fund's Notes to the
Financial Statements which are included elsewhere in this report.
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5. CONCENTRATIONS OF CREDIT RISK
The Portfolio may have elements of risk not typically associated with
investments in the United States due to concentrated investments in a limited
number of countries or regions which may vary throughout the year. Such
concentrations may subject the Portfolio to additional risks resulting from
political or economic conditions in such countries or regions and the possible
imposition of adverse governmental laws or currency exchange restrictions could
cause the securities and their markets to be less liquid and their prices more
volatile than those of comparable U.S. securities.
The ability of the issuers of debt, asset-backed and mortgage-backed
securities to meet their obligations may be affected by the economic and
political developments in a specific industry or region. The value of
asset-backed and mortgage-backed securities can be significantly affected by
changes in interest rates or rapid principal payments including prepayments.
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6. CORPORATE EVENT
The merger of J.P. Morgan & Co. Incorporated, the former parent company of
the fund's advisor, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and
into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P.
Morgan Chase & Co. will be the new parent company of JPMIM, which will continue
to serve as the fund's advisor.
30
NOTES
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31
NOTES
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32
[back cover]
J.P. MORGAN FUNDS
Federal Money Market Fund
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Prime Money Market Fund
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Emerging Market Debt Fund
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Tax Aware Enhanced Income Fund:
Select Shares
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Tax Exempt Money Market Fund
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Short Term Bond Fund
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Bond Fund
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Global Strategic Income Fund
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Tax Exempt Bond Fund
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California Bond Fund:
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New York Tax Exempt Bond Fund
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Diversified Fund
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Disciplined Equity Fund
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Tax Aware Small Company Opportunities Fund:
Select Shares
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Tax Aware U.S. Equity Fund:
Select Shares
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U.S. Equity Fund
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U.S. Small Company Fund
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U.S. Small Company Opportunities Fund
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Emerging Markets Equity Fund
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European Equity Fund
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Global 50 Fund: Select Shares
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Global Healthcare Fund:
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International Equity Fund
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International Opportunities Fund
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For more information on the J.P. Morgan
Funds, call J.P. Morgan Funds
Services at (800) 521-5411.
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Morgan Guaranty Trust Company MAILING
500 Stanton Christiana Road INFORMATION
Newark, Delaware 19713-2107
IN-SAN-24656