<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS
Tax-Exempt Investments -- 100.0%
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- -------------------
Standard Amount
& (000's
Moody's Poor's omitted) Security Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assisted Living -- 4.9%
- ---------------------------------------------------------------------------
NR NR $ 6,035 Arizona Health
Facilities Authority,
(Care Institute,
Inc.-Mesa), 7.625%,
1/1/26 $ 6,394,626
NR NR 17,070 Bell County, TX,
Health Facilities,
(Care Institute, Inc.,
Texas), 9.00%, 11/1/24 19,763,134
NR NR 5,000 Chester, PA, IDA,
(Senior Life Choice of
Paoli, L.P.),
8.05%, 1/1/24 5,642,450
NR NR 3,060 Chester, PA, IDA,
(Senior Life-Choice of
Kimberton), (AMT),
8.50%, 9/1/25 3,542,134
NR NR 5,000 Delaware, PA, IDA,
(Glen Riddle), (AMT),
8.625%, 9/1/25 5,822,750
NR NR 10,000 Glen Cove, NY, IDA,
(Regency at Glen
Cove), 9.50%, 7/1/12 10,652,600
NR NR 15,000 Illinois Development
Finance Authority,
(Care Institute,
Inc.-Illinois), 7.80%,
6/1/25 16,653,450
NR NR 4,605 New Jersey EDA,
(Chelsea at East
Brunswick), (AMT),
8.25%, 10/1/20 5,181,546
NR NR 10,000 New Jersey EDA,
(Forsgate), (AMT),
8.625%, 6/1/25 11,708,100
NR NR 4,935 North Syracuse Village
Housing Authority,
(AJM Senior Housing,
Inc., Janus Park),
8.00%, 6/1/24 5,209,978
NR NR 7,915 Roseville, MN, Elder
Care Facility, (Care
Institute,
Inc.-Roseville),
7.75%, 11/1/23 8,248,855
NR NR 12,430 St. Paul, MN, Housing
and Redevelopment,
(Care Institute,
Inc.-Highland),
8.75%, 11/1/24 14,514,635
- ---------------------------------------------------------------------------
$ 113,334,258
- ---------------------------------------------------------------------------
Cogeneration -- 4.5%
- ---------------------------------------------------------------------------
NR NR $ 20,250 Maryland Energy
Cogeneration, (AES
Warrior Run), (AMT),
7.40%, 9/1/19 $ 21,523,725
NR BB+ $ 30,775 New Jersey EDA,
(Vineland
Cogeneration) (AMT),
7.875%, 6/1/19 $ 33,842,036
NR NR 12,950 Palm Beach County, FL,
(Osceola Power),
(AMT), 6.95%, 1/1/22(1) 10,230,500
NR NR 7,000 Pennsylvania EDA,
(Northampton
Generating
Subordinated), Junior
Liens, (AMT), 6.875%,
1/1/11 7,468,930
NR BBB- 6,100 Pennsylvania EDA,
(Northampton
Generating), (AMT),
6.50%, 1/1/13 6,536,943
NR BBB- 18,450 Pennsylvania EDA,
(Northampton
Generating), (AMT),
6.60%, 1/1/19 19,877,292
NR NR 5,000 Pennsylvania EDA,
(Northampton
Generating), Junior
Liens, (AMT),
6.95%, 1/1/21 5,340,000
- ---------------------------------------------------------------------------
$ 104,819,426
- ---------------------------------------------------------------------------
Education -- 1.3%
- ---------------------------------------------------------------------------
Aaa AAA $ 12,390 California Educational
Facilities Authority,
(Stanford University),
5.35%, 6/1/27 $ 12,907,035
NR BBB- 1,250 Massachusetts HEFA,
(Nichols College),
7.00%, 10/1/20 1,344,275
Ba1 NR 4,235 New Hampshire HEFA,
(Franklin Pierce Law
Center), 7.50%, 7/1/22 4,556,606
A3 A- 9,000 New York State
Dormitory Authority,
(State University
Educational
Facilities),
7.50%, 5/15/11 11,273,310
- ---------------------------------------------------------------------------
$ 30,081,226
- ---------------------------------------------------------------------------
Electric Utilities -- 2.8%
- ---------------------------------------------------------------------------
B2 B $ 14,000 Apache County, AZ,
IDA, (Tuscon Electric
Power Co.), 5.85%,
3/1/28 $ 14,107,800
Ba3 B+ 10,000 Connecticut State
Development Authority,
Pollution Control
Revenue, (Connecticut
Light and Power),
5.85%, 9/1/28 10,169,100
</TABLE>
See notes to financial statements
14
<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- -------------------
Standard Amount
& (000's
Moody's Poor's omitted) Security Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Electric Utilities (continued)
- ---------------------------------------------------------------------------
Ba3 B+ $ 13,000 Connecticut State
Development Authority,
Pollution Control
Revenue, (Western
Massachusetts Electric
Co.), 5.85%, 9/1/28 $ 13,219,830
A1 A+ 9,500 Intermountain Power
Agency, UT, 5.00%,
7/1/23 9,425,900
NR NR 11,000 Long Island, NY, Power
Authority, (RITES),
Variable Rate,
12/1/29(2) 11,745,470
NR NR 5,000 West Feliciana, LA,
(Gulf States Utilities
Co.), (AMT),
9.00%, 5/1/15 5,475,700
- ---------------------------------------------------------------------------
$ 64,143,800
- ---------------------------------------------------------------------------
Escrowed / Prerefunded -- 25.2%
- ---------------------------------------------------------------------------
Aaa AAA $ 42,500 Bakersfield, CA,
(Bakersfield Assisted
Living Center),
Escrowed to Maturity,
0.00%, 4/15/21 $ 13,537,950
NR NR 2,200 Bexar County, TX,
Health Facilities,
(St. Luke's Lutheran),
Escrowed to Maturity,
7.00%, 5/1/21 2,864,246
NR AAA 177,055 Colorado Health
Facilities Authority,
(Liberty Heights),
Escrowed to Maturity,
0.00%, 7/15/24 47,824,325
Aaa NR 225,500 Dawson Ridge, CO,
Metropolitan District
#1, Escrowed to
Maturity,
0.00%, 10/1/22 64,851,544
Aaa NR 30,000 Dawson Ridge, CO,
Metropolitan District
#1, Escrowed to
Maturity,
0.00%, 10/1/22 8,627,700
Aaa BBB 1,660 Denver, CO, City and
County Airport
Revenue, (AMT),
Prerefunded to
11/15/01, 7.00%,
11/15/25 1,821,203
Aaa BBB 990 Denver, CO, City and
County Airport
Revenue, (AMT),
Prerefunded to
11/15/04, 7.50%,
11/15/23 1,197,177
NR NR 7,000 Florida State,
(Mid-Bay Bridge
Authority), Escrowed
to Maturity, 6.875%,
10/1/22 8,910,510
NR NR $ 4,310 Hazelton Luzerne, PA,
(Saint Joseph Medical
Center), Prerefunded
to 7/1/03, 8.375%,
7/1/12 $ 5,119,677
NR AAA 101,555 Illinois Development
Finance Authority,
(Regency Park),
Escrowed to Maturity,
0.00%, 7/15/23 28,858,884
NR AAA 60,360 Illinois Development
Finance Authority,
(Regency Park),
Escrowed to Maturity,
0.00%, 7/15/25 15,496,826
NR NR 4,500 Illinois Health and
Educational Facilities
Authority, (Chicago
Osteopathic Health
Systems), Prerefunded
to 11/15/19, 7.25%,
5/15/22 5,740,470
NR NR 4,650 Illinois HEFA,
(Chicago Osteopathic
Health Systems),
Escrowed to Maturity,
7.125%, 5/15/11 5,582,465
Aaa AAA 20,400 Loudoun County, VA,
IDA, (Falcons
Landing), Prerefunded
to 11/1/04,
8.75%, 11/1/24 26,242,356
NR AAA 11,890 Louisiana Public
Facilities Authority,
(Southern Baptist
Hospitals, Inc.),
Escrowed to Maturity,
8.00%, 5/15/12 14,788,188
Aaa AAA 19,400 Louisville, KY,
Hospital Revenue,
(MBIA), Prerefunded to
10/30/01, Variable
Rate, 10/1/14 21,290,530
Baa1 BBB- 10,000 Maricopa County, AZ,
(Sun Health Corp.),
Prerefunded to 4/1/02,
8.125%, 4/1/12 11,583,100
NR NR 5,675 Maricopa County, AZ,
IDA, (Place Five and
The Greenery),
Escrowed to Maturity,
6.625%, 1/1/27 6,640,999
NR NR 1,000 Maricopa County, AZ,
IDA, Multifamily,
Escrowed to Maturity,
6.45%, 1/1/17 1,133,820
Aaa NR 5,835 Massachusetts HEFA,
(Fairview Extended
Care), Prerefunded to
1/1/01, 10.125%, 1/1/11 6,715,385
</TABLE>
See notes to financial statements
15
<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------
Standard Amount
& (000's
Moody's Poor's omitted) Security Value
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Escrowed / Prerefunded (continued)
- ----------------------------------------------------------------------------
Baa3 NR $ 2,500 Massachusetts HEFA,
(Milford-Whitinsville
Hospital), Prerefunded
to 7/15/02, 7.75%,
7/15/17 $ 2,888,200
Aaa AAA 41,015 Massachusetts Turnpike
Authority, (FGIC),
Escrowed to Maturity,
5.125%, 1/1/23 43,255,648
NR NR 4,450 Mille Lacs Capital
Improvements, MN,
(Mille Lacs Band of
Chippewa Indians),
Prerefunded to
11/1/95, 9.25%, 11/1/12 5,446,400
Baa3 NR 5,000 Mississippi Hospital
Equipment and
Facilities Authority,
(Magnolia Hospital),
Prerefunded to
10/01/01, 7.375%,
10/1/21 5,586,750
Aaa NR 100,000 Mississippi Housing
Finance Corp., Single
Family, (AMT),
Escrowed to Maturity,
0.00%, 6/1/15 45,723,999
Aaa AAA 10,000 New Hampshire HEFA,
(Riverwoods at
Exeter), Prerefunded
to 3/1/03, 9.00%,
3/1/23 12,343,500
NR NR 3,500 New Jersey EDA,
(Cadbury Corp.),
Prerefunded to 7/1/01,
7.50%, 7/1/21 3,933,265
Aaa AAA 20,000 New Jersey EDA,
(Keswick Pines),
Prerefunded to 1/1/04,
8.75%, 1/1/24 24,735,000
Aaa AAA 10,355 New York City
Municipal Water
Finance Authority,
(FSA), Prerefunded to
6/15/01, 6.25%, 6/15/21 11,057,794
Aaa NR 6,120 North Salt Lake
Municipal Building
Authority, Davis
County, UT,
Prerefunded
to 12/01/02, 7,417,624
8.625%, 12/1/17
NR NR 3,500 Philadelphia, PA, (The
Philadelphia
Protestant Home),
Prerefunded to 7/1/01,
8.625%, 7/1/21 4,004,700
Aa3 AA- 1,520 Port Seattle, WA,
(AMT), Prerefunded to
12/01/00, 6.00%,
12/1/14 1,594,313
NR NR $ 5,000 Rhode Island HEFA,
(Steere House),
Prerefunded to 7/1/00,
8.25%, 7/1/15 $ 5,477,350
NR NR 10,000 Saint Tammany, LA,
Public Finance,
(Christwood),
Prerefunded to
5/15/05, 9.00%,
11/15/25 13,243,400
Aaa NR 46,210 San Joaquin Hills
Transportation
Corridor Agency, CA,
Toll Roads, Escrowed
to Maturity,
0.00%, 1/1/20 16,688,742
Aaa AAA 72,685 San Joaquin Hills
Transportation
Corridor Agency, CA,
Toll Roads, Escrowed
to Maturity,
0.00%, 1/1/21 25,021,811
Aaa AAA 45,045 San Joaquin Hills
Transportation
Corridor Agency, CA,
Toll Roads, Escrowed
to Maturity,
0.00%, 1/1/23 14,022,959
Aaa AAA 15,000 San Joaquin Hills
Transportation
Corridor Agency, CA,
Toll Roads, Escrowed
to Maturity,
0.00%, 1/1/25 4,241,250
NR AAA 4,500 Scranton-Lackawanna,
PA, Health and Welfare
Authority, (Moses
Taylor Hospital),
Prerefunded to 9/1/01,
8.50%, 7/1/20 5,148,360
Baa2 BBB 5,435 South Dakota HEFA,
(Prairie Lakes Health
Care), Prerefunded to
04/01/03, 7.25%, 4/1/22
6,265,468
Aaa AAA 19,165 Texas Turnpike
Authority, (Houston
Ship Channel Bridge),
Prerefunded to 7/1/02,
12.625%, 1/1/20(3) 25,336,322
Aaa AAA 1,600 Washington Public
Power Supply System,
(Nuclear Project
Number 2), (MBIA),
Escrowed to Maturity,
14.375%, 7/1/01 1,879,536
- ----------------------------------------------------------------------------
$ 584,139,746
- ----------------------------------------------------------------------------
General Obligations -- 0.2%
- ----------------------------------------------------------------------------
Aa1 AA+ $ 4,665 Washington State,
5.75%, 7/1/14 $ 5,072,954
- ----------------------------------------------------------------------------
$ 5,072,954
- ----------------------------------------------------------------------------
</TABLE>
16
See notes to financial statements
<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- -------------------
Standard Amount
& (000's
Moody's Poor's omitted) Security Value
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Hospital -- 7.5%
- ----------------------------------------------------------------------------
NR BBB $ 6,500 Arizona Health
Facilities, (Phoenix
Memorial Hospital),
8.20%, 6/1/21 $ 7,035,275
NR NR 2,360 Berlin, MD, (Atlantic
General), 8.375%,
6/1/22 2,577,875
NR NR 10,180 Chaves County, NM,
(Eastern New Mexico
Medical Center),
7.25%, 12/1/22 11,698,754
NR BBB 3,000 Colorado Health
Facilities Authority,
(National Jewish
Center For
Immunology), 6.875%,
2/15/12 3,338,250
NR BBB 5,015 Colorado Health
Facilities Authority,
(National Jewish
Center For
Immunology), 7.10%,
2/15/22 5,614,293
NR NR 11,000 Colorado Health
Facilities Authority,
(Rocky Mountain
Adventist), (RITES),
Variable Rate,
5/1/22(2) 12,749,990
Baa3 NR 4,000 Corinth and Alcorn
County, MS, (Magnolia
Registered Health
Center), 5.50%, 10/1/21 4,032,280
Baa3 NR 400 Corinth and Alcorn
County, MS, (Magnolia
Registered Health
Center), 5.50%, 10/1/21 403,228
Baa1 NR 4,000 Crossville, TN, HEFA,
(Cumberland Medical
Center), 6.75%, 11/1/12 4,330,240
A3 BBB+ 6,000 District of Columbia,
(Washington Hospital
Center Issue-Medlantic
Healthcare Group,
Inc.), 7.125%, 8/15/19 6,801,480
NR A- 5,000 Dubuque, IA, (Finley
Hospital), 6.875%,
1/1/12 5,436,100
NR BB 4,000 Hawaii State
Department of Budget
and Finance, (Wahiawa
General Hospital),
7.50%, 7/1/12 4,352,640
Baa1 NR 1,000 Illinois Health
Facilities Authority,
(Holy Cross Hospital),
6.70%, 3/1/14 1,101,360
Baa1 NR $ 2,650 Illinois Health
Facilities Authority,
(Holy Cross Hospital),
6.75%, 3/1/24 $ 2,924,832
Baa2 NR 4,500 Indiana Health
Facility Financing
Authority, (Memorial
Hospital and Health
Care Center), 7.40%,
3/1/22 4,893,570
NR BBB 8,250 Louisiana Public
Facilities Authority,
(General Health
Systems), 6.80%,
11/1/16 9,244,125
NR AA+ 20,000 Maricopa County, AZ
IDA, (Mayo Clinic),
5.25%, 11/15/37 20,444,400
Baa NR 2,000 Marshall County, AL,
(Guntersville-Arab
Medical Center),
7.00%, 10/1/09 2,169,140
Baa NR 2,000 Marshall County, AL,
(Guntersville-Arab
Medical Center),
7.00%, 10/1/13 2,175,880
A BBB+ 10,000 Philadelphia, PA,
(Albert Eistein
Medical Center),
7.00%, 10/1/21 11,116,500
B2 BB 9,000 Philadelphia, PA,
(Graduate Health
System),
6.625%, 7/1/21(1) 4,050,000
B2 BB 2,250 Philadelphia, PA,
(Graduate Health
System),
7.25%, 7/1/18(1) 1,012,500
Baa3 NR 2,000 Prince George's
County, MD, (Greater
SouthEast Healthcare
System), 6.375%, 1/1/23 1,824,520
Baa1 BBB+ 10,000 Randolph County
Building Commission,
WV, (Davis Memorial
Hospital),
7.65%, 11/1/21 11,292,500
NR AA+ 16,500 Rochester, MN, Health
Care Facilities
Revenue, (Mayo
Clinic), 5.50%,
11/15/27 17,452,710
NR AAA 8,000 Scranton-Lackawanna
Health and Welfare
Authority, PA, (Moses
Taylor Hospital),
8.25%, 7/1/09 9,087,120
NR NR 4,800 Winslow, AZ, IDA,
(Winslow Memorial
Hospital),
9.50%, 6/1/22 5,523,168
- ----------------------------------------------------------------------------
$ 172,682,730
- ----------------------------------------------------------------------------
</TABLE>
See notes to financial statements
17
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO as of September 30, 1998
PORTFOLIO OF INVESTMENTS
Tax-Exempt Investments -- 100.0%
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hotel -- 0.1%
- ---------------------------------------------------------------------------------------------------------------------------------
NR NR $ 4,205 Niagara County, NY IDA,
(Wintergarden Inn Associates),
9.75%, 6/1/11(1) $ 1,682,000
- ---------------------------------------------------------------------------------------------------------------------------------
$ 1,682,000
- ---------------------------------------------------------------------------------------------------------------------------------
Housing -- 2.5%
- --------------------------------------------------------------------------------------------------------------------------------
Aa AA- $ 9,450 California Housing Finance
Agency, (AMT), "RIBS",
Variable Rate, 8/1/23(2) $ 10,962,000
Aa2 NR 5,000 Colorado Housing Finance
Agency, Single Family Housing,
(AMT), 7.55%, 11/1/27 5,733,950
NR NR 10,800 Lake Creek, CO, (Affordable
Housing Corp.), Multifamily,
6.25%, 12/1/23 10,997,316
NR NR 8,000 Los Angeles County Housing
Authority, CA, Multifamily,
(Corporate Fund for Housing),
10.50%, 12/1/29 7,407,760
NR NR 1,500 Maricopa County, AZ, IDA,
(National Health Facilities II),
6.375%, 1/1/19 1,523,280
NR NR 3,385 Minneapolis, MN, Community
Development, Multifamily,
(Lindsay Brothers),
1.50%, 12/1/07 2,739,988
NR NR 3,180 Minneapolis, MN, Community
Development, Multifamily,
(Lindsay Brothers),
9.50%, 12/1/07 3,592,732
NR NR 8,635 North Miami, FL Health Care
Facilities, (The Imperial Club),
1/1/13 9.25%, 9,830,602
NR NR 4,000 North Miami, FL Health Care
Facilities, (The Imperial Club),
10.00%, 1/1/13 4,030,920
- ----------------------------------------------------------------------------------------------------------------------------------
$ 56,818,548
- ----------------------------------------------------------------------------------------------------------------------------------
Industrial Development Revenue -- 16.1%
- ----------------------------------------------------------------------------------------------------------------------------------
NR NR $ 7,500 Austin, TX, (Cargoport
Development LLC), (AMT),
8.30%, 10/1/21 $ 8,478,000
NR NR $ 2,000 California Pollution Control
Financing Authority, (Laidlaw
Environmental), (AMT),
6.70%, 7/1/07 $ 2,132,120
NR BB- 2,000 Camden County, NJ, (Holt
Hauling), (AMT),
9.875%, 1/1/21 2,529,980
Baa2 BBB+ 6,050 Carbon County, UT, (Laidlaw
Environmental, Inc.), (AMT),
7.50%, 2/1/10 6,964,942
Baa2 BBB- 28,000 Chicago, IL, O'Hare
International, (American
Airlines), 7.875%, 11/1/25 30,341,079
Baa2 BBB- 20,275 Chicago, IL, O'Hare
International, (American
Airlines), 8.20%, 12/1/24 24,339,732
NR NR 6,000 Clark County, NV, (Nevada
Power), (RITES), (AMT),
Variable Rate, 10/1/30 6,285,600
Baa1 BBB 24,000 Courtland, AL, (Champion
International Corp.), (AMT),
7.00%, 6/1/22 26,188,080
Baa2 BBB- 41,000 Dallas-Fort Worth, TX,
International Airport Facility,
(American Airlines),
7.25%, 11/1/30 45,602,659
Baa3 BB+ 52,500 Denver, CO, City and County,
(United Airlines), (AMT),
6.875%, 10/1/32(4) 57,092,699
Baa2 BBB- 8,000 Effingham County, GA, Solid
Waste Disposal, (Fort James),
(AMT), 5.625%, 7/1/18 8,154,400
Baa1 BBB 11,480 Gulf Coast Waste Disposal, TX,
(Champion International
Corp.), (AMT),
6.875%, 12/1/28 12,560,727
NR NR 5,928 Gwinnett County, GA,
(Plastics/Packaging, Inc.),
(AMT), 0.00%, 5/1/13(1) 3,023,060
Ba2 BB- 4,725 Hawaii State Department of
Transportation, (Continental
Airlines, Inc.), (AMT),
5.625%, 11/15/27 4,774,093
NR NR 6,500 Kimball, NE, EDA, (Clean
Harbors, Inc.), (AMT),
10.75%, 9/1/26 7,205,640
</TABLE>
See notes to financial statements
18
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Development Revenue (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
Baa2 NR $ 7,500 Little River County,
AR, (Georgia-Pacific Corp.),
(AMT), 5.60%, 10/1/26 $ 7,610,775
NR NR 1,800 Los Angeles International
Airport, (Continental Airlines),
(AMT), 9.00%, 8/1/08 1,842,336
Baa1 BBB 10,000 Maine Finance Authority,
(Great Northern Paper, Inc. -
Bowater, Inc.), (AMT),
7.75%, 10/1/22 11,248,800
NR BB+ 5,000 Maine Solid Waste Disposal,
(Boise Cascade), (AMT),
7.90%, 6/1/15 5,326,850
Baa1 BBB 5,000 McMinn County, TN, (Calhoun
Newsprint Co. - Bowater Inc.),
(AMT), 7.40%, 12/1/22 5,591,750
NR NR 10,000 Michigan Strategic, (S.D.
Warren Co.),
7.375%, 1/15/22 11,214,700
NR NR 15,000 Michigan Strategic, (S.D.
Warren Co.), (AMT),
7.375%, 1/15/22 16,822,050
NR NR 3,810 Middleboro, MA, (Read Corp.),
9.50%, 10/1/10 4,076,586
NR NR 17,000 New Jersey EDA, (Holt
Hauling), 7.75%, 3/1/27 19,271,030
NR NR 1,500 New Jersey EDA, (Holt
Hauling), 7.90%, 3/1/27 1,718,880
NR NR 1,000 Ohio Solid Waste Revenue,
(Republic Engineered Steels,
Inc.), (AMT), 9.00%, 6/1/21 1,087,090
Baa2 BBB- 7,500 Pennsylvania, IDA, (MacMillan
Bloedel), (AMT),
7.60%, 12/1/20 8,673,750
Baa3 BBB 10,000 Pennsylvania, IDA, (Sun
Company), (AMT),
7.60%, 12/1/24 11,754,500
B1 B 2,585 Riverdale Village, IL, ACME
Metals, Inc., (AMT),
7.90%, 4/1/24 2,333,686
B1 B 2,000 Riverdale Village, IL, ACME
Metals, Inc., (AMT),
7.95%, 4/1/25 1,805,520
NR NR 2,400 Savannah, GA, (Intercat-
Savannah, Inc.), (AMT),
9.75%, 7/1/10 2,573,208
NR NR $ 3,910 Savannah, GA, EDA, (Intercat-
Savannah, Inc.), (AMT),
9.00%, 1/1/15 $ 4,358,555
NR NR 2,000 Skowhegan, ME, (S. D. Warren
Co.), (AMT),
6.65%, 10/15/15 2,170,620
NR NR 3,500 Toole County, UT, Pollution
Control Revenue, (AMT),
7.55%, 7/1/27 3,923,570
Baa2 AA- 4,000 Yavapai County, AZ, IDA,
(Citizens Utilities Co.), (AMT),
5.45%, 6/1/33 4,142,160
- --------------------------------------------------------------------------------------------------------------------------------
$ 373,219,227
- --------------------------------------------------------------------------------------------------------------------------------
Insured-Education -- 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
Aaa AAA $ 6,820 New York State Dormitory
Authority, (University of
Rochester), (MBIA),
5.00%, 7/1/23 $ 6,846,598
- ---------------------------------------------------------------------------------------------------------------------------------
$ 6,846,598
- ---------------------------------------------------------------------------------------------------------------------------------
Insured-Electric Utilities -- 3.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Aaa AAA $ 22,000 Intermountain Power Agency,
UT, (MBIA), 5.75%, 7/1/19 $ 24,208,800
Aaa AAA 10,000 Intermountain Power Agency,
UT, (MBIA), 6.00%, 7/1/16 11,068,300
Aaa AAA 10,000 Los Angeles, CA, Department of
Water and Power, (MBIA),
5.00%, 10/15/33 10,026,200
Aaa AAA 9,645 New York City Municipal Water
Finance Authority, (FSA),
6.25%, 6/15/21 10,180,105
Aaa AAA 16,500 Sacramento, CA, Municipal
Utility District, (MBIA), Variable
Rate, 11/15/15(2) 18,459,375
Aaa AAA 15,350 South Carolina Public Services,
RIBS, (FGIC), Variable
Rate, 1/1/25(5)(2) 15,196,500
- ---------------------------------------------------------------------------------------------------------------------------------
$ 89,139,280
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
19
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited)
- ------------------ Principal
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insured-General Obligations ------ 0.7%
- --------------------------------------------------------------------------------
Aaa AAA $ 16,000 New York State Local
Government Assistance
Corp., (MBIA), 5.00%,
4/1/21 $ 16,062,560
- -------------------------------------------------------------------------------
$ 16,062,560
- -------------------------------------------------------------------------------
Insured-Hospital -- 0.4%
- -------------------------------------------------------------------------------
Aaa AAA $ 7,000 Montgomery County, PA,
HEFA, (Abington
Memorial Hospital)
(AMBAC), Variable
Rate, 7/5/11/(2)/ $ 8,260,000
- -------------------------------------------------------------------------------
$ 8,260,000
- -------------------------------------------------------------------------------
Insured-Housing -- 0.4%
- -------------------------------------------------------------------------------
Aaa AAA $ 7,525 SCA Multifamily
Mortgage, Industrial
Development Board,
Hamilton County, TN,
(AMT), (FSA), 7.35%,
1/1/30 $ 8,461,562
- -------------------------------------------------------------------------------
$ 8,461,562
- -------------------------------------------------------------------------------
Insured-Industrial Development Revenue -- 0.6%
- -------------------------------------------------------------------------------
Aaa AAA $ 11,950 Chicago, IL, (The
Peoples Gas Light and
Coke Company), (AMT),
(AMBAC), RIBS,
Variable Rate,
12/1/23/(5)//(2)/ $ 13,280,035
- -------------------------------------------------------------------------------
$ 13,280,035
- -------------------------------------------------------------------------------
Insured-Pooled Loans -- 0.3%
- -------------------------------------------------------------------------------
Aaa AAA $ 7,000 George L. Smith,
(Georgia World
Congress Center-Domed
Stadium), (MBIA),
(AMT), 5.50%, 7/1/20/(6)/ $ 7,043,610
- -------------------------------------------------------------------------------
$ 7,043,610
- -------------------------------------------------------------------------------
Insured-Senior Living / Life Care -- 0.3%
- -------------------------------------------------------------------------------
Aaa AAA $ 8,170 Michigan State
Hospital Finance
Authority, (Oakwood
Obligation Group),
(FSA), 5.00%, 8/15/26 $ 8,151,127
- -------------------------------------------------------------------------------
$ 8,151,127
- -------------------------------------------------------------------------------
Insured-Special Tax Revenue -- 2.2%
- -------------------------------------------------------------------------------
Aaa AAA $ 9,800 Metropolitan Pier and
Exposition Authority,
IL, (McCormick Place
Expansion), RIBS,
(MBIA), Variable
Rate, 6/15/27/(5)//)/ $ 11,804,786
Aaa AAA 3,415 Regional
Transportation
Authority, LA, (FGIC),
0.00%, 12/1/12 1,792,773
Aaa AAA 10,935 Regional
Transportation
Authority, LA, (FGIC),
0.00%, 12/1/15 4,859,405
Aaa AAA 10,000 Regional
Transportation
Authority, LA, (FGIC),
0.00%, 12/1/21 3,239,900
Aaa AAA 20,000 South Orange County,
CA, Public Financing
Authority, (FGIC),
Variable
Rate, 8/15/15/(2)//(3)/ 21,900,000
Aaa AAA 7,000 Utah Municipal Finance
Corp., Local
Government Revenue,
(FSA), 0.00%, 3/1/10 4,234,720
Aaa AAA 6,000 Utah Municipal Finance
Corp., Local
Government Revenue,
(FSA), 0.00%, 3/1/11 3,431,520
- -------------------------------------------------------------------------------
$ 51,263,104
- -------------------------------------------------------------------------------
Insured-Transportation --------- 3.4%
- -------------------------------------------------------------------------------
Aaa AAA $ 19,000 Massachusetts State
Turnpike Authority,
(FGIC),
5.00%, 1/1/20 $ 19,694,640
Aaa AAA 1,000 Massachusetts State
Turnpike Authority,
(MBIA),
5.00%, 1/1/20 1,036,560
Aaa AAA 10,000 Massachusetts Turnpike
Authority,
Metropolitan District
Highway System,
(MBIA), 5.00%, 1/1/27 10,019,100
Aaa AAA 14,400 Metropolitan
Washington, DC Airport
Authority, (MBIA),
Variable Rate,
4/1/21/(5)//(2)/ 16,236,864
Aaa AAA 18,200 Mobile, AL, Airport
Authority, (MBIA),
6.375%, 10/1/14//(3)/ 20,401,108
NR AAA 10,000 Triborough Bridge and
Tunnel Authority, NY,
(MBIA), Variable Rate,
1/1/19(5)/(2)/ 10,847,100
- -------------------------------------------------------------------------------
$ 78,235,372
- -------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited)
- ------------------ Principal
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insured-Water and Sewer -- 2.6%
- -------------------------------------------------------------------------------
Aaa AAA $ 30,395 California State
Department Water
Resources, (Central
Valley Water Systems),
(FGIC), 5.25%,
12/1/28/(3)/ $ 31,299,250
Aaa AAA 10,000 Detroit, MI, Sewer
Revenue, (FGIC),
Variable
Rate, 7/1/23/(2)/ 11,150,000
Aaa AAA 7,150 Harrisburg, PA, Water
Revenue Bonds, RIBS,
(FGIC), Variable Rate,
8/11/16/(2)/ 7,516,438
Aaa AAA 10,000 San Diego Public
Finance Authority,
(FGIC),
5.25%, 5/15/27 10,349,500
- -------------------------------------------------------------------------------
$ 60,315,188
- -------------------------------------------------------------------------------
Lease Revenue/
Certificates of Participation -- 0.2%
- -------------------------------------------------------------------------------
NR AA- $ 3,500 Plymouth County, MA,
(Plymouth County
Correctional
Facility), 7.00%,
4/1/22 $ 3,939,705
- -------------------------------------------------------------------------------
$ 3,939,705
- -------------------------------------------------------------------------------
Miscellaneous -- 2.3%
- -------------------------------------------------------------------------------
NR NR $ 5,890 American Samoa
Economic Development
Authority, (Executive
Office Building),
10.125%, 9/1/08 $ 6,182,969
NR NR 6,645 Hardeman County, TN,
(Correctional
Facilities Corp.),
7.75%, 8/1/17 7,566,728
NR A- 6,500 Los Angeles, CA,
Regional Airports
Improvement Corp.,
(LAXFuel), (AMT),
6.50%, 1/1/32 6,814,145
NR NR 22,500 New Jersey Sports and
Exposition Authority,
(Monmouth Park),
8.00%, 1/1/25 25,824,375
NR NR 10,200 Orange County, NC,
(Community Activity
Corp.), 8.00%,
3/1/24/(1)/ 6,120,000
- -------------------------------------------------------------------------------
MIscellaneous (continued)
- -------------------------------------------------------------------------------
NR NR $ 1,600 Pittsfield Township,
MI, EDC, (Arbor
Hospice),
7.875%, 8/15/27 $ 1,719,424
- -------------------------------------------------------------------------------
$ 54,227,641
- -------------------------------------------------------------------------------
Nursing Home -- 6.6%
- -------------------------------------------------------------------------------
NR NR $ 13,270 Bell County, TX,
(Riverside Healthcare,
Inc. - Normandy
Terrace), 9.00%, 4/1/23 $ 16,324,489
NR NR 4,200 Collier County, FL,
IDA, Retirement
Rental, (Beverly
Enterprises - Florida,
Inc.), 10.75%, 3/1/03 4,779,852
NR NR 4,945 Delaware County, PA
(Mainline-Haverford
Nursing and
Rehabilitation
Centers),
9.00%, 8/1/22 5,893,253
NR NR 4,650 Hillsborough County,
FL, IDA, (Center for
Independent Living),
10.25%, 3/1/09/(7)/ 4,185,000
NR NR 5,460 Hillsborough County,
FL, IDA, (Center for
Independent Living),
11.00%, 3/1/19/(7)/ 4,914,000
Baa1 NR 10,000 Indianapolis, IN,
(National Benevolent
Association - Robin
Run Village),
7.625%, 10/1/22 11,148,200
NR NR 3,475 Lackawanna County, PA,
IDA, (Edella Street
Associates), 8.875%,
9/1/14 3,909,896
NR NR 2,885 Luzerne County, PA,
IDA, (River Street
Associates),
8.75%, 6/15/07 3,224,420
NR NR 13,250 Massachusetts IFA,
(Age Institute of
Massachusetts), 8.05%,
11/1/25 15,095,063
NR NR 11,765 Mississippi Business
Finance Corp.,
(Magnolia Healthcare),
7.99%, 7/1/25 12,892,558
NR NR 6,750 Missouri HEFA,
(Bethesda Health Group
of Saint Louis, Inc.),
6.625%, 8/15/05 7,271,235
NR NR 14,000 Missouri HEFA,
(Bethesda Health Group
of Saint Louis, Inc.),
7.50%, 8/15/12 15,837,080
</TABLE>
See notes to financial statements
<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- -------------------
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
Nursing Home (continued)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR $ 12,500 Montgomery, PA, IDA,
(Advancement of
Geriatric Health Care
Institute), 8.375%,
7/1/23 $ 13,623,000
NR NR 4,945 New Jersey EDA,
(Claremont Health
System, Inc.),
9.10%, 9/1/22 5,635,470
NR NR 5,915 New Jersey EDA,
(Victoria Health
Corp.), 7.75%, 1/1/24 6,560,090
NR NR 2,630 Okaloosa County, FL,
(Beverly Enterprises),
10.75%, 10/1/03 2,693,094
A3 BBB 3,870 Racine County, WI,
Health Center, 8.125%,
8/1/21 3,977,586
NR NR 5,000 Sussex County, DE,
(Delaware Health
Corp.), 7.50%, 1/1/14 5,459,500
NR NR 5,000 Sussex County, DE,
(Delaware Health
Corp.), 7.60%, 1/1/24 5,470,000
NR NR 2,470 Westmoreland, PA,
(Highland Health
Systems, Inc.),
9.25%, 6/1/22 2,821,926
- --------------------------------------------------------------------------------
$ 151,715,712
- --------------------------------------------------------------------------------
Senior Living / Life Care -- 3.8%
- --------------------------------------------------------------------------------
NR NR $ 8,616 Albuquerque, NM, First
Mortgage IDR, (La Vida
Llena Retirement
Center), 8.625%, 2/1/20 $ 9,183,622
NR NR 6,900 Albuquerque, NM, First
Mortgage IDR, (La Vida
Llena Retirement
Center), 8.85%, 2/1/23 7,605,801
NR NR 5,744 Albuquerque, NM, First
Mortgage IDR, (La Vida
Lllena Retirement
Center), 2.25%, 2/1/23 1,801,204
NR NR 10,000 Atlantic Beach, FL,
Fixed Rate
Improvement, (Fleet
Landing), 8.00%,
10/1/24 11,366,800
NR NR 12,435 De Kalb County, GA,
Private Hospital
Authority, (Atlanta,
Inc.), 8.50%, 3/1/25(7) 9,326,250
Senior Living / Life Care (continued)
- --------------------------------------------------------------------------------
NR NR $ 4,995 Kansas City, MO, IDA,
(Kingswood United
Methodist Manor),
9.00%, 11/15/13 $ 5,812,232
Aaa AAA 2,100 Loudoun County, VA,
IDA, Residential Care,
(Falcons Landing),
9.25%, 7/1/04 2,486,106
NR NR 15,000 Louisiana Housing
Finance Agency, (HCC
Assisted Living Group
1), (AMT), 9.00%,
3/1/25 17,056,800
NR NR 5,700 Ridgeland, MS, Urban
Renewal, (The
Orchard), 7.75%,
12/1/15 6,265,668
Baa2 BBB 2,565 South Dakota HEFA,
(Prairie Lakes Health
Care), 7.25%, 4/1/22 2,905,889
NR NR 4,500 Vermont IDA, (Wake
Robin Corp.), 8.75%,
3/1/23 5,105,115
NR NR 7,500 Vermont IDA, (Wake
Robin Corp.), 8.75%,
4/1/23 8,521,125
- --------------------------------------------------------------------------------
$ 87,436,612
- --------------------------------------------------------------------------------
Solid Waste -- 1.2%
- --------------------------------------------------------------------------------
NR NR $ 35,000 Robbins, Cook County,
IL, (Robbins Resource
Recovery Partners,
L.P.), 8.375%,
10/15/16(3) $ 28,000,000
- --------------------------------------------------------------------------------
$ 28,000,000
- --------------------------------------------------------------------------------
Special Tax Revenue -- 0.8%
- --------------------------------------------------------------------------------
Aa2 AA+ $ 7,000 Florida Department of
Transportation, (Right
of Way), 5.00%, 7/1/27 $ 7,028,980
Baa BBB 3,695 Inglewood, CA Public
Financing Authority,
In-Town,
(Manchester-Prairie
and North Inglewood
Industrial
Park Redevelopment),
7.00%, 5/1/22 4,035,457
Aa3 AA- 7,500 Michigan State Trunk
Line, 5.50%, 11/1/18 8,248,350
- --------------------------------------------------------------------------------
$ 19,312,787
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
22
<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- -------------------
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation -- 3.8%
- --------------------------------------------------------------------------------
Baa1 BBB $ 4,735 Denver, CO, City and
County Airport
Revenue, (AMT), 7.50%,
11/15/23 $ 5,566,845
A A- 5,000 Hawaii Airport System,
(AMT), 7.00%, 7/1/18 5,436,150
Baa1 BBB+ 6,000 Metropolitan
Transportation
Authority, NY,
5.50%, 7/1/17 6,349,320
Aa3 A+ 10,000 New Jersey Turnpike
Authority, 5.00%,
6/15/17 10,194,600
A1 AA- 15,000 Port Authority of New
York and New Jersey,
(AMT), Variable Rate,
1/15/27(5)(2) 17,086,350
Aa3 AA- 3,480 Port Seattle, WA,
(AMT), 6.00%, 12/1/14 3,613,110
Aa3 A+ 9,050 Triborough Bridge and
Tunnel Authority, NY,
5.125%, 1/1/22 9,128,283
Aa3 A+ 10,450 Triborough Bridge and
Tunnel Authority, NY,
5.20%, 1/1/27 10,712,191
Aa3 A+ 19,030 Triborough Bridge and
Tunnel Authority, NY,
5.25%, 1/1/28 19,475,492
- --------------------------------------------------------------------------------
$ 87,562,341
- --------------------------------------------------------------------------------
Water and Sewer -- 1.2%
- --------------------------------------------------------------------------------
Aa2 AA $ 21,920 California State
Department Water
Resources, (Central
Valley Water Systems),
5.25%, 12/1/24 $ 22,416,269
A2 A- 4,965 New York, NY,
Municipal Water
Finance Authority,
6.25%, 6/15/21 5,227,450
- --------------------------------------------------------------------------------
$ 27,643,719
- --------------------------------------------------------------------------------
Total Tax-Exempt Investments
(identified cost $2,005,029,958) $ 2,312,890,868
- --------------------------------------------------------------------------------
Taxable-Investment -- 0.0%
Senior Living / Life Care -- 0.0%
- --------------------------------------------------------------------------------
NR NR $ 485 Ridgeland, MS, Urban
Renewal, (The
Orchard), 9.00%,
12/1/00 $ 486,474
- --------------------------------------------------------------------------------
$ 486,474
- --------------------------------------------------------------------------------
Total Taxable-Investment
(identified cost $485,000) $ 486,474
- --------------------------------------------------------------------------------
Total Investments -- 100.0%
(identified cost $2,005,514,958) $2,313,377,342
- --------------------------------------------------------------------------------
</TABLE>
At September 30, 1998 the concentration of the Portfolio's investments in the
various states, determined as a percentage of total investments, is as follows:
California 10.0%
Others, representing less than 10% individually 90.0%
The Portfolio invests primarily in debt securities issued by municipalities. The
ability of the issuers of the debt securities to meet their obligations may be
affected by economic developments in a specific industry or municipality. In
order to reduce the risk associated with such economic developments, at
September 30, 1998, 18.4% of the securities in the portfolio of investments are
backed by bond insurance of various financial institutions and financial
guaranty assurance agencies. The aggregate percentage insured by financial
institutions ranged from 0.9% to 8.1% of total investments.
/(1)/Non-income producing security.
/(2)/Security has been issued as an inverse floater bond.
/(3)/Security (or a portion thereof) has been segregated to cover when-issued
securities.
/(4)/Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
/(5)/Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At September 30,
1998, the value of these securities amounted to $84,451,635 or 3.6% of the
Portfolio's net assets.
/(6)/When-issued security.
/(7)/The Portfolio is accruing only partial interest on this security.
See notes to financial statements
23
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO as of September 30, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of September 30, 1998
Assets
- --------------------------------------------------------------------------
<S> <C>
Investments, at value
(identified cost, $2,005,514,958) $2,313,377,342
Cash 1,881,598
Receivable for investments sold 17,915,080
Interest receivable 39,301,543
- --------------------------------------------------------------------------
Total assets $2,372,475,563
- --------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------
Payable for investments purchased $ 23,000,000
Payable for when-issued securities 6,710,830
Payable for daily variation margin on open
financial futures contracts 2,624,687
Payable to affiliate for Trustees' fees 2,508
Other accrued expenses 12,760
- --------------------------------------------------------------------------
Total liabilities $ 32,350,785
- --------------------------------------------------------------------------
Net Assets applicable to investors' interest in
Portfolio $2,340,124,778
- --------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------
Net proceeds from capital contributions and
withdrawals $2,035,871,144
Net unrealized appreciation (computed on the basis
of identified cost) 304,253,634
- --------------------------------------------------------------------------
Total $2,340,124,778
- --------------------------------------------------------------------------
Statement of Operations
For the Year Ended
September 30, 1998
Investment Income
- --------------------------------------------------------------------------
Interest $ 142,901,888
- --------------------------------------------------------------------------
Total investment income $ 142,901,888
- --------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------
Investment adviser fee $ 9,401,075
Trustees fees and expenses 35,018
Custodian fee 369,252
Legal and accounting services 79,629
Amortization of organization expenses 7,562
Miscellaneous 140,987
- --------------------------------------------------------------------------
Total expenses $ 10,033,523
- --------------------------------------------------------------------------
Deduct --
Reduction of custodian fee $ 360,087
- --------------------------------------------------------------------------
Total expense reductions $ 360,087
- --------------------------------------------------------------------------
Net expenses $ 9,673,436
- --------------------------------------------------------------------------
Net investment income $ 133,228,452
- --------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 74,344,438
Financial futures contracts (12,173,968)
- --------------------------------------------------------------------------
Net realized gain $ 62,170,470
- --------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 9,477,871
Financial futures contracts 4,472,250
- --------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) $ 13,950,121
- --------------------------------------------------------------------------
Net realized and unrealized gain $ 76,120,591
- --------------------------------------------------------------------------
Net increase in net assets from operations $ 209,349,043
- --------------------------------------------------------------------------
</TABLE>
See notes to financial statements
<PAGE>
National Municipals Portfolio as of September 30, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets September 30, 1998 September 30, 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 133,228,452 $ 141,173,780
Net realized gain 62,170,470 683,719
Net change in
unrealized
appreciation
(depreciation) 13,950,121 133,564,032
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 209,349,043 $ 275,421,531
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 389,124,010 $ 304,512,126
Withdrawals (439,963,679) (610,796,255)
- --------------------------------------------------------------------------------
Net decrease in net assets from
capital transactions $ (50,839,669) $ (306,284,129)
- --------------------------------------------------------------------------------
Net increase (decrease) in
net assets $ 158,509,374 $ (30,862,598)
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $2,181,615,404 $2,212,478,002
- --------------------------------------------------------------------------------
At end of year $2,340,124,778 $2,181,615,404
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
25
<PAGE>
National Municipals Portfolio as of September 30, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratios to average daily net assets
- --------------------------------------------------------------------------------------------------------------------------------
Expenses: /(1)/ 0.45% 0.52% 0.49% 0.50% 0.50%
Expenses after custodian fee reduction 0.43% 0.52% 0.48% 0.49% --
Net investment income 5.93% 6.51% 6.65% 7.00% 6.55%
Portfolio Turnover 28% 17% 19% 54% 40%
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $2,340,125 $2,181,615 $2,212,478 $2,260,646 $2,210,936
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ The expense ratios for the year ended September 30, 1995 and periods
thereafter have been adjusted to reflect a change in reporting guidelines.
The new reporting guidelines require the Portfolio to increase its expense
ratio by the effect of any expense offset arrangements with its service
providers. The expense ratios for each of the prior periods have not been
adjusted to reflect this change.
See notes to financial statements
26
<PAGE>
National Municipals Portfolio as of September 30, 1998
NOTES TO FINANCIAL STATEMENTS
/1/ Significant Accounting Policies
--------------------------------------------------------------------------
National Municipals Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 as a diversified open-end management
investment company which was organized as a trust under the laws of the
State of New York on May 1, 1992. The Declaration of Trust permits the
Trustees to issue interests in the Portfolio. The following is a summary of
significant accounting policies of the Portfolio. The policies are in
conformity with generally accepted accounting principles.
A Investment Valuation -- Municipal bonds are normally valued on the basis
of valuations furnished by a pricing service. Taxable obligations, if any,
for which price quotations are readily available are normally valued at the
mean between the latest bid and asked prices. Futures contracts listed on
the commodity exchanges are valued at closing settlement prices. Short-term
obligations, maturing in sixty days or less, are valued at amortized cost,
which approximates value. Investments for which valuations or market
quotations are unavailable are valued at fair value using methods determined
in good faith by or at the direction of the Trustees.
B Income -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C Federal Taxes -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes
on any taxable income of the Portfolio because each investor in the
Portfolio is ultimately responsible for the payment of any taxes. Since some
of the Portfolio's investors are regulated investment companies that invest
all or substantially all of their assets in the Portfolio, the Portfolio
normally must satisfy the applicable source of income and diversification
requirements (under the Internal Revenue Code) in order for its investors to
satisfy them. The Portfolio will allocate at least annually among its
investors each investor's distributive share of the Portfolio's net taxable
(if any) and tax-exempt investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit. Interest income
received by the Portfolio on investments in municipal bonds, which is
excludable from gross income under the Internal Revenue Code, will retain
its status as income exempt from federal income tax when allocated to the
Portfolio's investors. The portion of such interest, if any, earned on
private activity bonds issued after August 7, 1986 may be considered a tax
preference item for investors.
D Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
E Financial Futures Contracts -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in
cash or securities an amount equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by the Portfolio ("margin maintenance") each day, dependent
on the daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by the Portfolio.
The Portfolio's investment in financial futures contracts is designed only
to hedge against anticipated future changes in interest rates. Should
interest rates move unexpectedly, the Portfolio may not achieve the
anticipated benefits of the financial futures contracts and may realize a
loss.
F Options on Financial Futures Contracts -- Upon the purchase of a put
option on a financial futures contract by the Portfolio, the premium paid is
recorded as an investment, the value of which is marked-to-market daily.
When a purchased option expires, the Portfolio will realize a loss in the
amount of the cost of the option. When the Portfolio enters into a closing
sale transaction, the Portfolio will realize a gain or loss depending on
whether the sales proceeds from the closing sale transaction are greater or
less than the cost of the option. When the Portfolio exercises a put option,
settlement is made in cash. The risk associated with purchasing put options
is limited to the premium originally paid.
G Legal Fees -- Legal fees and other related expenses incurred as part of
negotiations of the terms and requirements of capital infusions, or that are
expected to result in the restructuring of or a plan of reorganization for
an investment are recorded as realized losses. Ongoing expenditures to
protect or enhance an investment are treated as operating expenses.
H When-issued and Delayed Delivery Transactions -- The Portfolio may engage
in when-issued or delayed delivery transactions. The Portfolio records
when-issued securities on trade date and maintains security positions such
that sufficient liquid assets will be available to make payments for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked-to-market daily and begin accruing interest on
settlement date.
I Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results
could differ from those estimates.
27
<PAGE>
National Municipals Portfolio as of September 30, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
J Other -- Investment transactions are accounted for on a trade date basis.
K Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT
receives a fee reduced by credits which are determined based on the average
daily cash balance the Portfolio maintains with IBT. All significant credit
balances used to reduce the Portfolio's custodian fees are reflected as a
reduction of operating expense on the Statement of Operations.
/2/ Investment Adviser Fee and Other Transactions with Affiliates
------------------------------------------------------------------
The investment adviser fee is earned by Boston Management and Research
(BMR), a wholly-owned subsidiary of Eaton Vance Management (EVM), as
compensation for management and investment advisory services rendered to the
Portfolio. The fee is based upon a percentage of average daily net assets
plus a percentage of gross income (i.e., income other than gains from the
sale of securities). For the year ended September 30, 1998, the fee was
equivalent to 0.42% of the Portfolio's average daily net assets for such
period and amounted to $9,401,075. Except as to Trustees of the Portfolio
who are not members of EVM's or BMR's organization, officers and Trustees
receive remuneration for their services to the Portfolio out of such
investment adviser fee. Trustees of the Portfolio that are not affiliated
with the Investment Adviser may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of the Trustees
Deferred Compensation Plan. For the year ended September 30, 1998, no
significant amounts have been deferred.
Certain of the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations.
/3/ Investments
------------------------------------------------------------------
Purchases and sales of investments, other than U.S. Government securities
and short-term obligations, aggregated $620,410,606 and $614,142,170,
respectively, for the year ended September 30, 1998.
/4/ Federal Income Tax Basis of Investments
------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at September 30, 1998, as computed on a Federal income tax
basis, are as follows:
Aggregate cost $2,005,944,910
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Gross unrealized appreciation $ 336,227,591
Gross unrealized depreciation (28,795,159)
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Net unrealized appreciation $ 307,432,432
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/5/ Line of Credit
------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR
and EVM and its affiliates in a $100 million ($80 million effective October
13, 1998) unsecured line of credit agreement with a group of banks. The
portfolio may temporarily borrow from the line of credit to satisfy
redemption requests or settle investment transactions. Interest is charged
to each portfolio or fund based on its borrowings at an amount above either
the Eurodollar rate or federal funds rate. In addition, a fee computed at an
annual rate of 0.10% on the daily unused portion of the line of credit is
allocated among the participating portfolios and funds at the end of each
quarter. The Portfolio did not have any significant borrowings or allocated
fees during the year ended September 30, 1998.
/6/ Financial Instruments
------------------------------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities to assist in
managing exposure to various market risks. These financial instruments
include futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Portfolio has in particular classes of financial instruments
and does not necessarily represent the amounts potentially subject to risk.
The measurement of the risks associated with these instruments is meaningful
only when all related and offsetting transactions are considered.
A summary of obligations under these financial instruments at September 30,
1998 is as follows:
<TABLE>
<CAPTION>
Futures
Contracts
Expiration Net Unrealized
Date Contracts Position Depreciation
------------------------------------------------------------------
<S> <C> <C> <C>
12/98 2,500 U.S. Treasury Bonds Short $3,608,750
------------------------------------------------------------------
</TABLE>
At September 30, 1998, the Portfolio had sufficient cash and/or securities
to cover margin requirements on open futures contracts.
28
<PAGE>
National Municipals Portfolio as of September 30, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders
of National Municipals Portfolio
- -------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of National Municipals Portfolio as of September
30, 1998, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended September 30, 1998 and
1997 and the supplementary data for each of the years in the five year period
ended September 30, 1998. These financial statements and supplementary data are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and supplementary data based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities held as of
September 30, 1998 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of National Municipals
Portfolio at September 30, 1998, the results of its operations, the changes in
its net assets, and its supplementary data for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 30, 1998
29
<PAGE>
National Municipals Portfolio as of September 30, 1998
INVESTMENT MANAGEMENT
National Municipals Portfolio
Officers
Thomas J. Fetter
President
James B. Hawkes
Vice President and Trustee
Robert B. MacIntosh
Vice President
Thomas M. Metzold
Vice President and
Portfolio Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking,
Harvard University Graduate School of
Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
30
