<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS
TAX-EXEMPT INVESTMENTS -- 99.8%
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Assisted Living -- 5.0%
- -------------------------------------------------------------------------------
$ 6,035 Arizona Health Facilities Authority,
(Care Institute, Inc. - Mesa),
7.625%, 1/1/26 $ 6,002,773
17,070 Bell County, TX, Health Facilities
Authority, (Care Institute, Inc.,
Texas), 9.00%, 11/1/24 18,777,171
3,060 Chester, PA, IDA, (Senior LifeChoice of
Kimberton), (AMT), 8.50%, 9/1/25 3,355,810
5,000 Chester, PA, IDA, (Senior LifeChoice of
Paoli, L.P.), (AMT), 8.05%, 1/1/24 5,378,950
4,960 Delaware, PA, IDA, (Glen Riddle), (AMT),
8.625%, 9/1/25 5,469,194
10,000 Glen Cove, NY, IDA, (Regency at Glen
Cove), 9.50%, 7/1/12 10,487,300
15,000 Illinois Development Finance Authority,
(Care Institute, Inc. - Illinois),
7.80%, 6/1/25 15,745,050
4,605 New Jersey EDA, (Chelsea at East
Brunswick), (AMT), 8.25%, 10/1/20 4,900,917
9,715 New Jersey EDA, (Forsgate), (AMT),
8.625%, 6/1/25 10,779,375
4,935 North Syracuse Village Housing
Authority, NY, (AJM Senior Housing,
Inc., Janus Park), 8.00%, 6/1/24 4,760,202
7,915 Roseville, MN, Elder Care Facility,
(Care Institute, Inc. - Roseville),
7.75%, 11/1/23 7,770,393
12,430 St. Paul, MN, Housing and Redevelopment,
(Care Institute, Inc. - Highland),
8.75%, 11/1/24 13,816,194
- -------------------------------------------------------------------------------
$ 107,243,329
- -------------------------------------------------------------------------------
Cogeneration -- 5.6%
- -------------------------------------------------------------------------------
$22,150 Maryland Energy Cogeneration, (AES
Warrior Run), (AMT), 7.40%, 9/1/19 $ 23,381,097
30,775 New Jersey EDA, (Vineland Cogeneration),
(AMT), 7.875%, 6/1/19 32,423,617
12,950 Palm Beach County, FL, (Osceola Power),
(AMT), 6.95%, 1/1/22(1) 7,834,750
6,100 Pennsylvania EDA, (Northampton
Generating), (AMT), 6.50%, 1/1/13 6,199,247
18,450 Pennsylvania EDA, (Northampton
Generating), (AMT), 6.60%, 1/1/19 18,984,127
7,000 Pennsylvania EDA, (Northampton
Generating), Junior Liens, (AMT),
6.875%, 1/1/11 7,123,900
5,000 Pennsylvania EDA, (Northampton
Generating), Junior Liens, (AMT),
6.95%, 1/1/21 5,113,400
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Cogeneration (continued)
- -------------------------------------------------------------------------------
$35,000 Robbins, Cook County, IL, (Robbins
Resource Recovery Partners, L.P.),
8.375%, 10/15/16 $ 18,812,500
- -------------------------------------------------------------------------------
$ 119,872,638
- -------------------------------------------------------------------------------
Economic Development Revenue -- 1.0%
- -------------------------------------------------------------------------------
$21,775 New Jersey EDA, (Continental Airlines),
(AMT), 6.25%, 9/15/29 $ 21,185,768
- -------------------------------------------------------------------------------
$ 21,185,768
- -------------------------------------------------------------------------------
Education -- 1.4%
- -------------------------------------------------------------------------------
$ 4,130 California Educational Facilities
Authority, (Stanford University),
Variable Rate, 6/1/27(2) $ 3,558,780
12,500 Houston, TX, Higher Education Finance
Corp., Variable Rate, 5/15/23(2)(3) 10,742,750
9,000 New York Dormitory Authority, (State
University Educational Facilities),
7.50%, 5/15/11 10,408,230
5,000 Vermont Educational and Health Buildings
Financing Agency, (Middlebury College),
5.00%, 11/1/38 4,265,550
- -------------------------------------------------------------------------------
$ 28,975,310
- -------------------------------------------------------------------------------
Electric Utilities -- 1.4%
- -------------------------------------------------------------------------------
$ 9,500 Intermountain Power Agency, UT,
5.00%, 7/1/23 $ 8,419,660
22,000 Long Island Power Authority, NY,
Electric System Revenue,
5.50%, 12/1/29(4) 20,545,140
- -------------------------------------------------------------------------------
$ 28,964,800
- -------------------------------------------------------------------------------
Escrowed / Prerefunded -- 17.7%
- -------------------------------------------------------------------------------
$ 6,317 Albuquerque, NM, Retirement Facilities,
(La Vida Liena Retirement Center),
Prerefunded to 2/1/03, 8.625%, 2/1/20 $ 7,244,099
42,500 Bakersfield, CA, (Bakersfield Assisted
Living Center), Escrowed to Maturity,
0.00%, 4/15/21 11,562,550
2,200 Bexar County, TX, Health Facilities,
(St. Luke's Lutheran), Escrowed to
Maturity, 7.00%, 5/1/21 2,556,092
171,955 Colorado Health Facilities Authority,
(Liberty Heights), Escrowed to Maturity,
0.00%, 7/15/24 37,168,073
244,325 Dawson Ridge, CO, Metropolitan District
#1, Escrowed to Maturity,
0.00%, 10/1/22 52,065,657
11,175 Dawson Ridge, CO, Metropolitan District
#1, Escrowed to Maturity,
0.00%, 10/1/22 2,381,392
6,000 District of Columbia, (Washington
Hospital Center Issue - Medlantic
Healthcare Group, Inc.), Prerefunded to
8/15/02, 7.125%, 8/15/19 6,537,900
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Escrowed / Prerefunded (continued)
- -------------------------------------------------------------------------------
$ 7,000 Florida, (Mid-Bay Bridge Authority),
Escrowed to Maturity, 6.875%, 10/1/22 $ 8,037,050
4,135 Hazelton Luzerne, PA, (Saint Joseph
Medical Center), Prerefunded to 7/1/03,
8.375%, 7/1/12 4,675,693
101,555 Illinois Development Finance Authority,
(Regency Park), Escrowed to Maturity,
0.00%, 7/15/23 21,099,067
60,360 Illinois Development Finance Authority,
(Regency Park), Escrowed to Maturity,
0.00%, 7/15/25 10,988,538
4,650 Illinois HEFA, (Chicago Osteopathic
Health Systems), Escrowed to Maturity,
7.125%, 5/15/11 5,252,500
4,500 Illinois HEFA, (Chicago Osteopathic
Health Systems), Prerefunded to
11/15/19, 7.25%, 5/15/22 5,247,270
11,395 Louisiana Public Facilities Authority,
(Southern Baptist Hospitals, Inc.),
Escrowed to Maturity, 8.00%, 5/15/12 13,366,563
5,675 Maricopa County, AZ, IDA, (Place Five
and The Greenery), Escrowed to Maturity,
6.625%, 1/1/27 6,378,586
1,000 Maricopa County, AZ, IDA, Multifamily,
Escrowed to Maturity, 6.45%, 1/1/17 1,096,290
41,015 Massachusetts Turnpike Authority,
Escrowed to Maturity, (FGIC),
5.125%, 1/1/23 38,048,385
4,300 Mille Lacs Capital Improvements, MN,
(Mille Lacs Band of Chippewa Indians),
Prerefunded to 11/1/02, 9.25%, 11/1/12 4,977,594
5,000 Mississippi Hospital Equipment and
Facilities Authority, (Magnolia
Hospital), Prerefunded to 10/1/01,
7.375%, 10/1/21 5,377,850
100,000 Mississippi Housing Finance Corp.,
Single Family, Escrowed to Maturity,
(AMT), 0.00%, 6/1/15 40,949,000
22,500 New Jersey Sports and Exposition
Authority, (Monmouth Park), Prerefunded
to 1/1/05, 8.00%, 1/1/25 26,379,900
6,105 North Salt Lake Municipal Building
Authority, Davis County, UT, Prerefunded
to 12/1/02, 8.625%, 12/1/17 7,033,876
46,210 San Joaquin Hills Transportation
Corridor Agency, CA, Toll Road Bonds,
Escrowed to Maturity, 0.00%, 1/1/20 14,487,297
72,685 San Joaquin Hills Transportation
Corridor Agency, CA, Toll Road Bonds,
Escrowed to Maturity, 0.00%, 1/1/21 21,342,497
45,045 San Joaquin Hills Transportation
Corridor Agency, CA, Toll Road Bonds,
Escrowed to Maturity, 0.00%, 1/1/23 11,732,421
15,000 San Joaquin Hills Transportation
Corridor Agency, CA, Toll Road Bonds,
Escrowed to Maturity, 0.00%, 1/1/25 3,463,050
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Escrowed / Prerefunded (continued)
- -------------------------------------------------------------------------------
$ 5,435 South Dakota HEFA, (Prairie Lakes Health
Care), Prerefunded to 04/1/03,
7.25%, 4/1/22 $ 5,991,544
- -------------------------------------------------------------------------------
$ 375,440,734
- -------------------------------------------------------------------------------
Gas Utilities -- 0.2%
- -------------------------------------------------------------------------------
$ 5,250 Philadelphia, PA, Natural Gas Works,
Variable Rate, 7/1/28(2) $ 3,902,745
- -------------------------------------------------------------------------------
$ 3,902,745
- -------------------------------------------------------------------------------
General Obligations -- 1.6%
- -------------------------------------------------------------------------------
$10,250 Florida Board of Education,
4.75%, 6/1/28(4) $ 8,622,300
10,190 Georgia, 4.25%, 8/1/18(4) 8,512,013
15,000 North East Independent School District,
TX, 4.50%, 10/1/28 11,830,650
4,800 Texas, Variable Rate, 8/1/24(2)(3) 4,279,872
2,080 Texas, Variable Rate, 8/1/29(2)(3) 1,798,347
- -------------------------------------------------------------------------------
$ 35,043,182
- -------------------------------------------------------------------------------
Hospital -- 5.8%
- -------------------------------------------------------------------------------
$ 6,500 Arizona Health Facilities Authority,
(Phoenix Memorial Hospital),
8.20%, 6/1/21 $ 6,674,005
2,325 Berlin, MD, (Atlantic General Hospital),
8.375%, 6/1/22 2,446,388
22,000 Colorado Health Facilities Authority,
(Rocky Mountain Adventist),
6.625%, 2/1/22 20,250,780
4,000 Corinth and Alcorn County, MS, (Magnolia
Registered Health Center),
5.50%, 10/1/21 3,531,000
300 Corinth and Alcorn County, MS, (Magnolia
Registered Health Center),
5.50%, 10/1/21 264,825
4,000 Crossville, TN, HEFA, (Cumberland
Medical Center), 6.75%, 11/1/12 4,162,360
3,775 Hawaii State Department of Budget and
Finance, (Wahiawa General Hospital),
7.50%, 7/1/12 3,953,406
1,000 Illinois Health Facilities Authority,
(Holy Cross Hospital), 6.70%, 3/1/14 1,059,760
2,650 Illinois Health Facilities Authority,
(Holy Cross Hospital), 6.75%, 3/1/24 2,784,752
4,500 Indiana Health Facility Financing
Authority, (Memorial Hospital and Health
Care Center), 7.40%, 3/1/22 4,711,905
8,010 Louisiana Public Facilities Authority,
(General Health Systems),
6.80%, 11/1/16 8,398,966
10,000 Maricopa County, AZ, IDA, (Mayo
Foundation), Residual Certificates,
Variable Rate, 11/15/37(2)(3) 7,883,800
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Hospital (continued)
- -------------------------------------------------------------------------------
$ 2,000 Marshall County, AL, (Guntersville-Arab
Medical Center), 7.00%, 10/1/09 $ 2,091,260
2,000 Marshall County, AL, (Guntersville-Arab
Medical Center), 7.00%, 10/1/13 2,094,120
13,815 Massachusetts HEFA, (Partners Healthcare
System), 5.25%, 7/1/29 12,133,853
3,500 Orange County, FL, HFA, (Westminster
Community Care), 6.75%, 4/1/34 3,500,000
9,000 Philadelphia, PA, HEFA, (Graduate Health
System), 6.625%, 7/1/21(1) 3,330,000
2,250 Philadelphia, PA, HEFA, (Graduate Health
System), 7.25%, 7/1/18(1) 832,500
3,075 Prince George's County, MD, (Greater
Southeast Healthcare System),
6.375%, 1/1/23(1) 1,382,766
7,750 Rhode Island HEFA, (Saint Joseph Health
Services), 5.50%, 10/1/29 6,678,252
25,000 Rochester, MN, (Mayo Clinic),
5.50%, 11/15/27 24,148,750
- -------------------------------------------------------------------------------
$ 122,313,448
- -------------------------------------------------------------------------------
Hotel -- 0.1%
- -------------------------------------------------------------------------------
$ 4,205 Niagara County, NY IDA, (Wintergarden
Inn Associates), 9.75%, 6/1/11(1) $ 1,660,975
- -------------------------------------------------------------------------------
$ 1,660,975
- -------------------------------------------------------------------------------
Housing -- 5.3%
- -------------------------------------------------------------------------------
$ 3,000 ABAG Finance Authority for Nonprofit
Corp., CA, (Civic Center Drive
Apartments), (AMT), 6.375%, 9/1/32 $ 2,999,790
7,505 Arkansas Development Finance Authority,
MFMR, (Park Apartments), (AMT),
5.95%, 12/1/28 7,004,416
6,200 Bexar County, TX, Housing Finance Corp.,
(Arboretum Apartments), (AMT),
6.10%, 8/1/36 6,154,368
7,000 Bexar County, TX, Housing Finance Corp.,
(North Knoll Apartments), 5.90%, 4/1/37 6,579,930
9,350 California Housing Finance Agency, RIBS,
(AMT), Variable Rate, 8/1/23(2) 10,121,375
12,000 California Statewide Communities
Development Authority, (Chesapeake Bay
Apartments), 6.00%, 6/1/32 11,396,280
6,750 California Statewide Communities
Development Authority, (Nantucket Bay
Apartments), 6.00%, 6/1/32 6,410,407
2,500 California Statewide Communities
Development Authority, (Oaks at Sunset
Apartments), 6.00%, 6/1/36 2,370,100
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Housing (continued)
- -------------------------------------------------------------------------------
$ 7,800 California Statewide Communities
Development Authority, (San Luis Bay
Village Apartments), (AMT),
6.25%, 9/1/36 $ 7,777,146
5,000 Colorado HFA, Single Family Housing,
(AMT), 7.55%, 11/1/27 5,498,850
1,890 El Paso County, TX, Housing Finance
Corp., (San Jose Ltd.), (AMT),
6.00%, 8/1/31 1,871,270
3,750 El Paso County, TX, Housing Finance
Corp., (San Jose Ltd.), (AMT),
6.10%, 8/1/31 3,713,212
10,800 Lake Creek, CO, (Affordable Housing
Corp.), 6.25%, 12/1/23 10,320,156
8,000 Los Angeles County Housing Authority,
CA, (Corporate Fund for Housing),
10.50%, 12/1/29 7,926,080
995 Louisiana Public Facilities Authority,
(Eden Point), 6.25%, 3/1/34 924,992
1,455 Maricopa County, AZ, IDA, (National
Health Facilities II), 6.375%, 1/1/19 1,399,521
6,830 Minneapolis, MN, Community Development,
Multifamily Housing, (Lindsay Brothers),
6.60%, 12/1/18 6,792,503
5,820 Montana Board of Housing, Single Family,
(AMT), 5.45%, 6/1/27 5,389,902
8,300 Speedway Industrial, IN, (Hermitage
Apartments), (AMT), 6.00%, 5/1/31 7,873,048
- -------------------------------------------------------------------------------
$ 112,523,346
- -------------------------------------------------------------------------------
Industrial Development Revenue -- 11.8%
- -------------------------------------------------------------------------------
$ 7,500 Austin, TX, (Cargoport Development LLC),
(AMT), 8.30%, 10/1/21 $ 7,880,550
2,000 California Pollution Control Financing
Authority, (Laidlaw Environmental),
(AMT), 6.70%, 7/1/07 2,020,040
2,000 Camden County, NJ, (Holt Hauling),
(AMT), 9.875%, 1/1/21 2,358,280
6,050 Carbon County, UT, (Laidlaw
Environmental), (AMT), 7.50%, 2/1/10 6,566,972
6,000 Clark County, NV, (Nevada Power), RITES,
(AMT), Variable Rate, 10/1/30(2) 5,346,480
5,000 Connecticut Development Authority,
(Connecticut Light and Power), Variable
Rate, 9/1/28(2)(3) 4,266,700
6,500 Connecticut Development Authority,
(Western Mass Electric), Variable Rate,
9/1/28(2)(3) 5,554,705
13,550 Courtland, AL, (Champion International
Corp.), (AMT), 7.00%, 6/1/22 14,244,980
31,500 Denver, CO, Airport Special Facilities,
(United Airlines), (AMT),
6.875%, 10/1/32 32,395,860
8,000 Effingham County, GA, Solid Waste
Disposal, (Fort James), (AMT),
5.625%, 7/1/18 7,633,920
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Industrial Development Revenue (continued)
- -------------------------------------------------------------------------------
$13,480 Gulf Coast, TX, Waste Disposal,
(Champion International Corp.), (AMT),
6.875%, 12/1/28 $ 14,269,793
5,928 Gwinnett County, GA,
(Plastics/Packaging, Inc.), (AMT),
10.75%, 5/1/13(1) 2,193,201
6,435 Kimball, NE, EDA, (Clean Harbors, Inc.),
10.75%, 9/1/26 6,794,330
7,500 Little River County, AR,
(Georgia-Pacific Corp.), (AMT),
5.60%, 10/1/26 6,771,675
6,500 Los Angeles, CA, Regional Airports
Improvement Corp., (LAXFuel), (AMT),
6.50%, 1/1/32 6,613,945
5,000 McMinn County, TN, (Calhoun Newsprint
Co. - Bowater, Inc.), (AMT),
7.40%, 12/1/22 5,352,750
10,000 Michigan Strategic, (S.D. Warren Co.),
7.375%, 1/15/22 10,635,400
15,000 Michigan Strategic, (S.D. Warren Co.),
(AMT), 7.375%, 1/15/22 15,953,100
3,810 Middleboro, MA, (Read Corp.),
9.50%, 10/1/10 3,972,573
17,000 New Jersey EDA, (Holt Hauling),
7.75%, 3/1/27 18,192,890
1,500 New Jersey EDA, (Holt Hauling), (AMT),
7.90%, 3/1/27 1,625,565
1,000 Ohio Solid Waste Revenue, (Republic
Engineered Steels, Inc.), (AMT),
9.00%, 6/1/21 1,053,690
22,600 Peninsula Ports Authority, VA, (Zeigler
Coal), 6.90%, 5/2/22 22,125,400
10,000 Pennsylvania, IDA, (Sun Company), (AMT),
7.60%, 12/1/24 10,885,500
2,585 Riverdale Village, IL, (ACME Metals,
Inc.), (AMT), 7.90%, 4/1/24(5) 2,223,100
2,000 Riverdale Village, IL, (ACME Metals,
Inc.), (AMT), 7.95%, 4/1/25(5) 1,720,000
2,285 Savannah, GA, (Intercat-Savannah, Inc.),
(AMT), 9.75%, 7/1/10 1,763,197
3,810 Savannah, GA, EDA, (Intercat-Savannah,
Inc.), (AMT), 9.00%, 1/1/15 2,929,509
2,000 Skowhegan, ME, (S.D. Warren Co.), (AMT),
6.65%, 10/15/15 2,034,180
3,500 Toole County, UT, Pollution Control,
(Laidlaw Environmental), (AMT),
7.55%, 7/1/27 3,698,170
18,500 Valdez, AK, (British Petroleum),
Variable Rate, 8/1/25(2)(3) 17,891,720
4,000 Yavapai County, AZ, IDA, (Citizens
Utilities Co.), (AMT), 5.45%, 6/1/33 3,939,440
- -------------------------------------------------------------------------------
$ 250,907,615
- -------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Insured-Education -- 0.8%
- -------------------------------------------------------------------------------
$ 7,500 Massachusetts Industrial Financing
Authority, (Tufts University), (MBIA),
4.75%, 2/15/28 $ 6,251,175
12,000 Virginia College, Building Authority,
Educational Facility, (Washington and
Lee University), (MBIA), 5.25%, 1/1/31 11,190,360
- -------------------------------------------------------------------------------
$ 17,441,535
- -------------------------------------------------------------------------------
Insured-Electric Utilities -- 6.5%
- -------------------------------------------------------------------------------
$10,000 Brazos River Authority, TX, (Houston
Lighting and Power Co.), (AMBAC), (AMT),
5.05%, 11/1/18(4) $ 9,100,800
11,000 Hawaii Budget and Finance Department,
(Hawaiian Electric Co.), (AMBAC), (AMT),
5.75%, 12/1/18(4) 10,755,470
9,000 Intermountain Power Agency, UT, (MBIA),
5.00%, 7/1/19 8,095,590
22,000 Intermountain Power Agency, UT, (MBIA),
5.75%, 7/1/19 21,907,820
10,000 Intermountain Power Agency, UT, (MBIA),
6.00%, 7/1/16(4) 10,374,300
10,000 Long Island Power Authority, NY, (FSA),
5.125%, 12/1/22 9,117,500
10,000 Los Angeles, CA, Department of Water and
Power, (MBIA), 5.00%, 10/15/33 8,785,300
12,500 Matagorda County, TX, Navigation
District, (Houston Lighting), (AMBAC),
(AMT), 5.125%, 11/1/28 11,074,750
26,000 Piedmont, SC, Municipal Power Agency,
(MBIA), 4.75%, 1/1/25 21,519,940
16,500 Sacramento, CA, Municipal Utility
District, (MBIA), Variable Rate,
11/15/15(2) 16,706,250
15,350 South Carolina Public Services, RIBS,
(FGIC), Variable Rate, 1/1/25(2)(3) 11,186,313
- -------------------------------------------------------------------------------
$ 138,624,033
- -------------------------------------------------------------------------------
Insured-General Obligations -- 2.6%
- -------------------------------------------------------------------------------
$14,000 Chicago, IL, Board of Education, (FGIC),
0.00%, 12/1/29 $ 2,279,340
25,725 Dallas County, TX, Utility and
Reclamation District, (AMBAC),
5.875%, 2/15/29(6) 25,561,132
10,000 Lancaster, PA, (FGIC), 4.50%, 5/1/28 7,955,100
5,330 McGuffey, PA, School District, (AMBAC),
4.75%, 8/1/28 4,436,905
3,125 Spring Ford, PA, School District,
(FGIC), 4.75%, 3/1/25 2,631,188
3,950 Umatilla County, OR, School District,
(MBIA), Variable Rate, 6/15/14(2)(3) 3,518,344
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Insured-General Obligations (continued)
- -------------------------------------------------------------------------------
$10,000 University of Vermont and State
Agricultural College, VT, (MBIA),
4.75%, 10/1/38 $ 8,017,800
- -------------------------------------------------------------------------------
$ 54,399,809
- -------------------------------------------------------------------------------
Insured-Hospital -- 1.0%
- -------------------------------------------------------------------------------
$15,460 Maryland HEFA, (Medlantic/Helix Issue),
(FSA), 5.25%, 8/15/38 $ 14,057,160
7,000 Montgomery County, PA, HEFA, (Abington
Memorial Hospital) (AMBAC), Variable
Rate, 7/5/11(2) 7,770,000
- -------------------------------------------------------------------------------
$ 21,827,160
- -------------------------------------------------------------------------------
Insured-Housing -- 0.4%
- -------------------------------------------------------------------------------
$ 7,525 SCA Multifamily Mortgage, Industrial
Development Board, Hamilton County, TN,
(FSA), (AMT), 7.35%, 1/1/30 $ 8,126,925
- -------------------------------------------------------------------------------
$ 8,126,925
- -------------------------------------------------------------------------------
Insured-Industrial Development Revenue -- 0.5%
- -------------------------------------------------------------------------------
$11,950 Chicago, IL, (The Peoples Gas Light and
Coke Company), RIBS, (AMBAC), (AMT),
Variable Rate, 12/1/23(2)(3) $ 11,250,089
- -------------------------------------------------------------------------------
$ 11,250,089
- -------------------------------------------------------------------------------
Insured-Special Tax Revenue -- 3.9%
- -------------------------------------------------------------------------------
$13,500 East Bay, CA, Municipal Utility
District, (MBIA), 4.75%, 6/1/34 $ 11,295,720
17,500 East Bay, CA, Municipal Utility
District, (MBIA), 4.75%, 6/1/28(4) 14,913,150
7,000 George L. Smith, (Georgia World Congress
Center-Domed Stadium), (MBIA), (AMT),
5.50%, 7/1/20(6) 6,562,570
9,800 Metropolitan Pier and Exposition
Authority, IL, (McCormick Place
Expansion), RIBS, (MBIA), Variable Rate,
6/15/27(2)(3) 10,643,682
4,500 Pennsylvania Turnpike Commission Oil
Franchise Tax, (AMBAC), Variable Rate,
12/1/27(2)(3) 2,994,930
3,415 Regional Transportation Authority, LA,
(FGIC), 0.00%, 12/1/12 1,669,218
10,935 Regional Transportation Authority, LA,
(FGIC), 0.00%, 12/1/15 4,379,358
10,000 Regional Transportation Authority, LA,
(FGIC), 0.00%, 12/1/21 2,732,200
20,000 South Orange County, CA, Public
Financing Authority, (FGIC), Variable
Rate, 8/15/15(4) 19,450,000
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Insured-Special Tax Revenue (continued)
- -------------------------------------------------------------------------------
$ 7,000 Utah Municipal Finance Corp., Local
Government Revenue, (FSA), 0.00%, 3/1/10 $ 4,038,160
6,000 Utah Municipal Finance Corp., Local
Government Revenue, (FSA),
0.00%, 3/1/11 3,247,020
- -------------------------------------------------------------------------------
$ 81,926,008
- -------------------------------------------------------------------------------
Insured-Transportation -- 5.4%
- -------------------------------------------------------------------------------
$ 1,680 Central Puget Sound, WA, Transportation
Authority, (FGIC), 4.75%, 2/1/28 $ 1,382,623
12,000 Florida Turnpike Authority, (FSA),
4.50%, 7/1/28(4) 9,581,760
8,750 Manchester Airport, NH, (MBIA),
4.50%, 1/1/28 6,772,675
19,000 Massachusetts State Turnpike Authority,
(FGIC), 5.00%, 1/1/20 17,552,010
14,400 Metropolitan Washington, DC Airport
Authority, (MBIA), Variable Rate,
4/1/21(2)(3) 14,010,912
18,200 Mobile, AL, Airport Authority, (MBIA),
6.375%, 10/1/14(4) 19,526,780
15,250 New Hampshire Turnpike System, (FGIC),
4.75%, 4/1/29 12,673,818
10,000 Ohio Turnpike Commission, (FGIC),
4.50%, 2/15/24 8,074,700
8,000 Ohio Turnpike Commission, (FGIC),
4.75%, 2/15/28 6,667,920
10,000 Triborough Bridge and Tunnel Authority,
NY, (MBIA), Variable Rate, 1/1/19(2)(3) 10,276,400
10,000 West Virginia, (FGIC), 4.50%, 6/1/23 8,143,300
- -------------------------------------------------------------------------------
$ 114,662,898
- -------------------------------------------------------------------------------
Insured-Water and Sewer -- 3.8%
- -------------------------------------------------------------------------------
$31,125 Atlanta, GA, (Water and Wastewater),
(FGIC), 5.00%, 11/1/38 $ 26,553,049
20,980 Chicago, IL, Wastewater Transmission,
(MBIA), 0.00%, 1/1/26 4,332,160
7,150 Harrisburg, PA, Water Revenue Bonds,
RIBS, (FGIC), Variable Rate, 8/11/16(2) 6,560,125
15,000 Honolulu, HI, City and County Waterworks
System Revenue, (FGIC), 4.50%, 7/1/28 11,925,300
11,645 King County, WA, Sewer, (FGIC),
5.25%, 1/1/35 10,361,605
7,100 Louisville and Jefferson County, KY,
Metropolitan Sewer District and Drainage
System Revenue, (FGIC), 4.75%, 5/15/28 5,913,732
9,965 New York City, NY, Municipal Water
Finance Authority, (Water and Sewer
System), (FGIC), 4.75%, 6/15/31 8,250,422
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Insured-Water and Sewer (continued)
- -------------------------------------------------------------------------------
$ 9,000 Tampa Bay, FL, Water Utility System,
(FGIC), 4.75%, 10/1/27 $ 7,541,640
- -------------------------------------------------------------------------------
$ 81,438,033
- -------------------------------------------------------------------------------
Lease Revenue / Certificates of Participation -- 0.3%
- -------------------------------------------------------------------------------
$ 6,645 Hardeman County, TN, (Correctional
Facilities Corp.), 7.75%, 8/1/17 $ 7,111,147
- -------------------------------------------------------------------------------
$ 7,111,147
- -------------------------------------------------------------------------------
Miscellaneous -- 1.5%
- -------------------------------------------------------------------------------
$ 5,520 American Samoa Economic Development
Authority, (Executive Office Building),
10.125%, 9/1/08 $ 5,721,259
12,000 Charter Mac Equity, (AMT),
6.625%, 6/30/09 11,823,360
10,200 Orange County, NC, (Community Activity
Corp.), 8.00%, 3/1/24(1) 5,100,000
1,600 Pittsfield Township, MI, EDC, (Arbor
Hospice), 7.875%, 8/15/27 1,610,464
3,416 Tax Exempt Securities Trust,
5.50%, 12/1/36(3) 3,072,455
3,664 Tax Exempt Securities Trust,
5.875%, 12/1/36(3) 3,466,358
- -------------------------------------------------------------------------------
$ 30,793,896
- -------------------------------------------------------------------------------
Nursing Home -- 6.5%
- -------------------------------------------------------------------------------
$13,125 Bell County, TX, (Riverside Healthcare,
Inc. - Normandy Terrace), 9.00%, 4/1/23 $ 15,129,188
3,755 Collier County, FL, IDA, Retirement
Rental, (Beverly Enterprises - Florida,
Inc.), 10.75%, 3/1/03 4,064,187
4,885 Delaware County, PA, (Mainline -
Haverford Nursing and Rehabilitation
Centers), 9.00%, 8/1/22 5,478,039
2,150 Hillsborough County, FL, IDA, (Tampa Bay
Retirement Center), 0.00%, 6/1/25 1,071,904
10,085 Hillsborough County, FL, IDA, (Tampa Bay
Retirement Center), 7.00%, 6/1/25 9,719,520
10,000 Indianapolis, IN, (National Benevolent
Association - Robin Run Village),
7.625%, 10/1/22 10,591,000
3,370 Lackawanna County, PA, IDA, (Edella
Street Associates), 8.875%, 9/1/14 3,626,963
2,660 Luzerne County, PA, IDA, (River Street
Associates), 8.75%, 6/15/07 2,848,009
13,250 Massachusetts Industrial Financing
Authority, (Age Institute of
Massachusetts), 8.05%, 11/1/25 14,287,740
11,755 Mississippi Business Finance Corp.,
(Magnolia Healthcare), 7.99%, 7/1/25 12,136,215
6,750 Missouri HEFA, (Bethesda Health Group of
Saint Louis, Inc.), 6.625%, 8/15/05 6,994,148
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Nursing Home (continued)
- -------------------------------------------------------------------------------
$14,000 Missouri HEFA, (Bethesda Health Group of
Saint Louis, Inc.), 7.50%, 8/15/12 $ 15,177,540
12,370 Montgomery, PA, IDA, (Advancement of
Geriatric Health Care Institute),
8.375%, 7/1/23 13,207,325
4,885 New Jersey EDA, (Claremont Health
System, Inc.), 9.10%, 9/1/22 5,321,866
5,915 New Jersey EDA, (Victoria Health Corp.),
7.75%, 1/1/24 6,276,702
5,000 Sussex County, DE, (Delaware Health
Corp.), 7.50%, 1/1/14 5,136,750
5,000 Sussex County, DE, (Delaware Health
Corp.), 7.60%, 1/1/24 5,149,000
2,440 Westmoreland, PA, (Highland Health
Systems, Inc.), 9.25%, 6/1/22 2,663,040
- -------------------------------------------------------------------------------
$ 138,879,136
- -------------------------------------------------------------------------------
Senior Living / Life Care -- 3.9%
- -------------------------------------------------------------------------------
$14,700 Albuquerque, NM, Retirement Facilities,
(La Vida Liena Retirement Center),
5.75%, 12/15/28 $ 13,246,464
10,000 Albuquerque, NM, Retirement Facilities,
(La Vida Liena Retirement Center),
6.60%, 12/15/28 9,225,300
10,000 Atlantic Beach, FL, (Fleet Landing),
8.00%, 10/1/24 10,818,500
12,435 De Kalb County, GA, Private Hospital
Authority, (Atlanta, Inc.),
8.50%, 3/1/25(5) 6,217,500
2,100 Loudoun County, VA, IDA, (Falcons
Landing), 9.25%, 7/1/04 2,362,374
15,000 Louisiana HFA, (HCC Assisted Living
Group 1), (AMT), 9.00%, 3/1/25 16,231,350
12,400 North Miami, FL, Health Facilities
Authority, (Imperial Club),
6.75%, 1/1/33 11,363,608
800 North Miami, FL, Health Facilities
Authority, (Imperial Club),
9.00%, 1/1/12 803,400
5,500 Ridgeland, MS, Urban Renewal, (The
Orchard), 7.75%, 12/1/15 5,780,720
2,565 South Dakota HEFA, (Prairie Lakes Health
Care), 7.25%, 4/1/22 2,763,326
4,000 Wisconsin HEFA, (Senior Housing),
7.00%, 8/1/29 3,969,760
640 Wisconsin HEFA, (Senior Housing),
8.00%, 8/1/02 640,467
- -------------------------------------------------------------------------------
$ 83,422,769
- -------------------------------------------------------------------------------
Special Tax Revenue -- 0.5%
- -------------------------------------------------------------------------------
$10,000 Lincoln, CA, Public Financing Authority,
(Twelve Bridges), 6.20%, 9/2/25 $ 9,993,000
- -------------------------------------------------------------------------------
$ 9,993,000
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Transportation -- 2.6%
- -------------------------------------------------------------------------------
$20,000 Atlanta, GA, Metropolitan Rapid
Transportation Authority, Variable Rate,
7/1/20(2)(3) $ 16,688,800
5,750 Connector 2000 Association, Inc., South
Carolina Bridge & Toll Road Revenue,
(Southern Connector), 5.25%, 1/1/23 4,908,775
4,735 Denver, CO, City and County Airport
Revenue, (AMT), 7.50%, 11/15/23 5,220,906
10,000 Kansas Highway Transportation
Department, 5.75%, 9/1/18 10,078,400
15,000 Port Authority of New York and New
Jersey, (AMT), Variable Rate, 1/15/27(2) 15,660,000
3,000 Tri-County, OR, Metropolitan
Transportation District, Variable Rate,
8/1/19(2)(3) 2,481,060
- -------------------------------------------------------------------------------
$ 55,037,941
- -------------------------------------------------------------------------------
Water and Sewer -- 2.7%
- -------------------------------------------------------------------------------
$10,960 California Water Resources, (Central
Valley), Variable Rate, 12/1/24(2)(3) $ 9,455,082
10,135 California Water Resources, (Central
Valley), Variable Rate, 12/1/28(2)(3) 8,136,783
10,000 De Kalb County, GA, (Water and Sewer),
5.00%, 10/1/28 8,826,200
12,500 Jacksonville, FL, (Water and Sewer),
5.375%, 10/1/29 11,656,625
7,000 Metropolitan Southern California
Waterworks, Variable Rate, 7/1/27(2)(3) 4,840,360
1,805 Metropolitan Southern California
Waterworks, 3.05%, 7/1/21 1,805,000
9,400 Metropolitan Southern California
Waterworks, Variable Rate, 7/1/21(2)(3) 6,499,442
8,100 New York City, NY, Municipal Water
Finance Authority, 5.00%, 6/15/29 7,108,884
- -------------------------------------------------------------------------------
$ 58,328,376
- -------------------------------------------------------------------------------
Total Tax-Exempt Investments
(identified cost, $2,097,651,227) $2,121,296,645
- -------------------------------------------------------------------------------
TAXABLE-INVESTMENT -- 0.0%
<CAPTION>
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
<C> <S> <C>
- -------------------------------------------------------------------------------
Senior Living / Life Care -- 0.0%
- -------------------------------------------------------------------------------
$ 305 Ridgeland, MS, Urban Renewal, (The
Orchard), 9.00%, 12/1/00 $ 305,131
- -------------------------------------------------------------------------------
$ 305,131
- -------------------------------------------------------------------------------
Total Taxable-Investment
(identified cost, $305,000) $ 305,131
- -------------------------------------------------------------------------------
Total Investments -- 99.8%
(identified cost, $2,097,956,227) $2,121,601,776
- -------------------------------------------------------------------------------
Other Assets, Less Liabilities -- 0.2% $ 3,943,037
- -------------------------------------------------------------------------------
Net Assets -- 100.0% $2,125,544,813
- -------------------------------------------------------------------------------
</TABLE>
AMT - Interest earned from these securities may be considered a tax preference
item for purposes of the Federal Alternative Minimum Tax.
At September 30, 1999, the concentration of the Portfolio's investments in the
various states, determined as a percentage of total investments, is as follows:
<TABLE>
<CAPTION>
<S> <C>
California 11.1%
Others, representing less than 10% 88.7%
individually
</TABLE>
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, 1999, 26.8% 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 2.3% to 10.5% of total investments.
(1) Non-income producing security.
(2) Security has been issued as an inverse floater bond.
(3) 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.
(4) Security (or a portion thereof) has been segregated to cover when-issued
securities.
(5) The Portfolio is accruing only partial interest on this security.
(6) When-issued security.
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
<S> <C>
Assets
- --------------------------------------------------------
Investments, at value
(identified cost, $2,097,956,227) $2,121,601,776
Cash 11,257,519
Receivable for investments sold 183,270
Interest receivable 37,079,429
- --------------------------------------------------------
TOTAL ASSETS $2,170,121,994
- --------------------------------------------------------
Liabilities
- --------------------------------------------------------
Payable for investments purchased $ 10,733,119
Demand note payable 2,000,000
Payable to affiliate for Trustees' fees 3,716
Payable for when-issued securities 31,818,945
Accrued expenses 21,401
- --------------------------------------------------------
TOTAL LIABILITIES $ 44,577,181
- --------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS'
INTEREST IN PORTFOLIO $2,125,544,813
- --------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------
Net proceeds from capital contributions
and withdrawals $2,101,899,264
Net unrealized appreciation (computed on
the basis of identified cost) 23,645,549
- --------------------------------------------------------
TOTAL $2,125,544,813
- --------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30, 1999
<S> <C>
Investment Income
- -------------------------------------------------------
Interest $ 146,903,416
- -------------------------------------------------------
TOTAL INVESTMENT INCOME $ 146,903,416
- -------------------------------------------------------
Expenses
- -------------------------------------------------------
Investment adviser fee $ 9,604,930
Trustees fees and expenses 46,609
Legal and accounting services 121,705
Custodian fee 393,855
Miscellaneous 141,302
- -------------------------------------------------------
TOTAL EXPENSES $ 10,308,401
- -------------------------------------------------------
Deduct:
Reduction of custodian fee $ 393,855
- -------------------------------------------------------
TOTAL EXPENSE REDUCTIONS $ 393,855
- -------------------------------------------------------
NET EXPENSES $ 9,914,546
- -------------------------------------------------------
NET INVESTMENT INCOME $ 136,988,870
- -------------------------------------------------------
Realized and Unrealized
Gain (Loss)
- -------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ 29,879,276
Financial futures contracts 1,881,412
- -------------------------------------------------------
NET REALIZED GAIN $ 31,760,688
- -------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $(284,216,835)
Financial futures contracts 3,608,750
- -------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $(280,608,085)
- -------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS $(248,847,397)
- -------------------------------------------------------
NET DECREASE IN NET ASSETS FROM
OPERATIONS $(111,858,527)
- -------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Increase (Decrease) YEAR ENDED YEAR ENDED
IN NET ASSETS SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
<S> <C> <C>
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 136,988,870 $ 133,228,452
Net realized gain 31,760,688 62,170,470
Net change in unrealized appreciation
(depreciation) (280,608,085) 13,950,121
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ (111,858,527) $ 209,349,043
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 375,986,994 $ 389,124,010
Withdrawals (478,708,432) (439,963,679)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL
TRANSACTIONS $ (102,721,438) $ (50,839,669)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS $ (214,579,965) $ 158,509,374
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 2,340,124,778 $ 2,181,615,404
- --------------------------------------------------------------------------------
AT END OF YEAR $ 2,125,544,813 $ 2,340,124,778
- --------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS CONT'D
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Ratios to average daily net assets
- -----------------------------------------------------------------------------------------------
Expenses 0.45% 0.45% 0.52% 0.49% 0.50%
Expenses after custodian fee
reduction 0.43% 0.43% 0.52% 0.48% 0.49%
Net investment income 5.92% 5.93% 6.51% 6.65% 7.00%
Portfolio Turnover 60% 28% 17% 19% 54%
- -----------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000'S OMITTED) $2,125,545 $2,340,125 $2,181,615 $2,212,478 $2,260,646
- -----------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
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 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 for
both hedging against anticipated future changes in interest rates and
investment purposes. Should interest rates move unexpectedly, the Portfolio
may not achieve the anticipated benefits of the financial futures contracts
and may realize a loss.
E 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.
F 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.
G When-issued and Delayed Delivery Transactions -- The Portfolio may engage in
when-issued and delayed delivery transactions. The Portfolios record
when-issued securities on trade date and maintain 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 earning interest on
settlement date.
H 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
26
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS CONT'D
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.
I Other -- Investment transactions are accounted for on a trade date basis.
J 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 expenses 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, 1999, the fee was equivalent to
0.42% of the Portfolio's average daily net assets for such period and
amounted to $9,604,930. 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, 1999, no significant
amounts have been deferred.
Certain officers and Trustees of the Portfolio are officers of the above
organizations.
3 Investments
- -------------------------------------------
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $1,418,989,864 and $1,370,293,031,
respectively, for the year ended September 30, 1999.
4 Federal Income Tax Basis of Investments
- -------------------------------------------
The cost and unrealized appreciation/depreciation in the value of the
investments owned at September 30, 1999, as computed on a federal income tax
basis, were as follows:
<TABLE>
<S> <C>
AGGREGATE COST $2,098,176,419
--------------------------------------------------------
Gross unrealized appreciation $ 120,834,158
Gross unrealized depreciation (97,408,801)
--------------------------------------------------------
NET UNREALIZED APPRECIATION $ 23,425,357
--------------------------------------------------------
</TABLE>
5 Line of Credit
- -------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $130 million unsecured line of credit agreement
with a group of banks ($120 million effective October 12, 1999). 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. At September 30, 1999, the Portfolio had a balance outstanding
pursuant to this line of credit of $2,000,000. The Portfolio did not have any
significant borrowings or allocated fees during the year ended September 30,
1999.
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 a 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.
At September 30, 1999, there were no outstanding obligations under these
financial instruments.
27
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO AS OF SEPTEMBER 30, 1999
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, 1999, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended September 30, 1999
and 1998 and the supplementary data for each of the years in the five-year
period ended September 30, 1999. 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, 1999 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, 1999, 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 29, 1999
28
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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
Trustees
Jessica M. Bibliowicz
President and Chief Executive Officer,
National Financial Partner
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking
Emeritus, Harvard University Graduate School of
Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
Jack L. Treynor
Investment Adviser and Consultant
29
