<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- --------------------------------------------------------------------------- ----------- ------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET
BACKED SECURITIES (3.6%)
FINANCE (3.6%)
$ 79,701 Advanta Home Equity Loan Trust, Series 92-2, Class A1, 7.15% due
06/25/08................................................................. Aaa/AAA $ 80,383
229,122 Case Equipment Loan Trust, Series 94-A, Class A2, 4.65% due 08/15/99....... Aaa/AAA 226,831
4,599,555 Collateralized Mortgage Obligation Trust II Class E, 9.00% due 06/20/17.... Aaa/AAA 4,824,152
3,000,000 Criimi Mae Financial Corporation Class A, 7.00% due 01/01/33............... NR/AAA 2,936,250
2,476 Fical Home Equity Loan Trust, Series 90-1 Class A, 8.90% due 10/15/15...... Aaa/NR 2,476
8,855,000 GE Capital Mortgage Services, Inc., Series 94-17, Class A5, 7.00% due
05/25/24................................................................. Aaa/AAA 8,943,107
1,854,087 Green Tree Financial Corp., Series 95-A Class A, 7.25% due 07/15/05........ Baa3/BBB+ 1,865,096
589,307 Green Tree Financial Corp., Series 94-A Class A, 6.90% due 02/15/04........ Baa3/BBB+ 589,491
37,297 Premier Auto Trust, Series 92-3, Class A, 5.90% due 11/17/97............... Aaa/AAA 37,275
1,258,125 Prudential Home Loan Mortgage Securities, Remic: PAC(11), Series 93-54,
Class A2, 6.50% due 01/25/24............................................. Aaa/AAA 1,254,175
196,691 Resolution Trust Corp., Remic: ARM Determined Interest Rate, Series 91-6,
Class A1, 6.9473% due 05/25/19........................................... Aaa/AAA 187,840
3,588 Sears Mortgage Securities, Remic: TAC(11), Series 92-3, Class T5, 7.75% due
02/25/20................................................................. NR/AAA 3,573
112,243 The Money Store Home Equity Trust, Series 92-A, Class A, 6.95% due
12/15/07................................................................. Aaa/AAA 112,650
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (COST
$20,270,036)............................................................. 21,063,299
------------
CORPORATE OBLIGATIONS (37.9%)
AUTOMOTIVE (1.3%)
7,325,000 Ford Motor Co., 9.50% due 05/30/97......................................... A1/A+ 7,708,683
------------
BANKING (10.7%)
1,925,000 BankAmerica Corp., 9.50% due 04/01/01...................................... A3/A- 2,188,359
1,300,000 BankAmerica Corp., 7.50% due 03/15/97...................................... A2/A 1,326,104
1,925,000 Capital One Bank, 8.625% due 01/15/97...................................... Baa3/BBB- 1,984,405
6,000,000 Central Fidelity Banks, Inc., 8.15% due 11/15/02........................... Baa2/BBB 6,476,820
1,600,000 Chemical Banking Corp., 10.125% due 11/01/00............................... A3/A- 1,855,520
5,000,000 First Chicago Corp., 8.25% due 06/15/02.................................... A3/A- 5,507,850
1,745,000 First Chicago Corp., 6.875% due 06/15/03................................... A3/A- 1,769,866
100,000 Fleet Financial Group Inc., 7.125% due 05/01/00............................ A2/A- 102,542
2,000,000 Mellon Bank, N.A., 6.75% due 06/01/03...................................... A2/A 2,003,060
4,660,000 NationsBank Corp., 10.20% due 07/15/15..................................... A3/A- 5,989,218
13,700,000 Norwest Corp., 6.75% due 05/12/00.......................................... Aa3/AA- 13,888,649
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- --------------------------------------------------------------------------- ----------- ------------
BANKING (CONTINUED)
<C> <S> <C> <C>
$ 7,500,000 Shawmut National Corp., 8.625% due 12/15/99................................ Baa2/BBB- $ 8,029,800
11,000,000 Trans Financial Bank, 6.48% due 10/23/98................................... A1/A+ 10,973,270
------------
62,095,463
------------
CHEMICALS, OIL & GAS (3.5%)
2,277,000 E. I. Du Pont de Nemours & Co., 8.65% due 12/01/97......................... Aa2/AA 2,389,415
5,000,000 Occidental Petroleum Corp., 5.85% due 11/09/98............................. Baa3/BBB 4,932,250
1,000,000 Occidental Petroleum Corp., 5.84% due 11/09/98............................. Baa3/BBB 986,180
1,125,000 SFP Pipeline Holdings, Inc., 11.16% due 08/15/10........................... Baa3/NR 1,406,250
6,600,000 Texaco Capital, 9.00% due 11/15/96......................................... A1/A+ 6,809,286
4,000,000 Texas Eastern Corp., 8.50% due 02/04/97.................................... NR/NR 4,100,000
------------
20,623,381
------------
DEPARTMENT STORES (1.1%)
2,200,000 Sears Roebuck & Co., 8.52% due 05/13/02.................................... A2/BBB 2,427,788
4,000,000 Sears Roebuck & Co., 7.25% due 08/05/97.................................... A2/BBB 4,080,920
------------
6,508,708
------------
ELECTRICAL EQUIPMENT (0.8%)
2,000,000 Legrand S.A., 8.50% due 02/15/25........................................... A2/A 2,287,960
2,000,000 Mark IV Industries Inc., 8.75% due 04/01/03................................ Ba3/BB+ 2,085,000
------------
4,372,960
------------
FINANCE (12.5%)
100,000 Associates Corp., N.A., 8.125% due 01/15/98................................ Aa3/AA- 104,158
400,000 Associates Corp., N.A., 7.30% due 03/15/98................................. Aa3/AA- 410,564
95,196 Chevy Chase Auto Receivables Trust, 6.00% due 12/15/01..................... Aaa/AAA 95,192
18,250,000 Chrysler Financial Corp., Series MTNN, 7.36% due 03/14/97.................. A3/BBB 18,530,320
1,000,000 Chrysler Financial Corp., 7.20% due 03/17/97............................... A2/A- 1,013,380
25,000 Commercial Credit Group Inc., 7.375% due 11/15/96.......................... A1/A+ 25,351
2,620,761 Fleetwood Credit Corp Grantor Trust, Series 95-B 6.55% due 05/15/11........ Aaa/AAA 2,630,301
17,550,000 Ford Motor Credit Co., 6.25% due 11/08/00.................................. A1/A+ 17,499,644
400,000 General Motors Acceptance Corp., 7.85% due 11/17/97........................ Baa1/BBB+ 413,136
300,000 General Motors Acceptance Corp., 7.55% due 01/14/97........................ Baa1/BBB+ 305,322
100,000 General Motors Acceptance Corp., 7.375% due 02/27/97....................... Baa1/BBB+ 101,640
800,000 General Motors Acceptance Corp., 7.30% due 02/02/98........................ Baa1/BBB+ 819,088
5,175,000 General Motors Acceptance Corp., 6.90% due 09/09/97........................ Baa1/BBB+ 5,245,794
5,000,000 General Motors Acceptance Corp., 6.75% due 07/10/97........................ Baa1/BBB+ 5,052,300
2,200,000 General Motors Acceptance Corp., 6.70% due 04/18/97........................ Baa1/BBB+ 2,219,888
3,000,000 General Motors Acceptance Corp., 6.70% due 04/21/97........................ Baa1/BBB+ 3,015,630
4,500,000 General Motors Acceptance Corp., 6.625% due 05/15/98....................... Baa1/BBB+ 4,536,720
6,500,000 General Motors Acceptance Corp., 5.25% due 12/06/96........................ Baa1/BBB+ 6,448,130
4,000,000 USL Capital Corp., 7.76% due 03/29/02...................................... A1/A+ 4,226,680
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- --------------------------------------------------------------------------- ----------- ------------
FINANCE (CONTINUED)
<C> <S> <C> <C>
$ 90,000 Western Financial Grantor Trust, Series 95-3, Class A1 6.05% due
11/01/00................................................................. Aaa/AAA $ 90,058
------------
72,783,296
------------
LUMBER & OTHER CONSTRUCTION MATERIALS (2.2%)
5,600,000 Georgia Pacific Corp., 9.95% due 06/15/02.................................. Baa2/BBB- 6,561,520
1,000,000 Schuller International Group Inc., 10.875% due 12/15/04.................... Ba3/BB- 1,112,500
4,000,000 USG Corp., 9.25% due 09/15/01.............................................. Ba3/BB 4,200,000
1,000,000 USG Corp., 8.50% due 08/01/05.............................................. Ba3/BB 1,031,250
------------
12,905,270
------------
TRANSPORTATION (1.2%)
6,719,014 Union Tank Car Co., 6.50% due 04/15/08..................................... A2/A+ 6,732,788
------------
UTILITIES (4.6%)
1,500,000 Cleveland Electric Illumination, 7.625% due 08/01/02....................... Ba2/BB 1,416,555
1,000,000 Cleveland Electric Illumination, 7.375% due 06/01/03....................... Ba2/BB 945,050
3,000,000 Commonwealth Edison Co., 7.00% due 02/15/97................................ Baa3/BBB- 3,026,190
3,000,000 Commonwealth Edison Co., 6.50% due 07/15/97................................ Baa3/BBB- 3,009,630
200,000 Commonwealth Edison Co., 6.50% due 04/15/00................................ Baa3/BBB- 199,186
500,000 Commonwealth Edison Co., Series 87, 6.25% due 10/01/97..................... Baa2/BBB 499,340
1,972,000 Connecticut Light & Power Co., Series UU, 7.625% due 04/01/97.............. Baa1/BBB+ 2,019,131
2,400,000 GTE Corp., 8.85% due 03/01/98.............................................. Baa1/BBB+ 2,528,568
7,240,000 Hydro-Quebec, 8.05% due 07/07/24........................................... A1/A+ 7,969,430
500,000 Jersey Central Power & Light, 6.70% due 12/19/97........................... Baa1/BBB+ 506,945
4,250,000 United Telephone Company of Florida, 8.375% due 01/15/25................... A2/A 4,850,015
------------
26,970,040
------------
TOTAL CORPORATE OBLIGATIONS (COST $215,980,630)............................ 220,700,589
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (15.5%)
FHA Insured
$ 3,368,477 7.43% due 03/01/22...................................................................... $ 3,292,341
Federal Home Loan Mortgage Corp.
1,391 12.50% due 08/01/14..................................................................... 1,527
29,688 Series 600, 10.00% due 04/01/09......................................................... 31,899
200,000 Series 39, Class F, 10.00% due 05/15/20................................................. 223,946
21,122 9.00% due 04/01/03...................................................................... 21,935
11,000,000 Gold, 8.506% due 12/01/04............................................................... 12,213,438
126,355 Gold, 8.50% due 11/01/24................................................................ 130,979
52,835 Gold, 8.50% due 01/01/25................................................................ 54,773
315,485 Gold, 8.50% due 04/01/25................................................................ 327,057
990,000 Gold, 8.50% due 04/01/25................................................................ 1,026,244
1,422,376 Gold, 8.50% due 04/01/25................................................................ 1,474,236
523,366 Gold, 8.50% due 05/01/25................................................................ 542,238
1,398,426 Gold, 8.50% due 05/01/25................................................................ 1,449,538
1,414,012 Gold, 8.50% due 06/01/25................................................................ 1,465,878
764,315 Gold, 8.50% due 07/01/24................................................................ 791,937
990,000 Gold, 8.50% due 08/01/25................................................................ 1,025,977
34,259 Gold, 8.50% due 09/01/25................................................................ 35,522
269,998 Gold, 8.50% due 09/01/25................................................................ 279,953
311,576 Gold, 8.50% due 10/01/25................................................................ 323,067
10,910,000 Gold, 8.00% TBA (t)..................................................................... 11,179,341
405,078 Gold, 7.00% due 04/01/24................................................................ 402,198
518,824 Gold, 7.00% due 06/01/24................................................................ 515,192
4,042,023 Gold, 7.00% due 07/01/25................................................................ 4,013,001
1,210,316 Gold, 7.00% due 08/01/25................................................................ 1,201,626
1,446,433 Gold, 7.00% due 08/01/25................................................................ 1,436,048
1,672,089 Gold, 7.00% due 08/01/25................................................................ 1,660,083
1,995,638 Gold, 7.00% due 08/01/25................................................................ 1,981,309
1,998,301 Gold, 7.00% due 08/01/25................................................................ 1,983,953
1,578,063 Gold, 7.00% due 09/01/25................................................................ 1,566,732
6,978,071 Gold, 6.50% due 06/01/04................................................................ 6,973,710
1,807,135 Gold, 6.00% due 08/01/10................................................................ 1,765,517
28,029 Gold, 6.00% due 09/01/10................................................................ 27,372
76,609 Gold, 6.00% due 09/01/10................................................................ 74,814
806,079 Gold, 6.00% due 09/01/10................................................................ 787,187
849,092 Gold, 6.00% due 09/01/10................................................................ 829,495
3,654,307 Gold, 6.00% due 09/01/10................................................................ 3,569,965
524,301 Gold, 6.00% due 10/01/10................................................................ 512,013
541,800 Gold, 6.00% due 10/01/10................................................................ 529,102
618,468 Gold, 6.00% due 10/01/10................................................................ 604,169
710,441 Gold, 6.00% due 10/01/10................................................................ 694,016
1,299,980 Gold, 6.00% due 10/01/10................................................................ 1,269,512
1,564,469 Gold, 6.00% due 10/01/10................................................................ 1,527,802
1,800 Remic: Series 1977, Class A, 8.05% due 03/15/07......................................... 1,747
100,000 Remic: Series 1290, Class L, 7.50% due 10/15/09......................................... 105,581
32,000 Remic: PAC-1(11), Series 1168, Class H, 7.50% due 11/15/21.............................. 33,196
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
Federal Home Loan Mortgage Corp. (continued)
<C> <S> <C> <C>
$ 300,000 Remic: Series 102, Class I, 7.00% due 12/15/20.......................................... $ 297,132
165,000 Remic: PAC-1(11), Series 1207, Class J, 6.75% due 07/15/19.............................. 164,050
1,600,000 Remic: SCH(22), Series 1701, Class B, 6.50% due 03/15/09................................ 1,522,384
Federal National Mortgage Association
778,552 10.00% due 06/01/20..................................................................... 846,099
4,434,478 8.70% due 02/01/05...................................................................... 4,936,128
25,499 8.50% due 06/01/10...................................................................... 26,348
98,647 8.00% due 01/01/02...................................................................... 101,365
71,267 8.00% due 05/01/02...................................................................... 73,239
479,919 8.00% due 07/01/02...................................................................... 493,208
44,577 8.00% due 07/01/02...................................................................... 45,810
6,602 8.00% due 08/01/22...................................................................... 6,764
1,569,893 Remic: PAC, Series 1991-64, Class Z, 8.50% due 06/25/06................................. 1,627,289
1,083,547 Remic: PAC, Series 1991-101, Class C, 8.50% due 08/25/18................................ 1,093,233
22,062 Remic: PAC(11), Series 1991-9, Class H, 8.30% due 11/25/04.............................. 22,136
1,966,862 Remic: PAC-2(23), Series 1994-50, Class Z, 6.50% due 03/25/24........................... 1,633,085
3,100,000 Remic: PAC (11), Series 1993-041, Class PE, 5.75% due 04/25/19.......................... 3,048,478
Government National Mortgage Association
5,723 13.50% due 10/15/14..................................................................... 6,436
28,263 11.50% due 07/15/13..................................................................... 31,588
874,042 7.00% due 01/15/23...................................................................... 869,182
371,355 7.00% due 03/15/23...................................................................... 369,283
47,402 7.00% due 07/15/23...................................................................... 47,142
343,324 7.00% due 07/15/23...................................................................... 341,435
134,072 7.00% due 07/15/23...................................................................... 133,331
445,906 7.00% due 07/15/23...................................................................... 443,435
24,471 7.00% due 09/15/23...................................................................... 24,328
342,135 7.00% due 09/15/23...................................................................... 340,133
23,084 7.00% due 10/15/23...................................................................... 22,954
31,942 7.00% due 10/15/23...................................................................... 31,763
393,630 7.00% due 10/15/23...................................................................... 391,462
903,266 7.00% due 10/15/23...................................................................... 897,991
67,382 7.00% due 12/15/23...................................................................... 66,998
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $87,699,415)............................. 89,911,375
------------
U.S. TREASURY OBLIGATIONS (41.1%)
U.S. Treasury Bonds
4,060,000 12.00% due 08/15/13..................................................................... 6,086,833
44,165,000 10.75% due 02/15/03..................................................................... 56,549,308
18,130,000 10.375% due 11/15/09.................................................................... 23,383,349
16,010,000 10.375% due 11/15/12.................................................................... 21,512,477
11,455,000 8.875% due 02/15/19..................................................................... 14,803,869
6,860,000 8.50% due 02/15/20...................................................................... 8,578,224
10,000,000 8.125% due 08/15/19..................................................................... 12,029,300
4,705,000 7.875% due 02/15/21..................................................................... 5,538,632
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
U.S. Treasury Notes
<C> <S> <C> <C>
$ 5,000,000 8.50% due 11/15/00...................................................................... $ 5,579,250
13,350,000 7.25% due 02/15/98...................................................................... 13,792,286
1,055,000 7.25% due 08/15/04...................................................................... 1,141,763
17,820,000 7.125% due 02/29/00..................................................................... 18,699,061
4,905,000 5.50% due 04/15/00...................................................................... 4,854,135
9,200,000 5.125% due 11/30/98..................................................................... 9,049,396
15,295,000 4.75% due 02/15/97...................................................................... 15,124,920
U.S. Treasury Strip
33,025,000 Due 05/15/02 (Principal Only)........................................................... 22,565,322
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $228,949,847)..................................... 239,288,125
------------
<CAPTION>
MOODY'S/S&P
RATING
SHARES (UNAUDITED)
- --------------- -----------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.3%)
NATURAL GAS (0.3%)
74,600 Lasmo PLC, Sponsored ADR, 10.00%, Series A................................. Ba1/BBB- 1,799,725
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,659,850).................................... 1,799,725
------------
<CAPTION>
PRINCIPAL
AMOUNT
- ---------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT (0.4%)
$ 2,066,000 Goldman Sachs Repurchase Agreement, dated 10/31/95 due 11/01/95, at 5.880%,
proceeds $2,066,142 (collateralized by U.S. Treasury Note, 5.875% due
07/31/97, valued at $2,077,406)
(cost $2,066,000)........................................................ P1/A1+ $ 2,066,000
------------
TOTAL INVESTMENTS (COST $556,625,778) (98.8%)............................................................ 574,829,113
OTHER ASSETS IN EXCESS OF LIABILITIES (1.2%)............................................................. 7,050,882
------------
TOTAL NET ASSETS (100.0%)................................................................................ $581,879,995
------------
------------
</TABLE>
Note: Based on the cost of investments of $556,629,476 for Federal Income Tax
purposes at October 31, 1995, the aggregate gross unrealized appreciation and
depreciation was $18,337,903 and $138,266, respectively, resulting in net
unrealized appreciation of $18,199,637.
(t) TBA securities are purchased on a forward commitment basis with an
approximate principal amount and no definite maturity date. The actual
principal amount and maturity date will be determined upon settlement.
Abbreviations used in the schedule of investments are as follows:
ADR - American Depository Receipt; ARM - Adjustable Rate Mortgage; FHA - Federal
Housing Administration;
PAC - Planned Amortization Class; Remic - Real Estate Mortgage Investment
Conduit;
NR - Not Rated; TAC - Targeted Amortization Class; SCH - Scheduled Payment Bond
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $556,625,778) $574,829,113
Receivable for Investments Sold 73,638,034
Interest Receivable 8,686,770
Other Receivables 6,408
Prepaid Expenses 5,770
------------
Total Assets 657,166,095
------------
LIABILITIES
Payable for Securities Purchased 74,362,206
Unrealized Depreciation on Open Foreign Currency Contracts 606,109
Advisory Fee Payable 178,438
Custodian Fees and Expenses Payable 81,524
Payable to Custodian 8,328
Fund Services Fee Payable 3,788
Administration Fee Payable 2,691
Accrued Expenses 43,016
------------
Total Liabilities 75,286,100
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $581,879,995
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $31,358,157
Dividend Income 132,975
-----------
Total Investment Income 31,491,132
EXPENSES
Advisory Fee $1,339,147
Financial and Fund Accounting Services Fee 167,081
Custodian Fees and Expenses 83,838
Fund Services Fee 40,729
Administration Fee 27,436
Trustees' Fees and Expenses 11,096
Miscellaneous 67,774
----------
Total Expenses (1,737,101)
-----------
NET INVESTMENT INCOME 29,754,031
NET REALIZED GAIN ON INVESTMENTS (including $621,192 of net realized gains
from forward contracts) 7,762,316
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS (including $606,109 of
net unrealized depreciation of forward contracts) 26,604,322
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $64,120,669
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
OCTOBER 31,
--------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $ 29,754,031 $ 13,708,591
Net Realized Gain (Loss) on Investments 7,762,316 (8,930,226)
Net Change in Unrealized Appreciation (Depreciation) of Investments 26,604,322 (11,045,898)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 64,120,669 (6,267,533)
------------ ------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 241,455,035 298,426,651
Withdrawals (89,561,736) (73,416,442)
------------ ------------
Net Increase from Investors' Transactions 151,893,299 225,010,209
------------ ------------
Total Increase in Net Assets 216,013,968 218,742,676
NET ASSETS
Beginning of Fiscal Year 365,866,027 147,123,351
------------ ------------
End of Fiscal Year $581,879,995 $365,866,027
------------ ------------
------------ ------------
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA:
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE PERIOD
YEAR ENDED JULY 12, 1993
OCTOBER 31, (COMMENCEMENT OF
---------------- OPERATIONS) THROUGH
1995 1994 OCTOBER 31, 1993
------- ------- -------------------
<S> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.39% 0.46% 0.48%(a)
Net Investment Income 6.68% 5.88% 4.91%(a)
Portfolio Turnover 293% 234% 295%+
</TABLE>
(a) Annualized.
(+) Portfolio turnover is for the twelve month period ended October 31, 1993,
and includes the portfolio activity of the Portfolio's predecessor entity,
The Pierpont Bond Fund, for the period November 1, 1992 through July 11,
1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Fixed Income Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Portfolio commenced operations on July 12, 1993 and
received a contribution of certain assets and liabilities, including securities,
with a value of $91,653,371 on that date from The Pierpont Bond Fund in exchange
for a beneficial interest in the Portfolio. At that date, net unrealized
appreciation of $1,731,405 was included in the contributed securities. The
Declaration of Trust permits the Trustees to issue an unlimited number of
beneficial interests in the Portfolio.
The following is a summary of the significant accounting policies of the
Portfolio:
a) Portfolio securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are
valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national
securities exchange, or in the absence of recorded sales, at the readily
available bid price on such exchange or at the quoted bid price in the
over-the-counter market, if such exchange or market constitutes the
broadest and most representative market for the security and (ii) in
other cases, take into account various factors affecting market value,
including yields and prices of comparable securities, indication as to
value from dealers and general market conditions. If such prices are not
supplied by the Portfolio's independent pricing services, such securities
are priced in accordance with procedures adopted by the Trustees. All
portfolio securities with a remaining maturity of less than 60 days are
valued by the amortized cost method.
b) Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if
any, is recorded on an accrual basis. For financial and tax reporting
purposes, realized gains and losses are determined on the basis of
specific lot identification.
c) The Portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables against fluctuations in
future foreign currency rates. A forward contract is an agreement to buy
or sell currencies of different countries on a specified future date at a
specified rate. Risks associated with such contracts include the movement
in the value of the foreign currency relative to the U.S. Dollar and the
ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily based on procedures
established by and under the general supervision of the
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
Portfolio's Trustees and the change in the market value is recorded by the
Portfolio as unrealized appreciation or depreciation of forward and spot
foreign currency contract translations. At October 31, 1995 the Portfolio
had open forward foreign currency contracts as follows:
SUMMARY OF OPEN CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR
VALUE NET UNREALIZED
FOREIGN CURRENCY SALE CONTRACTS PROCEEDS AT 10/31/95 DEPRECIATION
- --------------------------------------------------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
German Mark, 5,281,000, expiring 12/5/95 $ 3,588,367 $ 3,757,729 $ (169,362)
German Mark, 2,410,000, expiring 12/5/95 1,642,920 1,714,851 (71,931)
Danish Krone, 4,683,000, expiring 12/5/95 817,306 857,297 (39,991)
Danish Krone, 22,420,000, expiring 12/5/95 3,923,010 4,104,333 (181,323)
<CAPTION>
FOREIGN CURRENCY PURCHASE CONTRACTS COST
- --------------------------------------------------------------------- ------------
<S> <C> <C> <C>
German Mark, 7,691,000, expiring 12/5/95 5,573,188 5,472,580 (100,608)
Danish Krone, 27,103,000, expiring 12/5/95 5,004,524 4,961,630 (42,894)
---------------
Net Unrealized Depreciation on Foreign Currency Contracts $ (606,109)
---------------
</TABLE>
d) The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxed on
its share of the Portfolio's ordinary income and capital gains. It is
intended that the Portfolio's assets will be managed in such a way that
an investor in the Portfolio will be able to satisfy the requirements of
Subchapter M of the Internal Revenue Code.
e) The Portfolio's custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Portfolio. It is
the policy of the Portfolio to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued
interest. In the event of default of the obligation to repurchase, the
Portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances,
in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may
be subject to legal proceedings.
2. TRANSACTIONS WITH AFFILIATES
a) The Portfolio has an investment advisory agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the investment
advisory agreement, the Portfolio pays Morgan at an annual rate of 0.30%
of the Portfolio's average daily net assets. For the fiscal year ended
October 31, 1995, this fee amounted to $1,339,147.
b) The Portfolio retains Signature Broker-Dealer Services, Inc.
("Signature") to serve as Administrator and exclusive placement agent.
Signature provides administrative services necessary for the operations
of the Portfolio, furnishes office space and facilities required for
conducting the business of the Portfolio and pays the compensation of the
Portfolio's officers affiliated with
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
Signature. The agreement provides for a fee to be paid to Signature at an
annual rate determined by the following schedule: 0.01% of the first $1
billion of the aggregate average daily net assets of the Portfolio and
the other portfolios subject to the Administrative Services Agreement,
0.008% of the next $2 billion of such net assets, 0.006% of the next $2
billion of such net assets, and 0.004% of such net assets in excess of $5
billion. The daily equivalent of the fee rate is applied each day to the
net assets of the Portfolio. For the fiscal year ended October 31, 1995,
Signature's fee for these services amounted to $27,436.
c) During the period November 1, 1994, through August 31, 1995, the
Portfolio had a Financial and Fund Accounting Services Agreement
("Services Agreement") with Morgan under which Morgan received a fee,
based on the percentages described below, for overseeing certain aspects
of the administration and operation of the Portfolio and which was also
designed to provide an expense limit for certain expenses of the
Portfolio. This fee was calculated at 0.10% of the Portfolio's average
daily net assets up to $200 million, 0.05% of the next $200 million of
average daily net assets, and 0.03% of average daily net assets
thereafter. For the period November 1, 1994, through August 31, 1995, the
fee for these services amounted to $167,081. Effective September 1, 1995,
the Services Agreement was terminated and an interim agreement was
entered into between the Portfolio and Morgan which provides for the
continuation of the oversight services that were outlined under the prior
agreement and that Morgan shall bear all of its expenses incurred in
connection with these services.
d) The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the shareholders of Group. The Portfolio's
allocated portion of Group's costs in performing its services amounted to
$40,729 for the fiscal year ended October 31, 1995.
e) An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Pierpont Funds, The JPM Institutional Funds and their
corresponding Portfolios. The Trustees' Fees and Expenses shown in the
financial statements represent the Portfolio's allocated portion of the
total fees and expenses. Prior to April 1, 1995, the aggregate annual
Trustee Fee was $55,000. The Trustee who serves as Chairman and Chief
Executive Officer of these Funds and Portfolios also serves as Chairman
of Group and received compensation and employee benefits from Group in
his role as Group's Chairman. The allocated portion of such compensation
and benefits included in the Fund Services Fee shown in the financial
statements was $5,200.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1995 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS FROM
PURCHASES SALES
---------------- ----------------
<S> <C> <C>
U.S. Treasury and Agency Obligations $ 1,171,503,087 $ 1,078,447,543
Corporate and Collateralized Obligations 298,968,392 207,445,656
---------------- ----------------
$ 1,470,471,479 $ 1,285,893,199
---------------- ----------------
---------------- ----------------
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Fixed Income Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The U.S. Fixed Income Portfolio (the
"Portfolio") at October 31, 1995, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and its supplementary data for each of the two years in the
period then ended and for the period July 12, 1993 (commencement of operations)
through October 31, 1993, in conformity with generally accepted accounting
principles. These financial statements and supplementary data (hereafter
referred to as "financial statements") are the responsibility of the Portfolio's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1995 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
[SIGNATURE]
PRICE WATERHOUSE LLP
New York, New York
December 22, 1995
28
