<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ --------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (9.5%)
FINANCIAL SERVICES (9.5%)
$ 8,418,572 Access Financial Manufacturing Housing Contract
Trust, Series 95-1, Class A1, 6.10% due
05/15/21....................................... Aaa/NR $ 8,437,261
58,958 Advanta Home Equity Loan Trust, Series 92-2,
Class A1, 7.15% due 06/25/08................... Aaa/AAA 59,012
8,927,050 Aegis Auto Receivables Trust, Series 1996-3,
Class A, Sequential Payer, Callable, (144A)
8.80% due 03/20/02............................. NR/NR 9,178,123
3,022,391 American Southwest Financial Corp., Series 60,
Class D, 8.90% due 03/01/18.................... NR/AAA 3,156,404
86,499 Case Equipment Loan Trust, Series 94-A, Class A2,
4.65% due 08/15/99............................. Aaa/AAA 86,032
15,699,000 Chemical Mortgage Securities, Inc., Series 96-1,
Class A7, 7.25% due 01/25/26................... Aaa/AAA 14,763,340
119,241 Chevy Chase Auto Receivables Trust, Series 95-1,
Class A, 6.00% due 12/15/01.................... Aaa/AAA 119,496
7,923,601 Collateralized Mortgage Obligation Trust, Remic:
Accrual Bond, Series 62, Class Z, 9.50% due
06/25/20....................................... Aaa/AAA 8,443,588
3,032,523 Criimi Mae Financial Corp., Series 1, Class A,
7.00% due 01/01/33............................. NR/AAA 2,915,013
1,956,910 Fleetwood Credit Corp. Grantor Trust, Series
95-B, Class A, 6.55% due 05/15/11.............. Aaa/AAA 1,974,327
8,855,000 GE Capital Mortgage Services, Inc., Remic:
PAC-1(11), Series 94-17, Class A5, 7.00% due
05/25/24....................................... Aa1/AAA 8,951,962
2,000,000 Green Tree Financial Corp., Series 92-1, Class
A3, 6.70% due 10/15/17......................... Aaa/NR 2,017,187
3,068,709 Green Tree Recreational, Equipment & Consumer
Trust, Seies 96-A, Class A1, 5.55% due
02/15/18....................................... Aaa/AAA 3,030,872
715,732 Morgan Stanley Mortgage Trust, Series V, Class 4,
8.95% due 05/01/17............................. NR/AAA 755,147
5,500,000 Oakwood Mortgage Investors Inc., Series 96-A,
Class A2, 5.80% due 05/15/21................... NR/AAA 5,345,312
10,958,985 PaineWebber Mortgage Acceptance Corp., Remic: PAC
(11), Series 93-5, Class A2, 5.50% due
06/25/08....................................... NR/AAA 10,895,971
1,217,518 Prudential Home Mortgage Securities, Remic: PAC
(11), Series 93-54, Class A2, 6.50% due
01/25/24....................................... Aaa/NR 1,217,835
7,776,755 Residential Funding Mortgage Securities I, Inc.,
Remic: PAC (11), Series 94-S12, Class A3, 6.50%
due 04/25/09................................... Aa1/AAA 7,778,700
152,434 Resolution Trust Corp., Remic: Collateral Strip
Interest, Series 91-6, Class A1, 6.92% due
05/25/19....................................... Aaa/AAA 145,193
81,949 The Money Store Home Equity Trust, Series 92-A,
Class A, 6.95% due 12/15/07.................... Aaa/AAA 82,120
52,789 Western Financial Grantor Trust, Series 95-3,
Class A1, 6.05% due 11/01/00................... Aaa/AAA 52,843
4,350,000 World Omni Automobile Lease Securitization Trust,
Series 1996-A, Class A1, Sequential Payer,
Callable, 6.30% due 06/25/02................... Aaa/AAA 4,357,134
--------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$93,750,122)............................... 93,762,872
--------------
CORPORATE OBLIGATIONS (21.7%)
AUTOMOTIVE (2.2%)
16,755,000 Ford Motor Co., 9.95% due 02/15/32............... A1/A+ 21,697,055
--------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ --------------
<C> <S> <C> <C>
BANKING (5.2%)
$ 1,600,000 Chase Manhattan Corp. - New, 10.125% due
11/01/00....................................... A2/A- $ 1,798,528
1,300,000 Chase Manhattan Corp., Series A, 8.65% due
02/13/99....................................... A2/A- 1,367,457
2,095,000 First Chicago Corp., 6.875% due 06/15/03......... A2/A 2,107,759
5,000,000 First Chicago Corp., 8.25% due 06/15/02.......... A2/A 5,380,700
8,300,000 First Union Corp., 6.55% due 10/15/35............ A2/A- 8,098,061
1,000,000 Manufacturers Hanover Corp., 8.50% due
02/15/99....................................... A2/A- 1,046,600
2,000,000 Mellon Bank, N.A., 6.75% due 06/01/03............ A2/A 1,999,040
1,500,000 Midland Bank, PLC, 8.625% due 12/15/04........... A1/A 1,652,790
13,700,000 Norwest Corp., 6.75% due 05/12/00................ Aa3/AA- 13,848,645
3,000,000 Security Pacific Corp., 9.75% due 05/15/99....... A2/A 3,244,080
7,500,000 Shawmut National Corp., 8.625% due 12/15/99...... A3/BBB+ 7,980,525
2,500,000 Wachovia Bank North Carolina, 5.60% due
03/08/99....................................... Aa2/AA+ 2,469,650
--------------
50,993,835
--------------
BUILDING MATERIALS (0.4%)
1,000,000 USG Corp., 8.50% due 08/01/05.................... Ba2/BB 1,031,250
3,000,000 USG Corp., Series B, 9.25% due 09/15/01.......... Ba2/BB 3,198,750
--------------
4,230,000
--------------
CONSTRUCTION & HOUSING (0.6%)
5,000,000 Celulosa Arauco y Constitucion SA, 6.75% due
12/15/03....................................... Baa2/BBB+ 4,887,850
1,000,000 Schuller International Group, Inc., 10.875% due
12/15/04....................................... Ba3/BB- 1,102,500
--------------
5,990,350
--------------
ELECTRIC (2.9%)
1,932,000 Connecticut Light & Power Co., Series UU, 7.625%
due 04/01/97................................... Baa3/BBB 1,933,932
6,000,000 Duke Power Co., 6.75% due 08/01/25............... Aa2/AA- 5,469,420
8,400,000 Idaho Power Co., Series A, 7.50% due 05/01/23.... A2/A+ 8,236,704
4,850,000 Philadelphia Electric Co., 8.00% due 04/01/02.... Baa1/BBB+ 5,144,152
3,000,000 Texas Utilities Co., 7.375% due 10/01/25......... Baa2/BBB+ 2,859,810
5,000,000 Virginia Electric & Power Co., Series A, 7.25%
due 02/01/23................................... A2/A 4,805,350
--------------
28,449,368
--------------
ELECTRICAL EQUIPMENT (0.1%)
1,000,000 Legrand S.A., 8.50% due 02/15/25................. A2/A 1,110,190
--------------
ELECTRONICS (0.7%)
7,000,000 Sensormatic Electronics Corp., 7.74% due
03/29/06....................................... A3/BBB+ 7,000,000
--------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ --------------
<C> <S> <C> <C>
FINANCIAL SERVICES (2.1%)
$ 25,000 Commercial Credit Group, Inc., 7.375% due
11/15/96....................................... A1/A+ $ 25,014
12,550,000 Ford Motor Credit Co., 6.25% due 11/08/00........ A1/A+ 12,431,026
2,000,000 General Motors Acceptance Corp., 6.70% due
06/24/99....................................... A3/A- 2,020,380
1,700,000 Guangdong International Trust & Investment Corp.,
(144A), 8.75% due 10/24/16..................... Baa2/BBB- 1,713,294
4,700,000 Sampoerna International Finance Co., (144A),
8.375% due 06/15/06............................ Baa3/BBB 4,903,510
--------------
21,093,224
--------------
FOREST PRODUCTS & PAPER (1.3%)
1,100,000 Buckeye Cellulose Corp., 8.50% due 12/15/05...... Ba3/BB- 1,078,000
5,200,000 Georgia-Pacific Corp., 7.375% due 12/01/25....... Baa2/BBB- 4,882,904
5,600,000 Georgia-Pacific Corp., 9.95% due 06/15/02........ Baa2/BBB- 6,410,768
--------------
12,371,672
--------------
HEALTH SERVICES (0.3%)
3,000,000 Tenet Healthcare Corp., 10.125% due 03/01/05..... Ba3/B+ 3,292,500
--------------
INSURANCE (0.4%)
4,400,000 Principal Mutual Insurance Co., (144A), 7.875%
due 03/01/24................................... Aa3/AA- 4,361,324
--------------
METALS & MINING (0.2%)
1,000,000 Oregon Steel Mills, Inc., 11.00% due 06/15/03.... B1/BB+ 1,057,500
1,000,000 Ryerson Tull, Inc., 8.50% due 07/15/01........... Ba1/BB 997,500
--------------
2,055,000
--------------
NATURAL GAS (0.6%)
4,425,000 Consolidated Natural Gas Co., 8.625% due
12/01/11....................................... A1/AA- 4,633,417
750,000 Lasmo (USA) Inc., 8.375% due 06/01/23............ Baa2/BBB 767,100
--------------
5,400,517
--------------
RAILROADS (0.1%)
1,125,000 SFP Pipeline Holdings Inc., 11.16% due
08/15/10....................................... Baa3/NR 1,372,500
--------------
RETAIL (0.8%)
2,500,000 Federated Department Stores, Inc., 8.50% due
06/15/03....................................... Ba1/BB- 2,600,000
2,350,000 Sears Roebuck & Co., 8.00% due 02/16/99.......... A2/A- 2,436,809
2,200,000 Sears Roebuck & Co., Series 6, 8.52% due
05/13/02....................................... A2/A- 2,395,756
--------------
7,432,565
--------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ --------------
<C> <S> <C> <C>
TELECOMMUNICATIONS (0.3%)
$ 2,580,000 Tele-Communications, Inc., 10.125% due
04/15/22....................................... Ba1/BBB- $ 2,703,892
--------------
TELEPHONE (1.9%)
1,825,000 New York Telephone Co., 7.00% due 08/15/25....... A2/A 1,706,995
16,075,000 New York Telephone Co., 7.25% due 02/15/24....... A2/A 15,424,123
1,250,000 Philippine Long Distance Telephone, 10.625% due
02/06/04....................................... Ba2/BB 1,401,562
--------------
18,532,680
--------------
TEXTILES (0.2%)
2,000,000 WestPoint Stevens, Inc., 8.75% due 12/15/01...... Ba3/BB- 2,025,000
--------------
TRANSPORT & SERVICES (0.3%)
2,500,000 Teekay Shipping Corp., 8.32% due 02/01/08........ Ba2/BB 2,425,000
--------------
TRANSPORTATION (0.6%)
6,040,021 Union Tank Car Co., Series 93-A, 6.50% due
04/15/08....................................... A2/A+ 5,967,276
--------------
WATER (0.5%)
4,500,000 Hydro-Quebec, Series GF, 8.875% due 03/01/26..... A2/A+ 5,193,675
--------------
TOTAL CORPORATE OBLIGATIONS (COST
$211,484,696).............................. 213,697,623
--------------
GOVERNMENT OBLIGATIONS (0.4%)
MEXICO (0.4%)
3,500,000 United Mexican States, 9.75% due 02/06/01 (cost
$3,441,608).................................... Ba2/NR 3,565,625
--------------
<CAPTION>
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (33.6%)
FEDERAL HOME LOAN MORTGAGE CORP.
14,850,000 7.50% due 10/01/26............................... 14,901,084
15,398 9.00% due 04/01/03............................... 15,993
354,629 9.50% due 08/01/04............................... 370,311
528,870 9.50% due 11/01/05............................... 552,341
2,739,050 9.50% due 12/01/05............................... 2,860,745
533,901 9.50% due 02/01/06............................... 557,611
714,779 9.50% due 03/01/06............................... 746,651
23,366 10.00% due 04/01/09.............................. 25,208
1,085 12.50% due 08/01/14.............................. 1,198
6,881,935 Gold, 6.50% due 05/01/04......................... 6,804,514
597,666 Gold, 8.00% due 04/01/10......................... 614,914
1,946,790 Gold, 8.00% due 07/01/10......................... 2,003,714
1,544,285 Gold, 8.00% due 07/01/11......................... 1,590,554
797,302 Gold, 8.00% due 08/01/11......................... 821,205
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ----------- ------------------------------------------------- --------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP. (CONTINUED)
$16,524,929 Gold, 8.00% due 08/01/26......................... $ 16,891,452
11,000,000 Gold, 8.506% due 12/01/04........................ 11,739,062
2,640,000 Gold, TBA December, 8.00%........................ 2,701,875
300,000 Remic: Accretion Directed, Series 1290, Class L,
7.50% due 10/15/09............................. 311,400
300,000 Remic: PAC, Series 102, Class I, 7.00% due
12/15/20....................................... 296,202
32,000 Remic: PAC-1(11), Series 1168, Class H, 7.50% due
11/15/21....................................... 32,243
250,000 Remic: PAC-1(11), Series 1199, Class E, 7.50% due
10/15/19....................................... 253,765
415,000 Remic: PAC-1(11), Series 1207, Class J, 6.75% due
07/15/19....................................... 409,012
250,000 Remic: PAC-1(11), Series 1215, Class F, 6.75% due
05/15/05....................................... 251,363
35,760,000 Remic: PAC-1(11), Series 1542, Class J, 7.00% due
02/15/22....................................... 36,163,373
13,000,000 Remic: PAC-1(11), Series 1594, Class H, 6.00% due
10/15/08....................................... 12,351,950
31,500,000 Remic: PAC-1(11), Series 1684, Class G, 6.50% due
03/15/23....................................... 30,888,900
7,500,000 Remic: PAC-1(11), Series 1714, Class K, 7.00% due
04/15/24....................................... 7,269,675
200,000 Remic: PAC-2(11), Series 39, Class F, 10.00% due
05/15/20....................................... 223,840
1,600,000 Remic: SCH(22), Series 1701, Class B, 6.50% due
03/15/09....................................... 1,514,576
--------------
153,164,731
--------------
FEDERAL HOUSING ADMINISTRATION INSURED
3,315,496 Project 23, 7.43% due 03/01/22................... 3,284,413
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
2,877,669 6.88% due 11/01/05............................... 2,967,567
82,521 8.00% due 01/01/02............................... 84,812
61,009 8.00% due 05/01/02............................... 62,709
393,005 8.00% due 07/01/02............................... 403,930
5,784 8.00% due 08/01/22............................... 5,895
18,315 8.50% due 06/01/10............................... 18,897
31,318,635 8.50% due 09/01/10............................... 32,601,446
4,383,285 8.70% due 02/01/05............................... 4,646,282
9,133,451 10.00% due 11/01/18.............................. 9,983,045
601,917 10.00% due 06/01/20.............................. 653,953
3,100,000 Remic: PAC(11), Series 1993-41, Class PE, 5.75%
due 04/25/19................................... 3,067,233
371,194 Remic: PAC, Series 1991-101, Class C, 8.50% due
08/25/18....................................... 373,142
502,760 Remic: PAC, Series 1991-64, Class Z, 8.50% due
06/25/06....................................... 503,690
5,000,000 TBA November, 7.50%.............................. 5,014,063
3,260,000 TBA December, 8.00%.............................. 3,331,313
--------------
63,717,977
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
195,486 7.00% due 07/15/22............................... 192,128
545,541 7.00% due 11/15/22............................... 536,093
764,219 7.00% due 01/15/23............................... 751,686
348,895 7.00% due 03/15/23............................... 342,887
858,377 7.00% due 07/15/23............................... 844,287
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ----------- ------------------------------------------------- --------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 336,806 7.00% due 09/15/23............................... $ 330,821
1,300,322 7.00% due 10/15/23............................... 1,276,916
62,134 7.00% due 12/15/23............................... 61,055
3,806,706 7.00% due 01/15/24............................... 3,742,796
2,006,043 7.00% due 02/15/24............................... 1,970,137
533,825 7.00% due 03/15/24............................... 524,575
4,852,478 7.00% due 04/15/24............................... 4,766,967
2,634,306 7.00% due 05/15/24............................... 2,587,682
891,719 7.00% due 06/15/24............................... 876,402
2,767,965 7.00% due 01/15/26............................... 2,715,720
6,613,515 7.00% due 02/15/31............................... 6,487,792
7,825,397 7.00% due 05/15/35............................... 7,654,217
5,275,188 7.125% due 01/15/31.............................. 5,204,500
5,981,447 7.125% due 04/15/31.............................. 5,901,235
5,201,440 7.25% due 02/15/27............................... 5,159,308
2,613,071 7.25% due 01/15/31............................... 2,591,905
99,360 7.50% due 03/15/23............................... 99,661
213,534 7.50% due 05/15/23............................... 214,185
130,092 7.50% due 06/15/23............................... 130,482
208,381 7.50% due 01/15/24............................... 209,019
193,186 7.50% due 07/15/25............................... 193,786
121,093 7.50% due 08/15/25............................... 121,471
6,402,600 7.50% due 05/15/26............................... 6,422,576
2,826,949 7.50% due 05/15/31............................... 2,835,769
5,529,380 7.625% due 05/15/31.............................. 5,570,850
1,526,418 7.75% due 06/15/23............................... 1,545,010
8,619,037 7.75% due 07/15/31............................... 8,724,104
3,330,878 7.875% due 06/15/36.............................. 3,386,037
9,224,563 8.00% due 12/15/08............................... 9,548,807
232,148 8.00% due 06/15/26............................... 237,369
256,855 8.00% due 07/15/26............................... 262,614
1,052,789 8.00% due 08/15/26............................... 1,076,477
2,308,086 8.00% due 06/15/31............................... 2,357,133
27,519 11.50% due 07/15/13.............................. 30,786
12,339,939 12.00% due 05/15/16.............................. 14,130,094
5,656 13.50% due 10/15/14.............................. 6,358
--------------
111,621,697
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $330,555,767)........................ 331,788,818
--------------
U.S. TREASURY OBLIGATIONS (30.8%)
U.S. TREASURY BONDS
20,750,000 8.875% due 08/15/17.............................. 25,703,233
4,250,000 9.875% due 11/15/15.............................. 5,698,018
92,520,000 11.125% due 08/15/03(s).......................... 117,263,549
7,060,000 11.25% due 02/15/15.............................. 10,471,321
--------------
159,136,121
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ----------- ------------------------------------------------- --------------
<C> <S> <C> <C>
U.S. TREASURY NOTES
$12,000,000 6.25% due 07/31/98............................... $ 12,105,120
1,830,000 6.875% due 05/15/06.............................. 1,895,404
35,000,000 7.00% due 04/15/99............................... 35,922,950
800,000 7.00% due 07/15/06............................... 835,464
25,000,000 8.25% due 07/15/98............................... 26,018,750
42,370,000 8.50% due 11/15/00............................... 46,060,003
20,500,000 8.875% due 11/15/98.............................. 21,707,040
--------------
144,544,731
--------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$299,591,001).............................. 303,680,852
--------------
<CAPTION>
MOODY'S/S&P
RATING
SHARES (UNAUDITED)
- ----------- ------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.1%)
NATURAL GAS (0.1%)
36,000 Lasmo PLC, 10.00%, Series A, (cost $801,000)..... Baa3/BBB- 918,000
--------------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<C> <S> <C> <C>
SHORT-TERM INVESTMENT (3.0%)
REPURCHASE AGREEMENT (3.0%)
Goldman Sachs Repurchase Agreement, 5.54% dated 10/31/96 due
$30,152,000 11/01/96, proceeds $30,156,640 (collateralized by $29,932,000
U.S. Treasury Notes, 6.375% due 6/30/97, valued at
$30,755,062) (cost $30,152,000)..............................
30,152,000
--------------
TOTAL INVESTMENTS (COST $969,776,194) (99.1%).................. 977,565,790
OTHER ASSETS IN EXCESS OF LIABILITIES (0.9%)................... 8,739,458
--------------
NET ASSETS (100.0%)............................................ $ 986,305,248
--------------
--------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $969,782,500 for Federal Income Tax
purposes at October 31, 1996, the aggregate gross unrealized appreciation
and depreciation was $12,177,972 and $4,394,682, respectively, resulting
in net unrealized appreciation of $7,783,290.
(s) $50,000,000 par segregated as collateral for TBA securities.
Abbreviations:
144A - Securities restricted for resale to Qualified Institutional Buyers.
TBA - Securities purchased (sold) 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.
PAC -- Planned Amortization Class; NR -- Not Rated; Remic -- Real Estate
Mortgage Investment Conduit.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost
$969,776,194) $ 977,565,790
Cash 85
Interest Receivable 14,038,053
Receivable for Investments Sold 6,001,577
Prepaid Trustees' Fees 1,970
Prepaid Expenses and Other Assets 4,004
--------------
Total Assets 997,611,479
--------------
LIABILITIES
Payable for Investments Purchased 10,962,575
Advisory Fee Payable 246,940
Custody Fee Payable 35,904
Administrative Services Fee Payable 26,241
Administration Fee Payable 2,391
Fund Services Fee Payable 453
Accrued Expenses 31,727
--------------
Total Liabilities 11,306,231
--------------
NET ASSETS
Applicable to Investors' Beneficial
Interests $ 986,305,248
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $ 53,939,242
Dividend Income (Net of Foreign
Withholding Tax of $20,740 ) 117,504
--------------
Investment Income 54,056,746
EXPENSES
Advisory Fee $ 2,402,660
Custodian Fees and Expenses 223,629
Administrative Services Fee 191,348
Administration Fee 72,029
Professional Fees and Expenses 47,498
Fund Services Fee 36,922
Trustees' Fees and Expenses 15,222
Insurance Expense 4,966
Registration Fees 610
Miscellaneous 2,000
--------------
Total Expenses 2,996,884
--------------
NET INVESTMENT INCOME 51,059,862
NET REALIZED GAIN (LOSS) ON
Investment Transactions 3,249,984
Foreign Currency Transactions (606,386)
--------------
Net Realized Gain 2,643,598
NET CHANGE IN UNREALIZED DEPRECIATION
OF
Investments (10,413,739)
Foreign Currency Contracts and
Translations 606,109
--------------
Net Change in Unrealized
Depreciation (9,807,630)
--------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 43,895,830
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 51,059,862 $ 29,754,031
Net Realized Gain on Investment and
Foreign Currency Transactions 2,643,598 7,762,316
Net Change in Unrealized Appreciation
(Depreciation) of Investment and
Foreign Currency Translations (9,807,630) 26,604,322
-------------- --------------
Net Increase in Net Assets
Resulting from Operations 43,895,830 64,120,669
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS
Contributions 513,960,050 241,455,035
Withdrawals (153,430,627) (89,561,736)
-------------- --------------
Net Increase from Investors'
Transactions 360,529,423 151,893,299
-------------- --------------
Total Increase in Net Assets 404,425,253 216,013,968
NET ASSETS
Beginning of Fiscal Year 581,879,995 365,866,027
-------------- --------------
End of Fiscal Year $ 986,305,248 $ 581,879,995
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 12, 1993
(COMMENCEMENT
FOR THE FISCAL YEAR OF
ENDED OCTOBER 31, OPERATIONS) TO
--------------------- OCTOBER 31,
1996 1995 1994 1993
----- ----- ----- --------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.37% 0.39% 0.46% 0.48%(a)
Net Investment Income 6.38% 6.68% 5.88% 4.91%(a)
Portfolio Turnover 186% 293% 234% 295%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b)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.
27
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
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 (the "Act"), as a no load,
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. 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 JPM Pierpont Bond Fund, (formerly The Pierpont Bond Fund), in exchange for a
beneficial interest in the Portfolio. The Portfolio's investment objective is to
provide a high total return consistent with moderate risk of capital and
maintenance of liquidity. The Declaration of Trust permits the Trustees to issue
an unlimited number of beneficial interests in the Portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a)The Portfolio values mortgage and asset-backed securities and other debt
securities with a maturity of 60 days or more, including securities that
are listed on an exchange or traded over the counter, 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. The
ability of issuers of mortgage and asset-backed securities, held by the
Portfolio, to meet their obligations may be affected by economic
developments in a specific industry or region. The value of mortgage and
asset-backed securities can be significantly affected by changes in
interest rates, rapid principal payments including pre-payments.
The Portfolio's custodian or designated subcustodians, as the case may be,
under triparty repurchase agreements 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.
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.
28
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
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 Portfolio's Trustees and the
change in the market value is recorded by the Portfolio as unrealized
appreciation or depreciation of foreign forward and spot currency contract
translations. There were no open forward or spot currency contracts as of
October 31, 1996.
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.
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 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, 1996, this
fee amounted to $2,402,660.
b)The Portfolio had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Under an Administration Agreement, Signature provided administrative
services necessary for the operations of the Portfolio, furnished office
space and facilities required for conducting the business of the Portfolio
and paid the compensation of the Portfolio's officers affiliated with
Signature. Until December 28, 1995, the agreement provided 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 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 was applied each day to the net
assets of the Portfolio. For the period from November 1, 1995 to December
28, 1995, Signature's fee for these services amounted to $5,709.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged was equal to the Portfolio's proportionate share of a
complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios (the "Master Portfolios") in which The
JPM Pierpont Funds, The JPM Institutional Funds or The JPM Advisor Funds
invest and 0.01% on the aggregate average daily net assets of the Master
Portfolios in excess of $7 billion. The portion of this charge paid by the
Portfolio was determined by the proportionate share its net assets bore to
the total net assets of The JPM Pierpont
29
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
Funds, The JPM Institutional Funds, The JPM Advisor Funds and the Master
Portfolios. For the period from December 29, 1995 through July 31, 1996,
Signature's fee for these services amounted to $59,901. The Administration
Agreement with Signature was terminated July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the
Portfolio's exclusive placement agent. Under a Co-Administration Agreement
between FDI and the Portfolio, the Portfolio has agreed to pay FDI fees
equal to its allocable share of an annual complex-wide charge of $425,000
plus FDI's out-of-pocket expenses. The amount allocable to the Portfolio
is based on the ratio of the Portfolio's net assets to the aggregate net
assets of the The JPM Pierpont Funds, The JPM Institutional Funds, The JPM
Advisor Funds and the Master Portfolios. For the period from August 1,
1996 through October 31, 1996, the fee for these services amounted to
$6,419.
c)Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement with Morgan which provided that Morgan would receive a
fee, based on the percentages described below, for overseeing certain
aspects of the administration and operation of the Portfolio and was also
designed to provide an expense limit for certain expenses of the
Portfolio. This fee was calculated exclusive of the advisory fee, custody
expenses, fund services fee and brokerage costs at 0.10% of the
Portfolio's average daily net assets up to and including $200 million,
0.05% of the next $200 million of average daily net assets, and 0.03% of
average daily net assets on any excess over $400 million. From September
1, 1995 until December 28, 1995, an interim agreement between the
Portfolio and Morgan provided for the continuation of the oversight
functions that were outlined under the prior agreement and that Morgan
shall bear all of its expenses incurred in connection with these services.
Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement (the "Services Agreement") with Morgan under which
Morgan was responsible for overseeing certain aspects of the
administration and operation of the Portfolio. Under the Services
Agreement, the Portfolio had agreed to pay Morgan a fee equal to its
proportionate share of an annual complex-wide charge. Until July 31, 1996,
this charge was calculated daily based on the aggregate net assets of the
Master Portfolios in accordance with the following annual schedule: 0.06%
on the first $7 billion of the Master Portfolios' aggregate average daily
net assets and 0.03% of the aggregate average daily net assets in excess
of $7 billion. The portion of this charge paid by the Portfolio was
determined by the proportionate share that the Portfolio's net assets bore
to the net assets of the Master Portfolios and investors in the Master
Portfolios for which Morgan provided similar services. For the period from
December 29, 1995 through July 31, 1996, the fee for these services
amounted to $114,459.
Effective August 1, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios in accordance with the following annual
schedule: 0.09% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets and 0.04% of the Master Portfolio's
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The allocation of the Portfolio's
portion of this charge is described above. For the period from August 1,
1996 through October 31, 1996, the fee for these services amounted to
$76,889.
30
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
d)The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its services
amounted to $36,922 for the fiscal year ended October 31, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represents the Portfolio's allocated portion of the total fees
and expenses. The Portfolio's Chairman and Chief Executive Officer also
serves as Chairman of Group and 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 $4,700.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1996 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
---------------- ----------------
<S> <C> <C>
U.S. Government and Agency
Obligations........................... $ 1,464,482,948 $ 1,131,717,473
Corporate and Collateralized
Obligations........................... 376,740,883 323,216,328
---------------- ----------------
Total.................................. $ 1,841,223,831 $ 1,454,933,801
---------------- ----------------
---------------- ----------------
</TABLE>
31
<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, 1996, 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 the supplementary data for each of the three 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, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
December 18, 1996
32
