<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (11.2%)
FINANCIAL SERVICES (11.2%)
$ 43,371 Advanta Home Equity Loan Trust, Series 1992-2,
Class A1, Callable,
7.15% due 06/25/08............................. Aaa/AAA $ 43,911
6,206,676 Aegis Auto Receivables Trust, Sequential Payer,
Series 1996-3, Class A, Callable, (144A), 8.80%
due 03/20/02(r)................................ NR/NR 4,850,905
2,947,147 American Southwest Financial Corp., Support Bond,
Series 60, Class D, Callable, 8.90% due
03/01/18....................................... NR/AAA 3,078,472
28,113,000 Associates Manufactured Housing Pass Through,
Sequential Payer, Series 1997-1, Class A3,
6.60% due 06/15/28............................. Aaa/AAA 28,363,381
678,860 BA Mortgage Securities, Inc., Remic: Subordinated
Bond, NAS, Series 1997-1, Class B2, Callable,
7.50% due 07/25/26............................. NR/NR 681,830
841,339 BA Mortgage Securities, Inc., Remic: Subordinated
Bond, NAS, Series 1997-1, Class B3, Callable,
(144A), 7.50% due 07/25/26..................... NR/NR 768,511
660,003 Banc One Auto Grantor Trust, Sequential Payer,
Series 1997-A, Class A, Callable, 6.27% due
11/20/03....................................... Aaa/AAA 663,970
850,000 Caterpillar Financial Asset Trust, Sequential
Payer, Series 1997-A, Class A3, Callable, 6.45%
due 05/25/03................................... Aaa/AAA 860,438
2,000,000 Chase Commercial Mortgage Securities Corp.,
Subordinated Bond, Series 1996-2, Class F,
Callable, 6.90% due 11/19/06................... NR/NR 1,886,250
15,699,000 Chemical Mortgage Securities, Inc., Remic:
Sequential Payer, AS, Series 1996-1, Class A7,
Callable, 7.25% due 01/25/26................... Aaa/AAA 15,645,152
59,490 Chevy Chase Auto Receivables Trust, Series
1995-1, Class A, Callable,
6.00% due 12/15/01............................. Aaa/AAA 59,440
6,246,399 Collateralized Mortgage Obligation Trust, Remic:
Accrual Bond, Series 62, Class Z, Callable,
9.50% due 06/25/20............................. Aaa/AAA 6,622,494
2,758,733 Criimi Mae Financial Corp., Sequential Payer,
Series 1, Class A, Callable,
7.00% due 01/01/33............................. NR/AAA 2,712,179
1,425,174 Fleetwood Credit Corp. Grantor Trust, Sequential
Payer, Series 1995-B, Class A, Callable, 6.55%
due 05/15/11................................... Aaa/AAA 1,437,958
8,855,000 GE Capital Mortgage Services, Inc., Remic:
PAC-1(11), AS, Series 1994-17, Class A5,
Callable, 7.00% due 05/25/24................... Aaa/AAA 9,013,770
249,234 GE Capital Mortgage Services, Inc., Remic:
Subordinated Bond, NAS, Series 1997-10, Class
B2, Callable, 6.75% due 09/25/12............... NR/NR 244,763
2,000,000 Green Tree Financial Corp., Sequential Payer,
Series 1992-1, Class A3, Callable, 6.70% due
10/15/17....................................... Aaa/NR 2,015,300
1,824,927 Green Tree Recreational, Equipment & Consumer
Trust, Sequential Payer, Series 1996-A, Class
A1, Callable, 5.55% due 02/15/18............... Aaa/AAA 1,818,028
1,500,000 J.P. Morgan Commercial Mortgage Finance Corp.,
Subordinated Bond, CSTR, Series 1996-C2, Class
E, Callable, 8.731% due 11/25/27............... NR/BB 1,582,500
2,500,000 Merrill Lynch Mortgage Investors, Inc.,
Sequential Payer, Series 1996-C2, Class A3,
Callable, 6.96% due 11/21/28................... NR/AAA 2,557,812
3,596,098 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, Callable, 8.19% due 06/15/21................ Ba3/NR 3,611,831
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 2,000,000 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
Callable, 7.12% due 06/18/29................... NR/BB $ 1,866,562
10,888,395 Midland Realty Acceptance Corp., Sequential
Payer, Series 1996-C2, Class A1, Callable,
7.02% due 01/25/29............................. Aaa/NR 11,119,774
1,000,000 Morgan Stanley Capital, Inc., Subordinated Bond,
Series 1995-GAL1, Class E, Callable, (144A),
8.25% due 08/15/05............................. NR/NR 1,031,250
2,000,000 Morgan Stanley Capital, Inc., Subordinated Bond,
Series 1997-HF1, Class F, Callable, (144A),
6.86% due 02/15/10............................. NR/NR 1,826,250
529,149 Morgan Stanley Mortgage Trust, Remic: Sequential
Payer, Series V, Class 4, Callable, 8.95% due
05/01/17....................................... NR/AAA 551,516
1,500,000 Niantic Bay Fuel Trust, 9.02% due 06/05/98....... NR/NR 1,473,750
4,919,845 PaineWebber Mortgage Acceptance Corp., Remic: PAC
(11), AS, Series 1993-5, Class A2, Callable,
5.50% due 06/25/08............................. NR/AAA 4,896,919
454,275 Prudential Home Mortgage Securities, Remic: PAC
(11), AS, Series 1993-54, Class A2, Callable,
6.50% due 01/25/24............................. Aaa/NR 453,512
5,532,482 Residential Funding Mortgage Securities I, Inc.,
Remic: PAC (11), AS, Series 1994-S12, Class A3,
Callable, 6.50% due 04/25/09................... Aa1/AAA 5,552,177
59,341 The Money Store Home Equity Trust, Sequential
Payer, Series 1992-A, Class A, Callable, 6.95%
due 01/15/07................................... Aaa/AAA 60,224
28,084 Western Financial Grantor Trust, Sequential
Payer, Series 1995-3, Class A1, Callable, 6.05%
due 11/01/00................................... Aaa/AAA 28,128
1,462,133 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1996-A, Class A1,
Callable, 6.30% due 06/25/02................... Aaa/AAA 1,463,420
2,600,000 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1997-A, Class A2,
Callable, 6.75% due 06/25/03................... Aaa/AAA 2,628,437
---------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$121,031,487).............................. 121,470,814
---------------
CONVERTIBLE BONDS (0.1%)
RETAIL (0.1%)
1,100,000 Corporate Express Inc., Callable 07/01/99, 4.50%
due 07/01/00
(cost $934,625)................................ B3/B 980,375
---------------
CORPORATE OBLIGATIONS (25.6%)
AUTOMOTIVE SUPPLIES (0.4%)
1,750,000 Exide Corp., Callable 04/15/00, 10.00% due
04/15/05....................................... B1/NR 1,798,125
2,500,000 Hayes Lemmerz International Inc., Callable
07/15/02, (144A), 9.125% due 07/15/07.......... B3/B 2,550,000
---------------
4,348,125
---------------
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
BANKING (4.0%)
$ 500,000 BT Preferred Capital Trust II, Callable 02/25/07,
7.875% due 02/25/27............................ A2/BBB+ $ 508,195
1,300,000 Chase Manhattan Corp., Series A, 8.65% due
02/13/99....................................... A1/A- 1,343,641
8,300,000 First Union Corp., 6.55% due 10/15/35............ A2/A- 8,386,237
1,000,000 Manufacturers Hanover Corp., 8.50% due
02/15/99....................................... A1/A- 1,031,520
8,000,000 Mellon Capital I, Series A, Callable 12/01/06,
7.72% due 12/01/26............................. A2/BBB+ 8,167,120
6,000,000 NB Capital Trust II, Callable 12/15/06, 7.83% due
12/15/26....................................... A1/A- 6,195,480
3,000,000 Security Pacific Corp., 9.75% due 05/15/99....... A1/A 3,162,690
11,235,000 Swiss Bank Corp. - New York, 7.75% due
09/01/26....................................... Aa2/AA 12,240,195
2,500,000 Wachovia Bank North Carolina, 5.60% due
03/08/99....................................... Aa2/AA+ 2,491,175
---------------
43,526,253
---------------
BROADCASTING & PUBLISHING (0.6%)
1,700,000 Capstar Broadcasting Partners, Callable 07/01/02,
9.25% due 07/01/07............................. B2/B- 1,721,250
2,700,000 Fox Kids Worldwide, Inc., Callable 11/01/02,
(144A), 9.25% due 11/01/07..................... B1/B 2,612,250
2,000,000 Lenfest Communications Inc., 10.50% due
06/15/06....................................... B2/BB- 2,210,000
---------------
6,543,500
---------------
ELECTRIC (4.1%)
2,500,000 Calpine Corp., Callable 07/15/02, (144A), 8.75%
due 07/15/07................................... Ba3/BB- 2,506,250
2,950,000 Central Power & Light Co., Series KK, 6.625% due
07/01/05....................................... A3/A 2,990,857
3,000,000 Duke Energy Corp., Callable 08/01/98, 6.75% due
08/01/25....................................... Aa2/AA- 2,886,600
8,400,000 Idaho Power Co., Series A, Callable 05/01/03,
7.50% due 05/01/23............................. A2/A+ 8,611,428
5,000,000 Pacific Corp., Series H, 6.75% due 07/15/04...... A2/A 5,061,950
4,500,000 Southern Co. Capital Trust I, Callable 02/01/07,
(144A), 8.19% due 02/01/37..................... NA/NA 4,884,975
10,000,000 Virginia Electric & Power Co., Callable 02/01/02,
6.75% due 02/01/07............................. A2/A 10,166,100
7,000,000 Waterford 3 Funding, SLOBS, Sinking Fund, 8.09%
due 01/02/17................................... Baa3/BBB- 7,252,770
---------------
44,360,930
---------------
ELECTRONICS (0.6%)
7,000,000 Sensormatic Electronics Corp., Callable, (144A),
7.74% due 03/29/06............................. NR/NR 6,548,844
---------------
ENTERTAINMENT, LEISURE & MEDIA (0.9%)
2,500,000 Fox/Liberty Networks LLC, Callable 08/15/02,
(144A), 8.875% due 08/15/07.................... B1/B 2,500,000
1,090,000 Jacor Communications Co., Callable 06/15/02,
(144A), 8.75% due 06/15/07..................... B2/B 1,098,175
2,000,000 Jacor Communications Co., Callable 12/15/01,
9.75% due 12/15/06............................. B2/B 2,165,000
1,250,000 Lamar Advertising Co., Callable 09/15/02, (144A),
8.625% due 09/15/07............................ B1/B 1,259,375
2,700,000 Outdoor Systems, Inc., Callable 06/15/02, 8.875%
due 06/15/07................................... B1/B 2,787,750
---------------
9,810,300
---------------
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FINANCIAL SERVICES (3.0%)
$ 3,060,000 Associates Corp. North America, 5.96% due
05/15/37....................................... Aa3/AA- $ 3,092,314
6,000,000 BankBoston Capital Trust II, Series B, Callable
12/15/06, 7.75% due 12/15/26................... Aa/BBB 6,082,020
25,000 Chrysler Financial Corp., Series Q, 6.35% due
06/22/99....................................... A3/A 25,166
2,000,000 First Nationwide Holdings Inc., Callable
01/01/01, (144A), 10.625% due 10/01/03......... Ba3/NA 2,190,000
5,050,000 First Union Institutional Capital I, Callable
12/01/06, 8.04% due 12/01/26................... A1/BBB+ 5,433,598
750,000 Ford Motor Credit Co., 6.50% due 02/28/02........ A1/A+ 756,435
2,000,000 General Motors Acceptance Corp., 6.70% due
06/24/99....................................... A3/A- 2,021,300
750,000 General Motors Acceptance Corp., 6.75% due
02/07/02....................................... A3/A- 765,780
3,000,000 Safeco Corp.,Callable 07/15/07, (144A), 8.072%
due 07/15/37................................... A3/A 3,106,680
750,000 Sears Roebuck Acceptance Corp., Series I, 6.40%
due 10/11/00................................... A2/A- 754,920
1,800,000 Southern Co. Capital Trust II, Callable 02/15/07,
(144A), 8.14% due 02/15/27..................... NA/NA 1,891,260
2,450,000 Sun World International, Inc., Callable 04/15/01,
(144A), 11.25% due 04/15/04.................... B2/B 2,627,625
3,000,000 US Bancorp Capital I, Callable 12/15/06, (144A),
8.27% due 12/15/26............................. NA/NA 3,211,560
---------------
31,958,658
---------------
FOOD, BEVERAGES & TOBACCO (0.4%)
750,000 Coca Cola Enterprises, 6.625% due 08/01/04....... A3/A+ 761,655
2,000,000 Great Atlantic and Pacific Tea Co., (144A), 7.75%
due 04/15/07................................... Baa3/BBB- 2,137,200
2,000,000 Panamerican Beverages, (144A), 7.25% due
07/01/09....................................... Baa3/BBB- 1,961,160
---------------
4,860,015
---------------
FOREST PRODUCTS & PAPER (2.1%)
1,100,000 Buckeye Cellulose Corp., Callable 12/15/00, 8.50%
due 12/15/05................................... Ba3/BB- 1,127,500
5,000,000 Champion International Corp., 7.10% due
09/01/05....................................... Baa1/BBB 5,153,050
5,600,000 Georgia-Pacific Corp., 9.95% due 06/15/02........ Baa2/BBB- 6,358,744
9,150,000 Georgia-Pacific Corp., Callable 04/30/05, 8.625%
due 04/30/25................................... Baa2/BBB- 9,899,476
---------------
22,538,770
---------------
GAS EXPLORATION (0.9%)
5,000,000 National Fuel Gas Co., Series D, 6.214% due
08/12/27....................................... A2/A- 5,041,050
4,400,000 Phillips 66 Capital Trust II, Callable 01/15/07,
8.00% due 01/15/37............................. Baa1/BBB+ 4,682,788
---------------
9,723,838
---------------
HEALTH & PERSONAL CARE (0.1%)
1,200,000 Playtex Products, Inc., Series B, Callable
07/15/01, 8.875% due 07/15/04.................. B1/B+ 1,203,000
---------------
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
HEALTH SERVICES (0.9%)
$ 2,675,000 Genesis Health Ventures, Inc., Callable 06/15/00,
9.75% due 06/15/05............................. B2/B- $ 2,775,312
2,000,000 Mariner Health Group, Inc., Series B, Callable
04/01/01, 9.50% due 04/01/06................... B2/B 2,070,000
1,480,000 Tenet Healthcare Corp., Callable 01/15/02, 8.625%
due 01/15/07................................... Ba3/B+ 1,581,854
1,520,000 Tenet Healthcare Corp., Callable 03/01/00,
10.125% due 03/01/05........................... Ba3/B+ 1,668,200
1,300,000 Vencor Inc., Callable 07/15/02, (144A), 8.625%
due 07/15/07................................... B1/B 1,270,750
---------------
9,366,116
---------------
METALS & MINING (0.1%)
350,000 Oregon Steel Mills, Inc., Callable 06/15/00,
11.00% due 06/15/03............................ B1/BB 384,125
1,000,000 Ryerson Tull, Inc., Callable, 8.50% due
07/15/01....................................... Ba1/BB 1,036,250
---------------
1,420,375
---------------
NATURAL GAS (0.5%)
200,000 BP America, Inc., 7.875% due 05/15/02............ Aa2/AA 213,680
1,378,000 Consolidated Natural Gas Co., Callable 12/10/97,
8.625% due 12/01/11............................ A1/AA- 1,443,386
500,000 Ferrellgas Partners, L.P., Series B, Callable
06/15/01, (144A), 9.375% due 06/15/06.......... B1/B+ 522,500
750,000 Lasmo (USA) Inc., Callable 06/01/03, 8.375% due
06/01/23....................................... Baa2/BBB 794,655
2,500,000 Lomak Petroleum Inc., Callable 01/15/02, 8.75%
due 01/15/07................................... B1/B 2,512,500
---------------
5,486,721
---------------
OIL-PRODUCTION (0.7%)
2,500,000 Nuevo Energy Co., Callable 04/15/01, 9.50% due
04/15/06....................................... B1/B+ 2,631,250
2,500,000 Ocean Energy, Inc., Series B, Callable 07/15/02,
8.875% due 07/15/07............................ B3/B- 2,581,250
2,500,000 Plains Resources Inc., Series B, Callable
03/15/01, 10.25% due 03/15/06.................. NR/NR 2,681,250
---------------
7,893,750
---------------
OIL-SERVICES (0.4%)
4,000,000 Oil Purchase Co., Sinking Fund, (144A), 7.10% due
04/30/02....................................... Baa3/BBB 3,995,000
---------------
PACKAGING & CONTAINERS (0.1%)
710,000 Stone Container Corp., Series B, Callable
12/05/97, 12.25% due 04/01/02.................. B3/B- 734,850
---------------
RAILROADS (0.2%)
750,000 Norfolk Southern Corp., 6.70% due 05/01/00....... Baa1/BBB+ 759,202
1,125,000 SFP Pipeline Holdings Inc., 11.16% due
08/15/10....................................... Baa3/NR 1,811,250
---------------
2,570,452
---------------
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
RETAIL (0.5%)
$ 2,500,000 Federated Department Stores, Inc., 8.50% due
06/15/03....................................... Baa2/BB+ $ 2,718,075
470,000 Proffitt's, Inc., Series B, 8.125% due
05/15/04....................................... Ba2/BB 476,462
2,350,000 Sears Roebuck & Co., Series VI, 8.00% due
02/16/99....................................... A2/A- 2,407,669
---------------
5,602,206
---------------
TELECOMMUNICATION SERVICES (0.5%)
2,500,000 McLeodUSA, Inc., Callable 07/15/02, (144A), 9.25%
due 07/15/07................................... B3/B 2,556,250
2,500,000 Paging Network Inc., Callable 10/15/01, 10.00%
due 10/15/08................................... B2/B 2,556,250
---------------
5,112,500
---------------
TELECOMMUNICATIONS (0.4%)
1,000,000 NEXTLINK Communications, Inc., Callable 10/01/02,
9.625% due 10/01/07............................ B3/B 1,007,500
2,500,000 Qwest Communications International, Inc., Series
B, Callable 04/01/02,
10.875% due 04/01/07........................... B2/B+ 2,800,000
---------------
3,807,500
---------------
TELEPHONE (1.7%)
16,075,000 New York Telephone Co., Callable 02/15/04, 7.25%
due 02/15/24................................... A2/A+ 16,221,604
1,825,000 New York Telephone Co., Callable 08/15/03, 7.00%
due 08/15/25................................... A2/A+ 1,780,853
---------------
18,002,457
---------------
TEXTILES (0.5%)
2,000,000 Collins & Aikman Products Co., Callable 04/15/01,
11.50% due 04/15/06............................ B3/B 2,280,000
2,570,000 Polymer Group, Inc., Series B, Callable 07/01/02,
9.00% due 07/01/07............................. B2/B 2,595,700
---------------
4,875,700
---------------
TRANSPORTATION (0.2%)
2,500,000 Atlantic Express Transportation Corp., Callable
02/01/01, (144A), 10.75% due 02/01/04.......... B2/B 2,625,000
---------------
UTILITIES (1.8%)
2,750,000 Boston Edison, Callable 03/16/03, 7.80% due
03/15/23....................................... Baa2/BBB 2,826,203
6,700,000 Jersey Central Power & Light, Series C, 6.04% due
03/15/00....................................... Baa1/A- 6,681,910
4,350,000 Pacificorp, Series B, 8.90% due 02/15/01......... A2/A 4,674,206
5,000,000 Potomac Electric Power, Callable 09/15/05, 7.375%
due 09/15/25................................... A1/A 5,103,600
---------------
19,285,919
---------------
TOTAL CORPORATE OBLIGATIONS (COST
$267,775,406).............................. 276,200,779
---------------
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FOREIGN CORPORATE OBLIGATIONS (7.3%)
BERMUDA (0.1%)
ENTERTAINMENT, LEISURE & MEDIA
$ 1,250,000 Central European Media Enterprises, Callable
08/15/01, 9.375% due 08/15/04.................. B1/B+ $ 1,224,000
---------------
CANADA (3.1%)
BANKING
4,000,000 Canadian Imperial Bank, 6.20% due 08/01/00....... Aa3/AA- 4,012,440
FINANCIAL SERVICES
5,000,000 McKesson Finance of Canada, (144A), 6.55% due
11/01/02....................................... A3/A 5,031,750
FOOD, BEVERAGES & TOBACCO
1,000,000 Cott Corp., Callable 07/01/00, 8.50% due
05/01/07....................................... Ba3/B+ 1,012,500
FOREST PRODUCTS & PAPER
1,900,000 Canadian Pacific Forest Products Ltd., 9.25% due
06/15/02....................................... Ba1/NR 1,998,458
1,000,000 Canadian Pacific Forest Products Ltd., Series E,
9.86% due 06/30/01............................. NR/BB+ 1,072,690
TELECOMMUNICATIONS
2,000,000 Rogers Cablesystems Limited, (144A), 11.09%,
06/01/00, 11.09% due 06/01/00.................. NR/NR 2,110,000
900,000 Rogers Cablesystems Ltd., Callable 12/01/02,
10.00% due 12/01/07............................ Ba3/BB+ 978,750
1,250,000 Rogers Cantel, Inc., Callable 10/01/02, (144A),
8.30% due 10/01/07............................. Ba3/BB+ 1,245,313
TELECOMMUNICATION SERVICES
300,000 Microcell Telecommunications, Inc., Series B,
Callable 12/01/01, 0.00%, due 06/01/06{*}{*}... NR/NR 198,375
TELEPHONE
600,000 Call-Net Enterprises, Inc., Callable 08/15/02,
0.00% due 08/15/07{*}{*}....................... B1/BB- 396,750
TRANSPORT & SERVICES
7,000,000 Laidlaw, Inc., 6.72% due 10/01/27................ Baa2/BBB+ 7,285,180
2,500,000 Teekay Shipping Corp., Sinking Fund, 8.32% due
02/01/08....................................... Ba2/BB 2,568,750
WATER
4,500,000 Hydro Quebec, 8.875% due 03/01/26................ A2/A+ 5,476,230
---------------
33,387,186
---------------
CHILE (0.5%)
FOREST PRODUCTS & PAPER
5,000,000 Celulosa Arauco y Constitucion SA, 6.75% due
12/15/03....................................... Baa2/BBB+ 4,930,550
---------------
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
CHINA (0.2%)
FINANCIAL SERVICES
$ 1,700,000 Guangdong International Trust & Investment Corp.,
(144A), 8.75% due 10/24/16..................... Baa2/BBB- $ 1,764,804
---------------
FRANCE (0.1%)
ELECTRICAL EQUIPMENT
1,000,000 Legrand SA, 8.50% due 02/15/25................... A2/A 1,178,380
---------------
INDONESIA (0.5%)
FINANCIAL SERVICES
1,500,000 Indah Kiat Finance Co. Mauritius, Callable
07/01/02, (144A),
10.00% due 07/01/07............................ Ba3/BB- 1,336,875
4,700,000 Sampoerna Intl., (144A), 8.375% due 06/15/06..... Baa3/BBB 4,306,610
---------------
5,643,485
---------------
MALAYSIA (0.5%)
GAS EXPLORATION
5,740,000 Petroliam Nasional Berhad, (144A), 7.75% due
08/15/15....................................... A1/A+ 5,245,212
---------------
MEXICO (1.4%)
BROADCASTING & PUBLISHING
2,570,000 Grupo Televisa, (144A), 11.375% due 05/15/03..... Ba3/BB 2,724,200
ELECTRICAL EQUIPMENT
1,800,000 Axa SA de CV, (144A), 9.00% due 08/04/04......... B1/BB 1,746,000
FOREST PRODUCTS & PAPER
7,000,000 Copamex Industrias SA de CV, Callable 04/30/02,
(144A),
11.375% due 04/30/04........................... B1/NR 7,385,000
INDUSTRIAL
2,450,000 Grupo Imsa, SA de CV, Callable 09/30/02, 8.93%
due 09/30/04................................... NR/BB 2,327,500
RAILROADS
1,500,000 TFM SA de CV, (144A), 10.25% due 06/15/07........ B2/B+ 1,500,000
---------------
15,682,700
---------------
NETHERLANDS (0.0%){*}
FINANCIAL SERVICES
450,000 Ford Capital BV, 9.00% due 08/15/98.............. A1/A+ 461,727
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
PHILIPPINES (0.3%)
TELEPHONE
$ 1,250,000 Philippine Long Distance Telephone, 10.625% due
06/02/04....................................... Ba2/BB+ $ 1,340,625
2,570,000 Philippine Long Distance Telephone, Series EMTN,
7.85% due 03/06/07............................. Ba2/BB+ 2,219,940
---------------
3,560,565
---------------
SWEDEN (0.1%)
MISCELLANEOUS
1,500,000 Stena AB, 8.75% due 06/15/07..................... Ba2/BB- 1,500,000
---------------
UNITED KINGDOM (0.5%)
BANKING
500,000 Abbey National First Capital, 8.20% due
10/15/04....................................... Aa3/AA- 548,515
ELECTRIC
5,000,000 National Power Co. PLC, 6.25% due 12/01/03....... A2/A 4,934,375
---------------
5,482,890
---------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$79,777,657)............................... 80,061,499
---------------
SOVEREIGN BONDS (1.6%)
ARGENTINA (0.3%)
3,000,000 Province of Mendoza, 10.00% due 09/04/07......... NR/NR 2,850,000
43,200 Republic of Argentina, FRB, Callable 03/31/98,
Sinking Fund,
6.688% due 03/31/05............................ Ba3/BB 37,087
---------------
2,887,087
---------------
BRAZIL (0.1%)
1,710,390 Republic of Brazil C Bonds, Callable 04/15/98,
Sinking Fund,
8.00% due 04/15/14{*}{*}....................... B1/BB- 1,162,210
---------------
MEXICO (0.6%)
3,814,000 Petroleos Mexicanos, (144A), 7.75% due
10/29/99....................................... Ba2/BB 3,785,395
2,650,000 United Mexican States Global Bonds, 11.50% due
05/15/26(a).................................... Ba2/BB 2,819,070
---------------
6,604,465
---------------
POLAND (0.3%)
3,670,000 Republic of Poland, 4.00% due 10/27/14{*}{*}..... Baa3/BBB- 3,000,225
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
RUSSIA (0.1%)
$ 1,500,000 City of Moscow, (144A), 9.50% due 05/31/00....... Ba2/BB- $ 1,441,875
---------------
VENEZUELA (0.2%)
2,750,000 Republic of Venezuela, 9.25% due 09/15/27(a)..... Ba2/B+ 2,265,313
---------------
TOTAL SOVEREIGN BONDS (COST $17,297,022)..... 17,361,175
---------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (31.6%)
FEDERAL HOME LOAN MORTGAGE CORP.
110,502 7.00% due 09/01/09............................... 112,017
689,027 7.00% due 10/01/10............................... 698,564
7,830,000 7.00% due 03/15/11............................... 7,949,642
14,244,083 7.50% due 10/01/26............................... 14,554,461
1,393,291 8.00% due 11/01/26............................... 1,443,408
2,511,897 8.00% due 12/01/26............................... 2,602,502
11,282 9.00% due 04/01/03............................... 11,695
7,738,266 9.25% due 06/01/16............................... 8,223,223
178,524 9.50% due 08/01/04............................... 186,388
341,743 9.50% due 11/01/05............................... 356,848
1,791,483 9.50% due 12/01/05............................... 1,870,736
367,648 9.50% due 02/01/06............................... 383,912
488,562 9.50% due 03/01/06............................... 510,235
19,634 10.00% due 04/01/09.............................. 21,091
1,062 12.50% due 08/01/14.............................. 1,191
4,670,241 Gold, 6.50% due 06/01/04......................... 4,668,781
11,000,000 Gold, 8.506% due 12/01/04........................ 12,165,313
300,000 Remic: Accretion Directed, Series 1290, Class L,
7.50% due 10/15/09............................. 315,066
300,000 Remic: PAC, Series 102, Class I, 7.00% due
12/15/20....................................... 302,163
32,000 Remic: PAC-1(11), Series 1168, Class H, 7.50% due
11/15/21....................................... 33,459
250,000 Remic: PAC-1(11), Series 1199, Class E, 7.50% due
10/15/19....................................... 255,638
415,000 Remic: PAC-1(11), Series 1207, Class J, 6.75% due
07/15/19....................................... 413,336
247,202 Remic: PAC-1(11), Series 1215, Class F, 6.75% due
05/15/05....................................... 248,154
35,760,000 Remic: PAC-1(11), Series 1542, Class J, 7.00% due
02/15/22....................................... 36,624,319
13,000,000 Remic: PAC-1(11), Series 1594, Class H, 6.00% due
10/15/08....................................... 12,723,100
31,500,000 Remic: PAC-1(11), Series 1684, Class G, 6.50% due
03/15/23....................................... 31,831,065
7,500,000 Remic: PAC-1(11), Series 1714, Class K, 7.00% due
04/15/24....................................... 7,712,925
200,000 Remic: PAC-2(11), Series 39, Class F, 10.00% due
05/15/20....................................... 218,686
1,600,000 Remic: SCH(22), Series 1701, Class B, 6.50% due
03/15/09....................................... 1,582,864
---------------
148,020,782
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
$ 2,851,384 6.88% due 11/01/05............................... $ 2,940,347
4,996,979 7.50% due 11/01/26............................... 5,101,516
10,662,901 7.50% due 01/01/27............................... 10,885,755
6,876,893 7.50% due 02/01/27............................... 7,020,483
3,001,682 7.50% due 03/01/27............................... 3,064,477
40,057 8.00% due 01/01/02............................... 41,318
45,052 8.00% due 05/01/02............................... 46,481
284,224 8.00% due 07/01/02............................... 293,218
5,130 8.00% due 08/01/22............................... 5,300
3,101,614 8.00% due 12/01/26............................... 3,210,605
15,430 8.50% due 06/01/10............................... 16,068
23,686,971 8.50% due 09/01/10............................... 24,588,734
6,779,813 8.50% due 12/01/26............................... 7,085,108
4,327,174 8.70% due 02/01/05............................... 4,735,551
1,725,672 9.50% due 06/01/05............................... 1,820,290
7,318,854 10.00% due 11/01/18.............................. 7,938,103
440,309 10.00% due 06/01/20.............................. 475,353
3,631,647 TBA November, 8.00% due 11/01/27................. 3,766,699
---------------
83,035,406
---------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
407,646 7.00% due 12/15/08............................... 415,082
174,850 7.00% due 07/15/22............................... 175,757
503,681 7.00% due 11/15/22............................... 506,300
727,107 7.00% due 01/15/23............................... 730,873
324,443 7.00% due 03/15/23............................... 326,130
822,181 7.00% due 07/15/23............................... 826,445
321,234 7.00% due 09/15/23............................... 322,915
1,171,264 7.00% due 10/15/23............................... 1,177,379
58,439 7.00% due 12/15/23............................... 58,744
3,428,973 7.00% due 01/15/24............................... 3,446,721
1,807,326 7.00% due 02/15/24............................... 1,816,756
471,032 7.00% due 03/15/24............................... 473,475
4,391,584 7.00% due 04/15/24............................... 4,414,467
2,458,438 7.00% due 05/15/24............................... 2,471,284
849,320 7.00% due 06/15/24............................... 853,748
6,568,289 7.00% due 02/15/31............................... 6,570,325
7,786,965 7.00% due 05/15/35............................... 7,789,379
5,239,903 7.125% due 01/15/31.............................. 5,264,426
5,942,229 7.125% due 04/15/31.............................. 6,059,113
5,155,951 7.25% due 02/15/27............................... 5,201,014
2,596,089 7.25% due 01/15/31............................... 2,618,779
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 89,530 7.50% due 03/15/23............................... $ 91,469
46,513 7.50% due 04/15/23............................... 47,540
193,726 7.50% due 05/15/23............................... 197,949
112,731 7.50% due 06/15/23............................... 115,146
929,933 7.50% due 09/15/23............................... 950,294
485,253 7.50% due 11/15/23............................... 495,837
187,288 7.50% due 01/15/24............................... 191,380
6,345,753 7.50% due 05/15/26............................... 6,456,677
8,561,094 7.50% due 01/15/27............................... 8,752,948
4,977,010 7.50% due 02/15/27............................... 5,088,793
2,810,085 7.50% due 05/15/31............................... 2,859,233
5,497,353 7.625% due 05/15/31.............................. 5,655,292
1,509,259 7.75% due 06/15/23............................... 1,558,234
8,571,253 7.75% due 07/15/31............................... 8,849,648
3,319,088 7.875% due 12/15/99.............................. 3,447,636
254,259 8.00% due 03/15/17............................... 263,333
2,296,305 8.00% due 06/15/31............................... 2,399,570
224,319 9.00% due 03/15/17............................... 238,117
17,751 11.00% due 05/15/16.............................. 19,681
14,739 11.50% due 07/15/13.............................. 16,539
9,628,994 12.00% due 05/15/16.............................. 10,924,286
---------------
110,138,714
---------------
OTHER GOVERNMENT AGENCY
115,722 Resolution Trust Corp., Remic: Collateral Strip
Interest, Series 1991-6, Class A1, Callable,
6.89% due 05/25/19............................. 110,370
---------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $334,843,846)........................ 341,305,272
---------------
U.S. TREASURY OBLIGATIONS (18.5%)
U.S. TREASURY BONDS
19,660,000 6.50% due 11/15/26............................... 20,518,356
1,050,000 6.625% due 02/15/27.............................. 1,112,097
2,390,000 10.375% due 11/15/12............................. 3,155,254
1,525,000 11.625% due 11/15/04............................. 2,021,708
---------------
26,807,415
---------------
U.S. TREASURY NOTES
240,000 5.00% due 01/31/99............................... 238,186
6,295,000 5.625% due 11/30/98.............................. 6,296,259
3,220,000 5.75% due 12/31/98............................... 3,224,347
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
U.S. TREASURY NOTES (CONTINUED)
$ 15,700,000 5.75% due 09/30/99............................... $ 15,727,004
10,145,000 5.75% due 08/15/03............................... 10,098,232
10,675,000 5.875% due 10/31/98.............................. 10,703,929
3,520,000 5.875% due 11/15/05.............................. 3,509,898
5,393,000 6.375% due 04/30/99,(b).......................... 5,449,680
11,190,000 6.625% due 06/30/01,(c).......................... 11,492,913
3,250,000 6.625% due 05/15/07.............................. 3,415,360
14,165,000 6.875% due 05/15/06.............................. 15,051,871
6,020,000 7.875% due 08/15/01.............................. 6,442,303
2,650,000 7.875% due 11/15/04.............................. 2,950,802
12,000,000 8.25% due 07/15/98............................... 12,223,560
42,370,000 8.50% due 11/15/00,(b),(c)....................... 45,545,208
20,500,000 8.875% due 11/15/98,(b).......................... 21,164,200
---------------
173,533,752
---------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$197,451,552).............................. 200,341,167
---------------
CERTIFICATE OF DEPOSIT-DOMESTIC (0.5%)
BANKING (0.5%)
5,000,000 Mercantile Safe Deposit & Trust, 6.16% due
08/16/99 (cost $5,000,000)..................... A1/AA- 5,016,563
---------------
SHARES
- -------------
CONVERTIBLE PREFERRED STOCKS (1.3%)
NATURAL GAS (0.1%)
36,000 Lasmo PLC, Series A, Callable 06/16/98, 10.00%... Baa3/BBB- 954,000
---------------
INDUSTRIAL PRODUCTS & SERVICES (1.2%)
12,575 Home Ownership Funding, (144A), 13.331%.......... Aaa/NA 12,475,720
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$13,389,078)............................... 13,429,720
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION
- ------------- -------------------------------------------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (1.3%)
REPURCHASE AGREEMENT (1.3%)
$ 14,187,000 Goldman Sachs Repurchase Agreements, 5.70% dated
10/31/97 due 11/03/97, proceeds $14,193,739
(collateralized by $14,209,000 U.S. Treasury
Notes, 5.875% due 07/31/99, valued at
$14,471,049) (cost $14,187,000)................ $ 14,187,000
---------------
TOTAL INVESTMENTS (COST $1,051,687,673) (99.0%)................ 1,070,354,364
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%)................... 11,200,575
---------------
NET ASSETS (100.0%)............................................ $ 1,081,554,939
---------------
---------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $1,051,708,587 for Federal Income Tax
purposes at October 31, 1997, the aggregate gross unrealized appreciation and
depreciation was $23,302,451 and $4,656,674, respectively, resulting in net
unrealized appreciation of $18,645,777.
(a) All or a portion of the total par value represents a delayed settlement
security.
(b) All or a portion of the security has been segregated as collateral for
futures contracts.
(c) All or a portion of the security has been segregated as collateral for TBA
and delayed settlement securities.
(r) Fair valued
Approximately 0.45% of the net assets of the fund are represented by securities
which have been valued at fair value. (see Note 1a)
* Less than 0.1%.
** Rate shown reflects current rate on variable rate instrument or instrument
with step coupon rates.
Abbreviations used in the schedule of investments are as follows:
144A -- Securities restricted for resale to Qualified Institutional Buyers.
AS -- Accelerated Security
C -- Debt instrument with a fixed interest rate that pays a portion in interest
and a portion capitalizes increasing the principal
CSTR -- Collateral Strip Rate
FRB -- Floating Rate Bond
NAS -- Non-accelerated security
NR -- Not Rated
PAC -- Planned Amortization Class
Remic -- Real Estate Mortgage Investment Conduit
SCH -- Schedule Payment
SLOBS -- Secured Lease Obligation Bonds
TBA -- Security purchased on a forward commitment basis with an appropriate
amount and no definitive date. The actual principal amount and maturity will be
determined upon settlement date.
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $1,051,687,673 ) $1,070,354,364
Cash 361
Foreign Currency at Value (Cost $679,634 ) 690,235
Receivable for Investments Sold 6,086,574
Interest Receivable 15,369,431
Variation Margin Receivable 28,438
Prepaid Trustees' Fees 4,361
Prepaid Expenses and Other Assets 5,305
--------------
Total Assets 1,092,539,069
--------------
LIABILITIES
Payable for Investments Purchased 10,594,201
Advisory Fee Payable 272,981
Custody Fee Payable 56,844
Administrative Services Fee Payable 27,393
Administration Fee Payable 2,335
Fund Services Fee Payable 1,729
Accrued Expenses 28,647
--------------
Total Liabilities 10,984,130
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,081,554,939
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $67,262,311
Dividend Income (Net of Foreign Withholding Tax
of $13,499) 1,305,574
-----------
Investment Income 68,567,885
EXPENSES
Advisory Fee $ 2,908,384
Administrative Services Fee 300,675
Custodian Fees and Expenses 208,208
Professional Fees and Expenses 37,001
Fund Services Fee 35,577
Administration Fee 23,296
Trustees' Fees and Expenses 15,454
Miscellaneous 18,084
-----------
Total Expenses 3,546,679
-----------
NET INVESTMENT INCOME 65,021,206
NET REALIZED GAIN ON
Investment Transactions (including $1,205,617
net realized loss from futures contracts) 6,888,678
Foreign Currency Transactions 137,540
-----------
Net Realized Gain 7,026,218
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments (including $78,943 net unrealized
appreciation from futures contracts) 10,956,038
Foreign Currency Contracts and Translations 10,601
-----------
Net Change in Unrealized Appreciation 10,966,639
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $83,014,063
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<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, 1997 OCTOBER 31, 1996
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 65,021,206 $ 51,059,862
Net Realized Gain on Investment and Foreign
Currency Transactions 7,026,218 2,643,598
Net Change in Unrealized Appreciation
(Depreciation) of Investment and Foreign
Currency Translations 10,966,639 (9,807,630)
---------------- ----------------
Net Increase in Net Assets Resulting from
Operations 83,014,063 43,895,830
---------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 464,045,823 513,960,050
Withdrawals (451,810,195) (153,430,627)
---------------- ----------------
Net Increase from Investors' Transactions 12,235,628 360,529,423
---------------- ----------------
Total Increase in Net Assets 95,249,691 404,425,253
NET ASSETS
Beginning of Fiscal Year 986,305,248 581,879,995
---------------- ----------------
End of Fiscal Year $ 1,081,554,939 $ 986,305,248
---------------- ----------------
---------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR ENDED JULY 12, 1993
OCTOBER 31, (COMMENCEMENT OF
------------------------- OPERATIONS) TO
1997 1996 1995 1994 OCTOBER 31, 1993
---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.37% 0.37% 0.39% 0.46% 0.48%(a)
Net Investment Income 6.70% 6.38% 6.68% 5.88% 4.91%(a)
Portfolio Turnover 93% 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.
33
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
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, open-end
management investment company which was organized as a trust under the laws of
the State of New York on January 29, 1993. 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.
Investments in emerging markets may involve certain considerations and risks not
typically associated with investments in the United States. Future economic and
political developments in emerging market countries could adversely affect the
liquidity or value, or both, of such securities in which the Portfolio is
invested. The ability of the issuers of debt securities and mortgage and
asset-backed securities held by the Portfolio to meet their obligations may be
affected by economic and political developments in a specific industry or
region. The value of mortgage and asset-backed securities can be significantly
affected by changes in interest rates and rapid principal payments including
pre-payments.
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, indications as to value from dealers and general market
conditions. Securities listed on a foreign exchange are valued at the last
quoted sale price available before the time when net assets are valued. If
such prices are not supplied by the Portfolio's independent pricing
services, such securities are valued in accordance with procedures adopted
by the Trustees. Such procedures may include the use of independent
pricing services or affiliated advisor pricing, which use prices based
upon yields or prices of securities of comparable quality, coupon,
maturity and type and indications as to values from dealers, operating
data, and general market conditions. All short-term portfolio securities
with a remaining maturity of less than 60 days are valued using the
amortized cost method.
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
34
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
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) The books and records of the Portfolio are maintained in U.S. dollars. The
market values of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expenses are
translated at the exchange rates prevailing on the respective dates of
such transactions. Translation gains and losses resulting from changes in
exchange rates during the reporting period and gains and losses realized
upon settlement of foreign currency transactions are reported in the
Statement of Operations.
Although the net assets of the Portfolio are presented at the exchange
rates and market values prevailing at the end of the period, the Portfolio
does not isolate the portion of the results of operations arising as a
result of changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of securities during the period.
c) 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. Dividend income is recorded on the
ex-dividend date or at the time that the relevant ex-dividend date and
amount become known. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
d) 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. The
change in the market value is recorded by the Portfolio as unrealized
appreciation or depreciation of foreign forward and spot currency
contracts until terminated, at which time realized foreign currency gains
and losses are recognized. There were no open forward contracts as of
October 31, 1997.
e) Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place will be fixed when
the Portfolio enters into the contract. Upon entering into such a contract
the Portfolio is required to pledge to the broker an amount of cash and/or
liquid securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the Portfolio agrees to receive
from, or pay to, the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are
known as "variation margin" and are recorded by the Portfolio as
unrealized gains or losses. When the contract is closed the Portfolio
records a realized gain or loss equal to the difference
35
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
between the value of the contract at the time it was opened and the value
at the time when it was closed. The Portfolio invests in futures contracts
for the purpose of hedging its existing portfolio securities, or
securities the Portfolio intends to purchase, against fluctuations in
value caused by changes in prevailing market interest rates or securities
movements. The use of futures transactions involves the risk of imperfect
correlation of movements in the price of futures contracts, interest rates
and the underlying hedged assets. Futures transactions during the fiscal
year ended October 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF PRINCIPAL AMOUNT
CONTRACTS OF CONTRACTS
--------- ----------------
<S> <C> <C>
Contracts open at beginning of year.............. 0 $ 0
Contracts opened-long............................ 670 74,484,370
Contracts closed-long............................ (579) (63,782,656)
Contracts opened-short........................... (986) (109,037,435)
Contracts closed-short........................... 986 109,037,435
--------- ----------------
Contracts open at end of year.................... 91 $ 10,701,714
--------- ----------------
--------- ----------------
</TABLE>
SUMMARY OF OPEN CONTRACTS AT OCTOBER 31, 1997
<TABLE>
<CAPTION>
NET UNREALIZED
CONTRACTS LONG APPRECIATION
-------------- --------------
<S> <C> <C>
U.S. Long Bond, expiring December 1997........... 91 $ 78,943
-------------- --------------
Totals........................................... 91 $ 78,943
-------------- --------------
-------------- --------------
</TABLE>
f) 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. The Portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
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, 1997, this
fee amounted to $2,908,384.
b) The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the Portfolio,
FDI provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the Portfolio and pays the compensation of the officers
affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The
36
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
amount allocable to the Portfolio is based on the ratio of the Portfolio's
net assets to the aggregate net assets of the Portfolio and certain other
investment companies subject to similar agreements with FDI. For the
fiscal year ended October 31, 1997, the fee for these services amounted to
$23,296.
c) The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing
certain aspects of the administration and operation of the Portfolio.
Under the Services Agreement, the Portfolio has agreed to pay Morgan a fee
equal to its allocable share of an annual complex-wide charge. This charge
is calculated based on the aggregate average daily net assets of the
Portfolio and certain other portfolios for which Morgan acts as investment
advisor (the "Master Portfolios") and JPM Series Trust in accordance with
the following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their aggregate average
daily net assets in excess of $7 billion, less the complex-wide fees
payable to FDI. The portion of this charge payable by the Portfolio is
determined by the proportionate share that its net assets bear to the net
assets of the Master Portfolios, certain other investors in the Master
Portfolios for which Morgan provides similar services and JPM Series
Trust. For the fiscal year ended October 31, 1997, the fee for these
services amounted to $300,675.
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 $35,577 for the fiscal year ended October 31, 1997.
e) An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the Portfolio's allocated
portion of the total fees and expenses. Prior to April 1, 1997, the
aggregate annual Trustee Fee was $65,000. The Portfolio's Chairman and
Chief Executive Officer also serves as Chairman of Group and receives
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 $7,150.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1997, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $617,458,842 $164,622,898
Corporate and Collateralized Obligations......... 343,673,696 702,924,509
------------ ------------
$961,132,538 $867,547,407
------------ ------------
------------ ------------
</TABLE>
37
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
4. CREDIT AGREEMENT
The Portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the Fund's Notes to the Financial
Statements which are included elsewhere in this report.
38
<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, 1997, 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 four 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, 1997 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 19, 1997
39
