<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
CERTIFICATES OF DEPOSIT-FOREIGN (0.3%)
CANADA (0.3%)
$ 4,000,000 Canadian Imperial Bank of Commerce, 6.200% due
08/01/00(s) (cost $4,000,481).................. Aa3/AA- $ 4,020,800
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (12.4%)
FINANCIAL SERVICES (12.4%)
20,999,947 AFC Home Equity Loan Trust, NAS, Series 1997-3,
Class 1A5, Callable, 6.900% due 09/27/27....... Aaa/AAA 21,209,947
2,109,366 American Southwest Financial Corp., Support Bond,
Series 60, Class D, Callable, 8.900% due
03/01/18....................................... NR/AAA 2,135,733
2,253,150 Bear Stearns Structured Securities Inc.,
Sequential Payer, Series 1997-2, Class 1A5,
Callable, (144A), 7.000% due 08/25/36.......... Aaa/NR 2,213,368
2,000,000 Chase Commercial Mortgage Securities Corp.,
Subordinated Bond, Series 1996-2, Class F,
Callable, (144A), 6.900% due 11/19/06(s)....... NR/NR 1,659,375
16,090,000 Citibank Credit Card Master Trust I, PO, Series
1997-6, Class A, Callable, 5.937% due
08/15/06(y).................................... Aaa/AAA 11,806,037
4,700,000 COMM, Sequential Payer, Series 1999-1, Class A2,
Partially Callable, 6.455% due 09/15/08(s)..... Aaa/NR 4,697,430
1,002,076 Countrywide Home Loans, Sequential Payer, Series
1997-4, Class A, Callable, 8.000% due
08/25/27....................................... Aaa/NR 1,022,428
5,089,000 CS First Boston Mortgage Securities Corp.,
Subordinated Bond, Series 1997-C2, Class B,
Callable, 6.720% due 11/17/07(s)............... Aa2/NR 5,108,084
2,452,000 First Union-Lehman Brothers Commercial Mortgage,
Subordinated Bond, Series 1997-C2, Class E,
Partially Callable, 7.120% due 11/18/12........ Baa3/BBB- 2,136,305
1,500,000 J.P. Morgan Commercial Mortgage Finance Corp.,
Subordinated Bond, CSTR, Series 1996-C2, Class
E, Callable, (144A), 8.684% due 11/25/27(v).... NR/BB 1,328,203
2,467,787 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, Callable, 7.765% due 06/15/21(v)............ Ba3/NR 2,300,055
2,000,000 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
Partially Callable, 7.120% due 06/18/29........ NR/BB 1,471,875
8,577,910 Midland Realty Acceptance Corp., Sequential
Payer, Series 1996-C2, Class A1, Callable,
7.020% due 01/25/29............................ Aaa/NR 8,742,767
34,000,000 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1997-XL1, Class A3, Partially Callable,
6.950% due 10/03/30(s)......................... Aaa/AAA 34,903,125
5,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, CSTR, Series 1997-RR, Class D, Callable,
(144A), 7.759% due 04/30/39(v)................. NR/NR 3,861,719
1,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1995-GAL1, Class E, Callable,
(144A), 8.250% due 08/15/05.................... NR/NR 884,375
2,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-HF1, Class F, Partially
Callable, (144A), 6.860% due 02/15/10.......... NR/NR 1,537,500
1,823,528 Mortgage Capital Funding, Inc., Sequential Payer,
Series 1997-MC2, Class A1, Partially Callable,
6.525% due 01/20/07............................ Aaa/NR 1,848,031
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 48,090,000 Nationslink Funding Corp., Sequential Payer,
Series 1999-1, Class A2, Partially Callable,
6.316% due 11/20/08(t)......................... Aaa/AAA $ 47,721,810
19,770,000 Nomura Asset Securities Corp., Sequential Payer,
Series 1998-D6, Class A1B, Partially Callable,
6.590% due 03/17/28............................ Aaa/AAA 19,853,405
13,020,000 Nomura Asset Securities Corp., Sequential Payer,
Series 1998-D6, Class A1C, Partially Callable,
6.690% due 03/17/28............................ Aaa/AAA 12,881,662
1,150,000 Vendee Mortgage Trust, Sequential Payer, Series
1997-1, Class 2C, Partially Callable, 7.500%
due 09/15/17................................... NR/NR 1,167,963
---------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$195,034,258).............................. 190,491,197
---------------
CONVERTIBLE BONDS (0.1%)
RETAIL (0.1%)
1,100,000 Corporate Express, Inc., Callable 07/01/99,
4.500% due 07/01/00 (cost $934,625)............ B3/B- 980,375
---------------
CORPORATE OBLIGATIONS (22.4%)
APPARELS & TEXTILES (0.3%)
500,000 Collins & Aikman Products Co., Callable 04/15/01,
11.500% due 04/15/06........................... B2/B 516,250
2,570,000 Polymer Group, Inc., Series B, Callable 07/01/02,
9.000% due 07/01/07(s)......................... B2/B 2,634,250
1,000,000 Westpoint Stevens, Inc., Callable, 7.875% due
06/15/05....................................... Ba3/BB 1,022,500
---------------
4,173,000
---------------
AUTOMOTIVE SUPPLIES (0.1%)
1,000,000 Federal-Mogul Corp., Callable, 7.750% due
07/01/06....................................... Ba2/BB+ 1,001,920
---------------
BANKING (1.4%)
2,750,000 FCB/SC Capital Trust I, Callable 03/15/08, 8.250%
due 03/15/28................................... NR/NR 2,763,887
8,300,000 First Union Corp., Putable, 6.550% due
10/15/35(s).................................... A2/A- 8,457,119
10,800,000 Swiss Bank Corp.-New York, 7.000% due
10/15/15(t).................................... Aa2/AA 10,819,008
---------------
22,040,014
---------------
BROADCASTING & PUBLISHING (0.3%)
1,700,000 Capstar Broadcasting Partners, Callable 07/01/02,
9.250% due 07/01/07............................ B2/B- 1,819,000
2,700,000 Fox Family Worldwide, Inc., Callable 11/01/02,
9.250% due 11/01/07(s)......................... B1/B 2,619,000
---------------
4,438,000
---------------
BUILDING MATERIALS (0.7%)
11,000,000 Armstrong World, Inc., 6.350% due 08/15/03(s).... Baa1/A- 11,009,790
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
CHEMICALS (0.2%)
$ 3,500,000 Arco Chemical Co., 9.800% due 02/01/20........... Ba3/BB $ 3,440,290
---------------
ELECTRIC (1.8%)
494,000 Calpine Corp., 7.875% due 04/01/08............... Ba2/BB 498,940
6,250,000 East Coast Power LLC, Callable, (144A), 7.536%
due 06/30/17................................... Baa3/BBB- 6,197,625
10,000,000 Pacific Corp., Series G, Callable, 6.710% due
01/15/26(s).................................... Aaa/AAA 9,849,300
5,000,000 PECO Energy Co., 8.000% due 04/01/02(s).......... Baa1/BBB+ 5,285,250
5,735,000 Scana Corp., Series B, MTN, 5.810% due
10/23/08(t).................................... A3/A 5,513,055
---------------
27,344,170
---------------
ELECTRONICS (0.4%)
7,000,000 Sensormatic Electronics Corp., Callable, (144A),
7.740% due 03/29/06(s)......................... NR/BB+ 6,573,140
---------------
ENERGY SOURCE (0.7%)
506,000 Cogentrix Energy, Inc., Callable, 8.750% due
10/15/08....................................... Ba1/BB+ 546,480
9,825,000 Florida Power & Light Co., Callable, 6.000% due
06/01/08....................................... Aa3/AA- 9,721,543
---------------
10,268,023
---------------
ENTERTAINMENT, LEISURE & MEDIA (0.4%)
2,500,000 Fox/Liberty Networks LLC, Callable 08/15/02,
8.875% due 08/15/07(s)......................... B1/B 2,728,125
1,090,000 Jacor Communications Co., Series B, Callable
06/15/02, 8.750% due 06/15/07.................. B2/BB+ 1,160,850
1,100,000 Lamar Advertising Co., Callable 09/15/02, 8.625%
due 09/15/07................................... B1/B 1,152,250
1,000,000 Outdoor Systems, Inc., Callable 06/15/02, 8.875%
due 06/15/07(s)................................ B1/B 1,065,000
---------------
6,106,225
---------------
FINANCIAL SERVICES (8.1%)
13,000,000 Associates Corp. N.A., 5.875% due 07/15/02(s).... Aa3/AA- 13,004,290
3,060,000 Associates Corp. N.A., Putable, 5.960% due
05/15/37....................................... Aa3/AA- 3,078,238
9,600,000 Cendant Corp., Callable, 7.500% due 12/01/00..... Baa1/BBB 9,731,808
3,400,000 Commercial Credit Co., Putable, 8.700% due
06/15/10(s).................................... Aa3/A+ 3,993,844
5,000,000 Enterprise Rent-a-Car USA Finance Co., (144A),
6.375% due 05/15/03(s)......................... Baa2/BBB+ 4,923,600
4,000,000 FCB/NC Capital Trust I, Callable 03/01/08, 8.050%
due 03/01/28(s)................................ Baa3/BB+ 3,932,000
1,000,000 Golden State Holdings Co., Callable, 7.125% due
08/01/05....................................... Ba1/BB+ 980,550
17,500,000 Household Finance Corp., 5.875% due
02/01/09(s)(t)................................. A2/A 16,607,150
2,525,000 Household Finance Corp., 6.500% due 11/15/08..... A2/A 2,511,845
2,500,000 Keystone Financial Mid-Atlantic Funding, MTN,
6.500% due 05/31/08(s)......................... Baa2/BBB+ 2,432,500
1,900,000 Nationwide Financial Services, Inc., Callable
03/01/07, 8.000% due 03/01/27(s)............... A1/A+ 2,021,334
10,000,000 NGC Corp. Capital Trust, Series B, Callable,
8.316% due 06/01/27(t)......................... Baa3/BBB- 10,183,600
13,000,000 Norwest Financial, Inc., 7.200% due
04/01/04(s).................................... Aa3/A+ 13,630,890
5,000,000 Phillips 66 Capital Trust II, Callable 01/15/07,
8.000% due 01/15/37(s)......................... Baa1/BBB 5,259,350
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 4,100,000 Provident Financing Trust I, 7.405% due
03/15/38(s).................................... A3/BBB- $ 4,086,429
3,000,000 Safeco Capital Trust I, Callable 07/15/07, 8.072%
due 07/15/37................................... A3/A 2,978,610
1,250,000 Sears Roebuck Acceptance Corp., Series 3, MTN,
6.600% due 10/09/01(s)......................... A2/A- 1,272,725
2,450,000 Sun World International, Inc., Series B, Callable
04/15/01, 11.250% due 04/15/04................. B2/B 2,587,812
20,000,000 Toyota Motor Credit Corp., 5.625% due
11/13/03(t).................................... Aa1/AAA 19,763,800
1,500,000 US Bancorp, Series B, Callable 12/15/06, 8.270%
due 12/15/26................................... A1/BBB+ 1,600,845
---------------
124,581,220
---------------
FOOD, BEVERAGES & TOBACCO (0.2%)
3,175,000 J Seagram & Sons, 7.600% due 12/15/28(s)......... Baa3/BBB- 3,246,120
---------------
FOREST PRODUCTS & PAPER (1.4%)
5,000,000 Champion International Corp., 7.100% due
09/01/05(s).................................... Baa1/BBB 5,149,200
5,600,000 Georgia-Pacific Corp., 9.950% due 06/15/02(s).... Baa2/BBB- 6,177,080
9,150,000 Georgia-Pacific Corp., Callable 04/30/05, 8.625%
due 04/30/25(t)................................ Baa2/BBB- 9,761,037
---------------
21,087,317
---------------
HEALTH SERVICES (0.2%)
1,826,000 Genesis Health Ventures, Callable 06/15/00,
9.750% due 06/15/05............................ B2/CCC+ 1,652,530
2,000,000 Mariner Post-Acute Network, Inc., Series B,
Callable 04/01/01, 9.500% due 04/01/06......... B3/CCC 1,400,000
---------------
3,052,530
---------------
METALS & MINING (0.2%)
2,400,000 P&L Coal Holdings Corp., Series B, Callable
05/15/03, 9.625% due 05/15/08(s)............... B2/B 2,496,000
1,000,000 Ryerson Tull, Inc., Callable, 8.500% due
07/15/01....................................... Baa3/BBB 1,030,000
---------------
3,526,000
---------------
NATURAL GAS (0.6%)
3,591,000 Columbia Energy Group, Series G, Callable
11/28/05, 7.620% due 11/28/25(s)............... A3/BBB+ 3,585,649
5,000,000 National Fuel Gas Co., Series D, MTN, Putable,
6.214% due 08/12/27............................ A2/A- 5,048,050
---------------
8,633,699
---------------
OIL-PRODUCTION (0.2%)
2,500,000 Plains Resources, Inc., Series D, Callable
03/15/01, 10.250% due 03/15/06(s).............. B2/B- 2,600,000
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
OIL-SERVICES (0.3%)
$ 750,000 Lasmo (USA) Inc., Callable 06/01/03, 8.375% due
06/01/23....................................... Baa2/BBB $ 757,117
1,250,000 Newpark Resources, Inc., Series B, Callable
12/15/02, 8.625% due 12/15/07(s)............... B2/B+ 1,206,250
3,013,892 Oil Purchase Co., Sinking Fund, (144A), 7.100%
due 10/31/02(s)................................ Baa3/BBB 2,833,058
---------------
4,796,425
---------------
PACKAGING & CONTAINERS (0.0%)
710,000 Stone Container Corp., Callable, 12.750% due
04/01/02(v).................................... B3/B- 713,550
---------------
RAILROADS (0.6%)
1,500,000 Union Pacific Corp., 7.125% due 02/01/28(t)...... Baa3/BBB- 1,482,600
7,000,000 Union Pacific Corp., 7.600% due 05/01/05(s)...... Baa3/BBB- 7,409,570
---------------
8,892,170
---------------
RETAIL (0.2%)
2,500,000 Federated Department Stores, Inc., 8.500% due
06/15/03....................................... Baa2/BBB+ 2,714,450
1,000,000 Fred Meyer, Inc., Callable, 7.450% due
03/01/08....................................... Ba2/BB+ 1,048,300
---------------
3,762,750
---------------
TELECOMMUNICATIONS (0.3%)
1,000,000 Lenfest Communications, Inc., 7.625% due
02/15/08....................................... Ba2/BB+ 1,022,500
1,500,000 McLeodUSA, Inc., Callable 07/15/02, 9.250% due
07/15/07....................................... B2/B+ 1,567,500
1,000,000 NEXTLINK Communications, Inc., Callable 10/01/02,
9.625% due 10/01/07(s)......................... B3/B 1,010,000
1,300,000 Qwest Communications International, Inc., Series
B, Callable 04/01/02, 10.875% due 04/01/07..... Ba1/BB+ 1,495,754
---------------
5,095,754
---------------
TELEPHONE (1.9%)
21,900,000 AT&T Corp., Callable, 6.000% due 03/15/09(t)..... A1/AA- 21,404,624
7,500,000 MCI Worldcom, Inc., 6.950% due 08/15/06(s)....... Baa2/BBB+ 7,791,900
---------------
29,196,524
---------------
TRANSPORTATION (0.2%)
2,500,000 Atlantic Express Transportation Corp., Callable
02/01/01, 10.750% due 02/01/04................. B2/B 2,568,750
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
UTILITIES (1.7%)
$ 10,000,000 Atmos Energy Corp., Callable, 6.750% due
07/15/28(t).................................... A3/A- $ 9,516,500
2,950,000 Central Power & Light Co., Series KK, 6.625% due
07/01/05....................................... A3/A 3,021,714
12,400,000 Southern Co. Capital Trust I, Callable 02/01/07,
8.190% due 02/01/37(s)......................... A3/BBB+ 13,083,860
---------------
25,622,074
---------------
TOTAL CORPORATE OBLIGATIONS (COST
$346,555,870).............................. 343,769,455
---------------
FOREIGN CORPORATE OBLIGATIONS (4.2%)
BERMUDA (0.1%)
ENTERTAINMENT, LEISURE & MEDIA
1,250,000 Central European Media Enterprises, Callable
08/15/01, 9.375% due 08/15/04.................. Caa1/CCC+ 1,112,500
---------------
CANADA (2.4%)
FINANCIAL SERVICES
5,000,000 McKesson Finance of Canada, (144A), 6.550% due
11/01/02....................................... A3/A- 5,039,100
FOOD, BEVERAGES & TOBACCO
350,000 Cott Corp., Callable 07/01/00, 8.500% due
05/01/07....................................... B1/B+ 315,000
OIL PRODUCTION
6,400,000 Canadian Occidental Petroleum, Callable, 7.125%
due 02/04/04(s)................................ Baa2/BBB 6,440,000
1,498,800 Express Pipeline LP, Series B, Callable, Sinking
Fund, (144A), 7.390% due 12/31/19.............. Baa3/BBB- 1,362,034
RAILROADS
5,350,000 Canadian National Railway, 7.000% due
03/15/04(s).................................... Baa2/BBB 5,489,742
TELECOMMUNICATIONS
900,000 Rogers Cablesystems Ltd., Callable 12/01/02,
10.000% due 12/01/07........................... Ba3/BB+ 1,012,500
TELECOMMUNICATION SERVICES
300,000 Microcell Telecommunications, Inc., Series B,
Callable 12/01/01, 0.000% due 06/01/06(v)...... B3/NR 252,000
TELEPHONE
600,000 Call-Net Enterprises, Inc., Callable 08/15/02,
0.000% due 08/15/07(v)......................... B2/BB- 423,000
1,250,000 Rogers Cantel, Inc., Callable 10/01/02, 8.300%
due 10/01/07................................... Ba3/BB+ 1,318,750
TRANSPORT & SERVICES
7,000,000 Laidlaw, Inc., Putable, 6.720% due 10/01/27(s)... Baa3/BBB 6,542,200
2,500,000 Teekay Shipping Corp., Sinking Fund, 8.320% due
02/01/08(s).................................... Ba2/BB+ 2,456,250
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
WATER
$ 4,500,000 Hydro Quebec, Series GF, 8.875% due
03/01/26(s).................................... A2/A+ $ 5,669,866
---------------
36,320,442
---------------
FRANCE (0.1%)
ELECTRICAL EQUIPMENT
1,785,000 Legrand S.A., 8.500% due 02/15/25(s)............. A2/A 2,036,167
---------------
HONG KONG (0.0%)
BANKING
44,000 Bangkok Bank Public Co. Ltd., (144A), 9.025% due
03/15/29....................................... NR/B+ 34,320
---------------
MEXICO (0.1%)
FOOD, BEVERAGES & TOBACCO
1,625,000 Panamerican Beverages, 7.250% due 07/01/09(s).... Baa3/BBB- 1,428,586
---------------
NETHERLANDS (0.2%)
FINANCIAL SERVICES
900,000 ICI Investments BV, Series E, MTN, 6.750% due
08/07/02....................................... Baa1/A- 911,070
2,250,000 Montell Finance Co. BV, (144A), 8.100% due
03/15/27....................................... A3/A 2,267,640
---------------
3,178,710
---------------
SOUTH KOREA (0.2%)
BANKING
1,000,000 Export-Import Bank of Korea, 7.125% due
09/20/01....................................... Baa3/NR 964,400
ELECTRIC
1,500,000 Korea Electric Power Corp., Putable, 6.000% due
12/01/26....................................... Baa3/BBB- 1,443,660
---------------
2,408,060
---------------
SWEDEN (0.1%)
TRANSPORTATION
1,500,000 Stena AB, Callable 06/15/02, 8.750% due
06/15/07....................................... Ba2/BB 1,406,250
---------------
UNITED KINGDOM (1.0%)
ELECTRIC
5,000,000 National Power Co. PLC, 6.250% due 12/01/03...... A2/A- 5,012,500
10,000,000 United Utilities PLC, Callable, 6.875% due
08/15/28(s).................................... A2/A 9,593,600
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
TELEPHONE
$ 1,500,000 Orange PLC, Callable 08/01/03, 8.000% due
08/01/08(s).................................... Ba3/B+ $ 1,545,000
---------------
16,151,100
---------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$64,640,552)............................... 64,076,135
---------------
FOREIGN GOVERNMENT AGENCIES (0.2%)
MEXICO (0.2%)
ELECTRIC
3,814,000 Petroleos Mexicanos, (144A), 7.750% due 10/29/99
(cost $3,825,596).............................. Ba2/BB 3,823,535
---------------
FOREIGN GOVERNMENT OBLIGATIONS (0.3%)
CANADA (0.3%)
4,700,000 Province of Quebec, Series NY, 6.500% due
01/17/06(s) (cost $4,763,668).................. A2/A+ 4,787,843
---------------
PRIVATE PLACEMENT (3.2%)
FINANCIAL SERVICES (2.0%)
6,000,000 500 Grant Street Associates, Sinking Fund,
(144A), 6.460% due 12/01/08.................... A2/NR 6,033,600
23,500,000 Newcourt Credit Group, (144A), 6.875% due
02/16/05(t).................................... Baa3/BBB 24,059,535
---------------
30,093,135
---------------
REAL ESTATE (1.2%)
4,487,596 180 East End Avenue Note, secured by first
mortgage and agreement on co-op apartment
building in New York City, 6.875% due
01/01/29(f).................................... NR/NR 4,382,407
10,986,452 200 East 57th Street, secured by first mortgage
and agreement on co-op apartment building in
New York City, 6.500% due 01/01/14(f).......... NR/NR 10,545,895
3,291,757 81 Irving Place Note, secured by first mortgage
and agreement on co-op apartment building in
New York City, 6.950% due 01/01/29(f).......... NR/NR 3,221,840
---------------
18,150,142
---------------
TOTAL PRIVATE PLACEMENT (COST $48,186,139)... 48,243,277
---------------
SOVEREIGN BONDS (4.0%)
ARGENTINA (0.2%)
606,000 Republic of Argentina Global Bonds, 11.750% due
04/04/09....................................... Ba3/BB 625,392
3,031,800 Republic of Argentina, Series FRB, Callable
09/30/99, Sinking Fund, 5.938% due
03/31/05(v).................................... Ba3/BB 2,698,302
---------------
3,323,694
---------------
BULGARIA (0.0%)
785,000 Republic of Bulgaria IAB PDI Bonds, Callable
07/28/99, Sinking Fund, 5.875% due
07/28/11(v).................................... B2/NR 531,838
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
COLOMBIA (0.4%)
$ 2,120,000 Republic of Colombia Global Bonds, 7.625% due
02/15/07....................................... Baa3/BBB- $ 1,841,750
3,472,000 Republic of Colombia Global Bonds, 10.875% due
03/09/04....................................... Baa3/BBB- 3,655,728
---------------
5,497,478
---------------
MEXICO (1.3%)
7,671,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... Ba2/BB 8,749,734
3,920,000 United Mexican States Global Bonds, 11.500% due
05/15/26(s).................................... Ba2/BB 4,662,840
1,470,000 United Mexican States Global Bonds, Series E,
MTN, 9.750% due 04/06/05....................... Ba2/BB 1,524,390
4,362,000 United Mexican States Global Bonds, Series XW,
10.375% due 02/17/09........................... NR/NR 4,678,245
---------------
19,615,209
---------------
PANAMA (0.4%)
700,000 Republic of Panama IRB, Series 18 Year, Sinking
Fund, 4.000% due 07/17/14(v)................... Ba1/BB+ 548,625
8,158,759 Republic of Panama PDI, Series 20 Year, Sinking
Fund, 5.938% due 07/17/16(v)................... Ba1/BB+ 6,376,070
---------------
6,924,695
---------------
PERU (0.4%)
10,114,000 Republic of Peru PDI, Series 20 Year, Sinking
Fund, 4.500% due 03/07/17(v)................... NR/BB 6,814,308
---------------
PHILIPPINES (0.4%)
3,463,000 Republic of Philippines Global Bonds, 8.875% due
04/15/08....................................... Ba1/BB+ 3,523,603
2,957,000 Republic of Philippines Global Bonds, 9.875% due
01/15/19....................................... Ba1/BB+ 3,031,812
---------------
6,555,415
---------------
POLAND (0.4%)
7,240,000 Republic of Poland Bearer PDI, Callable 10/27/99,
Sinking Fund, 5.000% due 10/27/14(s)(v)........ Baa3/BBB- 6,697,000
---------------
VENEZUELA (0.5%)
8,785,685 Republic of Venezuela DCB, Series DL, Callable,
Sinking Fund, 5.938% due 12/18/07(v)........... B2/B+ 7,094,440
---------------
TOTAL SOVEREIGN BONDS (COST $60,586,489)..... 63,054,077
---------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (47.4%)
FEDERAL HOME LOAN MORTGAGE CORP. (3.0%)
1,275,937 6.000% due 03/01/11-04/01/11..................... 1,269,149
3,618,358 7.000% due 09/01/09-07/01/28..................... 3,675,069
8,400,217 7.500% due 10/01/26.............................. 8,633,827
3,067,885 8.000% due 11/01/26-03/01/27..................... 3,192,502
6,494 9.000% due 04/01/03.............................. 6,639
4,569,512 9.250% due 06/01/16.............................. 4,804,430
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP. (CONTINUED)
$ 1,509,536 9.500% due 08/01/04-03/01/06..................... $ 1,585,832
12,926 10.000% due 04/01/09............................. 13,701
616 12.500% due 08/01/14............................. 704
2,654,180 Gold, 6.500% due 05/01/04........................ 2,664,133
9,762,562 Gold, 8.506% due 12/01/04........................ 10,374,247
100,212 REMIC: PAC-1(11), Series 1207, Class J, Partially
Callable, 6.750% due 07/15/19.................. 100,024
7,830,000 REMIC: Sequential Payer, AD, Series 1980, Class
VB, Partially Callable, 7.000% due 03/15/11.... 7,976,813
1,550,000 REMIC: Sequential Payer, Series 1980, Class C,
Partially Callable, 6.850% due 10/15/21........ 1,555,813
---------------
45,852,883
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (33.9%)
7,846,279 6.500% due 10/01/13-09/01/28..................... 7,795,122
2,807,834 6.880% due 11/01/05.............................. 2,869,269
41,933,690 7.000% due 04/01/28-09/01/28..................... 42,483,860
250,989 7.500% due 03/01/27.............................. 257,969
4,101,234 8.000% due 06/01/11-05/01/27..................... 4,263,182
4,232,737 8.700% due 01/01/05.............................. 4,634,847
379,848 9.000% due 12/01/24.............................. 402,756
213,997 10.000% due 06/01/20............................. 231,924
16,179,025 IO, Series 292, Class 2, 7.500% due 11/01/27..... 3,473,434
16,179,025 PO, Series 292, Class 1, 7.081% due
11/01/27(y).................................... 13,201,073
123,420,000 TBA, May, 6.000% due 03/01/29.................... 119,601,694
307,105,000 TBA, May, 6.500% due 03/01/29.................... 305,089,620
16,350,000 TBA, May, 7.000% due 03/01/29.................... 16,564,594
---------------
520,869,344
---------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (10.5%)
9,680,059 6.500% due 06/15/28-07/15/28..................... 9,616,461
136,583,239 7.000% due 12/15/08-02/15/29..................... 138,591,178
10,397,282 7.500% due 01/15/27-02/15/27..................... 10,715,647
1,661,585 8.000% due 06/15/17-04/15/27..................... 1,736,257
95,959 9.000% due 12/15/26.............................. 103,095
17,032 11.000% due 05/15/16............................. 19,012
9,239 11.500% due 07/15/13............................. 10,413
---------------
160,792,063
---------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $728,780,875)........................ 727,514,290
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ------------- ------------------------------------------------- ---------------
<C> <S> <C> <C>
U.S. TREASURY OBLIGATIONS (4.8%)
U.S. TREASURY BONDS (4.4%)
$ 7,240,000 5.500% due 08/15/28(s)........................... $ 6,899,503
19,418,000 6.750% due 08/15/26(s)........................... 21,647,963
27,250,000 12.000% due 08/15/13(s).......................... 39,614,688
---------------
68,162,154
---------------
U.S. TREASURY NOTES (0.1%)
2,120,000 7.875% due 08/15/01(s)........................... 2,243,893
---------------
U.S. TREASURY STRIPS (0.3%)
13,490,000 PO, 6.112% due 11/15/15(y)....................... 4,983,340
---------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$77,934,664)............................... 75,389,387
---------------
</TABLE>
<TABLE>
<CAPTION>
MOODY'S/S&P
SHARES RATING
- ----------- ---------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (1.0%)
FINANCIAL SERVICES (0.3%)
150,000 TCI Communications Financing II, Callable
05/31/01....................................... A3/A 4,059,375
---------------
INDUSTRIAL PRODUCTS & SERVICES (0.7%)
12,575 Home Ownership Funding, (144A), 13.331%(v)....... Aaa/NR 11,478,133
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$16,675,578)............................... 15,537,508
---------------
PREFERRED STOCKS (0.1%)
OIL-SERVICES (0.1%)
36,000 Lasmo PLC, Series A, Callable 06/16/99, 10.000%
(cost $801,000)................................ Baa3/BB+ 866,250
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ------------ ------------------------------------------------- --------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (28.0%)
COMMERCIAL PAPER--DOMESTIC (12.6%)
25,000,000 Asset Securitization Corp., 4.810% due
06/16/99(t).................................... 24,846,347
15,000,000 General Electric Capital Corp., 4.800 due
06/07/99....................................... 14,926,000
50,000,000 Morgan Stanley Dean Witter & Co., 4.656 due
06/08/99(t)(y)................................. 49,746,139
20,000,000 Bavaria TRR Corp., 4.830 due 07/20/99(t)......... 19,785,333
35,000,000 TRW Inc., 5.130% due 06/30/99(t)................. 34,700,750
50,000,000 MCI Worlcom Inc., 5.080% due 05/18/99(t)......... 49,880,056
--------------
193,884,625
--------------
COMMERCIAL PAPER--FOREIGN (1.3%)
20,000,000 Caisse D'Amortissement, 4.891 due 12/03/99(y).... 19,420,400
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ------------ ------------------------------------------------- --------------
<C> <S> <C>
REPURCHASE AGREEMENT (14.1%)
$217,333,000 Goldman Sachs Repurchase Agreement, 4.890% dated
04/30/99 due 05/03/99, proceeds $217,421,563
(collateralized by $92,964,000 U.S. Treasury
Bond, 8.875% due 08/15/17, valued at
$125,406,949; $73,073,000 U.S. Treasury Bond,
8.125% due 08/15/19, valued at $93,373,556).... $ 217,333,000
--------------
TOTAL SHORT-TERM INVESTMENTS (COST
$430,638,025)............................... 430,638,025
--------------
TOTAL INVESTMENTS (COST $1,983,357,820)
(128.4%)....................................... 1,973,192,154
LIABILITIES IN EXCESS OF OTHER ASSETS (-28.4%)... (436,800,916)
--------------
NET ASSETS (100.0%).............................. $1,536,391,238
--------------
--------------
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $1,983,391,859 for federal income
tax purposes at April 30, 1999, the aggregate gross unrealized appreciation and
depreciation was $11,440,100 and $21,639,805, respectively, resulting in net
unrealized depreciation of $10,199,705.
(f) Fair valued security. Approximately 1% of the market value of the securities
have been valued at fair value. (See Note 1a).
(s) Security is fully or partially segregated with custodian as collateral for
future contracts or with broker as initial margin for futures contracts.
$337,451,890 of the market value has been segregated.
(t) All or a portion of the security has been segregated as collateral for TBA
securities and when issued securities.
(v) Rate shown reflects current rate on variable or floating rate instrument or
investment with step coupon rate.
(y) Yield to maturity.
Abbreviations used in the schedule of investments are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
AD - Accretion Directed.
CSTR - Collateral Strip Rate.
DCB - Debt Conversion Bond.
IAB - Interest in Arrears Bond.
IRB - Interest Reduction Bond.
IO - Interest Only.
MTN - Medium Term Note.
NAS - Non-accelerated Security.
PAC - Planned Amortization Class.
PDI - Past Due Interest.
PO - Principal Only.
REMIC - Real Estate Mortgage Investment Conduit.
TBA - Security purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date. The actual principal amount and
maturity will be determined upon settlement date.
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $1,983,357,820) $1,973,192,154
Cash 875
Foreign Currency at Value (Cost $40) 40
Interest Receivable 13,107,275
Receivable for Investments Sold 3,736,371
Variation Margin Receivable 456,597
Prepaid Trustees' Fees 7,678
Prepaid Expenses and Other Assets 8,029
--------------
Total Assets 1,990,509,019
--------------
LIABILITIES
Payable for Investments Purchased 453,643,453
Advisory Fee Payable 387,184
Administrative Services Fee Payable 33,241
Fund Services Fee Payable 641
Accrued Expenses 53,262
--------------
Total Liabilities 454,117,781
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,536,391,238
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $47,264,299
Dividend Income (Net of Foreign Withholding Tax
of $6,948 ) 1,065,060
-----------
Investment Income 48,329,359
EXPENSES
Advisory Fee $ 2,239,935
Administrative Services Fee 197,184
Custodian Fees and Expenses 142,116
Professional Fees and Expenses 23,994
Fund Services Fee 15,656
Administration Fee 10,039
Trustees' Fees and Expenses 8,444
Miscellaneous 5,978
-----------
Total Expenses 2,643,346
-----------
NET INVESTMENT INCOME 45,686,013
NET REALIZED GAIN (LOSS) ON
Investment Transactions 3,118,896
Futures (2,070,952)
Foreign Currency Contracts and Transactions 926,014
-----------
Net Realized Gain 1,973,958
NET CHANGE IN UNREALIZED
APPRECIATION/(DEPRECIATION) OF
Investments (32,824,651)
Futures 242,366
Foreign Currency Contracts and Translations (955,626)
-----------
Net Change in Unrealized Depreciation (33,537,911)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $14,122,060
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
-------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 45,686,013 $ 76,630,594
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 1,973,958 14,578,678
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations (33,537,911) 5,171,549
-------------- ----------------
Net Increase in Net Assets Resulting from
Operations 14,122,060 96,380,821
-------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 476,795,432 542,769,830
Withdrawals (301,716,051) (373,515,793)
-------------- ----------------
Net Increase from Investors' Transactions 175,079,381 169,254,037
-------------- ----------------
Total Increase in Net Assets 189,201,441 265,634,858
NET ASSETS
Beginning of Period 1,347,189,797 1,081,554,939
-------------- ----------------
End of Period $1,536,391,238 $ 1,347,189,797
-------------- ----------------
-------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE FISCAL YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1999 --------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
--------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.35%(a) 0.36% 0.37% 0.37% 0.39% 0.46%
Net Investment Income 6.12%(a) 6.42% 6.70% 6.38% 6.68% 5.88%
Portfolio Turnover 145%(b) 115% 93% 186% 293% 234%
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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 J.P. Morgan
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. The Declaration of Trust permits the trustees to
issue an unlimited number of beneficial interests in the portfolio.
Investments in emerging and international markets may involve certain
considerations and risks not typically associated with investments in the United
States. Future economic and political developments in emerging market and
foreign 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, asset-backed and mortgage 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 asset-backed and mortgage securities
can be significantly affected by changes in interest rates or 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 value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange, or in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Independent pricing services procedures include the use of prices based
upon yields or prices of securities of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general
market conditions. Securities or other assets for which market quotations
are not readily available are valued at fair value in accordance with
procedures established by the portfolio's trustees. All short-term
portfolio securities with a remaining maturity of less than 60 days are
valued by the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the portfolio's trustees.
31
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
The portfolio's custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the portfolio. It is the
policy of the portfolio to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the portfolio has
the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event
of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
b) The books and records of the portfolio are maintained in U.S. dollars. The
market value 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. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount becomes known. 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.
d) The portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables 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 at the current foreign exchange
rates, and the change in the market value is recorded by the portfolio as
unrealized appreciation or depreciation of forward foreign currency
contract translations. At April 30, 1999, the portfolio had no open
forward foreign currency contracts.
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 is 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
32
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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 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 in
movements in the price of futures contracts, interest rates and the
underlying hedged assets, and the possible inability of counterparties to
meet the terms of their contracts. Open futures contracts at April 30,
1999 are summarized as follows:
SUMMARY OF OPEN CONTRACTS AT APRIL 30, 1999
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
U.S. Five Year Note, expiring June 1999.......... 624 $ (338,428) $ 69,690,182
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS SHORT (DEPRECIATION) OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
U.S. Ten Year Note, expiring June 1999........... 400 $ 657,670 $ 46,532,670
U.S. Long Bond, expiring June 1999............... 235 249,371 28,493,434
--------------- -------------- ----------------
Totals........................................... 635 $ 907,041 $ 75,026,104
--------------- -------------- ----------------
--------------- -------------- ----------------
</TABLE>
f) The portfolio may enter into commitments to buy and sell investments to
settle on future dates as part of its normal investment activities. These
commitments are reported at market value in the financial statements.
Credit risk exists on these commitments to the extent of any unrealized
gains on the underlying securities purchased and any unrealized losses on
the underlying securities sold. Market risk exists on these commitments to
the same extent as if the security were owned on a settled basis and gains
and losses are recorded and reported in the same manner. However, during
the commitment period, these investments earn no interest or dividends.
g) 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 J.P. Morgan
Investment Management Inc. ("JPMIM"), a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the
Agreement, the portfolio pays JPMIM at an annual rate of 0.30% of the
portfolio's average daily net assets. For the six months ended April 30,
1998, this fee amounted to $2,239,935.
33
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
b) The portfolio, on behalf of the fund, 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 portfolio's 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 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 six months ended April 30, 1999, the fee for these services
amounted to $10,039.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan Guaranty Trust Company of New York ("Morgan")
under which Morgan is responsible for 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 JPMIM acts as investment
advisor (the "master portfolios") and J.P. Morgan 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, other investors in the
master portfolios for which Morgan provides similar services and J.P.
Morgan Series Trust. For the six months ended April 30, 1999, the fee for
these services amounted to $197,184.
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 $15,656 for the six months ended April 30, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, J.P. Morgan Institutional Funds, the
master portfolios and J.P. Morgan Series Trust. 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 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 $3,300.
34
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1999, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $1,816,957,596 $1,675,959,539
Corporate and Collateralized Mortgage Obligations
and Other Securities............................ 533,839,040 392,336,500
-------------- --------------
$2,350,796,636 $2,068,296,039
-------------- --------------
-------------- --------------
</TABLE>
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.
35
