<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
CERTIFICATES OF DEPOSIT-FOREIGN (0.3%)
CANADA (0.3%)
$ 4,000,000 Canadian Imperial Bank of Commerce, 6.20% due
08/01/00 (cost $4,000,662)..................... Aa3/AA- $ 4,073,480
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (11.7%)
FINANCIAL SERVICES (11.7%)
2,451,344 American Southwest Financial Corp., REMIC:
Support Bond, Series 60, Class D, Callable,
8.90% due 03/01/18............................. NR/AAA 2,618,773
28,113,000 Associates Manufactured Housing Pass Through,
Sequential Payer, Series 1997-1, Class A3,
Callable, 6.60% due 06/15/28................... Aaa/AAA 29,211,375
669,926 BA Mortgage Securities, Inc., REMIC: Subordinated
Bond, NAS, Series 1997-1, Class B2, Callable,
7.50% due 07/25/26............................. NR/NR 676,626
829,830 BA Mortgage Securities, Inc., REMIC: Subordinated
Bond, NAS, Series 1997-1, Class B3, Callable,
(144A), 7.50% due 07/25/26..................... NR/NR 790,932
404,212 Banc One Auto Grantor Trust, Sequential Payer,
Series 1997-A, Class A, Callable, 6.27% due
11/20/03....................................... Aaa/AAA 410,680
2,253,150 Bear Stearns Structured Securities Inc., REMIC:
Sequential Payer, Series 1997-2, Class 1A5,
Callable, (144A), 7.00% due 08/25/36........... Aaa/NR 2,264,416
850,000 Caterpillar Financial Asset Trust, Sequential
Payer, Series 1997-A, Class A3, Callable, 6.45%
due 05/25/03................................... NR/AAA 875,585
2,000,000 Chase Commercial Mortgage Securities Corp.,
Subordinated Bond, Series 1996-2, Class F,
Callable, (144A), 6.90% due 11/19/06........... NR/NR 1,732,500
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 15,834,796
22,595 Chevy Chase Auto Receivables Trust, Pass-Through,
Series 1995-1, Class A, Callable, 6.00% due
12/15/01....................................... Aaa/AAA 22,611
1,200,000 Citibank Credit Card Master Trust I, Series
1998-1, Class A, Callable, 5.75% due
01/15/03....................................... Aaa/AAA 1,215,750
4,454,018 Collateralized Mortgage Obligation Trust, REMIC:
Accrual Bond, Series 62, Class Z, Callable,
9.50% due 06/25/20............................. Aaa/AAA 4,490,630
636,845 Countrywide Home Loans, REMIC: Sequential Payer,
Series 1997-4, Class A, Callable, 8.00% due
08/25/27....................................... Aaa/NR 650,123
2,040,142 Countrywide Home Loans, REMIC: Sequential Payer,
Series 1998-5, Class A, Callable, 6.75% due
05/25/28....................................... NR/AAA 2,033,129
2,275,695 Criimi Mae Financial Corp., Sequential Payer,
Series 1, Class A, Callable, 7.00% due
01/01/33....................................... NR/AAA 2,267,872
5,089,000 CS First Boston Mortgage Securities Corp.,
Subordinated Bond, Series 1997-C2, Class B,
Callable, 6.72% due 11/17/07................... Aa2/NR 5,200,322
4,844,875 Deutsche Mortgage & Asset Receiving Corp.,
Sequential Payer, Series 1998-C1, Class A1,
Partially Callable, 6.22% due 09/15/07......... Aaa/NR 4,910,735
2,452,000 First Union-Lehman Brothers Commecial Mortgage,
Subordinated Bond, Series 1997-C2, Class E,
Partially Callable, 7.12% due 11/18/12......... Baa3/BBB- 2,272,697
1,015,154 Fleetwood Credit Corp. Grantor Trust, Sequential
Payer, Series 1995-B, Class A, Callable, 6.55%
due 05/16/11................................... Aaa/AAA 1,035,041
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 8,930,090
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 239,689 GE Capital Mortgage Services, Inc., REMIC:
Subordinated Bond, NAS, Series 1997-10, Class
B2, Callable, 6.75% due 09/25/12............... NR/NR $ 234,866
2,506,283 GE Capital Mortgage Services, Inc., REMIC:
Subordinated Bond, NAS, Series 1997-12, Class
B3, Callable, (144A), 7.00% due 12/25/27....... NR/NR 2,326,144
678,403 GE Capital Mortgage Services, Inc., REMIC:
Subordinated Bond, NAS, Series 1997-13, Class
B3, Callable, (144A), 6.75% due 12/25/12....... NR/NR 656,354
437,001 GE Capital Mortgage Services, Inc., REMIC:
Subordinated Bond, NAS, Series 1998-1, Class
B3, Callable, 6.75% due 01/25/13............... NR/BB 392,440
1,766,011 GE Capital Mortgage Services, Inc., REMIC:
Subordinated Bond, NAS, Series 1998-5, Class
B3, Callable, (144A), 6.75% due 05/25/28....... NR/NR 1,586,651
1,178,472 Green Tree Financial Corp., Sequential Payer,
Series 1992-1, Class A3, Callable, 6.70% due
10/15/17....................................... Aaa/NR 1,183,056
5,000,000 Green Tree Home Improvement Loan Trust,
Sequential Payer, AS, Series 1997-E, Class
HEA2, Callable, 6.39% due 01/15/29............. NR/AAA 5,162,700
1,029,539 Green Tree Recreational, Equipment & Consumer
Trust, Sequential Payer, Series 1996-A, Class
A1, Callable, 5.55% due 02/15/18............... Aaa/AAA 1,043,582
1,500,000 J.P. Morgan Commercial Mortgage Finance Corp.,
Subordinated Bond, CSTR, Series 1996-C2, Class
E, Callable, (144A), 8.685% due 11/25/27(j).... NR/BB 1,419,375
2,778,878 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, Callable, 8.076% due 06/15/21............... Ba3/NR 2,673,801
2,000,000 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
Partially Callable, 7.12% due 06/18/29......... NR/BB 1,611,562
8,853,896 Midland Realty Acceptance Corp., Sequential
Payer, Series 1996-C2, Class A1, Callable,
7.02% due 01/25/29............................. Aaa/NR 9,154,099
5,000,000 Morgan Stanley Capital I, Inc., REMIC:
Subordinated Bond, CSTR, Series 1997-RR, Class
D, Callable, (144A), 7.74% due 04/30/39........ NR/NR 3,984,375
3,624,544 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1998-WF1, Class A1, Partially Callable,
6.25% due 07/15/07............................. NR/AAA 3,659,656
1,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1995-GAL1, Class E, Callable,
(144A), 8.25% due 08/15/05..................... NR/NR 931,875
2,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-HF1, Class F, Partially
Callable, (144A), 6.86% due 02/15/10........... NR/NR 1,504,375
286,077 Morgan Stanley Mortgage Trust, REMIC: Sequential
Payer, Series V, Class 4, Callable, 8.95% due
05/01/17....................................... NR/AAA 295,297
1,888,387 Mortgage Capital Funding, Inc., Sequential Payer,
Series 1997-MC2, Class A1, Partially Callable,
6.525% due 01/20/07............................ Aaa/NR 1,933,531
990,083 Norwest Asset Securities Corp., REMIC:
Subordinated Bond, NAS, Series 1997-9, Class
B3, Callable, (144A), 7.00% due 06/25/12....... NR/NR 972,756
510,538 Norwest Asset Securities Corp., REMIC:
Subordinated Bond, NAS, Series 1998-3, Class
B3, Callable, (144A), 6.75% due 02/25/13....... NR/NR 494,265
805,497 Norwest Asset Securities Corp., REMIC:
Subordinated Bond, NAS, Series 1998-4, Class
2B3, Callable, (144A), 6.75% due 02/25/28...... NR/NR 649,223
795,153 Norwest Asset Securities Corp., REMIC:
Subordinated Bond, NAS, Series 1998-5, Class
B3, Callable, (144A), 6.75% due 03/25/28....... NR/NR 640,185
480,134 Residential Funding Mortgage Securities I, Inc.,
REMIC: NAS, Series 1996-S2, Class M3, Callable,
6.75% due 01/25/11............................. NR/BBB 472,812
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 3,476,404 Residential Funding Mortgage Securities I, Inc.,
REMIC: PAC (11), AS, Series 1994-S12, Class A3,
Callable, 6.50% due 04/25/09................... Aa1/AAA $ 3,491,769
85,480 Resolution Trust Corp., REMIC: CSTR, Series
1991-6, Class A1, Callable, 6.840% due
05/25/19....................................... Aaa/AAA 86,032
12,500,000 Sears Credit Account Master Trust, Controlled
Amortization, Callable, Series 1996-1, Class A,
6.20% due 02/16/06............................. Aaa/AAA 12,826,625
7,000,000 Sears Credit Account Master Trust, Controlled
Amortization, Callable, Series 1996-4, Class A,
6.45% due 10/16/06............................. Aaa/AAA 7,221,690
40,942 The Money Store Home Equity Trust, Sequential
Payer, Series 1992-A, Class A, Callable, 6.95%
due 01/15/07................................... Aaa/AAA 41,721
650,000 Vendee Mortgage Trust, REMIC: Sequential Payer,
Series 1997-1, Class 2C, Partially Callable,
7.50% due 09/15/17............................. NR/NR 661,850
12,676 Western Financial Grantor Trust, Sequential
Payer, Series 1995-3, Class A1, Callable, 6.05%
due 11/01/00................................... Aaa/AAA 12,700
442,214 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1996-A, Class A1,
Callable, 6.30% due 06/25/02................... Aaa/AAA 442,475
2,592,466 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1997-A, Class A2,
Callable, 6.75% due 06/25/03................... Aaa/AAA 2,681,906
---------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$156,412,408).............................. 157,894,431
---------------
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 973,500
---------------
CORPORATE OBLIGATIONS (22.6%)
APPARELS & TEXTILES (0.4%)
500,000 Collins & Aikman Products Co., Callable 04/15/01,
11.50% due 04/15/06............................ B2/B 516,250
300,000 Fruit of the Loom, Inc., Refunding, 6.50% due
11/15/03....................................... Ba1/BB+ 290,424
750,000 Fruit of the Loom, Inc., Refunding, 7.875% due
10/15/99....................................... Ba1/BB- 760,380
2,570,000 Polymer Group, Inc., Series B, Callable 07/01/02,
9.00% due 07/01/07............................. B2/B 2,409,375
1,000,000 Westpoint Stevens, Inc., Callable, 7.875% due
06/15/05....................................... Ba3/BB 1,012,500
---------------
4,988,929
---------------
AUTOMOTIVE (0.0%)
385,000 Ford Motor Co., 9.98% due 02/15/47............... A1/A 551,563
---------------
AUTOMOTIVE SUPPLIES (0.1%)
1,000,000 Federal-Mogul Corp., Callable, 7.75% due
07/01/06....................................... Ba2/BB+ 1,011,710
---------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
BANKING (1.6%)
$ 2,750,000 FCB/SC Capital Trust I, Callable 03/15/08, 8.25%
due 03/15/28................................... NR/NR $ 2,965,302
650,000 First Chicago NBD Corp., Refunding, 6.875% due
06/15/03....................................... A1/A 687,563
8,300,000 First Union Corp., Putable, 6.55% due 10/15/35... A2/A- 8,554,146
2,500,000 Union Bank of Switzerland AG-New York, 7.00% due
10/15/15....................................... Aa1/AA 2,395,575
6,235,000 Union Bank of Switzerland AG-New York, 7.75% due
09/01/26....................................... Aa1/AA 6,392,060
---------------
20,994,646
---------------
BROADCASTING & PUBLISHING (0.9%)
1,700,000 Capstar Broadcasting Partners, Callable 07/01/02,
9.25% due 07/01/07............................. B2/B- 1,695,750
2,700,000 Fox Family Worldwide, Inc., Callable 11/01/02,
9.25% due 11/01/07............................. B1/B 2,531,250
6,000,000 TCI Communications, Inc., Refunding, 7.875% due
08/01/13....................................... Baa3/BBB- 6,746,700
700,000 TCI Communications, Inc., Series B, MTN, 7.49%
due 09/05/03................................... Baa3/BBB- 763,448
---------------
11,737,148
---------------
BUILDING MATERIALS (0.8%)
11,000,000 Armstrong World, Inc., 6.35% due 08/15/03........ Baa1/A- 11,429,990
---------------
CHEMICALS (0.3%)
3,500,000 Arco Chemical Co., Refunding, 9.80% due
02/01/20....................................... Ba2/BBB+ 3,647,840
---------------
ELECTRIC (1.8%)
494,000 Calpine Corp., 7.875% due 04/01/08............... Ba2/BB- 484,120
100,000 Northern States Power Co., 7.125% due 07/01/25... Aa3/AA 108,817
5,000,000 PacificCorp., Series H, MTN, Callable, 6.75% due
07/15/04....................................... A2/A+ 5,398,150
4,350,000 PacifiCorp, Series B, MTN, 8.90% due 02/15/01.... A2/A+ 4,704,003
5,000,000 PECO Energy Co., 8.00% due 04/01/02.............. Baa1/BBB+ 5,451,350
8,350,000 Scana Corp., Series B, MTN, 5.81% due 10/23/08... A3/A 8,360,270
500,000 Unicom Corp., Series 90, Refunding, 6.50% due
04/15/00....................................... Baa2/BBB 511,170
---------------
25,017,880
---------------
ELECTRONICS (0.5%)
7,000,000 Sensormatic Electronics Corp., Callable, (144A),
7.74% due 03/29/06............................. NR/BB+ 6,523,160
---------------
ENERGY SOURCE (0.0%)
506,000 Cogentrix Energy, Inc., Callable, (144A), 8.75%
due 10/15/08................................... Ba1/BB+ 507,265
---------------
ENTERTAINMENT, LEISURE & MEDIA (0.4%)
2,500,000 Fox/Liberty Networks LLC, Callable 08/15/02,
8.875% due 08/15/07............................ B1/B 2,425,000
1,090,000 Jacor Communications Co., Series B, Callable
06/15/02, 8.75% due 06/15/07................... B2/B 1,139,050
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (CONTINUED)
$ 1,100,000 Lamar Advertising Co., Callable 09/15/02, 8.625%
due 09/15/07................................... B1/B $ 1,117,875
1,000,000 Outdoor Systems, Inc., Callable 06/15/02, 8.875%
due 06/15/07................................... B1/B 1,016,250
---------------
5,698,175
---------------
FINANCIAL SERVICES (5.0%)
13,000,000 Associates Corp. N.A., 5.875% due 07/15/02....... Aa3/AA- 13,069,290
3,060,000 Associates Corp. N.A., Putable, 5.96% due
05/15/37....................................... Aa3/AA- 3,144,517
25,000 Chrysler Financial Co. LLC, Series Q, MTN, 6.35%
due 06/22/99................................... A2/A+ 25,195
3,400,000 Commercial Credit Co., Putable, Refunding, 8.70%
due 06/15/10................................... Aa3/A+ 4,068,610
5,000,000 Enterprise Rent-a-Car USA Finance Co., (144A),
6.375% due 05/15/03............................ Baa2/BBB 5,054,850
4,000,000 FCB/NC Capital Trust I, Callable 03/01/08, 8.05%
due 03/01/28................................... Baa3/BB+ 4,203,880
750,000 Ford Motor Credit Co., 6.50% due 02/28/02........ A1/A 770,325
750,000 General Motors Acceptance Corp., 6.75% due
02/07/02....................................... A2/A 781,162
1,000,000 GS Escrow Corp., Callable, (144A), 7.125% due
08/01/05....................................... Ba1/BB+ 1,016,860
2,500,000 Keystone Financial Mid-Atlantic Funding, MTN,
6.50% due 05/31/08............................. Baa2/BBB+ 2,633,975
1,000,000 Nationwide Financial Services, Inc., Callable
03/01/07, 8.00% due 03/01/27................... A1/A+ 1,111,830
13,000,000 Norwest Financial, Inc., 7.20% due
04/01/04(s)(t)................................. Aa3/AA- 14,223,560
4,400,000 Phillips 66 Capital Trust II, Callable 01/15/07,
8.00% due 01/15/37............................. Baa1/BBB+ 4,600,684
4,100,000 Provident Companies, Inc., 7.405% due 03/15/38... A3/BBB 4,060,681
3,000,000 Safeco Capital Trust I, Callable 07/15/07, 8.072%
due 07/15/37................................... A3/A 3,050,340
750,000 Sears Roebuck Acceptance Corp., Series 1, MTN,
6.40% due 10/11/00............................. A2/A- 765,652
150,000 Sears Roebuck Acceptance Corp., Series 3, MTN,
6.60% due 10/09/01............................. A2/A- 154,810
2,450,000 Sun World International, Inc., Series B, Callable
04/15/01, 11.25% due 04/15/04.................. B2/B 2,563,312
1,500,000 US Bancorp, Series B, Callable 12/15/06, (144A),
8.27% due 12/15/26............................. A1/NR 1,619,430
---------------
66,918,963
---------------
FOOD, BEVERAGES & TOBACCO (0.1%)
750,000 Coca-Cola Enterprises, 6.625% due 08/01/04....... A3/A+ 799,365
1,000,000 Tricon Global Restaurants, Callable, 7.45% due
05/15/05....................................... Ba1/BB 1,045,750
---------------
1,845,115
---------------
FOREST PRODUCTS & PAPER (1.6%)
5,000,000 Champion International Corp., 7.10% due
09/01/05....................................... Baa1/BBB 5,189,150
9,150,000 Georgia-Pacific Corp., Callable 04/30/05, 8.625%
due 04/30/25................................... Baa2/BBB- 9,626,898
5,600,000 Georgia-Pacific Corp., Refunding, 9.95% due
06/15/02....................................... Baa2/BBB- 6,388,368
---------------
21,204,416
---------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
HEALTH SERVICES (0.4%)
$ 2,675,000 Genesis Health Ventures, Callable 06/15/00, 9.75%
due 06/15/05................................... B2/B- $ 2,457,656
2,000,000 Mariner Post-Acute Network, Inc., Series B,
Callable 04/01/01, 9.50% due 04/01/06.......... B2/B- 1,855,000
1,400,000 Sun Healthcare Group, Inc., Callable 05/01/03,
(144A), 9.375% due 05/01/08.................... B2/CCC+ 1,039,500
---------------
5,352,156
---------------
METALS & MINING (0.2%)
2,400,000 P&L Coal Holdings Corp., Callable 05/15/03,
(144A), 9.625% due 05/15/08.................... B2/B 2,394,000
1,000,000 Ryerson Tull, Inc., Callable, 8.50% due
07/15/01....................................... Baa3/BBB 1,021,250
---------------
3,415,250
---------------
NATURAL GAS (1.0%)
200,000 BP America, Inc., Refunding, 7.875% due
05/15/02....................................... Aa2/AA 219,002
3,466,000 Columbia Gas Systems, Series G, Callable
11/28/05, 7.62% due 11/28/25................... A3/BBB+ 3,627,467
684,000 Consolidated Natural Gas Co., Callable 12/03/98,
Sinking Fund, 8.625% due 12/01/11.............. A2/AA- 716,114
500,000 Ferrellgas Partners, LP, Series B, Callable
06/15/01, 9.375% due 06/15/06.................. B1/B+ 466,875
5,000,000 National Fuel Gas Co., Series D, MTN, Putable,
6.214% due 08/12/27............................ A2/A- 5,237,350
3,000,000 Williams Companies, Inc., 6.125% due 02/01/01.... Baa2/BBB- 3,060,270
---------------
13,327,078
---------------
OIL-PRODUCTION (0.4%)
2,500,000 Ocean Energy, Inc., Series B, Callable 07/15/02,
8.875% due 07/15/07............................ B1/BB- 2,481,250
2,500,000 Plains Resources, Inc., Series D, Callable
03/15/01, 10.25% due 03/15/06.................. B2/B- 2,484,375
---------------
4,965,625
---------------
OIL-SERVICES (0.4%)
750,000 Lasmo (USA) Inc., Callable 06/01/03, Refunding,
8.375% due 06/01/23............................ Baa2/BBB 729,405
1,250,000 Newpark Resources, Inc., Series B, Callable
12/15/02, 8.625% due 12/15/07.................. B2/B+ 1,221,875
3,673,071 Oil Purchase Co., Sinking Fund, (144A), 7.10% due
04/30/02....................................... Baa3/BBB 3,122,110
---------------
5,073,390
---------------
PACKAGING & CONTAINERS (0.0%)
710,000 Stone Container Corp., Callable 12/03/98, 12.25%
due 04/01/02................................... B3/B- 653,200
---------------
PHARMACEUTICALS (0.1%)
1,000,000 Merck & Co., Inc., Series B, MTN, Putable, 5.76%
due 05/03/37................................... Aaa/AAA 1,047,200
---------------
RAILROADS (1.0%)
750,000 Norfolk Southern Corp., 6.70% due 05/01/00....... Baa1/BBB+ 767,460
700,000 Union Pacific Corp., 6.625% due 02/01/08......... Baa3/BBB- 706,104
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
RAILROADS (CONTINUED)
$ 5,000,000 Union Pacific Corp., 7.125% due 02/01/28......... Baa3/BBB $ 4,977,550
7,000,000 Union Pacific Corp., 7.60% due 05/01/05(s)(t).... Baa3/BBB- 7,534,520
---------------
13,985,634
---------------
RETAIL (0.3%)
2,500,000 Federated Department Stores, Inc., 8.50% due
06/15/03....................................... Baa2/BBB- 2,765,475
1,000,000 Fred Meyer, Inc., Callable, 7.45% due 03/01/08... Ba2/BB+ 1,047,340
---------------
3,812,815
---------------
TELECOMMUNICATIONS (0.4%)
1,000,000 Lenfest Communications Inc., 7.625% due
02/15/08....................................... Ba3/BB+ 1,000,000
1,500,000 McLeodUSA, Inc., Callable 07/15/02, 9.25% due
07/15/07....................................... B2/B+ 1,483,125
1,000,000 NEXTLINK Communications, Inc., Callable 10/01/02,
9.625% due 10/01/07............................ B3/B 942,500
2,000,000 Qwest Communications International, Inc., Series
B, Callable 04/01/02, 10.875% due 04/01/07..... Ba1/BB+ 2,312,500
---------------
5,738,125
---------------
TELEPHONE (2.7%)
1,000,000 Bellsouth Telecommunications, Inc., Callable,
6.375% due 06/01/28............................ Aaa/AAA 1,019,650
8,000,000 GTE California, Inc., Series F, 6.75% due
05/15/27....................................... A2/AA- 8,122,720
7,500,000 MCI Worldcom, Inc., 6.95% due 08/15/06........... Baa2/BBB+ 7,985,325
16,075,000 New York Telephone Co., Callable 02/15/04, 7.25%
due 02/15/24................................... A2/A+ 16,780,210
1,825,000 New York Telephone Co., Callable 08/15/03, 7.00%
due 08/15/25................................... A2/A+ 1,862,613
130,000 SBC Communications, Inc., Refunding, 7.125% due
03/15/26....................................... A1/AA- 142,840
---------------
35,913,358
---------------
TRANSPORTATION (0.2%)
2,500,000 Atlantic Express Transportation Corp., Callable
02/01/01, 10.75% due 02/01/04.................. B2/B 2,550,000
---------------
UTILITIES (2.0%)
10,000,000 Atmos Energy Corp., 6.75% due 07/15/28........... A3/A- 9,602,800
550,000 Boston Edison, Callable 03/16/03, 7.80% due
03/15/23....................................... Baa2/BBB 566,263
2,950,000 Central Power & Light Co., Series KK, 6.625% due
07/01/05....................................... A3/A 3,123,607
10,600,000 Southern Co. Capital Trust I, Callable 02/01/07,
8.19% due 02/01/37............................. A3/A- 11,618,236
1,800,000 Southern Co. Capital Trust II, Callable 02/15/07,
8.14% due 02/15/27............................. A3/A- 1,825,686
---------------
26,736,592
---------------
TOTAL CORPORATE OBLIGATIONS (COST
$300,231,124).............................. 304,647,223
---------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FOREIGN CORPORATE OBLIGATIONS (4.6%)
BERMUDA (0.1%)
ENTERTAINMENT, LEISURE & MEDIA
$ 1,250,000 Central European Media Enterprises, Callable
08/15/01, 9.375% due 08/15/04.................. B2/B $ 978,125
---------------
CANADA (2.4%)
FINANCIAL SERVICES
5,000,000 McKesson Finance of Canada, (144A), 6.55% due
11/01/02....................................... A3/A- 5,151,599
FOOD, BEVERAGES & TOBACCO
1,000,000 Cott Corp., Callable 07/01/00, 8.50% due
05/01/07....................................... Ba3/B+ 932,500
FOREST PRODUCTS & PAPER
1,000,000 Avenor, Inc., Series E, Refunding, 9.86% due
06/30/01....................................... NR/BBB 1,066,250
OIL PRODUCTION
1,499,400 Express Pipeline LP, Series B, Callable, Sinking
Fund, (144A), 7.39% due 12/31/19............... Baa3/BBB- 1,420,681
RAILROADS
5,350,000 Canadian National Railway, Refunding, 7.00% due
03/15/04....................................... Baa2/BBB 5,722,467
TELECOMMUNICATIONS
900,000 Rogers Cablesystems Ltd., Callable 12/01/02,
10.00% due 12/01/07............................ Ba3/BB+ 978,750
TELECOMMUNICATION SERVICES
300,000 Microcell Telecommunications, Inc., Series B,
Callable 12/01/01, 0.00% due 06/01/06(v)....... B3/NR 196,500
TELEPHONE
600,000 Call-Net Enterprises, Inc., Callable 08/15/02,
0.00% due 08/15/07(v).......................... B1/BB- 378,000
1,250,000 Rogers Cantel, Inc., Callable 10/01/02, 8.30% due
10/01/07....................................... Ba3/BB+ 1,173,437
TRANSPORT & SERVICES
7,000,000 Laidlaw, Inc., Putable, 6.72% due 10/01/27....... Baa3/BBB+ 7,281,750
2,500,000 Teekay Shipping Corp., Sinking Fund, 8.32% due
02/01/08....................................... Ba2/BB+ 2,409,375
WATER
4,500,000 Hydro Quebec, Series GF, 8.875% due 03/01/26..... A2/A+ 5,633,595
---------------
32,344,904
---------------
CHILE (0.0%)
ELECTRIC
200,000 Endesa-Chile Overseas, 7.20% due 04/01/06........ Baa1/A- 177,736
---------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FRANCE (0.2%)
ELECTRICAL EQUIPMENT
$ 1,570,000 Legrand S.A., 8.50% due 02/15/25................. A2/A $ 1,933,455
---------------
HONG KONG (0.0%)
BANKING
455,000 Bangkok Bank Public Co. Ltd, (144A), 7.25% due
09/15/05....................................... B2/B+ 240,013
55,000 Bangkok Bank Public Co. Ltd, (144A), 8.375% due
01/15/27....................................... B2/B+ 24,338
---------------
264,351
---------------
JAPAN (0.1%)
FINANCIAL SERVICES
1,000,000 BTM Curacao Holding, Series E, MTN, 5.72% due
09/29/49(v).................................... A3/NA 840,000
---------------
MEXICO (0.1%)
FOOD, BEVERAGES & TOBACCO
2,000,000 Panamerican Beverages, 7.25% due 07/01/09........ Baa3/BBB- 1,921,640
---------------
NETHERLANDS (0.1%)
FINANCIAL SERVICES
300,000 ICI Finance Investments BV, Series E, MTN, 6.75%
due 08/07/02................................... Baa1/A- 310,688
950,000 Montell Finance Co. BV, (144A), 8.10% due
03/15/27....................................... A3/A 1,176,651
---------------
1,487,339
---------------
SOUTH KOREA (0.2%)
BANKING
1,000,000 Export-Import Bank of Korea, 7.125% due
09/20/01....................................... Ba2/NR 876,875
ELECTRIC
1,500,000 Korea Electric Power Corp., Putable, 6.00% due
12/01/26....................................... Ba1/BB+ 1,262,790
---------------
2,139,665
---------------
SWEDEN (0.1%)
TRANSPORTATION
1,500,000 Stena AB, Callable 06/15/02, 8.75% due
06/15/07....................................... Ba2/BB 1,406,250
---------------
UNITED KINGDOM (1.3%)
BANKING
500,000 Abbey National First Capital Co., 8.20% due
10/15/04....................................... Aa3/AA- 561,565
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
ELECTRIC
$ 5,000,000 National Power Co. PLC, 6.25% due 12/01/03....... A2/A $ 5,153,125
10,000,000 United Utilities PLC, Callable, 6.875% due
08/15/28(s)(t)................................. A2/A+ 9,992,500
TELEPHONE
500,000 Cable & Wireless Communications, Callable, 6.625%
due 03/06/05................................... Baa1/A- 506,820
1,500,000 Orange PLC, Callable 08/01/03, 8.00% due
08/01/08....................................... Ba3/B+ 1,473,750
---------------
17,687,760
---------------
VENEZUELA (0.0%)
FINANCIAL SERVICES
725,000 Corporacion Andina De Fomento, 6.75% due
03/15/05....................................... A3/BBB+ 648,897
---------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$61,139,812)............................... 61,830,122
---------------
FOREIGN GOVERNMENT AGENCIES (0.5%)
MEXICO (0.5%)
ENERGY SOURCE
3,814,000 Petroleos Mexicanos, (144A), 7.75% due
10/29/99....................................... Ba2/BB 3,775,860
3,300,000 Petroleos Mexicanos, Callable 07/15/99, (144A),
11.137% due 07/15/05(s)........................ Ba2/BB 2,879,250
---------------
TOTAL FOREIGN GOVERNMENT AGENCIES (COST
$7,136,859)................................ 6,655,110
---------------
FOREIGN GOVERNMENT OBLIGATIONS (1.4%)
CANADA (0.4%)
300,000 Province of Quebec, Series NJ, 7.50% due
07/15/23....................................... A2/A+ 325,689
4,700,000 Province of Quebec, Series NY, 6.50% due
01/17/06(s).................................... A2/A+ 4,890,444
---------------
5,216,133
---------------
SUPRANATIONAL OBLIGATIONS (1.0%)
BANKING
12,000,000 Inter-American Development Bank, 7.00% due
06/15/25....................................... Aaa/AAA 13,624,200
---------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$18,561,228)............................... 18,840,333
---------------
PRIVATE PLACEMENT (0.8%)
REAL ESTATE (0.8%)
11,000,000 200 East Tenants Corp., 6.50% due 12/01/13(f)
(cost $11,000,000)............................. NR/NR 11,238,700
---------------
SOVEREIGN BONDS (0.4%)
COLOMBIA (0.1%)
2,500,000 Republic of Colombia, Callable 08/13/00, 8.82%
due 08/13/05(v)................................ Baa3/BBB- 2,137,500
---------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
POLAND (0.3%)
$ 3,970,000 Republic of Poland Bearer PDI, Callable 04/27/99,
Sinking Fund, 4.00% due 10/27/14(v)............ Baa3/BBB- $ 3,592,850
---------------
TOTAL SOVEREIGN BONDS (COST $5,896,743)...... 5,730,350
---------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (29.4%)
FEDERAL HOME LOAN MORTGAGE CORP. (10.8%)
222,587 6.00% due 03/01/11............................... 223,546
868,797 6.00% due 04/01/11............................... 872,530
83,098 7.00% due 09/01/09............................... 84,738
549,054 7.00% due 10/01/10............................... 560,008
348,079 7.00% due 03/01/27............................... 354,950
2,715,726 7.00% due 07/01/28............................... 2,769,878
11,397,886 7.50% due 10/01/26............................... 11,665,736
1,182,989 8.00% due 11/01/26............................... 1,219,874
1,742,396 8.00% due 12/01/26............................... 1,796,044
560,759 8.00% due 03/01/27............................... 578,178
7,698 9.00% due 04/01/03............................... 7,981
5,587,582 9.25% due 06/01/16............................... 5,917,417
99,964 9.50% due 08/01/04............................... 104,726
200,001 9.50% due 11/01/05............................... 209,549
1,014,490 9.50% due 12/01/05............................... 1,062,959
223,547 9.50% due 02/01/06............................... 234,226
320,820 9.50% due 03/01/06............................... 336,178
14,491 10.00% due 04/01/09.............................. 15,642
877 12.50% due 08/01/14.............................. 986
2,925,351 Gold, 6.50% due 06/01/04......................... 2,936,321
9,762,562 Gold, 8.506% due 12/01/04........................ 10,741,869
300,000 REMIC: AD, Series 1290, Class L, Partially
Callable, 7.50% due 10/15/09................... 317,691
300,000 REMIC: PAC, Series 102, Class I, Partially
Callable, 7.00% due 12/15/20................... 301,908
32,000 REMIC: PAC-1(11), Series 1168, Class H, Partially
Callable, 7.50% due 11/15/21................... 32,841
250,000 REMIC: PAC-1(11), Series 1199, Class E, Partially
Callable, 7.50% due 10/15/19................... 251,828
415,000 REMIC: PAC-1(11), Series 1207, Class J, Partially
Callable, 6.75% due 07/15/19................... 422,595
59,217 REMIC: PAC-1(11), Series 1215, Class F, Partially
Callable, 6.75% due 05/15/05................... 59,167
35,760,000 REMIC: PAC-1(11), Series 1542, Class J, Partially
Callable, 7.00% due 02/15/22(t)................ 37,129,608
500,000 REMIC: PAC-1(11), Series 1543, Class VK,
Partially Callable, 6.70% due 01/15/23......... 513,635
13,000,000 REMIC: PAC-1(11), Series 1594, Class H, Partially
Callable, 6.00% due 10/15/08................... 13,662,220
31,500,000 REMIC: PAC-1(11), Series 1684, Class G, Partially
Callable, 6.50% due 03/15/23(t)................ 32,256,315
7,500,000 REMIC: PAC-1(11), Series 1714, Class K, Partially
Callable, 7.00% due 04/15/24................... 7,619,775
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP. (CONTINUED)
$ 161,401 REMIC: PAC-2(11), Series 39, Class F, Partially
Callable, 10.00% due 05/15/20.................. $ 173,165
1,600,000 REMIC: SCH(22), Series 1701, Class B, Partially
Callable, 6.50% due 03/15/09................... 1,606,368
7,830,000 REMIC: Sequential Payer, AD, Series 1980, Class
VB, Partially Callable, 7.00% due 03/15/11..... 8,067,484
850,000 REMIC: Sequential Payer, Series 1980, Class C,
Partially Callable, 6.85% due 10/15/21......... 853,885
---------------
144,961,821
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (10.2%)
175,946 6.00% due 04/25/19............................... 175,482
118,800 6.50% due 06/01/13............................... 120,502
75,191 6.50% due 08/01/13............................... 76,266
977,974 6.50% due 07/01/28............................... 985,289
475,201 6.50% due 08/01/28............................... 478,760
5,578,485 6.50% due 09/01/28............................... 5,620,324
2,822,929 6.88% due 11/01/05............................... 2,939,347
13,900,113 7.00% due 04/01/28............................... 14,198,506
6,555,502 7.00% due 06/01/28............................... 6,696,736
22,674,179 7.00% due 07/01/28............................... 23,162,455
303,190 7.50% due 03/01/27............................... 310,757
384,192 8.00% due 06/01/11............................... 395,952
3,582 8.00% due 08/01/22............................... 3,694
457,894 8.00% due 11/01/26............................... 472,734
1,745,609 8.00% due 12/01/26............................... 1,801,782
2,642,670 8.00% due 05/01/27............................... 2,729,429
4,265,670 8.70% due 02/01/05............................... 4,570,932
232,986 9.00% due 12/01/24............................... 244,533
1,132,869 9.50% due 07/01/05............................... 1,196,276
266,596 10.00% due 06/01/20.............................. 286,907
20,856,793 IO, Series 292, Class 2, 7.50% due 11/01/27...... 2,763,525
20,856,793 PO, Zero Coupon, Series 292, Class 1, 7.01% due
11/01/27(y).................................... 18,621,205
102,142 REMIC: PAC(11), Series 1993-41, Class PE, 5.75%
due 04/25/19................................... 101,682
6,244,242 REMIC: Sequential Payer, Series 1998-11, Class Z,
6.00% due 03/18/28............................. 5,906,429
43,580,000 TBA, November, 6.50% due 12/01/28................ 43,920,469
---------------
137,779,973
---------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (8.4%)
4,376,117 6.50% due 06/15/28............................... 4,425,326
5,365,662 6.50% due 07/15/28............................... 5,426,018
320,889 7.00% due 12/15/08............................... 329,146
6,519,673 7.00% due 03/15/26............................... 6,712,851
282,156 7.00% due 12/15/27............................... 288,933
165,181 7.00% due 01/15/28............................... 169,149
52,037 7.00% due 02/15/28............................... 53,284
6,613,912 7.00% due 04/15/28............................... 6,772,608
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 5,093,100 7.00% due 05/15/28............................... $ 5,215,503
4,875,880 7.00% due 06/15/28............................... 4,993,136
2,534,004 7.00% due 07/15/28............................... 2,594,935
2,872,952 7.00% due 08/15/28............................... 2,942,033
3,193,974 7.00% due 09/15/28............................... 3,270,821
7,745,652 7.00% due 05/15/35............................... 7,975,311
5,900,020 7.125% due 04/15/31.............................. 6,107,995
5,201,927 7.125% due 01/15/31.............................. 5,362,562
5,106,871 7.25% due 02/15/27............................... 5,272,435
2,577,789 7.25% due 01/15/31............................... 2,661,412
2,791,866 7.50% due 05/15/31............................... 2,890,307
6,284,265 7.50% due 05/15/26............................... 6,505,722
8,020,356 7.50% due 01/15/27............................... 8,256,075
4,428,611 7.50% due 02/15/27............................... 4,558,458
5,462,711 7.625% due 05/15/31.............................. 5,648,498
1,490,676 7.75% due 06/15/23............................... 1,544,086
8,519,503 7.75% due 07/15/31............................... 8,825,268
3,306,304 7.875% due 12/15/99.............................. 3,423,976
408,769 8.00% due 06/15/17............................... 423,735
161,488 8.00% due 08/15/26............................... 167,270
326,789 8.00% due 12/15/26............................... 338,711
366,881 8.00% due 04/15/27............................... 380,148
122,407 9.00% due 12/15/19............................... 130,124
17,286 11.00% due 05/15/16.............................. 19,233
9,404 11.50% due 07/15/13.............................. 10,585
---------------
113,695,654
---------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $387,402,872)........................ 396,437,448
---------------
U.S. TREASURY OBLIGATIONS (22.3%)
U.S. TREASURY BONDS (5.9%)
220,000 5.375% due 06/30/03.............................. 229,739
425,000 5.50% due 08/15/28............................... 447,228
26,918,000 6.75% due 08/15/26(s)............................ 32,317,482
1,925,000 8.50% due 02/15/20(s)............................ 2,673,112
1,200,000 10.375% due 11/15/12(s)(t)....................... 1,676,376
27,250,000 12.00% due 08/15/13(s)(t)........................ 42,042,118
---------------
79,386,055
---------------
U.S. TREASURY NOTES (16.4%)
45,340,000 5.25% due 08/15/03(s)............................ 47,292,794
5,620,000 5.75% due 08/15/03(s)(t)......................... 5,955,121
2,135,000 5.875% due 11/15/99(s)(t)........................ 2,166,491
19,405,000 5.88% due 02/15/00(s)............................ 19,786,696
72,625,000 6.25% due 02/28/02(s)............................ 76,734,849
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------ ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
U.S. TREASURY NOTES (CONTINUED)
$ 245,000 6.625% due 03/31/02(s)........................... $ 261,993
6,900,000 6.625% due 05/15/07(s)........................... 7,830,948
7,815,000 6.63% due 06/30/01(s)............................ 8,258,501
713,000 6.88% due 05/15/06............................... 816,314
2,020,000 7.875% due 08/15/01(s)(t)........................ 2,203,578
2,165,000 7.88% due 11/15/04(s)(t)......................... 2,542,273
42,370,000 8.50% due 11/15/00(s)............................ 45,801,546
2,090,000 Strips, 0.00% due 08/15/12....................... 1,006,669
---------------
220,657,773
---------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$292,899,591).............................. 300,043,828
---------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- ------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (1.2%)
FINANCIAL SERVICES (0.3%)
150,000 TCI Communications Financing II, Callable
05/31/01, 10.00%............................... Ba2/BB+ 4,068,750
INDUSTRIAL PRODUCTS & SERVICES (0.9%)
12,575 Home Ownership Funding, (144A), 13.331%.......... Aaa/NR 12,404,961
---------------
TOTAL CONVERTIBLE PREFERRED STOCK (COST
$16,675,578)............................... 16,473,711
---------------
PREFERRED STOCKS (0.1%)
OIL-SERVICES (0.1%)
36,000 Lasmo PLC, 10.00%, Series A, 10.00% (cost
$801,000)...................................... Baa3/BBB- 893,250
---------------
<CAPTION>
PRINCIPAL
AMOUNT
- ------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (6.3%)
CERTIFICATES OF DEPOSIT-DOMESTIC (0.4%)
BANKING (0.4%)
5,000,000 Mercantile Safe Deposit & Trust, 6.16% due
08/16/99....................................... A1/AA- 5,020,000
---------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (0.7%)
10,000,000 Federal Home Loan Bank Discount Notes, 4.04% due
12/04/98(y).................................... 9,953,800
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ------------ ------------------------------------------------- ---------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT (5.2%)
$ 69,829,000 Goldman Sachs Repurchase Agreement, 5.38% dated
10/30/98 due 11/02/98, proceeds $69,860,307
(collateralized by $68,674,000 U.S. Treasury
Bond, 6.00% due 02/15/26, valued at
$70,964,692; $261,188 U.S. Treasury Note,
5.625% due 10/31/99, valued at $256,067)....... $ 69,829,000
---------------
TOTAL SHORT-TERM INVESTMENTS (COST
$84,782,800)............................... 84,802,800
---------------
TOTAL INVESTMENTS (COST $1,347,875,301) (101.7%).................. 1,370,534,286
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.7%)..................... (23,344,489)
---------------
NET ASSETS (100.0%)............................................... $ 1,347,189,797
---------------
---------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $1,347,875,301 for federal income tax
purposes at October 31, 1998, the aggregate gross unrealized appreciation and
depreciation was $34,638,365 and $11,990,424, respectively, resulting in net
unrealized depreciation of $22,647,941.
(f) Fair valued security. Approximately 1% of the market value of the
securities have been valued at fair value. (See Note 1a).
(j) The security is issued by a related party of J.P. Morgan.
(s) Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$268,653,589 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
instrument with step coupon rate.
(y) Yield to Maturity.
Abbreviations used in the schedule of investments are as follows:
144A -- Securities restricted for resalt to Qualified Institutional Buyers.
AD -- Accretion Directed.
AS -- Accelerated Security.
CSTR -- Collateral Strip Rate.
IO -- Interest Only.
MTN -- Medium Term Note.
NAS -- Non-accelerated Security.
NR -- Not Rated.
PAC -- Planned Amortization Class.
PDI -- Past Due Interest.
PO -- Principal Only.
REMIC -- Real Estate Mortgage Investment Conduit.
SCH -- Scheduled Payment.
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.
32
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $1,347,875,301) $1,370,534,286
Cash 21,499
Foreign Currency at Value (Cost $1,703,506) 1,692,462
Receivable for Investments Sold 76,135,633
Interest Receivable 15,361,843
Unrealized Appreciation of Forward Foreign
Currency Contracts 905,842
Foreign Tax Reclaim Receivable 37,900
Prepaid Trustees' Fees 8,887
Prepaid Expenses and Other Assets 9,381
--------------
Total Assets 1,464,707,733
--------------
LIABILITIES
Payable for Investments Purchased 115,842,575
Variation Margin Payable 1,069,117
Advisory Fee Payable 342,429
Unrealized Depreciation of Forward Foreign
Currency Contracts 134,759
Administrative Services Fee Payable 32,165
Administration Fee Payable 1,501
Fund Services Fee Payable 1,168
Accrued Expenses 94,222
--------------
Total Liabilities 117,517,936
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,347,189,797
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $79,125,271
Dividend Income (Net of Foreign Withholding Tax
of $13,499 ) 1,846,616
-----------
Investment Income 80,971,887
EXPENSES
Advisory Fee $ 3,583,060
Administrative Services Fee 348,110
Custodian Fees and Expenses 265,809
Professional Fees and Expenses 59,102
Fund Services Fee 35,661
Administration Fee 22,913
Trustees' Fees and Expenses 11,228
Miscellaneous 15,410
-----------
Total Expenses 4,341,293
-----------
NET INVESTMENT INCOME 76,630,594
NET REALIZED GAIN (LOSS) ON
Investment Transactions 12,821,668
Futures Contracts 6,025,933
Foreign Currency Contracts and Transactions (4,268,923)
-----------
Net Realized Gain 14,578,678
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments 3,992,294
Futures Contracts 247,304
Foreign Currency Contracts and Translations 931,951
-----------
Net Change in Unrealized Appreciation 5,171,549
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $96,380,821
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<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, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 76,630,594 $ 65,021,206
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 14,578,678 7,026,218
Net Change in Unrealized Appreciation of
Investments, Futures and Foreign Currency
Contracts and Translations 5,171,549 10,966,639
---------------- ----------------
Net Increase in Net Assets Resulting from
Operations 96,380,821 83,014,063
---------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 542,769,830 464,045,823
Withdrawals (373,515,793) (451,810,195)
---------------- ----------------
Net Increase from Investors' Transactions 169,254,037 12,235,628
---------------- ----------------
Total Increase in Net Assets 265,634,858 95,249,691
NET ASSETS
Beginning of Fiscal Year 1,081,554,939 986,305,248
---------------- ----------------
End of Fiscal Year $ 1,347,189,797 $ 1,081,554,939
---------------- ----------------
---------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
OCTOBER 31,
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.36% 0.37% 0.37% 0.39% 0.46%
Net Investment Income 6.42% 6.70% 6.38% 6.68% 5.88%
Portfolio Turnover 115% 93% 186% 293% 234%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
35
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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 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 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.
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(1)s trustees. Such procedures include the use
of independent pricing services, which use 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. 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.
36
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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.
37
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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 October 31, 1998, the portfolio had open forward
foreign currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 10/31/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
French Franc 185,703,864, expiring
02/12/99........................................ $33,656,638 $33,573,447 $ (83,191)
German Mark 54,455,386, expiring
02/12/99........................................ 33,081,457 33,029,889 (51,568)
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- ------------------------------------------------- -----------
<S> <C> <C> <C>
French Franc 185,703,864, expiring
02/12/99........................................ 34,148,039 33,573,447 574,592
German Mark 54,455,386, expiring
02/12/99........................................ 33,361,139 33,029,889 331,250
--------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 771,083
--------------
--------------
</TABLE>
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
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 October 31,
1998 are summarized as follows:
38
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
SUMMARY OF OPEN CONTRACTS AT OCTOBER 31, 1998
<TABLE>
<CAPTION>
NET
UNREALIZED PRINCIPAL
CONTRACTS APPRECIATION/ AMOUNT
LONG (DEPRECIATION) OF CONTRACTS
----------- ----------- --------------
<S> <C> <C> <C>
U.S. Five Year Note, expiring December
1998............................................ 2,022 $ 862,737 $ 230,940,617
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
NET
UNREALIZED PRINCIPAL
CONTRACTS APPRECIATION/ AMOUNT
SHORT (DEPRECIATION) OF CONTRACTS
----------- ----------- --------------
<S> <C> <C> <C>
U.S. Two Year Note, expiring December 1998 ...... 57 $ (177,576) $ 11,943,830
U.S. Ten Year Note, expiring December 1998....... 86 (514,500) 9,832,375
U.S. Long Bond, expiring December
1998............................................ 470 155,586 60,741,524
----------- ----------- --------------
Totals........................................... 613 $ (536,490) $ 82,517,729
----------- ----------- --------------
----------- ----------- --------------
</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) Prior to October 28, 1998, the portfolio had an Investment Advisory
Agreement with Morgan Guaranty Trust Company of New York ("Morgan"), a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan").
Under the terms of the Agreement, the portfolio paid Morgan at an annual
rate of 0.30% of the portfolio's average daily net assets. Effective
October 28, 1998 the portfolio's Investment Advisor is J.P. Morgan
Investment Management Inc. ("JPMIM"), an affiliate of Morgan and a wholly
owned subsidiary of J.P. Morgan, and the terms of the Agreement will
remain the same. For the fiscal year ended October 31, 1998, this fee
amounted to $3,583,060.
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
39
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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 fiscal year ended October 31, 1998, the fee
for these services amounted to $22,913.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with 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 fiscal year ended October 31, 1998, the fee
for these services amounted to $348,110.
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 $35,661 for the fiscal year ended October 31, 1998.
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 $7,200.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1998, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $331,248,442 $344,952,944
Corporate and Collateralized Mortgage Obligations
and Other Securities............................ 334,346,650 230,317,983
------------ ------------
$665,595,092 $575,270,927
------------ ------------
------------ ------------
</TABLE>
40
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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.
41
<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 operation 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, 1998, 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 five years in the
period then ended, 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, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1998
42
