<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
CERTIFICATES OF DEPOSIT - FOREIGN (0.2%)
CANADA (0.2%)
$ 4,000,000 Canadian Imperial Bank of Commerce, 6.200% due
08/01/00
(cost $4,000,292).............................. Aa3/AA- $ 3,991,240
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (15.6%)
AIRLINES (0.2%)
3,000,000 Continental Airlines, Inc., Series 1999-2, Class
C-1, 7.730% due 09/15/12....................... Baa1/A- 2,951,700
--------------
FINANCIAL SERVICES (15.4%)
1,858,395 American Southwest Financial Corp., Support Bond,
Series 60, Class D, 8.900% due 03/01/18........ NR/AAA 1,861,871
2,253,150 Bear Stearns Structured Securities Inc.,
Sequential Payer, Series 1997-2,
Class 1A5, (144A), 7.000% due 08/25/36......... Aaa/NR 2,109,864
1,883,044 Chase Commercial Mortgage Securities Corp.,
Sequential Payer,
Series 1998-2, Class A1, 6.025% due 08/18/07... NR/AAA 1,808,645
2,000,000 Chase Commercial Mortgage Securities Corp.,
Subordinated Bond,
Series 1996-2, Class F, (144A), 6.900% due
11/19/06....................................... NR/NR 1,600,000
30,000,000 Chase Manhattan Bank - First Union National,
Sequential Payer,
Series 1999-1, Class A2, 7.439% due 07/15/09... NR/AAA 30,431,250
650,000 Citibank Credit Card Master Trust I, Subordinated
Bond, PO, Series 1997-6, Class A, 6.868% (y)
due 08/15/06................................... Aaa/AAA 470,229
1,405,000 Citibank Credit Card Master Trust I, Subordinated
Bond, Series 1999-2,
Class B, 6.150% due 03/10/11................... A2/A 1,280,742
2,350,000 COMM, Sequential Payer, Series 1999-1, Class A2,
6.455% due 09/15/08............................ Aaa/NR 2,219,363
11,500,000 Commercial Mortgage Acceptance Corp.,
Subordinated Bond, CSTR,
Series 1997-ML1, Class C, 6.774% due
12/15/07....................................... A2/A 10,818,510
901,122 Countrywide Home Loans, Sequential Payer, Series
1997-4, Class A, 8.000% due 08/25/27........... Aaa/NR 899,148
983,105 CS First Boston Mortgage Securities Corp.,
Sequential Payer,
Series 1997-C2, Class A1, 6.400% due
02/17/04....................................... Aaa/AAA 969,280
5,089,000 CS First Boston Mortgage Securities Corp.,
Subordinated Bond,
Series 1997-C2, Class B, 6.720% due 11/17/07... Aa2/NR 4,780,479
30,171,816 First Nationwide Trust, Sequential Payer, Series
1999-4, Class 3PA1, 6.500% due 10/19/29........ NR/AAA 28,521,795
52,905,000 First Union-Lehman Brothers-Bank of America,
Sequential Payer,
Series 1998-C2, Class A2, 6.560% due
11/18/08....................................... Aaa/AAA 50,377,437
1,000,000 Green Tree Financial Corporation, Sequential
Payer, Series 1996-5, Class A5, 7.450% due
07/15/27....................................... Aaa/AAA 1,004,680
1,500,000 J.P. Morgan Commercial Mortgage Finance Corp.,
Subordinated Bond, CSTR, Series 1996-C2, Class
E, (144A), 8.541% due 11/25/27 (v)............. NR/BB 1,286,484
15,000,000 MBNA Master Credit Card Trust, Subordinated Bond,
Series 1999-J, Class B, 7.400% due 02/15/12.... A2/A+ 15,066,300
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 2,223,979 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR,
Series 1995-C2, Class E, (144A), 7.878% due
06/15/21 (v)................................... Ba2/NR $ 2,033,204
2,000,000 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
7.120% due 06/18/29 (v)........................ NR/BB 1,369,687
8,108,636 Midland Realty Acceptance Corp., Sequential
Payer, Series 1996-C2,
Class A1, 7.020% due 01/25/29.................. Aaa/NR 8,059,224
1,224,117 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1997-XL1, Class A1, 6.590% due
10/03/30....................................... Aaa/AAA 1,210,345
12,000,000 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1998-WF2, Class A2, 6.540% due
05/15/08....................................... NR/NR 11,499,375
2,350,000 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1998-XL2, Class A2, 6.170% due
10/03/08....................................... NR/AAA 2,175,219
5,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, CSTR, Series 1997-RR, Class D, (144A),
7.748% due 04/30/39 (v)........................ NR/NR 3,429,687
1,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1995-GAL1,
Class E, (144A), 8.250% due 08/15/05........... NR/NR 856,250
2,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-HF1, Class F, (144A), 6.860%
due 02/15/10................................... NR/NR 1,551,563
24,749,000 Mortgage Capital Funding, Inc., Sequential Payer,
Series 1997-MC1,
Class A3, 7.288% due 03/20/07.................. Aaa/NR 24,718,064
4,000,000 Nationslink Funding Corp., Sequential Payer,
Series 1998-2, Class A2, 6.476% due 07/20/08... Aaa/AAA 3,797,500
19,770,000 Nomura Asset Securities Corp., Sequential Payer,
Series 1998-D6, Class A1B, 6.590% due
03/17/28....................................... Aaa/AAA 18,769,144
10,000,000 Sears Credit Account Master Trust, Series 1995-5,
Class A ,
6.050% due 01/15/08............................ Aaa/AAA 9,806,200
1,250,000 Vendee Mortgage Trust, Sequential Payer, Series
1997-1, Class 2C, 7.500% due 09/15/17.......... NR/NR 1,262,100
--------------
246,043,639
--------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$254,773,637).............................. 248,995,339
--------------
CONVERTIBLE BONDS (0.1%)
RETAIL (0.1%)
1,100,000 Corporate Express, Inc., 4.500% due 07/01/00
(cost $934,625)................................ B3/B- 1,090,375
--------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
CORPORATE OBLIGATIONS (16.4%)
AUTOMOTIVE (0.7%)
$ 10,000,000 Daimlerchrysler, N.A. Holding, 6.900% due
09/01/04....................................... A1/A+ $ 10,028,100
1,055,000 Daimlerchrysler, N.A. Holding, 7.200% due
09/01/09....................................... A1/A+ 1,054,662
--------------
11,082,762
--------------
BANKING (1.5%)
3,000,000 Bank One Corp., 6.875% due 08/01/06.............. Aa3/A+ 2,948,504
1,000,000 Chase Manhattan Corp., 7.500% due 02/01/03....... A1/A 1,022,030
10,500,000 Comerica Bank, 5.410% due 06/12/00 (v)........... A1/A 10,493,274
10,800,000 Swiss Bank Corp.-New York, 7.000% due 10/15/15... Aa2/AA 10,094,328
--------------
24,558,136
--------------
BROADCASTING & PUBLISHING (0.2%)
1,700,000 AMFM, Inc., 9.250% due 07/01/07.................. B1/B 1,763,750
1,200,000 Fox Family Worldwide, Inc., 9.250% due
11/01/07....................................... B1/B 1,107,000
--------------
2,870,750
--------------
CHEMICALS (0.1%)
1,000,000 Cytec Industries, Inc., MOPPRS, 6.846% due
05/11/05....................................... Baa2/BBB 940,980
--------------
COMMERCIAL SERVICES (0.3%)
5,000,000 Cendant Corp., 7.750% due 12/01/03............... Baa1/BBB 4,965,900
--------------
ELECTRIC (1.3%)
494,000 Calpine Corp., 7.875% due 04/01/08............... Ba1/BB+ 465,595
1,450,000 East Coast Power LLC, (144A), 7.066% due
03/31/12....................................... Baa3/BBB- 1,303,113
4,800,000 East Coast Power LLC, (144A), 7.536% due
06/30/17....................................... Baa3/BBB- 4,282,853
10,000,000 Pacific Corp., Series G, 6.710% due 01/15/26..... Aaa/AAA 9,203,000
5,000,000 PECO Energy Co., 8.000% due 04/01/02............. Baa1/A 5,123,850
--------------
20,378,411
--------------
ELECTRONICS (0.4%)
7,000,000 Sensormatic Electronics Corp., (144A), 7.740% due
03/29/06 (f)................................... NR/BB+ 6,291,460
--------------
ENERGY SOURCE (0.0%)
506,000 Cogentrix Energy, Inc., 8.750% due 10/15/08...... Ba1/BB+ 483,230
--------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (0.2%)
$ 1,500,000 Fox/Liberty Networks LLC, 8.875% due 08/15/07.... Ba1/BBB- $ 1,522,500
1,100,000 Lamar Media Corp., 8.625% due 09/15/07........... B1/B 1,056,000
--------------
2,578,500
--------------
FINANCIAL SERVICES (5.8%)
13,000,000 Associates Corp. N.A., 5.875% due 07/15/02....... Aa3/AA- 12,765,480
3,400,000 Commercial Credit Co., 8.700% due 06/15/10....... Aa3/AA- 3,735,886
5,000,000 Enterprise Rent-a-Car USA Finance Co., (144A),
6.375% due 05/15/03............................ Baa2/BBB+ 4,855,600
4,000,000 FCB/NC Capital Trust I, 8.050% due 03/01/28...... Baa3/BB+ 3,685,805
390,000 Fleet Boston Corp., 7.125% due 04/15/06.......... A3/A- 388,916
10,000,000 Ford Motor Credit Co., 5.800% due 01/12/09....... A1/A 9,026,700
13,535,000 Ford Motor Credit Co., 7.375% due 10/28/09....... A1/A 13,644,092
410,000 General Motors Acceptance Corp., 7.125% due
05/01/03....................................... A2/A 413,575
10,000,000 Household Finance Corp., 6.000% due 05/01/04..... A2/A 9,583,900
5,330,000 Household Finance Corp., 6.500% due 11/15/08..... A2/A 5,027,842
1,000,000 Keycorp Institutional Capital, Series B, 8.250%
due 12/15/26................................... A1/BBB 998,130
2,500,000 Keystone Financial Mid-Atlantic Funding, MTN,
6.500% due 05/31/08............................ Baa2/BBB+ 2,231,800
2,000,000 Nationwide Financial Services, Inc., 8.000% due
03/01/27....................................... A1/A+ 1,990,960
10,000,000 NGC Corp. Capital Trust, Series B, 8.316% due
06/01/27....................................... Baa3/BBB- 9,504,000
5,000,000 Phillips 66 Capital Trust II, 8.000% due
01/15/37....................................... Baa1/BBB 4,629,750
4,100,000 Provident Financing Trust I, 7.405% due
03/15/38....................................... A2/BBB+ 3,466,140
3,000,000 Safeco Capital Trust I, 8.072% due 07/15/37...... A3/A- 2,624,760
2,000,000 Sun World International, Inc., Series B, 11.250%
due 04/15/04................................... B2/B 2,000,000
1,500,000 US Bancorp Capital I, Series B, 8.270% due
12/15/26....................................... A1/BBB+ 1,476,330
--------------
92,049,666
--------------
FOREST PRODUCTS & PAPER (1.3%)
5,000,000 Champion International Corp., 7.100% due
09/01/05....................................... Baa1/BBB 4,939,850
9,150,000 Georgia-Pacific Corp., 8.625% due 04/30/25....... Baa2/BBB- 9,141,216
5,600,000 Georgia-Pacific Corp., 9.950% due 06/15/02....... Baa2/BBB- 5,979,456
--------------
20,060,522
--------------
HEALTH SERVICES (0.0%)
2,000,000 Mariner Post-Acute Network, Inc., Series B,
9.500% due 04/01/06 TRIANGLE ................. C/D 40,000
--------------
MACHINERY (0.9%)
15,000,000 Caterpillar, Inc., 7.250% due 09/15/09........... A2/A+ 15,002,468
--------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
METALS & MINING (0.1%)
$ 1,400,000 P&L Coal Holdings Corp., Series B, 9.625% due
05/15/08....................................... B2/B $ 1,337,000
1,000,000 Ryerson Tull, Inc., 8.500% due 07/15/01.......... Baa3/BBB 990,000
--------------
2,327,000
--------------
NATURAL GAS (0.3%)
5,000,000 National Fuel Gas Co., Series D, MTN, 6.214% due
08/12/27....................................... A2/A- 4,924,650
--------------
OIL-PRODUCTION (0.1%)
1,200,000 Plains Resources, Inc., Series D, 10.250% due
03/15/06....................................... B2/B 1,209,000
--------------
OIL-SERVICES (0.3%)
1,000,000 Lasmo (USA), Inc., 7.500% due 06/30/06........... Baa2/BBB 979,660
750,000 Lasmo (USA), Inc., 8.375% due 06/01/23........... Baa2/BBB 715,170
1,250,000 Newpark Resources, Inc., Series B, 8.625% due
12/15/07....................................... B2/B+ 1,162,500
2,786,319 Oil Purchase Co., (144A), 7.100% due 04/30/02.... Ba2/BBB- 2,605,209
--------------
5,462,539
--------------
RETAIL (0.2%)
2,500,000 Federated Department Stores, Inc., 8.500% due
06/15/03....................................... Baa1/BBB+ 2,600,250
--------------
TELECOMMUNICATIONS (0.1%)
1,500,000 McLeodUSA, Inc., 9.250% due 07/15/07............. B1/B+ 1,485,000
1,000,000 NEXTLINK Communications, Inc., 9.625% due
10/01/07....................................... B3/B 962,500
--------------
2,447,500
--------------
TELEPHONE (1.1%)
7,500,000 MCI Worldcom, Inc., 6.950% due 08/15/06.......... A3/A- 7,401,375
10,000,000 Sprint Capital Corp., 5.875% due 05/01/04........ Baa1/BBB+ 9,557,700
--------------
16,959,075
--------------
TRANSPORT & SERVICES (0.0%)
865,191 Burlington Northern Santa Fe Corp., Series
1996-A, 7.330% due 06/23/10.................... Aa3/A+ 872,666
--------------
TRANSPORTATION (0.4%)
2,000,000 Atlantic Express Transportation Corp., 10.750%
due 02/01/04................................... B2/B 1,915,000
4,557,129 Federal Express Corp., Series 1999-1, Class C,
8.250% due 01/15/19............................ Baa1/BBB+ 4,564,602
--------------
6,479,602
--------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
UTILITIES (1.1%)
$ 6,800,000 Atmos Energy Corp., 6.750% due 07/15/28.......... A3/A- $ 5,840,180
12,400,000 Southern Co. Capital Trust I, 8.190% due
02/01/37....................................... A3/BBB+ 11,807,280
--------------
17,647,460
--------------
TOTAL CORPORATE OBLIGATIONS (COST
$275,227,050).............................. 262,232,527
--------------
FOREIGN CORPORATE OBLIGATIONS (3.7%)
CANADA (2.5%)
FINANCIAL SERVICES
5,000,000 McKesson Finance of Canada, (144A), 6.550% due
11/01/02....................................... Baa1/BBB+ 4,817,700
OIL PRODUCTION
6,400,000 Canadian Occidental Petroleum Ltd., 7.125% due
02/04/04....................................... Baa2/BBB 6,315,968
1,498,200 Express Pipeline LP, Series B, (144A), 7.390% due
12/31/17....................................... Baa3/BBB- 1,305,307
RAILROADS
5,350,000 Canadian National Railway, 7.000% due 03/15/04... Baa2/BBB 5,347,058
TELECOMMUNICATION SERVICES
300,000 Microcell Telecommunications, Inc., Series B,
11.999% (y)
due 06/01/06 (v)............................... B3/NR 246,750
TELECOMMUNICATIONS
7,500,000 AT & T Canada, Inc., (144A), 7.650% due
09/15/06....................................... Baa3/BBB 7,563,000
900,000 Rogers Cablesystems Ltd., 10.000% due 12/01/07... Ba3/BB+ 956,250
TELEPHONE
600,000 Call-Net Enterprises, Inc., 11.870% (y) due
08/15/07 (v)................................... B2/B+ 393,000
1,250,000 Rogers Cantel, Inc., 8.300% due 10/01/07......... Ba3/BB+ 1,253,125
TRANSPORT & SERVICES
850,000 Laidlaw, Inc., 6.650% due 10/01/04............... Baa3/BBB 773,058
7,000,000 Laidlaw, Inc., 6.720% due 10/01/27............... Baa3/BBB 6,049,960
WATER
4,500,000 Hydro Quebec, Series GF, 8.875% due 03/01/26..... A2/A+ 5,179,815
--------------
40,200,991
--------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FRANCE (0.1%)
ELECTRICAL EQUIPMENT
$ 1,785,000 Legrand S.A., 8.500% due 02/15/25................ A2/A $ 1,847,993
--------------
NETHERLANDS (0.2%)
FINANCIAL SERVICES
900,000 ICI Investments BV, Series E, MTN, 6.750% due
08/07/02....................................... Baa1/A- 887,400
2,250,000 Montell Finance Co. BV, (144A), 8.100% due
03/15/27....................................... Baa2/BBB- 2,283,053
--------------
3,170,453
--------------
SWEDEN (0.1%)
TRANSPORT & SERVICES
1,500,000 Stena AB, 8.750% due 06/15/07.................... Ba2/BB 1,331,250
--------------
UNITED KINGDOM (0.8%)
ELECTRIC
5,000,000 National Power Co. PLC, 6.250% due 12/01/03...... A2/A- 4,829,500
10,000,000 United Utilities PLC, 6.875% due 08/15/28........ A2/A 8,669,500
--------------
13,499,000
--------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$63,439,793)............................... 60,049,687
--------------
FOREIGN GOVERNMENT OBLIGATIONS (0.9%)
CANADA (0.9%)
10,035,000 Province of Ontario, 7.625% due 06/22/04......... Aa3/AA- 10,426,867
4,700,000 Province of Quebec, Series NY, 6.500% due
01/17/06....................................... A2/A+ 4,602,898
--------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$15,122,461)............................... 15,029,765
--------------
PRIVATE PLACEMENT (2.9%)
FINANCIAL SERVICES (1.8%)
5,841,256 500 Grant Street Associates, (144A), 6.460% due
12/01/08....................................... A2/NR 5,566,717
23,500,000 Newcourt Credit Group, (144A), 6.875% due
02/16/05....................................... A1/BBB 23,216,355
--------------
28,783,072
--------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
REAL ESTATE (1.1%)
$ 4,464,193 180 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 $ 4,147,012
10,958,687 200 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 9,977,775
3,274,837 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 3,049,757
--------------
17,174,544
--------------
TOTAL PRIVATE PLACEMENT (COST $47,959,307)... 45,957,616
--------------
SOVEREIGN BONDS (3.1%)
ARGENTINA (0.3%)
4,950,000 Republic of Argentina, Series FRB, 6.813% due
03/31/05 (v)................................... B1/BB 4,381,740
--------------
BRAZIL (1.1%)
11,792,401 Republic of Brazil C Bonds, Series 20 Year ,
8.000% due 04/15/14............................ B2/B+ 7,878,798
1,435,000 Republic of Brazil NMB L, Series RG, 7.000% due
04/15/09 (v)................................... B2/NR 1,053,828
2,905,000 Republic of Brazil NMB, Series 15 Year, 7.000%
due 04/15/09 (v)............................... B2/B+ 2,133,359
8,709,100 Republic of Brazil, Series EI-L, 6.938% due
04/15/06 (v)................................... B2/B+ 7,103,403
--------------
18,169,388
--------------
BULGARIA (0.1%)
1,935,000 Republic of Bulgaria IAB, PDI, 6.500% due
07/28/11 (v)................................... B2/NR 1,475,438
--------------
COLOMBIA (0.1%)
1,615,000 Republic of Colombia Global Bonds, 9.750% due
04/23/09....................................... Ba2/BB+ 1,459,556
--------------
MEXICO (0.8%)
8,480,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... Ba1/BB 9,043,920
1,275,000 United Mexican States Global Bonds, 11.500% due
05/15/26....................................... Ba1/BB 1,423,920
3,000,000 United Mexican States Global Bonds, Series XW,
10.375% due 02/17/09........................... NR/NR 3,047,400
--------------
13,515,240
--------------
PANAMA (0.1%)
2,520,000 Republic of Panama, 8.875% due 09/30/27.......... Ba1/BB+ 2,034,900
--------------
PERU (0.1%)
3,145,000 Republic of Peru PDI, Series 20 Year, 4.500% due
03/07/17 (v)................................... Ba3/BB 1,961,694
--------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
PHILIPPINES (0.2%)
$ 3,205,000 Republic of Philippines Global Bonds, 9.875% due
01/15/19....................................... Ba1/BB+ $ 3,092,825
--------------
QATAR (0.3%)
4,500,000 State of Qatar, (144A), 9.500% due 05/21/09...... Baa2/BBB 4,640,625
--------------
TOTAL SOVEREIGN BONDS (COST $49,688,807)..... 50,731,406
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (41.9%)
FEDERAL HOME LOAN MORTGAGE CORP. (2.7%)
20,780,000 5.125% due 10/15/08 (s).......................... 18,536,383
1,184,424 6.000% due 03/01/11-04/01/11..................... 1,146,158
538,599 7.000% due 09/01/09-10/01/10..................... 540,095
3,727,855 9.250% due 06/01/16.............................. 3,878,199
2,708 9.500% due 08/01/04.............................. 2,816
11,263 10.000% due 04/01/09............................. 11,855
604 12.500% due 08/01/14............................. 684
9,762,562 Gold, 8.506% due 12/01/04........................ 10,217,131
7,830,000 REMIC: Sequential Payer, AD, Series 1980, Class
VB, 7.000% due 03/15/11........................ 7,754,127
1,200,969 REMIC: Sequential Payer, Series 1980, Class C,
6.850% due 10/15/21............................ 1,202,842
--------------
43,290,290
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (34.9%)
13,240,541 6.000% due 05/15/08-02/01/29 (s)................. 12,562,542
8,883,643 6.500% due 08/01/12-09/01/29..................... 8,512,551
2,792,127 6.880% due 11/01/05.............................. 2,787,765
775,208 7.000% due 07/01/28.............................. 761,154
326,913 8.000% due 06/01/11-05/01/27..................... 333,764
4,198,257 8.700% due 01/01/05.............................. 4,437,684
381,054 9.000% due 10/01/24-12/01/24..................... 398,450
46,610,000 TBA, November, 6.000% due 12/01/29............... 43,456,367
87,570,000 TBA, November, 6.500% due 10/01/29............... 83,916,580
124,430,000 TBA, November, 7.000% due 09/01/29............... 122,175,328
206,095,000 TBA, November, 7.500% due 10/01/29............... 206,546,348
69,942,000 TBA, November, 8.000% due 10/01/29............... 71,264,603
--------------
557,153,136
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (4.3%)
54,442,215 6.500% due 06/15/28-11/15/29..................... 52,082,444
4,433,334 7.000% due 12/15/08-04/15/29..................... 4,354,159
10,978,881 7.500% due 01/15/27-08/15/27..................... 11,006,328
1,311,516 8.000% due 06/15/17-04/15/27..................... 1,344,718
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 264,559 8.500% due 05/15/27.............................. $ 275,142
78,074 9.000% due 12/15/26.............................. 82,417
--------------
69,145,208
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $668,561,332)........................ 669,588,634
--------------
U.S. TREASURY OBLIGATIONS (7.1%)
U.S. TREASURY BONDS (6.2%)
11,075,000 6.125% due 08/15/29.............................. 11,026,492
3,053,000 6.750% due 08/15/26.............................. 3,182,753
66,965,000 8.875% due 02/15/19 (s).......................... 84,187,728
--------------
98,396,973
--------------
U.S. TREASURY NOTES (0.5%)
3,000,000 5.625% due 11/30/00 (s).......................... 2,999,520
4,735,000 6.875% due 05/15/06 (s).......................... 4,914,030
--------------
7,913,550
--------------
U.S. TREASURY STRIPS (0.4%)
13,490,000 PO, 6.617% (y) due 11/15/15...................... 4,746,591
3,230,000 PO, 6.617% (y) due 05/15/18...................... 965,738
--------------
5,712,329
--------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$112,244,171).............................. 112,022,852
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- ---------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.9%)
FINANCIAL SERVICES (0.2%)
150,000 TCI Communications Financing II, 10.000%......... A3/A 3,946,875
---------------
INDUSTRIAL PRODUCTS & SERVICES (0.7%)
12,575 Home Ownership Funding, (144A) (v)............... Aaa/NR 10,408,479
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$16,675,578)............................... 14,355,354
---------------
PREFERRED STOCKS (0.1%)
OIL-SERVICES (0.1%)
36,000 Lasmo PLC, Series A, 10.000% (cost $801,000)..... Baa3/BB+ 873,000
---------------
SHORT-TERM INVESTMENTS (39.2%)
COMMERCIAL PAPER-FOREIGN (1.2%)
20,000,000 Caisse D'Amortissement, 4.659% (y) due 12/03/99
(s)............................................ 19,914,133
---------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ------------------------------------------------- ---------------
<C> <S> <C>
REPURCHASE AGREEMENTS (38.0%)
$ 202,197,000 Goldman Sachs Repurchase Agreement, 5.180% dated
10/29/99
due 11/01/99, proceeds $202,284,282
(collateralized by $109,780,000 U.S. Treasury
Notes, 5.125% through 6.625% due 08/31/00
through 05/15/07, valued at $112,816,693;
$71,534,000 U.S. Treasury Bond, 9.125% due
05/15/18, valued at $93,444,738) (s)........... $ 202,197,000
202,197,000 State Street Bank and Trust Repurchase Agreement,
5.180% dated 10/29/99 due 11/01/99, proceeds
$202,284,282 (collateralized by $202,705,000
U.S. Treasury Note, 5.750% due 06/30/01, valued
at 206,252,338) (s)............................ 202,197,000
202,197,000 Westdeutsche Landesbank Repurchase Agreement,
5.210% dated 10/29/99 due 11/01/99, proceeds
$202,284,787 (collateralized by $100,015,616
FNMA, 5.766% due 05/01/36, valued at
$78,737,490; $123,401,000 U.S. Treasury Notes,
5.500% through 6.500% due 02/15/00 through
05/31/02, valued at $127,503,810) (s).......... 202,197,000
--------------
606,591,000
--------------
TOTAL SHORT-TERM INVESTMENTS (COST
$626,505,133).............................. 626,505,133
--------------
TOTAL INVESTMENTS (COST $2,135,933,186)
(132.1%)....................................... 2,111,422,928
LIABILITIES IN EXCESS OF OTHER ASSETS (-32.1%)... (513,301,249)
--------------
NET ASSETS (100.0%).............................. $1,598,121,679
==============
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $2,137,544,894 for federal income
tax purposes at October 31, 1999, the aggregate gross unrealized appreciation
and depreciation was $5,357,001 and $31,478,967, respectively, resulting in net
unrealized depreciation of $26,121,966.
(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
TBA and when issued securities or futures contracts or with broker as initial
margin for futures contracts. $747,155,320 of the market value has been
segregated.
(v) Rate shown reflects current rate on variable or floating rate instrument or
investment with step coupon rate.
(y) Yield to maturity.
TRIANGLE Defaulted security.
Abbreviations used in the schedule of investments are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
AD - Accretion Directed
C - Capitalization.
CSTR - Collateral Strip Rate.
FNMA - Federal National Mortgage Association.
IAB - Interest in Arrears Bond.
MOPPRS - Mandatory Par Put Remarketed Security.
MTN - Medium Term Note.
NMB - New Money Bonds.
NR - Not Rated.
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
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $1,529,342,186 ) $1,504,831,928
Repurchase Agreements (Cost $606,591,000) 606,591,000
Cash 5,957
Receivable for Investments Sold 61,580,272
Interest Receivable 12,807,146
Unrealized Appreciation of Forward Foreign
Currency Contracts 1,664,897
Prepaid Trustees' Fees 7,774
Prepaid Administration Fee 552
Prepaid Expenses and Other Assets 7,017
--------------
Total Assets 2,187,496,543
--------------
LIABILITIES
Payable for Investments Purchased 587,419,311
Unrealized Depreciation of Forward Foreign
Currency Contracts 783,205
Variation Margin Payable 621,587
Advisory Fee Payable 398,629
Administrative Services Fee Payable 33,413
Fund Services Fee Payable 880
Accrued Expenses 117,839
--------------
Total Liabilities 589,374,864
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,598,121,679
==============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $94,258,053
Dividend Income (Net of Foreign Withholding Tax
of $11,448 ) 2,131,247
-----------
Investment Income 96,389,300
EXPENSES
Advisory Fee $ 4,514,768
Administrative Services Fee 390,355
Custodian Fees and Expenses 374,012
Professional Fees and Expenses 47,555
Fund Services Fee 30,562
Administration Fee 19,016
Trustees' Fees and Expenses 14,761
Miscellaneous 13,116
------------
Total Expenses 5,404,145
-----------
NET INVESTMENT INCOME 90,985,155
NET REALIZED GAIN (LOSS) ON
Investments Transactions (43,285,695)
Futures Contracts 2,420,893
Foreign Currency Contracts and Transactions 850,200
------------
Net Realized Loss (40,014,602)
NET CHANGE IN UNREALIZED DEPRECIATION OF
Investments (47,169,243)
Futures Contracts (982,598)
Foreign Currency Contracts and Translations (66,067)
------------
Net Change in Unrealized Depreciation (48,217,908)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 2,752,645
===========
</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 FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 90,985,155 $ 76,630,594
Net Realized Gain (Loss) on Investments, Futures
and Foreign Currency Contracts and Transactions (40,014,602) 14,578,678
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations (48,217,908) 5,171,549
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 2,752,645 96,380,821
--------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 936,203,363 542,769,830
Withdrawals (688,024,126) (373,515,793)
--------------- ---------------
Net Increase from Investors' Transactions 248,179,237 169,254,037
--------------- ---------------
Total Increase in Net Assets 250,931,882 265,634,858
NET ASSETS
Beginning of Fiscal Year 1,347,189,797 1,081,554,939
--------------- ---------------
End of Fiscal Year $ 1,598,121,679 $ 1,347,189,797
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
--------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.36% 0.36% 0.37% 0.37% 0.39%
Net Investment Income 6.05% 6.42% 6.70% 6.38% 6.68%
Portfolio Turnover 465% 115% 93% 186% 293%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 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,
diversified, 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'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. The
portfolio commenced operations on July 12, 1993.
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-backed
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 portfolio values securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available mean of the bid and asked
prices on such exchange, if such exchange or market constitutes the
broadest and most representative market for the security. Securities
listed on a foreign exchange are valued at the last traded price or, in
the absence of recorded trades, at the readily available mean of the bid
and asked prices on such exchange available before the time when the net
assets are valued. Independent pricing service procedures may also include
the use of prices based on yields or prices of securities of comparable
quality, coupon, maturity and type, indications as to values from dealers,
operating data, and general market conditions. Unlisted securities are
valued at the average of the quoted bid and asked prices in the
over-the-counter market provided by a principal market maker or dealer. If
prices are not supplied by the portfolio's independent pricing service or
principal market maker or dealer, such securities are priced using fair
values in accordance with procedures adopted by the protfolio's trustees.
All short-term securities with a remaining maturity of sixty days or less
are valued using 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 (CONTINUED)
OCTOBER 31, 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.
e) 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
32
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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.
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 fiscal year ended
October 31, 1999, this fee amounted to $4,514,768.
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 fiscal year ended October 31, 1999, the fee for these services
amounted to $19,016.
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
33
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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, 1999, the fee for these services amounted to
$390,355.
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 $30,562 for the fiscal year ended October 31, 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 $5,800.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $5,620,086,179 $5,473,121,558
Corporate and Collateralized Obligations......... 999,560,042 861,040,812
-------------- --------------
$6,619,646,221 $6,334,162,370
============== ==============
</TABLE>
At October 31, 1999, the portfolio had open forward foreign currency
contracts as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 10/31/99 (DEPRECIATION)
- ------------------ ----------- ----------- --------------
<S> <C> <C> <C>
Euro 67,158,000, expiring 11/02/99............... $71,388,954 $70,605,749 $ (783,205)
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- --------------- -----------
<S> <C> <C> <C>
Euro 67,158,000, expiring 11/02/99............... $72,270,646 $70,605,749 $ 1,664,897
-------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 881,692
=============
</TABLE>
34
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Open futures contracts at October 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ MARKET VALUE
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
--------------- -------------- ------------
<S> <C> <C> <C>
U.S. Five-Year Treasury Note, expiring December
1999............................................ 739 $ (353,837) $79,777,363
============== ============= ===========
<CAPTION>
CONTRACTS SHORT
---------------
<S> <C> <C> <C>
U.S. Ten-Year Treasury Note, expiring December
1999............................................ 97 $ 91,113 $10,642,719
U.S. Ten-Year Treasury Note, expiring
March 2000...................................... 37 (17,995) 3,623,688
U.S. Treasury Long Bond, expiring December
1999............................................ 673 (375,632) 76,448,594
-------------- ------------- -----------
Totals........................................... 807 $ (302,514) $90,715,001
============== ============= ===========
</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
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Fixed Income Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The U.S. Fixed Income Portfolio (the
"portfolio") at October 31, 1999, 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, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
36
