<PAGE>
High Income Portfolio as of March 31, 1997
PORTFOLIO OF INVESTMENTS
(Expressed in United States Dollars)
Corporate Bonds & Notes-- 93.7%
<TABLE>
<CAPTION>
Principal
Amount
(000
Security omitted) Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Apparel -- 3.0%
- --------------------------------------------------------------------------------
Anvil Knitwear, Inc., Sr. Notes,
10.875%, 3/15/07(1) $ 3,600 $ 3,546,000
Collins & Aikman Corp., Sr. Sub.
Notes, 11.50%, 4/15/06 2,550 2,817,750
Dan River Inc., Sr. Sub. Notes,
10.125%, 12/15/03 5,800 5,858,000
Glenoit Corp., Sr. Sub. Notes,
11.00%, 4/15/07/(1)/ 4,800 4,782,000
William Carter, Sr. Sub. Notes,
10.375%, 12/1/06(1) 4,000 4,040,000
- --------------------------------------------------------------------------------
$ 21,043,750
- --------------------------------------------------------------------------------
Auto and Parts -- 1.8%
- --------------------------------------------------------------------------------
Key Plastics, Inc., Sr. Notes,
10.25%, 3/15/07 $ 800 $ 794,000
Key Plastics, Inc., Sr. Notes,
14.00%, 11/15/99 5,500 6,105,000
Terex Corp., Sr. Sub. Notes,
13.25%, 5/15/02 5,000 5,500,000
- --------------------------------------------------------------------------------
$ 12,399,000
- --------------------------------------------------------------------------------
Banks - Regional -- 1.4%
- --------------------------------------------------------------------------------
First Nationwide, Inc., Sr. Notes,
12.50%, 4/15/03 $ 1,600 $ 1,744,000
First Nationwide, Inc., Sr. Sub.
Notes, 10.625%, 10/1/03 7,200 7,632,000
- --------------------------------------------------------------------------------
$ 9,376,000
- --------------------------------------------------------------------------------
Banks and Money Services -- 1.3%
- --------------------------------------------------------------------------------
Hawk Corp., Sr. Notes, 10.25%,
12/1/03/(1)/ $ 4,400 $ 4,444,000
Intertek Finance PLC, Sr. Sub.
Notes, 10.25%, 11/1/06/(1)/ 4,800 4,872,000
- --------------------------------------------------------------------------------
$ 9,316,000
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 10.9%
- --------------------------------------------------------------------------------
Australis Holdings Pty Ltd., Sr.
Disc. Notes, 15.00%, (0% until
2000)11/1/02/(1)/ $ 3,600 $ 2,106,000
Cablevision Systems Corp., Sr.
Sub. Notes, 9.25%, 11/1/05 2,800 2,660,000
Cablevision Systems Corp., Sr.
Sub. Notes, 10.75%, 4/1/04 2,000 2,055,000
Diamond Cable Communications Co.,
Sr. Disc. Notes, 10.75%, (0% until
2002), 2/15/07 4,800 2,592,000
Diamond Cable Communications Co.,
Sr. Disc. Notes, 11.75%, (0% until
2000), 12/15/05 7,800 4,992,000
Diamond Cable Communications Co.,
Sr. Disc. Notes, 13.25%, (0% until
1999), 9/30/04 1,600 1,248,000
Dobson Communications Corp., Sr.
Notes, 11.75%, 4/15/07(1) 2,000 1,920,000
EZ Communications Inc., Sr. Sub.
Notes, 9.75%, 12/1/05 7,100 7,313,000
Groupe Videotron Ltd., Sr. Notes,
10.625%, 2/15/05 3,470 3,817,000
ICG Holdings, Inc., Sr. Sub.
Notes, 11.625%, (0% until
2002), 3/15/07/(1)/ 5,600 3,038,000
International Cabletel, Inc., Sr.
Disc. Notes, 11.50%, (0% until
2001), 2/1/06 3,800 2,356,000
International Cabletel, Inc., Sr.
Notes, 10.00%, 2/15/07/(1)/ 4,000 3,760,000
Marcus Cable Operating Co., Sr.
Debs., 11.875%, 10/1/05 2,800 2,912,000
Marcus Cable Operating Co., Sr.
Disc. Notes, 13.50%, (0% until
1999), 8/1/04 800 636,000
Marcus Cable Operating Co., Sr.
Disc. Notes, 14.25%, (0% until
2000), 12/15/05 8,500 5,865,000
Sullivan Broadcasting Co., Inc.,
Sr. Sub. Notes, 10.25%, 12/15/05 4,800 4,728,000
TCI Satellite Entertainment, Sr.
Sub. Notes, 10.875%, 2/15/07(1) 2,400 2,112,000
United International -Series B,
0%, 11/15/99 800 584,000
United International Holdings
Inc., Sr. Sec. Disc. Notes, 0%,
11/15/99 14,953 10,915,836
Videotron Holdings PLC, Inc., Sr.
Disc. Notes, 11.00%, (0% until
1999), 8/15/05 8,400 6,636,000
Young Broadcasting Corp., Sr. Sub.
Notes, 10.125%, 2/15/05 4,000 3,960,000
- --------------------------------------------------------------------------------
$ 76,205,836
- --------------------------------------------------------------------------------
Building Materials -- 2.9%
- --------------------------------------------------------------------------------
Building Materials Corp., Sr.
Notes, 8.625%, 12/15/06 $ 800 $ 800,000
Building Materials Corp., Sr. Sub.
Notes, 11.75%, (0% until
2000), 7/1/04 5,250 4,659,375
Overhead Door Corp., Sr. Notes,
12.25%, 2/1/00 8,450 8,999,250
Southdown, Inc., Sr. Sub. Notes.,
10.00%, 3/1/06 1,750 1,872,500
</TABLE>
See notes to financial statements
13
<PAGE>
High Income Portfolio as of March 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Principal
Amount
(000
Security omitted) Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Building Materials (continued)
- --------------------------------------------------------------------------------
Tarkett International, AG., Sr.
Sub. Notes, 9.00%, 3/1/02 $ 3,600 $ 3,663,000
- --------------------------------------------------------------------------------
$ 19,994,125
- --------------------------------------------------------------------------------
Business Services -- 0.8%
- --------------------------------------------------------------------------------
Kindercare Learning Centers, Sr.
Sub. Notes, 9.50%, 2/15/09/(1)/ $ 6,000 $ 5,790,000
- --------------------------------------------------------------------------------
$ 5,790,000
- --------------------------------------------------------------------------------
Business Services - Miscellaneous -- 1.4%
- --------------------------------------------------------------------------------
Allied Waste NA, Sr. Sub Notes,
10.25%, 12/1/06/(1)/ $ 9,600 $ 9,792,000
- --------------------------------------------------------------------------------
$ 9,792,000
- --------------------------------------------------------------------------------
Chemicals -- 6.0%
- --------------------------------------------------------------------------------
Agricultural Minerals & Chemicals
Inc., Sr. Notes, 10.75%, 9/30/03 $ 5,000 $ 5,275,000
ISP Holdings, Inc., Sr. Notes,
9.75%, 2/15/02 5,750 5,980,000
NL Industries, Inc., Sr. Notes,
11.75%, 10/15/03 4,000 4,200,000
Pioneer Americas Acq. Corp., Sr.
Notes, 13.375%, 4/1/05 6,250 7,281,250
Plastic Containers, Inc., Sr.
Notes, 10.00%, 12/15/06 2,400 2,424,000
Plastic Specialties and Tech.,
Inc., Sr. Sec. Notes, 11.25%,
12/1/03 7,950 8,586,000
Terra Industries Inc., Sr. Notes,
10.50%, 6/15/05 3,800 4,028,000
UCC Investors, Inc., Sr. Sub.
Notes, 11.00%, 5/1/03 3,700 3,922,000
- --------------------------------------------------------------------------------
$ 41,696,250
- --------------------------------------------------------------------------------
Communications Equipment -- 1.7%
- --------------------------------------------------------------------------------
Omnipoint Corp., Sr. Notes,
11.625%, 8/15/06 $ 3,800 $ 3,306,000
Pricellular Wireless
Communications Corp., Sr. Notes,
10.75%, 11/1/04 2,400 2,430,000
Pricellular Wireless
Communications Corp., Sr. Sub.
Disc. Nts., 12.25%, (0% until
1998), 10/1/03 6,500 5,785,000
- --------------------------------------------------------------------------------
$ 11,521,000
- --------------------------------------------------------------------------------
Communications Services -- 9.5%
- --------------------------------------------------------------------------------
Australis Media Ltd., Sub. Disc.
Notes, 14.00%, (0% until 2000),
5/15/03 $ 6,004 $ 3,482,371
Brooks Fiber Properties, Inc., Sr.
Disc. Notes, 11.875%, (0% until
2001), 11/1/06 4,800 2,856,000
Brooks Fiber Properties. Inc., Sr.
Disc. Notes, 10.875%, (0% until
2001), 3/1/06 5,500 3,410,000
CS Wireless Systems, Inc.,
11.375%, (0% until 2001), 3/1/06 3,280 1,016,800
Dial Call Communications Inc., Sr.
Red. Notes, 12.25%, (0% until
1999), 4/15/04 7,200 5,184,000
Echostar Satellite Broadcasting
Corp., Sr. Disc. Notes, 13.125%,
(0% until 2000), 3/15/04 4,800 3,792,000
Esat Holdings, Ltd., Sr. Notes,
12.50%, (0% until 2002), 2/1/07/(1)/ 3,200 1,760,000
Galaxy Telecom LP., Sr. Sub.
Notes, 12.375%, 10/1/05 3,400 3,502,000
McCaw International, Ltd., 13.00%,
(0% until 2002), 4/15/07/(1)/ 6,800 3,179,000
McLeod Inc., Sr. Disc. Notes,
10.50%, (0% until 2002), 3/1/07/(1)/ 6,400 3,520,000
Microcell Telecommunication, Sr.
Disc. Notes, 14.00%, (0% until
2001), 6/1/06 11,200 5,488,000
Millicom International Cellular,
Sr. Disc Notes, 13.50%, (0% until
2001), 6/1/06 7,200 4,680,000
Nextlink Communications, Inc., Sr.
Notes, 12.50%, 4/15/06 5,600 5,684,000
Orion Network Systems, Inc., Sr.
Notes, 11.25%, 1/15/07 5,600 5,432,000
Orion Network Systems, Inc., Sr.
Notes, 12.50%, (0% until 2002),
1/15/07 3,200 1,600,000
Shared Tech / Fairchild, Inc., Sr.
Disc. Notes, 12.25%, (0% until
1999), 3/1/06 10,500 8,636,250
Telewest PLC, Debs., 11.00%, (0%
until 2002), 10/1/07 4,800 3,120,000
- --------------------------------------------------------------------------------
$ 66,342,421
- --------------------------------------------------------------------------------
Computer Software -- 1.2%
- --------------------------------------------------------------------------------
Unisys Corp., Sr. Notes, 11.75%, $ 2,600 $ 2,717,000
10/15/04
Unisys Corp., Sr. Notes, 12.00%, 5,600 5,852,000
4/15/03
- --------------------------------------------------------------------------------
$ 8,569,000
- --------------------------------------------------------------------------------
Containers and Packaging -- 5.7%
- --------------------------------------------------------------------------------
American Pad and Paper Co., Sr.
Sub. Notes, 13.00%, 11/15/05 $ 3,250 $ 3,770,000
Asia Pulp and Paper, 12.00%, 6,000 5,790,000
12/29/49
Container Corp., Sr. Notes, 3,250 3,510,000
10.75%, 5/1/02
Fort Howard Corp., Sr. Sec. Notes,
11.00%, 1/2/02 3,765 3,840,176
</TABLE>
14
<PAGE>
High Income Portfolio as of March 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Principal
Amount
(000
Security omitted) Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Containers and Packaging (continued)
- --------------------------------------------------------------------------------
Gaylord Container Corp., Sr. Sub.
Disc. Debs., 12.75%, (0% until
1996), 5/15/05 $ 5,700 $ 6,213,000
Repap New Brunswick, Inc., Sr.
Notes, 10.625%, 4/15/05 1,600 1,600,000
Repap Wisconsin, Inc., 2nd Party
Sr. Sec. Notes, 9.875%, 5/1/06 165 163,350
Repap Wisconsin, Inc., Sr. Notes,
9.25%, 2/1/02 3,200 3,168,000
S.D. Warren Co., Sr. Sub. Notes,
12.00%, 12/15/04 3,800 4,142,000
Silgan Corp., Sr. Sub. Notes,
11.75%, 6/15/02 1,500 1,605,000
Stone Container Corp., 1st Mtg.
Notes, 10.75%, 10/1/02 4,500 4,477,500
US Can Corp., Sr. Sub. Notes,
10.125%, 10/15/06 1,600 1,664,000
- --------------------------------------------------------------------------------
$ 39,943,026
- --------------------------------------------------------------------------------
Electronics - Instruments -- 1.4%
- --------------------------------------------------------------------------------
Blue Bell Funding Inc., Sec. Ext.
Notes, 11.85%, 5/1/99 $ 4,304 $ 4,260,960
GS Technologies Corp., Sr. Notes,
12.25%, 10/1/05 5,500 5,720,000
- --------------------------------------------------------------------------------
$ 9,980,960
- --------------------------------------------------------------------------------
Entertainment -- 1.3%
- --------------------------------------------------------------------------------
All American Communications, Inc.,
Sr. Sub. Notes, 10.875%, 10/15/01 $ 4,400 $ 4,532,000
Cinemark USA, Sr. Sub. Notes,
9.625%, 8/1/08 4,800 4,800,000
- --------------------------------------------------------------------------------
$ 9,332,000
- --------------------------------------------------------------------------------
Foods -- 6.9%
- --------------------------------------------------------------------------------
Inflo Holdings Corp., Promissory
Notes, 10.00%, (0% until 1999),
1/27/07+++ $ 4,400 $ 3,696,000
International Home Foods, Inc.,
Sr. Sub. Notes, 10.375%, 11/1/06 8,000 8,060,000
Keebler Corp., Sr. Sub. Notes,
10.75%, 7/1/06 5,720 6,234,800
MBW Foods, Inc., Sr. Sub. Notes,
9.875%, 2/15/07/(1)/ 4,800 4,752,000
PM Holdings Corp., Sr. Sub. Notes,
11.50%, (0% until 2000), 9/1/05 2,837 2,042,640
Purina Mills, Inc., Sr. Sec. Sub.
Notes, 10.25%, 9/1/03 5,775 5,948,250
Specialty Foods Acquisition Corp.,
Sr. Sub Notes, 13.00%, (0% until
1999), 8/15/05 1,600 744,000
Specialty Foods Acquisition Corp.,
Sr. Sub. Notes, 10.25%, 8/15/01 7,000 6,842,500
Specialty Foods Acquisition Corp.,
Sr. Sub. Notes, 11.25%, 8/15/03 3,200 2,832,000
Van De Kamps, Inc., Sr. Sub.
Notes, 12.00%, 9/15/05 6,100 6,649,000
- --------------------------------------------------------------------------------
$ 47,801,190
- --------------------------------------------------------------------------------
Health Services -- 2.1%
- --------------------------------------------------------------------------------
Dade International, Inc., Sr. Sub.
Notes, 11.125%, 5/1/06 $ 4,800 $ 5,448,000
Owens & Minor, Inc., Sr. Sub.
Notes, 10.875%, 6/1/06 3,200 3,448,000
Tenet Healthcare Corp., Sr. Sub.
Notes, 8.625%, 1/15/07 5,600 5,460,000
- --------------------------------------------------------------------------------
$ 14,356,000
- --------------------------------------------------------------------------------
Household Products -- 1.6%
- --------------------------------------------------------------------------------
Lifestyle Furnishings, Inc.,
10.875%, 8/1/06 $ 4,000 $ 4,400,000
Pillowtex Corp., 10.00%, 11/15/06 2,400 2,484,000
Renaisance Cosmetics, Sr. Notes,
11.75%, 2/15/04/(1)/ 500 502,500
Revlon Worldwide, Inc., Sr. Disc
Notes, 0%, 3/15/01/(1)/ 3,200 1,984,000
Scholastic Brands, Inc., Sr. Sub.
Notes, 11.00%, 1/15/07/(1)/ 2,000 2,060,000
- --------------------------------------------------------------------------------
$ 11,430,500
- --------------------------------------------------------------------------------
Investment Services -- 0.6%
- --------------------------------------------------------------------------------
DVI, Inc., Sr. Notes, 9.875%,
2/1/04 $ 4,400 $ 4,389,000
- --------------------------------------------------------------------------------
$ 4,389,000
- --------------------------------------------------------------------------------
Lodging and Gaming -- 4.0%
- --------------------------------------------------------------------------------
Aztar Corp., Sr. Sub. Notes,
13.75%, 10/1/04 $ 5,000 $ 5,600,000
Courtyard By Marriot, Sr. Notes,
10.75%, 2/1/08 3,850 4,032,875
Harvey Casinos Resorts, Sr. Sub.
Notes, 10.625%, 6/1/06 6,000 6,330,000
Showboat Marina Casino, 1st Mtg.
Notes, 13.50%, 3/15/03 4,000 4,500,000
Trump Atlantic City Associates,
Co., 1st Mtg. Notes, 11.25%,
5/1/06 4,000 3,640,000
</TABLE>
15
<PAGE>
High Income Portfolio as of March 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Principal
Amount
(000
Security omitted) Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Lodging and Gaming (continued)
- --------------------------------------------------------------------------------
Trump Holdings & Funding Inc., Sr.
Notes, 15.50%, 6/15/05 $ 3,000 $ 3,390,000
- --------------------------------------------------------------------------------
$ 27,492,875
- --------------------------------------------------------------------------------
Machinery -- 2.7%
- --------------------------------------------------------------------------------
Alvey Systems, Inc., Sr. Sub.
Notes, 11.375%, 1/31/03 $ 2,400 $ 2,496,000
Amtrol Acquisition, Inc., Sr.
Sub., 10.625%, 12/31/06 3,600 3,708,000
Imo Industries, Sr. Sub. Notes,
11.75%, 5/1/06 8,680 8,680,000
Motors And Gears, Inc., Sr. Notes,
10.75%, 11/15/06/(1)/ 4,000 4,050,000
- --------------------------------------------------------------------------------
$ 18,934,000
- --------------------------------------------------------------------------------
Medical Products -- 0.8%
- --------------------------------------------------------------------------------
Maxxim Medical, Inc., Sr. Sub.
Notes, 10.50%, 8/1/06 $ 5,200 $ 5,388,500
- --------------------------------------------------------------------------------
$ 5,388,500
- --------------------------------------------------------------------------------
Metals - Industrial -- 4.8%
- --------------------------------------------------------------------------------
AK Steel Corp., Senior Notes,
9.125%, 12/15/06 $ 5,200 $ 5,122,000
Applied Extrusion Inc., Sr. Notes,
11.50%, 4/1/02 6,000 6,210,000
Essex Group, Inc., Sr. Notes,
10.00%, 5/1/03 3,225 3,354,000
Howmet Corp., Sr. Sub. Notes,
10.00%, 12/1/03 2,850 3,035,250
Kaiser Aluminum and Chemical
Corp., Sr. Notes, 10.875%,
10/15/06 2,500 2,600,000
Kaiser Aluminum and Chemical
Corp., Sr. Sub. Notes, 12.75%,
2/1/03 6,600 7,095,000
Newflo Corp., Sub. Notes, 13.25%,
11/15/02 5,500 5,967,500
- --------------------------------------------------------------------------------
$ 33,383,750
- --------------------------------------------------------------------------------
Miscellaneous -- 3.5%
- --------------------------------------------------------------------------------
Alliant Tech Systems Inc., Sr.
Sub. Notes, 11.75%, 3/1/03 $ 4,000 $ 4,280,000
Clark-Schwebel, Sr. Notes,
10.50%, 4/15/06 5,200 5,434,000
Day International Group, Inc., Sr.
Sub. Notes, 11.125%, 6/1/05 3,300 3,432,000
Imax Corp., Sr. Notes, 10.00%,
(7% until 1997), 3/1/01 2,400 2,424,000
Selmer Co., Inc., Sr. Sub. Notes,
11.00%, 5/15/05 5,300 5,790,250
Webb Delaware Corp., Sr. Sub.
Notes, 9.75%, 1/15/08 3,200 3,200,000
- --------------------------------------------------------------------------------
$ 24,560,250
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 7.6%
- --------------------------------------------------------------------------------
AES Corp., Sr. Sub. Notes,
10.25%, 7/15/06 $ 1,600 $ 1,732,000
Cal Energy Company, Inc., Sr.
Notes, 9.50%, 9/15/06 5,500 5,857,500
Chesapeake Energy Corp., Sr.
Notes, 9.125%, 4/15/06 3,200 3,280,000
Clark USA, Inc., Sr. Notes,
10.875%, 12/1/05 2,900 2,972,500
Coda Energy Inc., Sr. Sub. Notes,
10.50%, 4/1/06 4,000 4,220,000
Dawson Product Services, Inc., Sr.
Notes, 9.375%, 2/1/07 2,800 2,772,000
El Paso Electric Co., 1st Mtg.
Notes, 9.40%, 5/1/11 2,850 3,055,143
Kelley Oil and Natural Gas Corp.,
10.375%, 10/15/06 1,600 1,648,000
Mariner Energy Corp., Sr. Sub.
Notes, 10.50%, 8/1/06 6,300 6,552,000
Midland Cogeneration Venture, Sr.
Sec. Lease Oblig., 10.33%, 7/23/02 2,734 2,898,384
Midland Funding II, Sec. Lease
Oblig., 11.75%, 7/23/05 2,200 2,498,870
Parker Drilling Corp., Sr. Sub.
Notes, 9.75%, 11/15/06 2,400 2,532,000
Perez Companc, S.A., 9.00%,
1/30/04/(1)/ 4,000 3,940,000
Trans Texas Gas Corp., Sr. Sec.
Notes, 11.50%, 6/15/02 5,400 5,913,000
Veritas DGC, Inc., Sr. Notes,
9.75%, 10/15/03 3,200 3,248,000
- --------------------------------------------------------------------------------
$ 53,119,397
- --------------------------------------------------------------------------------
Printing and Business Products -- 1.7%
- --------------------------------------------------------------------------------
MDC Communications Corp., Sr. Sub.
Notes, 10.50%, 12/1/06 $ 5,200 $ 5,434,000
Monarch Acquisition Corp., Sr.
Notes, 12.50%, 7/1/03 5,550 6,479,625
- --------------------------------------------------------------------------------
$ 11,913,625
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
16
<PAGE>
High Income Portfolio as of March 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Principal
Amount
(000
Security omitted) Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Publishing -- 1.8%
- --------------------------------------------------------------------------------
Hollinger International
Publications, Inc., Sr. Sub.
Notes, 9.25%, 3/15/07 $ 3,600 $ 3,456,000
Newsquest Capital Corp., Sr. Sub.
Notes, 11.00%, 5/1/06 8,400 8,736,000
- --------------------------------------------------------------------------------
$ 12,192,000
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 3.4%
- --------------------------------------------------------------------------------
Dominicks Finer Foods, Inc., Sr.
Sub. Notes, 10.875%, 5/1/05 $ 1,600 $ 1,720,000
Duane Reade, G.P., Sr. Notes,
12.00%, 9/15/02 6,200 6,556,500
Ralphs Grocery Co., Inc., Sr. Sub.
Notes, 13.75%, 6/15/05 5,500 5,885,000
Smith's Food and Drug Corp., Sr.
Sub. Notes, 11.25%, 5/15/07 2,400 2,628,000
Star Markets Co., Sr. Sub. Notes,
13.00%, 11/1/04 6,200 6,944,000
- --------------------------------------------------------------------------------
$ 23,733,500
- --------------------------------------------------------------------------------
Retail - General -- 1.9%
- --------------------------------------------------------------------------------
Knoll, Inc., Sr. Sub. Notes,
10.875%, 3/15/06 $ 3,600 $ 3,960,000
Levitz Furniture Corp., Sr. Sub.
Notes, 9.625%, 7/15/03 3,850 2,829,750
Levitz Furniture Corp., Sr. Sub.
Notes, 13.375%, 10/15/98 800 792,000
Specialty Retailers, Inc., Sr.
Sub. Notes, 11.00%, 8/15/03 5,530 5,875,625
- --------------------------------------------------------------------------------
$ 13,457,375
- --------------------------------------------------------------------------------
Total Corporate Bonds & Notes
(identified cost $641,051,162) $ 653,453,330
- --------------------------------------------------------------------------------
<CAPTION>
Common Stocks, Warrants and Rights-- 0.7%
Security Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Auto and Parts -- 0.3%
- --------------------------------------------------------------------------------
Bucyrus - Erie Co., Common* 214,839 $ 1,718,712
- --------------------------------------------------------------------------------
$ 1,718,712
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 0.0%
- --------------------------------------------------------------------------------
American Telecasting, Inc.
Warrants+* 2,600 $ 5,200
United International Holdings,
Inc., Warrants Exp. 11/15/99+* 7,840 56,840
- --------------------------------------------------------------------------------
$ 62,040
- --------------------------------------------------------------------------------
Building Materials -- 0.1%
- --------------------------------------------------------------------------------
Southdown, Inc. 13,500 $ 465,750
- --------------------------------------------------------------------------------
$ 465,750
- --------------------------------------------------------------------------------
Chemicals -- 0.0%
- --------------------------------------------------------------------------------
Crompton & Knowles Corp., Common* 9,489 $ 190,964
Sterling Chemicals Holdings -
Warrants+* 3,200 112,000
- --------------------------------------------------------------------------------
$ 302,964
- --------------------------------------------------------------------------------
Communications Equipment -- 0.0%
- --------------------------------------------------------------------------------
In Flight Phone Corp., Warrants
Exp. 8/31/02+* 1,600 $ --
- --------------------------------------------------------------------------------
$ --
- --------------------------------------------------------------------------------
Communications Services -- 0.1%
- --------------------------------------------------------------------------------
CS Wireless Systems, Inc., Common+* 902 $ --
Microcell Telecommunication,
Warrants+* 44,800 448,000
Microcell Telecommunication,
Warrants+* 44,800 30,240
Nextel Communications Warrants
Exp. 4/25/99+* 7,200 1,800
- --------------------------------------------------------------------------------
$ 480,040
- --------------------------------------------------------------------------------
Containers and Packaging -- 0.0%
- --------------------------------------------------------------------------------
SD Warren Company, Warrants Exp.
12/15/06+* 48,000 $ 192,000
- --------------------------------------------------------------------------------
$ 192,000
- --------------------------------------------------------------------------------
Foods -- 0.0%
- --------------------------------------------------------------------------------
Servam Corp., $2.00 Warrant Exp.
4/1/01+* 12,276 $ --
Servam Corp., $4.50 Warrant Exp.
4/1/01+* 2,760 --
Servam Corp., Common+* 1,380 --
Specialty Foods Acquisition Corp.,
Common/(1)/* 48,000 12,000
- --------------------------------------------------------------------------------
$ 12,000
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
17
<PAGE>
High Income Portfolio as of March 31, 1997
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States dollars)
<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Industrial Development Revenue / Pollution Control Revenue -- 0.0%
- --------------------------------------------------------------------------------
Thermadyne Holdings Corp., Common+* 40,000 $ 400
- --------------------------------------------------------------------------------
$ 400
- --------------------------------------------------------------------------------
Metals - Industrial -- 0.2%
- --------------------------------------------------------------------------------
Gulf States Steel, Warrants+* 2,400 $ 120
Terex Corp., Rights, Exp. 7/1/97+* 5,371 537
Terex Corp., Warrants Exp.
12/31/00+* 32,000 1,024,000
Terex Corp., Warrants Exp.
5/15/02+* 20,000 100,000
Triangle Wire & Cable, Inc.,
Common+* 95,000 190,000
- --------------------------------------------------------------------------------
$ 1,314,657
- --------------------------------------------------------------------------------
Miscellaneous -- 0.0%
- --------------------------------------------------------------------------------
Australis Media Ltd., Warrants+* 5,200 $ --
- --------------------------------------------------------------------------------
$ --
- --------------------------------------------------------------------------------
Total Common Stocks, Warrants and Rights
(identified cost $6,595,495) $ 4,548,563
- --------------------------------------------------------------------------------
Preferred Stocks -- 1.9%
Broadcasting and Cable -- 1.3%
- --------------------------------------------------------------------------------
American Radio Systems Corp.,
11.375%/(1)/ 24,000 $ 2,412,000
Cablevision Systems Corp., 11.125%
(PIK) 33,971 3,040,386
Chancellor Radio Broadcasting Corp.,
12.00%/(1)/ 40,000 3,940,000
- -------------------------------------------------------------------------------
$ 9,392,386
- --------------------------------------------------------------------------------
Communications Services -- 0.2%
- --------------------------------------------------------------------------------
Nextlink Communications, 14.00%
(PIK)/(1)/ 24,500 $ 1,102,500
- --------------------------------------------------------------------------------
$ 1,102,500
- --------------------------------------------------------------------------------
Containers and Packaging -- 0.3%
- --------------------------------------------------------------------------------
S.D. Warren Co. w / Warrants, 14%,
12/15/06 48,000 $ 1,872,000
- --------------------------------------------------------------------------------
$ 1,872,000
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 0.1%
- --------------------------------------------------------------------------------
Kelley Oil and Natural Gas Corp.* 42,240 $ 1,098,240
- --------------------------------------------------------------------------------
$ 1,098,240
- --------------------------------------------------------------------------------
Total Preferred Stocks
(identified cost $13,042,123) $ 13,465,126
- --------------------------------------------------------------------------------
</TABLE>
Short-Term Investments -- 3.7%
<TABLE>
<CAPTION>
Principal
Amount
(000
Security omitted) Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Associates Corp. of North America,
6.80%, 4/1/97 $ 16,008 $ 16,008,000
General Electric Capital Co., 10,000 9,987,444
5.65%, 4/9/97
- --------------------------------------------------------------------------------
Total Short-Term Investments
(at amortized cost $25,995,444) $ 25,995,444
- --------------------------------------------------------------------------------
Total Investments -- 100.0%
(identified cost $686,684,224) $ 697,462,463
- --------------------------------------------------------------------------------
</TABLE>
/(1)/ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At March 31,
1997, the value of these securities amounted to $83,416,000 or 12.0% of
net assets.
+ Restricted security (Note 6).
* Non-income producing security.
(PIK) Payment in-kind.
18
<PAGE>
High Income Portfolio as of March 31, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of March 31, 1997
(Expressed in United States Dollars)
Assets
- -------------------------------------------------------------------------
<S> <C>
Investments, at value (Note 1A)
(identified cost, $686,684,224) $697,462,463
Cash 17,527
Receivable for investments sold 1,464,283
Interest receivable 17,048,513
Miscellaneous receivable 2,124
Prepaid expenses 7,071
Deferred organization expenses (Note 1D) 9,773
- -------------------------------------------------------------------------
Total assets $716,011,754
- -------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------
Payable for investments purchased $ 9,254,554
Payable to affiliate
Trustees' fees 5,300
Accrued expenses 40,438
- -------------------------------------------------------------------------
Total liabilities $ 9,300,292
- -------------------------------------------------------------------------
Net Assets applicable to investors' interest in
Portfolio $706,711,462
- -------------------------------------------------------------------------
Sources of Net Assets
- -------------------------------------------------------------------------
Net proceeds from capital contributions and
withdrawals $695,933,223
Net unrealized appreciation on investments (computed
on the basis of identified cost) 10,778,239
- -------------------------------------------------------------------------
Total $706,711,462
- -------------------------------------------------------------------------
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
March 31, 1997
(Expressed in United States Dollars)
Investment Income (Note 1B)
- -------------------------------------------------------------------------
<S> <C>
Interest income $64,033,245
Dividend income 59,560
- -------------------------------------------------------------------------
Total income $64,092,805
- -------------------------------------------------------------------------
Expenses
- -------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 3,683,894
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 20,598
Custodian fee 232,684
Legal and accounting services 49,843
Amortization of organization expenses (Note 1D) 4,519
Miscellaneous 17,294
- -------------------------------------------------------------------------
Total expenses $ 4,008,832
- -------------------------------------------------------------------------
Net investment income $60,083,973
- -------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- -------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $(4,056,681)
- -------------------------------------------------------------------------
Net realized loss on investments $(4,056,681)
- -------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investment transactions (identified cost basis) $13,401,858
- -------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $13,401,858
- -------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 9,345,177
- -------------------------------------------------------------------------
Net increase in net assets from operations $69,429,150
- -------------------------------------------------------------------------
</TABLE>
See notes to financial statements
19
<PAGE>
High Income Portfolio as of March 31, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets (Expressed in United States Dollars)
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets March 31, 1997 March 31, 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 60,083,973 $ 50,896,652
Net realized loss on investments (4,056,681) (5,151,523)
Net change in unrealized
appreciation (depreciation)
of investments 13,401,858 17,257,761
- -------------------------------------------------------------------------------
Net increase in net assets
from operations $ 69,429,150 $ 63,002,890
- -------------------------------------------------------------------------------
Capital transactions --
Contributions $ 280,137,284 $ 172,948,713
Withdrawals (154,202,111) (167,156,279)
- -------------------------------------------------------------------------------
Net increase in net assets from
capital transactions $ 125,935,173 $ 5,792,434
- -------------------------------------------------------------------------------
Net increase in net assets $ 195,364,323 $ 68,795,324
- -------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------
At beginning of year $ 511,347,139 $ 442,551,815
- -------------------------------------------------------------------------------
At end of year $ 706,711,462 $ 511,347,139
- -------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
20
<PAGE>
High Income Portfolio as of March 31, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data (Expressed in United States Dollars)
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------
1997 1996 1995*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ratios to average daily net assets
- --------------------------------------------------------------------------------------------------------------------
Expenses 0.67% 0.71% 0.70%+
Net investment income 10.02% 10.41% 10.63%+
Portfolio Turnover 78% 88% 53%
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $ 706,711 $511,347 $442,552
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, June 1, 1994, to March 31, 1995.
See notes to financial statements
21
<PAGE>
High Income Portfolio as of March 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
(Expressed in United States Dollars)
1 Significant Accounting Policies
------------------------------------------------------------------------------
High Income Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a diversified open-end management investment company
which was organized as a trust under the laws of the State of New York on May
1, 1992. The Declaration of Trust permits the Trustees to issue interests in
the Portfolio. The following is a summary of significant accounting policies
of the Portfolio. The policies are in conformity with accounting principles
generally accepted in the United States of America.
A Investment Valuations -- Investments listed on securities exchanges or in
the NASDAQ National Market are valued at closing sale prices. Listed or
unlisted investments for which closing sale prices are not available are
valued at the mean between the latest bid and asked prices. Fixed income
investments (other than short-term obligations), including listed investments
and investments for which price quotations are available, will normally be
valued on the basis of market valuations furnished by a pricing service.
Financial futures contracts listed on commodity exchanges are valued at
closing settlement prices. Short-term obligations, maturing in sixty days or
less, are valued at amortized cost, which approximates value. Investments for
which there are no quotations or valuations are valued at fair value using
methods determined in good faith by or at the direction of the Trustees.
B Income -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes. Dividend income is recorded on the ex-dividend date for
dividends received in cash and/or securities.
C Income Taxes -- The Portfolio has elected to be treated as a partnership for
United States Federal tax purposes. No provision is made by the Portfolio for
federal or state taxes on any taxable income of the Portfolio because each
investor in the Portfolio is ultimately responsible for the payment of any
taxes. Since some of the Portfolio's investors are regulated investment
companies that invest all or substantially all of their assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements (under the Internal Revenue Code) in order
for its investors to satisfy them. The Portfolio will allocate at least
annually among its investors each investor's distributive share of the
Portfolio's net taxable investment income, net realized capital gains, and any
other items of income, gain, loss, deduction or credit.
D Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
E Financial Futures Contracts -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in
cash or securities an amount equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by the Portfolio ("margin maintenance") each day, dependent
on the daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by the Portfolio. The
Portfolio's investment in financial futures contracts is designed only to
hedge against anticipated future changes in interest rates. Should interest
rates move unexpectedly, the Portfolio may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss.
F Use of Estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
G Other -- Investment transactions are accounted for on a trade date basis.
H Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT receives
a fee reduced by credits which are determined based on the average daily cash
balances the Portfolio maintains with IBT. All significant credit balances
used to reduce the Portfolio's custodian fees are reported as a reduction of
expenses on the Statement of Operations.
2 Investment Adviser Fee and Other Transactions with Affiliates
------------------------------------------------------------------------------
The investment adviser fee is earned by Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to the Portfolio. The fee
is based upon a percentage of average daily net assets plus a percentage of
gross income (i.e., income other than gains from the sale of securities). For
the year ended March 31, 1997, the fee was equivalent to 0.61% of the
Portfolio's average daily net
22
<PAGE>
High Income Portfolio as of March 31, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
(Expressed in United States Dollars)
assets and amounted to $3,683,894. Except as to Trustees of the Portfolio who
are not members of EVM's or BMR's organization, officers and Trustees receive
remuneration for their services to the Portfolio out of such investment
adviser fee. Certain of the officers and Trustees of the Portfolio are
officers and directors/trustees of the above organizations. Trustees of the
Portfolio that are not affiliated with the Investment Adviser may elect to
defer receipt of all or a portion of their annual fees in accordance with the
terms of the Trustees Deferred Compensation Plan. For the year ended March 31,
1997, no significant amounts have been deferred.
3 Investments
------------------------------------------------------------------------------
The Portfolio invests primarily in debt securities. The ability of the issuers
of the debt securities held by the Portfolio to meet their obligations may be
affected by economic developments in a specific industry. Purchases and sales
of investments, other than U.S. Government securities and short-term
obligations, aggregated $591,877,399 and $446,278,324, respectively, for the
year ended March 31, 1997.
4 Line of Credit
------------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a committed $120 million unsecured line of credit
agreement with a group of banks. Borrowings will be made by the Portfolio
solely to facilitate the handling of unusual and/or unanticipated short-term
cash requirements. Interest is charged to each portfolio or fund based on its
borrowings at the bank's base rate or at an amount above either the bank's
adjusted certificate of deposit rate, Eurodollar rate or federal funds
effective rate. In addition, a fee computed at an annual rate of 0.15% on the
daily unused portion of the line of credit is allocated among the
participating portfolios and funds at the end of each quarter. The Portfolio
did not have any significant borrowings or allocated fees during the period.
5 Federal Income Tax Basis of Investments
------------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investments
owned at March 31, 1997, as computed on a federal income tax basis, were as
follows:
<TABLE>
<S> <C>
Aggregate cost $ 686,684,224
------------------------------------------------------------------------------
Gross unrealized appreciation $ 25,029,413
Gross unrealized depreciation (14,251,174)
------------------------------------------------------------------------------
Net unrealized appreciation $ 10,778,239
------------------------------------------------------------------------------
</TABLE>
6 Restricted Securities
------------------------------------------------------------------------------
At March 31, 1997, the Portfolio owned the following securities (constituting
0.83% of net assets) which were restricted as to public resale and not
registered under the Securities Act of 1933 (excluding Rule 144A Securities).
The Portfolio has various registration rights (exercisable under a variety of
circumstances) with respect to certain of these securities. The fair value of
these securities is determined based on valuations provided by brokers when
available, or if not available, they are valued at fair value using methods
determined in good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Date of
Description Acquisition Shares/Face Cost Fair Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Note
------------------------------------------------------------------------------
Inflo Holdings Corp.,
Promissory Notes, 10%
(0% until 1999),
1/27/07 9/13/96 4,400,000 $2,884,000 $3,696,000
Common Stocks, Warrants, and Rights
------------------------------------------------------------------------------
American Telecasting,
Inc. Warrants 01/16/96 2,600 $ 71,500 $ 5,200
Australis Media Ltd.,
Warrants 05/26/95 5,200 - -
CS Wireless Systems,
Inc., Common 01/14/97 902 - -
Gulf States Steel,
Warrants 08/22/95 2,400 - 120
In Flight Phone
Corp., Warrants
Exp. 8/31/02 11/28/95 1,600 - -
Microcell
Telecommunication, 10/30/96 44,800 - 448,000
Warrants
Microcell
Telecommunication,
Contingent Warrants 10/30/96 44,800 - 30,240
Nextel Communications
Warrants Exp. 4/25/99 10/04/96 7,200 - 1,800
SD Warren Company,
Warrants Exp. 12/15/06 05/15/95 48,000 - 192,000
Servam Corp., $2.00
Warrant Exp. 4/1/01 12/15/87 12,276 - -
Servam Corp., $4.50
Warrant Exp. 4/1/01 12/15/87 2,760 - -
Servam Corp., Common 12/15/87 1,380 - -
Sterling Chemicals
Holdings, Warrants 10/07/96 3,200 - 112,000
Terex Corp., Rights,
Exp. 7/1/97 11/07/94 5,371 - 537
Terex Corp., Warrants
Exp. 12/31/00 12/15/93 32,000 6,400 1,024,000
Terex Corp., Warrants
Exp. 5/15/02 11/07/96 20,000 - 100,000
Thermadyne Holdings
Corp., Common 4/03/89 40,000 28,800 400
Triangle Wire &
Cable, Inc., Common 05/02/94 95,000 2,250,000 190,000
United International
Holdings, Inc.,
Warrants Exp. 11/15/99 11/16/94 7,840 222,186 56,840
------------------------------------------------------------------------------
$5,462,886 $5,857,137
------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
High Income Portfolio as of March 31, 1997
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors of High Income Portfolio
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of High Income Portfolio (the Portfolio) as of
March 31, 1997, and the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended March 31, 1997 and
1996 and the supplementary data for the two years then ended and for the period
from the start of business, June 1, 1994, to March 31, 1995 (all expressed in
United States dollars). These financial statements and supplementary data are
the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on these financial statements and supplementary data based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and supplementary data are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities held as of March 31, 1997 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of the Portfolio at March 31,
1997, the results of its operations, changes in net assets and supplementary
data for the respective stated periods, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE
Grand Cayman, Cayman Islands
British West Indies
May 9, 1997
24
<PAGE>
EV Classic High Income Fund as of March 31, 1997
INVESTMENT MANAGEMENT
High Income Portfolio
<TABLE>
<S> <C>
Officers Independent Trustees
M. Dozier Gardner Donald R. Dwight
President and Trustee President, Dwight Partners, Inc.
Chairman, Newspapers of New England, Inc.
James B. Hawkes
Vice President and Trustee Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Hooker Talcott, Jr. Banking, Harvard University Graduate School of
Vice President and Business Administration
Co-Portfolio Manager
Norton H. Reamer
Michael W. Weilheimer President and Director, United Asset
Vice President and Management Corporation
Co-Portfolio Manager
John L. Thorndike
William Chisholm Formerly Director, Fiduciary Company Incorporated
Vice President
Jack L. Treynor
Raymond O'Neill Investment Adviser and Consultant
Vice President
Michel Normandeau
Vice President
James L. O'Connor
Treasurer
Thomas Otis
Secretary
</TABLE>
25
