<PAGE>
High Income Portfolio as of March 31, 1998
PORTFOLIO OF INVESTMENTS
(Expressed in United States Dollars)
Corporate Bonds & Notes -- 89.7%
Principal
Amount
Security (000's omitted) Value
- --------------------------------------------------------------------------------
Aerospace and Defense -- 0.5%
- --------------------------------------------------------------------------------
Alliant Tech Systems Inc., Sr. Sub.
Notes, 11.75%, 3/1/03 $ 4,000 $ 4,400,000
- --------------------------------------------------------------------------------
$ 4,400,000
- --------------------------------------------------------------------------------
Apparel -- 1.2%
- --------------------------------------------------------------------------------
Glenoit Corp., Sr. Sub. Notes,
11.00%, 4/15/07/(1)/ $ 4,800 $ 5,184,000
William Carter Co., Sr. Sub. Note,
10.375%, 12/1/06 6,275 6,729,938
- --------------------------------------------------------------------------------
$ 11,913,938
- --------------------------------------------------------------------------------
Auto and Parts -- 1.4%
- --------------------------------------------------------------------------------
Cambridge Industries, Inc., Sr. Sub.
Notes, 10.25%, 7/15/07 $ 2,520 $ 2,620,800
Key Plastics, Inc., Sr. Notes,
14.00%, 11/15/99 5,500 6,105,000
Walbro Corp., Sr. Notes,
10.125%, 12/15/07 4,590 4,498,200
- --------------------------------------------------------------------------------
$ 13,224,000
- --------------------------------------------------------------------------------
Banks - Regional -- 1.0%
- --------------------------------------------------------------------------------
First Nationwide Holdings, Inc., Sr. Sub
Note, 10.625%, 10/1/03 $ 7,200 $ 8,082,000
First Nationwide, Inc., Sr. Notes,
12.50%, 4/15/03 1,600 1,832,000
- --------------------------------------------------------------------------------
$ 9,914,000
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 8.5%
- --------------------------------------------------------------------------------
21st Century Telecom Group, Sr. Disc.
Notes, 12.25%, (0% until 2003), 2/15/08/(1)/ $ 8,000 $ 4,710,000
Adelphia Communications Corp., Sr. Notes,
9.875%, 3/1/07 4,480 4,872,000
Adelphia Communications Corp., Sr. Notes,
10.50%, 7/15/04 2,640 2,897,400
Century Communications, Sr. Notes,
8.75%, 10/1/07 2,400 2,496,000
CSC Holdings, Inc., Sr. Sub. Notes,
9.25%, 11/1/05 3,150 3,346,875
Diamond Cable Communications Co., Sr.
Disc. Notes, 11.75%, (0% until
2000), 12/15/05 1,400 1,113,000
Diamond Cable Communications Co., Sr.
Disc. Notes, 13.25%, (0% until 1,600 1,476,000
1999), 9/30/04
Digital Television Services, Inc.,
Guaranteed Notes, 12.50%, 8/1/07 6,410 7,387,525
Echostar DBS Corp., Sr. Sec. Notes,
12.50%, 7/1/02 5,000 5,650,000
Intermedia Capital Partners, Sr. Sub.
Note, 11.25%, 8/1/06 2,625 2,953,125
Marcus Cable Operating Co., Sr. Debs.,
11.875%, 10/1/05 2,800 3,045,000
Marcus Cable Operating Co., Sr. Disc.
Notes, 14.25%, (0% until 2000), 12/15/05 8,500 7,713,750
NTL, Inc., 10.00%, 2/15/07 4,400 4,774,000
NTL, Inc., Sr. Notes, 9.75%, (0% until
2003), 4/1/08/(1)/ 4,400 2,871,000
Star Choice Communications, Sr. Sec.
Notes, 13.00%, 12/15/05/(1)/ 2,400 2,508,000
Sullivan Broadcasting Co., Inc., Sr. Sub.
Notes, 10.25%, 12/15/05 4,800 5,292,000
Telewest PLC, Debs., 11.00%, (0% until
2002), 10/1/07 7,000 5,635,000
UIH Australia/Pacific, Inc., Sr. Disc.
Note, 14.00%, (0% until 2001), 5/15/06 1,600 1,104,000
UIH Australia/Pacific, Inc., Sr. Disc.
Notes, 14.00%, (0% until 2001), 5/15/06 2,000 1,380,000
United International Holdings, Inc., Sr.
Disc. Notes, 10.75%, (0% until
2003), 2/15/08 15,300 9,562,500
- --------------------------------------------------------------------------------
$ 80,787,175
- --------------------------------------------------------------------------------
Building Materials -- 0.4%
- --------------------------------------------------------------------------------
Tarkett International, AG., Sr. Sub.
Notes, 9.00%, 3/1/02 $ 3,600 $ 3,681,000
- --------------------------------------------------------------------------------
$ 3,681,000
- --------------------------------------------------------------------------------
Business Services -- 1.9%
- --------------------------------------------------------------------------------
AP Holdings, Inc., Sr. Disc. Notes,
11.25%, (0% until 2003), 3/15/08/(1)/ $ 4,800 $ 2,892,000
Apcoa, Inc., Sr. Sub. Notes,
9.25%, 3/15/08/(1)/ 1,200 1,203,000
Federal Data Corp., Sr. Sub. Notes,
10.125%, 8/1/05 4,320 4,492,800
Intertek Finance PLC, Sr. Sub. Note,
10.25%, 11/1/06 5,600 5,992,000
Sitel Corp., Sr. Sub. Notes,
9.25%, 3/15/06/(1)/ 3,000 3,075,000
- --------------------------------------------------------------------------------
$ 17,654,800
- --------------------------------------------------------------------------------
See notes to financial statements
13
<PAGE>
High Income Portfolio as of March 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
Principal
Amount
Security (000's omitted) Value
- --------------------------------------------------------------------------------
Business Services - Miscellaneous -- 4.6%
- --------------------------------------------------------------------------------
Allied Waste Industries, Inc., Sr. Disc.
Notes, 11.30%, (0% until 2002), 6/1/07 $ 6,550 $ 4,814,250
Allied Waste North America, Inc., Sr. Sub
Note, LOC, 10.25%, 12/1/06 8,200 9,102,000
Crown Castle International Corp., Sr.
Disc. Notes, 10.625%, (0% until
2002), 11/15/07/(1)/ 3,800 2,565,000
Pinnacle Holdings, Inc., Sr. Disc. Notes,
10.00%, (0% until 2003), 3/15/08/(1)/ 4,020 2,512,500
Richmont Marketing Special, Sr. Sub.
Notes, 10.125%, 12/15/07/(1)/ 7,475 7,774,000
SBA Communications Corp., Sr. Disc.
Notes, 12.00%, (0% until 2003), 3/1/08/(1)/ 13,600 8,041,000
Unicco Service/Finance, Inc., Sr. Sub.
Notes, 9.875%, 10/15/07 4,040 4,135,950
Unisite, Inc., Sub. Notes,
0.00%, 12/15/04/(1)/ 4,500 4,671,450
- --------------------------------------------------------------------------------
$ 43,616,150
- --------------------------------------------------------------------------------
Chemicals -- 1.3%
- --------------------------------------------------------------------------------
Huntsman Corp., Sr. Sub. Note,
9.50%, 7/1/07/(1)/ $ 3,350 $ 3,475,625
NL Industries, Inc., Sr. Notes,
11.75%, 10/15/03 5,040 5,607,000
Sterling Chemical Holdings, Inc.,
0.00%, 8/15/08 6,400 3,808,000
- --------------------------------------------------------------------------------
$ 12,890,625
- --------------------------------------------------------------------------------
Communications Equipment -- 0.7%
- --------------------------------------------------------------------------------
Jordan Telecom Products, Inc., Sr. Disc.
Notes, 11.75%, (0% until 2000), 8/1/07/(1)/ $ 7,700 $ 6,545,000
- --------------------------------------------------------------------------------
$ 6,545,000
- --------------------------------------------------------------------------------
Computer Equipment -- 1.8%
- --------------------------------------------------------------------------------
Merisel, Inc., Sr. Notes, 12.50%,
12/31/04 $ 4,000 $ 4,460,000
Unisys Corp., Debs., 9.75%, 9/15/16 3,600 3,726,000
Unisys Corp., Sr. Notes, 11.75%, 10/15/04 2,600 3,009,500
Unisys Corp., Sr. Notes, 12.00%, 4/15/03 5,600 6,342,000
- --------------------------------------------------------------------------------
$ 17,537,500
- --------------------------------------------------------------------------------
Containers and Packaging -- 1.6%
- --------------------------------------------------------------------------------
Applied Extrusion Inc., Sr. Notes,
11.50%, 4/1/02 $ 6,000 $ 6,420,000
Consumers International, Inc., Sr. Sub.
Note, 10.25%, 4/1/05/(1)/ 3,935 4,348,175
S.D. Warren Co., Sr. Sub. Notes,
12.00%, 12/15/04 3,800 4,246,500
- --------------------------------------------------------------------------------
$ 15,014,675
- --------------------------------------------------------------------------------
Electric Utilities -- 0.9%
- --------------------------------------------------------------------------------
AES Corp., 8.375%, 8/15/07 $ 1,200 $ 1,233,000
AES Corp., Sr. Sub. Notes,
10.25%, 7/15/06 1,600 1,768,000
Cal Energy Company, Inc., Sr. Notes,
9.50%, 9/15/06 5,500 5,907,165
- --------------------------------------------------------------------------------
$ 8,908,165
- --------------------------------------------------------------------------------
Electrical Equipment -- 0.4%
- --------------------------------------------------------------------------------
Wavetek Corp., Sr. Sub. Notes,
10.125%, 6/15/07 $ 3,360 $ 3,519,600
- --------------------------------------------------------------------------------
$ 3,519,600
- --------------------------------------------------------------------------------
Electronics - Instruments -- 0.4%
- --------------------------------------------------------------------------------
HCC Industries, Inc., Sr. Sub. Notes,
10.75%, 5/15/07 $ 3,975 $ 4,153,875
- --------------------------------------------------------------------------------
$ 4,153,875
- --------------------------------------------------------------------------------
Entertainment -- 1.1%
- --------------------------------------------------------------------------------
Australis Media Ltd., Sub. Disc. Notes,
15.75%, (0% until 2000), 5/15/03 $ 4,490 $ 897,919
Fox Kids Worldwide, Inc., Sr. Disc.
Notes, 10.25%, (0% until 2002), 11/1/07/(1)/ 7,700 4,908,750
Premier Parks, Inc., Sr. Disc. Notes,
10.00%, (0% until 2003), 4/1/08 3,200 2,040,000
Premier Parks, Inc., Sr. Notes,
9.25%, 4/1/06 1,640 1,676,900
SFX Entertainment, Inc., Sr. Sub. Notes,
9.125%, 2/1/08/(1)/ 1,480 1,457,800
- --------------------------------------------------------------------------------
$ 10,981,369
- --------------------------------------------------------------------------------
Foods -- 4.2%
- --------------------------------------------------------------------------------
B & G Foods, Inc., Sub. Notes,
9.625%, 8/1/07/(1)/ $ 3,925 $ 4,023,125
Del Monte Corp., Sr. Note,
12.25%, 4/15/07 4,400 5,016,000
Del Monte Foods Co., Sr. Disc. Notes,
12.50%, (0% until 1998), 12/15/07/(1)/ 7,000 4,593,750
Grupo Azucarero Mexico, Sr. Notes,
11.50%, 1/15/05/(1)/ 3,200 3,176,000
See notes to financial statements
14
<PAGE>
High Income Portfolio as of March 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
Principal
Amount
Security (000's omitted) Value
- --------------------------------------------------------------------------------
Foods (continued)
- --------------------------------------------------------------------------------
International Home Foods, Inc., Sr. Sub.
Note, 10.375%, 11/1/06 $ 9,000 $ 10,012,500
Keebler Corp., Sr. Sub. Notes,
10.75%, 7/1/06 5,720 6,492,200
Van De Kamps, Inc., Sr. Sub. Notes,
12.00%, 9/15/05 6,100 6,801,500
- --------------------------------------------------------------------------------
$ 40,115,075
- --------------------------------------------------------------------------------
Health Services -- 1.2%
- --------------------------------------------------------------------------------
Dade International, Inc., Sr. Sub. Notes,
11.125%, 5/1/06 $ 4,800 $ 5,364,000
Genesis Eldercare Acquisition Corp., Sr.
Sub. Note, 9.00%, 8/1/07/(1)/ 6,120 6,273,000
- --------------------------------------------------------------------------------
$ 11,637,000
- --------------------------------------------------------------------------------
Household Products -- 2.9%
- --------------------------------------------------------------------------------
Amscan Holdings, Inc., Sr. Sub. Notes,
9.875%, 12/15/07/(1)/ $ 4,480 $ 4,692,800
Coleman Holdings, Inc., Sr. Disc. Notes,
0.00%, 5/15/01 4,000 3,140,000
Icon Health and Fitness, Inc., Sr. Sub.
Note, 13.00%, 7/15/02 4,000 4,360,000
IHF Holdings, Inc., 15.00%, (0% until
1999), 11/15/04 2,960 2,486,400
Ridell Sports, Inc., Sr. Note,
10.50%, 7/15/07 3,160 3,318,000
Selmer Co., Inc., Sr. Sub. Notes,
11.00%, 5/15/05 5,300 5,816,750
Werner Holdings Co, Inc., Sr. Sub. Notes,
10.00%, 11/15/07 3,600 3,802,500
- --------------------------------------------------------------------------------
$ 27,616,450
- --------------------------------------------------------------------------------
Information Services -- 1.7%
- --------------------------------------------------------------------------------
Cellnet Data Systems, Inc., Sr. Disc.
Notes, 14.00%, (0% until 2002), 10/1/07 $ 10,400 $ 6,136,000
Concentric Network Corp., Sr. Notes,
12.75%, 12/15/07/(1)/ 3,200 3,792,000
Orbital Imaging Corp., Sr. Notes,
11.625%, 3/1/05/(1)/ 3,760 4,117,200
Verio, Inc., Sr. Notes, 10.375%,
4/1/05/(1)/ 2,160 2,246,400
- --------------------------------------------------------------------------------
$ 16,291,600
- --------------------------------------------------------------------------------
Lodging and Gaming -- 4.8%
- --------------------------------------------------------------------------------
Aztar Corp., Sr. Sub. Notes,
13.75%, 10/1/04 $ 5,000 $ 5,762,500
Extended Stay America, Sr. Sub. Notes,
9.15%, 3/15/08/(1)/ 13,200 13,364,999
Harvey Casinos Resorts, Sr. Sub. Notes,
10.625%, 6/1/06 8,550 9,597,375
Horseshoe Gaming L.L.C., Sr. Sub. Notes,
9.375%, 6/15/07 3,200 3,456,000
Showboat Marina Casino, 1st Mtg. Notes,
13.50%, 3/15/03 6,000 7,080,000
Trump Atlantic City Associates, Co., 1st
Mtg. Notes, 11.25%, 5/1/06 5,900 6,062,250
- --------------------------------------------------------------------------------
$ 45,323,124
- --------------------------------------------------------------------------------
Machinery -- 0.3%
- --------------------------------------------------------------------------------
Alvey Systems, Inc., Sr. Sub. Notes,
11.375%, 1/31/03 $ 2,400 $ 2,580,000
- --------------------------------------------------------------------------------
$ 2,580,000
- --------------------------------------------------------------------------------
Manufacturing -- 7.3%
- --------------------------------------------------------------------------------
Amtrol Acquisition, Inc., Sr. Sub.,
10.625%, 12/31/06 $ 3,600 $ 3,699,000
Clark-Schwebel Holdings, Inc., Debs.,
12.50%, 7/15/07 4,277 4,598,247
Details, Inc., Sr. Sub. Notes,
10.00%, 11/15/05 5,650 5,918,375
FWT, Inc., Sr. Sub. Notes,
9.875%, 11/15/07/(1)/ 5,360 5,092,000
GSI Group, Inc., Sr. Sub. Notes,
10.25%, 11/1/07/(1)/ 3,680 3,882,400
IMO Industries, Sr. Sub. Notes,
11.75%, 5/1/06 8,680 9,808,400
MCMS, Inc., Sr. Sub. Notes,
9.75%, 3/1/08/(1)/ 7,400 7,474,000
Motors and Gears, Inc., Sr. Notes,
10.75%, 11/15/06 6,600 7,128,000
RBX Corp., Sr. Notes, 12.00%, 1/15/03/(1)/ 2,200 2,288,000
Roller Bearing Co. America, Inc., Sr.
Sub. Notes, 9.625%, 6/15/07 1,600 1,644,000
Roller Bearing Holdings Co., 13.00%, (0%
until 2002), 6/15/09/(1)/ 12,875 8,433,125
Viasystems, Inc., Sr. Sub. Notes,
9.75%, 6/1/07/(1)/ 5,000 5,225,000
Viasystems, Inc., Sr. Sub. Notes,
9.75%, 6/1/07 3,600 3,762,000
- --------------------------------------------------------------------------------
$ 68,952,547
- --------------------------------------------------------------------------------
See notes to financial statements
15
<PAGE>
High Income Portfolio as of March 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
Principal
Amount
Security (000's omitted) Value
- --------------------------------------------------------------------------------
Medical Products -- 1.2%
- --------------------------------------------------------------------------------
Alliance Imaging, Sr. Sub Notes,
9.625%, 12/15/05 $ 2,700 $ 2,821,500
Maxxim Medical, Inc., Sr. Sub. Notes,
10.50%, 8/1/06 5,200 5,772,000
Physician Sales and Service, Sr. Sub.
Notes, 8.50%, 10/1/07 2,680 2,787,200
- --------------------------------------------------------------------------------
$ 11,380,700
- --------------------------------------------------------------------------------
Metals - Industrial -- 1.5%
- --------------------------------------------------------------------------------
GS Technologies Corp., Sr. Notes,
12.25%, 10/1/05 $ 7,100 $ 8,058,500
Kaiser Aluminum and Chemical, Inc., Sr.
Notes, 10.875%, 10/15/06 2,500 2,712,500
WHX Corp., 10.50%, 4/15/05/(1)/ 3,600 3,600,000
- --------------------------------------------------------------------------------
$ 14,371,000
- --------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 2.7%
- --------------------------------------------------------------------------------
Dailey International, Inc., Sr. Notes,
9.50%, 2/15/08/(1)/ $ 9,120 $ 9,177,000
Grant Geophysical, Inc., Sr. Notes,
9.75%, 2/15/08/(1)/ 5,600 5,516,000
Hvide Marine, Inc., Sr. Notes,
8.375%, 2/15/08/(1)/ 4,800 4,680,000
Universal Compression, Inc., Sr. Disc.
Notes, 9.875%, (0% until 2003),2/15/08/(1)/ 9,400 5,875,000
- --------------------------------------------------------------------------------
$ 25,248,000
- --------------------------------------------------------------------------------
Oil and Gas - Exploration
and Production -- 2.9%
- --------------------------------------------------------------------------------
Energy Corp. of America, Sr. Sub. Notes,
9.50%, 5/15/07 $ 5,400 $ 5,400,000
Mariner Energy Corp., Sr. Sub. Notes,
10.50%, 8/1/06 4,600 4,784,000
Michael Petroleum Corp., Sr. Notes,
11.50%, 4/1/05 3,655 3,618,450
Rutherford-Moran Oil Corp., Sr. Sub.
Notes, 10.75%, 10/1/04 6,515 6,971,050
Transamerican Energy, Sr. Notes,
11.50%, 6/15/02 3,200 3,168,000
United Refining Co., Sr. Notes,
10.75%, 6/15/07 3,200 3,376,000
- --------------------------------------------------------------------------------
$ 27,317,500
- --------------------------------------------------------------------------------
Paper and Forest Products -- 1.4%
- --------------------------------------------------------------------------------
Asia Pulp and Paper, 12.00%, 12/29/49 $ 6,000 $ 4,920,000
Indah Kiat Finance Mauritius, Sr. Unsec.
Notes, 10.00%, 7/1/07 3,400 2,813,500
Pindo Deli Finance Mauritius, Ltd.,
Guaranteed Sr. Note, 10.75%, 10/1/07 2,400 2,004,000
Tjiwi Kimia Finance Mauritus, Ltd.,
Guaranteed Sr. Sub. Notes, 10.00%, 8/1/04 3,800 3,154,000
- --------------------------------------------------------------------------------
$ 12,891,500
- --------------------------------------------------------------------------------
Printing and Business Products -- 1.1%
- --------------------------------------------------------------------------------
American Pad and Paper Co., Sr. Sub.
Notes, 13.00%, 11/15/05 $ 3,250 $ 3,542,500
MDC Communications Corp., Sr. Sub. Notes,
10.50%, 12/1/06 6,600 7,161,000
- --------------------------------------------------------------------------------
$ 10,703,500
- --------------------------------------------------------------------------------
Publishing -- 1.6%
- --------------------------------------------------------------------------------
American Lawyer Media Corp., Sr. Disc.
Notes, 12.25%, (0% until 2002)12/15/08 $ 2,920 $ 1,854,200
American Lawyer Media Corp., Sr. Notes,
9.75%, 12/15/07/(1)/ 2,000 2,100,000
Newsquest Capital Corp., Sr. Sub. Note,
11.00%, 5/1/06 605 679,113
Newsquest Capital Corp., Sr. Sub. Notes,
11.00%, 5/1/06 4,441 4,985,023
Von Hoffman Press, Inc., Sr. Sub Note,
10.375%, 5/15/07/(1)/ 4,800 5,184,000
- --------------------------------------------------------------------------------
$ 14,802,336
- --------------------------------------------------------------------------------
Retail - Food and Drug -- 2.4%
- --------------------------------------------------------------------------------
AFC Enterprises, Inc., Sr. Sub Notes,
10.25%, 5/15/07 $ 9,600 $ 10,176,000
Pantry, Inc., Sr. Sub. Notes,
10.25%, 10/15/07 5,200 5,427,500
Star Markets Co., Sr. Sub. Notes,
13.00%, 11/1/04 6,200 7,068,000
- --------------------------------------------------------------------------------
$ 22,671,500
- --------------------------------------------------------------------------------
Retail - General -- 1.9%
- --------------------------------------------------------------------------------
Big 5 Corp., Sr. Notes,
10.875%, 11/15/07 $ 4,320 $ 4,417,200
See notes to financial statements
16
<PAGE>
High Income Portfolio as of March 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
Principal
Amount
Security (000's omitted) Value
- --------------------------------------------------------------------------------
Retail - General (continued)
- --------------------------------------------------------------------------------
Franks Nursery and Crafts, Sr. Sub.
Notes, 10.25%, 3/1/08/(1)/ $ 4,000 $ 3,980,000
Kindercare Learning Ctrs., Inc., Sr. Sub.
Note, 9.50%, 2/15/09 6,500 6,670,625
Tuesday Morning Corp., Sr. Sub. Notes,
11.00%, 12/15/07/(1)/ 3,000 3,112,500
- --------------------------------------------------------------------------------
$ 18,180,325
- --------------------------------------------------------------------------------
Transportation -- 0.4%
- --------------------------------------------------------------------------------
International Logistics, Ltd., Sr. Notes,
9.75%, 10/15/07 $ 3,680 $ 3,652,400
- --------------------------------------------------------------------------------
$ 3,652,400
- --------------------------------------------------------------------------------
Wireless Communication Services -- 10.9%
- --------------------------------------------------------------------------------
America Mobile/ AMSC Acquisition Corp.,
Sr. Notes, 12.25%, 4/1/08 $ 5,400 $ 5,616,000
Dial Call Communications Inc., Sr. Red.
Notes, 12.25%, (0% until 1999), 4/15/04 10,720 10,666,400
Dobson Communications Corp., Sr. Note,
11.75%, 4/15/07 9,675 10,642,500
Iridium L.L.C. Capital Corp., Sr. Notes,
11.25%, 7/15/05 9,000 9,540,000
Microcell Telecommunication, Sr. Disc.
Notes, 14.00%, (0% until 2001), 6/1/06 5,640 4,187,700
Millicom International Cellular, Sr. Disc
Notes, 13.50%, (0% until 2001), 6/1/06 7,200 5,616,000
Nextel Communications, Inc., Sr. Disc.
Notes, 9.75%, (0% until 1999), 8/15/04 4,000 3,850,000
Nextel Communications, Inc., Sr. Disc.
Notes, 10.65%, (0% until 2002), 9/15/07 250 167,500
Nextel International, Inc., Sr. Disc.
Notes, 12.125%, (0% until 2003), 4/15/08/(1)/ 9,000 5,400,000
Omnipoint Corp., Sr. Note,
11.625%, 8/15/06 2,580 2,838,000
Orion Network Systems, Inc., Sr. Disc.
Notes, 12.50%, (0% until 2002), 1/15/07 1,600 1,256,000
Orion Network Systems, Inc., Sr. Note,
11.25%, 1/15/07 5,600 6,496,000
Pricellular Wireless Communications
Corp., Sr. Notes, 10.75%, 11/1/04 3,200 3,600,000
Pricellular Wireless Communications
Corp., Sr. Sub. Disc. Nts., 12.25%, (0%
until 1998), 10/1/03 6,980 7,468,600
Satelites Mexicanos SA, Sr. Notes,
10.125%, 11/1/04 2,800 2,898,000
Telesystem International Wireless, Sr.
Disc. Notes, 10.50%, (0% until 2002), 11/1/07 4,000 2,540,000
Telesystem International Wireless, Sr.
Disc. Notes, 13.25%, (0% until 2002), 6/30/07 3,800 2,650,500
Teligent, Inc., Sr. Notes, 11.50%, 12/1/07 4,800 5,040,000
Winstar Communications, Inc., Sr. Disc.
Notes, 14.00%, (0% until 2000), 10/15/05 $ 2,400 $ 3,552,000
Winstar Communications, Inc., Sr. Sub.
Notes, 10.00%, 3/15/08/(1)/ 9,100 9,236,500
- --------------------------------------------------------------------------------
$ 103,261,700
- --------------------------------------------------------------------------------
Wireline Communication Services -- 11.6%
- --------------------------------------------------------------------------------
Allegiance Telecom, Inc., Sr. Disc.
Notes, 11.75%, (0% until 2003), 2/15/08/(1)/ $ 12,500 $ 7,250,000
Econophone, Inc., Sr. Disc. Notes,
11.00%, (0% until 2003), 2/15/08/(1)/ 4,000 2,290,000
Esat Telecom Group PLC, Sr. Deferred
Coupon Note, 12.50%, (0% until 2002), 2/1/07 3,875 2,886,875
Esat Telecom Group PLC, Sr. Deferred
Coupon Notes, 12.50%, (0% until 2002), 2/1/07 3,600 2,682,000
Esprit Telecom Group PLC, Sr. Notes,
11.50%, 12/15/07 3,000 3,285,000
Facilicom International, Sr. Notes,
10.50%, 1/15/08/(1)/ 7,040 7,356,800
Focal Communications Corporate Purpose,
Sr. Disc. Notes, 12.125%, (0% until
2003), 2/15/08/(1)/ 15,600 9,165,000
GST Equipment Funding, Sr. Notes,
13.25%, 5/1/07 4,900 5,806,500
GST Telecommunications, Sr. Sub. Notes,
12.75%, 11/15/07 1,600 1,936,000
GST USA, Inc., Sr. Disc. Notes, 13.875%,
(0% until 2000), 12/15/05 3,180 2,639,400
Icg Holdings, Inc., Sr. Disc. Note,
10.00%, 3/15/07 7,075 5,235,500
Icg Services, Inc., Sr. Disc. Notes,
10.00%, (0% until 2002),2/15/08/(1)/ 6,920 4,498,000
IDT Corp., Sr. Notes, 8.75%, 2/15/06/(1)/ 1,440 1,432,800
Intermedia Communications, Inc., Sr.
Notes, 8.50%, 1/15/08 4,800 4,992,000
Metronet Communications, Sr. Disc. Notes,
10.75%, (0% until 2002), 11/1/07 4,800 3,192,000
Metronet Communications, Sr. Notes,
12.00%, 8/15/07 1,800 2,079,000
MGC Communications, Inc., Sr. Notes,
13.00%, 10/1/04 5,680 6,084,700
Netia Holdings B.V., Sr. Notes,
10.25%, 11/1/07/(1)/ 2,400 2,466,000
Netia Holdings B.V., Sr. Notes, 11.25%,
(0% until 2001), 11/1/07/(1)/ 1,200 819,000
Nextlink Communications, Inc., Sr.
Discount Notes, 9.45%, (0% until 2003), 4/15/08 8,000 5,050,000
Nextlink Communications, Inc., Sr. Notes,
9.00%, 3/15/08/(1)/ 5,700 5,842,500
See notes to financial statements
17
<PAGE>
High Income Portfolio as of March 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
Principal
Amount
Security (000's omitted) Value
- --------------------------------------------------------------------------------
Wireline Communication Services (continued)
- --------------------------------------------------------------------------------
Nextlink Communications, Inc., Sr. Notes,
12.50%, 4/15/06 $ 6,720 $ 7,728,000
Primus Telecom Group, Sr. Notes,
11.75%, 8/1/04 4,600 5,140,500
Qwest Communications International, Sr.
Disc. Notes, 9.47%, (0% until 3,525 2,590,875
2002), 10/15/07
RSL Commerce, Ltd., Sr. Notes,
12.25%, 11/15/06 6,525 7,438,500
- --------------------------------------------------------------------------------
$ 109,886,950
- --------------------------------------------------------------------------------
Total Corporate Bonds & Notes
(identified cost $810,506,202) $ 851,625,079
- --------------------------------------------------------------------------------
Common Stocks, Warrants and Rights-- 0.3%
Security Shares Value
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 0.0%
- --------------------------------------------------------------------------------
American Telecasting, Inc. Warrants*+ 2,600 $ 26
Australis Media Ltd., Warrants*+ 3,600 --
CS Wireless Systems, Inc., Common (1)* 902 --
UIH Australia/Pacific, Inc., Warrants*+ 3,600 36
United International Holdings, Inc.,
Warrants Exp. 11/15/99*+ 7,840 130,536
- --------------------------------------------------------------------------------
$ 130,598
- --------------------------------------------------------------------------------
Business Services - Miscellaneous -- 0.0%
- --------------------------------------------------------------------------------
Unisite, Inc., Warrants*+ 2,252 $ --
- --------------------------------------------------------------------------------
$ --
- --------------------------------------------------------------------------------
Chemicals -- 0.0%
- --------------------------------------------------------------------------------
Crompton & Knowles Corp., Common 9,489 $ 274,583
Sterling Chemicals Holdings, Warrants*+ 3,200 73,600
- --------------------------------------------------------------------------------
$ 348,183
- --------------------------------------------------------------------------------
Communications Equipment -- 0.0%
- --------------------------------------------------------------------------------
In Flight Phone Corp., Warrants
Exp. 8/31/02*+ 1,600 $ --
Jordan Telecommunications, Common (1) 2,500 --
- --------------------------------------------------------------------------------
$ --
- --------------------------------------------------------------------------------
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*+ 48,000 12,000
- --------------------------------------------------------------------------------
$ 12,000
- --------------------------------------------------------------------------------
Information Services -- 0.0%
- --------------------------------------------------------------------------------
Cellnet Data Systems, Inc., Warrants
Exp. 10/1/07*+ 8,000 $ 80
- --------------------------------------------------------------------------------
$ 80
- --------------------------------------------------------------------------------
Machinery -- 0.0%
- --------------------------------------------------------------------------------
Thermadyne Holdings Corp., Common*+ 40,000 $ 400
- --------------------------------------------------------------------------------
$ 400
- --------------------------------------------------------------------------------
Metals - Industrial -- 0.0%
- --------------------------------------------------------------------------------
Gulf States Steel, Warrants*+ 2,400 $ 120
Terex Corp., Warrants Exp. 5/15/02*+ 20,000 340,000
- --------------------------------------------------------------------------------
$ 340,120
- --------------------------------------------------------------------------------
Wireless Communication Services -- 0.2%
- --------------------------------------------------------------------------------
Microcell Telecommunication, Warrants*+ 58,400 $ 1,124,200
Nextel Communications, Inc., Class A
Common (1)* 11,154 376,448
Nextel Communications, Warrants
Exp. 4/25/99*+ 7,200 25,200
Orion Network Warrants Exp. 1/15/07*+ 1,600 20,000
Orion Network, Warrants Exp. 1/15/07*+ 5,600 84,000
- --------------------------------------------------------------------------------
$ 1,629,848
- --------------------------------------------------------------------------------
Wireline Communication Services -- 0.1%
- --------------------------------------------------------------------------------
Esat Holdings, Ltd., Warrants*+ 3,600 $ 126,000
Hyperion Communications, Inc., Warrants
Exp. 4/15/01*+ 4,000 280,000
Intermedia Communications, Inc.,
Common (1)* 1,310 104,309
Metronet Communications, Warrants
Exp. 8/15/07*+ 1,800 79,200
MGC Communications, Inc., Warrants
Exp. 10/01/04* 5,680 --
See notes to financial statements
18
<PAGE>
High Income Portfolio as of March 31, 1998
PORTFOLIO OF INVESTMENTS CONT'D
(Expressed in United States Dollars)
Security Shares Value
- --------------------------------------------------------------------------------
Wireline Communication Services (continued)
- --------------------------------------------------------------------------------
Optel, Inc., Common/(1)/* 5,840 $ 6
Primus Telecommunications Warrants,
Exp. 8/1/04*+ 4,600 161,000
- --------------------------------------------------------------------------------
$ 750,515
- --------------------------------------------------------------------------------
Total Common Stocks, Warrants and Rights
(identified cost $1,365,884) $ 3,211,744
- --------------------------------------------------------------------------------
Preferred Stocks-- 8.7%
Security Shares Value
- --------------------------------------------------------------------------------
Broadcasting and Cable -- 3.6%
- --------------------------------------------------------------------------------
21st Century Telecom Group,
13.75% (PIK)/(1)/ 8,000 $ 896,000
Adelphia Communications Corp.,
13% (PIK)/(1)/ 48,000 5,724,000
Chancellor Radio Broadcasting, Inc.,
12% (PIK)/(1)/ 89,194 10,837,070
CSC Holdings, Inc., Series M,
11.125% (PIK)/(1)/ 110,642 12,972,774
Echostar Communications, 12.125% (PIK)/(1)/ 3,296 3,674,951
- --------------------------------------------------------------------------------
$ 34,104,795
- --------------------------------------------------------------------------------
Business Services - Miscellaneous -- 0.2%
- --------------------------------------------------------------------------------
Unisite, Inc., 8.5% (PIK) 3,239 $ 1,538,288
- --------------------------------------------------------------------------------
$ 1,538,288
- --------------------------------------------------------------------------------
Communications Equipment -- 0.3%
- --------------------------------------------------------------------------------
Jordan Telecom Products, Inc.,
13.25% (PIK)/(1)/ 2,500 $ 3,325,000
- --------------------------------------------------------------------------------
$ 3,325,000
- --------------------------------------------------------------------------------
Machinery -- 0.4%
- --------------------------------------------------------------------------------
MMH Holdings, Inc., 12% (PIK)/(1)/ 3,230 $ 3,391,500
- --------------------------------------------------------------------------------
$ 3,391,500
- --------------------------------------------------------------------------------
Manufacturing -- 0.0%
- --------------------------------------------------------------------------------
MCMS, Inc., 12.50% (PIK)/(1)/ 400 $ 404,000
- --------------------------------------------------------------------------------
$ 404,000
- --------------------------------------------------------------------------------
Wireless Communication Services -- 1.0%
- --------------------------------------------------------------------------------
Dobson Communications, 12.25% (PIK)/(1)/ 3,800 $ 4,189,500
Nextel Communications, Inc.,
11.125% (PIK)/(1)/ 4,800 5,100,000
- --------------------------------------------------------------------------------
$ 9,289,500
- --------------------------------------------------------------------------------
Wireline Communication Services -- 3.2%
- --------------------------------------------------------------------------------
America Communications Services,
12.75% (PIK)/(1)/ 4,153 $ 5,025,130
Global Telesystem Holdings, 14% (PIK)/(1)/ 4,400 5,038,000
Intermedia Communications, Inc.,
7% (PIK)/(1)/ 185,000 6,475,000
IXC Communications, Inc., Series B,
12.5% (PIK)/(1)/ 10,620 12,956,170
Nextlink Communications, 14% (PIK)/(1)/ 19,509 1,229,067
- --------------------------------------------------------------------------------
$ 30,723,367
- --------------------------------------------------------------------------------
Total Preferred Stocks
(identified cost $73,764,688) $ 82,776,450
- --------------------------------------------------------------------------------
Short-Term Investments -- 1.3%
Principal
Amount
Security (000's omitted) Value
- --------------------------------------------------------------------------------
General Electric Capital Corp.,
6.00%, 4/1/98 $ 12,130 $ 12,130,000
- --------------------------------------------------------------------------------
Total Short-Term Investments
(at amortized cost $12,130,000) $ 12,130,000
- --------------------------------------------------------------------------------
Total Investments -- 100.0%
(identified cost $897,766,774) $ 949,743,273
- --------------------------------------------------------------------------------
(PIK) Payment-in-kind.
/(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. It is the
Portfolio's intention to hold the security until maturity.
* Non-income producing security.
+ Restricted security (see Note 8).
See notes to financial statements
19
<PAGE>
High Income Portfolio as of March 31, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
As of March 31, 1998
(Expressed in United States Dollars)
Assets
- --------------------------------------------------------------------------------
Investments, at value (Note 1A)
(identified cost, $897,766,774) $ 949,743,273
Cash 37,489
Receivable for investments sold 15,053,856
Interest receivable 18,640,640
Deferred organization expenses (Note 1D) 5,254
- --------------------------------------------------------------------------------
Total assets $ 983,480,512
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for investments purchased $ 22,898,859
Payable to affiliate for Trustees' fees (Note 2) 6,695
Accrued expenses 74,248
- --------------------------------------------------------------------------------
Total liabilities $ 22,979,802
- --------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $ 960,500,710
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $ 908,524,211
Net unrealized appreciation of investments (computed
on the basis of identified cost) 51,976,499
- --------------------------------------------------------------------------------
Total $ 960,500,710
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
March 31, 1998
(Expressed in United States Dollars)
Investment Income (Note 1B)
- --------------------------------------------------------------------------------
Interest income $ 78,984,054
Dividends 3,499,128
Miscellaneous income 1,390,266
- --------------------------------------------------------------------------------
Total income $ 83,873,448
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 4,736,709
Compensation of Trustees not members of the
Investment adviser's organization (Note 2) 23,579
Custodian fee 265,007
Legal and accounting services 52,234
Amortization of organization expenses (Note 1D) 4,519
Miscellaneous 39,495
- --------------------------------------------------------------------------------
Total expenses $ 5,121,543
- --------------------------------------------------------------------------------
Net investment income $ 78,751,905
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 40,197,991
- --------------------------------------------------------------------------------
Net realized gain on investment transactions $ 40,197,991
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 41,198,260
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ 41,198,260
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 81,396,251
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 160,148,156
- --------------------------------------------------------------------------------
See notes to financial statements
20
<PAGE>
High Income Portfolio as of March 31, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets (Expressed in United States Dollars)
Increase (Decrease) Year Ended Year Ended
in Net Assets March 31, 1998 March 31, 1997
- --------------------------------------------------------------------------------
From operations --
Net investment income $ 78,751,905 $ 60,083,973
Net realized gain (loss)
on investment transactions 40,197,991 (4,056,681)
Net change in unrealized
appreciation (depreciation)
of investments 41,198,260 13,401,858
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 160,148,156 $ 69,429,150
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 306,797,835 $ 280,137,284
Withdrawals (213,156,743) (154,202,111)
- --------------------------------------------------------------------------------
Net increase in net assets from
capital transactions $ 93,641,092 $ 125,935,173
- --------------------------------------------------------------------------------
Net increase in net assets $ 253,789,248 $ 195,364,323
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $ 706,711,462 $ 511,347,139
- --------------------------------------------------------------------------------
At end of year $ 960,500,710 $ 706,711,462
- --------------------------------------------------------------------------------
See notes to financial statements
21
<PAGE>
High Income Portfolio as of March 31, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data (Expressed in United States Dollars)
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------------------------------
1998 1997 1996 1995*
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expenses 0.63% 0.67% 0.71% 0.70%+
Net investment income 9.63% 10.02% 10.41% 10.63%+
Portfolio Turnover 137% 78% 88% 53%
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $960,501 $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
22
<PAGE>
High Income Portfolio as of March 31, 1998
NOTES TO FINANCIAL STATEMENTS
(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 reflected as a reduction of
expenses on the Statement of Operations.
23
<PAGE>
High Income Portfolio as of March 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
(Expressed in United States Dollars)
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, 1998, the fee was equivalent to 0.58% of the
Portfolio's average daily net assets and amounted to $4,736,709. 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, 1998, 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 $1,242,718,480 and $1,077,138,003, respectively, for
the year ended March 31, 1998.
4 Line of Credit
- --------------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $100 million unsecured line of credit agreement
with a group of banks. The Portfolio may temporarily borrow from the line of
credit to satisfy redemption requests or settle investment transactions.
Interest is charged to each portfolio or fund based on its borrowings at an
amount above either the Eurodollar rate or federal funds rate. In addition, a
fee computed at an annual rate of 0.10% 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 year ended March 31, 1998.
5 Federal Income Tax Basis of Investments
- --------------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investments
owned at March 31, 1998, as computed on a federal income tax basis, were as
follows:
Aggregate cost $ 897,971,060
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 57,845,171
Gross unrealized depreciation (6,072,958)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 51,772,213
- --------------------------------------------------------------------------------
6 Restricted Securities
- --------------------------------------------------------------------------------
At March 31, 1998, the Portfolio owned the following securities (constituting
0.22% 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.
Date of
Description Acquisition Shares/Face Cost Fair Value
- --------------------------------------------------------------------------------
Common Stocks, Warrants, and Rights
- --------------------------------------------------------------------------------
American Telecasting, Inc.,
Wts. 1/16/96 2,600 $ 71,500 $ 26
Australis Media Ltd., Wts. 5/26/95 3,600 0 0
Cellnet Data Systems, Inc.,
Wts., Exp. 10/1/07 8,000 0 80
Esat Holdings, Ltd., Wts. 6/19/97 3,600 0 126,000
Gulf States Steel, Wts. 8/22/95 2,400 0 120
Hyperion Communications,
Inc., Exp. 4/15/01 4,000 90,000 280,000
In Flight Phone Corp.,
Wts., Exp. 8/31/02 11/28/95 1,600 0 0
Metronet Communications,
Wts., Exp. 8/15/07 1,800 0 79,200
Microcell Telecommunication,
Wts. 10/30/96 58,400 647,700 1,124,200
Nextel Communications, Wts.,
Exp. 4/25/99 10/04/96 7,200 0 25,200
Orion Network, Wts., Exp.
1/15/07 1,600 0 20,000
Orion Network, Wts., Exp.
1/15/07 5,600 0 84,000
24
<PAGE>
High Income Portfolio as of March 31, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
(Expressed in United States Dollars)
Date of
Description Acquisition Shares/Face Cost Fair Value
- --------------------------------------------------------------------------------
Common Stocks, Warrants, and Rights (continued)
- --------------------------------------------------------------------------------
Primus Telecommunications,
Wts., Exp. 8/1/04 4,600 $ 0 $ 161,000
Servam Corp., $2.00 Wts.,
Exp. 4/1/01 12/15/87 12,276 0 0
Servam Corp., $4.50 Wts.,
Exp. 4/1/01 12/15/87 2,760 0 0
Servam Corp., Common 12/15/87 1,380 0 0
Specialty Foods Acq. Corp.,
Common 8/10/93 48,000 34,886 12,000
Sterling Chemicals Holdings,
Wts. 10/07/96 3,200 0 73,600
Thermadyne Holdings Corp.,
Common 4/03/89 40,000 28,800 400
UIH Australia/Pacific, Inc.,
Wts. 3,600 0 36
Unisite, Inc., Wts. 2,252 0 0
United International Holdings,
Inc., Wts., Exp.
11/15/99 11/16/94 7,840 222,186 130,536
- --------------------------------------------------------------------------------
$1,095,072 $2,116,398
- --------------------------------------------------------------------------------
25
<PAGE>
High Income Portfolio as of March 31, 1998
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, 1998, and the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended March 31, 1998 and
1997 and the supplementary data for each of the years in the three-year period
ended March 31, 1998 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, 1998 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other audit
procedures. 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,
1998, the results of its operations, the changes in its net assets and the
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 8, 1998
26
<PAGE>
High Income Portfolio as of March 31, 1998
INVESTMENT MANAGEMENT
High Income Portfolio
Officers
M. Dozier Gardner
President and Trustee
James B. Hawkes
Vice President and Trustee
Michael W. Weilheimer
Vice President and
Portfolio Manager
Raymond O'Neill
Vice President
Michel Normandeau
Vice President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate School of
Business Administration
Norton H. Reamer
President and Director, United Asset
Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
27
