<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
CORPORATE BONDS & NOTES -- 84.9%
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Aerospace and Defense -- 0.7%
- -------------------------------------------------------------------------------
Dunlop Stand Aero Holdings, Sr. Notes,
11.875%, 5/15/09(1) $ 3,900 $ 3,939,000
Transdigm, Inc., 10.375%, 12/1/08 3,700 3,570,500
- -------------------------------------------------------------------------------
$ 7,509,500
- -------------------------------------------------------------------------------
Apparel -- 0.6%
- -------------------------------------------------------------------------------
William Carter Co., Sr. Sub. Notes,
10.375%, 12/1/06 $ 6,275 $ 6,180,875
- -------------------------------------------------------------------------------
$ 6,180,875
- -------------------------------------------------------------------------------
Auto and Parts -- 1.4%
- -------------------------------------------------------------------------------
Dura Operating Corp., Sr. Sub. Notes,
9.00%, 5/1/09(1) EUR 8,000 $ 7,969,192
JL French Automotive Casting, Sr. Sub.
Notes, 11.50%, 6/1/09(1) $ 6,225 6,178,312
Talon Automotive Group, Sr. Sub. Notes,
9.625%, 5/1/08 1,100 937,750
- -------------------------------------------------------------------------------
$ 15,085,254
- -------------------------------------------------------------------------------
Broadcasting and Cable -- 10.8%
- -------------------------------------------------------------------------------
ACME Television Services, Inc., 10.875%
(0% until 2000), 9/30/04 $ 2,250 $ 1,946,250
Avalon Cable Holdings, LLC, Sr. Disc.
Notes, 11.875% (0% until 2003), 12/1/08 11,400 7,353,000
Avalon Cable of Michigan LLC, Sr. Sub
Notes, 9.375%, 12/1/08 1,600 1,608,000
Charter Communication Holdings LLC, Sr.
Notes, 8.625% (0% until 2009), 4/1/09(1) 1,600 1,520,000
Charter Communication, Sr. Disc. Notes,
9.92% (0% until 2004), 4/1/11(1) 16,800 10,080,000
Diamond Cable Communications Co., Sr.
Disc. Notes, 11.75% (0% until 2000),
12/15/05 3,000 2,692,500
Digital Television Services, Inc.,
Guaranteed Notes, 12.50%, 8/1/07 6,410 6,762,550
Golden Sky Systems, 12.375%, 8/1/06 5,240 5,606,800
Golden Sky Systems, Sr. Disc. Notes,
13.50% (0% until 2004), 3/1/07(1) 11,445 6,437,812
Muzak Holdings LLC, Sr. Disc. Notes,
13.00% (0% until 2004), 3/15/10(1) 6,563 3,740,910
Muzak Holdings LLC, Sr. Sub. Notes,
9.875%, 3/15/09(1) 4,400 4,202,000
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Broadcasting and Cable (continued)
- -------------------------------------------------------------------------------
NTL, Inc., Sr. Notes, 10.00%, 2/15/07 $ 7,080 $ 7,248,150
NTL, Inc., Sr. Notes, 11.50%, 10/1/08 11,600 12,470,000
NTL, Inc., Sr. Notes, 12.375% (0%
until 2003), 10/1/08 4,900 3,344,250
Ono Finance PLC, 13.00%, 5/1/09(1) EUR 10,887 11,404,132
Ono Finance PLC, 13.00%, 5/1/09(1) EUR 3,800 4,169,976
RCN Corp., Sr. Disc. Notes, 9.80% (0%
until 2003), 2/15/08 2,250 1,355,625
Telemundo Holdings, Inc., Sr. Disc.
Notes, 11.50% (0% until 2003), 8/15/08 9,050 5,282,937
Telewest Communication PLC, 9.875% (0%
until 2004), 4/15/09(1) GBP 2,000 2,041,908
Telewest Communication PLC, Debs.,
9.625%, 10/1/06 640 648,000
Telewest Communication PLC, Debs.,
11.00% (0% until 2000), 10/1/07 10,190 9,094,575
Telewest Communication PLC, Sr. Disc.
Notes, 9.25% (0% until 2004), 4/15/09 3,600 2,196,000
United International Holdings, Inc., Sr.
Disc. Notes, 10.75% (0% until 2003),
2/15/08 7,935 4,840,350
- -------------------------------------------------------------------------------
$ 116,045,725
- -------------------------------------------------------------------------------
Business Services - Miscellaneous -- 4.0%
- -------------------------------------------------------------------------------
Allied Waste, Sr. Sub Notes,
10.00%, 8/1/09(1) $ 11,600 $ 10,672,000
AP Holdings, Inc., Sr. Disc. Notes,
11.25% (0% until 2003), 3/15/08 8,550 4,339,125
Apcoa, Inc., Guaranteed Sr. Sub. Notes,
9.25%, 3/15/08 3,320 2,846,900
Cybernet Internet Service,
14.00%, 7/1/09(1) 3,200 3,216,000
Federal Data Corp., Sr. Sub. Notes,
10.125%, 8/1/05 4,740 3,910,500
Intertek Finance PLC, Sr. Sub. Notes,
10.25%, 11/1/06 5,600 5,180,000
Richmont Marketing Specialists,
10.125%, 12/15/07(1) 17,770 13,460,775
- -------------------------------------------------------------------------------
$ 43,625,300
- -------------------------------------------------------------------------------
Business Services - Rental & Leasing -- 3.2%
- -------------------------------------------------------------------------------
Anthony Crane Rental LP, Guaranteed Sr.
Notes, 10.375%, 8/1/08 $ 4,000 $ 3,600,000
NationsRent, Inc., Guaranteed Sr. Sub.
Notes, 10.375%, 12/15/08 7,200 7,146,000
Neff Corp., 10.25%, 6/1/08 4,050 4,029,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Business Services - Rental & Leasing (continued)
- -------------------------------------------------------------------------------
Neff Corp., Guaranteed Sr. Sub. Notes,
10.25%, 6/1/08 $ 6,150 $ 6,119,250
SBA Communications Corp., Sr. Disc.
Notes, 12.00% (0% to 2003), 3/1/08 4,350 2,349,000
Spectrasite Holdings, Inc., Sr. Disc.
Notes, 11.25% (0% until 2004),
4/15/09(1) 2,900 1,450,000
Spectrasite Holdings, Inc., Sr. Disc.
Notes, 12.00% (0% until 2003), 7/15/08 7,100 4,011,500
Unisite, Inc., Sub. Notes, 13.00% (0%
until 2000), 12/15/04(1) 4,500 5,644,800
- -------------------------------------------------------------------------------
$ 34,350,300
- -------------------------------------------------------------------------------
Cable - Telecommunications -- 0.3%
- -------------------------------------------------------------------------------
United Pan-Europe, Sr. Disc. Notes,
12.50% (0% until 2004), 8/1/09(1) $ 5,400 $ 3,064,500
- -------------------------------------------------------------------------------
$ 3,064,500
- -------------------------------------------------------------------------------
Chemicals -- 1.5%
- -------------------------------------------------------------------------------
Huntsman Corp., Sr. Sub. Notes,
9.50%, 7/1/07 $ 1,000 $ 942,500
Lyondell Chemical Co., 9.625%, 5/1/07 4,000 3,990,000
Lyondell Chemical Co., Sr. Sub. Notes,
10.875%, 5/1/09 11,350 11,463,500
- -------------------------------------------------------------------------------
$ 16,396,000
- -------------------------------------------------------------------------------
Consumer Products -- 1.3%
- -------------------------------------------------------------------------------
Amscan Holdings, Inc., Sr. Sub. Notes,
9.875%, 12/15/07 $ 4,480 $ 3,516,800
Glenoit Corp., Sr. Sub. Notes,
11.00%, 4/15/07 9,000 5,895,000
Icon Health and Fitness, Inc.,
12.00%, 9/27/05(1) 1,421 781,443
Jafra Cosmetics International, Inc.,
Guaranteed Sr. Sub. Notes,
11.75%, 5/1/08 4,000 3,460,000
- -------------------------------------------------------------------------------
$ 13,653,243
- -------------------------------------------------------------------------------
Containers and Packaging -- 0.6%
- -------------------------------------------------------------------------------
Consolidated Container Co. LLC, Sr. Sub.
Notes, 10.125%, 7/15/09(1) $ 3,200 $ 3,232,000
Consumers International, Inc., Sr.
Notes, 10.25%, 4/1/05 3,935 3,757,925
- -------------------------------------------------------------------------------
$ 6,989,925
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Drugs -- 0.8%
- -------------------------------------------------------------------------------
Biovail Corp., Sr. Notes,
10.875%, 11/15/05 $ 3,550 $ 3,683,125
King Pharmaceutical, Inc.,
10.75%, 2/15/09 5,000 5,175,000
- -------------------------------------------------------------------------------
$ 8,858,125
- -------------------------------------------------------------------------------
Electronic Equipment -- 2.6%
- -------------------------------------------------------------------------------
Amkor Technologies, Inc., Sr. Notes,
9.25%, 5/1/06(1) $ 400 $ 399,000
Amkor Technologies, Inc., Sr. Sub Notes,
10.50%, 5/1/09(1) 10,300 10,068,250
Jordan Telecom Products, Inc., Sr. Disc.
Notes, 11.75% (0% until 2000), 8/1/07 9,565 8,130,250
Viasystems, Inc., Sr. Sub. Notes,
9.75%, 6/1/07 3,600 3,114,000
Viasystems, Inc., Sr. Sub. Notes, Series
B, 9.75%, 6/1/07 3,565 3,083,725
Wavetek Corp., Sr. Sub. Notes,
10.125%, 6/15/07 3,360 2,839,200
- -------------------------------------------------------------------------------
$ 27,634,425
- -------------------------------------------------------------------------------
Entertainment -- 3.0%
- -------------------------------------------------------------------------------
Loews Cineplex Entertainment Corp., Sr.
Sub. Notes, 8.875%, 8/1/08 $ 1,000 $ 900,000
Marvel Enterprise, Inc.,
12.00%, 6/15/09 10,100 9,241,500
Premier Parks, Inc., Sr. Disc. Notes,
10.00% (0% until 2003), 4/1/08 5,100 3,264,000
Premier Parks, Inc., Sr. Notes,
9.75%, 6/15/07 4,250 4,143,750
Regal Cinemas, Inc., Sr. Sub. Notes,
8.875%, 12/15/10 10,905 7,251,825
Regal Cinemas, Inc., Sr. Sub. Notes,
9.50%, 6/1/08 10,925 7,483,625
- -------------------------------------------------------------------------------
$ 32,284,700
- -------------------------------------------------------------------------------
Financial Services -- 0.5%
- -------------------------------------------------------------------------------
Willis Corroon Corp., 9.00%, 2/1/09 $ 6,400 $ 5,792,000
- -------------------------------------------------------------------------------
$ 5,792,000
- -------------------------------------------------------------------------------
Foods -- 4.3%
- -------------------------------------------------------------------------------
B & G Foods, Inc., Sub. Notes,
9.625%, 8/1/07 $ 7,445 $ 6,737,725
Cott Corp., Sr. Notes, 8.50%, 5/1/07 3,950 3,693,250
Del Monte Corp., Sr. Notes,
12.25%, 4/15/07 9,979 10,927,005
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Foods (continued)
- -------------------------------------------------------------------------------
Del Monte Foods Co., Sr. Disc. Notes,
12.50% (0% until 2002), 12/15/07 $ 3,515 $ 2,671,400
Eagle Family Foods, Inc., Guaranteed Sr.
Notes, 8.75%, 1/15/08 2,800 2,142,000
International Home Foods, Inc., Sr. Sub.
Notes, 10.375%, 11/1/06 9,000 9,202,500
Luigino's, Inc., Sr. Sub. Notes,
10.00%, 2/1/06 3,175 2,984,500
Premier International Foods, Sr. Notes,
12.00%, 9/1/09(1) 8,250 8,291,250
- -------------------------------------------------------------------------------
$ 46,649,630
- -------------------------------------------------------------------------------
Health Services -- 0.9%
- -------------------------------------------------------------------------------
Alliance Imaging, Sr. Sub Notes,
9.625%, 12/15/05 $ 2,700 $ 2,743,875
Lifepoint Hospital Holdings, Sr. Sub.
Notes, 10.75%, 5/15/09(1) 7,320 7,283,400
- -------------------------------------------------------------------------------
$ 10,027,275
- -------------------------------------------------------------------------------
Information Technology Services -- 7.4%
- -------------------------------------------------------------------------------
Covad Communication Group, Sr. Disc.
Notes, 13.50% (0% until 2003), 3/15/08 $ 3,250 $ 1,690,000
Diva Systems Corp., Sr. Notes, 12.625%
(0% until 2003), 3/1/08 9,000 2,835,000
Dolphin Telecom, Sr. Disc. Notes, 14.00%
(0% until 2004), 5/15/09(1) 13,375 5,550,625
Esprit Telecom Group PLC, Sr. Notes,
10.875%, 6/15/08 8,825 8,957,375
Exodus Communications, Inc., Sr. Notes,
11.25%, 7/1/08(1) 6,370 6,513,325
Exodus Communications, Inc., Sr. Notes,
11.25%, 7/1/08 6,965 7,121,712
IPC Information Systems, Sr. Disc.
Notes, 10.875% (0% until 2001), 5/1/08 7,000 5,293,750
PSINet, Inc., 11.00%, 8/1/09(1) EUR 3,000 3,100,314
PSINet, Inc., Sr. Notes,
11.00%, 8/1/09(1) 16,450 16,326,625
PSINet, Inc., Sr. Notes,
11.50%, 11/1/08 6,100 6,176,250
Verio, Inc., Sr. Notes, 11.25%, 12/1/08 12,390 12,730,725
Verio, Inc., Sr. Notes, 13.50%, 6/15/04 3,200 3,464,000
- -------------------------------------------------------------------------------
$ 79,759,701
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Lodging and Gaming -- 4.8%
- -------------------------------------------------------------------------------
Coast Hotels & Casino, Inc.,
9.50%, 4/1/09 $ 3,700 $ 3,496,500
HMH Properties, 7.875%, 8/1/08(1) 9,188 8,246,230
Hollywood Casino Corp., 11.25%, 5/1/07 9,100 9,191,000
Hollywood Casino Corp., First Mortgage
Bonds, 13.00%, 8/1/06(1) 8,150 8,435,250
Hollywood Park, Inc., Sr. Sub. Notes,
9.50%, 8/1/07 5,120 5,017,600
Majestic Star Casino LLC,
10.875%, 7/1/06(1) 7,000 6,895,000
Waterford Gaming LLC, Sr. Notes,
9.50%, 3/15/10(1) 10,447 10,185,825
- -------------------------------------------------------------------------------
$ 51,467,405
- -------------------------------------------------------------------------------
Manufacturing -- 1.2%
- -------------------------------------------------------------------------------
Cherokee International, Sr. Sub Notes,
10.50%, 5/1/09(1) $ 4,875 $ 4,509,375
High Voltage Engineering, Sr. Notes,
10.50%, 8/15/04 2,400 2,196,000
Roller Bearing Holdings Co., Sr. Disc.
Notes, 13.00% (0% until 2002),
6/15/09(1) 12,875 6,630,625
- -------------------------------------------------------------------------------
$ 13,336,000
- -------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 1.3%
- -------------------------------------------------------------------------------
Grant Geophysical, Inc., Sr. Notes,
9.75%, 2/15/08 $ 4,000 $ 2,300,000
R&B Falcon Corp., 9.50%, 12/15/08 3,440 3,311,000
RBF Finance Co., 11.375%, 3/15/09 2,900 3,074,000
Universal Compression, Inc., Sr. Disc.
Notes, 9.875% (0% until 2003), 2/15/08 9,400 5,640,000
- -------------------------------------------------------------------------------
$ 14,325,000
- -------------------------------------------------------------------------------
Oil and Gas - Exploration and Production -- 2.8%
- -------------------------------------------------------------------------------
Chesapeake Energy Corp., 9.125%, 4/15/06 $ 4,000 $ 3,710,000
Chesapeake Energy Corp., Sr. Notes,
7.875%, 3/15/04 1,320 1,174,800
Chesapeake Energy Corp., Sr. Notes,
8.50%, 3/15/12 8,480 6,911,200
Comstock Resources, Inc., Sr. Notes,
11.25%, 5/1/07(1) 5,850 6,040,125
Energy Corp. of America, Sr. Sub. Notes,
9.50%, 5/15/07 2,340 2,108,925
Gothic Production Corp.,
11.125%, 5/1/05 4,800 4,152,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Oil and Gas - Exploration and Production (continued)
- -------------------------------------------------------------------------------
Gulf Canada Resources, Ltd., Sr. Notes,
8.375%, 11/15/05 $ 2,200 $ 2,163,788
Plains Resources, Inc., Sr. Sub. Notes,
10.25%, 3/15/06(1) 3,750 3,806,250
- -------------------------------------------------------------------------------
$ 30,067,088
- -------------------------------------------------------------------------------
Oil and Gas - Refining -- 0.3%
- -------------------------------------------------------------------------------
Western Natural Gas, Sr. Sub. Notes,
10.00%, 6/15/09(1) $ 3,000 $ 3,082,500
- -------------------------------------------------------------------------------
$ 3,082,500
- -------------------------------------------------------------------------------
Paper and Forest Products -- 1.4%
- -------------------------------------------------------------------------------
Asia Pulp and Paper, Debs,
12.00%, 12/29/49 $ 6,000 $ 3,480,000
Indah Kiat Finance Mauritius, Sr. Unsec.
Notes, 10.00%, 7/1/07 3,400 1,904,000
Kappa Beheer BV, 12.50% (0%
until 2004), 7/15/09(1) EUR 7,500 4,434,728
Pindo Deli Finance Mauritius, Ltd.,
Guaranteed Sr. Notes, 10.75%, 10/1/07 2,400 1,302,000
Repap New Brunswick, Inc., Sr. Notes,
9.00%, 6/1/04 1,650 1,592,250
Tjiwi Kimia Finance Mauritus, Ltd.,
Guaranteed Sr. Sub. Notes,
10.00%, 8/1/04 3,800 2,099,500
- -------------------------------------------------------------------------------
$ 14,812,478
- -------------------------------------------------------------------------------
Printing and Business Products -- 1.4%
- -------------------------------------------------------------------------------
MDC Communications Corp., Sr. Sub.
Notes, 10.50%, 12/1/06 $ 15,600 $ 15,444,000
- -------------------------------------------------------------------------------
$ 15,444,000
- -------------------------------------------------------------------------------
Publishing -- 0.6%
- -------------------------------------------------------------------------------
American Lawyer Media Corp., Sr. Disc.
Notes, 12.25% (0% to 2002), 12/15/08 $ 2,920 $ 1,861,500
Von Hoffman Press, Inc., Sr. Sub. Notes,
10.875%, 5/15/07(1) 5,095 5,018,575
- -------------------------------------------------------------------------------
$ 6,880,075
- -------------------------------------------------------------------------------
Restaurants -- 0.3%
- -------------------------------------------------------------------------------
Sbarro, Inc., Sr. Notes,
11.00%, 9/15/09(1) $ 3,000 $ 2,961,540
- -------------------------------------------------------------------------------
$ 2,961,540
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Retail - Food and Drug -- 2.5%
- -------------------------------------------------------------------------------
AFC Enterprises, Inc., Sr. Sub Notes,
10.25%, 5/15/07 $ 9,600 $ 9,420,000
Pantry, Inc., Sr. Sub. Notes,
10.25%, 10/15/07 10,870 10,897,175
Star Markets Co., Sr. Sub. Notes,
13.00%, 11/1/04 6,200 6,665,000
- -------------------------------------------------------------------------------
$ 26,982,175
- -------------------------------------------------------------------------------
Retail - General -- 2.5%
- -------------------------------------------------------------------------------
Advance Holding Corp., Sr. Debs.,
12.875% (0% until 2003), 4/15/09 $ 4,000 $ 2,200,000
Advance Stores Co., Inc., Sr. Sub.
Notes, 10.25%, 4/15/08 8,400 7,854,000
Ames Department Stores, Sr. Notes,
10.00%, 4/15/06 4,825 4,716,438
Kindercare Learning Ctrs., Inc., Sr.
Sub. Notes, 9.50%, 2/15/09 8,100 7,634,250
SpinCycle, Inc., Sr. Disc. Notes, 12.75%
(0% until 2001), 5/1/05 3,400 535,500
Tuesday Morning Corp., Sr. Sub. Notes,
11.00%, 12/15/07 4,057 4,158,425
- -------------------------------------------------------------------------------
$ 27,098,613
- -------------------------------------------------------------------------------
Semiconductors -- 0.7%
- -------------------------------------------------------------------------------
Intersil Corp., 13.25%, 8/15/09(1) $ 1,250 $ 1,303,125
SCG Holding Corp., Sr. Sub. Notes,
12.00%, 8/1/09(1) 6,500 6,703,125
- -------------------------------------------------------------------------------
$ 8,006,250
- -------------------------------------------------------------------------------
Transportation -- 1.5%
- -------------------------------------------------------------------------------
Budget Group, Inc., Sr. Notes,
9.125%, 4/1/06 $ 7,760 $ 6,867,600
MTL, Inc., 10.498%, 6/15/06 1,600 1,416,000
Pacer International, Inc., Sr. Sub.
Notes, 11.75%, 6/1/07(1) 7,544 7,506,280
- -------------------------------------------------------------------------------
$ 15,789,880
- -------------------------------------------------------------------------------
Wireless Communication Services -- 5.9%
- -------------------------------------------------------------------------------
Airgate PCS, Inc., 13.50% (0%
until 2004), 10/1/09 $ 8,000 $ 4,340,000
Clearnet Communications, Sr. Disc.
Notes, 14.75% (0% until 2000), 12/15/05 5,125 4,817,500
Dobson/Sygnet Communications, Inc., Sr.
Notes, 12.25%, 12/15/08 4,700 4,935,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Wireless Communication Services (continued)
- -------------------------------------------------------------------------------
Loral Space and Commerce, Sr. Notes,
9.50%, 1/15/06 $ 2,880 $ 2,469,600
Nextel Communications, Inc., Sr. Disc.
Notes, 9.75% (0% until 1999), 8/15/04 1,190 1,201,900
Nextel Communications, Inc., Sr. Disc.
Notes, 10.65% (0% until 2002), 9/15/07 12,410 9,198,913
Nextel Communications, Sr. Disc. Notes,
14.00% (0% until 2004), 2/1/09 8,750 5,162,500
Nextel International, Inc., Sr. Disc.
Notes, 12.125% (0% until 2003), 4/15/08 15,000 7,612,500
Tritel PCS, Inc., Sr. Disc. Notes,
12.75% (0% until 2004), 5/15/09(1) 3,000 1,710,000
Williams Communications Corp.,
10.875%, 10/1/09 15,600 15,482,844
Winstar Communications, Inc., Sr. Disc.
Notes, 14.00% (0% until 2000), 10/15/05 8,000 6,760,000
- -------------------------------------------------------------------------------
$ 63,690,757
- -------------------------------------------------------------------------------
Wireline Communication Services -
International -- 9.0%
- -------------------------------------------------------------------------------
Alestra SA, Sr. Notes,
12.125%, 5/15/06(1) $ 5,000 $ 4,812,500
Carrier1, Sr. Notes, 13.25%, 2/15/09 14,500 14,790,000
Completel Europe NV, Sr. Disc. Notes,
14.00% (0% until 2004), 2/15/09(1) 7,840 4,135,600
Energis PLC, 9.50%, 6/15/09(1) GBP 3,200 5,164,051
Esat Telecom Group PLC, Sr. Deferred
Coupon Notes, 12.50% (0% until 2002),
2/1/07 5,315 3,853,375
Esprit Telecom Group PLC, Sr. Notes,
11.50%, 12/15/07 12,600 12,978,000
Facilicom International, Sr. Notes,
10.50%, 1/15/08 4,640 3,944,000
Jazztel PLC, Sr. Notes, with warrants,
14.00%, 4/1/09 EUR 2,000 2,390,000
Primus Telecom Group, Sr. Notes,
11.25%, 1/15/09 3,750 3,581,250
Primus Telecom Group, Sr. Notes,
11.75%, 8/1/04 4,600 4,508,000
RSL Communications PLC, Guaranteed Sr.
Notes, 10.50%, 11/15/08 2,000 1,830,000
RSL Communications, Ltd., Sr. Notes,
12.25%, 11/15/06 4,190 4,169,050
Tele1 Europe BV, Sr. Notes,
13.00%, 5/15/09(1) 2,400 2,364,000
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Wireline Communication Services -
International (continued)
- -------------------------------------------------------------------------------
Versatel Telecom B.V., Sr. Notes,
13.25%, 5/15/08 $ 14,000 $ 14,245,000
Versatel Telecom, Sr. Notes,
11.875%, 7/15/09 2,045 1,938,055
Versatel Telecom, Sr. Notes,
11.875%, 7/15/09 EUR 5,200 5,207,675
Viatel, Inc., Sr. Disc. Notes, 12.50%
(0% until 2003), 4/15/08 7,165 3,976,575
Viatel, Inc., Sr. Notes,
11.25%, 4/15/08 3,305 3,073,650
- -------------------------------------------------------------------------------
$ 96,960,781
- -------------------------------------------------------------------------------
Wireline Communication Services -
North America -- 4.8%
- -------------------------------------------------------------------------------
Allegiance Telecom, Inc., Sr. Notes,
12.875%, 5/15/08 $ 10,755 $ 11,722,950
Focal Communications Corp., Sr. Disc.
Notes, 12.125% (0% until 2003), 2/15/08 9,450 5,362,875
GST Telecommunications, Sr. Sub. Notes,
12.75%, 11/15/07 3,700 3,718,500
Hyperion Telecommunication, Inc., Sr.
Sub. Notes, 12.00%, 11/1/07 4,000 4,040,000
Hyperion Telecommunications, Inc., Sr.
Notes, 12.25%, 9/1/04 125 131,719
Level 3 Communications, Inc., Sr. Disc.
Notes, 10.50% (0% until 2003), 12/1/08 4,700 2,661,375
MGC Communications, Inc., Sr. Notes,
13.00%, 10/1/04 5,520 4,885,200
Nextlink Communications, Inc., Sr.
Notes, 12.50%, 4/15/06 6,720 7,140,000
Worldwide Fiber, Inc., Sr. Notes,
12.00%, 8/1/09(1) 6,000 5,910,000
Worldwide Fiber, Inc., Sr. Notes,
12.50%, 12/15/05 5,800 5,901,500
- -------------------------------------------------------------------------------
$ 51,474,119
- -------------------------------------------------------------------------------
Total Corporate Bonds & Notes
(identified cost $967,738,496) $ 916,285,139
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCKS, WARRANTS AND RIGHTS -- 0.9%
SECURITY SHARES VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Broadcasting and Cable -- 0.0%
- -------------------------------------------------------------------------------
Pegasus Communications Corp.,
Warrants(2)(3) 5,640 $ 296,043
UIH Australia/Pacific, Inc.,
Warrants(2)(3) 3,600 36
- -------------------------------------------------------------------------------
$ 296,079
- -------------------------------------------------------------------------------
Business Services - Rental & Leasing -- 0.0%
- -------------------------------------------------------------------------------
Unisite, Inc., Warrants(2)(3) 2,252 $ 0
- -------------------------------------------------------------------------------
$ 0
- -------------------------------------------------------------------------------
Chemicals -- 0.0%
- -------------------------------------------------------------------------------
Sterling Chemicals Holdings, Inc.,
Common(3) 9,600 $ 31,200
- -------------------------------------------------------------------------------
$ 31,200
- -------------------------------------------------------------------------------
Consumer Products -- 0.0%
- -------------------------------------------------------------------------------
HF Holdings, Inc., Warrants(2)(3) 13,600 $ 0
- -------------------------------------------------------------------------------
$ 0
- -------------------------------------------------------------------------------
Electronic Equipment -- 0.0%
- -------------------------------------------------------------------------------
Jordan Telecom Products, Inc.,
Common(2)(3) 2,500 $ 0
- -------------------------------------------------------------------------------
$ 0
- -------------------------------------------------------------------------------
Foods -- 0.0%
- -------------------------------------------------------------------------------
Specialty Foods Acquisition Corp.,
Common(2)(3) 48,000 $ 480
- -------------------------------------------------------------------------------
$ 480
- -------------------------------------------------------------------------------
Information Technology Services -- 0.0%
- -------------------------------------------------------------------------------
Cellnet Data Systems, Inc., Warrants,
Exp. 10/1/07(1)(3) 8,000 $ 80
Diva Systems Corp., Warrants(2)(3) 27,000 0
Verio, Inc., Common(3) 9,134 284,011
- -------------------------------------------------------------------------------
$ 284,091
- -------------------------------------------------------------------------------
Lodging and Gaming -- 0.0%
- -------------------------------------------------------------------------------
Peninsula Gaming LLC, Warrants(2)(3) 25,351 $ 152,107
- -------------------------------------------------------------------------------
$ 152,107
- -------------------------------------------------------------------------------
SECURITY SHARES VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Machinery -- 0.0%
- -------------------------------------------------------------------------------
MMH Holdings, Inc., Common(3) 20 $ 0
- -------------------------------------------------------------------------------
$ 0
- -------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 0.4%
- -------------------------------------------------------------------------------
Key Energy Services, Inc.,
Warrants(2)(3) 1,900 $ 28,500
R&B Falcon Corp., Warrants(1)(3) 5,400 1,350,000
Weatherford International, Inc., Common 82,636 2,644,352
- -------------------------------------------------------------------------------
$ 4,022,852
- -------------------------------------------------------------------------------
Retail - General -- 0.0%
- -------------------------------------------------------------------------------
SpinCycle, Inc., Warrants(2)(3) 3,400 $ 0
- -------------------------------------------------------------------------------
$ 0
- -------------------------------------------------------------------------------
Wireline Communication Services -
International -- 0.2%
- -------------------------------------------------------------------------------
Carrier1, Warrants(2)(3) 14,500 $ 145
Esat Holdings, Ltd., Common 16,552 296,074
Primus Telecom Group, Warrants,
Exp. 8/1/04(2)(3) 4,600 117,043
Tele1 Europe BV, Warrants(2)(3) 2,400 168,000
Versatel Telecom B.V., Warrants(2)(3) 14,000 1,598,163
- -------------------------------------------------------------------------------
$ 2,179,425
- -------------------------------------------------------------------------------
Wireline Communication Services -
North America -- 0.3%
- -------------------------------------------------------------------------------
Allegiance Telecom, Inc., Common 19,786 $ 1,041,238
AT & T Canada, Inc., Common 3,086 193,839
Hyperion Telecommunications, Inc.,
Class A, Common(3) 24,240 599,940
Intermedia Communications, Inc.,
Common(3) 22,434 488,625
MGC Communications, Inc. Warrants,
Exp. 10/1/04(1)(3) 5,680 571,188
OpTel, Inc., Common(2)(3) 5,840 788
- -------------------------------------------------------------------------------
$ 2,895,618
- -------------------------------------------------------------------------------
Total Common Stocks, Warrants and Rights
(identified cost $5,356,008) $ 9,861,852
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
PORTFOLIO OF INVESTMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PREFERRED STOCKS -- 8.9%
SECURITY SHARES VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Apparel -- 0.0%
- -------------------------------------------------------------------------------
Cluett American Corp., 12.50% (PIK) 148 $ 2,950
- -------------------------------------------------------------------------------
$ 2,950
- -------------------------------------------------------------------------------
Broadcasting and Cable -- 2.6%
- -------------------------------------------------------------------------------
Adelphia Communications Corp., 13% (PIK) 48,000 $ 5,232,000
CSC Holdings, Inc., Series M, 11.125%
(PIK) 130,435 14,021,763
Pegasus Communications Corp., 12.75%
(PIK) 9,155 9,063,087
- -------------------------------------------------------------------------------
$ 28,316,850
- -------------------------------------------------------------------------------
Business Services - Rental & Leasing -- 1.0%
- -------------------------------------------------------------------------------
Crown Castle International Corp. 8,789 $ 8,876,890
Unisite, Inc., 8.5%(2) 3,239 1,744,159
- -------------------------------------------------------------------------------
$ 10,621,049
- -------------------------------------------------------------------------------
Containers and Packaging -- 0.5%
- -------------------------------------------------------------------------------
Packaging Corp. of America, 12.375%
(PIK)(1) 52,000 $ 5,668,000
- -------------------------------------------------------------------------------
$ 5,668,000
- -------------------------------------------------------------------------------
Electronic Equipment -- 0.3%
- -------------------------------------------------------------------------------
Jordan Telecom Products, Inc., 13.25%
(PIK) 3,247 $ 3,247,000
- -------------------------------------------------------------------------------
$ 3,247,000
- -------------------------------------------------------------------------------
Machinery -- 0.0%
- -------------------------------------------------------------------------------
MMH Holdings, Inc., 12% (PIK) 1,831 $ 274,650
- -------------------------------------------------------------------------------
$ 274,650
- -------------------------------------------------------------------------------
Oil and Gas - Equipment and Services -- 0.5%
- -------------------------------------------------------------------------------
R&B Falcon Corp. 5,606 $ 5,325,700
- -------------------------------------------------------------------------------
$ 5,325,700
- -------------------------------------------------------------------------------
Wireless Communication Services -- 1.3%
- -------------------------------------------------------------------------------
Dobson Communications Corp., 12.25%
(PIK) 4,551 $ 4,095,900
Nextel Communications, Inc., 11.125%
(PIK) 5,664 5,437,440
Rural Cellular Corp., 11.375% (PIK) 4,600 4,692,000
- -------------------------------------------------------------------------------
$ 14,225,340
- -------------------------------------------------------------------------------
SECURITY SHARES VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Wireline Communication Services -
International -- 1.2%
- -------------------------------------------------------------------------------
Global Crossing Holding, Ltd., 10.5% 11,700 $ 12,343,500
- -------------------------------------------------------------------------------
$ 12,343,500
- -------------------------------------------------------------------------------
Wireline Communication Services -
North America -- 1.5%
- -------------------------------------------------------------------------------
E.spire Communications, Inc., 12.75%
(PIK) 5,011 $ 1,553,410
Intermedia Communications, Inc., 7%
(PIK)(1) 185,000 3,931,250
IXC Communications, Inc., Series B,
12.5% (PIK) 9,258 9,767,190
Nextlink Communications, Inc., 14% (PIK) 23,977 1,186,861
- -------------------------------------------------------------------------------
$ 16,438,711
- -------------------------------------------------------------------------------
Total Preferred Stocks
(identified cost $103,468,983) $ 96,463,750
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.4%
PRINCIPAL
AMOUNT
SECURITY (000'S OMITTED) VALUE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Associates Corp., 5.55%, 10/1/99 $ 27,686 $ 27,686,000
General Electric Capital Co., 5.55%,
10/1/99 30,000 30,000,000
- -------------------------------------------------------------------------------
Total Short-Term Investments
(at amortized cost, $57,686,000) $ 57,686,000
- -------------------------------------------------------------------------------
Total Investments -- 100.1%
(identified cost $1,134,249,487) $1,080,296,741
- -------------------------------------------------------------------------------
Other Assets, Less Liabilities -- (0.1)% $ (1,341,182)
- -------------------------------------------------------------------------------
Net Assets -- 100.0% $1,078,955,559
- -------------------------------------------------------------------------------
</TABLE>
(PIK) - Payment in kind.
EUR - Euro Dollar
GBP - British Pound
(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.
(2) Restricted security.
(3) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
(EXPRESSED UNITED STATES DOLLARS)
<S> <C>
Assets
- --------------------------------------------------------
Investments, at value
(identified cost, $1,134,249,487) $1,080,296,741
Cash 9,789
Receivable for investments sold 8,796,155
Interest receivable 24,808,610
- --------------------------------------------------------
TOTAL ASSETS $1,113,911,295
- --------------------------------------------------------
Liabilities
- --------------------------------------------------------
Payable for investments purchased $ 34,169,644
Payable for open forward currency
contracts 669,552
Payable for non-resident alien
witholding tax 59,338
Payable to affiliate for Trustees' fees 2,871
Accrued expenses 54,331
- --------------------------------------------------------
TOTAL LIABILITIES $ 34,955,736
- --------------------------------------------------------
NET ASSETS APPLICABLE TO INVESTORS'
INTEREST IN PORTFOLIO $1,078,955,559
- --------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------
Net proceeds from capital contributions
and withdrawals $1,133,571,652
Net unrealized depreciation (computed on
the basis of identified cost) (54,616,093)
- --------------------------------------------------------
TOTAL $1,078,955,559
- --------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1999
(EXPRESSED UNITED STATES DOLLARS)
<S> <C>
Investment Income
- ------------------------------------------------------
Interest $ 52,114,244
Dividends 5,378,941
Miscellaneous 405,255
- ------------------------------------------------------
TOTAL INVESTMENT INCOME $ 57,898,440
- ------------------------------------------------------
Expenses
- ------------------------------------------------------
Investment adviser fee $ 3,168,877
Trustees fees and expenses 19,721
Custodian fee 165,772
Legal and accounting services 57,255
Amortization of organization expenses 736
Miscellaneous 4,880
- ------------------------------------------------------
TOTAL EXPENSES $ 3,417,241
- ------------------------------------------------------
NET INVESTMENT INCOME $ 54,481,199
- ------------------------------------------------------
Realized and Unrealized
Gain (Loss)
- ------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified
cost basis) $ 7,259,037
Foreign currency and forward foreign
currency exchange contract
transactions 366,180
- ------------------------------------------------------
NET REALIZED GAIN $ 7,625,217
- ------------------------------------------------------
Change in unrealized appreciation
(depreciation) --
Investments (identified cost basis) $(51,951,543)
Foreign currency and forward foreign
currency exchange contracts (663,347)
- ------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) $(52,614,890)
- ------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS $(44,989,673)
- ------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 9,491,526
- ------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS CONT'D
STATEMENTS OF CHANGES IN NET ASSETS
(EXPRESSED UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
Increase (Decrease) SEPTEMBER 30, 1999 YEAR ENDED
IN NET ASSETS (UNAUDITED) MARCH 31, 1999
<S> <C> <C>
- ----------------------------------------------------------------------------
From operations --
Net investment income $ 54,481,199 $ 99,349,959
Net realized gain (loss) 7,625,217 (13,513,235)
Net change in unrealized
appreciation (depreciation) (52,614,890) (53,977,702)
- ----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 9,491,526 $ 31,859,022
- ----------------------------------------------------------------------------
Capital transactions --
Contributions $ 198,097,701 $ 376,878,683
Withdrawals (167,856,267) (330,015,816)
- ----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL TRANSACTIONS $ 30,241,434 $ 46,862,867
- ----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 39,732,960 $ 78,721,889
- ----------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------
At beginning of period $ 1,039,222,599 $ 960,500,710
- ----------------------------------------------------------------------------
AT END OF PERIOD $ 1,078,955,559 $1,039,222,599
- ----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
FINANCIAL STATEMENTS CONT'D
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 1999 -----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995(1)
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- ---------------------------------------------------------------------------------------------------------
Expenses 0.64%(2) 0.65% 0.63% 0.67% 0.71% 0.70%(2)
Net investment income 10.13%(2) 10.23% 9.63% 10.02% 10.41% 10.63%(2)
Portfolio Turnover 55% 150% 137% 78% 88% 53%
- ---------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(000'S OMITTED) $1,078,956 $1,039,223 $960,501 $706,711 $511,347 $442,552
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from the start of business, June 1, 1994, to March 31, 1995.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(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 Foreign Currency Translation -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investment securities and income and expenses are
converted into U.S. dollars based upon currency exchange rates prevailing on
the respective dates of such transactions. Recognized gains or losses on
investment transactions attributable to changes in foreign currency exchange
rates are recorded for financial statement purposes as net realized gains and
losses on investments. That portion of unrealized gains and losses on
investments that results from fluctuations in foreign currency exchange rates
is not separately disclosed.
G Forward Foreign Currency Exchange Contracts -- The Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from movements in the value of a
foreign currency relative to the U.S. dollar. The Portfolio will enter into
forward contracts for hedging purposes as well as non-hedging purposes. The
forward foreign currency exchange contracts are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
for financial statement purposes as unrealized until such time as the
contracts have been closed.
20
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
H Use of Estimates -- The preparation of the 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 amount of revenue and expense during the
reporting period. Actual results could differ from those estimates.
I Other -- Investment transactions are accounted for on a trade date basis.
J Interim Financial Statements -- The interim financial statements relating to
September 30, 1999 and for the six months then ended have not been audited by
independent certified public accountants, but in the opinion of the
Portfolio's management reflect all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
statements.
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 six months ended September 30, 1999, the fee was
equivalent to 0.59% (annualized) of the Portfolios average daily net assets
and amounted to $3,168,877. 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 officers and Trustees of the Portfolio are officers 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 six months ended September 30, 1999, 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 $642,158,891 and $566,642,529,
respectively, for the six months ended September 30, 1999.
4 Line of Credit
- -------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $130 million ($120 million effective October 12,
1999) 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 six
months ended September 30, 1999.
5 Financial Instruments
- -------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities to assist in
managing exposure to various market risks. These financial instruments
include written options, forward foreign currency contracts and financial
futures contracts and may involve, to a varying degree, elements of risk in
excess of the amounts recognized for financial statement purposes. The
notional or contractual amounts of these instruments represent the investment
the Portfolio has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. A summary of
obligations under these financial instruments at September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
SALES
---------------------------------------------------------------------------------------------
SETTLEMENT IN EXCHANGE FOR NET UNREALIZED
DATE DELIVER (IN U.S. DOLLARS) DEPRECIATION
<C> <S> <C> <C>
---------------------------------------------------------------------------------------------
11/19/99 British Pound Sterling
4,503,712 $ 7,216,748 $(199,965)
11/19/99- European Currency Unit
11/22/99 24,283,656 25,510,701 (469,587)
---------------------------------------------------------------------------------------------
$32,727,449 $(669,552)
---------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
HIGH INCOME PORTFOLIO AS OF SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) CONT'D
(EXPRESSED IN UNITED STATES DOLLARS)
6 Federal Income Tax Basis of Investments
- -------------------------------------------
The cost and unrealized appreciation/depreciation in the value of the
investments owned at September 30, 1999, as computed on a federal income tax
basis, were as follows:
<TABLE>
<S> <C>
AGGREGATE COST $1,134,249,487
--------------------------------------------------------
Gross unrealized appreciation $ 18,564,572
Gross unrealized depreciation (72,517,318)
--------------------------------------------------------
NET UNREALIZED DEPRECIATION $ (53,952,746)
--------------------------------------------------------
</TABLE>
7 Restricted Securities
- -------------------------------------------
At September 30, 1999, the Portfolio owned the following securities
(representing 38% of net assets) which were restricted as to public resale
and not registered under the Securities Act of 1933. The Portfolio has
various registration rights (exercisable under a variety of circumstances)
with respect to 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>
------------------------------------------------------------------------------------------
COMMON STOCKS, WARRANTS AND RIGHTS
------------------------------------------------------------------------------------------
Carrier1, Warrants 9/09/99 14,500 $ 0 $ 145
Diva Systems Corp., Warrants 12/30/98- 27,000 90 0
9/21/99
HF Holdings, Inc., Warrants 13,600 0 0
Jordan Telecom Products, Inc., Common 4/15/98- 2,500 0 0
1/15/99
Key Energy Services, Inc., Warrants 7/22/99 1,900 28,500 28,500
OpTel, Inc., Common 10/21/97- 5,840 40 788
10/22/97
Pegasus Communications Corp., Warrants 12/02/98- 5,640 105,480 296,043
12/07/98
Peninsula Gaming LLC, Warrants 7/08/99 25,351 0 152,107
Primus Telecom Group, Warrants, Exp. 5/14/98- 4,600 0 117,043
8/1/04 11/06/98
5/10/99
Specialty Foods Acquisition Corp., 8/10/93 48,000 34,886 480
Common
SpinCycle, Inc., Warrants 4/24/98 3,400 0 0
Tele1 Europe BV, Warrants 9/23/99 2,400 0 168,000
UIH Australia/Pacific, Inc., Warrants 2/05/98 3,600 0 36
Unisite, Inc., Warrants 12/09/97 2,252 0 0
Versatel Telecom B.V., Warrants 5/20/98- 14,000 0 1,598,163
1/29/99
------------------------------------------------------------------------------------------
$ 168,996 $2,361,305
------------------------------------------------------------------------------------------
PREFERRED STOCKS
------------------------------------------------------------------------------------------
Unisite, Inc., 8.5% 12/09/97 3,239 1,499,847 1,744,159
------------------------------------------------------------------------------------------
$1,499,847 $1,744,159
------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
EATON VANCE HIGH INCOME FUND AS OF SEPTEMBER 30, 1999
INVESTMENT MANAGEMENT
HIGH INCOME PORTFOLIO
Officers
James B. Hawkes
President and Trustee
Michael W. Weilheimer
Vice President and
Portfolio Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Trustees
Jessica M. Bibliowicz
President and Chief Executive Officer, National Financial Partners
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking
Emeritus, Harvard University Graduate School
of Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
Lynn A. Stout
Professor of Law,
Georgetown University Law Center
Jack L. Treynor
Investment Adviser and Consultant
23
