<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (11.4%)
FINANCIAL SERVICES (11.4%)
$ 25,000,000 Credit Suisse First Boston Mortgage Securities
Corp, Remic:I/O, CSTR, Series 97-2, Class X,
(144A), 1.04% due 06/25/20..................... NR/AAA $ 992,187
2,000,000 First Chicago/Lennar Trust I, Series 97-D, 8.11%
due 04/13/39................................... NR/NR 1,860,625
2,047,851 Merrill Lynch Mortgage Investors, Inc., Series
95-C2, Class E, 7.98% due 06/15/21............. Ba3/NR 2,021,454
2,000,000 Morgan Stanley Capital I, Series 97-1, Class F,
(144A), 6.85% due 02/15/20..................... Ba2/NR 1,753,020
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$6,588,549)................................ 6,627,286
-------------
CONVERTIBLE BONDS (0.2%)
RETAIL (0.2%)
150,000 Corporate Express Inc., 4.50% due 07/01/00 (cost
$127,217)...................................... B3/B 128,062
-------------
CORPORATE OBLIGATIONS (19.5%)
BANKING (0.9%)
500,000 Union Bank of Switzerland - New York Branch,
7.25% due 07/15/06............................. Aa1/AA 499,000
-------------
BROADCASTING & PUBLISHING (2.5%)
500,000 Cablevision Systems Corp., 10.50% due 05/15/16... B2/B 505,625
500,000 Lenfest Communications Inc., 10.50% due
06/15/06....................................... B2/BB- 518,750
500,000 TCI Communications Inc., 7.875% due 02/15/26..... Ba1/BBB- 440,640
-------------
1,465,015
-------------
BUILDING MATERIALS (0.5%)
300,000 USG Corp., 8.50% due 08/01/05.................... Ba2/BB+ 304,125
-------------
ELECTRIC (0.9%)
500,000 Commonwealth Edison Co., Series 85, 7.375% due
09/15/02....................................... Baa2/BBB 499,225
-------------
ELECTRONICS (0.9%)
371,685 LG Electronics Inc./Zenith Electronics, 9.06% due
04/02/07....................................... NR/NR 374,383
120,982 LG Electronics Inc./Zenith Electronics, 9.09% due
04/02/07....................................... NR/NR 122,020
-------------
496,403
-------------
ENTERTAINMENT, LEISURE & MEDIA (0.3%)
175,000 Jacor Communications Co., 9.75% due 12/15/06..... B2/B 178,062
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (3.6%)
$ 500,000 Aames Financial Corp., 9.125% due 11/01/03....... Ba3/BB- $ 473,750
500,000 Bank Boston Capital Trust II, Series B, 7.75% due
12/15/26....................................... Baa1/BBB 466,970
500,000 Montell America Finance Corp., (144A), 7.60% due
03/15/07....................................... Baa2/BBB 500,000
150,000 Sun World International, Inc., (144A), 11.25% due
04/15/04....................................... NR/NR 152,250
500,000 Termoemcali Funding Corp., (144A), 10.125% due
12/15/14....................................... NR/BBB- 521,875
-------------
2,114,845
-------------
HEALTH SERVICES (1.4%)
300,000 Mariner Health Group, Inc., Series B, 9.50% due
04/01/06....................................... B2/B 291,750
500,000 Tenet Healthcare Corp., 10.125% due 03/01/05..... Ba3/B+ 537,500
-------------
829,250
-------------
MANUFACTURING (0.4%)
200,000 Collins & Aikman Products Co., 11.50% due
04/15/06....................................... B3/B 220,000
-------------
METALS & MINING (1.4%)
180,000 AK Steel Corp., 9.125% due 12/15/06.............. Ba2/BB- 178,425
200,000 Oregon Steel Mills, Inc., 11.00% due 06/15/03.... B1/BB 216,000
400,000 Ryerson Tull, Inc., 8.50% due 07/15/01........... Ba1/BB 406,500
-------------
800,925
-------------
NATURAL GAS (1.7%)
500,000 Lasmo (USA) Inc., 7.50% due 06/30/06............. Baa2/BBB 503,280
500,000 Lomak Petroleum, Inc., 8.75% due 01/15/07........ B1/B 476,250
-------------
979,530
-------------
OIL-PRODUCTION (0.9%)
500,000 Plains Resources, Inc., Series B, 10.25% due
03/15/06....................................... B2/B- 517,500
-------------
POLLUTION CONTROL (0.4%)
200,000 Allied Waste North America, Inc., (144A), 10.25%
due 12/01/06................................... B3/B+ 210,250
-------------
TELECOMMUNICATION SERVICES (1.3%)
325,000 McLeod, Inc., (144A), 0.00%* due 03/01/07........ B3/NR 183,219
500,000 Paging Network Inc., 10.00% due 10/15/08......... B2/B 441,250
215,000 Teleport Communications Group, 0.00%* due
07/01/07....................................... B1/B 147,275
-------------
771,744
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TELECOMMUNICATIONS (0.3%)
$ 150,000 Qwest Communications International, Inc., (144A),
10.875% due 04/01/07........................... NR/NR $ 153,000
-------------
TELEPHONE (1.7%)
500,000 GTE Corp., 7.90% due 02/01/27.................... A3/A 493,565
500,000 US West Capital Funding Inc., 7.30% due
01/15/07....................................... Baa1/BBB+ 494,910
-------------
988,475
-------------
TRANSPORTATION (0.4%)
200,000 Atlantic Express Transportation Corp., (144A),
10.75% due 02/01/04............................ B2/B 205,000
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$11,351,655)............................... 11,232,349
-------------
FOREIGN CORPORATE OBLIGATIONS (7.9%)
CANADA (1.4%)
Forest Products & Paper
500,000 Canadian Pacific Forest Products Ltd., 9.25%
due 06/15/02.................................. Ba1/NR 516,455
300,000 Gulf Canada Resources Ltd., 8.25% due
03/15/17...................................... Ba1/BB+ 294,750
-------------
811,205
-------------
CHINA (0.8%)
Banking
500,000 State Development Bank of China, 7.375% due
02/01/07...................................... A3/BBB 491,355
-------------
MEXICO (2.3%)
Metals & Mining
500,000 Altos Hornos de Mexico S.A., (144A), 11.375%
due 04/30/02.................................. NR/NR 508,750
Forest Products & Paper
800,000 Copamex Industrias SA DE CV, (144A), 11.375%
due 04/30/04.................................. B1/NR 821,000
-------------
1,329,750
-------------
NETHERLANDS (1.8%)
Financial Services
1,000,000 Matahari International Finance Co. BV, (144A),
11.25% due 03/15/01........................... NR/NR 1,057,500
-------------
SOUTH KOREA (0.8%)
Banking
500,000 Korea Development Bank, 6.75% due 12/01/05..... A1/AA- 475,915
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
THAILAND (0.8%)
Banking
$ 500,000 Bangkok Bank Public Co. Ltd., (144A), 7.25% due
09/15/05...................................... A3/BBB+ $ 479,060
-------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$4,597,778)................................ 4,644,785
-------------
GOVERNMENT OBLIGATIONS (6.4%)
AUSTRALIA (0.3%)
Government of Australia
AUD 71,000 Series 101, 8.75% due 01/15/01................. NR/AAA 58,630
AUD 110,000 Series 206, 10.00% due 02/15/06................ NR/AAA 97,869
-------------
156,499
-------------
BELGIUM (0.3%)
Kingdom of Belgium
BEF 2,000,000 Series 24, 7.00% due 05/15/06.................. Aa1/NR 60,588
BEF 3,000,000 Series 7, 9.00% due 06/27/01................... Aa1/NR 97,752
-------------
158,340
-------------
CANADA (1.2%)
USD 500,000 Province of Quebec, 7.00% due 01/30/07........... A2/A+ 486,310
Government of Canada
CAD 191,000 7.00% due 12/01/06............................. Aa1/AAA 140,275
CAD 56,000 Series A77, 8.50% due 03/01/00................. Aa1/AAA 43,265
-------------
669,850
-------------
FRANCE (0.6%)
Government of France
FRF 1,280,000 7.50% due 04/25/05............................. Aaa/NR 247,343
FRF 620,000 9.50% due 01/25/01............................. Aaa/NR 124,640
-------------
371,983
-------------
GERMANY (0.7%)
DEM 300,000 Federal Republic of Germany, Series 92, 8.00% due
07/22/02....................................... Aaa/NR 197,602
DEM 339,000 Germany Unity Fund, 8.00% due 01/21/02........... NR/NR 222,096
-------------
419,698
-------------
ITALY (0.3%)
ITL 320,000,000 Republic of Italy, 9.00% due 10/01/03............ Aa3/AAA 201,248
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
JAPAN (1.4%)
Government of Japan
JPY 24,200,000 Series 144, 6.00% due 12/20/01................. Aaa/NR $ 227,565
JPY 25,800,000 Series 164, 4.10% due 12/22/03................. Aaa/NR 227,994
JPY 40,300,000 Series 187, 3.30% due 06/20/06................. Aaa/NR 338,315
-------------
793,874
-------------
NETHERLANDS (0.4%)
Government of the Netherlands
NLG 137,000 Series 1&2, 6.00% due 01/15/06................. NR/NR 72,069
NLG 226,000 Series 1-3, 8.50% due 03/15/01................. NR/NR 132,193
-------------
204,262
-------------
SPAIN (0.2%)
ESP 14,600,000 Government of Spain, 10.50% due 10/30/03......... Aa2/NR 121,308
-------------
SWEDEN (0.2%)
SEK 700,000 Kingdom of Sweden, Series 1030, 13.00% due
06/15/01....................................... Aa1/NR 111,364
-------------
UNITED KINGDOM (0.8%)
Treasury Gilt
GBP 73,000 7.00% due 11/06/01............................. Aaa/NR 117,894
GBP 210,000 7.50% due 12/07/06............................. Aaa/NR 338,297
-------------
456,191
-------------
TOTAL GOVERNMENT OBLIGATIONS (COST
$3,713,378)................................ 3,664,617
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (26.9%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION
$ 6,060,000 TBA May, 7.50% due 12/01/99...................... 6,027,806
9,500,000 TBA May, 8.00% due 01/01/99...................... 9,648,437
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $15,551,994)......................... 15,676,243
-------------
PRIVATE PLACEMENT (5.3%)
REAL ESTATE (5.3%)
650,000 3512 Oxford Avenue (1st Mortgage Agreement on
Cooperative Building in Riverdale, New York),
8.45% due 04/01/17............................. NR/NR 662,188
650,000 3810 Greystone Avenue (1st Mortgage Agreement on
Cooperative Building in Riverdale, New York),
8.45% due 04/01/17............................. NR/NR 654,947
825,000 421 West 57th Street (1st Mortgage Agreement on
Coop Building in New York City), 8.98% due
05/01/22....................................... NR/NR 825,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
REAL ESTATE (CONTINUED)
$ 933,000 Crystal River Mobile Home Park, Florida, 8.75%
due 11/01/02................................... NR/NR $ 953,965
-------------
TOTAL PRIVATE PLACEMENT (COST $3,058,000).... 3,096,100
-------------
SOVEREIGN BONDS (15.1%)
ARGENTINA (3.7%)
2,328,000 Republic of Argentina FRB, 6.75% due 03/31/05.... B1/BB 2,135,940
-------------
BRAZIL (3.5%)
2,689,560 Republic of Brazil, C Bonds, 8.00%* due
04/15/14....................................... B1/BB- 2,037,342
-------------
ECUADOR (0.9%)
500,000 Republic of Ecuador FRN, (144A), 10.813% due
04/25/04....................................... NR/NR 506,250
-------------
MEXICO (1.7%)
1,000,000 United Mexican States, (144A), 7.625% due
08/06/01....................................... Baa3/BBB- 1,012,500
-------------
POLAND (0.8%)
600,000 Government of Poland PDI, 4.00%* due 10/27/14.... Baa3/BBB- 488,280
-------------
RUSSIA (1.5%)
1,500,000 Russia Principal Loan**.......................... NR/NR 873,750
-------------
VENEZUELA (3.0%)
2,000,000 Republic of Venezuela DCB Series DL, FRN, 6.50%
due 12/18/07................................... Ba2/NR 1,767,600
-------------
TOTAL SOVEREIGN BONDS (COST $8,798,812)...... 8,821,662
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ------------------------------------------------- -------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (41.3%)
RUSSIA (1.6%)
$ 1,000,000 Russia Treasury Bills, due 10/27/97.............. $ 938,665
-------------
REPURCHASE AGREEMENT (39.7%)
(s) 23,085,000 State Street Bank and Trust Co., 5.00% dated
4/30/97 due 5/01/97, proceeds $23,088,206
(collateralized by $15,955,000 U.S. Treasury
Notes, 4.75% due 10/31/98, valued at
$15,633,407; $1,320,000 U.S. Treasury Notes,
5.00% due 2/15/99, valued at $1,292,981;
$3,325,000 U.S. Treasury Notes, 6.125% due
7/13/00, valued at $3,293,309; $1,475,000 U.S.
Treasury Notes, 12.00% due 8/15/13, valued at
$1,808,949; $455,000 U.S. Treasury Notes,
8.125% due 8/15/21, valued at $509,884;
$675,000 U.S. Treasury Notes, 7.50% due
11/15/24, valued at $711,703) (cost
$23,085,000)................................... 23,085,000
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$24,022,006)................................ 24,023,665
-------------
TOTAL INVESTMENTS (COST $77,809,389) (134.0%).... 77,914,769
LIABILITIES IN EXCESS OF OTHER ASSETS (-34.0%)... (19,748,007)
-------------
NET ASSETS (100.0%).............................. $ 58,166,762
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $77,809,389 for Federal Income Tax
Purposes at April 30, 1997, the aggregate gross unrealized appreciation and
depreciation was $407,515 and $302,135, respectively, resulting in net
unrealized appreciation of $105,380.
(s) $16,510,000 par segregated as collateral for TBA securities.
Abbreviations:
* Rate shown reflects current rate on variable rate instrument or instrument
with step coupon rates.
** When and If issued securities.
144A - Securities restricted for resale to Qualified Institutional Buyers.
TBA - Securities purchased (sold) on a forward commitment basis with an
approximate principal amount and no definite maturity date. The actual principal
amount and maturity date will be determined upon settlement.
C - Debt instrument with a fixed interest rate that pays a portion in interest
and a portion capitalizes increasing the principal.
CSTR - Collateral Strip Rate.
DCB - Debt Conversion Bond - noncollateralized floating rate instrument that
previously allowed the holder to convert the debt at a specific time.
FRB - Floating Rate Bond.
FRN - Floating Rate Note.
I/O - Interest Only.
NR - Not Rated.
PDI - Debt instrument created from past due interest on previous Brady Bond
plans.
Remic - Real Estate Mortgage Investment Conduit
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $77,809,389 ) $77,914,769
Cash 3,240
Foreign Currency at Value (Cost $27,681 ) 27,481
Receivable for Investments Sold 2,963,797
Unrealized Appreciation of Forward Foreign
Currency Contracts 111,349
Interest Receivable 537,913
Deferred Organization Expenses 17,264
Receivable for Expense Reimbursement 9,864
-----------
Total Assets 81,585,677
-----------
LIABILITIES
Payable for Investments Purchased 23,318,187
Unrealized Depreciation of Forward Foreign
Currency Contracts 38,273
Advisory Fee Payable 20,100
Organization Expenses Payable 14,200
Custody Fee Payable 13,984
Administrative Services Fee Payable 1,391
Administration Fee Payable 156
Fund Services Fee Payable 29
Accrued Trustees' Fees and Expenses 296
Accrued Expenses 12,299
-----------
Total Liabilities 23,418,915
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $58,166,762
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD FROM MARCH 17, 1997 (COMMENCEMENT OF OPERATIONS) TO APRIL 30,
1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $454,031
EXPENSES
Advisory Fee $ 28,495
Custodian Fees and Expenses 13,984
Professional Fees and Expenses 9,504
Administrative Services Fee 1,974
Printing Expenses 1,441
Amortization of Organization Expense 436
Trustees' Fees and Expenses 344
Administration Fee 156
Fund Services Fee 83
Insurance Expense 13
Miscellaneous 98
---------
Total Expenses 56,528
Less: Reimbursement of Expenses (15,368)
---------
NET EXPENSES 41,160
--------
NET INVESTMENT INCOME 412,871
NET REALIZED LOSS ON
Investment Transactions (104,651)
Foreign Currency Transactions (15,710)
---------
Net Realized Loss (120,361)
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments 105,380
Foreign Currency Contracts and Translations 70,404
---------
Net Change in Unrealized Appreciation 175,784
--------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $468,294
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 17, 1997
(COMMENCEMENT OF
OPERATIONS) TO
APRIL 30, 1997
----------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 412,871
Net Realized Loss on Investment and Foreign
Currency Transactions (120,361)
Net Change in Unrealized Appreciation of
Investments and Foreign Currency Translations 175,784
----------------
Net Increase in Net Assets Resulting from
Operations 468,294
----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 57,603,845
Withdrawals (5,387)
----------------
Net Increase from Investors' Transactions 57,598,458
----------------
Total Increase in Net Assets 58,066,752
NET ASSETS
Beginning of Period 100,010
----------------
End of Period $ 58,166,762
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 17, 1997
(COMMENCEMENT OF
OPERATIONS) TO
APRIL 30, 1997
----------------
<S> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65%(a)
Net Investment Income 6.52%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.24%(a)
Portfolio Turnover 104.17%
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30,1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Global Strategic Income Portfolio (the "Portfolio"), is one of two subtrusts
(portfolios) comprising Series Portfolio II. Series Portfolio II is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a no-load,
open-end management investment company which was organized as a trust under the
laws of the State of New York on January 9, 1997. The Portfolio commenced
operations on March 17, 1997 and received a contribution of certain assets and
liabilities including securities, with a value of $41,072,730 on that date from
The JPM Institutional Global Strategic Income Fund in exchange for a beneficial
interest in the Portfolio. The Portfolio's investment objective is to provide a
high total return from a portfolio of fixed income securities of foreign and
domestic issuers. The Declaration of Trust permits the Trustees to issue an
unlimited number of beneficial interests in the Portfolio.
Investments in emerging and international markets may involve certain
considerations and risks not typically associated with investments in the United
States. Future economic and political developments in emerging market and
foreign countries could adversely affect the liquidity or value, or both, of
such securities in which the Portfolio is invested. The ability of the issuers
of debt securities held by the Portfolio to meet their obligations may be
affected by economic and political developments in a specific industry or
region.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a)The Portfolio values mortgage and asset-backed securities and other debt
securities with a maturity of 60 days or more, including securities that
are listed on an exchange or traded over the counter, using prices
supplied daily by an independent pricing service or services that (i) are
based on the last sale price on a national securities exchange, or in the
absence of recorded sales, at the readily available bid price on such
exchange or at the quoted bid price in the over-the-counter market, if
such exchange or market constitutes the broadest and most representative
market for the security and (ii) in other cases, take into account various
factors affecting market value, including yields and prices of comparable
securities, indications as to value from dealers and general market
conditions. Securities listed on a foreign exchange are valued at the last
quoted sale price available before the time when net assets are valued. If
such prices are not supplied by the Portfolio's independent pricing
services, such securities are priced in accordance with procedures adopted
by the Trustees. Such procedures may include the use of independent
pricing services or affiliated advisor pricing, which use prices based
upon yields or prices of securities of comparable quality, coupon,
maturity and type; indications as to values from dealers; operating data
and general market conditions. All short-term portfolio securities with a
remaining maturity of less than 60 days are valued by the amortized cost
method. The ability of issuers of mortgage and asset-backed securities,
held by the Portfolio, to meet their obligations may be affected by
economic developments in a specific industry or region. The value of
mortgage and asset-backed securities can be significantly affected by
changes in interest rates, rapid principal payments including
pre-payments.
27
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1997
- --------------------------------------------------------------------------------
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the Portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the Portfolio's Trustees.
The Portfolio's custodian or designated subcustodians, as the case may be,
under triparty repurchase agreements takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the
Portfolio. It is the policy of the Portfolio to value the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to the repurchase price plus
accrued interest. In the event of default of the obligation to repurchase,
the Portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances,
in the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject
to legal proceedings.
b)The books and records of the Portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
forward contracts stated in foreign currencies are translated at the
prevailing exchange rates at the end of the period. Purchases, sales,
income and expenses are translated at the exchange rate prevailing on the
respective dates of such transactions. Translation gains and losses
resulting from changes in exchange rates during the reporting period and
gains and losses realized upon settlement of foreign currency transactions
are reported in the Statement of Operations. Although the net assets of
the Portfolio are presented at the exchange rates and market values
prevailing at the end of the period, the Portfolio does not isolate the
portion of the results of operations arising as a result of changes in
foreign exchange rates from the fluctuations arising from changes in the
market prices of securities during the period.
c)Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
d)The Portfolio may enter into forward and spot foreign currency contracts
in order to hedge exposure by managing foreign currency exchange risk and
enhancing returns on foreign portfolio holdings or to protect securities
and related receivables and payables against fluctuations in future
foreign currency rates. A forward contract is an agreement to buy or sell
currencies of different countries on a specified future date at a
specified rate. Risks associated with such contracts include the movement
in the value of the foreign currency relative to the U.S. dollar and the
ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily based on procedures established
by and under the general supervision of the Portfolio's Trustees. The
change in the market value is recorded by the Portfolio as unrealized
appreciation or depreciation of forward and spot foreign currency
contracts until terminated, at which time realized
28
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1997
- --------------------------------------------------------------------------------
foreign currency gains and losses are recognized. At April 30, 1997, the
Portfolio had open forward foreign currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
COST/ VALUE AT APPRECIATION/
PURCHASE CONTRACTS PROCEEDS 4/30/97 (DEPRECIATION)
- ------------------------------------------------- -------- ----------- --------------
<S> <C> <C> <C>
Australian Dollar 132,417 expiring 07/28/97...... $102,756 $ 103,409 $ 653
Belgian Franc 5,970,917 expiring 07/28/97........ 170,598 168,301 (2,297)
British Pound 243,095 expiring 07/28/97.......... 396,975 393,653 (3,322)
Canadian Dollar 191,946 expiring 07/28/97........ 138,086 138,167 81
French Franc 1,933,873 expiring 07/28/97......... 337,500 333,382 (4,118)
German Mark 946,490 expiring 07/28/97............ 557,795 550,208 (7,587)
Italian Lira 350,580,000 expiring 07/28/97....... 205,637 204,350 (1,287)
Japanese Yen 97,985,221 expiring 07/28/97........ 787,017 782,587 (4,430)
Netherland Guilder 401,121 expiring 07/28/97..... 210,011 207,276 (2,735)
Spanish Peseta 28,920,181 expiring 07/28/97...... 200,417 198,173 (2,244)
Swedish Krona 947,681 expiring 07/28/97.......... 124,400 121,288 (3,112)
</TABLE>
<TABLE>
<CAPTION>
SALES CONTRACTS
- -------------------------------------------------
<S> <C> <C> <C>
Australian Dollar 142,097 expiring 07/28/97...... $111,546 $ 110,968 $ 578
Australian Dollar 192,613 expiring 10/29/97...... 149,617 150,452 (835)
Belgian Franc 5,970,917 expiring 07/28/97........ 173,070 168,301 4,769
Belgian Franc 5,970,917 expiring 10/29/97........ 171,820 169,479 2,341
British Pound 243,095 expiring 07/28/97.......... 387,494 393,653 (6,159)
British Pound 290,279 expiring 10/29/97.......... 472,750 469,374 3,376
Canadian Dollar 191,946 expiring 07/28/97........ 140,312 138,167 2,145
Canadian Dollar 262,186 expiring 10/29/97........ 189,688 189,777 (89)
French Franc 1,933,873 expiring 07/28/97......... 343,702 333,382 10,320
French Franc 2,250,453 expiring 10/29/97......... 394,919 390,479 4,440
German Mark 946,490 expiring 07/28/97............ 567,124 550,208 16,916
German Mark 819,624 expiring 10/29/97............ 486,236 479,833 6,403
Italian Lira 350,580,000 expiring 07/28/97....... 206,817 204,349 2,468
Italian Lira 337,580,000 expiring 10/29/97....... 197,654 196,482 1,172
Japanese Yen 97,985,221 expiring 07/28/97........ 812,161 782,587 29,574
Japanese Yen 112,198,826 expiring 10/29/97....... 914,479 908,778 5,701
Netherlands Guilder 401,121 expiring 07/28/97.... 213,669 207,276 6,393
Netherlands Guilder 401,121 expiring 10/29/97.... 211,496 208,729 2,767
Spanish Peseta 28,920,181 expiring 07/28/97...... 201,328 198,173 3,155
Spanish Peseta 28,920,181 expiring 10/28/97...... 200,751 198,574 2,177
Swedish Krona 947,681 expiring 07/28/97.......... 124,042 121,288 2,754
Swedish Krona 947,681 expiring 10/28/97.......... 124,915 121,807 3,108
--------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 73,076
--------------
--------------
</TABLE>
29
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1997
- --------------------------------------------------------------------------------
e)Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place will be fixed when
the Portfolio enters into the contract. Upon entering into such a contract
the Portfolio is required to pledge to the broker an amount of cash and/or
liquid securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the Portfolio agrees to receive
from, or pay to, the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are
known as "variation margin" and are recorded by the Portfolio as
unrealized gains or losses. When the contract is closed, the Portfolio
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time when
it was closed. The Portfolio invests in futures contracts for the purpose
of hedging its existing portfolio securities, or securities the Portfolio
intends to purchase, against fluctuations in value caused by changes in
prevailing market interest rates or securities movements. The use of
futures transactions involves the risk of imperfect correlation of
movements in the price of futures contracts, interest rates and the
underlying hedged assets, and the possible inability of counterparties to
meet the terms of their contracts. There were no futures transactions
during the period from March 17, 1997 (commencement of operations) to
April 30, 1997.
f)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be subject to
taxation on its share of the Portfolio's ordinary income and capital
gains. It is intended that the Portfolio's assets will be managed in such
a way that an investor in the Portfolio will be able to satisfy the
requirements of Subchapter M of the Internal Revenue Code. The Portfolio
earns foreign income which may be subject to foreign withholding taxes at
various rates.
g)The Portfolio incurred organization expenses in the amount of $17,700.
These costs were deferred and are being amortized on a straight-line basis
over a five year period from the commencement of operations.
h)The Portfolio may engage in swap transactions, specifically interest rate,
currency, index and total return swaps. The Portfolio will use these
transactions to preserve a return or spread on a particular investment or
portion of its investments, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the
price of securities the Portfolio anticipates purchasing at a later date,
or to gain exposure to certain markets in the most economical way
possible. An interest rate swap is an agreement between two parties to
exchange interest payments on a specified amount ("the notional amount")
for a specified period. If a swap agreement provides for payments in
different currencies, the parties might agree to exchange the notional
amount as well. Risks associated with swap transactions include the
ability of counterparties to meet the terms of their contracts, and the
amount of the Portfolio's potential gain or loss on swap transaction is
not subject to any fixed limit.
30
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1997
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an Investment Advisory Agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the Portfolio pays Morgan at an annual rate of 0.45% of the Portfolio's
average daily net assets. For the period from March 17, 1997 (commencement
of operations) to April 30, 1997, this fee amounted to $28,495.
b)The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as co-administrator and exclusive placement agent.
Under a Co-Administration Agreement between FDI and the Portfolio, FDI
provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the Portfolio and pays the compensation of the officers
affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the Portfolio is based on
the ratio of the Portfolio's net assets to the aggregate net assets of the
The JPM Pierpont Funds, The JPM Institutional Funds, the Portfolio and the
other portfolios in which The JPM Pierpont Funds and The JPM Institutional
Funds invest (the "Master Portfolios"), JPM Series Trust and JPM Series
Trust II. For the period from March 17, 1997 (commencement of operations )
to April 30, 1997, the fee for these services amounted to $156.
c)The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing
certain aspects of the administration and operation of the Portfolio.
Under the Services Agreement, the Portfolio has agreed to pay Morgan a fee
equal to its allocable share of an annual complex-wide charge. This charge
is calculated daily based on the aggregate net assets of the Master
Portfolios and JPM Series Trust in accordance with the following annual
schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess
of $7 billion less the complex-wide fees payable to FDI. The portion of
this charge payable by the Portfolio is determined by the proportionate
share that the net assets bear to the total net assets of the Master
Portfolios, other investors in the Master Portfolios for which Morgan
provides similar services, The JPM Pierpont Funds, The JPM Institutional
Funds and JPM Series Trust. For the period from March 17, 1997
(commencement of operations) to April 30, 1997, the fee for these services
amounted to $1,974.
In addition, Morgan has agreed to reimburse the Portfolio to the extent
necessary to maintain the total operating expenses of the Portfolio at no
more than 0.65% of the average daily net assets of the Portfolio through
November 30, 1997. For the period from March 17, 1997 (commencement of
operations) to April 30, 1997, Morgan has agreed to reimburse the
Portfolio $15,368 for expenses under this agreement.
d)The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its services
amounted to $83 for the period from March 17, 1997 (commencement of
operations) to April 30, 1997.
31
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1997
- --------------------------------------------------------------------------------
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the Portfolio's allocated
portion of the total fees and expenses. Prior to April 1, 1997, the
aggregate annual Trustee Fee was $65,000. The Portfolio's Chairman and
Chief Executive Officer also serves as Chairman of Group and receives
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $20.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period from
March 17, 1997 (commencement of operations) to April 30, 1997 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- -----------
<S> <C> <C>
U.S. Government and Agency Obligations........... $47,137,635 $31,640,703
Corporate and Collateralized Mortgage
Obligations..................................... 40,220,428 1,830,302
----------- -----------
$87,358,063 $33,471,005
----------- -----------
----------- -----------
</TABLE>
32
