<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (20.2%)
FINANCIAL SERVICES (20.2%)
$ 931,001 Aegis Auto Receivables Trust, Sequential Payer,
Series 1996-3, Class A, Callable, (144A), 8.80%
due 03/20/02(r)................................ NR/NR $ 727,636
1,750,000 BCF L.L.C., Series 1997-CI, Class E, (144A),
8.48% due 10/25/26............................. NR/NR 1,723,750
1,984,377 Chase Commercial Mortgage Securities Corp.,
Subordinated Bond, Series 1997-1, Class E,
Callable, 7.37% due 12/19/07................... NR/BBB- 2,019,414
23,500,306 CS First Boston Mortgage Securities Corp, Remic:
I/O, CSTR, Series 1997-2, Class X, Callable,
(144A), 1.21% due 06/25/20..................... NR/AAA 1,064,858
1,000,000 DLJ Mortgage Acceptance Corp, Series DRRE-1A,
(144A), 8.25% due 07/25/27..................... NR/NR 1,031,875
2,000,000 First Chicago/Lennar Trust, Series 1997-CHL1,
Class D, Collateral Strip Interest, Callable,
(144A), 8.12% due 05/29/08..................... NR/NR 2,021,250
1,000,000 Green Tree Financial Corp., Subordinated Bond,
Series 1997-4, Class B1, Callable, 7.23% due
02/15/29....................................... Baa1/BBB+ 1,012,656
649,142 Home Mac Mortgage Securities Corp., Series
1985-1, secured by GNMA, Pre-refunded, 11.375%
due 08/01/15................................... NR/NR 688,497
1,724,621 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, Callable, 8.19% due 06/15/21................ Ba3/NR 1,732,166
2,000,000 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
Callable, 7.12% due 06/18/29................... NR/BB 1,866,562
2,000,000 Morgan Stanley Capital I, Subordinated Bond,
Series 1997-C1, Class F, Callable, (144A),
6.85% due 02/15/20............................. Ba2/NR 1,803,750
1,570,000 Morgan Stanley Capital I, Subordinated Bond,
Series 1997-HF1, Class G, Callable, (144A),
6.86% due 05/15/11............................. NR/NR 1,379,637
1,000,000 Morgan Stanley Capital I, Subordinated Bond,
Series 1997-XL1, Class G, Callable, (144A),
7.695% due 10/03/30............................ Ba3/BB 981,562
435,000 Morgan Stanley Capital, Inc., Subordinated Bond,
Series 1997-HF1, Class F, Callable, (144A),
6.86% due 02/15/10............................. NR/NR 397,209
250,000 Niantic Bay Fuel Trust, 9.02% due 06/05/98....... NR/NR 245,625
319,050 Salomon Brothers Mortgage Securities V, Inc.,
Series 1985-1, secured by GNMA, Pre-refunded,
12.00% due 04/01/15............................ NR/NR 337,196
205,800 Salomon Brothers Mortgage Securities V, Inc.,
Series 1985-2, secured by GNMA, Pre-refunded,
12.00% due 05/01/15............................ NR/NR 213,389
987,441 Structured Asset Securities Corp., Subordinated
Bond, Series 1997-C1, Class E, FRB, Callable,
(144A), 6.56% due 08/25/00..................... NR/NR 987,441
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$19,801,802)............................... 20,234,473
-------------
CONVERTIBLE BONDS (0.1%)
RETAIL (0.1%)
150,000 Corporate Express Inc., Callable 07/01/99, 4.50%
due 07/01/00 (cost $127,217)................... B3/B 133,688
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
CORPORATE OBLIGATIONS (28.4%)
AEROSPACE (1.1%)
$ 500,000 K & F Industries, Inc., Callable 10/15/02,
(144A), 9.25% due 10/15/07..................... B3/B- $ 506,250
500,000 Northrop Grumman Corp., Callable 10/15/04, 9.375%
due 10/15/24(s)................................ Baa3/BBB- 584,905
-------------
1,091,155
-------------
AUTOMOTIVE SUPPLIES (0.7%)
300,000 Exide Corp., Callable 04/15/00, 10.00% due
04/15/05....................................... B1/NR 308,250
400,000 Hayes Lemmerz International, Inc., Callable
07/15/02, (144A), 9.125% due 07/15/07.......... B3/NR 408,000
-------------
716,250
-------------
BANKING (0.5%)
500,000 Mellon Capital I, Series A, Callable 12/01/06,
7.72% due 12/01/26(s).......................... A2/BBB+ 510,445
-------------
BROADCASTING & PUBLISHING (3.1%)
400,000 Cablevision Systems Corp., 10.50% due 05/15/16... B1/BB- 444,000
500,000 Capstar Broadcasting Partners, Callable 07/01/02,
9.25% due 07/01/07............................. B2/B- 506,250
400,000 Chancellor Media Corp., Callable 6/15/02, (144A),
8.75% due 06/15/07............................. B3/B- 405,000
700,000 Fox Kids Worldwide, Inc., Callable 11/01/02,
(144A),
9.25% due 11/01/07............................. B1/B 677,250
500,000 Lenfest Communications Inc., 10.50% due
06/15/06....................................... B2/BB- 552,500
500,000 TCI Communications Inc., 7.875% due
02/15/26(s).................................... Ba1/BBB- 513,960
-------------
3,098,960
-------------
BUILDING MATERIALS (0.4%)
400,000 USG Corp., 8.50% due 08/01/05.................... Ba1/BB+ 429,000
-------------
ELECTRIC (1.2%)
500,000 Calpine Corp., Callable 07/15/02, (144A), 8.75%
due 07/15/07................................... Ba3/BB- 501,250
400,000 Connecticut Light & Power Co., Series C,
Callable, 7.75% due 06/01/02................... NR/BB+ 410,376
300,000 Niagara Mohawk Power Corp., 8.00% due 06/01/04... Ba3/BB+ 316,590
-------------
1,228,216
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
ELECTRONICS (0.5%)
$ 120,982 LG Electronics Inc./Zenith Electronics Corp.
(Mexican Tranche),
9.09% due 04/02/07(r).......................... NR/NR $ 122,429
371,685 LG Electronics Inc./Zenith Electronics Corp.
(U.S. Tranche),
9.06% due 04/02/07(r).......................... NR/NR 375,785
-------------
498,214
-------------
ENTERTAINMENT, LEISURE & MEDIA (2.6%)
500,000 Fox/Liberty Networks LLC, Callable 08/15/02,
(144A),
8.875% due 08/15/07(s)......................... B1/B 500,000
400,000 Jacor Communications Co., Callable 06/15/02,
(144A),
8.75% due 06/15/07............................. B2/B 403,000
175,000 Jacor Communications Co., Callable 12/15/01,
9.75% due 12/15/06............................. B2/B 189,437
300,000 Lamar Advertising Co., Callable 09/15/02, (144A),
8.625% due 09/15/07............................ B1/B 302,250
500,000 News America Holdings, Inc., 7.75% due
01/20/24....................................... Baa3/BBB 501,455
400,000 Outdoor Systems, Inc., Callable 06/15/02, 8.875%
due 06/15/07................................... B1/B 413,000
300,000 Time Warner Inc., 7.57% due 02/01/24(s).......... Ba1/BBB- 302,973
-------------
2,612,115
-------------
FINANCIAL SERVICES (2.1%)
500,000 BankBoston Capital Trust II, Series B, Callable
12/15/06,
7.75% due 12/15/26(s).......................... Aa/BBB 506,835
500,000 First Union Institutional Capital I, Callable
12/01/06,
8.04% due 12/01/26(s).......................... A1/BBB+ 537,980
500,000 Sun World International, Inc., Callable 04/15/01,
(144A),
11.25% due 04/15/04............................ B2/B 536,250
500,000 Termoemcali Funding Corp., Callable 06/15/07,
Sinking Fund, (144A), 10.125% due 12/15/14..... NR/BBB- 528,520
-------------
2,109,585
-------------
GAS EXPLORATION (0.5%)
500,000 Phillips 66 Capital Trust II, Callable 01/15/07,
8.00% due 01/15/37............................. Baa1/BBB+ 532,135
-------------
HEALTH & PERSONAL CARE (0.4%)
400,000 Playtex Products, Inc., Series B, Callable
07/15/01,
8.875% due 07/15/04............................ B1/B+ 401,000
-------------
HEALTH SERVICES (1.9%)
500,000 Genesis Health Ventures, Inc., Callable 06/15/00,
9.75% due 06/15/05............................. B2/B- 518,750
300,000 Mariner Health Group, Inc., Series B, Callable
04/01/01,
9.50% due 04/01/06............................. B2/B 310,500
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
HEALTH SERVICES (CONTINUED)
$ 250,000 Tenet Healthcare Corp., Callable 01/15/02, 8.625%
due 01/15/07(s)................................ Ba3/B+ $ 267,205
250,000 Tenet Healthcare Corp., Callable 03/01/00,
10.125% due 03/01/05(s)........................ Ba3/B+ 274,375
500,000 Vencor Inc., Callable 07/15/02, (144A), 8.625%
due 07/15/07................................... B1/B 488,750
-------------
1,859,580
-------------
MEDICAL SUPPLIES (0.5%)
500,000 Sunrise Medical, Inc., 7.09% due 10/28/04(r)..... NR/NR 500,785
-------------
METALS & MINING (1.1%)
500,000 Oregon Steel Mills, Inc., Callable 06/15/00,
11.00% due 06/15/03............................ B1/BB 548,750
400,000 Ryerson Tull, Inc., Callable, 8.50% due
07/15/01....................................... Ba1/BB 414,500
100,000 Ryerson Tull, Inc., Callable, 9.125% due
07/15/06....................................... Ba1/BB 107,000
-------------
1,070,250
-------------
NATURAL GAS (1.0%)
500,000 Lasmo (USA) Inc., 7.50% due 06/30/06(s).......... Baa2/BBB 531,040
500,000 Lomak Petroleum Inc., Callable 01/15/02, 8.75%
due 01/15/07................................... B1/B 502,500
-------------
1,033,540
-------------
OIL-PRODUCTION (1.1%)
500,000 Ocean Energy, Inc., Series B, Callable 07/15/02,
8.875% due 07/15/07(s)......................... B3/B- 516,250
500,000 Plains Resources Inc., Series B, Callable
03/15/01,
10.25% due 03/15/06............................ B2/B 536,250
-------------
1,052,500
-------------
OIL-SERVICES (0.5%)
500,000 Oil Purchase Co., Sinking Fund, (144A), 7.10% due
04/30/02....................................... Baa3/BBB 499,375
-------------
PACKAGING & CONTAINERS (0.9%)
400,000 Riverwood International Corp., Callable 08/01/02,
(144A),
10.625% due 08/01/07........................... B3/B- 419,000
100,000 Stone Container Corp., Callable 02/01/99, 9.875%
due 02/01/01................................... B2/B 101,625
100,000 Stone Container Corp., Callable 10/01/99, 10.75%
due 10/01/02................................... B1/B+ 106,750
300,000 Stone Container Corp., Series B, Callable
12/05/97,
12.25% due 04/01/02............................ B3/B- 310,500
-------------
937,875
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
POLLUTION CONTROL (0.2%)
$ 200,000 Allied Waste North America, Inc., Callable
12/01/01,
10.25% due 12/01/06............................ B2/B+ $ 217,500
-------------
RAILROADS (0.5%)
500,000 Norfolk Southern Corp., 7.80% due 05/15/27....... Baa1/BBB+ 548,380
-------------
REAL ESTATE (1.0%)
1,000,000 Crescent Real Estate Equities Co., (144A), 7.125%
due 09/15/07................................... Baa3/NR 1,008,300
-------------
RETAIL (1.3%)
492,772 Circuit City Stores, Inc., (144A), 7.96% due
12/01/18(r).................................... NR/NR 469,183
400,000 Nine West Group, Inc. (144A), 8.375% due
08/15/05....................................... Ba2/BB 409,000
400,000 Proffitt's, Inc., Series B, 8.125% due
05/15/04....................................... Ba2/BB 405,500
-------------
1,283,683
-------------
TELECOMMUNICATION SERVICES (1.6%)
200,000 Brooks Fiber Properties, Inc., Callable 6/1/02,
10.00% due 06/01/07............................ NR/NR 226,500
250,000 McLeodUSA, Inc., Callable 07/15/02, (144A), 9.25%
due 07/15/07................................... B3/B 255,625
400,000 Paging Network Inc., Callable 10/15/01, 10.00%
due 10/15/08................................... B2/B 409,000
500,000 RCN Corp., Callable 10/15/02, (144A), 10.00% due
10/15/07....................................... B3/NR 496,250
215,000 Teleport Communications Group, Inc., Callable
07/01/01,
0.00% due 07/01/07{*}.......................... B1/B+ 168,237
-------------
1,555,612
-------------
TELECOMMUNICATIONS (1.5%)
400,000 Comcast Corp., 10.625% due 07/15/12(s)........... Ba3/BB+ 490,000
300,000 Intermedia Communications, Inc., Callable
11/01/02, (144A),
8.875% due 11/01/07............................ B2/B 294,750
100,000 NEXTLINK Communications, Inc., Callable 04/15/01,
12.50% due 04/15/06............................ NR/B 113,250
250,000 NEXTLINK Communications, Inc., Callable 10/01/02,
9.625% due 10/01/07............................ B3/B 251,875
325,000 Qwest Communications International, Inc.,
Callable 10/15/02, (144A), 0.00% due
10/15/07{*}.................................... B2/B+ 208,406
150,000 Qwest Communications International, Inc., Series
B, Callable 04/01/02, 10.875% due 04/01/07..... B2/B+ 168,000
-------------
1,526,281
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TEXTILES (1.4%)
$ 500,000 Collins & Aikman Products Co., Callable 04/15/01,
11.50% due 04/15/06............................ B3/B $ 570,000
400,000 Polymer Group, Inc., Series B, Callable 07/01/02,
9.00% due 07/01/07............................. B2/B 404,000
400,000 WestPoint Stevens Inc., 8.75% due 12/15/01(s).... Ba3/BB- 415,000
-------------
1,389,000
-------------
TRANSPORTATION (0.8%)
400,000 Atlantic Express Transportation Corp., Callable
02/01/01, (144A), 10.75% due 02/01/04.......... B2/B 420,000
325,000 Enterprise Rent-a-Car USA Finance Co., MTN,
(144A), 9.125% due 12/15/04.................... Baa2/NR 371,117
-------------
791,117
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$27,774,004)............................... 28,500,853
-------------
FOREIGN CORPORATE OBLIGATIONS (14.1%)
BRAZIL (0.5%)
TELECOMMUNICATION SERVICES
500,000 Globo Commuicacoes Participacoes Ltda.,
Structured Note, Series E, MTN, Callable
10/31/98, 10.75% due 10/31/03{*}(s) (u)........ B1/NR 505,000
-------------
CANADA (4.7%)
FINANCIAL SERVICES
750,000 McKesson Finance of Canada, (144A), 6.55% due
11/01/02....................................... A3/A 754,762
-------------
FOOD, BEVERAGES & TOBACCO
400,000 Cott Corp., Callable 07/01/00, 8.50% due
05/01/07....................................... Ba3/B+ 405,000
-------------
FOREST PRODUCTS & PAPER
500,000 Canadian Pacific Forest Products Ltd., 9.25% due
06/15/02....................................... Ba1/NR 525,910
-------------
OIL PRODUCTION
300,000 Gulf Canada Resources Ltd., 8.25% due 03/15/17... Ba1/BB+ 319,758
-------------
TELECOMMUNICATIONS
200,000 Clearnet Communications, Inc., Callable 12/15/00,
0.00% due 12/15/05{*}.......................... B3/NR 150,750
500,000 Rogers Cablesystems Ltd., Callable 12/01/02,
10.00% due 12/01/07............................ Ba3/BB+ 543,750
250,000 Rogers Cantel, Inc., Callable 10/01/02, (144A),
8.30% due 10/01/07............................. Ba3/BB+ 249,062
-------------
943,562
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TELECOMMUNICATION SERVICES
$ 200,000 Microcell Telecommunications, Inc., Series B,
Callable 12/01/01,
0.00% due 06/01/06{*}.......................... NR/NR $ 132,250
-------------
TELEPHONE
300,000 Call-Net Enterprises, Inc., Callable 08/15/02,
0.00% due 08/15/07{*}.......................... B1/BB- 198,375
-------------
TRANSPORT & SERVICES
500,000 Laidlaw, Inc., 6.72% due 10/01/27(s)............. Baa2/BBB+ 520,370
300,000 Teekay Shipping Corp., Sinking Fund, 8.32% due
02/01/08....................................... Ba2/BB 308,250
-------------
828,620
-------------
WATER
500,000 Hydro Quebec, Series B, MTN, 9.40% due
12/11/20(s).................................... A2/A+ 624,975
-------------
4,733,212
-------------
CHILE (0.8%)
ELECTRIC
500,000 Chilgener SA, 6.50% due 01/15/06(s).............. Baa1/A- 493,600
FOREST PRODUCTS & PAPER
270,000 Celulosa Arauco y Constitution SA, 7.00% due
12/15/07....................................... Baa2/BBB+ 264,705
-------------
758,305
-------------
INDONESIA (0.4%)
FINANCIAL SERVICES
500,000 Indah Kiat Finance Co. Mauritius, Callable
07/01/02, (144A),
10.00% due 07/01/07............................ Ba3/BB- 445,625
-------------
IRELAND (0.4%)
FINANCIAL SERVICES
400,000 Tatneft Finance PLC, (144A), 9.00% due
10/29/02....................................... Ba2/NR 360,000
-------------
MEXICO (2.7%)
FINANCIAL SERVICES
250,000 Vicap SA de CV, Callable 5/15/02, (144A), 11.375%
due 05/15/07................................... Ba3/B+ 260,625
-------------
FOREST PRODUCTS & PAPER
800,000 Copamex Industrias SA de CV, Callable 04/30/02,
(144A),
11.375% due 04/30/04 (u)....................... B1/NR 844,000
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
INDUSTRIAL
$ 400,000 Grupo Imsa, SA de CV, Callable 09/30/02, 8.93%
due 09/30/04 (u)............................... NR/BB $ 380,000
METALS & MINING
500,000 Altos Hornos de Mexico SA de CV, Series B,
11.875% due 04/30/04 (u)....................... NR/NR 515,000
750,000 Industrias Penoles, SA de CV, 8.39% due
06/25/12(r).................................... NR/NR 747,158
-------------
1,262,158
-------------
2,746,783
-------------
NETHERLANDS (0.7%)
FINANCIAL SERVICES
200,000 ITT Publimedia BV, Callable 9/15/02, (144A),
9.375% due 09/15/07............................ B3/B- 204,000
500,000 Matahari International Finance Co. BV, 11.25% due
03/15/01....................................... NR/BB 500,000
-------------
704,000
-------------
PANAMA (0.5%)
BANKING
500,000 Banco Latinoamericano de Export, (144A), 7.20%
due 05/15/02................................... Baa2/BBB 496,455
-------------
RUSSIA (0.2%)
TELEPHONE
200,000 AO Rostelecom Loan Participation SPIRES,
9.035% due 02/15/00(s)(t){*}................... NR/NR 198,500
-------------
SOUTH KOREA (0.9%)
BANKING
500,000 Korea Development Bank, 6.75% due 12/01/05(s).... A1/A+ 450,225
TELECOMMUNICATIONS
500,000 SK Telecom Co. Ltd., 7.75% due 04/29/04(s)....... A1/A+ 497,985
-------------
948,210
-------------
SWEDEN (0.3%)
MISCELLANEOUS
250,000 Stena AB, Callable 06/15/07, 8.75% due
06/15/07....................................... Ba2/BB- 250,000
-------------
THAILAND (0.7%)
BANKING
750,000 Bangkok Bank Public Co. Ltd., (144A), 7.25% due
09/15/05(s).................................... A3/BBB+ 663,585
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TURKEY (0.9%)
FINANCIAL SERVICES
$ 500,000 Pera Financial Services Co., (144A), 9.375% due
10/15/02....................................... NR/NR $ 450,000
500,000 Sultan Ltd., FRN, 8.688% due 06/11/99............ NR/NR 480,000
-------------
930,000
-------------
UNITED KINGDOM (0.4%)
FINANCIAL SERVICES
GBP 80,000 Halifax Building Society PLC, 10.50% due
02/16/18....................................... Aa2/AA 175,991
TELECOMMUNICATIONS
200,000 Ionica PLC, Callable 5/01/02, 0.00% due
05/01/07{*}.................................... NR/NR 108,750
100,000 Ionica PLC, Callable 8/15/01, 13.50% due
08/15/06....................................... NR/NR 106,250
-------------
390,991
-------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$14,309,938)............................... 14,130,666
-------------
GOVERNMENT OBLIGATIONS (4.2%)
AUSTRALIA (0.1%)
AUD 162,000 Queensland Treasury Corp., Series 01, 8.00% due
08/14/01....................................... Aaa/NR 123,967
-------------
CANADA (0.8%)
Government of Canada
CAD 800,000 5.50% due 02/01/00............................. Aa1/AAA 577,989
CAD 308,000 7.00% due 12/01/06............................. Aa1/AAA 242,398
-------------
820,387
-------------
DENMARK (0.1%)
DKK 760,000 Kingdom of Denmark, 8.00% due 03/15/06........... Aaa/AAA 130,563
-------------
FRANCE (0.4%)
Government of France
FRF 1,900,000 7.50% due 04/25/05............................. Aaa/NR 372,241
-------------
GERMANY (0.9%)
DEM 529,000 German Unity Fund, 8.00% due 01/21/02............ NR/NR 341,991
Federal Republic of Germany
DEM 440,000 Series 93, 7.125% due 12/20/02................. Aaa/NR 278,523
DEM 390,000 Series 96, 6.25% due 04/26/06.................. Aaa/NR 237,220
-------------
857,734
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
ITALY (0.2%)
ITL 240,000,000 Republic of Italy, 7.25% due 11/01/26............ Aa3/AAA $ 152,308
-------------
JAPAN (0.8%)
Government of Japan
JPY 67,000,000 Series 182, Callable, 3.00% due 09/20/05....... Aaa/NR 610,949
JPY 16,450,000 Series 187, Callable, 3.30% due 06/20/06....... Aaa/NR 153,449
JPY 8,500,000 Series 195, Callable, 2.40% due 06/20/07....... Aaa/NR 74,060
-------------
838,458
-------------
SPAIN (0.3%)
Government of Spain
ESP 25,500,000 7.90% due 02/28/02............................. Aa2/NR 191,882
ESP 10,660,000 10.50% due 10/30/03............................ Aa2/NR 91,218
-------------
283,100
-------------
SWEDEN (0.2%)
SEK 1,500,000 Kingdom of Sweden, Series 1037, 8.00% due
08/15/07....................................... Aa1/NR 223,737
-------------
UNITED KINGDOM (0.4%)
GBP 200,300 Treasury Gilt, 8.00% due 06/07/21................ Aaa/NR 396,867
-------------
TOTAL GOVERNMENT OBLIGATIONS (COST
$4,065,153)................................ 4,199,362
-------------
PRIVATE PLACEMENTS (4.9%)
REAL ESTATE (4.9%)
$ 927,263 1601 SE 8th Ave., Crystal River, Florida, Crystal
River Mobile Home Park, Pre-refunded, 8.75% due
11/01/02(r).................................... NR/NR 974,044
645,783 3512 Oxford Avenue (1st Mortgage Agreement on
Cooperative Building in Riverdale, New York),
8.45% due 06/01/17(r).......................... NR/NR 707,165
645,809 3810 Greystone Avenue (1st Mortgage Agreement on
Cooperative Building in Riverdale, New York),
8.50% due 06/01/17(r).......................... NR/NR 701,717
822,774 421 West 57th Street (1st Mortgage Agreement on
Cooperative Building in New York City), 8.98%
due 07/01/22(r)................................ NR/NR 932,359
1,519,658 Walgreen-Dal, 7.625% due 11/15/13(r)............. NR/NR 1,570,552
-------------
TOTAL PRIVATE PLACEMENT (COST $4,529,760).... 4,885,837
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
SOVEREIGN BONDS (15.6%)
ARGENTINA (2.1%)
$ 1,488,000 Republic of Argentina Bearer FRB, Callable
03/31/98, Sinking Fund, 6.688% due 03/31/05(s)
(u)............................................ Ba3/BB $ 1,277,448
500,000 Republic of Argentina Bonos del Tesoro, Series
BT02,
8.75% due 05/09/02............................. B1/NR 455,000
500,000 Republic of Argentina Global Bonds, 9.75% due
09/19/27....................................... Ba3/BB 420,750
-------------
2,153,198
-------------
BRAZIL (2.9%)
2,280,524 Republic of Brazil C Bonds, Callable 04/15/98,
Sinking Fund,
8.00% due 04/15/14............................. B1/BB- 1,607,769
735,000 Republic of Brazil EI Bonds Series L, FRB,
Callable 04/15/98, Sinking Fund, 6.688% due
04/15/06(s) (u)................................ B1/BB- 582,488
470,430 Republic of Brazil MYDFA Trust Certificates
Series REGS, FRB, Sinking Fund, 6.688% due
09/15/07(s).................................... NR/NR 371,452
500,000 Republic of Brazil NMB-1994L Bearer, FRB,
Callable 04/15/98, Sinking Fund, 6.75% due
04/15/09....................................... B1/BB- 360,000
-------------
2,921,709
-------------
BULGARIA (1.6%)
1,050,000 Republic of Bulgaria FLIRB Series A Global
Bearer, Callable 01/28/98, Sinking Fund, 2.25%
due 07/28/12{*}................................ B3/NR 565,740
1,500,000 Republic of Bulgaria PDI, FRB, Callable 01/28/98,
Sinking Fund, 6.688% due 07/28/11.............. B3/NR 1,001,250
-------------
1,566,990
-------------
MEXICO (2.8%)
500,000 United Mexican States Discount Bonds Series A,
FRB, Callable 04/20/98 (including 500,000 value
recovery rights expiring 6/30/03), 6.693% due
12/31/19 (u)................................... Ba2/BB 450,000
250,000 United Mexican States Global Bonds, 9.875% due
01/15/07....................................... Ba2/BB 252,800
1,000,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... NR/NR 1,067,500
1,000,000 United Mexican States Global Bonds, 11.50% due
05/15/26....................................... Ba2/BB 1,063,800
-------------
2,834,100
-------------
PERU (0.4%)
800,000 Republic of Peru PDI, Sinking Fund, 4.00% due
03/07/17{*}.................................... NR/NR 444,960
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT+ SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
POLAND (0.5%)
$ 600,000 Government of Poland PDI, Callable 04/27/98,
Sinking Fund,
4.00% due 10/27/14{*}.......................... Baa3/BBB- $ 490,500
-------------
RUSSIA (2.3%)
500,000 City of Moscow, (144A), 9.50% due 05/31/00....... Ba2/BB- 480,625
1,000,000 Ministry of Finance Russia, (144A), 10.00% due
06/26/07....................................... Ba2/NR 907,500
1,000,000 Russia WI IAN.................................... NR/NR 670,000
500,000 Russia WI Principal Loan......................... NR/NR 295,000
-------------
2,353,125
-------------
TURKEY (0.4%)
400,000 Republic of Turkey, (144A), 10.00% due
09/19/07....................................... NR/NR 398,732
-------------
VENEZUELA (2.6%)
1,500,000 Republic of Venezuela DCB Series DL, FRB,
Callable 12/08/97, Sinking Fund, 6.75% due
12/18/07 (u)................................... Ba2/NR 1,306,800
453,514 Republic of Venezuela FLIRB Series B, Callable
03/31/98, Sinking Fund, 6.75% due
03/31/07(s){*}................................. Ba2/B+ 397,369
1,000,000 Republic of Venezuela Global Bonds, 9.25% due
09/15/27....................................... Ba2/B+ 859,500
-------------
2,563,669
-------------
TOTAL SOVEREIGN BONDS (COST $16,959,207)..... 15,726,983
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (3.3%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION
59,951 7.50% due 10/01/27............................... 61,206
2,970,001 8.50% due 12/01/26............................... 3,103,503
JPY 20,000,000 2.125% due 10/09/07.............................. 169,220
-------------
3,333,929
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
$ 8,295 7.50% due 05/15/27............................... 8,482
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $3,330,474).......................... 3,342,411
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT+ SECURITY DESCRIPTION VALUE
- ------------------- ------------------------------------------------- -------------
<C> <S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.7%)
U.S. TREASURY BONDS
$ 500,000 6.625% due 02/15/27.............................. $ 529,570
-------------
U.S. TREASURY NOTES
140,000 5.875% due 04/30/98(s)........................... 140,309
15,000 6.00% due 09/30/98............................... 15,061
-------------
155,370
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$672,837).................................. 684,940
-------------
SHORT-TERM INVESTMENTS (8.1%)
TURKEY (0.4%)
TRL 82,730,000,000 Turkey Treasury Bills due 08/05/98............... 239,849
TRL 50,000,000,000 Turkey Treasury Bills due 08/12/98............... 143,488
-------------
383,337
-------------
U.S. TREASURY OBLIGATIONS (0.1%)
$ 90,000 U.S. Treasury Bills, 5.235%* due 07/23/98(s)..... 86,627
-------------
REPURCHASE AGREEMENT (7.6%)
7,630,000 State Street Bank and Trust Co., 5.00% dated
10/31/97 due 11/1/97, proceeds $7,631,060
(collateralized by $270,000 U.S. Treasury
Notes, 5.875% due 8/15/98, valued at $273,952;
$1,345,000 U.S. Treasury Bonds, 7.875% due
2/15/21, valued at $1,623,554; $3,990,000 U.S.
Treasury Bonds, 12.75% due 11/15/10, valued at
$5,906,908).................................... 7,630,000
-------------
Total Short-Term Investments (cost
$8,132,459)................................ 8,099,964
-------------
TOTAL INVESTMENTS (COST $99,702,851) (99.6%)..... 99,939,177
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)..... 441,725
-------------
NET ASSETS (100.0%).............................. $ 100,380,902
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $99,761,366 for Federal Income Tax
Purposes at October 31, 1997, the aggregate gross unrealized appreciation and
depreciation was $2,246,396 and $2,068,585, respectively, resulting in net
unrealized appreciation of $177,811.
(r) Approximately 8% of the net assets of the Portfolio are represented by
securities which have been valued at fair value. (See Note 1a)
(s) $12,611,944 par segregated either fully or partially with custodian as
collateral for futures contracts or with broker as initial margin for futures
contracts.
(t) Restricted security.
(u) A portion or all of the security is segregated for when issued or delayed
settlement securities.
Abbreviations:
+ Denominated in USD unless otherwise directed.
{*} Rate shown reflects current rate on variable rate instrument or instrument
with step coupon rates.
* Yield to maturity.
144A -- Securities restricted for resale to Qualified Institutional Buyers.
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
AUD -- Australian Dollar.
C -- Debt instrument with a fixed interest rate that pays a portion in interest
and a portion capitalizes increasing the principal.
CAD -- Canadian Dollar.
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.
DEM -- German Mark.
DKK -- Danish Krone.
EI -- Eligible Interest Bonds.
ESP -- Spanish Peseta.
FLIRB -- Front Loaded Interest Reduction Bonds.
FRB -- Floating Rate Bond.
FRN -- Floating Rate Note.
FRF -- French Franc.
GBP -- British Pound.
I/O -- Interest Only.
IAN -- Interest in Arrears Notes.
ITL -- Italian Lira.
JPY -- Japanese Yen.
MTN -- Medium Term Note.
MYDFA -- Multi-Year Refinancing Agreement.
NMB -- New Money Bonds.
NR -- Not Rated.
PDI -- Past Due Interest Bonds - debt instrument created from past due interest
on previous Brady Bond plans.
Pre-refunded -- Bonds for which the issuer of the bond invests the proceeds from
a subsequent bond issuance in treasury securities, whose maturity coincides with
the first call date of the first bond.
REMIC -- Real estate mortgage investment conduit.
SEK -- Swedish Krona.
SPIRES -- Special purpose investment vehicle registered in Ireland.
TRL -- Turkish Lira.
WI -- When and if issued securities.
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $99,702,851 ) $ 99,939,177
Cash 901,734
Foreign Currency at Value (Cost $10,735 ) 10,916
Receivable for Investments Sold 12,806,367
Unrealized Appreciation of Forward Foreign
Currency Contracts 10,291,280
Interest Receivable 1,571,189
Deferred Organization Expenses 15,480
Receivable for Expense Reimbursement 9,717
Variation Margin Receivable 250
Prepaid Trustees' Fees 58
Prepaid Expenses and Other Assets 469
------------
Total Assets 125,546,637
------------
LIABILITIES
Payable for Investments Purchased 14,663,498
Unrealized Depreciation of Forward Foreign
Currency Contracts 10,379,256
Advisory Fee Payable 39,245
Custody Fee Payable 35,351
Organization Expenses Payable 6,700
Administrative Services Fee Payable 2,625
Administration Fee Payable 166
Fund Services Fee Payable 136
Accrued Expenses 38,758
------------
Total Liabilities 25,165,735
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $100,380,902
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 17, 1997 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31,
1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest and Dividend Income (Net of Foreign
Withholding Tax of $10,095 ) $3,663,032
EXPENSES
Advisory Fee $212,934
Custodian Fees and Expenses 85,589
Professional Fees and Expenses 50,016
Administrative Services Fee 14,495
Printing Expenses 7,334
Amortization of Organization Expense 2,220
Fund Services Fee 1,574
Administration Fee 889
Trustees' Fees and Expenses 561
Miscellaneous 1,095
--------
Total Expenses 376,707
Less: Reimbursement of Expenses (69,136)
--------
NET EXPENSES 307,571
----------
NET INVESTMENT INCOME 3,355,461
NET REALIZED GAIN ON
Investment Transactions (including $143,034 net
realized loss from futures contracts) 381,442
Foreign Currency Transactions 185,250
--------
Net Realized Gain 566,692
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION OF
Investments (including $150,087 net unrealized
depreciation from futures contracts) 86,239
Foreign Currency Contracts and Translations (84,096)
--------
Net Change in Unrealized Appreciation 2,143
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,924,296
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 17, 1997
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1997
----------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 3,355,461
Net Realized Gain on Investment and Foreign
Currency Transactions 566,692
Net Change in Unrealized Appreciation of
Investment and Foreign Currency Translations 2,143
----------------
Net Increase in Net Assets Resulting from
Operations 3,924,296
----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 102,199,631
Withdrawals (5,843,035)
----------------
Net Increase from Investors' Transactions 96,356,596
----------------
Total Increase in Net Assets 100,280,892
NET ASSETS
Beginning of Period 100,010
----------------
End of Period $ 100,380,902
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 17, 1997
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1997
----------------
<S> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65%(a)
Net Investment Income 7.09%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.15%(a)
Portfolio Turnover 211.75%
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31,1997
- --------------------------------------------------------------------------------
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, asset and mortgage backed securities held by the Portfolio to meet
their obligations may be affected by economic and political developments in a
specific industry or region. The value of mortgage and asset-backed securities
can be significantly affected by changes in interest rates, rapid principal
payments including pre-payments.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a) The Portfolio values 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 valued 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 at amortized cost.
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
35
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31,1997
- --------------------------------------------------------------------------------
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 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 foreign currency contract
translations. At October 31, 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 10/31/97 (DEPRECIATION)
- ------------------------------------------------- ----------------- ----------- --------------
<S> <C> <C> <C>
Australian Dollar 284,108 expiring 12/18/97...... $ 204,188 $ 200,475 $ (3,713)
Australian Dollar 121,771 expiring 03/18/98...... 88,212 86,139 (2,073)
</TABLE>
36
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31,1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Belgian Franc 11,006,450 expiring 12/18/97....... 290,108 310,742 20,634
British Pound 1,301,911 expiring 12/18/97........ 2,093,179 2,178,741 85,562
British Pound 405,408 expiring 03/18/98.......... 653,615 675,898 22,283
Canadian Dollar 793,226 expiring 12/18/97........ 575,770 564,382 (11,388)
Canadian Dollar 409,630 expiring 03/18/98........ 297,824 292,618 (5,206)
Danish Krone 1,209,515 expiring 12/18/97......... 180,471 185,086 4,615
Danish Krone 331,480 expiring 03/18/98........... 49,108 50,922 1,814
Finnish Markka 1,251,073 expiring 12/18/97....... 237,350 242,839 5,489
Finnish Markka 1,251,073 expiring 03/18/98....... 237,170 243,890 6,720
French Franc 6,469,959 expiring 12/18/97++....... 1,088,136 1,127,295 39,159
French Franc 2,900,222 expiring 03/18/98++....... 486,625 507,730 21,105
German Mark 3,768,974 expiring 12/18/97++........ 2,135,089 2,195,897 60,808
German Mark 2,772,456 expiring 03/18/98++........ 1,576,508 1,622,947 46,439
Italian Lira 2,392,562,229 expiring 12/18/97..... 1,375,433 1,413,580 38,147
Italian Lira 1,584,259,841 expiring 03/18/98..... 917,447 934,948 17,501
Japanese Yen 339,963,320 expiring 12/18/97....... 2,857,621 2,846,557 (11,064)
Japanese Yen 171,817,683 expiring 03/18/98....... 1,448,227 1,457,730 9,503
Mexican Peso 3,220,000 expiring 12/22/97......... 406,566 465,318 58,752
Mexican Peso 4,574,250 expiring 06/26/98......... 500,000 561,361 61,361
Mexican Peso 3,220,000 expiring 09/22/98......... 362,083 407,957 45,874
Netherlands Guilder 506,562 expiring 12/18/97.... 250,773 261,771 10,998
Spanish Peseta 92,484,886 expiring 12/18/97...... 619,872 636,714 16,842
Spanish Peseta 66,683,113 expiring 03/18/98...... 448,369 459,916 11,547
Swedish Krona 1,150,906 expiring 12/18/97++...... 147,479 154,034 6,555
Swedish Krona 2,223,555 expiring 03/18/98++...... 292,844 298,250 5,406
</TABLE>
<TABLE>
<CAPTION>
SALES CONTRACTS
- -------------------------------------------------
<S> <C> <C> <C>
Australian Dollar 284,108 expiring 12/18/97...... 211,446 200,475 10,971
Australian Dollar 297,987 expiring 03/18/98...... 214,771 210,791 3,980
Belgian Franc 10,944,384 expiring 12/18/97....... 290,402 308,990 (18,588)
British Pound 1,325,743 expiring 12/18/97........ 2,140,504 2,218,623 (78,119)
British Pound 736,223 expiring 03/18/98.......... 1,172,442 1,227,433 (54,991)
Canadian Dollar 793,226 expiring 12/18/97........ 575,030 564,382 10,648
Canadian Dollar 1,520,804 expiring 03/18/98++.... 1,096,509 1,086,382 10,127
Danish Krone 1,209,515 expiring 12/18/97......... 171,246 185,086 (13,840)
</TABLE>
37
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31,1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
COST/ VALUE AT APPRECIATION/
SALES CONTRACTS PROCEEDS 10/31/97 (DEPRECIATION)
- ------------------------------------------------- ----------------- ----------- --------------
<S> <C> <C> <C>
Danish Krone 1,209,515 expiring 03/18/98......... $ 181,280 $ 185,806 $ (4,526)
Finnish Markka 1,251,073 expiring 12/18/97....... 234,723 242,840 (8,117)
Finnish Markka 1,251,073 expiring 03/18/98....... 238,477 243,890 (5,413)
French Franc 6,469,959 expiring 12/18/97......... 1,056,765 1,127,295 (70,530)
French Franc 5,116,068 expiring 03/18/98......... 871,190 895,649 (24,459)
German Mark 3,680,920 expiring 12/18/97++........ 2,045,793 2,144,595 (98,802)
German Mark 4,023,596 expiring 03/18/98++........ 2,303,152 2,355,342 (52,190)
German Mark 199,000 expiring 08/05/98............ 114,086 117,239 (3,153)
German Mark 106,296 expiring 08/12/98............ 60,000 62,643 (2,643)
Italian Lira 2,392,562,229 expiring 12/18/97++... 1,336,648 1,413,580 (76,932)
Italian Lira 1,849,070,031 expiring 03/18/98..... 1,067,261 1,091,225 (23,964)
Japanese Yen 339,963,320 expiring 12/18/97....... 2,916,647 2,846,557 70,090
Japanese Yen 358,044,908 expiring 03/18/98....... 3,043,960 3,037,712 6,248
Mexican Peso 3,220,000 expiring 12/22/97......... 399,504 465,318 (65,814)
Mexican Peso 4,574,250 expiring 06/26/98......... 523,208 561,361 (38,153)
Mexican Peso 3,220,000 expiring 09/22/98......... 372,383 407,957 (35,574)
Netherlands Guilder 500,175 expiring 12/18/97.... 243,869 258,471 (14,602)
Spanish Peseta 92,484,886 expiring 12/18/97...... 603,266 636,714 (33,448)
Spanish Peseta 110,138,674 expiring 03/18/98++... 738,091 759,631 (21,540)
Swedish Krona 1,150,906 expiring 12/18/97++...... 145,287 154,033 (8,746)
Swedish Krona 3,286,273 expiring 03/18/98++...... 431,228 440,794 (9,566)
--------------
NET UNREALIZED DEPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ (87,976)
--------------
--------------
++ -- Includes cross currency contracts.
</TABLE>
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 or 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
38
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31,1997
- --------------------------------------------------------------------------------
correlation of movements in the price of futures contracts, interest rates
and the underlying hedged assets. Futures transactions during the period
from March 17, 1997 (commencement of operations) to October 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF PRINCIPAL AMOUNT
CONTRACTS OF CONTRACTS
--------- ----------------
<S> <C> <C>
Contracts opened - short positions............... 211 $ 23,113,843
Contracts opened - long positions................ 28 3,287,118
Contracts closed - short positions............... (135) (14,731,750)
Contracts closed - long positions................ (4) (471,875)
--------- ----------------
Contracts open at end of year.................... 100 $ 11,197,336
--------- ----------------
--------- ----------------
</TABLE>
<TABLE>
<S> <C> <C>
SUMMARY OF OPEN CONTRACTS AT OCTOBER 31, 1997
<CAPTION>
<S> <C> <C>
<CAPTION>
NET UNREALIZED
CONTRACTS APPRECIATION/
SHORT (DEPRECIATION)
-------------- --------------
<S> <C> <C>
U.S. Long Bond, expiring December 1997........... (10) $ (45,382)
U.S. Ten Year Note, expiring December 1997....... (66) (132,713)
-------------- --------------
Totals........................................... (76) $ (178,095)
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/
CONTRACTS LONG (DEPRECIATION)
--------------- --------------
<S> <C> <C>
U.S. Long Bond, expiring December 1997........... 24 $ 28,008
--------------- --------------
--------------- --------------
</TABLE>
f) The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxed on its
share of the Portfolio's ordinary income and capital gains. It is intended
that the Portfolio's assets will be managed in such a way that an investor
in the Portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The Portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
g) The Portfolio incurred organization expenses in the amount of $17,700.
Morgan Guaranty Trust Company of New York ("Morgan") has agreed to pay the
organization expenses of the Portfolio. The Portfolio has agreed to
reimburse Morgan for these costs which are being deferred and amortized on
a straight-line basis over a period not to exceed five years beginning
with the commencement of operations of the Portfolio.
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
39
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31,1997
- --------------------------------------------------------------------------------
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.
i) The Fund may enter into commitments to buy and sell investments to settle
on future dates as part of its normal investment activities. These
commitments are reported at market value in the financial statements.
Credit risk exists on these commitments to the extent of any unrealized
gains on the underlying securities purchased and any unrealized losses on
the underlying securities sold. Market risk exists on these commitments to
the same extent as if the security were owned on a settled basis and gains
and losses are recorded and reported in the same manner. However, during
the commitment period, these investments earn no interest or dividends.
2. TRANSACTIONS WITH AFFILIATES
a) The Portfolio has an Investment Advisory Agreement with 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 October 31, 1997, this fee
amounted to $212,934.
b) The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the Portfolio,
FDI provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the Portfolio and pays the compensation of the officers
affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the Portfolio is based on
the ratio of the Portfolio's net assets to the aggregate net assets of the
Portfolio and certain other investment companies subject to similar
agreements with FDI. For the period from March 17, 1997 (commencement of
operations ) to October 31, 1997, the fee for these services amounted to
$889.
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 based on the aggregate average daily net assets of the
Portfolio and certain other portfolios for which Morgan acts as investment
advisor (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 its net assets bear to the net
assets of the Master Portfolios, certain other investors in the Master
Portfolios for which Morgan provides similar services and JPM Series
Trust. For the period from March 17, 1997 (commencement of operations) to
October 31, 1997, the fee for these services amounted to $14,495.
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
40
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31,1997
- --------------------------------------------------------------------------------
through February 28, 1997. For the period from March 17, 1997
(commencement of operations) to October 31, 1997, Morgan has agreed to
reimburse the Portfolio $69,136 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 $1,574 for the period from March 17, 1997 (commencement of
operations) to October 31, 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 $300.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period from
March 17, 1997 (commencement of operations) to October 31, 1997 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $102,701,741 $ 95,503,691
Corporate and Collateralized Mortgage
Obligations..................................... 135,585,934 51,736,695
------------ ------------
$238,287,675 $147,240,386
------------ ------------
------------ ------------
</TABLE>
4. CREDIT AGREEMENT
The Portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the Fund's Notes to the Financial
Statements which are included elsewhere in this report.
41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Global Strategic Income Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The Global Strategic Income Portfolio (the
"Portfolio") at October 31, 1997, the results of its operations, the changes in
its net assets and its supplementary data for the period March 17, 1997
(commencement of operations) through October 31, 1997, in conformity with
generally accepted accounting principles. These financial statements and
supplementary data (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at October 31, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provides
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
December 22, 1997
42
