<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (8.7%)
FINANCIAL SERVICES (8.7%)
$ 1,750,000 Blackrock Capital Finance L.P., Subordinated
Bond, CSTR, Series 1997-C1, Class E, Callable,
8.48% due 10/25/26(s).......................... NR/NR $ 1,699,688
1,984,377 Chase Commercial Mortgage Securities Corp.,
Subordinated Bond, Series 1997-1, Class E,
Callable, 7.37% due 12/19/07(s)................ NR/BBB- 1,841,750
1,000,000 Chase Commercial Mortgage Securities Corp.,
Subordinated Bond, Series 1997-2, Class E,
Callable, 6.60% due 12/19/07(s)................ NR/BBB- 880,977
19,148,670 CS First Boston Mortgage Securities Corp., REMIC:
IO, CSTR, NTL, Series 1997-2, Class X,
Callable, (144A), 1.05% due 06/25/20........... NR/NR 415,885
846,980 DLJ Mortgage Acceptance Corp, Series DRRE-1A,
(144A), 8.25% due 07/25/27..................... NR/NR 863,919
2,000,000 First Chicago/Lennar Trust, CSTR, Series
1997-CHL1, Class D, Callable, (144A), 8.13% due
05/29/08(s).................................... NR/NR 1,872,500
1,000,000 Green Tree Financial Corp., Subordinated Bond,
AFC, Series 1997-4, Class B1, Callable, 7.23%
due 02/15/29(s)................................ Baa1/BBB+ 989,687
403,948 Home Mac Mortgage Securities Corp., Series
1985-1, secured by GNMA, Pre-refunded, 11.375%
due 08/01/15................................... NR/NR 413,037
1,332,697 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, Callable, 8.076% due 06/15/21(v)............ Ba3/NR 1,282,305
2,000,000 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
Partially Callable, 7.12% due 06/18/29(s)...... NR/BB 1,611,563
2,000,000 Mid-America Finance, Inc., Sequential Payer,
Series 1998-1, Class A, 6.376% due
09/01/05(s).................................... Baa2/BBB 1,860,000
1,000,000 Morgan Stanley Capital I, Inc., REMIC: SC,
Subordinated Bond, CSTR, Series 1997-RR, Class
D, Callable, (144A), 7.74% due
04/30/39(v)(s)................................. NR/NR 796,875
2,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-C1, Class F, Callable,
(144A), 6.85% due 02/15/20(s).................. Ba2/NR 1,568,125
435,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-HF1, Class F, Partially
Callable, (144A), 6.86% due 02/15/10........... NR/NR 327,202
1,570,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-HF1, Class G, Partially
Callable, (144A), 6.86% due 05/15/11(s)........ NR/NR 1,031,294
1,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-XL1, Class G, Partially
Callable, (144A), 7.70% due 10/03/30(s)........ Ba3/BB 848,750
1,000,000 Mortgage Capital Funding, Inc., Subordinated
Bond, Series 1997-MC2, Class E, Partially
Callable, 7.21% due 11/20/27(s)................ Baa3/NR 932,187
136,195 Salomon Brothers Mortgage Securities V, Inc.,
Series 1985-1, secured by GNMA, Pre-refunded,
12.00% due 04/01/15............................ NR/NR 138,238
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 177,306 Salomon Brothers Mortgage Securities V, Inc.,
Series 1985-2, secured by GNMA, Pre-refunded,
12.00% due 05/01/15............................ NR/NR $ 177,306
746,942 Structured Asset Securities Corp., Subordinated
Bond, Series 1997-C1, Class E, Callable, 6.12%
due 08/25/00(v)(s)............................. NR/NR 734,337
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$22,068,263)............................... 20,285,625
-------------
CONVERTIBLE BONDS (0.3%)
RETAIL (0.3%)
850,000 Corporate Express, Inc., Callable 07/01/99, 4.50%
due 07/01/00 (cost $750,567)................... B3/B 752,250
-------------
CORPORATE OBLIGATIONS (30.2%)
AEROSPACE (0.4%)
400,000 Coltec Industries, Inc., Callable, 7.50% due
04/15/08....................................... Ba2/BB 386,500
500,000 Northrop-Grumman Corp., Callable 10/15/04, 9.38%
due 10/15/24(s)................................ Baa3/BBB- 582,045
-------------
968,545
-------------
AIRLINES (0.2%)
500,000 Truserve Corp., (144A), 6.85% due
07/01/08(f)(s)................................. NR/NR 501,680
-------------
APPARELS & TEXTILES (1.8%)
800,000 Collins & Aikman Products Co., Callable 04/15/01,
11.50% due 04/15/06............................ B2/B 826,000
800,000 Fruit of the Loom, Inc., Refunding, 6.50% due
11/15/03....................................... Ba1/BB+ 774,464
375,000 Fruit of the Loom, Inc., Refunding, 7.875% due
10/15/99....................................... Ba1/BB- 380,190
200,000 Nine West Group, Inc., Series B, 8.375% due
08/15/05....................................... Ba2/BB- 181,500
800,000 Pillowtex Corp., Series B, Callable 12/15/02,
9.00% due 12/15/07............................. B2/B+ 804,000
800,000 Polymer Group, Inc., Series B, Callable 07/01/02,
9.00% due 07/01/07(s).......................... B2/B 750,000
500,000 Westpoint Stevens, Inc., Callable, 7.875% due
06/15/05....................................... Ba3/BB 506,250
-------------
4,222,404
-------------
AUTOMOTIVE SUPPLIES (0.4%)
400,000 Federal-Mogul Corp., Callable, 7.75% due
07/01/06....................................... Ba2/BB+ 404,684
200,000 Hayes Lemmerz International, Inc., Callable
07/15/01, 11.00% due 07/15/06.................. B2/B 216,500
400,000 Hayes Lemmerz International, Inc., Series B,
Callable 07/15/02, 9.125% due 07/15/07......... B2/B 399,000
-------------
1,020,184
-------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
BANKING (0.4%)
$ 750,000 First Union Corp., Refunding, 8.125% due
06/24/02....................................... A2/A- $ 824,152
-------------
BROADCASTING & PUBLISHING (1.1%)
700,000 Capstar Broadcasting Partners, Callable 07/01/02,
9.25% due 07/01/07............................. B2/B- 698,250
400,000 Chancellor Media Corp., Series B, Callable
06/15/02, 8.75% due 06/15/07................... Ba3/B 393,000
700,000 Fox Family Worldwide, Inc., Callable 11/01/02,
9.25% due 11/01/07............................. B1/B 656,250
200,000 Lenfest Communications, Inc., 7.625% due
02/15/08....................................... Ba3/BB+ 200,000
500,000 Lenfest Communications, Inc., 10.50% due
06/15/06(s).................................... B2/BB- 561,250
-------------
2,508,750
-------------
CHEMICALS (0.7%)
500,000 Arco Chemical Co., Refunding, 9.80% due
02/01/20....................................... Ba2/BBB+ 521,120
750,000 Cytec Industries, Inc., Callable, 6.50% due
03/15/03(s).................................... Baa2/BBB 716,025
192,308 Lyondell Petrochemical Corp., Tranche C, 7.22%
due 06/30/99(v)................................ NR/NR 184,615
307,692 Lyondell Petrochemical Corp., Tranche D, 7.22%
due 06/30/00(v)................................ NR/NR 293,846
-------------
1,715,606
-------------
COMPUTER SOFTWARE (0.2%)
500,000 PSINet, Inc., Series B, Callable 02/15/02, 10.00%
due 02/15/05................................... B3/B- 488,750
-------------
DIVERSIFIED MANUFACTURING (0.2%)
500,000 K&F Industries, Inc., Series B, Callable
10/15/02, 9.25% due 10/15/07................... B3/B- 481,250
-------------
ELECTRIC (0.4%)
1,000,000 Calpine Corp., 7.875% due 04/01/08(s)............ Ba2/BB- 980,000
-------------
ELECTRONICS (0.2%)
355,000 Protection One Alarm Corp., Callable, (144A),
7.375% due 08/15/05............................ Ba1/BBB- 366,559
-------------
ENERGY SOURCE (0.2%)
400,000 Cogentrix Energy, Inc., Callable, (144A), 8.75%
due 10/15/08................................... Ba1/BB+ 401,000
-------------
ENTERTAINMENT, LEISURE & MEDIA (2.2%)
500,000 CSC Holdings, Inc., Callable 05/15/06, 10.50% due
05/15/16(s).................................... B1/BB- 577,500
750,000 Destination Film Funding Corp., Callable, (144A),
6.25% due 10/15/03............................. NR/AA- 745,575
500,000 Fox/Liberty Networks LLC, Callable 08/15/02,
8.875% due 08/15/07(s)......................... B1/B 485,000
175,000 Jacor Communications Co., Callable 12/15/01,
9.75% due 12/15/06............................. B2/B 191,187
400,000 Jacor Communications Co., Series B, Callable
06/15/02, 8.75% due 06/15/07................... B2/B 418,000
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (CONTINUED)
$ 700,000 Lamar Advertising Co., Callable 09/15/02, 8.625%
due 09/15/07................................... B1/B $ 711,375
500,000 News America Holdings, Inc., Refunding, 7.75% due
01/20/24....................................... Baa3/BBB- 517,940
400,000 Outdoor Systems, Inc., Callable 06/15/02, 8.875%
due 06/15/07................................... B1/B 406,500
400,000 Premier Parks, Inc., Callable 04/01/02, 9.25% due
04/01/06....................................... B3/B- 389,000
800,000 Premier Parks, Inc., Callable 04/01/03, 0.00% due
04/01/08(v).................................... B3/B- 487,000
200,000 Time Warner Telecom LLC, Callable 07/15/03, 9.75%
due 07/15/08................................... B2/B- 200,000
-------------
5,129,077
-------------
FINANCIAL SERVICES (6.3%)
1,000,000 Avalon Bay Communities, Inc., Callable, 6.50% due
07/15/03(s).................................... Baa1/BBB+ 996,180
1,000,000 Avalon Bay Communities, Inc., Callable, 6.875%
due 12/15/07................................... Baa1/BBB+ 1,046,000
700,000 Beneficial Corp., Series H, MTN, 6.77% due
08/26/04(s).................................... A2/A 753,781
750,000 CIT Group, Inc., 5.625% due 10/15/03............. Aa3/A+ 747,937
1,000,000 Crescent Real Estate, 7.125% due 09/15/07........ Baa3/BB+ 1,031,520
325,000 Enterprise Rent-a-Car USA Finance Co., MTN,
(144A), 9.125% due 12/15/04.................... Baa2/BBB 373,162
1,500,000 EOP Operating L.P., Callable, 6.625% due
02/15/05....................................... Baa1/BBB 1,459,695
1,500,000 ERP Operating L.P., Callable, 6.63% due
04/13/15(v)(s)................................. A3/BBB+ 1,462,470
750,000 Ford Holdings, Inc., 9.30% due 03/01/30.......... A1/A 992,227
600,000 GS Escrow Co., Callable, (144A), 7.125% due
08/01/05....................................... Ba1/BB+ 610,116
500,000 Health Care Property Investors, Inc., 6.50% due
02/15/06(s).................................... Baa1/BBB+ 516,240
750,000 Household Finance Corp., Series E, MTN, 6.40% due
06/17/08....................................... A2/A 744,870
750,000 Legg Mason, Inc., 6.50% due 02/15/06............. Baa2/BBB 750,000
750,000 Provident Companies, Inc., 7.405% due
03/15/38(s).................................... A3/BBB 742,807
750,000 Prudential Insurance Co., (144A), 6.375% due
07/23/06....................................... A2/A+ 755,535
750,000 Sears Roebuck Acceptance Corp., 6.75% due
09/15/05....................................... A2/A- 789,660
700,000 Sun World International, Inc., Series B, Callable
04/15/01, 11.25% due 04/15/04(s)............... B2/B 732,375
500,000 Termoemcali Funding Corp., Callable 06/15/07,
Sinking Fund, (144A), 10.125% due
12/15/14(s).................................... NR/BBB- 325,000
-------------
14,829,575
-------------
FOOD, BEVERAGES & TOBACCO (0.9%)
600,000 Aurora Foods, Inc., Series B, Callable 07/01/03,
8.75% due 07/01/08............................. B1/B+ 610,500
600,000 Nash Finch Co., Series B, Callable 05/01/03,
8.50% due 05/01/08............................. B1/BB+ 548,250
700,000 Smithfield Foods, Inc., (144A), 7.625% due
02/15/08....................................... Ba3/BB+ 673,750
300,000 Tricon Global Restaurants, Callable, 7.45% due
05/15/05....................................... Ba1/BB 313,725
-------------
2,146,225
-------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
HEALTH SERVICES (1.7%)
$ 500,000 Genesis Health Ventures, Inc., Callable 06/15/00,
9.75% due 06/15/05............................. B2/B- $ 459,375
200,000 Genesis Health Ventures, Inc., Callable 10/01/01,
9.25% due 10/01/06............................. B2/B- 175,750
700,000 Mariner Post-Acute Network, Inc., Series B,
Callable 04/01/01, 9.50% due 04/01/06.......... B2/B- 649,250
750,000 McKesson Corp, Callable, 6.40% due 03/01/08...... A3/A- 758,017
1,000,000 Rural/Metro Corp., Callable 03/15/03, 7.875% due
03/15/08....................................... Ba3/BB- 840,000
300,000 Sun Healthcare Group, Inc., Callable 05/01/03,
(144A), 9.375% due 05/01/08.................... B2/CCC+ 222,750
300,000 Tenet Healthcare Corp., 8.00% due 01/15/05....... Ba1/BB+ 306,822
500,000 Tenet Healthcare Corp., Callable 06/01/03,
(144A), 8.125% due 12/01/08.................... Ba3/BB- 494,140
-------------
3,906,104
-------------
MANUFACTURING (0.4%)
400,000 Falcon Holding Group L.P., Series B, Callable
04/15/03, 8.375% due 04/15/10.................. B2/B 396,000
300,000 Globe Manufacturing Corp., Callable 08/01/03,
(144A), 10.00% due 08/01/08.................... B2/B- 263,250
200,000 Wheeling-Pittsburgh Corp., Callable 11/15/02,
9.25% due 11/15/07............................. B2/BB- 182,000
-------------
841,250
-------------
MEDICAL SUPPLIES (0.5%)
750,000 Boston Scientific Corp., 6.625% due
03/15/05(s).................................... Baa2/BBB 748,620
500,000 Sunrise Medical, Inc., 7.09% due 10/28/04(f)..... NR/NR 503,455
-------------
1,252,075
-------------
METALS & MINING (1.0%)
461,539 P&L Coal Holdings Corp., (144A), 0.00% due
06/04/06(v).................................... NR/NR 454,615
400,000 P&L Coal Holdings Corp., Callable 05/15/03,
(144A), 9.625% due 05/15/08.................... B2/B 399,000
600,000 Ryerson Tull, Inc., Callable, 8.50% due
07/15/01....................................... Baa3/BBB 612,750
100,000 Ryerson Tull, Inc., Callable, 9.125% due
07/15/06....................................... Baa3/BBB 106,500
200,000 WHX Corp., Callable 04/15/02, 10.50% due
04/15/05....................................... B3/B 181,000
500,000 Wyman-Gordon Co., Callable 12/15/02, 8.00% due
12/15/07....................................... Ba2/BB 533,355
-------------
2,287,220
-------------
NATURAL GAS (1.5%)
750,000 Ferrellgas Partners, L.P., 6.99% due
07/01/05(f).................................... NR/NR 732,922
875,000 Ferrellgas Partners, L.P., Series B, Callable
06/15/01, 9.375% due 06/15/06.................. B1/B+ 817,031
700,000 Tesoro Petroleum Corp., Series B, Callable
07/01/03, 9.00% due 07/01/08................... B1/BB- 658,000
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
NATURAL GAS (CONTINUED)
$ 500,000 Vintage Petroleum, Callable 12/15/00, 9.00% due
12/15/05....................................... B1/B+ $ 496,875
750,000 Williams Companies, Inc., 6.20% due 08/01/02..... Baa2/BBB- 773,077
-------------
3,477,905
-------------
OIL-PRODUCTION (1.2%)
1,000,000 Lomak Petroleum Inc., Callable 01/15/02, 8.75%
due 01/15/07................................... B1/B 898,750
500,000 Nuevo Energy Co., Callable 04/15/01, 9.50% due
04/15/06....................................... B1/B+ 491,875
750,000 Ocean Energy, Inc., Series B, Callable 07/15/02,
8.875% due 07/15/07(s)......................... B1/BB- 744,375
700,000 Plains Resources, Inc., Series B, Callable
03/15/01, 10.25% due 03/15/06.................. B2/B- 695,625
-------------
2,830,625
-------------
OIL-SERVICES (0.8%)
500,000 Lasmo (USA) Inc., 7.50% due 06/30/06(s).......... Baa2/BBB 503,300
1,000,000 Newpark Resources, Inc., Series B, Callable
12/15/02, 8.625% due 12/15/07.................. B2/B+ 977,500
459,134 Oil Purchase Co., Sinking Fund, (144A), 7.10% due
10/31/02(s).................................... Baa3/BBB 390,264
-------------
1,871,064
-------------
PACKAGING & CONTAINERS (0.4%)
400,000 Riverwood International Corp., Callable 08/01/02,
10.625% due 08/01/07........................... B3/B- 376,000
100,000 Stone Container Corp., Callable 02/01/99,
Refunding, 9.875% due 02/01/01................. B2/B 95,500
100,000 Stone Container Corp., Callable 10/01/99, 10.75%
due 10/01/02................................... B1/B+ 100,625
500,000 Stone Container Corp., Callable 12/07/98, 12.25%
due 04/01/02................................... B3/B- 460,000
-------------
1,032,125
-------------
PHARMACEUTICALS (0.2%)
500,000 Pharmerica, Inc., Callable 04/01/03, 8.375% due
04/01/08....................................... B2/B 426,875
-------------
POLLUTION CONTROL (0.3%)
500,000 Allied Waste Industries, Inc., Callable 12/01/01,
0.00% due 06/01/07(v)(s)....................... B3/B+ 374,375
200,000 Allied Waste North America, Inc., Callable
12/01/01, 10.25% due 12/01/06(s)............... B2/B+ 217,750
-------------
592,125
-------------
RAILROADS (0.3%)
750,000 Union Pacific Corp., 6.625% due 02/01/08......... Baa3/BBB- 756,540
-------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (2.1%)
$ 1,000,000 CarrAmerica Realty Corp., Callable, 7.375% due
07/01/07(s).................................... Baa3/BBB $ 961,240
1,000,000 Duke Realty L.P., Callable, 7.05% due
03/01/06(v)(s)................................. Baa2/NR 1,037,280
1,000,000 Health Care REIT, Inc., Callable, 7.625% due
03/15/08(s).................................... Ba1/BBB- 1,055,250
1,000,000 Price Development L.P., Callable, Sinking Fund,
7.29% due 03/11/08(s).......................... Baa2/BBB- 944,310
1,000,000 Weeks Realty L.P., Callable, 6.875% due
03/15/05(s).................................... Baa2/BBB 937,500
-------------
4,935,580
-------------
RETAIL (0.3%)
500,000 Corning Consumer Products Co., Callable 05/01/03,
(144A), 9.625% due 05/01/08.................... NR/NR 390,000
300,000 Fred Meyer, Inc., Callable, 7.45% due 03/01/08... Ba2/BB+ 314,202
-------------
704,202
-------------
TELECOMMUNICATIONS (2.0%)
750,000 Adelphia Communications, Inc., (144A), 8.125% due
07/15/03....................................... NR/NR 746,250
200,000 Intermedia Communications, Inc., Series B,
Callable 01/15/03, 8.50% due 01/15/08.......... B2/B 188,500
300,000 Intermedia Communications, Inc., Series B,
Callable 11/01/02, 8.875% due 11/01/07......... B2/B 291,750
700,000 Level 3 Communications, Callable 05/01/03, 9.125%
due 05/01/08................................... B3/B 659,750
250,000 McLeodUSA, Inc., Callable 03/15/03, 8.375% due
03/15/08....................................... B2/B+ 238,125
250,000 McLeodUSA, Inc., Callable 07/15/02, 9.25% due
07/15/07....................................... B2/B+ 247,187
325,000 McLeodUSA, Inc., Callable 11/01/03, WI, (144A),
9.50% due 11/01/08............................. B2/B+ 332,313
100,000 NEXTLINK Communications, Callable 04/15/01,
12.50% due 04/15/06............................ B3/B 106,750
500,000 NEXTLINK Communications, Callable 04/15/03, 0.00%
due 04/15/08................................... B3/NR 275,000
231,579 NTL, Inc., (144A), 8.688% due 01/31/99........... NR/NR 226,947
400,000 NTL, Inc., Callable 04/01/03, (144A), 11.50% due
04/01/08....................................... B3/B- 412,000
168,421 NTL, Inc., Tranche 2, (144A), 8.72% due
01/31/99(v).................................... NR/NR 165,053
325,000 Qwest Communications International, Inc.,
Callable 10/15/02, 0.00% due 10/15/07.......... Ba1/BB+ 245,781
150,000 Qwest Communications International, Inc., Series
B, Callable 04/01/02, 10.875% due 04/01/07..... Ba1/BB+ 173,438
400,000 RCN Corp., Callable 02/15/03, 0.00% due
02/15/08(v).................................... B3/NR 191,500
250,000 RCN Corp., Callable 10/15/02, 10.00% due
10/15/07....................................... B3/NR 220,625
-------------
4,720,969
-------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TELEPHONE (0.5%)
$ 300,000 ITC Deltacom, Inc., Callable 03/01/03, 8.875% due
03/01/08....................................... B2/B $ 285,000
200,000 ITC Deltacom, Inc., Callable 11/15/03, (144A),
9.75% due 11/15/08............................. B2/B 200,000
750,000 MCI Worldcom, Inc., Callable, 6.25% due
08/15/03....................................... Baa2/BBB+ 776,835
-------------
1,261,835
-------------
TRANSPORTATION (0.3%)
750,000 Atlantic Express Transportation Corp., Callable
02/01/01, 10.75% due 02/01/04(s)............... B2/B 765,000
-------------
UTILITIES (1.1%)
345,000 Calenergy Co., Callable, 7.52% due 09/15/08...... Ba1/BB+ 355,233
750,000 Connecticut Light & Power, (144A), 8.59% due
06/05/03....................................... NR/NR 780,000
750,000 Kincaid Generation LLC, Sinking Fund, (144A),
7.33% due 06/15/20(s).......................... Baa3/BBB- 758,498
750,000 Texas Utilities Co., Callable, 5.94% due
10/15/01(v).................................... Baa3/BBB 749,963
-------------
2,643,694
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$72,473,766)............................... 70,888,945
-------------
FOREIGN CORPORATE OBLIGATIONS (6.4%)
AUSTRALIA (0.4%)
BANKING
500,000 National Australia Bank Ltd., 6.60% due
12/10/07....................................... A1/AA- 505,180
-------------
FINANCIAL SERVICES
450,000 St. George Funding Co., Callable 06/30/07,
(144A), 8.485% due 12/31/49(v)................. Baa1/BBB+ 382,500
-------------
887,680
-------------
BERMUDA (0.4%)
TELEPHONE
1,000,000 Flag Ltd., Callable 01/30/03, 8.25% due
01/30/08(s).................................... Ba3/B+ 912,500
-------------
CANADA (2.2%)
FOOD, BEVERAGES & TOBACCO
400,000 Cott Corp., Callable 07/01/00, 8.50% due
05/01/07....................................... Ba3/B+ 373,000
-------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
OIL PRODUCTION
$ 750,000 Canadian Occidental Petroleum, Callable, 7.40%
due 05/01/28(s)................................ Baa2/BBB $ 700,635
1,000,000 Gulf Canada Resources Ltd., 8.25% due 03/15/17... Ba1/BB+ 951,160
-------------
1,651,795
-------------
TELECOMMUNICATIONS
565,000 Clearnet Communications, Inc., Callable 12/15/00,
0.00% due 12/15/05(v).......................... B3/NR 456,944
500,000 Rogers Cablesystems Ltd., Callable 12/01/02,
10.00% due 12/01/07............................ Ba3/BB+ 543,750
-------------
1,000,694
-------------
TELECOMMUNICATION EQUIPMENT
250,000 Rogers Cantel, Inc., Callable 10/01/02, 8.30% due
10/01/07....................................... Ba3/BB+ 234,688
-------------
TELEPHONE
600,000 Call-Net Enterprises, Inc., Callable 08/15/02,
0.00% due 08/15/07(v).......................... B1/BB- 378,000
610,000 Microcell Telecommunications, Inc., Series B,
Callable 12/01/01, 0.00% due 06/01/06(v)....... B3/NR 399,550
-------------
777,550
-------------
TRANSPORT & SERVICES
500,000 Laidlaw, Inc., Putable, 6.72% due 10/01/27(s).... Baa3/BBB+ 520,125
700,000 Teekay Shipping Corp., Sinking Fund, 8.32% due
02/01/08(s).................................... Ba2/BB+ 674,625
-------------
1,194,750
-------------
5,232,477
-------------
GERMANY (0.5%)
BANKING
DEM 2,000,000 Kredit Fuer Wiederaufbau, 5.00% due 01/04/09..... NR/NR 1,258,169
-------------
MEXICO (0.7%)
BANKING
200,000 Banco Nacional, 9.625% due 11/15/03.............. Ba2/BB 172,000
150,000 Bancomext Trust Division, (144A), 11.25% due
05/30/06....................................... Ba2/BB 142,500
700,000 Banobras Export Finance Corp., 9.625% due
11/15/03....................................... Ba2/BB 602,000
-------------
916,500
-------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
METALS & MINING
$ 750,000 Industrias Penoles, S.A. de C.V., 8.39% due
06/25/12(f).................................... NR/NR $ 639,630
-------------
1,556,130
-------------
QATAR (0.1%)
NATURAL GAS
410,000 Ras Laffan Liquefied Natural Gas, Callable,
Sinking Fund, (144A), 8.294% due 03/15/14...... Baa2/BBB+ 305,360
-------------
PHILIPPINES (0.0%)
WATER
100,000 Ce Casecnan Water & Energy, Inc., Series B,
Callable, Sinking Fund, (144A), 11.95% due
11/15/10....................................... Ba2/BB+ 82,390
-------------
RUSSIA (0.0%)
TELEPHONE
200,000 AO Rostelecom Loan Participation, 9.094% due
02/15/00(v)(s)................................. NR/NR 30,000
-------------
SOUTH KOREA (0.5%)
BANKING
350,000 Export-Import Bank Korea, 7.10% due 03/15/07..... Ba2/BB+ 300,311
500,000 Korea Development Bank, 9.80% due 06/16/03(v).... Ba2/BB+ 435,000
400,000 Korea Development Bank, Refunding, 7.90% due
02/01/02....................................... Ba2/BB+ 355,424
-------------
1,090,735
-------------
SWEDEN (0.3%)
TRANSPORTATION
800,000 Stena AB, Callable 06/15/02, 8.75% due
06/15/07....................................... Ba2/BB 750,000
-------------
TURKEY (0.2%)
FINANCIAL SERVICES
600,000 Sultan Ltd., 8.75% due 06/11/99(v)(s)............ NR/NR 535,500
-------------
UNITED KINGDOM (1.1%)
ELECTRIC
750,000 United Utilities PLC, Callable, 6.25% due
08/15/05....................................... A2/A+ 762,120
-------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TELECOMMUNICATIONS
$ 335,000 Ionica PLC, Callable 5/01/02, 0.00% due
05/01/07(v).................................... Ca/NR $ 1,675
-------------
TELEPHONE
500,000 Cable & Wireless Communications, PLC, Callable,
6.375% due 03/06/03............................ Baa1/A- 509,205
750,000 Orange PLC, Callable 08/01/03, 8.00% due
08/01/08....................................... Ba3/B+ 736,875
-------------
1,246,080
-------------
WATER
500,000 Anglian Water, Series B, 6.84% due 01/15/13(f)... NR/NR 524,370
-------------
2,534,245
-------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$16,256,445)............................... 15,175,186
-------------
FOREIGN GOVERNMENT OBLIGATIONS (12.5%)
CANADA (0.6%)
CAD 2,130,000 Government of Canada, 6.00% due 06/01/08......... Aa1/AAA 1,472,364
-------------
DENMARK (0.9%)
DKK 11,950,000 Kingdom of Denmark, 6.00% due 11/15/02........... Aaa/AAA 2,022,183
-------------
FRANCE (4.3%)
FRF 10,300,000 BTAN, Two-Year French Treasury Bill, 4.00% due
01/12/00....................................... NR/NR 1,866,349
FRF 12,600,000 BTAN, Five-Year French Treasury Bill, 4.75% due
03/12/02....................................... NR/NR 2,349,430
Government of France
FRF 10,190,000 5.50% due 04/25/07............................. NR/NR 2,002,837
FRF 2,540,000 6.00% due 10/25/25............................. Aaa/NR 511,942
FRF 6,150,000 7.50% due 04/25/05............................. Aaa/NR 1,332,511
FRF 9,050,000 8.50% due 04/25/03............................. Aaa/NR 1,946,192
-------------
10,009,261
-------------
GERMANY (3.8%)
Federal Republic of Germany
DEM 3,380,000 5.00% due 05/21/01............................. Aaa/NR 2,121,254
DEM 2,940,000 5.75% due 08/22/00............................. Aaa/NR 1,847,777
DEM 1,834,000 Series 94, 6.25% due 01/04/24.................. Aaa/NR 1,274,582
DEM 2,050,000 Series 97, 6.00% due 01/04/07.................. Aaa/NR 1,389,420
DEM 640,000 Series 98, 5.25% due 01/04/08.................. Aaa/NR 418,042
DEM 2,900,000 Series 115, 5.875% due 05/15/00................ Aaa/NR 1,815,108
-------------
8,866,183
-------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
NETHERLANDS (1.5%)
Government of the Netherlands
NLG 3,160,000 5.25% due 07/15/08............................. Aaa/AAA $ 1,831,526
NLG 2,700,000 8.25% due 06/15/02............................. Aaa/AAA 1,665,383
-------------
3,496,909
-------------
UNITED KINGDOM (1.4%)
Treasury Gilt
GBP 1,060,000 6.25% due 11/25/10............................. Aaa/NR 1,963,351
GBP 625,000 7.50% due 12/07/06............................. Aaa/NR 1,207,877
-------------
3,171,228
-------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$26,740,885)............................... 29,038,128
-------------
FOREIGN GOVERNMENT AGENCIES (0.5%)
BRAZIL (0.2%)
560,000 Banco Nacional de Desen Econo, 10.30% due
06/16/08(s).................................... NR/NR 386,400
-------------
MEXICO (0.3%)
100,000 Petroleos Mexicanos, 8.85% due 09/15/07.......... Ba2/BB 84,000
745,000 Petroleos Mexicanos, Callable 07/15/99, (144A),
11.137% due 07/15/05(v)........................ Ba2/BB 650,013
-------------
734,013
-------------
TOTAL FOREIGN GOVERNMENT AGENCIES (COST
$1,245,829)................................ 1,120,413
-------------
PRIVATE PLACEMENT (7.7%)
NATURAL GAS (0.2%)
500,000 Great Lake Gas Transmission, 6.73% due
03/25/18(f).................................... NR/NR 507,360
-------------
OIL-PRODUCTION (0.2%)
500,000 Amerada Hess Corp., WI, 6.14% due 09/15/13(f).... NR/NR 479,345
-------------
REAL ESTATE (7.3%)
3,000,000 127-129-131 West 96th St. Corp. (1st Mortage
Agreement on Cooperative Building in New York
City), WI, 6.85% due 10/01/18(f)............... NR/NR 3,100,830
625,000 155th St., Howard Beach, New York, WI, 6.875% due
11/01/13(f).................................... 642,425
1,596,902 270 Fifth Ave. (1st Mortage Agreement on
Cooperative Building in Brookyln, New York),
WI, 6.93% due 08/01/18(f)...................... NR/NR 1,661,082
495,528 31-33 Mercer Street (1st Mortgage Agreement on
Cooperative Building in New York City), 7.49%
due 04/01/23(f)................................ NR/NR 536,131
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
REAL ESTATE (CONTINUED)
$ 632,397 3512 Oxford Avenue (1st Mortgage Agreement on
Cooperative Building in Riverdale, New York),
8.45% due 06/01/17(f).......................... NR/NR $ 727,757
632,502 3810 Greystone Avenue (1st Mortgage Agreement on
Cooperative Building in Riverdale, New York),
8.50% due 06/01/17(f).......................... NR/NR 722,305
813,326 421 West 57th Street (1st Mortgage Agreement on
Cooperative Building in New York City), 8.98%
due 07/01/22(f)................................ NR/NR 971,168
500,000 482 East 9th Street, Kensington Gardens Corp.
(1st Mortgage Agreement on Cooperative Building
in New York City), WI, 6.85% due 11/01/18(f)... NR/NR 512,675
750,000 LD Fashion Holdings Corp., 7.13% due
05/01/05(f).................................... NR/NR 744,870
1,646,806 PC Bel Clare Estates, 33 Claroma St. St. Joseph
Township, Minnesota, 6.805% due 08/01/18(f).... NR/NR 1,677,107
1,400,000 PC Northstar Terrace, 3740 North Romero Rd.,
Arizona, 8.075% due 11/01/05(f)................ NR/NR 1,389,976
1,650,000 PC Shangri-La, 3526 North Cascacle Ave., Colorado
Springs, Colorado, WI, 6.52% due 10/01/08(f)... NR/NR 1,646,832
1,325,000 PC Three Lakes Estates, 2151 Three Lakes Road,
Albany, Oregon, 6.056% due 10/01/13(f)......... NR/NR 1,263,427
1,469,564 Walgreen-Dal, 7.625% due 11/15/13(f)............. NR/NR 1,519,073
-------------
17,115,658
-------------
TOTAL PRIVATE PLACEMENT (COST $17,519,786)... 18,102,363
-------------
SOVEREIGN BONDS (3.4%)
ARGENTINA (0.7%)
540,098 Republic of Argentina-Bocon, Series PRE2,
Callable 08/12/98, 5.635% due 04/01/01(v)...... Ba3/BBB- 485,778
230,300 Republic of Argentina Bearer, Callable 09/30/98,
Sinking Fund, 6.625% due 03/31/05(v)........... Ba3/BB 191,149
200,000 Republic of Argentina Discount Bonds, Series
L-GL, Callable 05/28/99, 6.625% due
03/31/23(v).................................... Ba3/BB 132,000
250,000 Republic of Argentina Global Bonds, 9.75% due
09/19/27....................................... Ba3/BB 217,500
250,000 Republic of Argentina Global Bonds, Series BGL3,
9.25% due 02/23/01............................. Ba3/BB 244,688
390,000 Republic of Argentina Global Bonds, Series BGL5,
11.375% due 01/30/17(s)........................ Ba3/BB 374,400
-------------
1,645,515
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
BRAZIL (0.2%)
$ 58,881 Republic of Brazil C Bonds, Series 20 Year,
Callable 04/15/99, Sinking Fund, 8.00% due
04/15/14(v).................................... B2/BB- $ 36,580
100,000 Republic of Brazil Global Bonds, 10.125% due
05/15/27....................................... B2/BB- 68,800
700,000 Republic of Brazil NMB-1994L Bearer, Callable
10/15/98, Sinking Fund, 6.688% due
04/15/09(v).................................... B1/BB- 390,250
-------------
495,630
-------------
BULGARIA (0.4%)
540,000 Republic of Bulgaria IAB PDI Bonds, Callable
01/28/99, Sinking Fund, 6.563% due
07/28/11(v).................................... B2/NR 356,400
850,000 Republic of Bulgaria, Series B, Callable
01/28/99, 7.063% due 07/28/24(v)............... B2/NR 592,875
-------------
949,275
-------------
COLOMBIA (0.3%)
150,000 Republic of Columbia, 7.625% due 02/15/07........ Baa3/BBB- 114,000
100,000 Republic of Columbia, 8.375% due 02/15/27........ Baa3/BBB- 72,000
200,000 Republic of Columbia, (144A), 7.27% due
06/15/03....................................... Baa3/BBB- 160,000
475,000 Republic of Columbia, Callable 08/13/00, 8.82%
due 08/13/05(v)(s)............................. Baa3/BBB- 406,125
-------------
752,125
-------------
MEXICO (0.7%)
250,000 United Mexican States Discount Bonds, Series D,
Callable 06/04/99, 6.60% due 12/31/19(v)....... Ba2/BB 195,938
450,000 United Mexican States Global Bonds, 9.875% due
01/15/07(s).................................... Ba2/BB 425,250
100,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... Ba2/BB 99,000
460,000 United Mexican States Global Bonds, 11.50% due
05/15/26(s).................................... Ba2/BB 473,800
550,000 United Mexican States Par Bonds, Callable, 6.25%
due 12/31/19................................... Ba2/BB 413,875
-------------
1,607,863
-------------
PANAMA (0.2%)
300,000 Republic of Panama, 8.25% due 04/22/08(s)........ Ba1/BB+ 264,000
369,131 Republic of Panama PDI, Sinking Fund, 6.687% due
07/17/16(v).................................... Ba1/BB+ 273,157
-------------
537,157
-------------
PHILIPPINES (0.1%)
200,000 Republic of Philippines, 8.875% due 04/15/08..... Ba1/BB+ 182,000
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
POLAND (0.2%)
$ 400,000 Republic of Poland Bearer PDI, Callable 04/27/99,
Sinking Fund, 4.00% due 10/27/14............... Baa3/BBB- $ 362,000
-------------
SOUTH KOREA (0.5%)
100,000 Republic of Korea, 8.75% due 04/15/03............ Ba1/BB+ 95,250
1,155,000 Republic of Korea, 8.875% due 04/15/08........... Ba1/BB+ 1,062,600
-------------
1,157,850
-------------
URUGUAY (0.1%)
250,000 Banco Central Del Uruguay, Callable 01/02/99,
6.75% due 02/19/21............................. Baa3/BBB- 215,000
-------------
TOTAL SOVEREIGN BONDS (COST $7,538,355)...... 7,904,415
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (21.2%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (9.3%)
874,623 7.50% due 05/01/27............................... 896,340
11,230,000 Buy Committment, November Settlement, 6.00% due
08/01/28....................................... 11,096,640
6,635,000 Buy Committment, November Settlement, 6.50% due
09/01/28....................................... 6,686,836
2,970,000 Buy Committment, November Settlement, 6.50% due
12/01/13....................................... 3,013,622
-------------
21,693,438
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (11.9%)
23,722,298 7.00% due 11/15/25--09/15/29..................... 24,291,843
3,470,000 Buy Committment, November Settlement, 7.00% due
12/01/28....................................... 3,528,296
-------------
27,820,139
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $49,220,053)......................... 49,513,577
-------------
U.S. TREASURY OBLIGATIONS (5.2%)
U.S. TREASURY BONDS (1.1%)
2,110,000 5.50% due 08/15/28(s)............................ 2,220,353
220,000 6.75% due 08/15/26............................... 264,130
-------------
2,484,483
-------------
U.S. TREASURY NOTES (4.1%)
260,000 5.50% due 02/15/08(s)............................ 277,745
6,560,000 5.625% due 05/15/08(s)........................... 7,064,792
350,000 5.75% due 12/31/98(s)............................ 350,809
250,000 6.00% due 06/30/99(s)............................ 252,510
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
- ---------------- ------------------------------------------------------------------ -------------
<C> <S> <C> <C>
U.S. TREASURY NOTES (CONTINUED)
$ 1,400,000 6.25% due 02/28/02(s)............................................. $ 1,479,226
200,000 6.88% due 05/15/06................................................ 228,980
-------------
9,654,062
-------------
U.S. TREASURY STRIPS (0.0%)
250,000 PO, 0.00% due 11/15/21............................................ 69,580
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $12,038,383)............ 12,208,125
-------------
PREFERRED STOCKS (0.0%)
FINANCIAL SERVICES (0.0%)
</TABLE>
<TABLE>
<CAPTION>
MOODY'S/S&P
RATING
SHARES (UNAUDITED)
- --------------- ------------
<C> <S> <C> <C>
1,500 SPG Properties, Inc., Callable 09/30/07, 7.89%(v)
(cost $73,874)................................. Baa2/BBB 67,313
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::}
- ----------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (14.6%)
TIME DEPOSITS (2.6%)
6,000,000 State Street Bank & Trust Co. London, 5.60% due 11/07/98.......... 6,000,000
-------------
REPURCHASE AGREEMENT (12.0%)
28,038,000 State Street Bank and Trust Co., 4.25% dated 10/30/98 due
11/02/98, proceeds $28,047,930 (collateralized by $250,000 U.S.
Treasury Notes, 9.125% due 05/15/18, valued at $374,672,
$3,340,000 U.S. Treasury Notes, 5.250% due 01/31/01, valued at
$3,454,859, $7,280,000 U.S. Treasury Notes, 5.875% due 08/31/99,
valued at 7,434,700, $8,275,000 U.S. Treasury Notes, 8.750% due
05/15/17, valued at $11,926,343, $1,000,000 U.S. Treasury Notes,
6.250% due 10/31/01, valued at $1,086,393, $4,170,000 U.S.
Treasury Notes, 6.750% due 05/31/99, valued at 4,339,673)....... 28,038,000
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $34,038,000)............... 34,038,000
-------------
TOTAL INVESTMENTS (COST $259,964,206) (110.7%).................... 259,094,340
LIABILITIES IN EXCESS OF OTHER ASSETS (-10.7%).................... (24,940,340)
-------------
NET ASSETS (100.0%)............................................... $ 234,154,000
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $260,382,516 for federal income tax
purposes at October 31, 1998, the aggregate gross unrealized appreciation and
depreciation was $4,863,290 and $6,151,466, respectively, resulting in net
unrealized depreciation of $1,288,176.
(f) Fair valued security. Approximately 8% of the market value of the securities
have been valued at fair value. (See Note 1a)
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
(s) Security is fully or partially segregated with custodian as collateral for
when-issued securities and for futures contracts or with broker as initial
margin for futures contracts. $79,494,049 of the market value has been
segregated.
(v) Rate shown reflects current rate on variable or floating rate instrument or
instrument with step coupon rate.
{::} Denominated in USD unless otherwise indicated.
144A -- Securities restricted for resale to Qualified Institutional Buyers.
C -- Capitalization.
CAD -- Canadian Dollar.
CSTR -- Collateral Strip Rate.
DEM -- German Mark.
DKK -- Danish Krone.
FRF -- French Franc.
GBP -- British Pound.
IAB -- Interest in Arrears Bond.
IO -- Interest Only.
MTN -- Medium Term Note.
NLG -- Netherlands Guilder.
NTL -- Notional Principal.
NR -- Not Rated.
PDI -- Past Due Interest.
PO -- Principal Only.
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.
Refunding -- Bonds for which the issuer has issued new bonds and cancelled the
old issue.
REMIC -- Real Estate Mortgage Investment Conduit.
WI -- When and if issued securities.
The Accompanying Notes are an Integral Part of the Financial Statements.
35
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $231,926,206) $231,056,340
Repurchase Agreements (Cost $28,038,000) 28,038,000
Cash 3,681
Receivable for Investments Sold 14,113,406
Interest Receivable 3,437,131
Unrealized Appreciation of Forward Foreign
Currency Contracts 2,288,331
Variation Margin Receivable 19,325
Deferred Organization Expenses 16,421
Prepaid Trustees' Fees 522
Prepaid Expenses and Other Assets 1,934
------------
Total Assets 278,975,091
------------
LIABILITIES
Payable for Investments Purchased 39,136,270
Unrealized Depreciation of Forward Foreign
Currency Contracts 4,425,386
Payable to Custodian 1,094,035
Advisory Fee Payable 94,033
Administrative Services Fee Payable 5,889
Administration Fee Payable 539
Fund Services Fee Payable 219
Accrued Expenses 64,720
------------
Total Liabilities 44,821,091
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $234,154,000
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
36
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income (Net of Foreign Withholding Tax
of $2,866) $14,236,332
EXPENSES
Advisory Fee $ 887,960
Custodian Fees and Expenses 201,497
Professional Fees and Expenses 68,497
Administrative Services Fee 57,247
Fund Services Fee 5,766
Amortization of Organization Expenses 4,865
Administration Fee 2,695
Trustees' Fees and Expenses 1,997
Miscellaneous 7,551
-----------
Total Expenses 1,238,075
-----------
NET INVESTMENT INCOME 12,998,257
NET REALIZED GAIN (LOSS) ON
Investment Transactions (9,118,800)
Futures Contracts (85,811)
Foreign Currency Contracts and Transactions 467,554
-----------
Net Realized Loss (8,737,057)
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments (1,106,192)
Futures Contracts 106,440
Foreign Currency Contracts and Translations (2,001,400)
-----------
Net Change in Unrealized Depreciation (3,001,152)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 1,260,048
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
37
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 17, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 12,998,257 $ 3,355,461
Net Realized Gain (Loss) on Investments, Futures
and Foreign Currency Contracts and Transactions (8,737,057) 566,692
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations (3,001,152) 2,143
---------------- -------------------
Net Increase in Net Assets Resulting from
Operations 1,260,048 3,924,296
---------------- -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 199,905,113 102,199,631
Withdrawals (67,392,063) (5,843,035)
---------------- -------------------
Net Increase from Investors' Transactions 132,513,050 96,356,596
---------------- -------------------
Total Increase in Net Assets 133,773,098 100,280,892
NET ASSETS
Beginning of Period 100,380,902 100,010
---------------- -------------------
End of Period $ 234,154,000 $ 100,380,902
---------------- -------------------
---------------- -------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 17, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- -------------------
<S> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.63% 0.65%(a)
Net Investment Income 6.59% 7.09%(a)
Expenses without Reimbursement 0.63% 0.80%(a)
Portfolio Turnover 368% 212%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
38
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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, 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 J.P.
Morgan Institutional Global Strategic Income Fund (formerly 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-backed and mortgage 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 asset-backed and mortgage securities
can be significantly affected by changes in interest rates or rapid principal
payments including pre-payments.
A percentage (8% at October 31, 1998) of the investments of the portfolio may be
highly illiquid, and there can be no assurance that the portfolio will be able
to realize such investments in a timely manner.
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 value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for each security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the portfolio's trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; 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.
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.
39
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
The portfolio's custodian 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
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expenses are
translated at the exchange rates 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
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 at the current foreign exchange
rates, and 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, 1998, the portfolio had open forward
foreign currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 10/31/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
Australian Dollar 1,301,925, expiring 12/18/98... $ 800,098 $ 810,753 $ 10,655
British Pound 168,439 for DEM 492,564, expiring
12/18/98........................................ 298,105 281,383 (16,722)
British Pound 1,752,664 for FRF 16,716,913,
expiring 12/18/98............................... 3,015,513 2,927,880 (87,633)
</TABLE>
40
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 10/31/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
Canadian Dollar 4,784,775, expiring 12/18/98..... $ 3,217,716 $ 3,093,150 $ (124,566)
Danish Krone 10,104,790, expiring 12/18/98....... 1,626,054 1,606,678 (19,376)
French Franc 50,437,363, expiring 12/18/98....... 8,620,616 9,098,242 477,626
French Franc 20,056,581 for NLG 6,736,953,
expiring 12/18/98............................... 3,617,311 3,617,946 635
French Franc 4,464,252 for DEM 1,331,539,
expiring 12/18/98............................... 805,862 805,293 (569)
German Mark 25,634,190, expiring 12/18/98........ 14,984,054 15,514,087 530,033
German Mark 478,506, expiring 02/09/99........... 297,782 290,208 (7,574)
German Mark 217,903, expiring 03/09/99........... 130,920 132,280 1,360
German Mark 550,995 for GBP 191,761, expiring
12/18/98........................................ 320,342 333,469 13,127
German Mark 154,333 for DKK 590,245, expiring
12/18/98........................................ 93,850 93,404 (446)
German Mark 317,000 for FRF 1,063,283, expiring
12/18/98........................................ 191,802 191,852 50
Italian Lira 2,543,785,148, expiring 12/18/98.... 1,532,271 1,554,371 22,100
Japanese Yen 402,647,563, expiring 12/18/98...... 2,883,981 3,479,879 595,898
Japanese Yen 28,257,528 for GBP 123,000, expiring
12/18/98........................................ 205,475 244,215 38,740
Japanese Yen 148,804,636 for CAD 1,608,351,
expiring 12/18/98............................... 1,039,736 1,286,043 246,307
Japanese Yen 325,713,070 for DEM 4,302,683,
expiring 12/18/98............................... 2,604,030 2,814,973 210,943
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- ------------------------------------------------- -----------
<S> <C> <C> <C>
Australian Dollar 1,301,925, expiring 12/18/98... 792,124 810,754 (18,630)
British Pound 3,624,339, expiring 12/18/98....... 6,045,202 6,054,571 (9,369)
Canadian Dollar 5,555,315, expiring 12/18/98..... 3,671,588 3,591,294 80,294
Danish Krone 22,666,300, expiring 12/18/98....... 3,344,227 3,603,979 (259,752)
French Franc 113,757,244, expiring 12/18/98...... 19,219,688 20,520,323 (1,300,635)
German Mark 33,775,208, expiring 12/18/98........ 20,377,185 21,651,540 (1,274,355)
German Mark 478,506, expiring 02/09/99........... 271,755 290,209 (18,454)
German Mark 217,903, expiring 03/09/99........... 123,915 132,280 (8,365)
Italian Lira 2,543,785,148, expiring 12/18/98.... 1,443,405 1,554,371 (110,966)
Japanese Yen 903,968,449, expiring 12/18/98...... 6,705,131 7,812,542 (1,107,411)
--------------
NET UNREALIZED DEPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ (2,137,055)
--------------
--------------
</TABLE>
41
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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. At October 31, 1998, the portfolio had
open futures contracts as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
U.S. Long Bond, expiring December 1998........... 55 $ (48,455) $ 7,138,299
U.S. Five Year Note, expiring December 1998...... 76 121,044 8,591,644
U.S. Ten Year Note, expiring December 1998....... 18 21,079 2,144,545
-------------- -------------- ----------------
Totals........................................... 149 $ 93,668 $ 17,874,488
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS SHORT DEPRECIATION OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
U.S. Long Bond, expiring December 1998........... 29 $ (95,330) $ 3,642,951
U.S. Ten Year Note, expiring December 1998....... 133 (41,986) 15,959,576
--------------- -------------- ----------------
Totals........................................... 162 $ (137,316) $ 19,602,527
--------------- -------------- ----------------
--------------- -------------- ----------------
</TABLE>
f) 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
42
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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.
g) The portfolio 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.
h) 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 witholding taxes at various rates.
i) The portfolio incurred organization expenses in the amount of $23,505.
These costs were deferred and are being amortized on a straight-line basis
over a five-year period from the commencement of operations of the
portfolio.
j) Expenses incurred by Series Portfolio II with respect to any two or more
portfolios in Series Portfolio II are allocated in proportion to the net
assets of each portfolio in Series Portfolio II, except where allocations
of direct expenses to each portfolio can otherwise to be made fairly.
Expenses directly attributable to a portfolio are charged to that
portfolio.
2. TRANSACTIONS WITH AFFILIATES
a) Prior to October 28, 1998, the portfolio had an Investment Advisory
Agreement with Morgan Guaranty Trust Company of New York ("Morgan"), a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan").
Under the terms of the agreement, the portfolio paid Morgan at an annual
rate of 0.45% of the portfolio's average daily net assets. Effective
October 28, 1998, the portfolio's Investment Advisor is J.P. Morgan
Investment Management, Inc. ("JPMIM"), an affiliate of Morgan and a wholly
owned subsidiary of J.P. Morgan, and the terms of the agreement remain the
same. For the fiscal year ended October 31, 1998, such fees amounted to
$887,960.
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
43
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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
fiscal year ended October 31, 1998, the fee for these services amounted to
$2,695.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for 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 JPMIM acts as investment
advisor (the "master portfolios") and J.P. Morgan Series Trust (formerly
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, other
investors in the master portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust. For the fiscal year ended October
31, 1998, the fee for these services amounted to $57,247.
In addition, J.P. 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 February 28, 1999. For the fiscal year ended October 31, 1998, no
reimbursement was necessary under the 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 $5,766 for the fiscal year ended October 31, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements represents the portfolio's
allocated portion of the total fees and expenses. 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 $1,200.
44
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $410,314,546 $359,251,035
Corporate and Collateralized Obligations......... 395,962,971 303,784,703
------------ ------------
$806,277,517 $663,035,738
------------ ------------
------------ ------------
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement as discussed more
fully in Note 4 of the fund's Notes to the Financial Statements which are
included elsewhere in this report.
45
<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 (one
of two subtrusts constituting Series Portfolio II, hereafter referred to as the
"portfolio") at October 31, 1998, the results of its operations for the year
then ended, and the changes in its net assets and its supplementary data for the
year then ended and 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 audits. We conducted our audits 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 audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1998
46
