<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 2.4%
FINANCIAL SERVICES - 2.4%
<C> <S> <C>
$ 549,406 DLJMAC, Series 1997 A1, 8.11%, 7/25/27 $ 514,725
2,500,000 Green Tree Financial Corporation, Series
1999-2, Class B1, 8.41%, 12/1/30 2,289,050
2,000,000 Green Tree Financial Corporation, Series
1999-3, Class B1, 8.37%, 2/1/31 1,815,000
109,196 Home MAC Mortgage Securities Corp.,
Series 1985-1, 11.38%, 8/1/15 107,422
-----------
TOTAL ASSET-BACKED SECURITIES 4,726,197
-----------
(Cost $5,168,086)
COLLATERALIZED MORTGAGE OBLIGATIONS - 7.8%
FINANCIAL SERVICES - 7.8%
1,544,257 Banc of America Commercial Mortgage Inc.,
Series 2000-1, Class A1A SEQ, 7.11%,
11/15/08 1,547,636
500,000 COMM, Series 2000 FL1A, Class H, Floater,
7.90%, 11/16/00, resets monthly off the
1-month LIBOR plus 1.28% 490,000
400,000 COMM, Series 2000 FL2A, Class G-NW
Floater, 7.82%, 11/15/00, resets monthly off
the 1-month LIBOR plus 1.20% 400,000
11,250,879 CS First Boston Mortgage Securities Corp.,
Series 1997-2, Class X, I0,144A, CSTR, NTL
1.01%, 6/25/20(v) 299,870
1,200,000 CS First Boston Mortgage Securities Corp.,
Series 1999 C1, Class A2 SEQ, 7.29%,
9/15/09 1,214,324
1,331,239 First Union Commercial Mortgage Trust, Series
1999 C1, Class A1 SEQ, 5.73%, 1/15/08 1,277,625
3,529,056 FNMA, Series 1994-53, Class G, PO,
11/25/23(s) 2,203,454
1,200,000 Heller Financial Commercial Mortgage Asset,
Series 1999 PH1, Class A2 SEQ, 6.85%,
5/15/31 1,179,187
1,000,000 Morgan Stanley Capital I, Series 1997 XL1,
Class G, 144A, 7.70%, 10/3/30(s) 854,531
1,500,000 Morgan Stanley Capital I, Series 1998 XL1,
Class A3 SEQ, 6.48%, 6/3/30(s) 1,451,016
1,195,588 Morgan Stanley Capital I, Series 1999 WF1,
Class A1 SEQ, 5.91%, 4/15/08(s) 1,148,978
300,000 Morgan Stanley Capital I, Series 2000 HG,
Class E, 144A, CSTR, 8.20%, 12/3/05 301,922
1,440,000 Nomura Asset Securities Corporation, Series
1998 D6, Class A1B SEQ, 6.59%, 3/17/28 1,394,100
300,000 PNC Mortgage Acceptance Corp., Series 2000
C2, Class A2 SEQ, 7.30%, 9/12/10 301,172
1,500,000 Salomon Brothers Mortgage Securities VII,
Series 2000 C1, Class A2 SEQ, 7.52%,
12/18/09 1,479,375
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 15,543,190
-----------
(Cost $15,748,253)
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
CORPORATE BONDS - 15.3%
AIRLINES - 0.4%
$700,000 Northwest Airlines Corp., Series 2000-1,
Class G, 8.07%, 10/1/19(s) $ 710,703
----------
APPAREL & TEXTILES - 0.1%
170,000 Polymer Group Inc., Series B, 9.00%, 7/1/07 122,400
-----------
BANKS - 0.4%
750,000 First Union Corp., 8.13%, 6/24/02(s) 760,433
-----------
CHEMICALS - 0.4%
300,000 Huntsman ICI Chemicals LLC, 10.13%, 7/1/09 288,000
500,000 Scotts Co., 144A, 8.63%, 1/15/09 477,500
765,500
-----------
DEFENSE/AEROSPACE - 0.3%
500,000 Northrop-Grumman Corp., 9.38%, 10/15/24(s) 512,480
-----------
ELECTRICAL EQUIPMENT - 0.2%
450,000 Flextronics International Ltd., 144A, 9.88%,
7/1/10 454,500
-----------
ELECTRICAL UTILITY - 0.9%
300,000 Calpine Corp., 7.88%, 4/1/08 288,000
400,000 Cogentrix Energy Inc., 8.75%, 10/15/08 401,000
500,000 Dominion Resources Inc., Series 2010 A,
8.13%, 6/15/10(s) 515,530
739,791 Kincaid Generation LLC, 144A, 7.33%,
6/15/20(s) 656,557
-----------
1,861,087
-----------
ENTERTAINMENT - 0.2%
700,000 Six Flags Inc., 12.58%, 4/1/08(v)(y) 472,500
-----------
FINANCIAL SERVICES - 1.0%
750,000 Destination Film Funding Corp, 144A, 6.25%,
10/15/03(s) 699,375
325,000 ERAC USA Finance Company, 144A, MTN,
9.13%, 12/15/04(s) 345,553
750,000 Ford Motor Credit Co., 7.88%, 6/15/10(s) 752,077
229,364 Oil Purchase Company, 144A, 7.10%, 4/30/02(s) 219,043
-----------
2,016,048
-----------
FOOD & BEVERAGE - 0.3%
350,000 Smithfield Foods Inc., 7.63%, 2/15/08 317,625
275,000 Sun World International, Series B, 11.25%,
4/15/04 254,375
-----------
572,000
-----------
FOREST PRODUCTS & PAPER - 0.6%
450,000 International Paper Co., 144A, 8.13%, 7/8/05(s) 463,127
500,000 Riverwood International Corp., 10.63%, 8/1/07 490,000
250,000 Stone Container Corp., 12.25%, 4/1/02(v) 250,000
-----------
1,203,127
-----------
INDUSTRIAL PARTS - 0.1%
140,000 US Can Corp., 144A, 12.38%, 10/1/10 137,200
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
1
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
INDUSTRIAL SERVICES - 0.1%
<C> <S> <C>
$ 140,000 Allied Waste Industries, Inc., Series B,
10.00%, 8/1/09 $ 118,300
-----------
INTERNET - 0.3%
300,000 Exodus Communications Inc., 144A, 11.63%,
7/15/10 280,500
250,000 PSINet Inc., 10.50%, 12/1/06 121,250
250,000 PSINet Inc., Series B, 10.00%, 2/15/05 121,250
-----------
523,000
-----------
LEISURE - 0.2%
195,000 MGM Mirage, 9.75%, 6/1/07 202,069
285,000 Park Place Entertainment Corp., 8.88%,
9/15/08 280,012
-----------
482,081
-----------
LIFE & HEALTH INSURANCE - 0.3%
695,000 Prudential Insurance Company of America,
144A, 6.38%, 7/23/06(s) 656,872
-----------
MEDIA - 2.9%
700,000 Ackerley Group Inc., 9.00%, 144A, 1/15/09 654,500
500,000 Adelphia Communications, 8.13%, 7/15/03 455,000
400,000 Chancellor Broadcasting Co., Series B, 8.75%,
6/15/07 410,000
400,000 Charter Communications Holdings LLC,
14.07%, 4/1/11(v)(y) 230,000
250,000 Charter Communications Holdings LLC/
Charter Communications Holdings Capital
Corp., 10.00%, 4/1/09 244,375
250,000 Classic Cable Inc., 10.50%, 3/1/10 205,000
500,000 Clear Channel Communications, 7.88%,
6/15/05(s) 503,920
500,000 CSC Holdings Inc., 10.50%, 5/15/16 530,000
500,000 Echostar DBS Corp., 9.38%, 2/1/09 491,875
600,000 Emmis Communications Corp., 8.13%, 3/15/09 562,500
300,000 Fox Family Worldwide Inc., 9.25%, 11/1/07 284,250
500,000 Fox Sports Networks LLC, 8.88%, 8/15/07 502,500
450,000 Lamar Media Corp., 8.63%, 9/15/07 438,750
-----------
5,512,670
-----------
MEDICAL PROVIDERS & SERVICES - 0.3%
140,000 Healthsouth Corp., 144A, 10.75%, 10/1/08 141,400
700,000 Mariner Post-Acute Network, Inc., Series B,
9.50%, 4/1/06(d)(+) 3,500
500,000 Triad Hospitals Holdings Inc., 144A, 11.00%,
5/15/09 520,000
-----------
664,900
-----------
MINING & METALS - 0.2%
400,000 P&L Coal Holdings Corp., Series B, 9.63%,
5/15/08 388,500
-----------
OIL REFINING - 0.4%
500,000 Lasmo (USA), Inc., 7.50%, 6/30/06 498,245
300,000 Pogo Producing Co., Series B, 10.38%,
2/15/09 312,000
-----------
810,245
-----------
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
OIL SERVICES - 1.1%
$300,000 Eott Energy Partners LP/Eott Energy Finance
Corp., 11.00%, 10/1/09 $ 318,750
300,000 Newpark Resources, Series B, 8.63%, 12/15/07 277,500
300,000 Ocean Energy, Inc., Series B, 8.88%, 7/15/07 303,750
500,000 Phillips Petroleum Co., 8.75%, 5/25/10 545,320
750,000 Williams Cos. Inc., 6.20%, 8/1/02 738,090
-----------
2,183,410
-----------
PUBLISHING - 0.2%
400,000 American Media Operation Inc., 10.25%,
5/1/09 393,000
-----------
REAL ESTATE INVESTMENT TRUST - 0.1%
100,000 Felcor Lodging LP, 144A, 9.50%, 9/15/08 98,811
180,000 Host Marriott LP, 144A, 9.25%, 10/1/07 178,650
-----------
277,461
-----------
TELEPHONE - 2.7%
500,000 Alaska Communications Systems Holdings
Inc., 9.38%, 5/15/09 430,000
160,000 Allegiance Telecom, Inc., 12.88%, 5/15/08 160,800
300,000 Focal Communications Corp., 11.88%,
1/15/10 219,000
275,000 Global Crossing Holding Ltd., 9.13%,
11/15/06 262,625
140,000 Intermedia Communications, Series B, 9.50%,
3/1/09 136,500
300,000 ITC Deltacom Inc., 8.88%, 3/1/08 231,000
200,000 ITC Deltacom Inc., 9.75%, 11/15/08 161,500
500,000 Level 3 Communications Inc., 9.13%, 5/1/08 405,000
155,000 McLeodUSA Inc., 9.50%, 11/1/08 144,150
100,000 McLeodUSA Inc., 8.13%, 2/15/09 86,500
500,000 Metromedia Fiber Network Inc., Series B,
10.00%, 11/15/08 445,000
300,000 XO Communications, 10.75%, 11/15/08 262,500
500,000 NTL Communications Corp., 11.50%, 10/1/08 460,000
1,000,000 Qwest Capital Funding Inc., 7.90%, 8/15/10(s) 1,014,410
350,000 RCN Corp., 10.00%, 10/15/07 252,000
600,000 Sprint Capital Corp., 6.38%, 5/1/09(s) 536,940
250,000 Time Warner Telecom Inc., 9.75%, 7/15/08 221,250
-----------
5,429,175
-----------
THRIFTS - 0.2%
400,000 Sovereign Bancorp Inc., 10.50%, 11/15/06 406,000
-----------
TRUCKING & SHIPPING & AIR FREIGHT - 0.3%
250,000 Atlantic Express, 10.75%, 2/1/04 215,000
400,000 Teekay Shipping Corp., 8.32%, 2/1/08 382,000
-----------
597,000
-----------
WIRELESS TELECOMMUNICATIONS - 1.1%
650,000 Crown Castle International Corp., 11.45%,
5/15/11(v)(y) 416,000
400,000 FLAG Telecom Holdings Ltd., 8.25%, 1/30/08 336,000
500,000 Nextel Communications, Inc., 9.38%, 11/15/09 485,000
200,000 Nextel Partners Inc., 11.00%, 3/15/10 199,000
250,000 TeleCorp PCS Inc., 10.63%, 7/15/10 247,500
200,000 Tritel PCS Inc., 12.88%, 5/15/09(v)(y) 128,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
2
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
$400,000 Voicestream Wireless Corp./Voicestream
Wireless Holding Corp., 10.38%, 11/15/09 $ 427,000
------------
2,238,500
------------
TOTAL CORPORATE BONDS 30,269,092
------------
(Cost $32,630,990)
FOREIGN CORPORATE BONDS - 5.2%
BANKS - 1.1%
950,000 Barclays Bank Plc, 144A, 8.55%, 9/29/49(s) 956,365
170,000 Cho Hung Bank Co., Ltd., 144A, 11.50%,
4/1/10 162,350
300,000 National Australia Bank, 6.60%, 12/10/07(s) 285,135
1,000,000 National Australia Bank, 8.60%, 5/19/10(s) 1,062,699
----------
2,466,549
----------
CHEMICALS - 0.3%
300,000 Avecia Group Plc, 11.00%, 7/1/09 289,500
250,000 Reliance Industries Ltd., 144A, 10.38%,
6/24/16 236,550
----------
526,050
----------
CONSTRUCTION & REAL PROPERTY - 0.1%
100,000 Cemex Central S.A. de C.V., 144A, 8.63%,
7/18/03 99,750
----------
ELECTRICAL UTILITY - 0.1%
50,000 CE Casecnan Water & Energy, Series B,
11.95%, 11/15/10 44,000
225,000 Financiera Energetica Nacional, 144A, 9.38%,
6/15/06 177,750
----------
221,750
----------
FINANCIAL SERVICES - 0.1%
150,000 HSBC Capital Funding LP, 144A, 10.18%,
6/30/30, resets quarterly after 6/30/30
off the 3-month LIBOR plus 4.98%
with no caps(s)(v) 164,153
-----------
GAS & WATER UTILITIES - 0.4%
750,000 United Utilities Plc, 6.25%, 8/15/05(s) 704,865
-----------
INFORMATION SERVICES - 0.4%
750,000 Marconi Corporation Plc, 8.38%, 9/15/30(s) 715,223
----------
MEDIA - 0.7%
150,000 Callahan Nordrhein-Westfalen GmbH, 144A,
14.00%, 7/15/10 144,750
275,000 eKabel Hessen GmbH, 144A, 14.50%, 9/1/10 258,500
500,000 Rogers Cablesystems Ltd., 10.00%, 12/1/07 520,000
250,000 Telewest Communications Plc, 144A, 9.88%,
2/1/10 197,500
100,000 TV Azteca S.A. de C.V., 10.50%, 2/15/07 92,000
400,000 United Pan-Europe Communications, Series B,
10.88%, 11/1/07 320,000
----------
1,532,750
----------
OIL REFINING - 0.1%
160,000 Triton Energy Ltd., 144A, 8.88%, 10/1/07 160,000
----------
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
OIL SERVICES(z)
$ 100,000 RAS Laffan Liquify Natural Gas, 144A, 8.29%,
3/15/14 $ 91,750
----------
RAILROADS - 0.1%
140,000 TFM S.A. de C.V., 4.01%, 6/15/09(v)(y) 99,400
----------
TELECOMMUNICATIONS - 0.2%
350,000 360networks Inc., 12.50%, 12/15/05 301,000
----------
TELEPHONE - 1.0%
200,000 Asia Global Crossing Ltd., 144A, 13.38%,
10/15/10 185,000
425,000 Deutsche Telekom International Finance BV,
8.00%, 6/15/10(s) 433,194
250,000 Globe Telecom Inc., 144A, 13.00%, 8/1/09 252,500
100,000 Globo Comunicacoes e Participacoes S.A.,
10.63%, 12/5/08 83,500
510,000 Microcell Telecommunications Inc., Series B,
10.27%, 6/1/06(v)(y) 489,600
250,000 PTC International Finance II SA, 11.25%,
12/1/09 225,000
525,000 Telefonica Europe BV, 7.75%, 9/15/10(s) 527,058
---------
2,195,852
---------
WIRELESS TELECOMMUNICATIONS - 0.6%
465,000 Clearnet Communications Inc., 9.64%,
12/15/05(v)(y) 493,481
100,000 Grupo Iusacell S.A de C.V., 14.25%, 12/1/06 101,250
500,000 Vodafone Group Plc, 7.63%, 2/15/05 507,250
---------
1,101,981
---------
TOTAL FOREIGN CORPORATE BONDS 10,381,073
(Cost $10,567,121)
----------
MORTGAGE PASS THRU - 14.9%
3,000,000 FHLMC, TBA, 7.00%, 11/01/15 2,982,180
7,500,000 FNMA , TBA, 7.00%, 11/1/30 7,347,675
2,530,000 FNMA, TBA, 7.00%, 11/1/15 2,514,188
2,300,000 FNMA, TBA, 6.50%, 11/1/30 2,210,162
9,700,000 FNMA, TBA, 7.50%, 12/1/30 9,675,750
5,000,000 GNMA, TBA, 6.50%, 11/1/30 4,826,550
----------
TOTAL MORTGAGE PASS THRU 29,556,505
----------
(Cost $29,534,366)
PRIVATE PLACEMENTS - 8.4%
CO-OP APARTMENTS - 4.5%
2,862,943 127-129-131 West 96th St. Corp. (1st Mortgage
Agreement on Cooperative Building in New York
City), 6.85%, 12/1/18(f) 2,729,815
1,064,725 14-16 East 17th St. (1st Mortgage Agreement
on Cooperative Building in New York City),
7.00%, 3/1/12(f) 1,020,379
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
3
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
$1,516,947 270 Fifth Street (1st Mortgage Agreement on
Cooperative Building in Brooklyn, New York),
6.93%, 8/1/18(f) $ 1,455,344
480,267 31-33 Mercer Street (1st Mortgage Agreement
on Cooperative Building in New York City),
7.49%, 1/1/23(f) 476,901
601,995 3512 Oxford Avenue (1st Mortgage Agreement
on Cooperative Building in Riverdale, New
York), 8.45%, 6/1/17(f) 637,670
602,256 3810 Greystone Avenue (1st Mortgage
Agreement on Cooperative Building in
Riverdale, New York), 8.50%, 6/1/17(f) 633,705
791,706 421 West 57th Street (1st Mortgage Agreement
on Cooperative Building in New York City),
8.98%, 7/1/22(f) 868,803
477,157 482 East 9th Street, Kensington Gardens Corp.
(1st Mortgage Agreement on Cooperative
Building in New York City), 6.85%,
12/1/18(f) 453,194
581,084 86-06/86-42 155th Ave., Dartmouth
Cooperative Corp. (1st Mortgage Agreement
on Cooperative Building in Howard Beach,
New York), 7.00%, 1/1/14(f) 562,600
-------------
8,838,411
-------------
CONVENTIONAL MULTI-FAMILY - 3.0%
727,775 Huntington National Bank, 7.24%, 12/5/20(f) 641,381
1,564,351 PC Bel Clare Estates, 6.93%, 8/1/18(f) 1,485,383
1,329,034 PC Northstar Terrace, 6.63%, 10/1/18(f) 1,224,426
1,613,704 PC Shangri LA MHC Co., 6.52%, 10/1/08(f) 1,490,723
1,277,623 Three Lakes Estate, 6.06%, 10/1/13(f) 1,135,181
--------------
5,977,094
--------------
DIRECT OBLIGATIONS - 0.2%
163,187 Amerada Hess Corp., Leveraged Lease,
7.33%, 1/1/14(f) 156,834
320,715 Amerada Hess Corp., Leveraged Lease,
Series A, 6.14%, 1/1/14(f) 287,845
-------------
444,679
-------------
NET LEASE LOANS - 0.7%
1,357,189 Walgreen Benderson, 7.63%, 11/15/13(f) 1,301,952
-------------
TOTAL PRIVATE PLACEMENTS 16,562,136
-------------
(Cost $17,316,032)
SOVEREIGN GOVERNMENTS AND AGENCIES - 20.7%
ARGENTINA - 1.0%
257,883 Argentina Bocon, Series Pro-2, 6.62%,
11/1/00, resets monthly off the 1-month
LIBOR with no caps(v) 201,763
190,000 City of Buenos Aires, 11.25%, 4/11/07 166,250
20,986 Republic of Argentina Pre-2, 6.62%, 4/1/01(v) 14,737
39,600 Republic of Argentina, VRN, 7.63%, 3/27/01, resets
semi-annually off the 6-month LIBOR plus
0.8125% with no caps(v) 34,422
395,000 Republic of Argentina, 11.38%, 3/15/10 337,725
145,000 Republic of Argentina, 11.75%, 6/15/15 123,613
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
$ 210,000 Republic of Argentina, 12.00%, 2/1/20 $ 181,440
380,000 Republic of Argentina, 9.75%, 9/19/27 285,950
122,000 Republic of Argentina Discount Bonds,
Series L-GL, 7.88%, 11/30/00(v) 92,415
495,360 Republic of Argentina, Floater, 7.63%,
3/31/05(v)(s) 434,988
200,000 Republic of Argentina, Series BGL5, 11.38%,
1/30/17 168,000
-----------
2,041,303
-----------
BARBADOS - 0.1%
155,000 Government of Barbados, 144A, 8.75%,
6/15/10 155,775
-----------
BRAZIL - 2.7%
440,000 Federal Republic of Brazil, 12.25%, 3/6/30 382,800
100,000 Federal Republic of Brazil, 11.63%, 4/15/04 101,400
520,000 Federal Republic of Brazil, 11.25%, 7/26/07 514,800
310,000 Federal Republic of Brazil, 9.38%, 4/7/08 271,250
676,000 Federal Republic of Brazil, 14.50%, 10/15/09(s) 721,967
1,084,872 Federal Republic of Brazil C Bonds, 8.00%,
4/15/14(s) 809,586
55,413 Federal Republic of Brazil C Bonds, 8.00%,
4/15/14 41,352
460,000 Federal Republic of Brazil, 12.75%, 1/15/20 425,500
340,000 Federal Republic of Brazil, 10.13%, 5/15/27 255,000
710,000 Federal Republic of Brazil, 11.00%, 8/17/40 543,150
264,000 Federal Republic of Brazil, Series L, 7.63%,
4/15/06(s)(v) 241,230
460,000 Federal Republic of Brazil DCB, Series 18
Year L, 7.69%, 4/15/12 342,125
90,000 Federal Republic of Brazil DCB, Series RG-L,
7.69%, 4/15/12 66,938
165,000 Federal Republic of Brazil Discount Bonds,
Series 30 Year ZL, 7.63%, 4/15/01, resets
semi-annually off the 6-month LIBOR plus
0.8125% with no caps(v) 126,122
290,000 Federal Republic of Brazil NMB, Series 15
Year L, 7.69%, 4/17/01, resets semi-
annually off the 6-month LIBOR plus
0.875% with no caps(v) 248,675
390,000 Federal Republic of Brazil Par Bonds, Series
30 Year ZL, 6.00%, 4/15/24 256,425
----------
5,348,320
----------
BULGARIA - 0.5%
205,000 Republic of Bulgaria, 7.75%, 1/28/01, resets
semi-annually off the 6-month LIBOR plus
0.8125% with no caps(v) 153,238
525,000 Republic of Bulgaria, 3.00%, 7/28/12 376,031
695,000 Republic of Bulgaria Discount Bonds, Series A,
7.75%, 1/28/01(v) 522,119
20,000 Republic of Bulgaria IAB, Series PDI, 7.75%,
1/28/01, resets semi-annually off the
6-month LIBOR plus 0.8125% with no caps(v) 14,950
----------
1,066,338
----------
CANADA - 0.7%
CAD 840,000 Government of Canada, 5.50%, 6/1/10 538,165
1,000,000 Province of Quebec, 5.75%, 2/15/09 916,800
----------
1,454,965
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
4
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
COLOMBIA - 0.4%
$ 150,000 Republic of Colombia, 7.27%, 6/15/03 $ 135,750
240,000 Republic of Colombia, 10.88%, 3/9/04 227,400
360,000 Republic of Colombia, 9.75%, 4/23/09 287,280
120,000 Republic of Colombia, 11.75%, 2/25/20 95,400
---------
745,830
---------
COSTA RICA - 0.1%
290,000 Republic of Costa Rica, 144A, 10.00%, 8/1/20 290,000
---------
DENMARK - 0.6%
DKK 9,265,000 Kingdom of Denmark, 8.00%, 5/15/03 1,114,298
---------
FRANCE - 5.1%
EUR 1,740,000 Government of France, 3.50%, 7/12/04 1,394,596
EUR 1,400,000 Government of France, 5.50%, 4/25/07 1,200,407
EUR 3,855,000 Government of France, 4.00%, 4/25/09 2,973,427
EUR 414,000 Government of France, 4.00%, 4/25/09 319,325
EUR 4,150,000 Government of France, 4.00%, 10/25/09 3,183,378
EUR 350,000 Government of France, 8.50%, 12/26/12 377,352
EUR 380,000 Government of France, 8.50%, 4/25/23 433,370
EUR 250,000 Government of France, 5.50%, 4/25/29 207,217
----------
10,089,072
----------
GERMANY - 0.9%
EUR 210,000 German Federal Republic, Series 94, 6.25%,
1/4/24 190,812
EUR 1,000,000 German Federal Republic, Series 97, 6.00%,
7/4/07 883,963
EUR 835,000 German Federal Republic, Series 98, 5.63%,
1/4/28 705,128
---------
1,779,903
---------
ITALY - 2.2%
EUR 2,590,000 Republic of Italy, 3.00%, 2/15/02 2,135,795
EUR 2,655,000 Republic of Italy, 3.25%, 4/15/04 2,105,007
EUR 140,000 Republic of Italy, 7.25%, 11/1/26 138,090
---------
4,378,892
---------
JAPAN - 0.4%
JPY 96,000,000 Government of Japan, 1.80%, 6/21/10 869,003
---------
MEXICO - 1.0%
50,000 Banco Nacional de Obras, 9.63%, 11/15/03 51,625
120,000 Petroleos Mexicanos, 9.50%, 9/15/27 115,500
20,000 Petroleos Mexicanos, 9.50%, 9/15/27 20,200
400,000 United Mexican States, 7.53%, 4/19/01,
resets semi-annually off the 6-month LIBOR
plus 0.8125% with no caps(v) 406,000
175,000 United Mexican States, 9.88%, 1/15/07 180,688
175,000 United Mexican States, 10.38%, 2/17/09 186,375
50,000 United Mexican States, 11.38%, 9/15/16 56,625
65,000 United Mexican States, 11.38%, 9/15/16 73,613
350,000 United Mexican States, 6.25%, 12/31/19 307,125
150,000 United Mexican States, 7.52%, 12/31/19,
resets semi-annually off the 6-month LIBOR
plus 0.8125% with no caps(v) 152,250
405,000 United Mexican States, 11.50%, 5/15/26(s) 477,900
---------
2,027,901
---------
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
MOROCCO - 0.2%
$427,398 Kingdom of Morocco, Tranche A, 7.75%,
12/17/00 $ 373,439
---------
NETHERLANDS - 0.6%
100,000 Cellco Finance NV, 12.75%, 8/1/05 98,500
EUR 940,000 Government of Netherlands, 6.00%, 1/15/06 824,153
EUR 340,000 Netherlands Government, 6.00%, 1/15/06 298,271
---------
1,220,924
---------
PANAMA - 0.3%
141,466 Republic of Panama, PDI, 7.75%, 1/17/01(v) 109,636
190,000 Republic of Panama, 10.75%, 5/15/20 185,725
115,000 Republic of Panama, 8.88%, 9/30/27 96,888
160,000 Republic of Panama IRB, Series 18 Year,
4.50%, 7/17/14(v) 126,800
--------
519,049
--------
PERU - 0.1%
215,000 Republic of Peru, PDI, Series 20 year,
4.50%, 3/7/17(v) 129,269
---------
PHILIPPINES - 0.2%
350,000 Philippine Government International Bond,
8.60%, 6/15/27 227,500
90,000 Republic of Philippines, 8.88%, 4/15/08 76,050
130,000 Republic of Philippines, Series B, 6.50%,
12/1/17 98,150
--------
401,700
--------
QATAR - 0.2%
100,000 State of Qatar, 144A, 9.50%, 5/21/09 102,500
170,000 State of Qatar, 144A, 9.75%, 6/15/30 163,625
--------
266,125
--------
RUSSIAN FEDERATION - 1.1%
290,000 Russian Federation, 10.00%, 6/26/07 217,500
966,750 Russian Federation, 8.25%, 3/31/10 622,345
380,000 Russian Federation, 12.75%, 6/24/28 320,625
2,685,000 Russian Federation, 2.50%, 3/31/30 1,013,588
----------
2,174,058
----------
SWEDEN - 0.3%
SEK 5,800,000 Swedish Government, 5.50%, 4/12/02 586,777
----------
TRINIDAD & TOBAGO - 0.4%
450,000 Republic of Trinidad & Tobago, 144A, 9.88%,
10/1/09 468,000
300,000 Republic of Trinidad & Tobago, 144A, 9.75%,
7/1/20(s) 303,000
---------
771,000
---------
TURKEY - 0.4%
220,000 Republic of Turkey, 12.00%, 12/15/08 227,700
465,000 Republic of Turkey, 12.38%, 6/15/09 467,325
170,000 Republic of Turkey, 11.88%, 1/15/30 166,175
--------
861,200
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
5
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
<C> <C> <S> <C>
UNITED KINGDOM - 0.9%
GBP 450,000 United Kingdom Gilt, 6.75%, 11/26/04 $ 680,717
GBP 650,000 United Kingdom Gilt, 7.25%, 12/7/07 1,043,379
----------
1,724,096
----------
URUGUAY - 0.1%
220,000 Republic of Uruguay, 8.75%, 6/22/10 213,950
----------
VENEZUELA - 0.2%
357,140 Republic of Venezuela DCB, Series DL, 7.88%,
12/18/07(v) 299,105
250,000 Republic of Venezuela Par Bonds, Series W-A,
6.75%, 3/31/20 185,625
----------
484,730
----------
TOTAL SOVEREIGN GOVERNMENTS AND AGENCIES 41,087,917
----------
(Cost $43,346,797)
U.S. TREASURY SECURITIES - 1.1%
85,000 U.S. Treasury Bonds, 5.50%, 8/15/28(s) 79,926
1,700,000 U.S. Treasury Notes, 6.25%, 2/28/02(s) 1,701,054
150,000 U.S. Treasury Notes, 4.25%, 11/15/03(s) 143,226
160,000 U.S. Treasury Notes, 6.88%, 5/15/06(s) 167,650
100,000 U.S. Treasury Notes, 6.63%, 5/15/07 104,094
----------
TOTAL U.S. TREASURY SECURITIES 2,195,950
----------
(Cost $2,220,457)
RIGHTS(Z)
860,000 Mexico Value Recovery Rights, Expiring
6/30/03(+) -
----------
(Cost $0)
SHORT-TERM INVESTMENTS - 24.2%
INVESTMENT COMPANIES - 20.0%
39,509,398 J.P. Morgan Institutional Prime Money
Market Fund*(s) 39,509,398
-----------
TIME DEPOSITS - 4.0%
4,000,000 Deutsche Bank AG, 6.50%, 11/2/00 4,000,000
4,000,000 UBS AG London, 6.56%, 11/2/00 4,000,000
----------
8,000,000
----------
U.S. TREASURY SECURITIES - 0.2%
310,000 U.S. Treasury Bills, 6.19%, 3/22/01(y) 302,607
140,000 U.S. Treasury Notes, 5.63%, 11/30/00(s) 139,911
---------
442,518
---------
TOTAL SHORT-TERM INVESTMENTS 47,951,916
----------
(Cost $47,952,129)
TOTAL INVESTMENT SECURITIES - 100.0% $198,273,976
============
(Cost $204,484,231)
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
CONTRACTS SETTLEMENT SETTLEMENT UNREALIZED
TO BUY DATE VALUE VALUE APPRECIATION
<S> <C> <C> <C> <C> <C>
116,000 EUR 12/14/00 $ 96,415 $ 98,524 $2,109
159,000 EUR 12/14/00 133,662 135,046 1,384
------------------------------------------------
$230,077 $233,570 $3,493
================================================
UNREALIZED
CONTRACTS SETTLEMENT SETTLEMENT APPRECIATION
TO SELL DATE VALUE VALUE
(DECPRECIATION)
89,414,275 JPY 12/14/00 $ 827,910 $ 825,452 $ 2,458
231,000 EUR 12/14/00 192,354 196,198 (3,845)
782,506 CAD 12/14/00 518,216 512,889 5,327
9,760,198 DKK 12/14/00 1,105,095 1,113,317 (8,222)
5,686,011 SEK 12/14/00 562,971 569,534 (6,563)
1,145,588 GBP 12/14/00 1,658,531 1,665,022 (6,490)
21,111,288 EUR 12/14/00 17,858,039 17,930,737 (72,698)
-----------------------------------------------------------
$22,723,116 $22,813,149 $(90,033)
===========================================================
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION UNDERLYING FACE APPRECIATION
PURCHASED DATE AMOUNT AT VALUE (DEPRECIATION)
<C> <S> <C> <C> <C>
45 Eurex Ten Year
Euro Bond December 2000 $4,022,461 $8,280
53 U.S. Five-Year
Treasury Note December 2000 5,336,438 23,685
55 U.S. Five-Year
Treasury Note December 2000 5,491,406 (14,850)
5 U.S. Ten-Year
Treasury Note December 2000 503,516 (2,715)
-------------------------------------------
$15,353,821 $14,400
===========================================
EXPIRATION UNDERLYING FACE UNREALIZED
SOLD DATE AMOUNT AT VALUE DEPRECIATION
15 U.S. Five-Year
Treasury Note December 2000 $1,510,313 $(14,379)
142 U.S. Ten-Year
Treasury Note December 2000 14,299,844 (86,602)
--------------------------------------------
$15,810,157 $(100,981)
===========================================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
6
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<S> <C>
PERCENT OF FOREIGN BONDS % OF TOTAL INVESTMENTS
Australia 0.7%
Argentina 1.0%
Barbados 0.1%
Brazil 2.7%
Bulgaria 0.5%
Canada 1.6%
Cayman Islands 0.1%
Colombia 0.5%
Costa Rica 0.1%
Denmark 0.6%
France 5.1%
Germany 1.1%
Indonesia 0.1%
Italy 2.2%
Japan 0.4%
Mexico 1.2%
Morocco 0.2%
Netherlands 1.2%
Panama 0.3%
Peru 0.1%
Philippines 0.3%
Poland 0.1%
Qatar 0.2%
Russian Federation 1.1%
South Korea 0.2%
Sweden 0.3%
Trinidad & Tobago 0.4%
Turkey 0.4%
United Kingdom 2.8%
Uruguay 0.1%
Venezuela 0.2%
------------
25.9%
</TABLE>
C - Capitalization
CAD - Canadian Dollar
CSTR - Collateralized Strip Rate
DCB - Debt Conversion Bonds
DKK - Danish Krone
EUR - Euro
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
GBP - British Pound
GNMA - Government National Mortgage Association
IAB - Interest in Arrears Bond
IO - Interest Only
IRB - Interest Reduction Bonds
JPY - Japanese Yen
LIBOR - London Interbank Offered Rate
MTN - Medium Term Note
NMB - New Money Bond
NTL - Notional Principal
PDI - Past Due Interest
PO - Principal Only
resets - The frequency with which a security's coupon changes, based on current
market conditions or an underlying index.
SEK - Swedish Krona
SEQ - Sequential Payer
TBA - Securities purchased (sold) on a forward commitment basis with an
approximate principal amount and no definite maturity date. The actual principal
amount and maturity will be determined upon settlement.
VRN - Variable rate note. Interest rate date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
October 31, 2000.
144A - Securities restricted for resale to Qualified Institutional Buyers
u Denominated in USD unless otherwise indicated
* Money Market mutual fund registered under the Investment Act of 1940, as
amended, and advised by J.P. Morgan Investment Management, Inc.
(+) Non-income producing security
(d) Defaulted security
(f) Illiquid and fair valued security. Approximately $16,562,136 or 8.4% of the
market value of the securities have been valued at fair value. (See Note 1)
(s) Security is fully or partially segregated with custodian as collateral for
TBA and when issued securities or futures contracts or with brokers as initial
margin for futures contracts.
(v) Variable or floating rate instrument or instrument with step coupon rate
(y) Yield to maturity
(z) Category is less than 0.05% of total investment securities
The Accompanying Notes are an Integral Part of the Financial Statements.
7
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $164,974,833) $158,764,578
Investment in Affiliated Fund (Cost $39,509,398) 39,509,398
Cash 1,018,277
Foreign Currency at Value (Cost $210,172) 214,659
Receivable for Investments Sold 21,349,133
Dividend and Interest Receivable 2,343,019
Unrealized Appreciation of Forward Foreign Currency Contracts 11,278
Deferred Organization Expenses 6,691
Receivable for Expense Reimbursement 1,341
Prepaid Trustees' Fee 678
Prepaid Expenses and Other Assets 7,001
------------
TOTAL ASSETS 223,226,053
------------
LIABILITIES
Payable for Investments Purchased 51,648,090
Unrealized Depreciation of Forward Foreign Currency Contracts 97,818
Advisory Fee Payable 64,212
Administrative Services Fee Payable 3,416
Variation Margin Payable 1,346
Fund Services Fee Payable 113
Accrued Expenses 118,163
------------
TOTAL LIABILITIES 51,933,158
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $171,292,895
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000
INVESTMENT INCOME
INCOME
<TABLE>
<S> <C>
Interest Income (Net of Foreign Withholding Tax of $72) $12,024,042
Dividend Income from Affiliated Investments
(Includes reimbursement from
affiliate of $46,399) 1,452,305
Dividend Income 4,609
-----------
Investment Income 13,480,956
-----------
EXPENSES
Advisory Fee 757,567
Custodian Fees and Expenses 186,273
Professional Fees and Expenses 51,338
Administrative Services Fee 41,043
Printing Expenses 9,450
Amortization of Organization Expenses 4,865
Fund Services Fee 2,674
Trustees' Fees and Expenses 1,720
Administration Fee 1,120
Miscellaneous 1,169
----------
Total Expenses 1,057,219
Less: Reimbursement of Expenses (3,645)
----------
NET EXPENSES 1,053,574
----------
NET INVESTMENT INCOME 12,427,382
----------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON
Investment Transactions (7,163,359)
Futures Contracts 493,364
Foreign Currency Contracts and Transactions 3,930,315
-----------
Net Realized Loss (2,739,680)
-----------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON
Investment Transactions 2,002,895
Futures Contracts (157,312)
Foreign Currency Contracts and Translations (386,122)
----------
Net Change in Unrealized Appreciation 1,459,461
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $11,147,163
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31
<TABLE>
<S> <C> <C>
DECREASE IN NET ASSETS 2000 1999
FROM OPERATIONS
Net Investment Income $ 12,427,382 $ 16,042,565
Net Realized Loss on Investments,
Futures and Foreign Currency
Contracts and Transactions (2,739,680) (5,508,827)
Net Change in Unrealized Appreciation
(Depreciation) on Investments,
Futures and Foreign Currency Contracts and Translations 1,459,461 (4,818,228)
----------------- -------------------
Net Increase in Net Assets Resulting From Operations 11,147,163 5,715,510
----------------- -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 49,055,185 87,676,750
Withdrawals (81,599,283) (134,856,430)
----------------- -------------------
Net Decrease from Investors' Transactions (32,544,098) (47,179,680)
----------------- -------------------
Total Decrease in Net Assets (21,396,935) (41,464,170)
----------------- -------------------
NET ASSETS
Beginning of Year 192,689,830 234,154,000
----------------- -------------------
End of Year $171,292,895 $ 192,689,830
================= ===================
</TABLE>
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 17, 1997
(COMMENCEMENT OF
FOR THE YEARS ENDED OCTOBER 31 OPERATIONS) THROUGH
2000 1999 1998 OCTOBER 31, 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.63% 0.60% 0.63% 0.65%(a)
Net Investment Income 7.38% 6.73% 6.59% 7.09%(a)
Expenses without Reimbursement 0.63% 0.61% 0.63% 0.80%(a)
Portfolio Turnover 266% 318% 368% 212%(b)
</TABLE>
(a) Annualized
(b) Not annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
OCTOBER 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--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, diversified, 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 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.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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:
SECURITY VALUATIONS--Fixed Income Securities, (other than convertible
bonds), with a maturity of 60 days or more held by Funds other than money market
funds will be valued each day based on readily available market quotations
received from independent or affiliated commercial pricing services. Such
pricing services will generally provide bidside quotations. Convertible bonds
are valued at the last sale price on the primary exchange on which the bond is
principally traded. When valuations are not readily available, securities are
valued at fair value as determined 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 securities with a remaining maturity of sixty days or less are valued
using 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 when 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 adopted by the Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the
trade date. Realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date or as of the time that the relevant
ex-dividend and amount becomes known. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
ORGANIZATION EXPENSES--The Portfolio incurred organization expenses in the
amount of $23,505 which have been deferred and are being amortized on a
straight-line basis over a period not to exceed five years beginning with the
commencement of operations of the Portfolio.
FUTURES CONTRACTS--The Portfolio may enter into futures contracts in order
to hedge 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 and to manage exposure to changing
interest rates and securities prices. The risks of entering into futures
contracts include the possibility that the change in value of the contract may
not correlate with the changes in value of the underlying securities. Upon
entering into a futures contract, the Portfolio is required to deposit either
cash or securities in an amount equal to a certain percentage of the contract
value (initial margin). Subsequent payments (variation margin) are made or
received daily, in cash, by the Portfolio. The variation margin is equal to the
daily change in the contract value and is recorded as unrealized gain or loss.
The Portfolio will recognize a gain or loss when the contract is closed or
expires.
FOREIGN CURRENCY TRANSACTIONS--All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. Realized
and unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates and 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 from changes in
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities during the period.
11
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Portfolio may enter into
forward foreign currency exchange contracts to facilitate transactions of
securities denominated in a foreign currency or to manage the Portfolio's
exposure to foreign currency exchange fluctuations. The net U.S. dollar value
of foreign currency underlying all contractual commitments held by the Portfolio
and the resulting unrealized appreciation or depreciation are determined daily
using prevailing exchange rates. The Portfolio bears the risk of an unfavorable
change in the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
COMMITMENTS--The Portfolio may enter into commitments to buy and sell
investments to settle on future dates as part of their 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 securities 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.
RESTRICTED AND ILLIQUID SECURITIES--The Portfolio is permitted to invest in
securities that are subject to legal or contractual restrictions on resale or
are illiquid. Restricted securities generally may be resold in transactions
exempt from registration. A security may be considered illiquid if it lacks a
readily available market or if its valuation has not changed for a certain
period of time. Disposal of these securities may involve time-consuming
negotiations and expense, and prompt sale at the current valuation may be
difficult. At the end of the period, the Portfolio had no investments in
restricted securities and investments of $16,562,136, which represent 9.7% of
the Portfolio's net assets in illiquid securities.
INCOME TAX STATUS--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 provisions of the Internal
Revenue Code.
FOREIGN TAXES--The Portfolio may be subject to foreign taxes on income,
gains on investments or currency repatriation, a portion of which may be
recoverable. The Portfolio will accrue such taxes and recoveries as applicable,
based upon their current interpretation of tax rules and regulations that exist
in the markets in which they invest.
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
ADVISORY--The Portfolio has an Investment Advisory Agreement with J.P.
Morgan Investment Management, Inc. ("JPMIM"), an affiliate of Morgan Guaranty
Trust Company of New York ("Morgan") and a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the agreement, the
Portfolio pays JPMIM at an annual rate of 0.45% of the Portfolio's average
daily net assets.
The Portfolio may invest in one or more affiliated money market funds: J.P.
Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax
Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund
and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed
to reimburse its advisory fee from the Portfolio in an amount to offset any
investment advisory, administrative fee and shareholder servicing fees related
to a Portfolio investment in an affiliated money market fund.
ADMINISTRATIVE SERVICES--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 registered investment companies for which JPMIM
acts as investment advisor 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 Funds Distributor, Inc. 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 Trust and certain other investment
companies for which Morgan provides similar services.
Morgan has agreed to reimburse the Portfolio to the extent necessary to
maintain the total operating expenses (which excludes interest and dividend
expenses, taxes and extraordinary items) of the Portfolio at no more than 0.65%
of the average daily net assets of the Portfolio. This reim-
12
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
bursement arrangement can be changed or terminated at any time after February
28, 2001 at the option of Morgan.
ADMINISTRATION--The Portfolio has retained Funds Distributor, Inc. ("FDI"),
a registered broker-dealer, to serve as the co-administrator and distributor
for the Fund. 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 Portfolio's 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 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 Trust and certain other investment companies for which FDI
provides similar services.
FUND SERVICES--The Portfolio has a Fund Services Agreement with Pierpont
Group, Inc. ("PGI") 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 PGI.
Each Trustee receives an aggregate annual fee of $75,000 for serving on the
boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
and other registered investment companies in which they invest. The Trustees'
Fees and Expenses shown in the financial statements represent the Fund's
allocated portion of the total Trustees' fees and expenses. The Trust's Chairman
and Chief Executive Officer also serves as Chairman of PGI and receives
compensation and employee benefits from PGI. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown on the
Statement of Operations was $500.
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3. FEDERAL INCOME TAXES
As of October 31, 2000, accumulated net unrealized depreciation was
$6,361,818, based on the aggregate cost of investments for federal income tax
purposes of $204,635,794, which consisted of unrealized appreciation of
$1,456,439 and unrealized depreciation of $7,818,257.
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4. INVESTMENT TRANSACTIONS
During the year ended October 31, 2000, the Portfolio purchased $302,101,192
of investment securities and sold $310,619,034 of investment securities other
than U.S. government securities and short-term investments. Purchases and sales
of U.S. goverment securities were $97,905,619 and $119,066,065, respectively.
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5. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement (the
"Agreement") as discussed more fully in Note 5 of the Fund's Notes to the
Financial Statements which are included elsewhere in this report.
13
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
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6. CONCENTRATIONS OF CREDIT RISKS
The ability of the issuers of debt, asset-backed and mortgage-backed
securities to meet their obligations may be affected by the economic and
political developments in a specific industry or region. The value of
asset-backed and mortgage-backed securities can be significantly affected by
changes in interest rates or rapid principal payments including prepayments.
The Portfolio may have elements of risk not typically associated with
investments in the United States due to concentrated investments in a limited
number of countries or regions which may vary throughout the year. Such
concentrations may subject the Portfolio to additional risks resulting from
political or economic conditions in such countries or regions and the possible
imposition of adverse governmental laws or currency exchange restrictions could
cause the securities and their markets to be less liquid and their prices more
volatile than those of comparable U.S. securities.
As to illiquid investments, a Portfolio is subject to the risk that should
the Portfolio decide to sell them when a ready buyer is not available at a
price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected.
--------------------------------------------------------------------------------
7. SUBSEQUENT EVENTS
On September 13, 2000, J.P. Morgan & Co. Incorporated and The Chase
Manhattan Corporation announced that they have entered into an agreement and
plan of merger. The transaction is expected to close in December 2000 and is
subject to approval by shareholders of both companies.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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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, 2000, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the supplementary data for each of the three years in the
period then ended and for the period March 17, 1997 (commencement of operations)
through October 31, 1997, in conformity with accounting principles generally
accepted in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
December 21, 2000
15
NOTES
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16
<PAGE>
NOTES
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17
<PAGE>
NOTES
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18
<PAGE>
[back cover]
J.P. MORGAN FUNDS
Federal Money Market Fund
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Prime Money Market Fund
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Emerging Markets Debt
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Tax Aware Enhanced Income Fund:
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Tax Exempt Money Market Fund
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Short Term Bond Fund
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Bond Fund
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Global Strategic Income Fund
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Tax Exempt Bond Fund
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California Bond Fund:
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New York Tax Exempt Bond Fund
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Diversified Fund
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Disciplined Equity Fund
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Tax Aware U.S. Equity Fund:
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U.S. Equity Fund
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U.S. Small Company Fund
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U.S. Small Company Opportunities Fund
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Emerging Markets Equity Fund
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European Equity Fund
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International Equity Fund
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International Opportunities Fund
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Global 50 Fund:
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Global Healthcare Fund
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For more information on the J.P. Morgan
Funds, call J.P. Morgan Funds
Services at (800) 521-5411.
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Morgan Guaranty Trust Company MAILING
500 Stanton Christiana Road INFORMATION
Newark, Delaware 19713-2107
IN-ANN-23751 1000
