<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
December 1, 1999
Dear Shareholder:
Despite sharply rising interest rates worldwide, the J.P. Morgan Global
Strategic Income Fund delivered a positive total return of 2.26% for the 12
months ended October 31, 1999. The fund handily exceeded its benchmark, the
Lehman Brothers Aggregate Bond Index, although it underperformed the Lipper
Multi-Sector Income Funds Average.
The fund's net asset value declined to $9.40 per share from $9.77 per share
after paying an income dividend of nearly $0.59 per share over the 12-month
period. At the same time, the fund's 30-day SEC yield has increased to 6.81%
from 5.50% over the 12-month period.
Included in this report is an interview with Mark E. Smith, managing director,
who leads the portfolio management team. This interview is designed to reflect
what happened during the reporting period, as well as provide an outlook for the
months ahead.
As chairman and president of Asset Management Services, we thank you for
investing with J.P. Morgan. Should you have any comments or questions, please
telephone your Morgan representative or J.P. Morgan Funds Services at
800-521-5411.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS ........1 FUND FACTS AND HIGHLIGHTS .........5
FUND PERFORMANCE ..................2 FINANCIAL STATEMENTS ..............8
PORTFOLIO MANAGER Q&A .............3
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at the right shows that $10,000 invested on March 31, 1997,*
would have grown to $11,254 on October 31, 1999.
Another way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.
GROWTH OF $10,000 SINCE FUND INCEPTION*
MARCH 31, 1997 - OCTOBER 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
LEHMAN LIPPER MULTI- JPM GSI
AGGREGATE SECTOR INCOME FUND
<S> <C> <C> <C>
3/31/97 10,000 10,000 10,000
4/30/97 10,150 10,093 10,171
5/31/97 10,246 10,286 10,344
6/30/97 10,368 10,442 10,494
7/31/97 10,648 10,684 10,783
8/31/97 10,558 10,629 10,711
9/30/97 10,714 10,856 10,926
10/31/97 10,869 10,766 10,730
11/30/97 10,919 10,828 10,845
12/31/97 11,030 10,917 10,960
1/31/98 11,171 11,059 11,101
2/28/98 11,162 11,136 11,193
3/31/98 11,200 11,234 11,293
4/30/98 11,258 11,273 11,325
5/31/98 11,365 11,258 11,334
6/30/98 11,462 11,235 11,316
7/31/98 11,486 11,284 11,364
8/31/98 11,673 10,653 10,953
9/30/98 11,946 10,837 11,137
10/31/98 11,883 10,773 11,006
11/30/98 11,951 11,115 11,169
12/31/98 11,986 11,106 11,213
1/31/99 12,071 11,165 11,295
2/28/99 11,860 11,043 11,146
3/31/99 11,925 11,204 11,295
4/30/99 11,964 11,420 11,472
5/31/99 11,858 11,180 11,232
6/30/99 11,820 11,188 11,197
7/31/99 11,771 11,158 11,150
8/31/99 11,765 11,085 11,105
9/30/99 11,901 11,143 11,179
10/31/99 11,945 11,161 11,254
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------ -----------------------------------
THREE SIX ONE SINCE
AS OF OCTOBER 31, 1999 MONTHS MONTHS YEAR INCEPTION*
- ----------------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Global Strategic Income Fund 0.94% -1.90% 2.26% 4.68%
Lehman Brothers Aggregate Bond Index 1.48% -0.15% 0.53% 7.12%
Lipper Multi-Sector Income Average 0.04% -2.25% 3.55% 4.13%
AS OF SEPTEMBER 30, 1999
- ----------------------------------------------------------------------------- -----------------------------------
J.P. Morgan Global Strategic Income Fund -0.15% -1.03% 0.38% 4.56%
Lehman Brothers Aggregate Bond Index 0.68% -0.20% -0.37% 7.21%
Lipper Multi-Sector Income Average -0.40% -0.53% 2.79% 4.20%
</TABLE>
* THE FUND'S RETURNS INCLUDE HISTORICAL RETURNS OF THE J.P. MORGAN INSTITUTIONAL
GLOBAL STRATEGIC INCOME FUND, WHICH HAS A HIGHER EXPENSE RATIO, FROM MARCH 17,
1997 (THE INCEPTION DATE OF THE J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC
INCOME FUND), THROUGH NOVEMBER 5, 1997 (THE INCEPTION DATE OF THE J.P. MORGAN
GLOBAL STRATEGIC INCOME FUND). THE J.P. MORGAN GLOBAL STRATEGIC INCOME FUND'S
ANNUALIZED RETURN FROM MARCH 17, 1997 THROUGH OCTOBER 31, 1999 WAS 2.13%. FOR
PURPOSES OF COMPARISON, THE "SINCE INCEPTION" RETURNS ARE CALCULATED FROM MARCH
31, 1997, THE FIRST DATE WHEN DATA FOR THE J.P. MORGAN INSTITUTIONAL GLOBAL
STRATEGIC INCOME FUND, ITS BENCHMARK, AND ITS LIPPER CATEGORY WERE AVAILABLE..
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF
CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES
NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. THE LEHMAN BROTHERS
AGGREGATE BOND INDEX IS AN UNMANAGED INDEX WHICH MEASURES BOND MARKET
PERFORMANCE. THE INDEX DOES NOT INCLUDE FEES OR EXPENSES AND IS NOT AVAILABLE
FOR ACTUAL INVESTMENT. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR
MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with MARK E. SMITH, managing director, who leads the
portfolio management team. He heads the investment team responsible for J.P.
Morgan Investment Management's global extended markets and extended active fixed
income investment strategies. Prior to joining J.P. Morgan Investment in 1994,
Mark was with Allied Signal Inc. for ten years, where he was an internal fixed
income portfolio manager. For five years, he had similar responsibilities at
Armco Inc. Mark is a graduate of Ohio Northern University and holds an M.B.A.
from the University of Cincinnati. This interview was conducted on November 9,
1999, and reflects his views on that date.
ALTHOUGH THIS HAS BEEN A DIFFICULT YEAR FOR BOND HOLDERS, THE FUND OUTPERFORMED
ITS BENCHMARK BY A WIDE MARGIN IN THE 12 MONTHS ENDING OCTOBER 31. HOW DID YOU
DO IT?
MS: In the last 12 months, interest rates have risen worldwide. To understand
where we are, let's first review where we've been. Remember, a year ago there
was a great deal of volatility in the global bond market. Spreads widened
substantially after Russia decided unilaterally not to repay portions of its
debt. Dislocations in the financial markets in the wake of this caused extreme
pressure on hedge funds. As a result, yield spreads moved wider and many of our
extended market assets underperformed. At the same time, U.S. Treasuries
declined in yield and appreciated dramatically in price. You'll recall that
interest rates on long-term U.S. Treasuries hit a 30-year low at the time.
THIS BRINGS US TO LAST FALL, RIGHT?
MS: Right. Interest rates in general have risen in the last 12 months as
economic growth in the U.S. was so very strong that investors began to fear that
the Federal Reserve would tighten monetary policy by raising short-term interest
rates. The yield of 30-year U.S. Treasury bonds has risen by nearly a full
percentage point. As a result, the fixed income market on a total return basis
produced a very low return, about 0.5%, for the 12 months ended October 31.
WHAT HAPPENED IN THE EXTENDED MARKETS IN WHICH THE FUND INVESTS?
MS: They performed well. These markets became very cheap compared to U.S.
Treasuries during August and September of 1998. So we took that opportunity to
transfer a lot of our assets to the most attractive sectors. First we went to
the corporate market, then the high yield market, and finally we found value in
the emerging market debt market. We invested in assets that were priced cheaply
and have subsequently become more rationally priced. The result is that the fund
has delivered a return that far exceeds the broader fixed income market. These
are high excess returns compared to those that fixed income assets normally
generate.
3
<PAGE>
HOW HAS THE UPCOMING CHANGE OF THE CENTURY AFFECTED YOUR MARKET?
MS: As investors have focused on Y2K, they have been more inclined to purchase
the most liquid securities. So the yield spreads that were extraordinarily
attractive last year and then had narrowed early this year started to back off
again. From our vantage point, we see this as a continuing extraordinary
opportunity. So not only have we been able to generate a lot of excess return,
our markets have continued to provide a very attractive investment opportunity.
SO YOU FIND THIS MARKET ATTRACTIVE NOW?
MS: We're still able to invest in emerging market debt at yields approaching
1,000 basis points higher than U.S. Treasuries. The high yield market has
underperformed for the last couple months, so that has enabled us to make
investments yielding 400 to 500 basis points more than U.S. Treasuries. So we
see a great deal of opportunity in the market at the moment. We believe we are
continuing on a path which should provide strong relative returns for these
types of extended market fixed income investments.
DOES THIS MEAN THAT YOU BELIEVE INTEREST RATES HAVE PEAKED?
MS: No. The fund's strategy is designed to take advantage of relative value in
the global bond market, whether interest rates rise or fall. That said, we
believe the Fed continues on a path toward somewhat higher interest rates
because we think global forces will continue to push commodity prices up,
putting pressure on inflation in the United States. The Fed is going to be prone
to tighten monetary policy. That will push interest rates slightly higher, but
we don't think dramatically higher. As short-term interest rates rise we think
the longer maturity securities are likely to be pretty stable. A modest increase
in long-term rates is expected over the next six months.
WHICH SECTOR HAS PERFORMED BEST?
MS: The most volatile sector and the best performing sector over the past year
has been emerging markets. We were cautious as we reentered emerging market
debt. We probably could have gotten back into that sector more quickly. Our more
cautious return to the sector reflected our concern with the risk that remained.
Recently, we have been more aggressive moving into emerging market debt because
we foresee solid global economic growth that should support these economies very
well. Emerging markets debt continues to offer very attractive yield spreads and
we can build portfolios of both Latin American and European countries that have
significant return potential.
WHAT IS YOUR OUTLOOK?
MS: We're bullish on spreads. Relative to the broad fixed income market we are
very confident about the opportunity that Global Strategic Income offers.
Interest rates could rise somewhat, restraining this fund's performance in the
near future. Having said that, there will be no bell to tell us when to reenter
the fixed income market. From our standpoint, we think the relative
opportunities available today are very attractive for the long-term
investor.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Global Strategic Income Fund's investment objective is high total
return from a portfolio of fixed income securities of foreign and domestic
issuers. It is designed for investors who seek exposure to high-yielding,
international and emerging debt markets in their investment portfolios.The
portfolio's benchmark is the Lehman Brothers Aggregate Bond Index.
- ------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
11/5/97
- ------------------------------------------------------------------------------
FUND NET ASSETS AS OF 10/31/99
$9,073,227
- ------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 10/31/99
$192,689,830
- ------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE
MONTHLY
- ------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/20/99
EXPENSE RATIO
The fund's current expense ratio of 1.00% covers shareholders' expenses for
custody, tax reporting, investment advisory and shareholder services, after
reimbursement. The fund is no-load and does not charge any sales, redemption, or
exchange fees. There are no additional charges for buying, selling, or
safekeeping fund shares, or for wiring redemption proceeds from the fund.
FUND HIGHLIGHTS
ALL DATA AS OF OCTOBER 31, 1999
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- - CORPORATE OBLIGATIONS 30.0%
- - SOVEREIGN BONDS 15.7%
- - SHORT-TERM HOLDINGS 14.2%
- - U. S. GOVERNMENT
AGENCY OBLIGATIONS 10.7%
- - GMOS AND ASSET-BACKED
SECURITIES 8.8%
- - PRIVATE PLACEMENT -
REAL ESTATE 8.5%
- - FOREIGN GOVERNMENT
OBLIGATIONS 8.3%
- - U. S. GOVERNMENT TREASURY
OBLIGATIONS 3.4%
- - CONVERTIBLE BONDS 0.4%
30-DAY SEC YIELD
6.81%*
DURATION
4.8 years
*YIELD REFLECTS REIMBURSEMENT OF EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD
EXPENSES NOT BEEN SUBSIDIZED, THE 30-DAY SEC YIELD WOULD HAVE BEEN LOWER.
5
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE
NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE
PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL
COST.
Opinions expressed herein are based on current market conditions and are subject
to change without notice. The fund invests through a master portfolio (another
fund with the same objective). The fund invests in below investment-grade debt
obligations and foreign securities which are subject to special risks;
prospective investors should refer to the funds prospectus for a discussion of
these risks.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
6
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Global Strategic Income
Portfolio ("Portfolio"), at value $9,122,263
Deferred Organization Expenses 19,777
Receivable for Expense Reimbursements 735
Receivable for Shares of Beneficial Interest Sold 359
Prepaid Expenses and Other Assets 53
----------
Total Assets 9,143,187
----------
LIABILITIES
Dividends Payable to Shareholders 16,093
Payable for Shares of Beneficial Interest
Redeemed 10,000
Shareholder Servicing Fee Payable 1,914
Administrative Services Fee Payable 193
Accrued Trustees' Fees and Expenses 30
Administration Fee Payable 10
Fund Services Fee Payable 5
Accrued Expenses 41,715
----------
Total Liabilities 69,960
----------
NET ASSETS
Applicable to 965,169 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $9,073,227
==========
Net Asset Value, Offering and Redemption Price
Per Share $9.40
==========
ANALYSIS OF NET ASSETS
Paid-in Capital $9,971,141
Undistributed Net Investment Income 61,498
Accumulated Net Realized Loss on Investment (648,353)
Net Unrealized Depreciation of Investment (311,059)
----------
Net Assets $9,073,227
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest and Dividend Income $730,313
Allocated Portfolio Expenses (Net of
Reimbursement of $1,000) (59,992)
--------
Net Investment Income Allocated from
Portfolio 670,321
FUND EXPENSES
Shareholder Servicing Fee $24,786
Transfer Agent Fees 23,851
Professional Fees 11,343
Printing Expenses 8,668
Registration Fees 8,340
Amortization of Organization Expenses 6,556
Administrative Services Fee 2,579
Fund Services Fee 213
Administration Fee 149
Trustees' Fees and Expenses 149
Miscellaneous 4,836
-------
Total Fund Expenses 91,470
Less: Reimbursement of Expenses (51,071)
-------
NET FUND EXPENSES 40,399
--------
NET INVESTMENT INCOME 629,922
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (204,533)
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (182,264)
--------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $243,125
========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 5, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 629,922 $ 532,105
Net Realized Loss on Investment Allocated from
Portfolio (204,533) (430,958)
Net Change in Unrealized Depreciation of
Investment Allocated from Portfolio (182,264) (128,795)
--------------- ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 243,125 (27,648)
--------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (600,679) (516,382)
Return of Capital -- (21,768)
--------------- ------------------
Total Distributions to Shareholders (600,679) (538,150)
--------------- ------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 4,089,641 15,145,996
Reinvestment of Dividends 445,558 381,622
Cost of Shares of Beneficial Interest Redeemed (5,270,738) (4,795,500)
--------------- ------------------
Net Increase (Decrease) from Transactions in
Shares of Beneficial Interest (735,539) 10,732,118
--------------- ------------------
Total Increase (Decrease) in Net Assets (1,093,093) 10,166,320
NET ASSETS
Beginning of Period 10,166,320 --
--------------- ------------------
End of Period (including undistributed net
investment income of $61,498 and $54,229,
respectively) $ 9,073,227 $ 10,166,320
=============== ==================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 5, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.77 $ 10.21
--------------- ------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.60 0.70
Net Realized and Unrealized Loss on Investment
Allocated from Portfolio (0.38) (0.49)
--------------- ------------------
Total from Investment Operations 0.22 0.21
--------------- ------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.59) (0.63)
Return of Capital -- (0.02)
--------------- ------------------
Total Distributions to Shareholders (0.59) (0.65)
--------------- ------------------
NET ASSET VALUE, END OF PERIOD $ 9.40 $ 9.77
=============== ==================
RATIOS AND SUPPLEMENTAL DATA
Total Return 2.26% 1.97%(a)
Net Assets, End of Period (in thousands) $ 9,073 $ 10,166
Ratio to Average Net Assets
Net Expenses 1.00% 1.00%(b)
Net Investment Income 6.35% 6.24%(b)
Expenses without Reimbursement 1.54% 1.89%(b)
</TABLE>
- ------------------------
(a) Not Annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Global Strategic Income Fund (the "fund") is a separate series of
J.P. Morgan Funds, a Massachusetts business trust (the "trust") which was
organized on November 4, 1992. The trust is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The fund commenced operations on November 5, 1997.
The fund invests all of its investable assets in The Global Strategic Income
Portfolio (the "portfolio"), a no-load, diversified, open-end management
investment company having the same investment objective as the fund. The value
of such investment included in the Statement of Assets and Liabilities reflects
the fund's proportionate interest in the net assets of the portfolio (5% at
October 31, 1999). The performance of the fund is directly affected by the
performance of the portfolio. The financial statements of the portfolio,
including the Schedule of Investments, are included elsewhere in this report and
should be read in conjunction with the fund's financial statements.
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 fund:
a) Valuation of securities by the portfolio is discussed in Note 1a of the
portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the portfolio each
day. All net investment income and realized and unrealized gain and loss
of the portfolio is allocated pro rata among the fund and other investors
in the portfolio at the time of such determination.
c) Substantially all the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of
realized net capital gains, if any, are declared and paid annually.
d) The portfolio incurred organization expenses in the amount of $32,800.
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.
e) Expenses incurred by the trust with respect to any two or more funds in
the trust are allocated in proportion to the net assets of each fund in
the trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
f) The fund is treated as a separate entity for federal income tax purposes
and intends to comply with the provisions of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and to
distribute substantially all of its income, including net realized capital
gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
g) The fund accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital
12
<PAGE>
J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Gain, and Return of Capital Distributions by Investment Companies." The
effect of applying this statement was to decrease Undistributed Net
Investment Income by $21,974, decrease Accumulated Net Realized Loss on
Investment by $19,177 and increase Paid-in Capital by $2,797. The
adjustments are primarily attributable to foreign currency reclasses. Net
investment income, net realized gains and net assets were not affected by
this change.
h) For federal income tax purposes, the fund had a capital loss carryforward
at October 31, 1999 of $624,674, of which $446,636 expires in the year
2006 and $178,038 expires in the year 2007. To the extent that this
capital loss is used to offset future capital gains, it is probable that
gains so offset will not be distributed to shareholders.
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, 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 trust, on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on ratio of the fund's net assets to
the aggregate net assets of the trust and certain other investment
companies subject to similar agreements with FDI. For the fiscal year
ended October 31, 1999, the fee for these services amounted to $149.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co., Incorporated
("J.P. Morgan"), under which Morgan is responsible for certain aspects of
the administration and operation of the fund. Under the Services
Agreement, the fund 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 the other
portfolios in which the trust and J.P. Morgan Institutional Funds invest
(the "master portfolios") and J.P. Morgan 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 fund is
determined by the proportionate share that its net assets bear to the net
assets of the trust, 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, 1999, the fee for
these services amounted to $2,579.
In addition, J.P. Morgan has agreed to reimburse the fund to the extent
necessary to maintain the total operating expenses of the fund, including
the expenses allocated to the fund from the portfolio, at no more than
1.00% of the average daily net assets of the fund through February 28,
2001. This
13
<PAGE>
J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
reimbursement arrangement can be changed or terminated at any time after
February 28, 2001 at the option of J.P. Morgan. For the fiscal year ended
October 31, 1999, J.P. Morgan has agreed to reimburse the fund $52,071 for
expenses under this agreement.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance service to fund shareholders. The agreement provides for the
fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.25% of the average daily net assets of
the fund. For the fiscal year ended October 31, 1999, the fee for these
services amounted to $24,786.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the services agreement with Schwab is
terminated for reasons other than a breach by Schwab and the relationship
between the trust and Morgan is terminated, the fund would be responsible
for the ongoing payments to Schwab with respect to pre-termination shares.
d) The trust, on behalf of the fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the trustees in exercising their
overall supervisory responsibilities for the trust's affairs. The trustees
of the trust represent all the existing shareholders of Group. The fund's
allocated portion of Group's costs in performing its services amounted to
$213 for the fiscal year ended October 31, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, 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 fund's allocated portion
of the total fees and expenses. The trust'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 $50.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the fund were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 5, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- -------------------
<S> <C> <C>
Shares sold...................................... 418,022 1,474,932
Reinvestment of dividends and distributions...... 46,169 37,526
Shares redeemed.................................. (540,109) (471,371)
--------------- ------------------
Net Increase (Decrease).......................... (75,918) 1,041,087
=============== ==================
</TABLE>
14
<PAGE>
J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
From time to time, the fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the fund and portfolio.
4. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 27, 1998, with unaffiliated lenders. Additionally, since all
of the investable assets of the fund are in the portfolio, the portfolio is
party to certain covenants of the Agreement. The Agreement expired on May 26,
1999, however, the fund as party to the Agreement has renewed the Agreement and
will continue its participation therein for an additional 364 days until
May 23, 2000. The maximum borrowing under the Agreement is $150,000,000. The
purpose of the Agreement is to provide another alternative for settling large
fund shareholder redemptions. Interest on any such borrowings outstanding will
approximate market rates. The funds pay a commitment fee at an annual rate of
0.085% (0.065% prior to May 26, 1999) on the unused portion of the committed
amount. This is allocated to the funds in accordance with procedures established
by their respective trustees. There were no outstanding borrowings pursuant to
the Agreement at October 31, 1999.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Global Strategic Income Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
J.P. Morgan Global Strategic Income Fund (one of the series constituting part of
the J.P. Morgan Funds, hereafter referred to as the "fund") at October 31, 1999,
the results of its operations for the year then ended, the changes in its net
assets and the financial highlights for the year then and the period
November 5, 1997 (commencement of operations) through October 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the fund'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 provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
16
<PAGE>
The Global Strategic Income Portfolio
Annual Report October 31, 1999
(The following pages should be read in conjunction
with J.P. Morgan Global Strategic Income Fund
Annual Financial Statements)
17
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (9.6%)
FINANCIAL SERVICES (9.6%)
$ 1,750,000 Blackrock Capital Finance L.P., Subordinated
Bond, CSTR, Series 1997-C1, Class E , 8.480%
due 10/25/26 (s)............................... NR/NR $ 1,461,198
13,635,344 CS First Boston Mortgage Securities Corp,
REMIC:IO, CSTR, NTL, Series 1997-2, Class X,
(144A), 1.030% due 06/25/20 (v)................ NR/NR 251,402
608,560 DLJ Mortgage Acceptance Corp., CSTR,
Series 1997-D, (144A), 8.198% due 07/28/27
(v)............................................ NR/NR 594,202
3,529,056 Federal National Mortgage Association, PO,
Series 1994-53, Class G, Zero Coupon, 2.086%
(y) due 11/25/23 (s)........................... NR/NR 2,141,678
2,000,000 First Chicago/Lennar Trust, CSTR,
Series 1997-CHL1, Class D, (144A), 8.110%
due 05/29/08 (v)(s)............................ NR/NR 1,605,000
2,500,000 Green Tree Financial Corp, Subordinated Bond,
Series 1999-2, Class B1 , 8.410%
due 12/01/30................................... NR/BBB+ 2,301,550
2,000,000 Green Tree Financial Corp, Subordinated Bond,
Series 1999-3, Class B1 , 8.370%
due 02/01/31................................... NR/BBB+ 1,845,625
159,255 Home Mac Mortgage Securities Corp.,
Series 1985-1, secured by GNMA, 11.375%
due 08/01/15................................... NR/NR 158,658
1,066,579 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2,
Class E, (144A), 7.878% due 06/15/21 (v)....... Ba2/NR 975,086
2,000,000 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
7.120% due 06/18/29 (s)........................ NR/BB 1,369,688
1,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, CSTR, Series 1997-RR, Class D, (144A),
7.748% due 04/30/39 (v)........................ NR/NR 685,937
2,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-C1, Class F, (144A) , 6.850%
due 02/15/20 (s)............................... Ba2/NR 1,502,188
435,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-HF1, Class F, (144A), 6.860%
due 02/15/10 (s)............................... NR/NR 337,465
1,570,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-HF1, Class G, (144A), 6.860%
due 05/15/11 (s)............................... NR/NR 1,069,808
1,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-XL1, Class G, (144A), 7.695%
due 10/03/30................................... Ba3/BB 820,781
1,440,000 Nomura Asset Securities Corp., Sequential Payer,
Series 1998-D6, Class A1B, 6.590%
due 03/17/28 (s)............................... Aaa/AAA 1,367,100
58,227 Salomon Brothers Mortgage Securities V, Inc.,
Series 1985-1, secured by GNMA, 12.000%
due 04/01/15................................... NR/NR 58,299
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES
(COST $21,372,454)......................... 18,545,665
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
CONVERTIBLE BONDS (0.4%)
RETAIL (0.4%)
$ 850,000 Corporate Express, Inc., 4.500% due 07/01/00
(cost $812,416)................................ B3/B- $ 842,562
------------
CORPORATE OBLIGATIONS (26.1%)
AEROSPACE (1.2%)
1,750,000 Northrop-Grumman Corp., 9.375% due 10/15/24
(s)............................................ Baa3/BBB- 1,858,325
500,000 Truserv Corp., 6.850% due 07/01/08 (f)........... NR/NR 484,415
------------
2,342,740
------------
AGRICULTURE (0.2%)
500,000 Scotts Co., (144A), 8.625% due 01/15/09.......... B2/B+ 472,500
------------
APPARELS & TEXTILES (0.7%)
120,000 Collins & Aikman Products Co., 11.500%
due 04/15/06................................... B2/B 114,600
800,000 Fruit of the Loom, Inc., 6.500% due 11/15/03..... B2/B- 440,000
1,000,000 Pillowtex Corp., Series B, 9.000%
due 12/15/07................................... Ca/CCC+ 350,000
500,000 Polymer Group, Inc., Series B, 9.000%
due 07/01/07................................... B2/B 477,500
------------
1,382,100
------------
AUTOMOTIVE SUPPLIES (0.4%)
700,000 Dura Operating Corp., Series B, 9.000%
due 05/01/09................................... B2/B 649,250
100,000 Federal-Mogul Corp., 7.500% due 01/15/09......... Ba2/BB+ 89,592
------------
738,842
------------
BANKING (0.4%)
750,000 First Union Corp., 8.125% due 06/24/02 (s)....... A2/A- 773,760
------------
BROADCASTING & PUBLISHING (2.0%)
400,000 American Media Operation, Inc., 10.250%
due 05/01/09................................... B2/B- 389,000
700,000 AMFM, Inc., 9.250% due 07/01/07 (s).............. B1/B 726,250
400,000 AMFM, Inc., Series B, 8.750% due 06/15/07........ B1/B 396,000
500,000 Echostar DBS Corp., 9.375% due 02/01/09 (s)...... B2/B 495,000
600,000 Emmis Communications Corp., Series B, 8.125%
due 03/15/09................................... B2/B- 568,500
500,000 Fox Family Worldwide, Inc., 9.250%
due 11/01/07................................... B1/B 461,250
800,000 TV Guide, Inc., 8.125% due 03/01/09.............. Ba3/B+ 786,000
------------
3,822,000
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
CHEMICALS (0.9%)
$ 750,000 Cytec Industries, Inc., 6.500% due 03/15/03...... Baa2/BBB $ 711,652
600,000 Huntsman ICI Chemicals, (144A), 10.125%
due 07/01/09................................... B2/B+ 594,000
500,000 Lyondell Chemical Corp., Series A, 9.625%
due 05/01/07................................... Ba3/BB 501,250
------------
1,806,902
------------
COMPUTER SOFTWARE (0.3%)
500,000 PSINet, Inc., Series B, 10.000% due 02/15/05..... B3/B- 491,250
------------
ELECTRIC (0.4%)
500,000 Calpine Corp., 7.875% due 04/01/08............... Ba1/BB+ 471,250
400,000 CMS Energy Corp., Series B, 6.750%
due 01/15/04................................... Ba3/BB 379,608
------------
850,858
------------
ELECTRONICS (0.2%)
355,000 Protection One Alarm Monitoring, Inc., 7.375%
due 08/15/05................................... Ba3/BB 213,000
700,000 Protection One Alarm Monitoring, Inc., (144A),
8.125% due 01/15/09............................ B2/B+ 196,000
------------
409,000
------------
ENERGY SOURCE (0.2%)
400,000 Cogentrix Energy, Inc., 8.750% due 10/15/08...... Ba1/BB+ 382,000
------------
ENTERTAINMENT, LEISURE & MEDIA (1.6%)
700,000 Ackerly Group, Inc., Series B, 9.000%
due 01/15/09................................... B2/B 670,250
500,000 CSC Holdings, Inc., 10.500% due 05/15/16......... B1/BB- 545,000
750,000 Destination Film Funding Corp., (144A), 6.250%
due 10/15/03................................... NR/AA- 705,765
450,000 Lamar Media Corp., 8.625% due 09/15/07........... B1/B 432,000
700,000 Premier Parks, Inc., 11.313% (y) due 04/01/08
(v)............................................ B3/B- 456,750
200,000 Time Warner Telecom LLC, 9.750% due 07/15/08..... B2/B 204,000
------------
3,013,765
------------
FINANCIAL SERVICES (3.5%)
325,000 Enterprise Rent-a-Car USA Finance Co., MTN,
(144A), 9.125% due 12/15/04.................... Baa2/BBB+ 351,117
750,000 Ford Holdings, Inc., 9.300% due 03/01/30 (s)..... A1/A 883,432
1,000,000 Ford Motor Credit Co., 7.375% due 10/28/09....... A1/A 1,008,060
635,000 Household Finance Corp., 6.500% due 11/15/08..... A2/A 599,002
750,000 Provident Financing Trust I, 7.405%
due 03/15/38................................... A2/BBB+ 634,050
695,000 Prudential Insurance Co., (144A), 6.375%
due 07/23/06................................... A2/A+ 654,252
750,000 Sears Roebuck Acceptance Corp., 6.750%
due 09/15/05................................... A2/A- 717,570
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 700,000 Sun World International, Inc., Series B, 11.250%
due 04/15/04................................... B2/B $ 700,000
450,000 Termoemcali Funding Corp., (144A), 10.125%
due 12/15/14................................... NR/BB 301,446
1,000,000 Wells Fargo Co., Series H, MTN, 6.750%
due 10/01/06 (s)............................... Aa3/A+ 981,700
------------
6,830,629
------------
FOOD, BEVERAGES & TOBACCO (0.2%)
500,000 Aurora Foods, Inc., Series B, 8.750%
due 07/01/08................................... B1/B+ 475,000
------------
HEALTH SERVICES (0.6%)
200,000 Genesis Health Ventures, Inc., 9.250%
due 10/01/06................................... Caa1/CCC+ 76,000
700,000 Mariner Post-Acute Network, Inc., Series B,
9.500% due 04/01/06 {/\}....................... C/D 14,000
750,000 McKesson HBOC, Inc., 6.400% due 03/01/08......... Baa1/BBB+ 642,412
500,000 Triad Hospitals Holdings, Inc. (144A), 11.000%
due 05/15/09................................... B3/B- 491,250
------------
1,223,662
------------
INFORMATION PROCESSING (0.4%)
700,000 Verio, Inc., 11.250% due 12/01/08................ B3/B- 721,000
------------
MACHINERY (0.5%)
1,000,000 Caterpillar, Inc., 7.250% due 09/15/09........... A2/A+ 1,000,165
------------
MANUFACTURING (0.6%)
1,100,000 Falcon Holding Group L.P., Series B, 8.197% (y)
due 04/15/10 (v)............................... B2/B 783,750
300,000 Globe Manufacturing Corp., Series B, 10.000%
due 08/01/08................................... Caa1/B- 195,000
200,000 Wheeling Pittsburgh Corp., 9.250%
due 11/15/07................................... B2/B+ 184,500
------------
1,163,250
------------
MEDICAL SUPPLIES (0.6%)
750,000 Boston Scientific Corp., 6.625% due 03/15/05..... Baa3/BBB 687,382
500,000 Sunrise Medical, Inc., 7.090% due 10/28/04 (f)... NR/NR 372,335
------------
1,059,717
------------
METALS & MINING (1.2%)
153,846 P&L Coal Holdings Corp., 7.688% due 06/04/06
(v)............................................ NR/NR 153,077
400,000 P&L Coal Holdings Corp., Series B, 9.625%
due 05/15/08................................... B2/B 382,000
307,692 P&L Coal Holdings Corp., Tranche 3, 8.125%
due 06/04/06 (v)............................... NR/NR 306,154
600,000 Ryerson Tull, Inc., 8.500% due 07/15/01.......... Baa3/BBB 594,000
100,000 Ryerson Tull, Inc., 9.125% due 07/15/06.......... Baa3/BBB 98,000
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
METALS & MINING (CONTINUED)
$ 200,000 WHX Corp., 10.500% due 04/15/05.................. B3/B- $ 188,500
500,000 Wyman-Gordon Co., 8.000% due 12/15/07 (s)........ Ba2/NR 520,000
------------
2,241,731
------------
NATURAL GAS (0.8%)
750,000 Ferrellgas Partners, L.P., Series A, 6.990%
due 08/01/05 (f)............................... NR/NR 708,982
750,000 Williams Companies, Inc., 6.200% due 08/01/02.... Baa2/BBB- 735,067
------------
1,444,049
------------
OIL-PRODUCTION (0.8%)
300,000 Ocean Energy, Inc., Series B, 8.875%
due 07/15/07................................... Ba3/BB- 297,000
500,000 Plains Resources, Inc., Series B, 10.250%
due 03/15/06................................... B2/B 502,500
300,000 Pogo Producing Co., Series B, 10.375%
due 02/15/09................................... B2/B+ 309,000
450,000 Range Resources Corp., 8.750% due 01/15/07....... B2/B 405,000
------------
1,513,500
------------
OIL-SERVICES (0.9%)
500,000 Lasmo (USA), Inc., 7.500% due 06/30/06........... Baa2/BBB 489,830
1,000,000 Newpark Resources, Inc., Series B, 8.625%
due 12/15/07................................... B2/B+ 930,000
348,290 Oil Purchase Co., (144A), 7.100% due 04/30/02.... Ba2/BBB- 325,651
------------
1,745,481
------------
PACKAGING & CONTAINERS (0.5%)
500,000 Riverwood International Corp., 10.625%
due 08/01/07................................... B3/B- 511,250
500,000 Stone Container Corp., 12.250% due 04/01/02
(v)............................................ B3/B- 501,250
------------
1,012,500
------------
POLLUTION CONTROL (0.2%)
500,000 Allied Waste North America, Inc., (144A), 10.000%
due 08/01/09................................... B2/B+ 426,250
------------
RETAIL (0.2%)
500,000 Corning Consumer Products Co., Series B, 9.625%
due 05/01/08................................... B3/B 396,250
------------
TELECOMMUNICATIONS (3.6%)
750,000 Adelphia Communications, Inc., Series B, 8.125%
due 07/15/03 (s)............................... B1/NR 720,000
750,000 Alaska Communications Systems, (144A), 9.375%
due 05/15/09................................... B3/B+ 718,125
800,000 Bresnan Communications, Series B, 9.446% (y)
due 02/01/09 (v)............................... B2/B+ 536,000
300,000 Charter Communications Holdings LLC, 8.250%
due 04/01/07................................... B2/B+ 285,000
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
$ 400,000 Charter Communications Holdings LLC, 11.220% (y)
due 04/01/11 (v)............................... B2/B+ $ 240,000
650,000 Crown Castle Int'l Corp., 11.069% (y)
due 05/15/11 (v)............................... B3/B 385,937
200,000 Intermedia Communications, Inc., Series B, 8.500%
due 01/15/08................................... B2/B 176,000
200,000 Intermedia Communications, Inc., Series B, 9.500%
due 03/01/09................................... B2/B 185,000
300,000 Level 3 Communications, 9.125% due 05/01/08...... B3/B 279,000
325,000 McLeodUSA, Inc., 9.500% due 11/01/08............. B1/B+ 324,187
700,000 Metromedia Fiber Network, Inc., Series B, 10.000%
due 11/15/08................................... B2/B+ 686,000
500,000 NEXTEL Communications, Inc., 10.273% (y)
due 02/15/08 (v)............................... B1/B- 355,000
300,000 NEXTLINK Communications, 10.750% due 11/15/08.... B2/B 303,750
100,000 NEXTLINK Communications, 12.500% due 04/15/06.... B2/B 106,250
500,000 NTL Communications Corp., Series B, 11.500%
due 10/01/08................................... B3/B- 537,500
450,000 RCN Corp., 10.000% due 10/15/07.................. B3/B- 446,625
400,000 RCN Corp., Series B, 11.851% (y) due 02/15/08
(v)............................................ B3/B- 253,000
600,000 Tritel PCS, Inc., (144A) 5.424% (y) due 05/15/09
(v)............................................ B3/NR 360,000
------------
6,897,374
------------
TELEPHONE (1.4%)
2,000,000 GTE North, Inc., Series H, 5.650%
due 11/15/08................................... A2/AA- 1,804,940
300,000 ITC Deltacom, Inc., 8.875% due 03/01/08.......... B2/B 287,250
200,000 ITC Deltacom, Inc., 9.750% due 11/15/08.......... B2/B 200,000
440,000 Viatel, Inc., 11.250% due 04/15/08............... B3/B- 415,800
------------
2,707,990
------------
TRANSPORTATION (0.4%)
750,000 Atlantic Express Transportation Corp., 10.750%
due 02/01/04................................... B2/B 718,125
------------
UTILITIES (1.2%)
750,000 Kincaid Generation LLC, (144A), 7.330%
due 06/15/20................................... Baa3/BBB- 672,472
1,000,000 Southern Co. Capital Trust I, 8.190%
due 02/01/37................................... A3/BBB+ 952,200
750,000 Texas Utilities Co., 5.940% due 10/15/11 (v)..... Baa3/BBB 738,056
------------
2,362,728
------------
TOTAL CORPORATE OBLIGATIONS
(COST $55,429,635)......................... 50,425,118
------------
FOREIGN CORPORATE OBLIGATIONS (6.9%)
AUSTRALIA (0.3%)
BANKING
300,000 National Australia Bank Ltd., 6.600%
due 12/10/07................................... A1/AA- 286,029
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES
$ 450,000 St. George Funding Co., (144A), 8.485%
due 12/31/49 (v)(s)............................ Baa1/BBB+ $ 381,780
------------
667,809
------------
BERMUDA (0.2%)
TELEPHONE
500,000 Flag Ltd., 8.250% due 01/30/08................... Ba3/B+ 442,500
------------
CANADA (3.1%)
FOREST PRODUCTS & PAPER
600,000 Tembec Industries, Inc., 8.625% due 06/30/09..... Ba3/BB+ 585,000
------------
OIL PRODUCTION
750,000 Canadian Occidental Petroleum, 7.400%
due 05/01/28................................... Baa2/BBB 685,042
------------
TELECOMMUNICATION EQUIPMENT
250,000 Rogers Cantel, Inc., 8.300% due 10/01/07......... Ba3/BB+ 250,625
------------
TELECOMMUNICATIONS
465,000 Clearnet Communications, Inc., 10.791% (y)
due 12/15/05 (v)............................... B3/B 441,750
500,000 Rogers Cablesystems Ltd., 10.000%
due 12/01/07................................... Ba3/BB+ 531,250
500,000 Worldwide Fiber, Inc., 12.500% due 12/15/05...... B3/B 510,000
------------
1,483,000
------------
TELEPHONE
600,000 Call-Net Enterprises, Inc., 11.870% (y)
due 08/15/07 (v)............................... B2/B+ 393,000
510,000 Microcell Telecommunications, Inc., Series B,
11.999% (y) due 06/01/06 (v)................... B3/NR 419,475
------------
812,475
------------
TRANSPORT & SERVICES
500,000 Laidlaw, Inc., 6.720% due 10/01/27............... Baa3/BBB 432,140
700,000 Teekay Shipping Corp., 8.320% due 02/01/08....... Ba2/BB+ 609,000
------------
1,041,140
------------
WATER
1,000,000 Hydro-Quebec, Series HE, 8.625% due 06/15/29..... A2/A+ 1,118,870
------------
5,976,152
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
CHILE (0.1%)
BUILDING MATERIALS
$ 300,000 Celulosa Arauco Y Constitucion, 7.500%
due 09/15/17................................... Baa2/BBB+ $ 241,110
------------
COLOMBIA (0.1%)
FINANCIAL SERVICES
40,000 Financiera Energetica Nacional, 9.375%
due 06/15/06................................... NR/BB+ 33,200
185,000 Financiera Energetica Nacional, (144A), 9.375%
due 06/15/06................................... NR/BB+ 153,550
------------
186,750
------------
INDONESIA (0.1%)
DIVERSIFIED MANUFACTURING
100,000 Reliance Industries Ltd., (144A), 8.250%
due 01/15/27................................... Ba2/BB 91,563
100,000 Reliance Industries Ltd., (144A), 10.375%
due 06/24/16................................... Ba2/BB 92,225
------------
183,788
------------
MALAYSIA (0.5%)
OIL PRODUCTION
250,000 Petroliam Nasional Berhad, 7.625%
due 10/15/26................................... Baa3/BBB 211,525
200,000 Petroliam Nasional Berhad, (144A), 7.625%
due 10/15/26................................... Baa3/BBB 165,376
400,000 Petroliam Nasional Berhad, (144A), 7.750%
due 08/15/15 (s)............................... Baa3/BBB 354,120
------------
731,021
------------
UTILITIES
200,000 Tenaga Nasional Berhad, (144A), 7.625%
due 04/29/07................................... Baa3/BBB 185,920
------------
916,941
------------
MEXICO (0.2%)
BROADCASTING & PUBLISHING
350,000 Grupo Televisa SA, 11.320% (y) due 05/15/08
(v)............................................ Ba2/BB 301,000
100,000 TV Azteca SA de CV, Series B, 10.500%
due 02/15/07................................... B1/B+ 79,250
------------
380,250
------------
NETHERLANDS (0.4%)
FINANCIAL SERVICES
300,000 TPSA Finance BV, (144A), 7.750% due 12/10/08
(s)............................................ Baa3/BBB 286,790
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TELECOMMUNICATIONS
$ 400,000 United Pan-Europe Communications, (144A), 10.875%
due 11/01/07................................... B2/B- $ 405,000
------------
691,790
------------
PHILIPPINES (0.3%)
TELECOMMUNICATIONS
250,000 Globe Telecom, (144A), 13.000% due 08/01/09...... B1/B 264,375
------------
UTILITIES
300,000 National Power Corp., 9.625% due 05/15/28........ Ba1/BB+ 252,000
------------
WATER
50,000 Ce Casecnan Water & Energy, Inc., Series B,
11.950% due 11/15/10........................... Ba2/BB+ 46,782
------------
563,157
------------
RUSSIA (0.0%)
TELEPHONE
200,000 AO Rostelecom Loan Participation, 9.094%
due 02/15/00 (v)............................... NR/NR 60,000
------------
SOUTH KOREA (0.1%)
BANKING
150,000 Export-Import Bank Korea, 6.500% due 02/10/02.... Baa3/BBB 145,108
------------
SWEDEN (0.4%)
TRANSPORTATION
800,000 Stena AB, 8.750% due 06/15/07.................... Ba2/BB 710,000
------------
THAILAND (0.1%)
TELECOMMUNICATIONS
200,000 Total Access Communication, (144A), 8.375%
due 11/04/06................................... B2/BB- 150,000
------------
UNITED KINGDOM (1.0%)
CHEMICALS
300,000 ZSC Specialty Chemical PLC, (144A), 11.000%
due 07/01/09................................... B2/B 301,500
------------
ELECTRIC
750,000 United Utilities PLC, 6.250% due 08/15/05........ A2/A 703,965
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TELEPHONE
$ 500,000 Orange PLC, 8.000% due 08/01/08.................. Ba3/BB- $ 500,625
------------
WATER
500,000 Anglian Water PLC, Series B, 6.840% due 01/15/13
(f)............................................ NR/NR 443,096
------------
1,949,186
------------
TOTAL FOREIGN CORPORATE OBLIGATIONS
(COST $13,877,647)......................... 13,264,541
------------
FOREIGN GOVERNMENT OBLIGATIONS (8.1%)
CANADA (0.3%)
CAD 980,000 Government of Canada, 6.000% due 06/01/08 (s).... Aa1/AAA 664,593
------------
DENMARK (0.8%)
DKK 9,350,000 Kingdom of Denmark, 8.000% due 05/15/03 (s)...... Aaa/AAA 1,450,895
------------
FRANCE (2.2%)
EURO 1,010,857 BTAN, Five-Year French Treasury Note, 4.750%
due 03/12/02 (s)............................... Aaa/NR 1,074,255
EURO 630,000 BTAN, Two-Year French Treasury Note, 3.000%
due 07/12/01 (s)............................... Aaa/NR 653,554
Government of France.............................
EURO 2,034,000 4.000% due 04/25/09 (s).......................... Aaa/AAA 1,942,225
EURO 505,000 6.000% due 10/25/25 (s).......................... Aaa/AAA 542,458
------------
4,212,492
------------
GERMANY (0.6%)
EURO 1,083,098 Federal Republic of Germany, Series 124, 4.500%
due 08/19/02 (s)............................... Aaa/AAA 1,146,132
------------
ITALY (1.5%)
REPUBLIC OF ITALY
EURO 2,100,000 3.250% due 04/15/04 (s).......................... Aa3/AA 2,068,594
EURO 600,000 7.250% due 11/01/26 (s).......................... Aa3/AA 726,045
------------
2,794,639
------------
SPAIN (0.5%)
EURO 815,000 Government of Spain, 6.000% due 01/31/08 (s)..... Aa2/AA+ 894,725
------------
SWEDEN (0.4%)
SEK 5,800,000 Government of Sweden, 5.500% due 04/12/02 (s).... Aaa/AAA 711,780
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
UNITED KINGDOM (1.8%)
TREASURY GILT
GBP 135,000 6.250% due 11/25/10 (s).......................... Aaa/AAA $ 237,359
GBP 450,000 6.750% due 11/26/04 (s).......................... Aaa/AAA 759,080
GBP 1,105,000 7.000% due 11/06/01 (s).......................... Aaa/AAA 1,840,391
GBP 119,000 7.250% due 12/07/07 (s).......................... Aaa/AAA 213,427
GBP 230,000 7.500% due 12/07/06 (s).......................... Aaa/AAA 412,506
------------
3,462,763
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(COST $15,616,706)......................... 15,338,019
------------
FOREIGN GOVERNMENT AGENCIES (0.7%)
MEXICO (0.6%)
450,000 Banco Nacional Obra Serv, 9.625% due 11/15/03
(s)............................................ Ba1/BB 451,125
200,000 Petroleos Mexicanos, 8.850% due 09/15/07 (s)..... Ba1/BB 182,000
300,000 Petroleos Mexicanos, 9.500% due 09/15/27......... Ba1/BB 258,000
200,000 Petroleos Mexicanos, (144A), 9.375% due 12/02/08
(s)............................................ Ba1/BB 203,000
------------
1,094,125
------------
PHILIPPINES (0.1%)
350,000 Bangko Sentral Pilipinas, 8.600% due 06/15/27.... Ba1/BB+ 275,975
------------
TOTAL FOREIGN GOVERNMENT AGENCIES
(COST $1,327,948).......................... 1,370,100
------------
PRIVATE PLACEMENT (9.2%)
APPARELS & TEXTILES (0.4%)
750,000 LD Fashion Holdings Corp., 7.130% due 05/01/05
(f)............................................ NR/NR 734,858
------------
FINANCIAL SERVICES (0.3%)
740,819 Huntington National Bank Republic, 7.240%
due 12/05/20 (f)(s)............................ NR/NR 640,230
------------
NATURAL GAS (0.2%)
500,000 Great Lake Gas Transmission, 6.730% due 03/25/18
(f)............................................ NR/NR 438,460
------------
OIL-PRODUCTION (0.2%)
163,187 Amerada Hess Corp. Leveraged Lease, 7.330%
due 01/01/14 (f)............................... NR/NR 155,997
331,899 Amerada Hess Corp. Leveraged Lease, Series A,
6.140% due 01/01/14 (f)........................ NR/NR 295,689
------------
451,686
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
REAL ESTATE (8.1%)
$ 2,939,824 127-129-131 West 96th St. Corp. (1st Mortgage
Agreement on Cooperative Building in New York
City), 6.850% due 12/01/18 (f)(s).............. NR/NR $ 2,756,320
1,087,455 14-16 East 17th St. (1st Mortgage Agreement on
Cooperative Building in New York City), 7.000%
due 03/01/21 (f)(s)............................ NR/NR 1,025,177
1,558,305 270 Fifth Ave. (1st Mortgage Agreement on
Cooperative Building in Brooklyn, New York),
6.930% due 09/01/18 (f)(s)..................... NR/NR 1,470,433
488,182 31-33 Mercer Street (1st Mortgage Agreement on
Cooperative Building in New York City), 7.490%
due 04/01/23 (f)(s)............................ NR/NR 477,574
617,836 3512 Oxford Avenue (1st Mortgage Agreement on
Cooperative Building in Riverdale, New York),
8.450% due 06/01/17 (f)(s)..................... NR/NR 643,723
618,019 3810 Greystone Avenue (1st Mortgage Agreement on
Cooperative Building in Riverdale, New York),
8.500% due 06/01/17 (f)(s)..................... NR/NR 639,854
802,999 421 West 57th Street (1st Mortgage Agreement on
Cooperative Building in New York City), 8.980%
due 07/01/22 (f)(s)............................ NR/NR 864,027
489,971 482 East 9th Street, Kensington Gardens Corp.
(1st Mortgage Agreement on Cooperative Building
in New York City), 6.850% due 12/01/18
(f)(s)......................................... NR/NR 454,825
606,834 86-06/86-42 155th Ave., Dartmouth Cooperative
Corp. (1st Mortgage Agreement on Cooperative
Building in Howard Beach, New York), 7.000%
due 01/01/14 (f)(s)............................ NR/NR 577,870
1,607,002 PC Bel Clare Estates, 33 Claroma St., St. Joseph
Township, Minnesota, 6.930% due 09/01/18 (f)... NR/NR 1,510,389
1,365,711 PC Northstar Terrace, 101 Jupiter Drive, East
Grand Forks, Minnesota, 6.625% due 10/01/18
(f)............................................ NR/NR 1,241,896
1,632,896 PC Shangri-La, 3526 North Cascade Ave., Colorado
Springs, Colorado, 6.520% due 10/01/08 (f)..... NR/NR 1,496,810
1,302,041 PC Three Lakes Estates, 2151 Three Lakes Road,
Albany, Oregon, 6.180% due 10/01/13 (f)........ NR/NR 1,140,636
1,415,511 Walgreen-Benderson, 7.625% due 11/15/13 (f)...... NR/NR 1,373,796
------------
15,673,330
------------
TOTAL PRIVATE PLACEMENT (COST $19,002,145)... 17,938,564
------------
SOVEREIGN BONDS (17.2%)
ARGENTINA (1.3%)
262,189 Republic of Argentina Bocon, Series Pre-2, 5.406%
due 04/01/01 (v)............................... B1/NR 253,144
97,815 Republic of Argentina Bocon, Series Pre-4, 5.406%
due 09/01/02 (v)............................... B1/NR 90,716
200,000 Republic of Argentina Discount Bonds
Series L-GL, 6.000% due 03/31/23 (v)........... B1/BB 151,320
175,000 Republic of Argentina Global Bonds, 9.750%
due 09/19/27................................... B1/BB 147,000
480,000 Republic of Argentina Global Bonds, 11.750%
due 04/07/09................................... B1/BB 472,800
100,000 Republic of Argentina Global Bonds, Series BGL5,
11.375% due 01/30/17........................... B1/BB 95,250
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
ARGENTINA (CONTINUED)
$ 300,000 Republic of Argentina Par Bonds, Series L-GP,
6.000% due 03/31/23 (v)........................ B1/BB $ 197,640
1,283,040 Republic of Argentina, Series FRB, 6.813%
due 03/31/05 (v)(s)............................ B1/BB 1,135,747
------------
2,543,617
------------
BRAZIL (3.3%)
100,000 Republic of Brazil Discount Bonds, Series 30 Year
ZL, 6.938% due 04/15/24 (v).................... B2/B+ 68,125
3,828,891 Republic of Brazil C Bonds, Series 20 Year,
8.000% due 04/15/14 (s)........................ B2/B+ 2,558,178
454,954 Republic of Brazil C Bonds, Series L, 8.000%
due 04/15/14................................... B2/B+ 303,966
380,000 Republic of Brazil DCB, Series 18 Year, 7.000%
due 04/15/12 (v)............................... B2/B+ 247,475
850,000 Republic of Brazil Global Bonds, 10.125%
due 05/15/27................................... B2/B+ 655,563
976,000 Republic of Brazil Global Bonds, 14.500%
due 10/15/09 (s)............................... B2/B+ 1,005,280
221,400 Republic of Brazil IDU, Series A, 6.500%
due 01/01/01 (v)............................... B2/NR 216,972
1,391,200 Republic of Brazil, Series EI-L, 6.938%
due 04/15/06 (v)(s)............................ B2/B+ 1,134,705
282,000 Republic of Brazil, Series RG, 6.938%
due 04/15/06 (v)(s)............................ B2/NR 230,008
------------
6,420,272
------------
BULGARIA (1.4%)
2,650,000 Republic of Bulgaria Discount Bonds, Series A,
6.500% due 07/28/24 (v)........................ B2/NR 1,974,250
150,000 Republic of Bulgaria Global FLIRB, Series A,
2.750% due 07/28/12 (v)........................ B2/NR 101,063
130,000 Republic of Bulgaria IAB, PDI, 6.500%
due 07/28/11 (v)............................... B2/NR 99,125
675,000 Republic of Bulgaria IAB, PDI, Series R, 6.500%
due 07/28/11 (v)(s)............................ B2/NR 514,688
------------
2,689,126
------------
COLOMBIA (1.1%)
200,000 Republic of Colombia, 10.875% due 03/09/04....... Ba2/BB+ 200,400
300,000 Republic of Colombia, 12.471% due 08/13/05 (v)... Ba2/BB+ 280,500
150,000 Republic of Columbia, 7.270% due 06/15/03........ Ba2/BB+ 133,125
1,050,000 Republic of Columbia, 7.625% due 02/15/07........ Ba2/BB+ 864,286
700,000 Republic of Columbia, 9.750% due 04/23/09........ Ba2/BB+ 632,625
------------
2,110,936
------------
COSTA RICA (0.3%)
510,000 Republic of Costa Rica, (144A), 9.335%
due 05/15/09 (s)............................... Ba1/BB 515,100
------------
CROATIA (0.4%)
1,000,000 Republic of Croatia, Series A, 6.456%
due 07/31/10 (v)............................... Baa3/BBB- 815,000
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
EL SALVADOR (0.1%)
$ 100,000 Republic of El Salvador, (144A), 9.500%
due 08/15/06................................... Baa3/BB+ $ 99,500
------------
LEBANON (0.1%)
150,000 Republic of Lebanon, (144A), 10.250%
due 10/06/09................................... NR/BB- 150,750
------------
LITHUANIA (0.0%)
50,000 Republic of Lithuania, 7.125% due 07/22/02....... Ba1/BBB- 47,500
------------
MEXICO (2.9%)
250,000 United Mexican States Discount Bonds, Series C,
5.874% due 12/31/19 (v)........................ Ba1/BB 218,750
250,000 United Mexican States Discount Bonds, Series D,
6.066% due 12/31/19 (v)........................ Ba1/BB 218,750
745,000 United Mexican States Global Bonds, 9.875%
due 01/15/07................................... Ba1/BB 747,354
1,100,000 United Mexican States Global Bonds, 11.375%
due 09/15/16................................... Ba1/BB 1,173,150
1,385,000 United Mexican States Global Bonds, 11.500%
due 05/15/26 (s)............................... Ba1/BB 1,546,768
700,000 United Mexican States Global Bonds, Series E,
MTN, 9.750% due 04/06/05....................... Ba1/BB 702,275
425,000 United Mexican States Global Bonds, Series XW,
10.375% due 02/17/09........................... NR/NR 431,715
250,000 United Mexican States Par Bonds, Series W-A,
6.250% due 12/31/19............................ Ba1/BB 187,350
350,000 United Mexican States Par Bonds, Series W-B,
6.250% due 12/31/19............................ Ba1/BB 262,290
------------
5,488,402
------------
MOROCCO (0.5%)
1,170,000 Kingdom of Morocco Restructuring & Consolidation
Agreement, Series A, 6.844% due 01/01/09
(v)(s)......................................... NR/NR 1,013,513
------------
PANAMA (0.9%)
150,000 Republic of Panama, 7.875% due 02/13/02.......... Ba1/BB+ 145,500
200,000 Republic of Panama, 8.875% due 09/30/27.......... Ba1/BB+ 161,500
200,000 Republic of Panama Global Bonds, 8.250%
due 04/22/08................................... Ba1/BB+ 172,500
375,000 Republic of Panama Global Bonds, 9.375%
due 04/01/29................................... Ba1/BB+ 354,375
590,000 Republic of Panama IRB, Series 18 Year, 4.250%
due 07/17/14 (v)............................... Ba1/BB+ 439,550
728,819 Republic of Panama PDI, Series 20 Year, 6.500%
due 07/17/16 (v)(s)............................ Ba1/BB+ 546,614
------------
1,820,039
------------
PERU (1.0%)
400,000 Republic of Peru Discount Bonds, Series 30 Year,
6.813% due 03/08/27 (v)(s)..................... Ba3/BB 238,000
325,000 Republic of Peru FLIRB, Series 20 Year, 3.750%
due 03/07/17 (v)............................... Ba3/BB 177,938
2,300,000 Republic of Peru PDI, Series 20 Year, 4.500%
due 03/07/17 (v)(s)............................ Ba3/BB 1,434,625
------------
1,850,563
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
PHILIPPINES (0.6%)
$ 565,000 Republic of Philippines Global Bonds, 8.875%
due 04/15/08................................... Ba1/BB+ $ 551,582
670,000 Republic of Philippines Global Bonds, 9.875%
due 01/15/19 (s)............................... Ba1/BB+ 646,550
------------
1,198,132
------------
POLAND (0.1%)
150,000 Republic of Poland Bearer PDI, 5.000%
due 10/27/14 (v)............................... Baa1/BBB 132,938
------------
QATAR (0.5%)
50,000 State of Qatar, 9.500% due 05/21/09.............. Baa2/BBB 51,563
950,000 State of Qatar, (144A), 9.500% due 05/21/09
(s)............................................ Baa2/BBB 979,688
------------
1,031,251
------------
SLOVAKIA (0.3%)
650,000 Republic of Slovakia, 9.500% due 05/28/03 (s).... Ba1/BB+ 658,125
------------
TRINIDAD & TOBAGO (0.3%)
550,000 Republic of Trinidad and Tobago, (144A), 9.875%
due 10/01/09 (s)............................... Ba1/BBB- 552,750
------------
TURKEY (0.5%)
125,000 Republic of Turkey, 9.875% due 02/23/05.......... B1/B 115,625
600,000 Republic of Turkey, 12.375% due 06/15/09......... B1/B 606,000
220,000 Republic of Turkey Global Bonds, 12.000%
due 12/15/08................................... B1/B 222,750
------------
944,375
------------
VENEZUELA (1.6%)
2,833,320 Republic of Venezuela DCB, Series DL, 6.313%
due 12/18/07 (v)(s)............................ B2/B+ 2,276,006
1,200,000 Republic of Venezuela Global Bonds, 9.250%
due 09/15/27................................... B2/B+ 807,594
------------
3,083,600
------------
TOTAL SOVEREIGN BONDS (COST $31,491,465)..... 33,165,489
------------
SUPRANATIONAL OBLIGATIONS (0.5%)
1,000,000 Inter-American Development Bank, 5.375%
due 11/18/08 (cost $993,060)................... Aaa/AAA 904,700
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (11.8%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (10.9%)
3,635,000 TBA, November, 6.500% due 10/01/29............... 3,483,348
5,950,000 TBA, November, 7.000% due 09/01/29............... 5,842,186
8,640,000 TBA, November, 7.500% due 10/01/29............... 8,658,922
3,000,000 TBA, November, 8.000% due 10/01/29............... 3,056,730
------------
21,041,186
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.9%)
1,730,133 7.000% due 09/15/28.............................. 1,697,138
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $22,740,686)......................... 22,738,324
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
U.S. TREASURY OBLIGATIONS (3.8%)
U.S. TREASURY BONDS (0.0%)
$ 85,000 5.500% due 08/15/28 (s).......................... $ 75,596
------------
U.S. TREASURY NOTES (3.8%)
150,000 4.250% due 11/15/03 (s).......................... 140,930
120,000 5.625% due 11/30/00 (s).......................... 119,951
3,000,000 6.000% due 08/15/04 (s).......................... 3,007,020
3,450,000 6.250% due 02/28/02 (s).......................... 3,479,636
400,000 6.875% due 05/15/06 (s).......................... 415,172
------------
7,162,709
------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $7,312,977).......................... 7,238,305
------------
WARRANTS (0.0%)
ARGENTINA (0.0%)
1,150 Republic of Argentina, Expiring 02/25/00
(cost $31,803)(+).............................. 25,875
------------
RIGHTS (0.0%)
MEXICO (0.0%)
768,000 United Mexican States Value Recovery, Series A
Par, Expiring 06/30/03 (cost $0)(+)............ 0
------------
SHORT-TERM INVESTMENTS (15.7%)
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (0.3%)
574,844 Structured Asset Securities Corp., Subordinated
Bond, Series 1997-C1, Class E, (144A), 6.309%
due 08/25/00 (v)............................... NR/NR 573,406
------------
EURO DOLLAR TIME DEPOSITS (2.1%)
4,000,000 State Street Bank & Trust Co. London, 5.188%
due 11/01/99 (s)............................... 4,000,000
------------
REPURCHASE AGREEMENT (13.0%)
25,020,000 State Street Bank & Trust Co., 4.250% dated
10/29/99 due 11/01/99, proceeds $25,028,861
(collateralized by $95,000 U.S. Treasury Bonds,
8.875% due 02/15/19, valued at $120,175,
$21,685,000 U.S. Treasury Notes, 6.250%
due 05/31/00, valued at $22,335,550, $1,665,000
U.S. Treasury Bonds, 6.875% due 08/15/25,
valued at $1,764,900, $455,000 U.S. Treasury
Notes, 6.750% due 04/30/00, valued at $473,064,
$145,000 U.S. Treasury Notes, 7.250%
due 05/15/04, valued at $156,383, $670,000 U.S.
Treasury Notes, 6.125% due 07/31/00, valued at
$683,065)...................................... 25,020,000
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.3%)
$ 310,000 Bills, 5.110% due 03/02/00 (y)(s)................ $ 305,756
200,000 Notes, 5.875% due 11/15/99 (s)................... 200,062
------------
505,818
------------
TOTAL SHORT-TERM INVESTMENTS (COST $30,100,694)................ 30,099,224
------------
TOTAL INVESTMENTS (COST $220,109,636) (110.0%)................. 211,896,486
LIABILITIES IN EXCESS OF OTHER ASSETS (-10.0%)................. (19,206,656)
------------
NET ASSETS (100.0%)............................................ $192,689,830
============
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $220,593,337 for federal income tax
purposes at October 31, 1999, the aggregate gross unrealized appreciation and
depreciation was $2,147,198 and $10,844,049, respectively, resulting in net
unrealized depreciation of $8,696,851.
+ Non-income producing security.
(f) Fair valued security. Approximately 9.4% of the market value of the
securities have been valued at fair value. (See Note 1a)
(s) Security is fully or partially segregated with custodian as collateral for
TBA and when issued securities or futures contracts or with broker as initital
margin for futures contracts. $50,891,588 of the market value has been
segregated.
(v) Rate shown reflects current rate on variable or floating rate instrument or
instrument with step-up coupon rate.
(y) Yield to maturity.
{/\} Defaulted security.
{::} Denominated in USD unless otherwise indicated.
144A - Securities restricted for resale to Qualified Institutional Buyers.
C - Capitalization.
CAD - Canadian Dollar.
CSTR - Collateral Strip Rate.
DCB - Debt Conversion Bonds.
DKK - Danish Krone.
EURO - Euro.
FLIRB - Floating Interest Rate Bond.
FRB - Federal Reserve Board.
GBP - British Pound.
IAB - Interest in Arrears Bond.
IDU - Interest Due and Unpaid Bond.
IO - Interest Only.
IRB - Interest Reduction Bonds.
MTN - Medium Term Note.
NR - Not Rated.
NTL - Notional Principal.
PO - Principal Only.
PDI - Past Due Interest.
REMIC - Real Estate Mortgage Investment Conduit.
SEK - Swedish Krona.
TBA - Security purchased 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 date.
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $195,089,636) $186,876,486
Repurchase Agreements (Cost $25,020,000) 25,020,000
Cash 3,801
Foreign Currency at Value (Cost $156,568) 154,734
Interest Receivable 2,959,468
Receivable for Investments Sold 2,220,046
Unrealized Appreciation of Forward Foreign
Currency Contracts 341,332
Variation Margin Receivable 34,643
Receivable for Expense Reimbursement 14,518
Deferred Organization Expenses 11,556
Prepaid Trustees' Fees 400
Prepaid Administration Fee 75
Prepaid Expenses and Other Assets 1,246
------------
Total Assets 217,638,305
------------
LIABILITIES
Payable for Investments Purchased 24,753,393
Advisory Fee Payable 74,819
Unrealized Depreciation of Forward Foreign
Currency Contracts 14,811
Administrative Services Fee Payable 4,182
Fund Services Fee Payable 113
Accrued Expenses 101,157
------------
Total Liabilities 24,948,475
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $192,689,830
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
35
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest and Dividend Income $17,484,695
EXPENSES
Advisory Fee $ 1,073,105
Custodian Fees and Expenses 245,157
Administrative Services Fee 61,940
Professional Fees and Expenses 51,854
Fund Services Fee 5,003
Amortization of Organization Expenses 4,865
Trustees' Fees and Expenses 2,377
Administration Fee 2,188
Miscellaneous 10,159
-----------
Total Expenses 1,456,648
Less: Reimbursement of Expenses (14,518)
-----------
NET EXPENSES 1,442,130
-----------
NET INVESTMENT INCOME 16,042,565
NET REALIZED GAIN (LOSS) ON
Investment Transactions (4,943,565)
Futures Contracts 548,064
Foreign Currency Contracts and Transactions (1,113,326)
-----------
Net Realized Loss (5,508,827)
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investment Transactions (7,343,284)
Futures Contracts 114,378
Foreign Currency Contracts and Translations 2,410,678
-----------
Net Change in Unrealized Depreciation (4,818,228)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 5,715,510
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
36
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 16,042,565 $ 12,998,257
Net Realized Loss on Investments, Futures and
Foreign Currency Contracts and Transactions (5,508,827) (8,737,057)
Net Change in Unrealized Depreciation of
Investments, Futures and Foreign Currency
Contracts and Translations (4,818,228) (3,001,152)
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 5,715,510 1,260,048
--------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 87,676,750 199,905,113
Withdrawals (134,856,430) (67,392,063)
--------------- ---------------
Net Increase (Decrease) from Investors'
Transactions (47,179,680) 132,513,050
--------------- ---------------
Total Increase (Decrease) in Net Assets (41,464,170) 133,773,098
NET ASSETS
Beginning of Fiscal Year 234,154,000 100,380,902
--------------- ---------------
End of Fiscal Year $ 192,689,830 $ 234,154,000
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR MARCH 17, 1997
ENDED OCTOBER 31, (COMMENCEMENT OF
---------------------- OPERATIONS) THROUGH
1999 1998 OCTOBER 31, 1997
---------- ---------- -------------------
<S> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.60% 0.63% 0.65%(a)
Net Investment Income 6.73% 6.59% 7.09%(a)
Expenses without Reimbursement 0.61% 0.63% 0.80%(a)
Portfolio Turnover 318% 368% 212%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
37
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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, 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 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
affecting such countries or regions which could cause the securities and their
markets to be less liquid and prices more volatile than those comparable to the
United States. The ability of the issuers of debt, asset-backed, and
mortgage-backed securities held by the portfolio to meet their obligations may
be affected by economic and political developments in a specific industry or
region. The value of asset-backed and mortgage securities can be significantly
affected by changes in interest rates or rapid principal payments including pre-
payments.
A percentage (9.4% at October 31, 1999) 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 portfolio values securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available mean of the bid and asked
prices on such exchange, if such exchange or market constitutes the
broadest and most representative market for the security. Securities
listed on a foreign exchange are valued at the last traded price or, in
the absence of recorded trades, at the readily available mean of the bid
and asked prices on such exchange available before the time when the net
assets are valued. Independent pricing service procedures may also include
the use of prices based on yields or prices of securities of comparable
quality, coupon, maturity and type, indications as to values from dealers,
operating data, and general market conditions. Unlisted securities are
valued at the average of the quoted bid and asked prices in the
over-the-counter market provided by a principal market maker or dealer. If
prices are not supplied by the portfolio's independent
38
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
pricing service or principal market maker or dealer, such securities are
priced using fair values in accordance with procedures adopted by the
portfolio's trustees. 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 on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the portfolio's trustees.
The portfolio's custodian 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. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount becomes known. 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 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.
e) Expenses incurred by Series Portfolio II with respect to any two or more
portfolios in the Series Portfolio 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 be made fairly.
Expenses directly attributable to a portfolio are charged to that
portfolio.
39
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
f) 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 and to enhance returns. A
forward foreign currency 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.
g) 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 is 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.
h) 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.
i) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
40
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisor Agreement with J.P. Morgan
Investment Management, Inc. ("JPMIM"), an affiliate of Morgan Guaranty
Trust Company of New York ("Morgan") and wholly-owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the
agreement, the portfolio pays Morgan at an annual rate of 0.45% of the
portfolio's average daily net assets. For the fiscal year ended
October 31, 1999, such fees amounted to $1,073,105.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
FDI provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the compensation of the officers
affiliated with FDI. The portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the portfolio is based on
the ratio of the portfolio's net assets to the aggregate net assets of the
portfolio and certain other investment companies subject to similar
agreements with FDI. For the fiscal year ended October 31, 1999, the fee
for these services amounted to $2,188.
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 other portfolios in which the trust, the J.P. Morgan Funds,
the J.P. Morgan Institutional Funds invest (the "master portfolios") and
J.P. Morgan 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, 1999, the fee for these services amounted to $61,940.
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, 2001. This reimbursement arrangement can be changed
or terminated at any time after February 28, 2001, at the option of
J.P. Morgan. For the fiscal year ended October 31, 1999, J.P. Morgan has
agreed to reimburse the portfolio $14,518 for expenses under this
agreement.
d) The portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the trustees in exercising their overall supervisory
responsibilities for the portfolio's affairs. The trustees of the
portfolio represent all the existing shareholders of Group. The
portfolio's allocated portion of Group's costs in performing its services
amounted to $5,003 for the fiscal year ended October 31, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, 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
41
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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 $950.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $419,201,932 $448,093,014
Corporate and Collateralized Obligations......... 303,117,645 309,889,066
------------ ------------
$722,319,577 $757,982,080
============ ============
</TABLE>
At October 31, 1999, the portfolio had open forward currency contracts as
follows:
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
VALUE 10/31/99 (DEPRECIATION)
----------- ----------- --------------
<S> <C> <C> <C>
PURCHASE CONTRACTS
British Pound 145,989, expiring 11/04/99......... $ 238,838 $ 239,553 $ 715
Euro 160,000, expiring 12/16/99.................. 171,488 168,761 (2,727)
SETTLEMENT
VALUE
-----------
SALES CONTRACTS
British Pound 2,131,948, expiring 12/16/99....... $3,558,475 3,499,482 58,993
Canadian Dollar 979,718, expiring 12/16/99....... 655,835 667,032 (11,197)
Danish Krone 10,402,546, expiring 12/16/99....... 1,518,930 1,475,624 43,306
Euro 7,503,462, expiring 12/16/99................ 8,145,508 7,914,335 231,173
Swedish Krona 5,841,830, expiring 12/16/99....... 717,608 711,350 6,258
-------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 326,521
=============
</TABLE>
42
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Open futures contracts at October 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ MARKET VALUE
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- -------------
<S> <C> <C> <C>
U.S. Five Year Note, expiring
December 1999................. 16 $(13,346) $ 1,727,250
U.S. Ten Year Note, expiring
December 1999................. 72 24,412 7,899,750
Eurex Ten Year Euro Bond,
expiring December 1999........ 22 (16,309) 2,448,506
--- -------- -----------
Totals.......................... 110 $ (5,243) $12,075,506
=== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS SHORT
---------------
<S> <C> <C> <C>
U.S. Long Bond, expiring
December
1999.......................... 33 $ 79,208 $ 3,748,594
U.S. Ten Year Note, expiring
December 1999................. 40 4,448 4,388,750
U.S. Ten Year Note, expiring
March 2000.................... 16 (7,682) 1,567,000
--- -------- -----------
Totals.......................... 89 $ 75,974 $ 9,704,344
=== ======== ===========
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the fund's Notes to the Financial
Statements which are included elsewhere in this report.
43
<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, 1999, 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 its supplementary data for each of the periods indicated,
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, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
44
<PAGE>
J.P. MORGAN FUNDS
FEDERAL MONEY MARKET FUND
PRIME MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
TAX AWARE ENHANCED INCOME FUND: SELECT SHARES
SHORT TERM BOND FUND
BOND FUND
EMERGING MARKETS DEBT FUND
GLOBAL STRATEGIC INCOME FUND
TAX EXEMPT BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
NEW YORK TAX EXEMPT BOND FUND
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
EUROPEAN EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS,
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
IM0790-M
J.P. MORGAN
GLOBAL STRATEGIC
INCOME FUND
ANNUAL REPORT
OCTOBER 31, 1999
