<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
August 13, 1997
Dear Shareholder:
We are pleased to report that as European equities continued to provide
exceptional opportunities for global investors, The JPM Institutional
European Equity Fund produced an impressive 12.80% return for the six-month
period ended June 30, 1997. Although the Fund trailed the 14.26% return of
its benchmark, the MSCI Europe Index, it performed favorably above the
average 11.40% return of its competitors, as measured by the Lipper European
Region Funds Average.
The strong returns of European equity markets throughout the reporting period
were primarily due to the continued economic recoveries, low interest rates, and
corporate restructurings prevalent throughout the region. The Fund benefited
from this generally positive investment backdrop, enhanced by the management
team's successful stock-selection decisions.
The Fund's net asset value increased from $11.56 per share at December 31, 1996
to $13.04 by June 30, 1997. The Fund's net assets also increased from $6.5
million to $10.7 million at the end of the reporting period. The net assets of
The European Equity Portfolio, in which the Fund invests, totaled approximately
$678.9 million on June 30, 1997.
The report that follows includes an interview with Paul A. Quinsee, a member of
the portfolio management team. This interview is designed to answer commonly
asked questions about the Fund, elaborate on what happened during the reporting
period, and provide an outlook for the months ahead.
As chairman and president of Asset Management Services, we look forward to
sharing Morgan's insights regarding global markets with you in the future. If
you have any comments or questions, please call your Morgan representative or
J.P. Morgan Funds Services at (800) 766-7722.
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 OF CONTENTS
LETTER TO THE SHAREHOLDERS ......... 1 FUND FACTS AND HIGHLIGHTS ......... 6
FUND PERFORMANCE ................... 2 FINANCIAL STATEMENTS .............. 9
PORTFOLIO MANAGER Q&A .............. 3
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1
<PAGE>
Fund performance
EXAMINING PERFORMANCE
One way to evaluate 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
1, 5, or 10 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.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------- ----------------------------
<S> <C> <C> <C> <C>
THREE SIX ONE SINCE
AS OF JUNE 30, 1997 MONTHS MONTHS YEAR INCEPTION*
- ----------------------------------------------------------------- ----------------------------
The JPM Institutional European Equity Fund 8.04% 12.80% 26.65% 23.20%
MSCI Europe Index 8.94% 14.26% 29.99% 25.24%
Lipper European Region Funds Average 6.58% 11.40% 22.92% 22.66%
* 2/29/96, COMMENCEMENT OF OPERATIONS.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND
REFLECT THE REIMBURSEMENT OF CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN
REIMBURSED, RETURNS WOULD HAVE BEEN LOWER. THE MSCI EUROPE INDEX IS AN UNMANAGED INDEX WHICH MEASURES THE AVERAGE PERFORMANCE OF
OVER 500 SECURITIES LISTED ON THE STOCK EXCHANGE OF FOURTEEN EUROPEAN COUNTRIES. THE INDEX DOES NOT INCLUDE FEES OR OPERATING
EXPENSES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND INVESTS ALL OF ITS INVESTABLE ASSETS IN THE EUROPEAN EQUITY PORTFOLIO, A SEPARATELY
REGISTERED INVESTMENT COMPANY WHICH IS NOT AVAILABLE TO THE PUBLIC BUT ONLY TO OTHER COLLECTIVE INVESTMENT VEHICLES SUCH AS THE
FUND.
</TABLE>
2
<PAGE>
Portfolio manager Q&A
[PHOTO] Following is an interview with Paul A. Quinsee, Vice President,
a member of the portfolio management team for The European
Equity Portfolio, in which the Fund invests. Paul joined
Morgan in 1992 as an international equity portfolio
manager. Previously, he worked for five years as an equity
portfolio manager with CitiBank and for two years with
Schroder Capital Management in London. This interview was
conducted on August 7, 1997 and reflects Paul's views on
that date.
EUROPEAN EQUITIES IN GENERAL HAVE HAD A POWERFUL RUN FOR THE LAST TWELVE TO
EIGHTEEN MONTHS, OFTEN OUTPERFORMING OTHER REGIONS OF THE WORLD. CAN YOU
EXPLAIN WHAT LIES BEHIND THE STRENGTH OF EUROPEAN MARKETS?
PAQ: You're certainly correct to say that European markets have performed
well. We've seen the best period for Europe over the last six months than
we've had for ten years. In fact, it's hard to imagine a more favorable
environment for the European stock market.
At the macro level, there are economies in Europe that are still in very
early stages of recovery. That means that companies' sales volumes are
rising, but there's still very little upward pressure on their costs. Also,
profitability in Europe for many international companies has been held back
by the tremendous depreciation of the core European currencies; the Deutsche
mark, for example, lost nearly 20% of its value against the U.S. dollar in
the last few months.
Interest rates in Europe are also very low and, if anything, will
continue to drift lower -- particularly in the peripheral countries of Italy
and Spain, where investors have increasingly factored in the likelihood of
their qualification for European Monetary Union (EMU).* We believe continued
convergence of both short- and long-term rates toward very low German levels
is, therefore, likely.
At the company-specific level, a wave of restructuring continues to sweep
across Europe. We've actually been surprised at just how many companies have
been prepared to take actions to reduce costs that, until a few years ago,
wouldn't have been attempted.
IN WHICH COUNTRIES HAVE YOU SEEN THE MOST RESTRUCTURING, AND WHY DOES THIS
BENEFIT COMPANIES?
PAQ: The restructuring process is most advanced in the U.K., coming close to
U.S. levels in many industry groups. More recently, we've seen a flurry of
announcements in the Scandinavian countries and Germany. There are even some
examples of restructuring in France.
The process of restructuring is good because that means companies are
paying greater attention to issues of profitability. For example, Electrolux,
in Sweden, announced a wide-range restructuring that included a 20% reduction
of its workforce. Volkswagen AG in Germany, which has been very successful in
introducing more flexible working practices, is also simplifying their
structure to reduce their unit production costs. Both these stocks performed
extremely well, as investors began to realize that restructuring often means
more profits for shareholders in the end.
* FOR A MORE DETAILED EXPLANATION OF EUROPEAN ECONOMIC & MONETARY UNION (EMU),
PLEASE CALL (800) 766-7722 TO OBTAIN A COPY OF J.P. MORGAN INVESTMENT'S MOST
RECENT PUBLICATION OF "INVESTMENT INSIGHTS."
3
<PAGE>
IS THIS PRACTICE VERY SIMILAR TO THE RESTRUCTURING U.S. COMPANIES WENT
THROUGH IN THE '80S AND EARLY '90S?
PAQ: Yes, although it's at a much earlier stage. It's unlikely profits in
Europe will ever reach the levels achieved by U.S. companies due to their
restructurings. But we do think European companies will be able to improve
their profitability compared to the low levels they've suffered over the last
five years.
DURING THE REPORTING PERIOD, THERE WERE SOME CONSIDERABLE CHANGES IN THE
POLITICAL STRUCTURES OF BOTH FRANCE AND THE U.K. CAN YOU COMMENT ON THE
IMPACT THESE CHANGES HAD ON EUROPEAN EQUITIES? ALSO, WHAT SPECIFIC IMPACT DID
THESE POLITICAL CHANGES HAVE ON THE REGION'S PROGRESS TOWARD EMU?
PAQ: It's interesting that during the past six months we've seen elections
in two of the largest countries in Europe -- France and the U.K. In both
cases, there was a change in the ruling party, with the mood shifting more
toward the left of the political spectrum. In the U.K. this was not a
surprise to anyone, as the ruling conservative party had been in power for 17
years and it appeared that the electorate in Britain felt it was time for a
change. Moreover, the Labour Party that was elected has gone a long way in
the past few years to repudiate its Socialist policies; it is much more a
party of the center these days, rather than of the far left.
In France, however, the election results were a surprise. President
Chirac called an election to ratify further measures to qualify for EMU. What
was a surprise to him, however, was that France's electorate was fed up with
the austerity programs of its ruling administration, and instead elected a
Socialist government that promised to promote growth and correct France's
unemployment problem. France currently has one of the highest levels of
unemployment in Europe.
When we look at the impact the election had in the U.K., it primarily
involves changes in taxation. The new government increased taxes on the
corporate sector, and also removed some of the tax privileges (in terms of
dividend income from equity) previously enjoyed by pension funds. Both
measures were initially negative for U.K. stocks. However, because these tax
changes were anticipated, the U.K. market absorbed the shock, and has again
joined the general bullish trend prevalent throughout Europe.
In France, the government's rhetoric initially concerned investors. In
particular, there was concern that the government would stop companies from
restructuring. It appears now, however, that the rhetoric itself will only be
notable if it actually comes to policy. The new government in France also
raised corporate taxes. Overall, though, the changes have been only
marginally negative for the markets.
In terms of what these political changes mean for EMU, specifically, the
move leftwards in France was seen as increasing the chance for a broader,
somewhat less disciplined monetary union. This means that Spain as well as
Italy could qualify. Investors are now envisioning a union that will be a
little more growth-oriented, and a little less hawkish on monetary policy.
This is actually one of the reasons why European currencies in general, and
the Deutsche mark in particular, have been so weak in recent months.
WILL THE NEW ADMINISTRATION IN THE U.K. HAVE ANY AFFECT ON THE U.K.'S
HESITANCY TO PARTICIPATE IN EMU?
PAQ: Although the new Labour government in the U.K. has made more
conciliatory gestures than its predecessors regarding a European union, we
still think it's most unlikely that the U.K. will be among the first-round
participants in 1999. We do expect the U.K. will eventually participate -- if
the union goes ahead
4
<PAGE>
and proves to be reasonably successful. However, we don't think the U.K. will
participate in the first round, for political more than economic reasons.
THE FUND POSTED A VERY STRONG RETURN FOR THE SIX-MONTH PERIOD UNDER REVIEW,
KEEPING IT ABOVE THE AVERAGE PERFORMANCE OF ITS COMPETITORS. CAN YOU PROVIDE
SPECIFIC EXAMPLES OF WHY THE FUND DID SO WELL? PLEASE ALSO COMMENT ON WHY THE
FUND UNDERPERFORMED ITS BENCHMARK, THE MSC IEUROPE INDEX.
PAQ: The stock-selection decisions that we put in place worked out very well
during the period. In the major Continental markets, the Fund benefited from
Volkswagen AG in Germany, Novartis AG in Switzerland, and from some good
picks in the German insurance sector too -- primarily Munich Reinsurance
(Muenchener Rueckversicherungs-Gesellschaft AG). Also, the Fund benefited
from its holding in Philips Electronics NV, a technology company in the
Netherlands, which rose on the announcement of a joint venture with Lucent,
the U.S. communications equipment company. So, there are many examples of
good research-driven stock picking in the Continental markets.
In the U.K., however, progress had been tougher, compared to the
Continental markets, and earnings had come down. Our high exposure to the
U.K. held the Fund back, and was a primary reason for its underperformance
relative to the benchmark. U.K. markets had to contend with a very strong
currency (Sterling), which had depreciated by about 20% against the Deutsche
mark over the past months. That translated into good performance for a very
narrow, very concentrated segment of the U.K. market. The majority of U.K.
companies performed badly, with only a few giant companies doing well (mostly
confined to the banking and drug sectors). Our research told us that many of
those bigger companies were expensive and that there were better
opportunities in medium-sized stocks -- but that didn't help us during this
reporting period.
MOVING TOWARD THE SECOND HALF OF 1997, HOW ARE YOU POSITIONING THE PORTFOLIO?
WHICH MARKETS DO YOU BELIEVE WILL ADD MOST VALUE?
PAQ: European markets have done very well. We believe they are not in any
way undervalued any more and, in some cases, valuations are really very
demanding. However, as long as this favorable environment for investing in
Europe lasts, then we can't rule out the chance of further gains --
especially if the European currencies stay weak, growth continues to recover,
interest rates stay low, and companies continue to restructure. On a relative
basis, then, Europe still looks like one of the more attractive regions of
the world in which to invest.
Specifically, we feel the U.K. market offers the most potential to add
value, and we've been adding to the Portfolio's positions there. We've also
been adding to Portfolio holdings in Italy. We see plenty of room for
interest rates to come down further, and we are actually seeing signs that
restructuring is beginning to spread into Italy. So we think there will be
upside opportunities for investors there.
Conversely, we are finding it harder to find value in the Dutch market or
in many areas of the Swiss market. We have therefore underweighted the
Portfolio in those markets.
5
<PAGE>
Fund facts
INVESTMENT OBJECTIVE
The JPM Institutional European Equity Fund seeks to provide a high total
return from a portfolio of equity securities of European companies. It is
designed for investors who want an actively managed portfolio of European
equity securities that seeks to outperform the MSCI Europe Index, which is
comprised of more than 500 companies in fourteen European countries. As an
international investment, the Fund is subject to foreign market, political
and currency risks.
- -----------------------------------------------------
COMMENCEMENT OF OPERATIONS
2/29/96
- -----------------------------------------------------
NET ASSETS AS OF 6/30/97
$10,726,610
- -----------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/24/97
EXPENSE RATIO
The Fund's annualized 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 JUNE 30, 1997
COUNTRY ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- - UNITED KINGDOM 33.5%
- - GERMANY 15.1%
- - FRANCE 12.5%
- - SWITZERLAND 8.4%
- - NETHERLANDS 6.0%
- - ITALY 5.9%
- - BELGIUM 3.2%
- - OTHER COUNTRIES 15.4%
LARGEST PORTFOLIO HOLDINGS % OF TOTAL
(EXCLUDING SHORT-TERM INVESTMENTS) INVESTMENTS
- ---------------------------------- -----------
GLAXO WELLCOME PLC (U.K.) 2.8%
NOVARTIS AG (SWITZERLAND) 2.5%
HSBC HOLDING PLC(75P) (U.K.) 2.4%
LLOYDS TSB GROUP PLC (U.K.) 1.9%
BRITISH PETROLEUM CO. PLC (U.K.) 1.6%
BRITISH TELECOMMUNICATIONS PLC(U.K.) 1.4%
ROCHE HOLDING AG (SWITZERLAND) 1.4%
ENI SPA (ITALY) 1.4%
ROYAL DUTCH PETROLEUM CO. (NETHERLANDS) 1.4%
ELF AQUITAINE SA (FRANCE) 1.1%
6
<PAGE>
FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR FOR THE JPM INSTITUTIONAL EUROPEAN
EQUITY FUND (THE "FUND").
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN")SERVES AS PORTFOLIO
INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY AS
SHAREHOLDER SERVICING AGENT FOR CUSTOMERS. INVESTMENTS IN THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN OR ANY OTHER
BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
CAN FLUCTUATE, SO AN INVESTOR'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
Performance data quoted herein represent past performance. Please remember
that past performance is not a guarantee of future performance. Fund returns
are net of fees, assume the reinvestment of Fund distributions and reflect
the reimbursement of certain Fund expenses as described in the Prospectus.
Had expenses not been subsidized, returns would have been lower. The Fund
invests all of its investable assets in The European Equity Portfolio (the
"Portfolio"), a separately registered investment company which is not
available to the public but only to other collective investment vehicles such
as the Fund. References to specific securities and their issuers are for
illustrative purposes only and should not be interpreted as recommendations
to purchase or sell such securities. Opinions expressed herein on current
market conditions are subject to change without notice. The Portfolio invests
in foreign securities which are subject to special risks; prospective
investors should refer to the Fund's Prospectus for a discussion of these
risks.
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES, IS PROVIDED IN THE PROSPECTUS, WHICH SHOULD BE READ CAREFULLY
BEFORE INVESTING. YOU MAY OBTAIN ADDITIONAL COPIES OF THE PROSPECTUS BY
CALLING J.P. MORGAN FUNDS SERVICES AT (800) 766-7722.
7
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
8
<PAGE>
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The European Equity Portfolio
("Portfolio"), at value $10,739,297
Deferred Organization Expenses 12,468
Receivable for Expense Reimbursements 5,317
Other Assets 27,487
-----------
Total Assets 10,784,569
-----------
LIABILITIES
Organization Expenses Payable 7,161
Shareholder Servicing Fee Payable 870
Administrative Services Fee Payable 270
Administration Fee Payable 44
Accrued Trustees' Fees and Expenses 35
Fund Services Fee Payable 9
Accrued Expenses 49,570
-----------
Total Liabilities 57,959
-----------
NET ASSETS
Applicable to 822,577 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $10,726,610
-----------
-----------
Net Asset Value, Offering and Redemption Price
Per Share $13.04
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $ 8,779,478
Undistributed Net Investment Income 105,212
Accumulated Net Realized Gain on Investment and
Foreign Currency Transactions 425,921
Net Unrealized Appreciation of Investment and
Foreign Currency Translations 1,415,999
-----------
Net Assets $10,726,610
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $35,066) $ 140,586
Allocated Interest Income 10,784
Allocated Portfolio Expenses (36,318)
----------
Net Investment Income Allocated from
Portfolio 115,052
FUND EXPENSES
Registration Fees $ 9,242
Printing Expenses 7,434
Transfer Agent Fees 7,387
Professional Fees 5,638
Shareholder Servicing Fee 4,223
Amortization of Organization Expenses 1,683
Administrative Services Fee 1,321
Administration Fee 137
Fund Services Fee 137
Trustees' Fees and Expenses 70
Insurance Expense 18
Miscellaneous 992
-------
Total Fund Expenses 38,282
Less: Reimbursement of Expenses (32,368)
-------
NET FUND EXPENSES 5,914
----------
NET INVESTMENT INCOME 109,138
NET REALIZED GAIN ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS ALLOCATED FROM PORTFOLIO 367,885
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT AND FOREIGN CURRENCY TRANSLATIONS
ALLOCATED FROM PORTFOLIO 650,093
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $1,127,116
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 29,
1996
FOR THE SIX (COMMENCEMENT OF
MONTHS ENDED OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
-------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 109,138 $ 67,086
Net Realized Gain on Investment and Foreign
Currency Transactions Allocated from Portfolio 367,885 68,912
Net Change in Unrealized Appreciation of
Investment and Foreign Currency Translations
Allocated from Portfolio 650,093 765,906
-------------- ----------------
Net Increase in Net Assets Resulting from
Operations 1,127,116 901,904
-------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income -- (55,253)
Net Realized Gain -- (27,798)
-------------- ----------------
Total Distributions to Shareholders -- (83,051)
-------------- ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 3,125,000 6,230,075
Reinvestment of Dividends and Distributions -- 12,575
Cost of Shares of Beneficial Interest Redeemed (57,009) (530,000)
-------------- ----------------
Net Increase from Transactions in Shares of
Beneficial Interest 3,067,991 5,712,650
-------------- ----------------
Total Increase in Net Assets 4,195,107 6,531,503
NET ASSETS
Beginning of Period 6,531,503 --
-------------- ----------------
End of Period (including undistributed net
investment income (loss) of $105,212 and
($3,926), respectively) $ 10,726,610 $ 6,531,503
-------------- ----------------
-------------- ----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 29,
1996
FOR THE (COMMENCEMENT OF
SIX MONTHS ENDED OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
---------------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.56 $ 10.00
---------------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.13 0.12
Net Realized and Unrealized Gain on Investment
and Foreign Currency 1.35 1.59
---------------- ----------------
Total from Investment Operations 1.48 1.71
---------------- ----------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income -- (0.10)
Net Realized Gain -- (0.05)
---------------- ----------------
Total Distributions to Shareholders -- (0.15)
---------------- ----------------
NET ASSET VALUE, END OF PERIOD $ 13.04 $ 11.56
---------------- ----------------
---------------- ----------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 12.80%(a) 17.10%(a)
Net Assets, End of Period (in thousands) $ 10,727 $ 6,532
Ratios to Average Net Assets
Expenses 1.00%(b) 1.00%(b)
Net Investment Income 2.58%(b) 1.68%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.77%(b) 1.50%(c)
</TABLE>
- ------------------------
(a) Not Annualized.
(b) Annualized.
(c) After consideration of certain state limitations.
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Institutional European Equity Fund (the "Fund") is a separate series of
The JPM Institutional 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 February 29, 1996.
The Fund invests all of its investable assets in The European Equity Portfolio
(the "Portfolio"), a 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 (approximately 2% at June 30, 1997).
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 1 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 the net investment income and realized and unrealized gain and
loss of the Portfolio are allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Distributions to shareholders of net investment income and net realized
capital gains, if any, are declared and paid annually.
d)The Fund incurred organization expenses in the amount of $17,000. Morgan
Guaranty Trust Company of New York ("Morgan") has agreed to pay the
organization expenses of the Fund. The Fund has agreed to reimburse Morgan
for these costs which are being deferred and will be amortized on a
straight-line basis over a period not to exceed five years beginning with
the commencement of operations.
e)The Fund is treated as a separate entity for federal income tax purposes.
The Fund 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.
13
<PAGE>
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
f)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.
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 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 the 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 six
months ended June 30, 1997, the fee for these services amounted to $137.
b)The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for overseeing certain aspects of the administration and operation of the
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 daily based on the aggregate net assets of the
Portfolio and the other portfolios in which the Trust and The JPM Pierpont
Funds invest (the "Master Portfolios") and JPM Series Trust in accordance
with the following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their aggregate average
daily net assets in excess of $7 billion less the complex-wide fees
payable to FDI. The portion of this charge payable by the 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 JPM Series
Trust. For the six months ended June 30, 1997, the fee for these services
amounted to $1,321.
In addition, 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 April 30, 1998.
For the six months ended June 30, 1997, Morgan has agreed to reimburse the
Fund $32,368 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 and account
maintenance services 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 0.10% of the average daily net assets of
the Fund. For the six months ended June 30, 1997, the fee for these
services amounted to $4,223.
14
<PAGE>
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
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
$137 for the six months ended June 30, 1997.
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM Pierpont Funds, the Master Portfolios and
JPM Series Trust. The Trustees' Fees and Expenses shown in the financial
statements represents the Fund's allocated portion of the total fees and
expenses. Prior to April 1, 1997, the aggregate annual Trustee fee was
$65,000. 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 $30.
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 SIX FOR THE PERIOD
MONTHS ENDED FEBRUARY 29, 1996
JUNE 30, (COMMENCEMENT
1997 OF OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1996
------------ --------------------
<S> <C> <C>
Shares sold...................................... 262,434 614,762
Reinvestment of dividends and distributions...... -- 1,112
Shares redeemed.................................. (4,711) (51,020)
------------ --------------------
Net Increase..................................... 257,723 564,854
------------ --------------------
------------ --------------------
</TABLE>
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 the Portfolio.
4. 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 28, 1997, with unaffiliated lenders. The maximum commitment
borrowing under the Agreement is $150,000,000. The Agreement expires on May 27,
1998, however, the Fund as party to the Agreement will have the ability to
extend the Agreement and continue its participation therein for an additional
364 days. The purpose of the Agreement is to provide another alternative for
settling large fund shareholder redemptions. Interest on any such borrowing
outstanding will approximate market rates. The Funds pay a commitment fee at an
annual rate of 0.065% on the unused portion of the committed amount which is
allocated to the Funds in accordance with procedures established by their
respective Trustees or Directors. The Fund has not borrowed pursuant to the
Agreement as of June 30, 1997.
15
<PAGE>
The European Equity Portfolio
Semi-annual Report June 30, 1997
(unaudited)
(The following pages should be read in conjunction
with The JPM Institutional European Equity Fund
Semi-annual Financial Statements)
16
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMMON STOCK (89.6%)
BELGIUM (3.2%)
Arbed SA (Metals & Mining)....................... 15,690 $ 1,811,224
Banque Bruxelles Lambert SA (Banking)............ 4,970 1,258,053
Credit Communal Holding/Dexia (Banking).......... 23,960 2,575,949
Delhaize Le Lion (Retail)........................ 17,000 893,741
Electrabel SA (Utilities)........................ 23,200 4,975,576
Fortis AG (Insurance)............................ 17,264 3,568,053
Groupe Bruxelles Lambert SA (Multi - Industry)... 11,050 1,853,449
PetroFina SA (Oil-Production).................... 8,390 3,179,798
Solvay SA (Chemicals)............................ 2,300 1,356,328
-------------
21,472,171
-------------
FINLAND (0.9%)
Metra OY (Industrial)............................ 40,000 1,205,177
Rautaruukki OY (K Shares) (Metals & Mining)...... 174,200 1,827,769
UPM-Kymmene Corp. (Forest Products & Paper)...... 145,700 3,366,026
-------------
6,398,972
-------------
FRANCE (12.3%)
Alcatel Alsthom (Telecommunications-Equipment)... 9,198 1,153,092
AXA-UAP (Insurance).............................. 31,915 1,986,895
Canal Plus SA (Broadcasting & Publishing)........ 9,729 1,895,775
Carrefour Supermarche SA (Retail)................ 5,637 4,097,935
Christian Dior SA (Retail)....................... 13,030 2,152,825
Compagnie Bancaire SA (Financial Services)....... 10,144 1,292,061
Compagnie de Saint Gobain SA (Building
Materials)..................................... 33,281 4,858,137
Compagnie Generale de Geophysique, SA (Spon. ADR)
(Miscellaneous)+............................... 83,800 1,613,150
Compagnie Generale des Eaux (Utilities).......... 47,032 6,032,273
Credit Commercial de France SA (Banking)......... 29,100 1,234,198
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FRANCE (CONTINUED)
Credit Local de France (Financial Services)...... 11,905 $ 1,159,893
Elf Aquitaine SA (Oil-Services).................. 66,700 7,202,905
Erid Beghin Say SA (Food, Beverages & Tobacco)... 14,200 2,128,451
Essilor International SA (Health Services)....... 3,600 971,906
Genset SA (ADR) (Biotechnology)+................. 88,400 1,723,800
Groupe Danone (Food, Beverages & Tobacco)........ 13,328 2,204,331
L'Air Liquide SA (Chemicals)..................... 17,368 2,760,095
Lagardere S.C.A. (Entertainment, Leisure &
Media)......................................... 49,850 1,449,410
Pathe SA (Entertainment, Leisure & Media)........ 7,500 1,489,541
Peugeot SA (Automotive).......................... 16,305 1,577,472
Pinault-Printemps-Redoute SA (Retail)............ 2,700 1,298,736
Promodes (Retail)................................ 11,070 4,316,045
Rhone-Poulenc (A Shares) (Chemicals)............. 51,875 2,120,616
Sanofi SA (Pharmaceuticals)...................... 36,935 3,623,708
Schneider SA (Electronics)....................... 20,625 1,098,888
SEITA (Food, Beverages & Tobacco)................ 71,700 2,271,562
SGS Thomson Microelectronics NV (Electronics)+... 25,077 1,981,920
Sidel SA (Machinery)............................. 21,800 1,689,509
Societe Generale (Banking)....................... 31,468 3,516,135
Synthelabo (Pharmaceuticals)..................... 19,650 2,560,452
Thomson CSF (Electronics)........................ 49,852 1,285,586
Total SA (Oil-Services).......................... 32,361 3,274,168
Union des Assurances Federales (Insurance)....... 16,260 1,913,776
Usinor Sacilor (Metals & Mining)................. 85,450 1,542,803
Valeo SA (Automotive)............................ 28,472 1,770,123
-------------
83,248,172
-------------
GERMANY (11.3%)
Allianz AG (Insurance)........................... 7,080 1,483,013
AVA Allgemeine Handelsgesellschaft der
Verbraucher AG (Retail)+....................... 5,576 1,587,169
BASF AG (Chemicals).............................. 77,540 2,867,923
Bayer AG (Chemicals)............................. 116,980 4,499,195
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
GERMANY (CONTINUED)
Bayerische Hypotheken-und Wechsel Bank AG
(Banking)...................................... 189,126 $ 5,660,102
Bilfinger & Berger Bau AG (Construction &
Housing)....................................... 49,390 2,012,408
Continental AG (Automotive)...................... 228,060 5,667,033
Deutsche Bank AG (Banking)....................... 3,300 192,978
Deutsche Telekom AG (Utilities).................. 249,429 6,011,945
Douglas Holding AG (Retail)...................... 52,890 2,109,488
Dresdner Bank AG (Banking)....................... 135,280 4,681,334
Fried, Krupp AG Hoesch Krupp (Multi -
Industry)...................................... 22,540 4,410,898
Hannover Rueckversicherungs AG (Insurance)....... 24,469 1,699,105
Henkel KGaA (Chemicals).......................... 35,779 1,899,279
Lufthansa AG (Airlines).......................... 111,380 2,138,071
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance).................................... 2,327 6,530,162
Papierwerke Waldhof-Aschaffenburg AG (Forest
Products & Paper).............................. 8,350 1,427,978
SAP AG (Computer Software)....................... 29,020 5,828,868
Schering AG (Pharmaceuticals).................... 22,000 2,352,723
Siemens AG (Electrical Equipment)(1)............. 118,690 7,053,148
SKW Trostberg AG (Chemicals)..................... 86,600 2,927,197
VEBA AG (Utilities)(1)........................... 62,350 3,506,560
-------------
76,546,577
-------------
IRELAND (1.8%)
Allied Irish Banks PLC (Banking)................. 306,100 2,342,641
Bank of Ireland PLC (Banking).................... 172,800 1,889,989
CRH PLC (Building Materials)..................... 151,000 1,576,379
Elan Corp. PLC (Spon. ADR) (Pharmaceuticals)+.... 49,900 2,257,975
Greencore Group PLC (Food, Beverages &
Tobacco)....................................... 127,300 624,150
Irish Life PLC (Insurance)....................... 319,000 1,636,240
Jefferson Smurfit Group PLC (Forest Products &
Paper)......................................... 645,000 1,868,265
-------------
12,195,639
-------------
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
ITALY (5.8%)
Arnoldo Mondadori Editore SPA (Entertainment,
Leisure & Media)............................... 118,000 $ 681,023
Assicurazioni Generali SPA (Insurance)........... 99,000 1,797,884
Banca Fideuram SPA (Financial Services).......... 540,000 1,762,974
Banca Popolare di Bergamo Credito Varesino SPA
(Banking)...................................... 95,000 1,404,202
Edison SPA (Utilities)........................... 368,000 1,828,645
ENI SPA (Oil-Services)........................... 1,637,000 9,260,138
Fiat SPA (Automotive)............................ 787,000 2,830,702
Instituto Mobiliare Italiano SPA (Financial
Services)...................................... 117,000 1,052,072
Instituto Nazionale Delle Assicurazioni
(Insurance).................................... 2,195,000 3,341,199
Mediaset SPA (Broadcasting & Publishing)......... 392,000 1,662,227
Mediolanum SPA (Financial Services).............. 159,000 1,791,378
Montedison SPA (Multi - Industry)................ 3,254,000 2,145,747
Parmalat Finanziaria SPA (Food, Beverages &
Tobacco)....................................... 1,206,000 1,704,631
Stet Societa' Finanziaria Telefonica SPA
(Telecommunication Services)................... 447,000 1,549,985
Telecom Italia Mobile SPA (Telecommunication
Services)...................................... 1,440,000 2,572,789
Telecom Italia SPA (Telecommunications).......... 1,282,000 4,110,085
-------------
39,495,681
-------------
NETHERLANDS (5.9%)
Aegon NV (Insurance)............................. 32,384 2,264,359
Dutch State Mines NV (Chemicals)................. 13,457 1,341,358
Heineken NV (Food, Beverages & Tobacco).......... 5,800 991,670
ING Groep NV (Financial Services)................ 148,371 6,853,174
Koninklijke Hoogovens NV (Metals & Mining)....... 21,300 1,189,299
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
NETHERLANDS (CONTINUED)
Koninklijke PTT Nederland NV
(Telecommunications)........................... 33,320 $ 1,309,453
Moeara Enim Petroleum MIJ NV (Oil-Services)...... 900 1,570,952
Moeara Enim Petroleum MIJ NV (New shares)
(Oil-Services)................................. 130 2,952,552
Philips Electronics NV (Electronics)............. 60,620 4,350,062
PolyGram NV (Entertainment, Leisure & Media)..... 13,600 714,941
Royal Dutch Petroleum Co. (Oil-Services)......... 175,760 9,158,829
Unilever NV (Food, Beverages & Tobacco).......... 27,740 5,850,069
Wolters Kluwer NV (Broadcasting & Publishing).... 13,988 1,706,270
-------------
40,252,988
-------------
NORWAY (1.9%)
Kvaerner ASA (Series B) (Capital Goods).......... 57,000 3,192,276
Norsk Hydro ASA (Oil-Services)................... 110,000 5,995,250
Nycomed ASA (Series B) (Medical Supplies)........ 71,800 1,029,806
Storebrand ASA (A Shares) (Insurance)+........... 480,000 2,865,262
-------------
13,082,594
-------------
PORTUGAL (0.8%)
Banco Comercial Portugues SA (Banking)........... 169,003 3,195,665
Banco Espirito Santo e Comercial de Lisboa SA
(Banking)...................................... 7,260 164,743
Banco Totta & Acores SA (Registered B)
(Banking)...................................... 113,400 1,897,203
Cimpor Cimentos de Portugal SA (Building
Materials)..................................... 5,820 135,808
Electricidade de Portugal SA (Electric).......... 12,300 226,003
-------------
5,619,422
-------------
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
SPAIN (2.3%)
Acerinox SA (Metals & Mining).................... 3,700 $ 694,615
Banco Bilbao Vizcaya SA (Banking)................ 41,000 3,336,981
Banco Popular Espanol SA (Banking)............... 7,940 1,948,962
Fuerzas Electric de Cataluna SA (Electric)....... 107,441 1,026,413
Hidroelectrica del Cantabrico SA (Electric)...... 38,600 1,569,510
Iberdrola SA (Electric).......................... 294,900 3,729,610
Repsol SA (Gas Exploration)...................... 53,600 2,270,537
Vallehermoso SA (Real Estate).................... 27,000 729,754
-------------
15,306,382
-------------
SWEDEN (2.3%)
Astra AB (B Shares) (Pharmaceuticals)............ 46,594 822,526
Autoliv, Inc. (SDR) (Automotive Supplies)+....... 26,610 1,023,808
Avesta Sheffield AB (Metals & Mining)............ 89,000 1,030,149
Ericsson AB (B Shares) (Telecommunications-
Equipment)..................................... 100,000 3,937,985
Incentive AB (B Shares) (Pharmaceuticals)........ 31,800 2,907,591
Scania AB (B Shares) (Automotive)................ 50,800 1,550,467
SKF AB (A Shares) (Capital Goods)................ 30,000 746,859
SKF AB (B Shares) (Capital Goods)................ 49,000 1,267,398
Svenska Handelsbanken (Banking).................. 70,000 2,226,999
-------------
15,513,782
-------------
SWITZERLAND (8.2%)
ABB AG (Machinery)............................... 530 803,443
Bell AG (Food, Beverages & Tobacco).............. 2,825 1,042,528
Georg Fischer AG (Automotive Supplies)........... 1,110 1,545,632
Holderbank Financiere Glaris AG (Building
Materials)..................................... 1,446 1,367,791
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
SWITZERLAND (CONTINUED)
Julius Baer Holdings AG (Banking)................ 1,270 $ 1,947,011
Liechtenstein Global Trust AG (Banking).......... 3,920 2,406,558
Nestle SA (Food, Beverages & Tobacco)............ 4,200 5,548,719
Novartis AG (Pharmaceuticals).................... 10,490 16,794,362
Roche Holding AG (Pharmaceuticals)............... 1,029 9,320,537
Schweizerische Rueckversicherungs-Gesellschaft
(Insurance).................................... 2,328 3,297,541
Schweizerischer Bankverein (Banking)+............ 9,300 2,491,100
Societe Generale de Surveillance Holding SA
(Commercial Services).......................... 2,800 1,104,366
Union Bank of Switzerland (Banking).............. 4,500 5,154,851
Zurich Versicherungsgesellschaft (Insurance)..... 8,000 3,188,257
-------------
56,012,696
-------------
UNITED KINGDOM (32.9%)
Abbey National PLC (Banking)..................... 249,200 3,400,898
Allied Colloids Group PLC (Chemicals)............ 1,239,914 2,589,805
Allied Domecq PLC (Food, Beverages & Tobacco).... 400,000 2,875,911
Amersham International PLC (Biotechnology)....... 80,100 2,132,968
Bass PLC (Food, Beverages & Tobacco)............. 260,700 3,180,364
BAT Industries PLC (Food, Beverages & Tobacco)... 627,500 5,613,374
Britannic Assurance PLC (Insurance).............. 156,100 2,104,358
British Airways PLC (Airlines)................... 317,400 3,615,864
British Petroleum Co. PLC (Oil-Services)......... 843,017 10,480,662
British Telecommunications PLC
(Telecommunications)........................... 1,270,500 9,430,643
BTR PLC (Multi - Industry)....................... 942,800 3,224,506
Burmah Castrol PLC (Oil-Production).............. 128,800 2,177,917
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
UNITED KINGDOM (CONTINUED)
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)....................................... 452,700 $ 4,038,379
Cobham PLC (Aerospace)........................... 188,500 2,266,632
Compass Group PLC (Food, Beverages & Tobacco).... 393,100 4,396,470
Courtaulds PLC (Chemicals)....................... 236,000 1,331,507
Dalgety PLC (Food, Beverages & Tobacco).......... 415,200 1,782,825
Energy Group PLC (Energy Source)................. 207,200 2,210,444
Flextech PLC (Broadcasting & Publishing)+........ 94,400 1,021,215
General Cable PLC (Broadcasting & Publishing)+... 386,600 1,048,772
General Electric Co. PLC (Electrical
Equipment)..................................... 379,800 2,269,244
Glaxo Wellcome PLC (Pharmaceuticals)(1).......... 890,000 18,404,252
Glynwed International PLC (Metals & Mining)...... 695,700 2,690,621
Great Universal Stores PLC (Retail).............. 404,000 4,098,140
Guardian Royal Exchange PLC (Insurance).......... 741,300 3,349,620
Guinness PLC (Food, Beverages & Tobacco)......... 312,600 3,059,131
Hanson PLC (Building Materials).................. 295,200 1,464,079
Hillsdown Holdings PLC (Food, Beverages &
Tobacco)....................................... 838,000 2,363,989
HSBC Holdings PLC (Banking)...................... 11,700 346,559
HSBC Holdings PLC (75p) (Banking)................ 517,000 15,905,289
Hyder PLC (Water)................................ 122,116 1,646,226
Kingfisher PLC (Retail).......................... 281,600 3,196,309
Lloyds TSB Group PLC (Banking)................... 1,204,960 12,373,414
Lucas Varity PLC (Automotive Supplies)........... 934,100 3,233,616
Medeva PLC (Pharmaceuticals)..................... 300,400 1,284,887
MEPC PLC (Real Estate)........................... 443,100 3,626,418
Norwich Union PLC (Insurance)+................... 179,083 947,792
Pilkington PLC (Building Materials).............. 897,700 2,061,779
Premier Farnell PLC (Electronics)................ 185,000 1,437,872
Prudential Corp. PLC (Insurance)................. 340,000 3,321,158
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Racal Electronic PLC (Telecommunications-
Equipment)..................................... 644,800 $ 2,575,538
Rank Group PLC (Entertainment, Leisure &
Media)......................................... 579,300 3,668,512
Reed International PLC (Broadcasting &
Publishing).................................... 367,000 3,542,630
RMC Group PLC (Building Materials)............... 162,000 2,623,370
Rolls-Royce PLC (Aerospace)...................... 356,000 1,356,804
Royal Bank of Scotland Group PLC (Banking)....... 335,900 3,141,797
RTZ Corp. PLC (Metals & Mining).................. 142,065 2,474,333
Safeway PLC (Retail)............................. 296,500 1,714,791
Sainsbury (J.) PLC (Retail)...................... 832,841 5,045,396
Scottish Power PLC (Electric).................... 1,000,200 6,492,070
Sears PLC (Retail)............................... 2,253,000 2,549,775
Shell Transport & Trading Co. PLC
(Oil-Services)................................. 441,300 3,011,269
SmithKline Beecham PLC (Pharmaceuticals)......... 149,350 2,747,867
Standard Chartered PLC (Banking)................. 121,800 1,856,840
Tomkins PLC (Multi - Industry)................... 594,000 2,570,346
United News & Media PLC (Broadcasting &
Publishing).................................... 350,800 4,066,422
Vickers PLC (Capital Goods)...................... 760,300 2,581,350
Vodafone Group PLC (Telecommunications).......... 1,353,800 6,601,671
Wessex Water PLC (Water)......................... 274,100 1,856,672
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
UNITED KINGDOM (CONTINUED)
Willis Corroon Group PLC (Insurance)............. 580,800 $ 1,237,281
Zeneca Group PLC (Pharmaceuticals)............... 171,000 5,652,065
-------------
223,370,708
-------------
TOTAL COMMON STOCK (COST $479,894,194)......... 608,515,784
-------------
PREFERRED STOCK (2.0%)
GERMANY (2.0%)
CKAG Colonia Konzern AG (Insurance)(1)........... 26,600 2,243,973
GEA AG (Machinery)............................... 3,010 1,167,702
Jungheinrich AG (Machinery)...................... 11,350 1,869,375
MAN AG (Capital Goods)........................... 4,890 1,240,366
RWE AG (Utilities)............................... 198,260 6,906,254
Volkswagen AG (Automotive)....................... 70 39,368
-------------
13,467,038
-------------
TOTAL PREFERRED STOCK (COST $12,415,633)....... 13,467,038
-------------
WARRANTS (1.6%)
GERMANY (1.6%)
Allianz AG, Expiring 02/23/98 (Insurance)+....... 12,190 1,157,765
Muenchener Rueckversicherungs-Gesellschaft AG,
Expiring 03/13/98 (Insurance)+................. 1,200 423,521
Veba International Finance, Expiring 04/06/98
(Utilities)+................................... 7,640 2,678,881
Volkswagen AG, Expiring 10/27/98 (Automotive)+... 14,790 6,204,464
-------------
10,464,631
-------------
TOTAL WARRANTS (COST $4,053,561)............... 10,464,631
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
CONVERTIBLE BONDS (0.0%)(2)
(IN DEM)
------------
GERMANY (0.0%)(2)
Commerzbank AG, 8.00% due 06/01/07 (Banking)
(cost $2,395).................................. 3,000 $ 2,535
-------------
SHORT-TERM INVESTMENTS (5.0%)
REPURCHASE AGREEMENT (0.5%)
State Street Bank and Trust Repurchase Agreement,
5.00% due 07/01/97, dated 06/30/97, proceeds
$3,045,423 (collateralized by U.S. Treasury
Note, 5.875% due 08/15/98, valued at
$3,106,129)(1) (Banking)....................... $ 3,045,000 3,045,000
-------------
TIME DEPOSITS--FOREIGN (4.3%)
State Street Bank Cayman Islands, 5.25% due
07/01/97 (Banking)............................. 29,455,000 29,455,000
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.2%)
United States Treasury Bills, 5.30% due
11/13/97(1) (Government Obligations)........... $ 1,500,000 $ 1,470,760
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$33,970,845).................................. 33,970,760
-------------
TOTAL INVESTMENTS
(COST $530,336,628) (98.2%).................................. 666,420,748
OTHER ASSETS IN EXCESS OF
LIABILITIES (1.8%)........................................... 12,434,054
-------------
NET ASSETS (100.0%)............................................ $ 678,854,802
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $531,088,833 for Federal Income Tax
purposes at June 30, 1997, the aggregate gross unrealized appreciation and
depreciation was $146,717,603 and $11,385,688, respectively, resulting in net
unrealized appreciation of $135,331,915.
+ - Non-income producing securities.
1 - Security fully or partially segregated as collateral for futures contracts.
2 - Less than 0.1%
ADR - American Depository Receipt
SDR - Swedish Depository Receipt
Spon. ADR - Sponsored ADR
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY DIVERSIFICATION
PERCENT OF
PORTFOLIO
----------
<S> <C>
Banking.......................................................... 17.9%
Pharmaceuticals.................................................. 10.3%
Oil-Services..................................................... 7.9%
Insurance........................................................ 7.6%
Food, Beverages & Tobacco........................................ 7.4%
Retail........................................................... 5.0%
Utilities........................................................ 4.8%
Chemicals........................................................ 3.6%
Telecommunications............................................... 3.2%
Automotive....................................................... 2.9%
Broadcasting & Publishing........................................ 2.2%
Multi-Industry................................................... 2.1%
Building Materials............................................... 2.1%
Financial Services............................................... 2.1%
Metals & Mining.................................................. 2.0%
Electric......................................................... 2.0%
Electronics...................................................... 1.5%
Electrical Equipment............................................. 1.4%
Capital Goods.................................................... 1.4%
Entertainment, Leisure & Media................................... 1.2%
Telecommunications-Equipment..................................... 1.2%
Forest Products & Paper.......................................... 1.0%
Computer Software................................................ 0.9%
Automotive Supplies.............................................. 0.9%
Airlines......................................................... 0.9%
Machinery........................................................ 0.8%
Oil-Production................................................... 0.8%
Real Estate...................................................... 0.7%
Telecommunication Services....................................... 0.6%
Biotechnology.................................................... 0.6%
Aerospace........................................................ 0.5%
Water............................................................ 0.5%
Gas Exploration.................................................. 0.3%
Energy Sources................................................... 0.3%
Construction & Housing........................................... 0.3%
Miscellaneous.................................................... 0.2%
Government Obligations........................................... 0.2%
Industrial....................................................... 0.2%
Commercial Services.............................................. 0.2%
Hospital Supplies................................................ 0.2%
Health Services.................................................. 0.1%
----------
100.0%
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $530,336,628) $666,420,748
Foreign Currency at Value (Cost $9,729,207) 9,669,004
Cash 902
Receivable for Investments Sold 16,143,691
Dividends Receivable 1,909,942
Deferred Organization Expenses 18,313
Interest Receivable 4,850
Prepaid Trustees' Fees 650
------------
Total Assets 694,168,100
------------
LIABILITIES
Payable for Investments Purchased 14,242,507
Variation Margin Payable 420,198
Advisory Fee Payable 359,402
Custody Fee Payable 222,078
Administrative Services Fee Payable 17,167
Organization Expenses Payable 5,228
Administration Fee Payable 1,710
Fund Services Fee Payable 568
Accrued Expenses 44,440
------------
Total Liabilities 15,313,298
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $678,854,802
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $2,495,681) $ 8,646,999
Interest Income (Net of Foreign Withholding Tax
of $43) 798,749
-----------
Investment Income 9,445,748
EXPENSES
Advisory Fee $ 2,157,335
Custodian Fees and Expenses 518,851
Administrative Services Fee 103,914
Professional Fees and Expenses 25,418
Fund Services Fee 11,180
Administration Fee 8,210
Trustees' Fees and Expenses 5,135
Printing Expenses 3,864
Amortization of Organization Expenses 3,311
Insurance Expense 675
Miscellaneous 199
-----------
Total Expenses 2,838,092
-----------
NET INVESTMENT INCOME 6,607,656
NET REALIZED GAIN (LOSS) ON
Investment Transactions (including $2,611,029
net realized gain from futures contracts) 48,195,997
Foreign Currency Transactions (474,684)
-----------
Net Realized Gain 47,721,313
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments (including $225,844 net unrealized
depreciation from futures contracts) 23,874,249
Foreign Currency Contracts and Translations (61,760)
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
<TABLE>
<S> <C> <C>
Net Change in Unrealized Appreciation 23,812,489
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $78,141,458
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 6,607,656 $ 9,485,132
Net Realized Gain on Investment and Foreign
Currency Transactions 47,721,313 28,212,359
Net Change in Unrealized Appreciation of
Investments and Foreign Currency Translations 23,812,489 75,161,064
------------- -----------------
Net Increase in Net Assets Resulting from
Operations 78,141,458 112,858,555
------------- -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 118,363,590 276,685,442
Withdrawals (207,719,394) (131,367,814)
------------- -----------------
Net Increase (Decrease) from Investors'
Transactions (89,355,804) 145,317,628
------------- -----------------
Total Increase (Decrease) in Net Assets (11,214,346) 258,176,183
NET ASSETS
Beginning of Period 690,069,148 431,892,965
------------- -----------------
End of Period $ 678,854,802 $ 690,069,148
------------- -----------------
------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 28, 1995
FOR THE FOR THE FISCAL (COMMENCEMENT OF
SIX MONTHS ENDED YEAR ENDED OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.86%(a) 0.84% 0.90%(a)
Net Investment Income 1.99%(a) 1.65% 1.67%(a)
Portfolio Turnover 33%(b) 57% 36%(b)
Average Broker Commissions $0.0270 $0.0230 --
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The European Equity Portfolio (the "Portfolio") is one of eight subtrusts
(portfolios) comprising The Series Portfolio (the "Series Portfolio"). The
Series Portfolio is registered under the Investment Company Act of 1940, as
amended, as a no-load open-end management investment company which was organized
as a trust under the laws of the State of New York on June 24, 1994. The
Portfolio's investment objective is to provide a high total return from a
portfolio of equity securities of European companies. The Portfolio commenced
operations on March 28, 1995. The Declaration of the Trust permits the Trustees
to issue an unlimited number of beneficial interests in the Portfolio.
Investments in European markets may involve certain considerations and risks not
typically associated with investments in the United States. Future economic and
political developments in European countries could adversely affect the
liquidity or value, or both, of such securities in which the Portfolio is
invested. The ability of the issuers of the debt securities held by the
Portfolio to meet their obligations may be affected by economic and political
developments in a specific industry or region.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing
bid and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter
market. Securities or other assets for which market quotations are not
readily available are valued at fair value in accordance with procedures
established by the Portfolio's Trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
portfolio securities with a remaining maturity of less than 60 days are
valued at amortized cost.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the 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.
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
27
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
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 become 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 may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily based on procedures
established by and under the general supervision of the Portfolio's
Trustees, and the change in the market value is recorded by the Portfolio
as unrealized appreciation or depreciation of foreign currency
translations. At June 30, 1997, the Portfolio had no open forward foreign
currency contracts.
e) Futures -- A futures contract is an agreement to purchase/sell a
specified quantity of an underlying instrument at a specified future date
or to make/receive a cash payment based on the value of a securities
index. The price at which the purchase and sale will take place 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
28
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
correlation in 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. Futures transactions
for the six months ended June 30, 1997, are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF PRINCIPAL AMOUNT
CONTRACTS OF CONTRACTS
--------- ----------------
<S> <C> <C>
Contracts opened................................. 705 $ 106,402,181
Contracts closed................................. (563) (77,030,827)
--------- ----------------
Contracts open at end of period.................. 142 $ 29,371,354
--------- ----------------
--------- ----------------
</TABLE>
SUMMARY OF OPEN CONTRACTS AT JUNE 30, 1997
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/
CONTRACTS LONG (DEPRECIATION)
-------------- --------------
<S> <C> <C>
Financial Times-Stock Exchange 100-Share Index,
expiring September 1997......................... 66 $ (393,268)
German Stock Exchange Index, expiring September
1997............................................ 76 167,424
-------------- --------------
Totals........................................... 142 $ (225,844)
-------------- --------------
-------------- --------------
</TABLE>
f) 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.
g) 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.
h) The Portfolio incurred organization expenses in the amount of $33,000.
Morgan Guaranty Trust Company of New York ("Morgan") has agreed to pay
the organization expenses of the Portfolio. The Portfolio has agreed to
reimburse Morgan for these costs which are being deferred and will be
amortized on a straight-line basis over a period not to exceed five years
beginning with the commencement of operations of the Portfolio.
i) Expenses incurred by the Series Portfolio with respect to any two or more
portfolios in the Series Portfolio are allocated in proportion to the net
assets of each portfolio in the Series Portfolio, 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.
29
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) The Portfolio has an Investment Advisory Agreement with Morgan. Under the
terms of the agreement, the Portfolio pays Morgan at an annual rate of
0.65% of the Portfolio's average daily net assets. For the six months
ended June 30, 1997 such fees amounted to $2,157,335.
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 JPM Pierpont Funds, The JPM Institutional Funds, the
Portfolio and the other portfolios in which The JPM Pierpont Funds and
The JPM Institutional Funds invest (the "Master Portfolios"), JPM Series
Trust, JPM Series Trust II and certain other investment companies subject
to similar agreements with FDI. For the six months ended June 30, 1997,
the fee for these services amounted to $8,210.
c) The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing
certain aspects of the administration and operation of the Portfolio.
Under the Services Agreement, the Portfolio has agreed to pay Morgan a
fee equal to its allocable share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate average daily net
assets of the Master Portfolios and JPM Series Trust in accordance with
the following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their aggregate average
daily net assets in excess of $7 billion less the complex-wide fees
payable to FDI. The portion of this charge payable by the Portfolio is
determined by the proportionate share 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 JPM Series Trust. For the
six months ended June 30, 1997, the fee for these services amounted to
$103,914.
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 $11,180 for the six months ended June 30, 1997.
e) An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the Portfolio's allocated
portion of the total fees and expenses. Prior to April 1, 1997, the
aggregate annual Trustee fee was $65,000. The Portfolio's Chairman and
Chief Executive 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
$2,300.
30
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended June 30, 1997 were as follows:
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
$213,986,877 $291,276,027
31
<PAGE>
JPM INSTITUTIONAL PRIME MONEY MARKET FUND
JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
JPM INSTITUTIONAL TREASURY MONEY MARKET FUND
JPM INSTITUTIONAL SHORT TERM BOND FUND
JPM INSTITUTIONAL BOND FUND
JPM INSTITUTIONAL TAX EXEMPT BOND FUND
JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
JPM INSTITUTIONAL SHARES: CALIFORNIA BOND FUND
JPM INSTITUTIONAL INTERNATIONAL BOND FUND
JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
JPM INSTITUTIONAL DIVERSIFIED FUND
JPM INSTITUTIONAL U.S. EQUITY FUND
JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
JPM INSTITUTIONAL U.S. SMALL COMPANY FUND
JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
JPM INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND
JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND
JPM INSTITUTIONAL EUROPEAN EQUITY FUND
JPM INSTITUTIONAL JAPAN EQUITY FUND
JPM INSTITUTIONAL ASIA GROWTH FUND
FOR MORE INFORMATION ON THE JPM INSTITUTIONAL FAMILY OF FUNDS, CALL J.P. MORGAN
FUNDS SERVICES AT (800)766-7722.
The
JPM Institutional
European
Equity Fund
SEMI-ANNUAL REPORT
JUNE 30, 1997
