<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INTERNATIONAL EQUITY FUND
June 8, 1998
Dear Shareholder:
In a period plagued by increased volatility in global equity markets, the
J.P. Morgan International Equity Fund recorded a strong positive gain of
15.20% for the six months ended April 30, 1998. Although the fund
underperformed its benchmark (the MSCI EAFE Index) for the period, successful
country-allocation decisions helped protect the fund from the turmoil in
Southeast Asia and Japan, and provided a healthy exposure to
strongly-performing Europe. The MSCI EAFE Index posted a 15.44% return for
the reporting period.
The fund's net asset value increased from $10.97 per share to $11.60 at April
30, 1998 after making distributions of approximately $0.42 per share from
ordinary income, approximately $0.45 from short-term capital gains, and
approximately $0.02 from long-term capital gains. The fund's net assets stood at
$113.3 million as of April 30, 1998, down from $146.7 million on October 31,
1997. The net assets of the International Equity Portfolio, in which the fund
invests, totaled approximately $622.6 million at April 30, 1998.
The following report includes an interview with Nigel F. Emmett, a member of the
portfolio management team responsible for the fund. 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 appreciate your
investment in the fund. If you have any comments or questions, please call
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
J.P. Morgan & Co. Incorporated Services
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS . . . . . . 1 FUND FACTS AND HIGHLIGHTS. . . . 6
FUND PERFORMANCE . . . . . . . . . . . 2 SPECIAL FUND-BASED SERVICES. . . 7
PORTFOLIO MANAGER Q&A. . . . . . . . . 3 FINANCIAL STATEMENTS. . . . . .10
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One 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.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
---------------- --------------------------------------
THREE SIX ONE THREE FIVE SINCE
AS OF APRIL 30, 1998 MONTHS MONTHS YEAR YEARS YEARS INCEPTION*
- -------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan International Equity Fund 10.27% 15.20% 15.73% 9.63% 8.28% 6.00%
MSCI EAFE Index** 10.56% 15.44% 18.92% 9.50% 10.09% 6.82%
Lipper International Fund Average 13.58% 16.25% 20.89% 13.36% 12.41% 9.10%
AS OF MARCH 31, 1998
- -------------------------------------------------------- --------------------------------------
J.P. Morgan International Equity Fund 12.61% 5.26% 14.45% 10.15% 9.70% 5.87%
MSCI EAFE Index** 14.71% 5.73% 18.61% 10.57% 11.93% 6.78%
Lipper International Fund Average 14.67% 5.91% 19.45% 14.06% 13.28% 8.99%
</TABLE>
*6/1/90 -- COMMENCEMENT OF OPERATIONS.
** MSCI EAFE INDEX IS AN UNMANAGED INDEX USED TO TRACK THE AVERAGE PERFORMANCE
OF OVER 900 SECURITIES LISTED ON THE STOCK EXCHANGES OF COUNTRIES IN EUROPE,
AUSTRALASIA, AND THE FAR EAST. THE INDEX DOES NOT INCLUDE FEES OR EXPENSES AND
IS NOT AVAILABLE FOR ACTUAL INVESTMENT.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF FEES
AND ASSUME THE REINVESTMENT OF DISTRIBUTIONS. LIPPER ANALYTICAL SERVICES, INC.
IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with NIGEL F. EMMETT, vice president, a portfolio
manager with the International Equity Group. Nigel joined J.P. Morgan in 1997.
Prior to J.P. Morgan, he was employed by Brown Brothers Harriman & Co. in New
York and Gartmore Investment Management in London. Nigel earned a BA degree in
Economics from Manchester University, is an Associate Member of the Institute of
Investment Management and Research (AMIIR), and is a Chartered Financial
Analyst. This interview was conducted on May 7, and reflects Nigel's views on
that date.
WITH SOME OF THE DUST HAVING SETTLED REGARDING ASIA'S TURMOIL, HOW DID
INTERNATIONAL EQUITY MARKETS BEHAVE OVER THE PAST SIX MONTHS?
NFE: The EAFE Index for the six months ending April reported a respectable
return of 15.4%. When we break down where the return came from, it was much of
the same story we saw last year: European markets continued to do well, Japan
continued to be sluggish, and Asia was, again, mixed.
The beginning of the period started quite positively, with the first few months
of 1998 seeing Asia rebound. I feel the thing to focus on is the European
markets, because that's what has driven the positive return. Europe continued to
provide buoyant investment returns, with all major European markets doing well.
WHAT'S BEHIND EUROPE'S SUCCESS?
NFE: In terms of what's driving the European return, there are a number of
factors. First, at the economic level, domestic demand in Europe continues to
improve at a faster rate than almost any commentator would have expected. So, we
are seeing the European economies rebound. Secondly, we're also beginning to see
the benefits of restructuring, both past and current, which has positively
impacted many major European corporations.
For instance, in recent weeks, Phillips Electronics NV, the large consumer
electronics company in the Netherlands, has entered into another round of
restructuring. This reflects a positive trend that we've recently witnessed
regarding many European companies, and maintains a positive outlook for further
upside surprises in Europe going forward.
COMPARING EUROPE TO JAPAN, DO YOU THINK JAPAN WILL EVER WORK ITS WAY OUT OF ITS
PROBLEMS IN THE SAME WAY EUROPE HAS?
NFE: Well, I think it's a social issue as much as anything else. If you
remember, for many years, U.S. companies didn't get to grips with their cost
problems. It really happened on the back of the early '90s
recession that U.S. companies realized they were operating in a global
environment. If they wanted to be
3
<PAGE>
successful globally, they had to be competitive. To be competitive, they had to
work at reducing costs and improving margins. And if you look at the recent
success in the U.S. corporate world in terms of earnings growth, it hasn't
necessarily come from sales growth; it's come much more from successfully
managing the margin.
In Europe, you had an environment for many years where companies didn't focus on
delivering return to shareholders. A decade ago, or even five years ago, when we
visited large European companies, all that management wanted to talk about was
sales growth. "We want to be the biggest player in this sector; we want to
achieve 10% sales growth next year," were some of the policies we heard European
managements talk about.
Now, sales growth is great, but only if you can actually make a decent margin on
your sales. Being big for the sake of being big is not necessarily a good thing.
And so we've seen this trend of focusing on profit margins all around the world.
The U.K. was pretty close to the U.S. -- the U.K. was the next major economy
after the U.S. in terms of the restructuring cycle. Continental-Europe was much
later.
We need to understand that global context in order to understand Japan. The
whole model of Japanese economic growth in the post-war period reflects more of
a consensual relationship between the corporation and the employee. If you were
employed by a Japanese corporation, it was assumed you were employed for life.
An employee's life was dedicated to the company, and the company was dedicated
to the employee -- not exactly the social environment for restructuring,
cost-cutting, and layoffs. So if restructuring is to be part of the equation
which will make Japanese companies competitive, the whole employer/employee
social relationship has to break down. This is a very difficult challenge for
Japan, and unlikely to occur overnight.
The other issue regarding Japan over the past decade can be summed up in one
term: "profitless prosperity." For many years, much of corporate Japan has
generated very low returns on capital. However, this is only recently begun to
affect both management and employees. Until recently, job security meant that
management had little incentive to deliver value to the shareholder. However,
with many Japanese industries now opening up to foreign competition and with
some notable companies going into bankruptcy, the situation has begun to change.
So to answer your original question regarding Japan following in Europe's
footsteps, yes, we are seeing signs of change. But that change is happening
slowly and has met, and will continue to meet with resistance.
LET'S FOCUS ON THE FUND AND ITS PERFORMANCE OVER THE REPORTING PERIOD. WITH THE
NEGATIVE IMPACT OF JAPAN AND SOUTHEAST ASIA, HOW HAS THE FUND PERFORMED?
NFE: In general, the negative environment in Asia did not detract too much from
the fund's overall performance, as country allocation decisions were quite
positive. Specifically, the portfolio was underweight in Japan and Malaysia,
which actually helped returns. The portfolio also had an overweight position in
Europe, which additionally contributed to its strong return for the period.
Currency management was also successful due to our decision to underweight the
Japanese yen.
4
<PAGE>
What specifically detracted from the fund's performance, however, were
stock-selection decisions in Japan. While we were correct to keep the fund
underexposed to Japan, we did still maintain some Japanese investments which
did not perform well, particularly in the period from January through March.
However, many of the companies which hurt performance at the beginning of
1998, have done particularly well since the end of the reporting period.
Strong fundamentals at the company level have now begun to be reflected in
share-price outperformance.
LOOKING INTO THE SECOND HALF OF 1998, HOW DO YOU PERCEIVE THINGS PANNING OUT,
AND HOW IS THE PORTFOLIO POSITIONED ACCORDINGLY?
NFE: We continue to underweight the portfolio in Japan. However, the Japanese
market is no longer grossly overvalued, and we see several undervalued companies
which are well managed. So while we will maintain an overall underweight
position in Japan, we expect to keep the portfolio invested in these companies,
as we believe their value will be realized in the future.
We also expect to maintain a significant commitment to Europe: the news flow
remains positive, we continue to see earnings growth ahead of expectations, and
domestic demand is stronger than expected. Restructuring continues, and
merger-and-acquisition activity also continues to support share prices.
Specifically, we find value in some U.K. companies. Despite the fact that the
strength of sterling has hurt the exporters, some U.K. companies are still quite
attractive. Also, in some of the northern European markets, such as Germany and
France, there are attractive opportunities, particularly in French banks.
In Asia, ex. Japan, we continue to be nervous about Malaysia. We believe that
the volatile political situation in Indonesia could have a negative effect on
Malaysia, Indonesia's closest neighbor. Although, within the region, we can find
value in some Australian stocks.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan International Equity Fund seeks
to provide a high total return from a portfolio of equity securities of foreign
companies. It is designed for investors with a long-term investment horizon who
want to diversify their portfolios by investing in an actively managed portfolio
of non-U.S. securities that seeks to outperform the MSCI EAFE Index. As an
international investment, the fund is subject to foreign market, political, and
currency risks.
- -------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
6/1/90
- -------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/98
$113,264,979
- -------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 4/30/98
$622,563,371
- -------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/98
EXPENSE RATIO
The fund's current annualized expense ratio of 1.17% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services. 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 APRIL 30, 1998
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
UNITED KINGDOM 24.4%
JAPAN 16.5%
GERMANY 13.5%
FRANCE 11.0%
SWITZERLAND 7.1%
NETHERLANDS 4.9%
SWEDEN 3.2%
SPAIN 2.9%
AUSTRALIA 2.8%
OTHER 13.7%
</TABLE>
LARGEST COMMON
STOCK HOLDINGS % OF TOTAL INVESTMENTS
- ---------------------------------------------------------
<TABLE>
<S> <C>
LLOYDS TSB GROUP PLC (U.K.) 2.1%
COMPAGNIE GENERALE DES EAUX (FRANCE) 2.0%
NESTLE SA (SWITZERLAND) 1.9%
UNION BANK OF SWITZERLAND
(SWITZERLAND) 1.8%
GLAXO WELLCOME PLC (U.K.) 1.6%
MUENCHENER RUECKVERSICHERUNGS-
GESELLSCHAFT AG (GERMANY) 1.6%
IBERDROLA SA (SPAIN) 1.5%
ROCHE HOLDING AG (SWITZERLAND) 1.3%
HSBC HOLDING PLC (75P) (U.K.) 1.3%
NIPPON TELEGRAPH & TELEPHONE CORP.
(JAPAN) 1.3%
</TABLE>
6
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- - create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives.
- - make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends.
- - make investments through the J.P. Morgan funds, a family of diversified
mutual funds.
PAAS is available to clients who invest a minimum of $500,000 in the J.P. Morgan
funds.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow
tax-deferred until retirement, the IRA enables more of your dollars to work for
you longer. Morgan offers an IRA Rollover plan that helps you to build
well-balanced long-term investment portfolios, diversified across a wide array
of mutual funds. From money markets to emerging markets, the J.P. Morgan funds
provide an excellent way to help you accumulate long-term wealth for retirement.
7
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW
YORK SERVES AS AN INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS
CAPACITY AS SHAREHOLDER SERVICING AGENT. 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.
The fund invests in foreign securities which are subject to special risks;
prospective investors should refer to the funds prospectus for a discussion of
these risks. The fund invests through a master portfolio (another fund with the
same objective).
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.
8
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The International Equity Portfolio
("Portfolio"), at value $113,324,319
Receivable for Shares of Beneficial Interest Sold 22,360
Prepaid Trustees' Fees 796
Prepaid Expenses and Other Assets 1,456
------------
Total Assets 113,348,931
------------
LIABILITIES
Shareholder Servicing Fee Payable 24,257
Payable for Shares of Beneficial Interest
Redeemed 9,497
Administrative Services Fee Payable 2,823
Administration Fee Payable 687
Fund Services Fee Payable 385
Accrued Expenses 46,303
------------
Total Liabilities 83,952
------------
NET ASSETS
Applicable to 9,760,089 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $113,264,979
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $11.60
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $ 91,108,124
Distributions in Excess of Net Investment Income (355,908)
Accumulated Net Realized Gain on Investment and
Foreign Currency Contracts and Transactions 1,831,033
Net Unrealized Appreciation of Investment and
Foreign Currency Contracts and Translations 20,681,730
------------
Net Assets $113,264,979
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $111,584) $ 911,829
Allocated Interest Income (Net of Foreign
Withholding Tax of $85) 125,966
Allocated Portfolio Expenses (485,783)
-----------
Net Investment Income Allocated from
Portfolio 552,012
FUND EXPENSES
Shareholder Servicing Fee $151,732
Transfer Agent Fees and Expenses 18,984
Administrative Services Fee 18,145
Printing Expenses 9,602
Registration Fees 9,541
Interest Expense 9,067
Professional Fees 6,281
Line of Credit Expense 2,288
Fund Services Fee 1,985
Administration Fee 1,502
Trustees' Fees and Expenses 1,118
Insurance Expense 552
Miscellaneous 3,604
--------
Total Fund Expenses 234,401
-----------
NET INVESTMENT INCOME 317,611
NET REALIZED GAIN ON INVESTMENT AND FOREIGN
CURRENCY CONTRACTS AND TRANSACTIONS ALLOCATED
FROM PORTFOLIO 1,809,203
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT AND FOREIGN CURRENCY CONTRACTS AND
TRANSLATIONS ALLOCATED FROM PORTFOLIO 13,947,143
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $16,073,957
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1997
------------ ----------------
<S> <C> <C>
DECREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 317,611 $ 2,016,366
Net Realized Gain on Investment and Foreign
Currency Contracts and Transactions Allocated
from Portfolio 1,809,203 6,943,599
Net Change in Unrealized Appreciation
(Depreciation) of Investment and Foreign
Currency Contracts and Translations Allocated
from Portfolio 13,947,143 (1,416,556)
------------ ----------------
Net Increase in Net Assets Resulting from
Operations 16,073,957 7,543,409
------------ ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (4,150,532) (4,418,970)
In Excess of Net Investment Income (355,908) --
Net Realized Gain (5,060,474) (9,301,667)
------------ ----------------
Total Distributions to Shareholders (9,566,914) (13,720,637)
------------ ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 11,690,010 34,549,327
Reinvestment of Dividends and Distributions 6,667,184 9,300,971
Cost of Shares of Beneficial Interest Redeemed (58,258,339) (91,733,829)
------------ ----------------
Net Decrease from Transactions in Shares of
Beneficial Interest (39,901,145) (47,883,531)
------------ ----------------
Total Decrease in Net Assets (33,394,102) (54,060,759)
NET ASSETS
Beginning of Period 146,659,081 200,719,840
------------ ----------------
End of Period (including distributions in excess
of net investment income of $355,908 and
undistributed net investment income of
$3,832,921, respectively) $113,264,979 $ 146,659,081
------------ ----------------
------------ ----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED OCTOBER 31,
APRIL 30, 1998 ----------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.97 $ 11.38 $ 10.68 $ 11.50 $ 11.15 $ 8.58
---------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.15 0.12 0.09 0.05 0.01
Net Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency Transactions 1.42 0.23 1.16 (0.42) 0.57 2.64
---------------- -------- -------- -------- -------- --------
Total from Investment Operations 1.52 0.38 1.28 (0.33) 0.62 2.65
---------------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.39) (0.25) (0.24) -- (0.04) (0.08)
In Excess of Net Investment Income (0.03) -- -- -- -- --
Net Realized Gain (0.47) (0.54) (0.34) (0.49) (0.23) --
---------------- -------- -------- -------- -------- --------
Total Distributions to Shareholders (0.89) (0.79) (0.58) (0.49) (0.27) (0.08)
---------------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.60 $ 10.97 $ 11.38 $ 10.68 $ 11.50 $ 11.15
---------------- -------- -------- -------- -------- --------
---------------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Total Return 15.20%(a) 3.46% 12.31% (2.71%) 5.73% 31.18%
Net Assets, End of Period (in thousands) $ 113,265 $146,659 $200,720 $185,541 $210,435 $182,822
Ratios to Average Net Assets
Expenses 1.17%(b) 1.12% 1.14% 1.28% 1.38% 1.38%
Net Investment Income 0.52%(b) 1.11% 1.00% 0.80% 0.46% 0.79%
Expenses Without Reimbursement and Including
Interest Expense 1.19%(b) 1.12% 1.14% 1.28% 1.45% 1.51%
Interest Expense 0.02%(b) -- -- -- -- --
Portfolio Turnover -- -- -- -- -- 34.15(c)
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
(c) 1993 Portfolio Turnover reflects the period November 1, to October 3, 1993.
After October 3, 1993, all the Fund's investable assets are invested in The
International Equity Portfolio.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan International Equity Fund (the "fund") is a separate series of
the 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, prior to its tax-free reorganization on October 3, 1993, to a series
of the trust, operated as a stand-alone mutual fund. Costs related to the
reorganization were borne by Morgan Guaranty Trust Company of New York
("Morgan"). This report includes a period which preceded the fund's
reorganization and reflects the operations of the predecessor entity. Prior to
January 1, 1998, the trust's and the fund's names were The JPM Pierpont Funds
and The JPM Pierpont International Equity Fund, respectively.
The fund invests all of its investable assets in The International 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 (18% at April
30, 1998). 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 the 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) Distributions to shareholders of net investment income and net realized
capital gains, if any, are declared and paid annually.
d) 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.
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.
14
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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 April 30, 1998, the fee for these services amounted to
$1,502.
b) The trust, on behalf of the fund, 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 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 other portfolios in which the trust and the J.P. Morgan
Institutional Funds (formerly The JPM Institutional Funds) invest (the
"master portfolios") and J.P. Morgan Series Trust (formerly JPM Series
Trust) in accordance with the followingannual 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 six months ended April 30, 1998, the fee for
these services amounted to $18,145.
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 six months ended April 30, 1998, the fee for these
services amounted to $151,732.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreement")
whereby Schwab makes the 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.
15
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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
$1,985 for the six months ended April 30, 1998.
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 these 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 Funds
Services Fee shown in the financial statements was $400.
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 MONTHS ENDED FOR THE FISCAL
APRIL 30, 1998 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
Shares of beneficial interest sold............... 1,079,342 3,087,525
Reinvestment of dividends and distributions...... 670,069 862,798
Shares of beneficial interest redeemed........... (5,360,322) (8,220,861)
---------------- ----------------
Net Decrease..................................... (3,610,911) (4,270,538)
---------------- ----------------
---------------- ----------------
</TABLE>
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 28, 1997, with unaffiliated lenders. The maximum borrowing
under the Agreement is $100,000,000. The Agreement expired on May 27, 1998,
however, the fund as party to the Agreement has extended the Agreement and will
continue its participation therein for an additional 364 days until May 26,
1999. The maximum borrowing under the new Agreement will be $150,000,000.
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
purpose of the Agreement is to provide another alternative for settling large
fund shareholder redemptions. Interest on such borrowings 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 the procedures established by their respective trustees
or directors. There were no outstanding borrowings pursuant to the Agreement at
April 30, 1998. The average daily balance outstanding for the six months ended
April 30, 1998, was $497,238 at a weighted average interest rate of 6.00%. The
average amount of debt per share during the period was $0.04.
16
<PAGE>
The International Equity Portfolio
(unaudited)
Semi-Annual Report April 30, 1998
(The following pages should be read in conjunction
with J.P. Morgan International Equity Fund
Semi-Annual Financial Statements)
17
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCK (89.0%)
AUSTRALIA (2.3%)
Broken Hill Propietary Co. Ltd. (Metals &
Mining)(s)..................................... 363,805 $ 3,557,898
CSR Ltd. (Building Materials)(s)................. 308,933 986,947
Fosters Brewing Group Ltd. (Food, Beverages &
Tobacco)(s).................................... 575,705 1,253,661
Mayne Nickless Ltd. (Commercial Services)(s)..... 222,100 1,199,271
National Australia Bank Ltd. (Banking)(s)........ 120,605 1,714,176
Telstra Corp. Ltd. (Installment Receipts)
(Telecommunication Services)(s)................ 560,900 1,316,502
Westpac Banking Corp. Ltd. (Banking)(s).......... 339,000 2,276,515
WMC Ltd. (Metals & Mining)(s).................... 481,000 1,712,266
-------------
14,017,236
-------------
BELGIUM (0.4%)
Algemene Maatschappij voor Nijverheidskredit NV
(Financial Services)(s)........................ 23,500 1,561,040
PetroFina SA (Oil-Production)(s)................. 2,780 1,095,995
-------------
2,657,035
-------------
DENMARK (0.9%)
Danisco A/S (Food, Beverages & Tobacco)(s)....... 25,000 1,570,907
GN Store Nord A/S (Telecommunications-
Equipment)(s).................................. 78,700 1,976,131
Olicom A/S (Technology)(s)+...................... 63,600 1,877,372
-------------
5,424,410
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
FINLAND (1.6%)
Merita PLC (Banking)(s).......................... 441,900 $ 2,960,554
Nokia AB OYJ (Telecommunications-
Equipment)(s)+................................. 57,400 3,856,107
UPM-Kymmene OYJ (Forest Products & Paper)(s)..... 99,700 2,992,051
-------------
9,808,712
-------------
FRANCE (10.4%)
AXA-UAP (Insurance)(s)........................... 26,092 3,061,096
Carrefour Supermarche SA (Retail)(s)............. 4,213 2,411,824
Christian Dior SA (Retail)(s).................... 21,200 2,871,167
Compagnie de Saint Gobain SA (Building
Materials)(s).................................. 16,334 2,719,726
Compagnie Financiere de Paribas (Financial
Services)(s)+.................................. 69,315 7,371,776
Compagnie Generale des Eaux (Utilities)(s)....... 62,293 11,573,000
Elf Aquitaine SA (Oil-Services)(s)............... 33,341 4,371,400
L'Air Liquide SA (Chemicals)(s).................. 20,026 3,693,874
Lagardere S.C.A. (Multi - Industry)(s)........... 46,300 1,769,594
PSA Peugeot Citroen (Automotive)(s).............. 19,655 3,409,875
Sanofi SA (Pharmaceuticals)(s)................... 20,768 2,515,864
SEITA (Food, Beverages & Tobacco)(s)............. 41,000 1,839,554
SGS Thomson Microelectronics NV
(Electronics)(s)+.............................. 50,200 4,287,773
Societe Generale (Banking)(s).................... 32,600 6,782,454
Total SA (Oil-Services)(s)....................... 34,773 4,131,551
Union des Assurances Federales (Insurance)(s).... 12,460 1,948,375
-------------
64,758,903
-------------
GERMANY (11.8%)
Adidas - Salomon AG (Apparels & Textiles)(s)..... 15,900 2,635,974
Allianz AG Holding (Insurance)(s)................ 8,400 2,583,898
Bayer AG (Chemicals)(s).......................... 59,900 2,663,709
Bilfinger & Berger Bau AG (Construction &
Housing)(s).................................... 41,740 1,407,229
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
GERMANY (CONTINUED)
Continental AG (Automotive)(s)................... 59,940 $ 1,703,507
Degussa AG (Chemicals)(s)........................ 6,564 356,640
Deutsche Bank AG (Banking)(s).................... 79,300 6,102,726
Dresdner Bank AG (Banking)(s).................... 116,700 6,314,618
Hannover Rueckversicherungs AG (Insurance)(s).... 23,854 3,030,771
Henkel KGAA (Chemicals)(s)+...................... 30,315 2,120,110
Karstadt AG (Retail)(s).......................... 4,971 2,243,809
Lufthansa AG (Airlines)(s)....................... 250,800 5,967,775
Merck KGAA (Pharmaceuticals)(s).................. 51,400 2,005,018
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance)(s)................................. 20,220 9,239,576
SAP AG (Computer Software)(s).................... 10,450 4,949,852
Schering AG (Pharmaceuticals)(s)................. 28,700 3,078,716
SGL Carbon AG (Chemicals)(s)..................... 15,300 1,612,278
Siemens AG (Electrical Equipment)(s)............. 81,410 4,763,477
SKW Trostberg AG (Chemicals)(s).................. 31,000 1,070,188
VEBA AG (Utilities)(s)........................... 97,500 6,443,863
Volkswagen AG (Automotive)(s).................... 3,792 3,019,657
-------------
73,313,391
-------------
HONG KONG (1.3%)
Hong Kong Electric Holdings Ltd. (Electric)(s)... 703,500 2,161,527
HSBC Holdings PLC (Banking)(s)................... 75,200 2,145,506
Hutchison Whampoa Ltd. (Multi - Industry)(s)..... 248,000 1,533,581
Sun Hung Kai Properties Ltd. (Real Estate)(s).... 405,000 2,405,096
-------------
8,245,710
-------------
IRELAND (0.9%)
CRH PLC (Building Materials)(s).................. 78,200 1,116,951
Irish Life PLC (Insurance)(s).................... 170,500 1,582,823
Jefferson Smurfit Group PLC (Forest Products &
Paper)(s)...................................... 842,500 3,135,612
-------------
5,835,386
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
ITALY (2.3%)
ENI SPA (Oil-Services)(s)+....................... 748,300 $ 5,023,295
Instituto Bancario San Paolo di Torino SPA
(Banking)(s)................................... 181,400 2,620,751
Mediolanum SPA (Financial Services)(s)........... 60,400 1,810,006
Telecom Italia SPA - RNC (Telecommunication
Services)(s)................................... 971,900 5,122,912
-------------
14,576,964
-------------
JAPAN (14.0%)
Bridgestone Corp. (Chemicals)(s)................. 241,000 5,508,362
Canon Inc. (Electronics)(s)...................... 111,000 2,629,455
Canon Sales Co., Inc. (Miscellaneous)(s)......... 87,000 1,165,443
DDI Corp. (Telecommunications)(s)................ 483 1,224,589
Ebara Corp. (Machinery)(s)....................... 169,000 1,649,966
Fanuc Ltd. (Machinery)(s)........................ 83,000 3,065,465
Fuji Photo Film Co. Ltd. (Electronics)(s)........ 90,000 3,208,203
Fujitsu Ltd. (Computer Systems)(s)............... 495,000 5,788,049
Hitachi Ltd. (Electrical Equipment)(s)........... 320,000 2,298,342
Ito - Yokado Co. Ltd. (Retail)(s)................ 59,000 3,058,729
Japan Tobacco, Inc. (Food, Beverages &
Tobacco)(s).................................... 281 2,013,978
Mitsubishi Corp. (Wholesale & International
Trade)(s)...................................... 437,000 3,307,348
Mitsubishi Estate Co. Ltd. (Real Estate)(s)...... 235,000 2,276,545
Mitsui Mining & Smelting Co. Ltd. (Metals &
Mining)(s)+.................................... 419,000 1,744,115
Nintendo Co. Ltd. (Retail)(s).................... 20,600 1,892,711
Nippon Steel Corp. (Metals & Mining)(s)+......... 1,343,000 2,164,981
Nippon Telegraph & Telephone Corp.
(Telecommunications)(s)........................ 865 7,594,035
Nishimatsu Construction Co. Ltd. (Construction &
Housing)(s)+................................... 32,000 138,046
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
JAPAN (CONTINUED)
Nomura Securities Co. Ltd. (Financial
Services)(s)................................... 174,000 $ 2,126,769
Ricoh Co. Ltd. (Electrical Equipment)(s)......... 177,000 1,836,577
Rohm Co. Ltd. (Electrical Equipment)(s).......... 18,000 2,035,268
Sekisui Chemical Co. Ltd. (Chemicals)(s)......... 249,000 1,370,037
Shin-Etsu Chemical Co. Ltd. (Chemicals)(s)....... 114,000 2,225,989
Shohkoh Fund & Co. Ltd. (Financial
Services)(s)................................... 2,700 860,289
Sony Corp. (Electronics)(s)...................... 61,100 5,091,280
Takeda Chemical Industries Ltd. (Chemicals)(s)... 162,000 4,634,526
Takefuji Corp. (Financial Services)(s)........... 36,100 1,898,849
TDK Corp. (Electronics)(s)....................... 16,000 1,266,631
The Kagawa Bank Ltd. (Banking)(s)................ 39,000 197,760
The Mitsui Trust & Banking Co. Ltd.
(Banking)(s)................................... 553,000 1,201,173
The Sanwa Bank Ltd. (Banking)(s)................. 141,000 1,248,543
Toho Bank Ltd. (Banking)(s)...................... 140,000 556,270
Tokyo Steel Manufacturing Co. Ltd. (Metals &
Mining)(s)..................................... 50,000 220,616
Tostem Corp. (Construction & Housing)(s)......... 78,000 985,847
Toyoda Gosei Co. Ltd. (Automotive)(s)............ 47,000 133,391
Toyota Motor Corp. Ltd. (Automotive)(s).......... 277,000 7,232,648
Yamanouchi Pharmaceutical Co. Ltd.
(Pharmaceuticals)(s)........................... 54,000 1,279,195
-------------
87,130,020
-------------
NETHERLANDS (4.7%)
ASM Lithography Holding NV
(Semiconductors)(s)+........................... 19,100 1,733,688
ING Groep NV (Financial Services)(s)............. 97,600 6,342,386
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
NETHERLANDS (CONTINUED)
Moeara Enim Petroleum Maatschappij NVJ, New
shares (Oil-Services)(s)....................... 160 $ 3,705,988
Philips Electronics NV (Electronics)(s).......... 77,682 6,843,504
Royal Dutch Petroleum Co. (Oil-Services)(s)...... 70,370 3,883,297
Unilever NV (Food, Beverages & Tobacco)(s)....... 30,880 2,197,730
Vendex International NV (Retail)(s).............. 36,800 2,360,429
Wolters Kluwer NV (Broadcasting &
Publishing)(s)................................. 14,800 1,934,498
-------------
29,001,520
-------------
NEW ZEALAND (0.7%)
Fletcher Challenge Paper Division Ltd. (Forest
Products & Paper)(s)........................... 961,800 1,416,219
Lion Nathan Ltd. (Food, Beverages &
Tobacco)(s).................................... 328,100 871,433
Telecom Corp. of New Zealand
(Telecommunications)(s)........................ 397,200 1,887,013
-------------
4,174,665
-------------
NORWAY (0.9%)
Kvaerner ASA, Series A (Capital Goods)(s)........ 11,400 505,948
Kvaerner ASA, Series B (Capital Goods)(s)........ 39,020 1,590,502
Norsk Hydro ASA (Oil-Services)(s)................ 42,300 2,109,874
Nycomed Amersham PLC, B Shares
(Biotechnology)(s)+............................ 49,190 1,596,120
-------------
5,802,444
-------------
PORTUGAL (0.4%)
Portugal Telecom SA (Telecommunications)(s)...... 51,700 2,778,224
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
SINGAPORE (1.0%)
City Developments Ltd. (Real Estate)(s).......... 346,000 $ 1,496,754
Singapore Airlines Ltd. (Airlines)(s)............ 407,600 2,651,278
United Overseas Bank Ltd. (Banking)(s)........... 457,000 2,164,519
-------------
6,312,551
-------------
SPAIN (2.7%)
Acerinox SA (Metals & Mining)(s)................. 7,300 1,183,020
Actividades de Construction y Servicios SA
(Construction & Housing)(s)+................... 54,800 1,797,723
Banco Bilbao Vizcaya SA (Banking)(s)............. 63,820 3,282,805
Iberdrola SA (Electric)(s)....................... 530,300 8,524,324
Vallehermoso SA (Real Estate)(s)................. 52,900 2,047,764
-------------
16,835,636
-------------
SWEDEN (3.0%)
Astra AB, A Shares (Pharmaceuticals)(s).......... 125,000 2,568,222
Autoliv, Inc. (SDR) (Automotive Supplies)(s)..... 108,200 3,285,645
Incentive AB, B Shares (Holding Companies)(s).... 25,100 2,432,543
Skandia Forsakrings AB (Insurance)(s)............ 77,769 5,416,525
Stora Kopparbergs Bergslags Aktiebolag AB (Forest
Products & Paper)(s)........................... 128,992 2,208,534
Svenska Handelsbanken AB (Banking)(s)............ 61,600 2,793,916
-------------
18,705,385
-------------
SWITZERLAND (6.7%)
ABB AG (Machinery)(s)............................ 2,255 3,698,348
Holderbank Financiere Glarus AG (Building
Materials)(s).................................. 1,700 1,799,805
Nestle SA (Food, Beverages & Tobacco)(s)......... 5,765 11,184,547
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
SWITZERLAND (CONTINUED)
Novartis AG (Pharmaceuticals)(s)................. 1,415 $ 2,339,560
Roche Holding AG (Pharmaceuticals)(s)............ 767 7,775,134
Union Bank of Switzerland (Banking)(s)........... 6,575 10,590,557
Zurich Versicherungs - Gesellschaft
(Insurance)(s)................................. 7,000 4,265,504
-------------
41,653,455
-------------
UNITED KINGDOM (23.0%)
Bass PLC (Food, Beverages & Tobacco)(s).......... 133,928 2,541,579
BAT Industries PLC (Food, Beverages &
Tobacco)(s).................................... 370,100 3,490,073
Billiton PLC (Metals & Mining)(s)+............... 437,300 1,250,293
British Airways PLC (Airlines)(s)................ 235,000 2,447,892
British Petroleum Co. PLC (Oil-Services)(s)...... 392,238 6,197,519
British Sky Broadcasting Group PLC (Broadcasting
& Publishing)(s)............................... 165,000 1,200,078
British Telecommunications PLC
(Telecommunications)(s)........................ 473,700 5,144,213
Burmah Castrol PLC (Oil-Production)(s)........... 47,200 976,221
Cable & Wireless Communications PLC
(Telecommunications)(s)........................ 379,000 4,340,764
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)(s).................................... 122,300 1,783,115
Compass Group PLC (Food, Beverages &
Tobacco)(s).................................... 203,200 3,516,417
Diageo PLC (Food, Beverages & Tobacco)(s)........ 383,961 4,570,918
Flextech PLC (Broadcasting & Publishing)(s)+..... 104,600 865,712
Glaxo Wellcome PLC (Pharmaceuticals)(s).......... 334,300 9,446,250
Glynwed International PLC (Metals & Mining)(s)... 637,200 3,270,774
Great Universal Stores PLC (Retail)(s)........... 224,000 3,411,951
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
HSBC Holdings PLC (75p) (Banking)(s)............. 245,500 $ 7,745,684
Kingfisher PLC (Retail)(s)....................... 63,600 1,154,844
Lloyds TSB Group PLC (Banking)(s)................ 837,050 12,532,951
Lucas Varity PLC (Automotive Supplies)(s)........ 898,900 4,016,664
MEPC PLC (Real Estate)(s)........................ 218,000 2,239,828
MFI Furniture Group PLC (Household
Products)(s)................................... 1,013,334 1,541,808
National Power PLC (Electric)(s)................. 148,000 1,441,432
Nycomed Amersham PLC (Biotechnology)(s).......... 19,200 636,912
Pilkington PLC (Building Materials)(s)........... 762,000 1,598,951
PowerGen PLC (Electric)(s)....................... 38,000 513,371
Prudential Corp. PLC (Insurance)(s).............. 271,000 3,837,859
Racal Electronic PLC (Telecommunications-
Equipment)(s).................................. 558,600 3,105,481
Rank Group PLC (Entertainment, Leisure &
Media)(s)...................................... 333,000 2,154,724
Reed International PLC (Broadcasting &
Publishing)(s)................................. 263,000 2,324,005
RMC Group PLC (Building Materials)(s)............ 108,000 1,896,048
Royal & Sun Alliance Insurance Group PLC
(Insurance)(s)................................. 297,000 3,317,182
Royal Bank of Scotland Group PLC (Banking)(s).... 356,300 5,498,622
Sainsbury (J.) PLC (Retail)(s)................... 363,000 2,843,496
Sears PLC (Retail)(s)............................ 2,570,000 2,599,710
Shell Transport & Trading Co. PLC
(Oil-Services)(s).............................. 295,200 2,196,407
Smith & Nephew PLC (Medical Supplies)(s)......... 431,000 1,243,090
SmithKline Beecham PLC (Pharmaceuticals)(s)...... 203,000 2,420,037
Tomkins PLC (Multi - Industry)(s)................ 365,000 2,148,186
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Unilever PLC (Food, Beverages & Tobacco)(s)...... 386,600 $ 4,117,538
Vickers PLC (Capital Goods)(s)................... 274,300 1,082,366
Vodafone Group PLC (Telecommunications)(s)....... 422,900 4,631,433
Wessex Water PLC (Water)(s)...................... 442,600 3,663,135
Zeneca Group PLC (Pharmaceuticals)(s)............ 146,400 6,305,555
-------------
143,261,088
-------------
TOTAL COMMON STOCK (COST $445,437,521)......... 554,292,735
-------------
</TABLE>
<TABLE>
<S> <C> <C>
PREFERRED STOCK (2.2%)
AUSTRALIA (0.4%)
News Corporation Ltd. (Broadcasting &
Publishing)(s)................................. 439,863 2,477,791
-------------
AUSTRIA (0.9%)
Bank Austria AG (Banking)(s)+.................... 70,022 5,395,244
-------------
GERMANY (0.9%)
ProSieben Media AG (Broadcasting &
Publishing)(s)+................................ 31,060 1,601,033
ProSieben Media AG (ADR)(144A) (Broadcasting &
Publishing)(s)+................................ 6,764 174,308
RWE AG (Utilities)(s)............................ 51,610 2,159,886
Volkswagen AG (Automotive)(s).................... 2,517 1,493,791
-------------
5,429,018
-------------
TOTAL PREFERRED STOCK (COST $10,136,232)....... 13,302,053
-------------
</TABLE>
<TABLE>
<S> <C> <C>
WARRANTS (0.1%)
GERMANY (0.1%)
RWE AG, Expiring 07/07/98 (Utilities)(s)+........ 51,610 451,534
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
JAPAN (0.0%)
Fujitsu Ltd., Expiring 06/25/99 (Computer
Systems)(s)+................................... 87 $ 229,138
-------------
TOTAL WARRANTS (COST $596,772)................. 680,672
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
CONVERTIBLE BONDS (1.5%)
(IN JPY)
-------------
JAPAN (1.5%)
BOT Cayman Finance Ltd., 4.25% due 03/31/49
(Financial Services)........................... $ 530,000,000 4,191,704
Sanwa International Finance Trust, 1.25% due
07/31/05 (Financial Services)(s)............... 273,000,000 2,012,014
Yamanouchi Pharmaceutical Co. Ltd., 1.25% due
03/31/14 (Commercial Services)(s).............. 280,000,000 3,337,621
-------------
9,541,339
-------------
TOTAL CONVERTIBLE BONDS (COST $11,356,965)..... 9,541,339
-------------
</TABLE>
<TABLE>
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.6%)
EURO DOLLAR TIME DEPOSITS (1.4%)
(IN USD)
-------------
State Street Bank Euro Dollar, 5.25% due
05/01/98+...................................... 8,419,000 8,419,653
-------------
U.S. TREASURY OBLIGATIONS (0.2%)
(IN USD)
-------------
United States Treasury Bills, 5.09% due
08/20/98(s).................................... 1,410,000 1,387,545
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$9,806,545)................................... 9,807,198
-------------
TOTAL INVESTMENTS (COST $477,334,035) (94.4%)...................
587,623,997
-------------
</TABLE>
<TABLE>
<CAPTION>
LOCAL
CURRENCY
-----------------
<S> <C> <C>
FOREIGN CURRENCY (5.8%)
Australian Dollar................................ AUD 2,116,309 1,379,789
Austrian Schilling............................... ATS 31,892,829 2,525,555
<CAPTION>
LOCAL
SECURITY DESCRIPTION CURRENCY VALUE
-------------------------- ----------------- -------------
<S> <C> <C>
FOREIGN CURRENCY (CONTINUED)
Belgian Franc.................................... BEL 11,044,427 $ 298,232
British Pound.................................... GBP 280,972 469,785
Canadian Dollar.................................. CAD 3 2
Danish Kroner.................................... DKK 3,456 505
Finnish Markka................................... FIM 14,729,844 2,703,673
French Franc..................................... FRF 39,357,349 6,540,196
German Mark...................................... DEM 5,537,433 3,085,783
Greek Drachma.................................... GRD 78,810 251
Hong Kong Dollar................................. HKD 574,414 74,156
Irish Punt....................................... IEP 213,530 299,892
Italian Lira..................................... ITL 1,867,576,265 1,053,966
Japanese Yen..................................... JPY 733,107,748 5,548,381
Malaysian Ringgit................................ MYR 168,956 45,175
Netherlands Guilder.............................. NLG 4,685,540 2,318,984
New Zealand Dollar............................... NZD 8,082,690 4.491,129
Norwegian Krone.................................. NOK 30,323 4,066
Singapore Dollar................................. SGD 4,951,544 3,126,976
Spanish Peseta................................... ESP 256,127,607 1,680,462
Swedish Krona.................................... SBK 845,184 109,214
Swiss Franc...................................... CHF 295,311 196,882
-------------
TOTAL FOREIGN CURRENCY (COST $35,962,155)...... 35,953,054
-------------
TOTAL INVESTMENTS AND FOREIGN CURRENCY (COST $513,296,190)
(100.2%).......................................................... 623,577,051
OTHER LIABILITIES IN EXCESS OF ASSETS (-0.2%).......................
(1,013,680)
-------------
NET ASSETS (100.0%)................................................. $ 622,563,371
-------------
-------------
</TABLE>
- ------------------------------
Note: The cost of investments for federal income tax purposes at April 30, 1998
was $478,467,229, the aggregate gross unrealized appreciation and depreciation
was $140,099,463 and $30,942,695, respectively, resulting in net unrealized
appreciation of $109,156,768.
+ - Non-income producing security.
(s) - Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$225,581,647 of the market value has been segregated.
144A - Securities restricted for resale to Qualified Institutional Buyers.
ADR - American Depositary Receipt
SDR - Swedish Depositary Receipt
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
TOTAL INVESTMENTS
-----------------
<S> <C>
Banking........................................... 15.7%
Food, Beverages & Tobacco......................... 7.0%
Pharmaceuticals................................... 6.8%
Oil - Services.................................... 6.5%
Financial Services................................ 5.4%
Utilities......................................... 4.8%
Electronics....................................... 4.7%
Metals & Mining................................... 4.3%
Retail............................................ 4.2%
Chemicals......................................... 4.0%
Electrical Equipment.............................. 3.5%
Telecommunications................................ 2.9%
Automotive........................................ 2.6%
Broadcasting & Publishing......................... 2.2%
Telecommunication Services........................ 1.9%
Electric.......................................... 1.9%
Real Estate....................................... 1.8%
Automotive Supplies............................... 1.8%
Building Materials................................ 1.7%
Telecommunications Equipment...................... 1.7%
Technology........................................ 1.5%
Forest Products & Paper........................... 1.4%
Multi-Industry.................................... 1.2%
Airlines.......................................... 1.1%
Computer Systems.................................. 1.0%
Miscellaneous..................................... 8.4%
-----------------
100.0%
-----------------
-----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $477,334,035 ) $587,623,997
Cash 200
Foreign Currency at Value (Cost $35,962,155) 35,953,054
Receivable for Investments Sold 9,498,054
Unrealized Appreciation of Forward Foreign
Currency Contracts 326,564
Dividends Receivable 1,762,887
Foreign Tax Reclaim Receivable 990,815
Interest Receivable 21,672
Prepaid Trustees' Fees 1,485
Variation Margin Receivable 338,938
Prepaid Expenses and Other Assets 1,374
------------
Total Assets 636,519,040
------------
LIABILITIES
Payable for Investments Purchased 12,739,302
Unrealized Depreciation of Forward Foreign
Currency Contracts 590,329
Advisory Fee Payable 310,937
Custody Fee Payable 234,012
Administrative Services Fee Payable 5,723
Fund Services Fee Payable 2,039
Administration Fee Payable 113
Accrued Expenses 73,214
------------
Total Liabilities 13,955,669
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $622,563,371
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $594,937) $ 4,852,952
Interest Income (Net of Foreign Withholding Tax
of $453) 667,691
-----------
Investment Income 5,520,643
EXPENSES
Advisory Fee $ 1,946,850
Custodian Fees and Expenses 482,941
Administrative Services Fee 97,020
Professional Fees and Expenses 27,391
Fund Services Fee 10,564
Administration Fee 6,766
Trustees' Fees and Expenses 5,640
Printing Expenses 3,545
Insurance Expense 3,253
Registration Fees 272
-----------
Total Expenses 2,584,242
-----------
NET INVESTMENT INCOME 2,936,401
NET REALIZED GAIN/LOSS ON
Investment Transactions (870,335)
Futures Contracts 4,089,493
Foreign Currency Contracts and Transactions 3,375,890
-----------
Net Realized Gain 6,595,048
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION OF INVESTMENTS
Investments 75,688,867
Futures Contracts 2,177,096
Foreign Currency Contracts and Translations (604,626)
-----------
Net Change in Unrealized Appreciation 77,261,337
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $86,792,786
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1997
------------- ----------------
<S> <C> <C>
DECREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 2,936,401 $ 13,010,955
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 6,595,048 29,988,650
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations 77,261,337 (4,366,805)
------------- ----------------
Net Increase in Net Assets Resulting from
Operations 86,792,786 38,632,800
------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 144,984,889 151,295,413
Withdrawals (372,822,630) (353,091,842)
------------- ----------------
Net Decrease from Investors' Transactions (227,837,741) (201,796,429)
------------- ----------------
Total Decrease in Net Assets (141,044,955) (163,163,629)
NET ASSETS
Beginning of Period 763,608,326 926,771,955
------------- ----------------
End of Period $ 622,563,371 $ 763,608,326
------------- ----------------
------------- ----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FISCAL YEAR ENDED OCTOBER 4, 1993
SIX MONTHS ENDED OCTOBER 31, (COMMENCEMENT OF
APRIL 30, 1998 ----------------------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 1995 1994 OCTOBER 31, 1993
---------------- ------ ------ ---- ---- -------------------
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%(a) 0.77% 0.79% 0.82% 0.95% 0.99%(a)
Net Investment Income 0.90%(a) 1.47% 1.39% 1.31% 0.93% 0.43%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- -- -- -- -- 0.17%(a)
Portfolio Turnover 40% 67% 57% 59% 56% 54%(b)
Average Broker Commissions 0.0183 0.0018 0.0020 -- -- --
</TABLE>
- ------------------------
(a) Annualized.
(b) Portfolio turnover for the fiscal year ended October 31, 1993, included the
portfolio activity of The Pierpont International Equity Fund, Inc. for the
period November 1, 1992 through October 3, 1993, prior to conversion when The
Pierpont International Equity Fund, Inc. contributed all of its investable
assets to the Portfolio.
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The International Equity Portfolio (the "portfolio") 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. The portfolio's investment objective is to provide a high
total return from a portfolio of equity securities of foreign companies. The
portfolio commenced operations on October 4, 1993 and received a contribution of
certain assets and liabilities, including securities, with a value of
$160,213,973 on that date from The Pierpont International Equity Fund, Inc. in
exchange for a beneficial interest in the portfolio. At that date, net
unrealized appreciation of $11,116,204 was included in the contributed
securities. The Declaration of Trust permits the trustees to issue an unlimited
number of beneficial interests in the portfolio.
Investments in international markets may involve certain considerations and
risks not typically associated with investments in the United States. Future
economic and political developments in foreign countries could adversely affect
the liquidity or value, or both, of such securities in which the portfolio is
invested. The ability of the issuers of debt 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
short-term portfolio securities with a remaining maturity of less than 60
days are valued by the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the portfolio's trustees.
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
29
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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 the 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 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 at the current foreign exchange
rates, and the change in the market value is recorded by the portfolio as
unrealized appreciation or depreciation of forward foreign currency
contract translations. At April 30, 1998, the portfolio had open forward
currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 4/30/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
Austrian Schilling 32,941,053, expiring
7/24/98......................................... $ 2,616,446 $ 2,617,852 $ 1,406
Belgian Franc 98,818,000, expiring 7/24/98....... 2,662,338 2,680,169 17,831
Deutsche Mark 43,358,420, expiring 7/24/98....... 24,246,116 24,274,330 28,214
Deutsche Mark 7,013,656 for Swedish Krona
30,076,960, expiring 7/24/98.................... 3,896,274 3,926,615 30,341
Finnish Markka 14,729,844, expiring 7/24/98...... 2,712,504 2,716,428 3,924
French Franc 19,668,000 for Netherland Guilder
6,600,000, expiring 7/24/98..................... 3,282,082 3,283,940 1,858
Irish Pound 2,700,000, expiring 7/24/98.......... 3,762,585 3,788,198 25,613
Italian Lira 8,237,039,993 expiring 7/24/98...... 4,612,392 4,655,646 43,254
Japanese Yen 386,332,881 for Portuguese Escudo
548,399,525, expiring 7/24/98................... 2,991,014 2,959,407 (31,607)
Japanese Yen 321,325,000 for Netherland Guilder
5,000,000, expiring 7/24/98..................... 2,486,425 2,461,431 (24,994)
</TABLE>
30
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Netherland Guilder 33,160,960, expiring
7/24/98......................................... 16,380,394 16,490,450 110,056
Norwegian Krone 12,000,000, expiring 7/24/98..... 1,607,135 1,614,982 7,847
New Zealand Dollar 9,092,751, expiring 7/24/98... 5,003,059 5,015,893 12,834
Spanish Peseta 591,330,550, expiring 7/24/98..... 3,859,406 3,891,695 32,289
Swedish Krona 46,937,867, expiring 7/24/98....... 6,073,741 6,080,494 6,753
Swiss Franc 6,412,490, expiring 7/24/98.......... 4,330,550 4,317,201 (13,349)
</TABLE>
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
SETTLEMENT VALUE AT APPRECIATION/
SALES CONTRACTS VALUE 4/30/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
Austrian Schilling 55,294,028 for Portugese
Escudo 806,380,457, expiring 7/24/98............ $ 4,398,063 $ 4,394,261 $ 3,802
Australian Dollar 1,984,615 for Malaysian
Ringgit, 4,935,738, expiring 7/24/98............ 1,293,139 1,296,109 (2,970)
Deutsche Mark 5,759,706 for British Pound
1,913,947, expiring 7/24/98..................... 3,187,430 3,224,587 (37,157)
Deutsche Mark 110,851,023, expiring 7/24/98...... 61,620,531 62,060,248 (439,717)
Finnish Markka 7,000,000, expiring 7/24/98....... 1,281,934 1,290,916 (8,982)
French Franc 51,696,771, expiring 7/24/98........ 8,571,414 8,631,740 (60,326)
French Franc 13,222,578 for Italian Lira
3,912,031,921, expiring 7/24/98................. 2,211,114 2,207,756 3,358
Irish Pound 2,967,458, expiring 7/24/98.......... 4,131,295 4,163,451 (32,156)
Japanese Yen 1,549,762,354, expiring 7/24/98..... 12,001,427 11,871,570 129,857
New Zealand Dollar 11,576,435, expiring
7/24/98......................................... 6,373,406 6,385,984 (12,578)
Singapore Dollar 9,266,273, expiring 7/24/98..... 5,778,779 5,837,945 (59,166)
--------------
NET UNREALIZED DEPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ (263,765)
--------------
--------------
</TABLE>
e) Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase 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
31
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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. At April 30, 1998,
the portfolio had open future contracts as follows:
SUMMARY OF OPEN CONTRACTS AT APRIL 30, 1998
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
Australian All Ord. Index, expiring
June 1998....................................... 242 $ (194,861) $ 11,068,038
Dax Index, expiring June 1998.................... 14 128,332 3,963,952
Ibex 35 Plus Index, expiring May 1998............ 56 (152,467) 3,852,707
FTSE 100 Index, expiring June 1998............... 47 58,679 4,630,917
CAC 40 Index, expiring June 1998................. 29 110,142 3,609,201
-------------- -------------- ----------------
Totals........................................... 388 $ (50,175) $ 27,124,815
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
f) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the portfolio pays Morgan at an annual rate of 0.60% of the portfolio's
average daily net assets. For the six months ended April 30, 1998, such
fees amounted to $1,946,850.
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 operation 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 six months ended April 30, 1998, the fee for
these services amounted to $6,766.
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
32
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
average daily net assets of the portfolio and other portfolios for which
Morgan acts as investment advisor (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 six months ended April 30,
1998, the fee for these services amounted to $97,020.
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 $10,564 for the six months ended April 30, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements represent the portfolio's
allocated portion of the total fees and expenses. The portfolio's Chairman
and Chief Executive Officer also serves as Chairman of Group and received
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 $2,200.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- ------------
<S> <C>
$248,544,616...... $476,048,203
</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.
33
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
CALIFORNIA MONEY MARKET FUND
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TOTAL RETURN BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
JAPAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS,
CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
J.P. MORGAN
INTERNATIONAL
EQUITY FUND
SEMI-ANNUAL REPORT
APRIL 30, 1998
