<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN EUROPEAN EQUITY FUND
July 23, 1998
Dear Shareholder:
In a period plagued by increased volatility in global equity markets, we are
pleased to report that the J.P. Morgan European Equity Fund produced a strong
return for the six-month period ended June 30, 1998. The fund, however, was
unable to beat its benchmark, the MSCI Europe Index, as European equity
markets ranked as the world's strongest performers for the six month period.
The fund returned 23.75% for the period, compared to a 26.49% gain posted by
the MSCI Europe Index.
The fund's net asset value increased from $13.35 per share on December 31,
1997 to $16.52 on June 30, 1998. The fund's net assets were approximately
$17.3 million at the end of the reporting period. The net assets of The
European Equity Portfolio, in which the fund invests, totaled approximately
$38.7 million on June 30, 1998.
The report that follows includes an interview with Nigel F. Emmett, a member
of the portfolio management team for The European Equity Portfolio. This
interview is designed to answer commonly asked questions about the fund and
elaborate on what happened during the reporting period.
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 Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS. . . . .1 FUND FACTS AND HIGHLIGHTS. . . . . . .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 SINCE
AS OF JUNE 30, 1998 MONTHS MONTHS YEAR INCEPTION*
- ------------------------------------------------------------------ ------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan European Equity Fund 4.42% 23.75% 33.91% 27.89%
MSCI Europe Index 5.14% 26.49% 37.06% 30.17%
Lipper European Region Funds Average 6.30% 27.84% 33.00% 27.14%
</TABLE>
* J.P. MORGAN EUROPEAN EQUITY FUND'S RETURNS INCLUDE HISTORICAL RETURNS OF
THE J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND FROM FEBRUARY 29, 1996
THROUGH MAY 13, 1996 (THE FUND'S INCEPTION).
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME REINVESTMENT OF DIVIDENDS AND REFLECT THE REIMBURSEMENT OF EXPENSES
AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED, RETURNS WOULD
HAVE BEEN LOWER. THE MSCI EUROPE INDEX IS AN UNMANAGED INDEX WHICH MEASURES
EUROPEAN STOCK MARKET PERFORMANCE. IT DOES NOT INCLUDE FEES OR OPERATING
EXPENSES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT. LIPPER ANALYTICAL SERVICES,
INC. IS A LEADING RESOURCE 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 (AIIMR), and is a Chartered Financial
Analyst. This interview was conducted on July 15, 1998 and reflects Nigel's
views on that date.
EUROPEAN EQUITY MARKETS CONTINUE TO PERFORM STRONGLY. WHAT'S BEHIND EUROPE'S
SUCCESS?
NFE: There are a number of factors driving the European return. First, at the
economic level, domestic demand in Europe continues to improve -- at a faster
rate than anyone really expected. So we are seeing the European economies
rebound.
Over and above that, we're also seeing the benefits of restructuring, both past
and current, which has positively impacted many major European corporations. For
example, corporate restructuring provided plenty of positive headlines
throughout the recent period. We saw a takeover bid for Belgium's Generale de
Banque, a fight between BMW and Volkswagen for Rolls Royce, and a surprise bid
by Daimler for Chrysler. All this activity persuaded investors that companies
in Europe should continue to merge and rationalize. All in all, we believe such
efforts should maintain Europe's positive sentiment in the equity market.
WHILE THE FUND PERFORMED QUITE POSITIVELY THROUGHOUT THE SIX-MONTH PERIOD, HOW
DOES IT COMPARE TO ITS BENCHMARK, WITH THE MSCI EUROPE INDEX RECENTLY BEING SUCH
A TOUGH BENCHMARK TO BEAT?
NFE: Although the fund has posted high absolute returns, it was not able to
beat its benchmark for the most recent six-month reporting period. However,
there were many things that went right for the portfolio, namely, successful
stock-selection decisions. In the U.K., for instance, the fund benefited from
overweight positions in Compass Group PLC, a corporate caterer which posted
strong earnings growth, and Vodafone Group PLC, the cellular telephone operator
which saw a broad upgrade of expectations by the market.
After a disappointing first quarter, Continental European stock selection
improved throughout the last three months of the reporting period. The benefits
of corporate restructuring continued to be seen in the portfolio through
Vivendi, the French telecommunication and utility company, which has performed
well as its management continued to refocus the mobile phone division, and
dispose of its non-core operations. Detracting from the fund's performance,
however, were country-allocation decisions.
3
<PAGE>
WHAT IMPACT WILL EUROPEAN ECONOMIC & MONETARY UNION (EMU) HAVE ON EUROPE'S
EQUITY MARKETS?
NFE: We have already seen many changes as a result of the movement toward EMU.
European equity markets have become more correlated with each other, meaning,
they are behaving more and more like one big European market, rather than
smaller, separate ones. Going forward, we expect this correlation to get
stronger. As a result, investment managers are increasingly being called upon to
view Europe as a region, rather than as a collection of nation states.
CAN YOU ELABORATE?
NFE: Before the strong push for EMU, each of the European countries were more
autonomous. While most of the countries were members of the European Union (EU)
and their currencies were controlled by the criteria of the exchange-rate
mechanism (ERM), the European governments still acted relatively independent of
each other with regard to fiscal and monetary policy. From an investment
standpoint, the separate countries required separate analysis. And investing in
Europe was primarily a matter of country choice; a matter of finding the stocks
in the countries where you wanted to invest.
One of the major rationales behind EMU, however, is to move the separate
European economies closer together. The common currency, the Euro, will largely
facilitate this -- one money, one market. However, the creation of the European
Central Bank (ECB) will also help Europe's union. All these factors will
continue to move Europe's separate markets more toward one cohesive region.
WHY IS THIS SIGNIFICANT FOR INVESTORS?
NFE: This is significant for investors because the perspective to invest in
Europe in the future will then have to change. A converging Europe has created a
different Europe, which requires a different research approach. The new Europe
now makes individual company analysis far more important than country
analysis.
Already, we have altered our approach to better invest in a different Europe. We
analyze hundreds of European companies and rank them against each other
according to their industry -- not their country. The most undervalued
securities from each industry are then selected for the portfolio, regardless of
their country.
WHAT IS YOUR OUTLOOK FOR THE EUROPEAN MARKETS AS WE MOVE INTO THE SECOND HALF OF
1998?
NFE: In Europe, returns have been so strong in recent years that valuations
are now at record historical levels, although not extreme in comparison to
the current valuations of equities in the U.S. However, Asian economic
weakness has recently affected sentiment for European companies exposed to
the region. Also, the surprise interest-rate hike from the Bank of England in
June has left U.K. equities exposed to a higher risk of weakness in that
domestic economy.
4
<PAGE>
On the positive front, however, there seems to be little upwards pressure on
interest rates elsewhere in Europe. Also, in Continental Europe we expect more
good news from the corporate sector: domestic economies are recovering and
restructuring, and will probably continue to do so for several more years. Even
in the U.K., there are a number of factors that will likely support current
price levels. High institutional cash holdings could provide support, and share
buybacks are likely to continue. We believe there is also room for greater
industry restructuring in the U.K.; more mergers are likely in the future.
So overall, despite already high price levels throughout Europe, our outlook for
the region remains positive. Going into the second half of 1998, we expect to
maintain the portfolio's overweight positions in Continental Europe, with an
emphasis on France and Germany, and an underweight position in the U.K.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan 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
5/13/96
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 6/30/98
$17,261,767
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 6/30/98
$38,664,100
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/98
EXPENSE RATIO
The fund's current annualized expense ratio of 1.42% 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, 1998
COUNTRY ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
UNITED KINGDOM 29.9%
GERMANY 15.9%
FRANCE 12.0%
SWITZERLAND 8.8%
NETHERLANDS 6.8%
SWEDEN 3.7%
ITALY 3.3%
SPAIN 2.1%
SHORT-TERM AND OTHER INVESTMENTS 17.5%
</TABLE>
<TABLE>
<CAPTION>
% OF TOTAL
LARGEST HOLDINGS INVESTMENTS
- -------------------------------------------------------------
<S> <C>
UBS AG (SWITZERLAND) 2.8%
LLOYDS TSB GROUP PLC (UNITED KINGDOM) 2.3%
NESTLE SA (SWITZERLAND) 2.2%
VIVENDI (FRANCE) 2.1%
GLAXO WELLCOME PLC (UNITED KINGDOM) 2.0%
MUENCHENER RUECKVERSICHERUNGS-GESELLSCHAFT
AG (GERMANY) 1.7%
ING GROEP NV (NETHERLANDS) 1.6%
PARIBAS (FRANCE) 1.5%
TELECOM ITALIA SPA-RNC (ITALY) 1.4%
RWE AG (GERMANY) 1.4%
</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, 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.
References to specific securities and their issuers are for illustrative
purposes only and are not intended to be, and should not be interpreted as,
recommendations to purchase or sell securities. Opinions expressed herein are
based on current market conditions and are subject to change without notice. The
fund invests in foreign securities which are subject to special risks including
economic and political uncertainty and currency fluctuations; prospective
investors should refer to the fund's 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>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The European Equity Portfolio
("Portfolio"), at value $17,208,117
Receivable for Shares of Beneficial Interest Sold 46,203
Receivable for Expense Reimbursements 4,570
Deferred Organization Expenses 241
Prepaid Expenses and Other Assets 33,814
-----------
Total Assets 17,292,945
-----------
LIABILITIES
Shareholder Servicing Fee Payable 3,385
Payable for Shares of Beneficial Interest
Redeemed 2,514
Administrative Services Fee Payable 386
Accrued Trustees' Fees and Expenses 108
Administration Fee Payable 24
Fund Services Fee Payable 13
Accrued Expenses 24,748
-----------
Total Liabilities 31,178
-----------
NET ASSETS
Applicable to 1,045,013 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $17,261,767
-----------
-----------
Net Asset Value, Offering and Redemption Price
Per Share $16.52
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $16,051,324
Undistributed Net Investment Income 115,758
Accumulated Net Realized Gain on Investment and
Foreign Currency Transactions 160,095
Net Unrealized Appreciation of Investment and
Foreign Currency Translations 934,590
-----------
Net Assets $17,261,767
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $35,016) $ 157,784
Allocated Interest Income (Net of Foreign
Withholding Tax of $136) 33,399
Allocated Portfolio Expenses (Net of
Reimbursement of $23,177) (48,503)
----------
Net Investment Income Allocated from
Portfolio 142,680
FUND EXPENSES
Shareholder Servicing Fee $ 13,166
Transfer Agent Fees 10,952
Registration Fees 8,961
Printing Expenses 6,835
Professional Fees 5,612
Administrative Services Fee 1,536
Fund Services Fee 150
Administration Fee 115
Line of Credit Expense 59
Amortization of Organization Expenses 41
Insurance Expense 14
Miscellaneous 560
--------
Total Fund Expenses 48,001
Less: Reimbursement of Expenses (21,723)
--------
NET FUND EXPENSES 26,278
----------
NET INVESTMENT INCOME 116,402
NET REALIZED GAIN ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS ALLOCATED FROM PORTFOLIO 727,235
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT AND FOREIGN CURRENCY TRANSLATIONS
ALLOCATED FROM PORTFOLIO 805,425
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $1,649,062
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 116,402 $ 32,567
Net Realized Gain on Investment and Foreign
Currency Transactions Allocated from Portfolio 727,235 633,126
Net Change in Unrealized Appreciation of
Investment and Foreign Currency Translations
Allocated from Portfolio 805,425 (6,115)
------------ -----------------
Net Increase in Net Assets Resulting from
Operations 1,649,062 659,578
------------ -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income -- (23,767)
Net Realized Gain -- (232,832)
------------ -----------------
Total Distributions to Shareholders -- (256,599)
------------ -----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 13,957,651 7,854,918
Reinvestment of Dividends and Distributions -- 235,595
Cost of Shares of Beneficial Interest Redeemed (3,176,688) (5,733,707)
------------ -----------------
Net Increase from Transactions in Shares of
Beneficial Interest 10,780,963 2,356,806
------------ -----------------
Total Increase in Net Assets 12,430,025 2,759,785
NET ASSETS
Beginning of Period 4,831,742 2,071,957
------------ -----------------
End of Period (including undistributed net
investment income of $115,758 and distributions
in excess of net investment income of $644,
respectively) $ 17,261,767 $ 4,831,742
------------ -----------------
------------ -----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 13, 1996
FOR THE (COMMENCEMENT OF
SIX MONTHS ENDED FOR THE FISCAL OPERATIONS) TO
JUNE 30, 1998 YEAR ENDED DECEMBER 31,
(UNAUDITED) DECEMBER 31, 1997 1996
---------------- ----------------------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.35 $ 11.61 $ 10.00
---------------- ----------------------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.11 0.10 0.01
Net Realized and Unrealized Gain on Investment
and Foreign Currency 3.06 2.45 1.60
---------------- ----------------------- ----------------
Total from Investment Operations 3.17 2.55 1.61
---------------- ----------------------- ----------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income -- (0.07) --
Net Realized Gain -- (0.74) 0.00(a)
---------------- ----------------------- ----------------
Total Distributions to Shareholders -- (0.81) 0.00(a)
---------------- ----------------------- ----------------
NET ASSET VALUE, END OF PERIOD $ 16.52 $ 13.35 $ 11.61
---------------- ----------------------- ----------------
---------------- ----------------------- ----------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 23.75%(b) 22.10% 16.10%(b)
Net Assets, End of Period (in thousands) $ 17,262 $ 4,832 $ 2,072
Ratios to Average Net Assets
Expenses 1.42%(c) 1.42% 1.42%(c)
Net Investment Income 2.21%(c) 0.91% 0.29%(c)
Expenses without Reimbursement 2.27%(c) 3.78% 2.50%(d)
</TABLE>
- ------------------------
(a) Less than $0.01.
(b) Not Annualized.
(c) Annualized.
(d) After consideration of certain state limitations.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan European 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 commenced operations on May 13, 1996. Prior to January 1, 1998, the
trust's and the fund's names were The JPM Pierpont Funds and The JPM Pierpont
European Equity Fund, respectively.
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 45% at June 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 incurred organization expenses in the amount of $5,800. Morgan
Guaranty Trust Company of New York ("Morgan") has paid the organization
expenses of the fund. The fund has agreed to reimburse Morgan for these
costs which are being deferred and amortized on a straight-line basis over
a period not to exceed five years beginning with the commencement of
operations of the fund.
e) Expenses incurred by the trust with respect to any two or more funds in
the trust are allocated in proportion to the net assets of each fund in
the trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
f) The fund is treated as a separate entity for federal income tax purposes
and intends to comply with the provisions of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and to
distribute substantially all of its income, including net realized capital
gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
14
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 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 June 30, 1998, the fee for these services amounted to $115.
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 the 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 following annual schedule: 0.09% on the
first $7 billion of their aggregate average daily net assets and 0.04% of
their aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by
the fund is determined by the proportionate share that its net assets bear
to the net assets of the trust, the master portfolios, other investors in
the master portfolios for which Morgan provides similar services, and J.P.
Morgan Series Trust. For the six months ended June 30, 1998, the fee for
these services amounted to $1,536.
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
1.42% of the average daily net assets of the fund through April 30, 1999.
For the six months ended June 30, 1998, Morgan has agreed to reimburse the
fund $21,723 for the 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 0.25% of the average daily net assets of
the fund. For the six months ended June 30, 1998, the fee for these
services amounted to $13,166.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the Services
15
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
Agreement with Schwab is terminated for reasons other than breach by
Schwab and the relationship between the trust and Morgan is terminated,
the fund would be responsible for the ongoing payments to Schwab with
respect to pre-termination shares.
d) The trust, on behalf of the fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the trustees in exercising their
overall supervisory responsibilities for the trust's affairs. The trustees
of the trust represent all the existing shareholders of Group. The fund's
allocated portion of Group's costs in performing its services amounted to
$150 for the six months ended June 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 the total fees and expenses. The trust's Chairman and Chief Executive
Officer also serves as Chairman of Group and receives compensation and
employee benefits from Group in his role as Group's Chairman. The
allocated portion of such compensation and benefits included in the Fund
Services Fee shown in the financial statements was $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
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------ --------------------
<S> <C> <C>
Shares sold...................................... 879,844 593,735
Reinvestment of dividends and distributions...... -- 17,889
Shares redeemed.................................. (196,698) (428,149)
------------ --------------------
Net Increase..................................... 683,146 183,475
------------ --------------------
------------ --------------------
</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. 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 maximum borrowing under the
Agreement was $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 is $150,000,000. The purpose of the Agreement
is to provide another alternative for settling large fund shareholder
redemptions. Interest on any such borrowings outstanding will approximate market
rates. The funds pay a commitment fee at an annual rate of 0.065% 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. There
were no outstanding borrowings pursuant to the Agreement at June 30, 1998.
16
<PAGE>
The European Equity Portfolio
Semi-annual Report June 30, 1998
(unaudited)
(The following pages should be read in conjunction
with the J.P. Morgan European Equity Fund
Semi-annual Financial Statements)
17
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
COMMON STOCK (90.7%)
AUSTRIA (0.8%)
Bank Austria AG (Banking)........................ 4,200 $ 301,630
------------
BELGIUM (1.1%)
Delhaize-Le Lion SA (Retail)..................... 1,650 115,292
PetroFina SA (Oil-Production).................... 800 328,406
------------
443,698
------------
DENMARK (0.6%)
GN Store Nord A/S (Telecommunications-
Equipment)..................................... 5,000 152,683
Olicom A/S (Technology)+......................... 3,500 94,663
------------
247,346
------------
FINLAND (0.3%)
Cultor Oyj (Food, Beverages & Tobacco)........... 3,000 48,118
UPM-Kymmene OYJ (Forest Products & Paper)........ 2,400 66,053
------------
114,171
------------
FRANCE (12.4%)
Air Liquide (Chemicals).......................... 656 108,501
Carrefour SA (Retail)............................ 486 307,466
Compagnie de Saint Gobain SA (Building
Materials)..................................... 1,653 306,484
Elf Aquitaine SA (Oil-Services).................. 1,700 239,000
Lagardere S.C.A. (Multi - Industry).............. 3,950 164,441
Paribas (Financial Services)..................... 5,615 600,875
PSA Peugeot Citroen (Automotive)................. 1,605 345,103
Rhodia SA (Chemicals)+........................... 7,526 209,871
Sanofi SA (Pharmaceuticals)...................... 3,545 416,884
SEITA (Food, Beverages & Tobacco)................ 1,000 45,319
SGS Thomson Microelectronics NV (Electronics)+... 5,851 414,678
Societe Generale (Banking)....................... 1,352 281,088
Total SA, B Shares (Oil-Services)................ 3,511 456,439
Union des Assurances Federales (Insurance)....... 367 57,848
Vivendi (Utilities).............................. 3,927 838,527
------------
4,792,524
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
GERMANY (15.5%)
Adidas - Salomon AG (Apparels & Textiles)........ 1,600 $ 278,776
Allianz AG (Insurance)........................... 900 299,911
Bayer AG (Chemicals)............................. 4,900 253,546
Bilfinger & Berger Bau AG (Construction &
Housing)....................................... 2,290 78,467
Continental AG (Automotive)...................... 10,560 331,712
Degussa AG (Chemicals)........................... 1,500 95,982
Deutsche Bank AG (Banking)....................... 5,200 439,615
Deutsche Lufthansa AG (Airlines)................. 14,380 362,082
Dresdner Bank AG (Banking)....................... 8,400 453,731
Fresenius Medical Care AG (Medical Supplies)..... 2,000 125,205
Henkel KGaA (Chemicals).......................... 739 61,330
Karstadt AG (Retail)............................. 500 243,070
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance).................................... 1,400 694,945
RWE AG (Utilities)............................... 9,200 544,344
SAP AG (Computer Software)....................... 750 454,978
Schering AG (Pharmaceuticals).................... 1,700 200,135
SGL Carbon AG (Chemicals)........................ 1,650 192,146
Siemens AG (Electrical Equipment)................ 7,500 457,678
SKW Trostberg AG (Chemicals)..................... 1,500 54,016
VEBA AG (Utilities).............................. 2,400 161,349
Volkswagen AG (Automotive)....................... 219 211,474
------------
5,994,492
------------
IRELAND (1.0%)
CRH PLC (Building Materials)..................... 5,565 78,942
Greencore Group PLC (Food, Beverages &
Tobacco)....................................... 16,647 90,557
Irish Life PLC (Insurance)....................... 11,188 102,996
Jefferson Smurfit Group PLC (Forest Products &
Paper)......................................... 32,726 97,229
------------
369,724
------------
ITALY (3.4%)
Assicurazioni Generali SPA (Insurance)........... 10,800 351,180
Istituto Bancario San Paolo di Torino
(Banking)...................................... 14,300 206,349
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
ITALY (CONTINUED)
Mediaset SPA (Broadcasting & Publishing)......... 33,400 $ 213,171
Telecom Italia SPA - RNC (Telecommunication
Services)...................................... 112,700 545,573
------------
1,316,273
------------
NETHERLANDS (7.1%)
ASM Lithography Holding NV (Semiconductors)+..... 5,000 147,968
De Boer Unigro NV (Retail)....................... 4,620 244,147
ING Groep NV (Financial Services)................ 9,878 646,807
Koninklijke KPN NV (Telecommunications).......... 4,700 180,909
Moeara Enim Petroleum MIJ NV (Oil-Production).... 34 56,995
Moeara Enim Petroleum MIJ NV (New shares)
(Oil-Production)............................... 5 111,591
Philips Electronics NV (Electronics)............. 5,718 480,664
Royal Dutch Petroleum Co. (Oil-Services)......... 6,398 354,777
TNT Post Group NV (Transport & Services)+........ 2,200 56,238
Unilever NV (Food, Beverages & Tobacco).......... 4,000 317,369
Vedior NV (Business & Public Services)........... 2,003 56,623
Vendex NV (Retail)............................... 2,030 76,341
------------
2,730,429
------------
NORWAY (1.0%)
Kvaerner PLC (Capital Goods)..................... 1,400 47,436
Kvaerner PLC, Series B (Capital Goods)........... 2,000 61,771
Norsk Hydro ASA (Oil-Services)................... 3,200 140,743
Nycomed Amersham PLC (Biotechnology)............. 18,370 136,455
------------
386,405
------------
PORTUGAL (1.5%)
Banco Pinto & Sotto Mayor SA (Banking)+.......... 8,800 218,428
Portugal Telecom SA (Telecommunications)......... 7,200 381,594
------------
600,022
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
SPAIN (2.2%)
ACS, Actividades de Construccion y Servicios SA
(Construction & Housing)....................... 2,100 $ 63,169
Hidroelectrica del Cantabrico SA (Electric)...... 720 32,922
Iberdrola SA (Electric).......................... 29,495 479,734
Repsol SA (Gas Exploration)...................... 3,263 180,105
Vallehermoso SA (Real Estate).................... 2,532 93,282
------------
849,212
------------
SWEDEN (3.9%)
Autoliv, Inc. (SDR) (Automotive Supplies)........ 10,210 326,466
Incentive AB, B Shares (Pharmaceuticals)......... 14,000 256,303
Skandia Forsakrings AB (Insurance)............... 19,040 272,172
SKF AB, B Shares (Capital Goods)................. 6,700 121,819
Stora Kopparbergs Bergslags Aktiebolag, A Shares
(Forest Products & Paper)...................... 18,200 286,409
Svenska Handelsbanken (Banking).................. 3,600 167,023
Volvo AB, Series B (Automotive).................. 2,019 60,126
------------
1,490,318
------------
SWITZERLAND (9.1%)
ABB AG (Machinery)............................... 166 245,146
Holderbank Financiere Glarus AG (Building
Materials)..................................... 80 101,792
Nestle SA (Food, Beverages & Tobacco)............ 410 877,406
Novartis AG (Pharmaceuticals).................... 95 158,082
Roche Holding AG (Pharmaceuticals)............... 54 530,277
UBS AG (Banking)................................. 2,945 1,095,047
Zurich Versicherungs - Gesellschaft
(Insurance).................................... 800 510,544
------------
3,518,294
------------
UNITED KINGDOM (30.8%)
Barclays PLC (Banking)........................... 6,000 172,990
Bass PLC (Food, Beverages & Tobacco)............. 11,018 206,447
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
BAT Industries PLC (Food, Beverages & Tobacco)... 27,000 $ 270,297
Billiton PLC (Metals & Mining)................... 79,400 160,962
British Airways PLC (Airlines)................... 17,000 183,944
British Petroleum Co. PLC (Oil-Services)......... 11,256 164,143
British Sky Broadcasting Group PLC (Broadcasting
& Publishing).................................. 31,100 223,388
British Telecommunications PLC
(Telecommunications)........................... 34,800 429,672
BTR PLC (Capital Goods).......................... 24,562 69,669
Burmah Castrol PLC (Oil-Production).............. 4,900 87,316
Cable & Wireless PLC (Telecommunications)........ 30,000 364,400
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)....................................... 13,000 201,179
Compass Group PLC (Food, Beverages & Tobacco).... 6,600 75,873
Diageo PLC (Food, Beverages & Tobacco)........... 33,070 391,759
General Electric Co. PLC (Electrical
Equipment)..................................... 8,500 73,251
Glaxo Wellcome PLC (Pharmaceuticals)............. 26,500 795,432
Glynwed International PLC (Metals & Mining)...... 34,421 141,568
Great Universal Stores PLC (Retail).............. 19,700 259,669
Hanson PLC (Building Materials).................. 37,200 226,083
HSBC Holdings PLC (75p) (Banking)................ 18,800 477,104
Hyder PLC (Water)................................ 4,116 64,692
Kingfisher PLC (Retail).......................... 14,900 239,905
Lloyds TSB Group PLC (Banking)................... 65,860 921,405
LucasVarity PLC (Automotive Supplies)............ 73,700 292,665
MEPC PLC (Real Estate)........................... 16,800 147,722
MFI Furniture Group PLC (Household Products)..... 98,892 104,776
National Power PLC (Electric).................... 15,796 148,646
Northern Rock PLC (Financial Services)........... 18,000 159,175
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Nycomed Amersham PLC (Biotechnology)............. 12,204 $ 90,867
Pilkington PLC (Building Materials).............. 84,900 156,529
PowerGen PLC (Electric).......................... 8,000 110,521
Premier Farnell PLC (Electronics)................ 14,000 71,245
Prudential Corp. PLC (Insurance)................. 23,600 310,878
Racal Electronic PLC (Telecommunications-
Equipment)..................................... 17,100 96,864
Rank Group PLC (Entertainment, Leisure &
Media)......................................... 29,600 162,485
Reed International PLC (Broadcasting &
Publishing).................................... 23,000 207,995
Royal & Sun Alliance Insurance Group PLC
(Insurance).................................... 30,000 310,091
Royal Bank of Scotland Group PLC (Banking)....... 22,800 395,635
Sainsbury (J.) PLC (Retail)...................... 33,407 297,649
Shell Transport & Trading Co. (Oil-Services)..... 67,900 478,088
Smith & Nephew PLC (Medical Supplies)............ 38,200 95,446
SmithKline Beecham PLC (Pharmaceuticals)......... 27,000 329,537
Thomson Travel Group PLC (Entertainment, Leisure
& Media)+...................................... 18,000 56,162
Tomkins PLC (Multi - Industry)................... 41,400 224,669
Unilever PLC (Food, Beverages & Tobacco)......... 22,600 240,578
Vickers PLC (Capital Goods)...................... 30,100 110,488
Vodafone Group PLC (Telecommunications).......... 39,300 498,675
Wessex Water PLC (Water)......................... 23,200 176,514
Zeneca Group PLC (Pharmaceuticals)............... 10,104 433,601
------------
11,908,649
------------
TOTAL COMMON STOCK (COST $31,611,744).......... 35,063,187
------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
PREFERRED STOCK (0.9%)
GERMANY (0.9%)
AXA Colonia Konzern AG (Insurance)............... 400 $ 40,442
Jungheinrich AG (Machinery)...................... 337 62,545
ProSieben Media AG (Broadcasting & Publishing)... 2,817 145,919
Volkswagen AG (Automotive)....................... 130 89,594
------------
338,500
------------
TOTAL PREFERRED STOCK (COST $334,103).......... 338,500
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (11.5%)
TIME DEPOSITS--FOREIGN (11.0%)
State Street Bank Cayman Islands, 4.50% due
07/01/98 (Banking)............................. $ 4,261,000 4,261,000
------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.5%)
United States Treasury Bills, 4.20% due 08/20/98
(Government Obligations) (y)................... $ 210,000 $ 208,547
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$4,469,547)................................... 4,469,547
------------
TOTAL INVESTMENTS (COST $36,415,394) (103.1%).................
39,871,234
LIABILITIES IN EXCESS OF OTHER ASSETS (-3.1%).................
(1,207,134)
------------
NET ASSETS (100.0%)........................................... $ 38,664,100
------------
------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $36,422,811 for federal income tax
purposes at June 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $4,314,893 and $866,470, respectively, resulting in net
unrealized appreciation of $3,448,423. All securities are fully or partially
segregated with custodian as collateral for futures contracts or with broker as
initial margin for future contracts. Total market value of securities segregated
is $14,380,904.
+ - Non-income producing securities.
SDR - Swedish Depository Receipt.
(y) - Yield to maturity.
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
PORTFOLIO
-----------------
<S> <C>
Banking........................................... 23.6%
Pharmaceuticals................................... 7.8%
Insurance......................................... 7.4%
Food, Beverages & Tobacco......................... 6.9%
Telecommunications................................ 4.7%
Oil-Services...................................... 4.6%
Retail............................................ 4.5%
Utilities......................................... 3.9%
Financial Services................................ 3.5%
Automotive........................................ 2.6%
Chemicals......................................... 2.4%
Electronics....................................... 2.4%
Building Materials................................ 2.2%
Broadcasting & Publishing......................... 2.0%
Electric.......................................... 1.9%
Automotive Supplies............................... 1.5%
Oil-Production.................................... 1.5%
Airlines.......................................... 1.4%
Telecommunication Services........................ 1.4%
Electrical Equipment.............................. 1.3%
Computer Software................................. 1.1%
Forest Products & Paper........................... 1.1%
Capital Goods..................................... 1.0%
Multi-Industry.................................... 1.0%
Machinery......................................... 0.8%
Metals & Mining................................... 0.8%
Apparels & Textiles............................... 0.7%
Biotechnology..................................... 0.6%
Medical Supplies.................................. 0.6%
Real Estate....................................... 0.6%
Telecommunications-Equipment...................... 0.6%
Water............................................. 0.6%
Entertainment, Leisure & Media.................... 0.5%
Gas Exploration................................... 0.5%
Government Obligations............................ 0.5%
Construction & Housing............................ 0.4%
Semiconductors.................................... 0.4%
Household Products................................ 0.3%
Technology........................................ 0.2%
Business & Public Services........................ 0.1%
Transport & Services.............................. 0.1%
-----------------
100.0%
-----------------
-----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $36,415,394 ) $39,871,234
Cash 699
Foreign Currency at Value (Cost $1,014,597 ) 1,006,108
Receivable for Investments Sold 338,635
Dividends Receivable 59,712
Unrealized Appreciation of Forward Foreign
Currency Contracts 50,455
Deferred Organization Expenses 7,564
Receivable for Expense Reimbursement 3,007
Prepaid Trustees' Fees 1,206
Interest Receivable 533
Prepaid Expenses and Other Assets 4,165
-----------
Total Assets 41,343,318
-----------
LIABILITIES
Payable for Investments Purchased 2,406,464
Custody Fee Payable 114,177
Unrealized Depreciation of Forward Foreign
Currency Contracts 85,477
Advisory Fee Payable 19,264
Variation Margin Payable 10,219
Administrative Services Fee Payable 846
Fund Services Fee Payable 29
Accrued Expenses 42,742
-----------
Total Liabilities 2,679,218
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $38,664,100
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $77,474 ) $ 282,443
Interest Income (Net of Foreign Withholding Tax
of $262 ) 73,933
----------
Investment Income 356,376
EXPENSES
Advisory Fee $ 77,150
Custodian Fees and Expenses 49,473
Professional Fees and Expenses 25,671
Printing Expenses 3,601
Administrative Services Fee 3,465
Amortization of Organization Expenses 2,156
Insurance Expense 1,082
Trustees' Fees and Expenses 365
Fund Services Fee 340
Administration Fee 227
----------
Total Expenses 163,530
Less: Reimbursement of Expenses (54,124)
----------
NET EXPENSES 109,406
----------
NET INVESTMENT INCOME 246,970
NET REALIZED GAIN (LOSS) ON
Investment Transactions 1,641,490
Futures Contracts 249,011
Foreign Currency Contracts and Transactions (84,870)
----------
Net Realized Gain 1,805,631
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments 1,611,691
Futures Contracts 56,434
Foreign Currency Contracts and Translations (35,828)
----------
Net Change in Unrealized Appreciation 1,632,297
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,684,898
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 246,970 $ 8,744,873
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 1,805,631 213,363,881
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations 1,632,297 (110,222,023)
------------ -----------------
Net Increase in Net Assets Resulting from
Operations 3,684,898 111,886,731
------------ -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 27,917,599 230,293,076
Withdrawals (7,930,618) (1,017,256,734)
------------ -----------------
Net Increase (Decrease) from Investors'
Transactions 19,986,981 (786,963,658)
------------ -----------------
Total Increase (Decrease) in Net Assets 23,671,879 (675,076,927)
NET ASSETS
Beginning of Period 14,992,221 690,069,148
------------ -----------------
End of Period $ 38,664,100 $ 14,992,221
------------ -----------------
------------ -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
FISCAL YEAR
ENDED FOR THE PERIOD
FOR THE DECEMBER MARCH 28, 1995
SIX MONTHS ENDED 31, (COMMENCEMENT OF
JUNE 30, 1998 ----------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 DECEMBER 31, 1995
---------------- ---- ---- -------------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.92%(a) 0.88% 0.84% 0.90%(a)
Net Investment Income 2.08%(a) 1.47% 1.65% 1.67%(a)
Expenses without Reimbursement 1.38%(a) 0.89% -- --
Portfolio Turnover 43%(b) 65% 57% 36%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The European Equity Portfolio (the "portfolio") is one of seven 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 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 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
26
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
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 incurred organization expenses in the amount of $33,000.
Morgan Guaranty Trust Company of New York ("Morgan") has paid the
organization expenses of the portfolio. The portfolio has agreed to
reimburse Morgan for these costs which are being deferred and amortized on
a straight-line basis over a period not to exceed five years beginning
with the commencement of operations of the portfolio.
e) 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.
f) The portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. 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
translations. At June 30, 1998, the portfolio had open forward foreign
currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
VALUE 6/30/98 (DEPRECIATION)
----------- ----------- --------------
<S> <C> <C> <C>
PURCHASE CONTRACTS
British Pound 684,307, expiring 8/25/98.......... $ 1,139,781 $ 1,138,292 $ (1,489)
British Pound 95,454, expiring 8/25/98........... 155,165 158,780 3,615
British Pound 236,890 for German Mark 682,146,
expiring 8/25/98................................ 387,930 394,048 6,118
</TABLE>
27
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
VALUE 6/30/98 (DEPRECIATION)
----------- ----------- --------------
<S> <C> <C> <C>
British Pound 46,742 for Swiss Franc 113,911,
expiring 8/25/98................................ $ 76,251 $ 77,752 $ 1,501
Danish Krone 729,389, expiring 8/25/98........... 107,587 106,309 (1,278)
German Mark 4,059,355, expiring 8/25/98.......... 2,285,673 2,256,402 (29,271)
German Mark 3,131,636, expiring 8/25/98.......... 1,749,029 1,740,727 (8,302)
German Mark 1,450,533, expiring 8/25/98.......... 820,683 806,282 (14,401)
German Mark 487,170, expiring 8/25/98............ 274,135 270,795 (3,340)
German Mark 439,572, expiring 8/25/98............ 248,281 244,337 (3,944)
German Mark 325,007, expiring 8/25/98............ 182,925 180,656 (2,269)
Norwegian Krone 1,589,119 for German Mark
377,062, expiring 8/25/98....................... 213,090 207,353 (5,737)
Norwegian Krone 533,441 for German Mark 125,687,
expiring 8/25/98................................ 70,820 69,605 (1,215)
Swedish Krona 326,348, expiring 8/25/98.......... 42,136 41,013 (1,123)
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
VALUE
----------
<S> <C> <C> <C>
SALES CONTRACTS
Belgian Franc 3,792,695, expiring 8/25/98........ $ 103,909 $ 102,244 $ 1,665
British Pound 896,578, expiring 8/25/98.......... 1,488,320 1,491,389 (3,069)
British Pound 252,048, expiring 8/25/98.......... 408,444 419,262 (10,818)
British Pound 107,839, expiring 8/25/98.......... 175,681 179,382 (3,701)
German Mark 682,146 for British Pound 236,890,
expiring 8/25/98................................ 387,930 379,173 8,757
German Mark 377,062 for Norwegian Krone
1,589,119, expiring 8/25/98..................... 213,090 209,591 3,499
German Mark 125,687 for Norwegian Krone 533,441,
expiring 8/25/98................................ 70,820 69,864 956
Italian Lira 540,000,000, expiring 8/25/98....... 307,510 304,055 3,455
Italian Lira 366,329,364, expiring 8/25/98....... 206,687 206,267 420
Italian Lira 292,219,845, expiring 8/25/98....... 164,076 164,539 (463)
Netherlands Guilder 751,378, expiring 8/25/98.... 368,581 370,613 (2,032)
Netherlands Guilder 190,000, expiring 8/25/98.... 93,458 93,716 (258)
Netherlands Guilder 183,810, expiring 8/25/98.... 91,896 90,663 1,233
Netherlands Guilder 140,000, expiring 8/25/98.... 69,857 69,054 803
Portuguese Escudo 40,000,000, expiring 8/25/98... 222,099 217,008 5,091
Portuguese Escudo 29,898,481, expiring 8/25/98... 162,580 162,205 375
Portuguese Escudo 13,000,000, expiring 8/25/98... 71,444 70,527 917
Spanish Peseta 22,596,065, expiring 8/25/98...... 149,643 147,887 1,756
</TABLE>
28
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
SETTLEMENT VALUE AT APPRECIATION/
VALUE 6/30/98 (DEPRECIATION)
---------- ----------- --------------
<S> <C> <C> <C>
Swedish Krona 1,137,165, expiring 8/25/98........ $ 147,111 $ 142,909 $ 4,202
Swedish Krona 950,000, expiring 8/25/98.......... 119,302 119,388 (86)
Swiss Franc 532,843, expiring 8/25/98............ 362,410 353,231 9,179
Swiss Franc 216,391, expiring 8/25/98............ 146,945 143,450 3,495
Swiss Franc 113,911 for British Pound 46,742,
expiring 8/25/98................................ 76,251 75,514 737
--------------
Net Unrealized Depreciation on Forward Foreign
Currency Contracts.............................. $ (35,022)
--------------
--------------
</TABLE>
g) 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 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 June 30, 1998, the portfolio had
open futures contracts as follows:
SUMMARY OF OPEN CONTRACTS AT JUNE 30, 1998
<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS LONG APPRECIATION OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
DAX Index, expiring September 1998............... 4 $ 20,515 $ 1,281,389
CAC 40 Index, expiring July 1998................. 8 9,108 1,107,570
IBEX Plus Index, expiring July 1998.............. 17 23,454 1,094,408
-------------- -------------- ----------------
Totals........................................... 29 $ 53,077 $ 3,483,367
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS SHORT APPRECIATION OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
FTSE 100 Index, expiring September 1998.......... 7 $ 3,357 $ 691,426
--------------- -------------- ----------------
--------------- -------------- ----------------
</TABLE>
h) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It
29
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
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. 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, 1998, such fees amounted to $77,150.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
FDI provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the compensation of the officers
affiliated with FDI. The portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the portfolio is based on
the ratio of the portfolio's net assets to the aggregate net assets of the
portfolio and certain other investment companies subject to similar
agreements with FDI. For the six months ended June 30, 1998, the fee for
these services amounted to $227.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for certain
aspects of the administration and operation of the portfolio. Under the
Services Agreement, the portfolio has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and certain other portfolios for which 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 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 June 30, 1998, the fee for these
services amounted to $3,465.
In addition, Morgan has agreed to reimburse the portfolio to the extent
necessary to maintain the total operating expenses of the portfolio at no
more than 1.00% of the average daily net assets of the portfolio through
April 30, 1999. For the six months ended June 30, 1998, Morgan has agreed
to reimburse the portfolio $54,124 for expenses under this agreement.
d) The portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the trustees in exercising their overall supervisory
responsibilities for the portfolio's affairs. The trustees of the
portfolio represent all the existing shareholders of Group. The
portfolio's allocated portion of Group's costs in performing its services
amounted to $340 for the six months ended June 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
30
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
Trustees' Fees and Expenses shown in the financial statements represents
the portfolio's allocated portion of the total fees and expenses. The
portfolio's Chairman and Chief Executive Officer also serves as Chairman
of Group and receives compensation and employee benefits from Group in his
role as Group's Chairman. The allocated portion of such compensation and
benefits included in the Fund Services Fee shown in the financial
statements was $70.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- ----------
<S> <C>
$26,087,398....... $9,632,620
</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.
31
<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
European Equity Fund
SEMI-ANNUAL REPORT
JUNE 30, 1998
F232SA-986
JP232SEMI0898
