<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND
January 4, 1999
Dear Shareholder:
In a period plagued by increased volatility in global equity markets, we are
pleased to report that the J.P. Morgan Institutional European Equity Fund
produced a strong return for the 11 month period ended November 30, 1998. The
fund, however, was unable to beat its benchmark, the MSCI Europe Index. The fund
returned 17.28% for the period, compared to a 23.15% gain posted by the MSCI
Europe Index.
The fund's net asset value increased from $12.56 per share on December 31, 1997
to $14.73 by November 30, 1998. The fund's net assets were approximately $12.4
million at the end of the reporting period. The net assets of The European
Equity Portfolio, in which the fund invests, totaled approximately $27.3 million
on November 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) 766-7722.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS. . . . .1 FUND FACTS AND HIGHLIGHTS . . . . . .6
FUND PERFORMANCE. . . . . . . . . .2 FINANCIAL STATEMENTS. . . . . . . . .8
PORTFOLIO MANAGER Q&A . . . . . . .3
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$1,000,000 (the minimum investment in the fund). The chart at right shows that
$1,000,000 invested on February 29, 1996, would have grown to $1,687,628 on
November 30, 1998.
Another way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.
[GRAPH]
GROWTH OF $1,000,000 SINCE INCEPTION
FEBRUARY 29, 1996 - NOVEMBER 30, 1998
<TABLE>
<CAPTION>
J.P. Morgan Institutional Lipper European Region
European Equity Fund MSCI Europe Index Funds Average
------------------------- ----------------- ----------------------
<S> <C> <C> <C>
Feb-96 $1,000,000 $1,000,000 $1,000,000
$1,035,180 $1,027,160 $1,065,150
$1,052,260 $1,055,890 $1,075,360
Nov-96 $1,150,750 $1,159,030 $1,162,270
$1,186,090 $1,200,340 $1,210,170
$1,269,580 $1,285,600 $1,266,420
$1,306,070 $1,332,440 $1,303,800
Nov-97 $1,381,820 $1,411,120 $1,361,010
$1,615,450 $1,642,710 $1,552,710
$1,776,990 $1,830,160 $1,780,610
$1,562,750 $1,649,440 $1,557,820
Nov-98 $1,687,630 $1,801,240 $1,638,610
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------------------- ----------------------------
THREE SIX ELEVEN ONE SINCE
AS OF NOVEMBER 30, 1998 MONTHS MONTHS MONTHS YEAR INCEPTION
- ----------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Institutional
European Equity Fund 7.99% -5.03% 17.28% 22.13% 20.96%
MSCI Europe Index 9.20% -1.58% 23.15% 27.65% 23.86%
Lipper European Region Funds Average 5.31% -7.91% 18.28% 20.73% 18.73%
AS OF SEPTEMBER 30, 1998
- ----------------------------------------------------------------------------- ----------------------------
J.P. Morgan European Equity Fund -18.48% -14.77% 1.51% 2.01% 15.80%
MSCI Europe Index -14.42% -10.01% 8.26% 8.34% 19.47%
Lipper European Region Funds Average -17.24% -12.08% 5.96% 3.37% 15.14%
</TABLE>
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 B.A. 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 December 15, 1998 and reflects Nigel's
views on that date.
THE VOLATILITY IN GLOBAL EQUITY MARKETS OVER THE ANNUAL REPORTING PERIOD HIT
RECORD LEVELS. NO DOUBT, IT WAS A VERY DIFFICULT TIME IN WHICH TO INVEST. HOW
DID THE PORTFOLIO'S MANAGEMENT TEAM NAVIGATE THROUGH THE PAST YEAR?
NE: All the extremes in volatility really started in 1997, beginning with the
Asian crisis. While Asia's currency crisis actually started in the summer of
1997, it wasn't really until the fourth quarter of 1997 when its impact was felt
globally. Equity markets everywhere came under siege, including even the more
stable markets such as the U.S. and Europe.
During the first quarter of 1998, however, we saw some recovery in the markets
as some of the panic of the fourth quarter calmed and stability returned. The
quarter was notable, from a performance perspective, for the strong results
turned in by Europe as a whole. The fund then gained back some ground and was
able to reverse the weaker performance it posted at the end of 1997.
WHAT, IN GENERAL, WAS BEHIND EUROPE'S RELATIVE SUCCESS?
NE: First, at the economic level, domestic demand in Europe continued to
improve at a faster rate than anyone would have expected. Thus, we saw the
European economies rebound. While European economic growth is now slowing to
moderate levels, it still has the potential for stronger growth relative to the
U.S., for example.
Secondly, the benefits of restructuring, both past and current, have positively
impacted many European corporations. For many years, you had an environment
where European companies didn't focus on delivering return to shareholders. Even
five years ago, if you visited large European companies, all that management
wanted to talk about was sales growth. Perspective, however, has recently
changed. More and more companies are now focusing on margins and shareholder
value, and have restructured as a result. This change in perspective has helped
earnings and, therefore, equity market returns.
So through the first half of the reporting period, fund performance had been
moving steadily along as a result of relatively good economic growth and the
positive results of restructuring.
3
<PAGE>
THEN WE MOVED INTO THE SUMMER OF 1998, AND MORE TURMOIL.
NE: That's right. The next distinctive period within the year occurred in
mid-August when we saw another financial crisis, this time in Russia. A renewed
wave of risk aversion once again flooded the markets and extremes in volatility
returned. European markets were badly hurt during this period, as sentiment was
negatively impacted by problems in emerging markets.
Also, by then it had become painfully obvious that problems in Japan were not
going away and were, in fact, worse than anyone expected. The Japanese banking
crisis unrolled into an ugly mess, with non-performing loans and bankruptcies
increasing.
GOING BACK TO EUROPE, HOW WILL EMU AFFECT THE PORTFOLIO?
NE: January 1, 1999 brought a significant event for international investors:
the start of Europe's Economic and Monetary Union (EMU). EMU represents the
effort to replace the separate currencies of eleven major European countries
(Germany, France, Belgium, the Netherlands, Luxembourg, Italy, Ireland, Spain,
Portugal, Austria, and Finland) with a single currency, the euro. While EMU
occurred after the fund's reporting period, we have already adjusted our
perspective to better position the fund for this event.
More recently, and going forward, our portfolio construction within continental
Europe will have more of a focus on identifying the most attractive stocks
within an industry across the region, rather than within each individual
country. With 11 of the 15 European Union countries having adopted the euro,
market correlation has risen and in all likelihood it will continue to do so.
Thus, the ability to add value in continental Europe through country allocation
has declined and we expect our fundamental research driven process to become
even more important going forward.
HOW DID THE FUND PERFORM DURING ITS ANNUAL REPORTING PERIOD?
NE: Despite a challenging environment for global equities as a whole, the fund
was able to outperform its peers of European equity funds (as measured by Lipper
Analytical Services). The fund benefited from overweight positions in
continental Europe, as well as from positive stock selections in the U.K.
Unfortunately, however, the fund underperformed its benchmark, the MSCI Europe
Index. The extremes in sentiment and indiscriminate selling that occurred on the
back of Russia's crisis often brought the values of otherwise sound investments
down with the bad.
Additionally, much of the panic investing that occurred during the period
resulted in investors flocking to very large, recognizable names which were
often already overpriced. With the market rewarding what we considered
overvalued investments, hurt the fund's performance as well.
However, we felt, and still feel, it is important to stick to our style and ride
out volatility. We are confident our extensive research has positioned the
portfolio in high-quality, undervalued opportunities that will eventually be
recognized and rewarded by the market.
4
<PAGE>
WHAT IS YOUR OUTLOOK FOR THE NEXT THREE MONTHS? IS IT PERCEIVED THAT EMU WILL BE
POSITIVE FOR EUROPEAN EQUITIES?
NE: Overall, we are optimistic about the future prospects for European equities
as compared to the U.S., which is toward the end of its expansion phase. While
economic growth is slowing and earnings estimates are being revised downward,
Europe still provides some of the best opportunities in the international equity
universe.
Regarding EMU, we believe it will provide a strong incentive for European
companies to continue to restructure and reduce their costs. Which in the long
run, should prove very positive for returns.
We continue to overweight continental Europe in general, and France in
particular. We remained underweight in the U.K. We also believe J.P. Morgan's
robust research capabilities are key in focusing the portfolio in those
under-researched, undervalued securities likely to reward investors in the
future.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Institutional European Equity Fund seeks to provide a high total
return from a portfolio of equity securities of European companies. It is
designed for investors who want an actively managed portfolio of European equity
securities that seeks to outperform the MSCI Europe Index, which is comprised of
more than 500 companies in 14 European countries. As an international
investment, the fund is subject to foreign market, political and currency risks.
- --------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
2/29/96
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 11/30/98
$12,438,939
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 11/30/98
$27,279,773
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/98
EXPENSE RATIO
The fund's current annualized expense ratio of 1.00% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services, after reimbursement. The fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for buying,
selling, or safekeeping fund shares, or for wiring redemption proceeds from the
fund.
FUND HIGHLIGHTS
ALL DATA AS OF NOVEMBER 30, 1998
COUNTRY ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
UNITED KINGDOM 31.1%
GERMANY 15.0%
FRANCE 12.8%
SWITZERLAND 10.6%
NETHERLANDS 8.7%
ITALY 5.6%
SWEDEN 5.3%
SPAIN 2.2%
SHORT-TERM & OTHER INVESTMENTS 8.7%
</TABLE>
<TABLE>
<CAPTION>
% OF TOTAL
LARGEST HOLDINGS INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
TELECOM ITALIA SPA-RNC (ITALY) 2.9%
NESTLE SA (SWITZERLAND) 2.5%
LLOYDS TSB GROUP PLC (UNITED KINGDOM) 2.5%
GLAXO WELLCOME PLC(UNITED KINGDOM) 2.4%
VIVENDI (FRANCE) 2.3%
TOTAL SA, B SHARES (FRANCE) 2.1%
ROCHE HOLDING AG (SWITZERLAND) 2.1%
UBS AG (SWITZERLAND) 2.1%
COMPAGNIE FINANCIERE DE PARIBAS (FRANCE) 2.1%
ZURICH ALLIED AG (SWITZERLAND) 1.9%
</TABLE>
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE
NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE
PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL
COST.
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) 766-7722 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
7
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The European Equity Portfolio
("Portfolio"), at value $14,908,512
Receivable for Expense Reimbursements 20,834
Receivable for Shares of Beneficial Interest Sold 9,940
Deferred Organization Expenses 207
Prepaid Expenses and Other Assets 41,762
-----------
Total Assets 14,981,255
-----------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 43,984
Shareholder Servicing Fee Payable 2,999
Administrative Services Fee Payable 334
Administration Fee Payable 25
Accrued Trustees' Fees and Expenses 23
Fund Services Fee Payable 14
Accrued Expenses 32,326
-----------
Total Liabilities 79,705
-----------
NET ASSETS
Applicable to 966,089 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $14,901,550
-----------
-----------
Net Asset Value, Offering and Redemption Price
Per Share $15.42
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $14,595,992
Undistributed Net Investment Income 111,101
Accumulated Net Realized Loss on Investment and
Foreign Currency Contracts and Transactions (212,343)
Net Unrealized Appreciation of Investment and
Foreign Currency Contracts and Translations 406,800
-----------
Net Assets $14,901,550
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $47,216) $230,254
Allocated Interest Income (Net of Foreign
Withholding Tax of $136) 45,635
Allocated Portfolio Expenses (Net of
Reimbursement of $27,640) (103,034)
--------
Net Investment Income Allocated from
Portfolio 172,855
FUND EXPENSES
Shareholder Servicing Fee $ 29,634
Transfer Agent Fees 23,199
Registration Fees 21,346
Printing Expenses 15,246
Professional Fees 11,428
Administrative Services Fee 3,400
Fund Services Fee 336
Administration Fee 246
Line of Credit Expenses 201
Amortization of Organization Expenses 73
Insurance Expense 35
Trustees' Fees and Expenses 10
Miscellaneous 5,064
--------
Total Fund Expenses 110,218
Less: Reimbursement of Expenses (44,935)
--------
NET FUND EXPENSES 65,283
--------
NET INVESTMENT INCOME 107,572
NET REALIZED LOSS ON INVESTMENT AND FOREIGN
CURRENCY CONTRACTS AND TRANSACTIONS ALLOCATED
FROM PORTFOLIO (202,822)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT AND FOREIGN CURRENCY CONTRACTS AND
TRANSLATIONS ALLOCATED FROM PORTFOLIO 277,635
--------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $182,385
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE ELEVEN FOR THE FISCAL
MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 107,572 $ 32,567
Net Realized Gain (Loss) on Investment and
Foreign Currency Transactions Allocated from
Portfolio (202,822) 633,126
Net Change in Unrealized Appreciation
(Depreciation) of Investment and Foreign
Currency Translations Allocated from Portfolio 277,635 (6,115)
----------------- -----------------
Net Increase in Net Assets Resulting from
Operations 182,385 659,578
----------------- -----------------
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 18,370,344 7,854,918
Reinvestment of Dividends and Distributions -- 235,595
Cost of Shares of Beneficial Interest Redeemed (8,482,921) (5,733,707)
----------------- -----------------
Net Increase from Transactions in Shares of
Beneficial Interest 9,887,423 2,356,806
----------------- -----------------
Total Increase in Net Assets 10,069,808 2,759,785
NET ASSETS
Beginning of Period 4,831,742 2,071,957
----------------- -----------------
End of Period (including undistributed net
investment income of $111,101 and distributions
in excess of net investment income of $644,
respectively) $ 14,901,550 $ 4,831,742
----------------- -----------------
----------------- -----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<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
(COMMENCEMENT OF
FOR THE ELEVEN FOR THE FISCAL OPERATIONS) TO
MONTHS ENDED YEAR ENDED DECEMBER 31,
NOVEMBER 30, 1998 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 0.12 0.10 0.01
Net Realized and Unrealized Gain on Investment
and Foreign Currency Transactions 1.95 2.45 1.60
-------------------- -------------------- ----------------
Total from Investment Operations 2.07 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 $ 15.42 $ 13.35 $ 11.61
-------------------- -------------------- ----------------
-------------------- -------------------- ----------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 15.51%(b) 22.10% 16.10%(b)
Net Assets, End of Period (in thousands) $ 14,902 $ 4,832 $ 2,072
Ratios to Average Net Assets
Net Expenses 1.42%(c) 1.42% 1.42%(c)
Net Investment Income 0.91%(c) 0.91% 0.29%(c)
Expenses without Reimbursement 2.03%(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.
11
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
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. At a meeting on November 12, 1998, the trustees
elected to change the fund's fiscal year end from December 31 to November 30.
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 55% at November 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 1 of the
portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the portfolio 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. The fund
has agreed to reimburse Morgan for these costs which were deferred and are
amortized on a straight-line basis over a period not to exceed five years
beginning with the commencement of operations of the fund.
e) 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.
12
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
f) Expenses incurred by the trust with respect to any two or more funds in
the trust are allocated in proportion to the net assets of each fund in
the trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
g) The fund accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies." The effect of applying
this statement for the eleven months ended November 30, 1998 was to
increase undistributed net investment income by $4,173, decrease
accumulated net realized loss on investment and foreign currency
transactions by $557,619 and decrease paid-in capital by $561,792. The
adjustments are attributable to foreign currency losses and net realized
gain on transfer of securities as discussed in Note 5 of the portfolio's
Notes to Financial Statements which are included elsewhere in this report.
Net investment income, net realized losses and net assets were not
affected by this change.
h) For federal income tax purposes, the fund had a capital loss carryforward
of $157,363 at November 30, 1998, which will expire in the year 2006. To
the extent that this capital loss is used to offset future capital gains,
it is probable that the gains so offset will not be distributed to
shareholders.
i) For federal income tax purposes, the fund incurred approximately $54,525
of realized foreign currency losses and $16,425 of realized capital losses
in the period from November 1, 1998 to November 30, 1998. These losses
were deferred for tax purposes until the first day of the next taxable
year.
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, has retained Fund 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
eleven months ended November 30, 1998, the fee for these services amounted
to $246.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), under which Morgan is responsible for overseeing certain
aspects of the administration and operation of the fund. Under the
Services Agreement, the fund has agreed to pay Morgan a fee equal to its
allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and the other portfolios (the "master portfolios") in which the
trust and the J.P. Morgan Institutional Funds (formerly The JPM
Institutional Funds) invest 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
13
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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 eleven months ended November 30, 1998, the fee for these services
amounted to $3,400.
In addition, J.P. Morgan has agreed to reimburse the fund to the extent
necessary to maintain the total operating expenses of the fund, including
the expenses allocated to the fund from the portfolio, at no more than
1.42% of the average daily net assets of the fund through April 30, 1999.
For the eleven months ended November 30, 1998, J.P. Morgan has agreed to
reimburse the fund $44,935 for the expenses under this agreement. This
reimbursement arrangement can be changed or terminated at any time after
April 30, 1999 at the option of J.P. Morgan.
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 eleven months ended November 30, 1998, the fee for these
services amounted to $29,634.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the services agreement with Schwab is
terminated for reasons other than 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
$336 for the eleven months ended November 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 $70.
14
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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 ELEVEN FOR THE FISCAL
MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1998 DECEMBER 31, 1997
-------------------- --------------------
<S> <C> <C>
Shares sold...................................... 1,151,414 593,735
Reinvestment of dividends and distributions...... -- 17,889
Shares redeemed.................................. (547,192) (428,149)
-------------------- --------------------
Net Increase..................................... 604,222 183,475
-------------------- --------------------
-------------------- --------------------
</TABLE>
From time to time, the fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the fund and the portfolio.
4. 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 borrowing outstanding will approximate market
rates. The funds pay a commitment fee at an annual rate of 0.065% on the unused
portion of the committed amount which is allocated to the funds in accordance
with procedures established by their respective trustees or directors. There
were no outstanding borrowings pursuant to the Agreement at November 30, 1998.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan European Equity Fund
(formerly The JPM Pierpont European Equity Fund)
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
J. P. Morgan European Equity Fund (one of the series constituting part of the
J.P. Morgan Funds (formerly The JPM Pierpont Funds), hereafter referred to as
the "fund") at November 30, 1998, the results of its operations for the eleven
months then ended, the changes in its net assets for the eleven months then
ended and for the year ended December 31, 1997, and the financial highlights for
the eleven months then ended, for the year ended December 31, 1997 and for the
period May 13, 1996 (commencement of operations) to December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
January 19, 1999
16
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
A Joint Special Meeting of Shareholders of the J.P. Morgan Family of Funds was
held on August 20, 1998. Each of the applicable funds voted in favor of adopting
the following proposals, therefore, the results are aggregated for the trust
unless otherwise specified. The meeting was held for the following purposes:
1. To elect a slate of five trustees to hold office for a term of unlimited
duration subject to the current retirement age of 70.
2a.To approve the amendment of the fund's investment restriction relating to
diversification of assets.
2b.To approve the amendment of the fund's investment restriction relating to
concentration of assets in a particular industry.
2c.To approve the amendment of the fund's investment restriction relating to the
issuance of senior securities.
2d.To standardize the borrowing ability of the fund to the extent permitted by
applicable law.
2e.To approve the amendment of the fund's investment restriction relating to
underwriting.
2f.To approve the amendment of the fund's investment restriction relating to
investment in real estate.
2g.To approve the amendment of the fund's investment restriction relating to
commodities.
2h.To approve the amendment of the fund's investment restriction relating to
lending.
2i.To approve the reclassification of the fund's other fundamental restrictions
as nonfundamental.
3. To approve the reclassification of the fund's investment objective from
fundamental to nonfundamental.
4. To approve a new investment advisory agreement of the fund.
5. To amend the Declaration of Trust to provide dollar-based voting rights.
6. To ratify the selection of independent accountants, PricewaterhouseCoopers
LLP.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
DIRECTORS/MATTER VOTES FOR VOTES AGAINST ABSTENTIONS
- ------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
1. Frederick S. Addy............................. 2,692,335,831 18,884,648 --
William G. Burns............................... 2,692,395,937 18,824,542 --
Arthur C. Eschenlauer.......................... 2,691,798,990 19,421,489 --
Matthew Healey................................. 2,692,393,425 18,827,054 --
Michael P. Mallardi............................ 2,692,488,290 18,732,189 --
2. Amending of Investment Restrictions:
a. Relating to diversification of assets....... 383,675 5,216 4,308
b. Relating to concentration of assets......... 382,971 5,721 4,507
c. Relating to issuance of senior securities... 383,675 5,216 4,308
d. Relating to borrowing....................... 383,846 5,216 4,137
e. Relating to underwriting.................... 383,675 5,216 4,308
f. Relating to investment in real estate....... 385,738 3,125 4,336
g. Relating to commodities..................... 383,675 5,216 4,308
h. Relating to lending......................... 385,649 3,242 4,308
i.Reclassification of other restrictions as
nonfundamental............................. 384,550 4,142 4,507
3. Reclassification of investment objectives..... 383,936 4,756 4,507
4. Investment advisory agreement................. 401,159 1,772 4,308
5. Dollar-based voting rights.................... 2,645,059,081 16,807,551 47,376,755
6.Independent accountants,
PricewaterhouseCoopers LLP................... 2,682,031,391 4,303,418 24,885,671
</TABLE>
17
<PAGE>
The European Equity Portfolio
Annual Report November 30, 1998
(The following pages should be read in conjunction
with the J.P. Morgan European Equity Fund
Annual Financial Statements)
18
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCK (95.4%)
AUSTRIA (0.7%)
Bank Austria AG (Banking)........................ 4,200 $ 199,479
------------
BELGIUM (1.0%)
PetroFina SA (Oil-Production).................... 700 285,898
------------
DENMARK (1.0%)
Danisco A/S (Food, Beverages & Tobacco).......... 2,000 103,568
GN Store Nord A/S
(Telecommunications-Equipment)................. 5,000 158,680
------------
262,248
------------
FINLAND (0.3%)
MeritaNordbanken Oyj (Banking)................... 15,534 90,634
------------
FRANCE (12.6%)
Carrefour SA (Retail)............................ 186 132,009
Castorama Dubois Investissments (Retail)......... 479 97,131
Compagnie de Saint Gobain SA (Building
Materials)..................................... 953 141,155
Compagnie Financiere de Paribas (Financial
Services)...................................... 6,215 555,614
Elf Aquitaine SA (Oil-Services).................. 2,700 337,547
Lagardere S.C.A. (Multi - Industry).............. 2,750 112,256
Rhodia SA (Chemicals)+........................... 6,826 107,183
Rhone-Poulenc SA, A Shares (Pharmaceuticals)..... 3,500 174,963
SEB SA (Household Products)...................... 1,400 133,058
Societe Generale, A Shares (Banking)............. 751 118,651
STMicroelectronics NV (Electronics)+............. 4,151 291,313
Total SA, B Shares (Oil-Services)................ 4,611 573,203
Union des Assurances Federales (Insurance)....... 367 48,729
Vivendi (Utilities).............................. 2,727 618,373
------------
3,441,185
------------
GERMANY (13.8%)
Adidas - Salomon AG (Apparels & Textiles)........ 700 76,592
BASF AG (Chemicals).............................. 8,900 337,939
Bayerische Hypo-Und Vereinsbank AG (Banking)..... 3,398 295,028
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
GERMANY (CONTINUED)
Bilfinger & Berger Bau AG (Construction &
Housing)....................................... 4,890 $ 108,456
Continental AG (Automotive)...................... 3,824 94,086
Deutsche Bank AG (Banking)....................... 1,400 86,694
Deutsche Lufthansa AG (Airlines)................. 4,480 98,303
Fresenius Medical Care AG (Medical Supplies)..... 2,800 173,884
Hochtief AG (Construction & Housing)............. 2,000 77,775
Karstadt AG (Retail)............................. 400 188,079
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance).................................... 1,056 487,160
RWE AG (Utilities)............................... 6,200 329,109
SAP AG (Computer Software)....................... 300 136,269
Schering AG (Pharmaceuticals).................... 1,500 186,305
SGL Carbon AG (Chemicals)........................ 2,550 151,120
Siemens AG (Electrical Equipment)................ 5,200 362,910
VEBA AG (Utilities).............................. 8,500 472,563
Volkswagen AG (Automotive)....................... 1,198 97,780
------------
3,760,052
------------
IRELAND (1.1%)
CRH PLC (Building Materials)..................... 5,565 84,620
Greencore Group PLC (Food, Beverages &
Tobacco)....................................... 16,647 73,371
Irish Life PLC (Insurance)....................... 9,188 79,642
Jefferson Smurfit Group PLC (Forest Products &
Paper)......................................... 32,726 64,427
------------
302,060
------------
ITALY (5.5%)
Assicurazioni Generali SPA (Insurance)........... 6,300 235,947
Banca Fideuram SPA (Financial Services).......... 38,758 230,351
Bayerische Vita SPA (Insurance)+................. 15,700 91,903
Mediaset SPA (Broadcasting & Publishing)......... 21,400 151,474
Telecom Italia SPA - RNC (Telecommunication
Services)...................................... 125,800 788,246
------------
1,497,921
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
NETHERLANDS (8.6%)
ASM Lithography Holding NV (Semiconductors)+..... 7,800 $ 227,874
Heineken NV (Food, Beverages & Tobacco).......... 4,100 208,809
ING Groep NV (Financial Services)................ 3,790 217,670
Koninklijke Ahold NV (Retail).................... 4,400 153,007
KPN NV (Telecommunication Services).............. 5,389 233,189
Laurus NV (Retail)............................... 10,581 263,612
Philips Electronics NV (Electronics)............. 6,518 413,661
Royal Dutch Petroleum Co. (Oil-Services)......... 1,698 81,579
TNT Post Group NV (Transport & Services)......... 7,351 185,454
Unilever NV (Food, Beverages & Tobacco).......... 1,600 125,460
Vedior NV (Business & Public Services)........... 3,703 75,747
Vendex NV (Retail)............................... 6,830 161,205
------------
2,347,267
------------
NORWAY (0.8%)
Norsk Hydro ASA (Oil-Services)................... 2,700 101,641
Nycomed Amersham PLC (Medical Supplies).......... 18,370 123,049
------------
224,690
------------
PORTUGAL (1.4%)
Banco Pinto & Sotto Mayor SA (Banking)........... 8,580 156,900
Portugal Telecom SA (Telecommunications)......... 5,100 222,170
------------
379,070
------------
SPAIN (2.2%)
ACS, Actividades de Construccion y Servicios SA
(Construction & Housing)....................... 3,000 104,879
Banco Popular Espanol SA (Banking)............... 3,580 263,747
Endesa SA (Electric)............................. 8,500 222,425
------------
591,051
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
SWEDEN (5.3%)
ABB AB, A Shares (Machinery)..................... 22,000 $ 238,644
Autoliv, Inc. (SDR) (Automotive Supplies)........ 11,310 409,181
Skandia Forsakrings AB (Insurance)............... 9,078 129,246
SKF AB, B Shares (Capital Goods)................. 6,700 86,718
Stora Kopparbergs Bergslags Aktiebolag, A Shares
(Forest Products & Paper)...................... 21,100 260,092
Svenska Handelsbanken (Banking).................. 3,600 145,553
Volvo AB, B Shares (Automotive).................. 6,996 162,988
------------
1,432,422
------------
SWITZERLAND (10.4%)
Nestle SA (Food, Beverages & Tobacco)............ 320 666,909
Novartis AG (Pharmaceuticals).................... 95 178,872
Roche Holding AG (Pharmaceuticals)............... 48 565,723
Swisscom AG (Telecommunication Services)+........ 1,100 371,543
UBS AG (Banking)................................. 1,845 556,883
Zurich Allied AG (Insurance)..................... 700 501,547
------------
2,841,477
------------
UNITED KINGDOM (30.7%)
Allied Zurich PLC (Insurance)+................... 10,200 145,633
Arriva PLC (Diversified Manufacturing)........... 9,100 62,485
Barclays PLC (Banking)........................... 6,300 142,983
Bass PLC (Food, Beverages & Tobacco)............. 7,018 96,842
Billiton PLC (Metals & Mining)................... 56,000 122,475
British Airways PLC (Airlines)................... 11,600 78,503
British American Tobacco PLC (Food, Beverages &
Tobacco)....................................... 7,500 68,799
British Petroleum Co. PLC (Oil-Services)......... 29,458 460,220
British Sky Broadcasting Group PLC (Broadcasting
& Publishing).................................. 19,700 162,909
British Telecommunications PLC
(Telecommunications)........................... 27,400 375,606
Burmah Castrol PLC (Oil-Production).............. 2,078 30,252
Cable & Wireless PLC (Telecommunications)........ 27,100 344,431
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)....................................... 9,500 $ 142,694
Compass Group PLC (Food, Beverages & Tobacco).... 10,600 111,802
Diageo PLC (Food, Beverages & Tobacco)........... 21,070 236,144
General Electric Co. PLC (Electrical
Equipment)..................................... 7,600 62,158
Glaxo Wellcome PLC (Pharmaceuticals)............. 20,000 632,840
Glynwed International PLC (Metals & Mining)...... 33,421 92,677
Great Universal Stores PLC (Retail).............. 16,200 168,594
Hanson PLC (Building Materials).................. 21,200 157,467
HSBC Holdings PLC (75p) (Banking)................ 12,000 324,838
Kingfisher PLC (Retail).......................... 16,900 161,234
Lloyds TSB Group PLC (Banking)................... 47,760 664,165
LucasVarity PLC (Automotive Supplies)............ 33,300 114,327
MEPC PLC (Real Estate)........................... 7,751 52,455
MFI Furniture Group PLC (Household Products)..... 54,892 30,806
National Power PLC (Electric).................... 17,990 153,223
Northern Rock PLC (Financial Services)........... 16,000 152,185
Nycomed Amersham PLC (Medical Supplies).......... 5,704 37,660
Ocean Group PLC (Transport & Services)........... 7,000 86,657
Pearson PLC (Broadcasting & Publishing).......... 6,000 107,949
Pilkington PLC (Building Materials).............. 71,000 76,175
PowerGen PLC (Electric).......................... 8,800 121,649
Premier Farnell PLC (Electronics)................ 12,500 37,139
Prudential Corp. PLC (Insurance)................. 13,700 199,901
Racal Electronic PLC
(Telecommunications-Equipment)................. 12,500 65,199
Rank Group PLC (Entertainment, Leisure &
Media)......................................... 14,600 54,704
Reed International PLC (Broadcasting &
Publishing).................................... 6,000 47,240
Royal & Sun Alliance Insurance Group PLC
(Insurance).................................... 27,500 229,681
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Royal Bank of Scotland Group PLC (Banking)....... 9,500 $ 143,165
Sainsbury (J.) PLC (Retail)...................... 24,307 203,615
Shell Transport & Trading Co. (Oil-Services)..... 12,700 76,618
Siebe PLC (Diversified Manufacturing)............ 12,700 45,751
SmithKline Beecham PLC (Pharmaceuticals)......... 26,600 326,661
Thomson Travel Group PLC (Transport &
Services)...................................... 15,300 36,871
TI Group PLC (Diversified Manufacturing)......... 8,200 46,696
Tomkins PLC (Multi - Industry)................... 35,700 165,583
Unilever PLC (Food, Beverages & Tobacco)......... 17,100 177,960
Vickers PLC (Capital Goods)...................... 16,166 46,963
Vodafone Group PLC (Telecommunications).......... 23,800 351,594
Zeneca Group PLC (Pharmaceuticals)............... 8,104 337,087
------------
8,371,265
------------
TOTAL COMMON STOCK (COST $24,113,057).......... 26,026,719
------------
</TABLE>
<TABLE>
<S> <C> <C>
PREFERRED STOCK (1.0%)
GERMANY (1.0%)
ProSieben Media AG (Broadcasting & Publishing)... 2,217 106,603
RWE AG (Utilities)............................... 2,800 96,879
Volkswagen AG (Automotive)....................... 1,489 76,177
------------
279,659
------------
TOTAL PREFERRED STOCK (COST $317,212).......... 279,659
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.1%)
TIME DEPOSITS--FOREIGN (1.2%)
State Street Bank Cayman Islands, 2.75% due
12/01/98 (Banking)............................. $340,000 340,000
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.9%)
United States Treasury Bills, 4.41% (y) due
02/04/99 (Government Obligations).............. $240,000 $ 237,813
------------
TOTAL SHORT-TERM INVESTMENTS (COST $577,813)... 577,813
------------
TOTAL INVESTMENTS (COST $25,008,082) (98.5%)................
26,884,191
OTHER ASSETS IN EXCESS OF LIABILITIES (1.5%)................
395,582
------------
NET ASSETS (100.0%)......................................... $ 27,279,773
------------
------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $25,092,455 for federal income tax
purposes at November 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $3,435,269 and $1,643,533, respectively, resulting in net
unrealized appreciation of $1,791,736. All securities, excluding the time
deposit, are fully or partially segregated with the custodian as collateral for
futures contracts or with broker as initial margin for future contracts. Total
market value of securities segregated is $10,548,764.
+ Non-income Producing Security
(y) - Yield to maturity.
SDR - Swedish Depository Receipt
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
PORTFOLIO
-----------------
<S> <C>
Banking........................................... 13.3%
Pharmaceuticals................................... 8.9%
Insurance......................................... 8.0%
Food, Beverages & Tobacco......................... 7.5%
Oil - Services.................................... 6.1%
Retail............................................ 5.7%
Utilities......................................... 5.6%
Telecommunication Services........................ 5.2%
Telecommunications................................ 4.8%
Financial Services................................ 4.3%
Electronics....................................... 2.8%
Chemicals......................................... 2.2%
Broadcasting & Publishing......................... 2.1%
Automotive Supplies............................... 1.9%
Electric.......................................... 1.8%
Building Materials................................ 1.7%
Automotive........................................ 1.6%
Electrical Equipment.............................. 1.6%
Medical Supplies.................................. 1.2%
Forest Products & Paper........................... 1.2%
Oil - Production.................................. 1.2%
Transport & Services.............................. 1.1%
Construction & Housing............................ 1.1%
Multi-Industry.................................... 1.0%
Machinery......................................... 0.9%
Government Obligations............................ 0.9%
Semiconductors.................................... 0.8%
Telecommunications - Equipment.................... 0.8%
Metals & Mining................................... 0.8%
Airlines.......................................... 0.7%
Household Products................................ 0.6%
Diversified Manufacturing......................... 0.6%
Computer Software................................. 0.5%
Capital Goods..................................... 0.5%
Apparels & Textiles............................... 0.3%
Business & Public Services........................ 0.3%
Entertainment, Leisure & Media.................... 0.2%
Real Estate....................................... 0.2%
-----------------
100.0%
-----------------
-----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $25,008,082 ) $26,884,191
Cash 304
Foreign Currency at Value (Cost $459,054 ) 456,444
Receivable for Investments Sold 278,756
Dividends and Interest Receivable 26,736
Unrealized Appreciation of Forward Foreign
Currency Contracts 14,723
Variation Margin Receivable 9,647
Receivable for Expense Reimbursement 8,145
Deferred Organization Expenses 5,741
Prepaid Administration Fees 528
Prepaid Trustees' Fees 21
Prepaid Expenses and Other Assets 283
-----------
Total Assets 27,685,519
-----------
LIABILITIES
Payable for Investments Purchased 299,802
Custody Fee Payable 46,420
Advisory Fee Payable 14,252
Unrealized Depreciation of Forward Foreign
Currency Contracts 8,422
Administrative Services Fee Payable 610
Fund Services Fee Payable 26
Accrued Expenses 36,214
-----------
Total Liabilities 405,746
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $27,279,773
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $103,387 ) $ 423,362
Interest Income (Net of Foreign Withholding Tax
of $262 ) 100,938
---------
Investment Income 524,300
EXPENSES
Advisory Fee $ 166,971
Professional Fees and Expenses 51,109
Custodian Fees and Expenses 43,482
Printing Expenses 8,301
Administrative Services Fee 7,380
Amortization of Organization Expense 3,979
Trustees' Fees and Expenses 1,756
Insurance Expense 1,112
Fund Services Fee 738
Administration Fee 468
---------
Total Expenses 285,296
Less: Reimbursement of Expenses (62,269)
---------
NET EXPENSES 223,027
---------
NET INVESTMENT INCOME 301,273
NET REALIZED LOSS ON
Investment Transactions (244,504)
Futures Contracts (70,556)
Foreign Currency Transactions (43,461)
---------
Net Realized Loss (358,521)
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments 31,960
Futures Contracts 22,641
Foreign Currency Contracts and Translations 12,659
---------
Net Change in Unrealized Appreciation 67,260
---------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 10,012
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE ELEVEN FOR THE FISCAL
MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 301,273 $ 8,744,873
Net Realized Gain (Loss) on Investments, Futures
and Foreign Currency Contracts and Transactions (358,521) 213,363,881
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations 67,260 (110,222,023)
----------------- -----------------
Net Increase in Net Assets Resulting from
Operations 10,012 111,886,731
----------------- -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 47,559,507 230,293,076
Withdrawals (35,281,967) (1,017,256,734)
----------------- -----------------
Net Increase (Decrease) from Investors'
Transactions 12,277,540 (786,963,658)
----------------- -----------------
Total Increase (Decrease) in Net Assets 12,287,552 (675,076,927)
NET ASSETS
Beginning of Period 14,992,221 690,069,148
----------------- -----------------
End of Period $ 27,279,773 $ 14,992,221
----------------- -----------------
----------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
FISCAL YEAR
FOR THE ENDED FOR THE PERIOD
ELEVEN DECEMBER MARCH 28, 1995
MONTHS ENDED 31, (COMMENCEMENT OF
NOVEMBER 30, ----------- OPERATIONS) THROUGH
1998 1997 1996 DECEMBER 31, 1995
------------ ---- ---- -------------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.87%(a) 0.88% 0.84% 0.90%(a)
Net Investment Income 1.17%(a) 1.47% 1.65% 1.67%(a)
Expenses without Reimbursement 1.11%(a) 0.89% 0.84% 0.90%(a)
Portfolio Turnover 99%(b) 65% 57% 36%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 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. At a
meeting on November 12, 1998, the trustees elected to change the portfolio's
fiscal year end from December 31 to November 30.
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
27
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 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 $27,700,
which were deferred and are 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 and to enhance returns. 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 and spot foreign
currency translations. At November 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/
PURCHASE CONTRACTS VALUE 11/30/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
Danish Krone 729,389, expiring 2/25/99........... $ 112,760 $ 113,719 $ 958
German Mark 1,555,554, expiring 2/25/99.......... 914,118 923,730 9,612
Swiss Franc 198,720 for Swedish Krona 1,166,089,
expiring 2/25/99................................ 144,330 144,060 (270)
Swiss Franc 227,496 for British Pound 99,862,
expiring 2/25/99................................ 164,267 164,920 653
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- ------------------------------------------------- ----------
<S> <C> <C> <C>
British Pound 55,712, expiring 2/25/99........... $ 91,449 $ 91,644 $ (195)
</TABLE>
28
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
German Mark 882,346, expiring 2/25/99............ 520,000 523,961 (3,961)
Norwegian Krone 766,032, expiring 2/25/99........ 101,488 101,962 (474)
Swedish Krona 1,961,424, expiring 2/25/99........ 243,178 242,771 407
Swiss Franc 68,121, expiring 2/25/99............. 48,955 49,384 (429)
--------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 6,301
--------------
--------------
</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 November 30, 1998, the portfolio had
open futures contracts as follows:
SUMMARY OF OPEN CONTRACTS AT NOVEMBER 30, 1998
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
Dax Index, expiring December 1998................ 1 $ 33,242 $ 265,185
CAC 40 Index, expiring December 1998............. 13 (10,740) 451,527
IBEX Plus Index, expiring December 1998.......... 3 12,423 190,909
-------------- -------------- ----------------
Totals........................................... 17 $ 34,925 $ 907,621
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS SHORT DEPRECIATION OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
FTSE 100 Index, expiring December 1998........... 5 $ 12,284 $ 467,317
--------------- -------------- ----------------
--------------- -------------- ----------------
</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 (CONTINUED)
NOVEMBER 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) Prior to October 1, 1998, the portfolio had an Investment Advisory
Agreement with Morgan Guaranty Trust Company of New York ("Morgan"), a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan").
Under the terms of the agreement, the portfolio paid Morgan at an annual
rate of 0.65% of the portfolio's average daily net assets. Effective
October 1, 1998, the portfolio's Investment Advisor is J.P. Morgan
Investment Management Inc. ("JPMIM"), an affiliate of Morgan and a wholly
owned subsidiary of J.P. Morgan, and the terms of the agreement will
remain the same. For the eleven months ended November 30, 1998, such fees
amounted to $166,971.
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 eleven months ended November 30, 1998, the
fee for these services amounted to $468.
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 JPMIM 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 eleven months ended November 30, 1998, the fee for
these services amounted to $7,380.
In addition, J.P. Morgan has agreed to reimburse the portfolio to the
extent necessary to maintain the total operating expenses of the portfolio
at no more than 1.00% of the average daily net assets of the portfolio
through April 30, 1999. For the eleven months ended November 30, 1998,
J.P. Morgan has agreed to reimburse the portfolio $62,269 for expenses
under this agreement. This reimbursement arrangement can be changed or
terminated at any time after April 30, 1999 at the option of J.P. Morgan.
30
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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 $738 for the eleven months ended November 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 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 $160.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the eleven months
ended November 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- -----------
<S> <C>
$36,267,942....... $25,442,784
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement as discussed more
fully in Note 4 of the fund's Notes to the Financial Statements which are
included elsewhere in this report.
5. OTHER MATTERS
On December 12, 1997, the portfolio received a withdrawal request in the amount
of $472,588,477. This amount is included in Withdrawals shown on the Statement
of Changes in Net Assets. The withdrawal which was made in-kind by transferring
certain assets and liabilities, including securities, directly to a non-U.S.
fund resulted in a net realized gain on transfer of the securities in the amount
of $97,478,979.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The European Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The European Equity Portfolio (one of the
portfolios comprising part of The Series Portfolio, hereafter referred to as the
"portfolio") at November 30, 1998, the results of its operations for the eleven
months then ended, the changes in its net assets for the eleven months then
ended and for the year ended December 31, 1997 and the supplementary data for
the eleven months then ended, for each of the two years ended December 31, 1997
and for the period March 28, 1995 (commencement of operations) through December
31, 1995, in conformity with generally accepted accounting principles. These
financial statements and supplementary data (hereafter referred to as "financial
statements") are the responsibility of the portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
November 30, 1998 by correspondence with the custodians and brokers provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
January 19, 1999
32
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
PRIME MONEY MARKET FUND
TREASURY MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
TAX EXEMPT BOND FUND
NEW YORK TAX EXEMPT BOND FUND
CALIFORNIA BOND FUND: INSTITUTIONAL SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
TAX AWARE DISCIPLINED EQUITY FUND:
INSTITUTIONAL SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
SMARTINDEX FUND
FOR MORE INFORMATION ON THE J.P. MORGAN INSTITUTIONAL FUNDS,
CALL J.P. MORGAN FUNDS SERVICES AT
(800)766-7722.
J.P. MORGAN
INSTITUTIONAL
EUROPEAN EQUITY
FUND
ANNUAL REPORT
NOVEMBER 30, 1998
IEUEFR-9811
