[front cover}
J.P. MORGAN
INTERNATIONAL EQUITY FUND
[jp morgan logo]
Annual Report
October 31, 2000
<PAGE>
LETTER TO THE SHAREHOLDERS
--------------------------------------------------------------------------------
December 1, 2000
Dear Shareholder,
The J.P. Morgan International Equity Fund had a total return of -5.49% for
the year ended October 31, 2000. It was a rough year for many international
stocks, as shown by the performance of the Fund's benchmark, the MSCI EAFE
Index, which returned -2.90% for the same period. The Fund's peer group, the
Lipper International Funds Average, fared better by posting a 2.70% return.
The Fund's net asset value on October 31, 2000 was $10.67 per share,
decreasing from $12.41 per share at the start of the fiscal period. During the
period, the Fund made distributions of approximately $0.16 per share from
ordinary income, approximately $0.29 per share from short-term capital gains,
and approximately $0.76 per share from long-term capital gains. The Fund's net
assets were approximately $55 million on October 31, 2000, while the net assets
of The International Equity Portfolio, in which the Fund invests, totaled
approximately $484 million.
This report includes an interview with Nigel Emmett, a member of the
portfolio management team for The International Equity Portfolio. Nigel
discusses international equity markets in detail, and explains the factors that
influenced fund performance during the fiscal period. Nigel also provides
insight in regard to positioning the Fund for the coming months.
As chairman and president of Asset Management Services, we thank you for
investing with J.P. Morgan. Should you have any comments or questions, please
contact your Morgan representative, or call J.P. Morgan Funds Services at (800)
521-5411.
Sincerely yours,
/signature/ /signature/
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
TABLE OF CONTENTS
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Letter to the Shareholders 1
Fund Performance 2
Portfolio Manager Q&A 3
Fund Facts & Highlights 5
Financial Statements 6
1
<PAGE>
FUND PERFORMANCE
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EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance. One
way is to look at the growth of a hypothetical investment. The chart at right
shows that $10,000 invested on October 31, 1990,* would have increased to
$18,203 on October 31, 2000.
Another way is to review a fund's average annual total return. This
calculation takes the Fund's actual 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 in a fund's
value over various time periods, typically one, five, and ten years (or since
inception). Total returns for periods of less than one year are not annualized
and provide a picture of how a fund has performed over the short-term.
GROWTH OF $10,000 OVER TEN YEARS*
October 31, 1990-October 31, 2000
[data from line chart]
Lipper International Funds Average $24,902
MSCI EAFE Index** $20,624
J.P. Morgan International Equity Fund $18,203
PERFORMANCE
<TABLE>
<CAPTION>
TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
-------------------- -----------------------------------------------------
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS*
AS OF OCTOBER 31, 2000
<S> <C> <C> <C> <C>
J.P. Morgan International Equity Fund (5.49)% 7.23% 7.46% 6.17%
MSCI EAFE Index** (2.90)% 9.42% 8.65% 7.80%
Lipper International Funds Average 2.70% 9.96% 9.93% 9.30%
AS OF SEPTEMBER 30, 2000
J.P. Morgan International Equity Fund 2.38% 2.38% 7.89% 7.79%
MSCI EAFE Index** 3.18% 7.39% 8.58% 9.63%
Lipper International Funds Average 10.76% 8.25% 10.37% 10.43%
</TABLE>
* The fund commenced operations on June 1, 1990 and has provided an average
annual total return of 5.22% from that date through October 31, 2000. For the
purpose of comparison, the "Ten years" returns in the table above are calculated
from October 31,1990.
** MSCI EAFE Index is an unmanaged index used to track the average performance
of over 900 securities listed on the stock exchanges of countries in Europe,
Australia, and the Far East. The index does not include fees or expense and is
not available for actual investment.
Past performance is no guarantee of future results. Fund returns are net of
fees, assume the reinvestment of distributions and reflect reimbursement of
certain fund and portfolio expenses as described in the prospectus. Had expenses
not been subsidized, returns would have been lower. Lipper Analytical Services,
Inc. is a leading source for mutual fund data.
2
<PAGE>
PORTFOLIO MANAGER Q&A
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[photo of Nigel F. Emmett]
The following is an interview with NIGEL F. EMMETT, vice president and
portfolio manager with J.P. Morgan Investment Management's International Equity
Group since joining Morgan in 1997. Nigel earned a B.A. degree in economics
from Manchester University, and is the holder of a CFA designation. This
interview was conducted on November 15, 2000, and reflects Nigel's views on
that date.
What impacted international equities the most this past year?
At the beginning of this reporting period, the developed markets were
focused on the "new economy." This was especially true of the technology and
telecommunications sectors, which appreciated substantially in response to
investor enthusiasm. As we moved into 2000, however, the focus began to
change, and many value stocks returned to favor. Alongside this, there was a
general revaluation of many so-called new economy stocks.
From a global growth perspective, the period began with great strength in
developed market economies. Shortly thereafter, banks around the world began to
follow the lead of the Federal Reserve, which raised U.S. interest rates six
times between June 1999 and May 2000. The European Central Bank (ECB) and the
Bank of England, for example, raised rates early in the period in attempts to
slow their respective economies.
During the second half of 2000, the rhetoric changed, and the markets began
to focus on the increasingly likely prospect of a soft landing for the global
economy. Some notable observers, however, began voicing an opinion that the soft
landing might be a bit harder than desired. This contributed to market
volatility over the period, and the possibility of a harder than expected
landing for the global economy has certainly increased.
Equity markets reacted negatively and gave up some of the gains achieved in
the first half of this reporting period. U.S. dollar investors with
international exposure were also hurt by the persistent strength of the dollar
relative to foreign currencies. The euro, the sterling, and the yen, for
example, all depreciated against the dollar over the period, and led to a
negative currency translation back into U.S. dollars.
How were you positioned during this time?
There are three areas where we seek to add value in the Fund: stock
selection, country allocation, and currency management. While country and
currency contributions are important, we seek to add the most value from stock
selection.
In terms of these three decisions, country allocation contributed slightly
to relative performance over the 12-month period. Here, we benefited most from
our decision early in the year to overweight continental Europe and underweight
the United Kingdom. As the year progressed, our biggest move was to take money
out of continental Europe, which had become expensive, and shift it to Japan,
where we believed there were better opportunities. I would point out, however,
that we don't initiate large country positions. This would limit our
diversification and expose the Fund to greater volatility than we desire.
Overall stock selection during the period contributed to relative
performance, particularly in Japan, where we did very well. During the latter
half of the period, however, we were hurt somewhat by stock selection in
Europe, particularly in the banking and telecom sectors.
Currency management detracted from performance. Although we were right to
underweight the euro at the beginning of the period, we moved to an overweight
position too early in the cycle. While we still think the euro is fundamentally
attractive, the market at large maintained a more negative sentiment during the
year.
3
<PAGE>
PORTFOLIO MANAGER Q&A
--------------------------------------------------------------------------------
(Continued)
How did some notable stock selections perform?
Stocks that helped included Ebara, a Japanese machinery company that
produces machinery used to control toxic emissions. The company also has a very
profitable instrument business. Ironically enough, this stock was hurt earlier
in the year by reports of a toxic waste spill at one of the company's plants.
We bought it on the downside, and profited when investors re-focused on the
value of Ebara's core businesses, and subsequently drove up its stock price.
In the U.K., an investment in the consumer household products company,
Reckitt-Benckiser, also turned out well. This company was formed recently by a
merger between an English and a Dutch company that went extraordinarily well. We
anticipated that the new company would enjoy significant merger synergies, but
the overall market didn't share our anticipation. This allowed us to buy the
stock at attractive prices. When the merged entity proved itself by racking up
strong sales and profit growth--well ahead of its industry peers--the stock
experienced robust appreciation.
Where did stock selection serve to dampen performance?
Our position in Vivendi, the French conglomerate with exposure in the
telecom and environmental areas, hurt us during much of the year. This company's
stock took a beating when it announced that it was going to acquire Seagram's,
the Canadian beverage and media company. The markets took a negative view of
that deal, with investors believing that Vivendi had overpaid. For our part, we
don't think that it did. In our view, Vivendi was buying highly valuable music
and media content that it could use to make money through its network of
electronic delivery systems. We believe that the market will eventually agree
that this is so.
Back in the U.K., one of the stocks that hurt performance, but that we
still like, is Dixon's-- a consumer electronics retailer. The company suffered
from intense price competition over the period, and from its large stake in
Freeserve, an Internet portal in the U.K. that experienced certain strategic
problems. We continue to hold the stock, confident that management can ease any
margin pressures, and, at some point, find a successful route to realize the
value of the company's stake in Freeserve.
How might international markets perform going forward, and how are you
positioning the Fund accordingly?
First off, I'd stress that we continue to run sector-neutral strategies, so
we aren't making sector bets in the portfolio.
From a country perspective, we believe that the European Central Bank may
continue raising interest rates to contain inflation. This makes us a bit
concerned about the near-term direction of the European market. I'd also note
that part of the reason there's been strength in the European equity markets is
that many of the region's exporting companies have benefited from a weak euro.
If the ECB raises rates, and the euro strengthens, these companies will be
negatively impacted, hence our decision to underweight continental Europe for
the time being.
Japan remains fundamentally attractive at current price levels; however,
we're only slightly overweight Japan. This is due largely to mixed signals from
the government, which for the most part is not supporting the kind of
economy-wide restructuring that we believe is needed for strong, consistent
growth. On a company-by-company basis, however, we're beginning to see some
attractive opportunities. We expect to see significant margin enhancements as
various companies' management teams come to grips with outstanding problems.
At the moment, we are underweight the U.K. We do think that the U.K. is
fundamentally cheap, but the sterling needs to weaken relative to other
currencies, particularly the euro, in order to drive performance forward. This
would alleviate some of the margin pressures that many U.K. exporters have
experienced. We wouldn't be surprised to see rates come down in the U.K., while
they rise in Europe. This would consequently help the sterling.
Overall, we feel that developed market equities are fairly valued, although
there is better value outside of the Unites States. We remain sensitive to the
potential impact of a global slowdown, or a hard landing, and are managing the
portfolio to mitigate the impact of any negative developments in this regard
4
<PAGE>
FUND FACTS
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INVESTMENT OBJECTIVE
J.P. Morgan International Equity Fund seeks to provide a high total return
from a portfolio of equity securities of foreign companies. The Fund is designed
for investors with a long-term investment horizon. The Fund is also designed for
investors who want to diversify their portfolios by investing in an actively
managed portfolio of non-U.S. securities that seeks to outperform the MSCI EAFE
Index. As an international investment, the Fund is subject to foreign market,
political, and currency risks.
--------------------------------------------------------------------------------
Commencement of Operations: 6/1/1990
--------------------------------------------------------------------------------
Fund Net Assets as of 10/31/2000: $55,445,295
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Portfolio Net Assets as of 10/31/2000: $484,173,569
--------------------------------------------------------------------------------
Capital Gain Payable Date
(if applicable): 12/20/2000
EXPENSE RATIO
The Fund's current annualized expense ratio of 1.30% covers shareholders'
expenses for custody, tax reporting, investment advisory, and shareholder
service. 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.
All data as of October 31, 2000
FUND HIGHLIGHTS
--------------------------------------------------------------------------------
COUNTRY ALLOCATION
(As a percentage of total investment securities)
Japan 25.0%
United Kingdom 21.3%
France 10.8%
Switzerland 8.9%
Germany 7.4%
Netherlands 5.7%
Spain 4.1%
United States 3.4%
Sweden 2.6%
Other 10.8%
LARGEST COMMON % OF TOTAL
STOCK HOLDINGS COUNTRY INVESTMENTS
------------------------------------------------------------------------------
Vodafone Group Plc United Kingdom 3.3%
BP Amoco Plc United Kingdom 2.1%
Telefonica SA Spain 2.0%
Vivendi SA France 1.9%
Allianz AG Germany 1.8%
Glaxo Wellcome Plc United Kingdom 1.7%
Alcatel SA France 1.7%
Nestle SA Switzerland 1.6%
Zurich Financial Services AG Switzerland 1.5%
Total Fina Elf S.A. Cl B France 1.5%
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT
INC. SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT INSURED BY
THE FDIC, ARE NOT BANK DEPOSITS OR OTHER OBLIGATIONS OF THE FINANCIAL
INSTITUTION AND ARE NOT GUARANTEED BY THE FINANCIAL INSTITUTION. SHARES
OF THE FUND ARE SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL INVESTED. RETURN AND SHARE PRICE WILL FLUCTUATE AND
REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST.
Opinions expressed herein are based on current market conditions and
are subject to change without notice. The Fund invests through
a master portfolio (another fund with the same objective).The Fund
invests in foreign securities, which are subject to special risks
including currency fluctuation and political and economic uncertainty.
This may make the Fund more volatile.
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.
5
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<S> <C>
ASSETS
Investment in The International Equity
Portfolio ("Portfolio"), at value $55,082,742
Receivable for Shares of Beneficial Interest Sold 425,363
Prepaid Trustees' Fees and Expenses 101
Prepaid Expenses and Other Assets 216
-------------
TOTAL ASSETS 55,508,422
-------------
LIABILITIES
Shareholder Servicing Fee Payable 10,319
Payable for Shares of Beneficial Interest Redeemed 2,823
Administrative Services Fee Payable 988
Accrued Expenses and Other Liabilities 48,997
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TOTAL LIABILITIES 63,127
-------------
NET ASSETS
Applicable to 5,196,002 Shares of
Beneficial Interest Outstanding
(par value $0.001, unlimited shares authorized) $55,445,295
=============
Net Asset Value, Offering and Redemption Price Per Share $10.67
=============
ANALYSIS OF NET ASSETS
Paid-in Capital $38,046,284
Undistributed Net Investment Income 344,097
Accumulated Net Realized Gain on Investment 8,293,602
Net Unrealized Appreciation on Investment 8,761,312
-------------
NET ASSETS $55,445,295
=============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
6
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
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FOR THE YEAR ENDED OCTOBER 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
INCOME
Allocated Investment Income from Portfolio $ 865,989
Allocated Portfolio Expenses (476,084)
---------------
Investment Income 389,905
---------------
FUND EXPENSES
Shareholder Servicing Fee 148,427
Financial and Fund Accounting Services Fee 38,575
Transfer Agent Fees 37,728
Registration Fees 29,079
Administrative Services Fee 14,478
Printing Expenses 12,404
Professional Fees 11,856
Fund Services Fee 966
Trustees' Fees and Expenses 811
Administration Fee 674
Miscellaneous 3,239
---------------
Total Fund Expenses 298,237
---------------
NET INVESTMENT INCOME 91,668
---------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 9,216,947
---------------
NET CHANGE IN UNREALIZED APPRECIATION ON
INVESTMENT ALLOCATED FROM PORTFOLIO (9,622,118)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (313,503)
==============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
7
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN NET ASSETS 2000 1999
FROM OPERATIONS
<S> <C> <C>
Net Investment Income $ 91,668 $ 369,066
Net Realized Gain on Investment Allocated from Portfolio 9,216,947 5,823,564
Net Change in Unrealized Appreciation of Investment Allocated from Portfolio (9,622,118) 8,973,165
--------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations (313,503) 15,165,795
--------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (816,824) (2,063,807)
Net Realized Gain (5,211,077) (2,020,384)
--------------- --------------
Total Distributions to Shareholders (6,027,901) (4,084,191)
--------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 213,588,778 75,760,494
Reinvestment of Distributions 4,142,499 2,904,000
Cost of Shares of Beneficial Interest Redeemed (220,804,293) (101,358,827)
--------------- --------------
Net Decrease from Transactions in Shares of Beneficial Interest (3,073,016) (22,694,333)
--------------- --------------
Total Decrease in Net Assets (9,414,420) (11,612,729)
--------------- ---------------
NET ASSETS
Beginning of Year 64,859,715 76,472,444
--------------- --------------
End of Year $ 55,445,295 $ 64,859,715
=============== =============
Undistributed Net Investment Income $344,097 $274,483
=============== ===============
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Shares of Beneficial Interest Sold 17,973,790 6,663,150
Shares of Beneficial Interest Reinvested 339,549 277,099
Shares of Beneficial Interest Redeemed (18,342,794) (8,956,052)
--------------- --------------
Net Decrease in Shares of Beneficial Interest (29,455) (2,015,803)
=============== ==============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH YEAR ARE AS FOLLOWS:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31
2000 1999 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF YEAR $12.41 $10.56 $10.97 $11.38 $10.68
----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18 0.16 0.34 0.15 0.12
Net Realized and Unrealized Gain
(Loss)
on Investment (0.71) 2.30 0.14 0.23 1.16
----------------------------------------------------------------------------
Total From Investment Operations (0.53) 2.46 0.48 0.38 1.28
----------------------------------------------------------------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.16) (0.31) (0.42) (0.25) (0.24)
Net Realized Gain (1.05) (0.30) (0.47) (0.54) (0.34)
----------------------------------------------------------------------------
Total Distributions to Shareholders (1.21) (0.61) (0.89) (0.79) (0.58)
----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF YEAR $10.67 $12.41 $10.56 $10.97 $11.38
============================================================================
RATIOS AND SUPPLEMENTAL DATA
Total Return (5.49)% 24.41% 4.87% 3.46% 12.31%
Net Assets, End of Year (in thousands) $55,445 $64,860 $76,472 $146,659 $200,720
Ratios to Average Net Assets
Net Expenses 1.30% 1.21% 1.17% 1.12% 1.14%
Net Investment Income 0.15% 0.55% 0.73% 1.11% 1.00%
Interest Expense - - 0.01% - -
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
OCTOBER 31, 2000
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1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--J.P. Morgan International Equity Fund (the "Fund") is a
separate series of J.P. Morgan Funds, a Massachusetts business trust (the
"Trust") which was organized on November 4, 1992. The Trust is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund, prior to its tax-free reorganization on October
3, 1993, to a series of the Trust, operated as a stand-alone mutual fund. Costs
related to the reorganization were borne by Morgan Guaranty Trust Company of
New York ("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated ("J.P. Morgan").
The Fund invests all of its investable assets in The International Equity
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Fund. The value of such
investment included in the Statement of Assets and Liabilities reflects the
Fund's proportionate interest in the net assets of the Portfolio (approximately
11.40% at October 31, 2000). 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 accounting
principles generally accepted in the United States of America 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:
SECURITY VALUATION--Valuation of securities by the Portfolio is discussed in
Note 1 of the Portfolio's Notes to Financial Statements that are included
elsewhere in this report.
INVESTMENT INCOME--The Fund earns income, net of expenses, daily on its
investment in the Portfolio. All net investment income, realized and unrealized
gains and losses of the Portfolio is allocated pro-rata among the Fund and other
investors in the Portfolio at the time of such determination.
EXPENSES--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.
INCOME TAX STATUS--It is the Fund's policy to distribute all net investment
income and net realized gains to shareholders and to otherwise qualify as a
regulated investment company under the provisions of the Internal Revenue Code.
Accordingly, no provision has been made for federal or state income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to a shareholder are recorded
on the ex-dividend date. Distributions from net investment income are declared
and paid annually. Distributions from net realized gains, if any, are paid
annually.
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
ADMINISTRATIVE SERVICES--The Trust 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 Trust and certain other
registered investment companies for which J.P. Morgan Investment Management Inc.
("JPMIM") acts as investment advisor 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 Funds Distributor, Inc. 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 and certain other
investment companies for which Morgan provides similar services.
10
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
ADMINISTRATION--The Trust has retained Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, to serve as the co-administrator and distributor for
the Fund. Under a Co-Administration Agreement between FDI and the Trust, 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 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 and certain other investment
companies for which FDI provides similar services.
SHAREHOLDER SERVICING--The Trust has a Shareholder Servicing Agreement with
Morgan under which Morgan provides account administration and personal account
maintenance service to Fund shareholders. The agreement provides for the Fund to
pay Morgan a fee for these services that is computed daily and paid monthly at
an annual rate of 0.25% of the average daily net assets of the Fund.
Morgan, Charles Schwab & Co. ("Schwab") and the Trust are parties to
separate services and operating agreements (the "Schwab Agreements") whereby
Schwab makes Fund shares available to customers of investment advisors and other
financial intermediaries who are Schwab's clients. The Fund is not responsible
for payments to Schwab under the Schwab Agreements; however, in the event the
services agreement with Schwab is terminated for reasons other than a breach by
Schwab and the relationship between the Trust and Morgan is terminated, the
Fund would be responsible for the ongoing payments to Schwab with respect to
pre-termination shares.
FUND SERVICES--The Trust has a Fund Services Agreement with Pierpont Group,
Inc. ("PGI") 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 PGI.
Each Trustee receives an aggregate annual fee of $75,000 for serving on the
boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
and other registered investment companies in which they invest. The Trustees'
Fees and Expenses shown in the financial statements represent the Fund's
allocated portion of the total Trustees' fees and expenses. The Trust's Chairman
and Chief Executive Officer also serves as Chairman of PGI and receives
compensation and employee benefits from PGI. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown on the
Statement of Operations was $200.
--------------------------------------------------------------------------------
3. FEDERAL INCOME TAXES
Income distributions and capital gain distributions, if any, are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatment of net operating losses, foreign currency and tax
allocation. Accordingly, these permanent differences in the character of income
and distributions between financials statements and tax basis have been
reclassified to paid-in-capital. During the year ended October 31, 2000, the
following reclassifications were made: undistributed net investment income was
increased by $794,770, accumulated net realized gain on investment was
decreased by $783,926, paid-in-capital was decreased by $10,844. The adjustments
are primarily attributable to foreign currency reclasses. Net investment income,
net realized gains and net assets were not affected by this change.
--------------------------------------------------------------------------------
4. BANK LOANS
The Fund may borrow money for temporary or emergency purposes, such as
funding shareholder redemptions. Effective May 23, 2000, the Fund, along with
certain other Funds managed by JPMIM, entered into a $150,000,000 bank line of
credit agreement with DeutscheBank. Borrowings under the agreement will bear
interest at approximate market rates and a commitment fee at an annual rate of
0.085% on the unused portion of the committed amount.
11
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND N
OTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
5. CONCENTRATIONS OF RISK
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.
--------------------------------------------------------------------------------
6. SUBSEQUENT EVENTS
On September 13, 2000, J.P. Morgan & Co. Incorporated and The Chase
Manhattan Corporation announced that they have entered into an agreement and
plan of merger. The transaction is expected to close in December 2000 and is
subject to approval by shareholders of both companies.
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Trustees and Shareholders of
J.P. Morgan International 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 International Equity Fund (one of the series constituting part of
the J.P. Morgan Funds, hereafter referred to as the "Fund") at October 31, 2000,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
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 auditing standards generally accepted in the United States of America,
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 our opinion.
PricewaterhouseCoopers LLP
New York, New York
December 21, 2000
13
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
Annual Report October 31, 2000
(The following pages should be read in conjunction with J.P. Morgan
International Equity Fund Annual Financial Statements)
14
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 95.5%
AUSTRALIA - 1.8%
116,026 AMP Ltd.(s) $ 1,045,436
98,091 Australia & New Zealand Banking Group Ltd.(s) 724,247
109,549 Broken Hill Proprietary Co.(s) 1,061,433
65,758 Commonwealth Bank of Australia(s) 978,159
284,901 CSR Ltd.(s) 583,235
79,357 Lend Lease Corp. Ltd.(s) 928,641
62,600 Lion Nathan Ltd.(s) 122,281
52,109 National Australia Bank Ltd.(s) 723,586
33,762 OneSteel Ltd.(s)(+) 16,094
310,200 Southcorp Ltd.(s) 801,056
308,252 Telstra Corp. Ltd.(s) 1,005,572
33,253 Westpac Banking Corp. 226,982
124,105 WMC Ltd.(s) 474,235
--------------------
8,690,957
--------------------
BELGIUM - 0.2%
38,850 Agfa Gevaert NV(s) 803,475
2,775 Real Software(s) 47,065
--------------------
850,540
--------------------
DENMARK - 0.3%
6,827 Novo Nordisk A.S.(s) 1,446,085
--------------------
FINLAND - 2.2%
125,819 Nokia Oyj(s) 5,171,184
116,000 Sonera Oyj 2,552,433
241,324 Stora Enso Oyj - R Shares(s) 2,468,634
17,202 Tietoenator Oyj(s) 330,247
--------------------
10,522,498
--------------------
FRANCE - 10.8%
129,438 Alcatel S.A.(s) 7,888,281
16,209 Axa(s) 2,143,248
25,244 BNP Paribas(s) 2,173,920
52,174 Carrefour S.A.(s) 3,498,019
33,356 Christian Dior S.A.(s) 1,693,529
60,066 Fimatex(s)(+) 646,583
17,899 Genset S.A.(s)(+) 890,550
30,730 Groupe Danone(s) 4,292,511
25,373 Lafarge(s) 1,871,038
17,144 Lagardere S.C.A.(s) 972,142
28,744 Renault S.A.(s) 1,427,698
12,165 Technip S.A.(s) 1,554,909
48,734 Total Fina Elf S.A. Cl B(s) 6,964,360
30,295 Vinci(s) 1,521,426
132,954 Vivendi Environnement(s)(+) 4,958,448
123,819 Vivendi S.A.(s) 8,889,193
--------------------
51,385,855
--------------------
GERMANY - 6.9%
25,672 Allianz AG(s) 8,694,056
77,936 BASF AG(s) 3,051,909
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
62,558 Bayer AG(s) $ 2,712,190
67,824 Commerzbank AG(s) 1,911,466
10,410 Consors Discount-Broker AG(s)(+) 838,235
19,084 Deutsche Bank AG(s) 1,560,624
60,979 Deutsche Telekom AG(s) 2,287,101
55,024 Dresdner Bank AG(s) 2,289,947
61,412 E.ON AG(s) 3,116,927
17,300 Intershop Communications AG(s)(+) 762,502
139 Primacom AG(s)(+) 2,720
2,900 SAP AG(s) 476,615
36,407 Schering AG(s) 2,036,669
23,621 Siemens AG(s) 3,004,180
-------------
32,745,141
-------------
HONG KONG - 2.1%
460,200 Bank Of East Asia(s) 1,041,470
33,000 Cheung Kong Holdings Ltd.(s) 364,946
200,000 China Mobile (Hong Kong) Ltd.(s)(+) 1,288,610
363,000 Hong Kong Electric Holdings Ltd.(s) 1,198,504
263,200 Hutchison Whampoa Ltd.(s) 3,265,069
400,463 Pacific Century CyberWorks Ltd.(s)(+) 308,084
350,000 SmarTone Telecommunications Holding Ltd.(s) 518,329
221,000 Sun Hung Kai Properties Ltd.(s) 1,827,712
662,000 SUNeVision Holdings Ltd.(s)(+) 324,672
-------------
10,137,396
-------------
IRELAND - 0.1%
71,498 Irish Life & Permanent Plc(s) 715,707
-------------
ITALY - 2.4%
270,856 Credito Emiliano SPA(s) 1,039,988
448,416 ENI SPA(s) 2,424,898
97,314 Mediolanum SPA(s) 1,424,490
343,726 Telecom Italia SPA(s) 3,976,827
516,272 Unicredito Italiano SPA(s) 2,625,557
-------------
11,491,760
-------------
JAPAN - 25.0%
10,400 Advantest Corp.(s) 1,355,362
8,600 Aiful Corp.(s) 677,351
163,000 Ajinomoto Co., Inc.(s) 1,821,229
37,000 Asahi Breweries, Ltd.(s) 365,290
174,000 Bank of Fukuoka Ltd.(s) 854,144
226,000 Bank of Tokyo-Mitsubishi, Ltd.(s) 2,709,351
103,000 Daiwa Securities Group Inc.(s) 1,140,462
67 DDI Corp.(s) 314,168
223,000 Ebara Corp.(s) 3,461,718
176,000 Fuji Heavy Industries Ltd.(s) 1,225,021
158,000 Fujitsu Ltd.(s) 2,813,005
5,100 Hitachi Software Engineering Co., Ltd.(s) 551,149
302,000 Hitachi, Ltd.(s) 3,236,011
54,000 Honda Motor Co., Ltd.(s) 1,864,456
16,000 Ito-Yokado Co., Ltd.(s) 722,410
69 Japan Tobacco Inc.(s) 473,945
43,000 Kaken Pharmaceutical Co. Ltd.(s) 255,976
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
19,000 KAO Corp.(s) $ 568,877
1,406,000 Kawasaki Steel Corp.(s) 1,377,800
291,000 Kubota Corp.(s) 978,084
3,000 Macnica Inc.(s) 339,317
70,000 Marui Co., Ltd.(s) 1,032,146
209,000 Matsushita Electric Industrial Co., Ltd.(s) 6,067,681
243,000 Minebea Co., Ltd.(s) 2,425,772
985,000 Mitsubishi Chemical Corp.(s) 3,112,236
420,000 Mitsubishi Corp.(s) 3,461,854
137,000 Mitsubishi Estate Co. Ltd.(s) 1,455,445
333 Mizuho Holdings Inc.(s)(+) 2,558,723
29,000 Namco Ltd.(s) 748,970
173,000 NEC Corp.(s) 3,295,540
9,400 Nintendo Co., Ltd.(s) 1,553,897
83,000 Nippon Meat Packers, Inc.(s) 1,052,038
51,000 Nippon Sheet Glass Co., Ltd.(s) 775,346
743 Nippon Telegraph and Telephone Corp.(s)(+) 6,757,020
627,000 Nippon Yusen Kabushiki Kaisha(s) 2,940,049
423,000 Nishimatsu Construction Co., Ltd.(s) 1,336,523
536,000 Nissan Motor Co., Ltd.(s)(+) 3,676,747
29,000 Nisshin Steel Co., Ltd.(s) 22,310
182,000 Nomura Securities Co., Ltd.(s) 3,858,686
25,000 Omron Corp.(s) 615,899
13,200 Oriental Land Co., Ltd.(s) 797,875
420,000 Osaka Gas Co., Ltd.(s) 1,034,710
3,600 Paris Miki Inc.(s) 148,365
27,000 Pioneer Corp.(s) 835,791
15,200 Promise Co., Ltd.(s) 1,140,104
105,000 Ricoh Co., Ltd.(s) 1,615,533
8,900 Rohm Co. Ltd.(s) 2,242,321
128,000 Sekisui House, Ltd.(s) 1,352,798
131,000 Snow Brand Milk Products Co., Ltd.(s) 475,098
8,200 Softbank Corp.(s) 491,895
52,100 Sony Corp.(s) 4,160,747
151,000 Sumitomo Bank Ltd.(s) 1,832,356
134,000 Sumitomo Rubber Industries, Ltd.(s) 638,154
307,000 Sumitomo Trust & Banking Co., Ltd.(s) 2,361,755
73,000 Suzuki Motor Co.(s) 782,214
183,000 Taiheiyo Cement Corp.(s) 284,916
102,000 Takeda Chemical Industries, Ltd.(s) 6,716,549
7,000 TDK Corp.(s) 705,193
89,000 Tokio Marine & Fire Insurance Co., Ltd.(s) 983,002
170,000 Tokuyama Corp.(s) 703,727
73,300 Tokyo Electric Power Co.(s) 1,778,963
387,000 Tokyo Gas Co., Ltd.(s) 1,010,120
97,200 Tokyo Steel Manufacturing Co., Ltd.(s) 396,135
121,000 Tostem Corp.(s) 1,761,975
125,800 Toyota Motor Corp.(s) 5,023,244
110,000 UNY Co., Ltd.(s) 1,347,926
14,000 Welfide Corp.(s) 100,650
697 West Japan Railway Co.(s) 2,859,749
19,000 Yamanouchi Pharmaceutical Co., Ltd.(s) 859,603
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
146,000 Yasuda Fire & Marine Insurance Co., Ltd.(s) $ 752,798
15,000 York-Benimaru Co., Ltd.(s) 362,671
------------
119,408,945
------------
NETHERLANDS - 5.7%
76,292 ASM Lithography Holding NV(s)(+) 2,082,866
32,385 Buhrmann NV(s) 883,876
80,563 Getronics NV(s) 904,780
35,441 Heineken Holding NV(s) 1,261,673
19,416 Heineken NV(s) 1,053,250
55,423 ING Groep NV(s) 3,801,347
171,782 Koninklijke Philips Electronics NV(s) 6,742,858
16,074 Lycos Europe NV(s)(+) 137,606
25,235 Numico NV(s) 1,178,546
76,487 Royal Dutch Petroleum Co.(s) 4,531,002
141,712 Royal KPN NV(s) 2,867,152
56,473 United Pan-Europe Communication NV(s)(+) 988,445
20,464 VNU NV(s) 962,665
-------------
27,396,066
-------------
NEW ZEALAND - 0.3%
473,089 Lion Nathan Ltd.(s) 910,545
222,000 Telecom Corp. of New Zealand(s) 491,591
-------------
1,402,136
-------------
SINGAPORE - 0.8%
120,000 City Developments(s) 553,688
141,265 DBS Group Holdings Ltd.(s) 1,665,728
99,000 Singapore Airlines Ltd.(s) 992,538
53,000 Singapore Press Holdings(s) 757,790
-------------
3,969,744
-------------
SPAIN - 4.1%
33,942 Acerinox S.A.(s) 943,345
51,390 Amadeus Global Travel Distribution(s)(+) 419,466
316,394 Banco Bilboa Vizcaya Argentaria S.A.(s) 4,210,363
75,920 Endesa S.A.(s) 1,235,518
125,342 Iberdrola S.A.(s) 1,530,919
103,615 Repsol YPF S.A.(s) 1,644,069
513,160 Telefonica S.A.(s)(+) 9,773,440
-------------
19,757,120
-------------
SWEDEN - 2.6%
38,113 Autoliv, Inc. SDR(s) 833,009
330,661 Ericsson LM Cl B(s) 4,389,013
278,061 Skandia Forsakrings AB(s) 4,703,727
150,798 Skandinaviska Enskilda Cl A(s) 1,775,865
71,058 Tele1 Europe Holding AB(s)(+) 546,054
-------------
12,247,668
-------------
SWITZERLAND - 8.9%
15,881 ABB Ltd.(s) 1,410,928
15,742 Carrier1 International S.A.(s)(+) 380,274
993 CIE Financiere Richemont AG, A Units(s) 2,761,248
14,634 Credit Suisse Group(s) 2,742,705
3,779 Nestle S.A.(s) 7,828,694
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
4,352 Novartis(s) $ 6,600,247
618 Roche Holding AG(s) 5,643,490
590 SGS Societe Generale de Surveillance
Holding S.A.(s) 721,873
814 The Swatch Group AG Cl B(s) 1,077,426
43,222 USB AG(s) 5,985,361
15,086 Zurich Financial Services AG(s) 7,299,271
------------
42,451,517
------------
UNITED KINGDOM - 21.3%
77,073 3I Group Plc(s) 1,751,405
52,300 Amvescap Plc(s) 1,169,479
127,500 ARM Holdings Plc(s)(+) 1,258,893
18,400 Astrazeneca Plc(s) 862,425
208,983 BAE Systems Plc(s) 1,187,990
55,657 Bank of Scotland(s) 519,638
247,677 BG Group Plc(s) 992,578
343,600 Billiton Plc(s) 1,312,136
12,500 Bookham Technology Plc(s)(+) 411,827
1,190,812 BP Amoco Plc(s) 10,106,427
155,390 British American Tobacco(s) 1,089,783
252,800 British Energy Plc(s) 660,723
171,086 British SKY Broadcasting Plc(s)(+) 2,471,766
97,000 British Telecommunications Plc(s) 1,138,028
81,486 Cable & Wireless Plc(s) 1,153,606
106,600 Cadbury Schweppes Plc(s) 659,381
116,018 Carphone Warehouse Group Plc(s)(+) 298,173
39,000 Celltech Group Plc(+)(s) 775,810
219,593 Dixons Group Plc(s) 653,645
31,103 Exel Plc(s) 532,459
94,400 Gallagher Group Plc(s) 553,077
276,700 Glaxo Wellcome Plc(s) 7,971,145
193,500 Glynwed International Plc(s) 511,355
197,232 Granada Compass Plc(s)(+) 1,708,274
246,300 Hanson Plc(s) 1,299,986
230,600 Hays Plc(s) 1,259,812
178,900 Hilton Group Plc(s) 497,450
457,031 HSBC Holdings Plc(s) 6,516,689
49,176 Johnson Matthey Plc(s) 767,594
247,677 Lattice Group Plc(s)(+) 528,656
656,200 Legal & General Group Plc(s) 1,634,069
405,387 Lloyds TSB Group Plc(s) 4,132,157
27,400 Logica Plc(s) 811,218
137,800 Marconi Plc(s) 1,740,757
368,912 MFI Furniture Group Plc(s) 294,615
211,421 Northern Foods(s) 343,824
105,257 Nycomed Amersham Plc(s) 942,988
54,400 Pearson Plc(s) 1,460,514
335,200 QXL.com Ricardo Plc(s)(+) 130,196
30,900 Railtrack Group Plc(s) 478,284
146,193 Reckitt Benckiser Plc(s) 1,923,201
91,749 Reuters Group Plc(s) 1,787,819
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
344,154 Royal & Sun Alliance Insurance Group(s) $ 2,451,104
145,700 Royal Bank of Scotland(s) 3,272,802
80,800 Scottish & Newcastle Plc(s) 553,762
189,000 ScottishPower Plc(s) 1,420,176
66,000 Severn Trent Plc(s) 704,371
310,300 SmithKline Beecham Plc(s) 4,009,975
87,900 Standard Chartered(s) 1,268,660
933,400 Tesco Plc(s) 3,561,070
170,600 TI Group Plc(s) 921,493
55,800 United News & Media Plc(s) 698,817
3,791,901 Vodafone Group Plc(s) 15,788,116
154,000 Williams Plc(s) 737,912
------------
101,688,110
------------
TOTAL COMMON STOCKS 456,307,245
------------
</TABLE>
(Cost $396,833,458)
<TABLE>
<CAPTION>
PREFERRED STOCKS - 1.1%
AUSTRALIA - 0.6%
<C> <S> <C>
299,158 News Corp. Ltd.(s) 2,681,572
----------
GERMANY - 0.5%
940 MLP AG(s) 127,081
3,800 SAP AG(s) 764,992
51,765 Volkswagen AG(s) 1,506,705
----------
2,398,778
----------
TOTAL PREFERRED STOCKS 5,080,350
----------
</TABLE>
(Cost $4,530,665)
<TABLE>
<C> <S> <C>
RIGHTS(Z)
UNITED KINGDOM(z)
1,079 Logica Plc(s)(+) 31,021
---------
</TABLE>
(Cost $17,991)
<TABLE>
<CAPTION>
<C> <S> <C>
SHORT-TERM INVESTMENTS - 3.4%
INVESTMENT COMPANIES - 3.1%
14,710,452 Hamilton Money Fund 14,710,452
-------------
U.S. TREASURY SECURITIES - 0.3%
$ 1,530,000 U.S. Treasury Bills, 6.11%, 3/22/01(s)(y) 1,493,510
-------------
TOTAL SHORT-TERM INVESTMENTS 16,203,962
-------------
(Cost $16,204,745)
TOTAL INVESTMENT SECURITIES - 100.0% $477,622,578
===============
(Cost $417,586,859)
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<S> <C> <C> <C> <C> <C>
NET UNREALIZED
CONTRACTS SETTLEMENT SETTLEMENT APPRECIATION
TO BUY DATE VALUE VALUE (DEPRECIATION)
---------------------------------------------------------------------------------------------------
89,296,685 EUR 12/13/00 $76,685,597 $ 75,840,291 $ (845,306)
2,810,000 EUR
for 268,876,580 JPY 12/13/00 2,454,081 2,386,552 (67,529)
1,650,756 GBP
for 2,760,000 EUR 12/13/00 2,344,087 2,399,183 55,096
2,407,000 GBP 12/13/00 3,536,605 3,498,296 (38,309)
1,178,105,419 JPY 12/13/00 11,019,170 10,874,094 (145,076)
268,070,000 JPY
for 2,993,389 EUR 12/13/00 2,542,306 2,474,327 (67,979)
23,458,344 SEK
for 2,760,000 EUR 12/13/00 2,344,087 2,349,496 5,409
198,754,870 JPY
for 1,282,000 GBP 12/13/00 1,863,239 1,834,538 (28,701)
-------------------------------------------------------------
$102,789,172 $101,656,777 $(1,132,395)
=============================================================
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
NET UNREALIZED
CONTRACTS SETTLEMENT SETTLEMENT APPRECIATION
TO SELL DATE VALUE VALUE (DEPRECIATION)
---------------------------------------------------------------------------------------------------
4,272,623 AUD 12/13/00 $ 2,357,206 $ 2,215,103 $ 142,103
21,075,633 CHF 12/13/00 12,054,028 11,769,792 284,236
41,918,000 EUR 12/13/00 36,025,084 35,601,247 423,837
4,228,000 GBP 12/13/00 6,114,994 6,144,909 (29,915)
2,133,333,320 JPY 12/13/00 19,943,000 19,690,995 252,005
17,824,203 SEK 12/13/00 1,837,736 1,785,203 52,533
-------------------------------------------------------------
$78,332,048 $77,207,249 $1,124,799
=============================================================
</TABLE>
FUTURES CONTRACTS
<TABLE>
<C> <S> <C> <C> <C>
NET UNREALIZED
EXPIRATION UNDERLYING FACE APPRECIATION
PURCHASED DATE AMOUNT AT VALUE (DEPRECIATION)
----------------------------------------------------------------------------------------
237 DJ Euro Stoxx 50
Index Futures December 2000 $10,267,055 $225,925
1 FTSE 100 Index
Futures December 2000 94,236 358
15 Hang Seng
Index Futures November 2000 1,446,609 794
60 Topix Index Futures December 2000 7,577,617 (176,573)
--------------------------------------------
$19,385,517 $ 50,504
============================================
NET UNREALIZED
EXPIRATION UNDERLYING FACE APPRECIATION
SOLD DATE AMOUNT AT VALUE (DEPRECIATION)
--------------------------------------------
10 SPI Futures December 2000 $424,870 $1,559
============================================
</TABLE>
<TABLE>
<S> <C>
MARKET SECTORS % OF TOTAL
(UNAUDITED) INVESTMENTS
INDUSTRIAL CYCLICAL 18.6%
FINANCE 15.3%
TELECOMMUNICATIONS 10.8%
CONSUMER CYCLICAL 8.3%
PHARMACEUTICALS 8.0%
INSURANCE 6.5%
ENERGY 5.6%
CONSUMER STABLE 5.4%
SOFTWARE & SERVICES 5.4%
SHORT-TERM INVESTMENTS 3.4%
UTILITIES 3.0%
RETAIL 3.0%
SEMICONDUCTORS 2.9%
CONSUMER SERVICES 2.9%
OTHER 0.9%
</TABLE>
AUD - Australian Dollar
CHF - Swiss Franc
EUR - Euro
GBP - British Pound
JPY - Japanese Yen
SDR - Swedish Depositary Receipt
SEK - Swedish Krona
(s) Security is fully or partially segregated with custodian as collateral for
futures or with brokers as initial margin for futures contracts.
(y) Yield to maturity
(z) Percentage less than 0.05%
(+) Non-income producing security
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $417,586,859) $477,622,578
Foreign Currency at Value (Cost $6,106,171) 6,097,946
Receivable for Investments Sold 2,258,032
Unrealized Appreciation of Forward Foreign Currency Contracts 1,783,536
Foreign Tax Reclaim Receivable 1,062,169
Dividend and Interest Receivable 918,151
Variation Margin Receivable 117,316
Prepaid Trustees' Fees and Expenses 156
Prepaid and Other Assets 1,304
-------------
TOTAL ASSETS 489,861,188
-------------
LIABILITIES
Payable for Investments Purchased 3,318,700
Unrealized Depreciation of Forward Foreign Currency Contracts 1,791,132
Advisory Fee Payable 243,173
Administration Service Fee Payable 9,699
Fund Services Fee Payable 344
Administration Fee Payable 307
Accrued Expenses and Other Liabilities 324,264
------------
TOTAL LIABILITIES 5,687,619
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $484,173,569
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
INCOME
Dividend Income (Net of Foreign
Withholding Tax of $1,199,636) $7,324,128
Interest Income 708,910
. ------------
Investment Income 8,033,038
. ------------
EXPENSES
Advisory Fee 3,312,702
Custodian Fees and Expenses 887,856
Administrative Services Fee 134,468
Professional Fees 54,269
Printing Expenses 10,000
Fund Services Fee 8,841
Trustees' Fees and Expenses 6,803
Administration Fee 4,108
Miscellaneous 1,548
-----------
Total Expenses 4,420,595
-----------
NET INVESTMENT INCOME 3,612,443
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON
Investment Transactions 41,050,835
Futures Contracts 5,013,135
Foreign Currency Contracts and Transactions (2,230,589)
-------------
Net Realized Gain 43,833,381
-------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON
Investment Transactions (64,988,434)
Futures Contracts (551,109)
Foreign Currency Contracts and Translations (453,538)
-------------
Net Change in Unrealized Depreciation (65,993,081)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($18,547,257)
=============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31
<TABLE>
<CAPTION>
2000 1999
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
<S> <C> <C>
Net Investment Income $ 3,612,443 $ 4,569,191
Net Realized Gain on Investments, Futures Contracts, and
Foreign Currency Contracts and Transactions 43,833,381 28,815,778
Net Change in Unrealized Appreciation (Depreciation) on
Investments, Futures Contracts, and Foreign Currency
Contracts and Translations (65,993,081) 70,990,877
-------------- ------------
Net Increase (Decrease) in Net Assets Resulting from Operations (18,547,257) 104,375,846
--------------- -------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 537,498,363 281,385,364
Withdrawals (570,833,153) (293,180,212)
-------------- -------------
Net Decrease from Transactions in Investors' Beneficial Interests (33,334,790) (11,794,848)
-------------- -------------
Total Increase (Decrease) in Net Assets (51,882,047) 92,580,998
-------------- --------------
NET ASSETS
Beginning of Year 536,055,616 443,474,618
------------- ------------
End of Year $484,173,569 $536,055,616
============== =============
</TABLE>
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31
2000 1999 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.80% 0.80% 0.79% 0.77% 0.79%
Net Investment Income 0.65% 0.95% 1.09% 1.47% 1.39%
Portfolio Turnover 80% 70% 74% 67% 57%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
OCTOBER 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--The International Equity Portfolio (the "Portfolio") is
registered under the Investment Company Act of 1940, as amended, as a no-load,
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Portfolio's investment
objective is to provide a high total return from a portfolio of equity
securities of foreign companies. The Portfolio commenced operations on October
4, 1993 and received a contribution of certain assets and liabilities, including
securities, with a value of $160,213,973 on that date from The Pierpont
International Equity Fund, Inc. in exchange for a beneficial interest in the
Portfolio. At that date, net unrealized appreciation of $11,116,204 was
included in the contributed securities. The Declaration of Trust permits the
trustees to issue an unlimited number of beneficial interests in the Portfolio.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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:
SECURITY VALUATIONS--Securities traded on principal securities exchanges
are valued at the last reported sales price, or mean of the latest bid and asked
prices when no last sales price is available. Securities traded
over-the-counter and certain foreign securities are valued at the quoted bid
price from a market maker or dealer. When valuations are not readily available,
securities are valued at fair value as determined in accordance with procedures
adopted by the Trustees. All short-term securities with a remaining maturity of
sixty days or less are valued using the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter markets
is normally completed before the close of the domestic market and may also take
place on days when 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 adopted by the Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the
trade date. Realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date or as of the time that the relevant
ex-dividend and amount becomes known. Interest income is recorded on the
accrual basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS--The Portfolio may enter into futures contracts in order
to hedge 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 and to manage exposure to changing
interest rates and securities prices. The risks of entering into futures
contracts include the possibility that the change in value of the contract may
not correlate with the changes in value of the underlying securities. Upon
entering into a futures contract, the Portfolio is required to deposit either
cash or securities in an amount equal to a certain percentage of the contract
value (initial margin). Subsequent payments (variation margin) are made or
received daily, in cash, by the Portfolio. The variation margin is equal to the
daily change in the contract value and is recorded as unrealized gain or loss.
The Portfolio will recognize a gain or loss when the contract is closed or
expires.
FOREIGN CURRENCY TRANSACTIONS--All assets and liabilities initially
expressed in foreign currencies are trans- lated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. Realized
and unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates and 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 from changes in
foreign exchange rates from the fluctuations arising from changes in the
market prices of securities during the period.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Portfolio may enter into
forward foreign currency exchange contracts to facilitate transactions of
securities denominated in a foreign currency or to manage the Portfolio's
exposure to foreign currency exchange fluctuations. The net U.S. dollar value
of foreign currency underlying all contractual commitments held by the
Portfolio and the resulting unrealized appreciation or depreciation are
determined daily using prevailing exchange rates. The Portfolio bears the risk
of an unfavorable change in the foreign currency exchange rate underlying the
forward contract. Additionally, losses may
22
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
arise if the counterparties do not perform under the contract terms.
INCOME TAX STATUS--The Portfolio intends to be treated as a partnership for
federal income tax purposes. As such, each investor in the Portfolio will be
taxed on its share of the Portfolio's ordinary income and capital gains. It is
intended that the Portfolio's assets will be managed in such a way that an
investor in the Portfolio will be able to satisfy the provisions of the Internal
Revenue Code.
FOREIGN TAXES--The Portfolio may be subject to foreign taxes on income,
gains on investments or currency repatriation, a portion of which may be
recoverable. The Portfolio will accrue such taxes and recoveries as applicable,
based upon their current interpretation of tax rules and regulations that exist
in the markets in which they invest.
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
ADVISORY--The Portfolio has an Investment Advisory Agreement with J.P.
Morgan Investment Management Inc. ("JPMIM"), an affiliate of Morgan Guaranty
Trust Company of New York ("Morgan") and a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the agreement, the
Portfolio pays JPMIM at an annual rate of 0.60% of the Portfolio's average
daily net assets.
The Portfolio may invest in one or more affiliated money market funds: J.P.
Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax
Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund
and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed
to reimburse its advisory fee from the Portfolio in an amount to offset any
investment advisory, administrative fee and shareholder servicing fees related
to a Portfolio investment in an affiliated money market fund.
ADMINISTRATIVE SERVICES--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 registered investment companies for which JPMIM acts
as investment advisor 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 Funds Distributor, Inc. 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 and certain other investment companies for
which Morgan provides similar services.
ADMINISTRATION--The Portfolio has retained Funds Distributor, Inc. ("FDI"),
a registered broker-dealer, to serve as the co-administrator and distributor
for the Fund. Under a Co-Administration Agreement between FDI and the 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 Portfolio's 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 portion of this charge payable by the Portfolio is
determined by the proportionate share that its net assets bear to the net
assets of the Trust and certain other investment companies for which FDI
provides similar services.
FUND SERVICES--The Portfolio has a Fund Services Agreement with Pierpont
Group, Inc. ("PGI") 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 PGI.
Each Trustee receives an aggregate annual fee of $75,000 for serving on the
boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan Institutional
Funds, and other registered investment companies in which they invest. The
Trustees' fees and expenses shown in the financial statements represent the
Fund's allocated portion of the total Trustees' fees and expenses. The Trust's
Chairman and Chief Executive Officer also serves as Chairman of PGI and
receives compensation and employee benefits from PGI. The allocated portion of
such compensation and benefits included in the Fund Services Fee shown on the
Statement of Operations was $1,700.
23
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
3. FEDERAL INCOME TAXES
As of October 31, 2000, accumulated net unrealized appreciation was
$58,255,223, based on the aggregate cost of investments for federal income tax
purposes of $419,367,355, which consisted of unrealized appreciation of
$88,249,036 and unrealized depreciation of $29,993,813.
--------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
During the year ended October 31, 2000, the Portfolio purchased $419,718,180
of investment securities and sold $430,420,554 of investment securities other
than U.S. government securities and short-term investments.
--------------------------------------------------------------------------------
5. CONCENTRATIONS OF CREDIT RISK
The Portfolio may have elements of risk not typically associated with
investments in the United States due to concentrated investments in a limited
number of countries or regions which may vary throughout the year. Such
concentrations may subject the Portfolio to additional risks resulting from
political or economic conditions in such countries or regions and the possible
imposition of adverse governmental laws or currency exchange restrictions could
cause the securities and their markets to be less liquid and their prices more
volatile than those of comparable U.S. securities.
--------------------------------------------------------------------------------
6. CREDIT AGREEMENT
The Portfolio is party to 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.
--------------------------------------------------------------------------------
7. SUBSEQUENT EVENTS
On September 13, 2000, J.P. Morgan & Co. Incorporated and The Chase
Manhattan Corporation announced that they have entered into an agreement and
plan of merger. The transaction is expected to close in December 2000 and is
subject to approval by shareholders of both companies.
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Trustees and Investors of
The International 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 International Equity Portfolio (the
"Portfolio") at October 31, 2000, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the supplementary data for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. 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 auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
December 21, 2000
25
<PAGE>
NOTES
--------------------------------------------------------------------------------
26
<PAGE>
NOTES
--------------------------------------------------------------------------------
27
<PAGE>
NOTES
--------------------------------------------------------------------------------
28
<PAGE>
[back cover]
J.P. MORGAN FUNDS
Federal Money Market Fund
---------------------------------------------------------------------
Prime Money Market Fund
---------------------------------------------------------------------
Emerging Markets Debt Fund
---------------------------------------------------------------------
Tax Aware Enhanced Income Fund:
Select Shares
---------------------------------------------------------------------
Tax Exempt Money Market Fund
---------------------------------------------------------------------
Short Term Bond Fund
---------------------------------------------------------------------
Bond Fund
---------------------------------------------------------------------
Global Strategic Income Fund
---------------------------------------------------------------------
Tax Exempt Bond Fund
---------------------------------------------------------------------
California Bond Fund:
Select Shares
---------------------------------------------------------------------
New York Tax Exempt Bond Fund
---------------------------------------------------------------------
Diversified Fund
---------------------------------------------------------------------
Disciplined Equity Fund
---------------------------------------------------------------------
Tax Aware U.S. Equity Fund:
Select Shares
---------------------------------------------------------------------
U.S. Equity Fund
---------------------------------------------------------------------
U.S. Small Company Fund
---------------------------------------------------------------------
U.S. Small Company Opportunities Fund
---------------------------------------------------------------------
Emerging Markets Equity Fund
---------------------------------------------------------------------
European Equity Fund
---------------------------------------------------------------------
Global 50 Fund:
Select Shares
---------------------------------------------------------------------
Global Healthcare Fund:
Select Shares
---------------------------------------------------------------------
International Equity Fund
---------------------------------------------------------------------
International Opportunities Fund
---------------------------------------------------------------------
For more information on the J.P. Morgan
Funds, call J.P. Morgan Funds
Services at (800) 521-5411.
---------------------------------------------------------------------
Morgan Guaranty Trust Company MAILING
500 Stanton Christiana Road INFORMATION
Newark, Delaware 19713-2107
IN-ANN-23756 1000
