<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INTERNATIONAL EQUITY FUND
December 1, 1999
Dear Shareholder:
We are pleased to report that the J.P. Morgan International Equity Fund
delivered the highest annual return in its history, 24.41%, for the 12 months
ended October 31, 1999, exceeding its benchmark, the MSCI EAFE Index.
The fund's net asset value rose to $12.41 per share from $10.56 per share after
paying an income dividend of approximately $0.31 per share and a long-term
capital gain of about $0.30 per share over the 12-month period.
Included in this report is an interview with Nigel F. Emmett, a member of the
portfolio management team. This interview is designed to reflect what happened
during the reporting period, as well as provide an outlook for the months ahead.
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
telephone your Morgan representative or J.P. Morgan Funds Services at
800-521-5411.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS..............1 FUND FACTS AND HIGHLIGHTS.......5
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
$10,000. The chart at the right shows that $10,000 invested on May 31, 1990,*
would have grown to $17,971 on October 31, 1999.
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.
GROWTH OF $10,000 SINCE FUND INCEPTION* MAY 31, 1990 - OCTOBER 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
J.P. MORGAN
INTERNATIONAL LIPPER INTERNATIONAL
EQUITY FUND FUNDS AVERAGE EAFE
<S> <C> <C> <C>
05/31/90 10,000 10,000 10,000
06/30/90 9,810 10,213 9,912
07/31/90 10,170 10,615 10,051
08/31/90 9,330 9,499 9,075
09/30/90 8,370 8,436 7,811
10/31/90 9,330 9,117 9,027
11/30/90 9,010 8,889 8,495
12/31/90 9,074 8,859 8,633
01/31/91 9,308 9,098 8,912
02/28/91 10,022 9,815 9,867
03/31/91 9,441 9,493 9,275
04/30/91 9,563 9,601 9,366
05/31/91 9,635 9,688 9,464
06/30/91 8,972 9,189 8,769
07/31/91 9,492 9,601 9,199
08/31/91 9,339 9,560 9,012
09/30/91 9,798 9,865 9,520
10/31/91 9,879 9,910 9,655
11/30/91 9,471 9,571 9,204
12/31/91 10,034 10,042 9,680
01/31/92 9,962 10,113 9,473
02/29/92 9,553 10,116 9,134
03/31/92 8,969 9,769 8,531
04/30/92 9,092 10,012 8,571
05/31/92 9,584 10,502 9,145
06/30/92 9,164 10,217 8,712
07/31/92 8,928 9,869 8,489
08/31/92 9,553 9,965 9,021
09/30/92 9,307 9,748 8,843
10/31/92 8,785 9,437 8,379
11/30/92 8,887 9,489 8,458
12/31/92 8,954 9,617 8,502
01/31/93 8,820 9,653 8,501
02/28/93 9,057 9,875 8,757
03/31/93 9,842 10,434 9,521
04/30/93 10,658 10,947 10,424
05/31/93 10,957 11,179 10,644
06/30/93 10,627 10,952 10,478
07/31/93 11,081 11,295 10,845
08/31/93 11,577 11,979 11,431
09/30/93 11,276 11,906 11,173
10/31/93 11,524 12,418 11,518
11/30/93 10,532 11,936 10,511
12/31/93 11,136 13,035 11,270
01/31/94 12,079 13,828 12,223
02/28/94 12,004 13,529 12,189
03/31/94 11,538 12,942 11,664
04/30/94 12,004 13,268 12,159
05/31/94 12,089 13,221 12,089
06/30/94 12,079 13,083 12,260
07/31/94 12,206 13,438 12,378
08/31/94 12,354 13,828 12,671
09/30/94 11,909 13,491 12,272
10/31/94 12,185 13,751 12,680
11/30/94 11,612 13,081 12,071
12/31/94 11,765 12,960 12,146
01/31/95 11,310 12,326 11,680
02/28/95 11,188 12,347 11,646
03/31/95 11,699 12,761 12,373
04/30/95 12,043 13,168 12,838
05/31/95 11,799 13,286 12,685
06/30/95 11,521 13,293 12,463
07/31/95 12,254 14,004 13,238
08/31/95 12,032 13,741 12,733
09/30/95 12,120 13,945 12,982
10/31/95 11,854 13,672 12,633
11/30/95 12,120 13,823 12,985
12/31/95 12,658 14,229 13,508
01/31/96 12,822 14,552 13,563
02/29/96 12,763 14,616 13,609
03/31/96 13,056 14,867 13,898
04/30/96 13,477 15,339 14,302
05/31/96 13,313 15,306 14,039
06/30/96 13,454 15,409 14,118
07/31/96 12,997 14,842 13,705
08/31/96 13,044 15,016 13,735
09/30/96 13,395 15,343 14,100
10/31/96 13,313 15,248 13,956
11/30/96 13,781 15,910 14,511
12/31/96 13,723 15,967 14,325
01/31/97 13,384 15,932 13,823
02/28/97 13,535 16,152 14,049
03/31/97 13,660 16,189 14,100
04/30/97 13,711 16,234 14,175
05/31/97 14,464 17,195 15,097
06/30/97 15,092 17,998 15,930
07/31/97 15,242 18,513 16,188
08/31/97 14,150 17,178 14,979
09/30/97 14,853 18,252 15,818
10/31/97 13,773 16,861 14,602
11/30/97 13,673 16,714 14,453
12/31/97 13,884 16,853 14,579
01/31/98 14,390 17,244 15,246
02/28/98 15,170 18,389 16,224
03/31/98 15,635 19,330 16,724
04/30/98 15,867 19,593 16,856
05/31/98 15,881 19,615 16,774
06/30/98 15,990 19,462 16,901
07/31/98 16,031 19,748 17,073
08/31/98 13,857 16,932 14,958
09/30/98 13,104 16,329 14,499
10/31/98 14,445 17,541 16,010
11/30/98 15,142 18,449 16,831
12/31/98 15,755 19,016 17,495
01/31/99 15,741 19,170 17,443
02/28/99 15,335 18,668 17,027
03/31/99 16,016 19,321 17,738
04/30/99 16,682 20,210 18,457
05/31/99 15,885 19,383 17,506
06/30/99 16,653 20,395 18,189
07/31/99 17,160 20,915 18,729
08/31/99 17,247 21,101 18,798
09/30/99 17,305 21,183 18,987
10/31/99 17,971 21,999 19,698
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- --------------------------------------------
THREE SIX ONE THREE FIVE SINCE
AS OF OCTOBER 31, 1999 MONTHS MONTHS YEAR YEARS YEARS INCEPTION*
- ------------------------------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan International Equity Fund 4.73% 7.73% 24.41% 10.52% 8.08% 6.42%
MSCI EAFE Index** 5.17% 6.73% 23.03% 12.17% 9.21% 7.46%
Lipper International Fund Average 5.26% 8.98% 25.56% 12.90% 9.50% 8.86%
As of September 30, 1999
- ------------------------------------------------------------------------- --------------------------------------------
J.P. Morgan International Equity Fund 3.98% 8.20% 32.26% 9.12% 7.99% 6.05%
MSCI EAFE Index** 4.39% 7.04% 30.95% 10.43% 9.12% 7.11%
Lipper International Fund Average 3.91% 9.71% 29.80% 11.15% 9.12% 8.55%
</TABLE>
*The fund commenced operations on June 1, 1990 and has provided an average
annual total return of 6.42% from that date through October 31, 1999. For the
purpose of comparison, the "since inception" returns in the table above are
calculated from May 31, 1990, the first date when data for the fund, its
benchmark, and its Lipper category average were available.
** MSCI EAFE Index is an unmanaged index used to track the average performance
of over 900 securities listed on the stock exchanges of countries in Europe,
Australasia, and the Far East. The index does not include fees or expenses and
is not available for actual investment.
Past performance is no guarantee of future results. Fund returns are net of
fees and assume the reinvestment of distributions. Lipper Analytical
Services, Inc. is a leading source for mutual fund data.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with NIGEL F. EMMETT, vice president, a member of the
portfolio management team. Nigel joined J.P. Morgan in 1997. Previously, 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. He is a Chartered Financial Analyst. This interview was conducted on
November 9, 1999, and reflects his views on that date.
THE FUND OUTPERFORMED DURING THE 12 MONTHS ENDED OCTOBER 31. HOW DID YOU DO IT?
NE: Stock selection in all three regions added value: the United Kingdom,
Continental Europe, and particularly Japan. The absolute return also benefited
from the Japanese stock market, which was the strongest industrialized stock
market in the world for U.S. investors. The Japanese economy was surprisingly
strong, and so was its currency. Japan's economy has definitely bottomed, the
stimulus packages have worked to some degree, and encouragingly we are seeing
signs of Japanese companies restructuring.
Although the restructuring is not as deep and as widespread as it is in western
markets, it seems to be going in the right direction. In excess of 60% of the
companies listed on the Tokyo stock exchange have announced restructuring plans.
A lot of that is rhetoric. Some make an announcement and do not follow through.
What we are focusing on sector by sector are those companies that are able to
follow through.
WHICH STOCKS PERFORMED WELL IN JAPAN?
NE: Softbank, the Japanese technology company with Internet interests, and two
other companies -- Mitsubishi Chemical and Sony -- contributed to the fund's
performance. Mitsubishi Chemical's management had been increasingly proactive in
managing costs and profitability has improved. Also, the market is beginning to
realize it has a fairly significant and successful pharmaceutical business which
has never been priced into its stock before. Sony has transformed itself from an
audio-visual hardware manufacturer to an entertainment conglomerate with its
successful PlayStation game machines.
Our success in these cases reflects our commitment to on-the-ground research. We
have more than 10 analysts in Tokyo. In the currently changing economic and
corporate environment in Japan, we are committed to bottom-up research with
specialists located in the country so that they can come to grips directly with
corporate restructuring, government action, and changes in the marketplace.
HOW HAS EUROPE PERFORMED? WE'VE BEEN ANTICIPATING STRENGTH THERE.
NE: Europe was hurt in the first half of the period by the collapse of the Asian
economies and worries about the slowdown in global growth, so its own domestic
markets failed to rally. In the second half, Europe has benefited from the
recovery in Asia and strong growth in the United States. Plus, domestic demand
is
3
<PAGE>
starting to pick up. So going forward, everything is firing on all cylinders.
And strong mergers and acquisitions activity and restructuring are providing a
floor for the market. We expect this activity to result in better margins and
therefore better earnings as well.
HASN'T ECONOMIC GROWTH BEEN STRENGTHENING WORLDWIDE?
NE: Yes. We had much stronger than expected growth in the U.S., a bounceback in
the Asian economies, and the Japanese economy was a surprise. The United
Kingdom's economy stabilized after a difficult period last year.
WHAT IS YOUR STRATEGY NOW?
NE: We're underweight in Japan. We think the market is at fair value given the
size of the return we've seen year to date. We sold a small part of our holdings
during the summer. We're only slightly underweight now and we look for the
opportunity to increase again later.
We're looking for positive GDP growth in Japan next year, although we don't
expect it to be as strong as this year. Going into next year we anticipate
rising unemployment. That is likely to hold back economic growth, but GDP will
likely still be positive. We doubt this is an economy that will slip back into
recession.
We're also slightly underweight in the United Kingdom. We think the market is
reasonably attractive, but given that its government has been very quick
- - probably the most proactive of the central banks - to raise interest rates,
we believe that that could prove to be a drag on the equity market in the near
future.
In Europe, we continue to believe that many of the largest companies are
expensive, but there is value in the market if you look for it. We've
overweighted Continental Europe because we foresee strong earnings growth in the
year 2000. We are looking for strong GDP growth in the region and consumer
sentiment is improving. In addition, we expect another strong year for mergers
and acquisitions activity, and continued corporate restructuring.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan International Equity Fund seeks to provide a high total return from
a portfolio of equity securities of foreign companies. It is designed for
investors with a long-term investment horizon who want to diversify their
portfolios by investing in an actively managed portfolio of non-U.S. securities
that seeks to outperform the MSCI EAFE Index. As an international investment,
the fund is subject to foreign market, political, and currency risks.
- ------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
6/1/90
- ------------------------------------------------------------------------------
FUND NET ASSETS AS OF 10/31/99
$64,859,715
- ------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 10/31/99
$536,055,616
- ------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/20/99
EXPENSE RATIO
The fund's current expense ratio of 1.21% covers shareholders' expenses for
custody, tax reporting, investment advisory and shareholder services. The fund
is no-load and does not charge any sales, redemption, or exchange fees. There
are no additional charges for buying, selling, or safekeeping fund shares, or
for wiring redemption proceeds from the fund.
FUND HIGHLIGHTS
ALL DATA AS OF OCTOBER 31, 1999
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- - JAPAN 26.5%
- - UNITED KINGDOM 19.5%
- - FRANCE 10.6%
- - GERMANY 8.9%
- - NETHERLANDS 7.4%
- - SWITZERLAND 6.5%
- - SPAIN 3.8%
- - AUSTRALIA 2.6%
- - ITALY 2.4%
- - SWEDEN 2.2%
- - FINLAND 1.9%
- - OTHER 7.7%
<TABLE>
<CAPTION>
LARGEST COMMON STOCK HOLDINGS % OF TOTAL INVESTMENTS
- -----------------------------------------------------------------------
<S> <C>
TOTAL FINA SA (FRANCE) 2.3%
BP AMOCO PLC (UNITED KINGDOM) 2.2%
NIPPON TELEGRAPH & TELEPHONE CORP. (JAPAN) 2.1%
ROCHE HOLDING AG (SWITZERLAND) 1.6%
LLOYDS TSB GROUP PLC (UNITED KINGDOM) 1.6%
MANNESMANN AG (GERMANY) 1.6%
VODAFONE AIRTOUCH PLC (UNITED KINGDOM) 1.6%
ERICSSON LM (SWEDEN) 1.4%
GLAXO WELLCOME PLC (UNITED KINGDOM) 1.4%
SONY MUSIC ENTERTAINMENT, INC. (JAPAN) 1.3%
</TABLE>
5
<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.
Opinions expressed herein are based on current market conditions and are subject
to change without notice. 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 such securities. 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;
prospective investors should refer to the funds prospectus for a discussion of
these risks.
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.
6
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The International Equity Portfolio
("Portfolio"), at value $65,064,366
Receivable for Shares of Beneficial Interest Sold 2,475
Prepaid Trustees' Fees 194
Prepaid Expenses 577
-----------
Total Assets 65,067,612
-----------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 153,194
Administrative Services Fee Payable 1,328
Administration Fee Payable 72
Fund Services Fee Payable 35
Accrued Expenses 53,268
-----------
Total Liabilities 207,897
-----------
NET ASSETS
Applicable to 5,225,457 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $64,859,715
===========
Net Asset Value, Offering and Redemption Price
Per Share $12.41
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $41,130,144
Accumulated Net Investment Income 274,483
Accumulated Net Realized Gain on Investment 5,071,658
Net Unrealized Appreciation of Investment 18,383,430
-----------
Net Assets $64,859,715
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $159,691) $ 1,100,127
Allocated Interest Income (Net of Foreign
Withholding Tax of $432) 76,302
Allocated Portfolio Expenses (538,767)
-----------
Net Investment Income Allocated from
Portfolio 637,662
FUND EXPENSES
Shareholder Servicing Fee $167,059
Transfer Agent Fees 33,289
Administrative Services Fee 17,391
Professional Fees 11,739
Fund Services Fee 1,398
Administration Fee 1,009
Trustees' Fees and Expenses 748
Miscellaneous 35,963
--------
Total Fund Expenses 268,596
-----------
NET INVESTMENT INCOME 369,066
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 5,823,564
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 8,973,165
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $15,165,795
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
DECREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 369,066 $ 789,131
Net Realized Gain on Investment Allocated from
Portfolio 5,823,564 2,944,881
Net Change in Unrealized Appreciation of
Investment Allocated from Portfolio 8,973,165 2,675,678
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 15,165,795 6,409,690
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (2,063,807) (4,506,440)
Net Realized Gain (2,020,384) (5,060,475)
--------------- ---------------
Total Distributions to Shareholders (4,084,191) (9,566,915)
--------------- ---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 75,760,494 27,414,430
Reinvestment of Dividends and Distributions 2,904,000 6,667,184
Cost of Shares of Beneficial Interest Redeemed (101,358,827) (101,111,026)
--------------- ---------------
Net Decrease from Transactions in Shares of
Beneficial Interest (22,694,333) (67,029,412)
--------------- ---------------
Total Decrease in Net Assets (11,612,729) (70,186,637)
NET ASSETS
Beginning of Fiscal Year 76,472,444 146,659,081
--------------- ---------------
End of Fiscal Year (including undistributed net
investment income of $274,483 and $1,491,229,
respectively) $ 64,859,715 $ 76,472,444
=============== ===============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.56 $ 10.97 $ 11.38 $ 10.68 $ 11.50
------- ------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.16 0.34 0.15 0.12 0.09
Net Realized and Unrealized Gain (Loss) on
Investments, Futures, and Foreign Currency 2.30 0.14 0.23 1.16 (0.42)
------- ------- -------- -------- --------
Total from Investment Operations 2.46 0.48 0.38 1.28 (0.33)
------- ------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.31) (0.42) (0.25) (0.24) --
Net Realized Gain (0.30) (0.47) (0.54) (0.34) (0.49)
------- ------- -------- -------- --------
Total Distributions to Shareholders (0.61) (0.89) (0.79) (0.58) (0.49)
------- ------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 12.41 $ 10.56 $ 10.97 $ 11.38 $ 10.68
======= ======= ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Total Return 24.41% 4.87% 3.46% 12.31% (2.71)%
Net Assets, End of Year (in thousands) $64,860 $76,472 $146,659 $200,720 $185,541
Ratio to Average Net Assets
Expenses 1.21% 1.17% 1.12% 1.14% 1.28%
Net Investment Income 0.55% 0.73% 1.11% 1.00% 0.80%
Interest Expense -- 0.01% -- -- --
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
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 (12% at
October 31, 1999). The performance of the fund is directly affected by the
performance of the portfolio. The financial statements of the portfolio,
including the Schedule of Investments, are included elsewhere in this report and
should be read in conjunction with the fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the fund:
a) Valuation of securities by the portfolio is discussed in Note 1a of the
portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the portfolio is allocated pro rata among the fund and other
investors in the portfolio at the time of such determination.
c) Distributions to shareholders of net investment income and net realized
capital gains, if any, are declared and paid annually.
d) 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.
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.
f ) 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 Investments Companies." The effect of
applying this statement was to increase Undistributed Net Income by
$477,995 and decrease Accumulated Net
12
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Realized Gain on Investment by $256,175 and decrease Paid-in Capital by
$221,820. The adjustments are primarily attributable to foreign currency
reclasses. Net investment income, net realized gains and net assets were
not affected by this change.
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the
fiscal year ended October 31, 1999, the fee for these services amounted to
$1,009.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for certain aspects of the administration and operation of the fund. Under
the Services Agreement, the fund has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and other portfolios in which the trust and the J.P. Morgan
Institutional Funds invest (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 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 fiscal year ended
October 31, 1999, the fee for these services amounted to $17,391.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance service to fund shareholders. The agreement provides for the
fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.25% of the average daily net assets of
the fund. For the fiscal year ended October 31, 1999, the fee for these
services amounted to $167,059.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreement")
whereby Schwab makes the fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the services agreement with Schwab is
terminated for reasons other than a breach by Schwab and the relationship
between the trust and Morgan is terminated, the fund would be responsible
for the ongoing payments to Schwab with respect to pre-termination shares.
13
<PAGE>
J.P. MORGAN INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
d) The trust, on behalf of the fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the trustees in exercising their
overall supervisory responsibilities for the trust's affairs. The trustees
of the trust represent all the existing shareholders of Group. The fund's
allocated portion of Group's costs in performing its services amounted to
$1,398 for the fiscal year ended October 31, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Institutional Funds, the master
portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the fund's allocated portion
of these total fees and expenses. The trust's Chairman and Chief Executive
Officer also serves as Chairman of Group and receives compensation and
employee benefits from Group in his role as Group's Chairman. The
allocated portion of such compensation and benefits included in the Funds
Services Fee shown in the financial statements was $300.
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 FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Shares sold...................................... 6,663,150 2,471,987
Reinvestment of dividends and distributions...... 277,099 670,069
Shares redeemed.................................. (8,956,052) (9,271,796)
--------------- ---------------
Net Decrease..................................... (2,015,803) (6,129,740)
=============== ===============
</TABLE>
4. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 27, 1998, 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 Agreement expired on May 26,
1999, however, the fund as party to the Agreement has renewed the Agreement and
will continue its participation therein for an additional 364 days until
May 23, 2000. The maximum borrowing under the new agreement was $150,000,000.
The purpose of the Agreement is to provide another alternative for settling
large fund shareholder redemptions. Interest on any such borrowings outstanding
will approximate market rates. The funds pay a commitment fee at an annual rate
of 0.085% (0.065% prior to May 26, 1999) on the unused portion of the committed
amount. This is allocated to the funds in accordance with procedures established
by their respective trustees. There were no outstanding borrowings pursuant to
the Agreement at October 31, 1999.
14
<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, 1999,
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 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
December 17, 1999
15
<PAGE>
The International Equity Portfolio
Annual Report October 31, 1999
(The following pages should be read in conjunction
with J.P. Morgan International Equity Fund
Annual Financial Statements)
16
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCK (93.1%)
AUSTRALIA (2.0%)
AMP Ltd. (Insurance)(s).......................... 80,200 $ 814,950
Broken Hill Proprietary Co. Ltd. (Metals &
Mining)(s)..................................... 101,105 1,044,191
CSR Ltd. (Building Materials)(s)................. 228,300 512,098
Foster's Brewing Group Ltd. (Food, Beverages &
Tobacco)(s).................................... 139,405 370,263
Lend Lease Corp. Ltd. (Financial Services)(s).... 58,100 668,020
National Australia Bank Ltd. (Banking)(s)........ 131,105 2,021,806
Pioneer International Ltd. (Building
Materials)(s).................................. 283,972 620,690
Santos Ltd. (Oil-Production)(s).................. 197,100 506,170
Southcorp Ltd. (Food, Beverages & Tobacco)(s).... 208,800 725,157
Telstra Corp. Ltd. (Telecommunication
Services)(s)................................... 329,200 1,673,417
Telstra Corp. Ltd. Installment Receipt
(Telecommunication Services)+(s)............... 138,596 444,246
Westpac Banking Corp. Ltd. (Banking)(s).......... 141,600 907,930
Woolworths Ltd. (Retail)(s)...................... 163,900 556,687
------------
10,865,625
------------
AUSTRIA (0.4%)
Bank Austria AG (Banking)(s)..................... 40,083 1,991,450
------------
DENMARK (0.1%)
Ratin A/S (Holding Companies)(s)................. 6,113 635,333
------------
FINLAND (1.9%)
Nokia OYJ (Telecommunications-Equipment)(s)...... 55,768 6,377,897
Stora Enso OYJ, R Shares (Forest Products &
Paper)(s)...................................... 208,524 2,771,639
Tietoenator Oyj Abp (Computer Software)(s)....... 24,633 854,387
------------
10,003,923
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
FRANCE (10.4%)
Alcatel (Telecommunications-Equipment)........... 9,325 $ 1,428,904
Alstom SA (Railroads)(s)......................... 59,251 1,793,543
AXA (Insurance)(s)............................... 27,531 3,880,381
Banque Nationale de Paris (Financial
Services)(s)................................... 27,828 2,442,261
Carrefour SA (Retail)(s)......................... 18,840 3,485,116
Castorama Dubois Investissement SA (Retail)(s)... 5,442 1,629,004
Christian Dior SA (Retail)(s).................... 5,943 1,063,136
CNP Assurances (Insurance)(s).................... 21,900 644,504
Coflexip SA (Oil-Services)(s).................... 6,413 505,529
Compagnie de Saint Gobain SA (Building
Materials)(s).................................. 10,831 1,878,348
Credit Lyonnais (Banking)+(s).................... 56,847 1,717,786
France Telecom SA (Telecommunication
Services)(s)................................... 11,430 1,103,441
Groupe Danone (Food, Beverages & Tobacco)(s)..... 11,400 2,905,629
Lagardere S.C.A. (Multi - Industry)(s)........... 30,205 1,222,259
Louis Vuitton Moet Hennessy (Food, Beverages &
Tobacco)(s).................................... 3,161 953,520
Pinault-Printemps-Redoute SA (Retail)(s)......... 9,494 1,809,134
Renault SA (Automotive)(s)....................... 19,140 989,762
Rhodia SA (Chemicals)(s)......................... 87,462 1,686,860
Rhone-Poulenc SA, A Shares
(Pharmaceuticals)(s)........................... 57,342 3,206,329
Sanofi-Synthelabo SA (Pharmaceuticals)+(s)....... 27,651 1,219,176
SEITA (Food, Beverages & Tobacco)(s)............. 21,689 1,208,200
Total SA, B Shares (Oil-Services)(s)............. 90,456 12,216,998
Usinor SA (Metals & Mining)(s)................... 43,104 598,472
Vivendi (Utilities)(s)........................... 83,465 6,320,654
------------
55,908,946
------------
GERMANY (8.4%)
BASF AG (Chemicals)(s)........................... 52,881 2,376,071
Bayerische Hypo-Und Vereinsbank AG (Banking)(s).. 27,504 1,803,865
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
GERMANY (CONTINUED)
Bilfinger & Berger Bau AG (Construction &
Housing)(s).................................... 30,340 $ 621,833
Celanese AG (Chemicals)+(s)...................... 2,986 47,081
DaimlerChrysler AG (Automotive)(s)............... 63,806 4,962,687
Deutsche Telekom AG (Utilities)(s)............... 81,111 3,725,502
Dresdener Bank AG (Banking)(s)................... 30,161 1,545,411
Entrium Direct Bankers AG (Banking)+(s).......... 25,900 428,750
Hochtief AG (Construction & Housing)(s).......... 20,419 839,141
Hoechst AG (Holding Companies)(s)................ 29,863 1,313,568
Karstadt AG (Retail)(s).......................... 14,110 637,704
Mannesman AG (Diversified Manufacturing)(s)...... 52,444 8,240,634
Merck KgAA (Pharmaceuticals)(s).................. 13,000 448,168
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance)(s)................................. 11,165 2,558,226
Reckitt & Colman Deutshhland (Household
Products)(s)................................... 59,200 716,902
SAP AG (Computer Software)(s).................... 6,839 2,538,849
Schering AG (Pharmaceuticals)(s)................. 7,207 856,724
SGL Carbon AG (Chemicals)+(s).................... 10,500 671,542
Siemens AG (Diversified Manufacturing)(s)........ 44,514 3,993,225
Stinnes AG (Transport & Services)(s)............. 70,423 1,347,130
VEBA AG (Utilities)(s)........................... 80,467 4,347,149
Volkswagen AG (Automotive)(s).................... 15,200 897,849
------------
44,918,011
------------
HONG KONG (1.4%)
Cheung Kong Holdings Ltd. (Real Estate)(s)....... 166,000 1,511,613
Hongkong Electric Holdings Ltd. (Electric)(s).... 260,500 796,301
HSBC Holding PLC (Financial Services(s).......... 92,400 1,111,961
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
HONG KONG (CONTINUED)
Hutchison Whampoa Ltd. (Multi - Industry)(s)..... 238,000 $ 2,389,338
Sun Hung Kai Properties Ltd. (Real Estate)(s).... 210,000 1,702,809
------------
7,512,022
------------
IRELAND (0.8%)
Bank of Ireland (Banking)(s)..................... 91,222 711,422
CRH PLC (Building Materials)(s).................. 51,400 969,731
Eircom PLC (Telecommunication Services)(s)....... 122,200 507,332
Irish Life and Permanent PLC (Financial
Services)(s)................................... 71,498 728,936
Jefferson Smurfit Group PLC (Forest Products &
Paper)(s)...................................... 570,629 1,481,407
------------
4,398,828
------------
ITALY (2.4%)
Assicurazioni Generali SPA (Insurance)(s)........ 23,563 755,360
Banca Fideuram SPA (Financial Services)(s)....... 243,480 1,471,481
ENI SPA (Oil-Services)(s)........................ 436,006 2,547,950
Mediaset SpA (Broadcasting & Publishing)(s)...... 102,527 1,022,652
Mediolanum SPA (Financial Services)(s)........... 115,400 937,581
Saipem SpA (Oil-Services)(s)..................... 136,800 582,324
Telecom Italia SPA (Telecommunication
Services)(s)................................... 78,260 675,315
Telecom Italia SPA - RNC (Telecommunication
Services)(s)................................... 269,883 1,324,695
Unicredito Italiano SPA (Financial
Services)(s)................................... 722,108 3,377,426
------------
12,694,784
------------
JAPAN (24.6%)
Aiful Corp. (Banking)(s)......................... 2,800 434,649
Ajinomoto Co., Inc. (Food, Beverages &
Tobacco)(s).................................... 90,000 1,008,144
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
JAPAN (CONTINUED)
Asahi Bank Ltd. (Banking)(s)..................... 280,000 $ 2,484,476
Bank of Fukuoka Ltd. (Banking)(s)................ 125,000 961,814
Bank of Tokyo - Mitsubishi Ltd. (Banking)(s)..... 191,000 3,162,590
Bridgestone Corp. (Chemicals)(s)................. 59,000 1,622,556
Citizen Watch Co. (Retail)(s).................... 144,000 1,016,941
DDI Corp. (Telecommunications)(s)................ 255 2,785,549
Denso Corp. (Automotive Supplies)(s)............. 33,000 705,155
Ebara Corp. (Machinery)(s)....................... 155,000 1,847,642
Fanuc Ltd. (Machinery)(s)........................ 6,800 527,788
Fuji Bank Ltd. (Banking)(s)...................... 258,000 3,535,261
Fuji Heavy Industries, Ltd. (Truck & Freight
Carriers)(s)................................... 121,000 1,027,271
Fujitsu Ltd. (Computer Systems)(s)............... 135,000 4,061,899
Hitachi Ltd. (Electrical Equipment)(s)........... 198,000 2,138,232
Hitachi Software Engineering Co. (Computer
Software)(s)................................... 12,600 1,157,857
Honda Motor Co. Ltd. (Automotive)(s)............. 65,000 2,740,512
Ito - Yokado Co. Ltd. (Retail)(s)................ 36,000 2,876,963
Japan Tobacco, Inc. (Food, Beverages &
Tobacco)(s).................................... 121 1,333,365
Kaken Pharmaceuticals (Pharmaceuticals)(s)....... 58,000 427,942
Kawasaki Steel Corp. (Metals & Mining)(s)........ 559,000 1,264,124
Kyocera Corp. (Electronics)(s)................... 31,000 2,970,485
Matsushita Electric Industrial Co. Ltd.
(Electronics)(s)............................... 181,000 3,806,965
Minebea Co. Ltd. (Capital Goods)(s).............. 235,000 3,163,807
Mitsubishi Chemical Corp. (Chemicals)(s)......... 956,000 4,332,961
Mitsubishi Corp. (Wholesale & International
Trade)(s)...................................... 237,000 1,703,238
Mitsubishi Estate Co. Ltd. (Real Estate)(s)...... 112,000 1,121,502
Mitsui Marine & Fire Insurance Co. Ltd.
(Insurance)(s)................................. 137,000 907,119
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
JAPAN (CONTINUED)
Mitsui Mining & Smelting Co. Ltd. (Metals &
Mining)(s)..................................... 30,000 $ 168,168
Mitsui Trust & Banking Co. Ltd. (Banking)(s)..... 161,000 499,846
NAMCO Ltd. (Entertainment, Leisure & Media)(s)... 52,900 2,493,943
Nichiei Co. Ltd. (Financial Services)(s)......... 25,200 1,303,947
Nintendo Co. Ltd. (Retail)(s).................... 8,400 1,332,119
Nippon Telegraph & Telephone Corp.
(Telecommunications)(s)........................ 705 10,808,734
Nippon Yusen Kabushiki Kaisha (Transport &
Services)(s)................................... 811,000 3,497,028
Nishimatsu Construction Co. Ltd. (Construction &
Housing)(s).................................... 423,000 2,225,248
Omron Corp. (Electrical Equipment)(s)............ 51,000 1,065,350
Osaka Gas Co. Ltd. (Natural Gas)(s).............. 562,000 1,879,436
Pioneer Corp. (Electronics)(s)................... 59,000 1,052,117
Ricoh Co. Ltd. (Electrical Equipment)(s)......... 159,000 2,591,595
Rohm Co. Ltd. (Electronics)(s)................... 9,400 2,107,703
Sakura Bank Ltd. (Banking)(s).................... 77,000 661,096
Sanyo Electric Co. Ltd. (Electronics)(s)......... 248,000 1,188,194
Sekisui Chemical Co. Ltd. (Chemicals)(s)......... 217,000 1,066,701
Shohkoh Fund & Co. Ltd. (Financial
Services)(s)................................... 3,610 2,206,956
Snow Brand Milk Products Co. Ltd. (Food,
Beverages & Tobacco)(s)........................ 165,000 795,276
Softbank Corp. (Wholesale & International
Trade)(s)...................................... 9,400 3,900,152
Sony Corp. (Electronics)(s)...................... 2,200 342,775
Sony Music Entertainment, Inc. (Entertainment,
Leisure & Media)(s)............................ 54,100 7,045,024
Sumitomo Bakelite Co. Ltd. (Chemicals)(s)........ 70,000 690,207
Sumitomo Bank Ltd. (Banking)(s).................. 91,000 1,463,184
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
JAPAN (CONTINUED)
Sumitomo Rubber Industries Ltd. (Automotive
Supplies)(s)................................... 253,000 $ 1,500,641
Suzuki Motor Corp. (Automotive)(s)............... 84,000 1,274,971
Taiheiyo Cement Corp. (Building Materials)(s).... 239,000 522,154
Takeda Chemical Industries (Chemicals)(s)........ 79,000 4,534,398
Takefuji Corp. (Financial Services)(s)........... 6,900 892,583
The Sanwa Bank Ltd. (Banking)(s)................. 46,000 683,652
Tokuyama Corp. (Chemicals)(s).................... 170,000 733,039
Tokyo Electric Power Co., Inc. (Electric)(s)..... 34,100 761,335
Tokyo Gas Co. Ltd. (Natural Gas)(s).............. 387,000 915,954
Tokyo Steel Manufacturing Co. Ltd. (Metals &
Mining)(s)..................................... 153,000 587,897
Tostem Corp. (Construction & Housing)(s)......... 81,000 1,812,331
Toyo Trust & Banking Co. Ltd. (Banking)(s)....... 274,000 1,732,847
Toyota Motor Corp. Ltd. (Automotive)(s).......... 107,000 3,701,321
Uny Co. Ltd. (Retail)(s)......................... 63,000 814,967
West Japan Railway Co. (Railroads)(s)............ 881 3,672,239
Yamaha Corp. (Electronics)(s).................... 68,000 456,113
York - Benimaru Co., Ltd. (Retail)(s)............ 15,000 618,053
Yoshitomi Pharmaceutical Industries Ltd.
(Pharmaceuticals)(s)........................... 86,000 1,170,180
------------
131,896,281
------------
NETHERLANDS (7.2%)
ABN Amro Holding NV (Banking)(s)................. 159,123 3,844,993
Aegon NV (Insurance)(s).......................... 32,061 2,956,976
Akzo Nobel NV (Chemicals)(s)..................... 23,500 1,011,205
Equant NV (Information Processing)+(s)........... 17,287 1,680,680
Fortis (NL) NV (Financial Services)(s)........... 66,680 2,293,851
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
NETHERLANDS (CONTINUED)
Getronics NV (Computer Systems)(s)............... 25,518 $ 1,271,302
Heineken NV (Food, Beverages & Tobacco)(s)....... 52,270 2,663,964
ING Groep NV (Financial Services)(s)............. 81,624 4,811,157
Koninklijke Ahold NV (Retail)(s)................. 18,485 567,317
Koninklijke Numico NV (Food, Beverages &
Tobacco)(s).................................... 37,345 1,520,995
KPN NV (Telecommunication Services)(s)........... 44,163 2,264,712
Laurus NV (Retail)(s)............................ 36,367 808,428
Philips Electronics NV (Electronics)(s).......... 38,931 3,989,549
Royal Dutch Petroleum Co. (Oil-Services)(s)...... 39,170 2,339,671
STMicroelectronics NV (Semiconductors)(s)........ 10,961 961,967
TNT Post Group NV (Transport & Services)(s)...... 75 1,908
United Pan-Europe Communications NV
(Telecommunication Services)+(s)............... 15,773 1,211,868
Vedior NV (Business & Public Services)(s)........ 53,938 907,065
Vendex NV (Retail)(s)............................ 43,990 1,283,041
Wolters Kluwer NV (Broadcasting &
Publishing)(s)................................. 70,893 2,367,250
------------
38,757,899
------------
NEW ZEALAND (0.4%)
Fletcher Challenge Building (Building
Materials)(s).................................. 252,500 311,861
Fletcher Challenge Energy (Gas Exploration)(s)... 141,100 324,973
Fletcher Challenge Paper (Forest Products &
Paper)(s)...................................... 700,500 457,412
Telecom Corp. of New Zealand Ltd.
(Telecommunications)(s)........................ 287,300 1,154,690
------------
2,248,936
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
NORWAY (0.1%)
Nycomed Amersham PLC (Medical Supplies)(s)....... 71,577 $ 437,970
------------
PORTUGAL (0.7%)
Banco Pinto & Sotto Mayor SA (Banking)(s)........ 150,339 3,128,675
Portugal Telecom SA (Telecommunications)(s)...... 13,524 602,691
------------
3,731,366
------------
SINGAPORE (0.9%)
DBS Group Holdings Ltd. (Financial
Services)(s)................................... 124,265 1,404,088
Neptune Orient Lines Ltd. (Transport &
Services)(s)................................... 703,000 1,018,263
Singapore Press Holdings Ltd. (Broadcasting &
Publishing)(s)................................. 38,000 650,903
Singapore Telecommunications Ltd.
(Telecommunications)(s)........................ 383,000 727,400
Venture Manufacturing Ltd. (Manufacturing)(s).... 102,000 907,297
------------
4,707,951
------------
SPAIN (3.7%)
Banco Santander Central Hispano, SA
(Banking)(s)................................... 431,756 4,478,980
Centros Comerciales Continente, S.A.
(Retail)(s).................................... 31,918 764,210
Endesa SA (Electric)(s).......................... 185,657 3,713,417
Iberdrola SA (Electric)(s)....................... 99,400 1,448,016
Indra Sistemas SA (Electronics)(s)............... 77,483 813,571
Repsol-YFP, SA (Oil-Production)(s)............... 120,800 2,488,551
Telefonica SA (Telecommunication Services)+(s)... 384,647 6,322,993
------------
20,029,738
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
SWEDEN (2.2%)
Autoliv, Inc. (SDR) (Automotive Supplies)(s)..... 60,849 $ 1,935,179
Electrolux AB (Appliances & Household
Durables)(s)................................... 32,575 648,477
Ericsson LM, B Shares (Telecommunications-
Equipment)(s).................................. 175,363 7,279,986
Forenings Sparbanken AB (Banking)(s)............. 64,232 1,021,384
Skandia Forsakrings AB (Insurance)(s)............ 43,043 956,137
------------
11,841,163
------------
SWITZERLAND (6.4%)
ABB AG (Electrical Equipment)+(s)................ 11,565 1,149,730
Compagnie Financiere Richemont AG (Food,
Beverages & Tobacco)(s)........................ 487 930,701
Geberit International AG (Construction &
Housing)+(s)................................... 2,740 807,397
Holderbank Financiere Glarus AG (Building
Materials)(s).................................. 562 692,294
Nestle SA (Food, Beverages & Tobacco)(s)......... 2,634 5,082,216
Novartis AG (Pharmaceuticals)(s)................. 2,226 3,330,811
Roche Holding AG (Pharmaceuticals)(s)............ 716 8,599,122
Schweizerische Lebensversicherungs-und
Rentenanstalt (Insurance)(s)................... 1,272 751,311
SGS-Thomson Microelectronics NV (Electronics).... 590 642,762
Swisscom AG (Telecommunication Services)(s)...... 11,000 3,353,269
UBS AG (Banking)(s).............................. 16,975 4,940,756
Zurich Allied AG (Insurance)(s).................. 6,799 3,850,754
------------
34,131,123
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
UNITED KINGDOM (19.1%)
Allied Zurich PLC (Insurance)(s)................. 105,550 $ 1,281,657
Arriva PLC (Transport & Services)(s)............. 41,300 216,861
AstraZeneca Group PLC (Pharmaceuticals)(s)....... 70,600 3,188,122
Barclays PLC (Banking)(s)........................ 80,000 2,450,847
Bass PLC (Food, Beverages & Tobacco)(s).......... 65,428 716,096
BG PLC (Gas Exploration)(s)...................... 153,200 849,684
Billiton PLC (Metals & Mining)(s)................ 285,300 1,240,594
BP Amoco PLC (Oil-Production)(s)................. 1,181,512 11,457,965
British Aerospace PLC (Aerospace)(s)............. 174,100 1,028,450
British American Tobacco PLC (Food, Beverages &
Tobacco)(s).................................... 116,750 773,963
British Sky Broadcasting Group PLC
(Broadcasting & Publishing)(s)................. 154,900 1,667,390
British Telecommunications PLC
(Telecommunications)(s)........................ 255,500 4,628,517
Cable & Wireless Communications PLC
(Telecommunications)(s)........................ 338,600 3,944,820
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)(s).................................... 181,000 1,176,131
Compass Group PLC (Food, Beverages &
Tobacco)(s).................................... 233,400 2,489,408
Corus Group PLC (Metals & Mining)(s)............. 494,000 940,301
Diageo PLC (Food, Beverages & Tobacco)(s)........ 148,161 1,504,896
Dixons Group PLC (Retail)(s)..................... 22,400 396,231
Glaxo Wellcome PLC (Pharmaceuticals)(s).......... 239,600 7,061,143
Glynwed International PLC (Metals & Mining)(s)... 269,000 900,460
Great Universal Stores PLC (Retail)(s)........... 135,700 1,026,509
Hanson PLC (Building Materials)(s)............... 83,000 645,563
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Hays PLC (Commercial Services)(s)................ 72,100 $ 818,697
HSBC Holdings PLC (Banking)(s)................... 344,100 4,226,281
Imperial Chemical Industries plc
(Chemicals)(s)................................. 70,000 695,495
Invensys PLC (Diversified Manufacturing)(s)...... 92,500 453,832
Kingfisher PLC (Retail)(s)....................... 123,800 1,352,934
Lloyds TSB Group PLC (Banking)(s)................ 611,150 8,443,875
MEPC PLC (Real Estate)(s)........................ 163,565 1,132,621
MFI Furniture Group PLC (Household
Products)(s)................................... 500,634 334,757
National Power PLC (Electric)(s)................. 208,589 1,413,590
Northern Foods PLC (Food, Beverages &
Tobacco)(s).................................... 94,900 147,935
Nycomed Amersham PLC (Medical Supplies)(s)....... 88,064 540,445
Ocean Group PLC (Transport & Services)(s)........ 56,700 862,471
Pearson PLC (Broadcasting & Publishing)(s)....... 74,000 1,663,543
Pilkington PLC (Building Materials)(s)........... 255,300 382,266
Prudential Corp. PLC (Insurance)(s).............. 184,000 2,880,369
Racal Electronic PLC (Telecommunications-
Equipment)(s).................................. 166,600 1,227,448
Reuters Group PLC (Broadcasting &
Publishing)(s)................................. 82,100 754,420
RMC Group PLC (Building Materials)(s)............ 89,000 1,277,850
Royal & Sun Alliance Insurance Group PLC
(Insurance)(s)................................. 195,454 1,329,386
Royal Bank of Scotland Group PLC (Banking)(s).... 69,300 1,592,000
Sainsbury (J.) PLC (Retail)(s)................... 138,300 829,452
Securicor PLC (Commercial Services)(s)........... 33,300 325,120
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Shell Transport & Trading Co. PLC
(Oil-Services)(s).............................. 64,900 $ 496,264
Smith & Nephew PLC (Medical Supplies)(s)......... 120,300 386,904
SmithKline Beecham PLC (Pharmaceuticals)(s)...... 313,400 4,036,923
Sottish Power PLC (Electric)(s).................. 93,000 859,158
Tate & Lyle PLC (Food, Beverages & Tobacco)(s)... 85,000 555,814
Tesco PLC (Retail)(s)............................ 458,700 1,360,470
Thames Water PLC (Water)(s)...................... 36,200 522,725
TI Group PLC (Diversified Manufacturing)(s)...... 68,000 457,483
Unilever PLC (Food, Beverages & Tobacco)(s)...... 152,521 1,414,034
Vodafone Group PLC (Telecommunications)(s)....... 1,771,100 8,239,067
Williams PLC (Diversified Manufacturing)(s)...... 95,000 475,450
Woolwich PLC (Financial Services)(s)............. 249,000 1,465,795
------------
102,540,482
------------
TOTAL COMMON STOCK (COST $377,395,950)......... 499,251,831
------------
</TABLE>
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCKS (0.2%)
<S> <C> <C>
AB International Cayman Trust, 0.500% (Banking)
(cost $340,223)................................ 56,000,000 1,002,108
------------
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCK (0.9%)
<S> <C> <C>
AUSTRALIA (0.5%)
News Corp. Ltd. (Broadcasting &
Publishing)(s)................................. 413,163 2,795,297
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
GERMANY (0.4%)
ProSieben Media AG (Broadcasting &
Publishing)(s)................................. 18,307 $ 750,422
Volkswagen AG (Automotive)(s).................... 30,361 1,075,399
------------
1,825,821
------------
TOTAL PREFERRED STOCK (COST $5,000,768)........ 4,621,118
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
CONVERTIBLE BONDS (1.2%)
(IN JPY)
------------
JAPAN (1.2%)
Nichiei Construction Co. Ltd., 1.75% due 03/31/14
(Construction & Housing)....................... 20,000,000 169,126
Sanwa International Finance Trust, 1.25% due
07/31/05 (Financial Services).................. 204,000,000 2,541,202
Yamanouchi Pharmaceutical Co. Ltd., 1.25% due
03/31/14 (Commercial Services)................. 160,000,000 3,664,238
------------
6,374,566
------------
TOTAL CONVERTIBLE BONDS (COST $3,486,829)...... 6,374,566
------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS (2.7%)
<S> <C> <C>
EURO DOLLAR TIME DEPOSITS (2.4%)
(IN USD)
------------
State Street Bank Euro Dollar, 4.875% due
11/01/99....................................... $ 13,246,000 13,246,000
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.3%)
United States Treasury Bills, 5.092%(y) due
03/02/00(s).................................... $ 1,580,000 $ 1,553,063
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $14,800,763)............................ 14,799,063
------------
TOTAL INVESTMENTS (COST $401,024,533) (98.1%)...................
526,048,686
OTHER ASSETS IN EXCESS OF LIABILITIES (1.9%)....................
10,006,930
------------
NET ASSETS (100.0%)............................................. $536,055,616
============
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $402,506,981 for federal income
tax purposes at October 31, 1999, the aggregate gross unrealized appreciation
and depreciation was $138,094,975 and $14,553,270, respectively, resulting in
net unrealized appreciation of investments of $123,541,705.
+ - Non-income producing security.
(s) - Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$195,740,044 of the market value has been segregated.
(y) - Yield to maturity.
SDR - Swedish Depositary Receipt.
JPY - Japanese Yen.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
TOTAL INVESTMENTS
-----------------
<S> <C>
Banking........................................... 11.8%
Pharmaceuticals................................... 6.4%
Telecommunications................................ 6.2%
Food, Beverage & Tobacco.......................... 5.4%
Financial Services................................ 5.3%
Retail............................................ 4.6%
Insurance......................................... 4.5%
Chemicals......................................... 3.7%
Telecommunication Services........................ 3.6%
Oil - Services.................................... 3.5%
Electronics....................................... 3.3%
Telecommunications - Equipment.................... 3.1%
Short - Term...................................... 3.0%
Automotive........................................ 3.0%
Oil - Production.................................. 2.7%
Utilities......................................... 2.7%
Diversified Manufacturing......................... 2.6%
Broadcasting & Publishing......................... 2.2%
Computer Systems.................................. 1.9%
Entertainment, Leisure & Media.................... 1.8%
Electric.......................................... 1.7%
Building Materials................................ 1.5%
Electrical Equipment.............................. 1.3%
Transport & Services.............................. 1.3%
Metals & Mining................................... 1.3%
Construction & Housing............................ 1.2%
Wholesale & International Trade................... 1.1%
Real Estate....................................... 1.0%
Railroads......................................... 1.0%
Commercial Services............................... 0.9%
Forest Products & Paper........................... 0.9%
Automotive Supplies............................... 0.8%
Multi - Industry.................................. 0.7%
Capital Goods..................................... 0.6%
Natural Gas....................................... 0.5%
Machinery......................................... 0.5%
Holding Companies................................. 0.4%
Information Processing............................ 0.3%
Medical Supplies.................................. 0.3%
Gas Exploration................................... 0.2%
Household Products................................ 0.2%
Aerospace......................................... 0.2%
Truck & Freight Carriers.......................... 0.2%
Manufacturing..................................... 0.2%
Business & Public Services........................ 0.2%
Appliances & Household Durables................... 0.1%
Water............................................. 0.1%
-----
100.0%
=====
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $401,024,533) $526,048,686
Cash 3,482
Foreign Currency at Value (Cost $9,872,283) 9,673,849
Receivable for Investments Sold 9,999,166
Unrealized Appreciation of Forward Foreign
Currency Contracts 962,872
Dividends and Interest Receivable 645,698
Foreign Tax Reclaim Receivable 694,608
Variation Margin Receivable 377,384
Prepaid Trustees' Fees 444
Prepaid Expenses and Other Assets 6,468
------------
Total Assets 548,412,657
------------
LIABILITIES
Payable for Investments Purchased 11,429,770
Unrealized Depreciation of Forward Foreign
Currency Contract 458,172
Advisory Fee Payable 264,455
Administrative Services Fee Payable 11,079
Administration Fee Payable 482
Fund Services Fee Payable 293
Accrued Expenses 192,790
------------
Total Liabilities 12,357,041
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $536,055,616
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $1,173,744) $ 7,862,840
Interest Income (Net of Foreign Withholding Tax
of $1,866) 558,200
------------
Investment Income 8,421,040
EXPENSES
Advisory Fee $ 2,881,754
Custodian Fees and Expenses 761,522
Administrative Services Fee 124,528
Professional Fees and Expenses 52,555
Fund Services Fee 9,765
Printing Expenses 8,415
Administration Fee 6,065
Trustees' Fees and Expenses 5,663
Insurance Expense 1,582
-----------
Total Expenses 3,851,849
------------
NET INVESTMENT INCOME 4,569,191
NET REALIZED GAIN ON
Investment Transactions 23,241,397
Futures Contracts 5,013,962
Foreign Currency Transactions 560,419
-----------
Net Realized Gain 28,815,778
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments 70,761,167
Futures Contracts 267,324
Foreign Currency Contracts and Translations (37,614)
-----------
Net Change in Unrealized Appreciation 70,990,877
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $104,375,846
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 4,569,191 $ 6,512,087
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 28,815,778 4,786,051
Net Change in Unrealized Appreciation of
Investments, Futures and Foreign Currency
Contracts and Translations 70,990,877 22,380,408
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 104,375,846 33,678,546
--------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 281,385,364 190,933,942
Withdrawals (293,180,212) (544,746,196)
--------------- ---------------
Net Decrease from Investors' Transactions (11,794,848) (353,812,254)
--------------- ---------------
Total Increase (Decrease) in Net Assets 92,580,998 (320,133,708)
NET ASSETS
Beginning of Fiscal Year 443,474,618 763,608,326
--------------- ---------------
End of Fiscal Year $ 536,055,616 $ 443,474,618
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
--------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.79% 0.77% 0.79% 0.82%
Net Investment Income 0.95% 1.09% 1.47% 1.39% 1.31%
Portfolio Turnover 70% 74% 67% 57% 59%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The International Equity Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended, as a no-load, diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The portfolio's investment objective is to provide a high
total return from a portfolio of equity securities of foreign companies. The
portfolio commenced operations on October 4, 1993 and received a contribution of
certain assets and liabilities, including securities, with a value of
$160,213,973 on that date from The Pierpont International Equity Fund, Inc. in
exchange for a beneficial interest in the portfolio. At that date, net
unrealized appreciation of $11,116,204 was included in the contributed
securities. The Declaration of Trust permits the trustees to issue an unlimited
number of beneficial interests in the portfolio.
Investments in international markets may involve certain considerations and
risks not typically associated with investments in the United States. Future
economic and political developments in foreign countries could adversely affect
the liquidity or value, or both, of such securities in which the portfolio is
invested. The ability of the issuers of debt securities held by the portfolio to
meet their obligations may be affected by economic and political developments in
a specific industry or region.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) The portfolio values securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available mean of the bid and asked
prices on such exchange, if such exchange or market constitutes the
broadest and most representative market for the security. Securities
listed on a foreign exchange are valued at the last traded price or, in
the absence of recorded trades, at the readily available mean of the bid
and asked prices on such exchange available before the time when net
assets are valued. Independent pricing service procedures may also include
the use of prices based on yields or prices of securities of comparable
quality, coupon, maturity and type, indications as to values from dealers,
operating data, and general market conditions. Unlisted securities are
valued at the average of the quoted bid and asked price in the
over-the-counter market provided by a principal market maker or dealer. If
prices are not supplied by the portfolio's independent pricing service or
principal market maker or dealer, such securities are priced using fair
values in accordance with procedures adopted by the portfolio's 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 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.
29
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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 resulting from changes in
the exchange rates during the reporting period and gains and losses
realized upon settlement of foreign currency transactions are reported in
the Statement of Operations. Although the net assets of the portfolio are
presented at the exchange rates and market values prevailing at the end of
the period, the portfolio does not isolate the portion of the results of
operations arising as a result of changes in foreign exchange rates from
the fluctuations arising from changes in the market prices of securities
during the period.
c) Securities transactions are recorded on a trade-date basis. Dividend
income is recorded on the ex-dividend date or at 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. Amortization is calculated using the scientific
method. For financial and tax reporting purposes, realized gains and
losses are determined on the basis of specific lot identification.
d) The portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily at the current foreign exchange
rates, and the change in the market value is recorded by the portfolio as
unrealized appreciation or depreciation of forward foreign currency
contract translations.
e) 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.
f) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It
30
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
is intended that the portfolio's assets will be managed in such a way that
an investor in the portfolio will be able to satisfy the requirements of
Subchapter M of the Internal Revenue Code. The portfolio earns foreign
income which may be subject to foreign withholding taxes at various rates.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with J.P. Morgan
Investment Management Inc. ("JPMIM"), 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. For the fiscal year ended
October 31, 1999, such fees amounted to $2,881,754
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent for the portfolio. Under a Co-Administration Agreement between FDI
and the portfolio, FDI provides administrative services necessary for the
operation of the portfolio, furnishes office space and facilities required
for conducting the business of the portfolio and pays the compensation of
the officers affiliated with FDI. The portfolio has agreed to pay FDI fees
equal to its allocable share of an annual complex-wide charge of $425,000
plus FDI's out-of-pocket expenses. The amount allocable to the portfolio
is based on the ratio of the portfolio's net assets to the aggregate net
assets of the portfolio and certain other investment companies subject to
similar agreements with FDI. For the fiscal year ended October 31, 1999,
the fee for these services amounted to $6,065.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan Guaranty Trust Co. of New York ("Morgan"), a
wholly owned subsidiary of J.P. 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 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 that its net assets bear to the net
assets of the master portfolios, other investors in the master portfolios
for which Morgan provides similar services, and J.P. Morgan Series Trust.
For the fiscal year ended October 31, 1999, the fee for these services
amounted to $124,528.
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 $9,765 for the fiscal year ended October 31, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements represent the portfolio's
allocated portion of the total fees and expenses. The portfolio's Chairman
and Chief Executive Officer also serves as
31
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Chairman of Group and received compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $1,900.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- --------- ------------
<S> <C>
$327,214,797 $329,098,647
</TABLE>
At October 31, 1999, the portfolio had open forward currency contracts as
follows:
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 10/31/99 (DEPRECIATION)
- ------------------ ----------- ----------- --------------
<S> <C> <C> <C>
British Pound 3,615,711, expiring 12/15/99....... $ 5,880,908 $ 5,935,062 $ 54,154
Euro 7,000,000, expiring 12/15/99................ 7,395,780 7,383,655 (12,125)
Euro, 12,655,000 for Japanese Yen 1,405,797,466,
expiring 12/15/99............................... 13,574,106 13,348,593 (225,513)
Japanese Yen 1,671,705,822, expiring
12/15/99........................................ 15,922,297 16,141,665 219,368
Japanese Yen 1,081,331,430 for Euro 9,550,000,
expiring 12/15/99............................... 10,073,415 10,441,125 367,710
Japanese Yen 216,890,397 for Swedish Krona
16,747,000, expiring 12/15...................... 2,039,342 2,094,251 54,909
</TABLE>
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
SETTLEMENT VALUE AT APPRECIATION/
SALES CONTRACTS VALUE 10/31/99 (DEPRECIATION)
- --------------- ----------- ----------- --------------
<S> <C> <C> <C>
Australian Dollar 4,272,623, expiring
12/15/99........................................ $ 2,787,118 $ 2,725,696 $ 61,422
British Pound 2,129,793, expiring 12/15/99....... 3,469,933 3,495,980 (26,047)
Euro 9,338,062, expiring 12/15/99................ 9,796,110 9,849,861 (53,751)
Japanese Yen 454,926,514, expiring 12/15/99...... 4,337,000 4,392,681 (55,681)
New Zealand Dollar 3,887,563, expiring
12/15/99........................................ 2,051,467 1,970,897 80,570
Swiss Franc 2,287,253, expiring 12/15/99......... 1,549,000 1,509,316 39,684
-------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 504,700
=============
</TABLE>
32
<PAGE>
THE INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
At October 31, 1999, the fund had open future contracts as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ MARKET VALUE
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ------------
<S> <C> <C> <C>
Australian All Ord. Index, expiring
December 99..................................... 60 $ (12,209) $ 2,752,888
CAC 40 Index, expiring November 99............... 89 173,302 4,571,471
DAX Index 10 Euro, expiring December 99.......... 39 218,155 5,675,200
IBEX Plus Index, expiring November 99............ 32 150,195 3,294,917
Topix Index, expiring December 99................ 34 99,214 5,101,953
------------- ------------- -----------
Totals........................................... 254 $ 628,657 21,396,429
============= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED MARKET VALUE
APPRECIATION/ AMOUNT
CONTRACTS SHORT (DEPRECIATION) OF CONTRACTS
--------------- -------------- ------------
<S> <C> <C> <C>
FTSE 100 Index, expiring
December 99..................................... 3 $ (11,089) $ 310,196
Hang Seng Index, expiring
November 99..................................... 5 (14,396) 429,402
-------------- ------------- -----------
Totals........................................... 8 $ (25,485) $ 739,598
============== ============= ===========
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the fund's Notes to the Financial
Statements which are included elsewhere in this report.
33
<PAGE>
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, 1999, and 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 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 October 31, 1999 by correspondence with the custodians and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
34
<PAGE>
J.P. MORGAN FUNDS
FEDERAL MONEY MARKET FUND
PRIME MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
TAX AWARE ENHANCED INCOME FUND: SELECT SHARES
SHORT TERM BOND FUND
BOND FUND
EMERGING MARKETS DEBT 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
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.
IM0768M
J.P. MORGAN
INTERNATIONAL
EQUITY FUND
ANNUAL REPORT
OCTOBER 31, 1999
