<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCK (80.5%)
BASIC INDUSTRIES (8.0%)
CHEMICALS (3.1%)
Daido Hoxan Inc.................................. 90,000 $ 438,098
Hitachi Chemical Co. Ltd......................... 100,000 835,703
Mitsui Petrochemical Industries Ltd.............. 160,000 827,087
Mitsui Toatsu Chemicals Inc...................... 1,018,000 3,096,011
Nippon Zeon Co., Ltd............................. 230,000 881,795
Sekisui Chemical Co. Ltd......................... 350,000 3,528,043
Sumitomo Bakelite Co. Ltd........................ 135,000 814,164
Tosoh Corp.+..................................... 445,000 1,522,056
-------------
11,942,957
-------------
DIVERSIFIED MANUFACTURING (0.4%)
Itoki Crebio Corp................................ 37,000 246,093
UBE Industries Ltd............................... 500,000 1,412,940
-------------
1,659,033
-------------
FOREST PRODUCTS & PAPER (1.5%)
Daiken Corp...................................... 25,000 173,387
Mitsubishi Pencil Co. Ltd........................ 10,000 85,810
New Oji Paper Co. Ltd.+.......................... 444,000 2,803,928
Sumitomo Forestry Co. Ltd........................ 200,000 2,429,568
-------------
5,492,693
-------------
METALS & MINING (3.0%)
Daido Steel Co. Ltd.............................. 416,000 1,541,139
Komai Tekko Inc.................................. 82,000 600,500
Mitsui Mining & Smelting Co. Ltd................. 580,000 1,973,809
Nippon Steel Corp................................ 2,424,000 7,142,310
Sumitomo Light Metal Industries Ltd.+............ 100,000 263,634
-------------
11,521,392
-------------
TOTAL BASIC INDUSTRIES......................... 30,616,075
-------------
CONSUMER GOODS & SERVICES (16.0%)
APPARELS & TEXTILES (0.3%)
Tomiya Apparel Co. Ltd........................... 229,000 1,240,984
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
AUTOMOTIVE (5.6%)
Nissan Diesel Motor Co. Ltd...................... 650,000 $ 2,973,636
Nissan Motor Co. Ltd............................. 930,000 5,384,337
Toyota Motor Corp................................ 324,000 9,295,425
Yamaha Motor Co. Ltd............................. 176,000 1,576,979
Yokohama Rubber Company Ltd...................... 400,000 1,857,500
-------------
21,087,877
-------------
AUTOMOTIVE SUPPLIES (0.4%)
Sumitomo Rubber Industries Ltd................... 150,000 1,115,275
Tochigi Fuji Industrial Co. Ltd.................. 51,000 292,634
-------------
1,407,909
-------------
BROADCASTING & PUBLISHING (1.0%)
Gakken Co. Ltd................................... 273,000 1,540,579
Toppan Printing Co. Ltd.......................... 172,000 2,148,703
-------------
3,689,282
-------------
CONSTRUCTION & HOUSING (0.4%)
Matsui Construction Co. Ltd...................... 200,000 1,290,600
SXL Corp......................................... 50,000 357,543
-------------
1,648,143
-------------
ENTERTAINMENT, LEISURE & MEDIA (0.5%)
Daiwa Kosho Lease Co. Ltd........................ 15,000 115,017
Kinki Nippon Tourist Co. Ltd.+................... 192,000 1,166,193
Kyodo Printing Co. Ltd........................... 90,000 721,116
-------------
2,002,326
-------------
FOOD, BEVERAGES & TOBACCO (2.7%)
Itoham Foods Inc................................. 444,000 2,746,549
Japan Tobacco, Inc............................... 481 3,253,080
Maruha Corp.+.................................... 378,000 1,084,466
Pokka Corp....................................... 28,000 248,471
Snow Brand Milk Products Co. Ltd................. 409,000 2,308,047
Yamazaki Baking Co. Ltd.......................... 43,000 685,362
-------------
10,325,975
-------------
HOUSEHOLD PRODUCTS (0.3%)
Nippon Sheet Glass Co. Ltd....................... 336,000 1,189,765
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
MULTI - INDUSTRY (0.3%)
Fuji Denki Reiki Co. Ltd......................... 135,000 $ 1,267,769
-------------
RETAIL (4.5%)
Familymart Co. Ltd............................... 100,000 3,988,972
Izumi Co. Ltd.................................... 184,000 2,568,105
Izumiya Co. Ltd.................................. 322,000 4,549,668
Keiyo Co. Ltd.................................... 75,000 749,548
Matsuzakaya Co. Ltd.............................. 230,000 2,120,272
Mizuno Corp...................................... 109,000 824,520
Mycal Corp....................................... 150,000 2,171,104
Tokyu Store Chain Co. Ltd........................ 17,000 125,373
-------------
17,097,562
-------------
TOTAL CONSUMER GOODS & SERVICES................ 60,957,592
-------------
ENERGY (0.9%)
OIL-PRODUCTION (0.9%)
Cosmo Oil Co. Ltd................................ 700,000 3,359,180
-------------
FINANCE (21.5%)
BANKING (15.7%)
77th Bank........................................ 100,000 818,472
Asahi Bank Ltd................................... 431,000 3,824,675
Bank of Iwate Ltd................................ 23,300 1,178,349
Bank of the Ryukyus Ltd.......................... 45,000 1,512,018
Bank of Tokyo - Mitsubishi....................... 400 7,409
Chuo Trust & Banking Co. Ltd..................... 250,000 2,130,180
Dai-Ichi Kangyo Bank Ltd......................... 151,000 2,172,568
Daiwa Bank Ltd................................... 1,500,000 7,818,557
Fukui Bank Ltd................................... 688,000 2,993,366
Fukuoka Chuo Bank................................ 20,000 138,709
Fukushima Bank Ltd............................... 90,000 317,912
Hiroshima Bank Ltd............................... 300,000 1,475,833
Hokkaido Takushoku Bank Ltd...................... 1,675,000 3,246,963
Hyakugo Bank Ltd................................. 380,000 2,291,720
Keiyo Bank Ltd................................... 150,000 697,855
Kita-Nippon Bank Ltd............................. 24,700 1,255,535
Mitsui Trust & Banking Co. Ltd................... 200,000 1,559,404
Nanto Bank Ltd................................... 252,000 1,667,407
North Pacific Bank Ltd........................... 71,000 379,254
Sakura Bank Ltd.................................. 1,376,000 9,815,869
San-In Godo Bank Ltd............................. 31,000 227,018
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
BANKING (CONTINUED)
Sanwa Bank Ltd................................... 375,000 $ 5,104,678
Shinwa Bank Ltd.................................. 189,000 991,652
Sumitomo Trust & Banking Co. Ltd................. 520,000 5,196,864
The Kagawa Bank Ltd.............................. 140,000 1,115,706
Toyo Trust & Banking Co. Ltd..................... 175,000 1,409,710
Yamanashi Chuo Bank Ltd.......................... 40,000 329,801
-------------
59,677,484
-------------
COMMERCIAL SERVICES (0.7%)
Asatsu Inc....................................... 78,000 2,472,990
-------------
FINANCIAL SERVICES (3.1%)
Daiwa Securities Co. Ltd......................... 186,000 1,650,556
Nomura Securities Co. Ltd........................ 687,000 10,298,785
-------------
11,949,341
-------------
INSURANCE (1.4%)
Chiyoda Fire & Marine Insurance Co. Ltd.......... 271,000 1,223,434
Fuji Fire & Marine Insurance Co. Ltd............. 429,000 1,600,388
Koa Fire & Marine Insurance Co. Ltd.............. 150,000 726,286
Tokio Marine & Fire Insurance Co. Ltd............ 190,000 1,784,268
-------------
5,334,376
-------------
REAL ESTATE (0.6%)
Daikyo Inc....................................... 65,000 306,324
Daiwa Danchi Co. Ltd.+........................... 208,000 974,860
Heiwa Real Estate Co. Ltd........................ 182,500 1,055,031
-------------
2,336,215
-------------
TOTAL FINANCE.................................. 81,770,406
-------------
HEALTHCARE (1.7%)
PHARMACEUTICALS (1.7%)
Chugai Pharmaceutical Co. Ltd.................... 368,000 3,075,385
Ono Pharmaceuticals Co. Ltd...................... 115,000 3,418,196
-------------
TOTAL HEALTHCARE............................... 6,493,581
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (14.6%)
BUILDING MATERIALS (1.0%)
Nichias Corp..................................... 168,000 $ 668,700
Sankyo Aluminum Industries Co. Ltd............... 330,000 1,296,459
Sumitomo Realty & Development Co. Ltd............ 300,000 1,886,792
-------------
3,851,951
-------------
COMMERCIAL SERVICES (0.1%)
Sanki Engineering................................ 40,000 399,759
-------------
CONSTRUCTION & HOUSING (2.3%)
Hitachi Plant Engineering and Construction Co.
Ltd............................................ 130,000 768,329
Nippon Hodo Co. Ltd.............................. 115,000 1,327,647
Nishimatsu Construction Co. Ltd.................. 327,000 2,845,438
Sanyo Industries Ltd............................. 198,000 904,110
Toda Construction Co............................. 200,000 1,516,326
Toenec Corp...................................... 125,000 796,933
Tokyo Denki Komusho Co. Ltd...................... 76,000 546,739
-------------
8,705,522
-------------
ELECTRICAL EQUIPMENT (5.6%)
CMK Corp......................................... 25,000 323,081
Fuji Electric Co. Ltd............................ 500,000 2,093,564
Hitachi Ltd...................................... 836,000 7,778,754
Mabuchi Motor Co. Ltd............................ 18,000 904,110
Mitsubishi Electric Corp. Ltd.................... 1,100,000 6,539,157
Murata Manufacturing Co. Ltd..................... 26,000 862,411
Nissei Sangyo Co. Ltd............................ 145,000 1,698,975
Ricoh Corp. Ltd.................................. 100,000 1,145,860
-------------
21,345,912
-------------
MACHINERY (4.6%)
Aichi Corp....................................... 184,000 1,379,168
Daikin Industries Ltd............................ 299,000 2,653,312
Ebara Corp....................................... 279,000 3,629,620
Kawasaki Heavy Industries, Ltd................... 475,000 1,960,239
Kitz Corp........................................ 370,000 1,370,724
Mitsubishi Heavy Industries Ltd.................. 497,000 3,939,347
NSK Ltd.......................................... 73,000 441,509
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
MACHINERY (CONTINUED)
Sanden Corp...................................... 235,000 $ 1,878,866
Shin Nippon Machinery Co. Ltd.................... 48,000 297,751
-------------
17,550,536
-------------
MANUFACTURING (1.0%)
Okamura Corp..................................... 300,000 1,979,840
Topy Industries Ltd.............................. 135,000 494,314
Tsubakimoto Chain Co............................. 250,000 1,335,401
-------------
3,809,555
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 55,663,235
-------------
TECHNOLOGY (8.6%)
COMPUTER SYSTEMS (0.6%)
Fujitsu Ltd...................................... 255,000 2,372,706
-------------
ELECTRONICS (4.7%)
Kyocera Corp..................................... 47,000 2,923,580
Matsushita Electric Industries Co. Ltd........... 428,000 6,969,242
Ryoyo Electro Corp............................... 50,000 904,626
Sony Corp........................................ 92,000 6,016,025
Tokai Rika Co. Ltd............................... 147,000 1,139,829
-------------
17,953,302
-------------
SEMICONDUCTORS (1.0%)
Rohm Co. Ltd..................................... 60,000 3,928,664
-------------
TELECOMMUNICATIONS (2.3%)
DDI Corp......................................... 231 1,524,477
Nippon Telegraph & Telephone Corp................ 930 7,034,892
-------------
8,559,369
-------------
TOTAL TECHNOLOGY............................... 32,814,041
-------------
TRANSPORTATION (5.3%)
RAILROADS (3.3%)
East Japan Railway Co............................ 1,306 5,862,204
Nishi-Nippon Railroad Co......................... 343,000 1,179,090
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
RAILROADS (CONTINUED)
Tobu Railway Co. Ltd............................. 403,000 $ 1,968,648
West Japan Railway Co............................ 1,050 3,392,349
-------------
12,402,291
-------------
TRANSPORT & SERVICES (1.4%)
Itochu Warehouse Co. Ltd......................... 47,000 163,996
Kawasaki Kisen Kaisha Ltd.+...................... 642,000 1,460,222
Marubeni Corp.................................... 126,000 540,605
Nippon Express Co. Ltd........................... 150,000 1,026,105
Sankyu Inc....................................... 435,000 1,480,357
Senko Co. Ltd.................................... 136,000 564,763
-------------
5,236,048
-------------
WHOLESALE & INTERNATIONAL TRADE (0.6%)
Kamei Corp....................................... 50,000 495,391
Kawasho Corp.+................................... 152,000 534,298
Nagase & Co. Ltd................................. 70,000 579,564
Yuasa Trading Co. Ltd............................ 150,000 607,392
-------------
2,216,645
-------------
TOTAL TRANSPORTATION........................... 19,854,984
-------------
UTILITIES (3.9%)
ELECTRIC (2.9%)
Shikoku Electric Power Co. Inc................... 103,280 2,010,966
Tohoku Electric Power Co. Inc.................... 178,300 3,533,126
Tokyo Electric Power Co. Inc..................... 200,000 4,376,669
Yurtec Corp...................................... 78,750 1,065,198
-------------
10,985,959
-------------
NATURAL GAS (1.0%)
Hokuriku Gas Co. Ltd............................. 204,000 720,600
Osaka Gas Co. Ltd................................ 1,075,000 2,935,944
-------------
3,656,544
-------------
TOTAL UTILITIES................................ 14,642,503
-------------
TOTAL COMMON STOCK (COST $362,504,286)......... 306,171,597
-------------
WARRANTS (0.8%)
BASIC INDUSTRIES (0.3%)
INDUSTRIAL (0.2%)
Lion Corp., Expiring 06/18/99+................... 5,020 519,676
-------------
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
METALS & MINING (0.1%)
Dowa Mining Co. Ltd., Expiring 12/09/97+......... 543 $ 196,837
Yodogawa Steel Works, Expiring 12/10/97+......... 600 225,000
-------------
421,837
-------------
TOTAL BASIC INDUSTRIES......................... 941,513
-------------
CONSUMER GOODS & SERVICES (0.1%)
CONSTRUCTION & HOUSING (0.0%)*
Maeda Corp., Expiring 02/05/97+.................. 515 25,750
-------------
MERCHANDISING (0.1%)
Canon Sales Co. Inc., Expiring 11/11/97+......... 4,500 432,331
-------------
TOTAL CONSUMER GOODS & SERVICES................ 458,081
-------------
HEALTHCARE (0.0%)*
PHARMACEUTICALS (0.0%)*
Daiichi Pharmaceutical Co. Ltd., Expiring
04/18/97+...................................... 3,600 117,969
-------------
TECHNOLOGY (0.4%)
SEMICONDUCTORS (0.4%)
Rohm Co., Expiring 11/20/97+..................... 1,350 1,294,479
Sanken Electric Co., Expiring 04/02/99+.......... 930 96,274
-------------
TOTAL TECHNOLOGY............................... 1,390,753
-------------
TRANSPORTATION (0.0%)*
WHOLESALE & INTERNATIONAL TRADE (0.0%)*
Yuasa Trading Co. Ltd., Expiring 12/01/97+....... 3,550 66,097
-------------
TOTAL WARRANTS (COST $6,198,620)............... 2,974,413
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY DESCRIPTION (IN JPY) VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
CONVERTIBLE BONDS (7.9%)
BASIC INDUSTRIES (0.3%)
CHEMICALS (0.3%)
Daido Hoxan Inc., 1.6% due 03/29/02.............. 150,000,000 $ 1,285,862
-------------
CONSUMER GOODS & SERVICES (2.2%)
AUTOMOTIVE (1.9%)
Toyota Motor Corp., 1.2% due 01/28/98............ 500,000,000 7,331,782
-------------
CONSTRUCTION & HOUSING (0.3%)
SXL Corp., 2.7% due 03/29/02..................... 150,000,000 1,305,247
-------------
TOTAL CONSUMER GOODS & SERVICES................ 8,637,029
-------------
FINANCE (2.4%)
FINANCIAL SERVICES (2.4%)
BOT Cayman Finance Ltd., 4.25% due 03/31/49...... 830,000,000 9,170,974
-------------
HEALTHCARE (0.8%)
PHARMACEUTICALS (0.8%)
Yamanouchi Pharmaceutical Co. Ltd., 1.25% due
03/31/14....................................... 280,000,000 2,882,743
-------------
INDUSTRIAL PRODUCTS & SERVICES (0.9%)
ELECTRICAL EQUIPMENT (0.9%)
Hitachi Ltd., 2.7% due 03/31/97.................. 289,000,000 3,236,840
-------------
TECHNOLOGY (1.3%)
COMPUTER SYSTEMS (1.3%)
NEC Corp., 1.9% due 03/30/01..................... 300,000,000 3,747,738
Ricoh Co. Ltd., 1.5% due 03/29/02................ 100,000,000 1,150,168
-------------
4,897,906
-------------
TOTAL TECHNOLOGY............................... 4,897,906
-------------
TOTAL CONVERTIBLE BONDS (COST $30,374,977)..... 30,111,354
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.1%)
TIME DEPOSITS--FOREIGN (5.1%)
State Street Bank Cayman Islands, 4.875% due
01/02/97 (cost $19,396,000).................... $ 19,396,000 $ 19,396,000
-------------
TOTAL INVESTMENTS (COST $418,473,883) (94.3%)...................
358,653,364
OTHER ASSETS IN EXCESS OF LIABILITIES (5.7%)....................
21,692,194
-------------
NET ASSETS (100.0%)............................................. $ 380,345,558
-------------
-------------
</TABLE>
- ------------------------------
+ Non-income producing security
* Less than 0.1%
Note: Based on the cost of investments of $418,658,992 for Federal Income Tax
purposes at December 31, 1996, the aggregate gross unrealized appreciation was
$8,256,569, and the aggregate gross unrealized depreciation was $68,262,197,
resulting in net unrealized depreciation of investments of $60,005,628.
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $418,473,883 ) $358,653,364
Foreign Currency at Value (Cost $412,613) 393,189
Cash 702
Receivable for Investments Sold 21,506,751
Dividends and Interest Receivable 198,057
Deferred Organization Expenses 21,345
Prepaid Trustees' Fees 1,368
Prepaid Expenses and Other Assets 2,673
------------
Total Assets 380,777,449
------------
LIABILITIES
Payable for Investments Purchased 46,621
Advisory Fee Payable 220,167
Custody Fee Payable 107,884
Administrative Services Fee Payable 21,786
Administration Fee Payable 1,126
Fund Services Fee Payable 557
Accrued Expenses and Accounts Payable 33,750
------------
Total Liabilities 431,891
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $380,345,558
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $691,754 ) $ 2,767,015
Interest Income (Net of Foreign Withholding Tax
of $70,412 ) 859,226
------------
Investment Income 3,626,241
EXPENSES
Advisory Fee $ 3,053,033
Custodian Fees and Expenses 466,739
Administrative Services Fee 130,108
Professional Fees and Expenses 50,500
Administration Fee 40,783
Fund Services Fee 21,646
Trustees' Fees and Expenses 8,707
Printing Expenses 6,731
Amortization of Organization Expense 6,610
Insurance Expense 4,453
Miscellaneous 600
------------
Total Expenses 3,789,910
------------
Net Investment Loss (163,669)
NET REALIZED LOSS ON
Investment Transactions (including $1,052 net
realized loss from futures contracts) (418,820)
Foreign Currency Transactions (1,850,030)
------------
Net Realized Loss (2,268,850)
NET CHANGE IN UNREALIZED DEPRECIATION OF
Investments (66,917,833)
Foreign Currency Contracts and Translations (119,683)
------------
Net Change in Unrealized Depreciation (67,037,516)
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(69,470,035)
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 28, 1995
(COMMENCEMENT OF
FOR THE FISCAL OPERATIONS) TO
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1996 1995
----------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income (Loss) $ (163,669) $ 314,783
Net Realized Gain (Loss) on Investments and
Foreign Currency Transactions (2,268,850) 5,011,111
Net Change in Unrealized Appreciation
(Depreciation) of Investments and Foreign
Currency Contracts and Translations (67,037,516) 7,075,578
----------------- ----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (69,470,035) 12,401,472
----------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 290,426,062 465,133,508
Withdrawals (253,101,673) (65,143,876)
----------------- ----------------
Net Increase from Investors' Transactions 37,324,389 399,989,632
----------------- ----------------
Total Increase (Decrease) in Net Assets (32,145,646) 412,391,104
NET ASSETS
Beginning of Period 412,491,204 100,100
----------------- ----------------
End of Period $ 380,345,558 $ 412,491,204
----------------- ----------------
----------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 28, 1995
(COMMENCEMENT OF
FOR THE FISCAL OPERATIONS) TO
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1996 1995
----------------- ----------------
<S> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.81% 0.87%(a)
Net Investment Income (Loss) (0.03)% 0.12%(a)
Portfolio Turnover 86% 60%(b)
Average Broker Commissions $ 0.0005 --
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Japan Equity Portfolio (the "Portfolio") is one of five subtrusts
(portfolios) comprising The Series Portfolio (the "Series Portfolio"). The
Series Portfolio is registered under the Investment Company Act of 1940, as
amended (the "Act"), as a no-load open-end management investment company which
was organized as a trust under the laws of the State of New York on June 24,
1994. The Portfolio commenced operations on March 28, 1995. The Portfolio's
investment objective is to provide a high total return from a portfolio of
equity securities of issuers that have their principal activities in Japan or
are organized under Japanese law. The Declaration of Trust permits the Trustees
to issue an unlimited number of beneficial interests in the Portfolio.
Investments in Japanese markets may involve certain considerations and risks not
typically associated with investments in the United States. Future economic and
political developments in Japan could adversely affect the liquidity or value,
or both, of such securities in which the Portfolio is invested. The ability of
the issuers of the debt securities held by the Portfolio to meet their
obligations may be affected by economic and political developments in a specific
industry or region.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a)The value of each security for which readily available market quotations
exists is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the readily available closing bid price on
such exchanges, or at the quoted bid price in the over-the-counter market.
Securities listed on a foreign exchange are valued at the last quoted sale
price available before the time when net assets are valued. Unlisted
securities are valued at the average of the quoted bid and asked prices in
the over-the-counter market. Securities or other assets for which market
quotations are not readily available are valued at fair value in
accordance with procedures established by the Portfolio's Trustees. Such
procedures include the use of independent pricing services, which use
prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers;
operating data; and general market conditions. All portfolio securities
with a remaining maturity of less than 60 days are valued by the amortized
cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the Portfolio's net asset value is calculated, such securities will
be valued at fair value in accordance with procedures established by and
under the general supervision of the Portfolio's Trustees.
b)The books and records of the Portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expense are
translated at the
24
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
exchange rate prevailing on the respective dates of such transactions.
Translation gains and losses resulting from changes in exchange rates
during the reporting period and gains and losses realized upon settlement
of foreign currency transactions are reported in the Statement of
Operations.
Although the net assets of the Portfolio are presented at the exchange
rates and market values prevailing at the end of the period, the Portfolio
does not isolate the portion of the results of operations arising as a
result of changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of securities during the period.
c)Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or at the time that the
relevant ex-dividend date and amount becomes known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
d)The Portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily based on procedures established
by and under the general supervision of the Portfolio's Trustees and the
change in the market value is recorded by the Portfolio as unrealized
appreciation or depreciation of foreign currency translations.
e)Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place is fixed when the
Portfolio enters into the contract. Upon entering into such a contract the
Portfolio is required to pledge to the broker an amount of cash and/or
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 solely 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. 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 taxable on
its share of the Portfolio's ordinary income and capital gains.
25
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
It is intended that the Portfolio's assets will be managed in such a way
that an investor in the Portfolio will be able to satisfy the requirements
of Subchapter M of the Internal Revenue Code. The Portfolio earns foreign
income which may be subject to foreign withholding taxes at various rates.
g)The Portfolio has incurred $33,000 in organization expenses. Morgan
Guaranty Trust Company of New York ("Morgan") has agreed to pay the
organization expenses of the Portfolio. The Portfolio has agreed to
reimburse Morgan for these costs which are being deferred and will be
amortized on a straight-line basis over a period not to exceed five years
beginning with the commencement of operations of the Portfolio.
h)Expenses incurred by the Series Portfolio with respect to any two or more
portfolios in the Series Portfolio are allocated in proportion to the net
assets of each portfolio in the Series Portfolio, except where allocations
of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that
portfolio.
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an Investment Advisory Agreement with Morgan. Under the
terms of the agreement, the Portfolio pays Morgan at an annual rate of
0.65% of the Portfolio's average daily net assets. For the fiscal year
ended December 31, 1996, such fees amounted to $3,053,033.
b)The Portfolio had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Under an Administration Agreement, Signature provided administrative
services necessary for the operations of the Portfolio, furnished office
space and facilities required for conducting the business of the Portfolio
and paid the compensation of the Portfolio's officers affiliated with
Signature. The agreement provided for a fee to be paid to Signature equal
to the Portfolio's proportionate share of a complex-wide fee based on the
following annual schedule: 0.03% on the first $7 billion of the aggregate
average daily net assets of the Portfolio and the other portfolios (the
"Master Portfolios") in which The JPM Institutional Funds, The JPM
Pierpont Funds (formerly The Pierpont Funds) or The JPM Advisor Funds
invest and 0.01% on the aggregate average daily net assets of the Master
Portfolios in excess of $7 billion. The portion of this charge paid by the
Portfolio was determined by the proportionate share its net assets bore to
the total net assets of The JPM Institutional Funds, The JPM Pierpont
Funds, The JPM Advisor Funds and the Master Portfolios. For the period
from January 1, 1996 to July 31, 1996, such fees amounted to $35,898. The
Administration Agreement with Signature was terminated on July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the
Portfolio's exclusive placement agent. Under a Co-Administration Agreement
between FDI and the Portfolio, 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 JPM Institutional Funds, The JPM Pierpont Funds, The JPM
Advisor Funds and the Master Portfolios. For the period from August 1,
1996 to December 31, 1996, the fee for these services amounted to $4,885.
26
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
On November 15, 1996, The JPM Advisor Funds terminated operations and were
liquidated. Subsequent to that date, the net assets of The JPM Advisor
Funds are no longer included in the calculation of the allocation of FDI's
fees.
c)The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing
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 proportionate share of an annual complex-wide charge. Until
July 31, 1996, this charge was calculated daily based on the aggregate net
assets of the Master Portfolios in accordance with the following annual
schedule: 0.06% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets and 0.03% of the Master Portfolios'
aggregate average daily net assets in excess of $7 billion. The portion of
this charge paid by the Portfolio was determined by the proportionate
share that the Portfolios' net assets bore to the net assets of the Master
Portfolios and investors in the Master Portfolios for which Morgan
provided similar services. For the period from January 1, 1996 to July 31,
1996, the fee for these services amounted to $71,040.
After July 31, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate
average daily net assets of the Master Portfolios and JPM Series Trust in
accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge paid by the
Portfolio is determined by the proportionate share that its net assets
bear to the net assets of the Master Portfolios, investors in the Master
Portfolios for which Morgan provides similar services, and JPM Series
Trust. For the period from August 1, 1996 to December 31, 1996, the fee
for these services amounted to $59,068
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 $21,646 for the fiscal year ended December 31, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represent the Portfolio's allocated
portion of the total fees and expenses. The Portfolio's Chairman and Chief
Executive Officer also serves as Chairman of Group and received
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $2,800.
27
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS FROM
PURCHASES SALES
- --------------- ---------------
<S> <C>
$389,304,058 $ 383,600,467
</TABLE>
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Japan 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 Japan Equity Portfolio (one of the
portfolios comprising The Series Portfolio, hereafter referred to as the
"Portfolio") at December 31, 1996, and the results of its operations for the
year then ended and the changes in its net assets and the supplementary data for
the year then ended and for the period March 28, 1995 (commencement of
operations) to December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements and supplementary data
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatements. 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 December 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 21, 1997
29
