<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCK (81.1%)
BASIC INDUSTRIES (11.9%)
BUSINESS & PUBLIC SERVICES (0.8%)
Dai Nippon Printing Co. Ltd.(s).................. 70,000 $ 1,319,017
-------------
CHEMICALS (7.8%)
Bridgestone Corp.(Japan)(s)...................... 278,000 6,050,865
Ishihara Sangyo Kaisha Ltd.(s)+.................. 583,000 650,164
Mitsui Chemicals, Inc.- New Shares(s)............ 18,600 34,333
Sekisui Chemical Co. Ltd.(s)..................... 389,000 1,983,578
Takeda Chemical Industries Ltd.(s)............... 159,000 4,549,108
-------------
13,268,048
-------------
FOREST PRODUCTS & PAPER (0.6%)
Sumitomo Forestry Co. Ltd.(s).................... 209,000 1,027,149
-------------
METALS & MINING (2.7%)
Godo Steel Ltd.(s)+.............................. 233,000 136,193
Komai Tekko, Inc.(s)............................. 82,000 124,241
Mitsui Mining & Smelting Co. Ltd.(s)............. 344,000 1,386,360
Nippon Steel Corp.(s)............................ 1,296,000 1,923,749
Tokyo Steel Manufacturing Co. Ltd.(s)............ 288,000 976,826
-------------
4,547,369
-------------
TOTAL BASIC INDUSTRIES......................... 20,161,583
-------------
CONSUMER GOODS & SERVICES (15.5%)
AUTOMOTIVE (3.3%)
Nissan Motor Co. Ltd.(s)......................... 404,000 1,677,882
Toyota Motor Corp. Ltd.(s)....................... 135,000 3,883,216
-------------
5,561,098
-------------
AUTOMOTIVE SUPPLIES (0.4%)
Nifco, Inc.(s)................................... 38,000 248,421
Sumitomo Rubber Industries Ltd.(s)............... 89,000 377,162
-------------
625,583
-------------
BROADCASTING & PUBLISHING (1.6%)
Toppan Printing Co. Ltd.(s)...................... 213,000 2,784,933
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (0.1%)
Kyodo Printing Co. Ltd.(s)....................... 58,000 $ 227,502
-------------
FOOD, BEVERAGES & TOBACCO (2.1%)
Japan Tobacco, Inc.(s)........................... 346 2,464,185
Nippon Meat Packers, Inc.(s)..................... 86,000 1,177,347
-------------
3,641,532
-------------
MERCHANDISING (0.0%)*
Canon Sales Co., Inc.(s)......................... 7,000 80,218
-------------
MULTI - INDUSTRY (0.5%)
Marubeni Corp.(s)................................ 450,000 792,564
-------------
RETAIL (7.5%)
Aoyama Trading Co. Ltd.(s)....................... 61,000 1,093,130
Ito - Yokado Co. Ltd.(s)......................... 75,000 3,835,916
Izumi Co. Ltd.(s)................................ 184,000 856,169
Izumiya Co. Ltd.(s).............................. 306,000 2,002,798
Mizuno Corp.(s).................................. 92,000 279,493
Nintendo Co. Ltd.(s)............................. 20,000 1,968,911
Seven - Eleven Japan Co. Ltd.(s)................. 33,000 2,345,158
Shimachu Co. Ltd.(s)............................. 300 4,730
Xebio Co. Ltd.(s)................................ 53,300 426,331
York - Benimaru Co. Ltd.(s)...................... 400 4,830
-------------
12,817,466
-------------
TOTAL CONSUMER GOODS & SERVICES................ 26,530,896
-------------
FINANCE (16.8%)
BANKING (10.5%)
Bank of Iwate Ltd.(s)............................ 18,600 829,712
Fukui Bank Ltd.(s)............................... 400,000 753,724
Fukushima Bank Ltd.(s)........................... 216,000 480,107
Hyakugo Bank Ltd.(s)............................. 337,000 1,451,457
Keiyo Bank Ltd.(s)............................... 250,000 519,147
Kita-Nippon Bank Ltd.(s)......................... 11,700 503,918
Mitsui Trust & Banking Co. Ltd.(s)............... 2,001,000 3,893,622
Shinwa Bank Ltd.(s).............................. 139,000 534,529
Sumitomo Trust & Banking Co. Ltd.(s)............. 433,000 2,257,895
The Bank of Tokyo - Mitsubishi Ltd.(s)........... 208,400 2,885,070
The Kagawa Bank Ltd.(s).......................... 263,000 1,294,559
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
BANKING (CONTINUED)
Tokai Bank Ltd.(s)+.............................. 182,000 $ 851,062
Toyo Trust & Banking Co. Ltd.(s)................. 264,000 1,563,439
-------------
17,818,241
-------------
COMMERCIAL SERVICES (0.7%)
Asatsu, Inc.(s).................................. 78,000 1,127,817
-------------
FINANCIAL SERVICES (2.5%)
Nomura Securities Co. Ltd.(s).................... 313,000 4,188,705
-------------
INSURANCE (1.3%)
Tokio Marine & Fire Insurance Co. Ltd.(s)........ 199,000 2,265,171
-------------
REAL ESTATE (1.8%)
Daiwa Danchi Co. Ltd.(s)+........................ 110,000 162,435
Mitsubishi Estate Co. Ltd.(s).................... 271,000 2,959,674
-------------
3,122,109
-------------
TOTAL FINANCE.................................. 28,522,043
-------------
HEALTHCARE (1.2%)
PHARMACEUTICALS (1.2%)
Yamanouchi Pharmaceutical Co. Ltd.(s)............ 98,000 2,110,427
-------------
INDUSTRIAL PRODUCTS & SERVICES (13.8%)
CONSTRUCTION & HOUSING (2.1%)
Matsui Construction Co. Ltd.(s).................. 193,000 354,765
Nishimatsu Construction Co. Ltd.(s).............. 400,000 1,261,334
Toda Construction Co.(s)......................... 261,000 712,615
Tostem Corp.(s).................................. 109,800 1,182,270
-------------
3,510,984
-------------
ELECTRICAL EQUIPMENT (5.5%)
Hitachi Ltd.(s).................................. 321,000 2,296,012
Nissei Sangyo Co. Ltd.(s)........................ 81,000 666,584
Ricoh Co. Ltd.(s)................................ 208,000 2,591,580
Rohm Co. Ltd.(s)................................. 32,000 3,273,315
Sanki Engineering Co. Ltd.(s).................... 87,000 618,269
-------------
9,445,760
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (0.2%)
Okamura Corp.(s)................................. 123,000 $ 303,666
-------------
MACHINERY (4.9%)
Aichi Corp.(s)................................... 179,000 516,262
Ebara Corp.(s)................................... 247,000 2,621,575
Fanuc Ltd.(s).................................... 77,000 2,925,525
Mitsubishi Heavy Industries Ltd.(s).............. 298,000 1,246,813
Sansei Yusoki Co. Ltd.(s)........................ 89,000 195,768
Toshiba Tungaloy Co. Ltd.(s)..................... 380,000 789,103
-------------
8,295,046
-------------
MANUFACTURING (1.1%)
Topy Industries Ltd.(s).......................... 300,000 456,849
Tsubakimoto Chain Co.(s)......................... 377,000 1,362,779
-------------
1,819,628
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 23,375,084
-------------
TECHNOLOGY (13.9%)
COMPUTER SYSTEMS (2.3%)
Fujitsu Ltd.(s).................................. 365,000 3,930,132
-------------
ELECTRONICS (8.3%)
Canon, Inc.(s)................................... 75,000 1,753,562
Fuji Photo Film Co. Ltd.(s)...................... 112,000 4,306,994
Pioneer Electronic Corp.(s)...................... 147,000 2,272,477
Secom Co. Ltd.(s)................................ 40,000 2,565,738
TDK Corp.(s)..................................... 44,000 3,329,921
-------------
14,228,692
-------------
SEMICONDUCTORS (0.9%)
Tokyo Ohka Kogyo Co. Ltd.(s)..................... 62,500 1,586,281
-------------
TELECOMMUNICATIONS (2.4%)
DDI Corp.(s)..................................... 865 2,295,205
Nippon Telegraph & Telephone Corp.(s)............ 216 1,860,621
-------------
4,155,826
-------------
TOTAL TECHNOLOGY............................... 23,900,931
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
TRANSPORTATION (6.6%)
RAILROADS (3.8%)
East Japan Railway Co.(s)........................ 500 $ 2,265,017
West Japan Railway Co.(s)........................ 1,338 4,280,906
-------------
6,545,923
-------------
TRANSPORT & SERVICES (0.7%)
Nippon Express Co. Ltd.(s)....................... 246,000 1,229,800
-------------
WHOLESALE & INTERNATIONAL TRADE (2.1%)
Kamei Corp.(s)................................... 50,000 346,098
Mitsubishi Corp.(s).............................. 386,000 3,057,812
Nagase & Co. Ltd.(s)............................. 74,000 216,273
-------------
3,620,183
-------------
TOTAL TRANSPORTATION........................... 11,395,906
-------------
UTILITIES (1.4%)
ELECTRIC (1.1%)
Shikoku Electric Power Co., Inc.(s).............. 80 1,144
Tokyo Electric Power Co., Inc.(s)................ 103,600 1,896,369
-------------
1,897,513
-------------
NATURAL GAS (0.3%)
Hokuriku Gas Co. Ltd.(s)......................... 204,000 439,313
-------------
TOTAL UTILITIES................................ 2,336,826
-------------
TOTAL COMMON STOCK (COST $193,157,170)......... 138,333,696
-------------
</TABLE>
<TABLE>
<S> <C> <C>
WARRANTS (0.5%)
BASIC INDUSTRIES (0.4%)
CHEMICALS (0.4%)
Shin-Etsu Chemical Co. Ltd., Expiring
08/01/00+...................................... 488 658,800
-------------
INDUSTRIAL PRODUCTS & SERVICES (0.0%)*
MACHINERY (0.0%)*
Ebara Corp., Expiring 10/08/99+.................. 318 18,314
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
TECHNOLOGY (0.1%)
COMPUTER SYSTEMS (0.1%)
Fujitsu Ltd., Expiring 06/12/98+................. 868 $ 168,417
-------------
TOTAL WARRANTS (COST $973,419)................. 845,531
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN JPY)
-------------
<S> <C> <C>
FIXED INCOME SECURITIES (3.7%)
TECHNOLOGY (3.7%)
ELECTRONICS (3.7%)
Sony Corp., 1.4% due 03/31/05 (COST
$6,285,077).................................... 546,000,000 6,235,988
-------------
</TABLE>
<TABLE>
<S> <C> <C>
CONVERTIBLE BONDS (8.7%)
CONSUMER GOODS & SERVICES (4.3%)
AUTOMOTIVE (4.3%)
Toyota Motor Corp., 1.2% due 01/28/98............ 500,000,000 7,344,962
-------------
FINANCE (3.1%)
FINANCIAL SERVICES (3.1%)
BOT Cayman Finance Ltd., 4.25% due 03/29/49...... 620,000,000 5,197,618
-------------
HEALTH CARE (0.6%)
PHARMACEUTICALS (0.6%)
Yamanouchi Pharmaceutical Co. Ltd., 1.25% due
03/31/14....................................... 100,000,000 1,084,440
-------------
TECHNOLOGY (0.7%)
COMPUTER SYSTEMS (0.7%)
Ricoh Co. Ltd., 1.5% due 03/29/02................ 100,000,000 1,253,643
-------------
TOTAL CONVERTIBLE BONDS (COST $14,896,958)..... 14,880,663
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY DESCRIPTION (IN USD) VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (0.4%)
U.S. TREASURY OBLIGATIONS (0.4%)
United States Treasury Bills, 5.31% due 04/09/98
(cost $768,330)(s)............................. $ 780,000 $ 768,708
-------------
TOTAL INVESTMENTS (COST
$216,080,954) (94.4%)......................................... 161,064,586
OTHER ASSETS IN EXCESS OF
LIABILITIES (5.6%)............................................ 9,487,639
-------------
NET ASSETS (100.0%)............................................. $ 170,552,225
-------------
-------------
</TABLE>
- ------------------------------
+ Non-income producing security.
(s) Security is fully or partially segregated as collateral for futures
contracts.
* Less than 0.1%.
Note: Based on the cost of investments of $216,680,521 for Federal Income Tax
purposes at December 31, 1997, the aggregate gross unrealized appreciation was
$5,692,939, and the aggregate gross unrealized depreciation was $61,308,874,
resulting in net unrealized depreciation of investments of $55,615,935.
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $216,080,954) $161,064,586
Foreign Currency at Value (Cost $8,269,917) 8,101,644
Receivable for Investments Sold 1,516,567
Variation Margin Receivable 493,808
Interest Receivable 88,540
Dividends Receivable 26,977
Deferred Organization Expenses 11,265
Prepaid Trustees' Fees 22
Prepaid Expenses and Other Assets 95
------------
Total Assets 171,303,504
------------
LIABILITIES
Payable for Investments Purchased 325,308
Payable to Custodian 221,893
Advisory Fee Payable 108,434
Custody Fee Payable 67,606
Administrative Services Fee Payable 16,087
Administration Fee Payable 308
Fund Services Fee Payable 276
Accrued Expenses 11,367
------------
Total Liabilities 751,279
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $170,552,225
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $543,762) $ 2,175,048
Interest Income (Net of Foreign Withholding Tax
of $11,257) 957,927
------------
Investment Income 3,132,975
EXPENSES
Advisory Fee $ 2,031,363
Custodian Fees and Expenses 349,102
Administrative Services Fee 96,448
Professional Fees and Expenses 58,565
Fund Services Fee 11,246
Printing Expenses 8,850
Administration Fee 7,389
Amortization of Organization Expenses 6,591
Trustees' Fees and Expenses 6,126
Insurance Expense 2,230
Miscellaneous 6,384
------------
Total Expenses 2,584,294
------------
NET INVESTMENT INCOME 548,681
NET REALIZED LOSS ON
Investment Transactions (including $1,972,884
net realized loss from futures contracts) (94,220,201)
Foreign Currency Transactions (1,956,042)
------------
Net Realized Loss (96,176,243)
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments (including $19,648 net unrealized
gain on futures contracts) 4,823,799
Foreign Currency Contracts and Translations (34,454)
------------
Net Change in Unrealized Appreciation 4,789,345
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(90,838,217)
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
DECREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income (Loss) $ 548,681 $ (163,669)
Net Realized Loss on Investment and Foreign
Currency Transactions (96,176,243) (2,268,850)
Net Change in Unrealized Appreciation
(Depreciation) of Investment and Foreign
Currency Translations 4,789,345 (67,037,516)
----------------- -----------------
Net Decrease in Net Assets Resulting from
Operations (90,838,217) (69,470,035)
----------------- -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 198,329,912 290,426,062
Withdrawals (317,285,028) (253,101,673)
----------------- -----------------
Net Increase (Decrease) from Investors'
Transactions (118,955,116) 37,324,389
----------------- -----------------
Total Decrease in Net Assets (209,793,333) (32,145,646)
NET ASSETS
Beginning of Fiscal Year 380,345,558 412,491,204
----------------- -----------------
End of Fiscal Year $ 170,552,225 $ 380,345,558
----------------- -----------------
----------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL MARCH 28, 1995
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
----------------- DECEMBER 31,
1997 1996 1995
------- ------- ----------------
<S> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.83% 0.81% 0.87%(a)
Net Investment Income (Loss) 0.18% (0.03)% 0.12%(a)
Portfolio Turnover 93% 86% 60%(b)
Average Broker Commissions $0.0006 $0.0005 --
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Japan Equity Portfolio (the "Portfolio"), is one of eight 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'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. The Portfolio commenced operations on March 28, 1995.
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
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the Portfolio's Trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; 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 assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the Portfolio's Trustees.
b) The books and records of the Portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expense are
translated at the
25
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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. At December
31, 1997, the Portfolio had no open forward foreign currency contracts.
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
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
26
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
correlation of 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. Futures transactions
during the fiscal year ended December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF PRINCIPAL AMOUNT
CONTRACTS OF CONTRACTS
--------- ----------------
<S> <C> <C>
Contracts open at beginning of year.............. 0 $ 0
Contracts opened................................. 1,540 157,400,898
Contracts closed................................. (1,459) (149,999,945)
--------- ----------------
Contracts open at end of year.................... 81 $ 7,400,953
--------- ----------------
--------- ----------------
</TABLE>
SUMMARY OF OPEN CONTRACTS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/
CONTRACTS LONG (DEPRECIATION)
-------------- --------------
<S> <C> <C>
Topix Index, expiring March 1998................. 81 $ 19,648
-------------- --------------
Totals........................................... 81 $ 19,648
-------------- --------------
-------------- --------------
</TABLE>
f The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be subject to
taxation on its share of the Portfolio's ordinary income and capital
gains. It is intended that the Portfolio's assets will be managed in such
a way that an investor in the Portfolio will be able to satisfy the
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 incurred organization expenses in the amount of $33,000.
These costs are being deferred and amortized on a straight-line basis over
a period not to exceed five years beginning with the commencement of
operations of the Portfolio.
h) Expenses incurred by the Series Portfolio with respect to any two or more
portfolios in the Series Portfolios are allocated in proportion to the net
assets of each portfolio in the Series Portfolio, except where allocations
of direct expenses to eachportfolio 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 Guaranty
Trust Company of New York ("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, 1997,
such fees amounted to $2,031,363.
b) The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the Portfolio,
FDI provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the Portfolio and pays the
27
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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 December 31, 1997, the fee for these services amounted to $7,389.
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 had agreed to pay Morgan a fee
equal to its allocable share of an annual complex-wide charge. This charge
is calculated daily based on the aggregate average daily net assets of the
Portfolio and certain other portfolios for which Morgan acts as investment
advisor (the "Master Portfolios") and J.P. Morgan Series Trust in
accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI. The portion of this charge paid 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 December 31, 1997, the fee
for these services amounted to $96,448.
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 $11,246 for the fiscal year ended December 31, 1997.
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. Prior to April 1, 1997,
the aggregate annual Trustee fee was $65,000. 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 $2,300.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the year ended
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C>
$ 265,590,612 $ 357,048,926
</TABLE>
28
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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.
5. SUBSEQUENT EVENT
On January 16, 1998, the Portfolio received a withdrawal request as discussed in
Note 5 of the Fund's Notes to Financial Statements which are included elsewhere
in this report. The withdrawal which was made in-kind by transferring certain
assets and liabilities, including securities, directly to a non-U.S. fund
reduced the size of the Portfolio to approximately $2,785,000.
29
<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, 1997, 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 two years in the
period 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 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 December 31, 1997 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 23, 1998
30
