<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
COMMON STOCK (90.7%)
AUSTRIA (0.8%)
Bank Austria AG (Banking)........................ 4,200 $ 301,630
------------
BELGIUM (1.1%)
Delhaize-Le Lion SA (Retail)..................... 1,650 115,292
PetroFina SA (Oil-Production).................... 800 328,406
------------
443,698
------------
DENMARK (0.6%)
GN Store Nord A/S (Telecommunications-
Equipment)..................................... 5,000 152,683
Olicom A/S (Technology)+......................... 3,500 94,663
------------
247,346
------------
FINLAND (0.3%)
Cultor Oyj (Food, Beverages & Tobacco)........... 3,000 48,118
UPM-Kymmene OYJ (Forest Products & Paper)........ 2,400 66,053
------------
114,171
------------
FRANCE (12.4%)
Air Liquide (Chemicals).......................... 656 108,501
Carrefour SA (Retail)............................ 486 307,466
Compagnie de Saint Gobain SA (Building
Materials)..................................... 1,653 306,484
Elf Aquitaine SA (Oil-Services).................. 1,700 239,000
Lagardere S.C.A. (Multi - Industry).............. 3,950 164,441
Paribas (Financial Services)..................... 5,615 600,875
PSA Peugeot Citroen (Automotive)................. 1,605 345,103
Rhodia SA (Chemicals)+........................... 7,526 209,871
Sanofi SA (Pharmaceuticals)...................... 3,545 416,884
SEITA (Food, Beverages & Tobacco)................ 1,000 45,319
SGS Thomson Microelectronics NV (Electronics)+... 5,851 414,678
Societe Generale (Banking)....................... 1,352 281,088
Total SA, B Shares (Oil-Services)................ 3,511 456,439
Union des Assurances Federales (Insurance)....... 367 57,848
Vivendi (Utilities).............................. 3,927 838,527
------------
4,792,524
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
GERMANY (15.5%)
Adidas - Salomon AG (Apparels & Textiles)........ 1,600 $ 278,776
Allianz AG (Insurance)........................... 900 299,911
Bayer AG (Chemicals)............................. 4,900 253,546
Bilfinger & Berger Bau AG (Construction &
Housing)....................................... 2,290 78,467
Continental AG (Automotive)...................... 10,560 331,712
Degussa AG (Chemicals)........................... 1,500 95,982
Deutsche Bank AG (Banking)....................... 5,200 439,615
Deutsche Lufthansa AG (Airlines)................. 14,380 362,082
Dresdner Bank AG (Banking)....................... 8,400 453,731
Fresenius Medical Care AG (Medical Supplies)..... 2,000 125,205
Henkel KGaA (Chemicals).......................... 739 61,330
Karstadt AG (Retail)............................. 500 243,070
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance).................................... 1,400 694,945
RWE AG (Utilities)............................... 9,200 544,344
SAP AG (Computer Software)....................... 750 454,978
Schering AG (Pharmaceuticals).................... 1,700 200,135
SGL Carbon AG (Chemicals)........................ 1,650 192,146
Siemens AG (Electrical Equipment)................ 7,500 457,678
SKW Trostberg AG (Chemicals)..................... 1,500 54,016
VEBA AG (Utilities).............................. 2,400 161,349
Volkswagen AG (Automotive)....................... 219 211,474
------------
5,994,492
------------
IRELAND (1.0%)
CRH PLC (Building Materials)..................... 5,565 78,942
Greencore Group PLC (Food, Beverages &
Tobacco)....................................... 16,647 90,557
Irish Life PLC (Insurance)....................... 11,188 102,996
Jefferson Smurfit Group PLC (Forest Products &
Paper)......................................... 32,726 97,229
------------
369,724
------------
ITALY (3.4%)
Assicurazioni Generali SPA (Insurance)........... 10,800 351,180
Istituto Bancario San Paolo di Torino
(Banking)...................................... 14,300 206,349
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
ITALY (CONTINUED)
Mediaset SPA (Broadcasting & Publishing)......... 33,400 $ 213,171
Telecom Italia SPA - RNC (Telecommunication
Services)...................................... 112,700 545,573
------------
1,316,273
------------
NETHERLANDS (7.1%)
ASM Lithography Holding NV (Semiconductors)+..... 5,000 147,968
De Boer Unigro NV (Retail)....................... 4,620 244,147
ING Groep NV (Financial Services)................ 9,878 646,807
Koninklijke KPN NV (Telecommunications).......... 4,700 180,909
Moeara Enim Petroleum MIJ NV (Oil-Production).... 34 56,995
Moeara Enim Petroleum MIJ NV (New shares)
(Oil-Production)............................... 5 111,591
Philips Electronics NV (Electronics)............. 5,718 480,664
Royal Dutch Petroleum Co. (Oil-Services)......... 6,398 354,777
TNT Post Group NV (Transport & Services)+........ 2,200 56,238
Unilever NV (Food, Beverages & Tobacco).......... 4,000 317,369
Vedior NV (Business & Public Services)........... 2,003 56,623
Vendex NV (Retail)............................... 2,030 76,341
------------
2,730,429
------------
NORWAY (1.0%)
Kvaerner PLC (Capital Goods)..................... 1,400 47,436
Kvaerner PLC, Series B (Capital Goods)........... 2,000 61,771
Norsk Hydro ASA (Oil-Services)................... 3,200 140,743
Nycomed Amersham PLC (Biotechnology)............. 18,370 136,455
------------
386,405
------------
PORTUGAL (1.5%)
Banco Pinto & Sotto Mayor SA (Banking)+.......... 8,800 218,428
Portugal Telecom SA (Telecommunications)......... 7,200 381,594
------------
600,022
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
SPAIN (2.2%)
ACS, Actividades de Construccion y Servicios SA
(Construction & Housing)....................... 2,100 $ 63,169
Hidroelectrica del Cantabrico SA (Electric)...... 720 32,922
Iberdrola SA (Electric).......................... 29,495 479,734
Repsol SA (Gas Exploration)...................... 3,263 180,105
Vallehermoso SA (Real Estate).................... 2,532 93,282
------------
849,212
------------
SWEDEN (3.9%)
Autoliv, Inc. (SDR) (Automotive Supplies)........ 10,210 326,466
Incentive AB, B Shares (Pharmaceuticals)......... 14,000 256,303
Skandia Forsakrings AB (Insurance)............... 19,040 272,172
SKF AB, B Shares (Capital Goods)................. 6,700 121,819
Stora Kopparbergs Bergslags Aktiebolag, A Shares
(Forest Products & Paper)...................... 18,200 286,409
Svenska Handelsbanken (Banking).................. 3,600 167,023
Volvo AB, Series B (Automotive).................. 2,019 60,126
------------
1,490,318
------------
SWITZERLAND (9.1%)
ABB AG (Machinery)............................... 166 245,146
Holderbank Financiere Glarus AG (Building
Materials)..................................... 80 101,792
Nestle SA (Food, Beverages & Tobacco)............ 410 877,406
Novartis AG (Pharmaceuticals).................... 95 158,082
Roche Holding AG (Pharmaceuticals)............... 54 530,277
UBS AG (Banking)................................. 2,945 1,095,047
Zurich Versicherungs - Gesellschaft
(Insurance).................................... 800 510,544
------------
3,518,294
------------
UNITED KINGDOM (30.8%)
Barclays PLC (Banking)........................... 6,000 172,990
Bass PLC (Food, Beverages & Tobacco)............. 11,018 206,447
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
BAT Industries PLC (Food, Beverages & Tobacco)... 27,000 $ 270,297
Billiton PLC (Metals & Mining)................... 79,400 160,962
British Airways PLC (Airlines)................... 17,000 183,944
British Petroleum Co. PLC (Oil-Services)......... 11,256 164,143
British Sky Broadcasting Group PLC (Broadcasting
& Publishing).................................. 31,100 223,388
British Telecommunications PLC
(Telecommunications)........................... 34,800 429,672
BTR PLC (Capital Goods).......................... 24,562 69,669
Burmah Castrol PLC (Oil-Production).............. 4,900 87,316
Cable & Wireless PLC (Telecommunications)........ 30,000 364,400
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)....................................... 13,000 201,179
Compass Group PLC (Food, Beverages & Tobacco).... 6,600 75,873
Diageo PLC (Food, Beverages & Tobacco)........... 33,070 391,759
General Electric Co. PLC (Electrical
Equipment)..................................... 8,500 73,251
Glaxo Wellcome PLC (Pharmaceuticals)............. 26,500 795,432
Glynwed International PLC (Metals & Mining)...... 34,421 141,568
Great Universal Stores PLC (Retail).............. 19,700 259,669
Hanson PLC (Building Materials).................. 37,200 226,083
HSBC Holdings PLC (75p) (Banking)................ 18,800 477,104
Hyder PLC (Water)................................ 4,116 64,692
Kingfisher PLC (Retail).......................... 14,900 239,905
Lloyds TSB Group PLC (Banking)................... 65,860 921,405
LucasVarity PLC (Automotive Supplies)............ 73,700 292,665
MEPC PLC (Real Estate)........................... 16,800 147,722
MFI Furniture Group PLC (Household Products)..... 98,892 104,776
National Power PLC (Electric).................... 15,796 148,646
Northern Rock PLC (Financial Services)........... 18,000 159,175
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Nycomed Amersham PLC (Biotechnology)............. 12,204 $ 90,867
Pilkington PLC (Building Materials).............. 84,900 156,529
PowerGen PLC (Electric).......................... 8,000 110,521
Premier Farnell PLC (Electronics)................ 14,000 71,245
Prudential Corp. PLC (Insurance)................. 23,600 310,878
Racal Electronic PLC (Telecommunications-
Equipment)..................................... 17,100 96,864
Rank Group PLC (Entertainment, Leisure &
Media)......................................... 29,600 162,485
Reed International PLC (Broadcasting &
Publishing).................................... 23,000 207,995
Royal & Sun Alliance Insurance Group PLC
(Insurance).................................... 30,000 310,091
Royal Bank of Scotland Group PLC (Banking)....... 22,800 395,635
Sainsbury (J.) PLC (Retail)...................... 33,407 297,649
Shell Transport & Trading Co. (Oil-Services)..... 67,900 478,088
Smith & Nephew PLC (Medical Supplies)............ 38,200 95,446
SmithKline Beecham PLC (Pharmaceuticals)......... 27,000 329,537
Thomson Travel Group PLC (Entertainment, Leisure
& Media)+...................................... 18,000 56,162
Tomkins PLC (Multi - Industry)................... 41,400 224,669
Unilever PLC (Food, Beverages & Tobacco)......... 22,600 240,578
Vickers PLC (Capital Goods)...................... 30,100 110,488
Vodafone Group PLC (Telecommunications).......... 39,300 498,675
Wessex Water PLC (Water)......................... 23,200 176,514
Zeneca Group PLC (Pharmaceuticals)............... 10,104 433,601
------------
11,908,649
------------
TOTAL COMMON STOCK (COST $31,611,744).......... 35,063,187
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
PREFERRED STOCK (0.9%)
GERMANY (0.9%)
AXA Colonia Konzern AG (Insurance)............... 400 $ 40,442
Jungheinrich AG (Machinery)...................... 337 62,545
ProSieben Media AG (Broadcasting & Publishing)... 2,817 145,919
Volkswagen AG (Automotive)....................... 130 89,594
------------
338,500
------------
TOTAL PREFERRED STOCK (COST $334,103).......... 338,500
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (11.5%)
TIME DEPOSITS--FOREIGN (11.0%)
State Street Bank Cayman Islands, 4.50% due
07/01/98 (Banking)............................. $ 4,261,000 4,261,000
------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.5%)
United States Treasury Bills, 4.20% due 08/20/98
(Government Obligations) (y)................... $ 210,000 $ 208,547
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$4,469,547)................................... 4,469,547
------------
TOTAL INVESTMENTS (COST $36,415,394) (103.1%).................
39,871,234
LIABILITIES IN EXCESS OF OTHER ASSETS (-3.1%).................
(1,207,134)
------------
NET ASSETS (100.0%)........................................... $ 38,664,100
------------
------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $36,422,811 for federal income tax
purposes at June 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $4,314,893 and $866,470, respectively, resulting in net
unrealized appreciation of $3,448,423. All securities are fully or partially
segregated with custodian as collateral for futures contracts or with broker as
initial margin for future contracts. Total market value of securities segregated
is $14,380,904.
+ - Non-income producing securities.
SDR - Swedish Depository Receipt.
(y) - Yield to maturity.
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
PORTFOLIO
-----------------
<S> <C>
Banking........................................... 23.6%
Pharmaceuticals................................... 7.8%
Insurance......................................... 7.4%
Food, Beverages & Tobacco......................... 6.9%
Telecommunications................................ 4.7%
Oil-Services...................................... 4.6%
Retail............................................ 4.5%
Utilities......................................... 3.9%
Financial Services................................ 3.5%
Automotive........................................ 2.6%
Chemicals......................................... 2.4%
Electronics....................................... 2.4%
Building Materials................................ 2.2%
Broadcasting & Publishing......................... 2.0%
Electric.......................................... 1.9%
Automotive Supplies............................... 1.5%
Oil-Production.................................... 1.5%
Airlines.......................................... 1.4%
Telecommunication Services........................ 1.4%
Electrical Equipment.............................. 1.3%
Computer Software................................. 1.1%
Forest Products & Paper........................... 1.1%
Capital Goods..................................... 1.0%
Multi-Industry.................................... 1.0%
Machinery......................................... 0.8%
Metals & Mining................................... 0.8%
Apparels & Textiles............................... 0.7%
Biotechnology..................................... 0.6%
Medical Supplies.................................. 0.6%
Real Estate....................................... 0.6%
Telecommunications-Equipment...................... 0.6%
Water............................................. 0.6%
Entertainment, Leisure & Media.................... 0.5%
Gas Exploration................................... 0.5%
Government Obligations............................ 0.5%
Construction & Housing............................ 0.4%
Semiconductors.................................... 0.4%
Household Products................................ 0.3%
Technology........................................ 0.2%
Business & Public Services........................ 0.1%
Transport & Services.............................. 0.1%
-----------------
100.0%
-----------------
-----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $36,415,394) $39,871,234
Cash 699
Foreign Currency at Value (Cost $1,014,597) 1,006,108
Receivable for Investments Sold 338,635
Dividends Receivable 59,712
Unrealized Appreciation of Forward Foreign
Currency Contracts 50,455
Deferred Organization Expenses 7,564
Receivable for Expense Reimbursement 3,007
Prepaid Trustees' Fees 1,206
Interest Receivable 533
Prepaid Expenses and Other Assets 4,165
-----------
Total Assets 41,343,318
-----------
LIABILITIES
Payable for Investments Purchased 2,406,464
Custody Fee Payable 114,177
Unrealized Depreciation of Forward Foreign
Currency Contracts 85,477
Advisory Fee Payable 19,264
Variation Margin Payable 10,219
Administrative Services Fee Payable 846
Fund Services Fee Payable 29
Accrued Expenses 42,742
-----------
Total Liabilities 2,679,218
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $38,664,100
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $77,474) $ 282,443
Interest Income (Net of Foreign Withholding Tax
of $262) 73,933
----------
Investment Income 356,376
EXPENSES
Advisory Fee $ 77,150
Custodian Fees and Expenses 49,473
Professional Fees and Expenses 25,671
Printing Expenses 3,601
Administrative Services Fee 3,465
Amortization of Organization Expenses 2,156
Insurance Expense 1,082
Trustees' Fees and Expenses 365
Fund Services Fee 340
Administration Fee 227
----------
Total Expenses 163,530
Less: Reimbursement of Expenses (54,124)
----------
NET EXPENSES 109,406
----------
NET INVESTMENT INCOME 246,970
NET REALIZED GAIN (LOSS) ON
Investment Transactions 1,641,490
Futures Contracts 249,011
Foreign Currency Contracts and Transactions (84,870)
----------
Net Realized Gain 1,805,631
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments 1,611,691
Futures Contracts 56,434
Foreign Currency Contracts and Translations (35,828)
----------
Net Change in Unrealized Appreciation 1,632,297
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,684,898
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 246,970 $ 8,744,873
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 1,805,631 213,363,881
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations 1,632,297 (110,222,023)
------------ -----------------
Net Increase in Net Assets Resulting from
Operations 3,684,898 111,886,731
------------ -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 27,917,599 230,293,076
Withdrawals (7,930,618) (1,017,256,734)
------------ -----------------
Net Increase (Decrease) from Investors'
Transactions 19,986,981 (786,963,658)
------------ -----------------
Total Increase (Decrease) in Net Assets 23,671,879 (675,076,927)
NET ASSETS
Beginning of Period 14,992,221 690,069,148
------------ -----------------
End of Period $ 38,664,100 $ 14,992,221
------------ -----------------
------------ -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE PERIOD
FOR THE YEAR ENDED MARCH 28, 1995
SIX MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
JUNE 30, 1998 --------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 DECEMBER 31, 1995
---------------- ------ ------ -------------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.92%(a) 0.88% 0.84% 0.90%(a)
Net Investment Income 2.08%(a) 1.47% 1.65% 1.67%(a)
Expenses without Reimbursement 1.38%(a) 0.89% -- --
Portfolio Turnover 43%(b) 65% 57% 36%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The European Equity Portfolio (the "portfolio") is one of seven subtrusts
(portfolios) comprising The Series Portfolio (the "series portfolio"). The
series portfolio is registered under the Investment Company Act of 1940, as
amended, as a no-load open-end management investment company which was organized
as a trust under the laws of the State of New York on June 24, 1994. The
portfolio's investment objective is to provide a high total return from a
portfolio of equity securities of European companies. The portfolio commenced
operations on March 28, 1995. The Declaration of the Trust permits the trustees
to issue an unlimited number of beneficial interests in the portfolio.
Investments in international markets may involve certain considerations and
risks not typically associated with investments in the United States. Future
economic and political developments in foreign countries could adversely affect
the liquidity or value, or both, of such securities in which the portfolio is
invested. The ability of the issuers of debt securities held by the portfolio to
meet their obligations may be affected by economic and political developments in
a specific industry or region.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the portfolio's trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
short-term portfolio securities with a remaining maturity of less than 60
days are valued by the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the portfolio's trustees.
b) The books and records of the portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expenses are
translated at the exchange rates prevailing on the respective dates of
such transactions. Translation gains and losses
24
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
resulting from changes in exchange rates during the reporting period and
gains and losses realized upon settlement of foreign currency transactions
are reported in the Statement of Operations. Although the net assets of
the portfolio are presented at the exchange rates and market values
prevailing at the end of the period, the portfolio does not isolate the
portion of the results of operations arising as a result of changes in
foreign exchange rates from the fluctuations arising from changes in the
market prices of securities during the period.
c) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount become known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
d) The portfolio incurred organization expenses in the amount of $33,000.
Morgan Guaranty Trust Company of New York ("Morgan") has paid the
organization expenses of the portfolio. The portfolio has agreed to
reimburse Morgan for these costs which 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.
e) Expenses incurred by the series portfolio with respect to any two or more
portfolios in the series portfolio are allocated in proportion to the net
assets of each portfolio in the series portfolio, except where allocations
of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that
portfolio.
f) The portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. 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
translations. At June 30, 1998, the portfolio had open forward foreign
currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
VALUE 6/30/98 (DEPRECIATION)
----------- ----------- --------------
<S> <C> <C> <C>
PURCHASE CONTRACTS
British Pound 684,307, expiring 8/25/98.......... $ 1,139,781 $ 1,138,292 $ (1,489)
British Pound 95,454, expiring 8/25/98........... 155,165 158,780 3,615
British Pound 236,890 for German Mark 682,146,
expiring 8/25/98................................ 387,930 394,048 6,118
</TABLE>
25
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
VALUE 6/30/98 (DEPRECIATION)
----------- ----------- --------------
<S> <C> <C> <C>
British Pound 46,742 for Swiss Franc 113,911,
expiring 8/25/98................................ $ 76,251 $ 77,752 $ 1,501
Danish Krone 729,389, expiring 8/25/98........... 107,587 106,309 (1,278)
German Mark 4,059,355, expiring 8/25/98.......... 2,285,673 2,256,402 (29,271)
German Mark 3,131,636, expiring 8/25/98.......... 1,749,029 1,740,727 (8,302)
German Mark 1,450,533, expiring 8/25/98.......... 820,683 806,282 (14,401)
German Mark 487,170, expiring 8/25/98............ 274,135 270,795 (3,340)
German Mark 439,572, expiring 8/25/98............ 248,281 244,337 (3,944)
German Mark 325,007, expiring 8/25/98............ 182,925 180,656 (2,269)
Norwegian Krone 1,589,119 for German Mark
377,062, expiring 8/25/98....................... 213,090 207,353 (5,737)
Norwegian Krone 533,441 for German Mark 125,687,
expiring 8/25/98................................ 70,820 69,605 (1,215)
Swedish Krona 326,348, expiring 8/25/98.......... 42,136 41,013 (1,123)
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
VALUE
----------
<S> <C> <C> <C>
SALES CONTRACTS
Belgian Franc 3,792,695, expiring 8/25/98........ $ 103,909 $ 102,244 $ 1,665
British Pound 896,578, expiring 8/25/98.......... 1,488,320 1,491,389 (3,069)
British Pound 252,048, expiring 8/25/98.......... 408,444 419,262 (10,818)
British Pound 107,839, expiring 8/25/98.......... 175,681 179,382 (3,701)
German Mark 682,146 for British Pound 236,890,
expiring 8/25/98................................ 387,930 379,173 8,757
German Mark 377,062 for Norwegian Krone
1,589,119, expiring 8/25/98..................... 213,090 209,591 3,499
German Mark 125,687 for Norwegian Krone 533,441,
expiring 8/25/98................................ 70,820 69,864 956
Italian Lira 540,000,000, expiring 8/25/98....... 307,510 304,055 3,455
Italian Lira 366,329,364, expiring 8/25/98....... 206,687 206,267 420
Italian Lira 292,219,845, expiring 8/25/98....... 164,076 164,539 (463)
Netherlands Guilder 751,378, expiring 8/25/98.... 368,581 370,613 (2,032)
Netherlands Guilder 190,000, expiring 8/25/98.... 93,458 93,716 (258)
Netherlands Guilder 183,810, expiring 8/25/98.... 91,896 90,663 1,233
Netherlands Guilder 140,000, expiring 8/25/98.... 69,857 69,054 803
Portuguese Escudo 40,000,000, expiring 8/25/98... 222,099 217,008 5,091
Portuguese Escudo 29,898,481, expiring 8/25/98... 162,580 162,205 375
Portuguese Escudo 13,000,000, expiring 8/25/98... 71,444 70,527 917
Spanish Peseta 22,596,065, expiring 8/25/98...... 149,643 147,887 1,756
</TABLE>
26
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
SETTLEMENT VALUE AT APPRECIATION/
VALUE 6/30/98 (DEPRECIATION)
---------- ----------- --------------
<S> <C> <C> <C>
Swedish Krona 1,137,165, expiring 8/25/98........ $ 147,111 $ 142,909 $ 4,202
Swedish Krona 950,000, expiring 8/25/98.......... 119,302 119,388 (86)
Swiss Franc 532,843, expiring 8/25/98............ 362,410 353,231 9,179
Swiss Franc 216,391, expiring 8/25/98............ 146,945 143,450 3,495
Swiss Franc 113,911 for British Pound 46,742,
expiring 8/25/98................................ 76,251 75,514 737
--------------
Net Unrealized Depreciation on Forward Foreign
Currency Contracts.............................. $ (35,022)
--------------
--------------
</TABLE>
g) Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place is fixed when the
portfolio enters into the contract. Upon entering into such a contract,
the portfolio is required to pledge to the broker an amount of cash and/or
liquid securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the portfolio agrees to receive
from, or pay to, the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are
known as "'variation margin" and are recorded by the portfolio as
unrealized gains or losses. When the contract is closed, the portfolio
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time when
it was closed. The portfolio invests in futures contracts for the purpose
of hedging its existing portfolio securities, or securities the portfolio
intends to purchase, against fluctuations in value caused by changes in
prevailing market interest rates or securities movements. The use of
futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the
underlying hedged assets, and the possible inability of counterparties to
meet the terms of their contracts. At June 30, 1998, the portfolio had
open futures contracts as follows:
SUMMARY OF OPEN CONTRACTS AT JUNE 30, 1998
<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS LONG APPRECIATION OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
DAX Index, expiring September 1998............... 4 $ 20,515 $ 1,281,389
CAC 40 Index, expiring July 1998................. 8 9,108 1,107,570
IBEX Plus Index, expiring July 1998.............. 17 23,454 1,094,408
-------------- -------------- ----------------
Totals........................................... 29 $ 53,077 $ 3,483,367
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS SHORT APPRECIATION OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
FTSE 100 Index, expiring September 1998.......... 7 $ 3,357 $ 691,426
--------------- -------------- ----------------
--------------- -------------- ----------------
</TABLE>
h) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It
27
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
is intended that the portfolio's assets will be managed in such a way that
an investor in the portfolio will be able to satisfy the requirements of
Subchapter M of the Internal Revenue Code. The portfolio earns foreign
income which may be subject to foreign withholding taxes at various rates.
2. TRANSACTIONS WITH AFFILIATES
a) 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 six months
ended June 30, 1998, such fees amounted to $77,150.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
FDI provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the compensation of the officers
affiliated with FDI. The portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the portfolio is based on
the ratio of the portfolio's net assets to the aggregate net assets of the
portfolio and certain other investment companies subject to similar
agreements with FDI. For the six months ended June 30, 1998, the fee for
these services amounted to $227.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for certain
aspects of the administration and operation of the portfolio. Under the
Services Agreement, the portfolio has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and certain other portfolios for which 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 payable by
the portfolio is determined by the proportionate share its net assets bear
to the net assets of the master portfolios, other investors in the master
portfolios for which Morgan provides similar services, and J.P. Morgan
Series Trust. For the six months ended June 30, 1998, the fee for these
services amounted to $3,465.
In addition, Morgan has agreed to reimburse the portfolio to the extent
necessary to maintain the total operating expenses of the portfolio at no
more than 1.00% of the average daily net assets of the portfolio through
April 30, 1999. For the six months ended June 30, 1998, Morgan has agreed
to reimburse the portfolio $54,124 for expenses under this agreement.
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 $340 for the six months ended June 30, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
the master portfolios and J.P. Morgan Series Trust. The
28
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
Trustees' Fees and Expenses shown in the financial statements represents
the portfolio's allocated portion of the total fees and expenses. The
portfolio's Chairman and Chief Executive Officer also serves as Chairman
of Group and receives compensation and employee benefits from Group in his
role as Group's Chairman. The allocated portion of such compensation and
benefits included in the Fund Services Fee shown in the financial
statements was $70.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- ----------
<S> <C>
$26,087,398....... $9,632,620
</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.
29
