<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCK (95.1%)
AUSTRIA (0.6%)
Bank Austria AG (Banking)(s)..................... 3,000 $ 154,019
------------
BELGIUM (0.3%)
Delhaize-Le Lion SA (Retail)(s).................. 959 82,676
------------
DENMARK (0.4%)
Danisco A/S (Food, Beverages & Tobacco)(s)....... 2,000 96,261
------------
FINLAND (1.9%)
Nokia OYJ (Telecommunications-Equipment)(s)...... 3,073 219,138
Sampo Insurance Co. Ltd., A Shares
(Insurance)(s)................................. 1,600 48,516
Stora Enso OYJ, A Shares (Forest Products &
Paper)(s)...................................... 9,024 91,047
Stora Enso OYJ, R Shares (Forest Products &
Paper)(s)...................................... 11,700 118,729
------------
477,430
------------
FRANCE (13.0%)
Accor SA (Restaurants & Hotels)(s)............... 213 52,383
Alcatel Alsthom (Telecommunications-
Equipment)(s).................................. 476 56,739
Alstom SA (Railroads)(s)+........................ 3,952 116,984
AXA (Insurance)(s)............................... 1,363 157,481
Canal Plus (Broadcasting & Publishing)(s)........ 257 74,570
Carrefour SA (Retail)(s)......................... 1,116 146,796
Casino Guichard Perrachon (Restaurants &
Hotels)(s)..................................... 800 76,121
Castorama Dubois Investissement SA (Retail)(s)... 349 85,391
Compagnie de Saint Gobain SA (Building
Materials)(s).................................. 853 134,232
Compagnie Financiere de Paribas (Financial
Services)(s)................................... 1,915 208,244
Elf Aquitaine SA (Oil-Services)(s)............... 2,000 290,262
France Telecom SA (Telecommunication
Services)(s)................................... 1,856 142,638
Groupe Danone (Food, Beverages & Tobacco)(s)..... 600 165,625
Lagardere S.C.A. (Multi - Industry)(s)........... 2,750 107,685
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
FRANCE (CONTINUED)
Louis Vuitton Moet Hennessy (Food, Beverages &
Tobacco)(s).................................... 173 $ 47,579
Renault SA (Automotive)(s)....................... 2,400 93,478
Sanofi-Synthelabo SA (Pharmaceuticals)(s)+....... 3,068 129,601
SEITA (Food, Beverages & Tobacco)(s)............. 783 48,762
Societe Generale, A shares (Banking)(s).......... 751 136,791
STMicroelectronics NV (Electronics)(s)........... 1,229 142,641
Total SA, B Shares (Oil-Services)(s)............. 3,611 439,869
Vivendi (Utilities).............................. 4,899 363,694
------------
3,217,566
------------
GERMANY (15.0%)
Adidas - Salomon AG (Apparels & Textiles)(s)..... 1,240 123,821
BASF AG (Chemicals)(s)........................... 5,453 212,674
Bayerische Hypo-Und Vereinsbank AG
(Banking)(s)................................... 4,455 241,295
Bilfinger & Berger Bau AG (Construction &
Housing)(s).................................... 3,390 84,362
Continental AG (Automotive)(s)................... 3,824 88,765
DaimlerChrysler AG (Automotive)(s)............... 3,425 296,346
Deutsche Telekom AG (Utilities)(s)............... 1,700 67,991
Dresdner Bank AG (Banking)(s).................... 4,900 182,396
Fresenius Medical Care AG (Medical
Supplies)(s)................................... 1,396 70,064
Hochtief AG (Construction & Housing)(s).......... 1,700 75,012
Hoechst AG (Holding Companies)(s)................ 3,886 173,501
Karstadt AG (Retail)(s).......................... 269 111,383
Mannesmann AG (Diversified Manufacturing)(s)..... 2,867 392,708
Metro AG (Retail)(s)............................. 1,400 88,563
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance)(s)................................. 1,188 203,719
Munchener Rueckversicherungs-Gesellschaft AG- New
Shares (Insurance)(s)+......................... 907 153,636
Preussag AG (Diversified Manufacturing)(s)....... 1,093 56,571
RWE AG (Utilities)(s)............................ 3,020 135,309
SAP AG (Computer Software)(s).................... 200 69,638
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
GERMANY (CONTINUED)
Schering AG (Pharmaceuticals)(s)................. 1,216 $ 130,325
SGL Carbon AG (Chemicals)(s)..................... 2,150 150,620
Siemens AG (Electrical Equipment)(s)............. 3,200 215,814
VEBA AG (Utilities)(s)........................... 6,430 367,764
------------
3,692,277
------------
IRELAND (1.0%)
Allied Irish Banks PLC (Banking)(s).............. 4,231 56,008
CRH PLC (Building Materials)(s).................. 5,565 95,283
Greencore Group PLC (Food, Beverages &
Tobacco)(s).................................... 16,647 60,922
Irish Life PLC (Financial Services)(s)........... 1,818 23,286
------------
235,499
------------
ITALY (3.4%)
Assicurazioni Generali SPA (Insurance)(s)........ 5,400 192,539
Bayerische Vita SPA (Insurance)(s)............... 8,400 38,558
ENI SPA (Oil-Services)(s)........................ 28,900 181,007
Instituto Bancario San Paolo di Torino SPA
(Banking)(s)................................... 7,359 99,646
Mediaset SPA (Broadcasting & Publishing)(s)...... 9,036 73,412
Telecom Italia SPA (Telecommunication
Services)(s)................................... 9,732 100,538
Telecom Italia SPA - RNC (Telecommunication
Services)(s)................................... 29,640 161,468
------------
847,168
------------
NETHERLANDS (10.6%)
ABN Amro Holding NV (Banking)(s)................. 6,780 150,646
Aegon NV (Insurance)(s).......................... 1,759 142,540
Akzo Nobel NV (Chemicals)(s)..................... 1,600 66,585
Benckiser NV (Household Products)(s)............. 612 33,148
Equant NV (Information Processing)(s)+........... 600 49,562
Getronics NV (Computer Systems)(s)............... 900 34,819
Heineken NV (Food, Beverages & Tobacco)(s)....... 2,900 161,620
ING Groep NV (Financial Services)(s)............. 5,871 314,613
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
NETHERLANDS (CONTINUED)
KPN NV (Telecommunication Services)(s)........... 6,032 $ 292,020
Laurus NV (Retail)(s)............................ 3,036 69,838
Philips Electronics NV (Electronics)(s).......... 4,118 354,154
Royal Dutch Petroleum Co. (Oil-Services)(s)...... 7,298 407,489
TNT Post Group NV (Transport & Services)(s)...... 2,981 75,119
Unilever NV (Food, Beverages & Tobacco)(s)....... 1,428 95,187
United Pan-Europe Communications NV
(Telecommunications)(s)+....................... 1,403 86,186
Vedior NV (Business & Public Services)(s)........ 4,830 89,643
Vendex NV (Retail)(s)............................ 6,830 199,963
------------
2,623,132
------------
PORTUGAL (1.3%)
Banco Pinto & Sotto Mayor SA (Banking)(s)........ 8,580 170,456
BPI-SGPS SA (Banking)(s)......................... 800 16,768
Electricidade de Portugal SA (Electric)(s)....... 3,300 60,212
Portugal Telecom SA (Telecommunications)(s)...... 1,687 76,555
------------
323,991
------------
SPAIN (4.2%)
Actividades de Construccion y Servicios SA
(Construction & Housing)(s).................... 1,173 35,814
Banco Bilbao Vizcaya SA (Banking)(s)............. 5,553 80,301
Banco Popular Espanol SA (Banking)(s)............ 755 55,340
Banco Santander Central Hispano SA
(Banking)(s)................................... 8,723 182,413
Endesa SA (Electric)(s).......................... 12,395 264,521
Iberdrola SA (Electric)(s)....................... 2,851 40,959
Repsol SA (Oil-Production)(s).................... 5,500 99,835
Telefonica SA (Telecommunications)(s)+........... 5,650 271,636
------------
1,030,819
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
SWEDEN (2.9%)
Autoliv, Inc. (SDR) (Automotive Supplies)(s)..... 5,702 $ 181,236
Electrolux AB (Appliances & Household
Durables)(s)................................... 2,473 48,027
Ericsson LM, B Shares (Telecommunications-
Equipment)(s).................................. 12,800 342,644
Skandia Forsakrings AB (Insurance)(s)............ 9,078 156,183
------------
728,090
------------
SWITZERLAND (9.0%)
Nestle SA (Food, Beverages & Tobacco)(s)......... 230 414,400
Novartis AG (Pharmaceuticals)(s)................. 234 340,358
Roche Holding AG (Pharmaceuticals)(s)............ 48 509,134
Swisscom AG (Telecommunication Services)(s)...... 900 324,904
UBS AG (Banking)(s).............................. 1,445 419,218
Zurich Allied AG (Insurance)(s).................. 349 205,708
------------
2,213,722
------------
UNITED KINGDOM (31.5%)
Allied Zurich PLC (Insurance)(s)................. 7,700 98,153
Arriva PLC (Diversified Manufacturing)(s)........ 7,900 46,965
AstraZeneca Group PLC (Pharmaceuticals)(s)....... 5,904 234,717
Barclays PLC (Banking)(s)........................ 6,900 209,522
Bass PLC (Food, Beverages & Tobacco)(s).......... 5,018 73,976
BG PLC (Gas Exploration)(s)...................... 17,700 97,283
Billiton PLC (Metals & Mining)(s)................ 39,000 121,862
British Aerospace PLC (Aerospace)(s)............. 11,900 78,562
British American Tobacco PLC (Food, Beverages &
Tobacco)(s).................................... 7,900 72,536
British Petroleum Co. PLC (Oil-Services)(s)...... 37,558 671,642
British Sky Broadcasting Group PLC (Broadcasting
& Publishing)(s)............................... 8,000 76,210
British Telecommunications PLC
(Telecommunications)(s)........................ 22,700 376,112
Cable & Wireless Communications PLC
(Telecommunications)(s)........................ 25,400 312,583
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)(s).................................... 13,200 $ 89,736
Carlton Communications PLC (Entertainment,
Leisure & Media)(s)............................ 7,100 56,658
Compass Group PLC (Food, Beverages &
Tobacco)(s).................................... 16,100 163,305
Diageo PLC (Food, Beverages & Tobacco)(s)........ 11,270 118,648
General Electric Co. PLC (Electrical
Equipment)(s).................................. 6,300 59,561
Glaxo Wellcome PLC (Pharmaceuticals)(s).......... 17,500 491,015
Glynwed International PLC (Metals & Mining)(s)... 27,621 86,307
Great Universal Stores PLC (Retail)(s)........... 11,100 118,459
Hanson PLC (Building Materials)(s)............... 17,500 159,138
Hays PLC (Commercial Services)(s)................ 7,700 71,563
HSBC Holdings PLC (75p) (Banking)(s)............. 7,900 265,332
IMI PLC (Diversified Manufacturing)(s)........... 7,700 30,723
Invensys PLC (Diversified Manufacturing)(s)...... 10,500 47,952
Kingfisher PLC (Retail)(s)....................... 12,100 151,622
Lloyds TSB Group PLC (Banking)(s)................ 41,960 560,082
MEPC PLC (Real Estate)(s)........................ 6,451 52,512
MFI Furniture Group PLC (Household
Products)(s)................................... 45,392 27,640
National Power PLC (Electric)(s)................. 14,790 115,535
Northern Foods PLC (Food, Beverages &
Tobacco)(s).................................... 22,000 49,001
Northern Rock PLC (Financial Services)(s)........ 8,800 73,114
Nycomed Amersham PLC (Medical Supplies)(s)....... 4,704 33,505
Ocean Group PLC (Transport & Services)(s)........ 5,200 78,325
Pearson PLC (Broadcasting & Publishing)(s)....... 5,200 98,990
Pilkington PLC (Building Materials)(s)........... 58,700 69,135
PowerGen PLC (Electric)(s)....................... 7,300 79,075
Prudential Corp. PLC (Insurance)(s).............. 11,300 148,478
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Racal Electronic PLC (Telecommunications-
Equipment)(s).................................. 10,300 $ 61,975
Rentokil Initial PLC (Pollution Control)(s)...... 5,000 20,350
Reuters Group PLC (Broadcasting &
Publishing)(s)................................. 6,000 82,492
Royal & Sun Alliance Insurance Group PLC
(Insurance)(s)................................. 20,727 169,552
Royal Bank of Scotland Group PLC (Banking)(s).... 4,100 87,379
Sainsbury (J.) PLC (Retail)(s)................... 20,107 122,434
Select Appointments Holdings PLC (Business &
Public Services)(s)............................ 3,100 38,001
Shell Transport & Trading Co. (Oil-
Services)(s)................................... 10,500 76,092
Smith & Nephew PLC (Medical Supplies)(s)......... 10,000 27,722
SmithKline Beecham PLC (Pharmaceuticals)(s)...... 20,300 264,296
Tate & Lyle PLC (Food, Beverages & Tobacco)(s)... 5,000 32,849
Tesco PLC (Retail)(s)............................ 13,800 40,246
TI Group PLC (Diversified Manufacturing)(s)...... 6,700 51,641
Tomkins PLC (Multi - Industry)(s)................ 28,800 103,489
Unilever PLC (Food, Beverages & Tobacco)(s)...... 10,982 96,963
Vickers PLC (Capital Goods)(s)................... 19,466 49,284
Vodafone Group PLC (Telecommunications)(s)....... 28,300 537,826
Williams PLC (Diversified Manufacturing)(s)...... 7,000 41,053
Woolwich PLC (Financial Services)(s)............. 15,800 105,829
------------
7,775,007
------------
TOTAL COMMON STOCK (COST $21,392,289).......... 23,497,657
------------
PREFERRED STOCK (0.2%)
GERMANY (0.2%)
ProSieben Media AG (Broadcasting & Publishing)
(COST $47,578)................................. 988 42,304
------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (0.3%)
U.S. TREASURY OBLIGATIONS (0.3%)
U.S. Treasury Bills, 4.51%(y)
due 07/15/99
(COST $69,635)................................. $ 70,000 $ 69,635
------------
TOTAL INVESTMENTS (COST $21,509,502) (95.6%)................
23,609,596
OTHER ASSETS IN EXCESS OF LIABILITIES (4.4%)................
1,091,100
------------
NET ASSETS (100.0%)......................................... $ 24,700,696
------------
------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $21,627,385 for federal income tax
purposes at May 31, 1999, the aggregate gross unrealized appreciation and
depreciation was $3,182,741 and $1,200,530, respectively, resulting in net
unrealized appreciation of $1,982,211.
+ - Non-income producing security.
(s) - Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$8,952,759 of the market value has been segregated.
(y) - Yield to maturity.
SDR - Swedish Depositary Receipt.
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
TOTAL INVESTMENT
-----------------
<S> <C>
Banking........................................... 13.1%
Pharmaceuticals................................... 9.0%
Oil - Services.................................... 8.9%
Food, Beverages & Tobacco......................... 7.7%
Insurance......................................... 7.4%
Telecommunications................................ 7.1%
Retail............................................ 5.3%
Telecommunication Services........................ 4.5%
Utilities......................................... 4.0%
Financial Services................................ 3.1%
Telecommunications - Equipment.................... 2.9%
Diversified Manufacturing......................... 2.8%
Electric.......................................... 2.4%
Electronics....................................... 2.1%
Automotive........................................ 2.0%
Broadcasting & Publishing......................... 1.9%
Building Materials................................ 1.9%
Chemicals......................................... 1.8%
Electrical Equipment.............................. 1.2%
Forest Products & Paper........................... 0.9%
Metals & Mining................................... 0.9%
Multi - Industry.................................. 0.9%
Construction & Housing............................ 0.8%
Holding Companies................................. 0.7%
Medical Supplies.................................. 0.6%
Transport & Services.............................. 0.6%
Apparels & Textiles............................... 0.5%
Business & Public Services........................ 0.5%
Railroads......................................... 0.5%
Restaurants & Hotels.............................. 0.5%
Gas Exploration................................... 0.4%
Oil-Production.................................... 0.4%
Aerospace......................................... 0.3%
Commercial Services............................... 0.3%
Computer Software................................. 0.3%
Government Obligations............................ 0.3%
Household Products................................ 0.3%
Appliances & Household Durables................... 0.2%
Capital Goods..................................... 0.2%
Entertainment, Leisure & Media.................... 0.2%
Information Processing............................ 0.2%
Real Estate....................................... 0.2%
Computer Systems.................................. 0.1%
Pollution Control................................. 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)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $21,509,502 ) $23,609,596
Cash 127,033
Foreign Currency at Value (Cost $705,264 ) 687,687
Receivable for Investments Sold 568,425
Dividends Receivable 117,878
Unrealized Appreciation of Forward Foreign
Currency Contracts 41,750
Receivable for Expense Reimbursement 23,655
Deferred Organization Expenses 3,572
Prepaid Administration Fee 625
Prepaid Trustees' Fees 14
Prepaid Expenses and Other Assets 285
-----------
Total Assets 25,180,520
-----------
LIABILITIES
Payable for Investments Purchased 332,062
Custody Fee Payable 46,932
Foreign Tax Withholding Payable 17,950
Advisory Fee Payable 14,159
Unrealized Depreciation of Forward Foreign
Currency Contracts 12,060
Variation Margin Payable 11,588
Administrative Services Fee Payable 562
Fund Services Fee Payable 23
Accrued Expenses 44,488
-----------
Total Liabilities 479,824
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $24,700,696
-----------
-----------
</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 MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $50,849 ) $293,351
Interest Income 7,208
--------
Investment Income 300,559
EXPENSES
Custodian Fees and Expenses $ 90,445
Advisory Fee 84,748
Professional Fees and Expenses 24,939
Administrative Services Fee 3,407
Amortization of Organization Expense 2,168
Fund Services Fee 284
Administration Fee 168
Trustees' Fees and Expenses 153
Miscellaneous 4,336
--------
Total Expenses 210,648
Less: Reimbursement of Expenses (80,266)
--------
NET EXPENSES 130,382
--------
NET INVESTMENT INCOME 170,177
NET REALIZED GAIN (LOSS) ON
Investment Transactions (31,468)
Futures 52,747
Foreign Currency Contracts and Transactions 87,215
--------
Net Realized Gain 108,494
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments Transactions 223,985
Futures (42,080)
Foreign Currency Contracts and Translations 5,239
--------
Net Change in Unrealized Appreciation 187,144
--------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $465,815
--------
--------
</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 FOR THE
MAY 31, 1999 ELEVEN MONTHS ENDED
(UNAUDITED) NOVEMBER 30, 1998
------------ -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 170,177 $ 301,273
Net Realized Gain (Loss) on Investments, Futures
and Foreign Currency Contracts and Transactions 108,494 (358,521)
Net Change in Unrealized Appreciation of
Investments, Futures and Foreign Currency
Contracts and Translations 187,144 67,260
------------ -------------------
Net Increase in Net Assets Resulting from
Operations 465,815 10,012
------------ -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 6,036,082 47,559,507
Withdrawals (9,080,974) (35,281,967)
------------ -------------------
Net Increase (Decrease) from Investors'
Transactions (3,044,892) 12,277,540
------------ -------------------
Total Increase (Decrease) in Net Assets (2,579,077) 12,287,552
NET ASSETS
Beginning of Period 27,279,773 14,992,221
------------ -------------------
End of Period $ 24,700,696 $ 27,279,773
------------ -------------------
------------ -------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
FISCAL YEAR
ENDED FOR THE PERIOD
FOR THE SIX DECEMBER MARCH 28, 1995
MONTHS ENDED FOR THE ELEVEN 31, (COMMENCEMENT OF
MAY 31, 1999 MONTHS ENDED ----------- OPERATIONS) THROUGH
(UNAUDITED) NOVEMBER 30, 1998 1997 1996 DECEMBER 31, 1995
------------ ----------------- ---- ---- -------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.00%(a) 0.87%(a) 0.88% 0.84% 0.90%(a)
Net Investment Income 1.31%(a) 1.17%(a) 1.47% 1.65% 1.67%(a)
Expenses without Reimbursement 1.61%(a) 1.11%(a) 0.89% 0.84% 0.90%(a)
Portfolio Turnover 41%(b) 99%(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)
MAY 31, 1999
- --------------------------------------------------------------------------------
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.
The portfolio may have elements of risk not typically associated with
investments in the United States due to concentrated investments in a limited
number of countries or regions which may vary throughout the year. Such
concentrations may subject the portfolio to additional risks resulting from
political or economic conditions in such countries or regions and the possible
imposition of adverse governmental laws or currency exchange restrictions
affecting such countries or regions which could cause the securities and their
markets to be less liquid and prices more volatile than those comparable to the
United States.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) The portfolio values securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available mean of the bid and asked
prices on such exchange, if such exchange or market constitutes the
broadest and most representative market for the security. Securities
listed on a foreign exchange are valued at the last traded price or, in
the absence of recorded trades, at the readily available mean of the bid
and asked prices on such exchange available before the time when net
assets are valued. Independent pricing service procedures may also include
the use of prices based on yields or prices of securities of comparable
quality, coupon, maturity and type, indications as to values from dealers,
operating data, and general market conditions. Unlisted securities are
valued at the average of the quoted bid and asked prices in the
over-the-counter market provided by a principal market maker or dealer. If
prices are not supplied by the portfolio's independent pricing service or
principal market maker or dealer, such securities are priced using fair
values in accordance with procedures adopted by the portfolio's Trustees.
All short-term securities with a remaining maturity of sixty days or less
are valued using the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the portfolio's trustees.
24
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
b) The books and records of the portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expenses are
translated at the exchange rates prevailing on the respective dates of
such transactions. Translation gains and losses resulting from changes in
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 $27,700,
which were deferred and are 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 and to enhance returns. 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 and spot foreign
currency translations.
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
25
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
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.
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 is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with J.P. Morgan
Investment Management Inc. ("JPMIM"), an affiliate of Morgan Guaranty
Trust Company of New York ("Morgan") and a wholly-owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the
agreement, the portfolio pays JPMIM at an annual rate of 0.65% of the
portfolio's average daily net assets. For the six months ended May 31,
1999 such fees amounted to $84,748.
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 May 31, 1999, the fee for
these services amounted to $168.
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 the other portfolios in which the trust and the J.P. Morgan
Funds, the J.P. Morgan Institutional Funds invest (the "master
portfolios") and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average
daily net assets and 0.04% of their aggregate average daily net assets in
excess of $7 billion less the complex-wide fees payable to FDI. The
portion of this charge payable by the 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 May 31, 1999, the fee for these services amounted to $3,407.
26
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
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 until
further notification. For the six months ended May 31, 1999, Morgan has
agreed to reimburse the portfolio $80,266 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 $284 for the six months ended May 31, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements 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 $60.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended May 31, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- -----------
<S> <C>
$10,382,468....... $13,338,020
</TABLE>
Open futures contracts at May 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
CAC 40 Index, expiring June 1999................. 7 $ (4,998) $ 318,775
DAX Index, expiring June 1999.................... 2 (10,155) 274,695
FTSE 100 Index, expiring June 1999............... 1 (4,195) 104,194
IBEX Plus Index, expiring June 1999.............. 1 (90) 105,014
-------------- -------------- ----------------
Totals........................................... 11 $ (19,438) $ 802,678
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
27
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
At May 31, 1999 the portfolio had open forward currency contracts as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 5/31/99 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
British Pound 109,771, expiring 8/25/99.......... 176,892 175,809 (1,083)
Euro 840,000, expiring 8/25/99................... $ 891,216 $ 883,652 $ (7,564)
Norwegian Krone 1,132,519, expiring
8/25/99......................................... 145,587 143,104 (2,483)
Swedish Krona 376,156, expiring 8/25/99.......... 44,669 44,089 (580)
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- ------------------------------------------------- -----------
<S> <C> <C> <C>
Euro 2,112,101, expiring 8/25/99................. 2,262,060 2,221,861 40,199
Swiss Franc 137,423, expiring 8/25/99............ $ 92,305 $ 91,104 $ 1,201
--------------
NET UNREALIZED APPRECIATION OF FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 29,690
--------------
--------------
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement as discussed more
fully in Note 4 of the fund's Notes to the Financial Statements which are
included elsewhere in this report.
28
