<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCKS (93.1%)
BASIC INDUSTRIES (3.2%)
AGRICULTURE (0.4%)
Delta & Pine Land Co............................. 20,400 $ 772,650
-------------
CHEMICALS (1.3%)
Albemarle Corp................................... 76,000 1,415,500
General Chemical Group, Inc...................... 12,300 209,100
Geon Co.......................................... 38,100 847,725
-------------
2,472,325
-------------
FOREST PRODUCTS & PAPER (0.9%)
Universal Forest Products, Inc................... 83,400 1,631,512
-------------
METALS & MINING (0.6%)
Mueller Industries, Inc.+........................ 50,600 1,154,312
-------------
TOTAL BASIC INDUSTRIES......................... 6,030,799
-------------
CONSUMER GOODS & SERVICES (20.8%)
APPARELS & TEXTILES (0.2%)
Ashworth, Inc.+.................................. 59,500 342,125
-------------
BROADCASTING & PUBLISHING (2.7%)
Emmis Broadcasting Corp., Class A+............... 17,600 603,900
HA-LO Industries, Inc.+.......................... 18,700 597,231
Hearst-Argyle Television, Inc.+.................. 44,600 1,173,537
Journal Register Co.+............................ 63,500 1,027,906
Univision Communications, Inc., Class A+......... 56,500 1,582,000
-------------
4,984,574
-------------
EDUCATION (6.0%)
Advantage Learning Systems, Inc.+................ 14,400 801,000
Bright Horizons Family Solutions, Inc.+.......... 99,657 2,373,082
DeVry, Inc.+..................................... 48,200 1,271,275
Education Management Corp.+...................... 74,300 3,389,937
ITT Educational Services, Inc.+.................. 71,300 2,343,987
Sylvan Learning Systems, Inc.+................... 30,100 873,841
-------------
11,053,122
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (6.1%)
Action Performance Companies, Inc.+.............. 57,100 $ 2,082,366
Cinar Films Inc., Class B+....................... 124,200 2,778,975
Imax Corp.+...................................... 35,400 966,862
MGM Grand, Inc.+................................. 13,200 339,075
Premier Parks, Inc.+............................. 51,000 1,383,375
ResortQuest International, Inc.+................. 103,900 1,363,687
Steiner Leisure Ltd.(i)+......................... 34,650 868,416
USA Networks, Inc.+.............................. 50,999 1,611,250
-------------
11,394,006
-------------
RESTAURANTS & HOTELS (0.6%)
Sun International Hotels Ltd.(i)+................ 30,500 1,178,062
-------------
RETAIL (5.2%)
Central Garden & Pet Co.+........................ 8,600 138,406
Fingerhut Companies, Inc......................... 122,100 1,358,362
Hibbett Sporting Goods, Inc.+.................... 24,300 760,894
Insight Enterprises, Inc.+....................... 67,050 2,828,672
Kenneth Cole Productions, Inc., Class A+......... 59,100 1,074,881
North Face Inc.+................................. 86,800 1,085,000
PETsMART, Inc.+.................................. 63,400 544,844
School Specialty, Inc.+.......................... 57,000 965,437
Steven Madden Ltd.(i)+........................... 143,300 949,362
-------------
9,705,858
-------------
TOTAL CONSUMER GOODS & SERVICES................ 38,657,747
-------------
ENERGY (3.3%)
GAS EXPLORATION (1.6%)
Devon Energy Corp................................ 78,200 2,575,712
Patterson Energy, Inc.+.......................... 6,200 28,869
Tesoro Petroleum Corp.+.......................... 25,800 343,462
-------------
2,948,043
-------------
OIL-PRODUCTION (0.3%)
Valero Energy Corp............................... 29,200 613,200
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
OIL-SERVICES (1.4%)
National-Oilwell, Inc.+.......................... 56,900 $ 561,887
Smith International, Inc.+....................... 46,800 1,129,050
Transmontaigne Oil Co.+.......................... 63,900 958,500
-------------
2,649,437
-------------
TOTAL ENERGY................................... 6,210,680
-------------
FINANCE (9.9%)
BANKING (4.5%)
Bank of Commerce................................. 33,300 490,134
Bank United Corp., Class A....................... 52,600 2,317,687
FNB Financial Services Corp...................... 12,900 242,681
National Commerce Bancorporation................. 139,600 2,530,250
Silicon Valley Bancshares+....................... 18,700 462,825
Sun Bancorp, Inc.+............................... 7,100 143,331
TeleBanc Financial Corp.+........................ 23,800 534,756
Webster Financial Corp........................... 59,100 1,643,719
-------------
8,365,383
-------------
FINANCIAL SERVICES (3.4%)
Allied Capital Corp.............................. 29,700 535,528
ARM Financial Group, Inc......................... 46,300 995,450
Federal Agricultural Mortgage Corp. , Class C+... 21,800 792,975
Financial Federal Corp.+......................... 78,600 2,107,462
Medallion Financial Corp......................... 79,400 1,223,256
Ocwen Financial Corp.+........................... 42,800 556,400
-------------
6,211,071
-------------
INSURANCE (1.8%)
Nationwide Financial Services, Inc., Class A..... 35,200 1,694,000
RenaissanceRe Holdings Ltd.(i)................... 44,500 1,691,000
-------------
3,385,000
-------------
REAL ESTATE INVESTMENT TRUSTS (0.2%)
Innkeepers USA Trust............................. 17,300 191,381
Ocwen Asset Investment Corp...................... 45,300 249,150
-------------
440,531
-------------
TOTAL FINANCE.................................. 18,401,985
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
HEALTHCARE (17.1%)
BIOTECHNOLOGY (6.4%)
Affymetrix, Inc.+................................ 26,900 $ 670,819
Applied Analytical Industries, Inc.+............. 70,200 1,272,375
ArQule, Inc.+.................................... 34,900 210,491
Human Genome Sciences, Inc.+..................... 44,200 1,397,825
IDEC Pharmaceuticals Corp.+...................... 84,700 2,853,331
Incyte Pharmaceuticals, Inc...................... 26,500 831,437
Millennium Pharmaceuticals, Inc.+................ 102,400 2,080,000
SangStat Medical Corp.+.......................... 83,900 2,013,600
Synaptic Pharmaceutical Corp.+................... 42,300 600,131
-------------
11,930,009
-------------
HEALTH SERVICES (2.7%)
Curative Health Services, Inc.+.................. 40,100 1,150,369
IDX Systems Corp.+............................... 8,400 346,763
Kendle International, Inc.+...................... 59,100 1,329,750
MedQuist, Inc.+.................................. 47,200 1,441,075
Professional Detailing, Inc.+.................... 14,300 333,369
Superior Consultant Holdings Corp.+.............. 9,500 349,125
-------------
4,950,451
-------------
MEDICAL SUPPLIES (3.6%)
Closure Medical Corp.+........................... 72,800 1,692,600
Focal, Inc.+..................................... 48,400 403,838
IDEXX Laboratories, Inc.+........................ 69,800 1,806,075
Sabratek Corp.+.................................. 57,000 960,094
Ventana Medical Systems, Inc.+................... 74,800 1,624,563
Vysis, Inc.+..................................... 29,400 190,181
-------------
6,677,351
-------------
PHARMACEUTICALS (4.4%)
Algos Pharmaceutical Corp.+...................... 60,700 1,638,900
Andrx Corp.+..................................... 23,500 925,313
AXYS Pharmaceuticals, Inc.+...................... 177,000 1,001,156
Ligand Pharmaceuticals, Class B+................. 103,200 1,035,225
PathoGenesis Corp.+.............................. 54,300 2,613,188
U.S. Bioscience, Inc.+........................... 114,000 862,125
-------------
8,075,907
-------------
TOTAL HEALTHCARE............................... 31,633,718
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (4.8%)
COMMERCIAL SERVICES (2.5%)
Administaff, Inc.+............................... 47,100 $ 1,274,644
On Assignment, Inc.+............................. 25,000 890,625
Provant, Inc.+................................... 94,100 1,837,891
Snyder Communication, Inc.+...................... 19,900 707,694
-------------
4,710,854
-------------
PACKAGING & CONTAINERS (2.3%)
Ivex Packaging Corp.+............................ 103,100 2,010,450
Schawk, Inc., Class A............................ 152,700 2,195,063
-------------
4,205,513
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 8,916,367
-------------
TECHNOLOGY (27.4%)
AEROSPACE (2.6%)
Alliant Techsystems, Inc.+....................... 9,800 746,638
L-3 Communications Holdings, Inc.+............... 45,900 2,140,088
Orbital Sciences Corp.+.......................... 50,500 1,931,625
-------------
4,818,351
-------------
COMPUTER PERIPHERALS (2.6%)
HMT Technology Corp.+............................ 135,700 1,547,828
Hutchinson Technology, Inc.+..................... 25,100 777,316
Maxtor Corp.+.................................... 108,600 1,506,825
Radiant Systems, Inc.+........................... 85,700 605,256
SCM Microsystems, Inc.+.......................... 6,400 381,800
-------------
4,819,025
-------------
COMPUTER SOFTWARE (7.3%)
Aspect Development, Inc.+........................ 3,300 110,653
Aspen Technologies, Inc.+........................ 55,600 776,663
BroadVision, Inc.+............................... 31,100 829,009
Concord Communications, Inc.+.................... 19,900 881,197
HNC Software, Inc.+.............................. 50,200 1,658,169
Informix Corp.+.................................. 77,900 419,930
Legato Systems, Inc.+............................ 16,100 769,278
Macromedia, Inc.+................................ 61,500 1,716,234
MAPICS, Inc.+.................................... 153,300 2,931,863
MicroStrategy, Inc.+............................. 33,100 742,681
New Era of Networks, Inc.+....................... 5,800 428,838
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
COMPUTER SOFTWARE (CONTINUED)
TSI International Software Ltd.(i)+.............. 32,600 $ 1,201,106
Visio Corp.+..................................... 33,200 1,172,375
-------------
13,637,996
-------------
COMPUTER SYSTEMS (0.5%)
Avid Technology, Inc.+........................... 37,000 882,219
-------------
INFORMATION PROCESSING (7.2%)
Aris Corp.+...................................... 43,200 706,050
CNET, Inc.+...................................... 10,300 543,647
Computer Literacy, Inc.+......................... 4,100 65,856
Condor Technology Solutions, Inc.+............... 86,400 842,400
CSG Systems International, Inc.+................. 23,500 1,479,031
Diamond Technology Partners, Inc., Class A+...... 81,200 1,131,725
Exodus Communications, Inc.+..................... 44,400 1,495,725
Getty Images, Inc.+.............................. 51,300 875,306
Metro One Telecommunications, Inc.+.............. 33,400 376,794
Pegasus Systems, Inc.+........................... 128,300 2,814,581
Profit Recovery Group International, Inc.+....... 85,300 2,873,544
theglobe.com, Inc.+.............................. 2,200 77,138
-------------
13,281,797
-------------
SEMICONDUCTORS (5.2%)
Applied Mircro Circuits Corp.+................... 23,200 777,925
ATMI, Inc.+...................................... 104,400 1,986,863
Cognex Corp.+.................................... 18,600 306,319
Cypress Semiconductor Corp.+..................... 44,900 457,419
Exar Corp.+...................................... 29,300 512,750
Integrated Device Technology, Inc.+.............. 119,400 705,206
Intevac, Inc.+................................... 100,800 806,400
SIPEX Corp.+..................................... 92,500 3,000,469
Veeco Instruments, Inc.+......................... 28,300 1,036,488
-------------
9,589,839
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
TELECOMMUNICATIONS-EQUIPMENT (2.0%)
ACT Networks, Inc.+.............................. 37,400 $ 377,506
Davox Corp.+..................................... 7,200 51,525
Excel Switching Corp.+........................... 75,200 1,959,900
Glenayre Technologies, Inc.+..................... 91,400 568,394
PairGain Technologies, Inc.+..................... 49,300 500,703
Tekelec+......................................... 11,600 179,800
-------------
3,637,828
-------------
TOTAL TECHNOLOGY............................... 50,667,055
-------------
TELECOMMUNICATIONS (3.4%)
TELECOMMUNICATION SERVICES (3.4%)
Allegiance Telecom, Inc.+........................ 9,000 119,813
Concentric Network Corp.+........................ 57,600 1,638,000
Global Crossing Ltd.(i)+......................... 33,500 1,270,906
Paging Network, Inc.+............................ 160,500 988,078
Premiere Technologies, Inc.+..................... 8,900 44,223
RCN Corp.+....................................... 13,000 223,438
SkyTel Communications, Inc.+..................... 65,500 1,363,219
Teligent, Inc., Class A+......................... 21,800 686,700
-------------
TOTAL TELECOMMUNICATIONS....................... 6,334,377
-------------
UTILITIES (3.2%)
NATURAL GAS (0.3%)
Atmos Energy Corp................................ 6,700 205,188
MarkWest Hydrocarbon, Inc.+...................... 28,800 260,100
-------------
465,288
-------------
TELEPHONE (2.9%)
Intermedia Communications, Inc.+................. 73,100 1,263,259
MetroNet Communications Corp., Class B+.......... 80,500 2,130,734
NEXTLINK Communications, Inc., Class A+.......... 63,000 1,913,625
-------------
5,307,618
-------------
TOTAL UTILITIES................................ 5,772,906
-------------
TOTAL COMMON STOCKS (COST $167,778,190)........ 172,625,634
-------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
CONVERTIBLE PREFERRED STOCKS (0.3%)
<S> <C> <C>
ENERGY (0.2%)
GAS EXPLORATION (0.2%)
Tesoro Petroleum Corp............................ 24,500 $ 350,656
-------------
CONSUMER GOODS & SERVICES (0.1%)
ENTERTAINMENT, LEISURE & MEDIA (0.1%)
Metromedia International Group, Inc.............. 6,900 174,225
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$766,387)..................................... 524,881
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
FIXED INCOME SECURITIES (0.4%)
TECHNOLOGY (0.4%)
COMPUTER SOFTWARE (0.4%)
HNC Software Inc., 4.75% due 03/01/03............ $ 225,000 220,500
Quadramed Corp., 144A, 5.25% due 05/01/05........ 500,000 471,874
-------------
692,374
-------------
TOTAL TECHNOLOGY............................... 692,374
-------------
TOTAL FIXED INCOME SECURITIES (COST
$725,000)..................................... 692,374
-------------
</TABLE>
<TABLE>
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.3%)
OTHER INVESTMENT COMPANIES (2.6%)
Seven Seas Money Market Fund..................... 4,815,924 4,815,924
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (2.7%)
U.S. Treasury Bills, 4.420%(y) due 02/04/99...... $ 4,985,000 $ 4,945,397
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$9,761,321)................................... 9,761,321
-------------
TOTAL INVESTMENTS (COST $179,030,898) (99.1%)...................
183,604,210
OTHER ASSETS IN EXCESS OF LIABILITIES (0.9%)....................
1,755,657
-------------
NET ASSETS (100.0%)............................................. $ 185,359,867
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $180,950,904 for federal income tax
purposes at November 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $22,034,763 and $19,381,457, respectively, resulting in net
unrealized appreciation of $2,653,306.
+ Non-income producing security.
(i) Foreign security.
(y) Yield to maturity.
144A - Securities restricted for resale to Qualified Institutional Buyers.
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $179,030,898 ) $183,604,210
Receivable for Investments Sold 2,603,416
Dividends Receivable 33,023
Interest Receivable 20,046
Deferred Organization Expenses 6,373
Prepaid Trustees' Fees 173
Prepaid Expenses and Other Assets 1,419
------------
Total Assets 186,268,660
------------
LIABILITIES
Payable for Investments Purchased 752,069
Advisory Fee Payable 89,646
Custody Fee Payable 44,385
Organization Expenses Payable 9,000
Administrative Services Fee Payable 4,157
Administration Fee Payable 238
Fund Services Fee Payable 167
Accrued Expenses 9,131
------------
Total Liabilities 908,793
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $185,359,867
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income $ 332,518
Interest Income 378,017
------------
Investment Income 710,535
EXPENSES
Advisory Fee $ 545,533
Custodian Fees and Expenses 66,951
Administrative Services Fee 25,762
Professional Fees and Expenses 21,537
Printing Expenses 3,594
Fund Services Fee 2,487
Administration Fee 1,588
Trustees' Fees and Expenses 1,316
Amortization of Organization Expenses 902
Insurance Expense 139
Miscellaneous 501
-----------
Total Expenses 670,310
------------
NET INVESTMENT INCOME 40,225
NET REALIZED LOSS ON INVESTMENTS (20,622,251)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS (2,945,598)
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(23,527,624)
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JUNE 16, 1997
MONTHS ENDED (COMMENCEMENT OF
NOVEMBER 30, 1998 OPERATIONS) THROUGH
(UNAUDITED) MAY 31, 1998
----------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income (Loss) $ 40,225 $ (36,198)
Net Realized Gain (Loss) on Investments (20,622,251) 4,883,980
Net Change in Unrealized Appreciation of
Investments (2,945,598) 7,518,910
----------------- -------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (23,527,624) 12,366,692
----------------- -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 74,285,689 206,272,601
Withdrawals (53,977,113) (30,060,378)
----------------- -------------------
Net Increase from Investors' Transactions 20,308,576 176,212,223
----------------- -------------------
Total Increase (Decrease) in Net Assets (3,219,048) 188,578,915
NET ASSETS
Beginning of Period 188,578,915 --
----------------- -------------------
End of Period $ 185,359,867 $ 188,578,915
----------------- -------------------
----------------- -------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JUNE 16, 1997
SIX MONTHS ENDED (COMMENCEMENT OF
NOVEMBER 30, 1998 OPERATIONS) THROUGH
(UNAUDITED) MAY 31, 1998
----------------- -------------------
<S> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.74%(a) 0.84%(a)
Net Investment Income (Loss) 0.04%(a) (0.04)%(a)
Expenses without Reimbursement -- 0.84%(a)(b)
Portfolio Turnover 46% 73%
</TABLE>
- ------------------------
(a) Annualized.
(b) Reimbursement was less than 0.01%.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Small Company Opportunities Portfolio (the "portfolio") is one of seven
subtrusts (portfolios) comprising The Series Portfolio (the "series portfolio").
The portfolio is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company which was
organized as a trust under the laws of the State of New York on June 24, 1994.
The portfolio commenced operations on June 16, 1997. The portfolio's investment
objective is long term capital appreciation from a portfolio of equity
securities of small companies. The Declaration of Trust permits the trustees to
issue an unlimited number of beneficial interests in the portfolio.
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
portfolio securities with a remaining maturity of less than 60 days are
valued by the amortized cost method.
b) 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.
c) The portfolio incurred organization expenses in the amount of $9,000.
Morgan Guaranty Trust Company of New York ("Morgan"), a wholly owned
subsidiary of J.P. Morgan Co. Inc. ("J.P. 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.
d) 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.
25
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
e) 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.
2. TRANSACTIONS WITH AFFILIATES
a) Prior to October 1, 1998, the portfolio had an Investment Advisory
Agreement with Morgan. Under the terms of the agreement, the portfolio
paid Morgan at an annual rate of 0.60% of the portfolio's average daily
net assets. Effective October 1, 1998, the portfolio's Investment Advisor
is J.P. Morgan Investment Management Inc. ("JPMIM"), an affiliate of
Morgan and a wholly owned subsidiary of J.P. Morgan, and the terms of the
agreement will remain the same. For the six months ended November 30,
1998, such fees amounted to $545,533.
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 portfolio's
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 November 30, 1998,
the fee for these services amounted to $1,588.
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 for which JPMIM acts as investment
advisor (the "master portfolios") and J.P. Morgan Series Trust in
accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by
the portfolio is determined by the proportionate share that its net assets
bear to the net assets of the portfolio, 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 November
30, 1998, the fee for these services amounted to $25,762.
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 $2,487 for the six months ended November 30, 1998.
26
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of J.P. Morgan Funds, 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 $500.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended November 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ------------ -----------
<S> <C>
$103,526,438 $77,270,105
</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.
27