<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCK (95.4%)
AUSTRIA (0.7%)
Bank Austria AG (Banking)........................ 4,200 $ 199,479
------------
BELGIUM (1.0%)
PetroFina SA (Oil-Production).................... 700 285,898
------------
DENMARK (1.0%)
Danisco A/S (Food, Beverages & Tobacco).......... 2,000 103,568
GN Store Nord A/S
(Telecommunications-Equipment)................. 5,000 158,680
------------
262,248
------------
FINLAND (0.3%)
MeritaNordbanken Oyj (Banking)................... 15,534 90,634
------------
FRANCE (12.6%)
Carrefour SA (Retail)............................ 186 132,009
Castorama Dubois Investissments (Retail)......... 479 97,131
Compagnie de Saint Gobain SA (Building
Materials)..................................... 953 141,155
Compagnie Financiere de Paribas (Financial
Services)...................................... 6,215 555,614
Elf Aquitaine SA (Oil-Services).................. 2,700 337,547
Lagardere S.C.A. (Multi - Industry).............. 2,750 112,256
Rhodia SA (Chemicals)+........................... 6,826 107,183
Rhone-Poulenc SA, A Shares (Pharmaceuticals)..... 3,500 174,963
SEB SA (Household Products)...................... 1,400 133,058
Societe Generale, A Shares (Banking)............. 751 118,651
STMicroelectronics NV (Electronics)+............. 4,151 291,313
Total SA, B Shares (Oil-Services)................ 4,611 573,203
Union des Assurances Federales (Insurance)....... 367 48,729
Vivendi (Utilities).............................. 2,727 618,373
------------
3,441,185
------------
GERMANY (13.8%)
Adidas - Salomon AG (Apparels & Textiles)........ 700 76,592
BASF AG (Chemicals).............................. 8,900 337,939
Bayerische Hypo-Und Vereinsbank AG (Banking)..... 3,398 295,028
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
GERMANY (CONTINUED)
Bilfinger & Berger Bau AG (Construction &
Housing)....................................... 4,890 $ 108,456
Continental AG (Automotive)...................... 3,824 94,086
Deutsche Bank AG (Banking)....................... 1,400 86,694
Deutsche Lufthansa AG (Airlines)................. 4,480 98,303
Fresenius Medical Care AG (Medical Supplies)..... 2,800 173,884
Hochtief AG (Construction & Housing)............. 2,000 77,775
Karstadt AG (Retail)............................. 400 188,079
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance).................................... 1,056 487,160
RWE AG (Utilities)............................... 6,200 329,109
SAP AG (Computer Software)....................... 300 136,269
Schering AG (Pharmaceuticals).................... 1,500 186,305
SGL Carbon AG (Chemicals)........................ 2,550 151,120
Siemens AG (Electrical Equipment)................ 5,200 362,910
VEBA AG (Utilities).............................. 8,500 472,563
Volkswagen AG (Automotive)....................... 1,198 97,780
------------
3,760,052
------------
IRELAND (1.1%)
CRH PLC (Building Materials)..................... 5,565 84,620
Greencore Group PLC (Food, Beverages &
Tobacco)....................................... 16,647 73,371
Irish Life PLC (Insurance)....................... 9,188 79,642
Jefferson Smurfit Group PLC (Forest Products &
Paper)......................................... 32,726 64,427
------------
302,060
------------
ITALY (5.5%)
Assicurazioni Generali SPA (Insurance)........... 6,300 235,947
Banca Fideuram SPA (Financial Services).......... 38,758 230,351
Bayerische Vita SPA (Insurance)+................. 15,700 91,903
Mediaset SPA (Broadcasting & Publishing)......... 21,400 151,474
Telecom Italia SPA - RNC (Telecommunication
Services)...................................... 125,800 788,246
------------
1,497,921
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
NETHERLANDS (8.6%)
ASM Lithography Holding NV (Semiconductors)+..... 7,800 $ 227,874
Heineken NV (Food, Beverages & Tobacco).......... 4,100 208,809
ING Groep NV (Financial Services)................ 3,790 217,670
Koninklijke Ahold NV (Retail).................... 4,400 153,007
KPN NV (Telecommunication Services).............. 5,389 233,189
Laurus NV (Retail)............................... 10,581 263,612
Philips Electronics NV (Electronics)............. 6,518 413,661
Royal Dutch Petroleum Co. (Oil-Services)......... 1,698 81,579
TNT Post Group NV (Transport & Services)......... 7,351 185,454
Unilever NV (Food, Beverages & Tobacco).......... 1,600 125,460
Vedior NV (Business & Public Services)........... 3,703 75,747
Vendex NV (Retail)............................... 6,830 161,205
------------
2,347,267
------------
NORWAY (0.8%)
Norsk Hydro ASA (Oil-Services)................... 2,700 101,641
Nycomed Amersham PLC (Medical Supplies).......... 18,370 123,049
------------
224,690
------------
PORTUGAL (1.4%)
Banco Pinto & Sotto Mayor SA (Banking)........... 8,580 156,900
Portugal Telecom SA (Telecommunications)......... 5,100 222,170
------------
379,070
------------
SPAIN (2.2%)
ACS, Actividades de Construccion y Servicios SA
(Construction & Housing)....................... 3,000 104,879
Banco Popular Espanol SA (Banking)............... 3,580 263,747
Endesa SA (Electric)............................. 8,500 222,425
------------
591,051
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
SWEDEN (5.3%)
ABB AB, A Shares (Machinery)..................... 22,000 $ 238,644
Autoliv, Inc. (SDR) (Automotive Supplies)........ 11,310 409,181
Skandia Forsakrings AB (Insurance)............... 9,078 129,246
SKF AB, B Shares (Capital Goods)................. 6,700 86,718
Stora Kopparbergs Bergslags Aktiebolag, A Shares
(Forest Products & Paper)...................... 21,100 260,092
Svenska Handelsbanken (Banking).................. 3,600 145,553
Volvo AB, B Shares (Automotive).................. 6,996 162,988
------------
1,432,422
------------
SWITZERLAND (10.4%)
Nestle SA (Food, Beverages & Tobacco)............ 320 666,909
Novartis AG (Pharmaceuticals).................... 95 178,872
Roche Holding AG (Pharmaceuticals)............... 48 565,723
Swisscom AG (Telecommunication Services)+........ 1,100 371,543
UBS AG (Banking)................................. 1,845 556,883
Zurich Allied AG (Insurance)..................... 700 501,547
------------
2,841,477
------------
UNITED KINGDOM (30.7%)
Allied Zurich PLC (Insurance)+................... 10,200 145,633
Arriva PLC (Diversified Manufacturing)........... 9,100 62,485
Barclays PLC (Banking)........................... 6,300 142,983
Bass PLC (Food, Beverages & Tobacco)............. 7,018 96,842
Billiton PLC (Metals & Mining)................... 56,000 122,475
British Airways PLC (Airlines)................... 11,600 78,503
British American Tobacco PLC (Food, Beverages &
Tobacco)....................................... 7,500 68,799
British Petroleum Co. PLC (Oil-Services)......... 29,458 460,220
British Sky Broadcasting Group PLC (Broadcasting
& Publishing).................................. 19,700 162,909
British Telecommunications PLC
(Telecommunications)........................... 27,400 375,606
Burmah Castrol PLC (Oil-Production).............. 2,078 30,252
Cable & Wireless PLC (Telecommunications)........ 27,100 344,431
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)....................................... 9,500 $ 142,694
Compass Group PLC (Food, Beverages & Tobacco).... 10,600 111,802
Diageo PLC (Food, Beverages & Tobacco)........... 21,070 236,144
General Electric Co. PLC (Electrical
Equipment)..................................... 7,600 62,158
Glaxo Wellcome PLC (Pharmaceuticals)............. 20,000 632,840
Glynwed International PLC (Metals & Mining)...... 33,421 92,677
Great Universal Stores PLC (Retail).............. 16,200 168,594
Hanson PLC (Building Materials).................. 21,200 157,467
HSBC Holdings PLC (75p) (Banking)................ 12,000 324,838
Kingfisher PLC (Retail).......................... 16,900 161,234
Lloyds TSB Group PLC (Banking)................... 47,760 664,165
LucasVarity PLC (Automotive Supplies)............ 33,300 114,327
MEPC PLC (Real Estate)........................... 7,751 52,455
MFI Furniture Group PLC (Household Products)..... 54,892 30,806
National Power PLC (Electric).................... 17,990 153,223
Northern Rock PLC (Financial Services)........... 16,000 152,185
Nycomed Amersham PLC (Medical Supplies).......... 5,704 37,660
Ocean Group PLC (Transport & Services)........... 7,000 86,657
Pearson PLC (Broadcasting & Publishing).......... 6,000 107,949
Pilkington PLC (Building Materials).............. 71,000 76,175
PowerGen PLC (Electric).......................... 8,800 121,649
Premier Farnell PLC (Electronics)................ 12,500 37,139
Prudential Corp. PLC (Insurance)................. 13,700 199,901
Racal Electronic PLC
(Telecommunications-Equipment)................. 12,500 65,199
Rank Group PLC (Entertainment, Leisure &
Media)......................................... 14,600 54,704
Reed International PLC (Broadcasting &
Publishing).................................... 6,000 47,240
Royal & Sun Alliance Insurance Group PLC
(Insurance).................................... 27,500 229,681
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Royal Bank of Scotland Group PLC (Banking)....... 9,500 $ 143,165
Sainsbury (J.) PLC (Retail)...................... 24,307 203,615
Shell Transport & Trading Co. (Oil-Services)..... 12,700 76,618
Siebe PLC (Diversified Manufacturing)............ 12,700 45,751
SmithKline Beecham PLC (Pharmaceuticals)......... 26,600 326,661
Thomson Travel Group PLC (Transport &
Services)...................................... 15,300 36,871
TI Group PLC (Diversified Manufacturing)......... 8,200 46,696
Tomkins PLC (Multi - Industry)................... 35,700 165,583
Unilever PLC (Food, Beverages & Tobacco)......... 17,100 177,960
Vickers PLC (Capital Goods)...................... 16,166 46,963
Vodafone Group PLC (Telecommunications).......... 23,800 351,594
Zeneca Group PLC (Pharmaceuticals)............... 8,104 337,087
------------
8,371,265
------------
TOTAL COMMON STOCK (COST $24,113,057).......... 26,026,719
------------
</TABLE>
<TABLE>
<S> <C> <C>
PREFERRED STOCK (1.0%)
GERMANY (1.0%)
ProSieben Media AG (Broadcasting & Publishing)... 2,217 106,603
RWE AG (Utilities)............................... 2,800 96,879
Volkswagen AG (Automotive)....................... 1,489 76,177
------------
279,659
------------
TOTAL PREFERRED STOCK (COST $317,212).......... 279,659
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.1%)
TIME DEPOSITS--FOREIGN (1.2%)
State Street Bank Cayman Islands, 2.75% due
12/01/98 (Banking)............................. $340,000 340,000
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.9%)
United States Treasury Bills, 4.41% (y) due
02/04/99 (Government Obligations).............. $240,000 $ 237,813
------------
TOTAL SHORT-TERM INVESTMENTS (COST $577,813)... 577,813
------------
TOTAL INVESTMENTS (COST $25,008,082) (98.5%)................
26,884,191
OTHER ASSETS IN EXCESS OF LIABILITIES (1.5%)................
395,582
------------
NET ASSETS (100.0%)......................................... $ 27,279,773
------------
------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $25,092,455 for federal income tax
purposes at November 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $3,435,269 and $1,643,533, respectively, resulting in net
unrealized appreciation of $1,791,736. All securities, excluding the time
deposit, are fully or partially segregated with the custodian as collateral for
futures contracts or with broker as initial margin for future contracts. Total
market value of securities segregated is $10,548,764.
+ Non-income Producing Security
(y) - Yield to maturity.
SDR - Swedish Depository Receipt
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
PORTFOLIO
-----------------
<S> <C>
Banking........................................... 13.3%
Pharmaceuticals................................... 8.9%
Insurance......................................... 8.0%
Food, Beverages & Tobacco......................... 7.5%
Oil - Services.................................... 6.1%
Retail............................................ 5.7%
Utilities......................................... 5.6%
Telecommunication Services........................ 5.2%
Telecommunications................................ 4.8%
Financial Services................................ 4.3%
Electronics....................................... 2.8%
Chemicals......................................... 2.2%
Broadcasting & Publishing......................... 2.1%
Automotive Supplies............................... 1.9%
Electric.......................................... 1.8%
Building Materials................................ 1.7%
Automotive........................................ 1.6%
Electrical Equipment.............................. 1.6%
Medical Supplies.................................. 1.2%
Forest Products & Paper........................... 1.2%
Oil - Production.................................. 1.2%
Transport & Services.............................. 1.1%
Construction & Housing............................ 1.1%
Multi-Industry.................................... 1.0%
Machinery......................................... 0.9%
Government Obligations............................ 0.9%
Semiconductors.................................... 0.8%
Telecommunications - Equipment.................... 0.8%
Metals & Mining................................... 0.8%
Airlines.......................................... 0.7%
Household Products................................ 0.6%
Diversified Manufacturing......................... 0.6%
Computer Software................................. 0.5%
Capital Goods..................................... 0.5%
Apparels & Textiles............................... 0.3%
Business & Public Services........................ 0.3%
Entertainment, Leisure & Media.................... 0.2%
Real Estate....................................... 0.2%
-----------------
100.0%
-----------------
-----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $25,008,082 ) $26,884,191
Cash 304
Foreign Currency at Value (Cost $459,054 ) 456,444
Receivable for Investments Sold 278,756
Dividends and Interest Receivable 26,736
Unrealized Appreciation of Forward Foreign
Currency Contracts 14,723
Variation Margin Receivable 9,647
Receivable for Expense Reimbursement 8,145
Deferred Organization Expenses 5,741
Prepaid Administration Fees 528
Prepaid Trustees' Fees 21
Prepaid Expenses and Other Assets 283
-----------
Total Assets 27,685,519
-----------
LIABILITIES
Payable for Investments Purchased 299,802
Custody Fee Payable 46,420
Advisory Fee Payable 14,252
Unrealized Depreciation of Forward Foreign
Currency Contracts 8,422
Administrative Services Fee Payable 610
Fund Services Fee Payable 26
Accrued Expenses 36,214
-----------
Total Liabilities 405,746
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $27,279,773
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $103,387 ) $ 423,362
Interest Income (Net of Foreign Withholding Tax
of $262 ) 100,938
---------
Investment Income 524,300
EXPENSES
Advisory Fee $ 166,971
Professional Fees and Expenses 51,109
Custodian Fees and Expenses 43,482
Printing Expenses 8,301
Administrative Services Fee 7,380
Amortization of Organization Expense 3,979
Trustees' Fees and Expenses 1,756
Insurance Expense 1,112
Fund Services Fee 738
Administration Fee 468
---------
Total Expenses 285,296
Less: Reimbursement of Expenses (62,269)
---------
NET EXPENSES 223,027
---------
NET INVESTMENT INCOME 301,273
NET REALIZED LOSS ON
Investment Transactions (244,504)
Futures Contracts (70,556)
Foreign Currency Transactions (43,461)
---------
Net Realized Loss (358,521)
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments 31,960
Futures Contracts 22,641
Foreign Currency Contracts and Translations 12,659
---------
Net Change in Unrealized Appreciation 67,260
---------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 10,012
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE ELEVEN FOR THE FISCAL
MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 301,273 $ 8,744,873
Net Realized Gain (Loss) on Investments, Futures
and Foreign Currency Contracts and Transactions (358,521) 213,363,881
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations 67,260 (110,222,023)
----------------- -----------------
Net Increase in Net Assets Resulting from
Operations 10,012 111,886,731
----------------- -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 47,559,507 230,293,076
Withdrawals (35,281,967) (1,017,256,734)
----------------- -----------------
Net Increase (Decrease) from Investors'
Transactions 12,277,540 (786,963,658)
----------------- -----------------
Total Increase (Decrease) in Net Assets 12,287,552 (675,076,927)
NET ASSETS
Beginning of Period 14,992,221 690,069,148
----------------- -----------------
End of Period $ 27,279,773 $ 14,992,221
----------------- -----------------
----------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
FISCAL YEAR
FOR THE ENDED FOR THE PERIOD
ELEVEN DECEMBER MARCH 28, 1995
MONTHS ENDED 31, (COMMENCEMENT OF
NOVEMBER 30, ----------- OPERATIONS) THROUGH
1998 1997 1996 DECEMBER 31, 1995
------------ ---- ---- -------------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.87%(a) 0.88% 0.84% 0.90%(a)
Net Investment Income 1.17%(a) 1.47% 1.65% 1.67%(a)
Expenses without Reimbursement 1.11%(a) 0.89% 0.84% 0.90%(a)
Portfolio Turnover 99%(b) 65% 57% 36%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 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. At a
meeting on November 12, 1998, the trustees elected to change the portfolio's
fiscal year end from December 31 to November 30.
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
27
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 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 $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. At November 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/
PURCHASE CONTRACTS VALUE 11/30/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
Danish Krone 729,389, expiring 2/25/99........... $ 112,760 $ 113,719 $ 958
German Mark 1,555,554, expiring 2/25/99.......... 914,118 923,730 9,612
Swiss Franc 198,720 for Swedish Krona 1,166,089,
expiring 2/25/99................................ 144,330 144,060 (270)
Swiss Franc 227,496 for British Pound 99,862,
expiring 2/25/99................................ 164,267 164,920 653
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- ------------------------------------------------- ----------
<S> <C> <C> <C>
British Pound 55,712, expiring 2/25/99........... $ 91,449 $ 91,644 $ (195)
</TABLE>
28
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
German Mark 882,346, expiring 2/25/99............ 520,000 523,961 (3,961)
Norwegian Krone 766,032, expiring 2/25/99........ 101,488 101,962 (474)
Swedish Krona 1,961,424, expiring 2/25/99........ 243,178 242,771 407
Swiss Franc 68,121, expiring 2/25/99............. 48,955 49,384 (429)
--------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 6,301
--------------
--------------
</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 November 30, 1998, the portfolio had
open futures contracts as follows:
SUMMARY OF OPEN CONTRACTS AT NOVEMBER 30, 1998
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ PRINCIPAL AMOUNT
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
Dax Index, expiring December 1998................ 1 $ 33,242 $ 265,185
CAC 40 Index, expiring December 1998............. 13 (10,740) 451,527
IBEX Plus Index, expiring December 1998.......... 3 12,423 190,909
-------------- -------------- ----------------
Totals........................................... 17 $ 34,925 $ 907,621
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS SHORT DEPRECIATION OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
FTSE 100 Index, expiring December 1998........... 5 $ 12,284 $ 467,317
--------------- -------------- ----------------
--------------- -------------- ----------------
</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
29
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 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) Prior to October 1, 1998, the portfolio had an Investment Advisory
Agreement with Morgan Guaranty Trust Company of New York ("Morgan"), a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan").
Under the terms of the agreement, the portfolio paid Morgan at an annual
rate of 0.65% 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 eleven months ended November 30, 1998, such fees
amounted to $166,971.
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 eleven months ended November 30, 1998, the
fee for these services amounted to $468.
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 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 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 eleven months ended November 30, 1998, the fee for
these services amounted to $7,380.
In addition, J.P. 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 eleven months ended November 30, 1998,
J.P. Morgan has agreed to reimburse the portfolio $62,269 for expenses
under this agreement. This reimbursement arrangement can be changed or
terminated at any time after April 30, 1999 at the option of J.P. Morgan.
30
<PAGE>
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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 $738 for the eleven months ended November 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 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 $160.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the eleven months
ended November 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- -----------
<S> <C>
$36,267,942....... $25,442,784
</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.
5. OTHER MATTERS
On December 12, 1997, the portfolio received a withdrawal request in the amount
of $472,588,477. This amount is included in Withdrawals shown on the Statement
of Changes in Net Assets. The withdrawal which was made in-kind by transferring
certain assets and liabilities, including securities, directly to a non-U.S.
fund resulted in a net realized gain on transfer of the securities in the amount
of $97,478,979.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The European Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The European Equity Portfolio (one of the
portfolios comprising part of The Series Portfolio, hereafter referred to as the
"portfolio") at November 30, 1998, the results of its operations for the eleven
months then ended, the changes in its net assets for the eleven months then
ended and for the year ended December 31, 1997 and the supplementary data for
the eleven months then ended, for each of the two years ended December 31, 1997
and for the period March 28, 1995 (commencement of operations) through December
31, 1995, in conformity with generally accepted accounting principles. These
financial statements and supplementary data (hereafter referred to as "financial
statements") are the responsibility of the portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
November 30, 1998 by correspondence with the custodians and brokers provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
January 19, 1999
32
