[front cover]
J.P. Morgan
European Equity Fund
Annual Report
November 30, 2000
LETTER TO THE SHAREHOLDERS
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January 8, 2001
Dear Shareholder,
It was a difficult year for U.S. investors allocating money overseas.
Volatile European equity markets and global economic uncertainty pulled down
investment returns. For the twelve months ended November 30, 2000, the J.P.
Morgan European Equity Fund had a total return of -12.75%.
The Fund's benchmark index, the MSCI Europe Index, and peer group, as
measured by the Lipper European Region Funds Average, also finished in negative
territory. The Fund's benchmark had a total return of -5.52% for the twelve
months ended November 30, 2000, while the Fund's peer group had a total return
of -1.71% for the same time period.
The Fund's net asset value on November 30, 2000, was $14.68 per share,
decreasing from $17.06 per share, after paying dividends of approximately $0.21
per share, including approximately $0.10 in current income and approximately
$0.11 in long-term capital gains over the twelve month period. The Fund's net
assets were approximately $10 million on November 30, while the total net assets
of The European Equity Portfolio, in which the Fund invests, totaled $18
million.
This report includes an interview with Nigel Emmett, a member of The
European Equity Portfolio management team. Nigel discusses the European equity
markets in detail, and explains the factors that influenced Fund performance
during the fiscal year. Nigel also provides insight in regard to positioning the
Portfolio for the coming months.
As chairman and president of Asset Management Services, we thank you for
investing with J.P. Morgan. Should you have any comments or questions, please
contact your Morgan representative, or call J.P. Morgan Funds Services at (800)
521-5411.
Sincerely yours,
/signature/ /signature/
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
TABLE OF CONTENTS
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Letter to the Shareholders 1
Fund Performance 2
Portfolio Manager Q&A 3
Fund Facts & Highlights 5
Financial Statements 6
1
FUND PERFORMANCE
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EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance.
One way is to look at the growth of a hypothetical investment. The chart at
right shows that $10,000 invested on February 29, 1996,* would have increased
to $16,315 on November 30, 2000.
Another way is to review a fund's average annual total return. This
calculation takes the Fund's actual return and shows what would have happened if
the Fund had achieved that return by performing at a constant rate each year.
Average annual total returns represent the average yearly change of a fund's
value over various time periods, typically one, five, and ten years (or since
inception). Total returns for periods of less than one year are not annualized
and provide a picture of how a fund has performed over the short-term.
GROWTH OF $10,000 SINCE FUND INCEPTION*
February 29, 1996-November 30, 2000
[data from line chart]
MSCI Europe Index** $18,672
Lipper European Region Funds Average** $18,232
J.P. Morgan European Equity Fund $16,315
PERFORMANCE
TOTAL AVERAGE ANNUAL
RETURNS TOTAL RETURNS
------------ --------------------------------
ONE THREE SINCE
YEAR YEARS INCEPTION*
AS OF NOVEMBER 30, 2000
J.P. Morgan European Equity Fund (12.75)% 5.68% 10.86%
MSCI Europe Index** (5.52)% 9.79% 14.05%
Lipper European Region Funds Average** (1.71)% 10.52% 13.30%
AS OF SEPTEMBER 30, 2000
J.P. Morgan European Equity Fund 1.64% 7.34% 13.32%
MSCI Europe Index** 5.46% 10.22% 15.78%
Lipper European Region Funds Average** 19.46% 11.22% 15.75%
* The J.P. Morgan European Equity Fund's returns include returns of the J.P.
Morgan Institutional European Equity Fund from February 29, 1996 through
May 13, 1996 (the Fund's inception). The Fund's returns since inception is
10.72%.
** The MSCI Europe Index is an unmanaged index which measures European stock
market performance. It does not include fees or operating expenses and is not
available for actual investment. Lipper Analytical Services, Inc. is a leading
source for mutual fund data.
Past performance is no guarantee of future results. Fund returns are net of
fees, assume the reinvestment of dividends and reflect the reimbursement of
expenses as described in the prospectus. Had expenses not been subsidized,
returns would have been lower.
2
PORTFOLIO MANAGER Q&A
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[photo of Nigel F. Emmett]
The following is an interview with NIGEL F. EMMETt, vice president and
portfolio manager with J.P. Morgan Investment Management's International Equity
Group since joining Morgan in 1997. Nigel earned a B.A. degree in economics
from Manchester University, and is the holder of a CFA designation. This
interview was conducted on December 15, 2000, and reflects Nigel's views on
that date.
HOW WOULD YOU CHARACTERIZE THE EUROPEAN EQUITY MARKETS DURING THE 12-MONTHS
ENDED NOVEMBER 30, 2000?
The first half was distinguished by economic growth, optimism, and the
outperformance of new economy stocks. During much of the second half, however,
the opposite was true. New economy stocks dropped deeply out of favor, and there
was a much greater focus on some of the previously neglected value names. Toward
the end of the period, we also saw signs of a U.S. slowdown, which, in turn,
spread to much of the rest of the world, including Europe.
The market was impacted negatively as well by a consistently weak euro over
much of this period. Although there was a small rally as this reporting period
came to a close, the euro was still well down over the 12-months. While a
cheaper currency helped large volume exporters, by making their goods cheaper to
produce relative to the U.S., it hampered much of the rest of the market,
particularly those companies that had to translate euro-denominated revenues
into dollars.
HOW DID THE PORTFOLIO PERFORM OVER THIS PERIOD?
Over the 12-months, the portfolio underperformed both its benchmark and the
competition. We added some value from currency management by underweighting the
euro earlier in the year, when it was declining, and then overweighing it at
the middle of the period, when the euro strengthened relative to the dollar.
Performance attributable to country allocation was roughly neutral, although we
benefited from being overweight the U.K., relative to continental Europe, near
the end of the period. What contributed most to underperformance was stock
selection.
WHICH COMPANIES HELPED PERFORMANCE THE MOST?
A stock that continued to outperform its sector over most of this period was
Philips, the Dutch electronics giant. It benefited from a very well managed
business, robust sales growth, favorable currency exposure, and a broad
catalogue of profitable products.
Elsewhere, in the banking sector, our overweight in Woolwich helped
performance. This stock was helped by investor enthusiasm when Barclays acquired
Woolwich last summer.
Our decision to underweight British Telecom also helped over the full 12
months. The company's stock underperformed due to investor concerns about its
relatively high valuation and pricing pressure within traditional fixed-line
operations, both at the residential and business levels. Investors were also
wary about British Telecom's need to raise substantial additional capital in
order to continue its overseas expansion plans.
Schering, the German pharmaceutical company, helped performance over this
period, as well. The stock gained from the company's higher-than-expected
sales, which were derived partly from acquisitions, and partly from new products
going to market sooner than most investors anticipated.
WHICH STOCKS LAGGED OVER THE PAST 12 MONTHS?
Our exposure to new economy stocks was particularly detrimental to the
portfolio, especially during the second half.
In this regard, a stock that underperformed was KTN, the Dutch telecom
company. KTN was hurt by a concentration in mobile telecom, and by a need to
raise additional capital to continue its roll-out of that business. These issues
aside, we think KTN is one of the most attractive telecom companies in
continental Europe. We continue to like its business model and feel the
company's shares are more reasonably priced than other European telecoms.
Also in the U.K., and within the telecom sector, a stock that detracted
from performance over this period was Cable & Wireless. Being more of a data
carrier/Internet play, its stock declined when this
3
PORTFOLIO MANAGER Q&A
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(Continued)
sector suffered a major global correction during the second half. For our
part, we favor the company's longer-term prospects, and believe it's very
attractively priced.
Another new economy stock that detracted from performance was UPC, a Dutch
owner/operator of European broadband networks. The company's stock declined
significantly over the period, due to concerns about financing requirements.
UPC's business plan calls for a continuous build-out and upgrade of its
networks, which requires new capital. While the overall market was very nervous
about UPC's ability to raise this new capital, we were less so, because we were,
and are, confident that its minority shareholders, such as Microsoft and
Motorola, will satisfy the company's present and future financing requirements.
Beyond these, a stock that hurt was the Bank of Scotland. It posted slightly
better than expected first half performance, but the bank's stock didn't perform
well during the latter half of the fiscal period. This was largely because
investors felt the bank was losing its strategic direction and might commit to
an overly expensive acquisition.
HAS THE EUROPEAN MARKET BEEN AS VOLATILE AS THE U.S. MARKET OVER THIS PERIOD?
Yes. In fact, it's been more volatile than the United States. The Morgan
Stanley Capital International (MSCI) Europe Index, our benchmark, was down
almost 6% for the fiscal period. Most of this underperformance occurred during
the period's second half shift from growth to value. In line with this, there
were dimming expectations for growth next year, with investors taking a
jaundiced view of companies that have costly capital needs. A good deal of the
region's anemic dollar-denominated return was also attributable to the weakness
of the euro relative to the dollar throughout the period.
HOW DO YOU EXPECT EUROPEAN MARKETS TO PERFORM NEXT YEAR?
Performance will be driven by a number of future developments. Among those
that would help would be continued strength in domestic demand. Among those that
would not help would be unsatisfactory results from exporters as they adjust to
a strengthening euro. Of course, a good deal of future performance depends on
developments within the U.S. economy. If the U.S. economy has a soft landing,
almost everyone, everywhere, is going to benefit. If not, and a hard landing
ensues, then all markets will decline, at least temporarily.
With this qualification, we continue to think that the euro is attractive,
with good upside potential going forward. We also expect to see better economic
growth next year from the European markets, than from the U.S. markets, in spite
of the likelihood that the European Central Bank will raise interest rates
slightly next year.
LASTLY, IF NEW INVESTORS WERE TO ASK YOU WHY THEY SHOULD PUT THEIR MONEY IN THIS
PORTFOLIO, AT THIS POINT IN TIME, HOW WOULD YOU REPLY?
First of all, from the perspective of a potential investor in the region,
our analysis indicates that European equities are more attractively priced than
their U.S. counterparts, and thus have more upside potential. Keep in mind that
many continental European companies are still in the early stages of
restructuring and have yet to reap the consequent benefits.
In this regard, we would expect to see further liberalization in the
European market and further margin growth going forward.
Why this portfolio? Because, increasingly, the way to make money is to be
in the companies with fundamentally strong business franchises, good
management, good financials, and the ability to produce growth over the medium-
to longer-term. To decide which are the best companies, however, you have to be
able to judge them side-by-side, on a global playing field, something that most
investors lack the resources to do. We, on the other hand, employ nearly 70
analysts worldwide. Their sole responsibility is to identify the best companies
in each industry, at the best share prices relative to their return potential
over time. I am confident that we can continue to do so in the months and years
ahead.
4
FUND FACTS
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INVESTMENT OBJECTIVE
J.P. Morgan European Equity Fund seeks to provide a high total return from a
portfolio of european equity securities. It is designed for investors who want
an actively managed portfolio of European equity securities that seeks to
outperform the MSCI Europe Index, which is comprised of more than 500 companies
in 14 European countries. As an international investment, the Fund is subject
to foreign market, political and currency risks.
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Commencement of Investment Operations:
5/13/1996
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Fund Net Assets as of 11/30/2000: $10,267,255
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Portfolio Net Assets as of 11/30/2000:
$18,064,200
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Dividend Payable Date
(if applicable): 12/20/2000
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Capital Gain Payable Date
(if applicable): 12/20/2000
EXPENSE RATIOS
The Fund's current annual expense ratio of 1.50% covers shareholders'
expenses for custody, tax reporting, investment advisory, and shareholder
services, after reimbursement. The Fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for buying,
selling or safekeeping fund shares, or for wiring redemption proceeds from the
Fund.
FUND HIGHLIGHTS
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All data as of November 30, 2000
PORTFOLIO ALLOCATION
(As a percentage of total investment securities)
[data from pie chart]
United Kingdom 31.7%
Switzerland 14.0%
France 13.8%
Germany 11.0%
Netherlands 8.9%
Spain 5.7%
Italy 5.3%
Finland 3.7%
Sweden 2.9%
Ireland 1.4%
Denmark 0.8%
United States 0.5%
Belgium 0.3%
LARGEST EQUITY % OF TOTAL
HOLDINGS COUNTRY INVESTMENTS
- --------------------------------------------------------------------------------
Vodafone Group Plc United Kingdom 5.0%
Glaxo Wellcome Plc United Kingdom 3.7%
BP Amoco Plc United Kingdom 2.9%
Nokia Oyj Finland 2.7%
Allianz AG Germany 2.6%
Nestle S.A. Switzerland 2.6%
Total Fina Elf S.A. France 2.5%
HSBC Holdings Plc United Kingdom 2.4%
Zurich Financial Services AG Switzerland 2.3%
Novartis AG Switzerland 2.3%
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT, INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT INSURED BY THE FDIC,
ARE NOT BANK DEPOSITS OR OTHER OBLIGATIONS OF THE FINANCIAL INSTITUTION AND ARE
NOT GUARANTEED BY THE FINANCIAL INSTITUTION. SHARES OF THE FUND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED. WHILE THE
FUND SEEKS TO MAINTAIN A STABLE ASSET VALUE OF $1.00 PER SHARE, IT IS POSSIBLE
TO LOSE MONEY BY INVESTING IN THIS FUND.
References to specific securities and their issuers are for illustrative
purposes only and are not intended to be, and should not be interpreted as,
recommendations to purchase or sell securities. Opinions expressed herein and
other Fund data presented are based on current market conditions and are
subject to change without notice. The Fund invests in foreign securities which
involve special risks including economic and political instability and currency
fluctuations; prospective investors should refer to Fund's prospectus for
discussion of these risks. The Fund invests through a master portfolio (another
Fund with the same objective).
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
5
J.P. MORGAN EUROPEAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
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NOVEMBER 30, 2000
ASSETS
Investment in The European Equity Portfolio
("Portfolio"), at value $10,256,667
Receivable for Expense Reimbursements 7,606
Receivable for Shares of Beneficial Interest Sold 3,101
Prepaid Expenses and Other Assets 58,056
-------------
TOTAL ASSETS 10,325,430
-------------
LIABILITIES
Payable for Shares of Beneficial Interest Redeemed 9,897
Shareholder Servicing Fee Payable 2,445
Administrative Services Fee Payable 233
Accrued Expenses and Other Liabilities 45,600
-------------
TOTAL LIABILITIES 58,175
-------------
NET ASSETS
Applicable to 699,208 Shares of Beneficial Interest Outstanding
(par value $0.001, unlimited shares authorized) $10,267,255
=============
Net Asset Value, Offering and Redemption Price Per Share $14.68
=============
ANALYSIS OF NET ASSETS
Paid-in Capital $9,854,898
Distributions in Excess of Net Investment Income (67,904)
Accumulated Net Realized Loss on Investment (276,478)
Net Unrealized Appreciation on Investment 756,739
-------------
NET ASSETS $10,267,255
=============
6 The Accompanying Notes are an Integral Part of the Financial Statements.
J.P. MORGAN EUROPEAN EQUITY FUND
STATEMENT OF OPERATIONS
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FOR THE YEAR ENDED NOVEMBER 30, 2000
INVESTMENT INCOME
INCOME
Allocated Investment Income from Portfolio $ 235,003
Allocated Portfolio Expenses (136,428)
-----------------
Investment Income 98,575
-----------------
FUND EXPENSES
Financial and Fund Accounting Services Fee 42,742
Shareholder Servicing Fee 34,048
Transfer Agent Fees 28,396
Registration Fees 14,661
Professional Fees 14,415
Printing Expenses 10,128
Administrative Services Fee 3,307
Fund Services Fee 216
Administration Fee 150
Trustees' Fees and Expenses 138
Miscellaneous 6,745
------------------
Total Fund Expenses 154,946
Less: Reimbursement of Expenses (86,591)
------------------
Net Fund Expenses 68,355
------------------
NET INVESTMENT INCOME 30,220
------------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM PORTFOLIO (306,714)
------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
ON INVESTMENT ALLOCATED FROM PORTFOLIO (915,109)
------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,191,603)
==================
The Accompanying Notes are an Integral Part of the Financial Statements. 7
J.P. MORGAN EUROPEAN EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30
INCREASE (DECREASE) IN NET ASSETS 2000 1999
FROM OPERATIONS
Net Investment Income $ 30,220 $ 77,031
Net Realized Gain (Loss) on Investment Allocated from Portfolio (306,714) 267,376
Net Change in Unrealized Appreciation (Depreciation)
on Investment Allocated from Portfolio (915,109) 1,265,048
------------------- -----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (1,191,603) 1,609,455
------------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (76,970) (192,325)
Net Realized Gain - (9,673)
In Excess of Net Realized Gain (87,783) (58,137)
------------------- -----------------
Total Distributions to Shareholders (164,753) (260,135)
------------------- -----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 57,135,998 7,234,203
Reinvestment of Distributions 146,850 223,008
Cost of Shares of Beneficial Interest Redeemed (58,920,755) (10,446,563)
------------------ ------------------
Net Decrease from Transactions in Shares of
Beneficial Interest (1,637,907) (2,989,352)
------------------ ------------------
Total Decrease in Net Assets (2,994,263) (1,640,032)
------------------ ------------------
NET ASSETS
Beginning of Year 13,261,518 14,901,550
------------------- ------------------
End of Year $10,267,255 $13,261,518
=================== =================
Undistributed Net Investment Income - $68,468
=================== =================
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Shares of Beneficial Interest Sold 3,381,015 446,971
Shares of Beneficial Interest Reinvested 8,259 14,808
Shares of Beneficial Interest Redeemed (3,467,485) (650,449)
------------------- -----------------
Net Decrease in Shares of Beneficial Interest (78,211) (188,670)
=================== =================
8 The Accompanying Notes are an Integral Part of the Financial Statements.
J.P. MORGAN EUROPEAN EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD ARE AS FOLLOWS:
FOR THE PERIOD
FOR THE MAY 13, 1996
YEARS ENDED FOR THE ELEVEN FOR THE FISCAL (COMMENCEMENT OF
NOVEMBER 30 MONTHS ENDED YEAR ENDED OPERATIONS) THROUGH
2000 1999 NOVEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD $17.06 $15.42 $13.35 $11.61 $10.00
----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.09) 0.17 0.12 0.10 0.01
Net Realized and Unrealized Gain
(Loss) on Investment (2.08) 1.74 1.95 2.45 1.60
----------------------------------------------------------------------------
Total From Investment Operations (2.17) 1.91 2.07 2.55 1.61
----------------------------------------------------------------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.10) (0.20) - (0.07) -
Net Realized Gain - (0.01) - (0.74) -(d)
In Excess Net Realized Gain (0.11) (0.06) - 0.00 -
----------------------------------------------------------------------------
Total Distributions to Shareholders (0.21) (0.27) - (0.81) -(d)
----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $14.68 $17.06 $15.42 $13.35 $11.61
============================================================================
RATIOS AND SUPPLEMENTAL DATA
Total Return (12.75)% 12.61% 15.51%(a) 22.10% 16.10%(a)
Net Assets, End of Year (in thousands) $10,267 $13,262 $14,902 $4,832 $2,072
Ratios to Average Net Assets
Net Expenses 1.50% 1.48% 1.42%(b) 1.42% 1.42%(b)
Net Investment Income 0.22% 0.57% 0.91%(b) 0.91% 0.29%(b)
Expenses without Reimbursement 2.13% 2.38% 2.03%(b) 3.78% 2.50%(c)
(a) Not annualized
(b) Annualized
(c) After consideration of certain state limitations
(d) Less than $0.005
The Accompanying Notes are an Integral Part of the Financial Statements. 9
J.P. MORGAN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
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NOVEMBER 30, 2000
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1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--J.P. Morgan European Equity Fund (the "Fund'') is a separate
series of the J.P. Morgan Funds, a Massachusetts business trust (the "Trust'')
which was organized on November 4, 1992. The trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund commenced operations on May 13, 1996.
The Fund invests all of its investable assets in The European Equity
Portfolio (the "Portfolio''), a diversified open-end management investment
company having the same investment objective as the Fund. The value of such
investment included in the Statement of Assets and Liabilities reflects the
Fund's proportionate interest in the net assets of the Portfolio (approximately
56.7% at November 30, 2000). The performance of the Fund is directly affected by
the performance of the Portfolio. The financial statements of the Portfolio,
including the Schedule of Investments, are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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 Fund:
SECURITY VALUATION--Valuation of securities by the Portfolio is discussed in
Note 1 of the Portfolio's Notes to Financial Statements that are included
elsewhere in this report.
INVESTMENT INCOME--The Fund earns income, net of expenses, daily on its
investment in the Portfolio. All net investment income, realized and unrealized
gains and losses of the Portfolio is allocated pro-rata among the Fund and
other investors in the Portfolio at the time of such determination.
EXPENSES--Expenses incurred by the Trust with respect to any two or more
Funds in the Trust are allocated in proportion to the net assets of each Fund in
the Trust, except where allocations of direct expenses to each Fund can
otherwise be made fairly.
ORGANIZATION EXPENSES--The Fund incurred organization expenses in the amount
of $5,800 which have been deferred and have been amortized on a straight-line
basis over a period not to exceed five years beginning with the commencement of
operations of the Fund.
INCOME TAX STATUS--It is the Fund's policy to distribute all net investment
income and net realized gains to shareholders and to otherwise qualify as a
regulated investment company under the provisions of the Internal Revenue Code.
Accordingly, no provision has been made for federal or state income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to a shareholder are recorded
on the ex-dividend date. Distributions from net investment income and
distributions from net realized gains, if any, are paid annually.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
ADMINISTRATIVE SERVICES--The Trust has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan") under which Morgan is responsible for certain aspects of the
administration and operation of the Fund. Under the Services Agreement, the
Trust 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 Trust and certain other registered investment companies
for which J.P. Morgan Investment Management, Inc. ("JPMIM") acts as investment
advisor 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 Funds Distributor, Inc. The portion of this charge payable by the
Fund is determined by the proportionate share that its net assets bear to the
net assets of the Trust and certain other investment companies for which Morgan
provides similar services.
Morgan has agreed to reimburse the Fund to the extent the total operating
expenses (excluding interest, taxes and extraordinary expenses) of the Fund,
including the expenses allocated to the Fund from the Portfolio, exceed 1.50% of
the Fund's average daily net assets through February 28, 2001.
ADMINISTRATION--The Trust has retained Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, to serve as the co-administrator and distributor for
the Fund. Under a Co-Administration Agreement between FDI and the Trust, FDI
provides administrative services necessary for the operations of the Fund,
furnishes office space and facilities required for conducting the business of
the Fund
10
J.P. MORGAN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Continued)
NOVEMBER 30, 2000
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
and pays the compensation of the Fund's officers affiliated with FDI. The
Fund 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 portion
of this charge payable by the Fund is determined by the proportionate share that
its net assets bear to the net assets of the Trust and certain other investment
companies for which FDI provides similar services.
SHAREHOLDER SERVICING--The Trust has a Shareholder Servicing Agreement with
Morgan under which Morgan provides account administration and personal account
maintenance service to Fund shareholders. The agreement provides for the Fund to
pay Morgan a fee for these services that is computed daily and paid monthly at
an annual rate of 0.25% of the average daily net assets of the Fund.
Morgan, Charles Schwab & Co. ("Schwab") and the Trust are parties to
separate services and operating agreements (the "Schwab Agreements") whereby
Schwab makes Fund shares available to customers of investment advisors and other
financial intermediaries who are Schwab's clients. The Fund is not responsible
for payments to Schwab under the Schwab Agreements; however, in the event the
services agreement with Schwab is terminated for reasons other than a breach by
Schwab and the relationship between the Trust and Morgan is terminated, the
Fund would be responsible for the ongoing payments to Schwab with respect to
pre-termination shares.
FUND SERVICES--The Trust has a Fund Services Agreement with Pierpont Group,
Inc. ("PGI") to assist the Trustees in exercising their overall supervisory
responsibilities for the Trust's affairs. The Trustees of the Trust represent
all the existing shareholders of PGI.
TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for
serving on the boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, and other registered investment companies in which they
invest. The trustees' fees and expenses shown in the financial statements
represent the Fund's allocated portion of the total Trustees' fees and
expenses. The Trust's Chairman and Chief Executive Officer also serves as
Chairman of PGI and receives compensation and employee benefits from PGI. The
allocated portion of such compensation and benefits included in the Fund
Services Fee shown on the Statement of Operations was $39.
- --------------------------------------------------------------------------------
3. FEDERAL INCOME TAXES
For Federal income tax purposes, the Fund utilized its capital loss
carryforward of $22,137.
The Fund elected to treat net capital losses of approximately $396,565,
foreign currency losses of $50,645 and Passive Foreign Investment Company losses
of $15,048 incurred in the one month period ended November 30, 2000 as having
been incurred in the next taxable year.
Income distributions and capital gain distributions, if any, are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to the
differing treatment of net operating losses, foreign currency and tax
allocation. Accordingly, these permanent differences in the character of income
and distributions between financials statements and tax basis have been
reclassified to paid-in-capital. During the year ended November 30, 2000, the
following reclassifications were made: Accumulated Net Realized Loss was
decreased by $167,362 while Undistributed Net Investment Income and Paid-in
Capital were decreased by $89,622 and $77,740 respectively.
- --------------------------------------------------------------------------------
4. BANK LOANS
The Fund may borrow money for temporary or emergency purposes, such as
funding shareholder redemptions. Effective May 23, 2000, the Fund, along with
certain other Funds managed by JPMIM, entered into a $150,000,000 bank line of
credit agreement with DeutscheBank. Borrowings under the agreement will bear
interest at approximate market rates. A commitment fee is charged at an annual
rate of 0.085% on the unused portion of the committed amount.
- --------------------------------------------------------------------------------
5. CONCENTRATIONS OF RISK
From time to time, the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund.
11
J.P. MORGAN EUROPEAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Continued)
NOVEMBER 30, 2000
- --------------------------------------------------------------------------------
6. SUBSEQUENT EVENT
The merger of J.P. Morgan & Co. Incorporated, the former parent company of
the Fund's adviser, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and
into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P.
Morgan Chase & Co. will be the new parent company of JPMIM, which will
continue to serve as the Fund's adviser.
12
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
J.P. Morgan European Equity Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
J.P. Morgan European Equity Fund (one of the series constituting part of J.P.
Morgan Funds, hereafter referred to as the "Fund") at November 30, 2000, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the two years in the period then ended, for the eleven
months ended November 30, 1998, for the year ended December 31, 1997 and for
the period May 13, 1996 (commencement of operations) through December 31, 1996,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund'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 auditing standards generally accepted in the
United States of America, 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 provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
January 16, 2001
13
THE EUROPEAN EQUITY PORTFOLIO
Annual Report November 30, 2000
(The following pages should be read in conjunction with J.P. Morgan European
Equity Fund Annual Financial Statements)
14
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
NOVEMBER 30, 2000
SHARES VALUE
- --------------------------------------------------------------------------------------------
COMMON STOCKS - 99.0%
BELGIUM - 0.3%
2,493 Agfa Gevaert NV(s) $ 59,678
-----------------------------
DENMARK - 0.8%
730 Novo Nordisk A/S Cl B(s) 141,456
-----------------------------
FINLAND - 3.7%
11,546 Nokia Oyj(s) 483,932
4,849 Sonera Oyj(s) 92,818
8,724 Stora Enso Oyj R Shares(s) 86,118
-----------------------------
662,868
-----------------------------
FRANCE - 13.8%
885 Alcatel Optronics(s)(+) 44,604
6,822 Alcatel S.A.(s) 338,487
3,039 Aventis S.A.(s) 238,480
967 Axa(s) 135,521
1,643 BNP Paribas S.A.(s) 127,001
2,082 Carrefour S.A.(s) 125,504
2,321 Christian Dior S.A.(s) 103,746
2,391 Fimatex(s)(+) 19,731
1,149 Genset S.A.(s) 54,509
696 Groupe Danone(s) 92,513
1,141 Lafarge S.A.(s) 85,664
1,262 Lagardere S.C.A.(s) 66,242
1,121 Renault S.A.(s) 53,571
616 Technip S.A.(s) 71,423
3,107 Total Fina Elf S.A. B Shares(s) 444,359
5,500 Vivendi Environnement(s) 227,411
3,828 Vivendi S.A.(s) 236,584
-----------------------------
2,465,350
-----------------------------
GERMANY - 10.5%
1,368 Allianz AG(s) 472,275
5,177 BASF AG(s) 195,354
4,092 Bayer AG(s) 178,989
614 Consors Discount-Broker AG(s)(+) 27,258
1,299 Deutsche Bank AG(s) 93,739
5,453 Deutsche Telekom AG(s) 171,403
3,568 Dresdner Bank AG(s) 131,874
3,080 E.ON AG(s) 174,269
680 Intershop Communications AG(s)(+) 19,350
1,756 Schering AG(s) 95,810
2,269 Siemens AG(s) 258,146
1,170 Volkswagen AG(s) 57,940
-----------------------------
1,876,407
-----------------------------
IRELAND - 1.4%
3,665 CRH Plc(s) 53,437
1,000 Fyffes Plc(s) 592
10,808 Irish Life & Permanent Plc(s) 118,071
SHARES VALUE
- --------------------------------------------------------------------------------------------
40,992 Smurfit (Jefferson) Group Plc(s) $ 65,299
2,202 Trintech Group Plc ADR(s)(+) 15,449
-----------------------------
252,848
-----------------------------
ITALY - 5.3%
18,321 Credito Emiliano Spa(s) 78,783
35,009 ENI Spa(s) 210,883
6,215 Mediolanum Spa(s) 74,658
10,888 Saipem Spa(s) 54,971
22,190 Telecom Italia Spa(s) 256,900
52,690 Unicredito Italiano Spa(s) 263,725
-----------------------------
939,920
-----------------------------
NETHERLANDS - 8.9%
1,572 ASM Lithography Holding NV(s)(+) 32,992
3,000 Heineken Holding NV(s) 109,027
4,206 ING Groep NV(s) 303,075
10,682 Koninklijke (Royal) Philips
Electronics NV(s) 353,433
3,111 Numico NV(s) 160,858
5,079 Royal Dutch Petroleum Co.(s) 304,616
16,875 Royal KPN NV(s) 227,389
3,631 United Pan-Europe Communication NV(s)(+) 41,089
1,290 VNU NV(s) 56,370
-----------------------------
1,588,849
-----------------------------
SPAIN - 5.7%
2,605 ACS, Actividades Construccion y
Servicios S.A.(s) 60,568
7,116 Amadeus Global Travel
Distribution S.A.(s)(+) 53,890
22,226 Banco Bilbao Vizcaya Argentaria S.A.(s) 297,172
18,943 Iberdrola S.A.(s) 226,728
24,296 Telefonica S.A.(s)(+) 381,740
-----------------------------
1,020,098
-----------------------------
SWEDEN - 2.9%
10,428 Ericsson LM Cl B(s) 119,055
18,987 Skandia Forsakrings AB(s) 289,661
9,656 Skandinaviska Enskilda Banken Cl A(s) 103,502
-----------------------------
512,218
-----------------------------
SWITZERLAND - 14.0%
669 ABB Ltd.(s) 60,895
67 Compagnie Financiere Richemont
AG A Units(s) 184,927
631 Credit Suisse Group(s) 109,965
216 Nestle S.A.(s) 469,132
256 Novartis AG(s) 415,311
34 Roche Holding AG(s) 336,905
48 SGS Societe Generale de Surveillance
Holding S.A.(s) 58,735
52 The Swatch Group AG B Shares(s) 59,915
2,844 UBS AG(s) 393,225
771 Zurich Financial Services AG(s) 415,748
-----------------------------
2,504,758
-----------------------------
The Accompanying Notes are an Integral Part of the Financial Statements. 15
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
- ---------------------------------------------------------------
NOVEMBER 30, 2000
SHARES VALUE
- --------------------------------------------------------------------------------------------
UNITED KINGDOM - 31.7%
3,425 3I Group Plc(s) $ 60,781
9,000 ARM Holdings Plc(s)(+) 56,130
1,690 Barclays Plc(s) 47,358
25,931 BG Group Plc(s) 105,213
14,652 Billiton Plc(s) 47,767
2,065 Bookham Technology Plc(s) 25,728
66,315 BP Amoco Plc(s) 515,575
4,000 British Airways Plc(s) 22,679
10,621 British SKY Broadcasting Plc(s)(+) 148,137
5,101 British Telecommunications Plc(s) 44,033
4,293 Cable & Wireless Plc(s) 53,062
2,171 Celltech Group Plc(s)(+) 35,542
34,297 Chubb Plc(s) 107,923
11,985 Gallagher Group Plc(s) 76,446
22,901 Glaxo Wellcome Plc(s) 667,716
11,939 Glynwed International Plc(s) 32,999
15,354 Granada Compass Plc(s)(+) 146,358
13,400 Hanson Plc(s) 72,651
12,400 Hays Plc(s) 61,517
13,000 Hilton Group Plc(s) 34,550
32,402 HSBC Holdings Plc(s) 426,668
4,776 Johnson Matthey Plc(s) 72,435
15,683 Lloyds TSB Group Plc(s) 149,605
1,579 Logica Plc(s) 31,356
7,055 Marconi Plc(s) 67,000
27,470 MFI Furniture Group Plc(s) 26,282
9,237 Nycomed Amersham Plc(s) 72,927
6,696 Pearson Plc(s) 149,771
17,267 QXL.com Ricardo Plc(s) 4,283
10,577 Reckitt Benckiser Plc(s) 134,330
4,450 Reuters Group Plc(s) 65,473
26,942 Royal & Sun Alliance Insurance Group Plc(s) 205,836
7,617 Royal Bank of Scotland Plc(s)(+) 156,551
17,925 ScottishPower Plc(s) 133,898
13,523 Severn Trent Plc(s) 144,335
16,172 SmithKline Beecham Plc(s) 210,775
4,124 Standard Chartered Plc(s) 53,457
58,392 Tesco Plc(s) 234,231
8,900 TI Group Plc(s) 49,451
259,008 Vodafone Group Plc(s) 885,694
-----------------------------
5,636,523
-----------------------------
TOTAL COMMON STOCKS 17,660,973
-----------------------------
(Cost $15,241,666)
PREFERRED STOCKS - 0.5%
GERMANY - 0.5%
355 MLP AG(s) 35,222
402 SAP AG(s) 52,579
-----------------------------
TOTAL PREFERRED STOCKS 87,801
-----------------------------
(Cost $79,385)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.5%
U.S. TREASURY SECURITIES - 0.5%
$100,000 U.S. Treasury Bill,
5.96%, 3/22/01(s)(y) $ 98,147
-----------------------------
(Cost $98,137)
TOTAL INVESTMENT SECURITIES - 100.0% $17,846,921
=============================
(Cost $15,419,188)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED
CONTRACTS SETTLEMENT CONTRACTUAL VALUE AT APPRECIATION
TO BUY DATE VALUE 11/30/00 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------
263,295 CHF 02/23/01 $ 150,000 $ 152,851 $ 2,851
2,270,134 EUR 02/23/01 1,951,539 1,983,798 32,259
190,000 GBP 02/23/01 272,147 269,833 (2,314)
765,027 NOK 02/23/01 81,149 82,381 1,232
3,217,816 SEK 02/23/01 317,652 322,790 5,138
------------------------------------------------------------------
$2,772,487 $2,811,653 $39,166
==================================================================
UNREALIZED
CONTRACTS SETTLEMENT SETTLEMENT VALUE AT APPRECIATION
TO SELL DATE VALUE 11/30/00 (DEPRECIATION)
1,386,794 CHF 02/23/01 $ 779,409 $ 805,079 $(25,670)
1,190,000 EUR 02/23/01 1,027,888 1,039,904 (12,016)
575,506 EUR 12/04/00 500,000 500,963 (963)
460,000 GBP 02/23/01 653,960 653,279 681
605,520 SEK 02/23/01 60,000 60,742 (742)
------------------------------------------------------------------
$3,021,257 $3,059,967 $(38,710)
==================================================================
FUTURES CONTRACTS
UNDERLYING FACE UNREALIZED
PURCHASED EXPIRATION DATE AMOUNT AT VALUE APPRECIATION
- ------------------------------------------------------------------------------------------
2 FTSE 100 Index December 2000 $174,217 $940
=========================================
16 The Accompanying Notes are an Integral Part of the Financial Statements.
THE EUROPEAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
(Continued)
NOVEMBER 30, 2000
MARKET SECTOR % OF TOTAL INVESTMENTS
FINANCE 16.7%
INDUSTRIAL CYCLICAL 15.0%
PHARMACEUTICALS 12.4%
TELECOMMUNICATIONS 12.1%
INSURANCE 8.9%
ENERGY 8.3%
CONSUMER STABLE 5.8%
SOFTWARE & SERVICES 5.1%
CONSUMER CYCLICAL 4.0%
UTILITIES 3.6%
CONSUMER SERVICES 3.3%
RETAIL 3.2%
SEMICONDUCTORS 1.0%
SHORT-TERM INVESTMENTS 0.5%
CAPITAL MARKETS 0.1%
ADR - American Depositary Receipt
CHF - Swiss Franc
EUR - Euro
GBP - British Pound
NOK - Norwegian Krone
SEK - Swedish Krona
(s) Security is fully or partially segregated with custodian as collateral for
futures
or with brokers as initial margin for futures contracts.
(y) Yield to maturity
(+) Non-income producing security
The Accompanying Notes are an Integral Part of the Financial Statements. 17
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
NOVEMBER 30, 2000
ASSETS
Investments at Value (Cost $15,419,188) $17,846,921
Receivable for Investments Sold 4,838,652
Foreign Currency at Value (Cost $42,623) 42,997
Unrealized Appreciation of Forward Foreign Currency Contracts 42,161
Foreign Tax Reclaim Receivable 29,208
Dividend and Interest Receivable 22,272
Receivable for Expense Reimbursement 7,423
Variation Margin Receivable 1,833
Prepaid Expenses and Other Assets 90
-------------
TOTAL ASSETS 22,831,557
-------------
LIABILITIES
Payable for Investments Purchased 4,293,035
Due to Custodian 351,555
Unrealized Depreciation of Forward Foreign Currency Contracts 41,705
Advisory Fee Payable 10,671
Administrative Services Fee Payable 391
Accrued Expenses and Other Liabilities 70,000
-------------
TOTAL LIABILITIES 4,767,357
-------------
NET ASSETS
Applicable to Investors' Beneficial Interests $18,064,200
=============
18 The Accompanying Notes are an Integral Part of the Financial Statements.
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 2000
INVESTMENT INCOME
INCOME
Dividend Income (Net of Foreign Withholding Tax of $60,554) $ 366,220
Interest Income 53,812
------------------
Investment Income 420,032
------------------
EXPENSES
Advisory Fee 158,680
Custodian Fees and Expenses 142,609
Professional Fee 50,090
Printing Expenses 10,084
Administrative Services Fee 5,929
Organization Expenses 1,392
Fund Services Fee 384
Trustees' Fees and Expenses 274
Administration Fee 172
Miscellaneous 230
------------------
Total Expenses 369,844
Less: Reimbursement of Expenses (124,861)
------------------
Net Expenses 244,983
------------------
NET INVESTMENT INCOME 175,049
------------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED LOSS ON
Investment Transactions (171,175)
Futures Contracts (4,789)
Foreign Currency Transactions (277,213)
-------------------
Net Realized Loss (453,177)
-------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON
Investment Transactions (1,915,100)
Futures Contracts (6,026)
Foreign Currency Contracts and Translations 20,211
------------------
Net Change in Unrealized Appreciation (Depreciation) (1,900,915)
------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,179,043)
==================
The Accompanying Notes are an Integral Part of the Financial Statements. 19
THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30
INCREASE (DECREASE) IN NET ASSETS 2000 1999
FROM OPERATIONS
Net Investment Income $ 175,049 $ 222,515
Net Realized Gain (Loss) on Investments, Futures, and
Foreign Currency Transactions (453,177) 440,485
Net Change in Unrealized Appreciation on Investments, Futures
and Foreign Currency Contracts and Translations (1,900,915) 2,408,676
------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (2,179,043) 3,071,676
------------------ ------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 59,216,973 14,558,410
Withdrawals (64,403,587) (19,480,002)
------------------ ------------------
Net Decrease from Transactions in
Investors' Beneficial Interests (5,186,614) (4,921,592)
------------------ ------------------
Total Decrease in Net Assets (7,365,657) (1,849,916)
------------------ ------------------
NET ASSETS
Beginning of Year 25,429,857 27,279,773
------------------ ------------------
End of Year $18,064,200 $25,429,857
================== ==================
SUPPLEMENTARY DATA
FOR THE FOR THE PERIOD
ELEVEN MONTHS MARCH 28, 1995
FOR THE YEARS ENDED FOR THE YEARS (COMMENCEMENT OF
ENDED NOVEMBER 30 ENDED DECEMBER 31 DECEMBER 31, OPERATIONS) THROUGH
------------------- NOVEMBER 30, --------------------- December 31,
2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.00% 1.00% 0.87%(a) 0.88% 0.84% 0.90%(a)
Net Investment Income 0.72% 0.89% 1.17%(a) 1.47% 1.65% 1.67%(a)
Expenses without Reimbursement 1.51% 1.59% 1.11%(a) 0.89% 0.84% 0.90%(a)
Portfolio Turnover 86% 68% 99%(b) 65% 57% 36%(b)
(a) Annualized
(b) Not annualized
20 The Accompanying Notes are an Integral Part of the Financial Statements.
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOVEMBER 30, 2000
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--The European Equity Portfolio (the "Portfolio") is one of
five 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, diversified 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 preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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:
SECURITY VALUATIONS--Securities traded on principal securities exchanges are
valued at the last reported sales price, or mean of the latest bid and asked
prices when no last sales price is available. Securities traded
over-the-counter and certain foreign securities are valued at the quoted bid
price from a market maker or dealer. When valuations are not readily available,
securities are valued at fair value as determined in accordance with procedures
adopted by the 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 when 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 adopted by the Trustees.
REPURCHASE AGREEMENTS--The Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Trustees. The Portfolio's custodian (or designated subcustodians, as the case
may be under tri-party repurchase agreements) takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the Portfolio. It
is the policy of the Portfolio to mark-to-market the collateral on a daily basis
to determine that the value, including accrued interest, is at least equal to
the repurchase price plus accrued interest. In the event of default of the
obligation to repurchase, the Portfolio has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. In the
event of default or bankruptcy by the seller of the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the
trade date. Realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date or as of the time that the relevant
ex-dividend and amount becomes known. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
ORGANIZATION EXPENSES--The Portfolio incurred organization expenses in the
amount of $27,700 which have been deferred and have been amortized on a
straight-line basis over a period not to exceed five years beginning with the
commencement of operations of the Portfolio.
FUTURES CONTRACTS--The Portfolio may enter into futures contracts in order
to hedge 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 and to manage exposure to changing
interest rates and securities prices. The risks of entering into futures
contracts include the possibility that the change in value of the contract may
not correlate with the changes in value of the underlying securities. Upon
entering into a futures contract, the Portfolio is required to deposit either
cash or securities in an amount equal to a certain percentage of the contract
value (initial margin). Subsequent payments (variation margin) are made or
received daily, in cash, by the Portfolio. The variation margin is equal to the
daily change in the contract value and is recorded as unrealized gain or loss.
The Portfolio will recognize a gain or loss when the contract is closed or
expires.
FOREIGN CURRENCY TRANSACTIONS--All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. Realized
and unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates and are reported in the Statement of
Operations.
21
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Continued)
NOVEMBER 30, 2000
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 from changes in foreign
exchange rates from the fluctuations arising from changes in the market prices
of securities during the period.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Portfolio may enter into
forward foreign currency exchange contracts to facilitate transactions of
securities denominated in a foreign currency or to manage the Portfolio's
exposure to foreign currency exchange fluctuations or to adjust the Portfolio's
exposure relative to the benchmark. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the Portfolio and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The Portfolio bears the risk of an unfavorable
change in the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
INCOME TAX STATUS--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.
FOREIGN TAXES--The Portfolio may be subject to foreign taxes on income,
gains on investments or currency repatriation, a portion of which may be
recoverable. The Portfolio will accrue such taxes and recoveries as applicable,
based upon their current interpretation of tax rules and regulations that exist
in the markets in which they invest.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
ADVISORY--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.
The Portfolio may invest in one or more affiliated money market funds: J.P.
Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax
Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund
and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed
to reimburse its advisory fee from the Portfolio in an amount to offset any
investment advisory, administrative fee and shareholder servicing fees related
to a Portfolio investment in an affiliated money market fund.
ADMINISTRATIVE SERVICES--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 registered investment companies for which JPMIM acts as
investment advisor 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 Funds Distributor, Inc. 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 Trust and certain other investment
companies for which Morgan provides similar services.
Morgan has agreed to reimburse the Portfolio to the extent the total
operating expenses (excluding interest, taxes and extraordinary expenses) of
the Portfolio exceed 1.00% of the Portfolio's average daily net assets through
February 28, 2001.
ADMINISTRATION--The Portfolio has retained Funds Distributor, Inc. ("FDI"),
a registered broker-dealer, to serve as the co-administrator and distributor
for the Fund. 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 portion of this charge payable by the
22
THE EUROPEAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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(Continued)
NOVEMBER 30, 2000
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2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Portfolio is determined by the proportionate share that its net assets bear
to the net assets of the Trust and certain other investment companies for which
FDI provides similar services.
FUND SERVICES--The Portfolio has a Fund Services Agreement with Pierpont
Group, Inc. ("PGI") 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 PGI.
TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for
serving on the boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, and other registered investment companies in which they
invest. The Trustees' fees and expenses shown in the financial statements
represent the Fund's allocated portion of the total Trustees' fees and expenses.
The Trust's Chairman and Chief Executive Officer also serves as Chairman of
PGI and receives compensation and employee benefits from PGI. The allocated
portion of such compensation and benefits included in the Fund Services Fee
shown on the Statement of Operations was $73.
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3. FEDERAL INCOME TAXES
As of November 30, 2000, accumulated net unrealized appreciation was
$2,399,730, based on the aggregate cost of investments for federal income tax
purposes of $15,447,191, which consisted of unrealized appreciation of
$3,019,219 and unrealized depreciation of $619,489.
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4. INVESTMENT TRANSACTIONS
During the year ended November 30, 2000, the Portfolio purchased $19,818,019
of investment securities and sold $23,856,360 of investment securities other
than short- term investments.
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5. CONCENTRATIONS OF RISK
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 could
cause the securities and their markets to be less liquid and their prices more
volatile than those of comparable U.S. securities.
- --------------------------------------------------------------------------------
6. 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.
- --------------------------------------------------------------------------------
7. SUBSEQUENT EVENT
The merger of J.P. Morgan & Co. Incorporated, the former parent company of
the Portfolio's adviser, J.P. Morgan Investment Management, Inc. ("JPMIM"),
with and into The Chase Manhattan Corporation was consummated on December 31,
2000. J.P. Morgan Chase & Co. will be the new parent company of JPMIM, which
will continue to serve as the Portfolio's adviser.
23
REPORT OF INDEPENDENT ACCOUNTANTS
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To the Trustees and Shareholders 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, 2000, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the supplementary data for each of the two years in
the period then ended, for the eleven months ended November 30, 1998, for each
of the two years in the period ended December 31, 1997 and for the period March
28, 1995 (commencement of operations) through December 31, 1995, in conformity
with accounting principles generally accepted in the United States of America.
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 auditing standards generally accepted in the United States of
America, 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, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
January 16, 2001
24
[back cover]
J.P. MORGAN FUNDS
Federal Money Market Fund
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Prime Money Market Fund
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Emerging Market Debt Fund
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Tax Aware Enhanced Income Fund:
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Tax Exempt Money Market Fund
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Short Term Bond Fund
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Bond Fund
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Global Strategic Income Fund
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Diversified Fund
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Tax Aware Small Company Opportunities Fund:
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U.S. Equity Fund
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U.S. Small Company Fund
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U.S. Small Company Opportunities Fund
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Emerging Markets Equity Fund
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European Equity Fund
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International Equity Fund
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International Opportunities Fund
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For more information on the J.P. Morgan
Funds, call J.P. Morgan Funds
Services at (800) 521-5411.
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Morgan Guaranty Trust Company MAILING
500 Stanton Christiana Road INFORMATION
Newark, Delaware 19713-2107
IN-ANN-24239 0101