<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM INSTITUTIONAL JAPAN EQUITY FUND
August 4, 1997
Dear Shareholder:
The first half of 1997 saw a dramatic turnaround in both the Japanese equity
market and the yen. In the first quarter, weakness in the financial sector
continued to pull the market lower, posting a return of -6.5% in local
currency and -12.3% in U.S. dollars. Doubts over the sustainability of the
economic recovery dampened investor sentiment while the unwinding of cross
holding relationships, along with speculative short selling, provided
substantial downward pressure. During this time, the currency continued to
slide, eventually reaching a 5-year low of 127 yen to the dollar on the last
day of April. While most of the equity market suffered, the weak yen allowed
Japanese exporting companies to post record profits and provide a bright spot
on the horizon for investors.
Stocks staged an impressive rally in the second quarter, posting a return of
13.3% in local currency. A resurgent yen raised the second-quarter return to
22.6% in U.S. dollars. In April, the rally was narrowly focused on household
names, known as the "Nifty Fifteen." As confidence in the economic recovery
was still tentative, investors paid premiums for the short-term earnings
predictability of these stocks rather than look for long-term value. This
phenomenon temporarily hindered the relative performance of the Fund, since
seeking long-term value is its focus. In May and June, however, the rally
spread to the broader market, which benefited the Fund.
For the six months ended June 30, 1997, The JPM Institutional Japan Equity
Fund provided a total return of 7.04%, compared to 7.51% for the Fund's
benchmark, the TOPIX, and 11.92% for the Lipper Japanese Fund Average. During
the period, the Fund's net asset value per share increased from $8.67 to
$9.28. The Fund's total net assets increased from $1.5 million to $5.9
million while the total net assets of The Japan Equity Portfolio, in which
the Fund invests, decreased from $380.3 million to $343.5 million.
The report that follows includes an interview with Masato Degawa, a member of
the portfolio management team. This interview is designed to answer commonly
asked questions about the Fund, elaborate on what happened during the
reporting period, and provide an outlook for the months ahead.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS ........ 1 FUND FACTS AND HIGHLIGHTS ........ 6
FUND PERFORMANCE .................. 2 FINANCIAL STATEMENTS ............. 8
PORTFOLIO MANAGER Q&A ............. 3
- -------------------------------------------------------------------------------
1
<PAGE>
As chairman and president of Asset Management Services, we look forward to
sharing Morgan's insights regarding global markets with you in the future. If
you have any comments or questions, please call your Morgan representative or
J.P. Morgan Funds Services at (800) 766-7722.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
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
Fund performance
EXAMINING PERFORMANCE
One way to evaluate performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
you 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 1, 5, or 10 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.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------------ ----------------------------
THREE SIX ONE SINCE
AS OF JUNE 30, 1997 MONTHS MONTHS YEAR INCEPTION*
- ----------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
The JPM Institutional Japan Equity Fund 20.36% 7.04% -12.12% -5.45%
TOPIX** 22.62% 7.51% -12.47% -5.85%
Lipper Japanese Funds Average 19.99% 11.92% -4.67% 0.28%
</TABLE>
* THE FUND COMMENCED OPERATIONS ON FEBRUARY 29, 1996.
** THE TOKYO STOCK PRICE INDEX (TOPIX) IS AN UNMANAGED, MARKET
CAPITALIZATION-WEIGHTED INDEX COMPRISING ALL STOCKS LISTED IN THE FIRST
SECTION OF THE TOKYO STOCK EXCHANGE. THE INDEX DOES NOT INCLUDE FEES OR
OPERATING EXPENSES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. ALL RETURNS ASSUME THE
REINVESTMENT OF DISTRIBUTIONS AND REFLECT THE REIMBURSEMENT OF CERTAIN FUND
AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. LIPPER ANALYTICAL
SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
Portfolio manager Q&A
[PHOTO] Following is an interview with Masato Degawa, a member of
the portfolio management team for The Japan Equity
Portfolio in which the Fund invests. Masato joined Morgan's
International Investment Group in 1993 as a Japanese equity
portfolio manager. Prior to joining Morgan, he was a senior
analyst with Morgan Stanley in Tokyo covering Japanese
utilities and special situations. He has B.A. and M.A. degrees
from Oxford University, England, in Engineering Science and
Economics. This interview was conducted on July 15, 1997 and
reflects Masato's views on that date.
THE JAPANESE EQUITY MARKET CONTINUED TO SLIDE DURING THE FIRST QUARTER OF THIS
YEAR. IN THE SECOND QUARTER, IT REBOUNDED. WHAT WERE THE IMPORTANT FACTORS
BEHIND THIS TURBULENT PERIOD?
MD: One important factor was the massive hedging activity in the banking
sector that occurred from December through January. Many of these banks issue
convertible bonds with resettable conversion rates. If the stock price falls
to a certain level, the conversion price would be lowered. Hedge funds held
these convertible bonds and sold the stocks short, hoping to drive prices low
enough to favorably reset the conversion rates. In total, the banking sector
represents roughly 20% of the Index, so that kind of activity can have a
significant impact on the market.
The market traded within a relatively narrow range in February and March,
then rallied in April. The April rally was brought on primarily by U.S.-based
investors who wanted to expand their international exposure. Many of these
investors saw their U.S. assets grow faster than the rest of their portfolio,
resulting in their international positions proportionally shrinking. Japan is
the second-largest market outside of the U.S., so it was a natural place for
many investors to start looking. And the first items they tend to buy are
household names: Sony, Honda, etc. We call them the "Nifty Fifteen," and they
drove the market in April.
The currency also hit a low of 127 yen to the U.S. dollar in April. This
raised the competitiveness and profitability of the large exporting
companies, as they gained market share in both the U.S. and in Europe. We saw
just the reverse in May, when the Japanese currency strengthened dramatically
to around 110 yen to the dollar. As the reporting period drew to a close in
June, the stocks of exporting companies took a breather while the stocks of
banks, brokerage firms, and insurance companies -- the very stocks which
dragged the market down earlier in the year -- began to provide the best
performance.
JAPAN'S FINANCIAL SYSTEM IS UNDERGOING SWEEPING REFORMS. WHICH ONES HAVE
INFLUENCED STOCK PRICES THE MOST?
MD: While the "big bang" hasn't happened yet, the bank stocks have taken the
first step in unwinding their crossholding relationships. In other words, the
banks have been selling the shares they own of other corporations and of other
banks. That selling has put downward pressure on the market.
3
<PAGE>
WHAT HAVE BEEN THE MAIN CONTRIBUTORS TO THE JAPANESE ECONOMIC RECOVERY?
MD: Capital investment has been leading the economy. That has been the number
one factor contributing to the economic recovery. The second most important
factor has been consumption. Japanese consumers had a surplus of cash and had
been holding back on spending for quite some time. This is a cyclical
recovery and, as it gained momentum, Japanese consumers started spending
again. Low interest rates have also been supportive of the economic recovery.
However, Japanese consumers generally do not borrow to spend. Therefore, low
rates are not nearly as important to a recovery in Japan as in other
countries.
JAPAN'S LOOSE MONETARY POLICY HAS BEEN A POSITIVE FOR STOCKS. HOW LONG WILL
INTEREST RATES REMAIN AT THEIR EXTREMELY LOW LEVELS?
MD: Similar to the economy, interest rates are not as important to the
Japanese stock market as they are in other markets. Japanese investors will
still buy 10-year government bonds that yield only 2.5%. Of course, they are
still important, and with rates so low, we believe they are more likely to go
up than down. But at present, there aren't any inflationary pressures in
Japan. The current recovery is not as strong as recoveries of the past. The
economy does not appear to be in any danger of overheating, capacity is not
fully utilized, and the unemployment rate is still high by Japanese
standards, which provides a lot of cushion for the economy to absorb any
inflationary pressures. With no apparent reason for the government to raise
rates, we are not anticipating a rate rise for the time being.
FOR THE SIX MONTHS ENDED JUNE 30, THE FUND UNDERPERFORMED ITS BENCHMARK. WHY?
MD: The Fund's underperformance largely occurred in April, when the market
began to take off. The market rally in April was very narrowly focused on the
Nifty Fifteen stocks, of which we owned about half. We are value-driven
investors, and the other half looked very expensive to us. But April was an
anomaly. Investors paid no attention to value and instead chased the momentum
of the Nifty Fifteen.
Fortunately, when the yen turned around in May and June, this phenomenon
diminished. Many of the Nifty Fifteen fell out of favor and the stocks that
represented value began to gain ground. This allowed the Fund to do quite
well in May and June, but not well enough to offset its underperformance in
April.
COULD YOU PROVIDE SPECIFIC EXAMPLES OF STOCKS THAT HELPED AND HINDERED THE
FUND'S RELATIVE PERFORMANCE?
MD: NISSAN and Honda Motors are good examples, because they mirror what
happened in the Portfolio. We sold Honda last fall because it had already
appreciated quite a bit and looked expensive to us. We preferred to hold
Nissan, which we felt was priced too low. But investors kept bidding the
price of Honda up through April while ignoring Nissan. Of course, since Honda
IS a big stock in the Index, not owning it significantly contributed to the
Fund's disappointing results in April. It wasn't until May that our decision
paid off. In May, and in June, Honda underperformed the Index drastically
while Nissan, the Portfolio's largest overweighting, performed
extraordinarily well.
4
<PAGE>
WHAT IS YOUR OUTLOOK FOR THE UPCOMING SIX MONTHS?
MD: The market probably won't be that exciting for the next couple of months.
We are expecting the government to sell its stake in several entities,
including the state-owned railways. This should absorb quite a bit of capital
if it happens, and the excitement level should pick up soon after. The market
presumably will start discounting some positives coming from the continuing
recovery of the economy. And next year, the outlook is for even more capital
investment.
Another bright spot is the banking sector, which should no longer be a drag
on the market. While this sector pulled the market down last year and early
this year, it was the best-performing sector towards the end of the second
quarter. We have expertise in the banking area, and by sticking to our value
discipline, the Fund should be able to consistently pick the winners in this
sector.
One final positive is that Japanese equities are looking more and more
attractive on a valuation basis compared to the other major equity markets,
which have seen back-to-back years of rising prices. Japan is at a much
earlier stage in its cycle. As investors continue to gain confidence in the
recovery, Japan is likely to look more and more like a viable alternative to
equity markets in Europe and the U.S., which have grown increasingly
expensive by many standards.
5
<PAGE>
Fund facts
INVESTMENT OBJECTIVE
The JPM Institutional Japan Equity Fund seeks to provide a high total return
from a portfolio of equity securities of Japanese companies. It is designed
for investors who want an actively managed portfolio of Japanese equity
securities that seeks to outperform the Tokyo Stock Price Index, a composite
market capitalization-weighted index of all common stocks listed on the First
Section of the Tokyo Stock Exchange. As an international investment, the Fund
is subject to foreign political and currency risk, in addition to market risk.
- -------------------------------------------------
COMMENCEMENT OF OPERATIONS
2/29/96
- -------------------------------------------------
NET ASSETS AS OF 6/30/97
$5,862,560
- -------------------------------------------------
CAPITAL GAIN AND INCOME DIVIDEND
PAYABLE DATE (IF APPLICABLE)
12/24/97
EXPENSE RATIO
The Fund's current annualized expense ratio of 1.00% 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
ALL DATA AS OF JUNE 30, 1997
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- - FINANCE 26.9%
- - CONSUMER GOODS 19.3%
- - INDUSTRIAL PRODUCTS 16.6%
- - TECHNOLOGY 13.8%
- - BASIC INDUSTRIES 9.5%
- - TRANSPORTATION 6.7%
- - HEALTHCARE 3.4%
- - UTILITIES 2.6%
- - ENERGY 1.2
LARGEST HOLDINGS % OF TOTAL INVESTMENTS
- ----------------------------------------------------------
NISSAN MOTOR CO. LTD. (AUTOMOTIVE) 3.9%
MATSUSHITA ELECTRIC
INDUSTRIES CO. LTD. (ELECTRONICS) 3.5%
WEST JAPAN RAILWAY CO. (RAILROADS) 2.5%
NOMURA SECURITIES CO. LTD.
(FINANCIAL SERVICES) 2.5%
HITACHI LTD. (ELECTRICAL EQUIPMENT) 2.4%
TOYOTA MOTOR CORP., 1.2%
DUE 1/28/98 (AUTOMOTIVE) 2.3%
BOT CAYMAN FINANCE LTD., 4.25%
DUE 3/31/49 (FINANCIAL SERVICES) 2.2%
SAKURA BANK LTD.(BANKING) 2.0%
SUMITOMO TRUST & BANKING CO. LTD.
(BANKING) 2.0%
SONY CORP. (ELECTRONICS) 1.9%
6
<PAGE>
FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR OF THE JPM INSTITUTIONAL JAPAN
EQUITY FUND (THE "FUND").
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN") SERVES AS PORTFOLIO
INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY AS
SHAREHOLDER SERVICING AGENT FOR CUSTOMERS. INVESTMENTS IN THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN OR ANY OTHER
BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
CAN FLUCTUATE, SO AN INVESTOR'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
The Fund invests all of its investable assets in The Japan Equity Portfolio
(the "Portfolio"), a separately registered investment company which is not
available to the public but only to other collective investment vehicles such
as the Fund. References to specific securities and their issuers are for
illustrative purposes only and should not be interpreted as recommendations
to purchase or sell such securities. Opinions expressed herein on current
market conditions are subject to change without notice.The Portfolio invests
in foreign securities which are subject to special risks; prospective
investors should refer to the Fund's Prospectus for a discussion of these
risks.
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES, IS PROVIDED IN THE PROSPECTUS, WHICH SHOULD BE READ CAREFULLY
BEFORE INVESTING. YOU MAY OBTAIN ADDITIONAL COPIES OF THE PROSPECTUS BY
CALLING J.P. MORGAN FUNDS SERVICES AT (800) 766-7722.
7
<PAGE>
THE JPM INSTITUTIONAL JAPAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Japan Equity Portfolio
("Portfolio"), at value $5,894,429
Deferred Organization Expenses 12,466
Receivable for Expense Reimbursements 5,025
Prepaid Expenses 7
----------
Total Assets 5,911,927
----------
LIABILITIES
Organization Expenses Payable 7,509
Shareholder Servicing Fee Payable 466
Administrative Services Fee Payable 145
Accrued Trustees' Fees and Expenses 48
Administration Fee Payable 26
Fund Services Fee Payable 5
Accrued Expenses 41,168
----------
Total Liabilities 49,367
----------
NET ASSETS
Applicable to 631,680 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $5,862,560
----------
----------
Net Asset Value, Offering and Redemption Price
Per Share $9.28
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $5,988,979
Accumulated Net Investment loss (4,552)
Accumulated Net Realized Loss on Investment and
Foreign Currency Transactions (99,146)
Net Unrealized Depreciation of Investment and
Foreign Currency Translations (22,721)
----------
Net Assets $5,862,560
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
THE JPM INSTITUTIONAL JAPAN EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $4,632) $ 18,523
Allocated Interest Income (Net of Foreign
Withholding Tax of $47) 5,671
Allocated Portfolio Expenses (16,824)
--------
Net Investment Income Allocated from
Portfolio 7,370
FUND EXPENSES
Registration Fees $ 9,202
Transfer Agent Fees 7,157
Printing Expenses 5,698
Professional Fees 5,629
Shareholder Servicing Fee 1,958
Amortization of Organization Expenses 1,685
Administrative Services Fee 613
Administration Fee 63
Fund Services Fee 60
Trustees' Fees and Expenses 51
Miscellaneous 1,125
-------
Total Fund Expenses 33,241
Less: Reimbursement of Expenses (30,480)
-------
NET FUND EXPENSES 2,761
--------
NET INVESTMENT INCOME 4,609
NET REALIZED GAIN ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS ALLOCATED FROM PORTFOLIO 92,533
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT AND FOREIGN CURRENCY TRANSLATIONS
ALLOCATED FROM PORTFOLIO 606,221
--------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $703,363
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM INSTITUTIONAL JAPAN EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 29,
FOR THE SIX 1996
MONTHS ENDED (COMMENCEMENT OF
JUNE 30, OPERATIONS) TO
1997 DECEMBER 31,
(UNAUDITED) 1996
------------ ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income (Loss) $ 4,609 $ (7,904)
Net Realized Gain (Loss) on Investment and
Foreign Currency Transactions Allocated from
Portfolio 92,533 (224,196)
Net Change in Unrealized Appreciation
(Depreciation) of Investment and Foreign
Currency Translations Allocated from Portfolio 606,221 (628,942)
------------ ----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 703,363 (861,042)
------------ ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 3,715,128 5,947,091
Cost of Shares of Beneficial Interest Redeemed (57,802) (3,584,178)
------------ ----------------
Net Increase from Transactions in Shares of
Beneficial Interest 3,657,326 2,362,913
------------ ----------------
Total Increase in Net Assets 4,360,689 1,501,871
NET ASSETS
Beginning of Period 1,501,871 --
------------ ----------------
End of Period (including accumulated net
investment loss of $4,552 and $9,161
respectively) $ 5,862,560 $ 1,501,871
------------ ----------------
------------ ----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM INSTITUTIONAL JAPAN EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 29,
1996
FOR THE (COMMENCEMENT OF
SIX MONTHS ENDED OPERATIONS) TO
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
---------------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.67 $ 10.00
---------------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.05 (0.05)
Net Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency 0.56 (1.28)
---------------- ----------------
Total from Investment Operations 0.61 (1.33)
---------------- ----------------
NET ASSET VALUE, END OF PERIOD $ 9.28 $ 8.67
---------------- ----------------
---------------- ----------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 7.04%(a) (13.30)%(a)
Net Assets, End of Period (in thousands) $5,863 $1,502
Ratios to Average Net Assets
Expenses 1.00%(b) 0.89%(b)
Net Investment Income (Loss) 0.23%(b) (0.28)%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 1.55% 1.61%(c)
</TABLE>
- ------------------------
(a) Not Annualized
(b) Annualized
(c) After consideration of certain state limitations.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM INSTITUTIONAL JAPAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Institutional Japan Equity Fund (the "Fund") is a separate series of The
JPM Institutional 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 February 29, 1996.
The Fund invests all of its investable assets in The Japan Equity Portfolio (the
"Portfolio"), a non-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 2% at June 30, 1997).
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 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 Fund:
a)Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b)The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Distributions to shareholders of net investment income and net realized
capital gains, if any, are declared and paid annually.
d)The Fund has incurred organization expenses in the amount of $17,000.
Morgan Guaranty Trust Company of New York ("Morgan") has agreed to pay the
organization expenses of the Fund. The Fund has agreed to reimburse Morgan
for these costs which are being deferred and amortized on a straight-line
basis over a period not to exceed five years beginning with the
commencement of operations of the Fund.
e)The Fund is treated as a separate entity for federal income tax purposes.
The Fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
12
<PAGE>
THE JPM INSTITUTIONAL JAPAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
f)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. Expenses directly attributable to a fund are
charged to that fund.
2. TRANSACTIONS WITH AFFILIATES
a)The Trust has retained Funds Distributor, Inc. ("FDI") a registered
broker-dealer, to serve as co-administrator and distributor for the Fund.
Under a Co-Administration Agreement between FDI and the Trust on behalf of
the Fund, FDI provides administrative services necessary for the
operations of the Fund, furnishes office space and facilities required for
conducting the business of the Fund 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 a complex-wide charge of $425,000 plus
FDI's out-of-pocket expenses.The amount allocable to the Fund is based on
the ratio of the Fund's net assets to the aggregate net assets of the
Trust, and certain other investment companies subject to similar
agreements with FDI. For the six months ended June 30, 1997, the fee for
these services amounted to $63 .
b)The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for overseeing certain aspects of the administration and operation of the
Fund. Under the Services Agreement, the Fund had agreed to pay Morgan a
fee equal to its allocable share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate net assets of the
Portfolio and the other portfolios in which the Trust and the JPM Pierpont
funds invest (the "Master Portfolios") and JPM 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 Fund is
determined by the proportionate share that its net assets bear to the net
assets of the Trust, the Master Portfolios, other investors in the Master
Portfolios for which Morgan provides similar services, and JPM Series
Trust. For the six months ended June 30, 1997, the fee for these services
amounted to $613 .
In addition, Morgan has agreed to reimburse the Fund to the extent
necessary to maintain the total operating expenses of the Fund, including
the expenses allocated to the Fund from the Portfolio, at no more than
1.00% of the average daily net assets of the Fund through April 30, 1998.
For the six months ended June 30, 1997, Morgan has agreed to reimburse the
Fund $30,480 for expenses under this agreement.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal and account
maintenance services to Fund shareholders. The agreement provides for the
Fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.10% of the average daily net assets of
the Fund. For the six months ended June 30, 1997, Morgan's fee for these
services amounted to $1,958 .
13
<PAGE>
THE JPM INSTITUTIONAL JAPAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
d)The Trust, on behalf of the Fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") 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 Group. The Fund's
allocated portion of Group's costs in performing its services amounted to
$60 for the six months ended June 30, 1997.
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM Pierpont Funds, the Master Portfolios and
JPM Series Trust. The Trustees' Fees and Expenses shown in the financial
statements represents the Fund's allocated portion of these total fees and
expenses. Prior to April 1, 1997, the aggregate annual Trustee fee was
$65,000. The Trust'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 $12.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 29,
FOR THE SIX 1996
MONTHS ENDED (COMMENCEMENT OF
JUNE 30, OPERATIONS) TO
1997 DECEMBER 31,
(UNAUDITED) 1996
------------ ----------------
<S> <C> <C>
Shares sold...................................... 464,581 579,406
Shares redeemed.................................. (6,192) (406,115)
------------ ----------------
Net Increase..................................... 458,389 173,291
------------ ----------------
------------ ----------------
</TABLE>
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 and Portfolio.
4. AGREEMENT
The Trust, on behalf of the Fund, together with other affiliated investment
companies (the "Funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 28, 1997, with unaffiliated lenders. The maximum commitment
borrowing under the Agreement is $150,000,000. The Agreement expires on May 27,
1998, however, the Fund as party to the Agreement will have the ability to
extend the Agreement and continue its participation therein for an additional
364 days. The purpose of the Agreement is to provide another alternative for
settling large fund shareholder redemptions. Interest on any such borrowings
outstanding will approximate market rates. The Funds pay a commitment fee at an
annual rate of 0.065% on the unused portion of the committed amount which is
allocated to the Funds in accordance with procedures established by their
respective Trustees or Directors. The Fund has not borrowed pursuant to the
Agreement as of June 30, 1997.
14
<PAGE>
The Japan Equity Portfolio
Semi-Annual Report June 30, 1997
(unaudited)
(The following pages should be read in conjunction
with The JPM Institutional Japan Equity Fund
Semi-Annual Financial Statements)
15
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCK (86.0%)
BASIC INDUSTRIES (7.7%)
BUSINESS & PUBLIC SERVICES (0.7%)
Dai Nippon Printing Co. Ltd...................... 100,000 $ 2,263,392
-------------
CHEMICALS (2.6%)
Asahi Chemical Industry Co. Ltd.................. 162,000 969,763
Ishihara Sangyo Kaisha Ltd....................... 583,000 1,727,143
Japan Synthetic Rubber Co.
Ltd............................................ 233,000 1,995,455
Mitsui Petrochemical Industries Ltd.............. 160,000 771,825
Mitsui Toatsu Chemicals, Inc..................... 150,000 412,916
Nippon Zeon Co. Ltd.............................. 73,000 361,077
Sekisui Chemical Co. Ltd......................... 70,000 709,604
Takeda Chemical Industries
Ltd............................................ 75,000 2,110,460
-------------
9,058,243
-------------
DIVERSIFIED MANUFACTURING (0.3%)
Central Glass Co. Ltd............................ 390,000 1,138,338
-------------
FOREST PRODUCTS & PAPER (1.2%)
New Oji Paper Co. Ltd............................ 200,000 1,239,185
Sumitomo Forestry Co. Ltd........................ 269,000 2,961,985
-------------
4,201,170
-------------
METALS & MINING (2.9%)
Godo Steel Ltd................................... 389,000 1,339,386
Komai Tekko, Inc................................. 82,000 440,706
Mitsui Mining & Smelting Co. Ltd................. 202,000 898,523
Nippon Steel Corp................................ 1,800,000 5,757,230
Tokyo Steel Manufacturing Co.Ltd................. 121,000 1,353,491
-------------
9,789,336
-------------
TOTAL BASIC INDUSTRIES......................... 26,450,479
-------------
CONSUMER GOODS & SERVICES (16.4%)
APPARELS & TEXTILES (0.3%)
Tomiya Apparel Co. Ltd........................... 229,000 952,582
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
AUTOMOTIVE (5.0%)
Hino Motors Ltd.................................. 130,000 $ 829,328
Nissan Motor Co. Ltd............................. 1,640,000 12,741,061
Toyota Motor Corp. Ltd........................... 85,000 2,510,705
Yamaha Motor Co. Ltd............................. 100,000 996,242
-------------
17,077,336
-------------
AUTOMOTIVE SUPPLIES (1.3%)
Sumitomo Rubber Industries Ltd................... 189,000 1,273,433
Tochigi Fuji Industrial Co.
Ltd............................................ 85,000 407,804
Toyo Tire & Rubber Co. Ltd....................... 298,000 942,725
Yokohama Rubber Co. Ltd.......................... 462,000 1,978,327
-------------
4,602,289
-------------
BROADCASTING & PUBLISHING (0.7%)
Toppan Printing Co. Ltd.......................... 148,000 2,328,060
-------------
ENTERTAINMENT, LEISURE & MEDIA (0.6%)
Kinki Nippon Tourist Co.
Ltd.+.......................................... 192,000 1,058,743
Kyodo Printing Co. Ltd........................... 90,000 865,157
-------------
1,923,900
-------------
FOOD, BEVERAGES & TOBACCO (2.6%)
Itoham Foods, Inc................................ 379,000 2,093,227
Japan Tobacco, Inc............................... 431 3,408,677
Maruha Corp...................................... 732,000 1,912,680
Pokka Corp....................................... 28,000 199,668
Snow Brand Milk Products Co. Ltd................. 263,000 1,356,025
-------------
8,970,277
-------------
HOUSEHOLD PRODUCTS (0.3%)
Nippon Sheet Glass Co. Ltd....................... 245,000 903,522
-------------
MULTI - INDUSTRY (0.8%)
Fuji Denki Reiki Co. Ltd......................... 141,000 1,108,975
Marubeni Corp.................................... 345,000 1,567,770
-------------
2,676,745
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
RETAIL (4.4%)
Aoyama Trading Co. Ltd........................... 61,000 $ 1,961,723
Izumi Co. Ltd.................................... 184,000 2,701,389
Izumiya Co. Ltd.................................. 306,000 4,920,387
Keiyo Co. Ltd.................................... 45,000 420,781
Matsuzakaya Co. Ltd.............................. 272,000 2,010,941
Mizuno Corp...................................... 109,000 712,505
Shimachu Co. Ltd................................. 8,300 249,515
Xebio Co. Ltd.................................... 18,700 460,841
York - Benimaru Co. Ltd.......................... 52,400 1,648,518
-------------
15,086,600
-------------
TEXTILES (0.4%)
Mitsubishi Rayon Co. Ltd......................... 150,000 618,719
Seiren Co. Ltd................................... 150,000 688,193
-------------
1,306,912
-------------
TOTAL CONSUMER GOODS & SERVICES................ 55,828,223
-------------
ENERGY (1.2%)
OIL-PRODUCTION (1.2%)
Cosmo Oil Co. Ltd................................ 429,000 2,054,461
Nippon Oil Co. Ltd............................... 279,000 1,528,733
Showa Shell Sekiyu K. K.......................... 40,000 377,523
-------------
3,960,717
-------------
TOTAL ENERGY................................... 3,960,717
-------------
FINANCE (22.5%)
BANKING (15.3%)
Asahi Bank Ltd................................... 431,000 3,672,331
Ashikaga Bank Ltd................................ 200,000 734,073
Bank of Iwate Ltd................................ 22,630 1,283,480
Bank of the Ryukyus Ltd.......................... 58,500 1,226,951
Chuo Trust & Banking Co.
Ltd............................................ 86,000 571,179
Dai-Ichi Kangyo Bank Ltd......................... 322,000 4,389,757
Daiwa Bank Ltd................................... 1,279,000 6,069,185
Fukui Bank Ltd................................... 638,000 2,369,570
Fukuoka Chuo Bank Ltd............................ 20,000 126,016
Fukushima Bank Ltd............................... 225,000 670,497
Hiroshima Bank Ltd............................... 200,000 908,852
Hyakugo Bank Ltd................................. 360,000 2,063,794
Keiyo Bank Ltd................................... 250,000 1,046,491
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
BANKING (CONTINUED)
Kita-Nippon Bank Ltd............................. 13,900 $ 728,830
Mitsui Trust & Banking Co.
Ltd............................................ 100,000 755,920
Nanto Bank Ltd................................... 252,000 1,567,980
North Pacific Bank Ltd........................... 71,000 341,877
Sakura Bank Ltd.................................. 862,000 6,613,963
San-In Godo Bank Ltd............................. 31,000 257,092
Shinwa Bank Ltd.................................. 159,000 778,117
Sumitomo Trust & Banking Co. Ltd................. 602,000 6,470,854
The Bank of Tokyo - Mitsubishi Ltd............... 1,400 28,139
The Kagawa Bank Ltd.............................. 260,000 1,908,590
The Long-Term Credit Bank of Japan Ltd........... 1,000,000 4,325,787
Tokai Bank Ltd................................... 213,000 2,196,451
Toyo Trust & Banking Co.
Ltd............................................ 175,000 1,475,793
-------------
52,581,569
-------------
COMMERCIAL SERVICES (1.2%)
Asatsu, Inc...................................... 78,000 2,890,150
Sanki Engineering Co. Ltd........................ 120,000 1,216,464
-------------
4,106,614
-------------
FINANCIAL SERVICES (2.8%)
Daiwa Securities Co. Ltd......................... 186,000 1,469,404
Nomura Securities Co. Ltd........................ 600,000 8,284,538
-------------
9,753,942
-------------
INSURANCE (1.7%)
Chiyoda Fire & Marine Insurance Co. Ltd.......... 284,000 1,402,254
Fuji Fire & Marine Insurance Co. Ltd............. 429,000 1,870,759
Koa Fire & Marine Insurance Co. Ltd.............. 110,000 666,171
Nissan Fire & Marine Insurance Co. Ltd........... 194,000 1,068,076
Tokio Marine & Fire Insurance Co. Ltd............ 73,000 956,917
-------------
5,964,177
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
REAL ESTATE (1.5%)
Daikyo, Inc...................................... 65,000 $ 254,479
Daiwa Danchi Co. Ltd.+........................... 208,000 854,321
Mitsui Fudosan Co. Ltd........................... 283,000 3,907,541
-------------
5,016,341
-------------
TOTAL FINANCE.................................. 77,422,643
-------------
HEALTHCARE (2.0%)
PHARMACEUTICALS (2.0%)
Daiichi Pharmaceutical Co.
Ltd............................................ 208,000 3,671,763
Kissei Pharmaceutical Co. Ltd.................... 37,000 814,821
Ono Pharmaceuticals Co. Ltd...................... 25,000 882,635
Santen Pharmaceutical Co.
Ltd............................................ 49,000 989,163
Shionogi & Co. Ltd............................... 80,000 620,816
-------------
6,979,198
-------------
TOTAL HEALTHCARE............................... 6,979,198
-------------
INDUSTRIAL PRODUCTS & SERVICES (15.9%)
BUILDING MATERIALS (0.3%)
Sankyo Aluminum Industries Co. Ltd............... 330,000 1,067,028
-------------
CONSTRUCTION & HOUSING (3.7%)
Matsui Construction Co. Ltd...................... 200,000 997,990
Nishimatsu Construction Co. Ltd.................. 507,000 3,544,524
Sekisui House Ltd................................ 90,000 912,348
Taisei Corp...................................... 700,000 3,248,273
Toda Construction Co............................. 200,000 1,401,730
Toenec Corp...................................... 62,000 378,729
Tostem Corp...................................... 82,800 2,293,768
-------------
12,777,362
-------------
ELECTRICAL EQUIPMENT (6.3%)
Fuji Electric Co. Ltd............................ 500,000 2,272,131
Hitachi Ltd...................................... 719,000 8,042,644
Mitsubishi Electric Corp. Ltd.................... 942,000 5,276,779
Murata Manufacturing Co.
Ltd............................................ 26,000 1,036,092
Nissei Sangyo Co. Ltd............................ 152,000 1,859,652
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (CONTINUED)
Ricoh Corp. Ltd.................................. 94,000 $ 1,232,194
Rohm Co. Ltd..................................... 20,000 2,062,396
-------------
21,781,888
-------------
INDUSTRIAL (0.6%)
Okamura Corp..................................... 300,000 1,992,484
-------------
MACHINERY (4.2%)
Aichi Corp....................................... 184,000 1,141,658
Ebara Corp....................................... 110,000 1,653,412
Fanuc Ltd........................................ 80,000 3,076,116
Mitsubishi Heavy Industries
Ltd............................................ 666,000 5,115,912
NSK Ltd.......................................... 73,000 470,165
Sansei Yusoki Co. Ltd............................ 95,000 804,465
Shin Nippon Machinery Co. Ltd.................... 48,000 190,859
Toshiba Tungaloy Co. Ltd......................... 400,000 2,027,440
-------------
14,480,027
-------------
MANUFACTURING (0.8%)
Topy Industries Ltd.............................. 51,000 187,189
Tsubakimoto Chain Co............................. 407,000 2,489,731
-------------
2,676,920
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 54,775,709
-------------
TECHNOLOGY (11.4%)
COMPUTER SYSTEMS (0.7%)
Fujitsu Ltd...................................... 168,000 2,334,352
-------------
ELECTRONICS (8.3%)
Alpine Electronics, Inc.......................... 191,000 2,904,308
Fuji Photo Film Co. Ltd.......................... 88,000 3,545,223
Kyocera Corp..................................... 12,000 954,295
Matsushita Electric Industries Co. Ltd........... 579,000 11,688,278
Secom Co. Ltd.................................... 31,000 2,278,335
Sony Corp........................................ 70,000 6,111,158
Tokai Rika Co. Ltd............................... 147,000 1,163,873
-------------
28,645,470
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
SEMICONDUCTORS (0.2%)
Tokyo Ohka Kogyo Co. Ltd......................... 26,300 $ 795,228
-------------
TELECOMMUNICATIONS (2.2%)
DDI Corp......................................... 491 3,630,044
Nippon Telegraph & Telephone Corp................ 417 4,008,563
-------------
7,638,607
-------------
TOTAL TECHNOLOGY............................... 39,413,657
-------------
TRANSPORTATION (6.4%)
RAILROADS (3.3%)
East Japan Railway Co............................ 200 1,027,702
Nishi-Nippon Railroad Co.
Ltd............................................ 313,000 1,028,471
Tobu Railway Co. Ltd............................. 200,000 924,582
West Japan Railway Co............................ 2,140 8,396,922
-------------
11,377,677
-------------
TRANSPORT & SERVICES (1.7%)
Itochu Warehouse Co. Ltd......................... 47,000 149,506
Kawasaki Kisen Kaisha Ltd.+...................... 642,000 1,296,006
Nippon Express Co. Ltd........................... 303,000 2,422,834
Sankyu, Inc...................................... 435,000 1,353,316
Senko Co. Ltd.................................... 136,000 560,972
-------------
5,782,634
-------------
WHOLESALE & INTERNATIONAL TRADE (1.4%)
Kamei Corp....................................... 50,000 550,555
Kawasho Corp..................................... 152,000 472,883
Nagase & Co. Ltd................................. 124,000 982,854
Tomen Corp....................................... 305,000 772,961
Yuasa Trading Co. Ltd............................ 525,000 2,004,937
-------------
4,784,190
-------------
TOTAL TRANSPORTATION........................... 21,944,501
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
UTILITIES (2.5%)
ELECTRIC (1.8%)
Shikoku Electric Power Co., Inc.................. 83,180 $ 1,417,469
Tohoku Electric Power Co.,
Inc............................................ 100,000 1,782,749
Tokyo Electric Power Co.,
Inc............................................ 145,000 3,053,831
-------------
6,254,049
-------------
NATURAL GAS (0.7%)
Hokuriku Gas Co. Ltd............................. 204,000 632,876
Osaka Gas Co. Ltd................................ 550,000 1,581,316
-------------
2,214,192
-------------
TOTAL UTILITIES................................ 8,468,241
-------------
TOTAL COMMON STOCK (COST $304,603,093)......... 295,243,368
-------------
WARRANTS (1.9%)
BASIC INDUSTRIES (0.5%)
CHEMICALS (0.4%)
Shin-Etsu Chemical Co. Ltd., Expiring 8/1/00+.... 488 1,348,100
-------------
METALS & MINING (0.1%)
Dowa Mining Co. Ltd., Expiring 12/09/97+......... 330 103,125
-------------
TOTAL BASIC INDUSTRIES......................... 1,451,225
-------------
CONSUMER GOODS & SERVICES (0.1%)
MERCHANDISING (0.1%)
Canon Sales Co. Inc., Expiring 11/11/97+......... 2,700 338,924
-------------
INDUSTRIAL PRODUCTS & SERVICES (0.0%)*
MACHINERY (0.0%)*
Ebara Corp., Expiring
10/8/99+....................................... 318 60,858
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
TECHNOLOGY (1.3%)
COMPUTER SYSTEMS (0.1%)
Fujitsu Ltd., Expiring
6/12/98+....................................... 868 $ 336,399
-------------
ELECTRICAL EQUIPMENT (0.7%)
Rohm Co. Ltd., Expiring 11/20/97+................ 1,350 2,488,682
-------------
ELECTRONICS (0.5%)
Kyocera Corp., Expiring 1/23/98+................. 610 1,235,250
Merrill Lynch Intl.- Sony Corp., Expiring
6/14/01+....................................... 300 566,250
-------------
1,801,500
-------------
TOTAL TECHNOLOGY............................... 4,626,581
-------------
TOTAL WARRANTS (COST $3,799,244)............... 6,477,588
-------------
<CAPTION>
PRINCIPAL
AMOUNT
(IN JPY)
-------------
<S> <C> <C>
FIXED INCOME SECURITIES (2.1%)
BASIC INDUSTRIES (0.9%)
CHEMICALS (0.9%)
Sumitomo Bakelite Co. Ltd., 1.2% due 09/29/06.... $ 288,000,000 3,269,351
-------------
FINANCE (1.2%)
FINANCIAL SERVICES (1.2%)
STB Cayman Capital, 0.5% due 10/01/07............ 410,000,000 4,039,805
-------------
TOTAL FIXED INCOME SECURITIES
(COST $6,325,848)............................. 7,309,156
-------------
CONVERTIBLE BONDS (5.9%)
CONSUMER GOODS & SERVICES (2.2%)
AUTOMOTIVE (2.2%)
Toyota Motor Corp., 1.2% due 01/28/98............ 500,000,000 7,646,594
-------------
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY DESCRIPTION (IN JPY) VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
FINANCE (2.1%)
FINANCIAL SERVICES (2.1%)
BOT Cayman Finance Ltd., 4.25% due 03/31/49...... $ 620,000,000 $ 7,287,423
-------------
HEALTH CARE (1.2%)
PHARMACEUTICALS (1.2%)
Yamanouchi Pharmaceutical Co. Ltd., 1.25% due
03/31/14....................................... 300,000,000 4,135,715
-------------
TECHNOLOGY (0.4%)
COMPUTER SYSTEMS (0.4%)
Ricoh Co. Ltd., 1.5% due 03/29/02................ 100,000,000 1,319,584
-------------
TOTAL CONVERTIBLE BONDS
(COST $17,019,098)............................ 20,389,316
-------------
TOTAL INVESTMENTS
(COST $331,747,283) (95.9%)................................... 329,419,428
OTHER ASSETS IN EXCESS OF LIABILITIES (4.1%)....................
14,115,563
-------------
NET ASSETS (100.0%)............................................. $ 343,534,991
-------------
-------------
</TABLE>
- ------------------------------
+ Non-income producing security
* Less than 0.1%
Note: Based on the cost of investments of $330,005,851 for Federal Income Tax
purposes at June 30, 1997 the aggregate gross unrealized appreciation was
$33,426,380, and the aggregate gross unrealized depreciation was $35,754,235,
resulting in net unrealized depreciation of investments of $2,327,855.
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $331,747,283) $329,419,428
Cash 5,250,352
Foreign Currency at Value (Cost $5,239,255) 5,222,892
Receivable for Investments Sold 7,998,500
Dividends Receivable 1,480,033
Interest Receivable 103,920
Deferred Organization Expenses 18,076
------------
Total Assets 349,493,201
------------
LIABILITIES
Payable for Investments Purchased 5,548,508
Advisory Fee Payable 180,722
Custody Fee Payable 174,538
Administrative Services Fee Payable 19,680
Administration Fee Payable 953
Fund Services Fee Payable 285
Accrued Trustees' Fees and Expenses 221
Accrued Expenses 33,303
------------
Total Liabilities 5,958,210
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $343,534,991
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $366,178) $ 1,464,230
Interest Income (Net of Foreign Withholding Tax
of $416) 493,624
-----------
Investment Income 1,957,854
EXPENSES
Advisory Fee $ 1,104,268
Custodian Fees and Expenses 226,127
Administrative Services Fee 53,195
Professional Fees and Expenses 27,499
Fund Services Fee 5,830
Administration Fee 4,213
Printing Expenses 3,864
Trustees' Fees and Expenses 3,397
Amortization of Organization Expense 3,269
Insurance Expense 1,207
Miscellaneous 298
-----------
Total Expenses 1,433,167
-----------
NET INVESTMENT INCOME 524,687
NET REALIZED LOSS ON
Investment Transactions (including $689,588 net
realized gain from futures contracts) (31,489,655)
Foreign Currency Transactions (504,028)
-----------
Net Realized Loss (31,993,683)
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments 57,492,664
Foreign Currency Contracts and Translations 242,771
-----------
Net Change in Unrealized Appreciation 57,735,435
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $26,266,439
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------ -----------------
<S> <C> <C>
DECREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income (Loss) $ 524,687 $ (163,669)
Net Realized Loss on Investments and Foreign
Currency Transactions (31,993,683) (2,268,850)
Net Change in Unrealized Appreciation
(Depreciation) of Investments
and Foreign Currency Translations 57,735,435 (67,037,516)
------------ -----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 26,266,439 (69,470,035)
------------ -----------------
------------ -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 76,948,328 290,426,062
Withdrawals (140,025,334) (253,101,673)
------------ -----------------
Net Increase (Decrease) from Investors'
Transactions (63,077,006) 37,324,389
------------ -----------------
Total Decrease in Net Assets (36,810,567) (32,145,646)
NET ASSETS
Beginning of Period 380,345,558 412,491,204
------------ -----------------
End of Period $343,534,991 $ 380,345,558
------------ -----------------
------------ -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE MARCH 28, 1995
SIX MONTHS ENDED FOR THE FISCAL (COMMENCEMENT OF
JUNE 30, 1997 YEAR ENDED OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.84%(a) 0.81% 0.87%(a)
Net Investment Income 0.31%(a) (0.03)% 0.12%(a)
Portfolio Turnover 42%(b) 86% 60%(b)
Average Broker Commissions 0.0004 0.0005 --
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Japan Equity Portfolio (the "Portfolio"), is one of eight subtrusts
(portfolios) comprising The Series Portfolio (the "Series Portfolio"). The
Series Portfolio is registered under the Investment Company Act of 1940, as
amended (the "Act"), 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 issuers that have their principal
activities in Japan or are organized under Japanese law. The Portfolio commenced
operations on March 28, 1995. The Declaration of Trust permits the Trustees to
issue an unlimited number of beneficial interests in the Portfolio.
Investments in Japanese markets may involve certain considerations and risks not
typically associated with investments in the United States. Future economic and
political developments in Japan could adversely affect the liquidity or value,
or both, of such securities in which the Portfolio is invested. The ability of
the issuers of the 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 readily available closing bid and asked
prices on such exchanges, or at the quoted bid price in the over-
the-counter market. Securities listed on a foreign exchange are valued at
the last quoted sale price available before the time when net assets are
valued. Unlisted securities are valued at the average of the quoted bid
and asked prices in the over-the-counter market. Securities or other
assets for which market quotations are not readily available are valued at
fair value in accordance with procedures established by the Portfolio's
Trustees. Such procedures include the use of independent pricing services,
which use prices based upon yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers;
and general market conditions. All portfolio securities with a remaining
maturity of less than 60 days are valued at amortized cost.
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 expense are
translated at the
24
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
exchange rate prevailing on the respective dates of such transactions.
Translation gains and losses resulting from changes in exchange rates
during the reporting period and gains and losses realized upon settlement
of foreign currency transactions are reported in the Statement of
Operations.
Although the net assets of the Portfolio are presented at the exchange
rates and market values prevailing at the end of the period, the Portfolio
does not isolate the portion of the results of operations arising as a
result of changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of securities during the period.
c)Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or at 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 may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily based on procedures established
by and under the general supervision of the Portfolio's Trustees, and the
change in the market value is recorded by the Portfolio as unrealized
appreciation or depreciation of foreign currency translations.
e)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
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 or securities movements of
counterparties to meet the terms of their contracts.
f)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
25
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
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.
g)The Portfolio incurred organization expenses in the amount of $33,000.
Morgan Guaranty Trust Company of New York ("Morgan") has agreed to pay the
organization expenses of the Portfolio. The Portfolio has agreed to
reimburse Morgan for these costs which are being deferred and will be
amortized on a straight-line basis over a period not to exceed five years
beginning with the commencement of operations of the Portfolio.
h)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.
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an Investment Advisory Agreement with Morgan . Under the
terms of the agreement, the Portfolio pays Morgan at an annual rate of
0.65% of the Portfolio's average daily net assets. For the six months
ended June 30, 1997, such fees amounted to $1,104,268.
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
JPM Pierpont Funds, The JPM Institutional Funds, the Portfolio, the other
portfolios in which The JPM Pierpont Funds and The JPM Institutional Funds
invest (the "Master Portfolios"), JPM Series Trust, JPM Series Trust II
and certain other investment companies subject to similar agreements with
FDI. For the six months ended June 30, 1997, the fee for these services
amounted to $4,213.
c)The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing
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 daily based on the aggregate average daily net assets of the
Master Portfolios and JPM 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
26
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
assets bear to the net assets of the Master Portfolios, other investors in
the Master Portfolios for which Morgan provides similar services and JPM
Series Trust. For the six months ended June 30, 1997 , the fee for these
services amounted to $53,195.
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 $5,830 for the six months ended June 30, 1997.
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the Portfolio's allocated
portion of the total fees and expenses. Prior to April 1, 1997, the
aggregate annual Trustee fee was $65,000. 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 $1,200.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended June 30, 1997 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS FROM
PURCHASES SALES
- --------------- ---------------
<S> <C>
$133,362,605 $ 168,521,319
</TABLE>
27
<PAGE>
JPM INSTITUTIONAL PRIME MONEY MARKET FUND
JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
JPM INSTITUTIONAL TREASURY MONEY MARKET FUND
JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
JPM INSTITUTIONAL SHORT TERM BOND FUND
JPM INSTITUTIONAL BOND FUND
JPM INSTITUTIONAL TAX EXEMPT BOND FUND
JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
JPM INSTITUTIONAL SHARES: CALIFORNIA BOND FUND
JPM INSTITUTIONAL INTERNATIONAL BOND FUND
JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
JPM INSTITUTIONAL DIVERSIFIED FUND
JPM INSTITUTIONAL U.S. EQUITY FUND
JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
JPM INSTITUTIONAL U.S. SMALL COMPANY FUND
JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
JPM INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND
JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND
JPM INSTITUTIONAL EUROPEAN EQUITY FUND
JPM INSTITUTIONAL JAPAN EQUITY FUND
JPM INSTITUTIONAL ASIA GROWTH FUND
FOR MORE INFORMATION ON THE JPM INSTITUTIONAL
FUNDS, CALL J.P. MORGAN FUNDS SERVICES AT
(800)766-7722.
The
JPM Institutional
Japan Equity
Fund
SEMI-ANNUAL REPORT
JUNE 30, 1997
