<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM PIERPONT EMERGING MARKETS DEBT FUND
July 31, 1997
Dear Shareholder:
We are pleased to present you with the first semi-annual report for The JPM
Pierpont Emerging Markets Debt Fund. From its inception on April 17 of this
year through June 30, it has provided a healthy return of 6.80%. That return
reflects the continuing improvement we have seen in emerging debt markets
since the undertaking of structural economic reforms by many of these
countries that began several years ago. The Fund's return of 4.71% for the
months of May and June, however, trailed the 6.27% return of its benchmark,
the Emerging Markets Bond Index Plus, and the 6.86% return for the Lipper
Emerging Markets Debt Funds Average. This was largely due to our cautious
stance regarding interest rates and our efforts to better diversify the Fund.
While this held back the Fund's relative performance for this brief reporting
period, we maintain that both protecting the Fund from potential interest
rate damage and providing exposure to a larger number of markets than
represented in the Index will best serve shareholders in the long term.
The Fund's net asset value per share increased from $10.00 to $10.68 during
the period. Its total net assets reached $7.6 million, while the total net
assets of The Emerging Markets Debt Portfolio, in which the Fund invests,
reached $134.2 million. The Fund will begin making monthly income
distributions in August.
The report that follows includes an interview with Eduardo Cortes, the Fund's
portfolio manager. 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.
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) 521-5411.
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
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS.............. 1
FUND PERFORMANCE........................ 2
PORTFOLIO MANAGER Q&A................... 3
FUND FACTS AND HIGHLIGHTS............... 6
SPECIAL FUND-BASED SERVICES............. 7
FINANCIAL STATEMENTS.................... 9
1
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Fund performance
EXAMINING PERFORMANCE
The table below shows total returns for the Fund, its benchmark, and its
Lipper category average, which are not annualized. These returns illustrate
the Fund's absolute and relative performance since its commencement of
operations on April 17, 1997.
PERFORMANCE
TOTAL RETURNS
---------------------
ONE SINCE
AS OF JUNE 30, 1997 MONTH INCEPTION*
- ---------------------------------------------------------------------------
The JPM Pierpont Emerging Markets Debt Fund 1.62% 4.71%
Emerging Markets Bond Index Plus** 2.30% 6.27%
Lipper Emerging Markets Debt Funds Average 2.88% 6.86%
* THE FUND COMMENCED OPERATIONS ON APRIL 17, 1997 AND HAS PROVIDED A TOTAL
RETURN OF 6.80% FROM THAT DATE THROUGH JUNE 30, 1997. FOR THE PURPOSE OF
COMPARISON, THE "SINCE INCEPTION" RETURNS IN THE TABLE ABOVE ARE CALCULATED
FROM APRIL 30, 1997, THE FIRST DATE WHEN DATA FOR THE FUND, ITS BENCHMARK,
AND ITS LIPPER CATEGORY AVERAGE WERE ALL AVAILABLE.
** THE EMERGING MARKETS BOND INDEX PLUS IS AN UNMANAGED INDEX WHICH TRACKS
TOTAL RETURN FOR EXTERNAL CURRENCY-DENOMINATED DEBT (BRADY BONDS, LOANS,
EUROBONDS, AND U.S. DOLLAR-DENOMINATED LOCAL MARKET INSTRUMENTS) IN EMERGING
MARKETS. 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. FUND RETURNS ARE NET OF FEES AND REFLECT THE
REIMBURSEMENT OF CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE
PROSPECTUS. HAD EXPENSES NOT BEEN REIMBURSED, RETURNS WOULD HAVE BEEN LOWER.
LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
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Portfolio manager Q&A
[PHOTO]
The following is an interview with EDUARDO CORTES, VICE PRESIDENT, the
portfolio manager for the JPM Pierpont Emerging Markets Debt Fund. Mr. Cortes
joined Morgan in 1985 and became a member of the Fixed Income Group in 1991.
Eduardo is currently a member of the Fixed Income Allocation Committee and
the Global Extended Markets Strategy Team. Eduardo received his B.A. from
Stanford University and his M.B.A. from UCLA. This interview was conducted on
July 22, 1997 and reflects Eduardo's views on that date.
SO FAR, 1997 HAS BEEN ANOTHER EXCEPTIONAL YEAR FOR EMERGING DEBT MARKETS,
WITH THE EMERGING MARKETS BOND INDEX PLUS (EMBI+) RISING 11.8%. WHAT WERE THE
PRIMARY REASONS FOR THIS ADVANCE?
EC: A trend in emerging markets over the past several years has been the
implementation of more prudent economic policies. These structural reforms
have vastly improved creditworthiness in many emerging markets. And despite
this reduction in risk, emerging markets continued to provide relatively high
yields. In addition, this favorable combination has attracted new investors
bringing sizeable flows of new money. Another huge positive has been a very
favorable global backdrop of low inflation and low interest rates, which has
helped support these markets.
DO U.S. INTEREST RATES AFFECT EMERGING DEBT MARKETS?
EC: Yes, they are extremely important for two reasons. The first is that most
of the securities we buy for the Portfolio are U.S. dollar-denominated, and
they have U.S. interest rate sensitivity of some kind. So to the extent that
U.S. interest rates change, they will affect the valuation of the Fund's
securities. It's noteworthy that the correlation between the U.S. fixed
income market and those of emerging economies is increasing.
The other reason is that these countries are doing much of their funding
in foreign currencies to pay for things that they're financing -- bridges and
roads, old debt, etc. And obviously, the lower the rate, the less it costs to
finance these projects.
WHAT IS YOUR OUTLOOK ON INTEREST RATES IN THE U.S. AND GLOBALLY? IS THERE A
GOOD CHANCE THAT RATES WILL RISE?
EC: Yes, most definitely. While there currently aren't any signs of
inflation, the U.S. economy has been growing at a healthy clip for a few
years. Now, there are signs that Europe and Japan are beginning to experience
growth as well. We could see a situation in which all of the economies around
the world are growing rapidly. With monetary policies already stimulative, or
at least supportive, we should be aware that the world's central banks are
more likely to increase rates than to decrease them.
3
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HAS THE POSSIBILITY OF HIGHER RATES AFFECTED HOW YOU'VE POSITIONED THE FUND?
EC: Yes. With that in mind, we've positioned the Fund cautiously. The Fund
currently holds fewer fixed-rate and long-duration securities and more
floating-rate and short-duration securities than its benchmark, the EMBI+.
So, for the time being, the Fund has less sensitivity to changes in interest
rates.
WHAT TYPES OF SECURITIES CONSTITUTE THE EMERGING DEBT MARKETS AND HOW DID
THEY COME ABOUT?
EC: Let's start from way back in the 1970s. At that time, many emerging
countries started borrowing overseas, in the name of the government, to fund
economic activity or infrastructure. Then, the debt crisis of the 1980s
occurred as a result of over-borrowing in an environment of high interest
rates and high inflation. Many of these countries had to borrow more and more
money just to pay the interest on the loans. As a partial solution to this
crisis, U.S. banks restructured this debt by creating Brady bonds. The banks
essentially exchanged their loans for Brady bonds, which are collateralized
by zero coupon Treasuries, enabling them to divorce themselves from the
borrowers. This was an important step in the evolution of emerging debt
markets because it introduced the idea of using capital markets.
When these securities first came out, they were enormous in size and
there weren't a lot of buyers. It was mostly the banks swapping them amongst
themselves. By 1990, a secondary market developed. In 1994, borrowers from
the emerging markets -- sovereign entities and a few corporations -- were
able to enter the marketplace and issue securities such as Yankee bonds and
Euro bonds. Euro bonds present a useful alternative for investors because
they have intermediate maturities, usually five to ten years, whereas Brady
bonds have either very long or very short maturities.
The most recent trend for global investors is to buy emerging market
bonds denominated in local currencies. This market has always existed but has
been largely for local investors. Only recently have global investors, such
as ourselves, gotten involved. This is an interesting area because, in
addition to currently attractive yields, investing in local currencies can
provide an added dimension of diversification, although it also introduces
currency risk for dollar-based investors. If you can get comfortable with the
currency risk -- and that mostly means believing that the process by which
the central governments are managing those currencies is sustainable -- you
have an attractive proposition. We are optimistic about the future
development of this market.
WE'VE REFERRED TO THE EMBI+ AS BEING THE FUND'S BENCHMARK. WHAT IS THE MAKEUP
OF THAT INDEX AND WHAT DOES THE "PLUS" REPRESENT?
EC: Morgan first created the Emerging Markets Bond Index in 1991, which, at
the time, was representative of the market. In other words, it was largely a
Brady bond index. Since then, the market has expanded and that is reflected
in the EMBI+. The EMBI+ consists of four segments: Brady bonds (69%), Euro
bonds (12%), loans (13%), and local investments (6%), although the local
investments currently included are denominated in U.S. dollars.
4
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HOW DOES THE FUND DIFFER IN COMPOSITION FROM THE INDEX?
EC: The Fund is much more diversified than the Index, and that's a good
thing. We don't want to follow the Index too tightly because it's
concentrated in Latin America and heavily weighted in Brady bonds. To us, it
makes sense to be more diversified. For example, the Index represents
thirteen countries whereas the Fund is invested in twenty. Having said that,
we don't want to deviate too far from the Index either, because the
securities included are the most liquid, and in some cases the only
securities available, in that country.
Another difference is that the Fund owns very few collateralized
securities. To do so would require giving up two to three percentage points
in yield. We do not think that makes sense if you have already made the
commitment to be in emerging markets and have become comfortable with the
credit analysis of the country. Furthermore, we believe over time the Fund
will benefit from owning securities with higher yields than the benchmark.
A final difference would be that the Fund holds investments in local
currencies. While we expect that to pay off in the long run, it has not
worked well recently with the U.S. dollar being so strong.
THE FUND PROVIDED A TOTAL RETURN OF 6.80% FROM ITS INCEPTION ON APRIL 17
THROUGH JUNE 30. WHILE THAT'S CERTAINLY A HEALTHY RETURN, ESPECIALLY FOR A
FIXED INCOME FUND, IT LAGGED THE BENCHMARK FOR MAY AND JUNE. WHY?
EC: The Fund's diversification, which we are very comfortable with, has
actually detracted during that brief period. Our caution with the Fund's
duration also held performance back a bit. However, we're confident in the
current composition and positioning of the Portfolio, and slightly trailing
the Index for a short period has not altered our views on the market.
5
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Fund facts
INVESTMENT OBJECTIVE
The JPM Pierpont Emerging Markets Debt Fund seeks to provide a high total
return from a portfolio of fixed income securities of emerging markets
issuers. It is designed for investors who seek exposure to emerging markets
debt in their investment portfolios. As an international investment, the Fund
is subject to foreign political and currency risks, in addition to market
risk.
- ------------------------------------------------
COMMENCEMENT OF OPERATIONS
4/17/97
- ------------------------------------------------
NET ASSETS AS OF 6/30/97
$7,572,706
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DIVIDEND PAYABLE DATES
MONTHLY (BEGINNING AUGUST 1997)
- ------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/24/97
EXPENSE RATIO
The Fund's current annualized expense ratio of 1.25% 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
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
BRAZIL 18.2%
ARGENTINA 17.8%
MEXICO 16.7%
RUSSIA 7.0%
VENEZUELA 5.7%
PANAMA 5.0%
INDONESIA 4.9%
ECUADOR 4.5%
PERU 3.5%
OTHER 16.7%
30-DAY SEC YIELD
7.72%
DURATION
4.17 years
6
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Special fund-based services
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term
instruments, bonds, and stocks -- can offer an excellent opportunity to
achieve one's investment objectives. PAAS provides investors with a
comprehensive management program for their portfolios. Through this service,
investors can:
- - create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- - make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends;
- - make investments through the diversified family of JPM Pierpont Funds.
PAAS is available to clients who invest a minimum of $500,000 in the JPM
Pierpont Funds.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow
tax-deferred until retirement, the IRA enables more of your dollars to work
for you longer. Morgan offers an IRA Rollover plan that helps you to build
well-balanced long-term investment portfolios, diversified across a wide
array of mutual funds. From money markets to emerging markets, the JPM
Pierpont Funds provide an excellent way to help you accumulate long-term
wealth for retirement.
KEOGH
Keoghs provide another excellent vehicle to help individuals who are
self-employed or are employees of unincorporated businesses to accumulate
retirement savings. A Keogh is a tax-deferred pension plan that can allow you
to contribute the lesser of $30,000 or 25% of your annual earned gross
compensation. The JPM Pierpont Funds can help you build a comprehensive
investment program designed to maximize the retirement dollars in your Keogh
account.
7
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FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR OF THE JPM PIERPONT EMERGING
MARKETS DEBT 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 Emerging Markets Debt
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) 521-5411.
8
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THE JPM PIERPONT EMERGING MARKETS DEBT FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Emerging Markets Debt Portfolio
("Portfolio"), at value $7,585,622
Deferred Organization Expenses 16,120
Receivable for Expense Reimbursements 7,702
Prepaid Expenses and Other Assets 135
----------
Total Assets 7,609,579
----------
LIABILITIES
Organization Expenses Payable 16,800
Shareholder Servicing Fee Payable 1,542
Administrative Services Fee Payable 192
Accrued Trustees' Fees and Expenses 21
Administration Fee Payable 11
Fund Services Fee Payable 7
Accrued Expenses 18,300
----------
Total Liabilities 36,873
----------
NET ASSETS
Applicable to 709,385 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $7,572,706
----------
----------
Net Asset Value, Offering and Redemption Price
Per Share $10.68
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $7,097,842
Undistributed Net Investment Income 129,411
Accumulated Net Realized Gain on Investment and
Foreign Currency Transactions 80,436
Net Unrealized Appreciation of Investment and
Foreign Currency Translations 265,017
----------
Net Assets $7,572,706
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
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THE JPM PIERPONT EMERGING MARKETS DEBT FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD FROM APRIL 17, 1997 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $147,992
Allocated Portfolio Expenses (14,203)
--------
Net Investment Income Allocated from
Portfolio 133,789
FUND EXPENSES
Registration Fees $ 6,266
Transfer Agent Fees 4,750
Shareholder Servicing Fee 3,716
Printing Expenses 3,619
Professional Fees 3,252
Amortization of Organization Expenses 681
Administrative Services Fee 464
Administration Fee 46
Fund Services Fee 43
Trustees' Fees and Expenses 21
Insurance Expense 3
Miscellaneous 573
--------
Total Fund Expenses 23,434
Less: Reimbursement of Expenses (19,056)
--------
NET FUND EXPENSES 4,378
--------
NET INVESTMENT INCOME 129,411
NET REALIZED GAIN ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS ALLOCATED FROM PORTFOLIO 80,436
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT AND FOREIGN CURRENCY TRANSLATIONS
ALLOCATED FROM PORTFOLIO 265,017
--------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $474,864
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM PIERPONT EMERGING MARKETS DEBT FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
APRIL 17, 1997
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1997
(UNAUDITED)
----------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 129,411
Net Realized Gain on Investment and Foreign
Currency Transactions Allocated from Portfolio 80,436
Net Change in Unrealized Appreciation of
Investment and Foreign Currency Translations
Allocated from Portfolio 265,017
----------------
Net Increase in Net Assets Resulting from
Operations 474,864
----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 7,097,842
----------------
Total Increase in Net Assets 7,572,706
NET ASSETS
Beginning of Period --
----------------
End of Period (including undistributed net
investment income of $129,411) $ 7,572,706
----------------
----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
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THE JPM PIERPONT EMERGING MARKETS DEBT FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
APRIL 17, 1997
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1997
(UNAUDITED)
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18
Net Realized and Unrealized Gain on Investment
and Foreign Currency 0.50
----------------
Total from Investment Operations 0.68
----------------
NET ASSET VALUE, END OF PERIOD $ 10.68
----------------
----------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 6.80%(a)
Net Assets, End of Period (in thousands) $ 7,573
Ratios to Average Net Assets
Expenses 1.25%(b)
Net Investment Income 8.71%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 1.28%(b)
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
12
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THE JPM PIERPONT EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Pierpont Emerging Markets Debt Fund (the "Fund") is a separate series of
The JPM Pierpont 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 April 17, 1997.
The Fund invests all of its investable assets in The Emerging Markets Debt
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
6% 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)Until July 31, 1997, distributions to shareholders of net investment
income and net realized capital gains, if any, are declared and paid
annually. Effective August 1, 1997, substantially all the Fund's net
investment income will be declared as dividends daily and paid monthly.
Distributions to shareholders of net realized capital gains, if any, will
be declared and paid annually.
d)The Fund incurred organization expenses in the amount of $16,800. 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 will be 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.
13
<PAGE>
THE JPM PIERPONT EMERGING MARKETS DEBT 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, on behalf of the Fund, 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 an annual
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
period from April 17, 1997 (commencement of operations) to June 30, 1997,
the fee for these services amounted to $46.
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 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 net assets of the
Portfolio and the other portfolios in which the Trust and The JPM
Institutional 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 period from April 17, 1997 (commencement of
operations) to June 30, 1997, the fee for these services amounted to $464.
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
1.25% of the average daily net assets of the Fund through April 30, 1998.
For the period from April 17, 1997 (commencement of operations) to June
30, 1997, Morgan has agreed to reimburse the Fund $19,056 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 0.25% of the average daily net assets of
the Fund. For the period from April 17, 1997 (commencement of operations)
to June 30, 1997, the fee for these services amounted to $3,716.
14
<PAGE>
THE JPM PIERPONT EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
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.
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
$43 for the period from April 17, 1997 (commencement of operations) to
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 Institutional 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. 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 $10.
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
FROM
APRIL 17, 1997
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1997
(UNAUDITED)
----------------
<S> <C>
Shares sold...................................... 709,385
</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 the 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
15
<PAGE>
THE JPM PIERPONT EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
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.
16
<PAGE>
The Emerging Markets Debt Portfolio
Semi-Annual Report June 30, 1997
(unaudited)
(The following pages should be read in conjunction
with The JPM Pierpont Emerging Markets Debt Fund
Semi-Annual Financial Statements)
17
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ------------------------------------------------- -------------
<C> <S> <C>
CONVERTIBLE BONDS (3.1%)
MEXICO (1.2%)
$ 1,500,000 Banamex S.A., (144A), 11.00% due 07/15/03........ $ 1,601,250
-------------
THAILAND (1.9%)
1,000,000 Robinson Department Store Public Company Ltd.,
3.25% due 07/27/00............................. 930,000
1,291,000 Sahaviriya Steel Industries Public Company Ltd.,
(144A), 3.50% due 07/26/05..................... 542,220
1,000,000 Total Access Communication Public Company Ltd.,
2.00% due 05/31/06............................. 1,040,000
-------------
2,512,220
-------------
TOTAL CONVERTIBLE BONDS (COST $4,445,540).... 4,113,470
-------------
CORPORATE OBLIGATIONS (22.1%)
ARGENTINA (1.5%)
ARS 2,000,000 CEI Citicorp Holdings S.A., (144A), 11.25% due
02/14/07....................................... 2,040,000
-------------
BRAZIL (3.9%)
$ 2,000,000 Abril S.A., 12.00% due 10/25/03.................. 2,215,000
1,000,000 Safra Leasing S.A., (144A), 8.125% due
06/16/05....................................... 990,000
2,000,000 Voto-Votorantim Overseas Trading, (144A), 8.50%
due 06/27/05................................... 1,990,000
-------------
5,195,000
-------------
CHINA (0.4%)
500,000 Zhuhai Highway Company Ltd. Series B, (144A),
11.50% due 07/01/08............................ 578,660
-------------
COLOMBIA (1.2%)
1,500,000 Termoemcali Funding Corp., (144A), 10.125% due
12/15/14....................................... 1,627,305
-------------
INDONESIA (4.8%)
1,000,000 Indah Kiat Finance Co. Mauritius, (144A), 10.00%
due 07/01/07................................... 996,250
2,000,000 Indah Kiat International Finance Co. Global Bonds
Series B, 11.875% due 06/15/02................. 2,200,000
1,000,000 Matahari International Finance Co. BV, 11.25% due
03/15/01....................................... 1,072,500
IDR 5,000,000,000 PT Polysindo Eka Perkasa, 19.00% due 04/26/99.... 2,111,865
-------------
6,380,615
-------------
MEXICO (6.1%)
$ 1,000,000 Altos Hornos de Mexico S.A., (144A), 11.375% due
04/30/02....................................... 1,062,500
4,500,000 Copamex Industrias S.A., (144A), 11.375% due
04/30/04....................................... 4,860,000
1,500,000 Grupo Televisa S.A. de CV Senior Notes, 11.875%
due 05/15/06................................... 1,689,375
500,000 TFM S.A. de CV, (144A), 10.25% due 06/15/07...... 508,125
-------------
8,120,000
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ------------------------------------------------- -------------
<C> <S> <C>
PHILLIPINES (1.6%)
$ 2,000,000 CE Casecnan Water & Energy Inc. Senior Notes
Series A, 11.45% due 11/15/05.................. $ 2,194,800
-------------
THAILAND (0.7%)
1,000,000 Thai Farmers Bank Public Company Ltd., (144A),
8.25% due 08/21/16............................. 947,240
-------------
VENEZUELA (1.9%)
2,500,000 CANTV Finance Ltd., 9.25% due 02/01/04........... 2,540,625
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$28,764,878)............................... 29,624,245
-------------
GOVERNMENT OBLIGATIONS (3.0%)
ARGENTINA (1.5%)
ARS 2,000,000 City of Buenos Aires, (144A), 10.50% due
05/28/04....................................... 2,045,000
-------------
RUSSIA (1.5%)
$ 2,000,000 City of Moscow, (144A), 9.50% due 05/31/00....... 2,012,000
-------------
TOTAL GOVERNMENT OBLIGATIONS (COST
$4,028,962)................................ 4,057,000
-------------
SOVEREIGN BONDS (60.5%)
ALGERIA (1.3%)
2,000,000 Algerian Repro Loan Agreement Tranche A/1, 6.909%
due 09/04/06{*}................................ 1,745,000
-------------
ARGENTINA (14.3%)
4,000,000 Republic of Argentina Bonos del Tesoro, Series
BT02, 8.75% due 05/09/02....................... 4,000,000
4,000,000 Republic of Argentina Discount Bonds, 6.875% due
03/31/23{*}.................................... 3,460,000
10,912,500 Republic of Argentina FRB Series L, 6.75% due
03/31/05{*}.................................... 10,257,750
ARS 1,298,916 Republic of Argentina Pensioner BOCON Previs 1,
3.242% due 04/01/01{*}......................... 1,188,892
$ 311,637 Republic of Argentina Pensioner BOCON Previs 2,
5.695% due 04/01/01{*}......................... 303,259
-------------
19,209,901
-------------
BRAZIL (13.8%)
5,125,000 Republic of Brazil Bearer DCB, 6.938% due
04/15/12{*}.................................... 4,234,531
4,000,000 Republic of Brazil Exit Bonds, 6.00% due
09/15/13....................................... 3,070,000
1,305,000 Republic of Brazil IDU Series A, 6.50% due
01/01/01{*}.................................... 1,287,382
970,430 Republic of Brazil MYDFA Trust Certificates
Series REGS, 6.563% due 09/15/07{*}............ 883,693
5,000,000 Republic of Brazil NMB-1994, 6.938% due
04/15/09{*}.................................... 4,387,500
5,827,380 Republic of Brazil, C Bonds, 8.00% due
04/15/14....................................... 4,680,144
-------------
18,543,250
-------------
CROATIA (2.2%)
3,000,000 Republic of Croatia, 6.50% due 07/30/10{*}....... 2,910,000
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ------------------------------------------------- -------------
<C> <S> <C>
ECUADOR (4.4%)
$ 4,000,000 Republic of Ecuador FRN, (144A), 10.813% due
04/25/04{*}.................................... $ 4,205,000
2,690,775 Republic of Ecuador Global Bearer PDI Bonds,
6.438% due 02/27/15{*}......................... 1,728,823
-------------
5,933,823
-------------
GREECE (0.7%)
GRD 245,000,000 Hellenic Republic, 13.50% due 12/27/02{*}........ 939,939
-------------
KAZAKHSTAN (0.8%)
$ 1,000,000 Republic of Kazakhstan Series REGS, 9.25% due
12/20/99....................................... 1,012,500
-------------
MEXICO (9.0%)
50,000 United Mexican States Discount Bonds Series A
(including 76,900 value recovery rights
expiring 6/30/03), 6.867% due 12/31/19{*}...... 46,500
6,000,000 United Mexican States Discount Bonds Series D
(including 9,228,000 value recovery rights
expiring 6/30/03), 6.813% due 12/31/19{*}...... 5,580,000
2,000,000 United Mexican States FRN Series REGS, 7.875% due
08/06/01{*}.................................... 2,002,000
3,000,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... 3,371,400
1,000,000 United Mexican States Global Bonds, 11.50% due
05/15/26....................................... 1,141,200
-------------
12,141,100
-------------
MOROCCO (1.4%)
2,000,000 Kingdom of Morocco Restructuring & Consolidating
Agreement, 6.813% due 01/01/09{*}.............. 1,821,260
-------------
PANAMA (4.9%)
961,547 Republic of Panama Bearer Bonds, 7.031% due
05/14/02{*}.................................... 950,729
5,000,000 Republic of Panama IRB, 3.50% due 07/17/14{*}.... 3,850,000
2,028,120 Republic of Panama PDI, 6.563% due 07/17/16{*}... 1,784,746
-------------
6,585,475
-------------
PERU (3.4%)
7,000,000 Republic of Peru PDI, 4.00% due 03/07/17{*}...... 4,541,600
-------------
RUSSIA (0.7%)
1,000,000 Ministry of Finance Russia, (144A), 10.00% due
06/26/07....................................... 996,200
-------------
VENEZUELA (3.6%)
5,238,095 Republic of Venezuela FLIRB Series B, 6.75% due
03/31/07{*}.................................... 4,865,142
-------------
TOTAL SOVEREIGN BONDS (COST $78,343,198)..... 81,245,190
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ------------------------------------------------- -------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (8.7%)
EURO DOLLAR TIME DEPOSITS (2.0%)
$ 2,732,000 State Street Bank, Euro Dollar 5.25% due
7/01/97........................................ $ 2,732,000
-------------
POLAND (2.1%)
3,007,563 ING Bank Warsaw PLN Pass Thru Note, 21.50% due
07/22/97....................................... 2,858,571
-------------
RUSSIA (4.6%)
2,000,000 Russian Federation GKO Series EM 136 Structured
Note, due 10/27/97............................. 1,922,039
2,500,000 Russian Federation GKO Series EM 183 USD Hedged
Structured Note, due 5/11/98................... 2,245,656
2,000,000 Russian Federation GKO USD Hedged Structured
Note, due 11/03/97............................. 1,927,724
-------------
6,095,419
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$11,836,859)............................... 11,685,990
-------------
TOTAL INVESTMENTS (COST $127,419,437) (97.4%).... 130,725,895
OTHER ASSETS IN EXCESS OF LIABILITIES (2.6%)..... 3,521,925
-------------
NET ASSETS (100.0%).............................. $ 134,247,820
-------------
-------------
</TABLE>
- ------------------------------
Note: The cost of securities for Federal Income Tax purposes at June 30, 1997,
was $127,580,461; the aggregate gross unrealized appreciation and depreciation
was $3,784,149 and $638,715, respectively, resulting in net unrealized
appreciation of $3,145,434.
{*} Rate shown reflects current rate on variable rate instrument or instrument
with step coupon rates.
144A -- Securities restricted for resale to Qualified Institutional Buyers.
ARS -- Argentine Peso.
BOCON -- Argentine pension consolidation bonds.
C -- Capitalization.
DCB -- Debt Conversion Bonds.
FLIRB -- Front Loaded Interest Reduction Bonds.
FRB -- Floating Rate Bond.
FRN -- Floating Rate Note.
GRD -- Greek Drachma.
GKO -- Russian Treasury Bills.
IDR -- Indonesian Rupiah.
IDU -- Interest Due and Unpaid.
IRB -- Interest Reduction Bonds.
MYDFA -- Multi-Year Refinancing Agreement.
NMB -- New Money Bonds.
PDI -- Past Due Interest.
PLN -- Poland.
USD -- United States Dollar.
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $127,419,437 ) $130,725,895
Foreign Currency at Value (Cost $97,224 ) 97,185
Cash 645
Receivable for Investments Sold 8,523,077
Interest Receivable 2,343,036
Unrealized Appreciation of Open Swap Contracts 372,662
Unrealized Appreciation of Forward Foreign
Currency Contracts 86,156
Deferred Organization Expenses 15,180
Prepaid Expenses and Other Assets 19,865
------------
Total Assets 142,183,701
------------
LIABILITIES
Payable for Investments Purchased 7,754,842
Advisory Fee Payable 75,776
Custody Fee Payable 65,327
Organization Expenses Payable 14,200
Administrative Services Fee Payable 3,361
Accrued Trustees' Fees and Expenses 659
Administration Fee Payable 290
Fund Services Fee Payable 114
Accrued Expenses 21,312
------------
Total Liabilities 7,935,881
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $134,247,820
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD FROM MARCH 7, 1997 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $3,763,252
EXPENSES
Advisory Fee $ 271,243
Custodian Fees and Expenses 65,327
Professional Fees and Expenses 18,660
Administrative Services Fee 11,875
Printing Expenses 2,468
Amortization of Organization Expense 1,020
Administration Fee 941
Fund Services Fee 935
Trustees' Fees and Expenses 792
Registration Fees 235
Insurance Expense 169
Miscellaneous 231
----------
Total Expenses 373,896
----------
NET INVESTMENT INCOME 3,389,356
NET REALIZED GAIN (LOSS) ON
Investment Transactions (including $34,267 net
realized gain from swap contracts) 258,885
Foreign Currency Transactions (30,474)
----------
Net Realized Gain 228,411
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments (including $372,662 net unrealized
appreciation from swap contracts) 3,379,745
Foreign Currency Contracts and Translations 86,117
----------
Net Change in Unrealized Appreciation 3,465,862
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $7,083,629
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
MARCH 7, 1997
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1997
(UNAUDITED)
----------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 3,389,356
Net Realized Gain on Investment and Foreign
Currency Transactions 228,411
Net Change in Unrealized Appreciation of
Investments and Foreign Currency Contracts and
Translations 3,465,862
----------------
Net Increase in Net Assets Resulting from
Operations 7,083,629
----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 141,176,307
Withdrawals (14,012,116)
----------------
Net Increase from Investors' Transactions 127,164,191
----------------
Total Increase in Net Assets 134,247,820
NET ASSETS
Beginning of Period --
----------------
End of Period $ 134,247,820
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
MARCH 7, 1997
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1997
(UNAUDITED)
----------------
<S> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.96%(a)
Net Investment Income 8.75%(a)
Portfolio Turnover 118%
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Emerging Markets Debt 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, 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 commenced operations on March 7, 1997 and received a contribution of
certain assets and liabilities, including securities, with a value of
$113,127,989 on that date from the JPM Emerging Markets Debt Fund, Ltd. in
exchange for a beneficial interest in the Portfolio. The Portfolio's investment
objective is high total return from a portfolio of fixed income securities of
emerging markets issuers. The Declaration of the Trust permits the Trustees to
issue an unlimited number of beneficial interests in the Portfolio.
Investments in emerging markets may involve certain considerations and risks not
typically associated with investments in the United States. Future economic and
political developments in emerging market countries could adversely affect the
liquidity or value, or both, of such securities in which the Portfolio is
invested. The ability of the issuers of 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 on the
most recent sale price, or, in the absence of recorded sales, at the
closing bid price. 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 quoted bid price 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 values of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expenses are
translated at the
25
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
exchange rates prevailing on the respective dates of such transactions.
Translation gains and losses resulting from changes in exchange rates
during the reporting period and gains and losses realized upon settlement
of foreign currency transactions are reported in the Statement of
Operations.
Although the net assets of the Portfolio are presented at the exchange
rates and market values prevailing at the end of the period, the Portfolio
does not isolate the portion of the results of operations arising as a
result of changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of securities during the period.
c)Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount become known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
d)The Portfolio 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. At June 30,
1997, the Portfolio had open forward foreign currency contracts as
follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
VALUE AT APPRECIATION/
COST/PROCEEDS 6/30/97 (DEPRECIATION)
------------- ----------- --------------
<S> <C> <C> <C>
PURCHASE CONTRACTS
- -------------------------------------------------
Egyptian Pound 6,827,760, expiring 7/7/97........ $ 2,000,000 $ 2,012,937 $ 12,937
El Salvador Colon 17,793,160, expiring
10/22/97........................................ 2,000,000 2,007,634 7,634
El Salvador Colon 17,781,800, expiring 12/3/97... 2,000,000 1,998,820 (1,180)
Mexican Peso 18,297,000, expiring 6/26/98........ 2,000,000 2,011,322 11,322
South African Rand 4,594,000, expiring 9/11/97... 1,000,000 994,085 (5,915)
SALES CONTRACTS
- -------------------------------------------------
German Mark 1,600,000, expiring 7/11/97.......... 965,309 919,183 46,126
German Mark 2,321,460, expiring 7/22/97.......... 1,350,000 1,334,768 15,232
--------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 86,156
--------------
--------------
</TABLE>
26
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
e)The Portfolio may engage in swap transactions, specifically interest rate,
currency, index and total return swaps. The Portfolio will use these
transactions to preserve a return or spread on a particular investment or
portion of its investments, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the
price of securities the Portfolio anticipates purchasing at a later date,
or to gain exposure to certain markets in the most economical way
possible. An interest rate swap is an agreement between two parties to
exchange interest payments on a specified amount (the "notional amount")
for a specified period. If a swap agreement provides for payments in
different currencies, the parties might agree to exchange the notional
amount as well. Risks associated with swap transactions include the
ability of counterparties to meet the terms of their contracts, and the
amount of the Portfolio's potential loss on any swap transaction is not
subject to any fixed limit.
The unrealized appreciation or depreciation on open swap contracts
represents the difference between the payments for which the
counterparties are liable to the Portfolio and the payments the Portfolio
has contracted to pay to the counterparties. These payment streams will
fluctuate with changes in interest rates, in currency exchange rates or in
the values of underlying securities in the case of total return swaps.
Realized gains and losses are recognized when the swap transactions are
terminated. At June 30, 1997, the Portfolio had open swap contracts as
follows:
SUMMARY OF OPEN SWAP CONTRACTS
<TABLE>
<CAPTION>
NET UNREALIZED
CONTRACTED APPRECIATION
AMOUNT (DEPRECIATION)
--------------- --------------
<S> <C> <C>
Morocco Tranche A Loans Total Return Swap,
expires 11/12/97................................ $ 1,000,000 $ 171,880
Morocco Tranche A Loans Total Return Swap,
expires 11/12/97................................ 1,000,000 201,255
Texmaco Indonesian Rupiah (IDR) Total Return
Swap, expires 2/23/98........................... IDR 1,345,317,017 (473)
--------------
Net Unrealized Appreciation on Open Swap
Contracts....................................... $ 372,662
--------------
--------------
</TABLE>
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 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 $16,200.
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.
27
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
- --------------------------------------------------------------------------------
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
0.70% of the Portfolio's average daily net assets. For the period from
March 7, 1997 (commencement of operations) to June 30, 1997, such fees
amounted to $271,243.
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 and 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 period from March 7, 1997 (commencement of operations)
to June 30, 1997, the fee for these services amounted to $941.
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 that its net assets bear to the net assets of the
Master Portfolios, other investors in the Master Portfolios for which
Morgan provides similar services and JPM Series Trust. For the period from
March 7, 1997 (commencement of operations) to June 30, 1997, the fee for
these services amounted to $11,875.
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 $935 for the period from March 7, 1997 (commencement of
operations) to June 30, 1997.
28
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 $200.
3. INVESTMENT TRANSACTIONS:
Investment transactions (excluding short-term investments) for the period from
March 7, 1997 (commencement of operations) to June 30, 1997 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C>
$151,664,662 $126,186,118
</TABLE>
29
<PAGE>
JPM PIERPONT PRIME MONEY MARKET FUND
JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
JPM PIERPONT FEDERAL MONEY MARKET FUND
JPM PIERPONT SHORT TERM BOND FUND
JPM PIERPONT BOND FUND
JPM PIERPONT TAX EXEMPT BOND FUND
JPM PIERPONT NEW YORK TOTAL RETURN BOND FUND
JPM PIERPONT SHARES: CALIFORNIA BOND FUND
JPM PIERPONT EMERGING MARKETS DEBT FUND
JPM PIERPONT DIVERSIFIED FUND
JPM PIERPONT U.S. EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE U.S. EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE DISCIPLINED EQUITY FUND
JPM PIERPONT U.S. SMALL COMPANY FUND
JPM PIERPONT U.S. SMALL COMPANY OPPORTUNITIES FUND
JPM PIERPONT INTERNATIONAL EQUITY FUND
JPM PIERPONT INTERNATIONAL OPPORTUNITIES FUND
JPM PIERPONT EMERGING MARKETS EQUITY FUND
JPM PIERPONT EUROPEAN EQUITY FUND
JPM PIERPONT JAPAN EQUITY FUND
JPM PIERPONT ASIA GROWTH FUND
The
JPM Pierpont
Emerging Markets
Debt Fund
FOR MORE INFORMATION ON HOW THE JPM PIERPONT
FAMILY OF FUNDS CAN HELP YOU PLAN FOR YOUR FUTURE, CALL
J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
SEMI-ANNUAL REPORT
JUNE 30, 1997
