<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM PIERPONT JAPAN EQUITY FUND
February 5, 1997
Dear Shareholder:
We view the Japanese stock market, which is the world's second largest, as an
important market for investors to participate in. Unfortunately, this market
struggled in 1996, resulting in negative returns for the Fund at the end of the
period under review. While the Japanese stock market has taken a downward turn
during the period, we believe the economic recovery in Japan is well underway
and our long-term outlook for equities there is positive. Furthermore, we
believe the recent market weakness has created a number of buying opportunities.
Included in this report is a Q&A with Masato Degawa, a member of the Fund's
portfolio management team. In this interview, he elaborates on what has happened
during the year in the Japanese market and in the Fund, and discusses our
outlook for 1997. We hope you find it informative.
As always, we welcome your comments, questions, or any suggestions on how we can
further improve your financial reports. Please call J.P. Morgan Funds Services,
toll free, at (800) 521-5411.
Sincerely yours,
/s/ Evelyn E. Guernsey
Evelyn E. Guernsey
J.P. Morgan Funds Services
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
One way to evaluate a mutual fund's historical performance is to look at the
growth of a hypothetical investment of $100,000, which is the Fund's investment
minimum. The chart at the right shows that $100,000 invested in the Fund on
February 29, 1996* would have been worth $85,582 on December 31, 1996.
Another way to look at 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.
GROWTH OF $100,000 SINCE INCEPTION*
FEBRUARY 29, 1996 - DECEMBER 31, 1996
[Line Graph]
[FOLLOWING IS AN EDGAR REPRESENTATION OF THE POINTS IN LINE GRAPH]
JPM Piepont
Japan Equity Fund TOPIX
----------------- ---------------
Inception* $100,000 $100,000
12/31/96 $85,582 $85,834
- ----------------------------------------------------------------
PERFORMANCE TOTAL RETURNS
----------------------------------------
THREE SIX SINCE
AS OF DECEMBER 31, 1996 MONTHS MONTHS INCEPTION*
- --------------------------------------------------------------------------------
The JPM Pierpont Japan Equity Fund (13.38%) (18.86%) (14.42%)
TOPIX (13.14%) (18.58%) (14.17%)
Lipper Japanese Fund Average (9.77%) (15.45%) (10.11%)
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. ALL RETURNS ASSUME THE
REINVESTMENT OF DISTRIBUTIONS. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING
SOURCE FOR MUTUAL FUND DATA. ALTHOUGH GATHERED FROM RELIABLE SOURCES, DATA
ACCURACY AND COMPLETENESS CANNOT BE GUARANTEED.
* THE JPM PIERPONT JAPAN EQUITY FUND'S RETURNS INCLUDE HISTORICAL RETURNS OF THE
JPM INSTITUTIONAL JAPAN EQUITY FUND FROM FEBRUARY 29, 1996 THROUGH MAY 6, 1996.
2
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PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with MASATO DEGAWA, who is 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 February 3, 1997, and reflects
Masato's views on that date.
AFTER A SOLID FIRST HALF, THE JAPANESE EQUITY MARKET QUICKLY LOST GROUND,
LEAVING INVESTORS WITH NEGATIVE RETURNS FOR THE YEAR. WHAT WAS BEHIND THE
MARKET'S DECLINE?
The decline was largely attributable to two factors. First, the economic
recovery was obscured by conflicting data, which left investors puzzled. Second,
investors became increasingly skeptical with the bankruptcies of a number of
small to medium-sized financial institutions. Although we expected to see some
of the weaker financial institutions fail, the market seemed surprised by each
one and took a negative view.
HOW COULD THIS DECLINE OCCUR IF AN ECONOMIC RECOVERY WAS ACTUALLY TAKING PLACE?
While related to the economy, the troubles in the financial sector which
triggered the market decline are a separate event. The banks in Japan have been
writing off uncollectable debt that can no longer be carried. And the market,
which I have already described as skeptical, sold off. We currently think the
market is oversold.
THE JAPANESE BANK STOCKS HAVE BEEN PUBLICLY TROUBLED LATELY. WHAT IS YOUR
OPINION OF THEM?
For the major banks, the bad debts which we've heard so much about have been
reduced significantly, and we think the worst is behind us. Yet, they still are
priced with very steep yields. We have faith in many of these banks and believe
the Fund will eventually be rewarded for holding them. However, while the top-
tier banks have become profitable again, many second-tier banks are still
struggling, and this has been the focus of attention in the media as well as for
investors.
WHAT IS THE OUTLOOK FOR THE JAPANESE ECONOMY IN 1997 AND WHAT EFFECT WOULD YOU
EXPECT THAT TO HAVE ON STOCKS?
We are much more bullish than the consensus. We do not disagree that there will
be less fiscal stimulus in the form of spending by the government this year.
However, we think there are positives to offset this negative. To start with,
the yen's weakness is creating a very favorable environment for blue chip
exporters like Toyota and Sony. Furthermore, there is a lot of interdependency
in Japan's economy. These blue chip companies receive parts from many small- to
medium-sized companies, which will eventually benefit as well. In
3
<PAGE>
Japan, export growth can have a huge effect.
In addition, not only is Japan's trade surplus growing, but the revitalization
of the export industry has spurred capital expenditures in the larger companies,
and we are beginning to see that in the smaller ones as well.
Finally, the low interest rates in Japan should continue to support the
economic recovery, which should be a positive for stocks. So, we think the
market is going to be pleasantly surprised on the upside.
WITH THE RECENT WEAKNESS IN THE YEN, MANY OF THE LARGER EXPORT-ORIENTED
COMPANIES THAT YOU ARE REFERRING TO HAVE POSTED RECORD PROFITS. HAVE THEIR
STOCKS RISEN?
While their stocks have been much stronger than the Index, and we continuously
see demand for those stocks among non-Japanese investors, they have fallen in
sympathy with the overall market.
Although the market has been very weak, it has been a two-tier market. The
financial and service sectors, which are considered inefficient and not very
competitive by global standards, have been suffering. Mean-while, because of a
series of restructurings and the recent weakness in the yen, export-oriented
companies have been generating record profits. Yet these stocks have fallen as
well, albeit not as far. Among these stocks we think we are likely to find
buying opportunities.
YOU SAID THAT LOW JAPANESE INTEREST RATES SHOULD CONTINUE TO SUPPORT THE
ECONOMIC RECOVERY. WHY DO YOU BELIEVE THEY WILL STAY LOW IN 1997?
The Japanese government has every reason to keep rates low and no reason to
raise them. Foremost, they want to be sure the economic recovery remains intact.
At the same time, they are trying to minimize losses coming from the second-tier
financial institutions. To help them write off as much bad debt as possible, the
government would like to keep rates low.
WHAT WERE SOME OF THE IMPORTANT DEVELOPMENTS IN THE FUND'S PORTFOLIO DURING THE
YEAR, AND WHY DID THE FUND SLIGHTLY UNDERPERFORM ITS BENCHMARK?
Our stock selection was successful in both the electronics and machinery
sectors. In the case of electronics, we acted on news that PC sales in the U.S.
had been disappointing, relative to expectations. With this, the Portfolio was
very early in moving out of semiconductor chip makers and going into consumer
electronics companies like Matsushita and Sony. As the market oversold the
semiconductor companies, we started buying them again. In the machinery sector,
our analysts focused on the consolidated earnings trend, which enabled us to
identify undervalued stocks like Sanden Corporation, which produces air
conditioners for automobiles in the U.S. and Europe. That was one of the best
picks within the sector. Additionally, the Fund had some downside protection
from the Portfolio's holdings of warrants and convertible bonds, which is a
special feature of our Japanese equity strategy.
Unfortunately, two of the Portfolio's core holdings in the banking sector,
Daiwa Bank and Sakura Bank, held back performance. Despite their attractive
valuations, the market rewarded banks such as Bank of Tokyo-Mitsubishi, that
were closer to completing their bad debt write offs.
4
<PAGE>
IT IS EXPECTED THAT THE JAPANESE EQUITY MARKET WILL GO THROUGH MANY CHANGES AND
REFORMS. WHICH ONES ARE THE MOST RELEVANT TO INVESTORS?
The most notable will be changes in accounting standards. Japanese firms are
moving from parent-based balance sheets to consolidated balance sheets. In the
past, Japanese companies could engage in practices such as moving personnel from
the parent company to unlisted subsidiaries, thereby reducing the fixed costs of
the parent company and reporting higher profits. Meanwhile, the subsidiaries'
profits would be reduced by this excess labor. Practices like that are not going
to take place anymore because they will not make any difference on a
consolidated basis. Just like Western companies, Japanese concerns will be
analyzed on a consolidated basis.
This change should help our strategy in Japan. Our analysts already
concentrate on the consolidated numbers and we believe we are well ahead of the
competition in that regard. We think, as the market begins to view companies in
this light, it will begin to reward the decisions we have already made on a
consolidated basis.
Another important shift is the higher stake that foreigners have in Japanese
companies. Currently, foreigners own more than 10% of Japanese companies. And
their influence is no longer negligible. Japanese companies are likely to become
more shareholder friendly and be more interested in return on equity figures,
rather than chasing market share.
WE'VE HEARD A LOT ABOUT THE "UNWINDING" OF CROSS-HOLDING RELATIONSHIPS IN
CORPORATE JAPAN. WHAT DOES THAT MEAN? AND HOW DOES IT AFFECT THE MARKET?
There are two types of cross-holding relationships. The core variety, where
"keiretsu" companies own shares of other companies in the same industry, will
not go away. The second-tier relationships, where companies hold shares of firms
in unrelated industries, are becoming a thing of the past. As these
relationships have "unwound," the selling of shares has put some additional
downward pressure on the market. But again, we think this trend is largely
behind us.
ASIDE FROM WHAT WE'VE COVERED, ARE THERE ANY MORE IMPORTANT ASPECTS TO THE
PORTFOLIO'S STRATEGY FOR THE UPCOMING YEAR?
Yes. Last year, we saw investors shift towards large companies, leaving the
medium- to small-sized companies out of favor. As our value-oriented approach
would suggest, we have shifted the Portfolio's emphasis towards these
undervalued medium- and small-sized companies.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The JPM Pierpont 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
5/6/96
- -----------------------------------------
NET ASSETS AS OF 12/31/96
$618,596
- -----------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/24/97
EXPENSE RATIO
The Fund's current annualized expense ratio of 1.42% 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 DECEMBER 31, 1996
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[GRAPH]
FINANCE 25.4%
CONSUMER GOODS 19.5%
INDUSTRIAL PRODUCTS 16.4%
TECHNOLOGY 10.9%
BASIC INDUSTRIES 9.2%
TRANSPORTATION 5.6%
SHORT TERM HOLDINGS 5.4%
UTILITIES 4.1%
HEALTHCARE 2.6%
ENERGY 0.9%
LARGEST LONG-TERM HOLDINGS % OF TOTAL INVESTMENTS
NOMURA SECURITIES CO. LTD. 2.9%
SAKURA BANK LTD. 2.7%
TOYOTA MOTOR CORP. 2.6%
BOT CAYMAN FINANCE LTD.,
4.25% DUE 3/31/49 2.6%
DAIWA BANK LTD. 2.2%
6
<PAGE>
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 JPM Pierpont Funds, a family of diversified
mutual 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
In early 1995, Morgan introduced a Keogh program for its clients. 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
<PAGE>
FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR OF THE JPM PIERPONT 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.
Performance data quoted herein represent past performance. Please remember that
past performance is not a guarantee of future performance. Fund returns are net
of fees, assume the reinvestment of Fund distributions and reflect the
reimbursement of certain Fund expenses as described in the Prospectus. Had
expenses not been subsidized, returns would have been lower. 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. Consistent
with applicable regulatory guidance, performance for the Fund prior to May 6,
1996 reflects the performance of The JPM Institutional Japan Equity Fund, which
also invests its assets in the Portfolio and has a substantially similar
investment objective and restrictions as the Fund. Performance for the period
prior to May 6, 1996 reflects the deduction of the charges and expenses of The
JPM Institutional Japan Equity Fund, which were lower than the charges and
expenses of 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
<PAGE>
THE JPM PIERPONT JAPAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Japan Equity Portfolio
("Portfolio"), at value $659,621
Receivable for Expense Reimbursements 25,045
Deferred Organization Expenses 14,766
--------
Total Assets 699,432
--------
LIABILITIES
Organization Expenses Payable 17,000
Shareholder Servicing Fee Payable 112
Administrative Services Fee Payable 18
Administration Fee Payable 6
Accrued Trustees' Fees and Expenses 2
Accrued Expenses 63,698
--------
Total Liabilities 80,836
--------
NET ASSETS
Applicable to 79,021 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $618,596
--------
--------
Net Asset Value, Offering and Redemption Price
Per Share $7.83
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $713,904
Undistributed Net Investment Loss (899)
Accumulated Net Realized Loss on Investment and
Foreign Currency Transactions (22,949)
Net Unrealized Depreciation of Investment and
Foreign Currency Translations (71,460)
--------
Net Assets $618,596
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM PIERPONT JAPAN EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 6, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME (LOSS) ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $155) $ 665
Allocated Interest Income (Net of Foreign
Withholding Tax of $28) 435
Allocated Portfolio Expenses (1,964)
--------
Net Investment Income (Loss) Allocated from
Portfolio (864)
FUND EXPENSES
Registration Fees $37,345
Transfer Agent Fees 14,691
Printing Expenses 12,450
Professional Fees 11,303
Amortization of Organization Expenses 2,234
Shareholder Servicing Fee 561
Administrative Services Fee 66
Administration Fee 14
Fund Services Fee 8
Trustees' Fees and Expenses 5
Miscellaneous 750
-------
Total Fund Expenses 79,427
Less: Reimbursement of Expenses (78,204)
-------
NET FUND EXPENSES 1,223
--------
NET INVESTMENT LOSS (2,087)
NET REALIZED LOSS ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS ALLOCATED FROM PORTFOLIO (26,307)
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT AND FOREIGN CURRENCY TRANSLATIONS
ALLOCATED FROM PORTFOLIO (71,460)
--------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS ($99,854)
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM PIERPONT JAPAN EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 6, 1996
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31,
1996
----------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Loss $ (2,087)
Net Realized Loss on Investment and Foreign
Currency Transactions Allocated from Portfolio (26,307)
Net Change in Unrealized Depreciation of
Investment and Foreign Currency Translations
Allocated from Portfolio (71,460)
----------------
Net Decrease in Net Assets Resulting from
Operations (99,854)
----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 1,502,463
Cost of Shares of Beneficial Interest Redeemed (784,013)
----------------
Net Increase from Transactions in Shares of
Beneficial Interest 718,450
----------------
Total Increase in Net Assets 618,596
NET ASSETS
Beginning of Period 0
----------------
End of Period (including undistributed net
investment loss of $899) $ 618,596
----------------
----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM PIERPONT JAPAN EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the period is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 6, 1996
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31,
1996
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.03)
Net Realized and Unrealized Loss on Investment
and Foreign Currency (2.14)
----------------
Total from Investment Operations (2.17)
----------------
NET ASSET VALUE, END OF PERIOD $ 7.83
----------------
----------------
Total Return (21.70)%(a)
----------------
----------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $ 619
Ratios to Average Net Assets
Expenses 1.42%(b)
Net Investment Loss (0.93)%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 1.08%(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.
12
<PAGE>
THE JPM PIERPONT JAPAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Pierpont Japan Equity 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 May 6, 1996. Prior to October 10, 1996, the Trust's and
the Fund's name were The Pierpont Funds and The Pierpont Japan Equity Fund,
respectively.
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 (less than 1% at December 31, 1996).
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 $17,000 in organization expenses. 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
and intends to comply with the provisions of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and to
distribute 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 JAPAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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.
g)The Fund accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies." The effect of applying
this statement as of December 31, 1996, was to decrease accumulated net
realized loss on investment and foreign currency transactions by $3,358,
decrease undistributed net investment loss by $1,188, and decrease paid-in
capital by $4,546. The adjustments are primarily attributable to foreign
currency losses. Net investment loss, net realized loss and net assets
were not affected by this change.
h)For United States Federal income tax purposes, the Fund had a capital loss
carryforward at December 31, 1996 of approximately $17,000 which will
expire in the year 2004. No capital gains distribution is expected to be
paid to shareholders until future net gains have been realized in excess
of such carryforward.
The Fund incurred approximately $900 of foreign currency losses and $6,000
of realized capital losses in the period November 1, 1996 to December 31,
1996. These losses were deferred for tax purposes until January 1, 1997.
2. TRANSACTIONS WITH AFFILIATES
a)The Trust had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and distributor. Under an
Administration Agreement, Signature provided administrative services
necessary for the operations of the Fund, furnished office space and
facilities required for conducting the business of the Fund and paid the
compensation of the Fund's officers affiliated with Signature. The
agreement provided for a fee to be paid to Signature equal to the Fund's
proportionate share of a complex-wide charge based on the following
schedule: 0.03% on the first $7 billion of the aggregate average daily net
assets of the Portfolio and the other portfolios (the "Master Portfolios")
in which series of the Trust, The JPM Institutional Funds or The JPM
Advisor Funds invest and 0.01% on the aggregate average daily net assets
of the Master Portfolios in excess of $7 billion. The portion of this
charge paid by the Fund was determined by the proportionate share its net
assets bore to the total net assets of the Trust, The JPM Institutional
Funds, The JPM Advisor Funds and the Master Portfolios. For the period
from May 6, 1996 (commencement of operations) to July 31, 1996,
Signature's fee amounted to $8. The Administration Agreement with
Signature was terminated on July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the Fund's
distributor. Under a Co-Administration Agreement between FDI and the Trust
on behalf of the Fund, 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
14
<PAGE>
THE JPM PIERPONT JAPAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
of the Fund's net assets to the aggregate net assets of the Trust, The JPM
Institutional Funds, The JPM Advisor Funds, the Master Portfolios and JPM
Series Trust. For the period from August 1, 1996 to December 31, 1996, the
fee for these services amounted to $6.
On November 15, 1996, The JPM Advisor Funds terminated operations and were
liquidated. Subsequent to that date, the net assets of the JPM Advisor
Funds are no longer included in the calculation of the allocation of FDI's
fees
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 proportionate share of an annual complex-wide charge.
Until July 31, 1996, this charge was calculated daily based on the
aggregate net assets of the Master Portfolios in accordance with the
following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion.
The portion of this charge paid by the Fund was determined by the
proportionate share its net assets bore to the net assets of the Trust,
the Master Portfolios and other investors in the Master Portfolios for
which Morgan provided similar services. For the period from May 6, 1996
(commencement of operations) to July 31, 1996, Morgan's fee for these
services amounted to $16.
After July 31, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios and JPM Series Trust in accordance with
the following 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 paid 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 August 1, 1996 to December 31, 1996, the fee for these
services amounted $50.
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
1.42% of the average daily net assets of the Fund through April 30, 1997.
For the period from May 6, 1996 (commencement of operations) to December
31, 1996, Morgan has agreed to reimburse the Fund $78,204 for expenses
under this agreement.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. 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
May 6, 1996 (commencement of operations) to December 31, 1996, the fee for
these services amounted to $561.
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
15
<PAGE>
THE JPM PIERPONT JAPAN EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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
$8 for the period from May 6, 1996 (commencement of operations) to
December 31, 1996.
e)An aggregate annual fee of $65,000 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 represent 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 received 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.
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
MAY 6, 1996
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31,
1996
----------------
<S> <C>
Shares sold 169,499
Shares redeemed (90,478)
----------------
Net Increase 79,021
----------------
----------------
</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.
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The JPM Pierpont Japan Equity Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The JPM Pierpont Japan Equity Fund (one of the series constituting part of The
JPM Pierpont Funds, hereafter referred to as the "Fund") at December 31, 1996,
and the results of its operations, the changes in its net assets and the
financial highlights for the period May 6, 1996 (commencement of operations) to
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
February 21, 1997
17
<PAGE>
The Japan Equity Portfolio
Annual Report December 31, 1996
(The following pages should be read in conjunction
with The JPM Pierpont Japan Equity Fund
Annual Financial Statements)
18
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCK (80.5%)
BASIC INDUSTRIES (8.0%)
CHEMICALS (3.1%)
Daido Hoxan Inc.................................. 90,000 $ 438,098
Hitachi Chemical Co. Ltd......................... 100,000 835,703
Mitsui Petrochemical Industries Ltd.............. 160,000 827,087
Mitsui Toatsu Chemicals Inc...................... 1,018,000 3,096,011
Nippon Zeon Co., Ltd............................. 230,000 881,795
Sekisui Chemical Co. Ltd......................... 350,000 3,528,043
Sumitomo Bakelite Co. Ltd........................ 135,000 814,164
Tosoh Corp.+..................................... 445,000 1,522,056
-------------
11,942,957
-------------
DIVERSIFIED MANUFACTURING (0.4%)
Itoki Crebio Corp................................ 37,000 246,093
UBE Industries Ltd............................... 500,000 1,412,940
-------------
1,659,033
-------------
FOREST PRODUCTS & PAPER (1.5%)
Daiken Corp...................................... 25,000 173,387
Mitsubishi Pencil Co. Ltd........................ 10,000 85,810
New Oji Paper Co. Ltd.+.......................... 444,000 2,803,928
Sumitomo Forestry Co. Ltd........................ 200,000 2,429,568
-------------
5,492,693
-------------
METALS & MINING (3.0%)
Daido Steel Co. Ltd.............................. 416,000 1,541,139
Komai Tekko Inc.................................. 82,000 600,500
Mitsui Mining & Smelting Co. Ltd................. 580,000 1,973,809
Nippon Steel Corp................................ 2,424,000 7,142,310
Sumitomo Light Metal Industries Ltd.+............ 100,000 263,634
-------------
11,521,392
-------------
TOTAL BASIC INDUSTRIES......................... 30,616,075
-------------
CONSUMER GOODS & SERVICES (16.0%)
APPARELS & TEXTILES (0.3%)
Tomiya Apparel Co. Ltd........................... 229,000 1,240,984
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
AUTOMOTIVE (5.6%)
Nissan Diesel Motor Co. Ltd...................... 650,000 $ 2,973,636
Nissan Motor Co. Ltd............................. 930,000 5,384,337
Toyota Motor Corp................................ 324,000 9,295,425
Yamaha Motor Co. Ltd............................. 176,000 1,576,979
Yokohama Rubber Company Ltd...................... 400,000 1,857,500
-------------
21,087,877
-------------
AUTOMOTIVE SUPPLIES (0.4%)
Sumitomo Rubber Industries Ltd................... 150,000 1,115,275
Tochigi Fuji Industrial Co. Ltd.................. 51,000 292,634
-------------
1,407,909
-------------
BROADCASTING & PUBLISHING (1.0%)
Gakken Co. Ltd................................... 273,000 1,540,579
Toppan Printing Co. Ltd.......................... 172,000 2,148,703
-------------
3,689,282
-------------
CONSTRUCTION & HOUSING (0.4%)
Matsui Construction Co. Ltd...................... 200,000 1,290,600
SXL Corp......................................... 50,000 357,543
-------------
1,648,143
-------------
ENTERTAINMENT, LEISURE & MEDIA (0.5%)
Daiwa Kosho Lease Co. Ltd........................ 15,000 115,017
Kinki Nippon Tourist Co. Ltd.+................... 192,000 1,166,193
Kyodo Printing Co. Ltd........................... 90,000 721,116
-------------
2,002,326
-------------
FOOD, BEVERAGES & TOBACCO (2.7%)
Itoham Foods Inc................................. 444,000 2,746,549
Japan Tobacco, Inc............................... 481 3,253,080
Maruha Corp.+.................................... 378,000 1,084,466
Pokka Corp....................................... 28,000 248,471
Snow Brand Milk Products Co. Ltd................. 409,000 2,308,047
Yamazaki Baking Co. Ltd.......................... 43,000 685,362
-------------
10,325,975
-------------
HOUSEHOLD PRODUCTS (0.3%)
Nippon Sheet Glass Co. Ltd....................... 336,000 1,189,765
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
MULTI - INDUSTRY (0.3%)
Fuji Denki Reiki Co. Ltd......................... 135,000 $ 1,267,769
-------------
RETAIL (4.5%)
Familymart Co. Ltd............................... 100,000 3,988,972
Izumi Co. Ltd.................................... 184,000 2,568,105
Izumiya Co. Ltd.................................. 322,000 4,549,668
Keiyo Co. Ltd.................................... 75,000 749,548
Matsuzakaya Co. Ltd.............................. 230,000 2,120,272
Mizuno Corp...................................... 109,000 824,520
Mycal Corp....................................... 150,000 2,171,104
Tokyu Store Chain Co. Ltd........................ 17,000 125,373
-------------
17,097,562
-------------
TOTAL CONSUMER GOODS & SERVICES................ 60,957,592
-------------
ENERGY (0.9%)
OIL-PRODUCTION (0.9%)
Cosmo Oil Co. Ltd................................ 700,000 3,359,180
-------------
FINANCE (21.5%)
BANKING (15.7%)
77th Bank........................................ 100,000 818,472
Asahi Bank Ltd................................... 431,000 3,824,675
Bank of Iwate Ltd................................ 23,300 1,178,349
Bank of the Ryukyus Ltd.......................... 45,000 1,512,018
Bank of Tokyo - Mitsubishi....................... 400 7,409
Chuo Trust & Banking Co. Ltd..................... 250,000 2,130,180
Dai-Ichi Kangyo Bank Ltd......................... 151,000 2,172,568
Daiwa Bank Ltd................................... 1,500,000 7,818,557
Fukui Bank Ltd................................... 688,000 2,993,366
Fukuoka Chuo Bank................................ 20,000 138,709
Fukushima Bank Ltd............................... 90,000 317,912
Hiroshima Bank Ltd............................... 300,000 1,475,833
Hokkaido Takushoku Bank Ltd...................... 1,675,000 3,246,963
Hyakugo Bank Ltd................................. 380,000 2,291,720
Keiyo Bank Ltd................................... 150,000 697,855
Kita-Nippon Bank Ltd............................. 24,700 1,255,535
Mitsui Trust & Banking Co. Ltd................... 200,000 1,559,404
Nanto Bank Ltd................................... 252,000 1,667,407
North Pacific Bank Ltd........................... 71,000 379,254
Sakura Bank Ltd.................................. 1,376,000 9,815,869
San-In Godo Bank Ltd............................. 31,000 227,018
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
BANKING (CONTINUED)
Sanwa Bank Ltd................................... 375,000 $ 5,104,678
Shinwa Bank Ltd.................................. 189,000 991,652
Sumitomo Trust & Banking Co. Ltd................. 520,000 5,196,864
The Kagawa Bank Ltd.............................. 140,000 1,115,706
Toyo Trust & Banking Co. Ltd..................... 175,000 1,409,710
Yamanashi Chuo Bank Ltd.......................... 40,000 329,801
-------------
59,677,484
-------------
COMMERCIAL SERVICES (0.7%)
Asatsu Inc....................................... 78,000 2,472,990
-------------
FINANCIAL SERVICES (3.1%)
Daiwa Securities Co. Ltd......................... 186,000 1,650,556
Nomura Securities Co. Ltd........................ 687,000 10,298,785
-------------
11,949,341
-------------
INSURANCE (1.4%)
Chiyoda Fire & Marine Insurance Co. Ltd.......... 271,000 1,223,434
Fuji Fire & Marine Insurance Co. Ltd............. 429,000 1,600,388
Koa Fire & Marine Insurance Co. Ltd.............. 150,000 726,286
Tokio Marine & Fire Insurance Co. Ltd............ 190,000 1,784,268
-------------
5,334,376
-------------
REAL ESTATE (0.6%)
Daikyo Inc....................................... 65,000 306,324
Daiwa Danchi Co. Ltd.+........................... 208,000 974,860
Heiwa Real Estate Co. Ltd........................ 182,500 1,055,031
-------------
2,336,215
-------------
TOTAL FINANCE.................................. 81,770,406
-------------
HEALTHCARE (1.7%)
PHARMACEUTICALS (1.7%)
Chugai Pharmaceutical Co. Ltd.................... 368,000 3,075,385
Ono Pharmaceuticals Co. Ltd...................... 115,000 3,418,196
-------------
TOTAL HEALTHCARE............................... 6,493,581
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (14.6%)
BUILDING MATERIALS (1.0%)
Nichias Corp..................................... 168,000 $ 668,700
Sankyo Aluminum Industries Co. Ltd............... 330,000 1,296,459
Sumitomo Realty & Development Co. Ltd............ 300,000 1,886,792
-------------
3,851,951
-------------
COMMERCIAL SERVICES (0.1%)
Sanki Engineering................................ 40,000 399,759
-------------
CONSTRUCTION & HOUSING (2.3%)
Hitachi Plant Engineering and Construction Co.
Ltd............................................ 130,000 768,329
Nippon Hodo Co. Ltd.............................. 115,000 1,327,647
Nishimatsu Construction Co. Ltd.................. 327,000 2,845,438
Sanyo Industries Ltd............................. 198,000 904,110
Toda Construction Co............................. 200,000 1,516,326
Toenec Corp...................................... 125,000 796,933
Tokyo Denki Komusho Co. Ltd...................... 76,000 546,739
-------------
8,705,522
-------------
ELECTRICAL EQUIPMENT (5.6%)
CMK Corp......................................... 25,000 323,081
Fuji Electric Co. Ltd............................ 500,000 2,093,564
Hitachi Ltd...................................... 836,000 7,778,754
Mabuchi Motor Co. Ltd............................ 18,000 904,110
Mitsubishi Electric Corp. Ltd.................... 1,100,000 6,539,157
Murata Manufacturing Co. Ltd..................... 26,000 862,411
Nissei Sangyo Co. Ltd............................ 145,000 1,698,975
Ricoh Corp. Ltd.................................. 100,000 1,145,860
-------------
21,345,912
-------------
MACHINERY (4.6%)
Aichi Corp....................................... 184,000 1,379,168
Daikin Industries Ltd............................ 299,000 2,653,312
Ebara Corp....................................... 279,000 3,629,620
Kawasaki Heavy Industries, Ltd................... 475,000 1,960,239
Kitz Corp........................................ 370,000 1,370,724
Mitsubishi Heavy Industries Ltd.................. 497,000 3,939,347
NSK Ltd.......................................... 73,000 441,509
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
MACHINERY (CONTINUED)
Sanden Corp...................................... 235,000 $ 1,878,866
Shin Nippon Machinery Co. Ltd.................... 48,000 297,751
-------------
17,550,536
-------------
MANUFACTURING (1.0%)
Okamura Corp..................................... 300,000 1,979,840
Topy Industries Ltd.............................. 135,000 494,314
Tsubakimoto Chain Co............................. 250,000 1,335,401
-------------
3,809,555
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 55,663,235
-------------
TECHNOLOGY (8.6%)
COMPUTER SYSTEMS (0.6%)
Fujitsu Ltd...................................... 255,000 2,372,706
-------------
ELECTRONICS (4.7%)
Kyocera Corp..................................... 47,000 2,923,580
Matsushita Electric Industries Co. Ltd........... 428,000 6,969,242
Ryoyo Electro Corp............................... 50,000 904,626
Sony Corp........................................ 92,000 6,016,025
Tokai Rika Co. Ltd............................... 147,000 1,139,829
-------------
17,953,302
-------------
SEMICONDUCTORS (1.0%)
Rohm Co. Ltd..................................... 60,000 3,928,664
-------------
TELECOMMUNICATIONS (2.3%)
DDI Corp......................................... 231 1,524,477
Nippon Telegraph & Telephone Corp................ 930 7,034,892
-------------
8,559,369
-------------
TOTAL TECHNOLOGY............................... 32,814,041
-------------
TRANSPORTATION (5.3%)
RAILROADS (3.3%)
East Japan Railway Co............................ 1,306 5,862,204
Nishi-Nippon Railroad Co......................... 343,000 1,179,090
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
RAILROADS (CONTINUED)
Tobu Railway Co. Ltd............................. 403,000 $ 1,968,648
West Japan Railway Co............................ 1,050 3,392,349
-------------
12,402,291
-------------
TRANSPORT & SERVICES (1.4%)
Itochu Warehouse Co. Ltd......................... 47,000 163,996
Kawasaki Kisen Kaisha Ltd.+...................... 642,000 1,460,222
Marubeni Corp.................................... 126,000 540,605
Nippon Express Co. Ltd........................... 150,000 1,026,105
Sankyu Inc....................................... 435,000 1,480,357
Senko Co. Ltd.................................... 136,000 564,763
-------------
5,236,048
-------------
WHOLESALE & INTERNATIONAL TRADE (0.6%)
Kamei Corp....................................... 50,000 495,391
Kawasho Corp.+................................... 152,000 534,298
Nagase & Co. Ltd................................. 70,000 579,564
Yuasa Trading Co. Ltd............................ 150,000 607,392
-------------
2,216,645
-------------
TOTAL TRANSPORTATION........................... 19,854,984
-------------
UTILITIES (3.9%)
ELECTRIC (2.9%)
Shikoku Electric Power Co. Inc................... 103,280 2,010,966
Tohoku Electric Power Co. Inc.................... 178,300 3,533,126
Tokyo Electric Power Co. Inc..................... 200,000 4,376,669
Yurtec Corp...................................... 78,750 1,065,198
-------------
10,985,959
-------------
NATURAL GAS (1.0%)
Hokuriku Gas Co. Ltd............................. 204,000 720,600
Osaka Gas Co. Ltd................................ 1,075,000 2,935,944
-------------
3,656,544
-------------
TOTAL UTILITIES................................ 14,642,503
-------------
TOTAL COMMON STOCK (COST $362,504,286)......... 306,171,597
-------------
WARRANTS (0.8%)
BASIC INDUSTRIES (0.3%)
INDUSTRIAL (0.2%)
Lion Corp., Expiring 06/18/99+................... 5,020 519,676
-------------
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
METALS & MINING (0.1%)
Dowa Mining Co. Ltd., Expiring 12/09/97+......... 543 $ 196,837
Yodogawa Steel Works, Expiring 12/10/97+......... 600 225,000
-------------
421,837
-------------
TOTAL BASIC INDUSTRIES......................... 941,513
-------------
CONSUMER GOODS & SERVICES (0.1%)
CONSTRUCTION & HOUSING (0.0%)*
Maeda Corp., Expiring 02/05/97+.................. 515 25,750
-------------
MERCHANDISING (0.1%)
Canon Sales Co. Inc., Expiring 11/11/97+......... 4,500 432,331
-------------
TOTAL CONSUMER GOODS & SERVICES................ 458,081
-------------
HEALTHCARE (0.0%)*
PHARMACEUTICALS (0.0%)*
Daiichi Pharmaceutical Co. Ltd., Expiring
04/18/97+...................................... 3,600 117,969
-------------
TECHNOLOGY (0.4%)
SEMICONDUCTORS (0.4%)
Rohm Co., Expiring 11/20/97+..................... 1,350 1,294,479
Sanken Electric Co., Expiring 04/02/99+.......... 930 96,274
-------------
TOTAL TECHNOLOGY............................... 1,390,753
-------------
TRANSPORTATION (0.0%)*
WHOLESALE & INTERNATIONAL TRADE (0.0%)*
Yuasa Trading Co. Ltd., Expiring 12/01/97+....... 3,550 66,097
-------------
TOTAL WARRANTS (COST $6,198,620)............... 2,974,413
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE JAPAN EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
SECURITY DESCRIPTION (IN JPY) VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
CONVERTIBLE BONDS (7.9%)
BASIC INDUSTRIES (0.3%)
CHEMICALS (0.3%)
Daido Hoxan Inc., 1.6% due 03/29/02.............. 150,000,000 $ 1,285,862
-------------
CONSUMER GOODS & SERVICES (2.2%)
AUTOMOTIVE (1.9%)
Toyota Motor Corp., 1.2% due 01/28/98............ 500,000,000 7,331,782
-------------
CONSTRUCTION & HOUSING (0.3%)
SXL Corp., 2.7% due 03/29/02..................... 150,000,000 1,305,247
-------------
TOTAL CONSUMER GOODS & SERVICES................ 8,637,029
-------------
FINANCE (2.4%)
FINANCIAL SERVICES (2.4%)
BOT Cayman Finance Ltd., 4.25% due 03/31/49...... 830,000,000 9,170,974
-------------
HEALTHCARE (0.8%)
PHARMACEUTICALS (0.8%)
Yamanouchi Pharmaceutical Co. Ltd., 1.25% due
03/31/14....................................... 280,000,000 2,882,743
-------------
INDUSTRIAL PRODUCTS & SERVICES (0.9%)
ELECTRICAL EQUIPMENT (0.9%)
Hitachi Ltd., 2.7% due 03/31/97.................. 289,000,000 3,236,840
-------------
TECHNOLOGY (1.3%)
COMPUTER SYSTEMS (1.3%)
NEC Corp., 1.9% due 03/30/01..................... 300,000,000 3,747,738
Ricoh Co. Ltd., 1.5% due 03/29/02................ 100,000,000 1,150,168
-------------
4,897,906
-------------
TOTAL TECHNOLOGY............................... 4,897,906
-------------
TOTAL CONVERTIBLE BONDS (COST $30,374,977)..... 30,111,354
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.1%)
TIME DEPOSITS--FOREIGN (5.1%)
State Street Bank Cayman Islands, 4.875% due
01/02/97 (cost $19,396,000).................... $ 19,396,000 $ 19,396,000
-------------
TOTAL INVESTMENTS (COST $418,473,883) (94.3%)...................
358,653,364
OTHER ASSETS IN EXCESS OF LIABILITIES (5.7%)....................
21,692,194
-------------
NET ASSETS (100.0%)............................................. $ 380,345,558
-------------
-------------
</TABLE>
- ------------------------------
+ Non-income producing security
* Less than 0.1%
Note: Based on the cost of investments of $418,658,992 for Federal Income Tax
purposes at December 31, 1996, the aggregate gross unrealized appreciation was
$8,256,569, and the aggregate gross unrealized depreciation was $68,262,197,
resulting in net unrealized depreciation of investments of $60,005,628.
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $418,473,883 ) $358,653,364
Foreign Currency at Value (Cost $412,613) 393,189
Cash 702
Receivable for Investments Sold 21,506,751
Dividends and Interest Receivable 198,057
Deferred Organization Expenses 21,345
Prepaid Trustees' Fees 1,368
Prepaid Expenses and Other Assets 2,673
------------
Total Assets 380,777,449
------------
LIABILITIES
Payable for Investments Purchased 46,621
Advisory Fee Payable 220,167
Custody Fee Payable 107,884
Administrative Services Fee Payable 21,786
Administration Fee Payable 1,126
Fund Services Fee Payable 557
Accrued Expenses and Accounts Payable 33,750
------------
Total Liabilities 431,891
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $380,345,558
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $691,754 ) $ 2,767,015
Interest Income (Net of Foreign Withholding Tax
of $70,412 ) 859,226
------------
Investment Income 3,626,241
EXPENSES
Advisory Fee $ 3,053,033
Custodian Fees and Expenses 466,739
Administrative Services Fee 130,108
Professional Fees and Expenses 50,500
Administration Fee 40,783
Fund Services Fee 21,646
Trustees' Fees and Expenses 8,707
Printing Expenses 6,731
Amortization of Organization Expense 6,610
Insurance Expense 4,453
Miscellaneous 600
------------
Total Expenses 3,789,910
------------
Net Investment Loss (163,669)
NET REALIZED LOSS ON
Investment Transactions (including $1,052 net
realized loss from futures contracts) (418,820)
Foreign Currency Transactions (1,850,030)
------------
Net Realized Loss (2,268,850)
NET CHANGE IN UNREALIZED DEPRECIATION OF
Investments (66,917,833)
Foreign Currency Contracts and Translations (119,683)
------------
Net Change in Unrealized Depreciation (67,037,516)
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(69,470,035)
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE JAPAN EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 28, 1995
(COMMENCEMENT OF
FOR THE FISCAL OPERATIONS) TO
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1996 1995
----------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income (Loss) $ (163,669) $ 314,783
Net Realized Gain (Loss) on Investments and
Foreign Currency Transactions (2,268,850) 5,011,111
Net Change in Unrealized Appreciation
(Depreciation) of Investments and Foreign
Currency Contracts and Translations (67,037,516) 7,075,578
----------------- ----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (69,470,035) 12,401,472
----------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 290,426,062 465,133,508
Withdrawals (253,101,673) (65,143,876)
----------------- ----------------
Net Increase from Investors' Transactions 37,324,389 399,989,632
----------------- ----------------
Total Increase (Decrease) in Net Assets (32,145,646) 412,391,104
NET ASSETS
Beginning of Period 412,491,204 100,100
----------------- ----------------
End of Period $ 380,345,558 $ 412,491,204
----------------- ----------------
----------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 28, 1995
(COMMENCEMENT OF
FOR THE FISCAL OPERATIONS) TO
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1996 1995
----------------- ----------------
<S> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.81% 0.87%(a)
Net Investment Income (Loss) (0.03)% 0.12%(a)
Portfolio Turnover 86% 60%(b)
Average Broker Commissions $ 0.0005 --
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Japan Equity Portfolio (the "Portfolio") is one of five subtrusts
(portfolios) comprising The Series Portfolio (the "Series Portfolio"). The
Series Portfolio is registered under the Investment Company Act of 1940, as
amended (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 commenced operations on March 28, 1995. 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 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
exists 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 price 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;
operating data; and general market conditions. All portfolio securities
with a remaining maturity of less than 60 days are valued by the amortized
cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the Portfolio's net asset value is 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
27
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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 becomes 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 solely 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. The use of futures transactions involves the risk
of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible
inability of counterparties to meet the terms of their contracts.
f)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxable on
its share of the Portfolio's ordinary income and capital gains.
28
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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 has incurred $33,000 in organization expenses. 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 fiscal year
ended December 31, 1996, such fees amounted to $3,053,033.
b)The Portfolio had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Under an Administration Agreement, Signature provided administrative
services necessary for the operations of the Portfolio, furnished office
space and facilities required for conducting the business of the Portfolio
and paid the compensation of the Portfolio's officers affiliated with
Signature. The agreement provided for a fee to be paid to Signature equal
to the Portfolio's proportionate share of a complex-wide fee based on the
following annual schedule: 0.03% on the first $7 billion of the aggregate
average daily net assets of the Portfolio and the other portfolios (the
"Master Portfolios") in which The JPM Institutional Funds, The JPM
Pierpont Funds (formerly The Pierpont Funds) or The JPM Advisor Funds
invest and 0.01% on the aggregate average daily net assets of the Master
Portfolios in excess of $7 billion. The portion of this charge paid by the
Portfolio was determined by the proportionate share its net assets bore to
the total net assets of The JPM Institutional Funds, The JPM Pierpont
Funds, The JPM Advisor Funds and the Master Portfolios. For the period
from January 1, 1996 to July 31, 1996, such fees amounted to $35,898. The
Administration Agreement with Signature was terminated on July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the
Portfolio's exclusive placement agent. Under a Co-Administration Agreement
between FDI and the Portfolio, 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 Institutional Funds, The JPM Pierpont Funds, The JPM
Advisor Funds and the Master Portfolios. For the period from August 1,
1996 to December 31, 1996, the fee for these services amounted to $4,885.
29
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
On November 15, 1996, The JPM Advisor Funds terminated operations and were
liquidated. Subsequent to that date, the net assets of The JPM Advisor
Funds are no longer included in the calculation of the allocation of FDI's
fees.
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 proportionate share of an annual complex-wide charge. Until
July 31, 1996, this charge was calculated daily based on the aggregate net
assets of the Master Portfolios in accordance with the following annual
schedule: 0.06% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets and 0.03% of the Master Portfolios'
aggregate average daily net assets in excess of $7 billion. The portion of
this charge paid by the Portfolio was determined by the proportionate
share that the Portfolios' net assets bore to the net assets of the Master
Portfolios and investors in the Master Portfolios for which Morgan
provided similar services. For the period from January 1, 1996 to July 31,
1996, the fee for these services amounted to $71,040.
After July 31, 1996, the Services Agreement was amended such that the
annual complex-wide 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 paid by the
Portfolio is determined by the proportionate share that its net assets
bear to the net assets of the Master Portfolios, investors in the Master
Portfolios for which Morgan provides similar services, and JPM Series
Trust. For the period from August 1, 1996 to December 31, 1996, the fee
for these services amounted to $59,068
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 $21,646 for the fiscal year ended December 31, 1996.
e)An aggregate annual fee of $65,000 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 represent the Portfolio's allocated
portion of the total fees and expenses. The Portfolio's Chairman and Chief
Executive Officer also serves as Chairman of Group and received
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 $2,800.
30
<PAGE>
THE JAPAN EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C>
$389,304,058 $383,600,467
</TABLE>
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Japan Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The Japan Equity Portfolio (one of the
portfolios comprising The Series Portfolio, hereafter referred to as the
"Portfolio") at December 31, 1996, and the results of its operations for the
year then ended and the changes in its net assets and the supplementary data for
the year then ended and for the period March 28, 1995 (commencement of
operations) to December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements and supplementary data
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatements. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 21, 1997
32
<PAGE>
JPM Pierpont 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 Diversified Fund
JPM Pierpont Equity Fund
JPM Pierpont Shares: Tax Aware Equity Fund
JPM Pierpont Shares: Tax Aware Disciplined Equity Fund
JPM Pierpont Capital Appreciation Fund
JPM Pierpont International Equity 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
Japan Equity
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.
ANNUAL REPORT
December 31, 1996
