<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN EMERGING MARKETS DEBT FUND
July 23, 1998
Dear Shareholder:
From mid-1997 to date, emerging debt markets have experienced turmoil and
volatility, due primarily to the Asian crisis which took center stage early in
third quarter 1997 and has continued to bring difficulty to emerging markets in
general since then.
While the fund's returns were negatively affected by many factors, performance
was positively impacted by the portfolio's country allocations. Being
underweight Russia and Asia helped performance. Also, being overweight Mexico
and Argentina helped boost returns, since these Latin countries outperformed the
Emerging Markets Bond Index Plus (EMBI+) during the past six months.
The fund's net asset value per share decreased from $9.76 on December 31, 1997
to $9.17 on June 30, 1998, the end of the reporting period. The fund's total net
assets for the six months, ending June 30, 1998 were approximately $12.2
million. The fund began making monthly income distributions totaling
approximately $0.42 in income dividends during the period.
The report that follows includes an interview with Kim Conroy, 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 appreciate your
investment in the fund. 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>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS. . . . 1 FUND FACTS AND HIGHLIGHTS. . . . . 5
FUND PERFORMANCE. . . . . . . . . 2 SPECIAL FUND-BASED SERVICES. . . . 6
PORTFOLIO MANAGER Q&A . . . . . . 3 FINANCIAL STATEMENTS . . . . . . . 8
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One 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
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- ----------------------------
THREE SIX ONE SINCE
AS OF JUNE 30, 1998 MONTHS MONTHS YEAR INCEPTION*
- ------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Emerging Markets Debt Fund -6.69% -1.91% -3.14% 1.22%
Emerging Markets Bond Index Plus** -5.98% -1.08% 1.40% 6.61%
Lipper Emerging Markets Debt Funds Average -7.73% -2.94% -1.25% 5.56%
</TABLE>
* THE FUND COMMENCED OPERATIONS ON APRIL 17, 1997 AND HAS PROVIDED A TOTAL
RETURN OF 2.86% FROM THAT DATE THROUGH JUNE 30, 1998. 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 EMERGING MARKETS BOND INDEX PLUS DOES NOT INCLUDE
FEES OR OPERATING EXPENSES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS, 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
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
The following is an interview with KIM CONROY, VICE PRESIDENT, the portfolio
manager for the Emerging Markets Debt Portfolio. Ms. Conroy joined Morgan in
1993 and joined J.P. Morgan Investment Management in 1997, where she manages
those funds that are benchmarked against the Emerging Markets Bond Index Plus
(EMBI+). Ms. Conroy has worked in J.P. Morgan's Global Credit Group, where she
managed the Emerging Markets Open Market portfolio of Latin and Asian debt and
derivative assets. She received her BA from Dartmouth University and her MBA
from Columbia Business School. This interview was conducted on July 9, 1998 and
reflects Kim's views on that date.
COULD YOU GIVE US A BRIEF OVERVIEW OF EMERGING MARKETS DURING THE PAST SIX
MONTHS?
KC: Global economic and political turmoil resulted in some difficult months
recently for emerging markets. Asian markets showed continued volatility during
the second quarter of this year, due in part to increased political upheaval,
such as in Indonesia, where civil unrest lead to Suharto's resignation, or in
India, where the testing of several atomic bombs triggered sanctions. The area
least hit by these events was Latin America, which did well relative to the
other regions.
WHILE THE FUND UNDERPERFORMED ITS BENCHMARK, THE EMBI+, IT FARED BETTER THAN DID
MANY COMPETITORS' FUNDS. PLEASE DISCUSS THE FACTORS THAT POSITIVELY AND
NEGATIVELY AFFECTED THE FUND'S PERFORMANCE OVER THE LAST SIX MONTHS.
KC: The fund underperformed the EMBI+ benchmark by roughly 83 basis points.
However, a number of our competitors underperformed the EMBI+ benchmark more
severely. While performance was hurt by several factors, we benefitted from our
country allocations. Being underweight Russia, which hovers on the brink of a
devaluation or debt restructuring and has delivered a return of -17.49% year to
date, helped performance. In addition, our decision to overweight Mexico and
Argentina boosted our returns, since these Latin countries outperformed the
EMBI+. Our underweight in Asia also added value to the fund's performance this
period.
The factor which contributed most significantly to the fund's underperformance
was being long spread duration in a market which sold off in the latter half of
the quarter. The sell-off was a result of growing concerns about the severity of
the Asian crisis, Russia's severe liquidity crunch and Japan's unwillingness
and/or
3
<PAGE>
inability to tackle its banking crisis. Our performance was also hurt by being
underweight Brady bonds, which are collateralized with U.S. Treasuries; these
bonds outperform in a down market. And, while the Latin American markets have
generally held up amidst this global turmoil, our overweight in Peru hurt us. In
the sell-off, some of our out-of-index bets, most notably corporate positions,
traded down more than the sovereign bonds. Generally, emerging market corporates
trade poorly in times of high volatility.
HOW WILL YOU POSITION THE FUND FOR THE REMAINDER OF 1998?
KC: At the moment, we are neutral spread duration. We remain underweight
Venezuela and Ecuador, countries which have not made sufficient spending cuts to
compensate for the drop in the price of oil. Before we look to lengthen our
spread duration, we will need to see signs of progress on the restructuring of
Japan's banking sector and a more enduring solution to Russia's liquidity
problem.
WHAT ADVICE WOULD YOU OFFER INVESTORS ON EMERGING MARKETS IN THE MONTHS AHEAD?
KC: With the EMBI+ spread around roughly 12.0%, we believe emerging market debt
offers good value, based on our belief that none of the bonds in the index will
default. However, the lower commodity prices and concerns about Asia's (in
particular, Japan's) recovery will continue to keep our spreads volatile.
In addition to offering investors good value, we believe the fund offers access
to the volatile yet potentially high-yielding global markets, as well as a way
to diversify assets. Given these benefits, we believe the fund offers high total
return potential to investors who are willing to assume a moderate-to-high level
of commensurate risk.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan 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
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 6/30/98
$12,213,260
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 6/30/98
$12,258,494
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/98
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, 1998
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
BRAZIL 26.2%
ARGENTINA 20.7%
MEXICO 19.6%
RUSSIA 5.3%
VENEZUALA 3.4%
BULGARIA 2.8%
PERU 2.4%
SOUTH K0REA 2.0%
TURKEY 1.1%
OTHER 7.2%
U.S. DOLLAR (SHORT-TERM) 9.3%
</TABLE>
30-DAY SEC YIELD
8.39%*
DURATION
5.3 years
* YIELD REFLECTS THE REIMBURSEMENT OF CERTAIN EXPENSES AS DESCRIBED IN THE
PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED, YIELD WOULD HAVE BEEN LOWER.
5
<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 diversified family of J.P. Morgan Funds.
PAAS is available to clients who invest a minimum of $500,000 in the J.P. Morgan
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 J.P. Morgan Funds
provide an excellent way to help you accumulate long-term wealth for retirement.
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW YORK
SERVES AS AN INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS
CAPACITY AS SHAREHOLDER SERVICING AGENT. SHARES OF THE FUND ARE NOT BANK
DEPOSITS AND ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC.
RETURN AND SHARE PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS
THAN ORIGINAL COST.
The fund invests in foreign securities which are subject to special risks
including economic and political uncertainty and currency fluctuations;
prospective investors should refer to the fund's prospectus for a discussion of
these risks. The fund invests through a master portfolio (another fund with the
same objective).
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
7
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Emerging Markets Debt Portfolio
("Portfolio"), at value $12,233,560
Receivable for Expense Reimbursement 19,460
Deferred Organization Expenses 12,765
Receivable for Shares of Beneficial Interest Sold 2,354
-----------
Total Assets 12,268,139
-----------
LIABILITIES
Organization Expenses Payable 13,496
Dividends Payable to Shareholders 5,273
Payable for Shares of Beneficial Interest
Redeemed 4,477
Shareholder Servicing Fee Payable 2,650
Administrative Services Fee Payable 302
Fund Services Fee Payable 11
Administration Fee Payable 8
Accrued Expenses 28,662
-----------
Total Liabilities 54,879
-----------
NET ASSETS
Applicable to 1,332,071 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $12,213,260
-----------
-----------
Net Asset Value, Offering and Redemption Price
Per Share $9.17
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $12,999,148
Undistributed Net Investment Income 6,192
Accumulated Net Realized Loss on Investment (242,560)
Net Unrealized Depreciation of Investment (549,520)
-----------
Net Assets $12,213,260
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income (Net of Foreign
Withholding Tax of $22) $ 707,395
Allocated Portfolio Expenses (Net of
Reimbursement of $25,997) (80,638)
---------
Net Investment Income Allocated from
Portfolio 626,757
FUND EXPENSES
Shareholder Servicing Fee $16,128
Transfer Agent Fees 12,078
Registration Fees 11,608
Printing Expenses 6,248
Professional Fees 5,654
Administrative Services Fee 1,895
Amortization of Organization Expenses 1,662
Fund Services Fee 203
Administration Fee 145
Trustees' Fees and Expenses 105
Miscellaneous 1,674
-------
Total Fund Expenses 57,400
Less: Reimbursement of Expenses (57,400)
-------
NET FUND EXPENSES --
---------
NET INVESTMENT INCOME 626,757
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (981,114)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 86,349
---------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(268,008)
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED APRIL 17, 1997
JUNE 30, (COMMENCEMENT OF
1998 OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1997
------------ -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 626,757 $ 536,699
Net Realized Gain (Loss) on Investment Allocated
from Portfolio (981,114) 556,473
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio 86,349 (635,869)
------------ -------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (268,008) 457,303
------------ -------------------
DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income (560,582) (536,699)
In Excess of Net Investment Income -- (14,812)
From Net Realized Gain -- (196,090)
------------ -------------------
Total Distributions to Shareholders (560,582) (747,601)
------------ -------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 2,796,746 11,902,012
Reinvestment of Dividends and Distributions 537,673 727,589
Cost of Shares of Beneficial Interest Redeemed (2,270,429) (361,443)
------------ -------------------
Net Increase from Transactions in Shares of
Beneficial Interest 1,063,990 12,268,158
------------ -------------------
Total Increase in Net Assets 235,400 11,977,860
NET ASSETS
Beginning of Period 11,977,860 --
------------ -------------------
End of Period (including undistributed net
investment income of $6,192 and $0,
respectively) $ 12,213,260 $ 11,977,860
------------ -------------------
------------ -------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE J.P. MORGAN EMERGING MARKETS DEBT FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 17, 1997
SIX MONTHS ENDED (COMMENCEMENT OF
JUNE 30, 1998 OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1997
---------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 10.00
---------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.47 0.58
Net Realized and Unrealized Loss on Investment (0.64) (0.05)
---------------- -------------------
Total from Investment Operations (0.17) 0.53
---------------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income (0.42) (0.58)
In Excess of Net Investment Income -- (0.02)
From Net Realized Gain -- (0.17)
---------------- -------------------
Total Distributions to Shareholders (0.42) (0.77)
---------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 9.17 $ 9.76
---------------- -------------------
---------------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return (1.91%)(a) 5.47%(a)
Net Assets, End of Period (in thousands) $ 12,213 $ 11,978
Ratios to Average Net Assets
Expenses 1.25%(b) 1.25%(b)
Net Investment Income 9.72%(b) 9.71%(b)
Expenses without Reimbursement 2.54%(b) 2.40%(b)
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Emerging Markets Debt Fund (the "fund") is a separate series of
the J.P. Morgan Funds, a Massachusetts business trust (the "trust") which was
organized on November 4, 1992. The trust is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The fund commenced operations on April 17, 1997. Prior to January 1, 1998, the
trust's and the fund's names were The JPM Pierpont Funds and The JPM Pierpont
Emerging Markets Debt Fund, respectively.
The fund invests all of its investable assets in The Emerging Markets Debt
Portfolio (the "portfolio"), an 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 99.8% at June 30,
1998). 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 1a 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) Substantially all the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital gains, if any, are 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 amortized on a straight-line
basis over a period not to exceed five years beginning with the
commencement of operations of the fund.
e) 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.
f) 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 substantially all of its income, including net realized capital
gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
12
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
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 six
months ended June 30, 1998, the fee for these services amounted to $145.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for certain aspects of the administration and operation of the 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 based on the aggregate average daily net assets of the
portfolio and the other portfolios in which the trust and the J.P. Morgan
Institutional Funds (formerly The JPM Institutional Funds) invest (the
"master portfolios") and J.P. Morgan Series Trust (formerly 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 J.P.
Morgan Series Trust. For the six months ended June 30, 1998, the fee for
these services amounted to $1,895.
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, 1999.
For the six months ended June 30, 1998, Morgan has agreed to reimburse the
fund $57,400 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 account
maintenance service 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 six months ended June 30, 1998, the fee for these
services amounted to $16,128.
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
13
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
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
$203 for the six months ended June 30, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Institutional Funds, the master
portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the 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 $50.
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 SIX FOR THE PERIOD
MONTHS ENDED APRIL 17, 1997
JUNE 30, (COMMENCEMENT OF
1998 OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1997
------------ -------------------
<S> <C> <C>
Shares sold...................................... 284,155 1,188,908
Reinvestment of dividends and distributions...... 55,352 74,548
Shares redeemed.................................. (234,064) (36,828)
------------ -------------------
Net Increase..................................... 105,443 1,226,628
------------ -------------------
------------ -------------------
</TABLE>
From time to time, the fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the fund and portfolio.
4. CREDIT 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, 1998, with unaffiliated lenders. Additionally, since all
of the investable assets of the fund are in the portfolio, the portfolio is
party to certain covenants of the Agreement. The maximum borrowing under the
Agreement is $150,000,000. The Agreement expires on May 27, 1999, however the
fund as party to the Agreement will have the ability to extend the Agreement and
continue its participation therein for an additional 364 days. The purpose of
the Agreement is to provide another alternative for settling large fund
shareholder redemptions. Interest on any such borrowings outstanding will
14
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
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. There were no outstanding borrowings pursuant to the Agreement at
June 30, 1998.
15
<PAGE>
The Emerging Markets Debt Portfolio
Semi-Annual Report June 30, 1998
(The following pages should be read in conjunction
with J.P. Morgan Emerging Markets Debt Fund
Semi-Annual Financial Statements)
16
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
- ---------------- ------------------------------------------------- -------------
<C> <S> <C>
CONVERTIBLE BONDS (1.9%)
MEXICO (1.9%)
$ 227,000 Banamex S.A., Callable 07/15/00, (144A), 11.00%
due 07/15/03 (cost $237,190)................... $ 230,973
-------------
CORPORATE OBLIGATIONS (12.0%)
ARGENTINA (5.2%)
ARS 100,000 Compania Internacional de Telecommunicaciones,
(144A), 10.375% due 08/01/04................... 81,256
515,000 Telefonica de Argentina, 11.875% due 11/01/04.... 553,599
-------------
634,855
-------------
BRAZIL (1.6%)
220,000 Companhia de Saneamento Basico de Sao Paulo,
(144A), 10.00% due 07/28/05.................... 191,400
-------------
MEXICO (2.6%)
75,000 Axa S.A. de CV, (144A), 9.00% due 08/04/04....... 69,750
236,000 Copamex Industrias S.A. de C.V., Series B,
Callable 04/30/02, 11.38% due 04/30/04......... 245,440
-------------
315,190
-------------
PHILIPPINES (1.6%)
200,000 Ce Casecnan Water & Energy, Inc., Series B,
Callable, (144A), 11.95% due 11/15/10.......... 202,264
-------------
TURKEY (1.0%)
136,000 Pera Financial Services Co., (144A), 9.375% due
10/15/02....................................... 122,400
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$1,570,628)................................. 1,466,109
-------------
SOVEREIGN BONDS (67.5%)
ARGENTINA (13.4%)
ARS 68,000 City of Buenos Aires, (144A), 10.50% due
05/28/04....................................... 57,120
68,000 Province of Mendoza, (144A), 10.00% due
09/04/07....................................... 63,738
305,964 Republic of Argentina - Bocon, Series PRE2,
Callable 08/12/98, 5.635% due 04/01/01(v)...... 292,638
479,750 Republic of Argentina Bearer, FRB, Callable
09/30/98, Sinking Fund, 6.625% due
03/31/05(v).................................... 424,579
500,000 Republic of Argentina Global Bonds, 9.75% due
09/19/27....................................... 465,000
320,000 Republic of Argentina Global Bonds, 11.375% due
01/30/17....................................... 340,800
-------------
1,643,875
-------------
BRAZIL (21.9%)
363,148 Republic of Brazil C Bonds, Callable 10/15/98,
Sinking Fund, 8.00% due 04/15/14(v)............ 267,822
679,000 Republic of Brazil EI Bonds, Series L, Callable
10/15/98, Sinking Fund, 6.625% due
04/15/06(v).................................... 559,360
380,000 Republic of Brazil Global Bonds, 10.125% due
05/15/27....................................... 327,940
948,388 Republic of Brazil MYDFA Trust Certificates,
Series REGS, Sinking Fund, 6.563% due
09/15/07(v).................................... 767,605
1,005,000 Republic of Brazil NMB-1994L Bearer, Callable
10/15/98, Sinking Fund, 6.688% due
04/15/09(v).................................... 768,825
-------------
2,691,552
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
- ---------------- ------------------------------------------------- -------------
<C> <S> <C>
BULGARIA (2.5%)
$ 180,000 Republic of Bulgaria PDI, FRB, Callable 01/28/99,
Sinking Fund, 6.563% due 07/28/11(v)........... $ 128,250
228,000 Republic of Bulgaria, Series B, Callable
01/28/99, 7.063% due 07/28/24(v)............... 174,135
-------------
302,385
-------------
ECUADOR (1.8%)
389,435 Republic of Ecuador Global Bearer PDI Bonds,
Callable 08/28/98, Sinking Fund, 6.625% due
02/27/15(v).................................... 223,925
-------------
KOREA (1.8%)
100,000 Republic of Korea, 8.75% due 04/15/03............ 94,360
133,000 Republic of Korea, 8.875% due 04/15/08........... 121,801
-------------
216,161
-------------
MEXICO (13.1%)
600,000 Banco Nacional de Comercio Exterior SNC, 7.25%
due 02/02/04................................... 558,000
400,000 United Mexican States Global Bonds, 9.875% due
01/15/07....................................... 416,000
318,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... 354,252
250,000 United Mexican States Global Bonds, 11.50% due
05/15/26....................................... 284,250
-------------
1,612,502
-------------
MOROCCO (1.5%)
220,000 Government of Morroco - Restructuring &
Consolidation Agreement, Series A, Sinking
Fund, 6.563% due 01/01/09...................... 187,550
-------------
PANAMA (1.6%)
200,000 Republic of Panama, 8.25% due 04/22/08........... 195,000
-------------
PERU (2.1%)
420,000 Republic of Peru PDI, Sinking Fund, 4.00% due
03/07/17....................................... 260,400
-------------
RUSSIA (4.8%)
130,000 City of Moscow, (144A), 9.50% due 05/31/00....... 110,338
250,000 Ministry of Finance Russia, (144A), 12.75% due
06/24/28....................................... 222,500
32,624 Russia IAN, Sinking Fund, 6.625% due 12/15/15.... 18,107
493,000 Russia Principal Loans, Sinking Fund, 6.625% due
12/15/20....................................... 234,175
-------------
585,120
-------------
VENEZUELA (3.0%)
478,000 Republic of Venezuela Global Bonds, 9.25% due
09/15/27....................................... 369,972
-------------
TOTAL SOVEREIGN BONDS (COST $8,756,339)...... 8,288,442
-------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
- ---------------- ------------------------------------------------- -------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (4.0%)
U.S. TREASURY BONDS (1.6%)
$ 175,000 United States Treasury Bonds, 6.75% due
08/15/26....................................... $ 200,205
-------------
U.S. TREASURY STRIPS (2.4%)
1,100,000 (Principal Only), Due 11/15/21................... 290,411
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$463,430)................................... 490,616
-------------
<CAPTION>
<C> <S> <C>
SHORT-TERM INVESTMENTS (4.4%)
EURO DOLLAR TIME DEPOSITS (4.3%)
526,000 State Street Bank Euro Dollar, 3.0% due
7/01/98........................................ 526,000
-------------
U.S. TREASURY OBLIGATIONS (0.1%)
10,000 U.S. Treasury Bills, 5.404% due 07/23/98(y)...... 9,968
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$535,968)................................... 535,968
-------------
TOTAL INVESTMENTS (COST $11,563,555) (89.8%)..... 11,012,108
OTHER ASSETS IN EXCESS OF LIABILITIES (10.2%).... 1,246,386
-------------
NET ASSETS (100.0%).............................. $ 12,258,494
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $11,814,151 for Federal Income Tax
purposes at June 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $30,695 and $832,738, respectively, resulting in net unrealized
depreciation of $802,043.
(v) Rate shown reflects current rate on variable or floating rate instrument or
instrument with step coupon rate.
(y) Yield to maturity.
{::} Denominated in USD unless otherwise indicated.
144A - Securities restricted for resale to Qualified Institutional Buyers.
ARS - Argentine Peso.
C - Capitalization.
El - Eligible Interest.
FRB - Floating Rate Bond.
IAN - Interest in Arrears Note.
MYFDA - Multi-Year Refinancing Agreement.
NMB - New Money Bonds.
PDI - Past Due Interest.
USD - United States Dollar.
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $11,562,479 ) $11,012,108
Cash 50,489
Foreign Currency at Value (Cost $1,300 ) 1,233
Receivable for Investments Sold 1,254,204
Unrealized Appreciation of Forward Foreign
Currency Contracts 5,510
Interest Receivable 245,826
Deferred Organization Expenses 11,945
Receivable for Expense Reimbursement 8,710
Variation Margin Receivable 3,251
Prepaid Trustees' Fees 304
-----------
Total Assets 12,593,580
-----------
LIABILITIES
Payable for Investments Purchased 226,733
Custody Fee Payable 48,952
Organization Expenses Payable 14,200
Advisory Fee Payable 7,472
Administrative Services Fee Payable 304
Fund Services Fee Payable 11
Accrued Expenses 37,414
-----------
Total Liabilities 335,086
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $12,258,494
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income (Net of Foreign Withholding Tax
of $22 ) $ 710,283
EXPENSES
Advisory Fee $ 45,508
Custodian Fees and Expenses 28,507
Professional Fees and Expenses 25,666
Printing Expenses 2,782
Administrative Services Fee 1,910
Amortization of Organization Expense 1,602
Insurance Expense 550
Fund Services Fee 204
Administration Fee 127
Trustees' Fees and Expenses 61
Miscellaneous 398
--------
Total Expenses 107,315
Less: Reimbursement of Expenses (26,049)
--------
NET EXPENSES 81,266
---------
NET INVESTMENT INCOME 629,017
NET REALIZED GAIN (LOSS) ON
Investment Transactions (785,958)
Futures Contracts (1,337)
Foreign Currency Contracts and Transactions 214,345
--------
Net Realized Loss (572,950)
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments (307,130)
Futures Contracts 1,531
Foreign Currency Contracts and Translations (19,447)
--------
Net Change in Unrealized Depreciation (325,046)
---------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(268,979)
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED MARCH 7, 1997
JUNE 30, (COMMENCEMENT OF
1998 OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1997
------------ -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 629,017 $ 8,917,209
Net Realized Loss on Investments, Futures and
Foreign Currency Contracts and Transactions (572,950) (5,256,573)
Net Change in Unrealized Depreciation of
Investments, Futures and Foreign Currency
Contracts and Translations (325,046) (225,247)
------------ -------------------
Net Decrease in Net Assets Resulting from
Operations (268,979) 3,435,389
------------ -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 2,794,392 178,496,163
Withdrawals (2,438,461) (169,760,010)
------------ -------------------
Net Increase from Investors' Transactions 355,931 8,736,153
------------ -------------------
Total Increase in Net Assets 86,952 12,171,542
NET ASSETS
Beginning of Period 12,171,542 --
------------ -------------------
End of Period $ 12,258,494 $ 12,171,542
------------ -------------------
------------ -------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE MARCH 7, 1997
SIX MONTHS ENDED (COMMENCEMENT OF
JUNE 30, 1998 OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1997
---------------- -------------------
<S> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 1.25%(a) 0.91%(a)
Net Investment Income 9.68%(a) 9.57%(a)
Expenses without Reimbursement 1.65%(a) 0.91%(a)
Portfolio Turnover 137%(b) 182%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
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 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 short-term portfolio securities with a
remaining maturity of less than 60 days are valued by the amortized cost
method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the portfolio's trustees.
b) The books and records of the portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expenses are
translated at the
23
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
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 at the current foreign exchange
rates, and the change in the market value is recorded by the portfolio as
unrealized appreciation or depreciation of forward foreign currency
contract translations. At June 30, 1998, the portfolio had open forward
currency contracts as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
VALUE AT APPRECIATION/
PURCHASE CONTRACTS COST/PROCEEDS 6/30/98 (DEPRECIATION)
- ------------------------------------------------- ------------- ----------- --------------
<S> <C> <C> <C>
German Mark 100,000, expiring 8/5/98............. $ 55,596 $ 55,522 $ (74)
German Mark 126,521, expiring 8/12/98............ 70,367 70,275 (92)
Mexican Peso 1,424,924, expiring 9/22/98......... 160,230 159,620 (610)
</TABLE>
<TABLE>
<CAPTION>
SALES CONTRACTS
- -------------------------------------------------
<S> <C> <C> <C>
German Mark 100,000, expiring 8/5/98............. $ 55,497 $ 55,522 $ (25)
German Mark 126,521, expring 8/12/98............. 71,417 70,275 1,142
Mexican Peso 1,424,924, expiring 9/22/98......... 164,789 159,620 5,169
--------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 5,510
--------------
--------------
</TABLE>
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
liquid securities equal to the minimum "initial margin" requirements
24
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
of the exchange. Pursuant to the contract, the portfolio agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation
in the value of the contract. Such receipts or payments are known as
"variation margin" and are recorded by the portfolio as unrealized gains
or losses. When the contract is closed, the portfolio records a realized
gain or loss equal to the difference between the value of the contract at
the time it was opened and the value at the time when it was closed. The
portfolio invests in futures contracts for the purpose of hedging its
existing portfolio securities, or securities the portfolio intends to
purchase, against fluctuations in value caused by changes in prevailing
market interest rates or securities movements. The use of futures
transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged
assets, and the possible inability of counterparties to meet the terms of
their contracts. At June 30, 1998, the portfolio had open future contracts
as follows:
SUMMARY OF OPEN CONTRACTS AT JUNE 30, 1998
<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS LONG APPRECIATION OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
Five - Year U.S. Treasury, expiring September
1998............................................ 26 $ 1,531 $ 2,850,344
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
f) 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 gain or loss on swap transaction is
not subject to any fixed limit.
g) 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.
h) The portfolio incurred organization expenses in the amount of $16,200.
Morgan Guaranty Trust Company of New York ("Morgan") has paid the
organization expenses of the portfolio. The portfolio has agreed to
reimburse Morgan for these costs which are being deferred and amortized on
a straight-line basis over a period not to exceed five years beginning
with the commencement of operations of the portfolio.
25
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
i) 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 six months
ended June 30, 1998, this fee amounted to $45,508.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
FDI provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the compensation of the officers
affiliated with FDI. The portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the portfolio is based on
the ratio of the portfolio's net assets to the aggregate net assets of the
portfolio and certain other investment companies subject to similar
agreements with FDI. For the six months ended June 30, 1998, the fee for
these services amounted to $127.
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 based on the aggregate average daily net assets of the
portfolio and certain other portfolios for which Morgan acts as investment
advisor (the "master portfolios") and J.P. Morgan Series Trust (formerly
JPM Series Trust) in accordance with the following annual schedule: 0.09%
on the first $7 billion of their aggregate average daily net assets and
0.04% of their aggregate average daily net assets in excess of $7 billion
less the complex-wide fees payable to FDI. The portion of this charge
payable by the portfolio is determined by the proportionate share its net
assets bear to the net assets of the master portfolios, other investors in
the master portfolios for which Morgan provides similar services and J.P.
Morgan Series Trust. For the six months ended June 30, 1998, the fee for
these services amounted to $1,910.
In addition, Morgan has agreed to reimburse the portfolio to the extent
necessary to maintain the total operating expenses of the portfolio at no
more than 1.25% of the average daily net assets of the portfolio at least
through April 30, 1999. For the six months ended June 30, 1998, Morgan has
agreed to reimburse the portfolio $26,049 for expenses under this
agreement.
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 $204 for the six months ended June 30, 1998.
26
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
- --------------------------------------------------------------------------------
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds (formerly the JPM Pierpont Funds), the
J.P. Morgan Institutional Funds (formerly the JPM Institutional Funds),
the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements represents the portfolio's
allocated portion of the total fees and expenses. The portfolio's Chairman
and Chief Executive Officer also serves as Chairman of Group and receives
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $50.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- -----------
<S> <C>
$18,019,960....... $19,426,684
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement as discussed more
fully in Note 4 of the fund's Notes to the Financial Statements which are
included elsewhere in this report.
27
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
CALIFORNIA MONEY MARKET FUND
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TOTAL RETURN BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
JAPAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS,
CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
J.P. MORGAN
EMERGING MARKETS
DEBT FUND
SEMI-ANNUAL REPORT
JUNE 30, 1998
