<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN EMERGING MARKETS DEBT FUND
February 1, 1999
Dear Shareholder:
The J.P. Morgan Emerging Markets Debt Fund lost 15.93% during the volatile 12
months ended December 31, 1998. Its benchmark, the Emerging Markets Bond Index
Plus, declined 14.35% for the same period.
The fund's net asset value per share decreased from $9.76 on December 31, 1997
to $7.30 on December 31, 1998, the end of the reporting period. The fund's total
net assets for the year ended December 31, 1998 were approximately $19.3
million. The fund made monthly income distributions totaling approximately $0.97
per share in income dividends for the period.
The report that follows includes an interview with Michael Cembalest, a member
of the portfolio management team. This interview is designed to answer commonly
asked questions about the fund, elaborate on what happened during the reporting
period, and provide an outlook for the months ahead.
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 FINANCIAL STATEMENTS ..............8
PORTFOLIO MANAGER Q&A .............3
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at right shows that $10,000 invested on April 30, 1997,*
would have declined to $8,693 on December 31, 1998.
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
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.
GROWTH OF $10,000 SINCE FUND INCEPTION*
APRIL 30, 1997 - DECEMBER 31, 1998
[GRAPH]
LIPPER PERFORMANCE AVERAGES ARE CALCULATED BY TAKING AN ARITHMETIC AVERAGE OF
THE RETURNS OF THE FUNDS IN THE GROUP. THE AVERAGE ANNUALIZED RETURNS WHICH
RESULT FROM THIS METHODOLOGY WILL DIFFER FROM ANNUALIZING THE GROWTH OF THE
MINIMUM INITIAL INVESTMENT.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------------- -----------------------------
THREE SIX ONE SINCE
AS OF DECEMBER 31, 1998 MONTHS MONTHS YEAR INCEPTION*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Emerging Markets Debt Fund 9.50% -14.29% -15.93% -8.06%
Emerging Markets Bond Index Plus** 9.92% -13.42% -14.35% -4.08%
Lipper Emerging Markets Debt Funds Average 11.90% -18.36% -20.80% -9.63%
</TABLE>
* THE FUND COMMENCED OPERATIONS ON APRIL 17, 1997 AND HAS PROVIDED A TOTAL
RETURN OF -6.81% FROM THAT DATE THROUGH DECEMBER 31, 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 MICHAEL CEMBALEST, vice president, who
manages the Emerging Markets Debt Group. Mr. Cembalest joined JPMIM in 1998,
after spending 11 years with J.P. Morgan Securities. Mr. Cembalest began his
career in the corporate finance group in 1988, transferred to Emerging Markets
Research in 1993, and served as head strategist for Emerging Markets Debt. Mr.
Cembalest was responsible for asset allocation recommendations to the firm's
clients and its analytical framework for sovereign bonds. He graduated with a
B.A. from Tufts University in 1984 and an M.A. from Columbia in 1986. This
interview was conducted on January 15, 1999 and reflects his views on that date.
HOW DID THE EMERGING MARKETS PERFORM IN 1998?
MC: The past 12 months saw considerable volatility in the world's financial
markets, driven in large part by the emerging markets. For 1998, the Emerging
Markets Bond Index Plus (EMBI+) declined 14.35%. Toward year-end, however, the
emerging countries participated in a global recovery. The EMBI+ gained 9.92% for
the fourth quarter.
The first half of the year was marked by economic and political turmoil in Asia.
Civil unrest and the resignation of President Suharto in Indonesia, the testing
of several atomic bombs in India, and continued difficulties in Japan all took
their toll. The uncertainty soon spread to the rest of the world. Russia
devalued its currency, and global markets corrected in July and August.
By October, however, a recovery was under way. Concerted interest rate cuts by
the U.S. Federal Reserve and the central banks of several other countries added
much-needed liquidity to the global marketplace. In Latin America, Brazil's
President Cardoso was re-elected on an austerity platform. This reassured the
markets that Brazil would pursue economic policies designed to impact the
country's macroeconomic situation and garner multilateral financial assistance.
The Japanese yen also rose dramatically in the second half of the year, easing
currency pressures throughout Asia.
Year-end illiquidity led to a disappointing December, as market participants
limited their exposure to regional assets. In addition, the Brazilian congress
rejected a key element of the country's fiscal austerity plan, and the country
lost more than $5 billion in international reserves. Brazil's difficulties hurt
the other Latin American debt markets.
HOW DID THE FUND PERFORM DURING THE 12 MONTHS ENDED DECEMBER 31, 1998?
MC: The fund lost 15.93% for 1998, surpassing its peers as measured by Lipper
Emerging Markets Debt Funds Average, which declined 20.80%. We lagged the EMBI+,
which declined 14.35%. For the fourth quarter, the fund returned 9.50% and the
Index returned 9.92%. Our performance was enhanced in the fourth quarter by
decisions regarding spread duration and country selection. We increased spread
duration, which
3
<PAGE>
allowed the portfolio to participate in a rally during the quarter, and we took
major overweight positions in Korea and Bulgaria, both of which outperformed
significantly.
Our decision to avoid Russia during August of 1998 added to the portfolio's
performance and enabled us to surpass our peers, many of whom remained invested
in Russia during the turmoil. For the year, Russian debt lost 83% of its value.
The portfolio was somewhat hampered, however, by our defensive position during
September. Our attempt to manage risk and preserve capital held the portfolio
back in the initial stages of the market recovery.
HOW IS THE PORTFOLIO POSITIONED AS WE ENTER 1999?
MC: Given the continuing uncertainty in Brazil, the portfolio is positioned
defensively. We are well diversified in an attempt to manage risk. We have taken
significant positions in high-yielding Eastern European and Asian debt
securities. The portfolio has avoided illiquid investments in order to allow us
the flexibility to take advantage of market opportunities.
WHAT IS YOUR MARKET OUTLOOK FOR THE COMING MONTHS?
MC: Our attention is fixed on Brazil as it struggles to avoid a financial crisis
that would force some combination of devaluation, debt restructuring, and
further fiscal adjustment. Until the situation in Brazil is resolved, we expect
continued volatility in Latin American emerging markets debt.
Brazil's difficulties do not appear to be affecting Eastern European or Asian
debt markets. In fact, Asian debt has recovered strongly since the summer.
Other potential risks that we continue to monitor include further deterioration
in commodity markets, depreciation of the Japanese yen, and a correction in U.S.
equity markets. Emerging markets tend to be heavily dependent on commodity
export revenue, and lower commodity prices often reduce government revenue and
foreign exchange reserves. Significant depreciation of the yen might trigger a
round of competitive devaluations across Asia, which would destabilize Asian
debt markets. Further, a significant correction in U.S. equities would likely
reduce investors' appetites for assets such as emerging markets debt.
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 INVESTMENT OPERATIONS
4/17/97
- -------------------------------------------------------------------------------
FUND NET ASSETS AS OF 12/31/98
$19,312,591
- -------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 12/31/98
$19,348,252
- -------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- -------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/20/99
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 DECEMBER 31, 1998
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
ARGENTINA 24.6%
BULGARIA 16.3%
MEXICO 12.1%
BRAZIL 11.1%
SOUTH KOREA 10.4%
U.S. DOLLAR (SHORT TERM) 7.7%
VENEZUELA 4.0%
PERU 2.2%
RUSSIA 1.2%
OTHER 10.4%
</TABLE>
30-DAY SEC YIELD
9.48%*
DURATION
3.4 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>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT
INC. SERVES AS INVESTMENT ADVISOR. 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.
Opinions expressed herein are based on current market conditions and are
subject to change without notice. The fund invests through a master portfolio
(another fund with the same objective). The fund 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.
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.
6
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Emerging Markets Debt Portfolio
("Portfolio"), at value $19,326,833
Receivable for Expense Reimbursements 24,263
Deferred Organization Expenses 11,067
Receivable for Shares of Beneficial Interest Sold 5,048
Prepaid Trustees' Fees 161
Prepaid Expenses and Other Assets 113
-----------
Total Assets 19,367,485
-----------
LIABILITIES
Organization Expenses Payable 13,495
Shareholder Servicing Fee Payable 4,083
Dividends Payable to Shareholders 1,232
Administrative Services Fee Payable 443
Fund Services Fee Payable 16
Administration Fee Payable 15
Accrued Expenses 35,610
-----------
Total Liabilities 54,894
-----------
NET ASSETS
Applicable to 2,644,734 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $19,312,591
-----------
-----------
Net Asset Value, Offering and Redemption Price
Per Share $7.30
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $$23,849,253
Undistributed Net Investment Income 334,015
Accumulated Net Realized Loss on Investment (4,867,838)
Net Unrealized Depreciation of Investment (2,839)
-----------
Net Assets $$19,312,591
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income (Net of Foreign
Withholding Tax of $22) $ 1,702,850
Allocated Portfolio Expenses (Net of
Reimbursement of $27,668) (162,381)
-----------
Net Investment Income Allocated from
Portfolio 1,540,469
FUND EXPENSES
Shareholder Servicing Fee $ 37,680
Registration Fees 21,993
Transfer Agent Fees 21,883
Printing Expenses 19,022
Professional Fees 11,546
Administrative Services Fee 4,314
Amortization of Organization Expenses 3,360
Fund Services Fee 422
Administration Fee 311
Insurance Expense 51
Miscellaneous 4,467
--------
Total Fund Expenses 125,049
Less: Reimbursement of Expenses (99,035)
--------
NET FUND EXPENSES 26,014
-----------
NET INVESTMENT INCOME 1,514,455
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (4,587,310)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 226,246
-----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(2,846,609)
-----------
-----------
</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 PERIOD
APRIL 17, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,514,455 $ 536,699
Net Realized Gain (Loss) on Investment Allocated
from Portfolio (4,587,310) 556,473
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio 226,246 (635,869)
----------------- -------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (2,846,609) 457,303
----------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1,514,455) (536,699)
In Excess of Net Investment Income (309,561) (14,812)
Net Realized Gain -- (196,090)
----------------- -------------------
Total Distributions to Shareholders (1,824,016) (747,601)
----------------- -------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 15,105,562 11,902,012
Reinvestment of Dividends and Distributions 1,773,903 727,589
Cost of Shares of Beneficial Interest Redeemed (4,874,109) (361,443)
----------------- -------------------
Net Increase from Transactions in Shares of
Beneficial Interest 12,005,356 12,268,158
----------------- -------------------
Total Increase in Net Assets 7,334,731 11,977,860
NET ASSETS
Beginning of Period 11,977,860 --
----------------- -------------------
End of Period (including undistributed net
investment income of $334,015 and $0,
respectively) $ 19,312,591 $ 11,977,860
----------------- -------------------
----------------- -------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
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
APRIL 17, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 10.00
----------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.15 0.58
Net Realized and Unrealized Loss on Investment (2.64) (0.05)
----------------- -------------------
Total from Investment Operations (1.49) 0.53
----------------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.81) (0.58)
In Excess of Net Investment Income (0.16) (0.02)
Net Realized Gain -- (0.17)
----------------- -------------------
Total Distributions to Shareholders (0.97) (0.77)
----------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 7.30 $ 9.76
----------------- -------------------
----------------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return (15.93%) 5.47%(a)
Net Assets, End of Period (in thousands) $ 19,313 $ 11,978
Ratios to Average Net Assets
Net Expenses 1.25% 1.25%(b)
Net Investment Income 10.05% 9.71%(b)
Expenses without Reimbursement 2.09% 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
DECEMBER 31, 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 99.9% at December 31,
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 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) 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. Prior to
August 1, 1997, distributions to shareholders of net investment income and
net realized capital gains, if any, were declared and paid annually.
d) The fund incurred organization expenses in the amount of $16,800. Morgan
Guaranty Trust Company of New York ("Morgan"), a wholly owned subsidiary
of J.P. Morgan & Co., Incorporated ("J.P. 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) 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.
12
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
f) The fund is treated as a separate entity for federal income tax purposes.
The fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
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 was to increase Undistributed Net Investment Income by
$703,559, increase Accumulated Net Realized Loss on Investment by
$1,019,082 and increase Paid-in Capital by $315,523. The adjustments are
primarily attributable to deferral of prior year losses as a result of
asset migration at the portfolio level and reclassification of current
year distributable income. Net investment income, net realized gains and
net assets were not affected by this change. In addition, a
reclassification of approximately $406,000 was made by the fund to
decrease both the paid in capital and net unrealized appreciation of
investments attributable to its allocation from the portfolio. Net assets
were not affected by the reclassification.
h) For federal income tax purposes, the fund had a capital loss carryforward
of $4,224,557 at December 31, 1998, which will expire in the year 2006. To
the extent that this capital loss is used to offset future capital gains,
it is probable that the gains so offset will not be distributed to
shareholders.
i) For federal income tax purposes, the fund incurred approximately $26,700
of long-term capital losses in the period from November 1, 1998 to
December 31, 1998. These losses were deferred for tax purposes until
January 1, 1999.
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
fiscal year ended December 31, 1998, the fee for these services amounted
to $311.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for overseeing certain aspects of the administration and operation of the
fund. Under the Services Agreement, the fund has agreed to pay Morgan a
fee equal to its allocable share of an annual complex-wide charge. This
charge is calculated based on the aggregate average daily net assets of
the portfolio and the other portfolios in which the trust and the
13
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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 fiscal year ended December
31, 1998, the fee for these services amounted to $4,314.
In addition, J.P. 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. This reimbursement
arrangement can be changed or terminated at any time at the option of J.P.
Morgan. For the fiscal year ended December 31, 1998, J.P. Morgan has
agreed to reimburse the fund $99,035 for expenses under this agreement.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal and account
maintenance services to fund shareholders. The agreement provides for the
fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.25% of the average daily net assets of
the fund. For the fiscal year ended December 31, 1998, the fee for these
services amounted to $37,680.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the Services Agreement with Schwab is
terminated for reasons other than a breach by Schwab and the relationship
between the trust and Morgan is terminated, the fund would be responsible
for the ongoing payments to Schwab with respect to pre-termination shares.
d) The trust, on behalf of the fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the trustees in exercising their
overall supervisory responsibilities for the trust's affairs. The trustees
of the trust represent all the existing shareholders of Group. The fund's
allocated portion of Group's costs in performing its services amounted to
$422 for the fiscal year ended December 31, 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 $90.
14
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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
APRIL 17, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -------------------
<S> <C> <C>
Shares sold...................................... 1,775,810 1,188,908
Reinvestment of dividends and distributions...... 221,158 74,548
Shares redeemed.................................. (578,862) (36,828)
----------------- -------------------
Net Increase..................................... 1,418,106 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, 1997, 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 was $100,000,000. The Agreement expired on May 27, 1998, however, the
fund as party to the Agreement has extended the Agreement and continues its
participation therein for an additional 364 days until May 26, 1999. The maximum
borrowing under the new Agreement is $150,000,000. The purpose of the Agreement
is to provide another alternative for settling large fund shareholder
redemptions. Interest on any such borrowings outstanding will approximate market
rates. The funds pay a commitment fee at an annual rate of 0.065% on the unused
portion of the committed amount which is allocated to the funds in accordance
with procedures established by their respective trustees or directors. There
were no outstanding borrowings pursuant to the Agreement at December 31, 1998.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Emerging Markets Debt Fund
(formerly The JPM Pierpont Emerging Markets Debt 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 J.P. Morgan Emerging Markets Debt Fund (one of the series constituting part
of J.P. Morgan Funds (formerly The JPM Pierpont Funds), hereafter referred to as
the "fund") at December 31, 1998, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
the year then ended and for the period from April 17, 1997 (commencement of
operations) through December 31, 1997, 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 audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 18, 1999
16
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
A Joint Special Meeting of Shareholders of the J.P. Morgan Family of Funds was
held on August 20, 1998. Each of the applicable funds voted in favor of adopting
the following proposals, therefore, the results are aggregated for the trust
unless otherwise specified. The meeting was held for the following purposes:
<TABLE>
<S> <C>
1. To elect a slate of five trustees to hold office
for a term of unlimited duration subject to the
current retirement age of 70.
2a. To approve the amendment of the fund's investment
restriction relating to diversification of
assets.
2b. To approve the amendment of the fund's investment
restriction relating to concentration of assets
in a particular industry.
2c. To approve the amendment of the fund's investment
restriction relating to the issuance of senior
securities.
2d. To standardize the borrowing ability of the fund
to the extent permitted by applicable law.
2e. To approve the amendment of the fund's investment
restriction relating to underwriting.
2f. To approve the amendment of the fund's investment
restriction relating to investment in real
estate.
2g. To approve the amendment of the fund's investment
restriction relating to commodities.
2h. To approve the amendment of the fund's investment
restriction relating to lending.
2i. To approve the reclassification of the fund's
other fundamental restrictions as
nonfundamental.
3. To approve the reclassification of the fund's
investment objective from fundamental to
nonfundamental.
4. To approve a new investment advisory agreement of
the fund.
5. To amend the Declaration of Trust to provide
dollar-based voting rights.
6. To ratify the selection of independent
accountants, PricewaterhouseCoopers LLP.
</TABLE>
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
DIRECTORS/MATTER VOTES FOR VOTES AGAINST ABSTENTIONS
- ------------------------------------------------------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
2,692,335,831 18,884,648 --
1. Frederick S. Addy......................................
2,692,395,937 18,824,542 --
William G. Burns.......................................
2,691,798,990 19,421,489 --
Arthur C. Eschenlauer..................................
2,692,393,425 18,827,054 --
Matthew Healey.........................................
2,692,488,290 18,732,189 --
Michael P. Mallardi....................................
2. Amending of Investment Restrictions:
a. Relating to diversification of assets............ 933,848 -- --
b. Relating to concentration of assets.............. 933,848 -- --
c. Relating to issuance of senior securities........ 933,848 -- --
d. Relating to borrowing............................ 933,848 -- --
e. Relating to underwriting......................... 933,848 -- --
f. Relating to investment in real estate............ 933,848 -- --
g. Relating to commodities.......................... 933,848 -- --
h. Relating to lending.............................. 933,848 -- --
i. Reclassification of other restrictions as
nonfundamental.................................. 933,848 -- --
-- -- --
3. Reclassification of investment objectives..............
938,925 -- --
4. Investment advisory agreement..........................
2,645,059,081 16,807,551 47,376,755
5. Dollar-based voting rights.............................
2,682,031,391 4,303,418 24,885,671
6. Independent accountants, PricewaterhouseCoopers LLP....
</TABLE>
17
<PAGE>
The Emerging Markets Debt Portfolio
Annual Report December 31, 1998
(The following pages should be read in conjunction
with J.P. Morgan Emerging Markets Debt Fund
Annual Financial Statements)
18
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
----------- ------------------------------------------------- ------------
<C> <S> <C>
CORPORATE OBLIGATIONS (1.1%)
INDIA (1.1%)
$ 250,000 Reliance Industries Ltd., (144A), 10.375% due
06/24/16 (cost $203,386)....................... $ 202,870
------------
OTHER GOVERNMENT AGENCIES (4.6%)
MEXICO (4.6%)
261,000 Banco Nacional de Comercio Exterior SNC, 7.25%
due 02/02/04................................... 240,120
660,000 Petroleos Mexicanos, (144A), Tranche 5, MTN,
Putable, 9.375% due 12/02/08................... 655,050
------------
TOTAL OTHER GOVERNMENT AGENCIES (COST
$876,891)................................... 895,170
------------
SOVEREIGN BONDS (62.8%)
ARGENTINA (18.1%)
502,918 Republic of Argentina Bocon, Series Pre-4,
Callable, Sinking Fund, 5.01% due
09/01/02(v).................................... 445,892
1,130,000 Republic of Argentina Bonos del Tesoro, Series
BT02, 8.75% due 05/09/02....................... 1,021,520
280,000 Republic of Argentina Global Bonds, 9.75% due
09/19/27....................................... 248,500
805,000 Republic of Argentina Global Bonds, Series XW,
11.00% due 12/04/05............................ 800,975
280,000 Republic of Argentina Par Bonds, Series L-GP,
Callable, 5.75% due 03/31/23(v)................ 201,600
935,300 Republic of Argentina, Series L, Callable,
Sinking Fund, 6.188% due 03/31/05(v)........... 787,990
------------
3,506,477
------------
BRAZIL (8.3%)
760,000 Republic of Brazil DCB, Series 18 Year L,
Callable, Sinking Fund, 6.188% due
04/15/12(v).................................... 380,000
680,000 Republic of Brazil DCB, Series 18 Year RG,
Callable, Sinking Fund, 6.188% due
04/15/12(v).................................... 340,000
790,000 Republic of Brazil Global Bonds, 10.125% due
05/15/27....................................... 525,350
645,000 Republic of Brazil NMB, Series 15 Year L,
Callable, Sinking Fund, 6.188% due
04/15/09(v).................................... 350,719
------------
1,596,069
------------
BULGARIA (12.1%)
1,370,000 Republic of Bulgaria Discount Bonds, Series A,
Callable, 6.688% due 07/28/24(v)............... 959,000
660,000 Republic of Bulgaria Global FLIRB, Series A,
Callable, Sinking Fund, 2.50% due
07/28/12(v).................................... 376,200
1,500,000 Republic of Bulgaria IAB PDI, Callable, Sinking
Fund, 6.688% due 07/28/11(v)................... 1,008,750
------------
2,343,950
------------
ECUADOR (1.2%)
548,855 Republic of Ecuador Global PDI Bonds, Series 20
Year, 6.625% due 02/27/15(v)................... 222,286
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
----------- ------------------------------------------------- ------------
<C> <S> <C>
MEXICO (4.3%)
$ 570,000 United Mexican States Global Bonds, Series W-B,
6.25% due 12/31/19............................. $ 441,750
385,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... 396,550
------------
838,300
------------
MOROCCO (0.9%)
220,000 Government of Morocco - Restructuring &
Consolidation Agreement, Series A, Sinking
Fund, 6.063% due 01/01/09(v)(s)................ 173,250
------------
PANAMA (2.8%)
470,000 Republic of Panama Global Bonds, 8.25% due
04/22/08(s).................................... 440,625
131,833 Republic of Panama PDI, Series 20 Year, 6.688%
due 07/17/16(v)................................ 97,556
------------
538,181
------------
PERU (1.6%)
220,000 Republic of Peru FLIRB, Series 20 Year, Sinking
Fund, 3.25% due 03/07/17(v).................... 124,575
305,000 Republic of Peru PDI, Series 20 Year, Sinking
Fund, 4.00% due 03/07/17(v).................... 191,387
------------
315,962
------------
PHILIPPINES (1.9%)
360,000 Republic of Philippines Global Bonds, 8.875% due
04/15/08....................................... 359,100
------------
RUSSIA (0.9%)
40,042 Russia IAN, Vnesheconombank, Series US, Sinking
Fund, 5.969% due 12/15/15(v)................... 4,305
2,888,000 Russia Principal Loan, Vnesheconombank, Series 24
Year, Sinking Fund, 5.969% due 12/15/20(v)..... 173,280
------------
177,585
------------
SOUTH KOREA (7.8%)
360,000 Republic of Korea Global Bonds, 8.75% due
04/15/03....................................... 369,000
1,100,000 Republic of Korea Global Bonds, 8.875% due
04/15/08....................................... 1,130,250
------------
1,499,250
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
----------- ------------------------------------------------- ------------
<C> <S> <C>
VENEZUELA (2.9%)
$ 642,856 Republic of Venezuela DCB, Series DL, Callable,
Sinking Fund, 5.938% due 12/18/07(s)(v)........ $ 408,213
260,000 Republic of Venezuela Global Bonds, 9.25% due
09/15/27....................................... 158,600
------------
566,813
------------
TOTAL SOVEREIGN BONDS (COST $12,127,156)..... 12,137,223
------------
U.S. TREASURY OBLIGATIONS (3.8%)
U.S. TREASURY BONDS (3.8%)
200,000 5.25% due 11/15/28............................... 204,746
450,000 6.75% due 08/15/26(s)............................ 539,294
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$720,836)................................... 744,040
------------
RIGHTS (0.0%)
MEXICO (0.0%)
2,258,000 United Mexican States Value Recovery, Expiring
06/30/03 (cost $0)............................. 0
------------
WARRANTS (0.1%)
ARGENTINA (0.1%)
555 Republic of Argentina, Expiring 12/03/99......... 24,975
------------
NIGERIA (0.0%)
1,000 Central Bank of Nigeria, Expiring 11/15/20....... 0
------------
VENEZUELA (0.0%)
1,250 Republic of Venezuela, Expiring 04/15/20......... 0
------------
TOTAL WARRANTS (COST $19,425)................ 24,975
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
----------- ------------------------------------------------- ------------
SHORT-TERM INVESTMENTS (1.8%)
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (1.8%)
$ 349,000 Bills, 4.34% due 04/01/99(y)..................... $ 345,340
10,000 Bills, 4.34% due 06/24/99(y)..................... 9,794
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$354,969)................................... 355,134
------------
TOTAL INVESTMENTS (COST $14,302,663) (74.2%)..... 14,359,412
OTHER ASSETS IN EXCESS OF LIABILITIES (25.8%).... 4,988,840
------------
NET ASSETS (100.0%).............................. $ 19,348,252
------------
------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $15,341,590 for Federal Income Tax
purposes at December 31, 1998, the aggregate gross unrealized appreciation and
depreciation was $281,164 and $1,263,342, respectively, resulting in net
unrealized depreciation of $982,178.
(s) Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$1,025,517 of the market value has been segregated.
(v) Rate shown reflects current rate on variable or floating rate instrument or
instruments with step coupon rate.
(y) Yield to maturity.
{::} Denominated in USD unless otherwise indicated.
144A - Securities restricted for resale to Qualified Institutional Buyers.
C - Capitalization.
DCB - Debt Conversion Bonds.
FLIRB - Front Loaded Interest Reduction Bonds.
IAB - Interest in Arrears Bonds.
IAN - Interest in Arrears Notes.
MTN - Medium Term Notes.
NMB - New Money Bonds.
PDI - Past Due Interest.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $14,302,663 ) $14,359,412
Cash 565,822
Receivable for Investments Sold 4,185,168
Interest Receivable 296,199
Receivable from Advisor 23,124
Deferred Organization Expenses 10,309
Prepaid Trustees' Fees 356
Unrealized Appreciation of Forward Foreign
Currency Contracts 203
Prepaid Expenses and Other Assets 1,008
-----------
Total Assets 19,441,601
-----------
LIABILITIES
Unrealized Depreciation of Forward Foreign
Currency Contracts 19,075
Organization Expenses Payable 14,200
Advisory Fee Payable 11,495
Variation Margin Payable 1,250
Administrative Services Fee Payable 445
Fund Services Fee Payable 16
Accrued Expenses 46,868
-----------
Total Liabilities 93,349
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $19,348,252
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income (Net of Foreign Withholding Tax
of $22) $ 1,706,984
EXPENSES
Advisory Fee $ 106,372
Professional Fees and Expenses 52,355
Custodian Fees and Expenses 16,262
Printing Expenses 6,543
Administrative Services Fee 4,349
Amortization of Organization Expense 3,238
Fund Services Fee 423
Insurance Expense 335
Administration Fee 274
Trustees' Fees and Expenses 99
Miscellaneous 114
-----------
Total Expenses 190,364
Less: Reimbursement of Expenses (27,722)
-----------
NET EXPENSES 162,642
-----------
NET INVESTMENT INCOME 1,544,342
NET REALIZED GAIN (LOSS) ON
Investment Transactions (4,955,945)
Futures Contracts 144,392
Foreign Currency Transactions 218,887
-----------
Net Realized Loss (4,592,666)
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments 299,990
Futures Contracts (25,060)
Foreign Currency Contracts and Translations (51,223)
-----------
Net Change in Unrealized Appreciation 223,707
-----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(2,824,617)
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 7, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,544,342 $ 8,917,209
Net Realized Loss on Investments, Futures and
Foreign Currency Contracts and Transactions (4,592,666) (5,256,573)
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations 223,707 (225,247)
----------------- -------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (2,824,617) 3,435,389
----------------- -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 15,100,514 178,496,163
Withdrawals (5,099,187) (169,760,010)
----------------- -------------------
Net Increase from Investors' Transactions 10,001,327 8,736,153
----------------- -------------------
Total Increase in Net Assets 7,176,710 12,171,542
NET ASSETS
Beginning of Period 12,171,542 --
----------------- -------------------
End of Period $ 19,348,252 $ 12,171,542
----------------- -------------------
----------------- -------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 7, 1997
FOR THE (COMMENCEMENT OF
FISCAL YEAR ENDED OPERATIONS) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -------------------
<S> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.07% 0.91%(a)
Net Investment Income 10.16% 9.57%(a)
Expenses without Reimbursement 1.25% 0.91%(a)
Portfolio Turnover 791% 182%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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.
("Limited") in exchange for a beneficial interest in the portfolio. On December
12, 1997, Limited withdrew its entire 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.
The portfolio may have elements of risk, not typically associated with
investments in the United States, due to concentrated investments in a limited
number of countries or regions, which may vary throughout the year. Such
concentrations may subject the portfolio to additional risks resulting from
future political or economic conditions in such countries or regions and the
possible imposition of adverse governmental laws or currency exchange
restrictions affecting such countries or regions, which could cause the
securities and their markets to be less liquid and prices more volatile than
those comparable to the United States. 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.
26
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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 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. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual 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. 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 December 31, 1998, the portfolio had open
forward currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 12/31/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
German Mark 273,380, expiring 02/09/99........... $ 170,129 $ 164,462 $ (5,667)
German Mark 124,492, expiring 03/09/99........... 74,797 75,000 203
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- ------------------------------------------------- ----------
<S> <C> <C> <C>
German Mark 273,380, expiring 02/09/99........... $ 155,259 $ 164,462 $ (9,203)
German Mark 124,492, expiring 03/09/99........... 70,795 75,000 (4,205)
--------------
NET UNREALIZED DEPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ (18,872)
--------------
--------------
</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
27
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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 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. Futures contracts open at December 31, 1998 are
summarized as follows:
SUMMARY OF OPEN CONTRACTS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
U.S. Long Bond, expiring March 1999.............. 10 $ (25,060) $ 1,302,873
-------------- -------------- ----------------
-------------- -------------- ----------------
</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 transactions is
not subject to any fixed limit.
g) The portfolio incurred organization expenses in the amount of $16,200.
Morgan Guaranty Trust Company of New York ("Morgan"), a wholly owned
subsidiary of J.P. Morgan & Co., Incorporated ("J.P. 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.
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.
i) 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
28
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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.
2. TRANSACTIONS WITH AFFILIATES
a) Prior to October 28, 1998, the portfolio had an Investment Advisory
Agreement with Morgan. Under the terms of the agreement, the portfolio
paid Morgan at an annual rate of 0.70% of the portfolio's average daily
net assets. Effective October 28, 1998, the portfolio's Investment Advisor
is J.P. Morgan Investment Management, Inc. ("JPMIM"), an affiliate of
Morgan and wholly owned subsidiary of J.P. Morgan, and the terms of the
agreement remain the same. For the fiscal year ended December 31, 1998,
this fee amounted to $106,372.
b) The portfolio, on behalf of the fund, 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 portfolio's officers affiliated with FDI. The
portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses.
The 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 fiscal year ended December 31, 1998, the fee for these services
amounted to $274.
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 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 fiscal year ended December 31, 1998, the fee for
these services amounted to $4,349.
During the year, Morgan reimbursed the portfolio for $27,722 based on its
voluntary undertaking to limit the expenses of the portfolio and the
related funds to 1.25% of the average net assets.
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 $423 for the fiscal year ended December 31, 1998.
29
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 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, 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 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 $90.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- ------------
<S> <C>
113,756,184...... 108,117,482
</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.
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The Emerging Markets Debt 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 Emerging Markets Debt Portfolio (one of
the portfolios comprising part of the Series Portfolio, hereafter referred to as
the "portfolio") at December 31, 1998, the results of its operations for the
year then ended, and the changes in its net assets and supplementary data for
the year then ended and for the period from March 7, 1997 (commencement of
operations) through December 31, 1997, 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 misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodians and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
February 18, 1999
31
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
ADDITIONAL INFORMATION (UNAUDITED)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
YEAR 2000 PROCESSING ISSUE
Many computer programs in use today use two digits rather than four to identify
the year and cannot distinguish the year 2000 from the year 1900. The Year 2000
issue affects virtually all companies and organizations. The funds' Investment
Adviser is working on necessary changes to its computer systems to deal with the
Year 2000 issue. The funds' Transfer Agent, Custodian and other services
providers have reported that they are working on dealing with the Year 2000
issue as well. There can be no assurance that the problem will be corrected in
all respects or that it will not have a negative effect on the funds' operations
or results. In addition, companies in which the funds invest could be adversely
affected by the Year 2000 issue, which could have a negative effect on the
funds' investment returns.
32
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TAX EXEMPT 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
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
ANNUAL REPORT
DECEMBER 31, 1998
