<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN EMERGING MARKETS DEBT FUND
August 2, 1999
Dear Shareholder:
We are pleased to report that the J.P. Morgan Emerging Markets Debt Fund
delivered a solid return of 10.08% for the six months ended June 30, 1999,
exceeding the Lipper Emerging Markets Debt Funds Average.
The fund's net asset value on June 30 rose to $7.55 per share from $7.30 per
share on December 31, 1998, after paying monthly income dividends of
approximately $0.46. The fund's net assets stood at nearly $21 million on June
30, while the assets of the Emerging Markets Debt Portfolio, in which the fund
invests, was more than $21 million.
Included in this report is an interview with Michael Cembalest, a member of the
portfolio management team. This interview is designed to reflect what happened
during the reporting period, as well as provide an outlook for the months ahead.
As chairman and president of Asset Management Services, we thank you for
investing with J.P. Morgan. Should you have any comments or questions, please
telephone your Morgan representative or J.P. Morgan Funds Services at
800-521-5411.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS ........1 FUND FACTS AND HIGHLIGHTS ........5
FUND PERFORMANCE ..................2 FINANCIAL STATEMENTS .............8
PORTFOLIO MANAGER Q&A .............3
- --------------------------------------------------------------------------------
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.
PERFORMANCE
<TABLE>
<CAPTION>
TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------- ------------------------------
THREE SIX ONE SINCE
AS OF JUNE 30, 1999 MONTHS MONTHS YEAR INCEPTION*
- ---------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Emerging Markets Debt Fund 5.90% 10.08% -5.65% -2.01%
Emerging Markets Bond Index Plus** 5.24% 10.58% -4.25% 1.45%
Lipper Emerging Markets Debt Funds Average 5.41% 9.97% -10.14% -2.87%
</TABLE>
*THE FUND COMMENCED OPERATIONS ON APRIL 17, 1997, AND HAS PROVIDED A TOTAL
RETURN OF -1.09% FROM THAT DATE THROUGH JUNE 30, 1999. 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]
Following is an interview with MICHAEL CEMBALEST, managing director, who manages
the Emerging Markets Debt Group. Michael has been with J.P. Morgan since 1988,
and joined J.P. Morgan Investment Management in 1998. He began his career in
J.P. Morgan's corporate finance group in 1988, transferred to Emerging Markets
Research in 1993, and served as head strategist for Emerging Markets Debt.
Michael was responsible for asset allocation recommendations to the firm's
clients and the firm's 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 July 16, 1999 and reflects his views on that
date.
EMERGING MARKET DEBT OUTPERFORMED ALL OTHER SECTORS OF FIXED INCOME INVESTMENTS
IN THE SIX MONTHS ENDED JUNE 30, 1999. WHAT HAPPENED?
MC: Emerging markets debt prices have benefited from the dramatic recovery in
global investor confidence since February. Demand for all emerging market debt,
including the Latin American debt that forms the bulk of the fund, plummeted as
a result of the global financial crisis that began in Asia in 1997, and peaked
in August 1998 with the Russian financial collapse. Borrowing costs for all
emerging markets issuers rose to very high levels, at the same time that their
revenues were falling due to depressed export prices, especially for
commodities. The crisis moved to Latin America in January, as Brazil was forced
to devalue its currency in the face of massive capital outflows.
But confidence has returned for three important reasons: FIRST, the developed
nations took decisive action to ease the financial pressure, through coordinated
multilateral lending to the affected countries, and by increasing global
liquidity by lowering interest rates; SECOND, emerging markets countries began
to display the monetary and fiscal discipline necessary to convince investors to
renew credit; and THIRD, the astonishing recovery in Asia helped stimulate
demand for commodities, especially oil, that have provided crucial fiscal
revenue and foreign currency reserves. These three factors have contributed to a
dramatic recovery in emerging markets debt prices.
This return to financial stability did not escape the notice of the U.S. Federal
Reserve, which in June agreed that the recovery was established sufficiently for
it to take back a third of the interest rate reduction it had promulgated last
autumn. The Fed announced in June that its action was preemptive - to prevent an
increase in U.S. inflation. As financial markets began to refocus on the
prospects for U.S. inflation and monetary policy tightening, U.S. and European
bond prices fell. Consequently, at the same time that emerging markets debt was
rallying strongly, other fixed income sectors fell sharply.
3
<PAGE>
THE FUND BEAT THE LIPPER AVERAGE. HOW DID YOU DO IT?
MC: The fund is slightly ahead of the Lipper average year-to-date. In this
highly volatile year, we invested assets only when the prospective returns
outweighed our estimate of the risks. Consequently, we maintained a defensive
position in January until it was clear that Brazil would survive its crisis
without defaulting on its obligations. This caution, which enabled us last
summer to avoid the worst of the Russian collapse and greatly outperform most of
the competition, led us to lag somewhat in February. But we correctly
anticipated the recovery in oil prices, and in March and April posted excellent
returns from our investments in Venezuela and Russia, whose debt service
capability is highly dependent on oil export revenue.
RUSSIA APPRECIATED MORE THAN ANY OTHER COUNTRY WORLDWIDE. WHY? HOW DO YOU MANAGE
YOUR HOLDINGS IN THIS VERY VOLATILE COUNTRY?
MC: Last year, it became clear that Russia's total indebtedness was vastly out
of proportion to its ability to repay. Many investors recognized this, but
assumed that financial assistance from the IMF and other multilateral
institutions would enable Russia to continue to service its debt. We were more
skeptical than most that the developed nations would continue this lending, so
we avoided the serious losses suffered by many of our competitors.
The default on Soviet-era external debt left a much smaller stock of Russian
Federation debt, which the Russians have always insisted that they will continue
to service. But we initially did not invest assets even in this smaller stock of
debt, because Russia's low level of foreign currency reserves and tax revenues
raised serious questions about its ability to fulfill its commitment. However,
the tremendous increase in oil prices this year has changed all this. The
Russians are now running a large trade surplus, are rebuilding their foreign
currency reserves, and tax revenues are increasing. We have steadily increased
our holdings of Russian debt, and have benefited from the large returns it has
posted this year.
WHAT IS YOUR OUTLOOK FOR THE SECTOR IN GENERAL?
MC: With our benchmark yielding over 14%, we continue to believe that emerging
market debt offers good value. The immediate prospects, however, are for
continued volatility. The combination of renewed global financial stability and
improving global growth should support continued capital gains, but if the U.S.
Federal Reserve decides to progressively raise interest rates, then the
prospects for all fixed income products will be limited. And there is always the
possibility of more turbulence in the emerging markets; Argentina in particular
is vulnerable to a crisis of investor confidence, as it seeks to renew maturing
debt and to finance its fiscal deficit. So while capital gains opportunities may
be limited if U.S. interest rates rise, we believe that the high yields
currently available provide a reasonable entry point for investors with a medium
to long-term horizon.
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 6/30/99
$20,978,750
- ----------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 6/30/99
$21,032,596
- ----------------------------------------------------------
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 JUNE 30, 1999
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[GRAPH]
- - MEXICO 20.7%
- - BRAZIL 18.5%
- - ARGENTINA 17.7%
- - RUSSIA 12.7%
- - VENEZUELA 7.9%
- - MAURITIUS 3.1%
- - BULGARIA 2.6%
- - PANAMA 2.0%
- - ECUADOR 1.9%
- - PHILIPPINES 1.9%
- - OTHER 4.0%
- - U.S. DOLLAR 7.0%
30-DAY SEC YIELD
11.05%*
DURATION
4.9 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 (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Emerging Markets Debt Portfolio
("Portfolio"), at value $21,009,006
Receivable for Expense Reimbursements 24,418
Deferred Organization Expenses 9,401
Receivable for Shares of Beneficial Interest Sold 785
Prepaid Trustees' Fees 255
Prepaid Expenses and Other Assets 117
-----------
Total Assets 21,043,982
-----------
LIABILITIES
Organization Expenses Payable 13,495
Dividends Payable to Shareholders 4,554
Shareholder Servicing Fee Payable 4,057
Administrative Services Fee Payable 416
Administration Fee Payable 25
Fund Services Fee Payable 21
Accrued Expenses 42,664
-----------
Total Liabilities 65,232
-----------
NET ASSETS
Applicable to 2,778,679 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $20,978,750
-----------
-----------
Net Asset Value, Offering and Redemption Price
Per Share $7.55
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $25,352,802
Undistributed Net Investment Income 333,739
Accumulated Net Realized Loss on Investment (5,338,791)
Net Unrealized Appreciation of Investment 631,000
-----------
Net Assets $20,978,750
-----------
-----------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $1,166,879
Allocated Portfolio Expenses (Net of
Reimbursement of $39,359) (105,747)
----------
Net Investment Income Allocated from
Portfolio 1,061,132
FUND EXPENSES
Shareholder Servicing Fee $ 20,963
Printing Expenses 11,603
Transfer Agent Fees 10,233
Professional Fees 9,698
Registration Fees 7,440
Administrative Services Fee 2,170
Interest Expense 1,673
Amortization of Organization Expenses 1,666
Fund Services Fee 183
Administration Fee 122
Trustees' Fees and Expenses 2
Miscellaneous 3,392
--------
Total Fund Expenses 69,145
Less: Reimbursement of Expenses (68,406)
--------
NET FUND EXPENSES 739
----------
NET INVESTMENT INCOME 1,060,393
NET REALIZED LOSS ON INVESTMENT (470,953)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT 633,839
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $1,223,279
----------
----------
</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
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------ -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,060,393 $ 1,514,455
Net Realized Loss on Investment (470,953) (4,587,310)
Net Change in Unrealized Appreciation of
Investment 633,839 226,246
------------ -----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,223,279 (2,846,609)
------------ -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1,060,669) (1,514,455)
Return of Capital -- (309,561)
------------ -----------------
Total Distributions to Shareholders (1,060,669) (1,824,016)
------------ -----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 10,842,175 15,105,562
Reinvestment of Dividends 1,019,271 1,773,903
Cost of Shares of Beneficial Interest Redeemed (10,357,897) (4,874,109)
------------ -----------------
Net Increase from Transactions in Shares of
Beneficial Interest 1,503,549 12,005,356
------------ -----------------
Total Increase in Net Assets 1,666,159 7,334,731
NET ASSETS
Beginning of Period 19,312,591 11,977,860
------------ -----------------
End of Period (including undistributed net
investment income of $333,739 and $334,015,
respectively) $ 20,978,750 $ 19,312,591
------------ -----------------
------------ -----------------
</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
FOR THE APRIL 17, 1997
SIX MONTHS ENDED FOR THE (COMMENCEMENT OF
JUNE 30, 1999 FISCAL YEAR ENDED OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1998 DECEMBER 31, 1997
---------------- ----------------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.30 $ 9.76 $ 10.00
---------------- ----------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .45 1.15 0.58
Net Realized and Unrealized Gain (Loss) on
Investment .26 (2.64) (0.05)
---------------- ----------------- -------------------
Total from Investment Operations .71 (1.49) 0.53
---------------- ----------------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (.46) (.81) (0.58)
In Excess of Net Investment Income -- (.16) (0.02)
Net Realized Gain -- -- (0.17)
---------------- ----------------- -------------------
Total Distributions to Shareholders (.46) (0.97) (0.77)
---------------- ----------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 7.55 $ 7.30 $ 9.76
---------------- ----------------- -------------------
---------------- ----------------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 10.08%(a) (15.93%) 5.47%(a)
Net Assets, End of Period (in thousands) $ 20,979 $ 19,313 $ 11,978
Ratios to Average Net Assets
Net Expenses (excluding Interest Expense) 1.25%(b) 1.25% 1.25%(b)
Net Investment Income 12.65%(b) 10.05% 9.71%(b)
Expenses without Reimbursement and including
Interest Expense 2.56%(b) 2.09% 2.40%(b)
Interest Expense .02%(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, 1999
- --------------------------------------------------------------------------------
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. At a meeting on November 12,
1998, the trustees elected to change the portfolio's fiscal year end from
December 31 to July 31.
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% at June 30,
1999). 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"), a wholly owned subsidiary
of J.P. Morgan & Co., Incorporated ("J.P. Morgan"), has paid 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
12
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
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) 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.
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, 1999, the fee for these services amounted to $122.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("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
invest (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 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, 1999, the fee for
these services amounted to $2,170.
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 until further
notification. For the six months ended June 30, 1999, Morgan has agreed to
reimburse the fund $107,765 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, 1999, the fee for these
services amounted to $20,963.
13
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
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
$183 for the six months ended June 30, 1999.
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 $40.
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
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------ -----------------
<S> <C> <C>
Shares sold...................................... 1,448,662 1,775,810
Reinvestment of dividends........................ 139,703 221,158
Shares redeemed.................................. (1,454,420) (578,862)
------------ -----------------
Net Increase..................................... 133,945 1,418,106
------------ -----------------
------------ -----------------
</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 27, 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 Agreement expired on May 26,
1999, however, the fund as party to the Agreement has renewed
14
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
the Agreement and will continue its participation therein for an additional 364
days until May 23, 2000. The maximum borrowing under the 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 0.085% (.065% prior to May 26, 1999) on the unused portion of the
committed amount. This is allocated to the funds in accordance with procedures
established by their respective trustees. There were no outstanding borrowings
pursuant to the Agreement at June 30, 1999. The average daily balance
outstanding for the six months ended June 30, 1999 was $62,431 at a weighted
average interest rate of 5.31%.
15
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SEMIANNUAL REPORT JUNE 30, 1999
(The following pages should be read in conjunction
with the J.P. Morgan Emerging Markets Debt Fund
Semiannual Financial Statements)
16
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
FOREIGN CORPORATE OBLIGATIONS (7.0%)
MAURITIUS (3.1%)
FOREST PRODUCTS & PAPER
$ 600,000 Indah Kiat, Callable, 10.00% due 07/01/07........ Caa1/CCC+ $ 414,000
350,000 Tjiwi Kimia, 10.00% due 08/01/04................. Caa1/CCC+ 248,500
------------
662,500
------------
MEXICO (3.9%)
BROADCASTING & PUBLISHING
470,000 Grupo Televisa SA, Callable, 0.00% due 05/15/08
(v)............................................ Ba2/BB 380,700
250,000 TV Azteca SA, Callable, 10.50% due 02/15/07...... B1/B+ 185,000
------------
565,700
------------
FOREST PRODUCTS & PAPER
260,000 Grupo Industrial Durango Gidusa, 12.625% due
08/01/03 (s)................................... B2/BB- 251,550
------------
817,250
------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$1,464,550)................................ 1,479,750
------------
SOVEREIGN BONDS (85.5%)
ARGENTINA (17.8%)
ARS 270,618 Republic of Argentina Bocon, Series PRO1,
Callable, Sinking Fund, 2.815% due 04/01/07
(v)............................................ Ba3/BBB- 176,545
$ 435,977 Republic of Argentina Bocon, Series Pre-4,
Callable, Sinking Fund, 4.913% due 09/01/02
(v)............................................ Ba3/NR 399,216
270,000 Republic of Argentina Bonos del Tesoro, Series
BT02, 8.75% due 05/09/02....................... Ba3/NR 244,890
280,000 Republic of Argentina Discount Bonds, Series
L-GL, Callable, 6.00% due 03/31/23 (v)......... Ba3/BB 196,000
340,000 Republic of Argentina Global Bonds, 9.75% due
09/19/27....................................... Ba3/BB 260,100
250,000 Republic of Argentina Global Bonds, Series BGL4,
11.00% due 10/09/06............................ Ba3/BB 231,250
555,000 Republic of Argentina Global Bonds, Series BGL5,
11.375% due 01/30/17 (s)....................... Ba3/BB 481,462
200,000 Republic of Argentina Global Bonds, Series BGLO,
8.375% due 12/20/03............................ Ba3/BB 182,500
150,000 Republic of Argentina Global Bonds, Series XW,
11.00% due 12/04/05............................ Ba3/BB 137,625
450,000 Republic of Argentina Par Bonds, Series L-GP,
Callable, 6.00% due 03/31/23 (v)............... Ba3/BB 284,062
1,106,700 Republic of Argentina, Series FRB, Callable,
Sinking Fund, 5.938% due 03/31/05 (v).......... Ba3/BB 945,675
232,500 Republic of Argentina, Series L, Callable,
Sinking Fund, 5.938% due 03/31/05 (v).......... Ba3/BB 198,671
------------
3,737,996
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
BRAZIL (18.6%)
$ 2,223,221 Republic of Brazil C Bonds, Series 20 Year,
Callable, Sinking Fund, 8.00% due 04/15/14
(v)............................................ B2/B+ $ 1,449,262
1,175,000 Republic of Brazil DCB, Series 18 Year, Callable,
Sinking Fund, 5.938% due 04/15/12 (v).......... B2/B+ 722,625
130,000 Republic of Brazil DCB, Series RG, Callable,
Sinking Fund, 5.938% due 04/15/12 (v).......... B2/B+ 79,950
450,000 Republic of Brazil Global Bonds, 10.125% due
05/15/27....................................... B2/B+ 335,250
315,000 Republic of Brazil NMB, Series 15 Year, Callable,
Sinking Fund, 5.938% due 04/15/09 (v).......... B2/B+ 219,712
800,000 Republic of Brazil Par Bonds, Series 30 Year ZL,
5.75% due 04/15/24 (v)......................... B2/NR 456,000
47,500 Republic of Brazil, Series EI-L, Callable,
Sinking Fund, 5.875% due 04/15/06 (v).......... B2/B+ 37,525
650,000 Republic of Brazil Discount Bonds, Series 30 Year
ZL, Callable, 5.875% due 04/15/24 (v).......... B2/B+ 412,750
250,000 Republic of Brazil Global Bonds, 9.375% due
04/07/08....................................... B2/B+ 200,000
------------
3,913,074
------------
BULGARIA (2.6%)
190,000 Republic of Bulgaria Discount Bonds, Series A,
Callable, 5.875% due 07/28/24 (v).............. B2/NR 128,250
280,000 Republic of Bulgaria Global FLIRB, Series A,
Callable, Sinking Fund, 2.50% due 07/28/12
(v)............................................ B2/NR 166,950
360,000 Republic of Bulgaria IAB PDI, Callable, Sinking
Fund, 5.875% due 07/28/11 (v).................. B2/NR 243,000
------------
538,200
------------
COLOMBIA (0.8%)
5,000 Republic of Colombia, 8.625% due 04/01/08........ Baa3/BBB- 3,850
210,000 Republic of Colombia, 7.625% due 02/15/07........ Baa3/BBB- 158,550
------------
162,400
------------
ECUADOR (1.9%)
581,239 Republic of Ecuador Global PDI Bonds, Callable,
Sinking Fund, 6.00% due 02/27/15 (v)........... B3/NR 188,176
570,000 Republic of Ecuador Par Bonds, Callable, 4.00%
due 02/28/25 (v)............................... B3/NR 220,519
------------
408,695
------------
MEXICO (16.0%)
500,000 United Mexican States Discount Notes, Series B,
Callable, 5.875% due 12/31/19 (v).............. Ba2/BB 420,000
160,000 United Mexican States Global Bonds, 8.625% due
03/12/08....................................... Ba2/BB 150,400
600,000 United Mexican States Global Bonds, 9.875% due
01/15/07....................................... Ba2/BB 598,500
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
MEXICO (CONTINUED)
$ 130,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... Ba2/BB $ 139,100
485,000 United Mexican States Global Bonds, 11.50% due
05/15/26 (s)................................... Ba2/BB 540,775
1,000,000 United Mexican States Par Bonds, Series W-A,
Callable, 6.25% due 12/31/19................... Ba2/BB 742,500
1,050,000 United Mexican States Par Bonds, Series W-B,
Callable, 6.25% due 12/31/19................... Ba2/BB 779,625
------------
3,370,900
------------
MOROCCO (0.9%)
230,000 Kingdom of Morocco, Series A, Sinking Fund,
5.906% due 01/01/09 (v)........................ NR/NR 185,725
------------
NIGERIA (0.7%)
250,000 Central Bank of Nigeria, Series WW, Callable,
6.25% due 11/15/20 (v)......................... NR/NR 154,375
------------
PANAMA (2.0%)
180,000 Republic of Panama Global Bonds, 8.875% due
09/30/27....................................... Ba1/BB+ 148,500
240,000 Republic of Panama IRB, Series 18 Year, Sinking
Fund, 4.00% due 07/17/14 (v)................... Ba1/BB+ 176,100
139,009 Republic of Panama PDI, Series 20 Year, Sinking
Fund, 5.938% due 07/17/16 (v).................. Ba1/BB+ 101,998
------------
426,598
------------
PERU (1.6%)
295,000 Republic of Peru FLIRB, Series 20 Year, Sinking
Fund, 3.75% due 03/07/17 (v)................... NR/BB 161,881
275,000 Republic of Peru PDI, Series 20 Year, Sinking
Fund, 4.50% due 03/07/17 (v)................... NR/BB 168,438
------------
330,319
------------
PHILIPPINES (1.9%)
200,000 Republic of Philippines Global Bonds, 8.875% due
04/15/08....................................... Ba1/BB+ 195,500
200,000 Republic of Philippines Global Bonds, 9.875% due
01/15/19....................................... Ba1/BB+ 197,260
------------
392,760
------------
RUSSIA (12.8%)
40,042 Russian IAN, Vnesheconombank, Series US, Sinking
Fund, 6.063% due 12/15/15 (v) TRIANGLE ........ Ca/NR 6,207
3,900,000 Russian IAN, Vnesheconombank, Series 19 Year,
Sinking Fund, 6.063% due 12/15/15
(v) TRIANGLE .................................. Ca/NR 604,500
3,438,000 Russia Principal Loan, Vnesheconombank, Series 24
Year, Sinking Fund, 6.063% due 12/15/20
(v) TRIANGLE .................................. NR/NR 412,560
460,000 Russian Federation, 8.75% due 07/24/05........... B3/CC 228,850
240,000 Russian Federation, 9.25% due 11/27/01........... B3/CC 160,800
420,000 Russian Federation, 10.00% due 06/26/07.......... B3/CC 208,950
620,000 Russian Federation, 11.00% due 07/24/18.......... B3/CC 308,450
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
RUSSIA (CONTINUED)
$ 580,000 Russian Federation, 11.75% due 06/10/03.......... B3/CC $ 352,350
730,000 Russian Federation, 12.75% due 06/24/28.......... B3/CC 401,500
------------
2,684,167
------------
VENEZUELA (7.9%)
404,761 Republic of Venezuela DCB, Series DL, Callable,
Sinking Fund, 6.313% due 12/18/07 (v).......... B2/B+ 312,172
380,950 Republic of Venezuela FLIRB, Series A, Callable,
Sinking Fund, 6.00% due 03/31/07 (v)........... B2/B+ 287,617
190,475 Republic of Venezuela FLIRB, Series B, Callable,
Sinking Fund, 6.00% due 03/31/07 (v)........... B2/B+ 143,809
1,030,000 Republic of Venezuela Global Bonds, 9.25% due
09/15/27....................................... B2/B+ 684,950
340,000 Republic of Venezuela Par Bonds, Series W-A,
Callable, 6.75% due 03/31/20................... B2/B+ 238,000
------------
1,666,548
------------
TOTAL SOVEREIGN BONDS (COST $17,341,634)..... 17,971,757
------------
U.S. TREASURY OBLIGATIONS (1.0%)
U.S. TREASURY BONDS (1.0%)
205,000 6.75% due 08/15/26 (s)
(COST $214,156)................................ 219,477
------------
OTHER GOVERNMENT AGENCIES (0.9%)
MEXICO (0.9%)
200,000 Banco Nacional de Comercio Exterior SNC, 7.25%
due 02/02/04 (COST $183,855)................... Ba2/BB 183,000
------------
WARRANTS (0.0%)
ARGENTINA (0.0%)
310 Republic of Argentina, Expiring 02/25/00......... 3,100
555 Republic of Argentina, Expiring 12/03/99......... 4,163
------------
7,263
------------
NIGERIA (0.0%)
1,250 Central Bank of Nigeria, Expiring 11/15/20....... 0
------------
VENEZUELA (0.0%)
2,950 Republic of Venezuela, Expiring 04/15/20......... 0
------------
TOTAL WARRANTS (COST $27,977)................ 7,263
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
RIGHTS (0.0%)
MEXICO (0.0%)
$ 3,411,000 United Mexican States Value Recovery, Expiring
06/30/03 (COST $0)............................. $ 0
------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
SHORT-TERM INVESTMENTS (6.0%)
U.S. TREASURY OBLIGATIONS (6.0%)
1,258,000 U.S. Treasury Bill, 3.650%, (y) due 7/15/99 (COST
$1,256,288).................................... 1,256,288
------------
TOTAL INVESTMENTS (COST $20,488,460) (100.4%).... 21,117,535
OTHER ASSETS IN EXCESS OF LIABILITIES (-0.4%).... (84,939)
------------
NET ASSETS (100.0%).............................. $ 21,032,596
------------
------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $21,062,614 for Federal Income Tax
Purposes at June 30, 1999, the aggregate gross unrealized appreciation and
depreciation was $636,690 and $581,769, respectively, resulting in net
unrealized appreciation of $54,921.
(s) Security is fully or partially segregated with custodian as collateral for
futures or with brokers as initial margin for futures contracts. $973,594 of the
market value has been segregated.
(v) Rate shown reflects current rate on variable or floating rate instrument or
instrument with step coupon rate.
(y) Yield to maturity.
TRIANGLE Defaulted security.
{::} Denominated in United States Dollar unless othewise indicated.
ARS -- Denominated in Argentina Pesos.
C -- Capitalization.
DCB -- Debt Conversion Bonds.
FLIRB -- Front Loaded Interest Reduction Bonds.
IAB -- Interest in Arrears Bonds.
IAN -- Interest in Arrears Notes.
IRB -- Interest Reduction Bonds.
NMB -- New Money Bonds.
PDI -- Past Due Interest.
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $20,488,460 ) $21,117,535
Cash 534
Foreign Currency at Value (Cost $180,148 ) 180,148
Receivable for Investments Sold 2,904,575
Interest Receivable 570,095
Receivable for Expense Reimbursement 17,984
Deferred Organization Expenses 8,704
Variation Margin Receivable 6,976
Prepaid Trustees' Fees 305
Prepaid Administration Fee 117
-----------
Total Assets 24,806,973
-----------
LIABILITIES
Payable for Investments Purchased 3,679,732
Organization Expenses Payable 14,200
Advisory Fee Payable 11,449
Administrative Services Fee Payable 419
Fund Services Fee Payable 21
Accrued Expenses 68,556
-----------
Total Liabilities 3,774,377
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $21,032,596
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $1,168,391
EXPENSES
Advisory Fee $ 59,295
Professional Fees and Expenses 42,601
Custodian Fees and Expenses 33,287
Administrative Services Fee 2,192
Amortization of Organization Expense 1,606
Fund Services Fee 189
Trustees' Fees and Expenses 148
Administration Fee 104
Miscellaneous 5,873
--------
Total Expenses 145,295
Less: Reimbursement of Expenses (39,411)
--------
NET EXPENSES 105,884
----------
NET INVESTMENT INCOME 1,062,507
NET REALIZED LOSS ON
Investment Transactions (394,746)
Futures (57,701)
Foreign Currency Contracts and Transactions (18,849)
--------
Net Realized Loss (471,296)
NET CHANGE IN UNREALIZED APPRECIATION OF
Investment Transactions 572,326
Futures 31,618
Foreign Currency Contracts and Translations 31,038
--------
Net Change in Unrealized Appreciation 634,982
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $1,226,193
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE FISCAL
1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------ -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,062,507 $ 1,544,342
Net Realized Loss on Investments, Futures and
Foreign Currency Contracts and Transactions (471,296) (4,592,666)
Net Change in Unrealized Appreciation of
Investments, Futures and Foreign Currency
Contracts and Translations 634,982 223,707
------------ -----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,226,193 (2,824,617)
------------ -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 13,946,438 15,100,514
Withdrawals (13,488,287) (5,099,187)
------------ -----------------
Net Increase from Investors' Transactions 458,151 10,001,327
------------ -----------------
Total Increase in Net Assets 1,684,344 7,176,710
NET ASSETS
Beginning of Period 19,348,252 12,171,542
------------ -----------------
End of Period $ 21,032,596 $ 19,348,252
------------ -----------------
------------ -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE MARCH 7, 1997
SIX MONTHS ENDED FOR THE FISCAL (COMMENCEMENT OF
JUNE 30, 1999 YEAR ENDED OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1998 DECEMBER 31, 1997
---------------- ----------------- -------------------
<S> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.25%(a) 1.07% 0.91%(a)
Net Investment Income 12.54%(a) 10.16% 9.57%(a)
Expenses without Reimbursement 1.72%(a) 1.25% 0.91%(a)
Portfolio Turnover 497%(b) 791% 182%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
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. 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. At a meeting on
November 12, 1998, the trustees elected to change the portfolio's fiscal year
end from December 31 to July 31.
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
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 portfolio values securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available mean of the bid and asked
prices on such exchange, if such exchange or market constitutes the
broadest and most representative market for the security. Securities
listed on a foreign exchange are valued at the last traded price or, in
the absence of recorded trades, at the readily available mean of the bid
and asked prices on such exchange available before the time when net
assets are valued. Independent pricing service procedures may also include
the use of prices based on yields or prices of securities of comparable
quality, coupon, maturity and type, indications as to values from dealers,
operating data, and general market conditions. Unlisted securities are
valued at the quoted bid price in the over-the-counter market provided by
a principal market maker or dealer. If prices are not supplied by the
portfolio's independent pricing service or principal market maker or
dealer, such securities are priced using fair values in accordance with
procedures adopted by the portfolio's trustees. All short-term securities
with a remaining maturity of sixty days or less 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
25
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
exchange on which they are traded closes and the time when the portfolio's
net assets are calculated, such securities will be valued at fair value in
accordance with procedures established by and under the general
supervision of the portfolio's trustees.
b) The books and records of the portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expense are
translated at the 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. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
d) 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 fund.
f) 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.
g) 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 and to enhance returns. A
forward foreign currency 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.
h) 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
26
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
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.
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 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) The portfolio has an Investment Advisory Agreement with J.P. Morgan
Investment Management Inc. ("JPMIM"), an affiliate of Morgan and
wholly-owned subsidiary of J.P. Morgan. Under the terms of the agreement,
the portfolio pays JPMIM at an annual rate of 0.70% of the portfolio's
average daily net assets. For the six months ended June 30, 1999, this fee
amounted to $59,295.
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 for the fund. Under a Co-Administration
Agreement between FDI and the portfolio on behalf of the fund, 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 six months ended June 30, 1999, the
fee for these services amounted to $104.
c) The portfolio, 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 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 the other portfolios in
which the portfolio and the J.P. Morgan Institutional Funds invest (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
27
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
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, 1999, the fee for these services amounted to $2,192.
In addition, J.P. Morgan has agreed to reimburse the fund to the extent
necessary to maintain the total operating expenses of the fund from the
portfolio, at no more than 1.25% of the average daily net assets of the
portfolio until further notification. For the six months ended June 30,
1999, J.P. Morgan has agreed to reimburse the portfolio $39,411 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 $189 for the six months ended June 30, 1999.
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 $40.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
--------------- --------------
<S> <C>
$ 80,053,825 $ 74,745,695
</TABLE>
Open futures contracts at June 30, 1999 are summarized as follows:
SUMMARY OF OPEN CONTRACTS AT JUNE 30, 1999
<TABLE>
<CAPTION>
NET UNREALIZED CURRENT MARKET VALUE
CONTRACTS LONG APPRECIATION OF CONTRACTS
-------------- -------------- --------------------
<S> <C> <C> <C>
U.S. Long Bond,
expiring September 1999......................... 6 $ 6,558 $ 695,438
-------------- -------------- --------------------
-------------- -------------- --------------------
</TABLE>
At June 30, 1999, the portfolio had no open forward currency contracts.
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.
28
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND J.P. MORGAN
EMERGING MARKETS
FEDERAL MONEY MARKET FUND DEBT FUND
TAX EXEMPT MONEY MARKET FUND
TAX AWARE ENHANCED INCOME FUND: SELECT SHARES
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
NEW YORK TAX EXEMPT BOND FUND
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
EUROPEAN EQUITY FUND
INTERNATIONAL EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
FOR MORE INFORMATION ON THE J.P. MORGAN SEMIANNUAL REPORT
FUNDS, CALL J.P. MORGAN FUNDS SERVICES AT JUNE 30, 1999
(800) 521-5411.
IM0538-M
