<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN EMERGING MARKETS DEBT FUND
September 1, 1999
Dear Shareholder:
We are pleased to report that the J.P. Morgan Emerging Markets Debt Fund
delivered a total return of 7.27% for the seven months ended July 31, 1999,
although the fund did trail its benchmark, the Emerging Markets Bond Index Plus,
and the Lipper Emerging Markets Debt Funds Average.
The fund's net asset value on July 31 was $7.29 per share, compared with $7.30
per share on December 31, 1998, after paying monthly income dividends totaling
more than $0.52 over the period. The fund's net assets stood at $26 million on
July 31.
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>
<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 $9,325 on July 31, 1999.
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 - JULY 31, 1999
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE J.P. MORGAN LIPPER EMERGING
EMERGING MARKETS EMERGING MARKETS MARKETS DEBT
DEBT FUND BOND INDEX PLUS FUNDS AVERAGE
<S> <C> <C> <C>
Mar-93 $10,000 $10,000 $10,000
May-93 $10,471 $10,686 $10,627
Aug-93 $10,841 $11,008 $11,361
Nov-93 $10,340 $10,871 $10,893
Feb-94 $10,870 $11,423 $11,461
May-94 $10,142 $10,574 $10,776
Aug-94 $7,938 $7,722 $8,488
Nov-94 $8,693 $8,644 $9,330
Jun-95 $9,325 $9,428 $10,103
</TABLE>
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 SEVEN ONE SINCE
AS OF JULY 31, 1999 MONTHS MONTHS MONTHS YEAR INCEPTION*
- -------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Emerging Markets Debt -5.02% 12.28% 7.27% -9.10% -3.06%
Emerging Markets Bond Index Plus** -3.53% 12.47% 8.29% -6.88% 0.46%
Lipper Emerging Markets Debt Average -2.84% 11.78% 8.50% -12.21% -3.40%
<CAPTION>
TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------------------------- -------------------------------
THREE SIX YEAR TO ONE SINCE
AS OF JUNE 30, 1999 MONTHS MONTHS DATE YEAR INCEPTION*
- -------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Emerging Markets Debt 5.90% 10.08% 10.08% -5.65% -2.01%
Emerging Markets Bond Index Plus** 5.24% 10.58% 10.58% -4.26% 1.45%
Lipper Emerging Markets Debt Average 5.41% 9.97% 9.97% -10.14% -2.87%
</TABLE>
* THE FUND COMMENCED OPERATIONS ON APRIL 17, 1997 AND HAS PROVIDED A TOTAL
RETURN OF -2.17% FROM THAT DATE THROUGH JULY 31, 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.
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. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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 August 16, 1999 and
reflects his views on that date.
EMERGING MARKET DEBT OUTPERFORMED ALL OTHER SECTORS OF FIXED INCOME INVESTMENTS
IN THE SEVEN MONTHS ENDED JULY 31, 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 reductions that had been introduced
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>
HOW DID YOU MANAGE THE FUND DURING THIS PERIOD?
MC: In this highly volatile period, 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, AND AT THIS WRITING IS
OUR FOURTH LARGEST HOLDING. WHY? HOW DO YOU MANAGE HOLDINGS THERE?
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. 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 INVESTMENT OPERATIONS
4/17/97
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 7/31/99
$26,216,323
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 7/31/99
$26,264,374
- --------------------------------------------------------------------------------
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 JULY 31, 1999
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- - MEXICO 20.5%
- - BRAZIL 20.0%
- - ARGENTINA 18.5%
- - RUSSIA 11.6%
- - VENEZUELA 7.6%
- - BULGARIA 4.6%
- - COLUMBIA 3.9%
- - MOROCCO 3.5%
- - PERU 3.4%
- - OTHER 6.4%
30-DAY SEC YIELD
10.07%*
DURATION
4.2 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
JULY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Emerging Markets Debt Portfolio
("Portfolio"), at value $26,241,384
Receivable for Expense Reimbursements 25,802
Deferred Organization Expenses 9,115
Receivable for Shares of Beneficial Interest Sold 672
Prepaid Trustees' Fees 291
Prepaid Expenses and Other Assets 83
-----------
Total Assets 26,277,347
-----------
LIABILITIES
Shareholder Servicing Fee Payable 4,961
Dividends Payable to Shareholders 4,816
Payable for Shares of Beneficial Interest
Redeemed 2,805
Organization Expenses Payable 2,787
Administrative Services Fee Payable 507
Fund Services Fee Payable 14
Administration Fee Payable 9
Accrued Expenses 45,125
-----------
Total Liabilities 61,024
-----------
NET ASSETS
Applicable to 3,595,987 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $26,216,323
-----------
-----------
Net Asset Value, Offering and Redemption Price
Per Share $7.29
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $31,379,514
Undistributed Net Investment Income 333,740
Accumulated Net Realized Loss on Investment (5,511,804)
Net Unrealized Appreciation of Investment 14,873
-----------
Net Assets $26,216,323
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE For the
PERIOD Fiscal
ENDED JULY Year Ended
31, December 31,
1999(a) 1998
----------- ------------
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income (Net of Foreign
Withholding Tax of $0 and $22, respectively) $1,404,922 $ 1,702,850
Allocated Portfolio Expenses (Net of
Reimbursement of $47,474 and $27,668,
respectively) (130,682) (162,381)
----------- ------------
Net Investment Income Allocated from
Portfolio 1,274,240 1,540,469
FUND EXPENSES
Shareholder Servicing Fee $ 25,923 $ 37,680
Printing Expenses 13,729 19,022
Transfer Agent Fees 11,461 21,883
Professional Fees 11,394 11,546
Registration Fees 9,196 21,993
Administrative Services Fee 2,677 4,314
Amortization of Organization Expenses 1,952 3,360
Interest Expense 1,673 --
Fund Services Fee 211 422
Administration Fee 151 311
Insurance Expense 30 51
Trustees' Fees and Expenses 2 --
Miscellaneous 4,147 4,467
----------- ------------
Total Fund Expenses 82,546 125,049
Less: Reimbursement of Expenses (81,939) (99,035)
----------- ------------
NET FUND EXPENSES 607 26,014
----------- ------------
NET INVESTMENT INCOME 1,273,633 1,514,455
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (643,966) (4,587,310)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 17,712 226,246
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 647,379 $ (2,846,609)
----------- ------------
----------- ------------
- ------------------------
(a) Fiscal year changed to July 31. Prior to this the fiscal year end was
December 31. The numbers reflected are for the period January 1, 1999 through
July 31, 1999.
</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 FOR THE (COMMENCEMENT OF
PERIOD ENDED FISCAL YEAR ENDED OPERATIONS) THROUGH
JULY 31, 1999(a) DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,273,633 $ 1,514,455 $ 536,699
Net Realized (Loss) Gain on Investment Allocated
from Portfolio (643,966) (4,587,310) 556,473
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio 17,712 226,246 (635,869)
----------------- ----------------- -------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 647,379 (2,846,609) 457,303
----------------- ----------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1,273,633) (1,514,455) (536,699)
In Excess of Net Investment Income (275) (309,561) (14,812)
Net Realized Gain -- -- (196,090)
----------------- ----------------- -------------------
Total Distributions to Shareholders (1,273,908) (1,824,016) (747,601)
----------------- ----------------- -------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 16,750,849 15,105,562 11,902,012
Reinvestment of Dividends and Distributions 1,227,642 1,773,903 727,589
Cost of Shares of Beneficial Interest Redeemed (10,448,230) (4,874,109) (361,443)
----------------- ----------------- -------------------
Net Increase from Transactions in Shares of
Beneficial Interest 7,530,261 12,005,356 12,268,158
----------------- ----------------- -------------------
Total Increase in Net Assets 6,903,732 7,334,731 11,977,860
NET ASSETS
Beginning of Fiscal Period 19,312,591 11,977,860 --
----------------- ----------------- -------------------
End of Fiscal Period (including undistributed net
investment income of $333,740, $334,015 and $0,
respectively) $26,216,323 $19,312,591 $11,977,860
----------------- ----------------- -------------------
----------------- ----------------- -------------------
- ------------------------
(a) Fiscal year changed to July 31. Prior to this the fiscal year end was December 31. The numbers reflected
are for the period January 1, 1999 through July 31, 1999.
</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 (COMMENCEMENT OF
FOR THE PERIOD FISCAL YEAR ENDED OPERATIONS) THROUGH
ENDED JULY 31, 1999(a) 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 .49 1.15 0.58
Net Realized and Unrealized Gain (Loss) on
Investment .02 (2.64) (0.05)
---------------------- ----------------- -------------------
Total from Investment Operations .51 (1.49) 0.53
---------------------- ----------------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (.52) (.81) (0.58)
In Excess of Net Investment Income -- (.16) (0.02)
Net Realized Gain -- -- (0.17)
---------------------- ----------------- -------------------
Total Distributions to Shareholders (.52) (0.97) (0.77)
---------------------- ----------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 7.29 $ 7.30 $ 9.76
---------------------- ----------------- -------------------
---------------------- ----------------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 7.27%(b) (15.93%) 5.47%(b)
Net Assets, End of Period (in thousands) $26,216 $19,313 $11,978
Ratios to Average Net Assets
Net Expenses (excluding Interest Expense) 1.25%(c) 1.25% 1.25%(c)
Net Investment Income 12.28%(c) 10.05% 9.71%(c)
Expenses without Reimbursement and including
Interest Expense 2.51%(c) 2.09% 2.40%(c)
Interest Expense .02%(c) -- --
</TABLE>
- ------------------------
(a) Fiscal year changed to July 31. Prior to this the fiscal year end was
December 31. The numbers reflected are for the period January 1, 1999 through
July 31, 1999.
(b) Not Annualized.
(c) 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
JULY 31, 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. The trustees elected to change
the fund'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 July 31,
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 (CONTINUED)
JULY 31, 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) 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. There were no
adjustments made during the seven month period ended July 31, 1999 as a
result of applying this statement.
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.
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 seven
months ended July 31, 1999 and the fiscal year ended December 31, 1998,
the fee for these services amounted to $151 and $311, respectively.
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. 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 seven months ended July 31, 1999 and the fiscal year
ended December 31, 1998, the fee for these services amounted to $2,677 and
$4,314, respectively.
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
13
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
- --------------------------------------------------------------------------------
more than 1.25% of the average daily net assets of the fund until further
notification. For the seven months ended July 31, 1999 and the fiscal year
ended December 31, 1998, Morgan has agreed to reimburse the fund $129,413
and $126,703, respectively 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 seven months ended July 31, 1999 and the fiscal year
ended December 31, 1998, the fee for these services amounted to $25,923
and $37,680, respectively.
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
$211 and $422 for the seven months ended July 31, 1999 and the fiscal year
ended December 31, 1998, respectively.
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 $41 and $90, for the
seven months ended July 31, 1999 and the fiscal year ended December 31,
1998, respectively.
14
<PAGE>
J.P. MORGAN EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
- --------------------------------------------------------------------------------
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
FOR THE PERIOD YEAR ENDED OPERATIONS) THROUGH
ENDED JULY 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- ----------------- -------------------
<S> <C> <C> <C>
Shares sold...................................... 2,249,726 1,775,810 1,188,908
Reinvestment of dividends and distributions...... 168,286 221,158 74,548
Shares redeemed.................................. (1,466,759) (578,862) (36,828)
------------------- ----------------- -------------------
Net Increase..................................... 951,253 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 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 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 July 31, 1999. The average daily balance outstanding for the
seven months ended July 31, 1999 was $6,663 at a weighted average interest rate
of 5.31%. There were no borrowings made pursuant to the Agreement during the
fiscal year ended December 31, 1998.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan 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 the J.P. Morgan Funds, hereafter referred to as the "fund") at July 31, 1999,
the results of its operations for the seven months ended July 31, 1999, and the
year ended December 31, 1998, the changes in its net assets for the seven months
ended July 31, 1999, for the year ended December 31, 1998 and for the period
April 17, 1997 (commencement of operations) through December 31, 1997 and the
financial highlights for the seven months ended July 31, 1999, the year ended
December 31, 1998 and 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
September 15, 1999
16
<PAGE>
The Emerging Markets Debt Portfolio
Annual Report July 31, 1999
(The following pages should be read in conjunction
with the J.P. Morgan Emerging Markets Debt Fund
Annual Financial Statements)
17
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS
JULY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
FOREIGN CORPORATE OBLIGATIONS (5.5%)
COLOMBIA (2.3%)
FINANCIAL SERVICES
$ 300,000 Financiera Energetica Nacional, 9.375% due
06/15/06....................................... NR/BBB- $ 213,000
550,000 Financiera Energetica Nacional, 9.375% due
06/15/06, (144A)............................... NR/BBB- 390,500
------------
603,500
------------
MAURITIUS (1.1%)
FOREST PRODUCTS & PAPER
150,000 Indah Kiat, Callable, 10.00% due 07/01/07........ Caa1/CCC+ 93,000
275,000 Tjiwi Kimia, 10.00% due 08/01/04................. Caa1/CCC+ 187,000
------------
280,000
------------
MEXICO (2.1%)
BROADCASTING & PUBLISHING
470,000 Grupo Televisa SA, Callable, 0.00% due 05/15/08
(v)............................................ Ba2/BB 378,350
250,000 TV Azteca SA, Callable, 10.50% due 02/15/07...... B1/B+ 182,500
------------
560,850
------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$1,515,798)................................ 1,444,350
------------
OTHER GOVERNMENT AGENCIES (0.7%)
MEXICO (0.7%)
200,000 Banco Nacional de Comercio Exterior, 7.250% due
02/02/04 (s)................................... Ba1/BB 182,000
------------
TOTAL OTHER GOVERNMENT AGENCIES (COST
$184,100).................................. 182,000
------------
SOVEREIGN BONDS (84.6%)
ARGENTINA (16.9%)
ARS 417,628 Republic of Argentina - Bocon, Series PRO1,
Callable, Sinking Fund, 2.88% due 04/01/07
(v)............................................ Ba3/BBB- 246,913
531,025 Republic of Argentina Bocon, Series Pre-4,
Callable, Sinking Fund, 5.217% due 09/01/02
(v)............................................ Ba3/NR 469,839
270,000 Republic of Argentina Bonos del Tesoro, Series
BT02, 8.75% due 05/09/02....................... Ba3/NR 235,980
580,000 Republic of Argentina Discount Bonds Series L-GL,
Callable, 6.00% due 03/31/23 (v)............... Ba3/BB 380,625
660,000 Republic of Argentina Global Bonds, 9.75% due
09/19/27....................................... Ba3/BB 491,700
850,000 Republic of Argentina Global Bonds, Series BGL5,
11.375% due 1/30/17 (s)........................ Ba3/BB 714,000
200,000 Republic of Argentina Global Bonds, Series BGLO,
8.375% due 12/20/03............................ Ba3/BB 179,000
300,000 Republic of Argentina Global Bonds, Series XW,
11.00% due 12/04/05............................ Ba3/BB 268,500
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
ARGENTINA (CONTINUED)
$ 600,000 Republic of Argentina Par Bonds, Series L-GP,
Callable, 6.00% due 03/31/23 (v)............... Ba3/BB $ 360,750
1,311,300 Republic of Argentina, Series FRB, Callable,
Sinking Fund, 5.938%, due 03/31/05 (v)......... Ba3/BB 1,085,756
------------
4,433,063
------------
BRAZIL (18.3%)
3,346,784 Republic of Brazil C Bonds, Series 20 Year,
Callable, Sinking Fund, 8.00% due 04/15/14
(v)(s)......................................... B2/B+ 2,045,722
725,000 Republic of Brazil DCB, Series 18 Year, Callable,
Sinking Fund, 5.938% due 04/15/12 (v).......... B2/B+ 427,750
130,000 Republic of Brazil DCB, Series RG, Callable,
Sinking Fund, 5.938% due 04/15/12 (v).......... B2/B+ 76,700
315,000 Republic of Brazil NMB, Series 15 Year, Callable,
Sinking Fund, 5.938% due 04/15/09 (v).......... B2/B+ 213,019
1,200,000 Republic of Brazil Par Bonds, Series 30 Year ZL,
5.75% due 04/15/24 (v)......................... B2/B+ 663,000
1,045,000 Republic of Brazil, Series EI-L, Callable,
Sinking Fund, 5.875% due 04/15/06 (v).......... B2/B+ 807,263
650,000 Republic of Brazil Discount Bonds, Series 30 Year
ZL, Callable, 5.875% due 04/15/24 (v).......... B2/B+ 392,437
250,000 Republic of Brazil Global Bonds, 9.375% due
04/07/08 (s)................................... B2/B+ 190,000
------------
4,815,891
------------
BULGARIA (4.2%)
190,000 Republic of Bulgaria Discount Bonds, Series A,
Callable, 6.50% due 07/28/24 (v)............... B2/NR 130,625
280,000 Republic of Bulgaria Global FLIRB, Series A,
Callable, Sinking Fund, 2.750% due 07/28/12
(v)............................................ B2/NR 169,400
1,180,000 Republic of Bulgaria IAB PDI, Callable, Sinking
Fund, 6.50% due 07/28/11 (s)(v)................ B2/NR 809,775
------------
1,109,800
------------
COLOMBIA (1.3%)
120,000 Republic of Colombia, 7.625% due 02/15/07........ Baa3/BBB- 90,300
5,000 Republic of Columbia, 8.625% due 04/01/08........ Baa3/BBB- 3,875
280,000 Republic of Columbia, 9.75% due 04/23/09......... Ba2/BBB- 233,450
------------
327,625
------------
ECUADOR (1.4%)
575,485 Republic of Ecuador Global PDI Bonds, Callable,
Sinking Fund, 6.00% due 02/27/15 (v)........... B3/NR 168,617
570,000 Republic of Ecuador Par Bonds, Callable, 4.00%
due 02/28/25 (v)(s)............................ B3/NR 210,900
------------
379,517
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
MEXICO (16.0%)
$ 500,000 United Mexican States Discount Bonds, Series B,
Callable, 5.875% due 12/31/19 (v).............. Ba1/BB $ 406,875
700,000 United Mexican States Discount Bonds, Series D,
Callable 6.068% due 12/31/19 (v)............... Ba1/BB 569,625
160,000 United Mexican States Global Bonds, 8.625% due
03/12/08....................................... Ba1/BB 147,200
600,000 United Mexican States Global Bonds, 9.875% due
01/15/07....................................... Ba1/BB 594,000
130,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... Ba1/BB 134,030
900,000 United Mexican States Global Bonds, 11.50% due
05/15/26 ...................................... Ba1/BB 965,700
1,250,000 United Mexican States Par Bonds, Series W-A,
Callable, 6.25% due 12/31/19 (s)............... Ba1/BB 883,750
700,000 United Mexican States Par Bonds, Series W-B,
Callable, 6.25% due 12/31/19................... Ba1/BB 494,900
------------
4,196,080
------------
MOROCCO (3.2%)
1,018,500 Kingdom of Morocco, Series A, Sinking Fund,
5.906% due 01/01/09 (v)........................ NR/NR 828,804
------------
NIGERIA (0.6%)
250,000 Central Bank of Nigeria, Series WW, Callable,
6.25% due 11/15/20 (s)(v)...................... NR/NR 145,000
------------
PANAMA (2.0%)
300,000 Republic of Panama, 8.875% due 09/30/27.......... Ba1/BB+ 240,000
240,000 Republic of Panama IRB, Series 18 Year, Sinking
Fund, 4.25% due 07/17/14 (v)................... Ba1/BB+ 172,560
140,364 Republic of Panama PDI, Series 20 Year, Sinking
Fund, 6.50% due 07/17/16 (v)................... Ba1/BB+ 99,307
------------
511,867
------------
PERU (3.1%)
395,000 Republic of Peru FLIRB, Series 20 Year, Sinking
Fund, 3.75% due 03/07/17 (v)................... Ba3/BB 214,287
995,000 Republic of Peru PDI, Series 20 Year, Sinking
Fund, 4.50% due 03/07/17 (v)................... Ba3/BB 610,681
------------
824,968
------------
RUSSIA (10.6%)
1,040,000 Russian Federation, 12.75% due 06/24/28.......... B3/CCC 582,400
40,042 Russia IAN, Vnesheconombank, Series US, Sinking
Fund, 6.063% due 12/15/15 (v){/\}.............. Ca/NR 6,156
4,138,000 Russia Principal Loan, Vnesheconombank, Series 24
Year, Sinking Fund, 6.063% due 12/15/20
(v){/\}........................................ NR/NR 470,698
690,000 Russian Federation, 8.75% due 07/24/05........... B3/CCC 341,550
290,000 Russian Federation, 9.25% due 11/27/01........... B3/CCC 207,350
720,000 Russian Federation, 10.00% due 06/26/07.......... B3/CCC 356,400
340,000 Russian Federation, 11.00% due 07/24/18.......... B3/CCC 168,300
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT{::} SECURITY DESCRIPTION (UNAUDITED) VALUE
- ---------------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
RUSSIA (CONTINUED)
$ 790,000 Russian Federation, 11.75% due 06/10/03.......... B3/CCC $ 517,450
950,000 Vnesheconombank, Russian IAN, Series 19 Year,
Sinking Fund, 6.063% due 12/15/15 (v){/\}...... Ca/NR 146,063
------------
2,796,367
------------
VENEZUELA (7.0%)
809,521 Republic of Venezuela DCB, Series DL, Callable,
Sinking Fund, 6.313% due 12/18/07 (v).......... B2/B+ 594,998
380,950 Republic of Venezuela FLIRB, Series A, Callable,
Sinking Fund, 6.00% due 03/31/07 (v)........... B2/B+ 283,808
190,475 Republic of Venezuela FLIRB, Series B, Callable,
Sinking Fund, 6.00% due 03/31/07 (v)........... B2/B+ 141,904
940,000 Republic of Venezuela Global Bonds, 9.25% due
09/15/27 (s)................................... B2/B+ 596,900
340,000 Republic of Venezuela Par, Series W-A, Callable,
6.75% due 03/31/20 (s)......................... B2/B+ 217,175
------------
1,834,785
------------
TOTAL SOVEREIGN BONDS (COST $22,091,048)..... 22,203,767
------------
U.S. TREASURY OBLIGATIONS (0.8%)
U.S. TREASURY BONDS (0.8%)
205,000 United States Treasury Bonds, 6.75% due 08/15/26
(s) (cost $214,266)............................ 216,755
------------
WARRANTS (0.0%)
ARGENTINA (0.0%)
310 Republic of Argentina, Expiring 02/25/00 (+)..... NR/NR 2,480
555 Republic of Argentina, Expiring 12/03/99 (+)..... NR/BB 2,775
------------
5,255
------------
NIGERIA (0.0%)
1,250 Central Bank of Nigeria, Expiring 11/15/20 (+)... NR/NR 0
------------
VENEZUELA (0.0%)
2,950 Republic of Venezuela, Expiring 04/15/20 (+)..... NR/B+ 0
------------
TOTAL WARRANTS (COST $27,977)................ 5,255
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 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, Series Par,
Expiring 06/30/03 (+) (cost $0)................ NR/NR $ 0
------------
TOTAL INVESTMENTS (COST $24,033,189) (91.6%)................... 24,052,127
OTHER ASSETS IN EXCESS OF LIABILITIES (8.4%)................... 2,212,247
------------
NET ASSETS (100.0%)............................................ $ 26,264,374
------------
------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $24,531,140 for Federal Income Tax
Purposes at July 31, 1999, the aggregate gross unrealized appreciation and
depreciation was $371,327 and $850,340, respectively, resulting in net
unrealized depreciation of $479,013.
(+) Non-income producing security.
(s) Security is fully or partially segregated with custodian as collateral for
futures or with brokers as initial margin for futures contracts. $1,917,055 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.
{/\} Defaulted security.
{::} Denominated in United States Dollar unless otherwise indicated.
ARS -- Denominated in Argentina Pesos.
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.
IRB -- Interest Reduction Bonds.
NMB -- New Money Bonds.
PDI -- Past Due Interest.
FRB -- Federal Reserve Board.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $24,033,189 ) $24,052,127
Foreign Currency at Value (Cost $3,493 ) 3,493
Receivable for Investments Sold 5,253,658
Interest Receivable 641,980
Receivable for Expense Reimbursements 17,539
Deferred Organization Expenses 8,428
Prepaid Trustees' Fees 309
Prepaid Administration Fee 132
Prepaid Expenses and Other Assets 84
-----------
Total Assets 29,977,750
-----------
LIABILITIES
Payable to Custodian 1,863,092
Payable for Investments Purchased 1,753,901
Accrued Expenses 72,981
Advisory Fee Payable 13,978
Variation Margin Payable 5,408
Organization Expenses Payable 3,491
Administrative Services Fee Payable 511
Fund Services Fee Payable 14
-----------
Total Liabilities 3,713,376
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $26,264,374
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE FISCAL
ENDED JULY 31, YEAR ENDED
1999(a) DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
INVESTMENT INCOME
Interest Income $1,406,668 $ 1,706,984
EXPENSES
Advisory Fee $ 73,273 $ 106,372
Professional Fees and Expenses 50,198 52,355
Custodian Fees and Expenses 43,064 16,262
Printing Expenses 6,636 6,543
Administrative Services Fee 2,702 4,349
Amortization of Organization Expense 1,881 3,238
Fund Services Fee 217 423
Trustees' Fees and Expenses 180 99
Administration Fee 129 274
Insurance Expense 98 335
Miscellaneous -- 114
-------------- -----------------
Total Expenses 178,378 190,364
Less: Reimbursement of Expenses (47,534) (27,722)
-------------- -----------------
NET EXPENSES 130,844 162,642
-------------- -----------------
NET INVESTMENT INCOME 1,275,824 1,544,342
NET REALIZED (LOSS) GAIN ON INVESTMENTS
Investment Transactions (547,037) (4,955,945)
Futures Contracts (78,594) 144,392
Foreign Currency Contracts and Transactions (18,849) 218,887
-------------- -----------------
Net Realized Loss (644,480) (4,592,666)
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investment Transactions (37,811) 299,990
Futures Contracts 25,548 (25,060)
Foreign Currency Contracts and Translations 30,478 (51,223)
-------------- -----------------
Net Change in Unrealized Appreciation 18,215 223,707
-------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 649,559 $ (2,824,617)
-------------- -----------------
-------------- -----------------
- ------------------------
(a) Fiscal year changed to July 31. Prior to this, the fiscal year end was December
31. The numbers reflected are for the period January 1, 1999 through July 31, 1999.
</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 FOR THE (COMMENCEMENT OF
PERIOD ENDED FISCAL YEAR ENDED OPERATIONS) THROUGH
JULY 31, 1999(a) DECEMBER 31, 1998 DECEMBER 31, 1997
---------------- ----------------- -------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,275,824 $ 1,544,342 $ 8,917,209
Net Realized Loss on Investments, Futures and
Foreign Currency Contracts and Transactions (644,480) (4,592,666) (5,256,573)
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations 18,215 223,707 (225,247)
---------------- ----------------- -------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 649,559 (2,824,617) 3,435,389
---------------- ----------------- -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 19,855,226 15,100,514 178,496,163
Withdrawals (13,588,663) (5,099,187) (169,760,010)
---------------- ----------------- -------------------
Net Increase from Investors' Transactions 6,266,563 10,001,327 8,736,153
---------------- ----------------- -------------------
Total Increase in Net Assets 6,916,122 7,176,710 12,171,542
NET ASSETS
Beginning of Period 19,348,252 12,171,542 --
---------------- ----------------- -------------------
End of Period $ 26,264,374 $19,348,252 $ 12,171,542
---------------- ----------------- -------------------
---------------- ----------------- -------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 7, 1997
FOR THE FOR THE (COMMENCEMENT OF
PERIOD ENDED FISCAL YEAR ENDED OPERATIONS) THROUGH
JULY 31, 1999(a) DECEMBER 31, 1998 DECEMBER 31, 1997
---------------- ----------------- -------------------
<S> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 1.25%(b) 1.07% 0.91%(b)
Net Investment Income 12.19%(b) 10.16% 9.57%(b)
Expenses without Reimbursement 1.70%(b) 1.25% 0.91%(b)
Portfolio Turnover 555%(c) 791% 182%(c)
</TABLE>
- ------------------------
(a) Fiscal year changed to July 31. Prior to this, the fiscal year end was
December 31. The numbers reflected are for the period January 1, 1999 through
July 31, 1999.
(b) Annualized.
(c) Not annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JULY 31, 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. 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
26
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 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.
e) 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.
f) 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.
g) 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
27
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
- --------------------------------------------------------------------------------
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.
h) 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) Prior to October 28, 1998, the the portfolio had an Investment Advisory
Agreement with Morgan. Under the terms of the agreement, the portfolio
paid Morgan 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 under the terms of the
agreement remain the same. For the seven months ended July 31, 1999, and
the fiscal year ended December 31, 1998, this fee amounted to $73,273 and
$106,372 respectively.
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 seven months ended July 31, 1999 and
the fiscal year ended December 31, 1998, the fee for these services
amounted to $129 and $274, respectively.
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
28
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
- --------------------------------------------------------------------------------
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 portfolios, other
investors in the master portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust. For the seven months ended July 31,
1999 and the fiscal year ended December 31, 1998, the fee for these
services amounted to $2,702 and $4,349, respectively.
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 seven months ended July 31,
1999 and the fiscal year ended December 31, 1998, J.P. Morgan has agreed
to reimburse the portfolio $47,534 and $27,722 respectively 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 $217 and $423 for the seven months ended July 31, 1999 and the
fiscal year ended December 31, 1998 respectively.
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 for the seven months ended July 31, 1999 and the
fiscal year ended December 31, 1998 was $41 and $90, respectively.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the seven months
ended July 31, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- -----------
<S> <C>
$99,778,013 $89,583,261
</TABLE>
Open futures contracts at July 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
NET CURRENT
UNREALIZED MARKET VALUE
CONTRACTS SHORT APPRECIATION OF CONTRACTS
--------------- ------------ ------------
<S> <C> <C> <C>
U.S. Long Bond, expiring September 1999.......... 2 $ 488 $ 229,938
</TABLE>
At July 31, 1999, the portfolio had no open forward currency contracts.
29
<PAGE>
THE EMERGING MARKETS DEBT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1999
- --------------------------------------------------------------------------------
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 July 31, 1999, the results of its operations for the seven
months ended July 31, 1999 and the year ended December 31, 1998, and the changes
in its net assets for the seven months ended July 31, 1999, for the year ended
December 31, 1998 and for the period March 7, 1997 (commencement of operations)
through December 31, 1997 and supplementary data for the seven months ended July
31, 1999, the year ended December 31, 1998 and 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 July 31, 1999 by
correspondence with the custodians and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
September 15, 1999
31
<PAGE>
J.P. MORGAN FUNDS
FEDERAL MONEY MARKET FUND
PRIME MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
TAX AWARE ENHANCED INCOME FUND: SELECT SHARES
SHORT TERM BOND FUND
BOND FUND
EMERGING MARKETS DEBT FUND
GLOBAL STRATEGIC INCOME FUND
TAX EXEMPT BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
NEW YORK TAX EXEMPT BOND FUND
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
EUROPEAN EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
FOR MORE INFORMATION ON THE J.P. MORGAN
FUNDS, CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
1M0578-M
J.P. MORGAN
EMERGING MARKETS
DEBT FUND
ANNUAL REPORT
JULY 31, 1999
