<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN DISCIPLINED EQUITY FUND
July 1, 1999
Dear Shareholder,
Over the past year, the U.S. equity market continued to surge ahead, though the
period was marked by extreme volatility. During this period, the J.P. Morgan
Disciplined Equity Fund posted a 22.86% return, besting the 21.03% return of the
S&P 500 and the 11.51% return of the Lipper Growth & Income Fund Average.
The fund's net asset value increased to $18.22 at May 31, 1999, from $14.95 at
May 31, 1998. During the year, the fund made distributions of approximately
$0.09 per share from ordinary income and approximately $0.04 per share from
long-term capital gains. On May 31, 1999, the net assets of the fund were
approximately $121 million, while the assets of The Disciplined Equity
Portfolio, in which the fund invests, amounted to approximately $1.1 billion.
This report includes a discussion with Timothy J. Devlin, the portfolio manager
primarily responsible for The Disciplined Equity Portfolio. In this interview,
Tim talks about the events of the previous year that had the greatest effect on
the portfolio and discusses his investment strategy.
As chairman and president of Asset Management Services, we appreciate your
investment in the fund. If you have any comments or questions, please call your
Morgan representative or J.P. Morgan Funds Services at (800) 521-5411.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS ........ 1 FUND FACTS AND HIGHLIGHTS ......... 6
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 January 3, 1997,
would have grown to $17,824 on May 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*
JANUARY 3, 1997 -- MAY 31, 1999
[GRAPH]
<TABLE>
<S> <C>
J.P. Morgan Disciplined Equity Fund $17,824
S&P 500 Index** $17,184
Lipper Growth and Income Fund Average $14,955
</TABLE>
LIPPER PERFORMANCE AVERAGES ARE CALCULATED BY TAKING AN ARITHMETIC AVERAGE OF
THE RETURNS OF THE FUNDS IN THE GROUP. THE AVERAGE ANNUALIZED RETURNS THAT
RESULT FROM THIS METHODOLOGY WILL DIFFER FROM ANNUALIZING THE GROWTH OF THE
MINIMUM INITIAL INVESTMENT.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- ------------------
THREE SIX ONE SINCE
AS OF MAY 31, 1999 MONTHS MONTHS YEAR INCEPTION*
- ------------------------------------------------------------------------- ------------------
<S> <C> <C> <C> <C>
J.P. Morgan Disciplined Equity Fund* 7.68% 13.72% 22.86% 28.11%
S&P 500 Index** 5.48% 12.61% 21.03% 26.11%
Lipper Growth & Income Fund Average 7.95% 11.16% 11.51% 18.56%
AS OF MARCH 31, 1999
- ------------------------------------------------------------------------- ------------------
J.P. Morgan Disciplined Equity Fund* 3.78% 27.49% 19.41% 28.54%
S&P 500 Index** 4.98% 27.34% 18.46% 27.55%
Lipper Growth & Income Fund Average 1.79% 19.95% 5.17% 17.72%
</TABLE>
*THE J.P. MORGAN DISCIPLINED EQUITY FUND'S RETURNS INCLUDE HISTORICAL RETURNS OF
THE J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND, WHICH HAD A LOWER
EXPENSE RATIO, FROM JANUARY 3, 1997 (THE INCEPTION DATE OF THE J.P. MORGAN
INSTITUTIONAL DISCIPLINED EQUITY FUND), THROUGH DECEMBER 31, 1997 (THE INCEPTION
DATE OF THE J.P. MORGAN DISCIPLINED EQUITY FUND). FOR THE PURPOSES OF
COMPARISON, THE "SINCE INCEPTION" RETURNS ARE CALCULATED FROM JANUARY 31, 1997,
THE FIRST DATE WHEN DATA FOR THE FUND, ITS BENCHMARK, AND ITS LIPPER CATEGORY
WERE AVAILABLE. THE J.P. MORGAN DISCIPLINED EQUITY FUND'S TOTAL RETURN SINCE ITS
COMMENCEMENT OF OPERATIONS ON DECEMBER 31, 1997, IS 27.96%.
**S&P 500 INDEX IS AN UNMANAGED INDEX USED TO PORTRAY THE PATTERN OF COMMON
STOCK MOVEMENT BASED ON THE AVERAGE PERFORMANCE OF 500 WIDELY HELD COMMON
STOCKS. IT 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 FUND DISTRIBUTIONS, AND REFLECT THE
REIMBURSEMENT OF FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT
BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. LIPPER ANALYTICAL SERVICES, INC.
IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
The following is an interview with TIMOTHY J. DEVLIN, vice president, a member
of the portfolio management team for The Disciplined Equity Portfolio since its
inception. Tim joined J.P. Morgan in 1996 after spending nine years at Mitchell
Hutchins Asset Management, where he managed quantitatively driven equity
portfolios for institutional and retail investors. Tim received his B.A. in
economics from Union College. This interview was conducted on June 11, 1999, and
reflects Tim's views on that date.
HOW HAS THE U.S. EQUITY MARKET PERFORMED OVER THE PAST YEAR?
TJD: Well, the S&P 500 Index was up about 21%, significantly ahead of the
historical average return of about 10% annually. The difference in the market
between the last 12 months and the past couple of years was the return of
volatility. The market was shaken by a number of extraordinary events during the
year, including Russia's debt default, the failure and subsequent bailout of
high-profile hedge fund Long Term Capital, continued Asian economic weakness,
the U.S. presidential impeachment process, and war in the Balkans. Amazingly,
the market eventually shrugged off these disruptive events and, through a
dramatic flight to quality after its summer swoon, continued to climb.
For much of the year, the market was led by the largest-cap companies and
technology shares. The strong U.S. economy was a big reason for the success of
the equity market during this period, as it buoyed corporate profits of
domestically focused companies in industries like automaking, homebuilding, and
retailing. In technology, the emergence of e-commerce and a rash of
Internet-related IPOs generated some excitement. Of late, however, there has
been a broadening of market leadership to companies across the
market-capitalization spectrum. And signs of a bottoming in the global economy
have helped companies in industries that would benefit from global growth, such
as those in the energy and cyclical industrial sectors.
The Federal Reserve was active during the period, too. In the fall, the Fed
eased rates in an attempt to settle world markets. In mid-May, the Fed,
concerned about the continued strong pace of the domestic economy and the
possibility of inflation, announced that its position on interest rates shifted
to a tightening bias from a neutral one. As a result, the market has again come
under some pressure recently.
HOW DID THE FUND PERFORM DURING THE PERIOD?
TJD: The fund performed very well in what has been a difficult environment for
most managers to beat the market indexes. For the fiscal year ended May 31, the
fund returned 22.86%, compared with the S&P 500's 21.03%.
3
<PAGE>
When the market is led by a small number of stocks (in this case, the
largest-cap stocks), it is more difficult for the average manager to beat the
market simply because there are fewer winners to choose from. Our disciplined
portfolio construction, combined with the insights of our team of research
analysts, allows us to minimize non-stock-specific risk. In other words, the
fund's sector weightings and style characteristics reflect those of the S&P 500,
leaving stock selection -- an area where we believe we have valuable insights --
as the primary source of risk versus the index. So in the past 12 months, the
stock selection of our analysts was excellent and the portfolio was constructed
to emphasize that while reducing other, uncompensated risks.
WHICH STOCKS CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?
TJD: Stock selection was very positive across most of the sectors over the past
12 months. Two positions that stood out were an underweight (relative to the
stock's weight in the S&P 500 Index) position in Walt Disney and an overweight
position in Tyco International.
Our underweight position in Walt Disney helped the fund, as the stock dropped
over 22% while its sector rose 27%. Disney's poor performance during the period
can be attributed to the following: weakening home video sales, as second
releases of their animated movies prove far less profitable than the original
release; slowing merchandise sales, as non-Disney characters gain in popularity;
poor results at the company's network operations; and a lack of hit movies since
its last blockbuster, ARMAGEDDON.
Tyco, on the other hand, posted a 58% gain over the period, well ahead of the
miscellaneous industrial sector return of slightly more than 13%. In recent
years, Tyco has made a series of acquisitions that have had very positive
impacts on earnings. The company has maintained this trend, most recently with
its purchases of AMP and Raychem. Tyco's far-flung businesses now include
fire-protection systems, electronic security services, flow-control valves,
medical products, electronic components, and underwater telecommunications
systems.
WHAT STOCKS HINDERED THE PORTFOLIO'S PERFORMANCE?
TJD: With over 300 stocks in the portfolio, there are bound to be some that
underperform. Two of our positions that hurt the portfolio's performance were
not owning Charles Schwab and the overweighting of Service Corp.
The lofty premium that Schwab trades at as the number-one online brokerage
company has prevented us from owning it. In the environment of the past year,
when any company that did business via the Internet seemed to be blindly
purchased, Schwab rose an astounding 378.1%! We believe that their triple-digit
price-to-earnings ratio is unsustainable and that increasing competition will
prevent Schwab from growing its earnings fast enough to justify its price.
Service Corp. plunged in January, as the company surprised everyone by
announcing it would fall short of quarterly earnings estimates by 50%. The
company cited both pre-need and at-need funeral results below plan, in addition
to weak investment results in a strong market. The negative surprise resulted in
a 60% drop in the stock's price. For the 12-month period, Service Corp. fell
over 52% versus a 27% increase for the services sector as a whole.
4
<PAGE>
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
TJD: Our outlook is on the cautious side. The market has done so well for so
long, and appears richly valued. There is some concern about what steps the
Federal Reserve will take in its efforts to slow down the domestic economy; we
think it's likely that the Fed will raise short-term rates at least once before
the end of the year. Should the economy continue to plow ahead, we think the Fed
would become more aggressive in its efforts.
But with the continued strength in the domestic economy, corporate profits
should continue to be robust. And despite all the concerns about inflation, it
still remains very low. Globally, there are strong indications that the economy
has hit bottom and is on its way back up; this should have a positive affect on
companies in industries with global exposures, like metals and chemicals.
We think we're in a transition period, as market leadership begins to filter
down to companies across the market-capitalization spectrum. Such a process can
often be a fragile one, and we wouldn't be surprised to see continued volatility
as a result. We'll remain focused on the long term and seek to capitalize on any
misvaluations we can find in the U.S. equity market.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Disciplined Equity Fund seeks to provide a high total return from a
broadly diversified portfolio of equity securities. It is designed for investors
who want the potential to outperform the S&P 500 Index without assuming a level
of risk substantially greater than that of the index.
- --------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
12/31/97
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 5/31/99
$120,592,429
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 5/31/99
$1,128,683,456
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
6/25/99, 8/20/99, 12/20/99
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/20/99
EXPENSE RATIO
The fund's current annualized expense ratio of 0.75% 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 dividend or redemption
proceeds from the fund.
FUND HIGHLIGHTS
ALL DATA AS OF MAY 31, 1999
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- - CONSUMER GOODS
& SERVICES 21.2%
- - TECHNOLOGY 17.7%
- - FINANCE 15.6%
- - UTILITIES 11.3%
- - HEALTHCARE 10.9%
- - INDUSTRIAL PRODUCTS
& SERVICES 10.4%
- - ENERGY 6.2%
- - BASIC INDUSTRIES 2.9%
- - SHORT-TERM AND
OTHER INVESTMENTS 2.9%
- - TRANSPORTATION 0.9%
<TABLE>
<CAPTION>
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- ------------------------------------------------------------------------------
<S> <C>
INTERNATIONAL BUSINESS MACHINES CORP. 2.9%
(TECHNOLOGY)
MICROSOFT CORP. (TECHNOLOGY) 2.7%
INTEL CORP. (TECHNOLOGY) 2.5%
MCI WORLDCOM, INC. (UTILITIES) 2.4%
CISCO SYSTEMS, INC. (TECHNOLOGY) 2.3%
BRISTOL-MYERS SQUIBB CO. (HEALTHCARE) 2.2%
GENERAL ELECTRIC CO. 2.1%
(INDUSTRIAL PRODUCTS & SERVICES)
CITIGROUP INC. (FINANCE) 2.0%
LUCENT TECHNOLOGIES INC. (TECHNOLOGY) 1.7%
BANK OF AMERICA CORP. (FINANCE) 1.7%
</TABLE>
6
<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.
References to specific securities and their issuers are for illustrative
purposes only and are not intended to be, and should not be interpreted as,
recommendations to purchase or sell such securities. Opinions expressed herein
are based on current market conditions and are subject to change without notice.
The fund invests in a master portfolio (another fund with the same objective).
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
7
<PAGE>
J.P. MORGAN DISCIPLINED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Disciplined Equity Portfolio
("Portfolio"), at value $120,542,527
Receivable for Shares of Beneficial Interest Sold 271,579
Deferred Organization Expenses 5,081
Receivable for Expense Reimbursements 4,079
Prepaid Trustees' Fees 6
Prepaid Expenses and Other Assets 165
------------
Total Assets 120,823,437
------------
------------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 157,356
Shareholder Servicing Fee Payable 25,784
Administrative Services Fee Payable 2,662
Administration Fee Payable 108
Fund Services Fee Payable 107
Accrued Expenses 44,991
------------
Total Liabilities 231,008
------------
NET ASSETS
Applicable to 6,618,271 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $120,592,429
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $18.22
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $109,012,396
Undistributed Net Investment Income 265,064
Accumulated Net Realized Gain on Investment 663,094
Net Unrealized Appreciation of Investment 10,651,875
------------
Net Assets $120,592,429
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN DISCIPLINED EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $20,258) $ 829,098
Allocated Interest Income 84,623
Allocated Portfolio Expenses (235,445)
-----------
Net Investment Income Allocated from
Portfolio 678,276
FUND EXPENSES
Shareholder Servicing Fee $139,070
Transfer Agent Fees 27,688
Registration Fees 26,807
Administrative Services Fee 14,823
Professional Fees 12,031
Printing Expenses 9,385
Amortization of Organization Expenses 1,999
Fund Services Fee 1,234
Administration Fee 902
Trustees' Fees and Expenses 373
Insurance Expense 72
Miscellaneous 6,169
--------
Total Fund Expenses 240,553
Less: Reimbursement of Expenses (58,761)
--------
NET FUND EXPENSES 181,792
-----------
NET INVESTMENT INCOME 496,484
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 674,473
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 10,305,886
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $11,476,843
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN DISCIPLINED EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 31, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
MAY 31, 1999 MAY 31, 1998
-------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 496,484 $ 21,411
Net Realized Gain on Investment Allocated from
Portfolio 674,473 73,449
Net Change in Unrealized Appreciation of
Investment Allocated from Portfolio 10,305,886 345,989
-------------- -------------------
Net Increase in Net Assets Resulting from
Operations 11,476,843 440,849
-------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (248,386) (7,264)
Net Realized Gain (128,313) --
-------------- -------------------
Total Distributions to Shareholders (376,699) (7,264)
-------------- -------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 108,061,646 17,984,065
Reinvestment of Dividends and Distributions 363,369 6,420
Cost of Shares of Beneficial Interest Redeemed (16,969,659) (387,141)
-------------- -------------------
Net Increase from Transactions in Shares of
Beneficial Interest 91,455,356 17,603,344
-------------- -------------------
Total Increase in Net Assets 102,555,500 18,036,929
NET ASSETS
Beginning of Fiscal Year 18,036,929 --
-------------- -------------------
End of Fiscal Year (including undistributed net
investment income of $265,064 and $14,147,
respectively) $ 120,592,429 $ 18,036,929
-------------- -------------------
-------------- -------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN DISCIPLINED EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 31, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
MAY 31, 1999 MAY 31, 1998
-------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.95 $ 12.98
-------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.12 0.03
Net Realized and Unrealized Gain on Investment 3.28 1.96
-------------- -------------------
Total from Investment Operations 3.40 1.99
-------------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.09) (0.02)
Net Realized Gain (0.04) --
-------------- -------------------
Total Distributions to Shareholders (0.13) (0.02)
-------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 18.22 $ 14.95
-------------- -------------------
-------------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 22.86% 15.33%(a)
Net Assets, End of Period (in thousands) $ 120,592 $ 18,037
Ratios to Average Net Assets
Net Expenses 0.75% 0.75%(b)
Net Investment Income 0.89% 1.00%(b)
Expenses without Reimbursement 0.86% 3.28%(b)
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN DISCIPLINED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Disciplined Equity Fund (the "fund") is a separate series of 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 December 31, 1997.
The fund invests all of its investable assets in The Disciplined Equity
Portfolio (the "portfolio"), a diversified open-end management investment
company having the same investment objective as the fund. The value of such
investment included in the Statement of Assets and Liabilities reflects the
fund's proportionate interest in the net assets of the portfolio (11% at May 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 and paid quarterly. Distributions to shareholders of net
realized capital gain, if any, are declared and paid annually.
d) The fund incurred organization expenses in the amount of $7,898 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.
e) Expenses incurred by the trust with respect to any two or more funds in
the trust are allocated in proportion to the net assets of each fund in
the trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
f) The fund is treated as a separate entity for federal income tax purposes
and intends to comply with the provisions of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and to
distribute substantially all of its income, including net realized capital
gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary. The fund earns
foreign income which may be subject to foreign withholding tax at various
rates.
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 Investments Companies." The effect of applying
this statement was to increase undistributed net income by $2,819 and
increase accumulated net realized
12
<PAGE>
J.P. MORGAN DISCIPLINED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
gain on investment by $43,485 and decrease paid in capital by $46,304. The
adjustment is attributable to tax allocation of deferral of wash sales.
Net investment income, net realized gains and net assets were not affected
by this change.
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust, and certain other
investment companies subject to similar agreements with FDI. For the
fiscal year ended May 31, 1999, the fee for these services amounted to
$902.
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 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 the aggregate average
daily net assets in excess of $7 billion less the complex-wide fees
payable to FDI. The portion of this charge payable by the fund is
determined by the proportionate share that its net assets bear to the net
assets of the trust, the master portfolios, other investors in the master
portfolios for which Morgan provides similar services, and J.P. Morgan
Series Trust. For the fiscal year ended May 31, 1999, the fee for these
services amounted to $14,823.
In addition, J.P. Morgan and Co. Incorporated ("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 0.75% of the average daily net
assets of the fund. This reimbursement arrangement can be changed or
terminated at any time after February 28, 2000, at the option of
J.P.Morgan. For the fiscal year ended May 31, 1999, J.P. Morgan has agreed
to reimburse the fund $58,761 for expenses that exceeded this limit.
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 fiscal year ended May 31, 1999, the fee for these
services amounted to $139,070.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreement")
whereby Schwab makes the fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the services
13
<PAGE>
J.P. MORGAN DISCIPLINED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
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
$1,234 for the fiscal year ended May 31, 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 represent the fund's allocated portion
of the 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 $300.
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
DECEMBER 31, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED (OPERATIONS) THROUGH
MAY 31, 1999 MAY 31, 1998
-------------- --------------------
<S> <C> <C>
Shares sold...................................... 6,403,080 1,232,470
Reinvestment of dividends and distributions...... 22,322 431
Shares redeemed.................................. (1,014,007) (26,025)
-------------- --------------------
Net Increase..................................... 5,411,395 1,206,876
-------------- --------------------
-------------- --------------------
</TABLE>
From time to time, the fund may have a concentration of several shareholders
which may include affiliates of J.P. Morgan holding a significant percentage of
shares outstanding. Investment activities of these shareholders could have a
material impact on the fund and the 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. The maximum borrowing
under the Agreement is $150,000,000. The Agreement expired on May 26, 1999,
however, the fund as party to the Agreement has extended the Agreement and
continues its participation therein for an additional 364 days until May 23,
2000. 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% (0.065% prior to May 26, 1999) on the unused portion of
the committed amount. This is allocable to the funds in accordance with
procedures established by their respective trustees or directors. There were no
outstanding borrowings pursuant to the Agreement as of May 31, 1999.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Disciplined Equity Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
J.P. Morgan Disciplined Equity Fund (one of the series constituting part of J.P.
Morgan Funds (hereafter referred to as the "fund") at May 31, 1999, the results
of its operations for the year then ended, and the changes in its net assets and
the financial highlights for the year then ended and for the period December 31,
1997 (commencement of operations) through May 31, 1998, 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 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 provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
July 14, 1999
15
<PAGE>
The Disciplined Equity Portfolio
Annual Report May 31, 1999
(The following pages should be read in conjunction
with the J.P. Morgan Disciplined Equity Fund
Annual Financial Statements)
16
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
COMMON STOCKS (97.1%)
BASIC INDUSTRIES (2.9%)
CHEMICALS (1.7%)
Dow Chemical Co.................................. 77,700 $ 9,440,550
Georgia Gulf Corp................................ 100 1,494
IMC Global, Inc.................................. 43,700 914,969
Lyondell Chemical Co............................. 33,600 640,500
PPG Industries, Inc.............................. 46,400 2,815,900
Rohm & Haas Co................................... 65,800 2,640,225
Solutia, Inc..................................... 41,800 937,887
Union Carbide Corp............................... 42,800 2,196,175
---------------
19,587,700
---------------
FOREST PRODUCTS & PAPER (0.6%)
Bowater, Inc..................................... 8,000 412,000
Fort James Corp.................................. 46,000 1,684,750
International Paper Co........................... 66,800 3,340,000
Mead Corp........................................ 4,400 164,450
Temple-Inland, Inc............................... 9,600 643,200
---------------
6,244,400
---------------
METALS & MINING (0.6%)
Alcan Aluminum Ltd............................... 92,300 2,584,400
Alcoa, Inc....................................... 1,600 88,000
Allegheny Teledyne, Inc.......................... 72,900 1,489,894
Freeport - McMoran Copper & Gold, Inc., Class
B.............................................. 68,500 967,562
Freeport-McMoran Copper & Gold, Inc., Class A.... 11,200 147,000
Nucor Corp....................................... 500 24,969
Reynolds Metals Co............................... 25,000 1,329,687
---------------
6,631,512
---------------
TOTAL BASIC INDUSTRIES......................... 32,463,612
---------------
CONSUMER GOODS & SERVICES (21.2%)
APPARELS & TEXTILES (0.1%)
Fruit of the Loom, Inc., Class A+................ 9,200 94,875
Jones Apparel Group, Inc.+....................... 33,300 1,023,975
---------------
1,118,850
---------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
AUTOMOTIVE (1.7%)
Cooper Tire & Rubber Co.......................... 12,600 $ 299,250
Dana Corp........................................ 52,000 2,684,500
Delphi Automotive Systems Corp................... 162,147 3,182,144
Ford Motor Co.................................... 71,200 4,062,850
General Motors Corp.............................. 30,400 2,097,600
Genuine Parts Co................................. 48,100 1,620,369
Goodyear Tire and Rubber Co...................... 49,100 2,930,656
Lear Corp.+...................................... 35,700 1,755,994
---------------
18,633,363
---------------
BROADCASTING & PUBLISHING (2.6%)
AT+ T Corp. - Liberty Media Group+............... 19,136 1,271,348
Comcast Corp., Class A........................... 103,100 3,975,794
Gannett Co., Inc................................. 73,900 5,339,275
Knight - Ridder, Inc............................. 35,100 1,849,331
MediaOne Group, Inc.+............................ 137,900 10,187,362
New York Times Co., Class A...................... 85,900 2,931,337
Times Mirror Co. New............................. 35,000 2,062,812
Washington Post Co., Class B..................... 3,700 2,059,050
---------------
29,676,309
---------------
ENTERTAINMENT, LEISURE & MEDIA (1.9%)
America Online, Inc.+............................ 89,600 10,696,000
Circus Circus Enterprises, Inc.+................. 4,400 92,950
International Game Technology.................... 49,100 865,387
Seagram Company Ltd.(i).......................... 191,700 9,956,419
---------------
21,610,756
---------------
FOOD, BEVERAGES & TOBACCO (5.9%)
Bestfoods........................................ 45,000 2,250,000
Campbell Soup Co.(s)............................. 14,300 630,987
Coca-Cola Co..................................... 355,900 24,312,419
H.J. Heinz Co.................................... 53,200 2,570,225
Hershey Foods Corp............................... 20,100 1,090,425
Pepsi Bottling Group, Inc.(s).................... 22,400 519,400
PepsiCo, Inc.(s)................................. 234,700 8,405,194
Philip Morris Companies, Inc.(s)................. 397,900 15,344,019
Ralston-Ralston Purina Group..................... 66,000 1,798,500
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
FOOD, BEVERAGES & TOBACCO (CONTINUED)
Sara Lee Corp.................................... 131,200 $ 3,148,800
Unilever NV (ADR)+(s)............................ 96,339 6,292,141
---------------
66,362,110
---------------
HOUSEHOLD APPLIANCES & FURNISHINGS (0.2%)
Furniture Brands International, Inc.+............ 5,000 121,250
Leggett & Platt, Inc............................. 64,900 1,711,737
Whirlpool Corp................................... 7,900 509,550
---------------
2,342,537
---------------
HOUSEHOLD PRODUCTS (1.8%)
Kimberly-Clark Corp.............................. 88,400 5,187,975
Procter & Gamble Co.(s).......................... 159,300 14,874,637
---------------
20,062,612
---------------
RESTAURANTS & HOTELS (0.6%)
Extended Stay America, Inc.+..................... 3,800 40,375
Hilton Hotels Corp............................... 127,000 1,746,250
Mirage Resorts, Inc.+............................ 115,600 2,369,800
Starwood Hotels & Resorts Worldwide, Inc......... 84,300 2,760,825
---------------
6,917,250
---------------
RETAIL (6.4%)
Abercrombie & Fitch Co., Class A+................ 5,300 445,862
Albertson's, Inc................................. 15,900 850,650
American Stores Co............................... 80,100 2,643,300
AutoZone, Inc.+.................................. 55,600 1,608,925
Circuit City Stores-Circuit City Group........... 35,400 2,542,162
CompUSA, Inc.+................................... 13,400 108,037
Corporate Express, Inc.+......................... 8,700 56,958
Costco Companies, Inc.+.......................... 19,000 1,378,094
Dayton Hudson Corp............................... 50,200 3,162,600
Dillard's, Inc., Class A......................... 27,900 979,987
Federated Department Stores, Inc.+............... 64,300 3,504,350
Footstar, Inc.+.................................. 100 3,881
Gap, Inc......................................... 24,530 1,534,658
General Nutrition Companies, Inc.+............... 10,600 175,562
Hannaford Brothers Co............................ 26,400 1,372,800
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
RETAIL (CONTINUED)
Home Depot, Inc.................................. 107,000 $ 6,085,625
J.C. Penney, Inc................................. 69,100 3,571,606
Kmart Corp.+..................................... 144,900 2,227,837
Kroger Co.+...................................... 25,800 1,510,912
Lowe's Companies, Inc............................ 14,105 732,578
Mattel, Inc...................................... 148,900 3,936,544
May Department Stores Co......................... 67,100 2,906,269
Nine West Group, Inc.+........................... 1,000 27,750
Nordstrom, Inc................................... 19,600 697,025
Reebok International Ltd. (ADR)+................. 6,900 137,137
Safeway, Inc.+................................... 68,800 3,199,200
Sears, Roebuck & Co.............................. 97,100 4,642,594
Tiffany & Co..................................... 10,800 895,050
TJX Companies, Inc............................... 107,300 3,219,000
Toys 'R' Us, Inc.+............................... 68,200 1,572,862
Wal-Mart Stores, Inc.(s)......................... 398,600 16,990,325
Walgreen Co...................................... 700 16,275
---------------
72,736,415
---------------
TOTAL CONSUMER GOODS & SERVICES................ 239,460,202
---------------
ENERGY (6.2%)
GAS EXPLORATION (0.1%)
Columbia Energy Group............................ 24,500 1,310,750
---------------
OIL-PRODUCTION (5.9%)
Chevron Corp..................................... 44,900 4,161,669
Conoco, Inc...................................... 22,100 599,462
Exxon Corp.(s)................................... 234,900 18,762,637
Mobil Corp....................................... 153,200 15,511,500
Occidental Petroleum Corp........................ 38,900 821,762
Phillips Petroleum Co............................ 32,800 1,719,950
Royal Dutch Petroleum Co. (ADR)(s)............... 306,700 17,347,719
Texaco, Inc...................................... 74,900 4,905,950
Tosco Corp....................................... 60,800 1,554,200
Ultramar Diamond Shamrock Corp................... 10,100 222,200
Unocal Corp...................................... 7,600 302,100
Valero Energy Corp............................... 24,500 491,531
---------------
66,400,680
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
OIL-SERVICES (0.2%)
Cooper Cameron Corp.+............................ 6,500 $ 235,219
Diamond Offshore Drilling, Inc................... 10,600 288,850
ENSCO International, Inc......................... 21,600 383,400
Global Marine, Inc.+............................. 23,500 330,469
Input/Output, Inc.+.............................. 1,000 8,500
R&B Falcon Corp.+................................ 45,100 417,175
Smith International, Inc.+....................... 5,900 255,175
---------------
1,918,788
---------------
TOTAL ENERGY................................... 69,630,218
---------------
FINANCE (15.6%)
BANKING (9.1%)
Associated Banc - Corp........................... 19,100 660,144
Astoria Financial Corp........................... 22,100 996,572
Bancwest Corp.................................... 7,500 285,000
Bank of America Corp............................. 292,500 18,921,094
Bank One Corp.................................... 29,700 1,679,906
BankBoston Corp.................................. 116,700 5,528,662
Charter One Financial, Inc....................... 29,600 839,900
Citigroup, Inc.(s)............................... 331,900 21,988,375
Colonial BancGroup, Inc.......................... 3,600 46,350
Compass Bancshares, Inc.......................... 18,900 559,322
Dime Bancorp, Inc................................ 42,800 872,050
First American Corp.............................. 19,700 804,006
First Union Corp................................. 167,900 7,733,894
Firstmerit Corp.................................. 14,600 398,306
Golden West Financial Corp....................... 10,100 958,237
GreenPoint Financial Corp........................ 19,500 672,750
Hibernia Corp., Class A.......................... 23,800 339,150
KeyCorp.......................................... 82,000 2,849,500
M & T Bank Corp.................................. 1,200 632,400
Marshall + Ilsley Corp........................... 8,800 615,725
Mellon Bank Corp................................. 22,500 802,969
Mercantile Bancorporation, Inc................... 5,000 292,187
Mercantile Bankshares Corp....................... 10,300 370,156
North Fork Bancorporation, Inc................... 21,800 464,612
Pacific Century Financial Corp................... 10,700 214,000
Peoples Heritage Financial Group, Inc............ 13,800 258,319
PNC Bank Corp.................................... 48,900 2,799,525
Provident Financial Group, Inc................... 14,600 625,062
Regions Financial Corp........................... 34,100 1,292,603
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
BANKING (CONTINUED)
Republic New York Corp........................... 13,900 $ 944,331
Southtrust Corp.................................. 26,600 1,036,569
Sovereign Bancorp, Inc........................... 28,600 378,056
Summit Bancorp................................... 30,100 1,232,219
Suntrust Bank, Inc............................... 52,700 3,557,250
TCF Financial Corp............................... 31,300 868,575
U.S. Bancorp..................................... 122,100 3,968,250
Union Planters Corp.............................. 25,500 1,053,469
Washington Federal, Inc.......................... 1,900 42,750
Washington Mutual, Inc........................... 106,200 4,055,512
Wells Fargo Co.(s)............................... 270,400 10,816,000
Wilmington Trust Corp............................ 4,400 258,775
---------------
102,712,532
---------------
FINANCIAL SERVICES (2.9%)
American Express Co.............................. 50,120 6,073,917
Associates First Capital Corp., Class A.......... 117,500 4,817,500
Bear Stearns Companies, Inc...................... 16,900 749,937
CIT Group, Inc., Class A......................... 14,100 408,900
Federal Home Loan Mortgage Corp.................. 4,200 244,912
Federal National Mortgage Association............ 8,000 544,000
Finova Group, Inc................................ 11,300 540,281
Franklin Resources, Inc.......................... 45,200 1,966,200
Goldman Sachs Group, Inc.+....................... 32,500 2,207,969
Household International, Inc..................... 70,900 3,075,287
Lehman Brothers Holdings, Inc.................... 19,200 1,048,800
Merrill Lynch & Company, Inc..................... 16,500 1,386,000
Morgan Stanley Dean Witter & Co.................. 85,700 8,270,050
Ocwen Financial Corp.+........................... 2,300 19,981
Paine Webber Group Inc........................... 21,000 987,000
Waddell & Reed Financial, Inc., Class A.......... 1,100 26,950
---------------
32,367,684
---------------
INSURANCE (3.6%)
Allstate Corp.................................... 218,600 7,965,237
Ambac Financial Group, Inc....................... 26,100 1,521,956
American International Group, Inc................ 28,900 3,303,631
Aon Corp......................................... 68,300 2,936,900
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
INSURANCE (CONTINUED)
Chubb Corp....................................... 43,000 $ 3,012,687
CIGNA Corp....................................... 47,800 4,457,350
Equitable Companies, Inc......................... 22,900 1,607,294
Financial Security Assurance Holdings Ltd........ 3,100 175,925
Fremont General Corp............................. 7,200 152,550
Marsh & McLennan Companies, Inc.................. 69,700 5,070,675
MBIA, Inc........................................ 30,200 2,063,037
Mercury General Corp............................. 15,100 544,544
Ohio Casualty Corp............................... 1,300 49,441
Provident Companies, Inc......................... 16,000 625,000
St. Paul Companies, Inc.......................... 61,000 2,169,312
Torchmark Corp................................... 35,300 1,178,137
Travelers Property Casualty Corp., Class A....... 17,000 671,500
UNUM Corp........................................ 51,200 2,755,200
---------------
40,260,376
---------------
TOTAL FINANCE.................................. 175,340,592
---------------
HEALTHCARE (10.9%)
BIOTECHNOLOGY (1.2%)
Amgen, Inc.+..................................... 107,700 6,815,391
Chiron Corp.+.................................... 48,200 1,016,719
Genzyme Corp.+................................... 46,200 1,872,544
MedImmune, Inc.+................................. 37,600 2,389,950
PE Corp.- PE Biosystems Group.................... 10,800 1,206,225
PE-Corp.-Celera Genomics+........................ 3,600 61,200
---------------
13,362,029
---------------
HEALTH SERVICES (1.4%)
Aetna, Inc....................................... 32,000 2,906,000
Columbia / HCA Healthcare Corp.(s)............... 136,700 3,220,994
HCR Manor Care, Inc.+............................ 40,200 1,075,350
Health Management Associates, Inc., Class A+..... 56,400 733,200
Healthsouth Corp.+............................... 95,300 1,274,637
Humana, Inc.+.................................... 42,400 532,650
Lifepoint Hospitals, Inc.+....................... 94 946
Pacificare Health Systems+....................... 3,800 328,106
Tenet Healthcare Corp.+.......................... 93,300 2,285,850
Triad Hospitals, Inc+............................ 1,894 19,236
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
HEALTH SERVICES (CONTINUED)
United Healthcare Corp........................... 36,700 $ 2,137,775
Wellpoint Health Networks, Inc.+................. 15,700 1,294,269
---------------
15,809,013
---------------
MEDICAL SUPPLIES (0.1%)
Medtronic, Inc................................... 19,700 1,398,700
---------------
PHARMACEUTICALS (8.2%)
ALZA Corp.+...................................... 97,500 3,479,531
American Home Products Corp...................... 296,600 17,091,575
Bristol-Myers Squibb Co.......................... 359,600 24,677,550
Eli Lilly & Co................................... 131,000 9,358,312
Forest Laboratories, Inc.+....................... 57,100 2,719,388
Johnson & Johnson................................ 16,300 1,509,788
Merck & Co., Inc................................. 81,800 5,521,500
Monsanto Co...................................... 243,200 10,092,800
Pfizer, Inc...................................... 30,000 3,210,000
Warner-Lambert Co................................ 228,600 14,173,200
Watson Pharmaceuticals, Inc.+.................... 31,600 1,210,675
---------------
93,044,319
---------------
TOTAL HEALTHCARE............................... 123,614,061
---------------
INDUSTRIAL PRODUCTS & SERVICES (10.4%)
AEROSPACE (0.9%)
Boeing Co........................................ 67,900 2,868,775
Lockheed Martin Corp............................. 80,800 3,267,350
Raytheon Co., Class A............................ 57,000 3,786,938
---------------
9,923,063
---------------
BUILDING MATERIALS (0.2%)
Owens Corning.................................... 16,200 637,875
Sherwin-Williams Co.............................. 47,100 1,451,269
USG Corp......................................... 7,600 430,350
---------------
2,519,494
---------------
CAPITAL GOODS (0.2%)
Eaton Corp....................................... 16,800 1,464,750
Modine Manufacturing Co.......................... 10,000 324,063
PACCAR, Inc...................................... 11,400 644,100
---------------
2,432,913
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
COMMERCIAL SERVICES (1.3%)
Cendant Corp.+................................... 415,600 $ 7,662,625
Equifax, Inc..................................... 66,800 2,404,800
R.R. Donnelley & Sons Co......................... 65,000 2,356,250
Service Corp. International...................... 130,700 2,507,806
---------------
14,931,481
---------------
DIVERSIFIED MANUFACTURING (6.0%)
AlliedSignal, Inc................................ 150,700 8,750,019
Coltec Industries, Inc.+......................... 28,000 560,000
Cooper Industries, Inc........................... 38,300 1,898,244
Deere & Co....................................... 71,700 2,729,081
Eastman Kodak Co................................. 94,400 6,383,800
General Electric Co.(s).......................... 227,000 23,083,063
Harris Corp...................................... 43,100 1,629,719
Hubbell, Inc..................................... 11,300 473,188
ITT Industries, Inc.............................. 28,600 1,079,650
Johnson Controls, Inc............................ 13,400 845,038
National Service Industries Inc.................. 4,600 169,338
Parker Hannifin Corp............................. 300 13,106
Sensormatic Electronics Corp.+................... 1,800 24,075
Tenneco, Inc..................................... 48,800 1,137,650
Tyco International Ltd........................... 190,700 16,662,413
Xerox Corp....................................... 36,400 2,045,225
---------------
67,483,609
---------------
ELECTRICAL EQUIPMENT (0.7%)
Emerson Electric Co.............................. 91,300 5,831,788
W.W. Grainger, Inc............................... 28,600 1,517,588
---------------
7,349,376
---------------
PACKAGING & CONTAINERS (0.1%)
Smurfit-Stone Container Corp.+................... 70,800 1,526,625
---------------
POLLUTION CONTROL (1.0%)
Browning-Ferris Industries, Inc.................. 21,900 908,850
Waste Management, Inc............................ 205,400 10,860,525
---------------
11,769,375
---------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
TEXTILES (0.0%)
Unifi, Inc....................................... 6,500 $ 107,250
---------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 118,043,186
---------------
TECHNOLOGY (17.7%)
COMPUTER PERIPHERALS (1.0%)
EMC Corp.+(s).................................... 89,400 8,906,475
Quantum Corp.+................................... 34,800 689,475
Seagate Technology, Inc.+........................ 37,800 1,141,088
---------------
10,737,038
---------------
COMPUTER SOFTWARE (3.2%)
Adobe Systems, Inc............................... 1,800 133,369
Electronic Arts+................................. 10,500 513,188
Microsoft Corp.+(s).............................. 372,900 30,100,022
Oracle Corp.+.................................... 210,200 5,209,019
Symantec Corp.+.................................. 3,200 78,300
---------------
36,033,898
---------------
COMPUTER SYSTEMS (4.6%)
Apple Computer, Inc.+............................ 32,900 1,448,628
Dell Computer Corp............................... 201,100 6,919,097
Gateway, Inc.+................................... 22,600 1,374,363
International Business Machines Corp............. 285,200 33,172,325
Sun Microsystems, Inc.+.......................... 153,300 9,154,884
---------------
52,069,297
---------------
ELECTRONICS (2.5%)
3Com Corp.+...................................... 52,100 1,424,609
Cisco Systems, Inc.+............................. 238,700 26,010,841
Symbol Technologies, Inc......................... 16,600 830,000
---------------
28,265,450
---------------
INFORMATION PROCESSING (0.6%)
Automatic Data Processing, Inc................... 89,000 3,665,688
First Data Corp.................................. 62,800 2,822,075
---------------
6,487,763
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
SEMICONDUCTORS (4.1%)
Applied Materials, Inc.+......................... 57,200 $ 3,147,788
Intel Corp.(s)................................... 510,800 27,678,975
Motorola, Inc.................................... 84,700 7,014,219
National Semiconductor Corp.+.................... 21,300 412,688
Texas Instruments, Inc.(s)....................... 61,900 6,770,313
Xilinx, Inc.+.................................... 22,000 976,938
---------------
46,000,921
---------------
TELECOMMUNICATIONS-EQUIPMENT (1.7%)
Lucent Technologies, Inc......................... 343,600 19,542,250
---------------
TOTAL TECHNOLOGY............................... 199,136,617
---------------
TRANSPORTATION (0.9%)
AIRLINES (0.2%)
AMR Corp.+....................................... 26,600 1,730,663
COMAIR Holdings, Inc............................. 4,200 79,669
Southwest Airlines Co............................ 19,000 609,188
---------------
2,419,520
---------------
RAILROADS (0.7%)
Burlington Northern Railroad Co.................. 68,600 2,126,600
CSX Corp......................................... 31,700 1,487,919
Norfolk Southern Corp............................ 53,500 1,752,125
Union Pacific Corp............................... 48,100 2,744,706
Wisconsin Central Transportation Corp.+.......... 1,800 35,663
---------------
8,147,013
---------------
TRUCK & FREIGHT CARRIERS (0.0%)
CNF Transportation, Inc.......................... 6,600 273,900
Consolidated Freightways Corp.+.................. 100 1,331
Ryder System, Inc................................ 8,300 199,200
---------------
474,431
---------------
TOTAL TRANSPORTATION........................... 11,040,964
---------------
UTILITIES (11.3%)
ELECTRIC (2.5%)
Allegheny Energy, Inc............................ 30,100 1,049,738
Ameren Corp...................................... 26,800 1,097,125
Central & South West Corp........................ 120,000 3,090,000
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
ELECTRIC (CONTINUED)
Cinergy Corp..................................... 37,900 $ 1,293,338
CMS Energy Corp.................................. 24,000 1,116,000
Constellation Energy Group....................... 31,300 976,169
Dominion Resources, Inc.......................... 46,100 1,990,944
Edison International............................. 73,600 2,024,000
Entergy Corp..................................... 59,600 1,933,275
New England Electric System...................... 100 5,006
Nisource, Inc.................................... 100 2,803
Northeast Utilities+............................. 26,900 474,113
Northern States Power Co......................... 41,200 1,073,775
PG&E Corp........................................ 91,400 3,084,750
Pinnacle West Capital Corp....................... 19,900 833,313
PP&L Resources, Inc.............................. 47,200 1,416,000
Southern Co...................................... 41,400 1,174,725
TECO Energy, Inc................................. 31,500 730,406
Texas Utilities Co............................... 67,400 3,033,000
USEC, Inc........................................ 48,000 528,000
Wisconsin Energy Corp............................ 27,600 765,900
---------------
27,692,380
---------------
NATURAL GAS (0.2%)
Consolidated Natural Gas Company................. 20,300 1,206,581
El Paso Energy Corp.............................. 28,900 1,042,206
K N Energy, Inc.................................. 6,600 141,488
---------------
2,390,275
---------------
TELEPHONE (8.6%)
Ameritech Corp................................... 135,800 8,937,338
AT & T Corp...................................... 166,100 9,218,550
Bell Atlantic Corp............................... 263,300 14,415,675
Frontier Corp.................................... 5,600 294,700
GTE Corp......................................... 166,100 10,474,681
Level 3 Communications, Inc.+.................... 61,100 4,794,441
MCI WorldCom, Inc.+.............................. 315,700 27,258,722
SBC Communications, Inc.......................... 332,300 16,988,838
US WEST, Inc..................................... 85,600 4,627,750
---------------
97,010,695
---------------
TOTAL UTILITIES................................ 127,093,350
---------------
TOTAL COMMON STOCKS (COST $962,677,250)........ 1,095,822,802
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
FIXED INCOME SECURITIES (0.2%)
U.S. TREASURY OBLIGATIONS (0.2%)
U.S. TREASURY NOTES (0.2%)
6.000% due 06/30/99(s)........................... $ 1,125,000 $ 1,126,226
5.875% due 11/15/99(s)........................... 1,000,000 1,004,060
---------------
TOTAL U.S. TREASURY OBLIGATIONS................ 2,130,286
---------------
TOTAL FIXED INCOME SECURITIES (COST
$2,141,599)................................... 2,130,286
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- --------------- ---------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.7%)
REPURCHASE AGREEMENT (2.7%)
State Street Repurchase Agreement dated 05/28/99,
due 06/01/99, 4.00% , proceeds $30,732,653
(collateralized by US Treasury note, 7.875%,
due 02/15/21, valued at $31,333,911) (Cost
$30,719,000)................................... $ 30,719,000 $ 30,719,000
---------------
TOTAL INVESTMENTS (COST $995,537,849) (100.0%)....................
1,128,672,088
OTHER ASSETS IN EXCESS OF LIABILITIES (0.0%)......................
11,368
---------------
NET ASSETS (100.0%)............................................... $ 1,128,683,456
---------------
---------------
</TABLE>
- ------------------------------
Note:The cost of investments for federal income tax purposes at May 31, 1999 was
$996,555,422; the aggregate gross unrealized appreciation and depreciation
was $156,869,931 and $24,753,265 respectively, resulting in net unrealized
appreciation of $132,116,666.
+ Non-income producing security.
(i) Foreign Security
(s)Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
Total market value of securities segregated is $43,690,208.
ADR - American Depositary Receipt.
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $995,537,849 ) $1,128,672,088
Cash 91
Receivable for Investments Sold 10,337,211
Dividends Receivable 2,194,881
Variation Margin Receivable 266,523
Foreign Tax Reclaim Receivable 111,030
Interest Receivable 44,709
Deferred Organization Expenses 4,486
Prepaid Trustees' Fees 691
Prepaid Expenses and Other Assets 2,118
--------------
Total Assets 1,141,633,828
--------------
LIABILITIES
Payable for Investments Purchased 12,504,071
Advisory Fee Payable 339,112
Custody Fee Payable 47,519
Administrative Services Fee Payable 25,011
Fund Services Fee Payable 1,020
Administration Fee Payable 252
Accrued Expenses 33,387
--------------
Total Liabilities 12,950,372
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,128,683,456
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $195,640 ) $ 9,542,720
Interest Income 1,008,059
------------
Investment Income 10,550,779
EXPENSES
Advisory Fee $ 2,310,525
Custodian Fees and Expenses 216,265
Administrative Services Fee 176,331
Professional Fees and Expenses 46,597
Fund Services Fee 14,804
Administration Fee 9,294
Printing Expenses 9,062
Trustees' Fees and Expenses 4,486
Amortization of Organization Expenses 1,733
Insurance Expense 1,111
-----------
Total Expenses 2,790,208
------------
NET INVESTMENT INCOME 7,760,571
NET REALIZED GAIN ON INVESTMENTS
Investment Transactions 32,127,905
Futures Contracts 2,734,387
-----------
Total Realized Gain 34,862,292
NET CHANGE IN UNREALIZED
APPRECIATION/(DEPRECIATION) OF INVESTMENTS
Investments 98,007,871
Futures Contracts (793,976)
-----------
Net Change in Unrealized Appreciation 97,213,895
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $$139,836,758
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1999 MAY 31, 1998
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 7,760,571 $ 2,279,909
Net Realized Gain on Investments and Futures 34,862,292 14,779,999
Net Change in Unrealized Appreciation
(Depreciation) of Investments and Futures
Contracts 97,213,895 29,521,206
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 139,836,758 46,581,114
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 796,144,084 235,373,755
Withdrawals (121,433,323) (44,366,828)
-------------- --------------
Net Increase from Investors' Transactions 674,710,761 191,006,927
-------------- --------------
Total Increase in Net Assets 814,547,519 237,588,041
NET ASSETS
Beginning of Fiscal Year 314,135,937 76,547,896
-------------- --------------
End of Fiscal Year $1,128,683,456 $ 314,135,937
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 30, 1996
FOR THE FOR THE (COMMENCEMENT OF
FISCAL YEAR ENDED FISCAL YEAR ENDED OPERATIONS) THROUGH
MAY 31, 1999 MAY 31, 1998 MAY 31, 1997
----------------- ----------------- -------------------
<S> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.42% 0.45% 0.45%(a)
Net Investment Income 1.18% 1.27% 1.54%(a)
Expenses without Reimbursement 0.42% 0.51% 0.78%
Portfolio Turnover 50.64% 60.59% 20.47%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Disciplined Equity Portfolio (the "portfolio") is one of five subtrusts
(portfolios) comprising The Series Portfolio (the "series portfolio"). The
series portfolio is registered under the Investment Company Act of 1940, as
amended, as a no-load, diversified, 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 December 30, 1996. The portfolio's
investment objective is to provide a high total return from a broadly
diversified portfolio of equity securities. The Declaration of Trust permits the
trustees to issue an unlimited number of beneficial interests in the portfolio.
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 average of the quoted bid and asked prices 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 using the amortized cost method.
b) The portfolio's custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the portfolio. It is the
policy of the portfolio to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the portfolio has
the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event
of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
c) Securities transactions are recorded on a trade-date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount become known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
27
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
d) The portfolio incurred organization expenses in the amount of $9,049 which
are being deferred and amortized on a straight-line basis over a period
not to exceed five years beginning with the commencement of operations of
the portfolio.
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) 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 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 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.
g) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code.
2. TRANSACTIONS WITH AFFILIATES
a) Prior to October 1, 1998, the portfolio had an Investment Advisory
Agreement with Morgan Guaranty Trust Company of New York ("Morgan"). Under
the terms of the agreement, the portfolio paid Morgan at an annual rate of
0.35% of the portfolio's average daily net assets. Effective October 1,
1998, the portfolio's Investment Advisor is J.P. Morgan Investment
Management Inc. ("JPMIM"), an affiliate of Morgan and a wholly owned
subsidiary of J.P. Morgan and Co. Incorporated ("J.P. Morgan"), and the
terms of the agreement will remain the same. For the fiscal year ended May
31, 1999, such fees amounted to $2,310,525.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
FDI provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the
28
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
compensation of the officers affiliated with FDI. The portfolio has agreed
to pay FDI fees equal to its allocable share of an annual complex-wide
charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable
to the portfolio is based on the ratio of the portfolio's net assets to
the aggregate net assets of the portfolio and certain other investment
companies subject to similar agreements with FDI. For the fiscal year
ended May 31, 1999, the fee for these services amounted to $9,294.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for certain
aspects of the administration and operation of the 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 other portfolios for which JPMIM acts as investment advisor
(the "master portfolios") and J.P. Morgan Series Trust in accordance with
the following annual schedule: 0.09% on the first $7 billion of the 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 that its net assets bear to the net
assets of the master portfolios, other investors in the master portfolios
for which Morgan provides similar services, and J.P. Morgan Series Trust.
For the fiscal year ended May 31, 1999, the fee for these services
amounted to $176,331.
In addition, J.P. Morgan has agreed to reimburse the portfolio to the
extent necessary to maintain the total operating expenses of the portfolio
at no more than 0.45% of the average daily net assets of the portfolio
through August 31, 1999. This arrangement can be changed or terminated at
any time at the option of J.P.Morgan. For the fiscal year ended May 31,
1999, J.P. Morgan did not reimburse 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 $14,804 for the fiscal year ended May 31, 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 received
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $3,100.
29
<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended May 31, 1999, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- ------------
<S> <C>
$981,959,368..... $322,918,515
</TABLE>
Futures Transactions as of May 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
CURRENT
NET UNREALIZED MARKET VALUE
CONTRACTS LONG DEPRECIATION OF CONTRACTS
-------------- -------------- ------------
<S> <C> <C> <C>
S & P 500, expiring June 1999.................... 95 $(707,558) $30,808,505
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the fund's Notes to the Financial
Statements which are included elsewhere in the report.
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Disciplined Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The Disciplined Equity Portfolio (the
"portfolio") at May 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the supplementary data for each of the two years in the period
then ended and for the period December 30, 1996 (commencement of operations)
through May 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 May 31, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
July 14, 1999
31
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET 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
NEW YORK TAX EXEMPT BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
FOR MORE INFORMATION ON THE J.P. MORGAN
FUNDS, CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
IMO487-M
J.P. MORGAN
DISCIPLINED EQUITY
FUND
ANNUAL REPORT
MAY 31, 1999
