<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
November 10, 1995
Dear Shareholder:
We are pleased to report that from its inception on December 1, 1994, to its
fiscal year end on September 30, 1995, The JPM Institutional International Bond
Fund produced a double-digit return of 12.83%. While the Fund had strong
performance for the period, its return was lower than the 13.48% return for its
benchmark, the Salomon Brothers Non-U.S. Government Bond Index (currency
hedged). This underperformance was primarily due to our decision to underweight
the Japanese bond market, which we believed was overvalued, for the second and
third quarters of 1995. Although we were early in our decision to reduce the
Portfolio's exposure to Japan, we believe this was an appropriate defensive
measure that will be beneficial for the Fund on a longer-term basis.
The Fund's net asset value went from $10.00 per share at its inception to $11.12
at the end of September, after paying $0.15 per share in distributions from
ordinary income during the period. The Fund's net assets stood at $4.2 million
at the end of the reporting period. The net assets of The Non-U.S. Fixed Income
Portfolio in which the Fund invests totaled $266.1 million on September 30,
1995.
MARKET ENVIRONMENT
International bond market returns were mixed over the period, propelled by a
decline and later a rise in the value of the U.S. dollar against most major
currencies. After experiencing the worst performance in recent memory for most
of 1994, these markets produced impressiver returns during the first half of
1995. The main catalyst for this turnaround was the faster-than-expected
slowdown in U.S. economic growth, which resulted in investors revising their
expectations for further interest rate hikes by the Federal Reserve. While these
expectations helped propel the bond rally during the first half of 1995, they
also contributed to the phenomenal fall in the U.S. dollar versus the Japanese
yen and the German mark.
The main beneficiary of the weak dollar was clearly the Japanese bond market.
Slower-than-expected economic growth was the initial stimulus for the bond
rally, but the collapse of the Japanese equity market and the U.S. dollar are
what really helped to push Japanese bonds to new highs. In Europe, as the German
mark strengthened and U.S. bonds rallied, most European bonds also rose in
value. The core markets of Germany and the Netherlands were particularly in
demand because of their "safe haven" status, while the inflation-prone,
politically volatile markets of Sweden, Spain, and Italy underperformed. The
European markets then
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Letter to the shareholders. . . . . . . 1 Fund performance. . . . . . 5
Fund facts and highlights . . . . . . . 4 Financial statements. . . . 7
- -------------------------------------------------------------------------------
1
<PAGE>
took an interesting turn at the end of March, when the Bundesbank surprised the
market with a cut in short-term rates. This helped the high-yielding markets of
Sweden, Spain, and Italy.
During the third quarter of 1995, the U.S. dollar reversed course, rising 18%
against the yen. Most of the rise came in July and August, propelled by the co-
intervention of the U.S. Federal Reserve, the Bank of Japan, and the Bundesbank,
as well as the Japanese government's stimulation of the domestic economy and
promotion of overseas investment. This perceived boost to the Japanese economy
hurt the Japanese bond market during July and August and, together with the
surge in the Japanese stock market, offset the otherwise bond-friendly weak
economic data. The Japanese bond market did perform strongly in September, as
disappointment over the government's fiscal package, the Bank of Japan's cut in
the official discount rate, and the weakening of the dollar at quarter end gave
Japanese government bonds a renewed life.
Additional rate cuts in core European countries during the third quarter gave
scope for the higher yielding countries to rally, helped by a generally
optimistic environment. Countries that performed particularly well were Sweden,
Spain, and Denmark.
Near the end of the period, the question of Quebec's independence from Canada
became a major focus, with the date for the official referendum set for October
30, 1995. Public opinion polls initially indicated a 70% pro-separatist vote.
Subsequent polls, however, seemed to demonstrate that Quebec's devolution would
be defeated. As a result, Canadian bonds began to outperform their U.S.
counterparts by the end of September.
PORTFOLIO REVIEW
The investment process involves three key decisions, which are all expected to
contribute to Fund returns: DURATION MANAGEMENT, COUNTRY ALLOCATION and SECURITY
SELECTION.
The Portfolio began the reporting period with a neutral allocation in Japan
relative to the Index weighting. We began to decrease the Portfolio's Japanese
bond position in March, as yields surpassed our expectations of fair value for
the next three to six months. As mentioned previously, Japanese bonds continued
to perform well, which detracted from the Fund's performance.
We favored the core European markets of Germany and the Netherlands for most of
the period over the weaker markets of Spain, Sweden, and Italy. The Portfolio
benefited from this view, as its overweighted position in Germany outperformed
its underweighted positions in Spain, Sweden, and Italy. During the third
quarter of 1995, however, we overweighted some of the peripheral markets such as
Denmark and Spain. Denmark benefited from investors' increased appetite for
yield, as many moved out of the core markets of Germany and the Netherlands. We
also shifted out of the Italian market to participate more aggressively in
Spain, which had more attractive fundamentals and less political uncertainty.
2
<PAGE>
We ended the Fund's fiscal year overweighted in the European core bloc markets,
as they appeared to be more attractively valued than the high-yielding markets
on a risk-adjusted basis. We concentrated core European holdings predominantly
in the intermediate part of the yield curve where the difference in yield was
more pronounced.
Toward the end of the period, the Fund was slightly overweighted in the Canadian
market relative to the Index. This position helped returns as Canadian bonds
performed well.
INVESTMENT OUTLOOK
Despite strong performance at the end of the Fund's fiscal year, we expect
Japanese bond prices to resume the downward path that they started on in July
and August. While the Japanese bond market has recently de-coupled from the
currency markets, ongoing yen weakness will weigh heavily on Japanese government
bonds. Japanese economic data remains mixed but suggests that the bottom may
have been reached. The equity market, which has risen sharply over the past few
months, seems to support this belief. Sooner or later, we believe Japanese bond
investors will seek the higher yields available in other markets. When this
happens, the retreat from Japanese government bonds by Japanese city banks could
be quick. We also expect the Japanese government to continue its efforts to
boost the economy. At the same time, real interest rates, one of our key
indicators of long term value in bond markets, remain very low in Japan by
historical standards.
With core European bond markets appearing to offer better value, we expect to
maintain the Portfolio's overweighting in Europe and underweighting in Japan. In
addition, core Europe on a fully hedged basis currently offers an attractive
yield advantage. The high-yielding markets in Europe remain volatile.
Consequently, we have preferred to keep the Portfolio neutral until political
noise abates and valuations are more easily discerned.
The Portfolio continues to be slightly overweighted in Canadian bonds, although
we reduced its position somewhat as a result of profits in October when yields
rose. The difference in yield between the 10-year benchmark bonds of Canada and
the U.S. narrowed by the end of the month, however, as the vote to
separate was narrowly defeated.
Currently, the Portfolio is maintaining a long duration position relative to the
Index in all major markets except Japan.
As always, we welcome your comments or questions. Please call J.P. Morgan Funds
Services toll free at (800) 766-7722.
Sincerely yours,
/s/ Evelyn E. Guernsey
Evelyn E. Guernsey
J.P. Morgan Funds Services
3
<PAGE>
Fund facts
INVESTMENT OBJECTIVE
The JPM Institutional International Bond Fund seeks to provide a high total
return consistent with moderate risk of capital, from a portfolio of
international fixed income securities. The Portfolio is designed for investors
with a medium- or long-term investment horizon and expects to have risk
characteristics similar to the Salomon Brothers Non-U.S. Government Bond Index
(currency-hedged) over a full investment cycle.
- ----------------------------
INCEPTION DATE
12/1/94
- ----------------------------
NET ASSETS AS OF 9/30/95
$4,233,000
- ----------------------------
DIVIDEND PAYABLE DATES
QUARTERLY
- ----------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/26/95
EXPENSE RATIO
The Fund's current annual expense ratio of 0.65% 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 SEPTEMBER 30, 1995
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
Pie chart depicting the allocation of the Fund's investment securities held at
September 30, 1995 by country. The pie is broken in pieces representing
countries in the following percentages:
SHORT TERM HOLDINGS/FOREIGN CURRENCY 19.4%
JAPAN 15.0%
GERMANY 13.4%
FRANCE 9.3%
NETHERLANDS 7.4%
SUPRANATIONAL 6.1%
ITALY 5.4%
UNITED KINGDOM 4.9%
CANADA 4.6%
BELGIUM 4.5%
OTHER COUNTRIES 10.0%
30-DAY SEC YIELD
5.05%
DURATION
4.6 years
4
<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.
The minimum initial investment in the Fund is $1,000,000. The chart at right
shows that the minimum invested in the Fund on December 1, 1994 would have grown
to $1,128,349 by September 30, 1995.
GROWTH OF $1,000,000 SINCE INCEPTION*
DECEMBER 1, 1994 - SEPTEMBER 30, 1995
Line graph with two axes: the X-axis represents years of operations; the Y-axis
represents dollar value. The graph plots two lines: the first line represents
the growth of a one million dollar investment in the Fund from December 1, 1994
(inception) to September 30, 1995; the second line represents the growth of a
one million dollar investment in the Salomon Brothers Non-U.S. Government Bond
Index (currency hedged) for the same time period. The graph points are as
follows;
<TABLE>
<CAPTION>
Year Fund Salomon Brothers
<S> <C> <C>
0 $ 1,000,000 $ 1,000,000
1 1,128,349 1,134,811
</TABLE>
PERFORMANCE TOTAL RETURNS
--------------------------------------------------
THREE SIX ONE FIVE SINCE
AS OF SEPTEMBER 30, 1995 MONTHS MONTHS YEAR YEAR INCEPTION*
- -------------------------------------------------------------------------------
JPM Institutional Inter-
national Bond Fund 2.96% 6.74% - - 12.83%
Salomon Brothers Non-
U.S. Government Bond
Index (currency hedged) 3.58% 8.44% - - 13.48%
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. ALL RETURNS ASSUME THE
REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF CERTAIN FUND AND
PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. THE JPMINSTITUTIONAL
INTERNATIONAL BOND FUND INVESTS ALL OF ITS INVESTABLE ASSETS IN THE NON-U.S.
FIXED INCOME PORTFOLIO, A SEPARATELY REGISTERED INVESTMENT COMPANY WHICH IS NOT
AVAILABLE TO THE PUBLIC BUT ONLY TO OTHER COLLECTIVE INVESTMENT VEHICLES SUCH AS
THE FUND. THE SALOMON BROTHERS NON-U.S. GOVERNMENT BOND INDEX (CURRENCY HEDGED)
IS AN UNMANAGED INDEX IN WHICH INVESTORS MAY NOT DIRECTLY INVEST. NO
REPRESENTATION IS MADE THAT INFORMATION GATHERED FROM THIS SOURCE IS ACCURATE OR
COMPLETE.
5
<PAGE>
Signature Broker-Dealer Services, Inc. is the Distributor for The JPM
Institutional International Bond Fund (the "Fund").
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN") SERVES AS PORTFOLIO
INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY AS
SHAREHOLDER SERVICING AGENT FOR CUSTOMERS. INVESTMENTS IN THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN OR ANY OTHER
BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
CAN FLUCTUATE, SO AN INVESTOR'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST.
Performance data quoted herein represent past performance. Please remember
that past performance is not a guarantee of future performance. Fund returns
are net of fees, and assume the reinvestment of Fund distributions. Had
expenses not been subsidized, returns would have been lower. The Fund invests
all of its investable assets in The Non-U.S. Fixed Income Portfolio (the
"Portfolio"), a separately registered investment company which is not
available to the public but only to other collective investment vehicles such
as the Fund. The Portfolio 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.
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES, IS PROVIDED IN THE PROSPECTUS, WHICH SHOULD BE READ CAREFULLY
BEFORE INVESTING. YOU MAY OBTAIN ADDITIONAL COPIES OF THE PROSPECTUS BY
CALLING J.P. MORGAN FUNDS SERVICES AT (800) 766-7722.
6
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Non-U.S. Fixed Income Portfolio ("Portfolio"), at value $4,280,811
Deferred Organization Expenses 43,823
Prepaid Expenses and Other Assets 15,014
---------
Total Assets 4,339,648
---------
LIABILITIES
Organization Expenses Payable 55,000
Financial and Fund Accounting Services Fee Payable 11,413
Shareholder Servicing Fee Payable 1,412
Administration Fee Payable 46
Fund Services Fee Payable 13
Accrued Expenses 38,764
---------
Total Liabilities 106,648
---------
NET ASSETS
Applicable to 380,544 Shares of Beneficial Interest Outstanding $4,233,000
(unlimited shares authorized, par value $0.001)
---------
---------
Net Asset Value, Offering and Redemption Price Per Share $11.12
---------
---------
ANALYSIS OF NET ASSETS
Paid-In Capital $3,742,814
Accumulated Net Realized Gain on Investment and Foreign Currency Transactions 37,084
Net Unrealized Appreciation of Investment and Foreign Currency Translations 453,102
---------
Net Assets $4,233,000
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
7
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 1, 1994 (COMMENCEMENT OF OPERATIONS) THROUGH SEPTEMBER
30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
$ 181,305
Allocated Interest Income (Net of Foreign Withholding Tax of $214)
(16,328)
Allocated Portfolio Expenses
---------
164,977
Net Investment Income Allocated from Portfolio
FUND EXPENSES
Registration Fees $ 14,966
Printing Expense 14,500
Transfer Agent Fees 13,587
Amortization of Organization Expenses 11,177
Professional Fees 8,620
Shareholder Servicing Fee 1,412
Administration Fee 460
Fund Services Fee 232
Trustees' Fees and Expenses 37
Miscellaneous 566
---------
Total Fund Expenses 65,557
Less: Reimbursement of Expenses (64,925)
---------
632
NET FUND EXPENSES
---------
164,345
NET INVESTMENT INCOME
(28,335)
NET REALIZED LOSS ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS
ALLOCATED FROM PORTFOLIO
453,102
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENT AND FOREIGN
CURRENCY TRANSLATIONS ALLOCATED FROM PORTFOLIO
---------
$ 589,112
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 1, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
SEPTEMBER 30, 1995
--------------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 164,345
Net Realized Loss on Investment and Foreign Currency Transactions Allocated from
Portfolio (28,335)
Net Change in Unrealized Appreciation of Investment and Foreign Currency Translations
Allocated from Portfolio 453,102
--------------------
Net Increase in Net Assets Resulting from Operations 589,112
--------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (35,969)
--------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 17,373,146
Reinvestment of Dividends 31,559
Cost of Shares of Beneficial Interest Redeemed (13,724,948)
--------------------
Net Increase from Transactions in Shares of Beneficial Interest 3,679,757
--------------------
Total Increase in Net Assets 4,232,900
NET ASSETS
Beginning of Period 100
--------------------
End of Period $ 4,233,000
--------------------
--------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected Data for a share outstanding throughout the period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 1, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
SEPTEMBER 30, 1995
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.49
Net Realized and Unrealized Gain on Investment and Foreign Currency Allocated from Portfolio 0.78
------
Total from Investment Operations 1.27
------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.15)
------
NET ASSET VALUE, END OF PERIOD $ 11.12
------
------
Total Return 12.83%(a)
------
------
RATIOS AND SUPPLEMENTAL DATA
Net Assets at end of Period (in thousands) $ 4,233
Ratios to Average Net Assets
Expenses 0.60%(b)
Net Investment Income 5.82%(b)
Decrease Reflected in Expense Ratio due to Expense Reimbursement 2.30%(b)
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Institutional International Bond Fund (the "Fund") is a separate series
of The JPM Institutional Funds, a Massachusetts business trust (the "Trust").
The Trust is registered under the Investment Company Act of 1940, as amended, as
a non-diversified, open-end management investment company. The Fund commenced
operations on December 1, 1994.
The Fund invests all of its investable assets in The Non-U.S. Fixed Income
Portfolio (the "Portfolio"), a non-diversified open-end management investment
company having the same investment objectives as the Fund. The value of such
investment reflects the Fund's proportionate interest in the net assets of the
Portfolio (2% at September 30, 1995). 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 following is a summary of the significant accounting policies of the
Fund:
a)Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b)The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)The Fund declares income dividends 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 $55,000. These
costs were deferred and are being amortized by the Fund on a straight-line
basis over a five-year period from the commencement of operations.
e)Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to comply with the provisions of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income,
including net realized capital gains, if any, within the prescribed time
periods. Accordingly, no provision for federal income or excise tax is
necessary.
f)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.
g)The Fund accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies". The effect of applying
this statement was to increase Paid-in Capital by $62,957, increase
Accumulated Net Realized Gain on
11
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
Investment and Foreign Currency Transactions by $65,419, and decrease
Undistributed Net Investment Income by $128,376. The adjustments are
primarily attributable to foreign currency losses. Net investment income,
net realized gains and net assets were not affected by this change.
2. TRANSACTIONS WITH AFFILIATES
a)The Trust retains Signature Broker-Dealer Services, Inc. ("Signature") to
serve as Administrator and Distributor. Signature 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 Signature. The
agreement provides for a fee to be paid to Signature at an annual rate
determined by the following schedule: 0.04% of the first $1 billion of the
aggregate average daily net assets of the Trust, as well as two other
affiliated fund families for which Signature acts as administrator, 0.032%
of the next $2 billion of such net assets, 0.024% of the next $2 billion
of such net assets, and 0.016% of such net assets in excess of $5 billion.
The daily equivalent of the fee rate is applied each day to the net assets
of the Fund. For the period December 1, 1994 (commencement of operations)
through September 30, 1995, Signature's fee for these services amounted to
$460.
b)During the period December 1, 1994 (commencement of operations) through
August 31, 1995, the Trust, on behalf of the Fund, had a Financial and
Fund Accounting Services Agreement ("Services Agreement") with Morgan
Guaranty Trust Company of New York ("Morgan") under which Morgan may
receive a fee, based on the percentage described below, for overseeing
certain aspects of the administration and operation of the Fund and which
was also designed to provide an expense limit for certain expenses of the
Fund. This fee was calculated exclusive of the shareholder servicing fee,
the fund services fee and amortization of organization expenses, at 0.05%
of the Fund's average daily net assets. For the period December 1, 1994
(commencement of operations) through August 31, 1995, Morgan agreed to
reimburse the Fund $46,217 for expenses that exceeded this limit.
Effective September 1, 1995, the Services Agreement was terminated and an
interim agreement was entered into between the Trust, on behalf of the
Fund, and Morgan which provides for the continuation of the oversight
services that were outlined under the prior agreement and that Morgan
shall bear all of its expenses incurred in connection with these services.
In addition, Morgan has agreed to reimburse the Fund to the extent
necessary to maintain the total operating expenses of the Fund, including
the expenses allocated to the Fund from the Portfolio, at no more than
0.65% of the average daily net assets of the Fund through September 30,
1996. For the period December 1, 1994 (commencement of operations) through
September 30, 1995, Morgan has agreed to reimburse the Fund $18,708 for
expenses under this agreement.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. The Agreement provides for the Fund to pay Morgan a fee for
these services which is computed daily and may be paid monthly at an
annual rate of 0.05% of the average daily net assets of the Fund. For the
period December 1, 1994 (commencement of operations) through September 30,
1995, the fee for these services amounted to $1,412.
12
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
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
$232 for the period December 1, 1994 (commencement of operations) through
September 30, 1995.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Pierpont Funds, The JPM Institutional Funds, their
corresponding Portfolios and The Series Portfolio. The Trustees' Fees and
Expenses shown in the financial statements represent the Fund's allocated
portion of the total fees and expenses. Prior to April 1, 1995, the
aggregate annual Trustee Fee was $55,000. The Trustee who serves as
Chairman and Chief Executive Officer of these Funds and Portfolios 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 $30.
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 1, 1994
(COMMENCEMENT OF OPERATIONS)
THROUGH SEPTEMBER 30, 1995
-------------------------------
<S> <C>
Shares of beneficial interest sold 1,648,390
Reinvestments of dividends 3,022
Shares of beneficial interest redeemed (1,270,878)
-----------
Net increase 380,534
-----------
-----------
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The JPM Institutional International Bond 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 JPM Institutional International Bond Fund (one of the series constituting
part of The JPM Institutional Funds, hereafter referred to as the "Fund") at
September 30, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the period December 1, 1994
(commencement of operations) through September 30, 1995, 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 audit. We conducted our audit
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
audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
November 20, 1995
14
<PAGE>
The Non-U.S. Fixed Income Portfolio
Annual Report September 30, 1995
(The following pages should be read in conjunction
with The JPM Institutional International Bond Fund
Annual Financial Statements)
15
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(LOCAL CURRENCY(1)
000'S OMITTED) SECURITY DESCRIPTION VALUE
- -------------------------------------------------------------------- ---------------
<S> <C> <C>
CORPORATE OBLIGATIONS (26.2%)
CANADA (1.5%)
GBP 2,617 Hydro-Quebec, 6.50% due 12/09/98.................. $ 3,969,537
---------------
FRANCE (5.7%)
FRF 48,800 Credit Local de France, 7.50% due 03/31/04........ 9,893,780
FRF 24,600 Electricite De France, 8.60% due 04/09/04......... 5,302,650
---------------
15,196,430
---------------
GERMANY (10.4%)
ITL 5,595,000 Bayerische Landesbank Girozentrale, 10.75% due 3,378,686
03/01/03........................................
DEM 4,000 Bayerische Vereinsbank 6.25% due 05/15/00......... 2,842,138
KFW International Finance
DEM 5,000 6.375% due 08/16/00............................... 3,558,265
DEM 5,000 6.75% due 02/08/02................................ 3,561,109
DEM 17,570 Landesbank Rheinland-Pfalz Girozentrale 7.25% due 12,507,406
04/20/05........................................
DEM 2,600 Sudwestdeutsche Landesbank Capital Markets 6.25% 1,759,412
due 10/21/03....................................
---------------
27,607,016
---------------
JAPAN (3.1%)
JPY 740,000 Export-Import Bank of Japan, 4.375% due 8,329,716
10/01/03........................................
---------------
NETHERLANDS (4.2%)
NLG 17,000 Bank Voor Nederlandsche Gemeenten 7.625% due 11,263,204
12/16/02........................................
---------------
UNITED KINGDOM (1.3%)
GBP 2,400 Halifax Building Society, 6.50% due 02/16/04...... 3,313,320
---------------
TOTAL CORPORATE OBLIGATIONS (COST $68,046,322).... 69,679,223
---------------
GOVERNMENT OBLIGATIONS (51.3%)
AUSTRALIA (0.5%)
AUD 1,560 Commonwealth of Australia, 12.00% due 11/15/01.... 1,386,811
---------------
AUSTRIA (2.3%)
Republic of Austria
GBP 2,000 9.00% due 07/22/04................................ 3,248,933
DEM 3,800 4.1625% due 02/19/05 (floating rate note)......... 2,641,784
JPY 25,000 3.75% due 02/03/09................................ 267,055
---------------
6,157,772
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(LOCAL CURRENCY(1)
000'S OMITTED) SECURITY DESCRIPTION VALUE
- -------------------------------------------------------------------- ---------------
<S> <C> <C>
BELGIUM (4.7%)
BEF 381,000 Kingdom of Belgium, 6.50% due 03/31/05............ $ 12,348,806
---------------
CANADA (3.3%)
CAD 10,940 Government of Canada, 8.75% due 12/01/05.......... 8,687,863
---------------
DENMARK (4.5%)
Kingdom of Denmark
DKK 42,000 7.00% due 12/15/04................................ 7,114,920
DKK 26,930 8.00% due 11/15/01................................ 4,970,123
---------------
12,085,043
---------------
FRANCE (4.0%)
Government of France
FRF 39,100 7.75% due 04/12/00................................ 8,214,613
FRF 10,850 8.50% due 11/25/02................................ 2,355,295
---------------
10,569,908
---------------
GERMANY (3.6%)
DEM 12,150 Federal Republic of Germany, 9.00% due 10/20/00... 9,612,869
---------------
ITALY (5.6%)
Republic of Italy
ITL 13,150,000 9.50% due 01/01/05................................ 7,133,212
ITL 180,000 9.50% due 12/01/97................................ 108,324
JPY 675,000 5.125% due 07/29/03............................... 7,776,929
---------------
15,018,465
---------------
JAPAN (12.5%)
Government of Japan
JPY 1,508,100 No. 119, 4.80% due 06/21/99....................... 17,178,227
JPY 418,850 No. 153, 4.80% due 12/20/02....................... 4,820,443
JPY 985,800 No. 157, 4.50% due 06/20/03....................... 11,182,120
---------------
33,180,790
---------------
NETHERLANDS (3.5%)
Government of the Netherlands
NLG 3,100 9.00% due 05/15/00................................ 2,191,449
NLG 10,070 9.00% due 01/15/01................................ 7,153,294
---------------
9,344,743
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(LOCAL CURRENCY(1)
000'S OMITTED) SECURITY DESCRIPTION VALUE
- -------------------------------------------------------------------- ---------------
<S> <C> <C>
SPAIN (2.9%)
ESP 1,020,200 Government of Spain, 10.00% due 02/28/05.......... $ 7,826,953
---------------
UNITED KINGDOM (3.9%)
GBP 700 Treasury Conversion, 9.00% due 03/03/00........... 1,164,086
GBP 750 Treasury Gilt, 6.00% due 08/10/99................. 1,126,140
GBP 5,240 Treasury Gilt, 7.75% due 09/08/06................. 8,020,619
---------------
10,310,845
---------------
TOTAL GOVERNMENT OBLIGATIONS (COST
$134,691,922)................................... 136,530,868
---------------
SUPRANATIONAL OBLIGATIONS(2) (6.4%)
ITL 2,537,000 European Investment Bank, 12.20% due 02/18/03..... 1,637,053
International Bank for Reconstruction &
Development
JPY 512,100 5.25% due 03/20/02................................ 6,045,499
JPY 865,000 6.00% due 10/18/96................................ 9,225,910
---------------
TOTAL SUPRANATIONAL OBLIGATIONS (COST
$16,421,894).................................... 16,908,462
---------------
SHORT-TERM HOLDINGS (20.1%)
COMMERCIAL PAPER (5.6%)
USD 5,000 Abbey National North America, 5.73% due 4,984,879
10/20/95........................................
USD 5,000 Ford Motor Credit Co., 6.00% due 11/17/95......... 4,962,922
USD 5,000 Glaxo PLC, 6.00% due 10/20/95..................... 4,984,959
---------------
14,932,760
---------------
TIME DEPOSITS (14.5%)
State Street Bank & Trust Co. London,
USD 2,684 5.00% due 10/02/95................................ 2,684,000
USD 8,000 5.625% due 10/02/95............................... 8,000,000
USD 10,000 5.687% due 10/02/95............................... 10,000,000
USD 8,000 5.625% due 10/04/95............................... 8,000,000
USD 10,000 5.687% due 10/04/95............................... 10,000,000
---------------
38,684,000
---------------
TOTAL SHORT-TERM HOLDINGS (COST $53,616,760)...... 53,616,760
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION VALUE
-------------------------------------------------- ---------------
<S> <C> <C>
FOREIGN CURRENCY (0.1%) (COST $168,771)............................. $ 175,984
---------------
TOTAL INVESTMENTS (COST $272,945,669) (104.1%) 276,911,297
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS (-4.1%) (10,788,380)
---------------
TOTAL NET ASSETS (100.0%) $ 266,122,917
---------------
---------------
</TABLE>
Note: Based on the cost of investments of $273,497,273 for federal income tax
purposes at September 30, 1995, the aggregate gross unrealized appreciation was
$5,267,574, and the aggregate gross unrealized depreciation was $1,853,550,
resulting in net unrealized appreciation of investments of $3,414,024.
(1)Principal is in the local currency of the country in which the security is
traded, which may not be the country of origin.
(2)International Agencies
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $272,945,669) $276,911,297
Cash 138
Interest Receivable 7,887,945
Unrealized Appreciation on Forward Foreign Currency Contracts 1,911,147
Unrealized Appreciation on Spot Foreign Currency Contracts 75,486
Deferred Organization Expenses 8,081
Prepaid Expenses and Other Assets 43,761
-----------
Total Assets 286,837,855
-----------
LIABILITIES
Payable for Securities Purchased 16,143,016
Unrealized Depreciation on Forward Foreign Currency Contracts 4,326,838
Custody Fee Payable 101,762
Advisory Fee Payable 75,940
Organization Expenses Payable 4,397
Fund Services Fee Payable 1,848
Administration Fee Payable 1,262
Accrued Expenses 59,875
-----------
Total Liabilities 20,714,938
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $266,122,917
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD OCTOBER 11, 1994 (COMMENCEMENT OF OPERATIONS) THROUGH SEPTEMBER
30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
$14,045,882
Interest Income (Net of Foreign Withholding Tax of $247,536)
----------
EXPENSES
Advisory Fee $ 782,748
Custodian Fees and Expenses 194,680
Financial and Fund Accounting Services Fee 156,367
Professional Fees 54,310
Fund Services Fee 20,446
Administration Fee 13,862
Trustees' Fees and Expenses 5,584
Printing Expenses 4,500
Amortization of Organization Expenses 1,919
Registration Fees 610
Insurance Premium Expenses 143
Miscellaneous 1,937
----------
(1,237,106)
Total Expenses
----------
12,808,776
NET INVESTMENT INCOME
NET REALIZED GAIN ON
Investment Transactions 14,189,658
Foreign Currency Transactions 1,402,193
----------
15,591,851
Net Realized Gain
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF
Investments 3,965,628
Foreign Currency Contracts and Translations (2,402,985)
----------
1,562,643
Net Change in Unrealized Appreciation
----------
$29,963,270
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 11, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
SEPTEMBER 30, 1995
-------------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 12,808,776
Net Realized Gain on Investments and Foreign Currency Transactions 15,591,851
Net Change in Unrealized Appreciation of Investments and Foreign Currency
Translations 1,562,643
-------------------
Net Increase in Net Assets Resulting from Operations 29,963,270
-------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 318,237,762
Withdrawals (82,178,215)
-------------------
Net Increase from Investors' Transactions 236,059,547
-------------------
Total Increase in Net Assets 266,022,817
NET ASSETS
Beginning of Period 100,100
-------------------
End of Period $266,122,917
-------------------
-------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 11, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
SEPTEMBER 30, 1995
-------------------
<S> <C>
RATIOS TO AVERAGE NET ASSETS
Net Investment Income 5.73%(a)
Expenses 0.55%(a)
Portfolio Turnover 288%(b)
<FN>
- ------------------------
(a) Annualized.
(b) Not Annualized.
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Non-U.S. Fixed Income Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, as a no-load, non-diversified,
open-end management investment company which was organized as a trust under the
laws of the State of New York. The Portfolio commenced operations on October 11,
1994. The Declaration of Trust permits the Trustees to issue an unlimited number
of beneficial interests in the Portfolio.
The following is a summary of the significant accounting policies of the
Portfolio:
a) Portfolio securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are
valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national
securities exchange, or in the absence of recorded sales, at the readily
available bid price on such exchange or at the quoted bid price in the
over-the-counter market, if such exchange or market constitutes the
broadest and most representative market for the security and (ii) in other
cases, take into account various factors affecting market value, including
yields and prices of comparable securities, indication as to value from
dealers and general market conditions. If such prices are not supplied by
the Portfolio's independent pricing services, such securities are priced
in accordance with procedures adopted by the Trustees. All portfolio
securities with a remaining maturity of less than 60 days are valued by
the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the Portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the Portfolio's Trustees.
b) The books and records of the Portfolio are maintained in U.S. dollars.
The market values of investment securities, other assets and liabilities
and forward contracts stated in foreign currencies are translated at the
prevailing exchange rates at the end of the period. Purchases, sales,
income and expenses are translated at the exchange rate prevailing on the
respective dates of such transactions. Translation gains and losses
resulting from changes in the exchange rate during the reporting period
and gains and losses realized upon settlement of foreign currency
transactions are reported in the Statement of Operations. Since 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
23
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
identification. However, pursuant to U.S. federal income tax regulations,
gains and losses from certain foreign currency transactions and sales of
foreign denominated debt securities are treated as ordinary income for
U.S. federal income tax purposes.
d) The portfolio may enter into forward foreign currency contracts to
protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. Dollar (USD) 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 based on procedures established
by and under the general supervision of the Portfolio's Trustees and the
change in the market value is recorded by the Portfolio as unrealized
appreciation or depreciation of foreign currency translations. At
September 30, 1995, the Portfolio had open forward foreign currency
contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
VALUE AT APPRECIATION/
PURCHASE CONTRACTS COST/PROCEEDS 09/30/95 (DEPRECIATION)
- ------------------------------------------------------------- ------------------ ------------- ---------------
<S> <C> <C> <C>
Belgian Franc 97,253,622, expiring 11/08/95 $ 3,293,384 $ 3,316,410 $ 23,026
British Pound 4,225,120, expiring 11/08/95 6,544,711 6,668,613 123,902
Canadian Dollar 13,971,806, expiring 11/08/95 10,442,111 10,394,003 (48,108)
German Mark 20,831,226, expiring 11/08/95 14,430,971 14,610,807 179,836
Japanese Yen 415,751,914, expiring 11/08/95 4,036,426 4,225,584 189,158
Netherlands Guilder 2,826,397, expiring 11/08/95 1,775,501 1,770,945 (4,556)
Swedish Krona 25,234,214, expiring 11/08/95 3,505,473 3,633,300 127,827
<CAPTION>
SALE CONTRACTS
- -------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar 1,701,292, expiring 11/08/95 1,273,417 1,283,131 (9,714)
Belgian Franc 467,398,839, expiring 11/08/95 15,542,504 15,938,597 (396,093)
British Pound 17,909,962, expiring 11/08/95 27,844,648 28,267,744 (423,096)
Canadian Dollar 25,643,897, expiring 11/08/95 19,046,081 19,077,186 (31,105)
Danish Krone 70,388,366, expiring 11/08/95 12,362,603 12,703,062 (340,459)
French Franc 123,703,727, expiring 11/08/95 24,535,163 25,125,701 (590,538)
German Mark 75,072,289, expiring 11/08/95 51,275,513 52,654,927 (1,379,414)
Italian Lira 20,931,535,044, expiring 11/08/95 12,767,179 12,922,296 (155,117)
Japanese Yen 6,894,249,714, expiring 11/08/95 71,294,931 70,071,186 1,223,745
Netherlands Guilder 40,048,303, expiring 11/08/95 24,570,404 25,091,428 (521,024)
Spanish Peseta 1,037,261,187, expiring 11/08/95 8,173,402 8,359,508 (186,106)
Swedish Krona 25,477,627, expiring 11/08/95 3,471,555 3,668,348 (196,793)
French Franc 8,725,634, for NLG 2,827,032, expiring 11/08/95 1,771,218 1,772,280 (1,062)
---------------
NET UNREALIZED APPRECIATION (DEPRECIATION) ON FORWARD FOREIGN CURRENCY CONTRACTS $ (2,415,691)
---------------
---------------
</TABLE>
24
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR
VALUE AT NET UNREALIZED
OPEN SPOT FOREIGN CURRENCY PURCHASE CONTRACTS COST 09/30/95 APPRECIATION
- --------------------------------------------------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
British Pound 5,153,151, expiring 10/02/95 $ 8,066,639 $ 8,142,125 $ 75,486
------------ ------------ -------
</TABLE>
e) The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxable 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.
f) The Portfolio's Service Agent, Morgan Guaranty Trust Company of New York
("Morgan"), paid the organization expenses of the Portfolio in the amount
of $10,000. The Portfolio has agreed to reimburse Morgan for these costs
which are being amortized by the Portfolio on a straight-line basis over a
five-year period from the commencement of operations.
2. TRANSACTIONS WITH AFFILIATES
a) The Portfolio has an investment advisory agreement with Morgan. Under the
terms of the investment advisory agreement, the Portfolio pays Morgan at
an annual rate of 0.35% of the Portfolio's average daily net assets. For
the period October 11, 1994 (commencement of operations) through September
30, 1995, this fee amounted to $782,748.
b) The Portfolio has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as Administrator and exclusive placement agent.
Signature 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 Signature. The agreement provides for
a fee to be paid to Signature at an annual rate determined by the
following schedule: 0.01% of the first $1 billion of the aggregate average
daily net assets of the Portfolio and the other portfolios subject to the
Administrative Services Agreement, 0.008% of the next $2 billion of such
net assets, 0.006% of the next $2 billion of such net assets, and 0.004%
of such net assets in excess of $5 billion. The daily equivalent of the
fee rate is applied each day to the net assets of the Portfolio. For the
period October 11, 1994 (commencement of operations) through September 30,
1995, such expenses amounted to $13,862.
c) During the period October 11, 1994 (commencement of operations) through
August 31, 1995, the Portfolio, had a Financial and Fund Accounting
Services Agreement ("Services Agreement") with Morgan under which Morgan
received a fee, based on the percentages described below, for overseeing
certain aspects of the administration and operation of the Portfolio and
which was also designed to provide an expense limit for certain expenses
of the Portfolio. This fee was calculated exclusive of the advisory fee,
custody expenses, fund services fee, amortization of organization
expenses, and brokerage costs at 0.12% of the Portfolio's average daily
net assets up to $200 million, 0.08% of the next $200 million of average
daily net assets, and 0.04% on any excess over
25
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
$400 million. For the period from October 11, 1994, (commencement of
operations) through August 31, 1995, the fee for these services amounted
to $156,367. Effective September 1, 1995, the Services Agreement was
terminated and an interim agreement was entered into between the Portfolio
and Morgan which provides for the continuation of the oversight services
that were outlined under the prior agreement and that Morgan shall bear
all of its expenses incurred in connection with these services.
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 $20,446 for the period October 11, 1994 (commencement of
operations) through September 30, 1995.
e) An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Pierpont Funds, The JPM Institutional Funds, their
corresponding Portfolios and The Series Portfolio. The Trustees' Fees and
Expenses shown in the financial statements represent the Portfolio's
allocated portion of the total fees and expenses. Prior to April 1, 1995,
the aggregate annual Trustee Fee was $55,000. The Trustee who serves as
Chairman and Chief Executive Officer of these Funds and Portfolios 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 $2,600.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period
October 11, 1994 (commencement of operations) to September 30, 1995 were as
follows:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
- ----------------- -------------------
<S> <C>
$ 773,222,281 $ 567,544,593
</TABLE>
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Non-U.S. Fixed Income 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 Non-U.S. Fixed Income Portfolio (the
"Portfolio") at September 30, 1995, and the results of its operations, the
changes in its net assets and its supplementary data for the period October 11,
1994 (commencement of operations) through September 30, 1995, 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 audit. We conducted our
audit 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
audit, which included confirmation of securities at September 30, 1995 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
November 20, 1995
27
<PAGE>
JPM INSTITUTIONAL MONEY MARKET FUND THE
JPM
JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND INSTITUTIONAL
INTERNATIONAL
JPM INSTITUTIONAL TREASURY MONEY MARKET FUND BOND FUND
JPM INSTITUTIONAL SHORT TERM BOND FUND
JPM INSTITUTIONAL BOND FUND
JPM INSTITUTIONAL TAX EXEMPT BOND FUND
JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
JPM INSTITUTIONAL INTERNATIONAL BOND FUND
JPM INSTITUTIONAL DIVERSIFIED FUND
JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND
JPM INSTITUTIONAL U.S. SMALL COMPANY FUND
JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND
FOR MORE INFORMATION ON THE JPM INSTITUTIONAL ANNUAL REPORT
FAMILY OF FUNDS, CALL J.P. MORGAN FUNDS SERVICES SEPTEMBER 30, 1995
AT (800)766-7722.
