<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM INSTITUTIONAL SHORT TERM BOND FUND
June 14, 1996
Dear Shareholder:
We are pleased to report that The JPM Institutional Short Term Bond Fund
recorded an attractive gain for the reporting period relative to its competitors
as measured by the Composite High Quality Short Term Bond Fund Average,* for
both the six-month and one-year periods ended April 30, 1996. In an increasingly
challenging investment environment for short term bond fund managers, we believe
that actively managed security selection and sector allocation in the Fund's
Portfolio helped it to outperform its competitors. For the six-month and one-
year periods, the Fund returned 2.09% and 6.83%, respectively, compared with
1.71% and 6.21% for the Composite High Quality Short Term Bond Fund Average and
1.39% and 7.24% for the Lipper Short Investment Grade Debt Funds Average. The
Fund fell slightly short of the 2.08% six-month and 6.89% one-year returns of
its benchmark, the Merrill Lynch 1-3 Year Treasury Index.
We are also pleased to announce that we have made some enhancements to the
Fund's semi-annual report as part of our ongoing dedication to provide better
service to our shareholders. In addition to making Fund performance easier to
locate, we have added a portfolio manager Q&A with Connie J. Plaehn, a member of
our portfolio management team. This interview is designed to answer commonly
asked questions about the Fund, elaborate on what happened during the reporting
period, and provide our outlook for the months ahead.
As always, we welcome your comments, questions, or any suggestions on how we can
further improve your financial reports. 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
* Computed on funds in the Morningstar universe that invest in high quality
corporate bonds having a short term maturity.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS. . . . . 1 FUND FACTS AND HIGHLIGHTS. .7
FUND PERFORMANCE. . . . . . . . . . 2 FINANCIAL STATEMENTS . . . .9
PORTFOLIO MANAGER Q&A . . . . . . . 3
- --------------------------------------------------------------------------------
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows you
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 1, 5, or 10
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.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURN
--------------------- ---------------------------
THREE SIX ONE SINCE
AS OF APRIL 30, 1996 MONTHS MONTHS YEAR INCEPTION*
- --------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C>
The JPM Institutional Short Term Bond Fund -0.46% 2.09% 6.83% 4.64%
Merrill Lynch 1-3 Year Treasury Index -0.43% 2.08% 6.89% 4.92%
Composite High Quality Short Term
Bond Fund Average -0.57% 1.71% 6.21% 4.28%
Lipper Short Investment Grade Debt
Funds Average -1.37% 1.39% 7.24% 4.26%
AS OF MARCH 31, 1996
- ------------------------------------------------------------------------------------------------------------------------
The JPM Institutional Short Term Bond Fund 0.35% 2.74% 7.79% 4.77%
Merrill Lynch 1-3 Year Treasury Index 0.33% 2.86% 7.75% 5.04%
Composite High Quality Short Term
Bond Fund Average 0.21% 2.63% 7.21% 4.43%
Lipper Short Investment Grade Debt
Funds Average -0.39% 2.54% 8.58% 4.47%
</TABLE>
*7/8/93 -- COMMENCEMENT OF OPERATIONS (AVERAGE ANNUAL TOTAL RETURNS BASED ON THE
MONTH END FOLLOWING INCEPTION) THE FUND'S AVERAGE ANNUAL TOTAL RETURN SINCE ITS
COMMENCEMENT OF OPERATIONS ON 7/8/93 IS 4.50%.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES AND ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF
CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. THE MERRILL
LYNCH 1-3 YEAR TREASURY INDEX IS AN UNMANAGED INDEX IN WHICH INVESTORS MAY NOT
DIRECTLY INVEST. MORNINGSTAR, INC. AND LIPPER ANALYTICAL SERVICES, INC. ARE
LEADING SOURCES FOR MUTUAL FUND DATA. NO REPRESENTATION IS MADE THAT INFORMATION
GATHERED FROM THESE SOURCES IS ACCURATE OR COMPLETE.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO] Following is an interview with CONNIE J. PLAEHN, who is a member of
the portfolio management team for The Short Term Bond Portfolio in
which the Fund invests. She joined Morgan in 1984 and also serves as a
portfolio manager for the firm's pension and other institutional
clients. This interview was conducted on June 5, 1996 and reflects Ms.
Plaehn's views on that date.
FOLLOWING THE YEAR ENDED OCTOBER 31, 1995 IN WHICH SHORT TERM U.S. BONDS
RETURNED 8.95%, AS MEASURED BY THE MERRILL LYNCH 1-3 YEAR TREASURY INDEX, THE
MARKET EXPERIENCED A DOWNTURN DURING THE EARLY MONTHS OF 1996. MANY POINT TO
FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN'S HUMPHREY-HAWKINS TESTIMONY IN JANUARY,
WHICH SUGGESTED THAT THE U.S. ECONOMY WAS CONSIDERABLY STRONGER THAN GENERALLY
PERCEIVED, AS THE EXPLANATION. ASSUMING YOU AGREE WITH THIS VIEW, COULD YOU
PLEASE IDENTIFY OTHER FACTORS THAT CONTRIBUTED TO A PRICE-BUSTING ENVIRONMENT OF
ECONOMIC UNCERTAINTY?
CJP: Mr. Greenspan's comments may have been an added spur, but I'm inclined to
believe that real economic growth, especially during the fourth quarter of 1995,
was the primary reason for the market back up. The government's February payroll
data report, for example, showed that businesses had added 705,000 new jobs to
the economy for the month (versus the 317,000 expected) while the March
employment report spotlighted an additional 140,000 new positions (again, more
than twice the number expected). It's not surprising that these strong
employment numbers pushed up yields on bonds and helped many investors to decide
to go into stocks.
Also at work was rhetoric coming out of the political arena that threw a
spotlight on proposed employee wage increases -- a potentially inflationary
course likely to spell trouble for bonds' relative appeal. Our view is that
higher wage numbers are an inevitability, but that the increase will be balanced
by a diminishment of other benefits within total compensation. Owing to progress
made in lowering health care inflation, it seems likely that this is the area in
which compensation givebacks will be made.
One final contributor to the period's market backup was the stalling of
deficit reduction measures in Congress that had seemed so promising earlier in
the year. It now seems clear that no further action in this area can be expected
until after the November election.
3
<PAGE>
THE FUND PROVIDED ITS SHAREHOLDERS WITH POSITIVE RETURNS FOR THE PERIOD UNDER
REVIEW, EVEN THOUGH THE FUND, LIKE ITS BENCHMARK, EXPERIENCED NEGATIVE RETURNS
DURING THE EARLY MONTHS OF THIS YEAR. MOST INVESTORS UNDERSTAND THAT PERIODIC
DOWNTURNS ARE INEVITABLE IN ALL ASSET CLASSES. WHAT INVESTMENT STRATEGIES DID
YOU CHOOSE TO PURSUE IN THE PORTFOLIO DURING THE CHALLENGING SIX MONTHS JUST
PAST, AND WHICH OF THEM PROVED THE MOST SUCCESSFUL?
CJP: The key reason that the Portfolio was able to provide shareholders with
positive returns in the face of a market backup was the fact that we began the
period under review with a decent amount of yield in the Portfolio. Contrast
this year with the beginning of 1994 when two-year rates were 4.0% (two-year
rates were 5.0% at the beginning of 1996). Clearly, this 100 basis point
difference gave the Portfolio a fairly plush cushion against rising interest
rates. The Portfolio's other main source of added value for the period was to
maintain a diversified investment portfolio -- or the inclusion of "spread
product" as it's known within the industry. The fact that the Portfolio held
corporate bonds, asset-backed securities and mortgage-backed securities in a
period of rising rates enabled us to capture a considerable yield advantage
relative to the Portfolio's all-Treasury benchmark.
Added value was also derived from the Portfolio's exposure to a type of
mortgage-backed security called PAC [Planned Amortization Class] bonds, which we
purchased in 1994 (well before the collateralized mortgage obligation [CMO]
market dropped off precipitously), and which grew to a larger percentage of the
Portfolio's total assets as other holdings were liquidated. We would be unable
to buy new PAC bonds in today's marketplace that are as well-structured as the
1994-vintage issues currently in the Portfolio because supply in this market is
well below its 1993 peak. Consequently, we were glad to continue holding those
securities because of their continued consistency and relative yield advantage
versus Treasuries -- which helped the Portfolio achieve positive performance
during a difficult period.
GIVEN THE BENEFIT OF 20-20 HINDSIGHT, WHAT INVESTMENT STRATEGIES MIGHT YOU HAVE
CHANGED -- OR DO YOU STILL FAVOR THEM IN THE INTEREST OF THE PORTFOLIO'S
POTENTIAL FOR ACHIEVING LONG TERM OUTPERFORMANCE?
CJP: If we had become clairvoyant and had it to do all over again, the
Portfolio certainly would not have had a longer-than-benchmark duration for the
period under review. We began the year believing that the economy still had room
to expand without triggering inflation fear, and that economic growth hadn't
picked up as much in the fourth quarter as the data now shows it did. We were
quite confident that inflation would not fall further, although we didn't feel
that it would pick up either. Given the stronger employment data, however, the
market interpretation has been that inflation would pick up -- triggering a
downturn as bond investors flocked to alternative investments, such as equities.
Also, we believe that recent market trends have generally been overreactive.
As the market backed up during the period, for example, we still felt that the
economic statistics were still somewhat mixed. In point of fact, it was
precisely because the market had backed up that we felt that having a longer
duration than the benchmark was the right place to be from a pure "real yield
value" point of view.
4
<PAGE>
SINCE WE'RE ON THE SUBJECT OF LONG TERM PERFORMANCE, WE CAN'T HELP NOTICING THAT
THE PORTFOLIO HAS SIGNIFICANTLY OUTPACED ITS COMPETITORS, AS MEASURED BY THE
COMPOSITE HIGH QUALITY SHORT TERM BOND FUND AVERAGE, SINCE ITS JULY 1993
INCEPTION. WHAT IS IT ABOUT THE STRATEGY THAT MAKES IT A MARKET LEADER?
CJP: My view of what really makes Morgan a market leader in fixed income is
that we don't put all our eggs in one basket and, instead, favor a consistent
multidecision approach to portfolio management. Unlike some of our competitors
who primarily rely on their interest rate forecast to achieve results, we pursue
a more conservative, in-depth approach that looks at maturity, sector and
security selection strategies that will hopefully add equally to performance
over the long term.
We believe this type of diversification, which reflects the information
advantage gained by Morgan through its in-depth proprietary research, serves to
lower overall risk in the Portfolio because it lessens the potential impact that
any one investment decision can have. While it undoubtedly limits the likelihood
that the Portfolio will "shoot the lights out" in any one given year or even
six-month period, we believe that the long term effectiveness of this approach
is demonstrated in the Portfolio's superior relative results.
HAVE U.S. BOND PRICES NOW STABILIZED IN YOUR VIEW, OR DOES A FURTHER SELL-OFF
SEEM TO BE IN THE OFFING?
CJP: Although prices have shown stability recently, Ialso think we will have
higher rates (and lower prices)over the next three months.
WHAT IS THAT LIKELY TO MEAN FOR FUTURE ACTION BY THE FEDERAL RESERVE? DO YOU
THINK WE COULD SEE A REPEAT OF JANUARY'S -0.25% CUT IN OFFICIAL RATES, OR ARE
COMPARISONS WITH 1994, WHEN THE FED LAUNCHED A PRE-EMPTIVE STRIKE AGAINST
INFLATION AND BEGAN AN IMPLEMENTATION OF SEVEN SHORT TERM INTEREST RATE HIKES,
MORE APPROPRIATE?
CJP: There has recently been considerable rhetoric from Federal Reserve members
that they are concerned about inflation risks, and there is no way that
Greenspan will let inflation grow again -- especially since he was the one who
successfully nipped it in the bud. He is not going to let that be a problem, so
he will err on the side of conservatism. That being the case, I think it is very
likely that the Fed will raise rates before the end of calendar year 1996.
GIVEN THAT FORECAST, HOW ARE YOU POSITIONING THE PORTFOLIO GOING FORWARD? IN
TERMS OF MARKET SECTORS, FOR EXAMPLE, WHERE DO YOU EXPECT TO POSITION THE
PORTFOLIO TO HELP IT ACHIEVE ENHANCED OVERALL RETURNS?
CJP: The Portfolio is currently neutral in duration realtive to its benchmark.
We believe that the difference in yield ["spread"] provided by the Fed funds
rate and the two-year Treasury note is a good indication of current market
value. That spread is now at roughly 100 basis points, which we regard as fair
value.
Viewed another way, if the spread should rise to between 125 and 150 basis
points -- and we believe there is a good chance that this could happen -- we
would consider extending the Portfolio's relative duration. At that level, we
believe the more attractive yields found farther out along the short term bond
yield curve would adequately compensate us for assuming more interest rate risk.
5
<PAGE>
All in all, I think there will be opportunities to alter the Portfolio's
maturity structure this year, but I don't think rates will dramatically increase
the way they did in 1994, when the difference in yield provided by the Fed funds
rate and the two-year Treasury note widened out to over 200 basis points because
the Fed was aggressively tightening. We don't currently see the need for the Fed
to tighten so aggressively this go-'round, so it seems doubtful that spreads
between short term bonds will become that wide. Should circumstances change,
however, we believe that a short term spread that reaches 150 basis points would
represent a substantial buying opportunity for the Portfolio.
WHAT ABOUT SECTOR PREFERENCES?
CJP: We still like the asset-backed market very much and are happy to hold
corporate issues even though spreads are very narrow. Our breakeven analysis of
the difference in yield provided by corporate bonds and Treasuries indicates
that spreads would have to widen quite a bit before it would be advantageous to
hold Treasuries. Meanwhile, our view is that the economy is not going into a
recession, and recession is something that would make us feel uncomfortable
about going into corporates.
6
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The JPM Institutional Short Term Bond Fund seeks to provide high total return
while attempting to limit the likelihood of negative quarterly returns. It is
designed for investors who do not require the stable net asset value typical of
a money market fund, but who seek less price fluctuation than is typical of a
longer term bond fund.
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
7/8/93
- --------------------------------------------------------------------------------
NET ASSETS AS OF 4/30/96
$6,221,006
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/20/96
EXPENSE RATIO
The Fund's annualized expense ratio of 0.45% 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 APRIL 30, 1996
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[GRAPHIC]
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs)
AND ASSET-BACKED SECURITIES 40.2%
U.S. GOVERNMENT AGENCIES 29.5%
CORPORATE DEBT OBLIGATIONS 15.4%
U.S. TREASURIES 13.5%
OTHER 1.4%
30-DAY SEC YIELD
5.77%
DURATION
1.7 years
QUALITY BREAKDOWN
AAA* 76%
AA 16%
Other 8%
*INCLUDES U.S. GOVERNMENT AGENCY, TREASURY OBLIGATIONS, AND REPURCHASE
AGREEMENTS
7
<PAGE>
SIGNATURE BROKER-DEALER SERVICES, INC. IS THE DISTRIBUTOR FOR THE JPM
INSTITUTIONAL SHORT TERM 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, assume the reinvestment of Fund distributions and reflect the
reimbursement of Fund Expenses. Had expenses not been subsidized, returns would
have been lower. The Fund invests all of its investable assets in The Short Term
Bond 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.
8
<PAGE>
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Short Term Bond Portfolio ("Portfolio"), at value $ 6,224,446
Deferred Organization Expenses 23,644
Receivable for Expense Reimbursements 5,124
Prepaid Expenses and Other Assets 128
------------
Total Assets 6,253,342
------------
LIABILITIES
Dividends Payable to Shareholders 9,476
Shareholder Servicing Fee Payable 419
Accrued Trustees' Fees 151
Administrative Services Fee Payable 138
Fund Services Fee Payable 26
Administration Fee Payable 17
Accrued Expenses 22,109
------------
Total Liabilities 32,336
------------
NET ASSETS
Applicable to 637,617 Shares of Beneficial Interest Outstanding $ 6,221,006
(unlimited shares authorized, par value $0.001)
------------
------------
Net Asset Value, Offering and Redemption Price Per Share $9.76
ANALYSIS OF NET ASSETS
Paid-In Capital $ 6,564,405
Distributions in Excess of Net Investment Income (10,716)
Accumulated Net Realized Loss on Investment (338,543)
Net Unrealized Appreciation of Investment 5,860
------------
Net Assets $ 6,221,006
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
$ 353,698
Allocated Interest Income
(26,264)
Allocated Portfolio Expenses (Net of Reimbursement of $9,970)
-----------
327,434
Net Investment Income Allocated from Portfolio
FUND EXPENSES
Transfer Agent Fees $8,091
Registration Fees 6,265
Amortization of Organization Expenses 5,381
Printing Expenses 5,211
Professional Fees 4,393
Shareholder Servicing Fee 3,710
Administration Fee 1,101
Administrative Services Fee 786
Fund Services Fee 366
Trustees' Fees and Expenses 269
Miscellaneous 1,213
----------
Total Fund Expenses 36,786
Less: Reimbursement of Expenses (36,770)
----------
(16)
NET FUND EXPENSES
-----------
327,418
NET INVESTMENT INCOME
107,886
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO
(136,597)
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENT ALLOCATED FROM
PORTFOLIO
-----------
$ 298,707
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED FISCAL YEAR
APRIL 30, ENDED
1996 OCTOBER 31,
DECREASE IN NET ASSETS (UNAUDITED) 1995
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $ 327,418 $ 3,010,536
Net Realized Gain on Investment Allocated from Portfolio 107,886 331,910
Net Change in Unrealized Appreciation of Investment
Allocated from Portfolio (136,597) 917,422
------------ ------------
Net Increase in Net Assets Resulting from Operations 298,707 4,259,868
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (327,418) (3,024,230)
------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 7,026,280 23,575,445
Reinvestment of Dividends 322,269 2,976,238
Cost of Shares of Beneficial Interest Redeemed (20,014,442) (56,550,359)
------------ ------------
Net Decrease from Transactions in Shares of Beneficial
Interest (12,665,893) (29,998,676)
------------ ------------
Total Decrease in Net Assets (12,694,604) (28,763,038)
NET ASSETS
Beginning of Period 18,915,610 47,678,648
------------ ------------
End of Period (including undistributed net investment income of
$0, and $0, respectively) $6,221,006 $18,915,610
------------ ------------
------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD JULY
FOR THE SIX 8, 1993
MONTHS ENDED FOR THE FISCAL YEAR ENDED (COMMENCEMENT OF
APRIL 30, 1996 ---------------------------------- OPERATIONS) THROUGH
(UNAUDITED) OCTOBER 31, 1995 OCTOBER 31, 1994 OCTOBER 31, 1993
---------------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.83 $ 9.60 $ 9.99 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 0.58 0.47 0.11
Net Realized and Unrealized Gain (Loss)
on Investment Allocated from Portfolio (0.07) 0.24 (0.39) (0.01)
------- ------- ------- -------
Total from Investment Operations 0.21 0.82 0.08 0.10
------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.28) (0.59) (0.47) (0.11)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.76 $ 9.83 $ 9.60 $ 9.99
------- ------- ------- -------
------- ------- ------- -------
Total Return 2.09%(a) 8.81% 0.87% 1.01%(a)
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $ 6,221 $ 18,916 $ 47,679 $ 27,605
Ratios to Average Net Assets
Expenses 0.45%(b) 0.45% 0.45% 0.46%(b)
Net Investment Income 5.61%(b) 6.09% 4.96% 3.92%(b)
Decrease Reflected in Expense Ratio due
to Expense Reimbursement 0.80%(b) 0.22% 0.33% 0.84%(b)
<FN>
- ------------------------
(a) Not Annualized.
(b) Annualized.
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Institutional Short Term 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 an
open-end management investment company. The Fund commenced operations on July 8,
1993.
The Fund invests all of its investable assets in The Short Term Bond Portfolio
(the "Portfolio"), a diversified open-end management investment company having
the same investment objective as the Fund. The value of such investment reflects
the Fund's proportionate interest in the net assets of the Portfolio (41% at
April 30, 1996). The performance of the Fund is directly affected by the
performance of the Portfolio. The financial statements of the Portfolio,
including the schedule of investments, are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Fund:
a)Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b)The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Substantially all the Fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital gain, if any, are declared and paid annually.
d)The Fund incurred organization expenses in the amount of $49,795. These
costs were deferred and are being amortized 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)For U.S. federal income tax purposes, the Fund had a capital loss
carryforward at October 31, 1995 of $451,000 which will expire in the year
2002. No capital gains distribution is expected to be paid to shareholders
until future net gains have been realized in excess of such carryforward.
13
<PAGE>
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a)The Trust has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and distributor. Under its
Administration Agreement with the Trust, 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 provided 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 was applied each day to the net
assets of the Fund. For the period November 1, 1995 through December 28,
1995, Signature's fee for these services amounted to $688.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged would be equal to the Fund's proportionate share of a
complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios (the "Master Portfolios") in which
series of the Trust, The Pierpont Funds or The JPM Advisor Funds invest
and 0.01% of the aggregate average daily net assets of the Master
Portfolios in excess of $7 billion. The portion of this charge payable by
the Fund is determined by the proportionate share of its net assets bear
to the total net assets of the Trust, The Pierpont Funds, The JPM Advisor
Funds and the Master Portfolios. For the period from December 29, 1995
through April 30, 1996, Signature's fee for these services amounted to
$413.
b)Until 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. From September 1, 1995 until
December 28, 1995, an interim agreement between the Trust, on behalf of
the Fund, and Morgan provided for the continuation of the oversight
services that were outlined under the Services Agreement and that Morgan
should bear all of its expenses incurred in connection with these
services.
Effective December 29, 1995, the Trust, on behalf of the Fund, entered
into an Administrative Services Agreement (the "Agreement") with Morgan
under which Morgan is responsible for certain aspects of the
administration and operation of the Fund. Under the Agreement, the Fund
has agreed to pay Morgan a fee equal to its proportionate share of an
annual complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Master Portfolios in accordance with the
following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets and 0.03% of the aggregate
average daily net assets in excess of $7 billion. The portion of this
charge payable by the Fund is determined by the proportionate share that
the
14
<PAGE>
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
Fund's net assets bear to the net assets of the Trust, the Master
Portfolios and other investors in the Master Portfolios for which Morgan
provides similar services. For the period from December 29, 1995 through
April 30, 1996, Morgan's fee for these services amounted to $786.
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
0.45% of the average daily net assets of the Fund through February 28,
1997. For the six months ended April 30, 1996, Morgan has agreed to
reimburse the Fund $36,770 for expenses under this agreement.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. Until December 28, 1995, the agreement provided for the Fund
to pay Morgan a fee for these services which was computed daily and paid
monthly at an annual rate of 0.05% of the average daily net assets of the
Fund. For the period from November 1, 1995 through December 28, 1995, the
fee for these services amounted to $1,340.
Effective December 29, 1995, the Shareholding Servicing Agreement was
amended such that the annual rate for providing these services was changed
to 0.075% of the average daily net assets of the Fund. For the period from
December 29, 1995 through April 30, 1996, the fee for these services
amounted to $2,370.
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
$366 for the six months ended April 30, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of the Trust, The Pierpont Funds and the Master Portfolios. The
Trustees' Fees and Expenses shown in the financial statements represents
the Fund's allocated portion of the total fees and expenses. The Trustee
who serves as Chairman and Chief Executive Officer of the Trust 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 $47.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
APRIL 30, 1996 FOR THE FISCAL YEAR ENDED
(UNAUDITED) OCTOBER 31, 1995
------------------------- -------------------------
<S> <C> <C>
Shares sold 710,262 2,447,762
Reinvestments of dividends 32,677 307,140
Shares redeemed (2,029,162) (5,796,583)
----------- -----------
Net decrease (1,286,223) (3,041,681)
----------- -----------
----------- -----------
</TABLE>
15
<PAGE>
The Short Term Bond Portfolio
Semi-Annual Report April 30, 1996
(unaudited)
(The following pages should be read in conjunction
with The JPM Institutional Short Term Bond Fund
Semi-Annual Financial Statements)
16
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- -------------- --------------------------------------------------------- ------------- ----------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS
AND ASSET BACKED SECURITIES (39.9%)
$ 388,529 Banc One Auto Grantor Trust, Series 1996-A, Class A,
Sequential Payer, Callable, 6.10% due 10/15/02.........
Aaa/AAA $ 388,529
757,319 CIT River Owners Trust, Series 1995-A, Class A,
Sequential Payer, Callable, 6.25% due 01/15/11.........
Aaa/AAA 753,003
326,155 Chase Manhattan Grantor Trust, Series 1996-A, Class A,
Pass Through, Callable, 5.20% due 02/15/02.............
Aaa/AAA 320,346
584,498 Equicon Home Equity Loan Trust, Series 1992-7, Remic:
Class A, Sequential Payer, Callable, 5.90% due
09/18/05...............................................
Aaa/AAA 572,767
611,247 Fleetwood Credit Corp. Grantor Trust, Series 1994-A,
Class A, Sequential Payer, Callable, 4.70% due
07/15/09...............................................
Aaa/AAA 586,156
1,400,000 Greentree Financial Corp., Series 1993-3, Class A3,
Sequential Payer, Callable, 5.20% due 10/15/18.........
Aa2/AA 1,380,931
718,307 Merrill Lynch Mortgage Investors, Inc., Remic: Series
1994-C1, Class A, Callable, 8.59% due 11/25/20.........
Aaa/AAA 729,306
597,272 Old Kent Auto Receivables Trust, Series 1995-A, Class A,
Sequential Payer, Callable, 6.20% due 08/15/01.........
Aaa/AAA 597,021
810,826 Prudential Home Mortgage Securities, Remic: Sequential
Payer, Series 1992-44, Class A1, Callable, 6.00% due
01/25/98...............................................
Aaa/AAA 795,955
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET
BACKED SECURITIES (COST $6,138,785).................... 6,124,014
----------
CORPORATE OBLIGATIONS (15.3%)
FINANCE (1.9%)
300,000 Cheung Kong Finance Cayman, 5.50% due 09/30/98...........
NR/NR 288,750
----------
OIL AND GAS (6.4%)
1,000,000 Occidental Petroleum Corp., 5.76% due 06/15/98...........
Baa3/BBB 982,990
----------
UTILITIES -- ELECTRIC (7.0%)
1,000,000 Hydro Quebec, 9.75% due 09/29/98.........................
Aa3/AA 1,068,125
----------
TOTAL CORPORATE OBLIGATIONS (COST $2,299,485)............ 2,339,865
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS (29.2%)
518,761 Federal Home Loan Mortgage Corporation, 9.00% due
05/01/97............................................... 537,732
Federal National Mortgage Association
1,500,000 Remic: PAC-1(11), Series 1994-7, Class PB,
5.60% due 07/25/03..................................... 1,488,240
1,500,000 Remic: PAC-1(11), Series 1994-12, Class PC,
5.25% due 04/25/03..................................... 1,482,840
1,000,000 Remic: PAC-1(11), Series 1994-33, Class D,
5.50% due 04/25/05..................................... 976,540
----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $4,489,982)...................................... 4,485,352
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- -------------- --------------------------------------------------------- ----------
U.S. TREASURY OBLIGATIONS (13.4%)
<C> <S> <C> <C>
U.S. Treasury Notes
$ 414,000 6.25% due 08/31/00....................................... $ 411,375
1,000,000 6.125% due 09/30/00...................................... 988,880
273,000 5.625% due 01/31/98...................................... 271,294
395,000 5.25% due 12/31/97....................................... 390,454
----------
TOTAL U.S.TREASURY OBLIGATIONS (COST $2,117,198)......... 2,062,003
----------
SHORT-TERM HOLDINGS (1.4%)
REPURCHASE AGREEMENT (1.4%)
211,000 Goldman Sachs Repurchase Agreement dated 04/30/96 due
05/01/96, at 5.33%, proceeds $211,031 (collateralized
by $146,000 U.S. Treasury Bond, 12.75% due 11/15/10,
valued at $215,425) (cost $211,000).................... 211,000
----------
OTHER MUTUAL FUNDS (0.0%)*
952 Seven Seas Money Market Fund (cost $952)................. 952
----------
TOTAL SHORT-TERM HOLDINGS (COST $211,952)................ 211,952
----------
TOTAL INVESTMENTS (COST $15,257,402) (99.2%) 15,223,186
OTHER ASSETS IN EXCESS OF LIABILITIES (0.8%) 124,062
----------
TOTAL NET ASSETS (100.0%) $15,347,248
----------
----------
</TABLE>
Note: Based on the cost of investments of $15,278,710 for federal income tax
purposes at April 30, 1996, the aggregate gross unrealized appreciation
and depreciation was $115,410 and $170,934, respectively, resulting in
net unrealized depreciation of $55,524.
* Less than 0.1%.
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $15,257,402) $ 15,223,186
Interest Receivable 161,840
Deferred Organization Expenses 2,985
Receivable for Expense Reimbursements 1,802
Prepaid Expenses and Other Assets 153
------------
Total Assets 15,389,966
------------
LIABILITIES
Advisory Fee Payable 9,931
Custody Fee Payable 618
Administrative Services Fee Payable 324
Accrued Trustees' Fees Payable 175
Administration Fee Payable 175
Fund Services Fee Payable 59
Accrued Expenses 31,436
------------
Total Liabilities 42,718
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $ 15,347,248
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
$ 630,162
Interest Income
EXPENSES
Advisory Fee $ 26,067
Professional Fees and Expenses 17,310
Custodian Fees and Expenses 11,946
Printing Expenses 4,040
Administrative Services Fee 1,527
Administration Fee 1,053
Amortization of Organization Expenses 680
Fund Services Fee 632
Trustees' Fees and Expenses 368
Miscellaneous 1,080
---------
Total Expenses 64,703
Less: Reimbursement of Expenses (17,783)
---------
(46,920)
NET EXPENSES
-----------
583,242
NET INVESTMENT INCOME
134,036
NET REALIZED GAIN ON INVESTMENTS (including $14,246 net realized
losses from futures contracts)
(214,869)
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS
-----------
$ 502,409
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1996 YEAR ENDED
DECREASE IN NET ASSETS (UNAUDITED) OCTOBER 31, 1995
------------ ----------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $ 583,242 $ 3,574,946
Net Realized Gain on Investments 134,036 407,824
Net Change in Unrealized Appreciation
of Investments (214,869 ) 1,076,791
------------ ----------------
Net Increase in Net Assets Resulting
from Operations 502,409 5,059,561
------------ ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS
Contributions 9,063,425 32,690,159
Withdrawals (23,525,162 ) (61,766,958)
------------ ----------------
Net Decrease from Investors'
Transactions (14,461,737 ) (29,076,799)
------------ ----------------
Total Decrease in Net Assets (13,959,328 ) (24,017,238)
NET ASSETS
Beginning of Period 29,306,576 53,323,814
------------ ----------------
End of Period $15,347,248 $ 29,306,576
------------ ----------------
------------ ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
JULY 8, 1993
(COMMENCEMENT
FOR THE SIX OF
MONTHS ENDED OPERATIONS)
APRIL 30, FOR THE FISCAL YEAR ENDED THROUGH
1996 ----------------------------------- OCTOBER 31,
(UNAUDITED) OCTOBER 31, 1995 OCTOBER 31, 1994 1993
------------ ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.45%(a) 0.42% 0.36% 0.37%(a)
Net Investment Income 5.60%(a) 6.11% 5.01% 3.99%(a)
Decrease in Expense Ratio due to
Expense Reimbursement 0.17%(a) 0.04% 0.05% 1.00%(a)
Portfolio Turnover 55% 177% 230% 116%
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Short Term Bond Portfolio (the "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. The Portfolio's investment objective is to provide a high
total return while attempting to limit the likelihood of negative quarterly
returns. The Portfolio commenced operations on July 8, 1993. 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)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.
b)Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the Portfolio
enters in the contract. Upon entering into such a contract the Portfolio
is required to pledge to the broker an amount of cash and/or 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 solely 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. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of
22
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
futures contracts, interest rates and the underlying hedged assets, and
the possible inability of counterparties to meet the terms of their
contracts. Futures transactions in U.S. Treasury securities during the six
months ended April 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NUMBER OF CONTRACTS OF CONTRACTS
------------------- ----------------
<S> <C> <C>
Contracts opened 14 $ 1,914,828
Contracts closed (14) (1,914,828)
--
----------------
Open at end of period 0 $ 0
--
--
----------------
----------------
</TABLE>
c)Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discount, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
d)The Portfolio intends to 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.
e)The Portfolio incurred organization expenses in the amount of $5,380.
These costs were deferred and are being amortized 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 Guaranty
Trust Company of New York ("Morgan"). Under the terms of the investment
advisory agreement, the Portfolio pays Morgan at an annual rate of 0.25%
of the Portfolio's average daily net assets. For the six months ended
April 30, 1996, such fees amounted to $26,067.
b)The Portfolio has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Under its Administration Agreement with the Portfolio, 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 provided 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 Administration
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 was applied
each day to the net assets of the Portfolio. For the period November 1,
1995 through December 28, 1995, Signature's fee for these services
amounted to $252.
23
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged would be equal to the Portfolio's proportionate share
of a complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios subject to this agreement (the "Master
Portfolios") and 0.01% on the aggregate average daily net assets of the
Master Portfolios in excess of $7 billion. The portion of this charge
payable by the Portfolio is determined by the proportionate share of its
net assets bear to the total net assets of The Pierpont Funds, The JPM
Institutional Funds, The JPM Advisor Funds and the Master Portfolios. For
the period December 29, 1995 through April 30, 1996, such fees amounted to
$801.
c)Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement ("Service Agreement") with Morgan under which Morgan
may receive a fee, based on the percentages described below, for
overseeing certain aspects of the administration and operation of the
Portfolio and 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 expense, and brokerage costs at 0.05% of the Portfolio's
average daily net assets up to and including $200 million and 0.03% on any
excess over $200 million. From September 1, 1995 until December 28, 1995,
an interim agreement between the Portfolio and Morgan provided for the
continuation of the oversight functions that were outlined under the
Service Agreement and that Morgan should bear all of its expenses incurred
in connection with these services.
Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement (the "Agreement") with Morgan under which Morgan is
responsible for overseeing certain aspects of the administration and
operation of the Portfolio. Under the Agreement, the Portfolio has agreed
to pay Morgan a fee equal to its proportionate share of an annual
complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Master Portfolios in accordance with the
following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets and 0.03% of the aggregate
average daily net assets in excess of $7 billion. The portion of this
charge payable by the Portfolio is determined by the proportionate share
that the Portfolio's net assets bear to the net asests of the Master
Portfolios and other investors in the Master Portfolios for which Morgan
provides similar services. For the period December 29, 1995 through April
30, 1996, the fee for these services amounted to $1,527.
In addition, 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
February 28, 1997. For the six months ended April 30, 1996, Morgan has
agreed to reimburse the Portfolio $17,783 for expenses under this
agreement.
d)The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its services
amounted to $632 for the six months ended April 30, 1996.
24
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
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 and the
Master Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represent the Portfolio's allocated portion of the total fees
and expenses. The Trustee who serves as Chairman and Chief Executive
Officer of the Portfolio 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 show in the financial statements was $100.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period were
as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------- -------------
<S> <C> <C>
U.S. Government and Agency Obligations $ 9,184,172 $ 15,069,368
Corporate and Collateralized Obligations 2,326,932 9,453,934
------------- -------------
$ 11,511,104 $ 24,523,302
------------- -------------
------------- -------------
</TABLE>
25
<PAGE>
THE JPM INSTITUTIONAL MONEY MARKET FUND
THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
THE JPM INSTITUTIONAL TREASURY MONEY MARKET FUND
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
THE JPM INSTITUTIONAL BOND FUND
THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND
THE JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
THE JPM INSTITUTIONAL DIVERSIFIED FUND
THE JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND
THE JPM INSTITUTIONAL U.S. SMALL COMPANY FUND
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
THE JPM INSTITUTIONAL JAPAN EQUITY FUND
THE JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
THE JPM INSTITUTIONAL ASIA GROWTH FUND
THE JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND
THE
JPM
INSTITUTIONAL
SHORT TERM
BOND FUND
FOR MORE INFORMATION ON THE JPM INSTITUTIONAL FAMILY OF FUNDS, CALL J.P. MORGAN
FUNDS SERVICES AT (800)766-7722.
SEMI-ANNUAL REPORT
April 30, 1996
