<PAGE>
The
JPM Institutional
International
Bond Fund
ANNUAL REPORT
SEPTEMBER 30, 1996
<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
November 15, 1996
Dear Shareholder:
We are pleased to report that The JPM Institutional International Bond Fund
produced strong investment performance for the fiscal year ending September 30,
1996.
In a challenging investment environment, made complex by the varying economic
cycles in both Europe and Japan, the Fund returned 12.09% for the year -- which
compares favorably to both benchmark and competitor returns. The Fund was in
line with the 12.11% return of the Salomon Brothers Non-U.S. Government Bond
Index (currency hedged) for the year. The Fund outperformed its competitors, as
measured by the Lipper Universe Average (which returned 9.27%), and ranked
favorably against the Morningstar World Bond Fund Average (which returned
12.90%).
The Fund's net asset value increased from $11.12 per share at the beginning of
its fiscal year, to $11.30 by September 30, 1996, after making distributions of
$1.08 from short-term capital gains. The Fund's net assets also increased from
$4.2 million to $13.3 million. The net assets of The Non-U.S. Fixed Income
Portfolio, in which the Fund invests, totaled approximately $145.9 million on
September 30, 1996.
In addition to the performance and allocation highlights within this report,
we have also provided a portfolio manager Q&A with Robert P. Browne, a member
of our international portfolio management team. This interview is designed to
address commonly asked questions regarding the Portfolio and the markets in
which it invests. Bob also discusses major decisions affecting the Portfolio
during the fiscal year just past, as well as our outlook and strategy for the
months ahead.
As always, we welcome your comments and questions or any suggestions as to how
we can improve the financial reports we prepare for you. As such, we encourage
you to 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
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TABLE OF CONTENTS
Letter to the shareholders. . . . 1 Fund facts and highlights . . . . 9
Fund performance. . . . . . . . . 2 Financial statements. . . . . . . 11
Portfolio manager Q&A . . . . . . 3
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1
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Fund performance
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. Our approach is to take a look at the growth of a hypothetical
investment of $1,000,000 (the minimum investment in the Fund). The chart at
right shows that $1,000,000 invested in the Fund on December 1, 1994* would have
grown to $1,264,759 at September 30, 1996. This chart 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.
GROWTH OF $1,000,000 SINCE INCEPTION*
DECEMBER 1, 1994 - SEPTEMBER 30, 1996
[Line Graph]
[FOLLOWING IS AN EDGAR REPRESENTATION OF THE POINTS IN LINE GRAPH]
- --------------------------------------------------------------------
Salomon Brothers
JPM Institutional Non-U.S. Government
International Bond Fund Bond Index
----------------------- -------------------
Inception* $1,000,000 $1,000,000
9/30/96 $1,264,759 $1,272,607
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<TABLE>
<CAPTION>
PERFORMANCE Total Returns Average Annual Total Return
------------------------- -------------------------------
Three Six One Since
As of September 30, 1996 Months Months Year Inception*
- ----------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C>
The JPM Institutional International Bond Fund 4.15% 6.60% 12.09% 13.67%
Salomon Brothers Non-U.S. Government
Bond Index (currency hedged) 4.12% 6.82% 12.11% 14.01%
Lipper Universe Average 3.73% 5.50% 9.27% 12.46%
Morningstar World Bond Fund Average 4.54% 7.55% 12.90% 12.55%
</TABLE>
*12/1/94 - COMMENCEMENT OF OPERATIONS.
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 JPM
INSTITUTIONAL 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. MORNINGSTAR, INC. AND LIPPER ANALYTICAL SERVICES, INC. ARE LEADING
RESOURCES FOR MUTUAL FUND DATA. NO REPRESENTATION IS MADE THAT INFORMATION
GATHERED FROM THESE SOURCES IS ACCURATE OR COMPLETE.
2
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Portfolio manager Q&A
[Photo]
Following is an interview with ROBERT P. BROWNE, VICE PRESIDENT, who is a member
of the portfolio management team responsible for implementing THE NON-U.S. FIXED
INCOME PORTFOLIO in which the Fund invests. Mr. Browne joined J.P. Morgan in
June 1989 after earning his Master s Degree in International Business Studies
from the University of South Carolina. From February 1990 to April 1994, he
worked in Morgan's Tokyo office as a global fixed income and currency portfolio
manager. In April 1994, he transferred to Morgan's London office, where he
currently manages global and international fixed income portfolios. This
interview was conducted on October 25, 1996, and reflects Bob's views on that
date.
THROUGHOUT THE LAST TWELVE-MONTH PERIOD, FROM OCTOBER 1995 TO SEPTEMBER 1996,
INTERNATIONAL BOND INVESTORS ENJOYED NEAR-PERFECT INVESTMENT CONDITIONS -- A
BENIGN ENVIRONMENT OF MODERATE ECONOMIC GROWTH AND LOW INFLATION WORLDWIDE
PROMPTED MOST CENTRAL BANKS TO LOWER INTEREST RATES, WHICH IS, OF COURSE, IDEAL
FOR BONDS.
SEVERAL QUESTIONS REGARDING THIS:
FIRST, CAN YOU PROVIDE SOME REASONS AS TO WHY THESE CONDITIONS PREVAIL WITHIN
SO MANY SEPARATE ECONOMIES AROUND THE WORLD? SOME SAY GOVERNMENTS, IN GENERAL,
HAVE BECOME QUICKER TO ADJUST MONETARY POLICY AND HAVE ALSO BECOME MORE FISCALLY
RESPONSIBLE -- DO YOU AGREE, OR IS IT MORE COMPLICATED THAN THAT?
SECONDLY, HOW LONG CAN INVESTORS EXPECT THIS SCENARIO TO CONTINUE? DO YOU SEE
ANY SIGNS OF INCREASING GROWTH OR HIGHER INFLATION EMERGING ANYWHERE IN THE
INTERNATIONAL ARENA?
RPB: Clearly, the ongoing deflationary trend prevailing worldwide explains a
large portion of the strong bond returns we've seen over the past twelve
months. Outside the U.S., and particularly in Europe, there HAS been, until
recently, a common theme of fairly stringent monetary policies, and these
central bank policies have been supported by the currently tight fiscal
policies of the European governments. European economies have continued to
suffer from fiscal contraction, which greatly explains their weakness during
a period when monetary policy has been gradually easing. Monetary policy this
year was finally used to offset the tight fiscal conditions and, following
the directive of the Bundesbank, easing has been a consistent theme
throughout Europe. Thus, with central banks becoming quick to adjust
monetary policy at a time when their governments have been implementing tight
fiscal policies, we have had near-perfect conditions for most bond markets
over the past twelve months. Now getting to the second part of your
question, regarding any signs of increasing growth or higher inflation --
well, we don't really see any inflationary danger on a structural basis
anywhere. Even when we look at markets where economic growth has been taking
place (in the U.S. and Japan, for example) there has been very little pricing
pressure or inflationary follow-through. Not to say inflation is
non-existent, because certainly you'll always see pricing pressure on a
cyclical basis. But when we look around the world currently,
3
<PAGE>
perhaps the only market facing any danger of even a cyclical uptick in
inflation is the U.S., and the "tightness" of its labor market is the culprit.
Nevertheless, we see time and time again, the limited ability of corporations
to pass through higher prices to their end buyers. We believe that profit
margins will suffer, even in the U.S., before we see an across-the-board uptick
in inflation. That will probably happen, we think, over the next three to six
months. Admittedly, we are surprised by the lack of inflationary pressure that
has yet to surface in the U.S. Looking outside the U.S., we see even less reason
to be fearful of the inflationary threat.
There is another prevailing condition which has provided great comfort to bond
investors: they know that both the central banks and, if the central banks are
not vigilant enough, then the markets THEMSELVES will paralyze any economic
growth that moves too rapidly. If central banks are not raising rates quickly
enough, international bond investors do the job for them. So these open markets
have also allowed the economies to find equilibrium fairly soon, and fairly
easily.
IS THIS SIMILAR TO THE RECENT DYNAMICS IN THE U.S., WHERE THE BOND MARKET ITSELF
IS CREATING THE TIGHTENING IN THE ABSENCE OF FEDERAL RESERVE ACTION?
RPB: Yes. And Alan Greenspan (Federal Reserve Chairman) has been quick to note
that. Since the markets have more often been preemptive, the fear for any
central bank is to exacerbate a tightening which has already been put in place
by the financial markets, particularly at the long end. The U.S. economy is, in
general, much more sensitive to long-term interest rates than short-term
interest rates. That varies from country to country, but certainly central
bankers who have seen the long-end rise by 100 basis points have to recognize
that will have a weakening impact on the economy overall. And we're seeing that
not just in the U.S., but elsewhere as well.
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND PRODUCED STRONG RESULTS THROUGHOUT
THE TWELVE-MONTH PERIOD. WHAT WERE THE PRIMARY REASONS FOR THIS STRONG
PERFORMANCE -- WAS IT SECURITY SPECIFIC, COUNTRY SPECIFIC OR DURATION DRIVEN?
RPB: Clearly, the Fund has benefited from riding the wave of a prevailing
deflationary trend, particularly in Europe. That's the market, or the region,
where we have had the greatest conviction regarding the weakness of their
underlying economies, the prospects of monetary easing by their central banks
and, of course, the lack of inflationary pressure that continues to exist. So, a
big part of the reason for our strong performance was our overweight in the
European block, which, for bond investors, has done so well. Also, within
Europe, we were quicker than our competitors to get into the higher-yielding
markets of Italy and Spain, for example. This too added to our already strong
European bond performance.
The Portfolio's underweight in Japan, however, is something which has been
both pro and con for us. Japan is a market that has not yet had the major sell-
off we expected when we initially started underweighting it last year. But at
the same time, by being underweight in Japan, we were emboldened to be more
overweight in Europe than we may have otherwise been. So that's why I say our
positioning in Japan has been both a pro and a con. The negative aspect is that
we were underweight in a market which had positive returns. But that underweight
in Japan encouraged us to be more overweight in markets which we thought would
outperform it -- and that was indeed the case.
4
<PAGE>
IS IT TRUE THAT THE LARGER, MORE STABLE ECONOMY OF GERMANY WILL OFTEN PROVIDE
MONETARY AND FISCAL DIRECTION FOR THE SMALLER ECONOMIES, SUCH AS ITALY AND
SPAIN? IS THIS CONDITION MORE PREVALENT NOW, AS THESE COUNTRIES STRIVE TO MEET
THEIR "MAASTRICHT" DEADLINES FOR ENTRY TO EUROPEAN MONETARY UNION (EMU)? WHAT
ARE THE IMPLICATIONS OF THIS PHENOMENON FOR INTERNATIONAL BOND INVESTORS, IN
PARTICULAR THOSE LOOKING TO INVEST IN THE HIGHER-YIELDING MARKETS OF, SAY, ITALY
AND SPAIN?
RPB: For the smaller economies to be taken seriously as candidates for
monetary union, it is necessary for them to adopt the fiscal and monetary
discipline shown by Germany. In fact, movement certainly is already in that
direction.
Traditionally, Italy and Spain were viewed as high-risk, high-yield markets
and most investors were not comfortable owning these bonds unless they were
offered large yield spreads relative to Germany. What investors failed to
appreciate about these countries early on is that they were becoming clear,
long-term structural beneficiaries of their monetary and fiscal convergence
towards core Europe.
At first, we, and I believe the markets as well, were slow to appreciate the
fact that EMU is not only following an economic agenda, but is following a
political one as well. And we were evaluating these markets purely on an
economic basis: that is, their ability to meet the Maastricht criteria cleanly
and without any type of trickery. For that reason, we were quite cautious
whenever these markets traded to the lower end of their yield ranges.
But once investors recognized the political agenda was dictating the valuation
of these markets -- and that also the central banks and governments of these
markets were becoming more and more committed to making EMU in 1999 -- that is
when these countries received critical recognition by the market. More investors
purchased the bonds of these countries, which lead to their outperformance.
To this day, we think these countries will continue to benefit from their
convergence. And when looking at these countries, we are not so much concerned
about whether or not they make EMU in 1999. Rather, the critical factor is the
underlying commitment exhibited by these countries to converge fiscally and
monetarily in order to achieve EMU. Whether they actually achieve it by 1999 is
irrelevant -- the fact that they are trying and will continue to try is what's
important.
The implications for bond investors regarding EMU are really two-fold. First,
as countries strive for entry to EMU, their near-term economic conditions will
very likely weaken further, thus creating an ideal environment for their bond
markets. Secondly, as these countries strive for EMU, long-term structural
stability will, almost by default, be attained. Therefore we believe the
implications of EMU for international bond investors will prove favorable,
especially in the countries of Italy and Spain, where efforts are most advanced.
The Fund initiated overweight positions in both Italy and Spain throughout the
last annual period and will maintain that overweight into 1997.
WE WOULD LIKE TO SWITCH THE DISCUSSION FROM EUROPE TO JAPAN. THROUGHOUT THE
TWELVE-MONTH PERIOD, JAPAN HAS BEEN A PERPETUAL UNDERWEIGHT IN THE PORTFOLIO,
EVEN THOUGH IN SOME OF THOSE MONTHS JAPANESE BONDS WERE AMONG THE TOP
INTERNATIONAL PERFORMERS. WHY THE CONTINUAL UNDERWEIGHT? YOU MENTIONED EARLIER
THIS UNDERWEIGHT SLIGHTLY HINDERED FUND PERFORMANCE -- WHEN DO YOU FORESEE
ADDING MORE EXPOSURE TO JAPAN?
RPB: Certainly being long in Japan, or being long in any market, would have been
the way to go over the
5
<PAGE>
last twelve-month period. So because of our deliberate and continual
underweight, the Japanese bond market is one that's been particularly
disappointing for us.
We have remained underweight in Japan over the past year because we expected
that certain major events, or conditions, would occur and we expected these
conditions would impact negatively on the Japanese bond market.
For example, a year ago, we expected a strong rebound of the dollar against
the yen, and we expected this yen depreciation to occur by substantial degrees.
This, in fact, eventually occurred. Sharp currency depreciation generally is not
good for bond markets, as intervention by central banks with rate increases can
often result.
Also, we expected the Japanese economy to show clear indications of recovery -
- - and, again, that condition occurred. In fact, over the past eighteen months
Japan actually had the strongest economic growth among the G7 countries, which
is something most investors don't realize. Typically, when an economy posts such
stronger than expected growth, the prospect for rate increases is again a threat
to bond holders.
Finally, we expected the Japanese equity market to rebound, which would
theoretically represent the end of the deflation of asset prices that had been
taking place for a long time in Japan. As anticipated, the equity market did
rebound, moving in from 14,000 to over 22,000 at one point.
The major events or conditions that we anticipated would take place actually
did materialize. What was disappointing, however, is that these conditions did
not have the negative impact on Japanese bonds that we also expected, which
explains our underperformance in Japan relative to the index.
Given the fact that much of the economic recovery, dollar/yen and equity
stories has been realized, we have already been scaling back on our underweight
Japanese bond position and we remain buyers on dips. We are by no means bullish
on Japanese bonds, however, and we still think they will underperform relative
to other bond markets.
We are still underweight in Japan, but not as underweight as we had been. And
although this position hurt Fund performance on the isolated country basis, it
did cause us to be more overweight in other, better performing markets. From a
total portfolio construction point of view, the underweight story in Japan has
probably been positive.
REGARDING THE DOLLAR-BLOCK COUNTRIES OF CANADA AND AUSTRALIA, THE FUND'S MOST
RECENT PERFORMANCE BENEFITED QUITE WELL FROM ITS OVERWEIGHT POSITIONS THERE.
WHAT WERE SOME OF THE FACTORS THAT CONTRIBUTED TO YOUR DECISION TO OVERWEIGHT IN
THESE COUNTRIES? DO PROSPECTS LOOK EQUALLY FAVORABLE FOR THESE COUNTRIES INTO
THE NEXT TWELVE-MONTH PERIOD?
RPB: In retrospect, the Canadian and Australian markets have done quite well.
They ve actually managed to slip by unnoticed with stellar returns, while the
high-yielding European markets of Italy and Spain received all the attention.
Over the last twelve months, many of our competitors were underweight in the
Canadian market -- and they've been playing catch-up ever since. The easier
policies of Canada's central bank, coupled with the government's fiscal
rectitude, surprised most investors. We had evaluated the Canadian bond market
on a relative-value basis earlier on when Canadian bonds had much higher bond
yields and traded at spreads of over 175 basis points relative to the U.S. We
took the opportunity to buy and the Fund benefited from our exposure to this
unnoticed market.
6
<PAGE>
Going forward, we'll be a bit more cautious on Canada, as much of the story is
now discounted at these relatively low bond yields. However, we continue to
expect Australia to perform quite well. Australia is at a different point of its
economic cycle, and we think that there is potential for double-digit returns
going forward. Australia, therefore, is currently one of our largest overweights
in the Portfolio.
COMMENT, IF YOU CAN, ON THE ECONOMIC CONDITIONS IN THE U.S., AND THE EFFECTS,
PAST OR EXPECTED, FEDERAL RESERVE MONETARY POLICY HAS ON INTERNATIONAL BOND
MARKETS.
RPB: Historically, I think, the economic conditions in the U.S. and the behavior
of its central bank had much more impact globally than is currently the case. If
we remember what happened in 1994, for example, there was a great sell-off in
the global bond markets as a result of what was going on in the U.S. Today, that
sort of impact is not so much the case.
At the beginning of the year, we were a bit cautious on the global bond
markets because of our negative view on the U.S. Still this has turned out to be
justified -- the U.S. was the only bond market to post negative returns through
the first six months of the year -- we quickly recognized the independence of
the other global markets. While Japan had somewhat positive returns, Europe just
went off to the races, followed by the strong performance posted by the other
dollar-block markets. Clearly, this was different from the U.S. impact we
witnessed in 1994.
To offer an explanation, I believe there is currently a segmentation in the
global economy that is inconsistent with what we've seen in the past. Despite
the fact that the U.S. continued to come along with above-trend economic growth,
Europe lagged behind with its inability to stage any type of material economic
recovery.
To the extent this incongruity between U.S. and global economies prevails, we
can expect to see dissimilar bond market returns in the future. Looking forward
six to nine months, though, this divergence will probably come back into line as
the European economies recover. Currently, however, because of the varying
economic cycles, we see less of a U.S. affect on the global bond markets.
IN GENERAL, WHAT KIND OF INVESTMENT ENVIRONMENT DO YOU SEE DEVELOPING IN
INTERNATIONAL MARKETS GOING INTO 1997? WHAT STRATEGY WOULD YOU EMPLOY FOR THE
NON-U.S. FIXED INCOME PORTFOLIO GIVEN YOUR EXPECTED SCENARIO?
RPB: Over the next three months, we continue to believe the nondollar universe
offers a great diversification opportunity as well as a great outright
opportunity for beating cash -- especially on a fully-hedged basis. More
specifically, the high-yielding European and dollar-block markets should
continue to carry the potential for double-digit returns.
In general, with the deflationary trends and the lack of an inflation threat,
it's difficult to be too pessimistic on the global bond markets going forward.
The one caveat is that my views, I'm sure, would not be that different from many
other investors views -- so you always have to be wary of the fact that a story
is already discounted in the bond markets.
The financial markets are very adept at discounting a story quickly and
pricing in the full opportunity as soon as possible -- and that's why we would
expect a high-yielding European bond story to be realized sooner rather than
later. Since the currently benign inflation story has been discounted, you have
to ask
7
<PAGE>
yourself at what time in 1997 will a global economic growth story be
discounted -- at which point would bond investors start requiring slightly
higher risk premium for the risk of a cyclical uptick in inflation.
For now, though, our guess is that the bond markets will offer good returns
outside the U.S. in 1997, and that probably a larger portion of the full-year
returns will be realized in the first half of 1997. If such is the case, global
duration management will be more important to our strategy than country
selection.
8
<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. It is designed for investors who seek
exposure to international bond markets in their investment portfolios.The
Portfolio's benchmark is The Salomon Brothers Non-U.S. Government Bond Index
(currency hedged).
- --------------------------------------------------------------------------------
INCEPTION DATE
12/1/94
- --------------------------------------------------------------------------------
NET ASSETS AS OF 9/30/96
$13,309,588
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE
12/27/96
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/27/96
EXPENSE RATIO
The Fund's annual expense ratio of 0.65% covers shareholders' expenses for
custody, tax reporting, investment advisory and shareholder services. 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, 1996
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[Pie Chart]
[FOLLOWING IS AN EDGAR REPRESENTATION OF THE PIE CHART]
- --------------------------------------------------------------------
Japan 14.4%
Germany 13.3%
Italy 11.8%
United Kingdom 11.3%
Sweden 10.2%
Canada 5.3%
Australia 4.7%
Austria 4.5%
Belgium 4.1%
Short-term holdings 6.8%
Other 13.6%
- --------------------------------------------------------------------
30-DAY SEC YIELD
5.25%
DURATION
4.4 years
9
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FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR FOR THE JPM INSTITUTIONAL
INTERNATIONAL BOND FUND (THE "FUND"). SIGNATURE BROKER-DEALER SERVICES, INC.
SERVED AS THE FUND'S DISTRIBUTOR PRIOR TO AUGUST 1, 1996.
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.
10
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Non-U.S. Fixed Income
Portfolio ("Portfolio"), at value $13,468,013
Receivable for Expense Reimbursements 22,502
Deferred Organization Expenses 14,903
Prepaid Expenses and Other Assets 64
-----------
Total Assets 13,505,482
-----------
LIABILITIES
Payable for Shares of Beneficial
Interest Redeemed 164,000
Shareholder Servicing Fee Payable 1,082
Administrative Services Fee Payable 689
Administration Fee Payable 46
Accrued Trustees' Fees and Expenses 45
Fund Services Fee Payable 31
Accrued Expenses 30,001
-----------
Total Liabilities 195,894
-----------
NET ASSETS
Applicable to 1,177,708 Shares of
Beneficial Interest Outstanding
(par value $0.001, unlimited shares
authorized) $13,309,588
-----------
-----------
Net Asset Value, Offering and
Redemption Price Per Share $11.30
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $12,202,613
Undistributed Net Investment Income 747,856
Accumulated Net Realized Gain on
Investment and Foreign Currency
Transactions 61,578
Net Unrealized Appreciation of
Investment and Foreign Currency
Translations 297,541
-----------
Net Assets $13,309,588
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM
PORTFOLIO
Allocated Interest Income (Net of
Foreign Withholding Tax of $7,046) $412,784
Allocated Portfolio Expenses (37,178)
--------
Net Investment Income Allocated
from Portfolio 375,606
FUND EXPENSES
Printing Expenses $16,767
Transfer Agent Fees 16,406
Professional Fees 12,750
Registration Fees 11,269
Amortization of Organization Expenses 6,787
Shareholder Servicing Fee 6,684
Administrative Services Fee 1,729
Administration Fee 769
Fund Services Fee 304
Trustees' Fees and Expenses 172
Miscellaneous 5,724
-------
Total Fund Expenses 79,361
Less: Reimbursement of Expenses (71,245)
-------
NET FUND EXPENSES 8,116
--------
NET INVESTMENT INCOME 367,490
NET REALIZED GAIN ON INVESTMENT AND
FOREIGN CURRENCY TRANSACTIONS
ALLOCATED FROM PORTFOLIO 590,402
NET CHANGE IN UNREALIZED APPRECIATION
OF INVESTMENT AND FOREIGN CURRENCY
TRANSLATIONS ALLOCATED FROM PORTFOLIO (155,561)
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $802,331
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 1, 1994
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 367,490 $ 164,345
Net Realized Gain (Loss) on Investment
and Foreign Currency Transactions
Allocated from Portfolio 590,402 (28,335)
Net Change in Unrealized Appreciation
of Investment and Foreign Currency
Translations Allocated from Portfolio (155,561) 453,102
------------------ ------------------
Net Increase in Net Assets
Resulting from Operations 802,331 589,112
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income -- (35,969)
Net Realized Gain (179,451) --
------------------ ------------------
Total Distributions to Shareholders (179,451) (35,969)
------------------ ------------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST
Proceeds from Shares of Beneficial
Interest Sold 12,658,600 17,373,146
Reinvestment of Dividends and
Distributions 179,445 31,559
Cost of Shares of Beneficial Interest
Redeemed (4,384,337) (13,724,948)
------------------ ------------------
Net Increase from Transactions in
Shares of Beneficial Interest 8,453,708 3,679,757
------------------ ------------------
Total Increase in Net Assets 9,076,588 4,232,900
NET ASSETS
Beginning of Period 4,233,000 100
------------------ ------------------
End of Period (including undistributed
net investment income of $747,856 and
$0, respectively) $13,309,588 $ 4,233,000
------------------ ------------------
------------------ ------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 1, 1994
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.12 $10.00
------------------ ------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.31 0.49
Net Realized and Unrealized Gain on
Investment and Foreign Currency
Allocated from Portfolio 0.95 0.78
------------------ ------------------
Total from Investment Operations 1.26 1.27
------------------ ------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income -- (0.15)
Net Realized Gain (1.08) --
------------------ ------------------
Total Distributions to Shareholders (1.08) (0.15)
------------------ ------------------
NET ASSET VALUE, END OF PERIOD $ 11.30 $11.12
------------------ ------------------
------------------ ------------------
Total Return 12.09% 12.83%(a)
------------------ ------------------
------------------ ------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands) $13,310 $4,233
Ratios to Average Net Assets
Expenses 0.65% 0.60%(b)
Net Investment Income 5.28% 5.82%(b)
Decrease Reflected in Expense Ratio
due to Expense Reimbursement 1.02% 1.90%(b)(c)
</TABLE>
- ------------------------
(a)Not annualized
(b)Annualized
(c)After consideration of certain state limitations.
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
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 no-load, non-diversified, open-end management
investment company having the same investment objective as the Fund. The value
of such investment included in the Statement of Assets and Liabilities reflects
the Fund's proportionate interest in the net assets of the Portfolio (9% at
September 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)The Fund declares and pays income dividends annually. 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 $32,867. 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. The Fund, for federal income tax purposes, has an October 31
year end.
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
15
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
Gain, and Return of Capital Distributions by Investment Companies." The
effect of applying this statement was to decrease accumulated net realized
gain on investment and foreign currency transactions by $386,458, increase
undistributed net investment income by $380,366, and increase paid-in
capital by $6,092. The adjustments are primarily attributable to foreign
currency gains. Net investment income, net realized gains and net assets
were not affected by this change.
2. TRANSACTIONS WITH AFFILIATES
a)The Trust had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and distributor. Under an
Administration Agreement, Signature provided administrative services
necessary for the operations of the Fund, furnished office space and
facilities required for conducting the business of the Fund and paid the
compensation of the Fund's officers affiliated with Signature. Until
December 28, 1995, 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
acted 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 October 1,
1995 through December 28, 1995, Signature's fee for these services
amounted to $147.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged was 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 JPM 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 paid by the
Fund was determined by the proportionate share its net assets bore to the
total net assets of the Trust, The JPM Pierpont Funds, The JPM Advisor
Funds and the Master Portfolios. For the period December 29, 1995 through
July 31, 1996, Signature's fee for these services amounted to $542. The
Administration Agreement with Signature was terminated July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan Guaranty Trust Company of New York
("Morgan"). FDI also serves as the Fund's distributor. Under a Co-
Administration Agreement between FDI and the Trust on behalf of the Fund,
the Fund has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses.
The amount allocable to the Fund is based on the ratio of the Fund's net
assets to the aggregate net assets of the Trust, The JPM Pierpont Funds,
The JPM Advisor Funds and the Master Portfolios. For the period from
August 1, 1996 through September 30, 1996, the fee for these services
amounted to $80.
b)Until August 31, 1995, the Trust, on behalf of the Fund, had a Financial
and Fund Accounting Services Agreement with Morgan which provided that
Morgan would receive a fee, based on the percentage described below, for
overseeing certain aspects of the administration and operation of the Fund
and that
16
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
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
functions that were outlined under the prior 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 "Services Agreement") with
Morgan under which Morgan is responsible for certain aspects of the
administration and operation of the Fund. Under the Services Agreement,
the Fund had agreed to pay Morgan a fee equal to its proportionate share
of an annual complex-wide charge. Until July 31, 1996, this charge was
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 Master Portfolios' aggregate average daily net
assets in excess of $7 billion. The portion of this charge paid by the
Fund was determined by the proportionate share its net assets bore to the
net assets of the Trust, the Master Portfolios and other investors in the
Master Portfolios for which Morgan provided similar services. For the
period from December 29, 1995 through July 31, 1996, Morgan's fee for
these services amounted to $1,040.
Effective August 1, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios in accordance with the following schedule:
0.09% on the first $7 billion of the Master Portfolios' aggregate average
daily net assets and 0.04% of the Master Portfolios' aggregate average
daily net assets in excess of $7 billion less the complex-wide fees
payable to FDI. The allocation of the Fund's portion of this charge is
described above (see Note 2a). For the period August 1, 1996 through
September 30, 1996, the fee for these services amounted to $689.
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 January 31,
1997. For the fiscal year ended September 30, 1996, Morgan has agreed to
reimburse the Fund $71,245 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 October 1, 1995 through December 28, 1995, the fee
for these services amounted to $280.
Effective December 29, 1995, the Shareholder Servicing Agreement was
amended such that the annual rate for providing these services was changed
to 0.10% of the average daily net assets of the Fund. For the period
December 29, 1995 through September 30, 1996, the fee for these services
amounted to $6,404.
17
<PAGE>
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
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
$304 for the fiscal year ended September 30, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM 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 Trust's Chairman and Chief Executive Officer also serves as Chairman
of Group and received compensation and employee benefits from Group in his
role as Group's Chairman. The allocated portion of such compensation and
benefits included in the Fund Services Fee shown in the financial
statements was $39.
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
FOR THE FISCAL OF
YEAR ENDED OPERATIONS) TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
--------------- ---------------
<S> <C> <C>
Shares of beneficial interest sold..... 1,176,106 1,648,390
Reinvestment of dividends and
distributions......................... 17,074 3,022
Shares of beneficial interest
redeemed.............................. (396,016) (1,270,878)
--------------- ---------------
Net Increase........................... 797,164 380,534
--------------- ---------------
--------------- ---------------
</TABLE>
18
<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, 1996, the results of its operations for the year then ended, and
the changes in net assets and the financial highlights for the year then ended
and 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 audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
November 22, 1996
19
<PAGE>
The Non-U.S. Fixed Income Portfolio
Annual Report September 30, 1996
(The following pages should be read in conjuction
with the JPM Institutional International Bond Fund
Annual Financial Statements)
20
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(LOCAL CURRENCY
000'S
OMITTED)(1) SECURITY DESCRIPTION VALUE
- ---------------- ------------------------------------------------- ------------
<S> <C> <C>
CORPORATE OBLIGATIONS (23.7%)
CANADA (2.8%)
GBP 2,617 Hydro-Quebec, 6.50% due 12/09/98 ................ $ 4,055,615
------------
FRANCE (1.9%)
FRF 12,300 Electricite de France, 8.60% due 04/09/04 ....... 2,768,497
------------
GERMANY (7.5%)
ITL 5,595,000 Bayerische Landesbank Girozentrale, 10.75% due
03/01/03 ...................................... 4,142,351
DEM 5,000 Deutsche Pfandbriefe Hypobank, 5.63% due
02/07/03, 144A ................................ 3,279,430
DEM 5,000 KFW International Finance, 6.75% due 02/08/02 ... 3,479,723
------------
10,901,504
------------
JAPAN (2.4%)
DEM 5,000 Export Import Bank, 6.50% due 05/19/00 .......... 3,471,528
------------
THAILAND (2.4%)
USD 3,500 Krung Thai Bank Public Company Ltd, 6.73% due
03/27/97, FRN ................................. 3,516,097
------------
UNITED KINGDOM (6.7%)
GBP 3,000 MEPC PLC, 8.75% due 12/07/06 .................... 4,734,167
GBP 3,300 Royal Bank of Scotland, 7.88% due 12/07/06 ...... 5,036,685
------------
9,770,852
------------
TOTAL CORPORATE OBLIGATIONS (COST
$33,763,003) .............................. 34,484,093
------------
GOVERNMENT OBLIGATIONS (66.3%)
AUSTRALIA (4.6%)
AUD 9,150 Government of Australia, 6.75% due 11/15/06 ..... 6,720,629
------------
AUSTRIA (4.5%)
DEM 9,000 Autobahnen Und Schnellstr Finance Agency, 7.13%
due 12/22/99 .................................. 6,295,955
JPY 25,000 Republic of Austria, 3.75% due 02/03/09 ......... 237,654
------------
6,533,609
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(LOCAL CURRENCY
000'S
OMITTED)(1) SECURITY DESCRIPTION VALUE
- ---------------- ------------------------------------------------- ------------
<S> <C> <C>
BELGIUM (4.1%)
Kingdom of Belgium ..............................
BEF 110,000 7.00% due 05/15/06 .............................. $ 3,696,331
BEF 63,000 7.75% due 12/22/00 .............................. 2,225,769
------------
5,922,100
------------
CANADA (2.4%)
Government of Canada ............................
CAD 2,091 7.00% due 12/01/06 .............................. 1,519,415
CAD 2,450 9.00% due 06/01/25 .............................. 2,064,471
------------
3,583,886
------------
DENMARK (2.5%)
DKK 19,650 Kingdom of Denmark, 8.00% due 05/15/03 .......... 3,642,101
------------
GERMANY (5.7%)
DEM 5,200 Federal Republic of Germany, 9.00% due
01/22/01 ...................................... 3,942,449
DEM 5,950 Germany Unity Fund, 8.00% due 01/21/02 .......... 4,395,603
------------
8,338,052
------------
IRELAND (1.5%)
ESP 250,000 Republic of Ireland, 10.55% due 02/21/02 ........ 2,202,504
------------
ITALY (11.7%)
ITL 25,500,000 Republic of Italy, 8.50% due 08/01/99(3) ........ 17,060,312
------------
JAPAN (11.8%)
Government of Japan .............................
JPY 1,168,000 No. 157, 4.50% due 06/20/03 ..................... 11,781,199
JPY 300,000 No. 182, 3.00% due 09/20/05 ..................... 2,730,235
JPY 300,000 No. 32, 3.70% due 03/21/16 ...................... 2,775,008
------------
17,286,442
------------
SPAIN (2.9%)
ESP 497,000 Government of Spain, 10.10% due 02/28/01 ........ 4,268,847
------------
SWEDEN (10.1%)
SEK 86,800 Kingdom of Sweden, 10.25% due 05/05/00 .......... 14,699,336
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(LOCAL CURRENCY
000'S
OMITTED)(1) SECURITY DESCRIPTION VALUE
- ---------------- ------------------------------------------------- ------------
<S> <C> <C>
UNITED KINGDOM (4.5%)
Treasury Gilt ...................................
GBP 3,200 7.50% due 12/07/06 .............................. $ 4,948,155
GBP 1,000 8.00% due 12/07/00 .............................. 1,622,026
------------
6,570,181
------------
TOTAL GOVERNMENT OBLIGATIONS (COST
$96,448,768) .............................. 96,827,999
------------
SUPRANATIONAL OBLIGATIONS (2) (2.3%)
European Investment Bank ........................
ITL 1,700,000 10.875% due 12/14/05 ............................ 1,301,206
ITL 2,537,000 12.20% due 02/18/03 ............................. 1,994,988
------------
TOTAL SUPRANATIONAL OBLIGATIONS (COST
$3,002,392) ............................... 3,296,194
------------
SHORT-TERM INVESTMENTS (6.7%)
U.S. TREASURY OBLIGATIONS (0.2%)
330 United States Treasury Bills 5.03% due 10/10/96
(3) ........................................... 329,588
------------
TIME DEPOSITS (6.5%)
State Street Bank & Trust Co. London,
9,464 4.50% due 10/01/96 .............................. 9,464,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$9,793,588) ............................... 9,793,588
------------
TOTAL INVESTMENTS (COST $143,007,751) (99.0%) ... 144,401,874
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%) .... 1,501,139
------------
NET ASSETS (100.0%) ............................. $145,903,013
------------
------------
</TABLE>
- ------------------------------
(1) Principal is in the local currency of the country in which the currency is
traded, which may not be the country of origin.
(2) International Agencies.
(3) Amount segregated as collateral for initial and variation margin on futures
contracts.
144A -- Securities restricted for sale to Qualified Institutional Buyers.
FRN -- Floating Rate Note. Maturity date reflects the later of the next
interest rate change or the next put date.
NOTE: Based on the cost of investments of $143,860,133 for federal income tax
purposes at September 30, 1996, the aggregate gross unrealized appreciation was
$2,223,037 and the aggregate gross unrealized depreciation was $1,681,296
resulting in net unrealized appreciation of investments of $541,741.
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost
$143,007,751) $144,401,874
Cash 289
Foreign Currency at Value (Cost
$1,100,560) 1,091,502
Interest Receivable 4,178,839
Unrealized Appreciation on Open Forward
Foreign Currency Contracts 2,469,370
Variation Margin Receivable 20,817
Prepaid Expenses and Other Assets 694
------------
Total Assets 152,163,385
------------
LIABILITIES
Payable for Investments Purchased 5,621,315
Unrealized Depreciation on Open Forward
Foreign Currency Contracts 483,738
Advisory Fee Payable 44,163
Custody Fee Payable 42,779
Administrative Services Fee Payable 8,791
Fund Services Fee Payable 417
Accrued Expenses 59,169
------------
Total Liabilities 6,260,372
------------
NET ASSETS
Applicable to Investors' Beneficial
Interests $145,903,013
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income (Net of Foreign
Withholding Tax of $161,688) $12,311,478
EXPENSES
Advisory Fee $ 737,543
Custodian Fees and Expenses 185,765
Professional Fees and Expenses 61,761
Administrative Services Fee 37,344
Administration Fee 19,702
Fund Services Fee 11,488
Trustees' Fees and Expenses 4,704
Registration Fees 610
Miscellaneous 8,333
------------
Total Expenses 1,067,250
-----------
NET INVESTMENT INCOME 11,244,228
NET REALIZED GAIN (LOSS) ON
Investment Transactions (including
$609,045 net realized gain from
futures contracts) 24,626,070
Foreign Currency Transactions (12,455,405)
------------
Net Realized Gain 12,170,665
NET CHANGE IN UNREALIZED APPRECIATION
OF
Investments (including $37,114 net
unrealized appreciation from
futures contracts) (2,527,178)
Foreign Currency Contracts and
Translations 4,341,578
------------
Net Change in Unrealized
Appreciation 1,814,400
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $25,229,293
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
OCTOBER 11,
1994
(COMMENCEMENT
OF
FOR THE FISCAL OPERATIONS)
YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
-------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 11,244,228 $ 12,808,776
Net Realized Gain on Investments and
Foreign Currency Transactions 12,170,665 15,591,851
Net Change in Unrealized Appreciation
of Investments and Foreign Currency
Translations 1,814,400 1,562,643
-------------- -------------
Net Increase in Net Assets
Resulting from Operations 25,229,293 29,963,270
-------------- -------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS
Contributions 116,826,143 318,237,762
Withdrawals (262,275,340) (82,178,215)
-------------- -------------
Net Increase (Decrease) from
Investors' Transactions (145,449,197) 236,059,547
-------------- -------------
Total Increase (Decrease) in Net
Assets (120,219,904) 266,022,817
NET ASSETS
Beginning of Period 266,122,917 100,100
-------------- -------------
End of Period $ 145,903,013 $266,122,917
-------------- -------------
-------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 11,
1994
(COMMENCEMENT
FOR THE FISCAL OF
YEAR ENDED OPERATIONS) TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
----------------- ---------------
<S> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.51% 0.55%(a)
Net Investment Income 5.34% 5.73%(a)
Portfolio Turnover 330% 288%(b)
</TABLE>
- ------------------------
(a)Annualized.
(b)Not annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
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 (the "Act"), 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's investment
objective is to provide a high total return, consistent with moderate risk of
capital, from a portfolio of international fixed income securities. 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.
Investments in international markets may involve certain considerations and
risks not typically associated with investments in the United States. Future
economic and political developments in foreign countries could adversely affect
the liquidity or value, or both, of such securities in which the Portfolio is
invested. The ability of the issuers of the debt securities held by the
Portfolio to meet their obligations may be affected by economic and political
developments in a specific industy or region.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a)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 rates prevailing on the
respective dates of such transactions. Translation gains and losses
resulting from changes in the exchange rates during the reporting period
and gains and losses realized upon settlement of foreign currency
transactions are reported in the Statement of Operations.
27
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
Although the net assets of the Portfolio are presented at the exchange
rates and market values prevailing at the end of the period, the Portfolio
does not isolate the portion of the results of operations arising as a
result of changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of securities during the period.
c)Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
d)The portfolio may enter into forward and spot 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 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 forward foreign currency contract
translations. At September 30, 1996, 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/
COST/PROCEEDS 9/30/96 (DEPRECIATION)
--------------- --------------- --------------
<S> <C> <C> <C>
PURCHASE CONTRACTS
- --------------------------------------------------
British Pound 6,203,594, expiring 11/12/96 $ 9,666,126 $ 9,697,646 $ 31,520
Canadian Dollar 4,274,247, expiring 11/12/96 3,126,735 3,143,674 16,939
Danish Krone 39,121,397, expiring 11/12/96 6,817,950 6,696,958 (120,992)
German Mark 11,500,000, expiring 11/12/96 7,631,055 7,560,631 (70,424)
Italian Lira 2,213,279,722, expiring 11/12/96 1,447,212 1,450,229 3,017
Japanese Yen 1,547,005,566, expiring 11/12/96 14,154,636 13,972,737 (181,899)
Spanish Peseta 789,000,000, expiring 11/12/96 6,166,952 6,135,931 (31,021)
</TABLE>
28
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
VALUE AT APPRECIATION/
COST/PROCEEDS 9/30/96 (DEPRECIATION)
--------------- --------------- ---------------
<S> <C> <C> <C>
SALES CONTRACTS
- --------------------------------------------------
Australian Dollar 8,446,934 , expiring 11/12/96 $ 6,697,007 $ 6,666,362 $ 30,645
British Pound 16,689,316, expiring 11/12/96 26,124,169 26,089,246 34,923
Belgian Franc 184,249,819, expiring 11/12/96 6,050,897 5,886,695 164,202
Canadian Dollar 9,070,813 expiring 11/12/96 6,627,067 6,671,511 (44,444)
Danish Krone 61,083,736 expiring 11/12/96 10,683,364 10,456,559 226,805
French Franc 14,528,238 expiring 11/12/96 2,868,359 2,821,624 46,735
German Mark 50,957,906 expiring 11/12/96 34,341,446 33,502,082 839,364
Italian Lira 40,050,418,380 expiring 11/12/96 26,381,692 26,242,636 139,056
Japanese Yen 3,540,149,321 expiring 11/12/96 32,622,768 31,975,047 647,721
Spanish Peseta 1,722,474,512 expiring 11/12/96 13,676,523 13,395,419 281,104
Swedish Krona 100,622,705 expiring 11/12/96 15,177,268 15,204,887 (27,619)
---------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS $1,985,632
---------------
---------------
</TABLE>
e)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 into 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 the value
of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed the Portfolio records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened
and the value at the time when it was closed. The Portfolio invests in
futures contracts solely for the purpose of hedging its existing portfolio
securities, or securities the Portfolio intends to puchase, against
fluctuations in value caused by changes in prevailing market interest
rates or securities movements. The use of futures transactions involves
the risk of imperfect correlation in movements in the price of futures
contracts, interest rates and the underlying hedged assets, and the
possible inability of counterparties to meet the terms of their contracts.
Future transactions during the fiscal year ended September 30, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF PRINCIPAL AMOUNT
CONTRACTS OF CONTRACTS
---------- ----------------
<S> <C> <C>
Contracts opened 352 $ 32,320,726
Contracts closed (338) (31,199,221)
---------- ----------------
Contracts open at end of year 14 $ 1,121,505
---------- ----------------
---------- ----------------
</TABLE>
29
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
SUMMARY OF OPEN CONTRACTS AT SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
NET
CONTRACTS UNREALIZED
LONG APPRECIATION
------------- -------------
<S> <C> <C>
Ten-Year Spanish Government Note,
expiring December 1996 14 $ 37,114
------------- -------------
------------- -------------
</TABLE>
f)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxed on its
share of the Portfolio's ordinary income and capital gains. It is intended
that the Portfolio's assets will be managed in such a way that an investor
in the Portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The Portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an Investment Advisory Agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the Portfolio pays Morgan at an annual rate of 0.35% of the Portfolio's
average daily net assets. For the fiscal year ended September 30, 1996,
such fees amounted to $737,543.
b)The Portfolio had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Under an Administration Agreement, Signature provided administrative
services necessary for the operations of the Portfolio, furnished office
space and facilities required for conducting the business of the Portfolio
and paid the compensation of the Portfolio's officers affiliated with
Signature. Until December 28, 1995, 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 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 October 1, 1995 through December
28, 1995, such fees amounted to $4,006.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged was 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 (the "Master Portfolios") in which The
JPM Pierpont Funds, The JPM Institutional Funds or The JPM Advisor Funds
invest and 0.01% on the aggregate average daily net assets of the Master
Portfolios in excess of $7 billion. The portion of this charge paid by the
Portfolio was determined by the proportionate share its net assets bore to
the total net assets of The JPM Pierpont Funds, The JPM Institutional
Funds, The JPM Advisor Funds and the Master Portfolios. For the period
from December 29, 1995 through July 31, 1996, such fees amounted to
$14,958. The Administration Agreement with Signature was terminated July
31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker dealer, and by Morgan. FDI also serves as the
30
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
Portfolio's exclusive placement agent. Under a Co-Administration Agreement
between FDI and the Portfolio, the Portfolio has agreed to pay FDI fees
equal to its allocable share of an annual complex-wide charge of $425,000
plus FDI's out-of-pocket expenses. The amount allocable to the Portfolio
is based on the ratio of the Portfolio's net assets to the aggregate net
assets of the The JPM Pierpont Funds, The JPM Institutional Funds, The JPM
Advisor Funds and the Master Portfolios. For the period August 1, 1996
through September 30, 1996, the fee for these services amounted to $738.
c)Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement with Morgan which provided that Morgan would 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, 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
$400 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 prior 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 "Services Agreement") with Morgan under which
Morgan was responsible for overseeing certain aspects of the
administration and operation of the Portfolio. Under the Services
Agreement, the Portfolio had agreed to pay Morgan a fee equal to its
proportionate share of an annual complex-wide charge. Until July 31, 1996,
this charge was 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 Master Portfolios' aggregate average daily net
assets in excess of $7 billion. The portion of this charge paid by the
Portfolio was determined by the proportionate share its net assets bore to
the net assets of the Master Portfolios and investors in the Master
Portfolios for which Morgan provided similar services. For the period
December 29, 1995 through July 31, 1996, the fee for these services
amounted to $28,554.
Effective August 1, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios in accordance with the following annual
schedule: 0.09% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets and 0.04% of the Master Portfolios'
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The allocation of the Fund's portion of
this charge is described above (see Note 2b). For the period from August
1, 1996 through September 30, 1996, the fee for these services amounted to
$8,790.
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 $11,488 for the fiscal year ended September 30, 1996.
31
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represents the Portfolio's allocated portion of the total fees
and expenses. The Portfolio's Chairman and Chief Executive Officer also
serves as Chairman of Group and received compensation and employee
benefits from Group in his role as Group's Chairman. The allocated portion
of such compensation and benefits included in the Fund Services Fee shown
in the financial statements was $1,500.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
$598,281,454 $682,992,863
------------ ------------
------------ ------------
</TABLE>
32
<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, 1996, the results of its operations for the year
then ended, and the changes in its net assets and its supplementary data for the
year then ended and 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 audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
November 22, 1996
33
<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 INTERNATIONAL EQUITY FUND
THE JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
THE JPM INSTITUTIONAL JAPAN EQUITY FUND
THE JPM INSTITUTIONAL ASIA GROWTH FUND
FOR MORE INFORMATION ON THE JPM INSTITUTIONAL FAMILY OF FUNDS, CALL J.P. MORGAN
FUNDS SERVICES AT (800)766-7722.
