<PAGE>
- --------------------------------------------------------------------------------
LETTER TO THE SHAREHOLDERS OF THE JPM INSTITUTIONAL SHORT TERM BOND FUND
May 30, 1997
Dear Shareholder:
We are pleased to report that The JPM Institutional Short Term Bond Fund
recorded an attractive gain relative to its competitors, as measured by the
Lipper Short Intermediate Investment Grade Debt Funds Average, for the six-month
period ended April 30, 1997. In a difficult investment environment for 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 period, the Fund returned 2.37%, compared with 1.81% for the
Lipper Average. The Fund also outperformed the 2.26% six-month return of its
benchmark, the Merrill Lynch 1-3 Year Treasury Index.
The Fund's net asset value fell slightly from $9.85 on November 1, 1996 to $9.78
at April 30, 1996, after paying approximately $0.30 per share in dividends from
ordinary income during the period. The Fund's net assets stood at $22.1 million
at the end of the reporting period. The net assets of The Short Term Bond
Portfolio, in which the Fund invests, totaled $33.3 million on April 30, 1997.
Connie J. Plaehn, lead portfolio manager for The Short Term Bond Portfolio, in
which the Fund invests, discusses some of the events affecting the Fund over the
previous six-month period and offers her views on the upcoming months.
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 Guernsey
Evelyn E. Guernsey
J.P. Morgan Funds Services
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . .1
FUND PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . .2
PORTFOLIO MANAGER Q&A. . . . . . . . . . . . . . . . . . . . . .3
FUND FACTS AND HIGHLIGHTS. . . . . . . . . . . . . . . . . . . .6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . .9
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
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 THREE SINCE
AS OF APRIL 30, 1997 MONTHS MONTHS YEAR YEARS INCEPTION*
- -------------------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
The JPM Institutional Short Term Bond Fund 1.02% 2.37% 6.30% 6.20% 5.05%
Merrill Lynch 1-3 Year Treasury Index 1.01% 2.26% 6.09% 6.25% 5.23%
Lipper Short Intermediate Investment
Grade Debt Funds Average 0.64% 1.81% 5.95% 6.11% 4.70%
AS OF MARCH 31, 1997
- -------------------------------------------------------------------------------- -----------------------------------
The JPM Institutional Short Term Bond Fund 0.82% 2.88% 5.60% 5.79% 4.96%
Merrill Lynch 1-3 Year Treasury Index 0.66% 2.57% 5.32% 5.84% 5.12%
Lipper Short Intermediate Investment
Grade Debt Funds Average 0.09% 2.31% 4.74% 5.50% 4.53%
</TABLE>
*7/8/93 -- COMMENCEMENT OF OPERATIONS (GROWTH AND 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 4.86%.
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. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING RESOURCE FOR
MUTUAL FUND DATA. NO REPRESENTATION IS MADE THAT INFORMATION GATHERED FROM THESE
SOURCES IS ACCURATE OR COMPLETE. THE FUND INVESTS ALL OF ITS INVESTABLE ASSETS
IN THE SHORT TERM BOND PORTFOLIO, A SEPARATELY REGISTERED INVESTMENT COMPANY
WHICH IS NOT AVAILABLE TO THE PUBLIC BUT ONLY TO OTHER COLLECTIVE INVESTMENT
VEHICLES SUCH AS THE FUND.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with CONNIE J. PLAEHN, a member of the portfolio
management team for The Short Term Bond Portfolio, in which the Fund invests.
Before assuming portfolio management responsibilities at J.P. Morgan Investment
Management, Connie also worked at J.P. Morgan Securities and J.P. Morgan
Futures. This interview was conducted on May 15, 1997 and reflects Connie's
views on that date.
THE PREVIOUS SIX-MONTH PERIOD HAS BEEN A FRUSTRATING ONE FOR FIXED INCOME
INVESTORS. ALTHOUGH INFLATION CONTINUES TO BE LOW, GDP GROWTH HAS BEEN STRONG,
AND INTEREST RATES HAVE RISEN IN RESPONSE. AS IS TYPICAL IN SUCH SITUATIONS,
SHORT-TERM BONDS HAVE OUTPERFORMED THEIR LONGER-TERM COUNTERPARTS, WITH THE
MERRILL LYNCH 1-3 YEAR INDEX SHOWING A 2.26% RETURN FOR THE SIX-MONTH PERIOD
WHILE THE SALOMON BROAD INVESTMENT GRADE BOND INDEX RETURNED ONLY 1.66%. (THE
JPM INSTITUTIONAL SHORT TERM BOND FUND RETURNED 2.37%, COMFORTABLY OUTPERFORMING
MOST GENERAL BOND FUNDS.) HOW ARE RELATIVELY LOW YIELD SHORT-TERM BONDS ABLE TO
OUTPERFORM THEIR HIGHER YIELDING COUNTERPARTS?
CJP: A 5.6% first quarter GDP (4% calculated on an over-year-ago basis), when 2
to 2.5% is generally considered to be the upper limit in economic growth before
inflationary pressures begin to be felt, did cause interest rates to move up.
Indeed, shorter rates moved up more than longer rates because the market
anticipated the Federal Reserve tightening that eventually happened on March 25,
and Fed tightening has its greatest effect at the shorter end of the yield
curve.
The reason short-term bonds outperformed longer securities was simply their
shorter duration. Duration is the measure of sensitivity to changes in interest
rates. The broad bond market, as represented by the Salomon Broad Investment
Grade Bond Index, has an average duration of between 4 and 5 years. If market
interest rates rise by 50 basis points, the value of a portfolio with a 5 year
duration would fall by approximately 2.5% (ignoring coupon income). However, a
short-term portfolio, with a typical duration of around 1.7 years would only
fall in value by around 0.85%. Thus, short-term portfolios are punished much
less severely by rising rates because of their shorter durations.
IN A PREEMPTIVE STRIKE AGAINST POTENTIAL INFLATION, THE FEDERAL RESERVE
INCREASED THE FEDERAL FUNDS RATE FROM 5.25% TO 5.50%. SIX WEEKS LATER, THE
MARKET IS ALREADY ANTICIPATING ANOTHER BOOST IN THE RATE. WHY WOULD THERE BE
ANOTHER INCREASE SO SOON AFTER THE LAST ONE?
CJP: While the strength that we see in the economy has shown some signs of
weakening in the second quarter of 1997, further increases are probably
necessary for the Fed to feel comfortable that the economy is slowing enough to
prevent inflation. One of the themes that Greenspan reiterated in December, and
in his Humphrey-Hawkins testimony in February, was that of "irrational
exuberance". In December, he was talking about the stock market. In February, he
broadened his focus beyond the stock market. Financial markets have continued to
perform well, however, in spite of the tightening, and it appears that the Fed
action may not have been effective in stemming "irrational exuberance".
3
<PAGE>
Adding additional weight to concerns about economic overheating are data on the
labor market. The April unemployment rate was at a very low 4.9%. There is
speculation that NAIRU, the non-accelerating inflation rate of unemployment, may
have settled to a lower level than has been true in recent years, but we still
think that the economy is growing at levels where the current unemployment rates
will eventually result in intensifying labor cost pressures. At present, the
evidence of this happening is contradictory -- the employment cost index numbers
continue to be very low, but other measurements of labor costs that are included
in the labor force data DO show building pressures in wages.
WOULD MORE TIGHTENING BE LIKELY TO CONTRIBUTE TO ADDITIONAL RELATIVE
OUTPERFORMANCE FOR SHORT-TERM BONDHOLDERS?
CJP: Only in the sense discussed earlier, that short-term portfolios are likely
to suffer less erosion in value than longer duration portfolios.
OVER THE PREVIOUS SIX MONTHS, THE JPM INSTITUTIONAL SHORT TERM BOND FUND
OUTPERFORMED ITS COMPETITIVE UNIVERSE, THE LIPPER SHORT INTERMEDIATE INVESTMENT
GRADE DEBT FUND AVERAGE, BY A COMFORTABLE 0.56% MARGIN. WHAT DO YOU FEEL WERE
SOME OF THE REASONS THAT THE FUND DID AS WELL AS IT DID?
CJP: That's a difficult question to answer without knowing what was actually in
our competitor's portfolios. However, I believe that the Fund's outperformance
was due to the Portfolio's having a substantial amount of spread product
(instruments offering a yield premium, or "spread", over comparable maturity
Treasuries), which our research specialists had identified as
attractively-priced. Mortgages performed well, as did asset-backed securities,
and the Portfolio had considerable holdings of both.
GIVEN THE ADVANTAGE OF HINDSIGHT, ARE THERE ANY DECISIONS THAT YOU WOULD CHANGE
IF YOU COULD?
CJP: Certainly if we had known that rates would rise in February and March, we
would have shortened the Portfolio's duration then, and that would have improved
performance. However, a fund that is measured against the Merrill-Lynch 1-3 Year
Treasury Index, has a short duration to begin with and, furthermore, lies on the
steepest part of the yield curve. Any reduction in duration comes at a
relatively higher cost in potential yield than would be true of a longer
portfolio whose duration is on a flatter part of the curve. When you have a
portfolio that is already capturing yield in small increments, you need a lot of
conviction that rates will rise -- and quickly -- to give up some of that yield.
Of course, in shortening duration you would also sacrifice the associated yield
curve rolldown, the increase in value that a security captures as its maturity
shortens and yield drops. Yield curve rolldown is most dramatic in the 1-to-3
year part of the yield curve and is one of the most valuable aspects of
short-term portfolios.
WHAT INVESTMENT HORIZON DO YOU USE FOR THIS FUND, AND WHAT DO YOU SEE AS THE
LIKELIEST ECONOMIC SCENARIO OVER THIS HORIZON?
CJP: We focus on a full market cycle and try to provide a high return
consistent with low risk within that timeframe. Consequently, we aren't too
concerned about the daily fluctuations that register in a bond fund's net asset
value, which don't tend to be significant over a longer investment horizon.
4
<PAGE>
We feel that the most likely scenario over the next six months is that the
economy will continue to grow above 2 1/2%, and that consequently the Fed will
find it necessary to raise rates another 25 to 50 basis points. Although the
market's current pricing suggests that it does not appear to expect further Fed
action, we feel that this does not take into account continuing U.S. economic
momentum and emerging growth in Europe and Japan. In view of financial markets
that are unwilling to "tighten in place of the Fed", we suspect that the Fed
will feel that it has no choice but to raise rates even further.
5
<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 4/30/97
$22,074,011
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/19/97
EXPENSE RATIO
The Fund's expense ratio of 0.25% covers
shareholders' expenses for custody, tax reporting, investment advisory, and
shareholder services, after reimbursement. The Fund is no-load and does not
charge any sales, redemption, or exchange fees. There are no additional charges
for buying, selling, or safekeeping Fund shares, or for wiring redemption
proceeds from the Fund.
FUND HIGHLIGHTS
ALL DATA AS OF APRIL 30, 1997
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[GRAPH]
30-DAY SEC YIELD
6.74%
DURATION
1.6 Years
QUALITY BREAKDOWN
AAA* 68.0%
AA 2.9%
A 3.0%
OTHER 26.1%
* INCLUDES U.S. GOVERNMENT AGENCY AND TREASURY OBLIGATIONS AND REPURCHASE
AGREEMENTS
6
<PAGE>
FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR OF 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.
7
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Short Term Bond Portfolio
("Portfolio"), at value $22,090,952
Deferred Organization Expenses 12,845
Receivable for Expense Reimbursements 8,178
Prepaid Expenses and Other Assets 24
-----------
Total Assets 22,111,999
-----------
LIABILITIES
Dividends Payable to Shareholders 5,041
Shareholder Servicing Fee Payable 1,229
Administrative Services Fee Payable 510
Administration Fee Payable 169
Fund Services Fee Payable 10
Accrued Trustees' Fees and Expenses 24
Accrued Expenses 31,005
-----------
Total Liabilities 37,988
-----------
NET ASSETS
Applicable to 2,256,722 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $22,074,011
-----------
-----------
Net Asset Value, Offering and Redemption Price
Per Share $9.78
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $22,429,577
Distributions in Excess of Net Investment Income (10,717)
Accumulated Net Realized Loss on Investment (271,750)
Net Unrealized Depreciation of Investment (73,099)
-----------
Net Assets $22,074,011
-----------
-----------
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $ 756,323
Allocated Portfolio Expenses (Net of
Reimbursement of $29,977) (29,616)
---------
Net Investment Income Allocated from
Portfolio 726,707
FUND EXPENSES
Shareholder Servicing Fee $ 8,885
Transfer Agent Fees 8,155
Registration Fees 7,813
Printing Expenses 7,489
Professional Fees 5,714
Amortization of Organization Expenses 5,370
Administrative Services Fee 3,731
Fund Services Fee 432
Administration Fee 407
Trustees' Fees and Expenses 54
Miscellaneous 1,717
--------
Total Fund Expenses 49,767
Less: Reimbursement of Expenses (49,767)
--------
NET FUND EXPENSES --
---------
NET INVESTMENT INCOME 726,707
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 24,518
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (201,366)
---------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 549,859
---------
---------
</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
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1997 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1996
------------ ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 726,707 $ 648,360
Net Realized Gain on Investment Allocated from
Portfolio 24,518 148,591
Net Change in Unrealized Depreciation of
Investment Allocated from Portfolio (201,366) (14,190)
------------ ----------------
Net Increase in Net Assets Resulting from
Operations 549,859 782,761
------------ ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME (726,708) (648,360)
------------ ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 12,881,688 50,306,760
Reinvestment of Dividends 716,658 605,323
Cost of Shares of Beneficial Interest Redeemed (9,157,572) (52,152,008)
------------ ----------------
Net Increase (Decrease) from Transactions in
Shares of Beneficial Interest 4,440,774 (1,239,925)
------------ ----------------
Total Increase (Decrease) in Net Assets 4,263,925 (1,105,524)
NET ASSETS
Beginning of Period 17,810,086 18,915,610
------------ ----------------
End of Period $ 22,074,011 $ 17,810,086
------------ ----------------
------------ ----------------
</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 8, 1993
FOR THE FISCAL (COMMENCEMENT
FOR THE SIX YEAR ENDED OF
MONTHS ENDED OCTOBER 31, OPERATIONS) TO
APRIL 30, 1997 --------------------------------------- OCTOBER 31,
(UNAUDITED) 1996 1995 1994 1993
--------------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 9.83 $ 9.60 $ 9.99 $ 10.00
--------------- --------- ------------- --------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30 0.55 0.58 0.47 0.11
Net Realized and Unrealized Gain (Loss)
on Investment (0.07) 0.02 0.24 (0.39) (0.01)
--------------- --------- ------------- --------- ---------------
Total from Investment Operations 0.23 0.57 0.82 0.08 0.10
--------------- --------- ------------- --------- ---------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.30) (0.55) (0.59) (0.47) (0.11)
NET ASSET VALUE, END OF PERIOD $ 9.78 $ 9.85 $ 9.83 $ 9.60 $ 9.99
--------------- --------- ------------- --------- ---------------
--------------- --------- ------------- --------- ---------------
Total Return 2.37%(a) 6.01% 8.81% 0.87% 1.01%(a)
--------------- --------- ------------- --------- ---------------
--------------- --------- ------------- --------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $ 22,074 $ 17,810 $ 18,916 $ 47,679 $ 27,605
Ratios to Average Net Assets
Expenses 0.25%(b) 0.37% 0.45% 0.45% 0.46%(b)
Net Investment Income 6.13%(b) 5.69% 6.09% 4.96% 3.92%(b)
Decrease Reflected in Expense Ratio
due to Expense Reimbursement 0.67%(b) 1.00% 0.22% 0.33% 0.84%(b)
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
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, 1997
- --------------------------------------------------------------------------------
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 included
in the Statement of Assets and Liabilities reflects the Fund's proportionate
interest in the net assets of the Portfolio (66% at April 30, 1997). 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)The Fund is treated as a separate entity for federal income tax purposes
and intends to comply with the provisions of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and to
distribute 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.
2. TRANSACTIONS WITH AFFILIATES
a)The Trust has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as co-administrator and distributor. Under a
Co-Administration Agreement between FDI and the Trust on
13
<PAGE>
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
behalf of the Fund, FDI provides administrative services necessary for the
operations of the Fund, furnishes office space and facilities required for
conducting the business of the Fund and pays the compensation of the
Fund's officers affiliated with FDI. The Fund has agreed to pay FDI fees
equal to its allocable share of an annual complex-wide charge of $425,000
plus FDI's out-of-pocket expenses. The amount allocable to the Fund is
based on the ratio of the Fund's net assets to the aggregate net assets of
the Trust, The JPM Pierpont Funds, The JPM Advisor Funds, the Portfolio
and the other portfolios (the "Master Portfolios") in which the Trust, The
JPM Pierpont Funds and The JPM Advisor Funds invest, JPM Series Trust and
JPM Series Trust II. For the six months ended April 30, 1997, the fee for
these services amounted to $407.
On November 15, 1996, The JPM Advisor Funds terminated operations and were
liquidated. Subsequent to that date, the net assets of The JPM Advisor
Funds were no longer included in the calculation of the allocation of
FDI's fees.
b)The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan"), under which Morgan is responsible for certain aspects of the
administration and operation of the Fund. Under the Services Agreement,
the Fund has agreed to pay Morgan a fee equal to its allocable share of an
annual complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Master Portfolios and JPM Series Trust in
accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI. The portion of this charge payable by
the Fund is determined by the proportionate share that its net assets bear
to the net assets of the Trust, The JPM Pierpont Funds, the Master
Portfolios, other investors in the Master Portfolios for which Morgan
provides similar services, and JPM Series Trust. For the six months ended
April 30, 1997, the fee for these services amounted to $3,731.
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
0.25% of the average daily net assets of the Fund through February 28,
1998. For the six months ended April 30, 1997, Morgan has agreed to
reimburse the Fund $79,744 for expenses that exceeded this limit.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. The agreement provides for the Fund to pay Morgan a fee for
these services which was computed daily and paid monthly at an annual rate
of 0.075% of the average daily net assets of the Fund. For the six months
ended April 30, 1997, the fee for these services amounted to $8,885.
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
$432 for the six months ended April 30, 1997.
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM Pierpont Funds, the Master Portfolios and
JPM Series Trust. The Trustees' Fees and Expenses
14
<PAGE>
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
shown in the financial statements represents the Fund's allocated portion
of the total fees and expenses. Prior to April 1, 1997, the aggregate
annual Trustee Fee was $65,000. The Trust's Chairman and Chief Executive
Officer also serves as Chairman of Group and receives compensation and
employee benefits from Group in his role as Group's Chairman. The
allocated portion of such compensation and benefits included in the Fund
Services Fee shown in the financial statements was $90.
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 FOR THE
MONTHS ENDED FISCAL
APRIL 30, YEAR ENDED
1997 OCTOBER 31,
(UNAUDITED) 1996
------------- -------------
<S> <C> <C>
Shares sold....................................... 1,308,836 5,145,715
Reinvestment of dividends and distributions....... 73,002 61,608
Shares redeemed................................... (933,540) (5,322,739)
------------- -------------
Net Increase (Decrease)........................... 448,298 (115,416)
------------- -------------
------------- -------------
</TABLE>
From time to time, the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund and Portfolio.
15
<PAGE>
The Short Term Bond Portfolio
Semi-annual Report April 30, 1997
(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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ----------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (36.6%)
FINANCIAL SERVICES (36.6%)
$ 417,842 Aegis Auto Receivables Trust, Series 1996-3,
Class A, Sequential Payer, Callable, (144A),
8.80% due 03/20/02............................. NR/NR $ 418,626
517,542 CIT River Owners Trust, Series 1995-A, Class A,
Sequential Payer, Callable, 6.25% due
01/15/11....................................... Aaa/AAA 514,049
700,000 First Plus Home Loan Trust, Series 1996-3, Class
A2, Sequential Payer, Callable, 6.85% due
06/20/07....................................... Aaa/AAA 698,999
473,543 Fleetwood Credit Corp. Grantor Trust, Series
1994-A, Class A, Sequential Payer, Callable,
4.70% due 07/15/09............................. Aaa/AAA 458,897
1,500,000 Ford Credit Auto Owner Trust, Series 1996-4,
Sequential Payer, Callable, 6.50% due
11/15/99....................................... Aaa/AAA 1,507,005
1,450,000 Green Tree Financial Corp., Series 1996-3, Class
A2, Sequential Payer, Callable, 6.45% due
05/15/27....................................... Aaa/AAA 1,446,984
1,500,000 Green Tree Home Improvement Loan Trust, Series
1996-D, Class HIA2, Sequential Payer, Callable,
6.80% due 09/15/27............................. NR/AAA 1,494,840
331,582 Merrill Lynch Mortgage Investors, Inc., Remic
Series 1994-C1, Class A, Callable, 8.61% due
11/25/20(c).................................... NR/AAA 333,550
299,576 Merrill Lynch Mortgage Investors, Inc., Series
95-C2, Class E, 7.98% due 06/15/21(c).......... Ba3/NR 295,410
1,500,000 Metropolitan Asset Funding Inc., Callable, 6.85%
due 08/20/05................................... Aaa/NR 1,487,812
390,303 Newcourt Receivables Asset Trust, Series 1996-1,
Class A, Sequential Payer, Callable, 6.79% due
08/20/03....................................... NR/AAA 391,318
602,690 Newcourt Receivables Asset Trust, Series 1996-3,
Class A, Sequential Payer, Callable, 6.24% due
12/20/04....................................... NR/AAA 599,959
596,897 Prudential Home Mortgage Securities, Remic:
Sequential Payer, Series 1992-44, Class A1,
Callable, 6.00% due 01/25/98................... Aaa/NR 594,199
1,000,000 Salomon Brothers Mortgage Securities VII Inc.,
Series 97-HUD1, Class A1, Seqential Payer,
Callable, 6.97% due 12/25/30................... Aaa/NR 996,875
447,490 Summit Acceptance Auto Receivables, Series
1996-A, Class A-1, (144A), 7.01% due
07/15/02....................................... Aaa/AAA 450,497
500,000 World Omni Automobile Lease Securitization Trust,
Series 1996-B, Class A1, 5.95% due 11/15/02.... Aaa/AAA 500,570
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$12,253,676)............................... 12,189,590
------------
CORPORATE OBLIGATIONS (24.2%)
ELECTRIC (3.1%)
1,000,000 Hydro Quebec, 9.75% due 09/29/98................. NR/A+ 1,040,000
------------
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- ----------- ------------------------------------------------- ------------ ------------
<C> <S> <C> <C>
FINANCIAL SERVICES (5.7%)
$ 300,000 Cheung Kong Finance Cayman, 5.50% due 09/30/98... NR/NR $ 293,625
1,500,000 Toyota Motor Credit Corp., 9.75% due
03/09/98(c).................................... Aaa/AAA 1,591,875
------------
1,885,500
------------
OIL-SERVICES (7.4%)
1,500,000 Columbia Gas System Inc., 6.39% due 11/28/00..... Baa1/BBB+ 1,476,090
1,000,000 Occidental Petroleum Corp., 5.76% due 06/15/98... Baa2/BBB 992,840
------------
2,468,930
------------
TELECOMMUNICATIONS (0.5%)
200,000 MFS Communications, 9.375% due 01/15/04(d)....... Ba3/BBB- 180,500
------------
TELEPHONE (3.0%)
1,000,000 Southwestern Bell Cap, 7.30% due 07/15/99........ A2/AA- 1,013,940
------------
UTILITIES (4.5%)
1,500,000 Boston Edison Co., 5.95% due 03/15/98............ Baa2/BBB 1,493,790
------------
TOTAL CORPORATE OBLIGATIONS (COST
$8,089,750)................................ 8,082,660
------------
FOREIGN CORPORATE OBLIGATIONS (1.3%)
CANADA (0.6%)
Forest Products & Paper
200,000 Canadian Pacific Forest Products Ltd., 9.25%
due 06/15/02.................................. Ba1/NR 206,582
------------
MEXICO (0.7%)
Gas Exploration
250,000 Petroleos Mexicanos, 7.60% due 06/15/00........ Ba2/NR 245,605
------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$449,212).................................. 452,187
------------
SOVEREIGN BONDS (1.5%)
MEXICO (1.5%)
485,000 United Mexican States, (144A), 7.625% due
08/06/01(c) (cost $491,305).................... Baa3/BBB- 491,063
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ----------- ------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (16.6%)
FEDERAL HOME LOAN MORTGAGE CORP.
$ 220,320 PC, 9.00% due 05/01/97........................... $ 220,320
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
54,657 8.00% due 12/01/07............................... 55,828
600,568 8.00% due 12/01/09............................... 613,852
271,455 8.00% due 12/01/09............................... 277,406
496,005 8.00% due 05/01/10............................... 506,932
------------
1,454,018
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
482,674 7.00% due 03/15/09............................... 510,074
469,452 7.00% due 07/15/09............................... 467,137
517,906 9.00% due 12/15/16............................... 515,050
714,563 9.00% due 12/15/26............................... 761,410
1,500,000 GNMA TBA 9%...................................... 1,597,230
------------
3,850,901
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $5,572,071)........................... 5,525,239
------------
U.S. TREASURY OBLIGATIONS (12.1%)
U.S. TREASURY NOTES
1,700,000 5.875% due 11/15/99(a)(b)........................ 1,679,719
650,000 6.625% due 06/30/01(a)........................... 651,963
1,670,000 7.875% due 04/15/98(a)(b)........................ 1,699,659
------------
4,031,341
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$4,042,425)................................. 4,031,341
------------
SHORT-TERM INVESTMENTS (13.0%)
OTHER INVESTMENT COMPANIES (0.0%)*
340 Seven Seas Money Market Fund..................... 340
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ----------- ------------------------------------------------- ------------
<C> <S> <C>
REPURCHASE AGREEMENT (13.0%)
$ 4,338,000 Goldman Sachs Repurchase Agreement, dated 4/30/97
due 5/01/97, proceeds $4,338,645,
(collateralized by $3,010,000 U.S. Treasury
Note, 6.96% due 11/15/09, valued at $1,258,854;
$809,000 U.S. Treasury Note, 6.53% due
11/15/01, valued at $601,917; $853,000 U.S.
Treasury Note, 5.25% due 8/15/97, valued at
$839,746; $530,000 U.S. Treasury Note, 6.17%
due 11/15/98, valued at $482,254; $5,262,000
U.S. Treasury Note, 7.15% due 8/15/17, valued
at $1,242,153)................................. $ 4,338,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$4,338,340)................................. 4,338,340
------------
TOTAL INVESTMENTS (COST $35,236,779) (105.3%).... 35,110,420
LIABILITIES IN EXCESS OF OTHER ASSETS (-5.3%).... (1,772,361)
------------
NET ASSETS (100.0%).............................. $ 33,338,059
------------
------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $35,236,779 for federal income tax
purposes at April 30, 1997, the aggregate gross unrealized appreciation and
depreciation was $50,937 and $(177,296), respectively, resulting in net
unrealized appreciation of $(126,359).
* Less than 0.1%.
TBA -- Security purchased on a forward commitment basis with an appropriate
amount and no definitive date. The actual principal anount and maturity date
will be determined upon settlement date.
144A -- Securities restricted for resale to Qualified Institutional Buyers.
(a) Total of $1,700,000 par segregated as collateral for initial margin on
futures contracts.
(b) $2,200,000 par segregated as collateral on TBA.
(c) Floating rate note.
(d) Step bond.
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $35,236,779 ) $35,110,420
Interest Receivable 343,652
Receivable for Expense Reimbursement 7,888
Deferred Organization Expenses 1,622
-----------
Total Assets 35,463,582
-----------
LIABILITIES
Payable for Investments Purchased 2,092,220
Advisory Fee Payable 6,448
Payable to Custodian 5,099
Custody Fee Payable 1,387
Administrative Services Fee Payable 802
Administration Fee Payable 156
Fund Services Fee Payable 19
Accrued Trustees' Fees and Expenses 32
Accrued Expenses 19,360
-----------
Total Liabilities 2,125,523
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $33,338,059
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $1,144,081
EXPENSES
Advisory Fee $ 44,934
Custodian Fees and Expenses 17,290
Professional Fees and Expenses 16,287
Administrative Services Fee 5,660
Printing Expenses 3,893
Amortization of Organization Expense 678
Fund Services Fee 641
Administration Fee 454
Registration Fees 255
Trustees' Fees and Expenses 119
Miscellaneous 312
--------
Total Expenses 90,523
Less: Reimbursement of Expenses (45,587)
--------
NET EXPENSES 44,936
----------
NET INVESTMENT INCOME 1,099,145
NET REALIZED GAIN ON INVESTMENTS 44,118
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENTS (including $560 net unrealized
losses from futures contracts) (312,095)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 831,168
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1997 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1996
------------ ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,099,145 $ 1,136,925
Net Realized Gain on Investments 44,118 146,407
Net Change in Unrealized Appreciation
(Depreciation) of Investments (312,095) 5,083
------------ ----------------
Net Increase in Net Assets Resulting from
Operations 831,168 1,288,415
------------ ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 19,338,867 54,341,812
Withdrawals (12,864,087) (58,904,692)
------------ ----------------
Net Increase (Decrease) from Investors'
Transactions 6,474,780 (4,562,880)
------------ ----------------
Total Increase (Decrease) in Net Assets 7,305,948 (3,274,465)
NET ASSETS
Beginning of Period 26,032,111 29,306,576
------------ ----------------
End of Period $ 33,338,059 $ 26,032,111
------------ ----------------
------------ ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE PERIOD
FOR THE YEAR JULY 8, 1993
SIX MONTHS ENDED ENDED OCTOBER 31, (COMMENCEMENT OF
APRIL 30, 1997 ------------------ OPERATIONS) TO
(UNAUDITED) 1996 1995 1994 OCTOBER 31, 1993
---------------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.25% 0.38% 0.42% 0.36% 0.37%(a)
Net Investment Income 6.11% 5.65% 6.11% 5.01% 3.99%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.25% 0.23% 0.04% 0.05% 1.00%(a)
Portfolio Turnover 131% 191% 177% 230% 116%
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Short Term Bond Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a no-load, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Portfolio commenced operations on July 8, 1993. The
Portfolio's investment objective is to provide a high total return while
attempting to limit the likelihood of negative quarterly returns. The
Declaration of Trust permits the Trustees to issue an unlimited number of
beneficial interests in the Portfolio.
Investments in emerging markets may involve certain considerations and risks not
typically associated with investments in the United States. Future economic and
political developments in emerging market 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 debt securities held by the Portfolio to
meet their obligations may be affected by economic and political developments in
a specific industry or region.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a)The Portfolio values mortgage and asset-backed securities and other debt
securities with a maturity of 60 days or more, including securities that
are listed on an exchange or traded over the counter, 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, indications 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 short term portfolio securities with a
remaining maturity of less than 60 days are valued by the amortized cost
method. The ability of issuers of mortgage and asset-backed securities,
held by the Portfolio, to meet their obligations may be affected by
economic developments in a specific industry or region. The value of
mortgage and asset-backed securities can be significantly affected by
changes in interest rates or rapid principal repayments including
pre-payments.
The Portfolio's custodian or designated subcustodians, as the case may be,
under triparty repurchase agreements takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the
Portfolio. It is the policy of the Portfolio to value the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to the repurchase price plus
accrued interest. In the event of default of the obligation to repurchase,
the Portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances,
in the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject
to legal proceedings.
24
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
b)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.
c)Futures: A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place will be 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
liquid securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the Portfolio agrees to receive
from, or pay to, the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as "variation margin" and are recorded by the Portfolio as unrealized
gains or losses. When the contract is closed, the Portfolio records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time when it was
closed. The Portfolio invests in futures contracts for the purpose of
hedging its existing portfolio securities, or securities the Portfolio
intends to purchase, against fluctuations in value caused by changes in
prevailing market interest rates or securities movements. The use of
futures transactions involves the risk of imperfect correlation of
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. Futures transactions during the six
months ended April 30, 1997 are summarized as follows:
SUMMARY OF OPEN FUTURES CONTRACTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NUMBER OF CONTRACTS OF CONTRACTS
------------------- ----------------
<S> <C> <C>
Contracts opened................................. 8 $ 1,643,940
------------------- ----------------
Contracts open at end of period.................. 8 $ 1,643,940
------------------- ----------------
------------------- ----------------
</TABLE>
SUMMARY OF OPEN CONTRACTS AT APRIL 30, 1997
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/
CONTRACTS LONG (DEPRECIATION)
-------------- --------------
<S> <C> <C>
Two-Year U.S. Treasury, expiring June 1997....... 8 $ (560)
-------------- --------------
Totals........................................... 8 $ (560)
-------------- --------------
-------------- --------------
</TABLE>
d)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be subject to
taxation 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.
25
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
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 0.25% of the Portfolio's
average daily net assets. For the six months ended April 30, 1997, this
fee amounted to $44,934.
b)The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the Portfolio,
FDI provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the Portfolio and pays the compensation of the officers
affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the Portfolio is based on
the ratio of the Portfolio's net assets to the aggregate net assets of The
JPM Pierpont Funds, The JPM Institutional Funds, The JPM Advisor Funds,
the Portfolio and the other portfolios (the "Master Portfolios") in which
The JPM Pierpont Funds and The JPM Institutional Funds invest, JPM Series
Trust and JPM Series Trust II. For the six months ended April 30, 1997,
the fee for theses services amounted to $454.
On November 15, 1996, The JPM Advisor Funds terminated operations and were
liquidated. Subsequent to that date, the net assets of The JPM Advisor
Funds were no longer included in the calculation of the allocation of
FDI's fees.
c)The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing
certain aspects of the administration and operation of the Portfolio.
Under the Services Agreement, the Portfolio has agreed to pay Morgan a fee
equal to its allocable share of an annual complex-wide charge. This charge
is calculated daily based on the aggregate net assets of the Master
Portfolios and JPM Series Trust in accordance with the following annual
schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess
of $7 billion, less the complex-wide fees payable to FDI. The portion of
this charge payable by the Portfolio is determined by the proportionate
share that the net assets bear to the net assets of the Master Portfolios,
investors in the Master Portfolios for which Morgan provides similar
services, The JPM Pierpont Funds, The JPM Institutional Funds and JPM
Series Trust. For the six months ended April 30, 1997, the fee for these
services amounted to $5,660.
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 0.25% of the average daily net assets of the Portfolio through
February 28, 1998. For the six months ended April 30, 1997, Morgan has
agreed to reimburse the Portfolio $45,587 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 $641 for the six months ended April 30, 1997.
26
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the Portfolio's allocated
portion of the total fees and expenses. Prior to April 1, 1997, the
aggregate annual Trustee Fee was $65,000. The Portfolio's Chairman and
Chief Executive Officer also serves as Chairman of Group and receives
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $130.
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........... $31,837,558 $32,080,606
Corporate and Collateralized Mortgage
Obligations..................................... 20,122,080 12,902,190
----------- -----------
$51,959,638 $44,982,796
----------- -----------
----------- -----------
</TABLE>
27
<PAGE>
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
SEMI-ANNUAL REPORT
APRIL 30, 1997
JPM Institutional Prime Money Market Fund
JPM Institutional Tax Exempt Money Market Fund
JPM Institutional Federal Money Market Fund
JPM Institutional Short Term Bond Fund
JPM Institutional Bond Fund
JPM Institutional Tax Exempt Bond Fund
JPM Institutional New York Total Return Bond Fund
JPM Institutional Shares: California Bond Fund
JPM Institutional International Bond Fund
JPM Institutional Global Strategic Income Fund
JPM Institutional Diversified Fund
JPM Institutional U.S. Equity Fund
JPM Institutional Disciplined Equity Fund
JPM Institutional U.S. Small Company Fund
JPM Institutional International Equity Fund
JPM Institutional International Opportunities Fund
JPM Institutional Emerging Markets Equity Fund
JPM Institutional Japan Equity Fund
JPM Institutional European Equity Fund
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.
