<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN
INSTITUTIONAL INTERNATIONAL BOND FUND
May 5, 1998
Dear Shareholder:
We are pleased to submit our semi-annual report on the J.P. Morgan Institutional
International Bond Fund for the six months ending March 31, 1998.
In a challenging investment environment made volatile by the impact of Southeast
Asia's crisis, the fund returned 5.19% for the period. Although the fund
underperformed the 5.74% return of its benchmark, the Salomon Brothers Non-U.S.
World Government Bond Index (currency hedged), it significantly outpaced the
0.68% return of its competitors, as measured by the Lipper International Income
Funds Average. In fact, as of March 31, 1998, Morningstar* awarded the fund a
5-star overall rating and was rated among 163 other international bond funds;
the highest ranking a fund can achieve.
The fund's net asset value decreased from $8.65 at the beginning of the period,
to $8.11 per share by March 31, 1998, after making distributions of
approximately $0.76 in income, $0.19 from short-term capital gains, and $0.01
from long-term capital gains respectively. The fund's net assets also decreased
from $7.1 million to $6.2 million. The net assets of The Non-U.S. Fixed Income
Portfolio, in which the fund invests, totaled approximately $6.3 million on
March 31, 1998.
The report that follows includes an interview with Dominic Pegler, a member of
the portfolio management team responsible for the fund. This interview is
designed to answer commonly asked questions about the fund, elaborate on what
happened during the reporting period, and provide an outlook for the months
ahead.
As chairman and president of Asset Management Services, we appreciate your
investment in the fund. If
you have any comments or questions, please call your Morgan representative or
J.P. Morgan Funds Services at (800) 766-7722.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
- --------------------- ----------------------
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
* MORNINGSTAR PROPRIETARY RATINGS REFLECT RISK-ADJUSTED PERFORMANCE THROUGH
3/31/98. THE RATINGS ARE SUBJECT TO CHANGE EVERY MONTH. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. MORNINGSTAR RATINGS ARE CALCULATED FROM THE FUNDS
THREE-, FIVE-, AND TEN-YEAR RETURN (WITH FEE ADJUSTMENTS) IN EXCESS OF 90-DAY
TREASURY BILL RETURNS, AND A RISK FACTOR THAT REFLECTS FUND PERFORMANCE BELOW
90-DAY T-BILL RETURNS. FOR THE THREE-YEAR PERIOD, THE J.P. MORGAN INSTITUTIONAL
INTERNATIONAL BOND FUND RECEIVED FIVE STARS AND WAS RATED AMONG 163 FUNDS. TEN
PERCENT OF THE FUNDS IN A RATING CATEGORY RECEIVE FIVE STARS, AND THE NEXT 22.5%
RECEIVE FOUR STARS.
TABLE OF CONTENTS PORTFOLIO MANAGER Q&A . . . . . 3
LETTER TO THE SHAREHOLDERS . . . .1 FUND FACTS AND HIGHLIGHT. . . . 6
FUND PERFORMANCE . . . . . . . . .2 FINANCIAL STATEMENTS. . . . . . 8
<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 one, five,
or ten years. 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 RETURNS
-------- ------------------------------
<S> <C> <C> <C> <C>
THREE SIX ONE SINCE
AS OF MARCH 31, 1998 MONTHS MONTHS YEAR INCEPTION*
- -------------------------------------------------------------------------- ------------------------------
J.P. Morgan Inst. International Bond Fund 3.06% 5.19% 12.62% 12.88%
Salomon Brothers Non-U.S. World
Government Bond Index (currency hedged) 3.05% 5.74% 12.78% 13.16%
Lipper International Income Funds Average 1.32% 0.68% 4.85% 7.99%
</TABLE>
*12/1/94 - COMMENCEMENT OF OPERATIONS.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. RETURNS AND YIELDS ARE NET
OF FEES AND ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT
OF CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD
EXPENSES NOT BEEN SUBSIDIZED, RETURNS AND YIELDS WOULD HAVE BEEN LOWER. THE
SALOMON BROTHERS NON-U.S. WORLD GOVERNMENT BOND INDEX (CURRENCY HEDGED) IS AN
UNMANAGED INDEX IN WHICH INVESTORS MAY NOT DIRECTLY INVEST. LIPPER ANALYTICAL
SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
Portfolio manager Q&A
[PHOTO]
Following is an interview with DOMINIC J. PEGLER, VICE PRESIDENT, who is a
member of the portfolio management team responsible for managing THE NON-U.S.
FIXED INCOME PORTFOLIO in which the Fund invests. Mr. Pegler joined J.P. Morgan
(London) in 1996 after seven years at the Bank of England, serving first as an
economist and then in the Reserves Management Department managing the U.K.'s
foreign exchange reserves. His time at the Bank included a two year secondment
to the Directorate of Monetary Affairs, ECCommission. Mr. Pegler holds a BS and
MS in Economics from the London School of Economics. This interview was
conducted on April 14, 1998 and reflects his views on that date.
WHAT WERE SOME OF THE FACTORS INFLUENCING FIXED-INCOME MARKETS OVER THE PAST SIX
MONTHS?
DJP: It has recently been a very interesting time for international investors,
with the key theme of the last six months being the Asian financial crisis. The
fixed income markets were impacted in a few ways by Asia's events. First, there
was an observable flight to quality as many investors moved from corporate
issues into government bonds. As a result of this shift, U.S. Treasuries
performed very well at the end of 1997, and European government bonds posted
strong first quarter 1998 returns. Even though the Japanese bond market had been
extremely volatile throughout the past six months, on average, Japanese
government bonds also performed quite well over the reporting period. So,
overall, good performance came from government bonds during the past six months.
Secondly, we've seen declining yields, as investors around the world
extrapolated that the Asian crisis would reduce economic growth keeping the
major economies from raising interest rates. We think that is going to contain
inflation in the future, which is generally very good for bonds.
Lastly, we saw greater volatility in non-government bond sectors and a
widening of credit spreads as investors became concerned about the credit
quality of non-government issues. So the turmoil of the Asian crisis also
spawned a general repricing of credit risk, which has actually continued into
the period under review.
WOULD YOU COMMENT SPECIFICALLY ON EUROPE'S ECONOMIC AND MONETARY UNION (EMU)?
HOW HAVE THINGS PROGRESSED ON THAT FRONT, AND WHAT ARE THE IMPLICATIONS FOR BOND
PORTFOLIOS?
DJP: Even though discussions regarding EMU have taken a back burner to the
Asian crisis, it remains an extremely important theme not only in Europe, but
throughout the world. We think it is now very likely that ten countries will
participate in EMU at its outset in January 1999, and that over the past 12 to
18 months, the yields of those countries' bond markets have converged
considerably. And while during that period convergence trades greatly
contributed to performance, the convergence process is now broadly complete; and
thus no further gains can be expected to be made from convergence
3
<PAGE>
Looking forward, however, EMU creates a huge implication for how fixed income
portfolios will be managed in the future. Playing the different local markets
in Europe will be much less of a source of return than it used to be in the
past. In the future, we will need to put more emphasis on finding value within
the core European bond market in terms of investing in non-government
securities. And we think, overall in the industry, bottoms-up security selection
will be much more important -- which really bodes well for us, because we have
such strong research capabilities. After EMU, Europe will, in essence, have one
broad bond market, which we believe will develop to become more like the U.S.
bond market. And for us, this is also another big advantage, because we are very
active in the U.S. bond market and we know how to use credit and
security-specific research to enhance return -- rather than rely primarily on
country or currency differentiation.
Another important issue regarding EMU for bond investors is the fact that after
January 1999, the European Central Bank (ECB) will be the sole authority
responsible for setting uniform monetary policy for EMU countries. So over the
next few months we will all be watching the ECB to see how it establishes its
credibility in setting monetary policy and in maintaining price stability.
WHAT IS THE LATEST VIEW ON JAPAN; ANY SIGNS THEIR ECONOMIC TROUBLES ARE GETTING
BETTER?
DJP: Although Japan has been experiencing lackluster growth for several years
now, it has currently reentered the market's focus because of the Asian crisis,
which threatens to exacerbate deteriorating domestic economic conditions.
Currently, we think there's a lot of pressure internationally on the Japanese
authorities to do something to get their economy started again -- for a couple
of very important reasons. One is obviously because of the Asian situation, as I
just mentioned, but also because Japan is the biggest creditor to the rest of
the world. So what happens in Japan has a big impact on enterprises around the
world. Our feeling is that we may actually see slightly negative growth in
Japan this year, which puts many of the Japanese banks under pressure. So
lately, Japan is of big concern again in the marketplace.
WHAT DOES THIS ALL MEAN FOR JAPAN'S BOND MARKET?
DJP: For a long time Japanese bonds have been trading at very low yields. As we
speak, the yield on the 10-year Japanese government bond (JGB) is about 1.81%,
which is not a level that seems to be sustainable in the long run. So many
believe Japanese bonds are overvalued.
Having said that, however, because Japan is an economy that is so depressed and
may be entering a period of deflation, there are still good reasons to support
buying Japanese bonds.
In trying to solve the Japan puzzle, however, I think the two key questions we
have to ask are 1) will the Japanese do something drastic to get their economy
going again? And if they do, 2) what is it going to be? Our view is that if
Japan focuses on changing fiscal policy or cutting taxes to stimulate the
economy, there's a good chance that it will hurt the bond markets. We think,
however, it's much more likely that Japan will just continue to print more money
as they have over the last couple of months, which could keep interest rates low
for the foreseeable future.
4
<PAGE>
IN GENERAL, HOW DID THE FUND PERFORM OVER THE PERIOD? DID THE MARKET'S INCREASED
VOLATILITY MAKE IT DIFFICULT TO INVEST?
DJP: Over the past six months, and particularly during the last quarter of
1997, the performance of the fund was definitely hurt by the increased
volatility caused by Asia's events and by the spread widening that occurred
across markets. The fund held quite a few non-government securities in the
portfolio, which also detracted from its overall returns. Despite this
volatility, however, the fund still performed quite impressively. It
significantly outperformed its competitors, as measured by the Lipper
International Income Funds Average. Also, as of March 31, 1998, Morningstar*
awarded the fund a five-star rating, which is the highest ranking a fund can
achieve.
Our exposure to the Swedish market helped fund performance during the first
quarter of 1998, with the fund ending this most recent three-month period in
line with its benchmark. As you may or may not know, the Swedish bond market was
one of the best performing markets in the world during the first quarter of
1998. So the fund's exposure to Sweden has significantly contributed to a
rebound in its performance. Along with the tactical decisions made throughout
the period, the fund, all in all, has been a strong performer.
WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS; HOW DO YOU SEE THINGS PANNING OUT,
AND HOW IS THE FUND BEING POSITIONED?
DJP: Our outlook is one that is generally positive for bonds. For the most
part, we expect that low inflation and modest economic growth will continue,
which will maintain a positive environment for bonds.
On the flip side, however, the biggest risk for bond markets will be how
economic conditions materialize in the U.S. If the U.S. economy doesn't
sufficiently slow down, the Federal Reserve may have to hike rates in order to
cool the economy to a more sustainable level. That is likely to hurt the bond
market, and have negative implications for non-U.S. markets. We believe,
however, the most likely scenario going forward is for stable to slightly lower
rates in the U.S., as we expect the U.S. economy to slow down in the second half
of this year.
We don't think anything drastic will occur in Europe. Although the economies
will start to show more growth, it's nothing that's going to scare bond
investors, or that's going to scare the central banks into shifting monetary
policy. Rates may move slightly higher, but we don't foresee major increases.
And the same is true for Japan. So all in all, we see a pretty stable outlook
for bonds in the next six months or so.
* MORNINGSTAR IS A LEADING SOURCE FOR MUTUAL FUND DATA.
5
<PAGE>
Fund facts
INVESTMENT OBJECTIVE
J.P. Morgan 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. World Government Bond Index
(currency hedged).
- --------------------------------------------------------------------------------
INCEPTION DATE
12/1/94
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 3/31/98
$6,197,652
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 3/31/98
$6,254,754
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/98
- --------------------------------------------------------------------------------
EXPENSE RATIO
The fund's current 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 MARCH 31, 1998
PORTFOLIO ALLOCATION
(Percentage of total investments)
[PIE CHART] Japan 30.1%
United Kingdom 19.0%
Australia 9.8%
Netherland 8.9%
United States 2.7%
Denmark 2.4%
Germany 2.0%
Short-term 23.4%
Other 1.7%
30-DAY SEC YIELD
3.25%
DURATION
4.0 years
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW
YORKSERVES AS AN ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY AS
SHAREHOLDER SERVICING AGENT. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE
NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE
PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE WORTH MORE OR LESS THAN
ORIGINAL COST.
Past performance is no guarantee for future performance. Returns are net of
fees, assume the reinvestment of fund distributions and may reflect the
reimbursement of the fund expenses as described in the prospectus. Had expenses
not been subsidized, returns would have been lower.The fund invests through a
master portfolio (another fund with the same objective). The fund invests in
foreign securities which are subject to special risks such as currency
fluctuations and economic and political instability. Prospective investors
should refer to the fund's prospectus for a discussion of these risks.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ IT CAREFULLY BEFORE INVESTING.
7
<PAGE>
J.P. MORGAN INSTITUTIONAL INTERNATIONAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Non-U.S. Fixed Income Portfolio
("Portfolio"), at value $6,229,313
Receivable for Expense Reimbursements 8,374
Deferred Organization Expenses 7,857
Receivable for Shares of Beneficial Interest Sold 5,990
Prepaid Trustees' Fees 5
Prepaid Expenses and Other Assets 15
----------
Total Assets 6,251,554
----------
LIABILITIES
Dividends Payable to Shareholders 4,913
Shareholder Servicing Fee Payable 659
Administrative Services Fee Payable 195
Administration Fee Payable 28
Fund Services Fee Payable 10
Accrued Expenses 48,097
----------
Total Liabilities 53,902
----------
NET ASSETS
Applicable to 764,428 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $6,197,652
----------
----------
Net Asset Value, Offering and Redemption Price
Per Share $8.11
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $6,068,175
Distributions in Excess of Net Investment Income (205,190)
Accumulated Net Realized Gain on Investment 476,709
Net Unrealized Depreciation of Investment (142,042)
----------
Net Assets $6,197,652
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN INSTITUTIONAL INTERNATIONAL BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income (Net of Foreign
Withholding Tax of $1,353) $ 162,077
Allocated Portfolio Expenses (Net of
Reimbursement of $28,953) (23,240)
---------
Net Investment Income Allocated from
Portfolio 138,837
FUND EXPENSES
Transfer Agent Fees $ 8,203
Printing Expenses 3,952
Shareholder Servicing Fee 3,671
Amortization of Organization Expenses 2,344
Administrative Services Fee 1,103
Fund Services Fee 112
Administration Fee 94
Trustees' Fees and Expenses 58
Miscellaneous 3,773
--------
Total Fund Expenses 23,310
Less: Reimbursement of Expenses (22,688)
--------
NET FUND EXPENSES 622
---------
NET INVESTMENT INCOME 138,215
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 374,996
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (132,468)
---------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 380,743
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN INSTITUTIONAL INTERNATIONAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
MARCH 31, 1998 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1997
-------------- ------------------
<S> <C> <C>
DECREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 138,215 $ 260,212
Net Realized Gain on Investment Allocated from
Portfolio 374,996 806,863
Net Change in Unrealized Depreciation of
Investment Allocated from Portfolio (132,468) (307,115)
-------------- ------------------
Net Increase in Net Assets Resulting from
Operations 380,743 759,960
-------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (668,351) (952,055)
Net Realized Gain (172,435) (325,360)
-------------- ------------------
Total Distributions to Shareholders (840,786) (1,277,415)
-------------- ------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 4,202,286 8,877,753
Reinvestment of Dividends and Distributions 717,432 1,078,872
Cost of Shares of Beneficial Interest Redeemed (5,388,138) (15,622,643)
-------------- ------------------
Net Decrease from Transactions in Shares of
Beneficial Interest (468,420) (5,666,018)
-------------- ------------------
Total Decrease in Net Assets (928,463) (6,183,473)
NET ASSETS
Beginning of Period 7,126,115 13,309,588
-------------- ------------------
End of Period (including undistributed net
investment income of $0 and $324,946,
respectively) $ 6,197,652 $ 7,126,115
-------------- ------------------
-------------- ------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INSTITUTIONAL INTERNATIONAL BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE PERIOD
FOR THE SIX YEAR ENDED DECEMBER 1, 1994
MONTHS ENDED SEPTEMBER 30, (COMMENCEMENT OF
MARCH 31, 1998 ----------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 SEPTEMBER 30, 1995
-------------- ------- ------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.65 $ 11.30 $ 11.12 $ 10.00
-------------- ------- ------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 2.21 0.31 0.49
Net Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency 0.32 (1.11) 0.95 0.78
-------------- ------- ------- -------------------
Total from Investment Operations 0.42 1.10 1.26 1.27
-------------- ------- ------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.76) (2.78) -- (0.15)
Net Realized Gain (0.20) (0.97) (1.08) --
-------------- ------- ------- -------------------
Total Distributions to Shareholders (0.96) (3.75) (1.08) (0.15)
-------------- ------- ------- -------------------
NET ASSET VALUE, END OF PERIOD $ 8.11 $ 8.65 $ 11.30 $ 11.12
-------------- ------- ------- -------------------
-------------- ------- ------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 5.19%(a) 12.52% 12.09% 12.83%(a)
Net Assets, End of Period (in thousands) $ 6,198 $ 7,126 $13,310 $ 4,233
Ratios to Average Net Assets
Expenses 0.65%(b) 0.50% 0.65% 0.60%(b)
Net Investment Income 3.78%(b) 4.88% 5.28% 5.82%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 1.41%(b) 1.91% 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.
11
<PAGE>
J.P. MORGAN INSTITUTIONAL INTERNATIONAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Institutional International Bond Fund (the "fund") is a separate
series of the J.P. Morgan Institutional Funds, a Massachusetts business trust
(the "trust") which was organized on November 4, 1992. The trust is registered
under the Investment Company Act of 1940, as amended, as a non-diversified,
open-end management investment company. The fund commenced operations on
December 1, 1994. Prior to January 1, 1998, the trust's and the fund's names
were The JPM Institutional Funds and The JPM Institutional International Bond
Fund, respectively.
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 (99.6% at
March 31, 1998). The performance of the fund is directly affected by the
performance of the portfolio. The financial statements of the portfolio,
including the Schedule of Investments, are included elsewhere in this report and
should be read in conjunction with the fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the fund:
a) Valuation of securities by the portfolio is discussed in Note 1a of the
portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the portfolio is allocated pro rata among the fund and other
investors in the portfolio at the time of such determination.
c) Substantially all of the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital gains, if any, are declared and paid annually.
d) The fund incurred organization expenses in the amount of $32,867. Morgan
Guaranty Trust Company of New York ("Morgan") agreed to pay the
organization expenses of the fund. The fund agreed to reimburse Morgan for
these costs which were deferred and are being amortized on a straight-line
basis over a period not to exceed five years beginning with the
commencement of operations of the fund.
e) The fund is treated as a separate entity for federal income tax purposes.
The fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
f) Expenses incurred by the trust with respect to any two or more funds in
the trust are allocated in proportion to the net assets of each fund in
the trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
12
<PAGE>
J.P. MORGAN INSTITUTIONAL INTERNATIONAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of -pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the six
months ended March 31, 1998, the fee for these services amounted to $94.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for certain aspects of the administration and operation of the fund. Under
the Services Agreement, the fund has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and the other portfolios in which the trust and J.P. Morgan
Funds (formerly JPM Pierpont Funds) invest (the "master portfolios") and
J.P. Morgan Series Trust (formerly The 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 master portfolios, other investors in the master
portfolios for which Morgan provides similar services, and J.P. Morgan
Series Trust. For the six months ended March 31, 1998, the fee for these
services amounted to $1,103.
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,
1999. For the six months ended March 31, 1998, Morgan has agreed to
reimburse the fund $51,641 for expenses under this agreement.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance service to fund shareholders. The agreement provides for the
fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.10% of the average daily net assets of
the fund. For the six months ended March 31, 1998, the fee for these
services amounted to $3,671.
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
$112 for the six months ended March 31, 1998.
13
<PAGE>
J.P. MORGAN INSTITUTIONAL INTERNATIONAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, J.P. Morgan Funds, the master portfolios and J.P.
Morgan Series Trust. The Trustees' Fees and Expenses shown in the
financial statements represents the fund's allocated portion of these
total fees and expenses.The trust's Chairman and Chief Executive Officer
also serves as Chairman of Group and receives compensation and employee
benefits from Group in his role as Group's Chairman. The allocated portion
of such compensation and benefits included in the Fund Services Fee shown
in the financial statements was $23.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the fund were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
MARCH 31, 1998 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1997
-------------- ------------------
<S> <C> <C>
Shares of beneficial interest sold............... 509,291 1,035,218
Reinvestment of dividends and distributions...... 89,399 134,038
Shares of beneficial interest redeemed........... (657,714) (1,523,512)
-------------- ------------------
Net Decrease..................................... (59,024) (354,256)
-------------- ------------------
-------------- ------------------
</TABLE>
4. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investments
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 28, 1997, with unaffiliated lenders. Additionally, since all
of the investable assets of the fund are in the portfolio, the portfolio is
party to certain covenants of the Agreement. The maximum borrowing under the
Agreement is $100,000,000. Prior to January 26, 1998, the maximum borrowing
under the Agreement was $150,000,000. The Agreement expires on May 27, 1998,
however, the fund and the unaffiliated lenders as parties to the Agreement will
have the ability to extend the Agreement and continue their participation
therein for an additional 364 days. The purpose of the Agreement is to provide
another alternative for settling large fund shareholder redemptions. Interest on
any such borrowings outstanding will approximate market rates. The funds pay a
commitment fee at an annual rate of 0.065% on the unused portion of the
committed amount which is allocated to the funds in accordance with procedures
established by their respective trustees or directors. The fund has not borrowed
pursuant to the Agreement as of March 31, 1998.
5. OTHER MATTERS
Prior to January 20, 1998, the fund invested in the portfolio along with a
non-U.S. fund managed by Morgan. On January 20, 1998, the non-U.S. fund withdrew
its interest in the portfolio through an in-kind withdrawal amounting to
$217,929,049. The withdrawal did not create a taxable event to the fund or
reduce the net assets of the fund, but it did reduce the net assets of the
portfolio.
14
<PAGE>
The Non-U.S. Fixed Income Portfolio
Semi-Annual Report March 31, 1998
(unaudited)
(The following pages should be read in conjunction
with J.P. Morgan Institutional International Bond Fund
Semi-Annual Financial Statements)
15
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(LOCAL CURRENCY
000'S OMITTED)(1) SECURITY DESCRIPTION VALUE
- ------------------ ---------------------------------------------------------------------- -----------
<C> <S> <C>
CORPORATE OBLIGATIONS (22.2%)
GERMANY (1.9%)
ITL 175,000 Bayerische Landesbank Girozentrale, 10.75% due 03/01/03 (s)........... $ 120,003
-----------
UNITED KINGDOM (17.8%)
GBP 200 Alliance & Leicester Building Society PLC, 8.75% due 12/07/06 (s)..... 373,017
GBP 40 Alliance & Leicester Building Society PLC, 9.75% due 04/02/08 (s)..... 79,962
GBP 99 ASDA Group PLC, 8.375% due 04/24/07................................... 183,193
GBP 105 Imperial Chemical Industries, 7.625% due 08/21/07 (s)................. 185,394
GBP 100 Royal Bank of Scotland PLC, 8.375% due 01/29/07 (s)................... 183,159
GBP 62 Vodafone Group PLC, 7.50% due 03/19/04 (s)............................ 107,589
-----------
1,112,314
-----------
UNITED STATES (2.5%)
USD 155 Discover Card, 5.755% due 04/17/98, FRN (s)........................... 154,758
-----------
TOTAL CORPORATE OBLIGATIONS (COST $1,304,636)..................... 1,387,075
-----------
GOVERNMENT OBLIGATIONS (47.8%)
AUSTRALIA (9.1%)
Government of Australia
AUD 664 9.75% due 03/15/02 (s).............................................. 510,027
AUD 71 10.00% due 10/15/07 (s)............................................. 61,421
-----------
571,448
-----------
DENMARK (2.2%)
DKK 831 Kingdom of Denmark, 8.00% due 03/15/06 (s)............................ 140,346
-----------
JAPAN (28.2%)
Government of Japan
JPY 67,800 Series 157, Callable, 4.50% due 06/20/03 (s)........................ 590,442
JPY 115,050 Series 187, Callable, 3.30% due 06/20/06 (s)........................ 966,033
JPY 27,000 Series 200, Callable, 2.00% due 12/20/07 (s)........................ 205,308
-----------
1,761,783
-----------
NETHERLANDS (8.3%)
NLG 1,035 Government of the Netherlands, 5.75% due 09/15/02 (s)................. 520,311
-----------
TOTAL GOVERNMENT OBLIGATIONS (COST $3,075,556).................... 2,993,888
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(LOCAL CURRENCY
000'S OMITTED)(1) SECURITY DESCRIPTION VALUE
- ------------------ ---------------------------------------------------------------------- -----------
<C> <S> <C>
SUPRANATIONAL OBLIGATIONS (2) (1.6%)
European Investment Bank
ITL 55,000 10.875% due 12/14/05 (s)............................................ $ 41,147
ITL 79,000 12.20% due 02/18/03 (s)............................................. 56,881
-----------
TOTAL SUPRANATIONAL OBLIGATIONS (COST $93,749).................... 98,028
-----------
SHORT-TERM INVESTMENTS (21.9%)
EURO DOLLAR TIME DEPOSITS (21.1%)
1,318,000 State Street Bank & Trust Co. London, 4.50% due 04/01/98.............. 1,318,000
-----------
U.S. TREASURY OBLIGATIONS (0.8%)
50,000 United States Treasury Bill, 5.24%* due 08/20/98 (s).................. 48,989
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,366,989).................... 1,366,989
-----------
TOTAL INVESTMENTS (COST $5,840,930) (93.5%)........................... 5,845,980
OTHER ASSETS IN EXCESS OF LIABILITIES (6.5%).......................... 408,774
-----------
NET ASSETS (100.0%)................................................... $ 6,254,754
-----------
-----------
</TABLE>
- ------------------------------
(1) -- Principal is in the local currency of the country in which the security
is traded, which may not be the country of origin.
(2) -- International agencies
FRN -- Floating Rate Note. Maturity Date reflects the later of the next interest
rate change or next put date.
(s) -- Security is fully or partially segregated with custodian as collateral
for futures contracts or with broker as initial margin for futures contracts.
$1,877,944 of the market value has been segregated.
* -- Yield-to-Maturity.
NOTE: Based on the cost of investments of $5,846,501 for federal income tax
purposes at March 31, 1998, the aggregate gross unrealized appreciation was
$91,028 and the aggregate gross unrealized depreciation was $91,549 resulting in
a net unrealized depreciation of investments of $521.
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $5,840,930 ) $5,845,980
Cash 594
Foreign Currency at Value (Cost $221,664 ) 221,530
Unrealized Appreciation of Forward Foreign
Currency Contracts 166,617
Interest Receivable 78,614
Receivable for Expense Reimbursement 22,705
Prepaid Trustees' Fees 237
Prepaid Expenses and Other Assets 713
----------
Total Assets 6,336,990
----------
LIABILITIES
Unrealized Depreciation of Forward Foreign
Currency Contracts 31,845
Variation Margin Payable 7,010
Advisory Fee Payable 2,331
Fund Services Fee Payable 1,449
Administrative Services Fee Payable 197
Accrued Expenses 39,404
----------
Total Liabilities 82,236
----------
NET ASSETS
Applicable to Investors' Beneficial Interests $6,254,754
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income (Net of Foreign Withholding Tax
of $38,764 ) $3,285,323
EXPENSES
Advisory Fee $ 253,881
Custodian Fees and Expenses 68,276
Professional Fees and Expenses 25,688
Administrative Services Fee 21,879
Printing Expenses 4,249
Fund Services Fee 3,732
Administration Fee 1,576
Trustees' Fees and Expenses 794
Miscellaneous 808
-----------
Total Expenses 380,883
Less: Reimbursement of Expenses (29,048)
-----------
NET EXPENSES 351,835
----------
NET INVESTMENT INCOME 2,933,488
NET REALIZED GAIN (LOSS) ON
Investment Transactions (including $463,811 net
realized gain from futures contracts) (1,055,109)
Foreign Currency Transactions 5,122,408
-----------
Net Realized Gain 4,067,299
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments (including $166,971 net unrealized
appreciation from futures contracts) (2,747,166)
Foreign Currency Contracts and Translations 3,492,377
-----------
Net Change in Unrealized Appreciation 745,211
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $7,745,998
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
MARCH 31, 1998 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1997
-------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 2,933,488 $ 8,781,811
Net Realized Gain on Investment and Foreign
Currency Transactions 4,067,299 16,464,548
Net Change in Unrealized Appreciation
(Depreciation) of Investment and Foreign
Currency Translations 745,211 (3,985,721)
-------------- ------------------
Net Increase in Net Assets Resulting from
Operations 7,745,998 21,260,638
-------------- ------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 9,442,001 151,112,076
Withdrawals (245,280,117) (83,928,855)
-------------- ------------------
Net Increase (Decrease) from Investors'
Transactions (235,838,116) 67,183,221
-------------- ------------------
Total Increase (Decrease) in Net Assets (228,092,118) 88,443,859
NET ASSETS
Beginning of Period 234,346,872 145,903,013
-------------- ------------------
End of Period $ 6,254,754 $ 234,346,872
-------------- ------------------
-------------- ------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE FISCAL FOR THE PERIOD
SIX MONTHS YEAR ENDED OCTOBER 11, 1994
ENDED SEPTEMBER 30, (COMMENCEMENT OF
MARCH 31, 1998 ---------------- OPERATIONS) TO
(UNAUDITED) 1997 1996 SEPTEMBER 30, 1995
--------------- ---- ---- ----------------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.49%(a) 0.52% 0.51% 0.55%(a)
Net Investment Income 4.04%(a) 4.72% 5.34% 5.73%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.04%(a) -- -- --
Portfolio Turnover 143%(b) 346% 330% 288%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Not annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Non-U.S. Fixed Income Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended, as a no-load, non-diversified,
open-end management investment company which was organized as a trust under the
laws of the State of New York. The portfolio commenced operations on October 11,
1994. The portfolio's investment objective is to provide high total return,
consistent with moderate risk of capital, by investing in a portfolio of
international fixed income securities. 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 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 value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value for such security will be based either
on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the portfolio's trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
short-term portfolio securities with a remaining maturity of less than 60
days are valued by 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 foreign currency contracts are translated at the prevailing
exchange rates at the end of the period. Purchases, sales, income and
expenses are translated
21
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
at the exchange rates prevailing on the respective dates of such
transactions. Translation gains and losses resulting from changes in
exchange rates during the reporting period and gains and losses realized
upon settlement of foreign currency transactions are reported in the
Statement of Operations.
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 March 31, 1998 the portfolio had open forward foreign
currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
COST/ VALUE AT APPRECIATION/
PURCHASE CONTRACTS PROCEEDS 3/31/98 (DEPRECIATION)
- ------------------------------------------------- ----------------- ----------- --------------
<S> <C> <C> <C>
Canadian Dollar 601,302, expiring 4/21/98........ $ 424,819 $ 423,040 $ (1,779)
Canadian Dollar 340,946 for AUD 359,808, expiring
4/21/98......................................... 238,702 239,869 1,167
Danish Krone 1,179,325, expiring 4/21/98......... 169,443 167,477 (1,966)
Deutsche Mark 16,564 for AUD 13,492, expiring
4/21/98......................................... 8,949 8,968 19
Deutsche Mark 242,593 for CAD 190,943, expiring
4/21/98......................................... 134,336 131,347 (2,989)
French Franc 3,167,967, expiring 4/21/98......... 519,187 511,988 (7,199)
Italian Lira 500,000,000, expiring 4/21/98....... 278,842 274,300 (4,542)
Japanese Yen 180,879,704, expiring 4/21/98....... 1,409,415 1,360,821 (48,594)
Swedish Krona 6,778,774, expiring 4/21/98........ 850,195 848,556 (1,639)
<CAPTION>
SALES CONTRACTS
- -------------------------------------------------
<S> <C> <C> <C>
Australian Dollar 494,002, expiring 4/21/98...... 328,651 327,728 923
British Pound 749,582, expiring 4/21/98.......... 1,231,183 1,253,807 (22,624)
</TABLE>
22
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
COST/ VALUE AT APPRECIATION/
SALES CONTRACTS (CONTINUED) PROCEEDS 3/31/98 (DEPRECIATION)
- ------------------------------------------------- ----------------- ----------- --------------
<S> <C> <C> <C>
Canadian Dollar 741,275, expiring 4/21/98........ $ 515,792 $ 521,516 $ (5,724)
Danish Krone 2,079,942, expiring 4/21/98......... 301,117 295,377 5,740
Danish Krone 83,620 for DEM 21,932, expiring
4/21/98......................................... 11,875 11,875 --
Deutsche Mark 461,778, expiring 4/21/98.......... 254,575 250,021 4,554
French Franc 3,215,181, expiring 4/21/98......... 529,730 519,618 10,112
Italian Lira 986,417,454, expiring 4/21/98....... 549,349 541,150 8,199
Japanese Yen 415,856,212, expiring 4/21/98....... 3,328,433 3,128,632 199,801
Japanese Yen 1,485,534 for DEM 20,897, expiring
4/21/98......................................... 11,314 11,176 138
Netherlands Guilder 1,114,754, expiring
4/21/98......................................... 545,780 535,472 10,308
Spanish Peseta 2,262,675, expiring 4/21/98....... 14,722 14,420 302
Swedish Krona 6,778,774, expiring 4/21/98........ 839,121 848,556 (9,435)
--------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 134,772
--------------
--------------
</TABLE>
e) Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place is fixed when the
portfolio enters into the contract. Upon entering into such a contract,
the portfolio is required to pledge to the broker an amount of cash and/or
liquid securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the portfolio agrees to receive
from, or pay to, the broker an amount of cash equal to the daily
fluctuation in 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 for the purpose
of hedging its existing portfolio securities, or securities the portfolio
intends to purchase, against fluctuations in value caused by changes in
prevailing market interest rates or securities movements. The use of
futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the
underlying hedged assets, and the possible inability of counterparties to
meet the terms of their contracts.
23
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
SUMMARY OF OPEN CONTRACTS AT MARCH 31, 1998
<TABLE>
<CAPTION>
NUMBER OF NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS LONG DEPRECIATION OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
Ten-Year French Government Bond, expiring June
1998............................................ 4 $ (1,458) $ 335,941
Ten-Year German Government Bond, expiring June
1998............................................ 7 (319) 1,015,649
-------------- -------------- ----------------
Totals........................................... 11 $ (1,777) $ 1,351,590
-------------- -------------- ----------------
-------------- -------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS SHORT DEPRECIATION OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
Ten-Year Long Gilt, expiring June 1998........... 6 $ (1,100) $ 542,391
--------------- -------------- ----------------
--------------- -------------- ----------------
</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 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. 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 six months ended March 31, 1998, such
fees amounted to $253,881.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as 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
portfolio and certain other investment companies subject to similar
agreements with FDI.
For the six months ended March 31, 1998, the fee for these services
amounted to $1,576.
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 based on the aggregate average daily net assets of the
portfolio and certain other portfolios for which Morgan acts as investment
advisor (the "master portfolios") and J.P. Morgan Series Trust in
accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
24
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by
the portfolio is determined by the proportionate share that its net assets
bear to the net assets of the master portfolios, other investors in the
master portfolios for which Morgan provides similar services and J.P.
Morgan Series Trust. For the six months ended March 31,1998, the fee for
these services amounted to $21,879.
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 $3,732 for the six months ended March 31, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements represents the portfolio's
allocated portion of the total fees and expenses.The portfolio's Chairman
and Chief Executive Officer also serves as Chairman of Group and 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 $800.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- ------------
<S> <C>
$ 172,318,550 $159,784,443
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement as discussed more
fully in Note 4 of the fund's Notes to the Financial Statements which are
included elsewhere in this report.
5. OTHER MATTERS
On January 20, 1998, the portfolio received a withdrawal request in the amount
of $217,929,049 as discussed in Note 5 of the fund's Notes to Financial
Statements which are included elsewhere in this report. This amount is included
in Withdrawals shown on the Statement of Changes in Net Assets. The withdrawal
which was made in-kind by transferring certain assets and liabilities, including
securities, directly to a non-U.S. fund resulted in a net realized gain on
transfer of the securities in the amount of $9,820, which is included in the Net
Realized Gain on Investment and Foreign Currency Transactions in the Statement
of Operations.
25
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN
FEDERAL MONEY MARKET FUND
INSTITUTIONAL
PRIME MONEY MARKET FUND
INTERNATIONAL
TAX EXEMPT MONEY MARKET FUND
BOND FUND
TREASURY MONEY MARKET FUND
BOND FUND
CALIFORNIA BOND FUND: INSTITUTIONAL SHARES
GLOBAL STRATEGIC INCOME FUND
INTERNATIONAL BOND FUND
NEW YORK TOTAL RETURN BOND FUND
SHORT TERM BOND FUND
TAX EXEMPT BOND FUND
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
TAX AWARE DISCIPLINED EQUITY FUND:
INSTITUTIONAL SHARES
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
EMERGING MARKETS EQUITY FUND
EUROPEAN EQUITY FUND
INTERNATIONAL EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
JAPAN EQUITY FUND
FOR MORE INFORMATION ON THE J.P. MORGAN SEMI-ANNUAL REPORT
INSTITUTIONAL FUNDS, CALL J.P. MORGAN FUNDS MARCH 31, 1998
SERVICES AT (800)766-7722.
