<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INSTITUTIONAL BOND FUND-ULTRA
December 1, 1999
Dear Shareholder:
The fiscal year ending October 31, 1999, was a volatile one for bonds and for
the J.P. Morgan Institutional Bond Fund-Ultra. We are pleased to report,
however, that the fund provided a solid total return of 0.28% for the fiscal
period under review. The fund's performance slightly lagged the 0.49%
returned by its benchmark, the Salomon Smith Barney Broad Investment Grade
Bond Index. However, the fund outperformed its competitors, as measured by
the Lipper Intermediate Investment Grade Debt Funds Average, which returned
- -0.07% for the year.
The fund's net asset value decreased from $10.17 per share on October 31, 1998,
to $9.60 per share on October 31, 1999, after paying approximately $0.60 per
share in dividends from ordinary income. The fund's net assets stood at $299.3
million at the end of the reporting period. The net assets of the portfolio, in
which the fund invests, totaled approximately $1.6 billion on October 31, 1999.
The report that follows includes an interview with William G. Tennille, a member
of the portfolio management team for The U.S. Fixed Income Portfolio. 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
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS.........1 FUND FACTS AND HIGHLIGHTS...............5
FUND PERFORMANCE...................2 FINANCIAL STATEMENTS....................8
PORTFOLIO MANAGER Q&A..............3
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$20,000,000 (the minimum investment in the fund). The chart at right shows that
$20,000,000 invested on October 31, 1989,* would have grown to $41,290,702 on
October 31, 1999.
Another 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 (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.
GROWTH OF $20,000,000 OVER 10 YEARS*
OCTOBER 31, 1989 - OCTOBER 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
Lipper Intermediate Investment
JPM Inst. Bond Ultra Grade Fund Index Benchmark for Inst'l
<S> <C> <C> <C>
10/31/89 20,000,000 20,000,000 20,000,000
11/30/89 20,164,367 20,124,000 20,189,024
12/31/89 20,250,984 20,140,099 20,238,800
1/31/90 20,216,067 19,922,586 20,008,191
2/28/90 20,546,182 19,954,462 20,044,106
3/31/90 20,616,742 19,960,449 20,085,061
4/30/90 20,536,397 19,812,741 19,907,378
5/31/90 20,900,668 20,300,135 20,474,450
6/30/90 21,136,661 20,578,247 20,809,023
7/31/90 21,398,240 20,847,822 21,105,160
8/31/90 21,404,532 20,587,224 20,831,076
9/30/90 21,516,137 20,618,105 21,012,539
10/31/90 21,760,483 20,708,824 21,276,542
11/30/90 22,069,448 21,065,016 21,732,090
12/31/90 22,295,180 21,326,222 22,078,004
1/31/91 22,498,867 21,541,617 22,345,158
2/28/91 22,624,326 21,804,425 22,491,966
3/31/91 22,803,779 22,018,108 22,658,938
4/30/91 23,026,458 22,299,940 22,932,392
5/31/91 23,177,189 22,422,590 23,062,819
6/30/91 23,214,482 22,429,316 23,065,969
7/31/91 23,415,450 22,700,711 23,389,831
8/31/91 23,729,684 23,193,317 23,881,293
9/30/91 24,139,142 23,622,393 24,380,316
10/31/91 24,273,483 23,868,066 24,629,828
11/30/91 24,520,301 24,106,747 24,862,328
12/31/91 25,294,810 24,805,842 25,606,452
1/31/92 24,832,206 24,540,420 25,278,810
2/29/92 24,960,454 24,668,030 25,443,261
3/31/92 24,850,901 24,601,426 25,309,684
4/30/92 24,979,188 24,749,035 25,502,489
5/31/92 25,428,672 25,174,718 25,968,748
6/30/92 25,862,595 25,534,717 26,337,975
7/31/92 26,469,325 26,137,336 26,858,421
8/31/92 26,724,875 26,369,958 27,156,449
9/30/92 27,107,167 26,710,131 27,472,749
10/31/92 26,541,983 26,290,782 27,114,864
11/30/92 26,477,774 26,267,120 27,125,575
12/31/92 26,946,443 26,666,380 27,547,098
1/31/93 27,497,469 27,199,708 28,104,719
2/28/93 27,959,480 27,735,542 28,582,320
3/31/93 28,049,290 27,868,673 28,695,104
4/30/93 28,287,410 28,063,753 28,921,933
5/31/93 28,290,393 28,066,560 28,940,205
6/30/93 28,847,982 28,608,244 29,489,635
7/31/93 29,023,076 28,765,590 29,658,497
8/31/93 29,546,018 29,326,519 30,166,341
9/30/93 29,660,365 29,437,959 30,267,784
10/31/93 29,755,282 29,552,767 30,362,926
11/30/93 26,499,808 29,280,882 30,109,004
12/31/93 29,636,113 29,438,999 30,278,495
1/31/94 30,030,923 29,824,650 30,687,417
2/28/94 29,521,191 29,275,876 30,177,683
3/31/94 28,931,510 28,617,169 29,429,148
4/30/94 28,672,469 28,342,444 29,207,359
5/31/94 28,721,003 28,297,096 29,204,839
6/30/94 28,622,751 28,237,672 29,142,461
7/31/94 29,140,294 28,672,532 29,694,411
8/31/94 29,169,526 28,735,612 29,727,805
9/30/94 28,824,211 28,396,532 29,299,351
10/31/94 28,766,127 28,351,097 29,270,997
11/30/94 28,673,547 28,268,879 29,193,498
12/31/94 28,841,781 28,415,877 29,416,546
1/31/95 29,326,159 28,876,214 30,025,203
2/28/95 29,994,386 29,494,165 30,726,482
3/31/95 30,233,835 29,682,928 30,904,795
4/30/95 30,665,667 30,086,616 31,326,949
5/31/95 31,937,302 31,172,743 32,569,466
6/30/95 32,138,716 31,372,248 32,797,555
7/31/95 32,015,205 31,293,818 32,731,397
8/31/95 32,416,361 31,647,438 33,106,925
9/30/95 32,749,432 31,941,759 33,417,554
10/31/95 33,224,091 32,341,031 33,864,281
11/30/95 33,692,888 32,800,274 34,391,658
12/31/95 34,154,228 33,229,957 34,866,738
1/31/96 34,391,180 33,426,014 35,104,278
2/29/96 33,744,920 32,851,087 34,506,962
3/31/96 33,544,966 32,621,129 34,257,451
4/30/96 33,310,794 32,422,140 34,005,419
5/31/96 33,216,179 32,367,022 33,986,516
6/30/96 33,634,513 32,736,006 34,425,682
7/31/96 33,675,716 32,808,026 34,518,934
8/31/96 33,642,656 32,775,218 34,469,158
9/30/96 34,204,876 33,325,841 35,068,994
10/31/96 34,956,116 34,002,356 35,857,854
11/30/96 35,495,606 34,570,195 36,448,239
12/31/96 35,280,246 34,269,435 36,128,158
1/31/97 35,434,720 34,375,670 36,267,406
2/28/97 35,551,708 34,471,922 36,307,731
3/31/97 35,158,774 34,099,625 35,941,655
4/30/97 35,648,216 34,546,330 36,453,910
5/31/97 35,994,750 34,853,792 36,797,933
6/30/97 36,452,590 35,247,640 37,236,469
7/31/97 37,399,689 36,178,178 38,244,597
8/31/97 37,082,859 35,852,574 37,916,955
9/30/97 37,629,318 36,372,437 38,474,576
10/31/97 38,026,836 36,797,994 39,027,156
11/30/97 38,163,738 36,904,708 39,209,880
12/31/97 38,530,499 37,244,232 39,609,980
1/31/98 39,014,971 37,732,131 40,119,085
2/28/98 39,030,318 37,683,079 40,090,101
3/31/98 39,240,474 37,822,507 40,248,252
4/30/98 39,416,121 37,981,361 40,455,548
5/31/98 39,786,804 38,323,193 40,842,417
6/30/98 40,072,544 38,602,953 41,178,880
7/31/98 40,158,570 38,668,578 41,265,831
8/31/98 40,605,034 39,121,000 41,899,061
9/30/98 41,491,756 39,966,014 42,886,397
10/31/98 41,176,251 39,642,289 42,692,332
11/30/98 41,385,341 39,856,357 42,927,352
12/31/98 41,511,806 40,003,826 43,060,929
1/31/99 41,760,894 40,251,850 43,379,749
2/28/99 41,020,551 39,515,241 42,619,243
3/31/99 41,355,161 39,799,751 42,863,084
4/30/99 41,606,731 39,927,110 43,005,482
5/31/99 41,069,511 39,503,882 42,611,682
6/30/99 40,855,070 39,357,718 42,464,873
7/31/99 40,679,963 39,223,902 42,296,642
8/31/99 40,664,773 39,161,143 42,265,768
9/30/99 41,037,564 39,556,671 42,771,722
10/31/99 41,290,702 39,608,095 42,901,518
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
---------------- -------------------------------
THREE SIX ONE FIVE TEN
AS OF OCTOBER 31, 1999 MONTHS MONTHS YEAR YEARS* YEARS*
- -------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Inst. Bond Fund-Ultra 1.50% -0.76% 0.28% 7.50% 7.52%
Salomon Smith Barney Broad
Investment Grade Bond Index** 1.43% -0.24% 0.49% 7.95% 7.93%
Lipper Intermediate Investment
Grade Debt Funds Average 0.98% 0.78% -0.07% 6.94% 7.18%
<CAPTION>
AS OF SEPTEMBER 30, 1999
- -------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Inst. Bond Fund-Ultra 0.45% -0.77% -1.09% 7.32% 7.64%
Salomon Smith Barney Broad
Investment Grade Bond Index** 0.72% -0.21% -0.27% 7.86% 8.16%
Lipper Intermediate Investment
Grade Debt Funds Average 0.49% -0.61% -1.01% 6.89% 7.32%
</TABLE>
*PERFORMANCE FROM 7/26/93 THROUGH 12/15/97 (INCEPTION DATE OF THE FUND) REFLECTS
THE HISTORICAL RETURNS OF THE J.P. MORGAN INSTITUTIONAL BOND FUND. PERFORMANCE
PRIOR TO 7/26/93 (INCEPTION DATE OF THE J.P. MORGAN INSTITUTIONAL BOND FUND)
REFLECTS THE HISTORICAL RETURNS OF THE J.P. MORGAN BOND FUND. BOTH PREDECESSOR
FUNDS HAD HIGHER EXPENSE RATIOS THAN THE FUND. THE FUND'S AVERAGE ANNUAL TOTAL
RETURN FROM THE INCEPTION DATE ON 12/15/97 THROUGH 10/31/99 IS 3.91%.
**THE SALOMON SMITH BARNEY BROAD INVESTMENT GRADE BOND INDEX IS AN UNMANAGED,
MARKET-WEIGHTED INDEX THAT CONTAINS APPROXIMATELY 4,700 INDIVIDUALLY PRICED
INVESTMENT-GRADE BONDS.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. RETURNS ARE NET OF FEES,
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 WOULD HAVE BEEN LOWER. LIPPER ANALYTICAL SERVICES, INC.
IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with WILLIAM G. TENNILLE, a member of the portfolio
management team for The U.S. Fixed Income Portfolio, in which the fund
invests. Bill joined Morgan in 1992 and has extensive experience across a
broad range of markets, including mortgage securities and derivatives. This
interview was conducted on November 16, 1999, and reflects Bill's views on
that date.
WHAT FACTORS HAVE MOST INFLUENCED THE FIXED INCOME MARKETS OVER THE PAST TWELVE
MONTHS?
WT: The past year has been a volatile one for the financial markets and has kept
the U.S. Federal Reserve on its toes. The crises that plagued the global economy
from August through October last year prompted the Fed to act three times in the
last four months of 1998, lowering the federal funds rate 75 basis points to
4.75%. These actions helped keep the global economy on an even keel and promoted
growth within the U.S. economy. The Fed then found itself with an economy
growing above trend, albeit with benign inflation and subdued wage pressures. In
an effort to slow growth and create a "soft landing" the Fed raised rates twice
during the summer (in June and August), and then again at the November FOMC
meeting, bringing the fed funds rate back up to 5.50%. The Fed remains anxious
that the economy, should it continue at above-trend growth, may reach levels at
which it would no longer be able to contain price pressures.
At the same time that the Fed is tightening monetary policy, a liquidity crunch
is developing. Market makers, leery of taking risks following last fall's
crises, have dramatically reduced their inventories. In addition, there is a
general undercurrent of "what if Y2K really is a problem" that has both
investors and issuers heading for the sidelines for the remainder of the year.
Many issuers have front-loaded issuance, coming to market earlier in the year,
while others have set maturities for late January into February to avoid
potential year-end complications. This is happening in the context of a somewhat
longer-term trend: because of the budget surplus, the Treasury has been able and
will continue to reduce issuance. The third trend that has had a significant
impact has been a tiering in the market. Issues that are $500 million and larger
trade relatively easily at small price spreads, while most, if not all, smaller
issues trade infrequently at wider spreads. We expect some amelioration of the
liquidity and tiering conditions after the coming (safe) passage through Y2K.
HOW DID THE PORTFOLIO PERFORM DURING THAT TIME?
WT: In the fiscal year just ended, we benefited from the narrowing of spreads in
late-1998 into early-1999, but lost some ground in the spring when spreads began
widening again in anticipation of Fed rate hikes. During June, the markets were
quite volatile as the Fed first raised the fed funds rate. In the latter half of
the period, performance benefited as we increased our holdings in spread
sectors; poor liquidity held spreads at wider levels than normal. In the past
quarter, the market noticeably calmed down, which produced better
3
<PAGE>
results in most of the spread sectors, the exception being high-yield corporate
debt, which struggled all year in sympathy with the equity markets.
The 12-month period ended October 31 was, again, one of significant changes and
disruptions in the bond markets. We believe that the global markets are, at
last, recovered to a point where volatility should diminish to more "normal"
levels, thereby allowing the markets to return to business as usual.
WHAT DO YOU SEE AHEAD FOR THESE MARKETS? HOW WILL YOU POSITION THE PORTFOLIO AS
A RESULT?
WT: The Fed is caught in an interesting position: it has to provide liquidity at
a time when it must also raise interest rates to dampen growth. The Fed will be
adding liquidity over year-end through a currency facility, a bank loan facility
(through the discount loan window), and a temporarily expanded repo facility. In
addition to the accommodative actions of the Fed, the Treasury is issuing cash
management bills over the year-end and Fannie Mae has instituted weekly 3- and
6-month auctions. At this point, we anticipate demand to outstrip supply,
driving down the yields on these securities. Although the most recent Fed
completes the take-back of last year's easings, we still expect some further
rate increases in the next few months. While wage pressures may still be in
check, the size of the current account deficit and the weakening dollar, and, of
course, the continued strength of the economy, are concerns for the Fed.
We believe that post Y2K -- from which we expect little or no long-term
impact -- liquidity will return to the bond markets, albeit with some modest
spread widening, as bond issuance picks up in the new year. Recently, demand
has been outpacing supply, and unless we see a sharp decline in the world's
economies, we would expect the demand for bonds to be there. European and
Asian economies have rebounded along with the U.S. and Latin America, and we
believe the demand from European investors for investment-grade fixed income
products, which shot up over the past two years, will continue apace.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Institutional Bond Fund-Ultra seeks to provide a high total
return consistent with moderate risk of capital. It is designed for investors
who seek a total return that is higher than that generally available from
short-term obligations while recognizing the greater price fluctuation of
longer-term instruments.
- --------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
12/15/97
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 10/31/99
$299,254,890
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 10/31/99
$1,598,121,679
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/99
EXPENSE RATIO
The fund's current expense ratio of 0.36% 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 OCTOBER 31, 1999
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- - U.S AGENCY OBLIGATIONS 31.8%
- - SHORT-TERM INVESTMENTS 29.7%
- - CORPORATE OBLIGATIONS 15.0%
- - CMOS 11.8%
- - U.S. TREASURY OBLIGATIONS 5.4%
- - FOREIGN GOVERNMENTS 3.1%
- - PRIVATE PLACEMENTS 2.2%
- - CONVERTIBLE PREFERRED STOCK 0.7%
- - CERTIFICATES OF DEPOSIT 0.2%
- - CONVERTIBLE BONDS 0.1%
30-DAY SEC YIELD
6.20%*
DURATION
4.8 YEARS
QUALITY BREAKDOWN
AAA** 77%
AA 2%
A 10%
Other 11%
*YIELD REFLECTS THE REIMBURSEMENT OF FUND EXPENSES AS DESCRIBED IN THE
PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED, THE 30-DAY SEC YIELD WOULD HAVE
BEEN LOWER.
**INCLUDES U.S. GOVERNMENT AGENCY, TREASURY OBLIGATIONS, AND REPURCHASE
AGREEMENTS.
5
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. 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 MORE OR LESS THAN ORIGINAL
COST.
Opinions expressed herein are based on current market conditions and are subject
to change without notice. The fund invests through a master portfolio (another
fund with the same objective).
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 THE PROSPECTUS CAREFULLY BEFORE INVESTING.
6
<PAGE>
J.P. MORGAN INSTITUTIONAL BOND FUND - ULTRA
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Fixed Income Portfolio
("Portfolio"), at value $299,203,017
Receivable for Shares of Beneficial Interest Sold 895,848
Receivable for Expense Reimbursements 32,326
Deferred Organization Expenses 4,336
Prepaid Trustees' Fees 364
Prepaid Expenses and Other Assets 736
------------
Total Assets 300,136,627
------------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 425,000
Dividends Payable to Shareholders 370,984
Shareholder Servicing Fee 12,116
Administrative Services Fee Payable 6,096
Administration Fee Payable 325
Fund Services Fee Payable 162
Accrued Expenses 67,054
------------
Total Liabilities 881,737
------------
NET ASSETS
Applicable to 31,175,843 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $299,254,890
============
Net Asset Value, Offering and Redemption Price
Per Share $9.60
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $311,764,580
Distribution in Excess of Net Investment Income (303,591)
Accumulated Net Realized Loss on Investment (8,212,162)
Net Unrealized Depreciation of Investment (3,993,937)
------------
Net Assets $299,254,890
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN INSTITUTIONAL BOND FUND - ULTRA
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $15,072,111
Allocated Dividend Income (Net of Foreign
Withholding Tax of $1,938) 365,483
Allocated Portfolio Expenses (865,478)
-----------
Net Investment Income Allocated from
Portfolio 14,572,116
FUND EXPENSES
Shareholder Servicing Fee $ 119,816
Registration Fees 65,095
Administrative Services Fee 61,921
Transfer Agent Fees 21,821
Printing Expenses 18,381
Professional Fees 13,393
Fund Services Fee 4,687
Administration Fee 3,539
Trustees' Fees and Expenses 2,152
Amortization of Organization Expenses 850
Miscellaneous 9,195
---------
Total Fund Expenses 320,850
Less: Reimbursement of Expenses (320,850)
---------
NET FUND EXPENSES --
-----------
NET INVESTMENT INCOME 14,572,116
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (8,141,523)
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (5,203,274)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 1,227,319
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN INSTITUTIONAL BOND FUND - ULTRA
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 15,1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 14,572,116 $ 3,947,795
Net Realized Loss on Investment Allocated from
Portfolio (8,141,523) (438,954)
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio (5,203,274) 1,209,337
--------------- ------------------
Net Increase in Net Assets Resulting from
Operations 1,227,319 4,718,178
--------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (14,535,466) (3,920,129)
--------------- ------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 293,165,428 127,389,178
Reinvestment of Dividends 9,609,009 1,612,281
Cost of Shares of Beneficial Interest Redeemed (118,460,908) (1,550,000)
--------------- ------------------
Net Increase from Transactions in Shares of
Beneficial Interest 184,313,529 127,451,459
--------------- ------------------
Total Increase in Net Assets 171,005,382 128,249,508
NET ASSETS
Beginning of Period 128,249,508 --
--------------- ------------------
End of Period $ 299,254,890 $ 128,249,508
=============== ==================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INSTITUTIONAL BOND FUND - ULTRA
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 15, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.17 $ 10.03
--------------- ------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.61 0.54
Net Realized and Unrealized Gain (Loss) on
Investment (0.58) 0.16
--------------- ------------------
Total from Investment Operations 0.03 0.70
--------------- ------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.60) (0.56)
--------------- ------------------
Total Distributions to Shareholders (0.60) (0.56)
--------------- ------------------
NET ASSET VALUE, END OF PERIOD $ 9.60 $ 10.17
=============== ==================
RATIOS AND SUPPLEMENTAL DATA
Total Return 0.28% 7.17%(a)
Net Assets, End of Period (in thousands) $ 299,255 $ 128,250
Ratio to Average Net Assets
Net Expenses 0.36% 0.37%(b)
Net Investment Income 6.08% 6.28%(b)
Expenses without Reimbursement 0.49% 0.60%(b)
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN INSTITUTIONAL BOND FUND - ULTRA
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Institutional Bond Fund - Ultra (the "fund") is a separate series of
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 an open-end management investment
company. The fund commenced operations on December 15, 1997.
The fund invests all of its investable assets in The U.S. Fixed Income Portfolio
(the "portfolio"), a no-load 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 (19% at October 31,
1999). 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 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 $6,939, 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) 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.
f) 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 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.
g) The Fund accounts for and reports distribution to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies." The effect of applying
this
12
<PAGE>
J.P. MORGAN INSTITUTIONAL BOND FUND - ULTRA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
statement was to increase Distribution in Excess of Net Investment Income
by $77,025, decrease Paid-in-Capital by $343 and decrease Accumulated Net
Realized Loss on Investment by $77,368. The adjustments are primarily
attributable to foreign currency reclasses. Net investment income, net
realized gains and net assets were not affected by this change.
h) For federal income tax purposes, the fund had a capital loss carryforward
at October 31, 1999 of $8,056,609, of which $226,218 expires in the year
2006 and $7,830,391 expires in the year 2007. To the extent that this
capital loss is used to offset future capital gains, it is probable that
gains so offset will not be distributed to shareholders.
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 the 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
fiscal year ended October 31, 1999, the fee for these services amounted to
$3,539.
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"), a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. 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 the J.P. Morgan Funds invest (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 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 fiscal year ended October 31, 1999, the fee for
these services amounted to $61,921.
J.P. Morgan has agreed to waive and/or reimburse the fund expenses (except
for those allocated to the fund by the master portfolio and extraordinary
expenses). J.P. Morgan will not waive/reimburse fund expenses if such
waiver/reimbursement would cause total operating expenses to be less than
0.35%, and in no case will total operating expenses exceed 0.50%. This
reimbursement arrangement can be changed or terminated at any time at the
option of J.P. Morgan. For the fiscal year ended October 31, 1999,
J.P. Morgan has agreed to reimburse the fund $320,850 for the 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 services to fund shareholders. The
13
<PAGE>
J.P. MORGAN INSTITUTIONAL BOND FUND - ULTRA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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 0.05% of the
average daily net assets of the fund. For the fiscal year ended
October 31, 1999, the fee for these services amounted to $119,816.
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
$4,687 for the fiscal year ended October 31, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the 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 the 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 $900.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the fund were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 15, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- -------------------
<S> <C> <C>
Shares sold...................................... 29,654,301 12,597,636
Reinvestment of dividends and distributions...... 980,206 159,037
Shares redeemed.................................. (12,063,093) (152,244)
--------------- ------------------
Net Increase..................................... 18,571,414 12,604,429
=============== ==================
</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.
4. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 27, 1998, 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 Agreement expired on May 26,
1999, however, the fund as party to the Agreement has renewed the Agreement and
will continue its participation therein for an additional 364 days until
May 23, 2000. The maximum borrowing under the new Agreement is $150,000,000. 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
0.085% (0.065% prior to May 26, 1999) on the unused portion of the committed
amount. This is allocated to the funds in accordance with procedures established
by their respective trustees. There were no outstanding borrowings pursuant to
the Agreement at October 31, 1999.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Institutional Bond Fund - Ultra
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
J.P. Morgan Institutional Bond Fund - Ultra (one of the series constituting part
of J.P. Morgan Institutional Funds, hereafter referred to as the "fund") at
October 31, 1999, the results of its operations for the year then ended, the
changes in its net assets and the financial highlights for the year then ended
and for the period December 15, 1997 (commencement of operations) through
October 31, 1998, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
15
<PAGE>
The U.S. Fixed Income Portfolio
Annual Report October 31, 1999
(The following pages should be read in conjunction
with J.P. Morgan Institutional Bond Fund - Ultra
Annual Financial Statements)
16
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
CERTIFICATES OF DEPOSIT - FOREIGN (0.2%)
CANADA (0.2%)
$ 4,000,000 Canadian Imperial Bank of Commerce, 6.200% due
08/01/00
(cost $4,000,292).............................. Aa3/AA- $ 3,991,240
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (15.6%)
AIRLINES (0.2%)
3,000,000 Continental Airlines, Inc., Series 1999-2, Class
C-1, 7.730% due 09/15/12....................... Baa1/A- 2,951,700
--------------
FINANCIAL SERVICES (15.4%)
1,858,395 American Southwest Financial Corp., Support Bond,
Series 60, Class D, 8.900% due 03/01/18........ NR/AAA 1,861,871
2,253,150 Bear Stearns Structured Securities Inc.,
Sequential Payer, Series 1997-2,
Class 1A5, (144A), 7.000% due 08/25/36......... Aaa/NR 2,109,864
1,883,044 Chase Commercial Mortgage Securities Corp.,
Sequential Payer,
Series 1998-2, Class A1, 6.025% due 08/18/07... NR/AAA 1,808,645
2,000,000 Chase Commercial Mortgage Securities Corp.,
Subordinated Bond,
Series 1996-2, Class F, (144A), 6.900% due
11/19/06....................................... NR/NR 1,600,000
30,000,000 Chase Manhattan Bank - First Union National,
Sequential Payer,
Series 1999-1, Class A2, 7.439% due 07/15/09... NR/AAA 30,431,250
650,000 Citibank Credit Card Master Trust I, Subordinated
Bond, PO, Series 1997-6, Class A, 6.868% (y)
due 08/15/06................................... Aaa/AAA 470,229
1,405,000 Citibank Credit Card Master Trust I, Subordinated
Bond, Series 1999-2,
Class B, 6.150% due 03/10/11................... A2/A 1,280,742
2,350,000 COMM, Sequential Payer, Series 1999-1, Class A2,
6.455% due 09/15/08............................ Aaa/NR 2,219,363
11,500,000 Commercial Mortgage Acceptance Corp.,
Subordinated Bond, CSTR,
Series 1997-ML1, Class C, 6.774% due
12/15/07....................................... A2/A 10,818,510
901,122 Countrywide Home Loans, Sequential Payer, Series
1997-4, Class A, 8.000% due 08/25/27........... Aaa/NR 899,148
983,105 CS First Boston Mortgage Securities Corp.,
Sequential Payer,
Series 1997-C2, Class A1, 6.400% due
02/17/04....................................... Aaa/AAA 969,280
5,089,000 CS First Boston Mortgage Securities Corp.,
Subordinated Bond,
Series 1997-C2, Class B, 6.720% due 11/17/07... Aa2/NR 4,780,479
30,171,816 First Nationwide Trust, Sequential Payer, Series
1999-4, Class 3PA1, 6.500% due 10/19/29........ NR/AAA 28,521,795
52,905,000 First Union-Lehman Brothers-Bank of America,
Sequential Payer,
Series 1998-C2, Class A2, 6.560% due
11/18/08....................................... Aaa/AAA 50,377,437
1,000,000 Green Tree Financial Corporation, Sequential
Payer, Series 1996-5, Class A5, 7.450% due
07/15/27....................................... Aaa/AAA 1,004,680
1,500,000 J.P. Morgan Commercial Mortgage Finance Corp.,
Subordinated Bond, CSTR, Series 1996-C2, Class
E, (144A), 8.541% due 11/25/27 (v)............. NR/BB 1,286,484
15,000,000 MBNA Master Credit Card Trust, Subordinated Bond,
Series 1999-J, Class B, 7.400% due 02/15/12.... A2/A+ 15,066,300
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 2,223,979 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR,
Series 1995-C2, Class E, (144A), 7.878% due
06/15/21 (v)................................... Ba2/NR $ 2,033,204
2,000,000 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
7.120% due 06/18/29 (v)........................ NR/BB 1,369,687
8,108,636 Midland Realty Acceptance Corp., Sequential
Payer, Series 1996-C2,
Class A1, 7.020% due 01/25/29.................. Aaa/NR 8,059,224
1,224,117 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1997-XL1, Class A1, 6.590% due
10/03/30....................................... Aaa/AAA 1,210,345
12,000,000 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1998-WF2, Class A2, 6.540% due
05/15/08....................................... NR/NR 11,499,375
2,350,000 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1998-XL2, Class A2, 6.170% due
10/03/08....................................... NR/AAA 2,175,219
5,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, CSTR, Series 1997-RR, Class D, (144A),
7.748% due 04/30/39 (v)........................ NR/NR 3,429,687
1,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1995-GAL1,
Class E, (144A), 8.250% due 08/15/05........... NR/NR 856,250
2,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-HF1, Class F, (144A), 6.860%
due 02/15/10................................... NR/NR 1,551,563
24,749,000 Mortgage Capital Funding, Inc., Sequential Payer,
Series 1997-MC1,
Class A3, 7.288% due 03/20/07.................. Aaa/NR 24,718,064
4,000,000 Nationslink Funding Corp., Sequential Payer,
Series 1998-2, Class A2, 6.476% due 07/20/08... Aaa/AAA 3,797,500
19,770,000 Nomura Asset Securities Corp., Sequential Payer,
Series 1998-D6, Class A1B, 6.590% due
03/17/28....................................... Aaa/AAA 18,769,144
10,000,000 Sears Credit Account Master Trust, Series 1995-5,
Class A ,
6.050% due 01/15/08............................ Aaa/AAA 9,806,200
1,250,000 Vendee Mortgage Trust, Sequential Payer, Series
1997-1, Class 2C, 7.500% due 09/15/17.......... NR/NR 1,262,100
--------------
246,043,639
--------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$254,773,637).............................. 248,995,339
--------------
CONVERTIBLE BONDS (0.1%)
RETAIL (0.1%)
1,100,000 Corporate Express, Inc., 4.500% due 07/01/00
(cost $934,625)................................ B3/B- 1,090,375
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
CORPORATE OBLIGATIONS (16.4%)
AUTOMOTIVE (0.7%)
$ 10,000,000 Daimlerchrysler, N.A. Holding, 6.900% due
09/01/04....................................... A1/A+ $ 10,028,100
1,055,000 Daimlerchrysler, N.A. Holding, 7.200% due
09/01/09....................................... A1/A+ 1,054,662
--------------
11,082,762
--------------
BANKING (1.5%)
3,000,000 Bank One Corp., 6.875% due 08/01/06.............. Aa3/A+ 2,948,504
1,000,000 Chase Manhattan Corp., 7.500% due 02/01/03....... A1/A 1,022,030
10,500,000 Comerica Bank, 5.410% due 06/12/00 (v)........... A1/A 10,493,274
10,800,000 Swiss Bank Corp.-New York, 7.000% due 10/15/15... Aa2/AA 10,094,328
--------------
24,558,136
--------------
BROADCASTING & PUBLISHING (0.2%)
1,700,000 AMFM, Inc., 9.250% due 07/01/07.................. B1/B 1,763,750
1,200,000 Fox Family Worldwide, Inc., 9.250% due
11/01/07....................................... B1/B 1,107,000
--------------
2,870,750
--------------
CHEMICALS (0.1%)
1,000,000 Cytec Industries, Inc., MOPPRS, 6.846% due
05/11/05....................................... Baa2/BBB 940,980
--------------
COMMERCIAL SERVICES (0.3%)
5,000,000 Cendant Corp., 7.750% due 12/01/03............... Baa1/BBB 4,965,900
--------------
ELECTRIC (1.3%)
494,000 Calpine Corp., 7.875% due 04/01/08............... Ba1/BB+ 465,595
1,450,000 East Coast Power LLC, (144A), 7.066% due
03/31/12....................................... Baa3/BBB- 1,303,113
4,800,000 East Coast Power LLC, (144A), 7.536% due
06/30/17....................................... Baa3/BBB- 4,282,853
10,000,000 Pacific Corp., Series G, 6.710% due 01/15/26..... Aaa/AAA 9,203,000
5,000,000 PECO Energy Co., 8.000% due 04/01/02............. Baa1/A 5,123,850
--------------
20,378,411
--------------
ELECTRONICS (0.4%)
7,000,000 Sensormatic Electronics Corp., (144A), 7.740% due
03/29/06 (f)................................... NR/BB+ 6,291,460
--------------
ENERGY SOURCE (0.0%)
506,000 Cogentrix Energy, Inc., 8.750% due 10/15/08...... Ba1/BB+ 483,230
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (0.2%)
$ 1,500,000 Fox/Liberty Networks LLC, 8.875% due 08/15/07.... Ba1/BBB- $ 1,522,500
1,100,000 Lamar Media Corp., 8.625% due 09/15/07........... B1/B 1,056,000
--------------
2,578,500
--------------
FINANCIAL SERVICES (5.8%)
13,000,000 Associates Corp. N.A., 5.875% due 07/15/02....... Aa3/AA- 12,765,480
3,400,000 Commercial Credit Co., 8.700% due 06/15/10....... Aa3/AA- 3,735,886
5,000,000 Enterprise Rent-a-Car USA Finance Co., (144A),
6.375% due 05/15/03............................ Baa2/BBB+ 4,855,600
4,000,000 FCB/NC Capital Trust I, 8.050% due 03/01/28...... Baa3/BB+ 3,685,805
390,000 Fleet Boston Corp., 7.125% due 04/15/06.......... A3/A- 388,916
10,000,000 Ford Motor Credit Co., 5.800% due 01/12/09....... A1/A 9,026,700
13,535,000 Ford Motor Credit Co., 7.375% due 10/28/09....... A1/A 13,644,092
410,000 General Motors Acceptance Corp., 7.125% due
05/01/03....................................... A2/A 413,575
10,000,000 Household Finance Corp., 6.000% due 05/01/04..... A2/A 9,583,900
5,330,000 Household Finance Corp., 6.500% due 11/15/08..... A2/A 5,027,842
1,000,000 Keycorp Institutional Capital, Series B, 8.250%
due 12/15/26................................... A1/BBB 998,130
2,500,000 Keystone Financial Mid-Atlantic Funding, MTN,
6.500% due 05/31/08............................ Baa2/BBB+ 2,231,800
2,000,000 Nationwide Financial Services, Inc., 8.000% due
03/01/27....................................... A1/A+ 1,990,960
10,000,000 NGC Corp. Capital Trust, Series B, 8.316% due
06/01/27....................................... Baa3/BBB- 9,504,000
5,000,000 Phillips 66 Capital Trust II, 8.000% due
01/15/37....................................... Baa1/BBB 4,629,750
4,100,000 Provident Financing Trust I, 7.405% due
03/15/38....................................... A2/BBB+ 3,466,140
3,000,000 Safeco Capital Trust I, 8.072% due 07/15/37...... A3/A- 2,624,760
2,000,000 Sun World International, Inc., Series B, 11.250%
due 04/15/04................................... B2/B 2,000,000
1,500,000 US Bancorp Capital I, Series B, 8.270% due
12/15/26....................................... A1/BBB+ 1,476,330
--------------
92,049,666
--------------
FOREST PRODUCTS & PAPER (1.3%)
5,000,000 Champion International Corp., 7.100% due
09/01/05....................................... Baa1/BBB 4,939,850
9,150,000 Georgia-Pacific Corp., 8.625% due 04/30/25....... Baa2/BBB- 9,141,216
5,600,000 Georgia-Pacific Corp., 9.950% due 06/15/02....... Baa2/BBB- 5,979,456
--------------
20,060,522
--------------
HEALTH SERVICES (0.0%)
2,000,000 Mariner Post-Acute Network, Inc., Series B,
9.500% due 04/01/06 TRIANGLE ................. C/D 40,000
--------------
MACHINERY (0.9%)
15,000,000 Caterpillar, Inc., 7.250% due 09/15/09........... A2/A+ 15,002,468
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
METALS & MINING (0.1%)
$ 1,400,000 P&L Coal Holdings Corp., Series B, 9.625% due
05/15/08....................................... B2/B $ 1,337,000
1,000,000 Ryerson Tull, Inc., 8.500% due 07/15/01.......... Baa3/BBB 990,000
--------------
2,327,000
--------------
NATURAL GAS (0.3%)
5,000,000 National Fuel Gas Co., Series D, MTN, 6.214% due
08/12/27....................................... A2/A- 4,924,650
--------------
OIL-PRODUCTION (0.1%)
1,200,000 Plains Resources, Inc., Series D, 10.250% due
03/15/06....................................... B2/B 1,209,000
--------------
OIL-SERVICES (0.3%)
1,000,000 Lasmo (USA), Inc., 7.500% due 06/30/06........... Baa2/BBB 979,660
750,000 Lasmo (USA), Inc., 8.375% due 06/01/23........... Baa2/BBB 715,170
1,250,000 Newpark Resources, Inc., Series B, 8.625% due
12/15/07....................................... B2/B+ 1,162,500
2,786,319 Oil Purchase Co., (144A), 7.100% due 04/30/02.... Ba2/BBB- 2,605,209
--------------
5,462,539
--------------
RETAIL (0.2%)
2,500,000 Federated Department Stores, Inc., 8.500% due
06/15/03....................................... Baa1/BBB+ 2,600,250
--------------
TELECOMMUNICATIONS (0.1%)
1,500,000 McLeodUSA, Inc., 9.250% due 07/15/07............. B1/B+ 1,485,000
1,000,000 NEXTLINK Communications, Inc., 9.625% due
10/01/07....................................... B3/B 962,500
--------------
2,447,500
--------------
TELEPHONE (1.1%)
7,500,000 MCI Worldcom, Inc., 6.950% due 08/15/06.......... A3/A- 7,401,375
10,000,000 Sprint Capital Corp., 5.875% due 05/01/04........ Baa1/BBB+ 9,557,700
--------------
16,959,075
--------------
TRANSPORT & SERVICES (0.0%)
865,191 Burlington Northern Santa Fe Corp., Series
1996-A, 7.330% due 06/23/10.................... Aa3/A+ 872,666
--------------
TRANSPORTATION (0.4%)
2,000,000 Atlantic Express Transportation Corp., 10.750%
due 02/01/04................................... B2/B 1,915,000
4,557,129 Federal Express Corp., Series 1999-1, Class C,
8.250% due 01/15/19............................ Baa1/BBB+ 4,564,602
--------------
6,479,602
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
UTILITIES (1.1%)
$ 6,800,000 Atmos Energy Corp., 6.750% due 07/15/28.......... A3/A- $ 5,840,180
12,400,000 Southern Co. Capital Trust I, 8.190% due
02/01/37....................................... A3/BBB+ 11,807,280
--------------
17,647,460
--------------
TOTAL CORPORATE OBLIGATIONS (COST
$275,227,050).............................. 262,232,527
--------------
FOREIGN CORPORATE OBLIGATIONS (3.7%)
CANADA (2.5%)
FINANCIAL SERVICES
5,000,000 McKesson Finance of Canada, (144A), 6.550% due
11/01/02....................................... Baa1/BBB+ 4,817,700
OIL PRODUCTION
6,400,000 Canadian Occidental Petroleum Ltd., 7.125% due
02/04/04....................................... Baa2/BBB 6,315,968
1,498,200 Express Pipeline LP, Series B, (144A), 7.390% due
12/31/17....................................... Baa3/BBB- 1,305,307
RAILROADS
5,350,000 Canadian National Railway, 7.000% due 03/15/04... Baa2/BBB 5,347,058
TELECOMMUNICATION SERVICES
300,000 Microcell Telecommunications, Inc., Series B,
11.999% (y)
due 06/01/06 (v)............................... B3/NR 246,750
TELECOMMUNICATIONS
7,500,000 AT & T Canada, Inc., (144A), 7.650% due
09/15/06....................................... Baa3/BBB 7,563,000
900,000 Rogers Cablesystems Ltd., 10.000% due 12/01/07... Ba3/BB+ 956,250
TELEPHONE
600,000 Call-Net Enterprises, Inc., 11.870% (y) due
08/15/07 (v)................................... B2/B+ 393,000
1,250,000 Rogers Cantel, Inc., 8.300% due 10/01/07......... Ba3/BB+ 1,253,125
TRANSPORT & SERVICES
850,000 Laidlaw, Inc., 6.650% due 10/01/04............... Baa3/BBB 773,058
7,000,000 Laidlaw, Inc., 6.720% due 10/01/27............... Baa3/BBB 6,049,960
WATER
4,500,000 Hydro Quebec, Series GF, 8.875% due 03/01/26..... A2/A+ 5,179,815
--------------
40,200,991
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FRANCE (0.1%)
ELECTRICAL EQUIPMENT
$ 1,785,000 Legrand S.A., 8.500% due 02/15/25................ A2/A $ 1,847,993
--------------
NETHERLANDS (0.2%)
FINANCIAL SERVICES
900,000 ICI Investments BV, Series E, MTN, 6.750% due
08/07/02....................................... Baa1/A- 887,400
2,250,000 Montell Finance Co. BV, (144A), 8.100% due
03/15/27....................................... Baa2/BBB- 2,283,053
--------------
3,170,453
--------------
SWEDEN (0.1%)
TRANSPORT & SERVICES
1,500,000 Stena AB, 8.750% due 06/15/07.................... Ba2/BB 1,331,250
--------------
UNITED KINGDOM (0.8%)
ELECTRIC
5,000,000 National Power Co. PLC, 6.250% due 12/01/03...... A2/A- 4,829,500
10,000,000 United Utilities PLC, 6.875% due 08/15/28........ A2/A 8,669,500
--------------
13,499,000
--------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$63,439,793)............................... 60,049,687
--------------
FOREIGN GOVERNMENT OBLIGATIONS (0.9%)
CANADA (0.9%)
10,035,000 Province of Ontario, 7.625% due 06/22/04......... Aa3/AA- 10,426,867
4,700,000 Province of Quebec, Series NY, 6.500% due
01/17/06....................................... A2/A+ 4,602,898
--------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$15,122,461)............................... 15,029,765
--------------
PRIVATE PLACEMENT (2.9%)
FINANCIAL SERVICES (1.8%)
5,841,256 500 Grant Street Associates, (144A), 6.460% due
12/01/08....................................... A2/NR 5,566,717
23,500,000 Newcourt Credit Group, (144A), 6.875% due
02/16/05....................................... A1/BBB 23,216,355
--------------
28,783,072
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
REAL ESTATE (1.1%)
$ 4,464,193 180 East End Avenue Note, secured by first
mortgage and agreement on
co-op apartment building in New York City,
6.875% due 01/01/29 (f)........................ NR/NR $ 4,147,012
10,958,687 200 East 57th Street, secured by first mortgage
and agreement on co-op apartment building in
New York City, 6.500% due 01/01/14 (f)......... NR/NR 9,977,775
3,274,837 81 Irving Place Note, secured by first mortgage
and agreement on co-op apartment building in
New York City, 6.950% due 01/01/29 (f)......... NR/NR 3,049,757
--------------
17,174,544
--------------
TOTAL PRIVATE PLACEMENT (COST $47,959,307)... 45,957,616
--------------
SOVEREIGN BONDS (3.1%)
ARGENTINA (0.3%)
4,950,000 Republic of Argentina, Series FRB, 6.813% due
03/31/05 (v)................................... B1/BB 4,381,740
--------------
BRAZIL (1.1%)
11,792,401 Republic of Brazil C Bonds, Series 20 Year ,
8.000% due 04/15/14............................ B2/B+ 7,878,798
1,435,000 Republic of Brazil NMB L, Series RG, 7.000% due
04/15/09 (v)................................... B2/NR 1,053,828
2,905,000 Republic of Brazil NMB, Series 15 Year, 7.000%
due 04/15/09 (v)............................... B2/B+ 2,133,359
8,709,100 Republic of Brazil, Series EI-L, 6.938% due
04/15/06 (v)................................... B2/B+ 7,103,403
--------------
18,169,388
--------------
BULGARIA (0.1%)
1,935,000 Republic of Bulgaria IAB, PDI, 6.500% due
07/28/11 (v)................................... B2/NR 1,475,438
--------------
COLOMBIA (0.1%)
1,615,000 Republic of Colombia Global Bonds, 9.750% due
04/23/09....................................... Ba2/BB+ 1,459,556
--------------
MEXICO (0.8%)
8,480,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... Ba1/BB 9,043,920
1,275,000 United Mexican States Global Bonds, 11.500% due
05/15/26....................................... Ba1/BB 1,423,920
3,000,000 United Mexican States Global Bonds, Series XW,
10.375% due 02/17/09........................... NR/NR 3,047,400
--------------
13,515,240
--------------
PANAMA (0.1%)
2,520,000 Republic of Panama, 8.875% due 09/30/27.......... Ba1/BB+ 2,034,900
--------------
PERU (0.1%)
3,145,000 Republic of Peru PDI, Series 20 Year, 4.500% due
03/07/17 (v)................................... Ba3/BB 1,961,694
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
PHILIPPINES (0.2%)
$ 3,205,000 Republic of Philippines Global Bonds, 9.875% due
01/15/19....................................... Ba1/BB+ $ 3,092,825
--------------
QATAR (0.3%)
4,500,000 State of Qatar, (144A), 9.500% due 05/21/09...... Baa2/BBB 4,640,625
--------------
TOTAL SOVEREIGN BONDS (COST $49,688,807)..... 50,731,406
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (41.9%)
FEDERAL HOME LOAN MORTGAGE CORP. (2.7%)
20,780,000 5.125% due 10/15/08 (s).......................... 18,536,383
1,184,424 6.000% due 03/01/11-04/01/11..................... 1,146,158
538,599 7.000% due 09/01/09-10/01/10..................... 540,095
3,727,855 9.250% due 06/01/16.............................. 3,878,199
2,708 9.500% due 08/01/04.............................. 2,816
11,263 10.000% due 04/01/09............................. 11,855
604 12.500% due 08/01/14............................. 684
9,762,562 Gold, 8.506% due 12/01/04........................ 10,217,131
7,830,000 REMIC: Sequential Payer, AD, Series 1980, Class
VB, 7.000% due 03/15/11........................ 7,754,127
1,200,969 REMIC: Sequential Payer, Series 1980, Class C,
6.850% due 10/15/21............................ 1,202,842
--------------
43,290,290
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (34.9%)
13,240,541 6.000% due 05/15/08-02/01/29 (s)................. 12,562,542
8,883,643 6.500% due 08/01/12-09/01/29..................... 8,512,551
2,792,127 6.880% due 11/01/05.............................. 2,787,765
775,208 7.000% due 07/01/28.............................. 761,154
326,913 8.000% due 06/01/11-05/01/27..................... 333,764
4,198,257 8.700% due 01/01/05.............................. 4,437,684
381,054 9.000% due 10/01/24-12/01/24..................... 398,450
46,610,000 TBA, November, 6.000% due 12/01/29............... 43,456,367
87,570,000 TBA, November, 6.500% due 10/01/29............... 83,916,580
124,430,000 TBA, November, 7.000% due 09/01/29............... 122,175,328
206,095,000 TBA, November, 7.500% due 10/01/29............... 206,546,348
69,942,000 TBA, November, 8.000% due 10/01/29............... 71,264,603
--------------
557,153,136
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (4.3%)
54,442,215 6.500% due 06/15/28-11/15/29..................... 52,082,444
4,433,334 7.000% due 12/15/08-04/15/29..................... 4,354,159
10,978,881 7.500% due 01/15/27-08/15/27..................... 11,006,328
1,311,516 8.000% due 06/15/17-04/15/27..................... 1,344,718
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 264,559 8.500% due 05/15/27.............................. $ 275,142
78,074 9.000% due 12/15/26.............................. 82,417
--------------
69,145,208
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $668,561,332)........................ 669,588,634
--------------
U.S. TREASURY OBLIGATIONS (7.1%)
U.S. TREASURY BONDS (6.2%)
11,075,000 6.125% due 08/15/29.............................. 11,026,492
3,053,000 6.750% due 08/15/26.............................. 3,182,753
66,965,000 8.875% due 02/15/19 (s).......................... 84,187,728
--------------
98,396,973
--------------
U.S. TREASURY NOTES (0.5%)
3,000,000 5.625% due 11/30/00 (s).......................... 2,999,520
4,735,000 6.875% due 05/15/06 (s).......................... 4,914,030
--------------
7,913,550
--------------
U.S. TREASURY STRIPS (0.4%)
13,490,000 PO, 6.617% (y) due 11/15/15...................... 4,746,591
3,230,000 PO, 6.617% (y) due 05/15/18...................... 965,738
--------------
5,712,329
--------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$112,244,171).............................. 112,022,852
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- ---------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.9%)
FINANCIAL SERVICES (0.2%)
150,000 TCI Communications Financing II, 10.000%......... A3/A 3,946,875
---------------
INDUSTRIAL PRODUCTS & SERVICES (0.7%)
12,575 Home Ownership Funding, (144A) (v)............... Aaa/NR 10,408,479
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$16,675,578)............................... 14,355,354
---------------
PREFERRED STOCKS (0.1%)
OIL-SERVICES (0.1%)
36,000 Lasmo PLC, Series A, 10.000% (cost $801,000)..... Baa3/BB+ 873,000
---------------
SHORT-TERM INVESTMENTS (39.2%)
COMMERCIAL PAPER-FOREIGN (1.2%)
20,000,000 Caisse D'Amortissement, 4.659% (y) due 12/03/99
(s)............................................ 19,914,133
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ------------------------------------------------- ---------------
<C> <S> <C>
REPURCHASE AGREEMENTS (38.0%)
$ 202,197,000 Goldman Sachs Repurchase Agreement, 5.180% dated
10/29/99
due 11/01/99, proceeds $202,284,282
(collateralized by $109,780,000 U.S. Treasury
Notes, 5.125% through 6.625% due 08/31/00
through 05/15/07, valued at $112,816,693;
$71,534,000 U.S. Treasury Bond, 9.125% due
05/15/18, valued at $93,444,738) (s)........... $ 202,197,000
202,197,000 State Street Bank and Trust Repurchase Agreement,
5.180% dated 10/29/99 due 11/01/99, proceeds
$202,284,282 (collateralized by $202,705,000
U.S. Treasury Note, 5.750% due 06/30/01, valued
at 206,252,338) (s)............................ 202,197,000
202,197,000 Westdeutsche Landesbank Repurchase Agreement,
5.210% dated 10/29/99 due 11/01/99, proceeds
$202,284,787 (collateralized by $100,015,616
FNMA, 5.766% due 05/01/36, valued at
$78,737,490; $123,401,000 U.S. Treasury Notes,
5.500% through 6.500% due 02/15/00 through
05/31/02, valued at $127,503,810) (s).......... 202,197,000
--------------
606,591,000
--------------
TOTAL SHORT-TERM INVESTMENTS (COST
$626,505,133).............................. 626,505,133
--------------
TOTAL INVESTMENTS (COST $2,135,933,186)
(132.1%)....................................... 2,111,422,928
LIABILITIES IN EXCESS OF OTHER ASSETS (-32.1%)... (513,301,249)
--------------
NET ASSETS (100.0%).............................. $1,598,121,679
==============
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $2,137,544,894 for federal income
tax purposes at October 31, 1999, the aggregate gross unrealized appreciation
and depreciation was $5,357,001 and $31,478,967, respectively, resulting in net
unrealized depreciation of $26,121,966.
(f) Fair valued security. Approximately 1% of the market value of the securities
have been valued at fair value. (See Note 1a).
(s) Security is fully or partially segregated with custodian as collateral for
TBA and when issued securities or futures contracts or with broker as initial
margin for futures contracts. $747,155,320 of the market value has been
segregated.
(v) Rate shown reflects current rate on variable or floating rate instrument or
investment with step coupon rate.
(y) Yield to maturity.
TRIANGLE Defaulted security.
Abbreviations used in the schedule of investments are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
AD - Accretion Directed
C - Capitalization.
CSTR - Collateral Strip Rate.
FNMA - Federal National Mortgage Association.
IAB - Interest in Arrears Bond.
MOPPRS - Mandatory Par Put Remarketed Security.
MTN - Medium Term Note.
NMB - New Money Bonds.
NR - Not Rated.
PDI - Past Due Interest.
PO - Principal Only.
REMIC - Real Estate Mortgage Investment Conduit.
TBA - Security purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date. The actual principal amount and
maturity will be determined upon settlement date.
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $1,529,342,186 ) $1,504,831,928
Repurchase Agreements (Cost $606,591,000) 606,591,000
Cash 5,957
Receivable for Investments Sold 61,580,272
Interest Receivable 12,807,146
Unrealized Appreciation of Forward Foreign
Currency Contracts 1,664,897
Prepaid Trustees' Fees 7,774
Prepaid Administration Fee 552
Prepaid Expenses and Other Assets 7,017
--------------
Total Assets 2,187,496,543
--------------
LIABILITIES
Payable for Investments Purchased 587,419,311
Unrealized Depreciation of Forward Foreign
Currency Contracts 783,205
Variation Margin Payable 621,587
Advisory Fee Payable 398,629
Administrative Services Fee Payable 33,413
Fund Services Fee Payable 880
Accrued Expenses 117,839
--------------
Total Liabilities 589,374,864
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,598,121,679
==============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $94,258,053
Dividend Income (Net of Foreign Withholding Tax
of $11,448 ) 2,131,247
-----------
Investment Income 96,389,300
EXPENSES
Advisory Fee $ 4,514,768
Administrative Services Fee 390,355
Custodian Fees and Expenses 374,012
Professional Fees and Expenses 47,555
Fund Services Fee 30,562
Administration Fee 19,016
Trustees' Fees and Expenses 14,761
Miscellaneous 13,116
------------
Total Expenses 5,404,145
-----------
NET INVESTMENT INCOME 90,985,155
NET REALIZED GAIN (LOSS) ON
Investments Transactions (43,285,695)
Futures Contracts 2,420,893
Foreign Currency Contracts and Transactions 850,200
------------
Net Realized Loss (40,014,602)
NET CHANGE IN UNREALIZED DEPRECIATION OF
Investments (47,169,243)
Futures Contracts (982,598)
Foreign Currency Contracts and Translations (66,067)
------------
Net Change in Unrealized Depreciation (48,217,908)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 2,752,645
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 90,985,155 $ 76,630,594
Net Realized Gain (Loss) on Investments, Futures
and Foreign Currency Contracts and Transactions (40,014,602) 14,578,678
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations (48,217,908) 5,171,549
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 2,752,645 96,380,821
--------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 936,203,363 542,769,830
Withdrawals (688,024,126) (373,515,793)
--------------- ---------------
Net Increase from Investors' Transactions 248,179,237 169,254,037
--------------- ---------------
Total Increase in Net Assets 250,931,882 265,634,858
NET ASSETS
Beginning of Fiscal Year 1,347,189,797 1,081,554,939
--------------- ---------------
End of Fiscal Year $ 1,598,121,679 $ 1,347,189,797
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
--------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.36% 0.36% 0.37% 0.37% 0.39%
Net Investment Income 6.05% 6.42% 6.70% 6.38% 6.68%
Portfolio Turnover 465% 115% 93% 186% 293%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Fixed Income Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a no load,
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York on January 29, 1993. The
portfolio's investment objective is to provide a high total return consistent
with moderate risk of capital. The Declaration of Trust permits the trustees to
issue an unlimited number of beneficial interests in the portfolio. The
portfolio commenced operations on July 12, 1993.
Investments in emerging and international markets may involve certain
considerations and risks not typically associated with investments in the United
States. Future economic and political developments in emerging market and
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 debt, asset-backed and mortgage securities held by the portfolio to meet
their obligations may be affected by economic and political developments in a
specific industry or region. The value of asset-backed and mortgage-backed
securities can be significantly affected by changes in interest rates or rapid
principal payments including pre-payments.
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 securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available mean of the bid and asked
prices on such exchange, if such exchange or market constitutes the
broadest and most representative market for the security. Securities
listed on a foreign exchange are valued at the last traded price or, in
the absence of recorded trades, at the readily available mean of the bid
and asked prices on such exchange available before the time when the net
assets are valued. Independent pricing service procedures may also include
the use of prices based on yields or prices of securities of comparable
quality, coupon, maturity and type, indications as to values from dealers,
operating data, and general market conditions. Unlisted securities are
valued at the average of the quoted bid and asked prices in the
over-the-counter market provided by a principal market maker or dealer. If
prices are not supplied by the portfolio's independent pricing service or
principal market maker or dealer, such securities are priced using fair
values in accordance with procedures adopted by the protfolio's trustees.
All short-term securities with a remaining maturity of sixty days or less
are valued using the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the portfolio's trustees.
31
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
The portfolio's custodian 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.
b) The books and records of the portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expenses are
translated at the exchange rates prevailing on the respective dates of
such transactions. Translation gains and losses resulting from changes in
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. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount becomes known. 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 at the current foreign exchange
rates, and the change in the market value is recorded by the portfolio as
unrealized appreciation or depreciation of forward foreign currency
contract translations.
e) 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
32
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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.
f) The portfolio may enter into commitments to buy and sell investments to
settle on future dates as part of its normal investment activities. These
commitments are reported at market value in the financial statements.
Credit risk exists on these commitments to the extent of any unrealized
gains on the underlying securities purchased and any unrealized losses on
the underlying securities sold. Market risk exists on these commitments to
the same extent as if the security were owned on a settled basis and gains
and losses are recorded and reported in the same manner. However, during
the commitment period, these investments earn no interest or dividends.
g) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with J.P. Morgan
Investment Management Inc. ("JPMIM"), a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the
Agreement, the portfolio pays JPMIM at an annual rate of 0.30% of the
portfolio's average daily net assets. For the fiscal year ended
October 31, 1999, this fee amounted to $4,514,768.
b) The portfolio, on behalf of the fund, 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 portfolio's 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 fiscal year ended October 31, 1999, the fee for these services
amounted to $19,016.
c) The portfolio 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 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
33
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
other portfolios for which JPMIM 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 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
fiscal year ended October 31, 1999, the fee for these services amounted to
$390,355.
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 $30,562 for the fiscal year ended October 31, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, 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 $5,800.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $5,620,086,179 $5,473,121,558
Corporate and Collateralized Obligations......... 999,560,042 861,040,812
-------------- --------------
$6,619,646,221 $6,334,162,370
============== ==============
</TABLE>
At October 31, 1999, the portfolio had open forward foreign currency
contracts as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 10/31/99 (DEPRECIATION)
- ------------------ ----------- ----------- --------------
<S> <C> <C> <C>
Euro 67,158,000, expiring 11/02/99............... $71,388,954 $70,605,749 $ (783,205)
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- --------------- -----------
<S> <C> <C> <C>
Euro 67,158,000, expiring 11/02/99............... $72,270,646 $70,605,749 $ 1,664,897
-------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 881,692
=============
</TABLE>
34
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Open futures contracts at October 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ MARKET VALUE
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
--------------- -------------- ------------
<S> <C> <C> <C>
U.S. Five-Year Treasury Note, expiring December
1999............................................ 739 $ (353,837) $79,777,363
============== ============= ===========
<CAPTION>
CONTRACTS SHORT
---------------
<S> <C> <C> <C>
U.S. Ten-Year Treasury Note, expiring December
1999............................................ 97 $ 91,113 $10,642,719
U.S. Ten-Year Treasury Note, expiring
March 2000...................................... 37 (17,995) 3,623,688
U.S. Treasury Long Bond, expiring December
1999............................................ 673 (375,632) 76,448,594
-------------- ------------- -----------
Totals........................................... 807 $ (302,514) $90,715,001
============== ============= ===========
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the fund's Notes to the Financial
Statements which are included elsewhere in this report.
35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Fixed Income Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The U.S. Fixed Income Portfolio (the
"portfolio") at October 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the supplementary data for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and supplementary data (hereafter referred to as
"financial statements") are the responsibility of the portfolio's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
36
<PAGE>
FOR MORE INFORMATION ON THE J.P. MORGAN INSTITUTIONAL
FUNDS, CALL J.P. MORGAN FUNDS SERVICES AT
(800) 766-7722.
IM0794-U
J.P. MORGAN
INSTITUTIONAL
BOND FUND-ULTRA
ANNUAL REPORT
OCTOBER 31, 1999