<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN BOND FUND
June 1, 1998
Dear Shareholder:
The six months ending April 30, 1998 was a good one for bonds and for your fund.
The J.P. Morgan Bond Fund provided a solid total return of 3.54% for the period
under review. For the reporting period, the fund's performance was slightly
behind the 3.67% return for its benchmark, the Salomon Brothers Broad Investment
Grade Bond Index. However, the fund outperformed its competitors, as measured by
the Lipper Intermediate Investment Grade Debt Funds Average, which returned
3.21% for the period.
The fund's net asset value increased from $10.42 per share on October 31, 1997
to $10.45 per share at the end of the reporting period, after paying
approximately $0.33 per share in dividends from ordinary income. The fund's net
assets stood at $194.0 million at the end of the reporting period. The net
assets of the U.S. Fixed Income Portfolio, in which the fund invests, totaled
approximately $1.2 billion on April 30, 1998.
The report that follows includes a portfolio manager Q&A with William G.
Tennille, a member of our portfolio management team. This interview is designed
to answer commonly asked questions about the fund, elaborate on what happened
during the reporting period, and provide 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) 521-5411.
Sincerely yours,
/s/ Ramon de Oliverira /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. . . . . . .6
FUND PERFORMANCE . . . . . . . . .2 SPECIAL FUND-BASED SERVICES. . . . . .7
PORTFOLIO MANAGER Q&A. . . . . . .3 FINANCIAL STATEMENTS . . . . . . . . 10
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically 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.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURN
---------------------- --------------------------------------------------------
THREE SIX ONE FIVE TEN SINCE
AS OF APRIL 30, 1998 MONTHS MONTHS YEAR YEARS YEARS INCEPTION*
- ---------------------------------------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan Bond Fund 1.00% 3.54% 10.31% 6.64% 8.15% 8.02%
Salomon Brothers Broad
Investment Grade Bond Index 0.84% 3.67% 10.97% 6.94% 9.12% 8.97%
Bond Index** 0.84% 3.67% 10.97% 6.94% 8.98% 8.84%
Lipper Intermediate Investment
Grade Debt Funds Average 0.66% 3.21% 9.84% 6.17% 8.35% 8.24%
AS OF MARCH 31, 1998
- ------------------------------------------------------------------------- -----------------------------------------
J.P. Morgan Bond Fund 1.68% 4.15% 11.32% 6.73% 8.04% 8.04%
Salomon Brothers Broad
Investment Grade Bond Index 1.61% 4.61% 11.98% 7.00% 8.99% 8.99%
Bond Index** 1.61% 4.61% 11.98% 7.00% 8.86% 8.86%
Lipper Intermediate Investment
Grade Debt Funds Average 1.52% 3.94% 10.78% 6.17% 8.26% 8.26%
</TABLE>
*3/11/88 -- COMMENCEMENT OF OPERATIONS (GROWTH AND AVERAGE ANNUAL TOTAL RETURNS
BASED ON THE MONTH END FOLLOWING INCEPTION). THE FUND'S AVERAGE ANNUAL TOTAL
RETURN SINCE ITS COMMENCEMENT OF OPERATIONS ON 3/11/88 THROUGH 4/30/98 IS 7.98%.
**PRIOR TO OCTOBER 1, 1991, THE BENCHMARK WAS THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE INTERMEDIATE BOND INDEX. COMMENCING OCTOBER 1, 1991, THE
BENCHMARK IS THE SALOMON BROTHERS BROAD INVESTMENT GRADE BOND INDEX.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. RETURNS ARE NET OF FEES AND
ASSUME THE REINVESTMENT OF DISTRIBUTIONS. 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, who is 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 May 19, 1998 and reflects Bill's views on that date.
EARLY IN THE FOURTH QUARTER OF 1997, THE EAST ASIAN MARKET TURMOIL WAS ERUPTING.
CAN YOU GIVE US A FOLLOW-UP ON THAT SITUATION TO DATE?
WGT: Despite a brief lull in the East Asian crisis late last year, the
situation is pretty much the same. The Asian currency problems effectively ended
an extended period of declining volatility, but they also had some far-reaching,
indirect effects as well.
When the Asian crisis erupted, everybody put their money into U.S. bonds, which
in turn, drove interest rates in the U.S. down. Then, two things happened.
Because rates in the U.S. dropped significantly, the amount of corporate
issuance surged. This surge continued for two or three months, and was quite
strong since many companies were scrambling to borrow more cheaply than they had
a few years ago. At any rate, corporate spreads widened due to the increase in
supply.
The second effect was sort of a parallel event in the mortgage sector. As a
result of interest rates declining, people could suddenly refinance their
mortgages at a lower rate. But as anyone who owns a home knows, there's a lag
between the decision to refinance and the actual prepayment. So although it took
two or three months for the situation to catch up, so to speak, once it hit,
mortgage prepayments were pouring in. This of course hurt performance in the
mortgage sector.
PLEASE ELABORATE ON HOW THE ASIAN SITUATION HAS SPECIFICALLY AFFECTED THE
PORTFOLIO'S PERFORMANCE.
WGT: If you look at the situation, we watched two sectors -- corporates and
mortgages -- affected by the Asian crisis, however indirectly. There was
somewhat of a lag before we actually saw the effects, particularly with
mortgages. There was also a slight lag with corporates, maybe a month or so.
These factors hurt performance in the portfolio for a short period of time over
the last few months, but not overly so. And we've definitely bounced back since
the beginning of the year. The fact that the market rallied aided us in terms of
performance, despite the Asian situation. Fortunately, we didn't have a large
amount of holdings that would have been directly adversely affected. One of the
ways we managed the situation was to do some exchanges out of some Asian paper
into the new Korean sovereign issues, which are a lot more liquid and in effect,
safer, in the event of another currency crisis such as this.
3
<PAGE>
SINCE WE LAST SPOKE, IT SEEMS YOU'VE CHOSEN TO INCREASE THE PORTFOLIO'S
WEIGHTINGS IN BOTH FOREIGN GOVERNMENT BONDS AND SHORT-TERM ASSETS. WHY? IS THIS
A SIGNIFICANT MOVE WITHIN THE CONTEXT OF THE PORTFOLIO'S STRATEGY?
WGT: Actually, it was. We purchased the equivalent of T-bills from Germany and
France, as our goal was to capitalize on an opportunity to earn through AAA
securities. These securities earn roughly 80 basis points over Treasuries. So we
decided to buy foreign -- in this case, German and French -- T-bills, and hedged
them back to the dollar. In short, there's no currency risk, but it's a
substantially higher yield than what we could have gotten in the U.S. market.
And while the increase in weightings is somewhat significant in the context of
our overall allocation for the fund, it would not seriously impact the portfolio
either negatively or positively.
Another tactic we used was to selectively sell 30-year bonds and buy five-,
seven- and ten-year bonds, simply because as the spreads widened, the difference
in yield between the longer term issues and the shorter term issues disappeared
a bit, and if we're just trying to add spread to the portfolio, it's a lot less
risky to do it in a seven-year bond than in a 30-year bond.
SINCE DURATION IS OFTEN INSTRUMENTAL IN ACHIEVING A PORTFOLIO'S PERFORMANCE,
WOULD YOU DISCUSS HOW, IF AT ALL, THE PORTFOLIO'S CURRENT POSITION HAS
AFFECTED/DRIVEN PERFORMANCE? INVESTORS MAY BENEFIT FROM A BRIEF REVIEW OF HOW
YOU USE DURATION TO GENERATE RETURNS.
WGT: Our overall philosophy is to spread risk over as many factors as we
possibly can. It is for this reason we are actually not big duration players.
Our goal is to add maybe 20 basis points of return over a year through duration.
This is because we do not believe in making big bets when it comes to duration.
If you make a huge duration bet one way and the market goes the other way, it's
tragically costly. So we're not big bettors in that regard. The fund follows the
Salomon Brothers Broad Investment Grade Bond Index, and we don't take positions
greater than one-year longer or one-year shorter than that of the benchmark.
It's a pretty set guideline that we don't often stray from.
WOULD YOU OFFER OUR SHAREHOLDERS YOUR OUTLOOK OR FORECAST FOR THE SECOND HALF OF
1998?
WGT: At the end of 1997, we saw the Asian crisis go on a lot longer than many
of us expected, which meant the Asian companies and countries who used to buy
our exports have essentially stopped doing so. They're concerned with exporting
now, for the most part. And, they've been forced to cut prices, which means that
nobody can raise prices on anything it seems, worldwide. This will likely
continue for a while.
Logically, earnings have started to tail off a bit. For a while everyone
expected the Federal Reserve to tighten in order to slow the economy down, but
it looks like that won't be necessary. The Asian situation, looked at in terms
of prices, collectively has probably made any such action by the Fed
unnecessary.
If things continue along the same line as they have over the last seven or eight
months, we're forecasting a decline in GDP. In that vein, we believe a
tightening by the Fed is again, unlikely. The other significant ingredient in
all of this is that Treasury issuance has declined substantially. This is
primarily due to the fact that we now have a budget surplus -- there just isn't
the need to raise as much money, and therefore Treasury issuance has declined
substantially.
4
<PAGE>
Having said that, interest rates are still quite low. That's going to affect
returns to a certain extent. But considering the fact that there are fewer bonds
out there and more people trying to buy them, we expect performance to be good.
It's actually a good combination of events. Yes, yields are low, but as long as
the supply remains low too and there's a decent amount of money out there
available for the fixed income markets, and, as more investors speculate about
the stock market -- fearing it will begin to go down -- more investors will look
toward bonds for more security. Considering the forces of supply and demand, we
anticipate that the bond market should do well, even considering further Asian
shocks, which seem inevitable.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Bond Fund seeks to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity. 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 OPERATIONS
3/11/88
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/98
$194,023,759
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 4/30/98
$1,173,776,333
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/11/98
EXPENSE RATIO
The fund's current annualized expense ratio of 0.66% 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 APRIL 30, 1998
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
CORPORATE OBLIGATIONS 30.6%
U.S. AGENCY OBLIGATIONS 29.7%
U.S. TREASURY OBLIGATIONS 14.8%
COLLATERALIZED MORTGAGE OBLIGATIONS 14.0%
SOVEREIGN BONDS & FOREIGN GOVERNMENT BONDS 6.3%
SHORT-TERM INVESTMENTS 3.0%
CONV. PREFERRED STOCK 1.1%
CD 0.4%
CONVERTIBLE BONDS 0.1%
</TABLE>
30-DAY SEC YIELD
6.44%
DURATION
4.91 years
<TABLE>
<S> <C>
QUALITY BREAKDOWN
AAA* 58%
AA 4%
A 11%
Other 27%
</TABLE>
*INCLUDES U.S. GOVERNMENT AGENCY, TREASURY OBLIGATIONS, AND REPURCHASE
AGREEMENTS.
6
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- - create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives.
- - make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends.
- - make investments through the J.P. Morgan Funds, a family of diversified
mutual funds.
PAAS is available to clients who invest a minimum of $500,000 in the J.P. Morgan
Funds.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow
tax-deferred until retirement, the IRA enables more of your dollars to work for
you longer. Morgan offers an IRA Rollover plan that helps you to build
well-balanced long-term investment portfolios, diversified across a wide array
of mutual funds. From money markets to emerging markets, the J.P. Morgan Funds
provide an excellent way to help you accumulate long-term wealth for retirement.
7
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW
YORK SERVES AS AN INVESTMENT 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 FLUCUATE AND REDEMPTION VALUE MAY BE MORE OR LESS
THAN ORIGINAL COST.
Past performance is no guarantee for future performance. Returns are net of fees
and, assume the reinvestment of fund distributions. The fund invests through a
master portfolio (another fund with the same objective).
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
8
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Fixed Income Portfolio
("Portfolio"), at value $194,129,967
Receivable for Shares of Beneficial Interest Sold 60,512
Prepaid Trustees' Fees 604
Prepaid Expenses and Other Assets 2,098
------------
Total Assets 194,193,181
------------
LIABILITIES
Dividends Payable to Shareholders 78,992
Shareholder Servicing Fee Payable 31,775
Payable for Shares of Beneficial Interest
Redeemed 25,175
Administrative Services Fee Payable 4,623
Administration Fee Payable 627
Fund Services Fee Payable 626
Accrued Expenses 27,604
------------
Total Liabilities 169,422
------------
NET ASSETS
Applicable to 18,561,158 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $194,023,759
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $10.45
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $190,321,364
Undistributed Net Investment Income 65,581
Accumulated Net Realized Gain on Investment and
Foreign Currency Contracts and Transactions 623,571
Net Unrealized Appreciation of Investment and
Foreign Currency Contracts and Translations 3,013,243
------------
Net Assets $194,023,759
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $6,316,362
Allocated Dividend Income (Net of Foreign
Withholding Tax of $1,119) 144,686
Allocated Portfolio Expenses (331,958)
----------
Net Investment Income Allocated from
Portfolio 6,129,090
FUND EXPENSES
Shareholder Servicing Fee $182,231
Administrative Services Fee 27,217
Transfer Agent Fees 16,867
Fund Services Fee 2,863
Administration Fee 2,236
Trustees' Fees and Expenses 1,316
Miscellaneous 32,286
--------
Total Fund Expenses 265,016
----------
NET INVESTMENT INCOME 5,864,074
NET REALIZED GAIN ON INVESTMENT AND FOREIGN
CURRENCY CONTRACTS AND TRANSACTIONS ALLOCATED
FROM PORTFOLIO 638,761
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT AND FOREIGN CURRENCY CONTRACTS AND
TRANSLATIONS ALLOCATED FROM PORTFOLIO (131,367)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $6,371,468
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1997
------------ ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 5,864,074 $ 9,986,333
Net Realized Gain on Investment and Foreign
Currency Contracts and Transactions Allocated
from Portfolio 638,761 1,033,621
Net Change in Unrealized Appreciation of
Investment and Foreign Currency Contracts and
Translations Allocated from Portfolio (131,367) 1,911,934
------------ ----------------
Net Increase in Net Assets Resulting from
Operations 6,371,468 12,931,888
------------ ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (5,870,319) (9,936,043)
Net Realized Gain -- (1,045,442)
------------ ----------------
Total Distributions to Shareholders (5,870,319) (10,981,485)
------------ ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 56,391,025 65,618,278
Reinvestment of Dividends and Distributions 5,339,175 10,140,996
Cost of Shares of Beneficial Interest Redeemed (37,440,990) (57,683,152)
------------ ----------------
Net Increase from Transactions in Shares of
Beneficial Interest 24,289,210 18,076,122
------------ ----------------
Total Increase in Net Assets 24,790,359 20,026,525
NET ASSETS
Beginning of Period 169,233,400 149,206,875
------------ ----------------
End of Period (including undistributed net
investment income of $65,581 and $71,826,
respectively) $194,023,759 $ 169,233,400
------------ ----------------
------------ ----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED OCTOBER 31,
APRIL 30, 1998 ----------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.42 $ 10.30 $ 10.41 $ 9.64 $ 11.00 $ 10.52
---------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.33 0.66 0.62 0.64 0.55 0.54
Net Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency Contracts and
Transactions 0.03 0.18 (0.11) 0.77 (0.91) 0.67
---------------- -------- -------- -------- -------- --------
Total from Investment Operations 0.36 0.84 0.51 1.41 (0.36) 1.21
---------------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.33) (0.65) (0.62) (0.64) (0.55) (0.54)
Net Realized Gain -- (0.07) -- -- (0.45) (0.19)
---------------- -------- -------- -------- -------- --------
Total Distributions to Shareholders (0.33) (0.72) (0.62) (0.64) (1.00) (0.73)
---------------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.45 $ 10.42 $ 10.30 $ 10.41 $ 9.64 $ 11.00
---------------- -------- -------- -------- -------- --------
---------------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Total Return 3.54%(a) 8.58% 5.13% 15.10% (3.50)% 11.97%
Net Assets, End of Period (in thousands) $ 194,024 $169,233 $149,207 $143,004 $112,049 $103,572
Ratios to Average Net Assets
Expenses 0.66%(b) 0.68% 0.66% 0.69% 0.78% 0.81%
Net Investment Income 6.44%(b) 6.41% 6.08% 6.40% 5.43% 5.01%
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- -- -- -- 0.01% 0.08%
Portfolio Turnover -- -- -- -- -- 236.39%+
</TABLE>
- ------------------------
+ 1993 Portfolio Turnover reflects the period November 1, 1992 to July 11,
1993. After July 11, 1993, all
the Fund's investable assets are invested in The U.S. Fixed Income Portfolio.
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Bond Fund (the "fund") is a separate series of J.P. Morgan
Funds, a Massachusetts business trust (the "trust"). The trust is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company. The fund, prior to its tax-free reorganization on July 12,
1993, to a series of the trust, operated as a stand-alone mutual fund. Costs
related to the reorganization were borne by Morgan Guaranty Trust Company of New
York ("Morgan"). This report includes periods which preceded the fund's
reorganization and reflects the operations of the predecessor entity. Prior to
January 1, 1998, the trust's and the fund's names were The JPM Pierpont Funds
and The JPM Pierpont Bond Fund, respectively.
The fund invests all of its investable assets in The U.S. Fixed Income Portfolio
(the "portfolio"), a diversified open-end management investment company having
the same investment objective as the fund. The value of such investment included
in the Statement of Assets and Liabilities reflects the fund's proportionate
interest in the net assets of the portfolio (16% at April 30, 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 the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital gain, if any, are declared and paid annually.
d) 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.
e) The fund is treated as a separate entity for federal income tax purposes
and intends to comply with the provisions of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and to
distribute 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.
14
<PAGE>
J.P. MORGAN BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 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 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 six
months ended April 30, 1998, the fees for these services amounted to
$2,236.
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 had agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate average daily net assets of the
portfolio and the other portfolios in which the trust and J.P. Morgan
Institutional Funds (formerly The JPM Institutional Funds) invest (the
"master portfolios") and the J.P. Morgan Series Trust (formerly 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 April 30, 1998, the fee for
these services amounted to $27,217.
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 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 0.20% of the average daily net assets of
the fund. For the six months ended April 30, 1998, the fee for these
services amounted to $182,231.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the Services Agreement is terminated for
reasons other than a breach by Schwab and the relationship between the
trust and Morgan is terminated, the fund would be responsible for the
ongoing payments to Schwab with respect to pre-termination shares.
15
<PAGE>
J.P. MORGAN BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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
$2,863 for the six months ended April 30, 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 Institutional 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 $600.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the fund were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1998 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1997
------------ ----------------
<S> <C> <C>
Shares sold...................................... 5,383,007 6,398,789
Reinvestment of dividends and distributions...... 510,582 989,842
Shares redeemed.................................. (3,576,593) (5,631,526)
------------ ----------------
Net Increase..................................... 2,316,996 1,757,105
------------ ----------------
------------ ----------------
</TABLE>
4. 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 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 $150,000,000. The Agreement expires on May 27, 1998, however, the
fund as party to the Agreement has extended the Agreement and will continue its
participation therein for an additional 364 days until May 26, 1999. 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 April 30,
1998.
16
<PAGE>
The U.S. Fixed Income Portfolio
Semi-Annual Report April 30, 1998
(The following pages should be read in conjunction
with J.P. Morgan Bond Fund
Semi-Annual Financial Statements)
17
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
CERTIFICATE OF DEPOSIT-DOMESTIC (0.4%)
BANKING (0.4%)
$ 5,000,000 Mercantile Safe Deposit & Trust, 6.16% due
08/16/99
(cost $5,000,000).............................. A1/AA- $ 5,020,000
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (14.0%)
BANKING (0.4%)
5,000,000 Amsouth Bank of Alabama, Callable 02/01/08, 6.45%
due 02/01/18................................... A1/A- 4,972,550
-------------
FINANCIAL SERVICES (13.6%)
38,000 Advanta Home Equity Loan Trust, Sequential Payer,
Series 1992-2, Class A1, Callable, 7.15% due
06/25/08....................................... Aaa/AAA 38,549
2,788,272 American Southwest Financial Corp., Support Bond,
Series 60, Class D, Callable, 8.90% due
03/01/18....................................... NR/AAA 2,916,532
28,113,000 Associates Manufactured Housing Pass Through,
Sequential Payer, Series 1997-1, Class A3,
Callable, 6.60% due 06/15/28................... Aaa/AAA 28,459,352
674,425 BA Mortgage Securities, Inc., Remic: Subordinated
Bond, NAS, Series 1997-1, Class B2, Callable,
7.50% due 07/25/26............................. NR/NR 675,268
834,441 BA Mortgage Securities, Inc., Remic: Subordinated
Bond, NAS, Series 1997-1, Class B3, Callable,
(144A), 7.50% due 07/25/26..................... NR/NR 772,640
529,594 Banc One Auto Grantor Trust, Sequential Payer,
Series 1997-A, Class A, Callable, 6.27% due
11/20/03....................................... Aaa/AAA 534,821
2,253,150 Bear Stearns Structured Securities, Inc., Remic:
Sequential Payer, Series 1997-2, Class 1A5,
Callable, (144A), 7.00% due 08/25/36........... Aaa/NR 2,188,372
850,000 Caterpillar Financial Asset Trust, Sequential
Payer, Series 1997-A, Class A3, Callable, 6.45%
due 05/25/03................................... Aaa/AAA 861,203
2,000,000 Chase Commercial Mortgage Securities Corp.,
Subordinated Bond, Series 1996-2, Class F,
Callable, (144A), 6.90% due 11/19/06........... NR/NR 1,853,125
15,699,000 Chemical Mortgage Securities, Inc., Remic:
Sequential Payer, AS, Series 1996-1, Class A7,
Callable, 7.25% due 01/25/26................... Aaa/AAA 15,804,968
38,624 Chevy Chase Auto Receivables Trust, Series
1995-1, Class A, Callable, 6.00% due
12/15/01....................................... Aaa/AAA 38,682
550,000 Citibank Credit Card Master Trust I, Series
1998-1, Class A, Callable, 5.75% due
01/15/03....................................... Aaa/AAA 547,250
5,352,336 Collateralized Mortgage Obligation Trust, Remic:
Accrual Bond, Series 62, Class Z, Callable,
9.50% due 06/25/20............................. Aaa/AAA 5,577,294
279,757 Countrywide Home Loans, Remic: Sequential Payer,
Series 1997-4, Class A, Callable, 8.00% due
07/25/27....................................... Aaa/NR 286,882
2,250,000 Countrywide Home Loans, Remic: Sequential Payer,
Series 1998-5, Class A, Callable, 6.75% due
05/25/28....................................... NR/AAA 2,224,512
2,556,275 Criimi Mae Financial Corp., Sequential Payer,
Series 1, Class A, Callable, 7.00% due
01/01/33....................................... NR/AAA 2,533,908
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 5,089,000 CS First Boston Mortgage Securities Corp., Series
1997-C2, Class B, Callable, 6.72% due
11/19/07....................................... Aa2/NR $ 5,163,745
4,979,992 Deutsche Mortgage & Asset Receiving Corp.,
Sequential Payer, Series 1998-C1, Class A1,
Callable, 6.22% due 06/15/31................... NR/NR 4,981,159
5,000,000 Deutsche Mortgage & Asset Receiving Corp.,
Sequential Payer, Series 1998-C1, Class A2,
Callable, 6.538% due 06/15/31.................. Aaa/NR 5,034,766
2,452,000 First Union-Lehman Brothers Commercial Mortgage,
Subordinated Bond, Series 1997-C2, Class E,
Callable, 7.12% due 11/18/12................... Baa3/BBB- 2,341,277
500,000 First USA Credit Card Master Trust, Series
1997-6, Class A, Callable, 6.42% due
03/17/05....................................... Aaa/AAA 507,165
1,248,546 Fleetwood Credit Corp. Grantor Trust, Sequential
Payer, Series 1995-B, Class A, Callable, 6.55%
due 05/15/11................................... Aaa/AAA 1,257,061
445,784 GE Capital Mortgage Services, Inc., 6.75% due
01/25/28....................................... NR/NR 413,563
8,855,000 GE Capital Mortgage Services, Inc., Remic:
PAC-1(11), AS, Series 1994-17, Class A5,
Callable, 7.00% due 05/25/24................... Aaa/AAA 8,911,761
2,519,566 GE Capital Mortgage Services, Inc., Remic:
Subordinated Bond, NAS, Series 1997-12, Class
B3, Callable, (144A), 7.00% due 12/25/27....... NR/NR 2,286,506
695,881 GE Capital Mortgage Services, Inc., Remic:
Subordinated Bond, NAS, Series 1997-13, Class
B3, Callable, (144A), 6.75% due 12/25/12....... NR/NR 654,346
244,592 GE Capital Mortgage Services, Inc., Remic:
Subordinated Bond, NAS, Series 1997-IO, Class
B2, Callable, 6.75% due 09/25/12............... NR/NR 241,034
1,775,628 GE Capital Mortgage Services, Inc., Remic:
Subordinated Bond, NAS, Series 1998-5, Class
B3, Callable, (144A), 6.75% due 05/25/28....... NR/NR 1,580,864
2,000,000 Green Tree Financial Corp., Sequential Payer,
Series 1992-1, Class A3, Callable, 6.70% due
10/15/17....................................... Aaa/NR 2,010,700
5,000,000 Green Tree Home Improvement Loan Trust,
Sequential Payer, AS, Series 1997-E, Class
HEA2, Callable, 6.39% due 01/15/29............. NR/AAA 5,013,200
1,397,220 Green Tree Recreational, Equipment & Consumer
Trust, Sequential Payer, Series 1996-A, Class
A1, Callable, 5.55% due 02/15/18............... Aaa/AAA 1,393,350
1,500,000 J.P. Morgan Commercial Mortgage Finance Corp.,
Subordinated Bond, CSTR, Series 1996-C2, Class
E, Callable, 8.731% due 11/25/27............... NR/BB 1,553,437
2,500,000 Merrill Lynch Mortgage Investors, Inc.,
Sequential Payer, Series 1996-C2, Class A3,
Callable, 6.96% due 11/21/28................... NR/AAA 2,582,812
3,163,678 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, Callable, 8.17% due 06/15/21................ Ba3/NR 3,143,905
2,000,000 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
Callable, 7.12% due 06/18/29................... NR/BB 1,845,312
9,249,064 Midland Realty Acceptance Corp., Sequential
Payer, Series 1996-C2, Class A1, Callable,
7.02% due 01/25/29............................. Aaa/NR 9,481,735
6,677,184 Morgan Stanley Capital, Inc., Sequential Payer,
AFC, Series 1998-WF1, Class A1, 6.25% due
07/15/07....................................... NR/AAA 6,652,144
5,000,000 Morgan Stanley Capital, Inc., Subordinated Bond,
CSTR, Series 1997-RR, Class D, Callable,
(144A), 7.77% due 04/30/39..................... NR/NR 4,768,750
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 1,000,000 Morgan Stanley Capital, Inc., Subordinated Bond,
Series 1995-GAL1, Class E, Callable, (144A),
8.25% due 08/15/05............................. NR/NR $ 1,014,375
2,000,000 Morgan Stanley Capital, Inc., Subordinated Bond,
Series 1997-HF1, Class F, Callable, (144A),
6.86% due 02/15/10............................. NR/NR 1,821,250
427,158 Morgan Stanley Mortgage Trust, Remic: Sequential
Payer, Series V, Class 4, Callable, 8.95% due
05/01/17....................................... NR/AAA 441,314
1,948,511 Mortgage Capital Funding, Inc., Sequential Payer,
Series 1997-MC2, Class A1, Callable, 6.525% due
01/20/07....................................... Aaa/NR 1,960,081
1,500,000 Niantic Bay Fuel Trust, Secured Notes, 9.02% due
06/05/98....................................... NR/NR 1,488,750
1,014,902 Norwest Asset Securities Corp., Remic:
Subordinated Bond, NAS, Series 1997-9, Class
B3, Callable, (144A), 7.00% due 06/25/12....... NR/NR 980,015
521,017 Norwest Asset Securities Corp., Remic:
Subordinated Bond, NAS, Series 1998-3, Class
B3, Callable, (144A), 6.75% due 02/25/13....... NR/NR 488,616
809,222 Norwest Asset Securities Corp., Remic:
Subordinated Bond, NAS, Series 1998-4, Class
2B3, Callable, (144A), 6.75% due 02/25/28...... NR/NR 708,207
800,000 Norwest Asset Securities Corp., Remic:
Subordinated Bond, NAS, Series 1998-5, Class
B3, Callable, (144A), 6.75% due 03/25/28....... NR/NR 699,704
721,786 Paine Webber Mortgage Acceptance Corp., Remic:
PAC (11), AS, Series 1993-5, Class A2,
Callable, 5.50% due 06/25/08................... NR/AAA 718,899
119,930 Prudential Home Mortgage Securities, Remic: PAC
(11), AS, Series 1993-54, Class A2, Callable,
6.50% due 01/25/24............................. Aaa/NR 119,539
4,489,400 Residential Funding Mortgage Securities I, Inc.,
Remic: PAC (11), AS, Series 1994-S12, Class A3,
Callable, 6.50% due 04/25/09................... Aa1/AAA 4,499,905
493,475 Residential Funding Mortgage Securities I, Remic:
NAS, Series 1996-S2, Class M3, Callable, 6.75%
due 01/25/11................................... NR/BBB 491,230
3,000,000 Safeco Capital Trust I, Callable 07/15/07, 8.072%
due 07/15/37................................... NR/NR 3,140,940
150,000 Sears Roebuck Acceptance, Series III, 6.60% due
10/09/01....................................... A2/A- 151,725
51,120 The Money Store Home Equity Trust, Sequential
Payer, Series 1992-A, Class A, Callable, 6.95%
due 01/15/07................................... Aaa/AAA 51,916
19,450 Western Financial Grantor Trust, Sequential
Payer, Series 1995-3, Class A1, Callable, 6.05%
due 11/01/00................................... Aaa/AAA 19,463
942,312 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1996-A, Class A1,
Callable, 6.30% due 06/25/02................... Aaa/AAA 943,867
2,600,000 World Omni Automobile Lease Securitization Trust,
Sequential Payer, Series 1997-A, Class A2,
Callable, 6.75% due 06/25/03................... Aaa/AAA 2,649,192
-------------
159,520,938
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$162,735,598).............................. 164,493,488
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
CONVERTIBLE BONDS (0.1%)
RETAIL (0.1%)
$ 1,100,000 Corporate Express, Inc., Callable 07/01/99, 4.50%
due 07/01/00 (cost $934,625)................... B3/B $ 999,625
-------------
CORPORATE OBLIGATIONS (23.3%)
APPARELS & TEXTILES (0.1%)
1,050,000 Fruit of the Loom, Inc., 7.875% due 10/15/99..... Ba1/BBB- 1,063,230
300,000 Pillowtex Corp., Series B, Callable 12/15/02,
9.00% due 12/15/07............................. B2/B+ 310,125
-------------
1,373,355
-------------
BANKING (2.7%)
500,000 ABN Amro, 7.125% due 06/18/07.................... Aa2/AA- 523,450
8,300,000 First Union Corp., 6.55% due 10/15/35............ A2/A- 8,474,715
4,875,000 Mellon Capital I, Series A, Callable 12/01/06,
7.72% due 12/01/26............................. A2/BBB+ 5,070,585
2,500,000 Swiss Bank Corp., 7.00% due 10/15/15............. Aa2/AA 2,559,700
11,235,000 Swiss Bank Corp., 7.75% due 09/01/26............. Aa2/AA 12,462,199
2,500,000 Wachovia Bank North Carolina, 5.60% due
03/08/99....................................... Aa2/AA+ 2,491,875
-------------
31,582,524
-------------
BROADCASTING & PUBLISHING (0.7%)
1,700,000 Capstar Broadcasting Partners, Callable 07/01/02,
9.25% due 07/01/07............................. B2/B- 1,780,750
2,700,000 Fox Kids Worldwide, Inc., Callable 11/01/02,
(144A), 9.25% due 11/01/07..................... B1/B 2,666,250
2,000,000 Lenfest Communications, Inc., 10.50% due
06/15/06....................................... B2/BB- 2,280,000
1,000,000 Lenfest Communications, Inc., (144A), 7.625% due
02/15/08....................................... Ba3/BB+ 997,500
-------------
7,724,500
-------------
BUSINESS & PUBLIC SERVICES (0.0%)
200,000 U.S. Department of Veterans Affairs, 7.50% due
09/15/17....................................... Aaa/AAA 203,536
-------------
ELECTRIC (0.9%)
5,000,000 Pacific Corp., Series H, Callable, 6.75% due
07/15/04....................................... A2/A 5,087,950
5,000,000 Philadelphia Electric Co., 8.00% due 04/01/02.... Baa1/BBB+ 5,296,850
-------------
10,384,800
-------------
ELECTRONICS (0.6%)
7,000,000 Sensormatic Electronics Corp., Callable, (144A),
7.74% due 03/29/06............................. NR/NR 6,515,950
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (0.8%)
$ 2,500,000 Fox/Liberty Networks LLC, Callable 08/15/02,
8.875% due 08/15/07............................ B1/B $ 2,556,250
2,000,000 Jacor Communications Co., Callable 12/15/01,
9.75% due 12/15/06............................. B2/B 2,175,000
1,090,000 Jacor Communications Co., Series B, Callable
06/15/02, 8.75% due 06/15/07................... B2/B 1,136,325
1,250,000 Lamar Advertising Co., Callable 09/15/02, 8.625%
due 09/15/07................................... B1/B 1,268,750
2,700,000 Outdoor Systems, Inc., Callable 06/15/02, 8.875%
due 06/15/07................................... B1/B 2,794,500
-------------
9,930,825
-------------
FINANCIAL SERVICES (4.2%)
3,060,000 Associates Corp. North America, 5.96% due
05/15/37....................................... Aa3/AA- 3,077,442
25,000 Chrysler Financial Corp., Series Q, 6.35% due
06/22/99....................................... A3/A 25,094
3,400,000 Commercial Credit, 8.70% due 06/15/10............ A1/A+ 4,101,114
4,000,000 FCB/NC Capital Trust 1, Callable 03/01/08,
(144A), 8.05% due 03/01/28..................... Baa3/BB+ 4,043,400
2,750,000 FCB/SC Capital Trust I, Callable 03/15/08,
(144A), 8.25% due 03/15/28..................... NR/NR 2,733,582
2,875,000 First Union Institutional Capital I, Callable
12/01/06, 8.04% due 12/01/26................... A1/BBB+ 3,074,209
750,000 Ford Motor Credit Co., 6.50% due 02/28/02........ A1/A+ 758,205
2,000,000 General Motors Acceptance Corp., 6.70% due
06/24/99....................................... A2/A 2,017,140
750,000 General Motors Acceptance Corp., 6.75% due
02/07/02....................................... A2/A 761,782
450,000 Nationwide Financial Services, Inc., Callable
03/01/07, 8.00% due 03/01/27................... A1/A+ 480,789
4,400,000 Phillips 66 Capital Trust II, Callable 01/15/07,
8.00% due 01/15/37............................. Baa1/BBB+ 4,578,464
4,100,000 Provident Companies, Inc., 7.405% due 03/15/38... A3/BBB 4,097,048
750,000 Sears Roebuck Acceptance Corp., Series I, 6.40%
due 10/11/00................................... A2/A- 754,132
10,600,000 Southern Co. Capital Trust I, Callable 02/01/07,
8.19% due 02/01/37............................. A3/A- 11,209,818
1,800,000 Southern Co. Capital Trust II, Callable 02/15/07,
(144A), 8.14% due 02/15/27..................... NR/NR 1,873,620
1,400,000 Sun Healthcare Group, Inc., 9.375% due
05/01/08....................................... B2/B- 1,407,000
2,450,000 Sun World International, Inc., Series B, Callable
04/15/01, 11.25% due 04/15/04.................. B2/B 2,627,625
1,500,000 US Bancorp Capital I, Callable 12/15/06, (144A),
8.27% due 12/15/26............................. NR/NR 1,642,695
100,000 US West Capital Funding Inc., 7.30% due
01/15/07....................................... Baa1/BBB+ 106,353
-------------
49,369,512
-------------
FOOD, BEVERAGES & TOBACCO (0.6%)
750,000 Coca Cola Enterprises, 6.625% due 08/01/04....... A3/A+ 768,600
2,000,000 Panamerican Beverages, (144A), 7.25% due
07/01/09....................................... Baa3/BBB- 1,977,860
1,000,000 Smithfield Foods, Inc., (144A), 7.625% due
02/15/08....................................... Ba3/BB+ 987,500
2,900,000 Tricon Global Restaurants, Callable, 7.45% due
05/15/05....................................... Ba1/BB 2,894,896
-------------
6,628,856
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FOREST PRODUCTS & PAPER (1.9%)
$ 1,100,000 Buckeye Technologies, Inc., Callable 12/15/00,
8.50% due 12/15/05............................. Ba3/BB- $ 1,124,750
5,000,000 Champion International Corp., 7.10% due
09/01/05....................................... Baa1/BBB 5,162,350
5,600,000 Georgia-Pacific Corp., 9.95% due 06/15/02........ Baa2/BBB- 6,278,944
9,150,000 Georgia-Pacific Corp., Callable 04/30/05, 8.625%
due 04/30/25................................... Baa2/BBB- 10,083,025
-------------
22,649,069
-------------
GAS EXPLORATION (0.4%)
5,000,000 National Fuel Gas Co., Series D, 6.214% due
08/12/27....................................... A2/A- 5,030,400
-------------
HEALTH SERVICES (0.7%)
2,675,000 Genesis Health Ventures, Inc., Callable 06/15/00,
9.75% due 06/15/05............................. B2/B- 2,795,375
2,000,000 Mariner Health Group, Inc., Series B, Callable
04/01/01, 9.50% due 04/01/06................... B2/B 2,090,000
1,670,000 Tenet Healthcare Corp., 8.00% due 01/15/05....... Ba1/BB+ 1,711,499
1,480,000 Tenet Healthcare Corp., Callable 01/15/02, 8.625%
due 01/15/07................................... Ba3/B+ 1,535,411
-------------
8,132,285
-------------
METALS & MINING (0.1%)
1,000,000 Ryerson Tull, Inc., Callable, 8.50% due
07/15/01....................................... Ba1/BB 1,040,000
-------------
MULTI-INDUSTRY (0.1%)
750,000 Lasmo (USA) Inc., Callable 06/01/03, 8.375% due
06/01/23....................................... Baa2/BBB 809,190
-------------
NATURAL GAS (0.7%)
200,000 BP America, Inc., 7.875% due 05/15/02............ Aa2/AA 212,076
3,166,000 Columbia Gas Systems, Series G, Callable
11/28/05, 7.62% due 11/28/25................... Baa1/BBB+ 3,296,724
684,000 Consolidated Natural Gas Co., Callable 12/10/97,
8.625% due 12/01/11............................ A1/AA- 716,976
500,000 Ferrellgas Partners, L.P., Series B, Callable
06/15/01, (144A), 9.375% due 06/15/06.......... B1/B+ 533,125
3,000,000 William Companies, Inc., 6.125% due 02/01/01..... Baa2/BBB- 2,995,530
-------------
7,754,431
-------------
OIL-PRODUCTION (0.5%)
2,500,000 Ocean Energy, Inc., Series B, Callable 07/15/02,
8.875% due 07/15/07............................ B3/BB- 2,625,000
2,500,000 Plains Resources Inc., Series D, Callable, 10.25%
due 03/15/06................................... NR/B 2,693,750
-------------
5,318,750
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
OIL-SERVICES (0.3%)
$ 4,000,000 Oil Purchase Co., Sinking Fund, (144A), 7.10% due
04/30/02....................................... Baa3/BBB $ 4,010,000
-------------
PACKAGING & CONTAINERS (0.1%)
710,000 Stone Container Corp., Series B, Callable
12/05/97, 12.25% due 04/01/02.................. B3/B- 732,187
-------------
RAILROADS (0.9%)
750,000 Norfolk Southern Corp., 6.70% due 05/01/00....... Baa1/BBB+ 758,437
5,300,000 Union Pacific Corp., 6.625% due 02/01/08......... Baa3/BBB 5,235,552
5,000,000 Union Pacific Corp., 7.125% due 02/01/28......... Baa3/BBB 4,934,900
-------------
10,928,889
-------------
RETAIL (0.7%)
2,500,000 Federated Department Stores, Inc., 8.50% due
06/15/03....................................... Baa2/BB+ 2,712,475
2,500,000 Fred Meyer, Inc., Callable, 7.45% due 03/01/08... Ba2/BB+ 2,493,750
2,350,000 Sears Roebuck & Co., Series VI, 8.00% due
02/16/99....................................... A2/A- 2,384,991
-------------
7,591,216
-------------
TELECOMMUNICATIONS (0.6%)
2,500,000 McLeodUSA, Inc., Callable 07/15/02, 9.25% due
07/15/07....................................... B2/B+ 2,656,250
1,000,000 NEXTLINK Communications, Inc., Callable 10/01/02,
9.625% due 10/01/07............................ B3/B 1,050,000
2,500,000 Qwest Communications International, Inc., Series
B, Callable 04/01/02, 10.875% due 04/01/07..... B2/B+ 2,906,250
-------------
6,612,500
-------------
TELEPHONE (1.5%)
16,075,000 New York Telephone Co., Callable 02/15/04, 7.25%
due 02/15/24................................... A2/A+ 16,315,643
1,825,000 New York Telephone Co., Callable 08/15/03, 7.00%
due 08/15/25................................... A2/A+ 1,809,159
-------------
18,124,802
-------------
TEXTILES (0.4%)
2,000,000 Collins & Aikman Products Co., Callable 04/15/01,
11.50% due 04/15/06............................ B3/B 2,250,000
2,570,000 Polymer Group, Inc., Series B, Callable 07/01/02,
9.00% due 07/01/07............................. B2/B 2,653,525
-------------
4,903,525
-------------
TRANSPORTATION (0.2%)
2,500,000 Atlantic Express Transportation Corp., Callable
02/01/01, 10.75% due 02/01/04.................. B2/B 2,671,875
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
UTILITIES (3.6%)
$ 2,750,000 Boston Edison, Callable 03/16/03, 7.80% due
03/15/23....................................... Baa2/BBB $ 2,819,355
2,500,000 Calpine Corp., (144A), 7.875% due 04/01/08....... Ba2/BB- 2,487,500
2,950,000 Central Power & Light Co., Series KK, 6.625% due
07/01/05....................................... A3/A 2,988,350
500,000 Commonwealth Edison, 6.50% due 04/15/00.......... Baa2/BBB 503,680
4,000,000 Consolidated Edison, 6.45% due 12/01/07.......... A1/A+ 4,035,240
5,300,000 Consolidated Natural Gas Co., Callable, 6.80% due
12/15/27....................................... A1/AA- 5,319,981
6,700,000 Jersey Central Power & Light, Series C, 6.04% due
03/15/00....................................... Baa1/A- 6,693,568
4,350,000 Pacificorp, Series B, 8.90% due 02/15/01......... A2/A 4,634,533
5,000,000 Potomac Electric Power, Callable 09/15/05, 7.375%
due 09/15/25................................... A1/A 5,121,150
7,000,000 Waterford 3 Funding, SLOBS, Sinking Fund, 8.09%
due 01/02/17................................... Baa3/BBB- 7,285,460
-------------
41,888,817
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$264,798,029).............................. 271,911,794
-------------
FOREIGN CORPORATE OBLIGATIONS (7.3%)
BERMUDA (0.1%)
ENTERTAINMENT, LEISURE & MEDIA
1,250,000 Central European Media Enterprises, Callable
08/15/01, 9.375% due 08/15/04.................. B1/B+ 1,237,075
-------------
BRAZIL (0.1%)
UTILITIES
1,000,000 Furnas Centrais Eletricas SA de CV, Callable
05/23/02, 9.00% due 05/23/05................... NR/NR 978,750
-------------
CANADA (2.8%)
BANKING
4,000,000 Canadian Imperial Bank, 6.20% due 08/01/00....... Aa3/AA- 4,017,720
-------------
FINANCIAL SERVICES
5,000,000 McKesson Finance of Canada, (144A), 6.55% due
11/01/02....................................... A3/A 5,033,700
-------------
FOOD, BEVERAGES & TOBACCO
1,000,000 Cott Corp., Callable 07/01/00, 8.50% due
05/01/07....................................... Ba3/B+ 1,027,500
-------------
FOREST PRODUCTS & PAPER
1,000,000 Avenor, Inc., Series E, (144A), 9.86% due
06/30/01....................................... NR/BB+ 1,072,790
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
OIL PRODUCTION
$ 1,500,000 Express Pipeline LP, Series B, Sinking Fund,
Callable, (144A), 7.39% due 12/31/17........... Baa3/BBB- $ 1,477,500
-------------
TELECOMMUNICATIONS
1,600,000 Rogers Cablesystems Ltd., (144A), 11.09% due
06/01/00....................................... NR/NR 1,668,000
900,000 Rogers Cablesystems Ltd., Callable 12/01/02,
10.00% due 12/01/07............................ Ba3/BB+ 996,750
-------------
TELECOMMUNICATION EQUIPMENT
1,250,000 Rogers Cantel, Inc., Callable 10/01/02, 8.30% due
10/01/07....................................... Ba3/BB+ 1,214,062
-------------
TELECOMMUNICATION SERVICES
300,000 Microcell Telecommunications, Inc., Series B,
Callable 12/01/01, 0.00% due 06/01/06 (v)...... B3/NR 225,000
-------------
TELEPHONE
600,000 Call-Net Enterprises, Inc., Callable 08/15/02,
0.00% due 08/15/07 (v)......................... B1/BB- 424,500
-------------
TRANSPORT & SERVICES
7,000,000 Laidlaw, Inc., 6.72% due 10/01/27................ Baa3/BBB+ 7,314,580
2,500,000 Teekay Shipping Corp., Sinking Fund, 8.32% due
02/01/08....................................... Ba2/BB 2,590,625
-------------
WATER
4,500,000 Hydro Quebec, Series GF, 8.875% due 03/01/26..... A2/A+ 5,600,745
-------------
32,663,472
-------------
CAYMAN ISLANDS (0.0%)
FINANCIAL SERVICES
500,000 Santander Finance Issuances, 7.875% due
04/15/05....................................... A1/A+ 535,785
-------------
CHILE (0.4%)
FOREST PRODUCTS & PAPER
5,000,000 Celulosa Arauco y Constitucion SA, 6.75% due
12/15/03....................................... Baa2/BBB+ 4,880,100
-------------
CHINA (0.1%)
FINANCIAL SERVICES
1,400,000 Guangdong International Trust & Investment Corp.,
(144A), 8.75% due 10/24/16..................... Baa2/BBB- 1,297,800
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FRANCE (0.1%)
ELECTRICAL EQUIPMENT
$ 1,320,000 Legrand S.A., 8.50% due 02/15/25................. A2/A $ 1,588,963
-------------
KOREA (0.3%)
BANKING
1,500,000 Export Import Bank of Korea, 7.10% due
03/15/07....................................... Ba1/BB+ 1,412,910
1,000,000 Export Import Bank of Korea, 7.125% due
09/20/01....................................... NR/NR 916,250
-------------
UTILITIES
1,500,000 Korea Electric Power Corp., 6.00% due 12/01/26... Ba1/BB+ 1,353,540
-------------
3,682,700
-------------
MALAYSIA (0.3%)
GAS EXPLORATION
3,240,000 Petroliam Nasional Berhad, (144A), 7.75% due
08/15/15....................................... A2/A 2,970,011
-------------
MEXICO (1.6%)
BROADCASTING & PUBLISHING
2,570,000 Grupo Televisa SA de CV, Series A, 11.375% due
05/15/03....................................... Ba2/BB 2,816,360
-------------
ELECTRICAL EQUIPMENT
1,800,000 Axa SA de CV, (144A), 9.00% due 08/04/04......... B1/BB 1,764,000
-------------
FOREST PRODUCTS & PAPER
7,000,000 Copamex Industrias SA de CV, Callable 04/30/02,
11.375% due 04/30/04........................... NR/NR 7,630,000
-------------
INDUSTRIAL
2,450,000 Grupo Imsa SA de CV, Callable 09/30/02, 8.93% due
09/30/04....................................... NR/BB 2,443,875
-------------
OIL SERVICES
3,814,000 Petroleos Mexicanos, (144A), 7.75% due
10/29/99....................................... Ba2/BB 3,823,535
-------------
18,477,770
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
NETHERLANDS (0.1%)
FINANCIAL SERVICES
$ 450,000 Ford Capital BV, 9.00% due 08/15/98.............. A1/A+ $ 453,920
400,000 Montell Finance Co., 8.10% due 03/15/27.......... A3/A 468,896
-------------
922,816
-------------
NETHERLANDS ANTILLES (0.5%)
BANKING
6,000,000 Bank Tokyo Curacao Holdings, 6.406% due
09/29/49....................................... NR/NR 5,730,000
-------------
PHILIPPINES (0.3%)
TELEPHONE
1,250,000 Philippine Long Distance Telephone, 10.625% due
06/02/04....................................... Ba2/BB+ 1,322,656
2,570,000 Philippine Long Distance Telephone, Series EMTN,
7.85% due 03/06/07............................. Ba2/BB+ 2,355,996
-------------
3,678,652
-------------
SWEDEN (0.1%)
TRANSPORTATION
1,500,000 Stena AB, Callable 06/15/02, 8.75% due
06/15/07....................................... Ba2/BB- 1,546,875
-------------
UNITED KINGDOM (0.5%)
BANKING
500,000 Abbey National First Capital, 8.20% due
10/15/04....................................... Aa3/AA- 548,655
-------------
ELECTRIC
5,000,000 National Power Co. PLC, 6.25% due 12/01/03....... A2/A 4,937,500
-------------
TELEPHONE
150,000 Cable & Wireless Communication, Callable, 6.625%
due 03/06/05................................... Baa1/A- 150,794
-------------
5,636,949
-------------
VENEZUELA (0.0%)
FINANCIAL SERVICES
200,000 Corporacion Andina De Fomento, 6.75% due
03/15/05....................................... A3/BBB+ 198,396
-------------
TOTAL FOREIGN CORPORATE OBLIGATIOS (COST
$84,615,097)............................... 86,026,114
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FOREIGN GOVERNMENT OBLIGATIONS (4.5%)
CANADA (0.6%)
$ 6,450,000 Province of Ontario, 7.625% due 06/22/04......... Aa3/AA- $ 6,926,591
500,000 Province of Quebec, 7.50% due 07/15/23........... A2/A+ 543,155
-------------
7,469,746
-------------
FRANCE (0.4%)
FRF 25,000,000 Government of France, 4.75% due 03/12/02 (WI).... NR/NR 4,178,878
-------------
GERMANY (3.5%)
DEM 67,000,000 German Unity Fund, 8.50% due 02/20/01............ NR/NR 41,260,397
-------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$53,097,784)............................... 52,909,021
-------------
SOVEREIGN BONDS (1.8%)
ARGENTINA (0.3%)
3,000,000 Province of Mendoza, (144A), 10.00% due
09/04/07....................................... B1/NR 2,897,730
42,760 Republic of Argentina Bearer, FRB, Callable
09/30/98, Sinking Fund, 6.625% due 03/31/05.... Ba3/BB 39,232
-------------
2,936,962
-------------
KOREA (0.4%)
1,500,000 Republic of Korea, 8.75% due 04/15/03............ Ba1/BB+ 1,494,000
3,000,000 Republic of Korea, 8.875% due 04/15/08........... NR/BB+ 2,925,000
-------------
4,419,000
-------------
MEXICO (0.4%)
1,300,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... Ba2/BB 1,525,940
2,650,000 United Mexican States Global Bonds, 11.50% due
05/15/26....................................... Ba2/BB 3,196,430
-------------
4,722,370
-------------
POLAND (0.3%)
3,970,000 Republic of Poland, Series DISC, Callable
10/29/98, (144A), 4.00% due 10/27/14........... Baa3/BBB- 3,627,786
-------------
RUSSIA (0.2%)
1,500,000 City of Moscow, (144A), 9.50% due 05/31/00....... Ba3/BB- 1,466,250
1,000,000 Ministry of Finance Russia, (144A), 10.00% due
06/26/07....................................... Ba2/BB- 963,800
-------------
2,430,050
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNTu SECURITY DESCRIPTION (UNAUDITED) VALUE
-------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
VENEZUELA (0.2%)
$ 2,750,000 Republic of Venezuela Global Bonds, 9.25% due
09/15/27....................................... Ba2/B+ $ 2,432,375
-------------
TOTAL SOVEREIGN BONDS (COST $19,577,755)..... 20,568,543
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (29.6%)
FEDERAL HOME LOAN MORTGAGE CORP. (12.4%)
230,661 6.00% due 03/01/11............................... 227,851
439,558 6.00% due 04/01/11............................... 434,156
500,000 6.70% due 01/15/23............................... 504,620
300,000 6.85% due 10/15/21............................... 301,149
97,318 7.00% due 09/01/09............................... 99,140
586,725 7.00% due 10/01/10............................... 597,773
7,830,000 7.00% due 03/15/11............................... 7,981,824
366,919 7.00% due 03/01/27............................... 371,355
12,858,539 7.50% due 10/01/26............................... 13,179,617
1,320,875 8.00% due 11/01/26............................... 1,367,739
2,249,083 8.00% due 12/01/26............................... 2,328,723
204,818 8.00% due 03/01/27............................... 212,042
9,493 9.00% due 04/01/03............................... 9,805
6,767,254 9.25% due 06/01/16............................... 7,178,297
112,663 9.50% due 08/01/04............................... 117,587
266,363 9.50% due 11/01/05............................... 278,043
1,438,624 9.50% due 12/01/05............................... 1,501,750
262,535 9.50% due 02/01/06............................... 274,047
397,039 9.50% due 03/01/06............................... 414,505
16,855 10.00% due 04/01/09.............................. 18,200
1,049 12.50% due 08/01/14.............................. 1,176
4,033,156 Gold, 6.50% due 06/01/04......................... 4,033,156
11,000,000 Gold, 8.506% due 12/01/04........................ 11,899,766
300,000 Remic: Accretion Directed, Series 1290, Class L,
7.50% due 10/15/09............................. 313,380
300,000 Remic: PAC, Series 102, Class I, 7.00% due
12/15/20....................................... 299,709
32,000 Remic: PAC-1(11), Series 1168, Class H, 7.50% due
11/15/21....................................... 33,794
250,000 Remic: PAC-1(11), Series 1199, Class E, 7.50% due
10/15/19....................................... 254,083
415,000 Remic: PAC-1(11), Series 1207, Class J, 6.75% due
07/15/19....................................... 414,664
162,244 Remic: PAC-1(11), Series 1215, Class F, 6.75% due
05/15/05....................................... 162,646
35,760,000 Remic: PAC-1(11), Series 1542, Class J, 7.00% due
02/15/22 (s)................................... 36,666,874
13,000,000 Remic: PAC-1(11), Series 1594, Class H, 6.00% due
10/15/08....................................... 12,832,300
31,500,000 Remic: PAC-1(11), Series 1684, Class G, 6.50% due
03/15/23 (t)................................... 31,689,000
7,500,000 Remic: PAC-1(11), Series 1714, Class K, 7.00% due
04/15/24....................................... 7,674,150
192,806 Remic: PAC-2(11), Series 39, Class F, 10.00% due
05/15/20....................................... 209,601
1,600,000 Remic: SCH(22), Series 1701, Class B, 6.50% due
03/15/09....................................... 1,594,912
-------------
145,477,434
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTu SECURITY DESCRIPTION VALUE
-------------------- ------------------------------------------------- -------------
<C> <S> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (7.7%)
$ 200,000 6.00% due 04/25/19............................... $ 199,625
2,837,439 6.88% due 11/01/05............................... 2,919,469
186,711 7.00% due 11/01/26............................... 188,738
14,533,799 7.00% due 04/01/28............................... 14,692,799
319,588 7.50% due 03/01/27............................... 327,802
35,451 8.00% due 01/01/02............................... 36,456
145,522 8.00% due 02/01/02............................... 149,646
39,755 8.00% due 05/01/02............................... 40,889
236,648 8.00% due 07/01/02............................... 243,380
230,373 8.00% due 12/01/11............................... 237,485
4,394 8.00% due 08/01/22............................... 4,540
2,522,858 8.00% due 12/01/26............................... 2,610,703
3,182,100 8.00% due 05/01/27............................... 3,294,047
19,875,325 8.50% due 01/01/05............................... 20,642,115
277,889 8.50% due 12/01/26............................... 289,952
4,297,127 8.70% due 01/01/05............................... 4,514,669
283,977 9.00% due 12/01/24............................... 299,329
1,422,935 9.50% due 07/01/05............................... 1,497,681
348,165 10.00% due 06/01/20.............................. 374,782
6,261,280 10.00% due 06/01/26.............................. 6,766,378
23,739,669 IO, 7.50% due 12/31/99........................... 5,779,126
23,739,669 PO, 0.00% due 12/31/99........................... 18,583,858
7,000,000 TBA May, 7.00% due 01/01/13...................... 7,129,063
-------------
90,822,532
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (9.5%)
368,354 7.00% due 12/15/08............................... 377,135
6,544,420 7.00% due 03/15/26............................... 6,589,381
203,441 7.00% due 12/15/27............................... 205,856
7,766,682 7.00% due 05/15/35............................... 7,820,039
5,921,512 7.125% due 01/15/99.............................. 6,073,044
5,221,264 7.125% due 01/15/31.............................. 5,276,661
5,131,877 7.25% due 02/15/27............................... 5,207,110
2,587,110 7.25% due 01/15/31............................... 2,625,063
393,831 7.50% due 03/15/24............................... 404,366
144,292 7.50% due 04/15/24............................... 148,149
29,607 7.50% due 05/15/24............................... 30,391
859,842 7.50% due 01/15/26............................... 883,032
269,772 7.50% due 03/15/26............................... 277,075
2,882,862 7.50% due 04/15/26............................... 2,948,017
6,315,612 7.50% due 05/15/26............................... 6,457,461
948,263 7.50% due 07/15/26............................... 974,226
877,454 7.50% due 10/15/26............................... 901,285
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTu SECURITY DESCRIPTION VALUE
-------------------- ------------------------------------------------- -------------
<C> <S> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 8,359,716 7.50% due 01/15/27............................... $ 8,588,104
4,772,852 7.50% due 02/15/27............................... 4,903,342
1,934,265 7.50% due 05/15/27............................... 1,987,051
999,278 7.50% due 07/15/27............................... 1,026,708
1,484,343 7.50% due 08/15/27............................... 1,524,821
1,092,481 7.50% due 09/15/27............................... 1,122,241
886,167 7.50% due 11/15/27............................... 910,244
2,360,819 7.50% due 12/15/27............................... 2,425,507
967,108 7.50% due 01/15/28............................... 993,686
1,802,707 7.50% due 02/15/28............................... 1,852,246
3,606,457 7.50% due 03/15/28............................... 3,705,635
3,542,050 7.50% due 04/15/28............................... 3,639,456
5,480,372 7.625% due 04/15/26.............................. 5,658,265
1,500,152 7.75% due 06/15/23............................... 1,552,538
8,545,894 7.75% due 07/15/31............................... 8,844,744
3,312,826 7.875% due 12/15/99.............................. 3,430,762
203,759 8.00% due 08/15/26............................... 211,302
353,715 8.00% due 12/15/26............................... 366,922
2,290,035 8.00% due 06/15/31............................... 2,393,705
149,278 9.00% due 12/15/26............................... 160,091
17,525 11.00% due 05/15/16.............................. 19,430
14,505 11.50% due 07/15/13.............................. 16,272
8,300,948 12.00% due 07/15/26.............................. 9,432,118
-------------
111,963,481
-------------
OTHER GOVERNMENT AGENCY
104,100 Resolution Trust Corp., Remic: Collateral Strip
Interest, Series 1991-6, Class A1, Callable,
6.89% due 05/25/19............................. 104,970
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $343,168,643)........................ 348,368,417
-------------
U.S. TREASURY OBLIGATIONS (14.8%)
U.S. TREASURY BONDS (5.7%)
26,940,000 6.50% due 11/15/26 (s)........................... 28,691,639
1,050,000 6.625% due 02/15/27.............................. 1,137,780
31,358,000 6.75% due 08/15/26............................... 34,446,449
1,925,000 8.50% due 02/15/20............................... 2,491,508
-------------
66,767,376
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTu SECURITY DESCRIPTION VALUE
-------------------- ------------------------------------------------- -------------
<C> <S> <C>
U.S. TREASURY NOTES (9.1%)
$ 7,910,000 5.50% due 02/15/08............................... $ 7,809,227
15,700,000 5.75% due 09/30/99 (s)........................... 15,741,134
10,550,000 5.875% due 10/31/98.............................. 10,571,733
240,000 5.875% due 11/15/99.............................. 241,022
100,000 5.875% due 02/15/00.............................. 100,502
5,590,000 6.25% due 02/28/02............................... 5,701,409
885,000 7.875% due 11/15/04.............................. 985,827
42,370,000 8.50% due 11/15/00 (t)........................... 45,249,042
20,500,000 8.875% due 11/15/98.............................. 20,871,255
-------------
107,271,151
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$171,905,070).............................. 174,038,527
-------------
</TABLE>
<TABLE>
<CAPTION>
MOODY'S/S&P
RATING
SHARES (UNAUDITED)
- ------------ ------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (1.1%)
INDUSTRIAL PRODUCTS & SERVICES (1.0%)
12,575 Home Ownership Funding, (144A), 13.331%.......... Aaa/NR 12,188,897
---------------
BASIC INDUSTRIES (0.1%)
36,000 Lasmo PLC, 10.00%, Series A...................... Baa3/BBB- 956,250
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$13,389,078)............................... 13,145,147
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTu
-------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (3.0%)
REPURCHASE AGREEMENT (3.0%)
$ 35,352,000 Goldman Sachs Repurchase Agreement, 5.52% dated
4/30/98 due 5/1/98, proceeds $35,357,421
(collateralized by $7,106,000 Tennessee Valley
Authority Development Bond, 6.375% due
06/15/05, valued at $7,225,914; $14,850,000
Federal National Mortgage Association, coupon
rates ranging from 6.65% to 7.10%, maturities
ranging from 09/04/01 to 01/22/04, valued at
$14,991,847; $13,475,000 First Home Mortgage
Acceptance Corporation, coupon rates ranging
from 6.20% to 6.75%, maturities ranging from
08/01/01 to 09/08/08, valued at $13,288,165)
(cost $35,352,000)............................. 35,352,000
---------------
TOTAL INVESTMENTS (COST $1,154,573,679)
(99.9%)........................................ 1,172,832,676
OTHER ASSETS IN EXCESS OF LIABILITIES (0.1%)..... 943,657
---------------
NET ASSETS (100.0%).............................. $ 1,173,776,333
---------------
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
Note: Based on the cost of investments of $1,154,659,893 for Federal Income Tax
purposes at April 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $22,244,207 and $4,071,424, respectively, resulting in net
unrealized appreciation of $18,172,783.
u Denominated in USD unless otherwise indicated.
(s) Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$79,651,220 of the market value has been segregated.
(t) All or a portion of the security has been segregated as collateral for TBA
securities and when issued securities.
(v) Rate shown reflects current rate on instrument with step coupon rate.
Abbreviations used in the schedule of investments are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
AFC - Available Funds
AS - Accelerated Security
CSTR - Collateral Strip Rate
DEM - German Marc
FRB - Floating Rate Bond
FRF - French Franc
IO - Interest Only
NAS - Non-accelerated Security
NR - Not Rated
PAC - Planned Amortization Class
PO - Principal Only
Remic - Real Estate Mortgage Investment Conduit
SCH - Scheduled Payment
SLOBS - Secured Lease Obligation Bonds
TBA - Security purchased on a forward commitment basis with an appropriate
amount and no definitive maturity date. The actual principal amount and maturity
will be determined upon settlement date.
USD - United States Dollar
WI - When and if issued securities
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $1,154,573,679) $1,172,832,676
Foreign Currency at Value (Cost $1,565,539) 1,564,301
Receivable for Investments Sold 8,622,533
Interest Receivable 15,308,885
Other Assets 168,105
Foreign Tax Reclaim Receivable 38,228
Unrealized Appreciation of Forward Foreign
Currency Contracts 11,462
Prepaid Trustees' Fees 4,687
Prepaid Expenses and Other Assets 2,190
--------------
Total Assets 1,198,553,067
--------------
LIABILITIES
Payable to Custodian 17,394
Payable for Investments Purchased 23,920,841
Variation Margin Payable 438,275
Advisory Fee Payable 284,784
Custody Fee Payable 35,904
Administrative Services Fee Payable 27,620
Unrealized Depreciation of Spot Foreign Currency
Contracts 22,342
Fund Services Fee Payable 3,727
Administration Fee Payable 605
Accrued Expenses 25,242
--------------
Total Liabilities 24,776,734
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,173,776,333
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
35
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $38,207,689
Dividend Income (Net of Foreign Withholding Tax
of $6,749 ) 876,433
-----------
Investment Income 39,084,122
EXPENSES
Advisory Fee $1,657,846
Administrative Services Fee 165,103
Custodian Fees and Expenses 118,438
Fund Services Fee 17,465
Administration Fee 11,478
Trustees' Fees and Expenses 7,668
Miscellaneous 28,651
----------
Total Expenses 2,006,649
-----------
NET INVESTMENT INCOME 37,077,473
NET REALIZED GAIN ON
Investment Transactions 2,234,088
Futures Contracts 1,775,222
Foreign Currency Contracts and Transactions 21
----------
Net Realized Gain 4,009,331
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments (407,700)
Futures Contracts 21,868
Foreign Currency Contracts and Translations (10,064)
----------
Net Change in Unrealized Appreciation (395,896)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $40,690,908
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
36
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
APRIL 30, 1998 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1997
-------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 37,077,473 $ 65,021,206
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 4,009,331 7,026,218
Net Change in Unrealized Appreciation of
Investments, Futures and Foreign Currency
Contracts and Translations (395,896) 10,966,639
-------------- ----------------
Net Increase in Net Assets Resulting from
Operations 40,690,908 83,014,063
-------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 225,862,656 464,045,823
Withdrawals (174,332,170) (451,810,195)
-------------- ----------------
Net Increase from Investors' Transactions 51,530,486 12,235,628
-------------- ----------------
Total Increase in Net Assets 92,221,394 95,249,691
NET ASSETS
Beginning of Period 1,081,554,939 986,305,248
-------------- ----------------
End of Period $1,173,776,333 $ 1,081,554,939
-------------- ----------------
-------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FISCAL YEAR ENDED JULY 12, 1993
SIX MONTHS ENDED OCTOBER 31, (COMMENCEMENT OF
APRIL 30, 1998 ------------------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 1995 1994 OCTOBER 31, 1993
---------------- ---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.36%(a) 0.37% 0.37% 0.39% 0.46% 0.48%(a)
Net Investment Income 6.71%(a) 6.70% 6.38% 6.68% 5.88% 4.91%(a)
Portfolio Turnover 53%(b) 93% 186% 293% 234% 295%+
</TABLE>
- ------------------------
(a) Annualized.
(b) Not annualized.
+ Portfolio turnover is for the twelve month period ended October 31, 1993, and
includes the portfolio activity of the Portfolio's predecessor entity, The
Pierpont Bond Fund, for the period November 1, 1992 through July 11, 1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
37
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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, 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 commenced operations on
July 12, 1993 and received a contribution of certain assets and liabilities,
including securities, with a value of $91,653,371 on that date from J.P. Morgan
Bond Fund (formerly The JPM Pierpont Bond Fund) in exchange for a beneficial
interest in the portfolio. The portfolio's investment objective is to provide a
high total return consistent with moderate risk of capital and maintenance of
liquidity. The Declaration of Trust permits the trustees to issue an unlimited
number of beneficial interests in the portfolio.
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 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 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 of 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 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.
38
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
The portfolio's custodian or designated subcustodians, as the case may be,
under triparty repurchase agreements,takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the
portfolio. It is the policy of the portfolio to value the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to the repurchase price plus
accrued interest. In the event of default of the obligation to repurchase,
the portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances,
in the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject
to legal proceedings.
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.
39
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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. At April 30, 1998, the portfolio had open forward
currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 4/30/98 (DEPRECIATION)
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
German Mark 31,643,820, expiring 05/19/98........ $17,632,251 $17,652,677 $ 20,426
French Franc 126,801,563, expiring 05/19/98...... 20,869,234 21,094,094 224,860
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- ------------------------------------------------- -----------
<S> <C> <C> <C>
German Mark 31,643,820, expiring 05/19/98........ $17,485,672 $17,652,678 $ (167,006)
German Mark 75,410,361, expiring 07/30/98........ 42,339,207 42,231,606 107,601
French Franc 126,801,563, expiring 05/19/98...... 20,897,799 21,094,095 (196,296)
French Franc 25,400,000, expiring 07/31/98....... 4,264,464 4,242,587 21,877
--------------
Net Unrealized Appreciation on Forward Foreign
Currency Contracts.............................. $ 11,462
--------------
--------------
</TABLE>
SUMMARY OF OPEN SPOT FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR
CONTRACTUAL VALUE AT NET UNREALIZED
PURCHASE CONTRACTS VALUE 4/30/98 DEPRECIATION
- ------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
French Franc 25,337,931, expiring 05/04/98....... $ 4,232,865 $ 4,210,523 $ (22,342)
</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
40
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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. Futures open at April
30, 1998 are summarized as follows:
SUMMARY OF OPEN CONTRACTS AT APRIL 30, 1998
<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS SHORT APPRECIATION OF CONTRACTS
--------------- -------------- ----------------
<S> <C> <C> <C>
U.S. Long Bond, expiring June 1998............... 94 $ 100,811 $ 11,401,374
</TABLE>
f) The fund 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 Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the portfolio pays Morgan at an annual rate of 0.30% of the portfolio's
average daily net assets. For the six months ended April 30, 1998, this
fee amounted to $1,657,846.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
FDI provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the compensation of the officers
affiliated with FDI. The portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the portfolio is based on
the ratio of the portfolio's net assets to the aggregate net assets of the
portfolio and certain other investment companies subject to similar
agreements with FDI. For the six months ended April 30, 1998, the fee for
these services amounted to $11,478.
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
41
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
average daily net assets of the portfolio and the other portfolios for
which Morgan acts as investment advisor (the "master portfolios") and J.P.
Morgan Series Trust (formerly JPM Series Trust) in accordance with the
following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their aggregate average
daily net assets in excess of $7 billion, less the complex-wide fees
payable to FDI. The portion of this charge payable by the portfolio is
determined by the proportionate share that its net assets bear to the net
assets of the master portfolios, and certain other investors in the master
portfolios for which Morgan provides similar services and J.P. Morgan
Series Trust. For the six months ended April 30, 1998, the fee for these
services amounted to $165,103.
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 $17,465 for the six months ended April 30, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of J.P. Morgan Funds (formerly The JPM Pierpont Funds), J.P.
Morgan Institutional Funds (formerly The JPM Institutional Funds), and 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 $3,700.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1998, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $331,248,442 $344,952,944
Corporate and Collateralized Obligations......... 334,346,650 230,317,983
------------ ------------
$665,595,092 $575,270,927
------------ ------------
------------ ------------
</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.
42
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
CALIFORNIA MONEY MARKET FUND
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TOTAL RETURN BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
JAPAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS,
CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
J.P. MORGAN
BOND FUND
SEMI-ANNUAL REPORT
APRIL 30, 1998
