<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN SHORT TERM BOND FUND
June 1, 1999
Dear Shareholder,
The previous six-month period was marked by continued strength in the U.S.
economy, coupled with benign inflation and narrowing spreads. During this
period, the J.P. Morgan Short Term Bond Fund posted a 1.69% return, compared
with the 1.19% return of the Merrill Lynch 1-3 Year Treasury Index and the 1.07%
return of the Lipper Short Intermediate Investment Grade Debt Funds Average.
The fund's net asset value declined to $9.84 on April 30, 1999, from $9.98 on
October 31, 1998. The fund paid approximately $0.26 per share in dividends from
ordinary income and $0.05 per share in dividends from capital gains during the
reporting period. On April 30, 1999, the net assets of the fund were
approximately $4 million, while the assets of The Short Term Bond Portfolio, in
which the fund invests, amounted to approximately $285 million.
This report includes a discussion with Connie Plaehn, the portfolio manager
primarily responsible for The Short Term Bond Portfolio. In this interview,
Connie talks about the events of the previous six months that had the greatest
effect on the portfolio and discusses her investment strategy.
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 Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS........ 1 FUND FACTS AND HIGHLIGHTS..... 5
FUND PERFORMANCE.................. 2 FINANCIAL STATEMENTS.......... 8
PORTFOLIO MANAGER Q&A............. 3
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
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 SINCE
AS OF APRIL 30, 1999 MONTHS MONTH YEAR YEARS INCEPTION*
- -------------------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Short Term Bond Fund 0.61% 1.69% 5.90% 6.14% 5.37%
Merrill Lynch 1-3 Year Treasury Index 0.53% 1.19% 5.93% 6.36% 5.68%
Lipper Short Intermediate Investment Grade
Debt Funds Average 0.02% 1.07% 5.23% 6.22% 5.30%
AS OF MARCH 31, 1999
- -------------------------------------------------------------------------------- -------------------------------------
J.P. Morgan Short Term Bond Fund 0.75% 1.47% 6.06% 5.95% 5.39%
Merrill Lynch 1-3 Year Treasury Index 0.60% 1.36% 6.08% 6.22% 5.71%
Lipper Short Intermediate Investment Grade
Debt Funds Average 0.21% 0.62% 5.37% 6.04% 5.32%
</TABLE>
*THE FUND COMMENCED OPERATIONS ON JULY 8, 1993, AND HAS PROVIDED A TOTAL RETURN
OF 5.30% FROM THAT DATE THROUGH APRIL 30, 1999. FOR THE PURPOSE OF COMPARISON,
THE "SINCE INCEPTION" RETURNS IN THE TABLE ABOVE ARE CALCULATED FROM JULY 31,
1993, THE FIRST DATE WHEN DATA FOR THE FUND, ITS BENCHMARK, AND ITS LIPPER
CATEGORY AVERAGE WERE ALL AVAILABLE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF
CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES
NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. THE MERRILL LYNCH 1-3 YEAR
TREASURY INDEX IS AN UNMANAGED INDEX WHICH MEASURES SHORT-TERM MARKET
PERFORMANCE. THE INDEX DOES NOT INCLUDE FEES OR EXPENSES AND IS NOT AVAILABLE
FOR ACTUAL INVESTMENT. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR
MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
The following is an interview with CONNIE J. PLAEHN, managing director, a
member of the portfolio management team for The Short Term Bond Portfolio, in
which the fund invests. Prior to this position, Connie was a manager in
Taxable Fixed Income for J.P. Morgan Securities and managed J.P. Morgan
Futures' London operation. Connie holds a B.A. from Luther College and a
Masters of Management from Northwestern University, and is a C.P.A. This
interview was conducted on May 18, 1999, and reflects Connie's views on that
date.
[PHOTO]
WHAT FACTORS HAVE MOST INFLUENCED THE BOND MARKET OVER THE PAST SIX MONTHS?
CJP: We've seen a definite change in market sentiment from the panic meltdown
experienced in the third quarter of 1998. Now there's much greater confidence
in the prospects for economic growth, both domestic and global, coupled with
expectations of continued benign inflation. As a result, investors are now
more willing to hold non-Treasury obligations, which has certainly helped the
performance of spread product - corporates, asset-backeds, mortgages, and
high-yield and emerging market debt. There is also much more liquidity evident
in the market of late, following a period when liquidity was significantly
lacking.
In the U.S., the economy has continued to be strong throughout the past six
months, even stronger than we had expected. The strength of the equity markets,
and the tremendous wealth effect that has resulted for both households and
corporations, has driven this economic growth. Our economist believes this
wealth effect was a major reason the U.S. was able to shrug off the economic
sluggishness seen globally. Such persistent strength, particularly when coupled
with signs of a rebound in global economic growth like we have been seeing,
would often incite the Federal Reserve to bump up interest rates. But with
inflation remaining in check, the Fed has maintained its neutral stance,
although it just announced a shift to a tightening bias from a neutral one.
TO WHAT DO YOU ATTRIBUTE THE PORTFOLIO'S PERFORMANCE OVER THE PERIOD?
CJP: The portfolio's performance was strong over the past six months on a
relative basis. We add value to the portfolio relative to the benchmark through
duration management and sector allocation. We edged back the portfolio's
duration during the period, as continued strong economic conditions suggested
that interest rates are now taking on an upside bias, though we are still long
versus the benchmark. Regarding sector allocation, we aggressively added to our
holdings of mortgages, since these securities tend to outperform during periods
of low volatility; this proved to be a good decision. We also increased our
holdings of high-yield bonds and non-dollar government securities. As spreads
narrowed over the last six months, we were able to increase the credit quality
of the portfolio. Among corporate obligations, triple-B-rated oil and gas issues
narrowed, helping the portfolio's performance.
3
<PAGE>
WHAT DO YOU SEE ON THE HORIZON IN THE BOND MARKET, AND HOW WILL YOU POSITION THE
PORTFOLIO?
CJP: We believe we are approaching a point where global economic recovery and
financial market stabilization are reflected in bond prices. While we continue
to maintain a positive view on spread sectors, further spread-sector
outperformance is dependent on the continued strength of global economies.
Though our conviction that non-U.S. growth is bottoming continues to increase,
we will keep a close eye on the progress of structural reform in Japan and
commodity price trends worldwide.
We expect the U.S. economy to continue to be strong; in fact, we recently raised
our 1999 GDP forecast again. But since we also expect inflation to continue to
be benign, we think the Fed will stick with its patient approach to rates and
remain on hold in the near term, despite its shift to a tightening bias.
Regardless, we believe that concern in the market about the economy's continued
strength may override recent indications that inflation remains in check. As a
result, we expect the 30-year Treasury bond to trade between 5.40% and 6.00%,
with risk on the upside of that range. This will likely lead us to shorten the
portfolio's duration to bring it more in line with that of the benchmark.
Should bond dealers look to lock in profits they earned from what has thus far
been a strong year, there may be less liquidity in the corporate bond market
over the next couple of months. Though the market as a whole may fade somewhat
in attractiveness, good investment opportunities will surely crop up. For
example, we expect the high-yield sector to offer value, as spreads have not
backed up in that asset class as much as some others. Non-callable mortgage
paper may also prove to be an attractive investment in the coming months.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Short Term Bond Fund seeks to provide high total return,
consistent with low volatility of principal. It is designed for investors who
do not require the stable net asset value typical of a money market fund, but
who seek less price fluctuation than is typical of a longer term bond fund.
- -------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
7/8/93
- -------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/99
$39,355,589
- -------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 4/30/99
$285,414,756
- -------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- -------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/99
EXPENSE RATIO
The fund's current annualized expense ratio of 0.60% covers shareholders'
expenses for custody, tax reporting, investment advisory, and shareholder
services, after reimbursement. The fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for
buying, selling, or safekeeping fund shares, or for wiring redemption proceeds
from the fund.
Fund highlights
ALL DATA AS OF APRIL 30, 1999
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[PIE CHART]
U.S. GOVERNMENT AGENCIES 38.3%
CORPORATE DEBT OBLIGATIONS 20.9%
OTHER-COMMERCIAL PAPER (SHORT-TERM) 17.9%
COLLATERALIZED MORTGAGE OBLIGATIONS/ASSET BACKED SECURITIES 9.8%
FOREIGN GOVERNMENT OBLIGATIONS AND SOVEREIGN BONDS 7.9%
FOREIGN CORPORATE OBLIGATIONS 3.4%
U.S. TREASURIES 1.4%
PREFERRED STOCK 0.2%
30-DAY SEC YIELD
5.18%*
DURATION
2.6 years
QUALITY BREAKDOWN
AAA** 66.10%
AA 1.85%
A 10.32%
BBB 11.09%
Not Rated 8.83%
Other 1.81%
* YIELD REFLECTS THE REIMBURSEMENT OF EXPENSES AS DESCRIBED IN THE PROSPECTUS.
HAD EXPENSES NOT BEEN SUBSIDIZED, THE 30-DAY SEC YIELD WOULD HAVE BEEN LOWER.
** INCLUDES U.S. GOVERNMENT AGENCY, TREASURY OBLIGATIONS, REPURCHASE AGREEMENTS,
AND COMMERCIAL PAPER.
5
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT
INC.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 FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS
THAN ORIGINAL COST.
Past performance is no guarantee for future performance. Returns are net of
fees, assume the reinvestment of fund distributions and may reflect the
reimbursement of fund expenses as described in the prospectus. Had expenses not
been subsidized, returns would have been lower. The fund invests through a
master portfolio (another fund with the same objective).
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.
6
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
7
<PAGE>
J.P. MORGAN SHORT TERM BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Short Term Bond Portfolio
("Portfolio"), at value $39,375,378
Receivable for Shares of Beneficial Interest Sold 48,072
Receivable for Expense Reimbursements 4,872
Prepaid Trustees' Fees 41
Prepaid Expenses and Other Assets 154
-----------
Total Assets 39,428,517
-----------
LIABILITIES
Dividends Payable to Shareholders 31,193
Payable for Shares of Beneficial Interest
Redeemed 9,220
Shareholder Servicing Fee Payable 7,763
Administrative Services Fee Payable 806
Fund Services Fee Payable 16
Administration Fee Payable 16
Accrued Expenses 29,129
-----------
Total Liabilities 78,143
-----------
NET ASSETS
Applicable to 4,000,811 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $39,350,374
-----------
-----------
Net Asset Value, Offering and Redemption Price
Per Share $9.84
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $39,497,688
Distributions in Excess of Net Investment Income (71,618)
Accumulated Net Realized Gain on Investment 122,162
Net Unrealized Depreciation of Investment (197,858)
-----------
Net Assets $39,350,374
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN SHORT TERM BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $ 995,325
Allocated Dividend Income 4,536
Allocated Portfolio Expenses (Net of
Reimbursement of $11,895) (46,401)
---------
Net Investment Income Allocated from
Portfolio 953,460
FUND EXPENSES
Shareholder Servicing Fee $ 42,952
Transfer Agent Fees 11,268
Printing Expenses 6,926
Registration Fees 5,905
Professional Fees 5,844
Administrative Services Fee 4,535
Fund Services Fee 362
Administration Fee 268
Trustees' Fees and Expenses 195
Miscellaneous 2,218
--------
Total Fund Expenses 80,473
Less: Reimbursement of Expenses (34,623)
--------
NET FUND EXPENSES 45,850
---------
NET INVESTMENT INCOME 907,610
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 125,625
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (449,569)
---------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 583,666
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN SHORT TERM BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
------------ ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 907,610 $ 1,316,155
Net Realized Gain on Investment Allocated from
Portfolio 125,625 123,872
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio (449,569) 238,194
------------ ----------------
Net Increase in Net Assets Resulting from
Operations 583,666 1,678,221
------------ ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (906,948) (1,315,844)
Net Realized Gain (151,358) --
------------ ----------------
Total Distributions to Shareholders (1,058,306) (1,315,844)
------------ ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 13,881,533 24,006,924
Reinvestment of Dividends and Distributions 862,074 986,662
Cost of Shares of Beneficial Interest Redeemed (5,902,985) (8,890,856)
------------ ----------------
Net Increase from Transactions in Shares of
Beneficial Interest 8,840,622 16,102,730
------------ ----------------
Total Increase in Net Assets 8,365,983 16,465,107
NET ASSETS
Beginning of Period 30,984,391 14,519,284
------------ ----------------
End of Period $ 39,350,374 $ 30,984,391
------------ ----------------
------------ ----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN SHORT TERM 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, 1999 --------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------------ -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD
$ 9.98 $ 9.85 $ 9.86 $ 9.84 $ 9.60 $ 9.99
------------------ -------- -------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.26 0.56 0.58 0.53 0.57 0.45
Net Realized and Unrealized Gain (Loss) on
Investment (0.09) 0.13 (0.01) 0.02 0.24 (0.39)
------------------ -------- -------- ------- -------- -------
Total from Investment Operations 0.17 0.69 0.57 0.55 0.81 0.06
------------------ -------- -------- ------- -------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.26) (0.56) (0.58) (0.53) (0.57) (0.45)
Net Realized Gain (0.05) -- -- -- -- --
------------------ -------- -------- ------- -------- -------
Total Distributions to Shareholders (0.31) (0.56) (0.58) (0.53) (0.57) (0.45)
------------------ -------- -------- ------- -------- -------
NET ASSET VALUE, END OF PERIOD
$ 9.84 $ 9.98 $ 9.85 $ 9.86 $ 9.84 $ 9.60
------------------ -------- -------- ------- -------- -------
------------------ -------- -------- ------- -------- -------
RATIOS AND SUPPLEMENTAL DATA
Total Return 1.69%(a) 7.24% 5.98% 5.77% 8.70% 0.61%
Net Assets, End of Period (in thousands) $39,350 $ 30,984 $ 14,519 $ 8,207 $ 10,330 $ 6,008
Ratios to Average Net Assets
Net Expenses 0.54%(b) 0.50% 0.50% 0.62% 0.67% 0.69%
Net Investment Income 5.55%(b) 5.66% 5.94% 5.42% 5.88% 4.49%
Expenses without Reimbursement 0.81%(b) 0.98% 1.38% 1.61% 1.48% 2.05%
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN SHORT TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Short Term Bond Fund (the "fund") is a separate series of J.P.
Morgan Funds, a Massachusetts business trust (the "trust"), which was organized
on November 4, 1992. The trust is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The fund
commenced operations on July 8, 1993.
The fund invests all of its investable assets in The Short Term Bond Portfolio
(the "portfolio"), a no-load diversified, open-end management investment company
having the same investment objective as the fund. The value of such investment
included in the Statement of Assets and Liabilities reflects the fund's
proportionate interest in the net assets of the portfolio (14% at April 30,
1999). The performance of the fund is directly affected by the performance of
the portfolio. The financial statements of the portfolio, including the Schedule
of Investments, are included elsewhere in this report and should be read in
conjunction with the fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the fund:
a) Valuation of securities by the portfolio is discussed in Note 1a of the
portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the portfolio is allocated pro rata among the fund and other
investors in the portfolio at the time of such determination.
c) Substantially all the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital 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.
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
12
<PAGE>
J.P. MORGAN SHORT TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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, 1999, the fee for these services amounted to $268.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), under which Morgan is responsible for certain aspects of
the administration and operation of the fund. Under the Services
Agreement, the fund has agreed to pay Morgan a fee equal to its allocable
share of an annual complex-wide charge. This charge is calculated based on
the aggregate average daily net assets of the portfolio and the other
portfolios in which the trust and the J.P. Morgan Institutional Funds
invest (the "master portfolios") and J.P. Morgan Series Trust in
accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by
the fund is determined by the proportionate share that its net assets bear
to the net assets of the trust, the master portfolios, other investors in
the master portfolios for which Morgan provides similar services, and J.P.
Morgan Series Trust. For the six months ended April 30, 1999, the fee for
these services amounted to $4,535.
In addition, J.P. Morgan has agreed to reimburse the fund to the extent
necessary to maintain the total operating expenses of the fund, including
the expenses allocated to the fund from the portfolio, at no more than
0.60% of the average daily net assets of the fund. Prior to March 1, 1999,
the percentage was 0.50%. The reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan. For the six months
ended April 30, 1999, J.P. Morgan has agreed to reimburse the fund
$128,257 for expenses under this agreement.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance 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 0.25% of the average daily net assets of
the fund. For the six months ended April 30, 1999, the fee for these
services amounted to $42,952.
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 with Schwab 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.
13
<PAGE>
J.P. MORGAN SHORT TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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
$362 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, the J.P. Morgan Institutional Funds, the master
portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the fund's allocated portion
of the total fees and expenses. The trust's Chairman and Chief Executive
Officer also serves as Chairman of Group and receives compensation and
employee benefits from Group in his role as Group's Chairman. The
allocated portion of such compensation and benefits included in the Fund
Services Fee shown in the financial statements was $100.
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
1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
------------ ----------------
<S> <C> <C>
Shares sold...................................... 1,405,413 2,431,289
Reinvestment of dividends and distributions...... 87,245 99,785
Shares redeemed.................................. (597,707) (899,171)
------------ ----------------
Net Increase..................................... 894,951 1,631,903
------------ ----------------
------------ ----------------
</TABLE>
4. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 27, 1998, with unaffiliated lenders. The maximum borrowing
under the Agreement was $150,000,000. The Agreement expired on May 26, 1999,
however, the fund as party to the Agreement has extended the Agreement and
continues its participation therein for an additional 364 days until May 23,
2000. 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. Prior to May 26, 1999 the funds paid
a commitment fee at an annual rate of 0.065% on the unused portion of the
committed amount; under the current Agreement, the commitment fee has increased
to an annual rate of 0.085% on the unused portion of the committed amount. This
is allocable to the funds in accordance with procedures established by their
respective trustees or directors. There were no outstanding borrowings pursuant
to the Agreement as of April 30, 1999.
14
<PAGE>
The Short Term Bond Portfolio
Semiannual Report April 30, 1999 (unaudited)
(The following pages should be read in conjunction
with J.P. Morgan Short Term Bond Fund
Semiannual Financial Statements)
15
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT{::} SECURITY DESCRIPTION RATING VALUE
- --------------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (11.3%)
FINANCIAL SERVICES (11.3%)
$ 3,000,000 Advanta Mortgage Loan Trust, Sequential Payer,
Series 1997-4, Class A4, AS, Callable, 6.660%
due 03/25/22 (t)............................... Aaa/AAA $ 3,000,120
401,264 Bear Stearns Structured Securities, Inc., REMIC:
Sequential Payer, Series 1997-2, Class 1A1,
Callable, (144A), 7.000% due 08/25/36 (t)...... Aaa/NR 400,951
1,000,000 CIT RV Trust, Sequential Payer, Series 1997-A,
Class A5, Callable, 6.250% due 11/17/08........ Aaa/AAA 1,006,890
924,599 Commercial Mortgage Acceptance Corp., Sequential
Payer, Series 1997-ML1, Class A1, Partially
Callable, 6.500% due 11/15/04.................. Aaa/AAA 934,134
2,000,000 EQCC Home Equity Loan Trust, Sequential Payer,
Series 1998-1, Class A2F, AS, Callable, 6.136%
due 04/15/09................................... Aaa/AAA 2,003,740
1,489,826 Fleetwood Credit Corp. Grantor Trust, Sequential
Payer, Series 1997-B, Class A, Callable, 6.400%
due 05/15/13 (t)............................... Aaa/AAA 1,503,368
4,800,000 Green Tree Financial Corp., Sequential Payer,
Series 1996-7, Class A4, Callable, 6.800% due
10/15/27 (t)................................... Aaa/AAA 4,840,464
2,500,000 Green Tree Financial Corp., Sequential Payer,
Series 1998-2, Class A4, Callable, 6.080% due
07/01/09 (t)................................... Aaa/AAA 2,513,275
684,012 Green Tree Recreational, Equipment & Consumer
Trust, Sequential Payer, Series 1998-A, Class
A1C, Callable, 6.180% due 06/15/19 (t)......... NR/AAA 684,867
553,768 Green Tree Recreational, Equipment, & Consumer
Trust, Sequential Payer, Series1997-C, Class
A1, Callable, 6.490% due 02/15/18 (t).......... NR/AAA 552,838
915,046 Merrill Lynch Mortgage Investors, Inc.,
Sequential Payer, Series 1997-C2, Class A1,
Partially Callable, 6.460% due 12/10/29........ Aaa/AAA 926,627
1,575 Merrill Lynch Mortgage Investors, Inc., Series
1994-C1, Class A, Callable, CSTR, 8.700% due
11/25/20 (v)................................... NR/AAA 1,574
173,133 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, Callable, 7.765% due 06/15/21 (v)........... Ba3/NR 161,365
865,906 Morgan Stanley Capital I, Sequential Payer, AFC,
Series 1998-HF1, Class A1, Partially Callable,
6.190% due 01/15/07............................ NR/AAA 871,588
1,000,000 Morgan Stanley Capital I, Sequential Payer,
Series 1997-ALIC, Class A1B, Callable, 6.440%
due 11/15/02................................... Aaa/NR 1,012,031
938,195 Mortgage Capital Funding, Inc., Sequential Payer,
Series 1998-MC1, Class A1, Partially Callable,
6.417% due 06/18/07 (t)........................ NR/AAA 945,231
62,650 Newcourt Receivables Asset Trust, Sequential
Payer, Series 1996-1, Class A, Callable, 6.790%
due 08/20/03................................... NR/AAA 63,146
134,927 Newcourt Receivables Asset Trust, Sequential
Payer, Series 1996-3, Class A, Callable, 6.240%
due 12/20/04................................... NR/AAA 136,219
5,000,000 Providian Home Equity Loan Trust, Series 1999-1,
Class A, Callable, 5.196% due 06/25/25 (v)..... Aaa/AAA 5,000,000
1,112,605 Residential Funding Mortgage Securities I, REMIC:
Sequential Payer, Series 1998-S7, Class A1,
Callable, 6.500% due 03/25/13.................. NR/AAA 1,110,513
1,500,000 Sears Credit Account Master Trust, Controlled
Amortization, Callable, Series 1996-1, Class A,
6.200% due 02/16/06............................ Aaa/AAA 1,513,125
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT{::} SECURITY DESCRIPTION RATING VALUE
- --------------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 1,000,000 The Money Store Home Equity Trust, Series 1997-B,
Class A8, NAS, Callable, 6.900% due 07/15/38... Aaa/AAA $ 1,014,060
1,940,386 UCFC Home Equity Loan, Sequential Payer,
Series1997-A1, Class A3, AS, Callable, 6.975%
due 04/15/16................................... Aaa/AAA 1,963,458
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$32,247,802)............................... 32,159,584
-------------
CORPORATE OBLIGATIONS (24.0%)
APPARELS & TEXTILES (0.1%)
300,000 Fruit of the Loom, Inc., Refunding, 6.500% due
11/15/03....................................... Ba1/BB 274,680
-------------
BANKING (1.9%)
1,000,000 BankAmerica Corp., Refunding, 8.375% due
03/15/02....................................... Aa3/A 1,063,940
2,500,000 BankAmerica Corp., Series D, Callable 10/06/00,
MTN, 7.020% due 10/06/05 (t)................... Aa3/A 2,535,575
1,250,000 First Chicago NBD Corp., Refunding, 8.875% due
03/15/02....................................... A1/A 1,349,187
500,000 National Westminster Bank, Refunding, 9.375% due
11/15/03....................................... Aa3/AA- 565,480
-------------
5,514,182
-------------
BROADCASTING & PUBLISHING (0.2%)
500,000 Continental Cablevision, Inc., Callable 06/07/99,
Refunding, 11.000% due 06/01/07 (t)............ Ba2/BBB- 529,275
-------------
CHEMICALS (0.3%)
1,000,000 Cytec Industries, Inc., Callable, 6.500% due
03/15/03....................................... Baa2/BBB 974,550
-------------
ELECTRIC (0.5%)
1,000,000 Niagara Mohawk Power Corp., Series B, Callable,
7.000% due 10/01/00............................ Ba2/BB+ 1,008,980
500,000 Texas - New Mexico Power Co., Callable 09/15/00,
10.750% due 09/15/03........................... Baa3/BB+ 529,965
-------------
1,538,945
-------------
ENTERTAINMENT, LEISURE & MEDIA (0.6%)
1,500,000 News America Holdings, Inc., Refunding, 8.625%
due 02/01/03................................... Baa3/BBB- 1,619,115
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT{::} SECURITY DESCRIPTION RATING VALUE
- --------------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (15.9%)
$ 5,000,000 Associates Corp. N.A., 5.500% due 02/15/04 (t)... Aa3/AA- $ 4,878,200
610,000 Associates Corp. N.A., Putable, 5.960% due
05/15/37....................................... Aa3/AA- 613,636
4,000,000 AT&T Capital Corp., Series F, MTN, 7.500% due
11/15/00....................................... Baa3/BBB 4,095,960
5,000,000 AT&T Capital Corp., Series F, MTN, 6.450% due
06/14/00 (v)................................... Baa3/BBB 5,012,500
1,250,000 Banesto Delaware, Inc., Refunding, 8.250% due
07/28/02 (t)................................... A2/NR 1,319,738
1,500,000 Beneficial Corp., MTN, 8.200% due 03/15/02....... A2/A 1,587,045
1,000,000 Beneficial Corp., Series H, MTN, 6.710% due
12/15/03....................................... A2/A 1,020,730
1,500,000 Case Credit Corp., Series B, MTN, 6.240% due
11/06/00....................................... Baa1/A- 1,505,400
2,000,000 Caterpillar Financial Services Corp., Series F,
MTN, 5.600% due 06/05/03 (t)................... A2/A+ 1,973,500
2,500,000 Cendant Corp., Callable, 7.500% due 12/01/00
(t)............................................ Baa1/BBB 2,534,325
1,000,000 Chrysler Financial Co., LLC, Series Q, MTN,
6.610% due 06/16/00............................ A1/A+ 1,014,270
2,000,000 Enterprise Rent-a-Car USA Finance Co., (144A),
6.375% due 05/15/03 (t)........................ Baa2/BBB+ 1,969,440
5,000,000 Finova Capital Corp., Series D, MTN, 5.180% due
08/14/01 (v)(t)................................ Baa1/A- 4,988,100
5,000,000 Ford Motor Credit Co., MTN, 5.156% due 04/29/02
(v)(t)......................................... A1/A 5,009,050
500,000 GS Escrow Corp., Callable, 7.000% due 08/01/03... Ba1/BB+ 498,010
1,500,000 Heller Financial Inc., Series I, MTN, 5.480% due
02/05/01....................................... A3/A- 1,492,875
800,000 Homeside Lending, Inc., MTN, 6.875% due
06/30/02....................................... A1/A+ 821,848
1,500,000 Household Finance Corp., Series E, MTN, 5.300%
due 06/17/05 (v)............................... A2/A 1,490,445
3,500,000 Newcourt Credit Group Inc., 144A, 7.125% due
12/17/03 (t)................................... Baa3/BBB 3,627,050
-------------
45,452,122
-------------
FOREST PRODUCTS & PAPER (0.5%)
1,375,000 Georgia-Pacific Corp., 9.950% due 06/15/02....... Baa2/BBB- 1,516,694
-------------
GAS-PIPELINES (1.6%)
1,000,000 Enron Corp., Callable, 6.500% due 08/01/02....... Baa2/BBB+ 1,010,621
2,500,000 K N Energy, Inc., 6.450% due 11/30/01............ Baa2/BBB- 2,523,751
1,150,000 K N Energy, Inc., Callable, Putable, 6.300% due
03/01/01....................................... Baa2/BBB- 1,157,384
-------------
4,691,756
-------------
HEALTH & PERSONAL CARE (0.2%)
500,000 Playtex Family Products Corp., Callable,
06/07/99, Refundable, 9.000% due 12/15/03...... B2/B 512,500
-------------
METALS & MINING (0.4%)
1,150,000 Ryerson Tull, Inc., Callable, 8.500% due
07/15/01....................................... Baa3/BBB 1,184,500
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT{::} SECURITY DESCRIPTION RATING VALUE
- --------------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
OIL-SERVICES (1.0%)
$ 500,000 Occidental Petroleum Corp., Callable, 6.750% due
11/15/02....................................... Baa3/BBB $ 501,595
1,500,000 Occidental Petroleum Corp., Series B, MTN,
Callable 9/15/99, 8.500% due 09/15/04.......... Baa3/BBB 1,518,135
753,473 Oil Purchase Co., Sinking Fund, (144A), 7.100%
due 10/31/02................................... Baa3/BBB 708,265
-------------
2,727,995
-------------
PACKAGING & CONTAINERS (0.4%)
500,000 Stone Container Corp., Callable, 12.750% due
04/01/02 (v)................................... B3/B- 502,500
500,000 Stone Container Corp., Refunding, Callable
06/07/99, 9.875% due 02/01/01.................. B2/B 508,125
-------------
1,010,625
-------------
WATER (0.4%)
1,000,000 U.S. Filter Corp., Callable, Putable, 6.375% due
05/15/01 (v)................................... Ba1/BBB+ 1,002,970
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$68,752,558)............................... 68,549,909
-------------
FOREIGN CORPORATE OBLIGATIONS (3.7%)
AUSTRALIA (0.7%)
BANKING
2,000,000 Westpac Banking Ltd., Refunding, 9.125% due
08/15/01....................................... A1/A+ 2,123,040
-------------
CANADA (0.4%)
OIL PRODUCTION
1,000,000 Canadian Occidental Petroleum, Callable, 7.125%
due 02/04/04 (t)............................... Baa2/BBB 1,006,250
-------------
MEXICO (0.3%)
BANKING
1,000,000 Banco Nacional de Comercio Exterior SNC, Series
E, MTN, 8.000% due 04/14/00.................... Ba2/BB 1,002,500
-------------
NETHERLANDS (0.7%)
FINANCIAL SERVICES
2,000,000 ICI Investments BV, Series E, MTN, 6.750% due
08/07/02....................................... Baa1/A- 2,024,600
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT{::} SECURITY DESCRIPTION RATING VALUE
- --------------------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
PANAMA (0.6%)
BANKING
$ 1,000,000 Banco Latinoamericano de Exportaciones, S.A.,
(144A), 6.550% due 04/15/03.................... Baa1/BBB $ 911,670
1,000,000 Banco Latinoamericano de Exportaciones, S.A.,
Series 107, (144A), 6.640% due 09/30/02........ Baa1/BBB 931,590
-------------
1,843,260
-------------
UNITED KINGDOM (0.5%)
BANKING
1,000,000 Barclays Bank PLC, 5.875% due 07/15/00........... A1/A 1,001,600
-------------
TELEPHONE
500,000 Cable & Wireless Communications, Inc., Callable,
6.375% due 03/06/03............................ Baa1/A- 501,075
-------------
1,502,675
-------------
VENEZUELA (0.5%)
FINANCIAL SERVICES
1,550,000 Corporacion Andina de Fomento, 7.375% due
07/21/00 (t)................................... A3/BBB+ 1,551,907
-------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$11,218,156)............................... 11,054,232
-------------
FOREIGN GOVERNMENT OBLIGATIONS (9.2%)
CANADA (0.4%)
1,000,000 Province of Quebec, 7.500% due 07/15/02.......... A2/A+ 1,044,720
-------------
FRANCE (0.9%)
EUR 2,286,735 BTAN, Five-Year French Treasury Note, 4.750% due
03/12/02....................................... NR/NR 2,541,432
-------------
GERMANY (7.9%)
EUR 15,696,660 German Unity Fund, 8.000% due 01/21/02........... NR/NR 18,805,848
EUR 3,131,662 German Unity Fund, 8.500% due 02/20/01........... NR/NR 3,644,800
-------------
22,450,648
-------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$28,336,593)............................... 26,036,800
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
- --------------------------- ------------------------------------------------- -------------
<C> <S> <C> <C>
PRIVATE PLACEMENT (0.5%)
TELECOMMUNICATION SERVICES (0.5%)
$ 1,500,000 Charter Communication, due 03/18/08, 1.000% due
03/18/08 (cost $1,497,750)..................... $ 1,501,875
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (44.3%)
FEDERAL HOME LOAN MORTGAGE CORP. (3.9%)
5,000,000 5.250% due 04/25/02.............................. 4,975,500
452,507 REMIC: Sequential Payer, Series 1980, Class VA,
Partially Callable, 7.000% due 08/15/02........ 459,294
2,914,281 REMIC: Sequential Payer, Series 2019, Class B,
Partially Callable, 6.500% due 07/15/16 (t).... 2,930,659
2,816,648 REMIC: Sequential Payer, Series 2061, Class VJ,
Partially Callable, 6.500% due 03/20/03 (t).... 2,821,915
-------------
11,187,368
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (18.3%)
2,857,970 6.500% due 08/01/28.............................. 2,877,568
70,091 8.500% due 08/01/05.............................. 72,746
982,930 IO, Series 292, Class 2, 7.500% due 11/01/27..... 211,023
982,930 PO, Series 292, Class 1, 7.081% due 11/01/27
(y)(t)......................................... 802,009
12,000,000 TBA, 6.000% due 03/01/29......................... 11,628,750
1,000,000 TBA, 6.500% due 02/01/14......................... 1,008,438
25,740,000 TBA, 6.500% due 03/01/29......................... 25,571,081
9,840,000 TBA, 7.000% due 03/01/29......................... 9,969,150
-------------
52,140,765
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (22.1%)
62,032,322 7.000% due 03/15/09.............................. 62,950,160
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $126,855,716)......................... 126,278,293
-------------
U.S. TREASURY OBLIGATIONS (1.7%)
U.S. TREASURY NOTES (1.7%)
2,710,000 5.375% due 06/30/03.............................. 2,722,276
1,900,000 7.875% due 08/15/01.............................. 2,011,036
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$4,738,571)................................. 4,733,312
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
SHARES SECURITY DESCRIPTION RATING VALUE
- --------------- ------------------------------------------------ --------------- -------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.3%)
FINANCIAL SERVICES (0.3%)
10,000 TCI Communications Financing II, Callable
05/31/01, 10.000%............................. A3/A $ 270,625
19,774 Equity Residential Properties Trust, Series A,
Callable 06/01/00, 9.375%..................... Baa1/BBB 506,709
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$787,415)................................. 777,334
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::}
- ---------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (20.0%)
CERTIFICATES OF DEPOSIT -- FOREIGN (1.0%)
$ 3,000,000 Trident Capital Corp., 4.868% due 06/10/99 (y)
(cost $2,983,867).............................. 2,983,867
-------------
COMMERCIAL PAPER -- FOREIGN (1.7%)
5,000,000 Caisse D'Amortissement, 4.891% due 06/16/99 (y)
(cost $4,855,100).............................. 4,855,100
-------------
COMMERCIAL PAPER -- DOMESTIC (9.1%)
5,000,000 Asset Securitization Corp., 4.638% due 06/16/99
(y)............................................ 4,969,269
5,000,000 Morgan Stanley Dean Witter & Co., 4.656% due
05/18/99 (y)................................... 4,974,614
5,000,000 General Electric Capital Corp., 4.866% due
06/07/99 (y)................................... 4,975,333
6,000,000 MCI Worldcom, Inc. 4.937% due 05/18/99 (y)(t).... 5,985,607
5,000,000 Receivables Capital Corp., 4.496% due 05/17/99
(y)............................................ 4,989,289
-------------
TOTAL COMMERCIAL PAPER -- DOMESTIC (COST
$25,894,112)................................ 25,894,112
-------------
CORPORATE OBLIGATIONS
700,000 Fruit of the Loom, Inc., Refunding, 7.350% due
10/15/99 (y)................................... 701,554
2,500,000 RACERS, Series 1998-MM-8-4, (144A), 5.07% due
09/2/99 (v).................................... 2,498,750
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$3,196,027)................................. 3,200,304
-------------
OTHER INVESTMENT COMPANIES (0.0%)
967 Seven Seas Money Market Fund (cost $967)......... 967
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT{::} SECURITY DESCRIPTION VALUE
- --------------------------- ------------------------------------------------- -------------
<C> <S> <C>
REPURCHASE AGREEMENT (7.1%)
$ 20,247,000 Goldman Sachs Repurchase Agreement, 4.89% dated
04/30/99 due 05/03/99, proceeds $20,255,251,
(collateralized by $13,287,000 U.S. Treasury
Bond, 13.875% due 5/15/11, valued at
$20,247,925) (cost $20,247,000)................ $ 20,247,000
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$57,177,073)................................... 57,181,350
-------------
TOTAL INVESTMENTS (COST $331,611,634) (115.0%)... 328,272,689
LIABILITIES IN EXCESS OF OTHER ASSETS (-15.0%)... (42,857,933)
-------------
NET ASSETS (100.0%).............................. $ 285,414,756
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $331,611,689 for federal income tax
purposes at April 30, 1999, the aggregate gross unrealized appreciation and
depreciation was $351,641 and $3,690,641, respectively, resulting in net
unrealized depreciation of $3,339,000.
{::} Denominated in USD unless otherwise indicated.
(t) All or a portion of the security has been segregated as collateral for TBA
securities.
(v) Rate shown reflects current rate on variable or floating rate instrument or
instrument with step coupon rate.
(y) Yield to maturity.
Abbreviations used in the schedule of investments are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
AS - Accelerated Security
CSTR - Collateral Strip Rate
EUR - Euro
IO - Interest Only
MTN - Medium Term Note
NAS - Non-Accelerated Security
NR - Not Rated
PO - Principal Only
REMIC - Real Estate Mortgage Investment Conduit
TBA - Security purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date. The actual principal amount and
maturity date will be determined upon settlement.
USD - United States Dollar
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $331,611,634) $328,272,689
Receivable for Investments Sold 983,201
Unrealized Appreciation of Forward Foreign
Currency Contracts 1,977,694
Interest Receivable 2,517,851
Variation Margin Receivable 16,888
Receivable for Expense Reimbursement 12,519
Prepaid Trustees' Fees 1,342
Prepaid Expenses and Other Assets 780
------------
Total Assets 333,782,964
------------
LIABILITIES
Payable for Investments Purchased 48,276,219
Advisory Fee Payable 56,631
Administrative Services Fee Payable 5,835
Custody Fee Payable 250
Fund Services Fee Payable 107
Accrued Expenses 29,166
------------
Total Liabilities 48,368,208
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $285,414,756
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $ 7,729,349
Dividend Income 35,673
-----------
Investment Income 7,765,022
EXPENSES
Advisory Fee $ 337,341
Custodian Fees and Expenses 52,216
Administrative Services Fee 35,753
Professional Fees and Expenses 18,348
Printing Expenses 4,201
Fund Services Fee 2,833
Administration Fee 1,839
Trustees' Fees and Expenses 572
Miscellaneous 407
-----------
Total Expenses 453,510
Less: Reimbursement of Expenses (93,634)
-----------
NET EXPENSES 359,876
-----------
NET INVESTMENT INCOME 7,405,146
NET REALIZED GAIN (LOSS) ON
Investment Transactions (927,815)
Futures Contracts 34,935
Foreign Currency Contracts and Transactions 1,815,123
-----------
Net Realized Gain 922,243
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investments (4,689,711)
Futures Contracts (21,455)
Foreign Currency Contracts and Translations 1,331,125
-----------
Net Change in Unrealized Depreciation (3,380,041)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 4,947,348
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 7,405,146 $ 7,527,438
Net Realized Gain on Investments, Futures and
Foreign Currency Contracts and Transactions 922,243 1,079,966
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations (3,380,041) 1,956,909
------------- ----------------
Net Increase in Net Assets Resulting from
Operations 4,947,348 10,564,313
------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 121,929,586 263,906,334
Withdrawals (105,945,157) (51,939,489)
------------- ----------------
Net Increase from Investors' Transactions 15,984,429 211,966,845
------------- ----------------
Total Increase in Net Assets 20,931,777 222,531,158
NET ASSETS
Beginning of Period 264,482,979 41,951,821
------------- ----------------
End of Period $ 285,414,756 $ 264,482,979
------------- ----------------
------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE FISCAL YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 1999 --------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.27%(a) 0.25% 0.25% 0.38% 0.42% 0.36%
Net Investment Income 5.49%(a) 5.84% 6.17% 5.65% 6.11% 5.01%
Expenses without Reimbursement 0.34%(a) 0.38% 0.55% 0.61% 0.46% 0.41%
Portfolio Turnover 192%(b) 381% 219% 191% 177% 230%
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Short Term Bond Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended, 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 8,
1993. The portfolio's investment objective is to provide a high total return,
consistent with low volatility of principal. 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
repayments 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 each 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.
The portfolio's custodian or designated subcustodians, as the case may be
under tri-party 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
27
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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 and to enhance returns. A
forward contract is an agreement to buy or sell currencies of different
countries on a specified future date at a specified rate. Risks associated
with such contracts include the movement in the value of the foreign
currency relative to the U.S. dollar and the ability of the counterparty
to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily at the current foreign exchange
rates, and the change in the market value is recorded by the portfolio as
unrealized appreciation or depreciation of forward foreign currency
contract translations. At April 30, 1999, the portfolio had open forward
foreign currency contracts as follows:
<TABLE>
<CAPTION>
SETTLEMENT U.S. DOLLAR NET UNREALIZED
SALES CONTRACTS VALUE VALUE AT 4/30/99 APPRECIATION
- ------------------------------------------------- ----------- ---------------- --------------
<S> <C> <C> <C>
Euro 24,778,000.00 expiring 5/10/99.............. $28,208,514 $ 26,230,820 $ 1,977,694
</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 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
28
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
portfolio intends to purchase, against fluctuations in value caused by
changes in prevailing market interest rates or securities movements. The
use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the
underlying hedged assets, and the possible inability of counterparties to
meet the terms of their contracts. There were no open futures contracts at
April 30, 1999.
f) The portfolio may enter into commitments to buy and sell investments to
settle on future dates as part of its normal investment activities. These
commitments are reported at market value in the financial statements.
Credit risk exists on these commitments to the extent of any unrealized
gains on the underlying securities purchased and any unrealized losses on
the underlying securities sold. Market risk exists on these commitments to
the same extent as if the security were owned on a settled basis and gains
and losses are recorded and reported in the same manner. However, during
the commitment period, these investments earn no interest or dividends.
g) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio's Investment Advisor is J.P. Morgan Investment Management
Inc. ("JPMIM"), an affiliate of Morgan Guaranty Trust Company of New York
("Morgan") and a wholly owned subsidiary of J.P. Morgan & Co. Inc. ("J.P.
Morgan"). Under the terms of the agreement, the portfolio pays JPMIM at an
annual rate of 0.25% of the portfolio's average daily net assets. For the
six months ended April 30, 1999, such fees amounted to $337,341.
b) The portfolio, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as the co-administrator and
exclusive placement agent. Under a Co-Administration Agreement between FDI
and the portfolio, FDI provides administrative services necessary for the
operations of the portfolio, furnishes office space and facilities
required for conducting the business of the portfolio and pays the
compensation of the portfolio's officers affiliated with FDI. The
portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses.
The amount allocable to the portfolio is based on the ratio of the
portfolio's net assets to the aggregate net assets of the portfolio and
certain other investment companies subject to similar agreements with FDI.
For the six months ended April 30, 1999, the fee for theses services
amounted to $1,839.
c) The portfolio 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 portfolio. Under the
Services Agreement, the portfolio has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and certain other portfolios for which JPMIM acts as investment
advisor (the "master portfolios") and J.P. Morgan Series Trust in
accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
29
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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 its net assets bear
to the net assets of the master portfolios, other investors in the master
portfolios for which Morgan provides similar services, and J.P. Morgan
Series Trust. For the six months ended April 30, 1999, the fee for these
services amounted to $35,753.
In addition, J.P. Morgan has agreed to reimburse the portfolio to the
extent necessary to maintain the total operating expenses of the portfolio
at no more than 0.30% of the average daily net assets of the portfolio.
Prior to March 1, 1999, the reimbursement agreement was 0.25%. This
reimbursement arrangement can be changed or terminated at any time at the
option of J.P. Morgan. For the six months ended April 30, 1999, J.P.
Morgan has agreed to reimburse the portfolio $93,634 for expenses under
this agreement.
d) The portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the trustees in exercising their overall supervisory
responsibilities for the portfolio's affairs. The trustees of the
portfolio represent all the existing shareholders of Group. The
portfolio's allocated portion of Group's costs in performing its services
amounted to $2,833 for the six months ended April 30, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements represents the portfolio's
allocated portion of the total fees and expenses. The portfolio's Chairman
and Chief Executive Officer also serves as Chairman of Group and receives
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $600.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $446,146,075 $333,251,314
Corporate, Collateralized Mortgage Obligations,
and Other Securities............................ 291,606,598 153,357,436
------------ ------------
$737,752,673 $486,608,750
------------ ------------
------------ ------------
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement as discussed more
fully in Note 4 of the fund's Notes to the Financial Statements which are
included elsewhere in this report.
30
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
TAX AWARE ENHANCED INCOME FUND: SELECT SHARES
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TAX EXEMPT 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
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
SHORT TERM
BOND FUND
SEMIANNUAL REPORT
APRIL 30, 1999
IM0412-M
