<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN BOND FUND
December 1, 1999
Dear Shareholder:
The fiscal year ending October 31, 1999, was a volatile one for bonds and for
the J.P. Morgan Bond Fund. The fund returned -0.23% for the fiscal year under
review. The fund's performance lagged the 0.49% returned by its benchmark, the
Salomon Smith Barney Broad Investment Grade Bond Index. The fund also
underperformed its competitors, as measured by the Lipper Intermediate
Investment Grade Debt Funds Average, which returned -0.07% for the year.
The fund's net asset value decreased from $10.59 per share on October 31,
1998, to $9.87 per share on October 31, 1999, after paying approximately
$0.59 per share in dividends from ordinary income, approximately $0.08 per
share from short-term capital gains, and approximately $0.03 per share from
long-term capital gains. The fund's net assets stood at approximately $234.9
million at the end of the fiscal year. The net assets of the portfolio, in
which the fund invests, totaled approximately $1.6 billion on October 31,
1999.
The report that follows includes an interview with William G. Tennille, a member
of the portfolio management team for The U.S. Fixed Income Portfolio. This
interview is designed to answer commonly asked questions about the fund,
elaborate on what happened during the reporting period, and provide an outlook
for the months ahead.
As chairman and president of Asset Management Services, we appreciate your
investment in the fund. If you have any comments or questions, please call your
Morgan representative or J.P. Morgan Funds Services at (800) 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
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at right shows that $10,000 invested on October 31, 1989,
would have grown to $20,315 on October 31, 1999.
Another way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.
GROWTH OF $10,000 OVER 10 YEARS
OCTOBER 31, 1989 - OCTOBER 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
J.P. Morgan Salomon Smith Barney LipperIntermediate
Bond Fund BIG Index Investment Grade Debt
Fund Average
<S> <C> <C> <C>
10/31/89 10,000 10,000 10,000
11/30/89 10,082 10,062 10,095
12/31/89 10,125 10,070 10,119
1/31/90 10,108 9,961 10,004
2/28/90 10,273 9,977 10,022
3/31/90 10,308 9,980 10,043
4/30/90 10,268 9,906 9,954
5/31/90 10,450 10,150 10,237
6/30/90 10,568 10,289 10,405
7/31/90 10,699 10,424 10,553
8/31/90 10,702 10,294 10,416
9/30/90 10,758 10,309 10,506
10/31/90 10,880 10,354 10,638
11/30/90 11,035 10,533 10,866
12/31/90 11,148 10,663 11,039
1/31/91 11,249 10,771 11,173
2/28/91 11,312 10,902 11,246
3/31/91 11,402 11,009 11,329
4/30/91 11,513 11,150 11,466
5/31/91 11,589 11,211 11,531
6/30/91 11,607 11,215 11,533
7/31/91 11,708 11,350 11,695
8/31/90 11,865 11,597 11,941
9/30/91 12,070 11,811 12,190
10/31/91 12,137 11,934 12,315
11/30/91 12,260 12,053 12,431
12/31/91 12,647 12,403 12,803
1/31/92 12,416 12,270 12,639
2/29/92 12,480 12,334 12,722
3/31/92 12,425 12,301 12,655
4/30/92 12,490 12,375 12,751
5/31/92 12,714 12,587 12,984
6/30/92 12,931 12,767 13,169
7/31/92 13,235 13,069 13,429
8/31/92 13,362 13,185 13,578
9/30/92 13,554 13,355 13,736
10/31/92 13,271 13,145 13,557
11/30/92 13,239 13,134 13,563
12/31/92 13,473 13,333 13,774
1/31/93 13,749 13,600 14,052
2/28/93 13,980 13,868 14,291
3/31/93 14,025 13,934 14,348
4/30/93 14,144 14,032 14,461
5/31/93 14,145 14,033 14,470
6/30/93 14,424 14,304 14,745
7/31/93 14,505 14,383 14,829
8/31/93 14,774 14,663 15,083
9/30/93 14,814 14,719 15,134
10/31/93 14,859 14,776 15,181
11/30/93 14,743 14,640 15,055
12/31/93 14,803 14,719 15,139
1/31/94 15,006 14,912 15,344
2/28/94 14,747 14,638 15,089
3/31/94 14,450 14,309 14,715
4/30/94 14,311 14,171 14,604
5/31/94 14,319 14,149 14,602
6/30/94 14,287 14,119 14,571
7/31/94 14,534 14,336 14,847
8/31/94 14,533 14,368 14,864
9/30/94 14,368 14,198 14,650
10/31/94 14,341 14,176 14,635
11/30/94 14,283 14,134 14,597
12/31/94 14,363 14,208 14,708
1/31/95 14,595 14,438 15,013
2/28/95 14,945 14,747 15,363
3/31/95 15,044 14,841 15,452
4/30/95 15,251 15,043 15,663
5/31/95 15,889 15,586 16,285
6/30/95 15,985 15,686 16,399
7/31/95 15,927 15,647 16,366
8/31/95 16,118 15,824 16,553
9/30/95 16,279 15,971 16,709
10/31/95 16,506 16,171 16,932
11/30/95 16,747 16,400 17,196
12/31/95 16,974 16,615 17,433
1/31/96 17,088 16,713 17,552
2/29/96 16,766 16,426 17,253
3/31/96 16,656 16,311 17,129
4/30/96 16,546 16,211 17,003
5/31/96 16,486 16,184 16,993
6/30/96 16,703 16,368 17,213
7/31/96 16,724 16,404 17,259
8/31/96 16,693 16,388 17,235
9/30/96 16,978 16,663 17,534
10/31/96 17,353 17,001 17,929
11/30/96 17,628 17,285 18,224
12/31/96 17,504 17,135 18,064
1/31/97 17,579 17,188 18,134
2/28/97 17,636 17,236 18,154
3/31/97 17,450 17,050 17,971
4/30/97 17,684 17,273 18,227
5/31/97 17,850 17,427 18,399
6/30/97 18,070 17,624 18,618
7/31/97 18,540 18,089 19,122
8/31/97 18,372 17,926 18,958
9/30/97 18,651 18,186 19,237
10/31/97 18,842 18,399 19,514
11/30/97 18,927 18,452 19,605
12/31/97 19,103 18,622 19,805
1/31/98 19,315 18,866 20,060
2/28/98 19,324 18,842 20,045
3/31/98 19,425 18,911 20,124
4/30/98 19,508 18,991 20,228
5/31/98 19,684 19,162 20,421
6/30/98 19,820 19,301 20,589
7/31/98 19,861 19,334 20,633
8/31/98 20,092 19,561 20,950
9/30/98 20,512 19,983 21,443
10/31/98 20,361 19,821 21,346
11/30/98 20,460 19,928 21,464
12/31/98 20,509 20,002 21,530
1/31/99 20,626 20,126 21,690
2/28/99 20,249 19,758 21,310
3/31/99 20,427 19,900 21,432
4/30/99 20,525 19,964 21,503
5/31/99 20,264 19,752 21,306
6/30/99 20,138 19,679 21,232
7/31/99 20,051 19,612 21,148
8/31/99 20,020 19,581 21,133
9/30/99 20,196 19,778 21,386
10/31/99 20,315 19,804 21,451
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------------------------------------------------
THREE SIX ONE FIVE TEN
AS OF OCTOBER 31, 1999 MONTHS MONTHS YEAR YEARS YEARS
- --------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Bond Fund 1.31% -1.02% -0.23% 7.21% 7.34%
Salomon Smith Barney Broad
Investment Grade Bond Index* 1.43% -0.24% 0.49% 7.95% 7.93%
Lipper Intermediate Investment
Grade Debt Funds Average 0.98% 0.78% -0.07% 6.94% 7.18%
<CAPTION>
AS OF SEPTEMBER 30, 1999
- --------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Bond Fund 0.29% -1.13% -1.54% 7.05% 7.47%
Salomon Smith Barney Broad
Investment Grade Bond Index* 0.72% -0.21% -0.27% 7.86% 8.16%
Lipper Intermediate Investment
Grade Debt Funds Average 0.49% -0.61% -1.01% 6.89% 7.32%
</TABLE>
*THE SALOMON SMITH BARNEY BROAD INVESTMENT GRADE BOND INDEX IS AN UNMANAGED,
MARKET-WEIGHTED INDEX THAT CONTAINS APPROXIMATELY 4,700 INDIVIDUALLY PRICED
INVESTMENT-GRADE BONDS.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. RETURNS ARE NET OF FEES AND
ASSUME THE REINVESTMENT OF FUND DISTRIBUTIONS. HAD EXPENSES NOT BEEN SUBSIDIZED,
RETURNS WOULD HAVE BEEN LOWER. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING
SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with WILLIAM G. TENNILLE, vice president and member of
the portfolio management team for The U.S. Fixed Income Portfolio, in which the
fund invests. Bill joined Morgan in 1992 and has extensive experience across a
broad range of markets, including mortgage securities and derivatives. This
interview was conducted on November 15, 1999, and reflects Bill's views on that
date.
WHAT FACTORS HAVE MOST INFLUENCED THE FIXED INCOME MARKETS OVER THE PAST TWELVE
MONTHS?
WT: The past year has been a volatile one for the financial markets and has kept
the U.S. Federal Reserve on its toes. The crises that plagued the global economy
from August through October last year prompted the Fed to act three times in the
last four months of 1998, lowering the federal funds rate 75 basis points to
4.75%. These actions helped keep the global economy on an even keel and promoted
growth within the U.S. economy. The Fed then found itself with an economy
growing above trend, albeit with benign inflation and subdued wage pressures. In
an effort to slow growth and create a "soft landing" the Fed raised rates twice
during the summer (in June and August), and then again at the November FOMC
meeting, bringing the fed funds rate back up to 5.50%. The Fed remains anxious
that the economy, should it continue at above-trend growth, may reach levels at
which it would no longer be able to contain price pressures.
At the same time that the Fed is tightening monetary policy, a liquidity crunch
is developing. Market makers, leery of taking risks following last fall's
crises, have dramatically reduced their inventories. In addition, there is a
general undercurrent of "what if Y2K really is a problem" that has both
investors and issuers heading for the sidelines for the remainder of the year.
Many issuers have front-loaded issuance, coming to market earlier in the year,
while others have set maturities for late January into February to avoid
potential year-end complications. This is happening in the context of a somewhat
longer-term trend: because of the budget surplus, the Treasury has been able and
will continue to reduce issuance. The third trend that has had a significant
impact has been a tiering in the market. Issues that are $500 million and larger
trade relatively easily at small price spreads, while most, if not all, smaller
issues trade infrequently at wider spreads. We expect some amelioration of the
liquidity and tiering conditions after the coming (safe) passage through Y2K.
HOW DID THE PORTFOLIO PERFORM DURING THAT TIME?
WT: In the fiscal year just ended, we benefited from the narrowing of spreads in
late-1998 into early-1999, but lost some ground in the spring when spreads began
widening again in anticipation of Fed rate hikes. During June, the markets were
quite volatile as the Fed first raised the fed funds rate. In the latter half of
the period, performance benefited as we increased our holdings in spread
sectors; poor liquidity held spreads at
3
<PAGE>
wider levels than normal. In the past quarter, the market noticeably calmed
down, which produced better results in most of the spread sectors, the exception
being high-yield corporate debt, which struggled all year in sympathy with the
equity markets.
The 12-month period ended October 31 was, again, one of significant changes and
disruptions in the bond markets. We believe that the global markets are, at
last, recovered to a point where volatility should diminish to more "normal"
levels, thereby allowing the markets to return to business as usual.
WHAT DO YOU SEE AHEAD FOR THESE MARKETS? HOW WILL YOU POSITION THE PORTFOLIO AS
A RESULT?
WT: The Fed is caught in an interesting position: it has to provide liquidity at
a time when it must also raise interest rates to dampen growth. The Fed will be
adding liquidity over year-end through a currency facility, a bank loan facility
(through the discount loan window), and a temporarily expanded repo facility. In
addition to the accommodative actions of the Fed, the Treasury is issuing cash
management bills over the year-end and Fannie Mae has instituted weekly 3- and
6-month auctions. At this point, we anticipate demand to outstrip supply,
driving down the yields on these securities. Although the most recent Fed
completes the take-back of last year's easings, we still expect some further
rate increases in the next few months. While wage pressures may still be in
check, the size of the current account deficit and the weakening dollar, and, of
course, the continued strength of the economy, are concerns for the Fed.
We believe that post Y2K - from which we expect little or no long-term impact -
liquidity will return to the bond markets, albeit with some modest spread
widening, as bond issuance picks up in the new year. Recently, demand has been
outpacing supply, and unless we see a sharp decline in the world's economies, we
would expect the demand for bonds to be there. European and Asian economies have
rebounded along with the U.S. and Latin America, and we believe the demand from
European investors for investment-grade fixed income products, which shot up
over the past two years, will continue apace.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Bond Fund seeks to provide a high total return consistent with
moderate risk of capital. It is designed for investors who seek a total return
that is higher than that generally available from short-term obligations while
recognizing the greater price fluctuation of longer-term instruments.
Commencement of investment operations
- --------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
3/11/88
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 10/31/99
$234,873,877
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 10/31/99
$1,598,121,679
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/99
EXPENSE RATIO
The fund's current expense ratio of 0.69% 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 OCTOBER 31, 1999
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- - U.S. AGENCY OBLIGATIONS 31.8%
- - SHORT-TERM INVESTMENTS 29.7%
- - CORPORATE OBLIGATIONS 15.0%
- - CMOS 11.8%
- - U.S. TREASURY OBLIGATIONS 5.4%
- - FOREIGN GOVERNMENTS 3.1%
- - PRIVATE PLACEMENTS 2.2%
- - CONVERTIBLE PREFERRED STOCK 0.7%
- - CERTIFICATES OF DEPOSIT 0.2%
- - CONVERTIBLE BONDS 0.1%
30-DAY SEC YIELD
5.89%
DURATION
4.8 years
QUALITY BREAKDOWN
AAA* 77%
AA 2%
A 10%
Other 11%
*INCLUDES U.S. GOVERNMENT AGENCY, TREASURY OBLIGATIONS, AND REPURCHASE
AGREEMENTS.
5
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE
NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE
PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL
COST.
Opinions expressed herein are based on current market conditions and are subject
to change without notice. The fund invests through a master portfolio (another
fund with the same objective).
CALL J.P. MORGAN FUNDS SERVICES AT (800) 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
<PAGE>
J.P. MORGAN BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Fixed Income Portfolio
("Portfolio"), at value $236,072,646
Receivable for Shares of Beneficial Interest Sold 51,974
Prepaid Trustees' Fees 1,297
Prepaid Expenses and Other Assets 1,130
------------
Total Assets 236,127,047
------------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 1,013,617
Dividends Payable to Shareholders 134,503
Shareholder Servicing Fee 49,154
Administrative Services Fee Payable 4,946
Administration Fee Payable 264
Fund Services Fee Payable 121
Accrued Expenses 50,565
------------
Total Liabilities 1,253,170
------------
NET ASSETS
Applicable to 23,785,060 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $234,873,877
============
Net Asset Value, Offering and Redemption Price
Per Share $9.87
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $242,916,201
Undistributed Net Investment Income 185,547
Accumulated Net Realized Loss on Investment (4,877,760)
Net Unrealized Depreciation of Investment (3,350,111)
------------
Net Assets $234,873,877
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN BOND FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $13,244,464
Allocated Dividend Income (Net of Foreign
Withholding Tax of $1,564) 290,573
Allocated Portfolio Expenses (759,562)
-----------
Net Investment Income Allocated from
Portfolio 12,775,475
FUND EXPENSES
Shareholder Servicing Fee $527,506
Administrative Services Fee 54,771
Transfer Agent Fees 38,634
Registration Fees 22,052
Printing Expenses 15,788
Professional Fees 12,857
Fund Services Fee 4,299
Administration Fee 3,161
Trustees' Fees and Expenses 2,453
Miscellaneous 18,529
--------
Total Fund Expenses 700,050
-----------
NET INVESTMENT INCOME 12,075,425
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (4,850,924)
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (7,482,779)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (258,278)
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 12,075,425 $ 12,195,782
Net Realized Gain (Loss) on Investment Allocated
from Portfolio (4,850,924) 2,385,828
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio (7,482,779) 988,058
--------------- ---------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (258,278) 15,569,668
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (12,086,746) (12,188,944)
Net Realized Gain (2,275,182) --
--------------- ---------------
Total Distributions to Shareholders (14,361,928) (12,188,944)
--------------- ---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 162,139,545 140,084,679
Reinvestment of Dividends and Distributions 12,519,298 11,035,610
Cost of Shares of Beneficial Interest Redeemed (141,450,054) (107,449,119)
--------------- ---------------
Net Increase from Transactions in Shares of
Beneficial Interest 33,208,789 43,671,170
--------------- ---------------
Total Increase in Net Assets 18,588,583 47,051,894
NET ASSETS
Beginning of Fiscal Year 216,285,294 169,233,400
--------------- ---------------
End of Fiscal Year (including undistributed net
investment income of $185,547 and $130,030,
respectively) $ 234,873,877 $ 216,285,294
=============== ===============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.59 $ 10.42 $ 10.30 $ 10.41 $ 9.64
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.58 0.65 0.66 0.62 0.64
Net Realized and Unrealized Gain (Loss) on
Investment (0.60) 0.17 0.18 (0.11) 0.77
-------- -------- -------- -------- --------
Total from Investment Operations (0.02) 0.82 0.84 0.51 1.41
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.59) (0.65) (0.65) (0.62) (0.64)
Net Realized Gain (0.11) -- (0.07) -- --
-------- -------- -------- -------- --------
Total Distributions to Shareholders (0.70) (0.65) (0.72) (0.62) (0.64)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 9.87 $ 10.59 $ 10.42 $ 10.30 $ 10.41
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Total Return (0.23)% 8.06% 8.58% 5.13% 15.10%
Net Assets, End of Year (in thousands) $234,874 $216,285 $169,233 $149,207 $143,004
Ratio to Average Net Assets
Net Expenses 0.69% 0.66% 0.68% 0.66% 0.69%
Net Investment Income 5.72% 6.14% 6.41% 6.08% 6.40%
Expenses without Reimbursement 0.69% 0.66% 0.68% 0.66% 0.69%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN BOND FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan 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 invests all of its investable assets in The U.S. Fixed Income Portfolio
(the "portfolio"), a no-load diversified, open-end management investment company
having the same investment objective as the fund. The value of such investment
included in the Statement of Assets and Liabilities reflects the fund's
proportionate interest in the net assets of the portfolio (15% at October 31,
1999 ). The performance of the fund is directly affected by the performance of
the portfolio. The financial statements of the portfolio, including the Schedule
of Investments, are included elsewhere in this report and should be read in
conjunction with the fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the fund:
a) Valuation of securities by the portfolio is discussed in Note 1a of the
portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the portfolio is allocated pro rata among the fund and other
investors in the portfolio at the time of such determination.
c) Substantially all the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital 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.
f) The Fund accounts for and reports distribution to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies." The effect of applying
this statement was to increase Undistributed Net Investment Income by
$66,838, increase Paid-in Capital by $1,714 and increase Accumulated Net
Realized Loss on Investment by $68,552. The adjustments are primarily
attributable to foreign currency reclasses. Net investment income, net
realized gains and net assets were not affected by this change.
12
<PAGE>
J.P. MORGAN BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
g) For federal income tax purposes, the fund had a capital loss carryforward
at October 31, 1999 of $4,747,539, all of which expires in the year 2007.
To the extent that this capital loss is used to offset future capital
gains, it is probable that gains so offset will not be distributed to
shareholders.
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as the co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the
fiscal year ended October 31, 1999, the fees for these services amounted
to $3,161.
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 had 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 fiscal year ended October 31, 1999, the fee
for these services amounted to $54,771.
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 fiscal year ended October 31, 1999, the fee for these
services amounted to $527,506.
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
13
<PAGE>
J.P. MORGAN BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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.
d) The trust, on behalf of the fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the trustees in exercising their
overall supervisory responsibilities for the trust's affairs. The trustees
of the trust represent all the existing shareholders of Group. The fund's
allocated portion of Group's costs in performing its services amounted to
$4,299 for the fiscal year ended October 31, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan 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 $800.
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 FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
------------------- -------------------
<S> <C> <C>
Shares sold...................................... 16,072,609 13,326,332
Reinvestment of dividends and distributions...... 1,227,414 1,050,367
Shares redeemed.................................. (13,940,799) (10,195,025)
------------------ ------------------
Net Increase..................................... 3,359,224 4,181,674
================== ==================
</TABLE>
From time to time, the fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the fund and portfolio.
4. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 27, 1998, with unaffiliated lenders. Additionally, since all
of the investable assets of the fund are in the portfolio, the portfolio is
party to certain covenants of the Agreement. The Agreement expired on May 26,
1999, however, the fund as party to the Agreement has renewed the Agreement and
will continue its participation therein for an additional 364 days until
May 23, 2000. The maximum borrowing under the Agreement is $150,000,000. The
purpose of the Agreement is to provide another alternative for settling large
fund shareholder redemptions. Interest on any such borrowings outstanding will
approximate market rates. The funds pay a commitment fee at an annual rate of
0.085% (0.065% prior to May 26, 1999) on the unused portion of the committed
amount. This is allocated to the funds in accordance with procedures established
by their respective trustees. There were no outstanding borrowings pursuant to
the Agreement at October 31, 1999.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Bond Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
J.P. Morgan Bond Fund (one of the series constituting part of J.P. Morgan Funds,
hereafter referred to as the "fund") at October 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
15
<PAGE>
The U.S. Fixed Income Portfolio
Annual Report October 31, 1999
(The following pages should be read in conjunction
with J.P. Morgan Bond Fund Annual Financial Statements)
16
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
CERTIFICATES OF DEPOSIT - FOREIGN (0.2%)
CANADA (0.2%)
$ 4,000,000 Canadian Imperial Bank of Commerce, 6.200% due
08/01/00
(cost $4,000,292).............................. Aa3/AA- $ 3,991,240
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (15.6%)
AIRLINES (0.2%)
3,000,000 Continental Airlines, Inc., Series 1999-2, Class
C-1, 7.730% due 09/15/12....................... Baa1/A- 2,951,700
--------------
FINANCIAL SERVICES (15.4%)
1,858,395 American Southwest Financial Corp., Support Bond,
Series 60, Class D, 8.900% due 03/01/18........ NR/AAA 1,861,871
2,253,150 Bear Stearns Structured Securities Inc.,
Sequential Payer, Series 1997-2,
Class 1A5, (144A), 7.000% due 08/25/36......... Aaa/NR 2,109,864
1,883,044 Chase Commercial Mortgage Securities Corp.,
Sequential Payer,
Series 1998-2, Class A1, 6.025% due 08/18/07... NR/AAA 1,808,645
2,000,000 Chase Commercial Mortgage Securities Corp.,
Subordinated Bond,
Series 1996-2, Class F, (144A), 6.900% due
11/19/06....................................... NR/NR 1,600,000
30,000,000 Chase Manhattan Bank - First Union National,
Sequential Payer,
Series 1999-1, Class A2, 7.439% due 07/15/09... NR/AAA 30,431,250
650,000 Citibank Credit Card Master Trust I, Subordinated
Bond, PO, Series 1997-6, Class A, 6.868% (y)
due 08/15/06................................... Aaa/AAA 470,229
1,405,000 Citibank Credit Card Master Trust I, Subordinated
Bond, Series 1999-2,
Class B, 6.150% due 03/10/11................... A2/A 1,280,742
2,350,000 COMM, Sequential Payer, Series 1999-1, Class A2,
6.455% due 09/15/08............................ Aaa/NR 2,219,363
11,500,000 Commercial Mortgage Acceptance Corp.,
Subordinated Bond, CSTR,
Series 1997-ML1, Class C, 6.774% due
12/15/07....................................... A2/A 10,818,510
901,122 Countrywide Home Loans, Sequential Payer, Series
1997-4, Class A, 8.000% due 08/25/27........... Aaa/NR 899,148
983,105 CS First Boston Mortgage Securities Corp.,
Sequential Payer,
Series 1997-C2, Class A1, 6.400% due
02/17/04....................................... Aaa/AAA 969,280
5,089,000 CS First Boston Mortgage Securities Corp.,
Subordinated Bond,
Series 1997-C2, Class B, 6.720% due 11/17/07... Aa2/NR 4,780,479
30,171,816 First Nationwide Trust, Sequential Payer, Series
1999-4, Class 3PA1, 6.500% due 10/19/29........ NR/AAA 28,521,795
52,905,000 First Union-Lehman Brothers-Bank of America,
Sequential Payer,
Series 1998-C2, Class A2, 6.560% due
11/18/08....................................... Aaa/AAA 50,377,437
1,000,000 Green Tree Financial Corporation, Sequential
Payer, Series 1996-5, Class A5, 7.450% due
07/15/27....................................... Aaa/AAA 1,004,680
1,500,000 J.P. Morgan Commercial Mortgage Finance Corp.,
Subordinated Bond, CSTR, Series 1996-C2, Class
E, (144A), 8.541% due 11/25/27 (v)............. NR/BB 1,286,484
15,000,000 MBNA Master Credit Card Trust, Subordinated Bond,
Series 1999-J, Class B, 7.400% due 02/15/12.... A2/A+ 15,066,300
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 2,223,979 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR,
Series 1995-C2, Class E, (144A), 7.878% due
06/15/21 (v)................................... Ba2/NR $ 2,033,204
2,000,000 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, Series 1997-C1, Class F,
7.120% due 06/18/29 (v)........................ NR/BB 1,369,687
8,108,636 Midland Realty Acceptance Corp., Sequential
Payer, Series 1996-C2,
Class A1, 7.020% due 01/25/29.................. Aaa/NR 8,059,224
1,224,117 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1997-XL1, Class A1, 6.590% due
10/03/30....................................... Aaa/AAA 1,210,345
12,000,000 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1998-WF2, Class A2, 6.540% due
05/15/08....................................... NR/NR 11,499,375
2,350,000 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1998-XL2, Class A2, 6.170% due
10/03/08....................................... NR/AAA 2,175,219
5,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, CSTR, Series 1997-RR, Class D, (144A),
7.748% due 04/30/39 (v)........................ NR/NR 3,429,687
1,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1995-GAL1,
Class E, (144A), 8.250% due 08/15/05........... NR/NR 856,250
2,000,000 Morgan Stanley Capital I, Inc., Subordinated
Bond, Series 1997-HF1, Class F, (144A), 6.860%
due 02/15/10................................... NR/NR 1,551,563
24,749,000 Mortgage Capital Funding, Inc., Sequential Payer,
Series 1997-MC1,
Class A3, 7.288% due 03/20/07.................. Aaa/NR 24,718,064
4,000,000 Nationslink Funding Corp., Sequential Payer,
Series 1998-2, Class A2, 6.476% due 07/20/08... Aaa/AAA 3,797,500
19,770,000 Nomura Asset Securities Corp., Sequential Payer,
Series 1998-D6, Class A1B, 6.590% due
03/17/28....................................... Aaa/AAA 18,769,144
10,000,000 Sears Credit Account Master Trust, Series 1995-5,
Class A ,
6.050% due 01/15/08............................ Aaa/AAA 9,806,200
1,250,000 Vendee Mortgage Trust, Sequential Payer, Series
1997-1, Class 2C, 7.500% due 09/15/17.......... NR/NR 1,262,100
--------------
246,043,639
--------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$254,773,637).............................. 248,995,339
--------------
CONVERTIBLE BONDS (0.1%)
RETAIL (0.1%)
1,100,000 Corporate Express, Inc., 4.500% due 07/01/00
(cost $934,625)................................ B3/B- 1,090,375
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
CORPORATE OBLIGATIONS (16.4%)
AUTOMOTIVE (0.7%)
$ 10,000,000 Daimlerchrysler, N.A. Holding, 6.900% due
09/01/04....................................... A1/A+ $ 10,028,100
1,055,000 Daimlerchrysler, N.A. Holding, 7.200% due
09/01/09....................................... A1/A+ 1,054,662
--------------
11,082,762
--------------
BANKING (1.5%)
3,000,000 Bank One Corp., 6.875% due 08/01/06.............. Aa3/A+ 2,948,504
1,000,000 Chase Manhattan Corp., 7.500% due 02/01/03....... A1/A 1,022,030
10,500,000 Comerica Bank, 5.410% due 06/12/00 (v)........... A1/A 10,493,274
10,800,000 Swiss Bank Corp.-New York, 7.000% due 10/15/15... Aa2/AA 10,094,328
--------------
24,558,136
--------------
BROADCASTING & PUBLISHING (0.2%)
1,700,000 AMFM, Inc., 9.250% due 07/01/07.................. B1/B 1,763,750
1,200,000 Fox Family Worldwide, Inc., 9.250% due
11/01/07....................................... B1/B 1,107,000
--------------
2,870,750
--------------
CHEMICALS (0.1%)
1,000,000 Cytec Industries, Inc., MOPPRS, 6.846% due
05/11/05....................................... Baa2/BBB 940,980
--------------
COMMERCIAL SERVICES (0.3%)
5,000,000 Cendant Corp., 7.750% due 12/01/03............... Baa1/BBB 4,965,900
--------------
ELECTRIC (1.3%)
494,000 Calpine Corp., 7.875% due 04/01/08............... Ba1/BB+ 465,595
1,450,000 East Coast Power LLC, (144A), 7.066% due
03/31/12....................................... Baa3/BBB- 1,303,113
4,800,000 East Coast Power LLC, (144A), 7.536% due
06/30/17....................................... Baa3/BBB- 4,282,853
10,000,000 Pacific Corp., Series G, 6.710% due 01/15/26..... Aaa/AAA 9,203,000
5,000,000 PECO Energy Co., 8.000% due 04/01/02............. Baa1/A 5,123,850
--------------
20,378,411
--------------
ELECTRONICS (0.4%)
7,000,000 Sensormatic Electronics Corp., (144A), 7.740% due
03/29/06 (f)................................... NR/BB+ 6,291,460
--------------
ENERGY SOURCE (0.0%)
506,000 Cogentrix Energy, Inc., 8.750% due 10/15/08...... Ba1/BB+ 483,230
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (0.2%)
$ 1,500,000 Fox/Liberty Networks LLC, 8.875% due 08/15/07.... Ba1/BBB- $ 1,522,500
1,100,000 Lamar Media Corp., 8.625% due 09/15/07........... B1/B 1,056,000
--------------
2,578,500
--------------
FINANCIAL SERVICES (5.8%)
13,000,000 Associates Corp. N.A., 5.875% due 07/15/02....... Aa3/AA- 12,765,480
3,400,000 Commercial Credit Co., 8.700% due 06/15/10....... Aa3/AA- 3,735,886
5,000,000 Enterprise Rent-a-Car USA Finance Co., (144A),
6.375% due 05/15/03............................ Baa2/BBB+ 4,855,600
4,000,000 FCB/NC Capital Trust I, 8.050% due 03/01/28...... Baa3/BB+ 3,685,805
390,000 Fleet Boston Corp., 7.125% due 04/15/06.......... A3/A- 388,916
10,000,000 Ford Motor Credit Co., 5.800% due 01/12/09....... A1/A 9,026,700
13,535,000 Ford Motor Credit Co., 7.375% due 10/28/09....... A1/A 13,644,092
410,000 General Motors Acceptance Corp., 7.125% due
05/01/03....................................... A2/A 413,575
10,000,000 Household Finance Corp., 6.000% due 05/01/04..... A2/A 9,583,900
5,330,000 Household Finance Corp., 6.500% due 11/15/08..... A2/A 5,027,842
1,000,000 Keycorp Institutional Capital, Series B, 8.250%
due 12/15/26................................... A1/BBB 998,130
2,500,000 Keystone Financial Mid-Atlantic Funding, MTN,
6.500% due 05/31/08............................ Baa2/BBB+ 2,231,800
2,000,000 Nationwide Financial Services, Inc., 8.000% due
03/01/27....................................... A1/A+ 1,990,960
10,000,000 NGC Corp. Capital Trust, Series B, 8.316% due
06/01/27....................................... Baa3/BBB- 9,504,000
5,000,000 Phillips 66 Capital Trust II, 8.000% due
01/15/37....................................... Baa1/BBB 4,629,750
4,100,000 Provident Financing Trust I, 7.405% due
03/15/38....................................... A2/BBB+ 3,466,140
3,000,000 Safeco Capital Trust I, 8.072% due 07/15/37...... A3/A- 2,624,760
2,000,000 Sun World International, Inc., Series B, 11.250%
due 04/15/04................................... B2/B 2,000,000
1,500,000 US Bancorp Capital I, Series B, 8.270% due
12/15/26....................................... A1/BBB+ 1,476,330
--------------
92,049,666
--------------
FOREST PRODUCTS & PAPER (1.3%)
5,000,000 Champion International Corp., 7.100% due
09/01/05....................................... Baa1/BBB 4,939,850
9,150,000 Georgia-Pacific Corp., 8.625% due 04/30/25....... Baa2/BBB- 9,141,216
5,600,000 Georgia-Pacific Corp., 9.950% due 06/15/02....... Baa2/BBB- 5,979,456
--------------
20,060,522
--------------
HEALTH SERVICES (0.0%)
2,000,000 Mariner Post-Acute Network, Inc., Series B,
9.500% due 04/01/06 TRIANGLE ................. C/D 40,000
--------------
MACHINERY (0.9%)
15,000,000 Caterpillar, Inc., 7.250% due 09/15/09........... A2/A+ 15,002,468
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
METALS & MINING (0.1%)
$ 1,400,000 P&L Coal Holdings Corp., Series B, 9.625% due
05/15/08....................................... B2/B $ 1,337,000
1,000,000 Ryerson Tull, Inc., 8.500% due 07/15/01.......... Baa3/BBB 990,000
--------------
2,327,000
--------------
NATURAL GAS (0.3%)
5,000,000 National Fuel Gas Co., Series D, MTN, 6.214% due
08/12/27....................................... A2/A- 4,924,650
--------------
OIL-PRODUCTION (0.1%)
1,200,000 Plains Resources, Inc., Series D, 10.250% due
03/15/06....................................... B2/B 1,209,000
--------------
OIL-SERVICES (0.3%)
1,000,000 Lasmo (USA), Inc., 7.500% due 06/30/06........... Baa2/BBB 979,660
750,000 Lasmo (USA), Inc., 8.375% due 06/01/23........... Baa2/BBB 715,170
1,250,000 Newpark Resources, Inc., Series B, 8.625% due
12/15/07....................................... B2/B+ 1,162,500
2,786,319 Oil Purchase Co., (144A), 7.100% due 04/30/02.... Ba2/BBB- 2,605,209
--------------
5,462,539
--------------
RETAIL (0.2%)
2,500,000 Federated Department Stores, Inc., 8.500% due
06/15/03....................................... Baa1/BBB+ 2,600,250
--------------
TELECOMMUNICATIONS (0.1%)
1,500,000 McLeodUSA, Inc., 9.250% due 07/15/07............. B1/B+ 1,485,000
1,000,000 NEXTLINK Communications, Inc., 9.625% due
10/01/07....................................... B3/B 962,500
--------------
2,447,500
--------------
TELEPHONE (1.1%)
7,500,000 MCI Worldcom, Inc., 6.950% due 08/15/06.......... A3/A- 7,401,375
10,000,000 Sprint Capital Corp., 5.875% due 05/01/04........ Baa1/BBB+ 9,557,700
--------------
16,959,075
--------------
TRANSPORT & SERVICES (0.0%)
865,191 Burlington Northern Santa Fe Corp., Series
1996-A, 7.330% due 06/23/10.................... Aa3/A+ 872,666
--------------
TRANSPORTATION (0.4%)
2,000,000 Atlantic Express Transportation Corp., 10.750%
due 02/01/04................................... B2/B 1,915,000
4,557,129 Federal Express Corp., Series 1999-1, Class C,
8.250% due 01/15/19............................ Baa1/BBB+ 4,564,602
--------------
6,479,602
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
UTILITIES (1.1%)
$ 6,800,000 Atmos Energy Corp., 6.750% due 07/15/28.......... A3/A- $ 5,840,180
12,400,000 Southern Co. Capital Trust I, 8.190% due
02/01/37....................................... A3/BBB+ 11,807,280
--------------
17,647,460
--------------
TOTAL CORPORATE OBLIGATIONS (COST
$275,227,050).............................. 262,232,527
--------------
FOREIGN CORPORATE OBLIGATIONS (3.7%)
CANADA (2.5%)
FINANCIAL SERVICES
5,000,000 McKesson Finance of Canada, (144A), 6.550% due
11/01/02....................................... Baa1/BBB+ 4,817,700
OIL PRODUCTION
6,400,000 Canadian Occidental Petroleum Ltd., 7.125% due
02/04/04....................................... Baa2/BBB 6,315,968
1,498,200 Express Pipeline LP, Series B, (144A), 7.390% due
12/31/17....................................... Baa3/BBB- 1,305,307
RAILROADS
5,350,000 Canadian National Railway, 7.000% due 03/15/04... Baa2/BBB 5,347,058
TELECOMMUNICATION SERVICES
300,000 Microcell Telecommunications, Inc., Series B,
11.999% (y)
due 06/01/06 (v)............................... B3/NR 246,750
TELECOMMUNICATIONS
7,500,000 AT & T Canada, Inc., (144A), 7.650% due
09/15/06....................................... Baa3/BBB 7,563,000
900,000 Rogers Cablesystems Ltd., 10.000% due 12/01/07... Ba3/BB+ 956,250
TELEPHONE
600,000 Call-Net Enterprises, Inc., 11.870% (y) due
08/15/07 (v)................................... B2/B+ 393,000
1,250,000 Rogers Cantel, Inc., 8.300% due 10/01/07......... Ba3/BB+ 1,253,125
TRANSPORT & SERVICES
850,000 Laidlaw, Inc., 6.650% due 10/01/04............... Baa3/BBB 773,058
7,000,000 Laidlaw, Inc., 6.720% due 10/01/27............... Baa3/BBB 6,049,960
WATER
4,500,000 Hydro Quebec, Series GF, 8.875% due 03/01/26..... A2/A+ 5,179,815
--------------
40,200,991
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FRANCE (0.1%)
ELECTRICAL EQUIPMENT
$ 1,785,000 Legrand S.A., 8.500% due 02/15/25................ A2/A $ 1,847,993
--------------
NETHERLANDS (0.2%)
FINANCIAL SERVICES
900,000 ICI Investments BV, Series E, MTN, 6.750% due
08/07/02....................................... Baa1/A- 887,400
2,250,000 Montell Finance Co. BV, (144A), 8.100% due
03/15/27....................................... Baa2/BBB- 2,283,053
--------------
3,170,453
--------------
SWEDEN (0.1%)
TRANSPORT & SERVICES
1,500,000 Stena AB, 8.750% due 06/15/07.................... Ba2/BB 1,331,250
--------------
UNITED KINGDOM (0.8%)
ELECTRIC
5,000,000 National Power Co. PLC, 6.250% due 12/01/03...... A2/A- 4,829,500
10,000,000 United Utilities PLC, 6.875% due 08/15/28........ A2/A 8,669,500
--------------
13,499,000
--------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$63,439,793)............................... 60,049,687
--------------
FOREIGN GOVERNMENT OBLIGATIONS (0.9%)
CANADA (0.9%)
10,035,000 Province of Ontario, 7.625% due 06/22/04......... Aa3/AA- 10,426,867
4,700,000 Province of Quebec, Series NY, 6.500% due
01/17/06....................................... A2/A+ 4,602,898
--------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$15,122,461)............................... 15,029,765
--------------
PRIVATE PLACEMENT (2.9%)
FINANCIAL SERVICES (1.8%)
5,841,256 500 Grant Street Associates, (144A), 6.460% due
12/01/08....................................... A2/NR 5,566,717
23,500,000 Newcourt Credit Group, (144A), 6.875% due
02/16/05....................................... A1/BBB 23,216,355
--------------
28,783,072
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
REAL ESTATE (1.1%)
$ 4,464,193 180 East End Avenue Note, secured by first
mortgage and agreement on
co-op apartment building in New York City,
6.875% due 01/01/29 (f)........................ NR/NR $ 4,147,012
10,958,687 200 East 57th Street, secured by first mortgage
and agreement on co-op apartment building in
New York City, 6.500% due 01/01/14 (f)......... NR/NR 9,977,775
3,274,837 81 Irving Place Note, secured by first mortgage
and agreement on co-op apartment building in
New York City, 6.950% due 01/01/29 (f)......... NR/NR 3,049,757
--------------
17,174,544
--------------
TOTAL PRIVATE PLACEMENT (COST $47,959,307)... 45,957,616
--------------
SOVEREIGN BONDS (3.1%)
ARGENTINA (0.3%)
4,950,000 Republic of Argentina, Series FRB, 6.813% due
03/31/05 (v)................................... B1/BB 4,381,740
--------------
BRAZIL (1.1%)
11,792,401 Republic of Brazil C Bonds, Series 20 Year ,
8.000% due 04/15/14............................ B2/B+ 7,878,798
1,435,000 Republic of Brazil NMB L, Series RG, 7.000% due
04/15/09 (v)................................... B2/NR 1,053,828
2,905,000 Republic of Brazil NMB, Series 15 Year, 7.000%
due 04/15/09 (v)............................... B2/B+ 2,133,359
8,709,100 Republic of Brazil, Series EI-L, 6.938% due
04/15/06 (v)................................... B2/B+ 7,103,403
--------------
18,169,388
--------------
BULGARIA (0.1%)
1,935,000 Republic of Bulgaria IAB, PDI, 6.500% due
07/28/11 (v)................................... B2/NR 1,475,438
--------------
COLOMBIA (0.1%)
1,615,000 Republic of Colombia Global Bonds, 9.750% due
04/23/09....................................... Ba2/BB+ 1,459,556
--------------
MEXICO (0.8%)
8,480,000 United Mexican States Global Bonds, 11.375% due
09/15/16....................................... Ba1/BB 9,043,920
1,275,000 United Mexican States Global Bonds, 11.500% due
05/15/26....................................... Ba1/BB 1,423,920
3,000,000 United Mexican States Global Bonds, Series XW,
10.375% due 02/17/09........................... NR/NR 3,047,400
--------------
13,515,240
--------------
PANAMA (0.1%)
2,520,000 Republic of Panama, 8.875% due 09/30/27.......... Ba1/BB+ 2,034,900
--------------
PERU (0.1%)
3,145,000 Republic of Peru PDI, Series 20 Year, 4.500% due
03/07/17 (v)................................... Ba3/BB 1,961,694
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
PHILIPPINES (0.2%)
$ 3,205,000 Republic of Philippines Global Bonds, 9.875% due
01/15/19....................................... Ba1/BB+ $ 3,092,825
--------------
QATAR (0.3%)
4,500,000 State of Qatar, (144A), 9.500% due 05/21/09...... Baa2/BBB 4,640,625
--------------
TOTAL SOVEREIGN BONDS (COST $49,688,807)..... 50,731,406
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (41.9%)
FEDERAL HOME LOAN MORTGAGE CORP. (2.7%)
20,780,000 5.125% due 10/15/08 (s).......................... 18,536,383
1,184,424 6.000% due 03/01/11-04/01/11..................... 1,146,158
538,599 7.000% due 09/01/09-10/01/10..................... 540,095
3,727,855 9.250% due 06/01/16.............................. 3,878,199
2,708 9.500% due 08/01/04.............................. 2,816
11,263 10.000% due 04/01/09............................. 11,855
604 12.500% due 08/01/14............................. 684
9,762,562 Gold, 8.506% due 12/01/04........................ 10,217,131
7,830,000 REMIC: Sequential Payer, AD, Series 1980, Class
VB, 7.000% due 03/15/11........................ 7,754,127
1,200,969 REMIC: Sequential Payer, Series 1980, Class C,
6.850% due 10/15/21............................ 1,202,842
--------------
43,290,290
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (34.9%)
13,240,541 6.000% due 05/15/08-02/01/29 (s)................. 12,562,542
8,883,643 6.500% due 08/01/12-09/01/29..................... 8,512,551
2,792,127 6.880% due 11/01/05.............................. 2,787,765
775,208 7.000% due 07/01/28.............................. 761,154
326,913 8.000% due 06/01/11-05/01/27..................... 333,764
4,198,257 8.700% due 01/01/05.............................. 4,437,684
381,054 9.000% due 10/01/24-12/01/24..................... 398,450
46,610,000 TBA, November, 6.000% due 12/01/29............... 43,456,367
87,570,000 TBA, November, 6.500% due 10/01/29............... 83,916,580
124,430,000 TBA, November, 7.000% due 09/01/29............... 122,175,328
206,095,000 TBA, November, 7.500% due 10/01/29............... 206,546,348
69,942,000 TBA, November, 8.000% due 10/01/29............... 71,264,603
--------------
557,153,136
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (4.3%)
54,442,215 6.500% due 06/15/28-11/15/29..................... 52,082,444
4,433,334 7.000% due 12/15/08-04/15/29..................... 4,354,159
10,978,881 7.500% due 01/15/27-08/15/27..................... 11,006,328
1,311,516 8.000% due 06/15/17-04/15/27..................... 1,344,718
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 264,559 8.500% due 05/15/27.............................. $ 275,142
78,074 9.000% due 12/15/26.............................. 82,417
--------------
69,145,208
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $668,561,332)........................ 669,588,634
--------------
U.S. TREASURY OBLIGATIONS (7.1%)
U.S. TREASURY BONDS (6.2%)
11,075,000 6.125% due 08/15/29.............................. 11,026,492
3,053,000 6.750% due 08/15/26.............................. 3,182,753
66,965,000 8.875% due 02/15/19 (s).......................... 84,187,728
--------------
98,396,973
--------------
U.S. TREASURY NOTES (0.5%)
3,000,000 5.625% due 11/30/00 (s).......................... 2,999,520
4,735,000 6.875% due 05/15/06 (s).......................... 4,914,030
--------------
7,913,550
--------------
U.S. TREASURY STRIPS (0.4%)
13,490,000 PO, 6.617% (y) due 11/15/15...................... 4,746,591
3,230,000 PO, 6.617% (y) due 05/15/18...................... 965,738
--------------
5,712,329
--------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$112,244,171).............................. 112,022,852
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- ---------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.9%)
FINANCIAL SERVICES (0.2%)
150,000 TCI Communications Financing II, 10.000%......... A3/A 3,946,875
---------------
INDUSTRIAL PRODUCTS & SERVICES (0.7%)
12,575 Home Ownership Funding, (144A) (v)............... Aaa/NR 10,408,479
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$16,675,578)............................... 14,355,354
---------------
PREFERRED STOCKS (0.1%)
OIL-SERVICES (0.1%)
36,000 Lasmo PLC, Series A, 10.000% (cost $801,000)..... Baa3/BB+ 873,000
---------------
SHORT-TERM INVESTMENTS (39.2%)
COMMERCIAL PAPER-FOREIGN (1.2%)
20,000,000 Caisse D'Amortissement, 4.659% (y) due 12/03/99
(s)............................................ 19,914,133
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ------------------------------------------------- ---------------
<C> <S> <C>
REPURCHASE AGREEMENTS (38.0%)
$ 202,197,000 Goldman Sachs Repurchase Agreement, 5.180% dated
10/29/99
due 11/01/99, proceeds $202,284,282
(collateralized by $109,780,000 U.S. Treasury
Notes, 5.125% through 6.625% due 08/31/00
through 05/15/07, valued at $112,816,693;
$71,534,000 U.S. Treasury Bond, 9.125% due
05/15/18, valued at $93,444,738) (s)........... $ 202,197,000
202,197,000 State Street Bank and Trust Repurchase Agreement,
5.180% dated 10/29/99 due 11/01/99, proceeds
$202,284,282 (collateralized by $202,705,000
U.S. Treasury Note, 5.750% due 06/30/01, valued
at 206,252,338) (s)............................ 202,197,000
202,197,000 Westdeutsche Landesbank Repurchase Agreement,
5.210% dated 10/29/99 due 11/01/99, proceeds
$202,284,787 (collateralized by $100,015,616
FNMA, 5.766% due 05/01/36, valued at
$78,737,490; $123,401,000 U.S. Treasury Notes,
5.500% through 6.500% due 02/15/00 through
05/31/02, valued at $127,503,810) (s).......... 202,197,000
--------------
606,591,000
--------------
TOTAL SHORT-TERM INVESTMENTS (COST
$626,505,133).............................. 626,505,133
--------------
TOTAL INVESTMENTS (COST $2,135,933,186)
(132.1%)....................................... 2,111,422,928
LIABILITIES IN EXCESS OF OTHER ASSETS (-32.1%)... (513,301,249)
--------------
NET ASSETS (100.0%).............................. $1,598,121,679
==============
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $2,137,544,894 for federal income
tax purposes at October 31, 1999, the aggregate gross unrealized appreciation
and depreciation was $5,357,001 and $31,478,967, respectively, resulting in net
unrealized depreciation of $26,121,966.
(f) Fair valued security. Approximately 1% of the market value of the securities
have been valued at fair value. (See Note 1a).
(s) Security is fully or partially segregated with custodian as collateral for
TBA and when issued securities or futures contracts or with broker as initial
margin for futures contracts. $747,155,320 of the market value has been
segregated.
(v) Rate shown reflects current rate on variable or floating rate instrument or
investment with step coupon rate.
(y) Yield to maturity.
TRIANGLE Defaulted security.
Abbreviations used in the schedule of investments are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
AD - Accretion Directed
C - Capitalization.
CSTR - Collateral Strip Rate.
FNMA - Federal National Mortgage Association.
IAB - Interest in Arrears Bond.
MOPPRS - Mandatory Par Put Remarketed Security.
MTN - Medium Term Note.
NMB - New Money Bonds.
NR - Not Rated.
PDI - Past Due Interest.
PO - Principal Only.
REMIC - Real Estate Mortgage Investment Conduit.
TBA - Security purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date. The actual principal amount and
maturity will be determined upon settlement date.
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $1,529,342,186 ) $1,504,831,928
Repurchase Agreements (Cost $606,591,000) 606,591,000
Cash 5,957
Receivable for Investments Sold 61,580,272
Interest Receivable 12,807,146
Unrealized Appreciation of Forward Foreign
Currency Contracts 1,664,897
Prepaid Trustees' Fees 7,774
Prepaid Administration Fee 552
Prepaid Expenses and Other Assets 7,017
--------------
Total Assets 2,187,496,543
--------------
LIABILITIES
Payable for Investments Purchased 587,419,311
Unrealized Depreciation of Forward Foreign
Currency Contracts 783,205
Variation Margin Payable 621,587
Advisory Fee Payable 398,629
Administrative Services Fee Payable 33,413
Fund Services Fee Payable 880
Accrued Expenses 117,839
--------------
Total Liabilities 589,374,864
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,598,121,679
==============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $94,258,053
Dividend Income (Net of Foreign Withholding Tax
of $11,448 ) 2,131,247
-----------
Investment Income 96,389,300
EXPENSES
Advisory Fee $ 4,514,768
Administrative Services Fee 390,355
Custodian Fees and Expenses 374,012
Professional Fees and Expenses 47,555
Fund Services Fee 30,562
Administration Fee 19,016
Trustees' Fees and Expenses 14,761
Miscellaneous 13,116
------------
Total Expenses 5,404,145
-----------
NET INVESTMENT INCOME 90,985,155
NET REALIZED GAIN (LOSS) ON
Investments Transactions (43,285,695)
Futures Contracts 2,420,893
Foreign Currency Contracts and Transactions 850,200
------------
Net Realized Loss (40,014,602)
NET CHANGE IN UNREALIZED DEPRECIATION OF
Investments (47,169,243)
Futures Contracts (982,598)
Foreign Currency Contracts and Translations (66,067)
------------
Net Change in Unrealized Depreciation (48,217,908)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 2,752,645
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 90,985,155 $ 76,630,594
Net Realized Gain (Loss) on Investments, Futures
and Foreign Currency Contracts and Transactions (40,014,602) 14,578,678
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations (48,217,908) 5,171,549
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 2,752,645 96,380,821
--------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 936,203,363 542,769,830
Withdrawals (688,024,126) (373,515,793)
--------------- ---------------
Net Increase from Investors' Transactions 248,179,237 169,254,037
--------------- ---------------
Total Increase in Net Assets 250,931,882 265,634,858
NET ASSETS
Beginning of Fiscal Year 1,347,189,797 1,081,554,939
--------------- ---------------
End of Fiscal Year $ 1,598,121,679 $ 1,347,189,797
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
--------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.36% 0.36% 0.37% 0.37% 0.39%
Net Investment Income 6.05% 6.42% 6.70% 6.38% 6.68%
Portfolio Turnover 465% 115% 93% 186% 293%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Fixed Income Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a no load,
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York on January 29, 1993. The
portfolio's investment objective is to provide a high total return consistent
with moderate risk of capital. The Declaration of Trust permits the trustees to
issue an unlimited number of beneficial interests in the portfolio. The
portfolio commenced operations on July 12, 1993.
Investments in emerging and international markets may involve certain
considerations and risks not typically associated with investments in the United
States. Future economic and political developments in emerging market and
foreign countries could adversely affect the liquidity or value, or both, of
such securities in which the portfolio is invested. The ability of the issuers
of debt, asset-backed and mortgage securities held by the portfolio to meet
their obligations may be affected by economic and political developments in a
specific industry or region. The value of asset-backed and mortgage-backed
securities can be significantly affected by changes in interest rates or rapid
principal payments including pre-payments.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) The portfolio values securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available mean of the bid and asked
prices on such exchange, if such exchange or market constitutes the
broadest and most representative market for the security. Securities
listed on a foreign exchange are valued at the last traded price or, in
the absence of recorded trades, at the readily available mean of the bid
and asked prices on such exchange available before the time when the net
assets are valued. Independent pricing service procedures may also include
the use of prices based on yields or prices of securities of comparable
quality, coupon, maturity and type, indications as to values from dealers,
operating data, and general market conditions. Unlisted securities are
valued at the average of the quoted bid and asked prices in the
over-the-counter market provided by a principal market maker or dealer. If
prices are not supplied by the portfolio's independent pricing service or
principal market maker or dealer, such securities are priced using fair
values in accordance with procedures adopted by the protfolio's trustees.
All short-term securities with a remaining maturity of sixty days or less
are valued using the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the portfolio's trustees.
31
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
The portfolio's custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the portfolio. It is the
policy of the portfolio to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the portfolio has
the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event
of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
b) The books and records of the portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expenses are
translated at the exchange rates prevailing on the respective dates of
such transactions. Translation gains and losses resulting from changes in
exchange rates during the reporting period and gains and losses realized
upon settlement of foreign currency transactions are reported in the
Statement of Operations. Although the net assets of the portfolio are
presented at the exchange rates and market values prevailing at the end of
the period, the portfolio does not isolate the portion of the results of
operations arising as a result of changes in foreign exchange rates from
the fluctuations arising from changes in the market prices of securities
during the period.
c) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount becomes known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
d) The portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily at the current foreign exchange
rates, and the change in the market value is recorded by the portfolio as
unrealized appreciation or depreciation of forward foreign currency
contract translations.
e) A futures contract is an agreement to purchase/sell a specified quantity
of an underlying instrument at a specified future date or to make/receive
a cash payment based on the value of a securities index. The price at
which the purchase and sale will take place is fixed when the portfolio
enters into the contract. Upon entering into such a contract the portfolio
is required to pledge to the broker an amount of cash and/or liquid
securities equal to the minimum "initial margin" requirements of the
exchange. Pursuant to the contract, the portfolio agrees to receive from,
or pay to, the broker an amount of cash equal to the daily fluctuation in
the value of the contract. Such receipts or payments are known as
"variation margin" and are recorded by the portfolio as unrealized gains
or losses. When the contract is closed, the portfolio records a realized
gain or loss equal to the difference between the value of the contract at
the
32
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
time it was opened and the value at the time when it was closed. The
portfolio invests in futures contracts for the purpose of hedging its
existing portfolio securities, or securities the portfolio intends to
purchase, against fluctuations in value caused by changes in prevailing
market interest rates or securities movements. The use of futures
transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged
assets, and the possible inability of counterparties to meet the terms of
their contracts.
f) The portfolio may enter into commitments to buy and sell investments to
settle on future dates as part of its normal investment activities. These
commitments are reported at market value in the financial statements.
Credit risk exists on these commitments to the extent of any unrealized
gains on the underlying securities purchased and any unrealized losses on
the underlying securities sold. Market risk exists on these commitments to
the same extent as if the security were owned on a settled basis and gains
and losses are recorded and reported in the same manner. However, during
the commitment period, these investments earn no interest or dividends.
g) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with J.P. Morgan
Investment Management Inc. ("JPMIM"), a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the
Agreement, the portfolio pays JPMIM at an annual rate of 0.30% of the
portfolio's average daily net assets. For the fiscal year ended
October 31, 1999, this fee amounted to $4,514,768.
b) The portfolio, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as the co-administrator and
exclusive placement agent. Under a Co-Administration Agreement between FDI
and the portfolio, FDI provides administrative services necessary for the
operations of the portfolio, furnishes office space and facilities
required for conducting the business of the portfolio and pays the
compensation of the portfolio's officers affiliated with FDI. The
portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses.
The amount allocable to the portfolio is based on the ratio of the
portfolio's net assets to the aggregate net assets of the portfolio and
certain other investment companies subject to similar agreements with FDI.
For the fiscal year ended October 31, 1999, the fee for these services
amounted to $19,016.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan Guaranty Trust Company of New York ("Morgan")
under which Morgan is responsible for certain aspects of the
administration and operation of the portfolio. Under the Services
Agreement, the portfolio has agreed to pay Morgan a fee equal to its
allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and certain
33
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
other portfolios for which JPMIM acts as investment advisor (the "master
portfolios") and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average
daily net assets and 0.04% of their aggregate average daily net assets in
excess of $7 billion, less the complex-wide fees payable to FDI. The
portion of this charge payable by the portfolio is determined by the
proportionate share that its net assets bear to the net assets of the
master portfolios, other investors in the master portfolios for which
Morgan provides similar services and J.P. Morgan Series Trust. For the
fiscal year ended October 31, 1999, the fee for these services amounted to
$390,355.
d) The portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the trustees in exercising their overall supervisory
responsibilities for the portfolio's affairs. The trustees of the
portfolio represent all the existing shareholders of Group. The
portfolio's allocated portion of Group's costs in performing its services
amounted to $30,562 for the fiscal year ended October 31, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, J.P. Morgan Institutional Funds, the
master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements represents the portfolio's
allocated portion of the total fees and expenses. The portfolio's Chairman
and Chief Executive Officer also serves as Chairman of Group and receives
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $5,800.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $5,620,086,179 $5,473,121,558
Corporate and Collateralized Obligations......... 999,560,042 861,040,812
-------------- --------------
$6,619,646,221 $6,334,162,370
============== ==============
</TABLE>
At October 31, 1999, the portfolio had open forward foreign currency
contracts as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
CONTRACTUAL VALUE AT APPRECIATION/
PURCHASE CONTRACTS VALUE 10/31/99 (DEPRECIATION)
- ------------------ ----------- ----------- --------------
<S> <C> <C> <C>
Euro 67,158,000, expiring 11/02/99............... $71,388,954 $70,605,749 $ (783,205)
</TABLE>
<TABLE>
<CAPTION>
SETTLEMENT
SALES CONTRACTS VALUE
- --------------- -----------
<S> <C> <C> <C>
Euro 67,158,000, expiring 11/02/99............... $72,270,646 $70,605,749 $ 1,664,897
-------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 881,692
=============
</TABLE>
34
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Open futures contracts at October 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ MARKET VALUE
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
--------------- -------------- ------------
<S> <C> <C> <C>
U.S. Five-Year Treasury Note, expiring December
1999............................................ 739 $ (353,837) $79,777,363
============== ============= ===========
<CAPTION>
CONTRACTS SHORT
---------------
<S> <C> <C> <C>
U.S. Ten-Year Treasury Note, expiring December
1999............................................ 97 $ 91,113 $10,642,719
U.S. Ten-Year Treasury Note, expiring
March 2000...................................... 37 (17,995) 3,623,688
U.S. Treasury Long Bond, expiring December
1999............................................ 673 (375,632) 76,448,594
-------------- ------------- -----------
Totals........................................... 807 $ (302,514) $90,715,001
============== ============= ===========
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the fund's Notes to the Financial
Statements which are included elsewhere in this report.
35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Fixed Income Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The U.S. Fixed Income Portfolio (the
"portfolio") at October 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the supplementary data for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and supplementary data (hereafter referred to as
"financial statements") are the responsibility of the portfolio's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
36
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
TAX AWARE ENHANCED INCOME: 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.
IM0794-M
J.P. MORGAN
BOND FUND
ANNUAL REPORT
OCTOBER 31, 1999
