<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN BOND FUND
June 1, 2000
Dear Shareholder,
During the six months ended April 30, 2000, the J.P. Morgan Bond Fund posted a
1.37% return, underperforming the 1.42% return of the Salomon Smith Barney Broad
Investment Grade Bond Index, but outperforming the 0.90% return of the Lipper
Intermediate Investment Grade Debt Funds Average.
The fund's net asset value declined to $9.71 on April 30, 2000, from $9.87 on
October 31, 1999. During the year, the fund made distributions of approximately
$0.30 per share from ordinary income. On April 30, 2000, the net assets of the
fund were approximately $225 million, while the assets of The U.S. Fixed Income
Portfolio, in which the fund invests, amounted to approximately $1.6 billion.
This report includes a discussion with William Tennille, the portfolio manager
primarily responsible for The U.S. Fixed Income Portfolio. In this interview,
Bill talks about the events of the previous six months that had the greatest
effect on the portfolio and discusses his 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) 766-7722.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
--------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS............1 FUND FACTS AND HIGHLIGHTS.........6
FUND PERFORMANCE......................2 FINANCIAL STATEMETS...............8
PORTFOLIO MANAGER Q&A.................3
--------------------------------------------------------------------------------
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 RETURNS
------------------- -----------------------------------
THREE SIX ONE FIVE TEN
AS OF APRIL 30, 2000 MONTHS MONTHS YEAR YEARS YEARS*
-------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Bond Fund 1.65% 1.37% 0.33% 6.19% 7.21%
Salomon Smith Barney Broad
Investment Grade Bond Index** 2.18% 1.42% 1.17% 6.79% 8.13%
Lipper Intermediate Investment
Grade Debt Funds Average*** 1.58% 0.90% 0.10% 5.84% 7.45%
AS OF MARCH 31, 2000
-------------------------------------------------------------------- -----------------------------------
J.P. Morgan Bond Fund 1.88% 2.70% 1.54% 6.63% 7.24%
Salomon Smith Barney Broad
Investment Grade Bond Index** 2.19% 2.03% 1.81% 7.14% 8.07%
</TABLE>
*THE FUND COMMENCED OPERATIONS ON 7/12/93. RETURNS FOR THE PERIOD 1/1/90 THROUGH
7/31/93 REFLECT THE PERFORMANCE OF THE PIERPONT BOND FUND, THE FUND'S
PREDECESSOR, WHICH COMMENCED OPERATIONS ON 3/11/88. THE FUND'S AVERAGE ANNUAL
TOTAL RETURN FROM THE INCEPTION DATE ON 7/12/93 THROUGH 4/30/00 IS 7.73%.
**THE SALOMON SMITH BARNEY BROAD INVESTMENT GRADE BOND INDEX IS AN UNMANAGED,
MARKET-WEIGHTED INDEX THAT MEASURES BOND MARKET PERFORMANCE AND CONTAINS
APPROXIMATELY 4,700 INDIVIDUALLY PRICED INVESTMENT-GRADE BONDS. THE INDEX DOES
NOT INCLUDE FEES OR EXPENSES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT.
***DESCRIBES THE AVERAGE TOTAL RETURN FOR ALL FUNDS IN THE INDICATED LIPPER
CATEGORY, AS DEFINED BY LIPPER INC., AND DOES NOT TAKE INTO ACCOUNT APPLICABLE
SALES CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL
FUND DATA.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. RETURNS ARE NET OF FEES,
ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT THE REIMBURSEMENT OF
CERTAIN EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN
SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
The 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.
He is a graduate of the University of North Carolina. This interview was
conducted on May 9, 2000, and reflects Bill's views on that date.
WHAT SEPARATED THE WINNERS FROM THE LOSERS IN THE FIXED INCOME MARKETS OVER THE
PAST SIX MONTHS?
WT: It all depended on whether you correctly anticipated the timing and the
degree to which the Treasury yield curve would invert. If you loaded up on
Treasuries, particularly long bonds, before or early on in the inversion
process, you won. If you held on to spread product - corporate bonds, mortgages,
agencies, and the like - which continued to widen substantially against
Treasures, you lost. We were fortunate to have taken the former path.
HOW WOULD YOU CHARACTERIZE THE FIXED INCOME MARKETS DURING THIS PERIOD?
WT: For various reasons, the market became extremely illiquid and, by extension,
extremely volatile. Driven to an extent by stock market volatility, we in the
fixed income markets saw wave after wave of volatility run through different
parts of the market at different times. It wasn't a constant flow, as from time
to time the market would simply become exhausted and do nothing at all. Then
something would happen - a tech sell-off, or a disappointing earnings report,
for example - and that would upset the market and send investors scurrying for
the exits. We went through numerous waves of this sort of behavior, from periods
of calm to periods of high volatility.
DID Y2K END UP HAVING ANY IMPACT?
WT: Yes and no. In itself, it wasn't an issue. There was no appreciable market
upheaval caused by computer glitches linked directly to Y2K. The real problem
was caused by the government's effort to quell Y2K-related fears by pumping
massive amounts of liquidity into the marketplace. This helped Y2K become a
relative non-event, but once this period was over, the Treasury Department acted
fairly quickly to take that money back. Unfortunately, people had gotten used to
having a lot of cash around and a lot of liquidity, so when the Treasury started
draining excess cash out of the system, it tipped the balance and market
illiquidity ensued as rates rose across the short and intermediate part of the
yield curve, while the yield on long Treasuries plummeted.
WHAT IMPACT HAS THE GOVERNMENT'S ANNOUNCED BUYBACK OF LONG-TERM DEBT HAD ON
FIXED INCOME MARKETS?
WT: It's no longer an "announced" buyback, but one that's very much underway.
The Treasury recently
3
<PAGE>
affirmed that it will retire $30 billion in debt this year. When you have this
much product being taken out of the system, there's obviously less to go around
to those investors who need or want U.S. Treasuries of all maturities. The
result has been higher demand leading to higher prices leading to lower yields
leading to a deeper inversion of the yield curve than was already present.
HOW DID YOU POSITION THE PORTFOLIO TO TAKE ADVANTAGE OF MARKET CONDITIONS DURING
THE PAST SIX MONTHS?
WT: As alluded to earlier, very early on in the movement of the yield curve
toward inversion, we reduced our positions in mortgages, corporates, and other
spread securities, and put much of that money into Treasuries. Certainly with
what has been happening on the curve, owning Treasuries, particularly on the
long end, has been a very rewarding strategy.
We sold other sectors of the market during those brief windows when conditions
were favorable. The more extended sectors, like emerging market debt and high
yield debt, actually benefited for a short period, and we did well in these
sectors.
With emerging market debt, we benefited from holdings in Mexican bonds, which
were re-rated to investment grade in early March. I would point out, however,
that all of our emerging market exposure was in dollar-denominated Brady bonds
from the higher rated countries.
Overall, the high yield market was most susceptible to day-to-day market
conditions, because it has the closest connection to the equity markets, which
have been relatively illiquid for a number of months now. As a result, prices
for these securities have been lower and spreads have been wider. We reduced
where we could at levels we were comfortable with, but we weren't totally out of
the high yield market during that time period, nor do I think anyone else was.
DO YOU SEE ANY OF THE SPREAD PRODUCTS BEING ATTRACTIVE?
WT: There have been a couple of times that we added spread products. For
example, when mortgages got to be 200 basis points over Treasuries, we added a
little bit. We had pretty good timing there, as the spreads on these securities
have narrowed since. In corporates, we've reduced our exposure to 4-5% below the
Index. Corporates have been behaving like high yields lately in terms of their
sensitivity to equities, so it's been a very expensive market to play with
respect to bid/offer spreads.
LOOKING AHEAD TO THE NEXT QUARTER, WHAT DO YOU SEE HAPPENING TO FIXED INCOME
MARKETS?
WT: I think that so long as Mr. Greenspan is uncomfortable with the things he
sees out there - the increasing cost of hiring good people, the rising price of
oil, red hot Gross Domestic Product numbers and so on - he's certainly going to
continue to raise rates in an attempt to slow our economy and ward off
inflation. After the recent huge pickup in the Employment Cost Index (ECI),
people are now talking about a 50 basis point increase in short-term rates
sometime in the very near future. This contrasts with the comparatively mellow
25 basis point increases that have occurred five times since last June. Mr.
Greenspan thinks that increasing the cost of money is the right thing to do
under these circumstances, so I have no doubt that he will continue doing so
until he gets some satisfaction in the form of lower inflation. As for how long
this state of affairs might endure, neither I nor anyone else has any idea.
4
<PAGE>
SO, GIVEN THIS SCENARIO, HOW ARE YOU POSITIONING THE PORTFOLIO FOR THE NEAR
FUTURE?
WT: It's pretty much steady on the path we've been following recently. We own a
lot of Treasuries that have done quite well for our investors. Barring any major
event that would point to greater opportunity elsewhere, I think we'll continue
in that vein. We've come close to adding some spread product several times, most
recently around the release of the ECI numbers. However, they were much more
aggressive numbers than even we expected, so we haven't done anything in that
regard. We continue to upgrade what spread product we own by buying more of the
most liquid names in higher credit ratings. For example, we haven't bought any
"BBB" rated paper in quite some time. When it's been readily tradable, we've
sold lower rated paper and put the proceeds into higher rated paper. We think
this is a time to have a very high quality portfolio and a very liquid portfolio
and are working to have ours be as much of both as possible.
5
<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
7/26/93
-------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/00
$224,666,977
-------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 4/30/00
$1,551,344,595
-------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
-------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/00
EXPENSE RATIO
The fund's current annualized expense ratio of 0.64% 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, 2000
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C>
MORTGAGE-BACKED SECURITIES 28.4%
U.S.TREASURIES 26.8%
SHORT-TERM INVESTMENTS 20.1%
CORPORATES 10.7%
ASSET-BACKED SECURITIES 7.3%
SOVEREIGN BONDS & FOREIGN GOVERMENT BONDS 3.2%
FOREIGN CORPORATES 1.8%
PRIVATE PLACEMENTS 1.2%
CDS 0.3%
U.S. AGENCIES 0.1%
CONV. PREFERRED STOCK 0.1%
</TABLE>
30-DAY SEC YIELD
6.36%*
DURATION
4.97 YEARS
QUALITY BREAKDOWN
AAA** 80%
AA 1%
A 6%
OTHER 13%
*YIELD REFLECTS THE REIMBURSEMENT OF CERTAIN FUND EXPENSES AS DESCRIBED IN THE
PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED, THE 30-DAY SEC YIELD WOULD HAVE
BEEN LOWER. YIELDS WILL FLUCTUATE.
**INCLUDES U.S. GOVERNMENT AGENCY, TREASURY OBLIGATIONS, COMMERCIAL PAPER, AND
REPURCHASE AGREEMENTS.
6
<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 and other fund data presented 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). The fund
invests in foreign securities, non-investment grade bonds, mortgage-backed
securities, and derivatives that may make the fund more volatile.
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.
7
<PAGE>
J.P. MORGAN BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Fixed Income Portfolio
("Portfolio"), at value $225,880,699
Prepaid Trustees' Fees 1,395
Prepaid Expenses and Other Assets 7,509
------------
Total Assets 225,889,603
------------
LIABILITIES
Dividends Payable to Shareholders 1,133,820
Shareholder Servicing Fee 46,423
Administrative Services Fee Payable 4,498
Administration Fee Payable 190
Fund Services Fee Payable 158
Accrued Expenses 37,537
------------
Total Liabilities 1,222,626
------------
NET ASSETS
Applicable to 23,149,127 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $224,666,977
============
Net Asset Value, Offering and Redemption Price
Per Share $9.71
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $236,659,443
Accumulated Net Investment Income 149,531
Accumulated Net Realized Loss on Investment (7,583,251)
Net Unrealized Depreciation of Investment (4,558,746)
------------
Net Assets $224,666,977
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $ 7,563,255
Allocated Dividend Income (Net of Foreign
Withholding Tax of $333) 102,635
Allocated Portfolio Expenses (351,898)
-----------
Net Investment Income Allocated from
Portfolio 7,313,992
FUND EXPENSES
Shareholder Servicing Fee $280,699
Administrative Services Fee 27,625
Transfer Agent Fees 18,285
Registration Fees 11,673
Printing Expenses 6,357
Professional Fees 6,255
Line of Credit Expenses 2,093
Fund Services Fee 1,899
Administration Fee 1,334
Trustees' Fees and Expenses 977
Miscellaneous 8,984
--------
Total Fund Expenses 366,181
-----------
NET INVESTMENT INCOME 6,947,811
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (2,705,491)
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (1,208,635)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 3,033,685
===========
</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 SIX
MONTHS ENDED FOR THE FISCAL
APRIL 30, 2000 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1999
-------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 6,947,811 $ 12,075,425
Net Realized Loss on Investment Allocated from
Portfolio (2,705,491) (4,850,924)
Net Change in Unrealized Depreciation of
Investment Allocated from Portfolio (1,208,635) (7,482,779)
------------ ---------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 3,033,685 (258,278)
------------ ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (6,983,827) (12,086,746)
Net Realized Gain -- (2,275,182)
------------ ---------------
Total Distributions to Shareholders (6,983,827) (14,361,928)
------------ ---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 50,635,050 162,139,545
Reinvestment of Dividends and Distributions 5,162,095 12,519,298
Cost of Shares of Beneficial Interest Redeemed (62,053,903) (141,450,054)
------------ ---------------
Net Increase (Decrease) from Transactions in
Shares of Beneficial Interest (6,256,758) 33,208,789
------------ ---------------
Total Increase (Decrease) in Net Assets (10,206,900) 18,588,583
NET ASSETS
Beginning of Period 234,873,877 216,285,294
------------ ---------------
End of Period (including undistributed net
investment income of $149,531 and $185,547,
respectively) $224,666,977 $ 234,873,877
============ ===============
</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 SIX
MONTHS ENDED FOR THE FISCAL YEAR ENDED OCTOBER 31,
APRIL 30, 2000 -----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
-------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER UNIT, BEGINNING OF PERIOD $ 9.87 $ 10.59 $ 10.42 $ 10.30 $ 10.41 $ 9.64
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30 0.58 0.65 0.66 0.62 0.64
Net Realized and Unrealized Gain (Loss) on
Investments (0.16) (0.60) 0.17 0.18 (0.11) 0.77
-------- -------- -------- -------- -------- --------
Total from Investment Operations (0.14) (0.02) 0.82 0.84 0.51 1.41
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.30) (0.59) (0.65) (0.65) (0.62) (0.64)
Net Realized Gain -- (0.11) -- (0.07) -- --
-------- -------- -------- -------- -------- --------
Total Distributions to Shareholders (0.30) (0.70) (0.65) (0.72) (0.62) (0.64)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE PER UNIT, END OF PERIOD $ 9.71 $ 9.87 $ 10.59 $ 10.42 $ 10.30 $ 10.41
======== ======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Total Return 1.37% (0.23)% 8.06% 8.58% 5.13% 15.10%
Net Assets, End of Period (in thousands) $224,667 $234,874 $216,285 $169,233 $149,207 $143,004
Expenses 0.64% 0.69% 0.66% 0.68% 0.66% 0.69%
Net Investment Income 6.19% 5.72% 6.14% 6.41% 6.08% 6.40%
Expenses without Reimbursement 0.64% 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 (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------------------------------
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 April 30,
2000). 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
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the
12
<PAGE>
J.P. MORGAN BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
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, 2000, the fees for these services
amounted to $1,334.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for certain aspects of the administration and operation of the fund. Under
the Services Agreement, the fund had agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated 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, 2000, the fee for these services amounted to $27,625.
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, 2000, the fee for these
services amounted to $280,699.
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.
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
$1,899 for the six months ended April 30, 2000.
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
13
<PAGE>
J.P. MORGAN BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
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
$500.
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
APRIL 30, 2000 OCTOBER 31, 1999
-------------- ----------------
<S> <C> <C>
Shares sold...................................... 5,170,824 16,072,609
Reinvestment of dividends and distributions...... 527,709 1,227,414
Shares redeemed.................................. (6,334,466) (13,940,799)
------------- ---------------
Net Increase (Decrease).......................... (635,933) 3,359,224
============= ===============
</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 28, 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 maximum borrowing under the
Agreement is $100,000,000. 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 days. The
maximum borrowing under the new Agreement is $150,000,000. The purpose of the
Agreement is to provide another alternative for settling large fund shareholder
redemptions. Interest on any such borrowings outstanding will approximate market
rates. The funds pay a commitment fee at an annual rate of 0.085% (0.065% prior
to May 26, 1999) on the unused portion of the committed amount which is
allocated to the funds in accordance with procedures established by their
respective trustees or directors. There were no outstanding borrowings to the
Agreement at April 30, 2000.
14
<PAGE>
The U.S. Fixed Income Portfolio
Semiannual Report April 30, 2000
(unaudited)
(The following pages should be read in conjunction
with J.P. Morgan Bond Fund
Semiannual Financial Statements)
15
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
ASSET BACKED SECURITIES (8.6%)
$ 10,000,000 Citibank Credit Card Master Trust I, Soft Bullet
Maturity, Series 1998-9, Class A, 5.300%
due 01/09/06................................... Aaa/AAA $ 9,306,200
12,000,000 Discover Card Master Trust, Series 1998-4, Class
A, 5.750% due 10/16/03......................... Aaa/AAA 11,812,440
16,912,030 Green Tree Financial Corp., Series 1993-3, Class
B, 6.850% due 10/15/18......................... Baa1/NR 14,036,985
10,000,000 Green Tree Financial Corp., Series 1999-5, Class
B1, 9.200% due 04/01/31........................ NR/BBB 9,206,200
14,750,000 CNH Equipment Trust, Sequential Payer, Series
2000-A, Class A3, 7.140% due 08/15/04.......... Aaa/AAA 14,704,127
35,090,000 DaimlerChrysler Auto Trust, Sequential Payer,
Series 00-A, Class A2, 6.760% due 01/06/03..... Aaa/AAA 35,002,275
5,000,000 First USA Credit Card Master Trust, Series
1999-1, Class C, 6.420% due 10/19/06........... NR/NR 4,744,530
5,550,000 Ford Credit Auto Owner Trust, Sequential Payer,
Series 2000-A, Class A3, 6.820% due 06/17/02... Aaa/AAA 5,541,286
5,000,000 Ford Credit Auto Owner Trust, Subordinate Bond,
Series 1999-A, Class D, 8.000% due 06/15/04.... NR/BB 4,868,750
23,428,000 MBNA Master Credit Trust, Series 95-F, Class A,
6.600% due 01/15/03............................ Aaa/AAA 23,442,525
--------------
TOTAL ASSET BACKED SECURITY (COST
$135,360,386).............................. 132,665,318
--------------
CERTIFICATES OF DEPOSIT - FOREIGN (0.3%)
CANADA (0.3%)
4,000,000 Canadian Imperial Bank of Commerce, 6.200% due
08/01/00 (cost $4,000,100)..................... Aa3/AA- 3,995,600
--------------
CORPORATE OBLIGATIONS (12.6%)
AIRLINES (0.1%)
1,882,890 Continental Airlines, Inc., Series 1999-2, Class
C-1, 7.730% due 03/15/11....................... Baa1/A- 1,803,545
--------------
AUTOMOTIVE (0.9%)
1,000,000 Chrysler Financial Corp., 6.625% due 08/15/00.... A1/A+ 999,010
135,000 Ford Motor Credit Corp., 7.250% due 01/15/03..... A2/A 133,516
10,000,000 Daimlerchrysler, N.A. Holding, 6.900% due
09/01/04....................................... A1/A+ 9,724,800
735,000 Federal-Mogul Corp., 7.750% due 07/01/06......... Ba2/BB+ 601,134
1,010,000 Ford Motor Credit Corp., 7.375% due 10/28/09..... A2/A 976,286
--------------
12,434,746
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
BANKING (1.1%)
$ 1,000,000 Chase Manhattan Corp., 7.500% due 02/01/03....... A1/A $ 1,001,100
10,500,000 Comerica Bank, 6.160% due 06/12/00 (v)........... A1/A 10,498,740
585,000 FCB/NC Capital Trust I, 8.050% due 03/01/28...... Baa3/BB+ 482,625
2,200,000 Keycorp Institutional Capital, Series B, 8.250%
due 12/15/26................................... A1/BBB 2,021,558
2,500,000 Keystone Financial Mid-Atlantic Funding, MTN,
6.500% due 05/31/08............................ Baa2/BBB+ 2,215,575
1,500,000 US Bancorp Capital I, Series B, 8.270% due
12/15/26....................................... A1/BBB+ 1,388,355
--------------
17,607,953
--------------
BROADCASTING (0.1%)
1,700,000 AMFM, Inc., 9.250% due 07/01/07.................. B1/B 1,704,250
--------------
BUILDING MATERIALS (0.1%)
1,000,000 Armstrong World, Inc., 6.350% due 08/15/03....... Baa1/A- 884,790
--------------
CHEMICALS (0.1%)
1,000,000 Cytec Industries, Inc., MOPPRS, 6.846% due
05/11/05 (v)................................... Baa2/BBB 913,990
--------------
CONSUMER GOODS & SERVICES (0.3%)
5,000,000 Cendant Corp., 7.750% due 12/01/03............... Baa1/BBB 4,872,700
--------------
ELECTRIC (0.9%)
10,000,000 Pacific Corp., Series G, 6.710% due 01/15/26..... Aaa/AAA 8,787,400
5,000,000 PECO Energy Co., 8.000% due 04/01/02............. Baa1/A 5,008,000
--------------
13,795,400
--------------
ENERGY (0.0%)
506,000 Cogentrix Energy, Inc., 8.750% due 10/15/08...... Ba1/BB+ 495,880
--------------
FINANCIAL SERVICES (2.5%)
795,000 CIT Group Inc., 7.250% due 08/15/05.............. A1/A+ 774,187
1,000,000 Household Finance Corp., 6.875% due 03/01/03..... A2/A 979,430
6,500,000 Associates Corp. N.A., 5.875% due 07/15/02....... Aa3/A+ 6,278,415
3,400,000 Commercial Credit Co., 8.700% due 06/15/10....... Aa3/AA- 3,596,962
5,000,000 Enterprise Rent-a-Car USA Finance Co., (144A),
6.375% due 05/15/03............................ Baa1/BBB 4,803,800
23,500,000 Newcourt CR Group Inc., 6.875% due 02/16/05...... A1/A+ 22,603,710
--------------
39,036,504
--------------
FOOD, BEVERAGES & TOBACCO (0.1%)
2,000,000 Smithfield Foods, Inc., 7.625% due 02/15/08...... Ba3/BB+ 1,742,500
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FOREST PRODUCTS & PAPER (0.7%)
$ 5,000,000 Champion International Corp., 7.100% due
09/01/05....................................... Baa1/BBB $ 4,754,050
5,600,000 Georgia-Pacific Corp., 9.950% due 06/15/02....... Baa2/BBB- 5,824,280
--------------
10,578,330
--------------
GAS PRODUCERS (0.9%)
5,000,000 National Fuel Gas Co., Series D, MTN, 6.214% due
08/12/27....................................... A2/A- 4,874,700
10,000,000 NGC Corp. Capital Trust, Series B, 8.316% due
06/01/27....................................... Baa3/BBB- 8,758,200
--------------
13,632,900
--------------
GAS-PIPELINES (1.0%)
15,000,000 Enron Corp. (144A), 6.580% due 09/10/01 (v)...... Baa1/BBB+ 14,997,000
1,497,600 Express Pipeline LP, Series B, (144A), 7.390% due
12/31/17....................................... Baa3/BBB- 1,278,576
--------------
16,275,576
--------------
HEALTH SERVICES (0.0%)
2,000,000 Mariner Post-Acute Network, Inc., Series B,
9.500% due 04/01/06{/\}........................ C/D 10,000
--------------
MEDIA (0.7%)
3,125,000 Adelphia Communications, Inc., 9.375% due
11/15/09....................................... B1/B+ 2,906,250
3,125,000 Charter Communications Holdings LLC, 8.250% due
04/01/07....................................... B2/B+ 2,796,875
1,200,000 Fox Family Worldwide, Inc., 9.250% due
11/01/07....................................... B1/B 1,044,000
2,500,000 Fox/Liberty Networks LLC, 8.875% due 08/15/07.... Ba1/BBB- 2,500,000
1,900,000 Lamar Media Corp., 8.625% due 09/15/07........... B1/B 1,767,000
--------------
11,014,125
--------------
METALS & MINING (0.1%)
1,400,000 P&L Coal Holdings Corp., Series B, 9.625% due
05/15/08....................................... B2/B 1,246,000
1,000,000 Ryerson Tull, Inc., 8.500% due 07/15/01.......... Baa3/BBB 990,000
--------------
2,236,000
--------------
MISCELLANEOUS CONSUMER GOODS (0.1%)
2,000,000 Sun World International, Inc., Series B, 11.250%
due 04/15/04................................... B2/B 1,870,000
--------------
NATURAL GAS (0.0%)
350,000 Williams Companies, Inc., 6.200% due 08/01/02.... Baa2/BBB- 338,754
--------------
OIL-PRODUCTION (0.4%)
6,400,000 Canadian Occidental Petroleum Ltd., 7.125% due
02/04/04....................................... Baa2/BBB 6,157,760
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
OIL-SERVICES (0.2%)
$ 500,000 Lasmo (USA) Inc., 6.750% due 12/15/07............ Baa2/BBB $ 452,095
2,318,985 Oil Purchase Co., (144A), 7.100% due 04/30/02.... Ba2/BBB- 2,214,630
--------------
2,666,725
--------------
PHARMACEUTICALS (0.0%)
500,000 McKesson Corp., 6.300% due 03/01/05.............. A3/A- 429,605
--------------
PROPERTY & CASUALTY (0.2%)
3,000,000 Safeco Capital Trust I, 8.072% due 07/15/37...... A3/BBB 2,470,440
--------------
RAILROADS (0.4%)
1,667,058 Burlington Northern Santa Fe Corp., Series
1996-A, 7.330% due 06/23/10.................... Aa3/A+ 1,643,536
5,350,000 Canadian National Railway, 7.000% due 03/15/04... Baa2/BBB 5,167,832
--------------
6,811,368
--------------
RETAIL (0.2%)
2,500,000 Federated Department Stores, Inc., 8.500% due
06/15/03....................................... Baa1/BBB+ 2,537,750
--------------
TELECOMMUNICATIONS (1.1%)
700,000 US West Capital Funding Inc., 6.875% due
07/15/28....................................... Baa1/A- 602,966
3,000,000 McLeodUSA, Inc., 9.250% due 07/15/07............. B1/B+ 2,880,000
1,000,000 Nextlink Communications, Inc., 9.625% due
10/01/07....................................... B2/B 930,000
10,000,000 Sprint Capital Corp., 5.875% due 05/01/04........ Baa1/BBB+ 9,400,700
400,000 Sprint Capital Corp., 6.500% due 11/15/01........ Baa1/BBB+ 394,452
2,000,000 Williams Communications Group, Inc., 10.700% due
10/01/07....................................... B2/BB- 2,035,000
500,000 Worldcom, Inc., 6.400% due 08/15/05.............. A3/A- 474,865
--------------
16,717,983
--------------
TRANSPORT & SERVICES (0.1%)
2,000,000 Atlantic Express Transportation Corp., 10.750%
due 02/01/04................................... B2/B 1,800,000
--------------
TRUCK & FREIGHT CARRIERS (0.3%)
4,762,159 Federal Express Corp., Series 1999-1, Class C,
8.250% due 01/15/19............................ Baa1/BBB+ 4,714,394
--------------
TOTAL CORPORATE OBLIGATIONS (COST
$207,865,003).............................. 195,553,968
--------------
FOREIGN CORPORATE OBLIGATIONS (2.1%)
BERMUDA (0.3%)
TELECOMMUNICATION SERVICES
4,125,000 Global Crossing Holdings Ltd., Inc. (144A),
9.125% due 11/15/06............................ Ba2/BB 4,011,562
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
CANADA (0.8%)
FINANCIAL SERVICES
$ 5,000,000 McKesson Finance of Canada, (144A), 6.550% due
11/01/02....................................... Baa1/BBB+ $ 4,611,200
--------------
TELECOMMUNICATION SERVICES
300,000 Microcell Telecommunications, Inc., Series B,
Zero Coupon, 0.000% due 06/01/06 (v)........... B3/NR 270,000
--------------
TELEPHONE
325,000 Call-Net Enterprises, Inc., Zero Coupon, 0.000%
due 08/15/07................................... B2/B+ 162,500
--------------
TRANSPORT & SERVICES
5,995,000 Laidlaw, Inc., 6.720% due 10/01/27............... B2/BB- 2,038,300
--------------
WATER
4,500,000 Hydro Quebec, Series GF, 8.875% due 03/01/26..... A2/A+ 5,053,950
--------------
12,135,950
--------------
FRANCE (0.1%)
ELECTRICAL EQUIPMENT
1,785,000 Legrand S.A., 8.500% due 02/15/25................ A2/A 1,764,633
--------------
KOREA (0.2%)
BANKING
1,665,000 Cho Hung Bank, (144A), 11.875% due 04/01/10
(v)............................................ B1/B 1,635,862
2,135,000 Hanvit Bank, (144A), 11.750% due 03/01/10........ B1/B 2,094,969
--------------
3,730,831
--------------
NETHERLANDS (0.1%)
FINANCIAL SERVICES
2,250,000 Montell Finance Co. BV, (144A), 8.100% due
03/15/27....................................... Baa2/BBB- 2,146,275
--------------
UNITED KINGDOM (0.6%)
ELECTRIC
10,000,000 United Utilities PLC, 6.875% due 08/15/28........ A3/BBB+ 8,168,800
--------------
UTILITIES
1,000,000 United Utilities PLC, 6.250% due 08/15/05........ A3/BBB+ 913,140
--------------
9,081,940
--------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$39,937,047)............................... 32,871,191
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
FOREIGN GOVERNMENT OBLIGATIONS (0.9%)
CANADA (0.9%)
$ 10,035,000 Province of Ontario, 7.625% due 06/22/04......... Aa3/AA- $ 10,109,159
4,700,000 Province of Quebec, Series NY, 6.500% due
01/17/06....................................... A2/A+ 4,465,658
--------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST
$15,087,879)............................... 14,574,817
--------------
MORTGAGE BACKED SECURITIES (33.3%)
COLLATERALIZED MORTGAGE OBLIGATIONS (3.1%)
2,253,150 Bear Stearns Structured Securities Inc.,
Sequential Payer, Series 1997-2, Class 1A5,
(144A), 7.000% due 08/25/36.................... Aaa/NR 2,062,689
12,500,000 CS First Boston Mortgage Securities Corp., Series
1999-C1, Class A2, Sequential Payer, 7.290% due
09/15/09....................................... Aaa/NR 12,300,787
29,645,664 First Nationwide Trust, Sequential Payer, Series
1999-4, Class 3PA1, 6.500% due 10/19/29........ NR/AAA 27,348,125
5,000,000 GS Mortgage Securities Corp. II, Series
2000-GSFL, Class F, 7.630% due 08/15/04........ Baa2/BBB 5,000,000
1,192,966 Vendee Mortgage Trust, Sequential Payer, Series
1997-1, Class 2C, 7.500% due 09/15/17.......... NR/NR 1,194,075
--------------
47,905,676
--------------
COMMERCIAL PROPERTIES (2.3%)
11,500,000 Commercial Mortgage Acceptance Corp.,
Subordinated Bond, CSTR, Series 1997-ML1, Class
C, 6.774% due 12/15/07......................... A2/A 10,608,750
20,000,000 First Union Commercial Mortgage Trust, Sequential
Payer, Series 1999-C1, Class A2, 6.070% due
10/15/08....................................... NR/AAA 18,059,380
7,830,000 Morgan Stanley Capital I, Inc., Sequential Payer,
Series 1998-XL2, Class A2, 6.170% due
10/03/08....................................... NR/AAA 7,091,044
--------------
35,759,174
--------------
MORTGAGE PASS-THROUGHS (27.9%)
78,010,000 TBA FNMA, May, 6.500% due 05/01/30............... 72,793,471
40,370,000 TBA FNMA, May, 7.000% due 05/01/15............... 39,423,727
8,515,000 TBA FNMA, May, 7.500% due 05/01/30............... 8,332,694
32,175,000 TBA FNMA, May, 8.000% due 05/01/30............... 32,124,807
40,900,000 TBA FNMA, May, 6.500% due 05/01/15............... 39,136,392
59,865,000 TBA FNMA, May, 7.000% due 05/01/30............... 57,274,043
4,064,000 TBA GNMA, May, 7.000% due 05/01/30............... 3,907,780
45,435,000 TBA GNMA, May, 8.000% due 05/01/30............... 45,527,233
425,180 Federal Home Loan Bank, 7.000% due 09/01/09...... 418,289
1,268,191 Federal Home Loan Mortgage Corp., 6.000% due
09/01/03-04/01/11.............................. 1,205,258
343 Federal Home Loan Mortgage Corp., 12.500% due
08/01/14....................................... 381
72,928,389 FNMA , 6.500% due 07/01/28-02/01/29.............. 66,378,181
3,266,088 FNMA, 7.000% due 09/01/29........................ 3,125,829
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
MORTGAGE PASS-THROUGHS (CONTINUED)
$ 2,089,127 FNMA, 8.000% due 05/01/27........................ $ 2,087,720
330,417 FNMA, 9.000% due 12/01/24........................ 338,892
53,772,113 GNMA, 6.500% due 11/15/29........................ 50,398,451
216,505 GNMA, 7.000% due 12/15/08........................ 213,398
9,109,437 GNMA, 7.500% due 01/15/27-02/15/27............... 8,971,155
1,205,797 GNMA, 8.000% due 04/15/22-08/15/26............... 1,214,134
219,242 GNMA, 8.500% due 05/15/27........................ 223,362
68,840 GNMA , 9.000% due 12/15/26....................... 71,564
--------------
433,166,761
--------------
TOTAL MORTGAGE BACKED SECURITY (COST
$523,684,464).............................. 516,831,611
--------------
PRIVATE PLACEMENT (1.4%)
FINANCIAL SERVICES (0.3%)
5,672,558 500 Grant Street Associates, (144A), 6.460% due
12/01/08....................................... A2/NR 5,273,210
--------------
REAL ESTATE (1.1%)
4,444,044 180 East End Avenue Note, secured by first
mortgage and agreement on co-op apartment
building in new York City, 6.875% due 01/01/28
(f)............................................ NR/NR 4,094,876
10,939,671 200 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 9,844,391
3,260,264 81 Irving Place Note, secured by first mortgage
and agreement on co-op apartment buliding in
New York City , 6.950% due 01/01/29 (f)........ NR/NR 3,011,800
--------------
16,951,067
--------------
TOTAL PRIVATE PLACEMENT (COST $24,316,537)... 22,224,277
--------------
SOVEREIGN BONDS (2.7%)
ARGENTINA (0.3%)
1,065,000 Republic of Argentina Global Bonds, 12.000% due
02/01/20....................................... B1/BB 1,051,687
4,875,000 Republic of Argentina Global Bonds, Series BGL5,
11.375% due 01/30/17........................... B1/BB 4,641,000
--------------
5,692,687
--------------
BRAZIL (0.4%)
715,000 Republic of Brazil, 7.375% due 04/15/09 (v)...... B2/NR 586,300
3,337,000 Republic of Brazil, 7.438% due 04/15/06 (v)...... B2/B+ 2,978,273
1,840,000 Republic of Brazil Discount Bonds, Series 30 Year
ZL, 7.375% due 04/15/24 (v).................... B2/NR 1,421,400
1,395,000 Republic of Brazil Global Bonds, 12.750% due
01/15/20....................................... B2/B+ 1,337,108
--------------
6,323,081
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
BULGARIA (0.2%)
$ 4,135,000 Republic of Bulgaria Global FLIRB, Series A,
2.750% due 07/28/12 (v)........................ B2/NR $ 2,873,825
--------------
COLOMBIA (0.5%)
3,035,000 Republic of Colombia, 9.750% due 04/23/09........ Ba2/BB+ 2,382,475
5,995,000 Republic of Colombia, 11.750% due 02/25/20....... Ba2/BB+ 5,080,763
--------------
7,463,238
--------------
MEXICO (0.3%)
2,325,000 United Mexican States Global Bonds, 11.500% due
05/15/26....................................... Baa3/BB+ 2,749,313
1,830,000 United Mexican States Global Bonds, Series XW,
10.375% due 02/17/09........................... Baa3/BB+ 1,923,330
--------------
4,672,643
--------------
PANAMA (0.3%)
6,429,437 Republic of Panama PDI, 7.544% due 07/17/16
(v)............................................ NR/NR 5,175,697
--------------
PERU (0.2%)
4,090,000 Peru PDI, Series 20 Year, 4.500% due 03/07/17.... Ba3/BB 2,735,188
--------------
PHILIPPINES (0.3%)
3,855,000 Republic of Philippines Global Bonds, 9.875% due
01/15/19....................................... Ba1/BB+ 3,411,675
1,170,000 Republic of Philippines Global Bonds, 10.625% due
03/16/25....................................... Ba1/BB+ 1,080,788
--------------
4,492,463
--------------
TURKEY (0.2%)
2,325,000 Republic of Turkey, 11.875% due 01/15/30......... B1/B+ 2,513,906
--------------
TOTAL SOVEREIGN BONDS (COST $44,524,130)..... 41,942,728
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (0.1%)
FEDERAL HOME LOAN MORTGAGE CORP. (0.1%)
886,013 REMIC: Sequential Payer, Series 1980, Class C,
Partially Callable, 6.850% due 10/15/21 (cost
$887,106)...................................... 882,132
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
------------- ------------------------------------------------- ------------ ---------------
<C> <S> <C> <C>
U.S. TREASURY OBLIGATIONS (31.6%)
U.S. TREASURY BONDS (11.5%)
$ 2,300,000 6.500% due 11/15/26.............................. $ 2,383,743
81,753,000 6.750% due 08/15/26.............................. 87,322,014
70,195,000 8.875% due 02/15/19.............................. 89,783,617
--------------
179,489,374
--------------
U.S. TREASURY NOTES (19.1%)
199,310,000 5.500% due 05/15/09 (s).......................... 187,662,324
12,425,000 6.000% due 08/15/09.............................. 12,137,610
31,835,000 6.500% due 02/15/10.............................. 32,466,606
62,950,000 6.875% due 05/15/06 (s).......................... 63,972,938
--------------
296,239,478
--------------
U.S. TREASURY STRIPS (1.0%)
38,155,000 PO, 6.237% (y) due 11/15/15...................... 14,685,860
--------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$488,658,280).............................. 490,414,712
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------------
<C> <S> <C>
PREFERRED STOCK (0.2%)
FINANCIAL SERVICES (0.2%)
150,000 TCI Ccmmunications Financing (cost $4,087,500)... 3,862,500
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (23.6%)
SHORT-TERM INVESTMENTS (23.4%)
362,540,117 J.P. Morgan Institutional Prime Money
Market Fund (s)................................ 362,540,117
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
------------- ------------------------------------------------- ---------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (0.2%)
$ 3,400,000 United States Treasury Notes, 5.625%
due 11/30/00 (s)............................... $ 3,385,108
--------------
TOTAL SHORT-TERM INVESTMENTS (COST
$365,938,893)............................... 365,925,225
--------------
TOTAL INVESTMENTS (COST $1,854,347,326)
(117.4%)....................................... 1,821,744,079
LIABILITIES IN EXCESS OF OTHER ASSETS (-17.4%)... (270,399,484)
--------------
NET ASSETS (100.0%).............................. $1,551,344,595
==============
</TABLE>
------------------------------
Note: Based on the cost of the investments of $1,854,347,326 for federal income
tax purposes at April 30, 2000, the aggregate gross unrealized appreciation and
depreciation was $5,129,464 and $37,732,711, respectively, resulting in net
unrealized depreciation of $32,603,247.
(f)Fair valued security. Approximately 1.0% 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
future contracts or with broker as initial margin for futures contracts.
$624,838,016 of the market value has been segregated.
(t)All or a portion of the security has been segregated as collateral for TBA
securities and when issued securities.
(v)Rate shown reflects current rate on variable or floating rate instrument or
investment with step coupon rate.
(y) Yield to maturity.
{/\} Defaulted security.
Abbreviations used in the schedule of investment are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
CSTR - Collateral Strip Rate.
FLIRB - Floating Interest Rate Bond.
FNMA - Federal National Mortgage Association.
GNMA - Government National Mortgage Association.
MOPPRS - Mandatory Par Put Remarketed Security.
MTN - Medium Term Note.
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.
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $1,854,347,325 ) $1,821,744,079
Cash 1,989,859
Receivable for Investments Sold 105,310,295
Interest Receivable 20,504,006
Other Assets 57,164
Prepaid Trustees' Fees 8,506
Prepaid Expenses and Other Assets 4,915
--------------
Total Assets 1,949,618,824
--------------
LIABILITIES
Payable for Investments Purchased 397,719,094
Advisory Fee Payable 377,632
Variation Margin Payable 51,788
Administrative Services Fee Payable 30,499
Administration Fee Payable 748
Accrued Expenses 94,468
--------------
Total Liabilities 398,274,229
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,551,344,595
==============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $50,541,772
Dividend Income (Net of Foreign Withholding Tax
of $2,250 ) 669,107
-----------
Investment Income 51,210,879
EXPENSES
Advisory Fee $ 2,083,567
Administrative Services Fee 185,234
Custodian Fees and Expenses 161,416
Professional Fees and Expenses 24,312
Fund Services Fee 12,713
Trustees' Fees and Expenses 6,524
Administration Fee 6,486
Miscellaneous 7,089
-----------
Total Expenses 2,487,341
Less: Reimbursement of Expenses (136,933)
-----------
NET EXPENSES 2,350,408
-----------
NET INVESTMENT INCOME 48,860,471
NET REALIZED GAIN (LOSS) ON INVESTMENTS (22,465,033)
Futures, Options and Swap Contracts 3,705,858
Foreign Currency Transactions 881,067
-----------
NET REALIZED LOSS (17,878,108)
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENTS (8,092,988)
Futures, Options and Swap Contracts 10,197
Foreign Currency Contracts and Translations (876,484)
-----------
NET CHANGE IN UNREALIZED DEPRECIATION (8,959,275)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $22,023,088
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
APRIL 30, 2000 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1999
-------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 48,860,471 $ 90,985,155
Net Realized Loss on Investments (17,878,108) (40,014,602)
Net Change in Unrealized Depreciation of
Investments (8,959,275) (48,217,908)
-------------- ---------------
Net Increase in Net Assets Resulting from
Operations 22,023,088 2,752,645
-------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 312,680,724 936,203,363
Withdrawals (381,480,896) (688,024,126)
-------------- ---------------
Net Increase (Decrease) from Investors'
Transactions (68,800,172) 248,179,237
-------------- ---------------
Total Increase (Decrease) in Net Assets (46,777,084) 250,931,882
NET ASSETS
Beginning of Period 1,598,121,679 1,347,189,797
-------------- ---------------
End of Period $1,551,344,595 $ 1,598,121,679
============== ===============
</TABLE>
--------------------------------------------------------------------------------
SUPPLEMENTARY DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED OCTOBER 31,
APRIL 30, 2000 --------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.32% 0.36% 0.36% 0.37% 0.37% 0.39%
Net Investment Income 6.68% 6.05% 6.42% 6.70% 6.38% 6.68%
Portfolio Turnover 247% 465% 115% 93% 186% 293%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Fixed Income Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a no load, open-end
management investment company which was organized as a trust under the laws of
the State of New York on January 29, 1993. The portfolio commenced operations on
July 12, 1993 and received a contribution of certain assets and liabilities,
including securities, with a value of $91,653,371 on that date from J.P. Morgan
Bond Fund in exchange for a beneficial interest in the portfolio. The
portfolio's investment objective is to provide a high total return consistent
with moderate risk of capital and maintenance of liquidity. The Declaration of
Trust permits the trustees to issue an unlimited number of beneficial interests
in the portfolio.
Investments in emerging and international markets may involve certain
considerations and risks not typically associated with investments in the United
States. Future economic and political developments in emerging market and
foreign countries could adversely affect the liquidity or value, or both, of
such securities in which the portfolio is invested. The ability of the issuers
of debt, asset-backed and mortgage securities held by the portfolio to meet
their obligations may be affected by economic and political developments in a
specific industry or region. The value of asset-backed and mortgage securities
can be significantly affected by changes in interest rates or rapid principal
payments including pre-payments.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange, or in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the portfolio's trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
short-term portfolio securities with a remaining maturity of less than 60
days are valued by the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the portfolio's trustees.
29
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
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. At April 30, 2000, the portfolio had no open
forward foreign currency contracts:
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 in to 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 eceipts or payments are
known as "variation margin" and are recorded by the portfolio as
unrealized gains or losses. When the
30
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
contract is closed, the portfolio records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened
and the value at the time when it was closed. The portfolio invests in
futures contracts for the purpose of hedging its existing portfolio
securities, or securities the portfolio intends to purchase, against
fluctuations in value caused by changes in prevailing market interest
rates or securities movements. The use of futures transactions involves
the risk of imperfect correlation in movements in the price of futures
contracts, interest rates and the underlying hedged assets, and the
possible inability of counterparties to meet the terms of their contracts.
Open futures contracts at April 30, 2000 are summarized as follows:
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) Prior to October 28, 1998, the portfolio had an Investment Advisory
Agreement with Morgan Guaranty Trust Company of New York ("Morgan"), a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"). Under the terms of the Agreement, the portfolio paid
Morgan at an annual rate of 0.30% of the portfolio's average daily net
assets. Effective October 28, 1998 the portfolio's Investment Advisor is
J.P. Morgan Investment Management Inc. ("JPMIM"), an affiliate of Morgan
and a wholly owned subsidiary of J.P. Morgan, and the terms of the
Agreement will remain the same. For the six months ended April 30, 2000,
this fee amounted to $2,083,567
The fund may invest in one or more affiliated money market funds:
J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan
Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional
Federal Money Market Fund and J.P. Morgan Institutional Treasury Money
Market Fund. The Advisor has agreed to reimburse its advisory fee from the
fund in an amount to offset any doubling of investment advisory and
shareholder servicing fees. For the six months ended April 30, 2000,
J.P. Morgan has agreed to reimburse the fund $174,973 under this
agreement.
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
31
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
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, 2000, the fee for
these services amounted to $6,486.
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
aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI. The portion of this charge payable by
the portfolio is determined by the proportionate share that its net assets
bear to the net assets of the master portfolios, other investors in the
master portfolios for which Morgan provides similar services and
J.P. Morgan Series Trust. For the six months ended April 30, 2000 the fee
for these services amounted to $185,234.
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 $12,713 for the six months ended April 30, 2000.
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 $2,400.
32
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended April 30, 2000, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $3,229,362,449 $2,904,247,716
Corporate and Collateralized Obligations......... 783,663,605 707,913,185
-------------- --------------
$4,013,026,054 $3,612,160,901
============== ==============
</TABLE>
Open Futures Contracts at April 30, 2000 are as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/ MARKET VALUE
CONTRACTS LONG (DEPRECIATION) OF CONTRACTS
--------------- -------------- ------------
<S> <C> <C> <C>
U.S. Treasury Long Bond, expiring
June 2000....................................... 290 $ (437,939) $ 28,003,125
============== ============= ============
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS SHORT
---------------
<S> <C> <C> <C>
U.S. Five-Year Treasury Note, expiring
June 2000....................................... 354 $ 431,223 $ 34,542,658
U.S. Ten-Year Treasury Note, expiring
June 2000....................................... 1,042 (639,438) 101,025,161
-------------- ------------- ------------
Totals........................................... 1,396 $ (208,215) $135,567,819
============== ============= ============
</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.
33
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
TREASURY 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
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 DISCIPLINED EQUITY FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS, CALL J.P. MORGAN
FUNDS SERVICES AT (800) 521-5411
IMSAR 207
J.P. MORGAN
BOND FUND
SEMIANNUAL REPORT
APRIL 30, 2000
