<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN SHORT TERM BOND FUND
December 1, 1999
Dear Shareholder:
The fiscal year ended October 31, 1999 was a volatile one for bonds and for the
J.P. Morgan Short Term Bond Fund. The fund returned 2.70% for the year. This
compares favorably to the 1.44% return of the Lipper Short Investment Grade Debt
Funds Average. However, the fund underperformed its benchmark, the Merrill Lynch
1-3 Year Treasury Index, which posted a 2.99% return.
The fund's net asset value decreased to $9.68 on October 31, 1999 from $9.98 on
October 31, 1998 after paying approximately $0.51 per share in dividends from
ordinary income and approximately $0.05 per share from capital gains at October
31, 1999 during the reporting period. The fund's net assets stood at $38.7
million at the end of the fiscal year. The net assets of the portfolio, in which
the fund invests, totaled approximately $393.8 million on October 31, 1999.
Connie J. Plaehn, lead portfolio manager for The Short Term Bond Portfolio, in
which the fund invests, discusses some of the events affecting the fund in the
past year and offers her views on the upcoming months.
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 July 31, 1993* would
have grown to $13,641 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 SINCE FUND INCEPTION*
JULY 31, 1993 - OCTOBER 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
J.P. Morgan Merrill Lynch 1-3 Year Lipper Short Term
Short Term Bond Fund Treasury Index Investment Grade
Debt Funds Average
<S> <C> <C> <C>
Jul-93 10000 10000 10000
Oct-93 10104 10140 10200
Oct-94 10165 10260 9989
Oct-95 11049 11178 11054
Oct-96 11687 11839 11662
Oct-97 12386 12607 12433
Oct-98 13282 13578 13308
Oct-99 13641 13984 13520
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------ ---------------------------------------
THREE SIX ONE FIVE SINCE
AS OF OCTOBER 31, 1999 MONTHS MONTHS YEAR YEARS INCEPTION*
- -------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Short Term Bond Fund 1.42% 0.99% 2.70% 6.06% 5.09%
Merrill Lynch 1-3 Year Treasury Index 1.21% 1.78% 2.99% 6.39% 5.51%
Lipper Short Investment Grade
Debt Funds Average 1.06% 0.38% 1.44% 6.19% 4.95%
AS OF SEPTEMBER 30, 1999
- -------------------------------------------------------------------------- ---------------------------------------
J.P. Morgan Short Term Bond Fund 1.21% 0.98% 2.47% 6.02% 5.11%
Merrill Lynch 1-3 Year Treasury Index 1.26% 1.84% 3.22% 6.38% 5.54%
Lipper Short Investment Grade Debt Funds Average 0.82% 0.51% 1.15% 6.14% 4.99%
</TABLE>
*GROWTH AND AVERAGE ANNUAL TOTAL RETURNS ARE BASED ON THE MONTH END FOLLOWING
INCEPTION. THE FUND'S AVERAGE ANNUAL TOTAL RETURN SINCE ITS COMMENCEMENT OF
OPERATIONS ON 7/8/93 THROUGH 10/31/99 IS 5.03%.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF
CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD
EXPENSES NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. THE MERRILL
LYNCH 1-3 YEAR TREASURY INDEX IS AN UNMANAGED INDEX WHICH MEASURES SHORT-TERM
MARKET PERFORMANCE. THE INDEX DOES NOT INCLUDE FEES OR EXPENSES AND IS NOT
AVAILABLE FOR ACTUAL INVESTMENT. LIPPER ANALYTICAL SERVICES, INC. IS A
LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with CONNIE J. PLAEHN, managing director and a member
of the portfolio management team for The Short Term Bond Portfolio, in which the
fund invests. Before assuming portfolio management responsibilities at J.P.
Morgan Investment Management, Connie also worked at J.P. Morgan Securities and
J.P. Morgan Futures. Before joining Morgan in 1984, she worked for the Chicago
Board of Trade and also worked on the development of the London International
Financial Futures Exchange. This interview was conducted on November 17, 1999
and reflects Connie's views on that date.
WHAT FACTORS HAVE MOST INFLUENCED THE SHORT-TERM FIXED INCOME MARKETS OVER THE
PAST TWELVE MONTHS?
CP: 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 Federal
Open Market Committee 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 commitment to keeping inventories on
their books. 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.
HOW DID THE PORTFOLIO PERFORM DURING THAT TIME?
CP: Relative to our Lipper peer group, the portfolio performed very well over
the past 12 months, outperforming by over 125 basis points; rising interest
rates hurt everyone's performance. Although we shortened duration to match the
benchmark's level earlier in 1999, it was not short enough. Since then we have
been significantly shorter than the benchmark. Moves that helped performance
included cutting back on high
3
<PAGE>
yield and emerging markets debt, as well as selling our non-dollar positions. We
began adding back a bit to high yield in October. Throughout the year, we
increased the quality of our holdings, maintaining an overweight position in
investment grade bonds.
WHAT DO YOU SEE AHEAD FOR THESE MARKETS? HOW WILL YOU POSITION THE PORTFOLIO AS
A RESULT?
CP: 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 hike
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.
Looking ahead, we see value in spread products (meaning non-U.S. Treasury debt).
As such, there will be room to invest in these sectors, particularly with
opportunities to capture value further down the credit spectrum. We also
anticipate increasing our use of derivatives in 2000 because of the reduced
liquidity resulting from Wall Street market makers' increased risk aversion.
Derivatives (e.g., futures and over-the-counter interest rate and total rate of
return swaps), are an extremely liquid, $35 trillion market and using them will
enhance our ability to manage liquidity, particularly if this level of market
volatility continues. We will keep duration around the benchmark level or
shorter in anticipation of higher rates. We expect global growth to continue,
albeit at a slower rate of growth, and will seek to take advantage of attractive
valuations globally, should they meet our investment criteria. In 2000, we
expect to see technology play a greater role in the fixed income markets that,
in turn, will lead to greater transparency of prices.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Short Term Bond Fund seeks to provide high total return consistent
with low volatility of principal. It is designed for investors who do not
require the stable net asset value typical of a money market fund, but who seek
less price fluctuation than is typical of a longer term bond fund.
- -------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
7/8/93
- -------------------------------------------------------------------------------
FUND NET ASSETS AS OF 10/31/99
$38,713,668
- -------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 10/31/99
$393,821,735
- -------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- -------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/99
EXPENSE RATIO
The fund's current expense ratio of 0.57% covers shareholders' expenses for
custody, tax reporting, investment advisory, and shareholder services, after
reimbursement. The fund is no-load and does not charge any sales, redemption, or
exchange fees. There are no additional charges for buying, selling, or
safekeeping fund shares, or for wiring redemption proceeds from the fund.
FUND HIGHLIGHTS
ALL DATA AS OF OCTOBER 31, 1999
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- - CORPORATE DEBT OBLIGATIONS 27.9%
- - CMOS AND ABSS 26.4%
- - U.S. GOVERNMENT AGENCIES 14.8%
- - REPURCHASE AGREEMENT 9.7%
- - U.S. TREASURIES 9.3%
OTHER - COMMERCIAL PAPER
(SHORT-TERM) 7.7%
- - FOREIGN CORPORATE OBLIGATIONS 2.5%
- - PRIVATE PLACEMENTS 1.3%
- - FOREIGN GOVERNMENT OBLIGATIONS 0.2%
- - PREFERRED STOCK 0.2%
30-DAY SEC YIELD
5.07%*
DURATION
1.53 years
<TABLE>
<CAPTION>
QUALITY BREAKDOWN
<S> <C>
AAA** 46.42%
AA 8.27%
A 15.83%
BBB 10.81%
Not Rated 17.97%
Other 0.70%
</TABLE>
* Yield reflects the reimbursement of expenses as described in the prospectus.
Had expenses not been subsidized, the 30-day SEC yield would have been lower.
** Includes U.S. government agency, Treasury obligations, repurchase agreements,
and commercial paper.
5
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS 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 SHORT TERM BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Short Term Bond Portfolio
("Portfolio"), at value $38,784,704
Receivable for Expense Reimbursements 4,942
Receivable for Shares of Beneficial Interest Sold 2,245
Prepaid Trustees' Fees 396
Prepaid Expenses and Other Assets 196
-----------
Total Assets 38,792,483
-----------
LIABILITIES
Dividends Payable to Shareholders 28,552
Shareholder Servicing Fee Payable 7,949
Administrative Services Fee Payable 807
Administration Fee Payable 64
Fund Services Fee Payable 21
Accrued Expenses 41,422
-----------
Total Liabilities 78,815
-----------
NET ASSETS
Applicable to 3,998,434 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $38,713,668
===========
Net Asset Value, Offering and Redemption Price
Per Share $9.68
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $39,455,176
Undistributed Net Investment Income 146,070
Accumulated Net Realized Loss on Investment (695,353)
Net Unrealized Depreciation of Investment (192,225)
-----------
Net Assets $38,713,668
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN SHORT TERM 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 $2,080,580
Allocated Dividend Income 7,986
Allocated Portfolio Expenses (Net of
Reimbursement of $19,743) (102,715)
----------
Net Investment Income Allocated from
Portfolio 1,985,851
FUND EXPENSES
Shareholder Servicing Fee $ 89,853
Transfer Agent Fees 23,632
Printing Expenses 13,973
Registration Fees 12,249
Professional Fees 11,634
Administrative Services Fee 9,317
Fund Services Fee 736
Administration Fee 536
Miscellaneous 4,411
--------
Total Fund Expenses 166,341
Less: Reimbursement of Expenses (64,243)
--------
NET FUND EXPENSES 102,098
----------
NET INVESTMENT INCOME 1,883,753
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (473,743)
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (443,936)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 966,074
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN SHORT TERM BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE 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 $ 1,883,753 $ 1,316,155
Net Realized Gain (Loss) on Investment Allocated
from Portfolio (473,743) 123,872
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio (443,936) 238,194
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 966,074 1,678,221
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1,883,798) (1,315,844)
Net Realized Gain (151,358) --
--------------- ---------------
Total Distributions to Shareholders (2,035,156) (1,315,844)
--------------- ---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 25,459,633 24,006,924
Reinvestment of Dividends 1,661,273 986,662
Cost of Shares of Beneficial Interest Redeemed (18,322,547) (8,890,856)
--------------- ---------------
Net Increase from Transactions in Shares of
Beneficial Interest 8,798,359 16,102,730
--------------- ---------------
Total Increase in Net Assets 7,729,277 16,465,107
NET ASSETS
Beginning of Fiscal Year 30,984,391 14,519,284
--------------- ---------------
End of Fiscal Year (including undistributed net
investment income of $146,070 and $0,
respectively) $ 38,713,668 $ 30,984,391
=============== ===============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN SHORT TERM BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a unit outstanding throughout each year 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 PER UNIT, BEGINNING OF YEAR $ 9.98 $ 9.85 $ 9.86 $ 9.84 $ 9.60
------- ------- ------- ------ -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.57 0.56 0.58 0.53 0.57
Net Realized and Unrealized Gain (Loss) on
Investment (0.31) 0.13 (0.01) 0.02 0.24
------- ------- ------- ------ -------
Total from Investment Operations 0.26 0.69 0.57 0.55 0.81
------- ------- ------- ------ -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.51) (0.56) (0.58) (0.53) (0.57)
Net Realized Gain (0.05) -- -- -- --
------- ------- ------- ------ -------
Total Distributions to Shareholders (0.56) (0.56) (0.58) (0.53) (0.57)
------- ------- ------- ------ -------
NET ASSET VALUE PER UNIT, END OF YEAR $ 9.68 $ 9.98 $ 9.85 $ 9.86 $ 9.84
======= ======= ======= ====== =======
RATIOS AND SUPPLEMENTAL DATA
Total Return 2.70% 7.24% 5.98% 5.77% 8.70%
Net Assets, End of Year (in thousands) $38,714 $30,984 $14,519 $8,207 $10,330
Ratio to Average Net Assets
Net Expenses 0.57% 0.50% 0.50% 0.62% 0.67%
Net Investment Income 5.24% 5.66% 5.94% 5.42% 5.88%
Expenses without Reimbursement 0.80% 0.98% 1.38% 1.61% 1.48%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN SHORT TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Short Term Bond Fund (the "fund") is a separate series of J.P.
Morgan Funds, a Massachusetts business trust (the "trust"), which was organized
on November 4, 1992. The trust is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The fund
commenced operations on July 8, 1993. The fund invests all of its investable
assets in The Short Term Bond Portfolio (the "portfolio"), a no-load
diversified, open-end management investment company having the same investment
objective as the fund. The value of such investment included in the Statement of
Assets and Liabilities reflects the fund's proportionate interest in the net
assets of the portfolio (10% 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) For federal income tax purposes, the fund had a capital loss carryforward
at October 31, 1999 of $701,688 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.
g) The fund accounts for and reports distributions 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
$218,395, decrease Paid-in-Capital by $248 and increase Accumulated Net
Realized Loss on Investment by $218,147. 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 SHORT TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as the co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the
fiscal year ended October 31, 1999, the fee for these services amounted to
$536.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), under which Morgan is responsible for certain aspects of
the administration and operation of the fund. Under the Services
Agreement, the fund has agreed to pay Morgan a fee equal to its allocable
share of an annual complex-wide charge. This charge is calculated based on
the aggregate average daily net assets of the portfolio and the other
portfolios in which the trust and the J.P. Morgan Institutional Funds
invest (the "master portfolios") and J.P. Morgan Series Trust in
accordance with the following annual schedule: 0.09% on the first
$7 billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by
the fund is determined by the proportionate share that its net assets bear
to the net assets of the trust, the master portfolios, other investors in
the master portfolios for which Morgan provides similar services, and
J.P. Morgan Series Trust. For the fiscal year ended October 31, 1999, the
fee for these services amounted to $9,317.
In addition, J.P. Morgan has agreed to reimburse the fund to the extent
necessary to maintain the total operating expenses of the fund, including
the expenses allocated to the fund from the portfolio, at no more than
0.60% of the average daily net assets of the fund through February 28,
2001. Prior to March 1, 1999, the percentage was 0.50%. The reimbursement
arrangement can be changed or terminated at any time after February 28,
2001 at the option of J.P. Morgan. For the fiscal year ended October 31,
1999, J.P. Morgan has agreed to reimburse the fund $83,986 for expenses
under this agreement.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance services to fund shareholders. The agreement provides for the
fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.25% of the average daily net assets of
the fund. For the fiscal year ended October 31, 1999, the fee for these
services amounted to $89,853.
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 SHORT TERM 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
$736 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 $100.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the fund were as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
------------------------- -------------------------
<S> <C> <C>
Shares sold...................................... 2,597,503 2,431,289
Reinvestment of dividends and distributions...... 169,686 99,785
Shares redeemed.................................. (1,874,614) (899,171)
------------------------ ------------------------
Net Increase..................................... 892,575 1,631,903
======================== ========================
</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 28, 1998, with unaffiliated lenders. Additionally, since all
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 extended the Agreement and will
continue its participation therein for an additional 364 days until May 23,
2000. The maximum borrowing under the new Agreement is $150,000,000. The purpose
of the Agreement is to provide another alternative for settling large fund
shareholder redemptions. Interest on any such borrowings outstanding will
approximate market rates. The funds pay a commitment fee at an annual rate of
0.085% (0.065% prior to May 26, 1999) on the unused portion of the committed
amount. This is allocated to the funds in accordance with procedures established
by their respective trustees. There were no outstanding borrowings to the
Agreement as of October 31, 1999.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Short Term 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 Short Term Bond Fund (one of the series constituting part of the
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 Short Term Bond Portfolio
Annual Report October 31, 1999
(The following pages should be read in conjunction
with J.P. Morgan Short Term Bond Fund
Annual Financial Statements)
16
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (29.9%)
FINANCIAL SERVICES (29.9%)
$ 3,000,000 Advanta Mortgage Loan Trust, Sequential Payer,
Series 1997-4, Class A4, 6.660% due 03/25/22... Aaa/AAA $ 2,942,917
2,500,000 Americredit Automobile Receivables Trust,
Sequential Payer, Series 1999-B, Class A4,
5.960% due 03/12/06............................ Aaa/AAA 2,434,375
4,000,000 AT&T Universal Card Master Trust, Series 1995-2,
Class A, 5.950% due 10/17/02................... Aaa/AAA 3,987,480
161,828 Bear Stearns Structured Securities, Inc., REMIC:
Sequential Payer, Series 1997-2, Class 1A1,
(144A), 7.000% due 08/25/36.................... Aaa/NR 161,373
10,000,000 Capital Auto Receivables Asset Trust, Sequential
Payer, Series 1999-2, Class A5, 6.450% due
01/15/05....................................... Aaa/NR 9,953,125
10,000,000 Chase Credit Card Master Trust, Series 1997-2,
Class A, 6.300% due 04/15/03................... Aaa/AAA 10,003,100
2,480,269 Chase Manhattan Bank - First Union National,
Sequential Payer, Series 1999-1, Class A1,
7.134% due 07/15/07............................ NR/AAA 2,486,470
2,000,000 CIT RV Trust, Series 1999-A, 7.210% due
11/15/19....................................... Baa3/BBB 1,926,875
2,750,000 Comed Transitional Funding Trust, Sequential
Payer, Series 1998-1, Class A5, 5.440% due
03/25/07....................................... Aaa/AAA 2,593,387
894,489 Commercial Mortgage Acceptance Corp., Sequential
Payer, Series 1997-ML1, Class A1, 6.500% due
11/15/04....................................... Aaa/AAA 877,857
8,000,000 Distribution Financial Services Trust, Sequential
Payer, Series 1999-3, Class A4, 6.650% due
03/15/11....................................... AAA/Aaa 7,975,000
7,412,186 First Union - Lehman Brothers - Bank of America,
REMIC: Sequential Payer, Series 1998-C2, Class
A1, 6.280% due 06/18/07........................ Aaa/AAA 7,199,086
5,000,000 First USA Credit Card Master Trust, Series
1994-7, Class B, 5.838% due 06/17/02........... Aa3/A+ 5,000,000
3,500,000 First USA Credit Card Master Trust, Series
1999-4, Class C, 6.059% due 01/19/05........... NR/BBB 3,467,187
3,421,789 Green Tree Financial Corp., Sequential Payer,
Series 1996-7, Class A4, 6.800% due 10/15/27... Aaa/AAA 3,423,911
4,900,000 Green Tree Financial Corp., Sequential Payer,
Series 1998-2, Class A4, 6.080% due 07/01/09... Aaa/AAA 4,881,625
436,381 Green Tree Recreational Equipment & Consumer
Trust, Sequential Payer, Series 1997-C, Class
A1, 6.490% due 02/15/18........................ NR/AAA 433,260
5,000,000 MBNA Master Credit Card Trust, Series 1996-K,
Class A, 5.536% due 03/15/06(v)................ Aaa/AAA 4,987,500
2,500,000 MBNA Master Credit Card Trust, Series 1996-L,
Class B, 5.693% due 11/15/01(v)................ A2/A+ 2,498,425
156,028 Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, (144A), 7.878% due 06/15/21 (v)............. Ba2/NR 142,644
5,000,000 Metris Master Trust, Series 1996-1, Class B,
6.800% due 02/20/02............................ A2/A 5,001,550
1,000,000 Morgan Stanley Capital I, Sequential Payer,
Series 1997, Class A1B, 6.440% due 11/15/02.... Aaa/NR 997,812
2,530,000 Newcourt Equipment Trust Securities, Sequential
Payer, Series 1999-1, Class A2, 6.310% due
08/20/01....................................... Aaa/AAA 2,525,256
5,000,000 Peco Energy Transition Trust, Series 1999-A,
Class A5, 5.260% due 03/01/09 (v).............. Aaa/AAA 4,951,550
4,717,157 Providian Home Equity Loan Trust, Series 1999-1,
Class A, 5.699% due 06/25/25(v)................ Aaa/AAA 4,708,289
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE SHORT TERM BOND 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)
$ 1,007,555 Residential Funding Mortgage Securities I, REMIC:
Sequential Payer, Series 1998-S7, Class A1,
6.500% due 03/25/13............................ NR/AAA $ 983,303
7,000,000 Sears Credit Account Master Trust, Series 1995-5,
Class A , 6.050% due 01/15/08.................. Aaa/AAA 6,864,340
4,000,000 Sears Credit Account Master Trust, Series 1999-1,
Class A, 5.650% due 03/17/09................... Aaa/AAA 3,770,000
4,800,000 Sears Credit Account Master Trust, Series 1999-2,
Class A, 6.350% due 02/15/07................... Aaa/AAA 4,766,250
856,731 UCFC Home Equity Loan, Sequential Payer,
Series1997-A1, Class A3, 6.975% due 04/15/16... Aaa/AAA 855,810
5,000,000 WFS Financial Owner Trust, Sequential Payer,
Series 1999-B, Class A3, 6.320% due 10/20/03... Aaa/AAA 4,957,812
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$118,563,000).............................. 117,757,569
------------
CORPORATE OBLIGATIONS (31.7%)
AEROSPACE (0.2%)
1,000,000 Lockheed Martin Corp., 7.450% due 06/15/04....... Baa3/BBB- 1,002,130
------------
BANKING (8.4%)
1,250,000 Banesto Delaware, Inc., 8.250% due 07/28/02...... A2/NR 1,278,012
2,500,000 Bank One Corp., 6.875% due 08/01/06.............. Aa3/A+ 2,457,087
1,000,000 BankAmerica Corp., 8.375% due 03/15/02........... Aa3/A 1,034,350
10,500,000 Chase Manhattan Corp., MTN, Series C, 5.730% due
11/24/00 (v)................................... Aa3/A+ 10,571,925
5,000,000 Comerica Bank, 5.410% due 06/12/00 (v)........... A1/A 4,996,797
1,250,000 First Chicago NBD Corp., 8.875% due 03/15/02..... A1/A 1,309,162
5,000,000 Fleet National Bank, 5.438% due 02/01/02......... A1/A+ 4,990,250
500,000 National Westminster Bank, 9.375% due 11/15/03... Aa3/AA- 538,975
1,000,000 Nationsbank Corp., Series E, MTN, 5.750% due
01/25/01....................................... Aa2/A+ 993,550
5,000,000 U.S. National Bank Association, 5.478% due
07/18/01....................................... Aa3/A+ 4,987,600
------------
33,157,708
------------
CHEMICALS (0.2%)
1,000,000 Cytec Industries, Inc., 6.500% due 03/15/03...... Baa2/BBB 948,870
------------
COMMERCIAL SERVICES (0.8%)
3,000,000 Cendant Corp., 7.750% due 12/01/03............... Baa1/BBB 2,979,540
------------
ELECTRIC (0.2%)
756,098 Niagara Mohawk Power Corp., Series B, 7.000% due
10/01/00....................................... Baa3/BBB- 758,230
------------
ENTERTAINMENT, LEISURE & MEDIA (0.4%)
1,500,000 News America Holdings, Inc., 8.625% due
02/01/03....................................... Baa3/BBB- 1,557,960
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE SHORT TERM BOND 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 (15.3%)
$ 5,000,000 Associates Corp. N.A., 5.500% due 02/15/04....... Aa3/AA- $ 4,753,100
5,000,000 Associates Corp. N.A., 5.613% due 06/14/01(v).... Aa3/AA- 4,999,783
610,000 Associates Corp. N.A., 5.960% due 05/15/37....... Aa3/AA- 609,884
5,000,000 AT&T Capital Corp., Series F, MTN, 6.963% due
06/14/00 (v)................................... A1/BBB 5,029,500
1,500,000 Beneficial Corp., MTN, 8.200% due 03/15/02....... A2/A 1,547,820
1,000,000 Beneficial Corp., Series H, MTN, 6.710% due
12/15/03....................................... A2/A 991,860
1,500,000 Case Credit Corp., Series B, MTN, 6.240% due
11/06/00....................................... Baa1/BBB+ 1,498,260
1,000,000 Chrysler Financial Co., LLC, Series Q, MTN,
6.610% due 06/16/00............................ A1/A+ 1,002,440
2,000,000 CIT Group Holdings, MTN, 6.500% due 06/14/02..... A1/A+ 1,986,260
2,000,000 Enterprise Rent-a-Car USA Finance Co., (144A),
6.375% due 05/15/03............................ Baa2/BBB+ 1,942,240
5,000,000 ERP Operating Ltd. Partnership, 6.231% due
08/21/03 (v)................................... A3/BBB+ 4,997,500
5,000,000 Finova Capital Corp., Series D, MTN, 5.633% due
08/14/01 (v)................................... Baa1/A- 5,004,050
2,500,000 Ford Motor Credit Co., 6.446% due 07/16/02 (v)... A1/A 2,513,425
4,500,000 Ford Motor Credit Co., MTN, 5.663% due 03/19/02
(v)............................................ A1/A 4,506,480
1,000,000 General Motors Acceptance Corp., MTN, 5.800% due
02/23/01....................................... A2/A 990,570
5,000,000 Greyhound Financial Corp., 7.250% due 04/01/01... Baa1/A- 5,023,950
500,000 GS Escrow Corp., 7.000% due 08/01/03............. Ba1/BB+ 478,330
1,000,000 Heller Financial, Inc., Series I, MTN, 5.480% due
02/05/01....................................... A3/A- 986,210
500,000 Heller Financial, Inc., Series I, MTN, 6.500% due
07/22/02....................................... A3/A- 493,595
800,000 Homeside Lending, Inc., MTN, 6.875% due
06/30/02....................................... A1/A+ 796,904
3,000,000 Household Finance Corp., MTN, 5.623% due
12/01/00....................................... A2/A 3,007,620
2,500,000 Household Finance Corp., Series E, MTN, 5.820%
due 06/17/05 (v)............................... A2/A 2,494,525
1,000,000 Sears Roebuck Acceptance Corp., Series 3, MTN,
6.860% due 10/02/01............................ A2/A- 999,270
1,000,000 Security Pacific Corp, Series I, MTN, 6.000% due
05/01/00....................................... Aa2/A+ 999,090
2,500,000 TXU Eastern Funding, (144A), 6.150% due
05/15/02....................................... Baa1/BBB+ 2,462,950
------------
60,115,616
------------
FOREST PRODUCTS & PAPER (0.4%)
1,375,000 Georgia-Pacific Corp., 9.950% due 06/15/02....... Baa2/BBB- 1,468,170
------------
GAS-PIPELINES (0.5%)
1,000,000 Enron Corp., 6.500% due 08/01/02................. Baa2/BBB+ 986,280
1,150,000 K N Energy, Inc., 6.300% due 03/01/01............ Baa2/BBB- 1,136,292
------------
2,122,572
------------
HEALTH & PERSONAL CARE (0.1%)
500,000 Playtex Family Products Corp., 9.000% due
12/15/03....................................... B2/B 488,750
------------
METALS & MINING (0.3%)
1,150,000 Ryerson Tull, Inc., 8.500% due 07/15/01.......... Baa3/BBB 1,138,500
------------
OIL-PRODUCTION (0.2%)
1,000,000 Williams Companies, Inc., 6.125% due 02/15/02.... Baa2/BBB- 983,310
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE SHORT TERM BOND 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>
OIL-SERVICES (0.3%)
$ 500,000 Occidental Petroleum Corp., 6.750% due
11/15/02....................................... Baa3/BBB $ 494,130
696,580 Oil Purchase Co., (144A), 7.100% due 04/30/02.... Ba2/BBB- 651,302
------------
1,145,432
------------
PACKAGING & CONTAINERS (0.3%)
500,000 Stone Container Corp., 9.875% due 02/01/01....... B2/B 501,250
500,000 Stone Container Corp., 12.250% due 04/01/02
(v)............................................ B3/B- 501,250
------------
1,002,500
------------
RAILROADS (1.9%)
5,000,000 CSX Corp., MTN, Series C, 5.790% due 06/15/00
(v)............................................ Baa2/BBB 5,006,100
2,500,000 Norfolk Southern Corp., 6.875% due 05/01/01...... Baa1/BBB+ 2,499,850
------------
7,505,950
------------
TELECOMMUNICATIONS (2.2%)
2,500,000 MCI Worldcom, Inc., 6.125% due 08/15/01.......... A3/A- 2,487,975
6,000,000 MCI Worldcom, Inc., (144A), 5.645% due 08/17/00
(v)............................................ A3/A- 6,004,680
------------
8,492,655
------------
TOTAL CORPORATE OBLIGATIONS (COST
$125,807,557).............................. 124,867,893
------------
FOREIGN CORPORATE OBLIGATIONS (2.8%)
CANADA (1.1%)
TRANSPORT & SERVICES
4,500,000 Laidlaw, Inc., 8.750% due 01/01/00............... Baa3/BBB 4,508,640
------------
MEXICO (0.3%)
BANKING
1,000,000 Banco Nacional de Comercio Exterior SNC, Series
E, MTN, 8.000% due 04/14/00.................... Ba2/BB 1,002,500
------------
NETHERLANDS (0.5%)
FINANCIAL SERVICES
2,000,000 ICI Investments BV, Series E, MTN, 6.750% due
08/07/02....................................... Baa1/A- 1,972,000
------------
PANAMA (0.5%)
BANKING
1,000,000 Banco Latinoamericano de Exportaciones, S.A.,
(144A), 6.550% due 04/15/03.................... Baa1/BBB 946,930
1,000,000 Banco Latinoamericano de Exportaciones, S.A.,
Series 107, (144A), 6.640% due 09/30/02........ Baa1/BBB 963,480
------------
1,910,410
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE SHORT TERM BOND 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>
VENEZUELA (0.4%)
FINANCIAL SERVICES
$ 1,550,000 Corporacion Andina de Fomento, 7.375% due
07/21/00....................................... A3/A $ 1,540,064
------------
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$11,093,037)............................... 10,933,614
------------
FOREIGN GOVERNMENT OBLIGATIONS (0.3%)
CANADA (0.3%)
1,000,000 Province of Quebec, 7.500% due 07/15/02 (cost
$1,034,890).................................... A2/A+ 1,022,740
------------
PRIVATE PLACEMENT (1.5%)
FINANCIAL SERVICES (0.9%)
3,500,000 Newcourt Credit Group, Inc., Series A, 7.125% due
12/17/03....................................... A1/BBB 3,497,725
------------
MISCELLANEOUS (0.2%)
454,545 Allied Waste Industries, Inc., Term Loan B,
8.313% due 07/30/09 (v)........................ NR/NR 436,364
127,273 Allied Waste Industries, Inc., Term Loan C,
8.563% due 07/30/09 (v)........................ NR/NR 122,182
254,545 Allied Waste Industries, Inc., Term Loan C1,
8.563% due 09/07/30 (v)........................ NR/NR 244,364
90,909 Allied Waste Industries, Inc., Term Loan C2,
8.500% due 09/07/30 (v)........................ NR/NR 87,273
72,727 Allied Waste Industries, Inc., Term Loan C3,
8.313% due 09/07/30 (v)........................ NR/NR 69,818
------------
960,001
------------
TELECOMMUNICATION SERVICES (0.4%)
1,500,000 Charter Communications, 8.010% due 03/18/08
(v)............................................ NR/NR 1,490,625
------------
TOTAL PRIVATE PLACEMENT (COST $6,125,370).... 5,948,351
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (16.7%)
FEDERAL HOME LOAN MORTGAGE CORP. (1.3%)
389,961 REMIC: Sequential Payer, Series 1980, Class VA,
7.000% due 08/15/02............................ 392,399
2,446,773 REMIC: Sequential Payer, Series 2019, Class B,
6.500% due 07/15/16............................ 2,436,814
2,493,806 REMIC: Sequential Payer, Series 2061, Class VJ,
6.500% due 03/20/03............................ 2,458,719
------------
5,287,932
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (12.8%)
1,632,881 6.500% due 11/20/04.............................. 1,616,552
175,221 6.500% due 05/01/28.............................. 167,883
111,172 6.500% due 07/01/28.............................. 106,516
783,327 6.500% due 08/01/28.............................. 750,522
62,947 8.500% due 08/01/05.............................. 64,241
28,540,000 TBA, 6.500% due 10/01/29......................... 27,349,311
9,990,000 TBA, 7.500% due 10/01/29......................... 10,011,878
10,000,000 TBA, 8.000% due 10/01/29......................... 10,189,100
------------
50,256,003
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE SHORT TERM BOND 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 (2.6%)
$ 10,000,000 6.500% due 11/15/29.............................. $ 9,568,700
20,159 7.000% due 03/15/09.............................. 20,229
252,873 7.000% due 03/15/09.............................. 253,740
305,674 7.000% due 07/15/09.............................. 306,722
263,990 7.000% due 10/15/28.............................. 258,956
------------
10,408,347
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $65,838,385)......................... 65,952,282
------------
U.S. TREASURY OBLIGATIONS (10.6%)
U.S. TREASURY NOTES (10.6%)
400,000 5.250% due 05/15/04.............................. 388,688
350,000 5.880% due 02/15/00(s)........................... 350,602
40,625,000 6.250% due 02/28/02(s)........................... 40,973,969
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$41,735,122)............................... 41,713,259
------------
<CAPTION>
SHARES
- -------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.2%)
FINANCE (0.2%)
19,774 Equity Residential Properties Trust, Series A,
9.375%......................................... Baa1/BBB 473,340
10,000 TCI Communications Financing II, 10.000%......... A3/A 263,125
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$787,415).................................. 736,465
------------
<CAPTION>
PRINCIPAL
AMOUNT
- -------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (19.7%)
CERTIFICATE OF DEPOSIT-DOMESTIC (0.2%)
$ 1,000,000 Dresdner Bank NY, Series CD, 4.95% due
11/09/99....................................... 999,954
------------
COMMERCIAL PAPER-DOMESTIC (8.5%) (Y)
9,000,000 Case Credit Corp., 6.20% due 2/15/00............. 8,820,900
5,000,000 Case Credit Corp., 6.41% due 4/04/00............. 4,858,500
5,000,000 CSX Corp., 5.79% due 2/15/00..................... 4,902,500
2,500,000 MCI Worldcom, Inc., 5.384% due 2/08/00........... 2,500,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ------------- ------------------------------------------------- ------------
<C> <S> <C> <C>
COMMERCIAL PAPER-DOMESTIC (CONTINUED)
$ 5,000,000 MCI Worldcom, Inc., 5.81% due 1/27/00............ $ 4,921,500
5,000,000 Texas Utilities Co., 5.80% due 2/15/00........... 4,902,500
2,500,000 Williams Holding, Inc., 5.63% due 1/25/00........ 2,459,500
------------
33,365,400
------------
OTHER INVESTMENT COMPANIES (0.0%)
291 SSGA Money Market Fund........................... 291
------------
REPURCHASE AGREEMENT (11.0%)
14,485,000 Goldman Sachs Repurchase Agreement, 5.180% dated
10/29/99 due 11/01/99, proceeds $14,491,253,
(collateralized by $14,396,000 U.S. Treasury
Note, 5.750% due 11/15/00, valued at
$14,775,014)................................... 14,485,000
14,484,000 State Street Bank and Trust Repurchase Agreement,
5.180% dated 10/29/99 due 11/01/99, proceeds
$14,490,252, (collateralized by $14,520,000
U.S. Treasury Note, 5.750% due 06/30/01, valued
at $14,774,100)................................ 14,484,000
14,485,000 Westdeutsche Landesbank Repurchase Agreement,
5.210% dated 10/29/99 due 11/01/99, proceeds
$14,491,289, (collateralized by $14,536,000
U.S. Treasury Note, 5.750% due 11/30/02, valued
at $14,774,851)................................ 14,485,000
------------
43,454,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$77,877,885)............................... 77,819,645
------------
TOTAL INVESTMENTS (COST $448,862,661) (113.4%)................. 446,751,818
LIABILITIES IN EXCESS OF OTHER ASSETS (-13.4%)................. (52,930,083)
------------
NET ASSETS (100.0%)............................................ $393,821,735
============
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $448,869,969 for federal income
tax purposes at October 31, 1999, the aggregate gross unrealized appreciation
and depreciation was $423,485 and $2,541,636, respectively, resulting in net
unrealized depreciation of $2,118,151.
(s) Security is fully or partially segregated with custodian as collateral for
future contracts or with broker as initial margin for futures contracts
$41,324,571 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.
Abbreviations used in the schedule of investment are as follows:
144A - Securities restricted for resale to Qualified Institutional Buyers.
CSTR - Collateral Strip Rate.
MTN - Medium Term Note.
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.
23
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $448,862,661) $446,751,818
Interest Receivable 3,181,213
Unrealized Appreciation of Forward Foreign
Currency Contracts 1,171,586
Receivable for Expense Reimbursement 14,026
Prepaid Trustees' Fees 2,252
Prepaid Expenses and Other Assets 1,407
------------
Total Assets 451,122,302
------------
LIABILITIES
Payable for Investments Purchased 56,105,645
Unrealized Depreciation of Forward Foreign
Currency Contracts 915,745
Variation Margin Payable 118,318
Advisory Fee Payable 81,698
Custody Fee Payable 22,715
Administrative Services Fee Payable 8,225
Administration Fee Payable 361
Fund Services Fee Payable 220
Accrued Expenses 47,640
------------
Total Liabilities 57,300,567
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $393,821,735
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $18,603,733
Dividend Income 71,345
-----------
Investment Income 18,675,078
EXPENSES
Advisory Fee $ 807,631
Custodian Fees and Expenses 146,300
Administrative Services Fee 83,666
Professional Fees and Expenses 38,348
Printing Expenses 8,215
Fund Services Fee 6,343
Administration Fee 4,065
Trustees' Fees and Expenses 1,154
Miscellaneous 246
----------
Total Expenses 1,095,968
Less: Reimbursement of Expenses (171,744)
----------
NET EXPENSES 924,224
-----------
NET INVESTMENT INCOME 17,750,854
NET REALIZED GAIN (LOSS) ON
Investment Transactions (6,905,026)
Futures Contracts 2,058,956
Foreign Currency Contracts and Transactions 1,055,060
----------
Net Realized Loss (3,791,010)
NET CHANGE IN UNREALIZED DEPRECIATION OF
Investments (3,461,606)
Futures Contracts (93,207)
Foreign Currency Contracts and Translations (375,058)
----------
Net Change in Unrealized Depreciation (3,929,871)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $10,029,973
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE 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 $ 17,750,854 $ 7,527,438
Net Realized Gain (Loss) on Investments, Futures
and Foreign Currency Contracts and Transactions (3,791,010) 1,079,966
Net Change in Unrealized Appreciation
(Depreciation) of Investments, Futures and
Foreign Currency Contracts and Translations (3,929,871) 1,956,909
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 10,029,973 10,564,313
--------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 312,753,504 263,906,334
Withdrawals (193,444,721) (51,939,489)
--------------- ---------------
Net Increase from Investors' Transactions 119,308,783 211,966,845
--------------- ---------------
Total Increase in Net Assets 129,338,756 222,531,158
NET ASSETS
Beginning of Fiscal Year 264,482,979 41,951,821
--------------- ---------------
End of Fiscal Year $ 393,821,735 $ 264,482,979
=============== ===============
</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 0.29% 0.25% 0.25% 0.38% 0.42%
Net Investment Income 5.49% 5.84% 6.17% 5.65% 6.11%
Expenses without Reimbursement 0.34% 0.38% 0.55% 0.61% 0.46%
Portfolio Turnover 398% 381% 219% 191% 177%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Short Term Bond Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended, as a no-load, 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 commenced operations on
July 8, 1993. The portfolio's investment objective is to provide a high total
return, consistent with low volatility of principal. The Declaration of Trust
permits the trustees to issue an unlimited number of beneficial interests in the
portfolio.
Investments in emerging and international markets may involve certain
considerations and risks not typically associated with investments in the United
States. Future economic and political developments in emerging market and
foreign countries could adversely affect the liquidity or value, or both, of
such securities in which the portfolio is invested. The ability of the issuers
of debt, asset-backed and mortgage backed 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 repayments including pre-payments.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) The 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 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 price 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 portfolio'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.
The portfolio's custodian or designated subcustodians, as the case may be
under tri-party repurchase agreements, takes possession of the collateral
pledged for investments in repurchase agreements on
27
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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 and to enhance returns. A
forward contract is an agreement to buy or sell currencies of different
countries on a specified future date at a specified rate. Risks associated
with such contracts include the movement in the value of the foreign
currency relative to the U.S. dollar and the ability of the counterparty
to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily at the current foreign exchange
rates, and the change in the market value is recorded by the portfolio as
unrealized appreciation or depreciation of forward foreign currency
contract translations.
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
value of the contract. Such receipts or payments are known as "variation
margin" and are recorded by the portfolio as unrealized gains or losses.
When the contract is closed, the portfolio records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time when it was closed. The portfolio
invests in futures contracts for the purpose of hedging its existing
portfolio securities, or securities the portfolio intends to purchase,
28
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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 0.25% of the
portfolio's average daily net assets. For the fiscal year ended
October 31, 1999, such fees amounted to $807,631.
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 $4,065.
c) The portfolio 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, 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
29
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
average daily net assets in excess of $7 billion less the complex-wide
fees payable to FDI. The portion of this charge payable by the portfolio
is determined by the proportionate share its net assets bear to the net
assets of the master portfolios, other investors in the master portfolios
for which Morgan provides similar services, and J.P. Morgan Series Trust.
For the fiscal year ended October 30, 1999, the fee for these services
amounted to $83,666.
In addition, J.P. Morgan has agreed to reimburse the portfolio to the
extent necessary to maintain the total operating expenses of the portfolio
at no more than 0.30% of the average daily net assets of the portfolio.
Prior to March 1, 1999, the percentage was .25%. This reimbursement
arrangement can be changed or terminated at any time at the option of
J.P. Morgan. For the fiscal year ended October 31, 1999, J.P. Morgan has
agreed to reimburse the portfolio $171,744 for expenses under this
agreement.
d) The portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the trustees in exercising their overall supervisory
responsibilities for the portfolio's affairs. The trustees of the
portfolio represent all the existing shareholders of Group. The
portfolio's allocated portion of Group's costs in performing its services
amounted to $6,343 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, the J.P. Morgan Institutional Funds,
the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements represents the portfolio's
allocated portion of the total fees and expenses. The portfolio's Chairman
and Chief Executive Officer also serves as Chairman of Group and receives
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $1,200.
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........... $ 952,429,056 $ 966,977,290
Corporate and Collateralized Obligations......... 368,673,619 259,082,540
-------------- --------------
$1,321,102,675 $1,226,059,830
============== ==============
</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 17,377,281, expiring 11/02/99............... $18,472,050 $18,269,394 $ (202,656)
Euro 23,700,000, expiring 11/10/99............... 25,643,400 24,930,311 (713,089)
</TABLE>
30
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
SETTLEMENT VALUE AT APPRECIATION/
SALES CONTRACTS VALUE 10/31/99 (DEPRECIATION)
- --------------- ----------- ----------- --------------
<S> <C> <C> <C>
Euro 17,377,281, expiring 11/02/99............... $18,674,803 $18,269,394 $ 405,409
Euro 23,700,000, expiring 11/10/99............... 25,696,488 24,930,311 766,177
-------------
Net Unrealized Appreciation on Forward Foreign
Currency Contracts.............................. $ 255,841
=============
</TABLE>
At October 31, 1999, the portfolio had open futures contracts as follows:
<TABLE>
<CAPTION>
MARKET VALUE
CONTRACTS SHORT DEPRECIATION OF CONTRACTS
--------------- ------------ ------------
<S> <C> <C> <C>
U.S. Five Year Treasury Note, expiring December
1999............................................ 170 $ 22,145 $18,352,032
U.S. Ten Year Treasury Note, expiring December
1999............................................ 89 33,776 9,764,969
U.S. Ten Year Treasury Note, expiring March
2000............................................ 33 15,831 3,231,937
-------------- ----------- -----------
Totals........................................... 292 $ 71,752 $31,348,938
============== =========== ===========
</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.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Short Term Bond 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 Short Term Bond Portfolio (the
"portfolio") at October 31, 1999, and 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
32
<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
TAX EXEMPT BOND FUND
EMERGING MARKETS DEBT 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.
IM0792-M
J.P. MORGAN
SHORT TERM
BOND FUND
ANNUAL REPORT
OCTOBER 31, 1999
