[front cover}
J.P. MORGAN
BOND FUND
[jp morgan logo]
Annual Report
October 31, 2000
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
ASSET BACKED SECURITIES-6.7%
FINANCIAL SERVICES - 6.7%
$10,000,000 Citibank Credit Card Master Trust I,
Series 1998-9, Class A, 5.30%, 1/9/06 $ 9,609,300
15,000,000 Conseco Finance Securitizations Corp.,
Series 2000-5, Class A3 SEQ, 7.21%, 2/1/32 15,000,000
6,600,000 Daimler Chrysler Auto Trust, Series 2000
C, Class A2 SEQ, 6.81%, 7/6/03 6,605,940
21,000,000 Daimler-Benz Vehicle Trust, Series 1998 A,
Class A4 SEQ, 5.22%, 12/22/03 20,625,780
12,000,000 Discover Card Master Trust I,
Series 1998-4, Class A, 5.75%, 10/16/03 11,925,000
5,000,000 First USA Credit Card Master Trust, Series
1999-1, Class C, 6.42%, 10/19/06 4,846,875
5,000,000 Ford Credit Auto Owner Trust, Series 1998
C, Class D, 7.70%, 1/15/04 5,013,280
5,000,000 Ford Credit Auto Owner Trust, Series 1999
A, Class D, 8.00%, 6/15/04 5,035,940
11,000,000 Ford Credit Auto Owner Trust, Series 2000
D, Class A2 SEQ, 7.06%, 4/15/03 11,013,750
15,486,192 Green Tree Financial Corporation,
Series 1993-3, Class B, 6.85%, 10/15/18 13,168,064
10,000,000 Green Tree Financial Corporation,
Series 1999-5, Class B1, 9.20%, 4/1/31 9,437,500
19,855,000 Sears Credit Account Master Trust,
Series 1999-2, Class A, 6.35%, 2/16/07 19,712,243
------------------
TOTAL ASSET BACKED SECURITIES 131,993,672
------------------
(Cost $132,976,489)
COLLATERALIZED MORTGAGE OBLIGATIONS - 13.9%
FINANCIAL SERVICES - 13.9%
26,549,732 Chase Commercial Mortgage Securities
Corp., Series 1998-2, Class A2 SEQ,
6.39%, 11/18/08 25,500,195
20,000,000 Chase Manhattan Bank-First Union
National Bank, Series 1999-1, Class A2 SEQ,
7.44%, 7/15/09
20,362,500
4,900,000 COMM, Series 2000 FL2A, Class H-NW,
Floater, 7.97%, 11/15/00, resets monthly
off the 1-month LIBOR plus 1.35% with
no caps 4,900,000
10,000,000 Commercial Mortgage Acceptance Corp.,
Series 1998-C2, Class D, 6.75%, 11/15/09 9,400,000
42,660,000 DLJ Commercial Mortgage Corporation,
Series 2000-CF1, Class A1B SEQ,
7.62%, 5/10/10
43,673,175
529,704 FHLMC, Series 1980, Class C SEQ,
6.85%, 10/15/21
527,717
28,873,164 First Nationwide Trust, Series 1999-4,
Class 3PA1 SEQ, 6.50%, 10/19/29 27,122,584
20,000,000 First Union Commercial Mortgage Trust,
Series 1999-C1, Class A2 SEQ,
6.07%, 10/15/08 18,812,500
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
$ 8,895,000 GMAC Commercial Mortgage Securities
Inc., Series 1997-C1, Class A3 SEQ,
6.87%, 8/15/07 $ 8,786,597
5,000,000 GS Mortgage, Series 2000 F, Floater,
8.37%, 11/15/00
5,000,000
6,950,000 Heller Financial Commercial Mortgage
Asset, Series 1999-PH1, Class A2 SEQ,
6.85%, 5/15/31
6,829,459
42,943,000 LB-UBS Commerical Mortgage Trust,
Series 2000-C3, Class A2 SEQ,
7.95%, 1/15/10
44,593,643
7,830,000 Morgan Stanley Capital I,
Series 1998-XL2, Class A2 SEQ,
6.17%, 10/3/08
7,393,235
30,000,000 Mortgage Capital Funding, Inc.,
Series 1998-MC2, Class A2 SEQ,
6.42%, 5/18/08
28,800,000
12,500,000 PNC Mortgage Acceptance Corp.,
Series 2000-C1, Class A2 SEQ,
7.61%, 2/15/10
12,828,125
6,245,000 PNC Mortgage Acceptance Corp.,
Series 2000-C2, Class A2 SEQ,
7.30%, 9/12/10
6,269,393
2,253,150 SACO I Inc. Series 1997-2,
Class 1A5 SEQ, 7.00%, 8/25/36 2,083,812
801,712 Vendee Mortgage Trust, Series 1997-1,
Class 2C SEQ, 7.50%, 9/15/17 800,959
------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 273,683,894
------------------
(Cost $271,173,312)
CORPORATE BONDS-10.5%
BANKS - 1.1%
2,010,000 Bank One Capital III, 8.75%, 9/1/30 1,954,524
8,500,000 Capital One Bank, 8.25%, 6/15/05 8,545,985
9,975,000 First Union National Bank, 7.80%, 8/18/10 9,939,689
------------------
20,440,198
------------------
CHEMICALS - 0.3%
1,000,000 Cytec Industries, Inc., 6.85%, 5/11/05 931,120
5,110,000 Rohm & Haas Co., 7.85%, 7/15/29 4,986,338
------------------
5,917,458
------------------
DEFENSE/AEROSPACE - 0.5%
8,530,000 Lockheed Martin Corp., 8.20%, 12/1/09 8,878,621
------------------
ELECTRICAL UTILITY - 0.6%
506,000 Cogentrix Energy Inc., 8.75%, 10/15/08 507,265
4,025,000 Dominion Resources Inc., Series 2010-A,
8.13%, 6/15/10
4,150,017
7,940,000 Dominion Resources Inc./VA, Series 2000 B,
7.63%, 7/15/05
8,027,236
------------------
12,684,518
------------------
ENERGY RESERVES & PRODUCTION(z)
500,000 Lasmo (USA) Inc., 6.75%, 12/15/07 476,620
------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
1
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES - 3.6%
$ 5,493,316 500 Grant St. Association, 144A,
Series 1999 A, 6.46%, 12/1/08 $ 5,256,554
3,400,000 CitiFinancial, 8.70%, 6/15/10 3,681,010
3,490,000 Comdisco, Inc., 6.38%, 11/30/01 2,928,110
4,205,000 Comdisco Inc., 9.50%, 8/15/03 3,153,750
5,000,000 ERAC USA Finance Co., 144A, 6.38%, 5/15/03 4,794,900
135,000 Ford Motor Credit Co., 7.25%, 1/15/03 135,342
1,010,000 Ford Motor Credit Co., 7.38%, 10/28/09 980,660
6,500,000 Household Finance Corp., 8.00%, 5/9/05 6,647,095
2,200,000 Keycorp Institutional Capital, Series 1996 B,
8.25%, 12/15/26
2,000,944
4,475,000 McKesson Financial of Canada, 144A,
6.55%, 11/1/02
4,291,659
6,000,000 Newcourt Credit Group Inc., 6.88%, 2/16/05 5,796,480
8,835,000 NGC Corp. Capital Trust, Series 1997 B,
8.32%, 6/1/27
7,775,772
1,834,912 Oil Purchase Company, 144A, 7.10%, 4/30/02 1,752,341
1,765,000 Provident Financing Trust I, 7.41%, 3/15/38 1,303,523
17,500,000 Washington Mutual Financial Corp.,
8.25%, 6/15/05
18,058,600
------------------
68,556,740
------------------
FOOD & BEVERAGE - 0.1%
1,410,000 Smithfield Foods Inc., 7.63%, 2/15/08 1,279,575
------------------
FOREST PRODUCTS & PAPER - 0.2%
5,000,000 Champion International Corp., 7.10%, 9/1/05 4,899,250
------------------
GAS & WATER UTILITIES - 0.3%
6,970,000 United Utilities Plc, 6.88%, 8/15/28 5,544,077
------------------
MEDIA - 0.6%
3,125,000 Adelphia Communications Corp.,
9.38%, 11/15/09 2,664,063
5,540,000 Clear Channel Communications, 7.88%, 6/15/05 5,583,433
2,500,000 Fox Sports Networks LLC, 8.88%, 8/15/07 2,512,500
1,900,000 Lamar Media Corp., 8.63%, 9/15/07 1,852,500
------------------
12,612,496
------------------
MEDICAL PROVIDERS & SERVICES(Z)
2,000,000 Mariner Post-Acute Network Inc., Series B,
9.50%, 4/1/06(d)(+)
10,000
------------------
MOTOR VEHICLES & PARTS - 0.1%
2,500,000 DaimlerChrysler NA Holding Corp.,
6.90%, 9/1/04
2,466,600
------------------
MULTI-INDUSTRY - 0.2%
5,000,000 Cendant Corporation, 7.75%, 12/1/03 4,893,300
------------------
OIL SERVICES - 1.2%
15,000,000 Enron Corp., 144A, 7.11%, 12/12/00,
resets quarterly off the 3-month LIBOR
plus
0.45% with no caps
14,992,500
1,497,000 Express Pipeline LP, 144A, Series 1998 B,
7.39%, 12/31/17
1,278,064
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
$ 4,000,000 Phillips Petroleum Co., 8.75%, 5/25/10 $ 4,362,560
350,000 Williams Cos. Inc., 6.20%, 8/1/02 344,442
------------------
20,977,566
------------------
RAILROADS - 0.3%
1,601,413 Burlington Northern Railroad Co.,
7.33%, 6/23/10 1,605,240
5,350,000 Canadian National Railway Co.,
7.00%, 3/15/04 5,286,710
------------------
6,891,950
------------------
REAL ESTATE INVESTMENT TRUST(z)
830,000 Felcor Lodging LP, 144A, 9.50%, 9/15/08 820,131
------------------
SEMICONDUCTOR - 0.1%
3,125,000 Charter Communications Holdings,
LLC/ Charter Communications Holdings
Capital Corp., 8.25%, 4/1/07 2,796,875
------------------
TELEPHONE - 1.0%
4,125,000 Global Crossing Holding Limited,
9.13%, 11/15/06 3,939,375
3,000,000 McLeodUSA Inc., 9.25%, 7/15/07 2,790,000
1,000,000 XO Communications Inc., 9.63%, 10/1/07 835,000
700,000 Qwest Capital Funding Inc., 6.88%, 7/15/28 614,936
10,000,000 Sprint Capital Corp., 5.88%, 5/1/04 9,518,100
2,000,000 Williams Communications Group,
10.70%, 10/1/07 1,720,000
500,000 WorldCom, Inc., 6.40%, 8/15/05 482,035
------------------
19,899,446
------------------
TRUCKING & SHIPPING & AIR FREIGHT - 0.3%
1,900,000 Atlantic Express, 10.75%, 2/1/04 1,634,000
4,681,987 FedEx Corp., Series 1999-1, Class C,
8.25%, 1/15/19 4,729,369
------------------
6,363,369
------------------
TOTAL CORPORATE BONDS 206,408,790
------------------
(Cost $216,432,996)
PREFERRED STOCKS - 0.2%
ENTERTAINMENT - 0.2%
150,000 AT&T Corp., 10.00%, 5/31/45 3,796,875
------------------
(Cost $4,087,500)
FOREIGN CORPORATE BONDS - 2.4%
BANKS - 0.2%
4,000,000 Barclays Bank Plc, 144A, 8.55%, 9/29/49 4,026,800
------------------
ELECTRICAL EQUIPMENT - 0.1%
1,785,000 Legrand S.A., 8.50%, 2/15/25 1,864,450
------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
2
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES - 0.5%
$ 7,220,000 HSBC Capital Funding LP, 144A,
10.18%, 12/29/49, resets quarterly off the
3-month LIBOR plus 4.98% with no caps $ 7,901,207
2,250,000 Montell Finance Co. B.V., 144A,
8.10%, 3/15/27 2,022,885
------------------
9,924,092
------------------
INFORMATION SERVICES - 0.4%
8,760,000 Marconi Corporation Plc, 8.38%, 9/15/30 8,353,799
------------------
TELEPHONE - 1.2%
10,000,000 Deutsche Telekom International Finance,
8.25%, 6/15/30 10,205,200
300,000 Microcell Telecommunications Inc.,
Series B, 11.99%, 6/1/06(y) 288,000
12,150,000 Telefonica Europe B.V., 8.25%, 9/15/30 12,441,357
------------------
22,934,557
------------------
TOTAL FOREIGN CORPORATE BONDS 47,103,698
------------------
(Cost $48,063,160)
MORTGAGE PASS THRU - 25.2%
1,032,790 FHLMC, 6.00%, 3/1/11 to 4/1/11 1,000,680
337 FHLMC, 12.50%, 8/1/14 379
58,465,854 FNMA, 6.00%, 12/1/28 to 2/1/29 54,836,488
11,406,862 FNMA, 6.50%, 1/1/28 to 9/1/29 10,966,121
3,178,859 FNMA, 7.00%, 7/1/28 to 10/1/29 3,115,249
166,863 FNMA, 7.50%, 5/1/30 166,659
1,899,247 FNMA, 8.00%, 8/1/22 to 6/1/27 1,924,476
8,010,000 FNMA, TBA, 6.50%, 11/1/30 7,697,129
71,310,000 FNMA, TBA, 7.00%, 11/1/15 70,864,314
107,234,000 FNMA, TBA, 7.00%, 9/1/29 105,056,078
157,605,000 FNMA, TBA, 7.50%, 12/1/30 157,210,989
51,325,080 GNMA, 6.50%, 6/15/28 to 12/15/28 49,554,364
193,732 GNMA, 7.00%, 12/15/08 194,521
8,479,978 GNMA, 7.50%, 1/15/27 to 2/15/27 8,516,441
218,242 GNMA, 8.50%, 5/15/27 223,955
62,710 GNMA, 9.00%, 12/15/19 65,512
28,460,000 GNMA, TBA, 7.00%, 11/1/30 28,051,030
------------------
TOTAL MORTGAGE PASS THRU 499,444,385
------------------
(Cost $497,587,636)
PRIVATE PLACEMENTS - 0.9%
CO-OP APARTMENTS - 0.9%
4,414,909 180 East End Avenue Note, secured by
first mortgage and agreement on co-op
apartment building in New York City,
6.88%, 1/1/29(f) 4,175,577
10,900,383 200 East 57th Street, secured by first
mortgage and agreement on co-op
apartment building in New York City,
6.50%, 1/1/14(f) 10,110,105
PRINCIPAL AMOUNT VALUE
--------------------------------------------------------------------------------
$ 3,239,184 81 Irving Place Note,
secured by first mortgage
and agreement on co-op apartment building
in New York City, 6.95%, 1/1/29(f) $ 3,070,974
------------------
TOTAL PRIVATE PLACEMENTS 17,356,656
------------------
(Cost $18,554,476)
SOVEREIGN GOVERNMENTS AND AGENCIES - 0.2%
4,700,000 Province of Quebec, 6.50%, 1/17/06 4,610,465
------------------
(Cost $4,751,612)
U.S. GOVERNMENT AGENCY SECURITIES - 7.7%
61,175,000 FHLMC, 6.88%, 9/15/10(s) 61,958,652
59,297,000 FNMA, 7.00%, 7/15/05(s) 60,418,306
29,271,000 FNMA, 7.13%, 6/15/10(s) 30,153,813
------------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES 152,530,771
------------------
(Cost $151,845,810)
U.S. TREASURY SECURITIES - 11.8%
38,155,000 U.S. Treasury STRIPS, PO, 6.47%, 11/15/15 15,604,250
70,195,000 U.S. Treasury Bonds, 8.88%, 2/15/19 92,251,673
4,150,000 U.S. Treasury Bonds, 8.00%, 11/15/21 5,129,151
40,743,000 U.S. Treasury Bonds, 6.75%, 8/15/26 44,855,598
7,005,000 U.S. Treasury Bonds, 5.25%, 2/15/29 6,375,671
330,000 U.S. Treasury Notes, 6.75%, 5/15/05(s) 342,118
14,950,000 U.S. Treasury Notes, 6.88%, 5/15/06(s) 15,664,760
50,965,000 U.S. Treasury Notes, 5.75%, 8/15/10(s) 50,917,093
------------------
TOTAL U.S. TREASURY SECURITIES 231,140,314
------------------
(Cost $223,074,002)
SHORT-TERM INVESTMENTS - 20.5%
COMMERCIAL PAPER - 4.1%
50,000,000 Morgan Stanley, 6.58%, 11/1/00(s) 49,990,861
30,719,000 Salomon Smith Barney 6.60%, 11/1/00(s) 30,713,368
------------------
80,704,229
------------------
INVESTMENT COMPANIES - 16.3%
320,833,615 J.P. Morgan Institutional Prime
Money Market Fund(s)* 320,833,615
------------------
U.S. TREASURY SECURITIES - 0.1%
$ 2,700,000 U.S. Treasury Notes, 5.63%, 11/30/00(s) 2,698,552
------------------
TOTAL SHORT-TERM INVESTMENTS 404,236,396
------------------
(Cost $404,252,425)
TOTAL INVESTMENT SECURITIES - 100.0% $1,972,305,916
===================
(Cost $1,972,799,418)
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
3
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO - SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
FUTURES CONTRACTS
<TABLE>
<CAPTION>
NET
UNREALIZED
EXPIRATION UNDERLYING FACE APPRECIATION
PURCHASED DATE AMOUNT AT VALUE (DEPRECIATION)
------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
420 U.S. Two-Year Treasury Note December 2000 $84,052,500 $(160,122)
353 U.S. Five-Year Treasury Note December 2000 35,542,688 334,510
------------------- ------------------
$119,595,188 $174,388
=================== ==================
NET
UNREALIZED
EXPIRATION UNDERLYING FACE APPRECIATION
SOLD DATE AMOUNT AT VALUE (DEPRECIATION)
------------------------------------------------------------------------------------------
1,115 U.S. Ten-Year Treasury Note December 2000 $112,283,990 $(746,864)
133 U.S. Five-Year Treasury Note December 2000 13,279,219 25,956
------------------- ------------------
$125,563,209 $(720,908)
=================== ==================
</TABLE>
PERCENT OF FOREIGN BONDS
<TABLE>
<S> <C>
CANADA 0.2%
FRANCE 0.1%
GERMANY 0.5%
NETHERLANDS 0.8%
UNITED KINGDOM 1.0%
</TABLE>
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
LIBOR - London Interbank Offered Rate
PO - Principal only
resets - The frequency with which a security's coupon changes, based on current
market conditions or an underlying index.
SEQ - Sequential Payor
STRIPS - Separate Trading of Registered Interest and Principal of Securities.
TBA - Securities purchased (sold) 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.
144A - Securities restricted for resale to Qualified Institutional Buyers
(d) Defaulted security
(f) Illiquid and fair valued security. Approximately $17,356,656 or 0.9% of the
market value of the securities have been valued at fair value.
(s) Security is fully or partially segregated with custodian as collateral for
futures or with brokers as initial margin for futures contracts.
(y) Yield to maturity
(z) Category is less than 0.05% of total investment securities.
* Money Market Mutual Fund registered under the Investment Act of 1940,
as amended, and advised by J.P. Morgan Investment Management, Inc.
(+) Non-income producing security
The Accompanying Notes are an Integral Part of the Financial Statements.
4
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
OCTOBER 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $1,972,799,418) $1,972,305,916
Receivable for Investments Sold 215,449,468
Dividend and Interest Receivable 16,802,427
Variation Margin Receivable 297,047
Prepaid Trustees' Fees and Expenses 5,633
Prepaid and Other Assets 56,659
------------------
TOTAL ASSETS 2,204,917,150
------------------
LIABILITIES
Payable for Investments Purchased 581,887,694
Advisory Fee Payable 411,029
Due to Custodian 52,420
Administration Service Fee Payable 32,785
Fund Services Fee Payable 1,108
Accrued Expenses and Other Liabilities 123,828
------------------
TOTAL LIABILITIES 582,508,864
------------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,622,408,286
==================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
5
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
INCOME
Interest Income $84,404,356
Dividend Income (Net of Foreign
Withholding Tax of $2,250) 856,607
Dividend Income from Affiliated Investments
(includes reimbursement from
affiliate of $719,202) 20,927,976
------------------
Investment Income 106,188,939
------------------
EXPENSES
Advisory Fee 4,648,013
Administrative Services Fee 377,452
Custodian Fees and Expenses 265,117
Professional Fee 62,299
Fund Services Fee 24,445
Trustees' Fees and Expenses 17,961
Administration Fee 11,454
Printing Expenses 10,427
Insurance Expenses 3,710
------------------
Total Expenses 5,420,878
------------------
NET INVESTMENT INCOME 100,768,061
------------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON
Investment Transactions (33,777,183)
Futures Contracts 3,485,899
Foreign Currency Contracts and Transactions 9,635,475
------------------
Net Realized Loss (20,655,809)
------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON
Investment Transactions 24,016,731
Futures Contracts 109,831
Foreign Currency Contracts and Translations (876,484)
------------------
Net Change in Unrealized Appreciation 23,250,078
------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $103,362,330
==================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
6
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31
<TABLE>
<CAPTION>
INCREASE IN NET ASSETS
2000 1999
FROM OPERATIONS
<S> <C> <C>
Net Investment Income $ 100,768,061 $ 90,985,155
Net Realized Loss on Investments, Futures, and
Foreign Currency Contracts and Transactions (20,655,809) (40,014,602)
Net Change in Unrealized Appreciation
(Depreciation) of Investments,
Futures, and Foreign Currency Contracts
and Translations 23,250,078 (48,217,908)
------------------ --------------------
Net Increase in Net Assets Resulting from Operations 103,362,330 2,752,645
------------------ --------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 528,079,947 936,203,363
Withdrawals (607,155,670) (688,024,126)
------------------ --------------------
Net Increase (Decrease) from Transactions in
Investors' Beneficial Interest (79,075,723) 248,179,237
------------------ --------------------
Total Increase in Net Assets 24,286,607 250,931,882
------------------ --------------------
NET ASSETS
Beginning of Year 1,598,121,679 1,347,189,797
------------------ --------------------
End of Year $1,622,408,286 $1,598,121,679
================== ====================
</TABLE>
SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31
2000 1999 1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.35% 0.36% 0.36% 0.37% 0.37%
Net Investment Income 6.50% 6.05% 6.42% 6.70% 6.38%
Portfolio Turnover 531% 465% 115% 93% 186%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
7
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
OCTOBER 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--The U.S. Fixed Income Portfolio (the "Portfolio") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a no load, diversified, open-end management investment company which was
organized as a trust under the laws of the State of New York on January 29,
1993. The Portfolio's investment objective is to provide a high total return
consistent with moderate risk of capital. The Declaration of Trust permits the
trustees to issue an unlimited number of beneficial interests in the Portfolio.
The Portfolio commenced operations on July 12, 1993.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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.
SECURITY VALUATIONS--Fixed Income Securities, (other than convertible
bonds), with a maturity of 60 days or more held by Portfolio's other than
money market funds will be valued each day based on readily available market
quotations received from independent or affiliated commercial pricing services.
Such pricing services will generally provide bidside quotations. Convertible
bonds are valued at the last sale price on the primary exchange on which the
bond is principally traded. When valuations are not readily available,
securities are valued at fair value as determined in accordance with procedures
adopted by the 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.
REPURCHASE AGREEMENTS--The Portfolio's custodian (or designated
subcustodians, as the case may be under tri-party repurchase agreements) takes
possession of the collateral pledged for investments in repurchase agreements on
behalf of the Portfolio. It is the policy of the Portfolio to mark-to-market
the collateral on a daily 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. In the event of default or bankruptcy by the seller of the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the
trade date. Realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date or as of the time that the relevant
ex-dividend and amount becomes known. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
FUTURES CONTRACTS--The Portfolio may enter into futures contracts in order
to hedge 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 and to manage exposure to changing
interest rates and securities prices. The risks of entering into futures
contracts include the possibility that the change in value of the contract may
not correlate with the changes in value of the underlying securities. Upon
entering into a futures contract, the Portfolio is required to deposit either
cash or securities in an amount equal to a certain percentage of the contract
value (initial margin). Subsequent payments (variation margin) are made or
received daily, in cash, by the Portfolio. The variation margin is equal to the
daily change in the contract value and is recorded as unrealized gain or loss.
The Portfolio will recognize a gain or loss when the contract is closed or
expires.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Portfolio may enter into
forward foreign currency exchange contracts to facilitate transactions of
securities denominated in a foreign currency or to manage the Portfolio's
exposure to foreign currency exchange fluctuations. The net U.S. dollar value
of foreign currency underlying all contractual commitments held by the Portfolio
and the resulting unrealized appreciation or depreciation are determined daily
using prevailing exchange rates. The Portfolio bears the risk of an unfavorable
change in the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
COMMITMENTS--The Portfolio may enter into commitments to buy and sell
investments to settle on future dates as part of their 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 securities were owned on a settled
basis and gains and losses are recorded and reported
8
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
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(Continued)
OCTOBER 31, 2000
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1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
in the same manner. However, during the commitment period, these investments
earn no interest or dividends.
RESTRICTED AND ILLIQUID SECURITIES--The Portfolio is permitted to invest in
securities that are subject to legal or contractual restrictions on resale or
are illiquid. Restricted securities generally may be resold in transactions
exempt from registration. A security may be considered illiquid if it lacks a
readily available market or if its valuation has not changed for a certain
period of time. Disposal of these securities may involve time-consuming
negotiations and expense, and prompt sale at the current valuation may be
difficult. At the end of the period, the Portfolio had no investments in
restricted securities and investments of $17,356,656, which represent 1.1% of
the Portfolio's net assets in illiquid securities.
INCOME TAX STATUS--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 provisions of the
Internal Revenue Code.
FOREIGN TAXES--The Portfolio may be subject to foreign taxes on income,
gains on investments or currency repatriation, a portion of which may be
recoverable. The Portfolio will accrue such taxes and recoveries as applicable,
based upon their current interpretation of tax rules and regulations that exist
in the markets in which they invest.
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2. TRANSACTIONS WITH AFFILIATES
ADVISORY--The Portfolio has an Investment Advisory Agreement with J.P.
Morgan Investment Management Inc. ("JPMIM"), an affiliate of Morgan Guaranty
Trust Company of New York ("Morgan") and a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the agreement,
the Portfolio pays JPMIM at an annual rate of 0.30% of the Portfolio's average
daily net assets.
The Portfolio 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 Portfolio in an amount to offset any
investment advisory, administrative fee and shareholder servicing fees related
to a Portfolio investment in an affiliated money market fund.
ADMINISTRATIVE SERVICES--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 registered investment companies for which JPMIM acts as
investment advisor 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 Funds Distributor, Inc. 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 Trust and certain other investment
companies for which Morgan provides similar services.
ADMINISTRATION--The Portfolio has retained Funds Distributor, Inc. ("FDI"),
a registered broker-dealer, to serve as the co-administrator and distributor for
the Portfolio. 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 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 Portfolio and certain other investment companies for which FDI
provides similar services.
FUND SERVICES--The Portfolio has a Fund Service Agreement with Pierpont
Group, Inc. ("PGI") 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 PGI.
Each Trustee receives an aggregate annual fee of $75,000 for serving on the
boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
and other registered investment companies in which they invest. The trustees'
fees and expenses shown in the financial statements represent the Fund's
allocated portion of the total Trustees' fees and expenses. The Trust's Chairman
and Chief Executive Officer also serves as Chairman of PGI and
9
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
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2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
receives compensation and employee benefits from PGI. The allocated portion
of such compensation and benefits included in the Fund Services Fee shown on the
Statement of Operations was $4,600.
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3. FEDERAL INCOME TAXES
As of October 31, 2000, accumulated net unrealized depreciation was
$1,490,129, based on the aggregate cost of investments for federal income tax
purposes of $1,973,796,045, which consisted of unrealized appreciation of
$15,895,128 and unrealized depreciation of $17,385,257.
--------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
During the year ended October 31, 2000, the Portfolio purchased
$5,775,778,315 of U.S. Government securities and sold $5,537,371,197 of U.S.
Government securities. Purchases and sales of investment securities other than
U.S. Government securities and short-term investments were $2,607,572,782 and
$2,378,729,859 respectively.
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5. CONCENTRATION OF CREDIT RISK
The Portfolio may have elements of risk not typically associated with
investments in the United States due to concentrated investments in a limited
number of countries or regions which may vary throughout the year. Such
concentrations may subject the Portfolio to additional risks resulting from
political or economic conditions in such countries or regions and the possible
imposition of adverse governmental laws or currency exchange restrictions could
cause the securities and their markets to be less liquid and their prices more
volatile than those of comparable U.S. securities.
The ability of the issuers of debt, asset-backed and mortgage-backed
securities to meet their obligations may be affected by the economic and
political developments in a specific industry or region. The value of
asset-backed and mortgage-backed securities can be significantly affected by
changes in interest rates or rapid principal payments including prepayments.
As to illiquid investments, a Portfolio is subject to the risk that should
the Portfolio decide to sell them when a ready buyer is not available at a price
the Portfolio deems representative of their value, the value of the Portfolio's
net assets could be adversely affected.
--------------------------------------------------------------------------------
6. 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.
--------------------------------------------------------------------------------
7. SUBSEQUENT EVENTS
On September 13, 2000, J.P. Morgan & Co. Incorporated and The Chase
Manhattan Corporation announced that they have entered into an agreement and
plan of merger. The transaction is expected to close in December 2000 and is
subject to approval by shareholders of both companies.
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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To the Trustees and Investors of
The U.S. Fixed Income Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The U.S. Fixed Income Portfolio (the
"Portfolio") at October 31, 2000, 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 accounting principles generally accepted
in the United States of America. 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 auditing standards generally accepted in
the United States of America, 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, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
December 21, 2000
11
<PAGE>
[back cover]
J.P. MORGAN FUNDS
Federal Money Market Fund
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Prime Money Market Fund
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Tax Aware Enhanced Income Fund:
Select Shares
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Tax Exempt Money Market Fund
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Short Term Bond Fund
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Bond Fund
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Global Strategic Income Fund
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Emerging Markets Debt Fund
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Tax Exempt Bond Fund
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California Bond Fund:
Select Shares
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New York Tax Exempt Bond Fund
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Diversified Fund
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Disciplined Equity Fund
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U.S. Equity Fund
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U.S. Small Company Fund
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U.S. Small Company Opportunity Fund
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Tax Aware U.S. Equity Fund: Select Shares
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Emerging Markets Equity Fund
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European Equity Fund
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International Equity Fund
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International Opportunities Fund
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Global 50 Fund: Select Shares
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For more information on the J.P. Morgan
Funds, call J.P. Morgan Funds
Services at (800) 521-5411.
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Morgan Guaranty Trust Company MAILING
500 Stanton Christiana Road INFORMATION
Newark, Delaware 19713-2107
IN-ANN-23747 1000
