<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(LOCAL CURRENCY
000'S
OMITTED)(1) SECURITY DESCRIPTION VALUE
- ---------------- -------------------------------------------------- ------------
<C> <S> <C>
CORPORATE OBLIGATIONS (23.7%)
CANADA (2.8%)
GBP 2,617 Hydro-Quebec, 6.50% due 12/09/98 ................. $ 4,055,615
------------
FRANCE (1.9%)
FRF 12,300 Electricite de France, 8.60% due 04/09/04 ........ 2,768,497
------------
GERMANY (7.5%)
ITL 5,595,000 Bayerische Landesbank Girozentrale, 10.75% due
03/01/03 ....................................... 4,142,351
DEM 5,000 Deutsche Pfandbriefe Hypobank, 5.63% due 02/07/03,
144A ........................................... 3,279,430
DEM 5,000 KFW International Finance, 6.75% due 02/08/02 .... 3,479,723
------------
10,901,504
------------
JAPAN (2.4%)
DEM 5,000 Export Import Bank, 6.50% due 05/19/00 ........... 3,471,528
------------
THAILAND (2.4%)
USD 3,500 Krung Thai Bank Public Company Ltd, 6.73% due
03/27/97, FRN .................................. 3,516,097
------------
UNITED KINGDOM (6.7%)
GBP 3,000 MEPC PLC, 8.75% due 12/07/06 ..................... 4,734,167
GBP 3,300 Royal Bank of Scotland, 7.88% due 12/07/06 ....... 5,036,685
------------
9,770,852
------------
TOTAL CORPORATE OBLIGATIONS (COST
$33,763,003) ............................... 34,484,093
------------
GOVERNMENT OBLIGATIONS (66.3%)
AUSTRALIA (4.6%)
AUD 9,150 Government of Australia, 6.75% due 11/15/06 ...... 6,720,629
------------
AUSTRIA (4.5%)
DEM 9,000 Autobahnen Und Schnellstr Finance Agency, 7.13%
due 12/22/99 ................................... 6,295,955
JPY 25,000 Republic of Austria, 3.75% due 02/03/09 .......... 237,654
------------
6,533,609
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(LOCAL CURRENCY
000'S
OMITTED)(1) SECURITY DESCRIPTION VALUE
- ---------------- -------------------------------------------------- ------------
<C> <S> <C>
BELGIUM (4.1%)
Kingdom of Belgium
BEF 110,000 7.00% due 05/15/06 ............................... $ 3,696,331
BEF 63,000 7.75% due 12/22/00 ............................... 2,225,769
------------
5,922,100
------------
CANADA (2.4%)
Government of Canada
CAD 2,091 7.00% due 12/01/06 ............................... 1,519,415
CAD 2,450 9.00% due 06/01/25 ............................... 2,064,471
------------
3,583,886
------------
DENMARK (2.5%)
DKK 19,650 Kingdom of Denmark, 8.00% due 05/15/03 ........... 3,642,101
------------
GERMANY (5.7%)
DEM 5,200 Federal Republic of Germany, 9.00% due
01/22/01 ....................................... 3,942,449
DEM 5,950 Germany Unity Fund, 8.00% due 01/21/02 ........... 4,395,603
------------
8,338,052
------------
IRELAND (1.5%)
ESP 250,000 Republic of Ireland, 10.55% due 02/21/02 ......... 2,202,504
------------
ITALY (11.7%)
ITL 25,500,000 Republic of Italy, 8.50% due 08/01/99(3) ......... 17,060,312
------------
JAPAN (11.8%)
Government of Japan
JPY 1,168,000 No. 157, 4.50% due 06/20/03 ...................... 11,781,199
JPY 300,000 No. 182, 3.00% due 09/20/05 ...................... 2,730,235
JPY 300,000 No. 32, 3.70% due 03/21/16 ....................... 2,775,008
------------
17,286,442
------------
SPAIN (2.9%)
ESP 497,000 Government of Spain, 10.10% due 02/28/01 ......... 4,268,847
------------
SWEDEN (10.1%)
SEK 86,800 Kingdom of Sweden, 10.25% due 05/05/00 ........... 14,699,336
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(LOCAL CURRENCY
000'S
OMITTED)(1) SECURITY DESCRIPTION VALUE
- ---------------- -------------------------------------------------- ------------
<C> <S> <C>
UNITED KINGDOM (4.5%)
Treasury Gilt
GBP 3,200 7.50% due 12/07/06 ............................... $ 4,948,155
GBP 1,000 8.00% due 12/07/00 ............................... 1,622,026
------------
6,570,181
------------
TOTAL GOVERNMENT OBLIGATIONS (COST
$96,448,768) ............................... 96,827,999
------------
SUPRANATIONAL OBLIGATIONS (2) (2.3%)
ITL 1,700,000 European Investment Bank
10.875% due 12/14/05 ........................... 1,301,206
ITL 2,537,000 12.20% due 02/18/03 .............................. 1,994,988
------------
TOTAL SUPRANATIONAL OBLIGATIONS (COST
$3,002,392) ................................ 3,296,194
------------
SHORT-TERM INVESTMENTS (6.7%)
U.S. TREASURY OBLIGATIONS (0.2%)
330 United States Treasury Bills 5.03% due 10/10/96
(3) ............................................ 329,588
------------
TIME DEPOSITS (6.5%)
9,464 State Street Bank & Trust Co. London,
4.50% due 10/01/96 ............................. 9,464,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$9,793,588) ................................ 9,793,588
------------
TOTAL INVESTMENTS (COST $143,007,751) (99.0%) .... 144,401,874
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%) ..... 1,501,139
------------
NET ASSETS (100.0%) .............................. $145,903,013
------------
------------
</TABLE>
- ------------------------------
(1) Principal is in the local currency of the country in which the currency is
traded, which may not be the country of origin.
(2) International Agencies.
(3) Amount segregated as collateral for initial and variation margin on futures
contracts.
144A -- Securities restricted for sale to Qualified Institutional Buyers.
FRN -- Floating Rate Note. Maturity date reflects the later of the next
interest rate change or the next put date.
NOTE: Based on the cost of investments of $143,860,133 for federal income tax
purposes at September 30, 1996, the aggregate gross unrealized appreciation was
$2,223,037 and the aggregate gross unrealized depreciation was $1,681,296
resulting in net unrealized appreciation of investments of $541,741.
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $143,007,751) $144,401,874
Cash 289
Foreign Currency at Value (Cost $1,100,560) 1,091,502
Interest Receivable 4,178,839
Unrealized Appreciation on Open Forward Foreign
Currency Contracts 2,469,370
Variation Margin Receivable 20,817
Prepaid Expenses and Other Assets 694
------------
Total Assets 152,163,385
------------
LIABILITIES
Payable for Investments Purchased 5,621,315
Unrealized Depreciation on Open Forward Foreign
Currency Contracts 483,738
Advisory Fee Payable 44,163
Custody Fee Payable 42,779
Administrative Services Fee Payable 8,791
Fund Services Fee Payable 417
Accrued Expenses 59,169
------------
Total Liabilities 6,260,372
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $145,903,013
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income (Net of Foreign Withholding Tax of
$161,688) $12,311,478
EXPENSES
Advisory Fee $ 737,543
Custodian Fees and Expenses 185,765
Professional Fees and Expenses 61,761
Administrative Services Fee 37,344
Administration Fee 19,702
Fund Services Fee 11,488
Trustees' Fees and Expenses 4,704
Registration Fees 610
Miscellaneous 8,333
------------
Total Expenses 1,067,250
-----------
NET INVESTMENT INCOME 11,244,228
NET REALIZED GAIN (LOSS) ON
Investment Transactions (including $609,045 net
realized gain from futures contracts) 24,626,070
Foreign Currency Transactions (12,455,405)
------------
Net Realized Gain 12,170,665
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments (including $37,114 net unrealized
appreciation from futures contracts) (2,527,178)
Foreign Currency Contracts and Translations 4,341,578
------------
Net Change in Unrealized Appreciation 1,814,400
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $25,229,293
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 11, 1994
(COMMENCEMENT OF
FOR THE FISCAL OPERATIONS) TO
YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, 1996 1995
------------------ ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 11,244,228 $ 12,808,776
Net Realized Gain on Investments and Foreign Currency
Transactions 12,170,665 15,591,851
Net Change in Unrealized Appreciation of Investments
and Foreign Currency Translations 1,814,400 1,562,643
------------------ ----------------
Net Increase in Net Assets Resulting from
Operations 25,229,293 29,963,270
------------------ ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 116,826,143 318,237,762
Withdrawals (262,275,340) (82,178,215)
------------------ ----------------
Net Increase (Decrease) from Investors'
Transactions (145,449,197) 236,059,547
------------------ ----------------
Total Increase (Decrease) in Net Assets (120,219,904) 266,022,817
NET ASSETS
Beginning of Period 266,122,917 100,100
------------------ ----------------
End of Period $ 145,903,013 $ 266,122,917
------------------ ----------------
------------------ ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 11,
1994
(COMMENCEMENT
FOR THE FISCAL OF
YEAR ENDED OPERATIONS) TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
----------------- ---------------
<S> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.51% 0.55%(a)
Net Investment Income 5.34% 5.73%(a)
Portfolio Turnover 330% 288%(b)
</TABLE>
- ------------------------
(a)Annualized.
(b)Not annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Non-U.S. Fixed Income Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a no-load,
non-diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Portfolio's investment
objective is to provide a high total return, consistent with moderate risk of
capital, from a portfolio of international fixed income securities. The
Portfolio commenced operations on October 11, 1994. The Declaration of Trust
permits the Trustees to issue an unlimited number of beneficial interests in the
Portfolio.
Investments in international markets may involve certain considerations and
risks not typically associated with investments in the United States. Future
economic and political developments in 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 the debt securities held by the
Portfolio to meet their obligations may be affected by economic and political
developments in a specific industy or region.
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)Portfolio securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are
valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national
securities exchange, or in the absence of recorded sales, at the readily
available bid price on such exchange or at the quoted bid price in the
over-the-counter market, if such exchange or market constitutes the
broadest and most representative market for the security and (ii) in other
cases, take into account various factors affecting market value, including
yields and prices of comparable securities, indication as to value from
dealers and general market conditions. If such prices are not supplied by
the Portfolio's independent pricing services, such securities are priced
in accordance with procedures adopted by the Trustees. All portfolio
securities with a remaining maturity of less than 60 days are valued by
the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the Portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the Portfolio's Trustees.
b)The books and records of the Portfolio are maintained in U.S. dollars. The
market values of investment securities, other assets and liabilities and
forward contracts stated in foreign currencies 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 the exchange rates during the reporting period
and gains and losses realized upon settlement of foreign currency
transactions are reported in the Statement of Operations.
18
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
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. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
d)The portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily based on procedures established
by and under the general supervision of the Portfolio's Trustees and the
change in the market value is recorded by the Portfolio as unrealized
appreciation or depreciation of forward foreign currency contract
translations. At September 30, 1996, the Portfolio had open forward
foreign currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
VALUE AT APPRECIATION/
COST/PROCEEDS 9/30/96 (DEPRECIATION)
------------- ----------- --------------
<S> <C> <C> <C>
PURCHASE CONTRACTS
- --------------------------------------------------
British Pound 6,203,594, expiring 11/12/96 $ 9,666,126 $ 9,697,646 $ 31,520
Canadian Dollar 4,274,247, expiring 11/12/96 3,126,735 3,143,674 16,939
Danish Krone 39,121,397, expiring 11/12/96 6,817,950 6,696,958 (120,992)
German Mark 11,500,000, expiring 11/12/96 7,631,055 7,560,631 (70,424)
Italian Lira 2,213,279,722, expiring 11/12/96 1,447,212 1,450,229 3,017
Japanese Yen 1,547,005,566, expiring 11/12/96 14,154,636 13,972,737 (181,899)
Spanish Peseta 789,000,000, expiring 11/12/96 6,166,952 6,135,931 (31,021)
</TABLE>
19
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
U.S. DOLLAR UNREALIZED
VALUE AT APPRECIATION/
COST/PROCEEDS 9/30/96 (DEPRECIATION)
------------- ------------- -------------
<S> <C> <C> <C>
SALES CONTRACTS
- --------------------------------------------------
Australian Dollar 8,446,934 , expiring 11/12/96 $ 6,697,007 $ 6,666,362 $ 30,645
British Pound 16,689,316, expiring 11/12/96 26,124,169 26,089,246 34,923
Belgian Franc 184,249,819, expiring 11/12/96 6,050,897 5,886,695 164,202
Canadian Dollar 9,070,813 expiring 11/12/96 6,627,067 6,671,511 (44,444)
Danish Krone 61,083,736 expiring 11/12/96 10,683,364 10,456,559 226,805
French Franc 14,528,238 expiring 11/12/96 2,868,359 2,821,624 46,735
German Mark 50,957,906 expiring 11/12/96 34,341,446 33,502,082 839,364
Italian Lira 40,050,418,380 expiring 11/12/96 26,381,692 26,242,636 139,056
Japanese Yen 3,540,149,321 expiring 11/12/96 32,622,768 31,975,047 647,721
Spanish Peseta 1,722,474,512 expiring 11/12/96 13,676,523 13,395,419 281,104
Swedish Krona 100,622,705 expiring 11/12/96 15,177,268 15,204,887 (27,619)
-------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS $ 1,985,632
-------------
-------------
</TABLE>
e)Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date. 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 securities
equal to the minimum "initial margin" requirements of the exchange.
Pursuant to the contract, the Portfolio agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in the value
of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Portfolio as unrealized gains or losses. When the
contract is closed the Portfolio records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened
and the value at the time when it was closed. The Portfolio invests in
futures contracts solely for the purpose of hedging its existing portfolio
securities, or securities the Portfolio intends to puchase, 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.
Future transactions during the fiscal year ended September 30, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
NUMBER OF OF
CONTRACTS CONTRACTS
--------- -----------
<S> <C> <C>
Contracts opened 352 $32,320,726
Contracts closed (338 ) (31,199,221)
--------- -----------
Contracts open at end of year 14 $1,121,505
--------- -----------
--------- -----------
</TABLE>
20
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
SUMMARY OF OPEN CONTRACTS AT SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
NET
CONTRACTS UNREALIZED
LONG APPRECIATION
------------- -------------
<S> <C> <C>
Ten-Year Spanish Government Note,
expiring December 1996 14 $ 37,114
------------- -------------
------------- -------------
</TABLE>
f)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 Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the Portfolio pays Morgan at an annual rate of 0.35% of the Portfolio's
average daily net assets. For the fiscal year ended September 30, 1996,
such fees amounted to $737,543.
b)The Portfolio had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Under an Administration Agreement, Signature provided administrative
services necessary for the operations of the Portfolio, furnished office
space and facilities required for conducting the business of the Portfolio
and paid the compensation of the Portfolio's officers affiliated with
Signature. Until December 28, 1995, the agreement provided for a fee to be
paid to Signature at an annual rate determined by the following schedule:
0.01% of the first $1 billion of the aggregate average daily net assets of
the Portfolio and the other portfolios subject to the agreement, 0.008% of
the next $2 billion of such net assets, 0.006% of the next $2 billion of
such net assets, and 0.004% of such net assets in excess of $5 billion.
The daily equivalent of the fee rate was applied each day to the net
assets of the Portfolio. For the period October 1, 1995 through December
28, 1995, such fees amounted to $4,006.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged was equal to the Portfolio's proportionate share of a
complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios (the "Master Portfolios") in which The
JPM Pierpont Funds, The JPM Institutional Funds or The JPM Advisor Funds
invest and 0.01% on the aggregate average daily net assets of the Master
Portfolios in excess of $7 billion. The portion of this charge paid by the
Portfolio was determined by the proportionate share its net assets bore to
the total net assets of The JPM Pierpont Funds, The JPM Institutional
Funds, The JPM Advisor Funds and the Master Portfolios. For the period
from December 29, 1995 through July 31, 1996, such fees amounted to
$14,958. The Administration Agreement with Signature was terminated July
31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker dealer, and by Morgan. FDI also serves as the
21
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
Portfolio's exclusive placement agent. Under a Co-Administration Agreement
between FDI and the Portfolio, 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 The JPM Pierpont Funds, The JPM Institutional Funds, The JPM
Advisor Funds and the Master Portfolios. For the period August 1, 1996
through September 30, 1996, the fee for these services amounted to $738.
c)Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement with Morgan which provided that Morgan would receive a
fee, based on the percentages described below, for overseeing certain
aspects of the administration and operation of the Portfolio and was also
designed to provide an expense limit for certain expenses of the
Portfolio. This fee was calculated exclusive of the advisory fee, custody
expenses, fund services fee, and brokerage costs at 0.12% of the
Portfolio's average daily net assets up to $200 million, 0.08% of the next
$200 million of average daily net assets, and 0.04% on any excess over
$400 million. From September 1, 1995 until December 28, 1995, an interim
agreement between the Portfolio and Morgan provided for the continuation
of the oversight functions that were outlined under the prior agreement
and that Morgan should bear all of its expenses incurred in connection
with these services.
Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement (the "Services Agreement") with Morgan under which
Morgan was responsible for overseeing certain aspects of the
administration and operation of the Portfolio. Under the Services
Agreement, the Portfolio had agreed to pay Morgan a fee equal to its
proportionate share of an annual complex-wide charge. Until July 31, 1996,
this charge was calculated daily based on the aggregate net assets of the
Master Portfolios in accordance with the following annual schedule: 0.06%
on the first $7 billion of the Master Portfolios' aggregate average daily
net assets and 0.03% of the Master Portfolios' aggregate average daily net
assets in excess of $7 billion. The portion of this charge paid by the
Portfolio was determined by the proportionate share its net assets bore to
the net assets of the Master Portfolios and investors in the Master
Portfolios for which Morgan provided similar services. For the period
December 29, 1995 through July 31, 1996, the fee for these services
amounted to $28,554.
Effective August 1, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios in accordance with the following annual
schedule: 0.09% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets and 0.04% of the Master Portfolios'
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The allocation of the Fund's portion of
this charge is described above (see Note 2b). For the period from August
1, 1996 through September 30, 1996, the fee for these services amounted to
$8,790.
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 $11,488 for the fiscal year ended September 30, 1996.
22
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30,1996
- --------------------------------------------------------------------------------
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios. 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 received 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 $1,500.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
$598,281,454 $682,992,863
------------ ------------
------------ ------------
</TABLE>
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Non-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 Non-U.S. Fixed Income Portfolio (the
"Portfolio") at September 30, 1996, the results of its operations for the year
then ended, and the changes in its net assets and its supplementary data for the
year then ended and for the period October 11, 1994 (commencement of operations)
through September 30, 1995, 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 September 30, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
November 22, 1996
24
