<PAGE>
LETTER TO PROSPECTIVE SHAREHOLDERS OF THE JPM ADVISOR U.S. FIXED INCOME FUND
June 14, 1996
Dear Prospective Shareholder:
Thank you for your interest in The JPM Advisor U.S. Fixed Income Fund. We hope
that the information contained in this report will make you wish to explore
additional JPM Advisor Funds as a way to conveniently diversify your
investment portfolio and gain broad exposure to financial opportunities in
domestic and world markets.
Should you decide to become a shareholder of The JPM Advisor U.S. Fixed
Income Fund, we will send you detailed reports on the Fund's performance and
its strategies as it pursues its investment objective -- which is to provide a
high total return, consistent with moderate risk of capital and maintenance of
liquidity. A sample of these reports follows and covers the six-month period
ended April 30, 1996. Going forward, these reports will be provided to
shareholders of the Fund on both a semi-annual and an annual basis.
By way of introduction to the in-depth reporting that we believe our Fund
shareholders deserve, we offer and hope you will enjoy the Q&A that follows
with William G. Tennille, a member of our portfolio management team. It
should be noted that this interview pertains to The U.S. Fixed Income
Portfolio, a separate investment company in which the Fund invests all of its
assets which, together with its predecessor fund, has been in operation since
March 11, 1988. The performance of the Fund will be directly related to the
performance of the Portfolio.
Going forward, please be assured that we will always welcome comments and
questions from our shareholders, as well as any suggestions on how we can
improve our financial reports. Please call J.P. Morgan Funds Services, toll
free, at (800) JPM-3637.
Sincerely yours,
/s/ Alistair Jessiman
Alistair Jessiman
J.P. Morgan Funds Services
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS.......... 1 FUND FACTS AND HIGHLIGHTS.......... 6
PORTFOLIO MANAGER Q&A............... 2 FINANCIAL STATEMENTS............... 8
1
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with WILLIAM G. TENNILLE, who is a member of the
portfolio management team for The U.S. Fixed Income Portfolio, in which the
Fund invests. Bill joined Morgan in 1992 and has extensive experience across a
broad range of markets, including mortgage securities and derivatives. This
interview was conducted on June 3, 1996 and reflects Bill's views on that date.
FOLLOWING A FUND FISCAL YEAR ENDING OCTOBER 31, 1995, IN WHICH U.S. BONDS
RETURNED 15.71%, AS MEASURED BY THE SALOMON BIG INDEX, THE MARKET EXPERIENCED
A DOWNTURN DURING THE EARLY MONTHS OF 1996. MANY POINT TO FEDERAL RESERVE
CHAIRMAN ALAN GREENSPAN'S HUMPHREY-HAWKINS TESTIMONY, WHICH SUGGESTED THAT THE
U.S. ECONOMY WAS CONSIDERABLY STRONGER THAN GENERALLY PERCEIVED, AS THE
EXPLANATION. ASSUMING YOU AGREE WITH THIS VIEW, COULD YOU PLEASE IDENTIFY
OTHER FACTORS THAT CONTRIBUTED TO A PRICE-BUSTING ENVIRONMENT OF ECONOMIC
UNCERTAINTY?
WGT: I think Chairman Greenspan's well-publicized view that the U.S. economy
was on track for sustained growth, with weakness likely to be only a temporary
phenomenon, was key to instigating the market difficulties you mention -
despite a very strong January for bonds. Viewed overall, we're talking about a
yield increase for bonds on the order of 100 basis points during the early
part of this year - which is virtually overnight in bond market terms. Market
participants interpreted Greenspan's remarks as presaging a rebound in the
U.S. economy that could ultimately rekindle inflation. This, of course, would
considerably diminish the short-term attractiveness of bonds relative to other
investments, and would also be likely to mean an end to easing by the Federal
Reserve.
Equally if not more important to the downturn, I believe, was the government's
release of its February payroll data report. This report showed that
businesses had added 705,000 new jobs to the economy during the month, versus
the 317,000 new jobs that had been expected. Any time hiring proceeds at this
strong a clip, we believe it's likely to spell bad news for bonds since
economic overheating is virtually synonymous with resurgent inflation and
because equities become more popular with investors in such an environment as
a way to keep pace. The news from Washington, in fact, sent the U.S. bond
market to its biggest one-day decline in more than nine years. This
essentially means that bond yields went through the roof as investors searched
for bond alternatives.
In terms of Federal Reserve strategy, of course, the February payroll data
was the first of two consecutive employment reports supporting the view that
there was little reason for the central bank to cut its rates as a way to help
stimulate the U.S. economy. The March employment report, meanwhile,
reconfirmed this trend as the economy added an additional 140,000 positions
(again, more than twice the expected number). As we've seen so often in the
last year or so, the market's ability to set prices once again essentially
co-opted the Fed's traditional policymaking role.
2
<PAGE>
THE FUND PROVIDED ITS SHAREHOLDERS WITH MILDLY POSITIVE RETURNS FOR THE PERIOD
UNDER REVIEW, EVEN THOUGH THE FUND, LIKE ITS BENCHMARK, EXPERIENCED NEGATIVE
RETURNS DURING THE EARLY MONTHS OF THIS YEAR. MOST INVESTORS UNDERSTAND THAT
PERIODIC DOWNTURNS ARE INEVITABLE IN ALL ASSET CLASSES. WHAT INVESTMENT
STRATEGIES DID YOU CHOOSE TO PURSUE IN THE PORTFOLIO DURING THE CHALLENGING
SIX MONTHS JUST PAST, AND WHICH OF THEM PROVED THE MOST SUCCESSFUL?
WGT: Our sector allocation decisions helped the Fund to weather the bond
market storm.
As was the case in the six months just past, the Fund is usually
underexposed to the U.S. Treasury sector of the bond market, relative to the
benchmark, because the name of the game in the bond market is yield. In fact,
yield makes up most of the return earned by a bond market investor, while
principal appreciation is secondary. All other things being equal, Treasuries
are by nature the lowest-yielding sector in the bond market. The reason for
this is that there is no credit or prepayment risk (only interest rate
risk) associated with an obligation of the U.S. government. The government will
pay its obligations when those obligations come due. Treasuries are, in
effect, the safest instruments one can hold in the bond market and,
consequently, represent the market's lowest-yielding sector.
Thus, the Fund will typically hold diversified, relatively large positions
in corporate bonds and mortgage-backed securities as these sectors offer a
premium (i.e., higher yield) over Treasuries because of the inherent risks that
investors must assume in order to invest in these types of securities.
Depending on where yield differentials are between a specific sector and
Treasuries at a given time (among other factors, including the current outlook
for interest rates and the economy), one will see a change in the level of
mortgage-backed securities and corporate bonds held in the Fund. The idea is
that by holding relatively large diversified exposures to the market's various
non-Treasury sectors, the Fund will achieve its goal of outperforming the
market over time.
The term "prepayment risk," by the way, describes the circumstances which
determine whether home buyers will or will not choose to refinance their
mortgages. Let's assume that an individual took out a 7% mortgage, and that
prevailing interest rates then rose to 10%. Under these circumstances, there
would be no cost advantage for the home buyer to borrow new money at 10% in
order to pay off the earlier 7% loan. Should prevailing rates drop to 4%,
however, monthly mortgage payments could be cut substantially if the home
buyer borrowed at the lower rate and refinanced his or her 7% mortgage. If the
homeowner "wins" in this situation, the mortgage-holder loses since the money
received must be reinvested at the lower current rate.
YOU'VE SAID THAT YOU DECIDED TO INVEST IN HIGH-YIELD BONDS IN THE PORTFOLIO
DURING THE PERIOD UNDER REVIEW. WOULDN'T THAT STRATEGY TEND TO INCREASE
OVERALL RISK IN THE PORTFOLIO?
WGT: The Portfolio is permitted a very limited exposure to non-investment
grade debt - no more than five percent of total Portfolio holdings. When our
analysis indicates that the yield spread (which is the difference in a
security's yield minus the yield of a comparable Treasury) merits the
Portfolio's investment in low-quality bonds, we will sometimes overweight
these instruments in the Portfolio relative to its benchmark (the benchmark
includes only investment-grade bonds) with an eye toward achieving potentially
enhanced overall returns. Furthermore, because the Portfolio typically only
invests in the highest quality below investment grade bonds, and because these
bonds help to further diversify the Portfolio, the Portfolio should experience
only a limited increase in its overall volatility.
3
<PAGE>
That being said, we decided to have the Portfolio be overweighted relative to
its benchmark in high-yield domestic bonds and collateralized Brady Bonds
during the period under review. This decision was rewarded when both types of
bonds outperformed the benchmark. Also, given the accelerating economy and
prospects for strong earnings, our credit research team continues to recommend
the inclusion of high-yield securities.
GIVEN THE BENEFIT OF 20-20 HINDSIGHT, WHAT PORTFOLIO INVESTMENT STRATEGIES
MIGHT YOU HAVE CHANGED -- OR DO YOU STILL FAVOR IN THE INTEREST OF THE
PORTFOLIO'S POTENTIAL FOR ACHIEVING LONG-TERM OUTPERFORMANCE?
WGT: Ideally, of course, each of our investment decisions -- namely, duration
management, sector allocation, and securities selection -- will make
consistently positive contributions to overall Portfolio performance.
Realistically, however, we favor a multi-decision approach to this asset class
because we think it will provide superior returns over time versus competitors
who base their investment strategies on larger and/or fewer sources of
potential added value.
While the Portfolio's sector allocation -- favoring mortgage-backed
securities and high-yield corporate bonds over Treasuries -- was successful,
our decision to maintain a longer-than-benchmark duration for the Portfolio
proved detrimental to overall performance. This strategy reflected our views
that 1) economic growth would remain tepid (that is, at or below trend), 2)
inflation would remain under control, and 3) bonds appeared fairly valued on
a fundamental basis. All three assumptions were challenged by Chairman
Greenspan's comments and the government's payroll data report. When interest
rates increased following these developments, the Portfolio's heightened
sensitivity to interest rate changes took its toll over the short term.
However, the negative impact of our duration decision was more than offset by
our sector overweightings (in mortgage-backed securities and high-yield
bonds) and security selection, enabling the Portfolio to provide attractive
total returns.
HAVE U.S. BOND PRICES NOW STABILIZED IN YOUR VIEW, OR DOES A FURTHER SELLOFF
SEEM TO BE IN THE OFFING?
WGT: I do not believe bond prices have stabilized as the market is still
trying to sort out the implication of actions (if any) that the Fed might take
as a result of the mixed economic data that is being reported. Investors are
paying close attention to the monthly payroll data and its implications
regarding GDP growth and inflation. Obviously, most of the reaction has been
negative, as evidenced by this year's spike in interest rates. In fact,
coupled with the market's uncertainty surrounding future Fed actions, it
appears that a bond rally is unsustainable as many investors are selling
positions when the market rallies and prices go up.
WHAT IS THAT LIKELY TO MEAN FOR FUTURE ACTION BY THE FEDERAL RESERVE? DO YOU
THINK WE COULD SEE A REPEAT OF JANUARY'S -0.25% CUT IN THE CENTRAL BANK'S
OFFICIAL RATES, OR ARE COMPARISONS WITH 1994, WHEN THE FED LAUNCHED A
PRE-EMPTIVE STRIKE AGAINST INFLATION AND BEGAN AN IMPLEMENTATION OF SEVEN
SHORT-TERM INTEREST RATE HIKES, MORE APPROPRIATE?
WGT: Our best information indicates that a repeat of January's rate cut seems
very unlikely. Recently, in fact, four of the governors of the Federal Reserve
independently went "on record" as saying that they believe there is a
possibility that short-term rate increases will be necessary to help keep the
economy from overheating. Thus it appears that, if the Fed does act, it is
more likely to raise interest rates than to reduce them.
4
<PAGE>
GIVEN THAT FORECAST, HOW ARE YOU POSITIONING THE PORTFOLIO'S MATURITY
STRUCTURE GOING FORWARD?
WGT: Given the current atmosphere of economic uncertainty, we plan to keep
the Portfolio at a slightly long but essentially neutral position relative to
its benchmark in terms of duration. We believe that such an interest rate risk
exposure strategy is an appropriate one to follow until some clarification is
achieved with regard to the future direction of the economy. However, if bonds
continue to sell off, we may look to extend duration since bonds, which we
currently view as attractive, will become more attractive as yields rise.
IN TERMS OF MARKET SECTORS, WHERE DO YOU EXPECT TO POSITION THE PORTFOLIO
RELATIVE TO ITS BENCHMARK TO HELP IT ACHIEVE ENHANCED OVERALL RETURNS?
WGT: We plan to maintain the Portfolio's currently overweighted exposure to
the mortgage-backed security and high-yield bond sectors while also continuing
its respectively underweighted and neutral positions in U.S. Treasury
securities and investment-grade corporate bonds. Investment-grade corporates
remain near or at historically tight levels while in our view Treasuries,
despite the recent rise in interest rates, are not offering a high enough
yield to warrant a more significant weighting in the Portfolio. Further, given
tighter monetary conditions and possible tightening in the future by the
Federal Reserve, spreads between corporate bonds and U.S. Treasuries may
widen, which would cause corporates to underperform.
I SUPPOSE YOU'VE ALREADY ANSWERED THIS IN YOUR OTHER REMARKS TODAY, BILL, BUT
WHAT WOULD YOU SAY TO INVESTORS WHO HAVE BEEN DISCOURAGED BY U.S. BOND RETURNS
DURING THE EARLY MONTHS OF 1996 AND MIGHT BE THINKING OF LESSENING THEIR
ALLOCATION TO THIS ASSET CLASS?
WGT: First of all, we believe that investors should take a long-term approach
to investment. That's why we would regard exiting a particular market just
because it has underperformed in the short term to be imprudent. One could
even argue that such an exit should be called "market timing," and there are
few if any investors who can successfully pursue market timing over the long
term.
Secondly, Morgan believes that potential sources of added return should
be diversified and focus on yield-advantaged sectors. That is why our
investment process features the three factors mentioned earlier. I believe
it's also important to emphasize that the Portfolio is not only diversified
among sectors, it is also diversified within sectors. For example, the
Portfolio's mortgage-backed securities exposure is distributed across issues,
coupons, and maturities. Additionally, the Portfolio's corporate bond
allocation is invested in financial issues, Yankee bonds, and industrial
securities.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The JPM Advisor U.S. Fixed Income Fund seeks
to provide high total return consistent with
moderate risk of capital and maintenance of liquidity.
It is designed for investors who seek a total return
that is higher than that generally available from
short-term obligations while recognizing the greater
price fluctuation of longer-term instruments.
- ---------------------------------------------------------
INCEPTION DATE
3/24/95
- ---------------------------------------------------------
NET ASSETS AS OF 4/30/96
$102,945
- ---------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- ---------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/20/96
FUND HIGHLIGHTS
ALL DATA AS OF APRIL 30, 1996
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[PIE GRAPH]
- -- U.S. AGENCY OBLIGATIONS 38.5%
- -- U.S. TREASURY OBLIGATIONS 23.6%
- -- CORPORATE OBLIGATIONS 22.2%
- -- CMOS AND ASSET-BACKED SECURITIES 9.9%
- -- SHORT-TERM HOLDINGS 4.7%
- -- FOREIGN GOVERNMENT OBLIGATIONS 0.9%
- -- CONVERTIBLE PREFERRED STOCK 0.2%
30-DAY SEC YIELD
7.03%
DURATION
4.7 years
QUALITY BREAKDOWN
AAA* 75%
AA 3%
A 8%
Other 14%
*INCLUDES U.S. GOVERNMENT AGENCY, TREASURY OBLIGATIONS, AND CASH.
6
<PAGE>
SIGNATURE BROKER-DEALER SERVICES, INC. IS THE DISTRIBUTOR FOR THE JPM ADVISOR
U.S. FIXED INCOME FUND (THE "FUND").
Morgan Guaranty Trust Company of New York ("Morgan") serves as Investment
Advisor to The U.S. Fixed Income Portfolio (the "Portfolio") and makes the
Fund available solely in its capacity as services agent for customers.
Investments in the Fund are not deposits or obligations of, or guaranteed or
endorsed by, Morgan or any other bank. Shares of the Fund are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other governmental agency. Investment return and principal value
of an investment in the Fund can fluctuate, so an investor's shares when
redeemed may be worth more or less than their original cost.
THE FUND INVESTS ALL OF ITS INVESTABLE ASSETS IN THE PORTFOLIO, A SEPARATELY
REGISTERED INVESTMENT COMPANY THAT IS NOT AVAILABLE TO THE PUBLIC BUT ONLY TO
OTHER COLLECTIVE INVESTMENT VEHICLES SUCH AS THE FUND. THE PORTFOLIO INVESTS
IN FOREIGN SECURITIES WHICH ARE SUBJECT TO SPECIAL RISK. FOR A DISCUSSION OF
THESE RISKS AND MORE COMPLETE INFORMATION ABOUT THE FUND AND THE OTHER JPM
ADVISOR FUNDS, INCLUDING MANAGEMENT FEES AND OTHER EXPENSES, PROSPECTIVE
INVESTORS SHOULD REFER TO THE PROSPECTUSES FOR THE FUNDS, WHICH SHOULD BE READ
CAREFULLY BEFORE INVESTING. YOU MAY OBTAIN COPIES OF THE PROSPECTUSES FOR THE
FUNDS BY CALLING THE J.P. MORGAN FUNDS SERVICES AT (800) JPM-3637.
7
<PAGE>
THE JPM ADVISOR U.S. FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Fixed Income Portfolio ("Portfolio"), at value $ 103,655
Deferred Organization Expense 34,509
Receivable for Expense Reimbursement 32
------------
Total Assets 138,196
------------
LIABILITIES
Organization Expense Payable 34,509
Dividends Payable to Shareholders 742
------------
Total Liabilities 35,251
------------
NET ASSETS
Applicable to 10,206 Shares of Beneficial Interest Outstanding
(par value $0.001, unlimited shares authorized) $ 102,945
------------
------------
$10.09
Net Asset Value, Offering and Redemption Price Per Share
------------
------------
ANALYSIS OF NET ASSETS
Paid-in Capital $ 102,212
Undistributed Net Investment Income 126
Accumulated Net Realized Gain on Investment 1,706
Net Unrealized Depreciation of Investment (1,099)
------------
Net Assets $ 102,945
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
THE JPM ADVISOR U.S. FIXED INCOME FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $ 3,479
Allocated Dividend Income 12
Allocated Portfolio Expenses (Net of Expense Reimbursement of $196) 0
-----------
Net Investment Income Allocated from Portfolio 3,491
FUND EXPENSES
Transfer Agent Fee $ 8,012
Professional Fees 5,147
Registration Fees 3,540
Printing Expenses 2,400
Insurance Expense 2,231
Trustees' Fees and Expenses 915
Miscellaneous 995
--------
Total Fund Expenses 23,240
Less: Reimbursement of Expenses (23,240)
--------
NET FUND EXPENSES 0
-----------
NET INVESTMENT INCOME 3,491
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 1,707
NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENT ALLOCATED FROM
PORTFOLIO (4,630)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 568
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM ADVISOR U.S. FIXED INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
MARCH 24,
FOR THE SIX 1995
MONTHS ENDED (INCEPTION
APRIL 30, DATE) TO
1996 OCTOBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1995
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $ 3,491 $ 4,393
Net Realized Gain on Investment Allocated from Portfolio 1,707 2,294
Net Change in Unrealized Appreciation (Depreciation) of Investment
Allocated from Portfolio (4,630 ) 3,531
------------ ------------
Net Increase in Net Assets Resulting from Operations 568 10,218
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (3,492 ) (4,391 )
Net Realized Gain (2,131 ) --
------------ ------------
Total Distributions to Shareholders (5,623 ) (4,391 )
------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold -- 25
Reinvestment of Distributions 2,148 --
------------ ------------
Net Increase from Transactions in Shares of Beneficial Interest 2,148 25
------------ ------------
Total Increase (Decrease) in Net Assets (2,907 ) 5,852
NET ASSETS
Beginning of Period 105,852 100,000
------------ ------------
End of Period (including undistributed net investment income of $126 and
$127, respectively) $ 102,945 $ 105,852
------------ ------------
------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM ADVISOR U.S. FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE
PERIOD
MARCH 24,
FOR THE SIX 1995
MONTHS ENDED (INCEPTION
APRIL 30, DATE) TO
1996 OCTOBER 31,
(UNAUDITED) 1995
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.58 $ 10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.34 0.44
Net Realized and Unrealized Gain on Investment (0.28 ) 0.58
------ ------
Total from Investment Operations 0.06 1.02
------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.34 ) (0.44 )
Net Realized Gain (0.21 ) --
------ ------
Total Distributions (0.55 ) (0.44 )
------ ------
NET ASSET VALUE, END OF PERIOD $ 10.09 $ 10.58
------ ------
------ ------
Total Return 0.57 (a) 10.35 %(a)
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (in Thousands) $ 103 $ 106
Ratios to Average Net Assets:
Expenses 0.00 (b) 0.00 %(b)
Net Investment Income 6.62 (b) 6.93 %(b)
Decrease Reflected in above Expense Ratio due to Expense Reimbursements
from Morgan 2.50 (c) 2.50 %(c)
</TABLE>
(a) Not annualized. Total return may not be reflective of future performance as
there were no public shareholders and all expenses were reimbursed.
(b) Annualized
(c) After consideration of certain state limitations.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM ADVISOR U.S. FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Advisor U.S. Fixed Income Fund (the "Fund") is a separate series of
The JPM Advisor Funds, a Massachusetts business trust (the "Trust"). The
Trust is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The Fund sold initial shares to
Signature Broker-Dealer Services, Inc. for $100,000 (seed capital) on March
24, 1995 and has not commenced continuous offering of its shares to the
public.
The Fund invests all of its investable assets in The U.S. Fixed Income
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objectives as the Fund. The value of such
investment reflects the Fund's proportionate interest in the net assets of
the Portfolio (less than 1% at April 30, 1996). 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 prepared 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 1 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)
The Fund incurred organization expenses in the amount of $34,509. These
costs were deferred and will be amortized on a straight-line basis over a
five-year period when the first public shareholder enters the fund.
e)
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund 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.
12
<PAGE>
THE JPM ADVISOR U.S. FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
f)
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.
2. TRANSACTIONS WITH AFFILIATES
a)
The Trust has retained Signature Broker-Dealer Services, Inc. ("Signature")
to serve as Administrator and Distributor. Signature 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
Signature. The agreement provided for a fee to be paid to Signature at an
annual rate determined by the following schedule: 0.04% of the first $1
billion of the aggregate average daily net assets of the Trust, as well as
two other affiliated fund families for which Signature acts as
administrator, 0.032% of the next $2 billion of such net assets, 0.024% of
the next $2 billion of such net assets, and 0.016% of such net assets in
excess of $5 billion. The daily equivalent of the fee rate is applied daily
to the net assets of the Fund. For the period from November 1, 1995 to
December 28, 1995, no fee was incurred.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged would be equal to the Fund'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 series of the
Trust, The JPM Institutional Funds, or The Pierpont 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 payable by the Fund is
determined by the proportionate share its net assets bear to the total of
the Trust, The JPM Institutional Funds, The Pierpont Funds, and the Master
Portfolios. For the period from December 29, 1995 through April 30, 1996,
no fee was incurred.
b)
The Trust, on behalf of the Fund, has a Services Agreement with Morgan
Guaranty Trust Company of New York ("Morgan") under which Morgan receives a
fee, based on the percentage described below, for overseeing certain
aspects of the administration and operation of the Fund. The Services
Agreement is also designed to provide an expense limit for certain expenses
of the Fund. If total expenses of the Fund, excluding the shareholder
servicing fee and amortization of organization expenses, exceed the expense
limit of 0.60% of the Fund's average daily net assets, Morgan will
reimburse the Fund for the excess expense amount and receive no fee. Should
such expenses be less than the expense limit, Morgan's fee would be limited
to the difference between such expenses and the fee calculated under the
Services Agreement. 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
0.80% of the average daily net assets of the Fund through December 31,
1996. In addition, Morgan has agreed to reimburse all operating expenses
until the Fund has public shareholders. For the six months ended April 30,
1996, Morgan has agreed to reimburse the Fund $23,240 for expenses. Morgan,
13
<PAGE>
THE JPM ADVISOR U.S. FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
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. In the event the
Services Agreement with the Trust is terminated, the Fund would be
responsible for the ongoing payments to Schwab under the Schwab Agreements.
c)
An aggregate annual fee of $16,000 is paid to each Trustee for serving as a
Trustee of The Trust. The Trustees' Fees and Expenses shown in the
financial statements represent the Fund's allocated portion of the total
fees and expenses.
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 SIX MONTHS
ENDED FOR THE PERIOD MARCH 24,
APRIL 30, 1996 1995 (INCEPTION DATE) TO
(UNAUDITED) OCTOBER 31, 1995
------------------- -------------------------
<S> <C> <C>
Shares of beneficial interest sold 0 2
Reinvestments of dividends and distributions 204 0
-- -
Net increase 204 2
-- -
-- -
</TABLE>
The transaction in shares of beneficial interest of the Fund for the period
March 24, 1995 (inception date) to October 31, 1995 reflects an investment by an
affiliate of State Street Bank and Trust Company, the Fund's and Portfolio's
custodian.
14
<PAGE>
The U.S. Fixed Income Portfolio
Semi-Annual Report April 30, 1996
(unaudited)
(The following pages should be read in conjunction
with The JPM Advisor U.S. Fixed Income Fund
Semi-Annual Financial Statements)
15
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- --------------------------------------------------------------------------- ----------- ------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET
BACKED SECURITIES (10.1%)
FINANCE (10.1%)
$ 9,278,417 Access Financial Manufacturing Housing Contract Trust, Series 95-1, Class
A1, 6.10% due 05/15/21................................................... Aaa/NR $ 9,175,334
70,433 Advanta Home Equity Loan Trust, Series 92-2, Class A1, 7.15% due
06/25/08................................................................. Aaa/AAA 70,084
144,248 Case Equipment Loan Trust, Series 94-A, Class A2, 4.65% due 08/15/99....... Aaa/AAA 143,490
15,699,000 Chemical Mortgage Securities, Inc., Series 96-1, Class A7, 7.25% due
01/25/26................................................................. Aaa/AAA 14,394,413
19,749 Chrysler Financial Corp. Grantor Trust, Series 17, Class A, 6.25% due
03/15/02................................................................. Aaa/AAA 19,757
4,139,222 Collateralized Mortgage Obligation Trust II, Class E, 9.00% due 06/20/17... Aaa/AAA 4,305,743
3,159,559 Criimi Mae Financial Corporation, Class A, 7.00% due 01/01/33.............. NR/AAA 3,005,531
8,855,000 GE Capital Mortgage Services, Inc., Series 94-17, Class A5, 7.00% due
05/25/24................................................................. Aa1/AAA 8,739,708
1,626,633 Green Tree Financial Corp., Series 95-A, Class A, 7.25% due 07/15/05....... Baa3/BBB+ 1,623,583
767,102 Green Tree Financial Corp., Series 94-A, Class A, 6.90% due 02/15/04....... Baa3/BBB+ 757,273
3,860,172 Green Tree Recreational Equipment and Consumer Trust, Series 96-A, Class
A1, 5.55% due 02/15/18................................................... Aaa/AAA 3,786,443
5,500,000 Oakwood Mortgage Investors Inc., Series 96-A, Class A2, 5.80% due
05/15/21................................................................. NR/AAA 5,259,375
14,927,899 Paine Webber Mortgage Acceptance Corp., Remic: PAC (11), Series 93-5, Class
A2, 5.50% due 06/25/08................................................... NR/AAA 14,785,188
20,050 Premier Auto Trust, Series 92-3, Class A, 5.90% due 11/17/97............... Aaa/AAA 20,028
1,609,386 Prudential Home Loan Mortgage Securities, Remic: PAC (11), Series 93-54,
Class A2, 6.50% due 01/25/24............................................. Aaa/AA 1,608,404
8,934,495 Residential Funding Mortgage Securities I, Inc., Remic: PAC (11), Series
94-S12, Class A3, 6.50% due 04/25/09..................................... Aa1/AAA 8,880,352
174,832 Resolution Trust Corp., Remic: ARM Determined Interest Rate, Series 91-6,
Class A1, 6.92% due 05/25/19............................................. Aaa/AAA 166,528
95,266 The Money Store Home Equity Trust, Series 92-A, Class A, 6.95% due
12/15/07................................................................. Aaa/AAA 94,815
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (COST
$77,925,536)............................................................. 76,836,049
------------
CORPORATE OBLIGATIONS (22.6%)
AUTOMOTIVE (0.7%)
4,170,000 Ford Motor Co., 9.95% due 02/15/32......................................... A1/A+ 5,203,159
------------
BANKING (7.7%)
1,600,000 Chase Manhattan Corp. - New, 10.125% due 11/01/00.......................... A2/A- 1,791,200
5,000,000 First Chicago Corp., 8.25% due 06/15/02.................................... A2/A 5,311,400
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- --------------------------------------------------------------------------- ----------- ------------
BANKING (CONTINUED)
<C> <S> <C> <C>
$ 2,095,000 First Chicago Corp., 6.875% due 06/15/03................................... A2/A $ 2,064,685
8,300,000 First Union Corp., 6.55% due 10/15/35...................................... A2/A- 7,957,376
2,000,000 Mellon Bank, N.A., 6.75% due 06/01/03...................................... A2/A 1,961,840
1,500,000 Midland Bank, PLC, 8.625% due 12/15/04..................................... A1/A 1,617,525
4,660,000 NationsBank Corp., 10.20% due 07/15/15..................................... A3/A- 5,767,356
13,700,000 Norwest Corp., 6.75% due 05/12/00.......................................... Aa3/AA- 13,679,587
7,500,000 Shawmut National Corp., 8.625% due 12/15/99................................ A3/BBB+ 7,936,275
11,000,000 Trans Financial Bank, 6.48% due 10/23/98................................... Baa3/BBB- 10,915,850
------------
59,003,094
------------
CHEMICALS, OIL & GAS (1.9%)
4,425,000 Consolidated Natural Gas, 8.625% due 12/01/11.............................. A1/AA- 4,663,817
2,300,000 Ferrellgas Partners, M.L.P., 9.375% due 06/15/06, (144A)................... B1/B+ 2,300,000
5,000,000 Occidental Petroleum Corp., 5.85% due 11/09/98............................. Baa3/BBB 4,910,850
1,000,000 Occidental Petroleum Corp., 5.84% due 11/09/98............................. Baa3/BBB 981,940
1,125,000 SFP Pipeline Holdings, Inc., 11.16% due 08/15/10........................... Baa3/NR 1,451,250
------------
14,307,857
------------
DEPARTMENT STORES (0.4%)
1,000,000 Federated Department Stores, Inc., 8.125% due 10/15/02..................... Ba1/BB- 971,400
2,200,000 Sears Roebuck & Co., 8.52% due 05/13/02.................................... A2/BBB 2,353,230
------------
3,324,630
------------
ELECTRICAL EQUIPMENT (1.7%)
2,000,000 Legrand S.A., 8.50% due 02/15/25........................................... A2/A 2,151,820
2,200,000 Mark IV Industries Inc., 7.75% due 04/01/06, (144A)........................ Ba3/BB+ 2,092,750
1,900,000 Philips Electronics NV, 6.75% due 08/15/03................................. A3/BBB+ 1,847,161
7,000,000 Sensormatic Electronics Corp., 7.74% due 03/29/06.......................... NR/NR 6,938,750
------------
13,030,481
------------
FINANCE (3.0%)
3,900,000 Cheung Kong Finance Cayman Ltd., 5.50% due 09/30/98........................ NR/NR 3,753,750
159,134 Chevy Chase Auto Receivables Trust, 6.00% due 12/15/01..................... Aaa/AAA 158,757
25,000 Commercial Credit Group Inc., 7.375% due 11/15/96.......................... A1/A+ 25,231
2,281,438 Fleetwood Credit Corp. Grantor Trust, Series 95-B 6.55% due 05/15/11....... Aaa/AAA 2,274,731
12,550,000 Ford Motor Credit Co., 6.25% due 11/08/00.................................. A1/A+ 12,249,177
4,000,000 USL Capital Corp., 7.76% due 03/29/02...................................... A1/A+ 4,117,080
69,326 Western Financial Grantor Trust, Series 95-3, Class A1 6.05% due
11/01/00................................................................. Aaa/AA 69,193
------------
22,647,919
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- --------------------------------------------------------------------------- ----------- ------------
HOSPITALS AND HEALTH CARE (0.4%)
<C> <S> <C> <C>
$ 3,000,000 Tenet Healthcare Corp., 10.125% due 03/01/05............................... Ba3/B+ $ 3,210,000
------------
LUMBER & OTHER CONSTRUCTION MATERIALS (3.1%)
1,250,000 Buckeye Cellulose Corp., 8.50% due 12/15/05................................ Ba3/BB- 1,206,250
5,000,000 Celulosa Arauco y Constitucion SA, 6.75% due 12/15/03...................... Baa2/BBB+ 4,697,800
5,200,000 Georgia-Pacific Corp., 7.375% due 12/01/25................................. Baa2/BBB- 4,664,452
5,600,000 Georgia-Pacific Corp., 9.95% due 06/15/02.................................. Baa2/BBB- 6,360,032
1,000,000 Schuller International Group Inc., 10.875% due 12/15/04.................... Ba3/BB- 1,082,500
4,000,000 USG Corp., 9.25% due 09/15/01.............................................. Ba2/BB 4,265,000
1,000,000 USG Corp., 8.50% due 08/01/05.............................................. Ba2/BB 998,750
------------
23,274,784
------------
TEXTILES AND APPAREL (0.3%)
2,000,000 WestPoint Stevens Inc., 8.75% due 12/15/01................................. B1/BB- 1,995,000
------------
TELECOMMUNICATIONS (0.4%)
4,000,000 Tele-Communications, Inc., 7.875% due 02/15/26............................. Ba1/BBB- 3,472,240
------------
TRANSPORTATION (1.0%)
2,500,000 Teekay Shipping Corp., 8.32% due 02/01/08.................................. Ba2/BB 2,381,250
6,719,014 Union Tank Car Co., 6.50% due 04/15/08..................................... A2/A+ 5,605,789
------------
7,987,039
------------
UTILITIES (2.0%)
1,972,000 Connecticut Light & Power Co., Series UU, 7.625% due 04/01/97.............. Baa1/BBB+ 1,973,913
6,000,000 Duke Power Co., 6.75% due 08/01/25......................................... Aa2/AA- 5,312,400
4,500,000 Hydro-Quebec, 8.875% due 03/01/26.......................................... A2/A+ 4,965,840
3,000,000 Texas Utilities Co., 7.375% due 10/01/25................................... Baa2/BBB+ 2,752,770
------------
15,004,923
------------
TOTAL CORPORATE OBLIGATIONS (COST $175,443,525)............................ 172,461,126
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (39.3%)
FHA Insured
$ 3,344,561 7.43% due 03/01/22...................................................................... $ 3,056,928
Federal Home Loan Mortgage Corp.
18,112 9.00% due 04/01/03...................................................................... 18,803
435,940 9.50% due 08/01/04...................................................................... 450,919
700,731 9.50% due 11/01/05...................................................................... 724,942
3,643,494 9.50% due 12/01/05...................................................................... 3,769,562
703,326 9.50% due 02/01/06...................................................................... 727,647
844,539 9.50% due 03/01/06...................................................................... 873,836
1,377 12.50% due 08/01/14..................................................................... 1,518
27,018 Series 600, 10.00% due 04/01/09......................................................... 29,366
200,000 Series 39, Class F, 10.00% due 05/15/20................................................. 219,824
6,931,067 Gold, 6.50% due 06/01/04................................................................ 6,785,948
11,000,000 Gold, 8.506% due 12/01/04............................................................... 11,536,250
75,021 Gold, 6.00% due 09/01/10................................................................ 71,145
347 Gold, 6.50% due 03/01/26................................................................ 325
22,750,000 Gold, 8.00% TBA (t)..................................................................... 22,984,609
250,000 Remic: PAC-1(11), Series 1215, Class F, 6.75% due 05/15/05.............................. 247,698
250,000 Remic: PAC-1(11), Series 1199, Class E, 7.50% due 10/15/19.............................. 250,170
35,760,000 Remic: PAC-1(11), Series 1542, Class J, 7.00% due 02/15/22.............................. 35,145,375
13,000,000 Remic: PAC-1(11), Series 1594, Class H, 6.00% due 10/15/08.............................. 12,111,320
31,500,000 Remic: PAC-1(11), Series 1684, Class G, 6.50% 03/15/23.................................. 30,028,359
7,500,000 Remic: PAC-1(11), Series 1714, Class K, 7.00% due 04/15/24.............................. 7,028,775
300,000 Remic: Accretion Directed, Series 1290, Class L, 7.50% due 10/15/09..................... 302,529
32,000 Remic: PAC-1(11), Series 1168, Class H, 7.50% due 11/15/21.............................. 31,606
300,000 Remic: Series 102, Class I, 7.00% due 12/15/20.......................................... 283,329
415,000 Remic: PAC-1(11), Series 1207, Class J, 6.75% due 07/15/19.............................. 407,609
1,600,000 Remic: SCH(22), Series 1701, Class B, 6.50% due 03/15/09................................ 1,462,464
Federal National Mortgage Association
90,648 8.00% due 01/01/02...................................................................... 92,648
66,457 8.00% due 05/01/02...................................................................... 67,930
451,013 8.00% due 07/01/02...................................................................... 460,992
4,409,469 8.70% due 01/01/05...................................................................... 4,712,620
36,195,865 8.50% due 01/01/05...................................................................... 37,439,555
2,890,051 6.88% due 11/01/05...................................................................... 2,926,118
20,385 8.50% due 06/01/10...................................................................... 20,889
730,055 10.00% due 06/01/20..................................................................... 795,600
6,195 8.00% due 08/01/22...................................................................... 6,254
4,848,000 9.00% due 04/01/26...................................................................... 5,066,160
967,190 Remic: PAC, Series 1991-64, Class Z, 8.50% due 06/25/06................................. 972,065
681,925 Remic: PAC, Series 1991-101, Class C, 8.50% due 08/25/18................................ 689,262
9,882 Remic: PAC (11), Series 1991-9, Class H, 8.30% due 08/25/18............................. 9,900
3,100,000 Remic: PAC (11), Series 1993-041, Class PE, 5.75% due 04/25/19.......................... 3,022,128
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
Government National Mortgage Association (GNMA)
<C> <S> <C> <C>
$ 6,000,000 7.125% due 01/15/99..................................................................... $ 5,775,000
10,215,004 8.00% due 12/15/08...................................................................... 10,523,394
14,411,769 8.00% due 11/15/09...................................................................... 14,847,293
27,923 11.50% due 07/15/13..................................................................... 31,255
5,690 13.50% due 10/15/14..................................................................... 6,390
208,548 7.00% due 07/15/22...................................................................... 201,324
558,567 7.00% due 11/15/22...................................................................... 539,570
796,977 7.00% due 01/15/23...................................................................... 771,027
368,213 7.00% due 03/15/23...................................................................... 355,517
106,282 7.50% due 03/15/23...................................................................... 105,235
236,653 7.50% due 05/15/23...................................................................... 234,140
136,909 7.50% due 06/15/23...................................................................... 135,679
941,610 7.00% due 07/15/23...................................................................... 909,914
339,048 7.00% due 09/15/23...................................................................... 327,340
1,331,757 7.00% due 10/15/23...................................................................... 1,284,751
65,622 7.00% due 12/15/23...................................................................... 63,340
4,097,951 7.00% due 01/15/24...................................................................... 3,959,150
3,621,373 7.50% due 01/15/24...................................................................... 3,583,023
2,050,106 7.00% due 02/15/24...................................................................... 1,978,173
853,770 7.50% due 02/15/24...................................................................... 844,883
577,340 7.00% due 03/15/24...................................................................... 556,993
754,462 7.50% due 03/15/24...................................................................... 746,276
4,979,337 7.00% due 04/15/24...................................................................... 4,806,964
2,813,560 7.00% due 05/15/24...................................................................... 2,713,062
58,173 7.50% due 05/15/24...................................................................... 57,532
992,096 7.00% due 06/15/24...................................................................... 956,803
442,277 7.50% due 06/15/24...................................................................... 437,337
342,825 7.50% due 11/15/24...................................................................... 338,793
774,396 7.50% due 12/15/24...................................................................... 765,816
1,034,116 7.50% due 07/15/25...................................................................... 1,021,902
979,542 7.50% due 08/15/25...................................................................... 968,073
198,862 7.50% due 09/15/25...................................................................... 196,508
180,840 7.50% due 10/15/25...................................................................... 178,761
3 7.50% due 11/15/25...................................................................... 265,699
2,804,652 7.00% due 01/15/26...................................................................... 2,701,364
6,634,932 7.00% due 03/15/26...................................................................... 6,390,368
623,610 7.50% due 03/15/26...................................................................... 616,208
2,833,600 7.50% due 04/15/26...................................................................... 2,845,112
5,542,000 7.625% due 04/15/26..................................................................... 5,512,558
5,222,920 7.25% due 02/15/27...................................................................... 5,095,741
5,291,881 7.125% due 01/15/31..................................................................... 5,130,002
2,621,098 7.25% due 01/15/31...................................................................... 2,557,274
7,843,596 7.00% due 05/15/35...................................................................... 7,532,304
6,425,000 7.50% TBA (t)........................................................................... 6,348,703
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $305,208,718)............................ 300,049,528
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
U.S. GOVERNMENT TREASURY OBLIGATIONS (24.1%)
<C> <S> <C> <C>
U.S. Treasury Bonds
$ 63,000,000 11.125% due 08/15/03 (s)................................................................ $ 79,149,419
24,000,000 8.50% due 02/15/20...................................................................... 27,782,160
U.S. Treasury Notes
20,500,000 8.875% due 11/15/98..................................................................... 21,778,995
45,000,000 8.50% due 11/15/00...................................................................... 48,641,850
6,675,000 6.375% due 03/31/01..................................................................... 6,655,042
------------
TOTAL U.S. GOVERNMENT TREASURY OBLIGATIONS (COST $185,195,481).......................... 184,007,466
------------
<CAPTION>
MOODY'S/S&P
RATING
-----------
<C> <S> <C> <C>
FOREIGN GOVERNMENT OBLIGATIONS (0.9%)
3,500,000 Republic of Argentina, 9.25% due 02/23/01.................................. B1/NR 3,334,695
3,500,000 United Mexican States, 9.75% due 02/06/01.................................. Ba2/NR 3,456,250
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST $6,817,454).................................. 6,790,945
------------
<CAPTION>
SHARES
- ---------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.3%)
NATURAL GAS (0.3%)
74,600 Lasmo PLC, Sponsored ADR, 10.00%, Series A................................. Ba1/BBB- 1,837,025
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,659,850).................................... 1,837,025
------------
<CAPTION>
PRINCIPAL
AMOUNT
- ---------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT (4.8%)
$ 36,773,000 Goldman Sachs Repurchase Agreement, dated 4/30/96 due 5/01/96, proceeds
$36,778,444 (collateralized by U.S. Treasury Bond, 7.125% due 02/15/23,
valued at $37,509,234)
(cost $36,773,000)....................................................... P1/A1+ $ 36,773,000
------------
TOTAL INVESTMENTS (COST $789,023,564) (102.1%)........................................................... 778,755,139
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.1%)............................................................ (15,947,150)
------------
TOTAL NET ASSETS (100.0%)................................................................................ $762,807,989
------------
------------
</TABLE>
Note: Based on the cost of investments of $789,822,741 for Federal Income Tax
purposes at April 30, 1996, the aggregate gross unrealized appreciation
and depreciation was $1,998,016 and $13,065,618, respectively, resulting
in net unrealized depreciation of $11,067,602.
(t) TBA securities are purchased (sold) on a forward commitment basis with an
approximate principal amount and no definite maturity date. The actual
principal amount and maturity date will be determined upon settlement.
(s) $50,000,000 par segregated as collateral for TBA securities.
Abbreviations:
144A - Securities restricted for resale to Qualified Institutional Buyers.
ADR - American Depository Receipt; ARM - Adjustable Rate Mortgage; FHA - Federal
Housing Administration;
PAC - Planned Amortization Class; Remic - Real Estate Mortgage Investment
Conduit; NR - Not Rated
SCH - Scheduled Payment Bond
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $789,023,564) $778,755,139
Cash 173
Receivable for Investments Sold 27,078,962
Interest Receivable 10,892,056
Prepaid Trustees' Fees 3,106
Prepaid Expenses and Other Assets 1,354
------------
Total Assets 816,730,790
------------
LIABILITIES
Payable for Investments Purchased 53,606,427
Advisory Fee Payable 224,845
Custody Fee Payable 20,871
Administrative Services Fee Payable 15,449
Administration Fee Payable 8,077
Fund Services Fee Payable 2,803
Accrued Expenses 44,329
------------
Total Liabilities 53,922,801
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $762,807,989
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $22,795,542
Dividend Income (Net of Foreign Withholding Tax of $13,991) 79,255
-----------
Total Investment Income 22,874,797
EXPENSES
Advisory Fee $1,034,411
Custodian Fees and Expenses 99,730
Administrative Services Fee 61,515
Administration Fee 37,995
Professional Fees and Expenses 23,011
Fund Services Fee 19,158
Trustees' Fees and Expenses 5,849
Printing Expenses 5,397
Miscellaneous 4,001
----------
Total Expenses (1,291,067)
-----------
NET INVESTMENT INCOME 21,583,730
NET REALIZED GAIN ON INVESTMENTS (including $606,386 net realized loss from
forward contracts) 4,183,731
NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENTS (including $606,109
net unrealized appreciation from forward contracts) (27,865,651)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($2,098,190)
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE
ENDED FISCAL
APRIL 30, YEAR ENDED
1996 OCTOBER 31,
INCREASE IN NET ASSETS (UNAUDITED) 1995
----------- -------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $21,583,730 $29,754,031
Net Realized Gain on Investments 4,183,731 7,762,316
Net Change in Unrealized Appreciation (Depreciation) of
Investments (27,865,651) 26,604,322
----------- -------------
Net Increase (Decrease) in Net Assets Resulting from
Operations (2,098,190) 64,120,669
----------- -------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 258,019,845 241,455,035
Withdrawals (74,993,661) (89,561,736)
----------- -------------
Net Increase from Investors' Transactions 183,026,184 151,893,299
----------- -------------
Total Increase in Net Assets 180,927,994 216,013,968
NET ASSETS
Beginning of Period 581,879,995 365,866,027
----------- -------------
End of Period $762,807,989 $581,879,995
----------- -------------
----------- -------------
- -----------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE PERIOD
FOR THE SIX ENDED JULY 12, 1993
MONTHS ENDED OCTOBER 31, (COMMENCEMENT OF
APRIL 30, 1996 -------------------- OPERATIONS) THROUGH
(UNAUDITED) 1995 1994 OCTOBER 31, 1993
-------------- --------- --------- -------------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.37%(a) 0.39% 0.46% 0.48%(a)
Net Investment Income 6.26%(a) 6.68% 5.88% 4.91%(a)
Portfolio Turnover 163% 293% 234% 295%(b)
</TABLE>
(a) Annualized.
(b) Portfolio turnover is for the twelve month period ended October 31, 1993,
and includes the portfolio activity of the Portfolio's predecessor entity,
The Pierpont Bond Fund, for the period November 1, 1992 through July 11,
1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Fixed Income Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Portfolio commenced operations on July 12, 1993 and
received a contribution of certain assets and liabilities, including securities,
with a value of $91,653,371 on that date from The Pierpont Bond Fund in exchange
for a beneficial interest in the Portfolio. At that date, net unrealized
appreciation of $1,731,405 was included in the contributed securities. The
Portfolio's investment objective is to provide a high total return consistent
with moderate risk of capital and maintenance of liquidity. The Declaration of
Trust permits the Trustees to issue an unlimited number of beneficial interests
in the Portfolio.
The preparation of financial statements prepared 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.
b) 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.
c) The Portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables 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 foreign forward and spot
currency contract translations. There were no open forward or spot
currency contracts as of April 30, 1996.
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
d) 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.
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 investment
advisory agreement, the Portfolio pays Morgan at an annual rate of 0.30%
of the Portfolio's average daily net assets. For the six months ended
April 30, 1996, this fee amounted to $1,034,411.
b) The Portfolio has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as Administrator and exclusive placement agent.
Signature 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 Signature. The agreement provides
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 Administration 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 is applied each day to the net assets of the Portfolio.
For the period from November 1, 1995 to December 28, 1995, Signature's
fee for these services amounted to $5,709.
Effective December 29, 1995, the Administration Agreement was amended
such that the fee charged would be 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 subject to this agreement (the "Master
Portfolios") and 0.01% on the aggregate average daily net assets of the
Master Portfolios in excess of $7 billion. The portion of this charge
payable by the Portfolio is determined by the proportionate share its net
assets bear to the total net assets of The Pierpont Funds, The JPM
Institutional Funds, The JPM Advisor Funds and the Master Portfolios. For
the period from December 29, 1995 through April 30, 1996, Signature's fee
for these services amounted to $32,286.
c) Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement ("Services Agreement") with Morgan under which 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 at 0.10% of the
Portfolio's average daily net assets up to $200 million, 0.05% of the
next $200 million of average daily net assets, and 0.03% of average daily
net assets thereafter. From September 1, 1995 until December 28, 1995, an
interim agreement between
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
the Portfolio and Morgan provided for the continuation of the oversight
services that were outlined under the prior agreement and that Morgan
shall bear all of its expenses incurred in connection with these
services.
Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement with Morgan (the "Agreement") under which Morgan is
responsible for overseeing certain aspects of the administration and
operation of the Portfolio. Under the Agreement, the Portfolio has agreed
to pay Morgan a fee equal to its proportionate share of an annual
complex-wide charge. This charge is 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 aggregate
average daily net assets in excess of $7 billion. The portion of this
charge payable by the Portfolio is determined by the proportionate share
that the Portfolio's net assets bear to the net assets of the Master
Portfolios and other investors in the Master Portfolios for which Morgan
provides similar services. For the period from December 29, 1995 through
April 30, 1996, the fee for these services amounted to $61,515.
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 shareholders of Group. The Portfolio's
allocated portion of Group's costs in performing its services amounted to
$19,158 for the six months ended April 30, 1996.
e) An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Pierpont Funds, The JPM Institutional Funds and their
corresponding Portfolios. The Trustees' Fees and Expenses shown in the
financial statements represents the Portfolio's allocated portion of the
total fees and expenses. The Trustee who serves as Chairman and Chief
Executive Officer of these Funds and Portfolios 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 $2,500.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1996 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS FROM
PURCHASES SALES
---------------- ----------------
<S> <C> <C>
U.S. Treasury and Agency Obligations $ 1,079,884,570 $ 912,288,107
Corporate and Collateralized Obligations 224,622,725 197,955,050
---------------- ----------------
$ 1,304,507,295 $ 1,110,243,157
---------------- ----------------
---------------- ----------------
</TABLE>
27
<PAGE>
THE JPM ADVISOR U.S. FIXED INCOME FUND
THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND
THE JPM ADVISOR U.S. EQUITY FUND
THE JPM ADVISOR U.S. SMALL CAP EQUITY FUND
THE JPM ADVISOR INTERNATIONAL EQUITY FUND
THE JPM ADVISOR EUROPEAN EQUITY FUND
THE JPM ADVISOR JAPAN EQUITY FUND
THE JPM ADVISOR ASIA GROWTH FUND
THE JPM ADVISOR EMERGING MARKETS EQUITY FUND
FOR MORE INFORMATION ON THE JPM ADVISOR FAMILY OF FUNDS,
CALL J.P. MORGAN FUNDS SERVICES AT (800)JPM-3637.
THE JPM ADVISOR FAMILY OF FUNDS
THE
JPM ADVISOR
U.S. FIXED
INCOME FUND
SEMI-ANNUAL REPORT
APRIL 30, 1996
