EX-99.17(F) 7 a2043521zex-99_17f.txt EXHIBIT 99.17(F) LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND July 1, 2000 Dear Shareholder, For the 12 months ended May 31, 2000, the J.P. Morgan Institutional U.S. Equity Fund posted a 2.45% return, underperforming both the 10.47% return of the S&P 500 and the 13.69% return of the Lipper Multi-Cap Core Fund Average. The fund's net asset value declined to $12.79 on May 31, 2000, from $15.08 on May 31, 1999. During the year, the fund made distributions of approximately $0.11 per share from ordinary income, approximately $0.84 per share from short-term capital gains, and approximately $1.71 per share from long-term capital gains. On May 31, 2000, the net assets of the fund were approximately $241.5 million, while the assets of The U.S. Equity Portfolio, in which the fund invests, amounted to approximately $628.2 million. This report includes a discussion with Henry D. Cavanna, the portfolio manager primarily responsible for The U.S. Equity Portfolio. In this interview, Henry talks about the events of the previous year that had the greatest effect on the portfolio and discusses his investment strategy. As chairman and president of Asset Management Services, we appreciate your investment in the fund. If you have any comments or questions, please call your Morgan representative or J.P. Morgan Funds Services at (800) 766-7722. Sincerely yours, /s/ Ramon de Oliveira /s/ Keith M. Schappert Ramon de Oliveira Keith M. Schappert Chairman of Asset Management Services President of Asset Management Services J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated -------------------------------------------------------------------------------- TABLE OF CONTENTS LETTER TO THE SHAREHOLDERS......... 1 FUND FACTS AND HIGHLIGHTS....... 8 FUND PERFORMANCE................... 2 FINANCIAL STATEMENTS........... 10 PORTFOLIO MANAGER Q&A.............. 3 -------------------------------------------------------------------------------- 1 Fund performance EXAMINING PERFORMANCE There are several ways to evaluate a mutual fund's historical performance record. One approach is to look at the growth of a hypothetical investment of $3,000,000 (the minimum investment in the fund). The chart at right shows that $3,000,000 invested on May 31, 1990*, would have grown to $13,369,350 on May 31, 2000. Another way to look at performance is to review a fund's average annual total return. This figure takes the fund's actual (or cumulative) return and shows what would have happened if the fund had achieved that return by performing at a constant rate each year. Average annual total returns represent the average yearly change of a fund's value over various time periods, typically one, five, or ten years (or since inception). Total returns for periods of less than one year are not annualized and provide a picture of how a fund has performed over the short term. GROWTH OF $3,000,000 OVER 10 YEARS* MAY 31, 1990 - MAY 31, 2000 [CHART] [EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC]
LIPPER MULTI-CAP CORE INST US EQUITY FUNDS AVERAGE S&P 500 5/31/90 3,000,000 3,000,000 3,000,000 6/30/90 3,012,744 2,960,400 2,979,750 7/31/90 3,038,668 2,700,477 2,970,185 8/31/90 2,803,500 2,553,031 2,701,710 9/30/90 2,656,359 2,493,801 2,570,218 10/31/90 2,652,625 2,655,399 2,559,269 11/30/90 2,805,697 2,739,309 2,724,700 12/31/90 2,884,116 2,894,354 2,800,610 1/31/91 2,983,893 3,101,301 2,922,576 2/28/91 3,187,211 3,193,409 3,131,600 3/31/91 3,273,933 3,201,393 3,207,447 4/30/91 3,275,824 3,336,812 3,215,048 5/31/91 3,444,155 3,181,984 3,353,745 6/30/91 3,300,483 3,330,582 3,200,111 7/31/91 3,462,005 3,430,833 3,349,268 8/31/91 3,549,577 3,388,977 3,428,613 9/30/91 3,485,369 3,451,334 3,371,252 10/31/91 3,579,357 3,316,732 3,416,562 11/30/91 3,446,208 3,676,266 3,278,908 12/31/91 3,868,136 3,693,176 3,653,917 1/31/92 3,859,862 3,749,313 3,585,845 2/29/92 3,944,672 3,662,704 3,632,281 3/31/92 3,859,796 3,672,593 3,561,633 4/30/92 3,895,074 3,697,566 3,666,203 5/31/92 3,946,953 3,599,951 3,684,167 6/30/92 3,849,329 3,729,189 3,629,347 7/31/92 3,960,132 3,658,707 3,777,606 8/31/92 3,887,002 3,707,734 3,700,278 9/30/92 3,924,243 3,767,799 3,743,756 10/31/92 3,946,528 3,948,277 3,756,672 11/30/92 4,129,258 4,018,161 3,884,587 12/31/92 4,205,740 4,064,772 3,932,251 1/31/93 4,275,312 4,046,074 3,965,125 2/28/93 4,239,404 4,152,890 4,019,169 3/31/93 4,331,372 4,049,899 4,103,974 4/30/93 4,218,869 4,179,495 4,004,781 5/31/93 4,342,622 4,186,601 4,111,909 6/30/93 4,349,680 4,175,297 4,123,956 7/31/93 4,354,310 4,359,010 4,107,378 8/31/93 4,511,722 4,392,574 4,263,212 9/30/93 4,453,908 4,458,902 4,230,513 10/31/93 4,570,210 4,389,789 4,318,043 11/30/93 4,578,825 4,514,020 4,276,892 12/31/93 4,670,995 4,659,372 4,328,599 1/31/94 4,873,894 4,590,879 4,475,772 2/28/94 4,770,286 4,382,453 4,354,254 3/31/94 4,574,436 4,406,995 4,164,409 4/30/94 4,682,528 4,431,674 4,217,797 5/31/94 4,730,088 4,304,042 4,287,011 6/30/94 4,583,084 4,421,542 4,181,936 7/31/94 4,737,580 4,613,879 4,319,271 8/31/94 4,904,273 4,526,677 4,496,361 9/30/94 4,790,220 4,578,733 4,386,425 10/31/94 4,834,086 4,404,284 4,484,988 11/30/94 4,610,367 4,447,446 4,321,645 12/31/94 4,656,055 4,493,699 4,385,735 1/31/95 4,759,623 4,667,156 4,499,457 2/28/95 4,962,256 4,799,703 4,674,800 3/31/95 5,142,374 4,896,177 4,812,754 4/30/95 5,254,948 5,043,063 4,954,489 5/31/95 5,448,575 5,221,587 5,152,520 6/30/95 5,534,131 5,443,504 5,272,213 7/31/95 5,705,243 5,493,585 5,447,040 8/31/95 5,747,341 5,656,744 5,460,712 9/30/95 5,904,297 5,578,115 5,691,154 10/31/95 5,751,958 5,812,396 5,670,837 11/30/95 6,075,101 5,868,195 5,919,786 12/31/95 6,184,698 6,001,403 6,033,802 1/31/96 6,345,784 6,129,233 6,239,192 2/29/96 6,477,581 6,193,590 6,297,029 3/31/96 6,599,615 6,363,294 6,357,670 4/30/96 6,741,175 6,496,287 6,451,382 5/31/96 6,833,921 6,430,025 6,617,763 6/30/96 6,755,819 6,107,881 6,642,977 7/31/96 6,399,479 6,319,214 6,349,490 8/31/96 6,622,307 6,640,230 6,483,401 9/30/96 6,926,419 6,729,209 6,848,287 10/31/96 7,026,042 7,153,149 7,037,162 11/30/96 7,623,780 7,085,194 7,569,101 12/31/96 7,496,976 7,406,153 7,419,158 1/31/97 7,928,653 7,361,716 7,882,706 2/28/97 7,961,439 7,070,929 7,944,507 3/31/97 7,693,690 7,324,775 7,618,067 4/30/97 8,010,617 7,852,891 8,072,872 5/31/97 8,557,044 8,164,651 8,564,347 6/30/97 8,819,329 8,821,905 8,948,030 7/31/97 9,589,791 8,552,837 9,660,024 8/31/97 9,249,167 9,029,230 9,118,870 9/30/97 9,666,602 8,706,887 9,618,311 10/31/97 9,284,947 8,874,059 9,297,059 11/30/97 9,499,628 8,994,746 9,727,420 12/31/97 9,639,729 9,003,741 9,894,439 1/31/98 9,698,788 9,689,826 10,003,872 2/28/98 10,420,619 10,112,302 10,725,351 3/31/98 10,873,298 10,198,257 11,274,596 4/30/98 11,103,385 9,919,844 11,388,018 5/31/98 10,998,202 10,148,001 11,192,258 6/30/98 11,149,485 9,876,034 11,646,887 7/31/98 10,905,816 8,295,869 11,522,848 8/31/98 9,165,690 8,733,891 9,856,875 9/30/98 9,904,221 9,411,641 10,488,306 10/31/98 10,642,751 9,936,810 11,341,425 11/30/98 11,473,598 10,531,032 12,028,829 12/31/98 12,029,400 10,802,732 12,721,930 1/31/99 12,392,617 10,398,710 13,253,961 2/28/99 11,899,679 10,746,027 12,842,028 3/31/99 12,435,851 11,222,076 13,355,837 4/30/99 13,188,752 11,090,778 13,873,109 5/31/99 13,050,287 11,671,934 13,545,565 6/30/99 13,803,996 11,395,310 14,297,344 7/31/99 13,275,074 11,181,078 13,850,981 8/31/99 12,945,489 10,923,913 13,781,726 9/30/99 12,407,540 11,436,244 13,403,969 10/31/99 12,945,489 11,841,087 14,252,172 11/30/99 13,266,524 12,742,194 14,541,918 12/31/99 13,818,828 12,266,910 15,398,437 1/31/00 13,243,914 12,618,971 14,624,820 2/29/00 12,909,419 13,464,442 14,347,972 3/31/00 14,320,570 12,987,801 15,751,634 4/30/00 13,662,033 12,650,118 15,277,667 5/31/00 13,369,350 12,486,931 14,964,170
LIPPER PERFORMANCE AVERAGES ARE CALCULATED BY TAKING AN ARITHMETIC AVERAGE OF THE RETURNS OF THE FUNDS IN THE GROUP. THE AVERAGE ANNUALIZED RETURNS THAT RESULT FROM THIS METHODOLOGY WILL DIFFER FROM ANNUALIZING THE GROWTH OF THE MINIMUM INITIAL INVESTMENT.
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS -------------------------------------------------------------------------------------------------------------------- THREE SIX ONE THREE FIVE TEN AS OF MAY 31, 2000 MONTHS MONTHS YEAR YEARS YEARS YEARS* -------------------------------------------------------------------------------------------------------------------- J.P. Morgan Institutional U.S. Equity Fund 3.56% 0.78% 2.45% 16.04% 19.66% 16.12% S&P 500 Index** 4.29% 2.90% 10.47% 20.44% 23.77% 17.43% Lipper Multi-Cap Core Fund Average*** 0.53% 6.43% 13.69% 16.65% 19.53% 15.24% AS OF MARCH 31, 2000 -------------------------------------------------------------------------------------------------------------------- J.P. Morgan Institutional U.S. Equity Fund 3.63% 15.42% 15.16% 23.01% 22.73% 17.81% S&P 500 Index** 2.29% 17.51% 17.94% 27.40% 26.76% 18.84% Lipper Multi-Cap Core Fund Average*** 5.39% 23.41% 25.51% 23.13% 21.96% 16.36%
*J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND'S RETURNS PRIOR TO JULY 19, 1993 (COMMENCEMENT OF OPERATIONS), INCLUDE HISTORICAL RETURNS OF THE U.S. EQUITY FUND, WHICH HAD A HIGHER EXPENSE RATIO. **S&P 500 INDEX IS AN UNMANAGED INDEX USED TO PORTRAY THE PATTERN OF COMMON STOCK MOVEMENT BASED ON THE AVERAGE PERFORMANCE OF 500 WIDELY HELD COMMON STOCKS. IT DOES NOT INCLUDE FEES OR OPERATING EXPENSES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT. ***DESCRIBES THE AVERAGE TOTAL RETURNS FOR ALL FUNDS IN THE INDICATED LIPPER CATEGORY, AS DEFINED BY LIPPER, INC., AND DOES NOT TAKE INTO ACCOUNT APPLICABLE SALES CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF FEES, ASSUME THE REINVESTMENT OF FUND DISTRIBUTIONS, AND REFLECT REIMBURSEMENT OF FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. 2 PORTFOLIO MANAGER Q&A [PHOTO] The following is an interview with HENRY D. CAVANNA, managing director and member of the portfolio management team for The U.S. Equity Portfolio. Henry joined Morgan in 1971 and is a senior U.S. equity portfolio manager in the U.S. Equity and Balanced Accounts Group. Prior to joining Morgan, Henry was with Harris Upham & Co. He received his B.A. from Boston College and his L.L.B. from the University of Pennsylvania. This interview took place on June 11, 2000, and reflects Henry's views on that date. THE U.S. ECONOMY HAS BEEN QUITE VOLATILE OVER THE PAST 12 MONTHS. WHAT WOULD YOU SAY WERE THE MAJOR HIGHLIGHTS DURING THIS PERIOD? HDC: It's been an unusually volatile year, to be sure, one driven by several significant occurrences. First, there was the exceptional strength of the U.S. economy, which grew at an annual rate of over 7% in the fourth quarter of 1999 and over 5% during the first quarter of this year - all with virtually no signs of inflationary growth. This rapid growth rate combined with a still very strong stock market and unrelenting consumer consumption prompted the Federal Reserve Board to begin raising rates last June. Since then, we've experienced five consecutive quarter-point rate increases capped, at least thus far, with a half-point increase in May of this year. The first couple of moves in this regard were designed to take away the stimulus that the Fed had provided to the global economy following the Asian currency crises of 1997 and the Russian debt crisis of 1998. Lately, it has shifted into a more aggressive tightening mode, with the distinct promise of further increases yet to come, at least until there are unambiguous indications that our economy is slowing. Late in this reporting period, we began to see signs of creeping inflationary growth for the first time in the present economic cycle. All along there have been signs of labor shortages and associated upward pressure on wages, but lately we've seen the prices of goods and raw materials come under pressure as well. Much higher energy prices have led the way, but we've also seen price pressures on a broad basket of basic materials, like paper, resin, and other commodities. Should these signs of inflation translate into actual inflationary growth, the Fed may have no choice but to tighten even further. Another major event of the last year was a sharp division in the stock market, one that pitted so-called old economy stocks against their new economy counterparts. In the latter case, the telecommunications-media-technology stocks that investors defined as THE new economy equities were driven to extremes of valuation that have only recently begun to relent. They were driven so largely by investors who recognized the Internet as a transforming global event and wanted to get their share of the companies that were perceived to be on the cutting edge of its development. Their virtually unrestrained affection for such stocks was such that they abandoned more basic industries in pursuit of them, along the way helping to drive down the prices of old economy companies to levels that were, and in some cases still are, well below what we believe to be any reasonable measure of their true valuation. This unusual period of time ended, at least for the moment, in the middle of March 2000 when the tech-heavy NASDAQ peaked and subsequently corrected, with many of the names that had previously driven the 3 market falling by the wayside in what was just short of a wholesale rout. The market is now waffling as investors try to come to grips with Fed policy and their own sometimes radically altered fortunes. In capsule form, these were among the more significant events of the past twelve months. There were others, to be sure. WHAT IS YOUR TAKE ON THE NEW ECONOMY? HDC: I think it's for real. Broadly speaking, on a secular basis, there is legitimacy to the concept of our being in the midst of a new economy, one that is able to grow on a sustainable basis for a longer period and at somewhat higher rates than in the past, all without triggering underlying inflation. This is very good for capital markets, the stock market, P/Es, corporate profits, and so on. There are basically two reasons why this new economy developed and is possibly here to stay. One is that corporate America has become much more competitive and leaner over the past decade, the result of downsizing, cost reductions and a strong focus on becoming globally competitive. Second is the impact of technology on the way that everyone, particularly corporate America, does business. Technology has led to major improvements in productivity, which in turn has led to virtually unprecedented price stability and very low inflation over the past several years. I think it's fair to say that U.S. companies as a group have been on the forefront of embracing technology a little faster than the rest of the world, both on the telecommunications side and the data processing side. This is for real and is sustainable and long term in nature. It's a good development that underpins valuations in the U.S. market longer term. But, at the same time, and at this point in time, we have peaked from an economic perspective. As noted, we're seeing a little inflation creep into the system and the economy has begun to slow. Whether this is due to the weight of its own excess, or the Fed's actions, or a combination of the two is anyone's guess. I, for one, side with the Fed and its virtually unimpeachable record in managing the economy over the aggressive expansionary period of the last 9-10 years. I would stress that when I say the economy is slowing, I don't mean slowing down and entering a recession, as has been the case in certain years past. Rather, I mean slowing from the unsustainable levels of growth in the 5%-7% range, to growth in the 3% range, which is still quite good. We're hopeful that this moderation of growth will relieve some of the pressures on labor and material prices and cut inflation off before it gets a head start. This isn't disturbing to us. It's what we need right now. YOU SAID THAT INVESTORS HAD DEFINED NEW ECONOMY STOCKS AS THE TRI-SECTORS: TELECOMMUNICATIONS, MEDIA, AND TECHNOLOGY. HOW DO YOU DIFFERENTIATE BETWEEN OLD AND NEW ECONOMY STOCKS, AND HOW HAS THE MARKETPLACE TREATED THEM LATELY? HDC: For the most part, I'd have to agree with the market's definition of new economy equities as being all technology-related enterprises, including Internet-focused companies, telecommunications, and some media. However, I'd say we're talking principally about technology and the Internet offshoots of it. The old economy is everything else. 4 Technology as a group has risen to comprise some 30% of the S&P 500 and was selling at something like 60X 2000 earnings on average at its peak. By extension, the market continued to include in its valuation glow some pretty well-established, high quality growth companies that were not technology driven, such as GE, Wal-Mart, and other companies like them. These companies traded at around 40X 2000 earnings, so they weren't being penalized, but were being treated somewhat like new economy companies. The rest of the market, including drug companies, utilities, banks, consumer durable and non-durable companies, and other perceived old economy stocks were being priced as a group in a range of 8X-25X 2000 earnings. Even the drug companies, which traditionally are classified as growth companies, were selling at multiples that were cheap in terms of their earnings potential. These did very poorly last year when there was enormous enthusiasm for technology and technology alone. If you looked just at the 1999 calendar year, the S&P 500 was up 21%. But, you wouldn't have found this increase across the board. It was really driven by the technology sector, which was up 75%. In fact, among S&P 500 companies, only half were up last year, while the rest declined. So, the big returns came in a very concentrated form, with 25 stocks in the S&P 500 accounting for over 90% of its return for the year. This unusually narrow market carried over into the first quarter of 2000, got carried away with itself, became unsustainable, and has since adjusted to more realistic valuations, with technology correcting 30% from its peak. It is now coming back. The NASDAQ is still off year-to-date through May, and the rest of the market is more or less flat as it continues to adjust to the valuation bubble created late last year through the first quarter of this one. A number of Internet stocks have been marked down to reality. The good ones still command premium values, but the peripheral ones have taken it on the chin, the victims of unrealistic business models. And, of course, the market is reacting to a slowing economy, one that will negatively impact quite a few companies as well, like those in the auto, finance and retail sectors, which tend to suffer when interest rates rise. So, it's been a swirling market, one lacking direction in the face of these and other issues. It's truly been an amazing time for U.S. equities, old or new economy. NOT TOO LONG AGO, ALL ANYONE COULD TALK ABOUT WAS THE DOMINANCE OF LARGE- AND SUPER LARGE-CAP GROWTH STOCKS OVER ALL OTHER INVESTMENTS. WHAT HAPPENED TO THIS INVESTMENT THEME? HDC: This major trend morphed into the new economy/technology theme. The dominance of big caps was true for the last couple of years, when we called the small group of standout large-cap growth stocks the "Nifty 50." At that time, it appeared that they could do no wrong. Lately, however, a number of the Nifty 50 companies haven't proven to be so nifty, after all. These companies, like the P&Gs of the world, have had real difficulty growing their top line revenues at a level that will produce double-digit earnings growth on a consistent basis. A number of these more traditional companies are fortunate to achieve even 4%-8% revenue growth. By comparison, look on the other side of the ledger and see how the new economy companies compare with their old economy counterparts. I could list the Ciscos, EMCs, Sun Microsystems on one side, and you would see top line revenue growth of 25%-50%. And this is for very large companies, with $10-$20 billion in annual revenues. On the other side, I could list more traditional consumer products companies, like Coca Cola and Pepsico, and solid financial companies, like BankAmerica, where you might see annual revenue growth of 4%-6%. 5 So, the market has gotten part of this investment argument very right. There IS a revolution in technology, and there are a number of companies that are benefiting from producing and using it to enhance revenues. Their revenues are exploding, and not just for a quarter or two. We think this is a longer-term phenomenon that is poised to accelerate as U.S. businesses increasingly incorporate the Internet into their day-to-day operations. While consumers have been buying over the Internet for a couple of years, the business community has just begun to use it as a way of doing business with their customers and suppliers. This means that they will have to make major ongoing investments in better computer equipment, faster memory, more bandwidth and so on. You don't see the Duponts and the General Motors slowing their investments in telecommunications equipment, wireless infrastructure, wireless equipment, and other essential tools of the Internet Age. They're accelerating such investments. As a consequence, those new economy companies that can provide these capabilities are all but certain to continue to enjoy stellar revenue growth. There is a limit, of course, but I see this trend continuing for many years to come. GIVEN THAT BACKDROP, HOW DID YOUR PORTFOLIO DO OVER THE PAST YEAR? HDC: We underperformed the benchmark as well as the competition. The main reason was that the narrow, tech-driven market of the early part of this period was not one that favored stock picking, or broadly diversified portfolios. Active management is not going to outperform a market that is dominated by 25 stocks, or one sector. It's just not going to happen. Our investment process stresses internal, proprietary research, and valuation methodologies that capture this research in our stock selection. Our focus is long term, and we don't tend to do well in markets that are driven by momentum, rather than underlying fundamentals. WHAT WERE SOME OF YOUR STANDOUT STOCKS OVER THE PAST 12 MONTHS ENDING MAY 31? HDC: Holdings in a variety of sectors helped performance. Tyco International, a very large holding and a diversified industrial company with good earnings growth, did very well over the 12 months, a period in which the overall market was flat. Another good performer was Pharmacia Corp., a large drug company that merged with Monsanto and, by doing so, acquired an excellent drug business with substantial growth potential. Both benefited from expected synergies between the two. We also made some good choices in the energy sector over the last year, including holding Anadarko Petroleum, which was up strongly during the period. Seagram's has also been a winner for us over this period of time and has benefited lately from speculation that it will be acquired by French conglomerate Vivendi. Within technology, Texas Instruments has been a winner, owing largely to its dominance in the development and production of digital signal processing (DSP) chips, which are essential to cell phones. Another is Sun Microsystems, which has grown with increasing use of the Internet. Almost all major Internet companies use Sun servers and software for their most mission critical applications, and that's been a phenomenal growth business for the company. WHICH WERE YOUR DISAPPOINTMENTS? HDC: Motorola has been a disappointment. It's really a very good company, and getting better, but it hasn't delivered the earnings growth and the earnings profit margins we would like to see on the cell phone and cellular infrastructure sides of its business. We also own Smurfit-Stone Container, a paper company in the 6 linerboard area, which has been very disappointing. It's a cyclical stock that trades on expectations about the economy. Even though earnings have been quite good, it has traded off a great deal as the market has rotated out of this sector. We think it's a cheap stock that is well managed and improving, but so far the market hasn't agreed with us. We also own some Global Crossing, a telecom company that has been building a global high speed telecom network. Its cash flow growth has been good, but it really hurt us when it fell victim to the second-quarter backlash against new economy companies. Microsoft hurt us, as well. We've been adding to it during the Department of Justice proceedings, but the stock has really underperformed the technology sector and the market quite a bit during this period of time. We think it's unusually attractive from an investment/valuation standpoint, but it's going through a difficult period. Even so, we are still comfortable with these and other companies from a valuation standpoint and look for them to improve as investors come down to earth and begin to value fundamentals over price momentum. WHAT DO YOU SEE HAPPENING OVER THE NEXT FEW MONTHS? HDC: Our best guess is that we're in a period where the market marks time, moving in a range of plus or minus 5%, as two events play out. One, the economy settles into a period of moderate growth and the Fed begins to back off. Two, the valuation bubble of the past year or so continues to correct, along the way creating enormous volatility. I think the message of the valuation bubble is that price does matter, that a lot of stocks continue to carry very big prices and that investors are trying to deal with a technology sector that is still priced at around 50X 2000 earnings. Hopefully, what supports the market over the near term will be reasonable economic growth, reasonable profit growth and dissipating inflationary expectations. Going forward over the next year, we are positive on the market, but shorter term it will be difficult for it to march forward until the Fed signals that it's finished with interest rates for the time being and the aforementioned valuation bubble is deflated. 7 FUND FACTS INVESTMENT OBJECTIVE J.P. Morgan Institutional U.S. Equity Fund seeks to provide a high total return from a portfolio of selected equity securities. It is designed for investors who want an actively managed portfolio of selected equity securities that seeks to outperform the S&P 500 Index. ------------------------------------------------------------------------------- COMMENCEMENT OF INVESTMENT OPERATIONS 7/19/93 -------------------------------------------------------------------------------- FUND NET ASSETS AS OF 5/31/00 $241,490,140 -------------------------------------------------------------------------------- PORTFOLIO NET ASSETS AS OF 5/31/00 $628,219,383 -------------------------------------------------------------------------------- DIVIDEND PAYABLE DATES 7/28/00, 10/27/00, 12/20/00 -------------------------------------------------------------------------------- CAPITAL GAIN PAYABLE DATE (IF APPLICABLE) 12/20/00 EXPENSE RATIO The fund's current annualized expense ratio of 0.60% covers shareholders' expenses for custody, tax reporting, investment advisory and shareholder services after reimbursement. The fund is no-load and does not charge any sales, redemption, or exchange fees. There are no additional charges for buying, selling, or safekeeping fund shares, or for wiring redemption proceeds from the fund. FUND HIGHLIGHTS ALL DATA AS OF MAY 31, 2000 PORTFOLIO ALLOCATION (PERCENTAGE OF TOTAL INVESTMENTS) [CHART] [EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC] TECHNOLOGY 30.0% CONSUMER GOODS & SERVICES 17.7% FINANCE 15.0% HEALTHCARE 9.7% INDUSTRIAL PRODUCTS & SERVICES 9.4% ENERGY 6.7% UTILITIES 5.3% BASIC INDUSTRIES 4.4% SHORT-TERM AND OTHER INVESTMENTS 1.1% TRANSPORTATION 0.7%
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS - ---------------------------------------------------------------- CISCO SYSTEMS, INC. (TECHNOLOGY) 3.9% INTEL CORP. (TECHNOLOGY) 3.8% GENERAL ELECTRIC CO. 3.6% (INDUSTRIAL PRODUCTS & SERVICES) EXXON MOBIL CORP. (ENERGY) 3.5% TYCO INTERNATIONAL LTD. 3.2% (INDUSTRIAL PRODUCTS & SERVICES) MICROSOFT CORP. (TECHNOLOGY) 3.0% SUN MICROSYSTEMS, INC. (TECHNOLOGY) 2.5% U.S. BANCORP (FINANCE) 2.1% WAL-MART STORES, INC. 2.0% (CONSUMER GOODS & SERVICES) PHARMACIA CORP. (HEALTHCARE) 1.9%
8 DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC. SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Opinions expressed herein and other fund data presented are based on current market conditions and are subject to change without notice. The fund invests in a master portfolio (another fund with the same objective). CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722 FOR A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. 9 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2000 -------------------------------------------------------------------------------- ASSETS Investment in The U.S. Equity Portfolio ("Portfolio"), at value $241,479,653 Receivable for Shares of Beneficial Interest Sold 51,743 Receivable for Expense Reimbursements 19,701 Prepaid Trustees' Fees 3,098 Prepaid Expenses and Other Assets 1,526 ------------ Total Assets 241,555,721 ------------ LIABILITIES Shareholder Servicing Fee Payable 20,711 Administrative Services Fee Payable 5,049 Administration Fee Payable 215 Fund Services Fee Payable 211 Accrued Expenses 39,395 ------------ Total Liabilities 65,581 ------------ NET ASSETS Applicable to 18,885,202 Shares of Beneficial Interest Outstanding (par value $0.001, unlimited shares authorized) $241,490,140 ============ Net Asset Value, Offering and Redemption Price Per Share $12.79 ----- ----- ANALYSIS OF NET ASSETS Paid-in Capital $193,479,087 Undistributed Net Investment Income 532,095 Accumulated Net Realized Gain on Investment 3,176,463 Net Unrealized Appreciation of Investment 44,302,495 ------------ Net Assets $241,490,140 ============
The Accompanying Notes are an Integral Part of the Financial Statements. 10 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED MAY 31, 2000 -------------------------------------------------------------------------------- INVESTMENT INCOME ALLOCATED FROM PORTFOLIO Allocated Dividend Income (Net of Foreign Withholding Tax of $8,908) $ 3,309,517 Allocated Interest Income 334,511 Allocated Portfolio Expenses (1,230,667) ------------ Net Investment Income Allocated from Portfolio 2,413,361 FUND EXPENSES Shareholder Servicing Fee $267,241 Administrative Services Fee 66,606 Registration Fees 18,881 Transfer Agent Fees 18,637 Professional Fees 12,291 Printing Expenses 5,669 Fund Services Fee 4,651 Administration Fee 3,434 Trustees' Fees and Expenses 3,305 Insurance Expense 689 Miscellaneous 36,399 -------- Total Fund Expenses 437,803 Less: Reimbursement of Expenses (64,994) -------- NET FUND EXPENSES 372,809 ------------ NET INVESTMENT INCOME 2,040,552 NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 15,597,704 NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENT ALLOCATED FROM PORTFOLIO (10,166,090) ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,472,166 ============
The Accompanying Notes are an Integral Part of the Financial Statements. 11 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
FOR THE FISCAL FOR THE FISCAL YEAR ENDED YEAR ENDED MAY 31, 2000 MAY 31, 1999 -------------- -------------- DECREASE IN NET ASSETS FROM OPERATIONS Net Investment Income $ 2,040,552 $ 2,716,018 Net Realized Gain on Investment Allocated from Portfolio 15,597,704 57,170,588 Net Change in Unrealized Depreciation of Investment Allocated from Portfolio (10,166,090) (16,516,308) ------------- ------------- Net Increase in Net Assets Resulting from Operations 7,472,166 43,370,298 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (1,950,993) (3,063,014) Net Realized Gain (45,835,171) (65,670,213) ------------- ------------- Total Distributions to Shareholders (47,786,164) (68,733,227) ------------- ------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Proceeds from Shares of Beneficial Interest Sold 44,908,943 58,287,913 Reinvestment of Dividends and Distributions 45,796,002 63,800,611 Cost of Shares of Beneficial Interest Redeemed (87,153,932) (197,460,645) ------------- ------------- Net Increase (Decrease) from Transactions in Shares of Beneficial Interest 3,551,013 (75,372,121) ------------- ------------- Total Decrease in Net Assets (36,762,985) (100,735,050) NET ASSETS Beginning of Fiscal Year 278,253,125 378,988,175 ------------- ------------- End of Fiscal Year (including undistributed net investment income of $532,095 and $442,536, respectively) $ 241,490,140 $ 278,253,125 ============= =============
The Accompanying Notes are an Integral Part of the Financial Statements. 12 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected data for a share outstanding throughout each year is as follows:
FOR THE FISCAL YEAR ENDED MAY 31, ------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 --------- --------- ------------ ---------------- ---------------- NET ASSET VALUE, BEGINNING OF YEAR $ 15.08 $ 16.73 $ 15.66 $ 14.00 $ 12.10 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.11 0.16 0.15 0.17 0.27 Net Realized and Unrealized Gain on Investments 0.26 2.39 3.81 3.02 2.66 -------- -------- -------- -------- -------- Total from Investment Operations 0.37 2.55 3.96 3.19 2.93 -------- -------- -------- -------- -------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (0.11) (0.17) (0.18) (0.25) (0.20) Net Realized Gain (2.55) (4.03) (2.71) (1.28) (0.83) -------- -------- -------- -------- -------- Total Distributions to Shareholders (2.66) (4.20) (2.89) (1.53) (1.03) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF YEAR $ 12.79 $ 15.08 $ 16.73 $ 15.66 $ 14.00 ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA Total Return 2.45% 18.66% 28.53% 25.21% 25.43% Net Assets, End of Year (in thousands) $241,490 $278,253 $378,988 $329,776 $221,368 Ratios to Average Net Assets Net Expenses 0.60% 0.60% 0.60% 0.60% 0.60% Net Investment Income 0.76% 0.89% 0.89% 1.33% 2.08% Expenses Without Reimbursement 0.63% 0.63% 0.63% 0.65% 0.62%
The Accompanying Notes are an Integral Part of the Financial Statements. 13 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND NOTES TO FINANCIAL STATEMENTS MAY 31, 2000 -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The J.P. Morgan Institutional U.S. Equity Fund (the "fund") is a separate series of J.P. Morgan Institutional 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 commenced operations on July 19, 1993. The fund invests all of its investable assets in The U.S. Equity Portfolio (the "portfolio"), a diversified open-end management investment company having the same investment objective as the fund. The value of such investment included in the Statement of Assets and Liabilities reflects the fund's proportionate interest in the net assets of the portfolio (38% at May 31, 2000). The performance of the fund is directly affected by the performance of the portfolio. The financial statements of the portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the fund's financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the fund: a) Valuation of securities by the portfolio is discussed in Note 1a of the portfolio's Notes to Financial Statements which are included elsewhere in this report. b) The fund records its share of net investment income, realized and unrealized gain and loss and adjusts its investment in the portfolio each day. All the net investment income and realized and unrealized gain and loss of the portfolio is allocated pro rata among the fund and other investors in the portfolio at the time of such determination. c) Distributions to shareholders of net investment income are declared as dividends and paid quarterly. Distributions to shareholders of net realized capital gain, if any, are declared and paid annually. d) Expenses incurred by the trust with respect to any two or more funds in the trust are allocated in proportion to the net assets of each fund in the trust, except where allocations of direct expenses to each fund can otherwise be made fairly. Expenses directly attributable to a fund are charged to that fund. e) The fund is treated as a separate entity for federal income tax purposes and intends to comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income, including net realized capital gains, if any, within the prescribed time periods. Accordingly, no provision for federal income or excise tax is necessary. f) The fund accounts for and reports distributions to shareholders in accordance with Statement of Position 93-2 "Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies." The effect of applying this statement as of May 31, 2000 was to increase accumulated net realized gain on investment by $91,681 and decrease paid-in-capital by $91,681. The adjustments are primarily attributable to the application of tax allocation rules and a basis adjustment as a result of asset migration at the portfolio level. Net investment income, net realized gains and net assets were not affected by this change. 14 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 2000 -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES a) The trust, on behalf of the fund, has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as co-administrator and distributor for the fund. Under a Co-Administration Agreement between FDI and the trust on behalf of the fund, FDI provides administrative services necessary for the operations of the fund, furnishes office space and facilities required for conducting the business of the fund and pays the compensation of the fund's officers affiliated with FDI. The fund has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to the fund is based on the ratio of the fund's net assets to the aggregate net assets of the trust and certain other investment companies subject to similar agreements with FDI. For the fiscal year ended May 31, 2000, the fee for these services amounted to $3,434. b) The trust, on behalf of the fund, has an Administrative Services Agreement (the "Services Agreement") with Morgan under which Morgan is responsible for certain aspects of the administration and operation of the fund. Under the Services Agreement, the fund has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the portfolio and other portfolios in which the trust and the J.P. Morgan Funds, invest (the "master portfolios") and J.P. Morgan Series Trust, in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to FDI. The portion of this charge payable by the fund is determined by the proportionate share that its net assets bear to the net assets of the trust, the master portfolios, other investors in the master portfolios for which Morgan provides similar services, and J.P. Morgan Series Trust. For the fiscal year ended May 31, 2000, the fee for these services amounted to $66,606. In addition, J.P. Morgan has agreed to reimburse the fund to the extent necessary to maintain the total operating expenses of the fund, including the expenses allocated to the fund from the portfolio, at no more than 0.60% of the average daily net assets of the fund through May 31, 2000. This reimbursement arrangement can be changed or terminated at any time at the option of J.P. Morgan. For the fiscal year ended May 31, 2000, J.P. Morgan has agreed to reimburse the fund $64,994 for expenses under this agreement. c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement with Morgan to provide account administration and personal account maintenance service to fund shareholders. The agreement provides for the fund to pay Morgan a fee for these services which is computed daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the fund. For the fiscal year ended May 31, 2000, the fee for these services amounted to $267,241. d) The trust, on behalf of the fund, has a Fund Services Agreement with Pierpont Group, Inc. ("Group") to assist the trustees in exercising their overall supervisory responsibilities for the trust's affairs. The trustees of the trust represent all the existing shareholders of Group. The fund's allocated portion of Group's costs in performing its services amounted to $4,651 for the fiscal year ended May 31, 2000. e) An aggregate annual fee of $75,000 is paid to each trustee for serving as a trustee of the trust, the J.P. Morgan Funds, the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses shown in the financial statements represent the fund's allocated portion of the total fees and expenses. 15 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 2000 -------------------------------------------------------------------------------- The trust's Chairman and Chief Executive Officer also serves as Chairman of Group and receives compensation and employee benefits from Group in his role as Group's Chairman. The allocated portion of such compensation and benefits included in the Fund Services Fee shown in the financial statements was $900. 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:
FOR THE FISCAL FOR THE FISCAL YEAR ENDED YEAR ENDED MAY 31, 2000 MAY 31, 1999 ------------------- ------------------- Shares of Beneficial Interest Sold............... 3,181,303 3,894,976 Reinvestment of Dividends and Distributions...... 3,574,395 4,782,771 Shares of Beneficial Interest Redeemed........... (6,326,942) (12,873,795) ------------------ ------------------ Net Increase (Decrease).......................... 428,756 (4,196,048) ================== ==================
From time to time, the fund may have a concentration of several shareholders holding a significant percentage of shares outstanding. Investment activities of these shareholders could have a material impact on the fund. 4. CREDIT AGREEMENT The trust, on behalf of the fund, together with other affiliated investment companies (the "funds"), entered into a revolving line of credit agreement (the "Agreement") on May 26, 1999, with unaffiliated lenders. The maximum borrowing under the Agreement was $150,000,000. The Agreement expired on May 23, 2000, however, the fund as party to the Agreement has extended the Agreement and continues its participation therein for an additional 364 days until May 21, 2001. The maximum borrowing under the new Agreement is $150,000,000. The purpose of the Agreement is to provide another alternative for settling large fund shareholder redemptions. Interest on any such borrowings outstanding will approximate market rates. Under the Agreement, the commitment fee is at an annual rate of 0.085% on the unused portion of the committed amount. The commitment fee is allocated to the funds in accordance with the procedures established by their respective trustees or directors. There were no outstanding borrowings pursuant to the Agreement at May 31, 2000. * * * * 5. TAX INFORMATION NOTICE (UNAUDITED) For corporate taxpayers 42.50% of the ordinary income distributions paid during the fiscal year ended May 31, 2000 qualify for the corporate dividends received deductions. 16 REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Shareholders of J.P. Morgan Institutional U.S. Equity Fund In our opinion, the accompanying statement of assets and liabilities and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of J.P. Morgan Institutional U.S. Equity Fund (one of the series constituting part of the J.P. Morgan Institutional Funds, hereafter referred to as the "fund") at May 31, 2000, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCooper LLP New York, New York July 14, 2000 17 The U.S. Equity Portfolio Annual Report May 31, 2000 (The following pages should be read in conjunction with J.P. Morgan Institutional U.S. Equity Fund Annual Financial Statements) 18 THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS MAY 31, 2000 --------------------------------------------------------------------------------
SECURITY DESCRIPTION SHARES VALUE -------------------------------------------------- ------------- ------------- COMMON STOCKS (98.5%) BASIC INDUSTRIES (4.4%) CHEMICALS (2.6%) Air Products and Chemicals, Inc.................. 225,600 $ 7,811,400 Rohm & Haas Co................................... 242,200 8,265,075 ------------ 16,076,475 ------------ FOREST PRODUCTS & PAPER (0.9%) Smurfit-Stone Container Corp.+................... 414,700 5,883,556 ------------ METALS & MINING (0.9%) Alcoa, Inc....................................... 34,132 1,994,589 Allegheny Technologies, Inc...................... 121,086 2,732,003 Phelps Dodge Corp................................ 17,900 803,262 ------------ 5,529,854 ------------ TOTAL BASIC INDUSTRIES......................... 27,489,885 ------------ CONSUMER GOODS & SERVICES (17.5%) AUTOMOTIVE (1.4%) Dana Corp........................................ 73,000 1,884,312 Ford Motor Co.................................... 72,600 3,525,637 Lear Corp.+...................................... 138,400 3,243,750 ------------ 8,653,699 ------------ BROADCASTING & PUBLISHING (1.8%) AT&T Corp. - Liberty Media Group, Class A+....... 112,600 4,989,587 Comcast Corp., Class A+.......................... 103,100 3,904,912 MediaOne Group, Inc.+............................ 41,000 2,739,312 ------------ 11,633,811 ------------ ENTERTAINMENT, LEISURE & MEDIA (4.1%) America Online, Inc.+............................ 173,100 9,174,300 News Corp. Ltd. (Spons. ADR)(i).................. 175,400 7,991,662 Seagram Company Ltd.(i).......................... 73,200 3,490,725 Time Warner, Inc................................. 62,300 4,917,806 ------------ 25,574,493 ------------ SECURITY DESCRIPTION SHARES VALUE ------------------------------------------------- ------------- ------------- FOOD, BEVERAGES & TOBACCO (2.9%) Coca-Cola Co..................................... 104,400 $ 5,572,350 Philip Morris Companies, Inc..................... 357,200 9,331,850 Quaker Oats Co................................... 47,400 3,486,862 ------------ 18,391,062 ------------ HOUSEHOLD PRODUCTS (1.2%) Clorox Co........................................ 58,300 2,310,137 Procter & Gamble Co.............................. 79,660 5,297,390 ------------ 7,607,527 ------------ PERSONAL CARE (1.0%) Estee Lauder Companies, Inc., Class A............ 43,100 1,931,419 Gillette Co...................................... 140,000 4,672,500 ------------ 6,603,919 ------------ RETAIL (5.1%) Abercrombie & Fitch Co., Class A+................ 177,500 1,741,719 Circuit City Stores-Circuit City Group........... 80,800 4,024,850 Gap, Inc......................................... 72,400 2,538,525 Home Depot, Inc.................................. 61,700 3,011,731 Target Corp...................................... 80,500 5,046,344 TJX Companies, Inc............................... 159,200 3,442,700 Wal-Mart Stores, Inc............................. 211,300 12,176,162 ------------ 31,982,031 ------------ TOTAL CONSUMER GOODS & SERVICES................ 110,446,542 ------------ ENERGY (6.6%) GAS-PIPELINES (0.7%) Dynegy, Inc., Class A............................ 56,100 4,326,712 ------------ OIL-PRODUCTION (5.4%) Anadarko Petroleum Corp.......................... 94,400 5,009,100 Baker Hughes, Inc................................ 120,800 4,379,000 Chevron Corp..................................... 31,200 2,884,050 Exxon Mobil Corp................................. 263,248 21,931,849 ------------ 34,203,999 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 19 THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) MAY 31, 2000 --------------------------------------------------------------------------------
SECURITY DESCRIPTION SHARES VALUE ------------------------------------------------- ------------- ------------- OIL-SERVICES (0.5%) Global Marine, Inc.+............................. 119,400 $ 3,380,512 ------------ TOTAL ENERGY................................... 41,911,223 ------------ FINANCE (15.0%) BANKING (5.5%) Astoria Financial Corp........................... 107,730 2,935,642 Bank One Corp.................................... 110,200 3,643,487 Citigroup, Inc................................... 105,600 6,567,000 First Union Corp................................. 147,900 5,204,231 KeyCorp.......................................... 148,500 3,118,500 U.S. Bancorp..................................... 492,000 12,792,000 ------------ 34,260,860 ------------ FINANCIAL SERVICES (5.3%) Capital One Financial Corp....................... 173,100 8,178,975 CIT Group, Inc., Class A......................... 139,700 2,558,256 E*TRADE Group, Inc.+............................. 417,900 6,503,569 Freddie Mac...................................... 133,600 5,945,200 Goldman Sachs Group, Inc......................... 136,600 10,048,638 ------------ 33,234,638 ------------ INSURANCE (4.2%) Ambac Financial Group, Inc....................... 193,500 9,747,563 American International Group, Inc................ 30,700 3,455,669 CIGNA Corp....................................... 50,000 4,440,625 MetLife, Inc.+................................... 218,400 4,477,200 XL Capital Ltd., Class A(i)...................... 70,500 4,194,750 ------------ 26,315,807 ------------ TOTAL FINANCE.................................. 93,811,305 ------------ HEALTH CARE (9.7%) MEDICAL SUPPLIES (0.5%) PE Corp. - PE Biosystems Group................... 53,300 2,958,150 ------------ PHARMACEUTICALS (9.2%) ALZA Corp.+...................................... 221,300 11,244,806 American Home Products Corp...................... 68,900 3,711,988 Bristol-Myers Squibb Co.......................... 116,300 6,403,769 Eli Lilly & Co................................... 118,500 9,020,813 Merck & Co., Inc................................. 44,400 3,313,350 Pharmacia Corp................................... 224,475 11,658,670 SECURITY DESCRIPTION SHARES VALUE ------------------------------------------------- ------------- ------------- PHARMACEUTICALS (CONTINUED) Schering-Plough Corp............................. 133,300 $ 6,448,388 Warner-Lambert Co................................ 46,800 5,715,450 ------------ 57,517,234 ------------ TOTAL HEALTH CARE.............................. 60,475,384 ------------ INDUSTRIAL PRODUCTS & SERVICES (9.4%) COMMERCIAL SERVICES (0.4%) Cendant Corp.+................................... 204,100 2,704,325 ------------ DIVERSIFIED MANUFACTURING (8.5%) Cooper Industries, Inc........................... 78,600 2,633,100 General Electric Co.............................. 427,200 22,481,400 Honeywell International, Inc..................... 144,500 7,902,344 Tyco International Ltd.(i)....................... 428,992 20,189,436 ------------ 53,206,280 ------------ POLLUTION CONTROL (0.5%) Waste Management, Inc............................ 153,457 3,126,686 ------------ TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 59,037,291 ------------ TECHNOLOGY (29.9%) COMPUTER PERIPHERALS (2.4%) EMC Corp.+....................................... 57,400 6,676,338 Quantum Corp.- DLT & Storage Systems+............ 222,400 2,307,400 Seagate Technology, Inc.+........................ 101,000 5,858,000 ------------ 14,841,738 ------------ COMPUTER SOFTWARE (6.5%) Citrix Systems, Inc.+............................ 73,600 3,873,200 Computer Associates International, Inc........... 151,900 7,822,850 Microsoft Corp.+................................. 313,000 19,582,063 Oracle Corp.+.................................... 77,600 5,577,500 Parametric Technology Corp.+..................... 148,600 1,578,875 Siebel Systems, Inc.+............................ 20,900 2,445,300 ------------ 40,879,788 ------------ COMPUTER SYSTEMS (5.6%) Compaq Computer Corp............................. 198,200 5,202,750 Dell Computer Corp.+............................. 113,400 4,890,375 Hewlett-Packard Co............................... 48,600 5,838,075
The Accompanying Notes are an Integral Part of the Financial Statements. 20 THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) MAY 31, 2000 --------------------------------------------------------------------------------
SECURITY DESCRIPTION SHARES VALUE ------------------------------------------------- ------------- ------------- COMPUTER SYSTEMS (CONTINUED) International Business Machines Corp............. 31,800 $ 3,412,538 Sun Microsystems, Inc.+.......................... 205,300 15,731,113 ------------ 35,074,851 ------------ ELECTRONICS (4.2%) Cisco Systems, Inc.+............................. 425,900 24,249,681 Micron Technology, Inc.+......................... 32,600 2,279,963 ------------ 26,529,644 ------------ SEMICONDUCTORS (5.2%) Intel Corp....................................... 189,700 23,653,219 Texas Instruments, Inc........................... 127,000 9,175,750 ------------ 32,828,969 ------------ TELECOMMUNICATION SERVICES (2.8%) Allegiance Telecom, Inc.+........................ 24,500 1,295,438 Global Crossing Ltd.+(i)......................... 140,500 3,521,281 Sprint Corp. (PCS Group)+........................ 71,500 3,968,250 WorldCom, Inc.+.................................. 234,750 8,832,469 ------------ 17,617,438 ------------ TELECOMMUNICATIONS-EQUIPMENT (3.2%) Lucent Technologies, Inc......................... 102,400 5,875,200 Motorola, Inc.................................... 67,900 6,365,625 Nortel Networks Corp............................. 71,000 3,856,188 QUALCOMM, Inc.+.................................. 20,700 1,373,963 Tellabs, Inc.+................................... 41,800 2,714,388 ------------ 20,185,364 ------------ TOTAL TECHNOLOGY............................... 187,957,792 ------------ TRANSPORTATION (0.7%) RAILROADS (0.7%) Union Pacific Corp............................... 97,800 4,138,163 ------------ UTILITIES (5.3%) ELECTRIC (0.8%) Allegheny Energy, Inc............................ 71,100 2,199,656 PG&E Corp........................................ 99,000 2,567,813 ------------ 4,767,469 ------------ PIPELINES (0.5%) Columbia Energy Group............................ 48,550 3,140,578 ------------ SECURITY DESCRIPTION SHARES VALUE ------------------------------------------------- ------------- ------------- TELEPHONE (4.0%) AT&T Corp........................................ 161,100 $ 5,588,156 Bell Atlantic Corp............................... 45,600 2,411,100 GTE Corp......................................... 90,000 5,692,500 Level 3 Communications, Inc.+.................... 53,900 4,113,244 SBC Communications, Inc.......................... 172,300 7,527,356 ------------ 25,332,356 ------------ TOTAL UTILITIES................................ 33,240,403 ------------ TOTAL COMMON STOCKS (COST $510,143,799)........................... 618,507,988 ------------
PRINCIPAL AMOUNT ------------- FIXED INCOME SECURITIES (0.2%) U.S. TREASURY OBLIGATIONS (0.2%) Notes, 5.625% due 02/28/01(s) (cost $1,143,644).............................. $ 1,150,000 1,141,019 ------------ SHORT-TERM INVESTMENTS (0.9%) OTHER INVESTMENT COMPANIES (0.9%) J.P. Morgan Institutional Prime Money Market Fund* (cost $5,750,959).............................. $ 5,750,959 5,750,959 ------------ TOTAL INVESTMENTS (COST $517,038,402) (99.6%)................................... 625,399,966 OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%).................... 2,819,417 ------------ NET ASSETS (100.0%)............................................. $628,219,383 ============
------------------------------ Note: Based on the cost of investments of $520,910,192 for federal income tax purposes at May 31, 2000 the aggregate gross unrealized appreciation and depreciation was $140,958,375 and $36,468,601, respectively, resulting in net unrealized appreciation of $104,489,774. + Non-income producing security. (i) Foreign security. (s) Security is partially segregated with custodian as collateral for futures contracts or with broker as initial margin for futures contracts. Spon. ADR - Sponsored American Depositary Receipt. * Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc. The Accompanying Notes are an Integral Part of the Financial Statements. 21 THE U.S. EQUITY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2000 -------------------------------------------------------------------------------- ASSETS Investments at Value (Cost $517,038,402) $625,399,966 Cash 1,144,405 Receivable for Investments Sold 4,349,045 Dividends Receivable 820,859 Interest Receivable 63,807 Variation Margin Receivable 7,981 Receivable for Expense Reimbursement 1,469 Prepaid Trustees' Fees 5,064 Prepaid Expenses and Other Assets 3,391 ------------ Total Assets 631,795,987 ------------ LIABILITIES Payable for Investments Purchased 3,254,641 Advisory Fee Payable 214,636 Custody Fee Payable 65,141 Administrative Services Fee Payable 13,082 Administration Fee Payable 891 Fund Services Fee Payable 544 Accrued Expenses 27,669 ------------ Total Liabilities 3,576,604 ------------ NET ASSETS Applicable to Investors' Beneficial Interests $628,219,383 ============
The Accompanying Notes are an Integral Part of the Financial Statements. 22 THE U.S. EQUITY PORTFOLIO STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED MAY 31, 2000 -------------------------------------------------------------------------------- INVESTMENT INCOME Dividend Income (Net of Foreign Withholding Tax of $22,818) $ 8,561,065 Interest Income 865,011 ----------- Investment Income 9,426,076 EXPENSES Advisory Fee $ 2,748,787 Custodian Fees and Expenses 180,628 Administrative Services Fee 172,419 Professional Fees and Expenses 45,426 Fund Services Fee 12,016 Trustees' Fees and Expenses 7,171 Administration Fee 6,803 Miscellaneous 9,587 ----------- Total Expenses 3,182,837 ----------- NET INVESTMENT INCOME 6,243,239 NET REALIZED GAIN ON Investments 37,972,209 Futures Contracts 166,859 ----------- Net Realized Gain 38,139,068 NET CHANGE IN UNREALIZED DEPRECIATION OF Investments (24,714,604) Futures Contracts (66,221) ----------- Net Change in Unrealized Depreciation (24,780,825) ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,601,482 ===========
The Accompanying Notes are an Integral Part of the Financial Statements. 23 THE U.S. EQUITY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
FOR THE FISCAL FOR THE FISCAL YEAR ENDED YEAR ENDED MAY 31, 2000 MAY 31, 1999 -------------- -------------- DECREASE IN NET ASSETS FROM OPERATIONS Net Investment Income $ 6,243,239 $ 7,489,950 Net Realized Gain on Investments and Futures Contracts 38,139,068 124,444,147 Net Change in Unrealized Depreciation of Investments and Futures Contracts (24,780,825) (20,064,046) ------------- ------------- Net Increase in Net Assets Resulting from Operations 19,601,482 111,870,051 ------------- ------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS Contributions 207,425,150 137,233,705 Withdrawals (318,237,694) (356,977,035) ------------- ------------- Net Decrease from Investors' Transactions (110,812,544) (219,743,330) ------------- ------------- Total Decrease in Net Assets (91,211,062) (107,873,279) NET ASSETS Beginning of Fiscal Year 719,430,445 827,303,724 ------------- ------------- End of Fiscal Year $ 628,219,383 $ 719,430,445 ============= =============
-------------------------------------------------------------------------------- SUPPLEMENTARY DATA --------------------------------------------------------------------------------
FOR THE FISCAL YEAR ENDED MAY 31, --------------------------------- 2000 1999 1998 1997 1996 ----- ----- ----- ----- ----- RATIOS TO AVERAGE NET ASSETS Expenses 0.46% 0.47% 0.47% 0.47% 0.46% Net Investment Income 0.90% 1.03% 1.01% 1.44% 2.20% Portfolio Turnover 89% 84% 106% 99% 85%
The Accompanying Notes are an Integral Part of the Financial Statements. 24 THE U.S. EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS MAY 31, 2000 -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The U.S. Equity Portfolio (the "portfolio") is registered under the Investment Company Act of 1940, as amended, as a no-load, diversified, open-end management investment company which was organized as a trust under the laws of the State of New York. The portfolio commenced operations on July 19, 1993. The portfolio's investment objective is to provide a high total return from a portfolio of selected equity securities. The Declaration of Trust permits the trustees to issue an unlimited number of beneficial interests in the portfolio. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the portfolio: a) The portfolio values securities that are listed on an exchange using prices supplied daily by an independent pricing service that are based on the last traded price on a national securities exchange or in the absence of recorded trades, at the readily available mean of the bid and asked prices on such exchange, if such exchange or market constitutes the broadest and most representative market for the security. Securities listed on a foreign exchange are valued at the last traded price or in the absence of recorded trades, at the readily available mean of the bid and asked prices on such exchange available before the time when net assets are valued. Independent pricing service procedures may also include the use of prices based on yields or prices of securities of comparable quality, coupon, maturity and type, indications as to the values from dealers, operating data, and general market conditions. Unlisted securities are valued at the average of the quoted bid and asked prices in the over-the-counter market provided by a principal market maker or dealer. If prices are not supplied by the portfolio's independent pricing service or principal market maker or dealer, such securities are priced using fair values in accordance with procedures adopted by the portfolio's trustees. All short-term securities with a remaining maturity of sixty days or less are valued using the amortized cost method. b) The portfolio's custodian (or designated subcustodians, as the case may be under tri-party repurchase agreements) takes possession of the collateral pledged for investments in repurchase agreements on behalf of the portfolio. It is the policy of the portfolio to value the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to the repurchase price plus accrued interest. In the event of default of the obligation to repurchase, the portfolio has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. c) Securities transactions are recorded on a trade date basis. Dividend income is recorded on the ex-dividend date or as of the time that the relevant ex-dividend date and amount becomes known. Interest income, which includes the amortization of premiums and discounts, if any, is recorded on an accrual basis. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification. d) A futures contract is an agreement to purchase/sell a specified quantity of an underlying instrument at a specified future date or to make/receive a cash payment based on the value of a securities index. The price at which the purchase and sale will take place is fixed when the portfolio enters into the contract. Upon entering into such a contract, the portfolio is required to pledge to the broker an amount of cash 25 THE U.S. EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 2000 -------------------------------------------------------------------------------- and/or liquid securities equal to the minimum "initial margin" requirements of the exchange. Pursuant to the contract, the portfolio agrees to receive from, or pay to, the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin" and are recorded by the portfolio as unrealized gains or losses. When the contract is closed, the portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time when it was closed. The portfolio invests in futures contracts for the purpose of hedging its existing portfolio securities, or securities the portfolio intends to purchase, against fluctuations in value caused by changes in prevailing market interest rates or securities movement. 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. e) The portfolio intends to be treated as a partnership for federal income tax purposes. As such, each investor in the portfolio will be taxed on its share of the portfolio's ordinary income and capital gains. It is intended that the portfolio's assets will be managed in such a way that an investor in the portfolio will be able to satisfy the requirements of Subchapter M of the Internal Revenue Code. The portfolio earns foreign income which may be subject to foreign withholding taxes at various rates. 2. TRANSACTIONS WITH AFFILIATES a) The portfolio has an Investment Advisory Agreement with J.P. Morgan Investment Management Inc. ("JPMIM"), an affiliate of Morgan Guaranty Trust Company of New York ("Morgan") and a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the agreement, the portfolio pays Morgan at an annual rate of 0.40% of the portfolio's average daily net assets. For the fiscal year ended May 31, 2000, such fees amounted to $2,767,011. The fund may invest in one or more affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed to reimburse its advisory fee from the fund in an amount to offset any doubling of investment advisory and shareholder servicing fees. For the fiscal year ended May 31, 2000, J.P. Morgan has agreed to reimburse the fund $18,224 under this agreement. Interest income included in the Statement of Operations for the year ended May 31, 2000 includes $460,527 of interest income from investments in affiliated Money Market Funds. b) The trust, on behalf of the portfolio, has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator and exclusive placement agent. Under a Co-Administration Agreement between FDI and the portfolio, FDI provides administrative services necessary for the operations of the portfolio, furnishes office space and facilities required for conducting the business of the portfolio and pays the compensation of the portfolio's officers affiliated with FDI. The portfolio has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to the portfolio is based on the ratio of the portfolio's net assets to the aggregate net assets of the portfolio and certain other investment companies subject to similar agreements with FDI. For the fiscal year ended May 31, 2000, the fee for these services amounted to $6,803. 26 THE U.S. EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 2000 -------------------------------------------------------------------------------- c) The trust, on behalf of the portfolio, has an Administrative Services Agreement (the "Services Agreement") with Morgan, under which Morgan is responsible for certain aspects of the administration and operation of the portfolio. Under the Services Agreement, the portfolio has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the portfolio and certain other portfolios for which the Morgan acts as advisor (the "master portfolios") and J.P. Morgan Series Trust in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion, less the complex-wide fees payable to FDI. The portion of this charge payable by the portfolio is determined by the proportionate share that its net assets bear to the net assets of the portfolio, other investors in the master portfolios for which Morgan provides similar services, and J.P. Morgan Series Trust. For the fiscal year ended May 31, 2000, the fee for these services amounted to $172,419. d) The trust, on behalf of the portfolio, has a Fund Services Agreement with Pierpont Group, Inc. ("Group") to assist the trustees in exercising their overall supervisory responsibilities for the portfolio's affairs. The trustees of the portfolio represent all the existing shareholders of Group. The portfolio's allocated portion of Group's costs in performing its services amounted to $12,016 for the fiscal year ended May 31, 2000. e) An aggregate annual fee of $75,000 is paid to each trustee for serving as a trustee of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds, the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses shown in the financial statements represents the portfolio's allocated portion of the total fees and expenses. The portfolio's Chairman and Chief Executive Officer also serves as Chairman of Group and 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 $2,300. 3. INVESTMENT TRANSACTIONS Investment transactions (excluding short-term investments) for the fiscal year ended May 31, 2000 were as follows:
COST OF PROCEEDS PURCHASES FROM SALES - --------- ------------ $601,219,097 $694,056,543
Futures transactions as of May 31, 2000 are summarized as follows:
NET UNREALIZED CURRENT MARKET CONTRACTS LONG APPRECIATION VALUE OF CONTRACTS -------------- -------------- ------------------ S&P 500, expiring June 2000...................... 8 $7,981 $2,844,400 ============= ============= =================
4. CREDIT AGREEMENT The portfolio is party to a revolving line of credit agreement (the "Agreement") as discussed more fully in Note 4 of the fund's Notes to the Financial Statements which are included elsewhere in this report. 27 REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Investors of The U.S. Equity Portfolio In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the supplementary data present fairly, in all material respects, the financial position of The U.S. Equity Portfolio (the "portfolio") at May 31, 2000, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its supplementary data for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States. These financial statements and supplementary data (hereafter referred to as "financial statements") are the responsibility of the portfolio's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, 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 May 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York July 14, 2000 28 J.P. MORGAN INSTITUTIONAL FUNDS PRIME MONEY MARKET FUND TREASURY MONEY MARKET FUND FEDERAL MONEY MARKET FUND TAX EXEMPT MONEY MARKET FUND TAX AWARE ENHANCED INCOME FUND: INSTITUTIONAL SHARES SHORT TERM BOND FUND BOND FUND GLOBAL STRATEGIC INCOME FUND TAX EXEMPT BOND FUND NEW YORK TAX EXEMPT BOND FUND CALIFORNIA BOND FUND: INSTITUTIONAL SHARES DIVERSIFIED FUND DISCIPLINED EQUITY FUND LARGE CAP GROWTH FUND: INSTITUTIONAL SHARES U.S. EQUITY FUND U.S. SMALL COMPANY FUND TAX AWARE DISCIPLINED EQUITY FUND: INSTITUTIONAL SHARES INTERNATIONAL EQUITY FUND EUROPEAN EQUITY FUND INTERNATIONAL OPPORTUNITIES FUND EMERGING MARKETS EQUITY FUND SMARTINDEX-TM- FUND: INSTITUTIONAL SHARES MARKET NEUTRAL FUND: INSTITUTIONAL SHARES FOR MORE INFORMATION ON THE J.P. MORGAN INSTITUTIONAL FUNDS, CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722. IMAR382 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND ANNUAL REPORT MAY 31, 2000