-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G3Gb127xpKNWAHMEHHN90jqo7TZRwPPkFXnyzMs6FVAN0vyfnZcXT1PRMeBKUKRK jxcn7saHAFpzqzjqv0dy7g== 0001047469-03-034564.txt : 20031028 0001047469-03-034564.hdr.sgml : 20031028 20031028134414 ACCESSION NUMBER: 0001047469-03-034564 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030831 FILED AS OF DATE: 20031028 EFFECTIVENESS DATE: 20031028 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JP MORGAN FUNDS CENTRAL INDEX KEY: 0000894089 IRS NUMBER: 133692750 STATE OF INCORPORATION: MA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07340 FILM NUMBER: 03960463 BUSINESS ADDRESS: STREET 1: 60 STATE STREET STREET 2: SUITE 1300 CITY: BOSTON STATE: MA ZIP: 02109- BUSINESS PHONE: 6175570700 MAIL ADDRESS: STREET 1: C/O FUNDS DISTRIBUTOR, INC. STREET 2: 60 STATE STREET, SUITE 1300 CITY: BOSTON STATE: MA ZIP: 02109- FORMER COMPANY: FORMER CONFORMED NAME: JPM PIERPONT FUNDS DATE OF NAME CHANGE: 19961011 FORMER COMPANY: FORMER CONFORMED NAME: PIERPONT FUNDS DATE OF NAME CHANGE: 19930328 N-CSR 1 a2120852zn-csr.txt N-CSR ----------------------------- OMB APPROVAL ----------------------------- OMB Number: 3235-0570 Expires: November 30, 2005 Estimated average burden hours per response....... 5.0 ----------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-07340 --------------------------------------------- J.P. Morgan Funds - ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 522 Fifth Avenue, New York, NY 10036 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) BISYS Fund Services, 3435 Stelzer Road, Columbus, OH 43219 - ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-800-348-4782 ---------------------------- Date of fiscal year end: August 31, 2003 ------------------------------------------------------- Date of reporting period: September 1, 2002 through August 31, 2003 ------------------------------------------------------ Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. ITEM 1. REPORTS TO STOCKHOLDERS. Include a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Act (17 CFR 270.30e-1). JPMORGAN FUNDS [GRAPHIC] ANNUAL REPORT AUGUST 31 2003 INCOME FUNDS BOND FUND BOND FUND II ENHANCED INCOME FUND FLEMING EMERGING MARKETS DEBT FUND GLOBAL STRATEGIC INCOME FUND SHORT TERM BOND FUND SHORT TERM BOND FUND II STRATEGIC INCOME FUND U.S. TREASURY INCOME FUND [JPMORGAN FLEMING ASSET MANAGEMENT LOGO] [JPMORGAN FLEMING ASSET MANAGEMENT LOGO] JPMORGAN FLEMING ASSET MANAGEMENT is a premier global wealth manager that has been working with affluent investors for over a hundred years. This experience provides us with a keen understanding of the unique needs of the affluent investor's portfolio. The legacy of our experience coupled with our GLOBAL INTELLECTUAL CAPITAL is the foundation from which our investment products have been built. We have investment professionals based in 44 countries across the globe. This local insight provides us with a global view of every investment decision we make which we believe is crucial in light of the ever-increasing rise of globalization in our market place. JPMorgan Fleming Asset Management is dedicated to working as an EXPERIENCED PARTNER with your financial advisor to help provide you with the WEALTH SOLUTIONS your portfolio needs. CONTENTS President's Letter 1 Fund Commentaries: 3 Bond Fund 3 Bond Fund II 5 Enhanced Income Fund 7 Fleming Emerging Markets Debt Fund 9 Global Strategic Income Fund 11 Short Term Bond Fund 13 Short Term Bond Fund II 15 Strategic Income Fund 17 U.S. Treasury Income Fund 19 Portfolio of Investments 21 Financial Statements 86 Notes to Financial Statements 111 Financial Highlights 154
HIGHLIGHTS - - Economic Weakness Persists - - Investor Optimism Grows Investments in a Fund are not bank deposits or obligations of, or guaranteed or endorsed by, any bank and are not insured or guaranteed by the FDIC, the Federal Reserve Board or any other government agency. You could lose money if you sell when the Fund's share price is lower than when you invested. Past performance is no guarantee for future performance. The general market views expressed in this report are opinions based on current market conditions and are subject to change without notice. These views are not intended to predict the future performance of a Fund or the securities markets. 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. Such views are not meant as investment advice and may not be relied on as an indication of trading intent on behalf of any Fund. Prospective investors should refer to the Fund's prospectus for a discussion of the Fund's investment objective, strategies and risks. Call JPMorgan Funds Service Center at (800) 348-4782 for a prospectus containing more complete information about a Fund including management fees and other expenses. Please read it carefully before investing. JPMorgan Funds are distributed by J.P. Morgan Fund Distributors, Inc. JPMorgan Income Funds PRESIDENT'S LETTER OCTOBER 6, 2003 DEAR SHAREHOLDER: We are pleased to present this annual report for the JPMorgan Income Funds for the year ended August 31, 2003. Inside you will find in-depth information on some of our income funds along with an update from the portfolio management team. ECONOMIC WEAKNESS PERSISTS The U.S. economy continued to send mixed signals through most of the period. In the autumn of 2002, investors were confronted with contradictory economic data, lackluster corporate earnings, a declining stock market and escalating geopolitical risk, all of which combined to hold back the recovery. In response, many elected to buy only the highest quality issues. In November, the Federal Reserve Board once again eased short-term interest rates, cutting them by 1/2 percent. Dominating attention during the winter were concerns about an impending war with Iraq, the outbreak of SARS, an increased threat of terrorism and rising energy prices. In general, consumer prices were higher, suggesting that household real income had fallen. Energy was certainly more expensive, putting more pressure on the American consumer. In fact, consumer confidence -- which had remained strong through the recession -- began to falter. According to the Conference Board, the measure of consumer confidence fell in February to its lowest level since 1993. INVESTOR OPTIMISM GROWS The news was better in the spring. The combat phase of the Iraq war ended more quickly than expected. Investors also celebrated better-than-expected corporate earnings, the passage of a new tax package and a more positive economic outlook. Money flowed back into the bond market and into riskier, higher yielding issues as many investors took on more risk for the possibility of an increased return. Although business remained reluctant to invest and hire, consumers were more optimistic and continued to take advantage of low mortgage interest rates. To support the emerging recovery, investors expected the Fed to ease interest rates by 1/2 percent. In June, however, the Fed cut the Federal Funds Rate by just 1/4 percent to 1%. Yields surged after the conservative cut as investors speculated that the easing cycle had ended. As economic fundamentals continued to improve, many economists predicted that third-quarter GDP growth could be near 5%. FUND FAMILY UPDATE As you may know, on July 16, 2003, the Board of Trustees of JPMorgan Global Strategic Income Fund approved the closing of the Fund's B share class. As a result, assets in B share accounts were transferred to the Fund's A share class at the close of business on September 12, 2003. In this challenging environment, your portfolio managers will continue to work hard to maintain strong performance. They will strive to obtain the highest possible yields while focusing on the preservation of your principal. The portfolio management team and all of us at JPMorgan Fleming Asset Management appreciate your continued investment with us and we anticipate serving your investment needs for many years to come. Should you have any questions, please feel free to contact the JPMorgan Funds Service Center at 1-800-348-4782. Sincerely, /s/ George C.W. Gatch George C.W. Gatch President JPMorgan Funds [SIDENOTE] [PHOTO OF GEORGE C.W. GATCH] The U.S. economy continued to send mixed signals through most of the period. JPMorgan Bond Fund AS OF AUGUST 31, 2003 (Unaudited) FUND FACTS Fund Inception 7/26/1993 Fiscal Year End AUGUST 31 Net Assets as of 8/31/2003 (In Millions) $ 1,234 Primary Benchmark CITIGROUP BROAD INVESTMENT GRADE BOND INDEX Average Credit Quality AA+ Duration 5.2 YEARS
Q: HOW DID THE FUND PERFORM? A: JPMorgan Bond Fund, which seeks to provide high total return consistent with moderate risk of capital and maintenance of liquidity, returned 3.99% (Institutional Shares) for the one-year period ended August 31, 2003. This compares to the 4.43% return of its benchmark index, the Citigroup Broad Investment Grade Bond Index. Q: WHY DID THE FUND PERFORM THIS WAY? A: The most significant driver of our relative performance over the past year was our residential mortgage positioning, which was a strong positive through the second quarter but notably impaired returns during July. Our duration positioning was a modest positive for performance through January, but detracted over the summer months. Although our investment-grade holdings detracted in the fall of 2002, they subsequently benefited from a strong credit rally. Our underweight to Treasury and Agency debt enhanced returns. Our allocations to high-yield and emerging markets debt performed well. Detracting was our position in international non-dollar securities, which underperformed the U.S. Treasury rally. Q: HOW WAS THE FUND MANAGED? A: In general, we maintained a long duration position, focusing on the shortest part of the yield curve, to hedge against unexpected geopolitical shocks and to benefit from mispricings and an accommodative Fed policy. For much of the period, we overweighted prepayment-sensitive mortgages because of their attractive yields. We actively managed coupon selection, focusing on 30-year current coupon mortgages (i.e., Fannie Mae, 5% and 5.5%). In investment-grade corporate bonds, we continued to focus on bottom-up security selection. Our corporate security overweights generally favored long maturities, which benefit most from spread compression. Early in 2003, the Fund invested in a hedged non-dollar position held on our expectation that European economic growth would lag the United States. We maintained modest positions in high-yield and emerging markets debt to benefit from attractive yields and valuation. 2 ANNUAL REPORT AUGUST 31 2003 (Unaudited) AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------------------------------------------------ CLASS A SHARES Without Sales Charge 4.32% 7.43% 5.73% 6.04% With Sales Charge* (0.34%) 5.78% 4.76% 5.55% CLASS B SHARES Without CDSC 2.94% 6.61% 5.25% 5.79% With CDSC** (2.01%) 5.72% 4.94% 5.79% CLASS C SHARES Without CDSC 3.52% 6.81% 5.37% 5.85% With CDSC*** 2.52% 6.81% 5.37% 5.85% INSTITUTIONAL SHARES 3.99% 7.37% 5.80% 6.17% SELECT SHARES 3.82% 7.21% 5.60% 5.97% ULTRA SHARES 4.08% 7.53% 5.94% 6.25%
* Sales Charge for Class A Shares is 4.50%. ** Assumes 5% CDSC (contingent deferred sales charge) for the one year period, 3% CDSC for the three year period, a 2% CDSC for the five year period and 0% for the ten year period. *** Assumes 1% CDSC for the one year period and 0% thereafter. [CHART] TEN-YEAR PERFORMANCE (8/31/93 TO 8/31/03)
JPMORGAN BOND FUND CITIGROUP BROAD INVESTMENT LIPPER INTERMEDIATE INVESTMENT (INSTITUTIONAL SHARES) GRADE BOND INDEX GRADE DEBT FUNDS INDEX Aug-93 $ 3,000,000 $ 3,000,000 $ 3,000,000 Sep-93 $ 3,011,700 $ 3,010,200 $ 3,009,600 Oct-93 $ 3,021,337 $ 3,019,532 $ 3,021,337 Nov-93 $ 2,995,354 $ 2,994,168 $ 2,996,260 Dec-93 $ 3,009,133 $ 3,010,935 $ 3,012,141 Jan-94 $ 3,049,154 $ 3,051,583 $ 3,050,395 Feb-94 $ 2,997,318 $ 3,000,926 $ 2,993,657 Mar-94 $ 2,937,372 $ 2,926,503 $ 2,928,994 Apr-94 $ 2,910,936 $ 2,904,555 $ 2,904,977 May-94 $ 2,915,884 $ 2,904,264 $ 2,899,457 Jun-94 $ 2,905,970 $ 2,898,165 $ 2,894,238 Jul-94 $ 2,958,568 $ 2,952,940 $ 2,940,257 Aug-94 $ 2,961,527 $ 2,956,189 $ 2,945,549 Sep-94 $ 2,926,581 $ 2,913,620 $ 2,912,264 Oct-94 $ 2,920,728 $ 2,910,706 $ 2,908,770 Nov-94 $ 2,911,381 $ 2,903,138 $ 2,900,916 Dec-94 $ 2,927,394 $ 2,925,202 $ 2,915,130 Jan-95 $ 2,976,574 $ 2,985,754 $ 2,964,396 Feb-95 $ 3,044,440 $ 3,055,620 $ 3,027,241 Mar-95 $ 3,068,796 $ 3,073,343 $ 3,047,221 Apr-95 $ 3,112,679 $ 3,115,448 $ 3,087,140 May-95 $ 3,241,856 $ 3,239,131 $ 3,195,498 Jun-95 $ 3,262,279 $ 3,261,805 $ 3,215,630 Jul-95 $ 3,249,883 $ 3,255,281 $ 3,208,556 Aug-95 $ 3,290,506 $ 3,292,717 $ 3,246,096 Sep-95 $ 3,324,398 $ 3,323,668 $ 3,276,934 Oct-95 $ 3,372,602 $ 3,368,206 $ 3,319,861 Nov-95 $ 3,420,156 $ 3,420,750 $ 3,369,327 Dec-95 $ 3,467,012 $ 3,467,956 $ 3,414,476 Jan-96 $ 3,490,934 $ 3,491,538 $ 3,437,012 Feb-96 $ 3,425,305 $ 3,432,182 $ 3,377,208 Mar-96 $ 3,405,096 $ 3,407,470 $ 3,353,905 Apr-96 $ 3,381,260 $ 3,382,255 $ 3,334,452 May-96 $ 3,371,792 $ 3,380,226 $ 3,329,451 Jun-96 $ 3,414,277 $ 3,423,831 $ 3,368,072 Jul-96 $ 3,418,374 $ 3,433,075 $ 3,377,503 Aug-96 $ 3,414,956 $ 3,428,269 $ 3,374,125 Sep-96 $ 3,471,985 $ 3,487,920 $ 3,430,473 Oct-96 $ 3,548,369 $ 3,566,399 $ 3,502,856 Nov-96 $ 3,603,014 $ 3,625,244 $ 3,563,456 Dec-96 $ 3,581,036 $ 3,593,342 $ 3,531,741 Jan-97 $ 3,596,792 $ 3,607,356 $ 3,542,689 Feb-97 $ 3,608,662 $ 3,611,324 $ 3,551,546 Mar-97 $ 3,568,605 $ 3,574,850 $ 3,513,545 Apr-97 $ 3,618,209 $ 3,625,970 $ 3,561,680 May-97 $ 3,653,306 $ 3,660,054 $ 3,593,379 Jun-97 $ 3,699,703 $ 3,703,609 $ 3,635,781 Jul-97 $ 3,795,895 $ 3,803,977 $ 3,732,129 Aug-97 $ 3,763,630 $ 3,771,263 $ 3,698,167 Sep-97 $ 3,818,955 $ 3,826,700 $ 3,751,420 Oct-97 $ 3,859,436 $ 3,881,805 $ 3,796,437 Nov-97 $ 3,873,330 $ 3,900,049 $ 3,807,447 Dec-97 $ 3,913,225 $ 3,939,830 $ 3,842,095 Jan-98 $ 3,958,227 $ 3,990,653 $ 3,893,195 Feb-98 $ 3,959,811 $ 3,987,860 $ 3,887,744 Mar-98 $ 3,981,194 $ 4,003,413 $ 3,902,129 Apr-98 $ 3,998,711 $ 4,024,230 $ 3,920,469 May-98 $ 4,036,299 $ 4,062,863 $ 3,955,753 Jun-98 $ 4,064,957 $ 4,096,178 $ 3,987,399 Jul-98 $ 4,073,086 $ 4,104,780 $ 3,995,374 Aug-98 $ 4,118,298 $ 4,167,584 $ 4,049,312 Sep-98 $ 4,208,488 $ 4,265,938 $ 4,140,016 Oct-98 $ 4,175,662 $ 4,246,742 $ 4,106,482 Nov-98 $ 4,196,541 $ 4,270,099 $ 4,127,014 Dec-98 $ 4,208,711 $ 4,283,336 $ 4,144,761 Jan-99 $ 4,233,542 $ 4,315,033 $ 4,170,458 Feb-99 $ 4,156,068 $ 4,239,520 $ 4,096,224 Mar-99 $ 4,193,888 $ 4,263,685 $ 4,128,584 Apr-99 $ 4,214,858 $ 4,277,755 $ 4,142,621 May-99 $ 4,162,594 $ 4,238,400 $ 4,100,367 Jun-99 $ 4,135,120 $ 4,223,989 $ 4,086,425 Jul-99 $ 4,120,647 $ 4,207,093 $ 4,072,123 Aug-99 $ 4,113,642 $ 4,204,148 $ 4,067,643 Sep-99 $ 4,151,077 $ 4,254,598 $ 4,112,388 Oct-99 $ 4,176,398 $ 4,267,362 $ 4,118,556 Nov-99 $ 4,188,927 $ 4,266,935 $ 4,123,498 Dec-99 $ 4,184,738 $ 4,247,307 $ 4,104,530 Jan-00 $ 4,167,162 $ 4,235,415 $ 4,089,754 Feb-00 $ 4,216,335 $ 4,284,969 $ 4,134,332 Mar-00 $ 4,268,196 $ 4,340,674 $ 4,185,185 Apr-00 $ 4,238,745 $ 4,327,652 $ 4,159,236 May-00 $ 4,229,420 $ 4,323,757 $ 4,151,750 Jun-00 $ 4,311,894 $ 4,414,123 $ 4,239,767 Jul-00 $ 4,335,609 $ 4,454,292 $ 4,275,805 Aug-00 $ 4,410,615 $ 4,517,988 $ 4,335,239 Sep-00 $ 4,438,402 $ 4,548,711 $ 4,363,851 Oct-00 $ 4,461,926 $ 4,577,822 $ 4,379,125 Nov-00 $ 4,537,332 $ 4,651,983 $ 4,448,753 Dec-00 $ 4,643,052 $ 4,739,906 $ 4,538,618 Jan-01 $ 4,730,806 $ 4,818,114 $ 4,618,497 Feb-01 $ 4,764,868 $ 4,860,995 $ 4,662,835 Mar-01 $ 4,776,303 $ 4,886,272 $ 4,681,020 Apr-01 $ 4,732,839 $ 4,863,307 $ 4,655,742 May-01 $ 4,766,915 $ 4,895,405 $ 4,684,608 Jun-01 $ 4,779,786 $ 4,911,560 $ 4,701,941 Jul-01 $ 4,871,558 $ 5,025,017 $ 4,816,198 Aug-01 $ 4,928,555 $ 5,080,292 $ 4,869,176 Sep-01 $ 4,944,819 $ 5,142,779 $ 4,906,669 Oct-01 $ 5,061,517 $ 5,246,663 $ 5,006,765 Nov-01 $ 5,001,285 $ 5,174,260 $ 4,943,680 Dec-01 $ 4,981,280 $ 5,143,731 $ 4,912,040 Jan-02 $ 5,030,096 $ 5,184,367 $ 4,947,407 Feb-02 $ 5,076,373 $ 5,234,137 $ 4,995,397 Mar-02 $ 5,010,888 $ 5,147,774 $ 4,908,477 Apr-02 $ 5,090,060 $ 5,245,581 $ 4,996,829 May-02 $ 5,118,055 $ 5,290,169 $ 5,037,803 Jun-02 $ 5,123,685 $ 5,329,316 $ 5,034,781 Jul-02 $ 5,150,328 $ 5,392,735 $ 5,054,920 Aug-02 $ 5,249,730 $ 5,487,108 $ 5,152,480 Sep-02 $ 5,322,176 $ 5,574,353 $ 5,208,642 Oct-02 $ 5,295,033 $ 5,549,268 $ 5,188,849 Nov-02 $ 5,317,272 $ 5,548,158 $ 5,213,756 Dec-02 $ 5,423,086 $ 5,663,560 $ 5,320,116 Jan-03 $ 5,437,186 $ 5,668,091 $ 5,336,609 Feb-03 $ 5,516,025 $ 5,748,578 $ 5,412,922 Mar-03 $ 5,509,957 $ 5,743,404 $ 5,413,463 Apr-03 $ 5,578,832 $ 5,793,946 $ 5,476,801 May-03 $ 5,674,788 $ 5,901,134 $ 5,578,669 Jun-03 $ 5,667,978 $ 5,890,512 $ 5,577,554 Jul-03 $ 5,417,453 $ 5,691,413 $ 5,389,590 Aug-03 $ 5,459,197 $ 5,730,683 $ 5,377,167
Source: Lipper Analytical Services, Inc. Past performance is no guarantee of the future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund commenced operations on 7/26/93. Returns for the Institutional Shares prior to 9/10/01 (offering date of the Institutional Shares) are calculated using the historical expenses of the J.P. Morgan Institutional Bond Fund, which are similar to the expenses of the Institutional Shares. Returns for the Select Shares prior to 9/10/01 (offering date of the Select Shares) are calculated using the historical expenses of the J.P. Morgan Bond Fund, which are similar to the expenses of the Select Shares. Returns for the Ultra Shares prior to 9/10/01 (offering date of the Ultra Shares) are calculated using the historical expenses of the J.P. Morgan Institutional Bond Fund-Ultra, which are lower than the expenses of the Ultra Shares. Returns for the Class A and B Shares prior to 9/10/01 (offering date of the Class A and B Shares) are calculated using the historical expenses of the J.P. Morgan Bond Fund, which are lower than the expenses of the Class A and B Shares. Returns for the Class C Shares prior to 3/31/03 (offering date of the Class C Shares) are calculated using the historical expenses of the Select Shares, which are lower than the expenses of the Class C Shares. The graph illustrates comparative performance for $3,000,000 invested in Institutional Shares of the JPMorgan Bond Fund, Citigroup Broad Investment Grade Bond Index, and Lipper Intermediate Investment Grade Debt Funds Index from August 31, 1993 to August 31, 2003. The performance of the Fund assumes reinvestment of all dividends and capital gains and does not include a sales charge. The performance of the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains of the securities included in the benchmark. The Citigroup Broad Investment Grade Bond Index is an unmanaged, market-weighted index that contains approximately 4,700 individually priced investment grade bonds. The Lipper Intermediate Investment Grade Debt Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. Investors cannot invest directly in an index. Institutional Shares have a $3,000,000 minimum initial deposit and carry no sales charge. Certain fees and expenses of the Fund are currently being waived and reimbursed as described in the prospectus. Had the expenses not been subsidized or waived, returns would have been lower. Also, all performance shown in this section does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. 3 JPMorgan Bond Fund II AS OF AUGUST 31, 2003 (Unaudited) FUND FACTS Fund Inception 1/1/1997 Fiscal Year End AUGUST 31 Net Assets as of 8/31/2003 (In Millions) $ 1,069 Primary Benchmark LEHMAN AGGREGATE BOND INDEX Average Credit Quality AA+ Duration 5.2 YEARS
Q: HOW DID THE FUND PERFORM? A: JPMorgan Bond Fund II, which seeks to provide as high a level of income as is consistent with reasonable risk, returned 3.39% (Select Shares) for the one-year period ended August 31, 2003. This compares to the 4.35% return of its benchmark index, the Lehman Aggregate Bond Index. Q: WHY DID THE FUND PERFORM THIS WAY? A: The most significant driver of our relative performance over the past year was our residential mortgage positioning, which was a strong positive through the second quarter but notably impaired returns during July. Our duration positioning was a modest positive for performance through January, but detracted over the summer months. Although our investment-grade holdings detracted in the fall of 2002, they subsequently benefited from a strong credit rally. Our underweight to Treasury and Agency debt enhanced returns. Detracting was our position in international non-dollar securities, which underperformed the U.S. Treasury rally. Q: HOW WAS THE FUND MANAGED? A: In general, we maintained a long duration position, focusing on the shortest part of the yield curve, to hedge against unexpected geopolitical shocks and to benefit from mispricings and an accommodative Fed policy. For much of the period, we overweighted prepayment-sensitive mortgages because of their attractive yields. We actively managed coupon selection, focusing on 30-year current coupon mortgages (i.e., Fannie Mae, 5% and 5.5%). In investment-grade corporate bonds, we continued to focus on bottom-up security selection. Our corporate security overweights generally favored long maturities, which benefit most from spread compression. Early in 2003, the Fund invested in a hedged non-dollar position held on our expectation that European economic growth would lag the United States. 4 ANNUAL REPORT AUGUST 31 2003 (Unaudited) AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 3 YEARS 5 YEARS 10 YEARS ---------------------------------------------- CLASS A SHARES Without Sales Charge 3.26% 7.46% 5.64% 5.93% With Sales Charge* (1.39%) 5.82% 4.67% 5.44% CLASS B SHARES Without CDSC 2.47% 6.71% 5.19% 5.71% With CDSC** (2.43%) 5.83% 4.87% 5.71% SELECT SHARES 3.39% 7.53% 5.68% 5.95%
* Sales Charge for Class A Shares is 4.50%. ** Assumes 5% CDSC (contingent deferred sales charge) for the one year period, 3% CDSC for the three year period, a 2% CDSC for the five year period and 0% for the ten year period. [CHART] TEN-YEAR PERFORMANCE (8/31/93 TO 8/31/03)
JPMORGAN BOND FUND II LEHMAN AGGREGATE LIPPER CORPORATE DEBT (SELECT SHARES) BOND INDEX A-RATED FUNDS INDEX Aug-93 $ 1,000,000 $ 1,000,000 $ 1,000,000 Sep-93 $ 1,003,200 $ 1,002,700 $ 1,002,900 Oct-93 $ 1,007,714 $ 1,006,410 $ 1,008,516 Nov-93 $ 997,536 $ 997,856 $ 994,498 Dec-93 $ 1,002,025 $ 1,003,244 $ 999,868 Jan-94 $ 1,018,058 $ 1,016,788 $ 1,016,066 Feb-94 $ 998,307 $ 999,096 $ 992,087 Mar-94 $ 974,348 $ 974,418 $ 963,515 Apr-94 $ 965,676 $ 966,623 $ 952,145 May-94 $ 964,807 $ 966,526 $ 948,813 Jun-94 $ 962,781 $ 964,400 $ 945,587 Jul-94 $ 980,496 $ 983,591 $ 963,553 Aug-94 $ 980,791 $ 984,771 $ 963,842 Sep-94 $ 966,079 $ 970,295 $ 947,842 Oct-94 $ 965,596 $ 969,422 $ 944,620 Nov-94 $ 966,078 $ 967,289 $ 943,297 Dec-94 $ 963,470 $ 973,964 $ 950,749 Jan-95 $ 983,318 $ 993,248 $ 967,673 Feb-95 $ 1,000,329 $ 1,016,887 $ 991,090 Mar-95 $ 1,009,932 $ 1,023,090 $ 998,325 Apr-95 $ 1,022,354 $ 1,037,414 $ 1,012,601 May-95 $ 1,064,884 $ 1,077,562 $ 1,057,966 Jun-95 $ 1,069,144 $ 1,085,428 $ 1,065,477 Jul-95 $ 1,063,370 $ 1,083,040 $ 1,060,256 Aug-95 $ 1,079,959 $ 1,096,145 $ 1,074,994 Sep-95 $ 1,094,322 $ 1,106,777 $ 1,086,604 Oct-95 $ 1,110,299 $ 1,121,165 $ 1,103,012 Nov-95 $ 1,126,843 $ 1,137,983 $ 1,121,101 Dec-95 $ 1,141,830 $ 1,153,915 $ 1,139,151 Jan-96 $ 1,150,165 $ 1,161,530 $ 1,144,505 Feb-96 $ 1,131,303 $ 1,141,320 $ 1,118,639 Mar-96 $ 1,123,270 $ 1,133,331 $ 1,109,578 Apr-96 $ 1,118,328 $ 1,126,984 $ 1,101,034 May-96 $ 1,115,868 $ 1,124,730 $ 1,098,612 Jun-96 $ 1,130,374 $ 1,139,801 $ 1,112,345 Jul-96 $ 1,132,522 $ 1,142,879 $ 1,114,681 Aug-96 $ 1,129,577 $ 1,140,936 $ 1,111,559 Sep-96 $ 1,148,893 $ 1,160,788 $ 1,132,679 Oct-96 $ 1,172,560 $ 1,186,558 $ 1,160,430 Nov-96 $ 1,194,721 $ 1,206,848 $ 1,184,102 Dec-96 $ 1,178,593 $ 1,195,624 $ 1,170,722 Jan-97 $ 1,181,539 $ 1,199,331 $ 1,172,478 Feb-97 $ 1,183,548 $ 1,202,329 $ 1,176,582 Mar-97 $ 1,172,186 $ 1,188,983 $ 1,160,345 Apr-97 $ 1,189,065 $ 1,206,818 $ 1,176,706 May-97 $ 1,200,123 $ 1,218,283 $ 1,187,649 Jun-97 $ 1,215,125 $ 1,232,780 $ 1,203,683 Jul-97 $ 1,251,579 $ 1,266,065 $ 1,242,441 Aug-97 $ 1,233,931 $ 1,255,304 $ 1,226,662 Sep-97 $ 1,251,577 $ 1,273,882 $ 1,247,638 Oct-97 $ 1,268,598 $ 1,292,353 $ 1,263,733 Nov-97 $ 1,270,882 $ 1,298,298 $ 1,269,672 Dec-97 $ 1,282,320 $ 1,311,411 $ 1,283,131 Jan-98 $ 1,298,092 $ 1,328,197 $ 1,298,400 Feb-98 $ 1,296,275 $ 1,327,135 $ 1,296,193 Mar-98 $ 1,300,682 $ 1,331,647 $ 1,300,989 Apr-98 $ 1,307,316 $ 1,338,571 $ 1,306,973 May-98 $ 1,319,866 $ 1,351,288 $ 1,321,088 Jun-98 $ 1,331,481 $ 1,362,774 $ 1,332,846 Jul-98 $ 1,332,413 $ 1,365,636 $ 1,333,113 Aug-98 $ 1,352,266 $ 1,387,895 $ 1,344,977 Sep-98 $ 1,386,207 $ 1,420,372 $ 1,374,970 Oct-98 $ 1,375,672 $ 1,412,844 $ 1,357,646 Nov-98 $ 1,378,836 $ 1,420,897 $ 1,372,444 Dec-98 $ 1,384,214 $ 1,425,160 $ 1,376,836 Jan-99 $ 1,395,980 $ 1,435,279 $ 1,388,539 Feb-99 $ 1,370,573 $ 1,410,161 $ 1,357,713 Mar-99 $ 1,378,248 $ 1,417,917 $ 1,366,674 Apr-99 $ 1,381,831 $ 1,422,455 $ 1,371,184 May-99 $ 1,368,428 $ 1,409,937 $ 1,355,553 Jun-99 $ 1,363,091 $ 1,405,425 $ 1,348,911 Jul-99 $ 1,357,502 $ 1,399,522 $ 1,342,841 Aug-99 $ 1,355,602 $ 1,398,823 $ 1,339,215 Sep-99 $ 1,371,869 $ 1,415,049 $ 1,351,937 Oct-99 $ 1,375,573 $ 1,420,285 $ 1,353,965 Nov-99 $ 1,375,435 $ 1,420,143 $ 1,354,913 Dec-99 $ 1,369,521 $ 1,413,326 $ 1,348,816 Jan-00 $ 1,367,193 $ 1,408,662 $ 1,345,849 Feb-00 $ 1,381,275 $ 1,425,707 $ 1,360,115 Mar-00 $ 1,398,403 $ 1,444,526 $ 1,378,612 Apr-00 $ 1,382,041 $ 1,440,337 $ 1,367,308 May-00 $ 1,376,513 $ 1,439,617 $ 1,361,975 Jun-00 $ 1,403,080 $ 1,469,561 $ 1,392,347 Jul-00 $ 1,415,427 $ 1,482,934 $ 1,404,182 Aug-00 $ 1,433,261 $ 1,504,436 $ 1,422,858 Sep-00 $ 1,443,868 $ 1,513,914 $ 1,430,683 Oct-00 $ 1,450,942 $ 1,523,906 $ 1,436,692 Nov-00 $ 1,473,867 $ 1,548,898 $ 1,457,955 Dec-00 $ 1,507,472 $ 1,577,708 $ 1,487,843 Jan-01 $ 1,534,154 $ 1,603,424 $ 1,515,517 Feb-01 $ 1,545,507 $ 1,617,374 $ 1,529,157 Mar-01 $ 1,551,379 $ 1,625,461 $ 1,534,509 Apr-01 $ 1,533,849 $ 1,618,634 $ 1,525,762 May-01 $ 1,541,365 $ 1,628,346 $ 1,535,832 Jun-01 $ 1,546,760 $ 1,634,534 $ 1,541,976 Jul-01 $ 1,581,252 $ 1,671,147 $ 1,576,978 Aug-01 $ 1,595,800 $ 1,690,365 $ 1,594,798 Sep-01 $ 1,618,460 $ 1,709,974 $ 1,601,018 Oct-01 $ 1,652,124 $ 1,745,712 $ 1,635,600 Nov-01 $ 1,629,490 $ 1,721,621 $ 1,615,809 Dec-01 $ 1,621,017 $ 1,710,603 $ 1,603,691 Jan-02 $ 1,635,120 $ 1,724,459 $ 1,614,916 Feb-02 $ 1,648,691 $ 1,741,186 $ 1,626,867 Mar-02 $ 1,624,290 $ 1,712,282 $ 1,600,837 Apr-02 $ 1,653,040 $ 1,745,501 $ 1,629,172 May-02 $ 1,665,438 $ 1,760,337 $ 1,641,554 Jun-02 $ 1,675,098 $ 1,775,652 $ 1,648,612 Jul-02 $ 1,693,021 $ 1,797,138 $ 1,658,504 Aug-02 $ 1,723,665 $ 1,827,509 $ 1,688,855 Sep-02 $ 1,748,141 $ 1,857,115 $ 1,715,032 Oct-02 $ 1,740,274 $ 1,848,572 $ 1,697,881 Nov-02 $ 1,743,755 $ 1,848,018 $ 1,703,994 Dec-02 $ 1,778,630 $ 1,886,272 $ 1,740,970 Jan-03 $ 1,781,831 $ 1,887,969 $ 1,744,627 Feb-03 $ 1,804,817 $ 1,914,023 $ 1,770,098 Mar-03 $ 1,803,012 $ 1,912,492 $ 1,768,859 Apr-03 $ 1,824,468 $ 1,928,366 $ 1,788,670 May-03 $ 1,854,207 $ 1,964,233 $ 1,826,053 Jun-03 $ 1,851,055 $ 1,960,305 $ 1,821,853 Jul-03 $ 1,764,611 $ 1,894,439 $ 1,759,364 Aug-03 $ 1,782,220 $ 1,906,942 $ 1,770,976
Source: Lipper Analytical Services, Inc. Past performance is no guarantee of the future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund commenced operations on 1/1/97. Returns for the Select Shares prior to 1/1/97 (offering date of the Select Shares) are calculated using performance of a predecessor account and the historical expenses at the level indicated (absent reimbursements) in the Expense Summary for the Fund as disclosed in the Prospectus. The account was not registered with the SEC and was not subject to investment restrictions of registered mutual funds. If the account had been registered, performance may have been adversely affected. Returns for the Class A and B Shares prior to 3/2/01 (offering date of the Class A and B Shares) are calculated using the historical expenses of the Select Shares, which are lower than the expenses of the Class A and B Shares. The graph illustrates comparative performance for $1,000,000 invested in Select Shares of the JPMorgan Bond Fund II, Lehman Aggregate Bond Index, and Lipper Corporate Debt A-Rated Funds Index from August 31, 1993 to August 31, 2003. The performance of the Fund assumes reinvestment of all dividends and capital gains and does not include a sales charge. The performance of the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains of the securities included in the benchmark. The Lehman Aggregate Bond Index is composed of the Lehman Gov't/Credit Index and the Mortgage-Backed Securities Index and includes U.S. treasury issues, agency issues, corporate bond issues and mortgage-backed securities. The Lipper Corporate Debt A-Rated Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. Investors cannot invest directly in an index. Select Shares have a $1,000,000 minimum initial deposit and carry no sales charge. Certain fees and expenses of the Fund are currently being waived and reimbursed as described in the prospectus. Had the expenses not been subsidized or waived, returns would have been lower. Also, all performance shown in this section does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. 5 JPMorgan Enhanced Income Fund AS OF AUGUST 31, 2003 (Unaudited) FUND FACTS Fund Inception 11/30/2001 Fiscal Year End AUGUST 31 Net Assets as of 8/31/2003 (In Millions) $ 354 Primary Benchmark 3 MONTH LIBOR INDEX Average Credit Quality AA Duration 0.4 YEARS
Q: HOW DID THE FUND PERFORM? A: JPMorgan Enhanced Income Fund, which seeks high current income consistent with principal preservation, returned 1.14% for the one-year period ended August 31, 2003. This compares to the 1.49% return of its benchmark index, the 3 Month LIBOR Index. Q: WHY DID THE FUND PERFORM THIS WAY? A: Some of the underperformance during the period was due to the widening of mortgage spreads and an increase in implied volatility (indicating a more bearish market) in mid-June and July. The Fund was positioned with a longer duration than that of its benchmark and had a large allocation to mortgages. Although our allocations to the credit and mortgage sectors added yield, they were also a slight drag as corporate and mortgage securities underperformed. We took a longer duration position because we believed the short end of the yield curve would remain anchored. Unfortunately, interest rates rose sharply at the end of the period. Detracting was our yield-curve positioning, which was a negative when the curve steepened. We lowered the volatility of the Fund toward the end of the period by reducing our allocation to mortgages. Q: HOW WAS THE FUND MANAGED? A: We tactically traded our duration during the period, maintaining a slightly longer duration than the benchmark because we expected the Fed to ease rates and keep them low for the foreseeable future. To enhance yield and reduce interest rate volatility, we purchased agencies, including callable agencies. However, in January and February, we reduced our agency holdings, purchasing sovereign debt and asset-backed securities at higher yields. We reduced our exposure to the utilities sector and continued to add selectively to our positions in broker-dealer and finance paper. We opportunistically purchased several A-2/P-2 commercial paper issues and added floating rate corporate and asset-backed securities to provide additional yield. We increased our allocation to mortgage-backed securities because of their higher yields and because we thought they would perform well in a low interest rate environment. 6 ANNUAL REPORT AUGUST 31 2003 (Unaudited) AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION 1 YEAR (11/30/01) ----------------------------------------------- INSTITUTIONAL SHARES 1.14% 1.55%
[CHART] LIFE OF FUND PERFORMANCE (11/30/01 TO 8/31/03)
JPMORGAN ENHANCED INCOME FUND LIPPER ULTRA-SHORT (INSTITUTIONAL SHARES) 3 MONTH LIBOR INDEX OBLIGATIONS AVERAGE Nov-01 $ 3,000,000 $ 3,000,000 $ 3,000,000 Dec-01 $ 3,005,700 $ 3,005,700 $ 3,003,900 Jan-02 $ 3,008,706 $ 3,010,509 $ 3,007,805 Feb-02 $ 3,014,422 $ 3,014,724 $ 3,013,821 Mar-02 $ 3,020,451 $ 3,019,547 $ 3,012,012 Apr-02 $ 3,032,231 $ 3,024,681 $ 3,024,964 May-02 $ 3,037,992 $ 3,029,520 $ 3,032,829 Jun-02 $ 3,043,764 $ 3,034,367 $ 3,037,681 Jul-02 $ 3,044,069 $ 3,039,222 $ 3,039,808 Aug-02 $ 3,047,722 $ 3,044,085 $ 3,047,407 Sep-02 $ 3,051,684 $ 3,048,651 $ 3,055,635 Oct-02 $ 3,055,651 $ 3,053,529 $ 3,058,691 Nov-02 $ 3,061,762 $ 3,058,415 $ 3,065,114 Dec-02 $ 3,061,150 $ 3,062,391 $ 3,074,923 Jan-03 $ 3,069,415 $ 3,066,066 $ 3,079,843 Feb-03 $ 3,071,256 $ 3,069,132 $ 3,089,082 Mar-03 $ 3,074,635 $ 3,072,815 $ 3,092,789 Apr-03 $ 3,081,092 $ 3,075,887 $ 3,097,428 May-03 $ 3,090,643 $ 3,079,271 $ 3,102,384 Jun-03 $ 3,090,334 $ 3,082,966 $ 3,102,074 Jul-03 $ 3,073,955 $ 3,086,049 $ 3,089,355 Aug-03 $ 3,082,089 $ 3,088,826 $ 3,093,989
Source: Lipper Analytical Services, Inc. Past performance is no guarantee of the future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund commenced operations on 11/30/01. The graph illustrates comparative performance for $3,000,000 invested in Institutional Shares of the JPMorgan Enhanced Income Fund, 3 Month LIBOR Index, and the Lipper Ultra-Short Obligations Average from November 30, 2001 to August 31, 2003. The performance of the Fund assumes reinvestment of all dividends and capital gains and does not include a sales charge. The performance of the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains of securities included in the benchmark. The 3 Month LIBOR Index is an abbreviation for the "London Interbank Offered Rate". Similarly to the Fed Funds Rate, it represents the rate at which banks are willing to loan each other reserves. The LIBOR is an average of the rate charged on dollar-denominated deposits traded between banks in London. The benchmark presented is the total return of the 3 Month LIBOR for the period presented. The Lipper Ultra-Short Obligations Average describes the average total returns for all the funds in the indicated category, as defined by Lipper, Inc. Investors cannot invest directly in an index. Institutional Shares have a $3,000,000 minimum initial deposit and carry no sales charge. Certain fees and expenses of the Fund are currently being waived and reimbursed as described in the prospectus. Had the expenses not been subsidized or waived, returns would have been lower. Also, all performance shown in this section does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. 7 JPMorgan Fleming Emerging Markets Debt Fund AS OF AUGUST 31, 2003 (Unaudited) FUND FACTS Fund Inception 4/17/1997 Fiscal Year End AUGUST 31 Net Assets as of 8/31/2003 (In Millions) $ 60 Primary Benchmark EMERGING MARKETS BOND INDEX GLOBAL Average Credit Quality BB Duration 5.6 YEARS
Q: HOW DID THE FUND PERFORM? A: JPMorgan Fleming Emerging Markets Debt Fund, which seeks to provide a high total return from a portfolio of fixed-income securities of emerging markets issuers, had a total return of 30.49% for the one-year period ended August 31, 2003. This compares to the 26.84% return from the Emerging Markets Bond Index Global. Q: WHY DID THE FUND OUTPERFORM ITS BENCHMARK? A: The performance of the Fund benefited from our overweight to Brazil, which we adopted in the belief that the Lula administration would surprise critics. Although our overweight detracted in the first months of the period, the position performed strongly on the recovery in confidence in Brazilian finances. Another contributor was our underweighting of high-grade credits that trade fairly with U.S. Treasuries, expressed mostly through the Asian credits. As Brazil rallied, these issues lost favor as a safe haven. The recovery in Brazil also helped Colombia and Peru, and our overweighting to both countries enhanced performance. We avoided the collapse of Uruguay bonds, liquidating our holdings prior to the steep sell-off that eventually led to a restructuring. Detractors during the period were underweights to Turkey and Venezuela, which both recovered dramatically following periods of uncertainty -- for Turkey, the Iraq war and for Venezuela, a two-month oil strike. Q: HOW WAS THE FUND MANAGED? A: The emerging bond market posted strong performance through most of the period. It rallied strongly as fears about the election in Brazil gave way to growing confidence that the new government would show strong fiscal discipline and pursue important reforms. As investors sought higher yielding investments, the rally continued. The spring was marked by increased inflows into the emerging bond market and ongoing improvements in country fundamentals. In June, liquidity rose further when the U.S. Federal Reserve Board cut the Federal Funds Rate to 1%. Although the market was affected by the weakness in the U.S. Treasury and mortgage markets, spreads in the broad market indices tightened going into period end. We maintained an overweight to Brazil on the positive announcements of the government's economic team. However, we took advantage of investor interest in August to modestly reduce our position. Noting the progress of reform proposals, we added Colombia. We also increased Mexico because the political environment seems to be improving and oil prices have risen. Although we held only a modest overweight to Russia during spring, we took advantage of market weakness in August to add to our holdings. We liquidated our holdings in Uruguay, reduced Venezuela to a more significant underweight position, and reduced our overweight in Peru in response to political developments that could dampen the market's enthusiasm for the credit. Because of our concern about the impact of regional strife on regional fundamentals and market sentiment, we held an underweight position in most Middle Eastern names. We also took profits in Turkey, moving to a market-weight position. 8 ANNUAL REPORT AUGUST 31 2003 (Unaudited) AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION 1 YEAR 3 YEARS 5 YEARS (4/17/97) ---------------------------------------------- SELECT SHARES 30.49% 10.61% 18.39% 9.43%
[CHART] LIFE OF FUND PERFORMANCE (4/17/97 TO 8/31/03)
JPMORGAN FLEMING EMERGING EMERGING MARKETS LIPPER EMERGING MARKETS MARKETS DEBT FUND (SELECT SHARES) BOND INDEX GLOBAL DEBT FUNDS INDEX Apr-97 $ 1,000,000 $ 1,000,000 $ 1,000,000 Apr-97 $ 1,020,000 $ 1,000,000 $ 1,000,000 May-97 $ 1,051,008 $ 1,033,900 $ 1,041,100 Jun-97 $ 1,068,034 $ 1,056,542 $ 1,073,686 Jul-97 $ 1,090,036 $ 1,100,178 $ 1,119,855 Aug-97 $ 1,078,917 $ 1,094,787 $ 1,116,047 Sep-97 $ 1,105,783 $ 1,125,222 $ 1,151,426 Oct-97 $ 986,026 $ 1,005,948 $ 1,027,878 Nov-97 $ 1,034,835 $ 1,048,601 $ 1,067,246 Dec-97 $ 1,053,462 $ 1,074,291 $ 1,099,050 Jan-98 $ 1,051,144 $ 1,079,448 $ 1,096,742 Feb-98 $ 1,080,891 $ 1,107,945 $ 1,127,122 Mar-98 $ 1,107,373 $ 1,133,096 $ 1,156,427 Apr-98 $ 1,108,481 $ 1,135,702 $ 1,157,121 May-98 $ 1,072,455 $ 1,101,404 $ 1,110,026 Jun-98 $ 1,033,310 $ 1,073,538 $ 1,065,070 Jul-98 $ 1,045,090 $ 1,079,765 $ 1,073,590 Aug-98 $ 763,229 $ 784,557 $ 701,591 Sep-98 $ 808,794 $ 852,343 $ 732,952 Oct-98 $ 862,417 $ 906,807 $ 778,395 Nov-98 $ 914,162 $ 969,014 $ 849,152 Dec-98 $ 885,640 $ 950,312 $ 817,478 Jan-99 $ 846,141 $ 928,645 $ 793,853 Feb-99 $ 855,702 $ 937,839 $ 807,428 Mar-99 $ 920,650 $ 1,000,018 $ 860,718 Apr-99 $ 1,000,286 $ 1,061,519 $ 922,518 May-99 $ 930,566 $ 1,006,744 $ 872,148 Jun-99 $ 974,954 $ 1,045,403 $ 907,819 Jul-99 $ 949,995 $ 1,027,945 $ 894,293 Aug-99 $ 944,675 $ 1,028,665 $ 893,309 Sep-99 $ 977,267 $ 1,060,965 $ 915,374 Oct-99 $ 1,019,582 $ 1,098,523 $ 953,636 Nov-99 $ 1,050,782 $ 1,127,963 $ 992,259 Dec-99 $ 1,115,615 $ 1,180,188 $ 1,044,551 Jan-00 $ 1,104,459 $ 1,162,013 $ 1,035,359 Feb-00 $ 1,194,803 $ 1,224,413 $ 1,101,829 Mar-00 $ 1,237,816 $ 1,257,717 $ 1,128,713 Apr-00 $ 1,206,376 $ 1,234,575 $ 1,099,818 May-00 $ 1,163,429 $ 1,206,056 $ 1,067,264 Jun-00 $ 1,229,744 $ 1,262,259 $ 1,124,255 Jul-00 $ 1,274,015 $ 1,298,233 $ 1,157,421 Aug-00 $ 1,311,853 $ 1,339,647 $ 1,192,491 Sep-00 $ 1,281,681 $ 1,325,178 $ 1,171,384 Oct-00 $ 1,254,381 $ 1,298,277 $ 1,142,099 Nov-00 $ 1,232,931 $ 1,293,084 $ 1,134,219 Dec-00 $ 1,285,330 $ 1,350,239 $ 1,179,928 Jan-01 $ 1,353,324 $ 1,415,320 $ 1,244,588 Feb-01 $ 1,332,754 $ 1,396,496 $ 1,230,399 Mar-01 $ 1,305,966 $ 1,380,856 $ 1,209,975 Apr-01 $ 1,295,257 $ 1,374,227 $ 1,201,989 May-01 $ 1,333,078 $ 1,407,346 $ 1,234,803 Jun-01 $ 1,361,073 $ 1,428,879 $ 1,256,536 Jul-01 $ 1,272,059 $ 1,354,863 $ 1,203,636 Aug-01 $ 1,332,354 $ 1,415,561 $ 1,245,642 Sep-01 $ 1,270,933 $ 1,369,272 $ 1,186,101 Oct-01 $ 1,278,685 $ 1,369,956 $ 1,201,164 Nov-01 $ 1,307,072 $ 1,352,421 $ 1,239,121 Dec-01 $ 1,346,807 $ 1,368,515 $ 1,271,834 Jan-02 $ 1,379,535 $ 1,393,832 $ 1,297,143 Feb-02 $ 1,436,509 $ 1,446,101 $ 1,343,840 Mar-02 $ 1,444,554 $ 1,447,692 $ 1,355,801 Apr-02 $ 1,455,966 $ 1,461,879 $ 1,371,257 May-02 $ 1,438,640 $ 1,454,277 $ 1,359,875 Jun-02 $ 1,344,984 $ 1,380,982 $ 1,268,084 Jul-02 $ 1,263,344 $ 1,318,423 $ 1,192,886 Aug-02 $ 1,360,495 $ 1,414,932 $ 1,278,178 Sep-02 $ 1,307,572 $ 1,375,738 $ 1,236,381 Oct-02 $ 1,404,463 $ 1,460,346 $ 1,322,186 Nov-02 $ 1,452,355 $ 1,501,820 $ 1,365,686 Dec-02 $ 1,500,864 $ 1,547,926 $ 1,414,578 Jan-03 $ 1,523,527 $ 1,573,467 $ 1,445,557 Feb-03 $ 1,577,459 $ 1,623,818 $ 1,498,320 Mar-03 $ 1,617,211 $ 1,650,123 $ 1,536,227 Apr-03 $ 1,725,403 $ 1,744,180 $ 1,636,389 May-03 $ 1,790,623 $ 1,816,564 $ 1,710,027 Jun-03 $ 1,778,268 $ 1,816,564 $ 1,710,882 Jul-03 $ 1,722,252 $ 1,752,258 $ 1,661,095 Aug-03 $ 1,775,639 $ 1,794,837 $ 1,703,453
Source: Lipper Analytical Services. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund commenced operations on 4/17/97. The mountain chart illustrates comparative performance for $1,000,000 invested in the Select Shares of the JPMorgan Fleming Emerging Markets Debt Fund, Emerging Markets Bond Index Global and Lipper Emerging Markets Debt Funds Index from April 17, 1997 to August 31, 2003. The performance of the Fund assumes reinvestment of all dividends and capital gains and does not include a sales charge. The performance of the indices reflects an initial investment at the end of the month following the Fund's inception. The performance of the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains of the securities included in the benchmark. The Emerging Markets Bond Index Global is an unmanaged index which tracks total return for external currency-denominated debt (Brady bonds, loans, Eurobonds and U.S. dollar-denominated local market instruments) in emerging markets. The Lipper Emerging Markets Debt Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. Investors cannot invest directly in an index. The Select Shares have a minimum investment of $1,000,000 and carry no sales charge. Certain fees and expenses of the Fund are currently being waived and reimbursed as described in the prospectus. Had the expenses not been subsidized or waived, returns would have been lower. Also, all performance shown in this section does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. 9 JPMorgan Global Strategic Income Fund AS OF AUGUST 31, 2003 (Unaudited) FUND FACTS Fund Inception 3/17/1997 Fiscal Year End AUGUST 31 Net Assets as of 8/31/2003 (In Millions) $ 111 Primary Benchmark LEHMAN AGGREGATE BOND INDEX Average Credit Quality A Duration 4.5 YEARS
Q: HOW DID THE FUND PERFORM? A: JPMorgan Global Strategic Income Fund, which seeks to provide high total return from a portfolio of fixed-income securities of foreign and domestic issuers, had a total return of 8.86% (Institutional Shares) for the one-year period ended August 31, 2003. This compares to the 4.35% return of the Lehman Aggregate Bond Index. Q: WHY DID THE FUND OUTPERFORM ITS BENCHMARK? A: Our strong performance was largely the result of our strategic overweights to high-yield and emerging markets debt at a time when investor risk aversion decreased. Our underweight to investment-grade corporates detracted, but the selection of longer-duration securities was positive. Our positioning and security selection in residential mortgages was positive, as was our overweight to commercial mortgage-backed securities. The non-callable mortgage market continues to be buoyed by a healthy supply of investor capital. Our underweight to Treasury and Agency debt enhanced returns. Detracting was our position in international non-dollar securities, which underperformed the U.S. rally as the market priced in the easier U.S. monetary policy. Q: HOW WAS THE FUND MANAGED? A: High-yield and emerging markets debt were our largest sector overweights, although we reduced our risk exposure in the second quarter of 2003. We remained overweight to non-callable mortgages. In investment-grade corporate bonds, we continued to focus on bottom-up security selection. We reduced our underweight position during the second quarter, adding longer maturities because they benefit from spread compression. We actively managed coupon selection within the residential mortgage-backed sector, focusing on 30-year current coupons (i.e., Fannie Mae, 5% and 5.5%). Early in 2003, we increased our hedged non-dollar position because we expected European economic growth to lag the United States. Consistent with our strategy, we maintained a significant underweight to Treasury and agency debt. 10 ANNUAL REPORT AUGUST 31 2003 (Unaudited) AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION 1 YEAR 3 YEARS 5 YEARS (3/17/97) ---------------------------------------------- CLASS A SHARES Without Sales Charge 8.33% 5.00% 4.80% 4.98% With Sales Charge* 3.42% 3.42% 3.84% 4.24% CLASS B SHARES Without CDSC 7.74% 4.03% 4.22% 4.53% With CDSC** 2.74% 3.16% 3.91% 4.53% INSTITUTIONAL SHARES 8.86% 5.58% 5.31% 5.42% SELECT SHARES 8.48% 5.24% 4.94% 5.09%
* Sales Charge for Class A Shares is 4.50%. ** Assumes 5% CDSC (contingent deferred sales charge) for the one year period, 3% CDSC for the three year period, a 2% CDSC for the five year period and 1% CDSC for the period since inception. [CHART] LIFE OF FUND PERFORMANCE (3/17/97 TO 8/31/03)
JPMORGAN GLOBAL STRATEGIC INCOME FUND LEHMAN AGGREGATE LIPPER MULTI-SECTOR (INSTITUTIONAL SHARES) BOND INDEX INCOME FUNDS INDEX Mar-97 $ 3,000,000 $ 3,000,000 $ 3,000,000 Mar-97 $ 2,967,900 $ 3,000,000 $ 3,000,000 Apr-97 $ 3,018,651 $ 3,045,000 $ 3,026,700 May-97 $ 3,069,968 $ 3,073,928 $ 3,076,943 Jun-97 $ 3,114,483 $ 3,110,507 $ 3,120,636 Jul-97 $ 3,200,131 $ 3,194,491 $ 3,192,098 Aug-97 $ 3,179,010 $ 3,167,338 $ 3,172,946 Sep-97 $ 3,242,590 $ 3,214,214 $ 3,237,039 Oct-97 $ 3,184,548 $ 3,260,820 $ 3,222,149 Nov-97 $ 3,222,444 $ 3,275,820 $ 3,235,360 Dec-97 $ 3,256,602 $ 3,308,906 $ 3,267,713 Jan-98 $ 3,296,658 $ 3,351,260 $ 3,309,213 Feb-98 $ 3,327,976 $ 3,348,579 $ 3,325,098 Mar-98 $ 3,358,927 $ 3,359,964 $ 3,361,341 Apr-98 $ 3,365,980 $ 3,377,436 $ 3,371,089 May-98 $ 3,369,683 $ 3,409,522 $ 3,364,010 Jun-98 $ 3,365,302 $ 3,438,503 $ 3,355,600 Jul-98 $ 3,381,456 $ 3,445,723 $ 3,368,686 Aug-98 $ 3,260,400 $ 3,501,889 $ 3,169,597 Sep-98 $ 3,316,479 $ 3,583,833 $ 3,224,114 Oct-98 $ 3,276,681 $ 3,564,839 $ 3,199,289 Nov-98 $ 3,327,142 $ 3,585,158 $ 3,312,223 Dec-98 $ 3,341,116 $ 3,595,914 $ 3,304,605 Jan-99 $ 3,366,508 $ 3,621,445 $ 3,322,120 Feb-99 $ 3,322,744 $ 3,558,069 $ 3,277,603 Mar-99 $ 3,368,597 $ 3,577,639 $ 3,318,573 Apr-99 $ 3,422,495 $ 3,589,087 $ 3,376,980 May-99 $ 3,351,307 $ 3,557,503 $ 3,306,401 Jun-99 $ 3,341,253 $ 3,546,119 $ 3,302,764 Jul-99 $ 3,331,564 $ 3,531,226 $ 3,295,168 Aug-99 $ 3,315,239 $ 3,529,460 $ 3,271,443 Sep-99 $ 3,338,446 $ 3,570,402 $ 3,285,183 Oct-99 $ 3,361,815 $ 3,583,612 $ 3,289,454 Nov-99 $ 3,392,407 $ 3,583,254 $ 3,311,164 Dec-99 $ 3,424,296 $ 3,566,054 $ 3,339,640 Jan-00 $ 3,390,738 $ 3,554,286 $ 3,308,247 Feb-00 $ 3,448,719 $ 3,597,293 $ 3,351,916 Mar-00 $ 3,476,654 $ 3,644,777 $ 3,350,911 Apr-00 $ 3,451,970 $ 3,634,207 $ 3,303,663 May-00 $ 3,424,699 $ 3,632,390 $ 3,262,367 Jun-00 $ 3,502,097 $ 3,707,944 $ 3,345,557 Jul-00 $ 3,535,017 $ 3,741,686 $ 3,356,263 Aug-00 $ 3,586,982 $ 3,795,941 $ 3,383,784 Sep-00 $ 3,592,362 $ 3,819,855 $ 3,353,669 Oct-00 $ 3,594,518 $ 3,845,066 $ 3,283,242 Nov-00 $ 3,607,817 $ 3,908,125 $ 3,244,499 Dec-00 $ 3,696,931 $ 3,980,816 $ 3,327,234 Jan-01 $ 3,804,511 $ 4,045,704 $ 3,442,024 Feb-01 $ 3,810,979 $ 4,080,901 $ 3,449,596 Mar-01 $ 3,786,970 $ 4,101,306 $ 3,390,263 Apr-01 $ 3,761,976 $ 4,084,080 $ 3,361,107 May-01 $ 3,793,952 $ 4,108,585 $ 3,390,685 Jun-01 $ 3,776,121 $ 4,124,198 $ 3,359,490 Jul-01 $ 3,796,890 $ 4,216,580 $ 3,392,749 Aug-01 $ 3,850,426 $ 4,265,070 $ 3,437,873 Sep-01 $ 3,722,977 $ 4,314,545 $ 3,331,299 Oct-01 $ 3,804,882 $ 4,404,719 $ 3,412,916 Nov-01 $ 3,869,565 $ 4,343,934 $ 3,445,680 Dec-01 $ 3,844,413 $ 4,316,133 $ 3,439,133 Jan-02 $ 3,867,095 $ 4,351,093 $ 3,457,704 Feb-02 $ 3,870,962 $ 4,393,299 $ 3,469,806 Mar-02 $ 3,862,059 $ 4,320,370 $ 3,472,929 Apr-02 $ 3,899,135 $ 4,404,185 $ 3,527,107 May-02 $ 3,901,084 $ 4,441,621 $ 3,537,335 Jun-02 $ 3,839,057 $ 4,480,263 $ 3,469,418 Jul-02 $ 3,799,899 $ 4,534,474 $ 3,424,663 Aug-02 $ 3,877,416 $ 4,611,107 $ 3,488,704 Sep-02 $ 3,878,580 $ 4,685,807 $ 3,494,635 Oct-02 $ 3,902,627 $ 4,664,252 $ 3,505,818 Nov-02 $ 3,975,216 $ 4,662,853 $ 3,589,256 Dec-02 $ 4,030,074 $ 4,759,374 $ 3,662,477 Jan-03 $ 4,053,448 $ 4,763,657 $ 3,709,723 Feb-03 $ 4,107,764 $ 4,829,396 $ 3,769,821 Mar-03 $ 4,141,448 $ 4,825,532 $ 3,808,650 Apr-03 $ 4,238,772 $ 4,865,584 $ 3,934,716 May-03 $ 4,294,300 $ 4,956,084 $ 4,023,247 Jun-03 $ 4,301,600 $ 4,946,172 $ 4,053,421 Jul-03 $ 4,178,575 $ 4,779,981 $ 3,956,950 Aug-03 $ 4,221,473 $ 4,811,528 $ 3,989,001
Source: Lipper Analytical Services, Inc. Past performance is no guarantee of the future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund commenced operations on 3/17/97. Returns for the Institutional Shares prior to 9/10/01 (offering date of the Institutional Shares) are calculated using the historical expenses of the J.P. Morgan Institutional Global Strategic Income Fund, which are similar to the expenses of the Institutional Shares. Returns for the Select Shares prior to 9/10/01 (offering date of the Select Shares) are calculated using the historical expenses of the J.P. Morgan Global Strategic Income Fund, which are similar to the expenses of the Select Shares. Returns for the Class A and B Shares prior to 9/10/01 (offering date of the Class A and B Shares) are calculated using the historical expenses of the J.P. Morgan Global Strategic Income Fund, which are lower than the expenses of the Class A and B Shares. The graph illustrates comparative performance for $3,000,000 invested in Institutional Shares of the JPMorgan Global Strategic Income Fund, Lehman Aggregate Bond Index, and Lipper Multi-Sector Income Funds Index from March 17, 1997 to August 31, 2003. The performance of the Fund assumes reinvestment of all dividends and capital gains and does not include a sales charge. The performance of the indices reflects an initial investment at the end of the month following the Fund's inception. The performance of the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains of the securities included in the benchmark. The Lehman Aggregate Bond Index is composed of the Lehman Gov't/Credit Index and the Mortgage-Backed Securities Index and includes U.S. treasury issues, agency issues, corporate bond issues and mortgage-backed securities. The Lipper Multi-Sector Income Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. Investors cannot invest directly in an index. Institutional Shares have a $3,000,000 minimum initial deposit and carry no sales charge. Certain fees and expenses of the Fund are currently being waived and reimbursed as described in the prospectus. Had the expenses not been subsidized or waived, returns would have been lower. Also, all performance shown in this section does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. 11 JPMorgan Short Term Bond Fund AS OF AUGUST 31, 2003 (Unaudited) FUND FACTS Fund Inception 9/13/1993 Fiscal Year End AUGUST 31 Net Assets as of 8/31/2003 (In Millions) $ 937 Primary Benchmark MERRILL LYNCH 1-3 YEAR TREASURY INDEX Average Credit Quality AA Duration 1.8 YEARS
Q: HOW DID THE FUND PERFORM? A: JPMorgan Short Term Bond Fund, which seeks to provide high total return consistent with low volatility of principal, returned 2.44% (Institutional Shares) for the one-year period ended August 31, 2003. This compares to the 2.54% return of its benchmark index, the Merrill Lynch 1-3 Year Treasury Index. Q: WHY DID THE FUND PERFORM THIS WAY? A: Most of the underperformance during the period was due to the confluence of an extremely rapid rise in interest rates, the widening of mortgage spreads and an increase in implied volatility (indicating a more bearish market) in mid-June and July. Overall, our corporate sector allocation was a positive for performance. However, the contribution from our duration positioning and large mortgage allocation was negative. We took a longer duration position than that of the benchmark because we believed the short end of the yield curve would remain anchored and that the potential for a backup in the longer-term maturities was limited. Unfortunately, interest rates rose sharply at the end of the period and mortgage spreads widened. An additional detractor was our yield curve position, which did not benefit performance when the curve steepened. Toward the end of the period, we lowered the volatility of the Fund by reducing our allocation to mortgages. Q: HOW WAS THE FUND MANAGED? A: We tactically traded our duration during the period, maintaining a slightly longer duration than the benchmark because we expected the Fed to ease rates and keep them low for the foreseeable future. To enhance yield and reduce interest rate volatility, we purchased agencies, including callable agencies. However, in January and February, we reduced our agency holdings, purchasing sovereign debt and asset-backed securities at higher yields. We reduced our exposure to the utilities sector and continued to add selectively to our positions in broker-dealer and finance paper. We increased our allocation to mortgage-backed securities because of their higher yields and because we thought they would perform well in a low interest rate environment. 12 ANNUAL REPORT AUGUST 31 2003 (Unaudited) AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 3 YEARS 5 YEARS 10 YEARS ---------------------------------------------- CLASS A SHARES Without Sales Charge 2.08% 5.51% 5.01% 5.15% With Sales Charge* 0.58% 4.96% 4.69% 4.99% INSTITUTIONAL SHARES 2.44% 5.91% 5.38% 5.44% SELECT SHARES 2.28% 5.67% 5.10% 5.19%
* Sales Charge for Class A Shares is 1.50%. [CHART] TEN-YEAR PERFORMANCE (8/31/93 TO 8/31/03)
JPMORGAN SHORT TERM BOND FUND LIPPER SHORT-TERM INVESTMENT (INSTITUTIONAL SHARES) MERRILL LYNCH 1-3 YEAR TREASURY INDEX GRADE DEBT FUNDS INDEX Aug-93 $ 3,000,000 $ 3,000,000 $ 3,000,000 Sep-93 $ 3,006,300 $ 3,009,600 $ 3,009,900 Oct-93 $ 3,006,300 $ 3,015,619 $ 3,024,950 Nov-93 $ 3,007,202 $ 3,016,524 $ 3,026,462 Dec-93 $ 3,017,426 $ 3,027,685 $ 3,046,134 Jan-94 $ 3,036,134 $ 3,047,062 $ 3,066,238 Feb-94 $ 3,022,168 $ 3,027,561 $ 3,049,068 Mar-94 $ 3,003,431 $ 3,012,423 $ 3,025,895 Apr-94 $ 2,990,216 $ 3,001,880 $ 3,014,094 May-94 $ 2,992,907 $ 3,006,082 $ 3,017,409 Jun-94 $ 3,002,783 $ 3,015,101 $ 3,019,823 Jul-94 $ 3,022,902 $ 3,041,030 $ 3,037,338 Aug-94 $ 3,034,389 $ 3,051,674 $ 3,053,436 Sep-94 $ 3,027,107 $ 3,044,655 $ 3,049,161 Oct-94 $ 3,032,858 $ 3,051,353 $ 3,054,040 Nov-94 $ 3,022,546 $ 3,037,622 $ 3,048,543 Dec-94 $ 3,028,591 $ 3,044,609 $ 3,041,226 Jan-95 $ 3,063,723 $ 3,086,929 $ 3,072,247 Feb-95 $ 3,104,777 $ 3,129,220 $ 3,108,499 Mar-95 $ 3,124,337 $ 3,146,744 $ 3,125,596 Apr-95 $ 3,153,706 $ 3,174,750 $ 3,152,476 May-95 $ 3,212,680 $ 3,230,308 $ 3,210,166 Jun-95 $ 3,229,065 $ 3,247,751 $ 3,230,069 Jul-95 $ 3,235,523 $ 3,261,067 $ 3,240,405 Aug-95 $ 3,258,172 $ 3,280,634 $ 3,262,116 Sep-95 $ 3,277,395 $ 3,296,709 $ 3,277,774 Oct-95 $ 3,300,009 $ 3,324,401 $ 3,308,585 Nov-95 $ 3,329,379 $ 3,353,656 $ 3,336,378 Dec-95 $ 3,355,681 $ 3,379,479 $ 3,359,399 Jan-96 $ 3,384,540 $ 3,408,204 $ 3,389,633 Feb-96 $ 3,361,864 $ 3,393,890 $ 3,377,091 Mar-96 $ 3,367,242 $ 3,390,835 $ 3,362,232 Apr-96 $ 3,368,926 $ 3,393,548 $ 3,364,586 May-96 $ 3,380,380 $ 3,400,675 $ 3,371,315 Jun-96 $ 3,403,367 $ 3,425,159 $ 3,395,588 Jul-96 $ 3,412,556 $ 3,438,518 $ 3,409,510 Aug-96 $ 3,425,524 $ 3,450,209 $ 3,421,444 Sep-96 $ 3,456,354 $ 3,481,605 $ 3,454,290 Oct-96 $ 3,498,175 $ 3,520,948 $ 3,491,250 Nov-96 $ 3,525,811 $ 3,548,059 $ 3,520,228 Dec-96 $ 3,526,869 $ 3,548,059 $ 3,521,636 Jan-97 $ 3,544,856 $ 3,564,735 $ 3,539,596 Feb-97 $ 3,555,490 $ 3,572,934 $ 3,551,631 Mar-97 $ 3,555,846 $ 3,571,504 $ 3,548,079 Apr-97 $ 3,581,092 $ 3,600,791 $ 3,576,464 May-97 $ 3,606,518 $ 3,625,276 $ 3,600,426 Jun-97 $ 3,628,879 $ 3,650,291 $ 3,625,629 Jul-97 $ 3,666,619 $ 3,690,444 $ 3,666,961 Aug-97 $ 3,670,652 $ 3,693,765 $ 3,669,528 Sep-97 $ 3,701,119 $ 3,721,838 $ 3,698,151 Oct-97 $ 3,716,663 $ 3,749,379 $ 3,720,709 Nov-97 $ 3,724,840 $ 3,758,378 $ 3,730,011 Dec-97 $ 3,751,659 $ 3,783,935 $ 3,752,391 Jan-98 $ 3,793,677 $ 3,820,639 $ 3,785,037 Feb-98 $ 3,797,471 $ 3,824,078 $ 3,790,336 Mar-98 $ 3,812,661 $ 3,839,756 $ 3,805,876 Apr-98 $ 3,832,106 $ 3,857,803 $ 3,823,764 May-98 $ 3,854,715 $ 3,878,250 $ 3,844,412 Jun-98 $ 3,869,748 $ 3,898,416 $ 3,861,712 Jul-98 $ 3,892,967 $ 3,916,739 $ 3,878,704 Aug-98 $ 3,920,218 $ 3,966,090 $ 3,905,079 Sep-98 $ 3,989,997 $ 4,018,442 $ 3,946,473 Oct-98 $ 3,991,593 $ 4,038,133 $ 3,941,342 Nov-98 $ 3,996,783 $ 4,034,498 $ 3,951,590 Dec-98 $ 4,015,967 $ 4,048,619 $ 3,968,582 Jan-99 $ 4,038,457 $ 4,063,194 $ 3,988,424 Feb-99 $ 4,020,283 $ 4,044,503 $ 3,975,263 Mar-99 $ 4,051,642 $ 4,072,410 $ 4,006,270 Apr-99 $ 4,066,228 $ 4,085,442 $ 4,020,692 May-99 $ 4,051,996 $ 4,082,991 $ 4,015,465 Jun-99 $ 4,045,513 $ 4,095,648 $ 4,023,095 Jul-99 $ 4,051,581 $ 4,108,754 $ 4,027,520 Aug-99 $ 4,066,167 $ 4,120,670 $ 4,035,575 Sep-99 $ 4,097,069 $ 4,147,454 $ 4,062,210 Oct-99 $ 4,112,229 $ 4,158,652 $ 4,071,147 Nov-99 $ 4,132,378 $ 4,166,554 $ 4,084,582 Dec-99 $ 4,144,776 $ 4,172,387 $ 4,093,159 Jan-00 $ 4,148,506 $ 4,170,718 $ 4,094,797 Feb-00 $ 4,169,248 $ 4,198,662 $ 4,121,413 Mar-00 $ 4,179,672 $ 4,224,693 $ 4,142,844 Apr-00 $ 4,200,152 $ 4,235,678 $ 4,143,673 May-00 $ 4,218,213 $ 4,253,044 $ 4,158,175 Jun-00 $ 4,240,569 $ 4,297,275 $ 4,204,331 Jul-00 $ 4,268,133 $ 4,324,348 $ 4,230,398 Aug-00 $ 4,286,913 $ 4,356,348 $ 4,261,280 Sep-00 $ 4,322,923 $ 4,387,714 $ 4,297,501 Oct-00 $ 4,337,621 $ 4,411,408 $ 4,310,393 Nov-00 $ 4,392,708 $ 4,453,316 $ 4,349,618 Dec-00 $ 4,444,103 $ 4,506,311 $ 4,395,724 Jan-01 $ 4,481,878 $ 4,562,640 $ 4,458,143 Feb-01 $ 4,517,285 $ 4,592,297 $ 4,489,350 Mar-01 $ 4,549,358 $ 4,630,413 $ 4,521,674 Apr-01 $ 4,547,993 $ 4,642,915 $ 4,532,526 May-01 $ 4,574,371 $ 4,668,915 $ 4,560,627 Jun-01 $ 4,594,956 $ 4,684,790 $ 4,579,326 Jul-01 $ 4,652,393 $ 4,737,259 $ 4,635,651 Aug-01 $ 4,685,890 $ 4,764,735 $ 4,665,783 Sep-01 $ 4,751,492 $ 4,843,353 $ 4,710,108 Oct-01 $ 4,801,858 $ 4,888,881 $ 4,745,905 Nov-01 $ 4,778,329 $ 4,878,125 $ 4,722,650 Dec-01 $ 4,782,152 $ 4,880,077 $ 4,717,927 Jan-02 $ 4,802,237 $ 4,889,837 $ 4,731,609 Feb-02 $ 4,821,926 $ 4,913,308 $ 4,745,331 Mar-02 $ 4,792,994 $ 4,879,897 $ 4,723,977 Apr-02 $ 4,855,303 $ 4,934,552 $ 4,761,769 May-02 $ 4,873,268 $ 4,954,291 $ 4,788,435 Jun-02 $ 4,901,046 $ 4,995,907 $ 4,793,702 Jul-02 $ 4,953,977 $ 5,056,857 $ 4,808,083 Aug-02 $ 4,972,307 $ 5,074,050 $ 4,838,374 Sep-02 $ 5,015,068 $ 5,116,165 $ 4,869,824 Oct-02 $ 5,032,120 $ 5,127,932 $ 4,872,745 Nov-02 $ 5,015,514 $ 5,112,548 $ 4,874,695 Dec-02 $ 5,048,616 $ 5,160,606 $ 4,923,441 Jan-03 $ 5,069,820 $ 5,160,090 $ 4,931,319 Feb-03 $ 5,095,676 $ 5,181,762 $ 4,960,907 Mar-03 $ 5,103,829 $ 5,191,089 $ 4,968,348 Apr-03 $ 5,121,693 $ 5,200,952 $ 4,989,712 May-03 $ 5,145,253 $ 5,220,716 $ 5,018,153 Jun-03 $ 5,146,796 $ 5,228,547 $ 5,027,186 Jul-03 $ 5,081,432 $ 5,200,313 $ 4,982,947 Aug-03 $ 5,094,877 $ 5,203,953 $ 4,987,432
Source: Lipper Analytical Services, Inc. Past performance is no guarantee of the future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund commenced operations on 9/13/93. Returns for the Institutional Shares prior to 9/10/01 (offering date of the Institutional Shares) are calculated using the historical expenses of the J.P. Morgan Institutional Short Term Bond Fund, which are similar to the expenses of the Institutional Shares. The returns presented prior to 9/13/93 are based on the historical expenses of the J.P. Morgan Short Term Bond Fund, which are higher than the expenses of the Institutional Shares. Returns for the Select Shares prior to 9/10/01 (offering date of the Select Shares) are calculated using the historical expenses of the J.P. Morgan Short Term Bond Fund, which are similar to the expenses of the Select Shares. Returns for the Class A Shares prior to 9/10/01 (offering date of the Class A Shares) are calculated using the historical expenses of the J.P. Morgan Short Term Bond Fund, which are lower than the expenses of the Class A Shares. The graph illustrates comparative performance for $3,000,000 invested in Institutional Shares of the JPMorgan Short Term Bond Fund, Merrill Lynch 1-3 Year Treasury Index, and Lipper Short-Term Investment Grade Debt Funds Index from August 31, 1993 to August 31, 2003. The performance of the Fund assumes reinvestment of all dividends and capital gains and does not include a sales charge. The performance of the indices reflects an initial investment at the end of the month following the Fund's inception. The performance of the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains of the securities included in the benchmark. The Merrill Lynch 1-3 Year Treasury Index is an unmanaged index which measures short-term bond performance. The Lipper Short-Term Investment Grade Debt Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. Investors cannot invest directly in an index. Institutional Shares have a $3,000,000 minimum initial deposit and carry no sales charge. Certain fees and expenses of the Fund are currently being waived and reimbursed as described in the prospectus. Had the expenses not been subsidized or waived, returns would have been lower. Also, all performance shown in this section does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. 13 JPMorgan Short Term Bond Fund II AS OF AUGUST 31, 2003 (Unaudited) FUND FACTS Fund Inception 11/30/1990 Fiscal Year End AUGUST 31 Net Assets as of 8/31/2003 (In Millions) $1,554 Primary Benchmark LEHMAN 1-3 YEAR U.S. GOV'T BOND INDEX Average Credit Quality AA+ Duration 1.8 YEARS
Q: HOW DID THE FUND PERFORM? A: JPMorgan Short Term Bond Fund II, which seeks a high level of income, consistent with preservation of capital, returned 2.15% (Select Shares) for the one-year period ended August 31, 2003. This compares to the 2.60% return of its benchmark index, the Lehman 1-3 Year U.S. Gov't Bond Index. Q: WHY DID THE FUND PERFORM THIS WAY? A: Most of the underperformance during the period was due to the confluence of an extremely rapid rise in interest rates, the widening of mortgage spreads and an increase in implied volatility (indicating a more bearish market) in mid-June and July. Overall, our corporate sector allocation was a positive for performance. However, the contribution from our duration positioning and large mortgage allocation was negative. We took a longer duration position than that of the benchmark because we believed the short end of the yield curve would remain anchored and that the potential for a backup in the longer-term maturities was limited. Unfortunately, interest rates rose sharply at the end of the period and mortgage spreads widened. An additional detractor was our yield curve position, which did not benefit performance when the curve steepened. Toward the end of the period, we lowered the volatility of the Fund by reducing our allocation to mortgages. Q: HOW WAS THE FUND MANAGED? A: We tactically traded our duration during the period, maintaining a slightly longer duration than the benchmark because we expected the Fed to ease rates and keep them low for the foreseeable future. To enhance yield and reduce interest rate volatility, we purchased agencies, including callable agencies. However, in January and February, we reduced our agency holdings, purchasing sovereign debt and asset-backed securities at higher yields. We reduced our exposure to the utilities sector and continued to add selectively to our positions in broker-dealer and finance paper. We increased our allocation to mortgage-backed securities because of their higher yields and because we thought they would perform well in a low interest rate environment. 14 ANNUAL REPORT AUGUST 31 2003 (Unaudited) AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------------------------------------------------------------------- CLASS A SHARES Without Sales Charge 1.88% 5.39% 4.76% 5.01% With Sales Charge* 0.33% 4.86% 4.45% 4.86% CLASS M SHARES Without Sales Charge 1.64% 5.15% 4.55% 4.91% With Sales Charge** 0.09% 4.62% 4.24% 4.75% SELECT SHARES 2.15% 5.65% 5.07% 5.27%
* Sales Charge for Class A Shares is 1.50%. ** Sales Charge for Class M Shares is 1.50%. [CHART] TEN-YEAR PERFORMANCE (8/31/93 TO 8/31/03)
JPMORGAN SHORT TERM BOND FUND II LEHMAN 1-3 YEAR LIPPER SHORT-TERM INVESTMENT (SELECT SHARES) U.S. GOV'T BOND INDEX GRADE DEBT FUNDS INDEX Aug-93 $ 1,000,000 $ 1,000,000 $ 1,000,000 Sep-93 $ 1,003,200 $ 1,003,200 $ 1,003,300 Oct-93 $ 1,005,407 $ 1,005,407 $ 1,008,317 Nov-93 $ 1,007,317 $ 1,005,608 $ 1,008,821 Dec-93 $ 1,010,037 $ 1,009,631 $ 1,015,378 Jan-94 $ 1,014,683 $ 1,015,991 $ 1,022,079 Feb-94 $ 1,012,349 $ 1,009,794 $ 1,016,356 Mar-94 $ 1,011,033 $ 1,004,644 $ 1,008,632 Apr-94 $ 1,009,820 $ 1,000,826 $ 1,004,698 May-94 $ 1,012,648 $ 1,002,127 $ 1,005,803 Jun-94 $ 1,016,597 $ 1,004,632 $ 1,006,608 Jul-94 $ 1,021,782 $ 1,013,674 $ 1,012,446 Aug-94 $ 1,024,949 $ 1,017,019 $ 1,017,812 Sep-94 $ 1,026,077 $ 1,014,680 $ 1,016,387 Oct-94 $ 1,029,257 $ 1,017,014 $ 1,018,013 Nov-94 $ 1,029,360 $ 1,012,742 $ 1,016,181 Dec-94 $ 1,033,992 $ 1,014,667 $ 1,013,742 Jan-95 $ 1,042,678 $ 1,028,466 $ 1,024,082 Feb-95 $ 1,052,375 $ 1,042,453 $ 1,036,166 Mar-95 $ 1,058,268 $ 1,048,291 $ 1,041,865 Apr-95 $ 1,064,195 $ 1,057,621 $ 1,050,825 May-95 $ 1,076,646 $ 1,075,706 $ 1,070,055 Jun-95 $ 1,082,675 $ 1,081,515 $ 1,076,690 Jul-95 $ 1,087,763 $ 1,085,841 $ 1,080,135 Aug-95 $ 1,092,876 $ 1,092,356 $ 1,087,372 Sep-95 $ 1,097,903 $ 1,097,709 $ 1,092,591 Oct-95 $ 1,105,259 $ 1,106,820 $ 1,102,862 Nov-95 $ 1,112,443 $ 1,116,228 $ 1,112,126 Dec-95 $ 1,119,007 $ 1,124,711 $ 1,119,800 Jan-96 $ 1,126,728 $ 1,134,271 $ 1,129,878 Feb-96 $ 1,126,277 $ 1,129,847 $ 1,125,697 Mar-96 $ 1,128,980 $ 1,128,943 $ 1,120,744 Apr-96 $ 1,131,803 $ 1,130,072 $ 1,121,529 May-96 $ 1,134,859 $ 1,132,558 $ 1,123,772 Jun-96 $ 1,141,781 $ 1,140,826 $ 1,131,863 Jul-96 $ 1,146,919 $ 1,145,275 $ 1,136,503 Aug-96 $ 1,150,245 $ 1,149,513 $ 1,140,481 Sep-96 $ 1,160,367 $ 1,159,973 $ 1,151,430 Oct-96 $ 1,172,667 $ 1,173,081 $ 1,163,750 Nov-96 $ 1,181,931 $ 1,181,762 $ 1,173,409 Dec-96 $ 1,181,931 $ 1,181,998 $ 1,173,879 Jan-97 $ 1,186,541 $ 1,187,672 $ 1,179,865 Feb-97 $ 1,189,626 $ 1,190,522 $ 1,183,877 Mar-97 $ 1,188,912 $ 1,189,570 $ 1,182,693 Apr-97 $ 1,199,850 $ 1,199,324 $ 1,192,155 May-97 $ 1,206,569 $ 1,207,720 $ 1,200,142 Jun-97 $ 1,215,619 $ 1,216,053 $ 1,208,543 Jul-97 $ 1,229,355 $ 1,229,308 $ 1,222,320 Aug-97 $ 1,228,372 $ 1,230,537 $ 1,223,176 Sep-97 $ 1,238,321 $ 1,239,889 $ 1,232,717 Oct-97 $ 1,245,627 $ 1,249,064 $ 1,240,236 Nov-97 $ 1,246,998 $ 1,252,187 $ 1,243,337 Dec-97 $ 1,254,355 $ 1,260,577 $ 1,250,797 Jan-98 $ 1,266,648 $ 1,272,552 $ 1,261,679 Feb-98 $ 1,266,901 $ 1,273,698 $ 1,263,445 Mar-98 $ 1,270,575 $ 1,278,538 $ 1,268,625 Apr-98 $ 1,276,547 $ 1,284,675 $ 1,274,588 May-98 $ 1,283,695 $ 1,291,483 $ 1,281,471 Jun-98 $ 1,290,627 $ 1,298,070 $ 1,287,237 Jul-98 $ 1,296,564 $ 1,304,171 $ 1,292,901 Aug-98 $ 1,304,992 $ 1,320,082 $ 1,301,693 Sep-98 $ 1,323,392 $ 1,337,903 $ 1,315,491 Oct-98 $ 1,320,878 $ 1,344,459 $ 1,313,781 Nov-98 $ 1,320,481 $ 1,343,114 $ 1,317,197 Dec-98 $ 1,324,575 $ 1,348,218 $ 1,322,861 Jan-99 $ 1,331,065 $ 1,353,341 $ 1,329,475 Feb-99 $ 1,326,540 $ 1,347,251 $ 1,325,088 Mar-99 $ 1,335,958 $ 1,356,412 $ 1,335,423 Apr-99 $ 1,339,966 $ 1,360,617 $ 1,340,231 May-99 $ 1,339,028 $ 1,359,665 $ 1,338,488 Jun-99 $ 1,340,501 $ 1,363,608 $ 1,341,032 Jul-99 $ 1,343,584 $ 1,367,835 $ 1,342,507 Aug-99 $ 1,345,465 $ 1,371,665 $ 1,345,192 Sep-99 $ 1,355,422 $ 1,380,581 $ 1,354,070 Oct-99 $ 1,360,166 $ 1,384,308 $ 1,357,049 Nov-99 $ 1,362,206 $ 1,386,939 $ 1,361,527 Dec-99 $ 1,365,748 $ 1,388,187 $ 1,364,386 Jan-00 $ 1,366,294 $ 1,387,909 $ 1,364,932 Feb-00 $ 1,374,082 $ 1,397,347 $ 1,373,804 Mar-00 $ 1,381,090 $ 1,405,731 $ 1,380,948 Apr-00 $ 1,376,670 $ 1,409,245 $ 1,381,224 May-00 $ 1,381,075 $ 1,414,460 $ 1,386,059 Jun-00 $ 1,396,682 $ 1,429,877 $ 1,401,444 Jul-00 $ 1,406,738 $ 1,439,028 $ 1,410,133 Aug-00 $ 1,417,007 $ 1,449,965 $ 1,420,427 Sep-00 $ 1,431,319 $ 1,461,275 $ 1,432,500 Oct-00 $ 1,435,899 $ 1,469,166 $ 1,436,798 Nov-00 $ 1,451,837 $ 1,483,417 $ 1,449,873 Dec-00 $ 1,468,534 $ 1,501,663 $ 1,465,241 Jan-01 $ 1,484,394 $ 1,521,485 $ 1,486,048 Feb-01 $ 1,495,081 $ 1,531,374 $ 1,496,450 Mar-01 $ 1,507,042 $ 1,543,778 $ 1,507,225 Apr-01 $ 1,508,549 $ 1,548,255 $ 1,510,842 May-01 $ 1,515,036 $ 1,556,771 $ 1,520,209 Jun-01 $ 1,520,338 $ 1,562,375 $ 1,526,442 Jul-01 $ 1,536,910 $ 1,580,655 $ 1,545,217 Aug-01 $ 1,547,054 $ 1,590,613 $ 1,555,261 Sep-01 $ 1,567,165 $ 1,617,176 $ 1,570,036 Oct-01 $ 1,583,777 $ 1,633,348 $ 1,581,968 Nov-01 $ 1,577,125 $ 1,628,775 $ 1,574,217 Dec-01 $ 1,575,075 $ 1,629,752 $ 1,572,642 Jan-02 $ 1,580,430 $ 1,633,663 $ 1,577,203 Feb-02 $ 1,588,807 $ 1,641,832 $ 1,581,777 Mar-02 $ 1,579,592 $ 1,630,010 $ 1,574,659 Apr-02 $ 1,599,021 $ 1,649,734 $ 1,587,256 May-02 $ 1,604,937 $ 1,656,167 $ 1,596,145 Jun-02 $ 1,613,283 $ 1,670,907 $ 1,597,901 Jul-02 $ 1,629,577 $ 1,691,125 $ 1,602,694 Aug-02 $ 1,636,095 $ 1,698,059 $ 1,612,791 Sep-02 $ 1,648,039 $ 1,711,813 $ 1,623,275 Oct-02 $ 1,653,642 $ 1,716,093 $ 1,624,248 Nov-02 $ 1,649,177 $ 1,711,288 $ 1,624,898 Dec-02 $ 1,660,392 $ 1,727,716 $ 1,641,147 Jan-03 $ 1,666,867 $ 1,728,062 $ 1,643,773 Feb-03 $ 1,673,034 $ 1,736,011 $ 1,653,636 Mar-03 $ 1,675,377 $ 1,739,483 $ 1,656,116 Apr-03 $ 1,680,905 $ 1,742,962 $ 1,663,237 May-03 $ 1,687,965 $ 1,750,108 $ 1,672,718 Jun-03 $ 1,690,160 $ 1,752,908 $ 1,675,729 Jul-03 $ 1,667,681 $ 1,741,514 $ 1,660,982 Aug-03 $ 1,670,807 $ 1,742,211 $ 1,662,477
Source: Lipper Analytical Services, Inc. Past performance is no guarantee of the future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund commenced operations on 11/30/90. Returns for the Class A Shares prior to 5/6/96 (offering date of the Class A Shares) are calculated using the historical expenses of the Select Shares, which are lower than the expenses of the Class A Shares. Returns for the Class M Shares prior to 7/1/99 (offering date of the Class M Shares) are calculated using the historical expenses of the Class A Shares, which are lower than the expenses of the Class M Shares. The graph illustrates comparative performance for $1,000,000 invested in Select Shares of the JPMorgan Short Term Bond Fund II, Lehman 1-3 Year U.S. Gov't Bond Index, and Lipper Short-Term Investment Grade Debt Funds Index from August 31, 1993 to August 31, 2003. The performance of the Fund assumes reinvestments of all dividends and capital gains and does not include a sales charge. The performance of the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains of the securities included in the benchmark. The Lehman 1-3 Year U.S. Gov't Bond Index is composed of bonds covered by the U.S. Government Bond Index with maturities of one to three years. The Lipper Short-Term Investment Grade Debt Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. Investors cannot invest directly in an index. Select Shares have a $1,000,000 minimum initial deposit and carry no sales charge. Certain fees and expenses of the Fund are currently being waived and reimbursed as described in the prospectus. Had the expenses not been subsidized or waived, returns would have been lower. Also, all performance shown in this section does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. 15 JPMorgan Strategic Income Fund AS OF AUGUST 31, 2003 (Unaudited) FUND FACTS Fund Inception 11/30/1998 Fiscal Year End AUGUST 31 Net Assets as of 8/31/2003 (In Millions) $22 Primary Benchmark LEHMAN AGGREGATE BOND INDEX Average Credit Quality BBB+ Duration 4.5 YEARS
Q: HOW DID THE FUND PERFORM? A: JPMorgan Strategic Income Fund, which seeks to provide a high level of income, had a total return of 9.77% (Class A Shares) for the one-year period ended August 31, 2003. This compares to the 4.35% return of the Lehman Aggregate Bond Index. Q: WHY DID THE FUND OUTPERFORM ITS BENCHMARK? A: Our strong performance was largely the result of our strategic overweights to high-yield and emerging markets debt at a time when investor risk aversion decreased. Our underweight to investment-grade corporates detracted, but the selection of longer duration securities was positive. Our positioning and security selection in residential mortgages was positive, as was our overweight to commercial mortgage-backed securities. The non-callable mortgage market continues to be buoyed by a healthy supply of investor capital. Our underweight to Treasury and Agency debt enhanced returns. Detracting was our position in international non-dollar securities, which underperformed the U.S. rally as the market priced in the easier U.S. monetary policy. Q: HOW WAS THE FUND MANAGED? A: High-yield and emerging markets debt were our largest sector overweights, although we reduced our risk exposure in the second quarter of 2003. We remained overweight to non-callable mortgages. In investment-grade corporate bonds, we continued to focus on bottom-up security selection. We reduced our underweight position during the second quarter, adding longer maturities because they benefit from spread compression. We actively managed coupon selection within the residential mortgage-backed sector, focusing on 30-year current coupons (i.e., Fannie Mae 5% and 5.5%). Early in 2003, we increased our hedged non-dollar position because we expected European economic growth to lag the United States. Consistent with our strategy, we maintained a significant underweight to Treasury and agency debt. 16 ANNUAL REPORT AUGUST 31 2003 (Unaudited) AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION 1 YEAR 3 YEARS (11/30/98) --------------------------------------------- CLASS A SHARES Without Sales Charge 9.77% 4.58% 4.47% With Sales Charge* 4.87% 2.98% 3.47% CLASS B SHARES Without CDSC 9.11% 4.07% 4.04% With CDSC** 4.11% 3.18% 3.71% CLASS C SHARES Without CDSC 9.10% 4.04% 4.04% With CDSC*** 8.10% 4.04% 4.04% CLASS M SHARES Without Sales Charge 9.44% 4.37% 4.22% With Sales Charge**** 6.21% 3.31% 3.55%
* Sales Charge for Class A Shares is 4.50%. ** Assumes 5% CDSC (contingent deferred sales charge) for the one year period, 3% CDSC for the three year period, a 2% CDSC for the period since inception. *** Assumes 1% CDSC for the one year period and 0% thereafter. **** Sales Charge on Class M Shares is 3.0%. [CHART] LIFE OF FUND PERFORMANCE (11/30/98 TO 8/31/03)
JPMORGAN STRATEGIC INCOME FUND LIPPER MULTI-SECTOR (CLASS A SHARES) LEHMAN AGGREGATE BOND INDEX INCOME FUNDS INDEX Nov-98 $ 9,550 $ 10,000 $ 10,000 Dec-98 $ 9,471 $ 10,030 $ 9,977 Jan-99 $ 9,445 $ 10,101 $ 10,030 Feb-99 $ 9,430 $ 9,924 $ 9,895 Mar-99 $ 9,594 $ 9,979 $ 10,019 Apr-99 $ 9,776 $ 10,011 $ 10,196 May-99 $ 9,621 $ 9,923 $ 9,982 Jun-99 $ 9,701 $ 9,891 $ 9,971 Jul-99 $ 9,716 $ 9,850 $ 9,949 Aug-99 $ 9,719 $ 9,845 $ 9,877 Sep-99 $ 9,792 $ 9,959 $ 9,918 Oct-99 $ 9,858 $ 9,996 $ 9,931 Nov-99 $ 9,937 $ 9,995 $ 9,997 Dec-99 $ 10,075 $ 9,947 $ 10,083 Jan-00 $ 10,027 $ 9,914 $ 9,988 Feb-00 $ 10,190 $ 10,034 $ 10,120 Mar-00 $ 10,155 $ 10,166 $ 10,117 Apr-00 $ 10,075 $ 10,137 $ 9,974 May-00 $ 9,959 $ 10,132 $ 9,849 Jun-00 $ 10,147 $ 10,342 $ 10,101 Jul-00 $ 10,198 $ 10,437 $ 10,133 Aug-00 $ 10,277 $ 10,588 $ 10,216 Sep-00 $ 10,274 $ 10,655 $ 10,125 Oct-00 $ 10,111 $ 10,725 $ 9,913 Nov-00 $ 9,981 $ 10,901 $ 9,796 Dec-00 $ 10,214 $ 11,104 $ 10,045 Jan-01 $ 10,507 $ 11,285 $ 10,392 Feb-01 $ 10,531 $ 11,383 $ 10,415 Mar-01 $ 10,465 $ 11,440 $ 10,236 Apr-01 $ 10,319 $ 11,392 $ 10,148 May-01 $ 10,451 $ 11,460 $ 10,237 Jun-01 $ 10,432 $ 11,504 $ 10,143 Jul-01 $ 10,512 $ 11,761 $ 10,243 Aug-01 $ 10,642 $ 11,896 $ 10,379 Sep-01 $ 10,355 $ 12,034 $ 10,058 Oct-01 $ 10,589 $ 12,286 $ 10,304 Nov-01 $ 10,686 $ 12,116 $ 10,403 Dec-01 $ 10,630 $ 12,039 $ 10,383 Jan-02 $ 10,680 $ 12,136 $ 10,439 Feb-02 $ 10,720 $ 12,254 $ 10,476 Mar-02 $ 10,698 $ 12,051 $ 10,485 Apr-02 $ 10,815 $ 12,284 $ 10,649 May-02 $ 10,816 $ 12,389 $ 10,680 Jun-02 $ 10,594 $ 12,497 $ 10,475 Jul-02 $ 10,479 $ 12,648 $ 10,339 Aug-02 $ 10,706 $ 12,862 $ 10,533 Sep-02 $ 10,702 $ 13,070 $ 10,551 Oct-02 $ 10,754 $ 13,010 $ 10,584 Nov-02 $ 11,008 $ 13,006 $ 10,836 Dec-02 $ 11,153 $ 13,275 $ 11,057 Jan-03 $ 11,234 $ 13,287 $ 11,200 Feb-03 $ 11,373 $ 13,471 $ 11,382 Mar-03 $ 11,439 $ 13,460 $ 11,499 Apr-03 $ 11,736 $ 13,571 $ 11,879 May-03 $ 11,876 $ 13,824 $ 12,147 Jun-03 $ 11,941 $ 13,796 $ 12,238 Jul-03 $ 11,611 $ 13,333 $ 11,947 Aug-03 $ 11,755 $ 13,421 $ 12,043
Source: Lipper Analytical Services, Inc. Past performance is no guarantee of the future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund commenced operations on 11/30/98. All Share Classes, except Class M Shares, were introduced on 11/30/98. Returns for the Class M Shares prior to 10/28/99 (offering date of the Class M Shares) are calculated using the historical expenses of the Class B Shares, which are higher than the expenses of the Class M Shares. The graph illustrates comparative performance for $10,000 invested in Class A Shares of the JPMorgan Strategic Income Fund, Lehman Aggregate Bond Index, and Lipper Multi-Sector Income Funds Index from November 30, 1998 to August 31, 2003. The performance of the Fund assumes reinvestment of all dividends and capital gains and includes a sales charge. The performance of the indices reflects an initial investment at the end of the month following the Fund's inception. The performance of the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains of the securities included in the benchmark. The Lehman Aggregate Bond Index is composed of the Lehman Gov't/Credit Index and the Mortgage-Backed Securities Index and includes U.S. treasury issues, agency issues, corporate bond issues and mortgage-backed securities. The Lipper Multi-Sector Income Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. Investors cannot invest directly in an index. Class A Shares have a $2,500 minimum initial deposit and carry a 4.50% sales charge. Certain fees and expenses of the Fund are currently being waived and reimbursed as described in the prospectus. Had the expenses not been subsidized or waived, returns would have been lower. Also, all performance shown in this section does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. 17 JPMorgan U.S. Treasury Income Fund AS OF AUGUST 31, 2003 (Unaudited) FUND FACTS Fund Inception 9/8/1987 Fiscal Year End AUGUST 31 Net Assets as of 8/31/2003 (In Millions) $ 135 Primary Benchmark LEHMAN U.S. GOV'T BOND INDEX Average Credit Quality GOVERNMENT Duration 5.5 YEARS
Q: HOW DID THE FUND PERFORM? A: JPMorgan U.S. Treasury Income Fund, which seeks to provide investors with monthly dividends while still protecting the value of their investment, returned 2.00% (Class A Shares, without sales charges) for the one-year period ending August 31, 2003. This compares to the 2.98% return of its benchmark index, the Lehman U.S. Gov't Bond Index. Q: WHY DID THE FUND PERFORM THIS WAY? A: Our longer duration positioning was a modest positive for performance through January, but detracted over the summer months. Our residential mortgage holdings were strong through the spring but impaired returns during July. Elsewhere, the Fund's Agency underweight during the reporting was a detractor from performance. Q: HOW WAS THE FUND MANAGED? A: In general, we maintained a long duration position, focusing on the shortest part of the yield curve, to hedge against unexpected geopolitical shocks and to benefit from mispricings and an accommodative Fed policy. Throughout the period, we overweighted prepayment-sensitive Ginnie Mae mortgage-backed securities because of their attractive yields. We actively managed coupon selection, focusing on 30-year current coupon mortgages (i.e., 5% and 5.5%). As mortgage prepayments slowed in July and August, we allowed our duration to extend. Consistent with the Fund's strategy, we did not hold Agency debentures throughout the period. Even though they are included in the index, we do not hold Agency debentures (debt of Freddie Mac or Fannie Mae) because they are not "full faith and credit" obligations of the U.S. Government. 18 ANNUAL REPORT AUGUST 31 2003 (Unaudited) AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 3 YEARS 5 YEARS 10 YEARS ----------------------------------------------------------------- CLASS A SHARES Without Sales Charge 2.00% 7.07% 5.49% 5.50% With Sales Charge* (2.61%) 5.43% 4.53% 5.02% CLASS B SHARES Without CDSC 1.19% 6.17% 4.55% 4.83% With CDSC** (3.72%) 5.27% 4.21% 4.83% SELECT SHARES 2.29% 7.28% 5.61% 5.56%
* Sales Charge for Class A Shares is 4.50%. ** Assumes 5% CDSC (contingent deferred sales charge) for the one year period, 3% CDSC for the three year period, a 2% CDSC for the five year period and 0% for the ten year period. [CHART] TEN-YEAR PERFORMANCE (8/31/93 TO 8/31/03) JPMORGAN U.S. TREASURY LIPPER GENERAL U.S. INCOME FUND (CLASS A SHARES) LEHMAN U.S. GOV'T BOND INDEX TREASURY FUNDS AVERAGE Aug-93 $ 9,550 $ 10,000 $ 10,000 Sep-93 $ 9,588 $ 10,038 $ 10,042 Oct-93 $ 9,611 $ 10,076 $ 10,076 Nov-93 $ 9,508 $ 9,965 $ 9,929 Dec-93 $ 9,529 $ 10,004 $ 9,961 Jan-94 $ 9,669 $ 10,141 $ 10,108 Feb-94 $ 9,443 $ 9,926 $ 9,857 Mar-94 $ 9,245 $ 9,703 $ 9,624 Apr-94 $ 9,155 $ 9,626 $ 9,535 May-94 $ 9,133 $ 9,614 $ 9,519 Jun-94 $ 9,102 $ 9,592 $ 9,474 Jul-94 $ 9,272 $ 9,768 $ 9,653 Aug-94 $ 9,270 $ 9,770 $ 9,638 Sep-94 $ 9,099 $ 9,632 $ 9,446 Oct-94 $ 9,074 $ 9,626 $ 9,422 Nov-94 $ 9,048 $ 9,608 $ 9,419 Dec-94 $ 9,103 $ 9,667 $ 9,505 Jan-95 $ 9,278 $ 9,847 $ 9,688 Feb-95 $ 9,476 $ 10,058 $ 9,906 Mar-95 $ 9,529 $ 10,122 $ 9,959 Apr-95 $ 9,641 $ 10,254 $ 10,090 May-95 $ 10,011 $ 10,668 $ 10,592 Jun-95 $ 10,088 $ 10,750 $ 10,680 Jul-95 $ 10,049 $ 10,710 $ 10,599 Aug-95 $ 10,153 $ 10,835 $ 10,741 Sep-95 $ 10,247 $ 10,939 $ 10,864 Oct-95 $ 10,398 $ 11,106 $ 11,059 Nov-95 $ 10,546 $ 11,279 $ 11,244 Dec-95 $ 10,698 $ 11,439 $ 11,435 Jan-96 $ 10,759 $ 11,509 $ 11,473 Feb-96 $ 10,511 $ 11,274 $ 11,153 Mar-96 $ 10,405 $ 11,180 $ 11,028 Apr-96 $ 10,316 $ 11,109 $ 10,916 May-96 $ 10,276 $ 11,090 $ 10,884 Jun-96 $ 10,393 $ 11,233 $ 11,044 Jul-96 $ 10,427 $ 11,261 $ 11,058 Aug-96 $ 10,375 $ 11,236 $ 10,976 Sep-96 $ 10,541 $ 11,423 $ 11,198 Oct-96 $ 10,768 $ 11,674 $ 11,513 Nov-96 $ 10,954 $ 11,877 $ 11,791 Dec-96 $ 10,833 $ 11,756 $ 11,595 Jan-97 $ 10,827 $ 11,769 $ 11,556 Feb-97 $ 10,826 $ 11,786 $ 11,549 Mar-97 $ 10,713 $ 11,661 $ 11,362 Apr-97 $ 10,856 $ 11,828 $ 11,551 May-97 $ 10,942 $ 11,930 $ 11,652 Jun-97 $ 11,058 $ 12,064 $ 11,811 Jul-97 $ 11,376 $ 12,406 $ 12,304 Aug-97 $ 11,232 $ 12,284 $ 12,061 Sep-97 $ 11,390 $ 12,468 $ 12,300 Oct-97 $ 11,559 $ 12,684 $ 12,589 Nov-97 $ 11,622 $ 12,748 $ 12,691 Dec-97 $ 11,737 $ 12,882 $ 12,866 Jan-98 $ 11,885 $ 13,075 $ 13,087 Feb-98 $ 11,833 $ 13,040 $ 13,006 Mar-98 $ 11,867 $ 13,077 $ 13,034 Apr-98 $ 11,890 $ 13,135 $ 13,068 May-98 $ 12,019 $ 13,271 $ 13,264 Jun-98 $ 12,159 $ 13,422 $ 13,470 Jul-98 $ 12,155 $ 13,442 $ 13,448 Aug-98 $ 12,484 $ 13,792 $ 13,935 Sep-98 $ 12,834 $ 14,164 $ 14,369 Oct-98 $ 12,783 $ 14,116 $ 14,239 Nov-98 $ 12,752 $ 14,120 $ 14,265 Dec-98 $ 12,767 $ 14,151 $ 14,275 Jan-99 $ 12,848 $ 14,233 $ 14,366 Feb-99 $ 12,476 $ 13,894 $ 13,858 Mar-99 $ 12,523 $ 13,949 $ 13,879 Apr-99 $ 12,556 $ 13,981 $ 13,913 May-99 $ 12,431 $ 13,858 $ 13,725 Jun-99 $ 12,404 $ 13,830 $ 13,636 Jul-99 $ 12,379 $ 13,809 $ 13,587 Aug-99 $ 12,376 $ 13,809 $ 13,553 Sep-99 $ 12,465 $ 13,921 $ 13,663 Oct-99 $ 12,477 $ 13,943 $ 13,646 Nov-99 $ 12,463 $ 13,924 $ 13,600 Dec-99 $ 12,392 $ 13,833 $ 13,450 Jan-00 $ 12,403 $ 13,853 $ 13,524 Feb-00 $ 12,599 $ 14,049 $ 13,787 Mar-00 $ 12,816 $ 14,297 $ 14,136 Apr-00 $ 12,771 $ 14,257 $ 14,064 May-00 $ 12,780 $ 14,265 $ 14,035 Jun-00 $ 12,993 $ 14,519 $ 14,313 Jul-00 $ 13,111 $ 14,660 $ 14,478 Aug-00 $ 13,291 $ 14,877 $ 14,733 Sep-00 $ 13,323 $ 14,919 $ 14,684 Oct-00 $ 13,431 $ 15,062 $ 14,857 Nov-00 $ 13,698 $ 15,359 $ 15,226 Dec-00 $ 13,956 $ 15,664 $ 15,553 Jan-01 $ 14,111 $ 15,822 $ 15,636 Feb-01 $ 14,245 $ 16,003 $ 15,844 Mar-01 $ 14,304 $ 16,059 $ 15,826 Apr-01 $ 14,094 $ 15,895 $ 15,506 May-01 $ 14,165 $ 15,947 $ 15,550 Jun-01 $ 14,204 $ 16,021 $ 15,639 Jul-01 $ 14,552 $ 16,405 $ 16,109 Aug-01 $ 14,706 $ 16,609 $ 16,341 Sep-01 $ 15,002 $ 16,898 $ 16,505 Oct-01 $ 15,404 $ 17,334 $ 17,124 Nov-01 $ 14,979 $ 16,945 $ 16,516 Dec-01 $ 14,787 $ 16,798 $ 16,286 Jan-02 $ 14,916 $ 16,907 $ 16,441 Feb-02 $ 15,058 $ 17,063 $ 16,592 Mar-02 $ 14,738 $ 16,692 $ 16,129 Apr-02 $ 15,067 $ 17,090 $ 16,581 May-02 $ 15,157 $ 17,192 $ 16,649 Jun-02 $ 15,327 $ 17,433 $ 16,877 Jul-02 $ 15,684 $ 17,816 $ 17,289 Aug-02 $ 15,989 $ 18,169 $ 17,787 Sep-02 $ 16,398 $ 18,594 $ 18,331 Oct-02 $ 16,245 $ 18,446 $ 17,990 Nov-02 $ 16,107 $ 18,287 $ 17,823 Dec-02 $ 16,463 $ 18,730 $ 18,331 Jan-03 $ 16,424 $ 18,683 $ 18,265 Feb-03 $ 16,682 $ 18,983 $ 18,643 Mar-03 $ 16,615 $ 18,928 $ 18,508 Apr-03 $ 16,685 $ 19,015 $ 18,608 May-03 $ 17,087 $ 19,510 $ 19,271 Jun-03 $ 16,998 $ 19,408 $ 19,092 Jul-03 $ 16,213 $ 18,607 $ 18,009 Aug-03 $ 16,312 $ 18,711 $ 18,169
Source: Lipper Analytical Services, Inc. Past performance is no guarantee of the future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund commenced operations on 9/8/87. Returns for the Class B Shares prior to 11/4/93 (offering date of the Class B Shares) are calculated using the historical expenses of the Class A Shares, which are lower than the expenses of the Class B Shares. Returns for the Select Shares prior to 2/16/01 (offering date of the Select Shares) are calculated using the historical expenses of the Class A Shares, which are higher than the expenses of the Select Shares. The graph illustrates comparative performance for $10,000 invested in Class A Shares of the JPMorgan U.S. Treasury Income Fund, Lehman U.S. Gov't Bond Index, and Lipper General U.S. Treasury Funds Average from August 31, 1993 to August 31, 2003. The performance of the Fund assumes reinvestment of all dividends and capital gains and includes a sales charge. The performance of the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains of the securities included in the benchmark. The Lehman U.S. Gov't Bond Index is composed of the U.S. Treasury Bond Index and the Agency Bond Index and includes U.S. treasury and agency issues. The Lipper General U.S. Treasury Funds Average describes the average total returns for all the funds in the indicated category as defined by Lipper, Inc. Investors cannot invest directly in an index. Class A Shares have a $2,500 minimum initial deposit and carry a 4.50% sales charge. Certain fees and expenses of the Fund are currently being waived and reimbursed as described in the prospectus. Had the expenses not been subsidized or waived, returns would have been lower. Also, all performance shown in this section does not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemption of fund shares. 19 THIS PAGE IS INTENTIONALLY LEFT BLANK JPMorgan Bond Fund PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2003 (Amounts in thousands)
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- 84.8% U.S. TREASURY SECURITIES -- 36.4% U.S. Treasury Notes & Bonds, $ 70,000 1.50%, 07/31/05 $ 69,491 12,940 3.50%, 11/15/06 @ + 13,283 206,130 2.63%, 05/15/08 + 199,639 21,560 5.00%, 08/15/11 + 22,699 70,490 3.88%, 02/15/13 + 67,533 545 3.63%, 05/15/13 512 15,525 4.25%, 08/15/13 15,273 11,500 7.25%, 05/15/16 + 14,058 840 8.88%, 02/15/19 + 1,178 37,800 8.13%, 08/15/19 + 49,995 29,700 6.88%, 08/15/25 + 35,461 4,135 6.13%, 08/15/29 + 4,576 7,380 5.38%, 02/15/31 + 7,539 ------------------------------------------------------------------------------ Total U.S. Treasury Securities 501,237 (Cost $508,816) ============================================================================== U.S. GOVERNMENT AGENCY SECURITIES -- 1.9% 6,490 Federal Home Loan Mortgage Corp., 6.25%, 07/15/32 6,803 Federal National Mortgage Association, 2 7.00%, 07/15/05 2 15,895 6.13%, 03/15/12 17,323 985 4.38%, 09/15/12 948 570 7.25%, 05/15/30 673 ------------------------------------------------------------------------------ Total U.S. Government Agency Securities 25,749 (Cost $26,423) ============================================================================== FOREIGN GOVERNMENT SECURITIES -- 1.0% Federal Republic of Brazil (Brazil), 359 10.00%, 01/16/07 371 502 11.25%, 07/26/07 532 690 10.25%, 06/17/13 654 413 8.00%, 04/15/14 371 1,025 Region of Lombardy (Italy), 5.80%, 10/25/32 999 1,580 Republic of Colombia (Colombia), 9.75%, 04/09/11 1,773 Russian Federation (Russia), 400 10.00%, 06/26/07 471 480 8.25%, 03/31/10 532 1,630 5.00%, 03/31/30, SUB 1,491 United Mexican States (Mexico), $ 850 7.50%, 01/14/12 $ 928 1,670 6.38%, 01/16/13, MTN 1,682 480 11.38%, 09/15/16 658 1,520 8.13%, 12/30/19 1,634 1,545 8.30%, 08/15/31, MTN 1,659 ------------------------------------------------------------------------------ Total Foreign Government Securities 13,755 (Cost $13,053) ============================================================================== STATE AND MUNICIPAL OBLIGATION -- 0.2% ILLINOIS -- 0.2% 3,695 Illinois State, Taxable Pension, GO, 15.10%, 06/01/33 3,233 (Cost $3,695) CORPORATE NOTES & BONDS -- 18.4% AEROSPACE -- 0.4% 2,735 General Dynamics Corp., 2.13%, 05/15/06 2,693 650 Northrop Grumman Corp., 7.75%, 02/15/31 758 1,200 Raytheon Co., 6.55%, 03/15/10 1,296 1,000 The Boeing Co., 5.13%, 02/15/13 974 ------------------------------------------------------------------------------ 5,721 ============================================================================== AUTOMOTIVE -- 1.6% 805 Delphi Corp., 6.50%, 08/15/13 781 Ford Motor Credit Co., 850 6.50%, 01/25/07 880 8,370 7.88%, 06/15/10 8,756 General Motors Acceptance Corp., 4,870 5.85%, 01/14/09 4,872 1,300 6.88%, 09/15/11 1,300 General Motors Corp., 1,410 8.25%, 07/15/23 1,406 2,785 8.38%, 07/15/33 2,753 1,340 Lear Corp., 8.11%, 05/15/09, Ser. B 1,497 ------------------------------------------------------------------------------ 22,245 ============================================================================== BANKING -- 3.9% 1,330 Abbey National Capital Trust I, 8.96%, 12/31/49, FRN 1,718 2,760 ABN-Amro North American Holding Preferred Capital Repackage Trust I, 6.52%, 12/29/49, FRN, # 2,914
SEE NOTES TO FINANCIAL STATEMENTS. 21
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED BANKING -- CONTINUED Bank of America Corp., $ 3,690 3.25%, 08/15/08 $ 3,560 250 4.88%, 09/15/12 245 1,005 Bank One Corp., 7.88%, 08/01/10 1,185 Barclays Bank PLC (United Kingdom), 1,675 6.86%, 12/31/49, FRN, # 1,754 535 8.55%, 12/31/49, FRN, # 645 1,290 BNP Paribas Capital Trust, 9.00%, 12/31/49, FRN, # 1,571 1,750 Cadets Trust, 4.80%, 07/15/13, Ser. 2003-1, # 1,644 4,305 CBA Capital Trust I, 5.80%, 12/31/49, # 4,249 1,130 Den Norske Bank ASA (Norway), 7.73%, 12/31/49, FRN, # 1,293 1,620 Deutsche Bank Financial LLC, 5.38%, 03/02/15 1,590 1,870 ForeningsSparbanken AB (Sweden), 9.00%, 12/31/49, FRN, # 2,256 3,955 KBC Bank Fund Trust III, 9.86%, 11/29/49, FRN, # 4,891 3,380 KFW International Finance, Inc., 4.75%, 01/24/07 3,591 1,500 Nordea Bank AB (Sweden), 8.95%, 12/31/49, FRN, # 1,803 1,935 Popular North America, Inc., 4.25%, 04/01/08 1,937 4,265 RBS Capital Trust I, 4.71%, 12/31/49, FRN 3,923 1,415 Royal Bank of Scotland Group PLC (United Kingdom), 7.65%, 08/31/49, FRN 1,649 1,755 Scotland International Finance No. 2 BV (The Netherlands), 4.25%, 05/23/13, # 1,618 1,940 Sovereign Bank, 4.38%, 08/01/13, FRN 1,925 1,230 Standard Chartered Bank (United Kingdom), 8.00%, 05/30/31, # 1,451 Wells Fargo & Co., 55 5.13%, 09/01/12 55 1,100 5.00%, 11/15/14 1,068 3,930 Westpac Capital Trust III, 5.82%, 12/31/49, FRN, # 3,918 ------------------------------------------------------------------------------ 52,453 ============================================================================== BROADCASTING/CABLE -- 0.1% $ 680 British Sky Broadcasting PLC (United Kingdom) (Yankee), 8.20%, 07/15/09 $ 776 350 COX Communications, Inc., 7.75%, 11/01/10 403 ------------------------------------------------------------------------------ 1,179 ============================================================================== BUSINESS SERVICES -- 0.2% 1,735 Cendant Corp., 7.13%, 03/15/15 1,869 1,390 Electronic Data Systems Corp., 6.00%, 08/01/13, # 1,277 ------------------------------------------------------------------------------ 3,146 ============================================================================== CHEMICALS -- 0.0% ^ 430 The Dow Chemical Co., 7.38%, 11/01/29 463 COMPUTER SOFTWARE -- 0.0% ^ 475 Unisys Corp., 6.88%, 03/15/10 470 CONSTRUCTION -- 0.1% D.R. Horton, Inc., 510 9.75%, 09/15/10 564 150 8.50%, 04/15/12 160 270 Pulte Homes, Inc., 6.25%, 02/15/13 278 745 Standard-Pacific Corp., 6.88%, 05/15/11, # 703 ------------------------------------------------------------------------------ 1,705 ============================================================================== DIVERSIFIED -- 0.5% General Electric Capital Corp., 3,485 5.88%, 02/15/12, Ser. A, MTN 3,651 2,455 6.75%, 03/15/32, Ser. A, MTN 2,624 ------------------------------------------------------------------------------ 6,275 ============================================================================== ENVIRONMENTAL SERVICES -- 0.0% ^ 525 Allied Waste North America, 10.00%, 08/01/09, Ser. B 568 FINANCIAL SERVICES -- 3.8% 2,525 American Express Credit Corp., 3.00%, 05/16/08 2,421
SEE NOTES TO FINANCIAL STATEMENTS. 22
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED FINANCIAL SERVICES -- CONTINUED American General Finance Corp., $ 1,065 4.50%, 11/15/07, Ser. H, MTN $ 1,094 1,735 5.38%, 10/01/12, Ser. H, MTN 1,745 315 Arch Western Finance LLC, 6.75%, 07/01/13, # 311 2,155 Capital One Bank, 4.88%, 05/15/08 2,144 1,320 CIT Group, Inc., 7.75%, 04/02/12 1,503 2,500 Citigroup, Inc., 7.25%, 10/01/10 2,863 Credit Suisse First Boston USA, Inc., 3,405 5.50%, 08/15/13 3,384 305 7.13%, 07/15/32 333 Goldman Sachs Group, Inc., 3,335 4.75%, 07/15/13 3,154 1,405 6.13%, 02/15/33 1,360 1,800 Household Finance Corp., 8.00%, 07/15/10 2,108 HSBC Capital Funding LP (Channel Islands), 2,550 4.61%, 12/31/49, FRN, # 2,359 2,665 9.55%, 12/31/49, FRN, # 3,322 1,865 ING Capital Funding Trust III, 8.44%, 12/31/49, FRN 2,185 3,674 Morgan Stanley Tracers (Traded Custody Receipts), 7.70%, 03/01/32, FRN, # 4,189 Morgan Stanley, 2,885 6.60%, 04/01/12 3,133 825 5.30%, 03/01/13 814 1,490 Pemex Project Funding Master Trust (Mexico), 8.50%, 02/15/08 1,687 2,415 Principal Life Global Funding I, 5.25%, 01/15/13, # 2,406 1,680 Prudential Holdings LLC, 8.70%, 12/18/23, # 1,988 3,205 SLM Corp., 5.63%, 08/01/33, MTN 2,928 1,850 UBS Preferred Funding Trust I, 8.62%, 12/31/49, FRN 2,226 2,715 UFJ Finance AEC (Aruba), 6.75%, 07/15/13 2,687 ------------------------------------------------------------------------------ 52,344 ============================================================================== FOOD/BEVERAGE PRODUCTS -- 0.2% 735 Archer-Daniels Midland Co., 5.94%, 10/01/32 715 $ 1,595 Miller Brewing Co., 5.50%, 08/15/13, # $ 1,593 ------------------------------------------------------------------------------ 2,308 ============================================================================== HEALTH CARE/HEALTH CARE SERVICES -- 0.1% 2,000 Mariner Health Group, Inc., 9.50%, 04/01/06, Ser. B (d) (f) * 0^^ 820 Tenet Healthcare Corp., 5.00%, 07/01/07 783 ------------------------------------------------------------------------------ 783 ============================================================================== INSURANCE -- 0.8% 2,400 Aegon NV (The Netherlands), 4.75%, 06/01/13 2,263 3,435 AXA (France), 8.60%, 12/15/30 4,067 1,540 Fund American Companies, Inc., 5.88%, 05/15/13 1,508 625 Nationwide Financial Services, Inc., 5.90%, 07/01/12 643 1,230 New York Life Insurance Co., 5.88%, 05/15/33, # 1,175 1,475 QBE Insurance Group LTD (Australia), 5.65%, 07/01/23, FRN, # 1,359 ------------------------------------------------------------------------------ 11,015 ============================================================================== MANUFACTURING -- 0.1% 980 Bombardier, Inc. (Canada), 6.75%, 05/01/12, # 1,009 MULTI-MEDIA -- 0.6% AOL Time Warner, Inc., 360 6.88%, 05/01/12 391 2,710 7.63%, 04/15/31 2,935 750 Comcast Corp., 7.05%, 03/15/33 779 2,795 Liberty Media Corp., 5.70%, 05/15/13 2,689 1,625 News America Holdings, Inc., 7.75%, 12/01/45 1,770 250 News America, Inc., 7.28%, 06/30/28 266 ------------------------------------------------------------------------------ 8,830 ============================================================================== OFFICE/BUSINESS EQUIPMENT -- 0.0% ^ Xerox Corp., 270 7.13%, 06/15/10 262 255 7.63%, 06/15/13 249 ------------------------------------------------------------------------------ 511 ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 23
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED OIL & GAS -- 1.0% $ 770 Alberta Energy Co., LTD (Canada) (Yankee), 7.38%, 11/01/31 $ 881 Amerada Hess Corp., 865 7.88%, 10/01/29 950 870 7.30%, 08/15/31 901 400 Anadarko Finance Co., 7.50%, 05/01/31, Ser. B 461 685 Canadian Natural Resources LTD (Canada) (Yankee), 7.20%, 01/15/32 765 675 Chesapeake Energy Corp., 8.13%, 04/01/11 705 405 Conoco Funding Co. (Canada), 7.25%, 10/15/31 463 955 ConocoPhillips, 5.90%, 10/15/32 925 2,800 Consolidated Natural Gas Co., 6.25%, 11/01/11, Ser. C 3,002 1,145 Devon Financing Corp. ULC, 7.88%, 09/30/31 1,319 Occidental Petroleum Corp., 205 7.65%, 02/15/06 226 465 6.75%, 01/15/12 517 1,335 Transocean, Inc. (Cayman Islands), 6.63%, 04/15/11 1,448 480 Valero Energy Corp., 6.88%, 04/15/12 520 ------------------------------------------------------------------------------ 13,083 ============================================================================== PACKAGING -- 0.2% 475 Crown European Holdings SA (France), 9.50%, 03/01/11, # 506 Owens-Brockway Glass Container, Inc., 270 8.88%, 02/15/09 284 460 7.75%, 05/15/11, # 460 1,915 Sealed Air Corp., 6.88%, 07/15/33, # 1,856 ------------------------------------------------------------------------------ 3,106 ============================================================================== PAPER/FOREST PRODUCTS -- 0.2% 740 Abitibi-Consolidated, Inc. (Canada) (Yankee), 6.00%, 06/20/13 668 115 Georgia-Pacific Corp., 7.38%, 07/15/08, # 114 535 International Paper Co., 5.85%, 10/30/12 545 795 Westvaco Corp., 7.95%, 02/15/31 895 ------------------------------------------------------------------------------ 2,222 ============================================================================== PIPELINES -- 0.2% $ 495 Kinder Morgan Energy Partners LP, 7.40%, 03/15/31 $ 547 955 Kinder Morgan, Inc., 6.50%, 09/01/12 1,026 860 TransCanada Pipelines LTD (Canada) (Yankee), 8.63%, 05/15/12 1,054 ------------------------------------------------------------------------------ 2,627 ============================================================================== REAL ESTATE -- 0.3% 3,500 Socgen Real Estate Co., LLC, 7.64%, 12/31/49, FRN, # 3,905 RETAILING -- 0.2% 725 Federated Department Stores, Inc., 7.00%, 02/15/28 763 Kroger Co., 605 6.80%, 04/01/11 661 345 7.50%, 04/01/31 381 105 Lowe's Companies, Inc., 6.88%, 02/15/28 113 700 Safeway, Inc., 6.50%, 03/01/11 749 25 Sears Roebuck Acceptance Corp., 7.00%, 06/01/32 26 425 The May Department Stores Co., 6.90%, 01/15/32 434 ------------------------------------------------------------------------------ 3,127 ============================================================================== SHIPPING/TRANSPORTATION -- 0.3% Burlington Northern Santa Fe Corp., 1,154 7.33%, 06/23/10, Ser. 96-A 1,272 340 7.08%, 05/13/29 365 885 CSX Corp., 6.75%, 03/15/11 972 1,000 Norfolk Southern Corp., 6.75%, 02/15/11 1,104 435 Union Pacific Corp., 6.63%, 02/01/29 451 ------------------------------------------------------------------------------ 4,164 ============================================================================== TELECOMMUNICATIONS -- 2.1% 774 AT&T Broadband Corp., 8.38%, 03/15/13 919 490 AT&T Corp., 8.50%, 11/15/31 553
SEE NOTES TO FINANCIAL STATEMENTS. 24
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED TELECOMMUNICATIONS -- CONTINUED AT&T Wireless Services, Inc., $ 1,585 7.88%, 03/01/11 $ 1,790 535 8.13%, 05/01/12 614 15 8.75%, 03/01/31 18 1,540 Citizens Communications Co., 9.25%, 05/15/11 1,898 Deutsche Telekom International Finance BV (The Netherlands), 1,185 8.50%, 06/15/10 1,394 220 5.25%, 07/22/13 212 1,070 8.75%, 06/15/30 1,285 France Telecom (France), 645 9.25%, 03/01/11 770 1,295 10.00%, 03/01/31 1,669 1,050 Koninklijke KPN NV (The Netherlands), 8.00%, 10/01/10 1,235 Sprint Capital Corp., 2,190 6.00%, 01/15/07 2,301 420 7.63%, 01/30/11 457 1,600 8.75%, 03/15/32 1,818 3,370 TCI Communications, Inc., 8.75%, 08/01/15 4,083 910 Telefonica Europe BV (The Netherlands), 7.75%, 09/15/10 1,058 1,305 Verizon Global Funding Corp., 7.75%, 12/01/30 1,498 3,385 Verizon New York, Inc., 6.88%, 04/01/12, Ser. A 3,728 705 Vodafone Group PLC (United Kingdom), 7.88%, 02/15/30 834 ------------------------------------------------------------------------------ 28,134 ============================================================================== UTILITIES -- 1.5% 1,045 AEP Texas Central Co., 5.50%, 02/15/13, # 1,029 1,395 Arizona Public Service Co., 4.65%, 05/15/15 1,281 260 CenterPoint Energy, Inc., 6.85%, 06/01/15, # 241 625 Columbus Southern Power Co., 5.50%, 03/01/13, # 622 Constellation Energy Group, Inc., 890 6.35%, 04/01/07 958 2,140 4.55%, 06/15/15 1,885 $ 310 Dominion Resources, Inc., 8.13%, 06/15/10, Ser. A $ 362 DTE Energy Co., 5 7.05%, 06/01/11 5 1,010 6.38%, 04/15/33 922 795 Duke Capital Corp., 6.25%, 02/15/13 777 Duke Energy Corp., 360 3.75%, 03/05/08, # 354 1,385 6.25%, 01/15/12 1,455 265 FirstEnergy Corp., 7.38%, 11/15/31, Ser. C 251 1,535 MidAmerican Energy Co., 6.75%, 12/30/31 1,600 2,285 National Rural Utilities Cooperative Finance Corp., 3.88%, 02/15/08 2,278 1,065 Nisource Finance Corp., 6.15%, 03/01/13 1,084 620 Peabody Energy Corp., 6.88%, 03/15/13, Ser. B 620 2,240 Pepco Holdings, Inc., 6.45%, 08/15/12 2,324 770 Progress Energy, Inc., 6.85%, 04/15/12 827 2,110 TXU Energy Co., 7.00%, 03/15/13, # 2,168 ------------------------------------------------------------------------------ 21,043 ============================================================================== Total Corporate Notes & Bonds 252,436 (Cost $246,776) ============================================================================== RESIDENTIAL MORTGAGE BACKED SECURITIES -- 12.7% COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.9% 9,782 Countrywide Home Loans, 5.50%, 08/25/33, Ser. 2003-29, Class A1 9,659 5,553 Federal Home Loan Mortgage Corp., 6.00%, 02/01/33, Ser. 244, IO 1,189 14,636 Federal National Mortgage Association, 6.00%, 03/01/33, Ser. 332-2, IO 3,355 10,478 MASTR Asset Securitization Trust, 5.50%, 09/25/33, Ser. 2003-8, Class 1A-1 10,134 2,177 SACO I, Inc., 7.00%, 08/25/36, Ser. 1997-2, Class 1A5, # 2,236 ------------------------------------------------------------------------------ 26,573 ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 25
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED MORTGAGE BACKED PASS-THROUGH SECURITIES -- 10.8% Federal Home Loan Mortgage Corp., $ 15,000 6.90%, 12/01/10, Gold Pool W10004 $ 16,683 5 6.00%, 03/01/11, Gold Pool E63377 6 34 6.00%, 04/01/11, Gold Pool E63836 36 47 6.00%, 04/01/11, Gold Pool E63827 48 44 6.00%, 04/01/11, Gold Pool E00425 45 48 6.00%, 04/01/11, Gold Pool E63883 50 154 6.00%, 04/01/11, Gold Pool E63908 160 Federal National Mortgage Association, 37,500 5.00%, 09/25/18, TBA 37,629 5,500 4.50%, 11/25/18, TBA 5,363 0^^ 8.00%, 08/01/22, Pool 50617 1 21,000 5.50%, 10/25/33, TBA 20,829 Government National Mortgage Association, 36,000 5.50%, 09/15/33, TBA 35,966 30,500 5.50%, 10/15/33, TBA 30,357 ------------------------------------------------------------------------------ 147,173 ============================================================================== Total Residential Mortgage Backed Securities 173,746 (Cost $172,004) ============================================================================== COMMERCIAL MORTGAGE BACKED SECURITIES -- 2.2% 7,000 COMM, 2.41%, 11/15/12, Ser. 2000-FL3A, Class LWT, FRN, # 6,999 10,000 Commercial Mortgage Acceptance Corp., 6.92%, 09/15/30, Ser. 1998-C2, Class D, FRN 10,838 GS Mortgage Securities Corp. II, 4,344 2.86%, 08/15/12, Ser. 2000-GSFL, Class F, FRN, # 4,342 4,000 6.73%, 02/10/16, Ser. 2001-LIBA, Class E, # 4,155 3,505 LB-UBS Commercial Mortgage Trust, 4.69%, 07/20/27, Ser. 2003-C5, Class A4, FRN 3,362 ------------------------------------------------------------------------------ Total Commercial Mortgage Backed Securities 29,696 (Cost $28,216) ============================================================================== ASSET BACKED SECURITIES -- 10.5% Bank One Insurance Trust, 7,620 1.16%, 06/16/08, Ser. 2003-A5, Class A5, FRN 7,621 7,550 2.25%, 12/15/10, Ser. 2003-C2, Class C2, FRN 7,606 Capital Auto Receivables Asset Trust, $ 7,105 1.15%, 02/15/07, Ser. 2003-2, Class A3B, FRN $ 7,104 4,595 1.96%, 01/15/09, Ser. 2003-2, Class A4A 4,417 6,480 Capital One Master Trust, 4.60%, 08/17/09, Ser. 2001-8A, Class A 6,741 3,075 Citibank Credit Card Issuance Trust, 5.00%, 06/10/15, Ser. 2003-C4, Class C4 2,793 5,000 Comed Transitional Funding Trust, 5.44%, 03/25/07, Ser. 1998-1, Class A5 5,167 5,000 DaimlerChrysler Auto Trust, 3.53%, 12/06/07, Ser. 2002-B, Class A4 5,112 4,415 Discover Card Master Trust I, 1.16%, 05/16/07, Ser. 2002-5, Class A, FRN 4,413 First USA Credit Card Master Trust, 5,000 6.42%, 10/19/06, Ser. 1999-1, Class C, # 5,091 6,115 1.47%, 11/20/06, Ser. 2001- 2, Class B, FRN 6,121 8,155 Honda Auto Receivables Owner Trust, 2.48%, 07/18/08, Ser. 2003-1, Class A4 8,127 15,395 Household Automotive Trust, 4.37%, 12/17/08, Ser. 2001-3, Class A4 15,935 3,285 Morgan Stanley Auto Loan Trust, 2.17%, 04/15/11, Ser. 2003-HB1, Class A2 3,250 3,130 Onyx Acceptance Grantor Trust, 2.66%, 05/17/10, Ser. 2003-C, Class A4 3,075 3,173 Option One Mortgage Loan Trust, 1.43%, 07/01/33, Ser. 2003-5, Class A2, FRN 3,176 5,998 PP&L Transition Bond Co., LLC, 7.15%, 06/25/09, Ser. 1999-1, Class A8 6,835 Residential Asset Securities Corp., 3,275 1.36%, 07/25/32, Ser. 2002-KS4, Class AIIB, FRN 3,270 6,446 1.40%, 07/25/33, Ser. 2003-KS5, Class AIIB, FRN 6,433 57 Sears Credit Account Master Trust, 7.00%, 07/15/08, Ser. 1996-3, Class A 59 850 The Money Store Home Equity Trust, 6.49%, 12/15/38, Ser. 1997-D, Class AF7 871
SEE NOTES TO FINANCIAL STATEMENTS. 26
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED ASSET BACKED SECURITIES -- CONTINUED $ 7,000 Volkswagen Auto Loan Enhanced Trust, 1.93%, 01/20/10, Ser. 2003-1, Class A4 $ 6,777 Wachovia Asset Securitization, Inc., 4,345 1.54%, 12/25/32, Ser. 2002-HE2, Class A, FRN 4,353 5,700 1.37%, 07/25/33, Ser. 2003-HE2, Class AII1, FRN 5,701 13,500 World Omni Auto Receivables Trust, 4.05%, 07/15/09, SER. 2002-A, CLASS A4 13,965 ------------------------------------------------------------------------------ Total Asset Backed Securities 144,013 (Cost $143,853) ============================================================================== PRIVATE PLACEMENTS -- 1.5% CO-OP APARTMENTS -- 1.5% 4,255 180 East End Ave. Note, Secured by First Mortgage and Agreement on Co-op Apartment Building in New York City, 6.88%, 01/01/29, # (f) (i) 4,553 742 200 East 57th St. Note, Secured by Second Mortgage and Agreement on Co-op Apartment Building in New York City, 6.72%, 01/01/13, # (f) (i) 811 10,713 200 East St. Note, Secured by First Mortgage and Agreement on Co-op Apartment Building in New York City, 6.50%, 01/01/14, # (f) (i) 11,258 3,124 81 Irving Place Note, Secured by First Mortgage and Agreement on Co-op Apartment Building in New York City, 6.95%, 01/01/29, # (f) (i) 3,332 ------------------------------------------------------------------------------ Total Private Placements 19,954 (Cost $18,835) ============================================================================== Total Long-Term Investments 1,163,819 (Cost $1,161,671) ============================================================================== UNITS ISSUER VALUE - --------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 15.2% OPTIONS -- 0.4% 69,000 Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 100.72, expiring 09/08/03, European Style 1 158,500 Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 100.77, expiring 10/08/03, European Style $ 178 49,500 Put Option on Interest Rate Swap, expiring 09/08/03. If exercised: JPMorgan pays fixed (3.90%) and receives 3 month LIBOR. Swap expires 09/10/13, European Style 4,266 77,000 Put Option on Interest Rate Swap, expiring 10/08/03. If exercised: JPMorgan pays fixed (3.65%) and receives 3 month LIBOR. Swap expires 10/10/08, European Style 1,551 ------------------------------------------------------------------------------ Total Options 5,996 (Cost $3,746) ============================================================================== PRINCIPAL AMOUNT (USD) - --------------------------------------------------------------------------------------------- U.S. TREASURY SECURITY -- 0.0% ^ $ 500 U.S. Treasury Note, 3.00%, 11/30/03 @ 502 (Cost $500) COMMERCIAL PAPER -- 3.9% BANKING -- 3.9% 12,950 Macquarie Bank LTD (Australia), 1.06%, 09/05/03 12,948 18,100 Northern Rock PLC (United Kingdom), 1.02%, 09/15/03 18,088 22,200 UBS Finance (Delaware) LLC, 1.03%, 09/12/03 22,193 ------------------------------------------------------------------------------ Total Commercial Paper 53,229 (Cost $53,234) ============================================================================== SHARES - --------------------------------------------------------------------------------------------- MONEY MARKET FUND -- 10.9% 149,358 JPMorgan Prime Money Market Fund (a) 149,358 (Cost $149,358) ------------------------------------------------------------------------------ Total Short-Term Investments 209,085 (Cost $206,838) ============================================================================== TOTAL INVESTMENTS -- 100.0% $ 1,372,904 (COST $1,368,509) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 27 FUTURE CONTRACTS (Amounts in thousands, except number of contracts)
NOTIONAL UNREALIZED NUMBER OF VALUE AT APPRECIATION CONTRACTS DESCRIPTION EXPIRATION DATE 8/31/03 (USD) (DEPRECIATION) (USD) - ------------------------------------------------------------------------------------------------------------ LONG FUTURES OUTSTANDING 143 Eurodollar March, 2004 $ 35,212 $ (69) 59 Eurodollar June, 2004 14,467 (74) SHORT FUTURES OUTSTANDING (441) Treasury Bonds December, 2003 (46,746) (552) (535) 5 Year Treasury Notes December, 2003 (58,775) (91) (214) 10 Year Treasury Notes December, 2003 (23,480) (183)
OPTIONS
UNITS CALL OPTIONS WRITTEN VALUE - ---------------------------------------------------------------------------------------------------------------- (158,500) Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 101.77, expiring 10/08/03, European Style $ (84) (69,000) Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 101.47, expiring 09/08/03, European Style (1) -------------------------------------------------------------------------------------------------- Total Call Options Written $ (85) ================================================================================================== PUT OPTIONS WRITTEN - ---------------------------------------------------------------------------------------------------------------- (150,000) Put Option on FNMA, 30 Year Fixed, 5.50%, strike price of 102.56, expiring 09/08/03, European Style $ (4,477) (79,250) Put Option on FNMA, 30 Year Fixed, 5.00%, strike price of 99.20, expiring 10/08/03, European Style (2,476) -------------------------------------------------------------------------------------------------- Total Put Options Written $ (6,953) ==================================================================================================
SWAP CONTRACTS
UNDERLYING UNREALIZED NOTIONAL APPRECIATION DESCRIPTIONS EXPIRATION DATE VALUE (DEPRECIATION) - ------------------------------------------------------------------------------------------------------------------------ Swap - price lock with Lehman Brothers Special Financing on 30 Year FNMA, 5.50%, price less 98.19, JPMorgan pays negative, receives positive 09/08/03 $ 56,000 $ 805 Swap - price lock with Lehman Brothers Special Financing on 30 Year FNMA, 5.50%, price less 100.25, JPMorgan receives positive, pays negative 09/08/03 134,000 (838) Swap - price lock with Credit Suisse First Boston International on U.S. Treasury Note, 3.86%, 02/15/13, price less 100.96, JPMorgan pays positive, receives negative 09/12/03 104,325 5,530 Swap - price lock with Lehman Brothers Special Financing on U.S. Treasury Note, 2.63%, 05/15/08, price less 96.54, JPMorgan receives negative, pays positive 09/15/03 78,935 (203)
SEE NOTES TO FINANCIAL STATEMENTS. 28 SWAP CONTRACTS
UNDERLYING UNREALIZED NOTIONAL APPRECIATION DESCRIPTIONS EXPIRATION DATE VALUE (DEPRECIATION) - ------------------------------------------------------------------------------------------------------------------------ Swap - price lock with Goldman Sachs Capital Markets on U.S. Treasury Note, 1.98%, 08/31/05, price less 99.94, JPMorgan receives positive, pays negative 09/25/03 $ 128,210 $ 38 Swap - price lock with Morgan Stanley Capital Services on U.S. Treasury Note, 2.63%, 05/15/08, price less 96.69, JPMorgan pays positive, receives negative 10/01/03 168,740 (23) Swap - price lock with UBS Warburg on 30 Year FNMA, 5.50%, price less 97.50, JPMorgan receives positive, pays negative 10/08/03 79,000 1,357 Swap - price lock with Deutsche Bank AG, New York, on U.S. Treasury Note, 3.63%, 05/15/13, price less 93.49, JPMorgan receives negative, pays positive 10/14/03 10,500 (95) Swap - price lock with Deutsche Bank AG, New York, on U.S. Treasury Note, 2.63%, 05/15/08, price less 96.54, JPMorgan pays positive, receives negative 10/14/03 18,500 (30) Swap -price lock with Deutsche Bank AG, New York, on U.S. Treasury Note, 5.75%, 08/15/10, price less 109.89, JPMorgan pays negative, receives positive 10/14/03 24,750 19 Total Return Swap with Goldman Sachs Capital Markets on Goldman Sachs InvestTop Corp. Bond Fund I Shares with payment of 1 month LIBOR plus 12.50 bps 11/30/03 26,388 (1,515) Swap - FRA with Merrill Lynch Capital Services, JPMorgan pays 3 month LIBOR, receives 1.08% 12/17/03 696,000 (127) Total Return Swap with Citibank N.A. on Lehman AAA 8.5 CMBS Index with payment of 1 month LIBOR minus 50.00 bps 02/27/04 24,000 219 Swap - FRA with Merrill Lynch Capital Services, JPMorgan pays 3 month LIBOR, receives 1.30% 03/17/04 696,000 96 Swap - FRA with Lehman Brothers Special Financing, JPMorgan pays 3 month LIBOR, receives 1.39% 06/16/04 537,690 (161) Swap - FRA with Merrill Lynch Capital Services, JPMorgan receives 1.23%, pays 3 month LIBOR 06/16/04 719,645 (493) Swap- FRA with Merrill Lynch Capital Services, JPMorgan pays 3 month LIBOR, receives 1.05% 06/16/04 1,845,000 (2,096)
SEE NOTES TO FINANCIAL STATEMENTS. 29 JPMorgan Bond Fund II PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2003 (Amounts in thousands)
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- 81.3% U.S. TREASURY SECURITIES -- 29.1% U.S. Treasury Notes & Bonds, $ 75,000 1.50%, 07/31/05 + $ 74,455 18,585 3.50%, 11/15/06 + 19,077 80,925 2.63%, 05/15/08 + 78,377 1,815 5.00%, 08/15/11 + 1,911 2,540 4.00%, 11/15/12 @ + 2,463 26,970 3.88%, 02/15/13 + 25,839 370 3.63%, 05/15/13 + 348 8,915 4.25%, 08/15/13 + 8,770 4,565 7.25%, 05/15/16 + 5,580 24,490 7.25%, 08/15/22 @ + 30,180 34,500 6.88%, 08/15/25 + 41,192 51,845 6.38%, 08/15/27 + 58,800 9,860 5.38%, 02/15/31 + 10,072 ------------------------------------------------------------------------------ Total U.S. Treasury Securities 357,064 (Cost $365,607) ============================================================================== U.S. GOVERNMENT AGENCY SECURITIES -- 2.2% 10,400 Federal Home Loan Mortgage Corp., 4.25%, 06/15/05 10,801 13,590 Federal National Mortgage Association, 7.13%, 01/15/30 15,820 ------------------------------------------------------------------------------ Total U.S. Government Agency Securities 26,621 (Cost $25,612) ============================================================================== FOREIGN GOVERNMENT SECURITIES -- 0.5% 810 Region of Lombardy (Italy), 5.80%, 10/25/32 790 United Mexican States (Mexico), 1,500 6.38%, 01/16/13, MTN 1,511 1,500 11.38%, 09/15/16 2,054 1,000 8.13%, 12/30/19 1,075 1,000 8.30%, 08/15/31, MTN 1,074 ------------------------------------------------------------------------------ Total Foreign Government Securities 6,504 (Cost $6,198) ============================================================================== STATE AND MUNICIPAL OBLIGATION -- 0.2% ILLINOIS -- 0.2% 2,985 Illinois State, Taxable Pension, GO, 5.10%, 06/01/33 2,612 (Cost $2,985) ============================================================================== CORPORATE NOTES & BONDS -- 20.3% AEROSPACE -- 0.5% $ 2,220 General Dynamics Corp., 2.13%, 05/15/06 $ 2,187 1,300 Northrop Grumman Corp., 7.75%, 02/15/31 1,515 1,000 Raytheon Co., 6.55%, 03/15/10 1,080 1,275 The Boeing Co., 5.13%, 02/15/13 1,242 5 United Technologies Corp., 6.10%, 05/15/12 5 ------------------------------------------------------------------------------ 6,029 ============================================================================== AUTOMOTIVE -- 1.7% 760 DaimlerChrysler N.A. Holding Corp., 7.75%, 01/18/11 848 700 Delphi Corp., 6.50%, 08/15/13 679 Ford Motor Credit Co., 940 6.50%, 01/25/07 973 8,140 7.38%, 10/28/09 8,405 3,700 General Motors Acceptance Corp., 7.25%, 03/02/11 3,793 General Motors Corp., 1,625 7.20%, 01/15/11 1,656 1,200 8.25%, 07/15/23 1,196 2,990 8.38%, 07/15/33 2,955 ------------------------------------------------------------------------------ 20,505 ============================================================================== BANKING -- 4.1% 1,155 Abbey National Capital Trust I, 8.96%, 12/31/49, FRN 1,492 3,380 ABN-Amro North American Holding Preferred Capital Repackage Trust I, 6.52%, 12/29/49, FRN, # 3,568 Bank of America Corp., 6,195 3.25%, 08/15/08 5,976 660 7.40%, 01/15/11 762 1,475 Bank One Corp., 5.25%, 01/30/13 1,475 Barclays Bank PLC (United Kingdom), 1,265 6.86%, 12/31/49, FRN, # 1,324 2,080 8.55%, 12/31/49, FRN, # 2,509 1,500 Cadets Trust, 4.80%, 07/15/13, Ser. 2003-1, # 1,409 3,750 CBA Capital Trust I, 5.80%, 12/31/49, # 3,702 920 Den Norske Bank ASA (Norway), 7.73%, 12/31/49, FRN, # 1,053
SEE NOTES TO FINANCIAL STATEMENTS. 30
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED BANKING -- CONTINUED $ 1,405 Deutsche Bank Financial LLC, 5.38%, 03/02/15 $ 1,379 1,445 ForeningsSparbanken AB (Sweden), 9.00%, 12/31/49, FRN, # 1,743 1,745 KBC Bank Fund Trust III, 9.86%, 11/29/49, FRN, # 2,158 2,730 KFW International Finance, Inc., 4.75%, 01/24/07 2,900 935 National City Bank, 6.20%, 12/15/11 994 2,300 Nordea Bank AB (Sweden), 8.95%, 12/31/49, FRN, # 2,764 1,590 Popular North America, Inc., 4.25%, 04/01/08 1,592 3,350 RBS Capital Trust I, 4.71%, 12/31/49, FRN 3,081 1,145 Royal Bank of Scotland Group PLC (United Kingdom), 7.65%, 08/31/49, FRN 1,334 1,435 Scotland International Finance No. 2 BV (The Netherlands), 4.25%, 05/23/13, # 1,323 1,700 Sovereign Bank, 4.38%, 08/01/13, FRN 1,687 795 Standard Chartered Bank (United Kingdom), 8.00%, 05/30/31, # 938 690 U.S. Bank N.A., 6.38%, 08/01/11 756 845 Wells Fargo & Co., 5.00%, 11/15/14 821 190 Wells Fargo Bank N.A., 6.45%, 02/01/11 209 3,475 Westpac Capital Trust III, 5.82%, 12/31/49, FRN, # 3,464 ------------------------------------------------------------------------------ 50,413 ============================================================================== BROADCASTING/CABLE -- 0.1% 585 Comcast Cable Communications, Inc., 6.75%, 01/30/11 635 715 COX Communications, Inc., 6.75%, 03/15/11 784 ------------------------------------------------------------------------------ 1,419 ============================================================================== BUSINESS SERVICES -- 0.1% 1,350 Cendant Corp., 7.13%, 03/15/15 1,454 CHEMICALS -- 0.0% ^ 520 The Dow Chemical Co., 7.38%, 11/01/29 560 CONSTRUCTION -- 0.0% ^ Pulte Homes, Inc., $ 230 6.25%, 02/15/13 $ 237 65 6.38%, 05/15/33 58 ------------------------------------------------------------------------------ 295 ============================================================================== DIVERSIFIED -- 0.8% General Electric Capital Corp., 6,020 5.88%, 02/15/12, Ser. A, MTN 6,306 1,135 5.45%, 01/15/13, Ser. A, MTN 1,147 1,560 6.75%, 03/15/32, Ser. A, MTN 1,668 525 General Electric Co., 5.00%, 02/01/13 517 ------------------------------------------------------------------------------ 9,638 ============================================================================== FINANCIAL SERVICES -- 4.5% 2,095 American Express Co., 4.88%, 07/15/13 2,042 2,310 American Express Credit Corp., 3.00%, 05/16/08 2,214 American General Finance Corp., 685 4.50%, 11/15/07, Ser. H, MTN 704 1,600 5.38%, 10/01/12, Ser. H, MTN 1,609 1,720 Capital One Bank, 4.88%, 05/15/08 1,712 2,625 CIT Group, Inc., 5.50%, 11/30/07 2,770 4,350 Citigroup, Inc., 7.25%, 10/01/10 4,980 Credit Suisse First Boston USA, Inc., 575 6.50%, 01/15/12 619 2,770 5.50%, 08/15/13 2,752 195 7.13%, 07/15/32 213 610 FleetBoston Financial Corp., 7.25%, 09/15/05 669 Goldman Sachs Group, Inc., 10 5.70%, 09/01/12 10 2,885 4.75%, 07/15/13 2,728 1,240 6.13%, 02/15/33 1,201 Household Finance Corp., 1,145 7.88%, 03/01/07 1,308 470 6.38%, 11/27/12 500 HSBC Capital Funding LP (Channel Islands), 1,270 4.61%, 12/31/49, FRN, # 1,175 5,745 9.55%, 12/31/49, FRN, # 7,161 1,515 ING Capital Funding Trust III, 8.44%, 12/31/49, FRN 1,775
SEE NOTES TO FINANCIAL STATEMENTS. 31
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED FINANCIAL SERVICES -- CONTINUED Morgan Stanley, $ 2,420 5.80%, 04/01/07 $ 2,598 880 6.75%, 04/15/11 970 1,515 5.30%, 03/01/13 1,495 1,750 Pemex Project Funding Master Trust (Mexico), 8.50%, 02/15/08 1,982 2,035 Principal Life Global Funding I, 5.25%, 01/15/13, # 2,027 1,220 Prudential Holdings LLC, 8.70%, 12/18/23, # 1,444 2,750 SLM Corp., 5.63%, 08/01/33, MTN 2,512 1,680 UBS Preferred Funding Trust I, 8.62%, 12/31/49, FRN 2,022 2,300 UFJ Finance AEC (Aruba), 6.75%, 07/15/13 2,277 ------------------------------------------------------------------------------ 53,469 ============================================================================== FOOD/BEVERAGE PRODUCTS -- 0.2% 580 Archer-Daniels Midland Co., 5.94%, 10/01/32 564 1,410 Miller Brewing Co., 5.50%, 08/15/13, # 1,409 ------------------------------------------------------------------------------ 1,973 ============================================================================== INSURANCE -- 0.8% 2,000 Aegon NV (The Netherlands), 4.75%, 06/01/13 1,886 2,685 AXA (France), 8.60%, 12/15/30 3,179 1,095 Fund American Companies, Inc., 5.88%, 05/15/13 1,072 Nationwide Financial Services, Inc., 510 6.25%, 11/15/11 536 1,130 5.90%, 07/01/12 1,162 940 New York Life Insurance Co., 5.88%, 05/15/33, # 898 1,190 QBE Insurance Group LTD (Australia), 5.65%, 07/01/23, SUB, # 1,096 ------------------------------------------------------------------------------ 9,829 ============================================================================== MACHINERY & ENGINEERING EQUIPMENT -- 0.1% 835 Deere & Co., 6.95%, 04/25/14 947 MULTI-MEDIA -- 0.6% 1,215 AOL Time Warner, Inc., 7.63%, 04/15/31 1,315 2,195 Liberty Media Corp., 5.70%, 05/15/13 2,111 $ 315 News America Holdings, Inc., 8.25%, 08/10/18 $ 374 News America, Inc., 1,060 7.25%, 05/18/18 1,160 510 7.28%, 06/30/28 544 1,390 Time Warner Entertainment Co., LP, 8.38%, 03/15/23 1,651 370 Walt Disney Co., 6.38%, 03/01/12 397 ------------------------------------------------------------------------------ 7,552 ============================================================================== OIL & GAS -- 0.9% 505 Alberta Energy Co., LTD (Canada) (Yankee), 7.38%, 11/01/31 578 Amerada Hess Corp., 745 7.88%, 10/01/29 818 735 7.30%, 08/15/31 761 735 Anadarko Finance Co., 6.75%, 05/01/11, Ser. B 819 1,470 Anadarko Petroleum Corp., 6.13%, 03/15/12 1,571 535 Canadian Natural Resources LTD (Canada) (Yankee), 7.20%, 01/15/32 598 1,065 Conoco Funding Co. (Canada), 7.25%, 10/15/31 1,218 750 ConocoPhillips, 5.90%, 10/15/32 727 2,040 Devon Financing Corp. ULC, 7.88%, 09/30/31 2,349 105 Lasmo USA, Inc., 7.30%, 11/15/27 121 600 Occidental Petroleum Corp., 4.25%, 03/15/10, MTN 586 960 Transocean, Inc., 7.50%, 04/15/31 1,061 Valero Energy Corp., 35 8.38%, 06/15/05 38 345 6.88%, 04/15/12 374 ------------------------------------------------------------------------------ 11,619 ============================================================================== PACKAGING -- 0.1% 1,785 Sealed Air Corp., 6.88%, 07/15/33, # 1,731 PAPER/FOREST PRODUCTS -- 0.3% 885 International Paper Co., 5.85%, 10/30/12 902 195 MeadWestvaco Corp., 6.85%, 04/01/12 211 Westvaco Corp., 235 8.20%, 01/15/30 266
SEE NOTES TO FINANCIAL STATEMENTS. 32
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED PAPER/FOREST PRODUCTS -- CONTINUED $ 850 7.95%, 02/15/31 $ 956 955 Weyerhaeuser Co., 6.75%, 03/15/12 1,019 ------------------------------------------------------------------------------ 3,354 ============================================================================== PIPELINES -- 0.2% 460 Kinder Morgan Energy Partners LP, 7.40%, 03/15/31 508 1,485 Kinder Morgan, Inc., 6.50%, 09/01/12 1,596 705 TransCanada Pipelines LTD (Canada) (Yankee), 8.63%, 05/15/12 864 ------------------------------------------------------------------------------ 2,968 ============================================================================== RETAILING -- 0.4% 465 Federated Department Stores, Inc., 6.63%, 04/01/11 509 1,080 Kroger Co., 6.80%, 04/01/11 1,181 525 Lowe's Companies, Inc., 6.88%, 02/15/28 567 1,600 Safeway, Inc., 6.50%, 03/01/11 1,713 250 Sears Roebuck Acceptance Corp., 7.00%, 06/01/32 259 365 The May Department Stores Co., 6.90%, 01/15/32 373 ------------------------------------------------------------------------------ 4,602 ============================================================================== SHIPPING/TRANSPORTATION -- 0.3% 1,075 Burlington Northern Santa Fe Corp., 6.75%, 07/15/11 1,195 680 CSX Corp., 6.30%, 03/15/12 725 685 Norfolk Southern Corp., 7.25%, 02/15/31 752 730 Union Pacific Corp., 6.65%, 01/15/11 802 ------------------------------------------------------------------------------ 3,474 ============================================================================== TELECOMMUNICATIONS -- 2.5% 2,303 AT&T Broadband Corp., 8.38%, 03/15/13 2,735 AT&T Corp., 46 6.00%, 03/15/09 48 1,475 7.80%, 11/15/11 1,651 545 8.50%, 11/15/31 615 $ 1,675 AT&T Wireless Services, Inc., 7.88%, 03/01/11 $ 1,892 1,190 British Telecom PLC (United Kingdom), 8.88%, 12/15/30, SUB 1,490 1,240 Citizens Communications Co., 9.25%, 05/15/11 1,528 Deutsche Telekom International Finance BV (The Netherlands), 1,025 8.50%, 06/15/10 1,206 1,150 8.75%, 06/15/30 1,381 France Telecom SA (France), 1,125 9.25%, 03/01/11 1,343 1,000 10.00%, 03/01/31 1,289 750 Koninklijke KPN NV (The Netherlands), 8.00%, 10/01/10 882 Sprint Capital Corp., 2,690 7.63%, 01/30/11 2,927 1,430 8.75%, 03/15/32 1,625 1,337 TCI Communications, Inc., 7.13%, 02/15/28 1,372 750 Telefonica Europe BV (The Netherlands), 7.75%, 09/15/10 872 Verizon Global Funding Corp., 320 7.38%, 09/01/12 364 650 7.75%, 12/01/30 746 4,235 Verizon New York, Inc., 6.88%, 04/01/12, Ser. A 4,665 2,195 Vodafone Group PLC (United Kingdom), 7.75%, 02/15/10 2,560 ------------------------------------------------------------------------------ 31,191 ============================================================================== UTILITIES -- 2.1% 890 AEP Texas Central Co., 5.50%, 02/15/13, # 876 1,110 Arizona Public Service Co., 4.65%, 05/15/15 1,019 955 Columbus Southern Power Co., 5.50%, 03/01/13, # 951 2,150 Consolidated Edison Company of New York, 5.63%, 07/01/12, Ser. 2002-A 2,229 Constellation Energy Group, Inc., 755 6.35%, 04/01/07 813
SEE NOTES TO FINANCIAL STATEMENTS. 33
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED UTILITIES -- CONTINUED $ 1,710 4.55%, 06/15/15 $ 1,507 3,000 Dominion Resources, Inc., 8.13%, 06/15/10, Ser. A 3,509 850 DTE Energy Co., 6.38%, 04/15/33 776 1,355 Duke Capital Corp., 6.25%, 02/15/13 1,324 Duke Energy Corp., 215 3.75%, 03/05/08, # 212 460 6.25%, 01/15/12 483 675 FirstEnergy Corp., 7.38%, 11/15/31, Ser. C 638 1,685 Florida Power & Light Co., 4.85%, 02/01/13 1,665 1,055 MidAmerican Energy Co., 6.75%, 12/30/31 1,100 National Rural Utilities Cooperative Finance Corp., 500 6.13%, 05/15/05 531 1,985 3.88%, 02/15/08 1,978 930 7.25%, 03/01/12, Ser. C, MTN 1,050 930 Nisource Finance Corp., 6.15%, 03/01/13 946 1,545 Pepco Holdings, Inc., 6.45%, 08/15/12 1,602 Progress Energy, Inc., 25 7.10%, 03/01/11 27 395 6.85%, 04/15/12 424 1,715 TXU Energy Co., 7.00%, 03/15/13, # 1,762 ------------------------------------------------------------------------------ 25,422 ============================================================================== Total Corporate Notes & Bonds 248,444 (Cost $240,643) ============================================================================== RESIDENTIAL MORTGAGE BACKED SECURITIES -- 13.1% COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.5% 7,826 Countrywide Home Loans, 5.50%, 08/25/33, Ser. 2003-29, Class A1 7,727 4,131 Federal Home Loan Mortgage Corp., 6.00%, 02/01/33, Ser. 244, IO 884 11,296 Federal National Mortgage Association, 6.00%, 03/01/33, Ser. 332-2, IO 2,589 8,000 MASTR Asset Securitization Trust, 5.50%, 09/25/33, Ser. 2003-8, Class 1A-1 7,739 ------------------------------------------------------------------------------ 18,939 ============================================================================== MORTGAGE BACKED PASS-THROUGH SECURITIES -- 11.6% $ 48,755 Federal Home Loan Mortgage Corp., 5.50%, 09/15/33 $ 48,526 Federal National Mortgage Association, 334 6.00%, 09/01/13, Pool 442508 347 19,000 4.50%, 11/25/18, TBA 18,525 1 7.50%, 11/01/29, Pool 523193 1 0^^ 7.50%, 07/01/30, Pool 529276 1 18,000 5.50%, 10/25/33, TBA 17,854 Government National Mortgage Association, 40,500 5.50%, 09/15/33, TBA 40,462 16,000 5.50%, 10/15/33, TBA 15,925 ------------------------------------------------------------------------------ 141,641 ============================================================================== Total Residential Mortgage Backed Securities 160,580 (Cost $160,684) ============================================================================== COMMERCIAL MORTGAGE BACKED SECURITIES -- 3.9% 4,630 Bear Stearns Commercial Mortgage Securities, 6.48%, 02/15/35, Ser. 2001-TOP2, Class A2 5,062 Credit Suisse First Boston Mortgage Securities Corp., 8,255 6.13%, 04/15/37, Ser. 2002-CKN2, Class A3 8,822 13,060 3.94%, 05/15/38, Ser. 2003-C3, Class A5 11,824 7,350 LB-UBS Commercial Mortgage Trust, 6.65%, 11/15/27, Ser. 2001-C2, Class A2 8,091 Morgan Stanley Dean Witter Capital I, 13,290 6.39%, 07/15/33, Ser. 2001-TOP3, Class A4 14,443 25 5.98%, 01/15/39, Ser. 2002-TOP7, Class A2 26 ------------------------------------------------------------------------------ Total Commercial Mortgage Backed Securities 48,268 (Cost $46,838) ============================================================================== ASSET BACKED SECURITIES -- 12.0% 9,905 AmeriCredit Automobile Receivables Trust, 5.37%, 06/12/08, Ser. 2001-B, Class A4 10,252
SEE NOTES TO FINANCIAL STATEMENTS. 34
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED ASSET BACKED SECURITIES -- CONTINUED $ 6,000 Bank One Issuance Trust, 2.25%, 12/15/10, Ser. 2003-C2, Class C2, FRN $ 6,044 Capital Auto Receivables Asset Trust, 5,740 1.15%, 02/15/07, Ser. 2003-2, Class A3B, FRN 5,740 3,710 1.96%, 01/15/09, Ser. 2003-2, Class A4A 3,566 Citibank Credit Card Issuance Trust, 11,250 6.88%, 11/16/09, Ser. 2000-A3, Class A3 12,689 2,480 5.00%, 06/10/15, Ser. 2003-C4, Class C4 2,253 Discover Card Master Trust I, 23,000 5.30%, 11/16/06, Ser. 2001-5, Class A 23,638 3,580 1.16%, 05/16/07, Ser. 2002-5, Class A, FRN 3,578 5,270 First USA Credit Card Master Trust, 1.47%, 11/20/06, Ser. 2001- 2, Class B, FRN 5,275 6,465 Ford Credit Auto Owner Trust, 5.25%, 09/15/05, Ser. 2001-C, Class A5 6,593 7,165 Honda Auto Receivables Owner Trust, 2.48%, 07/18/08, Ser. 2003-1, Class A4 7,141 6,467 Long Beach Mortgage Loan Trust, 1.43%, 07/25/33, Ser. 2003-3, Class A, FRN 6,464 MBNA Master Credit Card Trust USA, 9,980 5.75%, 10/15/08, Ser. 2001-A1, Class A1 10,775 9,900 6.80%, 04/16/07, Ser. 1999-M, Class B 10,478 2,775 Morgan Stanley Auto Loan Trust, 2.17%, 04/15/11, Ser. 2003-HB1, Class A2 2,746 2,670 Onyx Acceptance Grantor Trust, 2.66%, 05/17/10, Ser. 2003-C, Class A4 2,623 Residential Asset Securities Corp., 2,644 1.36%, 07/25/32, Ser. 2002-KS4, Class AIIB, FRN 2,639 4,735 1.40%, 07/25/33, Ser. 2003-KS5, Class AIIB, FRN 4,726 3,500 Sears Credit Account Master Trust, 5.25%, 10/16/08, Ser. 1998-2, Class A 3,581 7,590 Standard Credit Card Master Trust, 5.95%, 10/07/04, Ser. A 7,605 $ 5,000 Volkswagen Auto Loan Enhanced Trust, 1.49%, 05/21/07, Ser. 2003-1, Class A3 $ 4,942 3,520 Wachovia Asset Securitization, Inc., 1.54%, 12/25/32, Ser. 2002-HE2, Class A, FRN 3,527 ------------------------------------------------------------------------------ Total Asset Backed Securities 146,875 (Cost $143,452) ============================================================================== Total Long-Term Investments 996,968 (Cost $992,019) ============================================================================== UNITS - ---------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 18.7% OPTIONS -- 0.4% 58,000 Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 100.72, expiring 09/08/03, European Style 1 131,000 Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 100.77, expiring 10/08/03, European Style 147 39,500 Put Option on Interest Rate Swap, expiring 09/06/03. If exercised: JPMorgan pays fixed (3.90%) and receives 3 month LIBOR. Swap expires 09/10/13, European Style 3,404 63,000 Put Option on Interest Rate Swap, expiring 10/08/03. If exercised: JPMorgan pays fixed (3.65%) and receives 3 month LIBOR. Swap expires 10/10/08, European Style 1,269 ------------------------------------------------------------------------------ Total Options 4,821 (Cost $3,063) ============================================================================== PRINCIPAL AMOUNT (USD) - --------------------------------------------------------------------------------------------- COMMERCIAL PAPER -- 7.0% ASSET BACKED SECURITIES -- 3.4% $ 18,200 Galaxy Funding, Inc., 1.05%, 09/04/03 + 18,198 23,000 Liberty Street Funding Corp., 1.04%, 09/24/03 + 22,984 ------------------------------------------------------------------------------ 41,182 ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 35
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- CONTINUED BANKING -- 3.6% $ 11,100 Macquarie Bank LTD (Australia), 1.06%, 09/05/03 + $ 11,098 15,300 Northern Rock PLC (United Kingdom), 1.03%, 09/15/03 15,290 18,800 UBS Finance (Delaware) LLC, 1.03%, 09/12/03 18,794 ------------------------------------------------------------------------------ 45,182 ============================================================================== Total Commercial Paper 86,364 (Cost $86,370) ============================================================================== SHARES ISSUER VALUE - --------------------------------------------------------------------------------------------- MONEY MARKET FUND -- 11.3% 138,337 JPMorgan Prime Money Market Fund (a) + $ 138,337 (Cost $138,337) ------------------------------------------------------------------------------ Total Short-Term Investments 229,522 (Cost $227,770) ============================================================================== TOTAL INVESTMENTS -- 100.0% $ 1,226,490 (COST $1,219,789) ==============================================================================
FUTURE CONTRACTS (Amounts in thousands, except number of contracts)
NOTIONAL UNREALIZED NUMBER OF VALUE AT APPRECIATION CONTRACTS DESCRIPTION EXPIRATION DATE 8/31/03 (USD) (DEPRECIATION) (USD) - ------------------------------------------------------------------------------------------------------------ LONG FUTURES OUTSTANDING 1,134 5 Year Treasury Notes December, 2003 $ 124,581 $ 309 184 Eurodollar March, 2004 45,308 (88) 48 Eurodollar June, 2004 11,770 (60) SHORT FUTURES OUTSTANDING (968) Treasury Bonds December, 2003 (102,608) (1,210) (784) 10 Year Treasury Notes December, 2003 (86,020) (672)
OPTIONS
UNITS CALL OPTIONS WRITTEN VALUE - ----------------------------------------------------------------------------------------------------------------- (131,000) Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 101.77, expiring 10/08/03, European Style $ (69) (58,000) Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 101.47, expiring 09/08/03, European Style (1) -------------------------------------------------------------------------------------------------- Total Call Options Written $ (70) ================================================================================================== PUT OPTIONS WRITTEN - ----------------------------------------------------------------------------------------------------------------- (119,000) Put Option on FNMA, 30 Year Fixed, 5.50%, strike price of 102.56, expiring 09/08/03, European Style $ (3,551) (65,500) Put Option on FNMA, 30 Year Fixed, 5.00%, strike price of 99.20, expiring 10/08/03, European Style (2,047) -------------------------------------------------------------------------------------------------- Total Put Options Written $ (5,598) ==================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 36 SWAP CONTRACTS
UNDERLYING UNREALIZED NOTIONAL APPRECIATION DESCRIPTIONS EXPIRATION DATE VALUE (DEPRECIATION) - ------------------------------------------------------------------------------------------------------------------------ Swap - price lock with UBS Warburg on 30 Year FNMA, 5.50%, price less 97.93, JPMorgan receives positive, pays negative 09/08/03 $ 51,000 $ 857 Swap - price lock with Lehman Brothers Special Financing on 30 Year FNMA, 5.50%, price less 100.25, JPMorgan pays negative, receives positive 09/08/03 79,000 (494) Swap - price lock with Deutsche Bank AG, New York on 30 Year FNMA, 5.50%, price less 98.94, JPMorgan pays negative, receives positive 09/08/03 85,000 558 Swap - price lock with Deutsche Bank AG, New York, on U.S. Treasury Note, 2.63%, 05/15/08, price less 96.59, JPMorgan pays positive, receives negative 09/15/03 65,185 (128) Swap - price lock with Lehman Brothers Special Financing on U.S. Treasury Note, 2.63%, price less 96.54, JPMorgan pays positive, receives negative 09/15/03 74,035 (191) Swap - price lock with Goldman Sachs Capital Markets, on U.S. Treasury Note, 2.63%, 05/15/08, price less 96.42, JPMorgan receives negative, pays positive 09/25/03 135,200 (474) Swap - price lock with Deutsche Bank AG, New York, on U.S. Treasury Note, 3.63%, 05/15/13, price less 93.49, JPMorgan receives negative, pays positive 10/14/03 9,250 (84) Swap - price lock with Deutsche Bank AG, New York, on U.S. Treasury Note, 2.63%, 05/15/08, price less 96.54, JPMorgan pays positive, receives negative 10/14/03 16,000 (26) Swap - price lock with Deutsche Bank AG, New York, on U.S. Treasury Note, 5.75%, 08/15/10, price less 109.87, JPMorgan receives positive, pays negative 10/14/03 21,500 17 Swap - FRA with Merrill Lynch Capital Services, JPMorgan pays 3 month LIBOR, receives 1.08% 12/17/03 594,000 (109) Total Return Swap with Citibank N.A. on Lehman AAA 8.5 CMBS Index with payment of 1 month LIBOR minus 50.00 bps 02/27/04 21,000 191 Swap - FRA with Merrill Lynch Capital Services, JPMorgan pays 3 month LIBOR, receives 1.30% 03/17/04 594,000 82 Swap - FRA with Merrill Lynch Capital Services, JPMorgan pays 3 month LIBOR, receives 1.23% 06/16/04 594,255 (407) Swap - FRA with Merrill Lynch Capital Services, JPMorgan pays 3 month LIBOR, receives 1.05% 06/16/04 1,487,000 (1,689) Swap - FRA with Lehman Brothers Special Financing, JPMorgan pays 3 month LIBOR, receives 1.39% 06/16/04 525,160 (157)
SEE NOTES TO FINANCIAL STATEMENTS. 37 JPMorgan Enhanced Income Fund PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2003 (Amounts in thousands)
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- 82.7% U.S. TREASURY SECURITY -- 0.6% $ 2,050 U.S. Treasury Note, 1.75%, 12/31/04 @ + $ 2,057 (Cost $2,048) ------------------------------------------------------------------------------ U.S. GOVERNMENT AGENCY SECURITIES -- 12.0% 3,650 Federal Home Loan Mortgage Corp., 1.63%, 05/19/06, MTN, FRN + 3,649 Federal National Mortgage Association, 1,706 0.91%, 01/01/04, MTN, FRN + 1,706 11,400 1.88%, 09/15/05 + 11,345 65 2.75%, 11/14/05 + 65 1,700 1.61%, 04/07/06, FRN + 1,700 800 2.13%, 04/15/06 + 791 15,800 2.75%, 08/11/06 + 15,759 2,000 4.38%, 10/15/06 + 2,087 6,200 4.75%, 01/02/07 + 6,485 40 3.50%, 10/15/07 + 40 ------------------------------------------------------------------------------ Total U.S. Government Agency Securities 43,627 (Cost $43,892) ============================================================================== FOREIGN GOVERNMENT SECURITY -- 0.9% 3,000 Province of Ontario (Canada) (Yankee), 4.20%, 06/30/05 3,113 (Cost $3,106) STATE AND MUNICIPAL OBLIGATION -- 0.2% ILLINOIS -- 0.2% 1,000 Illinois State, 2.50%, 06/01/08 943 (Cost $999) CORPORATE NOTES & BONDS -- 32.5% AUTOMOTIVE -- 2.2% 2,900 Ford Motor Credit Co., 1.39%, 11/24/03, MTN, FRN + 2,898 General Motors Acceptance Corp., 1,195 4.75%, 10/15/03, MTN, FRN + 1,196 3,250 6.38%, 01/30/04, MTN + 3,311 420 6.75%, 01/15/06 + 443 ------------------------------------------------------------------------------ 7,848 ============================================================================== BANKING -- 8.2% 4,425 American Express Credit Corp., 1.21%, 04/18/05, Ser. B, MTN, FRN + 4,424 Bank of America Corp., $ 1,000 1.43%, 12/23/04, Ser. F, MTN, FRN $ 1,001 3,000 1.38%, 08/26/05, MTN, FRN + 3,008 1,300 6.63%, 08/01/07 + 1,432 20 Bank One Corp., 1.41%, 02/20/04, Ser. A, MTN, FRN + 20 1,800 Bank One N.A. Illinois, 1.23%, 01/13/06, FRN + 1,802 Bayerische Landesbank Girozentrale (Germany) (Yankee), 3,000 5.00%, 07/20/04 + 3,091 2,000 1.06%, 01/31/05, MTN, FRN (f) 1,999 2,900 Canadian Imperial Bank of Commerce (Canada) (Yankee), 2,895 1.21%, 06/13/05, FRN + 500 Capital One Bank, 6.88%, 02/01/06, MTN + 536 3,700 HBOS Treasury Services PLC (United Kingdom), 1.17%, 03/14/05, MTN, FRN, # + 3,700 1,500 National City Bank, 1.15%, 11/14/03, FRN 1,500 1,100 Wachovia Corp., 3.50%, 08/15/08 1,073 Wells Fargo & Co., 2,000 1.38%, 03/03/06, FRN 2,002 1,300 5.13%, 02/15/07 1,376 ------------------------------------------------------------------------------ 29,859 ============================================================================== COMPUTERS/COMPUTER HARDWARE -- 0.8% 2,950 International Business Machines Corp., 1.33%, 09/10/04, FRN 2,953 DIVERSIFIED -- 2.6% General Electric Capital Corp., 2,000 6.81%, 11/03/03, Ser. A, MTN + 2,019 7,450 1.24%, 03/15/05, Ser. A, MTN, FRN + 7,459 ------------------------------------------------------------------------------ 9,478 ============================================================================== FINANCIAL SERVICES -- 15.6% 1,900 Associates Corp. of North America, 5.75%, 11/01/03 + 1,914
SEE NOTES TO FINANCIAL STATEMENTS. 38
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED FINANCIAL SERVICES -- CONTINUED CIT Group, Inc., $ 500 2.37%, 09/20/04, MTN, FRN + $ 506 4,075 2.61%, 01/31/05, MTN, FRN + 4,145 100 Citigroup, Inc., 1.34%, 03/09/04, FRN + 100 1,150 Countrywide Home Loans, Inc., 1.68%, 05/20/05, Ser. K, MTN, FRN + 1,154 Counts Trusts, 1,400 1.91%, 08/15/07, Ser. 2002-10, FRN, # + 1,400 1,400 1.96%, 08/15/07, Ser. 2002-11, FRN, # + 1,400 4,200 Credit Suisse First Boston USA, Inc., 1.56%, 01/14/05, MTN, FRN + 4,218 1,550 Household Finance Corp., 1.16%, 06/16/05, MTN, FRN + 1,551 500 Household Netherlands BV (The Netherlands) (Yankee), 6.20%, 12/01/03 + 506 1,030 International Lease Finance Corp., 4.00%, 01/17/06, Ser. O, MTN 1,051 3,450 John Hancock Global Funding II, 1.22%, 05/27/05, MTN, FRN, # + 3,449 3,000 Lehman Brothers Holdings, Inc., 3.50%, 08/07/08 2,913 1,550 Merrill Lynch & Co., Inc., 1.54%, 06/13/05, Ser. B, MTN, FRN 1,553 Monumental Global Funding II, 400 1.26%, 09/26/03, FRN, # 400 1,000 5.20%, 01/30/07, # 1,066 3,600 Morgan Stanley Group, Inc., 1.28%, 03/27/06, Ser. E, MTN, FRN 3,607 4,100 Nationwide Building Society (United Kingdom), 1.16%, 07/22/05, MTN, FRN, # 4,098 800 Nationwide Life Global Funding I, 1.37%, 02/15/05, FRN, # 801 Restructured Asset Securities with Enhanced Returns (RACERS), 2,400 0.98%, 04/15/04, Ser. 2002-35, Class C, FRN, # 2,386 2,400 0.98%, 04/15/04, Ser. 2002-40, Class C, FRN, # 2,394 1,300 Salomon Smith Barney Holdings, Inc., 1.28%, 11/18/04, Ser. K, MTN, FRN 1,302 $ 2,350 SLM Corp., 1.28%, 04/25/06, MTN, FRN $ 2,351 Special Purpose Accounts Receivable Cooperative Corp. (SPARCS), 1,600 1.98%, 05/23/04, Ser. 2002-6, FRN, # 1,602 6,700 1.71%, 05/15/06, Ser. 2003-4 6,709 3,250 The Bear Stearns Co., Inc., 1.25%, 04/29/05, MTN, FRN + 3,248 1,000 Washington Mutual Bank FA, 1.43%, 05/17/04, FRN 1,002 ------------------------------------------------------------------------------ 56,826 ============================================================================== INSURANCE -- 1.7% 2,400 ASIF Global Financing, 1.37%, 03/14/06, FRN, # + 2,399 3,650 Metropolitan Life Global Funding I, 1.29%, 08/28/06, MTN, FRN, # 3,647 ------------------------------------------------------------------------------ 6,046 ============================================================================== OIL & GAS -- 0.5% 1,800 Texas Municipal Gas Corp., 2.60%, 07/01/07, # 1,798 PAPER/FOREST PRODUCTS -- 0.2% 700 Weyerhaeuser Co., 2.24%, 09/15/03, FRN + 700 PHARMACEUTICALS -- 0.0% ^ 30 Abbott Laboratories, 5.13%, 07/01/04 + 31 SHIPPING/TRANSPORTATION -- 0.3% 1,150 FedEx Corp., 6.63%, 02/12/04 + 1,175 TELECOMMUNICATIONS -- 0.2% 870 Sprint Capital Corp., 5.70%, 11/15/03 875 UTILITIES -- 0.2% 600 AEP Texas Central Co., 3.00%, 02/15/05, # + 606 ------------------------------------------------------------------------------ Total Corporate Notes & Bonds 118,195 (Cost $117,891) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 39
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED RESIDENTIAL MORTGAGE BACKED SECURITIES -- 7.3% COLLATERALIZED MORTGAGE OBLIGATIONS -- 4.7% Federal National Mortgage Association, $ 1,003 3.09%, 12/25/28, Ser. 2002-W6, Class 1A1 + $ 1,005 651 6.00%, 10/01/31, Ser. 2001-59, Class QA + 656 1,630 1.61%, 06/25/32, Ser. 2002-36, Class FT, FRN + 1,627 1,094 1.61%, 06/25/32, Ser. 2002-36, Class FS, FRN + 1,092 414 4.50%, 05/25/42, Ser. 2002-W4, Class A1 + 418 2,879 2.50%, 07/25/42, Ser. 2003-W2, Class 2A3 + 2,883 2,250 1.95%, 09/25/43, Ser. 2003-W14, Class 1A-1 + (f) 2,247 Government National Mortgage Association, 314 6.38%, 12/20/27, Ser. 2001-39, Class AD + 315 840 1.61%, 03/16/32, Ser. 2002-21, Class FD, FRN + 844 850 1.61%, 04/16/32, Ser. 2002-24, Class FA, FRN + 854 1,299 1.61%, 05/16/32, Ser. 2002-27, Class FA, FRN + 1,309 1,717 GSR Mortgage Loan Trust, 2.26%, 08/25/32, Ser. 2003-5F, Class 1A3, FRN + 1,718 1,850 Mound Financing PLC (United Kingdom), 1.28%, 02/08/08, Ser. 3A, Class A1-1, FRN, # 1,850 304 Washington Mutual, 2.26%, 02/25/32, Ser. 2003-SA, Class A3, FRN 304 ------------------------------------------------------------------------------ 17,122 ============================================================================== MORTGAGE BACKED PASS-THROUGH SECURITY -- 2.6% 9,500 Federal National Mortgage Association, 5.50%, 09/25/33, TBA 9,458 ------------------------------------------------------------------------------ Total Residential Mortgage Backed Securities 26,580 (Cost $26,429) ============================================================================== COMMERCIAL MORTGAGE BACKED SECURITIES -- 3.0% $ 2,931 CalSTRS Trust, 1.41%, 11/20/12, Ser. 2002-C6, Class A1, FRN, # + $ 2,926 Calwest Industrial Trust, 2,400 1.49%, 02/15/12, Ser. 2002-CALW, Class AFL, FRN, # + 2,403 1,400 1.38%, 06/15/15, Ser. 2003-CALA, Class A, FRN, # + 1,400 750 LB-UBS Commercial Mortgage Trust, 3.48%, 07/15/27, Ser. 2003-C5, Class A2 726 3,000 Morgan Stanley Capital I, 6.48%, 11/15/30, Ser. 1998-HF2, Class A2 3,301 ------------------------------------------------------------------------------ Total Commercial Mortgage Backed Securities 10,756 (Cost $10,850) ============================================================================== ASSET BACKED SECURITIES -- 26.2% American Express Credit Account Master Trust, 1,800 5.60%, 11/15/06, Ser. 1999-1, Class A + 1,848 1,050 1.25%, 09/15/08, Ser. 2001-1, Class A, FRN + 1,053 1,550 1.22%, 09/15/09, Ser. 2002-1, Class A, FRN + 1,553 1,000 1.22%, 11/16/09, Ser. 2002-2, Class A, FRN + 1,002 1,245 American Express Master Trust, 1.18%, 12/15/05, Ser. 2002-1, Class A, FRN + 1,245 AmeriCredit Automobile Receivables Trust, 2,205 1.31%, 10/12/06, Ser. 2002-A, Class A3, FRN + 2,205 3,600 1.29%, 04/12/07, Ser. 2002-C, Class A3, FRN + 3,601 8,000 Bank One Issuance Trust, 1.23%, 06/15/10, Ser. 2002-A5, Class A5, FRN + 8,014 6 BMW Vehicle Owner Trust, 4.70%, 03/25/05, Ser. 2001-A, Class A3 + 6 45 Capital Auto Receivables Asset Trust, 5.00%, 12/15/06, Ser. 2001-2, Class A-4 + 46 1,725 Capital One Master Trust, 1.21%, 08/15/06, Ser. 2000-5, Class A, FRN + 1,725
SEE NOTES TO FINANCIAL STATEMENTS. 40
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED ASSET BACKED SECURITIES -- CONTINUED Capital One Multi-Asset Execution Trust, $ 800 1.22%, 05/15/08, Ser. 2003-A2, Class A2, FRN + $ 800 1,350 1.50%, 01/15/09, Ser. 2003-A1, Class A1, FRN + 1,356 2,250 Carco Auto Loan Master Trust, 1.18%, 11/15/06, Ser. 2001-A, Class A, FRN + 2,251 Citibank Credit Card Issuance Trust, 200 2.70%, 01/15/08, Ser. 2003-A2, Class A2 + 201 2,050 2.07%, 03/20/08, Ser. 2003-C2, Class C2, FRN + 2,062 Countrywide Asset-Backed Certificates, 544 1.39%, 08/25/32, Ser. 2002-1, Class A, FRN + 545 1,252 1.51%, 03/25/33, Ser. 2003-BC1, Class A1, FRN + 1,253 2,638 Countrywide Home Equity Loan Trust, 1.35%, 08/15/28, Ser. 2002-D, Class A, FRN + 2,626 50 DaimlerChrysler Auto Trust, 3.85%, 04/06/06, Ser. 2002-A, Class A3 + 51 Discover Card Master Trust I, 50 5.30%, 11/16/06, Ser. 2001-5, Class A + 51 4,337 1.29%, 11/15/07, Ser. 2000-5, Class A, FRN + 4,347 2,685 1.17%, 04/15/08, Ser. 2002-4, Class A, FRN + 2,686 750 EQCC Trust, 1.46%, 11/25/31, Ser. 2002-1, Class 2A, FRN + 751 First USA Credit Card Master Trust, 1,000 1.23%, 09/10/06, Ser. 1996-8, Class A, FRN + 1,000 1,100 1.20%, 11/20/06, Ser. 2001-2, Class A, FRN + 1,100 1,900 1.47%, 11/20/06, Ser. 2001-2, Class B, FRN + 1,902 35 Fleet Credit Card Master Trust II, 1.16%, 10/15/07, Ser. 2002-A, Class A, FRN + 35 2,745 Fleet Home Equity Loan Trust, 1.36%, 01/20/33 Ser. 2003-1, Class A, FRN + 2,743 Ford Credit Auto Owner Trust, 34 2.48%, 12/15/04, Ser. 2002-C, Class A2A + 34 $ 1,482 1.23%, 01/15/06, Ser. 2002-A, Class A3B, FRN + $ 1,482 1,110 GMAC Mortgage Corp. Loan Trust, 1.25%, 08/25/32, Ser. 2002-HE4, Class A1, FRN + 1,110 1,050 Greenpoint Home Equity Loan Trust, 1.38%, 04/15/29, Ser. 2003-1, Class A, FRN + 1,050 957 HFC Home Equity Loan Asset Backed Certificates, 1.41%, 04/20/32, Ser. 2002-2, Class A, FRN + 957 Honda Auto Receivables Owner Trust, 1,900 1.92%, 11/20/06, Ser. 2003-1, Class A3 + 1,902 1,000 3.96%, 02/19/07, Ser. 2001-3, Class A4 + 1,023 200 Household Automotive Trust, 1.45%, 05/18/09, Ser. 2002-3, Class A4B, FRN + 200 3,142 Household Mortgage Loan Trust, 1.46%, 02/20/33, Ser. 2003-HC1, Class A, FRN + 3,142 1,200 LB-UBS Commercial Mortgage Trust, 3.32%, 03/15/27, Ser. 2003-C1, Class A2 1,168 Long Beach Mortgage Loan Trust, 1,519 1.43%, 07/25/33, Ser. 2003-3, Class A, FRN 1,518 3,550 1.45%, 08/25/33, Ser. 2003-4, Class AV3, FRN 3,548 50 MBNA Credit Card Master Note Trust, 1.24%, 02/15/07, Ser. 2001-A4, Class A, FRN 50 MBNA Master Credit Card Trust USA, 1,000 1.91%, 12/15/06, Ser. 1999-G, Class C, FRN, # 999 3,500 1.24%, 02/17/09, Ser. 1998-G, Class A, FRN 3,509 Option One Mortgage Loan Trust, 1,168 1.40%, 02/25/32, Ser. 2002-1, Class A, FRN 1,169 421 1.38%, 06/25/32, Ser. 2002-2, Class A, FRN 421 465 1.38%, 08/25/32, Ser. 2002-3, Class A2, FRN 464
SEE NOTES TO FINANCIAL STATEMENTS. 41
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED ASSET BACKED SECURITIES -- CONTINUED $ 2,974 Residential Asset Securities Corp., 1.36%, 07/25/32, Ser. 2002-KS4, Class AIIB, FRN $ 2,969 Sears Credit Account Master Trust, 1,600 1.22%, 06/16/08, Ser. 2001-2, Class A, FRN 1,599 1,250 1.21%, 02/18/09, Ser. 2002-1, Class A, FRN 1,248 10 1.24%, 08/18/09, Ser. 2002-4, Class A, FRN 10 SLM Student Loan Trust, 1,460 1.16%, 06/15/10, Ser. 2002-8, Class A2, FRN 1,460 3,521 1.14%, 10/25/10, Ser. 2002-1, Class A1, FRN 3,521 2,200 Standard Credit Card Master Trust, 5.95%, 10/07/04, Ser. A 2,204 1,450 Superior Wholesale Inventory Financing Trust, 1.19%, 06/15/06, Ser. 2001-C7, Class A, FRN 1,450 489 Toyota Auto Receivables Owner Trust, 2.79%, 12/15/04, Ser. 2002-B, Class A2 489 Wachovia Asset Securitization, Inc., 1,550 1.54%, 12/25/32, Ser. 2002-HE2, Class A, FRN 1,553 2,992 1.40%, 03/25/33, Ser. 2003-HE1, Class A1, FRN 2,991 WFS Financial Owner Trust, 1,462 1.21%, 03/20/06, Ser. 2001-C, Class A3, FRN 1,462 2,500 1.27%, 05/20/08, Ser. 2003-A3, Class B, FRN 2,500 30 World Omni Auto Receivables Trust, 5.51%, 07/20/07, Ser. 2001-A, Class A4 31 ------------------------------------------------------------------------------ Total Asset Backed Securities 95,291 (Cost $95,370) ============================================================================== Total Long-Term Investments 300,562 (Cost $300,585) ============================================================================== UNITS ISSUER VALUE - --------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 17.3% OPTION -- 0.0% ^ 23,700 Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 100.22, expiring 10/08/03, European Style $ 35 (Cost $237) PRINCIPAL AMOUNT (USD) - --------------------------------------------------------------------------------------------- U.S. TREASURY SECURITY -- 0.1% $ 510 U.S. Treasury Note, 3.00%, 11/30/03 @ + 512 (Cost $510) U.S. GOVERNMENT AGENCY SECURITIES -- 6.7% 9,250 Federal Home Loan Bank, 0.98%, 09/05/03, DN + 9,249 Federal National Mortgage Association, 6,600 0.99%, 09/10/03, DN + 6,598 8,500 0.95%, 11/14/03, DN + 8,482 ------------------------------------------------------------------------------ Total U.S. Government Agency Securities 24,329 (Cost $24,331) ============================================================================== MUNICIPAL SECURITIES -- 1.7% DISTRICT OF COLUMBIA -- 0.9% 3,450 George Washington University, Ser. A, Rev., FRDO, MBIA, 1.12%, 09/04/03 + 3,450 NORTH CAROLINA -- 0.2% 600 North Carolina Municipal Power Agency No. 1, Catawba, Taxable, Ser. B, Rev., 2.95%, 01/01/04 601 SOUTH CAROLINA -- 0.6% 2,050 South Carolina Student Loan Corp., Education Loans, Ser. A-1, Rev., FRDO, 1.25%, 06/01/33 2,050 ------------------------------------------------------------------------------ Total Municipal Securities 6,101 (Cost $6,100) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 42
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- CONTINUED COMMERCIAL PAPER -- 2.7% AUTOMOTIVE -- 1.0% $ 3,600 Daimler Chrysler N.A. Holdings Corp., 1.23%, 09/23/03 + $ 3,597 BANKING -- 0.9% 3,450 Commerzbank U.S. Finance, 1.11%, 10/01/03 + 3,447 FINANCIAL SERVICES -- 0.8% 2,750 Cadbury Schwepps Finance PLC (United Kingdom), 1.22%, 09/02/03 + 2,750 ------------------------------------------------------------------------------ Total Commercial Paper 9,794 (Cost $9,794) ============================================================================== CERTIFICATES OF DEPOSIT -- 5.2% 3,388 Abbey National Treasury Services PLC (United Kingdom) (Yankee), 1.05%, 04/02/04, Floating Rate + 3,388 1,000 Bank One N.A. Illinois, 1.17%, 09/17/03, Floating Rate + 1,000 2,030 Bayerische Landesbank Girozentrale/ New York (Yankee), 1.09%, 12/17/04, Floating Rate + 2,030 $ 7,160 Deutsche Bank AG/New York (Yankee), 1.18%, 02/18/05, Floating Rate + $ 7,159 2,500 Landesbank-Baden-Wurttemberg/ New York (Yankee), 1.01%, 09/22/03, Floating Rate + 2,500 2,900 Nordea Bank Finland PLC/New York (Yankee), 1.08%, 11/24/03, Floating Rate + 2,900 ------------------------------------------------------------------------------ Total Certificates of Deposit 18,977 (Cost $18,966) ============================================================================== SHARES - --------------------------------------------------------------------------------------------- MONEY MARKET FUND -- 0.9% 3,134 JPMorgan Prime Money Market Fund (a) + 3,134 (Cost $3,134) ------------------------------------------------------------------------------ Total Short-Term Investments 62,882 (Cost $63,072) ============================================================================== TOTAL INVESTMENTS -- 100.0% $ 363,444 (COST $363,657) ==============================================================================
FUTURE CONTRACTS (Amounts in thousands, except number of contracts)
NOTIONAL UNREALIZED NUMBER OF VALUE AT APPRECIATION CONTRACTS DESCRIPTION EXPIRATION DATE 8/31/03 (USD) (DEPRECIATION) (USD) - --------------------------------------------------------------------------------------------------------- LONG FUTURES OUTSTANDING 91 Eurodollar December, 2003 $ 22,468 $ 27 504 Eurodollar March, 2004 124,104 156 143 Eurodollar June, 2004 35,064 (209) SHORT FUTURES OUTSTANDING (22) 2 Year Treasury Notes December, 2003 (4,687) (5) (187) 5 Year Treasury Notes December, 2003 (20,544) (32)
SEE NOTES TO FINANCIAL STATEMENTS. 43 OPTION
UNITS CALL OPTION WRITTEN VALUE - ---------------------------------------------------------------------------------------------------------- (23,700) Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 101.22, expiring 10/08/03, European Style $ (18)
SWAP CONTRACTS
UNDERLYING UNREALIZED NOTIONAL APPRECIATION DESCRIPTIONS EXPIRATION DATE VALUE (DEPRECIATION) - ----------------------------------------------------------------------------------------------------------- Swap - price lock with Citibank N.A. on U.S. Treasury Note, 1.63%, 04/30/05, price less 99.74, JPMorgan receives positive, pays negative 09/15/03 $ 27,650 $ (32) Swap - price lock with Lehman Brothers Special Financing, on U.S. Treasury Note, 1.63%, 04/30/05, price less 99.97, JPMorgan receives negative, pays positive 09/29/03 13,500 24 Swap - price lock with Citibank N.A. on U.S. Treasury Note, 2.63%, 05/15/08, price less 96.74, JPMorgan receives negative, pays positive 10/01/03 31,400 --
SEE NOTES TO FINANCIAL STATEMENTS. 44 JPMorgan Fleming Emerging Markets Debt Fund PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2003 (Amounts in thousands)
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- 95.9% U.S. TREASURY SECURITIES -- 5.1% U.S. Treasury Notes & Bonds, $ 75 6.88%, 05/15/06 @ $ 84 2,150 4.25%, 08/15/13 2,115 50 6.13%, 08/15/29 + 55 700 5.38%, 02/15/31 + 715 ------------------------------------------------------------------------------ Total U.S. Treasury Securities 2,969 (Cost $2,944) ============================================================================== FOREIGN GOVERNMENT SECURITIES -- 84.3% ARGENTINA -- 0.9% Republic of Argentina, 600 7.00%, 12/19/08, Ser. 2008 (d) * 182 525 12.25%, 06/19/18, Ser. 2018 (d) * 147 345 2.06%, 03/31/23, Ser. L-GL, FRN (d) * 178 ------------------------------------------------------------------------------ 507 ============================================================================== BRAZIL -- 23.0% 300 Banco Nacional de Desenvolvimiento Economico e Social, 8.75%, 06/16/08, Regulation S, FRN 289 Federal Republic of Brazil, 250 11.25%, 07/26/07 265 870 11.50%, 03/12/08 927 1,793 2.19%, 04/15/09, FRN 1,582 2,190 12.00%, 04/15/10 2,289 230 11.00%, 01/11/12 229 2,720 2.19%, 04/15/12, FRN 2,186 542 8.00%, 04/15/14 487 825 8.00%, 04/15/14, # 744 215 8.00%, 04/15/14, Ser. L 195 240 12.75%, 01/15/20 247 3,335 8.88%, 04/15/24 2,568 190 10.13%, 05/15/27 163 1,332 11.00%, 08/17/40 1,212 ------------------------------------------------------------------------------ 13,383 ============================================================================== BULGARIA -- 2.1% National Republic of Bulgaria, 371 1.94%, 07/28/11, FRN, # 353 386 1.94%, 07/28/12, Ser. A, FRN 370 451 8.25%, 01/15/15, # 496 ------------------------------------------------------------------------------ 1,219 ============================================================================== COLOMBIA -- 4.9% Republic of Colombia, $ 70 7.63%, 02/15/07 $ 74 560 9.75%, 04/23/09, Ser. NOV 623 343 9.75%, 04/09/11 385 213 10.00%, 01/23/12 230 260 10.75%, 01/15/13 291 735 11.75%, 02/25/20, MTN 864 365 10.38%, 01/28/33 384 ------------------------------------------------------------------------------ 2,851 ============================================================================== DOMINICAN REPUBLIC -- 0.9% Dominican Republic, 290 9.50%, 09/27/06 294 270 9.04%, 01/23/13, # 255 ------------------------------------------------------------------------------ 549 ============================================================================== ECUADOR -- 2.9% Republic of Ecuador, 1,399 12.00%, 11/15/12 1,095 772 7.00%, 08/15/30, SUB 457 275 7.00%, 08/15/30, SUB, # 163 ------------------------------------------------------------------------------ 1,715 ============================================================================== EGYPT -- 0.5% 250 Arab Republic of Egypt, 8.75%, 07/11/11, # 297 EL SALVADOR -- 2.0% Republic of El Salvador, 535 8.50%, 07/25/11, # 568 305 7.75%, 01/24/23, # 314 285 8.25%, 04/10/32, # 265 ------------------------------------------------------------------------------ 1,147 ============================================================================== MEXICO -- 8.8% 260 Bancomext Trust Division, 11.25%, 05/30/06, # 315 United Mexican States, 150 10.38%, 02/17/09, Ser. XW 188 970 8.38%, 01/14/11 1,118 650 7.50%, 01/14/12 709 950 11.38%, 09/15/16 1,302
SEE NOTES TO FINANCIAL STATEMENTS. 45
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED MEXICO -- CONTINUED $ 485 8.13%, 12/30/19 $ 521 685 8.00%, 09/24/22, Ser. A, MTN 718 175 11.50%, 05/15/26 244 ------------------------------------------------------------------------------ 5,115 ============================================================================== PANAMA -- 2.4% Republic of Panama, 210 9.63%, 02/08/11 236 325 9.38%, 07/23/12 366 310 1.94%, 07/17/14, FRN 294 309 1.94%, 07/17/16, FRN 266 220 10.75%, 05/15/20 260 ------------------------------------------------------------------------------ 1,422 ============================================================================== PERU -- 3.5% Republic of Peru, 487 9.13%, 02/21/12 521 366 9.13%, 02/21/12, Regulation S 392 65 9.88%, 02/06/15 72 545 4.50%, 03/07/17, FRN 458 701 5.00%, 03/07/17, FRN 617 ------------------------------------------------------------------------------ 2,060 ============================================================================== PHILIPPINES -- 3.7% Republic of Philippines, 320 8.88%, 04/15/08 347 344 8.38%, 03/12/09 359 158 9.88%, 03/16/10 176 445 9.00%, 02/15/13 461 170 6.50%, 12/01/17, Ser. B, FRN 166 345 9.88%, 01/15/19 361 265 10.63%, 03/16/25 292 ------------------------------------------------------------------------------ 2,162 ============================================================================== RUSSIA -- 19.4% Russian Federation, 705 10.00%, 06/26/07 829 570 8.25%, 03/31/10 631 444 8.25%, 03/31/10, # 491 1,180 11.00%, 07/24/18 1,565 $ 500 12.75%, 06/24/28 $ 777 4,198 5.00%, 03/31/30, SUB, # 3,836 3,470 5.00%, 03/31/30, SUB 3,175 ------------------------------------------------------------------------------ 11,304 ============================================================================== SOUTH AFRICA -- 0.9% 445 Republic of South Africa (Yankee), 8.50%, 06/23/17 507 TRINIDAD/TOBAGO -- 0.5% 250 Republic of Trinidad & Tobago, 9.75%, 07/01/20 313 TUNISIA -- 0.2% 125 Banque Centrale de Tunisie, 7.38%, 04/25/12 136 TURKEY -- 4.2% Republic of Turkey, 180 11.38%, 11/27/06 203 435 9.88%, 03/19/08 455 725 12.38%, 06/15/09 819 705 11.75%, 06/15/10 776 185 11.88%, 01/15/30 201 ------------------------------------------------------------------------------ 2,454 ============================================================================== UKRAINE -- 0.9% Republic of Ukraine, 205 11.00%, 03/15/07, Regulation S 225 320 7.65%, 06/11/13, # 314 ------------------------------------------------------------------------------ 539 ============================================================================== VENEZUELA -- 2.6% Republic of Venezuela, 1,071 1.88%, 12/18/07, Ser. DL, FRN 956 710 9.25%, 09/15/27 538 ------------------------------------------------------------------------------ 1,494 ============================================================================== Total Foreign Government Securities 49,174 (Cost $41,943) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 46 ANNUAL REPORT AUGUST 31 2003
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED CORPORATE NOTES & BONDS -- 6.5% BRAZIL -- 0.8% $ 550 Trikem SA, 10.63%, 07/24/07, # $ 479 MALAYSIA -- 1.9% 575 Petronas Capital LTD, 7.88%, 05/22/22, # 628 400 Petroliam Nasional BHD, 7.75%, 08/15/15, # 456 ------------------------------------------------------------------------------ 1,084 ============================================================================== MEXICO -- 3.2% 200 BBVA Bancomer Capital Trust I, 10.50%, 02/16/11, # 225 Pemex Project Funding Master Trust, 160 7.88%, 02/01/09 177 340 7.38%, 12/15/14 348 620 Petroleos Mexicanos (Yankee), 9.25%, 03/30/18 701 400 Telefonos de Mexico SA de CV, 8.25%, 01/26/06 444 ------------------------------------------------------------------------------ 1,895 ============================================================================== SOUTH KOREA -- 0.6% 290 Woori Financial Group, 12.75%, 03/01/10, Regulation S, SUB 327 ------------------------------------------------------------------------------ Total Corporate Notes & Bonds 3,785 (Cost $3,716) ============================================================================== SHARES - --------------------------------------------------------------------------------------------- WARRANTS -- 0.0% NIGERIA -- 0.0% 1 Central Bank of Nigeria, expires 11/15/20, FRN * (f) 0 SHARES ISSUER VALUE - --------------------------------------------------------------------------------------------- SINGAPORE -- 0.0% 0^^ Asia Pulp & Paper Co., LTD, ADR, expires 3/15/05, # * (f) $ 0 VENEZUELA -- 0.0% 1 Republic of Venezuela (Oil Obligation), expires 4/15/20, FRN * (f) 0 ------------------------------------------------------------------------------ Total Warrants 0 (Cost $0) ============================================================================== Total Long-Term Investments 55,928 (Cost $48,603) ============================================================================== PRINCIPAL AMOUNT (USD) - --------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 4.1% U.S. TREASURY SECURITY -- 2.1% $ 1,200 U.S. Treasury Bill, 0.98%, 11/28/03 1,197 (Cost $1,197) SHARES - --------------------------------------------------------------------------------------------- MONEY MARKET FUND -- 2.0% 1,137 JPMorgan Prime Money Market Fund (a) 1,137 (Cost $1,137) ------------------------------------------------------------------------------ Total Short-Term Investments 2,334 (Cost $2,334) ============================================================================== TOTAL INVESTMENTS -- 100.0% $ 58,262 (COST $50,937) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 47 SUMMARY OF INVESTMENTS BY INDUSTRY, AUGUST 31, 2003
INDUSTRY % OF INVESTMENT SECURITIES - -------------------------------------------------------------------------------------------- Foreign Government Securities 84.3% U.S. Treasury Securities 7.2 Oil & Gas 3.0 Money Market Fund 2.0 Banking 1.1 Financial Services 0.9 Chemicals 0.8 Telecommunications 0.7 - -------------------------------------------------------------------------------------------- TOTAL 100.0% ============================================================================================
FUTURES CONTRACT (Amounts in thousands, except number of contracts)
NOTIONAL UNREALIZED NUMBER OF VALUE AT APPRECIATION/ CONTRACTS DESCRIPTION EXPIRATION DATE 8/31/03 (USD) (DEPRECIATION) (USD) - ------------------------------------------------------------------------------------------------------- LONG FUTURES OUTSTANDING 1 10 Year Treasury Notes December, 2003 $ 110 $ 1
SEE NOTES TO FINANCIAL STATEMENTS. 48 JPMorgan Global Strategic Income Fund PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2003 (Amounts in thousands)
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- 85.5% U.S. TREASURY SECURITIES -- 0.6% U.S. Treasury Notes & Bonds, $ 100 3.25%, 12/31/03 @ + $ 101 100 3.25%, 05/31/04 + 102 100 6.63%, 05/15/07 @ + 113 375 3.63%, 05/15/13 + 352 125 5.50%, 08/15/28 @ + 127 ------------------------------------------------------------------------------ Total U.S. Treasury Securities 795 (Cost $798) ============================================================================== FOREIGN GOVERNMENT SECURITIES -- 22.8% Dominican Republic (Dominican Republic), 545 9.50%, 09/27/06 553 675 9.04%, 01/23/13, # 638 Federal Republic of Brazil (Brazil), 67 10.00%, 01/16/07 + 69 250 11.25%, 07/26/07 + 265 205 2.19%, 04/15/09, FRN 181 110 10.25%, 06/17/13 + 104 371 8.00%, 04/15/14 333 260 8.88%, 04/15/24 200 310 11.00%, 08/17/40 282 Federal Republic of Germany (Germany), EUR 440 3.25%, 02/17/04, Ser. 130 + 485 EUR 550 5.00%, 05/20/05, Ser. 135 + 628 EUR 500 5.00%, 08/19/05, Ser. 136 + 573 EUR 1,100 4.00%, 02/16/07, Ser. 139 + 1,241 EUR 2,080 5.25%, 01/04/08, Ser. 98 + 2,448 EUR 880 5.25%, 01/04/11, Ser. 00 + 1,046 EUR 1,140 4.75%, 07/04/34, Ser. 0301 + 1,227 155 Government of Barbados (Barbados), 8.75%, 06/15/10, # + 179 Government of Canada (Canada), CAD 20 7.00%, 12/01/06 + 16 CAD 360 5.25%, 06/01/12 + 268 CAD 100 8.00%, 06/01/27, Ser. VW17 + 97 Government of France (France), EUR 500 5.50%, 04/25/07 + 591 EUR 1,320 5.25%, 04/25/08 + 1,557 EUR 630 5.00%, 04/25/12 + 737 EUR 120 5.00%, 10/25/16 + 138 Malaysia Government International Bond (Malaysia), $ 385 8.75%, 06/01/09 $ 467 250 7.50%, 07/15/11 289 National Republic of Bulgaria (Bulgaria), 191 1.94%, 07/28/11, Ser. IAB, FRN 182 270 1.94%, 07/28/12, Ser. A, FRN 259 593 8.25%, 01/15/15, # 652 Republic of Colombia (Colombia), 65 7.63%, 02/15/07 69 180 9.75%, 04/23/09 200 543 9.75%, 04/09/11 + 609 244 10.00%, 01/23/12 + 264 190 11.75%, 02/25/20, MTN 223 70 10.38%, 01/28/33 + 74 Republic of El Salvador (El Salvador), 138 8.50%, 07/25/11 146 335 7.75%, 01/24/23, # 342 280 8.25%, 04/10/32, # + 260 45 Republic of Korea (South Korea), 8.88%, 04/15/08 54 Republic of Panama (Panama), 270 9.63%, 02/08/11 304 550 1.94%, 07/17/16, FRN 473 100 10.75%, 05/15/20 118 160 9.38%, 01/16/23 170 Republic of Peru (Peru), 365 9.13%, 02/21/12 391 582 4.50%, 03/07/17, FRN 489 206 5.00%, 03/07/17, FRN 182 Republic of Philippines (Philippines), 110 8.88%, 04/15/08 119 159 8.38%, 03/12/09 166 53 9.88%, 03/16/10 59 175 9.00%, 02/15/13 181 115 9.88%, 01/15/19 120 110 10.63%, 03/16/25 121 Republic of South Africa (South Africa), 275 9.13%, 05/19/09 326 335 8.50%, 06/23/17 382
SEE NOTES TO FINANCIAL STATEMENTS. 49
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED FOREIGN GOVERNMENT SECURITIES -- CONTINUED $ 200 Republic of Trinidad & Tobago (Trinidad & Tobago), 9.75%, 07/01/20 $ 250 Republic of Turkey (Turkey), 80 11.38%, 11/27/06 90 250 9.88%, 03/19/08 261 220 12.00%, 12/15/08 249 260 11.75%, 06/15/10 286 Republic of Ukraine (Ukraine), 485 11.00%, 03/15/07, Regulation S 531 360 7.65%, 06/11/13 352 Republic of Venezuela (Venezuela), 429 1.88%, 12/18/07, Ser. DL, FRN 382 330 9.25%, 09/15/27 250 Russian Federation (Russia), 100 11.00%, 07/24/18 133 1,550 5.00%, 03/31/30, SUB 1,418 90 State of Qatar (Qatar), 9.75%, 06/15/30, # 119 U.K. Treasury Gilt (United Kingdom), GBP 330 6.50%, 12/07/03 + 526 GBP 300 8.50%, 12/07/05 + 519 GBP 170 8.00%, 09/27/13 + 341 United Mexican States (Mexico), 60 10.38%, 02/17/09, Ser. XW 75 180 9.88%, 02/01/10 223 60 6.38%, 01/16/13, MTN 60 30 11.38%, 09/15/16 41 105 8.13%, 12/30/19 113 110 8.00%, 09/24/22, Ser. A, MTN 115 55 11.50%, 05/15/26 77 ------------------------------------------------------------------------------ Total Foreign Government Securities 27,958 (Cost $24,981) ============================================================================== CORPORATE NOTES & BONDS -- 29.8% ADVERTISING -- 0.1% 130 RH Donnelley Finance Corp. I, 10.88%, 12/15/12, # 151 AEROSPACE -- 0.1% 100 L-3 Communications Corp., 7.63%, 06/15/12 104 AGRICULTURAL PRODUCTION/SERVICES -- 0.0% ^ $ 30 RJ Reynolds Tobacco Holdings, Inc., 7.88%, 05/15/09, Ser. B $ 27 AIRLINES -- 0.6% 646 Northwest Airlines Corp., 8.07%, 10/01/19, Ser. 2000-1 695 AUTOMOTIVE-- 1.5% 45 Dana Corp., 9.00%, 08/15/11 + 47 Ford Motor Credit Co., 575 7.38%, 10/28/09 + 593 250 7.88%, 06/15/10 + 262 200 General Motors Acceptance Corp., 6.88%, 09/15/11 + 200 General Motors Corp., 240 8.25%, 07/15/23 + 239 450 8.38%, 07/15/33 + 445 100 TRW Automotive, Inc., 11.00%, 02/15/13, # 115 ------------------------------------------------------------------------------ 1,901 ============================================================================== BANKING -- 1.5% 175 Abbey National Capital Trust I, 8.96%, 12/31/49, FRN + 226 300 ABN-Amro North American Holding Preferred Capital Repackage Trust I, 6.52%, 12/29/49, FRN, # + 317 250 First Union National Bank, 7.80%, 08/18/10 + 295 Korea Development Bank (South Korea), 160 7.13%, 04/22/04 165 110 7.38%, 09/17/04 116 425 RBS Capital Trust I, 4.71%, 12/31/49, FRN 391 425 Scotland International Finance No. 2 BV (The Netherlands), 4.25%, 05/23/13, # 392 ------------------------------------------------------------------------------ 1,902 ============================================================================== BROADCASTING/CABLE -- 0.5% 80 British Sky Broadcasting PLC (United Kingdom) (Yankee), 6.88%, 02/23/09 + 86
SEE NOTES TO FINANCIAL STATEMENTS. 50 ANNUAL REPORT AUGUST 31 2003
PRINCIPAL AMOUNT~ ISSUER VALUE - ---------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED BROADCASTING/CABLE -- CONTINUED $ 200 DirecTV Holdings LLC, 8.38%, 03/15/13, # + $ 218 150 EchoStar DBS Corp., 9.38%, 02/01/09 + 160 120 Mediacom LLC/Mediacom Capital Corp., 9.50%, 01/15/13 121 ------------------------------------------------------------------------------ 585 ============================================================================== BUSINESS SERVICES -- 0.3% 150 American Color Graphics, Inc., 10.00%, 06/15/10, MTN, # + 156 120 Electronic Data Systems Corp., 6.00%, 08/01/13, # + 110 150 Iron Mountain, Inc., 8.63%, 04/01/13 157 ------------------------------------------------------------------------------ 423 ============================================================================== CHEMICALS -- 0.5% Equistar Chemicals LP/Equistar Funding Corp., 80 10.13%, 09/01/08 + 80 100 10.63%, 05/01/11, # + 100 100 Huntsman ICI Chemicals LLC, 10.13%, 07/01/09 95 150 Lyondell Chemical Co., 10.88%, 05/01/09 143 75 Noveon, Inc., 11.00%, 02/28/11, Ser. B 83 65 PolyOne Corp., 10.63%, 05/15/10 55 70 The Scotts Co., 8.63%, 01/15/09 73 ------------------------------------------------------------------------------ 629 ============================================================================== COMPUTER SOFTWARE -- 0.1% 150 Unisys Corp., 6.88%, 03/15/10 149 CONSTRUCTION -- 0.7% 210 D.R. Horton, Inc., 9.38%, 03/15/11 + 223 175 Pulte Homes, Inc., 6.38%, 05/15/33 157 200 Standard-Pacific Corp., 9.50%, 09/15/10 215 200 Terex Corp., 10.38%, 04/01/11, Ser. B 222 ------------------------------------------------------------------------------ 817 ============================================================================== CONSUMER PRODUCTS -- 0.1% $ 100 Moore North America Finance, Inc., 7.88%, 01/15/11, # $ 104 CONSUMER SERVICES -- 0.3% 150 Corrections Corp. of America, 7.50%, 05/01/11 + 152 250 Service Corp. International, 6.00%, 12/15/05 250 ------------------------------------------------------------------------------ 402 ============================================================================== DISTRIBUTION -- 0.1% 75 Aviall, Inc., 7.63%, 07/01/11, # + 74 DIVERSIFIED -- 0.9% 750 General Electric Capital Corp., 5.45%, 01/15/13, Ser. A, MTN + 759 365 Tyco International Group SA (Luxembourg) (Yankee), 6.38%, 10/15/11 365 ------------------------------------------------------------------------------ 1,124 ============================================================================== ELECTRONICS/ELECTRICAL EQUIPMENT -- 0.1% 100 Sanmina-SCI Corp., 10.38%, 01/15/10 114 ENTERTAINMENT/LEISURE -- 0.3% 150 Park Place Entertainment Corp., 7.00%, 04/15/13 155 110 Six Flags, Inc., 8.88%, 02/01/10 101 75 Worldspan LP/WS Financing Corp., 9.63%, 06/15/11, # 78 ------------------------------------------------------------------------------ 334 ============================================================================== ENVIRONMENTAL SERVICES -- 0.2% 250 Allied Waste North America, 10.00%, 08/01/09, Ser. B + 271 FINANCIAL SERVICES -- 7.9% 65 Arch Western Finance LLC, 6.75%, 07/01/13, # + 64 350 Capital One Bank, 4.88%, 05/15/08 + 348
SEE NOTES TO FINANCIAL STATEMENTS. 51
PRINCIPAL AMOUNT~ ISSUER VALUE - ---------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED FINANCIAL SERVICES -- CONTINUED $ 200 Capital One Financial Corp., 8.75%, 02/01/07 + $ 218 350 Credit Suisse First Boston USA, Inc., 6.50%, 01/15/12 + 377 750 Destination Film Funding Corp., 6.25%, 10/15/03, # 733 100 Eircom Funding (Ireland), 8.25%, 08/15/13, # + 105 325 Erac USA Finance Co., 9.13%, 12/15/04, MTN, # + 352 250 H&E Equipment Services LLC/H&E Finance Corp., 11.13%, 06/15/12 + 210 125 HSBC Capital Funding LP (Channel Islands), 4.61%, 12/31/49, FRN, # + 116 200 ING Capital Funding Trust III, 8.44%, 12/31/49, FRN 234 150 IOS Capital LLC, 7.25%, 06/30/08 142 Morgan Stanley Tracers (Traded Custody Receipts), 1,943 5.88%, 03/01/07, FRN, # 2,103 1,500 6.80%, 06/15/12, # 1,659 220 7.70%, 03/01/32, FRN, # 251 600 Morgan Stanley, 6.75%, 04/15/11 661 200 Nexstar Finance LLC/Nexstar Finance, Inc., 12.00%, 04/01/08 224 Pemex Project Funding Master Trust (Mexico), 175 8.50%, 02/15/08 198 120 8.00%, 11/15/11, MTN, # 131 90 7.38%, 12/15/14 92 1,007 Targeted Return Index (TRAINS), 6.96%, 01/15/12, Ser. 2002-10, FRN, # 1,106 250 UBS Preferred Funding Trust I, 8.62%, 12/31/49, FRN 301 ------------------------------------------------------------------------------ 9,625 ============================================================================== FOOD/BEVERAGE PRODUCTS -- 0.3% 200 Del Monte Corp., 9.25%, 05/15/11, Ser. B + 212 150 Swift & Co., 10.13%, 10/01/09 161 ------------------------------------------------------------------------------ 373 ============================================================================== HEALTH CARE/HEALTH CARE SERVICES -- 0.9% $ 150 Alliance Imaging, Inc., 10.38%, 04/15/11 + $ 156 90 Ardent Health Services, 10.00%, 08/15/13, # + 91 100 Fresenius Medical Care Capital Trust IV, 7.88%, 06/15/11 + 104 265 HCA, Inc., 6.75%, 07/15/13 + 264 700 Mariner Health Group, Inc., 9.50%, 04/01/06, Ser. B (d) (f) * 0^^ 100 Medex, Inc., 8.88%, 05/15/13, # 104 135 Tenet Healthcare Corp., 7.38%, 02/01/13 133 200 Triad Hospitals, Inc., 8.75%, 05/01/09, Ser. B 213 ------------------------------------------------------------------------------ 1,065 ============================================================================== HOTELS/OTHER LODGING -- 0.5% 100 Ameristar Casinos, Inc., 10.75%, 02/15/09 + 112 100 Mandalay Resort Group, 10.25%, 08/01/07, Ser. B 112 200 MGM Mirage, Inc., 8.38%, 02/01/11 219 100 Station Casinos, Inc., 9.88%, 07/01/10 110 ------------------------------------------------------------------------------ 553 ============================================================================== INSURANCE -- 0.4% 225 Aegon NV (The Netherlands), 4.75%, 06/01/13 + 212 200 AXA (France), 8.60%, 12/15/30 + 237 ------------------------------------------------------------------------------ 449 ============================================================================== MACHINERY & ENGINEERING EQUIPMENT -- 0.1% 150 Case New Holland, Inc., 9.25%, 08/01/11, # + 158 MULTI-MEDIA -- 1.2% 200 American Media Operation, Inc., 10.25%, 05/01/09, Ser. B + 214 300 AOL Time Warner, Inc., 7.63%, 04/15/31 + 324 90 CSC Holdings, Inc., 7.63%, 04/01/11, Ser. B + 90
SEE NOTES TO FINANCIAL STATEMENTS. 52
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED MULTI-MEDIA -- CONTINUED $ 100 Lodgenet Entertainment Corp., 9.50%, 06/15/13 $ 103 200 Nextmedia Operating, Inc., 10.75%, 07/01/11 222 150 Primedia, Inc., 8.88%, 05/15/11 157 200 Radio One, Inc., 8.88%, 07/01/11, Ser. B 219 100 Vivendi Universal SA (France), 6.25%, 07/15/08, # 100 ------------------------------------------------------------------------------ 1,429 ============================================================================== OFFICE/BUSINESS EQUIPMENT -- 0.2% Xerox Corp., 5 7.13%, 06/15/10 5 210 7.63%, 06/15/13 205 ------------------------------------------------------------------------------ 210 ============================================================================== OIL & GAS -- 2.5% 175 Amerada Hess Corp., 7.30%, 08/15/31 + 181 150 Chesapeake Energy Corp., 8.13%, 04/01/11 + 157 300 Denbury Resources, Inc., 7.50%, 04/01/13 + 298 175 Devon Financing Corp. ULC, 7.88%, 09/30/31 + 202 100 Frontier Oil Corp., 11.75%, 11/15/09 + 110 Key Energy Services, Inc., 145 8.38%, 03/01/08, Ser. C 152 155 6.38%, 05/01/13 147 500 Lasmo USA, Inc., 7.50%, 06/30/06 559 80 Petroleos Mexicanos (Mexico) (Yankee), 9.25%, 03/30/18 91 200 Pogo Producing Co., 8.25%, 04/15/11, Ser. B 213 80 Tesoro Petroleum Corp., 8.00%, 04/15/08 83 100 The Premcor Refining Group, Inc., 7.50%, 06/15/15, # 97 175 Valero Energy Corp., 7.50%, 04/15/32 188 500 Westport Resources Corp., 8.25%, 11/01/11 534 ------------------------------------------------------------------------------ 3,012 ============================================================================== PACKAGING -- 0.5% $ 100 Constar International, Inc., 11.00%, 12/01/12 + $ 90 Crown European Holdings SA (France), 150 9.50%, 03/01/11, # + 160 50 10.88%, 03/01/13, # + 55 200 Owens-Brockway Glass Container, Inc., 8.88%, 02/15/09 210 100 Stone Container Corp., 9.75%, 02/01/11 109 ------------------------------------------------------------------------------ 624 ============================================================================== PAPER/FOREST PRODUCTS -- 0.5% 200 Abitibi-Consolidated, Inc. (Canada) (Yankee), 6.00%, 06/20/13 + 180 125 Buckeye Technologies, Inc., 8.50%, 12/15/05 + 123 Georgia-Pacific Corp., 125 8.88%, 02/01/10, # + 132 100 9.50%, 12/01/11 + 106 50 Tembec Industries, Inc. (Canada), 8.50%, 02/01/11 49 ------------------------------------------------------------------------------ 590 ============================================================================== PHARMACEUTICALS -- 0.1% 100 Omnicare, Inc., 6.13%, 06/01/13 96 PIPELINES -- 0.5% 70 Aquila, Inc., 14.88%, 07/01/12 + 78 50 Dynegy Holdings, Inc., 10.13%, 07/15/13, # + 52 El Paso Corp., 280 6.75%, 05/15/09 + 239 45 7.88%, 06/15/12, # + 40 Williams Companies, Inc., 100 8.63%, 06/01/10 104 110 8.13%, 03/15/12 111 ------------------------------------------------------------------------------ 624 ============================================================================== PRINTING & PUBLISHING -- 0.1% 100 Von Hoffmann Press, Inc., 10.25%, 03/15/09 107
SEE NOTES TO FINANCIAL STATEMENTS. 53
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED REAL ESTATE INVESTMENT TRUST -- 0.5% $ 180 Host Marriott LP, 9.25%, 10/01/07, Ser. G $ 190 200 MeriStar Hospitality Operating Partnership LP/MeriStar Hospitality Finance Corp., 10.50%, 06/15/09 204 250 Ventas Realty LP/Ventas Capital Corp., 9.00%, 05/01/12 267 ------------------------------------------------------------------------------ 661 ============================================================================== RESTAURANTS/FOOD SERVICES -- 0.2% 250 Yum! Brands, Inc., 8.88%, 04/15/11 282 RETAILING -- 0.3% 150 JC Penney Co., Inc., 7.60%, 04/01/07 156 150 Sears Roebuck Acceptance Corp., 7.00%, 02/01/11 167 30 Sonic Automotive, Inc., 8.63%, 08/15/13, # 30 60 The Gap, Inc., 6.90%, 09/15/07 + 63 ------------------------------------------------------------------------------ 416 ============================================================================== SEMI-CONDUCTORS -- 0.1% 95 AMI Semiconductor, Inc., 10.75%, 02/01/13 + 106 SHIPPING/TRANSPORTATION -- 0.4% 200 Teekay Shipping Corp. (Bahamas), 8.88%, 07/15/11 217 300 Union Pacific Corp., 6.65%, 01/15/11 330 ------------------------------------------------------------------------------ 547 ============================================================================== STEEL -- 0.3% 40 AK Steel Corp., 7.88%, 02/15/09 + 32 200 Euramax International LTD, 8.50%, 08/15/11, # + 202 75 IPSCO, Inc. (Canada), 8.75%, 06/01/13, # 77 ------------------------------------------------------------------------------ 311 ============================================================================== TELECOMMUNICATIONS -- 2.8% 175 AT&T Wireless Services, Inc., 8.13%, 05/01/12 + 201 55 Avaya, Inc., 11.13%, 04/01/09 + 62 Deutsche Telekom International Finance BV (The Netherlands), $ 255 8.50%, 06/15/10 + $ 300 100 8.75%, 06/15/30 + 120 100 France Telecom SA (France), 10.00%, 03/01/31 + 129 90 Insight Midwest LP/Insight Capital, Inc., 10.50%, 11/01/10 95 75 Koninklijke KPN NV (The Netherlands), 8.00%, 10/01/10 88 300 Nextel Communications, Inc., 9.38%, 11/15/09 323 70 Nortel Networks LTD, 6.13%, 02/15/06 68 195 Qwest Corp., 8.88%, 03/15/12, # 209 200 Rogers Wireless Communications, Inc. (Canada), 9.63%, 05/01/11 220 Sprint Capital Corp., 200 6.90%, 05/01/19 197 225 8.75%, 03/15/32 256 600 TCI Communications, Inc., 8.75%, 08/01/15 726 45 Triton PCS, Inc., 8.50%, 06/01/13, # 48 200 TSI Telecommunication Services, Inc., 12.75%, 02/01/09, Ser. B 198 175 Verizon Global Funding Corp., 7.38%, 09/01/12 199 ------------------------------------------------------------------------------ 3,439 ============================================================================== TELECOMMUNICATIONS EQUIPMENT -- 0.0% ^ 55 ACC Escrow Corp., 10.00%, 08/01/11, # + 59 TRANSPORTATION -- 0.1% 135 CP Ships LTD (Canada), 10.38%, 07/15/12 + 149 UTILITIES -- 1.5% 300 AEP Texas Central Co., 5.50%, 02/15/13, # + 295 70 Allegheny Energy Supply, 8.75%, 04/15/12, # + 58
SEE NOTES TO FINANCIAL STATEMENTS. 54
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED UTILITIES -- CONTINUED Calpine Corp., $ 225 7.88%, 04/01/08 + $ 167 100 8.50%, 02/15/11 + 75 100 8.75%, 07/15/13, # + 94 190 CenterPoint Energy Resources Corp., 7.88%, 04/01/13, # + 204 130 CMS Energy Corp., 7.75%, 08/01/10, # + 123 175 Dominion Resources, Inc., 6.30%, 03/15/33 + 168 70 Edison Mission Energy, 9.88%, 04/15/11, # + 57 45 Reliant Resources, Inc., 9.50%, 07/15/13, # 41 80 TECO Energy, Inc., 7.20%, 05/01/11 76 The AES Corp., 45 8.75%, 06/15/08 + 42 218 8.88%, 02/15/11 + 203 275 TXU Energy Co., 7.00%, 03/15/13, # 283 ------------------------------------------------------------------------------ 1,886 ============================================================================== Total Corporate Notes & Bonds 36,577 (Cost $36,389) ============================================================================== RESIDENTIAL MORTGAGE BACKED SECURITIES -- 11.1% COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.1% 4,623 Credit Suisse First Boston Mortgage Securities Corp., 1.01%, 06/25/20, Ser. 1997-2X, FRN, IO, # + 113 12 DLJ Mortgage Acceptance Corp., 39.45%, 07/28/27, Ser. 1997-D, FRN, # + 12 ------------------------------------------------------------------------------ 125 ============================================================================== MORTGAGE BACKED PASS-THROUGH SECURITIES -- 11.0% Federal National Mortgage Association, 7,500 5.50%, 09/25/33, TBA 7,467 6,000 6.00%, 09/25/33, TBA 6,099 ------------------------------------------------------------------------------ 13,566 ============================================================================== Total Residential Mortgage Backed Securities 13,691 (Cost $13,825) ============================================================================== COMMERCIAL MORTGAGE BACKED SECURITIES -- 8.1% $ 315 COMM, 2.39%, 12/16/11, Ser. 2000-FL1A, Class H, FRN, # + $ 315 Credit Suisse First Boston Mortgage Securities Corp., 1,155 7.29%, 09/15/09, Ser. 1999-C1, Class A2 + 1,304 300 6.38%, 12/16/35, Ser. 2001-CK1, Class A3 + 322 968 First Union Commercial Mortgage Trust, 5.73%, 10/15/35, Ser. 1999-C1, Class A + 1,013 1,520 Greenwich Capital Commercial Funding Corp., 3.86%, 07/05/12, Ser. 2003-C1, Class A3 + 1,404 1,200 Heller Financial Commercial Mortgage Asset Corp., 6.85%, 05/15/31, Ser. 1999-PH1, Class A2 1,337 Morgan Stanley Capital I, 300 8.20%, 12/03/05, Ser. 2000-HG, Class E, FRN, # 321 1,000 7.70%, 10/03/30, Ser. 1997-XL1 G, # 910 1,330 Morgan Stanley Dean Witter Capital I, 6.09%, 04/15/34, Ser. 2002-HQ, Class A2 1,440 1,440 Nomura Asset Securities Corp., 6.59%, 03/15/30, Ser. 1998-D6, Class A1B 1,592 ------------------------------------------------------------------------------ Total Commercial Mortgage Backed Securities 9,958 (Cost $9,480) ============================================================================== PRIVATE PLACEMENTS -- 13.1% CO-OP APARTMENTS -- 8.5% 2,614 127-129-131 West 96th Street Note, Secured by First Mortgage and Agreement on Co-op Apartment Building In New York City, 6.85%, 12/01/18, #, (f) (i) 2,755 1,483 127-129-131 West 96th Street Note, Secured by Second Mortgage and Agreement on Co-op Apartment Building In New York City, 6.85%, 11/01/27, (f) (i) 1,562
SEE NOTES TO FINANCIAL STATEMENTS. 55
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED CO-OP APARTMENTS -- CONTINUED $ 991 14-16 East 17th St., Secured by First Mortgage and Agreement on Co-op Apartment Building in Brooklyn, New York, 7.00%, 03/01/12, #, (f) (i) $ 995 1,383 270 5th Ave., Secured by First Mortgage and Agreement on Co-op Apartment Building in Brooklyn, New York, 6.93%, 08/01/18, #, (f) (i) 1,464 549 3512 Oxford Ave., Secured by First Mortgage and Agreement on Co-op Apartment Building in Riverdale, New York, 8.45%, 06/01/17, #, (f) (i) 628 498 42 155th St., 7.00%, 01/01/14, #, (f) (i) 543 754 421 West 57th St. Note, Secured by First Mortgage and Agreement on Co-op Apartment Building In New York City, 8.98%, 07/01/22, #, (f) (i) 874 436 482 East 9th St., Kensington Gardens Corp., Secured by First Mortgage and Agreement on Co-op Apartment Building in New York City, 6.85%, 12/01/18, #, (f) (i) 457 550 Greystone Tenants, 8.50%, 06/01/17, #, (f) (i) 612 454 Our House Mercer, 7.49%, 04/01/23, #, (f) (i) 504 ------------------------------------------------------------------------------ 10,394 ============================================================================== CONVENTIONAL MULTI-FAMILY -- 4.6% 1,426 PC Bel Clare Estates, 6.81%, 08/01/18, #, (f) 1,533 1,211 PC Northstar Terrace, 6.63%, 10/01/18, #, (f) (i) 1,258 1,551 PC Shangri La MHC Co., 6.40%, 10/01/08, #, (f) (i) 1,649 1,200 Three Lakes Estate, 6.06%, 10/01/13, #, (f) (i) 1,221 ------------------------------------------------------------------------------ 5,661 ============================================================================== Total Private Placements 16,055 (Cost $15,108) ============================================================================== SHARES ISSUER VALUE - --------------------------------------------------------------------------------------------- WARRANT -- 0.0% FOREIGN GOVERNMENT SECURITIES -- 0.0% 1 Republic of Venezuela (Oil Obligation) (Venezuela), expires 4/15/20, FRN * (f) (Cost $0) $ 0 ------------------------------------------------------------------------------ Total Long-Term Investments 105,034 (Cost $100,581) ============================================================================== PRINCIPAL AMOUNT~ - --------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 14.5% U.S. TREASURY SECURITY -- 0.0% ^ $ 20 U.S. Treasury Bill, 0.93%, 11/20/03 @ + 20 (Cost $20) SHARES - --------------------------------------------------------------------------------------------- MONEY MARKET FUND -- 14.5% 17,829 JPMorgan Prime Money Market Fund (a) + 17,829 (Cost $17,829) ------------------------------------------------------------------------------ Total Short-Term Investments 17,849 (Cost $17,849) ============================================================================== TOTAL INVESTMENTS -- 100.0% $ 122,883 (COST $118,430) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 56 SUMMARY OF INVESTMENTS BY COUNTRY, AUGUST 31, 2003
COUNTRY % OF INVESTMENT SECURITIES - ---------------------------------------------------------------------------------------------------- United States 73.9% Germany 6.2 France 3.0 Russia 1.3 Brazil 1.2 Colombia 1.2 United Kingdom 1.2 Dominican Republic 1.0 Mexico 1.0 Bulgaria 0.9 Panama 0.9 The Netherlands 0.9 Canada 0.8 Peru 0.8 Turkey 0.7 Ukraine 0.7 El Salvador 0.6 Malaysia 0.6 Philippines 0.6 South Africa 0.6 Venezuela 0.5 Other (below 0.5%) 1.4 - ---------------------------------------------------------------------------------------------------- TOTAL 100.0% ====================================================================================================
FUTURES CONTRACTS (Amounts in thousands, except number of contracts)
NOTIONAL UNREALIZED NUMBER OF VALUE AT APPRECIATION CONTRACTS DESCRIPTION EXPIRATION DATE 8/31/03 (USD) (DEPRECIATION) (USD) - -------------------------------------------------------------------------------------------------------------- LONG FUTURES OUTSTANDING 9 Euro-SHATZ September, 2003 $ 1,047 $ (8) 5 Euro-BOBL September, 2003 610 (14) 49 Treasury Bonds December, 2003 5,194 81 SHORT FUTURES OUTSTANDING (8) Euro-BUND September, 2003 (1,004) 22 (5) Treasury Bonds December, 2003 (530) (6) (96) 5 Year Treasury Notes December, 2003 (8,668) (16) (79) 10 Year Treasury Notes December, 2003 (10,547) (69)
SEE NOTES TO FINANCIAL STATEMENTS. 57 FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
NET UNREALIZED SETTLEMENT SETTLEMENT VALUE AT APPRECIATION CONTRACTS TO BUY DATE VALUE (USD) 8/31/03 (USD) (DEPRECIATION) (USD) - ----------------------------------------------------------------------------------------------- 290 EUR 9/22/03 $ 327 $ 318 $ (9) 434 NZD 9/22/03 252 250 (2) - ----------------------------------------------------------------------------------------------- $ 579 $ 568 $ (11) =============================================================================================== NET UNREALIZED SETTLEMENT SETTLEMENT VALUE AT APPRECIATION CONTRACTS TO SELL DATE VALUE (USD) 8/31/03 (USD) (DEPRECIATION) (USD) - ----------------------------------------------------------------------------------------------- 10,291 EUR 9/22/03 $ 11,710 $ 11,292 $ 418 875 GBP 9/22/03 1,398 1,382 16 434 NZD 9/22/03 249 250 (1) 506 CAD 9/22/03 362 364 (2) - ----------------------------------------------------------------------------------------------- $ 13,719 $ 13,288 $ 431 ===============================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 58 JPMorgan Short Term Bond Fund PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2003 (Amounts in thousands)
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- 68.5% U.S. GOVERNMENT AGENCY SECURITIES -- 12.7% $ 5,250 Federal Home Loan Bank, 2.39%, 12/29/05 + $ 5,253 Federal Home Loan Mortgage Corp., 1,800 1.50%, 08/15/05 + 1,777 38,100 2.50%, 12/04/06, MTN + 37,628 Federal National Mortgage Association, 4,247 0.91%, 01/01/04, MTN, FRN + 4,247 1,975 2.55%, 05/19/05, MTN + 1,980 29,550 1.88%, 09/15/05 + 29,407 11,200 2.65%, 02/13/06 + 11,190 46,000 2.75%, 08/11/06 + 45,884 ------------------------------------------------------------------------------ Total U.S. Government Agency Securities 137,366 (Cost $138,070) ============================================================================== FOREIGN GOVERNMENT SECURITIES -- 2.9% Province of Ontario (Canada), 7,200 4.20%, 06/30/05, (Yankee) + 7,470 8,100 2.63%, 12/15/05 + 8,146 Republic of Italy (Italy), 13,850 4.62%, 06/15/05, MTN + 14,448 1,000 2.50%, 03/31/06, MTN + 999 ------------------------------------------------------------------------------ Total Foreign Government Securities 31,063 (Cost $30,336) ============================================================================== SUPRANATIONAL NOTES & BONDS -- 0.5% 3,800 European Investment Bank, 4.00%, 08/30/05 + 3,949 1,800 Inter-American Development Bank, 3.88%, 09/27/04 + 1,855 ------------------------------------------------------------------------------ Total Supranational Notes & Bonds 5,804 (Cost $5,594) ============================================================================== STATE AND MUNICIPAL OBLIGATIONS -- 0.3% ILLINOIS -- 0.2% 2,350 Illinois State, 2.50%, 06/01/08 + 2,217 NORTH CAROLINA -- 0.1% 1,285 North Carolina Municipal Power Agency No. 1, Catawba, Taxable, Ser. B, Rev., 3.26%, 01/01/05 1,287 ------------------------------------------------------------------------------ Total State and Municipal Obligations 3,504 (Cost $3,633) ============================================================================== CORPORATE NOTES & BONDS -- 17.9% AUTOMOTIVE -- 1.0% General Motors Acceptance Corp., $ 1,000 4.75%, 10/15/03, MTN, FRN + $ 1,000 8,250 6.38%, 01/30/04, MTN + 8,407 900 6.75%, 01/15/06 + 949 ------------------------------------------------------------------------------ 10,356 ============================================================================== BANKING -- 1.9% 1,200 Capital One Bank, 6.88%, 02/01/06, MTN + 1,287 10,500 Northern Rock PLC (United Kingdom), 1.16%, 03/18/04, MTN, FRN, # + 10,501 1,950 Popular North America, Inc., 4.25%, 04/01/08 + 1,952 4,750 US Bancorp, 2.75%, 03/30/06, MTN 4,768 2,650 Wachovia Corp., 3.50%, 08/15/08 2,584 ------------------------------------------------------------------------------ 21,092 ============================================================================== FINANCIAL SERVICES -- 11.3% 4,350 Caterpillar Financial Services Corp., 2.59%, 07/15/06, MTN + 4,330 11,750 CIT Group, Inc., 1.40%, 02/14/05, MTN, FRN + 11,741 4,250 Citigroup, Inc., 5.75%, 05/10/06 + 4,567 4,750 Countrywide Home Loans, Inc., 3.50%, 12/19/05, Ser. K, MTN 4,841 Counts Trusts, 3,450 1.91%, 08/15/07, Ser. 2002-10, FRN, # + 3,450 3,450 1.96%, 08/15/07, Ser. 2002-11, FRN, # + 3,450 13,900 General Electric Capital Corp., 2.85%, 01/30/06, Ser. A, MTN + 14,037 Household Finance Corp., 3,050 1.49%, 05/28/04, MTN, FRN + 3,057 3,250 3.38%, 02/21/06, MTN + 3,305 1,150 Household Netherlands BV (The Netherlands) (Yankee), 6.20%, 12/01/03 + 1,163 2,555 International Lease Finance Corp., 4.00%, 01/17/06, Ser. O, MTN + 2,606 6,100 Lehman Brothers Holdings, Inc., 3.50%, 08/07/08 + 5,923
SEE NOTES TO FINANCIAL STATEMENTS. 59
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED FINANCIAL SERVICES -- CONTINUED $ 8,300 Principal Life Global, 5.13%, 06/28/07, # + $ 8,691 Restructured Asset Securities with Enhanced Returns (RACERS), 6,300 0.98%, 04/15/04, Ser. 2002-35, Class C, FRN, # + 6,263 6,200 0.98%, 04/15/04, Ser. 2002-40, Class C, FRN, # + 6,185 3,950 SLM Corp., 3.95%, 08/15/08, Ser. A, MTN 3,915 Special Purpose Accounts Receivable Cooperative Corp. (SPARCS), 5,800 1.98%, 05/23/04, Ser. 2002-6, FRN, # 5,809 2,900 1.43%, 05/23/05, Ser. 2003-3, FRN, # 2,899 15,000 1.71%, 05/15/06, Ser. 2003-4 CL 15,023 5,050 The Bear Stearns Co., Inc., 6.50%, 05/01/06 + 5,508 6,280 Washington Mutual Bank FA, 1.45%, 05/14/04, FRN 6,294 ------------------------------------------------------------------------------ 123,057 ============================================================================== INSURANCE -- 0.9% 5,350 ASIF Global Financing, 1.37%, 03/14/06, FRN, # + 5,347 3,800 Metropolitan Life Global Funding I, 4.75%, 06/20/07, # + 3,984 ------------------------------------------------------------------------------ 9,331 ============================================================================== OIL & GAS -- 1.1% 2,500 BP Capital Markets PLC (United Kingdom), 2.35%, 06/15/06 + 2,485 Chrevron Texaco Capital Co., 550 3.50%, 09/17/07 + 553 3,750 3.38%, 02/15/08 + 3,712 4,600 Texas Municipal Gas Corp., 2.60%, 07/01/07, + 4,595 ------------------------------------------------------------------------------ 11,345 ============================================================================== PAPER/FOREST PRODUCTS -- 0.3% 3,200 Weyerhaeuser Co., 2.24%, 09/15/03, FRN + 3,200 PHARMACEUTICALS -- 0.9% $ 9,150 Abbott Laboratories, 5.13%, 07/01/04 + $ 9,428 SHIPPING/TRANSPORTATION -- 0.2% 2,600 FedEx Corp., 6.63%, 02/12/04 + 2,658 UTILITIES -- 0.3% 1,500 AEP Texas Central Co., 3.00%, 02/15/05, # + 1,516 1,700 National Rural Utilities Cooperative Finance Corp., 3.00%, 02/15/06 + 1,712 ------------------------------------------------------------------------------ 3,228 ============================================================================== Total Corporate Notes & Bonds 193,695 (Cost $192,697) ============================================================================== RESIDENTIAL MORTGAGE BACKED SECURITIES -- 11.9% COLLATERALIZED MORTGAGE OBLIGATIONS -- 3.1% 529 Countrywide Home Loans, Inc., 5.19%, 05/19/32, Ser. 2002-7, Class 3A2, FRN + 529 1,864 Credit Suisse First Boston Mortgage Securities Corp., 1.76%, 11/25/31, Ser. 2001-26, Class 3A2, FRN + 1,871 Federal Home Loan Mortgage Corp., 7,622 6.00%, 08/15/08, Ser. 1565, Class P + 8,023 9,000 6.50%, 11/15/27, Ser 2413, Class ME + 9,073 Federal National Mortgage Association, 1,900 5.50%, 10/25/11, Ser. 2002-57, Class PC + 1,936 1,900 5.50%, 03/25/12, Ser. 2002-70, Class PC + 1,932 Government National Mortgage Association, 3,760 1.61%, 04/16/32, Ser. 2002-24, Class FA, FRN + 3,776 5,263 1.61%, 05/16/32, Ser. 2002-27, Class FA, FRN + 5,301 487 Residential Accredit Loans, Inc., 1.66%, 08/25/31, Ser. 2001-QS11, Class A5, FRN + 488 ------------------------------------------------------------------------------ 32,929 ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 60 ANNUAL REPORT AUGUST 31 2003
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED MORTGAGE BACKED PASS-THROUGH SECURITY -- 8.8% $ 96,300 Federal National Mortgage Association, 5.50%, 09/25/33, TBA $ 95,879 ------------------------------------------------------------------------------ Total Residential Mortgage Backed Securities 128,808 (Cost $127,351) ============================================================================== COMMERCIAL MORTGAGE BACKED SECURITIES -- 5.2% 10,580 CalSTRS Trust, 3.99%, 11/20/12, Ser. 2002-C6, Class A2, # + 10,638 3,250 Calwest Industrial Trust, 1.38%, 06/15/15, Ser. 2003-CALA, Class A, FRN, # + 3,250 COMM, 1,889 2.39%, 12/16/11, Ser. 2000-FL1A, Class H, FRN, # + 1,889 2,315 2.26%, 11/15/12, Ser. 2000-FL3A, Class KWT, FRN, # + 2,314 2,720 Credit Suisse First Boston Mortgage Securities Corp., 7.15%, 06/20/29, Ser. 1997-C1, Class A1B + 2,757 5,190 First Union-Lehman Brothers Commercial Mortgage Securities, Inc., 7.38%, 04/18/29, Ser. 1997-C1, Class A3 + 5,806 5,750 LB-UBS Commercial Mortgage Trust, 3.48%, 07/15/27, Ser. 2003-C5, Class A2 + 5,567 Lehman Large Loan, 3,451 6.79%, 10/12/34, Ser. 1997-LL1, Class A1 3,560 2,300 6.84%, 10/12/34, Ser. 1997-LL1, Class A2 2,418 3,000 Mall of America Capital Co. LLC, 1.41%, 03/12/10, Ser. 2000-1, Class A, FRN, # + 3,004 Morgan Stanley Capital I, 3,655 6.22%, 06/03/30, Ser. 1998-XL1, Class A1 + 3,848 7,400 6.48%, 11/15/30, Ser. 1998-HF2, Class A2 + 8,143 $ 2,514 Mortgage Capital Funding, Inc., 6.00%, 11/18/31, Ser. 1998-MC3, Class A1 + $ 2,666 ------------------------------------------------------------------------------ Total Commercial Mortgage Backed Securities 55,860 (Cost $55,339) ============================================================================== ASSET BACKED SECURITIES -- 17.1% 6,000 American Express Credit Account Master Trust, 1.25%, 09/15/08, Ser. 2001-1, Class A, FRN + 6,016 4,900 American Express Master Trust, 1.18%, 12/15/05, Ser. 2002-1, Class A, FRN + 4,900 AmeriCredit Automobile Receivables Trust, 6,903 1.31%, 10/12/06, Ser. 2002-A, Class A3, FRN + 6,902 3,600 4.41%, 11/12/08, Ser. 2001-D, Class A4 + 3,703 11,400 Bank One Issuance Trust, 4.16%, 01/15/08, Ser. 2002-A2, Class A2 + 11,806 3,000 Capital Auto Receivables Asset Trust, 1.20%, 04/17/06, Ser. 2002-5, Class A3A, FRN + 3,000 6,400 Capital One Multi-Asset Execution Trust, 1.22%, 05/15/08, Ser. 2003-A2, Class A2, FRN + 6,400 Citibank Credit Card Issuance Trust, 5,600 2.70%, 01/15/08, Ser. 2003-A2, Class A2 + 5,617 5,050 2.07%, 03/20/08, Ser. 2003-C2, Class C2, FRN + 5,079 1,125 Citibank Credit Card Master Trust I, 0.00%, 08/15/06, Ser. 1997-6, Class A, PO + 1,109
SEE NOTES TO FINANCIAL STATEMENTS. 61
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED ASSET BACKED SECURITIES -- CONTINUED $ 2,750 Comed Transitional Funding Trust, 5.44%, 03/25/07, Ser. 1998-1, Class A5 + $ 2,842 899 Countrywide Asset-Backed Certificates, 1.45%, 04/25/32, Ser. 2001-4, Class A, FRN + 899 Daimler Chrysler Auto Trust, 952 6.66%, 01/08/05, Ser. 2000-D, Class A3 + 956 2,650 3.85%, 04/06/06, Ser. 2002-A, Class A3 + 2,702 Discover Card Master Trust I, 4,750 1.18%, 07/15/07, Ser. 2002-1, Class A, FRN + 4,750 6,520 1.29%, 11/15/07, Ser. 2000-5, Class A, FRN + 6,535 5,735 1.17%, 04/15/08, Ser. 2002-4, Class A, FRN + 5,738 1,400 1.26%, 09/15/08, Ser. 2001-3, Class A, FRN + 1,404 93 EQCC Home Equity Loan Trust, 6.41%, 12/15/04, Ser. 1997-3, Class A8 + 94 3,308 EQCC Trust, 1.46%, 11/25/31, Ser. 2002-1, Class 2A, FRN + 3,312 4,800 First USA Credit Card Master Trust, 1.47%, 11/20/06, Ser. 2001- 2, Class B, FRN + 4,804 758 Ford Credit Auto Owner Trust, 4.83%, 02/15/05, Ser. 2001-C, Class A4 + 764 8,450 Ford Credit Floorplan Master Owner Trust, 1.25%, 07/15/08, Ser. 2001-2, Class A, FRN + 8,473 Honda Auto Receivables Owner Trust, 4,500 1.92%, 11/20/06, Ser. 2003-1, Class A3 + 4,504 14,205 2.48%, 07/18/08, Ser. 2003-1, Class A4 + 14,158 12,000 Household Automotive Trust, 3.44%, 05/18/09, Ser. 2002-3, Class A4A + 12,118 $ 2,950 LB-UBS Commercial Mortgage Trust, 3.32%, 03/15/27, Ser. 2003-C1, Class A2 + $ 2,871 Onyx Acceptance Grantor Trust, 4,100 5.49%, 11/15/07, Ser. 2001-B, Class A4 + 4,236 5,000 5.23%, 05/15/08, Ser. 2001-C, Class A4 + 5,155 2,920 Option One Mortgage Loan Trust, 1.40%, 02/25/32, Ser. 2002-1, Class A, FRN + 2,921 3,500 Peco Energy Transition Trust, 5.80%, 03/01/07, Ser. 1999-A, Class A4 + 3,635 715 Providian Home Equity Loan Trust, 1.40%, 06/25/25, Ser. 1999-1, Class A, FRN + 716 3,344 Residential Asset Securities Corp., 2.47%, 08/25/22, Ser. 2002-KS5, Class AIB2 + 3,349 2,383 Sears Credit Account Master Trust, 7.00%, 07/15/08, Ser. 1996-3, Class A 2,444 4,250 SLM Student Loan Trust, 2.16%, 03/15/33, Ser. 2003-4, Class A5A, # 4,238 Wachovia Asset Securitization, Inc., 4,300 1.54%, 12/25/32, Ser. 2002-HE2, Class A, FRN 4,308 6,982 1.40%, 03/25/33, Ser. 2003-HE1, Class A1, FRN 6,978 WFS Financial Owner Trust, 7,400 4.50%, 02/20/10, Ser. 2002-2, Class A4, SUB 7,683 6,400 3.25%, 05/20/11, Ser. 2003-3, Class A4 6,351 404 World Omni Auto Receivables Trust, 5.30%, 02/20/05, Ser. 2001-A, Class A3 406 ------------------------------------------------------------------------------ Total Asset Backed Securities 183,876 (Cost $182,540) ============================================================================== Total Long-Term Investments 739,976 (Cost $735,560) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 62
UNITS ISSUER VALUE - --------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 31.5% OPTION -- 0.0% ^ 53,550 Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 100.22, expiring 10/08/03, European Style $ 79 (Cost $536) PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- U.S. TREASURY SECURITIES -- 0.2% U.S. Treasury Bills, $ 2,000 1.09%, 10/30/03 @ + 1,997 350 0.99%, 01/22/04 @ + 349 ------------------------------------------------------------------------------ Total U.S. Treasury Securities 2,346 (Cost $2,345) ============================================================================== U.S. GOVERNMENT AGENCY SECURITIES -- 7.7% Federal Home Loan Mortgage Corp., 23,000 1.07%, 01/07/04, DN 22,913 23,000 1.09%, 02/26/04, DN 22,877 Federal National Mortgage Association, 17,500 0.99%, 09/10/03, DN + 17,496 19,400 0.95%, 11/14/03, DN + 19,359 ------------------------------------------------------------------------------ Total U.S. Government Agency Securities 82,645 (Cost $82,646) ============================================================================== MUNICIPAL SECURITIES -- 2.0% DISTRICT OF COLUMBIA -- 0.8% 8,550 George Washington University, Ser. A, Rev., FRDO, MBIA, 1.12%, 09/04/03 + 8,550 FLORIDA -- 0.2% 1,800 Florida Educational Loan Marketing Corp., RAMS, Ser. A-2, Rev., FRDO, 1.12%, 09/26/03 + 1,800 NEW YORK -- 0.6% 6,200 New York State Dormitory Authority, City University System, Fifth Generation, Ser. C, Rev., CONS, 1.59%, 01/01/04 + 6,198 SOUTH CAROLINA -- 0.4% $ 4,700 South Carolina Student Loan Corp., Education Loans, Ser. A-1, Rev., FRDO, 1.25%, 06/22/04 $ 4,700 ------------------------------------------------------------------------------ Total Municipal Securities 21,248 (Cost $21,250) ============================================================================== COMMERCIAL PAPER -- 5.7% AUTOMOTIVE -- 1.5% 9,400 Daimler Chrysler N.A. Holdings Corp., 1.23%, 09/23/03 + 9,393 6,495 General Motors Co., 1.35%, 10/02/03 6,487 ------------------------------------------------------------------------------ 15,880 ============================================================================== BANKING -- 2.6% 8,900 Commerzbank U.S. Finance, 1.11%, 10/01/03 + 8,892 5,700 Danske Bank AB (Denmark), 0.91%, 09/19/03 + 5,697 5,700 Swedbank (Sweden), 0.92%, 09/10/03 + 5,698 5,700 Westdeutsche Landesbank Girozentrale (Germany), 0.91%, 09/12/03 + 5,698 1,300 Westpac Trust Securitization (New Zealand), 1.04%, 11/13/03 + 1,297 ------------------------------------------------------------------------------ 27,282 ============================================================================== FINANCIAL SERVICES -- 0.6% 6,900 Cadbury Schwepps Finance PLC (United Kingdom), 1.22%, 09/02/03 + 6,900 RETAILING -- 0.7% 7,600 Sears Roebuck Acceptance Corp., 1.25%, 09/30/03 + 7,592 SHIPPING/TRANSPORTATION -- 0.3% 3,600 Union Pacific Corp., 1.50%, 09/05/03 + 3,599 ------------------------------------------------------------------------------ Total Commercial Paper 61,253 (Cost $61,255) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 63
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- CONTINUED CERTIFICATES OF DEPOSIT -- 1.1% $ 11,400 Nordea Bank Finland PLC/New York (Yankee), 1.08%, 11/24/03, Floating Rate + $ 11,401 (Cost $11,390) SHARES ISSUER VALUE - --------------------------------------------------------------------------------------------- MONEY MARKET FUND -- 14.8% 159,388 JPMorgan Prime Money Market Fund (a) + $ 159,388 (Cost $159,388) ------------------------------------------------------------------------------ Total Short-Term Investments 338,360 (Cost $338,810) ============================================================================== TOTAL INVESTMENTS -- 100.0% $ 1,078,336 (COST $1,074,370) ==============================================================================
FUTURES CONTRACTS (Amounts in thousands, except number of contracts)
NOTIONAL UNREALIZED NUMBER OF VALUE AT APPRECIATION CONTRACTS DESCRIPTION EXPIRATION DATE 8/31/03 (USD) (DEPRECIATION) (USD) - ------------------------------------------------------------------------------------------------------- LONG FUTURES OUTSTANDING 230 Eurodollar December, 2003 $ 56,787 $ 68 1,763 Eurodollar March, 2004 434,117 430 388 Eurodollar June, 2004 95,138 (461) SHORT FUTURES OUTSTANDING (176) 2 Year Treasury Notes December, 2003 (37,496) (89) (1,126) 5 Year Treasury Notes December, 2003 (123,702) (620)
OPTION
UNITS CALL OPTION WRITTEN VALUE - ------------------------------------------------------------------------------------------------------- (53,550) Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 101.22, expiring 10/08/03, European Style $ (40)
SWAP CONTRACTS
UNDERLYING UNREALIZED NOTIONAL APPRECIATION DESCRIPTIONS EXPIRATION DATE VALUE (DEPRECIATION) - ---------------------------------------------------------------------------------------------------------------------- Swap - price lock with UBS Warburg on U.S. Treasury Note, 2.63%, 05/15/08, price less 97.44, JPMorgan receives negative, pays positive 09/03/03 $ 33,500 $ 192 Swap - price lock with Lehman Brothers Special Financing on U.S. Treasury Note, 2.63%, 05/15/08, price less 96.54, JPMorgan receives negative, pays positive 09/15/03 51,703 (133) Swap - price lock with Credit Suisse First Boston International on U.S. Treasury Note, 1.13%, 06/30/05, price less 98.54, JPMorgan receives positive, pays negative 09/26/03 347,050 685 Swap - price lock with Lehman Brothers Special Financing on U.S. Treasury Note, 1.63%, 04/30/05, price less 99.97, JPMorgan receives negative, pays positive 09/29/03 35,050 61
SEE NOTES TO FINANCIAL STATEMENTS. 64 JPMorgan Short Term Bond Fund II PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2003 (Amounts in thousands)
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- 77.4% U.S. TREASURY SECURITY -- 4.8% $ 83,150 U.S. Treasury Note, 1.50%, 07/31/05 + $ 82,546 (Cost $82,712) U.S. GOVERNMENT AGENCY SECURITIES -- 20.6% Federal Home Loan Bank, 8,300 3.75%, 04/15/04 + 8,426 8,750 2.39%, 12/29/05 + 8,755 47,600 2.25%, 05/15/06 + 47,165 Federal Home Loan Mortgage Corp., 3,100 1.50%, 08/15/05 + 3,061 67,200 2.50%, 12/04/06, MTN + 66,369 Federal National Mortgage Association, 49,750 1.88%, 09/15/05 + 49,509 18,800 2.65%, 02/13/06 + 18,783 42,265 2.25%, 05/15/06 + 41,860 59,900 2.75%, 08/11/06 + 59,747 8,700 4.75%, 01/02/07 + 9,100 40,667 Student Loan Marketing Association, 3.38%, 07/15/04 + 41,372 ------------------------------------------------------------------------------ Total U.S. Government Agency Securities 354,147 (Cost $356,145) ============================================================================== FOREIGN GOVERNMENT SECURITIES -- 2.4% 11,950 Province of Ontario (Canada) (Yankee), 4.20%, 06/30/05 12,398 Republic of Italy (Italy), 15,500 4.63%, 06/15/05, MTN + 16,170 13,200 2.50%, 03/31/06, MTN + 13,189 ------------------------------------------------------------------------------ Total Foreign Government Securities 41,757 (Cost $41,011) ============================================================================== SUPRANATIONAL NOTES & BONDS -- 0.8% European Investment Bank, 1,000 4.00%, 03/15/05 + 1,031 8,900 4.00%, 08/30/05 + 9,248 2,600 Inter-American Development Bank, 3.88%, 09/27/04 + 2,680 ------------------------------------------------------------------------------ Total Supranational Notes & Bonds 12,959 (Cost $12,523) ============================================================================== STATE AND MUNICIPAL OBLIGATION -- 0.1% NORTH CAROLINA -- 0.1% $ 2,140 North Carolina Municipal Power Agency No. 1, Catawba, Taxable, Ser. B, Rev., 3.26%, 01/01/05 $ 2,143 (Cost $2,140) CORPORATE NOTES & BONDS -- 18.3% AUTOMOTIVE -- 0.2% General Motors Acceptance Corp., 1,600 4.75%, 10/15/03, MTN, FRN + 1,601 1,500 6.75%, 01/15/06 + 1,582 ------------------------------------------------------------------------------ 3,183 ============================================================================== BANKING -- 3.9% 250 Bank of America N.A., 1.25%, 06/03/04, FRN + 250 2,100 Capital One Bank, 6.88%, 02/01/06, MTN + 2,252 32,100 KFW International Finance, Inc., 4.25%, 04/18/05 + 33,311 15,800 Northern Rock PLC (United Kingdom), 1.16%, 03/18/04, MTN, FRN, # 15,803 3,250 Popular North America, Inc., 4.25%, 04/01/08 3,253 7,900 US Bancorp, 2.75%, 03/30/06, MTN 7,930 4,350 Wachovia Corp., 3.50%, 08/15/08 4,242 ------------------------------------------------------------------------------ 67,041 ============================================================================== DIVERSIFIED -- 0.1% 2,250 General Electric Capital Corp., 6.75%, 09/11/03, Ser. A, MTN + 2,253 FINANCIAL SERVICES -- 10.6% 7,400 Caterpillar Financial Services Corp., 2.59%, 07/15/06, MTN + 7,367 700 CIT Group, Inc., 7.50%, 11/14/03 + 708 Citigroup, Inc., 3,150 6.75%, 12/01/05 + 3,441
SEE NOTES TO FINANCIAL STATEMENTS. 65
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED FINANCIAL SERVICES -- CONTINUED $ 7,100 5.75%, 05/10/06 + $ 7,630 8,250 Countrywide Home Loans, Inc., 3.50%, 12/19/05, Ser. K, MTN + 8,408 Counts Trusts, 6,050 1.91%, 08/15/07, Ser. 2002-10, FRN, # + 6,050 6,050 1.96%, 08/15/07, Ser. 2002-11, FRN, # + 6,050 12,600 General Electric Capital Corp., 2.85%, 01/30/06, Ser. A, MTN + 12,724 Household Finance Corp., 4,969 1.49%, 05/28/04, MTN, FRN + 4,981 5,300 3.38%, 02/21/06, MTN + 5,390 2,100 Household Netherlands BV (The Netherlands) (Yankee), 6.20%, 12/01/03 + 2,123 4,270 International Lease Finance Corp., 4.00%, 01/17/06, Ser. O, MTN + 4,355 11,800 Lehman Brothers Holdings, Inc., 3.50%, 08/07/08 + 11,458 12,900 Principal Life Global, 5.13%, 06/28/07, # 13,509 Restructured Asset Securities with Enhanced Returns (RACERS), 11,000 0.98%, 04/15/04, Ser. 2002-35, Class C, FRN, # 10,936 10,800 0.98%, 04/15/04, Ser. 2002-40, Class C, FRN, # 10,773 6,400 SLM Corp., 3.95%, 08/15/08, Ser. A, MTN 6,343 Special Purpose Accounts Receivable Cooperative Corp. (SPARCS), 9,400 1.98%, 05/23/04, Ser. 2002-6, FRN, # 9,414 5,100 1.43%, 05/23/05, Ser. 2003-3, FRN, # 5,098 25,176 1.71%, 05/15/06, Ser. 2003-4 CL 25,215 8,700 The Bear Stearns Co., Inc., 6.50%, 05/01/06 + 9,489 10,100 Washington Mutual Bank FA, 1.45%, 05/14/04, FRN 10,122 ------------------------------------------------------------------------------ 181,584 ============================================================================== INSURANCE -- 0.9% 9,100 ASIF Global Financing, 1.37%, 03/14/06, FRN, # + 9,096 $ 5,900 Metropolitan Life Global Funding I,4.75%, 06/20/07, # + $ 6,185 ------------------------------------------------------------------------------ 15,281 ============================================================================== OIL & GAS -- 1.2% 5,800 BP Capital Markets PLC (United Kingdom), 2.35%, 06/15/06 + 5,765 Chrevron Texaco Capital Co., 930 3.50%, 09/17/07 + 935 6,700 3.38%, 02/15/08 + 6,632 7,700 Texas Municipal Gas Corp., 2.60%, 07/01/07, # 7,692 ------------------------------------------------------------------------------ 21,024 ============================================================================== PAPER/FOREST PRODUCTS -- 0.3% 5,200 Weyerhaeuser Co., 2.24%, 09/15/03, FRN + 5,200 PHARMACEUTICALS -- 0.4% 6,270 Abbott Laboratories, 5.13%, 07/01/04 + 6,461 SHIPPING/TRANSPORTATION -- 0.3% 4,350 FedEx Corp., 6.63%, 02/12/04 + 4,446 TELECOMMUNICATIONS -- 0.1% 1,800 BellSouth Telecommunications, Inc., 6.50%, 06/15/05 + 1,933 UTILITIES -- 0.3% 2,550 AEP Texas Central Co., 3.00%, 02/15/05, # + 2,577 2,900 National Rural Utilities Cooperative Finance Corp., 3.00%, 02/15/06 2,921 ------------------------------------------------------------------------------ 5,498 ============================================================================== Total Corporate Notes & Bonds 313,904 (Cost $311,519) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 66 ANNUAL REPORT AUGUST 31 2003
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED RESIDENTIAL MORTGAGE BACKED SECURITIES -- 11.0% COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.7% $ 2,220 Credit Suisse First Boston Mortgage Securities Corp., 1.76%, 11/25/31, Ser. 2001-26, Class 3A2, FRN + $ 2,228 14,990 Federal Home Loan Mortgage Corp., 6.50%, 11/15/27, Ser 2413, Class ME + 15,112 Federal National Mortgage Association, 3,100 5.50%, 10/25/11, Ser. 2002-57, Class PC + 3,158 3,100 5.50%, 03/25/12, Ser. 2002-70, Class PC + 3,153 81 Fifth Third Mortgage Loan Trust, 5.33%, 10/18/30, Ser. 2000-FTB1, Class A2, FRN + 82 5,525 Government National Mortgage Association, 1.61%, 04/16/32, Ser. 2002-24, Class FA, FRN + 5,548 487 Residential Accredit Loans, Inc., 1.66%, 08/25/31, Ser. 2001-QS11, Class A5, FRN 488 ------------------------------------------------------------------------------ 29,769 ============================================================================== MORTGAGE BACKED PASS-THROUGH SECURITIES -- 9.3% 160,400 Federal National Mortgage Association, 5.50%, 09/25/33, TBA 159,698 Government National Mortgage Association, 88 8.50%, 08/15/30, Pool 531310 + 95 56 8.50%, 09/15/30, Pool 526096 + 61 ------------------------------------------------------------------------------ 159,854 ============================================================================== Total Residential Mortgage Backed Securities 189,623 (Cost $187,400) ============================================================================== COMMERCIAL MORTGAGE BACKED SECURITIES -- 3.0% 19,337 CalSTRS Trust, 3.99%, 11/20/12, Ser. 2002-C6, Class A2, # + 19,446 $ 5,500 Calwest Industrial Trust, 1.38%, 06/15/15, Ser. 2003-CALA, Class A, FRN, # + $ 5,500 8,890 First Union-Lehman Brothers Commercial Mortgage Securities, Inc., 7.38%, 04/18/29, Ser. 1997-C1, Class A3 + 9,944 3,300 LB-UBS Commercial Mortgage Trust, 3.48%, 07/15/27, Ser. 2003-C5, Class A2 + 3,195 12,600 Morgan Stanley Capital I, 6.48%, 11/15/30, Ser. 1998-HF2, Class A2 + 13,864 ------------------------------------------------------------------------------ Total Commercial Mortgage Backed Securities 51,949 (Cost $52,480) ============================================================================== ASSET BACKED SECURITIES -- 16.4% AmeriCredit Automobile Receivables Trust, 11,026 1.31%, 10/12/06, Ser. 2002-A, Class A3, FRN + 11,024 10,215 4.41%, 11/12/08, Ser. 2001-D, Class A4 + 10,507 22,000 Bank One Issuance Trust, 4.16%, 01/15/08, Ser. 2002-A2, Class A2 + 22,783 3,000 Capital Auto Receivables Asset Trust, 1.96%, 01/15/09, Ser. 2003-2, Class A4A + 2,884 15,750 Capital One Master Trust, 1.21%, 08/15/06, Ser. 2000-5, Class A, FRN + 15,750 Citibank Credit Card Issuance Trust, 3,050 2.70%, 01/15/08, Ser. 2003-A2, Class A2 + 3,059 8,500 2.07%, 03/20/08, Ser. 2003-C2, Class C2, FRN + 8,549 5,000 Citibank Credit Card Master Trust I, 5.50%, 02/15/06, Ser. 1999-1 + 5,098
SEE NOTES TO FINANCIAL STATEMENTS. 67
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED ASSET BACKED SECURITIES -- CONTINUED $ 12,057 Countrywide Home Equity Loan Trust, 1.35%, 08/15/28, Ser. 2002-D, Class A, FRN + $ 12,003 4,550 DaimlerChrysler Auto Trust, 3.85%, 04/06/06, Ser. 2002-A, Class A3 + 4,639 Discover Card Master Trust I, 7,550 1.18%, 07/15/07, Ser. 2002-1, Class A, FRN + 7,551 21,000 1.26%, 09/15/08, Ser. 2001-3, Class A, FRN + 21,056 4,632 EQCC Trust, 1.46%, 11/25/31, Ser. 2002-1, Class 2A, FRN + 4,636 7,800 First USA Credit Card Master Trust, 1.47%, 11/20/06, Ser. 2001- 2, Class B, FRN + 7,807 Ford Credit Auto Owner Trust, 132 4.83%, 02/15/05, Ser. 2001-C, Class A4 + 133 2,200 1.15%, 06/15/05, Ser. 2003-B, Class A2B, FRN + 2,199 2,473 4.31%, 06/15/05, Ser. 2001-D, Class A3 + 2,499 2,200 5.25%, 09/15/05, Ser. 2001-C, Class A5 + 2,244 600 3.79%, 09/15/06, Ser. 2002-C, Class A4 + 618 9,900 Honda Auto Receivables Owner Trust, 1.92%, 11/20/06, Ser. 2003-1, Class A3 + 9,909 25,500 Household Automotive Trust, 4.39%, 05/18/09, Ser. 2002-1, Class A4 + 26,401 5,100 LB-UBS Commercial Mortgage Trust, 3.32%, 03/15/27, Ser. 2003-C1, Class A2 + 4,964 3,700 MBNA Master Credit Card Trust USA, 1.91%, 12/15/06, Ser. 1999-G, Class C, FRN, # + 3,695 $ 1,500 Nationsbank Credit Card Master Trust, 6.00%, 12/15/05, Ser. 1993-2, Class A $ 1,521 Onyx Acceptance Grantor Trust, 1,200 5.49%, 11/15/07, Ser. 2001-B, Class A4 1,240 7,500 4.71%, 03/15/09, Ser. 2002-B, Class A4 7,800 Option One Mortgage Loan Trust, 4,672 1.40%, 02/25/32, Ser. 2002-1, Class A, FRN 4,674 4,498 1.36%, 10/25/32, Ser. 2002-05, Class A2, FRN 4,491 216 PP&L Transition Bond Co., LLC, 6.72%, 12/26/05, Ser. 1999-1, Class A4 218 5,620 Residential Asset Securities Corp., 2.47%, 08/25/22, Ser. 2002-KS5, Class AIB2 5,629 3,082 Sears Credit Account Master Trust, 5.25%, 10/16/08, Ser. 1998-2, Class A 3,154 7,050 SLM Student Loan Trust, 2.16%, 03/15/33, Ser. 2003-4, Class A5A, # 7,030 1,700 Standard Credit Card Master Trust, 5.95%, 10/07/04, Ser. A 1,703 101 The Money Store Home Equity Trust, 7.91%, 05/15/24, Ser. 1996-B, Class A8 + 101 7,300 Volkswagen Auto Loan Enhanced Trust, 1.93%, 01/20/10, Ser. 2003-1, Class A4 7,067 Wachovia Asset Securitization, Inc., 7,300 1.54%, 12/25/32, Ser. 2002-HE2, Class A, FRN 7,314 12,059 1.40%, 03/25/33, Ser. 2003-HE1, Class A1, FRN 12,053 709 Wells Fargo Auto Trust, 4.68%, 02/15/05, Ser. 2001-A, Class A3 713 WFS Financial Owner Trust, 11,900 4.50%, 02/20/10, Ser. 2002-2, Class A4, SUB 12,355 15,600 3.25%, 05/20/11, Ser. 2003-3, Class A4 15,480 ------------------------------------------------------------------------------ Total Asset Backed Securities 282,551 (Cost $280,347) ============================================================================== Total Long-Term Investments 1,331,579 (Cost $1,326,277) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 68
UNITS ISSUER VALUE - --------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 22.6% OPTION -- 0.0% ^ 89,250 Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 100.22, expiring 10/08/03, European Style $ 132 (Cost $893) PRINCIPAL AMOUNT (USD) - --------------------------------------------------------------------------------------------- U.S. TREASURY SECURITY -- 2.7% $ 46,515 U.S. Treasury Note, 3.00%, 02/29/04 @ + 46,958 (Cost $46,362) U.S. GOVERNMENT AGENCY SECURITIES -- 3.5% Federal National Mortgage Association, 25,900 0.99%, 09/10/03, DN + 25,894 33,700 0.95%, 11/14/03, DN + 33,628 ------------------------------------------------------------------------------ Total U.S. Government Agency Securities 59,522 (Cost $59,528) ============================================================================== MUNICIPAL SECURITIES -- 1.5% DISTRICT OF COLUMBIA -- 0.9% 15,200 George Washington University, Ser. A, Rev., FRDO, MBIA, 1.12%, 09/04/03 + 15,200 NEW YORK -- 0.6% 10,340 New York State Dormitory Authority, City University System, Fifth Generation, Ser. C, Rev., CONS, 1.59%, 01/01/04 10,338 ------------------------------------------------------------------------------ Total Municipal Securities 25,538 (Cost $25,540) ============================================================================== PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- COMMERCIAL PAPER -- 3.1% AUTOMOTIVE -- 1.5% $ 15,750 Daimler Chrysler N.A. Holdings Corp., 1.23%, 09/23/03 + $ 15,738 10,700 General Motors Co., 1.35%, 10/02/03 10,687 ------------------------------------------------------------------------------ 26,425 ============================================================================== BANKING -- 0.9% 14,900 Commerzbank U.S. Finance, 1.11%, 10/01/03 + 14,886 FINANCIAL SERVICES -- 0.7% 11,250 Cadbury Schwepps Finance PLC (United Kingdom), 1.22%, 09/02/03 + 11,249 ------------------------------------------------------------------------------ Total Commercial Paper 52,560 (Cost $52,562) ============================================================================== CERTIFICATES OF DEPOSIT -- 1.0% 17,200 Nordea Bank Finland PLC/New York (Yankee), 1.08%, 11/24/03, Floating Rate + 17,202 (Cost $17,198) SHARES - --------------------------------------------------------------------------------------------- MONEY MARKET FUND -- 10.8% 185,464 JPMorgan Prime Money Market Fund (a) + 185,464 (Cost $185,464) ------------------------------------------------------------------------------ Total Short-Term Investments 387,376 (Cost $387,547) ============================================================================== TOTAL INVESTMENTS -- 100.0% $ 1,718,955 (COST $1,713,824) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 69 FUTURES CONTRACTS (Amounts in thousands, except number of contracts)
NOTIONAL UNREALIZED NUMBER OF VALUE AT APPRECIATION CONTRACTS DESCRIPTION EXPIRATION DATE 8/31/03 (USD) (DEPRECIATION) (USD) - --------------------------------------------------------------------------------------------------- LONG FUTURES OUTSTANDING 3,147 Eurodollar March, 2004 $ 774,909 $ 723 624 Eurodollar June, 2004 153,005 (620) SHORT FUTURES OUTSTANDING (110) 2 Year Treasury Notes December, 2003 (23,435) (24) (1,764) 5 Year Treasury Notes December, 2003 (193,792) (300)
OPTION
UNITS CALL OPTION WRITTEN VALUE - --------------------------------------------------------------------------------------------------- (89,250) Call Option on FNMA, 30 Year Fixed, 5.00%, strike price of 101.22, expiring 10/08/03, European Style $ (66)
SWAP CONTRACTS
UNDERLYING UNREALIZED NOTIONAL APPRECIATION DESCRIPTIONS EXPIRATION DATE VALUE (DEPRECIATION) - -------------------------------------------------------------------------------------------------------------------- Swap - price lock with Lehman Brothers Special Financing on U.S. Treasury Note, 1.63%, 04/30/05, price less 99.97, JPMorgan receives negative, pays positive 09/29/03 $ 59,000 $ 104 Swap - price lock with Citibank N.A. on U.S. Treasury Note, 2.63%, 05/15/08, price less 96.74, JPMorgan pays positive, receives negative 10/01/03 142,500 -- Swap - price lock with Citibank N.A. on U.S. Treasury Note, 2.00%, 08/31/05, price less 99.93, JPMorgan pays negative, receives positive 10/28/03 327,500 --
SEE NOTES TO FINANCIAL STATEMENTS. 70 JPMorgan Strategic Income Fund PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2003 (Amounts in thousands)
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- 94.5% U.S. TREASURY SECURITIES -- 4.9% U.S. Treasury Notes & Bonds, $ 35 2.13%, 10/31/04 @ + $ 35 25 1.75%, 12/31/04 @ + 25 50 1.63%, 04/30/05 + 50 640 1.13%, 06/30/05 + 633 180 2.63%, 05/15/08 + 174 5 5.00%, 08/15/11 + 5 55 4.25%, 08/15/13 + 54 55 6.25%, 05/15/30 + 62 55 5.38%, 02/15/31 + 56 ------------------------------------------------------------------------------ Total U.S. Treasury Securities 1,094 (Cost $1,108) ============================================================================== U.S. GOVERNMENT AGENCY SECURITIES -- 2.9% 75 Federal Home Loan Mortgage Corp., 4.25%, 06/15/05 78 Federal National Mortgage Association, 80 7.13%, 01/15/30 93 492 5.00%, 05/01/33, Pool 254766 476 ------------------------------------------------------------------------------ Total U.S. Government Agency Securities 647 (Cost $668) ============================================================================== FOREIGN GOVERNMENT SECURITIES -- 26.6% Federal Republic of Brazil (Brazil), 29 10.00%, 01/16/07 + 30 43 11.25%, 07/26/07 46 60 11.50%, 03/12/08 + 64 45 2.19%, 04/15/09, FRN 40 209 8.00%, 04/15/14 188 120 11.00%, 08/17/40 109 Federal Republic of Germany (Germany), EUR 500 5.00%, 08/19/05, Ser. 136 572 EUR 250 5.00%, 02/17/06, Ser. 137 289 100 Malaysia Government International Bond (Malaysia), 7.50%, 07/15/11 115 National Republic of Bulgaria (Bulgaria), 71 1.94%, 07/28/11, Ser. IAB, FRN 68 120 1.94%, 07/28/12, Ser. A, FRN 115 100 8.25%, 01/15/15, # 110 EUR 500 Netherlands Government Bond (The Netherlands), 5.50%, 07/15/10 601 $ 100 Province of Quebec (Canada), 6.13%, 01/22/11, Ser. PJ $ 109 5 Region of Lombardy (Italy), 5.80%, 10/25/32 5 250 Republic of Chile (Chile), 5.63%, 07/23/07 265 Republic of Colombia (Colombia), 235 9.75%, 04/23/09, Ser. NOV 261 135 11.75%, 02/25/20, MTN 159 250 Republic of Costa Rica (Costa Rica), 8.11%, 02/01/12, # 270 25 Republic of Egypt (Egypt), 8.75%, 07/11/11 30 100 Republic of El Salvador (El Salvador), 8.25%, 04/10/32, # 93 Republic of Panama (Panama), 90 9.63%, 02/08/11 101 100 10.75%, 05/15/20 118 Republic of Peru (Peru), 193 9.13%, 02/21/12 207 25 9.88%, 02/06/15 28 135 4.50%, 03/07/17, FRN 113 48 5.00%, 03/07/17, FRN 42 Republic of Philippines (Philippines), 38 8.38%, 03/12/09 40 82 9.88%, 03/16/10 91 145 9.88%, 01/15/19 152 200 Republic of South Africa (South Africa) (Yankee), 8.50%, 06/23/17 228 Republic of Turkey (Turkey), 91 12.38%, 06/15/09 103 195 11.88%, 01/15/30 212 Russian Federation (Russia), 100 10.00%, 06/26/07 118 69 8.25%, 03/31/10 76 5 11.00%, 07/24/18 7 177 5.00%, 03/31/30, SUB 161 50 5.00%, 03/31/30, SUB, # 46 100 State of Qatar (Qatar), 9.50%, 05/21/09 125
SEE NOTES TO FINANCIAL STATEMENTS. 71
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED FOREIGN GOVERNMENT SECURITIES -- CONTINUED United Mexican States (Mexico), $ 80 9.88%, 02/01/10 $ 99 35 8.38%, 01/14/11 40 100 6.38%, 01/16/13, MTN 101 35 11.38%, 09/15/16 48 50 8.13%, 12/30/19 54 100 8.30%, 08/15/31, MTN 107 ------------------------------------------------------------------------------ Total Foreign Government Securities 5,956 (Cost $5,195) ============================================================================== SUPRANATIONAL NOTES & BONDS -- 2.0% 200 Inter-American Development Bank, 7.38%, 01/15/10 238 200 International Bank for Reconstruction & Development, 7.00%, 01/27/05, MTN 214 ------------------------------------------------------------------------------ Total Supranational Notes & Bonds 452 (Cost $403) ============================================================================== STATE AND MUNICIPAL OBLIGATION -- 0.1% ILLINOIS -- 0.1% 20 Illinois State, Taxable Pension, GO, 5.10%, 06/01/33 18 (Cost $20) CORPORATE NOTES & BONDS -- 40.7% ADVERTISING -- 0.2% 50 Advanstar Communications, Inc., 12.00%, 02/15/11, Ser. B + 44 AEROSPACE -- 0.7% 15 General Dynamics Corp., 2.13%, 05/15/06 15 100 L-3 Communications Corp., 7.63%, 06/15/12 104 10 Northrop Grumman Corp., 7.75%, 02/15/31 12 5 Raytheon Co., 6.55%, 03/15/10 5 10 The Boeing Co., 5.13%, 02/15/13 + 10 ------------------------------------------------------------------------------ 146 ============================================================================== AUTOMOTIVE -- 0.9% $ 5 DaimlerChrysler N.A. Holding Corp., 7.75%, 01/18/11 $ 6 20 Dana Corp., 9.00%, 08/15/11 21 5 Delphi Corp., 6.50%, 08/15/13 5 Ford Motor Credit Co., 30 7.38%, 10/28/09 31 20 7.25%, 10/25/11 20 10 General Motors Acceptance Corp., 6.88%, 09/15/11 10 General Motors Corp., 30 7.20%, 01/15/11 31 10 8.25%, 07/15/23 10 15 8.38%, 07/15/33 15 50 TRW Automotive, Inc., 11.00%, 02/15/13, # 56 ------------------------------------------------------------------------------ 205 ============================================================================== BANKING -- 2.5% 5 Abbey National Capital Trust I, 8.96%, 12/31/49, FRN + 6 20 ABN-Amro North American Holding Preferred Capital Repackage Trust I, 6.52%, 12/29/49, FRN, # + 21 Bank of America Corp., 45 3.25%, 08/15/08 + 44 5 7.40%, 01/15/11 + 6 250 Banque Centrale de Tunisie (Tunisia), 7.38%, 04/25/12 + 272 Barclays Bank PLC (United Kingdom), 10 6.86%, 12/31/49, FRN, # + 10 10 8.55%, 12/31/49, FRN, # + 12 10 Cadets Trust, 4.80%, 07/15/13, Ser. 2003-1, # 9 30 CBA Capital Trust I, 5.80%, 12/31/49, # 30 10 Deutsche Bank Financial LLC, 5.38%, 03/02/15 10 5 ForeningsSparbanken AB (Sweden), 9.00%, 12/31/49, FRN, # 6
SEE NOTES TO FINANCIAL STATEMENTS. 72 ANNUAL REPORT AUGUST 31 2003
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED BANKING -- CONTINUED $ 10 KBC Bank Fund Trust III, 9.86%, 11/29/49, FRN, # $ 12 20 KFW International Finance, Inc., 4.75%, 01/24/07 21 5 National City Bank, 6.20%, 12/15/11 5 10 Popular North America, Inc., 4.25%, 04/01/08 10 15 RBS Capital Trust I, 4.71%, 12/31/49, FRN 14 10 Royal Bank of Scotland Group PLC (United Kingdom), 7.65%, 08/31/49, FRN 12 10 Scotland International Finance No. 2 BV (The Netherlands), 4.25%, 05/23/13, # 9 20 Wachovia Bank NA, 5.00%, 08/15/15 19 5 Wells Fargo & Co., 5.00%, 11/15/14 5 25 Westpac Capital Trust III, 5.82%, 12/31/49, FRN, # 25 ------------------------------------------------------------------------------ 558 ============================================================================== BROADCASTING/CABLE -- 2.0% 120 British Sky Broadcasting PLC (United Kingdom) (Yankee), 6.88%, 02/23/09 + 129 5 COX Communications, Inc., 6.75%, 03/15/11 5 60 DirecTV Holdings LLC, 8.38%, 03/15/13, # 66 175 Echostar DBS Corp., 10.38%, 10/01/07 193 50 Mediacom LLC/Mediacom Capital Corp., 9.50%, 01/15/13 51 ------------------------------------------------------------------------------ 444 ============================================================================== BUSINESS SERVICES -- 0.6% 10 Cendant Corp., 7.13%, 03/15/15 11 $ 25 Electronic Data Systems Corp., 6.00%, 08/01/13, # $ 23 100 Iron Mountain, Inc., 8.63%, 04/01/13 104 ------------------------------------------------------------------------------ 138 ============================================================================== CHEMICALS -- 1.1% 50 IMC Global, Inc., 10.88%, 06/01/08, Ser. B 52 Lyondell Chemical Co., 10 9.63%, 05/01/07, Ser. A, 10 100 10.88%, 05/01/09 96 25 Noveon, Inc., 11.00%, 02/28/11, Ser. B 28 25 PolyOne Corp., 10.63%, 05/15/10 21 5 The Dow Chemical Co., 7.38%, 11/01/29 5 30 The Scotts Co., 8.63%, 01/15/09 31 ------------------------------------------------------------------------------ 243 ============================================================================== COMPUTER SOFTWARE -- 0.4% 100 Unisys Corp., 6.88%, 03/15/10 99 CONSTRUCTION -- 1.8% 80 D.R. Horton, Inc., 9.38%, 03/15/11 85 100 KB Home, 8.63%, 12/15/08 105 100 Standard-Pacific Corp., 9.50%, 09/15/10 108 100 Terex Corp., 10.38%, 04/01/11, Ser. B 110 ------------------------------------------------------------------------------ 408 ============================================================================== CONSUMER PRODUCTS -- 0.0%^ 315 Drypers Corp., 10.25%, 06/15/07, Ser. B (d) (f) * 3
SEE NOTES TO FINANCIAL STATEMENTS. 73
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED CONSUMER SERVICES -- 1.4% $ 100 Corrections Corp. of America, 7.50%, 05/01/11 $ 102 100 Service Corp. International, 6.00%, 12/15/05 100 100 United Rentals, Inc., 10.75%, 04/15/08, Ser. B 110 ------------------------------------------------------------------------------ 312 ============================================================================== DIVERSIFIED -- 1.1% General Electric Capital Corp., 105 4.25%, 01/15/08, Ser. A, MTN 107 10 5.45%, 01/15/13, Ser. A, MTN 10 140 Tyco International Group SA (Luxembourg) (Yankee), 6.38%, 10/15/11 140 ------------------------------------------------------------------------------ 257 ============================================================================== ENTERTAINMENT/LEISURE -- 0.9% 80 Argosy Gaming Co., 10.75%, 06/01/09 + 87 100 Park Place Entertainment Corp., 7.00%, 04/15/13 104 ------------------------------------------------------------------------------ 191 ============================================================================== ENVIRONMENTAL SERVICES -- 0.8% 175 Allied Waste North America, 10.00%, 08/01/09, Ser. B + 189 FINANCIAL SERVICES -- 2.6% 15 American Express Co., 4.88%, 07/15/13 + 15 15 American Express Credit Corp., 3.00%, 05/16/08 + 14 American General Finance Corp., 5 4.50%, 11/15/07, Ser. H, MTN + 5 10 5.38%, 10/01/12, Ser. H, MTN + 10 25 Arch Western Finance LLC, 6.75%, 07/01/13, # + 25 10 Capital One Bank, 4.88%, 05/15/08 10 5 CIT Group, Inc., 7.75%, 04/02/12 6 $ 25 Citigroup, Inc., 7.25%, 10/01/10 $ 29 Credit Suisse First Boston USA, Inc., 5 6.50%, 01/15/12 5 20 5.50%, 08/15/13 20 10 FleetBoston Financial Corp., 7.25%, 09/15/05 11 Goldman Sachs Group, Inc., 5 6.60%, 01/15/12 5 20 4.75%, 07/15/13 19 5 6.13%, 02/15/33 5 50 H&E Equipment Services LLC/ H&E Finance Corp., 11.13%, 06/15/12 42 Household Finance Corp., 5 6.40%, 06/17/08, MTN 5 5 8.00%, 07/15/10 6 5 6.38%, 11/27/12 5 HSBC Capital Funding LP (Channel Islands), 10 4.61%, 12/31/49, FRN, # 9 30 9.55%, 12/31/49, FRN, # 37 10 ING Capital Funding Trust III, 8.44%, 12/31/49, FRN 12 Morgan Stanley, 25 5.80%, 04/01/07 27 10 5.30%, 03/01/13 10 100 Nexstar Finance LLC/ Nexstar Finance, Inc., 12.00%, 04/01/08 111 10 Principal Life Global Funding I, 5.25%, 01/15/13, # 10 5 Prudential Holdings LLC, 8.70%, 12/18/23, # 6 20 SLM Corp., 5.63%, 08/01/33, MTN 18 10 UBS Preferred Funding Trust I, 8.62%, 12/31/49, FRN 12 15 UFJ Finance AEC (Aruba), 6.75%, 07/15/13 15 65 Yell Finance BV (The Netherlands), 10.75%, 08/01/11 74 ------------------------------------------------------------------------------ 578 ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 74
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED FOOD/BEVERAGE PRODUCTS -- 1.2% $ 5 Archer-Daniels Midland Co., 5.94%, 10/01/32 + $ 5 100 Del Monte Corp., 9.25%, 05/15/11, Ser. B 106 50 Dole Food Co., Inc., 7.25%, 06/15/10, # 49 10 Miller Brewing Co., 5.50%, 08/15/13, # 10 100 Swift & Co., 10.13%, 10/01/09 106 ------------------------------------------------------------------------------ 276 ============================================================================== HEALTH CARE/HEALTH CARE SERVICES -- 1.4% 100 Alliance Imaging, Inc., 10.38%, 04/15/11 + 104 40 Ardent Health Services, 10.00%, 08/15/13, # + 41 110 HCA, Inc., 6.75%, 07/15/13 110 35 Tenet Healthcare Corp., 7.38%, 02/01/13 34 15 Triad Hospitals, Inc., 11.00%, 05/15/09, Ser. B 16 ------------------------------------------------------------------------------ 305 ============================================================================== HOTELS/OTHER LODGING -- 2.2% 100 Ameristar Casinos, Inc., 10.75%, 02/15/09 + 112 100 Extended Stay America, Inc., 9.88%, 06/15/11 106 50 Mandalay Resort Group, 10.25%, 08/01/07, Ser. B 56 90 MGM Mirage, Inc., 9.75%, 06/01/07 100 100 Station Casinos, Inc., 9.88%, 07/01/10 110 ------------------------------------------------------------------------------ 484 ============================================================================== INSURANCE -- 0.3% 10 Aegon NV (The Netherlands), 4.75%, 06/01/13 + 9 $ 15 AXA (France), 8.60%, 12/15/30 + $ 18 5 Fund American Companies, Inc., 5.88%, 05/15/13 5 20 Monumental Global Funding II, 3.85%, 03/03/08, # 20 Nationwide Financial Services, Inc., 5 6.25%, 11/15/11 5 5 5.90%, 07/01/12 5 5 New York Life Insurance Co., 5.88%, 05/15/33, # 5 10 QBE Insurance Group LTD (Australia), 5.65%, 07/01/23, FRN, # 9 ------------------------------------------------------------------------------ 76 ============================================================================== MACHINERY & ENGINEERING EQUIPMENT -- 0.0%^ 5 Deere & Co., 6.95%, 04/25/14 6 MULTI-MEDIA -- 1.3% 15 AOL Time Warner, Inc., 7.63%, 04/15/31 + 16 40 CSC Holdings, Inc., 7.63%, 04/01/11, Ser. B 40 100 Emmis Communications Corp., 8.13%, 03/15/09, Ser. B 103 15 Liberty Media Corp., 5.70%, 05/15/13 14 50 Lodgenet Entertainment Corp., 9.50%, 06/15/13 52 10 News America, Inc., 7.28%, 06/30/28 11 50 Radio One, Inc., 8.88%, 07/01/11, Ser. B 55 5 Walt Disney Co., 6.38%, 03/01/12 5 ------------------------------------------------------------------------------ 296 ============================================================================== OFFICE/BUSINESS EQUIPMENT -- 0.4% 90 Xerox Corp., 7.63%, 06/15/13 88
SEE NOTES TO FINANCIAL STATEMENTS. 75
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED OIL & GAS -- 2.5% $ 5 Alberta Energy Co., LTD (Canada) (Yankee), 7.38%, 11/01/31 + $ 6 Amerada Hess Corp., 5 7.88%, 10/01/29 + 5 5 7.30%, 08/15/31 + 5 10 Anadarko Finance Co., 6.75%, 05/01/11, Ser. B + 11 5 Canadian Natural Resources LTD (Canada) (Yankee), 7.20%, 01/15/32 6 100 Chesapeake Energy Corp., 8.13%, 04/01/11 104 10 Conoco Funding Co. (Canada), 7.25%, 10/15/31 11 100 Denbury Resources, Inc., 7.50%, 04/01/13 100 10 Devon Financing Corp. ULC, 7.88%, 09/30/31 12 5 Occidental Petroleum Corp., 6.75%, 01/15/12 6 100 Plains Exploration & Production Co., 8.75%, 07/01/12, Ser. B 104 25 Tesoro Petroleum Corp., 8.00%, 04/15/08 26 30 The Premcor Refining Group, Inc., 7.50%, 06/15/15, # 29 5 Transocean, Inc., 7.50%, 04/15/31 6 125 XTO Energy, Inc., 6.25%, 04/15/13 124 ------------------------------------------------------------------------------ 555 ============================================================================== PACKAGING -- 1.6% Crown European Holdings SA (France), 60 9.50%, 03/01/11, # 64 60 10.88%, 03/01/13, # 66 100 Owens-Brockway Glass Container, Inc., 8.88%, 02/15/09 105 10 Sealed Air Corp., 6.88%, 07/15/33, # 10 $ 100 Stone Container Corp., 9.75%, 02/01/11 $ 108 ------------------------------------------------------------------------------ 353 ============================================================================== PAPER/FOREST PRODUCTS -- 0.9% Georgia-Pacific Corp., 100 8.88%, 02/01/10, # 106 65 9.50%, 12/01/11 69 5 International Paper Co., 5.85%, 10/30/12 5 5 MeadWestvaco Corp., 6.85%, 04/01/12 5 20 Tembec Industries, Inc. (Canada), 8.50%, 02/01/11 20 5 Weyerhaeuser Co., 6.75%, 03/15/12 5 ------------------------------------------------------------------------------ 210 ============================================================================== PIPELINES -- 1.2% 15 Aquila, Inc., 14.88%, 07/01/12 + 17 25 Dynegy Holdings, Inc., 10.13%, 07/15/13, # 26 130 El Paso Corp., 7.88%, 06/15/12, # 114 10 Kinder Morgan, Inc., 6.50%, 09/01/12 11 100 Northwest Pipeline Corp., 8.13%, 03/01/10 104 5 TransCanada Pipelines LTD (Canada) (Yankee), 8.63%, 05/15/12 6 ------------------------------------------------------------------------------ 278 ============================================================================== REAL ESTATE INVESTMENT TRUST -- 1.9% 100 FelCor Lodging LP, 10.00%, 09/15/08 105 100 Host Marriott LP, 9.25%, 10/01/07, Ser. G 106
SEE NOTES TO FINANCIAL STATEMENTS. 76
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED REAL ESTATE INVESTMENT TRUST -- CONTINUED $ 100 MeriStar Hospitality Operating Partnership LP/MeriStar Hospitality Finance Corp., 10.50%, 06/15/09 $ 102 100 Ventas Realty LP/Ventas Capital Corp., 9.00%, 05/01/12 106 ------------------------------------------------------------------------------ 419 ============================================================================== RESTAURANTS/FOOD SERVICES -- 1.3% 60 NE Restaurant Co., Inc., 10.75%, 07/15/08 55 200 Yum! Brands, Inc., 8.88%, 04/15/11 226 ------------------------------------------------------------------------------ 281 ============================================================================== RETAILING -- 1.4% 5 Federated Department Stores, Inc., 6.63%, 04/01/11 5 100 Great Atlantic & Pacific Tea Co., 9.13%, 12/15/11 91 40 JC Penney Co., Inc., 8.00%, 03/01/10 42 5 Kroger Co., 6.80%, 04/01/11 5 100 Rite Aid Corp., 9.50%, 02/15/11, # 108 10 Safeway, Inc., 6.50%, 03/01/11 11 5 Sears Roebuck Acceptance Corp., 7.00%, 06/01/32 5 20 Sonic Automotive, Inc., 8.63%, 08/15/13, # 20 25 The Gap, Inc., 6.90%, 09/15/07 26 ------------------------------------------------------------------------------ 313 ============================================================================== SEMI-CONDUCTORS -- 0.1% 25 Fairchild Semiconductor International, Inc., 10.50%, 02/01/09 28 SHIPPING/TRANSPORTATION -- 0.1% $ 5 Burlington Northern Santa Fe Corp., 6.75%, 07/15/11 $ 6 5 CSX Corp., 6.30%, 03/15/12 5 10 Norfolk Southern Corp., 6.75%, 02/15/11 11 5 Union Pacific Corp., 6.65%, 01/15/11 5 ------------------------------------------------------------------------------ 27 ============================================================================== STEEL -- 0.4% 15 AK Steel Corp., 7.88%, 02/15/09 + 12 70 Euramax International LTD, 8.50%, 08/15/11, # 71 ------------------------------------------------------------------------------ 83 ============================================================================== TELECOMMUNICATIONS -- 2.7% 15 AT&T Broadband Corp., 8.38%, 03/15/13 + 18 5 AT&T Corp., 8.50%, 11/15/31 + 6 10 AT&T Wireless Services, Inc., 7.88%, 03/01/11 + 11 30 Avaya, Inc., 11.13%, 04/01/09 + 34 5 British Telecom PLC (United Kingdom), 8.88%, 12/15/30, SUB 6 5 Citizens Communications Co., 9.25%, 05/15/11 6 Deutsche Telekom International Finance BV (The Netherlands), 5 8.50%, 06/15/10 6 5 5.25%, 07/22/13 5 5 8.75%, 06/15/30 6 France Telecom (France), 5 9.25%, 03/01/11 6 10 10.00%, 03/01/31 13
SEE NOTES TO FINANCIAL STATEMENTS. 77
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED TELECOMMUNICATIONS -- CONTINUED $ 40 Insight Midwest LP/Insight Capital, Inc., 9.75%, 10/01/09 $ 41 5 Koninklijke KPN NV (The Netherlands), 8.00%, 10/01/10 6 85 Nextel Communications, Inc., 9.38%, 11/15/09 92 30 Nortel Networks LTD, 6.13%, 02/15/06 29 80 Qwest Corp., 8.88%, 03/15/12, # 86 Sprint Capital Corp., 15 7.63%, 01/30/11 16 10 8.75%, 03/15/32 11 10 TCI Communications, Inc., 7.88%, 02/15/26 11 5 Telefonica Europe BV (The Netherlands), 7.75%, 09/15/10 6 20 Triton PCS, Inc., 8.50%, 06/01/13, # 21 100 TSI Telecommunication Services, Inc., 12.75%, 02/01/09, Ser. B 98 15 Verizon New Jersey, Inc., 5.88%, 01/17/12, Ser. A 16 20 Verizon New York, Inc., 6.88%, 04/01/12, Ser. A 22 15 Vodafone Group PLC (United Kingdom), 7.75%, 02/15/10 17 ------------------------------------------------------------------------------ 589 ============================================================================== TELECOMMUNICATIONS EQUIPMENT -- 0.1% 25 ACC Escrow Corp., 10.00%, 08/01/11, # + 27 TRANSPORTATION -- 0.2% 35 CP Ships LTD (Canada), 10.38%, 07/15/12 39 UTILITIES -- 2.5% $ 5 AEP Texas Central Co., 5.50%, 02/15/13, # + $ 5 30 Allegheny Energy Supply, 8.75%, 04/15/12, # + 25 5 Arizona Public Service Co., 4.65%, 05/15/15 + 5 125 Calpine Corp., 8.50%, 02/15/11 93 50 CenterPoint Energy Resources Corp., 7.88%, 04/01/13, # 54 50 CMS Energy Corp., 7.75%, 08/01/10, # 47 5 Columbus Southern Power Co., 5.50%, 03/01/13, # 5 15 Consolidated Edison Company of New York, 5.63%, 07/01/12, Ser. 2002-A 16 15 Constellation Energy Group, Inc., 4.55%, 06/15/15 13 15 Dominion Resources, Inc., 8.13%, 06/15/10, Ser. A 18 5 DTE Energy Co., 6.38%, 04/15/33 5 5 Duke Capital Corp., 6.25%, 02/15/13 5 10 Duke Energy Corp., 3.75%, 03/05/08, # 10 30 Edison Mission Energy, 9.88%, 04/15/11, # 25 5 FirstEnergy Corp., 7.38%, 11/15/31, Ser. C 5 10 Florida Power & Light Co., 4.85%, 02/01/13 10 5 MidAmerican Energy Co., 6.75%, 12/30/31 5 National Rural Utilities Cooperative Finance Corp., 5 6.50%, 03/01/07, Ser. C, MTN 5 15 3.88%, 02/15/08 15 5 Nisource Finance Corp., 6.15%, 03/01/13 5
SEE NOTES TO FINANCIAL STATEMENTS. 78
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED UTILITIES -- CONTINUED $ 150 Peabody Energy Corp., 6.88%, 03/15/13, Ser. B $ 149 10 Pepco Holdings, Inc., 6.45%, 08/15/12 10 5 Progress Energy, Inc., 7.10%, 03/01/11 5 20 Reliant Resources, Inc., 9.50%, 07/15/13, # 18 10 TXU Energy Co., 7.00%, 03/15/13, # 10 ------------------------------------------------------------------------------ 563 ============================================================================== Total Corporate Notes & Bonds 9,111 (Cost $9,015) ============================================================================== RESIDENTIAL MORTGAGE BACKED SECURITIES -- 11.6% MORTGAGE BACKED PASS-THROUGH SECURITIES -- 11.6% Federal Home Loan Mortgage Corp., 35 6.00%, 05/01/17, Gold Pool E89420 36 329 6.00%, 04/01/32, Gold Pool C66183 334 461 5.50%, 04/01/33, Gold Pool C01527 460 483 5.50%, 05/01/33, Gold Pool C79349 481 Federal National Mortgage Association, 411 5.50%, 11/01/32, Pool 254594 410 406 5.50%, 12/01/32, Pool 687398 405 497 5.00%, 07/01/33, Pool 357407 481 ------------------------------------------------------------------------------ Total Residential Mortgage Backed Securities 2,607 (Cost $2,653) ============================================================================== COMMERCIAL MORTGAGE BACKED SECURITIES -- 1.2% 225 Credit Suisse First Boston Mortgage Securities Corp., 3.94%, 05/15/38, Ser. 2003-C3, Class A5 204 60 LB-UBS Commercial Mortgage Trust, 6.65%, 11/15/27, Ser. 2001-C2, Class A2 66 ------------------------------------------------------------------------------ Total Commercial Mortgage Backed Securities 270 (Cost $286) ============================================================================== ASSET BACKED SECURITIES -- 4.5% $ 35 American Express Credit Account Master Trust, 1.69%, 01/15/09, Ser. 2003-4, Class A + $ 34 75 AmeriCredit Automobile Receivables Trust, 5.37%, 06/12/08, Ser. 2001-B, Class A4 + 78 20 Bank One Issuance Trust, 4.77%, 02/16/16, Ser. 2003-C3, Class C3 + 18 Capital Auto Receivables Asset Trust, 40 1.15%, 02/15/07, Ser. 2003-2, Class A3B, FRN 40 25 1.96%, 01/15/09, Ser. 2003-2, Class A4A 24 15 Citibank Credit Card Issuance Trust, 5.00%, 06/10/15, Ser. 2003-C4, Class C4 14 Discover Card Master Trust I, 190 5.30%, 11/16/06, Ser. 2001-5, Class A 194 25 1.16%, 05/16/07, Ser. 2002-5, Class A, FRN 25 35 First USA Credit Card Master Trust, 1.47%, 11/20/06, Ser. 2001- 2, Class B, FRN 35 Ford Credit Auto Owner Trust, 55 5.25%, 09/15/05, Ser. 2001-C, Class A5 56 150 4.01%, 03/15/06, Ser. 2001-E, Class A4 153 75 Household Automotive Trust, 2.22%, 11/17/09, Ser. 2003-1, Class A4 73 98 Long Beach Mortgage Loan Trust, 1.43%, 07/25/33, Ser. 2003-3, Class A, FRN 98
SEE NOTES TO FINANCIAL STATEMENTS. 79
PRINCIPAL AMOUNT~ ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- CONTINUED ASSET BACKED SECURITIES -- CONTINUED $ 20 Morgan Stanley Auto Loan Trust, 2.17%, 04/15/11, Ser. 2003-HB1, Class A2 $ 20 15 Onyx Acceptance Grantor Trust, 2.66%, 05/17/10, Ser. 2003-C, Class A4 15 20 Option One Mortgage Loan Trust, 1.43%, 07/01/33, Ser. 2003-5, Class A2, FRN 20 Residential Asset Securities Corp., 15 1.36%, 07/25/32, Ser. 2002-KS4, Class AIIB, FRN 15 30 1.40%, 07/25/33, Ser. 2003-KS5, Class AIIB, FRN 30 40 USAA Auto Owner Trust, 2.04%, 02/16/10, Ser. 2003-1, Class A4 39 25 Wachovia Asset Securitization, Inc., 1.54%, 12/25/32, Ser. 2002-HE2, Class A, FRN 25 ------------------------------------------------------------------------------ Total Asset Backed Securities 1,006 (Cost $1,005) ============================================================================== SHARES ISSUER VALUE - --------------------------------------------------------------------------------------------- WARRANT -- 0.0%^ TELECOMMUNICATIONS -- 0.0%^ 0^^ Startec Global Communications Corp., 0.00%, 05/15/08 + $ 0^^ (Cost $0)^^ ------------------------------------------------------------------------------ Total Long-Term Investments 21,161 (Cost $20,353) ============================================================================== SHORT-TERM INVESTMENT -- 5.5% MONEY MARKET FUND -- 5.5% 1,238 JPMorgan Prime Money Market Fund (a) + 1,238 (Cost $1,238) ------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 100.0% $ 22,399 (COST $21,591) ==============================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 80 SUMMARY OF INVESTMENTS BY COUNTRY, AUGUST 31, 2003
COUNTRY % OF INVESTMENT SECURITIES - --------------------------------------------------------------------- United States 68.6% Germany 3.9 The Netherlands 3.2 Brazil 2.1 Mexico 2.0 Colombia 1.9 Peru 1.8 Russia 1.8 Turkey 1.4 Bulgaria 1.3 Philippines 1.3 Chile 1.2 Costa Rica 1.2 Tunisia 1.2 Panama 1.0 South Africa 1.0 Canada 0.9 United Kingdom 0.8 France 0.7 Luxembourg 0.6 Qatar 0.6 Malaysia 0.5 Other (below 0.5%) 1.0 - --------------------------------------------------------------------- TOTAL 100.0% =====================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 81 FUTURES CONTRACTS (Amounts in thousands, except number of contracts)
NOTIONAL UNREALIZED NUMBER OF VALUE AT APPRECIATION CONTRACTS DESCRIPTION EXPIRATION DATE 8/31/03 (USD) (DEPRECIATION) (USD) - --------------------------------------------------------------------------------------------------------------- LONG FUTURES OUTSTANDING 2 Treasury Bonds December, 2003 $ 212 $ 3 6 2 Year Treasury Notes December, 2003 1,278 2 2 Eurodollar March, 2004 492 (1) SHORT FUTURES OUTSTANDING (9) 5 Year Treasury Notes December, 2003 (989) (2) (7) 10 Year Treasury Notes December, 2003 (768) (6)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
NET UNREALIZED SETTLEMENT SETTLEMENT VALUE AT APPRECIATION CONTRACTS TO SELL DATE VALUE (USD) 8/31/03 (USD) (DEPRECIATION) (USD) - --------------------------------------------------------------------------------------------------------------- 1,400 EUR 9/30/03 $ 1,523 $ 1,536 $ (13)
SEE NOTES TO FINANCIAL STATEMENTS. 82 JPMorgan U.S. Treasury Income Fund PORTFOLIO OF INVESTMENTS AS OF AUGUST 31, 2003 (Amounts in thousands)
PRINCIPAL AMOUNT (USD) ISSUER VALUE - --------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS -- 94.0% U.S. TREASURY SECURITIES -- 78.8% U.S. Treasury Notes & Bonds, $ 13,960 1.13%, 06/30/05 + $ 13,786 2,480 3.25%, 08/15/07 + 2,502 2,000 5.75%, 08/15/10 + 2,212 9,865 5.00%, 02/15/11 + 10,419 2,315 3.88%, 02/15/13 + 2,218 2,430 4.25%, 08/15/13 2,391 1,285 7.25%, 05/15/16 + 1,571 13,000 9.00%, 11/15/18 + 18,384 5,700 8.13%, 08/15/19 @ + 7,539 8,600 8.50%, 02/15/20 + 11,773 3,540 8.00%, 11/15/21 + 4,679 15,000 7.25%, 08/15/22 + 18,484 10,625 6.38%, 08/15/27 + 12,050 ------------------------------------------------------------------------------ Total U.S. Treasury Securities 108,008 (Cost $106,957) ============================================================================== RESIDENTIAL MORTGAGE BACKED SECURITIES -- 13.8% MORTGAGE BACKED PASS-THROUGH SECURITIES -- 13.8% 0^^ Federal Home Loan Mortgage Corp., 7.00%, 12/01/14, Gold Pool E00766 0^^ Government National Mortgage Association, 5,655 6.00%, 10/15/32, Pool 552829 5,778 7,580 6.00%, 12/15/32, Pool 596765 7,745 5,451 5.50%, 01/15/33, Pool 603915 5,455 ------------------------------------------------------------------------------ Total Residential Mortgage Backed Securities 18,978 (Cost $19,114) ============================================================================== ASSET BACKED SECURITIES -- 1.4% $ 465 Discover Card Master Trust I, 1.16%, 05/16/07, Ser. 2002-5, Class A, FRN $ 465 355 Morgan Stanley Auto Loan Trust, 2.17%, 04/15/11, Ser. 2003-HB1, Class A2 351 615 Residential Asset Securities Corp., 1.40%, 07/25/33, Ser. 2003-KS5, Class AIIB, FRN 613 455 Wachovia Asset Securitization, Inc., 1.54%, 12/25/32, Ser. 2002-HE2, Class A, FRN 456 ------------------------------------------------------------------------------ Total Asset Backed Securities 1,885 (Cost $1,892) ============================================================================== Total Long-Term Investments 128,871 (Cost $127,963) ============================================================================== SHARES - --------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT -- 6.0% MONEY MARKET FUND -- 6.0% 8,176 JPMorgan 100% U.S. Treasury Securities Money Market Fund (a) 8,176 (Cost $8,176) ------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 100.0% $ 137,047 (COST $136,139) ==============================================================================
FUTURES CONTRACTS (Amounts in thousands, except number of contracts)
NOTIONAL UNREALIZED NUMBER OF VALUE AT APPRECIATION CONTRACTS DESCRIPTION EXPIRATION DATE 8/31/03 (USD) (DEPRECIATION) (USD) - ------------------------------------------------------------------------------------------------------------- LONG FUTURES OUTSTANDING 223 2 Year Treasury Notes December, 2003 $ 47,509 69 69 5 Year Treasury Notes December, 2003 7,580 19 80 10 Year Treasury Notes December, 2003 8,778 97 6 Eurodollar June, 2004 1,471 (11) SHORT FUTURES OUTSTANDING (361) Treasury Bonds December, 2003 (38,266) (451)
SEE NOTES TO FINANCIAL STATEMENTS. 83 JPMorgan Funds Abbreviations * -- Non-income producing security. # -- All or a portion of this security is a 144A or private placement security and can only be sold to qualified institutional buyers. ~ -- Denominated in United States Dollars unless otherwise noted. ^^ -- Amount rounds to less than one thousand. ^ -- Amount rounds to less than 0.1%. + -- All or a portion of this security is segregated with the custodian for futures contracts, TBA, when issued, delayed delivery securities, swaps or written options. @ -- Security is fully or partially segregated with brokers as intitial margin for futures contracts. (a) -- Affiliated. Money market fund registered under the Investment Company Act of 1940, as amended and advised by JPMorgan Fleming Asset Management, Inc. (d) -- Defaulted security. (f) -- Fair Valued Investment. The following are approximately the market value and percentage of the investments that are fair valued (amounts in thousands):
FUND MARKET VALUE PERCENTAGE ---- ------------ ---------- JPMorgan Bond Fund $ 19,954 1.45% JPMorgan Enhanced Income Fund $ 4,246 1.17% JPMorgan Fleming Emerging Markets Debt Fund $ 0 0.00% JPMorgan Global Strategic Income Fund $ 16,055 13.06% JPMorgan Strategic Income Fund $ 3 0.01%
(i) -- Security is considered illiquid and may be difficult to sell. CAD -- Canadian Dollar. CONS -- Consolidated Bonds. DN -- Discount Note. The rate shown is the effective yield at the date of purchase. EUR -- Euro. FNMA -- Federal National Mortgage Association. FRA -- Forward Rate Agreement. FRDO -- Floating Rate Demand Obligation. The maturity date shown is the next interest reset date. The interest rate shown is the rate in effect at August 31, 2003. FRN -- Floating Rate Note. The rate shown is the rate in effect as of August 31, 2003. GBP -- Great Britain Pound. GO -- General Obligation Bond. IO -- Interest Only. LIBOR -- London Interbank Offered Rate. MBIA -- Municipal Bond Insurance Association. MTN -- Medium Term Note. NZD -- New Zealand Dollar. PO -- Principal Only. RAMS -- Reverse Annuity Mortgage Security. Rev. -- Revenue Bond. Ser. -- Series. SUB -- Step-up Bond. The rate shown is the rate in effect as of August 31, 2003. TBA -- To Be Announced. USD -- United States Dollar. SEE NOTES TO FINANCIAL STATEMENTS. 84 THIS PAGE IS INTENTIONALLY LEFT BLANK JPMorgan Funds STATEMENT OF ASSETS AND LIABILITIES AS OF AUGUST 31, 2003 (Amounts in thousands, except per share amounts)
BOND BOND FUND FUND II ASSETS Investment securities, at value $ 1,372,904 $ 1,226,490 Foreign currency, at value 9 -- Receivables: Investment securities sold 239,624 244,174 Fund shares sold 624 538 Interest and dividends 9,841 7,654 Variation Margin 214 112 Unrealized appreciation on open swap contracts 8,064 1,705 Expense reimbursements 1 -- - --------------------------------------------------------------------------------- Total Assets 1,631,281 1,480,673 ================================================================================= LIABILITIES Payables: Due to custodian 485 -- Dividends 1,138 4,007 Investment securities purchased 380,074 395,987 Fund shares redeemed 2,402 1,129 Outstanding options written, at fair value 7,038 5,668 Unrealized depreciation on open swap contracts 5,581 3,759 Accrued liabilities: Investment advisory fees 316 275 Administration fees 21 101 Shareholder servicing fees 103 78 Distribution fees 2 10 Custodian fees 47 32 Trustees' fees - deferred compensation plan --^ 169 Other 79 27 - --------------------------------------------------------------------------------- Total Liabilities 397,286 411,242 ================================================================================= Net Assets $ 1,233,995 $ 1,069,431 =================================================================================
^ Amount rounds to less than one thousand. SEE NOTES TO FINANCIAL STATEMENTS. 86 ANNUAL REPORT AUGUST 31 2003
BOND BOND FUND FUND II NET ASSETS Paid in capital $ 1,200,716 $ 1,063,940 Accumulated undistributed (overdistributed) net investment income (573) (737) Accumulated net realized gain (loss) on investments, futures, foreign exchange transactions, written options and swaps 32,632 7,061 Net unrealized appreciation (depreciation) of investments, futures, foreign exchange translations, written options and swaps 1,220 (833) - --------------------------------------------------------------------------------- Total Net Assets $ 1,233,995 $ 1,069,431 ================================================================================= Shares of beneficial interest outstanding ($0.001 par value; unlimited number of shares authorized): Class A 199 784 Class B 253 374 Class C 27 -- Institutional 48,091 -- Select 30,956 25,241 Ultra 44,631 -- Net Asset Value: Class A (and redemption price) $ 10.03 $ 40.59 Class B* $ 9.95 $ 40.49 Class C* $ 10.01 $ -- Institutional (and redemption price) $ 9.94 $ -- Select (and redemption price) $ 9.94 $ 40.51 Ultra (and redemption price) $ 9.95 $ -- Class A Maximum Public Offering Price Per Share (net asset value per share/95.5%) $ 10.50 $ 42.50 Cost of investments $ 1,368,509 $ 1,219,789 Cost of foreign currency $ 9 $ -- - --------------------------------------------------------------------------------- Premiums received from options written $ 2,349 $ 1,909 =================================================================================
* Redemption price may be reduced by contingent deferred sales charge. SEE NOTES TO FINANCIAL STATEMENTS. 87
FLEMING ENHANCED EMERGING INCOME MARKETS DEBT FUND FUND ASSETS Investment securities, at value $ 363,444 $ 58,262 Cash -- 88 Foreign currency, at value -- 16 Receivables: Investment securities sold 16,761 792 Fund shares sold --^ 179 Interest and dividends 895 1,164 Variation margin 2 -- Unrealized appreciation on open swap contracts 24 -- - --------------------------------------------------------------------------------- Total Assets 381,126 60,501 ================================================================================= LIABILITIES Payables: Due to custodian 36 -- Dividends 172 40 Investment securities purchased 26,209 -- Fund shares redeemed 134 27 Outstanding options written, at fair value 18 -- Unrealized depreciation on open swap contracts 32 -- Accrued liabilities: Investment advisory fees 43 35 Administration fees -- 1 Shareholder servicing fees -- 3 Custodian fees 12 9 Other 62 75 - --------------------------------------------------------------------------------- Total Liabilities 26,718 190 ================================================================================= Net Assets $ 354,408 $ 60,311 =================================================================================
^ Amount rounds to less than one thousand. SEE NOTES TO FINANCIAL STATEMENTS. 88
FLEMING ENHANCED EMERGING INCOME MARKETS DEBT FUND FUND NET ASSETS Paid in capital $ 359,640 $ 55,322 Accumulated undistributed (overdistributed) net investment income (131) 292 Accumulated net realized gain (loss) on investments, futures, foreign exchange transactions, written options and swaps (4,911) (2,591) Net unrealized appreciation (depreciation) of investments, futures, foreign exchange translations, written options and swaps (190) 7,288 - --------------------------------------------------------------------------------- Total Net Assets $ 354,408 $ 60,311 ================================================================================= Shares of beneficial interest outstanding ($0.001 par value; unlimited number of shares authorized): Institutional 35,956 -- Select -- 6,688 Net Asset Value: Institutional (and redemption price) $ 9.86 $ -- Select (and redemption price) $ -- $ 9.02 Cost of investments $ 363,657 $ 50,937 Cost of foreign currency $ -- $ 54 - --------------------------------------------------------------------------------- Premiums received from options written $ 112 $ -- =================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 89
GLOBAL STRATEGIC INCOME FUND ASSETS Investment securities, at value $ 122,883 Cash 119 Foreign currency, at value 173 Receivables: Investment securities sold 3,407 Fund shares sold 25 Interest and dividends 1,392 Variation margin 24 Unrealized appreciation on forward foreign currency exchange contracts 434 - -------------------------------------------------------------------- Total Assets 128,457 ==================================================================== LIABILITIES Payables: Dividends 409 Investment securities purchased 16,785 Fund shares redeemed 434 Unrealized depreciation on forward foreign currency exchange contracts 14 Accrued liabilities: Investment advisory fees 5 Administration fees 1 Shareholder servicing fees 7 Distribution fees --^ Custodian fees 18 Other 51 - -------------------------------------------------------------------- Total Liabilities 17,724 ==================================================================== Net Assets $ 110,733 ====================================================================
^ Amount rounds to less than one thousand. SEE NOTES TO FINANCIAL STATEMENTS. 90
GLOBAL STRATEGIC INCOME FUND NET ASSETS Paid in capital $ 139,541 Accumulated undistributed (overdistributed) net investment income (1,273) Accumulated net realized gain (loss) on investments, futures and foreign exchange transactions (32,393) Net unrealized appreciation (depreciation) of investments, futures and foreign exchange translations 4,858 - -------------------------------------------------------------------- Total Net Assets $ 110,733 ==================================================================== Shares of beneficial interest outstanding ($0.001 par value; unlimited number of shares authorized): Class A 44 Class B 36 Institutional 11,999 Select 331 Net Asset Value: Class A (and redemption price) $ 8.92 Class B* $ 8.86 Institutional (and redemption price) $ 8.92 Select (and redemption price) $ 8.92 Class A Maximum Public Offering Price Per Share (net asset value per share/95.5%) $ 9.34 Cost of investments $ 118,430 Cost of foreign currency $ 171
* Redemption price may be reduced by contingent deferred sales charge. SEE NOTES TO FINANCIAL STATEMENTS. 91
SHORT TERM SHORT TERM BOND BOND FUND FUND II ASSETS Investment securities, at value $ 1,078,336 $ 1,718,955 Receivables: Investment securities sold 70,706 108,004 Fund shares sold 5,032 2,773 Interest and dividends 3,038 5,965 Variation margin 239 -- Unrealized appreciation on open swap contracts 938 104 - --------------------------------------------------------------------------------- Total Assets 1,158,289 1,835,801 ================================================================================= LIABILITIES Payables: Due to custodian 6,409 8,939 Dividends 631 2,596 Investment securities purchased 212,448 267,869 Fund shares redeemed 911 1,316 Variation margin 206 5 Outstanding options written, at fair value 40 66 Unrealized depreciation on open swap contracts 133 -- Accrued liabilities: Investment advisory fees 175 333 Administration fees -- 113 Shareholder servicing fees 26 319 Distribution fees 2 356 Custodian fees 28 34 Trustees' fees - deferred compensation plan --^ 21 Other 70 63 - --------------------------------------------------------------------------------- Total Liabilities 221,079 282,030 ================================================================================= Net Assets $ 937,210 $ 1,553,771 =================================================================================
^ Amounts rounds to less than one thousand. SEE NOTES TO FINANCIAL STATEMENTS. 92
SHORT TERM SHORT TERM BOND BOND FUND FUND II NET ASSETS Paid in capital $ 936,087 $ 1,553,796 Accumulated undistributed (overdistributed) net investment income 996 (2,896) Accumulated net realized gain (loss) on investments, futures, foreign exchange transactions, written options and swaps (4,183) (2,495) Net unrealized appreciation (depreciation) of investments, futures, written options and swaps 4,310 5,366 - --------------------------------------------------------------------------------- Total Net Assets $ 937,210 $ 1,553,771 ================================================================================= Shares of beneficial interest outstanding ($0.001 par value; unlimited number of shares authorized): Class A 886 4,307 Institutional 81,714 -- Class M -- 114,132 Select 12,427 33,381 Net Asset Value: Class A (and redemption price) $ 9.85 $ 10.23 Institutional (and redemption price) $ 9.86 $ -- Class M (and redemption price) $ -- $ 10.23 Select (and redemption price) $ 9.86 $ 10.25 Class A Maximum Public Offering Price Per Share (net asset value per share/98.5%) $ 10.00 $ 10.39 Class M Maximum Public Offering Price Per Share (net asset value per share/98.5%) $ -- $ 10.39 Cost of investments $ 1,074,370 $ 1,713,824 Premiums received from options written $ 251 $ 418
SEE NOTES TO FINANCIAL STATEMENTS. 93
STRATEGIC U.S. TREASURY INCOME INCOME FUND FUND ASSETS Investment securities, at value $ 22,399 $ 137,047 Foreign currency, at value 58 -- Receivables: Investment securities sold 25 -- Fund shares sold 15 270 Interest and dividends 318 759 Variation margin 1 17 Expense reimbursements 5 -- - --------------------------------------------------------------------------------- Total Assets 22,821 138,093 ================================================================================= LIABILITIES Payables: Dividends 58 155 Investment securities purchased 219 2,393 Fund shares redeemed 103 711 Unrealized loss on forward foreign currency exchange contracts 13 -- Accrued liabilities: Investment advisory fees -- 30 Shareholder servicing fees 1 10 Distribution fees 11 13 Custodian fees 15 11 Trustees' fees - deferred compensation plan 1 32 Other 43 55 - --------------------------------------------------------------------------------- Total Liabilities 464 3,410 ================================================================================= Net Assets $ 22,357 $ 134,683 =================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 94
STRATEGIC U.S. TREASURY INCOME INCOME FUND FUND NET ASSETS Paid in capital $ 24,541 $ 136,229 Accumulated undistributed (overdistributed) net investment income (195) 9 Accumulated net realized gain (loss) on investments, futures and foreign exchange transactions (2,777) (2,186) Net unrealized appreciation (depreciation) of investments, futures and foreign exchange translations 788 631 - --------------------------------------------------------------------------------- Total Net Assets $ 22,357 $ 134,683 ================================================================================= Shares of beneficial interest outstanding ($0.001 par value; unlimited number of shares authorized): Class A 343 3,989 Class B 937 1,695 Class C 412 -- Class M 825 -- Select -- 5,914 Net Asset Value: Class A (and redemption price) $ 8.89 $ 11.61 Class B* $ 8.89 $ 11.60 Class C* $ 8.89 $ -- Class M (and redemption price) $ 8.87 $ -- Select (and redemption price) $ -- $ 11.62 Class A Maximum Public Offering Price Per Share (net asset value per share/95.5%) $ 9.31 $ 12.16 Class M Maximum Public Offering Price Per Share (net asset value per share/97.0%) $ 9.14 $ -- Cost of investments $ 21,591 $ 136,139 Cost of foreign currency $ 59 $ --
* Redemption price may be reduced by contingent deferred sales charge. SEE NOTES TO FINANCIAL STATEMENTS. 95 STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2003 (Amounts in thousands)
BOND BOND FUND FUND II INVESTMENT INCOME Interest $ 67,186 $ 42,314 Dividend income from affiliated investments* 2,640 1,709 - --------------------------------------------------------------------------------- Total investment income 69,826 44,023 ================================================================================= EXPENSES Investment advisory fees 4,554 2,712 Administration fees 2,277 1,356 Shareholder servicing fees 1,758 2,260 Distribution fees 21 201 Custodian fees 339 207 Printing and postage 78 12 Professional fees 179 128 Registration expenses 64 35 Transfer agent fees 110 110 Trustees' fees 16 9 Other 76 55 - --------------------------------------------------------------------------------- Total expenses 9,472 7,085 ================================================================================= Less amounts waived 1,896 1,470 Less earnings credits 3 3 Less expense reimbursements 20 -- - --------------------------------------------------------------------------------- Net expenses 7,553 5,612 ================================================================================= Net investment income 62,273 38,411 =================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 96
BOND BOND FUND FUND II REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on transactions from: Investments $ 48,820 $ 8,168 Futures (355) 3,542 Foreign exchange contracts 2,512 37 Written options (4,216) (1,720) Swaps (1,142) 1,266 Change in net unrealized appreciation/depreciation of: Investments (37,068) (16,423) Futures (7,827) (1,598) Foreign currency translations (1) -- Written options (3,498) (3,759) Swaps 8,227 (2,054) - --------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments, futures, foreign exchange transactions, written options and swaps 5,452 (12,541) ================================================================================= Net increase (decrease) in net assets from operations $ 67,725 $ 25,870 ================================================================================= * Includes reimbursements of investment advisory, administration and shareholder servicing fees : $ 346 $ 230
SEE NOTES TO FINANCIAL STATEMENTS. 97
ENHANCED FLEMING EMERGING INCOME MARKETS DEBT FUND FUND INVESTMENT INCOME Interest $ 8,473 $ 5,487 Dividend income from affiliated investments* 766 26 - ---------------------------------------------------------------------------------- Total investment income 9,239 5,513 ================================================================================== EXPENSES Investment advisory fees 914 412 Administration fees 548 88 Shareholder servicing fees 366 147 Custodian fees 59 83 Printing and postage 13 2 Professional fees 88 120 Registration expenses 34 14 Transfer agent fees 17 22 Trustees' fees 4 1 Other 7 6 - ---------------------------------------------------------------------------------- Total expenses 2,050 895 ================================================================================== Less amounts waived 1,313 160 Less earnings credits 6 --^ - ---------------------------------------------------------------------------------- Net expenses 731 735 ================================================================================== Net investment income 8,508 4,778 ==================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 98
ENHANCED FLEMING EMERGING INCOME MARKETS DEBT FUND FUND REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on transactions from: Investments $ (1,458) $ 3,481 Futures (2,571) 92 Foreign exchange contracts 7 -- Written options (174) -- Swaps 244 -- Change in net unrealized appreciation/depreciation of: Investments (746) 6,985 Futures 88 (6) Foreign currency translations -- 2 Written options 94 -- Swaps (8) -- - ---------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments, futures, foreign exchange transactions, written options and swaps (4,524) 10,554 ================================================================================== Net increase (decrease) in net assets from operations $ 3,984 $ 15,332 ================================================================================== * Includes reimbursements of investment advisory, administration and shareholder servicing fees : $ 99 $ 3
^ Amount rounds to less than one thousand. SEE NOTES TO FINANCIAL STATEMENTS. 99
GLOBAL STRATEGIC INCOME FUND INVESTMENT INCOME Interest $ 7,539 Dividend income from affiliated investments* 367 - ---------------------------------------------------------------------------------- Total investment income 7,906 ================================================================================== EXPENSES Investment advisory fees 586 Administration fees 195 Shareholder servicing fees 137 Distribution fees 4 Custodian fees 150 Printing and postage 2 Professional fees 113 Registration expenses 42 Transfer agent fees 69 Trustees' fees 1 Other 18 - ---------------------------------------------------------------------------------- Total expenses 1,317 ================================================================================== Less amounts waived 422 Less earnings credits 1 Less expense reimbursements 30 - ---------------------------------------------------------------------------------- Net expenses 864 ================================================================================== Net investment income 7,042 ==================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 100
GLOBAL STRATEGIC INCOME FUND REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on transactions from: Investments $ 2,964 Futures (598) Foreign exchange contracts (2,188) Change in net unrealized appreciation/depreciation of: Investments 3,672 Futures 78 Foreign currency translations 442 - ---------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments, futures and foreign exchange transactions 4,370 ================================================================================== Net increase (decrease) in net assets from operations $ 11,412 ================================================================================== * Includes reimbursements of investment advisory, administration and shareholder servicing fees : $ 47
SEE NOTES TO FINANCIAL STATEMENTS. 101
SHORT TERM SHORT TERM BOND BOND FUND FUND II INVESTMENT INCOME Interest $ 25,359 $ 44,393 Dividend income from affiliated investments* 2,565 2,463 - --------------------------------------------------------------------------------- Total investment income 27,924 46,856 ================================================================================= EXPENSES Investment advisory fees 2,218 3,818 Administration fees 1,331 2,291 Shareholder servicing fees 1,109 3,818 Distribution fees 26 4,570 Custodian fees 148 248 Printing and postage 28 27 Professional fees 131 142 Registration expenses 39 50 Transfer agent fees 70 60 Trustees' fees 9 16 Other 43 62 - --------------------------------------------------------------------------------- Total expenses 5,152 15,102 ================================================================================= Less amounts waived 2,079 1,020 Less earnings credits 9 10 - --------------------------------------------------------------------------------- Net expenses 3,064 14,072 ================================================================================= Net investment income 24,860 32,784 =================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 102
SHORT TERM SHORT TERM BOND BOND FUND FUND II REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on transactions from: Investments $ (3,026) $ 3,026 Futures (1,741) (597) Foreign exchange contracts 57 67 Written options (307) (462) Swaps 6,367 1,394 Change in net unrealized appreciation/depreciation of: Investments (5,688) (10,208) Futures (1,284) (915) Written options 137 352 Swaps 805 104 - --------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments, futures, foreign exchange transactions, written options and swaps (4,680) (7,239) ================================================================================= Net increase (decrease) in net assets from operations $ 20,180 $ 25,545 ================================================================================= * Includes reimbursements of investment advisory, administration and shareholder servicing fees : $ 339 $ 334
SEE NOTES TO FINANCIAL STATEMENTS. 103
STRATEGIC U.S. TREASURY INCOME INCOME FUND FUND INVESTMENT INCOME Interest $ 1,438 $ 6,720 Dividend income from affiliated investments* 18 124 - --------------------------------------------------------------------------------- Total investment income 1,456 6,844 ================================================================================= EXPENSES Investment advisory fees 108 447 Administration fees 32 224 Shareholder servicing fees 59 372 Distribution fees 127 292 Custodian fees 90 62 Printing and postage 7 11 Professional fees 119 107 Registration expenses 20 43 Transfer agent fees 76 149 Trustees' fees --^ 2 Other 8 15 - --------------------------------------------------------------------------------- Total expenses 646 1,724 ================================================================================= Less amounts waived 195 560 Less earnings credits -- 1 Less expense reimbursements 111 -- - --------------------------------------------------------------------------------- Net expenses 340 1,163 ================================================================================= Net investment income 1,116 5,681 =================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 104
STRATEGIC U.S. TREASURY INCOME INCOME FUND FUND REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on transactions from: Investments $ (224) $ 3,267 Futures 43 537 Foreign exchange contracts (154) -- Change in net unrealized appreciation/depreciation of: Investments 1,116 (5,563) Futures (10) (620) Foreign currency translations (14) -- - --------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments, futures and foreign exchange transactions 757 (2,379) ================================================================================= Net increase (decrease) in net assets from operations $ 1,873 $ 3,302 ================================================================================= * Includes reimbursements of investment advisory, administration and shareholder servicing fees : $ 2 $ 15
^ Amount rounds to less than one thousand. SEE NOTES TO FINANCIAL STATEMENTS. 105 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIODS INDICATED (Amounts in thousands)
BOND FUND BOND FUND II ------------------------------------------- ------------------------------------------ YEAR ENDED 11/1/01 THROUGH YEAR ENDED YEAR ENDED 11/1/01 THROUGH YEAR ENDED 8/31/03 8/31/02* 10/31/01 8/31/03 8/31/02* 10/31/01 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 62,273 $ 59,314 $ 62,728 $ 38,411 $ 24,090 $ 36,843 Net realized gain (loss) on investments, futures, foreign exchange transactions, written options and swaps 45,619 2,699 49,859 11,293 19,085 22,133 Change in net unrealized appreciation/ depreciation of investments, futures, foreign currency translations, written options and swaps (40,167) (2,897) 31,504 (23,834) (14,513) 29,861 - ---------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations 67,725 59,116 144,091 25,870 28,662 88,837 - ---------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income (62,540) (58,906) (63,045) (38,594) (24,089) (36,858) Net realized gain on investment transactions (12,241) (12,048) -- (8,146) -- -- ================================================================================================================================== Total distributions to shareholders (74,781) (70,954) (63,045) (46,740) (24,089) (36,858) ================================================================================================================================== CAPITAL SHARE TRANSACTIONS Increase (decrease) (429,181) (247,093) 940,706 386,134 (54,412) 114,658 ================================================================================================================================== NET ASSETS Total increase (decrease) in net assets (436,237) (258,931) 1,021,752 365,264 (49,839) 166,637 ================================================================================================================================== Beginning of period 1,670,232 1,929,163 907,411 704,167 754,006 587,369 End of period $ 1,233,995 $ 1,670,232 $ 1,929,163 $ 1,069,431 $ 704,167 $ 754,006 Accumulated undistributed (overdistributed) net investment income $ (201) $ 66 $ 1,157 $ 175 $ 358 $ 346
* The fund changed its fiscal year end from October 31 to August 31. SEE NOTES TO FINANCIAL STATEMENTS. 106
ENHANCED INCOME FUND FLEMING EMERGING MARKETS DEBT FUND ------------------------------ ----------------------------------------- YEAR ENDED 11/30/01* THROUGH YEAR ENDED 8/1/02 ENDED YEAR ENDED 8/31/03 8/31/02 8/31/03 8/31/02^ 7/31/02 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 8,508 $ 3,085 $ 4,778 $ 308 $ 3,515 Net realized gain (loss) on investments, futures, foreign exchange transactions, written options and swaps (3,952) (1,080) 3,573 (112) (2,680) Change in net unrealized appreciation/ depreciation of investments, futures, foreign currency translations, written options and swaps (572) 382 6,981 2,503 (1,313) - ---------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations 3,984 2,387 15,332 2,699 (478) - ---------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income (8,519) (3,084) (4,996) (311) (3,512) ====================================================================================================================== CAPITAL SHARE TRANSACTIONS Increase (decrease) 58,849 300,791 8,503 3,883 3,713 ====================================================================================================================== NET ASSETS Total increase (decrease) in net assets 54,314 300,094 18,839 6,271 (277) ====================================================================================================================== Beginning of period 300,094 -- 41,472 35,201 35,478 End of period $ 354,408 $ 300,094 $ 60,311 $ 41,472 $ 35,201 Accumulated undistributed (overdistributed) net investment income $ (9) $ 2 $ 160 $ 378 $ 381
* Commencement of operations. ^ The fund changed its fiscal year end from July 31 to August 31. SEE NOTES TO FINANCIAL STATEMENTS. 107
GLOBAL STRATEGIC INCOME FUND -------------------------------------------- YEAR ENDED 11/1/01 THROUGH YEAR ENDED 8/31/03 8/31/02* 10/31/01 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 7,042 $ 7,684 $ 11,954 Net realized gain (loss) on investments, futures and foreign exchange transactions 178 (9,510) (5,323) Change in net unrealized appreciation/ depreciation of investments, futures and foreign currency translations 4,192 4,461 2,282 - ------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations 11,412 2,635 8,913 - ------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income (7,077) (7,217) (15,047) Return of capital -- (378) -- - ------------------------------------------------------------------------------------------------ Total distributions to shareholders (7,077) (7,595) (15,047) ================================================================================================ CAPITAL SHARE TRANSACTIONS Increase (decrease) (33,539) (3,090) (9,333) ================================================================================================ NET ASSETS Total increase (decrease) in net assets (29,204) (8,050) (15,467) ================================================================================================ Beginning of period 139,937 147,987 163,454 End of period $ 110,733 $ 139,937 $ 147,987 Accumulated undistributed (overdistributed) net investment income $ (536) $ (501) $ (609)
* The fund changed its fiscal year end from October 31 to August 31. SEE NOTES TO FINANCIAL STATEMENTS. 108
SHORT TERM BOND FUND SHORT TERM BOND FUND II ------------------------------------------- ------------------------------------------ YEAR ENDED 11/1/01 THROUGH YEAR ENDED YEAR ENDED 11/1/01 THROUGH YEAR ENDED 8/31/03 8/31/02* 10/31/01 8/31/03 8/31/02* 10/31/01 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 24,860 $ 20,540 $ 27,811 $ 32,784 $ 22,708 $ 11,384 Net realized gain (loss) on investments, futures, foreign exchange transactions, written options and swaps 1,350 12,596 7,040 3,428 10,424 6,553 Change in net unrealized appreciation/ depreciation of investments, futures, written options and swaps (6,030) (8,289) 17,991 (10,667) 1,719 13,303 - ---------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations 20,180 24,847 52,842 25,545 34,851 31,240 - ---------------------------------------------------------------------------------------------------------------------------------- NET EQUALIZATION CREDITS/(DEBITS) -- -- -- 1,123 2,690 2,626 ================================================================================================================================== DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income (25,414) (20,463) (27,772) (33,316) (25,314) (13,960) Return of capital -- -- -- (587) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Net realized gain on investment transactions (11,813) (2,732) -- (7,040) (10,428) -- ================================================================================================================================== Total distributions to shareholders (37,227) (23,195) (27,772) (40,943) (35,742) (13,960) ================================================================================================================================== CAPITAL SHARE TRANSACTIONS Increase (decrease) 204,640 (17,879) 325,357 227,176 454,301 812,112 ================================================================================================================================== NET ASSETS Total increase (decrease) in net assets 187,593 (16,227) 350,427 212,901 456,100 832,018 ================================================================================================================================== Beginning of period 749,617 765,844 415,417 1,340,870 884,770 52,752 End of period $ 937,210 $ 749,617 $ 765,844 $ 1,553,771 $ 1,340,870 $ 884,770 Accumulated undistributed (overdistributed) net investment income $ 721 $ 1,275 $ 795 $ (3,286) $ (3,290) $ (2,003)
* The fund changed its fiscal year end from October 31 to August 31. SEE NOTES TO FINANCIAL STATEMENTS. 109
STRATEGIC INCOME FUND U.S. TREASURY INCOME FUND ------------------------------------------- ------------------------------------------ YEAR ENDED 11/1/01 THROUGH YEAR ENDED YEAR ENDED 11/1/01 THROUGH YEAR ENDED 8/31/03 8/31/02* 10/31/01 8/31/03 8/31/02* 10/31/01 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income $ 1,116 $ 992 $ 1,713 $ 5,681 $ 4,318 $ 4,666 Net realized gain (loss) on investments, futures and foreign exchange transactions (335) (1,007) (1,667) 3,804 1,344 3,153 Change in net unrealized appreciation/ depreciation of investments, futures and foreign currency translations 1,092 201 1,126 (6,183) (683) 6,359 - ---------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations 1,873 186 1,172 3,302 4,979 14,178 - ---------------------------------------------------------------------------------------------------------------------------------- Net equalization credits/(debits) (9) (21) (9) -- -- -- ================================================================================================================================== DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income (1,103) (867) (1,649) (5,719) (4,320) (4,660) Return of capital -- (57) (50) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions to shareholders (1,103) (924) (1,699) (5,719) (4,320) (4,660) ================================================================================================================================== CAPITAL SHARE TRANSACTIONS Increase (decrease) 794 (1,406) (4,002) (5,521) 234 75,480 ================================================================================================================================== NET ASSETS Total increase (decrease) in net assets 1,555 (2,165) (4,538) (7,938) 893 84,998 ================================================================================================================================== Beginning of period 20,802 22,967 27,505 142,621 141,728 56,730 End of period $ 22,357 $ 20,802 $ 22,967 $ 134,683 $ 142,621 $ 141,728 Accumulated undistributed (overdistributed) net investment income $ (68) $ (72) $ (94) $ 3 $ 41 $ 1
* The fund changed its fiscal year end from October 31 to August 31. SEE NOTES TO FINANCIAL STATEMENTS. 110 NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION J.P. Morgan Mutual Fund Group ("MFG"), J.P. Morgan Institutional Funds ("JPMIF"), J.P. Morgan Mutual Fund Select Group ("MFSG"), J.P. Morgan Series Trust ("JPMST) and J.P. Morgan Funds ("JPMF") (the "Trusts") were organized as Massachusetts business trusts. The Trusts are registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as open-end management investment companies. MFG and MFSG were formally named Mutual Fund Group and Mutual Fund Select Group, respectively. The name change went into effect on May 1, 2003. The Trusts were organized on the following dates:
TRUST DATE MFG May 11, 1987 JPMIF November 4, 1992 MFSG October 1, 1996 JPMST August 15, 1996 JPMF November 4, 1992
The following are nine separate portfolios of the Trusts (collectively, the "Funds").
FUND CLASSES OFFERED JPMorgan Bond Fund ("BF") Class A, Class B, Class C, Institutional, Select and Ultra JPMorgan Bond Fund II ("BFII") Class A, Class B and Select JPMorgan Enhanced Income Fund ("EIF") Institutional JPMorgan Fleming Emerging Markets Debt Fund ("EMDF") Select JPMorgan Global Strategic Income Fund ("GSIF") Class A, Class B, Institutional and Select JPMorgan Short Term Bond Fund ("STBF") Class A, Institutional and Select JPMorgan Short Term Bond Fund II ("STBFII") Class A, Class M and Select JPMorgan Strategic Income Fund ("SIF") Class A, Class B, Class C and Class M JPMorgan U.S. Treasury Income Fund ("USTI") Class A, Class B and Select
In 2002, BF, BFII, GSIF, STBF, STBFII, SIF, and USTI changed their fiscal year end from October 31 to August 31 and EMDF changed its fiscal year end from July 31 to August 31. On March 31, 2003, BF commenced offerings of Class C shares. On September 12, 2003, GSIF Class B shares merged into Class A shares and GSIF Class B shares closed. STBFII, SIF and USTI are separate series of MFG. BFII is a separate series of MFSG. BF, GSIF and STBF are separate series of JPMIF. EIF is a separate series of JPMST. EMDF is a separate series of JPMF. Class A and Class M shares generally provide for a front-end sales charge while Class B and Class C shares provide for a contingent deferred sales charge. Class B shares automatically convert to Class A shares after eight years. No sales charges are assessed with respect to Institutional, Ultra and Select classes. All classes of shares have equal rights as to earnings, assets and voting privileges except that each class may bear different transfer agent, distribution and shareholder servicing fees and each class has exclusive voting rights with respect to its distribution plan and shareholder servicing agreements. Class A shares, for which front-end sales charges have been waived, may be subject to redemption charges as described in the Funds' prospectus. 111 2. REORGANIZATIONS On October 23, 2002, the Board of Trustees approved management's proposal to merge the JPMorgan Intermediate Bond Fund (the "Target Fund") into the JPMorgan Bond Fund II (the "Aquiring Fund"). The proposed merger was approved by the Target Fund's shareholders on February 13, 2003. The merger occurred on March 21, 2003. Prior to the open of business on March 24, 2003, the Acquiring Fund acquired all the assets and liabilities of the Target Fund as shown in the table below, pursuant to the Reorganization Plan approved by the Target Fund's shareholders on February 13, 2003. The transaction was structured for tax purposes to qualify as a tax-free reorganization under the Internal Revenue Code. Under the Reorganization Plan, shareholders of the Target Fund receive a number of shares of the corresponding class in the Acquiring Fund with a value equal to their holdings in the Target Fund on the date of the exchange. The following is a summary of Shares Outstanding, Net Assets, Net Asset Values Per Share and Net Unrealized Appreciation immediately before and after the Reorganization (amounts in thousands, except per share amounts): JPMORGAN BOND FUND II REORGANIZATION
NET ASSET NET SHARES VALUE UNREALIZED OUTSTANDING NET ASSETS PER SHARE APPRECIATION TARGET FUND JPMorgan Intermediate Bond Fund $ 7,076 Class A 423 $ 4,321 $ 10.22 Select 51,938 $ 530,889 $ 10.22 ACQUIRING FUND JPMorgan Bond Fund II $ 11,525 Class A 846 $ 35,026 $ 41.41 Class B 364 $ 15,025 $ 41.31 Select 15,317 $ 632,912 $ 41.32 POST REORGANIZATION JPMorgan Bond Fund II $ 18,601 Class A 950 $ 39,347 $ 41.41 Class B 364 $ 15,025 $ 41.31 Select 28,163 $ 1,163,801 $ 41.32
112 Prior to September 10, 2001, BF, STBF, GSIF and EMDF utilized a Master Feeder Fund Structure where all the Funds sought to achieve their investment objectives by investing all of their investable assets in the U.S. Fixed Income Portfolio, Short Term Bond Portfolio, Global Strategic Income Portfolio and the Emerging Markets Debt Portfolio, respectively. BF, STBF, GSIF and EMDF now invest directly in portfolio securities. Prior to the open of business on September 10, 2001, the J.P. Morgan Institutional Bond Fund, J.P. Morgan Institutional Short Term Bond Fund, and J.P. Morgan Institutional Global Strategic Income Fund (collectively, the "Acquiring Funds") acquired all the net assets of J.P. Morgan Bond Fund, J.P. Morgan Institutional Bond Fund-Ultra, J.P. Morgan Short Term Bond Fund, and J.P. Morgan Global Strategic Income Fund (collectively, the "Target Funds"), as shown in the tables below, pursuant to Reorganization Plans approved by the Target Funds' shareholders on July 3, 2001 and July 25, 2001. The transactions were structured for tax purposes to qualify as tax-free reorganizations under the Internal Revenue Code. Under each Reorganization Plan, shareholders of the Target Funds received shares in the Acquiring Funds with a value equal to their holdings in the Target Funds. In conjunction with the merger of the Chase and J.P. Morgan mutual fund complexes on September 10, 2001, Institutional Shares for BFII, STBFII, SIF and USTI were renamed Select Shares. The following is a summary of Shares Outstanding, Beneficial Interest Outstanding, Net Assets, Net Asset Values Per Share and Net Unrealized Appreciation (Depreciation) immediately before and after the Reorganizations (amounts in thousands, except per share amounts): JPMORGAN BOND FUND REORGANIZATION
BENEFICIAL NET ASSET NET INTEREST SHARES VALUE UNREALIZED OUTSTANDING OUTSTANDING NET ASSETS PER SHARE APPRECIATION TARGET FUND J.P. Morgan Bond Fund 28,828 $ 299,497 $ 10.39 $ 4,708 J.P. Morgan Institutional Bond Fund - Ultra 55,296 $ 555,990 $ 10.05 $ 8,326 ACQUIRING FUND J.P. Morgan Institutional Bond Fund 101,149 $ 1,000,493 $ 9.89 $ 16,329 AFTER REORGANIZATION JPMorgan Bond Fund $ 29,363 Ultra 56,210 $ 555,990 $ 9.89 Select 30,279 $ 299,497 $ 9.89 Institutional 101,149 $ 1,000,493 $ 9.89
113 JPMORGAN SHORT TERM BOND FUND REORGANIZATION
BENEFICIAL NET ASSET NET INTEREST SHARES VALUE UNREALIZED OUTSTANDING OUTSTANDING NET ASSETS PER SHARE APPRECIATION TARGET FUNDS J.P. Morgan Short Term Bond Fund 5,382 $ 53,000 $ 9.85 $ 753 ACQUIRING FUND J.P. Morgan Institutional Short Term Bond Fund 58,275 $ 575,178 $ 9.87 $ 8,789 AFTER REORGANIZATION JPMorgan Short Term Bond Fund $ 9,542 Select 5,372 $ 53,000 $ 9.87 Institutional 58,275 $ 575,178 $ 9.87
JPMORGAN GLOBAL STRATEGIC INCOME FUND REORGANIZATION
NET BENEFICIAL NET ASSET UNREALIZED INTEREST SHARES VALUE APPRECIATION OUTSTANDING OUTSTANDING NET ASSETS PER SHARE (DEPRECIATION) TARGET FUNDS J.P. Morgan Global Strategic Income Fund 602 $ 5,459 $ 9.07 $ 9 ACQUIRING FUND J.P. Morgan Institutional Global Strategic Income Fund 15,786 $ 144,187 $ 9.13 $ (747) AFTER REORGANIZATION JPMorgan Global Strategic Income Fund $ (738) Select 598 $ 5,459 $ 9.13 Institutional 15,786 $ 144,187 $ 9.13
114 On February 16, 2001, USTI acquired all the net assets of Chase Vista U.S. Government Securities Fund ("CVUSGSF") and Chase U.S. Government Securities Fund ("CUSGSF"). On March 2, 2001, BFII acquired all the net assets of Chase Vista Bond Fund ("CVBF") and Chase Income Fund ("CIF"), and STBFII acquired all the net assets of Chase Vista Select Short-Term Bond Fund ("CVSSTBF") and Chase Short-Intermediate Term U.S. Government Securities Fund ("CSITUSGSF"). USTI, BFII and STBFII are hereafter collectively referred to as the "Acquiring Funds". CVUSGSF, CUSGSF, CITBF, CVBF, CIF, CVSSTBF and CSITUGSF are hereafter collectively referred to as the "Target Funds". These reorganizations were pursuant to Reorganization Plans approved by the Target Funds shareholders on January 26, 2001. The transactions were structured for tax purposes to qualify as tax-free reorganizations under the Internal Revenue Code. Under each Reorganization Plan, shareholders of the Target Funds received shares in the Acquiring Funds with a value equal to their holdings in the Target Funds. Holders of Class A Shares and Investor Class Shares in the Target Funds received Class A Shares in the Acquired Funds, holders of Class B Shares in the Target Funds received Class B Shares in the Acquired Funds and holders of Institutional Class Shares and Premier Class Shares in the Target Funds received Institutional Class Shares in the Acquired Funds. The following is a summary of Shares Outstanding, Net Assets, Net Asset Values Per Share and Net Unrealized Appreciation immediately before and after the reorganization on February 16, 2001 (amounts in thousands, except per share amounts):
BEFORE AFTER REORGANIZATION REORGANIZATION -------------------------- --------------------------- USTI CUSGSF CVUSGSF USTI CLASS A Shares 3,596 259 3,832 Net Assets $ 39,915 $ 2,585 $ 42,536 Net Asset Value, per share $ 11.10 $ 10.00 $ 11.10 CLASS B Shares 1,397 1,397 Net Assets $ 15,483 $ 15,483 Net Asset Value, per share $ 11.08 $ 11.08 INSTITUTIONAL Shares 4,192 4,175 Net Assets $ 41,799 $ 46,349 Net Asset Value, per share $ 9.97 $ 11.10 PREMIER SHARES Shares 338 Net Assets $ 4,550 Net Asset Value, per share $ 13.47 INVESTOR SHARES Shares 3 Net Assets $ 36 Net Asset Value, per share $ 13.47 Net Unrealized Appreciation $ 1,034 $ 161 $ 1,159 $ 2,354
115 The following is a summary of Shares Outstanding, Net Assets, Net Asset Values Per Share and Net Unrealized Appreciation immediately before and after the reorganization on March 2, 2001 (amounts in thousands, except per share amounts):
BEFORE AFTER REORGANIZATION REORGANIZATION -------------------------- --------------------------- BFII CVBF CIF BFII CLASS A Shares 3,210 872 Net Assets $ 33,725 $ 34,496 Net Asset Value, per share $ 10.51 $ 39.55 CLASS B Shares 431 115 Net Assets $ 4,552 $ 4,552 Net Asset Value, per share $ 10.55 $ 39.55 INSTITUTIONAL Shares 15,089 2,000 16,807 Net Assets $ 596,783 $ 20,997 $ 664,724 Net Asset Value, per share $ 39.55 $ 10.50 $ 39.55 PREMIER SHARES Shares 2,390 Net Assets $ 46,944 Net Asset Value, per share $ 19.65 INVESTOR SHARES Shares 39 Net Assets $ 771 Net Asset Value, per share $ 19.67 Net Unrealized Appreciation $ 15,370 $ 1,252 $ 1,389 $ 18,011
116
BEFORE AFTER REORGANIZATION REORGANIZATION -------------------------- --------------------------- STBFII CVSSTBF CSITUSGSF STBFII CLASS A Shares 1,726 1,751 Net Assets $ 17,437 $ 17,689 Net Asset Value, per share $ 10.10 $ 10.10 INSTITUTIONAL Shares 1,655 2,548 6,287 Net Assets $ 16,743 $ 27,012 $ 63,622 Net Asset Value, per share $ 10.12 $ 10.60 $ 10.12 CLASS M Shares 7,996 7,996 Net Assets $ 80,764 $ 80,764 Net Asset Value, per share $ 10.10 $ 10.10 PREMIER SHARES Shares 1,582 Net Assets $ 19,867 Net Asset Value, per share $ 12.56 INVESTOR SHARES Shares 20 Net Assets $ 252 Net Asset Value, per share $ 12.56 Net Unrealized Appreciation $ 1,407 $ 479 $ 471 $ 2,357
117 3. SIGNIFICANT ACCOUNTING POLICIES THE FOLLOWING IS A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOLLOWED BY THE FUNDS: The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. VALUATION OF INVESTMENTS -- Fixed income securities, other than convertible bonds, with a maturity of 61 days or more held by the Funds will be valued each day based on readily available market quotations received from independent or affiliated commercial pricing services. Such pricing services will generally provide bidside quotations. Convertible bonds are valued at the last sale price on the primary exchange on which the bond is principally traded. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Trustees. Valuations may be based upon current market prices of securities, which are comparable in coupon, rating, maturity and industry. It is possible that the estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and such differences could have been material. Short-term investments with 60 days or less to maturity at time of purchase are valued at amortized cost, which approximates market value. Trading in securities on most foreign exchanges and over-the-counter markets is normally completed before the close of the domestic market and may also take place on days when the domestic market is closed. If events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Funds' net assets are calculated, such securities may be valued at fair value in accordance with procedures adopted by the Trustees. B. FUTURES CONTRACTS -- When a Fund enters into a futures contract, it makes an initial margin deposit in a segregated account, either in cash or liquid securities. Thereafter, the futures contract is marked to market and the Fund makes (or receives) additional cash payments daily to (or from) the broker. Changes in the value of the contract are recorded as unrealized appreciation (depreciation) until the contract is closed or settled. The Funds invest in exchange-traded interest rate futures for hedging purposes, to either modify the duration of the portfolio, modify the yield curve exposure of the portfolio, or in anticipation of buying or selling a specific security. Use of long futures contracts subjects the Funds to risk of loss in excess of amounts shown on the Statement of Assets and Liabilities, up to the notional value of the futures contracts. Use of short futures contracts subjects the Funds to unlimited risk of loss. The Funds may enter into futures contracts only on exchanges or boards of trade. The exchange or board of trade acts as the counterparty to each futures transaction; therefore, the Fund's credit risk is limited to failure of the exchange or board of trade. As of August 31, 2003, the Funds had outstanding futures contracts as listed on the Funds' Portfolio of Investments. C. FOREIGN CURRENCY TRANSLATION -- The books and records of the Funds are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the prevailing exchange rates, or at the mean of the current bid and asked prices, of such currencies against the U.S. dollar as quoted by a major bank, on the following basis: 1. Market value of investment securities and other assets and liabilities: at the rate of exchange at the valuation date. 2. Purchases and sales of investment securities, income and expenses: at the rates of exchange prevailing on the respective dates of such transactions. 118 Although the net assets of the Funds are presented at the foreign exchange rates and market values at the close of the periods, the Funds do not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held or sold during the year. Accordingly, such realized foreign currency gains (losses) are included in the reported net realized gains (losses) on investment transactions. Reported realized foreign currency gains or losses arise from disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on each Fund's books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. Unrealized foreign exchange gains and losses arise from changes (due to the changes in the exchange rate) in the value of foreign currency and other assets and liabilities denominated in foreign currencies, which are held at period end. D. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Funds may enter into forward foreign currency contracts (obligations to purchase or sell foreign currency in the future on a date and price fixed at the time the contracts are entered into) to manage the Fund's exposure to foreign currency exchange fluctuations. Each day the forward contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market". When the forward contract is closed, or the delivery of the currency is made or taken, each Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. The Funds are subject to off-balance sheet risk to the extent of the value of the contracts for purchases of foreign currency and in an unlimited amount for sales of foreign currency. As of August 31, 2003, the Funds had outstanding forward foreign currency exchange contracts as listed on the Funds' Portfolio of Investments. E. WRITTEN OPTIONS -- When a Fund writes an option, an amount equal to the premium received by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset and corresponding liability. The amount of the liability is adjusted daily to reflect the current market value of the written option and the change is recorded in a corresponding unrealized gain or loss account. When a written option expires on its stipulated expiration date, or when a closing transaction is entered into, the related liability is extinguished and the fund realizes a gain or loss contingent on whether the cost of the closing transaction exceeds the premium received when the option was written. The Funds write options on securities, futures and interest rate swaps ("swaptions"). These options are settled for cash and subject the Funds to unlimited risk of loss. The Funds, however, are not subject to credit risk on written options as the counterparty has already performed its obligation by paying the premium at the inception of the contract. As of August 31, 2003, the Funds had written options contracts outstanding as listed on the Funds' Portfolio of Investments. 119 Transactions in options written during the period ended August 31, 2003, were as follows (amounts in thousands):
BF BFII EIF ---------------------------- ---------------------------- ---------------------------- NUMBER OF PREMIUMS NUMBER OF PREMIUMS NUMBER OF PREMIUMS UNITS RECEIVED UNITS RECEIVED UNITS RECEIVED Options outstanding at August 31, 2002 (290,000) $ 6,392 -- $ -- -- $ -- Options written (2,748,900) 17,208 (1,515,300) 7,945 (131,401) 1,036 Options terminated in closing purchase transactions 2,582,150 (21,251) 1,141,800 (6,036) 107,701 (924) Options exercised -- -- -- -- -- -- Options outstanding at August 31, 2003 (456,750) $ 2,349 (373,500) $ 1,909 (23,700) $ 112 STBF STBFII ---------------------------- ---------------------------- NUMBER OF PREMIUMS NUMBER OF PREMIUMS UNITS RECEIVED UNITS RECEIVED Options outstanding at August 31, 2002 (30,600) $ 304 -- $ -- Options written (720,801) 5,143 (529,503) 4,181 Options terminated in closing purchase transactions 697,851 (5,196) 440,253 (3,763) Options exercised -- -- -- -- Options outstanding at August 31, 2003 (53,550) $ 251 (89,250) $ 418
120 F. SWAPS -- The Funds engage in various swap transactions, including forward rate agreements, interest rate and total return swaps, primarily to manage duration and curve risk, or as alternatives to direct investments. Unrealized gains are reported as an asset and unrealized losses are reported as a liability on the Statement of Assets and Liabilities. The interest to be paid or received on swaps is reported as unrealized gains or losses in the Statement of Operations. A realized gain or loss is recorded upon termination of swap agreements. Swap agreements are stated at fair value. Notional principal amounts are used to express the extent of involvement in these transactions, but the amounts potentially subject to credit risk are much smaller. As of August 31, 2003, the Funds had outstanding swap agreements as listed on the Funds' Portfolio of Investments. G. COMMITMENTS -- The Funds may enter into commitments to buy and sell investments to settle on future dates as part of their normal investment activities. These commitments are reported at market value in the financial statements. Credit risk exists on these commitments to the extent of any unrealized gains on the underlying securities purchased and to the extent of the difference between the sale price and current market value of the underlying securities sold. Market risk exists on commitments to buy to the same extent as if the securities were owned on a settled basis and gains and losses are recorded and reported in the same manner. However, during the commitment period, these investments earn no interest or dividends. H. DOLLAR ROLLS -- The Funds may enter into dollar rolls (principally using TBA's) in which the Funds sell mortgage securities for delivery in the current month and simultaneously contract to repurchase similar, but not identical, securities at an agreed-upon price on a fixed date. The Funds account for such dollar rolls as purchases and sales and receive compensation as consideration for entering into the commitment to repurchase. Each Fund must maintain liquid securities having a value not less than the repurchase price (including accrued interest) for such dollar rolls. The market value of the securities that a Fund is required to purchase may decline below the agreed upon repurchase price of those securities. BF, BFII, EIF, STBF, and STBFII had TBA Dollar Rolls outstanding as of August 31, 2003, which are included in Receivable for Investment securities sold and Payable for Investment securities purchased on the Statement of Assets and Liabilities. The Funds segregate assets with a current value at least equal to the amount of their TBA Dollar Rolls. In a "fee" roll, the compensation is recorded as deferred income and amortized to income over the roll period. The counterparty receives all principal and interest payments, including prepayments, made in respect of a security subject to such a contract while it is the holder. Mortgage dollar rolls may be renewed with a new purchase and repurchase price and a cash settlement made on settlement date without physical delivery of the securities subject to the contract. The Funds engage in dollar rolls for the purpose of enhancing their yields, principally by earning a negotiated fee. 121 I. RESTRICTED AND ILLIQUID SECURITIES -- The Funds are permitted to invest in securities that are subject to legal or contractual restrictions on resale or are illiquid. Restricted securities generally may be resold in transactions exempt from registration. A security may be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at the current valuation may be difficult. The following is the market value and percentage of net assets of restricted and illiquid securities (amounts in thousands).
ILLIQUID RESTRICTED FUND BF $ 19,954 1.62% $ 105,730 8.57% BFII -- -- 46,697 4.37% EIF -- -- 40,724 11.49% EMDF -- -- 9,902 16.42% GSIF 14,522 13.11% 29,558 26.69% STBF -- -- 88,023 9.39% STBFII -- -- 138,854 8.94% SIF -- -- 1,966 8.79%
J. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Investment transactions are accounted for on the trade date (the date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Interest income is determined on the basis of coupon interest accrued using the interest method adjusted for amortization of premiums and accretion of discounts. Dividend income is recorded on the ex-dividend date or when the Funds first learn of the dividend. Purchases of To Be Announced (TBA), when-issued or delayed delivery securities may be settled a month or more after the trade date; interest income is not accrued until settlement date. It is each Fund's policy to segregate assets with a current value at least equal to the amount of its TBA, when-issued or delayed delivery purchase commitments. K. ALLOCATION OF INCOME AND EXPENSES -- Expenses directly attributable to a Fund are charged to that Fund; other expenses of the Trusts are allocated proportionately among each of the Funds within the Trusts in relation to the net assets of each Fund or on another reasonable basis. Expenses directly attributable to a particular class are charged directly to such class. In calculating the net asset value per share of each class, investment income, realized and unrealized gains and losses and expenses other than class specific expenses are allocated daily to each class of shares based upon the proportion of net assets of each class at the beginning of each day. L. FEDERAL INCOME TAXES -- Each Fund is treated as a separate taxable entity for Federal income tax purposes. The policy of the Funds is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders all of their distributable net investment income and net realized gain on investments. In addition, the Funds intend to make distributions as required to avoid excise taxes. Accordingly, no provision for Federal income or excise tax is necessary. M. FOREIGN TAXES -- Certain Funds may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Funds will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest. 122 N. DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions paid to shareholders are recorded on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains is determined in accordance with Federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. To the extent these "book/tax" differences are permanent in nature, (i.e., that they result from other than timing of recognition -- "temporary differences") such amounts are reclassified within the capital accounts based on their Federal tax-basis treatment. The following amounts were reclassified within the capital accounts (amounts in thousands):
ACCUMULATED ACCUMULATED UNDISTRIBUTED/ NET REALIZED (OVERDISTRIBUTED) GAIN (LOSS) PAID-IN CAPITAL NET INVESTMENT INCOME ON INVESTMENTS FUND BF $ -- $ (372) $ 372 BFII 345 (912) 567 EIF -- (122) 122 EMDF (16) 132 (116) GSIF (299) (737) 1,036 STBF -- 275 (275) STBFII 536 390 (926) SIF (9) (127) 136 USTI -- 6 (6)
The reclassifications for BF relate primarily to the character for tax purposes of foreign currency gains and losses and paydowns. The reclassifications for BFII relate primarily to the character for tax purposes of temporary differences from the acquired fund, foreign currency gains and losses and paydowns. The reclassifications for EIF relate primarily to the character for tax purposes of foreign currency gains and losses and paydowns. The reclassifications for EMDF relate primarily to the character for tax purposes of paydowns and the sale of defaulted securities. The reclassifications for GSIF relate primarily to the character for tax purposes of foreign currency gains and losses, overdistribution of income and paydowns. The reclassifications for STBF relate primarily to the character for tax purposes of foreign currency gains and losses and paydowns. The reclassifications for STBFII relate primarily to the character for tax purposes of current year dividends, equalization, foreign currency gains and losses, return of capital and paydowns. The reclassifications for SIF relate primarily to the character for the tax purposes of paydowns, foreign currency gains and losses and equalization. The reclassifications for USTI relate primarily to the character for tax purposes of paydowns. O. EQUALIZATION -- STBFII and SIF use the accounting practice known as equalization by which a portion of the proceeds from sales and costs of redemptions of Trust shares of beneficial interest equivalent, on a per-share basis, to the amount of undistributed net investment income on the date of the transaction, is credited or charged to undistributed net investment income. As a result, undistributed net investment income per share is unaffected by sales or redemptions of Trust shares. 123 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES A. INVESTMENT ADVISORY FEE -- Pursuant to separate Investment Advisory Agreements, J.P. Morgan Fleming Asset Management (USA), Inc. ("JPMFAM") and J.P. Morgan Investment Management, Inc. ("JPMIM" and, together with JPMFAM, the "Advisors") act as the investment advisors to the Funds. JPMFAM, a direct wholly owned subsidiary of JPMorgan Chase Bank ("JPMCB") and an indirect wholly owned subsidiary of J.P. Morgan Chase & Co. ("JPMorgan"), is the advisor for BFII, STBFII, SIF and USTI. JPMIM, a wholly owned subsidiary of JPMorgan, is the advisor for BF, EIF, EMDF, GSIF and STBF. The Advisors supervise the investments of each respective Fund and for such services are paid a fee. The fee is accrued daily and paid monthly based on each Fund's respective average daily net assets. The annual fee for each Fund is as follows:
INVESTMENT ADVISORY FEE (%) FUND BF 0.30% BFII 0.30% EIF 0.25% EMDF 0.70% GSIF 0.45% STBF 0.25% STBFII 0.25% SIF 0.50% USTI 0.30%
The Advisors waived fees as outlined in Note 4.F. The Funds may invest in one or more of the affiliated JPMorgan Money Market Funds. The Adviser has agreed to waive and/or reimburse its advisory fee from the Funds in an amount sufficient to offset any doubling up of investment advisory, administration and shareholder servicing fees related to each Fund's investment in an affiliated money market fund. B. DISTRIBUTION FEES -- Pursuant to a Distribution Agreement, J.P. Morgan Fund Distributors, Inc. ("JPMFD" or "Distributor"), a wholly-owned subsidiary of The BISYS Group, Inc., serves as the Trusts' exclusive underwriter and promotes and arranges for the sale of each Fund's shares. JPMFD receives no compensation in its capacity as the Funds' underwriter. 124 The Trustees have adopted Distribution Plans (the "Distribution Plans") for Class A, B, C and M Shares of the Funds in accordance with Rule 12b-1 under the 1940 Act. The Distribution Plans provide that each Fund shall pay distribution fees, including payments to the Distributor, at annual rates of the average daily net assets as shown in the table below (%):
CLASS A CLASS B CLASS C CLASS M FUND BF 0.25 0.75 0.75 n/a BFII 0.25 0.75 n/a n/a GSIF 0.25 0.75 n/a n/a STBF 0.25 n/a n/a n/a STBFII 0.25 n/a n/a 0.35 SIF 0.25 0.75 0.75 0.50 USTI 0.25 0.75 n/a n/a
In addition, JPMFD receives any contingent deferred sales charges ("CDSC") from redemptions of Class B and Class C shares. The Distributor waived fees and reimbursed expenses as outlined in Note 4.F. C. SHAREHOLDER SERVICING FEES -- The Trusts have entered into Shareholder Servicing Agreements on behalf of the Funds with JPMCB under which JPMCB provides account administration and personal account maintenance services to the shareholders. JPMCB may obtain the services of one or more shareholder servicing agents. For these services JPMCB or the Shareholder Servicing Agent will receive a fee that is computed daily and paid monthly equal to a percentage of the average daily net assets as shown in the table below (%):
CLASS A CLASS B CLASS C CLASS M INSTITUTIONAL SELECT ULTRA FUND BF 0.25 0.25 0.25 n/a 0.10 0.25 0.05 BFII 0.25 0.25 n/a n/a n/a 0.25 n/a EIF n/a n/a n/a n/a 0.10 n/a n/a EMDF n/a n/a n/a n/a n/a 0.25 n/a GSIF 0.25 0.25 n/a n/a 0.10 0.25 n/a STBF 0.25 n/a n/a n/a 0.10 0.25 n/a STBFII 0.25 n/a n/a 0.25 n/a 0.25 n/a SIF 0.25 0.25 0.25 0.30 n/a n/a n/a USTI 0.25 0.25 n/a n/a n/a 0.25 n/a
125 In addition, JPMCB, Charles Schwab & Co. ("Schwab") and JPMF, JPMIF and JPMST are parties to separate servicing and operating agreements (the "Schwab Agreements") whereby Schwab makes shares of BF, EIF, EMDF, GSIF and STBF available to customers of investment advisers and other financial intermediaries who are Schwab's clients. BF, EIF, EMDF, GSIF and STBF are not responsible for payments to Schwab under the Schwab Agreements; however, in the event the servicing agreement with Schwab is terminated for reasons other than a breach by Schwab and the relationship between JPMF, JPMIF, JPMST and JPMCB is terminated, BF, EIF, EMDF, GSIF and STBF would be responsible for the ongoing payments to Schwab with respect to pre-termination shares. The Shareholder Servicing Agent waived fees as outlined in Note 4.F. D. CUSTODIAN AND ACCOUNTING FEES -- JPMCB provides portfolio accounting and custody services for the Funds. Compensation for such services is presented in the Statement of Operations as custodian fees. The custodian fees may be reduced by credits earned by each Fund, based on uninvested cash balances held by the custodian. Such earnings credits are presented separately in the Statement of Operations. E. ADMINISTRATION FEE -- Pursuant to an Administration Agreement, JPMCB (the "Administrator") provides certain administration services to the Funds. In consideration of these services, the Administrator receives a fee computed daily and paid monthly at an annual rate equal to 0.15% of the first $25 billion of the average daily net assets of all non-money market funds in the JPMorgan Fund Complex and 0.075% of such average daily net assets in excess of $25 billion. BISYS Fund Services, L.P. ("BISYS") serves as the Funds' sub-administrator. For its services as sub-administrator, BISYS receives a portion of the fees payable to JPMCB as Administrator. The Administrator has contractually agreed to reimburse the Funds to the extent that total operating expenses (excluding interest, taxes, extraordinary expenses and expenses related to the deferred compensation plan) exceed the percentages of their respective average daily net assets as shown in the table below (%):
CLASS A CLASS B CLASS C CLASS M INSTITUTIONAL SELECT ULTRA FUND BF 0.75 1.50 1.50 n/a 0.49 0.69 0.40 BFII 0.75 1.50 n/a n/a n/a 0.60 n/a EIF n/a n/a n/a n/a 0.20 n/a n/a EMDF n/a n/a n/a n/a n/a 1.25 n/a GSIF 1.25 1.75 n/a n/a 0.65 1.00 n/a STBF 0.75 n/a n/a n/a 0.30 0.60 n/a STBFII 0.75 n/a n/a 1.00 n/a 0.50 n/a SIF 1.25 1.75 1.75 1.45 n/a n/a n/a USTI 0.75 1.64 n/a n/a n/a 0.55 n/a
126 The contractual expense limitation agreements were in effect for the year ended August 31, 2003. The expense limitation percentages in the table above are due to expire as follows:
CLASS A CLASS B CLASS C CLASS M INSTITUTIONAL SELECT ULTRA BF 12/31/03 12/31/03 3/31/04 n/a 12/31/04 12/31/04 12/31/05 BFII 03/31/04 12/31/03 n/a n/a n/a 03/31/04 n/a EIF n/a n/a n/a n/a 12/31/03 n/a n/a EMDF n/a n/a n/a n/a n/a 12/31/04 n/a GSIF 12/31/03 12/31/03 n/a n/a 12/31/04 12/31/04 n/a STBF 12/31/03 n/a n/a n/a 12/31/04 12/31/04 n/a STBFII 12/31/03 n/a n/a 12/31/03 n/a 12/31/03 n/a SIF 12/31/03 12/31/03 12/31/03 12/31/03 n/a n/a n/a USTI 12/31/03 12/31/03 n/a n/a n/a 12/31/03 n/a
The Administrator waived fees and reimbursed expenses as outlined in Note 4.F. F. WAIVERS AND REIMBURSEMENTS -- For the year ended August 31, 2003, the Funds' vendors waived fees and the Administrator contractually reimbursed expenses for each of the Funds as follows (amounts in thousands):
CONTRACTUAL WAIVERS ----------------------------------------------------------------- INVESTMENT SHAREHOLDER CONTRACTUAL ADVISORY ADMINISTRATION SERVICING DISTRIBUTION TOTAL REIMBURSEMENTS BF $ -- $ 1,469 $ 343 $ -- $ 1,812 $ 20 BFII -- 36 1,346 88 1,470 -- EIF 399 548 366 -- 1,313 -- EMDF 2 31 127 -- 160 -- GSIF 327 62 33 -- 422 30 STBF 29 1,252 752 -- 2,033 -- STBFII -- 549 342 129 1,020 -- SIF 108 33 54 -- 195 111 USTI 119 120 197 124 560 -- - ------------------------------------------------------------------------------------------------------------ Total $ 984 $ 4,100 $ 3,560 $ 341 $ 8,985 $ 161 ============================================================================================================ VOLUNTARY WAIVERS --------------------------------------------------------------------- INVESTMENT SHAREHOLDER ADVISORY ADMINISTRATION SERVICING DISTRIBUTION TOTAL BF $ -- $ 84 $ -- $ -- $ 84 STBF -- 46 -- -- 46 - -------------------------------------------------------------------------------------------------------------- Total $ -- $ 130 $ -- $ -- $ 130 ==============================================================================================================
127 G. OTHER -- Certain officers of the Trusts are officers of J.P. Morgan Chase & Co. or of BISYS or their subsidiaries. During the period certain of the Funds may have purchased securities from an underwriting syndicate in which the principal underwriter or members of the syndicate are affiliated with the Advisors. The Funds may use related party broker dealers. For the year ended August 31, 2003, BF and STBF incurred approximately (in thousands) $10 and $15, respectively, as brokerage commissions with brokers/dealers affiliated with JPMorgan. STBF incurred approximately (in thousands) $29 as clearing fees for JPMorgan Chase Futures. 5. CLASS SPECIFIC EXPENSES The Funds' class specific expenses for the year ended August 31, 2003 are as follows (amounts in thousands):
SHAREHOLDER SERVICING DISTRIBUTION TRANSFER AGENT BF Class A $ 4 $ 4 $ 10 Class B 6 17 14 Class C --^ --^ --^ Institutional 645 -- 26 Select 836 -- 44 Ultra 267 -- 16 - ---------------------------------------------------------------------- $ 1,758 $ 21 $ 110 ====================================================================== BFII Class A $ 88 $ 88 $ 61 Class B 38 113 26 Select 2,134 -- 23 - ---------------------------------------------------------------------- $ 2,260 $ 201 $ 110 ====================================================================== EIF Institutional $ 366 $ -- $ 17 ====================================================================== EMDF Select $ 147 $ -- $ 22 ====================================================================== GSIF Class A $ 1 $ 2 $ 12 Class B 1 2 20 Institutional 126 -- 23 Select 9 -- 14 - ---------------------------------------------------------------------- $ 137 $ 4 $ 69 ====================================================================== STBF Class A $ 26 $ 26 $ 17 Institutional 739 -- 29 Select 344 -- 24 - ---------------------------------------------------------------------- $ 1,109 $ 26 $ 70 ======================================================================
128 5. CLASS SPECIFIC EXPENSES
SHAREHOLDER SERVICING DISTRIBUTION TRANSFER AGENT STBFII Class A $ 215 $ 214 $ 24 Class M 3,111 4,356 12 Select 492 -- 24 - ----------------------------------------------------------------------- $ 3,818 $ 4,570 $ 60 ======================================================================= SIF Class A $ 7 $ 7 $ 12 Class B 20 58 35 Class C 7 22 12 Class M 25 40 17 - ----------------------------------------------------------------------- $ 59 $ 127 $ 76 ======================================================================= USTI Class A $ 124 $ 124 $ 95 Class B 56 168 43 Select 192 -- 11 - ----------------------------------------------------------------------- $ 372 $ 292 $ 149 =======================================================================
^ Amount rounds to less than one thousand. 6. CLASS SPECIFIC DISTRIBUTIONS The Funds' class specific distributions from net investment income and realized gain on investment transactions for the year ended August 31, 2003 and the period ended August 31, 2002 are as follows (amounts in thousands):
9/1/02 THROUGH 8/31/03 11/1/01 THROUGH 8/31/02 -------------------------------- -------------------------------- NET NET INVESTMENT INCOME REALIZED GAIN INVESTMENT INCOME REALIZED GAIN BF Class A $ 62 $ 8 $ 9 $ 1 Class B 70 13 12 --^ Class C 1 -- -- -- Institutional 26,560 5,442 29,582 6,409 Select 13,353 2,562 9,856 1,892 Ultra 22,494 4,216 19,447 3,746 - ----------------------------------------------------------------------------------------- $ 62,540 $ 12,241 $ 58,906 $ 12,048 =========================================================================================
129
9/1/02 THROUGH 8/31/03 11/1/01 THROUGH 8/31/02 -------------------------------- --------------------------------- NET NET INVESTMENT INCOME REALIZED GAIN INVESTMENT INCOME REALIZED GAIN BFII Class A $ 1,413 $ 389 $ 1,509 $ -- Class B 492 170 264 -- Select 36,689 7,587 22,316 -- - ------------------------------------------------------------------------------------------- $ 38,594 $ 8,146 $ 24,089 $ -- =========================================================================================== EIF Institutional $ 8,519 $ -- $ 3,084 $ -- =========================================================================================== EMDF Select $ 4,996 $ -- $ 311 $ -- =========================================================================================== GSIF Class A $ 9 $ -- $ 1 $ -- Class B 12 -- 4 -- Institutional 6,870 -- 7,372 -- Select 186 -- 218 -- - ------------------------------------------------------------------------------------------- $ 7,077 $ -- $ 7,595 $ -- =========================================================================================== STBF Class A $ 255 $ 155 $ 176 $ 10 Institutional 21,501 9,747 17,687 2,460 Select 3,658 1,911 2,600 262 - ------------------------------------------------------------------------------------------- $ 25,414 $ 11,813 $ 20,463 $ 2,732 =========================================================================================== STBFII Class A $ 1,997* $ 510 $ 1,317 $ 561 Class M 26,550* 5,842 20,500 8,423 Select 5,356* 688 3,497 1,444 - ------------------------------------------------------------------------------------------- $ 33,903 $ 7,040 $ 25,314 $ 10,428 =========================================================================================== SIF Class A $ 158 $ -- $ 120 $ -- Class B 384 -- 312 -- Class C 140 -- 101 -- Class M 421 -- 391 -- - ------------------------------------------------------------------------------------------- $ 1,103 $ -- $ 924 $ -- =========================================================================================== USTI Class A $ 1,913 $ -- $ 1,387 $ -- Class B 670 -- 476 -- Select 3,136 -- 2,457 -- - ------------------------------------------------------------------------------------------- $ 5,719 $ -- $ 4,320 $ -- ===========================================================================================
^ Amount rounds to less than one thousand * Includes return of capital $33, $478 and $76 for Class A, M and Select, respectively. 130 7. INVESTMENT TRANSACTIONS For the year ended August 31, 2003, purchases and sales of investments (excluding short-term investments) were as follows (amounts in thousands):
PURCHASES SALES PURCHASES SALES (EXCLUDING U.S. (EXCLUDING U.S. OF U.S. OF U.S. GOVERNMENT) GOVERNMENT) GOVERNMENT GOVERNMENT BF $ 545,172 $ 685,397 $ 9,252,964 $ 9,509,822 BFII 608,892 318,977 6,727,484 6,753,031 EIF 482,079 359,142 589,469 613,285 EMDF 4,416 3,174 86,449 82,072 GSIF 22,986 35,391 282,730 303,959 STBF 805,603 678,192 1,943,291 1,862,788 STBFII 1,874,339 1,574,452 2,785,870 2,736,930 SIF 7,376 6,244 17,609 17,329 USTI 2,517 808 163,728 148,811
8. FEDERAL INCOME TAX MATTERS For Federal income tax purposes, the cost and unrealized appreciation (depreciation) in value of the investment securities at August 31, 2003 are as follows (amounts in thousands):
GROSS GROSS NET UNREALIZED AGGREGATE UNREALIZED UNREALIZED APPRECIATION COST APPRECIATION DEPRECIATION (DEPRECIATION) BF $ 1,371,021 $ 22,920 $ (21,037) $ 1,883 BFII 1,220,242 22,783 (16,535) 6,248 EIF 363,799 704 (1,059) (355) EMDF 51,202 7,739 (679) 7,060 GSIF 118,531 6,423 (2,071) 4,352 STBF 1,075,283 6,577 (3,524) 3,053 STBFII 1,715,197 10,726 (6,968) 3,758 SIF 21,648 1,282 (531) 751 USTI 136,165 3,178 (2,296) 882
131 The tax character of distributions paid during the year ended August 31, 2003, and the period ended August 31, 2002 were as follows (amounts in thousands): YEAR ENDED 8/31/03
ORDINARY LONG-TERM RETURN OF TOTAL INCOME CAPITAL GAIN CAPITAL DISTRIBUTIONS BF $ 71,135 $ 3,646 $ -- $ 74,781 BFII 42,125 4,615 -- 46,740 EIF 8,519 -- -- 8,519 EMDF 4,996 -- -- 4,996 GSIF 7,077 -- -- 7,077 STBF 29,709 7,518 -- 37,227 STBFII 36,036 4,320 587 40,943 SIF 1,103 -- -- 1,103 USTI 5,719 -- -- 5,719
11/1/01 THROUGH 8/31/02
ORDINARY LONG-TERM RETURN OF TOTAL INCOME CAPITAL GAIN CAPITAL DISTRIBUTIONS BF $ 58,906 $ 12,048 $ -- $ 70,954 BFII 24,089 -- -- 24,089 EIF 3,084 -- -- 3,084 EMDF 311 -- -- 311 GSIF 7,217 -- 378 7,595 STBF 20,457 2,738 -- 23,195 STBFII 30,242 5,500 -- 35,742 SIF 867 -- 57 924 USTI 4,320 -- -- 4,320
132 At August 31, 2003, the components of net assets (excluding paid in capital) on a tax basis were as follows (amounts in thousands):
BF BFII EIF Current distributable ordinary income $ 13,204 $ 4,787 $ 173 Plus/Less: cumulative timing differences (1,524) (5,024) (304) Undistributed ordinary income or overdistribution of ordinary income $ 11,680 $ (237) $ (131) Current distributable long-term capital gain or tax basis capital loss carryover 15,604 154 (1,972) Plus/Less: cumulative timing differences -- -- (2,959) Undistributed long-term gains/ accumulated capital loss 15,604 154 (4,931) Unrealized appreciation (depreciation) $ 5,995 $ 5,574 $ (170) EMDF GSIF STBF Current distributable ordinary income $ 334 $ -- $ 1,627 Plus/Less: cumulative timing differences (43) (854) (2,230) Undistributed ordinary income or overdistribution of ordinary income $ 291 $ (854) $ (603) Current distributable long-term capital gain or tax basis capital loss carryover (2,324) (32,290) -- Plus/Less: cumulative timing differences -- -- (2,587) Undistributed long-term gains/ accumulated capital loss (2,324) (32,290) (2,587) Unrealized appreciation (depreciation) $ 7,022 $ 4,336 $ 4,313 STBFII SIF USTI Current distributable ordinary income $ -- $ --^ $ 194 Plus/Less: cumulative timing differences (2,892) (208) (186) Undistributed ordinary income or overdistribution of ordinary income $ (2,892) $ (208) $ 8 Current distributable long-term capital gain or tax basis capital loss carryover -- (2,615) (1,587) Plus/Less: cumulative timing differences (1,731) (109) (849) Undistributed long-term gains/ accumulated capital loss (1,731) (2,724) (2,436) Unrealized appreciation (depreciation) $ 4,598 $ 748 $ 882
133 For BF, EIF and STBFII, the difference between book and tax basis unrealized appreciation/(depreciation) is primarily attributed to wash sales, straddle loss deferrals and the mark to market of futures and options. For BFII and STBF, the difference between book and tax basis unrealized appreciation/(depreciation) is primarily attributed to wash sales and the mark to market of futures and options. For EMDF, the difference between book and tax basis unrealized appreciation/(depreciation) is primarily attributed to wash sales, mark to market of futures, and allocation of tax basis on "Master/Feeder" takedown. For GSIF, the differences between book and tax basis unrealized appreciation/(depreciation) is primarily attributed to wash sales, straddle loss deferrals, the mark to market of futures, and forward foreign currency contracts. For SIF, the difference between book and tax basis unrealized appreciation/(depreciation) is primarily attributed to wash sales and the mark to market of futures, forward foreign currency contracts. For USTI, the difference between book and tax basis unrealized appreciation/(depreciation) is primarily attributed to wash sales and the mark to market of futures. For BF and EIF, the cumulative timing difference account primarily consists of dividends payable and post October loss deferrals. For BFII, STBF, STBFII and USTI, the cumulative timing difference account primarily consists of deferred compensation, dividends payable and post October loss deferrals. For EMDF, the cumulative timing difference account primarily consists of deferred compensation, dividends payable and interest write off for book not tax purposes. For GSIF and SIF, the cumulative timing difference account primarily consists of dividends payable, post October loss deferrals and interest write off for book not tax purposes. At August 31, 2003, the following Funds have capital loss carryovers, which will be available to offset capital gains. To the extent that any net capital loss carryovers are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders (amounts in thousands).
EXPIRATION AMOUNT DATE EIF $ (1,180) August 31, 2010 (792) August 31, 2011 - ------------------------------------------------------------------------------------------------------------------------ (1,972) ======================================================================================================================== EMDF $ (2,324) August 31, 2010 ======================================================================================================================== GSIF $ (8,194) August 31, 2006 (5,023) August 31, 2007 (6,462) August 31, 2008 (4,211) August 31, 2009 (8,400) August 31, 2010 - ------------------------------------------------------------------------------------------------------------------------ (32,290)* ======================================================================================================================== SIF $ (1,652) August 31, 2009 (917) August 31, 2010 (46) August 31, 2011 - ------------------------------------------------------------------------------------------------------------------------ (2,615) ======================================================================================================================== USTI $ (1,587) August 31, 2008 ========================================================================================================================
* The above capital loss carryover includes $426 (amount in thousands) of losses acquired from J.P. Morgan Global Strategic Income Fund. Utilization of these losses will be subject to an annual limitation as prescribed by the Internal Revenue Code. 134 During the year ended August 31, 2003, EMDF, GSIF and USTI utilized capital loss carryovers of $3,652, $1,321 and $4,029, respectively (amounts in thousands). Capital losses incurred after October 31, within a Fund's fiscal year are deemed to aris on the first business day of the following fiscal year for tax purposes. The following Funds have incurred the following post-October realized losses (amounts in thousands):
CURRENCY CAPITAL FUND BF $ 386 $ -- BFII 848 -- EIF 132 2,959 GSIF 429 -- STBF -- 4,186 STBFII 280 1,727 SIF 150 109 USTI -- 850
9. BANK BORROWINGS Pursuant to a Line of Credit Agreement, dated April 17, 2003, the Funds may borrow money for temporary or emergency purposes. The Funds have entered into the agreement, enabling them to participate with other JPMorgan Funds in a line of credit with JPMCB, as administrative agent, and with a syndicate of banks, which permits borrowings up to $250 million, collectively. Interest is charged to each Fund based on its borrowings at an annual rate equal to the sum of the Federal Funds Rate plus 0.50%. The Funds also pay a commitment fee of 0.09% per annum on the average daily amount of the available commitment, which is allocated on a pro-rata basis to the Funds. The commitment fee is included in Other expenses on the Statement of Operations. This agreement will expire on April 16, 2004. Prior to April 17, 2003, the Funds had entered into an agreement, enabling them to participate with other JPMorgan Funds in an unsecured line of credit with a syndicate of banks, which permitted borrowings up to $400 million, collectively. Interest was charged to the Fund based on its borrowings at an annual rate equal to the sum of the Federal Funds Rate plus 0.50%. The Funds also paid a commitment fee of 0.09% per annum on the average daily amount of the available commitment, which was allocated on a pro-rata basis to the Fund. This agreement expired on April 16, 2003. The commitment fee is included in Other expenses on the Statement of Operations. During the period ended August 31, 2003, EMDF and GSI had borrowed against the Line of Credit Agreement. The details of the borrowing were as follows (amounts in thousands):
AVERAGE AVERAGE AMOUNT OUTSTANDING* INTEREST RATE FUND EMDF $ 51 1.62% GSI 96 1.76%
* The average amount outstanding was calculated based on the daily balances during the period from September 1, 2002, through August 31, 2003. 135 10. CONCENTRATIONS AND INDEMNIFICATIONS The Funds may have elements of risk not typically associated with investments in the United States of America due to concentrated investments in a limited number of countries or regions, which may vary throughout the year. Such concentrations may subject the Funds to additional risks resulting from political or economic conditions in such countries or regions and the possible imposition of adverse governmental laws or currency exchange restrictions could cause the securities and their markets to be less liquid and their prices more volatile than those of comparable U.S. securities. The ability of the issuers of debt, asset-backed and mortgage-backed securities, along with counterparties to swaps, forward foreign currency exchange contracts and option agreements, to meet their obligations may be affected by the economic and political developments in a specific industry or region. The value of asset-backed and mortgage-backed securities can be significantly affected by changes in interest rates or rapid principal payments including prepayments. As to illiquid investments, a Fund is subject to the risk that should the Fund decide to sell them when a ready buyer is not available at a price the Fund deems representative of their value, the value of the Fund's net assets could be adversely affected. From time to time, the Funds may have a concentration of several shareholders which may be a related party, holding a significant percentage of shares outstanding. Investment activities of these shareholders could have a material impact on the Funds. In the normal course of business the Funds enter into contracts that contain a variety of representations which provide general indemnifications. Each Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against each Fund that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote. 11. SUBSEQUENT EVENTS On September 1, 2003, Robert Fleming, Inc. and J.P. Morgan Fleming Asset Management (USA), Inc. merged into J.P. Morgan Investment Management, Inc. ("JPMIM"). The investment advisory services and personnel providing investment advice have not changed as a result of the merger. Effective September 1, 2003, JPMIM, the surviving entity, will serve as adviser to all the funds. On October 1, 2003, JPMIM changed from being a wholly owned subsidiary of JPMorgan ("Parent") to being an indirectly wholly owned subsidiary of the Parent, with the intermediary being J.P. Morgan Fleming Asset Management Holdings, Inc. 136 12. CAPITAL SHARE TRANSACTIONS
BOND FUND -------------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001* CLASS A AMOUNT Shares sold $ 5,626 $ 1,239 $ 70 Shares issued in reinvestment of distributions 59 9 --^ Shares redeemed (4,362) (602) (1) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding $ 1,323 $ 646 $ 69 ============================================================================================================================ SHARES Shares sold 550 126 7 Shares issued in reinvestment of distributions 6 1 --^ Shares redeemed (430) (61) --^ - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding 126 66 7 ============================================================================================================================ CLASS B SHARES AMOUNT Shares sold $ 1,762 $ 1,577 $ 63 Shares issued in reinvestment of distributions 50 9 --^ Shares redeemed (623) (298) -- - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding $ 1,189 $ 1,288 $ 63 ============================================================================================================================ SHARES Shares sold 172 160 6 Shares issued in reinvestment of distributions 5 1 --^ Shares redeemed (61) (30) -- - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding 116 131 6 ============================================================================================================================
+ The Fund changed its fiscal year end from October 31 to August 31. * For Class A Shares, Class B Shares and Select Shares, from commencement of operations on September 10, 2001. ^ Amount rounds to less than one thousand. 137
BOND FUND -------------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001* CLASS C** AMOUNT Shares sold $ 277 $ -- $ -- Shares issued in reinvestment of distributions 1 -- -- - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding $ 278 $ -- $ -- ============================================================================================================================ SHARES Shares sold 27 -- -- Shares issued in reinvestment of distributions --^ -- -- - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding 27 -- -- ============================================================================================================================ INSTITUTIONAL AMOUNT Shares sold $ 100,824 $ 161,877 $ 388,434 Shares issued in reinvestment of distributions 18,575 20,198 30,849 Shares redeemed (387,582) (441,909) (375,266) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding $ (268,183) $ (259,834) $ 44,017 ============================================================================================================================ SHARES Shares sold 9,955 16,434 39,773 Shares issued in reinvestment of distributions 1,827 2,056 3,149 Shares redeemed (38,087) (44,903) (38,384) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding (26,305) (26,413) 4,538 ============================================================================================================================
+ The Fund changed its fiscal year end from October 31 to August 31. * For Class A Shares, Class B Shares and Select Shares, from commencement of operations on September 10, 2001. ** From commencement of offering class shares on March 31, 2003. ^ Amount rounds to less than one thousand. 138
BOND FUND -------------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001* SELECT AMOUNT Shares sold $ 164,875 $ 96,862 $ 32,570 Shares issued in connection with Fund Reorganization (Note 2) -- -- 299,497 Shares issued in reinvestment of distributions 14,339 10,484 1,920 Shares redeemed (179,758) (109,981) (24,697) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding $ (544) $ (2,635) $ 309,290 ============================================================================================================================ SHARES Shares sold 16,205 9,809 3,295 Shares issued in connection with Fund Reorganization (Note 2) -- -- 30,279 Shares issued in reinvestment of distributions 1,410 1,065 192 Shares redeemed (17,684) (11,124) (2,491) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding (69) (250) 31,275 ============================================================================================================================ ULTRA AMOUNT Shares sold $ 83,572 $ 280,395 $ 49,357 In-kind contributions -- 559 -- Shares issued in connection with Fund Reorganization (Note 2) -- -- 555,990 Shares issued in reinvestment of distributions 21,583 16,681 3,120 Shares redeemed (268,399) (284,193) (21,200) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding $ (163,244) $ 13,442 $ 587,267 ============================================================================================================================ SHARES Shares sold 8,169 28,380 4,944 In-kind contributions -- 57 -- Shares issued in connection with Fund Reorganization (Note 2) -- -- 56,210 Shares issued in reinvestment of distributions 2,122 1,694 312 Shares redeemed (26,279) (28,843) (2,135) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding (15,988) 1,288 59,331 ============================================================================================================================
* For Class A Shares, Class B Shares, Select Shares and Ultra Shares, from commencement of operations on September 10, 2001. + The Fund changed its fiscal year end from October 31 to August 31. 139
BOND FUND II -------------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001* CLASS A AMOUNT Shares sold $ 19,019 $ 13,295 $ 75,231 Shares issued in connection with Fund Reorganization (Note 2) 4,321 34,496 Shares issued in reinvestment of distributions 1,250 1,102 987 Shares redeemed (21,390) (47,915) (49,101) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding $ 3,200 $ (33,518) $ 61,613 ============================================================================================================================ SHARES Shares sold 456 330 1,898 Shares issued in connection with Fund Reorganization (Note 2) 104 872 Shares issued in reinvestment of distributions 30 27 25 Shares redeemed (514) (1,193) (1,251) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding 76 (836) 1,544 ============================================================================================================================ CLASS B AMOUNT Shares sold $ 5,212 $ 7,545 $ 4,481 Shares issued in connection with Fund Reorganization (Note 2) -- 4,552 Shares issued in reinvestment of distributions 535 216 141 Shares redeemed (3,864) (2,397) (1,419) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding $ 1,883 $ 5,364 $ 7,755 ============================================================================================================================ SHARES Shares sold 125 188 113 Shares issued in connection with Fund Reorganization (Note 2) -- 115 Shares issued in reinvestment of distributions 13 5 3 Shares redeemed (93) (59) (36) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding 45 134 195 ============================================================================================================================
* For Class A and B Shares, from commencement of operations on March 2, 2001. + The Fund changed its fiscal year end from October 31 to August 31. 140
BOND FUND II --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001* SELECT AMOUNT Shares sold $ 101,070 $ 46,695 $ 69,494 Shares issued in connection with Fund Reorganization (Note 2) 530,889 -- 67,941 Shares issued in reinvestment of distributions 9,918 1,949 2,446 Shares redeemed (260,826) (74,902) (94,591) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 381,051 $ (26,258) $ 45,290 ====================================================================================================== SHARES Shares sold 2,423 1,154 1,837 Shares issued in connection with Fund Reorganization (Note 2) 12,846 -- 1,718 Shares issued in reinvestment of distributions 239 48 61 Shares redeemed (6,274) (1,858) (2,402) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 9,234 (656) 1,214 ======================================================================================================
* For Class A and B Shares, from commencement of operations on March 2, 2001. + The Fund changed its fiscal year end from October 31 to August 31. 141
ENHANCED INCOME FUND ------------------------------------ YEAR ENDED PERIOD ENDED AUGUST 31, 2003 AUGUST 31, 2002* INSTITUTIONAL AMOUNT Shares sold $ 447,159 $ 354,974 Shares issued in reinvestment of distributions 6,334 2,447 Shares redeemed (394,644) (56,630) - --------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding $ 58,849 $ 300,791 ================================================================================= SHARES Shares sold 44,983 35,496 Shares issued in reinvestment of distributions 638 245 Shares redeemed (39,744) (5,662) - --------------------------------------------------------------------------------- Net increase (decrease) in Fund shares outstanding 5,877 30,079 =================================================================================
* From commencement of operations on November 30, 2001. 142
FLEMING EMERGING MARKETS DEBT FUND --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ JULY 31, 2002 SELECT AMOUNT Shares sold $ 48,541 $ 5,845 $ 14,395 Shares issued in reinvestment of distributions 4,368 285 3,207 Shares redeemed (44,406) (2,247) (13,889) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 8,503 $ 3,883 $ 3,713 ====================================================================================================== SHARES Shares sold 5,767 790 1,783 Shares issued in reinvestment of distributions 517 39 408 Shares redeemed (5,103) (313) (1,738) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 1,181 516 453 ======================================================================================================
+ The Fund changed its fiscal year end from July 31 to August 31. 143
GLOBAL STRATEGIC INCOME FUND --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001* CLASS A AMOUNT Shares sold $ 563 $ 64 $ 10 Shares issued in reinvestment of distributions 2 1 --^ Shares redeemed (233) (1) -- - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 332 $ 64 $ 10 ====================================================================================================== SHARES Shares sold 62 7 1 Shares issued in reinvestment of distributions --^ --^ --^ Shares redeemed (26) --^ -- - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 36 7 1 ====================================================================================================== CLASS B AMOUNT Shares sold $ 103 $ 240 $ 10 Shares issued in reinvestment of distributions 11 4 --^ Shares redeemed (29) (29) -- - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 85 $ 215 $ 10 ====================================================================================================== SHARES Shares sold 12 28 1 Shares issued in reinvestment of distributions 1 --^ --^ Shares redeemed (3) (3) -- - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 10 25 1 ======================================================================================================
* For Class A Shares, Class B Shares and Select Shares, from commencement of operations on September 10, 2001. ^ Amount rounds to less than one thousand. + The Fund changed its fiscal year end from October 31 to August 31. 144
GLOBAL STRATEGIC INCOME FUND --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001* INSTITUTIONAL AMOUNT Shares sold $ 19,855 $ 32,337 $ 64,428 Shares issued in reinvestment of distributions 1,670 2,299 7,184 Shares redeemed (53,142) (38,770) (85,638) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ (31,617) $ (4,134) $ (14,026) ====================================================================================================== SHARES Shares sold 2,212 3,644 6,949 Shares issued in reinvestment of distributions 189 260 779 Shares redeemed (5,948) (4,384) (9,291) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding (3,547) (480) (1,563) ====================================================================================================== SELECT AMOUNT Shares sold $ 813 $ 1,885 $ 122 Shares issued in connection with Fund Reorganization (Note 2) -- -- 5,459 Shares issued in reinvestment of distributions 173 199 45 Shares redeemed (3,325) (1,319) (953) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ (2,339) $ 765 $ 4,673 ====================================================================================================== SHARES Shares sold 90 215 14 Shares issued in connection with Fund Reorganization (Note 2) -- -- 598 Shares issued in reinvestment of distributions 19 23 5 Shares redeemed (377) (148) (108) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding (268) 90 509 ======================================================================================================
* For Class A Shares, Class B Shares and Select Shares, from commencement of operations on September 10, 2001. + The Fund changed its fiscal year end from October 31 to August 31. 145
SHORT TERM BOND FUND --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001* CLASS A AMOUNT Shares sold $ 10,476 $ 10,168 $ 2,334 Shares issued in reinvestment of distributions 234 93 3 Shares redeemed (11,597) (2,821) (100) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ (887) $ 7,440 $ 2,237 ====================================================================================================== SHARES Shares sold 1,047 1,026 236 Shares issued in reinvestment of distributions 23 9 1 Shares redeemed (1,161) (285) (10) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding (91) 750 227 ====================================================================================================== INSTITUTIONAL AMOUNT Shares sold $ 577,952 $ 351,240 $ 497,579 Shares issued in reinvestment of distributions 22,428 14,610 13,274 Shares redeemed (397,855) (445,356) (253,463) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 202,525 $ (79,506) $ 257,390 ====================================================================================================== SHARES Shares sold 57,811 35,453 50,690 Shares issued in reinvestment of distributions 2,246 1,472 1,361 Shares redeemed (39,844) (44,923) (25,913) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 20,213 (7,998) 26,138 ======================================================================================================
+ The Fund changed its fiscal year end from October 31 to August 31. * For Class A Shares, from commencement of operations on February 16, 2001. 146
SHORT TERM BOND FUND (CONTINUED) --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001 SELECT AMOUNT Shares sold $ 114,380 $ 81,057 $ 14,443 Shares issued in connection with Fund Reorganization (Note 2) -- -- 53,000 Shares issued in reinvestment of distributions 4,787 2,554 306 Shares redeemed (116,165) (29,424) (2,019) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 3,002 $ 54,187 $ 65,730 ====================================================================================================== SHARES Shares sold 11,457 8,200 1,451 Shares issued in connection with Fund Reorganization (Note 2) -- -- 5,372 Shares issued in reinvestment of distributions 479 257 31 Shares redeemed (11,649) (2,968) (203) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 287 5,489 6,651 ======================================================================================================
+ The Fund changed its fiscal year end from October 31 to August 31. 147
SHORT TERM BOND FUND II --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001 CLASS A AMOUNT Shares sold $ 113,310 $ 65,617 $ 74,289 Shares issued in connection with Fund Reorganization (Note 2) -- -- 252 Shares issued in reinvestment of distributions 2,068 1,495 706 Shares redeemed (141,585) (48,876) (43,358) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ (26,207) $ 18,236 $ 31,889 ====================================================================================================== SHARES Shares sold 10,975 6,448 7,303 Shares issued in connection with Fund Reorganization (Note 2) -- -- 25 Shares issued in reinvestment of distributions 200 147 69 Shares redeemed (13,686) (4,813) (4,291) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding (2,511) 1,782 3,106 ====================================================================================================== CLASS M AMOUNT Shares sold $ 396,087 $ 600,270 $ 688,863 Shares issued in reinvestment of distributions 166 365 488 Shares redeemed (344,293) (165,849) (27,828) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 51,960 $ 434,786 $ 661,523 ====================================================================================================== SHARES Shares sold 38,320 61,291 67,836 Shares issued in reinvestment of distributions 16 36 48 Shares redeemed (33,291) (18,653) (2,732) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 5,045 42,674 65,152 ======================================================================================================
+ The Fund changed its fiscal year end from October 31 to August 31. 148
SHORT TERM BOND FUND II (CONTINUED) --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001 SELECT AMOUNT Shares sold $ 265,146 $ 48,766 $ 127,882 In-kind contributions -- 10,711 -- Shares issued in connection with Fund Reorganization (Note 2) -- -- 46,879 Shares issued in reinvestment of distributions 1,917 1,894 1,156 Shares redeemed (65,640) (60,092) (57,217) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 201,423 $ 1,279 $ 118,700 ====================================================================================================== SHARES Shares sold 25,618 4,784 12,484 In-kind contributions -- 1,032 -- Shares issued in connection with Fund Reorganization (Note 2) -- -- 4,632 Shares issued in reinvestment of distributions 185 186 114 Shares redeemed (6,337) (5,889) (5,567) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 19,466 113 11,663 ======================================================================================================
+ The Fund changed its fiscal year end from October 31 to August 31. 149
STRATEGIC INCOME FUND --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001 CLASS A AMOUNT Shares sold $ 1,934 $ 1,289 $ 2,115 Shares issued in reinvestment of distributions 99 64 77 Shares redeemed (1,596) (1,021) (2,049) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 437 $ 332 $ 143 ====================================================================================================== SHARES Shares sold 219 148 236 Shares issued in reinvestment of distributions 11 7 9 Shares redeemed (183) (118) (231) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 47 37 14 ====================================================================================================== CLASS B AMOUNT Shares sold $ 2,084 $ 1,190 $ 1,911 Shares issued in reinvestment of distributions 159 117 158 Shares redeemed (1,486) (1,522) (1,557) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 757 $ (215) $ 512 ====================================================================================================== SHARES Shares sold 236 138 214 Shares issued in reinvestment of distributions 18 13 18 Shares redeemed (170) (177) (173) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 84 (26) 59 ======================================================================================================
+ The Fund changed its fiscal year end from October 31 to August 31. 150
STRATEGIC INCOME FUND (CONTINUED) --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001 CLASS C AMOUNT Shares sold $ 2,257 $ 697 $ 1,161 Shares issued in reinvestment of distributions 75 42 50 Shares redeemed (1,271) (843) (795) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 1,061 $ (104) $ 416 ====================================================================================================== SHARES Shares sold 254 82 129 Shares issued in reinvestment of distributions 8 5 6 Shares redeemed (147) (98) (88) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 115 (11) 47 ====================================================================================================== CLASS M AMOUNT Shares sold $ 499 $ 24 $ 890 Shares issued in reinvestment of distributions --^ -- -- Shares redeemed (1,960) (1,443) (5,963) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ (1,461) $ (1,419) $ (5,073) ====================================================================================================== SHARES Shares sold 57 3 98 Shares issued in reinvestment of distributions --^ -- -- Shares redeemed (221) (165) (663) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding (164) (162) (565) ======================================================================================================
+ The Fund changed its fiscal year end from October 31 to August 31. ^ Amount rounds to less than one thousand. 151
U.S. TREASURY INCOME FUND --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001* CLASS A AMOUNT Shares sold $ 20,583 $ 19,741 $ 87,754 Shares issued in connection with Fund Reorganization (Note 2) -- -- 2,621 Shares issued in reinvestment of distributions 1,450 1,112 1,630 Shares redeemed (19,203) (22,721) (90,916) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 2,830 $ (1,868) $ 1,089 ====================================================================================================== SHARES Shares sold 1,726 1,730 7,897 Shares issued in connection with Fund Reorganization (Note 2) -- -- 236 Shares issued in reinvestment of distributions 121 100 146 Shares redeemed (1,611) (1,997) (8,193) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding 236 (167) 86 ====================================================================================================== CLASS B AMOUNT Shares sold $ 6,965 $ 6,217 $ 7,273 Shares issued in reinvestment of distributions 488 344 471 Shares redeemed (8,907) (5,382) (4,516) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ (1,454) $ 1,179 $ 3,228 ====================================================================================================== SHARES Shares sold 581 543 649 Shares issued in reinvestment of distributions 41 30 42 Shares redeemed (747) (474) (407) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding (125) 99 284 ======================================================================================================
+ The Fund changed its fiscal year end from October 31 to August 31. * For Select Shares, from commencement of operations on February 16, 2001. 152
U.S. TREASURY INCOME FUND (CONTINUED) --------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002+ OCTOBER 31, 2001* SELECT AMOUNT Shares sold $ 47,402 $ 9,580 $ 26,007 Shares issued in connection with Fund Reorganization (Note 2) -- -- 46,349 Shares issued in reinvestment of distributions 1,857 2,307 1,844 Shares redeemed (56,156) (10,964) (3,037) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ (6,897) $ 923 $ 71,163 ====================================================================================================== SHARES Shares sold 3,957 841 2,335 Shares issued in connection with Fund Reorganization (Note 2) -- -- 4,175 Shares issued in reinvestment of distributions 155 203 164 Shares redeemed (4,685) (960) (271) - ------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding (573) 84 6,403 ======================================================================================================
+ The Fund changed its fiscal year end from October 31 to August 31. * For Select Shares, from commencement of operations on February 16, 2001. 153 JPMorgan Funds FINANCIAL HIGHLIGHTS CLASS A SHARES
PER SHARE OPERATING PERFORMANCE: ----------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ------------------------------------- ------------------------------------------ NET GAINS (LOSSES) ON NET ASSET NET SECURITIES DIVIDENDS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET DISTRIBUTIONS BEGINNING INCOME REALIZED AND INVESTMENT INVESTMENT FROM CAPITAL TOTAL OF PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME GAINS DISTRIBUTIONS BOND FUND^^ Year Ended 8/31/03 $ 10.07 0.40 0.04 0.44 0.40 0.08 0.48 11/1/01 Through 8/31/02 $ 10.08 0.31 0.05 0.36 0.31 0.06 0.37 9/10/01** Through 10/31/01 $ 9.89 0.06^ 0.20 0.26 0.07 -- 0.07 BOND FUND II^^ Year Ended 8/31/03 $ 41.39 1.66^ (0.31) 1.35 1.66 0.49 2.15 11/1/01 Through 8/31/02 $ 41.01 1.35^ 0.34 1.69 1.31 -- 1.31 3/2/01** Through 10/31/01 $ 39.55 1.32 1.46 2.78 1.32 -- 1.32 GLOBAL STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8.64 0.40^ 0.31 0.71 0.43 -- 0.43 11/1/01 Through 8/31/02 $ 8.91 0.55 (0.33) 0.22 0.47 0.02 0.49 9/10/01** Through 10/31/01 $ 9.13 0.09^ (0.22) (0.13) 0.09 -- 0.09 SHORT TERM BOND FUND^^ Year Ended 8/31/03 $ 10.03 0.24 (0.03) 0.21 0.25 0.14 0.39 11/1/01 Through 8/31/02 $ 10.01 0.27 0.05 0.32 0.26 0.04 0.30 9/10/01** Through 10/31/01 $ 9.87 0.05^ 0.15 0.20 0.06 -- 0.06
^^ The fund changed its fiscal year from October 31 to August 31. ** Commencement of offering of class of shares. ^ Calculated based upon average shares outstanding. (1) Total return figures do not include the effect of any front-end or deferred sales load. (b) Not annualized for periods less than one year. + Amount rounds to less than one million. # Short periods have been annualized. ~ Percentages prior to 9/10/01 reflect the portfolio turnover of The U.S. Fixed Income Portfolio, in which the Fund invested all of its investable assets. ~ Percentages prior to 9/10/01 reflect the portfolio turnover of The Short Term Bond Portfolio, in which the Fund invested all of its investable assets. !! Due to the size of net assets and fixed expenses, ratios may appear disproportionate. SEE NOTES TO FINANCIAL STATEMENTS. 154 ANNUAL REPORT AUGUST 31 2003
PER SHARE OPERATING PERFORMANCE: -------------------------------- NET ASSET VALUE, END TOTAL OF PERIOD RETURN (1)(b) BOND FUND^^ Year Ended 8/31/03 $ 10.03 4.32% 11/1/01 Through 8/31/02 $ 10.07 3.72% 9/10/01** Through 10/31/01 $ 10.08 2.63% BOND FUND II^^ Year Ended 8/31/03 $ 40.59 3.26% 11/1/01 Through 8/31/02 $ 41.39 4.26% 3/2/01** Through 10/31/01 $ 41.01 7.23% GLOBAL STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8.92 8.33% 11/1/01 Through 8/31/02 $ 8.64 2.54% 9/10/01** Through 10/31/01 $ 8.91 (2.30%) SHORT TERM BOND FUND^^ Year Ended 8/31/03 $ 9.85 2.08% 11/1/01 Through 8/31/02 $ 10.03 3.18% 9/10/01** Through 10/31/01 $ 10.01 2.01% RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: # -------------------------------------------------------------------- NET INVESTMENT NET ASSETS, NET EXPENSES INCOME (LOSS) END OF INVESTMENT WITHOUT WAIVERS, WITHOUT WAIVERS, PORTFOLIO PERIOD NET INCOME REIMBURSEMENTS REIMBURSEMENTS TURNOVER (MILLIONS) EXPENSES (LOSS) AND EARNINGS CREDITS AND EARNINGS CREDITS RATE ~(b) BOND FUND^^ Year Ended 8/31/03 $ 2 0.75% 3.86% 1.59% 3.02% 679% 11/1/01 Through 8/31/02 $ 1 0.75% 3.59% 5.64% (1.30%) 572% 9/10/01** Through 10/31/01 $ --+ 0.75% 3.93% 10.75% (6.07%) 423% BOND FUND II^^ Year Ended 8/31/03 $ 32 0.75% 3.96% 1.16% 3.55% 806% 11/1/01 Through 8/31/02 $ 29 0.75% 4.02% 1.10% 3.67% 496% 3/2/01** Through 10/31/01 $ 63 0.75% 4.90% 1.25% 4.40% 319% GLOBAL STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ --+ 1.25% 4.45% 7.26% (1.56%) 248% 11/1/01 Through 8/31/02 $ --+ 1.25% 6.20% 35.90%!! (28.45%)!! 178% 9/10/01** Through 10/31/01 $ --+ 1.25% 6.99% 11.01% (2.77%) 107% SHORT TERM BOND FUND^^ Year Ended 8/31/03 $ 9 0.75% 2.39% 1.10% 2.04% 386% 11/1/01 Through 8/31/02 $ 10 0.75% 3.01% 1.00% 2.76% 215% 9/10/01** Through 10/31/01 $ 2 0.75% 3.62% 10.76% (6.39%) 160%
SEE NOTES TO FINANCIAL STATEMENTS. 155
PER SHARE OPERATING PERFORMANCE: ------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ------------------------------------- --------------------------------------- NET GAINS (LOSSES) ON NET ASSET NET SECURITIES DIVIDENDS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET DISTRIBUTIONS BEGINNING INCOME REALIZED AND INVESTMENT INVESTMENT FROM CAPITAL TAX RETURN OF PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME GAINS OF CAPITAL SHORT TERM BOND FUND II^^ Year Ended 8/31/03 $ 10.33 0.23^ (0.04) 0.19 0.24 0.05 --+ 11/1/01 Through 8/31/02 $ 10.38 0.25 0.06 0.31 0.25 0.11 -- Year Ended 10/31/01 $ 9.89 0.43^ 0.53 0.96 0.47 -- -- Year Ended 10/31/00 $ 9.94 0.56 (0.05) 0.51 0.56 -- -- Year Ended 10/31/99 $ 10.14 0.46 (0.20) 0.26 0.46 -- -- Year Ended 10/31/98 $ 10.10 0.53 0.02 0.55 0.51 -- -- STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8.55 0.48^ 0.34 0.82 0.48 -- -- 11/1/01 Through 8/31/02 $ 8.85 0.41 (0.31) 0.10 0.38 -- 0.02 Year Ended 10/31/01 $ 9.05 0.62 (0.20) 0.42 0.60 -- 0.02 Year Ended 10/31/00 $ 9.59 0.78 (0.53) 0.25 0.78 -- 0.01 11/30/98* Through 10/31/99 $ 10.00 0.72 (0.41) 0.31 0.72 -- -- U.S TREASURY INCOME FUND^^ Year Ended 8/31/03 $ 11.83 0.45 (0.21) 0.24 0.46 -- -- 11/1/01 Through 8/31/02 $ 11.77 0.38 0.05 0.43 0.37 -- -- Year Ended 10/31/01 $ 10.77 0.53 1.01 1.54 0.54 -- -- Year Ended 10/31/00 $ 10.67 0.68 0.10 0.78 0.68 -- -- Year Ended 10/31/99 $ 11.66 0.71 (0.99) (0.28) 0.71 -- -- Year Ended 10/31/98 $ 11.26 0.75 0.40 1.15 0.75 -- --
^^ The fund changed its fiscal year from October 31 to August 31. * Commencement of operations. ^ Calculated based upon average shares outstanding. (1) Total return figures do not include the effect of any front-end or deferred sales load. (b) Not annualized for periods less than one year. # Short periods have been annualized. + Amount rounds to less than .005% SEE NOTES TO FINANCIAL STATEMENTS. 156
PER SHARE OPERATING PERFORMANCE: -------------------------------------------- NET ASSET TOTAL VALUE, END TOTAL DISTRIBUTIONS OF PERIOD RETURN (1)(b) SHORT TERM BOND FUND II^^ Year Ended 8/31/03 0.29 $ 10.23 1.88% 11/1/01 Through 8/31/02 0.36 $ 10.33 3.06% Year Ended 10/31/01 0.47 $ 10.38 9.95% Year Ended 10/31/00 0.56 $ 9.89 5.27% Year Ended 10/31/99 0.46 $ 9.94 2.64% Year Ended 10/31/98 0.51 $ 10.14 5.58% STRATEGIC INCOME FUND^^ Year Ended 8/31/03 0.48 $ 8.89 9.77% 11/1/01 Through 8/31/02 0.40 $ 8.55 1.10% Year Ended 10/31/01 0.62 $ 8.85 4.73% Year Ended 10/31/00 0.79 $ 9.05 2.59% 11/30/98* Through 10/31/99 0.72 $ 9.59 3.23% U.S TREASURY INCOME FUND^^ Year Ended 8/31/03 0.46 $ 11.61 2.00% 11/1/01 Through 8/31/02 0.37 $ 11.83 3.80% Year Ended 10/31/01 0.54 $ 11.77 14.72% Year Ended 10/31/00 0.68 $ 10.77 7.63% Year Ended 10/31/99 0.71 $ 10.67 (2.41%) Year Ended 10/31/98 0.75 $ 11.66 10.59% RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: # -------------------------------------------------------------------- NET INVESTMENT NET ASSETS, NET EXPENSES INCOME (LOSS) END OF INVESTMENT WITHOUT WAIVERS, WITHOUT WAIVERS, PORTFOLIO PERIOD NET INCOME REIMBURSEMENTS REIMBURSEMENTS TURNOVER (MILLIONS) EXPENSES (LOSS) AND EARNINGS CREDITS AND EARNINGS CREDITS RATE (b) SHORT TERM BOND FUND II^^ Year Ended 8/31/03 $ 44 0.75% 2.31% 0.96% 2.10% 319% 11/1/01 Through 8/31/02 $ 70 0.75% 2.66% 1.00% 2.41% 192% Year Ended 10/31/01 $ 52 0.75% 4.25% 1.15% 3.85% 315% Year Ended 10/31/00 $ 19 0.75% 5.68% 1.37% 5.06% 139% Year Ended 10/31/99 $ 22 0.75% 4.58% 1.37% 3.96% 302% Year Ended 10/31/98 $ 19 0.76% 5.28% 1.44% 4.60% 439% STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 3 1.25% 5.44% 2.69% 4.00% 116% 11/1/01 Through 8/31/02 $ 3 1.25% 5.74% 3.13% 3.86% 176% Year Ended 10/31/01 $ 2 1.25% 6.81% 2.75% 5.31% 174% Year Ended 10/31/00 $ 2 1.11% 7.84% 2.43% 6.52% 113% 11/30/98* Through 10/31/99 $ 3 0.15% 8.38% 3.59% 4.94% 136% U.S TREASURY INCOME FUND^^ Year Ended 8/31/03 $ 46 0.75% 3.85% 1.31% 3.29% 106% 11/1/01 Through 8/31/02 $ 44 0.75% 3.87% 1.32% 3.30% 228% Year Ended 10/31/01 $ 46 0.75% 4.74%+ 1.35% 4.14%+ 134% Year Ended 10/31/00 $ 41 0.75% 6.45% 1.30% 5.90% 29% Year Ended 10/31/99 $ 69 0.75% 6.40% 1.32% 5.83% 59% Year Ended 10/31/98 $ 63 0.79% 6.53% 1.30% 6.02% 75%
SEE NOTES TO FINANCIAL STATEMENTS. 157 CLASS B SHARES
PER SHARE OPERATING PERFORMANCE: ----------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ------------------------------------- ------------------------------------------ NET GAINS (LOSSES) ON NET ASSET NET SECURITIES DIVIDENDS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET DISTRIBUTIONS BEGINNING INCOME REALIZED AND INVESTMENT INVESTMENT FROM CAPITAL TOTAL OF PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME GAINS DISTRIBUTIONS BOND FUND^^ Year Ended 8/31/03 $ 10.05 0.33 (0.03) 0.30 0.32 0.08 0.40 11/1/01 Through 8/31/02 $ 10.08 0.24 0.03 0.27 0.24 0.06 0.30 9/10/01** Through 10/31/01 $ 9.89 0.06^ 0.19 0.25 0.06 -- 0.06 BOND FUND II^^ Year Ended 8/31/03 $ 41.30 1.35^ (0.32) 1.03 1.35 0.49 1.84 11/1/01 Through 8/31/02 $ 40.96 1.04^ 0.36 1.40 1.06 -- 1.06 3/2/01** Through 10/31/01 $ 39.55 1.12 1.41 2.53 1.12 -- 1.12 GLOBAL STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8.59 0.38^ 0.28 0.66 0.39 -- 0.39 11/1/01 Through 8/31/02 $ 8.91 0.48 (0.46) 0.02 0.32 0.02 0.34 9/10/01** Through 10/31/01 $ 9.13 0.08^ (0.22) (0.14) 0.08 -- 0.08 STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8.56 0.44^ 0.33 0.77 0.44 -- 0.44 11/1/01 Through 8/31/02 $ 8.85 0.38 (0.31) 0.07 0.34 0.02 0.36 Year Ended 10/31/01 $ 9.05 0.57 (0.20) 0.37 0.55 0.02 0.57 Year Ended 10/31/00 $ 9.59 0.74 (0.53) 0.21 0.74 0.01 0.75 11/30/98* Through 10/31/99 $ 10.00 0.71 (0.41) 0.30 0.71 -- 0.71 U.S TREASURY INCOME FUND^^ Year Ended 8/31/03 $ 11.81 0.37 (0.22) 0.15 0.36 -- 0.36 11/1/01 Through 8/31/02 $ 11.75 0.28 0.06 0.34 0.28 -- 0.28 Year Ended 10/31/01 $ 10.75 0.43+ 1.01+ 1.44 0.44 -- 0.44 Year Ended 10/31/00 $ 10.67 0.59 0.08 0.67 0.59 -- 0.59 Year Ended 10/31/99 $ 11.66 0.61 (0.99) (0.38) 0.61 -- 0.61 Year Ended 10/31/98 $ 11.25 0.65 0.41 1.06 0.65 -- 0.65
^^ The fund changed its fiscal year from October 31 to August 31. ** Commencement of offering of class of shares. ^ Calculated based upon average shares outstanding. (1) Total return figures do not include the effect of any front-end or deferred sales load. (b) Not annualized for periods less than one year. * Commencement of operations. SEE NOTES TO FINANCIAL STATEMENTS. 158
PER SHARE OPERATING PERFORMANCE: -------------------------------- NET ASSET VALUE, END TOTAL OF PERIOD RETURN (1)(b) BOND FUND^^ Year Ended 8/31/03 $ 9.95 2.94% 11/1/01 Through 8/31/02 $ 10.05 2.83% 9/10/01** Through 10/31/01 $ 10.08 2.53% BOND FUND II^^ Year Ended 8/31/03 $ 40.49 2.47% 11/1/01 Through 8/31/02 $ 41.30 3.52% 3/2/01** Through 10/31/01 $ 40.96 6.58% GLOBAL STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8.86 7.74% 11/1/01 Through 8/31/02 $ 8.59 0.27% 9/10/01** Through 10/31/01 $ 8.91 (2.41%) STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8.89 9.11% 11/1/01 Through 8/31/02 $ 8.56 0.76% Year Ended 10/31/01 $ 8.85 4.20% Year Ended 10/31/00 $ 9.05 2.17% 11/30/98* Through 10/31/99 $ 9.59 3.13% U.S TREASURY INCOME FUND^^ Year Ended 8/31/03 $ 11.60 1.19% 11/1/01 Through 8/31/02 $ 11.81 3.04% Year Ended 10/31/01 $ 11.75 13.74% Year Ended 10/31/00 $ 10.75 6.49% Year Ended 10/31/99 $ 10.67 (3.27%) Year Ended 10/31/98 $ 11.66 9.68% RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: # -------------------------------------------------------------------- NET INVESTMENT NET ASSETS, NET EXPENSES INCOME (LOSS) END OF INVESTMENT WITHOUT WAIVERS, WITHOUT WAIVERS, PORTFOLIO PERIOD NET INCOME REIMBURSEMENTS REIMBURSEMENTS TURNOVER (MILLIONS) EXPENSES (LOSS) AND EARNINGS CREDITS AND EARNINGS CREDITS RATE ~(b) BOND FUND^^ Year Ended 8/31/03 $ 2 1.50% 3.19% 2.14% 2.55% 679% 11/1/01 Through 8/31/02 $ 1 1.50% 2.80% 6.02% (1.72%) 572% 9/10/01** Through 10/31/01 $ --+ 1.48% 4.07% 11.25% (5.70%) 423% BOND FUND II^^ Year Ended 8/31/03 $ 15 1.50% 3.24% 1.67% 3.07% 806% 11/1/01 Through 8/31/02 $ 14 1.50% 3.09% 1.56% 3.03% 496% 3/2/01** Through 10/31/01 $ 8 1.50% 4.22% 1.75% 3.97% 319% GLOBAL STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ --+ 1.75% 4.30% 9.47% (3.42%) 248% 11/1/01 Through 8/31/02 $ --+ 1.75% 5.19% 23.23%!! (16.29%)!! 178% 9/10/01** Through 10/31/01 $ --+ 1.75% 6.50% 11.51% (3.26%) 107% STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8 1.75% 4.98% 3.21% 3.52% 116% 11/1/01 Through 8/31/02 $ 7 1.75% 5.28% 3.63% 3.40% 176% Year Ended 10/31/01 $ 8 1.75% 6.35% 3.25% 4.85% 174% Year Ended 10/31/00 $ 8 1.53% 7.42% 3.06% 5.89% 113% 11/30/98* Through 10/31/99 $ 5 0.17% 8.40% 3.98% 4.59% 136% U.S TREASURY INCOME FUND^^ Year Ended 8/31/03 $ 20 1.64% 2.96% 1.80% 2.80% 106% 11/1/01 Through 8/31/02 $ 21 1.64% 2.99% 1.82% 2.81% 228% Year Ended 10/31/01 $ 20 1.64% 3.84%+ 1.85% 3.63%+ 134% Year Ended 10/31/00 $ 16 1.64% 5.56% 1.80% 5.40% 29% Year Ended 10/31/99 $ 16 1.64% 5.51% 1.82% 5.33% 59% Year Ended 10/31/98 $ 14 1.64% 5.69% 1.79% 5.54% 75%
+ Amount rounds to less than one million. # Short periods have been annualized. ~ Percentages prior to 9/10/01 reflect the portfolio turnover of The U.S. Fixed Income Portfolio, in which the Fund invested all of its investable assets. !! Due to the size of net assets and fixed expenses, ratios may appear disproportionate. + Restated. SEE NOTES TO FINANCIAL STATEMENTS. 159 CLASS C SHARES
PER SHARE OPERATING PERFORMANCE: ----------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ------------------------------------- ------------------------------------------ NET GAINS (LOSSES) ON NET ASSET NET SECURITIES DIVIDENDS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET DISTRIBUTIONS BEGINNING INCOME REALIZED AND INVESTMENT INVESTMENT FROM CAPITAL TOTAL OF PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME GAINS DISTRIBUTIONS BOND FUND^^ 3/31/03** Through 8/31/03 $ 10.22 0.14 (0.21) (0.07) 0.14 -- 0.14 STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8.56 0.44^ 0.33 0.77 0.44 -- 0.44 11/1/01 Through 8/31/02 $ 8.85 0.38 (0.31) 0.07 0.34 0.02 0.36 Year Ended 10/31/01 $ 9.05 0.57 (0.20) 0.37 0.55 0.02 0.57 Year Ended 10/31/00 $ 9.59 0.74 (0.53) 0.21 0.74 0.01 0.75 11/30/98* Through 10/31/99 $ 10.00 0.71 (0.41) 0.30 0.71 -- 0.71
^^ The fund changed its fiscal year from October 31 to August 31. * Commencement of operations. ** Commencement of offering of class of shares. ^ Calculated based upon average shares outstanding. (1) Total return figures do not include the effect of any front-end or deferred sales load. (b) Not annualized for periods less than one year. + Amount rounds to less than one million. # Short periods have been annualized. ~ Percentages prior to 9/10/01 reflect the portfolio turnover of The U.S. Fixed Income Portfolio, in which the Fund invested all of its investable assets. SEE NOTES TO FINANCIAL STATEMENTS. 160
PER SHARE OPERATING PERFORMANCE: -------------------------------- NET ASSET VALUE, END TOTAL OF PERIOD RETURN (1)(b) BOND FUND^^ 3/31/03** Through 8/31/03 $ 10.01 (0.69%) STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8.89 9.10% 11/1/01 Through 8/31/02 $ 8.56 0.78% Year Ended 10/31/01 $ 8.85 4.21% Year Ended 10/31/00 $ 9.05 2.15% 11/30/98* Through 10/31/99 $ 9.59 3.12% RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: # -------------------------------------------------------------------- NET INVESTMENT NET ASSETS, NET EXPENSES INCOME (LOSS) END OF INVESTMENT WITHOUT WAIVERS, WITHOUT WAIVERS, PORTFOLIO PERIOD NET INCOME REIMBURSEMENTS REIMBURSEMENTS TURNOVER (MILLIONS) EXPENSES (LOSS) AND EARNINGS CREDITS AND EARNINGS CREDITS RATE ~(b) BOND FUND^^ 3/31/03** Through 8/31/03 $ --+ 1.50% 3.02% 1.78% 2.74% 679% STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 4 1.75% 4.93% 3.20% 3.48% 116% 11/1/01 Through 8/31/02 $ 3 1.75% 5.24% 3.63% 3.36% 176% Year Ended 10/31/01 $ 3 1.75% 6.33% 3.25% 4.83% 174% Year Ended 10/31/00 $ 2 1.49% 7.46% 2.89% 6.06% 113% 11/30/98* Through 10/31/99 $ 4 0.17% 8.40% 3.98% 4.59% 136%
SEE NOTES TO FINANCIAL STATEMENTS. 161 CLASS M SHARES
PER SHARE OPERATING PERFORMANCE: -------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ------------------------------------- --------------------------------------- NET GAINS (LOSSES) ON NET ASSET NET SECURITIES DIVIDENDS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET DISTRIBUTIONS BEGINNING INCOME REALIZED AND INVESTMENT INVESTMENT FROM CAPITAL TAX RETURN OF PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME GAINS OF CAPITAL SHORT TERM BOND FUND II^^ Year Ended 8/31/03 $ 10.33 0.21^ (0.04) 0.17 0.22 0.05 --+ 11/1/01 Through 8/31/02 $ 10.37 0.23 0.06 0.29 0.22 0.11 -- Year Ended 10/31/01 $ 9.89 0.35^ 0.58 0.93 0.45 -- -- Year Ended 10/31/00 $ 9.94 0.54 (0.05) 0.49 0.54 -- -- 7/1/99** Through 10/31/99 $ 9.98 0.16 (0.04) 0.12 0.16 -- -- STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8.54 0.47^ 0.32 0.79 0.46 -- -- 11/1/01 Through 8/31/02 $ 8.83 0.40 (0.31) 0.09 0.36 -- 0.02 Year Ended 10/31/01 $ 9.03 0.60 (0.20) 0.40 0.58 -- 0.02 Year Ended 10/31/00 $ 9.59 0.75 (0.55) 0.20 0.75 -- 0.01 10/28/99** Through 10/31/99 $ 9.64 0.07 (0.05) 0.02 0.07 -- --
^^ The fund changed its fiscal year end from October 31 to August 31. ** Commencement of offering of class of shares. ^ Calculated based upon average shares outstanding. (1) Total return figures do not include the effect of any front-end or deferred sales load. (b) Not annualized for periods less than one year. # Short periods have been annualized. + Amount rounds to less than .005% SEE NOTES TO FINANCIAL STATEMENTS. 162
PER SHARE OPERATING PERFORMANCE: -------------------------------------------- NET ASSET TOTAL VALUE, END TOTAL DISTRIBUTIONS OF PERIOD RETURN (1)(b) SHORT TERM BOND FUND II^^ Year Ended 8/31/03 0.27 $ 10.23 1.64% 11/1/01 Through 8/31/02 0.33 $ 10.33 2.92% Year Ended 10/31/01 0.45 $ 10.37 9.63% Year Ended 10/31/00 0.54 $ 9.89 5.04% 7/1/99** Through 10/31/99 0.16 $ 9.94 1.26% STRATEGIC INCOME FUND^^ Year Ended 8/31/03 0.46 $ 8.87 9.44% 11/1/01 Through 8/31/02 0.38 $ 8.54 1.03% Year Ended 10/31/01 0.60 $ 8.83 4.50% Year Ended 10/31/00 0.76 $ 9.03 2.10% 10/28/99** Through 10/31/99 0.07 $ 9.59 0.16% RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: # -------------------------------------------------------------------- NET INVESTMENT NET ASSETS, NET EXPENSES INCOME (LOSS) END OF INVESTMENT WITHOUT WAIVERS, WITHOUT WAIVERS, PORTFOLIO PERIOD NET INCOME REIMBURSEMENTS REIMBURSEMENTS TURNOVER (MILLIONS) EXPENSES (LOSS) AND EARNINGS CREDITS AND EARNINGS CREDITS RATE (b) SHORT TERM BOND FUND II^^ Year Ended 8/31/03 $ 1,168 1.00% 2.07% 1.04% 2.03% 319% 11/1/01 Through 8/31/02 $ 1,127 1.00% 2.41% 1.03% 2.38% 192% Year Ended 10/31/01 $ 689 1.00% 3.45% 1.11% 3.34% 315% Year Ended 10/31/00 $ 13 0.99% 5.51% 1.73% 4.77% 139% 7/1/99** Through 10/31/99 $ 3 0.97% 4.72% 1.41% 4.28% 302% STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 7 1.45% 5.31% 2.77% 3.99% 116% 11/1/01 Through 8/31/02 $ 8 1.45% 5.52% 3.05% 3.92% 176% Year Ended 10/31/01 $ 10 1.45% 6.69% 2.55% 5.59% 174% Year Ended 10/31/00 $ 16 1.43% 7.52% 2.54% 6.41% 113% 10/28/99** Through 10/31/99 $ 12 0.17% 4.56% 3.73% 1.00% 136%
SEE NOTES TO FINANCIAL STATEMENTS. 163 INSTITUTIONAL SHARES
PER SHARE OPERATING PERFORMANCE: -------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ------------------------------------- --------------------------------------- NET GAINS (LOSSES) ON NET ASSET NET SECURITIES DIVIDENDS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET DISTRIBUTIONS BEGINNING INCOME REALIZED AND INVESTMENT INVESTMENT FROM CAPITAL TAX RETURN OF PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME GAINS OF CAPITAL BOND FUND^^ Year Ended 8/31/03 $ 10.04 0.42 (0.02) 0.40 0.42 0.08 -- 11/1/01 Through 8/31/02 $ 10.08 0.34 0.02 0.36 0.34 0.06 -- Year Ended 10/31/01 $ 9.43 0.58^ 0.65 1.23 0.58 -- -- Year Ended 10/31/00 $ 9.41 0.60 0.02 0.62 0.60 --(a) -- Year Ended 10/31/99 $ 10.10 0.57 (0.57) -- 0.57 0.12 -- Year Ended 10/31/98 $ 10.01 0.64 0.15 0.79 0.63 0.07 -- ENHANCED INCOME FUND Year Ended 8/31/03 $ 9.98 0.23 (0.12) 0.11 0.23 -- -- 11/30/01* Through 8/31/02 $ 10.00 0.18 (0.02) 0.16 0.18 -- -- GLOBAL STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 8.65 0.48^ 0.27 0.75 0.48 -- -- 11/1/01 Through 8/31/02 $ 8.95 0.47 (0.30) 0.17 0.45 -- 0.02 Year Ended 10/31/01 $ 9.29 0.69^ (0.16) 0.53 0.87 -- -- Year Ended 10/31/00 $ 9.35 0.88 (0.25) 0.63 0.69 -- -- Year Ended 10/31/99 $ 9.72 0.62 (0.37) 0.25 0.62 -- -- Year Ended 10/31/98 $ 10.16 0.75 (0.45) 0.30 0.70 0.02 0.02 SHORT TERM BOND FUND^^ Year Ended 8/31/03 $ 10.05 0.28 (0.04) 0.24 0.29 0.14 -- 11/1/01 Through 8/31/02 $ 10.03 0.29 0.06 0.35 0.29 0.04 -- Year Ended 10/31/01 $ 9.58 0.54^ 0.46 1.00 0.55 -- -- Year Ended 10/31/00 $ 9.67 0.60 (0.08) 0.52 0.61 -- -- Year Ended 10/31/99 $ 9.96 0.58 (0.29) 0.29 0.54 0.04 -- Year Ended 10/31/98 $ 9.84 0.59 0.12 0.71 0.59 -- --
^ Calculated based upon average shares outstanding. ^^ The fund changed its fiscal year end from October 31 to August 31. * Commencement of operations. (1) Total return figures do not include the effect of any front-end sales load. (a) Amount is less than $0.005. (b) Not annualized for periods less than one year. # Short periods have been annualized. 164
PER SHARE OPERATING PERFORMANCE: --------------------------------------------- NET ASSET TOTAL VALUE, END TOTAL DISTRIBUTIONS OF PERIOD RETURN (b) BOND FUND^^ Year Ended 8/31/03 0.50 $ 9.94 3.99% 11/1/01 Through 8/31/02 0.40 $ 10.04 3.71% Year Ended 10/31/01 0.58 $ 10.08 13.46% Year Ended 10/31/00 0.60 $ 9.43 6.83% Year Ended 10/31/99 0.69 $ 9.41 0.03% Year Ended 10/31/98 0.70 $ 10.10 8.18% ENHANCED INCOME FUND Year Ended 8/31/03 0.23 $ 9.86 1.14% 11/30/01* Through 8/31/02 0.18 $ 9.98 1.58% GLOBAL STRATEGIC INCOME FUND^^ Year Ended 8/31/03 0.48 $ 8.92 8.86% 11/1/01 Through 8/31/02 0.47 $ 8.65 1.92% Year Ended 10/31/01 0.87 $ 8.95 5.86% Year Ended 10/31/00 0.69 $ 9.29 6.93% Year Ended 10/31/99 0.62 $ 9.35 2.62% Year Ended 10/31/98 0.74 $ 9.72 2.91% SHORT TERM BOND FUND^^ Year Ended 8/31/03 0.43 $ 9.86 2.44% 11/1/01 Through 8/31/02 0.33 $ 10.05 3.55% Year Ended 10/31/01 0.55 $ 10.03 10.70% Year Ended 10/31/00 0.61 $ 9.58 5.49% Year Ended 10/31/99 0.58 $ 9.67 3.03% Year Ended 10/31/98 0.59 $ 9.96 7.40% RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: # -------------------------------------------------------------------- NET INVESTMENT NET ASSETS, NET EXPENSES INCOME (LOSS) END OF INVESTMENT WITHOUT WAIVERS, WITHOUT WAIVERS, PORTFOLIO PERIOD NET INCOME REIMBURSEMENTS REIMBURSEMENTS TURNOVER (MILLIONS) EXPENSES (LOSS) AND EARNINGS CREDITS AND EARNINGS CREDITS RATE ~(b) BOND FUND^^ Year Ended 8/31/03 $ 478 0.49% 4.10% 0.60% 3.99% 679% 11/1/01 Through 8/31/02 $ 747 0.49% 4.14% 0.58% 4.05% 572% Year Ended 10/31/01 $ 1,016 0.49% 5.98% 0.51% 5.96% 423% Year Ended 10/31/00 $ 907 0.49% 6.37% 0.49% 6.37% 531% Year Ended 10/31/99 $ 1,041 0.50% 5.92% 0.51% 5.91% 465% Year Ended 10/31/98 $ 1,001 0.49% 6.32% 0.50% 6.31% 115% ENHANCED INCOME FUND Year Ended 8/31/03 $ 354 0.20% 2.33% 0.56% 1.97% 328% 11/30/01* Through 8/31/02 $ 300 0.20% 2.40% 0.68% 1.92% 120% GLOBAL STRATEGIC INCOME FUND^^ Year Ended 8/31/03 $ 108 0.65% 5.42% 0.97% 5.10% 248% 11/1/01 Through 8/31/02 $ 135 0.65% 6.44% 0.98% 6.11% 178% Year Ended 10/31/01 $ 143 0.65% 7.50% 0.80% 7.35% 107% Year Ended 10/31/00 $ 163 0.65% 7.36% 0.80% 7.21% 266% Year Ended 10/31/99 $ 183 0.65% 6.70% 0.78% 5.29% 318% Year Ended 10/31/98 $ 224 0.65% 6.59% 0.83% 6.41% 368% SHORT TERM BOND FUND^^ Year Ended 8/31/03 $ 806 0.30% 2.85% 0.55% 2.60% 386% 11/1/01 Through 8/31/02 $ 618 0.30% 3.53% 0.54% 3.29% 215% Year Ended 10/31/01 $ 697 0.30% 5.52% 0.48% 5.34% 160% Year Ended 10/31/00 $ 415 0.30% 6.30% 0.47% 6.13% 271% Year Ended 10/31/99 $ 354 0.29% 5.51% 0.51% 5.29% 398% Year Ended 10/31/98 $ 233 0.25% 5.84% 0.62% 5.47% 381%
~ Percentages prior to 9/10/01 reflect the portfolio turnover of The Short Term Bond Portfolio, in which the Fund invested all of its investable assets. ~ Percentages prior to 9/10/01 reflect the portfolio turnover of The Global Strategic Income Portfolio, in which the Fund invested all of its investable assets. ~ Percentages prior to 9/10/01 reflect the portfolio turnover of The U.S. Fixed Income Portfolio, in which the Fund invested all of its investable assets. ~ Percentages prior to 9/10/01 reflect the portfolio turnover of Emerging Markets Debt Portfolio, in which the fund invested all of its investable assets. SEE NOTES TO FINANCIAL STATEMENTS. 165 SELECT SHARES
PER SHARE OPERATING PERFORMANCE: ----------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ------------------------------------- ------------------------------------------ NET GAINS (LOSSES) ON NET ASSET NET SECURITIES DIVIDENDS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET DISTRIBUTIONS BEGINNING INCOME REALIZED AND INVESTMENT INVESTMENT FROM CAPITAL TOTAL OF PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME GAINS DISTRIBUTIONS BOND FUND^^@ Year Ended 8/31/03 $ 10.04 0.40 (0.01) 0.39 0.41 0.08 0.49 11/1/01 Through 8/31/02 $ 10.08 0.32 0.02 0.34 0.32 0.06 0.38 Year Ended 10/31/01 $ 9.43 0.52^ 0.70 1.22 0.57 -- 0.57 Year Ended 10/31/00 $ 9.41 0.58 0.02 0.60 0.58 -- 0.58 Year Ended 10/31/99 $ 10.09 0.55 (0.57) (0.02) 0.56 0.10 0.66 Year Ended 10/31/98 $ 9.93 0.62 0.16 0.78 0.62 -- 0.62 BOND FUND II^^ Year Ended 8/31/03 $ 41.32 1.79^ (0.38) 1.41 1.73 0.49 2.22 11/1/01 Through 8/31/02 $ 40.97 1.36^ 0.35 1.71 1.36 -- 1.36 Year Ended 10/31/01 $ 38.02 2.18 2.95 5.13 2.18 -- 2.18 Year Ended 10/31/00 $ 38.38 2.38 (0.36) 2.02 2.38 -- 2.38 Year Ended 10/31/99 $ 41.29 2.36 (2.37) (0.01) 2.36 0.54 2.90 Year Ended 10/31/98 $ 41.01 2.56 0.76 3.32 2.55 0.49 3.04 FLEMING EMERGING MARKETS DEBT FUND^^^ Year Ended 8/31/03 $ 7.53 0.68 1.53 2.21 0.72 -- 0.72 8/1/02 Through 8/31/02 $ 7.05 0.05 0.49 0.54 0.06 -- 0.06 Year Ended 7/31/02 $ 7.82 0.77 (0.77) -- 0.77 -- 0.77 Year Ended 7/31/01 $ 8.77 0.88 (0.87) 0.01 0.96 -- 0.96 Year Ended 7/31/00 $ 7.29 0.95 1.42 2.37 0.89 -- 0.89 1/1/99 Through 7/31/99 $ 7.30 0.49 0.02 0.51 0.52 -- 0.52 Year Ended 12/31/98 $ 9.76 1.15 (2.64) (1.49) 0.97 -- 0.97
^^ The fund changed its fiscal year from October 31 to August 31. @ Prior to the open of business on September 10, 2001, the class underwent a split of shares in connection with the fund reorganization described in Note 2. Prior periods have been restated to reflect the split. ^ Calculated based upon average shares outstanding. (b) Not annualized for periods less than one year. # Short periods have been annualized. ~ Percentages prior to 9/10/01 reflect the portfolio turnover of The U.S. Fixed Income Portfolio, in which the Fund invested all of its investable assets. ^^^ The fund changed its fiscal year end from July 31 to August 31. SEE NOTES TO FINANCIAL STATEMENTS. 166
PER SHARE OPERATING PERFORMANCE: -------------------------------- NET ASSET VALUE, END TOTAL OF PERIOD RETURN (b) BOND FUND^^@ Year Ended 8/31/03 $ 9.94 3.82% 11/1/01 Through 8/31/02 $ 10.04 3.57% Year Ended 10/31/01 $ 10.08 13.32% Year Ended 10/31/00 $ 9.43 6.61% Year Ended 10/31/99 $ 9.41 (0.23%) Year Ended 10/31/98 $ 10.09 8.06% BOND FUND II^^ Year Ended 8/31/03 $ 40.51 3.39% 11/1/01 Through 8/31/02 $ 41.32 4.33% Year Ended 10/31/01 $ 40.97 13.87% Year Ended 10/31/00 $ 38.02 5.50% Year Ended 10/31/99 $ 38.38 (0.01%) Year Ended 10/31/98 $ 41.29 8.44% FLEMING EMERGING MARKETS DEBT FUND^^^ Year Ended 8/31/03 $ 9.02 30.49% 8/1/02 Through 8/31/02 $ 7.53 7.69% Year Ended 7/31/02 $ 7.05 (0.67%) Year Ended 7/31/01 $ 7.82 (0.17%) Year Ended 7/31/00 $ 8.77 34.12% 1/1/99 Through 7/31/99 $ 7.29 7.27% Year Ended 12/31/98 $ 7.30 (15.93%) RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: # -------------------------------------------------------------------- NET INVESTMENT NET ASSETS, NET EXPENSES INCOME (LOSS) END OF INVESTMENT WITHOUT WAIVERS, WITHOUT WAIVERS, PORTFOLIO PERIOD NET INCOME REIMBURSEMENTS REIMBURSEMENTS TURNOVER (MILLIONS) EXPENSES (LOSS) AND EARNINGS CREDITS AND EARNINGS CREDITS RATE ~(b) BOND FUND^^@ Year Ended 8/31/03 $ 308 0.66% 3.97% 0.76% 3.87% 679% 11/1/01 Through 8/31/02 $ 312 0.66% 3.95% 0.74% 3.87% 572% Year Ended 10/31/01 $ 315 0.69% 5.77% 0.70% 5.76% 423% Year Ended 10/31/00 $ 240 0.69% 6.19% 0.69% 6.19% 531% Year Ended 10/31/99 $ 235 0.69% 5.72% 0.69% 5.72% 465% Year Ended 10/31/98 $ 216 0.66% 6.14% 0.66% 6.14% 115% BOND FUND II^^ Year Ended 8/31/03 $ 1,022 0.60% 4.27% 0.75% 4.12% 806% 11/1/01 Through 8/31/02 $ 661 0.60% 4.08% 0.74% 3.94% 496% Year Ended 10/31/01 $ 683 0.63% 5.52% 0.75% 5.40% 319% Year Ended 10/31/00 $ 587 0.69% 6.30% 0.71% 6.28% 157% Year Ended 10/31/99 $ 620 0.03% 5.97% 0.49% 5.51% 300% Year Ended 10/31/98 $ 590 0.03% 6.27% 0.51% 5.79% 306% FLEMING EMERGING MARKETS DEBT FUND^^^ Year Ended 8/31/03 $ 60 1.25% 8.11% 1.52% 7.84% 157% 8/1/02 Through 8/31/02 $ 41 1.25% 9.86% 1.30% 9.81% 12% Year Ended 7/31/02 $ 35 1.25% 9.59% 1.54% 9.30% 110% Year Ended 7/31/01 $ 35 1.25% 11.20% 1.92% 10.53% 141% Year Ended 7/31/00 $ 20 1.25% 11.01% 1.95% 10.31% 295% 1/1/99 Through 7/31/99 $ 26 1.25% 12.28% 2.51% 11.02% 555% Year Ended 12/31/98 $ 19 1.25% 10.05% 2.09% 9.21% 791%
~ Percentages prior to 9/10/01 reflect the portfolio turnover of Emerging Markets Debt Portfolio, in which the fund invested all of its investable assets. SEE NOTES TO FINANCIAL STATEMENTS. 167
PER SHARE OPERATING PERFORMANCE: -------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ------------------------------------- --------------------------------------- NET GAINS (LOSSES) ON NET ASSET NET SECURITIES DIVIDENDS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET DISTRIBUTIONS BEGINNING INCOME REALIZED AND INVESTMENT INVESTMENT FROM CAPITAL TAX RETURN OF PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME GAINS OF CAPITAL GLOBAL STRATEGIC INCOME FUND^^@ Year Ended 8/31/03 $ 8.65 0.45^ 0.27 0.72 0.45 -- -- 11/1/01 Through 8/31/02 $ 8.95 0.45 (0.31) 0.14 0.42 -- 0.02 Year Ended 10/31/01 $ 9.42 0.67^ (0.38) 0.29 0.76 -- -- Year Ended 10/31/00 $ 9.47 0.87 (0.26) 0.61 0.66 -- -- Year Ended 10/31/99 $ 9.84 0.60 (0.38) 0.22 0.59 -- -- 11/5/97** Through 10/31/98 $ 10.28 0.70 (0.49) 0.21 0.63 0.02 -- SHORT TERM BOND FUND^^@ Year Ended 8/31/03 $ 10.04 0.26 (0.03) 0.23 0.27 0.14 -- 11/1/01 Through 8/31/02 $ 10.03 0.28 0.04 0.32 0.27 0.04 -- Year Ended 10/31/01 $ 9.61 0.51^ 0.46 0.97 0.55 -- -- Year Ended 10/31/00 $ 9.70 0.58 (0.09) 0.49 0.58 -- -- Year Ended 10/31/99 $ 10.00 0.57 (0.31) 0.26 0.51 0.05 -- Year Ended 10/31/98 $ 9.87 0.56 0.13 0.69 0.56 -- -- SHORT TERM BOND FUND II^^ Year Ended 8/31/03 $ 10.35 0.27^ (0.05) 0.22 0.27 0.05 --+ 11/1/01 Through 8/31/02 $ 10.40 0.26 0.07 0.33 0.27 0.11 -- Year Ended 10/31/01 $ 9.90 0.42^ 0.57 0.99 0.49 -- -- Year Ended 10/31/00 $ 9.95 0.59 (0.05) 0.54 0.59 -- -- Year Ended 10/31/99 $ 10.15 0.49 (0.20) 0.29 0.49 -- -- Year Ended 10/31/98 $ 10.11 0.57 0.02 0.59 0.55 -- -- U.S. TREASURY INCOME FUND^^ Year Ended 8/31/03 $ 11.83 0.49 (0.21) 0.28 0.49 -- -- 11/1/01 Through 8/31/02 $ 11.77 0.39 0.06 0.45 0.39 -- -- 2/16/01** Through 10/31/01 $ 11.10 0.37 0.66 1.03 0.36 -- --
^^ The fund changed its fiscal year end from October 31 to August 31. @ Prior to the open of business on September 10, 2001, the class underwent a split of shares in connection with the Fund reorganization described in Note 2. Prior periods have been restated to reflect the split. ** Commencement of offering of class of shares. ^ Calculated based upon average shares outstanding. + Amount rounds to less than 0.005 SEE NOTES TO FINANCIAL STATEMENTS. 168
PER SHARE OPERATING PERFORMANCE: -------------------------------------------- NET ASSET TOTAL VALUE, END TOTAL DISTRIBUTIONS OF PERIOD RETURN (b) GLOBAL STRATEGIC INCOME FUND^^@ Year Ended 8/31/03 0.45 $ 8.92 8.48% 11/1/01 Through 8/31/02 0.44 $ 8.65 1.61% Year Ended 10/31/01 0.76 $ 8.95 5.46% Year Ended 10/31/00 0.66 $ 9.42 6.57% Year Ended 10/31/99 0.59 $ 9.47 2.26% 11/5/97** Through 10/31/98 0.65 $ 9.84 1.97% SHORT TERM BOND FUND^^@ Year Ended 8/31/03 0.41 $ 9.86 2.28% 11/1/01 Through 8/31/02 0.31 $ 10.04 3.21% Year Ended 10/31/01 0.55 $ 10.03 10.39% Year Ended 10/31/00 0.58 $ 9.61 5.19% Year Ended 10/31/99 0.56 $ 9.70 2.70% Year Ended 10/31/98 0.56 $ 10.00 7.24% SHORT TERM BOND FUND II^^ Year Ended 8/31/03 0.32 $ 10.25 2.15% 11/1/01 Through 8/31/02 0.38 $ 10.35 3.30% Year Ended 10/31/01 0.49 $ 10.40 10.29% Year Ended 10/31/00 0.59 $ 9.90 5.56% Year Ended 10/31/99 0.49 $ 9.95 2.97% Year Ended 10/31/98 0.55 $ 10.15 6.03% U.S. TREASURY INCOME FUND^^ Year Ended 8/31/03 0.49 $ 11.62 2.29% 11/1/01 Through 8/31/02 0.39 $ 11.83 3.97% 2/16/01** Through 10/31/01 0.36 $ 11.77 9.52% RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: # -------------------------------------------------------------------- NET INVESTMENT NET ASSETS, NET EXPENSES INCOME (LOSS) END OF INVESTMENT WITHOUT WAIVERS, WITHOUT WAIVERS, PORTFOLIO PERIOD NET INCOME REIMBURSEMENTS REIMBURSEMENTS TURNOVER (MILLIONS) EXPENSES (LOSS) AND EARNINGS CREDITS AND EARNINGS CREDITS RATE (b) GLOBAL STRATEGIC INCOME FUND^^@ Year Ended 8/31/03 $ 3 1.00% 5.10% 1.48% 4.62% 248% 11/1/01 Through 8/31/02 $ 5 1.00% 6.08% 1.48% 5.60% 178% Year Ended 10/31/01 $ 5 1.00% 7.32% 2.63% 5.69% 107% Year Ended 10/31/00 $ 7 1.00% 7.05% 2.50% 5.55% 266% Year Ended 10/31/99 $ 9 1.00% 6.35% 1.54% 5.81% 318% 11/5/97** Through 10/31/98 $ 10 1.00% 6.24% 1.89% 5.35% 368% SHORT TERM BOND FUND^^@ Year Ended 8/31/03 $ 122 0.56% 2.59% 0.71% 2.44% 386% 11/1/01 Through 8/31/02 $ 122 0.57% 3.22% 0.72% 3.07% 215% Year Ended 10/31/01 $ 67 0.60% 5.22% 0.82% 5.00% 160% Year Ended 10/31/00 $ 38 0.60% 6.00% 0.82% 5.78% 271% Year Ended 10/31/99 $ 39 0.57% 5.24% 0.80% 5.01% 398% Year Ended 10/31/98 $ 31 0.50% 5.66% 0.98% 5.18% 381% SHORT TERM BOND FUND II^^ Year Ended 8/31/03 $ 342 0.50% 2.58% 0.70% 2.38% 319% 11/1/01 Through 8/31/02 $ 144 0.50% 2.91% 0.70% 2.71% 192% Year Ended 10/31/01 $ 144 0.50% 4.15% 0.77% 3.88% 315% Year Ended 10/31/00 $ 21 0.45% 5.99% 1.02% 5.42% 139% Year Ended 10/31/99 $ 28 0.42% 4.89% 1.02% 4.29% 302% Year Ended 10/31/98 $ 31 0.42% 5.68% 1.04% 5.06% 439% U.S. TREASURY INCOME FUND^^ Year Ended 8/31/03 $ 69 0.55% 4.04% 0.87% 3.72% 106% 11/1/01 Through 8/31/02 $ 78 0.55% 4.07% 0.86% 3.76% 228% 2/16/01** Through 10/31/01 $ 76 0.55% 4.73% 0.98% 4.30% 134%
(b) Not annualized for periods less than one year. # Short periods have been annualized. ~ Percentages prior to 9/10/01 reflect the portfolio turnover of The Global Strategic Income Portfolio, in which the Fund invested all of its investable assets. ~ Percentages prior to 9/10/01 reflect the portfolio turnover of the Short Term Bond Portfolio, in which the Fund invested all of its investable assets. SEE NOTES TO FINANCIAL STATEMENTS. 169 ULTRA SHARES @
PER SHARE OPERATING PERFORMANCE: ---------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: LESS DISTRIBUTIONS: ------------------------------------- ------------------------------------------ NET GAINS (LOSSES) ON NET ASSET NET SECURITIES DIVIDENDS VALUE, INVESTMENT (BOTH TOTAL FROM FROM NET DISTRIBUTIONS BEGINNING INCOME REALIZED AND INVESTMENT INVESTMENT FROM CAPITAL TOTAL OF PERIOD (LOSS) UNREALIZED) OPERATIONS INCOME GAINS DISTRIBUTIONS BOND FUND^^ Year Ended 8/31/03 $ 10.05 0.43 (0.02) 0.41 0.43 0.08 0.51 11/1/01 Through 8/31/02 $ 10.09 0.34 0.02 0.36 0.34 0.06 0.40 Year Ended 10/31/01 $ 9.47 0.54^ 0.72 1.26 0.62 0.02 0.64 Year Ended 10/31/00 $ 9.46 0.64 (0.02) 0.62 0.61 -- 0.61 Year Ended 10/31/99 $ 10.02 0.60 (0.57) 0.03 0.59 -- 0.59 12/15/97** Through 10/31/98 $ 9.88 0.53 0.16 0.69 0.55 -- 0.55
^^ The fund changed its fiscal year from October 31 to August 31. @ Prior to the open of business on September 10, 2001, the class underwent a split of shares in connection with the fund reorganization described in Note 2. Prior periods have been restated to reflect the split. ** Commencement of offering of class of shares. ^ Calculated based upon average shares outstanding. (b) Not annualized for periods less than one year. # Short periods have been annualized. ~ Percentages prior to 9/10/01 reflect the portfolio turnover of The U.S. Fixed Income Portfolio, in which the Fund invested all of its investable assets. SEE NOTES TO FINANCIAL STATEMENTS. 170
PER SHARE OPERATING PERFORMANCE: --------------------------------- NET ASSET VALUE, END TOTAL OF PERIOD RETURN (b) BOND FUND^^ Year Ended 8/31/03 $ 9.95 4.08% 11/1/01 Through 8/31/02 $ 10.05 3.80% Year Ended 10/31/01 $ 10.09 13.63% Year Ended 10/31/00 $ 9.47 6.92% Year Ended 10/31/99 $ 9.46 0.28% 12/15/97** Through 10/31/98 $ 10.02 7.17% RATIOS/SUPPLEMENTAL DATA: ------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS: # ---------------------------------------------------------------------- NET INVESTMENT NET ASSETS, NET EXPENSES INCOME (LOSS) END OF INVESTMENT WITHOUT WAIVERS, WITHOUT WAIVERS, PORTFOLIO PERIOD NET INCOME REIMBURSEMENTS REIMBURSEMENTS TURNOVER (MILLIONS) EXPENSES (LOSS) AND EARNINGS CREDITS AND EARNINGS CREDITS RATE ~(b) BOND FUND^^ Year Ended 8/31/03 $ 444 0.40% 4.19% 0.55% 4.04% 679% 11/1/01 Through 8/31/02 $ 609 0.40% 4.20% 0.53% 4.07% 572% Year Ended 10/31/01 $ 598 0.37% 6.08% 0.47% 5.98% 423% Year Ended 10/31/00 $ 466 0.35% 6.49% 0.42% 6.42% 531% Year Ended 10/31/99 $ 299 0.36% 6.08% 0.49% 5.95% 465% 12/15/97** Through 10/31/98 $ 128 0.37% 6.28% 0.60% 6.05% 115%
SEE NOTES TO FINANCIAL STATEMENTS. 171 JPMorgan Funds REPORT OF INDEPENDENT AUDITORS To the Trustees and Shareholders of J.P. Morgan Mutual Fund Group, J.P. Morgan Institutional Funds, J.P. Morgan Mutual Fund Select Group, J.P. Morgan Series Trust and J.P. Morgan Funds In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments, 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 JPMorgan Bond Fund, JPMorgan Bond Fund II, JPMorgan Enhanced Income Fund, JPMorgan Fleming Emerging Markets Debt Fund, JPMorgan Global Strategic Income Fund, JPMorgan Short Term Bond Fund, JPMorgan Short Term Bond Fund II, JPMorgan Strategic Income Fund and JPMorgan U.S. Treasury Income Fund (the "Funds") at August 31, 2003, the results of each of their operations for the year then ended, and the changes in each of their net assets, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York October 20, 2003 172 JPMorgan Funds TRUSTEE AND OFFICER INFORMATION (UNAUDITED) The following tables contain basic information regarding the Trustees and Officers, respectively, that oversee operations of the Trusts and other investment companies within the JPMorgan Funds complex.
POSITIONS NUMBER OF OTHER HELD WITH PRINCIPAL PORTFOLIOS IN DIRECTORSHIPS EACH TERM OF OFFICE OCCUPATIONS JPMORGAN FUND HELD OUTSIDE NAME, CONTACT ADDRESS JPMORGAN AND LENGTH OF DURING PAST COMPLEX(1) OVERSEEN JPMORGAN FUND AND DATE OF BIRTH TRUST TIME SERVED 5 YEARS BY TRUSTEE COMPLEX - ----------------------------------------------------------------------------------------------------------------------------------- NON-INTERESTED TRUSTEE(S) William J. Armstrong; Trustee Trustee of Funds that Retired; Vice 71 None 522 Fifth Avenue, are series of JPMF, President and New York, NY 10036; JPMIF, JPMST since Treasurer of 12/4/1941 2001, Funds that are Ingersoll-Rand series of MFSG since Company 1996 and Funds that (manufacturer of are series of MFG industrial since 1987. equipment) (1972-2000) Roland R. Eppley, Jr.; Trustee Trustee of Funds that Retired 71 Director, Janel Hydro 522 Fifth Avenue, are series of JPMF, Inc. (1993-Present) New York, NY 10036; JPMIF and JPMST since 4/1/1932 2001, Funds that are series of MFSG since 1996 and Funds that are series of MFG since 1989. Ann Maynard Gray; Trustee Since 2001 Vice President of 71 Director of Duke Energy 522 Fifth Avenue, Capital Cities/ABC, Corporation (1997- New York, NY 10036; Inc. (1986-1998); Present) Director of 8/22/1945 President of Elan Corporation, Plc Diversified (pharmaceuticals) Publishing Group (2001-Present); Director (1991-1997) of The Phoenix Companies (wealth management services) (2002-Present) Matthew Healey; Trustee and Trustee of Funds that Retired; Chief 71 None 522 Fifth Avenue, President of are series of JPMF Executive Officer of New York, NY 10036; the Board of since 1982, Funds that certain J.P. Morgan 8/23/1937 Trustees are series of JPMIF Fund Trusts since 1992, Funds that (1982-2001) are series of JPMST since 1996 and Funds that are series of MFG and MFSG since 2001. Fergus Reid, III; Trustee and Trustee of Funds that Chairman of Lumelite 71 Trustee of 16 Morgan 522 Fifth Avenue, Chairman of are series of JPMF, Corporation Stanley Funds New York, NY 10036; the Board of JPMIF and JPMST since (plastics (1995-Present) 8/12/1932 Trustees 2001, Funds that are manufacturing) series of MFSG since 1996 and funds that are series of MFG since 1987.
173
POSITIONS NUMBER OF OTHER HELD WITH PRINCIPAL PORTFOLIOS IN DIRECTORSHIPS EACH TERM OF OFFICE OCCUPATIONS JPMORGAN FUND HELD OUTSIDE NAME, CONTACT ADDRESS JPMORGAN AND LENGTH OF DURING PAST COMPLEX OVERSEEN JPMORGAN FUND AND DATE OF BIRTH TRUST TIME SERVED 5 YEARS BY TRUSTEE COMPLEX - ----------------------------------------------------------------------------------------------------------------------------------- NON-INTERESTED TRUSTEE(S) James J. Schonbachler; Trustee Since 2001 Retired; Managing 71 None 522 Fifth Avenue, Director of Bankers New York, NY 10036; Trust Company, 1/26/1943 (financial services) (1968-1998); Group Head and Director of Bankers Trust, A.G., Zurich and BT Brokerage Corp. (financial services) Robert J. Higgins; Trustee Since 2002 Director of 71 Director of Providian 522 Fifth Avenue, Administration of Financial Corp. New York, NY 10036; the State of Rhode (banking) (2002-Present) 10/9/1945 Island (2003-Present); President - Consumer Banking and Investment Services Fleet Boston Financial (1971-2002) Dr. Matthew Goldstein; Trustee Since 2003 Chancellor of the 71 Trustee of the Albert 522 Fifth Avenue, City University of Einstein School of New York, NY 10036; New York, since Medicine (1998-present); 11/10/1941 September 1, 1999; Trustee of Bronx President, Adelphi University (New York) University (New Lebanon Hospital Center York) (1998-1999). (1992-present); Director of New Plan Excel Realty Trust, Inc (real estate investment company) (2000-present); Director of Lincoln Center Institute for the Arts in Education (1999-present); Director of Jewish Community Relations Counsel of New York, Inc (2000-present); Director of United Way of New York City (2002-present).
174
POSITIONS NUMBER OF OTHER HELD WITH PRINCIPAL PORTFOLIOS IN DIRECTORSHIPS EACH TERM OF OFFICE OCCUPATIONS JPMORGAN FUND HELD OUTSIDE NAME, CONTACT ADDRESS JPMORGAN AND LENGTH OF DURING PAST COMPLEX OVERSEEN JPMORGAN FUND AND DATE OF BIRTH TRUST TIME SERVED 5 YEARS BY TRUSTEE COMPLEX - ----------------------------------------------------------------------------------------------------------------------------------- NON-INTERESTED TRUSTEE(S) William G. Morton, Jr.; Trustee Since 2003 Formerly Chairman 71 Director of Radio Shack 522 Fifth Avenue, Emeritus (March Corporation New York, NY 10036; 2001-October 2002), (electronics) 03/13/1937 and Chairman and (1987-present); Director Chief Executive of the Griswold Company Officer, Boston (securities brokerage) Stock Exchange (June (2002-present); Director 1985-March 2001). of The National Football Foundation and College Hall of Fame (1994-present); Trustee of the Berklee College of Music (1998-present); Trustee of the Stratton Mountain School (2001-present). INTERESTED TRUSTEE(S) Leonard M. Spalding* Trustee Since 1998 Retired; Chief 71 Trustee of St. Catherine 522 Fifth Avenue, Executive Officer of College; Trustee of New York, NY 10036; Chase Mutual Funds Bellarmine University; 7/20/1935 (investment company) Director of Marion (1989-1998) and Washington Airport Chief Investment Board; Director of Executive of Chase Springfield Washington Manhattan Private Economic Development Bank (investment Board; Director of management) Glenview Trust; Director (1990-1995) of Pizza Magia
(1) A Fund Complex means two or more investment companies that hold themselves out to investors as related companies for purposes of investment and investment services or have a common investment adviser or have an investment adviser that is an affiliated person of the investment adviser of any of the other investment companies. The JPMorgan Fund Complex for which the Trustees serve includes 11 investment companies. * Mr. Spalding is deemed to be an "interested person" due to his ownership of equity securities of J.P. Morgan Chase & Co. 175
POSITIONS HELD TERM OF OFFICE NAME, CONTACT ADDRESS WITH EACH AND LENGTH OF PRINCIPAL OCCUPATIONS AND DATE OF BIRTH JPMORGAN TRUST TIME SERVED DURING PAST 5 YEARS - ----------------------------------------------------------------------------------------------------------------------------- George Gatch; President Since 2001 Managing Director, J.P. Morgan Investment Management 522 Fifth Avenue, Inc. and J.P. Morgan Fleming Asset Management (USA) New York, NY 10036; Inc.; Head of J.P. Morgan Fleming's U.S. Mutual Funds 12/21/1962 and Financial Intermediaries Business ("FFI"); he has held numberous positions throughout the firm in business management, marketing and sales. David Wezdenko; Treasurer Since 2001 Managing Director, J.P. Morgan Investment Management 522 Fifth Avenue, Inc. and J.P. Morgan Fleming Asset Management (USA) New York, NY 10036; Inc.; Chief Operating Officer for FFI; since joining 10/2/1963 J.P. Morgan Chase in 1996, he has held numerous financial and operation related positions supoorting the J.P. Morgan pooling funds business. Sharon Weinberg; Secretary Since 2001 Managing Director, J.P. Morgan Investment Management 522 Fifth Avenue, Inc. and J.P. Morgan Fleming Asset Management (USA) New York, NY 10036; Inc.; Head of Business and Product Strategy for FFI; 6/15/1959 since joining J.P. Morgan Chase in 1996, she has held numerous positions throughout the asset management business in mutual funds marketing, legal and product development. Stephen Ungerman; Vice President and Assistant Since 2001 Vice President, J.P. Morgan Investment Management 522 Fifth Avenue, Treasurer Inc. and J.P. Morgan Fleming Asset Management (USA) New York, NY 10036; Inc.; Business Head for Vehicle Services Group within 6/2/1953 Fund Administration; prior to joining J.P. Morgan Chase in 2000, he held a number of senior management positions in Prudential Insurance Co. of America's asset management business, including Associate General Counsel, Tax Director and Co-head of Fund Administration Department; Mr. Ungerman was also the Assistant Treasurer of all mutual funds managed by Prudential. Judy R. Bartlett; Vice President and Assistant Since 2001 Vice President and Assitant General Counsel, J.P. 522 Fifth Avenue, Secretary Morgan Investment Management Inc. and J.P. Morgan New York, NY 10036; Fleming Asset Management (USA) Inc., since September 5/29/1965 2000; from August 1998 through August 2000, she was an attorney at New York Life Insurance Company where she served as Assistant Secretary for the Mainstay Funds; from October 1995 through July 1998, Ms. Bartlett was an associate at the law firm of Willkie Far and Gallagher. Joseph J. Bertini; Vice President and Assistant Since 2001 Vice President and Assistant General Counsel, J.P. 522 Fifth Avenue, Secretary Morgan Investment Management Inc. and J.P. Morgan New York, NY 10036; Fleming Asset Management (USA) Inc. 11/4/1965 Thomas J. Smith; Vice President and Assistant Since 2002 Managing Director, Head of Compliance for J.P. Morgan 522 Fifth Avenue, Secretary Chase & Co.'s asset management business in the New York, NY 10036; Americas. An employee since 1996, he previously 6/24/1955 worked in the Investment Management - Risk Management/Compliance group for the Chase Manhattan Corporation.
176
POSITIONS HELD TERM OF OFFICE NAME, CONTACT ADDRESS WITH EACH AND LENGTH OF PRINCIPAL OCCUPATIONS AND DATE OF BIRTH JPMORGAN TRUST TIME SERVED DURING PAST 5 YEARS - ----------------------------------------------------------------------------------------------------------------------------- Wayne H. Chan; Vice President Since 2003 Vice President and Assistant General Counsel, J.P. 522 Fifth Avenue, and Assistant Secretary Morgan Investment Management, Inc. and J.P. Morgan New York, NY 10036; Fleming Asset Management (USA), Inc., since September 6/27/1965 2002; prior to joining J.P. Morgan Chase &Co., Mr. Chan was an associate at the law firm of Shearman & Sterling LLP from June 1999 through May 2001 and Whitman Breed Abbott & Morgan LLP from September 1997 through May 1999. Ryan M. Louvar; Assistant Secretary Since 2003 Counsel of Legal Services, BISYS Investment Services 60 State Street, since 2000; formerly Attorney at Hill, Farrer & Suite 1300, Burrill LLP from 1999 to 2000 and Knapp Petersen Boston, MA 02109; Clarke, PC from 1997 to 1999. 2/18/1972
Additional information concerning the Trustees is contained in the Statement of Additional Information and is available without charge by calling 1-800-348-4782. 177 TAX LETTER (UNAUDITED) JPMorgan Bond Fund ("BF") JPMorgan Bond Fund II ("BFII") JPMorgan Enhanced Income Fund ("EIF") JPMorgan Fleming Emerging Markets Debt Fund ("EMDF") JPMorgan Global Strategic Income Fund ("GSIF") JPMorgan Short Term Bond Fund ("STBF") JPMorgan Short Term Bond Fund II ("STBFII") JPMorgan Strategic Income Fund ("SIF") JPMorgan U.S. Treasury Income Fund ("USTI") Certain tax information for the JPMorgan Funds is required to be provided to shareholders based upon the Funds' income and distributions for the taxable year end August 31, 2003. The information and distributions reported in this letter may differ from the information and taxable distributions reported to the shareholders for the calendar year ending December 31, 2003. The information necessary to complete your income tax returns for the calendar year ending December 31, 2003 will be received under separate cover. During the period ended August 31, 2003, the following long-term capital gains were distributed by the following Funds:
LONG-TERM CAPITAL GAINS DISTRIBUTION FUND BF $ 3,646,701 BF II 4,615,036 STBF 7,517,818 STBF II 4,320,985
178 JPMORGAN FAMILY OF FUNDS U.S. EQUITY FUNDS CAPITAL GROWTH FUND DISCIPLINED EQUITY FUND DISCIPLINED EQUITY VALUE FUND DIVERSIFIED FUND DYNAMIC SMALL CAP FUND EQUITY GROWTH FUND EQUITY INCOME FUND GROWTH AND INCOME FUND MID CAP EQUITY FUND MID CAP GROWTH FUND MID CAP VALUE FUND SMALL CAP EQUITY FUND SMALL CAP GROWTH FUND U.S. EQUITY FUND U.S. SMALL COMPANY FUND U.S. SMALL COMPANY OPPORTUNITIES FUND VALUE OPPORTUNITIES FUND INTERNATIONAL EQUITY FUNDS FLEMING EMERGING MARKETS EQUITY FUND FLEMING EUROPEAN FUND FLEMING INTERNATIONAL EQUITY FUND FLEMING INTERNATIONAL GROWTH FUND FLEMING INTERNATIONAL OPPORTUNITIES FUND FLEMING INTERNATIONAL VALUE FUND FLEMING JAPAN FUND FLEMING ASIA EQUITY FUND SPECIALTY FUNDS GLOBAL 50 FUND GLOBAL HEALTHCARE FUND MARKET NEUTRAL FUND TAX AWARE FUNDS FLEMING TAX AWARE INTERNATIONAL OPPORTUNITIES FUND TAX AWARE DISCIPLINED EQUITY FUND TAX AWARE ENHANCED INCOME FUND TAX AWARE LARGE CAP GROWTH FUND TAX AWARE LARGE CAP VALUE FUND TAX AWARE SHORT-INTERMEDIATE INCOME FUND TAX AWARE U.S. EQUITY FUND INCOME FUNDS BOND FUND BOND FUND II ENHANCED INCOME FUND FLEMING EMERGING MARKETS DEBT FUND GLOBAL STRATEGIC INCOME FUND SHORT TERM BOND FUND SHORT TERM BOND FUND II STRATEGIC INCOME FUND U.S. TREASURY INCOME FUND TAXFREE FUNDS CALIFORNIA BOND FUND INTERMEDIATE TAX FREE INCOME FUND NEW JERSEY TAX FREE INCOME FUND NEW YORK INTERMEDIATE TAX FREE INCOME FUND TAX FREE INCOME FUND MONEY MARKET FUNDS 100% U.S. TREASURY SECURITIES MONEY MARKET FUND CALIFORNIA TAX FREE MONEY MARKET FUND FEDERAL MONEY MARKET FUND LIQUID ASSETS MONEY MARKET FUND NEW YORK TAX FREE MONEY MARKET FUND PRIME MONEY MARKET FUND TAX FREE MONEY MARKET FUND TREASURY PLUS MONEY MARKET FUND U.S. GOVERNMENT MONEY MARKET FUND FUNDS MAY BE REGISTERED UNDER SEPARATE REGISTRANTS. THIS PAGE IS INTENTIONALLY LEFT BLANK [JPMORGAN FLEMING ASSET MANAGEMENT LOGO] JPMorgan Funds are distributed by J.P. Morgan Fund Distributors, Inc., which is unaffiliated with the JPMorgan Chase Bank. JPMorgan Chase and its respective affiliates receive compensation from JPMorgan Funds for providing services to the Funds. This report is submitted for the general information of the shareholders of the funds. It is not authorized for distribution to prospective investors in the funds unless preceded or accompanied by a prospectus. To obtain a prospectus for any of the JPMorgan Funds, call 1-800-348-4782. The prospectus contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. A list of portfolio holdings is available fifteen days after month end upon request. Please contact your JPMorgan Fleming representative or call 1-800-766-7722 to obtain further information. JPMorgan Funds Fulfillment Center PRSAT STD 393 Manley Street U.S. POSTAGE West Bridgewater, MA 02379-1039 PAID PERMIT 2891 KANSAS CITY, MO (C) J.P. Morgan Chase & Co., 2003 All Rights Reserved. October 2003 AN-INC-803 ITEM 2. CODE OF ETHICS. (a) Disclose whether, as of the end of the period covered by the report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, explain why it has not done so. THE REGISTRANT HAS ADOPTED A CODE OF ETHICS THAT APPLIES TO THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER OR CONTROLLER, OR PERSONS PERFORMING SIMILAR FUNCTIONS. THE REGISTRANT WILL PROVIDE ANY PERSON WITHOUT CHARGE, UPON REQUEST, A COPY OF THE CODE OF ETHICS. A REQUEST MAY BE MADE BY CALLING 1-800-348-4782. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a) (1) Disclose that the registrant's board of directors has determined that the registrant either: (i) Has at least one audit committee financial expert serving on its audit committee; or (ii) Does not have an audit committee financial expert serving on its audit committee. THE REGISTRANT'S BOARD OF DIRECTORS HAS DETERMINED THAT THE REGISTRANT HAS AT LEAST ONE AUDIT COMMITTEE FINANCIAL EXPERT SERVING ON ITS AUDIT COMMITTEE. (2) If the registrant provides the disclosure required by paragraph (a)(1)(i) of this Item, it must disclose the name of the audit committee financial expert and whether that person is "independent." In order to be considered "independent" for purposes of this Item, a member of an audit committee may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (i) Accept directly or indirectly any consulting, advisory, or other compensatory fee from the issuer; or (ii) Be an "interested person" of the investment company as defined in Section 2(a)(19) of the Act (15 U.S.C. 80a- 2(a)(19)). THE AUDIT COMMITTEE FINANCIAL EXPERT IS WILLIAM ARMSTRONG. HE IS A "NON-INTERESTED" TRUSTEE AND IS ALSO "INDEPENDENT" AS DEFINED BY THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES AUDIT COMMITTEE FINANCIAL EXPERT DETERMINATIONS. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Disclose, under the caption AUDIT FEES, the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. (b) Disclose, under the caption AUDIT-RELATED FEES, the aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. (c) Disclose, under the caption TAX FEES, the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. Registrants shall describe the nature of the services comprising the fees disclosed under this category. (d) Disclose, under the caption ALL OTHER FEES, the aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item. Registrants shall describe the nature of the services comprising the fees disclosed under this category. (e) (1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. (2) Disclose the percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. (g) Disclose the aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant. (h) Disclose whether the registrant's audit committee of the board of directors has considered whether the provision of nonaudit services that were rendered to the registrant's investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. NOT APPLICABLE - ONLY EFFECTIVE FOR ANNUAL REPORTS FOR FISCAL YEARS ENDING ON OR AFTER DECEMBER 15, 2003. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. NOT APPLICABLE. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. A closed-end management investment company that is filing an annual report on this Form N-CSR must, unless it invests exclusively in non-voting securities, describe the policies and procedures that it uses to determine how to vote proxies relating to portfolio securities, including the procedures that the company uses when a vote presents a conflict between the interests of its shareholders, on the one hand, and those of the company's investment adviser; principal underwriter; or any affiliated person (as defined in Section 2(a)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(3)) and the rules thereunder) of the company, its investment adviser, or its principal underwriter, on the other. Include any policies and procedures of the company's investment adviser, or any other third party, that the company uses, or that are used on the company's behalf, to determine how to vote proxies relating to portfolio securities. NOT APPLICABLE ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) Disclose the conclusions of the registrant's principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, about the effectiveness of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Act (17 CFR 270.30a-2(c))) based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph. THE REGISTRANT'S PRINCIPAL EXECUTIVE AND PRINCIPAL FINANCIAL OFFICERS HAVE CONCLUDED, BASED ON THEIR EVALUATION OF THE REGISTRANT'S DISCLOSURE CONTROLS AND PROCEDURES AS OF A DATE WITHIN 90 DAYS OF THE FILING DATE OF THIS REPORT, THAT THE REGISTRANT'S DISCLOSURE CONTROLS AND PROCEDURES ARE REASONABLY DESIGNED TO ENSURE THAT INFORMATION REQUIRED TO BE DISCLOSED BY THE REGISTRANT ON FORM N-CSR IS RECORDED, PROCESSED, SUMMARIZED AND REPORTED WITHIN THE REQUIRED TIME PERIODS AND THAT INFORMATION REQUIRED TO BE DISCLOSED BY THE REGISTRANT IN THE REPORTS THAT IT FILES OR SUBMITS ON FORM N-CSR IS ACCUMULATED AND COMMUNICATED TO THE REGISTRANT'S MANAGEMENT, INCLUDING ITS PRINCIPAL EXECUTIVE AND PRINCIPAL FINANCIAL OFFICERS, AS APPROPRIATE TO ALLOW TIMELY DECISIONS REGARDING REQUIRED DISCLOSURE. (b) Disclose whether or not there were significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. THERE WERE NO CHANGES IN THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL REPORTING THAT OCCURRED DURING THE REGISTRANT'S MOST RECENT FISCAL HALF-YEAR (THE REGISTRANT'S SECOND FISCAL HALF-YEAR IN THE CASE OF AN ANNUAL REPORT) THAT HAVE MATERIALLY AFFECTED, OR ARE REASONABLY LIKELY TO MATERIALLY AFFECT, THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL REPORTING. ITEM 10. EXHIBITS. (a) File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. NOT APPLICABLE - SEE ITEM 2 ABOVE. (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2). CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 ARE ATTACHED HERETO. (b) A separate or combined certification for each principal executive officer and principal officer of the registrant as required by Rule 30a-2(b) under the Act of 1940. CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 ARE ATTACHED HERETO. SIGNATURES [See General Instruction F] Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) J.P. Morgan Funds ------------------------------------------------------------------- By (Signature and Title)* /s/ David Wezdenko ------------------------------------------------------ David Wezdenko, Treasurer Date October 21, 2003 --------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ David Wezdenko ------------------------------------------------------ David Wezdenko, Treasurer Date October 21, 2003 --------------------------------------------------------------------------- By (Signature and Title)* /s/ George C.W. Gatch ------------------------------------------------------ George C.W. Gatch, President Date October 21, 2003 --------------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature. EX-99.CERT 3 a2120852zex-99_cert.txt EX-99.CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002 I, George C.W. Gatch, certify that: 1. I have reviewed this report on Form N-CSR of the JPMorgan Fleming Emerging Market Debt Fund (the "Fund"), a series of J.P. Morgan Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Fund and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Fund's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the Fund's internal control over financial reporting that occurred during the Fund's most recent fiscal half-year (the Fund's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting; and 5. The Fund's other certifying officer(s) and I have disclosed to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Fund's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. /s/ George C.W. Gatch - -------------------------------------- George C.W. Gatch President October 21, 2003 - -------------------------------------- Date CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002 I, David Wezdenko, certify that: 1. I have reviewed this report on Form N-CSR of the JPMorgan Fleming Emerging Market Debt Fund (the "Fund"), a series of J.P. Morgan Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Fund as of, and for, the periods presented in this report; 4. The Fund's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Fund and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Fund, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Fund's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the Fund's internal control over financial reporting that occurred during the Fund's most recent fiscal half-year (the Fund's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Fund's internal control over financial reporting; and 5. The Fund's other certifying officer(s) and I have disclosed to the Fund's auditors and the audit committee of the Fund's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Fund's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund's internal control over financial reporting. /s/ David Wezdenko - -------------------------------------- David Wezdenko Treasurer October 21, 2003 - -------------------------------------- Date EX-99.906-CERT 4 a2120852zex-99_906cert.txt EX-99.906-CERT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 2002 This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, and accompanies the report on Form N-CSR for the period ended August 31, 2003 of the JPMorgan Fleming Emerging Market Debt Fund, a series of J.P. Morgan Funds (the "Registrant"). I, George C.W. Gatch, certify that: 1. The Form N-CSR fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)), as applicable; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the JPMorgan Fleming Emerging Market Debt Fund, a series of the Registrant. /s/ George C.W. Gatch - -------------------------------------- George C.W. Gatch President October 21, 2003 - -------------------------------------- Date This certificate is furnished pursuant to the requirements of Form N-CSR and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act of 1934. CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 2002 This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, and accompanies the report on Form N-CSR for the period ended August 31, 2003 of the JPMorgan Fleming Emerging Market Debt Fund, a series of J.P. Morgan Funds (the "Registrant"). I, David Wezdenko, certify that: 1. The Form N-CSR fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)), as applicable; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the JPMorgan Fleming Emerging Market Debt Fund, a series of the Registrant. /s/ David Wezdenko - -------------------------------------- David Wezdenko Treasurer October 21, 2003 - -------------------------------------- Date This certificate is furnished pursuant to the requirements of Form N-CSR and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act of 1934. -----END PRIVACY-ENHANCED MESSAGE-----