<PAGE>
THE PIERPONT MONEY MARKET FUND The
Pierpont
THE PIERPONT TAX EXEMPT MONEY MARKET FUND Diversified
Fund
THE PIERPONT TREASURY MONEY MARKET FUND
THE PIERPONT SHORT TERM BOND FUND
THE PIERPONT BOND FUND
THE PIERPONT TAX EXEMPT BOND FUND
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
THE PIERPONT DIVERSIFIED FUND
THE PIERPONT EQUITY FUND
THE PIERPONT CAPITAL APPRECIATION FUND
THE PIERPONT INTERNATIONAL EQUITY FUND
THE PIERPONT EMERGING MARKETS EQUITY FUND
FOR MORE INFORMATION ON HOW THE PIERPONT ANNUAL REPORT
FAMILY OF FUNDS CAN HELP YOU PLAN FOR YOUR JUNE 30, 1994
FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
<PAGE>
LETTER TO THE SHAREHOLDERS OF THE PIERPONT DIVERSIFIED FUND
AUGUST 23, 1994
Dear Shareholder:
Shareholders of The Pierpont Diversified Fund (the ""Fund'') will remember
its first six months of operation as a period characterized by profound
market uncertainty - instigated primarily by inflation-fighting actions
undertaken by the Federal Reserve. The Fund met this challenge, however, and
was able to consistently outperform its Diversified Benchmark,* ending fiscal
year 1994 with a return of -1.82% since its December 15, 1993 commencement of
operations. By comparison, the Fund's Benchmark provided a total return of
- -2.41% for the period December 31, 1993 to June 30, 1994. Given turbulent
market conditions, the Fund's net asset value per share fell from a high of
$10.35 to $9.81 by fiscal year-end, after paying $0.01 per share in
dividends. The Pierpont Diversified Fund reached a capitalization of $7[nb]
million by June 30, 1994, while the net assets of The Diversified Portfolio
(the ""Portfolio''), in which the Fund invests, totalled $65[nb]million as of
June 30, 1994.
REVIEW SINCE INCEPTION
The Fund was launched after the heady days of a strengthening domestic
economy and near-4000 Dow, when the prevailing mood of investment optimism
changed. During the first six months of 1994, the Federal Reserve first
publicly debated, then decided to actually raise its Fed funds rate three
times. These actions were generally regarded as pre-emptive strikes against
renewed inflation. Nevertheless, the hikes in the Fed funds rate caused
uncertainty to become pervasive among investors, which negatively affected
both domestic and international markets.
Despite this difficult environment, The Pierpont Diversified Fund outpaced
both the domestic stock and bond markets, as well as the average return for
similarly managed funds, as measured by the Lipper Balanced Fund Index during
the first half of 1994. Since we generally seek to purchase undervalued
securities, this downturn in markets during 1994's first half also presented
some attractive buying opportunities, which we are hopeful will prove
rewarding for our shareholders in the months to come.
<TABLE><CAPTION>
<S> <C>
- --------------------------------------------------------------------------
TABLE OF CONTENTS
Letter to the shareholders.........1
Fund facts and highlights..........3
Fund performance...................4
Special fund-based services........5
Financial statements...............6
- ---------------------------------------------------------------------------
</TABLE>
There were two primary reasons for the Fund's favorable returns relative to
its Benchmark. First, the Portfolio's U.S. large stock holdings outpaced the
S&P 500. Second, a modest overweighting in international equities also helped
the Portfolio to outperform its Benchmark.
As the fiscal year-end neared, extreme volatility took hold of virtually all
markets, especially the small-cap markets in which the Portfolio
participates. It was the relative underperformance of small-cap stocks,
particularly those of technology and health care companies, which deterred
the Fund from
1
<PAGE>
recording even better investment results. Overall, however, the
Diversified Fund's fundamental characteristics continued to be more
attractive than those of the market, as measured by the benchmarks used to
compare fund performance. While no one can predict future investment results,
we believe that the Fund's results since inception offer strong evidence that
a balanced, diversified investment approach can add value and reduce risk in
a difficult market environment.
THE INVESTMENT OUTLOOK
While rising interest rates have begun to have an impact on sectors of the
U.S. economy that are interest-rate sensitive, economic growth in the U.S.
appears to be continuing at above-average trends. The best evidence support
in this view is the strength of second-quarter labor market indicators, which
showed payroll employment gains averaging well in excess of 200,000 per
month, accompanied by a further decline in the unemployment rate to 6%.
This above-trend growth is already resulting in higher inflation. For this
reason, and because the risks of delay exceed those of taking action, we
expect the Federal Reserve to initiate additional rounds of rate tightening
during the second half of 1994. We expect the Federal funds rate to be
increased to over 5.0% - 5.5% by year-end. By way of contrast, this
rate stood at 3% as recently as January of this year, and at 4.25% by the end
of 1994's second calendar quarter. While our near-term forecast may appear
somewhat cautious, keep in mind that the Federal Reserve's ongoing vigilance
in extending current low inflation levels has proven to be one of the
fundamental backbones for the superior investment results of financial assets
during the past decade.
As always, we welcome your comments or questions. Please call J.P. Morgan
Funds Services toll free at (800) 521-5411.
Sincerely yours,
Evelyn E. Guernsey
J.P. Morgan Fund Services
*COMPRISED OF THE S&P 500 (52%), THE RUSSELL 2000 (3%), THE
SALOMON BROTHERS INVESTMENT GRADE BOND (35%), AND THE MSCI EAFE (10%)
INDICES.
MORGAN SERVES AS PORTFOLIO INVESTMENT ADVISOR AND MAKES THE PIERPONT
DIVERSIFIED FUND (THE ""FUND'') AVAILABLE SOLELY IN ITS CAPACITY AS
SHAREHOLDER SERVICING AGENT FOR CUSTOMERS. THE FUND'S DISTRIBUTOR IS
SIGNATURE BROKER-DEALER SERVICES, INC. INVESTMENTS IN THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN GUARANTY
TRUST COMPANY OF NEW YORK OR ANY OTHER BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE OF
AN INVESTMENT IN THE FUND CAN FLUCTUATE, SO AN INVESTOR'S SHARES WHEN
REDEEMED MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
The performance data quoted herein represent past performance. Please
remember that past performance is not a guarantee of future performance. Fund
returns are net of fees. All returns assume the reinvestment of Fund
distributions and reflect the reimbursement of certain Fund expenses as
described in the Prospectus. Had expenses not been subsidized, returns would
have been lower. The Fund invests all of its investable assets in The
Diversified Portfolio (the ''Portfolio''), a separately registered investment
company which is not available to the public but only to other collective
investment vehicles such as the Fund. The Portfolio may invest in foreign
securities which are subject to special risks; prospective investors should
refer to the Fund's Prospectus for a discussion of these risks. Consistent
with applicable regulatory guidance, performance for the period prior to the
Fund's inception reflects the performance of The JPM Institutional
Diversified Fund, which has a substantially similar investment objective and
restrictions as the Fund. The performance of this prior period reflects
deduction of the charges and expenses of The JPM Institutional Diversified
Fund, which were lower than the estimated charges and expenses for The
Pierpont Diversified Fund, after reimbursement.
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES
AND OTHER EXPENSES, IS PROVIDED IN THE PROSPECTUS, WHICH SHOULD BE READ
CAREFULLY BEFORE INVESTING. YOU MAY OBTAIN AN ADDITIONAL COPY OF THE
PROSPECTUS BY CALLING (800) 521-5411.
2
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The Pierpont Diversified Fund seeks to provide a high total return from a
diversified portfolio of equity and fixed income securities. It is designed for
investors who wish to invest for long-term objectives such as retirement and who
seek over time to attain real appreciation in their investments, but with
somewhat less price fluctuation than a portfolio consisting solely of equity
securities.
- -------------------------------------------
NET ASSETS AS OF 6/30/94 ($ MILLIONS)
7
- -------------------------------------------
EX-DIVIDEND DATES
8/29/94, 12/19/94
- -------------------------------------------
DIVIDEND PAYABLE DATES
8/30/94, 12/20/94
- -------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF ANY)
8/30/94, 12/20/94
EXPENSE RATIO
The Fund's current annual expense ratio of 0.98% covers shareholders' expenses
for custody, tax reporting, investment advisory and shareholder services. The
Fund is no-load and does not charge any sales, redemption, or exchange fees.
There are no additional charges for buying, selling, or safekeeping Fund shares,
or for wiring dividend or redemption proceeds from the Fund.
FUND HIGHLIGHTS
(ALL DATA AS OF JUNE 30, 1994)
[LOGO]
<TABLE>
<CAPTION>
LARGEST HOLDINGS % OF PORTFOLIO
<S> <C>
- ------------------------------------------------
GENERAL ELECTRIC 1.7
EXXON 1.5
WAL-MART 1.3
AT&T 1.3
COCA-COLA 1.2
ROYAL DUTCH PETROLEUM 1.2
PHILLIP MORRIS 1.1
MERCK 1.0
DUPONT 0.9
PROCTER & GAMBLE 0.9
</TABLE>
3
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at right shows that $10,000 invested at the inception of the
Fund's predecessor fund would have decreased to $9,867 by June 30, 1994.
Another way to look at performance is to review a fund's average annual total
returns; these figures represent the average yearly change of the Fund's value
over various time periods, typically 1, 5 or 10 years (or since inception). For
example, a hypothetical fund whose value increased by 4.0% in 1992 and 6.0% in
1993 had an average annual total return of 5.0% over the two-year period. Total
returns for periods of less than one year can also provide a picture of how a
fund has performed over the short term.
GROWTH OF $10,000
SEPTEMBER 10, 1993 -- JUNE 30, 1994
- --------------------------------------------
Line graph with two axes: the X-axis represents years of operations; the Y-axis
represents dollar value. The graph plots four lines: the first line represents
the growth of a ten thousand dollar investment in the Fund from September 10,
1993 (inception) to June 30, 1994; the second line represents the growth of a
ten thousand dollar investment in a portfolio of securities reflecting the
composition of the Diversified Benchmark index for the same time period; the
third line represents the growth of a ten thousand dollar investment in a
portfolio of securities reflecting the composition of the S&P 500 index for the
same time period; the fourth line represents the growth of a ten thousand dollar
investment in a portfolio of securities reflecting the composition of the
Salomon Brothers Broad Investment Grade Bond Index ("BIG"). The graph points are
as follows:
<TABLE>
<CAPTION>
Diversified
Year Fund Benchmark S&P 500 Salomon BIG
<S> <C> <C> <C> <C>
0 $ 10,000 $ 10,000 $ 10,000 $ 10,000
1 9,867 9,871 9,835 9,650
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS
----------------------------------------------------------
THREE YEAR ONE FIVE SINCE
AS OF JUNE 30, 1994 MONTHS TO DATE YEAR YEARS 9/10/93*
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
The Pierpont Diversified Fund 0.41% -2.00% N/A N/A -1.33%
Diversified Benchmark** 0.28% -2.41% N/A N/A -1.29%
S&P 500 0.42% -3.39% N/A N/A -1.65%
Salomon Brothers Broad Investment
Grade Bond Index ("BIG") -0.97% -3.75% N/A N/A -3.50%
</TABLE>
*CONSISTENT WITH APPLICABLE REGULATORY GUIDANCE, PERFORMANCE FOR THE PERIOD
PRIOR TO THE PIERPONT DIVERSIFIED FUND'S COMMENCEMENT OF OPERATIONS REFLECTS THE
PERFORMANCE OF THE CORRESPONDING JPM INSTITUTIONAL DIVERSIFIED FUND. THE
PERFORMANCE FOR THIS PRIOR PERIOD REFLECTS THE DEDUCTION OF THE CHARGES AND
EXPENSES OF THE JPM INSTITUTIONAL DIVERSIFIED FUND, WHICH WERE LOWER THAN THE
CHARGES AND EXPENSES FOR THE PIERPONT DIVERSIFIED FUND, AFTER REIMBURSEMENT.
ALTHOUGH THE JPM INSTITUTIONAL DIVERSIFIED FUND'S INCEPTION WAS JULY 8, IT HAD
NO PUBLIC SHAREHOLDERS UNTIL SEPTEMBER 10, 1993. AS A RESULT, ALL RETURNS ARE
CALCULATED AS OF SEPTEMBER.
**THE DIVERSIFIED BENCHMARK IS COMPRISED OF THE S&P 500 (52%), THE RUSSELL 2000
(3%), THE SALOMON BROTHERS BROAD INVESTMENT GRADE BOND (35%) AND THE MSCI EAFE
(10%) INDICES.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. ALL RETURNS ASSUME THE
REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF CERTAIN FUND AND
PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS.
4
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. Through the Pierpont Asset Allocation Service (PAAS),
their clients can work with Morgan investment professionals in order to
determine investment goals. Our investment professionals will then:
- - Recommend an asset allocation strategy that
is specifically targeted at meeting the client's investment objectives
- - Execute the chosen strategy by making
strategic investments in one or more Pierpont Funds
- - Make agreed-upon ongoing tactical
adjustments in the actual asset mix of the client's portfolio in an effort to
capitalize on shifting market trends
The Pierpont Asset Allocation Service thus provides the investor with a
comprehensive asset allocation and investment management program for his or her
portfolio. PAAS is available to clients who invest a minimum of $500,000 in The
Pierpont Funds. The fees begin at $5,000 for the first year, followed by $2,500
each subsequent year.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow
tax-deferred until retirement, the IRA enables more of your dollars to work for
you longer. Morgan offers an IRA Rollover plan that helps you to build well-
balanced long-term investment portfolios, diversified across a wide array of
mutual funds. From money markets to emerging markets, The Pierpont Funds provide
an excellent way to help you accumulate long-term wealth for retirement. The IRA
Rollover plan is available to clients who invest at least $10,000 in any given
Pierpont Fund.
KEOGH
Beginning this fall, Morgan will introduce a Keogh program for its clients.
Keoghs provide another excellent vehicle to help individuals who are
self-employed or are employees of unincorporated businesses to accumulate
retirement savings. A Keogh is a tax-deferred pension plan that can allow for
you to contribute the lesser of $30,000 or 25% of your annual earned gross
compensation. The Pierpont Funds can help you build a comprehensive investment
program designed to maximize the retirement dollars in your Keogh account. The
Keogh plan also requires a minimum investment of $10,000 in any given Pierpont
Fund.
5
<PAGE>
THE PIERPONT DIVERSIFIED FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in The Diversified Portfolio ("Portfolio"), at value $5,972,023
Receivable for Fund Shares Sold 1,022,633
Deferred Organization Expense (Note 1d) 30,940
Receivable for Expense Reimbursements (Note 2b) 49,491
----------
Total Assets 7,075,087
----------
LIABILITIES:
Organization Expenses Payable 15,541
Shareholder Servicing Fee Payable (Note 2c) 5,411
Administration Fee Payable (Note 2a) 139
Fund Services Fee Payable (Note 2d) 46
Accrued Expenses 31,090
----------
Total Liabilities 52,227
----------
NET ASSETS:
Applicable to 715,762 Shares of Beneficial Interest Outstanding $7,022,860
----------
----------
Net Asset Value, Offering and Redemption Price Per Share $9.81
----------
----------
ANALYSIS OF NET ASSETS:
Paid-in Capital $7,201,791
Undistributed Net Investment Income 53,855
Accumulated Net Realized Gain (Loss) on Investments and Foreign Currency
Transactions 42,677
Net Unrealized Depreciation of Investments and Foreign Currency
Translations (275,463)
----------
Net Assets $7,022,860
----------
----------
</TABLE>
See Accompanying Notes.
6
<PAGE>
THE PIERPONT DIVERSIFIED FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 15, 1993 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME FROM PORTFOLIO (NOTE 1B):
Dividend Income (Net of Withholding Tax of $948) $ 35,269
Interest Income (Net of Withholding Tax of $24) 46,473
Allocated Portfolio Expenses (14,810)
---------
Allocated Net Investment Income from Portfolio 66,932
EXPENSES:
Shareholder Servicing Fee (Note 2c) $ 5,411
Administration Fee (Note 2a) 638
Fund Services Fee (Note 2d) 247
Trustees' Fees and Expenses (Note 2e) 46
Transfer Agent Fees 14,049
Printing and Postage 13,816
Professional Fees 9,414
Registration Fees 6,631
Amortization of Organization Expense (Note 1d) 3,784
Miscellaneous 1,855
---------
Total Expenses 55,891
Less: Reimbursement of Expenses (Note 2b) (49,491)
---------
NET EXPENSES 6,400
---------
NET INVESTMENT INCOME 60,532
NET REALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS FROM PORTFOLIO 77,841
NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENTS AND FOREIGN
CURRENCY TRANSLATIONS FROM PORTFOLIO (275,463)
---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(137,090)
---------
---------
</TABLE>
See Accompanying Notes.
7
<PAGE>
THE PIERPONT DIVERSIFIED FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 15, 1993
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1994
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income $ 60,532
Net Realized Gain (Loss) on Investments and Foreign Currency Transactions
from Portfolio 77,841
Net Change in Unrealized Depreciation of Investments and Foreign
Currency Translations from Portfolio (275,463)
-----------------
Net Decrease in Net Assets Resulting from Operations (137,090)
-----------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income (91)
-----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 3):
Proceeds from Shares of Beneficial Interest Sold 7,514,475
Reinvestment of Dividends 91
Cost of Shares of Beneficial Interest Redeemed (354,625)
-----------------
Net Increase from Transactions in Shares of Beneficial Interest 7,159,941
-----------------
Total Increase in Net Assets 7,022,760
NET ASSETS:
Beginning of Period 100
-----------------
End of Period (including undistributed net investment income of $53,855) $ 7,022,860
-----------------
-----------------
</TABLE>
See Accompanying Notes.
8
<PAGE>
THE PIERPONT DIVERSIFIED FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 15, 1993
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1994
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.09
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency from Portfolio (0.27)
------
Total from Investment Operations (0.18)
------
LESS DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income (0.01)
------
NET ASSET VALUE, END OF PERIOD $ 9.81
------
------
Total Return (1.82)%(a)
RATIOS AND SUPPLEMENTAL DATA:
Net Assets at End of Period (in thousands) $7,023
Ratios to Average Net Assets (annualized):
Expenses* 0.98%
Net Investment Income* 2.80%
<FN>
* Reflects the Fund's proportionate share of the Portfolio's expenses and a
reimbursement of expenses by Morgan. If these agreements to reimburse the
Portfolio and the Fund for excess expenses had not been in place for the
period ended June 30, 1994, and after consideration of certain state
limitations, the annualized ratios of expenses and net investment income to
average net assets would have been 2.50% and 1.28%, respectively.
(a) Not annualized.
</TABLE>
See Accompanying Notes.
9
<PAGE>
THE PIERPONT DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Pierpont Diversified Fund (the "Fund") is a separate series of The Pierpont
Funds, a Massachusetts business trust (the "Trust") which was organized on
November 4, 1992. The Trust is registered under the Investment Company Act of
1940, as amended, as a diversified open-end management investment company. The
Fund commenced investment operations on December 15, 1993.
The Fund invests all of its investable assets in The Diversified Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the Fund. The value of such investment reflects the
Fund's proportionate beneficial interest in the net assets of the Portfolio
(9.2% at June 30, 1994). The performance of the Fund is directly affected by the
performance of the Portfolio. The financial statements of the Portfolio,
including the schedule of investments, are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements.
1. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies of the Fund:
a) Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c) Substantially all the Fund's net investment income is declared as dividends
and paid semi-annually. Distributions to shareholders of net realized
capital gain, if any, are declared and paid annually.
d) The Fund incurred organization expenses in the amount of $34,724. These
costs were deferred and are being amortized by the Fund on a straight-line
basis over a five-year period from the commencement of investment
operations.
e) Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund's policy is to comply with the provisions of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income,
including net realized capital gains, if any, within the prescribed time
periods. Accordingly, no provision for federal income or excise tax is
necessary.
f) Expenses incurred by the Trust with respect to any two or more funds in the
Trust are allocated in proportion to the net assets of each fund in the
Trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
10
<PAGE>
THE PIERPONT DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
g) The Fund has adopted Statement of Position 93-2 Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies. Accordingly, permanent book
and tax basis differences relating to shareholder distributions are
reclassified to paid-in capital. As of June 30, 1994, the Fund reclassified
$35,164 from accumulated net realized gain (loss) on investments and
foreign currency transactions and $6,586 from undistributed net investment
income, to paid-in capital. Net investment income, net realized gains and
net assets were not affected by this change.
2. TRANSACTIONS WITH AFFILIATES:
a) The Trust retains Signature Broker-Dealer Services, Inc. ("Signature") to
serve as Administrator and Distributor. Signature provides administrative
services necessary for the operations of the Fund, furnishes office space
and facilities required for conducting the business of the Fund and pays
the compensation of the Fund's officers affiliated with Signature. For
these services, Signature receives a fee at an annual rate of 0.04% of the
first $1 billion of the aggregate average daily net assets of the Fund, the
other funds in the Trust, The JPM Institutional Funds, and The JPM
Institutional Plus Funds (the "aggregate funds"), 0.032% of the next $2
billion of the aggregate funds' average daily net assets, 0.024% of the
next $2 billion of the aggregate funds' average daily net assets, and
0.016% of the aggregate funds' average daily net assets in excess of $5
billion. For the period December 15, 1993 to June 30, 1994, the Fund's
portion of Signature's fee for these services amounted to $638.
b) The Trust, on behalf of the Fund, has a Financial and Fund Accounting
Services Agreement ("Services Agreement") with Morgan Guaranty Trust
Company of New York ("Morgan") under which Morgan receives a fee, based on
the percentages described below, for overseeing certain aspects of the
administration and operation of the Fund. The Services Agreement is also
designed to provide an expense cap for certain expenses of the Fund. If
total expenses of the Fund, excluding the shareholder servicing fee, the
fund services fee and amortization of organization expenses, exceed the
expense cap of 0.15% of the first $100 million of the Fund's average daily
net assets, and 0.13% of average daily net assets thereafter, Morgan will
reimburse the Fund for the excess expense amount and receive no fee. Should
such expenses be less than the expense cap, Morgan's fee would be limited
to the difference between such expenses and the fee calculated under the
Services Agreement. For the period December 15, 1993 to June 30, 1994,
Morgan agreed to reimburse the Fund $43,203 for excess expenses. In
addition to the expenses that Morgan may assume under the Services
Agreement, Morgan has agreed to reimburse the Fund to the extent necessary
to maintain the total operating expenses of the Fund, including the
expenses allocated to the Fund from the Portfolio, at no more than 0.98% of
the average daily net assets of the Fund through May 31, 1995. For the
period December 15, 1993 to June 30, 1994, Morgan agreed to reimburse the
Fund $6,288.
c) The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. The Agreement provides for the Fund to pay Morgan a fee for
these services which is computed daily and may be paid monthly at an annual
rate of 0.25% of the average daily net assets of the Fund. For the period
December 15, 1993 to June 30, 1994, the fee for these services amounted to
$5,411.
11
<PAGE>
THE PIERPONT DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
d) The Trust, on behalf of the Fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the Trustees in exercising their
overall supervisory responsibilities for the Trust's affairs. The Chairman
and sole shareholder of Group is also a Trustee of the Trust. The Fund's
allocated portion of Group's costs in performing its services amounted to
$247 for the period December 15, 1993 to June 30, 1994.
e) Each Trustee is paid a $55,000 annual fee for serving as a Trustee of the
aggregate funds and their corresponding Portfolios. The Trustee fee expense
shown in the financial statements represents the Fund's allocated portion
of the total fees and expenses.
3. SHARES OF BENEFICIAL INTEREST:
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (par value $0.001) of one or
more series. To date, the Trust has authorized shares of fourteen series, of
which the Fund's shares represent one series. Transactions in shares of
beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 15, 1993
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1994
-----------------
<S> <C>
Shares Sold 751,526
Reinvestment of Dividends 9
Shares Redeemed (35,783)
-------
Net Increase 715,752
-------
-------
</TABLE>
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The Pierpont Diversified Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Pierpont Diversified Fund (the "Fund") at June 30, 1994, and the results of
its operations, the changes in its net assets and the financial highlights for
the period December 15, 1993 (commencement of operations) through June 30, 1994,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
August 23, 1994
13
<PAGE>
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<PAGE>
THE DIVERSIFIED PORTFOLIO
ANNUAL REPORT JUNE 30, 1994
(THE FOLLOWING PAGES SHOULD BE READ IN CONJUNCTION
WITH THE PIERPONT DIVERSIFIED FUND
ANNUAL FINANCIAL STATEMENTS)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of and Investors in
The Diversified Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The Diversified Portfolio (the "Portfolio")
at June 30, 1994, and the results of its operations, the changes in its net
assets and its supplementary data for the period July 8, 1993 (commencement of
operations) through June 30, 1994, in conformity with generally accepted
accounting principles. These financial statements and supplementary data
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at June 30, 1994 by correspondence with the custodian
and brokers, and the application of alternative auditing procedures where
confirmations from brokers were not received, provides a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
August 23, 1994
35
