<PAGE>
LETTER TO THE SHAREHOLDERS OF THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
May 22, 1996
Dear Shareholder:
We are pleased to report that The Pierpont New York Total Return Bond Fund
provided attractive absolute returns while also outperforming its competitors,
as measured by the Composite High Quality Intermediate New York Municipal Bond
Fund Average, for both the six-month and one-year periods ending March 31, 1996.
In a challenging environment for municipal bond fund managers, we believe that
actively managed security selection and sector allocation in the Fund's
Portfolio helped it outperform its competitors. For the six-month and one-year
periods, the Fund returned 2.14% and 7.16%, respectively, compared with 1.94%
and 6.49% for the Composite High Quality Intermediate New York Municipal Bond
Fund Average. The Fund fell short, however, of the 2.91% six-month and 8.72%one-
year returns of its benchmark, the Lehman Brothers New York 1-15 Year Municipal
Bond Index. We feel it is important to note that this benchmark is an unmanaged
index whose performance does not include fees or operating expenses, and which
is not available to individual and/or institutional investors.
The Fund's net asset value increased from $10.11 per share to $10.34 at the of
the period, after making distributions of $0.46 per share from ordinary income,
of which $0.45 is tax exempt, and $0.02 from short-term capital gains, and $0.01
from long-term capital gains. The Fund's net assets stood at $50.5 million at
the end of the reporting period, up from $38.1 million on March 31, 1995. The
net assets of The New York Total Return Bond Portfolio, in which the Fund
invests, totaled approximately $98.7 million at March 31, 1996.
We are also pleased to announce that we have made some enhancements to the
Fund's reports to shareholders as part of our ongoing dedication to provide
better service to shareholders. In addition to making Fund performance easier to
locate, we have added a portfolio manager Q&A with Elizabeth Augustin, a member
of the portfolio management team. This interview is designed to help answer some
commonly asked questions about the Fund and to cover what happened during the
reporting period as well as to provide our outlook for the months ahead. To help
you better understand the Q&A, we have also added a glossary of terms on page 6.
As always, we welcome your comments or questions. Please call J.P. Morgan Funds
Services toll free at (800) 521-5411.
Sincerely yours,
/s/ Evelyn E. Guernsey
Evelyn E. Guernsey
J.P. Morgan Funds Services
TABLE OF CONTENTS
Letter to the shareholders . . . . . . . . . . . . . . .1
Fund performance . . . . . . . . . . . . . . . . . . . .2
Portfolio manager Q & A. . . . . . . . . . . . . . . . .3
Glossary of terms . . . . . . . . . . . . . . . . . . .6
Fund facts and highlights. . . . . . . . . . . . . . . .7
Special fund-based services. . . . . . . . . . . . . . .8
Financial statements . . . . . . . . . . . . . . . . . 10
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to review a fund's average annual total return. This
figure takes the fund's actual (or cumulative) return and shows you what would
have happened if the fund had achieved that return by performing at a constant
rate each year. Average annual total returns represent the average yearly change
of a fund's value over various time periods, typically 1, 5, or 10 years (or
since inception). Total returns for periods of less than one year are not
annualized and provide a picture of how a fund has performed over the short
term.
GROWTH OF $100,000 SINCE INCEPTION*
April 11, 1994 - March 31, 1996
<TABLE>
<CAPTION>
Pierpont New York Lehman Brothers New York 1-15 Year
Total Return Bond Fund Municipal Bond Index
<S> <C> <C>
Inception 100,000 100,000
9/30/94 101,708 101,383
3/31/94 105,087 105,458
9/30/95 110,256 111,409
3/31/96 112,610 114,656
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------------------------------------------------
THREE SIX ONE SINCE
AS OF MARCH 31, 1996 MONTHS MONTHS YEAR INCEPTION*
- -------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C>
The Pierpont New York
Total Return Bond Fund -0.65% 2.14% 7.16% 6.39%
Lehman Brothers New York 1-15
Year Municipal Bond Index -0.42% 2.91% 8.72% 7.40%
Composite High Quality Intermediate
NY Municipal Bond Fund Average -0.60% 1.94% 6.49% 5.50%
</TABLE>
*4/11/94 -- COMMENCEMENT OF OPERATIONS (GROWTH AND AVERAGE ANNUAL TOTAL RETURNS
BASED ON MONTH END FOLLOWING INCEPTION; AVERAGE ANNUAL RETURN SINCE ACTUAL
INCEPTION IS 6.29%).
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES AND ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF
CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. THE PIERPONT
NEW YORK TOTAL RETURN BOND FUND INVESTS ALL OF ITS INVESTABLE ASSETS IN THE NEW
YORK TOTAL RETURN BOND 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 LEHMAN BROTHERS NEW YORK 1-15 YEAR MUNICIPAL BOND
INDEX REPRESENTS AN UNMANAGED PORTFOLIO OF SECURITIES IN WHICH INVESTORS MAY NOT
DIRECTLY INVEST. THE COMPOSITE HIGH QUALITY INTERMEDIATE NEW YORK MUNICIPAL BOND
FUND AVERAGE PERFORMANCE IS DERIVED FROM ALL 24 FUNDS IN THE MORNINGSTAR
UNIVERSE HAVING A NEW YORK MUNICIPAL BOND OBJECTIVE, A HIGH QUALITY FOCUS, AND
AN INTERMEDIATE MATURITY. MORNINGSTAR, INC. IS A LEADING RESOURCE FOR MUTUAL
FUND DATA. NO REPRESENTATION IS MADE THAT INFORMATION GATHERED FROM THESE
SOURCES IS ACCURATE OR COMPLETE.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO] Following is an interview with ELIZABETH AUGUSTIN, part of the
portfolio management team for The New York Total Return Bond Portfolio
in which the Fund invests. Elizabeth joined Morgan in 1983 and has
extensive experience across a broad range of markets including
mortgages, convertibles, money markets, and tax exempt securities.
This interview was conducted on May 15, 1996 and reflects Elizabeth
Augustin's views on that date.
ELIZABETH, WHAT WAS THE MAIN FACTOR AFFECTING THE MUNICIPAL MARKET DURING THE
FUND'S REPORTING PERIOD?
EA: Tax reform was the largest issue. Six months ago, different tax reform
proposals were receiving a lot of press and were perceived as more viable
options than they are currently. Because they would have a negative impact on
the municipal market, yields rose accordingly. In other words, the market priced
in a fear of tax reform. I use the word "fear" because the market reacted to
proposals that weren't really practical or, at very best, wouldn't be instituted
for a very long period of time.
At the time, a lot of investors moved from the long end to the short and
intermediate part of the municipal curve, which caused the long end of the
market to cheapen. However, as the market adjusted to the reality that any
radical tax reform is unlikely in the near term, yields for long-term municipals
fell dramatically. In the end, municipal prices across the curve were unchanged
from where they were six months ago.
WHAT IMPACT DO YOU EXPECT FURTHER TAX REFORM DISCUSSIONS TO HAVE ON THE
MUNICIPAL MARKET GOING FORWARD?
EA: Again, at this point a lot of that fear has diminished. Yields are at more
realistic levels and with supply being low, there could be some additional
improvement in the long end of the municipal market. We think the market's
reaction to further tax discussions will be mitigated at this point. Clearly, if
anything does happen, it will have a major impact, but again, we seem to be very
far away from that.
HOW DID YOU ATTEMPT TO TAKE ADVANTAGE OF THE MARKET ENVIRONMENT DURING THE
PERIOD?
EA: We remained invested across the yield curve over the entire period and, at
times, took advantage of what we viewed as cheap securities at the long end of
the market. We purchased bonds with maturities of greater than ten years at
relatively high yields and, in doing so, gradually lengthened the duration of
the Portfolio.
3
<PAGE>
WHAT WAS THE AVERAGE MATURITY AND DURATION OF THE PORTFOLIO FOR THE PERIOD?
EA: The average maturity was approximately 8 years, and the duration ranged from
5.75 to 6.25 years. During the period, continued benign inflation and moderate
economic growth, combined with other weak economic fundamentals and market
technicals, motivated us to extend the duration of the Portfolio.
HOW HAS THE CHANGE IN THE SHAPE OF THE YIELD CURVE AFFECTED YOUR STRATEGY?
EA: Generally speaking, municipal rates are about the same as they were six
months ago. At one point bonds at the longer end of the curve cheapened, but
corrected to more realistic levels by the end of the period. This is different
from the taxable market where the yield curve steepened over the period.
Evaluating the shape of the yield curve to find attractive opportunities is a
major part of our strategy. To take advantage of changes in the curve during the
period, we generally purchased 3- to 5-year bonds and bonds in the 13- to 16-
year range where there was a pickup in yield versus intermediate-term bonds.
This is often called a barbell strategy because purchases are concentrated at
the shorter and longer ends of the market.
DO YOU PURCHASE OUT-OF-STATE ISSUES?
EA: Typically, between 70% and 85% of the Portfolio is invested in a diversified
pool of New York issues. However, we actively trade certain out-of-state
investments whose yields compensate for the cost of paying income taxes.
Additionally, we concentrate on out-of-state holdings in the long end of the
market because that is where a change in spread has the largest impact on total
return.
WHAT ABOUT SPECIFIC SECTORS OF THE MARKET?
EA: One area we avoided is health care. This sector is undergoing a fair amount
of change because of proposed health care reform. Going forward, there may be
some attractive opportunities, but at this point, we think there is too much
stress and strain on the system.
The public power sector is also undergoing change, as the specter of
deregulation becomes an issue for these bonds. In this case, however, we hold
various issues that we feel are in a good competitive position -- those that
shouldn't experience credit deterioration in the case of deregulation.
WHAT LEVEL OF CREDIT QUALITY DO YOU GENERALLY PURCHASE AND HOW DOES THAT COMPARE
WITH COMPETITORS?
EA: Generally, the Portfolio's credit quality is AA, which compares favorably
with our competitors. In fact, the Portfolio currently has approximately 20% of
its assets invested in BBB securities versus the market's 40%. Moreover, 5% of
the Portfolio is invested in New York City issues, which are trading at
attractive yield levels. Despite recurring budget gaps, the fiscal controls that
are currently in place through the state constitution leave us very comfortable
with these bonds. If some widening of spreads does occur, the Portfolio should
perform relatively well because of its high concentration in AAA and AA issues.
4
<PAGE>
HOW HAVE YOU BEEN ABLE TO OUTPERFORM OTHER HIGH-QUALITY INTERMEDIATE-TERM FUNDS?
EA: We diversify the sources of added return through security selection, sector
allocation, and yield curve positioning. I'll give some examples of security
selection since we've already covered some sectors. During the period, we bought
bonds with structures that are somewhat complex but with fairly straightforward
bonds. Some examples were crossover prerefunded bonds, bonds with sinking funds,
and intermediate zero coupon bonds. These securities offer some yield advantage
and also meet our high credit quality standards.
The Portfolio's longer duration helped its return when rates were declining,
but held it back slightly when rates rose. Fortunately, this was offset by our
security selection and sector allocation decisions.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
EA: We believe that economic fundamentals remain supportive of the bond markets
in general. Recently released economic data have increased market perception
that there could be a pick up in growth, but we believe this is offset by low
inflation and moderate gross domestic product growth. We also think that growth
indicators may not be as strong as they appear. For example, while there was a
pickup in retail sales in February, it was in the wake of poor January sales due
to inclement weather in most of the country.
We don't expect any large backup in rates in the municipal market in this
context. Additionally, we could see further improvement in yields in the long
end of the market.
HOW WILL SUPPLY AND DEMAND FACTORS COME INTO PLAY?
EA: As rates rose in the early part of 1996, we saw a pick up in supply, but
demand remained strong. At the current level of rates, the outlook for the
municipal market is positive as we anticipate supply to be lower than demand.
However, if rates decline from this level to the levels we saw earlier this year
or even lower, supply will unquestionably pick up.
HOW DO YOU PLAN TO POSITION THE PORTFOLIO GOING FORWARD?
EA: We will look to add to our BBB holdings, as long as relative values exist,
and provided that the overall high quality of the Portfolio is maintained.
Further, we will position the Portfolio to take advantage of changes in the
yield curve and will also look for further opportunities in high quality complex
securities to provide additional yield.
5
<PAGE>
GLOSSARY OF TERMS
ADVANCE REFUNDING: A method of providing for payment of debt service on a
municipal bond until the first call date or maturity from funds other than an
issuer's revenues and, therefore, eliminating the refunded municipal bond as an
obligation of the issuer. Advance refundings are usually accomplished by issuing
new municipal bonds and investing the proceeds in a portfolio of government
securities structured to provide cash flow sufficient to pay debt service on the
refunded bonds.
BASIS POINT: A measure used in quoting bond yields. One basis point equals 0.01%
of yield. For example if a bond's yield changed from 10.25% to 11.00%, it would
have moved 75 basis points.
CREDIT RATING: The rating assigned to a bond by independent rating agencies such
as Standard & Poor's and Moody's. In evaluating creditworthiness, these agencies
assess the issuer's present financial condition and future ability and
willingness to make principal and interest payments when due.
CROSSOVER PREREFUNDING: A financing structure under which new bonds are issued
to repay an outstanding municipal bond issue, usually prior to its first call
date. Unlike a regular advance refunding, securities in escrow are pledged to
pay the interest on the new (refunding) bond. The old (refunded) bond is secured
by the original source of payment (for example, a revenue pledge) until the
crossover date, usually the first call date of the old bond. Then, the escrow is
used to call out the old bond, and the new bond is now secured by the original
source of payment.
DURATION: Duration is used as a measure of the relative sensitivity of the price
of the security to a change in interest rates. The longer the duration the more
sensitive the bond is to interest rate moves. For example, a bond with a 5-year
duration will experience an approximate 5% increase in price if interest rates
drop 100 basis points (1%) while a bond with a 10-year duration would see its
price rise by approximately 10%.
MATURITY: The date on which the life of a financial instrument ends through cash
or physical settlement, or expiration with no value, or the date a security
comes due and fully payable. Average maturity refers to the average time to
maturity of the entire portfolio.
SINKING FUND: A provision of a bond indenture that commits an issuer to call
bonds prior to maturity or to purchase them in the open market. A cash sinking
fund may purchase bonds in the open market to satisfy requirements, call bonds
in the open market to satisfy requirements, or call bonds at the sinking fund
call price.
YIELD CURVE: A graph showing the term structure of interest rates by ranging
from the shortest to the longest available. The resulting curve shows if
short-term interest rates are higher or lower than long-term rates.
YIELD SPREAD: The difference in yield between different types of securities. For
example, if a Treasury bond is yielding 6.5% and a municipal is yielding 5.5%,
the spread is 1% or 100 basis points.
ZERO COUPON BOND: A debt instrument sold at a discount to its face value. The
bond makes no payments until maturity, at which time it is redeemed at face
value. Effectively, the interest received is the difference between face value
and the price paid for the security.
6
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The Pierpont New York Total Return Bond Fund seeks to provide a high after-tax
total return for New York residents consistent with moderate risk of capital. It
is designed for investors subject to federal and New York State income taxes who
seek a high after-tax total return and who are willing to receive some taxable
income and capital gains to achieve that return.
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
4/11/94
- --------------------------------------------------------------------------------
NET ASSETS AS OF 3/31/96
$50,522,906
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/20/96
EXPENSE RATIO
The Fund's current annual expense ratio of 0.75% covers shareholders' expenses
for custody, tax reporting, investment advisory and shareholder
services, after reimbursement. The Fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for buying,
selling, or safekeeping Fund shares, or for wiring redemption proceeds from the
Fund.
FUND HIGHLIGHTS
ALL DATA AS OF MARCH 31, 1996
SECTOR ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
REVENUE 30.8%
INSURED 28.0%
PREREFUNDED 26.2%
GENERAL OBLIGATION 14.0%
PRIVATE PLACEMENTS 1.0%
[PIE GRAPH]
30-DAY SEC YIELD
4.51%
DURATION
6.2 years
QUALITY PROFILE
AAA-A- 81%
Other 19%
7
<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. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- Create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- Make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends;
- Make investments through The Pierpont Funds, a family of diversified mutual
funds.
PAAS is available to clients who invest a minimum of $500,000 in The Pierpont
Funds.
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.
KEOGH
A Keogh provides 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 you
to contribute the lesser of $30,000 or 25% of your annual earned gross
compensation. The Pierpont Funds can help you build a compre-hensive investment
program designed to maxi-mize the retirement dollars in your Keogh account.
8
<PAGE>
SIGNATURE BROKER-DEALER SERVICES, INC. IS THE DISTRIBUTOR OF THE PIERPONT NEW
YORK TOTAL RETURN BOND FUND (THE "FUND").
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN")SERVES AS PORTFOLIO
INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY AS
SHAREHOLDER SERVICING AGENT FOR CUSTOMERS. INVESTMENTS IN THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN OR ANY OTHER
BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND CAN
FLUCTUATE, SO AN INVESTOR'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
The 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, assume the reinvestment of Fund distributions, and reflect the
reimbursement of Fund expenses. Had expenses not been subsidized, returns would
have been lower. The Fund invests all of its investable assets in The New York
Total Return Bond Portfolio, a separately registered investment company which is
not available to the public but only to other collective investment vehicles
such as the Fund.
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 ADDITIONAL COPIES OF THE PROSPECTUS BY CALLING J.P.
MORGAN FUNDS SERVICES AT (800) 521-5411.
9
<PAGE>
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The New York Total Return Bond Portfolio ("Portfolio"), at value
$50,589,730
Deferred Organization Expenses
8,253
Receivable for Expense Reimbursement
3,638
Prepaid Expenses and Other Assets
205
-----------
Total Assets
50,601,826
-----------
LIABILITIES
Dividend Payable to Shareholders
48,315
Payable for Shares of Beneficial Interest Redeemed
5,500
Shareholder Servicing Fee Payable
8,383
Administration Services Fee Payable
1,040
Administration Fee Payable
581
Fund Services Fee Payable
112
Accrued Expenses
14,989
-----------
Total Liabilities
78,920
-----------
NET ASSETS
Applicable to 4,887,998 Shares of Beneficial Interest Outstanding
(par value $0.001, unlimited shares authorized)
$50,522,906
-----------
-----------
Net Asset Value, Offering and Redemption Price Per Share
$10.34
-----------
-----------
ANALYSIS OF NET ASSETS
Paid-in Capital
$49,185,929
Accumulated Net Realized Gain on Investment
115,849
Net Unrealized Appreciation of Investment
1,221,128
-----------
Net Assets
$50,522,906
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME FROM PORTFOLIO
Allocated Interest Income $2,319,353
Allocated Portfolio Expenses (197,685)
----------
Net Investment Income Allocated from Portfolio 2,121,668
FUND EXPENSES
Shareholder Servicing Fee $83,301
Transfer Agent Fee 27,441
Printing 15,042
Professional Fees 9,144
Administration Fee 5,538
Administration Services Fee 3,149
Registration Fees 3,535
Fund Services Fee 3,108
Amortization of Organization Expense 2,462
Trustees' Fees and Expenses 952
Insurance Expense 424
Miscellaneous 1,658
-------
Total Fund Expenses 155,754
Less: Reimbursement of Expenses (18,090)
-------
NET FUND EXPENSES (137,664)
----------
NET INVESTMENT INCOME 1,984,004
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 333,789
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENT ALLOCATED FROM PORTFOLIO 619,489
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,937,282
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 11, 1994
FOR THE (COMMENCEMENT
FISCAL OF
YEAR ENDED OPERATIONS)
MARCH 31, THROUGH
INCREASE IN NET ASSETS 1996 MARCH 31, 1995
------------ ---------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $1,984,004 $ 1,196,026
Net Realized Gain (Loss) on Investment Allocated from
Portfolio 333,789 (101,570)
Net Change in Unrealized Appreciation of Investment Allocated
from Portfolio 619,489 601,639
------------ ---------------
Net Increase in Net Assets Resulting from Operations 2,937,282 1,696,095
------------ ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1,984,004) (1,196,026)
Net Realized Gains (114,843) --
------------ ---------------
Total Distributions to Shareholders (2,098,847) (1,196,026)
------------ ---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 16,534,615 47,952,307
Reinvestment of Dividends and Distributions 1,722,692 1,037,837
Cost of Shares of Beneficial Interest Redeemed (6,709,962) (11,353,187)
------------ ---------------
Net Increase from Transactions in Shares of Beneficial
Interest 11,547,345 37,636,957
------------ ---------------
Total Increase in Net Assets 12,385,780 38,137,026
NET ASSETS
Beginning of Period 38,137,126 100
------------ ---------------
End of Period $50,522,906 $38,137,126
------------ ---------------
------------ ---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 11, 1994
(COMMENCEMENT
FOR THE FISCAL OF OPERATIONS)
YEAR ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1995
-------------- ---------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.11 $10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.46 0.40
Net Realized and Unrealized Gain on Investment 0.26 0.11
------- -------
Total from Investment Operations 0.72 0.51
------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.46) (0.40)
Net Realized Gains (0.03) --
------- -------
Total Distributions (0.49) (0.40)
------- -------
NET ASSET VALUE, END OF PERIOD $10.34 $10.11
------- -------
------- -------
Total Return 7.16% 5.26%(a)
------- -------
------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets at end of Period (in thousands) $ 50,523 $ 38,137
RATIOS TO AVERAGE NET ASSETS
Expenses 0.75% 0.75%(b)
Net Investment Income 4.43% 4.31%(b)
Decrease Reflected in above Expense Ratio Due to Expense Reimbursement 0.04% 0.22%(b)
<FN>
- ------------------------
(a) Not Annualized.
(b) Annualized.
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Pierpont New York Total Return Bond Fund (the "Fund") is a separate series
of The Pierpont Funds, a Massachusetts business trust (the "Trust"). The Trust
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund commenced operations on April
11, 1994.
The Fund invests all of its investable assets in The New York Total Return Bond
Portfolio (the "Portfolio"), a non-diversified open-end management investment
company having the same investment objective as the Fund. The value of such
investment reflects the Fund's proportionate interest in the net assets of the
Portfolio (51% at March 31, 1996). The performance of the Fund is directly
affected by the performance of the Portfolio. The financial statements of the
Portfolio, including the schedule of investments, are included elsewhere in this
report and should be read in conjunction with the Fund's financial statements.
The preparation of financial statements prepared in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual amounts
could differ from those estimates. The following is a summary of the significant
accounting policies of the Fund:
a)Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b)The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Substantially all the Fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital gains, if any, are declared and paid annually.
d)The Fund incurred organization expenses in the amount of $13,301. 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 operations.
e)Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to comply with the provisions of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income,
including net realized capital gains, if any, within the prescribed time
periods. Accordingly, no provision for federal income or excise tax is
necessary.
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.
g)The Fund accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2: Determination, Disclosure, and
Financial Statement Presentation of Income, Capital
14
<PAGE>
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
- --------------------------------------------------------------------------------
Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this statement was to increase Paid-in-Capital by
$2,677, and decrease Accumulated Net Realized Gain on Investment by
$2,677. Net investment income, net realized gains and net assets were not
affected by this change.
h)For United States federal income tax purposes, the Fund utilized a capital
loss carryforward of $35,036 during the fiscal year ended March 31, 1996.
2. TRANSACTIONS WITH AFFILIATES
a)The Trust has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and distributor. Signature
provides administrative services necessary for the operations of the Fund,
furnishes office space and facilities required for conducting the business
of the Fund and pays the compensation of the Fund's officers affiliated
with Signature. The agreement provided for a fee to be paid to Signature
at an annual rate determined by the following schedule: 0.04% of the first
$1 billion of the aggregate average daily net assets of the Trust, as well
as two other affiliated fund families for which Signature acts as
administrator, 0.032% of the next $2 billion of such net assets, 0.024% of
the next $2 billion of such net assets, and 0.016% of such net assets in
excess of $5 billion. The daily equivalent of the fee rate is applied each
day to the net assets of the Fund. For the period from April 1, 1995,
through December 28, 1995, Signature's fee for these services amounted to
$3,889.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged would be equal to the Fund's proportionate share of a
complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios (the "Master Portfolios") in which
series of the Trust, The JPM Institutional Funds or The JPM Advisor Funds
invest and 0.01% on the aggregate average daily net assets of the Master
Portfolios in excess of $7 billion. The portion of this charge payable by
the Fund is determined by the proportionate share its net assets bear to
the total net assets of the Trust, The JPM Institutional Funds, The JPM
Advisor Funds and the Master Portfolios. For the period from December 29,
1995 through March 31, 1996, Signature's fee for these services amounted
to $1,649.
b)Until August 31, 1995, the Trust, on behalf of the Fund, had a Financial
and Fund Accounting Services Agreement ("Services Agreement") with Morgan
Guaranty Trust Company of New York ("Morgan") under which Morgan received
a fee, based on the percentage described below, for overseeing certain
aspects of the administration and operation of the Fund and which was also
designed to provide an expense limit for certain expenses of the Fund.
This fee was calculated exclusive of the shareholder servicing fee, fund
services fee and amortization of organization expenses at 0.12% of the
Fund's average daily net assets up to $100 million, and 0.10% of average
daily net assets thereafter. For the period April 1, 1995 through August
31, 1995, this fee amounted to $153. From September 1, 1995 until December
28, 1995, an interim agreement between the Trust, on behalf of the Fund,
and Morgan provided for the continuation of the oversight functions that
were outlined under the Services Agreement and that Morgan should bear all
of its expenses incurred in connection with these services.
15
<PAGE>
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
- --------------------------------------------------------------------------------
Effective December 29, 1995, the Trust, on behalf of the Fund, entered
into an Administrative Services Agreement (the "Agreement") with Morgan
under which Morgan is responsible for certain aspects of the
administration and operation of the Fund. Under the Agreement, the Fund
has agreed to pay Morgan a fee equal to its proportionate share of an
annual complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Master Portfolios in accordance with the
following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets and 0.03% of the aggregate
average daily net assets in excess of $7 billion. The portion of this
charge payable by the Fund is determined by the proportionate share that
the Fund's net assets bear to the net assets of the Trust, the Master
Portfolios and other investors in the Master Portfolios for which Morgan
provides similar services. For the period from December 29, 1995 through
March 31, 1996, Morgan's fee for these services amounted to $3,149.
In addition to the expenses that Morgan assumed 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 0.75%
of the average daily net assets of the Fund through July 31, 1996. For the
fiscal year ended March 31, 1996, Morgan has agreed to reimburse the Fund
$18,090 for expenses which exceeded this limit.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. Until December 28, 1995 the agreement provided for the Fund
to pay Morgan a fee for these services which was computed daily and paid
monthly at an annual rate of 0.18% of the average daily net assets of the
Fund. For the period from April 1, 1995 through December 28, 1995, the fee
for these services amounted to $58,056.
Effective December 29, 1995, the Shareholder Servicing Agreement was
amended such that the annual rate for providing these services was changed
to 0.20% of the average daily net assets of the Fund. For the period from
December 29, 1995 through March 31, 1996, the fee for these services
amounted to $25,245.
d)The Trust, on behalf of the Fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the Trustees in exercising their
overall supervisory responsibilities for the Trust's affairs. The Trustees
of the Trust represent all the existing shareholders of Group. The Fund's
allocated portion of Group's costs in performing its services amounted to
$3,108 for the fiscal year ended March 31, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM Institutional Funds and the Master
Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represent the Fund's allocated portion of the total fees and
expenses. The Trust's Chairman and Chief Executive Officer also serves as
Chairman of Group and received compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $400.
16
<PAGE>
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
- --------------------------------------------------------------------------------
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 11, 1994
FOR THE FISCAL (COMMENCEMENT OF
YEARS ENDED OPERATIONS) THROUGH
MARCH 31, 1996 MARCH 31, 1995
-------------- -------------------
<S> <C> <C>
Shares sold 1,595,286 4,811,690
Reinvestment of dividends and distributions 165,754 104,267
Shares redeemed (645,002) (1,143,997)
-------------- ----------
Net increase 1,116,038 3,771,960
-------------- ----------
-------------- ----------
</TABLE>
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The Pierpont New York Total Return Bond 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 New York Total Return Bond Fund (the "Fund") at March 31, 1996, the
results of its operations for the year then ended, and the changes in its net
assets and the financial highlights for the year then ended and for the period
April 11, 1994 (commencement of operations) through March 31, 1995, 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 audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
May 23, 1996
18
<PAGE>
The New York Total Return Bond Portfolio
Annual Report March 31, 1996
(The following pages should be read in conjunction
with The Pierpont New York Total Return Bond Fund
Annual Financial Statements)
19
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- --------- ------------------------------------- ----------------- -------------- ----------- ------------- ----------
<C> <S> <C> <C> <C> <C> <C>
ALASKA (1.6%)
$2,000,000 North Slope Boro Alaska (Capital
Appreciation Series A, MBIA
Insured)........................... Insured Aaa/AAA 06/30/01 0.000 % $1,561,320
----------
CALIFORNIA (3.3%)
1,000,000 California State..................... General
Obligation A1/A 02/01/09 6.600 1,116,900
1,000,000 California State..................... General
Obligation A1/A 09/01/10 6.500 1,108,120
1,000,000 Kaweah Delta Hospital Tulare County
(Series F)......................... Private Placement NR/NR 06/01/97(A) 5.250 1,016,300
----------
TOTAL CALIFORNIA..................... 3,241,320
----------
DISTRICT OF COLUMBIA (0.1%)
100,000 District of Columbia (Refunding,
Series A, National Westminster
Insured)........................... Insured VMIG1/A-1+ 04/01/96(A) 3.850 (B) 100,000
----------
GEORGIA (6.0%)
200,000 Burke County Development Authority
(PCR Georgia Power Authority,
Vogtle Project).................... Revenue Bond VMIG1/A-1 04/01/96(A) 3.750 (B) 200,000
3,500,000 Georgia State (Series D)............. General
Obligation Aaa/AA+ 09/01/13 3.250 2,605,085
1,000,000 Gwinnett County Georgia School General
District (Refunding, Series B)..... Obligation Aa1/AA 02/01/07 6.400 1,110,660
750,000 Georgia Municipal Electric Authority
(First Crossover, Refunding,
General Resolution)................ Revenue Bond A/A 01/01/12(A) 6.500 804,465
1,000,000 Georgia Municipal Electric Authority
(Sixth Crossover, PJ-1-AMBAC
Insured)........................... Insured Aaa/AAA 01/01/08 7.000 1,152,910
----------
TOTAL GEORGIA........................ 5,873,120
----------
ILLINOIS (5.4%)
2,200,000 Chicago Illinois Motor Fuel Tax
(Refunding, AMBAC Insured)......... Insured Aaa/AAA 01/01/09 6.125 2,362,272
1,355,000 Chicago Illinois Metro Water
(Reclamation District Greater General
Chicago, Capital Improvement)...... Obligation Aa/AA 12/01/09 5.600 1,366,233
1,500,000 Illinois State Sales Tax Revenue
(Refunding, Series Q).............. Revenue Bond A1/AAA 06/15/12(A) 6.000 1,561,605
----------
TOTAL ILLINOIS....................... 5,290,110
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- --------- ------------------------------------- ----------------- -------------- ----------- ------------- ----------
<C> <S> <C> <C> <C> <C> <C>
MASSACHUSETTS (1.2%)
$1,000,000 Massachusetts Bay Transportation
Authority (General Transportation
System, Refunding, Series A)....... Revenue Bond A1/A+ 03/01/08 7.000 % $1,149,730
----------
MICHIGAN (1.2%)
1,100,000 Detroit Michigan Sewage Disposal
(Refunding, Series B, MBIA
Insured)........................... Insured Aaa/AAA 07/01/07 6.250 1,197,372
----------
NEW JERSEY (2.2%)
2,000,000 New Jersey State Transportation
Traffic Authority (Refunding,
Series B, MBIA Insured)............ Insured Aaa/AAA 06/15/10 6.500 2,241,560
----------
NEW YORK (69.7%)
2,250,000 Grand Central District Management
Association Inc. (Business
Improvement District).............. Prerefunded Aaa/AAA 01/01/02(A) 6.500 2,498,468
555,000 Islip Public Improvement (NY Service
Contract Commuter Facilities,
Series O, MBIA Insured)............ Prerefunded Aaa/AAA 06/01/98(A) 7.300 602,158
1,500,000 Metropolitan Transportation Authority
(NY Service Contract Commuter
Facilities, Refunding, Series O)... Revenue Bond Baa1/BBB 07/01/08 5.750 1,505,085
1,370,000 Metropolitan Transportation Authority
(NY Service Contract Commuter
Facilities, Refunding, Series N)... Revenue Bond Baa1/BBB 07/01/02 6.625 1,479,038
1,500,000 Metropolitan Transportation Authority
(NY Transportation Facilities,
Refunding, Series K, MBIA
Insured)........................... Insured Aaa/AAA 07/01/07 6.300 1,652,565
55,000 Monroe County Public Improvement,
(Escrowed to Maturity, AMBAC
Insured)........................... Prerefunded NR/AAA 06/01/08 5.875 58,774
1,075,000 Monroe County Public Improvement
(AMBAC Insured).................... Insured Aaa/AAA 06/01/08 5.875 1,136,759
2,000,000 Municipal Assistance Corp. for New
York City (Refunding, Series D,
AMBAC Insured)..................... Insured Aaa/AAA 07/01/00 6.000 2,114,860
3,000,000 Municipal Assistance Corp. for New
York City (Refunding, Series 68)... Revenue Bond Aa/AA- 07/01/99 7.000 3,232,980
1,500,000 New York City (Refunding, Series H, General
Escrowed to Maturity).............. Obligation NRR/AAA 08/01/00 7.875 1,703,715
1,750,000 New York City (Refunding, Series General
A)................................. Obligation Baa1/BBB+ 08/01/02 5.750 1,778,612
1,250,000 New York City (Refunding, Series General
A)................................. Obligation Baa1/BBB+ 08/01/04 7.000 1,360,687
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- --------- ------------------------------------- ----------------- -------------- ----------- ------------- ----------
$1,500,000 New York City (Refunding, Series General
H)................................. Obligation Baa1/BBB+ 03/15/05 6.500% $1,573,170
<C> <S> <C> <C> <C> <C> <C>
100,000 New York City (Series A, LOC-Sumitomo
Bank).............................. Insured VMIG1/A-1 04/01/96(A) 3.400(B) 100,000
300,000 New York City (Series B, LOC-UBS).... Insured VMIG1/A-1+ 04/01/96(A) 3.250(B) 300,000
1,475,000 New York City (Municipal Water
Finance Authority, Water & Sewer
System, Series A).................. Prerefunded NRR/AAA 06/15/99(A) 7.375 1,631,188
3,700,000 New York Dormitory Authority (City
University System, Series A)....... Prerefunded Aaa/NRR 07/01/00(A) 7.625 4,221,182
1,000,000 New York Dormitory Authority (City
University System, Refunding,
Series D).......................... Revenue Bond Baa1/BBB 07/01/03 8.750 1,196,650
1,000,000 New York Dormitory Authority (State
University Educational Facilities,
Series A).......................... Revenue Bond Baa1/BBB+ 05/15/99 6.625 1,056,510
1,750,000 New York Dormitory Authority (State
University Educational Facilities,
Refunding, Series B)............... Prerefunded Aaa/NRR 05/15/00(A) 7.250 1,966,212
1,500,000 New York Dormitory Authority
(University Educational Facilities,
Series A), AMBAC Insured........... Insured Aaa/AAA 05/15/07 5.500 1,543,950
1,210,000 New York Dormitory Authority
(University of Rochester, Series
A)................................. Revenue Bond A1/A+ 07/01/06 6.500 1,334,703
1,175,000 New York Dormitory Authority (Mental
Health Services Facilities)........ Revenue Bond Baa1/BBB+ 02/15/09 6.500 1,265,416
1,500,000 New York Dormitory Authority (State
University Educational Facilities,
Refunding, Series A)............... Revenue Bond Baa1/BBB+ 05/15/04 6.500 1,614,420
1,000,000 New York State Environmental
Facilities Corp. (PCR, State Water
Revolving Fund, Series E).......... Revenue Bond Aa/A 06/15/01 6.200 1,070,440
1,000,000 New York Housing Finance Agency
(Service Contract Obligation,
Series A).......................... Prerefunded Aaa/AAA 03/15/01(A) 7.800 1,161,280
1,250,000 New York State Local Government
Assistance Corp. (Series A)........ Prerefunded Aaa/AAA 04/01/01(A) 7.000 1,408,675
1,000,000 New York State Local Government
Assistance Corp. (Series A)........ Revenue Bond A/A 04/01/00 6.200 1,057,550
1,000,000 New York State Local Government
Assistance Corp. (Series A)........ Prerefunded Aaa/AAA 04/01/02(A) 7.125 1,146,290
1,000,000 New York Local Government Assistance
Corp. (Series C)................... Revenue Bond A/A 04/01/12(A) 6.000 1,035,480
1,565,000 New York Medical Care Facilities
Finance Agency (St. Lukes Hospital,
Series B, FHA Insured)............. Prerefunded Aaa/AAA 02/15/00(A) 7.450 1,760,390
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- --------- ------------------------------------- ----------------- -------------- ----------- ------------- ----------
$1,500,000 New York Medical Care Facilities
Finance Agency (Mental Health
Services, Refunding, Series F)..... Revenue Bond Baa1/BBB+ 02/15/03 6.000% $1,551,030
<C> <S> <C> <C> <C> <C> <C>
1,000,000 New York Medical Care Facilities
Finance Agency (Mental Health
Services).......................... Prerefunded Aaa/AAA 02/15/99(A) 7.800 1,114,160
2,195,000 New York State Power Authority
(General Purpose, Refunding, Series
W)................................. Revenue Bond Aa/AA- 01/01/08 6.500 2,435,243
3,000,000 New York Thruway Authority (Highway &
Bridge, Series A, MBIA Insured).... Insured Aaa/AAA 04/01/04 6.250 3,271,740
500,000 New York State Urban Development
Corp. (Correctional Capital
Facilities, Series 1).............. Prerefunded Aaa/NR 01/01/00(A) 7.750 566,030
3,000,000 New York State Urban Development
Corp. (Correctional Capital
Facilities, Series 2).............. Prerefunded Aaa/NR 01/01/01(A) 6.500 3,254,040
2,470,000 New York State Urban Development
Corp. (Refunding, Project Center
for Individual Innovation)......... Revenue Bond Baa1/BBB 01/01/06 6.250 2,572,209
1,155,000 New York State Urban Development
Corp. (Refunding, Project Center
for Individual Innovation)......... Revenue Bond Baa1/BBB 01/01/07 6.250 1,196,973
1,030,000 Suffolk County Water Authority (AMBAC
Insured)........................... Prerefunded Aaa/AAA 06/01/00(A) 6.600 1,133,031
3,000,000 Triborough Bridge & Tunnel Authority
(Series T) (D)..................... Prerefunded Aaa/NRR 01/01/01(A) 7.000 3,366,150
1,000,000 Triborough Bridge & Tunnel Authority
(General Purpose, Refunding, Series
X)................................. Revenue Bond Aa/A+ 01/01/12(A) 6.625 1,112,940
1,500,000 Triborough Bridge & Tunnel Authority
(General Purpose, Refunding, Series
Y)................................. Revenue Bond Aa/A+ 01/01/07 5.900 1,589,340
----------
TOTAL NEW YORK....................... 68,730,093
----------
PUERTO RICO (7.4%)
1,750,000 Puerto Rico Commonwealth (Aqueduct &
Sewer Authority, MBIA Insured)..... Insured Aaa/AAA 07/01/07 6.000 1,875,703
1,000,000 Puerto Rico Commonwealth (Highway &
Transportation Authority, Series Y,
MBIA Insured)...................... Insured Aaa/AAA 07/01/06 6.250 1,096,940
1,000,000 Puerto Rico Commonwealth (Highway &
Transportation Authority, Series Y,
MBIA Insured)...................... Insured Aaa/AAA 07/01/07 6.250 1,095,040
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- --------- ------------------------------------- ----------------- -------------- ----------- ------------- ----------
$3,000,000 University of Puerto Rico (University
Revenues, Refunding, Series N, MBIA
Insured)........................... Insured Aaa/AAA 06/01/05 6.250% $3,296,100
<C> <S> <C> <C> <C> <C> <C>
----------
TOTAL PUERTO RICO.................... 7,363,783
----------
TENNESSEE (0.2%)
200,000 Metropolitan Nashville Airport
Authority (American Airlines
Project, Series A)................. Revenue Bond NR/A-1+ 10/01/12(A) 3.800 (B) 200,000
----------
TEXAS (0.2%)
200,000 Austin, Water Sewer & Electric
(Refunding, Escrowed to
Maturity).......................... Revenue Bond A/A- 11/15/97 13.500 229,270
----------
UTAH (1.6%)
1,500,000 Intermountain Power Agency
(Refunding, Series C, MBIA Insured)
(C)................................ Insured Aaa/AAA 07/01/00 6.000 1,598,565
----------
TOTAL INVESTMENTS (100.1%)
(COST $96,875,770) 98,776,243
LIABILITIES IN EXCESS OF OTHER ASSETS
(-.1%) (106,748)
----------
NET ASSETS (100.0%) $98,669,495
----------
----------
<FN>
(A) The date shown represents a mandatory/optional put date or call date, or interest reset date.
(B) Variable rate demand note tender dates and/or interest rates are reset at specified intervals which coincide with
their tender feature. The rates shown are the current rates at March 31, 1996.
(C) Represents a when-issued security.
(D) $1,500,000 par segregated as collateral for when-issued security.
1. Based on the cost of investments of $96,875,770 for federal income tax purposes at March 31, 1996 the aggregate
gross unrealized appreciation and depreciation was $2,351,397 and $450,924 respectively, resulting in net
unrealized appreciation of investments of $1,900,473.
2. Abbreviations used in the schedule of investments are as follows: AMBAC -- American Municipal Bond Assurance Corp.
MBIA -- Municipal Bond Investors Assurance Corp., PCR -- Pollution Control Revenue, FHA -- Federal Housing
Authority, UBS -- Union Bank of Switzerland, NR -- Not Rated, NRR -- Not Rerated, LOC -- Letter of Credit.
3. Definition of terms used:
Crossover Refunded -- Bonds for which the issuer of the bond invests the proceeds from a subsequent bond issue in
cash and/ or securities which have been deposited with a third party to cover the payments of principal and
interest at the maturity of the bond.
Escrowed to Maturity -- Bonds for which cash and/or securities have been deposited with a third party to cover the
payments of principal and interest at the maturity of the bond.
Prerefunded -- Bonds for which the issuer of the bond invests the proceeds from a subsequent bond issuance in
treasury securities, whose maturity coincides with the first call date of the first bond.
Refunding -- Bonds for which the issuer has issued new bonds and canceled the old issue.
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $96,875,770)
$98,776,243
Cash
32,277
Receivable for Investments Sold
2,213,150
Interest Receivable
1,480,350
Deferred Organization Expenses
6,932
Prepaid Expenses and Other Assets
1,108
-----------
Total Assets
102,510,060
-----------
LIABILITIES
Payable for Investments Purchased
3,773,409
Advisory Fee Payable
32,505
Fund Service Fee Payable
223
Administration Fee Payable
1,044
Administration Services Fee Payable
2,037
Accrued Expenses
31,347
-----------
Total Liabilities
3,840,565
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests
$98,669,495
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $4,237,698
EXPENSES
Advisory Fee $246,966
Professional Fees and Expenses 45,526
Custodian Fees and Expenses 29,639
Printing Expense 12,034
Administration Fee 6,648
Administrative Services Fee 6,153
Fund Services Fee 5,530
Amortization of Organization Expenses 2,310
Trustee Fees and Expenses 1,647
Financial and Fund Accounting Services Fee 1,538
Registration Fees 611
Insurance Expense 535
Miscellaneous 1,002
-------
Total Expenses (360,139)
----------
NET INVESTMENT INCOME 3,877,559
NET REALIZED GAIN ON INVESTMENTS 547,038
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS 916,458
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,341,055
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 11, 1994
(COMMENCEMENT
FOR THE OF
FISCAL YEAR OPERATIONS)
ENDED MARCH THROUGH
INCREASE IN NET ASSETS 31, 1996 MARCH 31, 1995
------------ ---------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $3,877,559 $ 1,840,235
Net Realized Gain (Loss) on Investments 547,038 (125,677)
Net Change in Unrealized Appreciation of Investments 916,458 984,015
------------ ---------------
Net Increase in Net Assets Resulting from Operations 5,341,055 2,698,573
------------ ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 45,071,889 72,754,445
Withdrawals (10,574,756) (16,721,811)
------------ ---------------
Net Increase from Investors' Transactions 34,497,133 56,032,634
------------ ---------------
Total Increase in Net Assets 39,838,188 58,731,207
NET ASSETS
Beginning of Period 58,831,307 100,100
------------ ---------------
End of Period $98,669,495 $58,831,307
------------ ---------------
------------ ---------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 11, 1994
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED MARCH OPERATIONS) THROUGH
31, 1996 MARCH 31, 1995
----------------- ---------------------
<S> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.44% 0.48%(a)
Net Investment Income 4.72% 4.59%(a)
Decrease Reflected in Expense Ratio due to Expense Reimbursement by Morgan -- 0.03%(a)
Portfolio Turnover 41% 63%
</TABLE>
- ------------------------
(a) Annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The New York Total Return Bond Portfolio (the "Portfolio") is registered under
the Investment Company Act of 1940, as amended, as a no-load, non-diversified,
open-end management investment company which was organized as a trust under the
laws of the State of New York. The Portfolio commenced operations on April 11,
1994. The Portfolio's investment objective is to provide a high after tax total
return for New York residents consistent with moderate risk of capital. The
Portfolio invests a significant amount of its assets in debt obligations issued
by political subdivisions and authorities in the State of New York. The issuers'
ability to meet their obligations may be affected by economic and political
developments within the State of New York. The Declaration of Trust permits the
Trustees to issue an unlimited number of beneficial interests in the Portfolio.
The preparation of financial statements prepared in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual amounts
could differ from those estimates. The following is a summary of the significant
accounting policies of the Portfolio:
a)Portfolio securities are valued by an outside independent pricing service
approved by the Trustees. The value of each security for which readily
available market quotations exist is based on a decision as to the
broadest and most representative market for such security. The value of
such security will be based either on the last sale price on a national
securities exchange, or, in the absence of recorded sales, at the readily
available closing bid price on such exchanges, or at the quoted bid price
in the over-the-counter market. Because of the large number of municipal
bond issues outstanding and the varying maturity dates, coupons and risk
factors applicable to each issuer's bonds, no readily available market
quotations exist for most municipal securities. Securities or other assets
for which market quotations are not readily available are valued in
accordance with procedures established by the Portfolio's Trustees. Such
procedures include the use of comparable quality, coupon, maturity and
type, indications as to values from dealers, and general market
conditions. All portfolio securities with a remaining maturity of less
than 60 days are valued by the amortized cost method.
b)The Portfolio incurred organization expenses in the amount of $11,473.
These costs were deferred and are being amortized by the Portfolio on a
straight-line basis over a five-year period from the commencement of
operations.
c)Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
d)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be subject to
taxation on its share of the Portfolio's ordinary income and capital
gains. It is intended that the Portfolio's assets will be managed in such
a way that an investor in the Portfolio will be able to satisfy the
requirements of Subchapter M of the Internal Revenue Code.
28
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an investment advisory agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the investment
advisory agreement, the Portfolio pays Morgan a fee at an annual rate of
0.30% of the Portfolio's average daily net assets. For the fiscal year
ended March 31, 1996, this fee amounted to $246,966.
b)The Portfolio has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Signature provides administrative services necessary for the operations of
the Portfolio, furnishes office space and facilities required for
conducting the business of the Portfolio and pays the compensation of the
Portfolio's officers affiliated with Signature. The agreement provided for
a fee to be paid to Signature at an annual rate determined by the
following schedule: 0.01% of the first $1 billion of the aggregate average
daily net assets of the Portfolio and the other portfolios subject to the
Administration Agreement, 0.008% of the next $2 billion of such net
assets, 0.006% of the next $2 billion of such net assets, and 0.004% of
such net assets in excess of $5 billion. The daily equivalent of the fee
rate is applied each day to the net assets of the Portfolio. For the
period April 1, 1995 through December 28, 1995, such fees amounted to
$3,420.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged would be equal to the Portfolio's proportionate share
of a complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios subject to this agreement (the "Master
Portfolios") and 0.01% on the aggregate average daily net assets of the
Master Portfolios in excess of $7 billion. The portion of this charge
payable by the portfolio is determined by the proportionate share its net
assets bear to the total net assets of The Pierpont Funds, The JPM
Institutional Funds, The JPM Advisor Funds and the Master Portfolios. For
the period December 29, 1995 through March 31, 1996, such fees amounted to
$3,228.
c)Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement ("Services Agreement") with Morgan under which Morgan
would receive a fee, based on the percentage described below, for
overseeing certain aspects of the administration and operation of the
Portfolio and which was also designed to provide an expense limit for
certain expenses of the Portfolio. This fee was calculated exclusive of
the advisory fee, custody expenses, fund services fee, and amortization of
organization expenses at 0.10% of the Portfolio's average daily net assets
up to $200 million, 0.05% of the next $200 million of average daily net
assets, and 0.03% of average daily net assets thereafter. From April 1,
1995 through August 31, 1995, this fee amounted to $1,538. From September
1, 1995 until December 28, 1995, an interim agreement between the
Portfolio and Morgan, provided for the continuation of the oversight
functions that were outlined under the Services Agreement and that Morgan
should bear all of its expenses incurred in connection with these
services.
Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement (the "Agreement") with Morgan under which Morgan is
responsible for overseeing certain aspects of
29
<PAGE>
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
- --------------------------------------------------------------------------------
the administration and operation of the Portfolio. Under the Agreement,
the Portfolio has agreed to pay Morgan a fee equal to its proportionate
share of an annual complex-wide charge. This charge is calculated daily
based on the aggregate net assets of the Master Portfolios in accordance
with the following annual schedule: 0.06% on the first $7 billion of the
Master Portfolios' aggregate average daily net assets and 0.03% of the
aggregate average daily net assets in excess of $7 billion. The portion of
this charge payable by the Portfolio is determined by the proportionate
share that the Portfolio's net assets bear to the net assets of the Master
Portfolios and other investors in the Master Portfolios for which Morgan
provides similar services. For the period December 29, 1995 through March
31, 1996, such fees amounted to $6,153.
d)The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its services
amounted to $5,530 for the fiscal year ended March 31, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represent the Portfolio's allocated portion of the total fees
and expenses. The Portfolio's Chairman and Chief Executive Officer also
serves as Chairman of Group and received compensation and employee
benefits from Group in his role as Group's Chairman. The allocated portion
of such compensation and benefits included in the Fund Services Fee shown
in the financial statements was $700.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended March 31, 1996, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS FROM
PURCHASES SALES
------------- -------------
<S> <C> <C>
Municipal obligations........................................... $ 74,520,321 $ 33,013,356
</TABLE>
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The New York Total Return Bond 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 New York Total Return Bond Portfolio
(the "Portfolio") at March 31, 1996, the results of its operations for the year
then ended, and the changes in its net assets and the supplementary data for the
year then ended and for the period April 11, 1994 (commencement of operations)
through March 31, 1995, in conformity with generally accepted accounting
principles. These financial statements and supplementary data (hereafter
referred to as "financial statements") are the responsibility of the Portfolio's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
May 23, 1996
31
<PAGE>
THE PIERPONT MONEY MARKET FUND THE
THE PIERPONT TAX EXEMPT MONEY MARKET FUND PIERPONT
THE PIERPONT TREASURY MONEY MARKET FUND NEW YORK
THE PIERPONT SHORT TERM BOND FUND TOTAL RETURN
THE PIERPONT BOND FUND BOND FUND
THE PIERPONT TAX EXEMPT BOND FUND
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
THE PIERPONT DIVERSIFED FUND
THE PIERPONT EQUITY FUND
THE PIERPONT CAPITAL APPRECIATION FUND
THE PIERPONT EUROPEAN EQUITY FUND
THE PIERPONT JAPAN EQUITY FUND
THE PIERPONT INTERNATIONAL EQUITY FUND
THE PIERPONT ASIA GROWTH FUND
THE PIERPONT EMERGING MARKETS EQUITY FUND
FOR MORE INFORMATION ON HOW THE PIERPONT FAMILY ANNUAL REPORT
OF FUNDS CAN HELP YOU PLAN FOR YOUR FUTURE, CALL J.P. MARCH 31, 1996
MORGAN FUNDS SERVICES AT (800) 521-5411.
