<PAGE>
LETTER TO THE SHAREHOLDERS OF THE PIERPONT BOND FUND
June 14, 1996
Dear Shareholder:
We are pleased to report that, in an increasingly challenging investment
environment for U.S. fixed income managers. The Pierpont Bond Fund recorded a
0.24% gain for the six-month period ending April 30, 1996. This performance
trailed the Fund's benchmark, the Salomon Brothers Broad Investment Grade
Bond Index, which returned 0.42% for the period, and its competitors, as
measured by the Composite High Quality Intermediate Corporate Bond Fund
Average (0.46%) and the Lipper Intermediate Investment Grade Debt Funds
Average (0.31%). However, actively managed security selection and sector
allocation in the Fund's Portfolio helped it to significantly outperform its
competitors for the one-year period ended April 30 (8.49% versus 7.95% and
7.67%, respectively) while underperforming its benchmark by only 7 basis
points for the period.
We are also pleased to announce that we have made some enhancements to
the Fund's semi-annual report as part of our ongoing dedication to
provide better service to our shareholders. In addition to making Fund
performance easier to locate, we have added a portfolio manager Q&A
with William G. Tennille, a member of our portfolio management team.
This interview is designed to answer commonly asked questions about
the Fund, elaborate on what happened during the reporting period, and
provide our outlook for the months ahead.
As always, we welcome your comments, questions, or any suggestions on
how we can further improve your financial reports. 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>
- ---------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C>
LETTER TO THE SHAREHOLDERS..................... 1 FUND FACTS AND HIGHLIGHTS................... 7
FUND PERFORMANCE............................... 2 SPECIAL FUND-BASED SERVICES ................ 8
PORTFOLIO MANAGER Q&A.......................... 3 FINANCIAL STATEMENTS........................ 10
- ---------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
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.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURN
--------------- ---------------------------
THREE SIX ONE FIVE SINCE
AS OF APRIL 30, 1996 MONTHS MONTHS YEAR YEARS INCEPTION*
- ------------------------------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C>
The Pierpont Bond Fund -3.17% 0.24% 8.49% 7.52% 7.87%
Salomon BIG** -3.13% 0.42% 8.56% 8.16% 8.79%
Composite High Quality Intermediate
Corporate Bond Fund Average -2.83% 0.46% 7.95% 7.62% 7.63%
Lipper Intermediate Investment Grade
Debt Funds Average -2.97% 0.31% 7.67% 7.59% 8.06%
AS OF MARCH 31, 1996
- ------------------------------------------------------ ---------------------------
The Pierpont Bond Fund -1.87% 2.32% 10.71% 7.87% 8.05%
Salomon BIG** -1.74% 2.52% 10.87% 8.57% 8.98%
Composite High Quality Intermediate
Corporate Bond Fund Average -1.62% 2.31% 9.89% 7.95% 7.84%
Lipper Intermediate Investment Grade
Debt Funds Average -1.74% 2.17% 9.74% 7.97% 8.22%
</TABLE>
*3/11/88 -- COMMENCEMENT OF OPERATIONS. (AVERAGE ANNUAL TOTAL RETURNS BASED ON
THE MONTH END FOLLOWING INCEPTION).
**THE SALOMON BROTHERS BROAD INVESTMENT GRADE BOND INDEX. PAST PERFORMANCE IS
NOT A GUARANTEE OF FUTURE RESULTS. ALL RETURNS ASSUME THE REINVESTMENT OF
DISTRIBUTIONS AND MAY REFLECT REIMBURSEMENT OF CERTAIN FUND AND PORTFOLIO
EXPENSES AS DESCRIBED IN THE PROSPECTUS. THE COMPOSITE HIGH QUALITY
INTERMEDIATE CORPORATE BOND FUND AVERAGE PERFORMANCE IS COMPUTED ON ALL FUNDS
IN THE MORNINGSTAR UNIVERSE HAVING A HIGH QUALITY CORPORATE BOND OBJECTIVE
AND AN INTERMEDIATE MATURITY. MORNINGSTAR, INC. AND LIPPER ANALYTICAL
SERVICES, INC. ARE LEADING SOURCES FOR MUTUAL FUND DATA. ALTHOUGH GATHERED
FROM RELIABLE SOURCES, DATA ACCURACY AND COMPLETENESS CANNOT BE GUARANTEED.
THE FUND INVESTS ALL OF ITS INVESTABLE ASSETS IN THE U.S. FIXED INCOME
PORTFOLIO, A SEPARATELY REGISTERED INVESTMENT COMPANY WHICH IS NOT AVAILABLE
TO THE PUBLIC BUT ONLY TO OTHER COLLECTIVE INVESTMENT VEHICLES SUCH AS THE
FUND.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with WILLIAM G. TENNILLE, who is a member of
the portfolio management team for The U.S. Fixed Income Portfolio, in
which the Fund invests. Bill joined Morgan in 1992 and has extensive
experience across a broad range of markets, including mortgage
securities and derivatives. This interview was conducted on June 3,
1996 and reflects Bill's views on that date.
FOLLOWING A FUND FISCAL YEAR ENDING OCTOBER 31, 1995, IN WHICH U.S.
BONDS RETURNED 15.71%, AS MEASURED BY THE SALOMON BIG INDEX, THE
MARKET EXPERIENCED A DOWNTURN DURING THE EARLY MONTHS OF 1996. MANY
POINT TO FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN'S HUMPHREY-HAWKINS
TESTIMONY, WHICH SUGGESTED THAT THE U.S. ECONOMY WAS CONSIDERABLY
STRONGER THAN GENERALLY PERCEIVED, AS THE EXPLANATION. ASSUMING YOU
AGREE WITH THIS VIEW, COULD YOU PLEASE IDENTIFY OTHER FACTORS THAT
CONTRIBUTED TO A PRICE-BUSTING ENVIRONMENT OF ECONOMIC UNCERTAINTY?
WGT: I think Chairman Greenspan's well-publicized view that the U.S.
economy was on track for sustained growth, with weakness likely to be
only a temporary phenomenon, was key to instigating the market
difficulties you mention -- despite a very strong January for bonds.
Viewed overall, we're talking about a yield increase for bonds on the
order of 100 basis points during the early part of this year -- which
is virtually overnight in bond market terms. Market participants
interpreted Greenspan's remarks as presaging a rebound in the U.S.
economy that could ultimately rekindle inflation. This, of course,
would considerably diminish the short-term attractiveness of bonds
relative to other investments, and would also be likely to mean an end
to easing by the Federal Reserve.
Equally if not more important to the downturn, I believe, was the
government's release of its February payroll data report. This report
showed that businesses had added 705,000 new jobs to the economy
during the month, versus the 317,000 new jobs that had been expected.
Any time hiring proceeds at this strong a clip, we believe it's likely
to spell bad news for bonds since economic overheating is virtually
synonymous with resurgent inflation and because equities become more
popular with investors in such an environment as a way to keep pace.
The news from Washington, in fact, sent the U.S. bond market to its
biggest one-day decline in more than nine years. This essentially
means that bond yields went through the roof as investors searched for
bond alternatives.
In terms of Federal Reserve strategy, of course, the February
payroll data was the first of two consecutive employment reports
supporting the view that there was little reason for the central bank
to cut its rates as a way to help stimulate the U.S. economy. The
March employment report, meanwhile, reconfirmed this trend as the
economy added an additional 140,000 positions (again, more than twice
the expected number). As we've seen so often in the last year or so,
the market's ability to set prices once again essentially co-opted the
Fed's traditional policymaking role.
3
<PAGE>
THE FUND PROVIDED ITS SHAREHOLDERS WITH MILDLY POSITIVE RETURNS FOR
THE PERIOD UNDER REVIEW, EVEN THOUGH THE FUND, LIKE ITS BENCHMARK,
EXPERIENCED NEGATIVE RETURNS DURING THE EARLY MONTHS OF THIS YEAR.
MOST INVESTORS UNDERSTAND THAT PERIODIC DOWNTURNS ARE INEVITABLE IN
ALL ASSET CLASSES. WHAT INVESTMENT STRATEGIES DID YOU CHOOSE TO PURSUE
IN THE PORTFOLIO DURING THE CHALLENGING SIX MONTHS JUST PAST, AND
WHICH OF THEM PROVED THE MOST SUCCESSFUL?
WGT: Our sector allocation decisions helped the Fund to weather the
bond market storm.
As was the case in the six months just past, the Fund is usually
underexposed to the U.S. Treasury sector of the bond market, relative
to the benchmark, because the name of the game in the bond market is
yield. In fact, yield makes up most of the return earned by a bond
market investor, while principal appreciation is secondary. All other
things being equal, Treasuries are by nature the lowest-yielding
sector in the bond market. The reason for this is that there is no
credit or prepayment risk (only interest rate risk) associated with an
obligation of the U.S. government. The government will pay its
obligations when those obligations come due. Treasuries are, in
effect, the safest instruments one can hold in the bond market
and, consequently, represent the market's lowest-yielding sector.
Thus, the Fund will typically hold diversified, relatively large
positions in corporate bonds and mortgage-backed securities as these
sectors offer a premium (i.e., higher yield) over Treasuries because of
the inherent risks that investors must assume in order to invest in
these types of securities. Depending on where yield differentials are
between a specific sector and Treasuries at a given time (among other
factors, including the current outlook for interest rates and the
economy), one will see a change in the level of mortgage-backed
securities and corporate bonds held in the Fund. The idea is that by
holding relatively large diversified exposures to the market's various
non-Treasury sectors, the Fund will achieve its goal of outperforming
the market over time. How does this translate into Fund holdings
during the period under review? The Fund was able to outperform on a
relative basis because of its exposure to -- and subsequent changes in
its exposure -- to these "higher-yielding" mortgage-backed security and
corporate sectors at the expense of lower-yielding Treasuries.
The term "prepayment risk," by the way, describes the circumstances
which determine whether home buyers will or will not choose to
refinance their mortgages. Let's assume that an individual took out a
7% mortgage, and that prevailing interest rates then rose to 10%.
Under these circumstances, there would be no cost advantage for the
home buyer to borrow new money at 10% in order to pay off the earlier
7% loan. Should prevailing rates drop to 4%, however, monthly mortgage
payments could be cut substantially if the home buyer borrowed at the
lower rate and refinanced his or her 7% mortgage. If the homeowner
"wins" in this situation, the mortgage-holder loses since the money
received must be reinvested at the lower current rate.
YOU'VE SAID THAT YOU DECIDED TO INVEST IN HIGH-YIELD BONDS IN THE
PORTFOLIO DURING THE PERIOD UNDER REVIEW. WOULDN'T THAT STRATEGY TEND
TO INCREASE OVERALL RISK IN THE PORTFOLIO?
WGT: The Portfolio is permitted a very limited exposure to non-
investment grade debt -- no more than five percent of total Portfolio
holdings. When our analysis indicates that the yield spread (which is
the difference in a security's yield minus the yield of a comparable
Treasury) merits the Portfolio's investment in low-quality bonds, we
will sometimes overweight these instruments in the Portfolio relative
to its benchmark (the benchmark includes only investment-grade bonds)
with an eye toward achieving potentially enhanced overall returns.
Furthermore, because the Portfolio typically only invests in the
highest quality below investment grade bonds, and because these bonds
help to further diversify the Portfolio, the Portfolio should
experience only a limited increase in its overall volatility.
4
<PAGE>
That being said, we decided to have the Portfolio be overweighted
relative to its benchmark in high-yield domestic bonds and
collateralized Brady Bonds during the period under review. This
decision was rewarded when both types of bonds outperformed the
benchmark. Also, given the accelerating economy and prospects for
strong earnings, our credit research team continues to recommend the
inclusion of high-yield securities.
GIVEN THE BENEFIT OF 20-20 HINDSIGHT, WHAT PORTFOLIO INVESTMENT
STRATEGIES MIGHT YOU HAVE CHANGED -- OR DO YOU STILL FAVOR IN THE
INTEREST OF THE PORTFOLIO'S POTENTIAL FOR ACHIEVING LONG-TERM
OUTPERFORMANCE?
WGT: Ideally, of course, each of our investment decisions -- namely,
duration management, sector allocation, and securities selection -- will
make consistently positive contributions to overall Portfolio performance.
Realistically, however, we favor a multi-decision approach to this asset
class because we think it will provide superior returns over time versus
competitors who base their investment strategies on larger and/or fewer
sources of potential added value.
While the Portfolio's sector allocation -- favoring mortgage-backed
securities and high-yield corporate bonds over Treasuries -- was
successful, our decision to maintain a longer-than-benchmark duration
for the Portfolio proved detrimental to overall performance. This
strategy reflected our views that 1) economic growth would remain
tepid (that is, at or below trend), 2) inflation would remain
under control, and 3) bonds appeared fairly valued on a
fundamental basis. All three assumptions were challenged by Chairman
Greenspan's comments and the government's payroll data report. When
interest rates increased following these developments, the Portfolio's
heightened sensitivity to interest rate changes took its toll over the
short term. However, the negative impact of our duration decision was
more than offset by our sector overweightings (in mortgage-backed
securities and high-yield bonds) and security selection, enabling the
Portfolio to provide attractive total returns.
HAVE U.S. BOND PRICES NOW STABILIZED IN YOUR VIEW, OR DOES A FURTHER
SELLOFF SEEM TO BE IN THE OFFING?
WGT: I do not believe bond prices have stabilized as the market is
still trying to sort out the implication of actions (if any) that the
Fed might take as a result of the mixed economic data that is being
reported. Investors are paying close attention to the monthly payroll
data and its implications regarding GDP growth and inflation.
Obviously, most of the reaction has been negative, as evidenced by
this year's spike in interest rates. In fact, coupled with the
market's uncertainty surrounding future Fed actions, it appears that a
bond rally is unsustainable as many investors are selling positions
when the market rallies and prices go up.
WHAT IS THAT LIKELY TO MEAN FOR FUTURE ACTION BY THE FEDERAL RESERVE? DO YOU
THINK WE COULD SEE A REPEAT OF JANUARY'S -0.25% CUT IN THE CENTRAL BANK'S
OFFICIAL RATES, OR ARE COMPARISONS WITH 1994, WHEN THE FED LAUNCHED A
PRE-EMPTIVE STRIKE AGAINST INFLATION AND BEGAN AN IMPLEMENTATION OF SEVEN
SHORT-TERM INTEREST RATE HIKES, MORE APPROPRIATE?
WGT: Our best information indicates that a repeat of January's rate
cut seems very unlikely. Recently, in fact, four of the governors of
the Federal Reserve independently went "on record" as saying that they
believe there is a possibility that short-term rate increases will be
necessary to help keep the economy from overheating. Thus it appears
that, if the Fed does act, it is more likely to raise interest rates
than to reduce them.
5
<PAGE>
GIVEN THAT FORECAST, HOW ARE YOU POSITIONING THE PORTFOLIO'S MATURITY
STRUCTURE GOING FORWARD?
WGT: Given the current atmosphere of economic uncertainty, we plan to
keep the Portfolio at a slightly long but essentially neutral position
relative to its benchmark in terms of duration. We believe that such
an interest rate risk exposure strategy is an appropriate one to
follow until some clarification is achieved with regard to the future
direction of the economy. However, if bonds continue to sell off, we
may look to extend duration since bonds, which we currently view as
attractive, will become more attractive as yields rise.
IN TERMS OF MARKET SECTORS, WHERE DO YOU EXPECT TO POSITION THE
PORTFOLIO RELATIVE TO ITS BENCHMARK TO HELP IT ACHIEVE ENHANCED
OVERALL RETURNS?
WGT: We plan to maintain the Portfolio's currently overweighted
exposure to the mortgage-backed security and high-yield bond sectors
while also continuing its respectively underweighted and neutral
positions in U.S. Treasury securities and investment-grade corporate
bonds. Investment-grade corporates remain near or at historically
tight levels while in our view Treasuries, despite the recent rise in
interest rates, are not offering a high enough yield to warrant a more
significant weighting in the Portfolio. Further, given tighter
monetary conditions and possible tightening in the future by the
Federal Reserve, spreads between corporate bonds and U.S. Treasuries
may widen, which would cause corporates to underperform.
I SUPPOSE YOU'VE ALREADY ANSWERED THIS IN YOUR OTHER REMARKS TODAY,
BILL, BUT WHAT WOULD YOU SAY TO INVESTORS WHO HAVE BEEN DISCOURAGED BY
U.S. BOND RETURNS DURING THE EARLY MONTHS OF 1996 AND MIGHT BE
THINKING OF LESSENING THEIR ALLOCATION TO THIS ASSET CLASS?
WGT: First of all, we believe that investors should take a long-term
approach to investment. That's why we would regard exiting a
particular market just because it has underperformed in the short term
to be imprudent. One could even argue that such an exit should be
called "market timing," and there are few if any investors who can
successfully pursue market timing over the long term.
Secondly, Morgan believes that potential sources of added return
should be diversified and focus on yield-advantaged sectors. That is
why our investment process features the three factors mentioned
earlier. I believe it's also important to emphasize that the Portfolio
is not only diversified among sectors, it is also diversified within
sectors. For example, the Portfolio's mortgage-backed securities
exposure is distributed across issues, coupons, and maturities.
Additionally, the Portfolio's corporate bond allocation is invested in
financial issues, Yankee bonds, and industrial securities.
6
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The Pierpont Bond Fund seeks to provide high total return
consistent with moderate risk of capital and maintenance
of liquidity. It is designed for investors who seek a
total return that is higher than that generally available
from short-term obligations while recognizing the
greater price fluctuation of longer-term instruments.
- -----------------------------------------------------------
COMMENCEMENT OF OPERATIONS
3/11/88
- -----------------------------------------------------------
NET ASSETS AS OF 4/30/96
$142,193,541
- -----------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- -----------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/20/96
EXPENSE RATIO
The Fund's current annualized expense ratio
of 0.66% 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 redemption proceeds from
the Fund.
FUND HIGHLIGHTS
ALL DATA AS OF APRIL 30, 1996
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[GRAPH]
- -- U.S. AGENCY OBLIGATIONS 38.5%
- -- U.S TREASURY OBLIGATIONS 23.6%
- -- CORPORATE OBLIGATIONS 22.2%
- -- CMOS AND ASSET-BACKED SECURITIES 9.9%
- -- SHORT-TERM HOLDINGS 4.7%
- -- FOREIGN GOVERNMENT OBLIGATIONS 0.9%
- -- CONVERTIBLE PREFERRED STOCK 0.2%
30-DAY SEC YIELD
6.35%
DURATION
4.7 years
QUALITY BREAKDOWN
AAA* 75%
AA 3%
A 8%
Other 14%
* INCLUDES U.S. GOVERNMENT AGENCY, TREASURY OBLIGATIONS, AND CASH.
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
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
In early 1995, Morgan introduced 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 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 Keough account.
8
<PAGE>
SIGNATURE BROKER-DEALER SERVICES, INC. IS THE DISTRIBUTOR OF THE
PIERPON 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 may 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 U.S. Fixed
Income 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 BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Fixed Income Portfolio ("Portfolio"), at value $142,264,542
Receivable for Shares of Beneficial Interest Sold 30,128
Prepaid Trustees' Fees 471
Prepaid Expenses and Other Assets 6,405
------------
Total Assets 142,301,546
------------
LIABILITIES
Dividends Payable to Shareholders 53,047
Payable for Shares of Beneficial Interest Redeemed 10,024
Shareholder Servicing Fee Payable 23,278
Administrative Services Fee Payable 2,870
Administration Fee Payable 1,604
Fund Services Fee Payable 527
Accrued Expenses 16,655
------------
Total Liabilities 108,005
------------
NET ASSETS
Applicable to 14,043,800 Shares of Beneficial Interest Outstanding
(unlimited authorized shares, par value $0.001) $142,193,541
------------
------------
Net Asset Value, Offering and Redemption Price Per Share $ 10.13
------------
------------
ANALYSIS OF NET ASSETS
Paid-in Capital $144,506,767
Undistributed Net Investment Income 135,594
Accumulated Net Realized Loss on Investment (862,825)
Net Unrealized Depreciation of Investment (1,585,995)
------------
Net Assets $142,193,541
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE PIERPONT BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $ 4,713,672
Allocated Dividend Income 16,359
Allocated Portfolio Expenses (265,813)
-----------
Net Investment Income Allocated from Portfolio 4,464,218
EXPENSES
Shareholder Servicing Fee $138,022
Administration Fee 12,191
Administrative Services Fee 12,026
Transfer Agent Fee 17,182
Registration Fees 8,796
Professional Fees 4,851
Printing 4,362
Fund Services Fee 4,057
Trustees' Fees and Expenses 1,417
Insurance Expense 1,071
Miscellaneous 1,492
--------
Total Fund Expenses 205,467
-----------
NET INVESTMENT INCOME 4,258,751
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 2,109,568
NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENT ALLOCATED FROM
PORTFOLIO (6,095,222)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 273,097
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE PIERPONT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED FISCAL
APRIL 30, YEAR ENDED
1996 OCTOBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1995
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $ 4,258,751 $ 7,858,636
Net Realized Gain on Investment Allocated from Portfolio 2,109,568 1,631,673
Net Change in Unrealized Appreciation (Depreciation) of
Investment Allocated from Portfolio (6,095,222 ) 7,898,870
------------ ------------
Net Increase in Net Assets Resulting from Operations 273,097 17,389,179
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (4,255,643 ) (7,870,957 )
------------ ------------
Total Distributions to Shareholders (4,255,643 ) (7,870,957 )
------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 18,368,496 42,937,350
Reinvestment of Dividends and Distributions 3,943,797 7,494,202
Cost of Shares of Beneficial Interest Redeemed (19,139,722 ) (28,995,392 )
------------ ------------
Net Increase from Transactions in Shares of Beneficial Interest 3,172,571 21,436,160
------------ ------------
Total Increase (Decrease) in Net Assets (809,975 ) 30,954,382
NET ASSETS
Beginning of Period 143,003,516 112,049,134
------------ ------------
End of Period (including undistributed net investment income of
$135,594 and $132,486 respectively) $142,193,541 $143,003,516
------------ ------------
------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE PIERPONT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE
SIX
MONTHS
ENDED
APRIL FOR THE FISCAL YEAR ENDED OCTOBER 31,
30, 1996 -----------------------------------------
(UNAUDITED) 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.41 $ 9.64 $ 11.00 $ 10.52 $ 10.32
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.31 0.64 0.55 0.54 0.66
Net Realized and Unrealized Gain (Loss) on Investment (0.28 ) 0.77 (0.91) 0.67 0.28
-------- -------- -------- -------- --------
Total from Investment Operations 0.03 1.41 (0.36) 1.21 0.94
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.31 ) (0.64) (0.55) (0.54) (0.66)
Net Realized Gain - - (0.45) (0.19) (0.08)
-------- -------- -------- -------- --------
Total Distributions (0.31 ) (0.64) (1.00) (0.73) (0.74)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.13 $ 10.41 $ 9.64 $ 11.00 $ 10.52
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return 0.24 %(a) 15.10% (3.50)% 11.97% 9.35%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $142,194 $143,004 $112,049 $103,572 $ 75,882
Ratios to Average Net Assets:
Expenses 0.66 %(b) 0.69% 0.78% 0.81% 0.81%
Net Investment Income 5.98 %(b) 6.40% 5.43% 5.01% 6.26%
Decrease Reflected in Expense Ratio due to Expense
Reimbursement -- -- 0.01% 0.08% 0.20%
Portfolio Turnover - - - 236.39%+ 267.04%
(a) Not annualized.
(b) Annualized.
+ 1993 Portfolio Turnover reflects the period November 1, 1992 to July 11, 1993. After July 11, 1993, all
the Fund's investable assets are invested in The U.S. Fixed Income Portfolio.
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
THE PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Pierpont Bond 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 an open-end management investment company. The Fund,
prior to its tax-free reorganization on July 11, 1993, to a series of the
Trust, operated as a stand-alone mutual fund. Costs related to the
reorganization were borne by Morgan Guaranty Trust Company of New York
("Morgan"). This report includes periods which preceded the Fund's
reorganization and reflects the operations of the predecessor entity.
The Fund invests all of its investable assets in The U.S. Fixed Income
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Fund. The value of such
investment reflects the Fund's proportionate interest in the net assets of
the Portfolio (19% at April 30, 1996). The performance of the Fund is
directly affected by the performance of the Portfolio. The financial
statements of the Portfolio, including the schedule of investments, are
included elsewhere in this report and should be read in conjunction with the
Fund's financial statements.
The preparation of financial statements prepared in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual amounts could differ from those estimates. The following is a summary
of the significant accounting policies of the Fund:
a)
Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b)
The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)
Substantially all the Fund's net investment income is declared as dividends
daily and paid monthly. Distributions to shareholders of net realized
capital gain, if any, are declared and paid annually.
d)
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.
e)
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.
14
<PAGE>
THE PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
f)
For United States federal income tax purposes, the Fund had a capital loss
carryforward at October 31, 1995 of approximately $2,973,885 which will
expire in the year 2002. No capital gains distribution is expected to be
paid to shareholders until future net gains have been realized in excess of
such carryforward.
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 November 1, 1995 to December 28, 1995, Signature's fee for
these services amounted to $5,879.
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 April 30, 1996, Signature's fee for these services amounted
to $6,312.
b)
Until August 31, 1995, the Trust, on behalf of the Fund, 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 Fund and was also designed to provide an expense limit for certain
expenses of the Fund. This fee was calculated exclusive of the shareholder
servicing fee, the fund services fee, at 0.12% of the first $100 million of
the Fund's average daily net assets and 0.10% of average daily net assets
over $100 million. 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 services that were outlined
under the prior agreement and that Morgan shall bear all of its expenses
incurred in connection with these services.
Effective December 29, 1995, the Trust, on behalf of the Fund, entered
into an Administrative Services Agreement with Morgan (the "Agreement")
under which Morgan is responsible for overseeing certain aspects of the
administration and operation of the Fund. Under the Agreement,
15
<PAGE>
THE PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
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
April 30, 1996, the fee for these services amounted to $12,026.
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 November 1, 1995, through December 28, 1995, the
fee for these services amounted to $41,215.
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 April 30, 1996, the fee for these services
amounted to $96,807.
d)
The Trust, on behalf of the Fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the Trustees in exercising their
overall supervisory responsibilities for the Trust's affairs. The Trustees
of the Trust represent all the existing shareholders of Group. The Fund's
allocated portion of Group's costs in performing its services amounted to
$4,057 for the six months ended April 30, 1996.
e)
An aggregate annual fee of $65,000 is paid to each Trustee for serving as a
Trustee of the Trust, The JPM Institutional Funds and the Master
Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represents 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 $500.
16
<PAGE>
THE PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
APRIL 30, 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 SIX MONTHS
ENDED FOR THE FISCAL
APRIL 30, 1996 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1995
------------------- ----------------
<S> <C> <C>
Shares of beneficial interest sold 1,762,250 4,287,654
Reinvestment of dividends and distributions 378,922 748,458
Shares of beneficial interest redeemed (1,830,797) (2,928,885)
---------- ----------------
Net Increase 310,375 2,107,227
---------- ----------------
---------- ----------------
</TABLE>
17
<PAGE>
The U.S. Fixed Income Portfolio
Semi-Annual Report April 30, 1996
(unaudited)
(The following pages should be read in conjunction
with The Pierpont Bond Fund
Semi-Annual Financial Statements)
18
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- -------------- --------------------------------------------------------- ------------- -----------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET
BACKED SECURITIES (10.1%)
FINANCE (10.1%)
$ 9,278,417 Access Financial Manufacturing Housing Contract Trust,
Series 95-1, Class A1, 6.10% due 05/15/21.............. Aaa/NR $ 9,175,334
70,433 Advanta Home Equity Loan Trust, Series 92-2, Class A1,
7.15% due 06/25/08..................................... Aaa/AAA 70,084
144,248 Case Equipment Loan Trust, Series 94-A, Class A2, 4.65%
due 08/15/99........................................... Aaa/AAA 143,490
15,699,000 Chemical Mortgage Securities, Inc., Series 96-1, Class
A7, 7.25% due 01/25/26................................. Aaa/AAA 14,394,413
19,749 Chrysler Financial Corp. Grantor Trust, Series 17, Class
A, 6.25% due 03/15/02.................................. Aaa/AAA 19,757
4,139,222 Collateralized Mortgage Obligation Trust II, Class E,
9.00% due 06/20/17..................................... Aaa/AAA 4,305,743
3,159,559 Criimi Mae Financial Corporation, Class A, 7.00% due
01/01/33............................................... NR/AAA 3,005,531
8,855,000 GE Capital Mortgage Services, Inc., Series 94-17, Class
A5, 7.00% due 05/25/24................................. Aa1/AAA 8,739,708
1,626,633 Green Tree Financial Corp., Series 95-A, Class A, 7.25%
due 07/15/05........................................... Baa3/BBB+ 1,623,583
767,102 Green Tree Financial Corp., Series 94-A, Class A, 6.90%
due 02/15/04........................................... Baa3/BBB+ 757,273
3,860,172 Green Tree Recreational Equipment and Consumer Trust,
Series 96-A, Class A1, 5.55% due 02/15/18.............. Aaa/AAA 3,786,443
5,500,000 Oakwood Mortgage Investors Inc., Series 96-A, Class A2,
5.80% due 05/15/21..................................... NR/AAA 5,259,375
14,927,899 Paine Webber Mortgage Acceptance Corp., Remic: PAC (11),
Series 93-5, Class A2, 5.50% due 06/25/08.............. NR/AAA 14,785,188
20,050 Premier Auto Trust, Series 92-3, Class A, 5.90% due
11/17/97............................................... Aaa/AAA 20,028
1,609,386 Prudential Home Loan Mortgage Securities, Remic: PAC
(11), Series 93-54, Class A2, 6.50% due 01/25/24....... Aaa/AA 1,608,404
8,934,495 Residential Funding Mortgage Securities I, Inc., Remic:
PAC (11), Series 94-S12, Class A3, 6.50% due
04/25/09............................................... Aa1/AAA 8,880,352
174,832 Resolution Trust Corp., Remic: ARM Determined Interest
Rate, Series 91-6, Class A1, 6.92% due 05/25/19........ Aaa/AAA 166,528
95,266 The Money Store Home Equity Trust, Series 92-A, Class A,
6.95% due 12/15/07..................................... Aaa/AAA 94,815
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET
BACKED SECURITIES (COST $77,925,536)................... 76,836,049
-----------
CORPORATE OBLIGATIONS (22.6%)
AUTOMOTIVE (0.7%)
4,170,000 Ford Motor Co., 9.95% due 02/15/32....................... A1/A+ 5,203,159
-----------
BANKING (7.7%)
1,600,000 Chase Manhattan Corp. - New, 10.125% due 11/01/00........ A2/A- 1,791,200
5,000,000 First Chicago Corp., 8.25% due 06/15/02.................. A2/A 5,311,400
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- -------------- --------------------------------------------------------- ------------- -----------
<C> <S> <C> <C>
BANKING (CONTINUED)
$ 2,095,000 First Chicago Corp., 6.875% due 06/15/03................. A2/A $ 2,064,685
8,300,000 First Union Corp., 6.55% due 10/15/35.................... A2/A- 7,957,376
2,000,000 Mellon Bank, N.A., 6.75% due 06/01/03.................... A2/A 1,961,840
1,500,000 Midland Bank, PLC, 8.625% due 12/15/04................... A1/A 1,617,525
4,660,000 NationsBank Corp., 10.20% due 07/15/15................... A3/A- 5,767,356
13,700,000 Norwest Corp., 6.75% due 05/12/00........................ Aa3/AA- 13,679,587
7,500,000 Shawmut National Corp., 8.625% due 12/15/99.............. A3/BBB+ 7,936,275
11,000,000 Trans Financial Bank, 6.48% due 10/23/98................. Baa3/BBB- 10,915,850
-----------
59,003,094
-----------
CHEMICALS, OIL & GAS (1.9%)
4,425,000 Consolidated Natural Gas, 8.625% due 12/01/11............ A1/AA- 4,663,817
2,300,000 Ferrellgas Partners, M.L.P., 9.375% due 06/15/06,
(144A)................................................. B1/B+ 2,300,000
5,000,000 Occidental Petroleum Corp., 5.85% due 11/09/98........... Baa3/BBB 4,910,850
1,000,000 Occidental Petroleum Corp., 5.84% due 11/09/98........... Baa3/BBB 981,940
1,125,000 SFP Pipeline Holdings, Inc., 11.16% due 08/15/10......... Baa3/NR 1,451,250
-----------
14,307,857
-----------
DEPARTMENT STORES (0.4%)
1,000,000 Federated Department Stores, Inc., 8.125% due 10/15/02... Ba1/BB- 971,400
2,200,000 Sears Roebuck & Co., 8.52% due 05/13/02.................. A2/BBB 2,353,230
-----------
3,324,630
-----------
ELECTRICAL EQUIPMENT (1.7%)
2,000,000 Legrand S.A., 8.50% due 02/15/25......................... A2/A 2,151,820
2,200,000 Mark IV Industries Inc., 7.75% due 04/01/06, (144A)...... Ba3/BB+ 2,092,750
1,900,000 Philips Electronics NV, 6.75% due 08/15/03............... A3/BBB+ 1,847,161
7,000,000 Sensormatic Electronics Corp., 7.74% due 03/29/06........ NR/NR 6,938,750
-----------
13,030,481
-----------
FINANCE (3.0%)
3,900,000 Cheung Kong Finance Cayman Ltd., 5.50% due 09/30/98...... NR/NR 3,753,750
159,134 Chevy Chase Auto Receivables Trust, 6.00% due 12/15/01... Aaa/AAA 158,757
25,000 Commercial Credit Group Inc., 7.375% due 11/15/96........ A1/A+ 25,231
2,281,438 Fleetwood Credit Corp. Grantor Trust, Series 95-B 6.55%
due 05/15/11........................................... Aaa/AAA 2,274,731
12,550,000 Ford Motor Credit Co., 6.25% due 11/08/00................ A1/A+ 12,249,177
4,000,000 USL Capital Corp., 7.76% due 03/29/02.................... A1/A+ 4,117,080
69,326 Western Financial Grantor Trust, Series 95-3, Class A1
6.05% due 11/01/00..................................... Aaa/AA 69,193
-----------
22,647,919
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- -------------- --------------------------------------------------------- ------------- -----------
<C> <S> <C> <C>
HOSPITALS AND HEALTH CARE (0.4%)
$ 3,000,000 Tenet Healthcare Corp., 10.125% due 03/01/05............. Ba3/B+ $ 3,210,000
-----------
LUMBER & OTHER CONSTRUCTION MATERIALS (3.1%)
1,250,000 Buckeye Cellulose Corp., 8.50% due 12/15/05.............. Ba3/BB- 1,206,250
5,000,000 Celulosa Arauco y Constitucion SA, 6.75% due 12/15/03.... Baa2/BBB+ 4,697,800
5,200,000 Georgia-Pacific Corp., 7.375% due 12/01/25............... Baa2/BBB- 4,664,452
5,600,000 Georgia-Pacific Corp., 9.95% due 06/15/02................ Baa2/BBB- 6,360,032
1,000,000 Schuller International Group Inc., 10.875% due
12/15/04............................................... Ba3/BB- 1,082,500
4,000,000 USG Corp., 9.25% due 09/15/01............................ Ba2/BB 4,265,000
1,000,000 USG Corp., 8.50% due 08/01/05............................ Ba2/BB 998,750
-----------
23,274,784
-----------
TEXTILES AND APPAREL (0.3%)
2,000,000 WestPoint Stevens Inc., 8.75% due 12/15/01............... B1/BB- 1,995,000
-----------
TELECOMMUNICATIONS (0.4%)
4,000,000 Tele-Communications, Inc., 7.875% due 02/15/26........... Ba1/BBB- 3,472,240
-----------
TRANSPORTATION (1.0%)
2,500,000 Teekay Shipping Corp., 8.32% due 02/01/08................ Ba2/BB 2,381,250
6,719,014 Union Tank Car Co., 6.50% due 04/15/08................... A2/A+ 5,605,789
-----------
7,987,039
-----------
UTILITIES (2.0%)
1,972,000 Connecticut Light & Power Co., Series UU, 7.625% due
04/01/97............................................... Baa1/BBB+ 1,973,913
6,000,000 Duke Power Co., 6.75% due 08/01/25....................... Aa2/AA- 5,312,400
4,500,000 Hydro-Quebec, 8.875% due 03/01/26........................ A2/A+ 4,965,840
3,000,000 Texas Utilities Co., 7.375% due 10/01/25................. Baa2/BBB+ 2,752,770
-----------
15,004,923
-----------
TOTAL CORPORATE OBLIGATIONS (COST $175,443,525).......... 172,461,126
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (39.3%)
FHA Insured
$ 3,344,561 7.43% due 03/01/22...................................................................... $ 3,056,928
Federal Home Loan Mortgage Corp.
18,112 9.00% due 04/01/03...................................................................... 18,803
435,940 9.50% due 08/01/04...................................................................... 450,919
700,731 9.50% due 11/01/05...................................................................... 724,942
3,643,494 9.50% due 12/01/05...................................................................... 3,769,562
703,326 9.50% due 02/01/06...................................................................... 727,647
844,539 9.50% due 03/01/06...................................................................... 873,836
1,377 12.50% due 08/01/14..................................................................... 1,518
27,018 Series 600, 10.00% due 04/01/09......................................................... 29,366
200,000 Series 39, Class F, 10.00% due 05/15/20................................................. 219,824
6,931,067 Gold, 6.50% due 06/01/04................................................................ 6,785,948
11,000,000 Gold, 8.506% due 12/01/04............................................................... 11,536,250
75,021 Gold, 6.00% due 09/01/10................................................................ 71,145
347 Gold, 6.50% due 03/01/26................................................................ 325
22,750,000 Gold, 8.00% TBA (t)..................................................................... 22,984,609
250,000 Remic: PAC-1(11), Series 1215, Class F, 6.75% due 05/15/05.............................. 247,698
250,000 Remic: PAC-1(11), Series 1199, Class E, 7.50% due 10/15/19.............................. 250,170
35,760,000 Remic: PAC-1(11), Series 1542, Class J, 7.00% due 02/15/22.............................. 35,145,375
13,000,000 Remic: PAC-1(11), Series 1594, Class H, 6.00% due 10/15/08.............................. 12,111,320
31,500,000 Remic: PAC-1(11), Series 1684, Class G, 6.50% 03/15/23.................................. 30,028,359
7,500,000 Remic: PAC-1(11), Series 1714, Class K, 7.00% due 04/15/24.............................. 7,028,775
300,000 Remic: Accretion Directed, Series 1290, Class L, 7.50% due 10/15/09..................... 302,529
32,000 Remic: PAC-1(11), Series 1168, Class H, 7.50% due 11/15/21.............................. 31,606
300,000 Remic: Series 102, Class I, 7.00% due 12/15/20.......................................... 283,329
415,000 Remic: PAC-1(11), Series 1207, Class J, 6.75% due 07/15/19.............................. 407,609
1,600,000 Remic: SCH(22), Series 1701, Class B, 6.50% due 03/15/09................................ 1,462,464
Federal National Mortgage Association
90,648 8.00% due 01/01/02...................................................................... 92,648
66,457 8.00% due 05/01/02...................................................................... 67,930
451,013 8.00% due 07/01/02...................................................................... 460,992
4,409,469 8.70% due 01/01/05...................................................................... 4,712,620
36,195,865 8.50% due 01/01/05...................................................................... 37,439,555
2,890,051 6.88% due 11/01/05...................................................................... 2,926,118
20,385 8.50% due 06/01/10...................................................................... 20,889
730,055 10.00% due 06/01/20..................................................................... 795,600
6,195 8.00% due 08/01/22...................................................................... 6,254
4,848,000 9.00% due 04/01/26...................................................................... 5,066,160
967,190 Remic: PAC, Series 1991-64, Class Z, 8.50% due 06/25/06................................. 972,065
681,925 Remic: PAC, Series 1991-101, Class C, 8.50% due 08/25/18................................ 689,262
9,882 Remic: PAC (11), Series 1991-9, Class H, 8.30% due 08/25/18............................. 9,900
3,100,000 Remic: PAC (11), Series 1993-041, Class PE, 5.75% due 04/25/19.......................... 3,022,128
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
<C> <S> <C> <C>
Government National Mortgage Association(GNMA)
$ 6,000,000 7.125% due 01/15/99..................................................................... $ 5,775,000
10,215,004 8.00% due 12/15/08...................................................................... 10,523,394
14,411,769 8.00% due 11/15/09...................................................................... 14,847,293
27,923 11.50% due 07/15/13..................................................................... 31,255
5,690 13.50% due 10/15/14..................................................................... 6,390
208,548 7.00% due 07/15/22...................................................................... 201,324
558,567 7.00% due 11/15/22...................................................................... 539,570
796,977 7.00% due 01/15/23...................................................................... 771,027
368,213 7.00% due 03/15/23...................................................................... 355,517
106,282 7.50% due 03/15/23...................................................................... 105,235
236,653 7.50% due 05/15/23...................................................................... 234,140
136,909 7.50% due 06/15/23...................................................................... 135,679
941,610 7.00% due 07/15/23...................................................................... 909,914
339,048 7.00% due 09/15/23...................................................................... 327,340
1,331,757 7.00% due 10/15/23...................................................................... 1,284,751
65,622 7.00% due 12/15/23...................................................................... 63,340
4,097,951 7.00% due 01/15/24...................................................................... 3,959,150
3,621,373 7.50% due 01/15/24...................................................................... 3,583,023
2,050,106 7.00% due 02/15/24...................................................................... 1,978,173
853,770 7.50% due 02/15/24...................................................................... 844,883
577,340 7.00% due 03/15/24...................................................................... 556,993
754,462 7.50% due 03/15/24...................................................................... 746,276
4,979,337 7.00% due 04/15/24...................................................................... 4,806,964
2,813,560 7.00% due 05/15/24...................................................................... 2,713,062
58,173 7.50% due 05/15/24...................................................................... 57,532
992,096 7.00% due 06/15/24...................................................................... 956,803
442,277 7.50% due 06/15/24...................................................................... 437,337
342,825 7.50% due 11/15/24...................................................................... 338,793
774,396 7.50% due 12/15/24...................................................................... 765,816
1,034,116 7.50% due 07/15/25...................................................................... 1,021,902
979,542 7.50% due 08/15/25...................................................................... 968,073
198,862 7.50% due 09/15/25...................................................................... 196,508
180,840 7.50% due 10/15/25...................................................................... 178,761
3 7.50% due 11/15/25...................................................................... 265,699
2,804,652 7.00% due 01/15/26...................................................................... 2,701,364
6,634,932 7.00% due 03/15/26...................................................................... 6,390,368
623,610 7.50% due 03/15/26...................................................................... 616,208
2,833,600 7.50% due 04/15/26...................................................................... 2,845,112
5,542,000 7.625% due 04/15/26..................................................................... 5,512,558
5,222,920 7.25% due 02/15/27...................................................................... 5,095,741
5,291,881 7.125% due 01/15/31..................................................................... 5,130,002
2,621,098 7.25% due 01/15/31...................................................................... 2,557,274
7,843,596 7.00% due 05/15/35...................................................................... 7,532,304
6,425,000 7.50% TBA (t)........................................................................... 6,348,703
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $305,208,718)............................ 300,049,528
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
<C> <S> <C> <C>
U.S. GOVERNMENT TREASURY OBLIGATIONS (24.1%)
U.S. Treasury Bonds
$ 63,000,000 11.125% due 08/15/03 (s)................................................................ $ 79,149,419
24,000,000 8.50% due 02/15/20...................................................................... 27,782,160
U.S. Treasury Notes
20,500,000 8.875% due 11/15/98..................................................................... 21,778,995
45,000,000 8.50% due 11/15/00...................................................................... 48,641,850
6,675,000 6.375% due 03/31/01..................................................................... 6,655,042
------------
TOTAL U.S. GOVERNMENT TREASURY OBLIGATIONS (COST $185,195,481).......................... 184,007,466
------------
<CAPTION>
MOODY'S/S&P
RATING
-----------
<C> <S> <C> <C>
FOREIGN GOVERNMENT OBLIGATIONS (0.9%)
3,500,000 Republic of Argentina, 9.25% due 02/23/01.................................. B1/NR 3,334,695
3,500,000 United Mexican States, 9.75% due 02/06/01.................................. Ba2/NR 3,456,250
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS (COST $6,817,454).................................. 6,790,945
------------
<CAPTION>
SHARES
- ---------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.3%)
NATURAL GAS (0.3%)
74,600 Lasmo PLC, Sponsored ADR, 10.00%, Series A................................. Ba1/BBB- 1,837,025
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,659,850).................................... 1,837,025
------------
<CAPTION>
PRINCIPAL
AMOUNT
- ---------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT (4.8%)
$ 36,773,000 Goldman Sachs Repurchase Agreement, dated 4/30/96 due 5/01/96, proceeds
$36,778,444 (collateralized by U.S. Treasury Bond, 7.125% due 02/15/23,
valued at $37,509,234)
(cost $36,773,000)....................................................... P1/A1+ $ 36,773,000
------------
TOTAL INVESTMENTS (COST $789,023,564) (102.1%)........................................................... 778,755,139
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.1%)............................................................ (15,947,150)
------------
TOTAL NET ASSETS (100.0%)................................................................................ $762,807,989
------------
------------
</TABLE>
Note: Based on the cost of investments of $789,822,741 for Federal Income Tax
purposes at April 30, 1996, the aggregate gross unrealized appreciation
and depreciation was $1,998,016 and $13,065,618, respectively, resulting
in net unrealized depreciation of $11,067,602.
(t) TBA securities are purchased (sold) on a forward commitment basis with an
approximate principal amount and no definite maturity date. The actual
principal amount and maturity date will be determined upon settlement.
(s) $50,000,000 par segregated as collateral for TBA securities.
Abbreviations:
144A - Securities restricted for resale to Qualified Institutional Buyers.
ADR - American Depository Receipt; ARM - Adjustable Rate Mortgage; FHA - Federal
Housing Administration;
PAC - Planned Amortization Class; Remic - Real Estate Mortgage Investment
Conduit; NR - Not Rated
SCH - Scheduled Payment Bond
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $789,023,564) $778,755,139
Cash 173
Receivable for Investments Sold 27,078,962
Interest Receivable 10,892,056
Prepaid Trustees' Fees 3,106
Prepaid Expenses and Other Assets 1,354
------------
Total Assets 816,730,790
------------
LIABILITIES
Payable for Investments Purchased 53,606,427
Advisory Fee Payable 224,845
Custody Fee Payable 20,871
Administrative Services Fee Payable 15,449
Administration Fee Payable 8,077
Fund Services Fee Payable 2,803
Accrued Expenses 44,329
------------
Total Liabilities 53,922,801
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $762,807,989
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $22,795,542
Dividend Income (Net of Foreign Withholding Tax of $13,991) 79,255
-----------
Total Investment Income 22,874,797
EXPENSES
Advisory Fee $1,034,411
Custodian Fees and Expenses 99,730
Administrative Services Fee 61,515
Administration Fee 37,995
Professional Fees and Expenses 23,011
Fund Services Fee 19,158
Trustees' Fees and Expenses 5,849
Printing Expenses 5,397
Miscellaneous 4,001
----------
Total Expenses (1,291,067)
-----------
NET INVESTMENT INCOME 21,583,730
NET REALIZED GAIN ON INVESTMENTS (including $606,386 net realized loss from
forward contracts) 4,183,731
NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENTS (including $606,109
net unrealized appreciation from forward contracts) (27,865,651)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($2,098,190)
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE
ENDED FISCAL
APRIL 30, YEAR ENDED
1996 OCTOBER 31,
INCREASE IN NET ASSETS (UNAUDITED) 1995
----------- -------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $21,583,730 $29,754,031
Net Realized Gain on Investments 4,183,731 7,762,316
Net Change in Unrealized Appreciation (Depreciation) of
Investments (27,865,651) 26,604,322
----------- -------------
Net Increase (Decrease) in Net Assets Resulting from
Operations (2,098,190) 64,120,669
----------- -------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 258,019,845 241,455,035
Withdrawals (74,993,661) (89,561,736)
----------- -------------
Net Increase from Investors' Transactions 183,026,184 151,893,299
----------- -------------
Total Increase in Net Assets 180,927,994 216,013,968
NET ASSETS
Beginning of Period 581,879,995 365,866,027
----------- -------------
End of Period $762,807,989 $581,879,995
----------- -------------
----------- -------------
- -----------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE PERIOD
FOR THE SIX ENDED JULY 12, 1993
MONTHS ENDED OCTOBER 31, (COMMENCEMENT OF
APRIL 30, 1996 -------------------- OPERATIONS) THROUGH
(UNAUDITED) 1995 1994 OCTOBER 31, 1993
-------------- --------- --------- -------------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.37%(a) 0.39% 0.46% 0.48%(a)
Net Investment Income 6.26%(a) 6.68% 5.88% 4.91%(a)
Portfolio Turnover 163% 293% 234% 295%(b)
</TABLE>
(a) Annualized.
(b) Portfolio turnover is for the twelve month period ended October 31, 1993,
and includes the portfolio activity of the Portfolio's predecessor entity,
The Pierpont Bond Fund, for the period November 1, 1992 through July 11,
1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Fixed Income Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Portfolio commenced operations on July 12, 1993 and
received a contribution of certain assets and liabilities, including securities,
with a value of $91,653,371 on that date from The Pierpont Bond Fund in exchange
for a beneficial interest in the Portfolio. At that date, net unrealized
appreciation of $1,731,405 was included in the contributed securities. The
Portfolio's investment objective is to provide a high total return consistent
with moderate risk of capital and maintenance of liquidity. The Declaration of
Trust permits the Trustees to issue an unlimited number of beneficial interests
in the Portfolio.
The preparation of financial statements prepared in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual amounts
could differ from those estimates. The following is a summary of the significant
accounting policies of the Portfolio:
a) Portfolio securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are
valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national
securities exchange, or in the absence of recorded sales, at the readily
available bid price on such exchange or at the quoted bid price in the
over-the-counter market, if such exchange or market constitutes the
broadest and most representative market for the security and (ii) in
other cases, take into account various factors affecting market value,
including yields and prices of comparable securities, indication as to
value from dealers and general market conditions. If such prices are not
supplied by the Portfolio's independent pricing services, such securities
are priced in accordance with procedures adopted by the Trustees, All
portfolio securities with a remaining maturity of less than 60 days are
valued by the amortized cost method.
b) Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if
any, is recorded on an accrual basis. For financial and tax reporting
purposes, realized gains and losses are determined on the basis of
specific lot identification.
c) The Portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables against fluctuations in
future foreign currency rates. A forward contract is an agreement to buy
or sell currencies of different countries on a specified future date at a
specified rate. Risks associated with such contracts include the movement
in the value of the foreign currency relative to the U.S. Dollar and the
ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily based on procedures
established by and under the general supervision of the Portfolio's
Trustees and the change in the market value is recorded by the Portfolio
as unrealized appreciation or depreciation of foreign forward and spot
currency contract translations. There were no open forward or spot
currency contracts as of April 30, 1996.
28
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
d) The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxed on
its share of the Portfolio's ordinary income and capital gains. It is
intended that the Portfolio's assets will be managed in such a way that
an investor in the Portfolio will be able to satisfy the requirements of
Subchapter M of the Internal Revenue Code.
2. TRANSACTIONS WITH AFFILIATES
a) The Portfolio has an investment advisory agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the investment
advisory agreement, the Portfolio pays Morgan at an annual rate of 0.30%
of the Portfolio's average daily net assets. For the six months ended
April 30, 1996, this fee amounted to $1,034,411.
b) The Portfolio has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as Administrator and exclusive placement agent.
Signature provides administrative services necessary for the operations
of the Portfolio, furnishes office space and facilities required for
conducting the business of the Portfolio and pays the compensation of the
Portfolio's officers affiliated with Signature. The agreement provides
for a fee to be paid to Signature at an annual rate determined by the
following schedule: 0.01% of the first $1 billion of the aggregate
average daily net assets of the Portfolio and the other portfolios
subject to the Administration Agreement, 0.008% of the next $2 billion of
such net assets, 0.006% of the next $2 billion of such net assets, and
0.004% of such net assets in excess of $5 billion. The daily equivalent
of the fee rate is applied each day to the net assets of the Portfolio.
For the period from November 1, 1995 to December 28, 1995, Signature's
fee for these services amounted to $5,709.
Effective December 29, 1995, the Administration Agreement was amended
such that the fee charged would be equal to the Portfolio's proportionate
share of a complex-wide fee based on the following annual schedule: 0.03%
on the first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios subject to this agreement (the "Master
Portfolios") and 0.01% on the aggregate average daily net assets of the
Master Portfolios in excess of $7 billion. The portion of this charge
payable by the Portfolio is determined by the proportionate share its net
assets bear to the total net assets of The Pierpont Funds, The JPM
Institutional Funds, The JPM Advisor Funds and the Master Portfolios. For
the period from December 29, 1995 through April 30, 1996, Signature's fee
for these services amounted to $32,286.
c) Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement ("Services Agreement") with Morgan under which Morgan
would receive a fee, based on the percentages described below, for
overseeing certain aspects of the administration and operation of the
Portfolio and was also designed to provide an expense limit for certain
expenses of the Portfolio. This fee was calculated at 0.10% of the
Portfolio's average daily net assets up to $200 million, 0.05% of the
next $200 million of average daily net assets, and 0.03% of average daily
net assets thereafter. From September 1, 1995 until December 28, 1995, an
interim agreement between
29
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
- --------------------------------------------------------------------------------
the Portfolio and Morgan provided for the continuation of the oversight
services that were outlined under the prior agreement and that Morgan
shall bear all of its expenses incurred in connection with these
services.
Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement with Morgan (the "Agreement") under which Morgan is
responsible for overseeing certain aspects of the administration and
operation of the Portfolio. Under the Agreement, the Portfolio has agreed
to pay Morgan a fee equal to its proportionate share of an annual
complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Master Portfolios in accordance with the
following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets and 0.03% of the aggregate
average daily net assets in excess of $7 billion. The portion of this
charge payable by the Portfolio is determined by the proportionate share
that the Portfolio's net assets bear to the net assets of the Master
Portfolios and other investors in the Master Portfolios for which Morgan
provides similar services. For the period from December 29, 1995 through
April 30, 1996, the fee for these services amounted to $61,515.
d) The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the shareholders of Group. The Portfolio's
allocated portion of Group's costs in performing its services amounted to
$19,158 for the six months ended April 30, 1996.
e) An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Pierpont Funds, The JPM Institutional Funds and their
corresponding Portfolios. The Trustees' Fees and Expenses shown in the
financial statements represents the Portfolio's allocated portion of the
total fees and expenses. The Trustee who serves as Chairman and Chief
Executive Officer of these Funds and Portfolios also serves as Chairman
of Group and received compensation and employee benefits from Group in
his role as Group's Chairman. The allocated portion of such compensation
and benefits included in the Fund Services Fee shown in the financial
statements was $2,500.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1996 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS FROM
PURCHASES SALES
---------------- ----------------
<S> <C> <C>
U.S. Treasury and Agency Obligations $ 1,079,884,570 $ 912,288,107
Corporate and Collateralized Obligations 224,622,725 197,955,050
---------------- ----------------
$ 1,304,507,295 $ 1,110,243,157
---------------- ----------------
---------------- ----------------
</TABLE>
30
<PAGE>
THE PIERPONT MONEY MARKET FUND
THE PIERPONT TAX EXEMPT MONEY MARKET 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 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
OF FUNDS CAN HELP YOU PLANT FOR YOUR FUTURE, CALL
J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
THE
PIERPONT
BOND FUND
SEMI-ANNUAL REPORT
APRIL 30, 1996
