<PAGE>
LETTER TO THE SHAREHOLDERS OF THE PIERPONT BOND FUND
December 15, 1995
Dear Shareholder:
Bond investors enjoyed an unexpectedly delightful 1995, as the bond market
produced double-digit returns due to a falling interest rate environment.
This was in sharp contrast to 1994, when returns dipped into negative
territory for much of the year as rates increased. In the changing interest
rate environment, The Pierpont Bond Fund returned 15.10% for its fiscal year
ended October 31, 1995. For the same period, the average bond mutual fund, as
measured by the Composite High Quality Intermediate Corporate Bond Fund
Average*, returned 13.69%, and the Salomon Brothers Broad Investment Grade
Index returned 15.71%.
The Fund seeks to reduce risk and increase consistency of returns by
diversifying its holdings and its sources of added value. This diversified
strategy proved especially beneficial during the period as the Fund's sector
and security selection decisions added value, while its defensive duration
position held it back slightly early in 1995. Specifically, we maintained a
lower risk, defensive strategy with regard to interest rates during the first
quarter -- when the bond bull market commenced. As evidence of the economic
slowdown accumulated, we moved to a slightly positive posture on interest
rates, which has added value throughout the remainder of the year.
For the period under review, the Fund's net asset value increased from $9.64
per share on October 31, 1994 to end at $10.41, after paying dividends of
approximately $0.64 per share from ordinary income. The Fund's net assets
stood at $143.0 million at the end of the reporting period, up from $112.0
million on October 31, 1994. The net assets of The U.S. Fixed Income
Portfolio, in which the Fund invests, totaled approximately $581.9 million on
October 31, 1995.
MARKET ENVIRONMENT
After declining dramatically in 1994, the bond market switched direction in
early 1995. Rapid economic growth and fears of inflation early in the period
caused the Federal Reserve to continue its program of raising short-term
interest rates. As a result, Treasury yields of all maturities rose. As the
economy began showing signs of a slowdown and it became clearer that additional
rate increases were unlikely, Treasury yields declined and prices rallied. By
the time the Fed lowered rates in July, however, the bond market had already
priced-in this action. By the end of the period, mixed to weak economic data
caused the market to anticipate another Fed easing, as indicated by longer-term
note and bond rates falling below the Fed funds level.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS............1 SPECIAL FUND-BASED SERVICES...5
FUND FACTS AND HIGHLIGHTS.............3 FINANCIAL STATEMENTS..........7
FUND PERFORMANCE.....................4
- --------------------------------------------------------------------------------
1
<PAGE>
PORTFOLIO REVIEW
The Portfolio's investment process involves three key decisions to diversify
its sources of return potential under all market conditions: duration
management, sector allocation, and security selection.
DURATION MANAGEMENT. Duration is the measure of a fund's sensitivity to
interest rate changes, which is closely related to the average maturity of
the bonds in a portfolio. As mentioned previously, the Portfolio began the
period with a relatively short duration. As interest rates began to change
direction, however, we lengthened to a neutral then to a long duration
position by the end of the period.
SECTOR ALLOCATION. During the period, we actively managed the Portfolio's
allocations to Treasuries, corporates, and mortgages based on their relative
attractiveness. For example, we began the period modestly overweighted in
corporates relative to the Salomon BIG Index, and we were adding slightly to
its mortgage position because of the relative value offered by this market.
Conversely, we decreased our allocations to corporates and mortgages in early
1995, fearing that yield spreads would widen and these sectors would
underperform. The Portfolio ended the period slightly overweighted in
corporates and neutral to underweighted in mortgages.
SECURITY SELECTION. Security selection added value to performance during this
period. The Portfolio maintained its focus on high-quality issues, keeping
the average quality of Portfolio holdings between AA and AAA.
INVESTMENT OUTLOOK
We continue to maintain the duration of the Portfolio slightly longer than
the Index, seeking to capture value through actively trading securities for
the near term. The economy continues to exhibit sluggish growth, and measures
of its performance are mixed. Over the longer term, the bond market should be
helped by deficit reduction action in Washington and by benign inflation
data.
We also continue to slightly overweight corporates, taking advantage of their
present yield advantage. We expect that their yield spreads versus Treasuries
will remain stable in the near future.
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
*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.
2
<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 10/31/95
$143,003,516
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/95
EXPENSE RATIO
The Fund's annualized expense ratio of 0.69% 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 OCTOBER 31, 1995
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[pie graph]
/ / U.S. TREASURY OBLIGATIONS 41.1%
/ / CORPORATE OBLIGATIONS 37.9%
/ / U.S. AGENCY OBLIGATIONS 15.5%
/ / COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES 3.6%
/ / SHORT-TERM HOLDINGS 1.6%
/ / CONVERTIBLE PREFERRED STOCK 0.3%
30-DAY SEC YIELD
6.13%
DURATION
4.7 years
QUALITY BREAKDOWN
AAA* 61%
AA 3%
A 16%
Other 20%
*INCLUDES U.S. GOVERNMENT AGENCY, TREASURY OBLIGATIONS, AND CASH.
3
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment.
The minimum investment in the Fund is $100,000. The chart at right shows that
the minimum invested at the Fund's inception would have grown to $184,244 at
October 31, 1995.
Another way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
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*
MARCH 11, 1988 - OCTOBER 31, 1995
THE PIERPONT BOND FUND LINE CHART
DOLLARS IN THOUSANDS
THE PIERPONT SALOMON
BOND FUND BIG
3/88 100.000 100.000
10/88 103.120 105.180
10/89 111.648 117.602
10/90 121.451 125.128
10/91 135.478 144.836
10/92 148.145 159.450
10/93 165.879 178.536
10/94 160.073 172.127
10/95 184.244 199.168
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------------
THREE SIX ONE FIVE SINCE
AS OF OCTOBER 31, 1995 MONTHS MONTHS YEAR YEARS INCEPTION*
- -------------------------------------------- --------------------------------
The Pierpont Bond Fund 3.64% 8.23% 15.10% 8.69% 8.38%
Salomon BIG** 3.47% 8.11% 15.71% 9.74% 9.51%
Composite High Quality
Int. Corporate Bond
Fund Average 3.21% 7.36% 13.69% 8.69% 7.55%
AS OF SEPTEMBER 30, 1995
- -------------------------------------------- --------------------------------
The Pierpont Bond Fund 1.84% 8.20% 13.29% 8.63% 8.22%
Salomon BIG** 1.90% 8.15% 14.06% 9.72% 9.42%
Composite High Quality
Int. Corporate Bond
Fund Average 1.72% 7.45% 12.21% 8.60% 7.47%
*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 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. IS A LEADING RESOURCE FOR MUTUAL FUND
DATA. ALTHOUGH GATHERED FROM RELIABLE SOURCES, DATA ACCURACY AND COMPLETENESS
CANNOT BE GUARANTEED. THE PIERPONT BOND 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.
4
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term
instruments, bonds, and stocks -- can offer an excellent opportunity to
achieve one's investment objectives. 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
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 Keogh
account.
5
<PAGE>
SIGNATURE BROKER-DEALER SERVICES, INC. IS THE DISTRIBUTOR OF THE PIERPONT
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 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.
6
<PAGE>
THE PIERPONT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Fixed Income Portfolio ("Portfolio"), at value $142,988,865
Receivable for Shares of Beneficial Interest Sold 141,151
Prepaid Expenses 1,416
------------
Total Assets 143,131,432
------------
LIABILITIES
Dividend Payable 44,792
Shareholder Servicing Fee Payable 26,181
Payable for Shares of Beneficial Interest Redeemed 3,503
Administration Fee Payable 3,054
Fund Services Fee Payable 913
Accrued Expenses 49,473
------------
Total Liabilities 127,916
------------
NET ASSETS
Applicable to 13,733,425 Shares of Beneficial Interest Outstanding
(unlimited authorized shares, par value $0.001) $143,003,516
------------
------------
Net Asset Value, Offering and Redemption Price Per Share $10.41
------------
------------
ANALYSIS OF NET ASSETS
Paid-in Capital $141,334,196
Undistributed Net Investment Income 132,486
Accumulated Net Realized Loss on Investment (2,972,393)
Net Unrealized Appreciation of Investment 4,509,227
------------
Net Assets $143,003,516
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
7
<PAGE>
THE PIERPONT BOND FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Interest Income $ 8,677,460
Dividend Income 35,805
Portfolio Expenses (484,080)
-----------
Net Investment Income Allocated from Portfolio 8,229,185
FUND EXPENSES
Shareholder Servicing Fee $222,000
Transfer Agent Fees 34,325
Administration Fee 32,901
Financial and Fund Accounting Services Fees 18,672
Printing 15,000
Fund Services Fee 11,376
Professional Fees 10,200
Trustees' Fees and Expenses 2,920
Miscellaneous 23,155
--------
Total Fund Expenses (370,549)
-----------
NET INVESTMENT INCOME 7,858,636
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 1,631,673
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENT ALLOCATED FROM
PORTFOLIO 7,898,870
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,389,179
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
THE PIERPONT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
OCTOBER 31,
--------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $ 7,858,636 $ 5,728,210
Net Realized Gain (Loss) on Investment Allocated from Portfolio 1,631,673 (4,410,760)
Net Change in Unrealized Appreciation (Depreciation) of Investment
Allocated from Portfolio 7,898,870 (5,114,945)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 17,389,179 (3,797,495)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (7,870,957) (5,728,904)
Net Realized Gain - (4,444,155)
------------ ------------
Total Distributions to Shareholders (7,870,957) (10,173,059)
------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 42,937,350 62,734,029
Reinvestment of Dividends and Distributions 7,494,202 9,685,386
Cost of Shares of Beneficial Interest Redeemed (28,995,392) (49,971,704)
------------ ------------
Net Increase from Transactions in Shares of Beneficial Interest 21,436,160 22,447,711
------------ ------------
Total Increase in Net Assets 30,954,382 8,477,157
NET ASSETS
Beginning of Fiscal Year 112,049,134 103,571,977
------------ ------------
End of Fiscal Year (including undistributed net investment income of
$132,486 and $(694), respectively) $143,003,516 $112,049,134
------------ ------------
------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE PIERPONT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each fiscal year are as
follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF FISCAL YEAR $ 9.64 $ 11.00 $ 10.52 $ 10.32 $ 9.93
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.64 0.55 0.54 0.66 0.70
Net Realized and Unrealized Gain (Loss) on Investment
Allocated from Portfolio 0.77 (0.91) 0.67 0.28 0.41
-------- -------- -------- ------- -------
Total from Investment Operations 1.41 (0.36) 1.21 0.94 1.11
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.64) (0.55) (0.54) (0.66) (0.70)
Net Realized Gains - (0.45) (0.19) (0.08) (0.02)
-------- -------- -------- ------- -------
Total Distributions to Shareholders (0.64) (1.00) (0.73) (0.74) (0.72)
-------- -------- -------- ------- -------
NET ASSET VALUE, END OF FISCAL YEAR $ 10.41 $ 9.64 $ 11.00 $ 10.52 $ 10.32
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Total Return 15.10% (3.50)% 11.97% 9.35% 11.55%
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets at End of Fiscal Year (in thousands) $143,004 $112,049 $103,572 $75,882 $41,616
Ratios to Average Net Assets:
Expenses 0.69% 0.78% 0.81% 0.81% 0.81%
Net Investment Income 6.40% 5.43% 5.01% 6.26% 6.84%
Decrease Reflected in Expense Ratio due to Expense
Reimbursement and Fee Waivers by Morgan -- 0.01% 0.08% 0.20% 0.58%
Portfolio Turnover - - 236.39%+ 267.04% 166.78%
+ 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.
10
<PAGE>
THE PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
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 a diversified 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 objectives as the Fund. The value of such
investment reflects the Fund's proportionate interest in the net assets of
the Portfolio (25% at October 31, 1995). 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 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.
f) The Fund accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return
of Capital Distributions by Investment Companies." The effect of applying
this
11
<PAGE>
THE PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
statement was to increase Undistributed Net Investment Income by $145,501,
increase Paid-in Capital by $34,596 and decrease Accumulated Net Realized
Loss on Investment by $180,097. Net investment income, net realized gains
and net assets were not affected by this change.
g) 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. Such carryforward is after utilization of
approximately $1,415,023 to offset the Fund's net taxable gains realized
and recognized in the year ended October 31, 1995. 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 retains Signature Broker-Dealer Services, Inc. ("Signature") to
serve as Administrator and Distributor. Signature provides administrative
services necessary for the operations of the Fund, furnishes office space
and facilities required for conducting the business of the Fund and pays
the compensation of the Fund's officers affiliated with Signature. The
agreement provides 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
daily net assets of the Fund. For the fiscal year ended October 31, 1995,
Signature's fee for these services amounted to $32,901.
b) During the period November 1, 1994, through 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 received
a fee, based on the percentages 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
and 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. For the period November 1, 1994 through August 31,
1995, the fee for these services amounted to $18,672. Effective September
1, 1995 the Services Agreement was terminated and an interim agreement
was entered into between the Trust, on behalf of the Fund, and Morgan
which provides for the continuation of the oversight of the services that
were outlined under the prior agreement and that Morgan shall bear all of
its expenses incurred in connection with these services.
c) The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. The Agreement provides for the Fund to pay Morgan a fee for
these services which is computed daily and may be paid monthly at an
annual rate of 0.18% of the average daily net assets of the Fund. For the
fiscal year ended October 31, 1995, the fee for these services amounted
to $222,000.
12
<PAGE>
THE PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
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 $11,376 for the fiscal year ended October 31, 1995.
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 Fund's allocated portion of the total
fees and expenses. Prior to April 1, 1995, the aggregate annual Trustee
Fee was $55,000. 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
$1,500.
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 FISCAL YEAR
ENDED OCTOBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Shares sold 4,287,654 6,213,346
Reinvestment of dividends and distributions 748,458 947,768
Shares redeemed (2,928,885) (4,946,923)
----------- -----------
Net Increase 2,107,227 2,214,191
----------- -----------
----------- -----------
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The Pierpont 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 Bond Fund (one of the series constituting part of the Pierpont
Funds, hereafter referred to as the "Fund") at October 31, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the three years in the period then ended, 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. The financial
highlights for each of the two years in the period ended October 31, 1992 were
audited by other independent accountants whose report dated December 4, 1992
expressed an unqualified opinion on those statements.
[LOGO]
PRICE WATERHOUSE LLP
New York, New York
December 22, 1995
14
<PAGE>
The U.S. Fixed Income Portfolio
Annual Report October 31, 1995
(The following pages should be read in conjunction
with The Pierpont Bond Fund
Annual Financial Statements)
15
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- --------------------------------------------------------------------------- ----------- ------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET
BACKED SECURITIES (3.6%)
FINANCE (3.6%)
$ 79,701 Advanta Home Equity Loan Trust, Series 92-2, Class A1, 7.15% due
06/25/08................................................................. Aaa/AAA $ 80,383
229,122 Case Equipment Loan Trust, Series 94-A, Class A2, 4.65% due 08/15/99....... Aaa/AAA 226,831
4,599,555 Collateralized Mortgage Obligation Trust II Class E, 9.00% due 06/20/17.... Aaa/AAA 4,824,152
3,000,000 Criimi Mae Financial Corporation Class A, 7.00% due 01/01/33............... NR/AAA 2,936,250
2,476 Fical Home Equity Loan Trust, Series 90-1 Class A, 8.90% due 10/15/15...... Aaa/NR 2,476
8,855,000 GE Capital Mortgage Services, Inc., Series 94-17, Class A5, 7.00% due
05/25/24................................................................. Aaa/AAA 8,943,107
1,854,087 Green Tree Financial Corp., Series 95-A Class A, 7.25% due 07/15/05........ Baa3/BBB+ 1,865,096
589,307 Green Tree Financial Corp., Series 94-A Class A, 6.90% due 02/15/04........ Baa3/BBB+ 589,491
37,297 Premier Auto Trust, Series 92-3, Class A, 5.90% due 11/17/97............... Aaa/AAA 37,275
1,258,125 Prudential Home Loan Mortgage Securities, Remic: PAC(11), Series 93-54,
Class A2, 6.50% due 01/25/24............................................. Aaa/AAA 1,254,175
196,691 Resolution Trust Corp., Remic: ARM Determined Interest Rate, Series 91-6,
Class A1, 6.9473% due 05/25/19........................................... Aaa/AAA 187,840
3,588 Sears Mortgage Securities, Remic: TAC(11), Series 92-3, Class T5, 7.75% due
02/25/20................................................................. NR/AAA 3,573
112,243 The Money Store Home Equity Trust, Series 92-A, Class A, 6.95% due
12/15/07................................................................. Aaa/AAA 112,650
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (COST
$20,270,036)............................................................. 21,063,299
------------
CORPORATE OBLIGATIONS (37.9%)
AUTOMOTIVE (1.3%)
7,325,000 Ford Motor Co., 9.50% due 05/30/97......................................... A1/A+ 7,708,683
------------
BANKING (10.7%)
1,925,000 BankAmerica Corp., 9.50% due 04/01/01...................................... A3/A- 2,188,359
1,300,000 BankAmerica Corp., 7.50% due 03/15/97...................................... A2/A 1,326,104
1,925,000 Capital One Bank, 8.625% due 01/15/97...................................... Baa3/BBB- 1,984,405
6,000,000 Central Fidelity Banks, Inc., 8.15% due 11/15/02........................... Baa2/BBB 6,476,820
1,600,000 Chemical Banking Corp., 10.125% due 11/01/00............................... A3/A- 1,855,520
5,000,000 First Chicago Corp., 8.25% due 06/15/02.................................... A3/A- 5,507,850
1,745,000 First Chicago Corp., 6.875% due 06/15/03................................... A3/A- 1,769,866
100,000 Fleet Financial Group Inc., 7.125% due 05/01/00............................ A2/A- 102,542
2,000,000 Mellon Bank, N.A., 6.75% due 06/01/03...................................... A2/A 2,003,060
4,660,000 NationsBank Corp., 10.20% due 07/15/15..................................... A3/A- 5,989,218
13,700,000 Norwest Corp., 6.75% due 05/12/00.......................................... Aa3/AA- 13,888,649
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- --------------------------------------------------------------------------- ----------- ------------
BANKING (CONTINUED)
<C> <S> <C> <C>
$ 7,500,000 Shawmut National Corp., 8.625% due 12/15/99................................ Baa2/BBB- $ 8,029,800
11,000,000 Trans Financial Bank, 6.48% due 10/23/98................................... A1/A+ 10,973,270
------------
62,095,463
------------
CHEMICALS, OIL & GAS (3.5%)
2,277,000 E. I. Du Pont de Nemours & Co., 8.65% due 12/01/97......................... Aa2/AA 2,389,415
5,000,000 Occidental Petroleum Corp., 5.85% due 11/09/98............................. Baa3/BBB 4,932,250
1,000,000 Occidental Petroleum Corp., 5.84% due 11/09/98............................. Baa3/BBB 986,180
1,125,000 SFP Pipeline Holdings, Inc., 11.16% due 08/15/10........................... Baa3/NR 1,406,250
6,600,000 Texaco Capital, 9.00% due 11/15/96......................................... A1/A+ 6,809,286
4,000,000 Texas Eastern Corp., 8.50% due 02/04/97.................................... NR/NR 4,100,000
------------
20,623,381
------------
DEPARTMENT STORES (1.1%)
2,200,000 Sears Roebuck & Co., 8.52% due 05/13/02.................................... A2/BBB 2,427,788
4,000,000 Sears Roebuck & Co., 7.25% due 08/05/97.................................... A2/BBB 4,080,920
------------
6,508,708
------------
ELECTRICAL EQUIPMENT (0.8%)
2,000,000 Legrand S.A., 8.50% due 02/15/25........................................... A2/A 2,287,960
2,000,000 Mark IV Industries Inc., 8.75% due 04/01/03................................ Ba3/BB+ 2,085,000
------------
4,372,960
------------
FINANCE (12.5%)
100,000 Associates Corp., N.A., 8.125% due 01/15/98................................ Aa3/AA- 104,158
400,000 Associates Corp., N.A., 7.30% due 03/15/98................................. Aa3/AA- 410,564
95,196 Chevy Chase Auto Receivables Trust, 6.00% due 12/15/01..................... Aaa/AAA 95,192
18,250,000 Chrysler Financial Corp., Series MTNN, 7.36% due 03/14/97.................. A3/BBB 18,530,320
1,000,000 Chrysler Financial Corp., 7.20% due 03/17/97............................... A2/A- 1,013,380
25,000 Commercial Credit Group Inc., 7.375% due 11/15/96.......................... A1/A+ 25,351
2,620,761 Fleetwood Credit Corp Grantor Trust, Series 95-B 6.55% due 05/15/11........ Aaa/AAA 2,630,301
17,550,000 Ford Motor Credit Co., 6.25% due 11/08/00.................................. A1/A+ 17,499,644
400,000 General Motors Acceptance Corp., 7.85% due 11/17/97........................ Baa1/BBB+ 413,136
300,000 General Motors Acceptance Corp., 7.55% due 01/14/97........................ Baa1/BBB+ 305,322
100,000 General Motors Acceptance Corp., 7.375% due 02/27/97....................... Baa1/BBB+ 101,640
800,000 General Motors Acceptance Corp., 7.30% due 02/02/98........................ Baa1/BBB+ 819,088
5,175,000 General Motors Acceptance Corp., 6.90% due 09/09/97........................ Baa1/BBB+ 5,245,794
5,000,000 General Motors Acceptance Corp., 6.75% due 07/10/97........................ Baa1/BBB+ 5,052,300
2,200,000 General Motors Acceptance Corp., 6.70% due 04/18/97........................ Baa1/BBB+ 2,219,888
3,000,000 General Motors Acceptance Corp., 6.70% due 04/21/97........................ Baa1/BBB+ 3,015,630
4,500,000 General Motors Acceptance Corp., 6.625% due 05/15/98....................... Baa1/BBB+ 4,536,720
6,500,000 General Motors Acceptance Corp., 5.25% due 12/06/96........................ Baa1/BBB+ 6,448,130
4,000,000 USL Capital Corp., 7.76% due 03/29/02...................................... A1/A+ 4,226,680
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- --------------- --------------------------------------------------------------------------- ----------- ------------
FINANCE (CONTINUED)
<C> <S> <C> <C>
$ 90,000 Western Financial Grantor Trust, Series 95-3, Class A1 6.05% due
11/01/00................................................................. Aaa/AAA $ 90,058
------------
72,783,296
------------
LUMBER & OTHER CONSTRUCTION MATERIALS (2.2%)
5,600,000 Georgia Pacific Corp., 9.95% due 06/15/02.................................. Baa2/BBB- 6,561,520
1,000,000 Schuller International Group Inc., 10.875% due 12/15/04.................... Ba3/BB- 1,112,500
4,000,000 USG Corp., 9.25% due 09/15/01.............................................. Ba3/BB 4,200,000
1,000,000 USG Corp., 8.50% due 08/01/05.............................................. Ba3/BB 1,031,250
------------
12,905,270
------------
TRANSPORTATION (1.2%)
6,719,014 Union Tank Car Co., 6.50% due 04/15/08..................................... A2/A+ 6,732,788
------------
UTILITIES (4.6%)
1,500,000 Cleveland Electric Illumination, 7.625% due 08/01/02....................... Ba2/BB 1,416,555
1,000,000 Cleveland Electric Illumination, 7.375% due 06/01/03....................... Ba2/BB 945,050
3,000,000 Commonwealth Edison Co., 7.00% due 02/15/97................................ Baa3/BBB- 3,026,190
3,000,000 Commonwealth Edison Co., 6.50% due 07/15/97................................ Baa3/BBB- 3,009,630
200,000 Commonwealth Edison Co., 6.50% due 04/15/00................................ Baa3/BBB- 199,186
500,000 Commonwealth Edison Co., Series 87, 6.25% due 10/01/97..................... Baa2/BBB 499,340
1,972,000 Connecticut Light & Power Co., Series UU, 7.625% due 04/01/97.............. Baa1/BBB+ 2,019,131
2,400,000 GTE Corp., 8.85% due 03/01/98.............................................. Baa1/BBB+ 2,528,568
7,240,000 Hydro-Quebec, 8.05% due 07/07/24........................................... A1/A+ 7,969,430
500,000 Jersey Central Power & Light, 6.70% due 12/19/97........................... Baa1/BBB+ 506,945
4,250,000 United Telephone Company of Florida, 8.375% due 01/15/25................... A2/A 4,850,015
------------
26,970,040
------------
TOTAL CORPORATE OBLIGATIONS (COST $215,980,630)............................ 220,700,589
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (15.5%)
FHA Insured
$ 3,368,477 7.43% due 03/01/22...................................................................... $ 3,292,341
Federal Home Loan Mortgage Corp.
1,391 12.50% due 08/01/14..................................................................... 1,527
29,688 Series 600, 10.00% due 04/01/09......................................................... 31,899
200,000 Series 39, Class F, 10.00% due 05/15/20................................................. 223,946
21,122 9.00% due 04/01/03...................................................................... 21,935
11,000,000 Gold, 8.506% due 12/01/04............................................................... 12,213,438
126,355 Gold, 8.50% due 11/01/24................................................................ 130,979
52,835 Gold, 8.50% due 01/01/25................................................................ 54,773
315,485 Gold, 8.50% due 04/01/25................................................................ 327,057
990,000 Gold, 8.50% due 04/01/25................................................................ 1,026,244
1,422,376 Gold, 8.50% due 04/01/25................................................................ 1,474,236
523,366 Gold, 8.50% due 05/01/25................................................................ 542,238
1,398,426 Gold, 8.50% due 05/01/25................................................................ 1,449,538
1,414,012 Gold, 8.50% due 06/01/25................................................................ 1,465,878
764,315 Gold, 8.50% due 07/01/24................................................................ 791,937
990,000 Gold, 8.50% due 08/01/25................................................................ 1,025,977
34,259 Gold, 8.50% due 09/01/25................................................................ 35,522
269,998 Gold, 8.50% due 09/01/25................................................................ 279,953
311,576 Gold, 8.50% due 10/01/25................................................................ 323,067
10,910,000 Gold, 8.00% TBA (t)..................................................................... 11,179,341
405,078 Gold, 7.00% due 04/01/24................................................................ 402,198
518,824 Gold, 7.00% due 06/01/24................................................................ 515,192
4,042,023 Gold, 7.00% due 07/01/25................................................................ 4,013,001
1,210,316 Gold, 7.00% due 08/01/25................................................................ 1,201,626
1,446,433 Gold, 7.00% due 08/01/25................................................................ 1,436,048
1,672,089 Gold, 7.00% due 08/01/25................................................................ 1,660,083
1,995,638 Gold, 7.00% due 08/01/25................................................................ 1,981,309
1,998,301 Gold, 7.00% due 08/01/25................................................................ 1,983,953
1,578,063 Gold, 7.00% due 09/01/25................................................................ 1,566,732
6,978,071 Gold, 6.50% due 06/01/04................................................................ 6,973,710
1,807,135 Gold, 6.00% due 08/01/10................................................................ 1,765,517
28,029 Gold, 6.00% due 09/01/10................................................................ 27,372
76,609 Gold, 6.00% due 09/01/10................................................................ 74,814
806,079 Gold, 6.00% due 09/01/10................................................................ 787,187
849,092 Gold, 6.00% due 09/01/10................................................................ 829,495
3,654,307 Gold, 6.00% due 09/01/10................................................................ 3,569,965
524,301 Gold, 6.00% due 10/01/10................................................................ 512,013
541,800 Gold, 6.00% due 10/01/10................................................................ 529,102
618,468 Gold, 6.00% due 10/01/10................................................................ 604,169
710,441 Gold, 6.00% due 10/01/10................................................................ 694,016
1,299,980 Gold, 6.00% due 10/01/10................................................................ 1,269,512
1,564,469 Gold, 6.00% due 10/01/10................................................................ 1,527,802
1,800 Remic: Series 1977, Class A, 8.05% due 03/15/07......................................... 1,747
100,000 Remic: Series 1290, Class L, 7.50% due 10/15/09......................................... 105,581
32,000 Remic: PAC-1(11), Series 1168, Class H, 7.50% due 11/15/21.............................. 33,196
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
Federal Home Loan Mortgage Corp. (continued)
<C> <S> <C> <C>
$ 300,000 Remic: Series 102, Class I, 7.00% due 12/15/20.......................................... $ 297,132
165,000 Remic: PAC-1(11), Series 1207, Class J, 6.75% due 07/15/19.............................. 164,050
1,600,000 Remic: SCH(22), Series 1701, Class B, 6.50% due 03/15/09................................ 1,522,384
Federal National Mortgage Association
778,552 10.00% due 06/01/20..................................................................... 846,099
4,434,478 8.70% due 02/01/05...................................................................... 4,936,128
25,499 8.50% due 06/01/10...................................................................... 26,348
98,647 8.00% due 01/01/02...................................................................... 101,365
71,267 8.00% due 05/01/02...................................................................... 73,239
479,919 8.00% due 07/01/02...................................................................... 493,208
44,577 8.00% due 07/01/02...................................................................... 45,810
6,602 8.00% due 08/01/22...................................................................... 6,764
1,569,893 Remic: PAC, Series 1991-64, Class Z, 8.50% due 06/25/06................................. 1,627,289
1,083,547 Remic: PAC, Series 1991-101, Class C, 8.50% due 08/25/18................................ 1,093,233
22,062 Remic: PAC(11), Series 1991-9, Class H, 8.30% due 11/25/04.............................. 22,136
1,966,862 Remic: PAC-2(23), Series 1994-50, Class Z, 6.50% due 03/25/24........................... 1,633,085
3,100,000 Remic: PAC (11), Series 1993-041, Class PE, 5.75% due 04/25/19.......................... 3,048,478
Government National Mortgage Association
5,723 13.50% due 10/15/14..................................................................... 6,436
28,263 11.50% due 07/15/13..................................................................... 31,588
874,042 7.00% due 01/15/23...................................................................... 869,182
371,355 7.00% due 03/15/23...................................................................... 369,283
47,402 7.00% due 07/15/23...................................................................... 47,142
343,324 7.00% due 07/15/23...................................................................... 341,435
134,072 7.00% due 07/15/23...................................................................... 133,331
445,906 7.00% due 07/15/23...................................................................... 443,435
24,471 7.00% due 09/15/23...................................................................... 24,328
342,135 7.00% due 09/15/23...................................................................... 340,133
23,084 7.00% due 10/15/23...................................................................... 22,954
31,942 7.00% due 10/15/23...................................................................... 31,763
393,630 7.00% due 10/15/23...................................................................... 391,462
903,266 7.00% due 10/15/23...................................................................... 897,991
67,382 7.00% due 12/15/23...................................................................... 66,998
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $87,699,415)............................. 89,911,375
------------
U.S. TREASURY OBLIGATIONS (41.1%)
U.S. Treasury Bonds
4,060,000 12.00% due 08/15/13..................................................................... 6,086,833
44,165,000 10.75% due 02/15/03..................................................................... 56,549,308
18,130,000 10.375% due 11/15/09.................................................................... 23,383,349
16,010,000 10.375% due 11/15/12.................................................................... 21,512,477
11,455,000 8.875% due 02/15/19..................................................................... 14,803,869
6,860,000 8.50% due 02/15/20...................................................................... 8,578,224
10,000,000 8.125% due 08/15/19..................................................................... 12,029,300
4,705,000 7.875% due 02/15/21..................................................................... 5,538,632
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- --------------- ---------------------------------------------------------------------------------------- ------------
U.S. Treasury Notes
<C> <S> <C> <C>
$ 5,000,000 8.50% due 11/15/00...................................................................... $ 5,579,250
13,350,000 7.25% due 02/15/98...................................................................... 13,792,286
1,055,000 7.25% due 08/15/04...................................................................... 1,141,763
17,820,000 7.125% due 02/29/00..................................................................... 18,699,061
4,905,000 5.50% due 04/15/00...................................................................... 4,854,135
9,200,000 5.125% due 11/30/98..................................................................... 9,049,396
15,295,000 4.75% due 02/15/97...................................................................... 15,124,920
U.S. Treasury Strip
33,025,000 Due 05/15/02 (Principal Only)........................................................... 22,565,322
------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $228,949,847)..................................... 239,288,125
------------
<CAPTION>
MOODY'S/S&P
RATING
SHARES (UNAUDITED)
- --------------- -----------
<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- 1,799,725
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,659,850).................................... 1,799,725
------------
<CAPTION>
PRINCIPAL
AMOUNT
- ---------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT (0.4%)
$ 2,066,000 Goldman Sachs Repurchase Agreement, dated 10/31/95 due 11/01/95, at 5.880%,
proceeds $2,066,142 (collateralized by U.S. Treasury Note, 5.875% due
07/31/97, valued at $2,077,406)
(cost $2,066,000)........................................................ P1/A1+ $ 2,066,000
------------
TOTAL INVESTMENTS (COST $556,625,778) (98.8%)............................................................ 574,829,113
OTHER ASSETS IN EXCESS OF LIABILITIES (1.2%)............................................................. 7,050,882
------------
TOTAL NET ASSETS (100.0%)................................................................................ $581,879,995
------------
------------
</TABLE>
Note: Based on the cost of investments of $556,629,476 for Federal Income Tax
purposes at October 31, 1995, the aggregate gross unrealized appreciation and
depreciation was $18,337,903 and $138,266, respectively, resulting in net
unrealized appreciation of $18,199,637.
(t) TBA securities are purchased 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.
Abbreviations used in the schedule of investments are as follows:
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; TAC - Targeted Amortization Class; SCH - Scheduled Payment Bond
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $556,625,778) $574,829,113
Receivable for Investments Sold 73,638,034
Interest Receivable 8,686,770
Other Receivables 6,408
Prepaid Expenses 5,770
------------
Total Assets 657,166,095
------------
LIABILITIES
Payable for Securities Purchased 74,362,206
Unrealized Depreciation on Open Foreign Currency Contracts 606,109
Advisory Fee Payable 178,438
Custodian Fees and Expenses Payable 81,524
Payable to Custodian 8,328
Fund Services Fee Payable 3,788
Administration Fee Payable 2,691
Accrued Expenses 43,016
------------
Total Liabilities 75,286,100
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $581,879,995
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $31,358,157
Dividend Income 132,975
-----------
Total Investment Income 31,491,132
EXPENSES
Advisory Fee $1,339,147
Financial and Fund Accounting Services Fee 167,081
Custodian Fees and Expenses 83,838
Fund Services Fee 40,729
Administration Fee 27,436
Trustees' Fees and Expenses 11,096
Miscellaneous 67,774
----------
Total Expenses (1,737,101)
-----------
NET INVESTMENT INCOME 29,754,031
NET REALIZED GAIN ON INVESTMENTS (including $621,192 of net realized gains
from forward contracts) 7,762,316
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS (including $606,109 of
net unrealized depreciation of forward contracts) 26,604,322
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $64,120,669
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
OCTOBER 31,
--------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $ 29,754,031 $ 13,708,591
Net Realized Gain (Loss) on Investments 7,762,316 (8,930,226)
Net Change in Unrealized Appreciation (Depreciation) of Investments 26,604,322 (11,045,898)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 64,120,669 (6,267,533)
------------ ------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 241,455,035 298,426,651
Withdrawals (89,561,736) (73,416,442)
------------ ------------
Net Increase from Investors' Transactions 151,893,299 225,010,209
------------ ------------
Total Increase in Net Assets 216,013,968 218,742,676
NET ASSETS
Beginning of Fiscal Year 365,866,027 147,123,351
------------ ------------
End of Fiscal Year $581,879,995 $365,866,027
------------ ------------
------------ ------------
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA:
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE PERIOD
YEAR ENDED JULY 12, 1993
OCTOBER 31, (COMMENCEMENT OF
---------------- OPERATIONS) THROUGH
1995 1994 OCTOBER 31, 1993
------- ------- -------------------
<S> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.39% 0.46% 0.48%(a)
Net Investment Income 6.68% 5.88% 4.91%(a)
Portfolio Turnover 293% 234% 295%+
</TABLE>
(a) Annualized.
(+) 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.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
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
Declaration of Trust permits the Trustees to issue an unlimited number of
beneficial interests in the Portfolio.
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
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
Portfolio's Trustees and the change in the market value is recorded by the
Portfolio as unrealized appreciation or depreciation of forward and spot
foreign currency contract translations. At October 31, 1995 the Portfolio
had open forward foreign currency contracts as follows:
SUMMARY OF OPEN CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR
VALUE NET UNREALIZED
FOREIGN CURRENCY SALE CONTRACTS PROCEEDS AT 10/31/95 DEPRECIATION
- --------------------------------------------------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
German Mark, 5,281,000, expiring 12/5/95 $ 3,588,367 $ 3,757,729 $ (169,362)
German Mark, 2,410,000, expiring 12/5/95 1,642,920 1,714,851 (71,931)
Danish Krone, 4,683,000, expiring 12/5/95 817,306 857,297 (39,991)
Danish Krone, 22,420,000, expiring 12/5/95 3,923,010 4,104,333 (181,323)
<CAPTION>
FOREIGN CURRENCY PURCHASE CONTRACTS COST
- --------------------------------------------------------------------- ------------
<S> <C> <C> <C>
German Mark, 7,691,000, expiring 12/5/95 5,573,188 5,472,580 (100,608)
Danish Krone, 27,103,000, expiring 12/5/95 5,004,524 4,961,630 (42,894)
---------------
Net Unrealized Depreciation on Foreign Currency Contracts $ (606,109)
---------------
</TABLE>
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.
e) The Portfolio's custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Portfolio. It is
the policy of the Portfolio to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued
interest. In the event of default of the obligation to repurchase, the
Portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances,
in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may
be subject to legal proceedings.
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 fiscal year ended
October 31, 1995, this fee amounted to $1,339,147.
b) The Portfolio retains 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
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
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 Administrative Services 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 fiscal year ended October 31, 1995,
Signature's fee for these services amounted to $27,436.
c) During the period November 1, 1994, through August 31, 1995, the
Portfolio had a Financial and Fund Accounting Services Agreement
("Services Agreement") with Morgan under which Morgan received a fee,
based on the percentages 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 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. For the period November 1, 1994, through August 31, 1995, the
fee for these services amounted to $167,081. Effective September 1, 1995,
the Services Agreement was terminated and an interim agreement was
entered into between the Portfolio and Morgan which provides 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.
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
$40,729 for the fiscal year ended October 31, 1995.
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 represent the Portfolio's allocated portion of the
total fees and expenses. Prior to April 1, 1995, the aggregate annual
Trustee Fee was $55,000. 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 $5,200.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1995 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS FROM
PURCHASES SALES
---------------- ----------------
<S> <C> <C>
U.S. Treasury and Agency Obligations $ 1,171,503,087 $ 1,078,447,543
Corporate and Collateralized Obligations 298,968,392 207,445,656
---------------- ----------------
$ 1,470,471,479 $ 1,285,893,199
---------------- ----------------
---------------- ----------------
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Fixed Income Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The U.S. Fixed Income Portfolio (the
"Portfolio") at October 31, 1995, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and its supplementary data for each of the two years in the
period then ended and for the period July 12, 1993 (commencement of operations)
through October 31, 1993, 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 October 31, 1995 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
[SIGNATURE]
PRICE WATERHOUSE LLP
New York, New York
December 22, 1995
28
<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 INTERNATIONAL EQUITY FUND
THE PIERPONT EMERGING MARKETS EQUITY FUND
FOR MORE INFORMATION ON HOW THE PIERPONT FAMILY OF FUNDS CAN HELP YOU PLAN
FOR YOUR FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
THE PIERPONT BOND FUND
ANNUAL REPORT
OCTOBER 31, 1995
