<PAGE>
- ------------------------------------------------------------------------------
LETTER TO THE SHAREHOLDERS OF THE JPM PIERPONT BOND FUND
December 12, 1996
Dear Shareholder:
The fiscal year ending October 31, 1996 saw U.S. bond returns dip from their
previous double-digit annual pace into negative performance territory, only
to stage a major price rebound in September and October. In this challenging
investment environment, we are pleased to report that actively managed
security selection and sector allocation enabled The JPM Pierpont Bond Fund
to provide its shareholders with an attractive absolute fiscal year return of
5.13%.
The Fund's performance for the period was superior to that of its competitors,
as measured by the Lipper Intermediate Investment Grade Debt Funds Average,
which returned 5.12%. The Fund lagged the 5.88% annual return of its benchmark,
the Salomon Brothers Broad Investment Grade Bond Index. We feel it is important
to note that the Fund's benchmark is an unmanaged index whose performance does
not include fees or operating expenses and which is not available to individual
and/or institutional investors.
The Fund's net asset value decreased from $10.41 per share on October 31, 1995
to $10.30 per share at the end of the reporting period, after paying
approximately $0.62 per share in dividends from ordinary income. The Fund's net
assets stood at $149.2 million at the end of the reporting period, up from
$143.0 million on October 31, 1995. The net assets of The U.S. Fixed Income
Portfolio, in which the Fund invests, totaled approximately $986.3 million on
October 31, 1996.
The report that follows includes 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 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 OF CONTENTS
LETTER TO THE SHAREHOLDERS......1 FUND FACTS AND HIGHLIGHTS.......5
FUND PERFORMANCE................2 SPECIAL FUND-BASED SERVICES.....6
PORTFOLIO MANAGER Q&A...........3 FINANCIAL STATEMENTS............8
1
<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 the
minimum invested in the Fund on March 31, 1988 would have grown to $193,627
at October 31, 1996.*
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 31, 1988 -- OCTOBER 31, 1996
[CHART]
Plot Points:
THE JPM PIERPONT BOND FUND SALOMON BIG
-------------------------- ------------
Inception $ 100,000.00 $ 100,000.00
31-Oct-88 103,116.50 105,175.32
31-Oct-89 111,650.08 117,591.83
31-Oct-90 121,477.86 125,114.64
31-Oct-91 135,506.68 144,819.43
31-Oct-92 148,170.57 159,426.96
31-Oct-93 165,901.49 178,507.89
31-Oct-94 160,117.92 172,091.29
31-Oct-95 184,291.07 199,117.97
31-Oct-96 193,751.31 210,834.51
<TABLE>
<CAPTION>
PERFORMANCE
TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURN
---------------- ----------------------------
THREE SIX ONE FIVE SINCE
AS OF OCTOBER 31, 1996 MONTHS MONTHS YEAR YEARS INCEPTION*
- ------------------------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C>
The JPM Pierpont Bond Fund 3.76% 4.88% 5.13% 7.41% 7.99%
Salomon BIG** 3.87% 5.44% 5.88% 7.80% 9.08%
Lipper Intermediate Investment
Grade Debt Funds Average 3.61% 4.85% 5.12% 7.18% 8.19%
AS OF SEPTEMBER 30, 1996
- ------------------------------------------------ ----------------------------
The JPM Pierpont Bond Fund 1.65% 1.94% 4.30% 7.06% 7.80%
Salomon BIG** 1.86% 2.36% 4.94% 7.54% 8.89%
Lipper Intermediate Investment
Grade Debt Funds Average 1.63% 2.16% 4.30% 6.98% 8.02%
</TABLE>
*3/11/88 -- COMMENCEMENT OF OPERATIONS. (GROWTH AND AVERAGE ANNUAL TOTAL
RETURNS BASED ON THE MONTH END FOLLOWING INCEPTION.) THE FUND'S AVERAGE
ANNUAL TOTAL RETURN SINCE ITS COMMENCEMENT OF OPERATIONS ON 3/11/88 IS 7.95%.
**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 SALOMON BROTHERS BROAD
INVESTMENT GRADE BOND INDEX IS AN UNMANAGED INDEX IN WHICH INVESTORS MAY NOT
DIRECTLY INVEST. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR
MUTUAL FUND DATA. ALTHOUGH GATHERED FROM RELIABLE SOURCES, DATA ACCURACY AND
COMPLETENESS CANNOT BE GUARANTEED. THE JPM 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.
2
<PAGE>
PORTFOLIO MANAGER Q&A
Following is an interview with WILLIAM G. TENNILLE, who
is a member of the portfolio management team for The U.S.
[PHOTO] 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
December 4, 1996 and reflects Bill's views on that date.
THE PORTFOLIO OUTPERFORMED ITS COMPETITORS IN THE LIPPER UNIVERSE FOR THE
FISCAL YEAR UNDER REVIEW. WHAT FACTORS
DO YOU BELIEVE CONTRIBUTED TO THESE ATTRACTIVE RELATIVE RETURNS?
WGT: We believe that the Portfolio's attractive relative returns are mainly
attributable to our team's portfolio management style. The Portfolio's
ongoing strategy is to give nearly equal weighting to its three key
investment decisions -- in the expectation that they have the potential to
generate nearly equal levels of added value. We believe that consistently
spreading our efforts across the duration decision, the sector decision, and
the security decision, more than adequately diversifies the Portfolio's
overall risk, while also positioning the Portfolio to provide excellent
returns at lower-than-Index levels of risk.
THE FUND'S SEMI-ANNUAL REPORT TO SHAREHOLDERS DATED APRIL 30, 1996 NOTED A
SIX-MONTH ADVANCE FOR THE SALOMON BROTHERS BIG INDEX OF ONLY 0.42%. NOW, SIX
MONTHS LATER, THE INDEX HAS RISEN 5.88% FOR THE PORTFOLIO'S FISCAL YEAR --
WITH MOST OF THAT FORWARD SURGE COMING IN SEPTEMBER AND OCTOBER. WHICH
FACTORS DO YOU FEEL WERE MOST RESPONSIBLE FOR THIS DRAMATIC SHIFT, AND HOW
CONFIDENT DO YOU BELIEVE THE MARKET IS THAT THIS RENEWAL WILL CONTINUE?
WGT: The past several months have witnessed slowing sales across large
sectors of the economy, including homes, autos, and apparel. Likewise,
inflation expectations, which had been building amid earlier surges in
employment, turned out not to have been realized. Given that background, and
once the present growth surge tapers off a bit, we expect to see moderate
economic growth in the months ahead. That, of course, would be likely to
spell a relatively favorable environment for the U.S. bond market.
WE HEAR A LOT ABOUT THE UNIQUE RELATIONSHIP THAT HAS EMERGED BETWEEN THE
MARKET AND THE GREENSPAN-LED FEDERAL RESERVE DURING THE PAST TWELVE MONTHS.
COULD YOU PLEASE COMMENT ON THE EFFECTIVENESS OF THE MARKET'S NEW ROLE IN
SETTING INTEREST RATES AND GIVE US YOUR THOUGHTS ON THE FED'S ROLE IN
CHARTING THE NATION'S ECONOMIC DIRECTION?
WGT: Bond market participants (the so-called bond market "vigilantes") have
exerted significant influence over the magnitude and direction of interest
rate shifts during the past five years. We believe that this symbiotic
arrangement has become the new market norm. Furthermore, we believe that this
relationship works better than previous practices involving Administration
jawboning of the Federal Reserve and the commensurate political maneuverings.
3
<PAGE>
YOU EXPLAINED IN OUR SEMI-ANNUAL REPORT HOW THE PORTFOLIO'S INVESTMENT
DECISIONS -- MOST IMPORTANTLY, ASSET ALLOCATION -- HELPED IT WEATHER THE BOND
MARKET STORM SEEN DURING THAT PERIOD. HOW DOES THE PORTFOLIO'S STRUCTURE HELP
IT CAPTURE ATTRACTIVE RETURNS DURING PERIODS, LIKE SEPTEMBER AND OCTOBER,
WHEN BOND PRICES SURGE QUICKLY AHEAD?
WGT: We are confident the Portfolio's structure is well-suited to adding
long- and short-term value. The Portfolio always strives to maintain balance
with regard to potential interest rate shifts, and our directional biases are
modest. We invest in sectors, such as mortgage-backed securities and
corporate bonds, which provide a yield advantage over Treasuries. Thus, the
Fund generally maintains a higher yield than Treasuries as well as the Index.
ONE OF YOUR MANAGEMENT DECISIONS SEEKS TO POSITION THE PORTFOLIO'S EXPOSURE
TO INTEREST RATE RISK IN SUCH A WAY THAT ITS INVESTMENTS ALONG THE YIELD
CURVE WILL ACHIEVE ATTRACTIVE TOTAL RETURNS IN BOTH THE CURRENT AND EXPECTED
INTEREST RATE ENVIRONMENT. HOW SUCCESSFUL WAS THIS DECISION THROUGHOUT THE
PORTFOLIO'S FISCAL YEAR?
WGT: The Portfolio's duration decisions had a negative impact on its overall
returns during the first half of the fiscal year. Seeking to improve those
results, we positioned the Portfolio for further modest rate declines
following the sharp upward shift in U.S. interest rates observed during most
of the first half of 1996. Our decision to maintain a longer duration than
the benchmark was rewarded when rates did indeed decline. We then maintained
the Portfolio's exposure to interest rate risk at a close to market-neutral
position throughout the rest of the fiscal year. Pursuing this strategy also
added value as interest rates took on no clear direction. We expect the
Portfolio will continue this approach until we believe we have a definite
information advantage over the market.
THE PORTFOLIO REMAINED UNDERWEIGHTED IN U.S. TREASURIES THROUGHOUT THE PERIOD
UNDER REVIEW TO CAPTURE THE RELATIVE YIELD ADVANTAGE PRESENTED BY OTHER
SECTORS OF THE MARKET. HOW SUCCESSFUL WAS THE PORTFOLIO'S OVERWEIGHTED
ALLOCATION TO INVESTMENT-GRADE CORPORATE BONDS AND MORTGAGE-BACK SECURITIES
FOR THE FISCAL YEAR JUST ENDED?
WGT: The Portfolio typically underweights Treasuries and overweights
mortgage-backed securities and corporate issues -- the market's
yield-advantage sectors. The continued overweighting of these sectors has
paid off handsomely this year. This was especially true of the
mortgage-backed sector, where selections based on Morgan's proprietary
analysis enabled the Fund to earn yields of 1% or more in excess of the
yields on Treasuries.
THE PORTFOLIO ALSO ADDED VALUE BY PURSUING A RELATIVELY SMALL EXPOSURE TO
BELOW-INVESTMENT-GRADE SECURITIES. WHICH SECURITIES PROVED TO BE MOST
FRUITFUL, AND ARE YOU PLANNING TO CONTINUE THESE EXPOSURES IN THE MONTHS
AHEAD?
WGT: In the below-investment-grade arena, the Portfolio's investments in
bonds of building materials producers, commodities producers, and
media-related companies have all produced excellent results, as has its
participation in Brady bonds. Going forward, we shall continue to have the
Portfolio participate opportunistically in this market subsector whenever
Morgan's proprietary analysis indicates attractive relative value can be
found there.
DO YOU FORESEE CHANGING THE PORTFOLIO'S CURRENT INVESTMENT STRATEGY IN
THE MONTHS AHEAD?
WGT: As I mentioned earlier, we believe that interest rates may trend
modestly lower through the first part of 1997. Among the reasons for this
lowering are expected moderate growth in the U.S. economy, along with the
relative strength of the U.S. dollar among international currencies, which
should make the U.S. bond market very attractive to foreign investors. Given
that forecast, we expect to maintain the Portfolio's current market posture
and sector weightings as the best way of achieving attractive shareholder
returns.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The JPM 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 10/31/96
$149,206,875
- --------------------------------------------
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 OCTOBER 31, 1996
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
30-DAY SEC YIELD
6.36%
DURATION
4.61 years
QUALITY BREAKDOWN
AAA* 73%
AA 3%
A 11%
Other 13%
*INCLUDES U.S. GOVERNMENT AGENCY, TREASURY OBLIGATIONS, AND REPURCHASE
AGREEMENTS.
5
<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 JPM Pierpont Funds, a family of diversified
mutual funds.
PAAS is available to clients who invest a minimum of $500,000 in The
JPM 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 JPM
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 JPM Pierpont Funds can help you build a comprehensive
investment program designed to maximize the retirement dollars in your Keogh
account.
6
<PAGE>
FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR OF THE JPM PIERPONT BOND FUND (THE
"FUND"). SIGNATURE BROKER-DEALER SERVICES, INC. SERVED AS THE FUND'S
DISTRIBUTOR PRIOR TO AUGUST 1, 1996.
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.
7
<PAGE>
THE JPM PIERPONT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Fixed Income
Portfolio ("Portfolio"), at value $ 149,532,374
Receivable for Shares of Beneficial
Interest Sold 95,137
Prepaid Trustees' Fees 564
Prepaid Expenses and Other Assets 1,352
--------------
Total Assets 149,629,427
--------------
LIABILITIES
Payable for Shares of Beneficial
Interest Redeemed 318,485
Dividends Payable to Shareholders 59,366
Shareholder Servicing Fee Payable 24,784
Administrative Services Fee Payable 3,950
Administration Fee Payable 652
Fund Services Fee Payable 69
Accrued Expenses 15,246
--------------
Total Liabilities 422,552
--------------
NET ASSETS
Applicable to 14,487,057 Shares of
Beneficial Interest Outstanding
(par value $0.001, unlimited shares
authorized) $ 149,206,875
--------------
--------------
Net Asset Value, Offering and
Redemption Price Per Share $10.30
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $ 148,918,726
Distributions in Excess of Net
Investment Income (14,996)
Accumulated Net Realized Loss on
Investment (929,531)
Net Unrealized Appreciation of
Investment 1,232,676
--------------
Net Assets $ 149,206,875
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
THE JPM PIERPONT BOND FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM
PORTFOLIO
Allocated Interest Income $ 9,651,353
Allocated Dividend Income (Net of
Foreign Withholding Tax of $3,947) 22,361
Allocated Portfolio Expenses (536,823)
--------------
Net Investment Income Allocated
from Portfolio 9,136,891
FUND EXPENSES
Shareholder Servicing Fee $ 282,445
Transfer Agent Fees 34,278
Administrative Services Fee 32,363
Registration Fees 19,402
Administration Fee 18,103
Professional Fees 10,134
Fund Services Fee 6,975
Printing Expenses 4,682
Trustees' Fees and Expenses 2,634
Insurance Expense 2,199
Miscellaneous 3,387
--------------
Total Fund Expenses 416,602
--------------
NET INVESTMENT INCOME 8,720,289
NET REALIZED GAIN ON INVESTMENT
ALLOCATED FROM PORTFOLIO 1,821,935
NET CHANGE IN UNREALIZED DEPRECIATION
OF INVESTMENT ALLOCATED FROM
PORTFOLIO (3,276,551)
--------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 7,265,673
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM PIERPONT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 8,720,289 $ 7,858,636
Net Realized Gain on Investment
Allocated from Portfolio 1,821,935 1,631,673
Net Change in Unrealized Appreciation
(Depreciation) of Investment
Allocated from Portfolio (3,276,551) 7,898,870
-------------- --------------
Net Increase in Net Assets
Resulting from Operations 7,265,673 17,389,179
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (8,724,866) (7,870,957)
-------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST
Proceeds from Shares of Beneficial
Interest Sold 36,902,471 42,937,350
Reinvestment of Dividends 8,082,911 7,494,202
Cost of Shares of Beneficial Interest
Redeemed (37,322,830) (28,995,392)
-------------- --------------
Net Increase from Transactions in
Shares of Beneficial Interest 7,662,552 21,436,160
-------------- --------------
Total Increase in Net Assets 6,203,359 30,954,382
NET ASSETS
Beginning of Fiscal Year 143,003,516 112,049,134
-------------- --------------
End of Fiscal Year (including
undistributed net investment income
of $0 and $132,486, respectively) $ 149,206,875 $ 143,003,516
-------------- --------------
-------------- --------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM PIERPONT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each year are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.41 $ 9.64 $ 11.00 $ 10.52 $ 10.32
-------- -------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.62 0.64 0.55 0.54 0.66
Net Realized and Unrealized Gain (Loss)
on Investments (0.11) 0.77 (0.91) 0.67 0.28
-------- -------- --------- --------- --------
Total from Investment Operations 0.51 1.41 (0.36) 1.21 0.94
-------- -------- --------- --------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.62) (0.64) (0.55) (0.54) (0.66)
Net Realized Gain -- -- (0.45) (0.19) (0.08)
-------- -------- --------- --------- --------
Total Distributions to Shareholders (0.62) (0.64) (1.00) (0.73) (0.74)
-------- -------- --------- --------- --------
NET ASSET VALUE, END OF YEAR $ 10.30 $ 10.41 $ 9.64 $ 11.00 $ 10.52
-------- -------- --------- --------- --------
-------- -------- --------- --------- --------
Total Return 5.13% 15.10% (3.50)% 11.97% 9.35%
-------- -------- --------- --------- --------
-------- -------- --------- --------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands) $149,207 $143,004 $ 112,049 $ 103,572 $ 75,882
Ratios to Average Net Assets
Expenses 0.66% 0.69% 0.78% 0.81% 0.81%
Net Investment Income 6.08% 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%
</TABLE>
- ------------------------
+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.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Pierpont Bond Fund (the "Fund") is a separate series of The JPM Pierpont
Funds, a Massachusetts business trust (the "Trust"). The Trust is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund, 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. Prior to
October 10, 1996, the Trust's and the Fund's names were The Pierpont Funds and
The Pierpont Bond Fund, respectively.
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 (15% at
October 31, 1996). The performance of the Fund is directly affected by the
performance of the Portfolio. The financial statements of the Portfolio,
including the schedule of investments, are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements.
The preparation of financial statements 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.
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
12
<PAGE>
THE JPM PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
Gain, and Return of Capital Distributions by Investments Companies." The
effect of applying this statement was to decrease Undistributed Net
Investment Income by $142,905, decrease Paid-in Capital by $78,022 and
decrease Accumulated Net Realized Loss on Investment by $220,927. Net
investment income, net realized gains and net assets were not affected by
this change.
g)For United State federal income tax purposes, the Fund had a capital loss
carryforward at October 31, 1996 of $928,564 which will expire in the year
2002. Such carryforward is after utilization of $2,043,087 to offset the
Fund's net taxable gains realized and recognized in the year ended October
31, 1996. 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 had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and distributor. Under an
Administration Agreement, Signature provided administrative services
necessary for the operations of the Fund, furnished office space and
facilities required for conducting the business of the Fund and paid the
compensation of the Fund's officers affiliated with Signature. Until
December 28, 1995, 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
acted 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 was
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 was 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 paid by the
Fund was determined by the proportionate share its net assets bore 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 July 31, 1996, Signature's fee for these services amounted
to $10,895. The Administration Agreement with Signature was terminated
July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan Guaranty Trust Company of New York
("Morgan"). FDI also serves as the Fund's distributor. Under a Co-
Administration Agreement between FDI and the Trust on behalf of the Fund,
the Fund has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses.
The amount allocable to the Fund is based on the ratio of the Fund's net
assets to
13
<PAGE>
THE JPM PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
the aggregate net assets of the Trust, The JPM Institutional Funds, The
JPM Advisor Funds and the Master Portfolios. For the period from August 1,
1996 through October 31, 1996, the fee for these services amounted to
$1,329.
b)Until August 31, 1995, the Trust, on behalf of the Fund, had a Financial
and Fund Accounting Services Agreement with Morgan which provided that
Morgan would receive a fee, based on the percentage described below, for
overseeing certain aspects of the administration and operation of the Fund
and that 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 Fund's average
daily net assets up to and including the first $100 million and 0.10% on
any excess 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 (the "Services Agreement") with
Morgan under which Morgan was responsible for certain aspects of the
administration and operation of the Fund. Under the Services Agreement,
the Fund had agreed to pay Morgan a fee equal to its proportionate share
of an annual complex-wide charge. Until July 31, 1996, this charge was
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 paid by the Fund was determined by the
proportionate share that the Fund's net assets bore to the net assets of
the trust, the Master Portfolios and other investors in the Master
Portfolios for which Morgan provided similar services. For the period from
December 29, 1995 through July 31, 1996, the fee for these services
amounted to $20,808.
Effective August 1, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios' in accordance with the following annual
schedule: 0.09% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets and 0.04% of the Master Portfolios'
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The allocation of the Fund's portion of
this charge is described above. For the period from August 1, 1996 through
October 31, 1996, the fee for these services amounted to $11,555.
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.
14
<PAGE>
THE JPM PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
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 October 31, 1996, the fee for these services
amounted to $241,230.
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
$6,975 for the fiscal year ended October 31, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Trust, The JPM Institutional Funds and the Master
Portfolios. The Trustees' Fees and Expenses shown in the financial
statements 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 $900.
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 FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
Shares sold............................ 3,597,104 4,287,654
Reinvestment of dividends.............. 854,469 748,458
Shares redeemed........................ (3,697,941) (2,928,885)
-------------- --------------
Net Increase........................... 753,632 2,107,227
-------------- --------------
-------------- --------------
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The JPM 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 JPM Pierpont Bond Fund (one of the series constituting part of The JPM
Pierpont Funds, hereafter referred to as the "Fund") at October 31, 1996, 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 four 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 the year ended October 31, 1992 were audited by other independent
accountants whose report dated December 4, 1992 expressed an unqualified opinion
on those statements.
PRICE WATERHOUSE LLP
New York, New York
December 18, 1996
16
<PAGE>
The U.S. Fixed Income Portfolio
Annual Report October 31, 1996
(The following pages should be read in conjunction
with The JPM Pierpont Bond Fund
Annual Financial Statements)
17
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ --------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (9.5%)
FINANCIAL SERVICES (9.5%)
$ 8,418,572 Access Financial Manufacturing Housing Contract
Trust, Series 95-1, Class A1, 6.10% due
05/15/21....................................... Aaa/NR $ 8,437,261
58,958 Advanta Home Equity Loan Trust, Series 92-2,
Class A1, 7.15% due 06/25/08................... Aaa/AAA 59,012
8,927,050 Aegis Auto Receivables Trust, Series 1996-3,
Class A, Sequential Payer, Callable, (144A)
8.80% due 03/20/02............................. NR/NR 9,178,123
3,022,391 American Southwest Financial Corp., Series 60,
Class D, 8.90% due 03/01/18.................... NR/AAA 3,156,404
86,499 Case Equipment Loan Trust, Series 94-A, Class A2,
4.65% due 08/15/99............................. Aaa/AAA 86,032
15,699,000 Chemical Mortgage Securities, Inc., Series 96-1,
Class A7, 7.25% due 01/25/26................... Aaa/AAA 14,763,340
119,241 Chevy Chase Auto Receivables Trust, Series 95-1,
Class A, 6.00% due 12/15/01.................... Aaa/AAA 119,496
7,923,601 Collateralized Mortgage Obligation Trust, Remic:
Accrual Bond, Series 62, Class Z, 9.50% due
06/25/20....................................... Aaa/AAA 8,443,588
3,032,523 Criimi Mae Financial Corp., Series 1, Class A,
7.00% due 01/01/33............................. NR/AAA 2,915,013
1,956,910 Fleetwood Credit Corp. Grantor Trust, Series
95-B, Class A, 6.55% due 05/15/11.............. Aaa/AAA 1,974,327
8,855,000 GE Capital Mortgage Services, Inc., Remic:
PAC-1(11), Series 94-17, Class A5, 7.00% due
05/25/24....................................... Aa1/AAA 8,951,962
2,000,000 Green Tree Financial Corp., Series 92-1, Class
A3, 6.70% due 10/15/17......................... Aaa/NR 2,017,187
3,068,709 Green Tree Recreational, Equipment & Consumer
Trust, Seies 96-A, Class A1, 5.55% due
02/15/18....................................... Aaa/AAA 3,030,872
715,732 Morgan Stanley Mortgage Trust, Series V, Class 4,
8.95% due 05/01/17............................. NR/AAA 755,147
5,500,000 Oakwood Mortgage Investors Inc., Series 96-A,
Class A2, 5.80% due 05/15/21................... NR/AAA 5,345,312
10,958,985 PaineWebber Mortgage Acceptance Corp., Remic: PAC
(11), Series 93-5, Class A2, 5.50% due
06/25/08....................................... NR/AAA 10,895,971
1,217,518 Prudential Home Mortgage Securities, Remic: PAC
(11), Series 93-54, Class A2, 6.50% due
01/25/24....................................... Aaa/NR 1,217,835
7,776,755 Residential Funding Mortgage Securities I, Inc.,
Remic: PAC (11), Series 94-S12, Class A3, 6.50%
due 04/25/09................................... Aa1/AAA 7,778,700
152,434 Resolution Trust Corp., Remic: Collateral Strip
Interest, Series 91-6, Class A1, 6.92% due
05/25/19....................................... Aaa/AAA 145,193
81,949 The Money Store Home Equity Trust, Series 92-A,
Class A, 6.95% due 12/15/07.................... Aaa/AAA 82,120
52,789 Western Financial Grantor Trust, Series 95-3,
Class A1, 6.05% due 11/01/00................... Aaa/AAA 52,843
4,350,000 World Omni Automobile Lease Securitization Trust,
Series 1996-A, Class A1, Sequential Payer,
Callable, 6.30% due 06/25/02................... Aaa/AAA 4,357,134
--------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$93,750,122)............................... 93,762,872
--------------
CORPORATE OBLIGATIONS (21.7%)
AUTOMOTIVE (2.2%)
16,755,000 Ford Motor Co., 9.95% due 02/15/32............... A1/A+ 21,697,055
--------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ --------------
<C> <S> <C> <C>
BANKING (5.2%)
$ 1,600,000 Chase Manhattan Corp. - New, 10.125% due
11/01/00....................................... A2/A- $ 1,798,528
1,300,000 Chase Manhattan Corp., Series A, 8.65% due
02/13/99....................................... A2/A- 1,367,457
2,095,000 First Chicago Corp., 6.875% due 06/15/03......... A2/A 2,107,759
5,000,000 First Chicago Corp., 8.25% due 06/15/02.......... A2/A 5,380,700
8,300,000 First Union Corp., 6.55% due 10/15/35............ A2/A- 8,098,061
1,000,000 Manufacturers Hanover Corp., 8.50% due
02/15/99....................................... A2/A- 1,046,600
2,000,000 Mellon Bank, N.A., 6.75% due 06/01/03............ A2/A 1,999,040
1,500,000 Midland Bank, PLC, 8.625% due 12/15/04........... A1/A 1,652,790
13,700,000 Norwest Corp., 6.75% due 05/12/00................ Aa3/AA- 13,848,645
3,000,000 Security Pacific Corp., 9.75% due 05/15/99....... A2/A 3,244,080
7,500,000 Shawmut National Corp., 8.625% due 12/15/99...... A3/BBB+ 7,980,525
2,500,000 Wachovia Bank North Carolina, 5.60% due
03/08/99....................................... Aa2/AA+ 2,469,650
--------------
50,993,835
--------------
BUILDING MATERIALS (0.4%)
1,000,000 USG Corp., 8.50% due 08/01/05.................... Ba2/BB 1,031,250
3,000,000 USG Corp., Series B, 9.25% due 09/15/01.......... Ba2/BB 3,198,750
--------------
4,230,000
--------------
CONSTRUCTION & HOUSING (0.6%)
5,000,000 Celulosa Arauco y Constitucion SA, 6.75% due
12/15/03....................................... Baa2/BBB+ 4,887,850
1,000,000 Schuller International Group, Inc., 10.875% due
12/15/04....................................... Ba3/BB- 1,102,500
--------------
5,990,350
--------------
ELECTRIC (2.9%)
1,932,000 Connecticut Light & Power Co., Series UU, 7.625%
due 04/01/97................................... Baa3/BBB 1,933,932
6,000,000 Duke Power Co., 6.75% due 08/01/25............... Aa2/AA- 5,469,420
8,400,000 Idaho Power Co., Series A, 7.50% due 05/01/23.... A2/A+ 8,236,704
4,850,000 Philadelphia Electric Co., 8.00% due 04/01/02.... Baa1/BBB+ 5,144,152
3,000,000 Texas Utilities Co., 7.375% due 10/01/25......... Baa2/BBB+ 2,859,810
5,000,000 Virginia Electric & Power Co., Series A, 7.25%
due 02/01/23................................... A2/A 4,805,350
--------------
28,449,368
--------------
ELECTRICAL EQUIPMENT (0.1%)
1,000,000 Legrand S.A., 8.50% due 02/15/25................. A2/A 1,110,190
--------------
ELECTRONICS (0.7%)
7,000,000 Sensormatic Electronics Corp., 7.74% due
03/29/06....................................... A3/BBB+ 7,000,000
--------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ --------------
<C> <S> <C> <C>
FINANCIAL SERVICES (2.1%)
$ 25,000 Commercial Credit Group, Inc., 7.375% due
11/15/96....................................... A1/A+ $ 25,014
12,550,000 Ford Motor Credit Co., 6.25% due 11/08/00........ A1/A+ 12,431,026
2,000,000 General Motors Acceptance Corp., 6.70% due
06/24/99....................................... A3/A- 2,020,380
1,700,000 Guangdong International Trust & Investment Corp.,
(144A), 8.75% due 10/24/16..................... Baa2/BBB- 1,713,294
4,700,000 Sampoerna International Finance Co., (144A),
8.375% due 06/15/06............................ Baa3/BBB 4,903,510
--------------
21,093,224
--------------
FOREST PRODUCTS & PAPER (1.3%)
1,100,000 Buckeye Cellulose Corp., 8.50% due 12/15/05...... Ba3/BB- 1,078,000
5,200,000 Georgia-Pacific Corp., 7.375% due 12/01/25....... Baa2/BBB- 4,882,904
5,600,000 Georgia-Pacific Corp., 9.95% due 06/15/02........ Baa2/BBB- 6,410,768
--------------
12,371,672
--------------
HEALTH SERVICES (0.3%)
3,000,000 Tenet Healthcare Corp., 10.125% due 03/01/05..... Ba3/B+ 3,292,500
--------------
INSURANCE (0.4%)
4,400,000 Principal Mutual Insurance Co., (144A), 7.875%
due 03/01/24................................... Aa3/AA- 4,361,324
--------------
METALS & MINING (0.2%)
1,000,000 Oregon Steel Mills, Inc., 11.00% due 06/15/03.... B1/BB+ 1,057,500
1,000,000 Ryerson Tull, Inc., 8.50% due 07/15/01........... Ba1/BB 997,500
--------------
2,055,000
--------------
NATURAL GAS (0.6%)
4,425,000 Consolidated Natural Gas Co., 8.625% due
12/01/11....................................... A1/AA- 4,633,417
750,000 Lasmo (USA) Inc., 8.375% due 06/01/23............ Baa2/BBB 767,100
--------------
5,400,517
--------------
RAILROADS (0.1%)
1,125,000 SFP Pipeline Holdings Inc., 11.16% due
08/15/10....................................... Baa3/NR 1,372,500
--------------
RETAIL (0.8%)
2,500,000 Federated Department Stores, Inc., 8.50% due
06/15/03....................................... Ba1/BB- 2,600,000
2,350,000 Sears Roebuck & Co., 8.00% due 02/16/99.......... A2/A- 2,436,809
2,200,000 Sears Roebuck & Co., Series 6, 8.52% due
05/13/02....................................... A2/A- 2,395,756
--------------
7,432,565
--------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- ------------------------------------------------- ------------ --------------
<C> <S> <C> <C>
TELECOMMUNICATIONS (0.3%)
$ 2,580,000 Tele-Communications, Inc., 10.125% due
04/15/22....................................... Ba1/BBB- $ 2,703,892
--------------
TELEPHONE (1.9%)
1,825,000 New York Telephone Co., 7.00% due 08/15/25....... A2/A 1,706,995
16,075,000 New York Telephone Co., 7.25% due 02/15/24....... A2/A 15,424,123
1,250,000 Philippine Long Distance Telephone, 10.625% due
02/06/04....................................... Ba2/BB 1,401,562
--------------
18,532,680
--------------
TEXTILES (0.2%)
2,000,000 WestPoint Stevens, Inc., 8.75% due 12/15/01...... Ba3/BB- 2,025,000
--------------
TRANSPORT & SERVICES (0.3%)
2,500,000 Teekay Shipping Corp., 8.32% due 02/01/08........ Ba2/BB 2,425,000
--------------
TRANSPORTATION (0.6%)
6,040,021 Union Tank Car Co., Series 93-A, 6.50% due
04/15/08....................................... A2/A+ 5,967,276
--------------
WATER (0.5%)
4,500,000 Hydro-Quebec, Series GF, 8.875% due 03/01/26..... A2/A+ 5,193,675
--------------
TOTAL CORPORATE OBLIGATIONS (COST
$211,484,696).............................. 213,697,623
--------------
GOVERNMENT OBLIGATIONS (0.4%)
MEXICO (0.4%)
3,500,000 United Mexican States, 9.75% due 02/06/01 (cost
$3,441,608).................................... Ba2/NR 3,565,625
--------------
<CAPTION>
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (33.6%)
FEDERAL HOME LOAN MORTGAGE CORP.
14,850,000 7.50% due 10/01/26............................... 14,901,084
15,398 9.00% due 04/01/03............................... 15,993
354,629 9.50% due 08/01/04............................... 370,311
528,870 9.50% due 11/01/05............................... 552,341
2,739,050 9.50% due 12/01/05............................... 2,860,745
533,901 9.50% due 02/01/06............................... 557,611
714,779 9.50% due 03/01/06............................... 746,651
23,366 10.00% due 04/01/09.............................. 25,208
1,085 12.50% due 08/01/14.............................. 1,198
6,881,935 Gold, 6.50% due 05/01/04......................... 6,804,514
597,666 Gold, 8.00% due 04/01/10......................... 614,914
1,946,790 Gold, 8.00% due 07/01/10......................... 2,003,714
1,544,285 Gold, 8.00% due 07/01/11......................... 1,590,554
797,302 Gold, 8.00% due 08/01/11......................... 821,205
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ----------- ------------------------------------------------- --------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP. (CONTINUED)
$16,524,929 Gold, 8.00% due 08/01/26......................... $ 16,891,452
11,000,000 Gold, 8.506% due 12/01/04........................ 11,739,062
2,640,000 Gold, TBA December, 8.00%........................ 2,701,875
300,000 Remic: Accretion Directed, Series 1290, Class L,
7.50% due 10/15/09............................. 311,400
300,000 Remic: PAC, Series 102, Class I, 7.00% due
12/15/20....................................... 296,202
32,000 Remic: PAC-1(11), Series 1168, Class H, 7.50% due
11/15/21....................................... 32,243
250,000 Remic: PAC-1(11), Series 1199, Class E, 7.50% due
10/15/19....................................... 253,765
415,000 Remic: PAC-1(11), Series 1207, Class J, 6.75% due
07/15/19....................................... 409,012
250,000 Remic: PAC-1(11), Series 1215, Class F, 6.75% due
05/15/05....................................... 251,363
35,760,000 Remic: PAC-1(11), Series 1542, Class J, 7.00% due
02/15/22....................................... 36,163,373
13,000,000 Remic: PAC-1(11), Series 1594, Class H, 6.00% due
10/15/08....................................... 12,351,950
31,500,000 Remic: PAC-1(11), Series 1684, Class G, 6.50% due
03/15/23....................................... 30,888,900
7,500,000 Remic: PAC-1(11), Series 1714, Class K, 7.00% due
04/15/24....................................... 7,269,675
200,000 Remic: PAC-2(11), Series 39, Class F, 10.00% due
05/15/20....................................... 223,840
1,600,000 Remic: SCH(22), Series 1701, Class B, 6.50% due
03/15/09....................................... 1,514,576
--------------
153,164,731
--------------
FEDERAL HOUSING ADMINISTRATION INSURED
3,315,496 Project 23, 7.43% due 03/01/22................... 3,284,413
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
2,877,669 6.88% due 11/01/05............................... 2,967,567
82,521 8.00% due 01/01/02............................... 84,812
61,009 8.00% due 05/01/02............................... 62,709
393,005 8.00% due 07/01/02............................... 403,930
5,784 8.00% due 08/01/22............................... 5,895
18,315 8.50% due 06/01/10............................... 18,897
31,318,635 8.50% due 09/01/10............................... 32,601,446
4,383,285 8.70% due 02/01/05............................... 4,646,282
9,133,451 10.00% due 11/01/18.............................. 9,983,045
601,917 10.00% due 06/01/20.............................. 653,953
3,100,000 Remic: PAC(11), Series 1993-41, Class PE, 5.75%
due 04/25/19................................... 3,067,233
371,194 Remic: PAC, Series 1991-101, Class C, 8.50% due
08/25/18....................................... 373,142
502,760 Remic: PAC, Series 1991-64, Class Z, 8.50% due
06/25/06....................................... 503,690
5,000,000 TBA November, 7.50%.............................. 5,014,063
3,260,000 TBA December, 8.00%.............................. 3,331,313
--------------
63,717,977
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
195,486 7.00% due 07/15/22............................... 192,128
545,541 7.00% due 11/15/22............................... 536,093
764,219 7.00% due 01/15/23............................... 751,686
348,895 7.00% due 03/15/23............................... 342,887
858,377 7.00% due 07/15/23............................... 844,287
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ----------- ------------------------------------------------- --------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 336,806 7.00% due 09/15/23............................... $ 330,821
1,300,322 7.00% due 10/15/23............................... 1,276,916
62,134 7.00% due 12/15/23............................... 61,055
3,806,706 7.00% due 01/15/24............................... 3,742,796
2,006,043 7.00% due 02/15/24............................... 1,970,137
533,825 7.00% due 03/15/24............................... 524,575
4,852,478 7.00% due 04/15/24............................... 4,766,967
2,634,306 7.00% due 05/15/24............................... 2,587,682
891,719 7.00% due 06/15/24............................... 876,402
2,767,965 7.00% due 01/15/26............................... 2,715,720
6,613,515 7.00% due 02/15/31............................... 6,487,792
7,825,397 7.00% due 05/15/35............................... 7,654,217
5,275,188 7.125% due 01/15/31.............................. 5,204,500
5,981,447 7.125% due 04/15/31.............................. 5,901,235
5,201,440 7.25% due 02/15/27............................... 5,159,308
2,613,071 7.25% due 01/15/31............................... 2,591,905
99,360 7.50% due 03/15/23............................... 99,661
213,534 7.50% due 05/15/23............................... 214,185
130,092 7.50% due 06/15/23............................... 130,482
208,381 7.50% due 01/15/24............................... 209,019
193,186 7.50% due 07/15/25............................... 193,786
121,093 7.50% due 08/15/25............................... 121,471
6,402,600 7.50% due 05/15/26............................... 6,422,576
2,826,949 7.50% due 05/15/31............................... 2,835,769
5,529,380 7.625% due 05/15/31.............................. 5,570,850
1,526,418 7.75% due 06/15/23............................... 1,545,010
8,619,037 7.75% due 07/15/31............................... 8,724,104
3,330,878 7.875% due 06/15/36.............................. 3,386,037
9,224,563 8.00% due 12/15/08............................... 9,548,807
232,148 8.00% due 06/15/26............................... 237,369
256,855 8.00% due 07/15/26............................... 262,614
1,052,789 8.00% due 08/15/26............................... 1,076,477
2,308,086 8.00% due 06/15/31............................... 2,357,133
27,519 11.50% due 07/15/13.............................. 30,786
12,339,939 12.00% due 05/15/16.............................. 14,130,094
5,656 13.50% due 10/15/14.............................. 6,358
--------------
111,621,697
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $330,555,767)........................ 331,788,818
--------------
U.S. TREASURY OBLIGATIONS (30.8%)
U.S. TREASURY BONDS
20,750,000 8.875% due 08/15/17.............................. 25,703,233
4,250,000 9.875% due 11/15/15.............................. 5,698,018
92,520,000 11.125% due 08/15/03(s).......................... 117,263,549
7,060,000 11.25% due 02/15/15.............................. 10,471,321
--------------
159,136,121
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ----------- ------------------------------------------------- --------------
<C> <S> <C> <C>
U.S. TREASURY NOTES
$12,000,000 6.25% due 07/31/98............................... $ 12,105,120
1,830,000 6.875% due 05/15/06.............................. 1,895,404
35,000,000 7.00% due 04/15/99............................... 35,922,950
800,000 7.00% due 07/15/06............................... 835,464
25,000,000 8.25% due 07/15/98............................... 26,018,750
42,370,000 8.50% due 11/15/00............................... 46,060,003
20,500,000 8.875% due 11/15/98.............................. 21,707,040
--------------
144,544,731
--------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$299,591,001).............................. 303,680,852
--------------
<CAPTION>
MOODY'S/S&P
RATING
SHARES (UNAUDITED)
- ----------- ------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.1%)
NATURAL GAS (0.1%)
36,000 Lasmo PLC, 10.00%, Series A, (cost $801,000)..... Baa3/BBB- 918,000
--------------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<C> <S> <C> <C>
SHORT-TERM INVESTMENT (3.0%)
REPURCHASE AGREEMENT (3.0%)
Goldman Sachs Repurchase Agreement, 5.54% dated 10/31/96 due
$30,152,000 11/01/96, proceeds $30,156,640 (collateralized by $29,932,000
U.S. Treasury Notes, 6.375% due 6/30/97, valued at
$30,755,062) (cost $30,152,000)..............................
30,152,000
--------------
TOTAL INVESTMENTS (COST $969,776,194) (99.1%).................. 977,565,790
OTHER ASSETS IN EXCESS OF LIABILITIES (0.9%)................... 8,739,458
--------------
NET ASSETS (100.0%)............................................ $ 986,305,248
--------------
--------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $969,782,500 for Federal Income Tax
purposes at October 31, 1996, the aggregate gross unrealized appreciation
and depreciation was $12,177,972 and $4,394,682, respectively, resulting
in net unrealized appreciation of $7,783,290.
(s) $50,000,000 par segregated as collateral for TBA securities.
Abbreviations:
144A - Securities restricted for resale to Qualified Institutional Buyers.
TBA - Securities 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.
PAC -- Planned Amortization Class; NR -- Not Rated; Remic -- Real Estate
Mortgage Investment Conduit.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost
$969,776,194) $ 977,565,790
Cash 85
Interest Receivable 14,038,053
Receivable for Investments Sold 6,001,577
Prepaid Trustees' Fees 1,970
Prepaid Expenses and Other Assets 4,004
--------------
Total Assets 997,611,479
--------------
LIABILITIES
Payable for Investments Purchased 10,962,575
Advisory Fee Payable 246,940
Custody Fee Payable 35,904
Administrative Services Fee Payable 26,241
Administration Fee Payable 2,391
Fund Services Fee Payable 453
Accrued Expenses 31,727
--------------
Total Liabilities 11,306,231
--------------
NET ASSETS
Applicable to Investors' Beneficial
Interests $ 986,305,248
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $ 53,939,242
Dividend Income (Net of Foreign
Withholding Tax of $20,740 ) 117,504
--------------
Investment Income 54,056,746
EXPENSES
Advisory Fee $ 2,402,660
Custodian Fees and Expenses 223,629
Administrative Services Fee 191,348
Administration Fee 72,029
Professional Fees and Expenses 47,498
Fund Services Fee 36,922
Trustees' Fees and Expenses 15,222
Insurance Expense 4,966
Registration Fees 610
Miscellaneous 2,000
--------------
Total Expenses 2,996,884
--------------
NET INVESTMENT INCOME 51,059,862
NET REALIZED GAIN (LOSS) ON
Investment Transactions 3,249,984
Foreign Currency Transactions (606,386)
--------------
Net Realized Gain 2,643,598
NET CHANGE IN UNREALIZED DEPRECIATION
OF
Investments (10,413,739)
Foreign Currency Contracts and
Translations 606,109
--------------
Net Change in Unrealized
Depreciation (9,807,630)
--------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 43,895,830
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 51,059,862 $ 29,754,031
Net Realized Gain on Investment and
Foreign Currency Transactions 2,643,598 7,762,316
Net Change in Unrealized Appreciation
(Depreciation) of Investment and
Foreign Currency Translations (9,807,630) 26,604,322
-------------- --------------
Net Increase in Net Assets
Resulting from Operations 43,895,830 64,120,669
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS
Contributions 513,960,050 241,455,035
Withdrawals (153,430,627) (89,561,736)
-------------- --------------
Net Increase from Investors'
Transactions 360,529,423 151,893,299
-------------- --------------
Total Increase in Net Assets 404,425,253 216,013,968
NET ASSETS
Beginning of Fiscal Year 581,879,995 365,866,027
-------------- --------------
End of Fiscal Year $ 986,305,248 $ 581,879,995
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 12, 1993
(COMMENCEMENT
FOR THE FISCAL YEAR OF
ENDED OCTOBER 31, OPERATIONS) TO
--------------------- OCTOBER 31,
1996 1995 1994 1993
----- ----- ----- --------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.37% 0.39% 0.46% 0.48%(a)
Net Investment Income 6.38% 6.68% 5.88% 4.91%(a)
Portfolio Turnover 186% 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
OCTOBER 31, 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 (the "Act"), as a no load,
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 JPM Pierpont Bond Fund, (formerly The Pierpont Bond Fund), in exchange for a
beneficial interest in the Portfolio. 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 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)The Portfolio values mortgage and asset-backed securities and other debt
securities with a maturity of 60 days or more, including securities that
are listed on an exchange or traded over the counter, 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. The
ability of issuers of mortgage and asset-backed securities, held by the
Portfolio, to meet their obligations may be affected by economic
developments in a specific industry or region. The value of mortgage and
asset-backed securities can be significantly affected by changes in
interest rates, rapid principal payments including pre-payments.
The Portfolio's custodian or designated subcustodians, as the case may be,
under triparty repurchase agreements 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.
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.
28
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
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
October 31, 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 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, 1996, this
fee amounted to $2,402,660.
b)The Portfolio had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Under an Administration Agreement, Signature provided administrative
services necessary for the operations of the Portfolio, furnished office
space and facilities required for conducting the business of the Portfolio
and paid the compensation of the Portfolio's officers affiliated with
Signature. Until December 28, 1995, the agreement provided for a fee to be
paid to Signature at an annual rate determined by the following schedule:
0.01% of the first $1 billion of the aggregate average daily net assets of
the Portfolio and the other portfolios subject to the 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 was 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 was 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 (the "Master Portfolios") in which The
JPM Pierpont Funds, 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 paid by the
Portfolio was determined by the proportionate share its net assets bore to
the total net assets of The JPM Pierpont
29
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
Funds, The JPM Institutional Funds, The JPM Advisor Funds and the Master
Portfolios. For the period from December 29, 1995 through July 31, 1996,
Signature's fee for these services amounted to $59,901. The Administration
Agreement with Signature was terminated July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the
Portfolio's exclusive placement agent. Under a Co-Administration Agreement
between FDI and the Portfolio, the Portfolio has agreed to pay FDI fees
equal to its allocable share of an annual complex-wide charge of $425,000
plus FDI's out-of-pocket expenses. The amount allocable to the Portfolio
is based on the ratio of the Portfolio's net assets to the aggregate net
assets of the The JPM Pierpont Funds, The JPM Institutional Funds, The JPM
Advisor Funds and the Master Portfolios. For the period from August 1,
1996 through October 31, 1996, the fee for these services amounted to
$6,419.
c)Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement with Morgan which provided that 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 exclusive of the advisory fee, custody
expenses, fund services fee and brokerage costs at 0.10% of the
Portfolio's average daily net assets up to and including $200 million,
0.05% of the next $200 million of average daily net assets, and 0.03% of
average daily net assets on any excess over $400 million. From September
1, 1995 until December 28, 1995, an interim agreement between the
Portfolio and Morgan provided for the continuation of the oversight
functions that were outlined under the 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 (the "Services Agreement") with Morgan under which
Morgan was responsible for overseeing certain aspects of the
administration and operation of the Portfolio. Under the Services
Agreement, the Portfolio had agreed to pay Morgan a fee equal to its
proportionate share of an annual complex-wide charge. Until July 31, 1996,
this charge was 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 paid by the Portfolio was
determined by the proportionate share that the Portfolio's net assets bore
to the net assets of the Master Portfolios and investors in the Master
Portfolios for which Morgan provided similar services. For the period from
December 29, 1995 through July 31, 1996, the fee for these services
amounted to $114,459.
Effective August 1, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios in accordance with the following annual
schedule: 0.09% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets and 0.04% of the Master Portfolio's
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The allocation of the Portfolio's
portion of this charge is described above. For the period from August 1,
1996 through October 31, 1996, the fee for these services amounted to
$76,889.
30
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
d)The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its services
amounted to $36,922 for the fiscal year ended October 31, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represents the Portfolio's allocated portion of the total fees
and expenses. The Portfolio's Chairman and Chief Executive Officer also
serves as Chairman of Group and received compensation and employee
benefits from Group in his role as Group's Chairman. The allocated portion
of such compensation and benefits included in the Fund Services Fee shown
in the financial statements was $4,700.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1996 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
---------------- ----------------
<S> <C> <C>
U.S. Government and Agency
Obligations........................... $ 1,464,482,948 $ 1,131,717,473
Corporate and Collateralized
Obligations........................... 376,740,883 323,216,328
---------------- ----------------
Total.................................. $ 1,841,223,831 $ 1,454,933,801
---------------- ----------------
---------------- ----------------
</TABLE>
31
<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, 1996, 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 supplementary data for each of the three 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, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
December 18, 1996
32
<PAGE>
THE JPM PIERPONT MONEY MARKET FUND
THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
THE JPM PIERPONT TREASURY MONEY MARKET FUND
THE JPM PIERPONT SHORT TERM BOND FUND
THE JPM PIERPONT BOND FUND
THE JPM PIERPONT TAX EXEMPT BOND FUND
THE JPM PIERPONT NEW YORK TOTAL RETURN BOND FUND
THE JPM PIERPONT DIVERSIFIED FUND
THE JPM PIERPONT EQUITY FUND
THE JPM PIERPONT CAPITAL APPRECIATION FUND
THE JPM PIERPONT INTERNATIONAL EQUITY FUND
THE JPM PIERPONT EMERGING MARKETS EQUITY FUND
THE JPM PIERPONT EUROPEAN EQUITY FUND
THE JPM PIERPONT JAPAN EQUITY FUND
THE JPM PIERPONT ASIA GROWTH FUND
FOR MORE INFORMATION ON HOW THE JPM PIERPONT FAMILY OF FUNDS CAN HELP YOU
PLAN FOR YOUR FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
THE
JPM PIERPONT
BOND FUND
ANNUAL REPORT
OCTOBER 31, 1996
