<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM PIERPONT BOND FUND
May 12, 1997
Dear Shareholder:
The six months ending April 30, 1997 saw a relatively minor advance for U.S.
bonds -- prices rose only 1.66%, as measured by The Salomon Brothers Broad
Investment Grade (BIG) Bond Index -- despite a generally favorable environment
for fixed income investment throughout much of the period. The primary reason
for this lackluster performance was the Federal Reserve's belief that robust
U.S. economic growth could translate into higher inflation and its subsequent
decision to preempt such inflation by raising the Federal funds rate from 5.25%
to 5.50% on March 25. This action by the Federal Reserve triggered a
dramatic downturn in U.S. bond prices that was recouped only by April's strong
market rally.
In such a challenging environment, we are pleased to report that a diversified
investment strategy -- comprising active DURATION MANAGEMENT, SECURITY
SELECTION, and SECTOR ALLOCATION -- enabled The JPM Pierpont Bond Fund to
provide its shareholders with an attractive absolute return of 1.91% for the six
months under review. The Fund's performance was considerably ahead of its
benchmark, the Salomon Brothers BIG, which, as noted above, returned 1.66% for
the period. Additionally, the Fund significantly outperformed its competitors,
as measured by the Lipper Intermediate Investment Grade Debt Funds Average,
which returned 1.49% for the period.
The Fund's net asset value decreased from $10.30 per share on November 1, 1996
to $10.10 per share at the end of the reporting period, after paying
approximately $0.32 per share in dividends from ordinary income and
approximately $0.07 per share in dividends from capital gains. The Fund's net
assets stood at $152.5 million at the end of the reporting period, up from
$149.2 million on November 1, 1996. The net assets of The U.S. Fixed Income
Portfolio, in which the Fund invests, totaled approximately $942.5 million on
April 30, 1997.
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 an 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
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
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 in a fund's value over various time periods, typically 1, 5, or 10
years (or since inception). Total returns for periods of less than one year are
not annualized and provide a picture of how a fund has performed over the short
term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------------- -------------------------------------------
THREE SIX ONE FIVE SINCE
AS OF APRIL 30, 1997 MONTHS MONTHS YEAR YEARS INCEPTION*
- ------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
The JPM Pierpont Bond Fund 0.60% 1.91% 6.88% 7.20% 7.77%
Salomon BIG** 0.52% 1.66% 7.20% 7.41% 8.61%
Lipper Intermediate Investment Grade
Debt Funds Average 0.45% 1.49% 6.44% 6.66% 7.98%
AS OF MARCH 31, 1997
- ------------------------------------------------------------------- -------------------------------------------
The JPM Pierpont Bond Fund (0.31)% 2.78% 4.77% 7.03% 7.68%
Salomon BIG** (0.52)% 2.48% 4.90% 7.27% 8.52%
Lipper Intermediate Investment Grade
Debt Funds Average (0.55)% 2.19% 4.46% 6.63% 7.91%
</TABLE>
*3/11/88 -- COMMENCEMENT OF OPERATIONS. (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 7.72%.
**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. NO REPRESENTATION IS MADE THAT INFORMATION GATHERED FROM THIS
SOURCE IS ACCURATE OR COMPLETE. 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
[PHOTO]
Following is an interview with WILLIAM G. TENNILLE, who is a member of the
portfolio management team for The U.S. Fixed Income Portfolio, in which the Fund
invests. Bill joined Morgan in 1992 and has extensive experience across a broad
range of markets, including mortgage securities and derivatives. This interview
was conducted on May 9, 1997 and reflects Bill's views on that date.
THE SIX MONTHS ENDING APRIL 30, 1997 WERE SOMETHING OF A WATERSHED FOR U.S. BOND
INVESTORS. THE PERIOD STARTED OUT WITH A MAJOR REBOUND IN BOND PRICES AND CAME
TO A CLOSE AMID FALLOUT CAUSED BY A SHORT-TERM RATE INCREASE IN MARCH BY THE
FEDERAL RESERVE. HOW DID YOUR MANAGEMENT TEAM'S KEY INVESTMENT DECISIONS ENHANCE
THE PORTFOLIO'S PERFORMANCE AS RATES BACKED UP?
WGT: As we have noted in previous conversations, the portfolio management team
has never taken outsized duration positions vis-a-vis the Portfolio's benchmark.
During this most recent period, as strengthening economic data and a
tightening labor market, in turn, sparked a tightening by the Federal Reserve
to head off inflation, our management team decided to keep the Portfolio's
duration variances within a range of plus or minus one-quarter of one year
relative to the Salomon BIG. Within that context, we have made several modest
duration adjustments to the Portfolio, which have contributed positively to
the Portfolio's relative returns over the last six months.
THE PORTFOLIO SIGNIFICANTLY OUTPERFORMED BOTH ITS BENCHMARK AND ITS COMPETITORS
IN THE LIPPER INTERMEDIATE FIXED INCOME UNIVERSE FOR THE PERIOD UNDER REVIEW.
WHICH OF YOUR INVESTMENT DECISIONS MADE THE GREATEST POSITIVE CONTRIBUTION TO
ATTRACTIVE RELATIVE RETURNS?
WGT: A significant overweighting of U.S. government agency mortgages and the
Portfolio's modest allocation (8% by the end of the period) to BB- and B-rated
U.S. corporate bonds and Brady bonds (U.S. dollar-denominated emerging markets
debt) were each a source of excess performance during the period relative to the
Index.
YOUR SECTOR STRATEGY OF OVERWEIGHTING MORTGAGE-BACKED SECURITIES ACHIEVED
FAVORABLE INVESTMENT RESULTS FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996 AND
DURING THE PERIOD UNDER REVIEW. WHAT FORECASTS ARE YOU MAKING FOR THIS SECTOR,
AND HOW IS IT LIKELY TO BE WEIGHTED IN THE PORTFOLIO DURING THE NEXT SIX MONTHS?
WGT: The Portfolio continues to carry a greater than thirty percent position in
U.S. government agency mortgages. While the recent performance of these
securities has been superb, we believe that continued buying of the Federal
National Mortgage Association (FNMA or "Fannie Mae") and the Federal Home Loan
Mortgage Corporation (FHLMC or "Freddie Mac") will provide protection from
extreme spread widening because mortgage-backed securities have tended to
outperform in both stable and rising interest rate environments.
3
<PAGE>
INVESTOR CASH FLOW HAS BEEN KEY TO THE RECENT RELATIVE STRENGTH OF EMERGING
MARKETS DEBT AND U.S. HIGH-YIELD BONDS. DO YOU EXPECT TO SEE SIMILAR LEVELS OF
SUPPORT FOR THESE SECTORS GOING FORWARD, AND IS THE PORTFOLIO LIKELY TO CONTINUE
ITS CURRENT OPPORTUNISTIC ALLOCATION TO THEM?
WGT: We now feel more confident in future returns from the Portfolio's small
positions in U.S. high-yield bonds. We are somewhat less optimistic about future
returns from the Portfolio's exposure to emerging markets debt, if only because
emerging markets debt has outperformed so substantially over the recent past.
Having said that, we expect to maintain the Portfolio's allocation to both of
these sectors, at least in the near future.
ONE OF THE IRONIES THAT SEEMS TO BE GAINING GREATER CURRENCY THESE DAYS IS
"WHAT'S GOOD FOR THE ECONOMY IS BAD FOR BONDS AND STOCKS." GIVEN THE CURRENT
ENVIRONMENT OF SUSTAINED ECONOMIC STRENGTH, WHAT IS YOUR VIEW OF THE LIKELIHOOD
OF ADDITIONAL FED ACTION BY THE END OF THIS YEAR, AND WHERE DO YOU BELIEVE
RENEWED INFLATION CONCERNS WILL DRIVE LONG BOND YIELDS DURING THAT PERIOD?
WGT: As most investors know, the Federal Reserve intervened and raised the
Federal funds rate by 0.25% to 5.50% on March 25. It has been our sense for some
time now that the Fed will be forced to implement more than one short-term
interest rate increase in order to contain excessive growth in the economy. We
anticipate that the Fed will implement at least another 0.50% increase (not
necessarily in one move) in the Fed funds rate in the months to come.
WOULD YOU EXPECT THE MANAGEMENT TEAM TO MAKE SIGNIFICANT CHANGES IN THE
PORTFOLIO'S CURRENT STRUCTURE IF THE 30-YEAR YIELD ACTUALLY DID TOP 7.20%?
WGT: Should rates reach 7.25% to 7.50% in the long end of the market, we feel
that it would represent significant value in the fixed income arena. At that
point, expecting that higher rates would soon produce a slowing in the economy,
it is likely that we would extend the Portfolio's duration in order to capture
that value. However, the Portfolio's main sector themes should remain in place
in the near future.
POLICY CHANGES WERE RECENTLY IMPLEMENTED TO ALLOW THE PORTFOLIO TO INVEST UP TO
25% OF ITS ASSETS IN BELOW-INVESTMENT-GRADE ISSUES (RATED SINGLE B OR BB/Ba) AND
UP TO 20% IN NON-DOLLAR DENOMINATED INVESTMENTS. WHAT WAS SOME OF THE THINKING
BEHIND THESE CHANGES, AND WHAT DO YOU AND OTHER MEMBERS OF THE MANAGEMENT TEAM
HOPE TO ACCOMPLISH SHOULD YOU PUT THEM TO USE GOING FORWARD?
WGT: As we all know, portfolio diversification across multiple market sectors
can decrease overall portfolio risk, due to the absence of correlation between
various bond market sectors around the globe. Morgan's goal in bond portfolio
management is and always has been to produce long-term excess performance with
less volatility than either the benchmark or a peer group.
In the context of the guideline changes, we are now able to diversify Portfolio
assets and opportunistically invest more of the Portfolio's assets in two market
sectors that we believe represent improved sources of excess return. We expect
to manage the additional risk of these sectors by basing investment decisions on
Morgan's in-depth proprietary global research. Having said that, the long-range
objectives of these changes is to provide enhanced Portfolio returns while also
dampening volatility in those returns.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The JPM Pierpont Bond Fund seeks to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity. It is designed for
investors who seek a total return that is higher than that generally available
from short-term obligations while recognizing the greater price fluctuation of
longer-term instruments.
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
3/11/88
- --------------------------------------------------------------------------------
NET ASSETS AS OF 4/30/97
$152,458,917
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/17/97
EXPENSE RATIO
The Fund's current annualized expense ratio of 0.68% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services. The Fund is no-load and does not charge any sales, redemption, or
exchange fees. There are no additional charges for buying, selling, or
safekeeping Fund shares, or for wiring redemption proceeds from the Fund.
FUND HIGHLIGHTS
ALL DATA AS OF APRIL 30, 1997
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
U.S. AGENCY OBLIGATIONS 34.5%
CORPORATE OBLIGATIONS 26.4%
U.S. TREASURY OBLIGATIONS 15.7%
CMOS AND ASSET-BACKED SECURITIES 12.6%
FOREIGN CORPORATE OBLIGATIONS 4.0%
SHORT-TERM INVESTMENTS 3.2%
FOREIGN GOVERNMENT OBLIGATIONS 1.9%
CONVERTIBLE PREFERRED STOCK 1.6%
CONVERTIBLE BONDS 0.1%
30-DAY SEC YIELD
6.62%
DURATION
4.53 years
QUALITY BREAKDOWN
AAA* 67%
AA 2%
A 14%
Other 17%
*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").
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 (the "Portfolio"), a separately registered investment company
which is not available to the public but only to other collective investment
vehicles such as the Fund. The Portfolio may invest in below-investment-grade
debt obligations and in foreign securities which are subject to special risks;
prospective investors should refer to the Prospectus for a discussion of these
risks.
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 (UNAUDITED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Fixed Income Portfolio
("Portfolio"), at value $152,455,952
Receivable for Shares of Beneficial Interest Sold 133,043
Prepaid Trustees' Fees and Expenses 547
Prepaid Expenses and Other Assets 1,352
------------
Total Assets 152,590,894
------------
LIABILITIES
Dividends Payable to Shareholders 62,274
Shareholder Servicing Fee Payable 25,098
Payable for Shares of Beneficial Interest
Redeemed 24,704
Administrative Services Fee Payable 3,900
Administration Fee Payable 1,212
Fund Services Fee Payable 95
Accrued Expenses 14,694
------------
Total Liabilities 131,977
------------
NET ASSETS
Applicable to 15,097,382 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $152,458,917
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $10.10
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $155,157,971
Undistributed Net Investment Income 18,963
Accumulated Net Realized Loss on Investment (1,218,008)
Net Unrealized Depreciation of Investment (1,500,009)
------------
Net Assets $152,458,917
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
THE JPM PIERPONT BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $ 5,207,009
Allocated Dividend Income (Net of Foreign
Withholding Tax of $1,125) 54,407
Allocated Portfolio Expenses (274,286)
-----------
Net Investment Income Allocated from
Portfolio 4,987,130
FUND EXPENSES
Shareholder Servicing Fee $148,807
Administrative Services Fee 23,415
Transfer Agent Fees 18,430
Registration Fees 13,805
Printing Expenses 7,955
Professional Fees 7,862
Fund Services Fee 2,657
Administration Fee 2,546
Trustees' Fees and Expenses 1,348
Miscellaneous 2,753
--------
Total Fund Expenses 229,578
-----------
NET INVESTMENT INCOME 4,757,552
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 756,965
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (2,732,685)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 2,781,832
-----------
-----------
</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 SIX
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1997 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1996
------------ ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 4,757,552 $ 8,720,289
Net Realized Gain on Investment Allocated from
Portfolio 756,965 1,821,935
Net Change in Unrealized Depreciation of
Investment Allocated from Portfolio (2,732,685) (3,276,551)
------------ ----------------
Net Increase in Net Assets Resulting from
Operations 2,781,832 7,265,673
------------ ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (4,723,593) (8,724,866)
Net Realized Gain (1,045,442) --
------------ ----------------
Total Distributions to Shareholders (5,769,035) (8,724,866)
------------ ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 33,570,769 36,902,471
Reinvestment of Dividends and Distributions 4,617,174 8,082,911
Cost of Shares of Beneficial Interest Redeemed (31,948,698) (37,322,830)
------------ ----------------
Net Increase from Transactions in Shares of
Beneficial Interest 6,239,245 7,662,552
------------ ----------------
Total Increase in Net Assets 3,252,042 6,203,359
NET ASSETS
Beginning of Period 149,206,875 143,003,516
------------ ----------------
End of Period (including undistributed net
investment income (loss) of $18,963 and $0,
respectively) $152,458,917 $ 149,206,875
------------ ----------------
------------ ----------------
</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 period are as follows:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED OCTOBER 31,
APRIL 30, 1997 ---------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.30 $ 10.41 $ 9.64 $ 11.00 $ 10.52 $ 10.32
---------------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.32 0.62 0.64 0.55 0.54 0.66
Net Realized and Unrealized Gain (Loss) on
Investments (0.13) (0.11) 0.77 (0.91) 0.67 0.28
---------------- -------- -------- -------- -------- -------
Total from Investment Operations 0.19 0.51 1.41 (0.36) 1.21 0.94
---------------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.32) (0.62) (0.64) (0.55) (0.54) (0.66)
Net Realized Gain (0.07) -- -- (0.45) (0.19) (0.08)
Return of Capital -- -- -- -- -- --
---------------- -------- -------- -------- -------- -------
Total Distributions to Shareholders (0.39) (0.62) (0.64) (1.00) (0.73) (0.74)
---------------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 10.10 $ 10.30 $ 10.41 $ 9.64 $ 11.00 $ 10.52
---------------- -------- -------- -------- -------- -------
---------------- -------- -------- -------- -------- -------
Total Return 1.91%(a) 5.13% 15.10% (3.50)% 11.97% 9.35%
---------------- -------- -------- -------- -------- -------
---------------- -------- -------- -------- -------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $ 152,459 $149,207 $143,004 $112,049 $103,572 $75,882
Ratios to Average Net Assets
Expenses 0.68%(b) 0.66% 0.69% 0.78% 0.81% 0.81%
Net Investment Income 6.39%(b) 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.
(a) Not annualized
(b) Annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
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 included
in the Statement of Assets and Liabilities reflects the Fund's proportionate
interest in the net assets of the Portfolio (16% at April 30, 1997). 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 principals 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 toshareholders of net
realized capital gain, if any, are declared and paid annually.
d)The Fund is treated as a separate entity for federal income tax purposes
and intends to comply with the provisions of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and to
distribute 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.
12
<PAGE>
THE JPM PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a)The Trust has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as co-administrator and distributor. Under a
Co-Administration Agreement between FDI and the Trust on behalf of the
Fund, FDI 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 FDI. 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 the aggregate net assets of the Trust,
The JPM Institutional Funds, The JPM Advisor Funds, the Portfolio and the
other portfolios in which the Trust and JPM Institutional Funds, JPM
Advisor Funds invest (the "Master Portfolios"), JPM Series Trust and JPM
Series Trust II. For the six months ending April 30, 1997, such fees for
these services amounted to $2,546.
On November 15, 1996, The JPM Advisor Funds terminated operations and were
being liquidated. Subsequent to that date, the net assets of the JPM
Advisor Funds were no longer included in the calculation of the allocation
of FDI's fees.
b)The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan") under which Morgan is 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 allocable share of an
annual complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Master Portfolios and JPM Series Trust in
accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI. The portion of this charge payable by
the Fund is determined by the proportionate share that its net assets bear
to the net assets of the Trust, The JPM Institutional Funds, the Master
Portfolios, other investors in the Master Portfolios for which Morgan
provides similar services, and JPM Series Trust. For the six months ended
April 30, 1997, the fee for these services amounted to $23,415.
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 paid monthly at an annual rate
of 0.20% of the average daily net assets of the Fund. For the six months
ending April 30, 1997, the fee for these services amounted to $148,807.
Morgan, Charles Schwab & Co. ("Schwab") and the Trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes Fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
Fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the Services Agreement is terminated for
reasons other than a breach by Schwab and the relationship between the
Trust and Morgan is terminated, the Fund would be responsible for the
ongoing payments to Schwab with respect to pre-termination shares.
13
<PAGE>
THE JPM PIERPONT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
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
$2,657 for the six months ended April 30, 1997.
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The Trust, The JPM Institutional Funds, the Master
Portfolios, and JPM Series Trust . 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, 1997, the aggregate annual
Trustee fee was $65,000. The Trust's Chairman and Chief Executive Officer
also serves as Chairman of Group and receives compensation and employee
benefits from Group in his role as Group's Chairman. The allocated portion
of such compensation and benefits included in the Fund Services Fee shown
in the financial statements was $500.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1997 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1996
------------ ----------------
<S> <C> <C>
Shares of beneficial interest sold............... 3,287,511 3,597,104
Reinvestment of dividends and distributions...... 453,186 854,469
Shares of beneficial interest redeemed........... (3,130,372) (3,697,941)
------------ ----------------
Net Increase..................................... 610,325 753,632
------------ ----------------
------------ ----------------
</TABLE>
14
<PAGE>
The U.S. Fixed Income Portfolio
Semi-annual Report April 30, 1997
(The following pages should be read in conjunction
with The JPM Pierpont Bond Fund
Semi-annual Financial Statements)
15
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET BACKED SECURITIES (12.5%)
FINANCIAL SERVICES (12.5%)
$ 52,085 Advanta Home Equity Loan Trust, Series 92-2, Aaa/AAA $ 51,425
Class A1, 7.15% due 06/25/08...................
7,521,156 Aegis Auto Receivables Trust, Series 1996-3, NR/NR 7,535,258
Class A, Sequential Payer, Callable, (144A),
8.80% due 03/20/02.............................
3,002,357 American Southwest Financial Corp., Series 60, NR/AAA 3,094,980
Class D, 8.90% due 03/01/18....................
28,113,000 Associates Manufactured Housing Pass Through, Aaa/AAA 28,016,362
Series 97-1, Class A3, 6.60% due 06/15/28......
41,916 Case Equipment Loan Trust, Series 94-A, Class A2, Aaa/AAA 41,736
4.65% due 08/15/99.............................
15,699,000 Chemical Mortgage Securities, Inc., Series 96-1, Aaa/AAA 14,797,092
Class A7,, 7.25% due 01/25/26..................
86,661 Chevy Chase Auto Receivables Trust, Series 95-1, Aaa/AAA 86,473
Class A, 6.00% due 12/15/01....................
7,094,032 Collateralized Mortgage Obligation Trust, Remic: Aaa/AAA 7,402,197
Accrual Bond, Series 62, Class Z, 9.50% due
06/25/20.......................................
2,815,677 Criimi Mae Financial Corp., Series 1, Class A, NR/AAA 2,672,254
7.00% due 01/01/33.............................
1,718,921 Fleetwood Credit Corp. Grantor Trust, Series Aaa/AAA 1,707,456
95-B, Class A, 6.55% due 05/15/11..............
8,855,000 GE Capital Mortgage Services, Inc., Remic: Aaa/AAA 8,730,587
PAC-1(11), Series 94-17, Class A5, 7.00% due
05/25/24.......................................
2,000,000 Green Tree Financial Corp., Series 92-1, Class Aaa/NR 2,000,060
A3, 6.70% due 10/15/17.........................
2,407,286 Green Tree Recreational, Equipment & Consumer Aaa/AAA 2,316,676
Trust, Series 96-A, Class A1, 5.55% due
02/15/18.......................................
4,270,082 Merrill Lynch Mortgage Investors, Inc., Series Ba3/NR 4,210,701
95-C2, Class E, 7.98% due 06/15/21.............
2,500,000 Merrill Lynch Mortgage Investors, Inc., Series NR/AAA 2,444,531
96-C2, Class A3, 6.96% due 11/21/28............
11,587,719 Midland Realty Acceptance Corp., Series 96-C2, Aaa/NR 11,562,371
Class A1, 7.02% due 01/25/29...................
631,229 Morgan Stanley Mortgage Trust, Series V, Class 4, NR/AAA 654,850
8.95% due 05/01/17.............................
8,322,683 Paine Webber Mortgage Acceptance Corp., Remic: NR/AAA 8,271,082
PAC (11), Series 93-5, Class A2, 5.50% due
06/25/08.......................................
834,856 Prudential Home Mortgage Securities, Remic: PAC Aaa/NR 833,980
(11), Series 93-54, Class A2, 6.50% due
01/25/24.......................................
6,782,608 Residential Funding Mortgage Securities I, Inc., Aa1/AAA 6,737,843
Remic: PAC (11), Series 94-S12, Class A3, 6.50%
due 04/25/09...................................
136,049 Resolution Trust Corp., Remic: Collateral Strip Aaa/AAA 129,757
Interest, Series 91-6, Class A1, 6.992% due
05/25/19.......................................
69,310 The Money Store Home Equity Trust, Series 92-A, Aaa/AAA 68,770
Class A, 6.95% due 01/15/07....................
39,229 Western Financial Grantor Trust, Series 95-3, Aaa/AAA 39,135
Class A1, 6.05% due 11/01/00...................
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
$ 1,750,000 World Omni Automobile Lease Securitization Trust, Aaa/AAA $ 1,754,655
Series 1996-A, Class A1, Sequential Payer,
Callable, 6.30% due 06/25/02...................
2,600,000 World Omni Automobile Lease Securitization Trust, Aaa/AAA 2,611,375
Series 1997-A, Class A2, Sequential Payer,
Callable, 6.75% due 06/25/03...................
-------------
117,771,606
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST
$118,582,361)..............................
-------------
CONVERTIBLE BONDS (0.1%)
RETAIL (0.1%)
1,100,000 Corporate Express Inc., 4.50% due 07/01/00 (cost B3/B 939,125
$934,625)......................................
-------------
CORPORATE OBLIGATIONS (26.1%)
AUTOMOTIVE (2.9%)
6,000,000 Ford Motor Co., 8.875% due 01/15/22.............. A1/A+ 6,664,380
16,755,000 Ford Motor Co., 9.95% due 02/15/32............... A1/A+ 20,811,050
-------------
27,475,430
-------------
BANKING (4.6%)
500,000 Abbey National First Capital, 8.20% due Aa3/AA- 527,995
10/15/04.......................................
1,300,000 Chase Manhattan Corp., Series A, 8.65% due A1/A- 1,346,072
02/13/99.......................................
5,000,000 First Chicago Corp., 8.25% due 06/15/02.......... A2/A 5,240,650
8,300,000 First Union Corp., 6.55% due 10/15/35............ A2/A- 8,043,613
1,000,000 Manufacturers Hanover Corp., 8.50% due A1/A- 1,031,210
02/15/99.......................................
8,000,000 Mellon Capital I, Series A, 7.72% due 12/01/26... A2/BBB+ 7,537,520
6,400,000 NB Capital Trust II, 7.83% due 12/15/26.......... A1/A- 6,162,304
3,000,000 Security Pacific Corp., 9.75% due 05/15/99....... A2/A 3,174,750
7,500,000 Shawmut National Corp., 8.625% due 12/15/99...... A3/BBB+ 7,832,400
2,500,000 Wachovia Bank North Carolina, 5.60% due Aa2/AA+ 2,464,675
03/08/99.......................................
-------------
43,361,189
-------------
BUILDING MATERIALS (0.3%)
3,000,000 USG Corp., Series B, 9.25% due 09/15/01.......... A2/BBB+ 3,146,250
-------------
CHEMICALS (0.5%)
5,000,000 Airgas, Inc., 7.14% due 03/08/04................. Baa3/BBB- 5,013,300
-------------
CONSTRUCTION & HOUSING (0.2%)
2,000,000 Schuller International Group, Inc., 10.875% due Ba3/BB- 2,200,000
12/15/04.......................................
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
ELECTRIC (3.6%)
$ 2,950,000 Central Power & Light Co., Series KK, 6.625% due A3/A $ 2,823,209
07/01/05.......................................
6,000,000 Duke Power Co., 6.75% due 08/01/25............... Aa2/AA- 5,294,040
8,400,000 Idaho Power Co., Series A, 7.50% due 05/01/23.... A2/A+ 7,922,208
3,300,000 Southern Co. Capital Trust I, (144A), 8.19% due A3/A- 3,306,567
02/01/37.......................................
10,000,000 Virginia Electric & Power Co., 6.75% due A2/A 9,568,000
02/01/07.......................................
5,000,000 Virginia Electric & Power Co., Series A, 7.25% A2/A 4,662,300
due 02/01/23...................................
-------------
33,576,324
-------------
ELECTRONICS (0.7%)
7,000,000 Sensormatic Electronics Corp., 7.74% due NR/BBB+ 6,860,000
03/29/06.......................................
-------------
ENTERTAINMENT, LEISURE & MEDIA (1.0%)
2,000,000 Jacor Communications Co., 9.75% due 12/15/06..... B2/B 2,035,000
5,400,000 News America Holdings, Inc., 7.75% due Baa3/BBB 4,952,448
12/01/45.......................................
2,000,000 Rogers Cablesystems Limited, 11.09% due NR/NR 2,080,460
06/01/00.......................................
-------------
9,067,908
-------------
FINANCIAL SERVICES (3.4%)
6,000,000 Bank Boston Capital Trust II, Series B, 7.75% due Baa1/BBB 5,603,640
12/15/26.......................................
2,000,000 First Nationwide Hldgs. Inc., 10.625% due Ba3/NA 2,130,000
10/01/03.......................................
5,050,000 First Union Institutional Capital I, (144A), A1/BBB+ 4,980,663
8.04% due 12/01/26.............................
10,400,000 Ford Motor Credit Co., 7.00% due 09/25/01........ A1/A+ 10,435,048
2,000,000 General Motors Acceptance Corp., 6.70% due A3/A- 2,005,280
06/24/99.......................................
1,000,000 Sun World International, Inc., (144A), 11.25% due NR/NR 1,015,000
04/15/04.......................................
6,000,000 US Bancorp Capital I, (144A), 8.27% due Ba2/BB+ 6,017,220
12/15/26.......................................
-------------
32,186,851
-------------
FOREST PRODUCTS & PAPER (2.3%)
1,100,000 Buckeye Cellulose Corp., 8.50% due 12/15/05...... Ba3/BB- 1,075,250
5,200,000 Georgia-Pacific Corp., 7.375% due 12/01/25....... Baa2/BBB- 4,721,236
9,150,000 Georgia-Pacific Corp., 8.625% due 04/30/25....... Baa2/BBB- 9,199,410
5,600,000 Georgia-Pacific Corp., 9.95% due 06/15/02........ Baa2/BBB- 6,254,304
-------------
21,250,200
-------------
HEALTH SERVICES (0.5%)
2,000,000 Mariner Health Group, Inc., Series B, 9.50% due B2/B 1,945,000
04/01/06.......................................
3,000,000 Tenet Healthcare Corp., 10.125% due 03/01/05..... Ba3/B+ 3,225,000
-------------
5,170,000
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
INDUSTRIAL (0.1%)
$ 500,000 Ferrellgas Partners, L.P., Series B, 9.375% due B1/B+ $ 514,375
06/15/06.......................................
-------------
INSURANCE (0.5%)
4,400,000 Principal Mutual Insurance Co., (144A), 7.875% NR/NR 4,257,132
due 03/01/24...................................
-------------
MANUFACTURING (0.1%)
1,000,000 Collins & Aikman Products Co., 11.50% due B3/B 1,100,000
04/15/06.......................................
-------------
METALS & MINING (0.2%)
275,000 AK Steel Corp., 9.125% due 12/15/06.............. Ba2/BB- 272,594
700,000 Oregon Steel Mills, Inc., 11.00% due 06/15/03.... B1/BB 756,000
1,000,000 Ryerson Tull, Inc., 8.50% due 07/15/01........... Ba1/BB 1,016,250
-------------
2,044,844
-------------
NATURAL GAS (0.3%)
1,378,000 Consolidated Natural Gas Co., 8.625% due A1/AA- 1,411,541
12/01/11.......................................
750,000 Lasmo (USA) Inc., 8.375% due 06/01/23............ Baa2/BBB 739,042
700,000 Lomak Petroleum, Inc., 8.75% due 01/15/07........ B1/B 666,750
-------------
2,817,333
-------------
OIL-PRODUCTION (0.2%)
2,000,000 Plains Resources, Inc., Series B, 10.25% due B2/B 2,070,000
03/15/06.......................................
-------------
RAILROADS (0.1%)
1,125,000 SFP Pipeline Holdings Inc., 11.16% due Baa3/NR 1,366,875
08/15/10.......................................
-------------
RETAIL (0.8%)
2,500,000 Federated Department Stores, Inc., 8.50% due Baa2/BB+ 2,595,600
06/15/03.......................................
2,350,000 Sears Roebuck & Co., 8.00% due 02/16/99.......... A2/A- 2,409,972
2,200,000 Sears Roebuck & Co., 8.52% due 05/13/02.......... A2/A- 2,334,002
-------------
7,339,574
-------------
TELECOMMUNICATION SERVICES (0.1%)
2,000,000 McLeod, Inc., (144A), 0.00%* due 03/01/07........ B3/NR 1,127,500
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
TELECOMMUNICATIONS (0.9%)
$ 2,580,000 Tele-Communications, Inc., 10.125% due Ba1/BBB- $ 2,818,650
04/15/22.......................................
3,870,000 Worldcom Inc., 7.75% due 04/01/27................ Ba1/BBB- 3,862,840
1,970,000 Worldcom Inc., 9.375% due 01/15/04............... Ba3/BBB- 1,777,925
-------------
8,459,415
-------------
TELEPHONE (1.8%)
1,825,000 New York Telephone Co., 7.00% due 08/15/25....... A2/A+ 1,650,621
16,075,000 New York Telephone Co., 7.25% due 02/15/24....... A2/A+ 14,842,047
-------------
16,492,668
-------------
TEXTILES (0.4%)
4,000,000 WestPoint Stevens, Inc., 8.75% due 12/15/01...... Ba3/BB- 4,060,000
-------------
TRANSPORTATION (0.6%)
5,361,028 Union Tank Car Co., Series 93-A, 6.50% due A1/A+ 5,180,522
04/15/08.......................................
-------------
246,137,690
TOTAL CORPORATE OBLIGATIONS (COST
$249,276,893)..............................
-------------
FOREIGN CORPORATE OBLIGATIONS (4.0%)
CANADA (1.0%)
Forest Products & Paper
1,900,000 Canadian Pacific Forest Products Ltd., 9.25% Ba1/NR 1,962,529
due 06/15/02..................................
Water
4,500,000 Hydro Quebec, 8.875% due 03/01/26.............. A2/A+ 5,000,400
Transport Services
2,500,000 Teekay Shipping Corp., 8.32% due 02/01/08...... Ba2/BB 2,443,750
-------------
9,406,679
-------------
CHILE (0.5%)
Forest Products & Paper
5,000,000 Celulosa Arauco y Constitucion SA, 6.75% due Baa2/BBB+ 4,806,800
12/15/03......................................
-------------
CHINA (0.2%)
Financial Services
1,700,000 Guangdong International Trust & Investment Baa2/BBB- 1,753,873
Corp., (144A), 8.75% due 10/24/16.............
-------------
FRANCE (0.1%)
Electrical Equipment
1,000,000 Legrand S.A., 8.50% due 02/15/25............... A2/A 1,084,790
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
INDONESIA (0.5%)
Financial Services
$ 4,700,000 Sampoerna Intl. (144A), 8.375% due 06/15/06.... Baa3/BBB $ 4,709,776
-------------
MEXICO (0.8%)
Banking
2,000,000 Bancomext Trust Division, (144A), 11.25% due NA/BB 2,145,000
05/30/06......................................
Forest Products & Paper
2,000,000 Copamex Industrias SA DE CV, (144A), 11.375% B1/NR 2,052,500
due 04/30/04..................................
Gas Exploration
3,000,000 Petroleos Mexicanos, 7.60% due 06/15/00........ Ba2/NR 2,947,260
-------------
7,144,760
-------------
PHILIPPINES (0.4%)
Telephone
1,250,000 Philippine Long Distance Telephone, 10.625% due Ba2/BB+ 1,400,781
06/02/04......................................
2,570,000 Philippine Long Distance Telephone, Series E, Ba2/BB+ 2,427,134
7.85% due 03/06/07............................
-------------
3,827,915
-------------
UNITED KINGDOM (0.5%)
Electric
5,000,000 National Power Co. PLC, 6.25% due 12/01/03..... A2/A 4,703,125
-------------
37,437,718
TOTAL FOREIGN CORPORATE OBLIGATIONS (COST
$37,823,742)...............................
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (34.1%)
FEDERAL HOME LOAN MORTGAGE CORP.
14,755,417 7.50% due 10/01/26............................... 14,672,787
1,506,708 8.00% due 11/01/26............................... 1,529,776
2,579,795 8.00% due 12/01/26............................... 2,619,214
13,373 9.00% due 04/01/03............................... 13,776
8,573,565 9.25% due 06/01/16............................... 9,065,344
195,569 9.50% due 08/01/04............................... 204,243
426,302 9.50% due 11/01/05............................... 445,298
2,157,923 9.50% due 12/01/05............................... 2,254,161
409,086 9.50% due 02/01/06............................... 427,319
589,037 9.50% due 03/01/06............................... 615,397
21,643 10.00% due 04/01/09.............................. 23,342
1,073 12.50% due 08/01/14.............................. 1,195
4,712,877 Gold, 6.50% due 06/01/04......................... 4,606,837
553,442 Gold, 8.00% due 04/01/10......................... 565,861
1,832,459 Gold, 8.00% due 07/01/10......................... 1,874,129
1,493,300 Gold, 8.00% due 07/01/11......................... 1,528,146
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP. (CONTINUED)
$ 750,864 Gold, 8.00% due 08/01/11......................... $ 768,344
11,000,000 Gold, 8.506% due 12/01/04........................ 11,660,000
300,000 Remic: Accretion Directed, Series 1290, Class L, 301,167
7.50% due 10/15/09.............................
300,000 Remic: PAC, Series 102, Class I, 7.00% due 285,882
12/15/20.......................................
32,000 Remic: PAC-1(11), Series 1168, Class H, 7.50% due 31,526
11/15/21.......................................
250,000 Remic: PAC-1(11), Series 1199, Class E, 7.50% due 249,552
10/15/19.......................................
415,000 Remic: PAC-1(11), Series 1207, Class J, 6.75% due 402,994
07/15/19.......................................
250,000 Remic: PAC-1(11), Series 1215, Class F, 6.75% due 249,223
05/15/05.......................................
35,760,000 Remic: PAC-1(11), Series 1542, Class J, 7.00% due 35,434,942
02/15/22.......................................
13,000,000 Remic: PAC-1(11), Series 1594, Class H, 6.00% due 12,124,060
10/15/08.......................................
31,500,000 Remic: PAC-1(11), Series 1684, Class G, 6.50% due 30,442,230
03/15/23.......................................
7,500,000 Remic: PAC-1(11), Series 1714, Class K, 7.00% due 7,239,825
04/15/24.......................................
200,000 Remic: PAC-2(11), Series 39, Class F, 10.00% due 216,580
05/15/20.......................................
1,600,000 Remic: SCH(22), Series 1701, Class B, 6.50% due 1,523,408
03/15/09.......................................
-------------
141,376,558
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
2,864,787 6.88% due 11/01/05............................... 2,934,544
5,025,081 7.50% due 11/01/26............................... 4,992,167
10,846,256 7.50% due 01/01/27............................... 10,775,213
52,667 8.00% due 01/01/02............................... 53,760
51,323 8.00% due 05/01/02............................... 52,396
333,990 8.00% due 07/01/02............................... 340,959
5,504 8.00% due 08/01/22............................... 5,576
3,220,871 8.00% due 12/01/26............................... 3,265,093
27,694,750 8.50% due 01/01/05............................... 28,600,645
16,317 8.50% due 06/01/10............................... 16,784
4,355,873 8.70% due 01/01/05............................... 4,711,149
2,006,782 9.50% due 07/01/05............................... 2,105,817
540,417 10.00% due 06/01/20.............................. 585,930
8,205,128 10.00% due 06/01/26.............................. 8,943,507
134,850 Remic: PAC, Series 1991-101, Class C, 8.50% due 134,768
08/25/18.......................................
120,781 Remic: PAC, Series 1991-64, Class Z, 8.50% due 120,426
06/25/06.......................................
-------------
67,638,734
-------------
FEDERAL HOUSING ADMINISTRATION INSURED
3,293,992 Project 23, 7.43% due 03/01/22................... 3,131,351
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
184,983 7.00% due 07/15/22............................... 179,698
540,929 7.00% due 11/15/22............................... 524,891
757,549 7.00% due 01/15/23............................... 736,277
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 345,774 7.00% due 03/15/23............................... $ 335,581
842,427 7.00% due 07/15/23............................... 818,899
333,926 7.00% due 09/15/23............................... 323,768
1,274,576 7.00% due 10/15/23............................... 1,235,513
60,638 7.00% due 12/15/23............................... 58,854
3,662,045 7.00% due 01/15/24............................... 3,558,971
1,941,307 7.00% due 02/15/24............................... 1,882,716
490,587 7.00% due 03/15/24............................... 476,662
4,679,210 7.00% due 04/15/24............................... 4,540,377
2,605,403 7.00% due 05/15/24............................... 2,526,562
885,688 7.00% due 06/15/24............................... 859,608
6,591,311 7.00% due 03/15/26............................... 6,343,280
7,806,528 7.00% due 05/15/35............................... 7,512,457
5,962,198 7.125% due 01/15/99.............................. 5,772,958
5,257,870 7.125% due 01/15/31.............................. 5,091,143
5,179,128 7.25% due 02/15/27............................... 5,047,267
2,604,739 7.25% due 01/15/31............................... 2,538,344
94,980 7.50% due 03/15/23............................... 94,357
201,584 7.50% due 05/15/23............................... 200,203
119,397 7.50% due 06/15/23............................... 118,689
194,934 7.50% due 01/15/24............................... 193,573
2,818,680 7.50% due 04/15/26............................... 2,780,937
6,374,734 7.50% due 05/15/26............................... 6,289,504
8,828,192 7.50% due 01/15/27............................... 8,754,300
5,044,642 7.50% due 02/15/27............................... 5,002,166
5,513,681 7.625% due 04/15/26.............................. 5,510,262
1,518,009 7.75% due 06/15/23............................... 1,525,584
8,595,622 7.75% due 07/15/31............................... 8,638,600
3,325,102 7.875% due 12/15/99.............................. 3,367,697
212,886 8.00% due 06/15/26............................... 215,722
246,342 8.00% due 07/15/26............................... 249,629
1,033,084 8.00% due 08/15/26............................... 1,046,938
2,302,318 8.00% due 06/15/31............................... 2,350,506
23,242 11.50% due 07/15/13.............................. 25,885
11,024,885 12.00% due 07/15/26.............................. 12,534,854
1,037 13.50% due 10/15/14.............................. 1,165
-------------
109,264,397
-------------
321,411,040
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $324,432,010)........................
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
U.S. TREASURY OBLIGATIONS (15.5%)
U.S. TREASURY BONDS
$ 2,842,000 6.00% due 02/15/26............................... $ 2,483,567
2,440,000 6.50% due 11/15/26............................... 2,286,914
-------------
4,770,481
-------------
U.S. TREASURY NOTES
6,295,000 5.625% due 11/30/98.............................. 6,244,640
3,220,000 5.75% due 12/31/98............................... 3,199,553
16,500,000 5.875% due 11/15/99.............................. 16,303,155
8,730,000 5.875% due 02/15/00.............................. 8,609,264
7,163,000 5.875% due 06/30/00.............................. 7,048,034
4,290,000 5.875% due 11/15/05.............................. 4,049,159
1,985,000 6.625% due 06/30/01.............................. 1,990,995
1,795,000 7.25% due 08/15/04............................... 1,852,925
25,000,000 8.25% due 07/15/98(s)............................ 25,629,500
42,370,000 8.50% due 11/15/00(s)............................ 45,035,920
20,500,000 8.875% due 11/15/98.............................. 21,301,345
-------------
141,264,490
-------------
146,034,971
TOTAL U.S. TREASURY OBLIGATIONS (COST
$146,393,196)..............................
-------------
SOVEREIGN BONDS (1.8%)
ARGENTINA (0.4%)
2,000,000 Republic of Argentina Global Bonds, 11.375% due B1/BB 2,122,500
01/30/17.......................................
1,455,000 Republic of Argentina, FRB, Series L, 6.813% due B1/BB 1,334,963
03/31/05.......................................
-------------
3,457,463
-------------
BRAZIL (0.5%)
2,911,290 Brazil, MYDFA Trust Certificates, FRN, 6.813% due NR/NR 2,587,409
09/15/07.......................................
3,361,950 Republic of Brazil, C Bonds, 8.00% due B1/BB- 2,546,677
04/15/14(c)....................................
-------------
5,134,086
-------------
MEXICO (0.4%)
3,500,000 United Mexican States, 9.75% due 02/06/01........ Ba2/NA 3,664,850
-------------
POLAND (0.3%)
3,670,000 Republic of Poland, 4.00%* due 10/27/14.......... Baa3/BBB- 2,986,646
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/S&P
AMOUNT SECURITY DESCRIPTION RATING VALUE
- --------------- ------------------------------------------------- ------------ -------------
<C> <S> <C> <C>
VENEZUELA (0.2%)
$ 2,500,000 Republic of Venezuela, DCB, Series DL, FRN, Ba2/NR $ 2,209,500
6.875% due 12/18/07............................
-------------
17,452,545
TOTAL SOVEREIGN BONDS (COST $17,435,061).....
-------------
<CAPTION>
SHARES
- ---------------
<C> <S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (1.6%)
NATURAL GAS (0.1%)
36,000 Lasmo PLC, 10.00%, Series A...................... Baa3/BBB-
922,500
-------------
INDUSTRIAL PRODUCTS & SERVICES (1.5%)
80,000 James River Corp. of Virginia, 8.25%, Series O... Ba2/BB+ 2,020,000
12,575 Home Ownership Funding, (144A), 13.331%.......... Aaa/NA 12,297,596
-------------
14,317,596
-------------
15,240,096
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$15,428,278)...............................
-------------
<CAPTION>
PRINCIPAL
AMOUNT
- ---------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (3.2%)
U.S. GOVERNMENT AGENCY OBLIGATIONS (3.2%)
$ 29,917,000 Federal Home Loan Mortgage Discount Notes, 5.40% due 5/01/97... $ 29,917,000
-------------
932,341,791
TOTAL INVESTMENTS (COST $940,223,166) (98.9%)..................
10,169,125
OTHER ASSETS IN EXCESS OF LIABILITIES (1.1%)...................
-------------
$ 942,510,916
NET ASSETS (100.0%)............................................
-------------
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
- ------------------------------
Note: Based on the cost of investments of $940,223,166 for Federal Income Tax
purposes at April 30, 1997, the aggregate gross unrealized appreciation and
depreciation was $3,242,263 and $11,123,596, respectively, resulting in net
unrealized depreciation of $7,881,333.
(s) -- $20,500,000 par segregated as collateral for future contracts.
Abbreviations used in the schedule of investments are as follows:
* -- Rate shown reflects current rate on variable rate instrument or instrument
with step coupon rates.
144A -- Securities restricted for resale to Qualified Institutional Buyers.
ADR -- American Depository Receipt.
C -- Debt instrument with a fixed interest rate that pays a portion in interest
and a portion capitalizes increasing the principal.
DCB -- Debt Conversion Bond - non-collateralized floating rate instrument that
previously allowed the holder to convert the debt at a specific time.
FRB -- Floating Rate Bond.
FRN -- Floating Rate Note.
REMIC -- Real Estate Mortgage Investment Conduit.
PAC -- Planned Amortization Class.
NR -- Not Rated.
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $940,223,166 ) $932,341,791
Cash 4,909
Receivable for Investments Sold 2,602,112
Interest Receivable 13,403,107
Prepaid Trustees' Fees 2,122
Prepaid Expenses and Other Assets 1,607
------------
Total Assets 948,355,648
------------
LIABILITIES
Payable for Investments Purchased 5,472,886
Advisory Fee Payable 231,141
Custody Fee Payable 39,567
Administrative Services Fee Payable 23,947
Administration Fee Payable 4,630
Fund Services Fee Payable 592
Variation Margin Payable 38,737
Accrued Expenses 33,232
------------
Total Liabilities 5,844,732
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $942,510,916
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $32,130,666
Dividend Income (Net of Foreign Withholding Tax
of $6,749 ) 348,315
-----------
Investment Income 32,478,981
EXPENSES
Advisory Fee $ 1,384,277
Administrative Services Fee 145,189
Custodian Fees and Expenses 100,838
Professional Fees and Expenses 19,111
Fund Services Fee 16,645
Administration Fee 11,650
Trustees' Fees and Expenses 8,354
Miscellaneous 7,152
-----------
Total Expenses 1,693,216
-----------
NET INVESTMENT INCOME 30,785,765
NET REALIZED GAIN ON
Investment Transactions (including $28,610 net
realized gain from futures contracts) 3,520,833
NET CHANGE IN UNREALIZED DEPRECIATION OF
Investment (including $233,356 net unrealized
depreciation from futures contracts) (15,843,526)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $18,463,072
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
APRIL 30, 1997 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1996
-------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 30,785,765 $ 51,059,862
Net Realized Gain on Investments 3,520,833 2,643,598
Net Change in Unrealized Depreciation of
Investments (15,843,526) (9,807,630)
-------------- -----------------
Net Increase in Net Assets Resulting from
Operations 18,463,072 43,895,830
-------------- -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 242,182,973 513,960,050
Withdrawals (304,440,377) (153,430,627)
-------------- -----------------
Net Increase (Decrease) from Investors'
Transactions (62,257,404) 360,529,423
-------------- -----------------
Total Increase (Decrease) in Net Assets (43,794,332) 404,425,253
NET ASSETS
Beginning of Period 986,305,248 581,879,995
-------------- -----------------
End of Period $942,510,916 $986,305,248
-------------- -----------------
-------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER JULY 12, 1993
SIX MONTHS ENDED 31, (COMMENCEMENT OF
APRIL 30, 1997 ------------------ OPERATIONS) TO
(UNAUDITED) 1996 1995 1994 OCTOBER 31, 1993
----------------- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.37%(a) 0.37% 0.39% 0.46% 0.48%
Net Investment Income 6.67%(a) 6.38% 6.68% 5.88% 4.91%(a)
Portfolio Turnover 48% 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.
29
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
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, 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.
Investments in emerging markets may involve certain considerations and risks not
typically associated with investments in the United States. Future economic and
political developments in emerging market countries could adversely affect the
liquidity or value, or both, of such securities in which the Portfolio is
invested. The ability of the issuers of debt securities held by the Portfolio to
meet their obligations may be affected by economic and political developments in
a specific industry or region.
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, indications as to value from dealers and general market
conditions. Securities listed on a foreign exchange are valued at the last
quoted sale price available before the time when net assets are valued. 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 short-term portfolio securities with a remaining
maturity of less than 60 days are valued using 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
30
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
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.
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. The
change in the market value is recorded by the Portfolio as unrealized
appreciation or depreciation of foreign forward and spot currency
contracts until terminated, at which time realized foreign currency gains
and losses are recognized. There were no open forward or spot currency
contracts as of April 30, 1997.
d)Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place will be fixed when
the Portfolio enters into the contract. Upon entering into such a contract
the Portfolio is required to pledge to the broker an amount of cash and/or
liquid securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the Portfolio agrees to receive
from, or pay to, the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are
known as "variation margin" and are recorded by the Portfolio as
unrealized gains or losses. When the contract is closed the Portfolio
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time when
it was closed. The Portfolio invests in futures contracts for the purpose
of hedging its existing portfolio securities, or securities the Portfolio
intends to purchase, against fluctuations in value caused by changes in
prevailing market interest rates or securities movements. The use of
futures transactions involves the risk of imperfect correlation of
movements in the price of futures contracts, interest rates and the
underlying hedged assets, and the possible inability of counterparties to
meet the terms of their contracts. Futures transactions during the six
months ended April 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF PRINCIPAL AMOUNT
CONTRACTS OF CONTRACTS
--------- ----------------
<S> <C> <C>
Contracts open at beginning of period............ 0 $ 0
Contracts opened................................. 586 64,059,612
Contracts closed................................. (401) (44,006,562)
--------- ----------------
Contracts open at end of period.................. 185 $ 20,053,050
--------- ----------------
--------- ----------------
</TABLE>
31
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
SUMMARY OF OPEN CONTRACTS AT APRIL 30, 1997
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/
CONTRACTS LONG (DEPRECIATION)
-------------- --------------
<S> <C> <C>
U. S. Long Bond, June 1997....................... 185 (233,356)
-------------- --------------
Totals........................................... 185 $ (233,356)
-------------- --------------
-------------- --------------
</TABLE>
e)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be subject to
taxation on its share of the Portfolio's ordinary income and capital
gains. It is intended that the Portfolio's assets will be managed in such
a way that an investor in the Portfolio will be able to satisfy the
requirements of Subchapter M of the Internal Revenue Code. The Portfolio
earns foreign income which may be subject to foreign withholding taxes at
various rates.
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 six months ended April 30, 1997, this
fee amounted to $1,384,277.
b)The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer to serve as a co-administrator and distributor. Under a
Co-Administration Agreement between FDI and the Portfolio, FDI 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 officers affiliated with
FDI. 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 JPM Pierpont
Funds, The JPM Institutional Funds, The JPM Advisor Funds, the Portfolio
and the other portfolios in which the JPM Pierpont Funds,The JPM
Institutional Funds invest (the "Master Portfolios"), JPM Series Trust and
JPM Series Trust II. For the six months ended April 30, 1997, the fee for
these services amounted to $11,650.
On November 15, 1996, The JPM Advisor Funds terminated operations and were
liquidated. Subsequent to that date, the net assets of the JPM Advisor
Funds were no longer included in the calculation of the allocation of
FDI's fees.
c)The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing
certain aspects of the administration and operation of the Portfolio.
Under the Services Agreement, the Portfolio has agreed to pay Morgan a fee
equal to its proportionate share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate net assets of the Master
Portfolios, and JPM Series Trust in accordance with the following annual
schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess
of $7 billion, less the complex-wide fees payable to FDI.
32
<PAGE>
THE U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
The portion of this charge payable by the Portfolio is determined by the
proportionate share that the net assets bear to the total net assets of
the Master Portfolios, investors in the Master Portfolios for which Morgan
provides similar services, the JPM Pierpont Funds, hte JPM Institutional
Funds and JPM Series Trust. For the six months ended April 30, 1997, the
fee for these services amounted to $145,189.
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 $16,645 for the six months ended April 30, 1997.
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios, and JPM Series Trust. 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, 1997, the
aggregate annual Trustee Fee was $65,000. The Portfolio's Chairman and
Chief Executive Officer also serves as Chairman of Group and receives
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 $3,300.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1997, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $180,181,964 $334,208,764
Corporate and Collateralized Obligations......... 250,517,067 118,821,269
------------ ------------
$430,699,031 $453,030,033
------------ ------------
------------ ------------
</TABLE>
33
<PAGE>
JPM PIERPONT PRIME MONEY MARKET FUND
JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
JPM PIERPONT FEDERAL MONEY MARKET FUND
JPM PIERPONT SHORT TERM BOND FUND
JPM PIERPONT BOND FUND
JPM PIERPONT TAX EXEMPT BOND FUND
JPM PIERPONT NEW YORK TOTAL RETURN BOND FUND
JPM PIERPONT SHARES: CALIFORNIA BOND FUND
JPM PIERPONT EMERGING MARKETS DEBT FUND
JPM PIERPONT DIVERSIFIED FUND
JPM PIERPONT U.S. EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE U.S. EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE DISCIPLINED EQUITY FUND
JPM PIERPONT U.S. SMALL COMPANY FUND
JPM PIERPONT INTERNATIONAL EQUITY FUND
JPM PIERPONT INTERNATIONAL OPPORTUNITIES FUND
JPM PIERPONT EMERGING MARKETS EQUITY FUND
JPM PIERPONT EUROPEAN EQUITY FUND
JPM PIERPONT JAPAN EQUITY FUND
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
SEMI-ANNUAL REPORT
APRIL 30, 1997
