<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P
PRINCIPAL RATING
AMOUNT SECURITY DESCRIPTION (UNAUDITED) VALUE
- ----------- -------------------------------------------------- ----------- -----------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS
AND ASSET BACKED SECURITIES (27.8%)
$ 917,479 CIT River Owners Trust, Series 1995-A, Class A,
Sequential Payer, Callable, 6.25% due
01/15/11........................................ Aaa/AAA $ 918,378
967,048 Chase Manhattan Grantor Trust, Series 1995-A, Pass
Through, 6.00% due 09/17/01..................... Aaa/AAA 967,350
761,660 Equicon Home Equity Loan Trust, Series 1992-7,
Remic: Sequential Payer, Class A, 5.90% due
09/18/05........................................ Aaa/AAA 750,205
685,347 Fleetwood Credit Corp. Grantor Trust, Series
1994-A, Class A, Sequential Payer, Callable,
4.70% due 07/15/09.............................. Aaa/AAA 653,176
1,400,000 Greentree Financial Corp Series 1993-3, Class A3,
Sequential Payer, Callable, 5.20% due
10/15/18........................................ Aa2/AA 1,370,348
831,446 Merrill Lynch Mortgage Investors, Inc., Remic:
Series 1994-C1, Class A, Callable, 8.72% due
11/25/20........................................ Aaa /AAA 855,221
741,808 Old Kent Auto Receivables Trust, Series 1995-A,
Class A, Sequential Payer, 6.20% due 08/15/01... Aaa/AAA 744,626
922,174 Prudential Home Mortgage Securities, Remic:
Sequential Payer, Series 1992-44, Class A1,
6.00% due 01/25/98.............................. Aaa/AAA 905,363
1,000,000 Queens Center Funding Corp., Class B, 144A, 8.12%
due 01/01/04.................................... Baa2/BBB 1,000,000
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS AND
ASSET BACKED SECURITIES (COST $8,168,895)....... 8,164,667
-----------
CORPORATE OBLIGATIONS (25.3%)
BANKING (3.5%)
1,000,000 Chase Manhattan Corp., 7.50% due 12/01/97......... A3/A- 1,030,590
-----------
DEPARTMENT STORES (3.5%)
1,000,000 Sears Roebuck & Co., 7.25% due 08/05/97........... Baa/BBB 1,020,230
-----------
FINANCE (11.2%)
1,000,000 Associates Corp., North America, 7.55% due
09/01/99........................................ Aa3/AA- 1,043,520
1,000,000 Chrysler Financial Corp., 6.21% due 07/21/97...... A3/A- 1,000,200
1,250,000 Ford Motor Credit Corp., 5.75% due 05/14/98....... A1/A+ 1,238,988
-----------
3,282,708
-----------
UTILITIES -- ELECTRIC (3.7%)
1,000,000 Hydro Quebec, 9.75% due 09/29/98.................. Aa3/AA 1,089,380
-----------
OIL AND GAS (3.4%)
1,000,000 Occidental Petroleum Corp., 5.76% due 06/15/98.... Baa3/BBB 985,890
-----------
TOTAL CORPORATE OBLIGATIONS (COST $7,275,383)..... 7,408,798
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
THE SHORT TERM BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY DESCRIPTION VALUE
- ----------- -------------------------------------------------- -----------
U.S. GOVERNMENT AGENCY OBLIGATIONS (16.1%)
<C> <S> <C> <C>
$ 753,910 Federal Home Loan Mortgage Corporation, 9.00% due
05/01/97........................................ $ 785,710
Federal National Mortgage Association
1,500,000 Remic: PAC-1(11), Series 1994-7, Class PB, 5.60%
due 07/25/03.................................... 1,483,050
1,500,000 Remic: PAC-1(11), Series 1994-12, Class PC, 5.25%
due 04/25/03.................................... 1,475,340
1,000,000 Remic: PAC-1(11), Series 1994-33, Class D, 5.50%
due 04/25/05.................................... 978,480
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST
$4,732,640)..................................... 4,722,580
-----------
U.S. TREASURY OBLIGATIONS (26.7%)
U.S. Treasury Notes
4,250,000 6.50% due 05/15/97 (a)............................ 4,303,635
1,000,000 6.50% due 04/30/99................................ 1,023,450
1,100,000 5.50% due 07/31/97 (b)............................ 1,097,723
1,410,000 5.125% due 11/30/98............................... 1,386,918
-----------
TOTAL U.S.TREASURY OBLIGATIONS (COST
$7,742,928)..................................... 7,811,726
-----------
SHORT-TERM HOLDINGS (3.1%)
REPURCHASE AGREEMENT (3.1%)
916,000 Goldman Sachs Repurchase Agreement dated 10/31/95
due 11/01/95, at 5.880%, proceeds $916,150
(collateralized by $918,000 U.S. Treasury Note,
5.875% due 07/31/97, valued at $935,066) (cost
$916,000)....................................... 916,000
-----------
OTHER INVESTMENT COMPANIES (0.0%)*
<CAPTION>
SHARES
- -----------
<C> <S> <C> <C>
834 Seven Seas Money Market Fund (cost $834).......... 834
-----------
TOTAL SHORT-TERM HOLDINGS (COST $916,834)......... 916,834
-----------
TOTAL INVESTMENTS (COST $28,836,680) (99.0%) 29,024,605
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%) 281,971
-----------
NET ASSETS (100.0%) $29,306,576
-----------
-----------
</TABLE>
Note: Based on the cost of investments of $28,836,680 for federal income tax
purposes at October 31, 1995, the aggregate gross unrealized appreciation
and depreciation was $281,136 and $93,211, respectively, resulting in net
unrealized appreciation of $187,925.
(a) $1,000,000 par segregated as collateral for initial margin on futures
contracts.
(b) $100,000 par segregated as collateral for initial margin on futures
contracts.
* Less than 0.1%.
144A - Securities restricted for resale to Qualified Institutional Buyers.
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $28,836,680) $ 29,024,605
Interest Receivable 355,668
Deferred Organization Expenses 3,665
Prepaid Expenses and Other Assets 460
------------
Total Assets 29,384,398
------------
LIABILITIES
Custody Fee Payable 38,432
Advisory Fee Payable 13,342
Variation Margin Payable on Futures Contracts 312
Fund Services Fee Payable 238
Administration Fee Payable 161
Accrued Expenses 25,337
------------
Total Liabilities 77,822
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $ 29,306,576
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $ 3,757,520
Dividend Income 60,424
-----------
Total Income 3,817,944
EXPENSES
Advisory Fee $ 146,335
Custodian Fees and Expenses 55,346
Professional Fees 35,280
Printing Expense 12,000
Fund Services Fee 5,573
Administration Fee 4,485
Trustees' Fees and Expenses 1,424
Amortization of Organization Expenses 1,365
Miscellaneous 2,260
----------
Total Expenses 264,068
Less: Reimbursement of Expenses (21,070)
----------
NET EXPENSES (242,998)
-----------
NET INVESTMENT INCOME 3,574,946
NET REALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES (including
$23,562 net realized losses from futures contracts) 407,824
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENTS AND FUTURES (including $7,272 unrealized loss on
futures contracts) 1,076,791
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,059,561
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE SHORT TERM BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS OCTOBER 31, 1995 OCTOBER 31, 1994
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $ 3,574,946 $ 2,272,212
Net Realized Gain (Loss) on Investments 407,824 (1,015,882)
Net Change in Unrealized Appreciation
(Depreciation) of Investments 1,076,791 (804,516)
---------------- ----------------
Net Increase in Net Assets Resulting from
Operations 5,059,561 451,814
---------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 32,690,159 41,445,030
Withdrawals (61,766,958) (23,001,490)
---------------- ----------------
Net Increase (Decrease) from Investors'
Transactions (29,076,799) 18,443,540
---------------- ----------------
Total Increase (Decrease) in Net Assets (24,017,238) 18,895,354
NET ASSETS
Beginning of Fiscal Year 53,323,814 34,428,460
---------------- ----------------
End of Fiscal Year $29,306,576 $53,323,814
---------------- ----------------
---------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
JULY 8, 1993
(COMMENCEMENT
OF
OPERATIONS)
THROUGH
FOR THE FISCAL YEAR ENDED OCTOBER 31,
OCTOBER 31, 1995 OCTOBER 31, 1994 1993
---------------- ---------------- -------------
<S> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.42% 0.36% 0.37%(a)
Net Investment Income 6.11% 5.01% 3.99%(a)
Decrease in Expense Ratio due to Expense
Reimbursement by Morgan 0.04% 0.05% 1.00%(a)
Portfolio Turnover 177% 230% 116%
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Short Term Bond Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, 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 8, 1993. The
Declaration of Trust permits the Trustees to issue an unlimited number of
beneficial interests in the Portfolio.
The following is a summary of the significant accounting policies of the
Portfolio:
a)Portfolio securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are
valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national
securities exchange, or in the absence of recorded sales, at the readily
available bid price on such exchange or at the quoted bid price in the
over-the-counter market, if such exchange or market constitutes the
broadest and most representative market for the security and (ii) in other
cases, take into account various factors affecting market value, including
yields and prices of comparable securities, indication as to value from
dealers and general market conditions. If such prices are not supplied by
the Portfolio's independent pricing services, such securities are priced
in accordance with procedures adopted by the Trustees. All portfolio
securities with a remaining maturity of less than 60 days are valued by
the amortized cost method.
b)Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the Portfolio
enters in the contract. Upon entering into such a contract the Portfolio
is required to pledge to the broker an amount of cash and/or 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 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 solely 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. The use of futures transactions involves the risk of imperfect
correlation in 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
in U.S. Treasury securities during the fiscal year ended October 31, 1995
are summarized as follows:
<TABLE>
<CAPTION>
SALES OF FUTURES CONTRACTS
--------------------------------------
PRINCIPAL AMOUNT
NUMBER OF CONTRACTS OF CONTRACTS
------------------- ----------------
<S> <C> <C>
Contracts opened 248 $ 36,681,681
Contracts closed (238) (35,605,672)
--- ----------------
Open at end of the fiscal year 10 $ 1,076,009
--- ----------------
--- ----------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF OPEN CONTRACTS
AT OCTOBER 31, 1995
-------------------------------
NET UNREALIZED
CONTRACTS LONG DEPRECIATION
-------------- --------------
<S> <C> <C>
Five-Year U.S. Treasury, expiring December
1995 10 $7,272
-
-
------
------
</TABLE>
20
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
c)Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
d)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxable on
its share of the Portfolio's ordinary income and capital gains. It is
intended that the Portfolio's assets will be managed in such a way that an
investor in the Portfolio will be able to satisfy the requirements of
Subchapter M of the Internal Revenue Code.
e)The Portfolio incurred organization expenses in the amount of $5,380.
These costs were deferred and are being amortized on a straight-line basis
over a five-year period from the commencement of operations.
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an investment advisory agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the investment
advisory agreement, the Portfolio pays Morgan at an annual rate of 0.25%
of the Portfolio's average daily net assets. For the fiscal year ended
October 31, 1995, such fees amounted to $146,335.
b)The Portfolio has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as Administrator and exclusive placement agent.
Signature provides administrative services necessary for the operations of
the Portfolio, furnishes office space and facilities required for
conducting the business of the Portfolio and pays the compensation of the
Portfolio's officers affiliated with Signature. The agreement provides for
a fee to be paid to Signature at an annual rate determined by the
following schedule: 0.01% of the first $1 billion of the aggregate average
daily net assets of the Portfolio and the other portfolios subject to the
Administrative Services Agreement, 0.008% of the next $2 billion of such
net assets, 0.006% of the next $2 billion of such net assets, and 0.004%
of such net assets in excess of $5 billion. The daily equivalent of the
fee rate is applied each day to the net assets of the Portfolio. For the
fiscal year ended October 31, 1995, Signature's fee for these services
amounted to $4,485.
c)During the period November 1, 1994 through August 31, 1995, the Portfolio
had a Financial and Fund Accounting Services Agreement ("Services
Agreement") with Morgan under which Morgan may receive a fee based on the
percentages described below, for overseeing certain aspects of the
administration and operation of the Portfolio and which was also designed
to provide an expense limit for certain expenses of the Portfolio. This
fee was calculated exclusive of the advisory fee, custody expenses, fund
services fee, amortization of organization expenses, and brokerage costs
at 0.05% of the Portfolio's average daily net assets up to and including
$200 million and 0.03% on any excess over $200 million. For the period
November 1, 1994 through August 31, 1995, Morgan agreed to reimburse the
Fund $21,070 for expenses that exceeded this limit. Effective September 1,
1995, the Services Agreement was terminated and an interim agreement was
entered into between
21
<PAGE>
THE SHORT TERM BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
the Portfolio and Morgan which provides for the continuation of the
oversight services that were outlined under the prior agreement and that
Morgan shall bear all of its expenses incurred in connection with these
services.
d)The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its services
amounted to $5,573 for the fiscal year ended October 31, 1995.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Pierpont Funds, The JPM Institutional Funds, and their
corresponding Portfolios. The Trustees' Fees and Expenses shown in the
financial statements represent the Portfolio's allocated portion of the
total fees and expenses. Prior to April 1, 1995, the aggregate annual
Trustee Fee was $55,000. The Trustee who serves as Chairman and Chief
Executive Officer of these Funds and Portfolios also serves as Chairman of
Group and received compensation and employee benefits from Group in his
role as Group's Chairman. The allocated portion of such compensation and
benefits included in the Fund Services Fee shown in the financial
statements was $700.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C> <C>
U.S. Government and Agency Obligations $ 74,510,169 $ 98,274,504
Corporate and Collateralized Obligations 25,683,032 26,983,195
-------------- --------------
$ 100,193,201 $ 125,257,699
-------------- --------------
-------------- --------------
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Short Term Bond Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The Short Term Bond Portfolio (the
"Portfolio") at October 31, 1995, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and its supplementary data for each of the two years in the
period then ended and for the period July 8, 1993 (commencement of operations)
through October 31, 1993, in conformity with generally accepted accounting
principles. These financial statements and supplementary data (hereafter
referred to as "financial statements") are the responsibility of the Portfolio's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1995 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
December 15, 1995
23
