<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPMINSTITUTIONAL U.S. EQUITY FUND
June 27, 1997
Dear Shareholder:
We are pleased to report that, as the bulls in the U.S. market for large cap
stocks continued their unprecedented eight-year run, The JPM Institutional
U.S. Equity Fund provided an impressive 25.21% return for the fiscal year
ended May 31, 1997. This result outdistanced the 22.84% return posted over
the the same period by Fund competitors included in the Lipper Growth and
Income Average. The Fund did, however, trail the 29.41% return of its
benchmark, the S&P 500 Index. We believe this relative underperformance is
largely attributable to the fact that the Fund's investment strategy was not
rewarded by the market's focus throughout much of the year. The Fund
diversifies its portfolio among large cap stocks that have been identified as
undervalued by Morgan research. The market, meanwhile, centered its
enthusiasm on a small number of very large stocks with stable earnings growth
that we viewed as overvalued. When these "defensive growth" stocks moved the
Index forward, their absence from the Fund's portfolio hurt relative
short-term returns. We also feel it is important to note that the Fund's
benchmark is an unmanaged index whose performance does not include fees or
operating expenses and which is not available to individual and/or
institutional investors.
An actively managed approach to U.S. large cap stocks has enabled the Fund to
provide shareholders with an average annual total return of 14.53% over the
last 10 years. This is considerably in excess of the 12.63% 10-year average
annual total return provided by the Lipper Growth and Income Average.
The Fund's net asset value increased from $14.00 per share to $15.66 at the
end of the period, after making distributions during the year of $0.87 from
long-term capital gains, $0.41 from short-term capital gains, and $0.25 from
ordinary income. In addition, the Fund's net assets advanced from $221.4
million on May 31, 1996 to $329.8 million at the end of the period under
review. The net assets of The U.S. Equity Portfolio, in which the Fund
invests, totaled approximately $859.3 million at May 31, 1997.
The report that follows includes an interview with William B. Petersen, a
member of the 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.
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS.......... 1 FUND FACTS AND HIGHLIGHTS......... 7
FUND PERFORMANCE.................... 3 FINANCIAL STATEMENTS.............. 10
PORTFOLIO MANAGER Q&A............... 4
1
<PAGE>
As chairman and president of Asset Management Services, we look forward to
sharing Morgan's insights regarding global markets with you going forward.
If you have any comments or questions, please call your Morgan representative
or J.P. Morgan Funds Services at (800) 766-7722.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
2
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to evaluate a mutual fund's historical performance is to look at the
growth of a hypothetical investment of $3,000,000. The chart at right shows
the minimum invested on May 31, 1987 in the Fund's predecessor* would have
grown to $11,645,154 at May 31, 1997.
Another way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
you what would have happened if the fund had achieved that return by
performing at a constant rate each year. Average annual total returns
represent the average yearly change of a fund's value over various time
periods, typically 1, 5, or 10 years. Total returns for periods of less than
one year are not annualized and provide a picture of how a fund has performed
over the short term.
GROWTH OF $3,000,000 OVER 10 YEARS*
MAY 31, 1987 -- MAY 31, 1997
[EDGAR REPRESENTATION OF LINE CHART]
The JPM
Institutional Lipper Growth
Selected and
U.S. Equity Fund S&P 500 Income Average
---------------- ------- --------------
(in thousands)
May-87 $ 3,000.00 $ 3,000.00 $ 3,000.00
May-88 2,757.46 2,804.61 2,863.81
May-89 3,450.06 3,556.26 3,521.93
May-90 4,097.66 4,147.09 3,897.15
May-91 4,704.33 4,636.10 4,316.89
May-92 5,391.10 5,093.86 4,794.26
May-93 5,931.54 5,684.16 5,374.41
May-94 6,425.34 5,926.21 5,655.88
May-95 7,414.89 7,122.66 6,488.52
May-96 9,300.18 9,148.16 8,162.92
May-97 11,645.20 11,839.00 10,016.90
LIPPER PERFORMANCE AVERAGES ARE CALCULATED BY TAKING AN ARITHMETIC AVERAGE OF
THE RETURNS OF THE FUNDS IN THE GROUP. THE AVERAGE ANNUALIZED RETURNS WHICH
RESULT FROM THIS METHODOLOGY WILL DIFFER FROM ANNUALIZING THE GROWTH OF THE
MINIMUM INITIAL INVESTMENT.
PERFORMANCE
<TABLE>
<CAPTION>
TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- ---------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF MAY 31, 1997 MONTHS MONTHS YEAR YEARS YEARS YEARS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The JPM Institutional U.S. Equity Fund* 7.48% 12.24% 25.21% 21.92% 16.65% 14.53%
S&P 500 7.80% 13.15% 29.41% 25.94% 18.38% 14.71%
Lipper Growth and Income Average 6.13% 10.15% 22.84% 20.97% 15.88% 12.63%
AS OF MARCH 31, 1997
- ---------------------------------------------------------------------------------------------------------
The JPM Institutional U.S. Equity Fund* 2.62% 11.08% 16.58% 18.92% 14.71% 13.25%
S&P 500 2.68% 11.24% 19.82% 22.30% 16.42% 13.37%
Lipper Growth and Income Average 1.13% 8.70% 15.53% 17.85% 14.16% 11.50%
</TABLE>
*THE JPM INSTITUTIONAL U.S. EQUITY FUND'S RETURNS INCLUDE HISTORICAL RETURNS
OF THE PIERPONT EQUITY FUND PRIOR TO JULY 19, 1993.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ASSUME
THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF CERTAIN FUND
AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN
SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. LIPPER ANALYTICAL SERVICES, INC.
IS A LEADING SOURCE FOR MUTUAL FUND DATA. ALTHOUGH BENCHMARK RETURNS ARE
GATHERED FROM RELIABLE SOURCES, DATA ACCURACY AND COMPLETENESS CANNOT BE
GUARANTEED. THE JPMINSTITUTIONAL U.S. EQUITY FUND INVESTS ALL OF ITS
INVESTABLE ASSETS IN THE U.S. EQUITY PORTFOLIO, A SEPARATELY REGISTERED
INVESTMENT COMPANY WHICH IS NOT AVAILABLE TO THE PUBLIC BUT ONLY TO OTHER
COLLECTIVE INVESTMENT VEHICLES SUCH AS THE FUND.
3
<PAGE>
PORTFOLIO MANAGER Q&A
[Photo]
Following is an interview with WILLIAM B. PETERSEN, a member of the portfolio
management team for The U.S. Equity Portfolio in which the Fund invests. Bill
originally joined Morgan in 1972 as a research analyst and became a member of
the firm's portfolio management team in 1977. This interview was conducted
June 25, 1997 and reflects Bill's views on that date.
THE S&P 500 ROSE TO ALL-TIME HIGHS DURING THE PORTFOLIO'S 1997 FISCAL YEAR.
GIVEN THE MARKET'S RECOVERY FROM ITS LATE-WINTER SLOWDOWN, WOULD YOU SAY THAT
THE FEDERAL RESERVE'S CAUTIOUS TIGHTENING HAS HELPED BRING ABOUT ANOTHER
"SOFT LANDING" FOR THE ECONOMY?
WBP: The evidence would certainly point that way for the short term. The
economy has settled down to what appears to be a relatively sustainable rate
of growth, and the market certainly agrees with it. Both the stock market and
the bond market have rallied quite a bit on this perception. We continue to
be concerned by the fact that the U.S. unemployment rate is under 5% while
labor costs are beginning to rise. Low unemployment means higher labor costs
cannot be arrested unless the economy slows to a below-trend rate of growth.
At the current rate of growth, we still see cyclical pressures growing in the
economy, which makes us concerned the Federal Reserve may have to tighten
monetary policy by raising short-term interest rates.
A second, perhaps slightly overlooked, cause for concern is that the relative
weakness of global economies has underpinned the rosy U.S. inflation
scenario. If the economies of Europe and Japan begin to grow -- and there are
signs they are doing just that -- inflationary pressures in this country
could become evident sooner, rather than later. This could also mean an
outflow of assets from U.S. stocks to international markets.
OUR REFUSAL TO HAVE THE PORTFOLIO TAKE LARGE SECTOR BETS RELATIVE TO THE
INDEX HELPED IT OUTPERFORM COMPETITORS INCLUDED IN THE LIPPER GROWTH AND
INCOME AVERAGE FOR THE TWELVE MONTHS UNDER REVIEW. DOES THE MARKET'S RECENT
MOVE AWAY FROM BUYING THAT WAS FOCUSED ON "NIFTY FIFTY" DEFENSIVE GROWTH
STOCKS LEAD YOU TO BELIEVE THAT RELATIVE OUTPERFORMANCE MIGHT BE EXTENDED?
WBP: Market leadership tends to narrow when the profit cycle peaks and
begins to slow. Profits are still growing, but the rate of growth is slower
than it used to be. That's part of the reason why performance leadership had
narrowed to the market's largest-capitalized stocks -- the so-called "Nifty
Fifty." As confidence has increased that the economic cycle is likely to be
extended, lessening the need for the Federal Reserve to tighten, the market
has been more willing to look beyond stocks with stable earnings growth.
That, in turn, has helped performance in the Portfolio's value-driven stock
selection. Should this environment persist, we expect that it will continue
to enhance overall returns.
I think it's important to remember that while the Portfolio is primarily
focused on large cap stocks, it also has a somewhat smaller market
capitalization than the market as a whole. The management team pursues this
strategy because we believe that we can find value in some of the large cap
market's smaller names.
4
<PAGE>
These companies may be small relative to a Coca-Cola or a Microsoft, but they
still bring hefty capitalizations of at least $1 billion to the table
[average capitalization within the Index is $50 billion]. The 50 largest S&P
500 stocks advanced 35.76% for the period under review, roughly 57% of the
Index's total return. We now regard the Index's 50 largest stocks as
overvalued and believe their relative outperformance is unsustainable. Should
the present market environment continue, we believe investors will increase
their search for value, which would be good news for us, rather than buy just
the "big names" to remain in the market.
ONLY A SMALL PERCENTAGE OF ACTIVELY MANAGED LARGE CAP FUNDS OUTPERFORMED THE
S&P 500 FOR THE PERIOD UNDER REVIEW. THAT BEING THE CASE, WHAT ADVANTAGES DO
YOU BELIEVE YOUR MANAGED APPROACH CAN POTENTIALLY DELIVER AS THE MARKET
CONTINUES TO EVOLVE?
WBP: Index funds have outperformed active management because the recent
market advance has been dominated by a small number of large stocks -- the
Coca-Colas and Microsofts of the world -- that we think most investors would
agree are fairly expensive. We believe index fund buyers should realize they
are putting a lot of their money into 10 or 15 stocks -- something they might
not do if they were investing individually. They should also remember that
index funds don't always go up -- recent history notwithstanding. When stock
prices decline, index fund investors can expect to bear the full brunt of
that market downturn. We understand that great companies are not always great
investments. That's why the portfolio management team is constantly searching
for value across market sectors, rather than focusing on a favored few. Our
objective, as always, is to achieve superior long-term returns as well as
dampen investment risk.
WHICH OF YOUR TEAM'S STOCK SELECTIONS WERE ESPECIALLY HELPFUL IN ADDING VALUE
FOR THE PERIOD?
WBP: Two stocks have been particularly beneficial to overall returns and
have the added benefit of illustrating the two sides of our investment
process.
The first of these was UNITED HEALTHCARE CORP., a large HMO in the health
services sector, which was bought early in the Portfolio's 1997 fiscal year.
The stock looked attractive at first, but we hadn't taken a position in it
because there were signs of earnings disappointments in the industry. Like
its competitors, United Healthcare had a disappointing second quarter during
calendar year 1996, dropping from the high $50s to the mid $30s. At that
point, however, it looked extraordinarily attractive in our valuation
methodology. Since we had a lot of confidence in the company's prospects for
long-term growth, we took advantage of short-term market pressures and
purchased a substantial position in the stock at what turned out to be
bargain prices.
Holding WARNER-LAMBERT CO., a pharmaceuticals company, has also proved
extremely beneficial to overall returns. But we didn't buy "disappointment,"
so to speak, in this stock, as we did with United Healthcare. Instead, we
anticipated the flow of new drugs that the company would eventually produce
well before the market did. So, just as the market often overreacts to
short-term negative disappointments, it's often slow to react positively to
developing good news. Through our frequent visits with management, we
garnered a lot of confidence that the old Warner-Lambert had changed and that
the company had a new product pipeline. The products, frankly, have been more
successful than we ever could have imagined. This is particularly true of
Rezulin, a diabetes drug that the company introduced in January.
5
<PAGE>
DID THE PORTFOLIO'S MINOR DEVIATIONS FROM S&P 500 SECTOR WEIGHTINGS ADD VALUE?
WBP: Performance attribution for the last twelve months shows that, unlike
other periods, excess return in the Portfolio did not come from industry
overweightings or underweightings. We have recently tried to keep the
Portfolio even closer than normal to sector weightings found in the S&P 500.
This is because crosscurrents in the economy make guessing which sectors are
going to do well more difficult than usual.
WHERE DID THE PORTFOLIO LAG?
WBP: Technology was far and away our most difficult sector for the 1997
fiscal year. Most of the Portfolio's relative underperformance in technology
has come from not owning Microsoft, which has always looked very expensive to
us, and owning less INTEL (semiconductors), given our somewhat cautious
approach to a stock that had done well. Even though it looked moderately
attractive, the Portfolio was underweighted in the stock. Those two stocks
accounted for more than half the Portfolio's underperformance in this sector.
Technology stocks in the Index rose 45%, while the market as a whole was up
29%. The sector was very good, but surprisingly few technology stocks
outperformed and many lost money during the period.
A KEY SUPPORT FOR THE EXTENDED BULL MARKET HAS BEEN THE NEAR-UNINTERRUPTED
INFLOW OF NEW ASSETS INTO STOCK MUTUAL FUNDS. WILL THE INCREASED
PARTICIPATION IN U.S. STOCKS BY OVERSEAS INVESTORS ADDITIONALLY BOOST PRICES?
WBP: There's no question that the basic liquidity backdrop of funds flows --
whether it be domestic mutual funds, 401(k) investors, or international
investors -- is helping to support this market. Nevertheless, fund flows
can't do it alone, and we'd expect the market to go down if economic
fundamentals deteriorate.
HOW HIGH DO WE CURRENTLY EXPECT THIS SEEMINGLY UNSTOPPABLE MARKET TO GO?
WBP: We believe we're at extreme levels now -- even for a low inflationary
environment -- in terms of price-to-earnings ratios and dividend yields. That
doesn't mean the market has to go down. Valuation is not a market timing
tool. But we are at an extreme, and it's difficult to see valuations going
much higher. At best, we see the market giving you an earnings growth in the
5% to 6% range going forward, although other market factors may reduce this
somewhat. That's a very good return -- even if it does follow the spectacular
double-digit returns posted in 1995 and 1996, and the close to 20% market
advance seen so far this year -- and it's just one of the reasons why Morgan
recommends maintaining portfolio exposure to this key market.
WHAT DO YOU THINK COULD CAUSE AN EVENTUAL CORRECTION?
WBP: The market is clearly vulnerable to "surprises" that cannot be
forecast. On a fundamental basis, however, we do think cyclical pressures are
building in the U.S. economy. If these continue or become exacerbated by
higher economic growth rates overseas and/or higher inflation at home, the
Federal Reserve will undoubtedly raise interest rates. And if the market
begins to sense there's an economic downturn coming, something that hasn't
happened for a very long time, it will almost certainly work as a catalyst
for correction.
6
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The JPM Institutional U.S. Equity Fund seeks to provide a high total return
from a portfolio of selected equity securities. It is designed for investors
who want an actively managed portfolio of selected equity securities that
seeks to outperform the S&P 500 Index.
- ---------------------------------------
COMMENCEMENT OF OPERATIONS
7/19/93
- ---------------------------------------
NET ASSETS AS OF 5/31/97
$329,775,659
- ---------------------------------------
CAPITAL GAIN PAYABLE DATES
8/15/97 AND 12/24/97
EXPENSE RATIO
The Fund's current annualized expense ratio of 0.60% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services after reimbursement. The Fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for
buying, selling, or safekeeping Fund shares, or for wiring redemption
proceeds from the Fund.
FUND HIGHLIGHTS
ALL DATA AS OF MAY 31, 1997
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[EDGAR REPRESENTATION OF PIE CHART]
Consumer goods.............................. 24.1%
Technology.................................. 15.0%
Finance..................................... 13.4%
Health care................................. 11.1%
Energy...................................... 9.1%
Industrial.................................. 8.9%
Utilities................................... 7.5%
Basic industries............................ 6.8%
Short-term holdings......................... 2.2%
Transportation.............................. 1.9%
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- --------------------------------------------------------------------
TELE-COMMUNICATIONS TCI, SERIES A 2.9%
(BROADCASTING & PUBLISHING)
RALSTON PURINA CO. 2.8%
(FOOD, BEVERAGES & TOBACCO)
PROCTER & GAMBLE CO. 2.8%
(HOUSEHOLD PRODUCTS)
WARNER-LAMBERT CO. 2.3%
(PHARMACEUTICALS)
EXXON CORP. 2.3%
(OIL PRODUCTION)
TIME WARNER, INC. 2.2%
(ENTERTAINMENT, LEISURE & MEDIA)
COOPER INDUSTRIES, INC. 2.2%
(DIVERSIFIED MANUFACTURING)
UNITED HEALTHCARE CORP. 2.1%
(HEALTH SERVICES)
ALLEGHENY TELEDYNE, INC. 2.1%
(METALS & MINING)
PROVIDIAN CORP. 2.1%
(INSURANCE)
7
<PAGE>
FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR OF THE JPM INSTITUTIONAL U.S.
EQUITY FUND (THE "FUND"). SIGNATURE BROKER-DEALER SERVICES, INC. SERVED AS
THE FUND'S DISTRIBUTOR PRIOR TO AUGUST 1, 1996.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN") SERVES AS PORTFOLIO
INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY AS
SHAREHOLDER SERVICING AGENT FOR CUSTOMERS. INVESTMENTS IN THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN OR ANY OTHER
BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
CAN FLUCTUATE, SO AN INVESTOR'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
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 reinvestment of income, and reflect the reimbursement
of certain Fund expenses as described in the Prospectus. Had expenses not
been subsidized, returns would have been lower. The Fund invests all of its
investable assets in The U.S. Equity 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. Consistent
with applicable regulatory guidance, performance for the Fund prior to July
19, 1993 reflects the performance of The Pierpont Equity Fund, the
predecessor entity to the Portfolio, which had a substantially similar
investment objective and restrictions as the Fund. Performance for the period
prior to July 19, 1993 reflects deduction of the charges and expenses of The
Pierpont Equity Fund, which were higher than the charges and expenses of the
Fund. References to specific securities and their issuers are for
illlustrative purposes only and should not be interpreted as recommendations
to purchase or sell such securities. Opinions expressed herein are on current
market conditions and are subject to change without notice.
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) 766-7722.
8
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THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
THE JPM INSTITUTIONAL U.S. EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Equity Portfolio
("Portfolio"), at value $328,897,817
Receivable for Shares of Beneficial Interest Sold 1,236,500
Deferred Organization Expenses 11,279
Receivable for Expense Reimbursements 5,974
Prepaid Trustees' Fees 1,399
Prepaid Expenses and Other Assets 23,600
------------
Total Assets 330,176,569
------------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 307,300
Shareholder Servicing Fee Payable 27,167
Administrative Services Fee Payable 8,491
Administration Fee Payable 1,727
Fund Services Fee Payable 564
Accrued Expenses 55,661
------------
Total Liabilities 400,910
------------
NET ASSETS
Applicable to 21,060,089 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $329,775,659
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $15.66
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $244,566,594
Undistributed Net Investment Income 1,442,745
Accumulated Net Realized Gain on Investment 26,883,559
Net Unrealized Appreciation of Investment 56,882,761
------------
Net Assets $329,775,659
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM INSTITUTIONAL U.S. EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $52,247) $ 4,581,318
Allocated Interest Income 525,723
Allocated Portfolio Expenses (1,244,100)
-----------
Net Investment Income Allocated from
Portfolio 3,862,941
FUND EXPENSES
Shareholder Servicing Fee $ 264,300
Administrative Services Fee 80,756
Registration Fees 31,735
Professional Fees 18,055
Transfer Agent Fees 17,969
Administration Fee 12,418
Printing Expenses 12,310
Amortization of Organization Expenses 9,967
Fund Services Fee 9,112
Trustees' Fees and Expenses 3,878
Insurance Expense 1,295
Miscellaneous 4,933
---------
Total Fund Expenses 466,728
Less: Reimbursement of Expenses (124,953)
---------
NET FUND EXPENSES 341,775
-----------
NET INVESTMENT INCOME 3,521,166
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 35,970,424
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 24,882,088
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $64,373,678
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM INSTITUTIONAL U.S. EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1997 MAY 31, 1996
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 3,521,166 $ 4,306,489
Net Realized Gain on Investment Allocated from
Portfolio 35,970,424 23,502,709
Net Change in Unrealized Appreciation of
Investment Allocated from Portfolio 24,882,088 19,294,321
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 64,373,678 47,103,519
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (4,444,440) (3,072,975)
Net Realized Gain (22,485,194) (12,841,603)
-------------- --------------
Total Distributions to Shareholders (26,929,634) (15,914,578)
-------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 84,614,234 82,193,586
Reinvestment of Dividends and Distributions 23,938,672 13,794,782
Cost of Shares of Beneficial Interest Redeemed (37,589,530) (78,306,291)
-------------- --------------
Net Increase from Transactions in Shares of
Beneficial Interest 70,963,376 17,682,077
-------------- --------------
Total Increase in Net Assets 108,407,420 48,871,018
NET ASSETS
Beginning of Fiscal Year 221,368,239 172,497,221
-------------- --------------
End of Fiscal Year (including undistributed net
investment income of $1,442,745 and $2,366,019,
respectively) $ 329,775,659 $ 221,368,239
-------------- --------------
-------------- --------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE JPM INSTITUTIONAL U.S. EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 19, 1993
FOR THE FISCAL YEAR ENDED MAY 31, (COMMENCEMENT OF
--------------------------------- OPERATIONS) TO
1997 1996 1995 MAY 31, 1994
--------- --------- --------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.00 $ 12.10 $ 10.92 $ 10.00
--------- --------- --------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17 0.27 0.18 0.08
Net Realized and Unrealized Gain on Investment 3.02 2.66 1.42 0.88
--------- --------- --------- ----------------
Total from Investment Operations 3.19 2.93 1.60 0.96
--------- --------- --------- ----------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.25) (0.20) (0.14) (0.04)
Net Realized Gain (1.28) (0.83) (0.28) --
--------- --------- --------- ----------------
Total Distributions to Shareholders (1.53) (1.03) (0.42) (0.04)
--------- --------- --------- ----------------
NET ASSET VALUE, END OF PERIOD $ 15.66 $ 14.00 $ 12.10 $ 10.92
--------- --------- --------- ----------------
--------- --------- --------- ----------------
Total Return 25.21% 25.43% 15.40% 9.61%+
--------- --------- --------- ----------------
--------- --------- --------- ----------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $ 329,776 $ 221,368 $ 172,497 $ 47,473
Ratios to Average Net Assets
Expenses 0.60% 0.60% 0.60% 0.60%(a)
Net Investment Income 1.33% 2.08% 2.07% 1.74%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.05% 0.02% 0.11% 0.43%(a)
</TABLE>
- ------------------------
+ Not annualized.
(a) Annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
THE JPM INSTITUTIONAL U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Institutional U.S. Equity Fund (the "Fund") is a separate series of The
JPM Institutional 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 commenced operations on July
19, 1993.
The Fund invests all of its investable assets in The U.S. Equity Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the Fund. Prior to May 12, 1997, the Fund's and the
Portfolio's names were The JPM Institutional Selected U.S. Equity Fund and The
Selected U.S. Equity Portfolio, respectively. 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 (38% at May 31, 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 prepared in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual amounts
could differ from those estimates. The following is a summary of the significant
accounting policies of the Fund:
a)Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b)The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Substantially all the Fund's net investment income is declared and paid as
dividends semi-annually. Distributions to shareholders of net realized
capital gain, if any, are declared and paid annually.
d)The Fund incurred organization expenses in the amount of $49,795. These
costs were deferred and are being amortized by the Fund on a straight-line
basis over a five-year period from the commencement of operations.
e)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 substantially all of its income, including net realized capital
gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
f)Expenses incurred by the Trust with respect to any two or more funds in
the Trust are allocated in proportion to the net assets of each fund in
the Trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
14
<PAGE>
THE JPM INSTITUTIONAL U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
g)The Fund accounts for and reports distributions to shareholders in
accordance with "Statement of Position 93-2: Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return
of Capital Distributions by Investment Companies." The effect of applying
this statement as of May 31, 1997, was to decrease the accumulated net
realized gain on investment by $84,425 and increase paid-in capital by
$84,425. The adjustments are primarily attributable to tax treatment of
partnership allocations of capital gains and losses. Net investment
income, net realized gain and net assets were not affected by this change.
2. TRANSACTIONS WITH AFFILIATES
a)The Trust had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and distributor. Under an
Administration Agreement, Signature provided administrative services
necessary for the operations of the Fund, furnished office space and
facilities required for conducting the business of the Fund and paid the
compensation of the Trust's officers affiliated with Signature. The
agreement provided for a fee to be paid to Signature equal to the Fund's
proportionate share of a complex-wide charge based on the following annual
schedule: 0.03% on the first $7 billion of the aggregate average daily net
assets of the Portfolio and the other portfolios (the "Master Portfolios")
in which series of the Trust, The JPM Pierpont Funds or The JPM Advisor
Funds invest and 0.01% on the aggregate average daily net assets of the
Master Portfolios in excess of $7 billion. The portion of this charge paid
by the Fund was determined by the proportionate share its net assets bore
to the total net assets of the Trust, The JPM Pierpont Funds, The JPM
Advisor Funds and the Master Portfolios. For the period from June 1, 1996
to July 31, 1996, Signature's fee for these services amounted to $4,553.
The Admnistration Agreement with Signature was terminated July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan Guaranty Trust Company of New York
("Morgan"). FDI also serves as the Fund's distributor. Under a
Co-Administration Agreement between FDI and the Trust on behalf of the
Fund, the Fund has agreed to pay FDI fees equal to its allocable share of
an annual complex-wide charge of $425,000 plus FDI's out-of-pocket
expenses. The amount allocable to the Fund is based on the ratio of the
Fund's net assets to the aggregate net assets of the Trust, The JPM
Pierpont Funds, The JPM Advisor Funds, the Master Portfolios, JPM Series
Trust and JPM Series Trust II. For the period from August 1, 1996 to May
31, 1997, the fee for these services amounted to $7,865.
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.
b)The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for certain aspects of the administration and operation of the Fund. Under
the Services Agreement, the Fund has agreed to pay Morgan a fee equal to
its proportionate share of an annual complex-wide charge. Until July 31,
1996, this charge was calculated daily based on the aggregate net assets
of the Master Portfolios in accordance with the following annual schedule:
0.06% on the first $7 billion of the Master Portfolios' aggregate average
daily
15
<PAGE>
THE JPM INSTITUTIONAL U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
net assets and 0.03% of the Master Portfolios' aggregate average daily net
assets in excess of $7 billion. The portion of this charge paid by the
Fund was determined by the proportionate share that its net assets bore to
the daily net assets of the Trust, the Master Portfolios and other
investors in the Master Portfolios for which Morgan provided similar
services. For the period from June 1, 1996 to July 31, 1996, the fee for
these services amounted to $8,777.
Effective August 1, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios 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 Pierpont Funds, the Master Portfolios, other
investors in the Master Portfolios for which Morgan provides similar
services, and JPM Series Trust. For the period from August 1, 1996 to May
31, 1997, the fee for these services amounted to $71,979.
In addition, Morgan has agreed to reimburse the Fund to the extent
necessary to maintain the total operating expenses of the Fund, including
the expenses allocated to the Fund from the Portfolio, at no more than
0.60% of the average daily net assets of the Fund through September 30,
1997. For the fiscal year ended May 31, 1997 Morgan has agreed to
reimburse the Fund $124,953 for expenses under this agreement.
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 0.10% of the average daily net assets of the Fund. For the fiscal year
ended May 31, 1997, the fee for these services amounted to $264,300.
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
$9,112 for the fiscal year ended May 31, 1997.
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM Pierpont Funds, the Master Portfolios and
JPM Series Trust. The Trustees' Fees and Expenses shown in the financial
statements represent 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 received compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $1,800.
16
<PAGE>
THE JPM INSTITUTIONAL U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1997 MAY 31, 1996
-------------- --------------
<S> <C> <C>
Shares of beneficial interest sold............... 6,077,830 6,495,699
Reinvestment of dividends and distributions...... 1,818,643 1,106,422
Shares of beneficial interest redeemed........... (2,645,085) (6,044,021)
-------------- --------------
Net Increase..................................... 5,251,388 1,558,100
-------------- --------------
-------------- --------------
</TABLE>
From time to time, the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund and Portfolio.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The JPM Institutional U.S. Equity Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The JPM Institutional U.S. Equity Fund (one of the series constituting part of
The JPM Institutional Funds, hereafter referred to as the "Fund") at May 31,
1997, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended and the financial
highlights for each of the three years in the period then ended and for the
period July 19, 1993 (commencement of operations) to May 31, 1994, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
July 21, 1997
18
<PAGE>
The U.S. Equity Portfolio
Annual Report May 31, 1997
(The following pages should be read in conjunction
with The JPM Institutional U.S. Equity Fund
Annual Financial Statements)
19
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMMON STOCKS (97.0%)
BASIC INDUSTRIES (6.9%)
CHEMICALS (2.8%)
E.I. Du Pont De Nemours & Co..................... 145,000 $ 15,786,875
Union Carbide Corp............................... 178,900 8,363,575
-------------
24,150,450
-------------
FOREST PRODUCTS & PAPER (1.0%)
Temple-Inland, Inc............................... 140,300 8,488,150
-------------
METALS & MINING (3.1%)
Allegheny Teledyne, Inc.......................... 711,672 18,325,554
Aluminum Company of America...................... 107,700 7,929,412
-------------
26,254,966
-------------
TOTAL BASIC INDUSTRIES......................... 58,893,566
-------------
CONSUMER GOODS & SERVICES (24.0%)
AUTOMOTIVE (1.2%)
Circuit City Stores, Inc. - CarMax Group+........ 197,600 2,865,200
General Motors Corp.............................. 131,600 7,534,100
-------------
10,399,300
-------------
BROADCASTING & PUBLISHING (3.3%)
TCI Satellite Entertainment, Inc. - Class A+..... 360,300 3,445,369
Tele-Communications TCI, Series A+............... 1,642,700 24,948,506
-------------
28,393,875
-------------
ENTERTAINMENT, LEISURE & MEDIA (4.5%)
Circus Circus Enterprises, Inc.+................. 429,700 11,172,200
International Game Technology.................... 520,800 9,244,200
Time Warner Inc.................................. 399,400 18,572,100
-------------
38,988,500
-------------
FOOD, BEVERAGES & TOBACCO (7.6%)
General Mills, Inc............................... 240,000 15,180,000
Philip Morris Companies, Inc..................... 320,400 14,097,600
Ralston Purina Co................................ 280,600 23,921,150
Unilever NV (ADR)................................ 61,200 11,857,500
-------------
65,056,250
-------------
HOUSEHOLD PRODUCTS (2.7%)
Procter & Gamble Co.............................. 171,630 23,663,486
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
RETAIL (4.7%)
Circuit City Stores, Inc......................... 249,600 $ 9,859,200
General Nutrition Companies, Inc.+............... 231,300 5,348,812
Toys 'R' Us, Inc.+............................... 525,300 16,349,962
Wal-Mart Stores, Inc............................. 303,700 9,035,075
-------------
40,593,049
-------------
TOTAL CONSUMER GOODS & SERVICES................ 207,094,460
-------------
ENERGY (9.1%)
GAS EXPLORATION (0.8%)
Enron Corp....................................... 167,600 6,829,700
-------------
OIL-PRODUCTION (8.3%)
Anadarko Petroleum Corp.......................... 135,600 8,542,800
Ashland Inc...................................... 171,200 8,196,200
British Petroleum Co. (ADR)...................... 66,008 9,562,909
Exxon Corp....................................... 336,300 19,925,775
Mobil Corp....................................... 87,500 12,239,062
Tosco Corp....................................... 404,800 13,206,600
-------------
71,673,346
-------------
TOTAL ENERGY................................... 78,503,046
-------------
FINANCE (12.9%)
BANKING (7.2%)
Banc One Corp.................................... 179,900 7,780,675
Crestar Financial Corp........................... 160,900 6,114,200
Dime Bancorp, Inc................................ 343,200 5,834,400
First Chicago NBD Corp........................... 231,700 13,728,225
Fleet Financial Group, Inc....................... 199,900 12,218,887
NationsBank Corp................................. 209,000 12,304,875
Washington Mutual, Inc........................... 63,900 3,550,444
-------------
61,531,706
-------------
FINANCIAL SERVICES (1.0%)
Salomon, Inc..................................... 161,700 8,671,162
-------------
INSURANCE (4.7%)
AMBAC, Inc....................................... 179,800 13,485,000
Marsh & McLennan Companies, Inc.................. 66,900 8,814,075
Providian Corp................................... 300,800 18,010,400
-------------
40,309,475
-------------
TOTAL FINANCE.................................. 110,512,343
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
HEALTH CARE (11.0%)
HEALTH SERVICES (3.6%)
Columbia / HCA Healthcare Corp................... 192,850 $ 7,063,131
Humana, Inc.+.................................... 246,600 5,579,325
United Healthcare Corp........................... 325,700 18,402,050
-------------
31,044,506
-------------
MEDICAL SUPPLIES (1.3%)
Bausch & Lomb, Inc............................... 288,200 11,600,050
-------------
PHARMACEUTICALS (6.1%)
Alza Corp.+...................................... 328,700 9,696,650
Bristol-Myers Squibb Co.......................... 32,300 2,370,013
Forest Laboratories, Inc.+....................... 172,500 7,288,125
Schering-Plough Corp............................. 141,400 12,832,050
Warner-Lambert Co................................ 200,100 20,160,075
-------------
52,346,913
-------------
TOTAL HEALTH CARE.............................. 94,991,469
-------------
INDUSTRIAL PRODUCTS & SERVICES (8.5%)
BUILDING MATERIALS (0.5%)
Johns Manville Corp.............................. 402,700 4,580,713
-------------
COMMERCIAL SERVICES (0.9%)
ADT Ltd.+........................................ 260,800 7,595,800
-------------
DIVERSIFIED MANUFACTURING (3.9%)
AlliedSignal, Inc................................ 194,200 14,904,850
Cooper Industries, Inc........................... 363,200 18,523,200
-------------
33,428,050
-------------
ELECTRICAL EQUIPMENT (1.7%)
Anixter International, Inc.+..................... 493,600 8,391,200
Grainger (W.W.), Inc............................. 74,600 5,986,650
-------------
14,377,850
-------------
POLLUTION CONTROL (1.5%)
Waste Management, Inc............................ 403,800 12,820,650
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 72,803,063
-------------
TECHNOLOGY (15.1%)
AEROSPACE (2.9%)
Boeing Co........................................ 165,000 17,366,250
Coltec Industries, Inc.+......................... 371,725 7,295,103
-------------
24,661,353
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMPUTER SOFTWARE (0.5%)
Autodesk, Inc.................................... 102,200 $ 3,979,413
-------------
COMPUTER SYSTEMS (4.4%)
EMC Corp./ Mass.+................................ 378,300 15,084,713
International Business Machines Corp............. 137,200 11,867,800
Sun Microsystems, Inc.+.......................... 325,300 10,511,256
-------------
37,463,769
-------------
ELECTRONICS (3.8%)
Bay Networks, Inc.+.............................. 427,000 10,461,500
Cisco Systems, Inc.+............................. 84,600 5,715,788
Perkin-Elmer Corp................................ 112,800 8,572,800
Sensormatic Electronics Corp..................... 528,800 8,262,500
-------------
33,012,588
-------------
INFORMATION PROCESSING (0.5%)
First Data Corp.................................. 102,100 4,084,000
-------------
SEMICONDUCTORS (1.1%)
Cypress Semiconductor Corp.+..................... 143,800 2,049,150
Texas Instruments, Inc........................... 87,600 7,873,050
-------------
9,922,200
-------------
TELECOMMUNICATIONS-EQUIPMENT (1.9%)
General Instrument Corp.+........................ 668,600 16,213,550
-------------
TOTAL TECHNOLOGY............................... 129,336,873
-------------
TRANSPORTATION (1.9%)
RAILROADS (1.9%)
CSX Corp......................................... 238,900 12,661,700
Union Pacific Corp............................... 60,400 4,092,100
-------------
16,753,800
-------------
TOTAL TRANSPORTATION........................... 16,753,800
-------------
UTILITIES (7.6%)
ELECTRIC (1.7%)
Dominion Resources, Inc.......................... 93,900 3,251,288
Duke Power Co.................................... 166,000 7,470,000
Northern States Power Co......................... 71,900 3,523,100
-------------
14,244,388
-------------
TELEPHONE (5.9%)
Bell Atlantic Corp............................... 114,800 8,036,000
GTE Corp......................................... 192,600 8,367,507
MCI Communications Corp.......................... 326,100 12,534,469
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TELEPHONE (CONTINUED)
SBC Communications, Inc.......................... 210,700 $ 12,325,950
WorldCom, Inc.+.................................. 313,200 9,298,125
-------------
50,562,051
-------------
TOTAL UTILITIES................................ 64,806,439
-------------
TOTAL COMMON STOCKS (COST $671,086,650)........ 833,695,059
-------------
CONVERTIBLE PREFERRED STOCKS (0.4%)
HEALTH CARE (0.0%)#
PHARMACEUTICALS (0.0%)#
Gensia, Inc., $3.75 due 03/06/98 (144A).......... 20,000 300,000
-------------
INDUSTRIAL PRODUCTS & SERVICES (0.4%)
BUILDING MATERIALS (0.4%)
Owens Corning LLC, 6.5% due 06/01/98 (144A)...... 62,500 3,476,563
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$4,220,219)................................... 3,776,563
-------------
PRINCIPAL
AMOUNT
------------
CONVERTIBLE BONDS (0.5%)
FINANCE (0.5%)
FINANCIAL SERVICES (0.5%)
Berkshire Hathaway, Inc., Senior Exchangeable
Notes; 1.00% due 12/02/01. Exchangeable for
shares of Salomon, Inc. Common Stock, 0.% due
01/00/00 (cost $3,567,926)..................... $ 3,800,000 3,809,500
-------------
SHORT-TERM INVESTMENTS (2.2%)
REPURCHASE AGREEMENT (2.1%)
State Street Bank and Trust Company Repurchase
Agreement, dated 05/30/97, due 06/02/97,
proceeds $17,758,091 (collateralized by
$17,635,000 U.S. Treasury Note, 6.25%, due
05/31/00, valued at $18,110,140) (cost
$17,750,000)................................... 17,750,000 17,750,000
-------------
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
U.S. TREASURY OBLIGATIONS (0.1%)
U.S. Treasury Bill 4.82% due 08/28/97............ $ 800,000 $ 790,380
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$18,539,880).................................. 18,540,380
-------------
TOTAL INVESTMENTS (COST $697,414,675) (100.1%).................
859,821,502
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.1%)..................
(561,285)
-------------
NET ASSETS (100.0%)............................................ $ 859,260,217
-------------
-------------
</TABLE>
- ------------------------------
+ Non-income producing security.
# Less than 0.1%
Note: Based on the cost of securities of $699,744,049 for Federal Income Tax
purposes at May 31, 1997, the aggregate gross unrealized appreciation and
depreciation was $167,338,153 and $7,260,700, respectively, resulting in net
unrealized appreciation of $160,077,453.
(ADR) -- Securities whose value is determined or significantly influenced by
trading on exchanges not located in the United States or Canada. ADR after the
name of a foreign holding stands for American Depositary Receipt, representing
ownership of foreign securities on deposit with a domestic custodian bank.
144A -- Securities restricted for resale to Qualified Institutional Buyers.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $697,414,675 ) $859,821,502
Cash 223
Receivable for Investments Sold 8,977,383
Dividends Receivable 1,666,540
Interest Receivable 24,288
Prepaid Trustees' Fees 3,993
Prepaid Expenses and Other Assets 2,246
------------
Total Assets 870,496,175
------------
LIABILITIES
Payable for Investments Purchased 10,856,218
Advisory Fee Payable 284,337
Custody Fee Payable 40,576
Administrative Services Fee Payable 22,217
Administration Fee Payable 2,394
Fund Services Fee Payable 1,599
Accrued Expenses 28,617
------------
Total Liabilities 11,235,958
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $859,260,217
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $147,501 ) $ 13,099,028
Interest Income 1,501,885
------------
Investment Income 14,600,913
EXPENSES
Advisory Fee $ 3,049,388
Administrative Services Fee 232,617
Custodian Fees and Expenses 173,517
Professional Fees and Expenses 51,169
Administration Fee 31,211
Fund Services Fee 26,486
Trustees' Fees and Expenses 12,849
Miscellaneous 9,548
-----------
Total Expenses 3,586,785
------------
NET INVESTMENT INCOME 11,014,128
NET REALIZED GAIN ON INVESTMENTS (including
$1,616,380 net realized gain from futures
contracts) 114,253,160
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 54,102,181
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $179,369,469
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1997 MAY 31, 1996
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 11,014,128 $ 15,066,796
Net Realized Gain on Investments 114,253,160 78,377,073
Net Change in Unrealized Appreciation of
Investments 54,102,181 63,227,280
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 179,369,469 156,671,149
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 205,179,647 222,740,564
Withdrawals (244,500,948) (262,953,448)
-------------- --------------
Net Decrease from Investors' Transactions (39,321,301) (40,212,884)
-------------- --------------
Total Increase in Net Assets 140,048,168 116,458,265
NET ASSETS
Beginning of Fiscal Year 719,212,049 602,753,784
-------------- --------------
End of Fiscal Year $ 859,260,217 $ 719,212,049
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL JULY 19, 1993
YEAR ENDED MAY 31, (COMMENCEMENT OF
--------------------------- OPERATIONS) TO
1997 1996 1995 MAY 31, 1994
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.47% 0.46% 0.51% 0.53%(a)
Net Investment Income 1.44% 2.20% 2.12% 1.79%(a)
Portfolio Turnover 98.97% 84.55% 71.00% 76.00%+
Average Broker Commissions 0.0506 -- -- --
</TABLE>
- ------------------------
(a) Annualized.
+ Portfolio turnover is for the twelve month period ended May 31, 1994, and
includes the portfolio activity of the Portfolio's predecessor entity, The
Pierpont Equity Fund, for the period June 1, 1993 to July 18, 1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Equity 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 19, 1993 and received a
contribution of certain assets and liabilities, including securities, with a
value of $209,477,219 on that date from The Pierpont Equity Fund in exchange for
a beneficial interest in the Portfolio. At that date, net unrealized
appreciation of $12,039,552 was included in the contributed securities. On
October 31, 1993, the Portfolio received a contribution of securities and
certain assets and liabilities, with a market value and cost of $128,337,342
from the JPM North America Fund, Ltd., in exchange for a beneficial interest in
the Portfolio. The Portfolio's investment objective is to provide a high total
return from a portfolio of selected equity securities. The Declaration of Trust
permits the Trustees to issue an unlimited number of beneficial interests in the
Portfolio. Prior to May 12, 1997, the Portfolio's name was The Selected U.S.
Equity Portfolio.
The preparation of financial statements prepared in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual amounts
could differ from those estimates. The following is a summary of the significant
accounting policies of the Portfolio:
a)The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the readily available closing bid price on
such exchanges, or at the quoted bid price in the over-the-counter market.
Securities listed on a foreign exchange are valued at the last quoted sale
price available before the time when net assets are valued. Unlisted
securities are valued at the average of the quoted bid and asked prices in
the over-the-counter market. Securities or other assets for which market
quotations are not readily available are valued at fair value in
accordance with procedures established by the Portfolio's Trustees. Such
procedures include the use of independent pricing services, which use
prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and
general market conditions. All portfolio securities with a remaining
maturity of less than 60 days are valued at amortized cost.
b)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
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
26
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
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. At May
31, 1997, the Portfolio had no open futures contracts.
c)Securities transactions are recorded on a trade-date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount become known. 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 taxed on its
share of the Portfolio's ordinary income and capital gains. It is intended
that the Portfolio's assets will be managed in such a way that an investor
in the Portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code.
e)The Portfolio's custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Portfolio. It is the
policy of the Portfolio to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the Portfolio has
the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event
of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an Investment Advisory Agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the Portfolio pays Morgan at an annual rate of 0.40% of the Portfolio's
average daily net assets. For the fiscal year ended May 31, 1997, this fee
amounted to $3,049,388.
b)The Portfolio had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Under an Administration Agreement, Signature provided administrative
services necessary for the operations of the Portfolio, furnished office
space and facilities required for conducting the business of the Portfolio
and paid the compensation of the Portfolio's officers affiliated with
Signature. The agreement provided for a fee to be paid to Signature equal
to the Portfolio's proportionate share of a complex-wide charge based on
the following annual schedule: 0.03% on the first $7 billion of the
aggregate average daily net assets of the Portfolio and the other
portfolios (the "Master Portfolios") in which The JPM Pierpont Funds, The
JPM Institutional Funds or The JPM Advisor Funds invest and 0.01% on the
aggregate average daily net assets of the Master Portfolios in excess of
$7 billion. The portion of this charge paid by the Portfolio was
determined by the proportionate share its net assets bore to the total net
assets of The JPM Pierpont Funds, The JPM
27
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
Institutional Funds, The JPM Advisor Funds and the Master Portfolios. For
the period from June 1, 1996 to July 31, 1996, Signature's fee for these
services amounted to $14,675. The Administrative Agreement with Signature
was terminated July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the
Portfolio's exclusive placement agent. Under a Co-Administration Agreement
between FDI and the Portfolio, the Portfolio has agreed to pay FDI fees
equal to its allocable share of an annual complex-wide charge of $425,000
plus FDI's out-of-pocket expenses. The amount allocable to the Portfolio
is based on the ratio of the Portfolio's net assets to the aggregate net
assets of The JPM Pierpont Funds, The JPM Institutional Funds, The JPM
Advisor Funds, the Master Portfolios, JPM Series Trust and JPM Series
Trust II. For the period from August 1, 1996 to May 31, 1997, the fee for
these services amounted to $16,536.
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. Until
July 31, 1996 this charge was calculated daily based on the aggregate net
assets of the Master Portfolios in accordance with the following annual
schedule: 0.06% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets and 0.03% of the Master Portfolios'
aggregate average daily net assets in excess of $7 billion. The portion of
this charge paid by the Portfolio was determined by the proportionate
share its net assets bore to the net assets of the Master Portfolios and
investors in the Master Portfolios for which Morgan provided similar
services. For the period from June 1, 1996 to July 31,1996, the fee for
these services amounted to $28,287.
Effective August 1, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios 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 paid by the Portfolio is
determined by the proportionate share that its net assets bear to the net
assets of the Master Portfolios, The JPM Pierpont Funds, The JPM
Institutional Funds, other investors in the Master Portfolios for which
Morgan provides similar services, and JPM Series Trust. For the period
from August 1, 1996 to May 31, 1997, the fee for these services amounted
to $204,330.
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 $26,486 for the fiscal year ended May 31, 1997.
28
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 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, 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 received
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $5,400.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended May 31, 1997 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- --------------- ---------------
<S> <C>
$ 731,737,851 $ 751,052,069
</TABLE>
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The U.S. Equity Portfolio (the "Portfolio")
at May 31, 1997, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the supplementary data for each of the three years in the period then ended and
for the period July 19, 1993 (commencement of operations) through May 31, 1994,
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 May 31,
1997 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
July 21, 1997
30
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
JPM INSTITUTIONAL PRIME MONEY MARKET FUND
JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
JPM INSTITUTIONAL TREASURY MONEY MARKET FUND
JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
JPM INSTITUTIONAL SHORT TERM BOND FUND
JPM INSTITUTIONAL BOND FUND
JPM INSTITUTIONAL TAX EXEMPT BOND FUND
JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
JPM INSTITUTIONAL SHARES: CALIFORNIA BOND FUND
JPM INSTITUTIONAL INTERNATIONAL BOND FUND
JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
JPM INSTITUTIONAL DIVERSIFIED FUND
JPM INSTITUTIONAL U.S. EQUITY FUND
JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
JPM INSTITUTIONAL U.S. SMALL COMPANY FUND
JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
JPM INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND
JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND
JPM INSTITUTIONAL EUROPEAN EQUITY FUND
JPM INSTITUTIONAL JAPAN EQUITY FUND
JPM INSTITUTIONAL ASIA GROWTH FUN
FOR MORE INFORMATION ON THE JPM INSTITUTIONAL FAMILY OF FUNDS, CALL J.P.
MORGAN FUNDS SERVICES AT (800) 766-7722.
The JPM Institutional U.S. Equity Fund
ANNUAL REPORT
MAY 31, 1997
