<PAGE>
LETTER TO THE SHAREHOLDERS OF THE PIERPONT CAPITAL APPRECIATION FUND
July 10, 1995
Dear Shareholder:
The Pierpont Capital Appreciation Fund adheres to a disciplined stock selection
process designed to identify undervalued companies with outstanding long-term
earnings potential. While we are pleased to report that the Fund produced a
double-digit return of 12.28% for the year ended May 31, 1995, it was below the
Russell 2500's 13.44% return. We believe the Fund's underperformance was largely
due to the market's fixation on short-term events in the uncertain economic
environment rather than on a company's longer-term fundamental value.
On a year-to-date basis, however, the Fund's return of 11.89% was higher than
the 11.61% return for the Russell 2500 -- an indication that prevailing market
sentiment may have turned an important corner, switching from short- to
longer-term views. Should more favorable markets continue to prevail in the
months ahead, we believe that the Fund's performance should further improve as
the markets recognize the potential of the small company stocks we have
selected.
The Fund's net asset value was $22.02 at the end of the fiscal year, versus
$21.40 on May 31, 1994, after making distributions during the year of $0.91 from
long-term capital gains, $0.61 from short-term capital gains, and $0.21 from
ordinary income. In addition, the Fund's net assets declined from $204.4 million
to end the period at $179.1 million. The net assets of The U.S. Small Company
Portfolio, in which the Fund invests, totaled approximately $621.1 million at
May 31, 1995.
MARKET ENVIRONMENT
The period under review provided a good case for long-term investing, as
dramatic stock market declines in the second half of 1994 were more than offset
by record highs during the first half of 1995. The Federal Reserve continued its
program of interest rate increases during 1994's second half, which caused a
broad selloff in the stock market by year end. Inflation fears also caused
investors to focus on short-term events, such as companies' latest quarterly
earnings, rather than on their long-term fundamental value. Based on fears they
would be hit the hardest in this environment, small-cap stocks, which had seen
three years of good returns before declining, experienced a higher level of
selling than large-cap stocks.
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS . . . .1 SPECIAL FUND-BASED SERVICES. . . .6
FUND FACTS AND HIGHLIGHTS. . . . .4 FINANCIAL STATEMENTS . . . . . . .8
FUND PERFORMANCE . . . . . . . . .5
1
<PAGE>
The broad selling at the end of 1994 was countered with vigorous buying in the
beginning of 1995 on growing conviction that the economy was experiencing a
Federal Reserve engineered "soft landing." Battered by six short-term rate
increases in 1994, investors regained confidence in the outlook for corporate
earnings, as most concluded that the seventh rate increase in February would be
the last for some time. In this environment, investors favored stocks of the
largest multinational companies, believing that they would benefit the most from
low inflation and the weak dollar, making their exports more attractive to
foreign buyers. At the same time, small stocks gained, but to a lesser degree
than the larger company stocks in the S&P 500.
From a sector perspective, technology stocks experienced unprecedented growth
throughout most of the Fund's fiscal year. In particular, semiconductor stocks
rose the most as investors believed that they would continue to grow despite the
uncertain economic environment. As rates increased in 1994, interest rate
sensitive stocks such as retail, basic industry, and telephones were weak. When
the economy began to show signs of slowing in early 1995, investors then began
to favor more stable, reliable opportunities. As a result, economically
sensitive sectors, such as consumer cyclicals and autos, weakened. These sectors
began to rebound in May, however, as it appeared the Federal Reserve might lower
interest rates to stimulate economic growth.
PORTFOLIO REVIEW
We believe much of the Fund's underperformance relative to the Russell 2500
Index throughout the latter half of 1994 may be attributed to volatility that
arose from the market's reactions to the uncertain interest rate environment.
Beginning in 1995, however, the market shifted to a focus on longer-term
valuations, helping the Fund to improve its performance on a year-to-date basis,
largely through successful stock selection.
At a time when sector returns were almost uniformly positive for its benchmark,
the Portfolio relied on stock selection for the bulk of its relative excess
returns, with sector weightings also enhancing performance results. During the
Fund's fiscal year, some of the top contributors to the Portfolio included BLACK
& DECKER CORPORATION, a consumer products firm whose stock rose 81%, BAY
NETWORKS, a technology company providing networking hardware, up 46%, and S3,
INCORPORATED, a computer software company that had a stock price increase of
180%.
Stocks that have detracted from performance include MESA AIRLINES, a regional
carrier that declined -46% over the year, ONE PRICE CLOTHING, a discount
retailer that saw its stock drop -75% on weak earnings and CHARMING SHOPPES, a
retailing concern, which fell -53% on weak same-store sales (excluding new-store
sales).
While on opposite sides of the return story, BAY NETWORKS and MESA AIRLINES are
good examples of our stock selection process. BAY NETWORKS, which is a company
formed by the merger of WELLMAN and SYNOPTICS, two successful technology
companies, was a stock under significant selling pressure in September 1994. We
had been buying the stocks of these two companies prior to the merger and, after
analyzing future cash flows of the combined companies, concluded that BAY
NETWORKS was attractively priced. Unsure of the new company's
2
<PAGE>
ability to compete, investors sold the stock. We held the Portfolio's position,
actually adding to it as the price fell and the stock became even more
attractive. As the impact of the merger became clear, investors returned to the
stock and it has risen.
MESA AIRLINES, while detracting from Fund returns over the year, has been
recovering for the past few months. We feel this company's management has a
solid plan to generate consistent earnings going forward. The stock has been
under pressure for a variety of reasons. MESA was hurt during the fourth quarter
of 1994 along with most regional airlines after safety concerns arose from an
American Eagle commuter plane crash outside Chicago. The company also has seen
increasing competition for some of its profitable routes. We do not believe that
either of these issues affects the earnings capability of MESA in the long run
as it has effectively weathered these challenges.
INVESTMENT OUTLOOK
In spite of increased signals indicating a potential recession, we believe the
combination of falling interest rates and a slowing economy reduce the
likelihood of such a scenario. New data continues to support the theory that the
Federal Reserve has successfully engineered a "soft landing" for the economy,
meaning that growth has slowed to sustainable levels.
Given the recent outperformance of the largest capitalization stocks,
particularly those with the greatest foreign exposure, smaller company stocks
appear to be more attractively priced relative to their growth potential than
large company stocks. The interest rate environment should be favorable for
smaller companies. However, any surprises indicating recession will magnify
normal market volatility. Looking ahead, we believe that our ongoing focus on
stock selection and diversification as sources of added value continues to offer
shareholders the potential for long-term growth at moderate levels of risk.
As always, we welcome your comments or questions. Please call J.P. Morgan Funds
Services toll free at (800) 521-5411.
Sincerely yours,
/s/ Evelyn E. Guernsey
Evelyn E. Guernsey
J.P. Morgan Funds Services
3
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The Pierpont Capital Appreciation Fund seeks to provide a high total return from
a portfolio of equity securities of small companies. It is designed for
investors who are willing to assume the somewhat higher risk of investing in
small companies in order to seek a higher total return over time than might be
expected from a portfolio of stocks of large companies.
---------------------------------------------
COMMENCEMENT OF OPERATIONS
6/27/85
---------------------------------------------
NET ASSETS AS OF 5/31/95
$179,130,216
---------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/26/95
EXPENSE RATIO
The Fund's annualized expense ratio of 0.90% 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, 1995
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
Pie Chart depicting allocation of the Fund's investment securities held at May
31, 1995 by industry classification. The chart is segmented to represent the
following percentages:
FINANCE 17.0%
CONSUMER GOODS & SERVICES 16.3%
TECHNOLOGY 16.3%
INDUSTRIAL PRODUCTS & SERVICES 12.0%
HEALTH CARE 9.2%
SHORT TERM & OTHER 8.7%
BASIC INDUSTRIES 7.6%
UTILITIES 5.9%
ENERGY 5.1%
TRANSPORTATION 1.9%
LARGEST EQUITY HOLDINGS % OF PORTFOLIO
------------------------------------------------
BLACK & DECKER CORP. 1.5
WELLMAN, INC. 1.5
ADT LTD. 1.5
FIRST COMMERCE CORP. 1.4
CAPITAL RE CORP. 1.2
4
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's performance. One approach is
to look at the growth of a hypothetical investment of $10,000. The chart at
right shows that $10,000 invested at The Pierpont Capital Appreciation Fund's
inception would have grown to $30,787 at May 31, 1995.
Another way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows you
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change in a fund's value over various time periods, typically 1, 5, or 10
years (or since inception). Total returns for periods of less than one year are
not annualized and provide a picture of how a fund has performed over the short
term.
GROWTH OF $10,000 SINCE INCEPTION*
JUNE 27, 1985 - MAY 31, 1995
Line graph with two axes: the X-axis represents years of operations; the
Y-axis represents dollar value. The graph plots three lines: the first line
represents the growth of a ten thousand dollar investment in the Fund from
June 27, 1985 (inception) to May 31, 1995; the second line represents the
growth of a ten thousand dollar investment in a portfolio of securities
reflecting the composition of the Russell 2500 index for the same time
period; the third line represents the growth of a ten thousand dollar
investment in a portfolio of securities reflecting the composition of the
Morningstar Small Company Fund Average for the same time period. The graph
points are as follows:
<TABLE>
<CAPTION>
Year Fund Russell 2500 Morningstar
<S> <C> <C> <C>
0 $ 10,000 $ 10,000 $ 10,000
1 14,386 13,471 13,478
2 15,944 14,804 14,653
3 13,672 13,686 13,742
4 17,823 17,097 17,129
5 19,782 17,522 18,830
6 19,406 19,329 20,943
7 21,618 22,333 23,954
8 27,111 26,626 28,662
9 27,420 28,539 30,611
10 30,787 32,463 34,461
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
---------------- ----------------------------------------
THREE SIX ONE THREE FIVE SINCE
AS OF MAY 31, 1995 MONTHS MONTHS YEAR YEARS YEARS INCEPTION*
------------------------------------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Pierpont Capital Appreciation Fund 7.10% 14.36% 12.28% 12.51% 9.25% 11.98%
Russell 2500 6.48% 14.02% 13.44% 13.18% 13.07% 12.61%
Morningstar Small Company Fund Average 5.65% 11.11% 12.92% 12.97% 12.51% 13.29%
AS OF MARCH 31, 1995
------------------------------------------------------------------ ----------------------------------------
The Pierpont Capital Appreciation Fund 7.88% 6.05% 4.83% 8.45% 10.73% 11.78%
Russell 2500 7.39% 5.12% 8.66% 11.33% 13.07% 12.39%
Morningstar Small Company Fund Average 5.72% 5.42% 7.86% 10.36% 13.37% 13.20%
<FN>
*6/27/85
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. ALL RETURNS ARE NET OF
FEES AND ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF
CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. THE
MORNINGSTAR MUTUAL FUND RATING SERVICE IS A LEADING RESOURCE FOR MUTUAL FUND
DATA. ALTHOUGH GATHERED FROM RELIABLE SOURCES, DATA ACCURACY AND COMPLETENESS
CANNOT BE GUARANTEED. THE PIERPONT CAPITAL APPRECIATION FUND INVESTS ALL OF ITS
INVESTABLE ASSETS IN THE U.S. SMALL COMPANY PORTFOLIO, A SEPARATELY REGISTERED
INVESTMENT COMPANY WHICH IS NOT AVAILABLE TO THE PUBLIC BUT ONLY TO OTHER
COLLECTIVE INVESTMENT VEHICLES SUCH AS THE FUND.
5
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- Create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- Make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends;
- Make investments through The Pierpont Funds, a family of diversified mutual
funds.
PAAS is available to clients who invest a minimum of $500,000 in The Pierpont
Funds. The fees begin at $5,000 for the first year, followed by $2,500 each
subsequent year.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow
tax-deferred until retirement, the IRA enables more of your dollars to work for
you longer. Morgan offers an IRA Rollover plan that helps you to build well-
balanced long-term investment portfolios, diversified across a wide array of
mutual funds. From money markets to emerging markets, The Pierpont Funds provide
an excellent way to help you accumulate long-term wealth for retirement. The IRA
Rollover plan is available to clients who invest at least $10,000 in any given
Pierpont Fund.
KEOGH
In early 1995, Morgan will introduce a Keogh program for its clients. Keoghs
provide another excellent vehicle to help individuals who are self-employed or
are employees of unincorporated businesses to accumulate retirement savings. A
Keogh is a tax-deferred pension plan that can allow for you to contribute the
lesser of $30,000 or 25% of your annual earned gross compensation. The Pierpont
Funds can help you build a comprehensive investment program designed to maximize
the retirement dollars in your Keogh account. The Keogh plan also requires a
minimum investment of $10,000 in any given Pierpont Fund.
6
<PAGE>
SIGNATURE BROKER-DEALER SERVICES, INC. IS THE DISTRIBUTOR OF THE PIERPONT
CAPITAL APPRECIATION FUND (THE "FUND").
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN") SERVES AS PORTFOLIO
INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY AS
SHAREHOLDER SERVICING AGENT FOR CUSTOMERS. INVESTMENTS IN THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN OR ANY OTHER
BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND CAN
FLUCTUATE, SO AN INVESTOR'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
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. Had expenses not been subsidized, returns would have been lower.
The Fund invests all of its investable assets in The U.S. Small Company
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.
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES, IS PROVIDED IN THE PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE
INVESTING. YOU MAY OBTAIN ADDITIONAL COPIES OF THE PROSPECTUS BY CALLING J.P.
MORGAN FUNDS SERVICES AT (800) 521-5411.
7
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Small Company Portfolio ("Portfolio"), at
value
$179,743,252
Receivable for Shares of Beneficial Interest Sold
5,964
Other Assets
7,092
------------
Total Assets
179,756,308
------------
LIABILITIES
Shareholder Servicing Fee Payable (Note 2c)
405,832
Financial and Fund Accounting Services Fee Payable (Note 2b)
78,975
Administration Fee Payable (Note 2a)
4,119
Fund Services Fee Payable (Note 2d)
814
Accrued Expenses
136,352
------------
Total Liabilities
626,092
------------
NET ASSETS
Applicable to 8,136,714 Shares of Beneficial Interest Outstanding
(par value $0.001, unlimited shares authorized)
$179,130,216
------------
------------
Net Asset Value, Offering and Redemption Price Per Share
$22.02
------------
------------
ANALYSIS OF NET ASSETS
Paid-in Capital
$163,379,969
Undistributed Net Investment Income
810,934
Accumulated Undistributed Net Realized Gain on Investment
13,341,192
Net Unrealized Appreciation of Investment
1,598,121
------------
Net Assets
$179,130,216
------------
------------
</TABLE>
See Accompanying Notes.
8
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO (NOTE 1B)
Allocated Dividend Income (Net of Foreign Withholding Tax of
$14,919) $ 3,098,215
Allocated Interest Income 415,637
Allocated Portfolio Expenses (1,306,843)
------------
Net Investment Income Allocated from Portfolio 2,207,009
FUND EXPENSES
Shareholder Servicing Fee (Note 2c) $ 456,271
Financial and Fund Accounting Services Fee (Note 2b) 108,015
Administration Fee (Note 2a) 51,087
Printing 29,189
Transfer Agent Fees 27,584
Fund Services Fee (Note 2d) 19,612
Professional Fees 11,098
Registration Fees 10,937
Insurance 7,341
Trustees' Fees and Expenses (Note 2e) 6,958
Miscellaneous 5,045
----------
Total Fund Expenses 733,137
Less: Reimbursement of Expenses (Note 2b) (397,415)
----------
NET FUND EXPENSES 335,722
------------
NET INVESTMENT INCOME 1,871,287
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 12,442,504
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENT ALLOCATED
FROM PORTFOLIO 5,441,176
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 19,754,967
------------
------------
</TABLE>
See Accompanying Notes.
9
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY
31,
-----------------------------
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,871,287 $ 1,673,669
Net Realized Gain on Investment Allocated from Portfolio 12,442,504 42,446,498
Net Change in Unrealized Appreciation (Depreciation) of
Investment Allocated from Portfolio 5,441,176 (41,697,248)
------------- -------------
Net Increase in Net Assets Resulting from Operations 19,754,967 2,422,919
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1,873,112) (860,910)
Net Realized Gain (13,393,456) (35,050,363)
------------- -------------
Total Distributions to Shareholders (15,266,568) (35,911,273)
------------- -------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 3)
Proceeds from Shares of Beneficial Interest Sold 35,022,456 101,912,727
Reinvestment of Dividends and Distributions 14,642,032 34,976,004
Cost of Shares of Beneficial Interest Redeemed (79,467,609) (85,842,095)
------------- -------------
Net Increase (Decrease) from Transactions in Shares of
Beneficial Interest (29,803,121) 51,046,636
------------- -------------
Total Increase (Decrease) in Net Assets (25,314,722) 17,558,282
NET ASSETS
Beginning of Period 204,444,938 186,886,656
------------- -------------
End of Period (including undistributed net investment income of
$810,934 and $812,759, respectively) $ 179,130,216 $ 204,444,938
------------- -------------
------------- -------------
</TABLE>
See Accompanying Notes.
10
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $21.40 $25.12 $20.03 $17.98 $18.68
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.22 0.20 (0.01) (0.04) (0.02)
Net Realized and Unrealized
Gain (Loss) on Investment 2.13 0.19 5.10 2.09 (0.33)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 2.35 0.39 5.09 2.05 (0.35)
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS
FROM
Net Investment Income (0.21) (0.09) -- -- --
Net Realized Gain (1.52) (4.02) -- -- (0.35)
---------- ---------- ---------- ---------- ----------
Total Distributions (1.73) (4.11) -- -- (0.35)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $22.02 $21.40 $25.12 $20.03 $17.98
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total Return 12.28% 1.14% 25.41% 11.40% (1.90)%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in
thousands) $ 179,130 $ 204,445 $ 186,887 $ 97,548 $ 58,859
Ratios to Average Net Assets:
Expenses 0.90% 0.90% 0.90% 0.90% 0.91%
Net Investment Income 1.02% 0.75% (0.06)% (0.25)% (0.15)%
Decrease Reflected in above
Expense Ratio due to Expense
Reimbursements 0.22% 0.20% 0.05% 0.13% 0.31%
Portfolio Turnover -- 14%* 50% 58% 56%
<FN>
------------------------
* 1994 Portfolio Turnover reflects the period June 1, 1993 to July 18, 1993.
After July 18, 1993, all the Fund's investable assets were invested in The
U.S. Small Company Portfolio.
</TABLE>
See Accompanying Notes.
11
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Pierpont Capital Appreciation Fund (the "Fund") is a separate series of The
Pierpont Funds, a Massachusetts business trust (the "Trust"). The Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company. The Fund, prior to its tax-
free reorganization on July 18, 1993, to a series of the Trust, operated as a
stand-alone mutual fund. Costs related to the reorganization were borne by
Morgan Guaranty Trust Company of New York ("Morgan"). This report includes
periods which preceded the Fund's reorganization and reflects the operations of
the predecessor entity.
The Fund invests all of its investable assets in The U.S. Small Company
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objectives as the Fund. The value of such
investment reflects the Fund's proportionate interest in the net assets of the
Portfolio (29% at May 31, 1995). The performance of the Fund is directly
affected by the performance of the Portfolio. The financial statements of the
Portfolio, including the schedule of investments, are included elsewhere in this
report and should be read in conjunction with the Fund's financial statements.
The following is a summary of the significant accounting policies of the Fund:
a)Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b)The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Substantially all the Fund's net investment income is declared as
dividends and paid semi-annually. Distributions to shareholders of net
realized capital gain, if any, are declared and paid annually.
d)Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to comply with the provisions of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income,
including net realized capital gains if any, within the prescribed time
periods. Accordingly, no provision for federal income or excise tax is
necessary.
e)Expenses incurred by the Trust with respect to any two or more funds in
the Trust are allocated in proportion to the net assets of each fund in
the Trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
f)The Fund has adopted Statement of Position 93-2 Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return
of Capital Distributions by Investment Companies. Accordingly, permanent
book and tax differences relating to shareholder distributions are
reclassified to paid-in capital. For the fiscal year ended May 31, 1995,
the Fund reclassified $1,296,507 from accumulated undistributed net
realized gain on investment to paid-in capital. Net investment income, net
realized gain and net assets were not affected by this change.
12
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a)The Trust retains Signature Broker-Dealer Services, Inc. ("Signature") to
serve as Administrator and Distributor. Signature provides administrative
services necessary for the operations of the Fund, furnishes office space
and facilities required for conducting the business of the Fund and pays
the compensation of the Fund's officers affiliated with Signature. The
agreement provides for a fee to be paid to Signature at an annual rate
determined by the following schedule: 0.04% of the first $1 billion of the
aggregate average daily net assets of the Trust, as well as two other
affiliated fund families for which Signature acts as administrator, 0.032%
of the next $2 billion of such net assets, 0.024% of the next $2 billion
of such net assets, and 0.016% of such net assets in excess of $5 billion.
The daily equivalent of the fee rate is applied daily to the net assets of
the Fund. For the fiscal year ended May 31, 1995, Signature's fee for
these services amounted to $51,087.
b)The Trust, on behalf of the Fund, has a Financial and Fund Accounting
Services Agreement ("Services Agreement") with Morgan Guaranty Trust
Company of New York ("Morgan") under which Morgan receives a fee, based on
the percentages described below, for overseeing certain aspects of the
administration and operation of the Fund. The Services Agreement is also
designed to provide an expense limit for certain expenses of the Fund. If
total expenses of the Fund, excluding the shareholder servicing fee and
the fund services fee, exceed the expense limit of 0.15% of the first $100
million of the Fund's daily net assets and 0.13% of average daily net
assets over $100 million, Morgan will reimburse the Fund for the excess
expense amount and receive no fee. Should such expenses be less than the
expense limit, Morgan's fee would be limited to the difference between
such expenses and the fee calculated under the Services Agreement. For the
fiscal year ended May 31, 1995, Morgan was entitled to a fee of $108,015.
In addition to the expenses that Morgan assumes under the Services
Agreement, Morgan had 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 0.90%
of the average daily net assets of the Fund through November 30, 1995. For
the fiscal year ended May 31, 1995, Morgan has agreed to reimburse the
Fund $397,415 for expenses which exceeded this limit.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. The Agreement provides for the Fund to pay Morgan a fee for
these services which is computed daily and may be paid monthly at an
annual rate of 0.25% of the average daily net assets of the Fund. For the
fiscal year ended May 31, 1995, the fee for these services amounted to
$456,271.
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. For the
fiscal year ended May 31, 1995, the Fund's allocated portion of Group's
costs in performing its services amounted to $19,612.
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, their
corresponding Portfolios and The Series Portfolio. The Trustees' Fees and
Expenses shown in the financial statements represents the Fund's allocated
portion of the total fees and expenses. Prior to April 1, 1995, the
aggregate annual Trustee Fee was
13
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
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
$2,300.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
MAY 31,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Shares sold 1,695,831 4,220,665
Reinvestment of dividends and
distributions 751,763 1,541,447
Shares redeemed (3,866,207) (3,645,483)
------------ ------------
Net increase (decrease) (1,418,613) 2,116,629
------------ ------------
------------ ------------
</TABLE>
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The Pierpont Capital Appreciation Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The Pierpont Capital Appreciation Fund (one of the series constituting part of
the Pierpont Funds, hereafter referred to as the "Fund") at May 31, 1995, the
results of its operations for the year then ended, and the changes in its net
assets and the financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above. The financial highlights for each of the three years in the period ended
May 31, 1993 were audited by other independent accountants whose report dated
June 24, 1993 expressed an unqualified opinion thereon.
PRICE WATERHOUSE LLP
New York, New York
July 26, 1995
15
<PAGE>
The U.S. Small Company Portfolio
Annual Report May 31, 1995
(The following pages should be read in conjunction
with The Pierpont Capital Appreciation Fund
Annual Financial Statements)
16
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1a)
------------- -------------
COMMON STOCKS (91.3%)
<S> <C> <C>
BASIC INDUSTRIES (7.6%)
AGRICULTURE (0.6%)
Dekalb Genetics Corp...................................... 93,700 $ 3,507,894
-------------
CHEMICALS (2.4%)
Albemarle Corp............................................ 164,300 2,526,113
Georgia Gulf Corp. (a).................................... 96,400 2,928,150
Wellman, Inc.............................................. 366,900 9,218,362
-------------
14,672,625
-------------
METALS & MINING (4.3%)
Allegheny Ludlum Corp..................................... 375,700 7,420,075
Commercial Metals Co...................................... 216,366 5,923,019
Freeport McMoRan Copper & Gold Inc. Class A............... 172,000 3,526,000
Kaiser Aluminum Corp. (a)................................. 153,700 1,786,762
Maverick Tube Corp. (a)................................... 128,400 1,139,550
Minera Rayrock, Inc.* (a)................................. 781,100 912,500
Oregon Steel Mills, Inc................................... 97,500 1,560,000
Steel Technologies, Inc................................... 386,800 4,593,250
-------------
26,861,156
-------------
PAPER & FOREST PRODUCTS (0.3%)
Glatfelter (P.H.) Co...................................... 106,300 2,019,700
-------------
TOTAL BASIC INDUSTRIES................................ 47,061,375
-------------
CONSUMER GOODS & SERVICES (16.3%)
AUTOMOTIVE SUPPLIES (1.6%)
Cooper Tire & Rubber Co................................... 148,900 3,610,825
Excel Industries, Inc..................................... 199,500 2,743,125
Simpson Industries, Inc................................... 364,000 3,731,000
-------------
10,084,950
-------------
BEVERAGES, FOOD, SOAP & TOBACCO (1.2%)
Bush Boake Allen, Inc. (a)................................ 55,000 1,560,625
Dreyer's Grand Ice Cream, Inc............................. 29,000 917,125
Eskimo Pie Corp........................................... 35,400 542,063
Nabisco Holdings Corp. Class A............................ 30,000 783,750
Riviana Foods Inc......................................... 68,800 868,600
Sanfilippo, John B. and Son Inc. (a)...................... 26,300 243,275
Universal Foods Corp...................................... 85,000 2,698,750
-------------
7,614,188
-------------
</TABLE>
See Accompanying Notes.
17
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1a)
------------- -------------
<S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (2.7%)
Boyd Gaming Corp. (a)..................................... 273,300 $ 3,962,850
Cinergi Pictures Entertainment, Inc. (a).................. 130,000 926,250
Comcast UK Cable Partners Ltd.* (a)....................... 31,400 474,925
Heritage Media Corp. (a).................................. 65,000 1,803,750
IMAX Corp. (a)............................................ 75,400 885,950
Lottery Enterprises, Inc.................................. 18,605 32,559
Paging Network, Inc. (a).................................. 154,800 4,257,000
People's Choice TV Corp. (a).............................. 42,000 1,018,500
Sports Club Company, Inc. (a)............................. 45,400 227,000
Starbucks Corp. (a)....................................... 32,600 945,400
Telewest Communications PLC (ADR) (a)..................... 48,300 1,243,725
Videotron Holdings PLC (ADR) (a).......................... 55,100 730,075
-------------
16,507,984
-------------
HOME CONSTRUCTION (0.4%)
Bush Industries, Inc...................................... 31,500 370,125
D.R. Horton, Inc.......................................... 195,982 2,253,793
-------------
2,623,918
-------------
MERCHANDISING (4.9%)
Borders Group Inc. (a).................................... 27,700 405,112
Catherines Stores Corp. (a)............................... 203,900 2,051,744
Charming Shoppes, Inc..................................... 549,800 2,388,194
Fastenal Co............................................... 52,000 1,469,000
First Brands Corp......................................... 38,000 1,567,500
Fruit of the Loom, Inc. Class A (a)....................... 169,100 4,502,287
Garden Ridge Corp. (a).................................... 8,700 154,425
Hannaford Brothers Co..................................... 32,600 872,050
Holson Burnes Group, Inc. (a)............................. 100,000 437,500
Kohls Corp. (a)........................................... 50,100 2,173,087
Leslie's Poolmart (a)..................................... 27,000 405,000
Nine West Group, Inc. (a)................................. 43,400 1,513,575
Office Depot Inc. (a)..................................... 31,300 751,200
One Price Clothing Stores, Inc............................ 294,700 1,418,244
Penn Traffic Co. (a)...................................... 89,800 2,963,400
Safety 1st, Inc. (a)...................................... 56,200 1,060,775
St. John Knits, Inc....................................... 22,000 852,500
Stop and Shop Companies, Inc. (a)......................... 32,400 874,800
TJX Companies, Inc........................................ 157,800 2,110,575
Trans World Entertainment (a)............................. 207,400 790,712
Urban Outfitters, Inc. (a)................................ 40,100 736,838
Vons Companies Inc. (a)................................... 50,500 1,047,875
-------------
30,546,393
-------------
</TABLE>
See Accompanying Notes.
18
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
MISCELLANEOUS (0.9%) SHARES (NOTE 1a)
------------- -------------
<S> <C> <C>
Congoleum Corp. (a)....................................... 23,700 $ 343,650
DeVRY, Inc. (a)........................................... 54,600 2,122,575
Johnson Worldwide Associates, Inc. (a).................... 135,979 2,872,556
-------------
5,338,781
-------------
PERSONAL SECURITY (1.8%)
ADT Ltd. (a).............................................. 793,300 9,023,788
Pinkerton's, Inc. (a)..................................... 120,000 1,890,000
-------------
10,913,788
-------------
PERSONAL SERVICES (0.8%)
Equity Corp. International (a)............................ 11,600 187,050
Service Corp. International............................... 175,000 5,009,375
-------------
5,196,425
-------------
RESTAURANTS & HOTELS (2.0%)
Argosy Gaming Corp. (a)................................... 36,000 474,750
Brinker International, Inc. (a)........................... 75,300 1,270,688
Equity Inns Inc........................................... 69,000 750,375
Players International, Inc. (a)........................... 60,000 1,256,250
Royal Caribbean Cruises Ltd.*............................. 121,400 3,035,000
Sbarro, Inc............................................... 248,000 5,704,000
-------------
12,491,063
-------------
TOTAL CONSUMER GOODS & SERVICES....................... 101,317,490
-------------
ENERGY (5.1%)
OIL & GAS PRODUCTION (3.6%)
Anadarko Petroleum Corp................................... 65,200 2,828,050
Devon Energy Corp......................................... 117,500 2,526,250
Noble Affiliates, Inc..................................... 32,300 876,138
Oryx Energy Co. (a)....................................... 458,000 6,583,750
Tesoro Petroleum Corp. (a)................................ 52,900 575,288
TransCanada Pipelines Ltd................................. 367,200 4,865,400
Vintage Petroleum, Inc.................................... 202,300 3,995,425
-------------
22,250,301
-------------
OIL-SERVICES (1.5%)
Dreco Energy Services Ltd. Class A (a).................... 111,700 1,521,912
Global Marine, Inc. (a)................................... 121,200 651,450
Holly Corp................................................ 72,700 1,781,150
Noble Drilling Corp. (a).................................. 448,300 3,334,231
Oceaneering International, Inc. (a)....................... 208,100 2,028,975
-------------
9,317,718
-------------
TOTAL ENERGY.......................................... 31,568,019
-------------
</TABLE>
See Accompanying Notes.
19
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1a)
------------- -------------
<S> <C> <C>
FINANCE (17.0%)
BANKING (8.1%)
Banknorth Group, Inc...................................... 81,600 $ 2,111,400
Bay View Capital Corp..................................... 70,300 1,827,800
Charter One Financial Inc................................. 141,900 3,565,237
Cole Taylor Financial Group, Inc.......................... 14,900 271,925
Colonial Bancgroup, Inc. Class A.......................... 75,700 1,911,425
Commerce Bancorp, Inc..................................... 104,900 1,881,644
Community First Bankshares, Inc........................... 59,100 919,744
First Commerce Corp....................................... 308,500 8,580,156
FirstFed Financial Corp. (a).............................. 64,500 1,080,375
First National Bancorp-Gainesville........................ 55,700 1,155,775
Firstar Corp.............................................. 179,800 5,686,175
First Virginia Banks, Inc................................. 72,200 2,590,175
GBC Bancorp............................................... 63,000 779,625
HUBCO, Inc................................................ 57,200 979,550
National Commerce Bancorporation.......................... 25,400 631,825
Roosevelt Financial Group, Inc............................ 118,600 2,031,025
Silicon Valley Bancshares (a)............................. 69,900 1,179,562
Southern National Corp.................................... 216,120 4,700,610
Sterling Bancshares, Inc.................................. 52,650 671,288
Trustco Bank Corp. of New York............................ 81,500 1,670,750
Westamerica Bancorporation................................ 71,400 2,543,625
Wilmington Trust Corp..................................... 129,600 3,369,600
-------------
50,139,291
-------------
FINANCIAL SERVICES (0.5%)
Payco American Corp. (a).................................. 78,000 560,625
SPS Transaction Services, Inc............................. 32,000 988,000
Southwest Securities Group, Inc........................... 195,300 1,647,844
-------------
3,196,469
-------------
INSURANCE (4.2%)
AMBAC Inc................................................. 132,300 5,292,000
Capital Re Corp........................................... 303,300 7,468,763
First Colony Corp......................................... 175,900 4,155,638
Fremont General Corp...................................... 59,500 1,502,375
Hilb, Rogal & Hamilton Co................................. 49,600 620,000
MMI Companies, Inc........................................ 207,200 3,833,200
Mid Ocean Limited*........................................ 29,100 822,075
Partner Re Limited*....................................... 107,200 2,452,200
-------------
26,146,251
-------------
REAL ESTATE INVESTMENT TRUSTS (4.2%)
Cali Realty Corp.......................................... 25,700 456,175
Capstone Capital Trust Inc................................ 73,800 1,273,050
</TABLE>
See Accompanying Notes.
20
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1a)
------------- -------------
<S> <C> <C>
Chelsea GCA Realty, Inc................................... 49,900 $ 1,316,113
Colonial Properties Trust................................. 38,800 877,850
Developers Diversified Realty Corp........................ 58,100 1,641,325
FelCor Suite Hotels Inc................................... 25,500 647,062
Gables Residential Trust.................................. 33,100 649,588
Health & Retirement Property Trust........................ 335,800 4,995,025
Healthcare Realty Trust, Inc.............................. 128,500 2,521,812
Home Properties of New York, Inc.......................... 61,100 1,038,700
Liberty Property Trust.................................... 32,600 631,625
MerryLand & Investment Company, Inc....................... 35,300 745,712
RFS Hotel Investments, Inc................................ 77,500 1,181,875
ROC Communities, Inc...................................... 98,000 2,143,750
Security Capital Pacific Trust............................ 114,200 2,041,325
Southwest Property Trust.................................. 115,800 1,433,025
Storage Trust Realty (a).................................. 46,600 937,825
Sun Commodities, Inc...................................... 28,400 678,050
Wellsford Residential Property Trust...................... 39,700 853,550
-------------
26,063,437
-------------
TOTAL FINANCE......................................... 105,545,448
-------------
HEALTH CARE (9.2%)
BIOTECHNOLOGY (3.0%)
Allergan, Inc............................................. 38,100 1,014,413
Amylin Pharmaceuticals, Inc. (a).......................... 66,500 498,750
Athena Neurosciences, Inc. (a)............................ 141,100 1,084,706
Bergen Brunswig Corp. Class A............................. 57,800 1,329,400
Centocor, Inc. (a)........................................ 36,600 496,388
Human Genome Sciences, Inc. (a)........................... 23,500 352,500
Inhale Therapeutic Systems (a)............................ 80,600 589,388
IVAX Corp................................................. 43,800 1,133,325
Mylan Laboratories........................................ 34,500 987,563
Northfield Laboratories, Inc. (a)......................... 61,600 839,300
Oncor, Inc. (a)........................................... 229,600 1,018,850
Perseptive Biosystems, Inc. (a)........................... 359,600 3,034,125
SangStat Medical Corp. (a)................................ 88,100 429,487
Targeted Genetics Corp. (a)............................... 108,400 447,150
Univax Biologics, Inc. (a)................................ 145,400 754,262
Vertex Pharmaceuticals, Inc. (a).......................... 121,300 1,955,962
Vical, Inc. (a)........................................... 141,300 1,139,231
Watson Pharmaceuticals, Inc. (a).......................... 37,900 1,388,087
-------------
18,492,887
-------------
HEALTH SERVICES (3.7%)
Advocat, Inc. (a)......................................... 156,300 1,738,837
Caremark International, Inc............................... 41,500 741,812
Community Health Systems, Inc. (a)........................ 47,000 1,656,750
Health Care & Retirement Corp............................. 173,600 5,121,200
Health Management Associates, Inc. Class A................ 189,400 5,184,825
</TABLE>
See Accompanying Notes.
21
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1a)
------------- -------------
<S> <C> <C>
Healthsource, Inc. (a).................................... 16,200 $ 639,900
Mariner Health Group, Inc. (a)............................ 205,200 2,962,575
OccuSystems, Inc. (a)..................................... 13,000 234,000
PhyCor, Inc. (a).......................................... 40,600 1,228,150
Summit Care Corp. (a)..................................... 108,600 2,110,912
Vivra, Inc. (a)........................................... 58,400 1,649,800
-------------
23,268,761
-------------
HOSPITAL SUPPLIES (2.5%)
Bard (CR), Inc............................................ 31,500 929,250
Bioject Medical Technologies, Inc. (a).................... 103,900 181,825
Biomet, Inc. (a).......................................... 32,400 477,900
CellPro, Inc. (a)......................................... 225,700 2,355,744
Corvita Corp. (a)......................................... 67,000 268,000
Fresenius USA, Inc. (a)................................... 254,300 2,527,106
Owens & Minor, Inc. Holding Co............................ 202,000 2,626,000
St. Jude Medical, Inc..................................... 28,700 1,300,469
Stryker Corp.............................................. 20,900 799,425
Sunrise Medical, Inc. (a)................................. 26,100 874,350
Vital Signs, Inc. (a)..................................... 198,900 3,145,106
-------------
15,485,175
-------------
TOTAL HEALTHCARE...................................... 57,246,823
-------------
INDUSTRIAL PRODUCTS & SERVICES (12.0%)
CAPITAL GOODS (0.3%)
Gardner Denver Machinery, Inc. (a)........................ 133,800 1,956,825
-------------
COMMERCIAL SERVICES (1.8%)
Advo, Inc................................................. 72,000 1,530,000
Banta Corp................................................ 120,800 4,016,600
Consolidated Graphics, Inc. (a)........................... 93,300 1,352,850
Emmis Broadcasting Corp. Class A (a)...................... 29,100 611,100
Hooper Holmes, Inc........................................ 105,000 945,000
Leasing Solutions, Inc.................................... 20,400 188,700
Nu-Kote Holding, Inc. (a)................................. 34,900 968,475
Robert Half International, Inc............................ 31,000 666,500
US Office Products Co. (a)................................ 55,500 613,969
-------------
10,893,194
-------------
DIVERSIFIED MANUFACTURING (3.0%)
Apogee Enterprises, Inc................................... 79,700 1,364,863
Brady (WH) Co., Class A Non-Voting........................ 102,400 6,451,200
Collins & Aikman Corp. (a)................................ 128,600 900,200
Greenfield Industries, Inc................................ 30,500 892,125
Kaydon Corp............................................... 177,727 4,887,493
Kuhlman Corp.............................................. 26,600 322,525
Libbey, Inc............................................... 116,900 2,250,325
</TABLE>
See Accompanying Notes.
22
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1a)
------------- -------------
<S> <C> <C>
PACCAR, Inc............................................... 30,400 $ 1,457,300
Pentech International, Inc. (a)........................... 6,800 19,550
Worldtex, Inc. (a)........................................ 51,600 296,700
-------------
18,842,281
-------------
ELECTRICAL EQUIPMENT (0.4%)
Charter Power Systems, Inc................................ 62,200 1,407,275
Encore Wire Corp. (a)..................................... 68,200 971,850
-------------
2,379,125
-------------
MACHINERY (5.1%)
Applied Power, Inc........................................ 136,200 3,507,150
Black & Decker Corp....................................... 280,400 9,253,200
Coltec Industries, Inc. (a)............................... 325,500 5,777,625
General Signal Corp....................................... 122,500 4,532,500
Intermet Corp. (a)........................................ 429,300 3,756,375
Regal-Beloit Corp......................................... 91,300 1,403,737
Sundstrand Corp........................................... 66,600 3,696,300
-------------
31,926,887
-------------
POLLUTION CONTROL (1.4%)
Dames & Moore, Inc........................................ 411,800 4,890,125
Mid-American Waste Systems, Inc........................... 288,100 1,512,525
Sevenson Environmental Services, Inc...................... 4,500 85,500
Tetra Technologies, Inc. (a).............................. 153,400 1,821,625
-------------
8,309,775
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES.................. 74,308,087
-------------
TECHNOLOGY (16.3%)
AEROSPACE (1.0%)
Orbital Sciences Corp. (a)................................ 142,000 2,556,000
Rohr Industries, Inc. (a)................................. 260,400 3,222,450
Watkins-Johnson Co........................................ 14,100 630,975
-------------
6,409,425
-------------
COMPUTER-PERIPHERALS (2.3%)
Pinnacle Systems, Inc. (a)................................ 59,500 1,160,250
Quantum Corp. (a)......................................... 309,400 6,632,763
Radius, Inc............................................... 88,000 918,500
Read-Rite Corp. (a)....................................... 236,800 5,342,800
-------------
14,054,313
-------------
</TABLE>
See Accompanying Notes.
23
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1a)
------------- -------------
<S> <C> <C>
COMPUTER-SOFTWARE (4.2%)
Adobe Systems, Inc........................................ 48,100 $ 2,495,187
Autodesk, Inc............................................. 76,600 2,853,350
Avid Technology, Inc. (a)................................. 39,700 1,473,863
Baan Co., N.V.* (a)....................................... 7,800 184,275
Cheyenne Software, Inc. (a)............................... 42,600 644,325
Compuware Corp............................................ 25,900 767,287
Concentra Corp. (a)....................................... 22,000 228,250
Davidson & Associates, Inc. (a)........................... 24,900 725,213
Electronic Arts, Inc. (a)................................. 76,800 1,987,200
General Magic, Inc. (a)................................... 11,800 131,275
Inso Corp. (a)............................................ 26,500 1,484,000
Intersolv (a)............................................. 48,300 796,950
Maxis, Inc. (a)........................................... 7,200 143,100
McAfee Associates, Inc. (a)............................... 29,100 811,163
Mentor Graphics Corp. (a)................................. 81,200 1,370,250
Microtec Research, Inc. (a)............................... 171,900 2,277,675
Parametric Technology Corp. (a)........................... 26,000 1,098,500
Phoenix Technologies Ltd. (a)............................. 101,000 915,313
Project Software & Development, Inc. (a).................. 77,100 2,033,512
Quarterdeck Corp. (a)..................................... 119,300 868,653
Symantec Corp. (a)........................................ 115,900 2,665,700
-------------
25,955,041
-------------
ELECTRONICS (1.0%)
Amphenol Corp. (a)........................................ 38,100 1,052,512
Dynamics Corp. of America................................. 20,200 464,600
Perkin-Elmer Corp......................................... 32,800 1,139,800
Solectron Corp. (a)....................................... 37,400 1,126,675
Symbol Technologies, Inc. (a)............................. 53,600 1,809,000
Vishay Intertechnology, Inc. (a).......................... 7,800 515,775
-------------
6,108,362
-------------
INFORMATION PROCESSING (0.8%)
America Online, Inc. (a).................................. 94,200 3,344,100
Network Computing Devices, Inc. (a)....................... 127,100 921,475
Tandem Computers, Inc. (a)................................ 49,300 653,225
-------------
4,918,800
-------------
SEMICONDUCTORS (3.2%)
Advanced Technology Materials, Inc. (a)................... 159,500 1,256,063
Asyst Technologies, Inc. (a).............................. 23,900 743,887
Brooktree Corp. (a)....................................... 134,600 2,195,662
Credence Systems Corp. (a)................................ 44,800 1,551,200
Helix Technology Corp..................................... 28,400 1,075,650
Integrated Silicon Solution, Inc. (a)..................... 15,400 623,700
Micrel, Inc. (a).......................................... 146,600 3,096,925
</TABLE>
See Accompanying Notes.
24
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1a)
------------- -------------
<S> <C> <C>
Micrion Corp. (a)......................................... 70,300 $ 1,036,925
Microchip Technolgoy, Inc. (a)............................ 30,400 906,300
Nexgen, Inc. (a).......................................... 7,100 168,625
Oak Technology, Inc. (a).................................. 27,100 772,350
Opal, Inc. (a)............................................ 5,000 73,125
S3, Inc. (a).............................................. 109,700 2,968,756
SDL, Inc. (a)............................................. 48,300 1,249,763
Xilinx, Inc. (a).......................................... 24,200 2,041,875
-------------
19,760,806
-------------
TELECOMMUNICATIONS-EQUIPMENT (3.8%)
Applied Digital Access, Inc. (a).......................... 160,000 2,020,000
Arch Communications Group (a)............................. 26,100 541,575
Bay Networks Inc.......................................... 18,500 674,094
Ceridian Corp. (a)........................................ 24,600 793,350
Comdial Corp. (a)......................................... 168,800 506,400
Dialogic Corp. (a)........................................ 68,200 1,687,950
Harris Corp............................................... 138,400 7,352,500
MFS Communications Co. (a)................................ 31,400 918,450
MFS Communications Co. (Depository Shares) (a)............ 14,300 447,769
Network Express, Inc. (a)................................. 26,600 340,813
Network General Corp. (a)................................. 90,700 2,188,138
Network Peripherals, Inc. (a)............................. 67,300 1,472,187
Security Dynamics Technologies, Inc. (a).................. 62,900 2,539,588
Tellabs, Inc. (a)......................................... 33,800 1,111,175
UUNET Technologies, Inc. (a).............................. 8,000 192,000
XcelleNet, Inc. (a)....................................... 51,000 1,122,000
-------------
23,907,989
-------------
TOTAL TECHNOLOGY...................................... 101,114,736
-------------
TRANSPORTATION (1.9%)
AIRLINES (1.1%)
Comair Holdings, Inc...................................... 27,800 778,400
Mesa Airlines, Inc. (a)................................... 986,300 6,410,950
-------------
7,189,350
-------------
TRUCKING & FREIGHT CARRIERS (0.8%)
American Freightways Corp. (a)............................ 28,500 587,812
Heartland Express, Inc. (a)............................... 32,800 889,700
USA Truck, Inc. (a)....................................... 14,200 223,650
Werner Enterprises, Inc................................... 165,400 3,163,275
-------------
4,864,437
-------------
TOTAL TRANSPORTATION.................................. 12,053,787
-------------
</TABLE>
See Accompanying Notes.
25
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1a)
------------- -------------
<S> <C> <C>
UTILITIES (5.9%)
ELECTRIC (3.4%)
Allegheny Power Systems, Inc.............................. 106,700 $ 2,654,162
California Energy Co., Inc. (a)........................... 115,500 1,848,000
Central Hudson Gas & Electric Corp........................ 151,300 4,104,012
Central Louisiana Electric................................ 51,500 1,229,563
Illinova Corp............................................. 48,100 1,190,475
Maine Public Service Co................................... 38,100 809,625
Pinnacle West Capital Corp................................ 208,400 4,793,200
Potomac Electric Power Co................................. 57,000 1,161,375
Washington Water Power Co................................. 215,400 3,284,850
-------------
21,075,262
-------------
NATURAL GAS (1.2%)
Atlanta Gas Light Co...................................... 64,300 2,202,275
Brooklyn Union Gas Co..................................... 69,000 1,742,250
Chesapeake Utilities Corp................................. 12,400 156,550
El Paso Natural Gas Co.................................... 27,300 764,400
EnergyNorth, Inc.......................................... 2,000 32,000
Providence Energy Corp.................................... 76,800 1,248,000
United Cities Gas Co...................................... 53,900 842,188
Wicor, Inc................................................ 14,500 407,812
-------------
7,395,475
-------------
WATER (1.3%)
American Water Works Inc.................................. 161,700 4,830,788
Aquarion Co............................................... 41,500 954,500
E'Town Corp............................................... 43,800 1,133,325
SJW Corp.................................................. 6,000 207,000
Southern California Water Co.............................. 72,100 1,333,850
-------------
8,459,463
-------------
TOTAL UTILITIES....................................... 36,930,200
-------------
TOTAL COMMON STOCKS (COST $561,486,674)............... 567,145,965
-------------
CONVERTIBLE PREFERRED STOCK (0.0%+)
TECHNOLOGY -- ELECTRONICS (0.0%+)
Comptronix Corp., Series A (a)............................ 471 942
-------------
TOTAL CONVERTIBLE PREFERRED STOCK (COST $722)......... 942
-------------
</TABLE>
See Accompanying Notes.
26
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
RIGHTS (NOTE 1a)
------------- -------------
<S> <C> <C>
RIGHTS (0.0%+)
HEALTHCARE (0.0%+)
BIOTECHNOLOGY (0.0%+)
Allergan Ligand Retinoid Therapeutics Inc. - (expire
6/29/95)................................................. 1,199 $ 1,011
-------------
TOTAL RIGHTS.......................................... 1,011
-------------
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
CORPORATE OBLIGATIONS (0.3%)
Boston Chicken, Inc., 4.50% due 02/01/04, callable
02/01/96................................................. $ 1,782,000 1,612,710
-------------
TOTAL CORPORATE OBLIGATIONS (COST $1,522,704)......... 1,612,710
-------------
SHORT TERM INVESTMENTS (8.3%)
U.S. TREASURY OBLIGATIONS (8.3%)
U.S. Treasury Bills
5.72% due 6/22/95......................................... 42,926,000 42,683,229
5.61% due 6/1/95.......................................... 3,378,000 3,378,000
5.55% due 6/29/95......................................... 5,915,000 5,889,467
-------------
TOTAL U.S. TREASURY OBLIGATIONS....................... 51,950,696
-------------
TOTAL SHORT TERM INVESTMENTS (COST $51,950,696)....... 51,950,696
-------------
TOTAL INVESTMENTS (99.9%) (COST $614,960,796) 620,711,324
OTHER ASSETS NET OF LIABILITIES (0.1%) 341,885
-------------
NET ASSETS (100.0%) $ 621,053,209
-------------
-------------
</TABLE>
Note: Based on the cost of investments of $615,927,936 for Federal Income Tax
purposes at May 31, 1995, the aggregate gross unrealized appreciation and
depreciation was $53,485,313 and $48,701,926 respectively, resulting in net
unrealized appreciation of $4,783,387.
(a) Non-income producing security.
* Foreign Security.
(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 holdings stands for American Depository
Receipt, representing ownership of foreign securities on deposit with a
domestic custodian bank.
+ Less than 0.1%
See Accompanying Notes.
27
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $614,960,796) (Note 1a) $ 620,711,324
Cash 705
Receivable for Investments Sold 12,263,967
Dividends Receivable 661,773
Interest Receivable 26,582
Prepaid Insurance 2,223
-------------
Total Assets 633,666,574
-------------
LIABILITIES
Payable for Securities Purchased 10,634,680
Advisory Fee Payable (Note 2a) 1,204,864
Financial and Fund Accounting Services Fee Payable (Note 2c) 445,137
Custody Fee Payable 293,357
Administration Fee Payable (Note 2b) 3,157
Fund Services Fee Payable (Note 2d) 2,703
Accrued Expenses 29,467
-------------
Total Liabilities 12,613,365
-------------
NET ASSETS
Applicable to Investors' Beneficial Interests $ 621,053,209
-------------
-------------
</TABLE>
See Accompanying Notes.
28
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax of $48,073) $ 9,914,055
Interest Income 1,336,749
-----------
Investment Income 11,250,804
EXPENSES
Advisory Fee (Note 2a)
$3,514,331
Custodian Fees and Expenses
255,180
Financial and Fund Accounting Services Fees (Note 2c)
241,373
Fund Services Fee (Note 2d)
62,256
Professional Fees
52,457
Administration Fee (Note 2b)
38,215
Trustees' Fees and Expenses (Note 2e)
15,238
Insurance
8,094
Miscellaneous
341
----------
Total Expenses 4,187,485
-----------
NET INVESTMENT INCOME 7,063,319
NET REALIZED GAIN ON INVESTMENTS 28,881,980
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS 31,665,894
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $67,611,193
-----------
-----------
</TABLE>
See Accompanying Notes.
29
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 19, 1993
(COMMENCEMENT
FOR THE FISCAL OF
YEAR ENDED OPERATIONS) TO
INCREASE (DECREASE) IN NET ASSETS MAY 31, 1995 MAY 31, 1994
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $ 7,063,319 $ 4,807,224
Net Realized Gain on Investments 28,881,980 33,091,201
Net Change in Unrealized Appreciation (Depreciation) of
Investments 31,665,894 (55,373,439)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 67,611,193 (17,475,014)
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions 162,456,578 903,848,399
Withdrawals (243,561,586) (251,926,461)
-------------- --------------
Net Increase (Decrease) from Investors' Transactions (81,105,008) 651,921,938
-------------- --------------
Total Increase (Decrease) in Net Assets (13,493,815) 634,446,924
NET ASSETS
Beginning of Period 634,547,024 100,100
-------------- --------------
End of Period $ 621,053,209 $ 634,547,024
-------------- --------------
-------------- --------------
</TABLE>
--------------------------------------------------------------------------------
SUPPLEMENTARY DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JULY 19, 1993
FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
MAY 31, 1995 MAY 31, 1994
------------- ----------------
<S> <C> <C>
Ratios to Average Net Assets:
Expenses 0.71% 0.72%(a)
Net Investment Income 1.21% 0.99%(a)
Portfolio Turnover 75% 97%+
<FN>
------------------------
(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 Capital Appreciation Fund, for the period June 1, 1993 to July 18,
1993.
</TABLE>
See Accompanying Notes.
30
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Small Company 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 $200,358,103 on that date from The Pierpont Capital Appreciation
Fund in exchange for a beneficial interest in the Portfolio. At that date, net
unrealized appreciation of $29,458,073 was included in the contributed
securities. The Declaration of Trust permits the Trustees to issue an unlimited
number of beneficial interests in the Portfolio.
The following is a summary of the significant accounting policies of the
Portfolio:
a)The value of each security for which readily available market quotations
exists 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 average of readily available closing bid
and asked prices on such exchanges. 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)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 becomes 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.
c)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be subject to
taxation on its share of the Portfolio's ordinary income and capital
gains. It is intended that the Portfolio's assets will be managed in such
a way that an investor in the Portfolio will be able to satisfy the
requirements of Subchapter M of the Internal Revenue Code.
d)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
31
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
satisfaction of the obligation. Under certain circumstances, in the event
of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an investment advisory agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the investment
advisory agreement, the Portfolio pays Morgan at an annual rate of 0.60%
of the Portfolio's average daily net assets. For the fiscal year ended May
31, 1995, this fee amounted to $3,514,331
b)The Portfolio retains Signature Broker-Dealer Services, Inc. ("Signature")
to serve as Administrator and exclusive placement agent. Signature
provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the Portfolio and pays the compensation of the Portfolio's
officers affiliated with 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 to the daily net assets of the Portfolio. For the fiscal year
ended May 31, 1995, Signature's fee for these services amounted to
$38,215.
c)The Portfolio has a Financial and Fund Accounting Services Agreement
("Services Agreement") with Morgan under which Morgan receives a fee,
based on the percentages described below, for overseeing certain aspects
of the administration and operation of the Portfolio. The Services
Agreement is also designed to provide an expense limit for certain
expenses of the Portfolio. If total expenses of the Portfolio, excluding
the advisory fee, custody expenses, fund services fee, and brokerage
costs, exceed the expense limit of 0.10% of the Portfolio's average daily
net assets up to $200 million, 0.05% of the next $200 million of average
daily net assets, and 0.03% of average daily net sssets thereafter, Morgan
will reimburse the Portfolio for the excess expense amount and receive no
fee. Should such expenses be less than the expense limit, Morgan's fee
would be limited to the difference between such expenses and the fee
calculated under the Services Agreement. For the fiscal year ended May 31,
1995, this fee amounted to $241,373.
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 $62,256 for the fiscal year ended May 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, their
corresponding Portfolios and The Series Portfolio. The Trustees' Fees and
Expenses shown in the financial statements represents 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
32
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1995
--------------------------------------------------------------------------------
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 $7,300.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended May 31, 1995 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
$430,534,951 $511,722,242
</TABLE>
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Small Company 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. Small Company Portfolio (the
"Portfolio") at May 31, 1995, the results of its operations for the year then
ended, and the changes in its net assets and its supplementary data for the year
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,
1995 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
July 26, 1995
34
<PAGE>
THE PIERPONT MONEY MARKET FUND
THE PIERPONT TAX EXEMPT MONEY MARKET FUND
THE PIERPONT TREASURY MONEY MARKET FUND
THE PIERPONT SHORT TERM BOND FUND
THE PIERPONT BOND FUND
THE PIERPONT TAX EXEMPT BOND FUND
THE PIERPONT NY TOTAL RETURN BOND FUND
THE PIERPONT DIVERSIFIED FUND
THE PIERPONT EQUITY FUND
THE PIERPONT CAPITAL APPRECIATION FUND
THE PIERPONT INTERNATIONAL EQUITY FUND
THE PIERPONT EMERGING MARKETS EQUITY FUND
FOR MORE INFORMATION ON HOW THE PIERPONT FAMILY OF FUNDS CAN HELP YOU PLAN FOR
YOUR FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
THE PIERPONT CAPITAL APPRECIATION FUND
ANNUAL REPORT
MAY 31, 1995
