PIERPONT FUNDS, N-30D, 1995-06-21

PIERPONT FUNDS
N-30D, 1995-06-21

Previous: GOVERNMENT SEC INC FD MON PYMT U S TREAS SER 19 D A F, 485BPOS, 1995-06-21

Next: PIERPONT FUNDS, N-30D, 1995-06-21

<PAGE>
THE PIERPONT MONEY MARKET FUND The
THE PIERPONT TAX EXEMPT MONEY MARKET FUND Pierpont
THE PIERPONT TREASURY MONEY MARKET FUND Equity Fund
THE PIERPONT SHORT TERM BOND FUND
THE PIERPONT BOND FUND
THE PIERPONT TAX EXEMPT BOND FUND
THE PIERPONT NEW YORK 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 ANNUAL REPORT
OF FUNDS CAN HELP YOU PLAN FOR YOUR FUTURE, CALL MAY 31, 1994
J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.

<PAGE>

TABLE OF CONTENTS

Letter to the shareholders......... 1 Special fund-based services........ 5

Fund facts and highlights.......... 3 Financial statements............... 6

Fund performance................... 4

The performance data quoted herein represent past performance. Please remember
that past performance is not a guarantee of future performance. Fund returns are
net of fees. All returns assume the reinvestment of Fund distributions and
reflect the reimbursement of certain Fund expenses as described in the
Prospectus. Had expenses not been subsidized, returns would have been lower. The
MICROPAL MUTUAL FUND RATING SERVICE is a leading resource for mutual fund data.
Micropal contains performance information and portfolio characteristics for over
20,000 funds worldwide, including nearly 5,000 in the U.S. The Pierpont Equity
Fund invests all of its investable assets in The Selected 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. The Portfolio
may invest in foreign securities which are subject to special risks; prospective
investors should refer to the Fund's Prospectus for a discussion of these risks.

MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES, IS PROVIDED IN THE PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE
INVESTING. YOU MAY OBTAIN A COPY OF THE PROSPECTUS BY CALLING (800) 521-5411.

<PAGE>
LETTER TO THE SHAREHOLDERS OF THE PIERPONT EQUITY FUND

July 22, 1994

Dear Shareholder:

In this age of challenging markets, we are particularly pleased to tell you
about the outstanding performance results achieved by The Pierpont Equity Fund
(the "Fund") during the fiscal year ended on May 31, 1994.

Your investment advisor, Morgan Guaranty Trust Company of New York, seeks to
outperform the S&P 500 Index through disciplined stock selection, while also
reducing various risks associated with sector rotation or market timing. The
advisor's experience has shown that ranking individual securities within
economic sectors (through the combined use of proprietary fundamental research
and a quantitative valuation model) is a powerful tool for individual stock
selection. A structured decision-making process, based on these rankings, is
used to allocate the Portfolio across attractively priced stocks. For the fiscal
year ended May 31, 1994, The Pierpont Equity Fund provided a total return of
8.54%, versus a total return of 4.26% for the S&P 500 Index during the same
period.

During the fiscal year, the Fund's net asset value per share increased from
$19.30 to $19.38 and the Fund paid $1.51 per share in dividends and capital gain
distributions. We are particularly pleased to report that the Fund's net assets
rose from $202 million at the beginning of the fiscal year to over $231 million
at May 31, 1994. The net assets of The Selected U.S. Equity Portfolio (the
"Portfolio"), in which the Fund invests, totaled $438 million as of May 31,
1994.

THE YEAR IN REVIEW

The fiscal year ending May 1994 began amid signs of general economic softness
and declining interest rates. When the federal budget debate increased investor
concerns about the economy in June and July, stocks moved sideways.

By August, further interest rate declines and continued record inflows of assets
into equity mutual funds provided a firm outlook for a market concerned about
domestic economic health, disarray in Russia, and the upcoming anniversary of
the October 1987 crash. There was considerable volatility within the market as
stocks became increasingly polarized within "good news" and "bad news" camps.
Those 1980's darlings, the Health Care and Consumer stable sectors, also
indiscriminately underperformed. Applying our valuation disciplines, we were
able to take advantage of this volatility by

1
<PAGE>
adding positions in the Health Care, Consumer Cyclical and Technology sectors,
while reducing positions in those sectors in which individual stocks appeared
overvalued, such as Utilities and Consumer Service.

As 1993 came to a close, widespread evidence that the economy and earnings
outlooks were on the upswing overcame moderately higher interest rates and
massive new issue activity, and the market pushed higher, led by the more
economically sensitive issues. The Portfolio particularly benefited from
holdings in the Technology and Consumer Cyclical sectors.

Stocks moved higher in January, but then the Federal Reserve made news by
raising interest rates on February 4, the first such tightening move in five
years. The subsequent loss of investor confidence, exacerbated by fears
regarding fund portfolio liquidations, trade wars, North Korea and Whitewater,
pummeled the bond market and led to a sharp 10% selloff from January highs. Amid
this uncertainty, we reduced our moderate underweightings in the Utility and
Health Care sectors, while cutting back in strong groups like Basic Industry and
Technology. The fiscal year performance managed to end on a strong note,
however, as bonds stabilized and good earnings reports were abundant.

The advisor's emphasis on stock selection served the Portfolio well during the
fiscal year ending May, 1994. This emphasis added value in 10 of the 19 economic
sectors targeted for investment by the Portfolio, and contributed the bulk of
the overall outperformance, relative to the benchmark. Most notable in this
regard was the Health Care sector, which declined in value amid concern over the
impact of reform legislation. The holdings of the Portfolio, however, led by
COLUMBIA HEALTHCARE and MEDCO CONTAINMENT, rose 15% in value, adding more than a
full 100 basis points to the excess return over the benchmark achieved during
the year.

THE INVESTMENT OUTLOOK

Going forward, we believe the market is likely to be sensitive to developments
in the currency and bond markets, as valuation is less compelling than earlier
in the year. Also, robust economic growth argues for further interest rate hikes
by the Federal Reserve. Should the central bank meet its devoutly wished but
rarely achieved goal of a "soft landing" for the economy, the investment outlook
would considerably brighten. The advisor will continue to strive to
systematically outperform the benchmark return, using the information available
in its research to take advantage of emerging opportunities.

As always, we welcome your comments or questions. Please call J.P. Morgan Fund
Services toll free at (800) 521-5411.

Sincerely yours,

Evelyn E. Guernsey
J.P. Morgan Fund Services

<PAGE>
FUND FACTS

INVESTMENT OBJECTIVE

The Pierpont 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 equity securities that seeks to outperform the S&P 500
Index.
- -------------------------------------------
INCEPTION DATE
6/27/85
- -------------------------------------------
NET ASSETS AS OF 5/31/94 ($ MILLIONS)
231
- -------------------------------------------
EX-DIVIDEND DATES
3/30/94, 7/11/94, 12/19/94
- -------------------------------------------
DIVIDEND PAYABLE DATES
3/31/94, 7/12/94, 12/20/94
- -------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF ANY)
7/12/94, 12/20/94

EXPENSE RATIO

The Fund's current annual expense ratio of 0.90% covers shareholders' expenses
for custody, tax reporting, investment advisory and shareholder services. The
Fund is no-load and does not charge any sales, redemption, or exchange fees.
There are no additional charges for buying, selling, or safekeeping Fund shares,
or for wiring dividend or redemption proceeds from the Fund.

FUND HIGHLIGHTS
(ALL DATA AS OF MAY 31, 1994)

SECTOR ALLOCATION

[GRAPH]

<TABLE>
<CAPTION>
LARGEST EQUITY HOLDINGS % OF PORTFOLIO
<S> <C>
- ------------------------------------------
GENERAL MOTORS 2.4

MELVILLE 2.2

ROYAL DUTCH PETROLEUM 2.0

GENERAL ELECTRIC 1.9

U S WEST 1.8

CROWN CORK & SEAL 1.8

COOPER INDUSTRIES 1.8

EXXON 1.7

TYCO INTERNATIONAL 1.7

ARCHER-DANIELS-MIDLAND 1.7
</TABLE>

3
<PAGE>
FUND PERFORMANCE

EXAMINING PERFORMANCE

Another way to look at performance is to review a fund's average annual total
returns; these figures represent the average yearly change of the fund's value
over various time periods, typically 1, 5 or 10 years (or since inception). For
example, a hypothetical fund whose value increased by 4.0% in 1992 and 6.0% in
1993 had an average annual total return of 5.0% over the two-year period. Total
returns for periods of less than one year can also provide a picture of how a
fund has performed in the short term.

GROWTH OF $10,000 SINCE INCEPTION
JUNE 27, 1985 -- MAY 31, 1994
- -------------------------------------------

Line graph with two axes: the X-axis represents years of operations; the Y-axis
represents dollar value. The graph plots two lines: the first line represents
the growth of a ten thousand dollar investment in the Fund from June 27, 1985
(inception) to May 31, 1994; the second line represents the growth of a ten
thousand dollar investment in a portfolio of securities reflecting the
composition of the S&P 500 index for the same time period. The graph points are
as follows:

Year Fund S&P 500
<S> <C> <C>

0 $ 10,000 $ 10,000
1 13,096 13,361
2 15,195 16,187
3 13,968 15,133
4 17,476 19,189
5 20,753 22,376
6 23,826 25,014
7 27,305 27,478
8 30,041 30,668
9 32,615 31,975

</TABLE>

<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS

THREE YEAR ONE FIVE SINCE
AS OF MAY 31, 1994 MONTHS TO DATE YEAR YEARS INCEPTION*
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Pierpont Equity Fund -1.06% 0.95% 8.54% 13.29% 14.17%
S&P 500 Index -1.54% -0.96% 4.26% 10.75% 13.92%
Micropal Equity Growth and Income Fund
Average -2.47% -1.88% 2.79% 9.17% 9.17%

<CAPTION>
AS OF MARCH 31, 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Pierpont Equity Fund -2.17% -2.17% 5.46% 14.87% 14.04%
S&P 500 Index -3.79% -3.79% 1.47% 12.12% 13.83%
Micropal Equity Growth and Income Fund
Average -3.69% -3.69% 1.09% 10.37% 11.65%
<FN>
*JUNE 27, 1985.
</TABLE>

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. ALL RETURNS ASSUME THE
REINVESTMENT OF DISTRIBUTIONS AND THE FUND'S RETURNS REFLECT REIMBURSEMENT OF
CERTAIN FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS.

<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. Through the Pierpont Asset Allocation Service (PAAS), a
client can work with Morgan investment professionals in order to determine the
client's investment goals. Our investment professionals will then:

- - Recommend an asset allocation strategy that is
specifically targeted at meeting the client's investment objectives

- - Execute the chosen strategy by making strategic
investments in one or more Pierpont Funds

- - Make agreed-upon ongoing tactical adjustments
in the actual asset mix of the client's portfolio in an effort to capitalize
on shifting market trends

The Pierpont Asset Allocation Service thus provides the investor with a
comprehensive asset allocation and investment management program for his or her
portfolio. PAAS is available to clients who invest a minimum of $500,000 in The
Pierpont Funds. The fees for this service 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

Beginning this fall, 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 which 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.

5
<PAGE>
THE PIERPONT EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investment in The Selected U.S. Equity Portfolio ("Portfolio"), at
value $232,632,959
Receivable for Fund Shares Sold 99,803
Receivable for Expense Reimbursement (Note 2b) 74,379
Tax Reclaim Receivable 19,282
Prepaid Expenses 1,517
------------
Total Assets 232,827,940
------------

LIABILITIES:
Payable for Fund Shares Redeemed 913,894
Shareholder Servicing Fee Payable (Note 2c) 346,465
Advisory Fee Payable (Note 2f) 94,362
Financial and Fund Accounting Services Fee Payable (Note 2b) 113,959
Administration Fee Payable (Note 2a) 5,748
Fund Services Fee Payable (Note 2d) 2,557
Accrued Expenses 44,975
------------
Total Liabilities 1,521,960
------------

NET ASSETS:
Applicable to 11,935,399 Shares of Beneficial Interest Outstanding $231,305,980
------------
------------
Net Asset Value, Offering and Redemption Price Per Share $19.38
------
------
ANALYSIS OF NET ASSETS:
Paid-in Capital $205,894,515
Undistributed Net Investment Income 902,617
Accumulated Net Realized Gain 15,958,212
Net Unrealized Appreciation 8,550,636
------------
Net Assets $231,305,980
------------
------------
</TABLE>

See Accompanying Notes.

<PAGE>
THE PIERPONT EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1994
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME FROM PORTFOLIO (NOTE 1B):
Dividend Income (Net of Withholding Tax of $59,729) $ 4,993,355
Interest Income 371,303
Allocated Portfolio Expenses (1,072,298)
-----------
Net Investment Income from Portfolio 4,292,360

EXPENSES:
Shareholder Servicing Fee (Note 2c) $ 595,599
Financial and Fund Accounting Services Fee (Note 2b) 113,959
Advisory Fee (Note 2f) 94,362
Administration Fee (Note 2a) 78,201
Fund Services Fee (Note 2d) 48,660
Trustees' Fees and Expenses (Note 2e) 13,125
Custodian and Transfer Agent Fees 75,355
Registration Fees 21,730
Printing and Postage 13,819
Professional Fees 11,382
Miscellaneous 8,752
----------
Total Expenses 1,074,944
Less: Fee Waiver and Expense Reimbursement (Notes 2a
and 2b) (76,446)
----------
NET EXPENSES 998,498
-----------

NET INVESTMENT INCOME 3,293,862

NET REALIZED GAIN 25,357,179
NET CHANGE IN UNREALIZED APPRECIATION (9,386,402)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,264,639
-----------
-----------
</TABLE>

See Accompanying Notes.

7
<PAGE>
THE PIERPONT EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31,
---------------------------------
1994 1993
-------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income $ 3,293,862 $ 3,195,003
Net Realized Gain 25,357,179 4,745,222
Net Change in Unrealized Appreciation (9,386,402) 6,640,132
-------------- ---------------
Net Increase in Net Assets Resulting from Operations 19,264,639 14,580,357
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income (3,378,475) (2,659,444)
Net Realized Gain (14,144,189) (6,357,964)
-------------- ---------------
Total Distributions to Shareholders (17,522,664) (9,017,408)
-------------- ---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 3):
Proceeds from Shares of Beneficial Interest Sold 105,772,531 103,923,327
Reinvestment of Dividends and Distributions 16,672,694 8,330,962
Cost of Shares of Beneficial Interest Redeemed (95,355,027) (24,589,406)
-------------- ---------------
Net Increase from Transactions in Shares of Beneficial
Interest 27,090,198 87,664,883
-------------- ---------------
Total Increase in Net Assets 28,832,173 93,227,832
NET ASSETS:
Beginning of Year 202,473,807 109,245,975
-------------- ---------------
End of Year (including undistributed net investment income of $902,617
and $987,230, respectively) (Note 4) $ 231,305,980 $ 202,473,807
-------------- ---------------
-------------- ---------------
</TABLE>

See Accompanying Notes.

<PAGE>
THE PIERPONT EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

Selected data for a share outstanding throughout each year are as follows:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $19.30 $19.02 $18.21 $16.51 $14.54
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.27 0.38 0.37 0.44 0.44
Net Realized and Unrealized Gain 1.32 1.35 2.13 1.90 2.20
----- ----- ----- ----- -----
Total from Investment Operations 1.59 1.73 2.50 2.34 2.64
----- ----- ----- ----- -----
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income (0.29) (0.36) (0.40) (0.45) (0.44)
Net Realized Gain (1.22) (1.09) (1.29) (0.19) (0.23)
----- ----- ----- ----- -----
Total Distributions to Shareholders (1.51) (1.45) (1.69) (0.64) (0.67)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR $19.38 $19.30 $19.02 $18.21 $16.51
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Total Return 8.54% 10.02% 14.60% 14.81% 18.75%
RATIOS AND SUPPLEMENTAL DATA:
Net Assets at End of Year (in thousands) $ 231,306 $ 202,474 $ 109,246 $ 55,144 $ 40,032
Ratios to Average Net Assets
Expenses* 0.90% 0.90% 0.90% 0.91% 0.93%
Net Investment Income* 1.43% 2.20% 2.16% 2.81% 2.97%
Portfolio Turnover** 10% 60% 99% 43% 23%

<FN>
* Reflects the Fund's proportionate share of the Portfolio's expenses for the
period July 19, 1993 to May 31, 1994 and a reimbursement or waiver of
expenses for each period. If these agreements to waive or reimburse the Fund
for excess expenses had not been in place for the periods shown, the ratios
of expenses and net investment income to average net assets would have been:

Expenses 0.93% 0.98% 1.09% 1.29% 1.34%
Net Investment Income 1.40% 2.12% 1.97% 2.43% 2.56%

** 1994 Portfolio Turnover is not annualized and only reflects the period June
1, 1993 to July 18, 1993 prior to the reorganization with the Portfolio. See
the accompanying financial statements of the Portfolio for information on
portfolio turnover subsequent to July 18, 1993.
</TABLE>

See Accompanying Notes.

9
<PAGE>
THE PIERPONT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Pierpont Equity Fund (the "Fund") is a separate series of The Pierpont
Funds, a Massachusetts business trust (the "Trust") which was organized on
November 4, 1992. 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, when it contributed
securities and other assets and liabilities valued at $209,477,219 to The
Selected U.S. Equity Portfolio (the "Portfolio") for a beneficial interest in
the Portfolio, operated as a stand-alone mutual fund. Costs related to the
reorganization were borne by Morgan Guaranty Trust Company of New York. 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 Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund. The value of such investment reflects the Fund's proportionate
interest in the net assets of the Portfolio (53.1% at May 31, 1994). 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.

1. SIGNIFICANT ACCOUNTING POLICIES:

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 quarterly. Distributions of realized net capital gains, 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's policy is 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.

<PAGE>
THE PIERPONT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
Effective October 1, 1993, Signature receives a fee at an annual rate of
0.04% of the first $1 billion of the aggregate average daily net assets of
the Fund, the other funds in the Trust, The JPM Institutional Funds, and
The JPM Institutional Plus Funds (the "aggregate funds"), 0.032% of the
next $2 billion of the aggregate funds' average daily net assets, 0.024% of
the next $2 billion of the aggregate funds' average daily net assets, and
0.016% of the aggregate funds' average daily net assets in excess of $5
billion. (Prior to October 1, 1993, the administration fee was at an annual
rate of 0.05% of the first $1 billion of the aggregate funds' average daily
net assets, 0.04% of the next $2 billion of the aggregate funds' average
daily net assets, 0.03% of the next $2 billion of the aggregate funds'
average daily net assets, and 0.02% of the aggregate funds' average daily
net assets in excess of $5 billion.) For the period July 19, 1993 to May
31, 1994, the Fund's portion of Signature's fee for these services amounted
to $64,263. Prior to the Fund's reorganization, the predecessor entity had
an administration agreement with The Boston Company Advisors, Inc. Fees
under the prior agreement for the period June 1, 1993 to July 18, 1993, net
of voluntary fee waivers of $2,067, amounted to $11,871.

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"), effective July 19, 1993, 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 cap 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 cap
of 0.15% of the first $100 million of the Fund's average daily net assets,
and 0.13% thereafter, Morgan will reimburse the Fund for the excess expense
amount and receive no fee. Should such expenses be less than the expense
cap, Morgan's fee would be limited to the difference between such expenses
and the fee calculated under the Services Agreement. For the period July
19, 1993 to May 31, 1994, Morgan's fee for these services amounted to
$113,959. In addition to the expenses that Morgan may assume under the
Services Agreement, Morgan, effective July 19, 1993, 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 0.90% of the average daily net assets of the
Fund through May 31, 1995. For the period July 19, 1993 to May 31, 1994,
Morgan has agreed to reimburse the Fund $74,379.

c) The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement,
effective July 19, 1993, 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 period July 19, 1993 to May 31, 1994, Morgan's fee for
these services amounted to $506,629. Prior to the reorganization, the
predecessor fund had a shareholder servicing and fund

11
<PAGE>
THE PIERPONT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
accounting services agreement with Morgan. Under the terms of this
agreement, the predecessor fund paid Morgan a fee at an annual rate of
0.33% of the average daily net assets of the Fund. For the period June 1,
1993 to July 18, 1993, Morgan's fee for these services amounted to $88,970.

d) The Trust, on behalf of the Fund, has entered into a Fund Services
Agreement with Pierpont Group, Inc. ("Group") to assist the Trustees in
exercising their overall supervisory responsibilities for the Trust's
affairs. Prior to the reorganization, the predecessor fund had a similar
agreement with Group. The Chairman and sole shareholder of Group is also a
Trustee of the Trust. The Fund's allocated portion of Group's costs in
performing its services amounted to $48,660 for the fiscal year ended May
31, 1994.

e) Each Trustee is paid a $55,000 annual fee for serving as a Trustee of the
aggregate funds and their corresponding Portfolios. The Trustee fee expense
shown in the financial statements represents the Fund's allocated portion
of the total fees and expenses.

f) Prior to reorganization, the predecessor fund had an investment advisory
agreement with Morgan. Under the terms of this agreement, the predecessor
fund paid Morgan a fee at an annual rate of 0.35% of the average daily net
assets of the Fund. For the period June 1, 1993 to July 18, 1993, Morgan's
fee for these services amounted to $94,362.

3. SHARES OF BENEFICIAL INTEREST:

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (par value $0.001) of one or
more series. To date, the Trust has authorized shares of fourteen series, of
which the Fund's shares represent one series. Transactions in shares of
beneficial interest of the Fund were as follows:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED MAY 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Shares Sold 5,488,627 5,602,440
Reinvestment of Dividends and Distributions 875,510 477,174
----------- -----------
6,364,137 6,079,614
Shares Redeemed (4,920,083) (1,332,362)
----------- -----------
Net Increase 1,444,054 4,747,252
----------- -----------
----------- -----------
</TABLE>

4. DIVIDENDS AND DISTRIBUTIONS:

The Fund declared to shareholders of record on July 11, 1994, an income dividend
of $0.07602 per share and a capital gain distribution of $0.95242 per share.
Such dividends and distributions were paid on July 12, 1994.

12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
The Pierpont 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 Pierpont Equity Fund (the "Fund") at May 31, 1994, and the results of its
operations, the changes in its net assets and the financial highlights for the
year 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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above. The financial statements for the year ended May 31, 1993 and the
financial highlights for each of the four years in the period ended May 31, 1993
were audited by other independent accountants whose report dated June 24, 1993
expressed an unqualified opinion on those statements.

PRICE WATERHOUSE
New York, New York
July 22, 1994

<PAGE>

[This page intentionally left blank.]

14
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
ANNUAL REPORT MAY 31, 1994

(THE FOLLOWING PAGES SHOULD BE READ IN CONJUNCTION
WITH THE PIERPONT EQUITY FUND
ANNUAL FINANCIAL STATEMENTS)

<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (93.6%) SHARES (NOTE 1A)
--------- -----------
<S> <C> <C>
BASIC INDUSTRIES (8.7%)
CHEMICALS (3.3%)
Albemarle Corp........ 92,750 $ 1,495,594
Du Pont (E.I.) de
Nemours & Co., Inc.. 82,000 5,084,000
Ethyl Corp............ 180,000 2,340,000
Georgia Gulf Corp. (a) 172,200 5,445,825
-----------
14,365,419
-----------
METALS & MINING (3.5%)
Crown Cork & Seal Co.,
Inc. (a)............ 218,200 7,882,475
Freeport McMoRan
Copper & Gold Inc.,
Cl. A............... 100,000 2,462,500
Pegasus Gold Inc...... 102,700 1,720,225
Phelps Dodge Corp..... 60,200 3,341,100
-----------
15,406,300
-----------
PAPER & FOREST PRODUCTS (1.9%)
Bowater Inc........... 169,800 4,117,650
Champion International
Corp................ 127,400 4,156,425
-----------
8,274,075
-----------
Total Basic Industries 38,045,794
-----------
CONSUMER GOODS & SERVICES (24.1%)
AUTOMOTIVE (2.4%)
General Motors Corp... 197,700 10,626,375
-----------
BEVERAGES, FOOD, SOAP & TOBACCO (7.7%)
Archer-Daniels-Midland
Co.................. 308,200 7,435,325
Coca-Cola (The) Co.... 155,300 6,270,237
Coca-Cola Enterprises,
Inc................. 205,300 3,387,450
CPC International,
Inc................. 109,800 5,325,300
PepsiCo., Inc......... 187,000 6,732,000
Philip Morris Cos.,
Inc................. 91,400 4,501,450
-----------
33,651,762
-----------
ENTERTAINMENT, LEISURE & MEDIA (4.0%)
Carnival Cruise Lines,
Inc., Cl. A......... 90,900 4,249,575
Circus Circus
Enterprises, Inc.
(a)................. 175,000 4,046,875
CBS Inc............... 19,000 4,959,000

ENTERTAINMENT, LEISURE & MEDIA (CONTINUED)
Tele-Communications,
Inc., Cl. A (a)..... 200,000 $ 4,162,500
-----------
17,417,950
-----------
HOUSEHOLD PRODUCTS (1.7%)
Interco, Inc. (a)..... 262,900 3,286,250
Procter & Gamble Co... 74,100 4,177,388
-----------
7,463,638
-----------
MERCHANDISING (7.1%)
Charming Shoppes, Inc. 310,300 2,967,244
Dayton Hudson Corp.... 31,300 2,460,963
Fruit of the Loom
Inc., Cl. A (a)..... 168,500 4,949,687
Hechinger Co., Cl. A.. 130,000 1,998,750
Limited Inc. (The).... 412,100 7,263,263
Melville Corp......... 233,100 9,469,687
Price/Costco Inc. (a). 152,700 2,013,731
-----------
31,123,325
-----------
PERSONAL SERVICES (1.2%)
Service Corp.
International....... 206,100 5,049,450
-----------
Total Consumer Goods
& Services 105,332,500
-----------
ENERGY (10.8%)
OIL-PRODUCTION (8.2%)
British Petroleum Co.
PLC (ADR)........... 89,600 6,294,400
Exxon Corp............ 123,300 7,521,300
Mobil Corp............ 80,700 6,536,700
Oryx Energy Co........ 174,500 3,053,750
Repsol S.A. (ADR)..... 118,100 3,764,438
Royal Dutch Petroleum
Co. (ADR)........... 82,200 8,785,125
-----------
35,955,713
-----------
OIL-SERVICES (2.6%)
Schlumberger Ltd...... 129,300 7,402,425
Smith International,
Inc. (a)............ 165,400 2,501,675
Western Co. of North
America (a)......... 105,000 1,286,250
-----------
11,190,350
-----------
Total Energy 47,146,063
-----------
</TABLE>

See Accompanying Notes.

16
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
--------- -----------
<S> <C> <C>
FINANCE (12.6%)
BANKING (5.8%)
BankAmerica Corp...... 115,800 $ 5,616,300
Bank of New York Co.,
Inc................. 61,600 1,817,200
Citicorp.............. 66,800 2,638,600
Continental Bank
Corp................ 148,900 5,546,525
Golden West Financial
Corp................ 114,800 4,534,600
NationsBank Corp...... 92,072 5,098,487
-----------
25,251,712
-----------
BROKERAGE (0.5%)
Charles Schwab Corp... 77,000 2,329,250
-----------
INSURANCE (5.2%)
Allstate Corp......... 168,800 4,409,900
American Express Co... 139,900 3,864,737
American International
Group, Inc.......... 55,700 5,200,988
First Colony Corp..... 83,656 1,850,889
Providian Corp........ 193,700 6,053,125
USLIFE Corp........... 43,600 1,591,400
-----------
22,971,039
-----------
FINANCIAL SERVICES (1.1%)
Household
International, Inc.. 128,000 4,352,000
Lehman Brothers
Holdings Inc. (a)... 27,980 503,640
-----------
4,855,640
-----------
Total Finance 55,407,641
-----------
HEALTHCARE (5.4%)
PHARMACEUTICALS (5.4%)
Abbott Laboratories... 200,000 5,975,000
Alza Corp. Cl. A (a).. 189,800 4,721,275
Bausch & Lomb Inc..... 58,400 2,890,800
Gensia Inc............ 75,100 957,525
Johnson & Johnson Inc. 115,500 5,110,875
Merck & Co. Inc....... 134,300 4,096,150
-----------
Total Healthcare 23,751,625
-----------
INDUSTRIAL PRODUCTS & SERVICES (15.1%)
COMMERCIAL PRINTING (1.2%)
R.R. Donnelley & Sons
Co.................. 191,100 5,255,250
-----------
DIVERSIFIED MANUFACTURING (10.7%)
Allied Signal, Inc.... 175,700 $ 6,171,462
Coltec Industries Inc.
(a)................. 49,300 955,188
Cooper Industries,
Inc................. 215,700 7,819,125
Cooper Tire & Rubber
Co.................. 237,600 6,296,400
General Electric Co... 168,200 8,346,925
ITT Corp.............. 82,900 6,922,150
Manville Corp......... 374,600 2,903,150
Tyco International
Ltd................. 156,700 7,443,250
-----------
46,857,650
-----------
ELECTRONICS (0.5%)
MagneTek Inc. (a)..... 155,600 2,256,200
-----------
MACHINERY (1.2%)
General Signal Corp... 51,400 1,580,550
Tenneco Inc........... 77,000 3,686,375
-----------
5,266,925
-----------
POLLUTION CONTROL (1.5%)
Browning-Ferris
Industries, Inc..... 69,100 2,003,900
Laidlaw Inc., Cl. B... 340,000 2,316,250
WMX Technologies Inc.. 80,000 2,190,000
-----------
6,510,150
-----------
Total Industrial
Products & Services 66,146,175
-----------
TECHNOLOGY (5.3%)
COMPUTERS-PERIPHERALS (3.3%)
Conner Peripherals
Inc. (a)............ 270,700 4,128,175
International Business
Machines Corp....... 94,500 5,977,125
Read-Rite Corp. (a)... 336,100 4,264,269
-----------
14,369,569
-----------
INFORMATION PROCESSING (1.0%)
Novell, Inc. (a)...... 246,100 4,399,037
-----------
TELECOMMUNICATIONS-EQUIPMENT (1.0%)
Synoptics
Communications Inc.
(a)................. 204,000 4,207,500
-----------
Total Technology 22,976,106
-----------
</TABLE>

See Accompanying Notes.

17
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
--------- ------------
<S> <C> <C>
TRANSPORTATION (1.7%)
AIRLINES (0.7%)
AMR Corp. (a)......... 54,600 $ 3,016,650
------------
RAILROADS (1.0%)
Union Pacific Corp.... 78,200 4,613,800
------------
Total Transportation 7,630,450
------------
UTILITIES (9.9%)
ELECTRIC (3.2%)
Baltimore Gas &
Electric Co......... 93,800 2,133,950
Entergy Corp.......... 200,000 5,775,000
FPL Group Inc......... 40,400 1,282,700
Potomac Electric Power
Co.................. 54,100 1,061,712
Texas Utilities Co.... 114,500 3,778,500
------------
14,031,862
------------
TELEPHONE (6.7%)
BellSouth Corp........ 78,100 4,646,950
GTE Corp.............. 199,900 6,171,912
MCI Communications
Corp................ 239,800 5,770,188
Northern Telecom
Ltd................. 147,600 4,594,050
US West, Inc.......... 200,000 8,025,000
------------
29,208,100
------------
Total Utilities 43,239,962
------------
TOTAL COMMON STOCKS (COST
$399,258,499).................. 409,676,316
------------
CONVERTIBLE PREFERRED STOCKS (3.1%)
ENERGY (1.2%)
OIL-PRODUCTION (0.9%)
Occidental Petroleum
Corp., $3.00........ 87,500 3,850,000
------------
OIL-SERVICES (0.3%)
Reading & Bates Corp.,
$1.625.............. 20,000 500,000
Chiles Offshore Corp.,
$1.50............... 32,500 702,813
------------
1,202,813
------------
Total Energy 5,052,813
------------
FINANCE (0.2%)
BANKING (0.2%)
FNB Corp., $1.875,
Series B............ 25,000 750,000
------------
HEALTHCARE (1.0%)
HOSPITAL SERVICES & SUPPLIES (0.9%)
United States Surgical
Corp., $9.76........ 177,400 $ 3,924,975
------------
PHARMACEUTICALS (0.1%)
Gensia Inc., $3.75
(144A).............. 20,000 685,000
------------
Total Healthcare...... 4,609,975
------------
TECHNOLOGY (0.3%)
COMPUTER-PERIPHERALS (0.3%)
Dell Computer Corp.,
$7.00, Series A..... 9,800 1,232,350
Storage Technology
Corp., $3.50........ 1,500 110,250
------------
Total Technology...... 1,342,600
------------
TRANSPORTATION (0.4%)
AIRLINES (0.4%)
AMR Corp., $3.00,
Series A (144A)..... 38,000 1,624,500
------------
TOTAL CONVERTIBLE PREFERRED
STOCKS (COST $13,956,608)...... 13,379,888
------------
<CAPTION>

PRINCIPAL
AMOUNT
---------
<S> <C> <C>
CONVERTIBLE BONDS (0.3%)
BASIC INDUSTRIES (0.1%)
PAPER & FOREST PRODUCTS (0.1%)
Champion International
Corp. 6.50%
Subordinated
Debentures due
04/15/11............ $ 350,000 361,812
------------
HEALTHCARE (0.2%)
HOSPITAL SERVICES & SUPPLIES (0.2%)
Genzyme Corp. 6.75%
Subordinated
Debentures due
10/01/01 (144A)..... 1,000,000 940,000
------------
TOTAL CONVERTIBLE BONDS (COST
$1,426,937).................... 1,301,812
------------
</TABLE>

See Accompanying Notes.

18
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1994
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1A)
--------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (4.4%)
COMMERCIAL PAPER (2.1%)
Ford Motor Credit
Corp., 4.25% due
06/01/94............ $9,408,000 $ 9,408,000
------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (2.3%)
Federal Home Loan
Mortgage Corp.,
4.10%-4.20% due
06/23/94-06/30/94... 10,000,000 9,970,372
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $19,378,372)............. 19,378,372
------------
TOTAL INVESTMENTS (COST $434,020,416)
(101.4%)........................... 443,736,388
LIABILITIES IN EXCESS OF OTHER ASSETS
(-1.4%)............................ (5,989,228)
------------
NET ASSETS (100.0%).................. $437,747,160
------------
------------
<FN>
(a) Non-income-producing security.
</TABLE>

Note: The cost of investments for Federal Income Tax purposes at May 31, 1994,
was $434,856,203, the aggregate gross unrealized appreciation and depreciation
was $28,919,516 and $20,039,331, respectively, resulting in net unrealized
appreciation of $8,880,185.

(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.

(144A) - Securities restricted for resale to institutional investors.

See Accompanying Notes.

19
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments at Value (Cost $434,020,416) (Note 1a) $443,736,388
Cash 1,647
Receivable for Investments Sold 5,001,615
Dividends and Interest Receivable 1,230,139
Prepaid Expenses 2,262
------------
Total Assets 449,972,051
------------

LIABILITIES:
Payable for Investments Purchased 11,193,412
Advisory Fee Payable (Note 2a) 571,586
Financial and Fund Accounting Services Fee Payable (Note 2c) 155,348
Custody Fees Payable 135,018
Fund Services Fee Payable (Note 2d) 4,760
Administration Fee Payable (Note 2b) 2,522
Trustees' Fees and Expenses Payable (Note 2e) 228
Accrued Expenses 53,800
Withholding Taxes Payable 108,217
------------
Total Liabilities 12,224,891
------------

NET ASSETS:
Applicable to Investors' Beneficial Interests $437,747,160
------------
------------
</TABLE>

See Accompanying Notes.

<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 19, 1993 (COMMENCEMENT OF OPERATIONS) TO MAY 31, 1994
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Dividends (Net of Withholding Tax of $117,497) $ 6,917,434
Interest 399,354
-----------
Investment Income 7,316,788

EXPENSES:
Advisory Fee (Note 2a) $1,263,048
Custodian Fees and Expenses 135,018
Financial and Fund Accounting Services Fee (Note 2c) 155,348
Fund Services Fee (Note 2d) 20,385
Administration Fee (Note 2b) 19,348
Professional Fees 53,922
Trustees' Fees and Expenses (Note 2e) 7,003
Miscellaneous 7,353
----------
Total Expenses 1,661,425
-----------

NET INVESTMENT INCOME 5,655,363

NET REALIZED GAIN ON INVESTMENTS 26,272,769
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS (2,323,580)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $29,604,552
-----------
-----------
</TABLE>

See Accompanying Notes.

21
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 19, 1993
(COMMENCEMENT OF
OPERATIONS) TO
MAY 31, 1994
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net Investment Income $ 5,655,363
Net Realized Gain on Investments 26,272,769
Net Change in Net Unrealized Appreciation (2,323,580)
-----------------
Net Increase in Net Assets Resulting from Operations 29,604,552
-----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
Contributions 585,309,492
Withdrawals (177,266,984)
-----------------
Net Increase from Investors' Transactions 408,042,508
-----------------
Total Increase in Net Assets 437,647,060
NET ASSETS:
Beginning of Period 100,100
-----------------
End of Period $ 437,747,160
-----------------
-----------------
</TABLE>

- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA:
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 19, 1993
(COMMENCEMENT OF
OPERATIONS) TO
MAY 31, 1994
-----------------
<S> <C>
RATIOS (ANNUALIZED):
Expenses to Average Net Assets 0.53%
Net Investment Income to Average Net Assets 1.79%
Portfolio Turnover 76%*
<FN>
*Includes activity of The Pierpont Equity Fund for the period June 1, 1993 to
July 18, 1993, prior to the contribution of all of its investable assets to the
Portfolio.
</TABLE>

See Accompanying Notes.

22
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

The Selected 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 on January 29, 1993. 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 1, 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 Declaration of Trust
permits the Trustees to issue an unlimited number of beneficial interests in the
Portfolio.

1. SIGNIFICANT ACCOUNTING POLICIES:

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 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) 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 will 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.

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 0.40% of
the Portfolio's average daily net assets. For the period July 19, 1993 to
May 31, 1994, Morgan's fee for these services amounted to $1,263,048.

23
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

b) The Portfolio has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as Administrator. Certain officers of Signature
serve as officers of the Portfolio. Under the Administration Agreement,
Signature provides management and 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. Effective October 1,
1993, Signature receives a fee for these services at an annual rate of
0.01% of the first $1 billion of aggregate average daily net assets of the
Portfolio and the other portfolios subject to the Administration Agreement
(the "aggregate portfolios"), 0.008% of the next $2 billion of the
aggregate portfolios' average daily net assets, 0.006% of the next $2
billion of the aggregate portfolios' average daily net assets, and 0.004%
of the aggregate portfolios' average daily net assets in excess of $5
billion. Prior to October 1, 1993, no administration fee was charged to the
Portfolio. For the period October 1, 1993 to May 31, 1994, the Portfolio's
portion of Signature's fee for these services amounted to $19,348.

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 cap 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 cap 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 assets thereafter, Morgan will reimburse the
Portfolio for the excess expense amount and receive no fee. Should such
expenses be less than the expense cap, Morgan's fee would be limited to the
difference between such expenses and the fee calculated under the Services
Agreement. For the period July 19, 1993 to May 31, 1994, Morgan's fee for
these services amounted to $155,348.

d) Effective January 15, 1994, the Portfolio entered into 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 Chairman and sole shareholder of Group is also a Trustee of
the Portfolio. The Portfolio's allocated portion of Group's costs in
performing its services amounted to $20,385 for the period January 15, 1994
to May 31, 1994.

e) Each Trustee is paid a $55,000 annual fee for serving as the Trustee of The
Pierpont Funds, The JPM Institutional Funds, The JPM Institutional Plus
Funds and their corresponding Portfolios, in the aggregate. The Trustee fee
expense shown in the financial statements represents the Portfolio's
allocated portion of the total fees.

3. INVESTMENT TRANSACTIONS:

Investment transactions (excluding short-term investments) for the fiscal year
ended May 31, 1994, including activity of The Pierpont Equity Fund from June 1,
1993 to July 18, 1993, were as follows:

<TABLE>
<CAPTION>
COST OF PROCEEDS FROM
PURCHASES SALES
- ---------------- ------------------
<S> <C>
$468,956,934 $258,595,564
</TABLE>

24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Investors of
The Selected 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 Selected U.S. Equity Portfolio
(the "Portfolio") at May 31, 1994, and the results of its operations, the
changes in its net assets and its supplementary data 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 audit. We conducted our
audit 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
audit, which included confirmation of securities at May 31, 1994 by
correspondence with the custodian and brokers, and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE
New York, New York
July 22, 1994

25
<PAGE>
THE PIERPONT MONEY MARKET FUND The
THE PIERPONT TAX EXEMPT MONEY MARKET FUND Pierpont
THE PIERPONT TREASURY MONEY MARKET FUND Capital
THE PIERPONT SHORT TERM BOND FUND Appreciation
THE PIERPONT BOND FUND Fund
THE PIERPONT TAX EXEMPT BOND FUND
THE PIERPONT NEW YORK 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 ANNUAL REPORT
FAMILY OF FUNDS CAN HELP YOU PLAN FOR YOUR MAY 31, 1994
FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.

<PAGE>

<TABLE>
<S> <C> <C> <C>
TABLE OF CONTENTS

Letter to the Special fund-based
shareholders.... 1 services.......... 5

Fund facts and Financial
highlights...... 3 statements........ 6

Fund
performance..... 4
</TABLE>

MORGAN SERVES AS PORTFOLIO INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE
SOLELY IN ITS CAPACITY AS SHAREHOLDER SERVICING AGENT FOR CUSTOMERS. THE FUND'S
DISTRIBUTOR IS SIGNATURE BROKER-DEALER SERVICES, INC. INVESTMENTS IN THE FUND
ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN
GUARANTY TRUST COMPANY OF NEW YORK 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 PIERPONT CAPITAL APPRECIATION FUND CAN FLUCTUATE,
SO AN INVESTORS SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
The performance data quoted herein represents past performance. Please remember
that past performance is not a guarantee of future performance. Fund returns are
net of fees. All returns assume the reinvestment of Fund distributions and
reflect the reimbursement of certain Fund expenses as described in the
Prospectus. Had expenses not been subsidized, returns would have been lower. The
MICROPAL MUTUAL FUND RATING SERVICE is a leading resource for mutual fund data.
Micropal contains performance information and portfolio characteristics for over
20,000 funds worldwide, including nearly 5,000 in the U.S. 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.
The Portfolio may invest in foreign securities which are subject to special
risks; prospective investors should refer to the Funds Prospectus for a
discussion of these risks.
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES, IS PROVIDED IN THE PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE
INVESTING. YOU MAY OBTAIN A COPY OF THE PROSPECTUS BY CALLING (800) 521-5411.

<PAGE>
LETTER TO THE SHAREHOLDERS OF THE PIERPONT CAPITAL APPRECIATION FUND

July 22, 1994

Dear Shareholder:

The shareholders of the Pierpont Capital Appreciation Fund (the "Fund") will
remember fiscal year 1994 for its inevitable, market-led retrenchment that
followed a full year of solid outperformance. In a market that presented special
challenges for small-capitalization stocks, the Fund's net asset value per share
decreased from $25.12 to $21.40 during the fiscal year, due to a distribution of
$4.11 per share in dividends and capital gains. The Fund's net assets stood at
$204 million at the end of this reporting period, up from $187 million at the
beginning of the fiscal year. The net assets of The U.S. Small Company Portfolio
(the "Portfolio"), in which the Fund invests, totaled $635 million at May 31,
1994.

Our long-term shareholders will recall that the Fund posted one-year results of
25.41% during fiscal year ended 1993, versus a performance in the Russell 2000
of 19.30%. For the fiscal year ended May 31, 1994, The Pierpont Capital
Appreciation Fund provided a total return of 1.14%, versus a total return of
7.19% for its current benchmark, the Russell 2500, during the same period.

THE YEAR IN REVIEW

The 1994 fiscal year just past saw the portfolio substantially underperform
its benchmark, largely because of negative stock selection. A key consideration
to bear in mind when assessing relatively poor performance in the "small-cap"
area should be the fairly unique emphasis that your investment advisor, Morgan
Guaranty, places on long-term normalized earnings in its stock selection
process. This is contrary to the market's current preference for valuing stocks
based on short-term events.

Small capitalization stocks traditionally involve higher price to earnings
ratios than their more highly capitalized brethren. But when a stock's
attractiveness to the average investor is based almost exclusively on its
expected future earnings, the smallest dip in its current earnings can (1) cause
widespread concern about the attainability of the company's future earnings
stream and (2) lead to a steep decline in the stock's market price. The reverse,
of course, would likely be true if reported earnings exceed expectations.

Given these realities of the current marketplace, when several stocks we had
selected for large positions reported disappointed earnings, their market value
fell significantly (as is to be expected), and consequently lowered the Fund's
net asset value. We interpret these results to mean simply that small-cap stocks
are highly susceptible to short-term fluctuations in price -- considerably more
so than medium-and large-cap issues, the long track records of which often serve
as a protective buffer to dramatic price swings. We continue to believe that the
current market is overly focused on short-term performance, and do not believe
that the Portfolio's recent underperformance compromises the fundamental
attractiveness of our small-cap selections. In fact, we are hopeful that the
short-term underperformance seen in the Portfolio will be rectified over the
longer term as the small-cap stocks we have selected reach their long-term
performance potential.

1
<PAGE>
Looking on the brighter side, the Fund slightly outperformed its benchmark
during the third quarter, fueled by positive stock selection in the technology,
basic industry and services sectors. Several top-performing technology stocks
were sold after becoming overvalued in our methodology -- and we rotated into
relatively undervalued technology stocks.

As the fiscal year-end neared, extreme volatility took hold of virtually all
markets, especially the small-cap markets in which the Portfolio participates.
We used the underperformance of our holdings during this period as an
opportunity to increase our positions in the stocks we find fundamentally
attractive.

THE INVESTMENT OUTLOOK

In addition to the long-term valuation approach explained above, which often
results in our purchasing stocks after earnings disappointments, or at or near
historic lows, shareholders should also be aware of our commitment to
researching a broader spectrum of small-capitalization stocks than many of our
competitors. Over the long term, we expect that this in-depth coverage will help
us identify undervalued opportunities with strong future earnings prospects, and
thus enable our shareholders to benefit from early participation in tomorrow's
small-cap market leaders.

As always, we welcome your comments or questions. Please call J.P. Morgan Funds
Services toll free at (800) 521-5411.

Sincerely yours,

Evelyn E. Guernsey
J.P. Morgan Fund Services

<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.
- -------------------------------------------
INCEPTION DATE
6/27/85
- -------------------------------------------
NET ASSETS AS OF 5/31/94 ($ MILLIONS)
204
- -------------------------------------------
EX DIVIDEND DATES
7/11/94, 12/19/94
- -------------------------------------------
DIVIDEND PAYABLE DATES
7/12/94, 12/20/94
- -------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF ANY)
7/12/94, 12/20/94

EXPENSE RATIO

The Funds current annual expense ratio of 0.90% covers shareholders' expenses
for custody, tax reporting, investment advisory and shareholder services. The
Fund is no-load and does not charge any sales, redemption, or exchange fees.
There are no additional charges for buying, selling, or safekeeping Fund shares,
or for wiring dividend or redemption proceeds from the Fund.

Fund highlights
(ALL DATA AS OF MAY 31, 1994)

SECTOR ALLOCATION

[LOGO]

<TABLE>
<CAPTION>
LARGEST EQUITY HOLDINGS % OF PORTFOLIO
<S> <C>
- ------------------------------------------------
SBARRO 1.8

CIRRUS LOGIC 1.5

CHARMING SHOPPES 1.4

HEALTH CARE AND RETIREMENT 1.4

KENDALL INTERNATIONAL 1.3

FIRST COMMERCE 1.3

XILINX 1.2

GENERAL SIGNAL 1.2

SOUTHTRUST 1.2

HEALTH MANAGEMENT 1.2
</TABLE>

3
<PAGE>
FUND PERFORMANCE

EXAMINING PERFORMANCE

There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at the right shows that $10,000 invested at The Pierpont
Capital Appreciation Fund's inception would have grown to $27,420 at May 31,
1994.
Another way to look at performance is to review a fund's average annual
total returns; these figures represent the average yearly change of a fund's
value over various time periods, typically 1, 5 or 10 years (or since inception
if a fund has not existed for one or more of those periods). For example, a
hypothetical fund whose value increased by 4.0% in 1992 and 6.0% in 1993 had an
average annual total return of 5.0% over the two-year period. Total returns for
periods of less than one year can also provide a picture of how a fund has
performed in the short term.

GROWTH OF $10,000 SINCE INCEPTION
JUNE 27, 1985 -- MAY 31, 1994

- -------------------------------------------

Line graph with two axes: the X-axis represents years of operations; the Y-axis
represents dollar value. The graph plots two lines: the first line represents
the growth of a ten thousand dollar investment in the Fund from June 27, 1985
(inception) to May 31, 1994; 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 graph points
are as follows:

Year Fund Russell 2500
<S> <C> <C>

0 $ 10,000 $ 10,000
1 14,386 13,471
2 15,944 14,803
3 13,672 13,686
4 17,823 17,096
5 19,782 17,522
6 19,406 19,328
7 21,618 22,332
8 27,111 26,624
9 27,420 28,539

</TABLE>

<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
THREE YEAR ONE FIVE SINCE
AS OF MAY 31, 1994 MONTHS TO DATE YEAR YEARS INCEPTION*
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
The Pierpont Capital Appreciation Fund -7.48% -6.22% 1.14% 9.00% 11.94%
Russell 2500 -5.30% -2.66% 7.19% 10.79% 12.48%
Micropal Small Company Growth Fund Average -7.13% -4.77% 5.80% 11.52% 12.11%

<CAPTION>
AS OF MARCH 31, 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
The Pierpont Capital Appreciation Fund -3.16% -3.16% 4.49% 12.68% 12.60%
Russell 2500 -2.22% -2.22% 8.80% 12.88% 12.79%
Micropal Small Company Growth Fund Average -2.94% -2.94% 10.02% 14.23% 12.60%

<FN>
*JUNE 27, 1985.

</TABLE>

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE PERFORMANCE. ALL RETURNS ASSUME
THE REINVESTMENT OF DISTRIBUTIONS AND THE FUND'S RETURNS REFLECT REIMBURSEMENT
OF CERTAIN FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS.

<PAGE>
SPECIAL FUND-BASED SERVICES

- - Recommend an asset allocation strategy that is
specifically targeted at meeting the client's investment objectives

- - Execute the chosen strategy by making strategic
investments in one or more Pierpont Funds

- - Make agreed-upon ongoing tactical adjustments
in the actual asset mix of the client's portfolio in an effort to capitalize
on shifting market trends

The Pierpont Asset Allocation Service thus provides the investor with a
comprehensive asset allocation and investment management program for his or her
portfolio. 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

KEOGH

<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investment in The U.S. Small Company Portfolio ("Portfolio"), at value $205,090,708
Receivable for Fund Shares Sold 25,875
Tax Reclaim Receivable 2,248
Receivable for Expense Reimbursement (Note 2b) 429,677
Prepaid Expenses 1,464
-----------
Total Assets 205,549,972
-----------

LIABILITIES:
Payable for Fund Shares Redeemed 503,963
Shareholder Servicing Fee Payable (Note 2c) 385,939
Advisory Fee Payable (Note 2f) 88,255
Financial and Fund Accounting Services Fee Payable (Note 2b) 72,970
Administration Fee Payable (Note 2a) 5,280
Fund Services Fee Payable (Note 2d) 2,425
Trustees' Fees and Expenses Payable (Note 2e) 114
Accrued Expenses 46,088
-----------
Total Liabilities 1,105,034
-----------

NET ASSETS:
Applicable to 9,555,327 Shares of Beneficial Interest Outstanding $204,444,938
-----------
-----------
Net Asset Value, Offering and Redemption Price Per Share $21.40

ANALYSIS OF NET ASSETS:
Paid-in Capital $191,886,583
Undistributed Net Investment Income 812,759
Accumulated Net Realized Gain 15,588,651
Net Unrealized Depreciation (3,843,055)
-----------
Net Assets $204,444,938
-----------
-----------
</TABLE>
See Accompanying Notes

6
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1994
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME FROM PORTFOLIO (NOTE 1B):
Dividend Income (Net of Withholding Tax of $3,460) $2,945,325
Interest Income 729,388
Allocated Portfolio Expenses (1,427,470)
----------
Net Investment Income from Portfolio 2,247,243

EXPENSES:
Shareholder Servicing Fee (Note 2c) $ 574,768
Advisory Fee (Note 2f) 88,255
Administration Fee (Note 2a) 75,401
Financial and Fund Accounting Services Fee (Note 2b) 72,970
Fund Services Fee (Note 2d) 47,244
Trustees' Fees and Expenses (Note 2e) 12,683
Transfer Agent Fee 62,478
Printing and Postage 17,980
Registration Fees 17,716
Custody Fee 15,750
Professional Fees 10,732
Miscellaneous 9,201
----------
Total Expenses 1,005,178
Less: Fee Waiver and Reimbursement of Expenses (Notes 2a
and 2b) (431,604)
----------
NET EXPENSES 573,574
----------

NET INVESTMENT INCOME 1,673,669
NET REALIZED GAIN 42,446,498
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS (41,697,248)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,422,919
----------
----------
</TABLE>

See Accompanying Notes
7
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY
31,
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income (Loss) $ 1,673,669 $ (82,368)
Net Realized Gain 42,446,498 9,640,954
Net Change in Unrealized Appreciation of Investments (41,697,248) 19,254,092
-------------- --------------
Net Increase in Net Assets Resulting from Operations 2,422,919 28,812,678
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income (860,910) --
Net Realized Gain on Investments (35,050,363) --
-------------- --------------
Total Distributions to Shareholders (35,911,273) --
-------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 3):
Proceeds from Shares of Beneficial Interest Sold 101,912,727 81,449,537
Reinvestment of Dividends 34,976,004 --
Cost of Shares of Beneficial Interest Redeemed (85,842,095) (20,923,272)
-------------- --------------
Net Increase from Transactions in Shares of Beneficial Interest 51,046,636 60,526,265
-------------- --------------
Total Increase in Net Assets 17,558,282 89,338,943
NET ASSETS:
Beginning of Year 186,886,656 97,547,713
-------------- --------------
End of Year (including undistributed net investment income of $812,759
and $0, respectively) (Note 4) $ 204,444,938 $ 186,886,656
-------------- --------------
-------------- --------------
</TABLE>

See Accompanying Notes
8
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

Selected data for a share outstanding throughout each year are as follows:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $25.12 $20.03 $17.98 $18.68 $16.83
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss)** 0.20 (0.01) (0.04) (0.02) (0.03)
Net Realized and Unrealized Gain (Loss) 0.19 5.10 2.09 (0.33) 1.88
----- ----- ----- ----- -----
Net Increase (Decrease) in Net Assets Resulting from
Operations 0.39 5.09 2.05 (0.35) 1.85
----- ----- ----- ----- -----
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income (0.09) -- -- -- --
Net Realized Gain (4.02) -- -- (0.35) --
----- ----- ----- ----- -----
Total Distributions to Shareholders (4.11) -- -- (0.35) --
----- ----- ----- ----- -----

NET ASSET VALUE, END OF YEAR $21.40 $25.12 $20.03 $17.98 $18.68
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Total Return 1.14% 25.41% 11.40% (1.90)% 10.99%
RATIOS AND SUPPLEMENTAL DATA:
Net Assets at End of Year (in thousands) $ 204,445 $ 186,887 $ 97,548 $ 58,859 $ 47,921
Ratios to Average Net Assets:
Expenses* 0.90% 0.90% 0.90% 0.91% 0.93%
Net Investment Income (Loss)* 0.75% (0.06)% (0.25)% (0.15)% (0.18)%
Portfolio Turnover# 14% 50% 58% 56% 66%
<FN>
* Reflects the Fund's proportionate share of the Portfolio's expenses for the
period July 19, 1993 to May 31, 1994 and a reimbursement or waiver of
expenses for each period. If these agreements to waive or reimburse the Fund
for expenses had not been in place, the annualized ratios of expenses and net
investment income (loss) to average net assets would have been as follows:

Expenses 1.10% 0.95% 1.03% 1.22% 1.25%
Net Investment Income (Loss) 0.55% (0.11)% (0.38)% (0.46)% (0.50)%

#1994 Portfolio Turnover is not annualized and only reflects the period June 1,
1993 to July 18, 1993 prior to the reorganization with the Portfolio. See the
accompanying financial statements of the Portfolio for information on
portfolio turnover subsequent to July 18, 1993.

**Based on shares outstanding at the beginning and end of each period except for
the fiscal year ended May 31, 1991, where average shares outstanding were
used.
</TABLE>

See Accompanying Notes
9
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Pierpont Capital Appreciation Fund (the "Fund") is a separate series of
The Pierpont Funds, a Massachusetts business trust (the "Trust") which was
organized on November 4, 1992. 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, when
it contributed securities and other assets and liabilities valued at
$200,358,103 to The U.S. Small Company Portfolio (the "Portfolio") for a
beneficial interest in the Portfolio, operated as a stand-alone mutual fund.
Costs related to the reorganization were borne by Morgan Guaranty Trust Company
of New York. This report includes years which preceded the Fund's reorganization
and reflects the operations of the predecessor entity.

The Fund invests all of its investable assets in the Portfolio, a
diversified open-end management investment company having the same investment
objective as the Fund. The value of such investment reflects the Fund's
proportionate beneficial interest in the net assets of the Portfolio (32.3% at
May 31, 1994). 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.

1. SIGNIFICANT ACCOUNTING POLICIES:

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.

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.

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.

10
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Accordingly, permanent book and tax basis differences relating to shareholder
distributions are reclassified to paid-in capital. As of June 1, 1993, the
cumulative effect of such differences totaling ($540,120) were reclassified
from undistributed net investment income, to paid-in capital. Net
investment income, net realized gains and net assets were not affected by
this change.

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.
Effective October 1, 1993, Signature receives a fee at an annual rate of
0.04% of the first $1 billion of the aggregate average daily net assets of
the Fund, the other funds in the Trust, The JPM Institutional Funds, and
The JPM Institutional Plus Funds (the "aggregate funds"), 0.032% of the
next $2 billion of the aggregate funds' average daily net assets, 0.024% of
the next $2 billion of the aggregate funds' average daily net assets, and
0.016% of the aggregate funds' average daily net assets in excess of $5
billion. (Prior to October 1, 1993, the administration fee was at an annual
rate of 0.05% of the first $1 billion of the aggregate funds' average daily
net assets, 0.04% of the next $2 billion of the aggregate funds' average
daily net assets, 0.03% of the next $2 billion of the aggregate funds'
average daily net assets, and 0.02% of the aggregate funds' average daily
net assets in excess of $5 billion.) For the period July 19, 1993 to May
31, 1994, the Fund's portion of Signature's fee for these services amounted
to $62,357. Prior to the Fund's reorganization, the predecessor entity had
an administration agreement with The Boston Company Advisors, Inc. Fees
under the prior agreement for the period June 1, 1993 to July 18, 1993, net
of voluntary fee waivers of $1,927, amounted to $11,117.

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, effective July 19, 1993,
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 cap for certain
expenses of the Fund. If total expenses of the Fund, excluding the
shareholder servicing fee and fund services fee exceed the expense cap of
0.15% of the first $100 million of the Fund's average daily net assets, and
0.13% thereafter, Morgan will reimburse the Fund for the excess expense
amount and receive no fee. Should such expenses be less than the expense
cap, Morgan's fee would be limited to the difference between such expenses
and the fee calculated under the Services Agreement. For the period July
19, 1993 to May 31, 1994, Morgan was entitled to a fee of $72,970. In
addition to the expenses that Morgan may assume under the Services
Agreement, Morgan, effective July 19, 1993, 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 0.90% of the average daily net assets of the Fund through
at least May 31, 1995. For the period July 19, 1993 to May 31, 1994, Morgan
has agreed to reimburse the Fund $429,677.

c) The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan, effective July 19, 1993. 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

11
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
the Fund. For the period July 19, 1993 to May 31, 1994, the fee for
these services amounted to $491,556. Prior to the reorganization, the
predecessor fund had a shareholder servicing and fund accounting
services agreement with Morgan. Under the terms of this agreement, the
predecessor fund paid Morgan a fee at an annual rate of 0.33% of the
average daily net assets of the Fund. For the period June 1, 1993 to
July 18, 1993, Morgan's fee for these services amounted to $83,212.

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. Prior to the
reorganization, the predecessor fund had a similar agreement with Group.
The Chairman and sole shareholder of Group is also a Trustee of the Trust.
For the year ended May 31, 1994, the Fund's allocated portion of Group's
costs in performing its services amounted to $47,244.

f) Prior to the reorganization, the predecessor fund had an investment
advisory agreement with Morgan. Under the terms of this agreement, the
predecessor fund paid Morgan a fee at annual rate of 0.35% of the average
daily net assets of the Fund. For the period June 1, 1993 to July 18, 1993,
Morgan's fee for these services amounted to $88,255.

3. SHARES OF BENEFICIAL INTEREST:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (par value $0.001) of one
or more series. To date, the Trust has authorized shares of fourteen series, of
which the Fund's shares represent one series. Transactions in shares of
beneficial interest of the Fund were as follows:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
MAY 31,
-------------------------
1994 1993
----------- ------------
<S> <C> <C>
Shares Sold 4,220,665 3,461,003
Reinvestment of Dividends and Distributions 1,541,447 --
----------- ------------
5,762,112 3,461,003
Shares Redeemed (3,645,483) (892,479)
----------- ------------
Net Increase 2,116,629 2,568,524
----------- ------------
----------- ------------
</TABLE>

4. DIVIDENDS AND DISTRIBUTIONS:

The Fund declared to shareholders of record on July 11, 1994, an income
dividend of $0.08111 per share and a capital gain distribution of $0.76275 per
share. Such dividends and distributions were paid on July 12, 1994.

<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 (the "Fund") at May 31, 1994, and the
results of its operations, the changes in its net assets and the financial
highlights for the year 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 audit. We conducted our audit 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 audit provides a
reasonable basis for the opinion expressed above. The financial statements for
the year ended May 31, 1993 and the financial highlights for each of the four
years in the period ended May 31, 1993 were audited by other independent
accountants whose report dated June 24, 1993 expressed an unqualified opinion on
those statements.

PRICE WATERHOUSE
New York, New York
July 22, 1994

13
<PAGE>
[This page left blank intentionally.]

14
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
ANNUAL REPORT MAY 31, 1994

(THE FOLLOWING PAGES SHOULD BE READ IN CONJUNCTION
WITH THE PIERPONT CAPITAL APPRECIATION FUND
ANNUAL FINANCIAL STATEMENTS)

<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
COMMON STOCKS (92.9%) SHARES (NOTE 1A)
--------- ----------
<S> <C> <C>
BASIC INDUSTRIES (7.0%)
AGRICULTURE (0.3%)
Dekalb Genetics Corp...... 57,600 $1,900,800
----------
CHEMICALS (1.4%)
Ethyl Corp................ 300,000 3,900,000
Georgia Gulf Corp. (a).... 156,000 4,933,500
----------
8,833,500
----------
METALS & MINING (5.3%)
Allegheny Ludlum Corp..... 301,100 5,269,250
Commercial Metals Co...... 198,066 4,307,936
Freeport McMoran Copper &
Gold Inc. CL.A.......... 235,400 5,796,725
Gibraltor Steel Corp.
(a)..................... 24,600 307,500
Maverick Tubecorp (a)..... 80,300 702,625
Minera Rayrock Inc........ 838,700 1,677,520
Oregon Steel Mills,
Inc..................... 86,800 1,844,500
Panhandle Eastern Corp.... 115,000 2,278,150
Pegasus Gold Inc.......... 357,100 5,981,425
Rouge Steel Co............ 21,700 566,913
Steel Technologies Inc.... 296,600 4,671,450
----------
33,403,994
----------
Total Basic Industries 44,138,294
----------
CONSUMER GOODS & SERVICES
(18.5%)
AUTOMOTIVE SUPPLIES (2.7%)
Arvin Industries, Inc..... 100,000 2,512,500
Cooper Tire & Rubber
Co...................... 235,500 6,240,750
Excel Industries, Inc..... 206,500 3,510,500
Simpson Industries,
Inc..................... 192,500 3,705,625
TBC Corp. (a)............. 90,000 1,153,125
----------
17,122,500
----------
BEVERAGES, FOOD, SOAP &
TOBACCO (0.3%)
Brock Candy Co............ 67,500 590,625
Bush Boake Allen, Inc.
(a)..................... 96,000 1,512,000
----------
2,102,625
----------
ENTERTAINMENT, LEISURE &
MEDIA (1.3%)
Boyd Gaming Corp. (a)..... 294,100 4,448,263
Lottery Enterprises Inc.
(a)..................... 18,100 221,725
Paging Network Inc. (a)... 36,900 904,050
People's Choice TV Corp.
(a)..................... 14,500 366,125

ENTERTAINMENT, LEISURE &
MEDIA (CONTINUED)
Reader's Digest Assn.,
Inc. CL.A............... 50,000 $2,075,000
----------
8,015,163
----------
HOME CONSTRUCTION (0.3%)
D.R. Horton Inc. (a)...... 143,508 1,757,974
Oakwood Homes Corp........ 13,400 289,775
Schult Homes Corp......... 9,100 121,713
----------
2,169,462
----------
MERCHANDISING (5.5%)
Arbor Drugs Inc........... 68,300 1,109,875
Brauns Fashions Corp.
(a)..................... 100,000 425,000
Catherines Stores Corp.
(a)..................... 135,900 1,325,025
Charming Shoppes, Inc..... 942,000 9,007,875
Fruit of the Loom, Inc.
CL.A (a)................ 100,000 2,937,500
Hechinger Co. CL.A........ 27,700 425,888
Holson Burnes Group Inc.
(a)..................... 39,200 284,200
K-Swiss Inc. CL.A......... 91,600 2,061,000
Lechters Inc. (a)......... 187,500 2,250,000
Musicland Stores Inc.
(a)..................... 53,100 949,160
Nine West Group, Inc.
(a)..................... 70,000 1,916,250
One Price Clothing Stores,
Inc. (a)................ 227,700 4,326,300
Penn Traffic Co. (a)...... 69,600 2,531,700
Safety 1st Inc. (a)....... 8,600 222,525
TJX Cos. Inc.............. 116,100 2,815,425
Trans World Music Corp.
(a)..................... 207,400 2,307,325
----------
34,895,048
----------
MISCELLANEOUS (0.7%)
DeVRY, Inc. (a)........... 50,000 1,356,250
Johnson Worldwide
Associates Inc. (a)..... 133,279 3,165,376
----------
4,521,626
----------
PERSONAL SECURITY (1.3%)
ADT Ltd. (a).............. 653,800 6,292,825
Pinkerton's, Inc. (a)..... 124,700 2,135,488
----------
8,428,313
----------
PERSONAL SERVICES (1.4%)
National Service
Industries, Inc......... 98,900 2,534,313
Service Corp.
International........... 245,300 6,009,850
</TABLE>

See Accompanying Notes.

<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
--------- ----------
<S> <C> <C>
PERSONAL SERVICES (CONTINUED)
Xpedite Systems, Inc.
(a)..................... 6,000 $ 102,000
----------
8,646,163
----------
RESTAURANTS & HOTELS (5.0%)
Argosy Gaming Corp. (a)... 41,000 625,250
Buffets Inc. (a).......... 226,500 4,360,125
Cracker Barrel Old Country
Store, Inc.............. 244,000 5,947,500
O'Charleys Inc. (a)....... 51,000 905,250
Players International Inc.
(a)..................... 74,900 1,526,088
Royal Caribbean Cruises
Ltd..................... 185,500 5,402,687
Sbarro Inc................ 311,300 11,362,450
Taco Cabana Inc. (a)...... 100,000 1,550,000
----------
31,679,350
----------
Total Consumer Goods &
Services 117,580,250
----------
ENERGY (4.5%)
OIL-PRODUCTION (2.1%)
Devon Energy Corp......... 104,600 2,222,750
Oryx Energy Co............ 291,600 5,103,000
TransCanada Pipelines
Ltd..................... 187,400 2,436,200
Vintage Petroleum Inc..... 180,500 3,519,750
----------
13,281,700
----------
OIL-SERVICES (2.4%)
Dreco Energy Services Ltd.
CL.A (a)................ 111,700 1,075,112
Global Marine Inc. (a).... 1,081,100 4,324,400
Holly Corp................ 92,800 2,818,800
Noble Drilling Corp.
(a)..................... 255,800 1,822,575
Oceaneering International
Inc. (a)................ 185,300 2,246,762
Smith International Inc.
(a)..................... 79,500 1,202,438
Sonat Offshore Drilling,
Inc..................... 100,000 1,875,000
----------
15,365,087
----------
Total Energy 28,646,787
----------
FINANCE (20.5%)
BANKING (11.2%)
Bankcorp South Inc........ 24,700 750,263
Banknorth Group Inc....... 123,200 2,541,000
Bay View Capital.......... 169,200 4,187,700
CCB Financial Corp........ 29,200 1,062,150
Central Mortgage
Bancshares, Inc......... 26,600 402,325

BANKING (CONTINUED)
Charter One Financial,
Inc..................... 177,300 $4,011,413
Colonial BancGroup, Inc.
CL.A.................... 75,700 1,703,250
Commerce Bancorp Inc...... 71,700 1,362,300
Commercial Bank NY........ 53,500 488,188
Commercial Bankshares,
Inc. (a)................ 24,300 264,263
Community First
Bankshares, Inc......... 83,500 1,106,375
Continental Bank Corp..... 191,200 7,122,200
First Commercial Corp..... 26,800 613,050
First Commerce Corp....... 274,725 8,173,068
First Financial Holdings,
Inc..................... 30,600 459,000
First National Bancorp.
GA...................... 88,400 1,845,350
First Tennessee National
Corp.................... 50,000 2,125,000
Hubco Inc................. 73,300 1,630,925
Mercantile Bankshares
Corp.................... 37,500 745,312
Metropolitan Financial
Corp.................... 90,700 1,496,550
Mississippi Valley
Bankshares, Inc......... 75,800 1,184,375
National Commerce
Bancorp................. 22,700 519,262
Roosevelt Financial Group,
Inc..................... 142,200 2,435,175
Seacoast Banking Corp. of
Florida CL.A............ 46,800 824,850
Shawmut National Corp..... 106,000 2,557,250
Silicon Valley Bancshares
(a)..................... 60,500 620,125
SouthTrust Corp........... 348,400 7,338,175
Southwest Bancorp Inc.,
Oklahoma................ 23,200 292,900
Sterling Bancshares,
Inc..................... 29,600 492,100
Sterling Financial Corp.
Wash. (a)............... 49,100 626,025
Trustco Bank Corp. NY..... 69,600 1,365,900
U.S. Trust Corp........... 24,400 1,262,700
U.S. Bancorp Inc.......... 900 21,712
Victoria Bankshares,
Inc..................... 62,900 1,533,188
Westamerica
Bancorporation.......... 83,600 2,466,200
Wilmington Trust Co....... 202,000 5,201,500
----------
70,831,119
----------
FINANCIAL SERVICES (2.0%)
American Residential
Holding Corp............ 53,500 969,686
Charles Schwab Corp....... 83,300 2,519,825
Cole Taylor Financial
Group Inc. (a).......... 15,400 211,750
Dreyfus Corp.............. 50,000 2,506,250
Financial Federal Corp.
(a)..................... 31,700 463,613
Mills Corp................ 39,300 918,638
</TABLE>

See Accompanying Notes.

17
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
--------- ----------
<S> <C> <C>
FINANCIAL SERVICES
(CONTINUED)
Payco American Corp.
(a)..................... 42,500 $ 377,188
SPS Transaction Services,
Inc. (a)................ 64,400 3,340,750
Southwest Securities
Group, Inc.............. 173,900 1,391,200
----------
12,698,900
----------
INSURANCE (4.2%)
AMBAC Inc................. 95,000 3,800,000
CMAC Investment Corp...... 64,500 1,685,062
Capital ReCorp............ 193,400 3,843,825
EquiCredit Corp. (a)...... 21,000 357,000
Fidelity National
Financial Inc........... 18,100 298,650
First Colony Corp......... 181,900 4,024,538
Freemont General Corp..... 103,100 2,422,850
Hilb, Rogal & Hamilton
Co...................... 158,600 1,942,850
Kemper Corp............... 43,200 2,511,000
MMI Cos. Inc.............. 163,600 2,085,900
Providian Corp............ 120,100 3,753,125
----------
26,724,800
----------
REAL ESTATE (3.1%)
Bay Apartment Community
Inc..................... 18,000 387,000
Chelsea GCA Realty Inc.... 10,100 282,800
Colonial Properties
Trust................... 53,400 1,201,500
Developers Diversified
Realty.................. 91,800 2,776,950
Gables Residential
Trust................... 43,700 1,065,188
Health & Rehabilitiation
Properties Trust........ 339,000 5,085,000
Healthcare Realty Trust... 98,700 2,085,038
MerryLand & Investment
Co...................... 37,000 837,125
Property Trust American... 50,000 987,500
RFS Hotel Investments,
Inc..................... 66,800 1,185,700
ROC Communities, Inc...... 29,000 696,000
Southwestern Properties
Trust................... 120,500 1,551,436
Summit Properties......... 15,300 328,950
Tucker Properties Corp.... 47,200 796,500
Wellsford Residential
Properties Trust........ 1,700 44,200
Winston Hotels............ 8,100 91,125
----------
19,402,012
----------
Total Finance 129,656,831
----------
HEALTHCARE (9.9%)
BIOTECHNOLOGY (2.8%)
Affymax N.V. (a).......... 65,300 767,275
Amylin Pharmaceuticals
(a)..................... 91,100 808,513

BIOTECHNOLOGY (CONTINUED)
Athena Neurosciences Inc.
(a)..................... 113,200 940,975
CellPro Inc. (a).......... 183,300 $3,895,125
Cephalon Inc. (a)......... 51,100 613,200
Gensia Inc. (a)........... 200,000 2,550,000
Inhale Therapeutic Systems
(a)..................... 74,600 578,150
Northfield Laboratories
Inc. (a)................ 99,500 702,718
Oncor, Inc. (a)........... 310,300 1,939,375
Perspective Biosystems,
Inc. (a)................ 117,800 2,179,300
Shaman Pharmaceuticals
Inc. (a)................ 62,500 437,500
Targeted Genetics Corp.
(a)..................... 99,500 609,438
Vertex Pharmaceuticals,
Inc. (a)................ 97,000 1,200,375
Vical Inc. (a)............ 55,300 532,262
----------
17,754,206
----------
HEALTH SERVICES (4.3%)
Abbey Healthcare Group
Inc. (a)................ 190,500 3,619,500
Advocat Inc. (a).......... 121,800 1,172,325
Clintrials Inc. (a)....... 8,500 76,500
Healthcare Compare Corp.
(a)..................... 28,800 574,200
Health Care & Retirement
Corp. (a)............... 331,300 8,613,800
Health Management
Associates CL.A (a)..... 201,600 7,358,400
Health Risk Management
Inc. (a)................ 28,500 199,500
Mariner Health Group Inc.
(a)..................... 114,200 2,605,188
Quintiles Transnational
Co. (a)................. 23,400 418,275
Rotech Medical Corp (a)... 80,900 1,658,450
Summit Care Corp. (a)..... 57,000 1,168,500
----------
27,464,638
----------
HOSPITAL SUPPLIES (2.8%)
Biocircuits Corp. (a)..... 183,800 195,287
Bioject Medical
Technologies Inc. (a)... 108,800 292,400
1 Stat Corp. (a).......... 161,200 2,216,500
Isomedix Inc. (a)......... 57,100 1,042,075
Kendall International Inc.
(a)..................... 172,100 8,303,825
Protocol Systems Inc.
(a)..................... 93,000 732,375
Puritan Bennett Corp...... 178,800 3,576,000
Vital Signs, Inc. (a)..... 190,400 1,594,600
----------
17,953,062
----------
Total Healthcare 63,171,906
----------
</TABLE>

See Accompanying Notes.

18
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
--------- ----------
INDUSTRIAL PRODUCTS & SERVICES
(10.8%)
<S> <C> <C>
CAPITAL GOODS (0.2%)
Gardner Denver Machinery,
Inc. (a)................ 116,500 $1,077,625
----------
COMMERCIAL SERVICES (1.4%)
Advo Inc.................. 227,300 3,864,100
CAI Wireless System Inc.
(a)..................... 15,000 166,875
Emmis Broadcasting Corp.
CL.A (a)................ 26,000 334,750
Granite Construction
Inc..................... 23,900 501,900
Greiner Engineering,
Inc..................... 19,800 247,500
Hooper Holmes, Inc........ 132,300 1,587,600
Michael Baker Corp. (a)... 222,000 1,581,750
Nu-kote Holding Inc. (a)
CL.A.................... 27,800 503,875
----------
8,788,350
----------
DIVERSIFIED MANUFACTURING
(2.9%)
Apogee Enterprises,
Inc..................... 125,300 1,503,600
Brady (W.H.) Co.,
Class A non-voting...... 142,500 6,661,875
Greenfield Industries
Inc..................... 28,400 532,500
Guardsman Products,
Inc..................... 20,800 231,400
Kaydon Corp............... 234,127 5,121,528
Libbey Inc................ 104,500 1,907,125
Modine Manufacturing
Co...................... 93,800 2,462,250
Worldtex Inc. (a)......... 46,000 224,250
----------
18,644,528
----------
ELECTRICAL EQUIPMENT (0.2%)
Charter Power Systems
Inc..................... 79,200 1,079,100
Encore Wire Corp. (a)..... 14,000 197,750
----------
1,276,850
----------
CAPITAL GOODS (0.1%)
Wolverine Tube, Inc.
(a)..................... 28,300 569,538
----------
MACHINERY (4.0%)
Applied Power Inc......... 133,200 2,564,100
Black & Decker Corp....... 247,700 4,582,450
Coltec Industries Inc.
(a)..................... 42,300 819,563
General Signal Corp....... 246,700 7,586,025
Internet Corp............. 382,900 3,063,200
Measurex Corp............. 50,000 918,750
Regal Boloit Corp......... 71,200 1,922,400
Sundstrand Corp........... 82,200 3,873,675
----------
25,330,163
----------
PACKAGING (0.3%)
Paxar Corp. (a)........... 127,200 $1,812,600
----------
POLLUTION CONTROL (1.7%)
Dames & Moore Inc......... 366,400 5,541,800
Emcon (a)................. 186,800 1,365,975
Matrix Services Co. (a)... 102,700 770,250
Mid-American Waste
System Inc.............. 267,400 1,303,575
TETRA Technologies Inc.
(a)..................... 243,500 2,191,500
----------
11,173,100
----------
Total Industrial Products
& Services 68,672,754
----------
TECHNOLOGY (13.3%)
AEROSPACE (0.4%)
Orbital Sciences Corp.
(a)..................... 100,000 2,162,500
Rohr Industries, Inc.
(a)..................... 69,100 656,450
----------
2,818,950
----------
COMPUTER PERIPHERALS (0.6%)
Evans & Sutherland
Computer Corp. (a)...... 42,100 699,912
Komag Inc. (a)............ 28,600 647,075
Read-Rite Corp. (a)....... 211,300 2,803,938
----------
4,150,925
----------
COMPUTER-SOFTWARE (4.9%)
Adobe Systems Inc......... 204,200 5,845,225
Aldus Corp. (a)........... 71,400 1,994,736
Alias Research Inc. (a)... 76,400 1,031,400
Autodesk, Inc............. 99,100 5,140,813
Davidson & Associates Inc.
(a)..................... 67,100 1,283,288
InfoSoft International
Inc. (a)................ 16,400 412,050
Intersolv Inc. (a)........ 138,900 1,597,350
Intuit Inc. (a)........... 55,300 1,900,938
Landmark Graphics Corp.
(a)..................... 21,900 733,650
Learning (The), Co. (a)... 56,700 864,675
Mentor Graphics Corp...... 14,800 158,175
NetManage, Inc. (a)....... 95,200 1,582,700
Phoenix Technology Ltd.
(a)..................... 24,800 125,550
Progress Software Corp.
(a)..................... 80,200 2,977,425
Project Software &
Development Inc. (a).... 82,300 823,000
S3 Inc. (a)............... 201,900 1,930,669
Software Professional Inc.
(a)..................... 46,500 191,813
Spectrum Holobyte Inc.
(a)..................... 21,200 174,900
</TABLE>

See Accompanying Notes.

19
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
--------- ----------
<S> <C> <C>
COMPUTER-SOFTWARE (CONTINUED)
Symantec Corp. (a)........ 162,100 $2,188,350
----------
30,956,707
----------
ELECTRONICS (0.3%)
Dynamics Corp. of
America................. 52,900 780,275
KEMET Corp. (a)........... 66,500 1,088,938
----------
1,869,213
----------
INFORMATION PROCESSING (0.6%)
NetFRAME Systems, Inc.
(a)..................... 282,900 2,864,362
Network Computing Devices
(a)..................... 145,000 797,500
----------
3,661,862
----------
SEMICONDUCTORS (3.9%)
Advanced Technology
Materials, Inc. (a)..... 138,700 667,494
Asyst Technologies Inc.
(a)..................... 114,100 1,312,150
Brooktree Corp. (a)....... 314,400 2,200,800
Cirrus Logic Inc. (a)..... 282,400 9,601,600
Credence Systems Corp.
(a)..................... 84,500 1,584,375
Sierra Semiconductors
Corp. (a)............... 204,600 1,649,586
Xilinx, Inc. (a).......... 189,000 7,678,125
----------
24,694,130
----------
TELECOMMUNICATIONS EQUIPMENT
(2.6%)
American Mobile Satellite
(a)..................... 169,600 2,544,000
Applied Signal Technology
Inc. (a)................ 174,500 828,875
Avid Technology Inc.
(a)..................... 27,200 754,800
Brooktrout Technology,
Inc. (a)................ 60,000 742,500
Dialogic Corp. (a)........ 32,400 498,150
Fore Systems (a).......... 7,500 195,938
Network Equipment
Technologies, Inc.
(a)..................... 164,800 1,236,000
Pacific Telecom, Inc...... 140,800 3,185,600
PictureTel Corp. (a)...... 229,800 2,987,400
Synoptics Communications
Inc. (a)................ 157,200 3,242,250
XcelleNet Inc. (a)........ 5,300 63,600
----------
16,279,113
----------
Total Technology 84,430,900
----------

TRANSPORTATION (2.5%)
AIRLINES (0.9%)
Mesa Airlines, Inc. (a)... 453,900 $5,560,275
----------
RAILROADS (0.1%)
ABC Railroad Products
Corp. (a)............... 45,600 855,000
----------
TRUCKING & FREIGHT CARRIERS
(1.5%)
Harper Group Inc.......... 80,300 1,194,462
Interpool, Inc. (a)....... 78,000 1,121,250
Intertrans Corp........... 55,900 705,738
Rollins Truck Leasing
Corp.................... 57,800 1,062,075
Wabash National Corp...... 71,500 3,396,250
Werner Enterprises,
Inc..................... 78,900 2,189,475
----------
9,669,250
----------
Total Transportation 16,084,525
----------
UTILITIES (5.9%)
ELECTRIC (4.5%)
Central Maine Power Co.... 100,000 1,125,000
Central Hudson Gas &
Electric Corp........... 114,800 3,085,250
Commonwealth Energy
Systems................. 48,500 1,940,000
Maine Public Service
Co...................... 38,100 971,550
Midwest Resources, Inc.... 142,200 2,115,225
Oklahoma Gas & Electric
Co...................... 71,900 2,210,925
Orange & Rockland
Utilities, Inc.......... 68,900 2,282,312
Pinnacle West Capital
Corp.................... 150,000 2,606,250
Portland General Corp..... 60,000 1,072,500
Potomac Electric Power
Co...................... 100,800 1,978,200
Rochester Gas & Electric
Corp.................... 162,000 3,665,250
Washington Water Power
Co...................... 333,200 5,247,900
----------
28,300,362
----------
NATURAL GAS (0.4%)
Chesapeake Utilities
Corp.................... 36,900 502,763
EnergyNorth, Inc.......... 11,100 185,925
Providence Energy Corp.... 2,600 43,680
United Cities Gas Co...... 21,200 336,550
Valero Energy Co.......... 63,500 1,238,250
----------
2,307,168
----------
WATER (1.0%)
Aquarion Co............... 88,000 2,145,000
Connecticut Water
Service, Inc............ 18,300 459,788
E'town Corp............... 50,700 1,419,600
Philadelphia Suburban
Corp.................... 85,000 1,519,375
</TABLE>

See Accompanying Notes.

20
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1A)
--------- ----------
<S> <C> <C>
WATER (CONTINUED)
Southern California Water
Co...................... 22,600 $ 415,275
United Water Resource
Inc..................... 41,496 580,944
----------
6,539,982
----------
Total Utilities 37,147,512
----------
TOTAL COMMON STOCKS (COST
$615,445,125)....................... 589,529,759
----------
<CAPTION>

SHORT-TERM DEBT
OBLIGATIONS (7.0%)
PRINCIPAL
COMMERCIAL PAPER (1.2%) AMOUNT
---------
<S> <C> <C>
Ford Motor Credit Co.
4.25% due 06/01/94
(COST $7,490,000)....... $7,490,000 7,490,000
----------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (5.5%)
Federal National Mortgage
Association
4.05% due 06/03/94...... 12,000,000 11,997,300
Federal Home Loan Mortgage
Corp.
4.16% due 06/23/94...... 18,000,000 17,954,240

Federal Home Loan Mortgage
Corp.,
4.20% due 06/30/94...... $5,000,000 $4,983,083
----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (COST $34,934,623)...... 34,934,623
----------
U.S. GOVERNMENT
TREASURY OBLIGATIONS (0.3%)
U.S. Treasury Bills
3.51% due 07/07/94
(COST $2,077,682)....... 2,085,000 2,077,682
----------
TOTAL SHORT-TERM DEBT OBLIGATIONS
(COST $44,502,305).................. 44,502,305
----------
TOTAL INVESTMENTS (99.9%)
(COST $659,947,430).................... 634,032,064
OTHER ASSETS NET OF LIABILITIES (0.1%)... 514,960
----------
NET ASSETS (100.00%)..................... $634,547,024
----------
----------
<FN>
(a) Non-income-producing security.

Note: Based on the cost of investments of $661,002,231 for Federal Income Tax
purposes at May 31, 1994, the aggregate gross unrealized appreciation and
depreciation was $30,296,037 and $57,266,204, respectively, resulting in net
unrealized depreciation of $26,970,167.
</TABLE>
See Accompanying Notes.

<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investment at Value (Cost $659,947,430) (Note 1a) $634,032,064
Cash 1,322
Receivable for Investments Sold 16,913,029
Dividends Receivable 777,113
-----------
Total Assets 651,723,528
-----------

LIABILITIES:
Payable for Investments Purchased 15,256,496
Advisory Fee Payable (Note 2a) 1,218,139
Financial and Fund Accounting Services Fee Payable (Note 2c) 203,764
Administration Fee Payable (Note 2b) 3,761
Fund Services Fee Payable (Note 2d) 7,476
Trustees' Fees and Expenses Payable (Note 2e) 345
Accrued Expenses 316,102
Withholding Taxes Payable 170,421
-----------
Total Liabilities 17,176,504
-----------

NET ASSETS:
Applicable to Investors' Beneficial Interests $634,547,024
-----------
-----------
</TABLE>

See Accompanying Notes.

22
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 19, 1993 (COMMENCEMENT OF OPERATIONS) TO MAY 31, 1994
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Dividends (Net of Withholding Tax of $13,514) $ 6,979,327
Interest 1,344,094
-----------
Investment Income 8,323,421

EXPENSES:
Advisory Fee (Note 2a) $2,912,670
Custodian Fees and Expenses 272,615
Financial and Fund Accounting Services Fees (Note 2c) 203,764
Fund Services Fee (Note 2d) 33,435
Administration Fee (Note 2b) 30,420
Professional Fees 46,962
Trustees' Fees and Expenses (Note 2e) 10,849
Miscellaneous 5,482
---------
Total Expenses 3,516,197
-----------
NET INVESTMENT INCOME 4,807,224
NET REALIZED GAIN ON INVESTMENTS 33,091,201
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS (55,373,439)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(17,475,014)
-----------
-----------
</TABLE>

See Accompanying Notes.

23
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 19, 1993
(COMMENCEMENT OF
OPERATIONS) TO
MAY 31, 1994
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net Investment Income $ 4,807,224
Net Realized Gain on Investments 33,091,201
Net Change in Net Unrealized Appreciation of Investments (55,373,439)
-----------------
Net Decrease in Net Assets Resulting from Operations (17,475,014)
-----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
Contributions 903,848,399
Withdrawals (251,926,461)
-----------------
Net Increase from Investors' Transactions 651,921,938
-----------------
Total Increase in Net Assets 634,446,924
NET ASSETS:
Beginning of Period 100,100
-----------------
End of Period $ 634,547,024
-----------------
-----------------
-------------------------------------------------------------------------------------------

FOR THE PERIOD
JULY 19, 1993
(COMMENCEMENT OF
OPERATIONS) TO
MAY 31, 1994
-----------------
<S> <C>
SUPPLEMENTARY DATA:
Ratios (annualized):
Expenses to Average Net Assets 0.72%
Net Investment Income to Average Net Assets 0.99%
Portfolio Turnover 97%*
<FN>

* Includes activity of The Pierpont Capital Appreciation Fund for the period
June 1, 1993 to July 18, 1993, prior to contribution of all of its investable
assets to the Portfolio.
</TABLE>
See Accompanying Notes.

24
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

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 on January 29, 1993. 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.

1. SIGNIFICANT ACCOUNTING POLICIES:

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 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.

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 period July 19, 1993 to
May 31, 1994, Morgan's fee for these services amounted to $2,912,670.

25
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

b) The Portfolio has retained Signature Broker - Dealer Services, Inc.
("Signature") to serve as Administrator. Certain officers of Signature
serve as officers of the Portfolio. Under the Administration Agreement,
Signature provides management and 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. Effective October 1,
1993, Signature receives a fee for these services at an annual rate of
0.01% of the first $1 billion of aggregate average daily net assets of the
Portfolio and the other portfolios subject to the Administration Agreement
(the "aggregate portfolios"), 0.008% of the next $2 billion of the
aggregate portfolios' average daily net assets, 0.006% of the next $2
billion of the aggregate portfolios' average daily net assets, and 0.004%
of the aggregate portfolios' average daily net assets in excess of $5
billion. Prior to October 1, 1993, no administration fee was charged to the
Portfolio. For the period October 1, 1993 to May 31, 1994, the Portfolio's
portion of Signature's fee for these services amounted to $30,420.

d) Effective January 15, 1994, 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
Chairman and sole shareholder of Group is also a Trustee of the Portfolio.
The Portfolio's allocated portion of Group's costs in performing its
services amounted to $33,435 for the period January 15, 1994 to May 31,
1994.

3. INVESTMENT TRANSACTIONS:

Investment transactions (excluding short-term investments) for the fiscal year
ended May 31, 1994, including activity of The Pierpont Capital Appreciation Fund
from June 1, 1993 to July 18, 1993 were as follows:

<TABLE>
<CAPTION>
COST OF PROCEEDS FROM
PURCHASES SALES
- ---------------- ------------------
<S> <C>
$894,676,027 $462,186,775
</TABLE>

<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, 1994, and the results of its operations, the
changes in its net assets and its supplementary data 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 audit. We conducted our
audit 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
audit, which included confirmation of securities at May 31, 1994 by
correspondence with the custodian and brokers, and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE
New York, New York
July 22, 1994