<PAGE>
LETTER TO THE SHAREHOLDERS OF THE PIERPONT CAPITAL APPRECIATION FUND
January 15, 1996
Dear Shareholder:
Stock market investors enjoyed a spectacular year in 1995. During the Fund's six
month semi-annual reporting period, the Dow Jones Industrial Average topped
5,000 for the first time in its history, and the Russell 2500 returned 16.03%.
In this bullish environment, The Pierpont Capital Appreciation Fund returned
15.49%, making it a strong participant in the market's rally. The Fund also
produced attractive returns for the 12 months ended November 30, 1995, returning
32.07%, in line with the Russell 2500 return of 32.29%.
Viewed longer term, the strengths of the Fund's investment strategy and risk
controls become more clear. For the ten years ended November 30, 1995, the
Fund's average annual return was 12.51% -- outperforming the Russell Benchmark
return of 11.78%. (The Russell Benchmark is comprised of the Russell 2000 Index
prior to August 31, 1993 and the Russell 2500 Index thereafter.)
In the following sections we briefly explain the Fund's strategy, the market
environment for the period, and attempt to answer the question that is no doubt
on everyone's mind, "What should I expect in the year ahead."
OUR APPROACH TO IDENTIFYING LONG-TERM VALUE
To understand the Fund's performance over the period, we thought it important to
briefly reexamine the Fund's investment strategy. Our research attempts to
uncover undervalued companies that we believe will eventually be priced in
accordance with their projected earnings, cash flow, and dividend-paying
capabilities. The potential downfall over the short term is that although we
believe an asset is worth more than its present purchase price over the long
term, the market may price it lower based on shorter-term issues, such as lower-
than-expected earnings for a quarter. Under this circumstance, we reexamine
whether we still believe the asset holds fundamental value. If so, we patiently
hold our position, confident that the market will, over time, recognize the
asset's true value.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS . . . . .1 SPECIAL FUND-BASED SERVICES . . . . 7
FUND FACTS AND HIGHLIGHTS. . . . . .5 FINANCIAL STATEMENTS. . . . . . . . 9
FUND PERFORMANCE . . . . . . . . . .6
- --------------------------------------------------------------------------------
1
<PAGE>
We believe it is prudent to practice a disciplined and rigorous form of risk
control. For example, the Portfolio's construction minimizes sector weighting
differentials from the Russell 2500 -- reflecting our belief that our
information advantage comes more at the individual stock than at the sector
level.
THE SMALL-CAP MARKET: LARGE GAINS WITH A NARROW FOCUS
The high returns for small-cap stocks mask some of the fluctuations that
occurred during the period. One factor at work was the performance disparity in
sector returns for the year and also for the period. For example, the high-
flying technology stocks experienced widespread selling in August after rising
dramatically for the first half of the year. Another trend was a rotation away
from cyclical sectors into defensive growth stocks, such as utilities and food
and drugs. At the same time, the favorable interest rate environment helped
banks, insurance, and health care companies take the lead among market sectors.
At the end of the period, investors even began to move into sectors such as
energy and capital goods, which had lagged the market throughout 1995. In
addition, while investor buying was still focused on the S&P 500 large-cap
stocks, signs existed that buying should begin to broaden, benefiting smaller
company issues.
THE FUND'S PERFORMANCE AMID SHORT-TERM VIEWS
Viewed overall, the Portfolio's stock selection added value on an absolute basis
between May and November 1995, but did not add value on a relative basis. During
the period, investors were willing to pay for stocks within certain sectors in
which they had a long-term positive fundamental outlook, such as technology,
health care, and banking. It was only when technology stocks rose to
uncomfortably high levels that they sold off. In contrast, economic uncertainty
caused investors to take a very short-term view of sectors such as retail and
consumer cyclicals, focusing on a company's latest quarterly earnings rather
than on its long-term value.
In this environment, it came as no surprise that the stocks that added most to
the Portfolio's relative returns for the period were within sectors in which
investors had long-term confidence, and Morgan had recognized the value in these
stocks earlier on. It is also easy to imagine why, given the Portfolio's long-
term focus, the stocks that detracted most from performance were in sectors that
were judged based on short-term events. Again, we continue to believe that the
market will eventually price these underperformers in accordance with their
long-term fundamental values.
We think it is also important to note that while the Portfolio is "sector
neutral" relative to the Index, its diversification helped insulate it from the
sector swings that occurred during the period. On a longer-term basis, we
believe this diversification should help to improve the consistency of results.
2
<PAGE>
- --------------------------------------------------------------------------------
As is indicated in the chart on the right, the average rate of return of small
company stocks between 1969 and 1994 (11.5%) was superior to returns provided by
large company stocks (10.1%),government bonds (8.6%), corporate bonds (8.3%),
and U.S. Treasury bills (7.0%). Moreover, small company stocks significantly
outpaced the rate of U.S. inflation (5.7%) during the same period. It should be
noted that, unlike stocks, U.S. government securities are backed by the full
faith and credit of the United States and that corporate bonds offer a fixed
rate of return if held to maturity. Also, past performance is no guarantee of
future performance.
THE POWER OF SMALL COMPANY RETURNS
Compounded annual total returns (1969-1994)
THE POWER OF SMALL COMPANY RETURNS
COMPOUNDED ANNUAL TOTAL RETURNS (1969-1994)
Small company stocks 11.5
Common stocks 10.1
Long-term corporate bonds 8.6
Long-term government bonds 8.3
U.S. Treasury bills 7
U.S. inflation 5.7
SOURCE: IBBOTSON ASSOCIATES. INDEX VALUES CALCULATED WITH REINVESTMENT OF
DIVIDENDS AND INCOME. THE RUSSELL 2500 IS USED TO REPRESENT SMALL COMPANY STOCK
PERFORMANCE AND IS DERIVED PRIOR TO 1979.
THIS CHART IS FOR ILLUSTRATIVE PURPOSES ONLY AND DOES NOT REPRESENT THE
PERFORMANCE OF ANY SPECIFIC SECURITY HELD IN THE PORTFOLIO.
THE YEAR AHEAD: A RETURN TO BROAD-BASED MARKET PERFORMANCE
One of the big questions on investors' minds today is, "Could the small-cap
market sustain its 1995 highs in 1996?" We believe it is unlikely either small
or large-cap stocks will reproduce their 1996 highs, but we still predict
attractive gains at more "normal" levels. We also expect buying to broaden,
unlike in 1995 when the largest company stocks and a few sectors like technology
and health care dominated the market. This environment should benefit the
Portfolio's diversified holdings.
While growth in corporate profitability began to decelerate during the third
quarter of 1995, profits have held up well enough for us to raise our
projections in this area for 1996. However, even with our upward revisions,
operating profits in 1996 will likely be below the double-digit gains posted in
1994 and 1995. The bottom line, therefore, calls for a U.S. economy in which
lower but more sustainable profitability will be the rule in the year ahead.
3
<PAGE>
The surprisingly good inflation performance in 1995 suggests that arguments for
continued restraint are diminishing. Our belief is that Fed motivations are
shifting from a policy of growth prevention to a policy of recession prevention,
implying that the central bank will be more responsive to signs of weakness
going forward than it has been to date. Our view is that a rebound in the U.S.
economy is likely next year, rather than continued sluggish economic growth,
which should be beneficial for small-company stocks in general.
As always, we welcome your comments or questions. Please call J.P. Morgan Funds
Services toll free at (800) 521-5411.
Sincerely,
/s/ Evelyn E. Guernsey
Evelyn E. Guernsey
J.P. Morgan Funds Management
4
<PAGE>
Fund facts
INVESTMENT OBJECTIVE
The Pierpont Capital Appreciation Fund seeks to provide a high total return from
a portfolio of equity securities of small companies. It is designed for
investors who are willing to assume the somewhat higher risk of investing in
small companies in order to seek a higher total return over time than might be
expected from a portfolio of stocks of large companies.
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
6/27/85
- --------------------------------------------------------------------------------
NET ASSETS AS OF 11/30/95
$194,192,142
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/26/95
- --------------------------------------------------------------------------------
EXPENSE RATIO
The Fund's annualized expense ratio of 0.90% covers shareholders' expenses for
custody, tax reporting, investment advisory and shareholder services, after
reimbursement. The Fund is no-load and does not charge any sales, redemption, or
exchange fees. There are no additional charges for buying, selling, or
safekeeping Fund shares, or for wiring redemption proceeds from the Fund.
Fund highlights
ALL DATA AS OF NOVEMBER 30, 1995
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[PIE CHART]
- FINANCIAL 18.1%
- CONSUMER GOODS 17.2%
- TECHNOLOGY 17.2%
- SERVICES 10.8%
- HEALTH AND PERSONAL CARE 9.8%
- SHORT-TERM HOLDINGS 8.9%
- INDUSTRIAL 6.2%
- UTILITIES 5.6%
- ENERGY 4.2%
- TRANSPORTATION 2.0%
LARGEST EQUITY HOLDINGS % OF PORTFOLIO
- -----------------------------------------------------------
ADT 1.6
BLACK & DECKER 1.5
CAPITAL RE CORP. 1.4
SERVICE CORP. INTERNATIONAL 1.2
MESA AIRLINES 1.2
1995 FEDERAL TAX NOTICE
During the six months ended November 30, 1995, the Fund paid to shareholders
$0.85 from short-term capital gains and $0.54 per share in long-term capital
gains.
5
<PAGE>
Fund performance
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows you
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change in a fund's value over various time periods, typically 1, 5, or 10
years. Total returns for periods of less than one year are not annualized and
provide a picture of how a fund has performed over the short term.
<TABLE>
<CAPTION>
TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
PERFORMANCE ------------------- --------------------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF NOVEMBER 30, 1995 MONTHS MONTHS YEAR YEARS YEARS YEARS
- --------------------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Pierpont Capital Appreciation Fund 2.40% 15.49% 32.07% 11.81% 21.04% 12.51%
Russell Benchmark* 2.90% 16.03% 32.29% 15.71% 21.89% 11.78%
Morningstar Small Company Fund Average 2.73% 18.78% 32.04% 15.24% 21.33% 13.76%
AS OF SEPTEMBER 30, 1995
- --------------------------------------------------------------- --------------------------------------------------
The Pierpont Capital Appreciation Fund 9.07% 18.98% 26.18% 17.52% 20.67% 13.84%
Russell Benchmark* 9.61% 19.38% 25.49% 19.43% 21.91% 12.87%
Morningstar Small Company Fund Average 11.70% 21.86% 28.32% 19.47% 22.04% 14.80%
</TABLE>
*THE RUSSELL BENCHMARK IS COMPRISED OF THE RUSSELL 2000 INDEX PRIOR TO AUGUST
31, 1993 AND THE RUSSELL 2500 INDEX THEREAFTER.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. ALL RETURNS ARE NET OF
FEES AND ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF
CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. THE
MORNINGSTAR MUTUAL FUND RATING SERVICE IS A LEADING RESOURCE FOR MUTUAL FUND
DATA. ALTHOUGH GATHERED FROM RELIABLE SOURCES, DATA ACCURACY AND COMPLETENESS
CANNOT BE GUARANTEED.
6
<PAGE>
Special fund-based services
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- - create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- - make ongoing tactical adjustments in the actual asset mix of their portfolios
to capitalize on shifting market trends;
- - make investments through The Pierpont Funds, a family of diversified mutual
funds.
PAAS is available to clients who invest a minimum of $500,000 in The Pierpont
Funds.
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.
KEOGH
In early 1995, Morgan introduced a Keogh program for its clients. Keoghs provide
another excellent vehicle to help individuals who are self-employed or are
employees of unincorporated businesses to accumulate retirement savings. A Keogh
is a tax-deferred pension plan that can allow 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.
7
<PAGE>
SIGNATURE BROKER-DEALER SERVICES, INC. IS THE DISTRIBUTOR OF THE PIERPONT
CAPITAL APPRECIATION FUND (THE "FUND").
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN") SERVES AS PORTFOLIO
INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY AS
SHAREHOLDER SERVICING AGENT FOR CUSTOMERS. INVESTMENTS IN THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN OR ANY OTHER
BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND CAN
FLUCTUATE, SO AN INVESTOR'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
Performance data quoted herein represent past performance. Please remember that
past performance is not a guarantee of future performance. Fund returns are net
of fees, assume reinvestment of income, and reflect the reimbursement of certain
Fund expenses. Had expenses not been subsidized, returns would have been lower.
The Fund invests all of its investable assets in The U.S. Small Company
Portfolio (the "Portfolio"), a separately registered investment company which is
not available to the public but only to other collective investment vehicles
such as the Fund.
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES, IS PROVIDED IN THE PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE
INVESTING. YOU MAY OBTAIN ADDITIONAL COPIES OF THE PROSPECTUS BY CALLING J.P.
MORGAN FUNDS SERVICES AT (800) 521-5411.
8
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Small Company Portfolio $ 194,282,951
("Portfolio"), at value
Receivable for Shares of Beneficial Interest Sold 6,870
Receivable for Tax Reclaim 12,437
Receivable for Expense Reimbursement 1,877
Other Assets 4,121
-------------
Total Assets 194,308,256
-------------
LIABILITIES
Payable for Shares of Beneficial Interest Redeemed 89,079
Transfer Agent Fee Payable 6,555
Administration Fee Payable 3,967
Shareholder Servicing Fee Payable 2,668
Fund Services Fee Payable 793
Accrued Expenses 13,052
-------------
Total Liabilities 116,114
-------------
NET ASSETS
Applicable to 8,135,292 Shares of Beneficial Interest $ 194,192,142
Outstanding (par value $0.001, unlimited shares issued)
-------------
-------------
Net Asset Value, Offering and Redemption Price Per Share $23.87
ANALYSIS OF NET ASSETS
Paid-in Capital $ 163,060,596
Undistributed Net Investment Income 1,022,643
Accumulated Net Realized Gain on Investment 14,043,623
Net Unrealized Appreciation of Investment 16,065,280
-------------
Net Assets $ 194,192,142
-------------
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
$ 1,476,413
Allocated Dividend Income (Net of Withholding Tax
of $8,197)
403,112
Allocated Interest Income
(618,353)
Allocated Portfolio Expenses
-------------
1,261,172
Net Investment Income Allocated from Portfolio
FUND EXPENSES
Shareholder Servicing Fee $ 238,405
Transfer Agent Fees 27,967
Financial and Fund Accounting Services Fee 24,945
Administration Fee 24,695
Printing Fee 10,027
Fund Services Fee 7,812
Blue Sky Fees 6,839
Professional Fees 5,500
Registration Fees 2,551
Trustees' Fees and Expenses 2,159
Insurance Fee 1,274
Miscellaneous 2,507
-------------
Total Fund Expenses 354,681
Less: Reimbursement of Expenses (116,151)
-------------
(238,530)
NET FUND EXPENSES
-------------
1,022,642
NET INVESTMENT INCOME
11,758,600
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO
14,467,159
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO
-------------
$ 27,248,401
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS
-------------
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
NOVEMBER 30, FISCAL
1995 YEAR ENDED
(UNAUDITED) MAY 31, 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,022,642 $ 1,871,287
Net Realized Gain on Investment Allocated from
Portfolio 11,758,600 12,442,504
Net Change in Unrealized Appreciation of
Investment Allocated from Portfolio 14,467,159 5,441,176
------------- -------------
Net Increase in Net Assets Resulting from
Operations 27,248,401 19,754,967
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (810,933 ) (1,873,112 )
Net Realized Gain on Investment (11,056,169 ) (13,393,456 )
------------- -------------
Total Distributions to Shareholders (11,867,102 ) (15,266,568 )
------------- -------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 15,168,261 35,022,456
Reinvestment of Dividends and Distributions 11,344,836 14,642,032
Cost of Shares of Beneficial Interest Redeemed (26,832,470 ) (79,467,609 )
------------- -------------
Net Decrease from Transactions in Shares of
Beneficial Interest (319,373 ) (29,803,121 )
------------- -------------
Total Increase (Decrease) in Net Assets 15,061,926 (25,314,722 )
NET ASSETS
Beginning of Period 179,130,216 204,444,938
------------- -------------
End of Period (including undistributed net
investment income of $1,022,643 and $810,934,
respectively) $194,192,142 $179,130,216
------------- -------------
------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD ARE AS FOLLOWS:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL YEAR ENDED MAY 31,
NOVEMBER 30, 1995 --------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
------------------ ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 22.02 $ 21.40 $ 25.12 $ 20.03 $ 17.98 $ 18.68
-------- ---------- ---------- ---------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income(a) 0.13 0.22 0.20 (0.01) (0.04) (0.02)
Net Realized and Unrealized Gain (Loss)
on Investments 3.21 2.13 0.19 5.10 2.09 (0.33)
-------- ---------- ---------- ---------- --------- ---------
Total from Investment Operations 3.34 2.35 0.39 5.09 2.05 (0.35)
-------- ---------- ---------- ---------- --------- ---------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.10) (0.21) (0.09) - - -
Net Realized Gains (1.39) (1.52) (4.02) - - (0.35)
-------- ---------- ---------- ---------- --------- ---------
Total Distributions (1.49) (1.73) (4.11) - - (0.35)
-------- ---------- ---------- ---------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 23.87 $ 22.02 $ 21.40 $ 25.12 $ 20.03 $ 17.98
-------- ---------- ---------- ---------- --------- ---------
-------- ---------- ---------- ---------- --------- ---------
Total Return 15.49%+ 12.28% 1.14% 25.41% 11.40% (1.90)%
RATIOS AND SUPPLEMENTAL DATA
Net Assets at end of Period (in
thousands) $ 194,192 $ 179,130 $ 204,445 $ 186,887 $ 97,548 $ 58,859
Ratios to Average Net Assets:
Expenses 0.90 (b) 0.90% 0.90% 0.90% 0.90% 0.91%
Net Investment Income (Loss) 1.07 (b) 1.02% 0.75% (0.06)% (0.25)% (0.15)%
Decrease reflected in above Expense
ratio due to Expense Reimbursements 0.12%(b) 0.22% 0.20% 0.05% 0.13% 0.31%
Portfolio Turnover - - 14%* 50% 58% 56%
</TABLE>
* 1994 Portfolio Turnover reflects the period June 1, 1993 to July 18, 1993.
After July 18, 1993, all the Fund's investable assets were invested in The U.S.
Small Company Portfolio.
+ Not Annualized.
(a)Based on shares outstanding at the beginning and end of each period except
the fiscal year ended May 31, 1991, where average shares outstanding were
used.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Pierpont Capital Appreciation Fund (the "Fund") is a separate series of The
Pierpont Funds, a Massachusetts business trust (the "Trust"). The Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company. The Fund, prior to its tax-
free reorganization on July 18, 1993, to a series of the Trust, operated as a
stand-alone mutual fund. Costs related to the reorganization were borne by
Morgan Guaranty Trust Company of New York ("Morgan"). This report includes
periods which preceded the Fund's reorganization and reflects the operations of
the predecessor entity.
The Fund invests all of its investable assets in The U.S. Small Company
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objectives as the Fund. The value of such
investment reflects the Fund's proportionate interest in the net assets of the
Portfolio (28% at November 30, 1995). The performance of the Fund is directly
affected by the performance of the Portfolio. The financial statements of the
Portfolio, including the schedule of investments, are included elsewhere in this
report and should be read in conjunction with the Fund's financial statements.
The following is a summary of the significant accounting policies of the Fund:
a)Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b)The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Substantially all the Fund's net investment income is declared as
dividends and paid semi-annually. Distributions to shareholders of net
realized capital gain, if any, are declared and paid annually.
d)Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to comply with the provisions of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income,
including net realized capital gains, if any, within the prescribed time
periods. Accordingly, no provision for federal income or excise tax is
necessary.
e)Expenses incurred by the Trust with respect to any two or more funds in
the Trust are allocated in proportion to the net assets of each fund in
the Trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
13
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a)The Trust retains Signature Broker-Dealer Services, Inc. ("Signature") to
serve as Administrator and Distributor. Signature provides administrative
services necessary for the operations of the Fund, furnishes office space
and facilities required for conducting the business of the Fund and pays
the compensation of the Fund's officers affiliated with Signature. The
agreement provides for a fee to be paid to Signature at an annual rate
determined by the following schedule: 0.04% of the first $1 billion of the
aggregate average daily net assets of the Trust, as well as two other
affiliated fund families for which Signature acts as administrator, 0.032%
of the next $2 billion of such net assets, 0.024% of the next $2 billion
of such net assets, and 0.016% of such net assets in excess of $5 billion.
The daily equivalent of the fee rate is applied daily to the net assets of
the Fund. For the six months ended November 30, 1995, Signature's fee for
these services amounted to $24,695.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged would be equal to the Fund's proportionate share of a
complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios (the "Master Portfolios") in which
series of the Trust, the JPM Institutional Funds or The JPM Advisor Funds
invest and 0.01% on the aggregate average daily net assets of the Master
Portfolios' in excess of $7 billion. The portion of this charge payable by
the Fund is determined by the proportionate share its net assets bear to
the total net assets of the Trust, The JPM Institutional Funds, The JPM
Advisor Funds and the Master Portfolios.
b)Until August 31, 1995, the Trust, on behalf of the Fund, had a Financial
and Fund Accounting Services Agreement ("Services Agreement") with Morgan
under which Morgan received a fee for overseeing certain aspects of the
administration and operation of the Fund and which was also designed to
provide an expense limit on certain expenses of the Fund. This fee was
calculated at 0.15% of the first $100 million of the Fund's average daily
net assets and 0.13% of average daily net assets over $100 million. For
the three months ended August 31, 1995, the fee for these services
amounted to $24,945. From September 1, 1995 until December 28, 1995, an
interim agreement between the Trust, on behalf of the Fund, and Morgan
provided for the continuation of the oversight functions that were
outlined under the prior agreement and that Morgan should bear all of its
expense incurred in connection with these services. In addition, Morgan
has agreed to reimburse the Fund to the extent necessary to maintain the
total operating expenses of the Fund, including the expenses allocated to
the Fund from the Portfolio, at no more than 0.90% of the average daily
net assets of the Fund through September 30, 1996. For the six months
ended November 30, 1995, Morgan has agreed to reimburse the Fund $116,151
for expenses under this agreement.
Effective December 29, 1995, the Trust, on behalf of the Fund, entered
into an Administrative Services Agreement with Morgan under which Morgan
is responsible for certain aspects of the administration and operation of
the Fund. Under the Agreement, the Fund has agreed to pay Morgan a fee
equal to its proportionate share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate net assets of the Master
Portfolios in which the Fund
14
<PAGE>
THE PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
invests, in accordance with the following annual schedule: 0.06% on the
first $7 billion of the Master Portfolios' aggregate net assets and 0.03%
of the aggregate net assets in excess of $7 billion. The portion of this
charge payable by the Fund is determined by the proportionate share that
the Fund's net assets bear to the net assets of the Trust, the Master
Portfolios and other investors in the Master Portfolios for which Morgan
provides similar services.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. The Agreement provides for the Fund to pay Morgan a fee for
these services which is computed daily and may be paid monthly at an
annual rate of 0.25% of the average daily net assets of the Fund. For the
six months ended November 30, 1995, the fee for these services amounted to
$238,405.
d)The Trust, on behalf of the Fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the Trustees in exercising their
overall supervisory responsibilities for the Trust's affairs. The Trustees
of the Trust represent all the existing shareholders of Group. For the for
the six months ended November 30, 1995, the Fund's allocated portion of
Group's costs in performing its services amounted to $7,812.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Pierpont Funds, The JPM Institutional Funds, and their
corresponding Portfolios. The Trustees' Fees and Expenses shown in the
financial statements represents the Fund's allocated portion of the total
fees and expenses. The Trustee who serves as Chairman and Chief Executive
Officer of these Funds and Portfolios also serves as Chairman of Group and
received compensation and employee benefits from Group in his role as
Group's Chairman. The allocated portion of such compensation and benefits
included in the Fund Services Fee shown in the financial statements was
$1,000.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED FISCAL
NOVEMBER 30, 1995 YEAR ENDED
(UNAUDITED) MAY 31, 1995
------------------ -------------
<S> <C> <C>
Shares sold 651,500 1,695,831
Reinvestment of dividends and distributions 497,144 751,763
Shares redeemed (1,150,066) (3,866,207)
------------------ -------------
Net decrease (1,422) (1,418,613)
------------------ -------------
------------------ -------------
</TABLE>
15
<PAGE>
The U.S. Small Company Portfolio
Semi-Annual Report November 30, 1995
(unaudited)
(The following pages should be read in conjunction
with The Pierpont Capital Appreciation Fund
Semi-Annual Financial Statements)
16
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
COMMON STOCKS (92.3%)
BASIC INDUSTRIES (6.3%)
AGRICULTURE (0.7%)
Dekalb Genetics Corp. Class B..................... 109,000 $ 4,891,375
------------
CHEMICALS (1.7%)
Albemarle Corp.................................... 213,300 3,919,388
Applied Extrusion Technologies, Inc. (a).......... 10,900 138,975
Wellman, Inc...................................... 322,500 8,264,063
------------
12,322,426
------------
METALS & MINING (3.6%)
Allegheny Ludlum Corp............................. 427,800 7,967,775
Commercial Metals Co.............................. 216,500 5,087,750
Freeport McMoRan Copper & Gold Inc. Class A....... 90,800 2,451,600
J&L Specialty Steel, Inc.......................... 16,400 270,600
Kaiser Aluminum Corp. (a)......................... 172,286 2,498,147
Maverick Tube Corp. (a)........................... 128,400 818,550
Minera Rayrock, Inc. *(a)......................... 696,600 769,157
Oregon Steel Mills, Inc........................... 107,300 1,475,375
Schnitzer Steel Industries, Inc. Class A.......... 6,500 192,563
Steel Technologies, Inc........................... 416,700 3,646,125
------------
25,177,642
------------
PAPER & FOREST PRODUCTS (0.3%)
Glatfelter (P.H.) Co.............................. 128,800 2,463,300
------------
Total Basic Industries............................ 44,854,743
------------
CONSUMER GOODS & SERVICES (17.3%)
AUTOMOTIVE SUPPLIES (0.9%)
Excel Industries, Inc............................. 199,500 2,443,875
Simpson Industries, Inc........................... 408,900 3,884,550
------------
6,328,425
------------
BEVERAGES, FOOD, SOAP & TOBACCO (1.8%)
Adolph Coors Co. Class B.......................... 110,000 2,241,250
Bush Boake Allen, Inc. (a)........................ 55,000 1,691,250
Dreyer's Grand Ice Cream, Inc..................... 29,000 957,000
Eskimo Pie Corp................................... 39,400 738,750
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
CONSUMER GOODS & SERVICES (CONTINUED)
Nabisco Holdings Corp. Class A.................... 84,600 $ 2,389,950
Riviana Foods Inc................................. 77,000 981,750
Sanfilippo, John B. and Son Inc. (a).............. 12,000 108,000
Universal Foods Corp.............................. 102,300 3,567,713
------------
12,675,663
------------
ENTERTAINMENT, LEISURE & MEDIA (3.2%)
Boyd Gaming Corp. (a)............................. 274,400 3,292,800
Carmike Cinemas, Inc. (a)......................... 6,100 149,450
Comcast UK Cable Partners Ltd.* (a)............... 71,400 910,350
Heritage Media Corp. Class A(a)................... 72,800 1,901,900
IMAX Corp. (a).................................... 94,100 2,217,231
K-III Communications Corp. (a).................... 100,000 1,175,000
Nelson Thomas, Inc................................ 33,000 536,250
Paging Network, Inc. (a).......................... 324,600 7,262,925
People's Choice TV Corp. (a)...................... 42,000 897,750
Pixar, Inc. (a)................................... 7,100 290,213
Sports Club Company, Inc. (a)..................... 51,200 185,600
Starbucks Corp. (a)............................... 25,400 1,073,150
Telewest Communications PLC (ADR) (a)............. 54,000 1,370,250
Videotron Holdings PLC (ADR) (a).................. 69,000 1,017,750
------------
22,280,619
------------
HOME CONSTRUCTION (0.6%)
Bush Industries, Inc.............................. 50,600 847,550
D.R. Horton, Inc.................................. 301,815 3,055,875
------------
3,903,425
------------
MERCHANDISING (4.3%)
Borders Group Inc. (a)............................ 94,500 1,665,563
Catherines Stores Corp. (a)....................... 151,900 1,243,681
Dollar General Corp............................... 82,300 2,232,388
Fastenal Co....................................... 22,900 948,919
First Brands Corp................................. 31,200 1,427,400
Garden Ridge Corp. (a)............................ 30,700 1,147,413
Hannaford Brothers Co............................. 39,200 940,800
Kohls Corp. (a)................................... 37,400 2,019,600
Leslie's Poolmart (a)............................. 58,000 812,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
CONSUMER GOODS & SERVICES (CONTINUED)
Neostar Retail Group, Inc. (a).................... 25,400 $ 268,288
Nine West Group, Inc. (a)......................... 46,500 2,063,438
Office Depot Inc. (a)............................. 37,600 921,200
One Price Clothing Stores, Inc. (a)............... 294,700 1,215,638
Penn Traffic Co. (a).............................. 125,800 1,635,400
Sam & Libby, Inc. (a)............................. 914 1,114
Scott Paper Ltd.*................................. 55,300 1,002,402
Stop and Shop Companies, Inc. (a)................. 39,000 823,875
TJX Companies, Inc................................ 424,800 7,062,300
Trans World Entertainment (a)..................... 94,400 247,800
Urban Outfitters, Inc. (a)........................ 44,900 1,015,863
Vons Companies Inc. (a)........................... 60,800 1,611,200
------------
30,306,282
------------
MISCELLANEOUS (2.5%)
Aaron Rents, Inc.................................. 19,900 353,225
Chaus (Bernard), Inc. (a)......................... 154,600 560,425
DeVRY, Inc. (a)................................... 116,000 3,088,500
FlightSafety International, Inc................... 21,100 1,107,750
Fruit of the Loom, Inc. Class A (a)............... 109,900 2,129,313
Gucci Group (a)................................... 34,500 1,190,250
Holson Burnes Group, Inc. (a)..................... 100,000 375,000
Johnson Worldwide Associates, Inc. (a)............ 82,800 1,873,350
Oakley, Inc. (a).................................. 15,600 499,200
Safety 1st, Inc. (a).............................. 141,300 2,826,000
SCP Pool Corp. (a)................................ 27,900 285,975
St. John Knits, Inc............................... 14,600 684,375
Warnaco Group, Inc. Class A....................... 69,000 1,742,250
Wolverine World Wide, Inc......................... 22,100 696,150
------------
17,411,763
------------
PERSONAL SECURITY (1.9%)
ADT Ltd. (a)...................................... 796,000 11,144,000
Pinkerton's, Inc. (a)............................. 124,500 2,490,000
------------
13,634,000
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
CONSUMER GOODS & SERVICES (CONTINUED)
PERSONAL SERVICES (1.3%)
Equity Corp. International (a).................... 32,000 $ 624,000
Service Corp. International....................... 210,600 8,555,625
------------
9,179,625
------------
RESTAURANTS & HOTELS (0.8%)
Doubletree Corp. (a).............................. 27,900 589,388
Players International, Inc. (a)................... 67,200 886,200
Royal Caribbean Cruises Ltd.*..................... 146,100 3,542,925
Sbarro, Inc....................................... 32,000 716,000
------------
5,734,513
------------
Total Consumer Goods & Services................... 121,454,315
------------
ENERGY (4.3%)
OIL & GAS PRODUCTION (3.5%)
Anadarko Petroleum Corp........................... 62,500 3,007,812
Devon Energy Corp................................. 130,700 3,153,138
Noble Affiliates, Inc............................. 38,900 1,055,163
Oryx Energy Co. (a)............................... 403,000 5,289,375
Pogo Producing Co................................. 67,800 1,559,400
Tejas Power Corp. Class A (a)..................... 62,000 496,000
Tesoro Petroleum Corp. (a)........................ 52,900 443,038
Texas Meridian Resources Corp. (a)................ 99,300 1,228,838
TransCanada Pipelines Ltd......................... 427,100 5,765,850
Vintage Petroleum, Inc............................ 146,200 2,997,100
------------
24,995,714
------------
OIL-SERVICES (0.8%)
Camco International, Inc.......................... 2,100 49,476
Dreco Energy Services Ltd. Class A (a)............ 111,700 1,675,500
Noble Drilling Corp. (a).......................... 335,400 2,473,575
Oceaneering International, Inc. (a)............... 117,700 1,147,575
------------
5,346,126
------------
Total Energy...................................... 30,341,840
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
FINANCE (18.4%)
BANKING (8.3%)
Banknorth Group, Inc.............................. 65,600 $ 2,222,200
Bay View Capital Corp............................. 57,000 1,613,812
Charter One Financial Inc......................... 139,400 4,443,375
Cole Taylor Financial Group, Inc.................. 34,900 946,663
Colonial Bancgroup, Inc. Class A.................. 75,700 2,223,688
Commerce Bancorp, Inc............................. 62,000 1,387,250
Community First Bankshares, Inc................... 66,000 1,369,500
First Commerce Corp............................... 186,900 6,027,525
Firstar Corp...................................... 158,700 6,506,700
FirstFed Financial Corp. (a)...................... 64,500 991,688
GBC Bancorp....................................... 70,700 1,219,575
HUBCO, Inc........................................ 63,700 1,262,056
Integra Financial Corp............................ 32,800 2,029,500
Irwin Financial Corp.............................. 19,700 770,763
Mark Twain Bancshares, Inc........................ 32,000 1,196,000
National Commerce Bancorp......................... 97,200 2,539,350
Northern Trust Corp............................... 31,700 1,652,363
Pinnacle Financial Services, Inc.................. 22,700 408,600
Roosevelt Financial Group, Inc.................... 180,200 3,040,875
Silicon Valley Bancshares (a)..................... 52,200 1,161,450
Southern National Corp............................ 232,000 6,090,000
Sterling Bancshares, Inc.......................... 52,650 908,213
Trustco Bank Corp. of New York.................... 73,044 1,588,707
Westamerica Bancorporation........................ 74,200 3,032,925
Wilmington Trust Corp............................. 127,100 4,059,256
------------
58,692,034
------------
FINANCIAL SERVICES (0.7%)
Donaldson, Lufkin & Jenrette, Inc. (a)............ 17,100 568,575
Litchfield Financial Corp......................... 38,800 526,225
Payco American Corp. (a).......................... 78,000 663,000
Southwest Securities Group, Inc................... 105,700 1,083,425
SPS Transaction Services, Inc. (a)................ 62,400 1,723,800
WFS Financial, Inc. (a)........................... 14,300 232,375
------------
4,797,400
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
FINANCE (CONTINUED)
INSURANCE (4.5%)
AMBAC Inc......................................... 102,000 $ 4,500,750
Capital Re Corp................................... 337,500 10,125,000
First Colony Corp................................. 112,400 2,922,400
Fremont General Corp.............................. 55,200 1,904,400
Mid Ocean Limited*................................ 39,300 1,463,925
MMI Companies, Inc................................ 207,600 4,878,600
Partner Re Limited*............................... 128,900 3,391,681
RenaissanceRe Holdings Ltd. (a)................... 61,100 1,672,613
USF&G Corp........................................ 68,000 1,173,000
------------
32,032,369
------------
REAL ESTATE INVESTMENT TRUSTS (4.9%)
Associated Estates Realty Corp.................... 46,200 889,350
Bay Apartment Communities, Inc.................... 31,100 676,425
Cali Realty Corp.................................. 71,900 1,420,025
Capstone Capital Trust Inc........................ 83,100 1,537,350
CenterPoint Properties Corp....................... 49,900 1,110,275
Chelsea GCA Realty, Inc........................... 55,700 1,552,638
Colonial Properties Trust......................... 43,400 1,068,725
Developers Diversified Realty Corp................ 64,500 1,822,125
Gables Residential Trust.......................... 24,200 532,400
Health & Retirement Property Trust................ 132,400 2,151,500
Healthcare Realty Trust, Inc...................... 145,400 3,017,050
Home Properties of New York, Inc.................. 52,500 885,937
Hospitality Properties Trust...................... 26,500 692,312
Liberty Property Trust............................ 63,100 1,230,450
MerryLand & Investment Company, Inc............... 39,500 873,937
ROC Communities, Inc.............................. 94,000 2,103,250
Security Capital Industrial Trust................. 100,600 1,672,475
Security Capital Pacific Trust.................... 174,700 3,362,975
Sovran Self Storage, Inc.......................... 43,900 1,092,012
Starwood Lodging Trust............................ 60,100 1,660,262
Storage Trust Realty.............................. 71,900 1,446,987
Summit Properties, Inc............................ 38,900 739,100
Sun Commodities, Inc.............................. 31,700 792,500
Vornado Realty Trust.............................. 35,100 1,246,050
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
FINANCE (CONTINUED)
Wellsford Residential Property Trust.............. 44,500 $ 928,937
------------
34,505,047
------------
Total Finance..................................... 130,026,850
------------
HEALTHCARE (10.0%)
BIOTECHNOLOGY (3.3%)
Allergan, Inc..................................... 45,900 1,422,900
Athena Neurosciences, Inc. (a).................... 129,800 1,184,425
GeneMedicine, Inc. (a)............................ 68,100 449,034
Genzyme Corp. (a)................................. 26,100 1,709,550
Human Genome Sciences, Inc. (a)................... 28,600 772,200
Incyte Pharmaceuticals, Inc. (a).................. 88,700 1,574,425
IVAX Corp......................................... 52,700 1,403,138
Myriad Genetics, Inc. (a)......................... 14,600 456,250
Neurogen Corp. (a)................................ 45,800 950,350
Norland Medical Systems (a)....................... 10,800 230,850
North American Biologicals, Inc. (a).............. 197,565 1,876,867
Northfield Laboratories, Inc. (a)................. 12,300 202,950
Oncor, Inc. (a)................................... 142,400 836,600
Perseptive Biosystems, Inc. (a)................... 359,600 3,371,250
SangStat Medical Corp. (a)........................ 104,300 814,844
Sequana Therapeutics, Inc. (a).................... 66,300 770,738
Somatogen, Inc. (a)............................... 90,100 1,238,875
Targeted Genetics Corp. (a)....................... 108,400 562,325
Vertex Pharmaceuticals, Inc. (a).................. 101,500 2,061,719
Vical, Inc. (a)................................... 124,800 1,162,200
------------
23,051,490
------------
HEALTH SERVICES (4.9%)
Advocat, Inc. (a)................................. 156,300 1,621,612
American Oncology Resources, Inc. (a)............. 34,100 1,227,600
Apria Healthcare Group, Inc. (a).................. 179,500 5,452,312
Caremark International, Inc....................... 50,000 981,250
Enterprise Systems, Inc. (a)...................... 6,700 210,213
HCIA, Inc. (a).................................... 19,900 897,987
Health Care & Retirement Corp. (a)................ 173,600 5,815,600
Health Management Associates, Inc. Class A (a).... 243,350 6,448,775
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
HEALTHCARE (CONTINUED)
Mariner Health Group, Inc. (a).................... 253,000 $ 3,368,063
Owens & Minor, Inc. Holding Co.................... 243,200 3,161,600
Physician Sales & Services, Inc. (a).............. 35,500 678,937
Sierra Health Services, Inc. (a).................. 24,200 792,550
Sterling House Corp. (a).......................... 10,900 121,263
Summit Care Corp. (a)............................. 147,000 3,307,500
Total Renal Care Holdings, Inc. (a)............... 22,000 591,250
Vivra, Inc. (a)................................... 3,800 86,450
------------
34,762,962
------------
HOSPITAL SUPPLIES (1.8%)
CellPro, Inc. (a)................................. 203,000 2,537,500
Fresenius USA, Inc. (a)........................... 241,900 4,172,775
InStent, Inc. (a)................................. 62,400 998,400
KeraVision, Inc. (a).............................. 109,300 1,222,794
Metra Biosystems, Inc. (a)........................ 52,300 1,098,300
Research Industries Corp. (a)..................... 26,100 721,012
Summit Medical Systems (a)........................ 4,700 105,456
Vital Signs, Inc.................................. 102,700 2,066,837
------------
12,923,074
------------
Total Healthcare.................................. 70,737,526
------------
INDUSTRIAL PRODUCTS & SERVICES (11.0%)
CAPITAL GOODS (0.3%)
Gardner Denver Machinery, Inc. (a)................ 147,100 2,427,150
------------
COMMERCIAL SERVICES (2.0%)
Advo, Inc......................................... 80,700 2,138,550
Banta Corp........................................ 139,800 6,081,300
Consolidated Graphics, Inc. (a)................... 121,100 2,936,675
Emmis Broadcasting Corp. Class A (a).............. 22,000 594,000
Leasing Solutions, Inc. (a)....................... 22,800 360,525
Measurex Corp..................................... 22,400 627,200
Robert Half International, Inc. (a)............... 34,700 1,392,337
------------
14,130,587
------------
DIVERSIFIED MANUFACTURING (3.2%)
Apogee Enterprises, Inc........................... 43,200 642,600
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (CONTINUED)
Brady (WH) Co., Class A Non-Voting................ 56,400 $ 4,314,600
Collins & Aikman Corp. (a)........................ 160,200 1,021,275
Greenfield Industries, Inc........................ 33,800 1,043,575
Kaydon Corp....................................... 130,327 3,877,228
Kuhlman Corp...................................... 44,600 512,900
Libbey, Inc....................................... 73,300 1,658,412
PACCAR, Inc....................................... 103,500 4,554,000
Regal-Beloit Corp................................. 21,600 475,200
Trinova Corp...................................... 27,300 839,475
USG Corp. (a)..................................... 81,100 2,382,313
Whittaker Corp. (a)............................... 35,300 626,575
Worldtex, Inc. (a)................................ 52,000 292,500
Zoltek Companies, Inc. (a)........................ 22,100 310,781
------------
22,551,434
------------
ELECTRICAL EQUIPMENT (0.8%)
Charter Power Systems, Inc........................ 24,200 595,925
Encore Wire Corp. (a)............................. 76,200 790,575
Grainger (W.W.), Inc.............................. 54,900 3,671,437
Integrated Device Technology, Inc. (a)............ 35,600 602,975
------------
5,660,912
------------
MACHINERY (3.3%)
Applied Power, Inc. Class A....................... 145,600 4,750,200
Black & Decker Corp............................... 280,500 10,483,688
Briggs & Stratton Corp............................ 16,000 666,000
Coltec Industries, Inc. (a)....................... 325,500 3,580,500
Intermet Corp. (a)................................ 319,700 3,856,381
------------
23,336,769
------------
POLLUTION CONTROL (1.4%)
Dames & Moore, Inc................................ 426,000 5,591,250
Mid-American Waste Systems, Inc. (a).............. 225,400 901,600
Sevenson Environmental Services, Inc.............. 34,300 604,538
Tetra Technologies, Inc. (a)...................... 164,700 2,717,550
------------
9,814,938
------------
Total Industrial Products & Services.............. 77,921,790
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
TECHNOLOGY (17.3%)
AEROSPACE (0.8%)
Orbital Sciences Corp. (a)........................ 156,600 $ 2,466,450
Rohr Industries, Inc. (a)......................... 230,500 3,371,062
------------
5,837,512
------------
COMPUTER-PERIPHERALS (2.6%)
Alantec Corporation (a)........................... 73,500 3,031,875
Boca Research, Inc. (a)........................... 41,300 1,197,700
FEI Co. (a)....................................... 59,200 677,100
Mylex Corp. (a)................................... 60,700 1,145,713
Network Appliance, Inc. (a)....................... 12,200 371,337
Planar Systems, Inc. (a).......................... 191,000 2,960,500
Quantum Corp. (a)................................. 144,100 2,692,868
Read-Rite Corp. (a)............................... 221,500 6,063,562
------------
18,140,655
------------
COMPUTER-SOFTWARE (4.8%)
Arbor Software Corporation (a).................... 3,500 150,500
Astea International, Inc. (a)..................... 6,300 130,725
Autodesk, Inc..................................... 76,700 2,713,262
Avid Technology, Inc. (a)......................... 161,100 6,383,587
BMC Software, Inc. (a)............................ 37,200 1,576,350
Checkfree Corp. (a)............................... 23,300 583,956
Clarify, Inc. (a)................................. 5,500 153,313
CyCare Systems, Inc. (a).......................... 1,900 53,200
DST Systems, Inc. (a)............................. 31,800 918,225
Fractal Design Corp. (a).......................... 5,400 78,300
Inso Corp. (a).................................... 36,500 1,469,125
Logic Works, Inc. (a)............................. 21,100 305,950
Microtec Research, Inc. (a)....................... 55,400 754,825
On Technology Corp. (a)........................... 22,100 325,975
Phoenix Technologies Ltd. (a)..................... 101,000 1,237,250
Pinnacle Systems, Inc. (a)........................ 49,500 1,621,125
Policy Management Systems Corp. (a)............... 62,900 2,814,775
Quarterdeck Corp. (a)............................. 39,400 1,260,800
Rational Software Corp. (a)....................... 150,500 2,643,156
Sybase, Inc. (a).................................. 43,400 1,527,138
Symantec Corp. (a)................................ 191,000 5,073,438
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
SYNC Research, Inc. (a)........................... 5,000 $ 252,500
Vantive Corp. (a)................................. 40,800 1,030,200
Verity, Inc. (a).................................. 25,700 1,278,575
------------
34,336,250
------------
ELECTRONICS (1.5%)
Amphenol Corp. (a)................................ 40,300 906,750
Dynamics Corp. of America......................... 20,200 469,650
General Signal Corp............................... 113,600 3,663,600
Input/Output, Inc. (a)............................ 32,900 1,517,513
Nimbus CD International, Inc. (a)................. 111,700 984,356
Symbol Technologies, Inc. (a)..................... 56,700 2,182,950
Vishay Intertechnology, Inc. (a).................. 27,900 976,500
------------
10,701,319
------------
INFORMATION PROCESSING (0.2%)
IDX Systems Corp. (a)............................. 9,700 263,719
Network Computing Devices, Inc. (a)............... 136,500 1,151,719
------------
1,415,438
------------
SEMICONDUCTORS (2.1%)
Advanced Technology Materials, Inc. (a)........... 176,400 1,819,125
Asyst Technologies, Inc. (a)...................... 21,300 934,537
Brooktree Corp. (a)............................... 162,700 2,084,593
Cooper & Chyan Technology, Inc. (a)............... 3,500 47,906
Credence Systems Corp. (a)........................ 49,800 1,490,887
Mentor Graphics Corp. (a)......................... 81,200 1,629,075
Micrel, Inc. (a).................................. 188,500 3,180,937
Micrion Corp. (a)................................. 70,300 834,812
Microchip Technology, Inc. (a).................... 30,400 1,223,600
SDL, Inc. (a)..................................... 82,300 1,810,600
------------
15,056,072
------------
TELECOMMUNICATIONS-EQUIPMENT (5.3%)
Andrew Corp. (a).................................. 17,000 737,375
Applied Digital Access, Inc. (a).................. 153,900 1,846,800
BroadBand Technologies, Inc. (a).................. 40,000 695,000
Ceridian Corp. (a)................................ 26,000 1,092,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Comdial Corp. (a)................................. 199,100 $ 2,065,662
Digital Microwave Corp. (a)....................... 11,000 134,750
EchoStar Communications Corp. Class A (a)......... 14,200 216,550
Harris Corp....................................... 103,100 5,941,137
Heartland Wireless Communications, Inc. (a)....... 58,400 1,635,200
International Cabletel, Inc. (a).................. 40,000 1,035,000
Metrocall, Inc. (a)............................... 40,000 970,000
MFS Communications Co. (a)........................ 263 12,086
MFS Communications Co. (Depository Shares) (a).... 15,100 643,638
Mobilemedia Corp. (a)............................. 106,000 2,729,500
Network General Corp. (a)......................... 81,500 3,428,093
Scientific-Atlanta, Inc........................... 435,300 6,910,387
Security Dynamics Technologies, Inc. (a).......... 57,400 2,848,475
Spectrian Corp. (a)............................... 46,100 1,089,112
TelCom Semiconductor, Inc. (a).................... 51,100 421,575
Wireless One, Inc. (a)............................ 23,000 359,375
XcelleNet, Inc. (a)............................... 134,900 2,546,237
------------
37,357,952
------------
Total Technology.................................. 122,845,198
------------
TRANSPORTATION (2.0%)
AIRLINES (1.2%)
Mesa Airlines, Inc. (a)........................... 934,500 8,527,312
------------
TRUCKING & FREIGHT CARRIERS (0.8%)
American Freightways Corp. (a).................... 38,500 529,375
Heartland Express, Inc. (a)....................... 31,900 957,000
USA Truck, Inc. (a)............................... 31,400 351,287
Werner Enterprises, Inc........................... 179,300 3,787,713
------------
5,625,375
------------
Total Transportation.............................. 14,152,687
------------
UTILITIES (5.8%)
ELECTRIC (3.4%)
California Energy Co., Inc. (a)................... 86,800 1,670,900
Central Hudson Gas & Electric Corp................ 160,500 4,875,188
Central Louisiana Electric........................ 57,700 1,478,563
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------------- ------------
<S> <C> <C>
UTILITIES (CONTINUED)
Illinova Corp..................................... 50,100 $ 1,421,588
Maine Public Service Co........................... 38,100 800,100
Pinnacle West Capital Corp........................ 172,600 4,703,350
Potomac Electric Power Co......................... 117,100 2,868,950
Washington Water Power Co......................... 259,300 4,570,163
Western Resource, Inc............................. 50,200 1,662,875
------------
24,051,677
------------
NATURAL GAS (1.2%)
Atlanta Gas Light Co.............................. 40,300 1,541,475
Brooklyn Union Gas Co............................. 83,100 2,347,575
El Paso Natural Gas Co............................ 32,900 1,011,675
Providence Energy Corp............................ 86,300 1,413,163
United Cities Gas Co.............................. 109,100 1,827,425
------------
8,141,313
------------
WATER (1.2%)
American Water Works Inc.......................... 149,100 4,789,837
Aquarion Co....................................... 25,600 598,400
E'Town Corp....................................... 36,600 1,075,125
SJW Corp.......................................... 9,600 333,600
Southern California Water Co...................... 80,500 1,519,437
------------
8,316,399
------------
Total Utilities................................... 40,509,389
------------
TOTAL COMMON STOCKS
(COST $593,534,907)............................. 652,844,338
------------
CONVERTIBLE PREFERRED STOCK (0.0+%)
TECHNOLOGY - ELECTRONICS (0.0+%)
Comptronix Corp., Series A........................ 13 43
------------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $20)...................................... 43
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------- ------------
<S> <C> <C>
CORPORATE OBLIGATION (0.3%)
Boston Chicken, Inc., 4.50% due 02/01/04, callable
02/01/96........................................ $ 1,782,000 $ 2,227,500
------------
TOTAL CORPORATE OBLIGATION
(COST $1,537,687)............................... 2,227,500
------------
SHORT TERM INVESTMENT (9.1%)
REPURCHASE AGREEMENT (9.1%)
Goldman Sachs 5.85% dated 11/30/95 due 12/01/95,
proceeds $64,070,410 (collateralized by U.S.
Treasury Notes, 4.375% - 7.750% due 2/29/96 -
8/15/02 valued at $52,465,426 and U.S. Treasury
Bonds, 8.750% - 12.750% due 11/15/10 - 5/15/20
valued at $12,876,556).......................... 64,060,000 64,060,000
------------
64,060,000
TOTAL SHORT TERM INVESTMENT
(COST $64,060,000)................................
------------
719,131,881
TOTAL INVESTMENTS (101.8%) (COST $659,132,614)....
(12,980,500)
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.8%).....
------------
$706,151,381
NET ASSETS (100.0%)...............................
------------
------------
</TABLE>
(a) Non-income producing security.
* Foreign Security.
+ Less than 0.1%
(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.
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $659,132,614) $ 719,131,881
Receivable for Investments Sold 3,451,913
Dividends Receivable 778,585
Interest Receivable 36,994
Prepaid Expenses and Other Assets 7,628
Cash 20
-------------
Total Assets 723,407,021
-------------
LIABILITIES
Payable for Securities Purchased 15,903,208
Advisory Fee Payable 1,233,644
Administration Fee Payable 3,375
Fund Services Fee Payable 2,866
Accrued Expenses 112,547
-------------
Total Liabilities 17,255,640
-------------
NET ASSETS
Applicable to Investors' Beneficial Interests $ 706,151,381
-------------
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Withholding Tax of
$29,223) $ 5,237,234
Interest Income 1,430,143
-------------
Investment Income 6,667,377
EXPENSES
Advisory Fee
$ 2,027,852
Financial and Fund Accounting Services Fee
64,301
Fund Services Fee
27,539
Professional Fees
23,986
Administration Fee
19,884
Trustees' Fees and Expenses
7,631
Printing Fee
6,017
Custodian Fees and Expenses
5,774
Insurance Fee
4,024
Miscellaneous
1,309
-------------
Total Expenses (2,188,317)
-------------
NET INVESTMENT INCOME 4,479,060
NET REALIZED GAIN ON INVESTMENTS 38,420,532
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 54,248,739
-------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 97,148,331
-------------
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
NOVEMBER 30, FOR THE FISCAL
1995 YEAR ENDED
(UNAUDITED) MAY 31, 1995
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 4,479,060 $ 7,063,319
Net Realized Gain on Investments 38,420,532 28,881,980
Net Change in Unrealized Appreciation of
Investments 54,248,739 31,665,894
---------------- ----------------
Net Increase in Net Assets Resulting from
Operations 97,148,331 67,611,193
---------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions 96,490,192 162,456,578
Withdrawals (108,540,351) (243,561,586)
---------------- ----------------
Net Decrease from Investors' Transactions (12,050,159) (81,105,008)
---------------- ----------------
Total Increase (Decrease) in Net Assets 85,098,172 (13,493,815)
NET ASSETS
Beginning of Period 621,053,209 634,547,024
---------------- ----------------
End of Period $ 706,151,381 $ 621,053,209
---------------- ----------------
---------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 19, 1993
MONTHS ENDED (COMMENCEMENT OF
NOVEMBER 30, FOR THE FISCAL OPERATIONS)
1995 YEAR ENDED THROUGH
(UNAUDITED) MAY 31, 1995 MAY 31, 1994
---------------- -------------- ----------------
<S> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.65%(a) 0.71% 0.72%(a)
Net Investment Income 1.33%(a) 1.21% 0.99%(a)
Portfolio Turnover 42% 75% 97%+
</TABLE>
- ------------------------
(a) Annualized.
+ Portfolio turnover is for the twelve month period ended May 31, 1994, and
includes the portfolio activity of the Portfolio's predecessor entity, The
Pierpont Capital Appreciation Fund, for the period June 1, 1993 to July 18,
1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Small Company Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, as a no-load, diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Portfolio commenced operations on July 19, 1993 and
received a contribution of certain assets and liabilities, including securities,
with a value of $200,358,103 on that date from The Pierpont Capital Appreciation
Fund in exchange for a beneficial interest in the Portfolio. At that date, net
unrealized appreciation of $29,458,073 was included in the contributed
securities. The Declaration of Trust permits the Trustees to issue an unlimited
number of beneficial interests in the Portfolio.
The following is a summary of the significant accounting policies of the
Portfolio:
a)The value of each security for which readily available market quotations
exists is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the 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 intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be subject to
taxation on its share of the Portfolio's ordinary income and capital
gains. It is intended that the Portfolio's assets will be managed in such
a way that an investor in the Portfolio will be able to satisfy the
requirements of Subchapter M of the Internal Revenue Code.
d)The Portfolio's custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Portfolio. It is the
policy of the Portfolio to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the
34
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
Portfolio has the right to liquidate the collateral and apply the proceeds
in satisfaction of the obligation. Under certain circumstances, in the
event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject
to legal proceedings.
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an investment advisory agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the investment
advisory agreement, the Portfolio pays Morgan at an annual rate of 0.60%
of the Portfolio's average daily net assets. For the six months ended
November 30, 1995, this fee amounted to $2,027,852.
b)The Portfolio retains Signature Broker-Dealer Services, Inc. ("Signature")
to serve as Administrator and exclusive placement agent. Signature
provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the Portfolio and pays the compensation of the Portfolio's
officers affiliated with Signature. The agreement provides for a fee to be
paid to Signature at an annual rate determined by the following schedule:
0.01% of the first $1 billion of the aggregate average daily net assets of
the Portfolio and the other portfolios subject to the Administrative
Agreement, 0.008% of the next $2 billion of such net assets, 0.006% of the
next $2 billion of such net assets, and 0.004% of such net assets in
excess of $5 billion. The daily equivalent of the fee rate is applied to
the daily net assets of the Portfolio. For the six months ended November
30, 1995, Signature's fee for these services amounted to $19,884.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged would be equal to the Portfolio's proportionate share
of a complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios subject to this agreement (the "Master
Portfolios") and 0.01% on the aggregate average daily net assets of the
Master Portfolios' in excess of $7 billion. The portion of this charge
payable by the Portfolio is determined by the proportionate share its net
assets bear to the total net assets of the The Pierpont Funds, The JPM
Institutional Funds, The JPM Advisor Funds and the Master Portfolios.
c)Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement ("Services Agreement") with Morgan under which Morgan
received a fee for overseeing certain aspects of the administration and
operation of the Portfolio and which was also designed to provide an
expense limit for certain expenses of the Portfolio. This fee was
calculated at 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. For the three months ended
August 31, 1995, the fee for these services amounted to $64,301. From
September 1, 1995 until December 28, 1995, an interim agreement between
the Portfolio and Morgan provided for the continuation of the oversight
functions that were outlined under the prior agreement and that Morgan
should bear all of its expenses incurred in connection with these
services.
35
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement with Morgan under which Morgan is responsible for
overseeing certain aspects of the administration and operation of the
Portfolio. Under the Agreement, the Portfolio has agreed to pay Morgan a
fee equal to its proportionate share of an annual complex-wide charge.
This charge is calculated daily based on the aggregate net assets of the
Master Portfolios, in accordance with the following annual schedule: 0.06%
on the first $7 billion of the Master Portfolios' aggregate net assets and
0.03% of the aggregate net assets in excess of $7 billion. The portion of
this charge payable by the Portfolio is determined by the proportionate
share that the Portfolio's net assets bear to the net assets of the Master
Portfolios and other investors in the Master Portfolios for which Morgan
provides similar services.
d)The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its services
amounted to $27,539 for the six months ended November 30, 1995.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Pierpont Funds, The JPM Institutional Funds, and their
corresponding Portfolios. The Trustees' Fees and Expenses shown in the
financial statements represents the Portfolio's allocated portion of the
total fees and expenses. The Trustee who serves as Chairman and Cheif
Executive Officer of these Funds and Portfolios also serves as Chairman of
Group and received compensation and employee benefits from Group in his
role as Group's Chairman. The allocated portion of such compensation and
benefits included in the Fund Services Fee shown in the financial
statements was $3,500.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended November 30, 1995 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- -------------- --------------
<S> <C>
$260,687,543 $267,183,455
</TABLE>
36
<PAGE>
THE PIERPONT MONEY MARKET FUND
THE PIERPONT TAX EXEMPT MONEY MARKET FUND
THE PIERPONT TREASURY MONEY MARKET FUND The
THE PIERPONT SHORT TERM BOND FUND Pierpont
THE PIERPONT BOND FUND Capital
THE PIERPONT TAX EXEMPT BOND FUND Appreciation
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND 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 SEMI-ANNUAL REPORT
OF FUNDS CAN HELP YOU PLAN FOR YOUR FUTURE, CALL NOVEMBER 30, 1995
J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
