<PAGE>
LETTER TO THE SHAREHOLDERS OF THE PIERPONT EQUITY FUND
January 15, 1996
Dear Shareholder:
Investors will long remember the spectacular stock market performance of 1995.
Corporate profits continued to grow during the year despite slowing economic
growth, and the Dow Jones Industrial Average topped 5,000 for the first time in
its history. During The Pierpont Equity Fund's semi-annual reporting period, the
S&P 500 returned 14.89%. In this bullish environment, The Pierpont Equity Fund
returned 11.33%, making it a strong participant in the market's rally. The Fund
also produced high absolute returns for the 12 months ended November 30, 1995,
returning 31.48%.
Viewed from a competitive standpoint, the strengths of the Fund's active
management, investment strategy, and risk controls become clearer. The Fund
outperformed the Morningstar Growth & Income Funds Average for the one- ,
three-, five- , and ten-year periods ended November 30, 1995 (see accompanying
table on page 6), even though it slightly underperformed this average for the
semi-annual period.
Why did the Fund perform well in absolute terms yet lag the S&P 500 and
Morningstar for the six-month period? Will the Fund be more on track in
achieving its objectives going forward? We believe both questions have a simple
answer -- the Fund is built for distance, not for speed. In other words, the
Fund's value driven investment philosophy may at times run counter to the
current market momentum, as it did during the semi-annual period, but we believe
this strategy will continue to be beneficial over the long term.
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
----------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS. . . 1 SPECIAL FUND-BASED SERVICES. .7
FUND FACTS AND HIGHLIGHTS . . . 5 FINANCIAL STATEMENTS . . . . .9
FUND PERFORMANCE. . . . . . . . 6
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1
<PAGE>
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.
We believe it is prudent to practice a disciplined and rigorous form of risk
control. For example, the Portfolio's sector weightings are generally held close
to those of the market -- typically within three percentage points -- reflecting
our belief that our information advantage comes more at the individual stock
than at the sector level.
THE MARKET: LARGE GAINS WITH A NARROW FOCUS
While the U.S. stock market continued to set record highs, these returns masked
some of the narrow buying that occurred during the six month period. Continuing
a trend that began at the end of 1994, economic uncertainty caused investors to
focus mainly on the "safe haven" status of the largest 50 stocks within the S&P
500, which our research had deemed to be either fairly valued or overvalued.
Another 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,
mergers, consolidations, and a favorable interest rate environment combined to
help 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 concentrated in the largest stocks,
signs existed that buying should begin to broaden.
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.
Actually, many of our holdings that "detracted" from performance substantially
rose in value, just not as much as other stocks in their respective S&P sectors.
Another phenomenon that occurred during the period is that NOT owning a
particular stock in the S&P 500 either added to or detracted from performance
depending on how the stock performed relative to its peers. In other words,
there are stocks that may be "mistakes" or "missed opportunities" in the short
run that can negatively impact performance, which return to their fundamental
values over time. Intel, a large technology stock, is an extreme example of
this, as it led the technology sector, peaking in the summer. We believed the
stock was overvalued and therefore did not hold it during its rally. However, we
believe this was a prudent decision over the longer term as it has declined in
value since August.
One example of a stock that added value to relative performance during the
period and illustrates our disciplined investment approach was technology
company BAY NETWORKS INC. Although it had declined earlier in the year based on
earnings that were below expectations, we held it based on its long-term
earnings poten-
2
<PAGE>
tial, the competitiveness of its product line, and strength of its market
position. We were also impressed with Bay Networks' flexible management and
business plan, as it was responding to the market by moving out of semi-
conductors into networking services. The company's stock rose substantially
during the period after several good product announcements and increased demand
for its networking services. In addition, near the end of the period, the
company announced strong revenue growth.
- --------------------------------------------------------------------------------
THE VALUE OF LONG-TERM U.S. INVESTING
Although historical studies can only report on past results and do not guarantee
what will happen in the future, they indicate that from 1946 to 1994, investors
who participated in the large-cap U.S. market over a one-year time horizon would
have attained a positive return as high as 61%, or a negative return as low as
- -39%. By extending their time horizon to ten years during the same period,
investors would have experienced no negative returns at far lower levels of
volatility. Thus it may be said that a diversified large-cap U.S. equity
portfolio held for the long term is likely to enhance an investor's probability
of achieving positive returns.
THE REDUCTION OF RISK OVER TIME
(1946-1994)
1 YEAR 3 YEARS 5 YEARS 10 YEARS
high 61 high 33 high 30 high 21
low -39 low -11 low -4 low N/A
The chart above shows the range of returns for each designated holding period.
As holding periods are extended, the variance among returns is reduced.
SOURCE: DATA DERIVED FROM IBBOTSON ASSOCIATES. ROLLING TIME PERIODS ARE SHOWN.
RESULTS ASSUME A PORTFOLIO CONSISTING OF THE S&P 500 INDEX, WITH REINVESTMENT OF
DIVIDENDS.
- --------------------------------------------------------------------------------
A stock in the Portfolio that detracted from relative performance was COLTEC
INDUSTRIES, INC. We bought Coltec, a diversified manufacturing company, based on
its long-term value. The company's stock declined during the third quarter after
an announcement that its earnings would be disappointing due to continued margin
pressure in its automotive business. We believe this is a short-term setback and
continue to hold Coltec based on its strong long-term fundamentals.
While the Portfolio's sector allocations did not contribute to relative returns
during the period under review, it did help insulate it from the unpredictable
sector swings that occurred. On a longer-term basis, this diversification should
help to improve the consistency of results.
THE YEAR AHEAD: A RETURN TO BROAD-BASED MARKET PERFORMANCE
One of the big questions on investors' minds today is, "Could the U.S. stock
market sustain its 1995 highs in 1996?" While the market in 1996 is unlikely to
match 1995's levels, signs point to broader investor buying, unlike in 1995 when
the largest company stocks and a few sectors like technology and health care
dominated the market for most of the year. This should be a positive environment
for the Portfolio's diversified holdings.
3
<PAGE>
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.
The surprisingly good inflation performance in 1995 suggests that arguments for
continued Fed restraint are diminishing. The likely adoption of budget changes,
long advocated by Fed Chairman Greenspan, also indicates that the risks
associated with a restrictive Fed policy are rising. As a result, 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.
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 Equity Fund seeks to provide a high total return from a portfolio
of selected equity securities. It is designed for investors who want an actively
managed portfolio of selected equity securities that seeks to outperform the S&P
500 Index.
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
6/27/85
- --------------------------------------------------------------------------------
NET ASSETS AS OF 11/30/95
$301,488,951
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/26/95
EXPENSE RATIO
The Fund's annualized expense ratio of 0.81% 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 redemption proceeds from the Fund.
FUND HIGHLIGHTS
ALL DATA AS OF NOVEMBER 30, 1995
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[pie chart]
- CONSUMER 26.1%
- INDUSTRIAL 14.9%
- FINANCIAL 13.1%
- UTILITIES 10.1%
- HEALTHCARE 9.0%
- ENERGY 8.6%
- BASIC INDUSTRIES 5.9%
- TECHNOLOGY 5.5%
- TRANSPORTATION 2.6%
- SHORT TERM AND OTHER 4.2%
LARGEST EQUITY HOLDINGS % OF PORTFOLIO
- --------------------------------------------------------------------------------
COLUMBIA/HCA HEALTHCARE CORP. 2.2%
PHILIP MORRIS 2.2%
AT&T 2.1%
GENERAL MOTORS CORP. 2.1%
HUMANA, INC. 2.0%
1995 FEDERAL TAX NOTICE
During the six months ended November 30, 1995, the Fund paid to shareholders
$0.24 from short-term capital gains and $0.31 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>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
-------------------- -----------------------------------------
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 Equity Fund 5.61% 11.33% 31.48% 13.52% 16.57% 14.71%
S&P 500 Index 8.41% 14.89% 36.98% 15.08% 16.79% 15.20%
Morningstar Growth & Income Fund Avg. 6.46% 13.04% 30.83% 12.88% 15.13% 12.41%
AS OF SEPTEMBER 30, 1995
- ----------------------------------------------------------------- ------------------------------------------
The Pierpont Equity Fund 6.64% 14.67% 23.01% 14.40% 17.21% 15.55%
S&P 500 Index 7.95% 18.25% 29.74% 14.98% 17.23% 16.04%
Morningstar Growth & Income Fund Avg. 7.25% 16.00% 23.49% 13.24% 15.44% 13.18%
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. ALL FUND 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 Pier-pont 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 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 EQUITY
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. All returns assume reinvestment of income and reflect the reimbursement
of certain Fund expenses as described in the Prospectus. Had expenses not been
subsidized, returns would have been lower. The Fund invests all of its
investable assets in The 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.
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 EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Selected U.S. Equity Portfolio ("Portfolio"), at value $301,809,270
Receivable for Shares of Beneficial Interest Sold 12,153
Other Assets 37,665
------------
Total Assets 301,859,088
------------
LIABILITIES
Payable for Shares of Beneficial Interest Redeemed 282,872
Shareholder Servicing Fee Payable 60,233
Administration Fee Payable 6,199
Fund Services Fee Payable 1,203
Accrued Expenses 19,630
------------
Total Liabilities 370,137
------------
NET ASSETS
Applicable to 14,415,497 Shares of Beneficial Interest Outstanding
(par value $0.001, unlimited shares authorized) $301,488,951
------------
------------
Net Asset Value, Offering and Redemption Price Per Share $20.91
------------
------------
ANALYSIS OF NET ASSETS
Paid-in Capital $251,179,112
Undistributed Net Investment Income 2,239,684
Accumulated Net Realized Gain on Investment 16,863,875
Net Unrealized Appreciation of Investment 31,206,280
------------
Net Assets $301,488,951
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE PIERPONT EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Withholding Tax of $15,422) $ 2,899,334
Allocated Interest Income 473,394
Allocated Portfolio Expenses (629,777)
-----------
Net Investment Income Allocated from Portfolio 2,742,951
FUND EXPENSES
Shareholder Servicing Fee $348,806
Financial and Fund Accounting Services Fee 43,122
Administration Fee 36,232
Transfer Agent Fees 30,391
Fund Services Fee 11,321
Printing 10,027
Registration Fees 9,538
Professional Fees 5,997
Trustees' Fees and Expenses 3,074
Insurance 1,620
Miscellaneous 2,423
--------
Total Expenses (502,551)
-----------
NET INVESTMENT INCOME 2,240,400
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 17,296,571
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENT ALLOCATED FROM
PORTFOLIO 10,508,286
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $30,045,257
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE PIERPONT EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
NOVEMBER 30, 1995 YEAR ENDED
(UNAUDITED) MAY 31, 1995
------------------ --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 2,240,400 $ 4,157,296
Net Realized Gain on Investment Allocated from Portfolio 17,296,571 18,152,807
Net Change in Unrealized Appreciation of Investment Allocated from Portfolio 10,508,286 12,147,358
------------------ --------------
Net Increase in Net Assets Resulting from Operations 30,045,257 34,457,461
------------------ --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1,519,919) (3,540,710)
Net Realized Gain on Investment (7,373,452) (26,996,501)
------------------ --------------
Total Distributions to Shareholders (8,893,371) (30,537,211)
------------------ --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 34,017,465 69,158,419
Reinvestment of Dividends and Distributions 8,378,905 28,650,625
Cost of Shares of Beneficial Interest Redeemed (21,397,075) (73,697,504)
------------------ --------------
Net Increase from Transactions in Shares of Beneficial Interest 20,999,295 24,111,540
------------------ --------------
Total Increase in Net Assets 42,151,181 28,031,790
NET ASSETS
Beginning of Period 259,337,770 231,305,980
------------------ --------------
End of Period (including undistributed net investment income of $2,239,684
and $1,519,203, respectively) $ 301,488,951 $ 259,337,770
------------------ --------------
------------------ --------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE PIERPONT EQUITY 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 $ 19.42 $ 19.38 $ 19.30 $ 19.02 $ 18.21 $ 16.51
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.15 0.32 0.27 0.38 0.37 0.44
Net Realized and Unrealized Gain on
Investments 2.00 2.17 1.32 1.35 2.13 1.90
-------- -------- -------- -------- -------- -------
Total from Investment Operations 2.15 2.49 1.59 1.73 2.50 2.34
-------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.11) (0.28) (0.29) (0.36) (0.40) (0.45)
Net Realized Gains (0.55) (2.17) (1.22) (1.09) (1.29) (0.19)
-------- -------- -------- -------- -------- -------
Total Distributions (0.66) (2.45) (1.51) (1.45) (1.69) (0.64)
-------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 20.91 $ 19.42 $ 19.38 $ 19.30 $ 19.02 $ 18.21
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
Total Return 11.33%+ 15.11% 8.54% 10.02% 14.60% 14.81%
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $301,489 $259,338 $231,306 $202,474 $109,246 $55,144
Ratios to Average Net Assets:
Expenses 0.81%(a) 0.90% 0.90% 0.90% 0.90% 0.91%
Net Investment Income 1.61%(a) 1.74% 1.43% 2.20% 2.16% 2.81%
Decrease Reflected in above Expense
Ratio due to Expense Reimbursements
from Morgan - 0.01% 0.03% 0.08% 0.19% 0.38%
Portfolio Turnover - - 10%(b) 60% 99% 43%
</TABLE>
- ------------------------
+ Not annualized.
(a) Annualized.
(b)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
Selected U.S. Equity Portfolio.
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE PIERPONT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Pierpont Equity 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 Selected U.S. Equity
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 (43% 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.
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
13
<PAGE>
THE PIERPONT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
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 $36,232.
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, based on the percentages described
below, for overseeing certain aspects of the administration and operation
of the Fund and which was also designed to provide an expense limit for
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 $43,122. 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 expenses incurred in connection
with these services. In addition, Morgan 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, 1995. There was no reimbursement necessary for the period
June 1, 1995 through September 30, 1995.
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 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.
14
<PAGE>
THE PIERPONT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
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
$348,806.
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 six
months ended November 30, 1995, the Fund's allocated portion of Group's
costs in performing its services amounted to $11,321.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Pierpont Funds, The JPM Institutional Funds and their
corresponding Portfolios. The Trustees' Fees and Expenses shown in the
financial statements represent the 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
$1,400.
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 1,705,093 3,793,004
Reinvestment of dividends and distributions 430,792 1,679,688
Shares redeemed (1,071,647) (4,056,832)
---------- ------------
Net increase 1,064,238 1,415,860
---------- ------------
---------- ------------
</TABLE>
15
<PAGE>
The Selected U.S. Equity Portfolio
Semi-Annual Report November 30, 1995
(unaudited)
(The following pages should be read in conjunction
with The Pierpont Equity Fund
Semi-Annual Financial Statements)
16
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------------------------------------- ------- ------------
<S> <C> <C>
COMMON STOCKS (95.1%)
BASIC INDUSTRIES (6.0%)
CHEMICALS (3.6%)
Du Pont (E.I.) de Nemours & Co., Inc.............. 102,200 $ 6,796,300
Union Carbide Corp................................ 225,920 8,952,080
Wellman Inc....................................... 354,900 9,094,312
------------
24,842,692
------------
METALS & MINING (1.7%)
Aluminum Co. of America........................... 60,000 3,510,000
Freeport McMoRan Copper & Gold Inc., Cl. A........ 93,960 2,536,920
Freeport McMoRan Copper & Gold Inc., Cl. B........ 56,202 1,524,479
Reynolds Metals Co................................ 71,200 4,111,800
------------
11,683,199
------------
PAPER AND FOREST PRODUCTS (0.7%)
Buckeye Cellulose Corp. (a)....................... 90,700 1,916,037
International Paper Co............................ 600 22,875
Mead Corp......................................... 52,900 3,021,912
------------
4,960,824
------------
TOTAL BASIC INDUSTRIES........................ 41,486,715
------------
CONSUMER GOODS & SERVICES (26.2%)
AUTOMOTIVE (2.1%)
General Motors Corp............................... 300,600 14,579,100
------------
BEVERAGES, FOOD, SOAP & TOBACCO (7.0%)
Archer-Daniels-Midland Co......................... 270,470 4,665,608
CPC International, Inc............................ 71,200 4,895,000
General Mills Inc................................. 116,500 6,422,063
Nabisco Holdings Corp.- Cl. A..................... 209,100 5,907,075
PepsiCo., Inc..................................... 215,300 11,895,325
Philip Morris Cos., Inc........................... 172,300 15,119,325
------------
48,904,396
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------------------------------------- ------- ------------
<S> <C> <C>
CONSUMER GOODS & SERVICES (CONTINUED)
ENTERTAINMENT, LEISURE & MEDIA (5.2%)
Circus Circus Enterprises Inc. (a)................ 418,000 $ 11,599,500
International Game Technology..................... 355,900 4,404,263
Tele-Communications Inc., Liberty Media Group
Series A (a).................................... 162 4,516
Tele-Communications Inc., TCI Group Series A
(a)............................................. 705,950 13,104,197
Time Warner, Inc.................................. 170,000 6,800,000
------------
35,912,476
------------
FOOTWEAR APPAREL (0.1%)
Converse Inc. (a)................................. 87,633 361,486
Florsheim Shoe Co. (a)............................ 43,816 186,218
------------
547,704
------------
HOUSEHOLD PRODUCTS (3.0%)
Colgate-Palmolive Co.............................. 105,540 7,730,805
Interco Inc. (a).................................. 479,100 4,012,462
Procter & Gamble Co............................... 106,310 9,182,526
------------
20,925,793
------------
MERCHANDISING (6.3%)
Fruit of the Loom Inc., Cl. A (a)................. 355,450 6,886,844
Hechinger Co., Cl. A.............................. 132,300 595,350
Limited Inc....................................... 515,300 9,210,987
Melville Corp..................................... 196,100 6,103,612
Price Costco Inc. (a)............................. 457,800 7,639,537
Wal Mart Stores, Inc.............................. 565,460 13,571,040
------------
44,007,370
------------
PERSONAL CARE (0.2%)
International Flavors and Fragrances, Inc......... 21,500 1,099,188
------------
PERSONAL SERVICES (1.7%)
Service Corp. International....................... 292,600 11,886,875
------------
RESTAURANTS (0.6%)
Cracker Barrel Old Country Store, Inc............. 245,000 4,578,438
------------
TOTAL CONSUMER GOODS & SERVICES............... 182,441,340
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------------------------------------- ------- ------------
<S> <C> <C>
ENERGY (8.7%)
OIL-EQUIPMENT (0.3%)
Cooper Cameron Corp. (a).......................... 74,712 $ 1,942,512
------------
OIL-PRODUCTION (8.4%)
Anadarko Petroleum Corp........................... 181,300 8,725,063
Chevron Corp...................................... 130,000 6,418,750
Diamond Shamrock Inc.............................. 221,000 5,552,625
Oryx Energy Co. (a)............................... 391,500 5,138,437
Repsol S.A. (ADR)................................. 134,300 4,247,238
Royal Dutch Petroleum Co. (ADR)................... 73,320 9,412,455
Sun Inc........................................... 269,475 7,477,931
Texaco Inc........................................ 154,900 11,462,600
------------
58,435,099
------------
TOTAL ENERGY.................................. 60,377,611
------------
FINANCE (13.1%)
BANKING (8.2%)
BankAmerica Corp.................................. 209,600 13,335,800
Citicorp.......................................... 66,475 4,703,106
Firstar Corp...................................... 69,750 2,859,750
First Union Corp.................................. 125,750 6,869,094
Fleet Financial Group Inc......................... 212,150 8,857,262
Great Western Financial Corp...................... 273,200 6,966,600
NationsBank Corp.................................. 191,647 13,678,805
------------
57,270,417
------------
FINANCIAL SERVICES (1.0%)
Dean Witter Discover & Co......................... 136,600 6,966,600
------------
INSURANCE (3.9%)
AMBAC Inc......................................... 210,300 9,279,488
Providian Corp.................................... 322,500 12,940,312
USLIFE Corp....................................... 167,850 4,846,669
------------
27,066,469
------------
TOTAL FINANCE................................. 91,303,486
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------------------------------------- ------- ------------
HEALTHCARE (9.0%)
<S> <C> <C>
HEALTH SERVICES (4.2%)
Columbia/HCA Healthcare Corp...................... 294,300 $ 15,193,238
Health Care and Retirement Corp. (a).............. 700 23,450
Humana, Inc. (a).................................. 491,700 13,767,600
------------
28,984,288
------------
PHARMACEUTICALS (4.8%)
Alza Corp. Cl. A (a).............................. 140,600 3,233,800
Bausch & Lomb Inc................................. 313,900 11,339,638
Forest Laboratories, Inc. (a)..................... 75,000 3,187,500
Lilly, Eli & Co................................... 97,445 9,695,777
Warner - Lambert Co............................... 71,200 6,354,600
------------
33,811,315
------------
TOTAL HEALTHCARE.............................. 62,795,603
------------
INDUSTRIAL PRODUCTS & SERVICES (14.1%)
CAPITAL GOODS (0.7%)
USG Corp. (a)..................................... 158,800 4,664,750
------------
DIVERSIFIED MANUFACTURING (9.4%)
Allied Signal, Inc................................ 222,000 10,489,500
Coltec Industries, Inc. (a)....................... 433,225 4,765,475
Cooper Industries, Inc............................ 261,939 9,560,774
Cooper Tire & Rubber Co........................... 246,100 6,060,213
General Electric Co............................... 152,700 10,269,075
ITT Corp.......................................... 39,900 4,892,737
Manville Corp. (a)................................ 791,000 10,085,250
Tyco International Ltd............................ 306,200 9,607,025
------------
65,730,049
------------
ELECTRONICS (3.3%)
General Instrument Corp. (a)...................... 198,100 5,076,312
Grainger (W.W.), Inc.............................. 108,200 7,235,875
Harris Corp....................................... 158,200 9,116,275
Magnetek, Inc. (a)................................ 177,900 1,467,675
------------
22,896,137
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------------------------------------- ------- ------------
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (CONTINUED)
ENVIRONMENTAL CONTROL (0.7%)
Wheelabrator Technologies Inc..................... 347,700 $ 5,215,500
------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES.......... 98,506,436
------------
TECHNOLOGY (5.4%)
COMPUTERS-PERIPHERALS (0.5%)
Quantum Corp. (a)................................. 180,000 3,363,750
------------
COMPUTERS-SOFTWARE (0.6%)
Autodesk Inc...................................... 119,500 4,227,313
------------
COMPUTERS-SYSTEMS (0.9%)
International Business Machines................... 68,000 6,570,500
------------
ELECTRONICS (1.4%)
Motorola, Inc..................................... 163,325 10,003,656
------------
INFORMATION PROCESSING (1.5%)
Novell, Inc. (a).................................. 602,275 10,125,748
------------
TELECOMMUNICATIONS-EQUIPMENT (0.5%)
Bay Networks Inc. (a)............................. 70,050 3,147,872
------------
TOTAL TECHNOLOGY.............................. 37,438,839
------------
TRANSPORTATION (2.5%)
RAILROADS (1.9%)
Union Pacific Corp................................ 193,445 13,105,899
------------
TRUCKING AND FREIGHT (0.6%)
Consolidated Freightways Inc...................... 180,400 4,735,500
------------
TOTAL TRANSPORTATION.......................... 17,841,399
------------
UTILITIES (10.1%)
ELECTRIC (3.3%)
Allegheny Power System Inc........................ 249,900 6,934,725
Entergy Corp...................................... 235,500 6,564,563
Illinova Corp..................................... 62,100 1,762,087
SCEcorp........................................... 285,900 4,467,188
Western Resources, Inc............................ 100,000 3,312,500
------------
23,041,063
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- -------------------------------------------------- ------- ------------
<S> <C> <C>
UTILITIES (CONTINUED)
TELEPHONE (6.8%)
AT&T.............................................. 226,070 $ 14,920,620
BellSouth Corp.................................... 226,400 8,801,300
MCI Communications Corp........................... 183,785 4,904,762
Pacific Telesis Group............................. 222,800 6,684,000
Telefonos de Mexico, Cl. L (ADR).................. 95,000 3,135,000
U.S. West, Inc., Communications Group............. 189,180 5,911,875
U.S. West, Inc., Media Group (a).................. 189,180 3,405,240
------------
47,762,797
------------
TOTAL UTILITIES............................... 70,803,860
------------
TOTAL COMMON STOCKS (COST $592,005,549)........... 662,995,289
------------
CONVERTIBLE PREFERRED STOCKS (0.6%)
HEALTHCARE (0.1%)
PHARMACEUTICALS (0.1%)
Gensia Inc., $3.75 (144A)......................... 20,000 260,000
------------
INDUSTRIAL PRODUCTS AND SERVICES (0.5%)
CAPITAL GOODS (0.5%)
Owens Corning LLC., 6.5% (144A)................... 60,000 3,532,500
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$4,081,156)..................................... 3,792,500
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ----------------------------------------------------------------------------------- ------------- --------------
<S> <C> <C>
CONVERTIBLE BONDS (0.4%)
INDUSTRIAL PRODUCTS & SERVICES (0.3%)
POLLUTION CONTROL (0.3%)
WMX Technologies Inc. 2.00% Subordinated Debentures due 01/24/05...................
$ 2,283,000 $ 1,974,795
--------------
TECHNOLOGY (0.1%)
COMPUTERS-PERIPHERALS (0.1%)
Conner Peripherals Inc. 6.50% Subordinated Debentures due 03/01/02.................
994,000 1,043,700
--------------
TOTAL CONVERTIBLE BONDS (COST $2,653,210)..........................................
3,018,495
--------------
SHORT-TERM INVESTMENTS (4.2%)
REPURCHASE AGREEMENT (4.2%)
Goldman Sachs 5.85% dated 11/30/95 due 12/01/95, proceeds $29,110,730
(collateralized by U.S. Treasury Bond, 9.25% due 2/15/06 valued at
$29,688,680).....................................................................
29,106,000 29,106,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $29,106,000)....................................
29,106,000
--------------
TOTAL INVESTMENTS (COST $627,845,915) (100.3%).....................................
698,912,284
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.3%)......................................
(1,770,304)
--------------
NET ASSETS (100.0%)................................................................
$ 697,141,980
--------------
--------------
</TABLE>
(a) Non-income-producing security.
(ADR) - Securities whose value is determined or significantly influenced by
trading on exchanges not located in the United States or Canada. ADR
after the name of a foreign holdings stands for American Depository
Receipt, representing ownership of foreign securities on deposit with a
domestic custodian bank.
144A - Securities restricted for resale to Qualified Institutional Buyers.
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $627,845,915) $698,912,284
Cash 884
Receivable for Investments Sold 3,420,254
Dividends Receivable 1,721,257
Interest Receivable 36,939
Other Assets 6,002
------------
Total Assets 704,097,620
------------
LIABILITIES
Payable for Investments Purchased 6,269,054
Advisory Fee Payable 643,577
Custody Fee Payable 17,416
Fund Services Fee Payable 2,803
Administration Fee Payable 3,285
Accrued Expenses 19,505
------------
Total Liabilities 6,955,640
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $697,141,980
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax of
$35,840) $ 6,761,202
Interest Income 1,105,248
-----------
Investment Income 7,866,450
EXPENSES
Advisory Fee $1,304,403
Financial and Fund Accounting Services Fees 62,181
Fund Services Fee 26,438
Professional Fees 23,744
Custodian Fees and Expenses 14,792
Administration Fee 19,340
Trustees' Fees and Expenses 7,192
Insurance 4,303
Miscellaneous 7,326
----------
Total Expenses (1,469,719)
-----------
NET INVESTMENT INCOME 6,396,731
NET REALIZED GAIN ON INVESTMENTS (including
$1,561,383 net realized gains from futures
contracts) 38,466,915
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS (including $478,918 net unrealized
depreciation from futures contracts) 25,989,003
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $70,852,649
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
NOVEMBER 30, 1995 YEAR ENDED
(UNAUDITED) MAY 31, 1995
------------------ -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 6,396,731 $ 10,756,648
Net Realized Gain on Investments 38,466,915 31,481,163
Net Change in Unrealized Appreciation of Investments 25,989,003 35,361,393
------------------ -------------------
Net Increase in Net Assets Resulting from Operations 70,852,649 77,599,204
------------------ -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 123,607,594 266,876,529
Withdrawals (100,072,047) (179,469,109)
------------------ -------------------
Net Increase from Investors' Transactions 23,535,547 87,407,420
------------------ -------------------
Total Increase in Net Assets 94,388,196 165,006,624
NET ASSETS
Beginning of Period 602,753,784 437,747,160
------------------ -------------------
End of Period $ 697,141,980 $ 602,753,784
------------------ -------------------
------------------ -------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- -------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 19, 1993
MONTHS ENDED FOR THE FISCAL (COMMENCEMENT OF
NOVEMBER 30, 1995 YEAR ENDED OPERATIONS) TO
(UNAUDITED) MAY 31, 1995 MAY 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Ratios to Average Net Assets:
Expenses 0.45%(a) 0.51% 0.53%(a)
Net Investment Income 1.96%(a) 2.12% 1.79%(a)
Portfolio Turnover 31% 71% 76%(b)
</TABLE>
- ------------------------
(a) Annualized.
(b) Portfolio turnover is for the twelve month period ended May 31, 1994, and
includes the portfolio activity of the Portfolio's predecessor entity, The
Pierpont Equity Fund, for the period June 1, 1993 to July 18, 1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
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. 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. The Declaration of Trust permits the Trustees to issue an unlimited
number of beneficial interests in the Portfolio.
The following is a summary of the significant accounting policies of the
Portfolio:
a)The value of each security for which readily available market quotations
exists is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the Portfolio's Trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
portfolio securities with a remaining maturity of less than 60 days are
valued at amortized cost.
b)Futures - A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place will be fixed when
the Portfolio enters into the contract. Upon entering into such a contract
the Portfolio is required to pledge to the broker an amount of cash and/or
securities equal to the minimum "initial margin" requirements of the
exchange. Pursuant to the contract, the Portfolio agrees to receive from
or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation
margin" and are recorded by the Portfolio as unrealized gains or losses.
When the contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time when it was closed. The Portfolio
invests in futures contracts solely for the purpose of hedging its
existing portfolio securities, or securities the Portfolio intends to
purchase, against fluctuations in value caused by changes in prevailing
market values. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible
inability of counterparties to meet the terms of their contracts. Realized
and unrealized gains and losses on futures transactions for the six months
ended November 30, 1995 are included in the Statement of Operations. There
were no open futures contracts as of November 30, 1995.
27
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
c)Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount 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.
d)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.
e)The Portfolio's custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Portfolio. It is the
policy of the Portfolio to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the Portfolio has
the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event
of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an investment advisory agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the investment
advisory agreement, the Portfolio pays Morgan at an annual rate of 0.40%
of the Portfolio's average daily net assets. For the six months ended
November 30, 1995, this fee amounted to $1,304,403.
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 Administration
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 $19,340.
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 Pierpont Funds, The JPM
Institutional Funds, The JPM Advisor Funds and the Master Portfolios.
28
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
NOVEMBER 30, 1995
- --------------------------------------------------------------------------------
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, based on the percentages described below, for overseeing
certain aspects of the administration and operation of the Portfolio and
which was also designed to provide an expense limit for certain expenses
of the Portfolio. This fee was calculated exclusive of the advisory fee,
custody expenses, fund services fee, and brokerage costs, 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 month period ended August 31, 1995, the
fee for these services amounted to $62,181. 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.
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 $26,438 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 represent the Portfolio'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 $3,400.
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>
$ 241,121,597 $ 190,381,534
</TABLE>
29
<PAGE>
THE PIERPONT EQUITY FUND
THE PIERPONT MONEY MARKET FUND
THE PIERPONT TAX EXEMPT MONEY MARKET FUND
THE PIERPONT TREASURY MONEY MARKET FUND
THE PIERPONT SHORT TERM BOND FUND
THE PIERPONT BOND FUND
THE PIERPONT TAX EXEMPT BOND FUND
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
THE PIERPONT DIVERSIFED FUND
THE PIERPONT EQUITY FUND
THE PIERPONT CAPITAL APPRECIATION FUND
THE PIERPONT INTERNATIONAL EQUITY FUND
THE PIERPONT EMERGING MARKETS EQUITY FUND
FOR MORE INFORMATION ON HOW THE PIERPONT FAMILY OF FUNDS CAN HELP YOU PLAN FOR
YOUR FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
SEMI-ANNUAL REPORT
NOVEMBER 30, 1995
