<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM PIERPONT U.S. SMALL COMPANY FUND
July 7, 1997
Dear Shareholder:
The fiscal year ended May 31, 1997 came close to being a textbook example of
volatile U.S. small cap stock behavior. For example, paired with a
strengthening economy and U.S. dollar, record supply and demand for initial
public offerings (IPOs) enabled small caps to advance sharply at the
beginning of the period, only to falter in July amid concerns about
tightening by the Federal Reserve and a slowdown in corporate earnings. When
such concerns proved essentially groundless, small cap stocks more than
recouped their losses through December, only to be sent tumbling, once again,
by Federal Reserve Chairman Alan Greenspan's remarks before Congress, which
hinted that the market was substantially overvalued. Negative corporate
earnings surprises then held sway, in a momentum-driven market, until
tightening by the Federal Reserve in March spawned the general perception
among market participants that a "soft landing" had indeed been engineered
for the U.S. economy. Given this backdrop, small cap stocks rebounded once
again, outperforming large cap stocks for the first time in 1997 and ending
the fiscal year at an all-time high.
The Fund's investment strategy seeks to add long-term value for shareholders
by relying on Morgan's proprietary research in order to identify undervalued
small cap stocks. Given the extremes of volatility outlined above, we are
pleased to report that Morgan's actively managed, disciplined investment
strategy for small cap stocks enabled The JPM Pierpont U.S. Small Company
Fund to provide an attractive return of 9.49% for the period under review. We
believe that the Fund's adherence to a largely sector neutral approach,
rather than making large sector bets, was chiefly responsible for its
substantial outperformance of competitors included in the Lipper Small
Company Growth Fund Average, which returned only 3.97% for the period.
The small cap market remained focused on short-term corporate earnings rather
than long-term fundamentals throughout much of the period under review. In
our view, this was a contributing factor to the Fund's relative
underperformance of its benchmark, which is the Russell 2500 Index, during
the 1997 fiscal year. We feel it is important to note that the Fund's
benchmark, which returned 11.84% for the period, is an unmanaged index whose
performance does not include fees or operating expenses and which is not
available to individual and/or institutional investors.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS. . . . .1 FUND FACTS AND HIGHLIGHTS. . . . . . 6
FUND PERFORMANCE. . . . . . . . . .3 SPECIAL FUND-BASED SERVICES. . . . . 7
PORTFOLIO MANAGER Q&A . . . . . . .4 FINANCIAL STATEMENTS . . . . . . . . 9
- --------------------------------------------------------------------------------
1
<PAGE>
The Fund's net asset value declined from $26.20 per share at the beginning of
its fiscal year to $26.04 at the end of that period, after making
distributions of $0.88 from long-term capital gains, $1.25 from short-term
capital gains, and $0.21 from ordinary income. The Fund's net assets
increased from $220.9 million on May 31, 1996 to $238.0 million at the end of
the period under review. The net assets of The U.S. Small Company Portfolio,
in which the Fund invests, totaled approximately $1.07 billion at May 31,
1997.
The report that follows includes an interview with Michael J. Kelly, a member
of our portfolio management team. This interview is designed to answer
commonly asked questions about the Fund, elaborate on what happened during
the reporting period, and provide an outlook for the months ahead.
As chairman and president of Asset Management Services, we look forward to
sharing Morgan's insights regarding global markets with you going forward.
If you have any comments or questions, please call your Morgan representative
or J.P. Morgan Funds Services at (800) 521-5411.
Sincerely yours,
\s\ Ramon de Oliveira \s\ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
2
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to evaluate a mutual fund's historical performance is to look at the
growth of a hypothetical investment of $100,000. The chart at right shows the
minimum invested in the Fund on May 31, 1987 would have grown to $286,462 at
May 31, 1997.
Another way to look at performance is to review a fund's average annual
total return. This figure takes the fund's actual (or cumulative) return and
shows what would have happened if the fund had performed at a constant rate
each year. Average annual total returns represent the average yearly change
of a fund's value over various time periods, typically 1, 5, or 10 years.
Total returns for periods of less than one year are not annualized and
provide a picture of the fund's short-term performance.
GROWTH OF $100,000 OVER TEN YEARS
MAY 31, 1987 - MAY 31, 1997
THE JPM PIERPONT LIPPER SMALL
PLOT POINTS U.S. SMALL COMPANY RUSSELL COMPANY GROWTH
FUND BENCHMARK* FUND AVERAGE
- ------------- ---------------------- ------------ --------------
May-87 100,000 100,000 100,000
May-88 85,749 89,798 92,386
May-89 111,785 110,986 116,154
May-90 124,073 111,471 127,147
May-91 121,716 120,085 141,021
May-92 135,593 135,978 160,732
May-93 170,050 162,219 193,647
May-94 171,987 174,257 207,348
May-95 193,114 197,684 235,138
May-96 261,639 265,372 340,363
May-97 286,462 296,793 353,684
LIPPER PERFORMANCE AVERAGES ARE CALCULATED BY TAKING AN ARITHMETIC AVERAGE OF
THE RETURNS OF THE FUNDS IN THE GROUP. THE AVERAGE ANNUALIZED RETURNS WHICH
RESULT FROM THIS METHODOLOGY WILL DIFFER FROM ANNUALIZING THE GROWTH OF THE
MINIMUM INITIAL INVESTMENT.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------- --------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF MAY 31, 1997 MONTHS MONTHS YEAR YEARS YEARS YEARS
- ------------------------------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The JPM Pierpont
U.S. Small Company Fund 4.24% 7.46% 9.49% 18.54% 16.14% 11.10%
Russell Benchmark* 5.58% 8.35% 11.84% 19.42% 16.90% 11.49%
Lipper Small Company
Growth Fund Average 5.43% 4.95% 3.97% 18.33% 16.44% 12.70%
AS OF MARCH 31 1997
- ------------------------------------------------------------------ --------------------------------------
The JPM Pierpont
U.S. Small Company Fund -4.88% 2.21% 8.56% 13.75% 12.36% 9.54%
Russell Benchmark* -3.35% 2.03% 8.68% 15.31% 14.05% 10.02%
Lipper Small Company
Growth Fund Average -6.87% -4.60% 4.72% 13.49% 13.14% 11.14%
</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. FUND RETURNS ASSUME
THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF CERTAIN FUND
AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. LIPPER ANALYTICAL
SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA. ALTHOUGH GATHERED
FROM RELIABLE SOURCES, DATA ACCURACY AND COMPLETENESS CANNOT BE GUARANTEED.
THE JPM PIERPONT U.S. SMALL COMPANY FUND INVESTS ALL OF ITS INVESTABLE ASSETS
IN THE U.S. SMALL COMPANY PORTFOLIO, A SEPARATELY REGISTERED INVESTMENT
COMPANY WHICH IS NOT AVAILABLE TO THE PUBLIC BUT ONLY TO OTHER COLLECTIVE
INVESTMENT VEHICLES SUCH AS THE FUND.
3
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with MICHAEL J. KELLY, a member of the portfolio
management team for The U.S. Small Company Portfolio in which the Fund
invests. Prior to joining Morgan in 1985, Michael, a Chartered Financial
Analyst and Wharton MBA, held a position at the economic firm of
Townsend-Greenspan & Co., Inc. He has served as President of the Machinery
Analysts of New York, Vice President of the Electrical Products Group, as a
committee member of the AIMR, and as a member of the Money Marketeers of New
York. This interview was conducted July 2, 1997 and reflects Michael's views
on that date.
SMALL COMPANY STOCKS HAD A SPECTACULAR 34.24% SURGE DURING THE PORTFOLIO'S
1996 FISCAL YEAR, BUT FAILED TO REPEAT THEIR OUTPERFORMANCE OF LARGE COMPANY
STOCKS, AS REPRESENTED BY THE S&P 500 INDEX, FOR THE 12 MONTHS ENDED MAY 31,
1997. DOES THIS RECENT SLOWER PACE OF STOCK PRICE GROWTH MAKE SENSE FROM AN
HISTORICAL PERSPECTIVE, IN YOUR VIEW, OR HAVE WE UNDERGONE A FUNDAMENTAL
CHANGE IN THE SMALL CAP ARENA?
MJK: The Russell 2500 Index ended the Portfolio's 1997 fiscal year on a
strongly positive note when it gained 11.84% for the 12-month period.
Admittedly, small cap stocks moved forward more sharply during the previous
year. If you think back to the twelve months ended May 31, 1996, you may
remember that small cap stocks just kept going up and up, basically in a
straight line. During the past twelve months, we saw a little more volatility
come back into play within the Russell 2500.
The past year produced returns and volatility levels that are far more in
line with historical small cap stock behavior. We view this recent market
behavior as healthier and more long lasting. Remember that over very long
periods, returns on large cap stocks have averaged only 9%-10% per year, with
11%-12% returns for smaller stocks. Nothing about 11.84% is fundamentally
different.
STOCKS IN THE RUSSELL 2500 RECOVERED FROM THEIR JULY 1996 SELLOFF TO REACH
ALL-TIME HIGHS IN JANUARY OF THIS YEAR. A SUBSEQUENT DOWNTURN, HOWEVER, LED
TO THE FIRST NEGATIVE QUARTERLY RETURN FOR THE INDEX SINCE DECEMBER 1994. HOW
LARGE A ROLE DO YOU THINK MARKET CONCERNS ABOUT TIGHTENING BY THE FEDERAL
RESERVE PLAYED IN THESE EVENTS?
MJK: Uncertainty on this issue was the main driver of market volatility.
Generally speaking, any indication the Fed may be serious about tightening
money supply will trigger a "flight to safety," during which investors
usually favor larger, more stable stocks. Flights to safety can affect
stocks of any size but, over the years, small caps have proved especially
susceptible. The Portfolio tends to be very high quality, within the small
cap arena, and has typically outperformed other small cap managers during
such periods.
SHARP BOUNCEBACKS IN APRIL AND MAY SUGGEST TO MANY THAT SMALL CAP STOCKS HAVE
NOW TURNED AN IMPORTANT CORNER. IF SO, WHAT FACTORS DO YOU SEE AS KEY TO
SUSTAINED FORWARD MOMENTUM?
MJK: The fact that the economy slowed to a sustainable pace so that the Fed
didn't have to tighten
4
<PAGE>
reassured investors about the longevity of the business expansion. However,
before this happened, small cap stocks underperformed large caps by 17% as
the economy's longevity was questioned. Now that the environment seems to
promise smooth sailing for a while, we expect investors to favor the smaller
stocks.
WHY DO YOU THINK THE PORTFOLIO STRONGLY OUTPERFORMED ITS COMPETITORS DURING
THE PAST YEAR?
MJK: One phenomenon that we've observed during the past twelve months is the
market's switch from favoring growth to value stocks. Concerns about the
economy seem to drive investors toward value stocks, which generally offer
less volatility in the small cap area. The tougher the environment gets, the
better we expect the Portfolio to perform relative to other small cap funds.
WHICH STOCK SELECTIONS WERE KEY TO PORTFOLIO RETURNS?
MJK: One stock that has been phenomenal for the Portfolio is DEKALB
GENETICS, a producer of agricultural seeds in the basic industry sector,
which advanced more than 150% for the period. Our analyst, Jim Brown, brought
this stock to our attention. Dekalb's seed has demonstrably better yields and
should gain very meaningful market share for years to come.
In the service sector, CONSOLIDATED GRAPHICS, rose 162% for the period. As
the nation's fastest-growing printing company, investors were impressed with
Consolidated's long-term growth potential after several pivotal acquisitions
were completed ahead of schedule.
We're also very proud of the results that were obtained from our drug stock
selections during the past fiscal year. Among these, the platform bio-tech
companies INCYTE PHARMACEUTICALS and TRIPOS, INC. were especially successful
(advancing 91% and 128%, respectively). Rather than trying to find our way
among the "one-drug wonders" typically found in this sector, "platform
bio-tech" is now one of the Portfolio's major investment themes. These
companies provide their biotech skills as outsourcing to major drug concerns,
and we believe they represent a key trend in an ever-changing industry.
WHERE DID THE PORTFOLIO LAG?
MJK: In media, our position in PAGING NETWORK limited overall returns.
Paging Network continues to struggle with overcapacity in core paging as well
as difficulties surrounding the company's VoiceNow product rollout.
In energy, INPUT/OUTPUT, Inc. declined -56% in what could be seen as a
classic example of Wall Street's unforgiving attitude toward small earnings
disappointments. The company is the technological leader in seismic graphing
equipment, which is key in oil exploration, and had managed to meet or exceed
analysts' earnings expectations for 28 consecutive quarters. A delay in the
launch of one of the company's new products, which vastly expands their
addressable market into oil production as well, led to a slight earnings
shortfall. This triggered a disproportionately large decline in its share
price. Since the company's fundamentals remain stronger than ever, we have
used this price weakness to buy more shares at even lower prices.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE The JPM Pierpont U.S. Small Company Fund seeks to
provide a high total return from a portfolio of equity securities of small
companies. The Fund seeks to outperform the Russell 2500 Index. It is
designed for investors who are willing to assume the somewhat higher risk of
investing in small companies in order to seek a higher total return over time
than might be expected from a portfolio of stocks of large companies.
- -------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
6/27/85
- -------------------------------------------------------------------------------
NET ASSETS AS OF 5/31/97
$237,984,653
- -------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES
8/15/97 AND 12/24/97
EXPENSE RATIO
The Fund's current annualized expense ratio of 0.90% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services after reimbursement. The Fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for
buying, selling, or safekeeping Fund shares, or for wiring redemption
proceeds from the Fund.
FUND HIGHLIGHTS
ALL DATA AS OF MAY 31, 1997
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
- -FINANCE 20.2%
- -TECHNOLOGY 16.0%
- -CONSUMER GOODS 15.9%
- -INDUSTRIAL 12.2%
- -BASIC INDUSTRIES 9.5%
- -HEALTH CARE 7.6%
- -ENERGY 6.1%
- -UTILITIES 5.6%
- -SHORT TERM INVESTMENTS 4.9%
- -TRANSPORTATION 2.0%
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- -------------------------------------------------------------
DEKALB GENETICS CORP. 1.8%
(BASIC INDUSTRIES/AGRICULTURE)
CAPITAL RE CORP. (FINANCE/INSURANCE) 1.6%
ROHR INDUSTRIES, INC. 1.3%
(TECHNOLOGY/AEROSPACE)
GENERAL CHEMICAL GROUP, INC. 1.2%
(BASIC INDUSTRIES/CHEMICALS)
COMMERCIAL METALS CO. 1.0%
(BASIC INDUSTRIES/METALS & MINING)
INPUT/OUTPUT, INC. (ENERGY/OIL SERVICES) 1.0%
FINANCIAL SECURITY ASSOCIATION HOLDINGS LTD. 0.9%
(FINANCE/INSURANCE)
W.R. BERKLEY CORP. (FINANCE/INSURANCE) 0.9%
VALERO ENERGY CORP. 0.8%
(ENERGY/OIL PRODUCTION)
MODINE MANUFACTURING CO. 0.8%
(INDUSTRIAL PRODUCTS & SERVICES/
CAPITAL GOODS)
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 JPM Pierpont Funds, a family of diversified
mutual funds.
PAAS is available to clients who invest a minimum of $500,000 in The JPM
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 JPM
Pierpont Funds provide an excellent way to help you accumulate long-term
wealth for retirement.
KEOGH
Keogh plans 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 JPM Pierpont Funds can help you build a comprehensive
investment program designed to maximize the retirement dollars in your Keogh
account.
7
<PAGE>
FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR OF THE JPM PIERPONT U.S. SMALL
COMPANY FUND (THE "FUND"). SIGNATURE BROKER-DEALER SERVICES, INC. SERVED AS
THE FUND'S DISTRIBUTOR PRIOR TO AUGUST 1, 1996.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN") SERVES AS PORTFOLIO
INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY AS
SHAREHOLDER SERVICING AGENT FOR CUSTOMERS. INVESTMENTS IN THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN OR ANY OTHER
BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
CAN FLUCTUATE, SO AN INVESTOR'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
Performance data quoted herein represent past performance. Please remember
that past performance is not a guarantee of future performance. Fund returns
are net of fees, assume reinvestment of income, and reflect the reimbursement
of certain Fund expenses as described in the Prospectus. Had expenses not
been subsidized, returns would have been lower. The Fund invests all of its
investable assets in The U.S. 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 JPM PIERPONT U.S. SMALL COMPANY FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Small Company Portfolio
("Portfolio"), at value $238,534,654
Receivable for Shares of Beneficial Interest Sold 98,586
Receivable for Expense Reimbursements 26,392
Prepaid Trustees' Fees 576
Prepaid Expenses and Other Assets 9,133
------------
Total Assets 238,669,341
------------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 601,956
Shareholder Servicing Fee Payable 48,193
Administrative Services Fee Payable 6,058
Administration Fee Payable 1,270
Fund Services Fee Payable 150
Accrued Expenses 27,061
------------
Total Liabilities 684,688
------------
NET ASSETS
Applicable to 9,139,838 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $237,984,653
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $26.04
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $187,526,994
Undistributed Net Investment Income 593,141
Accumulated Net Realized Gain on Investment 18,766,016
Net Unrealized Appreciation of Investment 31,098,502
------------
Net Assets $237,984,653
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM PIERPONT U.S. SMALL COMPANY FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $15,505) $ 2,898,405
Allocated Interest Income 575,639
Allocated Portfolio Expenses (1,473,363)
-----------
Net Investment Income Allocated from
Portfolio 2,000,681
FUND EXPENSES
Shareholder Servicing Fee $ 540,244
Administrative Services Fee 65,674
Transfer Agent Fees 55,269
Printing Expenses 43,799
Professional Fees 14,880
Registration Fees 14,734
Administration Fee 10,655
Fund Services Fee 7,545
Trustees' Fees and Expenses 3,995
Insurance Expense 1,259
Miscellaneous 2,235
---------
Total Fund Expenses 760,289
Less: Reimbursement of Expenses (288,871)
---------
NET FUND EXPENSES 471,418
-----------
NET INVESTMENT INCOME 1,529,263
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 23,593,741
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (5,712,579)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $19,410,425
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM PIERPONT U.S. SMALL COMPANY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1997 MAY 31, 1996
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,529,263 $ 2,137,623
Net Realized Gain on Investment Allocated from
Portfolio 23,593,741 22,354,926
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio (5,712,579) 35,212,960
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 19,410,425 59,705,509
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1,768,257) (2,044,538)
Net Realized Gain (17,935,633) (22,173,858)
-------------- --------------
Total Distributions to Shareholders (19,703,890) (24,218,396)
-------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 48,736,722 33,420,888
Reinvestment of Dividends and Distributions 13,651,883 20,016,496
Cost of Shares of Beneficial Interest Redeemed (45,027,029) (47,138,171)
-------------- --------------
Net Increase from Transactions in Shares of
Beneficial Interest 17,361,576 6,299,213
-------------- --------------
Total Increase in Net Assets 17,068,111 41,786,326
NET ASSETS
Beginning of Fiscal Year 220,916,542 179,130,216
-------------- --------------
End of Fiscal Year (including undistributed net
investment income of $593,141 and $901,999,
respectively) $ 237,984,653 $ 220,916,542
-------------- --------------
-------------- --------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM PIERPONT U.S. SMALL COMPANY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 26.20 $ 22.02 $ 21.40 $ 25.12 $ 20.03
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.18 0.26 0.22 0.20 (0.01)
Net Realized and Unrealized Gain on Investment 2.00 6.96 2.13 0.19 5.10
-------- -------- -------- -------- --------
Total from Investment Operations 2.18 7.22 2.35 0.39 5.09
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.21) (0.26) (0.21) (0.09) --
Net Realized Gain (2.13) (2.78) (1.52) (4.02) --
-------- -------- -------- -------- --------
Total Distributions to Shareholders (2.34) (3.04) (1.73) (4.11) --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 26.04 $ 26.20 $ 22.02 $ 21.40 $ 25.12
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return 9.49% 35.48% 12.28% 1.14% 25.41%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands) $237,985 $220,917 $179,130 $204,445 $186,887
Ratios to Average Net Assets
Expenses 0.90% 0.90% 0.90% 0.90% 0.90%
Net Investment Income (Loss) 0.71% 1.10% 1.02% 0.75% (0.06)%
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.13% 0.13% 0.22% 0.20% 0.05%
Portfolio Turnover -- -- -- 14%* 50%
</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.
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE JPM PIERPONT U.S. SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Pierpont U.S. Small Company Fund (the "Fund") is a separate series of
The JPM Pierpont Funds, a Massachusetts business trust (the "Trust") which was
organized on November 4, 1992. The Trust is registered under the Investment
Company Act of 1940, as amended, as an 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. Prior to
May 12, 1997, the Fund's name was The JPM Pierpont Capital Appreciation Fund.
The Fund invests all of its investable assets in The U.S. Small Company
Portfolio (the "Portfolio"), a no load, diversified open-end management
investment company having the same investment objective as the Fund. The value
of such investment included in the Statement of Assets and Liabilities reflects
the Fund's proportionate interest in the net assets of the Portfolio (22% at May
31, 1997). The performance of the Fund is directly affected by the performance
of the Portfolio. The financial statements of the Portfolio, including the
Schedule of Investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements.
The preparation of financial statements prepared in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual amounts
could differ from those estimates. The following is a summary of the significant
accounting policies of the Fund:
a)Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b)The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Substantially all the Fund's net investment income is declared and paid as
dividends semi-annually. Distributions to shareholders of net realized
capital gains, if any, are declared and paid annually.
d)The Fund is treated as a separate entity for federal income tax purposes
and intends to comply with the provisions of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and to
distribute substantially all of its income, including net realized capital
gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
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 JPM PIERPONT U.S. SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
f)The Fund accounts for and reports distributions to shareholders in
accordance with "Statement of Position 93-2: Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return
of Capital Distributions by Investment Companies." The effect of applying
this statement as of May 31, 1997, was to decrease the accumulated net
realized gain on investment by $56, decrease undistributed net investment
income by $69,864 and increase paid-in-capital by $69,920. The adjustments
are primarily attributable to tax treatment of partnership allocations of
capital gains and losses. Net investment income, net realized gain and net
assets were not affected by this change.
2. TRANSACTIONS WITH AFFILIATES
a)The Trust had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and distributor. Under an
Administration Agreement, Signature provided administrative services
necessary for the operations of the Fund, furnished office space and
facilities required for conducting the business of the Fund and paid the
compensation of the Trust's officers affiliated with Signature. The
agreement provided for a fee to be paid to Signature equal to the Fund's
proportionate share of a complex-wide charge based on the following annual
schedule: 0.03% on the first $7 billion of the aggregate average daily net
assets of the Portfolio and the other portfolios (the "Master Portfolios")
in which series of the Trust, The JPM Institutional Funds or The JPM
Advisor Funds invest and 0.01% on the aggregate average daily net assets
of the Master Portfolios in excess of $7 billion. The portion of this
charge paid by the Fund was determined by the proportionate share its net
assets bore to the total net assets of the Trust, The JPM Institutional
Funds, The JPM Advisor Funds and the Master Portfolios. For the period
from June 1, 1996 to July 31, 1996, Signature's fees for those services
amounted to $4,383. The Administration Agreement with Signature was
terminated July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the Fund's
distributor. Under a Co-Administration Agreement between FDI and the Trust
on behalf of the Fund, the Fund has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the Fund is based on the
ratio of the Fund's net assets to the aggregate net assets of the Trust,
The JPM Institutional Funds, The JPM Advisor Funds, the Master Portfolios,
JPM Series Trust and JPM Series Trust II. For the period from August 1,
1996 to May 31, 1997, the fee for these services amounted to $6,272.
On November 15, 1996, The JPM Advisor Funds terminated operations and were
liquidated. Subsequent to that date, the net assets of The JPM Advisor
Funds were no longer included in the calculation of the allocation of
FDI's fees.
b)The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for certain aspects of the administration and operation of the Fund. Under
the Services Agreement, the Fund has agreed to pay Morgan a fee equal to
its proportionate share of an annual complex-wide charge. Until July 31,
1996, this charge was calculated daily based on the aggregate net assets
of the Master Portfolios in accordance with the following annual schedule:
0.06% on the first $7 billion of the Master Portfolios' aggregate average
daily net assets and 0.03% of the Master Portfolios' aggregate average
daily net assets in excess of $7 billion.
14
<PAGE>
THE JPM PIERPONT U.S. SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
The portion of this charge paid by the Fund was determined by the
proportionate share that its net assets bore to the net assets of the
Trust, the Master Portfolios and other investors in the Master Portfolios
for which Morgan provided similar services. For the period from June 1,
1996 to July 31, 1996, the fee for these services amounted to $8,448.
Effective August 1, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios and JPM Series Trust in accordance with
the following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their aggregate average
daily net assets in excess of $7 billion less the complex-wide fees
payable to FDI. The portion of this charge payable by the Fund is
determined by the proportionate share that its net assets bear to the net
assets of the Trust, The JPM Institutional Funds, the Master Portfolios,
other investors in the Master Portfolios for which Morgan provides similar
services, and JPM Series Trust. For the period from August 1, 1996 to May
31, 1997, the fee for these services amounted to $57,226.
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,
1997. For the fiscal year ended May 31, 1997, Morgan has agreed to
reimburse the Fund $288,871 for expenses under this agreement.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. The agreement provides for the Fund to pay Morgan a fee for
these services which is computed daily and paid monthly at an annual rate
of 0.25% of the average daily net assets of the Fund. For the fiscal year
ended May 31, 1997, the fee for these services amounted to $540,244.
Morgan, Charles Schwab & Co. ("Schwab") and the Trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes Fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
Fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the Services Agreement is terminated for
reasons other than a breach by Schwab and the relationship between the
Trust and Morgan is terminated, the Fund would be responsible for the
ongoing payments to Schwab with respect to pre-termination shares.
d)The Trust, on behalf of the Fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the Trustees in exercising their
overall supervisory responsibilities for the Trust's affairs. The Trustees
of the Trust represent all the existing shareholders of Group. The Fund's
allocated portion of Group's costs in performing its services amounted to
$7,545 for the fiscal year ended May 31, 1997.
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The Trust, The JPM Institutional Funds, the Master Portfolios
and JPM Series Trust. The Trustees' Fees and Expenses shown in the
financial statements represent the Fund's allocated portion of the total
fees and expenses. Prior to April 1, 1997, the aggregate annual Trustee
Fee was $65,000. The Trust's Chairman and Chief
15
<PAGE>
THE JPM PIERPONT U.S. SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
Executive Officer also serves as Chairman of Group and received
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $1,500.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1997 MAY 31, 1996
-------------- --------------
<S> <C> <C>
Shares of beneficial interest sold............... $ 1,965,537 $ 1,414,478
Reinvestment of dividends and distributions...... 579,843 884,791
Shares of beneficial interest redeemed........... (1,836,933) (2,004,592)
-------------- --------------
Net Increase..................................... $ 708,447 $ 294,677
-------------- --------------
-------------- --------------
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The JPM Pierpont U.S. Small Company Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The JPM Pierpont U.S. Small Company Fund (one of the series constituting part of
The JPM Pierpont Funds, hereafter referred to as the "Fund") at May 31, 1997,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the four years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. The financial
highlights for the period ended May 31, 1993 was audited by other independent
accountants whose report dated June 24, 1993 expressed an unqualified opinion
thereon.
PRICE WATERHOUSE LLP
New York, New York
July 21, 1997
17
<PAGE>
The U.S. Small Company Portfolio
Annual Report May 31, 1997
(The following pages should be read in conjunction
with The JPM Pierpont U.S. Small Company Fund
Annual Financial Statements)
18
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
COMMON STOCKS (95.6%)
BASIC INDUSTRIES (9.5%)
AGRICULTURE (1.8%)
Dekalb Genetics Corp. - Class B.................. 270,500 $ 19,120,969
---------------
CHEMICALS (3.0%)
Albemarle Corp................................... 417,000 7,818,750
Crompton & Knowles Corp.......................... 244,600 5,717,525
General Chemical Group, Inc...................... 506,100 12,525,975
Landec Corp.+.................................... 37,900 201,344
Minerals Technologies, Inc....................... 45,200 1,785,400
OM Group, Inc.................................... 29,450 927,675
RPM, Inc. Ohio................................... 182,900 3,463,669
---------------
32,440,338
---------------
FOREST PRODUCTS & PAPER (1.6%)
American Pad & Paper Co.+........................ 238,400 4,410,400
Caraustar Industries, Inc........................ 120,700 3,470,125
Glatfelter (P.H.) Co............................. 180,900 3,165,750
Temple-Inland, Inc............................... 75,600 4,573,800
Universal Forest Products, Inc................... 103,400 1,415,287
---------------
17,035,362
---------------
METALS & MINING (3.1%)
AK Steel Holding Corp............................ 44,800 1,741,600
Allegheny Teledyne, Inc.......................... 158,900 4,091,675
Bethlehem Steel Corp.+........................... 459,600 4,596,000
Commercial Metals Co............................. 370,700 10,981,987
Oregon Steel Mills, Inc.......................... 55,000 1,031,250
Schnitzer Steel Industries, Inc. - Class A....... 179,900 4,632,425
Steel Technologies, Inc.......................... 488,800 5,101,850
UCAR International, Inc.+........................ 24,500 1,176,000
---------------
33,352,787
---------------
TOTAL BASIC INDUSTRIES......................... 101,949,456
---------------
CONSUMER GOODS & SERVICES (16.1%)
AUTOMOTIVE (1.6%)
Amcast Industrial Corp........................... 109,300 2,677,850
Borg-Warner Automotive, Inc...................... 55,200 2,691,000
Circuit City Stores, Inc. - CarMax Group+........ 30,900 448,050
Excel Industries, Inc............................ 103,500 1,875,937
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
AUTOMOTIVE (CONTINUED)
Lear Corp.+...................................... 178,000 $ 6,808,500
Simpson Industries, Inc.......................... 215,300 2,193,369
---------------
16,694,706
---------------
BROADCASTING & PUBLISHING (0.5%)
Banta Corp....................................... 77,800 2,149,225
Digital Generation Systems, Inc.+................ 48,100 228,475
Heritage Media Corp. - Class A+.................. 88,700 1,618,775
K-III Communications Corp.+...................... 117,200 1,303,850
---------------
5,300,325
---------------
CONSTRUCTION & HOUSING (0.7%)
D.R. Horton, Inc.+............................... 746,800 7,187,950
---------------
ENTERTAINMENT, LEISURE & MEDIA (2.3%)
Boyd Gaming Corp.+............................... 258,600 1,519,275
Education Management Corp.+...................... 43,600 1,057,300
Grand Casinos, Inc.+............................. 198,100 2,550,537
Imax Corp.+...................................... 264,100 5,744,175
International Game Technology.................... 377,700 6,704,175
Outdoor Systems, Inc.+........................... 68,600 2,268,087
Steiner Leisure Ltd.+............................ 74,000 2,099,750
WMS Industries, Inc.+............................ 136,200 2,826,150
---------------
24,769,449
---------------
FOOD, BEVERAGES & TOBACCO (0.6%)
Dreyer's Grand Ice Cream, Inc.................... 22,500 838,125
Eskimo Pie Corp.................................. 19,300 237,631
Morningstar Group, Inc........................... 76,100 2,002,381
Savannah Foods & Industries, Inc................. 85,200 1,331,250
Universal Foods Corp............................. 52,900 1,897,787
---------------
6,307,174
---------------
HEALTH & PERSONAL CARE (0.1%)
Twinlab Corp.+................................... 40,900 593,050
---------------
HOUSEHOLD APPLIANCES FURNISHINGS (0.7%)
Aaron Rents, Inc. - Class B...................... 148,200 1,750,612
Bush Industries, Inc. - Class A.................. 162,200 3,649,500
LADD Furniture, Inc.............................. 35,100 460,687
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
HOUSEHOLD APPLIANCES FURNISHINGS (CONTINUED)
Royal Appliance Manufacturing Co.+............... 49,700 $ 354,112
Shaw Industries, Inc............................. 51,000 637,500
Stanley Furniture Co., Inc....................... 34,500 608,062
---------------
7,460,473
---------------
HOUSEHOLD PRODUCTS (1.3%)
Bush Boake Allen, Inc.+.......................... 96,200 2,801,825
Department 56, Inc.+............................. 239,400 5,057,325
Safety 1st, Inc.+................................ 244,100 1,601,906
Tupperware Corp.................................. 132,000 4,785,000
---------------
14,246,056
---------------
PERSONAL CARE (0.1%)
French Fragrances, Inc.+......................... 125,300 1,112,037
---------------
RESTAURANTS & HOTELS (1.9%)
Candlewood Hotel Company, Inc.+.................. 148,700 1,273,244
Extended Stay America, Inc.+..................... 147,100 2,022,625
La Quinta Inns, Inc.............................. 135,000 3,105,000
Outback Steakhouse, Inc.+........................ 223,400 5,166,125
Papa John's International, Inc.+................. 107,100 3,413,812
Wendy's International, Inc.+..................... 96,400 2,253,350
WHG Resorts & Casinos Inc.+...................... 34,575 363,037
Wyndham Hotel Corp.+............................. 79,100 2,185,137
---------------
19,782,330
---------------
RETAIL (5.9%)
AutoZone, Inc.+.................................. 205,900 4,812,912
Catherines Stores Corp.+......................... 143,800 620,137
Charming Shoppes, Inc............................ 359,000 1,895,969
Circuit City Stores, Inc......................... 117,500 4,641,250
CompUSA, Inc.+................................... 157,300 3,657,225
Corporate Express, Inc.+......................... 619,900 8,601,112
Delia's, Inc.+................................... 12,100 275,275
Duckwall-Alto Stores, Inc.+...................... 82,200 1,017,225
Garden Ridge Corp.+.............................. 426,200 5,220,950
Gymboree Corp.+.................................. 77,700 1,932,787
Hannaford Brothers Co............................ 164,300 5,729,962
Lazare Kaplan International, Inc.+............... 73,000 1,186,250
Linens 'N Things, Inc.+.......................... 96,900 2,507,287
Lithia Motors, Inc. - Class A+................... 75,900 901,312
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
RETAIL (CONTINUED)
Nine West Group, Inc.+........................... 126,400 $ 4,866,400
One Price Clothing Stores, Inc.+................. 351,500 1,493,875
Pacific Sunwear of California+................... 35,500 1,291,312
Party City Corp.+................................ 108,900 1,572,244
Penn Traffic Co.+................................ 162,300 1,196,962
Ross Stores, Inc................................. 23,800 676,812
Stage Stores, Inc.+.............................. 69,200 1,405,625
Talbots, Inc..................................... 143,000 3,753,750
Urban Outfitters, Inc.+.......................... 251,100 4,048,987
---------------
63,305,620
---------------
TEXTILES (0.4%)
Ashworth, Inc.+.................................. 109,800 977,906
Fruit of the Loom, Inc. - Class A+............... 84,100 2,932,987
Worldtex, Inc.+.................................. 61,100 435,337
---------------
4,346,230
---------------
TOTAL CONSUMER GOODS & SERVICES................ 171,105,400
---------------
ENERGY (6.1%)
GAS EXPLORATION (1.4%)
Barrett Resources Corp.+......................... 156,700 5,249,450
Devon Energy Corp................................ 53,000 1,974,250
El Paso Natural Gas Co........................... 46,000 2,725,500
K N Energy, Inc.................................. 58,600 2,468,525
Newfield Exploration Co.+........................ 129,600 2,786,400
---------------
15,204,125
---------------
OIL-PRODUCTION (2.8%)
Anadarko Petroleum Corp.......................... 113,700 7,163,100
Flores & Rucks, Inc.+............................ 38,600 1,891,400
MAPCO, Inc....................................... 80,500 2,555,875
Monterey Resources, Inc.......................... 104,900 1,652,175
Patterson Energy, Inc.+.......................... 34,500 1,237,687
Plains Resources, Inc.+.......................... 121,800 1,735,650
Snyder Oil Corp.................................. 100,400 1,832,300
Tosco Corp....................................... 89,100 2,906,887
Valero Energy Corp............................... 253,500 9,062,625
---------------
30,037,699
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
OIL-SERVICES (1.9%)
Dreco Energy Services Ltd. - Class A*+........... 56,700 $ 2,792,475
Input/Output, Inc.+.............................. 583,700 10,360,675
Seacor Smit, Inc.+............................... 55,000 2,846,250
Transocean Offshore Inc.......................... 70,000 4,830,000
---------------
20,829,400
---------------
TOTAL ENERGY................................... 66,071,224
---------------
FINANCE (20.4%)
BANKING (8.1%)
Bank United Corp. - Class A...................... 154,300 5,410,144
Banknorth Group, Inc............................. 106,500 4,672,687
CCB Financial Corp............................... 10,700 751,675
Charter One Financial, Inc....................... 91,200 4,269,300
Colonial BancGroup, Inc.......................... 172,700 4,166,387
Commercial Federal Corporation................... 48,700 1,698,412
Community First Bankshares, Inc.................. 66,400 2,294,950
Crestar Financial Corp........................... 97,200 3,693,600
Dime Bancorp, Inc................................ 294,600 5,008,200
Eagle Bancshares, Inc............................ 23,900 385,387
First Alliance Corp.+............................ 33,600 827,400
First Hawaiian, Inc.............................. 64,800 2,296,350
First Republic Bancorp, Inc.+.................... 78,500 1,570,000
FirstFed Financial Corp.+........................ 100,700 2,744,075
Flagstar Bancorp, Inc.+.......................... 39,900 598,500
GBC Bancorp...................................... 120,800 4,303,500
Hamilton Bancorp, Inc.+.......................... 21,900 454,425
HUBCO, Inc....................................... 193,388 5,040,175
InterWest Bancorp, Inc........................... 28,600 986,700
Irwin Financial Corp............................. 41,300 1,094,450
National Commerce Bancorporation................. 170,100 3,986,719
North Fork Bancorporation, Inc................... 321,900 6,759,900
Pacific Century
Financial Corp................................. 98,000 4,508,000
Pinnacle Financial Services, Inc................. 96,100 2,558,662
Security First Network Bank+..................... 54,200 372,625
Signet Banking Corp.............................. 219,100 7,202,912
Trustco Bank Corp................................ 120,000 2,490,000
Trustmark Corp................................... 18,700 506,069
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
BANKING (CONTINUED)
Valley National Bancorp.......................... 152,575 $ 4,119,525
Westamerica Bancorporation....................... 31,500 2,161,687
---------------
86,932,416
---------------
FINANCIAL SERVICES (2.2%)
Amresco, Inc..................................... 116,200 2,033,500
Beneficial Corp.................................. 68,400 4,394,700
Capital One Financial Corp....................... 94,100 3,022,962
Contifinancial Corp.+............................ 42,700 1,409,100
Hambrecht & Quist Group, Inc.+................... 93,900 2,136,225
Litchfield Financial Corp........................ 103,040 1,642,200
Ocwen Financial Corp.+........................... 37,900 1,118,050
Southwest Securities Group, Inc.................. 119,600 1,928,550
United Asset
Managment Corp................................. 111,800 3,116,425
WFS Financial, Inc.+............................. 101,200 1,277,650
Willis Lease Finance Corp.+...................... 90,900 1,022,625
---------------
23,101,987
---------------
INSURANCE (5.1%)
Capital Re Corp.................................. 400,750 17,582,906
Chartwell Re Corp................................ 86,700 2,330,062
Financial Security Assurance Holdings Ltd........ 281,200 10,158,350
Hartford Life, Inc. - Class A+................... 18,900 633,150
Mid Ocean Ltd.*.................................. 41,900 1,901,212
MMI Companies, Inc............................... 70,100 1,664,875
PartnerRe Ltd.*.................................. 140,800 4,417,600
RenaissanceRe Holdings,
Ltd.*.......................................... 149,700 5,557,612
W. R. Berkley Corp............................... 190,600 9,851,637
---------------
54,097,404
---------------
REAL ESTATE INVESTMENT TRUSTS (5.0%)
American General Hospitality Corporation......... 89,300 2,310,638
Arden Realty Group, Inc.......................... 65,000 1,681,875
Brandywine Realty Trust.......................... 55,300 1,119,825
Burnham Pacific Properties, Inc.................. 100,700 1,334,275
Cali Realty Corporation.......................... 28,400 841,350
Capstone Capital Trust, Inc...................... 23,600 536,900
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
Chelsea GCA Realty, Inc.......................... 40,200 $ 1,462,275
Colonial Properties Trust........................ 73,100 2,138,175
Columbus Realty Trust............................ 154,300 3,394,600
Developers Diversified Realty Corp............... 147,400 5,490,650
Evans Withycombe Residential, Inc................ 47,000 963,500
Excel Realty Trust, Inc.......................... 62,000 1,604,250
Gables Residential Trust......................... 155,400 3,885,000
Healthcare Realty Trust, Inc..................... 83,300 2,165,800
Highwoods Properties, Inc........................ 121,700 3,681,425
Liberty Property Trust........................... 130,500 3,132,000
Oasis Residential, Inc........................... 171,700 3,949,100
Post Properties, Inc............................. 74,100 2,945,475
Price REIT, Inc.................................. 79,800 3,042,375
Public Storage, Inc.............................. 89,600 2,385,600
Starwood Lodging Trust........................... 80,200 2,987,450
TriNet Corporate Realty Trust, Inc............... 53,000 1,735,750
Westfield America, Inc.+......................... 49,700 757,925
---------------
53,546,213
---------------
TOTAL FINANCE.................................. 217,678,020
---------------
HEALTH CARE (7.7%)
BIOTECHNOLOGY (1.5%)
ArQule, Inc.+.................................... 42,300 782,550
Human Genome Sciences, Inc.+..................... 115,000 4,441,875
IDEC Pharmaceuticals Corp.+...................... 22,200 498,113
Incyte Pharmaceuticals, Inc.+.................... 49,300 3,216,825
Mycogen Corp.+................................... 30,200 705,925
ONYX Pharmaceuticals, Inc.+...................... 12,100 127,806
SangStat Medical Corp.+.......................... 85,300 2,116,506
Sequana Therapeutics, Inc.+...................... 125,900 1,510,800
Transkaryotic Therapies, Inc.+................... 22,400 490,000
Vertex Pharmaceuticals, Inc.+.................... 18,600 748,650
Vical, Inc.+..................................... 77,500 973,594
---------------
15,612,644
---------------
HEALTH SERVICES (3.5%)
Apple Orthodontix, Inc. - Class A+............... 61,900 506,806
Applied Analytical Industries, Inc.+............. 91,900 1,654,200
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
HEALTH SERVICES (CONTINUED)
Apria Healthcare Group, Inc.+.................... 210,500 $ 3,789,000
Arbor Health Care Co.+........................... 24,900 700,313
Diagnostic Health Services, Inc.+................ 18,900 147,656
Foundation Health Systems, Inc. - Class A+....... 212,820 6,357,998
Health Care & Retirement Corp.+.................. 68,700 2,335,800
Kapson Senior Quarters Corp.+.................... 112,300 1,221,263
Lifeline Systems, Inc.+.......................... 51,100 913,413
Mariner Health Group, Inc.+...................... 438,400 5,233,400
OccuSystems, Inc.+............................... 70,500 1,833,000
Paracelsus Healthcare Corp.+..................... 102,900 424,463
Sierra Health Services, Inc.+.................... 164,600 5,123,175
Sterling House Corp.+............................ 89,200 1,371,450
Summit Care Corp.+............................... 183,600 2,226,150
Ventana Medical Systems, Inc.+................... 243,300 3,178,106
Youth Services, Inc.+............................ 58,800 812,175
---------------
37,828,368
---------------
MEDICAL SUPPLIES (1.7%)
CellPro, Inc.+................................... 157,500 1,004,063
Closure Medical Corp.+........................... 44,000 907,500
CONMED Corp.+.................................... 64,600 1,223,363
Eclipse Surgical Technologies+................... 70,700 521,413
Heartstream, Inc.+............................... 115,200 921,600
IDEXX Laboratories, Inc.+........................ 443,300 6,289,319
Kensey Nash Corp.+............................... 216,700 2,437,875
KeraVision, Inc.+................................ 250,700 2,444,325
Medi-Ject Corp.+................................. 179,700 572,794
Physio-Control International Corp.+.............. 53,700 688,031
Sola International, Inc.+........................ 35,700 1,021,913
---------------
18,032,196
---------------
PHARMACEUTICALS (1.0%)
Alza Corp.+...................................... 293,000 8,643,500
Kos Pharmaceuticals, Inc......................... 16,500 489,844
Mylan Labs, Inc.................................. 136,200 2,060,025
---------------
11,193,369
---------------
TOTAL HEALTH CARE.............................. 82,666,577
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (12.2%)
BUSINESS & PUBLIC SERVICES (0.6%)
American Management Systems, Inc.+............... 128,800 $ 3,332,700
American Residential Services, Inc.+............. 103,400 2,145,550
Service Experts, Inc.+........................... 42,500 1,205,938
---------------
6,684,188
---------------
CAPITAL GOODS (4.5%)
ABC Rail Products Corp.+......................... 49,500 804,375
Applied Power, Inc. - Class A.................... 101,600 4,470,400
Cincinnati Milacron, Inc......................... 200,800 4,643,500
Collins & Aikman Corp.+.......................... 232,500 2,702,813
Greenfield Industries, Inc....................... 104,300 2,698,763
IDEX Corp........................................ 133,500 3,788,063
MagneTek, Inc.+.................................. 323,200 5,656,000
Modine Manufacturing Co.......................... 300,100 8,702,900
Perceptron, Inc.+................................ 57,300 1,607,981
Shaw Group, Inc.+................................ 68,400 1,188,450
Strategic Distribution, Inc.+.................... 121,900 479,981
Wabash National Corp............................. 366,200 8,102,175
York International Corp.......................... 78,700 3,816,950
---------------
48,662,351
---------------
COMMERCIAL SERVICES (2.5%)
DeVry, Inc.+..................................... 201,200 5,558,150
Equity Corp. International+...................... 44,200 1,052,513
First USA Paymentech, Inc.+...................... 191,900 6,068,838
Pinkertons, Inc.+................................ 65,000 1,909,375
Pittston Brink's Group........................... 259,300 8,103,125
Robert Half International, Inc.+................. 91,100 3,905,913
---------------
26,597,914
---------------
DIVERSIFIED MANUFACTURING (1.7%)
Brady (W.H.) Co. - Class A....................... 86,000 2,429,500
Hexcel Corp...................................... 60,900 1,096,200
Intermet Corp.................................... 585,600 8,052,000
Mueller Industries, Inc.+........................ 91,700 3,656,538
Nordson Corp..................................... 55,700 2,986,913
---------------
18,221,151
---------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (1.2%)
Anixter International, Inc.+..................... 225,300 $ 3,830,100
Bolder Technologies Corp.+....................... 66,500 827,094
Encore Wire Corp.+............................... 128,200 3,221,025
Grainger (W.W.), Inc............................. 57,900 4,646,475
---------------
12,524,694
---------------
POLLUTION CONTROL (1.7%)
American Disposal Services, Inc.+................ 146,900 2,882,913
Dames & Moore, Inc............................... 210,700 2,475,725
Sevenson Environmental Services, Inc............. 79,500 1,450,875
Tetra Technologies, Inc.+........................ 100,300 2,438,544
USA Waste Services, Inc.+........................ 80,600 2,921,750
Wheelabrator Technologies, Inc................... 484,600 6,239,225
---------------
18,409,032
---------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 131,099,330
---------------
TECHNOLOGY (16.1%)
AEROSPACE (2.4%)
Coltec Industries, Inc.+......................... 357,200 7,010,050
DeCrane Aircraft Holdings, Inc.+................. 50,600 635,663
Orbital Sciences Corp.+.......................... 279,200 4,624,250
Rohr Industries, Inc.+........................... 651,400 13,760,825
---------------
26,030,788
---------------
COMPUTER PERIPHERALS (0.5%)
In Focus Systems, Inc.+.......................... 76,000 1,971,250
Pinnacle Systems, Inc.+.......................... 118,300 2,151,581
Raster Graphics, Inc.+........................... 94,800 728,775
---------------
4,851,606
---------------
COMPUTER SOFTWARE (2.6%)
Aspen Technology, Inc.+.......................... 90,300 3,431,400
Autodesk, Inc.................................... 80,200 3,122,788
Avid Technology, Inc.+........................... 110,800 2,603,800
Edify Corp.+..................................... 136,300 1,720,788
MathSoft, Inc.+.................................. 163,900 450,725
Metromail Corp.+................................. 69,200 1,522,400
Network General Corp.+........................... 376,300 6,961,550
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
COMPUTER SOFTWARE (CONTINUED)
Red Brick Systems, Inc.+......................... 32,900 $ 291,473
Transaction Systems Architects, Inc. - Class
A+............................................. 112,300 4,681,506
Tripos, Inc.+.................................... 104,600 1,647,450
Visigenic Software, Inc.+........................ 154,500 1,545,000
---------------
27,978,880
---------------
COMPUTER SYSTEMS (1.7%)
BBN Corp......................................... 128,400 3,707,550
EMC Corp.+....................................... 152,600 6,084,925
International Network Services+.................. 119,900 3,087,425
Medic Computer Systems, Inc.+.................... 13,700 237,181
Quickturn Design System, Inc.+................... 102,300 1,048,575
Sapient Corp.+................................... 32,900 1,459,938
Silicon Graphics, Inc.+.......................... 154,900 2,923,738
---------------
18,549,332
---------------
ELECTRONICS (2.6%)
Adept Technology, Inc.+.......................... 163,900 1,290,713
Flextronics International, Ltd.+................. 53,800 1,260,938
Integrated Device Technology, Inc.+.............. 199,700 2,808,281
Itron, Inc.+..................................... 103,100 2,738,594
Nimbus CD International, Inc.+................... 118,900 1,322,763
Perkin-Elmer Corp................................ 99,400 7,554,400
Rambus, Inc.+.................................... 4,800 150,600
Symbol Technologies, Inc......................... 123,500 3,874,813
Thomas & Betts Corp.............................. 97,600 4,965,400
Ultratech Stepper, Inc.+......................... 7,800 158,438
Uniphase Corp.+.................................. 31,400 1,640,650
---------------
27,765,590
---------------
INFORMATION PROCESSING (0.2%)
Checkfree Corp.+................................. 112,400 1,959,975
---------------
SEMICONDUCTORS (2.9%)
Actel Corp.+..................................... 170,000 3,559,375
Adaptec, Inc.+................................... 70,500 2,595,281
Advanced Technology Materials, Inc.+............. 221,900 5,311,731
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
SEMICONDUCTORS (CONTINUED)
Credence Systems Corp.+.......................... 58,100 $ 1,721,213
LSI Logic Corp.+................................. 163,200 6,813,600
Micrel, Inc.+.................................... 43,900 2,304,750
Oak Technology, Inc.+............................ 181,300 1,711,019
SDL, Inc.+....................................... 238,400 4,797,800
Silicon Valley Group, Inc.+...................... 35,800 854,725
Vitesse Semiconductor Corp.+..................... 31,900 1,146,406
---------------
30,815,900
---------------
TELECOMMUNICATION SERVICES (0.5%)
ICG Communications, Inc.+........................ 89,700 1,429,594
McLeodUSA, Inc. - Class A+....................... 159,800 3,755,300
---------------
5,184,894
---------------
TELECOMMUNICATIONS (1.0%)
Omnipoint Corp.+................................. 138,300 1,892,981
Paging Network, Inc.+............................ 180,000 1,361,250
Premiere Technologies, Inc.+..................... 149,900 4,000,456
QUALCOMM, Inc.+.................................. 61,600 2,968,350
---------------
10,223,037
---------------
TELECOMMUNICATIONS-EQUIPMENT (1.7%)
Aspect Telecommunications Corp.+................. 58,400 1,314,000
Digital Microwave Corp.+......................... 68,900 2,127,288
Glenayre Technologies, Inc.+..................... 87,300 1,282,219
Natural Microsystems Corp.+...................... 63,900 1,569,544
P-COM, Inc.+..................................... 85,000 2,730,625
Proxim, Inc.+.................................... 75,400 1,917,988
Scientific-Atlanta, Inc.......................... 388,100 7,034,313
---------------
17,975,977
---------------
TOTAL TECHNOLOGY............................... 171,335,979
---------------
TRANSPORTATION (2.0%)
AIRLINES (0.2%)
ASA Holdings, Inc................................ 69,800 1,814,800
---------------
RAILROADS (0.3%)
Genesee & Wyoming Inc. - Class A+................ 103,400 2,791,800
---------------
TRANSPORTATION (0.2%)
GATX Corp........................................ 45,300 2,570,775
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
TRUCK & FREIGHT CARRIERS (1.3%)
Allied Holdings, Inc.+........................... 43,300 $ 427,588
American Freightways Corp.+...................... 102,100 1,391,113
Roadway Express, Inc............................. 305,700 5,750,981
Rollins Truck Leasing Corp....................... 236,200 3,247,750
Werner Enterprises, Inc.......................... 152,600 2,985,238
---------------
13,802,670
---------------
TOTAL TRANSPORTATION........................... 20,980,045
---------------
UTILITIES (5.5%)
ELECTRIC (4.1%)
Calpine Corp.+................................... 82,100 1,683,050
Central Hudson Gas & Electric Corp............... 179,700 5,795,325
Central Louisiana Electric Co.................... 187,100 4,724,275
Hawaiian Electric Industries, Inc................ 178,800 6,190,950
Idaho Power Co................................... 43,300 1,299,000
Illinova Corp.................................... 141,600 3,097,500
Ku Energy Corp................................... 88,700 3,060,150
Minnesota Power & Light Co....................... 110,400 3,201,600
New England Electric System...................... 222,200 7,693,675
Otter Tail Power Company......................... 32,900 1,003,450
Pinnacle West Capital Corp....................... 117,300 3,445,688
St. Joseph Light & Power Co...................... 63,200 1,011,200
Washington Water Power Co........................ 117,200 2,109,600
---------------
44,315,463
---------------
NATURAL GAS (0.7%)
AGL Resources, Inc............................... 148,800 2,845,800
Energen Corporation.............................. 19,500 643,500
United Cities Gas Co............................. 68,500 1,549,813
Wicor, Inc....................................... 78,500 2,884,875
---------------
7,923,988
---------------
TELEPHONE (0.1%)
Frontier Corp.................................... 67,500 1,240,313
---------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ---------------
<S> <C> <C>
WATER (0.6%)
E'Town Corp...................................... 103,700 $ 3,435,063
SJW Corp......................................... 22,600 1,214,750
Southern California Water Co..................... 95,400 2,218,050
---------------
6,867,863
---------------
TOTAL UTILITIES................................ 60,347,627
---------------
TOTAL COMMON STOCKS (COST $888,056,213)........ 1,023,233,658
---------------
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (4.9%)
REPURCHASE AGREEMENT (4.9%)
State Street Bank and Trust Company, Repurchase
Agreement 5.00% dated 5/30/97 due 6/02/97,
proceeds $52,926,043 (collateralized by
$52,555,000 U.S. Treasury Notes, 6.25% due
5/31/00, valued at $53,965,441)................ $ 52,904,000 52,904,000
---------------
TOTAL INVESTMENTS (COST $940,960,213) (100.5%).................
1,076,137,658
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.5%)..................
(5,855,047)
---------------
NET ASSETS (100.0%)............................................ $ 1,070,282,611
---------------
---------------
</TABLE>
- ------------------------------
Note: The cost of securities for Federal Income Tax purposes at May 31, 1997,
was $945,566,880, the aggregate gross unrealized appreciation and depreciation
was $173,467,209 and $42,896,431, respectively, resulting in net unrealized
appreciation of $130,570,778.
+ Non-income producing security.
* Foreign security.
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $940,960,213 ) $1,076,137,658
Cash 91,616
Receivable for Investments Sold 9,841,705
Dividends Receivable 966,515
Interest Receivable 16,077
Prepaid Trustees' Fees 3,111
Prepaid Expenses and Other Assets 1,180
--------------
Total Assets 1,087,057,862
--------------
LIABILITIES
Payable for Investments Purchased 16,152,753
Advisory Fee Payable 521,444
Custody Fee Payable 48,930
Administrative Services Fee Payable 27,162
Administration Fee Payable 2,848
Fund Services Fee Payable 672
Accrued Expenses 21,442
--------------
Total Liabilities 16,775,251
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,070,282,611
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $63,872 ) $12,101,440
Interest Income 2,410,312
-----------
Investment Income 14,511,752
EXPENSES
Advisory Fee $5,424,514
Custodian Fees and Expenses 325,378
Administrative Services Fee 275,962
Professional Fees and Expenses 44,296
Administration Fee 36,814
Fund Services Fee 31,320
Trustees' Fees and Expenses 14,797
Insurance Expense 4,950
Printing Expenses 3,207
Registration Fees 610
Miscellaneous 999
----------
Total Expenses 6,162,847
-----------
NET INVESTMENT INCOME 8,348,905
NET REALIZED GAIN ON INVESTMENTS 87,877,628
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS (2,676,687)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $93,549,846
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1997 MAY 31, 1996
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 8,348,905 $ 9,471,545
Net Realized Gain on Investments 87,877,628 79,496,646
Net Change in Unrealized Appreciation
(Depreciation) of Investments (2,676,687) 132,103,605
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 93,549,846 221,071,796
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 386,255,018 222,451,859
Withdrawals (269,567,535) (204,531,582)
-------------- --------------
Net Increase from Investors' Transactions 116,687,483 17,920,277
-------------- --------------
Total Increase in Net Assets 210,237,329 238,992,073
NET ASSETS
Beginning of Fiscal Year 860,045,282 621,053,209
-------------- --------------
End of Fiscal Year $1,070,282,611 $ 860,045,282
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR ENDED JULY 19, 1993
MAY 31, (COMMENCEMENT OF
------------------------- OPERATIONS) TO
1997 1996 1995 MAY 31, 1994
------- ------ ------ ----------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.68% 0.67% 0.71% 0.72%(a)
Net Investment Income 0.92% 1.33% 1.21% 0.99%(a)
Portfolio Turnover 98.24% 92.58% 75.00% 97.00%+
Average Broker Commissions 0.0467 -- -- --
</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.
28
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
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 Portfolio's investment objective is to provide a high total
return from a portfolio of equity securities of small companies. The Declaration
of Trust permits the Trustees to issue an unlimited number of beneficial
interests in the Portfolio.
The preparation of financial statements prepared in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual amounts
could differ from those estimates. The following is a summary of the significant
accounting policies of the Portfolio:
a)The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the readily available closing bid price on
such exchanges, or at the quoted bid price in the over-the-counter market.
Securities listed on a foreign exchange are valued at the last quoted sale
price available before the time when net assets are valued. Unlisted
securities are valued at the average of the quoted bid and asked prices in
the over-the-counter market. Securities or other assets for which market
quotations are not readily available are valued at fair value in
accordance with procedures established by the Portfolio's Trustees. Such
procedures include the use of independent pricing services, which use
prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and
general market conditions. All portfolio securities with a remaining
maturity of less than 60 days are valued at amortized cost.
b)Securities transactions are recorded on a trade-date basis. Dividend
income is recorded on the ex-dividend date or at the time that the
relevant ex-dividend date and amount become known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
c)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxed on its
share of the Portfolio's ordinary income and capital gains. It is intended
that the Portfolio's assets will be managed in such a way that an investor
in the Portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code.
d)The Portfolio's custodian takes possession of the collateral pledged for
investment 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
29
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
Portfolio has the right to liquidate the collateral and apply the proceeds
in satisfaction of the obligation. Under certain circumstances, in the
event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject
to legal proceedings.
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an Investment Advisory Agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the Portfolio pays Morgan a fee at an annual rate of 0.60% of the
Portfolio's average daily net assets. For the fiscal year ended May 31,
1997, this fee amounted to $5,424,514.
b)The Portfolio had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Under an Administration Agreement, Signature provided administrative
services necessary for the operations of the Portfolio, furnished office
space and facilities required for conducting the business of the Portfolio
and paid the compensation of the Portfolio's officers affiliated with
Signature. The agreement provided for a fee to be paid to Signature equal
to the Portfolio's proportionate share of a complex-wide charge based on
the following annual schedule: 0.03% on the first $7 billion of the
aggregate average daily net assets of the Portfolio and the other
portfolios (the "Master Portfolios") in which The JPM Pierpont Funds, The
JPM Institutional Funds or The JPM Advisor Funds invest and 0.01% on the
aggregate average daily net assets of the Master Portfolios in excess of
$7 billion. The portion of this charge paid by the Portfolio was
determined by the proportionate share its net assets bore to the total net
assets of The JPM Pierpont Funds, The JPM Institutional Funds, The JPM
Advisor Funds and the Master Portfolios. For the period from June 1, 1996
to July 31, 1996, Signature's fees for these services amounted to $17,162.
The Administration Agreement with Signature was terminated July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the
Portfolio's exclusive placement agent. Under a Co-Administration Agreement
between FDI and the Portfolio, the Portfolio has agreed to pay FDI fees
equal to its allocable share of an annual complex-wide charge of $425,000
plus FDI's out-of-pocket expenses. The amount allocable to the Portfolio
is based on the ratio of the Portfolio's net assets to the aggregate net
assets of The JPM Pierpont Funds, The JPM Institutional Funds, The JPM
Advisor Funds, the Master Portfolios, JPM Series Trust and JPM Series
Trust II. For the period from August 1, 1996 to May 31, 1997, the fee for
these services amounted to $19,652.
On November 15, 1996, The JPM Advisor Funds terminated operations and were
being liquidated. Subsequent to that date, the net assets of The JPM
Advisor Funds were no longer included in the calculation of the allocation
of FDI's fees.
c)The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing
certain aspects of the administration and operation of the Portfolio.
Under the Services Agreement, the Portfolio has agreed to pay Morgan a fee
equal to its proportionate share of an annual complex-wide charge. Until
July 31, 1996, this charge was calculated
30
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
daily based on the aggregate net assets of the Master Portfolios in
accordance with the following annual schedule: 0.06% on the first $7
billion of the Master Portfolios' aggregate average daily net assets and
0.03% of the Master Portfolios' aggregate average daily net assets in
excess of $7 billion. The portion of this charge paid by the Portfolio was
determined by the proportionate share its net assets bore to the net
assets of the Master Portfolios and investors in the Master Portfolios for
which Morgan provided similar services. For the period from June 1, 1996
to July 31, 1996, the fee for these services amounted to $33,079.
Effective August 1, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios and JPM Series Trust in accordance with
the following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their aggregate average
daily net assets in excess of $7 billion less the complex-wide fees
payable to FDI. The portion of this charge paid by the Portfolio is
determined by the proportionate share that its net assets bear to the net
assets of the Master Portfolios, The JPM Pierpont Funds, The JPM
Institutional Funds, other investors in the Master Portfolios for which
Morgan porvides similar services, and JPM Series Trust. For the period
from August 1, 1996 to May 31, 1997, the fee for these services amounted
to $242,883.
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 $31,320 for the fiscal year ended May 31, 1997.
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represent the Portfolio's allocated
portion of the total fees and expenses. Prior to April 1, 1997, the
aggregate annual Trustee fee was $65,000. The Portfolio's Chairman and
Chief Executive Officer also serves as Chairman of Group and received
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $6,300.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended May 31, 1997 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ---------------------- ------------
<S> <C>
$970,913,085........... $854,268,154
</TABLE>
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Small Company Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operation and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The U.S. Small Company Portfolio (the
"Portfolio") at May 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the supplementary data for each of the three years in the period
then ended and for the period July 19, 1993 (commencement of operations) to May
31, 1994, in conformity with generally accepted accounting principles. These
financial statements and supplementary data (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
1997 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
July 21, 1997
32
<PAGE>
JPM PIERPONT PRIME MONEY MARKET FUND
JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
JPM PIERPONT FEDERAL MONEY MARKET FUND
JPM PIERPONT SHORT TERM BOND FUND
JPM PIERPONT BOND FUND
JPM PIERPONT TAX EXEMPT BOND FUND
JPM PIERPONT NEW YORK TOTAL RETURN BOND FUND
JPM PIERPONT SHARES: CALIFORNIA BOND FUND
JPM PIERPONT EMERGING MARKETS DEBT FUND
JPM PIERPONT DIVERSIFIED FUND
JPM PIERPONT U.S. EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE U.S. EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE DISCIPLINED EQUITY FUND
JPM PIERPONT U.S. SMALL COMPANY FUND
JPM PIERPONT U.S. SMALL COMPANY OPPORTUNITIES FUND
JPM PIERPONT INTERNATIONAL EQUITY FUND
JPM PIERPONT INTERNATIONAL OPPORTUNITIES FUND
JPM PIERPONT EMERGING MARKETS EQUITY FUND
JPM PIERPONT EUROPEAN EQUITY FUND
JPM PIERPONT JAPAN EQUITY FUND
JPM PIERPONT ASIA GROWTH FUND
FOR MORE INFORMATION ON HOW THE JPM PIERPONT
FAMILY OF FUNDS CAN HELP YOU PLAN FOR YOUR
FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
THE
JPM PIERPONT
U.S. SMALL COMPANY
FUND
ANNUAL REPORT
MAY 31, 1997
