<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM PIERPONT CAPITAL APPRECIATION FUND
January 22, 1997
Dear Shareholder:
Strong since their July selloff, small cap stocks included in the Russell 2500
Index returned 3.22% for the six months ended November 30, 1996 and 8.66% for
the three-month period ended on that date. Leading the charge were the energy,
banks, savings and loans, and real estate investment trust (REIT) sectors. Long-
term investors should note that, as of December 31, 1996, the Russell 2500 Index
had risen a very impressive 56.8% over the course of two years -- its fourth
largest upswing since it was first created in 1978.
The JPM Pierpont Capital Appreciation Fund provided a return of 1.88% for the
six-month period ended November 30, 1996 versus an Index return of 3.22%.
However, the Fund provided a return of 19.53% for its shareholders during the
twelve months ended November 30, 1996 -- outpacing the 19.43% return provided
over the same period by the Russell 2500. We feel it is important to note that
the Fund's benchmark is an unmanaged index whose performance does not include
fees or operating expenses and which is not available to individual and/or
institutional investors.
The Fund's net asset value decreased from $26.20 per share to $25.09 at the end
of the six months under review, after making distributions during the period of
$0.19 from long-term capital gains, $1.16 from short-term capital gains, and
$0.11 from ordinary income. The Fund's net assets declined from $220.9 million
on May 31, 1996 to $216.6 million at the end of the review period. The net
assets of The U.S. Small Company Portfolio, in which the Fund invests, totaled
approximately $933 million at November 30, 1996.
The report that follows includes a portfolio manager Q&A 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 our outlook for the months ahead.
As always, we welcome your comments, questions, or any suggestions on how we can
further improve your financial reports. Please call J.P. Morgan Funds Services,
toll free, at (800) 521-5411.
Sincerely yours,
/s/ Evelyn E. Guernsey
Evelyn E. Guernsey
J.P. Morgan Funds Services
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . .1
FUND PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
PORTFOLIO MANAGER Q&A. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
FUND FACTS AND HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . .5
SPECIAL FUND-BASED SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . .6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
1
<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 (or since inception). Total returns for periods of less than one year are
not annualized and provide a picture of how a fund has performed over the short
term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
---------------- ------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF NOVEMBER 30, 1996 MONTHS MONTHS YEAR YEARS YEARS YEARS
- ------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The JPM Pierpont Capital
Appreciation Fund 8.43% 1.88% 19.53% 14.45% 16.58% 12.09%
Russell Benchmark* 8.66% 3.22% 19.43% 16.72% 17.99% 12.34%
Lipper Small Company
Growth Fund Average 6.00% -1.29% 19.76% 16.35% 17.10% 13.85%
AS OF SEPTEMBER 30, 1996
- ------------------------------------------------- ------------------------------------
The JPM Pierpont Capital
Appreciation Fund 1.90% 6.21% 15.44% 12.42% 15.54% 12.33%
Russell Benchmark* 2.26% 6.51% 15.83% 14.36% 16.54% 12.28%
Lipper Small Company
Growth Fund Average 1.76% 9.74% 18.40% 15.36% 16.73% 14.26%
</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 CAPITAL
APPRECIATION FUND INVESTS ALL OF ITS INVESTABLE ASSETS IN THE U.S. SMALL COMPANY
PORTFOLIO, A SEPARATELY REGISTERED INVESTMENT COMPANY WHICH IS NOT AVAILABLE TO
THE PUBLIC BUT ONLY TO OTHER COLLECTIVE INVESTMENT VEHICLES SUCH AS THE FUND.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with MICHAEL J. KELLY, who is 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 January 21, 1997 and reflects Michael's views on that date.
THE FUND SUBSTANTIALLY OUTPERFORMED ITS LIPPER COMPETITORS FOR THE SIX MONTHS
ENDED NOVEMBER 30, 1996. WHY DO YOU THINK THE FUND'S INVESTMENT STRATEGY WAS
WELL SUITED TO THE MARKET CLIMATE FOR THE PERIOD?
MJK: Our low risk investment style was a major contributor to the Portfolio's
strong return against competitors for the period. The majority of small cap
managers tend to be overweighted all the time in the market's "growth sectors,"
which did well during the last few years. The market environment changed in the
second half of 1996, however, as a few earnings disappointments highlighted the
risks associated with these growing areas -- these scattered reports quickly
deflated entire sectors. Some of the traditional growth sectors that came under
pressure included health care, software, retail, and services.
Our Portfolio's sector-neutral strategy performed well in this changing
environment. We believe that having broad sector exposure and over 350
securities in the Portfolio provides significantly more downside protection than
competitors, especially when certain "theme" type investments falter.
WERE THERE PARTICULAR SECTORS WHERE THE FUND OUTPERFORMED THE INDEX OVER THE
SAME PERIOD?
MJK: Sectors in the Fund that outperformed included REITs, savings and loans,
and basic industry. This is not surprising considering that these sectors
trailed for most of the first half of the year, when investors tended to have a
more short-term view, especially in the traditional growth sectors. When longer-
term views prevailed during the second half, these sectors outperformed in
relative terms.
WHICH PORTFOLIO HOLDINGS CONTRIBUTED MOST TO THIS RELATIVE OUTPERFORMANCE AND
WHAT PART OF THE MORGAN RESEARCH ON THEM INITIALLY CAUGHT YOUR INVESTMENT EYE?
MJK: One of the securities that helped the Fund's relative performance was
DEKALB GENETICS CORP., a corn seed producer followed by analyst Jim Brown. We
have liked the stock for more than a year now, and it has been one of the
Portfolio's top performers over that period. We believe that market participants
are finally beginning to comprehend the company's superior yields, along with
its continuing ability to gain market share from the industry leader, Pioneer.
Dekalb Genetics Corp. is one of the Portfolio's largest holdings.
3
<PAGE>
QUANTUM CORP., which designs and markets hard disk drives for the computer
industry, recently enjoyed a price resurgence as investors regained
confidence in the company's restructuring plans. Quantum has been
restructuring since it acquired Digital Equipment Corp.'s storage product
business. The most recent move to pique investors' interests was the
company's plan to move its high-end disk production plant from Boston to
their joint venture partner in Japan.
IN YOUR VIEW, ARE ANY OF THE PORTFOLIO SECTORS THAT HAVE RECENTLY UNDERPERFORMED
LIKELY TO REBOUND IN THE MONTHS AHEAD?
MJK: Portfolio selections in the retail sector have proved somewhat
disappointing during the past few months. We do see promise in the sector going
forward, since we believe much of its recent underperformance stemmed from year-
end tax loss selling.
THE U.S. ECONOMIC GROWTH HAS ACCELERATED IN RECENT MONTHS, WITH ADDITIONAL
GROWTH PROJECTED FOR 1997. DO YOU EXPECT SUCH AN ENVIRONMENT TO BE GOOD FOR
SMALL CAP STOCKS?
MJK: We would expect this environment to be very good for small cap stocks.
Indeed, coupled with small cap's underperformance relative to large cap stocks
over the last three years, we believe it could help foster an extended period of
relative outperformance in the small cap market.
THE RUSSELL 2500 INDEX EXPERIENCED A CONSIDERABLE DECLINE IN JULY, IN FACT ITS
EIGHTH-LARGEST DROP SINCE IT WAS CREATED IN 1978. WHAT DO YOU THINK WERE SOME OF
THE REASONS UNDERLYING THIS DECLINE, AND WHAT ARE THE PORTFOLIO'S GOALS AND
STRUCTURE WITH REGARD TO PROTECTION AGAINST MARKET VOLATILITY?
MJK: The major reason for the July sell-off was an inventory correction in the
technology sector that brought about an abundance of negative earnings
surprises. We attempt to protect the Fund by not owning the real "high flyers"
among momentum-driven stocks.
COULD YOU GIVE US THREE REASONS WHY INVESTORS SHOULD BE ENTHUSIASTIC ABOUT THIS
ASSET CLASS RIGHT NOW?
MJK: Value, value, and value. Small cap stocks are now the cheapest they have
been, relative to large cap stocks, since 1992. The rising U.S. dollar should
also prove helpful, along with relative earnings revisions which recently
flipped over from favoring large cap stocks to favoring small cap stocks.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The JPM Pierpont Capital Appreciation 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 11/30/96
$216,639,289
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE
12/27/96
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 NOVEMBER 30, 1996
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART] -- Finance 19.1%
-- Technology 18.4%
-- Consumer goods 17.1%
-- Industrial 11.1%
-- Health care 8.1%
-- Basic industries 8.0%
-- Energy 6.4%
-- Utilities 6.1%
-- Short-term holdings 3.8%
-- Transportation 1.9%
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- --------------------------------------------------------------------------------
CAPITAL RE CORP. 1.5%
DEKALB GENETICS CORP. 1.3%
ROHR INDUSTRIES, INC. 1.2%
PAGING NETWORK, INC. 1.1%
COMMERCIAL METALS CO. 1.1%
5
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- - create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- - make ongoing tactical adjustments in the actual asset mix of their portfolios
to capitalize on shifting market trends;
- - make investments through The 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
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 JPM Pierpont Funds
can help you build a comprehensive investment program designed to maximize the
retirement dollars in your Keogh account.
6
<PAGE>
FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR OF THE JPM PIERPONT CAPITAL
APPRECIATION 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.
7
<PAGE>
THE JPM PIERPONT CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Small Company Portfolio
("Portfolio"), at value $216,143,208
Receivable for Shares of Beneficial Interest Sold 488,121
Receivable for Expense Reimbursements 44,610
Prepaid Trustees' Fees 1,187
Prepaid Expenses and Other Assets 28,143
------------
Total Assets 216,705,269
------------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 2,000
Shareholder Servicing Fee Payable 43,203
Administrative Services Fee Payable 5,484
Administration Fee Payable 1,403
Fund Services Fee Payable 288
Accrued Expenses 13,602
------------
Total Liabilities 65,980
------------
NET ASSETS
Applicable to 8,635,245 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $216,639,289
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $25.09
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $174,713,541
Undistributed Net Investment Income 768,344
Accumulated Net Realized Gain on Investment 10,841,867
Net Unrealized Appreciation of Investment 30,315,537
------------
Net Assets $216,639,289
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
THE JPM PIERPONT CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $11,121) $ 1,452,506
Allocated Interest Income 247,191
Allocated Portfolio Expenses (714,706)
-----------
Net Investment Income Allocated from
Portfolio 984,991
FUND EXPENSES
Shareholder Servicing Fee $259,260
Administrative Services Fee 30,356
Transfer Agent Fees 24,686
Printing Expenses 15,973
Administration Fee 6,881
Professional Fees 4,823
Fund Services Fee 3,718
Trustees' Fees and Expenses 1,274
Registration Fees 1,053
Miscellaneous 1,966
--------
Total Fund Expenses 349,990
Less: Reimbursement of Expenses (131,363)
--------
NET FUND EXPENSES 218,627
-----------
NET INVESTMENT INCOME 766,364
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 9,092,000
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (6,495,544)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 3,362,820
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM PIERPONT CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
NOVEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MAY 31, 1996
----------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 766,364 $ 2,137,623
Net Realized Gain on Investment Allocated from
Portfolio 9,092,000 22,354,926
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio (6,495,544) 35,212,960
----------------- --------------
Net Increase in Net Assets Resulting from
Operations 3,362,820 59,705,509
----------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (900,019) (2,044,538)
Net Realized Gain (11,358,097) (22,173,858)
----------------- --------------
Total Distributions to Shareholders (12,258,116) (24,218,396)
----------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 15,192,397 33,420,888
Reinvestment of Dividends and Distributions 8,448,229 20,016,496
Cost of Shares of Beneficial Interest Redeemed (19,022,583) (47,138,171)
----------------- --------------
Net Increase from Transactions in Shares of
Beneficial Interest 4,618,043 6,299,213
----------------- --------------
Total Increase (Decrease) in Net Assets (4,277,253) 41,786,326
NET ASSETS
Beginning of Period 220,916,542 179,130,216
----------------- --------------
End of Period (including undistributed net
investment income of $768,344 and $901,999,
respectively) $ 216,639,289 $ 220,916,542
----------------- --------------
----------------- --------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM PIERPONT CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED MAY 31,
NOVEMBER 30, 1996 ---------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
----------------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 26.20 $ 22.02 $ 21.40 $ 25.12 $ 20.03 $ 17.98
----------------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.09 0.26 0.22 0.20 (0.01) (0.04)
Net Realized and Unrealized Gain on Investment 0.26 6.96 2.13 0.19 5.10 2.09
----------------- -------- -------- -------- -------- -------
Total from Investment Operations 0.35 7.22 2.35 0.39 5.09 2.05
----------------- -------- -------- -------- -------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.11) (0.26) (0.21) (0.09) -- --
Net Realized Gain (1.35) (2.78) (1.52) (4.02) -- --
----------------- -------- -------- -------- -------- -------
Total Distributions to Shareholders (1.46) (3.04) (1.73) (4.11) -- --
----------------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 25.09 $ 26.20 $ 22.02 $ 21.40 $ 25.12 $ 20.03
----------------- -------- -------- -------- -------- -------
----------------- -------- -------- -------- -------- -------
Total Return 1.88%+ 35.48% 12.28% 1.14% 25.41% 11.40%
----------------- -------- -------- -------- -------- -------
----------------- -------- -------- -------- -------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(in thousands) $ 216,639 $220,917 $179,130 $204,445 $186,887 $97,548
Ratios to Average Net Assets
Expenses 0.90%(a) 0.90% 0.90% 0.90% 0.90% 0.90%
Net Investment Income 0.74%(a) 1.10% 1.02% 0.75% (0.06)% (0.25)%
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.12%(a) 0.13% 0.22% 0.20% 0.05% 0.13%
Portfolio Turnover -- -- -- 14%* 50% 58%
</TABLE>
- ------------------------
* 1994 Portfolio Turnover reflects the period June 1, 1993 to July 18, 1993.
After July 18, 1993, all the Fund's investable assets were invested in The
U.S. Small Company Portfolio.
+ Not annualized.
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Pierpont Capital Appreciation Fund (the "Fund") is a separate series of
The JPM Pierpont Funds, a Massachusetts business trust (the "Trust"). 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 October 10, 1996, the Fund's and the Trust's
names were The Pierpont Capital Appreciation Fund and The Pierpont Funds,
respectively.
The Fund invests all of its investable assets in The U.S. Small Company
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment 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 (23% at
November 30, 1996). 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
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.
12
<PAGE>
THE JPM PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
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 Fund's officers affiliated with Signature. Effective
December 29, 1995, the Administration Agreement provided for a fee to be
paid to Signature such that the fee charged was 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 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 through 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 and the Master
Portfolios. For the period from August 1, 1996 through November 30, 1996,
the fee for these services amounted to $2,498.
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 are no longer included in the calculation of the allocation
of FDI's fees.
b)Effective December 29, 1995, the Trust, on behalf of the Fund, entered
into 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 had 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. 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 through 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 in accordance with
13
<PAGE>
THE JPM PIERPONT CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
the following annual schedule: 0.09% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets and 0.04% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion
less the complex-wide fees payable to FDI. The allocation of the Fund's
portion of this charge is described above. For the period from August 1,
1996 through November 30, 1996, the fee for these services amounted to
$21,908.
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 six months ended November 30, 1996, Morgan has agreed to
reimburse the Fund $131,363 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 six months
ended November 30, 1996, the fee for these services amounted to $259,260.
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
$3,718 for the six months ended November 30, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM Institutional Funds and the Master
Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represent the Fund's allocated portion of the total fees and
expenses. The Trust'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 $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 SIX
MONTHS ENDED FOR THE FISCAL
NOVEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MAY 31, 1996
----------------- --------------
<S> <C> <C>
Shares of beneficial interest sold 623,478 1,414,478
Reinvestment of dividends and distributions 368,918 884,791
Shares of beneficial interest redeemed (788,542) (2,004,592)
----------------- --------------
Net Increase 203,854 294,677
----------------- --------------
----------------- --------------
</TABLE>
14
<PAGE>
The U.S. Small Company Portfolio
Semi-Annual Report November 30, 1996
(unaudited)
(The following pages should be read in conjunction
with The JPM Pierpont Capital Appreciation Fund
Semi-Annual Financial Statements)
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMMON STOCKS (96.3%)
BASIC INDUSTRIES (8.0%)
AGRICULTURE (1.3%)
Dekalb Genetics Corp............................. 338,575 $ 12,442,631
-------------
CHEMICALS (3.1%)
Albemarle Corp................................... 344,600 6,245,875
Crompton & Knowles Corp.......................... 222,900 4,095,787
Cytec Industries, Inc.+.......................... 62,300 2,305,100
General Chemical Group, Inc...................... 494,800 9,772,300
Landec Corp.+.................................... 26,500 225,250
OM Group, Inc.................................... 13,300 545,300
RPM, Inc......................................... 166,700 3,031,856
Synalloy Corp.................................... 36,100 591,137
Wellman, Inc..................................... 144,300 2,326,837
-------------
29,139,442
-------------
FOREST PRODUCTS & PAPER (1.0%)
American Pad & Paper Co.+........................ 109,000 2,166,375
Caraustar Industries, Inc........................ 59,400 2,019,600
Glatfelter (P.H.) Co............................. 164,800 3,007,600
Jefferson Smurfit Corp.+......................... 85,300 1,156,881
Universal Forest Products, Inc................... 68,600 866,075
-------------
9,216,531
-------------
METALS & MINING (2.6%)
Allegheny Teledyne, Inc.......................... 130,573 3,052,144
Alumax, Inc.+.................................... 55,200 1,787,100
Commercial Metals Co............................. 310,500 9,897,187
Minera Rayrock, Inc.*............................ 696,600 232,600
Oregon Steel Mills, Inc.......................... 61,700 1,056,612
Schnitzer Steel Industries, Inc.................. 95,800 2,592,587
Steel Technologies, Inc.......................... 444,800 5,615,600
-------------
24,233,830
-------------
TOTAL BASIC INDUSTRIES......................... 75,032,434
-------------
CONSUMER GOODS & SERVICES (17.2%)
AUTOMOTIVE (1.4%)
Amcast Industrial Corp........................... 73,000 1,724,625
Excel Industries, Inc............................ 269,600 4,044,000
Lear Corp.+...................................... 109,100 3,913,962
Simpson Industries, Inc.......................... 368,700 3,825,262
-------------
13,507,849
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BROADCASTING & PUBLISHING (1.3%)
Banta Corp....................................... 63,600 $ 1,518,450
Consolidated Graphics, Inc.+..................... 137,500 6,239,062
Digital Generation Systems, Inc.+................ 35,100 307,125
Heartland Wireless Communications, Inc.+......... 63,600 763,200
Heritage Media Corp.+............................ 114,100 1,583,137
K-III Communications Corp.+...................... 95,700 957,000
Norwood Promotional Products, Inc.+.............. 66,600 1,073,925
-------------
12,441,899
-------------
CONSTRUCTION & HOUSING (0.5%)
D.R. Horton, Inc.+............................... 475,100 4,988,550
-------------
ENTERTAINMENT, LEISURE & MEDIA (2.4%)
Ascent Entertainment Group, Inc.+................ 116,600 1,909,325
Boyd Gaming Corp.+............................... 235,700 1,915,062
CKS Group, Inc.+................................. 15,600 324,675
Education Management Corp.+...................... 35,600 649,700
Golden Bear Golf, Inc.+.......................... 4,600 61,812
Grand Casinos, Inc.+............................. 247,200 3,151,800
Imax Corp.+...................................... 131,100 4,457,400
Johnson Worldwide Associates, Inc.+.............. 70,000 813,750
Royal Caribbean Cruises Ltd.*.................... 64,900 1,679,287
SCP Pool Corp.+.................................. 44,700 860,475
Steiner Leisure Ltd.*+........................... 64,900 880,206
WMS Industries, Inc.+............................ 228,000 5,757,000
-------------
22,460,492
-------------
FOOD, BEVERAGES & TOBACCO (1.1%)
Consolidated Cigar Holdings Inc.+................ 27,600 672,750
Coors (Adolph) Co................................ 68,400 1,350,900
Dreyer's Grand Ice Cream, Inc.................... 48,400 1,331,000
Eskimo Pie Corp.................................. 100,100 1,051,050
Morningstar Group, Inc.+......................... 68,600 1,174,775
Riviana Foods, Inc............................... 70,900 1,289,494
Sanderson Farms, Inc............................. 48,400 771,375
Savannah Foods & Industries, Inc................. 55,200 786,600
Universal Foods Corp............................. 48,200 1,783,400
-------------
10,211,344
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
HOUSEHOLD APPLIANCES FURNISHINGS (0.7%)
Aaron Rents, Inc................................. 64,200 $ 910,837
Bush Industries, Inc............................. 100,500 1,821,562
Sunbeam Corporation, Inc......................... 121,100 3,345,387
-------------
6,077,786
-------------
HOUSEHOLD PRODUCTS (1.6%)
Bush Boake Allen, Inc.+.......................... 75,900 1,935,450
Department 56, Inc.+............................. 218,300 5,075,475
First Brands Corp................................ 75,800 2,169,775
Libbey, Inc...................................... 99,600 2,676,750
Safety 1st, Inc.+................................ 294,100 3,327,006
-------------
15,184,456
-------------
PERSONAL CARE (0.3%)
French Fragrances, Inc.+......................... 107,100 923,737
Tambrands, Inc................................... 41,600 1,778,400
-------------
2,702,137
-------------
RESTAURANTS & HOTELS (3.2%)
Candlewood Hotel Company, Inc.+.................. 124,000 1,255,500
Darden Restaurants, Inc.......................... 628,700 5,422,537
Doubletree Corp.+................................ 42,800 1,810,975
Extended Stay America, Inc.+..................... 186,400 3,914,400
La Quinta Inns, Inc.............................. 233,700 4,498,725
Landry's Seafood Restaurants, Inc.+.............. 104,100 2,472,375
Outback Steakhouse, Inc.+........................ 74,700 2,161,631
Papa John's International, Inc.+................. 49,650 1,607,419
Planet Hollywood International, Inc.+............ 12,400 285,200
Wendy's International, Inc....................... 284,300 6,076,912
-------------
29,505,674
-------------
RETAIL (4.6%)
Books-A-Million, Inc.+........................... 100,900 687,381
Catherines Stores Corp.+......................... 168,400 968,300
Charming Shoppes, Inc............................ 263,400 1,333,462
Dominick's Supermarkets, Inc.+................... 33,500 703,500
Duckwall-Alco Stores, Inc.+...................... 27,200 343,400
Footstar, Inc.+.................................. 116,800 2,394,400
Garden Ridge Corp.+.............................. 267,400 2,206,050
General Nutrition Companies, Inc.+............... 471,100 8,155,919
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
RETAIL (CONTINUED)
Hannaford Brothers Co............................ 49,700 $ 1,602,825
Kohl's Corp.+.................................... 49,200 1,961,850
Lazare Kaplan International, Inc.+............... 23,300 451,437
Linens 'N Things, Inc.+.......................... 42,000 656,250
Loehmann's Holdings, Inc.+....................... 55,500 1,668,469
Nu Skin Asia Pacific Inc.+....................... 9,400 278,475
One Price Clothing Stores, Inc.+................. 329,100 915,309
Pacific Sunwear of California+................... 13,100 352,062
Party City Corp.+................................ 70,500 1,048,687
Penn Traffic Co.+................................ 198,300 1,016,287
Stage Stores, Inc.+.............................. 45,000 829,687
Sunglass Hut International, Inc.+................ 259,400 1,880,650
Talbots, Inc..................................... 130,400 3,765,300
TJX Companies, Inc............................... 125,400 5,658,675
Trans World Entertainment Corp.+................. 91,900 735,200
Urban Outfitters, Inc.+.......................... 117,200 1,714,050
Wolverine World Wide, Inc........................ 44,400 1,193,250
-------------
42,520,875
-------------
TEXTILES (0.1%)
Ashworth, Inc.+.................................. 16,000 100,000
Worldtex, Inc.+.................................. 57,200 471,900
-------------
571,900
-------------
TOTAL CONSUMER GOODS & SERVICES................ 160,172,962
-------------
ENERGY (6.4%)
GAS EXPLORATION (1.8%)
Devon Energy Corp................................ 61,600 2,233,000
El Paso Natural Gas Co........................... 41,900 2,095,000
K N Energy, Inc.................................. 67,000 2,721,875
Newfield Exploration Co.+........................ 42,000 2,105,250
Texas Meridian Resources Corp.+.................. 54,500 906,062
TransCanada Pipelines Ltd.*...................... 387,700 6,930,137
-------------
16,991,324
-------------
OIL-PRODUCTION (2.1%)
Anadarko Petroleum Corp.......................... 47,900 3,203,312
Diamond Shamrock, Inc............................ 29,700 965,250
Flores & Rucks, Inc.+............................ 58,600 2,878,725
MAPCO, Inc....................................... 148,000 4,995,000
Monterey Resources, Inc.+........................ 46,000 759,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
OIL-PRODUCTION (CONTINUED)
Noble Affiliates, Inc............................ 90,000 $ 4,241,250
Vastar Resources, Inc............................ 57,300 2,299,162
-------------
19,341,699
-------------
OIL-SERVICES (2.5%)
Camco International, Inc......................... 51,700 2,158,475
Dreco Energy Services Ltd.*+..................... 90,700 3,707,362
Input/Output, Inc.+.............................. 376,200 9,028,800
National-Oilwell, Inc.+.......................... 57,700 1,630,025
Smith International, Inc.+....................... 38,300 1,565,512
Transocean Offshore Inc.......................... 63,800 3,843,950
Trico Marine Services, Inc.+..................... 31,000 1,313,625
-------------
23,247,749
-------------
TOTAL ENERGY................................... 59,580,772
-------------
FINANCE (19.1%)
BANKING (7.2%)
Bancorp Hawaii, Inc.............................. 13,500 588,937
Bank United Corp.+............................... 39,200 1,048,600
Banknorth Group, Inc............................. 69,100 2,668,987
CCB Financial Corp............................... 34,500 2,294,250
Charter One Financial, Inc....................... 38,000 1,648,250
Colonial BancGroup, Inc.......................... 129,700 5,188,000
Crestar Financial Corp........................... 12,300 856,387
Dime Bancorp, Inc.+.............................. 199,620 3,168,967
First Alliance Corp.+............................ 21,700 626,587
First Hawaiian, Inc.............................. 42,500 1,378,594
First Republic Bancorp, Inc.+.................... 51,000 911,625
Firstar Corp..................................... 74,800 3,992,450
FirstFed Financial Corp.+........................ 65,200 1,556,650
GBC Bancorp...................................... 108,600 3,081,525
GreenPoint Financial Corp........................ 180,500 8,709,125
HUBCO, Inc....................................... 125,588 3,076,906
Irwin Financial Corp............................. 24,500 1,194,375
Mountain Parks Financial Corp.+.................. 38,800 1,331,325
National Commerce Bancorporation................. 61,800 2,255,700
Pinnacle Financial Services, Inc................. 51,800 1,217,300
Roosevelt Financial Group, Inc................... 313,100 6,007,606
Security First Network Bank+..................... 35,100 399,262
Sterling Bancshares, Inc......................... 77,900 1,334,037
Trans Financial, Inc............................. 31,000 660,687
Trustco Bank Corp................................ 77,700 1,685,119
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
BANKING (CONTINUED)
Westamerica Bancorporation....................... 67,600 $ 3,895,450
Wilmington Trust Corp............................ 154,500 6,334,500
-------------
67,111,201
-------------
FINANCIAL SERVICES (2.0%)
Advanta Corp..................................... 84,800 3,577,500
Amresco, Inc..................................... 39,900 862,837
Cole Taylor Financial Group, Inc................. 22,500 642,656
Edwards (A.G.), Inc.............................. 112,000 3,500,000
Emergent Group, Inc.+............................ 28,600 334,262
Hambrecht & Quist Group+......................... 34,700 850,150
Litchfield Financial Corp........................ 66,940 870,220
Mercury Finance Co............................... 297,400 3,457,275
Ocwen Financial Corp.+........................... 2,500 71,250
Southwest Securities Group, Inc.................. 139,300 1,784,781
WFS Financial, Inc.+............................. 65,700 1,502,887
Willis Lease Finance Corp.+...................... 42,000 480,375
Winthrop Resources Corp.......................... 23,900 690,112
-------------
18,624,305
-------------
INSURANCE (4.7%)
AMBAC, Inc....................................... 70,000 4,795,000
Capital Re Corp.................................. 358,600 13,761,275
Chartwell Re Corp................................ 56,300 1,548,250
Mid Ocean Ltd.*.................................. 41,900 2,016,437
MMI Companies, Inc............................... 253,400 7,823,725
PartnerRe Ltd.*.................................. 128,500 4,176,250
RenaissanceRe Holdings, Ltd.*.................... 111,300 3,951,150
W. R. Berkley Corp............................... 112,400 5,929,100
-------------
44,001,187
-------------
REAL ESTATE INVESTMENT TRUSTS (5.2%)
Arden Realty Group, Inc.+........................ 54,400 1,312,400
Bay Apartment Communities, Inc................... 60,400 1,963,000
Brandywine Realty Trust.......................... 25,600 454,400
Cali Realty Corporation.......................... 110,800 3,130,100
Capstone Capital Trust, Inc...................... 114,900 2,412,900
Chelsea GCA Realty, Inc.......................... 85,800 2,702,700
Colonial Properties Trust........................ 108,700 2,921,312
Columbus Realty Trust............................ 141,300 3,002,625
Crescent Real Estate Equities, Inc............... 40,300 1,768,163
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
Developers Diversified Realty Corp............... 100,200 $ 3,369,225
Equity Residential Properties Trust.............. 95,100 3,815,888
Gables Residential Trust......................... 101,000 2,701,750
Healthcare Realty Trust, Inc..................... 91,600 2,335,800
Highwoods Properties, Inc........................ 73,800 2,269,350
Liberty Property Trust........................... 64,000 1,488,000
MerryLand & Investment Company, Inc.............. 25,500 510,000
Oasis Residential, Inc........................... 101,800 2,137,800
Patriot American Hospitality, Inc................ 54,800 2,075,550
Price REIT, Inc.................................. 31,500 1,094,625
Public Storage, Inc.............................. 56,700 1,438,763
Starwood Lodging Trust........................... 114,400 5,462,600
Weeks Corp....................................... 13,400 380,225
-------------
48,747,176
-------------
TOTAL FINANCE.................................. 178,483,869
-------------
HEALTH CARE (8.1%)
BIOTECHNOLOGY (1.7%)
Affymetrix, Inc.+................................ 25,800 493,425
Agouron Pharmaceuticals, Inc.+................... 18,700 1,030,838
ArQule, Inc.+.................................... 27,200 289,000
Houghten Pharmaceuticals, Inc.+.................. 85,300 415,838
Human Genome Sciences, Inc.+..................... 84,300 3,098,025
IDEC Pharmaceuticals Corp.+...................... 31,400 759,488
Incyte Pharmaceuticals, Inc.+.................... 50,100 1,906,931
MIM Corp.+....................................... 4,700 24,381
ONYX Pharmaceuticals, Inc.+...................... 42,900 431,681
SangStat Medical Corp.+.......................... 86,900 1,971,544
Sequana Therapeutics, Inc.+...................... 86,700 1,387,200
Somatogen, Inc.+................................. 119,000 1,309,000
Transkaryotic Therapies, Inc.+................... 14,500 257,375
Vertex Pharmaceuticals, Inc.+.................... 37,200 1,190,400
Vical, Inc.+..................................... 55,200 1,028,100
Virus Research Institute, Inc.+.................. 70,600 419,188
-------------
16,012,414
-------------
HEALTH SERVICES (3.8%)
Applied Analytical Industries, Inc.+............. 24,800 520,800
Apria Healthcare Group, Inc.+.................... 191,900 3,454,200
Diagnostic Health Services, Inc.+................ 37,400 264,138
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
HEALTH SERVICES (CONTINUED)
Foundation Health Corp.+......................... 47,000 $ 1,374,750
Health Care & Retirement Corp.+.................. 156,000 4,270,500
Health Systems International, Inc.+.............. 134,700 3,098,100
Healthsource, Inc.+.............................. 352,200 3,962,250
Kapson Senior Quarters Corp.+.................... 72,900 528,525
Lifeline Systems, Inc.+.......................... 31,000 525,063
Mariner Health Group, Inc.+...................... 284,200 2,095,975
MedPartners, Inc.+............................... 77,278 1,758,075
Paracelsus Healthcare Corp.+..................... 68,000 238,000
Sierra Health Services, Inc.+.................... 106,900 2,632,413
Sterling House Corp.+............................ 71,400 606,900
Summit Care Corp.+............................... 183,600 2,708,100
Sunrise Assisted Living, Inc.+................... 19,500 465,563
Ventana Medical Systems, Inc.+................... 128,500 2,232,688
Vivra, Inc.+..................................... 142,100 4,369,575
-------------
35,105,615
-------------
MEDICAL SUPPLIES (1.5%)
CellPro, Inc.+................................... 130,700 1,625,581
Eclipse Surgical Technologies+................... 45,800 360,675
Fisher Scientific International, Inc............. 17,300 791,475
Heartstream, Inc.+............................... 74,700 1,059,806
Kensey Nash Corp.+............................... 107,700 1,736,663
KeraVision, Inc.+................................ 165,600 2,463,300
Medi-Ject Corp.+................................. 122,600 605,338
Perseptive Biosystems, Inc.+..................... 76,200 523,875
Physio-Control International Corp.+.............. 34,800 648,150
Research Medical, Inc.+.......................... 159,500 3,299,656
Sola International, Inc.+........................ 36,400 1,278,550
-------------
14,393,069
-------------
PHARMACEUTICALS (1.1%)
Alza Corp.+...................................... 232,800 6,576,600
Forest Laboratories, Inc.+....................... 100,600 3,898,250
-------------
10,474,850
-------------
TOTAL HEALTH CARE.............................. 75,985,948
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (11.1%)
BUILDING MATERIALS (0.5%)
BMC West Corp.+.................................. 31,100 $ 373,200
Owens Corning.................................... 102,600 4,398,975
-------------
4,772,175
-------------
BUSINESS & PUBLIC SERVICES (0.0%)=/=
American Residential Services, Inc.+............. 17,400 371,925
-------------
CAPITAL GOODS (2.9%)
ABC Rail Products Corp.+......................... 36,900 724,163
Applied Power, Inc............................... 158,200 5,734,750
Cincinnati Milacron, Inc......................... 127,300 2,641,475
Collins & Aikman Corp.+.......................... 249,500 1,497,000
IDEX Corp........................................ 53,500 2,106,563
Measurex Corp.................................... 97,300 2,396,013
Modine Manufacturing Co.......................... 252,800 6,256,800
Strategic Distribution, Inc.+.................... 120,200 833,888
TRINOVA Corp..................................... 17,380 634,370
Wabash National Corp............................. 253,500 4,467,938
-------------
27,292,960
-------------
COMMERCIAL SERVICES (2.1%)
ADT Ltd.*+....................................... 167,300 3,429,650
DeVry, Inc.+..................................... 97,300 4,342,013
Equity Corp. International+...................... 70,100 1,472,100
May & Speh, Inc.+................................ 112,700 1,493,275
Ogden Corp....................................... 93,600 1,813,500
Pinkertons, Inc.+................................ 70,900 1,754,775
Pittston Brink's Group........................... 85,400 2,177,700
Robert Half International, Inc.+................. 76,500 2,849,625
Whittman-Hart, Inc.+............................. 5,500 248,188
-------------
19,580,826
-------------
DIVERSIFIED MANUFACTURING (1.8%)
American Standard Co., Inc.+..................... 51,700 1,971,063
Brady (W.H.) Co.................................. 108,300 2,396,138
Greenfield Industries, Inc....................... 46,600 1,351,400
Hexcel Corp.+.................................... 39,600 717,750
Intermet Corp.................................... 571,200 7,782,600
Mueller Industries, Inc.+........................ 41,200 1,611,950
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
DIVERSIFIED MANUFACTURING (CONTINUED)
Nu-Kote Holding, Inc.+........................... 42,500 $ 451,563
Special Devices, Inc.+........................... 26,300 379,706
-------------
16,662,170
-------------
ELECTRICAL EQUIPMENT (1.8%)
Anixter International, Inc.+..................... 247,600 4,147,300
Bolder Technologies Corp.+....................... 44,100 633,938
Encore Wire Corp.+............................... 132,100 2,080,575
Grainger (W.W.), Inc............................. 115,200 9,158,400
Kuhlman Corp..................................... 32,200 567,525
-------------
16,587,738
-------------
POLLUTION CONTROL (2.0%)
American Disposal Services, Inc.+................ 107,300 1,716,800
Culligan Water Technologies, Inc.+............... 54,700 2,037,575
Dames & Moore, Inc............................... 217,200 2,959,350
Sevenson Environmental Services, Inc............. 63,000 1,055,250
Tetra Technologies, Inc.+........................ 202,700 5,156,181
USA Waste Services, Inc.+........................ 73,500 2,370,375
Wheelabrator Technologies, Inc................... 186,700 3,057,213
-------------
18,352,744
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 103,620,538
-------------
TECHNOLOGY (18.5%)
AEROSPACE (2.2%)
Coltec Industries, Inc.+......................... 282,600 5,228,100
Orbital Sciences Corp.+.......................... 226,600 4,347,888
Rohr Industries, Inc.+........................... 625,300 10,942,750
-------------
20,518,738
-------------
COMPUTER PERIPHERALS (2.4%)
In Focus Systems, Inc.+.......................... 50,300 1,056,300
Komag, Inc.+..................................... 170,200 5,520,863
Pinnacle Systems, Inc.+.......................... 98,000 1,016,750
Planar Systems, Inc.+............................ 204,500 2,134,469
Quantum Corp.+................................... 284,900 7,656,688
Raster Graphics, Inc.+........................... 44,200 453,050
Read-Rite Corp.+................................. 219,500 4,870,156
Storm Technology, Inc.+.......................... 16,100 128,800
-------------
22,837,076
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMPUTER SOFTWARE (3.1%)
Acxiom Corp.+.................................... 41,800 $ 958,788
Analogy, Inc.+................................... 58,500 259,594
Aspen Technology, Inc.+.......................... 17,000 1,412,063
Aurum Software, Inc.+............................ 3,300 116,325
Avid Technology, Inc.+........................... 41,700 531,675
BMC Software, Inc.+.............................. 65,700 2,874,375
Broderbund Software, Inc.+....................... 44,900 1,349,806
Edify Corp.+..................................... 65,800 904,750
Forte Software, Inc.+............................ 14,000 449,750
Inso Corp.+...................................... 39,400 1,681,888
ISOCOR+.......................................... 13,100 75,325
MathSoft, Inc.+.................................. 160,600 722,700
Mentor Graphics Corp.+........................... 63,400 622,113
MetaTools, Inc.+................................. 27,600 508,875
Metromail Corp.+................................. 51,900 1,200,188
Microware Systems Corp.+......................... 29,700 452,925
Network General Corp.+........................... 222,900 5,391,394
Objective Systems Integrators, Inc.+............. 55,600 1,369,150
Red Brick Systems, Inc.+......................... 21,100 501,125
Rogue Wave Software+............................. 7,200 93,600
Simulation Sciences, Inc.+....................... 46,700 586,669
The Learning Company, Inc.+...................... 100,200 1,703,400
Transaction Systems Architects, Inc.+............ 41,100 1,510,425
Tripos, Inc.+.................................... 135,000 2,143,125
Verity, Inc.+.................................... 17,900 297,588
Visigenic Software, Inc.+........................ 60,800 889,200
-------------
28,606,816
-------------
COMPUTER SYSTEMS (1.2%)
BBN Corp.+....................................... 70,700 1,626,100
EMC Corp.+....................................... 247,700 7,988,325
International Network Services................... 6,100 196,725
Sapient Corp.+................................... 20,400 813,450
Vanstar Corp.+................................... 33,500 912,875
-------------
11,537,475
-------------
ELECTRONICS (2.4%)
Adept Technology, Inc.+.......................... 189,700 1,363,469
Gemstar International Group Ltd.+................ 23,800 389,725
Harris Corp...................................... 24,100 1,650,850
Itron, Inc.+..................................... 99,400 1,975,575
Microchip Technology, Inc.+...................... 140,400 6,721,650
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
ELECTRONICS (CONTINUED)
Nimbus CD International, Inc.+................... 118,900 $ 1,010,650
Perkin-Elmer Corp................................ 98,800 6,088,550
Symbol Technologies, Inc.+....................... 61,800 2,881,425
Telxon Corp...................................... 23,300 281,056
-------------
22,362,950
-------------
INFORMATION PROCESSING (0.4%)
Checkfree Corp.+................................. 70,000 1,181,250
DST Systems, Inc.+............................... 52,100 1,686,738
National Processing, Inc.+....................... 28,800 518,400
-------------
3,386,388
-------------
SEMICONDUCTORS (3.1%)
Actel Corp.+..................................... 191,800 4,195,625
Adaptec, Inc.+................................... 109,800 4,090,050
Advanced Technology Materials, Inc.+............. 286,200 3,953,138
Credence Systems Corp.+.......................... 86,900 1,710,844
ESS Technology, Inc.+............................ 39,800 783,563
LSI Logic Corp.+................................. 148,800 4,482,600
Micrel, Inc.+.................................... 148,600 3,696,425
Oak Technology, Inc.+............................ 166,200 1,651,613
S3, Inc.+........................................ 20,300 343,831
SDL, Inc.+....................................... 183,000 4,151,813
-------------
29,059,502
-------------
TELECOMMUNICATION SERVICES (0.5%)
Frontier Corp.................................... 61,700 1,619,625
ICG Communications, Inc.+........................ 50,800 1,066,800
McLeod, Inc.+.................................... 52,200 1,507,275
-------------
4,193,700
-------------
TELECOMMUNICATIONS (1.8%)
Omnipoint Corp.+................................. 79,400 2,104,100
Paging Network, Inc.+............................ 654,000 10,709,250
Premiere Technologies, Inc.+..................... 111,200 2,613,200
QUALCOMM, Inc.+.................................. 24,100 1,009,188
-------------
16,435,738
-------------
TELECOMMUNICATIONS-EQUIPMENT (1.4%)
Advanced Fibre Communications+................... 2,800 136,675
Applied Digital Access, Inc.+.................... 7,800 56,063
Digital Microwave Corp.+......................... 165,400 3,969,600
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TELECOMMUNICATIONS-EQUIPMENT (CONTINUED)
P-COM, Inc.+..................................... 69,600 $ 2,192,400
Proxim, Inc.+.................................... 49,900 938,744
Scientific-Atlanta, Inc.......................... 353,900 5,485,450
Wireless One, Inc.+.............................. 23,700 222,188
-------------
13,001,120
-------------
TOTAL TECHNOLOGY............................... 171,939,503
-------------
TRANSPORTATION (1.8%)
AIRLINES (0.1%)
Mesa Airlines, Inc.+............................. 139,300 1,384,294
-------------
RAILROADS (0.3%)
Genesee & Wyoming Inc.+.......................... 66,800 2,346,350
-------------
TRANSPORTATION (0.2%)
GATX Corp........................................ 41,300 2,059,838
-------------
TRUCK & FREIGHT CARRIERS (1.2%)
Allied Holdings, Inc.+........................... 26,500 215,313
American Freightways Corp.+...................... 142,000 1,482,125
Caliber System, Inc.............................. 29,000 561,875
Roadway Express, Inc............................. 278,800 4,547,925
Rollins Truck Leasing Corp....................... 212,900 2,554,800
USA Truck, Inc.+................................. 45,800 400,750
Werner Enterprises, Inc.......................... 107,300 1,730,213
-------------
11,493,001
-------------
TOTAL TRANSPORTATION........................... 17,283,483
-------------
UTILITIES (6.1%)
ELECTRIC (3.9%)
Black Hills Corp................................. 22,800 587,100
Calpine Corp.+................................... 42,300 761,400
Central Hudson Gas & Electric.................... 175,600 5,311,900
Central Louisiana Electric....................... 121,300 3,426,725
Hawaiian Electric Industries, Inc................ 163,000 5,929,125
Idaho Power Co................................... 39,500 1,219,563
Illinova Corp.................................... 129,300 3,426,450
Minnesota Power & Light Co....................... 100,600 2,829,375
New England Electric System...................... 202,700 6,942,475
Pinnacle West Capital Corp....................... 107,000 3,330,375
St. Joseph Light & Power Co...................... 37,700 574,925
Washington Water Power Co........................ 106,900 2,017,738
-------------
36,357,151
-------------
NATURAL GAS (1.3%)
AGL Resources, Inc............................... 135,800 2,868,775
Brooklyn Union Gas Co............................ 52,400 1,637,500
New Jersey Resources Corp........................ 23,800 705,075
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
NATURAL GAS (CONTINUED)
Providence Energy Corp........................... 93,200 $ 1,642,650
United Cities Gas Co............................. 153,600 3,628,800
Wicor, Inc....................................... 35,700 1,298,588
-------------
11,781,388
-------------
WATER (0.9%)
American Water Works, Inc........................ 181,900 3,592,525
Aquarion Co...................................... 5,100 128,775
E'Town Corp...................................... 62,900 1,887,000
SJW Corp......................................... 16,300 721,275
Southern California Water Co..................... 103,600 2,421,650
-------------
8,751,225
-------------
TOTAL UTILITIES................................ 56,889,764
-------------
TOTAL COMMON STOCKS (COST $776,979,369)........ 898,989,273
-------------
PRINCIPAL
AMOUNT
------------
SHORT-TERM INVESTMENTS (3.8%)
REPURCHASE AGREEMENT (3.8%)
Goldman Sachs Repurchase Agreement 5.35% dated
11/27/96 due 12/02/96, proceeds $35,468,335
(collateralized by $33,434,000 U.S. Treasury
Notes, 7.75% due 01/31/00, valued at
$36,150,925) (cost $35,442,000)................ $ 35,442,000 35,442,000
-------------
TOTAL INVESTMENTS (COST $812,421,369) (100.1%).................
934,431,273
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.1%)..................
(1,053,059)
-------------
NET ASSETS (100.0%)............................................ $ 933,378,214
-------------
-------------
</TABLE>
- ------------------------------
+ Non-income producing security.
* Foreign security.
=/= Less than 0.1%.
Note: The cost of securities for Federal Income Tax purposes at November 30,
1996, was $816,832,428; the aggregate gross unrealized appreciation and
depreciation was $166,326,058 and $48,727,213, respectively, resulting in net
unrealized appreciation of $117,598,845.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $812,421,369 ) $934,431,273
Receivable for Investments Sold 4,454,297
Dividends Receivable 792,848
Interest Receivable 21,068
Prepaid Trustees' Fees 3,072
Prepaid Expenses and Other Assets 6,010
------------
Total Assets 939,708,568
------------
LIABILITIES
Payable for Investments Purchased 3,758,349
Payable to Custodian 1,983,999
Advisory Fee Payable 454,481
Custody Fee Payable 83,933
Administrative Services Fee Payable 23,894
Administration Fee Payable 4,126
Fund Services Fee Payable 1,255
Accrued Expenses 20,317
------------
Total Liabilities 6,330,354
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $933,378,214
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $45,014 ) $ 5,933,849
Interest Income 1,003,543
------------
Investment Income 6,937,392
EXPENSES
Advisory Fee $2,543,191
Custodian Fees and Expenses 178,928
Administrative Services Fee 125,072
Professional Fees and Expenses 27,589
Administration Fee 24,783
Fund Services Fee 15,119
Trustees' Fees and Expenses 5,920
Registration Fees 303
Insurance Expense 120
Miscellaneous 899
----------
Total Expenses 2,921,924
------------
NET INVESTMENT INCOME 4,015,468
NET REALIZED GAIN ON INVESTMENTS 31,597,959
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENTS (15,844,229)
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 19,769,198
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
NOVEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MAY 31, 1996
----------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 4,015,468 $ 9,471,545
Net Realized Gain on Investments 31,597,959 79,496,646
Net Change in Unrealized Appreciation
(Depreciation) of Investments (15,844,229) 132,103,605
----------------- --------------
Net Increase in Net Assets Resulting from
Operations 19,769,198 221,071,796
----------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 169,182,716 222,451,859
Withdrawals (115,618,982) (204,531,582)
----------------- --------------
Net Increase from Investors' Transactions 53,563,734 17,920,277
----------------- --------------
Total Increase in Net Assets 73,332,932 238,992,073
NET ASSETS
Beginning of Period 860,045,282 621,053,209
----------------- --------------
End of Period $ 933,378,214 $ 860,045,282
----------------- --------------
----------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE PERIOD
FOR THE YEAR ENDED MAY JULY 19, 1993
SIX MONTHS ENDED 31, (COMMENCEMENT OF
NOVEMBER 30, 1996 --------------- OPERATIONS) TO
(UNAUDITED) 1996 1995 MAY 31, 1994
----------------- ------ ------ ----------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.69%(a) 0.67% 0.71% 0.72%(a)
Net Investment Income 0.94%(a) 1.33% 1.21% 0.99%(a)
Portfolio Turnover 44.46% 92.58% 75.00% 97.00%+
Average Broker Commissions $ 0.05 -- -- --
</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.
25
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
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
exists is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the readily available closing bid price on
such exchanges, or at the quoted bid price in the over-the-counter market.
Securities listed on a foreign exchange are valued at the last quoted sale
price available before the time when net assets are valued. Unlisted
securities are valued at the average of the quoted bid and asked prices in
the over-the-counter market. Securities or other assets for which market
quotations are not readily available are valued at fair value in
accordance with procedures established by the Portfolio's Trustees. Such
procedures include the use of independent pricing services, which use
prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and
general market conditions. All portfolio securities with a remaining
maturity of less than 60 days are valued at amortized cost.
b)Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or at the time that the
relevant ex-dividend date and amount becomes known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
c)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxable 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
26
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
Portfolio has the right to liquidate the collateral and apply the proceeds
in satisfaction of the obligation. Under certain circumstances, in the
event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject
to legal proceedings.
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an investment advisory agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the investment
advisory agreement, the Portfolio pays Morgan at an annual rate of 0.60%
of the Portfolio's average daily net assets. For the six months ended
November 30, 1996, such fees amounted to $2,543,191.
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. Effective December 29, 1995, the Administration Agreement
provided for a fee to be paid to Signature such that the fee charged was
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 (the "Master Portfolios") in which The JPM Pierpont Funds
(formerly The 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 through July 31, 1996, such fees 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 and the Master Portfolios. For the period from August 1,
1996 through November 30, 1996, the fee for these services amounted to
$7,621.
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 are no longer included in the calculation of the allocation
of FDI's fees.
c)Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement (the "Services Agreement") with Morgan under which
Morgan was responsible for overseeing certain aspects of the
administration and operation of the Portfolio. Under the Services
Agreement, the Portfolio had agreed to pay Morgan a fee equal to its
proportionate share of an annual complex-wide
27
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
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 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 through July 31, 1996, Morgan's 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 in accordance with the following annual
schedule: 0.09% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets and 0.04% of the Master Portfolios'
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The allocation of the Portfolio's
portion of this charge is described above. For the period from August 1,
1996 through November 30, 1996, the fee for these services amounted to
$91,993.
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 $15,119 for the six months ended November 30, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, and the
Master Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represent the Portfolio's allocated portion of the total fees
and expenses. 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 $1,900.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended November 30, 1996 were as follows:
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
$427,231,446 $365,624,397
28
<PAGE>
JPM PIERPONT 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 DIVERSIFIED FUND
JPM PIERPONT EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE EQUITY FUND
JPM PIERPONT CAPITAL APPRECIATION FUND
JPM PIERPONT INTERNATIONAL EQUITY 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
CAPITAL
APPRECIATION
FUND
SEMI-ANNUAL REPORT
NOVEMBER 30, 1996
