<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES
FUND
June 22, 1998
Dear Shareholder:
The 11 months ended May 31, 1998 were quite volatile for small growth companies.
In fact, May marked the second-largest monthly decline for small-cap stocks in
seven years. The Russell 2000 Growth Index returned a lukewarm 12.05% for the
11-month period. We are pleased to report that the J.P. Morgan U.S. Small
Company Opportunities Fund handled the volatility very well, returning a strong
22.28%.* The fund's peers, as measured by the Lipper Small Company Growth Fund
Average, returned 16.64% for the same period. Since the fund's inception date,
June 16, 1997, the fund has returned 25.70%.
The fund's net asset value increased from $10.00 per share on June 16, 1997,
(commencement of operations) to $12.57 per share on May 31, 1998. The fund's net
assets stood at approximately $188.9 million at the end of May. The net assets
of The U.S. Small Company Opportunities Portfolio, in which the fund invests,
totaled approximately $188.6 million at May 31, 1998. There were no
distributions made during the period.
The report that follows includes an interview with Candice Eggerss, a member of
the portfolio management team for The U.S. Small Company Opportunities
Portfolio. This interview is designed to answer commonly asked questions about
the fund, elaborate on what happened during the reporting period, and reiterate
the fund's investment strategy.
As chairman and president of Asset Management Services, we appreciate your
investment in the fund. 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 President of Asset Management
Services Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
*THE FUND COMMENCED OPERATIONS ON JUNE 16, 1997. FOR THE PURPOSES OF COMPARISON,
THE "SINCE INCEPTION" RETURNS ARE CALCULATED FROM JUNE 30, 1997, THE FIRST DATE
WHEN DATA FOR THE FUND'S BENCHMARK AND ITS LIPPER CATEGORY AVERAGE WERE
AVAILABLE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS. . . .1 FUND FACTS AND HIGHLIGHTS. . . . . . .5
FUND PERFORMANCE. . . . . . . . .2 SPECIAL FUND-BASED SERVICES. . . . . .6
PORTFOLIO MANAGER Q&A . . . . . .3 FINANCIAL STATEMENTS . . . . . . . . .8
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at right shows that $10,000 invested on June 16, 1997,* would
have grown to $12,228 on May 31, 1998.
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 achieved that return by performing 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 one, five,
or ten 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
----------------------------
THREE SIX SINCE
AS OF MAY 31, 1998 MONTHS MONTHS INCEPTION*
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
J.P. Morgan U.S. Small Company Opportunities Fund -2.48% 10.55% 22.28%
Russell 2000 Growth Index** -2.78% 4.45% 12.05%
Lipper Small Company Growth Fund Average -0.42% 6.38% 16.64%
AS OF MARCH 31, 1998
- ------------------------------------------------------------------------------
J.P. Morgan U.S. Small Company Opportunities Fund 15.20% 11.53% 32.68%
Russell 2000 Growth Index** 11.88% 2.71% 20.09%
Lipper Small Company Growth Fund Average 10.89% 5.32% 22.64%
</TABLE>
GROWTH OF $10,000 SINCE FUND INCEPTION*
JUNE 16, 1997* - MAY 31, 1998
[CHART]
<TABLE>
<CAPTION>
J.P. Morgan U.S. Lipper Small
Small Company Russell 2000 Company Growth
Opportunities Fund Growth Index Fund Average
------------------ ------------ --------------
<S> <C> <C> <C>
6/97 $10,000 $10,000 $10,000
$10,632 $10,512 $10,631
$10,846 $10,828 $10,827
9/97 $11,897 $11,692 $11,643
$11,206 $10,990 $11,136
$11,060 $10,728 $10,976
12/97 $11,518 $10,734 $11,066
$11,508 $10,591 $10,882
$12,539 $11,526 $11,729
3/98 $13,268 $12,009 $12,277
$13,239 $12,083 $12,379
5/98 $12,228 $11,205 $11,681
</TABLE>
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.
*THE FUND COMMENCED OPERATIONS ON JUNE 16, 1997, AND HAS PROVIDED A TOTAL RETURN
OF 25.70% FROM THAT DATE THROUGH MAY 31, 1998. FOR THE PURPOSES OF COMPARISON,
THE "SINCE INCEPTION" RETURNS ARE CALCULATED FROM JUNE 30, 1997, THE FIRST DATE
WHEN DATA FOR THE FUND'S BENCHMARK AND ITS LIPPER CATEGORY AVERAGE WERE
AVAILABLE.
** THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX OF SMALL, GROWTH-ORIENTED
U.S. STOCKS. IT DOES NOT INCLUDE FEES OR OPERATING EXPENSES AND IS NOT AVAILABLE
FOR ACTUAL INVESTMENT.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF FEES
AND REFLECT THE REIMBURSEMENT OF FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS.
HAD EXPENSES NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. LIPPER
ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with CANDICE EGGERSS, a member of the portfolio
management team for The U.S. Small Company Opportunities Portfolio. Candice has
been with Morgan since 1996, and has nearly 13 years of industry experience.
Prior to joining Morgan, Candice was employed by Weiss, Peck & Greer, Equitable
Capital Management, and Morgan Stanley, where she held positions including
analyst, portfolio manager, and research director. Candice received her BS from
Stanford University and her MBA from Columbia University. This interview took
place on June 9, 1998, and reflects Candice's views on that date.
HOW WOULD YOU DESCRIBE THE SMALL-CAP MARKET DURING THE 11 MONTHS SINCE THE
PORTFOLIO'S INCEPTION?
CE: The period was not an easy one for small caps. In the fourth quarter of
1997 and again in May of 1998, small caps suffered fallout from the troubles in
Asia. Investors reacted to the crisis overseas by selling their small-cap stocks
and investing in large caps. In fact, May saw the second-biggest monthly drop in
the Russell 2000 Growth Index in seven years -- a 31-day loss of 7.27%. We are
now in the fifth year of underperformance by small stocks relative to the blue
chips -- an unusually long period.
HOW DID THE FUND PERFORM DURING THIS CHALLENGING PERIOD?
CE: From June 30, 1997, through May 31, 1998, the J.P. Morgan U.S. Small
Company Opportunities Fund returned 22.28%.* The fund nearly doubled the 12.05%
return of the Russell 2000 Growth Index -- very gratifying performance, indeed.
The fund's peers, as measured by the Lipper Small Company Growth Fund Average,
returned 16.64% for the same period. We have our stock selection process to
thank for the fund's superior performance over the past 11 months. Since the
fund's inception on June 16, 1997, the fund has returned 25.70%
WHAT WERE SOME OF THE STOCKS THAT HELPED YOU SURPASS THE INDEX BY SUCH A WIDE
MARGIN?
CE: Intermedia Communications, Inc. was the single largest contributor to the
portfolio's success. The company is a leading competitive local exchange carrier
and has capitalized on recent deregulatory trends in the telecommunications
industry. Intermedia has been growing extremely quickly through a combination of
strategic acquisitions and internal growth strategies.
Party City Corp. is an industry leader in retail party supplies. Continued
dominance of its industry, combined with significant growth prospects and
quality execution of its strategy led to this company's significant positive
impact on the portfolio.
*THE FUND COMMENCED OPERATIONS ON JUNE 16, 1997. FOR THE PURPOSES OF COMPARISON,
THE "SINCE INCEPTION" RETURNS ARE CALCULATED FROM JUNE 30, 1997, THE FIRST DATE
WHEN DATA FOR THE FUND'S BENCHMARK AND ITS LIPPER CATEGORY AVERAGE WERE
AVAILABLE.
3
<PAGE>
Datastream Systems, Inc. is a technology company that specializes in
client/server application software for use in scheduling maintenance and
tracking assets. The company has grown at a rate greater than 50% --
substantially higher than the 20% growth rate of the industry as a whole.
Datastream is a key beneficiary of a growing trend among industrial companies to
further automate their business processes.
Bally Total Fitness Holding Corp., the number one operator of health clubs in
the U.S., added significantly to the portfolio's performance. A new management
team leveraged Bally's powerful brand name by refurbishing the health clubs,
introducing new products and services, and raising prices.
MedQuist, Inc., the leader in medical transcription services, also had a
positive impact on the portfolio's performance. When we began purchasing the
stock, MedQuist was trading below the price its rate of growth should have
commanded. As we held the stock through 1997 and into 1998, MedQuist continued
to beat Wall Street's earnings estimates. This led to a price that is more in
line with the stock's growth rate. It also led to superior performance by the
stock.
WHAT OTHER FACTORS CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?
CE: We have the flexibility in this portfolio to overweight or underweight the
various sector, or industry groups, that make up the small-cap market. If we
believe that the prospects for a particular sector are good over the near term,
we may increase the portfolio's exposure to that sector by up to five percentage
points. By the same token, we may reduce the portfolio's exposure to the sectors
that we believe will not do well over the coming months by as much as five
percentage points.
Since the portfolio's inception, we have held an overweighted position in the
consumer services sector. This group includes leisure companies and education
firms. We had almost double the market weighting in this sector, and roughly
three times the performance of the sector.
WHAT IS YOUR OUTLOOK FOR SMALL-CAP STOCKS IN THE COMING MONTHS?
CE: We are quite bullish on small-cap stocks relative to large-cap stocks. We
think that earnings will be improving through the rest of 1998 and into 1999.
Small-cap stocks are selling at their lowest prices in nearly six years, so we
find these companies attractively valued. The price/earnings ratio of the
average stock in the Russell 2000 Index is typically 25% higher than that of the
average stock in the S&P 500 Index. With the difficult small-cap market of
recent years, however, that premium has now become a discount -- large-cap
stocks now demonstrate higher price/earnings ratios than small caps.
Our stock picking process has been the greatest contributor to the portfolio's
performance, so we continue to concentrate our efforts in that area. We are
still finding very attractive ideas in the small-cap market. The fact that J.P.
Morgan conducts its own in-house research -- what we call our information
advantage -- is key in the small-cap market, where companies are not followed as
closely by Wall Street analysts. We believe this information advantage will
continue to stand us in good stead.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan U.S. Small Company Opportunities Fund seeks to provide long term
capital appreciation from a portfolio of equity securities of small companies.
The fund seeks to outperform the Russell 2000 Growth 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
6/16/97
- --------------------------------------------------------------------------------
FUND NET ASSESTS AS OF 5/31/98
$188,932,110
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 5/31/98
$188,578,915
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
8/14/98, 12/18/98
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/98
EXPENSE RATIO
The fund's current annualized expense ratio of 1.19% 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, 1998
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
CONSUMER GOODS & SERVICES 21.6%
TECHNOLOGY 19.9%
HEALTH CARE 19.0%
FINANCE 11.9%
INDUSTRIAL PRODUCTS & SERVICES 8.3%
ENERGY 2.9%
UTILITIES 2.9%
BASIC INDUSTRIES 2.2%
OTHER 2.4%
SHORT-TERM 8.9%
</TABLE>
<TABLE>
<CAPTION>
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- --------------------------------------------------------------
<S> <C>
NATIONAL COMMERCE BANCORPORATION (FINANCE) 1.6%
ON ASSIGNMENT, INC. (INDUSTRIAL PRODUCTS 1.3%
& SERVICES)
ADVANCED LIGHTING TECHNOLOGIES, INC. (TECHNOLOGY) 1.3%
BANK UNITED CORP., CLASS A (FINANCE) 1.2%
ASA HOLDINGS, INC. (TRANSPORTATION) 1.2%
EDUCATION MANAGEMENT CORP. (CONSUMER GOODS 1.2%
& SERVICES)
PEGASUS SYSTEMS, INC. (TECHNOLOGY) 1.2%
TRANSITIONS SYSTEMS, INC. (HEALTH CARE) 1.1%
ANDRX CORP. (HEALTH CARE) 1.1%
CINAR FILMS, INC., CLASS B (CONSUMER GOODS 1.1%
& SERVICES)
</TABLE>
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 to
meet 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 J.P. Morgan Funds, a family of diversified
mutual funds.
PAAS is available to clients who invest a minimum of $500,000 in the J.P. Morgan
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 J.P. Morgan Funds
provide an excellent way to help you accumulate long-term wealth for retirement.
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW
YORKSERVES AS AN INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS
CAPACITY AS SHAREHOLDER SERVICING AGENT. SHARES OF THE FUND ARE NOT BANK
DEPOSITS AND ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC.
RETURN AND SHARE PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS
THAN ORIGINAL COST.
References to specific securities and their issuers are for illustrative
purposes only and are not intended to be, and should not be interpreted as,
recommendations to purchase or sell such securities. Opinion expressed herein
are based on current market conditions and are subject to change without notice.
The fund invests in a master portfolio (another fund with the same objective).
Historically, small-company stocks have been more volatile than large-company
stocks.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
7
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Small Company
Opportunities Portfolio ("Portfolio"), at value $188,578,915
Receivable for Shares of Beneficial Interest Sold 1,120,824
Deferred Organization Expenses 11,317
Receivable for Expense Reimbursements 376
Prepaid Trustees' Fees 337
Prepaid Expenses and Other Assets 59
------------
Total Assets 189,711,828
------------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 652,094
Shareholder Servicing Fee Payable 40,994
Organization Expenses Payable 10,587
Administrative Services Fee Payable 4,758
Administration Fee Payable 628
Fund Services Fee Payable 177
Accrued Expenses 70,480
------------
Total Liabilities 779,718
------------
NET ASSETS
Applicable to 15,035,022 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $188,932,110
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $12.57
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $176,896,482
Accumulated Net Realized Gain on Investment 4,516,718
Net Unrealized Appreciation of Investment 7,518,910
------------
Net Assets $188,932,110
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 16, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $ 529,020
Allocated Dividend Income (Net of Foreign
Withholding Tax of $244) 272,912
Allocated Portfolio Expenses (Net of
Reimbursement of $3,597) (838,130)
-----------
Net Investment Loss Allocated from Portfolio (36,198)
OTHER INCOME 14,661
-----------
(21,537)
FUND EXPENSES
Shareholder Servicing Fee $248,525
Registration Fees 67,250
Administrative Services Fee 29,555
Transfer Agent Fees 21,497
Printing Expenses 13,500
Professional Fees 12,144
Fund Services Fee 3,084
Amortization of Organization Expenses 2,683
Administration Fee 2,410
Line of Credit Expense 998
Trustees' Fees and Expenses 654
Insurance Expense 141
Miscellaneous 1,560
--------
Total Fund Expenses 404,001
Less: Reimbursement of Expenses (55,593)
--------
NET FUND EXPENSES 348,408
-----------
NET INVESTMENT LOSS (369,945)
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 4,883,980
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 7,518,910
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $12,032,945
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 16, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1998
-------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Loss $ (369,945)
Net Realized Gain on Investment Allocated from
Portfolio 4,883,980
Net Change in Unrealized Appreciation of
Investment Allocated from Portfolio 7,518,910
-------------------
Net Increase in Net Assets Resulting from
Operations 12,032,945
-------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 207,393,425
Cost of Shares of Beneficial Interest Redeemed (30,494,260)
-------------------
Net Increase from Transactions in Shares of
Beneficial Interest 176,899,165
-------------------
Total Increase in Net Assets 188,932,110
NET ASSETS
Beginning of Period --
-------------------
End of Period $ 188,932,110
-------------------
-------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the period is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 16, 1997
(COMMENCEMENT OF
OPERATIONS)
THROUGH
MAY 31, 1998
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.02)
Net Realized and Unrealized Gain on Investment 2.59
------------------
Total from Investment Operations 2.57
------------------
NET ASSET VALUE, END OF PERIOD $ 12.57
------------------
------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 25.70%
Net Assets, End of Period (in thousands) $188,932
Ratios to Average Net Assets
Expenses 1.19%(a)
Net Investment Loss (0.37)%(a)
Expenses without Reimbursement 1.25%(a)
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan U.S. Small Company Opportunities Fund (the "fund") is a separate
series of the J.P. Morgan 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 commenced operations on June 16, 1997. Prior to January 1,
1998, the trust and the fund's names were The JPM Pierpont Funds and The JPM
Pierpont U.S. Small Company Opportunities Fund, respectively.
The fund invests all of its investable assets in The U.S. Small Company
Opportunities 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
(100% at May 31, 1998). 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 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 1a 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.
c) Distributions to shareholders of net investment income are 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 incurred organization expenses in the amount of $14,000. Morgan
Guaranty Trust Company of New York ("Morgan") has paid the organization
expenses of the fund. The fund has agreed to reimburse Morgan for these
costs which are being deferred and amortized on a straight-line basis over
a period not to exceed five-years beginning with the commencement of
operations of the fund.
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.
f) 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.
g) 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, 1998 was to decrease Paid-In Capital by
$2,683, decrease Accumulated Net
12
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
Investment Loss by $369,945 and decrease Accumulated Net Realized Gain on
Investment by $367,262. The adjustment was primarily due to a reclass of
current year net operating loss. Net investment income, net realized gains
and net assets were not affected by this change.
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust, on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. 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 and certain other
investment companies subject to similar agreements with FDI. For the
period June 16, 1997 (commencement of operations) through May 31, 1998,
the fee for these services amounted to $2,410.
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 allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and the other portfolios in which the trust and the J.P. Morgan
Institutional Funds (formerly The JPM Institutional Funds) invest (the
"master portfolios") and J.P. Morgan Series Trust (formerly 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 master portfolios, other investors in
the master portfolios for which Morgan provides similar services, and J.P.
Morgan Series Trust. For the period June 16, 1997 (commencement of
operations) through May 31, 1998, the fee for these services amounted to
$29,555.
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
1.20% of the average daily net assets of the fund through September 30,
1998. For the period June 16, 1997 (commencement of operations) through
May 31, 1998, Morgan has agreed to reimburse the fund $55,593 for expenses
under this agreement.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance service to fund shareholders. 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 period June 16, 1997 (commencement of operations)
through May 31, 1998, the fee for these services amounted to $248,525.
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
13
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
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 with
Schwab 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
$3,084 for the period June 16, 1997 (commencement of operations) through
May 31, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Institutional Funds, the master
portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents 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 receives 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 $600.
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 PERIOD
JUNE 16, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1998
-------------------
<S> <C>
Shares of beneficial interest sold............... 17,556,034
Shares of beneficial interest redeemed........... (2,521,012)
-------------------
Net Increase..................................... 15,035,022
-------------------
-------------------
</TABLE>
4. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 28, 1997, with unaffiliated lenders. The maximum borrowing
under the agreement was $100,000,000. The Agreement expired on May 27, 1998,
however, the fund as party to the agreement has extended the agreement and will
continue its participation therein for an additional 364 days until May 26,
1999. The maximum borrowing under the new agreement is $150,000,000.
Additionally, since all of the investable assets of the fund are in the
portfolio, the portfolio is party to certain covenants of the Agreement. The
purpose of the Agreement is to provide another alternative for settling large
fund shareholder redemptions. Interest on any such borrowings outstanding will
approximate market rates. The funds pay a commitment fee at an annual rate of
0.065% on the unused portion of the committed amount which is allocated to the
funds in accordance with procedures established by their respective trustees or
directors. The fund has not borrowed pursuant to the agreement at May 31, 1998.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan U.S. Small Company Opportunities Fund
(Formerly The JPM Pierpont U.S. Small Company Opportunities 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
J.P. Morgan U.S. Small Company Opportunities Fund (one of the series
constituting part of the J.P. Morgan Funds), hereafter referred to as the
"Fund", at May 31, 1998, and the results of its operations, the changes in its
net assets and the financial highlights for the period June 16, 1997
(commencement of operations) through May 31, 1998, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
July 17, 1998
15
<PAGE>
The U.S. Small Company Opportunities Portfolio
Annual Report May 31, 1998
(The following pages should be read in conjunction
with the J.P. Morgan U.S. Small Company Opportunities Fund
Annual Financial Statements)
16
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
COMMON STOCKS (89.7%)
BASIC INDUSTRIES (2.2%)
AGRICULTURE (0.8%)
Delta & Pine Land Co............................. 34,633 $ 1,482,725
-------------
CHEMICALS (0.5%)
Albemarle Corp................................... 26,400 641,850
Geon Co.......................................... 16,900 365,462
-------------
1,007,312
-------------
FOREST PRODUCTS & PAPER (0.2%)
Universal Forest Products, Inc................... 21,000 358,969
-------------
METALS & MINING (0.7%)
Mueller Industries, Inc.+........................ 40,000 1,240,000
-------------
TOTAL BASIC INDUSTRIES......................... 4,089,006
-------------
CONSUMER GOODS & SERVICES (20.9%)
APPARELS & TEXTILES (1.2%)
Ashworth, Inc.+.................................. 65,800 832,781
Genesco, Inc.+................................... 103,900 1,337,712
-------------
2,170,493
-------------
BROADCASTING & PUBLISHING (2.1%)
Emmis Broadcasting Corp., Class A+............... 3,200 134,400
Hearst-Argyle Television, Inc.+.................. 35,800 1,291,037
Journal Register Co.+............................ 56,800 1,136,000
Univision Communications, Inc., Class A+......... 24,000 834,000
Ziff-Davis, Inc.+................................ 30,900 521,437
-------------
3,916,874
-------------
EDUCATION (4.0%)
Advantage Learning Systems, Inc.+................ 24,200 647,350
Bright Horizons, Inc.+........................... 24,700 619,044
Caliber Learning Network, Inc.+.................. 6,600 109,725
Children's Comprehensive Services, Inc.+......... 52,800 897,600
CorporateFamily Solutions, Inc.+................. 26,000 606,125
DeVry, Inc.+..................................... 22,200 883,837
Education Management Corp.+...................... 65,600 2,293,950
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
EDUCATION (CONTINUED)
ITT Educational Services, Inc.+.................. 51,700 $ 1,473,450
ViaGrafix Corp.+................................. 5,400 33,075
-------------
7,564,156
-------------
ENTERTAINMENT, LEISURE & MEDIA (5.1%)
Action Performance Companies, Inc.+.............. 60,700 1,688,219
AMF Bowling, Inc.+............................... 8,300 207,500
Championship Auto Racing Teams, Inc.+............ 5,700 111,150
Cinar Films Inc., Class B+....................... 103,200 1,999,500
Imax Corp.+...................................... 27,100 686,816
Metromedia International Group, Inc.+............ 34,400 464,400
Premier Parks, Inc.+............................. 25,000 1,328,125
ResortQuest International, Inc.+................. 44,300 672,806
Steiner Leisure, Ltd.+(i)........................ 52,050 1,545,234
Ticketmaster Group, Inc.+........................ 32,600 892,425
-------------
9,596,175
-------------
FOOD, BEVERAGES & TOBACCO (0.3%)
Hain Food Group, Inc.+........................... 23,400 527,231
-------------
HEALTH & PERSONAL CARE (0.9%)
Bally Total Fitness Holding Corp.+............... 54,400 1,754,400
-------------
PERSONAL CARE (0.7%)
French Fragrances, Inc.+......................... 77,700 1,333,041
-------------
RESTAURANTS & HOTELS (1.8%)
Friendly Ice Cream Corp.+........................ 64,000 1,608,000
Sun International Hotels Ltd.+(i)................ 28,600 1,306,662
Vail Resorts, Inc.+.............................. 16,700 484,300
-------------
3,398,962
-------------
RETAIL (4.8%)
A.C. Moore Arts & Crafts, Inc.+.................. 70,400 1,183,600
DM Management Co.+............................... 12,900 395,062
Fingerhut Companies, Inc......................... 18,500 542,281
Guitar Center, Inc.+............................. 21,900 578,297
Hibbett Sporting Goods, Inc.+.................... 8,500 287,406
Insight Enterprises, Inc.+....................... 33,000 1,033,312
Kenneth Cole Productions, Inc., Class A+......... 30,100 690,419
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
RETAIL (CONTINUED)
Maxwell Shoe Company, Inc., Class A+............. 42,700 $ 835,319
Party City Corp.+................................ 50,050 1,479,603
Steven Madden, Ltd.+............................. 47,400 460,669
United Natural Foods, Inc.+...................... 58,400 1,536,650
-------------
9,022,618
-------------
TOTAL CONSUMER GOODS & SERVICES................ 39,283,950
-------------
ENERGY (2.9%)
GAS EXPLORATION (1.8%)
Devon Energy Corp................................ 52,900 1,940,769
FX Energy, Inc.+................................. 31,400 326,756
Patterson Energy, Inc.+.......................... 95,700 1,073,634
-------------
3,341,159
-------------
OIL-SERVICES (1.1%)
National-Oilwell, Inc.+.......................... 38,600 1,348,587
Transmontaigne Oil Co.+.......................... 49,000 793,187
-------------
2,141,774
-------------
TOTAL ENERGY................................... 5,482,933
-------------
FINANCE (11.8%)
BANKING (4.4%)
Bank of Commerce................................. 24,500 441,000
Bank United Corp., Class A....................... 46,600 2,325,631
FNB Financial Services Corp...................... 8,300 203,350
Imperial Bancorp+................................ 14,000 409,500
National Commerce Bancorporation................. 68,600 3,037,694
Silicon Valley Bancshares+....................... 25,800 854,625
Webster Financial Corp........................... 32,000 1,071,000
-------------
8,342,800
-------------
FINANCIAL SERVICES (3.0%)
Federal Agricultural Mortgage Corp. , Class C+... 20,700 1,384,312
Financial Federal Corp.+......................... 67,500 1,582,031
Medallion Financial Corp......................... 74,000 1,845,375
Ocwen Financial Corp.+........................... 33,500 816,562
-------------
5,628,280
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
INSURANCE (2.4%)
Annuity and Life Re (Holdings), Ltd.+(i)......... 9,000 $ 205,031
CMAC Investment Corp............................. 18,600 1,125,300
Nationwide Financial Services, Inc., Class A..... 20,300 881,781
Penn Treaty American Corp.+...................... 60,800 1,846,800
RenaissanceRe Holdings, Ltd.(i).................. 11,200 523,600
-------------
4,582,512
-------------
REAL ESTATE INVESTMENT TRUSTS (2.0%)
ElderTrust....................................... 28,200 444,150
Equity Office Properties Trust................... 17,300 475,750
Innkeepers USA Trust............................. 96,700 1,347,756
Ocwen Asset Investment Corp...................... 55,600 945,200
Storage USA, Inc................................. 16,400 609,875
-------------
3,822,731
-------------
TOTAL FINANCE.................................. 22,376,323
-------------
HEALTHCARE (18.9%)
BIOTECHNOLOGY (5.8%)
Affymetrix, Inc.+................................ 33,100 890,597
Alkermes, Inc.+.................................. 17,500 383,906
Applied Analytical Industries, Inc.+............. 55,300 570,281
ArQule, Inc.+.................................... 60,400 864,475
BioReliance Corp.+............................... 38,000 560,500
Human Genome Sciences, Inc.+..................... 27,200 980,050
IDEC Pharmaceuticals Corp.+...................... 58,500 1,839,094
Incyte Pharmaceuticals, Inc.+.................... 44,700 1,641,328
Millennium Pharmaceuticals, Inc.+................ 55,900 988,731
Novoste Corp.+................................... 13,200 331,650
SangStat Medical Corp.+.......................... 64,200 1,681,237
Synaptic Pharmaceutical Corp.+................... 17,100 257,569
-------------
10,989,418
-------------
HEALTH SERVICES (5.2%)
Alternative Living Services, Inc.+............... 12,300 333,637
Assisted Living Concepts, Inc.+.................. 24,200 390,225
Boron, LePore & Associates, Inc.+................ 7,500 220,312
Curative Health Services, Inc.+.................. 56,900 1,582,531
Healthcare Recoveries, Inc.+..................... 67,100 1,218,284
INMET Systems, Inc.+............................. 44,400 491,175
Kendle International, Inc.+...................... 75,300 1,990,744
MedQuist, Inc.+.................................. 29,600 1,295,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
HEALTH SERVICES (CONTINUED)
Professional Detailing, Inc.+.................... 6,000 $ 126,375
Transition Systems, Inc.+........................ 105,610 2,098,999
-------------
9,747,282
-------------
MEDICAL SUPPLIES (3.4%)
AutoCyte, Inc.+.................................. 75,200 535,800
Closure Medical Corp.+........................... 26,400 669,900
Focal, Inc.+..................................... 27,200 338,300
IDEXX Laboratories, Inc.+........................ 37,700 841,181
Sabratek Corp.+.................................. 63,500 1,666,875
Symphonix Devices, Inc.+......................... 3,700 38,850
Ventana Medical Systems, Inc.+................... 69,700 1,807,844
Vysis, Inc.+..................................... 39,200 414,050
-------------
6,312,800
-------------
PHARMACEUTICALS (4.5%)
Algos Pharmaceutical Corp.+...................... 49,100 1,790,616
Andrx Corp.+..................................... 59,300 2,005,081
Ascent Pediatrics, Inc.+......................... 65,400 249,337
AXYS Pharmaceuticals, Inc.+...................... 90,100 695,459
Columbia Laboratories, Inc.+..................... 63,700 537,469
Ligand Pharmaceuticals, Class B+................. 52,600 734,756
PathoGenesis Corp.+.............................. 55,300 1,976,975
U.S. Bioscience, Inc.+........................... 59,000 553,125
-------------
8,542,818
-------------
TOTAL HEALTHCARE............................... 35,592,318
-------------
INDUSTRIAL PRODUCTS & SERVICES (8.3%)
COMMERCIAL SERVICES (6.1%)
ACSYS, Inc.+..................................... 18,100 270,934
Administaff, Inc.+............................... 30,400 1,246,400
Charles River Associates, Inc.+.................. 4,300 109,919
First Consulting Group, Inc.+.................... 9,000 199,969
Mac-Gray Corp.+.................................. 8,200 117,875
On Assignment, Inc.+............................. 74,800 2,505,800
Personnel Group of America, Inc.+................ 56,900 1,152,225
Provant, Inc.+................................... 28,000 549,500
Snyder Communication, Inc.+...................... 29,600 1,193,250
Staffmark, Inc.+................................. 48,100 1,764,669
Vincam Group, Inc.+.............................. 64,000 1,280,000
Wackenhut Corrections Corp.+..................... 15,700 380,725
Youth Services International, Inc.+.............. 87,100 628,753
-------------
11,400,019
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
MANUFACTURING (0.4%)
Alyn Corp.+...................................... 30,300 $ 244,294
Monaco Coach Corp.+.............................. 16,800 452,550
-------------
696,844
-------------
PACKAGING & CONTAINERS (1.8%)
Ivex Packaging Corp.+............................ 76,300 1,769,206
Schawk, Inc., Class A............................ 113,000 1,695,000
-------------
3,464,206
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 15,561,069
-------------
TECHNOLOGY (19.4%)
AEROSPACE (0.6%)
L-3 Communications Holdings, Inc.+............... 2,800 78,400
Orbital Sciences Corp.+.......................... 25,700 1,052,094
-------------
1,130,494
-------------
COMPUTER PERIPHERALS (1.6%)
HMT Technology Corp.+............................ 71,000 827,594
Radiant Systems, Inc.+........................... 67,500 1,109,531
SCM Microsystems, Inc.+.......................... 18,600 1,070,081
-------------
3,007,206
-------------
COMPUTER SOFTWARE (5.5%)
Aspen Technologies, Inc.+........................ 23,700 1,055,391
Concord Communications, Inc.+.................... 27,300 631,312
CrossKeys Systems Corp.+......................... 35,900 371,341
Datastream Systems, Inc.+........................ 71,100 1,510,875
Evolving Systems, Inc.+.......................... 1,900 35,625
FARO Technologies, Inc.+......................... 27,800 299,719
Harbinger Corp.+................................. 63,750 1,484,180
HNC Software, Inc.+.............................. 38,000 1,312,187
Inspire Insurance Solutions, Inc.+............... 28,800 935,100
Macromedia, Inc.+................................ 50,100 793,772
MAPICS, Inc.+.................................... 104,000 1,826,500
Powerhouse Technologies, Inc.+................... 16,300 157,397
-------------
10,413,399
-------------
COMPUTER SYSTEMS (0.1%)
Princeton Video Image, Inc.+..................... 39,300 194,044
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (1.3%)
Advanced Lighting Technologies, Inc.+............ 100,700 $ 2,498,619
-------------
INFORMATION PROCESSING (6.7%)
Applied Graphics Technologies, Inc.+............. 21,800 1,046,400
Aris Corp.+...................................... 42,700 1,203,606
CNET, Inc.+...................................... 17,300 627,125
Computer Horizons Corp.+......................... 42,000 1,403,063
Condor Technology Solutions, Inc.+............... 44,000 617,375
CSG Systems International, Inc.+................. 9,600 410,100
Diamond Technology Partners, Inc., Class A+...... 47,000 1,101,563
Exodus Communications, Inc.+..................... 2,100 71,728
Getty Images, Inc.+.............................. 24,600 499,688
ONSALE, Inc.+.................................... 17,000 432,969
Pegasus Systems, Inc.+........................... 86,800 2,235,100
Profit Recovery Group International, Inc.+....... 71,000 1,735,063
USCS International, Inc.+........................ 69,300 1,301,541
-------------
12,685,321
-------------
SEMICONDUCTORS (2.0%)
American Xtal Technology, Inc.+.................. 4,900 54,513
ARM Holdings plc (Spons. ADR)+................... 2,200 78,650
ATMI, Inc.+...................................... 53,100 962,438
Broadcom Corp.+.................................. 3,100 159,456
Genesis Microchip, Inc.+......................... 2,900 35,344
Integrated Device Technology, Inc.+.............. 25,600 239,600
Intevac, Inc.+................................... 28,300 269,734
Kopin Corp.+..................................... 17,600 332,750
Parlex Corp.+.................................... 23,400 440,213
SIPEX Corp.+..................................... 57,000 1,236,188
-------------
3,808,886
-------------
TELECOMMUNICATIONS-EQUIPMENT (1.6%)
AmeriLink Corp.+................................. 12,700 189,363
Davox Corp.+..................................... 14,200 261,813
Excel Switching Corp.+........................... 38,200 752,063
Glenayre Technologies, Inc.+..................... 43,600 668,988
Natural Microsystems Corp.+...................... 48,000 1,027,500
Verio, Inc.+..................................... 4,500 102,797
-------------
3,002,524
-------------
TOTAL TECHNOLOGY............................... 36,740,493
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
TELECOMMUNICATIONS (1.0%)
TELECOMMUNICATION SERVICES (1.0%)
IDT Corp.+....................................... 9,600 $ 250,800
Omnipoint Corp.+................................. 37,000 760,813
Premiere Technologies, Inc.+..................... 34,600 828,238
-------------
TOTAL TELECOMMUNICATIONS....................... 1,839,851
-------------
TRANSPORTATION (1.4%)
AIRLINES (1.2%)
ASA Holdings, Inc................................ 58,500 2,297,953
-------------
TRANSPORT & SERVICES (0.2%)
C.H. Robinson Worldwide, Inc..................... 19,000 437,000
-------------
TOTAL TRANSPORTATION........................... 2,734,953
-------------
UTILITIES (2.9%)
NATURAL GAS (0.3%)
MarkWest Hydrocarbon, Inc.+...................... 36,000 630,000
-------------
TELEPHONE (2.6%)
Electric Lightwave, Inc., Class A+............... 44,300 606,356
ICG Communications, Inc.+........................ 23,000 697,188
Intermedia Communications, Inc.+................. 20,700 1,533,094
MetroNet Communications Corp., Class B+.......... 33,100 930,938
NEXTLINK Communications, Inc., Class A+.......... 34,100 1,063,494
-------------
4,831,070
-------------
TOTAL UTILITIES................................ 5,461,070
-------------
TOTAL COMMON STOCKS (COST $161,847,103)........ 169,161,966
-------------
</TABLE>
<TABLE>
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.2%)
CONSUMER GOODS & SERVICES (0.2%)
ENTERTAINMENT, LEISURE & MEDIA (0.2%)
Metromedia International Group, Inc. (cost
$320,515)...................................... 6,000 336,000
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
FIXED INCOME SECURITIES (0.4%)
TECHNOLOGY (0.4%)
COMPUTER SOFTWARE (0.4%)
HNC Software Inc., 4.75% due 09/01/98............ $ 225,000 $ 237,937
Quadramed Corp., 144A, 5.25% due 11/01/98........ 500,000 490,000
------------
TOTAL TECHNOLOGY............................... 727,937
------------
TOTAL FIXED INCOME SECURITIES (COST
$725,000)..................................... 727,937
------------
</TABLE>
<TABLE>
<S> <C> <C>
CONVERTIBLE BONDS (0.5%)
CONSUMER GOODS & SERVICES (0.5%)
ENTERTAINMENT, LEISURE & MEDIA (0.5%)
Family Golf Centers, Inc., 144A, 5.75% due
04/15/99 (cost $750,000)....................... 750,000 935,625
------------
</TABLE>
<TABLE>
<S> <C> <C>
SHORT-TERM INVESTMENTS (8.8%)
OTHER INVESTMENT COMPANIES (1.8%)
Seven Seas Money Market Fund, 5.25% due
06/01/98....................................... 3,423,614 3,423,614
------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (7.0%)
United States Treasury Bills, 4.195% due
08/20/98....................................... $13,400,000 $ 13,253,642
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$16,677,256).................................. 16,677,256
------------
TOTAL INVESTMENTS (COST $180,319,874) (99.6%).................
187,838,784
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)..................
740,131
------------
NET ASSETS (100.0%)........................................... $188,578,915
------------
------------
</TABLE>
- ------------------------------
Note: The cost of securities for Federal Income Tax purposes at May 31, 1998,
was $180,676,669, the aggregate gross unrealized appreciation and depreciation
was $18,047,313 and $10,885,198, respectively, resulting in net unrealized
appreciation of $7,162,115.
(i) Foreign security.
+ Non-income producing security.
144A - Securities restricted for resale to Qualified Institutional Buyers.
Spon. ADR - Sponsored American Depositary Receipt.
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $180,319,874 ) $187,838,784
Cash 213,323
Receivable for Investments Sold 1,633,147
Interest Receivable 24,400
Dividends Receivable 19,395
Deferred Organization Expenses 7,275
Prepaid Trustees' Fees 322
Prepaid Expenses and Other Assets 57
------------
Total Assets 189,736,703
------------
LIABILITIES
Payable for Investments Purchased 1,000,006
Advisory Fee Payable 98,441
Custody Fee Payable 37,063
Organization Expenses Payable 9,000
Administrative Services Fee Payable 4,760
Administration Fee Payable 579
Fund Services Fee Payable 177
Accrued Expenses 7,762
------------
Total Liabilities 1,157,788
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $188,578,915
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 16, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $244 ) $ 272,912
Interest Income 529,020
-----------
Investment Income 801,932
EXPENSES
Advisory Fee $596,695
Custodian Fees and Expenses 161,211
Professional Fees and Expenses 40,573
Administrative Services Fee 29,566
Printing Expenses 5,500
Fund Services Fee 3,088
Administration Fee 2,036
Amortization of Organization Expenses 1,725
Trustees' Fees and Expenses 671
Insurance Expense 141
Miscellaneous 521
--------
Total Expenses 841,727
Less: Reimbursement of Expenses (3,597)
--------
NET EXPENSES 838,130
-----------
NET INVESTMENT LOSS (36,198)
NET REALIZED GAIN ON INVESTMENTS 4,883,980
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 7,518,910
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $12,366,692
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 16, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1998
-------------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Loss $ (36,198)
Net Realized Gain on Investments 4,883,980
Net Change in Unrealized Appreciation of
Investments 7,518,910
-------------------
Net Increase in Net Assets Resulting from
Operations 12,366,692
-------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 206,272,601
Withdrawals (30,060,378)
-------------------
Net Increase from Investors' Transactions 176,212,223
-------------------
Total Increase in Net Assets 188,578,915
NET ASSETS
Beginning of Period --
-------------------
End of Period $ 188,578,915
-------------------
-------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 16, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1998
-------------------
<S> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.84%(a)
Net Investment Loss (0.04)%(a)
Expenses without Reimbursement 0.84%(a)(b)
Portfolio Turnover 73%
</TABLE>
- ------------------------
(a) Annualized.
(b) Reimbursement was less than 0.01%.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Small Company Opportunities Portfolio (the "portfolio") is one of seven
subtrusts (portfolios) comprising The Series Portfolio (the "series portfolio").
The portfolio is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company which was
organized as a trust under the laws of the State of New York on June 24, 1994.
The portfolio commenced operations on June 16, 1997. The portfolio's investment
objective is long term capital appreciation 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 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 average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the portfolio's trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
portfolio securities with a remaining maturity of less than 60 days are
valued at amortized cost.
b) The portfolio's custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the portfolio. It is the
policy of the portfolio to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the portfolio has
the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event
of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
c) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount 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.
d) The portfolio incurred organization expenses in the amount of $9,000.
Morgan Guaranty Trust Company of New York ("Morgan") has paid the
organization expenses of the portfolio. The portfolio
25
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
has agreed to reimburse Morgan for these costs which are being deferred
and amortized on a straight-line basis over a period not to exceed five
years beginning with the commencement of operations of the portfolio.
e) Expenses incurred by the series portfolio with respect to any two or more
portfolios in the series portfolio are allocated in proportion to the net
assets of each portfolio in the series portfolio, except where allocations
of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that
portfolio.
f) 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.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with Morgan. Under the
terms of the agreement, the portfolio pays Morgan at an annual rate of
0.60% of the portfolio's average daily net assets. For the period June 16,
1997 (commencement of operations) through May 31, 1998, such fees amounted
to $596,695.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
FDI provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the compensation of the portfolio's
officers affiliated with FDI. 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 portfolio and certain other investment companies subject to
similar agreements with FDI. For the period June 16, 1997 (commencement of
operations) through May 31, 1998, the fee for these services amounted to
$2,036.
c) The portfolio 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 portfolio. Under the
Services Agreement, the portfolio has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and certain other portfolios for which Morgan acts as investment
advisor (the "master portfolios") and J.P.Morgan Series Trust (formerly
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 portfolio is determined by the proportionate share that its
net assets bear to the net assets of the master portfolios, other
investors in the
26
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
master portfolios for which Morgan provides similar services and
J.P.Morgan Series Trust. For the period June 16, 1997 (commencement of
operations) through May 31, 1998, the fee for these services amounted to
$29,566.
In addition, Morgan has agreed to reimburse the portfolio to the extent
necessary to maintain the total operating expenses of the portfolio at no
more than 1.20% of the average daily net assets of the portfolio through
September 30, 1998. For the period June 16, 1997 (commencement of
operations) through May 31, 1998, Morgan has agreed to reimburse the
portfolio $3,597 for expenses under this agreement.
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 $3,088 for the period June 16, 1997 (commencement of
operations) through May 31, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds (formerly The JPM Pierpont Funds), the
J.P. Morgan Institutional Funds (formerly The JPM Institutional Funds),
the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements represents 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 receives
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 $600.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period June
16, 1997 (commencement of operations) through May 31, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
--------------- -------------
<S> <C>
$ 231,359,965 $ 72,601,446
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the fund's Notes to the Financial
Statements which are included elsewhere in this report.
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Small Company Opportunities Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The U.S Small Company Opportunities
Portfolio (the "Portfolio") at May 31, 1998, and the results of its operations,
the changes in its net assets and the supplementary data for the period June 16,
1997 (commencement of operations) through May 31, 1998, in conformity with
generally accepted accounting principles. These financial statements and
supplementary data (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at May 31, 1998 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provides
a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
July 17, 1998
28
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
CALIFORNIA MONEY MARKET FUND
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TOTAL RETURN BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
JAPAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
FOR MORE INFORMATION ON THE J.P. MORGAN
FUNDS, CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
J.P. MORGAN
U.S. SMALL COMPANY
OPPORTUNITIES
FUND
ANNUAL REPORT
MAY 31, 1998
