<PAGE>
LETTER TO THE SHAREHOLDERS OF J.P. MORGAN U.S. EQUITY FUND
July 1, 1999
Dear Shareholder,
Over the past year, the U.S. equity market continued to surge ahead, though the
period was marked by extreme volatility. During this time, the J.P. Morgan U.S.
Equity Fund posted an 18.39% return, falling short of the 21.03% return of the
S&P 500 but beating the 11.48% return of the Lipper Growth & Income Fund
Average.
The fund's net asset value declined to $25.09 at May 31, 1999, from $25.66 at
May 31, 1998. During the year, the fund made distributions of approximately
$0.19 per share from ordinary income, approximately $1.02 per share from
short-term capital gains, and approximately $3.45 per share from long-term
capital gains. On May 31, 1999, the net assets of the fund were approximately
$441 million, while the assets of The U.S. Equity Portfolio, in which the fund
invests, amounted to approximately $719 million.
This report includes a discussion with Henry D. Cavanna, the portfolio manager
primarily responsible for The U.S. Equity Portfolio. In this interview, Henry
talks about the events of the previous year that had the greatest effect on the
portfolio and discusses his 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 Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS ........ 1 FUND FACTS AND HIGHLIGHTS ......... 6
FUND PERFORMANCE .................. 2 FINANCIAL STATEMENTS .............. 8
PORTFOLIO MANAGER Q&A ............. 3
- --------------------------------------------------------------------------------
</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 May 31, 1989, would
have grown to $51,051 on May 31, 1999.
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.
GROWTH OF $10,000 OVER 10 YEARS
MAY 31, 1989 -- MAY 31, 1999
[GRAPH]
<TABLE>
<S> <C>
J.P. Morgan U.S. Equity Fund $51,051
Lipper Growth and Income Fund Average $40,175
S&P 500 Index $52,653
</TABLE>
LIPPER PERFORMANCE AVERAGES ARE CALCULATED BY TAKING AN ARITHMETIC AVERAGE OF
THE RETURNS OF THE FUNDS IN THE GROUP. THE AVERAGE ANNUALIZED RETURNS THAT
RESULT FROM THIS METHODOLOGY WILL DIFFER FROM ANNUALIZING THE GROWTH OF THE
MINIMUM INITIAL INVESTMENT.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- -----------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF MAY 31, 1999 MONTHS MONTHS YEAR YEARS YEARS YEARS
- ------------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan U.S. Equity Fund 9.56% 13.64% 18.39% 23.83% 22.27% 17.71%
S&P 500 Index* 5.48% 12.61% 21.03% 26.97% 25.87% 18.07%
Lipper Growth & Income Fund Average 7.95% 11.04% 11.48% 19.80% 20.11% 14.59%
AS OF MARCH 31, 1999
- ------------------------------------------------------------------------- -----------------------------------
J.P. Morgan U.S. Equity Fund 3.33% 25.36% 14.07% 23.27% 21.89% 18.32%
S&P 500 Index* 4.98% 27.34% 18.46% 28.07% 26.25% 18.97%
Lipper Growth & Income Fund Average 1.75% 20.06% 5.46% 19.49% 19.53% 14.92%
</TABLE>
*S&P 500 INDEX IS AN UNMANAGED INDEX USED TO PORTRAY THE PATTERN OF COMMON STOCK
MOVEMENT BASED ON THE AVERAGE PERFORMANCE OF 500 WIDELY HELD COMMON 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 ASSUME THE REINVESTMENT OF DISTRIBUTIONS. LIPPER ANALYTICAL
SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
The following is an interview with HENRY D. CAVANNA, vice president, a member of
the portfolio management team for The U.S. Equity Portfolio. Henry joined Morgan
in 1971 and is a senior U.S. equity portfolio manager in the U.S. Equity and
Balanced Accounts Group. Prior to joining Morgan, Henry was with Harris Upham &
Co. He received his B.A. from Boston College and his L.L.B. from the University
of Pennsylvania. This interview took place on June 11, 1999, and reflects
Henry's views on that date.
HOW HAS THE U.S. EQUITY MARKET PERFORMED OVER THE PAST YEAR?
HDC: Overall, the market continued to thrive for the past 12 months, but there
was a tremendous amount of volatility during the period. The market was shaken
by a number of extraordinary events during the year: Russia defaulted on its
bonds; several high-profile hedge funds, including Long-Term Capital Management,
were bailed out; Asia continued to be weak for most of the period; the U.S.
president was impeached; and NATO engaged in military activity in the Balkans.
However, the market eventually shrugged off these disruptive events and, after a
dramatic flight to quality after its summer swoon, continued to climb.
For much of the year, the market was led by a narrow group of larger-cap growth
issues, often referred to as the "Nifty Fifty." The strong U.S. economy was a
big reason for the success of the equity market during this period, as it buoyed
corporate profits of domestically focused companies in industries like autos,
homebuilding, and retailing. In the tech field, the emergence of e-commerce and
a rash of Internet-related IPOs generated some excitement. Of late, however,
there has been a broadening of market leadership to companies across the
market-capitalization spectrum. And, signs of a bottoming in the global economy
have helped companies in industries that would benefit from global growth, such
as those in the energy and cyclical industrial sectors.
The Federal Reserve was active during the period, too. In the fall, the Fed
eased rates in an attempt to settle world markets. In mid-May, the Fed,
concerned over the continued strong pace of the domestic economy and the
possibility of inflation, announced that its position on interest rates shifted
to a tightening bias from a neutral one. As a result, the market has again come
under some pressure recently.
HOW DID THE FUND PERFORM DURING THE PERIOD?
HDC: The fund fell short of its benchmark for the period, returning 18.39% for
the fiscal year ended May 31 compared with the S&P 500's return of 21.03%.
However, we did outperform our peers, as measured by the Lipper Growth & Income
Fund Average return of 11.48%. The performance of the fund can be broken into
two distinct parts. Through March 1999, the market was extremely narrow,
dominated by a few very large-cap stocks, including many technology and
telecommunications names. Because of the more diversified composition of our
portfolio and our valuation discipline, we lagged the market-cap-weighted S&P
500. Since March, however, market leadership began to broaden into stocks along
the market-cap spectrum. This change proved favorable to our portfolio, and to
active equity portfolio managers in general, and our performance relative to the
index was much better.
3
<PAGE>
WHICH STOCKS CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?
HDC: Like everyone else, we're excited about the investment possibilities in the
technology sector due to the growth of the Internet. We think that a less risky
way to take advantage of this trend is to invest in those companies that provide
the infrastructure of the Internet. In this realm, we've seen strong performance
from Sun Microsystems and EMC.
Sun is the leading vendor of UNIX-based computer systems and has successfully
made the transition from technical workstations to enterprise servers. A recent
agreement with the America Online/Netscape combination has solidified Sun's
position as the premier Internet server company. Our outlook for the company is
still positive, and we continue to consider Sun a core holding.
EMC stands as the leading provider of mainframe and open systems storage
equipment, a niche that should grow hand in hand with the growth of
Internet-based initiatives. Though we believe EMC is well positioned to
capitalize on the opportunities before it, the stock seems to have gotten ahead
of itself and we, therefore, reduced our position.
Specialty retailer Circuit City proved to be a great turnaround story during the
second half of the fiscal year. Six months ago, we cited Circuit City as one of
our bigger disappointments. We stuck with the stock, however, and were rewarded.
The company's sales and earnings benefited from the continued strength in the
domestic economy and the rollout of a number of exciting digital-based products.
Tyco International was another strong performer for us during the period. This
diversified manufacturing and services company has consistently demonstrated its
ability to make earnings-accretive acquisitions, and its stock has benefited
from it. Tyco can also boast of a strong management team and solid organic
growth. We remain positive on the company.
WHAT STOCKS HINDERED THE PORTFOLIO'S PERFORMANCE?
HDC: We've been disappointed with the performance of Starwood Hotels and Resorts
Worldwide, a hotel and gaming company that owns such chains as Westin, Sheraton,
and Caesar's. But we're still confident in our investment; in fact, we have
added to our position. Though the company has a lot of debt on its books, its
fundamentals look good. Earnings have been improving, and we think the physical
property that it owns is worth more than the market seems to be giving it credit
for. In addition, Starwood is trying to sell its Caesar's properties, with the
intention of using the proceeds to retire debt and buy back stock.
Another name that we expect to bounce back is Alza, a mid-sized pharmaceutical
company. The company develops technologies to deliver drugs into the body;
often, it applies these technologies to existing drugs as they come off patent.
The stock has been volatile over the past 12 months, and we think it's
attractively valued where it now stands. Alza's recent launch of the urology
drug Ditropan XL has ramped up more slowly than expected, despite the company's
significant expenditures to support it. But we think that Ditropan XL will
ultimately prove successful, to the benefit of Alza's stock price.
The drug and agricultural biotechnology company Monsanto has had a tough time
over the past 12 months. The stock was punished significantly in October, when
Monsanto's proposed merger with American Home Products fell through. However, we
still think the stock offers a lot of value.
4
<PAGE>
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
HDC: Our outlook is on the cautious side. The market has done so well for so
long, and appears richly valued. And, there is some concern about what steps the
Federal Reserve will take in its efforts to slow down the domestic economy; we
think it's likely that the Fed will raise short-term interest rates at least
once before the end of the year. Should the economy continue to plow ahead, we
think the Fed would become more aggressive in its efforts.
But with continued strength in the domestic economy, corporate profits should
continue to be robust. And despite all the concerns about inflation, it still
remains very low. Globally, there appear to be strong indications that the
economy has hit bottom and is on its way back up; this should have a positive
effect on companies in industries with global exposures, like metals and
chemicals.
We think we're in a transition period, as market leadership begins to filter
down to companies across the market-capitalization spectrum. Such a process can
often be a fragile one, and we wouldn't be surprised to see continued volatility
as a result.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan U.S. Equity Fund seeks to provide a high total return from a
portfolio of selected equity securities. It is designed for investors who want
an actively managed portfolio of selected equity securities that seeks to
outperform the S&P 500 Index.
- --------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
6/27/85
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 5/31/99
$440,965,446
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 5/31/99
$719,430,445
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
6/25/99, 8/20/99, 12/20/99
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/20/99
EXPENSE RATIO
The fund's current annualized expense ratio of 0.79% covers shareholders'
expenses for custody, tax reporting, investment advisory, and shareholder
services. The fund is no-load and does not charge any sales, redemption, or
exchange fees. There are no additional charges for buying, selling, or
safekeeping fund shares, or for wiring redemption proceeds from the fund.
FUND HIGHLIGHTS
ALL DATA AS OF MAY 31, 1999
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
/ / CONSUMER GOODS
& SERVICES 18.4%
/ / TECHNOLOGY 17.7%
/ / FINANCE 15.4%
/ / HEALTHCARE 13.4%
/ / INDUSTRIAL PRODUCTS
& SERVICES 10.7%
/ / UTILITIES 8.2%
/ / ENERGY 8.0%
/ / BASIC INDUSTRIES 4.4%
/ / TRANSPORTATION 2.4%
/ / SHORT-TERM AND
OTHER INVESTMENTS 1.4%
<TABLE>
<CAPTION>
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- ------------------------------------------------------------------------------
<S> <C>
BANK OF AMERICA CORP. (FINANCE) 3.7%
TYCO INTERNATIONAL LTD. 3.4%
(INDUSTRIAL PRODUCTS & SERVICES)
WASTE MANAGEMENT, INC. 3.2%
(INDUSTRIAL PRODUCTS & SERVICES)
MICROSOFT CORP. (TECHNOLOGY) 2.8%
INTERNATIONAL BUSINESS MACHINES CORP. 2.6%
(TECHNOLOGY)
WASHINGTON MUTUAL, INC. (FINANCE) 2.4%
MONSANTO CO. (HEALTHCARE) 2.4%
PHILIP MORRIS COMPANIES, INC. 2.2%
(CONSUMER GOODS & SERVICES)
ROHM & HAAS CO. (BASIC INDUSTRIES) 2.2%
BRISTOL-MYERS SQUIBB CO. (HEALTHCARE) 2.1%
</TABLE>
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS AN INVESTMENT ADVISOR. 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 securities. Opinions expressed herein are
based on current market conditions and are subject to change without notice. The
fund invests through a master portfolio (another fund with the same objective).
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. EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Equity Portfolio
("Portfolio"), at value $441,136,167
Receivable for Shares of Beneficial Interest Sold 67,681
Prepaid Trustees' Fees 4,752
Prepaid Expenses and Other Assets 3,241
------------
Total Assets 441,211,841
------------
LIABILITIES
Shareholder Servicing Fee Payable 95,314
Payable for Shares of Beneficial Interest
Redeemed 93,621
Administrative Services Fee Payable 9,842
Administration Fee Payable 551
Fund Services Fee Payable 405
Accrued Expenses 46,662
------------
Total Liabilities 246,395
------------
NET ASSETS
Applicable to 17,576,335 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $440,965,446
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $25.09
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $314,711,247
Undistributed Net Investment Income 437,808
Accumulated Net Realized Gain on Investment 47,133,778
Net Unrealized Appreciation of Investment 78,682,613
------------
Net Assets $440,965,446
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $54,762) $ 5,794,540
Allocated Interest Income 474,448
Allocated Portfolio Expenses (1,963,635)
-----------
Net Investment Income Allocated from
Portfolio 4,305,353
FUND EXPENSES
Shareholder Servicing Fee $1,052,598
Administrative Services Fee 114,563
Transfer Agent Fees 88,723
Registration Fees 24,617
Printing Expenses 17,543
Professional Fees 16,290
Fund Services Fee 10,353
Administration Fee 7,329
Line of Credit Expense 4,483
Trustees' Fees and Expenses 3,946
Insurance Expense 2,249
Miscellaneous 27,259
----------
Total Fund Expenses 1,369,953
-----------
NET INVESTMENT INCOME 2,935,400
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 67,273,559
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT
ALLOCATED FROM PORTFOLIO (3,547,045)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $66,661,914
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1999 MAY 31, 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 2,935,400 $ 2,930,382
Net Realized Gain on Investment
Allocated from Portfolio 67,273,559 99,516,717
Net Change in Unrealized Depreciation of
Investment Allocated from Portfolio (3,547,045) (1,088,270)
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 66,661,914 101,358,829
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (3,075,198) (3,619,210)
Net Realized Gain (69,795,494) (75,349,843)
-------------- --------------
Total Distributions to Shareholders (72,870,692) (78,969,053)
-------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 78,806,635 79,192,975
Reinvestment of Dividends and Distributions 66,771,512 73,302,482
Cost of Shares of Beneficial Interest Redeemed (146,547,755) (89,344,257)
-------------- --------------
Net Increase (Decrease) from Transactions in
Shares
of Beneficial Interest (969,608) 63,151,200
-------------- --------------
Total Increase (Decrease) in Net Assets (7,178,386) 85,540,976
NET ASSETS
Beginning of Fiscal Year 448,143,832 362,602,856
-------------- --------------
End of Fiscal Year (including undistributed net
investment
income of $437,808 and $579,087, respectively) $ 440,965,446 $ 448,143,832
-------------- --------------
-------------- --------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each year are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 25.66 $ 24.63 $ 22.15 $ 19.42 $ 19.38
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18 0.18 0.25 0.38 0.32
Net Realized and Unrealized Gain on Investment 3.91 5.92 4.72 4.23 2.17
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 4.09 6.10 4.97 4.61 2.49
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.19) (0.23) (0.36) (0.29) (0.28)
Net Realized Gain (4.47) (4.84) (2.13) (1.59) (2.17)
---------- ---------- ---------- ---------- ----------
Total Distributions to Shareholders (4.66) (5.07) (2.49) (1.88) (2.45)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF YEAR $ 25.09 $ 25.66 $ 24.63 $ 22.15 $ 19.42
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Total Return 18.39% 28.35% 25.00% 25.18% 15.11%
Net Assets, End of Year (in thousands) $440,965 $448,144 $362,603 $330,014 $259,338
Ratios to Average Net Assets
Net Expenses 0.79% 0.78% 0.80% 0.81% 0.90%
Net Investment Income 0.70% 0.71% 1.13% 1.87% 1.74%
Expenses Without Reimbursement 0.79% 0.78% 0.80% 0.81% 0.91%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P Morgan U.S. Equity Fund (the "fund") is a separate series of the J.P.
Morgan 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.
The fund invests all of its investable assets in The U.S. Equity 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 (61% at May 31, 1999). 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 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) Distributions to shareholders of net investment income are declared as
dividends and paid quarterly. Distributions to shareholders of net
realized capital gain, if any, are declared and paid annually.
d) 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.
e) 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.
f) The fund accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies." The effect of applying
this statement as of May 31, 1999, was to decrease undistributed net
investment income by $1,481, increase accumulated net realized gain on
investment by $658,966 and decrease paid-in capital by $657,485. The
adjustments are primarily attributable to the application of tax
allocation rules and a basis
12
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
adjustment as a result of asset migration at the portfolio level. Net
investment income, net realized gains and net assets were not affected by
this change. In addition, a reclassification of $12,620,912 was made by
the fund to decrease paid-in capital and increase net unrealized
appreciation of investments attributable to its allocation from the
portfolio. Net assets were not affected by the reclassification.
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
fiscal year ended May 31, 1999, the fee for these services amounted to
$7,329.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("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
invest (the "master portfolios") and J.P. Morgan 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 fiscal year ended May 31, 1999, the fee for
these services amounted to $114,563.
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 fiscal year ended May 31, 1999, the fee for these
services amounted to $1,052,598.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the services
13
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
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
$10,353 for the fiscal year ended May 31, 1999.
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 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 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 $2,200.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the fund were as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1999 MAY 31, 1998
-------------- --------------
<S> <C> <C>
Shares sold...................................... 3,225,938 3,184,514
Reinvestment of dividends and distributions...... 3,009,630 3,183,230
Shares redeemed.................................. (6,126,724) (3,622,182)
-------------- --------------
Net Increase..................................... 108,844 2,745,562
-------------- --------------
-------------- --------------
</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 27, 1998, with unaffiliated lenders. The maximum borrowing
under the Agreement is $150,000,000. The Agreement expired on May 26, 1999,
however, the fund as party to the Agreement has extended the Agreement and
continues its participation therein for an additional 364 days until May 23,
2000. 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 0.085% (0.065% prior to May 26, 1999) on the unused portion of
the committed amount. This is allocable to the funds in accordance with
procedures established by their respective trustees or directors. There were no
outstanding borrowings pursuant to the Agreement as of May 31, 1999.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan U.S. Equity 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. Equity Fund (one of the series constituting part of the J.P.
Morgan Funds, hereafter referred to as the "fund") at May 31, 1999, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
July 14, 1999
15
<PAGE>
The U.S. Equity Portfolio
Annual Report May 31, 1999
(The following pages should be read in conjunction
with J.P. Morgan U.S. Equity Fund
Annual Financial Statements)
16
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
COMMON STOCKS (96.8%)
BASIC INDUSTRIES (4.4%)
CHEMICALS (2.1%)
Rohm & Haas Co................................... 377,700 $ 15,155,212
-------------
FOREST PRODUCTS & PAPER (1.3%)
Temple-Inland, Inc............................... 136,900 9,172,300
-------------
METALS & MINING (1.0%)
Allegheny Teledyne, Inc.......................... 335,472 6,856,209
-------------
TOTAL BASIC INDUSTRIES......................... 31,183,721
-------------
CONSUMER GOODS & SERVICES (18.1%)
AUTOMOTIVE (1.3%)
Lear Corp.+...................................... 184,800 9,089,850
-------------
ENTERTAINMENT, LEISURE & MEDIA (2.8%)
International Game Technology.................... 208,300 3,671,287
News Corp. Ltd. (Spons. ADR)..................... 224,900 7,463,869
Seagram Company Ltd.(i).......................... 166,400 8,642,400
-------------
19,777,556
-------------
FOOD, BEVERAGES & TOBACCO (5.1%)
Pepsi Bottling Group, Inc........................ 341,900 7,927,806
PepsiCo, Inc..................................... 243,600 8,723,925
Philip Morris Companies, Inc..................... 400,500 15,444,281
Ralston-Ralston Purina Group..................... 181,200 4,937,700
-------------
37,033,712
-------------
HOUSEHOLD PRODUCTS (2.7%)
Kimberly-Clark Corp.............................. 120,300 7,060,106
Procter & Gamble Co.............................. 129,860 12,125,677
-------------
19,185,783
-------------
RESTAURANTS & HOTELS (2.3%)
Mirage Resorts, Inc.+............................ 345,900 7,090,950
Starwood Hotels & Resorts Worldwide, Inc......... 301,700 9,880,675
-------------
16,971,625
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
RETAIL (3.9%)
Circuit City Stores-Circuit City Group........... 144,200 $ 10,355,362
Federated Department Stores, Inc.+............... 118,500 6,458,250
Toys 'R' Us, Inc.(s)+............................ 198,000 4,566,375
Wal-Mart Stores, Inc............................. 154,600 6,589,825
-------------
27,969,812
-------------
TOTAL CONSUMER GOODS & SERVICES................ 130,028,338
-------------
ENERGY (7.8%)
NATURAL GAS (1.9%)
Columbia Energy Group............................ 248,950 13,318,825
-------------
OIL-PRODUCTION (5.1%)
BP Amoco Plc (Spon. ADR)......................... 1,300 139,262
Mobil Corp....................................... 91,800 9,294,750
Phillips Petroleum Co............................ 127,000 6,659,562
Royal Dutch Petroleum Co. (ADR).................. 188,300 10,650,719
Tosco Corp....................................... 397,200 10,153,425
-------------
36,897,718
-------------
OIL-SERVICES (0.8%)
Cooper Cameron Corp.+............................ 167,400 6,057,787
-------------
TOTAL ENERGY................................... 56,274,330
-------------
FINANCE (15.2%)
BANKING (10.0%)
Astoria Financial Corp........................... 125,130 5,642,581
Bank of America Corp............................. 403,201 26,082,065
First Union Corp................................. 293,800 13,533,162
KeyCorp.......................................... 115,800 4,024,050
Washington Mutual, Inc........................... 442,250 16,888,422
Wells Fargo Co................................... 137,500 5,500,000
-------------
71,670,280
-------------
FINANCIAL SERVICES (1.5%)
CIT Group, Inc., Class A......................... 243,400 7,058,600
Goldman Sachs Group, Inc.+....................... 25,000 1,698,437
Newcourt Credit Group, Inc.(i)................... 121,000 1,966,250
-------------
10,723,287
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
INSURANCE (3.7%)
Ambac Financial Group, Inc....................... 86,800 $ 5,061,525
Marsh & McLennan Companies, Inc.................. 104,100 7,573,275
UNUM Corp........................................ 258,200 13,894,387
-------------
26,529,187
-------------
TOTAL FINANCE.................................. 108,922,754
-------------
HEALTHCARE (13.2%)
BIOTECHNOLOGY (1.9%)
Genzyme Corp.+................................... 139,300 5,646,003
PE Corp.-PE Biosystems Group+.................... 63,900 7,136,831
PE Corp.-Celera Genomics+........................ 31,950 543,150
-------------
13,325,984
-------------
HEALTH SERVICES (1.1%)
Healthsouth Corp.+............................... 297,200 3,975,050
Humana, Inc.+.................................... 321,500 4,038,844
-------------
8,013,894
-------------
PHARMACEUTICALS (10.2%)
ALZA Corp.+...................................... 315,000 11,241,562
American Home Products Corp...................... 100,600 5,797,075
Bristol-Myers Squibb Co.......................... 217,000 14,891,625
Eli Lilly & Co................................... 72,200 5,157,787
Forest Laboratories, Inc.+....................... 212,800 10,134,600
Monsanto Co...................................... 403,000 16,724,500
Warner-Lambert Co................................ 154,000 9,548,000
-------------
73,495,149
-------------
TOTAL HEALTHCARE............................... 94,835,027
-------------
INDUSTRIAL PRODUCTS & SERVICES (10.5%)
AEROSPACE (1.5%)
Boeing Co........................................ 139,200 5,881,200
Lockheed Martin Corp............................. 118,000 4,771,625
-------------
10,652,825
-------------
COMMERCIAL SERVICES (2.2%)
Cendant Corp.+................................... 680,600 12,548,563
Service Corp. International...................... 175,200 3,361,650
-------------
15,910,213
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
DIVERSIFIED MANUFACTURING (3.7%)
Cooper Industries, Inc........................... 51,000 $ 2,527,688
Tyco International Ltd.(i)....................... 276,546 24,163,207
-------------
26,690,895
-------------
POLLUTION CONTROL (3.1%)
Waste Management, Inc............................ 420,857 22,252,814
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 75,506,747
-------------
TECHNOLOGY (17.3%)
COMPUTER PERIPHERALS (0.6%)
EMC Corp.+....................................... 45,800 4,562,825
-------------
COMPUTER SOFTWARE (3.0%)
Microsoft Corp.+................................. 242,000 19,533,938
Oracle Corp.+.................................... 86,850 2,152,252
-------------
21,686,190
-------------
COMPUTER SYSTEMS (5.3%)
Apple Computer, Inc.+............................ 54,600 2,404,106
Compaq Computer Corp............................. 110,200 2,610,363
Hewlett-Packard Co............................... 67,900 6,403,819
International Business Machines Corp............. 158,200 18,400,638
Sun Microsystems, Inc.+.......................... 144,000 8,599,500
-------------
38,418,426
-------------
ELECTRONICS (1.8%)
3Com Corp.+...................................... 35,700 976,172
Cisco Systems, Inc.+............................. 108,600 11,834,006
-------------
12,810,178
-------------
SEMICONDUCTORS (2.6%)
General Semiconductor, Inc.+..................... 38,200 296,050
Intel Corp....................................... 194,200 10,523,213
Motorola, Inc.................................... 50,600 4,190,313
Texas Instruments, Inc........................... 33,100 3,620,313
-------------
18,629,889
-------------
TELECOMMUNICATION SERVICES (2.0%)
MCI WorldCom, Inc.+.............................. 162,400 14,022,225
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
TELECOMMUNICATIONS-EQUIPMENT (2.0%)
Commscope, Inc.+................................. 183,233 $ 4,809,866
Lucent Technologies, Inc......................... 169,500 9,640,313
-------------
14,450,179
-------------
TOTAL TECHNOLOGY............................... 124,579,912
-------------
TRANSPORTATION (2.3%)
RAILROADS (2.3%)
CSX Corp......................................... 75,000 3,520,313
Union Pacific Corp............................... 230,200 13,135,788
-------------
TOTAL TRANSPORTATION........................... 16,656,101
-------------
UTILITIES (8.0%)
ELECTRIC (2.5%)
Central & South West Corp........................ 90,400 2,327,800
Northern States Power Co......................... 213,500 5,564,344
PP&L Resources, Inc.............................. 343,800 10,314,000
-------------
18,206,144
-------------
TELEPHONE (5.5%)
AT&T Corp........................................ 227,400 12,620,700
Bell Atlantic Corp............................... 145,300 7,955,175
GTE Corp......................................... 205,500 12,959,344
Level 3 Communications, Inc.+.................... 38,100 2,989,659
SBC Communications, Inc.......................... 65,200 3,333,350
-------------
39,858,228
-------------
TOTAL UTILITIES................................ 58,064,372
-------------
TOTAL COMMON STOCKS
(COST $562,975,168)........................... 696,051,302
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
FIXED INCOME SECURITIES (0.4%)
U.S. TREASURY OBLIGATIONS (0.4%)
U.S. TREASURY NOTES (0.4%)
United States Treasury Notes, 6.000% due 06/30/99
(cost $3,198,448)(s)........................... $ 3,195,000 $ 3,198,482
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (0.9%)
U.S. GOVERNMENT AGENCY OBLIGATIONS (0.9%)
Student Loan Marketing Association, 4.680% due
06/01/99 (cost $6,254,000)..................... $ 6,254,000 $ 6,254,000
-------------
TOTAL INVESTMENTS
(COST $572,427,616) (98.1%)................................. 705,503,784
OTHER ASSETS IN EXCESS OF LIABILITIES (1.9%)..................
13,926,661
-------------
NET ASSETS (100.0%)........................................... $ 719,430,445
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $577,774,509 for federal income tax
purposes at May 31, 1999, the aggregate gross unrealized appreciation and
depreciation was $151,368,947 and $23,639,672, respectively, resulting in net
unrealized appreciation of $127,729,275.
+ Non-income producing security.
(i) Foreign Security.
(s) Security is partially segregated with custodian as collateral for futures
contracts or with broker as initial margin for futures contracts.
ADR - American Depositary Receipt.
Spon. ADR - Sponsored ADR.
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment at Value (Cost $572,427,616) $705,503,784
Cash 410
Receivable for Investments Sold 20,306,703
Dividends Receivable 934,664
Variation Margin Receivable 92,400
Interest Receivable 80,493
Prepaid Trustees' Fees 4,973
Prepaid Expenses and Other Assets 4,928
------------
Total Assets 726,928,355
------------
LIABILITIES
Payable for Investments Purchased 7,176,439
Advisory Fee Payable 249,662
Custody Fee Payable 20,112
Administrative Services Fee Payable 16,112
Administration Fee Payable 761
Fund Services Fee Payable 663
Accrued Expenses 34,161
------------
Total Liabilities 7,497,910
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $719,430,445
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $92,624) $ 10,049,672
Interest Income 827,125
------------
Investment Income 10,876,797
EXPENSES
Advisory Fee $ 2,911,314
Administrative Services Fee 198,407
Custodian Fees and Expenses 162,460
Professional Fees and Expenses 65,618
Fund Services Fee 18,019
Administration Fee 11,075
Printing Expenses 8,365
Trustees' Fees and Expenses 6,531
Insurance Expense 4,800
Miscellaneous 258
------------
Total Expenses 3,386,847
------------
NET INVESTMENT INCOME 7,489,950
NET REALIZED GAIN ON
Investment Transactions 120,840,928
Futures Contracts 3,603,219
------------
Net Realized Gain 124,444,147
NET CHANGE IN UNREALIZED
APPRECIATION/(DEPRECIATION) OF
Investments (20,541,898)
Futures Contracts 477,852
------------
Net Change in Unrealized Depreciation (20,064,046)
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $111,870,051
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1999 MAY 31, 1998
-------------- --------------
<S> <C> <C>
DECREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 7,489,950 $ 8,957,310
Net Realized Gain on Investments and Futures
Contracts 124,444,147 211,793,953
Net Change in Unrealized
Appreciation/(Depreciation) of Investments and
Futures Contracts (20,064,046) (9,192,276)
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 111,870,051 211,558,987
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 137,233,705 171,037,121
Withdrawals (356,977,035) (414,552,601)
-------------- --------------
Net Decrease from Investors' Transactions (219,743,330) (243,515,480)
-------------- --------------
Total Decrease in Net Assets (107,873,279) (31,956,493)
NET ASSETS
Beginning of Fiscal Year 827,303,724 859,260,217
-------------- --------------
End of Fiscal Year $ 719,430,445 $ 827,303,724
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY
31,
--------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.47% 0.47% 0.47% 0.46% 0.51%
Net Investment Income 1.03% 1.01% 1.44% 2.20% 2.12%
Portfolio Turnover 84% 106% 99% 85% 71%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Equity Portfolio (the "portfolio") is registered under the Investment
Company Act of 1940, as amended, as a no-load, diversified, open-end management
investment company which was organized as a trust under the laws of the State of
New York. The portfolio commenced operations on July 19, 1993. The portfolio's
investment objective is to provide a high total return from a portfolio of
selected equity securities. 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 portfolio values securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available mean of the bid and asked
prices on such exchange, if such exchange or market constitutes the
broadest and most representative market for the security. Securities
listed on a foreign exchange are valued at the last traded price or in the
absence of recorded trades, at the readily available mean of the bid and
asked prices on such exchange available before the time when net assets
are valued. Independent pricing service procedures may also include the
use of prices based on yields or prices of securities of comparable
quality, coupon, maturity and type, indications as to values from dealers,
operating data, and general market conditions. Unlisted securities are
valued at the average of the quoted bid and asked prices in the
over-the-counter market provided by a principal market maker or dealer. If
prices are not supplied by the portfolio's independent pricing service or
principal market maker or dealer, such securities are priced using fair
values in accordance with procedures adopted by the portfolio's Trustees.
All short-term securities with a remaining maturity of sixty days or less
are valued using the amortized cost method.
b) The portfolio's custodian (or designated subcustodians, as the case may be
under tri-party repurchase agreements) 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 becomes known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
d) Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place is fixed when the
portfolio
23
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
enters into the contract. Upon entering into such a contract, the
portfolio is required to pledge to the broker an amount of cash and/or
liquid securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the portfolio agrees to receive
from, or pay to, the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as "variation margin" and are recorded by the portfolio as unrealized
gains or losses. When the contract is closed, the portfolio records a
realized gain or loss equal to the different between the value of the
contract at the time it was opened and the value at the time when it was
closed. The portfolio invests in futures contracts for the purpose of
hedging its existing portfolio securities, or securities the portfolio
intends to purchase, against fluctuations in value caused by changes in
prevailing market interest rates or securities movement. The use of
futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the
underlying hedged assets, and the possible inability of counterparties to
meet the terms of their contracts.
e) 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. The portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
2. TRANSACTIONS WITH AFFILIATES
a) Prior to October 1, 1998, the portfolio had an Investment Advisory
Agreement with Morgan Guaranty Trust Company of New York ("Morgan"), a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan").
Under the terms of the agreement, the portfolio pays Morgan at an annual
rate of 0.40% of the portfolio's average daily net assets. Effective
October 1, 1998, the portfolio's Investment Advisor is J.P. Morgan
Investment Management Inc. ("JPMIM"), an affiliate of Morgan and a wholly
owned subsidiary of J.P. Morgan and the terms of the agreement will remain
the same. For the fiscal year ended May 31, 1999, such fees amounted to
$2,911,314.
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 fiscal year ended May 31, 1999, the
fee for these services amounted to $11,075.
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 the Morgan acts as
advisor
24
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1999
- --------------------------------------------------------------------------------
(the "master portfolios") and J.P Morgan 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 portfolio, other investors in the master portfolios for
which Morgan provides similar services, and J.P. Morgan Series Trust. For
the fiscal year ended May 31, 1999, the fee for these services amounted to
$198,407.
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 $18,019 for the fiscal year ended May 31, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, 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 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
the Fund Services Fee shown in the financial statements was $3,800.
3. INVESTMENT TRANSACTIONS
Investment transactions as of May 31, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- ------------
<S> <C>
$598,666,653 $790,110,126
</TABLE>
Futures transactions as of May 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
NET UNREALIZED CURRENT MARKET
CONTRACTS LONG APPRECIATION VALUE OF CONTRACTS
-------------- -------------- ------------------
<S> <C> <C> <C>
S&P 500, expiring June 1999...................... 33 $ 74,202 $ 10,701,900
-------------- -------------- ------------------
-------------- -------------- ------------------
</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.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Equity 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. Equity Portfolio (the "portfolio")
at May 31, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
its supplementary data for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and supplementary data (hereafter referred to as "financial
statements") are the responsibility of the portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
July 14, 1999
26
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
TAX AWARE ENHANCED INCOME FUND: SELECT SHARES
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TAX EXEMPT 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
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.
IM0470-M
J.P. MORGAN
U.S. EQUITY FUND
ANNUAL REPORT
MAY 31, 1999
