<PAGE>
LETTER TO THE SHAREHOLDERS OF J.P. MORGAN U.S. EQUITY FUND
January 4, 1999
Dear Shareholder:
The six months ended November 30, 1998, saw extreme volatility in the world's
equity markets. For the period, J.P. Morgan U.S. Equity Fund posted a solid
return of 4.18%, surpassing its peers, as measured by the Lipper Growth & Income
Fund Average, which returned 0.30%. The fund was unable to beat its benchmark,
the S&P 500 Index, which returned 7.47% for the period.
The fund's net asset value increased from $25.66 per share at May 31, 1998, to
$26.66 per share on November 30, 1998. The fund made distributions during the
year of approximately $0.07 per share from ordinary income. There were no
distributions from short- or long-term capital gains. In addition, the fund's
net assets declined from approximately $448.1 million on May 31, 1998, to
approximately $420.4 million at the end of the period under review. The net
assets of The U.S. Equity Portfolio, in which the fund invests, totaled
approximately $729.9 million on November 30, 1998.
The report that follows includes an interview with Henry D. Cavanna, a member of
the portfolio management team for The U.S. Equity Portfolio. This interview is
designed to answer commonly asked questions about the fund, elaborate on what
happened during the reporting period, and provide an outlook for the coming
months.
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
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
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 AVERAGE ANNUAL TOTAL RETURNS
------------------- --------------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF NOVEMBER 30, 1998 MONTHS MONTHS YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan U.S.Equity Fund 25.11% 4.18% 20.59% 23.40% 19.92% 18.20%
S&P 500 Index 22.03% 7.47% 23.66% 26.66% 22.98% 18.75%
Lipper Growth & Income Fund Average 18.68% 0.30% 12.35% 20.15% 17.84% 15.30%
AS OF SEPTEMBER 30, 1998
- -----------------------------------------------------------------------------------------------------------
J.P.Morgan U.S. Equity Fund -11.18% -9.01% 2.30% 18.61% 17.08% 16.63%
S&P 500 Index -9.95% -6.97% 9.05% 22.60% 19.91% 17.29%
Lipper Growth & Income Fund Average -12.47% -12.20% -1.08% 16.62% 15.09% 14.01%
</TABLE>
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, a member of the portfolio
management team for The U.S. Equity Portfolio. Henry joined Morgan in 1971. He
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 LLB from the University of
Pennsylvania. This interview took place on December 16, 1998, and reflects
Henry's views on that date.
HOW DID THE U.S. EQUITY MARKET PERFORM DURING THE SIX MONTHS ENDED NOVEMBER 30,
1998?
HC: The S&P 500 Index returned 7.47% for the six months, but that number belies
the volatility the market experienced during the period. Through June, the U.S.
stock market was performing well, buoyed by a solid U.S. economy and strong
consumer spending. However, July and August saw a global economic and credit
crisis that took the market down almost 20% from its highs.
Among the problems that rocked the world markets were Russia's default on its
bonds, the bailout of several high-profile hedge funds including Long-Term
Capital Management and D.E. Shaw, and continuing weakness in Asia, particularly
Japan.
The summer downturn led to a dramatic flight to quality in fixed income and
equity markets. Risk was repriced in the markets, and investors avidly sought
securities they considered "stable."
In early autumn, the Federal Reserve enacted a preemptive interest rate cut in
an attempt to settle world markets and address the financial shocks. With two
additional Fed easings, as well as rate cuts around the world, U.S. stocks
rallied back to new highs and interest rate spreads began to narrow.
HOW DID J.P. MORGAN U.S. EQUITY FUND PERFORM DURING THE PERIOD?
HC: The fund returned 4.18% for the six months ended November 30, 1998,
trailing the 7.47% return of the S&P 500 Index. However, the fund significantly
outpaced its peers, as measured by the Lipper Growth & Income Fund Average,
which returned 0.30%.
Although the portfolio suffered during the market correction, by the end of the
period it had begun to make up lost ground. November, in particular, was a
strong month for us.
The wide disparity of returns between growth and value stocks negatively
impacted the portfolio. For the six months, the Russell 1000 Value Index
returned only 0.98%, while the Russell 1000 Growth Index was up 12.17% for the
same period. This was a tale of two markets. Although growth stocks have
outperformed value stocks for several years, during the period under review,
this trend became as extreme as it has ever been.
We select stocks for the portfolio based on our view of each company's long-term
prospects, while the market has focused almost entirely on short-term changes.
The portfolio has a value slant, while the market has
3
<PAGE>
not tended to reward reasonably valued companies. However, we are sticking to
our disciplined approach to U.S. equities, because long-term success in money
management comes from maintaining a consistent style.
WHICH STOCKS CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?
HC: Sun Microsystems has been one of the portfolio's best performers. The
company, the leading vendor of high-end Unix-based computer systems, has
successfully made the transition from technical workstations to enterprise
servers.
Sun's Java, an Internet programming language, has fortified the company's
position as a leader in network-based computing. There is an increased
perception among investors that Sun will be a significant player in enterprise
computing.
In addition to being reasonably valued, the company has experienced strong
operating trends which have resulted in strong earnings growth.
Philip Morris is another strong stock in the portfolio. Throughout the six
months, the stock benefited from the increasing likelihood - and eventual fact -
that a settlement would be reached between the tobacco industry and the state
attorneys general. The settlement addresses the tobacco companies' liability for
smoking-related Medicaid claims. The settlement has reduced the uncertainty
associated with Philip Morris, and gives the company the financial flexibility
to increase its dividend and resume share repurchases.
WHICH STOCKS HINDERED THE PORTFOLIO'S PERFORMANCE?
HC: Circuit City, one of two dominant consumer electronics superstores,
suffered during the six months. The company had started several new businesses,
which cost it time and money. Investor perception of the stock remained
negative, even though sales growth began to improve during the period. Because
we viewed the stock as undervalued and anticipated increased interest in
consumer electronics, however, we continued to hold the stock. This decision
looks like a good one, as the company's share price has begun to recover.
Starwood Hotel Resorts also hampered the portfolio's returns. The largest hotel
company in the U.S., Starwood owns the Westin and Sheraton chains. Through its
ownership of Caesar's, Starwood is also involved in the gaming industry. The
entire real estate sector has been under pressure this year, largely because of
concerns about the outlook for hotels and commercial real estate in a slowing
economy. Gaming has also suffered as foreign tourist traffic has slowed. Since
Starwood has considerable assets, though, we believe it will realize more value
for shareholders over time. We continue to hold this attractively valued stock.
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
HC: We have a balanced outlook for the months ahead. We think 1999 will see
U.S. economic growth moderating. Manufacturing is starting to slow, and we
believe corporate profit growth will slow as well. The market is vulnerable to
future shocks such as impeachment and further trouble in Brazil and Asia.
In spite of these causes for concern, the stock market is presently at robust
levels. Inflation is not on the horizon, and interest rates remain low. The U.S.
economy is still doing very well relative to the rest of the world. Thus, we
remain focused on the long term as we seek undervalued U.S. stocks.
4
<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 11/30/98
$420,408,665
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 11/30/98
$729,928,845
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE
12/18/98
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/98
EXPENSE RATIO
The fund's current annualized expense ratio of 0.78% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services. The fund is no-load and does not charge any sales, redemption, or
exchange fees. There are no additional charges for buying, selling, or
safekeeping fund shares, or for wiring redemption proceeds from the fund.
FUND HIGHLIGHTS
ALL DATA AS OF NOVEMBER 30, 1998
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
FINANCE 17.7%
CONSUMER GOODS & SERVICES 17.6%
TECHNOLOGY 13.8%
HEALTH CARE 11.4%
UTILITIES 11.3%
INDUSTRIAL PRODUCTS & SERVICES 10.1%
ENERGY 6.9%
BASIC INDUSTRIES 5.4%
TRANSPORTATION 2.6%
SHORT-TERM & OTHER 3.2%
</TABLE>
<TABLE>
<CAPTION>
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- ------------------------------------------------------------
<S> <C>
BANKAMERICA CORP. (FINANCE) 3.0%
MONSANTO CO. (HEALTH CARE) 2.7%
UNION PACIFIC CORP. (TRANSPORTATION) 2.6%
INTERNATIONAL BUSINESS MACHINES CORP.
(TECHNOLOGY) 2.6%
PHILIP MORRIS COMPANIES, INC.
(CONSUMER GOODS & SERVICES) 2.5%
BRISTOL-MYERS SQUIBB CO. (HEALTH CARE) 2.5%
ATLANTIC RICHFIELD CO. (ENERGY) 2.4%
MICROSOFT CORP. (TECHNOLOGY) 2.4%
CITIGROUP, INC. (FINANCE) 2.2%
GTE CORP. (UTILITIES) 2.0%
</TABLE>
5
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS 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 such securities. Opinions 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).
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.
6
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Equity Portfolio
("Portfolio"), at value $418,833,695
Receivable for Shares of Beneficial Interest Sold 1,861,706
Prepaid Trustees' Fees 3,448
Prepaid Expenses and Other Assets 40,936
------------
Total Assets 420,739,785
------------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 236,358
Shareholder Servicing Fee Payable 83,591
Administrative Services Fee Payable 9,302
Administration Fee Payable 1,489
Fund Services Fee Payable 380
------------
Total Liabilities 331,120
------------
NET ASSETS
Applicable to 15,769,699 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $420,408,665
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $26.66
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $290,025,077
Undistributed Net Investment Income 1,036,018
Accumulated Net Realized Gain on Investment 71,792,756
Net Unrealized Appreciation of Investment 57,554,814
------------
Net Assets $420,408,665
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign
Withholding Tax of $24,589) $ 2,990,473
Allocated Interest Income 312,154
Allocated Portfolio Expenses (967,257)
-----------
Net Investment Income Allocated from
Portfolio 2,335,370
FUND EXPENSES
Shareholder Servicing Fee $519,037
Administrative Services Fee 58,827
Transfer Agent Fees 34,499
Printing Expenses 9,055
Professional Fees 8,927
Registration Fees 6,943
Fund Services Fee 5,685
Administration Fee 4,130
Trustees' Fees and Expenses 3,061
Insurance Expense 1,394
Miscellaneous 4,361
--------
Total Fund Expenses 655,919
-----------
NET INVESTMENT INCOME 1,679,451
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 22,796,009
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (12,053,932)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $12,421,528
-----------
-----------
</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 SIX
MONTHS ENDED FOR THE FISCAL
NOVEMBER 30, 1998 YEAR ENDED
(UNAUDITED) MAY 31, 1998
----------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,679,451 $ 2,930,382
Net Realized Gain on Investment Allocated from
Portfolio 22,796,009 99,516,717
Net Change in Unrealized Appreciation of
Investment Allocated from Portfolio (12,053,932) (1,088,270)
----------------- --------------
Net Increase in Net Assets Resulting from
Operations 12,421,528 101,358,829
----------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (1,222,520) (3,619,210)
Net Realized Gain -- (75,349,843)
----------------- --------------
Total Distributions to Shareholders (1,222,520) (78,969,053)
----------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 40,912,411 79,192,975
Reinvestment of Dividends and Distributions 1,106,772 73,302,482
Cost of Shares of Beneficial Interest Redeemed (80,953,358) (89,344,257)
----------------- --------------
Net Increase (Decrease) from Transactions in
Shares of Beneficial Interest (38,934,175) 63,151,200
----------------- --------------
Total Increase (Decrease) in Net Assets (27,735,167) 85,540,976
NET ASSETS
Beginning of Period 448,143,832 362,602,856
----------------- --------------
End of Period (including undistributed net
investment income of $1,036,018 and $579,087,
respectively) $ 420,408,665 $ 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 period are as follows:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED MAY 31,
NOVEMBER 30, 1998 ----------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.66 $ 24.63 $ 22.15 $ 19.42 $ 19.38 $ 19.30
----------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.18 0.25 0.38 0.32 0.27
Net Realized and Unrealized Gain on Investment 0.97 5.92 4.72 4.23 2.17 1.32
----------------- -------- -------- -------- -------- --------
Total from Investment Operations 1.07 6.10 4.97 4.61 2.49 1.59
----------------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.07) (0.23) (0.36) (0.29) (0.28) (0.29)
Net Realized Gain -- (4.84) (2.13) (1.59) (2.17) (1.22)
----------------- -------- -------- -------- -------- --------
Total Distributions to Shareholders (0.07) (5.07) (2.49) (1.88) (2.45) (1.51)
----------------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 26.66 $ 25.66 $ 24.63 $ 22.15 $ 19.42 $ 19.38
----------------- -------- -------- -------- -------- --------
----------------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Total Return 4.18% 28.35% 25.00% 25.18% 15.11% 8.54%
Net Assets, End of Period (in thousands) $ 420,409 $448,144 $362,603 $330,014 $259,338 $231,306
Ratios to Average Net Assets
Net Expenses 0.78%(a) 0.78% 0.80% 0.81% 0.90% 0.90%
Net Investment Income 0.81%(a) 0.71% 1.13% 1.87% 1.74% 1.43%
Expenses without Reimbursement -- -- -- -- 0.91% 0.93%
Portfolio Turnover -- -- -- -- -- 10.00%(b)
</TABLE>
- --------------------------
(a) Annualized.
(b) 1994 Portfolio Turnover reflects the period from June 1, 1993 to July 18,
1993. After July 18, 1993, all of the Fund's investable assets were invested in
the U.S. Equity Portfolio.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan U.S. Equity Fund (the "fund") is a separate series of 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. Costs
related to the reorganization were borne by Morgan Guaranty Trust Company of New
York ("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"). This report includes a period which preceded the fund's
reorganization and reflects the operations of the predecessor entity.
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 (57% at November 30, 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 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.
12
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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 six
months ended November 30, 1998, the fee for these services amounted to
$4,130.
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 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 six months ended November
30, 1998, the fee for these services amounted to $58,827.
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 six months ended November 30, 1998, the fee for these
services amounted to $519,037.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the services agreement 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
13
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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 $5,685 for the six months ended November 30, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, 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 $1,200.
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 SIX FOR THE FISCAL
MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1998 MAY 31, 1998
----------------- --------------
<S> <C> <C>
Shares of beneficial interest sold............... 1,658,955 3,184,514
Reinvestment of dividends and distributions...... 43,751 3,183,230
Shares of beneficial interest redeemed........... (3,400,498) (3,622,182)
----------------- --------------
Net Increase (Decrease).......................... (1,697,792) 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 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
continues 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 as of November
30, 1998.
14
<PAGE>
J.P. MORGAN U.S. EQUITY FUND
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
A Joint Special Meeting of Shareholders of the J.P. Morgan Family of Funds was
held on August 20, 1998. Each of the applicable funds voted in favor of adopting
the following proposals, therefore, the results are aggregated for the trust
unless otherwise specified. The meeting was held for the following purposes:
1. To elect a slate of five trustees to hold office for a term of unlimited
duration subject to the current retirement age of 70.
2a.To approve the amendment of the fund's investment restriction relating to
diversification of assets.
2b.To approve the amendment of the fund's investment restriction relating to
concentration of assets in a particular industry.
2c.To approve the amendment of the fund's investment restriction relating to the
issuance of senior securities.
2d.To standardize the borrowing ability of the fund to the extent permitted by
applicable law.
2e.To approve the amendment of the fund's investment restriction relating to
underwriting.
2f.To approve the amendment of the fund's investment restriction relating to
investment in real estate.
2g.To approve the amendment of the fund's investment restriction relating to
commodities.
2h.To approve the amendment of the fund's investment restriction relating to
lending.
2i.To approve the reclassification of the fund's other fundamental restrictions
as nonfundamental.
3. To approve the reclassification of the fund's investment objective from
fundamental to nonfundamental.
4. To approve a new investment advisory agreement of the fund.
5. To amend the Declaration of Trust to provide dollar-based voting rights.
6. To ratify the selection of independent accountants, PricewaterhouseCoopers
LLP.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
DIRECTORS/MATTER VOTES FOR VOTES AGAINST ABSTENTIONS
- ------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
1. Frederick S. Addy............................. 2,692,335,831 18,884,648 N/A
William G. Burns............................... 2,692,395,937 18,824,542 N/A
Arthur C. Eschenlauer.......................... 2,691,798,990 19,421,489 N/A
Matthew Healey................................. 2,692,393,425 18,827,054 N/A
Michael P. Mallardi............................ 2,692,488,290 18,732,189 N/A
2. Amending of Investment Restrictions:
a. Relating to diversification of assets....... 7,932,475 676,343 1,129,810
b. Relating to concentration of assets......... 7,925,459 683,115 1,130,054
c. Relating to issuance of senior securities... 7,932,475 676,343 1,129,810
d. Relating to borrowing....................... 7,925,918 682,656 1,130,054
e. Relating to underwriting.................... 7,932,475 676,251 1,129,902
f. Relating to investment in real estate....... 7,921,890 686,928 1,129,810
g. Relating to commodities..................... 7,920,952 687,866 1,129,810
h. Relating to lending......................... 7,920,488 688,237 1,129,903
i.Reclassification of other restrictions as
nonfundamental............................. 7,922,601 686,125 1,129,902
3. Reclassification of investment objectives..... 7,768,779 723,012 1,246,837
4. Investment advisory agreement................. 8,329,743 664,666 1,229,051
5. Dollar-based voting rights.................... 2,645,059,081 16,807,551 47,376,755
6.Independent accountants,
PricewaterhouseCoopers LLP................... 2,682,031,391 4,303,418 24,885,671
</TABLE>
15
<PAGE>
The U.S. Equity Portfolio
Semi-Annual Report November 30, 1998
(unaudited)
(The following pages should be read in conjunction
with J.P. Morgan U.S. Equity Fund
Semi-Annual Financial Statements)
16
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMMON STOCKS (96.2%)
BASIC INDUSTRIES (5.4%)
AGRICULTURE (0.0%)
Agribrands International, Inc.+.................. 7,520 $ 228,420
-------------
CHEMICALS (1.7%)
Rohm & Haas Co................................... 258,400 9,027,850
Union Carbide Corp............................... 76,400 3,418,900
-------------
12,446,750
-------------
FOREST PRODUCTS & PAPER (2.6%)
Georgia-Pacific Group............................ 188,900 10,720,075
Temple-Inland, Inc............................... 151,100 8,112,181
-------------
18,832,256
-------------
METALS & MINING (1.1%)
Allegheny Teledyne, Inc.......................... 387,172 7,961,224
-------------
TOTAL BASIC INDUSTRIES......................... 39,468,650
-------------
CONSUMER GOODS & SERVICES (17.5%)
ENTERTAINMENT, LEISURE & MEDIA (3.5%)
Fox Entertainment Group, Inc. Class A+........... 57,000 1,346,625
Hasbro, Inc...................................... 210,400 7,377,150
International Game Technology.................... 235,400 5,428,912
Mirage Resorts, Inc.+............................ 303,500 4,514,562
Seagram Company Ltd.............................. 192,000 6,588,000
-------------
25,255,249
-------------
FOOD, BEVERAGES & TOBACCO (7.1%)
Anheuser Busch Companies, Inc.................... 83,400 5,056,125
General Mills, Inc............................... 89,300 6,742,150
PepsiCo, Inc..................................... 370,700 14,341,456
Philip Morris Companies, Inc..................... 324,400 18,146,125
Ralston-Ralston Purina Group..................... 209,000 7,275,812
-------------
51,561,668
-------------
HOUSEHOLD PRODUCTS (2.3%)
Kimberly-Clark Corp.............................. 64,000 3,368,000
Procter & Gamble Co.............................. 149,960 13,140,245
-------------
16,508,245
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
RETAIL (4.6%)
American Stores Co............................... 181,700 $ 6,098,306
Circuit City Stores, Inc......................... 329,000 11,905,687
Federated Department Stores, Inc.+............... 136,800 5,702,850
Toys 'R' Us, Inc.+............................... 217,000 4,285,750
Wal-Mart Stores, Inc.(s)......................... 78,600 5,919,562
-------------
33,912,155
-------------
TOTAL CONSUMER GOODS & SERVICES................ 127,237,317
-------------
ENERGY (6.9%)
OIL-PRODUCTION (6.7%)
Atlantic Richfield Co............................ 257,700 17,137,050
British Petroleum Co. PLC (Spons. ADR)........... 798 73,516
Mobil Corp....................................... 61,000 5,257,437
Phillips Petroleum Co............................ 146,700 6,161,400
Royal Dutch Petroleum Co. (ADR).................. 169,700 7,975,900
Tosco Corp....................................... 458,400 11,975,700
-------------
48,581,003
-------------
OIL-SERVICES (0.2%)
Cooper Cameron Corp.+............................ 70,900 1,728,187
-------------
TOTAL ENERGY................................... 50,309,190
-------------
FINANCE (17.5%)
BANKING (10.0%)
Astoria Financial Corp........................... 144,430 6,503,863
BankAmerica Corp................................. 338,601 22,072,553
Bankers Trust Corp............................... 119,300 10,379,100
Citigroup, Inc................................... 322,118 16,166,297
First Union Corp................................. 76,800 4,665,600
Washington Mutual, Inc........................... 266,450 10,333,264
Wells Fargo Co.(s)............................... 85,800 3,088,800
-------------
73,209,477
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCIAL SERVICES (2.2%)
American Express Co.............................. 42,000 $ 4,202,625
CIT Group, Inc., Class A......................... 228,800 6,420,700
Federal National Mortgage Association............ 75,400 5,485,350
-------------
16,108,675
-------------
INSURANCE (4.1%)
Ambac Financial Group, Inc....................... 133,000 8,113,000
American International Group, Inc................ 35,300 3,318,200
Marsh & McLennan Companies, Inc.................. 120,100 6,988,319
UNUM Corp........................................ 218,100 11,750,137
-------------
30,169,656
-------------
REAL ESTATE INVESTMENT TRUSTS (1.2%)
Starwood Hotels & Resorts........................ 293,500 8,915,063
-------------
TOTAL FINANCE.................................. 128,402,871
-------------
HEALTHCARE (11.4%)
HEALTH SERVICES (2.2%)
Humana, Inc.+.................................... 371,000 7,350,438
Perkin-Elmer Corp................................ 93,100 8,681,575
-------------
16,032,013
-------------
PHARMACEUTICALS (9.2%)
Alza Corp.+...................................... 209,400 10,941,150
American Home Products Corp...................... 189,200 10,074,900
Bristol-Myers Squibb Co.......................... 145,500 17,832,844
Crescendo Pharmaceuticals Corp.+................. 10,995 147,745
Forest Laboratories, Inc.+....................... 73,600 3,431,600
Monsanto Co...................................... 435,800 19,747,188
Warner-Lambert Co................................ 61,600 4,650,800
-------------
66,826,227
-------------
TOTAL HEALTHCARE............................... 82,858,240
-------------
INDUSTRIAL PRODUCTS & SERVICES (10.0%)
CAPITAL GOODS (0.8%)
Cooper Industries, Inc.(s)....................... 55,900 2,746,088
Eaton Corp....................................... 48,100 3,285,831
-------------
6,031,919
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMMERCIAL SERVICES (3.0%)
Cendant Corp.+................................... 747,700 $ 14,206,300
Service Corp. International...................... 202,300 7,560,963
-------------
21,767,263
-------------
DIVERSIFIED MANUFACTURING (4.3%)
AlliedSignal, Inc................................ 158,200 6,960,800
Boeing Co........................................ 160,800 6,532,500
Coltec Industries, Inc.+......................... 229,925 4,440,427
Tyco International Ltd........................... 201,046 13,231,340
-------------
31,165,067
-------------
POLLUTION CONTROL (1.9%)
Waste Management, Inc.(s)........................ 323,457 13,868,219
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 72,832,468
-------------
TECHNOLOGY (13.7%)
COMPUTER PERIPHERALS (2.0%)
EMC Corp.+....................................... 201,900 14,637,750
-------------
COMPUTER SOFTWARE (2.5%)
Microsoft Corp.+................................. 139,700 17,047,766
Oracle Corp.+.................................... 39,700 1,360,966
-------------
18,408,732
-------------
COMPUTER SYSTEMS (5.0%)
Compaq Computer Corp............................. 212,700 6,912,750
International Business Machines Corp............. 112,700 18,595,500
Sun Microsystems, Inc.+.......................... 145,900 10,796,600
-------------
36,304,850
-------------
ELECTRONICS (0.4%)
Sensormatic Electronics Corp.+................... 345,100 2,803,938
-------------
SEMICONDUCTORS (1.1%)
General Semiconductor, Inc.+..................... 44,100 446,513
Intel Corp....................................... 35,500 3,819,578
Texas Instruments, Inc........................... 53,500 4,086,063
-------------
8,352,154
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TELECOMMUNICATIONS-EQUIPMENT (2.7%)
Cisco Systems, Inc.+............................. 125,400 $ 9,455,944
Commscope, Inc.+................................. 334,033 5,073,126
Lucent Technologies, Inc......................... 58,100 5,000,231
-------------
19,529,301
-------------
TOTAL TECHNOLOGY............................... 100,036,725
-------------
TRANSPORTATION (2.6%)
RAILROADS (2.6%)
Union Pacific Corp............................... 387,000 18,817,875
-------------
UTILITIES (11.2%)
ELECTRIC (3.7%)
Central & South West Corp........................ 104,500 2,873,750
Northern States Power Co......................... 246,500 6,701,719
PP&L Resources, Inc.............................. 396,900 10,840,331
Texas Utilities Co............................... 142,900 6,367,981
-------------
26,783,781
-------------
GAS-PIPELINES (0.6%)
Columbia Energy Group(s)......................... 75,750 4,298,813
-------------
TELEPHONE (6.9%)
AT & T Corp...................................... 195,700 12,194,556
Bell Atlantic Corp............................... 98,400 5,473,500
GTE Corp......................................... 237,200 14,706,400
MCI WorldCom, Inc.+.............................. 187,300 11,044,847
SBC Communications, Inc.......................... 150,100 7,195,419
-------------
50,614,722
-------------
TOTAL UTILITIES................................ 81,697,316
-------------
TOTAL COMMON STOCKS (COST $580,087,718)........ 701,660,652
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
FIXED INCOME SECURITIES (0.2%)
U.S. TREASURY OBLIGATIONS (0.2%)
U.S. TREASURY NOTES (0.2%)
U.S. Treasury Notes, 6.000%
due 06/30/99(s)
(cost $1,632,517).............................. $ 1,620,000 1,632,425
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
SHORT-TERM INVESTMENTS (2.9%)
<S> <C> <C>
REPURCHASE AGREEMENT (2.9%)
Goldman Sachs Repurchase Agreement, 5.10% dated
11/30/98 due 12/01/98, proceeds $21,297,016.65
(collateralized by $19,697,000 U.S Treasury
Bond, 6.00%
due 02/15/26, valued at $21,720,978) (cost
$21,294,000)................................... $ 21,294,000 $ 21,294,000
-------------
TOTAL INVESTMENTS (COST $603,014,235) (99.3%)..................
724,587,077
OTHER ASSETS IN EXCESS OF LIABILITIES (0.7%)...................
5,341,768
-------------
NET ASSETS (100.0%)............................................ $ 729,928,845
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of securities of $607,091,194 for federal income tax
purposes at November 30, 1998 the aggregate gross unrealized appreciation and
depreciation was $144,576,991 and $27,081,108, respectively, resulting in net
unrealized appreciation of $117,495,883.
+ - Non-income producing securities.
(s) - Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts.
$29,157,394 of the market value has been segregated.
ADR - American Depositary Receipt.
Spons. 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 (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $603,014,235 ) $724,587,077
Cash 607
Receivable for Investments Sold 7,009,950
Dividends Receivable 928,193
Interest Receivable 43,693
Prepaid Trustees' Fees 3,486
Prepaid Expenses and Other Assets 7,308
------------
Total Assets 732,580,314
------------
LIABILITIES
Payable for Investments Purchased 1,895,043
Variation Margin Payable 467,575
Advisory Fee Payable 232,704
Custody Fee Payable 39,301
Administrative Services Fee Payable 16,185
Fund Services Fee Payable 661
------------
Total Liabilities 2,651,469
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $729,928,845
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $43,198 ) $ 5,334,480
Interest Income 558,995
------------
Investment Income 5,893,475
EXPENSES
Advisory Fee $ 1,491,031
Administrative Services Fee 105,636
Custodian Fees and Expenses 84,063
Professional Fees and Expenses 25,110
Fund Services Fee 10,257
Administration Fee 6,512
Printing Expenses 4,513
Trustees' Fees and Expenses 4,269
Insurance Expense 3,636
Miscellaneous 157
------------
Total Expenses 1,735,184
------------
NET INVESTMENT INCOME 4,158,291
NET REALIZED GAIN ON
Investment Transactions 46,383,760
Futures Contracts 1,284,045
------------
Net Realized Gain 47,667,805
NET CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF
Investment Transactions (32,045,199)
Futures Contracts 683,336
------------
Net Change in Unrealized Appreciation
(Depreciation) (31,361,863)
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 20,464,233
------------
------------
</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 SIX
MONTHS ENDED FOR THE FISCAL
NOVEMBER 30, 1998 YEAR ENDED
(UNAUDITED) MAY 31, 1998
----------------- --------------
<S> <C> <C>
DECREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 4,158,291 $ 8,957,310
Net Realized Gain on Investments and Futures
Contracts 47,667,805 211,793,953
Net Change in Unrealized Appreciation of
Investments and Futures Contracts (31,361,863) (9,192,276)
----------------- --------------
Net Increase in Net Assets Resulting from
Operations 20,464,233 211,558,987
----------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 69,495,837 171,037,121
Withdrawals (187,334,949) (414,552,601)
----------------- --------------
Net Decrease from Investors' Transactions (117,839,112) (243,515,480)
----------------- --------------
Total Decrease in Net Assets (97,374,879) (31,956,493)
NET ASSETS
Beginning of Period 827,303,724 859,260,217
----------------- --------------
End of Period $ 729,928,845 $ 827,303,724
----------------- --------------
----------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JULY 19, 1993
SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED MAY 31, (COMMENCEMENT OF
NOVEMBER 30, 1998 --------------------------------- OPERATIONS) TO
(UNAUDITED) 1998 1997 1996 1995 MAY 31, 1994
----------------- ------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.47%(a) 0.47% 0.47% 0.46% 0.51% 0.53%(a)
Net Investment Income 1.12%(a) 1.01% 1.44% 2.20% 2.12% 1.79%(a)
Portfolio Turnover 49% 106% 99% 85% 71% 76%+
</TABLE>
- --------------------------
(a) Annualized.
+ Portfolio turnover is for the twelve month period ended May 31, 1994, and
includes the portfolio activity of the Portfolio's predecessor entity, The
Pierpont Equity Fund, for the period June 1, 1993 to June 18, 1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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 and received a
contribution of certain assets and liabilities, including securities, with a
value of $209,477,219 on that date from The Pierpont Equity Fund in exchange for
a beneficial interest in the portfolio. At that date, net unrealized
appreciation of $12,039,552 was included in the contributed securities. On
October 31, 1993, the portfolio received a contribution of securities and
certain assets and liabilities, with a market value and cost of $128,337,342
from the JPM North America Fund, Ltd., in exchange for a beneficial interest in
the portfolio. 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 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 by 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.
23
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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 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 difference between the value of the
contract at the time it was opened and the value at the time when it was
closed. The portfolio invests in futures contracts 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. Futures transactions during the six
months ended November 30, 1998 are summarized as follows:
SUMMARY OF OPEN CONTRACTS AT NOVEMBER 30, 1998
<TABLE>
<CAPTION>
NET UNREALIZED PRINCIPAL AMOUNT
CONTRACTS LONG APPRECIATION OF CONTRACTS
-------------- -------------- ----------------
<S> <C> <C> <C>
S & P 500, expiring December 1998................ 59 $ 279,846 $ 16,867,029
</TABLE>
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.
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 six months ended November 30, 1998, such fees amounted
to $1,491,031.
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
24
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
aggregate net assets of the portfolio and certain other investment
companies subject to similar agreements with FDI. For the six months ended
November 30, 1998, the fee for these services amounted to $6,512.
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 JPMIM acts as advisor
(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 six months ended November 30, 1998, the fee for these services
amounted to $105,636.
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 $10,257 for the six months ended November 30, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of J.P. Morgan Funds, 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
in the Fund Services Fee shown in the financial statements was $2,200.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended November 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- ------------
<S> <C>
$355,695,960...... $458,786,997
</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>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
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.
J.P. MORGAN
U.S. EQUITY FUND
SEMIANNUAL REPORT
NOVEMBER 30, 1998
RUSEFR-9811
