<PAGE>
LETTER TO THE SHAREHOLDERS OF J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
January 4, 1999
Dear Shareholder:
The six months ended November 30, 1998, were quite volatile for small growth
companies. J.P. Morgan U.S. Small Company Opportunities Fund returned -10.02%
for the period, outperforming the Russell 2000 Growth Index, which returned
- -11.07% for the same period. The fund also outpaced its peers, as measured by
the Lipper Small Company Fund Average, which returned -12.50% for the same
period. Since the fund's inception date on June 16, 1997, the fund has returned
8.81%.
The fund's net asset value decreased from $12.57 per share on May 31, 1998, to
$11.31 per share on November 30, 1998. The fund's net assets stood at
approximately $185.2 million at the end of November. The net assets of The U.S.
Small Company Opportunities Portfolio, in which the fund invests, totaled
approximately $185.4 million at November 30, 1998. There were no distributions
made during the period.
The report that follows includes an interview with Candice Eggerss, a member of
the portfolio management team for The U.S. Small Company Opportunities
Portfolio. This interview is designed to answer commonly asked questions about
the fund, elaborate on what happened during the reporting period, and 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 SINCE
AS OF NOVEMBER 30, 1998 MONTHS MONTHS YEAR INCEPTION*
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan U.S. Small Company
Opportunities Fund 24.97% -10.02% -0.53% 6.97%
Russell 2000 Growth Index** 24.87% -11.07% -7.12% -0.25%
Lipper Small Company Fund Average 17.24% -12.50% -6.77% 1.48%
AS OF SEPTEMBER 30, 1998
- -----------------------------------------------------------------------------------------------
J.P. Morgan U.S. Small Company
Opportunities Fund -20.19% -25.81% -17.25% -1.25%
Russell 2000 Growth Index** -22.36% -26.82% -24.83% -9.82%
Lipper Small Company Fund Average -21.52% -24.85% -20.60% -6.30%
</TABLE>
*THE FUND COMMENCED OPERATIONS ON JUNE 16, 1997, AND HAS PROVIDED A TOTAL RETURN
OF 8.81% FROM THAT DATE THROUGH NOVEMBER 30, 1998. FOR THE PURPOSES OF
COMPARISON, THE "SINCE INCEPTION" RETURNS ARE CALCULATED FROM JUNE 30, 1997, THE
FIRST DATE WHEN DATA FOR THE FUND'S BENCHMARK AND ITS LIPPER CATEGORY AVERAGE
WERE AVAILABLE.
** THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX OF SMALL, GROWTH-ORIENTED
U.S. STOCKS. IT DOES NOT INCLUDE FEES OR OPERATING EXPENSES AND IS NOT AVAILABLE
FOR ACTUAL INVESTMENT.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF FEES
AND REFLECT THE REIMBURSEMENT OF FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS.
HAD EXPENSES NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. LIPPER
ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with CANDICE EGGERSS, a member of the portfolio
management team for The U.S. Small Company Opportunities Portfolio. Candice has
been with Morgan since 1996, and has nearly 13 years of industry experience.
Prior to joining Morgan, Candice was employed by Weiss, Peck & Greer, Equitable
Capital Management, and Morgan Stanley, where she held positions including
analyst, portfolio manager, and research director. Candice received her B.S.
from Stanford University and her M.B.A. from Columbia University. This interview
took place on December 16, 1998, and reflects Candice's views on that date.
HOW DID THE SMALL-CAP GROWTH MARKET PERFORM DURING THE SIX MONTHS ENDED NOVEMBER
30, 1998?
CE: It was a difficult period for small-cap growth stocks. The Russell 2000
Growth Index declined 11.07% from May 31, 1998, through November 30, 1998. Much
of the decline occurred from June through August, with the most intense sell off
during August. Small caps lagged large caps considerably, for a couple of
reasons.
First, uncertainties in global markets - from Russia, to South America, to
Southeast Asia - caused a flight to quality. Investors saw U.S. large-cap stocks
as a more liquid and stable haven for their money than small-cap stocks. The
largest most well-known names benefited from the crisis in the world markets,
and the smaller names were punished.
Tax-loss selling was another factoring hindering small stocks relative to large
caps. Unless December is an extremely strong month, 1998 will mark the first
calendar year since 1994 that small caps, as measured by the Russell 2000 Growth
Index, will post a loss. Investors have been taking advantage of these small-cap
losses, selling their declining small stocks in order to offset capital gains in
many large-cap stocks. Through this period, the tax-loss selling most likely
exacerbated the declines in small stocks, making it even tougher for the Russell
2000 Growth to keep up with the S&P 500.
However, since reaching a low on October 8, 1998, small-cap growth stocks have
recovered considerably - especially relative to large-caps. From October 8 to
November 30, the Russell 2000 Growth has gained 31.5%, outperforming the S&P 500
by 9.9%. The rally was stimulated by four events: the Federal Reserve's interest
rate cuts, perceived cheap valuations, solid earnings prospects for small
companies, and seasonal buying patterns.
HOW DID J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND PERFORM DURING THE
PERIOD?
CE: For the six months ended November 30, 1998, the fund declined 10.02%,
outpacing the Russell 2000 Growth Index, which lost 11.07%. The fund also
outperformed its peers, as measured by the Lipper Small Company Fund Average,
which was down 12.50% for the period.
3
<PAGE>
We are pleased to report that during one of the most volatile small-cap markets
to date, the portfolio performed in line with its objectives. The past six
months witnessed the indiscriminate selling of small-cap stocks across all
sectors. Investors fled to quality, buying the larger, more liquid names and
selling small stocks without regard to fundamental valuations. However,
diversifying our investments across growth sectors and sticking to our
disciplined investment process protected the portfolio as the market fell - and
rewarded the portfolio as the market rallied - resulting in competitive returns.
WHICH STOCKS CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?
CE: The portfolio is benefiting from our investments in educational services
stocks. Over the past few years we have been witnessing a secular trend toward
continuing education and career changes. Workers are becoming more specialized,
and companies more willing to send their employees for additional training. We
believe that investing in educational services stock will reap rewards in the
portfolio.
Education Management Corp., one of the portfolio's largest holding, provides
post-secondary degrees in design, media and technology art, culinary arts, and
fashion, among other areas. The company's sales have increased as Education
Management has experienced increased enrollment growth at their schools. As a
result, over the six-month period, the stock has risen more than 30%. DeVry
Inc., another educational services company held in the portfolio, earned strong
returns over the period. DeVry reported 13% enrollment growth at its schools
located across the U.S. for this fall's semester compared to last year's.
ITT Educational Services, Inc. has also performed well. ITT is the country's
leading provider of technology-oriented post-graduate degree programs. As did
Education Management and DeVry, ITT reported that the demand for
technology-oriented curricula has remained strong, with enrollment in ITT's
schools exhibiting strong growth over the past year. All three educational
services stocks have plans underway to expand their businesses by building new
schools nationwide in order to achieve their growth strategies. We continue to
believe these stocks are high-quality companies that, at current valuations,
remain attractive.
WHICH STOCKS DETRACTED FROM THE PORTFOLIO'S PERFORMANCE?
CE: Sabratek Corp. develops interactive therapeutic and diagnostic medical
systems for the healthcare market. The company developed a technology that
allows doctors to control infusion therapy - administering medicines through
pumps - for patients via modem. This technology allows alternative facilities
such as clinics, nursing homes, and patient homes to deliver critical medicines
without costly supervision.
Sabratek has suffered from FDA inquiries regarding the filing procedure and
quality control for one of their syringe products. The company appeared to have
addressed the problem in September, and the stock recovered from its fall.
However, additional FDA inquiries have caused the company to halt shipment of
the product resulting in the reduction of its expected fourth-quarter earnings.
We have trimmed the portfolio's position in the stock.
4
<PAGE>
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
CE: If the markets of recent months have taught us anything, it is that it's
impossible to predict the near-term direction of stock prices. That said, there
are several factors that make us optimistic about the outlook for small-cap
growth stocks. The relative valuation of small caps to large caps is the best
it's been in years. Although small caps have recovered from their third-quarter
downturn, their price-to-earnings ratios are still at a discount to those of
large caps - a condition which doesn't exist very often.
Past history has shown that small caps, when battered for a prolonged period,
recover and outpace large caps. This was certainly the case after the 1989-90
bear market in small-cap stocks. This year marks the fifth consecutive year of
small caps underperforming large caps. We view small companies as attractive at
current prices.
Further, the tax-loss selling that has held small caps back this season should
come to an end. We are entering a seasonally strong period for these stocks. In
addition, the market for initial public offerings appears to be gearing up once
more.
In spite of the sunny valuation picture, however, troubles still loom that could
affect the small-cap market. Slowing world economies, especially in Southeast
Asia, Russia, Japan, and Brazil, are cause for concern. The impeachment struggle
in the U.S. is another potential damper for the market. We continue to purchase
small cap stocks that offer attractive growth rates at reasonable prices, but we
are keeping an eye on the larger macroeconomic picture as well.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan U.S. Small Company Opportunities Fund seeks to provide long term
capital appreciation from a portfolio of equity securities of small companies.
The fund seeks to outperform the Russell 2000 Growth Index. It is designed for
investors who are willing to assume the somewhat higher risk of investing in
small companies in order to seek a higher total return over time than might be
expected from a portfolio of stocks of large companies.
- --------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
6/16/97
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 11/30/98
$185,207,192
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 11/30/98
$185,359,867
- --------------------------------------------------------------------------------
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 1.08% 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>
TECHNOLOGY 28.0%
CONSUMER GOODS & SERVICES 21.1%
HEALTH CARE 17.2%
FINANCE 10.0%
INDUSTRIAL PRODUCTS & SERVICES 4.9%
ENERGY 3.6%
TELECOMMUNICATIONS 3.5%
BASIC INDUSTRIES 3.3%
UTILITIES 3.1%
SHORT-TERM & OTHER 5.3%
</TABLE>
<TABLE>
<CAPTION>
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- --------------------------------------------------------------
<S> <C>
EDUCATION MANAGEMENT CORP.
(CONSUMER GOODS & SERVICES) 1.9%
SIPEX CORP. (TECHNOLOGY) 1.6%
MAPICS, INC. (TECHNOLOGY) 1.6%
PROFIT RECOVERY GROUP INTERNATIONAL, INC.
(TECHNOLOGY) 1.6%
IDEC PHARMACEUTICALS CORP. (HEALTH CARE) 1.6%
INSIGHT ENTERPRISES, INC.
(CONSUMER GOODS & SERVICES) 1.5%
PEGASUS SYSTEMS, INC. (TECHNOLOGY) 1.5%
CINAR FILMS, INC., CLASS B
(CONSUMER GOODS & SERVICES) 1.5%
PATHOGENESIS CORP. (HEALTH CARE) 1.4%
DEVON ENERGY CORP. (ENERGY) 1.4%
</TABLE>
6
<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. Opinion expressed herein
are based on current market conditions and are subject to change without notice.
The fund invests in a master portfolio (another fund with the same objective).
Historically, small-company stocks have been more volatile than large-company
stocks.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
7
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The U.S. Small Company
Opportunities Portfolio ("Portfolio"), at value $185,359,867
Receivable for Shares of Beneficial Interest Sold 277,110
Deferred Organization Expenses 9,913
Prepaid Trustees' Fees 185
Prepaid Expenses and Other Assets 1,420
------------
Total Assets 185,648,495
------------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 358,329
Shareholder Servicing Fee Payable 37,339
Organization Expenses Payable 10,588
Administrative Services Fee Payable 4,155
Administration Fee Payable 301
Fund Services Fee Payable 166
Accrued Expenses 30,425
------------
Total Liabilities 441,303
------------
NET ASSETS
Applicable to 16,374,820 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $185,207,192
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $11.31
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $197,014,320
Accumulated Net Investment Loss (274,907)
Accumulated Net Realized Loss on Investment (16,105,533)
Net Unrealized Appreciation of Investment 4,573,312
------------
Net Assets $185,207,192
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $ 378,017
Allocated Dividend Income 332,518
Allocated Portfolio Expenses (670,310)
------------
Net Investment Income Allocated from
Portfolio 40,225
FUND EXPENSES
Shareholder Servicing Fee $227,191
Administrative Services Fee 25,749
Registration Fees 22,624
Transfer Agent Fees 13,826
Printing Expenses 7,646
Professional Fees 7,003
Fund Services Fee 2,484
Administration Fee 1,807
Amortization of Organization Expenses 1,404
Trustees' Fees and Expenses 1,319
Insurance Expense 139
Miscellaneous 3,940
--------
Total Fund Expenses 315,132
------------
NET INVESTMENT LOSS (274,907)
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (20,622,251)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (2,945,598)
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(23,842,756)
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JUNE 16, 1997
MONTHS ENDED (COMMENCEMENT OF
NOVEMBER 30, 1998 OPERATIONS) THROUGH
(UNAUDITED) MAY 31, 1998
----------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Loss $ (274,907) $ (369,945)
Net Realized Gain (Loss) on Investment Allocated
from Portfolio (20,622,251) 4,883,980
Net Change in Unrealized Appreciation of
Investment Allocated from Portfolio (2,945,598) 7,518,910
----------------- -------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (23,842,756) 12,032,945
----------------- -------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 73,441,976 207,393,425
Cost of Shares of Beneficial Interest Redeemed (53,324,138) (30,494,260)
----------------- -------------------
Net Increase from Transactions in Shares of
Beneficial Interest 20,117,838 176,899,165
----------------- -------------------
Total Increase (Decrease) in Net Assets (3,724,918) 188,932,110
NET ASSETS
Beginning of Period 188,932,110 --
----------------- -------------------
End of Period $ 185,207,192 $ 188,932,110
----------------- -------------------
----------------- -------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a unit outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JUNE 16, 1997
SIX MONTHS ENDED (COMMENCEMENT OF
NOVEMBER 30, 1998 OPERATIONS) THROUGH
(UNAUDITED) MAY 31, 1998
----------------- -------------------
<S> <C> <C>
NET ASSET VALUE PER UNIT, BEGINNING OF PERIOD $ 12.57 $ 10.00
----------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.02) (0.02)
Net Realized and Unrealized Gain (Loss) on
Investment (1.24) 2.59
----------------- -------------------
Total from Investment Operations (1.26) 2.57
----------------- -------------------
NET ASSET VALUE PER UNIT, END OF PERIOD $ 11.31 $ 12.57
----------------- -------------------
----------------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return (10.02)% 25.70%
Net Assets, End of Period (in thousands) $ 185,207 $ 188,932
Ratios to Average Net Assets
Net Expenses 1.08%(a) 1.19%(a)
Net Investment Loss (0.30)%(a) (0.37)%(a)
Expenses without Reimbursement -- 1.25%(a)
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan U.S. Small Company Opportunities Fund (the "fund") is a separate
series of J.P. Morgan Funds, a Massachusetts business trust (the "trust") which
was organized on November 4, 1992. The trust is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.The fund commenced operations on June 16, 1997.
The fund invests all of its investable assets in The U.S. Small Company
Opportunities Portfolio (the "portfolio"), a no-load, diversified, open-end
management investment company having the same investment objective as the fund.
The value of such investment included in the Statement of Assets and Liabilities
reflects the fund's proportionate interest in the net assets of the portfolio
(100% at 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.
c) Distributions to shareholders of net investment income are declared and
paid as dividends semi-annually. Distributions to shareholders of net
realized capital gains, if any, are declared and paid annually.
d) The fund incurred organization expenses in the amount of $14,000. Morgan
Guaranty Trust Company of New York ("Morgan"), a wholly owned subsidiary
of J.P. Morgan Co. Inc. ("J.P. Morgan"), has paid the organization
expenses of the fund. The fund has agreed to reimburse Morgan for these
costs which are being deferred and amortized on a straight-line basis over
a period not to exceed five-years beginning with the commencement of
operations of the fund.
e) Expenses incurred by the trust with respect to any two or more funds in
the trust are allocated in proportion to the net assets of each fund in
the trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
f) The fund is treated as a separate entity for federal income tax purposes
and intends to comply with the provisions of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and to
distribute substantially all of its income, including net realized capital
gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
12
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES 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
$1,807.
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 $25,749.
In addition J.P. Morgan has agreed to reimburse the fund to the extent
necessary to maintain the total operating expenses of the fund, including
the expenses allocated to the fund from the portfolio, at no more than
1.20% of the average daily net assets of the fund. The reimbursement
arrangement was terminated at October 1, 1998. For the six months ended
November 30, 1998, there was no reimbursement for the fund.
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 the six months ended November 30, 1998, the fee for
these services amounted to $227,191.
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.
13
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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
$2,484 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 represents the fund's allocated portion
of these 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 $500.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the fund were as follows:
<TABLE>
<CAPTION>
FOR THE
PERIOD
JUNE 16, 1997
(COMMENCEMENT
FOR THE SIX OF
MONTHS ENDED OPERATIONS)
NOVEMBER 30, 1998 THROUGH
(UNAUDITED) MAY 31, 1998
----------------- -------------
<S> <C> <C>
Shares of beneficial interest sold............... 6,499,202 17,556,034
Shares of beneficial interest redeemed........... (5,159,404) (2,521,012)
----------------- -------------
Net Increase..................................... 1,339,798 15,035,022
----------------- -------------
----------------- -------------
</TABLE>
4. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 28, 1997, with unaffiliated lenders. The maximum borrowing
under the agreement was $100,000,000. The Agreement expired on May 27, 1998,
however, the fund as party to the agreement has extended the agreement and will
continue its participation therein for an additional 364 days until May 26,
1999.The maximum borrowing under the new agreement is $150,000,000.
Additionally, since all of the investable assets of the fund are in the
portfolio, the portfolio is party to certain covenants of the Agreement.The
purpose of the Agreement is to provide another alternative for settling large
fund shareholder redemptions. Interest on any such borrowings outstanding will
approximate market rates. The funds pay a commitment fee at an annual rate of
0.065% on the unused portion of the committed amount which is allocated to the
funds in accordance with procedures established by their respective trustees or
directors. The fund has not borrowed pursuant to the agreement as of November
30, 1998.
14
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES 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....... 7,799,116 39,729 17,710
b. Relating to concentration of assets......... 7,776,080 61,544 18,931
c. Relating to issuance of senior securities... 7,798,735 35,098 22,722
d. Relating to borrowing....................... 7,793,413 37,244 25,898
e. Relating to underwriting.................... 7,819,756 19,089 17,710
f. Relating to investment in real estate....... 7,791,527 46,830 18,198
g. Relating to commodities..................... 7,778,827 58,797 18,931
h. Relating to lending......................... 7,784,197 54,893 17,465
i.Reclassification of other restrictions as
nonfundamental............................. 7,791,766 46,368 18,421
3. Reclassification of investment objectives..... N/A N/A N/A
4. Investment advisory agreement................. 7,847,670 25,430 17,200
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. Small Company Opportunities Portfolio
Semi-Annual Report November 30, 1998
(unaudited)
(The following pages should be read in conjunction
with J.P Morgan U.S. Small Company Opportunities Fund
Semi-Annual Financial Statements)
16
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCKS (93.1%)
BASIC INDUSTRIES (3.2%)
AGRICULTURE (0.4%)
Delta & Pine Land Co............................. 20,400 $ 772,650
-------------
CHEMICALS (1.3%)
Albemarle Corp................................... 76,000 1,415,500
General Chemical Group, Inc...................... 12,300 209,100
Geon Co.......................................... 38,100 847,725
-------------
2,472,325
-------------
FOREST PRODUCTS & PAPER (0.9%)
Universal Forest Products, Inc................... 83,400 1,631,512
-------------
METALS & MINING (0.6%)
Mueller Industries, Inc.+........................ 50,600 1,154,312
-------------
TOTAL BASIC INDUSTRIES......................... 6,030,799
-------------
CONSUMER GOODS & SERVICES (20.8%)
APPARELS & TEXTILES (0.2%)
Ashworth, Inc.+.................................. 59,500 342,125
-------------
BROADCASTING & PUBLISHING (2.7%)
Emmis Broadcasting Corp., Class A+............... 17,600 603,900
HA-LO Industries, Inc.+.......................... 18,700 597,231
Hearst-Argyle Television, Inc.+.................. 44,600 1,173,537
Journal Register Co.+............................ 63,500 1,027,906
Univision Communications, Inc., Class A+......... 56,500 1,582,000
-------------
4,984,574
-------------
EDUCATION (6.0%)
Advantage Learning Systems, Inc.+................ 14,400 801,000
Bright Horizons Family Solutions, Inc.+.......... 99,657 2,373,082
DeVry, Inc.+..................................... 48,200 1,271,275
Education Management Corp.+...................... 74,300 3,389,937
ITT Educational Services, Inc.+.................. 71,300 2,343,987
Sylvan Learning Systems, Inc.+................... 30,100 873,841
-------------
11,053,122
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (6.1%)
Action Performance Companies, Inc.+.............. 57,100 $ 2,082,366
Cinar Films Inc., Class B+....................... 124,200 2,778,975
Imax Corp.+...................................... 35,400 966,862
MGM Grand, Inc.+................................. 13,200 339,075
Premier Parks, Inc.+............................. 51,000 1,383,375
ResortQuest International, Inc.+................. 103,900 1,363,687
Steiner Leisure Ltd.(i)+......................... 34,650 868,416
USA Networks, Inc.+.............................. 50,999 1,611,250
-------------
11,394,006
-------------
RESTAURANTS & HOTELS (0.6%)
Sun International Hotels Ltd.(i)+................ 30,500 1,178,062
-------------
RETAIL (5.2%)
Central Garden & Pet Co.+........................ 8,600 138,406
Fingerhut Companies, Inc......................... 122,100 1,358,362
Hibbett Sporting Goods, Inc.+.................... 24,300 760,894
Insight Enterprises, Inc.+....................... 67,050 2,828,672
Kenneth Cole Productions, Inc., Class A+......... 59,100 1,074,881
North Face Inc.+................................. 86,800 1,085,000
PETsMART, Inc.+.................................. 63,400 544,844
School Specialty, Inc.+.......................... 57,000 965,437
Steven Madden Ltd.(i)+........................... 143,300 949,362
-------------
9,705,858
-------------
TOTAL CONSUMER GOODS & SERVICES................ 38,657,747
-------------
ENERGY (3.3%)
GAS EXPLORATION (1.6%)
Devon Energy Corp................................ 78,200 2,575,712
Patterson Energy, Inc.+.......................... 6,200 28,869
Tesoro Petroleum Corp.+.......................... 25,800 343,462
-------------
2,948,043
-------------
OIL-PRODUCTION (0.3%)
Valero Energy Corp............................... 29,200 613,200
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
OIL-SERVICES (1.4%)
National-Oilwell, Inc.+.......................... 56,900 $ 561,887
Smith International, Inc.+....................... 46,800 1,129,050
Transmontaigne Oil Co.+.......................... 63,900 958,500
-------------
2,649,437
-------------
TOTAL ENERGY................................... 6,210,680
-------------
FINANCE (9.9%)
BANKING (4.5%)
Bank of Commerce................................. 33,300 490,134
Bank United Corp., Class A....................... 52,600 2,317,687
FNB Financial Services Corp...................... 12,900 242,681
National Commerce Bancorporation................. 139,600 2,530,250
Silicon Valley Bancshares+....................... 18,700 462,825
Sun Bancorp, Inc.+............................... 7,100 143,331
TeleBanc Financial Corp.+........................ 23,800 534,756
Webster Financial Corp........................... 59,100 1,643,719
-------------
8,365,383
-------------
FINANCIAL SERVICES (3.4%)
Allied Capital Corp.............................. 29,700 535,528
ARM Financial Group, Inc......................... 46,300 995,450
Federal Agricultural Mortgage Corp. , Class C+... 21,800 792,975
Financial Federal Corp.+......................... 78,600 2,107,462
Medallion Financial Corp......................... 79,400 1,223,256
Ocwen Financial Corp.+........................... 42,800 556,400
-------------
6,211,071
-------------
INSURANCE (1.8%)
Nationwide Financial Services, Inc., Class A..... 35,200 1,694,000
RenaissanceRe Holdings Ltd.(i)................... 44,500 1,691,000
-------------
3,385,000
-------------
REAL ESTATE INVESTMENT TRUSTS (0.2%)
Innkeepers USA Trust............................. 17,300 191,381
Ocwen Asset Investment Corp...................... 45,300 249,150
-------------
440,531
-------------
TOTAL FINANCE.................................. 18,401,985
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
HEALTHCARE (17.1%)
BIOTECHNOLOGY (6.4%)
Affymetrix, Inc.+................................ 26,900 $ 670,819
Applied Analytical Industries, Inc.+............. 70,200 1,272,375
ArQule, Inc.+.................................... 34,900 210,491
Human Genome Sciences, Inc.+..................... 44,200 1,397,825
IDEC Pharmaceuticals Corp.+...................... 84,700 2,853,331
Incyte Pharmaceuticals, Inc...................... 26,500 831,437
Millennium Pharmaceuticals, Inc.+................ 102,400 2,080,000
SangStat Medical Corp.+.......................... 83,900 2,013,600
Synaptic Pharmaceutical Corp.+................... 42,300 600,131
-------------
11,930,009
-------------
HEALTH SERVICES (2.7%)
Curative Health Services, Inc.+.................. 40,100 1,150,369
IDX Systems Corp.+............................... 8,400 346,763
Kendle International, Inc.+...................... 59,100 1,329,750
MedQuist, Inc.+.................................. 47,200 1,441,075
Professional Detailing, Inc.+.................... 14,300 333,369
Superior Consultant Holdings Corp.+.............. 9,500 349,125
-------------
4,950,451
-------------
MEDICAL SUPPLIES (3.6%)
Closure Medical Corp.+........................... 72,800 1,692,600
Focal, Inc.+..................................... 48,400 403,838
IDEXX Laboratories, Inc.+........................ 69,800 1,806,075
Sabratek Corp.+.................................. 57,000 960,094
Ventana Medical Systems, Inc.+................... 74,800 1,624,563
Vysis, Inc.+..................................... 29,400 190,181
-------------
6,677,351
-------------
PHARMACEUTICALS (4.4%)
Algos Pharmaceutical Corp.+...................... 60,700 1,638,900
Andrx Corp.+..................................... 23,500 925,313
AXYS Pharmaceuticals, Inc.+...................... 177,000 1,001,156
Ligand Pharmaceuticals, Class B+................. 103,200 1,035,225
PathoGenesis Corp.+.............................. 54,300 2,613,188
U.S. Bioscience, Inc.+........................... 114,000 862,125
-------------
8,075,907
-------------
TOTAL HEALTHCARE............................... 31,633,718
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (4.8%)
COMMERCIAL SERVICES (2.5%)
Administaff, Inc.+............................... 47,100 $ 1,274,644
On Assignment, Inc.+............................. 25,000 890,625
Provant, Inc.+................................... 94,100 1,837,891
Snyder Communication, Inc.+...................... 19,900 707,694
-------------
4,710,854
-------------
PACKAGING & CONTAINERS (2.3%)
Ivex Packaging Corp.+............................ 103,100 2,010,450
Schawk, Inc., Class A............................ 152,700 2,195,063
-------------
4,205,513
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 8,916,367
-------------
TECHNOLOGY (27.4%)
AEROSPACE (2.6%)
Alliant Techsystems, Inc.+....................... 9,800 746,638
L-3 Communications Holdings, Inc.+............... 45,900 2,140,088
Orbital Sciences Corp.+.......................... 50,500 1,931,625
-------------
4,818,351
-------------
COMPUTER PERIPHERALS (2.6%)
HMT Technology Corp.+............................ 135,700 1,547,828
Hutchinson Technology, Inc.+..................... 25,100 777,316
Maxtor Corp.+.................................... 108,600 1,506,825
Radiant Systems, Inc.+........................... 85,700 605,256
SCM Microsystems, Inc.+.......................... 6,400 381,800
-------------
4,819,025
-------------
COMPUTER SOFTWARE (7.3%)
Aspect Development, Inc.+........................ 3,300 110,653
Aspen Technologies, Inc.+........................ 55,600 776,663
BroadVision, Inc.+............................... 31,100 829,009
Concord Communications, Inc.+.................... 19,900 881,197
HNC Software, Inc.+.............................. 50,200 1,658,169
Informix Corp.+.................................. 77,900 419,930
Legato Systems, Inc.+............................ 16,100 769,278
Macromedia, Inc.+................................ 61,500 1,716,234
MAPICS, Inc.+.................................... 153,300 2,931,863
MicroStrategy, Inc.+............................. 33,100 742,681
New Era of Networks, Inc.+....................... 5,800 428,838
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
COMPUTER SOFTWARE (CONTINUED)
TSI International Software Ltd.(i)+.............. 32,600 $ 1,201,106
Visio Corp.+..................................... 33,200 1,172,375
-------------
13,637,996
-------------
COMPUTER SYSTEMS (0.5%)
Avid Technology, Inc.+........................... 37,000 882,219
-------------
INFORMATION PROCESSING (7.2%)
Aris Corp.+...................................... 43,200 706,050
CNET, Inc.+...................................... 10,300 543,647
Computer Literacy, Inc.+......................... 4,100 65,856
Condor Technology Solutions, Inc.+............... 86,400 842,400
CSG Systems International, Inc.+................. 23,500 1,479,031
Diamond Technology Partners, Inc., Class A+...... 81,200 1,131,725
Exodus Communications, Inc.+..................... 44,400 1,495,725
Getty Images, Inc.+.............................. 51,300 875,306
Metro One Telecommunications, Inc.+.............. 33,400 376,794
Pegasus Systems, Inc.+........................... 128,300 2,814,581
Profit Recovery Group International, Inc.+....... 85,300 2,873,544
theglobe.com, Inc.+.............................. 2,200 77,138
-------------
13,281,797
-------------
SEMICONDUCTORS (5.2%)
Applied Mircro Circuits Corp.+................... 23,200 777,925
ATMI, Inc.+...................................... 104,400 1,986,863
Cognex Corp.+.................................... 18,600 306,319
Cypress Semiconductor Corp.+..................... 44,900 457,419
Exar Corp.+...................................... 29,300 512,750
Integrated Device Technology, Inc.+.............. 119,400 705,206
Intevac, Inc.+................................... 100,800 806,400
SIPEX Corp.+..................................... 92,500 3,000,469
Veeco Instruments, Inc.+......................... 28,300 1,036,488
-------------
9,589,839
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
TELECOMMUNICATIONS-EQUIPMENT (2.0%)
ACT Networks, Inc.+.............................. 37,400 $ 377,506
Davox Corp.+..................................... 7,200 51,525
Excel Switching Corp.+........................... 75,200 1,959,900
Glenayre Technologies, Inc.+..................... 91,400 568,394
PairGain Technologies, Inc.+..................... 49,300 500,703
Tekelec+......................................... 11,600 179,800
-------------
3,637,828
-------------
TOTAL TECHNOLOGY............................... 50,667,055
-------------
TELECOMMUNICATIONS (3.4%)
TELECOMMUNICATION SERVICES (3.4%)
Allegiance Telecom, Inc.+........................ 9,000 119,813
Concentric Network Corp.+........................ 57,600 1,638,000
Global Crossing Ltd.(i)+......................... 33,500 1,270,906
Paging Network, Inc.+............................ 160,500 988,078
Premiere Technologies, Inc.+..................... 8,900 44,223
RCN Corp.+....................................... 13,000 223,438
SkyTel Communications, Inc.+..................... 65,500 1,363,219
Teligent, Inc., Class A+......................... 21,800 686,700
-------------
TOTAL TELECOMMUNICATIONS....................... 6,334,377
-------------
UTILITIES (3.2%)
NATURAL GAS (0.3%)
Atmos Energy Corp................................ 6,700 205,188
MarkWest Hydrocarbon, Inc.+...................... 28,800 260,100
-------------
465,288
-------------
TELEPHONE (2.9%)
Intermedia Communications, Inc.+................. 73,100 1,263,259
MetroNet Communications Corp., Class B+.......... 80,500 2,130,734
NEXTLINK Communications, Inc., Class A+.......... 63,000 1,913,625
-------------
5,307,618
-------------
TOTAL UTILITIES................................ 5,772,906
-------------
TOTAL COMMON STOCKS (COST $167,778,190)........ 172,625,634
-------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------- -------------
CONVERTIBLE PREFERRED STOCKS (0.3%)
<S> <C> <C>
ENERGY (0.2%)
GAS EXPLORATION (0.2%)
Tesoro Petroleum Corp............................ 24,500 $ 350,656
-------------
CONSUMER GOODS & SERVICES (0.1%)
ENTERTAINMENT, LEISURE & MEDIA (0.1%)
Metromedia International Group, Inc.............. 6,900 174,225
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$766,387)..................................... 524,881
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
FIXED INCOME SECURITIES (0.4%)
TECHNOLOGY (0.4%)
COMPUTER SOFTWARE (0.4%)
HNC Software Inc., 4.75% due 03/01/03............ $ 225,000 220,500
Quadramed Corp., 144A, 5.25% due 05/01/05........ 500,000 471,874
-------------
692,374
-------------
TOTAL TECHNOLOGY............................... 692,374
-------------
TOTAL FIXED INCOME SECURITIES (COST
$725,000)..................................... 692,374
-------------
</TABLE>
<TABLE>
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.3%)
OTHER INVESTMENT COMPANIES (2.6%)
Seven Seas Money Market Fund..................... 4,815,924 4,815,924
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (2.7%)
U.S. Treasury Bills, 4.420%(y) due 02/04/99...... $ 4,985,000 $ 4,945,397
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$9,761,321)................................... 9,761,321
-------------
TOTAL INVESTMENTS (COST $179,030,898) (99.1%)...................
183,604,210
OTHER ASSETS IN EXCESS OF LIABILITIES (0.9%)....................
1,755,657
-------------
NET ASSETS (100.0%)............................................. $ 185,359,867
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $180,950,904 for federal income tax
purposes at November 30, 1998, the aggregate gross unrealized appreciation and
depreciation was $22,034,763 and $19,381,457, respectively, resulting in net
unrealized appreciation of $2,653,306.
+ Non-income producing security.
(i) Foreign security.
(y) Yield to maturity.
144A - Securities restricted for resale to Qualified Institutional Buyers.
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $179,030,898 ) $183,604,210
Receivable for Investments Sold 2,603,416
Dividends Receivable 33,023
Interest Receivable 20,046
Deferred Organization Expenses 6,373
Prepaid Trustees' Fees 173
Prepaid Expenses and Other Assets 1,419
------------
Total Assets 186,268,660
------------
LIABILITIES
Payable for Investments Purchased 752,069
Advisory Fee Payable 89,646
Custody Fee Payable 44,385
Organization Expenses Payable 9,000
Administrative Services Fee Payable 4,157
Administration Fee Payable 238
Fund Services Fee Payable 167
Accrued Expenses 9,131
------------
Total Liabilities 908,793
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $185,359,867
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income $ 332,518
Interest Income 378,017
------------
Investment Income 710,535
EXPENSES
Advisory Fee $ 545,533
Custodian Fees and Expenses 66,951
Administrative Services Fee 25,762
Professional Fees and Expenses 21,537
Printing Expenses 3,594
Fund Services Fee 2,487
Administration Fee 1,588
Trustees' Fees and Expenses 1,316
Amortization of Organization Expenses 902
Insurance Expense 139
Miscellaneous 501
-----------
Total Expenses 670,310
------------
NET INVESTMENT INCOME 40,225
NET REALIZED LOSS ON INVESTMENTS (20,622,251)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS (2,945,598)
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(23,527,624)
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JUNE 16, 1997
MONTHS ENDED (COMMENCEMENT OF
NOVEMBER 30, 1998 OPERATIONS) THROUGH
(UNAUDITED) MAY 31, 1998
----------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income (Loss) $ 40,225 $ (36,198)
Net Realized Gain (Loss) on Investments (20,622,251) 4,883,980
Net Change in Unrealized Appreciation of
Investments (2,945,598) 7,518,910
----------------- -------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (23,527,624) 12,366,692
----------------- -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 74,285,689 206,272,601
Withdrawals (53,977,113) (30,060,378)
----------------- -------------------
Net Increase from Investors' Transactions 20,308,576 176,212,223
----------------- -------------------
Total Increase (Decrease) in Net Assets (3,219,048) 188,578,915
NET ASSETS
Beginning of Period 188,578,915 --
----------------- -------------------
End of Period $ 185,359,867 $ 188,578,915
----------------- -------------------
----------------- -------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JUNE 16, 1997
SIX MONTHS ENDED (COMMENCEMENT OF
NOVEMBER 30, 1998 OPERATIONS) THROUGH
(UNAUDITED) MAY 31, 1998
----------------- -------------------
<S> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.74%(a) 0.84%(a)
Net Investment Income (Loss) 0.04%(a) (0.04)%(a)
Expenses without Reimbursement -- 0.84%(a)(b)
Portfolio Turnover 46% 73%
</TABLE>
- ------------------------
(a) Annualized.
(b) Reimbursement was less than 0.01%.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Small Company Opportunities Portfolio (the "portfolio") is one of seven
subtrusts (portfolios) comprising The Series Portfolio (the "series portfolio").
The portfolio is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company which was
organized as a trust under the laws of the State of New York on June 24, 1994.
The portfolio commenced operations on June 16, 1997. The portfolio's investment
objective is long term capital appreciation from a portfolio of equity
securities of small companies. The Declaration of Trust permits the trustees to
issue an unlimited number of beneficial interests in the portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the portfolio's trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
portfolio securities with a remaining maturity of less than 60 days are
valued by the amortized cost method.
b) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount become known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
c) The portfolio incurred organization expenses in the amount of $9,000.
Morgan Guaranty Trust Company of New York ("Morgan"), a wholly owned
subsidiary of J.P. Morgan Co. Inc. ("J.P. Morgan"), has paid the
organization expenses of the portfolio. The portfolio has agreed to
reimburse Morgan for these costs which are being deferred and amortized on
a straight-line basis over a period not to exceed five years beginning
with the commencement of operations of the portfolio.
d) Expenses incurred by the series portfolio with respect to any two or more
portfolios in the series portfolio are allocated in proportion to the net
assets of each portfolio in the series portfolio, except where allocations
of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that
portfolio.
25
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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. Under the terms of the agreement, the portfolio
paid Morgan at an annual rate of 0.60% 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 $545,533.
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 six months ended November 30, 1998,
the fee for these services amounted to $1,588.
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 the other portfolios for which JPMIM acts as investment
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, 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 $25,762.
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 $2,487 for the six months ended November 30, 1998.
26
<PAGE>
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 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 $500.
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>
$103,526,438 $77,270,105
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the fund's Notes to the Financial
Statements which are included elsewhere in this report.
27
<PAGE>
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. SMALL COMPANY OPPORTUNITIES FUND
SEMIANNUAL REPORT
NOVEMBER 30, 1998
RSCOFR-9811
