<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
COMMON STOCKS (96.2%)
BASIC INDUSTRIES (9.8%)
AGRICULTURE (1.6%)
Dekalb Genetics Corp., Class B................... 113,400 $ 10,872,225
-------------
CHEMICALS (2.4%)
Albemarle Corp................................... 231,300 5,623,481
Bush Boake Allen, Inc.+.......................... 107,300 3,165,350
General Chemical Group, Inc...................... 76,700 1,955,850
Geon Co.......................................... 110,100 2,380,912
Minerals Technologies, Inc....................... 37,100 1,963,981
OM Group, Inc.................................... 25,550 1,060,325
Wellman, Inc..................................... 24,000 577,500
-------------
16,727,399
-------------
FOREST PRODUCTS & PAPER (1.7%)
American Pad & Paper Co.+........................ 523,200 3,466,200
Caraustar Industries, Inc........................ 170,800 5,246,762
Universal Forest Products, Inc................... 158,800 2,714,487
-------------
11,427,449
-------------
METALS & MINING (4.1%)
Commercial Metals Co............................. 358,400 10,998,400
Mueller Industries, Inc.+........................ 348,600 10,806,600
Schnitzer Steel Industries, Inc., Class A........ 124,600 3,231,812
Steel Technologies, Inc.......................... 291,700 3,281,625
-------------
28,318,437
-------------
TOTAL BASIC INDUSTRIES......................... 67,345,510
-------------
CONSUMER GOODS & SERVICES (12.2%)
APPARELS & TEXTILES (0.8%)
Ashworth, Inc.+.................................. 279,100 3,532,359
Genesco, Inc.+................................... 155,200 1,998,200
-------------
5,530,559
-------------
AUTOMOTIVE (0.6%)
Amcast Industrial Corp........................... 92,400 1,992,375
CSK Auto Corp.+.................................. 16,000 430,000
Sonic Automotive, Inc.+.......................... 89,300 1,596,237
-------------
4,018,612
-------------
BROADCASTING & PUBLISHING (1.1%)
Banta Corp....................................... 119,100 3,770,259
Digital Generation Systems, Inc.+................ 29,400 115,762
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
BROADCASTING & PUBLISHING (CONTINUED)
Emmis Broadcasting Corp., Class A+............... 10,800 $ 453,600
HA-LO Industries, Inc.+.......................... 25,500 788,906
Journal Register Co.+............................ 26,400 528,000
Ziff-Davis, Inc.+................................ 93,700 1,581,187
-------------
7,237,714
-------------
EDUCATION (0.3%)
Education Management Corp.+...................... 61,100 2,136,591
-------------
ENTERTAINMENT, LEISURE & MEDIA (0.9%)
Cinar Films Inc., Class B+....................... 46,000 891,250
Imax Corp.+...................................... 119,900 3,038,716
Steiner Leisure, Ltd.(i)+........................ 64,800 1,923,750
-------------
5,853,716
-------------
FOOD, BEVERAGES & TOBACCO (0.5%)
American Italian Pasta Co., Class A+............. 42,700 1,531,862
Beringer Wine Estates Holdings, Inc., Class B+... 41,200 1,751,000
-------------
3,282,862
-------------
HOUSEHOLD APPLIANCES & FURNISHINGS (1.5%)
Aaron Rents, Inc................................. 131,900 2,580,294
Bush Industries, Inc., Class A................... 250,200 6,724,125
Stanley Furniture Co., Inc.+..................... 58,200 1,182,187
-------------
10,486,606
-------------
RESTAURANTS & HOTELS (1.7%)
Applebee's International, Inc.................... 50,200 1,226,762
Candlewood Hotel Company, Inc.+.................. 100,000 815,625
Extended Stay America, Inc.+..................... 105,500 1,160,500
Friendly Ice Cream Corp.+........................ 84,700 2,128,087
Papa John's International, Inc.+................. 110,200 4,580,187
Showbiz Pizza Time, Inc.+........................ 53,800 1,914,944
-------------
11,826,105
-------------
RETAIL (4.8%)
Central Garden & Pet Co.+........................ 87,900 2,598,544
Delia's, Inc.+................................... 84,000 1,968,750
Garden Ridge Corp.+.............................. 292,500 5,100,469
Guitar Center, Inc.+............................. 63,400 1,674,156
Gymboree Corp.+.................................. 130,600 2,048,787
Let's Talk Cellular & Wireless, Inc.+............ 43,100 721,925
Lithia Motors, Inc., Class A+.................... 110,400 1,552,500
Pacific Sunwear of California+................... 24,350 1,090,423
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
RETAIL (CONTINUED)
Party City Corp.+................................ 123,550 $ 3,652,447
ShopKo Stores, Inc.+............................. 108,800 3,794,400
Sunglass Hut International, Inc.+................ 187,000 2,284,906
Urban Outfitters, Inc.+.......................... 337,400 5,524,925
USA Floral Products, Inc.+....................... 28,600 545,187
-------------
32,557,419
-------------
TOTAL CONSUMER GOODS & SERVICES................ 82,930,184
-------------
ENERGY (3.5%)
GAS EXPLORATION (1.5%)
Devon Energy Corp................................ 85,400 3,133,112
Newfield Exploration Co.+........................ 110,000 2,461,250
Patterson Energy, Inc.+.......................... 289,800 3,251,194
St. Mary Land & Exploration Co................... 60,300 1,643,175
-------------
10,488,731
-------------
OIL-PRODUCTION (0.7%)
Plains Resources, Inc.+.......................... 83,000 1,587,375
Snyder Oil Corp.................................. 51,200 992,000
Vintage Petroleum, Inc........................... 122,100 2,213,062
-------------
4,792,437
-------------
OIL-SERVICES (1.3%)
Dril-Quip, Inc.+................................. 66,900 2,086,444
Input/Output, Inc.+.............................. 144,200 3,172,400
National-Oilwell, Inc.+.......................... 105,700 3,692,894
-------------
8,951,738
-------------
TOTAL ENERGY................................... 24,232,906
-------------
FINANCE (24.9%)
BANKING (9.7%)
Bank of Commerce................................. 55,200 993,600
Bank United Corp., Class A....................... 134,800 6,727,362
Banknorth Group, Inc............................. 157,000 5,671,625
Colonial BancGroup, Inc.......................... 124,300 4,024,212
Commercial Federal Corp.......................... 81,900 2,728,294
Community First Bankshares, Inc.................. 108,300 2,649,966
First International Bancorp, Inc................. 39,000 604,500
FirstFed Financial Corp.+........................ 101,600 4,984,750
Flagstar Bancorp, Inc............................ 125,400 3,009,600
GBC Bancorp...................................... 143,500 4,094,234
Hamilton Bancorp, Inc.+.......................... 29,700 951,328
HUBCO, Inc....................................... 114,473 4,031,596
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
BANKING (CONTINUED)
Imperial Bancorp+................................ 22,600 $ 661,050
InterWest Bancorp, Inc........................... 47,200 2,138,750
Irwin Financial Corp............................. 58,000 1,564,187
National Commerce Bancorporation................. 188,500 8,347,016
North Fork Bancorporation, Inc................... 136,350 3,280,922
Prime Bancshares, Inc............................ 54,500 1,447,656
Republic Banking Corp. of Florida................ 72,300 1,369,181
Southwest Bancorporation of Texas, Inc.+......... 46,600 1,826,137
Sterling Bancshares, Inc......................... 38,300 652,297
Summit Bancshares, Inc........................... 26,900 591,800
Sun Bancorp, Inc.+............................... 14,227 394,799
Trustco Bank Corp................................ 114,800 3,235,925
-------------
65,980,787
-------------
FINANCIAL SERVICES (2.0%)
Amresco, Inc..................................... 74,000 2,497,500
First Alliance Corp.+............................ 36,000 382,500
Hanover Capital Mortgage Holdings, Inc........... 38,000 693,500
Investors Financial Services Corp................ 18,600 928,256
Litchfield Financial Corp........................ 126,240 2,840,400
Ocwen Financial Corp.+........................... 33,700 821,437
Waddell & Reed Financial, Inc., Class A.......... 46,400 1,073,000
WFS Financial, Inc.+............................. 43,500 373,828
Willis Lease Finance Corp.+...................... 169,900 3,716,562
-------------
13,326,983
-------------
INSURANCE (5.1%)
Annuity and Life Re (Holdings), Ltd.(i)+......... 148,700 3,387,572
Capital Re Corp.................................. 277,350 20,662,575
RenaissanceRe Holdings, Ltd.(i).................. 235,000 10,986,250
-------------
35,036,397
-------------
REAL ESTATE INVESTMENT TRUSTS (8.1%)
American General Hospitality Corp................ 136,900 3,251,375
Arden Realty Group, Inc.......................... 212,500 5,830,469
Brandywine Realty Trust.......................... 62,000 1,437,625
Burnham Pacific Properties, Inc.................. 161,800 2,275,312
Camden Property Trust............................ 109,614 3,350,078
CBL & Associates Properties, Inc................. 97,100 2,385,019
Correctional Properties Trust+................... 19,300 404,094
Cousins Properties, Inc.......................... 113,400 3,465,787
Developers Diversified Realty Corp............... 36,600 1,434,262
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
ElderTrust....................................... 47,800 $ 752,850
Entertainment Properties Trust................... 82,400 1,601,650
Impac Commercial Holdings, Inc................... 37,300 582,812
Innkeepers USA Trust............................. 2,100 29,269
LaSalle Hotel Properties+........................ 58,000 982,375
Manufactured Home Communities, Inc............... 108,200 2,698,237
Merry Land & Investment Company, Inc............. 58,900 1,306,844
Mills Corp....................................... 203,400 5,021,437
National Golf Properties, Inc.................... 72,800 2,188,550
Post Properties, Inc............................. 174,047 7,157,683
Summit Properties, Inc........................... 1,100 21,931
Sunstone Hotel Investors, Inc.................... 122,300 1,758,062
Tower Realty Trust, Inc.......................... 66,700 1,529,931
Urban Shopping Centers, Inc...................... 53,900 1,778,700
Weeks Corp....................................... 132,900 4,244,494
-------------
55,488,846
-------------
TOTAL FINANCE.................................. 169,833,013
-------------
HEALTHCARE (11.2%)
BIOTECHNOLOGY (3.1%)
Affymetrix, Inc.+................................ 24,700 664,584
Applied Analytical Industries, Inc.+............. 143,000 1,474,687
ArQule, Inc.+.................................... 42,100 602,556
Genome Therapeutics Corp.+....................... 108,400 707,987
Human Genome Sciences, Inc.+..................... 153,100 5,516,384
IDEC Pharmaceuticals Corp.+...................... 70,300 2,210,056
Incyte Pharmaceuticals, Inc.+.................... 73,000 2,680,469
Millennium Pharmaceuticals, Inc.+................ 67,300 1,190,369
Novoste Corp.+................................... 71,500 1,796,437
SangStat Medical Corp.+.......................... 155,700 4,077,394
-------------
20,920,923
-------------
HEALTH SERVICES (3.8%)
Alternative Living Services, Inc.+............... 67,900 1,841,788
Boron, LePore & Associates, Inc.+................ 21,100 619,813
Lifeline Systems, Inc.+.......................... 98,900 1,842,013
Mariner Health Group, Inc.+...................... 441,000 6,587,438
Monarch Dental Corp.+............................ 56,100 985,256
Pediatrix Medical Group, Inc.+................... 56,800 2,055,450
ProMedCo Management Co.+......................... 125,400 1,402,913
Renal Care Group, Inc.+.......................... 63,200 2,285,075
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
HEALTH SERVICES (CONTINUED)
Sierra Health Services, Inc.+.................... 204,800 $ 7,603,200
Sunrise Assisted Living, Inc.+................... 39,000 1,176,094
-------------
26,399,040
-------------
MEDICAL SUPPLIES (3.5%)
Aurora Biosciences Corp.+........................ 62,500 476,563
CONMED Corp.+.................................... 53,800 1,144,931
Endocardial Solutions, Inc.+..................... 66,000 779,625
Focal, Inc.+..................................... 60,000 746,250
Kensey Nash Corp.+............................... 213,100 3,968,988
Physio-Control International Corp.+.............. 63,200 1,333,125
ResMed, Inc.+.................................... 40,000 1,430,000
Sola International, Inc.+........................ 108,200 4,280,663
Symphonix Devices, Inc.+......................... 32,600 342,300
Ventana Medical Systems, Inc.+................... 328,200 8,512,688
Vital Signs, Inc................................. 30,100 531,453
-------------
23,546,586
-------------
PHARMACEUTICALS (0.8%)
Kos Pharmaceuticals, Inc.+....................... 144,400 1,665,113
Ligand Pharmaceuticals, Class B+................. 214,400 2,994,900
U.S. Bioscience, Inc.+........................... 67,600 633,750
-------------
5,293,763
-------------
TOTAL HEALTHCARE............................... 76,160,312
-------------
INDUSTRIAL PRODUCTS & SERVICES (12.2%)
BUILDING MATERIALS (1.1%)
American Residential Services, Inc.+............. 171,200 1,979,500
Comfort Systems USA, Inc.+....................... 75,600 1,663,200
Service Experts, Inc.+........................... 116,800 3,664,600
-------------
7,307,300
-------------
CAPITAL GOODS (4.7%)
ABC Rail Products Corp.+......................... 69,200 1,297,500
Applied Power, Inc., Class A..................... 107,800 3,692,150
Collins & Aikman Corp.+.......................... 101,700 711,900
IDEX Corp........................................ 147,300 5,450,100
MagneTek, Inc.+.................................. 386,100 6,539,569
Modine Manufacturing Co.......................... 101,300 3,469,525
Shaw Group, Inc.+................................ 116,300 2,849,350
Wabash National Corp............................. 306,900 7,960,219
-------------
31,970,313
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
COMMERCIAL SERVICES (0.9%)
Equity Corp. International+...................... 66,900 $ 1,588,875
Hospitality Worldwide Services+.................. 22,600 192,100
Pinkertons, Inc.+................................ 98,050 2,046,794
Wackenhut Corrections Corp.+..................... 53,900 1,307,075
Youth Services International, Inc.+.............. 92,400 667,012
-------------
5,801,856
-------------
CONSTRUCTION & HOUSING (1.7%)
D.R. Horton, Inc................................. 595,600 10,720,800
NCI Building Systems, Inc.+...................... 21,400 1,132,194
-------------
11,852,994
-------------
DIVERSIFIED MANUFACTURING (1.5%)
Intermet Corp.................................... 529,200 10,120,950
-------------
ELECTRICAL EQUIPMENT (0.5%)
Anixter International, Inc.+..................... 164,900 3,318,613
-------------
MACHINERY (0.2%)
Sauer, Inc....................................... 94,500 1,523,813
-------------
MANUFACTURING (0.1%)
Rock of Ages Corp.+.............................. 44,200 704,438
-------------
PACKAGING & CONTAINERS (0.4%)
Gaylord Container Corp., Class A+................ 193,800 1,623,075
Ivex Packaging Corp.+............................ 50,600 1,173,288
-------------
2,796,363
-------------
POLLUTION CONTROL (1.1%)
American Disposal Services, Inc.+................ 71,700 2,807,503
Sevenson Environmental Services, Inc............. 68,100 606,516
Tetra Technologies, Inc.+........................ 176,900 3,858,631
-------------
7,272,650
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 82,669,290
-------------
TECHNOLOGY (12.5%)
AEROSPACE (1.0%)
L-3 Communications Holdings, Inc.+............... 11,700 327,600
Orbital Sciences Corp.+.......................... 160,200 6,558,188
-------------
6,885,788
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
COMPUTER PERIPHERALS (1.3%)
Bolder Technologies Corp.+....................... 63,500 $ 738,188
HMT Technology Corp.+............................ 256,700 2,992,159
Hutchinson Technology, Inc.+..................... 31,600 791,975
Pinnacle Systems, Inc.+.......................... 94,200 3,167,475
Proxim, Inc.+.................................... 107,600 1,418,975
-------------
9,108,772
-------------
COMPUTER SOFTWARE (3.0%)
Aspect Development, Inc.+........................ 47,300 2,688,709
Aspen Technologies, Inc.+........................ 80,400 3,580,313
Edify Corp.+..................................... 223,400 2,359,663
Evolving Systems, Inc.+.......................... 6,100 114,375
Integrated Systems, Inc.+........................ 84,000 1,551,375
Macromedia, Inc.................................. 155,400 2,462,119
MAPICS, Inc.+.................................... 174,100 3,057,631
Omtool, Ltd.+.................................... 34,700 277,600
Remedy Corp.+.................................... 94,600 1,528,381
Transaction Systems Architects, Inc., Class A+... 76,800 3,096,000
-------------
20,716,166
-------------
COMPUTER SYSTEMS (0.9%)
Avid Technology, Inc.+........................... 77,100 3,124,959
PC Connection, Inc.+............................. 10,600 153,038
Quickturn Design System, Inc.+................... 176,300 1,347,042
Radiant Systems, Inc.+........................... 97,200 1,597,725
-------------
6,222,764
-------------
ELECTRICAL EQUIPMENT (0.1%)
Advanced Lighting Technologies, Inc.+............ 37,100 920,544
-------------
INFORMATION PROCESSING (2.7%)
CNET, Inc.+...................................... 61,400 2,225,750
Computer Horizons Corp.+......................... 20,950 699,861
Condor Technology Solutions, Inc.+............... 162,000 2,273,063
CSG Systems International, Inc.+................. 30,500 1,302,922
International Network Services+.................. 93,400 2,927,506
Metro Information Services, Inc.+................ 86,900 2,813,388
ONSALE, Inc.+.................................... 54,800 1,395,688
Pegasus Systems, Inc.+........................... 61,100 1,573,325
Sapient Corp.+................................... 68,700 3,048,563
-------------
18,260,066
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
SEMICONDUCTORS (1.7%)
8 x 8, Inc.+..................................... 127,500 $ 784,922
Alliance Semiconductor Corp.+.................... 120,600 587,925
American Xtal Technology, Inc.+.................. 18,500 205,813
ARM Holdings plc (Spons. ADR)+(i)................ 6,600 235,950
ATMI, Inc.+...................................... 105,400 1,910,375
Exar Corp.+...................................... 51,700 1,197,178
Genesis Microchip, Inc.+......................... 8,000 97,500
Integrated Device Technology, Inc.+.............. 227,200 2,126,450
Integrated Silicon Solution, Inc.+............... 111,000 770,063
SDL, Inc.+....................................... 111,400 2,478,650
SIPEX Corp.+..................................... 47,700 1,034,494
-------------
11,429,320
-------------
TELECOMMUNICATIONS-EQUIPMENT (1.8%)
ANTEC Corp.+..................................... 98,000 1,877,313
Davox Corp.+..................................... 53,100 979,031
Excel Switching Corp.+........................... 129,300 2,545,594
Glenayre Technologies, Inc.+..................... 221,600 3,400,175
Natural Microsystems Corp.+...................... 81,900 1,753,172
P-COM, Inc.+..................................... 93,400 1,403,919
Verio, Inc.+..................................... 14,600 333,519
-------------
12,292,723
-------------
TOTAL TECHNOLOGY............................... 85,836,143
-------------
TELECOMMUNICATIONS (2.0%)
TELECOMMUNICATION SERVICES (2.0%)
Concentric Network Corp.+........................ 179,900 3,991,531
Exodus Communications, Inc.+..................... 6,000 204,938
IDT Corp.+....................................... 34,200 893,475
MetroNet Communications Corp., Class B+.......... 95,800 2,694,375
Mobile Telecommunication Technologies Corp.+..... 127,200 2,885,850
Premiere Technologies, Inc.+..................... 111,900 2,678,606
-------------
13,348,775
-------------
TOTAL TELECOMMUNICATIONS....................... 13,348,775
-------------
TRANSPORTATION (1.8%)
AIRLINES (0.2%)
ASA Holdings, Inc................................ 37,200 1,461,263
-------------
RAILROADS (0.3%)
Genesee & Wyoming Inc., Class A+................. 83,500 1,889,188
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- -------- -------------
<S> <C> <C>
TRUCK & FREIGHT CARRIERS (1.3%)
Allied Holdings, Inc.+........................... 127,400 $ 2,293,200
American Freightways Corp.+...................... 140,400 1,623,375
Jevic Transportation, Inc.+...................... 20,800 262,600
Werner Enterprises, Inc.......................... 252,125 4,821,891
-------------
9,001,066
-------------
TOTAL TRANSPORTATION........................... 12,351,517
-------------
UTILITIES (6.1%)
ELECTRIC (2.1%)
Central Hudson Gas & Electric Corp............... 189,900 8,296,256
Cleco Corporation................................ 158,900 4,757,069
Otter Tail Power Co.............................. 31,600 1,009,225
-------------
14,062,550
-------------
NATURAL GAS (2.2%)
Atmos Energy Corp................................ 167,000 5,135,250
Indiana Energy, Inc.............................. 66,700 2,059,363
Public Service Company of North Carolina, Inc.... 21,800 463,250
Wicor, Inc....................................... 162,700 7,443,525
-------------
15,101,388
-------------
TELEPHONE (1.0%)
ICG Communications, Inc.+........................ 26,100 791,156
Intermedia Communications, Inc.+................. 33,000 2,444,063
ITC DeltaCom, Inc.+.............................. 15,200 546,250
NEXTLINK Communications, Inc., Class A+.......... 21,900 683,006
Omnipoint Corp.+................................. 110,600 2,274,213
-------------
6,738,688
-------------
WATER (0.8%)
E'Town Corp...................................... 74,100 2,556,450
SJW Corp......................................... 19,600 1,269,100
Southern California Water Co..................... 61,600 1,343,650
-------------
5,169,200
-------------
TOTAL UTILITIES................................ 41,071,826
-------------
TOTAL COMMON STOCKS (COST $577,906,411)........ 655,779,476
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.7%)
REPURCHASE AGREEMENT (3.7%)
Goldman Sachs, Repurchase Agreement 5.50% dated
05/29/98 due 06/01/98, proceeds $25,570,714
(collateralized by $24,795,000 various notes,
5.55% - 9.20% due 06/11/98 - 7/12/21, valued at
$26,070,804)
(cost $25,559,000)............................. $ 25,559,000 $ 25,559,000
-------------
TOTAL INVESTMENTS
(COST $603,465,411) (99.9%).................................. 681,338,476
OTHER ASSETS IN EXCESS OF
LIABILITIES (0.1%)........................................... 426,002
-------------
NET ASSETS (100.0%)............................................ $ 681,764,478
-------------
-------------
</TABLE>
- ------------------------------
Note: For Federal Income Tax purposes, the cost of securities at May 31, 1998,
was $604,485,853, the aggregate gross unrealized appreciation and depreciation
was $108,884,971 and $32,032,348, respectively, resulting in net unrealized
appreciation of $76,852,623.
+ Non-income producing security.
(i) Foreign security.
Spon. ADR - Sponsored American Depositary Receipt.
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $603,465,411) $681,338,476
Cash 610
Receivable for Investments Sold 3,663,969
Dividends Receivable 362,050
Interest Receivable 11,714
Prepaid Trustees' Fees 3,500
Prepaid Expenses and Other Assets 453
------------
Total Assets 685,380,772
------------
LIABILITIES
Payable for Investments Purchased 3,199,064
Advisory Fee Payable 360,375
Custody Fee Payable 25,500
Administrative Services Fee Payable 17,427
Administration Fee Payable 941
Fund Services Fee Payable 656
Accrued Expenses 12,331
------------
Total Liabilities 3,616,294
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $681,764,478
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income $ 11,726,555
Interest Income 2,287,683
------------
Investment Income 14,014,238
EXPENSES
Advisory Fee $6,161,868
Custodian Fees and Expenses 369,671
Administrative Services Fee 309,695
Professional Fees and Expenses 72,695
Fund Services Fee 36,011
Administration Fee 22,248
Trustees' Fees and Expenses 16,540
Printing Expenses 11,988
Insurance Expense 6,004
----------
Total Expenses 7,006,720
------------
NET INVESTMENT INCOME 7,007,518
NET REALIZED GAIN ON INVESTMENTS 248,748,288
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS (57,304,380)
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $198,451,426
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 7,007,518 $ 8,348,905
Net Realized Gain on Investments 248,748,288 87,877,628
Net Change in Unrealized Appreciation of
Investments (57,304,380) (2,676,687)
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 198,451,426 93,549,846
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 244,010,077 386,255,018
Withdrawals (830,979,636) (269,567,535)
-------------- --------------
Net Increase (Decrease) from Investors'
Transactions (586,969,559) 116,687,483
-------------- --------------
Total Increase (Decrease) in Net Assets (388,518,133) 210,237,329
NET ASSETS
Beginning of Fiscal Year 1,070,282,611 860,045,282
-------------- --------------
End of Fiscal Year $ 681,764,478 $1,070,282,611
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 19, 1993
(COMMENCEMENT OF
FOR THE FISCAL YEAR ENDED MAY 31, OPERATIONS)
----------------------------------------- THROUGH
1998 1997 1996 1995 MAY 31, 1994
-------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.68% 0.68% 0.67% 0.71% 0.72%(a)
Net Investment Income 0.68% 0.92% 1.33% 1.21% 0.99%(a)
Portfolio Turnover 96% 98% 93% 75% 97%+
</TABLE>
- ------------------------
(a) Annualized.
+ Portfolio turnover is for the twelve month period ended May 31, 1994, and
includes the portfolio activity of the Portfolio's predecessor entity, The
Pierpont Capital Appreciation Fund, for the period June 1, 1993 to July 18,
1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Small Company Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The portfolio commenced operations on July 19, 1993 and
received a contribution of certain assets and liabilities, including securities,
with a value of $200,358,103 on that date from The Pierpont Capital Appreciation
Fund in exchange for a beneficial interest in the portfolio. At that date, net
unrealized appreciation of $29,458,073 was included in the contributed
securities. The portfolio's investment objective is to provide a high total
return from a portfolio of small company stocks. 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.
29
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
d) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the portfolio pays Morgan at an annual rate of 0.60% of the portfolio's
average daily net assets. For the fiscal year ended May 31, 1998, such
fees amounted to $6,161,868.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as co-administrator and exclusive placement agent.
Under a Co-Administration Agreement between FDI and the portfolio, FDI
provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the compensation of the portfolio's
officers affiliated with FDI. The portfolio has agreed to pay FDI fees
equal to its allocable share of an annual complex-wide charge of $425,000
plus FDI's out-of-pocket expenses. The amount allocable to the portfolio
is based on the ratio of the portfolio's net assets to the aggregate net
assets of the portfolio and certain other investment companies subject to
similar agreements with FDI. For the fiscal year ended May 31, 1998, the
fee for these services amounted to $22,248.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan, under which Morgan is responsible for certain
aspects of the administration and operation of the portfolio. Under the
Services Agreement, the portfolio has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and certain other portfolios for which Morgan acts as investment
advisor (the "master portfolios") and J.P. Morgan Series Trust (formerly
JPM Series Trust) in accordance with the following annual schedule: 0.09%
on the first $7 billion of their aggregate average daily net assets and
0.04% of their aggregate average daily net assets in excess of $7 billion
less the complex-wide fees payable to FDI. The portion of this charge
payable by the portfolio is determined by the proportionate share that its
net assets bear to the net assets of the portfolio, the master portfolios,
other investors in the master portfolios for which Morgan provides similar
services, and J.P. Morgan Series Trust. For the fiscal year ended May 31,
1998, the fee for these services amounted to $309,695.
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 $36,011 for the fiscal year ended May 31, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the portfolio, the J.P. Morgan Funds (formerly The JPM
Pierpont Funds), the J.P. Morgan Institutional Funds (formerly The JPM
Institutional Funds), the master portfolios and J.P. Morgan Series Trust.
The Trustees' Fees and
30
<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
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 $7,600.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended May 31, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------- --------------
<S> <C>
$ 924,737,757 $1,066,449,241
</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.
5. OTHER MATTERS
On January 25, 1998, the portfolio received a withdrawal request in the amount
of $436,180,054 as discussed in Note 5 of the fund's Notes to Financial
Statements which are included elsewhere in this report. This amount is included
in Withdrawals shown on the Statement of Changes in Net Assets. The withdrawal,
which was made in-kind by transferring certain assets and liabilities, including
securities, directly to a non-U.S. fund, resulted in a net realized loss on
transfer of securities in the amount of $85,104,130, which is included in the
Net Realized Gain on Investments in the Statement of Operations.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Small Company Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The U.S. Small Company Portfolio (the
"Portfolio") at May 31, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the supplementary data for each of the four years in the period
then ended and for the period July 19, 1993 (commencement of operations) through
May 31, 1994, in conformity with generally accepted accounting principles. These
financial statements and supplementary data (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
1998 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
July 17, 1998
32
