<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------- --------- ------------
COMMON STOCKS (96.0%)
Basic Industries (5.4%)
Chemicals (3.8%)
E.I. Du Pont De Nemours &
Co. .......................... 160,500 $ 12,799,875
Union Carbide Corp. ........... 183,820 7,927,237
Wellman, Inc. ................. 299,800 6,782,975
------------
27,510,087
------------
Metals & Mining (1.6%)
Allegheny Ludlum Corp. ........ 49,100 982,000
Aluminum Company of America
(ALCOA) ..................... 114,000 7,025,250
Reynolds Metals Co. ........... 67,900 3,666,600
------------
11,673,850
------------
TOTAL BASIC INDUSTRIES ...... 39,183,937
------------
Consumer Goods & Services (25.7%)
Automotive (2.1%)
Cooper Tire & Rubber .......... 217,700 5,252,012
General Motors Corp. .......... 184,800 10,187,100
------------
15,439,112
------------
Broadcasting & Publishing (2.9%)
Tele-Communications TCI, Series
A+ .......................... 756,250 14,226,953
Turner Broadcasting System,
Inc. ........................ 39,200 1,068,200
Viacom, Inc., Class B ......... 129,200 5,474,850
------------
20,770,003
------------
Entertainment, Leisure & Media (2.1%)
Circus Circus Enterprises
Inc.+ ........................ 97,700 4,066,762
International Game
Technology .................. 277,500 4,405,312
Time Warner Inc. .............. 165,400 6,678,025
------------
15,150,099
------------
Food, Beverages & Tobacco (6.3%)
CPC International, Inc. ....... 67,900 4,693,587
Nabisco Holdings Corp., Class
A ........................... 100,000 3,387,500
PepsiCo., Inc. ................ 357,300 11,880,225
Philip Morris Companies,
Inc. ........................ 188,100 18,692,437
Ralston Purina Co. ............ 107,600 6,590,500
------------
45,244,249
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------- --------- ------------
<S> <C> <C>
Household Appliances Furnishings (0.7%)
Furniture Brands International,
Inc.+ ....................... 456,900 $ 4,968,787
------------
Household Products (3.2%)
Colgate-Palmolive Co. ......... 100,640 7,925,400
Procter & Gamble Co. .......... 169,100 14,859,662
------------
22,785,062
------------
Retail (7.1%)
Circuit City Stores, Inc. ..... 216,700 7,069,837
Limited Inc. .................. 524,500 10,883,375
Melville Corp. ................ 187,100 7,600,937
Toys 'R' Us, Inc.+ ............ 325,700 9,445,300
Wal-Mart Stores, Inc. ......... 633,960 16,403,715
------------
51,403,164
------------
Textiles (1.3%)
Fruit of the Loom Inc.+ ....... 338,950 9,151,650
------------
TOTAL CONSUMER GOODS &
SERVICES ................... 184,912,126
------------
Energy (8.6%)
Oil-Production (8.6%)
Anadarko Petroleum Corp. ...... 126,200 6,783,250
Cooper Cameron Corp.+ ......... 67,512 3,063,357
Diamond Shamrock, Inc. ........ 210,700 6,926,763
Exxon Corp. ................... 81,300 6,890,175
MAPCO, Inc. ................... 113,400 6,548,850
Repsol S.A. (ADR) ............. 127,900 4,348,600
Royal Dutch Petroleum Co.
(ADR) ....................... 44,000 6,600,000
Sun Company, Inc. ............. 273,175 8,365,984
Texaco Inc. ................... 147,700 12,369,875
------------
TOTAL ENERGY ................ 61,896,854
------------
Finance (12.8%)
Banking (6.9%)
BankAmerica Corp. ............. 92,500 6,960,625
Citicorp ...................... 55,600 4,670,400
Firstar Corp. ................. 98,750 4,838,750
Fleet Financial Group, Inc. ... 209,900 9,261,838
Great Western Financial
Corp. ....................... 219,400 5,046,200
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------- --------- ------------
<S> <C> <C>
</TABLE>
Banking (continued)
<TABLE>
<S> <C> <C>
NationsBank Corp. ............. 151,000 $ 12,249,875
Standard Federal
Bancorporation .............. 158,600 6,244,875
------------
49,272,563
------------
Financial Services (2.3%)
Associates First Capital Corp.,
Class A+ .................... 89,600 3,315,200
Dean Witter Discover & Co. .... 152,800 9,053,400
First USA, Inc. ............... 74,200 4,303,600
------------
16,672,200
------------
Insurance (3.6%)
AMBAC, Inc. ................... 190,000 9,856,250
Providian Corp. ............... 259,700 11,329,413
USLIFE Corp. .................. 160,150 4,804,500
------------
25,990,163
------------
TOTAL FINANCE ............... 91,934,926
------------
Healthcare (9.8%)
Health Services (3.7%)
Columbia / HCA Healthcare
Corp. ....................... 280,600 15,117,325
Humana, Inc.+ ................. 517,400 11,382,800
------------
26,500,125
------------
Pharmaceuticals (6.1%)
Alza Corp.+ ................... 230,400 6,566,400
American Home Products
Corp. ....................... 130,200 6,965,700
Bausch & Lomb, Inc. ........... 299,400 12,874,200
Forest Laboratories, Inc.+ .... 146,800 6,055,500
Gensia, Inc.+ ................. 1,082 5,545
Warner-Lambert Co. ............ 205,800 11,524,800
------------
43,992,145
------------
TOTAL HEALTHCARE ............ 70,492,270
------------
Industrial Products & Services (13.9%)
Building Materials (1.5%)
Schuller Corp. ................ 352,200 4,006,275
USG Corp.+ .................... 260,200 7,122,975
------------
11,129,250
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------- --------- ------------
<S> <C> <C>
Commercial Services (1.2%)
Service Corp. International ... 157,900 $ 8,822,663
------------
Diversified Manufacturing (5.6%)
AlliedSignal, Inc. ............ 175,000 9,581,250
Cooper Industries, Inc. ....... 257,700 10,984,463
General Electric Co. .......... 99,500 8,233,625
Tyco International Ltd.+ ...... 292,000 11,534,000
------------
40,333,338
------------
Electrical Equipment (2.9%)
Anixter International,
Inc.+ ........................ 182,000 3,048,500
General Instrument Corp.+ ..... 307,800 9,503,325
Grainger (W.W.), Inc. ......... 103,100 6,894,813
MagneTek, Inc.+ ............... 160,700 1,566,825
------------
21,013,463
------------
Manufacturing (1.2%)
Teledyne Inc. ................. 225,200 8,501,300
------------
Pollution Control (1.5%)
WMX Technologies, Inc. ........ 299,900 10,571,475
------------
TOTAL INDUSTRIAL PRODUCTS &
SERVICES ................... 100,371,489
------------
Technology (9.7%)
Aerospace (2.3%)
Boeing Co. .................... 129,500 11,039,875
Coltec Industries, Inc.+ ...... 400,425 5,305,631
------------
16,345,506
------------
Computer Peripherals (1.1%)
Quantum Corp.+ ................ 326,800 7,843,200
------------
Computer Software (2.0%)
Adobe Systems, Inc. ........... 79,900 2,961,294
Autodesk, Inc. ................ 80,300 2,775,369
Cisco Systems, Inc.+ .......... 88,000 4,812,500
Softkey International,
Inc.+ ....................... 146,100 3,615,975
------------
14,165,138
------------
Computer Systems (2.1%)
EMC Corp.+ .................... 378,500 8,374,313
Hewlett-Packard Co. ........... 64,100 6,842,675
------------
15,216,988
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------- --------- ------------
<S> <C> <C>
Electronics (1.7%)
Harris Corp. .................. 78,700 $ 5,085,988
Motorola, Inc. ................ 54,900 3,664,575
Perkin-Elmer Corp. ............ 66,500 3,524,500
------------
12,275,063
------------
Semiconductors (0.5%)
Advanced Micro Devices,
Inc.+ ........................ 187,100 3,297,638
------------
TOTAL TECHNOLOGY ............ 69,143,533
------------
Transportation (2.4%)
Railroads (1.8%)
Union Pacific Corp. ........... 184,345 12,927,193
------------
Truck & Freight Carriers (0.6%)
Consolidated Freightways,
Inc. ......................... 172,100 4,087,375
------------
TOTAL TRANSPORTATION ........ 17,014,568
------------
Utilities (7.7%)
Electric (2.4%)
Entergy Corp. ................. 102,600 2,693,250
Illinova Corp. ................ 59,300 1,556,625
P P & L Resources, Inc. ....... 147,600 3,376,350
Pacific Gas & Electric Co. .... 209,300 4,866,225
Pinnacle West Capital Corp. ... 168,000 4,452,000
Southern Co. .................. 13,100 302,938
------------
17,247,388
------------
Telephone (5.3%)
AT & T Corp. .................. 162,400 10,129,700
GTE Corp. ..................... 236,900 10,127,475
MCI Communications Corp. ...... 347,600 10,102,125
SBC Communications, Inc. ...... 87,200 4,305,500
US West Communications Group . 105,900 3,454,988
------------
38,119,788
------------
TOTAL UTILITIES ............. 55,367,176
------------
TOTAL COMMON STOCKS (COST
$581,471,077) .............. 690,316,879
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------- --------- ------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.5%)
Industrial Products & Services (0.5%)
Capital Goods (0.5%)
Owens Corning LLC, 6.5%
(144A) ...................... 60,000 $ 3,300,000
------------
Health Care (0.0%*)
Pharmaceuticals (0.0%*)
Gensia, Inc., $3.75 (144A) .... 20,000 240,000
------------
TOTAL CONVERTIBLE PREFERRED
STOCKS (COST $4,081,156) ... 3,540,000
------------
SHORT-TERM INVESTMENTS (1.3%)
U.S. Government Agency Obligations (1.3%)
Federal Home Loan Bank
Consolidated Discount Note
5.26% due 06/03/96 .......... 9,830,000 9,827,128
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $9,827,128) .......... 9,827,128
------------
TOTAL INVESTMENTS (COST $595,379,361)
(97.8%) ................................ 703,684,007
OTHER ASSETS IN EXCESS OF LIABILITIES
(2.2%) ................................. 15,528,042
------------
NET ASSETS (100.0%) ...................... $719,212,049
------------
------------
</TABLE>
- ------------------------------
<TABLE>
<S> <C>
Note: The cost of securities for Federal Income Tax purposes at May 31, 1996,
was $596,477,946; the aggregate gross unrealized appreciation and depreciation
was $116,187,695 and $8,981,634, respectively, resulting in net unrealized
appreciation of $107,206,061.
+ Non-income producing security.
(ADR) -- Securities whose value is determined or significantly influenced by
trading on exchanges not located in the United States or Canada. ADR after the
name of a foreign holdings stands for American Depository Receipt,
representing ownership of foreign securities on deposit with a domestic
custodian bank.
144A -- Securities restricted for resale to Qualified Institutional Buyers.
* Less than 0.1%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $595,379,361) $703,684,007
Cash 4,229
Receivable for Investments Sold 15,024,751
Dividends Receivable 1,580,583
Prepaid Trustees' Fees 862
Prepaid Expenses and Other Assets 3,113
------------
Total Assets 720,297,545
------------
LIABILITIES
Payable for Investments Purchased 740,327
Advisory Fee Payable 246,500
Custody Fee Payable 37,604
Administrative Services Fee Payable 15,227
Administration Fee Payable 8,081
Fund Services Fee Payable 1,694
Accrued Expenses 36,063
------------
Total Liabilities 1,085,496
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $719,212,049
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax of $93,360) $ 16,423,566
Interest Income 1,819,587
------------
Investment Income 18,243,153
EXPENSES
Advisory Fee $ 2,744,054
Custodian Fees and Expenses 103,337
Administrative Services Fee 75,953
Administration Fee 62,404
Financial and Fund Accounting Services Fee 62,181
Professional Fees 49,677
Fund Services Fee 46,626
Trustees' Fees and Expenses 14,553
Printing Expenses 9,000
Insurance Expense 5,961
Registration Fees 610
Miscellaneous 2,001
-----------
Total Expenses (3,176,357)
------------
NET INVESTMENT INCOME 15,066,796
NET REALIZED GAIN ON INVESTMENTS (including $1,561,383 net
realized gain from futures contracts) 78,377,073
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS 63,227,280
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $156,671,149
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE FISCAL YEAR ENDED
MAY 31,
--------------------------
1996 1995
------------ ------------
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 15,066,796 $ 10,756,648
Net Realized Gain on Investments 78,377,073 31,481,163
Net Change in Unrealized Appreciation of Investments 63,227,280 35,361,393
------------ ------------
Net Increase in Net Assets Resulting from Operations 156,671,149 77,599,204
------------ ------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST
Contributions 222,740,564 266,876,529
Withdrawals (262,953,448) (179,469,109)
------------ ------------
Net Increase (Decrease) from Investors' Transactions (40,212,884) 87,407,420
------------ ------------
Total Increase in Net Assets 116,458,265 165,006,624
NET ASSETS
Beginning of Fiscal Year 602,753,784 437,747,160
------------ ------------
End of Fiscal Year $719,212,049 $602,753,784
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE PERIOD
JULY 19, 1993
FOR THE FISCAL YEAR (COMMENCEMENT
ENDED MAY 31, OF OPERATIONS)
-------------------- TO
1996 1995 MAY 31, 1994
--------- --------- ---------------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.46% 0.51% 0.53%(a)
Net Investment Income 2.20% 2.12% 1.79%(a)
Portfolio Turnover 84.55% 71.00% 76.00%+
</TABLE>
- ------------------------
(a)Annualized
+ Portfolio turnover is for the twelve month period ended May 31, 1994, and
includes the portfolio activity of the Portfolio's predecessor entity, The
Pierpont Equity Fund, for the period June 1, 1993 to July 18, 1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Selected U.S. Equity Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, as a no-load, diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Portfolio commenced operations on July 19, 1993 and
received a contribution of certain assets and liabilities, including securities,
with a value of $209,477,219 on that date from The Pierpont Equity Fund in
exchange for a beneficial interest in the Portfolio. At that date, net
unrealized appreciation of $12,039,552 was included in the contributed
securities. On October 31, 1993, the Portfolio received a contribution of
securities and certain assets and liabilities, with a market value and cost of
$128,337,342 from the JPM North America Fund, Ltd., in exchange for a beneficial
interest in the Portfolio. The Portfolio's investment objective is to provide a
high total return from a portfolio of selected equity securities. The
Declaration of Trust permits the Trustees to issue an unlimited number of
beneficial interests in the Portfolio.
The preparation of financial statements prepared 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
exists is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the Portfolio's Trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
portfolio securities with a remaining maturity of less than 60 days are
valued at amortized cost.
b)Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place will be fixed when
the Portfolio enters into the contract. Upon entering into such a contract
the Portfolio is required to pledge to the broker an amount of cash and/or
securities equal to the minimum "initial margin" requirements of the
exchange. Pursuant to the contract, the Portfolio agrees to receive from
or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation
margin" and are recorded by the Portfolio as unrealized gains or losses.
When the contract is closed, the Portfolio records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time when it was closed. The Portfolio
invests in futures contracts solely for the purpose of hedging its
existing portfolio securities, or securities the Portfolio intends to
purchase, against fluctuations in value caused by changes in prevailing
market interest rates.
23
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996
- --------------------------------------------------------------------------------
The use of futures transactions involves the risk of imperfect correlation
in movements in the price of futures contracts, interest rates and the
underlying hedged assets, and the possible inability of counterparties to
meet the terms of their contracts. Realized and unrealized gains and
losses on futures transactions for the fiscal year ended May 31, 1996 are
included in the Statement of Operations. There were no open futures
contracts as of May 31, 1996.
c)Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount become known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
d)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be subject to
taxation 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.
e)The Portfolio's custodian takes possession of the collateral pledged for
investments in repurchase agreements on behalf of the Portfolio. It is the
policy of the Portfolio to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the Portfolio has
the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event
of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
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 0.40% of the Portfolio's
average daily net assets. For the fiscal year ended May 31, 1996 this fee
amounted to $2,744,054.
b)The Portfolio has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Signature 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 Signature. Until December 28, 1995,
the Administration Agreement provided for a fee to be paid to Signature at
an annual rate determined by the following schedule: 0.01% of the first $1
billion of the aggregate average daily net assets of the Portfolio and the
other portfolios subject to the Administration Agreement, 0.008% of the
next $2 billion of such net assets, 0.006% of the next $2 billion of such
net assets, and 0.004% of such net assets in excess of $5 billion. The
daily equivalent of the fee rate was applied to the daily net assets of
the Portfolio. For the period from June 1, 1995 to December 28, 1995,
Signature's fee for these services amounted to $22,494.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged would be equal to the Portfolio's proportionate share
of a complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio
24
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996
- --------------------------------------------------------------------------------
and the other portfolios subject to this agreement (the "Master
Portfolios") and 0.01% on the aggregate average daily net assets of the
Master Portfolios in excess of $7 billion. The portion of this charge
payable by the Portfolio is determined by the proportionate share its net
assets bear to the total net assets of The Pierpont Funds, The JPM
Institutional Funds, The JPM Advisor Funds and the Master Portfolios. For
the period from December 29, 1995 through May 31, 1996, Signature's fee
for these services amounted to $39,910.
Effective August 1, 1996, administrative functions provided by Signature
will be provided by Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, and by Morgan. FDI will also become the Portfolio's
exclusive placement agent. Under a Co-Administration Agreement between FDI
and the Portfolio, FDI's fees are to be paid by the Portfolio (see Note
2c).
c)Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement with Morgan under which Morgan received a fee, based on
the percentages described below, for overseeing certain aspects of the
administration and operation of the Portfolio and was also designed to
provide an expense limit for certain expenses of the Portfolio. This fee
was calculated exclusive of the advisory fee, custody expenses and fund
services fee, at 0.10% of the Portfolio's average daily net assets up to
$200 million, 0.05% of the next $200 million of average daily net assets,
and 0.03% of average daily net assets thereafter. For the three month
period ended August 31, 1995, the fee for these services amounted to
$62,181. From September 1, 1995 until December 28, 1995, an interim
agreement between the Portfolio and Morgan provided for the continuation
of the oversight functions that were outlined under the prior agreement
and that Morgan should bear all of its expenses incurred in connection
with these services.
Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement with Morgan (the "Services Agreement") under which
Morgan is responsible for overseeing 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 proportionate share
of an annual complex-wide charge. This charge is calculated daily based on
the aggregate average daily net assets of the Master Portfolios, in
accordance with the following annual schedule: 0.06% on the first $7
billion of the Master Portfolios' aggregate average daily net assets and
0.03% of the aggregate average daily net assets in excess of $7 billion.
The portion of this charge payable by the Portfolio is determined by the
proportionate share that the Portfolio's net assets bear to the net assets
of the Master Portfolios and other investors in the Master Portfolios for
which Morgan provides similar services. For the period from December 29,
1995, through May 31, 1996, the fee for these services amounted to
$75,953.
Effective August 1, 1996, the Services Agreement will be amended such that
the aggregate complex-wide fees to be paid by the Portfolio under both the
amended Services Agreement and the Co-Administration Agreement (see Note
2b) will be calculated daily based on the aggregate net assets of the
Master Portfolios in accordance with the following annual schedule: 0.09%
on the first $7 billion of the Master Portfolios' aggregate average daily
net assets and 0.04% of the aggregate average daily net assets in excess
of $7 billion.
25
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996
- --------------------------------------------------------------------------------
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 $46,626 for the fiscal year ended May 31, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of the Pierpont Funds, the JPM Institutional Funds, and the
Master Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represent the Portfolio's allocated portion of the total fees
and expenses. The Portfolio's Chairman and Chief Executive Officer also
serves as Chairman of Group and received compensation and employee
benefits from Group in his role as Group's Chairman. The allocated portion
of such compensation and benefits included in the Fund Services Fee shown
in the financial statements was $6,000.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended May 31, 1996 were as follows:
<TABLE>
<S> <C>
COST OF PROCEEDS FROM
PURCHASES SALES
- -------------- --------------
$ 553,512,112 $ 555,862,609
</TABLE>
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Selected U.S. Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The Selected U.S. Equity Portfolio (the
"Portfolio") at May 31, 1996, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and its supplementary data for each of the two 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,
1996 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.
PRICE WATERHOUSE LLP
New York, New York
July 25, 1996
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