<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMMON STOCKS (97.0%)
BASIC INDUSTRIES (6.9%)
CHEMICALS (2.8%)
E.I. Du Pont De Nemours & Co..................... 145,000 $ 15,786,875
Union Carbide Corp............................... 178,900 8,363,575
-------------
24,150,450
-------------
FOREST PRODUCTS & PAPER (1.0%)
Temple-Inland, Inc............................... 140,300 8,488,150
-------------
METALS & MINING (3.1%)
Allegheny Teledyne, Inc.......................... 711,672 18,325,554
Aluminum Company of America...................... 107,700 7,929,412
-------------
26,254,966
-------------
TOTAL BASIC INDUSTRIES......................... 58,893,566
-------------
CONSUMER GOODS & SERVICES (24.0%)
AUTOMOTIVE (1.2%)
Circuit City Stores, Inc. - CarMax Group+........ 197,600 2,865,200
General Motors Corp.............................. 131,600 7,534,100
-------------
10,399,300
-------------
BROADCASTING & PUBLISHING (3.3%)
TCI Satellite Entertainment, Inc. - Class A+..... 360,300 3,445,369
Tele-Communications TCI, Series A+............... 1,642,700 24,948,506
-------------
28,393,875
-------------
ENTERTAINMENT, LEISURE & MEDIA (4.5%)
Circus Circus Enterprises, Inc.+................. 429,700 11,172,200
International Game Technology.................... 520,800 9,244,200
Time Warner Inc.................................. 399,400 18,572,100
-------------
38,988,500
-------------
FOOD, BEVERAGES & TOBACCO (7.6%)
General Mills, Inc............................... 240,000 15,180,000
Philip Morris Companies, Inc..................... 320,400 14,097,600
Ralston Purina Co................................ 280,600 23,921,150
Unilever NV (ADR)................................ 61,200 11,857,500
-------------
65,056,250
-------------
HOUSEHOLD PRODUCTS (2.7%)
Procter & Gamble Co.............................. 171,630 23,663,486
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
RETAIL (4.7%)
Circuit City Stores, Inc......................... 249,600 $ 9,859,200
General Nutrition Companies, Inc.+............... 231,300 5,348,812
Toys 'R' Us, Inc.+............................... 525,300 16,349,962
Wal-Mart Stores, Inc............................. 303,700 9,035,075
-------------
40,593,049
-------------
TOTAL CONSUMER GOODS & SERVICES................ 207,094,460
-------------
ENERGY (9.1%)
GAS EXPLORATION (0.8%)
Enron Corp....................................... 167,600 6,829,700
-------------
OIL-PRODUCTION (8.3%)
Anadarko Petroleum Corp.......................... 135,600 8,542,800
Ashland Inc...................................... 171,200 8,196,200
British Petroleum Co. (ADR)...................... 66,008 9,562,909
Exxon Corp....................................... 336,300 19,925,775
Mobil Corp....................................... 87,500 12,239,062
Tosco Corp....................................... 404,800 13,206,600
-------------
71,673,346
-------------
TOTAL ENERGY................................... 78,503,046
-------------
FINANCE (12.9%)
BANKING (7.2%)
Banc One Corp.................................... 179,900 7,780,675
Crestar Financial Corp........................... 160,900 6,114,200
Dime Bancorp, Inc................................ 343,200 5,834,400
First Chicago NBD Corp........................... 231,700 13,728,225
Fleet Financial Group, Inc....................... 199,900 12,218,887
NationsBank Corp................................. 209,000 12,304,875
Washington Mutual, Inc........................... 63,900 3,550,444
-------------
61,531,706
-------------
FINANCIAL SERVICES (1.0%)
Salomon, Inc..................................... 161,700 8,671,162
-------------
INSURANCE (4.7%)
AMBAC, Inc....................................... 179,800 13,485,000
Marsh & McLennan Companies, Inc.................. 66,900 8,814,075
Providian Corp................................... 300,800 18,010,400
-------------
40,309,475
-------------
TOTAL FINANCE.................................. 110,512,343
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
HEALTH CARE (11.0%)
HEALTH SERVICES (3.6%)
Columbia / HCA Healthcare Corp................... 192,850 $ 7,063,131
Humana, Inc.+.................................... 246,600 5,579,325
United Healthcare Corp........................... 325,700 18,402,050
-------------
31,044,506
-------------
MEDICAL SUPPLIES (1.3%)
Bausch & Lomb, Inc............................... 288,200 11,600,050
-------------
PHARMACEUTICALS (6.1%)
Alza Corp.+...................................... 328,700 9,696,650
Bristol-Myers Squibb Co.......................... 32,300 2,370,013
Forest Laboratories, Inc.+....................... 172,500 7,288,125
Schering-Plough Corp............................. 141,400 12,832,050
Warner-Lambert Co................................ 200,100 20,160,075
-------------
52,346,913
-------------
TOTAL HEALTH CARE.............................. 94,991,469
-------------
INDUSTRIAL PRODUCTS & SERVICES (8.5%)
BUILDING MATERIALS (0.5%)
Johns Manville Corp.............................. 402,700 4,580,713
-------------
COMMERCIAL SERVICES (0.9%)
ADT Ltd.+........................................ 260,800 7,595,800
-------------
DIVERSIFIED MANUFACTURING (3.9%)
AlliedSignal, Inc................................ 194,200 14,904,850
Cooper Industries, Inc........................... 363,200 18,523,200
-------------
33,428,050
-------------
ELECTRICAL EQUIPMENT (1.7%)
Anixter International, Inc.+..................... 493,600 8,391,200
Grainger (W.W.), Inc............................. 74,600 5,986,650
-------------
14,377,850
-------------
POLLUTION CONTROL (1.5%)
Waste Management, Inc............................ 403,800 12,820,650
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 72,803,063
-------------
TECHNOLOGY (15.1%)
AEROSPACE (2.9%)
Boeing Co........................................ 165,000 17,366,250
Coltec Industries, Inc.+......................... 371,725 7,295,103
-------------
24,661,353
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMPUTER SOFTWARE (0.5%)
Autodesk, Inc.................................... 102,200 $ 3,979,413
-------------
COMPUTER SYSTEMS (4.4%)
EMC Corp./ Mass.+................................ 378,300 15,084,713
International Business Machines Corp............. 137,200 11,867,800
Sun Microsystems, Inc.+.......................... 325,300 10,511,256
-------------
37,463,769
-------------
ELECTRONICS (3.8%)
Bay Networks, Inc.+.............................. 427,000 10,461,500
Cisco Systems, Inc.+............................. 84,600 5,715,788
Perkin-Elmer Corp................................ 112,800 8,572,800
Sensormatic Electronics Corp..................... 528,800 8,262,500
-------------
33,012,588
-------------
INFORMATION PROCESSING (0.5%)
First Data Corp.................................. 102,100 4,084,000
-------------
SEMICONDUCTORS (1.1%)
Cypress Semiconductor Corp.+..................... 143,800 2,049,150
Texas Instruments, Inc........................... 87,600 7,873,050
-------------
9,922,200
-------------
TELECOMMUNICATIONS-EQUIPMENT (1.9%)
General Instrument Corp.+........................ 668,600 16,213,550
-------------
TOTAL TECHNOLOGY............................... 129,336,873
-------------
TRANSPORTATION (1.9%)
RAILROADS (1.9%)
CSX Corp......................................... 238,900 12,661,700
Union Pacific Corp............................... 60,400 4,092,100
-------------
16,753,800
-------------
TOTAL TRANSPORTATION........................... 16,753,800
-------------
UTILITIES (7.6%)
ELECTRIC (1.7%)
Dominion Resources, Inc.......................... 93,900 3,251,288
Duke Power Co.................................... 166,000 7,470,000
Northern States Power Co......................... 71,900 3,523,100
-------------
14,244,388
-------------
TELEPHONE (5.9%)
Bell Atlantic Corp............................... 114,800 8,036,000
GTE Corp......................................... 192,600 8,367,507
MCI Communications Corp.......................... 326,100 12,534,469
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TELEPHONE (CONTINUED)
SBC Communications, Inc.......................... 210,700 $ 12,325,950
WorldCom, Inc.+.................................. 313,200 9,298,125
-------------
50,562,051
-------------
TOTAL UTILITIES................................ 64,806,439
-------------
TOTAL COMMON STOCKS (COST $671,086,650)........ 833,695,059
-------------
CONVERTIBLE PREFERRED STOCKS (0.4%)
HEALTH CARE (0.0%)#
PHARMACEUTICALS (0.0%)#
Gensia, Inc., $3.75 due 03/06/98 (144A).......... 20,000 300,000
-------------
INDUSTRIAL PRODUCTS & SERVICES (0.4%)
BUILDING MATERIALS (0.4%)
Owens Corning LLC, 6.5% due 06/01/98 (144A)...... 62,500 3,476,563
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST
$4,220,219)................................... 3,776,563
-------------
PRINCIPAL
AMOUNT
------------
CONVERTIBLE BONDS (0.5%)
FINANCE (0.5%)
FINANCIAL SERVICES (0.5%)
Berkshire Hathaway, Inc., Senior Exchangeable
Notes; 1.00% due 12/02/01. Exchangeable for
shares of Salomon, Inc. Common Stock, 0.% due
01/00/00 (cost $3,567,926)..................... $ 3,800,000 3,809,500
-------------
SHORT-TERM INVESTMENTS (2.2%)
REPURCHASE AGREEMENT (2.1%)
State Street Bank and Trust Company Repurchase
Agreement, dated 05/30/97, due 06/02/97,
proceeds $17,758,091 (collateralized by
$17,635,000 U.S. Treasury Note, 6.25%, due
05/31/00, valued at $18,110,140) (cost
$17,750,000)................................... 17,750,000 17,750,000
-------------
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
U.S. TREASURY OBLIGATIONS (0.1%)
U.S. Treasury Bill 4.82% due 08/28/97............ $ 800,000 $ 790,380
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$18,539,880).................................. 18,540,380
-------------
TOTAL INVESTMENTS (COST $697,414,675) (100.1%).................
859,821,502
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.1%)..................
(561,285)
-------------
NET ASSETS (100.0%)............................................ $ 859,260,217
-------------
-------------
</TABLE>
- ------------------------------
+ Non-income producing security.
# Less than 0.1%
Note: Based on the cost of securities of $699,744,049 for Federal Income Tax
purposes at May 31, 1997, the aggregate gross unrealized appreciation and
depreciation was $167,338,153 and $7,260,700, respectively, resulting in net
unrealized appreciation of $160,077,453.
(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 holding stands for American Depositary Receipt, representing
ownership of foreign securities on deposit with a domestic custodian bank.
144A -- Securities restricted for resale to Qualified Institutional Buyers.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $697,414,675 ) $859,821,502
Cash 223
Receivable for Investments Sold 8,977,383
Dividends Receivable 1,666,540
Interest Receivable 24,288
Prepaid Trustees' Fees 3,993
Prepaid Expenses and Other Assets 2,246
------------
Total Assets 870,496,175
------------
LIABILITIES
Payable for Investments Purchased 10,856,218
Advisory Fee Payable 284,337
Custody Fee Payable 40,576
Administrative Services Fee Payable 22,217
Administration Fee Payable 2,394
Fund Services Fee Payable 1,599
Accrued Expenses 28,617
------------
Total Liabilities 11,235,958
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $859,260,217
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $147,501 ) $ 13,099,028
Interest Income 1,501,885
------------
Investment Income 14,600,913
EXPENSES
Advisory Fee $ 3,049,388
Administrative Services Fee 232,617
Custodian Fees and Expenses 173,517
Professional Fees and Expenses 51,169
Administration Fee 31,211
Fund Services Fee 26,486
Trustees' Fees and Expenses 12,849
Miscellaneous 9,548
-----------
Total Expenses 3,586,785
------------
NET INVESTMENT INCOME 11,014,128
NET REALIZED GAIN ON INVESTMENTS (including
$1,616,380 net realized gain from futures
contracts) 114,253,160
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 54,102,181
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $179,369,469
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
MAY 31, 1997 MAY 31, 1996
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 11,014,128 $ 15,066,796
Net Realized Gain on Investments 114,253,160 78,377,073
Net Change in Unrealized Appreciation of
Investments 54,102,181 63,227,280
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 179,369,469 156,671,149
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 205,179,647 222,740,564
Withdrawals (244,500,948) (262,953,448)
-------------- --------------
Net Decrease from Investors' Transactions (39,321,301) (40,212,884)
-------------- --------------
Total Increase in Net Assets 140,048,168 116,458,265
NET ASSETS
Beginning of Fiscal Year 719,212,049 602,753,784
-------------- --------------
End of Fiscal Year $ 859,260,217 $ 719,212,049
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL JULY 19, 1993
YEAR ENDED MAY 31, (COMMENCEMENT OF
--------------------------- OPERATIONS) TO
1997 1996 1995 MAY 31, 1994
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.47% 0.46% 0.51% 0.53%(a)
Net Investment Income 1.44% 2.20% 2.12% 1.79%(a)
Portfolio Turnover 98.97% 84.55% 71.00% 76.00%+
Average Broker Commissions 0.0506 -- -- --
</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.
25
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Equity Portfolio (the "Portfolio") is registered under the Investment
Company Act of 1940, as amended, as a no-load, diversified, open-end management
investment company which was organized as a trust under the laws of the State of
New York. The Portfolio commenced operations on July 19, 1993 and received a
contribution of certain assets and liabilities, including securities, with a
value of $209,477,219 on that date from The Pierpont Equity Fund in exchange for
a beneficial interest in the Portfolio. At that date, net unrealized
appreciation of $12,039,552 was included in the contributed securities. On
October 31, 1993, the Portfolio received a contribution of securities and
certain assets and liabilities, with a market value and cost of $128,337,342
from the JPM North America Fund, Ltd., in exchange for a beneficial interest in
the Portfolio. The Portfolio's investment objective is to provide a high total
return from a portfolio of selected equity securities. The Declaration of Trust
permits the Trustees to issue an unlimited number of beneficial interests in the
Portfolio. Prior to May 12, 1997, the Portfolio's name was The Selected U.S.
Equity 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
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 readily available closing bid price on
such exchanges, or at the quoted bid price in the over-the-counter market.
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
26
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
interest rates. 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. At May
31, 1997, the Portfolio had no open futures contracts.
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 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.
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, 1997, this fee
amounted to $3,049,388.
b)The Portfolio had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Under an Administration Agreement, Signature provided administrative
services necessary for the operations of the Portfolio, furnished office
space and facilities required for conducting the business of the Portfolio
and paid the compensation of the Portfolio's officers affiliated with
Signature. The agreement provided for a fee to be paid to Signature equal
to the Portfolio's proportionate share of a complex-wide charge based on
the following annual schedule: 0.03% on the first $7 billion of the
aggregate average daily net assets of the Portfolio and the other
portfolios (the "Master Portfolios") in which The JPM Pierpont Funds, The
JPM Institutional Funds or The JPM Advisor Funds invest and 0.01% on the
aggregate average daily net assets of the Master Portfolios in excess of
$7 billion. The portion of this charge paid by the Portfolio was
determined by the proportionate share its net assets bore to the total net
assets of The JPM Pierpont Funds, The JPM
27
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
Institutional Funds, The JPM Advisor Funds and the Master Portfolios. For
the period from June 1, 1996 to July 31, 1996, Signature's fee for these
services amounted to $14,675. The Administrative Agreement with Signature
was terminated July 31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the
Portfolio's exclusive placement agent. Under a Co-Administration Agreement
between FDI and the Portfolio, 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 JPM Pierpont Funds, The JPM Institutional Funds, The JPM
Advisor Funds, the Master Portfolios, JPM Series Trust and JPM Series
Trust II. For the period from August 1, 1996 to May 31, 1997, the fee for
these services amounted to $16,536.
On November 15, 1996, The JPM Advisor Funds terminated operations and were
liquidated. Subsequent to that date, the net assets of The JPM Advisor
Funds were no longer included in the calculation of the allocation of
FDI's fees.
c)The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan 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. Until
July 31, 1996 this charge was calculated daily based on the aggregate 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 Master Portfolios'
aggregate average daily net assets in excess of $7 billion. The portion of
this charge paid by the Portfolio was determined by the proportionate
share its net assets bore to the net assets of the Master Portfolios and
investors in the Master Portfolios for which Morgan provided similar
services. For the period from June 1, 1996 to July 31,1996, the fee for
these services amounted to $28,287.
Effective August 1, 1996, the Services Agreement was amended such that the
annual complex-wide charge is calculated daily based on the aggregate net
assets of the Master Portfolios and 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 paid by the Portfolio is
determined by the proportionate share that its net assets bear to the net
assets of the Master Portfolios, The JPM Pierpont Funds, The JPM
Institutional Funds, other investors in the Master Portfolios for which
Morgan provides similar services, and JPM Series Trust. For the period
from August 1, 1996 to May 31, 1997, the fee for these services amounted
to $204,330.
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 $26,486 for the fiscal year ended May 31, 1997.
28
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997
- --------------------------------------------------------------------------------
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represent the Portfolio's allocated
portion of the total fees and expenses. Prior to April 1, 1997, the
aggregate annual Trustee Fee was $65,000. 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 $5,400.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended May 31, 1997 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- --------------- ---------------
<S> <C>
$ 731,737,851 $ 751,052,069
</TABLE>
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The U.S. Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The U.S. Equity Portfolio (the "Portfolio")
at May 31, 1997, 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 three 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,
1997 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
July 21, 1997
30
