<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
COMMON STOCKS (94.6%)
BASIC INDUSTRIES (6.4%)
AGRICULTURE (0.0%)
Agribrands International, Inc.+.................. 8,020 $ 274,685
-------------
CHEMICALS (3.9%)
Dow Chemical Co.................................. 22,100 2,140,937
E.I. du Pont de Nemours & Co.(s)................. 219,100 16,870,700
Rohm & Haas Co................................... 117,600 12,921,300
-------------
31,932,937
-------------
FOREST PRODUCTS & PAPER (1.2%)
Temple-Inland, Inc............................... 173,500 10,193,125
-------------
METALS & MINING (1.3%)
Allegheny Teledyne, Inc.......................... 444,572 10,336,299
-------------
TOTAL BASIC INDUSTRIES......................... 52,737,046
-------------
CONSUMER GOODS & SERVICES (21.1%)
AUTOMOTIVE (0.5%)
Chrysler Corp.................................... 81,100 4,511,187
-------------
BROADCASTING & PUBLISHING (1.9%)
Comcast Corp., Class A........................... 214,500 7,353,328
Tele-Communications TCI Ventures Group+.......... 470,242 8,185,150
-------------
15,538,478
-------------
ENTERTAINMENT, LEISURE & MEDIA (3.2%)
Hasbro, Inc...................................... 153,400 5,867,550
International Game Technology.................... 270,300 6,673,031
Seagram Company Ltd.............................. 322,300 14,161,056
-------------
26,701,637
-------------
FOOD, BEVERAGES & TOBACCO (7.7%)
Anheuser Busch Companies, Inc.................... 296,900 13,638,844
General Mills, Inc............................... 102,500 6,995,625
PepsiCo, Inc..................................... 285,400 11,647,887
Philip Morris Companies, Inc..................... 455,200 17,013,100
Ralston-Ralston Purina Group..................... 79,900 8,893,869
Unilever NV (ADR)................................ 70,000 5,525,625
-------------
63,714,950
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
HOUSEHOLD PRODUCTS (1.7%)
Procter & Gamble Co.............................. 162,260 $ 13,619,699
-------------
RETAIL (6.1%)
Circuit City Stores, Inc......................... 302,100 12,801,487
Federated Department Stores, Inc.+............... 157,000 8,134,562
Gap, Inc......................................... 173,000 9,342,000
Kmart Corp.+..................................... 455,400 8,823,375
Toys 'R' Us, Inc.+............................... 249,100 6,601,150
Wal-Mart Stores, Inc............................. 90,200 4,977,912
-------------
50,680,486
-------------
TOTAL CONSUMER GOODS & SERVICES................ 174,766,437
-------------
ENERGY (8.9%)
OIL-PRODUCTION (8.3%)
Atlantic Richfield Co............................ 106,100 8,368,637
British Petroleum Co. (ADR)...................... 91,697 8,126,647
Exxon Corp....................................... 218,200 15,383,100
Mobil Corp....................................... 144,400 11,263,200
Phillips Petroleum Co............................ 168,400 8,430,525
Tosco Corp....................................... 526,400 16,713,200
-------------
68,285,309
-------------
OIL-SERVICES (0.6%)
Cooper Cameron Corp.+............................ 81,500 4,849,250
-------------
TOTAL ENERGY................................... 73,134,559
-------------
FINANCE (15.8%)
BANKING (4.7%)
Astoria Financial Corp........................... 70,600 3,885,206
First Union Corp................................. 251,700 13,922,156
Long Island Bancorp, Inc......................... 55,300 3,416,503
NationsBank Corp................................. 168,400 12,756,300
Washington Mutual, Inc........................... 73,100 5,169,541
-------------
39,149,706
-------------
FINANCIAL SERVICES (5.8%)
Associates First Capital Corp., Class A.......... 112,300 8,401,444
Citicorp(s)...................................... 57,200 8,529,950
Federal National Mortgage Association............ 270,400 16,190,200
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE U.S. EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
Providian Financial Corp......................... 92,000 $ 5,853,500
Travelers Group, Inc............................. 142,018 8,663,098
-------------
47,638,192
-------------
INSURANCE (3.3%)
Ambac Financial Group, Inc....................... 152,700 8,350,781
American International Group, Inc.(s)............ 26,200 3,243,887
Marsh & McLennan Companies, Inc.................. 92,000 8,055,750
UNUM Corp........................................ 141,100 7,839,869
-------------
27,490,287
-------------
REAL ESTATE INVESTMENT TRUSTS (2.0%)
Equity Office Properties Trust................... 27,200 747,987
Starwood Hotels & Resorts........................ 337,000 15,902,187
-------------
16,650,174
-------------
TOTAL FINANCE.................................. 130,928,359
-------------
HEALTHCARE (13.0%)
HEALTH SERVICES (4.3%)
Humana, Inc.+.................................... 306,400 9,517,550
Perkin-Elmer Corp................................ 160,900 11,021,650
United Healthcare Corp........................... 230,000 14,720,000
-------------
35,259,200
-------------
MEDICAL SUPPLIES (0.6%)
Bausch & Lomb, Inc............................... 101,000 5,031,062
-------------
PHARMACEUTICALS (8.1%)
Alza Corp.+...................................... 240,300 11,624,513
American Home Products Corp...................... 360,000 17,392,500
Bristol-Myers Squibb Co.......................... 199,700 21,467,750
Crescendo Pharmaceuticals Corp.+................. 11,895 150,174
Warner-Lambert Co................................ 259,800 16,578,488
-------------
67,213,425
-------------
TOTAL HEALTHCARE............................... 107,503,687
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (6.2%)
DIVERSIFIED MANUFACTURING (4.4%)
AlliedSignal, Inc................................ 276,600 $ 11,824,650
Cooper Industries, Inc........................... 171,100 11,014,563
Tyco International Ltd........................... 243,046 13,458,672
-------------
36,297,885
-------------
POLLUTION CONTROL (1.8%)
Waste Management, Inc............................ 452,900 14,719,250
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 51,017,135
-------------
TECHNOLOGY (13.3%)
AEROSPACE (2.3%)
Boeing Co........................................ 275,900 13,139,738
Coltec Industries, Inc.+......................... 264,025 5,891,058
-------------
19,030,796
-------------
COMPUTER PERIPHERALS (1.9%)
EMC Corp.+....................................... 388,500 16,098,469
-------------
COMPUTER SOFTWARE (2.3%)
Autodesk, Inc.................................... 109,000 4,639,313
Computer Associates International, Inc........... 140,400 7,371,000
Oracle Corp.+.................................... 289,700 6,835,109
-------------
18,845,422
-------------
COMPUTER SYSTEMS (3.3%)
International Business Machines Corp............. 120,000 14,085,000
Sun Microsystems, Inc.+.......................... 336,800 13,482,525
-------------
27,567,525
-------------
ELECTRONICS (2.8%)
Bay Networks, Inc.+.............................. 432,400 11,972,075
Cabletron Systems, Inc.+......................... 68,600 883,225
Cisco Systems, Inc.+............................. 71,000 5,362,719
Sensormatic Electronics Corp..................... 407,800 5,224,938
-------------
23,442,957
-------------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
SEMICONDUCTORS (0.4%)
General Semiconductor, Inc.+..................... 127,000 $ 1,714,500
Texas Instruments, Inc........................... 35,000 1,798,125
-------------
3,512,625
-------------
TELECOMMUNICATIONS-EQUIPMENT (0.3%)
Commscope, Inc.+................................. 171,633 2,660,312
-------------
TOTAL TECHNOLOGY............................... 111,158,106
-------------
TRANSPORTATION (1.9%)
RAILROADS (1.9%)
Union Pacific Corp............................... 319,900 15,475,163
-------------
UTILITIES (8.0%)
ELECTRIC (2.1%)
Central & South West Corp........................ 321,600 8,502,300
Northern States Power Co......................... 81,700 4,646,688
Texas Utilities Co............................... 103,500 4,088,250
-------------
17,237,238
-------------
GAS-PIPELINES (0.6%)
Columbia Energy Group(s)......................... 57,900 4,885,313
-------------
TELEPHONE (5.3%)
GTE Corp......................................... 272,500 15,890,156
SBC Communications, Inc.......................... 266,000 10,340,750
WorldCom, Inc.+.................................. 381,700 17,379,278
-------------
43,610,184
-------------
TOTAL UTILITIES................................ 65,732,735
-------------
TOTAL COMMON STOCKS (COST $628,795,186)........ 782,453,227
-------------
</TABLE>
<TABLE>
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (1.0%)
TRANSPORTATION (1.0%)
RAILROADS (1.0%)
Union Pacific Capital Trust, 6.25% due 04/01/28
(144A)
(cost $8,000,000)+............................. 160,000 7,960,000
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.8%)
REPURCHASE AGREEMENT (3.7%)
Goldman Sachs Repurchase Agreement 5.50% dated
05/29/98, due 06/01/98, proceeds $30,597,017
(collateralized by $30,687,386 various mortgage
notes, 5.24% - 7.36% due 11/10/98 - 11/21/16,
valued at $31,194,883). (cost $30,583,000)..... $ 30,583,000 $ 30,583,000
-------------
U.S. TREASURY OBLIGATIONS (0.1%)
U.S. Treasury Bill 4.85% due 07/09/98 (cost
$989,959)(s)................................... 995,000 989,959
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$31,572,959).................................. 31,572,959
-------------
TOTAL INVESTMENTS (COST $668,368,145) (99.4%)..................
821,986,186
OTHER ASSETS IN EXCESS OF LIABILITIES (0.6%)...................
5,317,538
-------------
NET ASSETS (100.0%)............................................ $ 827,303,724
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of securities of $670,450,134 for Federal Income Tax
purposes at May 31, 1998, the aggregate gross unrealized appreciation and
depreciation was $164,833,674 and $13,297,622, respectively, resulting in net
unrealized appreciation of $151,536,052.
+ - Non income producing security.
(s) - Security is fully segregated with custodian as collateral for futures
contracts or with broker as initial margin for futures contracts. Total market
value of securities segregated is $34,519,809.
144A - Securities restricted for resale to Qualified Institutional Buyers.
ADR - American Depositary Receipt.
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $668,368,145) $821,986,186
Cash 38
Receivable for Investments Sold 8,812,341
Dividends Receivable 1,431,378
Interest Receivable 14,017
Prepaid Trustees' Fees 2,807
Prepaid Expenses and Other Assets 3,849
------------
Total Assets 832,250,616
------------
LIABILITIES
Payable for Investments Purchased 4,445,086
Advisory Fee Payable 285,944
Variation Margin Payable 161,035
Custody Fee Payable 31,136
Administrative Services Fee Payable 20,740
Administration Fee Payable 1,564
Fund Services Fee Payable 769
Accrued Expenses 618
------------
Total Liabilities 4,946,892
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $827,303,724
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE U.S. EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $85,857 ) $ 12,070,213
Interest Income 1,003,198
------------
Investment Income 13,073,411
EXPENSES
Advisory Fee $3,534,791
Administrative Services Fee 265,956
Custodian Fees and Expenses 181,907
Professional Fees and Expenses 50,177
Fund Services Fee 30,613
Administration Fee 18,971
Printing Expenses 15,438
Trustees' Fees and Expenses 14,756
Insurance Expense 3,413
Miscellaneous 79
----------
Total Expenses 4,116,101
------------
NET INVESTMENT INCOME 8,957,310
NET REALIZED GAIN ON INVESTMENTS
(including $104,591 net realized gain from
futures contracts) 211,793,953
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS
(including $403,490 in unrealized
depreciation from futures contracts) (9,192,276)
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $211,558,987
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<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, 1998 MAY 31, 1997
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 8,957,310 $ 11,014,128
Net Realized Gain on Investments 211,793,953 114,253,160
Net Change in Unrealized Appreciation of
Investments (9,192,276) 54,102,181
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 211,558,987 179,369,469
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 171,037,121 205,179,647
Withdrawals (414,552,601) (244,500,948)
-------------- --------------
Net Decrease from Investors' Transactions (243,515,480) (39,321,301)
-------------- --------------
Total Increase (Decrease) in Net Assets (31,956,493) 140,048,168
NET ASSETS
Beginning of Fiscal Year 859,260,217 719,212,049
-------------- --------------
End of Fiscal Year $ 827,303,724 $ 859,260,217
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR ENDED MAY JULY 19, 1993
31, (COMMENCEMENT OF
------------------------------- OPERATIONS) THROUGH
1998 1997 1996 1995 MAY 31, 1994
------ ------ ----- ----- -------------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.47% 0.47% 0.46% 0.51% 0.53%(a)
Net Investment Income 1.01% 1.44% 2.20% 2.12% 1.79%(a)
Portfolio Turnover 106% 99% 85% 71% 76%+
</TABLE>
- ------------------------
(a) Annualized.
+ Portfolio turnover is for the twelve month period ended May 31, 1994, and
includes the portfolio activity of the Portfolio's predecessor entity, The
Pierpont Equity Fund, for the period June 1, 1993 to June 18, 1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The U.S. Equity Portfolio (the "portfolio") is registered under the Investment
Company Act of 1940, as amended, as a no-load, diversified, open-end management
investment company which was organized as a trust under the laws of the State of
New York. The portfolio commenced operations on July 19, 1993 and received a
contribution of certain assets and liabilities, including securities, with a
value of $209,477,219 on that date from The Pierpont Equity Fund in exchange for
a beneficial interest in the portfolio. At that date, net unrealized
appreciation of $12,039,552 was included in the contributed securities. On
October 31, 1993, the portfolio received a contribution of securities and
certain assets and liabilities, with a market value and cost of $128,337,342
from the JPM North America Fund, Ltd., in exchange for a beneficial interest in
the portfolio. The portfolio's investment objective is to provide a high total
return from a portfolio of selected equity securities. The Declaration of Trust
permits the trustees to issue an unlimited number of beneficial interests in the
portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the portfolio's trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
portfolio securities with a remaining maturity of less than 60 days are
valued by the amortized cost method.
b) The portfolio's custodian (or designated subcustodians, as the case may be
under tri-party repurchase agreements,) takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the
portfolio. It is the policy of the portfolio to value the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to the repurchase price plus
accrued interest. In the event of default of the obligation to repurchase,
the portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances,
in the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject
to legal proceedings.
c) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount becomes known. Interest
25
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
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) Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place is fixed when the
portfolio enters into the contract. Upon entering into such a contract,
the portfolio is required to pledge to the broker an amount of cash and/or
liquid securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the portfolio agrees to receive
from, or pay to, the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as "variation margin" and are recorded by the portfolio as unrealized
gains or losses. When the contract is closed, the portfolio records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time when it was
closed. The portfolio invests in futures contracts for the purpose of
hedging its existing portfolio securities, or securities the portfolio
intends to purchase, against fluctuations in value caused by changes in
prevailing market interest rates or securities movements. 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.
SUMMARY OF OPEN CONTRACTS AT MAY 31, 1998
<TABLE>
<CAPTION>
NET UNREALIZED CURRENT MARKET VALUE
CONTRACTS LONG (DEPRECIATION) OF FUTURES
-------------- -------------- --------------------
<S> <C> <C> <C>
S & P 500, expiring June 1998.................... 85 $ (269,088) $ 23,179,500
S & P 500, expiring September 1998............... 17 (134,402) 4,686,475
-------------- -------------- --------------------
Totals........................................... 102 $ (403,490) $ 27,865,975
-------------- -------------- --------------------
-------------- -------------- --------------------
</TABLE>
e) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code.
2. TRANSACTIONS WITH AFFILIATES
a) 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, 1998, such
fees amounted to $3,534,791.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
FDI provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the
26
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
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 $18,971.
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 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 $265,956.
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 $30,613 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 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
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 $6,400.
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>
$907,251,208...... $1,031,134,808
</TABLE>
27
<PAGE>
THE U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
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 $132,735,628 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 gain on
transfer of securities in the amount of $30,736,878, which is included in the
Net Realized Gain on Investments in the Statement of Operations.
28
<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, 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, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
July 17, 1998
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