<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM ADVISOR U.S. EQUITY FUND
July 15, 1996
Dear Shareholder:
Thank you for investing in The JPM Advisor U.S. Equity Fund. Let me take this
opportunity to welcome you to the JPM Advisor shareholder family and to express
the hope that you will wish to explore additional JPM Advisor Funds as a way to
conveniently diversify your investment portfolio and gain broad exposure to
financial opportunities in domestic and world markets.
In the months ahead, we will be sending you detailed reports on the Fund's
performance and its strategies as it pursues its investment objective -- which
is to provide a high total return from a portfolio of selected equity
securities. The first of these reports follows and covers the short period from
the Fund's February 5, 1996 commencement of operations to May 31, 1996. Going
forward, these reports will be provided to you on both a semi-annual and an
annual basis.
By way of introduction to the in-depth reporting we believe you deserve, we
offer and hope you will enjoy the Q&A that follows with William B. Petersen, a
member of the Fund's portfolio management team. It should be noted that this
interview pertains to The Selected U.S. Equity Portfolio, a separate investment
company in which the Fund invests all of its assets. Through its predecessor,*
the Portfolio has been in operation since June 27, 1985. The performance of the
Fund will be directly related to the performance of the Portfolio.
Going forward, please be assured that we will always welcome your comments and
questions, as well as any suggestions on how we can improve your financial
reports. Please call J.P. Morgan Funds Services, toll free, at (800) JPM-3637.
Sincerely yours,
/s/ Alistar Jessiman
Alistair Jessiman
J.P. Morgan Funds Services
*THE JPM ADVISOR U.S. EQUITY FUND'S RETURNS INCLUDE HISTORICAL RETURNS OF THE
PIERPONT EQUITY FUND PRIOR TO FEBRUARY 5, 1996.
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS........1 FUND FACTS AND HIGHLIGHTS.........7
FUND PERFORMANCE..................2 FINANCIAL STATEMENTS..............9
PORTFOLIO MANAGER Q&A.............3
- ------------------------------------------------------------------------------
1
<PAGE>
Fund performance
EXAMINING PERFORMANCE
One way to evaluate a mutual fund's historical performance is to look at the
growth of a hypo-thetical investment of $10,000. The chart at right shows
that $10,000 invested in the Fund's predecessor* on May 31, 1986 would have
grown to $35,825 at May 31, 1996.
A fund's average annual total return may also be reviewed. This figure
takes the fund's actual (or cumulative) return and shows what would have
happened if the fund had performed at a constant rate each year. Average
annual total returns represent the average yearly change of a fund's value
over various time periods. Total returns for periods of less than one year
are not annual-ized and picture the fund's short-term performance.
GROWTH OF $10,000 OVER 10 YEARS*
MAY 31, 1986 - MAY 31, 1996
[GRAPH]
Plot Point for Graph
U.S. Equity S&P 500 Index
JPM Advisor JPM Advisor
10,000.00 10,000.00
11,603.67 12,115.01
10,685.55 11,325.97
13,344.45 14,361.36
15,849.31 18,747.36
18,195.83 18,722.13
20,852.16 20,566.69
22,942.53 22,954.54
24,902.85 23,932.03
28,665.00 28,763.70
35,825.87 36,943.35
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNs AVERAGE ANNUAL TOTAL RETURNS
------------------------------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF MAY 31, 1996 MONTHS MONTHS YEAR YEARS YEARS YEARS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The JPM Advisor U.S. Equity Fund* 5.30% 12.27% 24.98% 16.02% 14.51% 13.61%
S&P 500 5.09% 11.79% 28.44% 17.19% 14.56% 13.96%
Morningstar Growth and
Income Fund Average 4.80% 10.97% 25.49% 14.57% 13.05% 11.39%
Lipper Equity Growth and
Income Fund Average 5.09% 11.06% 25.24% 14.64% 13.35% 11.88%
AS OF MARCH 31, 1996
- -----------------------------------------------------------------------------------------------
The JPM Advisor U.S. Equity Fund* 6.60% 11.54% 27.90% 14.80% 14.89% 13.69%
S&P 500 5.37% 11.71% 32.10% 15.71% 14.66% 13.96%
Morningstar Growth and
Income Fund Average 5.37% 10.58% 28.23% 13.32% 13.11% 11.31%
Lipper Equity Growth and
Income Fund Average 5.67% 10.33% 27.73% 13.51% 13.38% 11.79%
</TABLE>
*THE JPM ADVISOR U.S. EQUITY FUND'S RETURNS INCLUDE HISTORICAL RETURNS OF THE
PIERPONT EQUITY FUND PRIOR TO FEBRUARY 5, 1996.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ASSUME THE
REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF CERTAIN fUND AND
PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. MORNINGSTAR, INC. AND LIPPER
ANALYTICAL SERVICES, INC. ARE LEADING SOURCES FOR MUTUAL FUND DATA. ALTHOUGH
BENCHMARK RETURNS ARE GATHERED FROM RELIABLE SOURCES, DATA ACCURACY AND
COMPLETENESS CANNOT BE GUARANTEED. THE JPM ADVISOR U.S. EQUITY FUND INVESTS ALL
OF ITS INVESTABLE ASSETS IN THE SELECTED U.S. EQUITY PORTFOLIO, A SEPARATELY
REGISTERED INVESTMENT COMPANY WHICH IS NOT AVAILABLE TO THE PUBLIC BUT ONLY TO
OTHER COLLECTIVE INVESTMENT VEHICLES SUCH AS THE FUND.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTOGRAPH] Following is an interview with WILLIAM B. PETERSEN, who is a
member of the portfolio management team for The Selected U.S.
Equity Portfolio in which the Fund invests. Bill originally
joined Morgan in 1972 as a research analyst and joined the firm's
portfolio management team in 1977. This interview was conducted
on July 3, 1996 and reflects Bill's views on that date.
THE YEAR ENDED MAY 31, 1996 SAW U.S. STOCK PRICES CLIMB TO ALL-
TIME HIGHS, AS MEASURED BY THE S&P 500. IN YOUR VIEW, WHAT WERE
SOME OF THE KEY CONTRIBUTING FACTORS TO THIS MARKET UPSURGE?
WBP: We believe the factors that powered the market during the period under
review are pretty easy to outline.
- - First, you have an environment where interest rates were falling for much
of the year. More recently they've backed up, but for the year as a whole
they were generally flat to trending down.
- - Plus, earnings were very strong for the period, even though there has been
some concern lately about slight weakening in this area.
Anytime you put stable interest rates and rising earnings against a
backdrop of low inflation and a growing economy, chances are the result will be
higher stock prices -- and that's exactly what happened during the period we are
talking about.
WHICH MARKET SECTORS WERE ESPECIALLY REWARDING DURING THE YEAR AND HOW
SUCCESSFUL WAS THE PORTFOLIO IN CAPTURING THEIR ABOVE-AVERAGE PERFORMANCE?
WBP: The two sectors that were most rewarding in the Portfolio during the year
- -- one of them, perhaps, a little surprisingly -- were finance and basic
industry. The finance sector primarily includes stocks of banks, brokerage
firms, and insurance companies. The term "basic industry" describes cyclical
companies that produce chemicals, metals, and paper.
In absolute terms, our stock selections in the finance sector were up over 40%
for the year. This performance was also well above the returns provided by the
S&P finance sector.
Perhaps even more strikingly, but not quite as obvious, in an environment in
which the economy was growing but where a sense that it was slowing down was
pervasive, the Portfolio captured some really extraordinary returns in the basic
industry sector. This sector actually underperformed the market as a whole, as
represented by the S&P 500, as market participants began to believe that the
economy was slowing down. The Portfolio, meanwhile, had a 33% return in this
area, thanks to our success in stock selection, versus a return of 21% for the
underlying S&P 500 sector.
3
<PAGE>
WHERE DID WE SEE THE GREATEST DIVERGENCE FOR THE PERIOD BETWEEN PORTFOLIO AND
SECTOR RETURNS AND WHY DO YOU THINK THIS DIVERGENCE OCCURRED?
WBP: One sector particularly stands out as having been difficult for us during
the year -- health care, which is comprised of the drug and health care
management companies. The sector was very strong for the year, with the S&P
sector returning about 43%. The Portfolio only returned about 32% during the
year, which is fine in absolute terms but well behind the S&P.
Many of the stocks that did very well during the year were the large drug
companies, such as ELI LILLY, a stock recommended by our drug analyst, Art
Wichman. We owned many of these stocks at one point in the Portfolio but, when
our analysis deemed them expensive later on, we sold them in order to help
maintain our focus on fundamental value.
As you know, we believe that the information advantage derived from our in-
depth fundamental research gives us an edge in adding value through individual
stock selection rather than through aggressive sector weighting. That being the
case, our sale of the health care stocks I've just mentioned required that we
explore other health care stock opportunities in order to maintain a sector
neutral position. Two of the undervalued stocks we liked, both recommended by
analyst Jack Lafferty, were HUMANA, a health maintenance organization, as well
as BAUSCH & LOMB, which we had held in the Portfolio for some time. Both
stocks produced disappointing short-term earnings and held back the Portfolio's
overall returns for the period under review. We believe, however, that they
remain fundamentally attractive and expect that the market will recognize their
value -- however belatedly -- in the months ahead.
WE HAVE OFTEN TOLD FUND SHAREHOLDERS THAT THE KEY TO ADDING LONG-TERM VALUE IN
THIS PORTFOLIO IS MORGAN'S ABILITY TO IDENTIFY UNDERVALUED STOCKS. WHAT STOCKS
WOULD YOU POINT TO AS BEST ILLUSTRATING MORGAN'S EXPERTISE IN THIS AREA FOR THE
PERIOD UNDER REVIEW?
WBP: I think that two stocks really stand out. The first of these is a
relatively modest-sized energy company with $1 billion in sales, COOPER
CAMERON, which was spun out of Cooper Industries a year or so ago. The stock
was initially identified by analyst Arjun Narayanamurti. Spin-offs are often
undervalued by the marketplace because they've been buried in the large
companies and are not well understood. This one came to market cheaply, we
thought (and as it turned out), because at the time it was spun out, the company
was losing money and markets for drilling and compressors for gas pipelines were
depressed. As a result, the stock was spun out at a very low price and has
advanced more than 100% during the last year while its sector returned only 21%.
The company is now profitable and has become quite a favorite on Wall Street,
but we still regard it as inexpensive.
A larger name and one that helped us to outperform in the basic industry
sector was UNION CARBIDE. Again, a changing company. One where people have
recollections of it being a highly cyclical, low return company. But management
has done an exceptional job of improving the business mix and cutting costs
and we really think they've made a commitment to surfacing the value that exists
within Carbide. The stock had done well in the last year (up 50%) and the
Portfolio continues to hold a very large position in the stock since we think
it's very attractive.
4
<PAGE>
COULD YOU ALSO DISCUSS HOW YOU'VE TREATED STOCKS THAT WERE INITIALLY VIEWED BY
US AS UNDERVALUED AND THAT BECAME CHEAPER AS THE PORTFOLIO'S FISCAL YEAR WENT
ON?
WBP: Well, we did have some of those during the year. Normally, we will add to
the Portfolio's underperforming stocks, provided that we still have conviction
in their long-term prospects. A couple of the stocks that hurt the Portfolio's
overall returns during the last year were also those in which it had full
positions going into the fiscal year. The Portfolio continued to hold these and
they continued to disappoint -- Bausch & Lomb, which I mentioned earlier, is a
prime example of that.
Sometimes when a stock looks very depressed, you just have to rethink why you
own it and what the future is. One of the stocks that was a very disappointing
holding for the Portfolio, NOVELL in the technology sector, was sold by the
Portfolio during the year even though its price was well below what the
Portfolio originally paid for it. Our thinking behind this was that the computer
environment was changing and the Portfolio's money would be better invested
elsewhere.
THE PORTFOLIO PROVIDED ATTRACTIVE ABSOLUTE RETURNS FOR SHAREHOLDERS, BUT WAS
UNABLE TO OUTPACE ITS BENCHMARK OR COMPETITORS DURING THE PERIOD UNDER REVIEW.
HOW MUCH OF THAT RELATIVE UNDERPERFORMANCE DO YOU BELIEVE IS ATTRIBUTABLE TO THE
MOMENTUM-DRIVEN MARKET THAT WE SAW FOR MOST OF THE PERIOD AND THE CONCENTRATION
OF INVESTOR INTEREST IN THE 50 LARGEST STOCKS OF THE S&P 500?
WBP: The year just past was clearly a difficult environment for a diversified
relatively sector-neutral portfolio to do well in relation to a very strong
market because of the significant outperformance during most of the year by the
50 largest stocks in the S&P 500. However, I would not want to say that that was
the only reason why the Portfolio's performance somewhat lagged the Index.
With stocks being up a lot in the last five years, and in general not having
the traditional sort of valuation support like yield, book value, or asset
value, the market's been in a mood where when earnings are disappointing in the
short run, there's no safety net underneath stocks in terms of absolute
valuations. Given that we select stocks for the Portfolio based on their
fundamental value, we will be "out of sync" with a market that largely chooses
to ignore this selection criteria. We may still be able to post extremely
attractive absolute returns in such an environment. The point remains, however,
that when some of the stocks in the Portfolio decline in value because the
market is ignoring the long-term potential of undervalued stocks, it tends to
compromise the Portfolio's relative short-term performance -- especially in a
narrowly focused market.
THE MARKET SAW RELATIVELY LOW VOLATILITY DURING 1995, WHEN STOCK PRICES
ESSENTIALLY ENJOYED AN UNINTERRUPTED CLIMB. HOW DO YOU EXPLAIN THE YEAR-TO-DATE
PATTERN OF LARGE PRICE SWINGS AND WHAT EFFECT DO YOU THINK IT'S LIKELY TO HAVE
ON OVERALL PERFORMANCE GOING FORWARD?
WBP: One thing that's changed so far in calendar year 1996 is that interest
rates at the long end of the yield curve have risen unexpectedly from a little
under 6% to a high of a little over 7%. This raised the uncertainty a great deal
in the marketplace and pretty much stopped the rise in stock prices for a period
of time. Stock prices rose significantly during January and early February, then
stalled when interest rates
5
<PAGE>
backed up at the long end. Interestingly, stocks didn't really decline, in part
because the flow of new assets in mutual funds has been so incredible -- running
at a rate of something like $25 billion a month.
The market also seems to flip flop constantly on whether it believes that the
economy is too strong or too weak. That's the main reason why there has been a
lot of rotation within the market from the stable safe stocks, to the cyclicals,
back to the stable safe stocks. As in the small cap arena, we think that
speculation has also played an important role in the return of volatility to
large cap stocks.
FINALLY, HOW DO YOU EXPECT LARGE CAP STOCKS TO BEHAVE IN THE MONTHS AHEAD GIVEN
THE RECENT BACKUP IN THE U.S. BOND MARKET?
WBP: Based on our proprietary analysis, U.S. stocks now appear to be modestly
overvalued compared to what we consider to be fairly valued. The economy seems
to be showing signs of renewed strength now, but we expect a slowdown in the
second half, although not a recession. I'd therefore have to say that the
greatest risk facing the U.S. equity market is that the economy gets too strong.
And with unemployment running close to the level that concerns the Federal
Reserve, apart from the fear of accelerating inflation, the biggest fear of the
equity market is too strong growth and the Federal Reserve setting a tightening
cycle for shorter term rates. Such actions seem increasingly likely in the
coming months -- repeating with unemployment low, with capacity utilization low,
and with labor costs on the rise -- but we're not forecasting they will
happen at the present time. And if the economy settles down into modest growth,
we believe equities can still offer decent returns, despite stiff competition
from the bond market.
6
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The JPM Advisor U.S. Equity Fund seeks to provide a high total return from a
portfolio of selected equity securities. It is designed for investors who
want an actively managed portfolio of selected equity securities that seeks
to outperform the S&P 500 Index.
- ------------------------------------------
COMMENCEMENT OF OPERATIONS
2/5/96
- ------------------------------------------
NET ASSETS AS OF 5/31/96
$139,462
- ------------------------------------------
CAPITAL GAIN PAYABLE DATES
8/16/96 and 12/27/96
EXPENSE RATIO
The Fund's current annualized expense ratio of 1.21% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services after reimbursement. The Fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for
buying, selling, or safekeeping Fund shares, or for wiring redemption
proceeds from the Fund.
FUND HIGHLIGHTS
ALL DATA AS OF MAY 31, 1996
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[GRAPH]
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- --------------------------------------------------------
PHILIP MORRIS COMPANIES, INC. 2.7%
WAL-MART STORES, INC. 2.3%
COLUMBIA/HCA HEALTHCARE CORP. 2.1%
PROCTOR & GAMBLE CO. 2.1%
TELECOMMUNICATIONS TCI 2.0%
7
<PAGE>
SIGNATURE BROKER-DEALER SERVICES, INC. IS THE DISTRIBUTOR FOR THE JPM ADVISOR
U.S. EQUITY FUND (THE "FUND").
EFFECTIVE AUGUST 1, 1996, FUNDS DISTRIBUTOR, INC. WILL BECOME THE FUND'S
DISTRIBUTOR.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN") SERVES AS INVESTMENT
ADVISOR TO THE SELECTED U.S. EQUITY PORTFOLIO (THE "PORTFOLIO") AND MAKES THE
FUND AVAILABLE SOLELY IN ITS CAPACITY AS SERVICES AGENT FOR CUSTOMERS.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN OR ANY OTHER BANK. SHARES OF THE FUND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND CAN FLUCTUATE, SO AN INVESTOR'S SHARES WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
Performance data quoted herein represent past performance. Please remember that
past performance is not a guarantee of future performance. Fund returns are net
of fees, assume reinvestment of income, and reflect the reimbursement of certain
Fund expenses as described in the Prospectus. Had expenses not been subsidized,
returns would have been lower. The Fund invests all of its investable assets in
the Portfolio, a separately registered investment company which is not available
to the public but only to other collective investment vehicles such as the Fund.
Consistent with applicable regulatory guidance, performance for the Fund prior
to February 5, 1996 reflects the performance of The Pierpont Equity Fund, the
predecessor entity to the Portfolio, which had a substantially similar
investment objective and restrictions as the Fund. Performance for the period
prior to February 5, 1996 reflects deduction of the charges and expenses of The
Pierpont Equity Fund, which were lower than the charges and expenses of the
Fund.
FOR MORE COMPLETE INFORMATION ABOUT THE FUND AND THE OTHER JPM ADVISOR FUNDS,
INCLUDING MANAGEMENT FEES AND OTHER EXPENSES, PROSPECTIVE INVESTORS SHOULD REFER
TO THE PROSPECTUSES FOR THE FUNDS, WHICH SHOULD BE READ CAREFULLY BEFORE
INVESTING. YOU MAY OBTAIN ADDITIONAL COPIES OF THE PROSPECTUSES FOR THE FUNDS BY
CALLING THE J.P. MORGAN FUNDS SERVICES AT (800) JPM-3637.
8
<PAGE>
THE JPM ADVISOR U.S. EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Selected U.S. Equity Portfolio ("Portfolio"), at value $ 139,184
Deferred Organization Expenses 32,548
---------
Total Assets 171,732
---------
LIABILITIES
Organization Expenses Payable 32,157
Administration Fee Payable 1
Accrued Expenses 112
---------
Total Liabilities 32,270
---------
NET ASSETS
Applicable to 13,003 Shares of Beneficial Interest Outstanding
(par value $0.001, unlimited shares authorized) $ 139,462
---------
---------
Net Asset Value, Offering and Redemption Price Per Share $10.73
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $ 135,517
Undistributed Net Investment Income 277
Accumulated Net Realized Gain on Investment 408
Net Unrealized Appreciation of Investment 3,260
---------
Net Assets $ 139,462
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM ADVISOR U.S. EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 5, 1996 (COMMENCEMENT OF OPERATIONS) TO MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net of Foreign Withholding Tax of $7) $ 438
Allocated Interest Income 30
Allocated Portfolio Expenses (79)
---------
Net Investment Income Allocated from Portfolio 389
FUND EXPENSES
Professional Fees $ 13,292
Trustees' Fees and Expenses 9,975
Registration Fees 7,143
Printing Expenses 7,000
Transfer Agent Fees 5,762
Amortization of Organization Expense 2,228
Insurance Expense 1,177
Administration Fee 2
Miscellaneous 2,004
---------
Total Expenses 48,583
Less: Reimbursement of Expenses (48,471)
---------
NET FUND EXPENSES (112)
---------
NET INVESTMENT INCOME 277
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 447
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENT ALLOCATED FROM
PORTFOLIO 3,260
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,984
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM ADVISOR U.S. EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE PERIOD
FEBRUARY 5,
1996
(COMMENCEMENT
OF
OPERATIONS) TO
MAY 31, 1996
---------------
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 277
Net Realized Gain on Investment Allocated from Portfolio 447
Net Change in Unrealized Appreciation of Investment Allocated from
Portfolio 3,260
---------------
Net Increase in Net Assets Resulting from Operations 3,984
---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTERESTS
Proceeds from Shares of Beneficial Interest Sold 135,378
---------------
Total Increase in Net Assets 139,362
NET ASSETS
Beginning of Period 100
---------------
End of Period (including undistributed net investment income of $277) $ 139,462
---------------
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM ADVISOR U.S. EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the period is as follows:
<TABLE>
<CAPTION>
<S> <C>
FOR THE PERIOD
FEBRUARY 5,
1996
(COMMENCEMENT
OF OPERATIONS)
TO MAY 31, 1996
---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ $10.00
---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.02
Net Realized and Unrealized Gain on Investment 0.71
---------------
Total from Investment Operations 0.73
---------------
NET ASSET VALUE, END OF PERIOD $ $10.73
---------------
---------------
Total Return $ 7.30% +
---------------
---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in Thousands) $ 139
Ratios to Average Net Assets
Expenses 1.21%(a)
Net Investment Income 1.76%(a)
Decrease Reflected in Expense Ratio due to Expense Reimbursement by Morgan 1.29%(b)
</TABLE>
- ------------------------
+ Not annualized.
(a)Annualized.
(b)After consideration of certain state limitations
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE JPM ADVISOR U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Advisor U.S. Equity Fund (the "Fund") is a separate series of The JPM
Advisor Funds, a Massachusetts business trust (the "Trust"). The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund commenced operations on February 5,
1996.
The Fund invests all of its investable assets in The Selected U.S. Equity
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Fund. The value of such
investment included in the Statement of Assets and Liabilities reflects the
Fund's proportionate interest in the net assets of the Portfolio (less than 1%
at May 31, 1996). The performance of the Fund is directly affected by the
performance of the Portfolio. The financial statements of the Portfolio,
including the schedule of investments, are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements.
The preparation of financial statements 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 Fund:
a)Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b)The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Substantially all the Fund's net investment income is declared as
dividends and paid semi-annually. Distributions to shareholders of net
realized capital gain, if any, are declared and paid annually.
d)The Fund incurred organization expenses in the amount of $34,776. These
costs were deferred and will be amortized by the Fund on a straight-line
basis over a five-year period from the commencement of operations.
e)The Fund is treated as a separate entity for federal income tax purposes.
The Fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
f)The Fund has adopted Statement of Position 93-2 Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return
of Capital Distributions by Investment Companies. Accordingly, permanent
book and tax differences relating to shareholder distributions are
reclassified to and from paid-in capital. For the fiscal year ended May
31, 1996,
13
<PAGE>
THE JPM ADVISOR U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996
- --------------------------------------------------------------------------------
the Fund reclassified $39 from accumulated undistributed net realized gain
on investment to paid-in capital. Net investment income, net realized
gains and net assets were not affected by this change.
g)Expenses incurred by the Trust with respect to any two or more funds in
the Trust are allocated in proportion to the net assets of each fund in
the Trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
2. TRANSACTIONS WITH AFFILIATES
a)The Trust has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and distributor. Signature
provides administrative services necessary for the operations of the Fund,
furnishes office space and facilities required for conducting the business
of the Fund and pays the compensation of the Fund's officers affiliated
with Signature. The Administration Agreement provides for a fee to be paid
to Signature equal to the Fund'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 and the other
portfolios (the "Master Portfolios") in which the Trust, The Pierpont
Funds or The JPM Institutional 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 payable by the Fund is determined by the
proportionate share its net assets bear to the total of the Trust, The
Pierpont Funds, The JPM Institutional Funds and the Master Portfolios. For
the period from February 5, 1996 (commencement of operations) through May
31, 1996, Signature's fee for these services amounted to $2. Deferred
organization expenses include a $15,000 development fee payable to
Signature for the use of their portfolio and fund allocation system.
Effective August 1, 1996, administrative functions provided by Signature
will be provided by Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, and by Morgan Guaranty Trust Company of New York
("Morgan"). FDI will also become the Fund's distributor. Under a
Co-Administration Agreement between FDI and the Trust on behalf of the
Fund, FDI's fees payable by the Fund based on its allocable share of a
complex-wide fee will be subject to the expense limit provided by the
Services Agreement. (see Note 2b).
b)The Trust, on behalf of the Fund, has a Services Agreement with Morgan
under which Morgan receives a fee, based on the percentage described
below, for overseeing certain aspects of the administration, shareholder
servicing and operation of the Fund. The Services Agreement is also
designed to provide an expense limit for certain expenses of the Fund. If
total expenses of the Fund, excluding amortization of organization
expenses, exceed the expense limit of 0.69% of the Fund's average daily
net assets, Morgan will reimburse the Fund for the excess expense amount
and receive no fee. Should such expenses be less than the expense limit,
Morgan's fee would be limited to the difference between such expenses and
the fee calculated under the Services Agreement. For the period from
February 5, 1996 (commencement of operations) through May 31, 1996, Morgan
has agreed to reimburse the Fund $46,245 for excess expenses.
14
<PAGE>
THE JPM ADVISOR U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996
- --------------------------------------------------------------------------------
In addition to the expenses that Morgan assumes under the Services
Agreement, Morgan has agreed to reimburse the Fund to the extent necessary
to maintain the total operating expenses of the Fund, including the
expenses allocated to the Fund from the Portfolio, at no more than 1.21%
of the average daily net assets of the Fund through December 31, 1996. For
the period from February 5, 1996 (commencement of operations) through May
31, 1996, Morgan has agreed to reimburse the Fund $2,226 for expenses
which exceeded this limit. Morgan, Charles Schwab & Co. ("Schwab") and the
Trust are parties to separate services and operating agreements (the
'Schwab Agreements') whereby Schwab makes Fund shares available to
customers of investment advisors and other financial intermediaries who
are Schwab's clients. The Fund is not responsible for payments to Schwab
under the Schwab Agreements; however, in the event the Services Agreement
with the Trust is terminated, the Fund would be responsible for the
ongoing payments to Schwab.
c)An aggregate annual fee of $16,000 is paid to each Trustee for serving as
a Trustee of The Trust. The Trustees' Fees and Expenses shown in the
financial statements represents the Fund's allocated portion of the total
fees and expenses.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FEBRUARY 5
1996 (COMMENCEMENT OF OPERATIONS)
TO MAY 31, 1996
-----------------------------------
<S> <C>
Shares of beneficial interest sold 12,993
-------
Net increase 12,993
-------
-------
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The JPM Advisor U.S. Equity Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The JPM Advisor U.S. Equity Fund (one of the series constituting part of the JPM
Advisor Funds, hereafter referred to as the "Fund") at May 31, 1996, and the
results of its operations, the changes in its net assets and the financial
highlights for the period February 5, 1996 (commencement of operations) through
May 31, 1996, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
July 25, 1996
16
<PAGE>
The Selected U.S. Equity Portfolio
Annual Report May 31, 1996
(The following pages should be read in conjunction
with The JPM Advisor U.S. Equity Fund
Annual Financial Statements)
17
<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.
18
<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.
19
<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.
20
<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.
21
<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.
22
<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.
23
<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
24
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996
- --------------------------------------------------------------------------------
intends to purchase, against fluctuations in value caused by changes in
prevailing market 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.
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.
25
<PAGE>
THE SELECTED U.S. EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1996
- --------------------------------------------------------------------------------
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 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.
26
<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>
27
<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
28
<PAGE>
THE JPM ADVISOR U.S. FIXED INCOME FUND
THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND
THE JPM ADVISOR U.S. EQUITY FUND
THE JPM ADVISOR U.S. SMALL CAP EQUITY FUND
THE JPM ADVISOR INTERNATIONAL EQUITY FUND
THE JPM ADVISOR EUROPEAN EQUITY FUND
THE JPM ADVISOR JAPAN EQUITY FUND
THE JPM ADVISOR ASIA GROWTH FUND
THE JPM ADVISOR EMERGING MARKETS EQUITY FUND
FOR MORE INFORMATION ON THE JPM ADVISOR FAMILY OF FUNDS, CALL J.P. MORGAN FUNDS
SERVICES AT (800)JPM-3637.
THE
JPM ADVISOR
U.S. EQUITY
FUND
ANNUAL REPORT
MAY 31, 1996
