[front cover]
J.P. Morgan
U.S. Small Company Fund
Semi-annual Report
November 30, 2000
LETTER TO THE SHAREHOLDERS
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January 8, 2001
Dear Shareholder,
The volatility experienced by small capitalization technology stocks rippled
through other equity sectors, and made the six months ended November 30, 2000 a
rough time to be a small cap stock investor. For the period, the J.P. Morgan
U.S. Small Company Fund had a total return of -5.87%.
The Fund's benchmark index, the Russell 2000 Index, and peer group, as
measured by the Lipper Small-Cap Core Funds Average, fared somewhat better. The
Fund's benchmark had a total return of -5.77% for the six months ended November
30, 2000, while the Fund's peer group had a total return of -2.98% for the same
time period.
The Fund's net asset value on November 30, 2000 was $25.50 per share,
decreasing from $27.10 per share at the start of the fiscal period. During the
period, the Fund made distributions of approximately $0.01 per share from
ordinary income. The Fund's net assets were approximately $282 million on
November 30, 2000, while the total net assets of The U.S. Small Company
Portfolio, in which the Fund invests, totaled $656 million.
This report includes an interview with Alexandra Wells, a member of the
Fund's portfolio management team. Alexandra discusses the U.S. small cap equity
market in detail, and explains the factors that influenced Fund performance
during the fiscal period. Alexandra also provides insight in regard to
positioning the Fund for the coming months.
As chairman and president of Asset Management Services, we thank you for
investing with J.P. Morgan. Should you have any comments or questions, please
telephone your Morgan representative, or J.P. Morgan Funds Services at
800-521-5411.
Sincerely yours,
/signature/ /signature/
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
TABLE OF CONTENTS
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Letter to the Shareholders 1
Fund Performance 2
Portfolio Manager Q&A 3
Fund Facts & Highlights 5
Financial Statements 6
1
FUND PERFORMANCE
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EXAMINING PERFORMANCE
One way is to review a fund's average annual total return. This calculation
takes the fund's actual return and shows what would have happened if the fund
had achieved that return by performing at a constant rate each year. Average
annual total returns represent the average yearly change of a fund's value over
various time periods, typically one, five, and ten years, (or since inception).
Total returns for periods of less than one year are not annualized and provide a
picture of how a fund has performed over the short-term.
PERFORMANCE
AVERAGE ANNUAL
TOTAL RETURNS TOTAL RETURNS
-------------------- ----------------------------------
SIX ONE THREE FIVE TEN
MONTHS YEAR YEARS YEARS YEARS
AS OF NOVEMBER 30, 2000
J.P. Morgan U.S. Small Company Fund (5.87)% (7.09)% 3.88% 10.83% 15.82%
Russell 2000 Index* (5.77)% (0.58)% 2.40% 9.08% 15.02%
Lipper Small-Cap Core Funds Average** (2.98)% 6.18% 4.78% 10.36% 14.69%
AS OF SEPTEMBER 30, 2000
J.P. Morgan U.S. Small Company Fund (4.47)% 39.23% 11.13% 16.46% 18.55%
Russell 2000 Index* (2.72)% 23.39% 5.96% 12.38% 16.93%
Lipper Small-Cap Core Funds Average** 0.04% 32.75% 7.04% 13.84% 15.62%
* The Russell 2000 is an unmanaged index used to measure the average stock
performance of U.S. small-cap stocks. It does not include fees or operating
expense and is not available for actual investments.
** Describes the average total return for all funds in the indicated Lipper
category, as defined by Lipper Ind., and does not take into account applicable
sales charges. Lipper Analytical Services, Inc. is a leading source for mutual
fund data.
Past performance is no guarantee of future results. Fund returns are net of
fees, assume the reinvestment of distributions.
2
PORTFOLIO MANAGER Q&A
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[photo of Alexandra Wells]
Following is an interview with ALEXANDRA WELLS, vice president and member of
the portfolio management team for The U.S. Small Company Portfolio. Alexandra
joined J.P. Morgan in 1992 as an analyst in the Equity Research Department and
became a portfolio manager with the Equity and Balanced Group in 1995. In 1997,
she transferred to J.P. Morgan Investment Management London, where she spent a
year as a portfolio manager responsible for U.S. equities. She joined Morgan's
Small Cap Equity Group in March of 1998. Alexandra holds a B.A. in English and
economics from Smith College, and an M.B.A. in finance from New York
University's Stern School of Business. This interview was conducted on December
15, 2000, and reflects Alexandra's views on that date.
WHAT DROVE MARKET PERFORMANCE DURING THE SIX MONTHS ENDED NOV. 30, 2000?
Three things, really. First, there was the tech correction that began in
March and has impacted performance up until today. Investors grew increasingly
concerned about the valuations of many Internet, technology and
telecommunications companies-- the same companies that helped drive the market
into record-setting positive territory last year and earlier this year. Some
high-profile earnings disappointments from several tech-related companies--
large and small--helped to pull prices down, and many investors abandoned these
stocks en masse. Along the way, the tech-dominated Nasdaq corrected sharply,
falling below 3,000, from a record high of over 5,000 reached just shortly
before.
This sell-off was one of our first tastes of the incredible volatility that
would last throughout this reporting period. The turmoil was largely focused on
tech-related sectors through the spring, summer and much of the fall. As this
reporting period drew to a close, however, volatility came to embrace almost
every sector of the stock market. Even the pharmaceutical and bio-tech sectors,
which had been safe havens for much of this year, experienced significant
volatility as this period closed. In the end, investors demonstrated that they
had no tolerance and no mercy for any company that faltered in any way.
Lastly, there was a significant rally in value stocks, at the expense of
their new economy counterparts. The magnitude of this shift in investor
sentiment could be seen in the contrasting performance of small cap growth and
small cap value stocks. Last year, small cap growth stocks were one of the best
places to invest in terms of overall returns. Year-to-date through November,
however, small cap value has outperformed small cap growth by over 30%.
WHAT ABOUT DEVELOPMENTS IN THE CAPITAL MARKETS, WHERE SPREADS BETWEEN CORPORATE
BONDS AND TREASURIES ARE AT OR NEAR AN ALL TIME HIGH? HOW HAS THIS AFFECTED THE
ABILITY OF SMALL COMPANIES TO RAISE GROWTH CAPITAL?
A tight credit market is not good for small companies in general, as any
increase in the cost of capital takes away from what can be a thin bottom line
in the early stages of their development. This is true whether the increase is
the result of higher borrowing costs in the capital markets, or from the
inability to sell stock in the equity markets at favorable prices. We witnessed
some of the side-effects during 2000, as many small companies, particularly in
the Internet space, had to merge with larger players to stay afloat, or close
their doors and exit the business altogether.
We take this into account when deciding which companies we want to own,
favoring those that have demonstrated the ability to fund the execution of their
business models until they are profitable.
WHICH COMPANIES DID YOU LIKE THE MOST OVER THIS REPORTING PERIOD?
Human Genome Sciences Inc (HGSI) was one of the top performers for the
period. This company is in the business of developing products that predict,
prevent, detect, treat and cure disease based on gene science. It benefited from
the favorable environment for drug development companies, at a time when its
pipeline looks promising. The company has several drugs in Phase II clinical
trials: Repifermin, a treatment for venous ulcers; MPIF, a drug that protects
bone marrow from chemotherapy; and BlyS,
3
PORTFOLIO MANAGER Q&A
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(Continued)
an engineered protein that is the body's primary weapon against infection.
During the period, HGSI also moved up on news that it would collaborate on key
projects with two major drug companies, Schering-Plough and SmithKline Beecham.
RenaissanceRe Holdings, which provides property catastrophe reinsurance,
contributed meaningfully to performance. We have held this stock for some time
and were rewarded over this period when it generated very positive financial
results. RenRe also benefited from highly positive coverage from the brokerage
community, as well as relatively good weather and fewer claims from
storm-related damage this year.
IDEC Pharmaceuticals was another winner. IDEC develops treatments for cancer
and auto-immune and inflammatory diseases. Pharmaceutical stocks as a group had
a good year in 2000, and IDEC performed well based on the strength of its drug
pipeline. One of the company's main drugs, Rituxan, is a treatment for
non-Hodgkin's lymphoma. Sales of Rituxan have been strong and have grown
steadily throughout the year. These strong sales led to positive financial
results and broker upgrades, which compounded the company's success during the
period.
WHICH STOCKS LAGGED OVER THE PAST SIX MONTHS?
One of the investments that detracted from performance was Turnstone
Systems. Turnstone provides loop management solutions that enable competitive
local exchange carries (CLECs) to offer and maintain digital subscriber line
(DSL) service. Unfortunately, CLECs have had a terrible time this year.
Increasing competition and decreasing price flexibility severely damaged many
CLECs during this period, and Turnstone suffered along with them. The stock
has been under fairly consistent downward pressure since July, and wasn't helped
by the company's recent announcement of lowered revenue estimates for the fourth
quarter. We anticipate increased demand for Touchstone's products in the future,
which should help the stock further out, but, for now, it has been a
disappointment.
Diamond Technology Partners also performed poorly. DTPI is a
management-consulting firm that develops digital strategies, which leverage
information technology for clients in various industries. Diamond's stock was
beaten down with other technology-related stocks over this period, despite
posting positive financial results, increasing its client base, and growing its
overseas business. It also suffered, I think, from the inability of investors
to fully understand and appreciate the potential of the business it's in.
Georgia Gulf Corp, a company that makes chemical and plastic products, was
another stock that performed below expectations. Over much of this period, GGC
suffered from higher raw materials prices and a decline in demand for PVC
plastics. As a result, its margins have been under pressure. When it recently
lowered earnings guidance for the third quarter, its stock price took a
significant hit.
LOOKING AHEAD TO THE PROSPECT OF SLOWER GROWTH IN U.S. ECONOMY, WHICH SMALL
COMPANY SECTORS ARE BEST POSITIONED TO PROSPER IN THIS ENVIRONMENT?
One way to look at it is to consider which sectors have done well this year,
one in which the economy has shown some signs of deceleration. Some of these
include utilities, paper stocks, restaurants, hospitals, and, until recently,
bio-tech.
As for next year, it is difficult to say, because there is no clear
direction in the market and high volatility is still very much in evidence. Some
of the best names this year, for example, names that did well even when other
stocks in their sectors did not, have recently begun to retreat. This said, we
will probably see investors stick to the somewhat less volatile, old economy
sectors until that goes too far and something happens to send the pendulum back
the other direction in favor of more aggressive growth-oriented stocks.
For our part, we are positioning the portfolio to benefit from an expected
soft landing for the U.S. economy. We feel that the market will continue to
broaden, and that success will come from many sectors of the economy, with
careful stock selection being the key to achieving excess returns. Here, we
feel we have a competitive advantage, because of the depth and proven
experience of our in-house research team.
4
FUND FACTS
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INVESTMENT OBJECTIVE
J.P. Morgan U.S. Small Company Fund seeks to provide a high total return
from a portfolio of equity securities of small companies. The Fund seeks to
outperform the Russell 2000 Index. It is designed for investors who are willing
to assume the somewhat higher risk of investing in small companies in order to
seek a higher total return over time than might be expected from a portfolio of
stocks of large companies.
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Inception Date: 6/27/1985
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Fund Net Assets as of 11/30/2000:
$282,284,506
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Portfolio Net Assets: $656,181,831
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Dividend Payable Dates
(if applicable): 12/20/2000, 6/22/2001
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Capital Gain Payable Dates
(if applicable): 12/20/2000, 12/21/2001
EXPENSE RATIOS
The Fund's current annualized expense ratio of 0.99% 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
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All data as of November 30, 2000
PORTFOLIO ALLOCATION
(As a percentage of total investment securities)
[data from pie chart]
Industrial Cyclical 20.9%
Software & Services 13.9%
Pharmaceuticals 9.3%
Short-Term Investments 8.2%
Finance 6.9%
Consumer Cyclical 5.4%
Energy 5.3%
Health Services & Systems 4.2%
Real Estate Investment Trusts 4.1%
Utilities 4.1%
Insurance 3.9%
Retail 3.5%
Consumer Services 2.8%
Semiconductors 2.7%
Consumer Stable 1.8%
Computer Hardware 1.2%
Capital Markets 1.0%
Telecommunications 0.8%
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
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Cleco Corp. 1.5%
Renaissancere Holdings Ltd. 1.3%
Allied Capital Corp. 1.2%
National-Oilwell, Inc. 1.2%
C.H. Robinson Worldwide, Inc. 1.2%
CMS Energy Corp. 1.2%
Internet Security Systems 1.2%
Mettler-Toledo International, Inc. 1.1%
Bank United Corp. 1.1%
SkyWest, Inc. 1.0%
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT INSURED BY THE FDIC,
ARE NOT BANK DEPOSITS OR OTHER OBLIGATIONS OF THE FINANCIAL INSTITUTION AND ARE
NOT GUARANTEED BY THE FINANCIAL INSTITUTION. SHARES OF THE FUND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
References to specific securities and their issuers are for illustrative
purposes only and are not intended to be, and should not be interpreted as,
recommendations to purchase or sell securities. Opinions expressed herein and
other Fund data presented are based on current market conditions and are
subject to change without notice. The Fund invests in foreign securities which
involve special risks including economic and political instability and currency
fluctuations; prospective investors should refer to Fund's prospectus for
discussion of these risks. The Fund invests through a master portfolio (another
Fund with the same objective). Historically, small-company stocks have been
more volatile than large-company stocks.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
5
J.P. MORGAN U.S. SMALL COMPANY FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
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NOVEMBER 30, 2000
ASSETS
Investment in The U.S. Small Company Portfolio
("Portfolio"), at value $282,457,087
Receivable for Shares of Beneficial Interest Sold 139,322
Prepaid Trustees' Fees and Expenses 772
Prepaid Expenses and Other Assets 485
----------------
TOTAL ASSETS 282,597,666
----------------
LIABILITIES
Payable for Shares of Beneficial Interest Redeemed 223,216
Shareholder Servicing Fee Payable 65,362
Administrative Services Fee Payable 6,202
Fund Services Fee Payable 215
Administration Fee Payable 118
Accrued Expenses and Other Liabilities 18,047
----------------
TOTAL LIABILITIES 313,160
----------------
NET ASSETS
Applicable to 11,070,868 Shares of Beneficial Interest
Outstanding (par value $0.001, unlimited shares authorized) $282,284,506
================
Net Asset Value, Offering and Redemption Price Per Share $25.50
================
ANALYSIS OF NET ASSETS
Paid-in Capital $261,138,924
Undistributed Net Investment Income 478,836
Accumulated Net Realized Gain on Investment 25,947,837
Net Unrealized Depreciation of Investment (5,281,091)
----------------
NET ASSETS $282,284,506
================
6 The Accompanying Notes are an Integral Part of the Financial Statements.
J.P. MORGAN U.S. SMALL COMPANY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
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FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000
INVESTMENT INCOME
INCOME
Allocated Investment Income from Portfolio $ 2,198,066
Allocated Portfolio Expenses (1,096,596)
-------------
Investment Income 1,101,470
-------------
FUND EXPENSES
Shareholder Servicing Fee 415,459
Administrative Services Fee 39,840
Transfer Agent Fees 26,773
Registration Fees 20,152
Financial and Fund Accounting Services Fee 15,041
Professional Fees 6,268
Printing Expenses 6,099
Line of Credit 5,550
Fund Services Fee 2,333
Trustees' Fees and Expenses 2,057
Administration Fee 1,760
Miscellaneous 7,311
-------------
Total Fund Expenses 548,643
-------------
NET INVESTMENT INCOME 552,827
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 11,208,011
-------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
ON INVESTMENT ALLOCATED FROM PORTFOLIO (32,051,730)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(20,290,892)
=============
The Accompanying Notes are an Integral Part of the Financial Statements. 7
J.P. MORGAN U.S. SMALL COMPANY FUND
STATEMENT OF CHANGES IN NET ASSETS
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FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 (UNAUDITED)
AND THE YEAR ENDED MAY 31, 2000
INCREASE (DECREASE) IN NET ASSETS NOVEMBER 30, 2000 MAY 31, 2000
FROM OPERATIONS
Net Investment Income $ 552,827 $ 123,495
Net Realized Gain on Investment Allocated from Portfolio 11,208,011 38,031,119
Net Change in Unrealized Appreciation (Depreciation)
of Investment Allocated from Portfolio (32,051,730) 6,948,030
------------------- -----------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (20,290,892) 45,102,644
------------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (106,402) (144,232)
------------------- -----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 101,178,628 208,965,703
Reinvestment of Distributions 91,807 118,944
Cost of Shares of Beneficial Interest Redeemed (83,160,686) (156,350,195)
------------------ ------------------
Net Increase from Transactions in
Shares of Beneficial Interest 18,109,749 52,734,452
------------------ ------------------
Total Increase (Decrease) in Net Assets (2,287,545) 97,692,864
------------------ ------------------
NET ASSETS
Beginning of Period 284,572,051 186,879,187
------------------ ------------------
End of Period $282,284,506 $284,572,051
================== ==================
Undistributed Net Investment Income $478,836 $32,411
================== ==================
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Shares of Beneficial Interest Sold 3,275,178 7,319,514
Shares of Beneficial Interest Reinvested 2,948 4,810
Shares of Beneficial Interest Redeemed (2,707,452) (5,502,051)
------------------ ------------------
Net Increase in Shares of Beneficial Interest 570,674 1,822,273
================== ==================
8 The Accompanying Notes are an Integral Part of the Financial Statements.
J.P. MORGAN U.S. SMALL COMPANY FUND
FINANCIAL HIGHLIGHTS
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SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD ARE AS FOLLOWS:
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED MAY 31
NOVEMBER 30, 2000 -------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
--------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $27.10 $21.54 $27.68 $26.04 $26.20 $22.02
--------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.00(a) 0.08 0.11 0.18 0.26
Net Realized and Unrealized
Gain(Loss) on Investment (1.64) 5.58 (3.30) 5.58 2.00 6.96
--------------------------------------------------------------------------
Total From Investment Operations (1.59) 5.58 (3.22) 5.69 2.18 7.22
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LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.01) (0.02) (0.08) (0.14) (0.21) (0.26)
Net Realized Gain - - (2.84) (3.91) (2.13) (2.78)
--------------------------------------------------------------------------
Total Distributions to Shareholders (0.01) (0.02) (2.92) (4.05) (2.34) (3.04)
--------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $25.50 $27.10 $21.54 $27.68 $26.04 $26.20
==========================================================================
RATIOS AND SUPPLEMENTAL DATA
Total Return (5.87)%(b) 25.90% (10.95)% 23.37% 9.49% 35.48%
Net Assets, End of Year (in thousands) $282,285 $284,572 $186,879 $261,804 $237,985 $220,917
Ratios to Average Net Assets
Net Expenses 0.99%(c) 1.00% 1.02% 0.97% 0.90% 0.90%
Net Investment Income 0.33%(c) 0.05% 0.34% 0.39% 0.71% 1.10%
Expenses without Reimbursement 0.99%(c) 1.00% 1.02% 1.03% 1.03% 1.03%
(a) Less than $0.005
(b) Not annualized
(c) Annualized
The Accompanying Notes are an Integral Part of the Financial Statements. 9
J.P. MORGAN U.S. SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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NOVEMBER 30, 2000
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1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--J.P. Morgan U.S. Small Company Fund (the "Fund"), is a
separate series of J.P. Morgan Funds, a Massachusetts business trust (the
"Trust") which was organized on November 4, 1992. The Trust is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund, prior to its tax-free reorganization on July 18,
1993 to a series of the Trust, operated as a stand-alone mutual fund. Costs
related to the reorganization were borne by Morgan Guaranty Trust Company of
New York ("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co., Inc.
("J.P. Morgan").
The Fund invests all of its investable assets in The U.S. Small Company
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 (approximately
43% at November 30, 2000). 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 in accordance with accounting
principles generally accepted in the United States of America 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:
SECURITY VALUATION--Valuation of securities by the Portfolio is discussed in
Note 1 of the Portfolio's Notes to Financial Statements that are included
elsewhere in this report.
INVESTMENT INCOME--The Fund earns income, net of expenses, daily on its
investment in the Portfolio. All net investment income, realized and unrealized
gains and losses of the Portfolio are allocated pro-rata among the Fund and
other investors in the Portfolio at the time of such determination.
EXPENSES--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.
INCOME TAX STATUS--It is the Fund's policy to distribute all net investment
income and net realized gains to shareholders and to otherwise qualify as a
regulated investment company under the provisions of the Internal Revenue Code.
Accordingly, no provision has been made for federal or state income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to a shareholder are recorded
on the ex-dividend date. Distributions from net investment income are declared
and paid semi-annually. Distributions from net realized gains, if any, are paid
annually.
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2. TRANSACTIONS WITH AFFILIATES
ADMINISTRATIVE SERVICES--The Trust 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 Fund. Under the
Services Agreement, the Trust 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 Trust and certain other
registered investment companies for which J.P. Morgan Investment Management,
Inc. ("JPMIM") acts as investment advisor 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 Funds Distributor, Inc. The
portion of this charge payable by the Fund is determined by the proportionate
share that its net assets bear to the net assets of the Trust and certain other
investment companies for which Morgan provides similar services.
ADMINISTRATION--The Trust has retained Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, to serve as the co-administrator and distributor for
the Fund. Under a Co-Administration Agreement between FDI and the Trust, FDI
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 FDI.
The Fund 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 portion
of this charge payable by the Fund is determined by the proportionate share that
its net assets bear to the net assets
10
J.P. MORGAN U.S. SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
NOVEMBER 30, 2000
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
of the Trust and certain other investment companies for which FDI provides
similar services.
SHAREHOLDER SERVICING--The Trust has a Shareholder Servicing Agreement with
Morgan under which Morgan provides account administration and personal account
maintenance service to Fund shareholders. The agreement provides for the Fund to
pay Morgan a fee for these services that is computed daily and paid monthly at
an annual rate of 0.25% of the average daily net assets of the Fund.
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 Schwab is terminated for reasons other than a breach by
Schwab and the relationship between the Trust and Morgan is terminated, the
Fund would be responsible for the ongoing payments to Schwab with respect to
pre-termination shares.
FUND SERVICES--The Trust has a Fund Services Agreement with Pierpont Group,
Inc. ("PGI") to assist the Trustees in exercising their overall supervisory
responsibilities for the Trust's affairs. The Trustees of the Trust represent
all the existing shareholders of PGI.
TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for
serving on the boards of the Trust, the J.P. Morgan Institutional Funds, and
other registered investment companies in which they invest. The Trustees' fees
and expenses shown in the financial statements represent the Fund's allocated
portion of the total Trustees' fees and expenses. The Trust's Chairman and
Chief Executive Officer also serves as Chairman of PGI and receives
compensation and employee benefits from PGI. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown on the
Statement of Operations was $400.
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3. BANK LOANS
The Fund may borrow money for temporary or emergency purposes, such as
funding shareholder redemptions. Effective May 23, 2000, the Fund, along with
certain other Funds managed by JPMIM, entered into a $150,000,000 bank line of
credit agreement with DeutscheBank. Borrowings under the agreement will bear
interest at approximate market rates. A commitment fee is charged at an annual
rate of 0.085% on the unused portion of the committed amount.
- --------------------------------------------------------------------------------
4. CONCENTRATIONS OF RISK
From time to time, the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund.
- --------------------------------------------------------------------------------
5. SUBSEQUENT EVENT
The merger of J.P. Morgan & Co. Incorporated, the former parent company of
the Fund's adviser, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and
into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P.
Morgan Chase & Co. will be the new parent company of JPMIM, which will
continue to serve as the Fund's adviser.
11
THE U.S. SMALL COMPANY PORTFOLIO
Semi-annual Report November 30, 2000
(The following pages should be read in conjunction with J.P. Morgan U.S. Small
Company Fund Semi-annual Financial Statements)
12
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOVEMBER 30, 2000
SHARES VALUE
- -------------------------------------------------------------------------------------------
COMMON STOCKS - 91.5%
CAPITAL MARKETS - 1.0%
SECURITIES & ASSET MANAGEMENT - 1.0%
77,400 American Capital Strategies $ 1,649,588
143,800 Espeed Inc.(+) 1,995,224
228,200 Ocwen Financial Corp.(+) 1,297,888
67,750 Southwest Securities Group 1,359,234
69,400 Web Street Inc.(+) 104,100
-------------------------------
6,406,034
-------------------------------
COMPUTER HARDWARE - 1.2%
COMPUTER HARDWARE & BUSINESS MACHINES - 1.2%
349,800 Lexar Media Inc.(+) 1,858,313
133,300 M-Systems Flash Disk Pioneers(+) 2,441,056
136,900 Optimal Robotics Corp.(+) 3,627,850
-------------------------------
7,927,219
-------------------------------
CONSUMER CYCLICAL - 5.4%
AIRLINES - 1.0%
114,500 SkyWest, Inc. 6,812,749
-------------------------------
APPAREL & TEXTILES - 1.6%
68,200 Coach, Inc.(+) 1,508,925
102,400 Vans, Inc.(+) 1,548,800
514,800 Wellman Incorporated 6,692,400
-------------------------------
9,750,125
-------------------------------
CONSUMER DURABLES - 0.3%
102,000 Stanley Furniture Co. Inc.(+) 2,237,625
-------------------------------
HOTELS - 1.3%
165,000 Anchor Gaming(+) 6,228,750
149,000 Boca Resorts Inc. Cl A(+) 2,281,563
-------------------------------
8,510,313
-------------------------------
MOTOR VEHICLES & PARTS - 1.0%
53,500 Borg-Warner Automotive, Inc. 1,959,438
93,000 Gentex Corp.(+) 1,615,875
147,000 Monaco Coach Corp.(+) 2,223,375
104,600 National R.V. Holdings, Inc.(+) 954,475
-------------------------------
6,753,163
-------------------------------
RESTAURANTS - 0.2%
35,100 California Pizza Kitchen Inc.(+) 1,066,163
-------------------------------
35,130,138
-------------------------------
CONSUMER SERVICES - 2.7%
ENTERTAINMENT - 0.2%
118,000 American Classic Voyages Co.(+) 1,548,750
-------------------------------
LEISURE - 1.9%
145,900 Concord Camera Corp.(+) 2,918,000
91,800 Penn National Gaming Inc.(+) 1,457,325
262,300 Station Casinos, Inc.(+) 4,885,337
152,100 WMS Industries Inc.(+) 2,671,256
-------------------------------
11,931,918
-------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------------------
MEDIA - 0.6%
159,400 HEARST-ARGYLE Television Inc.(+) $ 2,879,163
101,800 Insight Communications Co., Inc.(+) 1,342,488
-------------------------------
4,221,651
-------------------------------
17,702,319
-------------------------------
CONSUMER STABLE - 1.8%
FOOD & BEVERAGE - 0.9%
139,800 Keebler Foods Co. 5,758,013
-------------------------------
HOME PRODUCTS - 0.9%
156,400 Alberto-Culver Co. Cl B 5,728,150
-------------------------------
11,486,163
-------------------------------
ENERGY - 5.3%
ENERGY RESERVES & PRODUCTION - 2.2%
128,200 Abraxas Petroleum Corp.(+) 360,563
174,600 Newfield Exploration Co.(+) 6,372,899
63,500 Precise Software Solutions Ltd.(+) 1,738,313
161,100 Spinnaker Exploration Co.(+) 4,188,600
113,000 Westport Resources Corp.(+) 1,991,625
-------------------------------
14,652,000
-------------------------------
OIL SERVICES - 3.1%
127,200 Core Laboratories N.V.(+) 2,528,100
130,500 Global Industries, Ltd.(+) 1,321,313
89,100 Gulf Island Fabrication, Inc.(+) 1,414,463
507,100 McDermott International, Inc. 4,563,900
250,200 National-Oilwell, Inc.(+) 7,975,124
40,600 Smith International, Inc.(+) 2,357,338
-------------------------------
20,160,238
-------------------------------
34,812,238
-------------------------------
FINANCE - 6.9%
BANKS - 2.1%
119,400 City National Corp. 3,947,663
95,000 Hamilton Bancorp Inc.(+) 623,438
151,800 National Commerce Bancorporation 3,339,600
220,200 Net.B@nk, Inc.(+) 1,486,350
164,400 Pacific Century Financial Corp. 2,445,450
51,600 Westamerica Bancorporation 1,757,625
-------------------------------
13,600,126
-------------------------------
FINANCIAL SERVICES - 3.5%
398,800 Allied Capital Corp. 8,150,474
114,200 American Home Mortgage Holdings Inc.(+) 478,213
187,300 Doral Financial Corp. 3,535,288
256,100 Heller Financial, Inc. 6,770,643
151,900 Medallion Financial Corp. 1,784,825
48,000 MicroFinancial Inc. 504,000
275,700 NextCard Inc.(+) 2,291,756
-------------------------------
23,515,199
-------------------------------
The Accompanying Notes are an Integral Part of the Financial Statements. 13
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
NOVEMBER 30, 2000
SHARES VALUE
- -------------------------------------------------------------------------------------------
THRIFTS - 1.3%
120,200 Bank United Corp. $ 6,979,112
129,200 Waypoint Financial Corp.(+) 1,187,025
-------------------------------
8,166,137
-------------------------------
45,281,462
-------------------------------
HEALTH SERVICES & SYSTEMS - 4.2%
MEDICAL PRODUCTS & SUPPLIES - 1.6%
21,600 Ciphergen Biosystems Inc.(+) 237,600
146,700 Cyberonics, Inc.(+) 3,245,738
164,400 I-STAT Corp.(+) 3,061,950
59,800 Physiometrix, Inc.(+) 964,275
176,200 Staar Surgical Co.(+) 2,444,775
23,600 Wilson Greatbatch Technologies Inc.(+) 564,925
-------------------------------
10,519,263
-------------------------------
MEDICAL PROVIDERS & SERVICES - 2.6%
73,750 Accredo Health Inc.(+) 2,968,438
107,900 Charles River Laboratories(+) 2,306,363
95,300 Deltagen Inc.(+) 1,143,600
429,400 Hooper Holmes, Inc. 4,289,705
178,900 Omnicare, Inc. 2,929,488
113,900 Triad Hospitals Inc.(+) 3,402,762
-------------------------------
17,040,356
-------------------------------
27,559,619
-------------------------------
INDUSTRIAL CYCLICAL - 20.9%
CHEMICALS - 2.9%
216,400 Albemarle Corp. 4,774,324
308,060 GenTek Inc. 4,505,377
273,300 Georgia Gulf Corp. 3,399,169
108,300 Minerals Technologies Inc. 3,655,125
501,500 PolyOne Corp. 2,789,594
-------------------------------
19,123,589
-------------------------------
CONSTRUCTION & REAL PROPERTY - 0.7%
127,500 Catellus Development Corp.(+) 2,342,813
158,750 Elcor Corp. 2,182,813
-------------------------------
4,525,626
-------------------------------
DEFENSE/AEROSPACE - 0.3%
87,600 Ectel Ltd.(+) 996,450
62,600 Innovative Solutions(+) 829,450
-------------------------------
1,825,900
-------------------------------
ELECTRICAL EQUIPMENT - 5.1%
211,600 Advanced Fibre Communications, Inc.(+) 5,475,149
146,700 August Technology Corp.(+) 1,687,050
34,800 Bruker Daltronics Inc.(+) 630,750
201,900 C-Cube Microsystems Inc.(+) 3,053,738
35,100 Caliper Technologies Corp.(+) 1,555,369
86,500 DDi Corp.(+) 1,903,000
46,700 Ditech Communications Corp.(+) 732,606
39,600 L-3 Communications Holdings, Inc.(+) 2,559,150
201,100 Meade Corp.(+) 1,709,350
35,300 Millipore Corp. 1,584,088
SHARES VALUE
- -------------------------------------------------------------------------------------------
61,400 Molecular Devices Corp.(+) $ 3,000,925
108,100 Oplink Communications Inc.(+) 851,288
69,100 Polycom, Inc.(+) 2,336,444
88,900 Power-One Inc.(+) 3,761,581
61,100 Transgenomic, Inc.(+) 500,256
18,000 Ulticom Inc.(+) 569,250
81,900 Vyyo Inc.(+) 721,744
-------------------------------
32,631,738
-------------------------------
ENVIRONMENTAL SERVICES - 0.1%
22,900 Eden Bioscience Corp.(+) 798,638
-------------------------------
FOREST PRODUCTS & PAPER - 2.9%
48,200 Bowater Inc. 2,569,663
323,700 Buckeye Technologies Inc.(+) 4,086,713
325,800 Caraustar Industries Inc. 2,871,113
537,400 Pactiv Corp.(+) 6,280,862
229,900 Universal Forest Products 2,945,594
-------------------------------
18,753,945
-------------------------------
HEAVY ELECTRICAL EQUIPMENT - 0.2%
83,600 Active Power Inc.(+) 1,144,275
-------------------------------
INDUSTRIAL PARTS - 3.4%
59,500 Capstone Turbine Corp.(+) 1,100,750
77,200 Flowserve Corp.(+) 1,616,375
99,600 Idex Corp. 3,218,325
116,200 Kennametal Inc. 3,333,488
153,200 Mettler-Toledo International, Inc.(+) 7,190,824
93,600 Shaw Group Inc. (The)(+) 5,768,099
-------------------------------
22,227,861
-------------------------------
INDUSTRIAL SERVICES - 2.3%
102,000 Gatx Corp. 4,793,999
267,900 On Assignment Inc.(+) 6,714,243
43,900 Universal Compression Holdings Inc.(+) 1,443,213
218,400 Willis Lease Finance Corp.(+) 1,856,400
-------------------------------
14,807,855
-------------------------------
MINING & METALS - 1.2%
155,900 Mueller Industries, Inc.(+) 3,585,700
228,000 Valmont Industries, Inc. 4,189,500
-------------------------------
7,775,200
-------------------------------
TRUCKING & SHIPPING & AIR FREIGHT - 1.8%
139,900 C.H. Robinson Worldwide, Inc. 7,921,837
288,825 Werner Enterprises Inc. 4,079,653
-------------------------------
12,001,490
-------------------------------
135,616,117
-------------------------------
INSURANCE - 3.9%
LIFE & HEALTH INSURANCE - 2.1%
24,600 MIIX Group Inc. 164,513
117,200 Nationwide Financial Services Inc. 4,812,525
242,700 Protective Life Corp. 5,824,800
64,900 Stancorp Financial Group 2,806,925
-------------------------------
13,608,763
-------------------------------
14 The Accompanying Notes are an Integral Part of the Financial Statements.
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
NOVEMBER 30, 2000
SHARES VALUE
- -------------------------------------------------------------------------------------------
PROPERTY AND CASUALTY INSURANCE - 1.8%
97,400 Berkley (W.R.) Corp. $ 3,494,225
112,800 Renaissancere Holdings Ltd. 8,178,000
-------------------------------
11,672,225
-------------------------------
25,280,988
-------------------------------
PHARMACEUTICALS - 9.3%
DRUGS - 9.3%
30,100 3 Dimensional Pharmaceutical, Inc.(+) 387,538
84,000 Abgenix, Inc.(+) 4,100,250
39,800 Adolor Corp.(+) 825,228
224,800 Akorn Inc.(+) 1,067,800
30,600 Arena Pharmaceuticals, Inc.(+) 596,700
175,000 Bindley Western Industries Inc. 5,512,499
67,800 COR Therapeutics, Inc.(+) 2,402,663
59,400 Corixa Corp.(+) 1,859,963
40,600 Diversa Corp.(+) 786,625
26,200 Durect Corp.(+) 353,700
70,900 Enzon, Inc.(+) 3,957,106
37,900 Gilead Sciences, Inc.(+) 3,086,481
106,000 Human Genome Sciences, Inc.(+) 6,591,874
33,500 IDEC Pharmaceuticals Corp.(+) 5,831,093
41,900 Immunogen Inc.(+) 1,055,356
50,100 Inhale Therapeutic Systems Inc.Inc.(+) 1,928,850
371,000 Ligand Pharmaceuticals Inc. Cl B(+) 4,660,688
17,500 Maxygen Inc.(+) 528,281
71,300 MediChem Life Sciences, Inc.(+) 356,500
100,600 Neurocrine Biosciences Inc.(+) 2,923,688
22,000 OSI Pharmaceuticals, Inc.(+) 1,234,750
70,000 POZEN Inc.(+) 1,023,750
19,600 Priority Healthcare Corp. Cl B(+) 534,100
54,500 Trimeris Inc.(+) 3,726,438
94,000 Vertex Pharmaceuticals, Inc.(+) 5,252,250
-------------------------------
60,584,171
-------------------------------
REAL ESTATE INVESTMENT TRUSTS - 4.1%
REAL ESTATE INVESTMENT TRUST - 4.1%
67,700 Arden Realty Inc. 1,654,419
106,300 Centerpoint Properties Corp. 4,916,375
220,050 Cousins Properties Inc. 6,065,127
97,300 General Growth Properties, Inc. 3,198,738
121,100 Manufactured Home Communities, Inc. 3,072,913
165,000 Mission West Properties Inc. 2,145,000
173,700 Post Properties, Inc. 5,981,794
-------------------------------
27,034,366
-------------------------------
RETAIL - 3.5%
CLOTHING STORES - 1.5%
169,000 Abercrombie & Fitch Co. Cl A(+) 3,527,875
271,400 Pacific Sunwear of California, Inc.(+) 6,038,650
-------------------------------
9,566,525
-------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------------------
SPECIALTY STORES - 2.0%
48,300 BJ's Wholesale Club Inc.(+) $ 1,621,069
130,000 Cost Plus, Inc.(+) 3,477,500
284,900 Genesco Inc.(+) 6,071,931
113,300 School Specialty Inc.(+) 1,876,531
-------------------------------
13,047,031
-------------------------------
22,613,556
-------------------------------
SEMICONDUCTORS - 2.7%
SEMICONDUCTORS - 2.7%
43,600 Alliance Fiber Optics Products Inc.(+) 250,700
92,700 AXT, Inc.(+) 2,786,794
206,900 Exar Corp.(+) 5,198,362
11,700 Genesis Microchip Inc.(+) 105,483
124,700 hi/fn, inc.(+) 4,091,718
100,800 Integrated Circuit Systems, Inc.(+) 1,600,200
46,700 JNI Corp.(+) 1,868,000
15,500 Lattice Semiconductor Corp.(+) 257,688
5,000 Optical Communications Products, Inc.(+) 51,250
254,500 Silicon Image Inc.(+) 1,622,438
-------------------------------
17,832,633
-------------------------------
SOFTWARE & SERVICES - 13.7%
COMPUTER SOFTWARE - 7.5%
110,100 Agile Software Corp.(+) 5,080,082
144,300 CBT Group Public Ltd. Co. ADR(i)(+) 4,626,618
183,300 Certicom Corp.(+) 3,024,450
171,800 click2learn.com, Inc.(+) 1,771,688
93,500 Dendrite International, Inc.(+) 1,583,656
57,400 Eclipsys Corp. 1,281,690
15,200 Excalibur Technologies Corp.(+) 338,200
74,400 Informatica Corp.(+) 5,198,699
105,600 Internet Security Systems(+) 7,801,199
99,700 MetaSolv Software Inc.(+) 822,525
165,000 Peregrine Systems, Inc.(+) 2,681,250
26,000 Precise Software Solutions Ltd.(+) 728,000
91,800 Retek Inc.(+) 1,916,325
98,600 SeeBeyond Technology Corp.(+) 850,425
108,300 Synquest Inc.(+) 727,641
55,000 Telecommunication Systems Inc.(+) 457,188
129,100 U.S. Wireless Corp.(+) 661,638
69,100 Watchguard Tech Inc.(+) 1,572,025
113,200 Webtrends Corp.(+) 2,865,375
84,300 Wind River Systems, Inc.(+) 3,372,000
129,100 Witness Systems Inc.(+) 1,702,506
-------------------------------
49,063,180
-------------------------------
INFORMATION SERVICES - 3.2%
105,200 Corillian Corp.(+) 1,091,450
64,700 Costar Group Inc.(+) 1,443,619
165,500 Diamond Technology Partners Inc.(+) 5,233,937
137,100 eFunds Corp.(+) 1,156,781
28,300 Exelixis Inc.(+) 410,350
The Accompanying Notes are an Integral Part of the Financial Statements. 15
THE U.S. SMALL COMPANY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(Continued)
NOVEMBER 30, 2000
SHARES VALUE
- -------------------------------------------------------------------------------------------
110,900 Getty Images Inc.(+) $ 3,091,338
95,840 Obie Media Corp.(+) 527,120
29,600 SBA Communications Corp.(+) 1,102,600
205,400 Source Information Management Co.(+) 1,027,000
111,300 Symyx Technologies Inc.(+) 3,492,037
56,107 Valassis Communications, Inc.(+) 1,567,489
29,500 Wireless Facilities, Inc.(+) 942,156
-------------------------------
21,085,877
-------------------------------
INTERNET - 3.0%
412,700 Ameritrade Holding Corp. Cl A(+) 3,404,775
130,800 Apropos Technology, Inc.(+) 727,575
55,000 Clarent Corp.(+) 660,000
143,500 Digitalthink Inc.(+) 1,569,531
53,750 E.piphany, Inc.(+) 2,108,008
23,210 Inet Technologies Inc.(+) 719,510
45,700 internet.com Corp.(+) 337,038
15,400 Interwoven Inc.(+) 847,963
40,350 Netegrity Inc.(+) 1,863,666
32,200 Nuance Communications(+) 984,113
176,800 Saba Software, Inc.(+) 2,408,900
28,900 SafeNet, Inc.(+) 1,089,169
157,900 Tumbleweed Communications Corp.(+) 2,348,763
32,400 WorldGate Communications, Inc.(+) 228,825
-------------------------------
19,297,836
-------------------------------
89,446,893
-------------------------------
TELECOMMUNICATIONS - 0.8%
TELEPHONE - 0.7%
30,900 Advanced Switching Communications, Inc.(+) 137,119
48,550 Dycom Industries, Inc.(+) 1,814,556
236,700 FLAG Telecom Holdings Ltd.(+) 1,893,600
132,100 Turnstone Systems Inc.(+) 796,728
-------------------------------
4,642,003
-------------------------------
WIRELESS TELECOMMUNICATIONS - 0.1%
23,000 Boston Communications Group, Inc.(+) 468,625
5,400 TeleCorp PCS, Inc. Cl A(+) 101,925
-------------------------------
570,550
-------------------------------
5,212,553
-------------------------------
UTILITIES - 4.1%
ELECTRICAL UTILITY - 2.6%
203,700 Cleco Corp. 9,535,706
283,200 CMS Energy Corp. 7,876,500
-------------------------------
17,412,206
-------------------------------
GAS & WATER UTILITIES - 1.5%
194,700 Atmos Energy Corp. 4,891,838
114,800 Kinder Morgan, Inc. 4,757,025
-------------------------------
9,648,863
-------------------------------
27,061,069
-------------------------------
TOTAL COMMON STOCKS 596,987,538
-------------------------------
(Cost $598,455,473)
SHARES/PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 0.1%
SOFTWARE & SERVICES - 0.1%
COMPUTER SOFTWARE - 0.1%
$ 750,000 Peregrine Systems Inc., 144A, 5.50%,
11/15/07 $ 656,250
-------------------------------
(Cost $750,000)
CORPORATE BONDS - 0.1%
SOFTWARE & SERVICES - 0.1%
INTERNET - 0.1%
$ 1,322,000 Online Resources & Communications Corp.,
144A, 8.00%, 9/30/05 965,060
-------------------------------
(Cost $1,322,000)
PREFERRED STOCKS - 0.1%
CONSUMER SERVICES - 0.1%
LEISURE - 0.1%
25,900 Amcv Capital Trust I, 7.00%, 2/15/15 734,913
-------------------------------
(Cost $1,295,000)
SHORT-TERM INVESTMENTS - 8.2%
INVESTMENT COMPANIES - 8.2%
53,880,874 J.P. Morgan Institutional Prime
Money Market(a) 53,880,874
-------------------------------
(Cost $53,880,874)
TOTAL INVESTMENT SECURITIES - 100.0% $653,224,635
===============================
(Cost $655,703,347)
ADR - American Depositary Receipt
144A - Securities restricted for resale to Qualified Institutional Buyers
(a) Money Market mutual fund registered under the Investment Company Act
of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc.
(i) Foreign security
(+) Non-income producing
16 The Accompanying Notes are an Integral Part of the Financial Statements.
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- --------------------------------------------------------------------------------
NOVEMBER 30, 2000
ASSETS
Investments at Value (Cost $655,703,347) $653,224,635
Cash 4,685,200
Receivable for Investments Sold 8,675,757
Dividend and Interest Receivable 672,455
Prepaid Trustees' Fees and Expenses 541
Prepaid Expenses and Other Assets 1,288
-------------
TOTAL ASSETS 667,259,876
-------------
LIABILITIES
Payable for Investments Purchased 10,640,710
Advisory Fee Payable 364,007
Administrative Service Fees Payable 14,391
Administration Fee Payable 663
Fund Services Fee Payable 495
Accrued Expenses and Other Liabilities 57,779
-------------
TOTAL LIABILITIES 11,078,045
-------------
NET ASSETS
Applicable to Investors' Beneficial Interests $656,181,831
=============
The Accompanying Notes are an Integral Part of the Financial Statements. 17
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000
INVESTMENT INCOME
INCOME
Dividend Income (Net of Foreign Withholding Tax of $3,171) $ 2,983,298
Interest Income 1,973,421
Dividend Income from Affiliated Investments
(includes reimbursement of $49,085 from affiliate) 56,445
-------------
Investment Income 5,013,164
-------------
EXPENSES
Advisory Fee 2,274,480
Custodian Fees and Expenses 93,255
Administrative Services Fee 90,870
Professional Fee 21,810
Trustees' Fees and Expenses 5,437
Fund Services Fee 5,315
Printing Expenses 4,346
Administration Fee 2,303
Miscellaneous 916
-------------
Total Expenses 2,498,732
-------------
NET INVESTMENT INCOME 2,514,432
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN ON INVESTMENT TRANSACTIONS 25,184,443
-------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
ON INVESTMENT TRANSACTIONS (74,759,335)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(47,060,460)
=============
18 The Accompanying Notes are an Integral Part of the Financial Statements.
THE U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 (UNAUDITED)
AND THE YEAR ENDED MAY 31, 2000
INCREASE IN NET ASSETS NOVEMBER 30, 2000 MAY 31, 2000
FROM OPERATIONS
Net Investment Income $ 2,514,432 $ 2,575,881
Net Realized Gain on Investment Transactions 25,184,443 111,618,260
Net Change in Unrealized Appreciation
(Depreciation) on Investments (74,759,335) 19,782,827
------------------ -------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (47,060,460) 133,976,968
------------------ -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 182,852,222 302,615,546
Withdrawals (130,229,403) (317,840,027)
------------------ -------------------
Net Increase (Decrease) from Transactions in
Investors' Beneficial Interests 52,622,819 (15,224,481)
------------------ -------------------
Total Increase in Net Assets 5,562,359 118,752,487
------------------ -------------------
NET ASSETS
Beginning of Period 650,619,472 531,866,985
------------------ -------------------
End of Period $656,181,831 $650,619,472
================== ===================
SUPPLEMENTARY DATA
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED MAY 31
NOVEMBER 30, 2000 ----------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.66%(a) 0.66% 0.68% 0.68% 0.68% 0.67%
Net Investment Income 0.67%(a) 0.39% 0.67% 0.68% 0.92% 1.33%
Portfolio Turnover 57%(b) 104% 104% 96% 98% 93%
(a) Annualized
(b) Not annualized
The Accompanying Notes are an Integral Part of the Financial Statements. 19
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOVEMBER 30, 2000
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--The U.S. Small Company Portfolio (the "Portfolio") is
registered under the Investment Company Act of 1940, as amended, as 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. The Portfolio's investment objective is to provide a high total return
from a portfolio of small company stocks. The Declaration of Trust permits the
Trustees to issue an unlimited number of beneficial interests in the Portfolio
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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:
SECURITY VALUATIONS--Securities traded on principal securities exchanges are
valued at the last reported sales price, or mean of the latest bid and asked
prices when no last sales price is available. Securities traded
over-the-counter and certain foreign securities are valued at the quoted bid
price from a market maker or dealer. When valuations are not readily available,
securities are valued at fair value as determined in accordance with procedures
adopted by the Trustees. All short-term securities with a remaining maturity of
sixty days or less are valued using the amortized cost method.
SECURITY TRANSACTIONS--Security transactions are accounted for as of the
trade date. Realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is
recorded as of the ex-dividend date or as of the time that the relevant
ex-dividend and amount becomes known. Interest income is recorded on the accrual
basis and includes accretion of discounts and amortization of premiums.
INCOME TAX STATUS--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
ADVISORY--The Portfolio has an Investment Advisory Agreement with J.P.
Morgan Investment Management, Inc. ("JPMIM"), an affiliate of Morgan Guaranty
Trust Company of New York ("Morgan") and a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the agreement, the
Portfolio pays JPMIM at an annual rate of 0.60% of the Portfolio's average
daily net assets.
The Portfolio may invest in one or more affiliated money market funds: J.P.
Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax
Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund
and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed
to reimburse its advisory fee from the Portfolio in an amount to offset any
investment advisory, administrative fee and shareholder servicing fees related
to a Portfolio investment in an affiliated money market fund. The amount listed
on the Statement of Operations as Dividend Income from Affiliated Investments is
the amount the Fund earned.
ADMINISTRATIVE SERVICES--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 registered investment companies for which JPMIM acts as
investment advisor 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 Funds Distributor, Inc. 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 Trust and certain other investment
companies for which Morgan provides similar services.
ADMINISTRATION--The Portfolio has retained Funds Distributor, Inc. ("FDI"),
a registered broker-dealer, to serve as the co-administrator and distributor
for the Fund. Under a Co-Administration Agreement between FDI and the Portfolio,
FDI provides administrative services necessary
20
THE U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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(Continued)
NOVEMBER 30, 2000
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2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
for the operations of the Portfolio, furnishes office space and facilities
required for conducting the business of the Portfolio and pays the compensation
of the Portfolio's officers affiliated with FDI. The Portfolio has agreed to
pay FDI fees equal to its allocable share of an annual complex-wide charge of
$425,000 plus FDI's out-of-pocket expenses. The 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 Trust and certain other investment companies for
which FDI provides similar services.
FUND SERVICES--The Portfolio has a Fund Services Agreement with Pierpont
Group, Inc. ("PGI") 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 PGI.
TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for
serving on the boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, and other registered investment companies in which they
invest. The Trustees' fees and expenses shown in the financial statements
represent the Fund's allocated portion of the total Trustees' fees and
expenses. The Trust's Chairman and Chief Executive Officer also serves as
Chairman of PGI and receives compensation and employee benefits from PGI. The
allocated portion of such compensation and benefits included in the Fund
Services Fee shown on the Statement of Operations was $1,000.
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3. INVESTMENT TRANSACTIONS
During the six months ended November 30, 2000, the Portfolio purchased
$433,237,207 of investment securities and sold $392,112,267 of investment
securities other than U.S. government securities and short-term investments.
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4. CREDIT AGREEMENT
The Portfolio is party to a revolving line of credit agreement (the
"Agreement") as discussed more fully in Note 3 of the Fund's Notes to the
Financial Statements, which are included elsewhere in this report.
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5. SUBSEQUENT EVENT
The merger of J.P. Morgan & Co. Incorporated, the former parent company of
the Fund's adviser, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and
into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P.
Morgan Chase & Co. will be the new parent company of JPMIM, which will
continue to serve as the Fund's adviser.
21
NOTES
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22
NOTES
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23
NOTES
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24
[back cover]
J.P. MORGAN FUNDS
Federal Money Market Fund
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Prime Money Market Fund
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Emerging Market Debt Fund
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Tax Aware Enhanced Income Fund:
Select Shares
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Tax Exempt Money Market Fund
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Short Term Bond Fund
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Bond Fund
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Global Strategic Income Fund
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Tax Exempt Bond Fund
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California Bond Fund:
Select Shares
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New York Tax Exempt Bond Fund
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Diversified Fund
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Disciplined Equity Fund
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Tax Aware Small Company Opportunities Fund:
Select Shares
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Tax Aware U.S. Equity Fund:
Select Shares
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U.S. Equity Fund
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U.S. Small Company Fund
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U.S. Small Company Opportunities Fund
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Emerging Markets Equity Fund
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European Equity Fund
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Global 50 Fund: Select Shares
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Global Healthcare Fund:
Select Shares
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International Equity Fund
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International Opportunities Fund
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For more information on the J.P. Morgan
Funds, call J.P. Morgan Funds
Services at (800) 521-5411.
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Morgan Guaranty Trust Company MAILING
500 Stanton Christiana Road INFORMATION
Newark, Delaware 19713-2107
IN-SAN-24247 0101