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As filed with the U.S. Securities and Exchange Commission on August 29, 1996
Registration Nos. __-_____ and ___-____
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
JPM SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 557-0700
John E. Pelletier
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to:
Stephen K. West, Esq.
Sullivan & Cromwell
125 Broad Street, New York, New York 10004
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration statement.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended, the
Registrant hereby elects to register an indefinite number of shares of
Registrant and any series thereof hereinafter created.
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JPM SERIES TRUST
CROSS-REFERENCE SHEET
(As Required by Rule 495)
PART A ITEM NO.: Prospectus Headings.
1. COVER PAGE: Cover Page.
2. SYNOPSIS: Shareholder and Fund Expenses.
3. CONDENSED FINANCIAL INFORMATION: Not applicable.
4. GENERAL DESCRIPTION OF REGISTRANT: Cover Page; Shareholder and Fund
Expenses; Investment Objective and Policies; Additional Investment
Practices and Risks; Organization; Appendix.
5. MANAGEMENT OF THE FUND: Management of the Fund; Shareholder Transactions;
Additional Information.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not applicable.
6. CAPITAL STOCK AND OTHER SECURITIES: Net Asset Value; Purchase of Shares;
Taxes; Dividends and Distributions; Organization.
7. PURCHASE OF SECURITIES BEING OFFERED: Purchase of Shares; Exchange of
Shares; Investors for Whom the Fund is Designed; Dividends and
Distributions; Net Asset Value.
8. REDEMPTION OR REPURCHASE: Redemption of Shares; Exchange of Shares; Net
Asset Value.
9. PENDING LEGAL PROCEEDINGS: Not applicable.
PART B ITEM NO.: Statement of Additional Information Headings.
10. COVER PAGE: Cover Page.
11. TABLE OF CONTENTS: Table of Contents.
12. GENERAL INFORMATION AND HISTORY: General.
13. INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and Policies;
Investment Restrictions; Appendices A and B.
14. MANAGEMENT OF THE FUND: Trustees and Officers.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Description of
Shares.
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16. INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisor; Distributor;
Co-Adminstrators; Services Agent; Custodian and Transfer Agent; Independent
Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Purchase of Shares; Redemption of Shares; Exchange of Shares.
20. TAX STATUS: Taxes.
21. UNDERWRITERS: Co-Administrator and Distributor.
22. CALCULATION OF PERFORMANCE DATA: Performance Data.
23. FINANCIAL STATEMENTS: Financial Statements.
PART C
Information required to be included in Part C is set forth under the
appropriately numbered items included in Part C of this registration statement.
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PROSPECTUS
JPM SERIES TRUST
THE PIERPONT TAX AWARE FUNDS
PIERPONT SHARES: TAX AWARE ACTIVE EQUITY FUND
PIERPONT SHARES: TAX AWARE RESEARCH ENHANCED INDEX FUND
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
FOR INFORMATION, CALL (800)521-5411
Tax Aware Active Equity Fund and Tax Aware Research Enhanced Index Fund (the
"Funds") each seek to provide high total return, while being sensitive to the
impact of income taxes on investors' returns. The Funds are designed for long-
term investors. Each Fund invests primarily in common stocks and other equity
securities of large and medium-sized U.S. companies.
The Funds are series of JPM Series Trust (the "Trust") and are advised by Morgan
Guaranty Trust Company of New York ("Morgan" or the "Advisor").
This Prospectus sets forth concisely the information about the Pierpont Shares
of each Fund that a prospective investor should know before investing and should
be retained for future reference. Additional information has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated November 1, 1996, as amended or supplemented from time to time. This
information is incorporated herein by reference and is available without charge
upon written request from the Funds' Distributor or by calling (800)221-7930.
The Funds' Distributor is Funds Distributor, Inc. ("FDI"), 60 State Street,
Suite 1300, Boston, Massachusetts 02109, Attention: The Tax Aware Funds.
PIERPONT SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. THE
VALUE OF AN INVESTMENT IN EITHER FUND MAY FLUCTUATE AND MAY, AT THE TIME IT IS
REDEEMED, BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1996
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TABLE OF CONTENTS
PAGE
Shareholder and Fund Expenses 3
Investment Objective and Policies 4
Additional Investment Practices and Risks 5
Management of the Funds 7
Net Asset Value 9
Purchase of Shares 9
Redemption of Shares 10
Dividends and Distributions 11
Taxes 11
Additional Information 12
Organization 13
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SHAREHOLDER AND FUND EXPENSES
PIERPONT PIERPONT SHARES
SHARES OF TAX OF TAX AWARE
AWARE ACTIVE RESEARCH ENHANCED
EQUITY FUND INDEX FUND
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases None None
Sales Charge Imposed on Reinvested
Distributions None None
Deferred Sales Load None None
Redemption Fees 2%-1% (1) 2%-1% (1)
Exchange Fee None None
EXPENSE TABLE
ANNUAL OPERATING EXPENSES (2)
Advisory Fees .45% .25%
Rule 12b-1 Fees None None
Other Expenses (after expense
reimbursement) .40.40..4040.40 .40% .30%
Total Operating Expenses (after
expense reimbursement) .85% .55%
(1) The redemption fee scales down from 2% for Pierpont Shares held less than
one year to 1% for Pierpont Shares held for one year or more.
(2) These expenses are based on the estimated expenses and estimated average net
assets for each Fund's first fiscal year, after any applicable expense
reimbursement. Without such expense reimbursement, the estimated Other Expenses
and Total Operating Expenses would be equal on an annual basis to .92% and 1.37%
of the average daily net assets of Tax Aware Active Equity Fund, respectively,
and .73% and .98% of Tax Aware Research Enhanced Index Fund, respectively.
EXAMPLE
An investor would pay the following expenses on a hypothetical $1,000
investment, assuming a 5% annual return and redemption at the end of each time
period. (However, each Fund's minimum initial investment is greater than
$1,000.)
PIERPONT PIERPONT SHARES
SHARES OF TAX OF TAX AWARE
AWARE ACTIVE RESEARCH ENHANCED
EQUITY FUND INDEX FUND
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1 Year $ 9 $ 6
3 Years $28 $18
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in
Pierpont Shares of each Fund bear. THE EXAMPLE IS INCLUDED SOLELY FOR
ILLUSTRATIVE PURPOSES AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
PERFORMANCE OR EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of Tax Aware Active Equity Fund (the "Active Fund") and
Tax Aware Research Enhanced Index Fund (the "Enhanced Fund") is to provide high
total return, while being sensitive to the impact of income taxes on investors'
returns. Each Fund invests primarily in common stocks of large and medium-sized
U.S. companies. The Active Fund's portfolio typically consists of between 70
and 100 stocks. The Enhanced Fund's portfolio typically consists of between 250
and 300 stocks.
WHO MAY BE A SUITABLE INVESTOR IN THE FUND. The Funds are designed for long-
term taxable investors who are interested in minimizing the receipt of taxable
distributions. The Funds are not suitable vehicles for short-term trading or
"market timing." The Funds may not be suitable for tax-deferred or tax-exempt
retirement or pension plans, including Individual Retirement Accounts (IRAs),
401(k) plans and 403(b) plans. Each Fund intends to pay redemption proceeds
exceeding certain amounts by an in-kind distribution of portfolio securities and
may not be suitable for investors desiring to receive only cash proceeds. See
"Redemption of Shares -- Redemption in Kind." Neither Fund is a complete
investment program and there is no assurance that a Fund will achieve its
investment objective.
PRIMARY INVESTMENTS. Each Fund is required, under normal market conditions, to
invest at least 65% of its total assets in equity securities. However, each
Fund intends, under normal market conditions and to the extent practicable, to
be fully invested in the common stocks and other equity securities of large and
medium-sized U.S. companies and, to a lesser extent, foreign companies. Equity
securities consist of exchange-traded, over-the-counter ("OTC") and unlisted
common and preferred stocks, warrants, rights, convertible securities, trust
certificates, limited partnership interests and equity participations.
HOW INVESTMENTS ARE SELECTED. Morgan uses fundamental analysis, systematic
stock valuation and a disciplined portfolio construction process to select
investments for the Funds' portfolios. Using a dividend discount model and
based on analysts' industry expertise, Morgan ranks companies within industrial
sectors according to their relative values. From those securities identified by
the model as undervalued, Morgan selects securities based on several criteria,
including the company's managerial strength, prospects for growth and
competitive position. The Active Fund generally invests in stocks ranked in the
top two quintiles. The Enhanced Fund generally invests in stocks ranked in the
top four quintiles. The Active Fund's industrial sector weightings may be
modestly overweighted or underweighted relative to the sector weightings in the
Standard & Poor's 500 Index. The Enhanced Fund's industrial sector weightings
(but not necessarily the individual securities in its portfolio) are expected,
under normal market conditions, to substantially match those of this Index.
TAX MANAGEMENT TECHNIQUES. The Funds use Morgan's proprietary tax sensitive
optimization model, which is designed to reduce, but not eliminate, the impact
of taxes on shareholders' after-tax total returns. Each Fund will try to
minimize the realization of net short-term and long-term capital gains by
matching securities sold at a gain with those sold at a loss to the extent
practicable. In addition, when selling a portfolio security, each Fund will
generally select the highest cost basis shares of the security to reduce the
amount of realized capital gains. Because the gain on securities that have been
held for more than one year is subject to a lower federal income tax rate, these
securities will generally be sold before securities held less than one year.
The Funds may adopt the "equalization accounting" technique for tax purposes,
which may enhance shareholders' after-tax return. Nevertheless, the use of
these tax management techniques
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will not necessarily reduce a Fund's portfolio turnover rate or prevent the
Funds from selling securities to the extent warranted by shareholder
transactions, actual or anticipated economic, market or issuer-specific
developments or other investment considerations.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
WARRANTS AND CONVERTIBLE SECURITIES. Warrants acquired by a Fund will entitle
it to buy common stock from the issuer at a specified price and time. Warrants
are subject to the same market risks as stocks, but may be more volatile in
price. A Fund's investment in warrants will not entitle it to receive dividends
or exercise voting rights and will become worthless if the warrants cannot be
profitably exercised before their expiration dates. Convertible debt securities
and preferred stock acquired by a Fund will entitle it to acquire the issuer's
stock by exchange or purchase. Convertible securities are subject both to the
credit and interest rate risks associated with fixed income securities and to
the stock market risk associated with equity securities.
RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid securities, including certain restricted and private
placement securities. It may be difficult to dispose of illiquid securities
quickly or at a price that fully reflects their fair value. Restricted
securities that are eligible for resale in reliance on Rule 144A under the
Securities Act of 1933 and that are determined to be liquid are not subject to
the Funds' 15% limit on illiquid investments.
MONEY MARKET INSTRUMENTS. Although the Funds intend, under normal circumstances
and to the extent practicable, to be fully invested in equity securities, the
Funds may invest in money market instruments in anticipation of future
investments or the settlement of portfolio trades, for liquidity purposes or as
a defensive measure during adverse market conditions. These money market
instruments include obligations issued or guaranteed by the U.S. Government or
any of its agencies and instrumentalities, commercial paper, bank obligations,
repurchase agreements and other debt obligations. If a repurchase agreement
counterparty defaults on its obligations, a Fund may, under some circumstances,
be limited or delayed in disposing of the repurchase agreement collateral to
recover its investment.
FOREIGN INVESTMENTS. Each Fund may invest up to 5% of its total assets at the
time of purchase in the equity securities of foreign companies that are included
in the S&P 500 Index or are listed on a U.S. stock exchange. These investments
may be in the form of American Depositary Receipts ("ADRs") or similar
securities representing interests in an underlying foreign security. ADRs are
not necessarily denominated in the same currency as the underlying foreign
securities. If an ADR is not sponsored by the issuer of the underlying foreign
security, the institution issuing the ADR may have reduced access to information
about the issuer.
Investments in foreign securities involve risks in addition to those associated
with investments in the securities of U.S. issuers. These risks include less
publicly-available financial and other information about foreign companies; less
rigorous securities regulation; the potential imposition of currency controls,
foreign withholding and other taxes; and war, expropriation or other adverse
governmental actions. Foreign equity markets may be less liquid than United
States markets and may be subject to delays in the settlement of portfolio
transactions. Brokerage commissions and other transaction costs in foreign
markets tend to be higher than in the United States. The value of foreign
securities denominated in a foreign currency will vary in accordance with
changes in currency exchange rates, which can be volatile.
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WHEN-ISSUED AND FORWARD COMMITMENT TRANSACTIONS. The Funds may purchase when-
issued securities and enter into other forward commitments to purchase or sell
securities. The value of securities purchased on a when-issued or forward
commitment basis may decline between the purchase date and the settlement date.
FUTURES AND OPTIONS TRANSACTIONS. Each Fund may enter into derivative contracts
to hedge against fluctuations in securities prices or as a substitute for the
purchase or sale of securities. These derivative contracts may include the
purchase or sale of futures contracts on securities or indices; options on
futures contracts; and options on securities or indices.
All of the Funds' transactions in derivative contracts involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices. A Fund
incurs liability to a counterparty in connection with transactions in futures
contracts and the writing of options. As a result, the loss on these derivative
contracts may exceed a Fund's initial investment. A Fund may also lose the
entire premium paid for purchased options that expire before they can be
profitably exercised by the Fund. In addition, the Funds incur transaction
costs in opening and closing positions in derivative contracts.
Derivative contracts may sometimes increase or leverage a Fund's exposure to a
particular market risk. Leverage magnifies the price volatility of derivative
contracts held by a Fund. A Fund may partially offset the leverage inherent in
derivative contracts by maintaining a segregated account consisting of cash and
liquid securities, by holding offsetting portfolio securities or contracts or by
covering written options.
A Fund's success in using derivative contracts to hedge portfolio assets depends
on the degree of price correlation between the derivative contract and the
hedged asset. Imperfect correlation may be caused by several factors, including
temporary price disparities among the trading markets for the derivative
contract, the assets underlying the derivative contract and the Fund's portfolio
assets.
During periods of extreme market volatility, a commodity or options exchange may
suspend or limit trading in an exchange-traded derivative contract, which may
make the contract temporarily illiquid and difficult to price. The staff of the
Securities and Exchange Commission ("SEC") takes the position that certain over-
the-counter options are subject to each Fund's 15% limit on illiquid
investments. The Funds' ability to terminate over-the-counter derivative
contracts may depend on the cooperation of the counterparties to such contracts.
For thinly traded derivative contracts, the only source of price quotations may
be the selling dealer or counterparty. In addition, derivative securities and
over-the-counter derivative contracts involve a risk that the issuer or
counterparty will fail to perform its contractual obligations.
PORTFOLIO SECURITIES LOANS. Each Fund may lend portfolio securities with a
value equal to one-third of its total assets. Each loan must be fully
collateralized by cash or other eligible assets. The Funds may pay reasonable
fees in connection with securities loans. The Advisor will evaluate the
creditworthiness of prospective institutional borrowers and monitor the adequacy
of the collateral to reduce the risk of default by borrowers.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. A Fund may (1) borrow money from
banks solely for temporary or emergency (but not for leverage) purposes and (2)
may enter into reverse repurchase agreements for any purpose. The aggregate
amount of such borrowings and reverse repurchase agreements may not exceed one-
third of either Fund's total assets. Using the cash
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proceeds of reverse repurchase agreements to finance the purchase of additional
investments is a form of leverage. Leverage magnifies the sensitivity of a
Fund's net asset value to changes in the market prices of the Fund's portfolio
securities.
INVESTMENT POLICIES AND RESTRICTIONS. Except as otherwise stated in this
Prospectus or the Funds' Statement of Additional Information, the Funds'
investment objectives, policies and restrictions are not fundamental and may be
changed without shareholder approval. Each Fund is diversified and therefore
may not, with respect to 75% of its total assets, (1) invest more than 5% of its
total assets in the securities of any one issuer, other than U.S. Government
securities, or (2) acquire more than 10% of the outstanding voting securities of
any one issuer. Neither Fund will concentrate (invest 25% or more of its total
assets) in the securities of issuers in any one industry.
MANAGEMENT OF THE FUNDS
TRUSTEES. The Funds are series of the Trust. The Trustees of the Trust decide
upon matters of general policy and review the actions of the Advisor and other
service providers. The Trustees of the Trust are identified below. An asterisk
indicates that a Trustee is an "interested person" of the Trust. The full Board
wil be elected to effectiveness of the Trust registration statement. Please see
the statement of additional information for information concerning the Trust's
initial trustees.
[ ] Nomura Professor of Finance,
Massachusetts Institute of Technology.
[ ] Retired. Consultant, Northrop Grumman
Corporation.
[ ] Retired. Consultant, J.P. Morgan.
[ ] Executive Vice President, Ford Motor
Company; President, Ford Financial
Services Group; Director, Ford Motor
Credit Company; and Director and
President, Ford Holdings, Inc.
[ ] Partner, Sullivan & Cromwell.
ADVISOR. Each Fund has retained the services of Morgan as investment advisor.
Morgan provides investment advice and portfolio management services to the
Funds. Subject to the supervision of the Trustees, Morgan makes the Funds' day-
to-day investment decisions, arranges for the execution of portfolio
transactions and generally manages the Funds' investments.
Morgan, with principal offices at 60 Wall Street, New York, NY 10260, is a New
York trust company that conducts a general banking and trust business. Morgan
is a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"),
a bank holding company organized under the laws of Delaware. Through offices in
New York City and abroad, J.P. Morgan, through the Advisor and other
subsidiaries, offers a wide range of services to governmental, institutional,
corporate and individual customers and acts as investment advisor to individual
and institutional clients with combined assets under management of over $178
billion (of which the Advisor advises over $29 billion).
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Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. For equity portfolios, this process utilizes fundamental
research, systematic stock selection and disciplined portfolio construction.
Morgan has managed portfolios of U.S. equity securities on behalf of its clients
for over 40 years. The portfolio managers making investments in U.S. equity
securities work in conjunction with Morgan's domestic equity analysts, as well
as capital market, credit and economic research analysts, traders and
administrative officers. The U.S. equity analysts each cover a different
industry, monitoring a universe of approximately 700 predominantly large and
medium sized U.S. companies.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's investment process for the Funds. The primary
portfolio manager for the Active Fund is _________________________, [Title]
(since ______________________, employed by Morgan as ________________ since
before _____). The primary portfolio manager for the Enhanced Fund is
_________________________, [Title] (since ______________________, employed by
Morgan as ________________ since before _____).
As compensation for the services rendered and related expenses borne by Morgan
under its investment advisory agreement with each Fund, the Active Fund and the
Enhanced Fund have each agreed to pay to Morgan a monthly fee at the annual rate
of 0.45% and 0.25%, respectively, of that Fund's average daily net assets.
CO-ADMINISTRATOR AND DISTRIBUTOR. Pursuant to Co-Administration Agreements with
the Trust, FDI serves as the Co-Administrator for the Fund. FDI (i) provides
office space, equipment and clerical personnel for maintaining the organization
and books and records of the Fund; (ii) provides officers for the Trust;
(iii) prepares and files documents required for the Fund's state securities law
registrations; (iv) reviews and files marketing and sales literature; (v) files
Fund and Fund regulatory documents and mails Fund communications to Trustees and
investors; and (vi) maintains related books and records. FDI, a wholly owned
indirect subsidiary of Boston Institutional Group, Inc., is a registered broker-
dealer and serves as the Fund's distributor.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust, Morgan provides administrative and related services to each
Fund, including services related to tax compliance, preparation of financial
statements, calculation of performance data, oversight of service providers and
certain regulatory and Board of Trustees matters.
Under the Co-Administration Agreements and the Administrative Services
Agreements, each Fund has agreed to pay Morgan and FDI fees equal to its
allocable share of an annual complex-wide charge. This charge is calculated
daily based on the aggregate net assets of the Funds, the other series of the
Trust and the portfolios (collectively the "Master Portfolios") in which series
of The Pierpont Funds, The JPM Institutional Funds or The JPM Advisor Funds
invest 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 Master Portfolios' average daily net assets in excess of $7 billion.
FUND SERVICES AGREEMENT. Pursuant to Fund Services Agreements with the Trust,
Pierpont Group, Inc. ("PGI"), 461 Fifth Avenue, New York, NY 10017, assists the
Trustees in exercising their overall supervisory responsibilities for the
affairs of the Trust. PGI provides these services to the Trustees at cost.
SHAREHOLDER SERVICING. Under a shareholder service agreement with the Trust,
Morgan, acting directly or through an agent, provides account administration and
personal and account maintenance services to Fund shareholders. These services
include assisting in the maintenance
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of accurate account records; processing orders to purchase and redeem shares of
a Fund; and responding to shareholder inquiries. Each Fund has agreed to pay
Morgan for these services at an annual rate of .25% of the average daily net
assets of the Fund.
CUSTODIAN AND TRANSFER AGENT. State Street Bank & Trust Company, 225 Franklin
Street, Boston, MA 02101, serves as the Funds' custodian and as their transfer
and dividend disbursing agent.
EXPENSES. Each Fund is responsible for all expenses not expressly assumed by
one of the service providers identified above. These include, among other
things, organization expenses, legal fees, audit and accounting expenses,
insurance costs, the compensation and expenses of the Trustees, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
registration fees under federal and state securities laws, transfer agent costs,
Investment Company Institute dues, brokerage commissions, interest, taxes and
extraordinary expenses (such as for litigation).
Morgan has agreed that it will reimburse each Fund through at least the date
listed below to the extent necessary to maintain the Fund's operating expenses
for Pierpont Shares at the following annual percentage of its average daily net
assets.
PIERPONT SHARES EXPENSE CAP THROUGH DATE
- --------------- ----------- ------------
Active Equity .85% October 31, 1997
Enhanced Equity .55% October 31, 1997
This expense reimbursement does not apply to taxes, interest, brokerage
commissions, litigation costs and other extraordinary expenses.
NET ASSET VALUE
Each Fund computes the net asset value per share ("NAV") of the Pierpont Shares
at the close of regular trading on the New York Stock Exchange (normally 4:00
p.m. New York time) on each weekday that is not a holiday listed in the
Statement of Additional Information (a "business day"). If the New York Stock
Exchange closes early, the time of computing NAV and the deadlines for
purchasing and redeeming shares will be accelerated to the early closing time.
The NAV of the Pierpont Shares is determined by subtracting from the value of
the Fund's total assets attributable to Pierpont Shares the amount of the
Pierpont Shares' liabilities and dividing the remainder by the number of
outstanding Pierpont Shares.
PURCHASE OF SHARES
PURCHASE ORDERS AND PAYMENTS. Pierpont Shares may be purchased at the NAV next
determined after receipt of an order, provided that immediately available funds
have been transmitted to the Distributor by the close of the next business day
after the order date. Investors may open accounts with a Fund only through the
Distributor. All purchase orders must be accepted by the Distributor. Purchase
orders received by the Fund before 4:00 p.m. New York time will be effected at
the NAV determined on that day. Purchase orders received by the Fund after 4:00
p.m. New York time will be effected at the NAV determined on the next business
day. [However, shares of the Fund will be issued only upon receipt of the
purchase payment.] Prospective investors may obtain assistance in placing
purchase orders (1) by contacting their client representatives at Morgan or at
an intermediary designated by the Distributor as an Eligible Institution or (2)
by calling J.P. Morgan Funds Services at (800) 521-5411.
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MINIMUM INVESTMENT REQUIREMENTS. Each Fund requires a minimum initial
investment of $100,000. The minimum subsequent investment for all investors is
$5,000. These minimum investment requirements may be waived for investors for
whom the Advisor is a fiduciary, who are employees of the Advisor or who
maintain related accounts with an affiliated investment company, The Pierpont
Funds, or with the Adviser or maintain investments in The Pierpont Funds (other
than the money market funds), if such accounts and/or investments total $500,000
or more.
For investment advisors, trust companies and financial advisors who make
investments for a group of clients, the minimum investment in each Fund is (1)
$100,000 per individual client or (2) $250,000 for an aggregated purchase order
for more than one client. The Funds may permit an investor who is investing for
a group of clients to attain the $250,000 minimum investment within a reasonable
period of time that will be no longer than 13 months after opening an account.
An employer-sponsored retirement plan opening an account in a Fund will be
required to attain a minimum balance of at least $250,000 within 13 months after
opening the account.
The Trust and the Distributor each reserves the right to reject any purchase
order or to suspend the offering of Pierpont Shares.
REDEMPTION OF SHARES
REDEMPTION ORDERS AND PAYMENTS. To redeem shares of a Fund, a shareholder may
instruct a client representative at Morgan or an Eligible Institution to submit
a redemption request to the Fund. Alternatively, a shareholder may redeem
shares directly by telephoning J.P. Morgan Funds Services at (800) 521-5411 and
giving to a shareholder service representative the shareholder's preassigned
personal identification number and the amount of the redemption.
A redemption request received by the Fund in proper form before 4:00 p.m. New
York time will be effected on that day at the NAV determined on that day. A
redemption request received after 4:00 p.m. New York time will be effected on
the next business day at the NAV determined on that day. The proceeds of any
redemption will be reduced by the applicable 2% or 1% redemption fee. The cash
proceeds of a redemption are generally deposited on the first business day after
the redemption date in immediately available funds to the shareholder's account
at Morgan or at the shareholder's Eligible Institution. For certain Morgan
customers, cash redemption proceeds are wire transferred or mailed by check in
accordance with the customers' instructions. With the exceptions described
below, all payments of redemption proceeds will be made within one business day
after the redemption date.
REDEMPTION FEE. A redemption fee will be imposed by and paid to each Fund on
the gross dollar amount of shares redeemed for cash in accordance with the
following schedule.
REDEMPTION FEE RATE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE GROSS REDEMPTION PROCEEDS
- -------------------- -------------------------
First 2.0%
Second and thereafter 1.0%
For federal income tax purposes, the redemption fee will reduce the amount
realized by the shareholder upon redemption of shares.
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<PAGE>
REDEMPTION IN KIND. Each Fund intends whenever feasible to pay redemption
proceeds by an in-kind distribution of portfolio securities to the extent that
the amount of the redemption exceeds, during any 90-day period, the lesser of
$250,000 or one percent of the Fund's net asset value. (Although entitled to
receive the first $250,000 of redemption proceeds in cash, a redeeming
shareholder may elect to have the entire amount of a redemption distributed in-
kind.) A Fund will select portfolio securities for in-kind redemptions in a
manner that is believed to be fair to both redeeming and non-redeeming
shareholders. For purposes of effecting in-kind redemptions, securities will
be valued in the manner regularly used to value a Fund's portfolio securities.
A shareholder who receives an in-kind distribution of redemption proceeds may
incur brokerage or other transaction costs in liquidating the distributed
securities. There is also a risk that the securities distributed in-kind may
decline in value before they can be sold by the redeeming shareholder. Although
an in-kind redemption will not cause a Fund to realize capital gains, redeeming
shareholders may realize taxable capital gains based on the difference between
the cost basis and redemption price of their shares. NO REDEMPTION FEE WILL BE
IMPOSED ON THE AMOUNT OF ANY SHARES REDEEMED IN-KIND.
OTHER REDEMPTION PROCESSING INFORMATION. Redemption requests may not be
processed if the redemption request is not submitted in proper form. A
redemption request is not in proper form unless the Fund has received the
shareholder's certified tax identification number and address. In addition, if
shares were paid for by check and the check has not yet cleared, redemption
proceeds will not be transmitted until the check has cleared, which may take up
to 15 days. Each Fund reserves the right to suspend the right of redemption or
postpone the payment of redemption proceeds to the extent permitted by the SEC.
Shareholders may realize taxable capital gains upon redeeming Pierpont Shares.
MANDATORY REDEMPTION. If a redemption of Pierpont Shares reduces the value of a
shareholder's account balance below the required initial minimum investment or
the value of a shareholder's account balance does not achieve the required
initial minimum investment within the prescribed time period, the Fund may
redeem the remaining shares in the account 60 days after providing written
notice to the shareholder of the mandatory redemption. An account will not be
subject to mandatory redemption if the shareholder purchases sufficient shares
during the 60 day period to increase the account balance to the required minimum
investment amount. NO REDEMPTION FEE WILL BE IMPOSED ON THE AMOUNT OF ANY
MANDATORY REDEMPTION.
DIVIDENDS AND DISTRIBUTIONS
Each Fund's net investment income and realized net capital gains, if any, will
be distributed at least annually. Dividends and distributions will be payable
to shareholders of record on the record date. If investors purchase Pierpont
Shares shortly before the record date of a dividend or distribution, they may be
subject to adverse tax consequences as described under "Taxes."
A Fund's dividends and distributions are paid in additional Pierpont Shares
unless the shareholder elects to have them paid in cash. The tax effects of
dividends and distributions are the same whether they are paid in shares or
cash. Cash dividends and distributions are either (1) credited to the
shareholder's account at Morgan or the shareholder's Eligible Institution or (2)
in the case of certain Morgan clients, are paid by a check mailed in accordance
with the clients' instructions.
TAXES
Each Fund is treated as a separate entity for tax purposes. Each Fund intends
to elect to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code. To qualify as such, each Fund must satisfy certain
requirements relating to the sources of its income,
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<PAGE>
diversification of its assets and distribution of its income to shareholders.
As a regulated investment company, each Fund will not be subject to federal
income or excise tax on any net investment income and net realized capital gains
that are distributed to shareholders in accordance with certain timing
requirements of the Code.
Dividends paid by a Fund from net investment income and the excess of short-term
capital gain over net long term capital loss will be taxable to its shareholders
as ordinary income. Distributions paid by a Fund from the excess of net long-
term capital gain over net short-term capital loss will be taxable as long-term
capital gains regardless of how long shareholders have held their shares. These
tax consequences will apply whether distributions are received in additional
shares or in cash. A Fund's dividends that are paid to its corporate
shareholders and are attributable to qualifying dividends received by the Fund
from U.S. domestic corporations may be eligible, in the hands of these corporate
shareholders, for the corporate dividends-received deduction, subject to certain
holding period requirements and debt financing limitations under the Code.
Shareholders will be informed annually about the amount and character, for
federal income tax purposes, of distributions received from the Funds.
The Funds are managed to minimize the amount of capital gains realized and
distributed during a particular year. Nevertheless, the realization of capital
gains may be affected by shareholder redemption transactions, economic, market
or issuer-specific developments or other investment considerations.
Investors should consider the adverse tax implications of buying shares
immediately before a distribution. Investors who purchase shares shortly before
the record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution even
though the distribution represents a return of a portion of the purchase price.
Redemptions of shares, whether for cash or in-kind, are taxable events on which
a shareholder may recognize a gain or loss. Individuals and certain other
shareholders may be subject to 31% backup withholding of federal income tax on
distributions and redemptions if they fail to furnish their correct taxpayer
identification number and certain certifications or if they are otherwise
subject to backup withholding.
In addition to federal taxes, a shareholder may be subject to state or local
taxes on income and gains derived with respect to shares in the Funds.
Shareholders are urged to consult their own tax advisors concerning specific
questions about federal, state and local taxes.
ADDITIONAL INFORMATION
SHAREHOLDER REPORTS AND CONFIRMATIONS. Each Fund sends to its shareholder
annual and semiannual reports. The financial statements appearing in annual
reports are audited by independent accountants. Shareholders will also be sent
confirmations of each transaction and monthly statements reflecting all account
activity.
TELEPHONE TRANSACTIONS. All shareholders are entitled to initiate redemptions
and other transactions by telephone. However, a transaction authorized by
telephone and reasonably believed by a Fund, Morgan, an Eligible Institution or
the Distributor to be genuine may result in a loss to the investor if the
transaction is not in fact genuine. The Funds will employ reasonable procedures
to confirm that investor instructions communicated by telephone are genuine.
These include requiring investors to give their personal identification numbers
and tape recording
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<PAGE>
telephone instructions. If these procedures are not followed, the Fund, Morgan,
the investor's Eligible Institution or the Distributor may be liable for any
losses resulting from unauthorized or fraudulent instructions.
PERFORMANCE ADVERTISING. Each Fund may advertise historical performance
information and compare its performance to other investments or relevant
indexes. An advertisement may also include data supplied by Lipper Analytical
Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson Associates and other
industry publications.
The Funds may advertise average annual total return and other forms of total
return data. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at NAV for specified
periods ending with the most recent calendar quarter. The total return
calculation assumes a complete redemption of the investment at the end of the
relevant period and reflects the deduction of any applicable redemption fee.
Each Fund may also advertise total return on a cumulative, average, year-by-year
or other basis for specified periods. The investment results of a Fund will
fluctuate over time and should not be considered a representation of the Fund's
performance in the future.
In addition, the Funds may advertise their yield. Yield reflects a Fund's rate
of income on portfolio investments as a percentage of its NAV. The yield on
Pierpont Shares is computed by annualizing the result of dividing the net
investment income per Pierpont Share over a 30 day period by the NAV on the last
day of that period. Yield is calculated by accounting methods that are
standardized for all stock and bond funds and differ from the methods used for
other accounting purposes. Therefore, the yield on Pierpont Shares may not
equal the income paid on these shares or the income reported in a Fund's
financial statements.
Performance information may be obtained by calling the Distributor at (800)221-
7930.
ORGANIZATION
The Trust was organized on August 15, 1996 as a Massachusetts business trust.
The Trust currently has three series of shares, including the Funds offered by
this Prospectus. The Trustees have authorized two classes of shares of each
Fund: (a) the Pierpont Shares offered by this Prospectus and (b) the JPM
Institutional Shares offered pursuant to a separate prospectus. The Pierpont
Shares and the JPM Institutional Shares are subject to different expenses, which
may affect the performance of each class. More information about the JPM
Institutional Shares may be obtained by calling (___) ___-____. The Trustees
reserve the right to authorize and issue additional series and classes of
shares.
Shareholders of each Fund are entitled to one full or fractional vote for each
dollar or fraction of a dollar invested in Pierpont Shares. There is no
cumulative voting and shares have no preemption or conversion rights. The Trust
does not intend to hold meetings of shareholders annually. The Trustees will
call special meetings of shareholders to the extent required by the Trust's
Declaration of Trust or the Investment Company Act of 1940 (the "1940 Act").
The 1940 Act requires the Trustees, under certain circumstances, to call a
meeting to allow shareholders to vote on the removal of a Trustee and to assist
shareholders in communicating with each other.
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<PAGE>
JPM SERIES TRUST
THE PIERPONT TAX AWARE FUNDS
PIERPONT: TAX AWARE ACTIVE EQUITY FUND
PIERPONT: TAX AWARE ENHANCED EQUITY FUND
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
PROSPECTUS
NOVEMBER 1, 1996
-14-
<PAGE>
PROSPECTUS
JPM SERIES TRUST
THE INSTITUTIONAL TAX AWARE FUNDS
JPM INSTITUTIONAL SHARES: TAX AWARE ACTIVE EQUITY FUND
JPM INSTITUTIONAL SHARES: TAX AWARE RESEARCH ENHANCED INDEX FUND
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
FOR INFORMATION, CALL (800)521-5411
Tax Aware Active Equity Fund and Tax Aware Research Enhanced Index Fund (the
"Funds") each seek to provide high total return, while being sensitive to the
impact of income taxes on investors' returns. The Funds are designed for long-
term investors. Each Fund invests primarily in common stocks and other equity
securities of large and medium-sized U.S. companies.
The Funds are series of JPM Series Trust (the "Trust") and are advised by Morgan
Guaranty Trust Company of New York ("Morgan" or the "Advisor").
This Prospectus sets forth concisely the information about the JPM Institutional
Shares of each Fund that a prospective investor should know before investing and
should be retained for future reference. Additional information has been filed
with the Securities and Exchange Commission in a Statement of Additional
Information dated November 1, 1996, as amended or supplemented from time to
time. This information is incorporated herein by reference and is available
without charge upon written request from the Funds' Distributor or by calling
(800)221-7930. The Funds' Distributor is Funds Distributor, Inc. ("FDI"), 60
State Street, Suite 1300, Boston, Massachusetts 02109, Attention: The Tax Aware
Funds.
JPM INSTITUTIONAL SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY
OTHER BANK. SHARES OF THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. THE VALUE OF AN INVESTMENT IN EITHER FUND MAY FLUCTUATE AND MAY, AT THE
TIME IT IS REDEEMED, BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Shareholder and Fund Expenses 3
Investment Objective and Policies 4
Additional Investment Practices and Risks 5
Management of the Funds 7
Net Asset Value 9
Purchase of Shares 9
Redemption of Shares 10
Dividends and Distributions 11
Taxes 11
Additional Information 12
Organization 13
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<PAGE>
SHAREHOLDER AND FUND EXPENSES
JPM INSTITUTIONAL JPM INSTITUTIONAL
SHARES OF TAX SHARES OF TAX AWARE
AWARE ACTIVE RESEARCH ENHANCED
EQUITY FUND INDEX FUND
----------------- -------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on
Purchases None None
Sales Charge Imposed on
Reinvested Distributions None None
Deferred Sales Load None None
Redemption Fees 2%-1%(1) 2%-1%(1)
Exchange Fee None None
EXPENSE TABLE
ANNUAL OPERATING EXPENSES(2)
Advisory Fees .45% .25%
Rule 12b-1 Fees None None
Other Expenses (after expense
reimbursement) .20220.40 .20% .20%
Total Operating Expenses (after
expense reimbursement) .65% .45%
(1) The redemption fee scales down from 2% for JPM Institutional Shares held
less than one year to 1% for JPM Institutional Shares held for one year or
more.
(2) These expenses are based on the estimated expenses and estimated average
net assets for each Fund's first fiscal year, after any applicable expense
reimbursement. Without such expense reimbursement, the estimated Other Expenses
and Total Operating Expenses would be equal on an annual basis to .77% and 1.22%
of the average daily net assets of Tax Aware Active Equity Fund, respectively,
and .58% and .83% of Tax Aware Research Enhanced Index Fund, respectively.
EXAMPLE
An investor would pay the following expenses on a hypothetical $1,000
investment, assuming a 5% annual return and redemption at the end of each time
period. (However, each Fund's minimum initial investment is greater than
$1,000.) [NOTE: INCLUDE THE REDEMPTION FEE IN COMPUTING EXPENSES FOR THE
EXAMPLE.]
JPM INSTITUTIONAL JPM INSTITUTIONAL
SHARES OF TAX SHARES OF TAX AWARE
AWARE ACTIVE RESEARCH ENHANCED
EQUITY FUND INDEX FUND
----------------- -------------------
1 Year $ 7 $ 5
3 Years $22 $15
The above expense table is designed to assist investors in understanding
the various estimated direct and indirect costs and expenses that investors in
JPM Institutional Shares of each Fund bear. THE EXAMPLE IS INCLUDED SOLELY FOR
ILLUSTRATIVE PURPOSES AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
PERFORMANCE OR EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
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<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of Tax Aware Active Equity Fund (the "Active Fund") and
Tax Aware Research Enhanced Index Fund (the "Enhanced Fund") is to provide high
total return, while being sensitive to the impact of income taxes on investors'
returns. Each Fund invests primarily in common stocks of large and medium-sized
U.S. companies. The Active Fund's portfolio typically consists of between 70
and 100 stocks. The Enhanced Fund's portfolio typically consists of between 250
and 300 stocks.
WHO MAY BE A SUITABLE INVESTOR IN THE FUND. The Funds are designed for long-
term taxable investors who are interested in minimizing the receipt of taxable
distributions. The Funds are not suitable vehicles for short-term trading or
"market timing." The Funds may not be suitable for tax-deferred or tax-exempt
retirement or pension plans, including Individual Retirement Accounts (IRAs),
401(k) plans and 403(b) plans. Each Fund intends to pay redemption proceeds
exceeding certain amounts by an in-kind distribution of portfolio securities and
may not be suitable for investors desiring to receive only cash proceeds. See
"Redemption of Shares -- Redemption in Kind." Neither Fund is a complete
investment program and there is no assurance that a Fund will achieve its
investment objective.
PRIMARY INVESTMENTS. Each Fund is required, under normal market conditions, to
invest at least 65% of its total assets in equity securities. However, each
Fund intends, under normal market conditions and to the extent practicable, to
be fully invested in the common stocks and other equity securities of large and
medium-sized U.S. companies and, to a lesser extent, foreign companies. Equity
securities consist of exchange-traded, over-the-counter ("OTC") and unlisted
common and preferred stocks, warrants, rights, convertible securities, trust
certificates, limited partnership interests and equity participations.
HOW INVESTMENTS ARE SELECTED. Morgan uses fundamental analysis, systematic
stock valuation and a disciplined portfolio construction process to select
investments for the Funds' portfolios. Using a dividend discount model and
based on analysts' industry expertise, Morgan ranks companies within industrial
sectors according to their relative values. From those securities identified by
the model as undervalued, Morgan selects securities based on several criteria,
including the company's managerial strength, prospects for growth and
competitive position. The Active Fund generally invests in stocks ranked in the
top two quintiles. The Enhanced Fund generally invests in stocks ranked in the
top four quintiles. The Active Fund's industrial sector weightings may be
modestly overweighted or underweighted relative to the sector weightings in the
Standard & Poor's 500 Index. The Enhanced Fund's industrial sector weightings
(but not necessarily the individual securities in its portfolio) are expected,
under normal market conditions, to substantially match those of this Index.
TAX MANAGEMENT TECHNIQUES. The Funds use Morgan's proprietary tax sensitive
optimization model, which is designed to reduce, but not eliminate, the impact
of taxes on shareholders' after-tax total returns. Each Fund will try to
minimize the realization of net short-term and long-term capital gains by
matching securities sold at a gain with those sold at a loss to the extent
practicable. In addition, when selling a portfolio security, each Fund will
generally select the highest cost basis shares of the security to reduce the
amount of realized capital gains. Because the gain on securities that have been
held for more than one year is subject to a lower federal income tax rate, these
securities will generally be sold before securities held less than one year.
The Funds may adopt the "equalization accounting" technique for tax purposes,
which may enhance shareholders' after-tax return. Nevertheless, the use of
these tax management techniques
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<PAGE>
will not necessarily reduce a Fund's portfolio turnover rate or prevent the
Funds from selling securities to the extent warranted by shareholder
transactions, actual or anticipated economic, market or issuer-specific
developments or other investment considerations.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
WARRANTS AND CONVERTIBLE SECURITIES. Warrants acquired by a Fund will entitle
it to buy common stock from the issuer at a specified price and time. Warrants
are subject to the same market risks as stocks, but may be more volatile in
price. A Fund's investment in warrants will not entitle it to receive dividends
or exercise voting rights and will become worthless if the warrants cannot be
profitably exercised before their expiration dates. Convertible debt securities
and preferred stock acquired by a Fund will entitle it to acquire the issuer's
stock by exchange or purchase. Convertible securities are subject both to the
credit and interest rate risks associated with fixed income securities and to
the stock market risk associated with equity securities.
RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid securities, including certain restricted and private
placement securities. It may be difficult to dispose of illiquid securities
quickly or at a price that fully reflects their fair value. Restricted
securities that are eligible for resale in reliance on Rule 144A under the
Securities Act of 1933 and that are determined to be liquid are not subject to
the Funds' 15% limit on illiquid investments.
MONEY MARKET INSTRUMENTS. Although the Funds intend, under normal circumstances
and to the extent practicable, to be fully invested in equity securities, the
Funds may invest in money market instruments in anticipation of future
investments or the settlement of portfolio trades, for liquidity purposes or as
a defensive measure during adverse market conditions. These money market
instruments include obligations issued or guaranteed by the U.S. Government or
any of its agencies and instrumentalities, commercial paper, bank obligations,
repurchase agreements and other debt obligations. If a repurchase agreement
counterparty defaults on its obligations, a Fund may, under some circumstances,
be limited or delayed in disposing of the repurchase agreement collateral to
recover its investment.
FOREIGN INVESTMENTS. Each Fund may invest up to 5% of its total assets at the
time of purchase in the equity securities of foreign companies that are included
in the S&P 500 Index or are listed on a U.S. stock exchange. These investments
may be in the form of American Depositary Receipts ("ADRs") or similar
securities representing interests in an underlying foreign security. ADRs are
not necessarily denominated in the same currency as the underlying foreign
securities. If an ADR is not sponsored by the issuer of the underlying foreign
security, the institution issuing the ADR may have reduced access to information
about the issuer.
Investments in foreign securities involve risks in addition to those associated
with investments in the securities of U.S. issuers. These risks include less
publicly-available financial and other information about foreign companies; less
rigorous securities regulation; the potential imposition of currency controls,
foreign withholding and other taxes; and war, expropriation or other adverse
governmental actions. Foreign equity markets may be less liquid than United
States markets and may be subject to delays in the settlement of portfolio
transactions. Brokerage commissions and other transaction costs in foreign
markets tend to be higher than in the United States. The value of foreign
securities denominated in a foreign currency will vary in accordance with
changes in currency exchange rates, which can be volatile.
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<PAGE>
WHEN-ISSUED AND FORWARD COMMITMENT TRANSACTIONS. The Funds may purchase
when-issued securities and enter into other forward commitments to purchase
or sell securities. The value of securities purchased on a when-issued or
forward commitment basis may decline between the purchase date and the
settlement date.
FUTURES AND OPTIONS TRANSACTIONS. Each Fund may enter into derivative contracts
to hedge against fluctuations in securities prices or as a substitute for the
purchase or sale of securities. These derivative contracts may include the
purchase or sale of futures contracts on securities or indices; options on
futures contracts; and options on securities or indices.
All of the Funds' transactions in derivative contracts involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices. A Fund
incurs liability to a counterparty in connection with transactions in futures
contracts and the writing of options. As a result, the loss on these derivative
contracts may exceed a Fund's initial investment. A Fund may also lose the
entire premium paid for purchased options that expire before they can be
profitably exercised by the Fund. In addition, the Funds incur transaction
costs in opening and closing positions in derivative contracts.
Derivative contracts may sometimes increase or leverage a Fund's exposure to a
particular market risk. Leverage magnifies the price volatility of derivative
contracts held by a Fund. A Fund may partially offset the leverage inherent in
derivative contracts by maintaining a segregated account consisting of cash and
liquid securities, by holding offsetting portfolio securities or contracts or by
covering written options.
A Fund's success in using derivative contracts to hedge portfolio assets depends
on the degree of price correlation between the derivative contract and the
hedged asset. Imperfect correlation may be caused by several factors, including
temporary price disparities among the trading markets for the derivative
contract, the assets underlying the derivative contract and the Fund's portfolio
assets.
During periods of extreme market volatility, a commodity or options exchange may
suspend or limit trading in an exchange-traded derivative contract, which may
make the contract temporarily illiquid and difficult to price. The staff of the
Securities and Exchange Commission ("SEC") takes the position that certain over-
the-counter options are subject to each Fund's 15% limit on illiquid
investments. The Funds' ability to terminate over-the-counter derivative
contracts may depend on the cooperation of the counterparties to such contracts.
For thinly traded derivative contracts, the only source of price quotations may
be the selling dealer or counterparty. In addition, derivative securities and
over-the-counter derivative contracts involve a risk that the issuer or
counterparty will fail to perform its contractual obligations.
PORTFOLIO SECURITIES LOANS. Each Fund may lend portfolio securities with a
value equal to one-third of its total assets. Each loan must be fully
collateralized by cash or other eligible assets. The Funds may pay reasonable
fees in connection with securities loans. The Advisor will evaluate the
creditworthiness of prospective institutional borrowers and monitor the adequacy
of the collateral to reduce the risk of default by borrowers.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. A Fund may (1) borrow money from
banks solely for temporary or emergency (but not for leverage) purposes and (2)
may enter into reverse repurchase agreements for any purpose. The aggregate
amount of such borrowings and reverse repurchase agreements may not exceed one-
third of either Fund's total assets. Using the cash
-6-
<PAGE>
proceeds of reverse repurchase agreements to finance the purchase of
additional investments is a form of leverage. Leverage magnifies the
sensitivity of a Fund's net asset value to changes in the market prices of
the Fund's portfolio securities.
INVESTMENT POLICIES AND RESTRICTIONS. Except as otherwise stated in this
Prospectus or the Funds' Statement of Additional Information, the Funds'
investment objectives, policies and restrictions are not fundamental and may be
changed without shareholder approval. Each Fund is diversified and therefore
may not, with respect to 75% of its total assets, (1) invest more than 5% of its
total assets in the securities of any one issuer, other than U.S. Government
securities, or (2) acquire more than 10% of the outstanding voting securities of
any one issuer. Neither Fund will concentrate (invest 25% or more of its total
assets) in the securities of issuers in any one industry.
MANAGEMENT OF THE FUNDS
TRUSTEES. The Funds are series of the Trust. The Trustees of the Trust decide
upon matters of general policy and review the actions of the Advisor and other
service providers. The Trustees of the Trust are identified below. An asterisk
indicates that a Trustee is an "interested person" of the Trust. The full Board
will be elected prior to effectiveness of the Trust registration statement.
Please see the statement of additional information for the information
concerning the Trust's initial trustees.
[ ] Nomura Professor of Finance,
Massachusetts Institute of Technology.
[ ] Retired. Consultant, Northrop Grumman Corporation.
[ ] Retired. Consultant, J.P. Morgan.
[ ] Executive Vice President, Ford Motor Company;
President, Ford Financial Services Group;
Director, Ford Motor Credit Company; and Director
and President, Ford Holdings, Inc.
[ ] Partner, Sullivan & Cromwell.
ADVISOR. Each Fund has retained the services of Morgan as investment
advisor. Morgan provides investment advice and portfolio management services
to the Funds. Subject to the supervision of the Trustees, Morgan makes the
Funds' day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Funds' investments.
Morgan, with principal offices at 60 Wall Street, New York, NY 10260, is a New
York trust company that conducts a general banking and trust business. Morgan
is a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"),
a bank holding company organized under the laws of Delaware. Through offices in
New York City and abroad, J.P. Morgan, through the Advisor and other
subsidiaries, offers a wide range of services to governmental, institutional,
corporate and individual customers and acts as investment advisor to individual
and institutional clients with combined assets under management of over $178
billion (of which the Advisor advises over $29 billion).
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<PAGE>
Morgan uses a sophisticated, disciplined, collaborative process for managing
all asset classes. For equity portfolios, this process utilizes fundamental
research, systematic stock selection and disciplined portfolio construction.
Morgan has managed portfolios of U.S. equity securities on behalf of its clients
for over 40 years. The portfolio managers making investments in U.S. equity
securities work in conjunction with Morgan's domestic equity analysts, as well
as capital market, credit and economic research analysts, traders and
administrative officers. The U.S. equity analysts each cover a different
industry, monitoring a universe of approximately 700 predominantly large and
medium sized U.S. companies.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's investment process for the Funds. The primary
portfolio manager for the Active Fund is _________________________, [Title]
(since ______________________, employed by Morgan as ________________ since
before _________). The primary portfolio manager for the Enhanced Fund is
_________________________, [Title] (since ______________________, employed by
Morgan as ________________ since before _____).
As compensation for the services rendered and related expenses borne by Morgan
under its investment advisory agreement with each Fund, the Active Fund and the
Enhanced Fund have each agreed to pay to Morgan a monthly fee at the annual rate
of 0.45% and 0.25%, respectively, of that Fund's average daily net assets.
CO-ADMINISTRATOR AND DISTRIBUTOR. Pursuant to Co-Administration Agreements with
the Trust, FDI serves as the Co-Administrator for the Fund. FDI (i) provides
office space, equipment and clerical personnel for maintaining the organization
and books and records of the Fund; (ii) provides officers for the Trust;
(iii) prepares and files documents required for the Fund's state securities law
registrations; (iv) reviews and files marketing and sales literature; (v) files
Fund and Fund regulatory documents and mails Fund communications to Trustees and
investors; and (vi) maintains related books and records. FDI, a wholly owned
indirect subsidiary of Boston Institutional Group, Inc., is a registered broker-
dealer and serves as the Fund's distributor.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust, Morgan provides administrative and related services to each
Fund, including services related to tax compliance, preparation of financial
statements, calculation of performance data, oversight of service providers and
certain regulatory and Board of Trustees matters.
Under the Co-Administration Agreements and the Administrative Services
Agreements, each Fund has agreed to pay Morgan and FDI fees equal to its
allocable share of an annual complex-wide charge. This charge is calculated
daily based on the aggregate net assets of the Funds, the other series of the
Trust and the portfolios (collectively the "Master Portfolios") in which series
of The Pierpont Funds, The JPM Institutional Funds or The JPM Advisor Funds
invest 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 Master Portfolios' average daily net assets in excess of $7 billion.
FUND SERVICES AGREEMENT. Pursuant to Fund Services Agreements with the Trust,
JPM Institutional Group, Inc. ("PGI"), 461 Fifth Avenue, New York, NY 10017,
assists the Trustees in exercising their overall supervisory responsibilities
for the affairs of the Trust. PGI provides these services to the Trustees at
cost.
SHAREHOLDER SERVICING. Under a shareholder service agreement with the Trust,
Morgan, acting directly or through an agent, provides account administration and
personal and account maintenance services to Fund shareholders. These services
include assisting in the maintenance
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<PAGE>
of accurate account records; processing orders to purchase and redeem shares
of a Fund; and responding to shareholder inquiries. Each Fund has agreed to
pay Morgan for these services at an annual rate of .10% of the average daily
net assets of the Fund.
CUSTODIAN AND TRANSFER AGENT. State Street Bank & Trust Company, 225 Franklin
Street, Boston, MA 02101, serves as the Funds' custodian and as their transfer
and dividend disbursing agent.
EXPENSES. Each Fund is responsible for all expenses not expressly assumed by
one of the service providers identified above. These include, among other
things, organization expenses, legal fees, audit and accounting expenses,
insurance costs, the compensation and expenses of the Trustees, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
registration fees under federal and state securities laws, transfer agent costs,
Investment Company Institute dues, brokerage commissions, interest, taxes and
extraordinary expenses (such as for litigation).
Morgan has agreed that it will reimburse each Fund through at least the date
listed below to the extent necessary to maintain the Fund's operating expenses
for JPM Institutional Shares at the following annual percentage of its average
daily net assets.
JPM INSTITUTIONAL SHARES EXPENSE CAP THROUGH DATE
- ------------------------ ----------- ------------
Active Equity .65% October 31, 1997
Enhanced Equity .45% October 31, 1997
This expense reimbursement does not apply to taxes, interest, brokerage
commissions, litigation costs and other extraordinary expenses.
NET ASSET VALUE
Each Fund computes the net asset value per share ("NAV") of the JPM
Institutional Shares at the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York time) on each weekday that is not a
holiday listed in the Statement of Additional Information (a "business day").
If the New York Stock Exchange closes early, the time of computing NAV and the
deadlines for purchasing and redeeming shares will be accelerated to the early
closing time. The NAV of the JPM Institutional Shares is determined by
subtracting from the value of the Fund's total assets attributable to JPM
Institutional Shares the amount of the JPM Institutional Shares' liabilities and
dividing the remainder by the number of outstanding JPM Institutional Shares.
PURCHASE OF SHARES
PURCHASE ORDERS AND PAYMENTS. JPM Institutional Shares may be purchased at
the NAV next determined after receipt of an order, provided that immediately
available funds have been transmitted to the Distributor by the close of the
next business day after the order date. Investors may open accounts with a
Fund only through the Distributor. All purchase orders must be accepted by
the Distributor. Purchase orders received by the Fund before 4:00 p.m. New
York time will be effected at the NAV determined on that day. Purchase
orders received by the Fund after 4:00 p.m. New York time will be effected
at the NAV determined on the next business day. [However, shares of the Fund
will be issued only upon receipt of the purchase payment.] Prospective
investors may obtain assistance in placing purchase orders (1) by contacting
their client representatives at Morgan or at an intermediary designated by
the Distributor as an Eligible Institution or (2) by calling J.P. Morgan
Funds Services at (800) 521-5411.
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<PAGE>
MINIMUM INVESTMENT REQUIREMENTS. Each Fund requires a minimum initial
investment of $5,000,000. The minimum subsequent investment for all investors
is $25,000. These minimum investment requirements may be waived for investors
for whom the Advisor is a fiduciary, who are employees of the Advisor or who
maintain related accounts with an affiliated investment company, The JPM
Institutional Funds, or with the Adviser or maintain investments in The JPM
Institutional Funds (other than the money market funds), if such accounts and/or
investments total $5,000,000 or more.
For investment advisors, trust companies and financial advisors who make
investments for a group of clients, the minimum investment in each Fund is (1)
$100,000 per individual client or (2) $250,000 for an aggregated purchase order
for more than one client. The Funds may permit an investor who is investing for
a group of clients to attain the $250,000 minimum investment within a reasonable
period of time that will be no longer than 13 months after opening an account.
An employer-sponsored retirement plan opening an account in a Fund will be
required to attain a minimum balance of at least $250,000 within 13 months after
opening the account.
The Trust and the Distributor each reserves the right to reject any purchase
order or to suspend the offering of JPM Institutional Shares.
REDEMPTION OF SHARES
REDEMPTION ORDERS AND PAYMENTS. To redeem shares of a Fund, a shareholder may
instruct a client representative at Morgan or an Eligible Institution to submit
a redemption request to the Fund. Alternatively, a shareholder may redeem
shares directly by telephoning J.P. Morgan Funds Services at (800) 521-5411 and
giving to a shareholder service representative the shareholder's preassigned
personal identification number and the amount of the redemption.
A redemption request received by the Fund in proper form before 4:00 p.m. New
York time will be effected on that day at the NAV determined on that day. A
redemption request received after 4:00 p.m. New York time will be effected on
the next business day at the NAV determined on that day. The proceeds of any
redemption will be reduced by the applicable 2% or 1% redemption fee. The cash
proceeds of a redemption are generally deposited on the first business day after
the redemption date in immediately available funds to the shareholder's account
at Morgan or at the shareholder's Eligible Institution. For certain Morgan
customers, cash redemption proceeds are wire transferred or mailed by check in
accordance with the customers' instructions. With the exceptions described
below, all payments of redemption proceeds will be made within one business day
after the redemption date.
REDEMPTION FEE. A redemption fee will be imposed by and paid to each Fund on
the gross dollar amount of shares redeemed for cash in accordance with the
following schedule.
REDEMPTION FEE RATE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE GROSS REDEMPTION PROCEEDS
- ------------------- -------------------------
First 2.0%
Second and thereafter 1.0%
For federal income tax purposes, the redemption fee will reduce the amount
realized by the shareholder upon redemption of shares.
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<PAGE>
REDEMPTION IN KIND. Each Fund intends whenever feasible to pay redemption
proceeds by an in-kind distribution of portfolio securities to the extent that
the amount of the redemption exceeds, during any 90-day period, the lesser of
$250,000 or one percent of the Fund's net asset value. (Although entitled to
receive the first $250,000 of redemption proceeds in cash, a redeeming
shareholder may elect to have the entire amount of a redemption distributed in-
kind.) A Fund will select portfolio securities for in-kind redemptions in a
manner that is believed to be fair to both redeeming and non-redeeming
shareholders. For purposes of effecting in-kind redemptions, securities will
be valued in the manner regularly used to value a Fund's portfolio securities.
A shareholder who receives an in-kind distribution of redemption proceeds may
incur brokerage or other transaction costs in liquidating the distributed
securities. There is also a risk that the securities distributed in-kind may
decline in value before they can be sold by the redeeming shareholder. Although
an in-kind redemption will not cause a Fund to realize capital gains, redeeming
shareholders may realize taxable capital gains based on the difference between
the cost basis and redemption price of their shares. NO REDEMPTION FEE WILL BE
IMPOSED ON THE AMOUNT OF ANY SHARES REDEEMED IN-KIND.
OTHER REDEMPTION PROCESSING INFORMATION. Redemption requests may not be
processed if the redemption request is not submitted in proper form. A
redemption request is not in proper form unless the Fund has received the
shareholder's certified tax identification number and address. In addition, if
shares were paid for by check and the check has not yet cleared, redemption
proceeds will not be transmitted until the check has cleared, which may take up
to 15 days. Each Fund reserves the right to suspend the right of redemption or
postpone the payment of redemption proceeds to the extent permitted by the SEC.
Shareholders may realize taxable capital gains upon redeeming JPM Institutional
Shares.
MANDATORY REDEMPTION. If a redemption of JPM Institutional Shares reduces the
value of a shareholder's account balance below the required initial minimum
investment or the value of a shareholder's account balance does not achieve the
required initial minimum investment within the prescribed time period, the Fund
may redeem the remaining shares in the account 60 days after providing written
notice to the shareholder of the mandatory redemption. An account will not be
subject to mandatory redemption if the shareholder purchases sufficient shares
during the 60 day period to increase the account balance to the required minimum
investment amount. No redemption fee will be imposed on the amount of any
mandatory redemption.
DIVIDENDS AND DISTRIBUTIONS
Each Fund's net investment income and realized net capital gains, if any, will
be distributed at least annually. Dividends and distributions will be payable
to shareholders of record on the record date. If investors purchase JPM
Institutional Shares shortly before the record date of a dividend or
distribution, they may be subject to adverse tax consequences as described under
"Taxes."
A Fund's dividends and distributions are paid in additional JPM Institutional
Shares unless the shareholder elects to have them paid in cash. The tax effects
of dividends and distributions are the same whether they are paid in shares or
cash. Cash dividends and distributions are either (1) credited to the
shareholder's account at Morgan or the shareholder's Eligible Institution or (2)
in the case of certain Morgan clients, are paid by a check mailed in accordance
with the clients' instructions.
TAXES
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<PAGE>
Each Fund is treated as a separate entity for tax purposes. Each Fund intends
to elect to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code. To qualify as such, each Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated
investment company, each Fund will not be subject to federal income or excise
tax on any net investment income and net realized capital gains that are
distributed to shareholders in accordance with certain timing requirements of
the Code.
Dividends paid by a Fund from net investment income and the excess of short-term
capital gain over net long term capital loss will be taxable to its shareholders
as ordinary income. Distributions paid by a Fund from the excess of net long-
term capital gain over net short-term capital loss will be taxable as long-term
capital gains regardless of how long shareholders have held their shares. These
tax consequences will apply whether distributions are received in additional
shares or in cash. A Fund's dividends that are paid to its corporate
shareholders and are attributable to qualifying dividends received by the Fund
from U.S. domestic corporations may be eligible, in the hands of these corporate
shareholders, for the corporate dividends-received deduction, subject to certain
holding period requirements and debt financing limitations under the Code.
Shareholders will be informed annually about the amount and character, for
federal income tax purposes, of distributions received from the Funds.
The Funds are managed to minimize the amount of capital gains realized and
distributed during a particular year. Nevertheless, the realization of capital
gains may be affected by shareholder redemption transactions, economic, market
or issuer-specific developments or other investment considerations.
Investors should consider the adverse tax implications of buying shares
immediately before a distribution. Investors who purchase shares shortly before
the record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution even
though the distribution represents a return of a portion of the purchase price.
Redemptions of shares, whether for cash or in-kind, are taxable events on which
a shareholder may recognize a gain or loss. Individuals and certain other
shareholders may be subject to 31% backup withholding of federal income tax on
distributions and redemptions if they fail to furnish their correct taxpayer
identification number and certain certifications or if they are otherwise
subject to backup withholding.
In addition to federal taxes, a shareholder may be subject to state or local
taxes on income and gains derived with respect to shares in the Funds.
Shareholders are urged to consult their own tax advisors concerning specific
questions about federal, state and local taxes.
ADDITIONAL INFORMATION
SHAREHOLDER REPORTS AND CONFIRMATIONS. Each Fund sends to its shareholder
annual and semiannual reports. The financial statements appearing in annual
reports are audited by independent accountants. Shareholders will also be sent
confirmations of each transaction and monthly statements reflecting all account
activity.
TELEPHONE TRANSACTIONS. All shareholders are entitled to initiate redemptions
and other transactions by telephone. However, a transaction authorized by
telephone and reasonably believed by a Fund, Morgan, an Eligible Institution or
the Distributor to be genuine may result in a loss to the investor if the
transaction is not in fact genuine. The Funds will employ reasonable procedures
to confirm that investor instructions communicated by telephone are genuine.
These
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<PAGE>
include requiring investors to give their personal identification numbers
and tape recording telephone instructions. If these procedures are not
followed, the Fund, Morgan, the investor's Eligible Institution or the
Distributor may be liable for any losses resulting from unauthorized or
fraudulent instructions.
PERFORMANCE ADVERTISING. Each Fund may advertise historical performance
information and compare its performance to other investments or relevant
indexes. An advertisement may also include data supplied by Lipper Analytical
Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson Associates and other
industry publications.
The Funds may advertise average annual total return and other forms of total
return data. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at NAV for specified
periods ending with the most recent calendar quarter. The total return
calculation assumes a complete redemption of the investment at the end of the
relevant period and reflects the deduction of any applicable redemption fee.
Each Fund may also advertise total return on a cumulative, average, year-by-year
or other basis for specified periods. The investment results of a Fund will
fluctuate over time and should not be considered a representation of the Fund's
performance in the future.
In addition, the Funds may advertise their yield. Yield reflects a Fund's rate
of income on portfolio investments as a percentage of its NAV. The yield on JPM
Institutional Shares is computed by annualizing the result of dividing the net
investment income per JPM Institutional Share over a 30 day period by the NAV on
the last day of that period. Yield is calculated by accounting methods that are
standardized for all stock and bond funds and differ from the methods used for
other accounting purposes. Therefore, the yield on JPM Institutional Shares may
not equal the income paid on these shares or the income reported in a Fund's
financial statements.
Performance information may be obtained by calling the Distributor at
(800)221-7930.
ORGANIZATION
The Trust was organized on August 15, 1996 as a Massachusetts business trust.
The Trust currently has three series of shares, including the Funds offered by
this Prospectus. The Trustees have authorized two classes of shares of each
Fund: (a) the JPM Institutional Shares offered by this Prospectus and (b) the
Pierpont Shares offered pursuant to a separate prospectus. The JPM
Institutional Shares and the Pierpont Shares are subject to different expenses,
which may affect the performance of each class. More information about the
Pierpont Shares may be obtained by calling (___) ___-____. The Trustees reserve
the right to authorize and issue additional series and classes of shares.
Shareholders of each Fund are entitled to one full or fractional vote for each
dollar or fraction of a dollar invested in JPM Institutional Shares. There is
no cumulative voting and shares have no preemption or conversion rights. The
Trust does not intend to hold meetings of shareholders annually. The Trustees
will call meetings of shareholders to the extent required by the Trust's
Declaration of Trust or the Investment Company Act of 1940 (the "1940 Act").
The 1940 Act requires the Trustees, under certain circumstances, to call a
meeting to allow shareholders to vote on the removal of a Trustee and to assist
shareholders in communicating with each other.
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<PAGE>
JPM SERIES TRUST
THE JPM INSTITUTIONAL TAX AWARE FUNDS
JPM INSTITUTIONAL SHARES: TAX AWARE ACTIVE EQUITY FUND
JPM INSTITUTIONAL SHARES: TAX AWARE ENHANCED EQUITY FUND
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE TRUST OR BY THE DISTRIBUTOR
TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE
TRUST OR THE DISTRIBUTOR TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
PROSPECTUS
NOVEMBER 1, 1996
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<PAGE>
PROSPECTUS
JPM SERIES TRUST
PIERPONT SHARES: CALIFORNIA BOND FUND
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
FOR INFORMATION, CALL (800)521-5411
California Bond Fund (the "Fund") seeks to provide a high after tax total return
for California residents consistent with moderate risk to capital. The Fund is
designed for investors subject to federal and California personal income taxes
who are seeking a high after tax total return that may include some taxable
income and gains.
The Fund is a series of JPM Series Trust (the "Trust") and is advised by Morgan
Guaranty Trust Company of New York ("Morgan" or the "Advisor").
This Prospectus sets forth concisely the information about the Pierpont Shares
of the Fund that a prospective investor should know before investing and should
be retained for future reference. Additional information has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated November 1, 1996, as amended or supplemented from time to time. This
information is incorporated herein by reference and is available without charge
upon written request from the Fund's Distributor or by calling (800)221-7930.
The Fund's Distributor is Funds Distributor, Inc. ("FDI"), 60 State Street,
Suite 1300, Boston, Massachusetts 02109, Attention: California Bond Fund.
PIERPONT SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
PIERPONT SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
THE VALUE OF AN INVESTMENT IN THE FUND MAY FLUCTUATE AND MAY, AT THE TIME IT IS
REDEEMED, BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
----
Shareholder and Fund Expenses 3
Investment Objective and Policies 4
Additional Investment Practices and Risks 5
Management of the Fund 8
Net Asset Value 10
Purchase of Shares 10
Redemption of Shares 11
Exchange of Shares 12
Dividends and Distributions 12
Taxes 12
Additional Information 14
Organization 15
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<PAGE>
PIERPONT
SHAREHOLDER TRANSACTION EXPENSES SHARES
Maximum Sales Charge Imposed on Purchases None
Sales Charge Imposed on
Reinvested Distributions None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
EXPENSE TABLE
ANNUAL OPERATING EXPENSES(1)
Advisory Fees .30%
Rule 12b-1 Fees None
Other Expenses (after expense reimbursement) .35%
Total Operating Expenses (after expense reimbursement) .65%
(1) These expenses are based on the estimated expenses and estimated average net
assets for the Fund's first fiscal year, after any applicable expense
reimbursement. Without such expense reimbursement, the estimated Other Expenses
and Total Operating Expenses would be equal on an annual basis to .54% and .84%,
respectively, of average daily net assets.
EXAMPLE
An investor would pay the following expenses on a hypothetical $1,000
investment, assuming a 5% annual return and redemption at the end of each time
period. (However, the Fund's minimum initial investment is greater than
$1,000.)
1 Year $ 7
3 Years $22
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in
Pierpont Shares of the Fund bear. THE EXAMPLE IS INCLUDED SOLELY FOR
ILLUSTRATIVE PURPOSES AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
PERFORMANCE OR EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
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<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of California Bond Fund is to provide a high after tax
total return to investors subject to California personal income taxes consistent
with moderate risk to capital. The Fund invests primarily in California
Municipal Securities (defined below) the income from which is exempt from
federal and California personal income taxes. It may also invest in other
municipal securities that generate income exempt from federal income tax but not
California income tax. In addition, in order to maximize total return, the Fund
may invest in taxable debt obligations to the extent consistent with its
objective.
WHO MAY BE A SUITABLE INVESTOR IN THE FUND. The Fund is designed for investors
subject to California personal income taxes who are seeking high after tax
return, but are not adverse to receiving some taxable income and gains. The
Fund is not suitable for tax-deferred retirement or pension plans, including
Individual Retirement Accounts (IRAs), 401(k) plans and 403(b) plans. The Fund
intends to pay redemption proceeds exceeding certain amounts by an in-kind
distribution of portfolio securities and may not be suitable for investors
desiring to receive only cash proceeds. See "Redemption of Shares -- Redemption
in Kind." The Fund is not a complete investment program and there is no
assurance that the Fund will achieve its investment objective.
PRIMARY INVESTMENTS. Under normal market conditions, the Fund invests at least
65% of its total assets in California municipal bonds. For purposes of this
policy, "California municipal bonds" has the same meaning as "California
Municipal Securities," which are obligations of any duration (or maturity)
issued by California, its political subdivisions and their agencies, authorities
and instrumentalities and any other obligations, the interest from which is
exempt from California personal income tax. The interest from many but not all
California Municipal Securities is also exempt from federal income tax. The
Fund may invest up to 35% of its total assets in debt obligations of state and
municipal issuers outside of California. In general, the interest on such
securities is exempt from federal income tax but subject to California income
tax. A portion of the Fund's distributions from interest on California
Municipal Securities and other municipal securities in which the Fund invests
may under certain circumstances be subject to federal alternative minimum tax.
See "Taxes."
MUNICIPAL SECURITIES. The Fund may invest in municipal securities of any
maturity and type. These include both general obligation bonds secured by the
issuer's pledge of its full faith, credit and taxing authority and revenue bonds
payable from specific revenue sources, but generally not backed by the issuer's
taxing authority. In addition, the Fund may invest in all types of municipal
notes, including tax, revenue and grant anticipation notes, municipal commercial
paper, and municipal demand obligations such as variable rate demand notes and
master demand obligations. There is no specific percentage limitation on these
investments.
NON-MUNICIPAL SECURITIES. The Fund may invest in U.S. Government, bank and
corporate debt obligations, as well as asset and mortgage backed securities and
repurchase agreements. The Fund will purchase such securities only when Morgan
believes that they would enhance the after-tax total return of a shareholder of
the Fund in the highest federal and California income tax brackets.
CREDIT QUALITY. The Fund will invest primarily in investment grade securities,
which are obligations rated at the time of purchase at least Baa by Moody's
Investors Service, Inc. or BBB by Standard & Poor's Ratings Group. Securities
rated Baa or BBB are considered to have certain speculative characteristics.
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<PAGE>
The Fund may also invest up to [10]% of its total assets in below investment
grade municipal and taxable securities rated at least B. Such securities are
sometimes referred to as "junk bonds." Below investment grade securities
typically are subject to greater fluctuations in price and yield resulting in a
greater volatility of total return than investment grade bonds. These
fluctuations may be sharp and unanticipated. Issuers of below investment grade
securities typically are weak in financial health and their ability to repay
interest or principal is uncertain. Compared to issuers of investment grade
bonds, they are more likely to encounter financial difficulties and to be
materially affected by these difficulties when they do encounter them. As a
result, markets for below investment grade securities may react strongly to
adverse news about an issuer or the economy, or to the perception or expectation
of adverse news. If a security purchased by the Fund is later downgraded below
B, the Fund may continue to hold the security.
HOW THE FUND'S PORTFOLIO IS MANAGED. Morgan actively manages the Fund's
duration, the allocation of securities across market sectors and the selection
of securities to maximize after tax total return. Morgan adjusts the Fund's
duration based upon fundamental economic and capital markets research and
Morgan's interest rate outlook.
Under normal market conditions, the Fund will have a duration of three to ten
years, although the maturities of individual portfolio securities may vary
widely. Duration measures the price sensitivity of the Fund's portfolio,
including expected cash flow under a wide range of interest rate scenarios. A
longer duration generally results in greater price volatility with the result
that when interest rates increase, the price of longer duration securities
decrease more than securities with shorter duration and when interest rates
decrease, the price of longer duration securities increase more than those of
shorter duration.
Morgan also seeks to enhance after tax total return by allocating the Fund's
assets among market sectors. Specific securities which Morgan believes are
undervalued are selected for purchase using advanced quantitative tools,
analysis of credit risk, the expertise of a dedicated trading desk and the
judgment of fixed income portfolio managers and analysts.
The Fund may engage in short-term trading to the extent consistent with its
objective. Morgan estimates that the Fund's annual portfolio turnover rate
generally will not exceed 100%. Portfolio transactions may generate taxable
capital gains and result in increased transaction costs.
TAX MANAGEMENT TECHNIQUES. Morgan considers the tax consequences to investors
of all portfolio transactions. The success of this strategy depends upon
Morgan's ability accurately to forecast changes in interest rates and assess the
value of fixed income securities.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
NON-DIVERSIFICATION. Because the Fund is a non-diversified investment company,
the Investment Company Act of 1940 (the "1940 Act") does not limit the
percentage of the Fund's assets that may be invested in the securities of a
single issuer. To the extent that the Fund invests a greater percentage of its
assets in a smaller number of issuers, its portfolio will be subject to more
concentrated credit and liquidity risk than a more diversified fund. The Fund
must still comply with the quarterly diversification requirements under the
Internal Revenue Code of 1986 (the "Code") under which, with respect to 50% of
its total assets, the Fund generally may not invest more than 5% of its assets
in any one issuer. With respect to the other 50% of total assets, the Fund may
invest up to 25% of its assets in the securities of each of any two issuers.
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<PAGE>
LIQUIDITY. The secondary market for municipal securities is generally less
liquid than for taxable fixed-income securities. These risks are accentuated to
the extent that the Fund, by itself or together with other funds managed by
Morgan and/or its affiliates, owns all or a substantial portion of an issue of
municipal securities. In addition, if the issuer of such securities defaults,
the Fund could be required to seize and manage, or dispose of under adverse
market conditions, collateral, which could increase the Fund's operating
expenses, lower the Fund's net asset value and generate taxable income.
CONCENTRATION. The Fund will not invest more than 25% of its total assets in
any one industry. Governmental issuers of municipal securities are not
considered part of any industry for this purpose. However, taxable municipal
securities backed only by the assets or revenues of nongovernmental users may be
deemed to be issued by such issuers, and the 25% limitation would apply to such
obligations.
The Fund may invest more than 25% of its assets in certain sectors of the
municipal securities market, such as revenue obligations of hospitals and other
health care facilities, housing agency obligations, transportation related
obligations and utilities related obligations. The Fund will concentrate in a
particular market sector only if Morgan determines that the yields available
from issuers in the sector justify the additional risks. To the extent that the
Fund concentrates in a particular market sector, its portfolio will be more
exposed to adverse economic, business, political and other developments
affecting issuers or users within that sector.
CALL RISK. The Fund may invest in municipal securities that permit the issuer
to "call" or redeem the securities. If the issuer calls these securities when
interest rates are falling, the Fund may not be able to reinvest the proceeds in
securities providing a comparable return.
ZERO COUPON BONDS. The Fund may invest in "zero coupon" bonds that pay interest
only upon maturity. Zero coupon bonds may present a greater risk of price
volatility and credit problems than other bonds and involve certain special tax
considerations. See "Taxes."
CALIFORNIA MUNICIPAL SECURITIES. Since the Fund invests primarily in California
Municipal Securities, its performance and the ability of California issuers to
meet their obligations may be affected by economic, political, demographic or
other conditions in California. As a result, the value of the Fund's Pierpont
Shares may fluctuate more widely than the value of shares of a fund investing in
securities of issuers in multiple states. The ability of state, county or local
governments to meet their obligations will depend primarily on the availability
of tax and other revenues to those governments and on their general fiscal
conditions. Constitutional or statutory restrictions may limit a municipal
issuer's power to raise revenues or increase taxes. The availability of
federal, state and local aid to issuers of California Municipal Securities may
also affect their ability to meet their obligations. Payments of principal and
interest on revenue bonds will depend on the economic condition of the facility
or specific revenue source from whose revenues the payments will be made. Any
reduction in the actual or perceived ability of an issuer of California
Municipal Securities to meet its obligations (including a reduction in the
rating of its outstanding securities) would probably reduce the market value and
marketability of the Fund's portfolio securities.
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SECURITIES LOANS, REPURCHASE AGREEMENTS AND WHEN-ISSUED AND DELAYED DELIVERY
SECURITIES. The Fund may lend portfolio securities amounting to not more than
one third of its assets to broker-dealers and may enter into repurchase
agreements. These transactions must be fully collateralized at all times. The
Fund may also purchase securities on a when-issued or delayed delivery basis,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date. Lending,
repurchase agreement and when-issued transactions involve the risk that the
other party may default on its obligation and the Fund could be delayed in or
prevented from recovering the collateral or completing the transaction.
PUTS. The Fund may purchase municipal securities together with a right to
resell or "put" the securities back to the seller on agreed upon terms. The Fund
may pay a premium to purchase securities with a put feature. A put involves the
risk that the counterparty will default on its obligations to repurchase the
underlying securities.
STRUCTURED DEBT SECURITIES. The Fund may invest in structured debt securities
which may include various types of derivative securities such as tender option
bonds, floating rate securities that are subject to a maximum interest rate
(capped floaters), leveraged floating rate securities (super floaters) and
leveraged inverse floating rate securities (inverse floaters). The interest
rate or, in some cases, the principal payable at the maturity of a structured
debt security may change positively or inversely in relation to one or more
interest rates, financial indices or other financial indicators. In addition,
the yield on a structured security may fail to track the yield on conventional
securities of comparable maturity. A structured debt security may be leveraged
to the extent that the magnitude of any change in the interest rate or principal
payable on an indexed security is a multiple of the change in the underlying
interest rate or index. Thus, leveraged structured securities may experience
greater price volatility than conventional debt securities in response to
changes in interest rates or other reference prices.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities, including certain restricted and private
placement securities. It can be difficult to dispose of illiquid securities
quickly or at a price that fully reflects their fair value. Restricted
securities that are eligible for resale in reliance on Rule 144A under the
Securities Act of 1933 and that are determined to be liquid are not subject to
the Fund's 15% limit on illiquid investments.
FUTURES AND OPTIONS TRANSACTIONS. The Fund may enter into derivative contracts
to hedge against fluctuations in securities prices or for risk management
purposes. These derivative contracts may include the purchase or sale of
futures contracts on securities or indices; options on futures contracts; and
options on securities or indices.
All of the Fund's transactions in derivative contracts involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices. The
Fund incurs liability to a counterparty in connection with transactions in
futures contracts and the writing of options. As a result, the loss on these
derivative contracts may exceed the Fund's initial investment. The Fund may
also lose the entire premium paid for purchased options that expire before they
can be profitably exercised by the Fund. In addition, the Fund incurs
transaction costs in opening and closing positions in derivative contracts.
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Derivative contracts may sometimes increase or leverage the Fund's exposure to
a particular market risk. Leverage magnifies the price volatility of derivative
contracts held by the Fund. The Fund may partially offset the leverage inherent
in derivative contracts by maintaining a segregated account consisting of cash
and liquid securities, by holding offsetting portfolio securities or contracts
or by covering written options.
The Fund's success in using derivative contracts to hedge portfolio assets
depends on the degree of price correlation between the derivative contract and
the hedged asset. Imperfect correlation may be caused by several factors,
including temporary price disparities among the trading markets for the
derivative contract, the assets underlying the derivative contract and the
Fund's portfolio assets.
During periods of extreme market volatility, a commodity or options exchange may
suspend or limit trading in an exchange-traded derivative contract, which may
make the contract temporarily illiquid and difficult to price. The staff of the
Securities and Exchange Commission ("SEC") takes the position that certain over-
the-counter options are subject to the Fund's 15% limit on illiquid investments.
The Fund's ability to terminate over-the-counter derivative contracts may depend
on the cooperation of the counterparties to such contracts. For thinly traded
derivative contracts, the only source of price quotations may be the selling
dealer or counterparty. In addition, derivative securities and over-the-counter
derivative contracts involve a risk that the issuer or counterparty will fail to
perform its contractual obligations.
The Fund's investment in certain derivative contracts may result in the
realization of taxable income and capital gains.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. The Fund may (1) borrow money from
banks solely for temporary or emergency (but not for leverage) purposes and (2)
may enter into reverse repurchase agreements for any purpose. The aggregate
amount of such borrowings and reverse repurchase agreements may not exceed one-
third of the Fund's total assets. Using the cash proceeds of reverse repurchase
agreements to finance the purchase of additional investments is a form of
leverage. Leverage magnifies the sensitivity of the Fund's net asset value to
changes in the market prices of the Fund's portfolio securities.
INVESTMENT POLICIES AND RESTRICTIONS. Except as otherwise stated in this
Prospectus or the Fund's Statement of Additional Information, the Fund's
investment objectives, policies and restrictions are not fundamental and may be
changed without shareholder approval.
MANAGEMENT OF THE FUND
TRUSTEES. The Fund is a series of the Trust. The Trustees of the Trust decide
upon matters of general policy and review the actions of the Advisor and other
service providers. The Trustees of the Trust are identified below. An asterisk
indicates that a Trustee is an "interested person" of the Trust. The full Board
will be elected prior to effectiveness of the Trust registration statement.
Please see the statement of additional information for the information
concerning the Trust's initial trustees.
[ ] Nomura Professor of Finance,
Massachusetts Institute of Technology.
[ ] Retired. Consultant, Northrop Grumman
Corporation.
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[ ] Retired. Consultant, J.P. Morgan.
[ ] Executive Vice President, Ford Motor Company;
President, Ford Financial Services Group; Director,
Ford Motor Credit Company; and Director and
President, Ford Holdings, Inc.
[ ] Partner, Sullivan & Cromwell.
ADVISOR. The Fund has retained the services of Morgan as investment advisor.
Morgan provides investment advice and portfolio management services to the Fund.
Subject to the supervision of the Trustees, Morgan makes the Fund's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Fund's investments.
Morgan, with principal offices at 60 Wall Street, New York, NY 10260, is a New
York trust company that conducts a general banking and trust business. Morgan
is a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"),
a bank holding company organized under the laws of Delaware. Through offices in
New York City and abroad, J.P. Morgan, through the Advisor and other
subsidiaries, offers a wide range of services to governmental, institutional,
corporate and individual customers and acts as investment advisor to individual
and institutional clients with combined assets under management of over $178
billion (of which the Advisor advises over $29 billion).
Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. For fixed-income portfolios, this process focuses on the
systematic analysis of real interest rates, sector diversification and
quantitative and credit analysis. Morgan has managed portfolios of domestic
fixed-income securities on behalf of its clients for over 50 years. The
portfolio managers making investments in domestic fixed-income securities work
in conjunction with fixed-income, credit, capital market and economic research
analysts, as well as traders and administrative officers.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's investment process for the Fund:
_________________________, [Title](since ______________________, employed by
Morgan as ________________ since before _____); and _________________________,
[Title](since ______________________, employed by Morgan as ________________
since before _____).
As compensation for the services rendered and related expenses borne by Morgan
under its investment advisory agreement with the Fund, the Fund has agreed to
pays Morgan a monthly fee at the annual rate of 0.30% of the Fund's average
daily net assets.
CO-ADMINISTRATOR AND DISTRIBUTOR. Pursuant to Co-Administration Agreements with
the Trust, FDI serves as the Co-Administrator for the Fund. FDI (i) provides
office space, equipment and clerical personnel for maintaining the organization
and books and records of the Fund; (ii) provides officers for the Trust;
(iii) prepares and files documents required for the Fund's state securities law
registrations; (iv) reviews and files marketing and sales literature; (v) files
Fund and Fund regulatory documents and mails Fund communications to Trustees and
investors; and (vi) maintains related books and records. FDI, a wholly owned
indirect subsidiary of Boston Institutional Group, Inc., is a registered broker-
dealer and serves as the Fund's distributor.
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<PAGE>
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust, Morgan provides administrative and related services to the
Fund, including services related to tax compliance, preparation of financial
statements, calculation of performance data, oversight of service providers and
certain regulatory and Board of Trustees matters.
Under the Co-Administration Agreements and the Administrative Services
Agreements, the Fund has agreed to pay Morgan and FDI fees equal to its
allocable share of an annual complex-wide charge. This charge is calculated
daily based on the aggregate net assets of the Fund, the other series of the
Trust and the portfolios (collectively the "Master Portfolios") in which series
of The Pierpont Funds, The JPM Institutional Funds or The JPM Advisor Funds
invest 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 Master Portfolios' average daily net assets in excess of $7 billion.
FUND SERVICES AGREEMENT. Pursuant to Fund Services Agreements with the Trust,
Pierpont Group, Inc. ("PGI"), 461 Fifth Avenue, New York, NY 10017, assists the
Trustees in exercising their overall supervisory responsibilities for the
affairs of the Trust. PGI provides these services to the Trustees at cost.
SHAREHOLDER SERVICING. Under a shareholder service agreement with the Trust,
Morgan, acting directly or through an agent, provides account administration and
personal and account maintenance services to Fund shareholders. These services
include assisting in the maintenance of accurate account records; processing
orders to purchase and redeem shares of the Fund; and responding to shareholder
inquiries. The Fund has agreed to pay Morgan for these services at an annual
rate of .20% of the average daily net assets of the Fund.
CUSTODIAN AND TRANSFER AGENT. State Street Bank & Trust Company, 225 Franklin
Street, Boston, MA 02101, serves as the Fund's custodian and transfer and
dividend disbursing agent.
EXPENSES. The Fund is responsible for all expenses not expressly assumed by one
of the service providers identified above. These include, among other things,
organization expenses, legal fees, accounting expenses, insurance costs, the
compensation and expenses of the Trustees, the expenses of printing and mailing
reports, notices and proxy statements to Fund shareholders, registration fees
under federal and state securities laws, transfer agent costs, Investment
Company Institute dues, brokerage commissions, interest, taxes and extraordinary
expenses (such as for litigation).
Morgan has agreed that it will reimburse the Fund through at least the date
listed below to the extent necessary to maintain the Fund's operating expenses
at the annual rate of 0.65% of the Fund's average daily net assets. This expense
reimbursement does not apply to taxes, interest, brokerage commissions,
litigation costs and other extraordinary expenses.
NET ASSET VALUE
The Fund computes the net asset value per share ("NAV") of the Pierpont Shares
at the close of regular trading on the New York Stock Exchange (normally 4:00
p.m. New York time) on each weekday that is not a holiday listed in the
Statement of Additional Information (a "business day"). If the New York Stock
Exchange closes early, the time of computing NAV and the deadlines for
purchasing and redeeming shares will be accelerated to the early closing time.
The NAV of the
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Pierpont Shares is determined by subtracting from the value of
the Fund's total assets attributable to the Pierpont Shares the amount of the
Pierpont Shares' liabilities and dividing the remainder by the number of
outstanding Pierpont Shares.
PURCHASE OF SHARES
PURCHASE ORDERS AND PAYMENTS. Pierpont Shares may be purchased at the NAV next
determined after receipt of an order, provided that immediately available funds
have been transmitted to the Distributor by the close of the next business day
after the order date. Investors may open accounts with the Fund only through the
Distributor. All purchase orders must be accepted by the Distributor. Purchase
orders received by the Fund before 4:00 p.m. New York time will be effected at
the NAV determined on that day. Purchase orders received by the Fund after 4:00
p.m. New York time will be effected at the NAV determined on the next business
day. [However, shares of the Fund will be issued only upon receipt of the
purchase payment.] Prospective investors may obtain assistance in placing
purchase orders (1) by contacting their client representatives at Morgan or an
intermediary designated by the Distributor as an Eligible Institution or (2) by
calling J.P. Morgan Funds Services at (800) 521-5411.
MINIMUM INVESTMENT REQUIREMENTS. The Fund requires a minimum initial investment
of $100,000. The minimum subsequent investment for all investors is $5,000.
These minimum investment requirements may be waived for investors for whom the
Advisor is a fiduciary, who are employees of the Advisor or who maintain related
accounts with an affiliated investment company, The Pierpont Funds, or with the
Adviser or maintain investments in The Pierpont Funds (other than the money
market funds), if such accounts and/or investments total $500,000 or more.
For investment advisors, trust companies and financial advisors who make
investments for a group of clients, the minimum investment in the Fund is (1)
$100,000 per individual client or (2) $250,000 for an aggregated purchase order
for more than one client. The Fund may permit an investor who is investing for a
group of clients to attain the $250,000 minimum investment within a reasonable
period of time that will be no longer than 13 months after opening an account.
The Trust and the Distributor each reserves the right to reject any purchase
order or to suspend the offering of Pierpont Shares.
REDEMPTION OF SHARES
REDEMPTION ORDERS AND PAYMENTS. To redeem shares of the Fund, a shareholder may
instruct a client representative at Morgan or an Eligible Institution to submit
a redemption request to the Fund. Alternatively, a shareholder may redeem
shares directly by telephoning J.P. Morgan Funds Services at (800) 521-5411 and
giving to a shareholder service representative the shareholder's preassigned
personal identification number and the amount of the redemption.
A redemption request received by the Fund in proper form before 4:00 p.m. New
York time will be effected on that day at the NAV determined on that day. A
redemption request received after 4:00 p.m. New York time will be effected on
the next business day at the NAV determined on that day. The proceeds of a
redemption generally are deposited on the first business day after the
redemption date in immediately available funds to the shareholder's account at
Morgan or at the shareholder's Eligible Institution. For certain Morgan
customers, the redemption proceeds are
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<PAGE>
wire transferred or mailed by check in accordance with the customers'
instructions. [With the exceptions described below, all payments of redemption
proceeds will be made within one business day after the redemption date.]
REDEMPTION IN KIND. The Fund has the ability to pay redemption proceeds by an
in-kind distribution of portfolio securities to the extent that the amount of
the redemption exceeds, during any 90-day period, the lesser of $250,000 or one
percent of the Fund's net asset value. (Although entitled to receive the first
$250,000 of redemption proceeds in cash, a redeeming shareholder may elect to
have the entire amount of a redemption distributed in-kind.) The Fund will
select portfolio securities for in-kind redemptions in a manner that is believed
to be fair to both redeeming and non-redeeming shareholders. For purposes of
effecting in-kind redemptions, securities will be valued in the manner regularly
used to value the Fund's portfolio securities. A shareholder who receives an
in-kind distribution of redemption proceeds may incur brokerage or other
transaction costs in liquidating the distributed securities. There is also a
risk that the securities distributed in-kind may decline in value before they
can be sold by the redeeming shareholder. Although an in-kind redemption will
not cause a Fund to realize capital gains, redeeming shareholders may realize
taxable capital gains based on the difference between the cost basis and
redemption price of their shares.
OTHER REDEMPTION PROCESSING INFORMATION. Redemption requests may not be
processed if the redemption request is not submitted in proper form. A
redemption request is not in proper form unless the Fund has received the
shareholder's certified tax payer identification number and address. In
addition, if shares were paid for by check and the check has not yet cleared,
redemption proceeds will not be transmitted until the check has cleared, which
may take up to 15 days. The Fund reserves the right to suspend the right of
redemption or postpone the payment of redemption proceeds to the extent
permitted by the SEC. Shareholders may be required to recognize taxable gains
or losses upon redeeming Pierpont Shares.
MANDATORY REDEMPTION. If a redemption of Pierpont Shares reduces the value of a
shareholder's account balance below the required initial minimum investment or
the value of a shareholder's account balance does not achieve the required
initial minimum investment within the prescribed time period, the Fund may
redeem the remaining shares in the account 60 days after providing written
notice to the shareholder of the mandatory redemption. An account will not be
subject to mandatory redemption if the shareholder purchases sufficient shares
during the 60 day period to increase the account balance to the required minimum
investment amount.
EXCHANGE OF SHARES
An investor may exchange shares of the Fund for shares of any other [Pierpont
Fund or JPM Institutional Fund without charge subject to the same minimum amount
requirements as are applicable to purchases of shares of such funds. Exchanges
are in effect a redemption from one fund followed by a purchase of another fund
and are therefore subject to the requirements applicable to share purchases and
redemptions. Exchanges may result in the recognition of taxable gains or
losses. The Fund reserves the right to terminate or alter the terms of the
exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
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The Fund intends to distribute substantially all of its net investment income.
The net investment income of the Fund is declared as a dividend daily
immediately prior to the determination of the net asset value of the Fund on
that day and paid monthly. If an investor's shares are redeemed during a month,
that accrued but unpaid dividends are paid with the redemption proceeds. The
net investment income of the Fund for dividend purposes consists of its pro rata
share of the net income of the Fund less the Fund's expenses. Expenses of the
Fund, including the fees payable to Morgan, are accrued daily. Pierpont Shares
will accrue dividends as long as they are issued and outstanding. Shares are
issued and outstanding as of the settlement date of a purchase order to the
settlement date of a redemption order.
Substantially all the realized net capital gains, if any, of the Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund.
The Fund's dividends and distributions are paid in additional Pierpont Shares
unless the shareholder elects to have them paid in cash. The tax effects of
dividends and distributions are the same whether they are paid in shares or
cash. Cash dividends and distributions either (1) are credited to the
shareholder's account at Morgan or the shareholder's Eligible Institution or (2)
in the case of certain Morgan clients, are paid by a check mailed in accordance
with the clients' instructions.
TAXES
The Fund is treated as a separate entity for tax purposes. The Fund intends to
elect to be treated and qualify each year as a regulated investment company
under Subchapter M of the Code. To qualify as such, the Fund must satisfy
certain requirements relating to the sources of its income, diversification of
its assets and distribution of its income to shareholders. As a regulated
investment company, the Fund will not be subject to federal income or excise tax
on any net investment income and net realized capital gains that are distributed
to shareholders in accordance with certain timing requirements of the Code.
Dividends attributable to tax-exempt interest earned by the Fund and designated
by the Fund as "exempt-interest dividends" are not generally subject to federal
income tax. However, an investor receiving Social Security or railroad
retirement benefits should consult his tax adviser to determine if an investment
in the Fund may affect the federal taxation of these benefits. California does
not tax any portion of such benefits. To the extent that exempt-interest
dividends are derived from interest on California Municipal Securities, such
distributions will also be exempt from California personal income tax. However,
these exempt-interest dividends may result in liability for state and local
taxes for individual shareholders subject to taxation by other states and
municipalities outside of California.
For federal income tax purposes, dividends other than exempt interest dividends
paid by the Fund from net investment income and the excess of net short-term
capital gain over net long term capital loss will be taxable to its shareholders
as ordinary income. Dividends paid by the Fund from the excess of net long-term
capital gain over net short-term capital loss and designated by the Fund as
"capital gain dividends" will be taxable as long-term capital gains regardless
of how long shareholders have held their shares. These tax consequences will
apply whether distributions are received in additional shares or in cash.
Shareholders will be informed annually about the amount and character, for
federal and California personal income tax purposes, of distributions received
from the Fund.
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For California personal income tax purposes, distributions derived from
investments other than California Municipal Securities and U.S. Government
securities that pay interest exempt from state personal income taxation, as well
as distributions from any net realized capital gains, will be taxable whether
taken in cash or reinvested in additional Pierpont Shares.
An investment in Pierpont Shares of the Fund may result in or increase liability
for federal alternative minimum tax, both for individual and corporate
investors. To the extent that the Fund invests in California Municipal
Securities or other municipal securities the interest from which is subject to
federal alternative minimum tax, individual shareholders, depending on their own
tax status, may be subject to federal but not California alternative minimum tax
on that portion of the Fund's distributions attributable to such income. An
investment in Pierpont Shares of the Fund may cause corporate investors to be
subject to (or increase their liability under) both California corporate
taxation and, because all or a portion of tax-exempt income is generally
included in the alternative minimum taxable income of corporations, the federal
alternative minimum tax.
Investor who are, or are related to, "substantial users" of bond-financed
facilities should consult their tax advisors prior to purchasing Pierpont Shares
of the Fund.
Investors should consider the adverse tax implications of buying shares
immediately before a distribution. Investors who purchase shares shortly before
the record date for a taxable distribution will pay a per share price that
includes the value of the anticipated distribution and will be taxed on the
distribution even though the distribution represents a return of a portion of
the purchase price.
The Fund generally will be required to recognize accrued income on its
investments in zero coupon bonds each taxable year, even though no corresponding
amount of cash may be received during that year, and may have to obtain cash
from other sources to enable it to satisfy certain income distribution
requirements applicable to the Fund under the Code.
Redemptions (including exchanges) of shares, whether for cash or in-kind, are
taxable events on which a shareholder may recognize a gain or loss and may be
subject to special tax rules if the redeemed shares were held less than six
months or if a reinvestment occurs. Individuals and certain other shareholders
may be subject to 31% backup withholding of federal income tax on taxable
distributions and the proceeds of redemptions if they fail to furnish their
correct taxpayer identification number and certain certifications or if they are
otherwise subject to backup withholding.
The foregoing summarizes certain federal and California income tax consequences
of investing in the Fund. Shareholders are urged to consult their own tax
advisors concerning specific questions about federal, state and local taxes.
ADDITIONAL INFORMATION
SHAREHOLDER REPORTS AND CONFIRMATIONS. The Fund sends to its shareholders
annual and semiannual reports. The financial statements appearing in annual
reports are audited by independent accountants. Shareholders will also be sent
confirmations of each purchase and redemption transaction and monthly statements
reflecting all account activity.
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TELEPHONE TRANSACTIONS. All shareholders are entitled to initiate redemptions
and other transactions by telephone. However, a transaction authorized by
telephone and reasonably believed by the Fund, Morgan, an Eligible Institution
or the Distributor to be genuine may result in a loss to the investor if the
transaction is not in fact genuine. The Fund will employ reasonable procedures
to confirm that investor instructions communicated by telephone are genuine.
These include requiring investors to give their personal identification numbers
and tape recording telephone instructions. If these procedures are not
followed, the Fund, Morgan, the investor's Eligible Institution or the
Distributor may be liable for any losses resulting from unauthorized or
fraudulent instructions.
PERFORMANCE ADVERTISING. The Fund may advertise historical performance
information and compare its performance to other investments or relevant
indexes. An advertisement may also include data supplied by Lipper Analytical
Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson Associates and other
industry publications.
The Fund may advertise average annual total return and other forms of total
return data. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at NAV for specified
periods ending with the most recent calendar quarter. The total return
calculation assumes a complete redemption of the investment at the end of the
relevant period. The Fund may also advertise total return on a cumulative,
average, year-by-year or other basis for specified periods.
In addition, the Fund may advertise yield and "tax-equivalent yield." Yield
reflects the Fund's rate of income on portfolio investments as a percentage of
its NAV. The yield on Pierpont Shares is computed by annualizing the result of
dividing the net investment income per Pierpont Share over a 30 day period by
the NAV on the last day of that period. Yield is calculated by accounting
methods that are standardized for all stock and bond funds and differ from the
methods used for other accounting purposes. Therefore, the yield on Pierpont
Shares may not equal the income paid on these shares or the income reported in
the Fund's financial statements. Tax-equivalent yield shows the effect on
performance of the tax-exempt status of distributions received by the Fund. It
reflects the approximate yield that a taxable investment must earn for
shareholders at stated income levels to produce an after-tax yield equivalent to
the Fund's tax-exempt yield.
The investment results of the Fund will fluctuate over time and should not be
considered a representation of the Fund's performance in the future.
Performance information may be obtained by calling the Distributor at (800)221-
7930.
ORGANIZATION
The Trust was organized on August 15, 1996 as a Massachusetts business trust.
The Trust currently has three series of shares, including the Fund offered by
this Prospectus. The Trustees have authorized two classes of shares of the
Fund: (a) the Pierpont Shares offered by this Prospectus and (b) the JPM
Institutional Shares offered pursuant to a separate prospectus. The Pierpont
Shares and the JPM Institutional Shares are subject to different expenses, which
may affect the performance of each class. More information about the JPM
Institutional Shares may be obtained by calling (___) ___-____. The Trustees
reserve the right to authorize and issue additional series and classes of
shares.
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Shareholders of the Fund are entitled to one full or fractional vote for each
dollar or fraction of a dollar invested in Pierpont Shares. There is no
cumulative voting and shares have no preemption or conversion rights. The Trust
does not intend to hold meetings of shareholders annually. The Trustees will
call meetings of shareholders to the extent required by the Trust's Declaration
of Trust or the 1940 Act. The 1940 Act requires the Trustees, under certain
circumstances, to call a meeting to allow shareholders to vote on the removal of
a Trustee and to assist shareholders in communicating with each other.
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JPM SERIES TRUST
PIERPONT: CALIFORNIA BOND FUND
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
PROSPECTUS
NOVEMBER 1, 1996
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PROSPECTUS
JPM SERIES TRUST
JPM INSTITUTIONAL SHARES: CALIFORNIA BOND FUND
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
FOR INFORMATION, CALL (800)521-5411
California Bond Fund (the "Fund") seeks to provide a high after tax total return
for California residents consistent with moderate risk to capital. The Fund is
designed for investors subject to federal and California personal income taxes
who are seeking a high after tax total return that may include some taxable
income and gains.
The Fund is a series of JPM Series Trust (the "Trust") and is advised by Morgan
Guaranty Trust Company of New York ("Morgan" or the "Advisor").
This Prospectus sets forth concisely the information about the JPM Institutional
Shares of the Fund that a prospective investor should know before investing and
should be retained for future reference. Additional information has been filed
with the Securities and Exchange Commission in a Statement of Additional
Information dated November 1, 1996, as amended or supplemented from time to
time. This information is incorporated herein by reference and is available
without charge upon written request from the Fund's Distributor or by calling
(800)221-7930. The Fund's Distributor is Funds Distributor, Inc. ("FDI"), 60
State Street, Suite 1300, Boston, Massachusetts 02109, Attention: California
Bond Fund.
JPM INSTITUTIONAL SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY
OTHER BANK. JPM INSTITUTIONAL SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENT AGENCY. THE VALUE OF AN INVESTMENT IN THE FUND MAY FLUCTUATE
AND MAY, AT THE TIME IT IS REDEEMED, BE HIGHER OR LOWER THAN THE AMOUNT
ORIGINALLY INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1996
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TABLE OF CONTENTS
PAGE
Shareholder and Fund Expenses 3
Investment Objective and Policies 4
Additional Investment Practices and Risks 5
Management of the Fund 8
Net Asset Value 10
Purchase of Shares 10
Redemption of Shares 11
Exchange of Shares 12
Dividends and Distributions 12
Taxes 12
Additional Information 14
Organization 15
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JPM
SHAREHOLDER TRANSACTION EXPENSES INSTITUTIONAL
SHARES
------
Maximum Sales Charge Imposed on
Purchases None
Sales Charge Imposed on
Reinvested Distributions None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
EXPENSE TABLE
ANNUAL OPERATING EXPENSES(1)
Advisory Fees .30%
Rule 12b-1 Fees None
Other Expenses (after expense
reimbursement) .15%
Total Operating Expenses (after
expense reimbursement) .45%
(1) These expenses are based on the estimated expenses and estimated average
net assets for the Fund's first fiscal year, after any applicable expense
reimbursement. Without such expense reimbursement, the estimated Other
Expenses and Total Operating Expenses would be equal on an annual basis to
.37% and .67%, respectively, of average daily net assets.
EXAMPLE
An investor would pay the following expenses on a hypothetical $1,000
investment, assuming a 5% annual return and redemption at the end of each
time period. (However, the Fund's minimum initial investment is greater than
$1,000.)
1 Year $ 5
3 Years $15
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in
JPM Institutional Shares of the Fund bear. THE EXAMPLE IS INCLUDED SOLELY
FOR ILLUSTRATIVE PURPOSES AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE PERFORMANCE OR EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN
THOSE SHOWN.
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of California Bond Fund is to provide a high after tax
total return to investors subject to California personal income taxes consistent
with moderate risk to capital. The Fund invests primarily in California
Municipal Securities (defined below) the income from which is exempt from
federal and California personal income taxes. It may also invest in other
municipal securities that generate income exempt from federal income tax but not
California income tax. In addition, in order to maximize total return, the Fund
may invest in taxable debt obligations to the extent consistent with its
objective.
WHO MAY BE A SUITABLE INVESTOR IN THE FUND. The Fund is designed for investors
subject to California personal income taxes who are seeking high after tax
return, but are not adverse to receiving some taxable income and gains. The
Fund is not suitable for tax-deferred retirement or pension plans, including
Individual Retirement Accounts (IRAs), 401(k) plans and 403(b) plans. The Fund
intends to pay redemption proceeds exceeding certain amounts by an in-kind
distribution of portfolio securities and may not be suitable for investors
desiring to receive only cash proceeds. See "Redemption of Shares -- Redemption
in Kind." The Fund is not a complete investment program and there is no
assurance that the Fund will achieve its investment objective.
PRIMARY INVESTMENTS. Under normal market conditions, the Fund invests at least
65% of its total assets in California municipal bonds. For purposes of this
policy, "California municipal bonds" has the same meaning as "California
Municipal Securities," which are obligations of any duration (or maturity)
issued by California, its political subdivisions and their agencies, authorities
and instrumentalities and any other obligations, the interest from which is
exempt from California personal income tax. The interest from many but not all
California Municipal Securities is also exempt from federal income tax. The
Fund may invest up to 35% of its total assets in debt obligations of state and
municipal issuers outside of California. In general, the interest on such
securities is exempt from federal income tax but subject to California income
tax. A portion of the Fund's distributions from interest on California
Municipal Securities and other municipal securities in which the Fund invests
may under certain circumstances be subject to federal alternative minimum tax.
See "Taxes."
MUNICIPAL SECURITIES. The Fund may invest in municipal securities of any
maturity and type. These include both general obligation bonds secured by the
issuer's pledge of its full faith, credit and taxing authority and revenue bonds
payable from specific revenue sources, but generally not backed by the issuer's
taxing authority. In addition, the Fund may invest in all types of municipal
notes, including tax, revenue and grant anticipation notes, municipal commercial
paper, and municipal demand obligations such as variable rate demand notes and
master demand obligations. There is no specific percentage limitation on these
investments.
NON-MUNICIPAL SECURITIES. The Fund may invest in U.S. Government, bank and
corporate debt obligations, as well as asset and mortgage backed securities and
repurchase agreements. The Fund will purchase such securities only when Morgan
believes that they would enhance the after-tax total return of a shareholder of
the Fund in the highest federal and California income tax brackets.
CREDIT QUALITY. The Fund will invest primarily in investment grade securities,
which are obligations rated at the time of purchase at least Baa by Moody's
Investors Service, Inc. or BBB by Standard & Poor's Ratings Group. Securities
rated Baa or BBB are considered to have certain speculative characteristics.
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The Fund may also invest up to [10]% of its total assets in below investment
grade municipal and taxable securities rated at least B. Such securities are
sometimes referred to as "junk bonds." Below investment grade securities
typically are subject to greater fluctuations in price and yield resulting in a
greater volatility of total return than investment grade bonds. These
fluctuations may be sharp and unanticipated. Issuers of below investment grade
securities typically are weak in financial health and their ability to repay
interest or principal is uncertain. Compared to issuers of investment grade
bonds, they are more likely to encounter financial difficulties and to be
materially affected by these difficulties when they do encounter them. As a
result, markets for below investment grade securities may react strongly to
adverse news about an issuer or the economy, or to the perception or expectation
of adverse news. If a security purchased by the Fund is later downgraded below
B, the Fund may continue to hold the security.
HOW THE FUND'S PORTFOLIO IS MANAGED. Morgan actively manages the Fund's
duration, the allocation of securities across market sectors and the selection
of securities to maximize after tax total return. Morgan adjusts the Fund's
duration based upon fundamental economic and capital markets research and
Morgan's interest rate outlook.
Under normal market conditions, the Fund will have a duration of three to ten
years, although the maturities of individual portfolio securities may vary
widely. Duration measures the price sensitivity of the Fund's portfolio,
including expected cash flow under a wide range of interest rate scenarios. A
longer duration generally results in greater price volatility with the result
that when interest rates increase, the price of longer duration securities
decrease more than securities with shorter duration and when interest rates
decrease, the price of longer duration securities increase more than those of
shorter duration.
Morgan also seeks to enhance after tax total return by allocating the Fund's
assets among market sectors. Specific securities which Morgan believes are
undervalued are selected for purchase using advanced quantitative tools,
analysis of credit risk, the expertise of a dedicated trading desk and the
judgment of fixed income portfolio managers and analysts.
The Fund may engage in short-term trading to the extent consistent with its
objective. Morgan estimates that the Fund's annual portfolio turnover rate
generally will not exceed 100%. Portfolio transactions may generate taxable
capital gains and result in increased transaction costs.
TAX MANAGEMENT TECHNIQUES. Morgan considers the tax consequences to investors
of all portfolio transactions. The success of this strategy depends upon
Morgan's ability accurately to forecast changes in interest rates and assess the
value of fixed income securities.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
NON-DIVERSIFICATION. Because the Fund is a non-diversified investment company,
the Investment Company Act of 1940 (the "1940 Act") does not limit the
percentage of the Fund's assets that may be invested in the securities of a
single issuer. To the extent that the Fund invests a greater percentage of its
assets in a smaller number of issuers, its portfolio will be subject to more
concentrated credit and liquidity risk than a more diversified fund. The Fund
must still comply with the quarterly diversification requirements under the
Internal Revenue Code of 1986 (the "Code") under which, with respect to 50% of
its total assets, the Fund generally may not invest more than 5% of its assets
in any one issuer. With respect to the other 50% of total assets, the Fund may
invest up to 25% of its assets in the securities of each of any two issuers.
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LIQUIDITY. The secondary market for municipal securities is generally less
liquid than for taxable fixed-income securities. These risks are accentuated to
the extent that the Fund, by itself or together with other funds managed by
Morgan and/or its affiliates, owns all or a substantial portion of an issue of
municipal securities. In addition, if the issuer of such securities defaults,
the Fund could be required to seize and manage, or dispose of under adverse
market conditions, collateral, which could increase the Fund's operating
expenses, lower the Fund's net asset value and generate taxable income.
CONCENTRATION. The Fund will not invest more than 25% of its total assets in
any one industry. Governmental issuers of municipal securities are not
considered part of any industry for this purpose. However, taxable municipal
securities backed only by the assets or revenues of nongovernmental users may be
deemed to be issued by such issuers, and the 25% limitation would apply to such
obligations.
The Fund may invest more than 25% of its assets in certain sectors of the
municipal securities market, such as revenue obligations of hospitals and other
health care facilities, housing agency obligations, transportation related
obligations and utilities related obligations. The Fund will concentrate in a
particular market sector only if Morgan determines that the yields available
from issuers in the sector justify the additional risks. To the extent that the
Fund concentrates in a particular market sector, its portfolio will be more
exposed to adverse economic, business, political and other developments
affecting issuers or users within that sector.
CALL RISK. The Fund may invest in municipal securities that permit the issuer
to "call" or redeem the securities. If the issuer calls these securities when
interest rates are falling, the Fund may not be able to reinvest the proceeds in
securities providing a comparable return.
ZERO COUPON BONDS. The Fund may invest in "zero coupon" bonds that pay interest
only upon maturity. Zero coupon bonds may present a greater risk of price
volatility and credit problems than other bonds and involve certain special tax
considerations. See "Taxes."
CALIFORNIA MUNICIPAL SECURITIES. Since the Fund invests primarily in California
Municipal Securities, its performance and the ability of California issuers to
meet their obligations may be affected by economic, political, demographic or
other conditions in California. As a result, the value of the Fund's JPM
Institutional Shares may fluctuate more widely than the value of shares of a
fund investing in securities of issuers in multiple states. The ability of
state, county or local governments to meet their obligations will depend
primarily on the availability of tax and other revenues to those governments and
on their general fiscal conditions. Constitutional or statutory restrictions
may limit a municipal issuer's power to raise revenues or increase taxes. The
availability of federal, state and local aid to issuers of California Municipal
Securities may also affect their ability to meet their obligations. Payments of
principal and interest on revenue bonds will depend on the economic condition of
the facility or specific revenue source from whose revenues the payments will be
made. Any reduction in the actual or perceived ability of an issuer of
California Municipal Securities to meet its obligations (including a reduction
in the rating of its outstanding securities) would probably reduce the market
value and marketability of the Fund's portfolio securities.
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SECURITIES LOANS, REPURCHASE AGREEMENTS AND WHEN-ISSUED AND DELAYED DELIVERY
SECURITIES. The Fund may lend portfolio securities amounting to not more than
one third of its assets to broker-dealers and may enter into repurchase
agreements. These transactions must be fully collateralized at all times. The
Fund may also purchase securities on a when-issued or delayed delivery basis,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date. Lending,
repurchase agreement and when-issued transactions involve the risk that the
other party may default on its obligation and the Fund could be delayed in or
prevented from recovering the collateral or completing the transaction.
PUTS. The Fund may purchase municipal securities together with a right to
resell or "put" the securities back to the seller on agreed upon terms. The Fund
may pay a premium to purchase securities with a put feature. A put involves the
risk that the counterparty will default on its obligations to repurchase the
underlying securities.
STRUCTURED DEBT SECURITIES. The Fund may invest in structured debt securities
which may include various types of derivative securities such as tender option
bonds, floating rate securities that are subject to a maximum interest rate
(capped floaters), leveraged floating rate securities (super floaters) and
leveraged inverse floating rate securities (inverse floaters). The interest
rate or, in some cases, the principal payable at the maturity of a structured
debt security may change positively or inversely in relation to one or more
interest rates, financial indices or other financial indicators. In addition,
the yield on a structured security may fail to track the yield on conventional
securities of comparable maturity. A structured debt security may be leveraged
to the extent that the magnitude of any change in the interest rate or principal
payable on an indexed security is a multiple of the change in the underlying
interest rate or index. Thus, leveraged structured securities may experience
greater price volatility than conventional debt securities in response to
changes in interest rates or other reference prices.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities, including certain restricted and private
placement securities. It can be difficult to dispose of illiquid securities
quickly or at a price that fully reflects their fair value. Restricted
securities that are eligible for resale in reliance on Rule 144A under the
Securities Act of 1933 and that are determined to be liquid are not subject to
the Fund's 15% limit on illiquid investments.
FUTURES AND OPTIONS TRANSACTIONS. The Fund may enter into derivative contracts
to hedge against fluctuations in securities prices or for risk management
purposes. These derivative contracts may include the purchase or sale of
futures contracts on securities or indices; options on futures contracts; and
options on securities or indices.
All of the Fund's transactions in derivative contracts involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices. The
Fund incurs liability to a counterparty in connection with transactions in
futures contracts and the writing of options. As a result, the loss on these
derivative contracts may exceed the Fund's initial investment. The Fund may
also lose the entire premium paid for purchased options that expire before they
can be profitably exercised by the Fund. In addition, the Fund incurs
transaction costs in opening and closing positions in derivative contracts.
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Derivative contracts may sometimes increase or leverage the Fund's exposure to
a particular market risk. Leverage magnifies the price volatility of derivative
contracts held by the Fund. The Fund may partially offset the leverage inherent
in derivative contracts by maintaining a segregated account consisting of cash
and liquid securities, by holding offsetting portfolio securities or contracts
or by covering written options.
The Fund's success in using derivative contracts to hedge portfolio assets
depends on the degree of price correlation between the derivative contract and
the hedged asset. Imperfect correlation may be caused by several factors,
including temporary price disparities among the trading markets for the
derivative contract, the assets underlying the derivative contract and the
Fund's portfolio assets.
During periods of extreme market volatility, a commodity or options exchange may
suspend or limit trading in an exchange-traded derivative contract, which may
make the contract temporarily illiquid and difficult to price. The staff of the
Securities and Exchange Commission ("SEC") takes the position that certain over-
the-counter options are subject to the Fund's 15% limit on illiquid investments.
The Fund's ability to terminate over-the-counter derivative contracts may depend
on the cooperation of the counterparties to such contracts. For thinly traded
derivative contracts, the only source of price quotations may be the selling
dealer or counterparty. In addition, derivative securities and over-the-counter
derivative contracts involve a risk that the issuer or counterparty will fail to
perform its contractual obligations.
The Fund's investment in certain derivative contracts may result in the
realization of taxable income and capital gains.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. The Fund may (1) borrow money from
banks solely for temporary or emergency (but not for leverage) purposes and (2)
may enter into reverse repurchase agreements for any purpose. The aggregate
amount of such borrowings and reverse repurchase agreements may not exceed one-
third of the Fund's total assets. Using the cash proceeds of reverse repurchase
agreements to finance the purchase of additional investments is a form of
leverage. Leverage magnifies the sensitivity of the Fund's net asset value to
changes in the market prices of the Fund's portfolio securities.
INVESTMENT POLICIES AND RESTRICTIONS. Except as otherwise stated in this
Prospectus or the Fund's Statement of Additional Information, the Fund's
investment objectives, policies and restrictions are not fundamental and may be
changed without shareholder approval.
MANAGEMENT OF THE FUND
TRUSTEES. The Fund is a series of the Trust. The Trustees of the Trust decide
upon matters of general policy and review the actions of the Advisor and other
service providers. The Trustees of the Trust are identified below. An asterisk
indicates that a Trustee is an "interested person" of the Trust. The full Board
will be elected prior to effectiveness of the Trust registration statement.
Please see the statement of additional information for the information
concerning the Trust's initial trustees.
[ ] Nomura Professor of Finance,
Massachusetts Institute of Technology.
[ ] Retired. Consultant, Northrop Grumman
Corporation.
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[ ] Retired. Consultant, J.P. Morgan.
[ ] Executive Vice President, Ford Motor
Company; President, Ford Financial
Services Group; Director, Ford Motor
Credit Company; and Director and
President, Ford Holdings, Inc.
[ ] Partner, Sullivan & Cromwell.
ADVISOR. The Fund has retained the services of Morgan as investment advisor.
Morgan provides investment advice and portfolio management services to the Fund.
Subject to the supervision of the Trustees, Morgan makes the Fund's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Fund's investments.
Morgan, with principal offices at 60 Wall Street, New York, NY 10260, is a New
York trust company that conducts a general banking and trust business. Morgan
is a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"),
a bank holding company organized under the laws of Delaware. Through offices in
New York City and abroad, J.P. Morgan, through the Advisor and other
subsidiaries, offers a wide range of services to governmental, institutional,
corporate and individual customers and acts as investment advisor to individual
and institutional clients with combined assets under management of over $178
billion (of which the Advisor advises over $29 billion).
Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. For fixed-income portfolios, this process focuses on the
systematic analysis of real interest rates, sector diversification and
quantitative and credit analysis. Morgan has managed portfolios of domestic
fixed-income securities on behalf of its clients for over 50 years. The
portfolio managers making investments in domestic fixed-income securities work
in conjunction with fixed-income, credit, capital market and economic research
analysts, as well as traders and administrative officers.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's investment process for the Fund:
_________________________, [Title](since ______________________, employed by
Morgan as ________________ since before _____); and _________________________,
[Title](since ______________________, employed by Morgan as ________________
since before _____).
As compensation for the services rendered and related expenses borne by Morgan
under its investment advisory agreement with the Fund, the Fund has agreed to
pays Morgan a monthly fee at the annual rate of 0.30% of the Fund's average
daily net assets.
CO-ADMINISTRATOR AND DISTRIBUTOR. Pursuant to Co-Administration Agreements with
the Trust, FDI serves as the Co-Administrator for the Fund. FDI (i) provides
office space, equipment and clerical personnel for maintaining the organization
and books and records of the Fund; (ii) provides officers for the Trust;
(iii) prepares and files documents required for the Fund's state securities law
registrations; (iv) reviews and files marketing and sales literature; (v) files
Fund and Fund regulatory documents and mails Fund communications to Trustees and
investors; and (vi) maintains related books and records. FDI, a wholly owned
indirect subsidiary of Boston Institutional Group, Inc., is a registered broker-
dealer and serves as the Fund's distributor.
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ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust, Morgan provides administrative and related services to the
Fund, including services related to tax compliance, preparation of financial
statements, calculation of performance data, oversight of service providers and
certain regulatory and Board of Trustees matters.
Under the Co-Administration Agreements and the Administrative Services
Agreements, the Fund has agreed to pay Morgan and FDI fees equal to its
allocable share of an annual complex-wide charge. This charge is calculated
daily based on the aggregate net assets of the Fund, the other series of the
Trust and the portfolios (collectively the "Master Portfolios") in which series
of The Pierpont Funds, The JPM Institutional Funds or The JPM Advisor Funds
invest 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 Master Portfolios' average daily net assets in excess of $7 billion.
FUND SERVICES AGREEMENT. Pursuant to Fund Services Agreements with the Trust,
JPM Institutional Group, Inc. ("PGI"), 461 Fifth Avenue, New York, NY 10017,
assists the Trustees in exercising their overall supervisory responsibilities
for the affairs of the Trust. PGI provides these services to the Trustees at
cost.
SHAREHOLDER SERVICING. Under a shareholder service agreement with the Trust,
Morgan, acting directly or through an agent, provides account administration and
personal and account maintenance services to Fund shareholders. These services
include assisting in the maintenance of accurate account records; processing
orders to purchase and redeem shares of the Fund; and responding to shareholder
inquiries. The Fund has agreed to pay Morgan for these services at an annual
rate of .075% of the average daily net assets of the Fund.
CUSTODIAN AND TRANSFER AGENT. State Street Bank & Trust Company, 225 Franklin
Street, Boston, MA 02101, serves as the Fund's custodian and transfer and
dividend disbursing agent.
EXPENSES. The Fund is responsible for all expenses not expressly assumed by one
of the service providers identified above. These include, among other things,
organization expenses, legal fees, accounting expenses, insurance costs, the
compensation and expenses of the Trustees, the expenses of printing and mailing
reports, notices and proxy statements to Fund shareholders, registration fees
under federal and state securities laws, transfer agent costs, Investment
Company Institute dues, brokerage commissions, interest, taxes and extraordinary
expenses (such as for litigation).
Morgan has agreed that it will reimburse the Fund through at least the date
listed below to the extent necessary to maintain the Fund's operating expenses
at the annual rate of 0.45% of the Fund's average daily net assets. This expense
reimbursement does not apply to taxes, interest, brokerage commissions,
litigation costs and other extraordinary expenses.
NET ASSET VALUE
The Fund computes the net asset value per share ("NAV") of the JPM
Institutional Shares at the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York time) on each weekday that is not a
holiday listed in the Statement of Additional Information (a "business day").
If the New York Stock Exchange closes early, the time of computing NAV and
the deadlines for purchasing and redeeming shares will be accelerated to the
early closing time. The
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NAV of the JPM Institutional Shares is determined by subtracting from the
value of the Fund's total assets attributable to the JPM Institutional Shares
the amount of the JPM Institutional Shares' liabilities and dividing the
remainder by the number of outstanding JPM Institutional Shares.
PURCHASE OF SHARES
PURCHASE ORDERS AND PAYMENTS. JPM Institutional Shares may be purchased at
the NAV next determined after receipt of an order, provided that immediately
available funds have been transmitted to the Distributor by the close of the
next business day after the order date. Investors may open accounts with the
Fund only through the Distributor. All purchase orders must be accepted by
the Distributor. Purchase orders received by the Fund before 4:00 p.m. New
York time will be effected at the NAV determined on that day. Purchase
orders received by the Fund after 4:00 p.m. New York time will be effected at
the NAV determined on the next business day. [However, shares of the Fund will
be issued only upon receipt of the purchase payment.] Prospective investors may
obtain assistance in placing purchase orders (1) by contacting their client
representatives at Morgan or an intermediary designated by the Distributor as
an Eligible Institution or (2) by calling J.P. Morgan Funds Services at (800)
521-5411.
MINIMUM INVESTMENT REQUIREMENTS. The Fund requires a minimum initial investment
of $500,000. The minimum subsequent investment for all investors is $25,000.
These minimum investment requirements may be waived for investors for whom the
Advisor is a fiduciary, who are employees of the Advisor or who maintain related
accounts with an affiliated investment company, The JPM Institutional Funds, or
with the Adviser or maintain investments in The JPM Institutional Funds (other
than the money market funds), if such accounts and/or investments total $500,000
or more.
For investment advisors, trust companies and financial advisors who make
investments for a group of clients, the minimum investment in the Fund is (1)
$100,000 per individual client or (2) $250,000 for an aggregated purchase order
for more than one client. The Fund may permit an investor who is investing for a
group of clients to attain the $250,000 minimum investment within a reasonable
period of time that will be no longer than 13 months after opening an account.
The Trust and the Distributor each reserves the right to reject any purchase
order or to suspend the offering of JPM Institutional Shares.
REDEMPTION OF SHARES
REDEMPTION ORDERS AND PAYMENTS. To redeem shares of the Fund, a shareholder may
instruct a client representative at Morgan or an Eligible Institution to submit
a redemption request to the Fund. Alternatively, a shareholder may redeem
shares directly by telephoning J.P. Morgan Funds Services at (800) 521-5411 and
giving to a shareholder service representative the shareholder's preassigned
personal identification number and the amount of the redemption.
A redemption request received by the Fund in proper form before 4:00 p.m. New
York time will be effected on that day at the NAV determined on that day. A
redemption request received after 4:00 p.m. New York time will be effected on
the next business day at the NAV determined on that day. The proceeds of a
redemption generally are deposited on the first business day after the
redemption date in immediately available funds to the shareholder's account
at Morgan or at the shareholder's Eligible Institution. For certain Morgan
customers, the redemption proceeds are
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wire transferred or mailed by check in accordance with the customers'
instructions. [With the exceptions described below, all payments of redemption
proceeds will be made within one business day after the redemption date.]
REDEMPTION IN KIND. The Fund has the ability to pay redemption proceeds by an
in-kind distribution of portfolio securities to the extent that the amount of
the redemption exceeds, during any 90-day period, the lesser of $250,000 or one
percent of the Fund's net asset value. (Although entitled to receive the first
$250,000 of redemption proceeds in cash, a redeeming shareholder may elect to
have the entire amount of a redemption distributed in-kind.) The Fund will
select portfolio securities for in-kind redemptions in a manner that is believed
to be fair to both redeeming and non-redeeming shareholders. For purposes of
effecting in-kind redemptions, securities will be valued in the manner regularly
used to value the Fund's portfolio securities. A shareholder who receives an
in-kind distribution of redemption proceeds may incur brokerage or other
transaction costs in liquidating the distributed securities. There is also a
risk that the securities distributed in-kind may decline in value before they
can be sold by the redeeming shareholder. Although an in-kind redemption will
not cause a Fund to realize capital gains, redeeming shareholders may realize
taxable capital gains based on the difference between the cost basis and
redemption price of their shares.
OTHER REDEMPTION PROCESSING INFORMATION. Redemption requests may not be
processed if the redemption request is not submitted in proper form. A
redemption request is not in proper form unless the Fund has received the
shareholder's certified tax payer identification number and address. In
addition, if shares were paid for by check and the check has not yet cleared,
redemption proceeds will not be transmitted until the check has cleared, which
may take up to 15 days. The Fund reserves the right to suspend the right of
redemption or postpone the payment of redemption proceeds to the extent
permitted by the SEC. Shareholders may be required to recognize taxable gains
or losses upon redeeming JPM Institutional Shares.
MANDATORY REDEMPTION. If a redemption of JPM Institutional Shares reduces the
value of a shareholder's account balance below the required initial minimum
investment or the value of a shareholder's account balance does not achieve the
required initial minimum investment within the prescribed time period, the Fund
may redeem the remaining shares in the account 60 days after providing written
notice to the shareholder of the mandatory redemption. An account will not be
subject to mandatory redemption if the shareholder purchases sufficient shares
during the 60 day period to increase the account balance to the required minimum
investment amount.
EXCHANGE OF SHARES
An investor may exchange shares of the Fund for shares of any other [Pierpont
Fund or JPM Institutional Fund without charge subject to the same minimum amount
requirements as are applicable to purchases of shares of such funds. Exchanges
are in effect a redemption from one fund followed by a purchase of another fund
and are therefore subject to the requirements applicable to share purchases and
redemptions. Exchanges may result in the recognition of taxable gains or
losses. The Fund reserves the right to terminate or alter the terms of the
exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
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The Fund intends to distribute substantially all of its net investment income.
The net investment income of the Fund is declared as a dividend daily
immediately prior to the determination of the net asset value of the Fund on
that day and paid monthly. If an investor's shares are redeemed during a month,
that accrued but unpaid dividends are paid with the redemption proceeds. The
net investment income of the Fund for dividend purposes consists of its pro rata
share of the net income of the Fund less the Fund's expenses. Expenses of the
Fund, including the fees payable to Morgan, are accrued daily. JPM
Institutional Shares will accrue dividends as long as they are issued and
outstanding. Shares are issued and outstanding as of the settlement date of a
purchase order to the settlement date of a redemption order.
Substantially all the realized net capital gains, if any, of the Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund.
The Fund's dividends and distributions are paid in additional JPM Institutional
Shares unless the shareholder elects to have them paid in cash. The tax effects
of dividends and distributions are the same whether they are paid in shares or
cash. Cash dividends and distributions either (1) are credited to the
shareholder's account at Morgan or the shareholder's Eligible Institution or (2)
in the case of certain Morgan clients, are paid by a check mailed in accordance
with the clients' instructions.
TAXES
The Fund is treated as a separate entity for tax purposes. The Fund intends to
elect to be treated and qualify each year as a regulated investment company
under Subchapter M of the Code. To qualify as such, the Fund must satisfy
certain requirements relating to the sources of its income, diversification of
its assets and distribution of its income to shareholders. As a regulated
investment company, the Fund will not be subject to federal income or excise tax
on any net investment income and net realized capital gains that are distributed
to shareholders in accordance with certain timing requirements of the Code.
Dividends attributable to tax-exempt interest earned by the Fund and designated
by the Fund as "exempt-interest dividends" are not generally subject to federal
income tax. However, an investor receiving Social Security or railroad
retirement benefits should consult his tax adviser to determine if an investment
in the Fund may affect the federal taxation of these benefits. California does
not tax any portion of such benefits. To the extent that exempt-interest
dividends are derived from interest on California Municipal Securities, such
distributions will also be exempt from California personal income tax. However,
these exempt-interest dividends may result in liability for state and local
taxes for individual shareholders subject to taxation by other states and
municipalities outside of California.
For federal income tax purposes, dividends other than exempt interest dividends
paid by the Fund from net investment income and the excess of net short-term
capital gain over net long term capital loss will be taxable to its shareholders
as ordinary income. Dividends paid by the Fund from the excess of net long-term
capital gain over net short-term capital loss and designated by the Fund as
"capital gain dividends" will be taxable as long-term capital gains regardless
of how long shareholders have held their shares. These tax consequences will
apply whether distributions are received in additional shares or in cash.
Shareholders will be informed annually about the amount and character, for
federal and California personal income tax purposes, of distributions received
from the Fund.
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For California personal income tax purposes, distributions derived from
investments other than California Municipal Securities and U.S. Government
securities that pay interest exempt from state personal income taxation, as well
as distributions from any net realized capital gains, will be taxable whether
taken in cash or reinvested in additional JPM Institutional Shares.
An investment in JPM Institutional Shares of the Fund may result in or increase
liability for federal alternative minimum tax, both for individual and corporate
investors. To the extent that the Fund invests in California Municipal
Securities or other municipal securities the interest from which is subject to
federal alternative minimum tax, individual shareholders, depending on their own
tax status, may be subject to federal but not California alternative minimum tax
on that portion of the Fund's distributions attributable to such income. An
investment in JPM Institutional Shares of the Fund may cause corporate investors
to be subject to (or increase their liability under) both California corporate
taxation and, because all or a portion of tax-exempt income is generally
included in the alternative minimum taxable income of corporations, the federal
alternative minimum tax.
Investor who are, or are related to, "substantial users" of bond-financed
facilities should consult their tax advisors prior to purchasing JPM
Institutional Shares of the Fund.
Investors should consider the adverse tax implications of buying shares
immediately before a distribution. Investors who purchase shares shortly before
the record date for a taxable distribution will pay a per share price that
includes the value of the anticipated distribution and will be taxed on the
distribution even though the distribution represents a return of a portion of
the purchase price.
The Fund generally will be required to recognize accrued income on its
investments in zero coupon bonds each taxable year, even though no corresponding
amount of cash may be received during that year, and may have to obtain cash
from other sources to enable it to satisfy certain income distribution
requirements applicable to the Fund under the Code.
Redemptions (including exchanges) of shares, whether for cash or in-kind, are
taxable events on which a shareholder may recognize a gain or loss and may be
subject to special tax rules if the redeemed shares were held less than six
months or if a reinvestment occurs. Individuals and certain other shareholders
may be subject to 31% backup withholding of federal income tax on taxable
distributions and the proceeds of redemptions if they fail to furnish their
correct taxpayer identification number and certain certifications or if they are
otherwise subject to backup withholding.
The foregoing summarizes certain federal and California income tax consequences
of investing in the Fund. Shareholders are urged to consult their own tax
advisors concerning specific questions about federal, state and local taxes.
ADDITIONAL INFORMATION
SHAREHOLDER REPORTS AND CONFIRMATIONS. The Fund sends to its shareholders
annual and semiannual reports. The financial statements appearing in annual
reports are audited by independent accountants. Shareholders will also be sent
confirmations of each purchase and redemption transaction and monthly statements
reflecting all account activity.
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TELEPHONE TRANSACTIONS. All shareholders are entitled to initiate redemptions
and other transactions by telephone. However, a transaction authorized by
telephone and reasonably believed by the Fund, Morgan, an Eligible Institution
or the Distributor to be genuine may result in a loss to the investor if the
transaction is not in fact genuine. The Fund will employ reasonable procedures
to confirm that investor instructions communicated by telephone are genuine.
These include requiring investors to give their personal identification numbers
and tape recording telephone instructions. If these procedures are not
followed, the Fund, Morgan, the investor's Eligible Institution or the
Distributor may be liable for any losses resulting from unauthorized or
fraudulent instructions.
PERFORMANCE ADVERTISING. The Fund may advertise historical performance
information and compare its performance to other investments or relevant
indexes. An advertisement may also include data supplied by Lipper Analytical
Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson Associates and other
industry publications.
The Fund may advertise average annual total return and other forms of total
return data. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at NAV for specified
periods ending with the most recent calendar quarter. The total return
calculation assumes a complete redemption of the investment at the end of the
relevant period. The Fund may also advertise total return on a cumulative,
average, year-by-year or other basis for specified periods.
In addition, the Fund may advertise yield and "tax-equivalent yield." Yield
reflects the Fund's rate of income on portfolio investments as a percentage of
its NAV. The yield on JPM Institutional Shares is computed by annualizing the
result of dividing the net investment income per JPM Institutional Share over a
30 day period by the NAV on the last day of that period. Yield is calculated by
accounting methods that are standardized for all stock and bond funds and differ
from the methods used for other accounting purposes. Therefore, the yield on
JPM Institutional Shares may not equal the income paid on these shares or the
income reported in the Fund's financial statements. Tax-equivalent yield shows
the effect on performance of the tax-exempt status of distributions received by
the Fund. It reflects the approximate yield that a taxable investment must earn
for shareholders at stated income levels to produce an after-tax yield
equivalent to the Fund's tax-exempt yield.
The investment results of the Fund will fluctuate over time and should not be
considered a representation of the Fund's performance in the future.
Performance information may be obtained by calling the Distributor at (800)221-
7930.
ORGANIZATION
The Trust was organized on August 15, 1996 as a Massachusetts business trust.
The Trust currently has three series of shares, including the Fund offered by
this Prospectus. The Trustees have authorized two classes of shares of the
Fund: (a) the JPM Institutional Shares offered by this Prospectus and (b) the
Pierpont Shares offered pursuant to a separate prospectus. The JPM
Institutional Shares and the Pierpont Shares are subject to different expenses,
which may affect the performance of each class. More information about the
Pierpont Shares may be obtained by calling (___) ___-____. The Trustees reserve
the right to authorize and issue additional series and classes of shares.
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<PAGE>
Shareholders of the Fund are entitled to one full or fractional vote for each
dollar or fraction of a dollar invested in JPM Institutional Shares. There is
no cumulative voting and shares have no preemption or conversion rights. The
Trust does not intend to hold meetings of shareholders annually. The Trustees
will call meetings of shareholders to the extent required by the Trust's
Declaration of Trust or the 1940 Act. The 1940 Act requires the Trustees, under
certain circumstances, to call a meeting to allow shareholders to vote on the
removal of a Trustee and to assist shareholders in communicating with each
other.
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<PAGE>
JPM SERIES TRUST
JPM INSTITUTIONAL SHARES: CALIFORNIA BOND FUND
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST
OR THE DISTRIBUTOR TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
PROSPECTUS
NOVEMBER 1, 1996
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JPM SERIES TRUST
TAX AWARE ACTIVE EQUITY FUND
TAX AWARE RESEARCH ENHANCED INDEX FUND
CALIFORNIA BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1996
This Statement of Additional Information is not a Prospectus but contains
additional information which should be read in conjunction with the Prospectus
for the Fund or Funds listed above, as supplemented from time to time, which may
be obtained upon request from Funds Distributer, Inc., 60 State Street, Suite
1300, Boston, Massachusetts 02109, Attention: [Name of Fund (800)221-7930.
<PAGE>
Table of Contents
PAGE
General.................................
Investment Objectives and Policies.....
Investment Restrictions.................
Trustees and Officers...................
Investment Advisor......................
Co-Adminstrator and Distributor.........
Services Agent. ......................
Custodian and Transfer Agent............
Shareholder Servicing...................
Independent Accountants.................
Expenses................................
Purchase of Shares......................
Redemption of Shares....................
Exchange of Shares......................
Net Asset Value.........................
Performance Data........................
Portfolio Transactions..................
Massachusetts Trust.....................
Description of Shares...................
Taxes...................................
Additional Information..................
Financial Statements....................
Appendix A - Description of Securities
Ratings.................................
Appendix B - Additional Information
Concerning California Municipal
Obligations.............................
<PAGE>
GENERAL
Each of Tax Aware Active Equity Fund (the "Active Fund"), Tax Aware Research
Enhanced Index Fund (the "Enhanced Fund," and together with the Active Fund, the
"Equity Funds") and California Bond Fund (the "California Fund"), is a series of
JPM Series Trust, an open-end management investment company organized as a
Massachusetts business trust (the "Trust"). The Equity Funds and California Fund
are referred to collectively as the "Funds." The Trustees of the Trust have
authorized two classes of shares of each Fund -- Pierpont Shares and JPM
Institutional Shares. Both classes of shares are currently being offered to
the public pursuant to separate prospectuses.
This Statement of Additional Information provides additional information
with respect to the Funds, and should be read in conjunction with the applicable
current Prospectuses. Capitalized terms not otherwise defined in this Statement
of Additional Information have the meanings assigned to them in the Funds'
Prospectuses. The Funds' executive offices are located at 60 State Street,
Boston, Massachusetts 02109.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Fund are described in its
Prospectus. The following discussion supplements the information in the
Prospectuses regarding the investment policies of the Funds.
MONEY MARKET INSTRUMENTS
Each Fund may invest in money market instruments to the extent consistent
with its investment objective and policies. A description of the various types
of money market instruments that may be purchased by the Funds appears below.
See "Quality and Diversification Requirements."
U.S. TREASURY SECURITIES. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds,
all of which are backed as to principal and interest payments by the full faith
and credit of the United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Funds may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations
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may or may not be backed by the "full faith and credit" of the United States. In
the case of securities not backed by the full faith and credit of the United
States, a Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which each Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to, obligations of the Tennessee Valley Authority,
the Federal Home Loan Mortgage Corporation and the U.S. Postal Service, each of
which has the right to borrow from the U.S. Treasury to meet its obligations,
and obligations of the Federal Farm Credit System and the Federal Home Loan
Banks, whose obligations may be satisfied only by the individual credits of each
issuing agency. Securities which are backed by the full faith and credit of the
United States include obligations of the Government National Mortgage
Association, the Farmers Home Administration, and the Export-Import Bank.
BANK OBLIGATIONS. Unless otherwise noted below, each of the Funds may
invest in negotiable certificates of deposit, time deposits and bankers'
acceptances of (i) banks, savings and loan associations and savings banks which
have more than $2 billion in total assets and are organized under the laws of
the United States or any state, (ii) foreign branches of these banks or of
foreign banks of equivalent size (Euros) and (iii) U.S. branches of foreign
banks of equivalent size (Yankees). The California Fund may not invest in
obligations of foreign branches of foreign banks. See "Foreign Investments." The
Funds will not invest in obligations for which Morgan, or any of its affiliated
persons, is the ultimate obligor or accepting bank. Each of the Equity Funds may
also invest in obligations of international banking institutions designated or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the European Investment Bank, the
Inter-American Development Bank, or the World Bank).
COMMERCIAL PAPER. Each of the Funds may invest in commercial paper,
including master demand obligations. Master demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan acting as agent, for no additional
fee, in its capacity as investment advisor to the Funds and as fiduciary for
other clients for whom it exercises investment discretion. [Morgan: Do you have
a Section 17(b) exemption from Rule 17d-1 that
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would cover the Funds?] The monies loaned to the borrower come from accounts
managed by Morgan or its affiliates, pursuant to arrangements with such
accounts. Interest and principal payments are credited to such accounts. Morgan,
acting as a fiduciary on behalf of its clients, has the right to increase or
decrease the amount provided to the borrower under an obligation. The borrower
has the right to pay without penalty all or any part of the principal amount
then outstanding on an obligation together with interest to the date of payment.
Since these obligations typically provide that the interest rate is tied to the
Federal Reserve commercial paper composite rate, the rate on master demand
obligations is subject to change.
Repayment of a master demand obligation to participating accounts depends
on the ability of the borrower to pay the accrued interest and principal of the
obligation on demand, which is continuously monitored by Morgan. Since master
demand obligations typically are not rated by credit rating agencies, the Funds
may invest in such unrated obligations only if, at the time of investment, the
obligation is determined by Morgan to have a credit quality which satisfies the
Fund's quality restrictions. See "Quality and Diversification Requirements."
Although there is no secondary market for master demand obligations, such
obligations are considered by the Funds to be liquid because they are payable
upon demand. The Funds do not have any specific percentage limitation on
investments in master demand obligations.
REPURCHASE AGREEMENTS. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Trust's Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the agreement is in effect and is not
related to the coupon rate on the underlying security. A repurchase agreement
may also be viewed as a fully collateralized loan of money by a Fund to the
seller. The period of these repurchase agreements will usually be short, from
overnight to one week, and at no time will the Funds invest in repurchase
agreements for more than thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The Funds will
always receive securities as collateral whose market value is, and during the
entire term of the agreement remains, at least equal to 100% of the dollar
amount invested
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by the Funds in each agreement plus accrued interest, and the Funds will make
payment for such securities only upon physical delivery or upon evidence of book
entry transfer to the account of the Custodian. If the seller defaults, a Fund
might incur a loss if the value of the collateral securing the repurchase
agreement declines and might incur disposition costs in connection with
liquidating the collateral. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, realization upon disposal of the
collateral by a Fund may be delayed or limited.
OTHER DEBT SECURITIES. Each of the Funds may invest in other debt
securities with remaining effective maturities of not more than thirteen months,
including without limitation corporate [and foreign] bonds, asset-backed
securities and other obligations described in the Prospectus or this Statement
of Additional Information. The California Fund may not invest in foreign bonds
or asset-backed securities.
CORPORATE BONDS AND OTHER DEBT SECURITIES
As discussed in the Prospectus, the California Fund may invest in bonds and
other debt securities of U.S. issuers to the extent consistent with its
investment objective and policies. A description of these investments appears
in the Prospectus and below. See "Quality and Diversification Requirements." For
information on short-term investments in these securities, see "Money Market
Instruments."
ASSET-BACKED SECURITIES. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Payments of principal and interest may be guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the entities issuing the securities.
The asset-backed securities in which a Fund may invest are subject to the Fund's
overall credit requirements. However, asset-backed securities, in general, are
subject to certain risks. For example, credit card debt receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts on credit card debt, thereby reducing the
balance due. Additionally, if the letter of credit is exhausted, holders of
asset-backed securities may also experience delays in payments or losses if the
full amounts due on the underlying debt are not realized. Because assetbacked
securities are relatively new, the market experience in these securities
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is limited and the market's ability to sustain liquidity through all phases of
the market cycle has not been tested.
TAX EXEMPT OBLIGATIONS
As discussed in the Prospectus, the California Fund may invest in
California Municipal Securities and other obligations exempt from federal income
taxes to the extent consistent with the Fund's investment objective and
policies. A description of the various types of tax exempt obligations which
may be purchased by the Fund appears in the Prospectus and below. See "Quality
and Diversification Requirements."
MUNICIPAL BONDS. Municipal bonds are debt obligations issued by the states,
territories and possessions of the United States and the District of Columbia,
by their political subdivisions and by duly constituted authorities and
corporations. For example, states, territories, possessions and municipalities
may issue municipal bonds to raise funds for various public purposes such as
airports, housing, hospitals, mass transportation, schools, water and sewer
works. They may also issue municipal bonds to refund outstanding obligations and
to meet general operating expenses. Public authorities issue municipal bonds to
obtain funding for privately operated facilities, such as housing and pollution
control facilities, for industrial facilities or for water supply, gas,
electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of a
special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
MUNICIPAL NOTES. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the time of
issuance ranging from six months to five years. The principal types of municipal
notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes and project notes. Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues
are usually general obligations of the issuing municipality or agency.
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Municipal commercial paper typically consists of very short-term unsecured
negotiable promissory notes that are sold to meet seasonal working capital or
interim construction financing needs of a municipality or agency. While these
obligations are intended to be paid from general revenues or refinanced with
long-term debt, they frequently are backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or financial institutions.
Municipal demand obligations are subdivided into two types: variable rate
demand notes and master demand obligations.
Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes,
or to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such note.
The issuer of the municipal obligation may have a corresponding right to prepay
at its discretion the outstanding principal of the note plus accrued interest
upon notice comparable to that required for the holder to demand payment. The
variable rate demand notes in which the Fund may invest are payable, or are
subject to purchase, on demand usually upon notice of seven calendar days or
less. The terms of the notes provide that interest rates are adjustable at
intervals ranging from daily to six months, and the adjustments are based upon
the prime rate of a bank or other appropriate interest rate index specified in
the respective notes. Variable rate demand notes are valued at amortized cost;
no value is assigned to the right of the Fund to receive the par value of the
obligation upon demand or notice.
Master demand obligations are tax exempt municipal obligations that provide
for a periodic adjustment in the interest rate paid and permit daily changes in
the amount borrowed. For a description of the attributes of master demand
obligations, see "Money Market Instruments" above. Although there is no
secondary market for master demand obligations, such obligations are considered
by the Fund to be liquid because they are payable upon demand. The Fund has no
specific percentage limitations on investments in master demand obligations.
The interest on many such obligations is, in the opinion of counsel for the
borrower, exempt from federal income tax.
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However, the interest received with respect to certain taxexempt notes that are
issued on or after August 13, 1996 and provide for interest payments that are
periodically adjusted may be taxable as capital gain.
PREMIUM SECURITIES. During a period of declining interest rates, many
municipal securities in which the California Fund invests likely will bear
coupon rates higher than current market rates, regardless of whether the
securities were initially purchased at a premium. In general, such securities
have market values greater than the principal amounts payable on maturity, which
would be reflected in the net asset value of the Fund's shares. The values of
such "premium" securities tend to approach the principal amount as they near
maturity. As a result, an investor who purchases shares of the Fund during such
periods initially would receive higher monthly distributions than available from
instruments paying current market rates, but may face an increased risk of
capital loss as these higher coupon securities approach maturity.
PUTS. The California Fund may purchase without limit municipal bonds or
notes together with the right to resell the bonds or notes to the seller at an
agreed price or yield within a specified period prior to the maturity date of
the bonds or notes. Such a right to resell is commonly known as a "put." The
aggregate price for bonds or notes with puts may be higher than the price for
bonds or notes without puts. Consistent with the Fund's investment objective and
subject to the supervision of the Trustees, the purpose of this practice is to
permit the Fund to be fully invested in tax exempt securities while preserving
the necessary liquidity to purchase securities on a when-issued basis, to meet
unusually large redemptions, and to purchase at a later date securities other
than those subject to the put. The principal risk of puts is that the writer of
the put may default on its obligation to repurchase. Morgan will monitor each
writer's ability to meet its obligations under puts.
Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund shares
and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for investment.
In addition, puts may be exercised prior to the expiration date in order to take
advantage of alternative investment opportunities or in the event Morgan revises
its evaluation of the creditworthiness of the issuer
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of the underlying security. In determining whether to exercise puts prior to
their expiration date and in selecting which puts to exercise, Morgan considers
the amount of cash available to the Fund, the expiration dates of the available
puts, any future commitments for securities purchases, alternative investment
opportunities, the desirability of retaining the underlying securities in the
Fund's portfolio and the yield, quality and maturity dates of the underlying
securities.
The Fund values any municipal bonds and notes subject to puts with
remaining maturities of less than 60 days by the amortized cost method. If the
Fund were to invest in municipal bonds and notes with maturities of 60 days or
more that are subject to puts separate from the underlying securities, the puts
and the underlying securities would be valued at fair value as determined in
accordance with procedures established by the Board of Trustees. In connection
with determining the value of a put, the factors to be considered would include,
among other factors, the creditworthiness of the writer of the put, the duration
of the put, the dates on which or the periods during which the put may be
exercised and the applicable rules and regulations of the SEC.
Since the value of the put is partly dependent on the ability of the put
writer to meet its obligation to repurchase, the Fund's policy is to enter into
put transactions only with municipal securities dealers who are approved by
Morgan. Each dealer will be approved on its own merits, and it is the Fund's
general policy to enter into put transactions only with those dealers which are
determined to present minimal credit risks. Commercial bank dealers normally
will be members of the Federal Reserve System, and other dealers will be members
of the National Association of Securities Dealers, Inc. or members of a national
securities exchange. Other put writers will have outstanding debt rated Aa or
better by Moody's Investors Service, Inc. ("Moody's") or AA or better by
Standard & Poor's Corporation ("Standard & Poor's"), will be of comparable
quality in Morgan's opinion or such put writers' obligations will be
collateralized and of comparable quality in Morgan's opinion. In the event that
a dealer defaults on its obligation to repurchase an underlying security, the
Fund may not be able to recover all or any portion of any loss from such dealer.
Entering into a put with respect to a tax-exempt security may be treated,
depending upon the terms of the put, as a taxable sale of the tax-exempt
security by the Fund with the result that, while the put is outstanding, the
Fund will no longer be treated as the owner of the security and the
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interest income derived with respect to the security will be treated as taxable
income to the Fund.
EQUITY INVESTMENTS
As discussed in the Prospectus, the Equity Funds invest primarily in equity
securities consisting of exchange-traded, over-the-counter and unlisted common
and preferred stocks, warrants, rights, convertible securities, trust
certificates, limited partnership interests and equity participations of U.S.
companies and, to a lesser extent, foreign companies ("Equity Securities"). A
discussion of the various types of equity investments which may be purchased by
the Equity Funds appears in the Prospectus and below. See "Quality and
Diversification Requirements."
EQUITY SECURITIES. The Equity Securities in which the Equity Funds may
invest may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital structure.
The convertible securities in which the Equity Funds may invest include any
debt securities or preferred stock which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
The terms of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holders' claims on assets and earnings are subordinated to the claims of other
creditors and are senior to the claims of preferred and common shareholders. In
the case of convertible preferred stock, the holders' claims on assets and
earnings are subordinated to the claims of all creditors and are senior to the
claims of common shareholders.
COMMON STOCK WARRANTS
The Equity Funds may invest in common stock warrants that entitle the
holder to buy common stock from the issuer at a specific price (the strike
price) for a specific period of time. The market price of warrants may be
substantially lower than the current market price of the underlying common
stock, yet warrants are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying common stock.
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Warrants generally do not entitle the holder to dividends or voting rights
with respect to the underlying common stock and do not represent any rights in
the assets of the issuer company. A warrant will expire worthless if it is not
exercised prior to the expiration date.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Funds may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to a Fund until settlement takes place. At
the time a Fund makes the commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction, reflect the value each
day of such securities in determining its net asset value and, if applicable,
calculate the maturity for the purposes of average maturity from that date. At
the time of settlement a when-issued security may be valued at less than the
purchase price. To facilitate such acquisitions, each Fund will maintain with
the Custodian a segregated account with liquid assets, consisting of cash or
liquid high grade debt securities, in an amount at least equal to such
commitments. If a Fund chooses to dispose of the right to acquire a when-issued
security prior to its acquisition, it could, as with the disposition of any
other portfolio obligation, incur a gain or loss due to market fluctuation.
REVERSE REPURCHASE AGREEMENTS. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. For purposes of the 1940 Act, a reverse repurchase agreement
may be deemed to be a borrowing of money by the Fund and, therefore, a form of
leverage. The Funds will invest the proceeds of borrowings under reverse
repurchase agreements. In addition, a Fund will enter into a reverse repurchase
agreement only when the expected return to be earned from the investment of the
proceeds is greater than the interest expense of the transaction. A Fund may
not enter into reverse repurchase agreements exceeding in the aggregate one
- -third of the market value of its total assets. See "Investment Restrictions."
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LOANS OF PORTFOLIO SECURITIES. Each of the Funds may lend its securities if
such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Fund at least equal at all times to 100% of the
market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Fund any income accruing
thereon. Loans will be subject to termination by the Funds in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to a Fund and its respective
investors. The Funds may pay reasonable finders' and custodial fees in
connection with a loan. In addition, a Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and no Fund will make any loans in excess of one year. The Funds
will not lend their securities to any officer, Trustee, Director, employee or
other affiliate of the Funds, Morgan or the FDI, unless otherwise permitted by
applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Funds may invest
in privately placed, restricted, Rule 144A or other unregistered securities as
described in the Prospectus. These restricted securities are subject to the
risk that the Fund will not be able to sell them at a price the Fund deems
representative of their value. If a restricted security must be registered
under the Securities Act of 1933, as amended (the "1933 Act"), before it may be
sold, a Fund may be obligated to pay all or part of the registration expenses.
Also, a considerable period may elapse between the time of the decision to sell
and the time the Fund is permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
QUALITY AND DIVERSIFICATION REQUIREMENTS
For purposes of diversification under the Code and concentration under the
1940 Act as described in the California Fund's Prospectus, identification of the
issuer of municipal bonds or notes in which the Fund invests depends on the
terms and conditions of the obligation. If the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision and the obligation is
backed only by the assets and revenues of the subdivision, such subdivision is
regarded as the sole issuer. Similarly, in the case of an industrial
development revenue bond or
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pollution control revenue bond, if the bond is backed only by the assets and
revenues of the nongovernmental user, the nongovernmental user is regarded as
the sole issuer. If in either case the creating government or another entity
guarantees an obligation, the guaranty is regarded as a separate security and
treated as an issue of such guarantor.
As described in its Prospectus, the California Fund invests principally in
investment grade municipal securities and may also invest up to 10% of its total
assets in securities which are below investment grade. In addition, the
California Fund may invest in debt securities which are not rated or other debt
securities to which these ratings are not applicable, if in the opinion of
Morgan, such securities are of comparable quality to rated securities in the
applicable category. Moreover, at the time the Fund invests in any taxable
commercial paper, bank obligation or repurchase agreement, the issuer must have
outstanding debt rated A or higher by Moody's or Standard & Poor's, the issuer's
parent corporation, if any, must have outstanding commercial paper rated Prime-1
by Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in Morgan's opinion.
In determining suitability of investment in a particular unrated security,
Morgan takes into consideration asset and debt service coverage, the purpose of
the financing, history of the issuer, existence of other rated securities of the
issuer, and other relevant conditions, such as comparability to other issuers.
OPTIONS AND FUTURES TRANSACTIONS
EXCHANGE TRADED AND OVER-THE-COUNTER OPTIONS. All options purchased or sold
by the Funds will be traded on a securities exchange or will be purchased or
sold by securities dealers (over-the-counter or OTC options) that meet the
Funds' credit standards. Exchange-traded options are obligations of the
Options Clearing Corporation. However, when a Fund purchases an OTC option, it
relies on the dealer from which it purchased the option to make or take delivery
of the underlying securities. Failure by the dealer to do so would result in
the loss of the premium paid by the Fund as well as loss of the expected benefit
of the transaction.
The staff of the SEC has taken the position that purchased OTC options and
the underlying securities used to cover written OTC options are illiquid
securities. However, a Fund may treat as liquid the underlying securities used
to
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cover written OTC options, if qualified dealers have agreed to let the Fund
repurchase any option it writes for a maximum price to be calculated by a
predetermined formula. In these cases, the OTC option itself would only be
considered illiquid to the extent that the maximum repurchase price under the
formula exceeds the intrinsic value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds may purchase
or sell (write) futures contracts and purchase put and call options, including
put and call options on futures contracts. In addition, the Funds may sell
(write) put and call options, including options on futures. Futures contracts
obligate the buyer to take and the seller to make delivery at a future date of a
specified quantity of a financial instrument or an amount of cash based on the
value of a securities index. Currently, futures contracts are available on
various types of fixed-income securities, including but not limited to U.S.
Treasury bonds, notes and bills, Eurodollar certificates of deposit. They are
also available on indices of fixed income securities (including municipal
securities) and indices composed of equity securities.
A futures contract requires the parties to buy and sell a security or make
a cash settlement payment based on changes in a financial instrument or
securities index on an agreed date. Each party to an open futures contract
makes daily payments of "variation" margin to the other party in an amount equal
to the decrease. In contrast, an option on a futures contract entitles its
holder to decide on or before the expiration date whether to enter into such a
contract. If the holder decides not to exercise its option, the holder may
close out the option position by entering into an offsetting transaction or may
decide to let the option expire and forfeit the premium thereon. The purchaser
of an option on a futures contract pays a premium for the option but makes no
initial margin payments or daily cash payments of "variation" margin to reflect
the change in the value of the underlying contract.
The seller of an option on a futures contract receives the premium paid by
the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Fund are paid by the Fund into a segregated account
maintained by the Fund's custodian in the name of the futures commission
merchant.
COMBINED POSITIONS. The Funds may engage in options transactions in
combination with other options, futures or forward contracts. For example, such
a Fund may purchase a
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put option and write a call option on the same underlying instrument, in order
to construct a combined position whose risk and return characteristics are
similar to selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call option at a
lower strike price, in order to reduce the risk of the written call option in
the event of a substantial price increase. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a Fund's
current or anticipated investments exactly. A Fund may enter into options and
futures contracts based on securities with different issuers, maturities, or
other characteristics from the securities in which it typically invests. This
practice involves a risk that the options or futures position will not track the
performance of the Fund's other investments in securities.
Options and futures contracts prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments correlate well
with the Fund's investments. Options and futures contracts prices are affected
by such factors as current and anticipated interest rates, changes in the price
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from the imposition of daily
price fluctuation limits or trading halts. A Fund may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance that a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may
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establish daily price fluctuation limits for options and futures contracts and
may halt trading if a contract's price moves up or down more than the limit in a
given day. On volatile trading days when the price fluctuation limit is reached
or a trading halt is imposed, it may be impossible for a Fund to enter into new
positions or close out existing positions. If the market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and could potentially require a Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, the Fund's access to other assets held to cover its
options or futures positions could also be impaired.
POSITION LIMITS. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Fund or Morgan may be required to
reduce the size of its futures and options positions or may not be able to trade
a certain futures or options contract in order to avoid exceeding such limits.
ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. The Funds
intend to comply with Rule 4.5 of the under the Commodity Exchange Act, which
limits the extent to which a Fund can commit assets to initial margin deposits
and option premiums. In addition, the Funds will comply with guidelines
established by the SEC with respect to coverage of options and futures contracts
by mutual funds. If the guidelines so require, a Fund will set aside liquid
high grade debt securities in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures contract or option is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of a Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
RISK MANAGEMENT. The Funds may employ non-hedging risk management
techniques. Examples of such strategies include using futures and options to
alter the duration or beta of a Fund's portfolio or the mix of securities in a
Fund's portfolio. For example, if Morgan wishes to extend maturities in the
California Fund's portfolio in order to take advantage of an anticipated decline
in interest rates, but does not wish to purchase the underlying long term
securities, it might cause the Fund to purchase futures contracts on long term
debt securities. Similarly, if Morgan wishes to reduce a
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Fund's exposure to fixed income securities and purchase equities, it could cause
the Fund to sell futures contracts on debt securities and purchase futures
contracts on a stock index. Such non-hedging risk management techniques are not
speculative, but may involve leverage. Leverage magnifies the gains and losses
experienced by the Fund as a result of market fluctuations.
SPECIAL FACTORS AFFECTING THE CALIFORNIA FUND
The California Fund intends to invest a high proportion of its assets in
municipal obligations in California Municipal Securities. As discussed in the
Prospectus, payment of interest and preservation of principal is dependent upon
the continuing ability of California issuers and/or obligors of California
Municipal Securities to meet their obligations thereunder.
The fiscal stability of California is related, at least in part, to the
fiscal stability of its localities and authorities. Various California agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by California through leasepurchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such California agencies,
authorities and localities, the State has had to provide special assistance in
recent years, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent that California agencies and
local governments require State assistance to meet their financial obligations,
the ability of California to meet its own obligations as they become due or to
obtain additional financing could be adversely affected.
For further information concerning California Municipal Obligations, see
Appendix B to this Statement of Additional Information. The summary set forth
above and in Appendix B is based on information from an official statement of
California general obligation municipal obligations and does not purport to be
complete.
PORTFOLIO TURNOVER
The Fund's expected portfolio turnover rates are set forth in the
Prospectuses. A rate of 100% indicates that the equivalent of all of a Fund's
assets have been sold and reinvested in a year. High portfolio turnover may
result in the realization of substantial net capital gains or losses. To the
extent that net short term capital gains are realized, any distributions
resulting from such gains are considered ordinary income for federal income tax
purposes. See "Taxes" below.
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INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the Trust
with respect to each Fund. Except as otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund. A "majority of the outstanding voting securities" is defined in the
1940 Act as the lesser of (a) 67% or more of the voting securities present at a
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy, or (b) more than 50% of the outstanding voting
securities. The percentage limitations contained in the restrictions below apply
at the time of purchasing securities to the market value of a Fund's assets.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC staff
interpretations thereof, are amended or modified, each Fund may not:
1. Invest more than 25% of its total assets in the securities of issuers
in any single industry, other than U.S. Government securities or
mortgage-backed securities issued or guaranteed as to principal or
interest by the U.S. Government, its agencies or instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing
money in accordance with paragraph 3 below, making loans in accordance
with paragraph 8 below, the issuance of shares of beneficial interest
in multiple classes or series, the deferral of trustees' fees, the
purchase or sale of options, futures contracts, forward commitments,
[swaps] and transactions in repurchase agreements are not deemed to be
senior securities.
3. Borrow money, except in amounts not to exceed one third of the Fund's
total assets (including the amount borrowed) (i) from banks for
temporary or short-term purposes or for the clearance of transactions,
(ii) in connection with the redemption of Fund shares or to finance
failed settlements of portfolio trades without immediately liquidating
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portfolio securities or other assets, (iii) in order to fulfill
commitments or plans to purchase additional securities pending the
anticipated sale of other portfolio securities or assets and
(iv) pursuant to reverse repurchase agreements entered into by the
Fund.
4. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund
may be deemed to be an underwriter under the 1933 Act.
5. Purchase or sell real estate except that the Fund may (i) acquire or
lease office space for its own use, (ii) invest in securities of
issuers that invest in real estate or interests therein, (iii) invest
in securities that are secured by real estate or interests therein,
(iv) purchase and sell mortgage-related securities and (v) hold and
sell real estate acquired by the Fund as a result of the ownership of
securities.
6. Purchase securities on margin (except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities).
7. Purchase or sell commodities or commodity contracts, except the Fund
may purchase and sell financial futures contracts, options on
financial futures contracts and warrants and may enter into [swap and]
forward commitment transactions.
8. Make loans, except that the Fund (1) may lend portfolio securities
with a value not exceeding one-third of the Fund's total assets, (2)
enter into repurchase agreements, and (3) purchase all or a portion of
an issue of debt securities, bank loan participation interests, bank
certificates of deposit, bankers' acceptances, debentures or other
securities, whether or not the purchase is made upon the original
issuance of the securities.
9. In the case of each Equity Fund, with respect to 75% of its total
assets, purchase securities of an issuer (other than the U.S.
Government, its agencies, instrumentalities or authorities or
repurchase agreements collateralized by U.S. Government
securities), if:
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a. such purchase would cause more than 5% of the Fund's total assets
to be invested in the securities of such issuer; or
b. such purchase would cause the Fund to hold more than 10% of the
outstanding voting securities of such issuer.
For purposes of fundamental investment restriction (1) regarding industry
concentration, Morgan generally classifies issuers by industry in accordance
with classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL
REPORTS WITH THE SECURITIES AND EXCHANGE COMMISSION. In the absence of such
classification or if Morgan determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, Morgan
may classify an issuer according to its own sources. For instance, personal
credit finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
As a matter of non-fundamental policy, which may be changed by the Trustees
without shareholder approval, each Fund may not:
A. Make short sales of securities unless either (a) after giving effect
to any such short sale, the total market value of all securities sold
short would not exceed 25% of the Fund's net assets or (b) at all
times during which a short position is open the Fund owns (or has the
right to obtain through the conversion or exchange of other
securities) an equal amount of such securities.
B. Invest in companies for the purpose of exercising control or
management.
C. Purchase a security of other registered open-end investment companies,
except when the purchase is part of a plan of merger, consolidation,
reorganization or acquisition or except by purchase in the open market
where no commission or profit to a sponsor or dealer results from the
purchase other than customary brokers' commissions. Each Fund may not
(i) invest more than 10% of the Fund's total assets in securities of
other investment companies,
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(ii) invest more than 5% of the Fund's total assets in any one
such investment company or (iii) acquire more than 3% of the
total outstanding voting securities of any one such investment
company.
D. Invest in interests in oil, gas or other exploration or development
programs or mineral leases, except for securities of companies engaged
in the production or transmission of oil, gas, or other minerals.
E. Invest more than 5% of the Fund's total assets in the securities of
any issuers which, together with their corporate parents and any
predecessor, have been in continuous operation for less than three
years, including the operation of any predecessor, other than (i) U.S.
government obligations, (ii) securities fully collateralized by U.S.
government obligations and (iii) securities which have been rated
investment grade by at least one nationally recognized statistical
rating organization.
F. Invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than seven days,
securities that are not readily marketable, restricted securities that
are not eligible for resale pursuant to Rule 144A under the 1933 Act,
certain purchased OTC options, certain assets used to cover certain
written OTC options, and privately issued stripped mortgage-backed
securities.
G. Invest in securities of any company if any officer, Trustee or
director of the Trust or of the Adviser owns more than .5% of the
outstanding securities of such company and such officers, Trustees and
directors own in the aggregate more than 5% of the securities of such
company.
H. Purchase securities while outstanding bank borrowings exceed 5% of the
Fund's total assets.
I. Invest in real estate limited partnership interests, other than real
estate investment trusts organized as limited partnerships.
j. Purchase warrants of any issuer, if, as a result of such purchase,
more than 2% of the Fund's total assets would be invested in warrants
which are not listed on an exchange or more than 5% of the Fund's
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total assets would be invested in warrants, whether or not so listed.
For these purposes, warrants will be valued at the lesser of cost or
market, but warrants acquired by the Fund in units with or attached to
debt securities will be deemed to be without value.
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, each Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same fundamental investment
objectives, restrictions and policies as the Fund.
If any percentage restriction described above is adhered to at the time of
investment, a subsequent increase or decrease in the percentage resulting from a
change in the value of a Fund's assets will not constitute a violation of the
restriction, except with respect to restriction letter G above.
In order to permit the sale of shares of the Funds in certain states, the
Trustees may, in their sole discretion, adopt restrictions on investment policy
more restrictive than those described above. Should the Trustees determine that
any such more restrictive policy is no longer in the best interest of a Fund and
its shareholders, the Fund may cease offering shares in the state involved and
the Trustees may revoke such restrictive policy. Moreover, if the states
involved will no longer require any such restrictive policy, the Trustees may,
in their sole discretion, revoke such policy.
TRUSTEES AND OFFICERS
TRUSTEES
Mr. Kelley and Mr. Ingram of FDI as described below under "Officers"
serve as the initial trustees of the Trust. Prior to effectiveness of
the Registration Statement certain or all of these initial trustees are
expected to resign and additional trustees, including trustees who are not
"interested persons" of the Fund, the Advisor, FDI or any of their affiliates,
will be elected to bring the Trust into compliance with the requirements of the
1940 Act.
The names, occupations and principal affiliations of the Trustees of the
Trust are set forth below. An asterisk indicates that a Trustee is an
"interested person" (as defined in
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the 1940 Act) of the Trust. The Trustees, in addition to reviewing actions of
the Trust's various service providers, decide upon matters of general policy.
The address of each Trustee is c/o JPM Series Trust, 60 State Street, Suite
1300, Boston, Massachusetts 02109.
[ ]* -- Trustee; Nomura Professor of Finance, Massachusetts
Institute of Technology (since 1983); Director, Asset Specialization corporation
(since May, 1992); Director, Nomura Asset Securities Corporation (since May,
1992); Fellow, Econometric Society (since December, 1990); Director, Nomura
Mortgage Capital Corporation (since 1989); Director, American Finance
Association (prior to 1993); Consultant J.P. Morgan Investment Management Inc.
("J.P. Morgan") (since 1985).
[ ] -- Trustee; retired; consultant, Northrop Grumman Corporation
("Northrop") (since January, 1995); Corporate Vice President and Treasurer,
Northrop (prior to January, 1995); Director, Independent Colleges of Southern
California (prior to 1994); Junior Achievement (prior to 1993).
[ ]* -- Trustee; retired; Consultant, J.P. Morgan (since June,
1993); Director and Vice Chairman of J.P. Morgan (prior to June, 1993);
Director, Trident Corporation (since April, 1994); Director, Bethleham Steel
Corporation (since September, 1990); Trustee, Johns Hopkins University (since
April, 1990); Trustee, Overlook Hospital Foundation (since April, 1990);
Director, Student Loan Marketing Association (since April, 1990).
[ ]. -- Trustee, Executive Vice President, Ford Motor Company,
President, Ford Financial Services Group, and Director, Ford Motor Credit
Company (since 1988); Director and President, Ford Holdings, Inc. (since 1989);
director, CMS Energy Corporation and Consumers Power Company (since January,
1993); Director, Detroit Country Day School (since January, 1993); Director
Granite Management Corporation (formerly First Nationwide Bank) (since 1988);
Director, United Way of Southeastern Michigan (since 1988); Director, USL
Capital Corporation (since 1988); Chairman, director and First Vice President,
WTVS-TV (since 1988).
[ ]* -- Partner, Sullivan & Cromwell.
Each Trustee is paid an annual fee as follows for serving as Trustee of the
Trust and certain other investment companies managed by Morgan or its
affiliates. The Trustees may hold various other directorships unrelated to these
funds.
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TOTAL COMPENSATION
AGGREGATE FROM ALL FUNDS
COMPENSATION MANAGED BY MORGAN
FROM THE TRUST1 AND ITS AFFILIATES2
--------------- -------------------
Mr. Cox
Mr. Rettberg
Mr. Ruffle
Mr. Whipple
Mr. Baumgardner
1 Reflects estimated amounts for the fiscal year ending , 1997.
2 Reflects actual amounts paid for the calendar year ended
December 31, 1995
OFFICERS
The Trust's and Portfolios' executive officers (listed below), other than
the Chief Executive Officer, are provided and compensated by Funds Distributor,
Inc. ("FDI"), a wholly owned indirect subsidiary of Boston Institutional Group,
Inc. The officers conduct and supervise the business
operations of the Trust. The Trust has no employees.
The officers of the Trust and principal occupations during the past five
years are set forth below. The business address of each of the officers
unless otherwise noted is Funds Distributor, Inc., 60 State Street, Suite
1300, Boston, Massachusetts 02109.
ELIZABETH A. BACHMAN; Vice President and Assistant Secretary. Counsel, FDI and
Premier Mutual Fund Services, Inc. ("Premier Mutual") and an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or administered
by the Dreyfus Corporation ("Dreyfus"). Prior to September 1995, Ms. Bachman was
enrolled at Fordham University School of Law and received her JD in May 1995.
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Prior to September 1992, Ms. Bachman was an assistant at the National
Association for Public Interest Law. Address: FDI, 200 Park Avenue, New York,
New York 10166.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President and Chief
Executive Officer and Director of FDI, Premier Mutual and an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc. and certain investment companies
advised or administered by Dreyfus. From December 1991 to July 1994, she was
President and Chief Compliance Officer of FDI. Prior to December 1991, she
served as Vice President and Controller, and later as Senior Vice President of
The Boston Company Advisors, Inc. ("TBCA").
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Supervisor of
Treasury Services and Administration of FDI and an officer of certain investment
companies advised or administered by Dreyfus. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. From
December 1993 to March 1993, Mr. Conroy was employed as a fund accountant at The
Boston Company.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolio. Managing Director, State Street Cayman Trust Company, Ltd. since
October 1994. Prior to October 1994, Mrs. Henning was head of mutual funds at
Morgan Grenfell in Cayman and for five years was Managing director of Bank of
Nova Scotia Trust Company (Cayman) Limited from September 1988 to September
1993. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road,
George Town, Grand Cayman, Cayman Islands.
RICHARD W. INGRAM; President and Treasurer. Senior Vice President and Director
of Client Services and Treasury Administration of FDI, Senior Vice President of
Premier Mutual and an officer of RCM Capital Funds, Inc., RCM Equity Funds,
Inc., Waterhouse Investors Cash Management Fund, Inc. and certain investment
companies ^ advised or administered by Dreyfus. From March 1994 to November
1995, Mr. Ingram was Vice President and Division Manager of First Data Investor
Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice President, Assistant
Treasurer and Tax Director - Mutual Funds of The Boston Company.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM Capital Funds, Inc. and RCM Equity Funds,
Inc. From June 1994 to January 1996, Ms. Jacoppo was a Manager, SEC
Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994, Ms. Jacoppo
was a senior paralegal at TBCA.
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CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice President
and Assistant General Counsel of FDI. From April 1994 to July 1996, Mr. Kelley
was Assistant Counsel at Forum Financial Group. From 1992 to 1994, Mr. Kelley
was employed by Putnam Investments in the Global Fixed Income Group of the Legal
Department. Prior to 1992, Mr. Kelley served as a law clerk for the firm of
Murphy, DeMarco & O'Neill.
LENORE J. MCCABE; Assistant Secretary. Assistant Vice President, State Street
Bank and Trust Company since November 1994. Assigned as Operations Manager,
State Street Cayman Trust Company, Ltd. since February 1995. Prior to November,
1994, employed by Boston Financial Data Services, Inc. as Control Group Manager.
Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George
Town, Grand Cayman, Cayman Islands.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI, an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc. and certain investment companies
advised or administered by Dreyfus. From 1989 to 1994, Ms. Nelson as an
Assistant Vice President and client manager for The Boston Company.
JOHN E. PELLETIER; Vice President and Secretary. Senior Vice President and
General Counsel of FDI and Premier Mutual and an officer of RCM Capital Funds,
Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc.
and certain investment companies advised or administered by Dreyfus. From
February 1992 to April 1994, Mr. Pelletier served as Counsel for TBCA. From
August 1990 to February 1992, Mr. Pelletier was employed as an Associate at
Ropes & Gray.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Senior Vice
President, Treasurer and Chief Financial Officer of FDI and Premier Mutual and
an officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus. From July 1988 to
November 1993, Mr. Tower was Financial Manager of The Boston Company.
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INVESTMENT ADVISOR
J.P. Morgan has a long history of service as an advisor, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of Morgan's investment process is fundamental investment research
because the firm believes that fundamentals should determine an asset's value
over the long term. Morgan currently employs over 100 full time research
analysts, among the largest research staffs in the money management industry, in
its investment management divisions located in New York, London, Tokyo,
Frankfurt, Melbourne and Singapore to cover companies, industries and countries
on site. In addition, the investment management divisions employ approximately
[300] capital market researchers, portfolio managers and traders. The
conclusions of the equity analysts' fundamental research is quantified into a
set of projected returns for individual companies through the use of a dividend
discount model. These returns are projected for 2 to 5 years to enable analysts
to take a longer term view. These returns, or normalized earnings, are used to
establish relative values among stocks in each industrial sector. These values
may not be the same as the markets' current valuations of these companies. This
provides the basis for ranking the attractiveness of the companies in an
industry according to five distinct quintiles or rankings. This ranking is one
of the factors considered in determining the stocks purchased and sold in each
sector. Morgan's fixed income investment process is based on analysis of real
rates, sector diversification and quantitative and credit analysis.
The investment advisory services Morgan provides to the Funds are not
exclusive under the terms of the Advisory Agreements. Morgan is free to and does
render similar investment advisory services to others. Morgan serves as
investment advisor to personal investors and other investment companies and acts
as fiduciary for trusts, estates and employee benefit plans. Certain of the
assets of trusts and estates under management are invested in common trust funds
for which Morgan serves as trustee. The accounts which are managed or advised by
Morgan have varying investment objectives and Morgan invests assets of such
accounts in investments substantially similar to, or the same as, those which
are expected to constitute the principal investments of the Funds. Such accounts
are supervised by officers and employees of Morgan
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who may also be acting in similar capacities for the Funds. See "Portfolio
Transactions."
Sector weightings are generally similar to a fund's benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Funds are currently: Active
Fund -- S&P 500 Index; Enhanced Fund -- S&P 500 Index; and California Fund -- [
].
J.P. Morgan, a wholly-owned subsidiary of Morgan, is a registered
investment adviser under the Investment AdvisersAct of 1940 and manages
employee benefit funds of corporations, labor unions and state and local
governments and the accounts of other institutional investors, including
investment companies. Certain of the assets of employee benefit accounts
under its management are invested in commingled pension trust funds for which
Morgan serves as trustee. J.P. Morgan advises Morgan on investment of the
commingled pension trust funds.
The Funds are managed by officers of Morgan who, in acting for their
clients, including the Funds, do not discuss their investment decisions with any
personnel of Morgan or any of its divisions or with any of its affiliated
persons, with the exception of J.P. Morgan See "Portfolio Transactions" below
for a description of services provided to the Funds by J.P. Morgan
Each Investment Advisory Agreement between Morgan and the Trust, on behalf
of a Fund, provides that it will continue in effect for a period of two years
after execution only if specifically approved thereafter annually in the same
manner as the Distribution Agreement. See "Co-Adminstrator and Distributor"
below. Each of the Investment Advisory Agreements will terminate automatically
if assigned and is terminable at any time without penalty by a vote of a
majority of the Trust's Trustees or by a vote of the holders of a majority of
the Fund's outstanding voting securities on 60 days' written notice to Morgan
and by Morgan on 90 days' written notice to the Fund. See "Additional
Information."
The Glass-Steagall Act and other applicable laws generally prohibit banks
such as Morgan from engaging in the business of underwriting or distributing
securities. The Board of Governors of the Federal Reserve System has issued an
interpretation to the effect that under these laws a bank holding company
registered under the federal Bank Holding Company Act or certain subsidiaries
thereof may not sponsor, organize, or control a registered open-end investment
company
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that continuously issues shares, such as the Trust. The interpretation does not
prohibit a holding company or a subsidiary thereof from acting as investment
advisor, administrator, shareholder servicing agent or custodian to such an
investment company. Morgan believes that it may perform the services for the
Funds contemplated by the AdvisoryAgreements without violation of the Glass
- -Steagall Act or other applicable banking laws or regulations. State laws on
this issue may differ from the interpretation of relevant federal law, and banks
and financial institutions may be required to register as dealers pursuant to
state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent Morgan from continuing to perform such services for the Funds.
If Morgan were prohibited from acting as investment advisor to any Fund, it
is expected that the Trustees of the Trust would recommend to investors that
they approve the Fund's entering into a new investment advisory agreement with
another qualified investment advisor selected by the Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting, administrative and shareholder services to the Trust. See "Services
Agent" and "Shareholder Servicing" below.
CO-ADMINISTRATOR AND DISTRIBUTOR
FDI serves as the Trust's exclusive distributor and holds itself available
to receive purchase orders for each Fund's shares. In that capacity, the FDI has
been granted the right, as agent of the Trust, to solicit and accept orders for
the purchase of each Fund's shares in accordance with the terms of the
Distribution Agreement between the Trust and FDI. The Distribution Agreement
will continue in effect with respect to each Fund for a period of two years
after execution only if it is approved at least annually thereafter (i) by a
vote of the holders of a majority of the Fund's outstanding shares or by its
Trustees and (ii) by a vote of a majority of the Trustees of the Trust who are
not "interested persons" (as defined by the 1940 Act) of the parties to the
Distribution Agreement, cast in person at a meeting called for the purpose of
voting on such approval (see "Trustees and Officers"). The Distribution
Agreement will terminate automatically if assigned by either party. The
Distribution
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Agreement is also terminable with respect to a Fund at any time without penalty
by a vote of a majority of the Trustees of the Trust, a vote of a majority of
the Trustees who are not "interested persons" of the Trust, or by a vote of (i)
67% or more of the Fund's outstanding voting securities present at a meeting if
the holders of more than 50% of the Fund's outstanding voting securities are
present or represented by proxy, or (ii) more than 50% of the Fund's outstanding
voting securities, whichever is less. The principal offices of FDI are located
at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
Under a Co-Administration Agreement with the Trust dated [November 1],
1996, FDI also serves as the Trust's Co-Administrator. The Co-Administration
Agreements may be renewed or amended by the respective Trustees without a
shareholder vote. The Co-Administration Agreement is terminable at any time
without penalty by a vote of a majority of the Trustees of the Trust, on not
more than 60 days' written notice nor less than 30 days' written notice to the
other party. The Co-Administrator may subcontract for the performance of its
obligations, provided, however, that unless the Trust, expressly agrees in
writing, the Co-Administrator shall be fully responsible for the acts and
omissions of any subcontractor as it would for its own acts or omissions. See
"Services Agent" below.
SERVICES AGENT
The Trust, on behalf of each Fund, has entered into an
Administrative Services Agreement (the "Services Agreement") with Morgan
effective [November 1,] 1996, pursuant to which Morgan is responsible for
certain administrative and related services provided to each Fund. The Services
Agreement may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the
other party.
Under the Services Agreements and the Co-Administration
Agreement, the Trust has agreed to pay Morgan and FDI fees equal to its
allocable share of an annual complex-wide charge. This charge is described in
each Fund's prospectus and is calculated daily based on the aggregate net assets
of the Funds and certain other investment companies subject to similar
agreements.
CUSTODIAN AND TRANSFER AGENT
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State Street Bank & Trust Company ("State Street") serves as the Trust's
custodian and shareholder transfer and dividend disbursing agent. Pursuant to
the Custodian Contract with the Trust, State Street is responsible for
maintaining the books and records of each Fund's portfolio transactions and
holding portfolio securities and cash. [In addition, the Custodian has entered
into subcustodian agreements on behalf of the California Fund for the purpose of
holding TENR Notes and with The Bank of New York and Chemical Bank, N.A. for the
purpose of holding certain variable rate demand notes.] The Custodian maintains
portfolio transaction records. As transfer agent and dividend disbursing agent,
State Street is responsible for maintaining account records detailing the
ownership of Fund shares and for crediting income, capital gains and other
changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for Fund shareholders. Under this agreement, Morgan is
responsible for performing, directly or through an agent shareholder account
administrative and servicing functions, which include but are not limited to
answering inquiries regarding account status and history, the manner in which
purchases and redemptions of Fund shares may be effected, and certain other
matters pertaining to a Fund; assisting customers in designating and changing
dividend options, account designations and addresses; providing necessary
personnel and facilities to coordinate the establishment and maintenance of
shareholder accounts and records with the Funds' transfer agent; transmitting
purchase and redemption orders to the Funds' transfer agent and arranging for
the wiring or other transfer of funds to and from customer accounts in
connection with orders to purchase or redeem Fund shares; verifying purchase and
redemption orders, transfers among and changes in accounts; informing FDI of the
gross amount of purchase orders for Fund shares; and providing other related
services.
As discussed under "Investment Advisor," the GlassSteagall Act and other
applicable laws and regulations limitthe activities of bank holding companies
and certain of their subsidiaries in connection with registered open-end
investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and Co-Administrator to the Funds under the Co-Administration Agreement, may
raise issues under these laws. However, Morgan believes that it may
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properly perform these services and the other activities described in the
Prospectus without violating the GlassSteagall Act or other applicable banking
laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing and Co Administration Agreements, the Trustees would seek
an alternative provider of such services. In such event, changes in the
operation of the Funds might occur and a shareholder might no longer be able to
avail himself or herself of any services then being provided to shareholders by
Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Funds are [ ], 1177
Avenue of the Americas, New York, New York 10036. [ ] conducts an annual
audit of the financial statements of each of the Funds, assists in the
preparation and/or review of each of the Fund's federal and state income tax
returns and consults with the Funds as to matters of accounting and federal and
state income taxation.
EXPENSES
Morgan has agreed that if in any fiscal year the sum of any Fund's expenses
exceeds the limits set by applicable regulations of state securities
commissions, the fees payable by the Fund to Morgan for that year will be
reduced as specified by agreement with the Trust on behalf of the Fund.
Currently, Morgan believes that the most restrictive expense limitation of state
securities commissions limits expenses to 2.5% of the first $30 million of
average net assets, 2% of the next $70 million of such net assets and 1.5% of
such net assets in excess of $100 million for any fiscal year.
[Morgan has undertaken to pay the organization expenses and expenses
incurred in the initial offering of shares of the Trust.]
PURCHASE OF SHARES
Investors may open Fund accounts and purchase Pierpont Shares and JPM
Institutional Shares as described in the applicable Prospectus under "Purchase
of Shares."
Each Fund may, at its own option, accept securities in payment for shares.
The securities so delivered are valued by the method described under "Net Asset
Value" as of the day the Fund receives the securities. This is a taxable
transaction to the shareholder. Securities may be accepted in
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payment for shares only if they are, in the judgment of Morgan, appropriate
investments for the Fund. In addition, securities accepted in payment for shares
must: (i) meet the investment objective and policies of the acquiring Fund; (ii)
be acquired by the applicable Fund for investment and not for resale; (iii) be
liquid securities which are not restricted as to transfer; and (iv) if stock,
have a value which is readily ascertainable as evidenced by a listing on a stock
exchange, over-the-counter market or by readily available market quotations from
a dealer in such securities. Each Fund reserves the right to accept or reject at
its own option any and all securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of an
Eligible Institution, and the Eligible Institution may charge the investor a fee
for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem Pierpont Shares and JPM Institutional Shares as
described in the applicable Prospectus under "Redemption of Shares."
The Trust, on behalf of each Fund, reserves the right to suspend the right
of redemption and to postpone the date of payment upon redemption as follows:
(i) for up to seven days, (ii) during periods when the New York Stock Exchange
is closed for other than weekends and holidays or when trading thereon is
restricted as determined by the SEC by rule or regulation, (iii) during periods
in which an emergency, as determined by the SEC, exists that causes disposal by
the Fund of, or evaluation of the net asset value of, its portfolio securities
to be unreasonable or impracticable, or (iv) for such other periods as the SEC
may permit.
EXCHANGE OF SHARES
An investor may exchange Pierpont Shares and JPM Institutional Shares of
the California Fund for shares of any Pierpont Fund or JPM Institutional Fund,
as described under "Exchange of Shares" in the Prospectus. For complete
information, the Prospectus as it relates to the fund into which a transfer is
being made should be read prior to the transfer. Shares of the fund to be
acquired are purchased for settlement when the proceeds from redemption become
available. In the case of investors in certain states, state securities laws
may restrict the availability of the exchange privilege.
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<PAGE>
NET ASSET VALUE
Each of the Funds computes its net asset value once daily (normally at 4:15
P.M. New York time) on Monday through Friday as described under "Net Asset
Value" in the Prospectus. The net asset value will not be computed on the day
the following legal holidays are observed: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. On days when U.S. trading markets close early in observance of
these holidays, the Funds will close for purchases and redemptions at the same
time. The days on which net asset value is determined are the Funds' business
days.
CALIFORNIA FUND. Portfolio securities with a maturity of more than 60
days, including securities that are listed on an exchange or traded over the
counter, are valued using prices supplied daily by an independent pricing
service or services that (i) are based on the last sale price on a national
securities exchange or, in the absence of recorded sales, at the readily
available closing bid price on such exchange or at the quoted bid price in the
over-the-counter market, if such exchange or market constitutes the broadest and
most representative market for the security and (ii) in other cases, take into
account various factors affecting market value, including yields and prices of
comparable securities, indications as to value from dealers and general market
conditions. If such prices are not supplied by the California Fund's independent
pricing service, such securities are priced in accordance with procedures
adopted by the Trustees. All portfolio securities with a remaining maturity of
60 days or less are valued by the amortized cost method. Because of the large
number of municipal bond issues outstanding and the varying maturity dates,
coupons and risk factors applicable to each issuer's books, no readily available
market quotations exist for most municipal securities.
EQUITY FUNDS. The value of investments listed on a domestic securities
exchange, other than options on stock indices, is based on the last sale prices
at the close of regular trading on the New York Stock Exchange (normally 4:00
P.M., New York time) or, in the absence of recorded sales, at the average of
readily available closing bid and asked prices on such exchange. Unlisted
securities are valued at the average of the quoted bid and asked prices in the
over-the-counter market. The value of each security for which readily available
market quotations exist is based on a decision as to the broadest and most
representative market for such security. For purposes of calculating net asset
value all assets and liabilities initially expressed in foreign
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currencies will be converted into U.S. dollars at the prevailing market rates
available at the time of valuation.
Options on stock indexes traded on national securities exchanges are valued
at the close of options trading on such exchanges which is currently 4:10 P.M.,
New York time. Stock index futures and related options, which are traded on
commodities exchanges, are valued at their last sales price as of the close of
such commodities exchanges which is currently 4:15 P.M., New York time.
Securities or other assets for which market quotations are not readily available
are valued at fair value in accordance with procedures established by and under
the general supervision and responsibility of the 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. Short-term
investments which mature in 60 days or less are valued at amortized cost if
their original maturity was 60 days or less, or by amortizing their value on the
61st day prior to maturity, if their original maturity when acquired by the Fund
was more than 60 days, unless this is determined not to represent fair value by
the Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield, tax
equivalent yield (in the case of the California Fund), actual distributions,
total return or capital appreciation for the various Fund classes in reports,
sales literature and advertisements published by the Trust. Current performance
information may be obtained by calling the number provided on the cover page of
this Statement of Additional Information. See "Additional Information" in the
Prospectus.
The classes of shares of each Fund may bear different shareholder servicing
fees and other expenses, which may cause the performance of a class to differ
from the performance of another class. Performance quotations will be computed
separately for each class of a Fund's shares. Any fees charged by an
institution directly to its customers' accounts in connection with investments
in the Funds will not be included in calculations of total return or yield.
YIELD QUOTATIONS. The annualized yield for the California Fund is
computed by dividing net investment income per share earned during a 30-day
period by the net asset value on the last day of the period. The average daily
number of shares outstanding during the period that are eligible to
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receive dividends is used in determining the net investment income per share.
Income is computed by totaling the interest earned on all debt obligations
during the period and subtracting from that amount the total of all recurring
expenses incurred during the period. The 30-day yield is then annualized on a
bond-equivalent basis assuming semiannual reinvestment and compounding of net
investment income. Annualized tax-equivalent yield reflects the approximate
annualized yield that a taxable investment must earn for shareholders at
specified federal and California income tax levels to produce an after-tax yield
equivalent to the annualized tax-exempt yield.
TOTAL RETURN QUOTATIONS. The average annual total return of each Fund's
class(es) for a period is computed by assuming a hypothetical initial payment of
$1,000. It is then assumed that all of the dividends and distributions by the
Fund over the period are reinvested. It is then assumed that at the end of the
period, the entire amount is redeemed. The average annual total return is then
calculated by determining the annual rate required for the initial payment to
grow to the amount which would have been received upon redemption.
Aggregate total returns, reflecting the cumulative percentage change over a
measuring period, may also be calculated.
GENERAL. Fund performance will vary from time to time depending upon market
conditions, the composition of the portfolio, and operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising shares of the Funds, including data from Lipper Analytical Services,
Inc., Micropal, Inc., Ibbotson Associates, Morningstar Inc., the S&P 500
Composite Stock Price Index, [the California Bond Index], the Dow Jones
Industrial Average, the Frank Russell Indexes and other industry publications.
PORTFOLIO TRANSACTIONS
J.P. Morgan, acting as agent for Morgan, places all orders for all
purchases and sales of portfolio securities by
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the Funds. Morgan enters into repurchase agreements and reverse repurchase
agreements and executes loans of portfolio securities (if any) on behalf of all
the Funds. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In connection with portfolio transactions for the California Fund, J.P.
Morgan intends to seek best price and execution on a competitive basis for both
purchases and sales of securities.
In connection with portfolio transactions for the Equity Funds, the
overriding objective is to obtain the best possible execution of purchase and
sale orders.
In selecting a broker, J.P. Morgan considers a number of factors including:
the price per unit of the security; the broker's reliability for prompt,
accurate confirmations and on-time delivery of securities; the broker's
financial condition; and the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
J.P. Morgan decides that the broker chosen will provide the best possible
execution. J.P. Morgan and Morgan monitor the reasonableness of the brokerage
commissions paid in light of the execution received. The Trust's Trustees review
regularly the reasonableness of commissions and other transaction costs incurred
by the Funds in light of facts and circumstances deemed relevant from time to
time and, in that connection, will receive reports from Morgan and published
data concerning transaction costs incurred by institutional investors generally.
Research services provided by brokers to which J.P. Morgan has allocated
brokerage business in the past include economic statistics and forecasting
services, industry and company analyses, portfolio strategy services,
quantitative data, and consulting services from economists and political
analysts. Research services furnished by brokers are used for
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the benefit of all of Morgan's clients and not solely or necessarily for the
benefit of an individual Fund. Morgan believes that the value of research
services received is not determinable and does not significantly reduce its
expenses. The Funds do not reduce their fee to Morgan by any amount that might
be attributable to the value of such services.
Subject to the overriding objective of obtaining the best possible
execution of orders, J.P. Morgan may allocate a portion of a Fund's brokerage
transactions to affiliates of Morgan. In order for affiliates of Morgan to
effect any portfolio transactions for a Fund, the commissions, fees or other
remuneration received by such affiliates must be reasonable and fair compared to
the commissions, fees, or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time. Furthermore,
the Trust's Trustees, including a majority of the Trustees who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees, or other remuneration paid to such
affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to or
through the Advisor or FDI or any "affiliated person" (as defined in the 1940
Act) thereof when such entities are acting as principals, except to the extent
permitted by law. In addition, the Funds will not purchase securities from any
underwriting group of which Morgan or an affiliate of Morgan is a member, except
to the extent permitted by law.
Investment decisions made by Morgan are the product of many factors in
addition to basic suitability for the particular Fund or other client in
question. Thus, a particular security may be or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the same security. [In some instances, one
client may sell a particular security to another client.]
It also sometimes happens that two or more clients simultaneously purchase
or sell the same security. On those occasions when Morgan deems the purchase or
sale of a security to be in the best interests of a Fund, as well as other
clients including other Funds, J.P. Morgan to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Fund with those to be sold or purchased for
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other clients in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by J.P. Morgan in the manner it considers to be most equitable and
consistent with Morgan's fiduciary obligations to a Fund. In some instances,
this procedure might adversely affect a Fund.
MASSACHUSETTS TRUST
The Trust is a "Massachusetts business trust" of which each Fund is a
separate and distinct series. A copy of the Declaration of Trust for the Trust
is on file in the office of the Secretary of The Commonwealth of Massachusetts.
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, the Trust's Declaration of Trust provides that the shareholders
will not be subject to any personal liability for the acts or obligations of any
Fund and that every written agreement, obligation, instrument or undertaking
made on behalf of any Fund will contain a provision to the effect that the
shareholders are not personally liable thereunder.
The Trust's Declaration of Trust further provides that no Trustee,
officer, employee, or agent of the Trust is liable to a Fund or to a
shareholder, and that no Trustee, officer, employee, or agent is liable to any
third persons in connection with the affairs of a Fund, except as such liability
may arise from his or its own bad faith, willful misfeasance, gross negligence
or reckless disregard of his or its duties to such third persons ("disabling
conduct"). It also provides that all third persons must look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. The Trust's Declaration of Trust provides that a Trustee, officer,
employee, or agent is entitled to be indemnified against all liability in
connection with the affairs of a Fund, except liabilities arising from disabling
conduct.
DESCRIPTION OF SHARES
Each Fund represents a separate series of shares of beneficial interest of
the Trust. Fund shares are further divided into separate classes. See
"Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares ($0.001 par value) of one or more series and
classes within any series
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and to divide or combine the shares of any series without changing the
proportionate beneficial interest of each shareholder in a Fund. To date,
Pierpont Shares and JPM Institutional Shares of the three Funds described in
this Statement of Additional Information have been authorized and are available
for sale to the public.
Each share represents an equal proportional interest in a Fund with each
other share of the same class. Upon liquidation of a Fund, holders are entitled
to share pro rata in the net assets of a Fund available for distribution to such
shareholders. Shares of a Fund have no preemptive or conversion rights.
The shareholders of the Trust are entitled to one full or fractional vote
for each dollar or fraction of a dollar invested in shares. Subject to the 1940
Act, the Trustees have the power to alter the number and the terms of office of
the Trustees, to lengthen their own terms, or to make their terms of unlimited
duration, subject to certain removal procedures, and to appoint their own
successors. However, immediately after such appointment, the requisite majority
of the Trustees must have been elected by the shareholders of the Trust. The
voting rights of shareholders are not cumulative. The Trust does not intend to
hold annual meetings of shareholders. The Trustees may call meetings of
shareholders for action by shareholder vote if required by either the 1940 Act
or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in writing
or vote of shareholder whose shares represent two-thirds of the net asset value
of the Trust, to remove a Trustee. The Trustees will call a meeting of
shareholders to vote on removal of a Trustee upon the written request of the
shareholders whose shares represent 10% of the net asset value of the Trust.
The Trustees are also required, under certain circumstances, to assist
shareholders in communicating with other shareholders.
TAXES
Each Fund intends to qualify and remain qualified as a regulated investment
company under Subchapter M of the Code. As a regulated investment company, a
Fund must, among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock, securities or foreign
currency and other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
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investing in such stock, securities or foreign currency; (b) derive less than
30% of its gross income from the sale or other disposition of stock, securities,
options, futures or forward contracts (other than options, futures or forward
contracts on foreign currencies) held less than three months, or foreign
currencies (or options, futures or forward contracts on foreign currencies), but
only if such currencies (or options, futures or forward contracts on foreign
currencies) are not directly related to a Fund's principal business of investing
in stocks or securities (or options and futures with respect to stocks or
securities); and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of the Fund's total assets is represented
by cash, U.S. Government securities, investments in other regulated investment
companies and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or other registered investment companies). As a
regulated investment company, a Fund (as opposed to its shareholders) will not
be subject to federal income taxes on the net investment income and capital
gains that it distributes to its shareholders, provided that at least 90% of its
net investment income and realized net short-term capital gains in excess of net
long-term capital losses for the taxable year is distributed.
Under the Code, a Fund will be subject to a 4% excise tax on a portion of
its undistributed income if it fails to meet certain distribution requirements
by the end of the calendar year. Each Fund intends to make distributions in a
timely manner and accordingly does not expect to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund in
October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will generally be
taxable to a shareholder in the year declared rather than the year paid.
The California Fund intends to qualify to pay exemptinterest dividends to
its shareholders by having, at the close of each quarter of its taxable year, at
least 50% of the value of its total assets consist of tax exempt securities. An
exempt-interest dividend is that part of dividend distributions made by the Fund
which consists of interest
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received by the Funds on tax exempt securities. Shareholders will not incur any
federal income tax on the amount of exempt-interest dividends received by them
from the Fund. In view of the Fund's investment policies, it is expected that a
substantial portion of all dividends will be exempt-interest dividends, although
the Fund may from time to time realize and distribute net short-term capital
gains and may invest limited amounts in taxable securities under certain
circumstances.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses (other than exempt-interest
dividends) are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
Distributions of net long-term capital gains (i.e., net long-term capital gains
in excess of net short-term capital losses) are taxable to shareholders of a
Fund as long-term capital gains, regardless of whether such distributions are
taken in cash or reinvested in additional shares and regardless of how long a
shareholder has held shares in the Fund. See "Taxes" in the Prospectus for a
discussion of the federal income tax treatment of any gain or loss realized on
the redemption or exchange of a Fund's shares. Additionally, any loss realized
on a redemption or exchange of shares of a Fund will be disallowed to the extent
the shares disposed of are replaced within a period of 61 days beginning 30 days
before such disposition, such as pursuant to reinvestment of a dividend in
shares of the Fund.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more
than one year except in certain cases where, if applicable, a put is acquired
or a call option is written thereon. Other gains or losses on the sale of
securities will be short-term capital gains or losses. Gains and losses on
the sale, lapse or other termination of options on securities will be treated
as gains and losses from the sale of securities. If an option written by a
Fund lapses or is terminated through a closing transaction, such as a
repurchase by the Fund of the option from its holder, the Fund will realize a
short-term capital gain or loss, depending on whether the premium income is
greater or less than the amount paid by the Fund in the closing transaction.
If securities are purchased by a Fund pursuant to the exercise of a put
option written by it, the Fund will subtract the premium received from its
cost basis in the securities purchased.
Gains or losses on the disposition of debt securities held by a Fund, if
any, denominated in foreign currency, to
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the extent attributable to fluctuations in exchange rates between the
acquisition and disposition dates are also treated as ordinary income or loss.
Options and futures contracts entered into by a Fund may create "straddles"
for U.S. federal income tax purposes and this may affect the character and
timing of gains or losses realized by the Fund on options and futures contracts
or on the underlying securities. Straddles may also result in the loss of the
holding period of underlying securities for purposes of the 30% of gross income
test described above, and therefore, a Fund's ability to enter into options and
futures contracts may be limited.
Certain options and futures held by a Fund at the end of each fiscal year
will be required to be "marked to market" for federal income tax purposes --
i.e., treated as having been sold at market value. For options and futures
contracts, 60% of any gain or loss recognized on these deemed sales and on
actual dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss regardless of how
long the Fund has held such options or futures. Any gain or loss recognized on
foreign currency contracts will be treated as ordinary income.
The Equity Funds may invest in Equity Securities of foreign issuers. If a
Fund purchases shares in certain foreign investment funds (referred to as
passive foreign investment companies ("PFICs") under the Code), the Fund may be
subject to federal income tax on a portion of an "excess distribution" from such
foreign investment fund or gain from the disposition of such shares, even though
such income may have to be distributed as a taxable dividend by the Fund to its
shareholders. In addition, certain interest charges may be imposed on a Fund or
its shareholders in respect of unpaid taxes arising from such distributions or
gains. Alternatively, a Fund may in certain circumstances include each year in
its income and distribute to shareholders a pro rata portion of the foreign
investment fund's income, whether or not distributed to the Fund.
FOREIGN SHAREHOLDERS. Dividends of net investment income and distributions
of realized net short-term gains in excess of net long-term losses to a
shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
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dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions of net
long term capital gainsto foreign shareholders will not be subject to U.S. tax
unless the distributions are effectively connected with the shareholder's trade
or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien individual
and who is not otherwise subject to withholding as described above, a Fund may
be required to withhold U.S. federal income tax at the rate of 31% unless IRS
Form W-8 is provided. Transfers by gift of shares of a Fund by a foreign
shareholder who is a nonresident alien individual will not be subject to U.S.
federal gift tax, but the value of shares of the Fund held by such a shareholder
at his or her death will be includible in his or her gross estate for U.S.
federal estate tax purposes.
STATE AND LOCAL TAXES. Each Fund may be subject to state or local taxes in
jurisdictions in which the Fund is deemed to be doing business. In addition, the
treatment of a Fund and its shareholders in those states which have income tax
laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. Under current law, neither the Trust nor any Fund is
liable for any income or franchise tax in The Commonwealth of Massachusetts,
provided that each Fund continues to qualify as a regulated investment company
under Subchapter M of the Code.
ADDITIONAL INFORMATION
Telephone calls to the Funds, Morgan or State Street may be tape recorded.
With respect to the securities offered hereby, this Statement of Additional
Information and the Prospectuses do not contain all the information included in
the Trust's registration statement filed with the SEC under the 1933 Act and the
Trust's registration statement filed under the 1940 Act. Pursuant to the rules
and regulations of the SEC, certain portions have been omitted. The registration
statement including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
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Statements contained in this Statement of Additional Information and the
Prospectuses concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectuses and this Statement of Additional Information, in connection with
the offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or FDI. The Prospectus and this Statement of Additional
Information do not constitute an offer by any Fund or by FDI to sell or solicit
any offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Fund or FDI to make such offer in such
jurisdictions.
FINANCIAL STATEMENTS
The Funds' initial Statements of Assets and Liabilities and the related
Report of Independant Accountants will be filed by Pre-Effective Amendment
following the initial capitalization of the Funds.
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB - Debt rated BB is regarded as having less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
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SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured.
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Often the protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - - Leading market positions in well established industries. - - High rates of
return on funds employed. - - Conservative capitalization structures with
moderate reliance on debt and ample asset protection. - Broad margins in
earnings coverage of fixed financial charges and high internal cash generation.
- - Well established access to a range of financial markets and assured sources of
alternate liquidity.
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.
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APPENDIX B
ADDITIONAL INFORMATION CONCERNING CALIFORNIA MUNICIPAL SECURITIES
The following information is a summary of special factors affecting
investments in California Municipal Securities. The sources of payment for such
obligations and the marketability thereof may be affected by financial or other
difficulties experienced by the State of California and certain of its
municipalities and public authorities. It does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of California issuers.
ECONOMIC FACTORS
FISCAL YEARS PRIOR TO 1996-97. By the close of the 1989-90 Fiscal Year,
California's revenues had fallen below projections so that the State's budget
reserve, the Special Fund for Economic Uncertainties (the "Special Fund"), was
fully depleted by June 30, 1990. A recession which had begun in mid-1990,
combined with higher health and welfare costs driven by the State's rapid
population growth, adversely affected General fund revenues and raised
expenditures above initial budget appropriations.
As a result of these factors and others, the State confronted a period of
budget imbalance. Beginning with the 1990-91 Fiscal Year and for several years
thereafter, the budget required multi-billion dollar actions to bring projected
revenues and expenditures into balance. During this period, expenditures
exceeded revenues in four out of six years, and the State accumulated and
sustained a budget deficit in the Special Fund - approaching $2.8 billion at its
peak on June 30, 1993.
By the 1993-94 Fiscal Year, the accumulated deficit was too large to be
prudently retired in one year and a two year program was implemented. This
program used revenue anticipation warrants to carry a portion of the deficit
over to the end of the fiscal year.
The 1994-95 Budget Act projected General fund revenues and transfers of
$41.9 billion. Expenditures were projected to be $40.9 billion - an increase of
$1.6 billion over the prior year. As a result of the improving economy,
however,
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the fiscal year ultimately produced revenues and transfers of $42.7 billion
which more than offset expenditures of $42.0 billion and thereby reduced the
accumulated budget deficit.
With strengthening revenues and reduced case load growth driven by an
improving economy, the State entered the 1995-96 Fiscal Year budget negotiations
with the smallest nominal "budget gap" to be closed in many years. The 1995-96
Budget Act projected General fund revenues and transfers of $44.1 billion, a 3.5
percent increase from the prior year, and expenditures were budgeted at $43.4
billion. In addition, the Department of Finance projected that after repaying
the last of the carry over budget deficit, there would be a positive balance of
$28 million in the budget reserve as of June 30, 1996.
1996-97 FISCAL YEAR. Reflecting the belief shared by many analysts that
the California economy would remain strong, the 1996-1997 Budget Act established
a State budget of some $63 billion. Relying on the optimistic revenue
projections released by the Department of Finance, the Budget Act granted a $230
million tax cut to corporations while simultaneously providing an increase in
funding for education and prisons. However, only a relatively modest amount,
$287 million, was allocated to the reserve fund available for emergencies such
as earthquakes. The ultimate impact of these and other budgetary allocations is
impossible to predict. Indeed, constant fluctuations in other factors affecting
the State - including changes in welfare case loads, property tax receipts and
federal funding - will undoubtedly create new budget challenges.
THE ORANGE COUNTY BANKRUPTCY. On December 6, 1994, Orange County,
California and its Investment Pool (the "Pool") filed for bankruptcy under
Chapter 9 of the United States Bankruptcy Code. The subsequent restructuring
led to the sale of substantially all of the Pool's portfolio and resulted in
losses estimated to be approximately $1.7 billion (or approximately 22% of
amounts deposited by the Pool investors). Approximately 187 California public
entities - substantially all of which are public agencies within the county -
had various bonds, notes or the forms of indebtedness outstanding. In some
instances the proceeds of such indebtedness outstanding. In some instances the
proceeds of such indebtedness were invested in the Pool.
In April, 1996, the County emerged from bankruptcy after closing on a $900
million recovery bond deal. At that time, the County and its financial advisors
stated that the County had emerged from the bankruptcy without any structural
fiscal
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problems and assured that the County would not slip back into bankruptcy.
However, for many of the cities, schools and special districts that lost money
in the County portfolio, repayment remains contingent on the outcome of
litigation which is pending against investment firms and other finance
professionals. Thus, it is impossible to determine the ultimate impact of the
bankruptcy and its after math of these various agencies and their claims.
CONSTITUTIONAL, LEGISLATIVE AND OTHER FACTORS
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could produce
the adverse effects described below, among others.
REVENUE DISTRIBUTION. Certain California Municipal Securities held by the
California Fund may be obligations of issuers which rely in whole or in part on
California State revenues for payment of these obligations. Property tax
revenues and a portion of the State's general fund surplus are distributed to
counties, cities and their various taxing entities and the State assumes certain
obligations therefore paid out of local funds. Whether and to what extent a
portion of the State's general fund will be distributed in the future to
counties, cities and their various entities is unclear.
HEALTH CARE LEGISLATION. Certain California Municipal Securities held by
the California Fund may be obligations which are payable solely from the
revenues of health care institutions. Certain provisions under California law
may adversely affect these revenues and, consequently, payment on those
California Municipal Securities.
The federally sponsored Medicaid program for health care services to
eligible welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting is
made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other
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reductions or limitations may be imposed on payment of services rendered to
Medi-Cal beneficiaries in the future.
Under this approach, in most geographical areas of California, only those
hospitals which enter into a Medi-Cal contract with the State of California will
be paid for non-emergency acute inpatient services rendered to Medi-Cal
beneficiaries. The State may also terminate these contracts without notice
under certain circumstances and is obligated to make contractual payments only
to the extent the California legislature appropriates adequate funding therefor.
California enacted legislation in 1982 that authorizes private health plans
and insurers to contract directly with hospitals for services to beneficiaries
on negotiated terms. Some insurers have introduced plans known as "preferred
provider organizations" ("PPOs"), which offer financial incentives for
subscribers who use only the hospitals which contract with the plan. Under an
exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower the income to the contracting hospitals.
These California Municipal Securities may also be insured by the State of
California pursuant to an insurance program implemented by the Office of
Statewide Health Planning and Development for health facility construction
loans. If a default occurs on insured California Municipal Securities, the
state Treasurer will issue debentures payable out of a reserve fund established
under the insurance program or will pay principal and interest on an
unaccelerated basis from unappropriated State funds. At the request of the
Office of Statewide Health Planning and Development, Arthur D. Little, Inc.
prepared a study in December 1983, to evaluate the adequacy of the reserve fund
established under the insurance program and based on certain formulations and
assumptions found the reserve fund substantially underfunded. In September of
1986, Arthur D. Little, Inc.
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prepared an update of the study and concluded that an additional 10% reserve be
established for "multi-level" facilities. For the balance of the reserve fund,
the update recommended maintaining the current reserve calculation method. In
March of 1990, Arthur D. Little, Inc. prepared a further review of the study and
recommended that separate reserves continue to be established for "multi-level"
facilities at a reserve level consistent with those that would be required by an
insurance company.
MORTGAGES AND DEEDS. Certain California Municipal Securities held by the
California Fund may be obligations which are secured in whole or in part by a
mortgage or deed of trust on real property. California has five principal
statutory provisions which limit the remedies of a creditor secured by a
mortgage or deed of trust. Two statutes limit the creditor's right to obtain a
deficiency judgment, one limitation being based on the method of foreclosure and
the other on the type of debt secured. Under the former, a deficiency judgment
is barred when the foreclosed mortgage or addendum of trust secures certain
purchase money obligations. Another California statute, commonly known as the
"one form of action" rule, requires creditors secured by real property to
exhaust their real property security by foreclosure before bringing a personal
action against the debtor. The fourth statutory provision limits any deficiency
judgment obtained by a creditor secured by real property following a judicial
sale of such property to the excess of the outstanding debt over the fair value
of the property at the time of the sale, thus preventing the creditor from
obtaining a large deficiency judgment against the debtor as the result of low
bids at a judicial sale. The fifth statutory provision gives the debtor the
right to redeem the real property from any judicial foreclosure sale as to which
a deficiency judgment may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to California
real property, the creditor's nonjudicial foreclosure rights under the power of
sale contained in the mortgage or deed of trust are subject to the constraints
imposed by California law upon transfers of title to real property by private
power of sale. During the three-month period beginning with the filing of a
formal notice of default, the debtor is entitled to reinstate the mortgage by
making any overdue payments. Under standard loan servicing procedures, the
filing of the formal notice of default does not occur unless at least three full
monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale for at least 20 days after
expiration of the three-month reinstatement
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period. The debtor may reinstate the mortgage, in the manner described above,
up to five business days prior to the scheduled sale date. Therefore, the
effective minimum period for foreclosing on a mortgage could be in excess of
seven months after the initial default. Such time delays in collections could
disrupt the flow of revenues available to an issuer for the payment of debt
service on the outstanding obligations if such defaults occur with respect to a
substantial number of mortgages or deeds of trust securing an issuer's
obligations.
In addition, a court could not find that there is sufficient involvement of
the issuer in the nonjudicial sale of property securing a mortgage for such
private sale to constitute "state action," and could hold that the private-
right-of-sale proceedings violate the due process requirements of the Federal or
State Constitutions, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain California Municipal Securities held by the California Fund may be
obligations which finance the acquisition of single family home mortgages for
low and moderate income mortgagors. These obligations may be payable solely from
revenues derived from the home mortgages, and are subject to California's
statutory limitations described above applicable to obligations secured by real
property. Under California antideficiency legislation, there is no personal
recourse against a mortgagor of a single family residence purchased with the
loan secured by the mortgage, regardless of whether the creditor chooses
judicial or nonjudicial foreclosure.
Under California law, mortgage loans secured by single-family owner-
occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and then only
if the borrower prepays in amount in excess of 20% of the original principal
amount of the mortgage loan in a 12-month period; a prepayment charge cannot in
any event exceed six months' advance interest on the amount prepaid during the
12-month period in excess of 20% of the original principal amount of the loan.
This limitation could affect the flow of revenues available to an issuer for
debt services on the outstanding debt obligations which financed such home
mortgages.
PROPOSITION 13. Certain of the California Municipal Securities may be
obligations of issuers who rely in whole or
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<PAGE>
in part on ad valorem real property taxes as a source of revenue. On June 6,
1978, California voters approved an amendment to the California Constitution
known as Proposition 13, which added Article XIIA to the California
Constitution. The effect of Article XIIA was to limit ad valorem taxes on real
property and to restrict the ability of taxing entities to increase real
property tax revenues.
Section 1 of Article XIIA, as amended, limits the maximum ad valorem tax on
real property to 1% of full cash value to be collected by the counties and
apportioned according to law. The 1% limitation does not apply to ad valorem
taxes or special assessments to pay the interest and redemption charges on any
bonded indebtedness for the acquisition or 2 of Article XIIA defines "full cash
value" to mean "the County Assessor's valuation of real property as shown on the
1975/76 tax bill under 'full cash value' or, thereafter, the appraised value of
real property when purchased, newly constructed, or a change in ownership has
occurred after the 1975 assessment." The full cash value may be adjusted
annually to reflect inflation at a rate not to exceed 2% per year, or reduction
in the consumer price index or comparable local data, or reduced in the event of
declining property value caused by damage, destruction or other factors.
Legislation enacted by the California Legislature to implement Article XXIA
provides that notwithstanding any other law, local agencies may not levy any ad
valorem property tax except to pay debt service on indebtedness approved by the
voters prior to July 1,1978, and that each county will levy the maximum tax
permitted by Article XIIA.
PROPOSITION 9. On November 6, 1979, an initiative known as "Proposition 0"
or the "Gann Initiative" was approved by the California voters, which added
Article XIIIB to the California Constitution. Under Article XIIIB, State and
local governmental entities have an annual "appropriations limit" and are not
allowed to spend certain moneys called "appropriations subject to limitation" in
an amount higher than the "appropriations limit." Article XIIIB does not affect
the appropriation of moneys which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the "appropriations
limit" is required to be based on certain 1978/79 expenditures, and is to be
adjusted annually to reflect changes in consumer prices, population, and certain
services provided by these entities. Article XIIIB also
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<PAGE>
provides that if these entities' revenues in any year exceed the amounts
permitted to be spent, the excess is to be returned by revising tax rates or fee
schedules over the subsequent two years.
PROPOSITION 98. On November 8, 1988, voters of the State approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of general fund revenues. Under
Proposition 98 (modified by Proposition 111 as discussed below), K-14 schools
are guaranteed the greater of (a) in general, a fixed percent of general fund
revenues ("Test 1"), (b) the amount appropriated to K-14 schools in the prior
year, adjusted for changes in the cost of living (measured as in Article XIIIB
by reference to State per capita personal income) and enrollment ("Test 2"), or
(c) a third test, which would replace Test 2 in any year when the percentage
growth in per capita General Fund revenues from the prior year plus one half of
one percent is less than the percentage growth in State per capital personal
income ("Test 3"). Under Test 3, schools would receive the amount appropriated
in the prior year adjusted for changes in enrollment and per capital General
Fund revenues, plus an additional small adjustment factor. If Test 3 is used in
any year, the difference between Test 3 and Test 2 would become a "credit" to
schools which would be the basis of payments in future years when per capita
general fund revenue growth exceeds per capital personal income growth.
Proposition 98 permits the Legislature - by two-thirds vote of both houses,
with the Governor's concurrence - to suspend the K-14 schools' minimum funding
formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIIB limit to
K-14 schools.
During the recession years of the early 1990s, General Fund revenues for
several years were less than originally projected, so that the original
Proposition 98 appropriations turned out to be higher that the minimum
percentage provided in the law. The Legislature responded to these developments
by designating the "extra" Proposition 98 payments in one year as a "loan" from
future years' Proposition 98 entitlements, and also intended that the "extra"
payments would not be included in the Proposition 98 "base" for calculating
future years' entitlements. In 1992, a lawsuit
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<PAGE>
was filed, CALIFORNIA TEACHERS' ASSOCIATION V. GOULD, which challenged the
validity of these off-budget loans. During the course of this litigation, a
trial court determined that almost $2 billion in "loans" which had been provided
to school districts during the recession violated the Constitutional protection
of support for public education. A settlement was reached on April 12, 1996
which ensures that future school finding will not be in jeopardy over repayment
of these so-called loans.
Proposition 111. On June 30, 1989, the California Legislature enacted
Senate Constitutional Amendment 1, a proposed modification of the California
Constitution to alter the spending limit and the education funding provisions of
Proposition 98. Senate Constitutional Amendment 1 - on the June 5, 1990 ballot
as Proposition 111 - was approved by the voters and took effect on July 1, 1990.
Among a number of important provisions, Proposition 111 recalculated spending
limits for the state and for local governments, allowed greater annual increases
in the limits, allowed the averaging of two years' tax revenues before
requiring action regarding excess tax revenues, reduced the amount of the
funding guarantee in recession years for school districts and community college
districts (but with a floor of 40.9 percent of State General Fund tax revenues),
removed the provision of Proposition 98 which included excess moneys transferred
to school districts and community college districts in the base calculation for
the next year, limited the amount of State to school districts and community
college districts in the base calculation for the next year, limited the amount
of State tax revenue over the limit which would be transferred to school
districts and community college districts, and exempted increased gasoline taxes
and truck weight fees from the State appropriations limit. Additionally,
Proposition 111 exempted from the state appropriations limit funding for capital
outlays.
Proposition 62. On November 4, 1986, California voters approved an
initiative statute known a Proposition 62. This initiative provided the
following:
1. Requires that any tax for general governmental purposes imposed by
local governments be approved by resolution or ordinance adopted by a two-thirds
vote of the governmental entity's legislative body and by a majority vote of the
electorate of the governmental entity;
2. Requires that any special tax (defined as taxes levied for other than
general governmental purposes) imposed
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<PAGE>
by a local governmental entity be approved by a two-thirds vote of the voters
within that jurisdiction;
3. Restricts the use of revenues from a special tax to the purposes or
for the service for which the special tax was imposed.
4. Prohibits the imposition of ad valorem taxes on real property by local
governmental entities except as permitted by Article XIIA;
5. Prohibits the imposition of transaction taxes and sales taxes on the
sale of real property by local governments;
6. Requires that any tax imposed by a local government on or after August
1, 1985 by ratified by a majority vote of the electorate within two years of
the adoption of the initiative;
7. Requires that, in the event a local government fails to comply with
the provision of this measure, a reduction in the amount of property tax revenue
allocated to such local government occurs in an amount equal to the revenues
received by such entity attributable to the tax levied in violation of the
initiative; and
8. Permits these provisions to be amended exclusively by the voters of the
State of California.
In September 1988, the California Court of Appeal in CITY OF WESTMINSTER V.
COUNTY OF ORANGE, 204 Cal.App. 3d 623, 215 Cal.Rptr. 511 (Cal.Ct.App. 1988),
held that Proposition 62 is unconstitutional to the extent that it requires a
general tax by a general law city, enacted on or after August 1, 1985 and prior
to the effective date of Proposition 62, to be subject to approval by a majority
of voters. The Court held that the California Constitution prohibits the
imposition of a requirement that local tax measures be submitted to the
electorate by either referendum or initiative. It is impossible to predict the
impact of this decision on charter cities, on special taxes or on new taxes
imposed after the effective date of Proposition 62. The California Court of
Appeal in CITY OF WOODLAKE V. LOGAN, (1991) 230 Cal.App.3d 1058, subsequently
held that Proposition 62's popular vote requirements for future local taxes also
provided for an unconstitutional referenda. The California Supreme Court
declined to review both the City of Westminster and the City of Woodlake
decisions.
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<PAGE>
In SANTA CLARA LOCAL TRANSPORTATION AUTHORITY V. GUARDINO, (Sept. 28, 1995)
Cal.4th 220, reh'g denied, modified (Dec. 14, 1995) 12 Cal.4th 344e, the
California Supreme Court upheld the constitutionality of Proposition 62's
popular vote requirements for future taxes, and specifically disapproved of the
City of Woodlake decision as erroneous. The Court did not determine the
correctness of the CITY OF WESTMINSTER decision, because that case appeared
distinguishable, was not relied on by the parties in GUARDINO, and involved
taxes not likely to still be at issue. It is impossible to predict the impact
of the Supreme Court's decision on charter cities or on taxes imposed in
reliance on the CITY OF WOODLAKE case.
Senate Bill 1590 (O'Connell), introduced February 16, 1996, would make the
GUARDINO decision inapplicable to any tax first imposed or increased by an
ordinance or resolution adopted before December 14, 1995. The California State
Senate passed the Bill on May 16, 1996 and its currently pending in the
California State Assembly. It is not clear whether the Bill, if enacted would
be constitutional as a non-voted amendment to Proposition 62 or as a non-voted
change to Proposition 62's operative date.
The voters will be presented with a new initiative constitutional amendment
on the November 1996 ballot. The Right to Vote on Taxes Act, sponsored by the
Howard Jarvis Taxpayers Association, seeks to strengthen Proposition 62 by
requiring majority voter approval for general taxes, two thirds voter approval
for special taxes (including taxes imposed for specific purposes but placed in
the general fund), voter approval of existing local taxes enacted after January
1, 1995, and placing other restrictions on fees and assessments. As a
constitutional amendment, the provisions would clearly apply to charter cities.
Another initiative on the November 1996 ballot, a statutory initiative
sponsored by the California Tax Reform Association, would reimpose the now
sunseted temporary 10 and 11 percent tax brackets and use the revenues from the
increase to replace a portion of the property tax revenue shifted from cities,
counties and special districts to schools on an ongoing basis since 1992.
PROPOSITION 87. On November 8, 1988, California voters approved
Proposition 87. Proposition 87 amended Article XVI, Section 16, of the
California Constitution by authorizing the California Legislature to prohibit
redevelopment agencies from receiving any of the property tax revenue raised by
increased property tax rates levied to repay bonded indebtedness of local
governments which is approved by voters on or after January 1, 1989.
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<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
The following financial statements are included in Part A:
Not applicable.
The following financial statements are included in Part B:
Statement of Assets and Liabilities.*
Report of Independant Accountants.*
(b) Exhibits
1 Declaration of Trust.
2 By-Laws.
5 Investment Advisory Agreement between Registrant and Morgan Guaranty Trust
Company of New York ("Morgan").*
6 Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*
8 Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").*
9(a) Co-Administration Agreement between Registrant and FDI.*
9(b) Services Agreement between Registrant and Morgan.*
9(c) Transfer Agency and Service Agreement between Registrant and State Street.*
10 Not applicable.
11 Consent of independent accountants.*
13 Purchase agreements with respect to the Registrant's initial shares.*
16 Schedule for computation of performance quotations.*
17 Financial data schedules.*
18 Multiclass plan pursuant to Rule 18f-3*
19 Powers of attorney.*
__________________
* To be filed by amendment.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Title of Class: Shares of Beneficial Interest (par value $0.001)
As of August 28, 1996
Tax Aware Active Equity Fund: Pierpont Shares: 0
Tax Aware Enhanced Index Fund: Pierpont Shares: 0
California Bond Fund: Pierpont Shares: 0
Tax Aware Active Equity Fund: JPM Institutional Shares: 0
Tax Aware Enhanced Index Fund: JPM Institutional Shares: 0
California Bond Fund: JPM Institutional Shares: 0
ITEM 27. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or proceedings,
and certain liabilities that might be imposed as a result of such actions, suits
or proceedings.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal underwriter
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, trustee,
officer, or controlling person of the Registrant and the principal underwriter
in connection with the successful defense of any action, suite or proceeding) is
asserted against the Registrant by such director, trustee, officer or
controlling person or principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
<PAGE>
Morgan is a New York trust company which is a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated. Morgan conducts a general banking and trust
business.
To the knowledge of the Registrant, none of the directors, except those set
forth below, or executive officers of Morgan is or has been during the past two
fiscal years engaged in any other business, profession, vocation or employment
of a substantial nature, except that certain officers and directors of Morgan
also hold various positions with, and engage in business for, J.P. Morgan & Co.
Incorporated, which owns all the outstanding stock of Morgan. Set forth below
are the names, addresses, and principal business of each director of Morgan who
is engaged in another business, profession, vocation or employment of a
substantial nature.
Riley P. Bechtel: Chairman and Chief Executive Officer, Bechtel Group, Inc.
(architectural design and construction). His address is Bechtel Group, Inc.,
P.O. Box 193965, San Francisco, CA 94119-3965.
Martin Feldstein: President and Chief Executive Officer, National Bureau of
Economic Research, Inc.(national research institution). His address is National
Bureau of Economic Research, Inc., 1050 Massachusetts Avenue, Cambridge, MA
02138-5398.
Hanna H. Gray: President Emeritus, The University of Chicago (academic
institution). Her address is Department of History, The University of Chicago,
1126 East 59th Street, Chicago, IL 60637.
James R. Houghton: Retired Chairman, Corning Incorporated (glass products).
His address is R.D.#2 Spencer Hill Road, Corning, NY 14830.
James L. Ketelsen: Retired Chairman and Chief Executive Officer, Tenneco
Inc. (oil, pipe-lines, and manufacturing). His address is Tenneco, Inc., P.O.
Box 2511, Houston, TX 77252-2511.
William S. Lee: Chairman Emeritus, Duke Power Company (utility). His
address is Duke Power Company, 526 South Church Street, ECI2P, Charlotte, NC
28242.
Lee R. Raymond: Chairman and Chief Executive Officer, Exxon Corporation
(oil, natural gas, and other petroleum products). His address is Exxon
Corporation, 5959 Las Colinas Boulevard, Irving, TX 75039-2298.
Richard D. Simmons: Former President, The Washington Post Company and
International Herald Tribune (newspapers). His address is P.O. Box 242,
Sperryville, VA 22740.
Douglas C. Yearley: Chairman, President and Chief Executive Officer, Phelps
Dodge Corporation (chemicals). His address is Phelps Dodge Corporation, 2600 N.
Central Avenue, Phoenix, AZ 85004-3014.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) FDI, located at 60 State Street, Suite 1300, Boston, Massachusetts 02109, is
the principal underwriter of the Registrant's shares. FDI is an indirectly
wholly owned subsidiary of Boston Institutional Group, Inc., a holding company,
all of whose outstanding shares are owned by key employees. FDI is a broker-
dealer registered under the Securities Exchange Act of 1934, as amended.
FDI acts as principal underwriter of the following investment companies other
than the Registrant:
BJB Investment Funds
Foreign Fund, Inc.
Fremont Mutual Funds
H.T. Insight Funds, Inc.
The Harris Insight Funds Trust
LKCM Fund
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Funds
RCM Capital Funds,Inc.
RCM Equity Funds, Inc.
Skyline Funds
St. Clair Funds, Inc.
Waterhouse Investors Cash Management Fund, Inc.
FDI does not act as depositor or investment adviser of any investment companies.
(b) The following is a list of officers, directors and partners of FDI. The
principal address of all officers and directors is 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
Name; Positions and Offices with Underwriter; Position and Offices with
Registrant:
Marie E. Connolly; Director, President and Chief Executive Officer; Vice
President and Assistant Treasurer
Richard W. Ingram; Senior Vice President; President and Treasurer
John E. Pelletier; Senior Vice President and General Counsel; Vice President and
Secretary
Donald R. Roberson; Senior Vice President; None
John F. Tower III; Senior Vice President, Chief Financial Officer and Treasurer;
Vice President and Assistant Treasurer
Rui M. Moura; First Vice President; None
<PAGE>
Bernard A. Whalen; First Vice President; None
John W. Gomez; Chairman and Director; None
William J. Nutt; Director; None
The information required by this Item 29 with respect to each director and
officer of FDI is incorporated herein by reference to Schedule A of Form BD
filed by FDI pursuant to the Securities Exchange Act of 1934 (SEC File
No. 20518).
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the "1940
Act"), and the Rules thereunder will be maintained at the offices of:
Morgan Guaranty Trust Company of New York: 60 Wall Street, New York, New York
10260-0060, 9 West 57th Street, New York, New York 10019 or 522 Fifth Avenue,
New York, New York 10036 (records relating to its functions as shareholder
servicing agent and [administrative] services agent).
State Street Bank and Trust Company: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 (records relating to its functions as custodian, transfer
agent and dividend disbursing agent).
Funds Distributor, Inc.: 60 State Street, Suite 1300, Boston, Massachusetts
02109 (records relating to its functions as distributor and co-administrator).
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained in the
latest annual report to shareholders, the Registrant shall furnish each
person to whom a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders upon request and without charge.
(b) The Registrant undertakes to file a post-effective amendment, using
financials which need not be certified, within four to six months following
the commencement of public investment operations of each Fund. The
financial statements included in such amendment will be as of and for the
time period ended on a date reasonably close or as soon as practicable to
the date of the filing of the amendment.
<PAGE>
(c) The Registrant undertakes to comply with Section 16(c) of the 1940 Act as
though such provisions of the 1940 Act were applicable to the Registrant,
except that the request referred to in the third full paragraph thereof may
only be made by shareholders who hold in the aggregate at least 10% of the
outstanding shares of the Registrant, regardless of the net asset value of
shares held by such requesting shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this registration statement
on Form N-1A to be signed on its behalf by the undersigned, thereto duly
authorized in the City of Boston and Commonwealth of Massachusetts on the 28th
day of August, 1996.
JPM SERIES TRUST
By /s/Richard W. Ingram
-------------------------
Richard W. Ingram
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on August 28, 1996.
/s/Richard W. Ingram
- ------------------------
Richard W. Ingram
Trustee, President, Treasurer
(Principal Executive, Financial
and Accounting Officer)
/s/Christopher J. Kelly
- ------------------------
Christopher J. Kelly
Trustee
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
1 Declaration of Trust.
2 By-Laws.
<PAGE>
JPM SERIES TRUST
DECLARATION OF TRUST
DATED AS OF AUGUST 15, 1996
[City of Boston Office of the City Clerk Received AUG 16 1996 City Clerk]
[RECEIVED AUG 16 1996 Secretary of the Commonwealth Corporations Division]
<PAGE>
TABLE OF CONTENTS
ARTICLE I--Name and Definitions 1
Section 1.1
Name 1
Section 1.2
Definitions 1
ARTICLE II--Trustees 3
Section 2.1
Number of Trustees 3
Section 2.2
Term of Office of Trustees 3
Section 2.3
Resignation and Appointment of Trustees 3
Section 2.4
Vacancies 4
Section 2.5
Delegation of Power to Other Trustees 4
ARTICLE III--Powers of Trustees 4
Section 3.1
General 4
Section 3.2
Investments 4
Section 3.3
Legal Title 6
Section 3.4
Issuance and Repurchase of Securities 6
Section 3.5
Borrowing Money; Lending Trust Property 6
Section 3.6
Delegation; Committees 6
Section 3.7
Collection and Payment 6
Section 3.8
Expenses 7
Section 3.9
Manner of Acting; By-Laws 7
Section 3.10
Miscellaneous Powers 7
Section 3.11
Principal Transactions 7
<PAGE>
Section 3.12
Trustees and Officers as Shareholders 8
ARTICLE IV--Investment Adviser, Distributor, Administrator,
Transfer Agent
and Shareholder Servicing Agents 8
Section 4.1
Investment Adviser 8
Section 4.2
Distributor 9
Section 4.3
Administrator 9
Section 4.4
Transfer Agent and Shareholder Servicing Agents 9
Section 4.5
Parties to Contract 10
Section 4.6
Plans of Distribution 10
ARTICLE V--Limitations of Liability of Shareholders, Trustees
and Others 10
Section 5.1
No Personal Liability of Shareholders, Trustees, etc. 10
Section 5.2
Non-Liability of Trustees, etc. 11
Section 5.3
Mandatory Indemnification; Insurance 11
Section 5.4
No Bond Required of Trustees 13
Section 5.5
No Duty of Investigation; Notice in Trust Instruments, etc. 13
Section 5.6
Reliance on Experts, etc. 13
<PAGE>
ARTICLE VI-- Shares of Beneficial Interest 13
Section 6.1
Beneficial Interest 13
Section 6.2
Rights of Shareholders 14
Section 6.3
Trust Only 14
Section 6.4
Issuance of Shares 14
Section 6.5
Register of Shares 14
Section 6.6
Transfer of Shares 15
Section 6.7
Notices 15
Section 6.8
Voting Powers 15
Section 6.9
Designation of Series and Classes of Shares 16
ARTICLE VII--Redemptions 19
Section 7.1
Redemptions 19
Section 7.2
Suspension of Right of Redemption 19
Section 7.3
Redemption of Shares; Disclosure of Holding 19
Section 7.4
Redemptions of Accounts of Less than Minimum Amount 20
ARTICLE VIII--Determination of Net Asset Value, Net Income
and Distributions 20
ARTICLE IX--Duration; Termination of Trust; Amendment; Mergers, etc. 21
Section 9.1
Duration 21
Section 9.2
Termination of Trust 21
Section 9.3
Amendment Procedure 22
Section 9.4
Merger, Consolidation and Sale of Assets 23
Section 9.5
Incorporation, Reorganization 23
<PAGE>
Section 9.6
Incorporation or Reorganization of Series 24
ARTICLE X--Report to Shareholders and Shareholder Communications 24
ARTICLE XI--Miscellaneous 24
Section 11.1
Filing 24
Section 11.2
Governing Law 25
Section 11.3
Counterparts 25
Section 11.4
Reliance by Third Parties 25
Section 11.5
Provisions in Conflict with Law or Regulations 25
Section 11.6
Principal Office 25
APPENDIX I--Series Designation
<PAGE>
DECLARATION OF TRUST
OF
JPM SERIES TRUST
Dated as of August 15, 1996
Whereas, the Trustees desire to establish a trust for the investment and
reinvestment of funds contributed thereto; and
Whereas, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable Shares of Beneficial Interest (par value
$0.001 per share) ("Shares") issued in one or more series as hereinafter
provided; and
Now Therefore, the Trustees hereby declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the Shares issued
hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is "JPM Series
Trust".
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "Administrator" means a party furnishing services to the Trust pursuant
to any contract described in Section 4.3 hereof.
(b) "By-Laws" means the By-laws referred to in Section 3.9 hereof, as from
time to time amended.
(c) "Commission" has the meaning given that term in the 1940 Act.
(d) "Custodian" means a party employed by the Trust to furnish services as
described in Article X of the By-Laws.
(e) "Declaration" means this Declaration of Trust as amended from time to
time. Reference in this Declaration of Trust to
<PAGE>
"Declaration", "hereof", "herein", and "hereunder" shall be deemed to refer to
this Declaration rather than the article or section in which such words appear.
(f) "Distributor" means a party furnishing services to the Trust pursuant
to any contract described in Section 4.2 hereof.
(g) "Interested Person" has the meaning given that term in the 1940 Act.
(h) "Investment Adviser" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.1 hereof including any
subadviser that has entered into such a contract with an Investment Adviser.
(i) "Majority Shareholder Vote" has the same meaning as the phrase "vote of
a majority of the outstanding voting securities" as defined in the 1940 Act,
except that such term may be used herein with respect to the Shares of the Trust
as a whole or the Shares of any particular series or class, as the context may
require.
(j) "1940 Act" means the Investment Company Act of 1940 and the Rules and
Regulations thereunder, as amended from time to time.
(k) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof,
whether domestic or foreign.
(l) "Shareholder" means a record owner of outstanding Shares.
(m) "Shares" means the Shares of Beneficial Interest into which the
beneficial interest in the Trust shall be divided from time to time or, when
used in relation to any particular series or class of Shares established by the
Trustees pursuant to Section 6.9 hereof, equal proportionate transferable units
into which such series or class of Shares shall be divided from time to time.
The term "Shares" includes fractions of Shares as well as whole Shares.
(n) "Shareholder Servicing Agent" means a party furnishing services to the
Trust pursuant to any shareholder servicing contract described in Section 4.4
hereof.
(o) "Transfer Agent" means a party furnishing services to the Trust
pursuant to any transfer agency contract described in Section 4.4 hereof.
<PAGE>
(p) "Trust" means the trust created hereby.
(q) "Trust Property" means any and all property, real or personal, tangible
or intangible, which is owned or held by or for the account of the Trust or the
Trustees, including, without limitation, any and all property allocated or
belonging to any series of Shares pursuant to Section 6.9 hereof.
(r) "Trustees" means the persons who have signed the Declaration, so long
as they shall continue in office in accordance with the terms hereof, and all
other persons who may from time to time be duly elected or appointed, qualified
and serving as Trustees in accordance with the provisions hereof, and reference
herein to a Trustee or the Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1. Number of Trustees. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than three nor more than 15.
Section 2.2. Term of Office of Trustees. Subject to the provisions of
Section 16(a) of the 1940 Act, during the lifetime of this Trust and until its
termination as hereinafter provided, each Trustee may hold office in accordance
with the Declaration and the By-Laws; except that (a) any Trustee may resign his
trust (without the need for a prior or subsequent accounting) by an instrument
in writing signed by him and delivered to the other Trustees, which shall take
effect upon such delivery or upon such later date as is specified therein; (b)
any Trustee may be removed with cause, at any time by written instrument signed
by at least two-thirds of the remaining Trustees, specifying the date when such
removal shall become effective; (c) any Trustee who has become incapacitated by
illness or injury, as determined by a majority of the other Trustees, may be
retired by written instrument signed by a majority of the other Trustees,
specifying the date of his retirement; and (d) a Trustee may be removed at any
meeting of Shareholders by a vote of Shareholders entitled to cast two-thirds of
the outstanding voting securities of the Trust. For purposes of the foregoing
clause (b), the term "cause" shall include, but not be limited to, failure to
comply with such written policies as may from time to time be adopted by at
least two-thirds of the Trustees with respect to the conduct of Trustees and
attendance at meetings. Upon the resignation, retirement or removal of a
Trustee, or his otherwise ceasing to be a Trustee, he
<PAGE>
shall execute and deliver such documents as the remaining Trustees shall require
for the purpose of conveying to the Trust or the remaining Trustees any Trust
Property held in the name of the resigning, retiring or removed Trustee. Upon
the incapacity or death of any Trustee, his legal representative shall execute
and deliver on his behalf such documents as the remaining Trustees shall require
as provided in the preceding sentence.
Section 2.3. Resignation and Appointment of Trustees. In case of the
declination, death, resignation, retirement, removal or inability of any of the
Trustees, or in case a vacancy shall, by reason of an increase in number, or for
any other reason, exist, the remaining Trustees shall fill such vacancy by
appointing such other individual as they in their discretion shall see fit. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office. Any such appointment shall not become effective,
however, until the person named in the written instrument of appointment shall
have accepted in writing such appointment and agreed in writing to be bound by
the terms of the Declaration. An appointment of a Trustee may be made by the
Trustees then in office and notice thereof mailed to Shareholders as aforesaid
in anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. The power of
appointment is subject to the provisions of Section 16(a) of the 1940 Act.
Section 2.4. Vacancies. The death, declination, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall not operate to
annul the Trust or to revoke any existing agency created pursuant to the terms
of this Declaration. Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided in Section 2.3, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees shall be conclusive evidence of the existence of such
vacancy.
Section 2.5. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six months at
any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two Trustees personally exercise the powers granted to the Trustees
under the Declaration except as herein otherwise expressly provided.
ARTICLE III
<PAGE>
POWERS OF TRUSTEES
Section 3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as the Trustees deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of the Declaration, the presumption shall be in favor of a grant of
power to the Trustees. The enumeration of any specific power herein shall not
be construed as limiting the aforesaid power. Such powers of the Trustees may be
exercised without order of or resort to any court.
Section 3.2. Investments. (a) The Trustees shall have the power:
(i) to conduct, operate and carry on the business of an investment company;
(ii) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of U.S. and foreign currencies, any form of gold
or other precious metal, commodity contracts, any form of forward, option or
swap contract, contracts for the future acquisition or delivery of securities or
currency, shares of, or any other interest in, any investment company as defined
in the Investment Company Act of 1940, and securities and related derivatives of
every nature and kind, including, without limitation, all types of bonds,
debentures, stocks, structured, hybrid or derivative securities, negotiable or
non-negotiable instruments, obligations, evidences of indebtedness, certificates
of deposit or indebtedness, commercial paper, repurchase agreements, bankers'
acceptances, and other securities of any kind, issued, created, guaranteed or
sponsored by any and all Persons, including, without limitation,
<PAGE>
(A) states, territories and possessions of the United States and the
District of Columbia and any political subdivision, agency or instrumentality of
any such Person,
(B) the U.S. Government, any foreign government, any political subdivision
or any agency or instrumentality of the U.S. Government, any foreign government
or any political subdivision of the U.S. Government or any foreign government,
(C) any international or supranational instrumentality,
(D) any bank or savings institution, or
(E) any corporation, trust, partnership or other organization organized
under the laws of the United States or of any state, territory or possession
thereof, or under any foreign law;
or in "when issued" or forward contracts for any such securities, to retain
Trust assets in cash and from time to time to change the securities or
obligations in which the assets of the Trust are invested; and to exercise any
and all rights, powers and privileges of ownership or interest in respect of any
and all such investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto, with
power to designate one or more Persons to exercise any of said rights, powers
and privileges in respect of any of said investments; and
(iii) to carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary, proper or desirable for
the accomplishment of any purpose or the attainment of any object or the
furtherance of any power hereinbefore set forth, and to do every other act or
thing incidental or appurtenant to or connected with the aforesaid purposes,
objects or powers.
(b) The Trustees shall not be limited to investing in securities or
obligations maturing before the possible termination of the Trust, nor shall the
Trustees be limited by any law limiting the investments which may be made by
fiduciaries.
(c) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without any
requirement of approval by Shareholders to either invest all or a portion of the
Trust Property, or sell all or a portion of the Trust Property and invest the
proceeds of such sales, in another investment company that is registered under
the 1940 Act.
<PAGE>
Section 3.3. Legal Title. Legal title to all Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person or nominee, on such terms as the Trustees may determine. The
right, title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee, such Trustee shall automatically
cease to have any right, title or interest in any of the Trust Property, and the
right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.
Section 3.4. Issuance and Repurchase of Securities. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII and IX and Section 6.9
hereof, to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds of the Trust or other Trust Property, whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
by the laws of the Commonwealth of Massachusetts governing business
corporations.
Section 3.5. Borrowing Money; Lending Trust Property. The Trustees shall
have power to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the Trust Property, to
endorse, guarantee, or undertake the performance of any obligation, contract or
engagement of any other Person and to lend Trust Property.
Section 3.6. Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
Section 3.7. Collection and Payment. Subject to Section 6.9 hereof, the
Trustees shall have power to collect all property due to the Trust; to pay all
claims, including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust Property; to foreclose
any security interest securing any obligations, by virtue of which any property
is owed to the Trust; and to enter into releases, agreements and other
instruments.
<PAGE>
Section 3.8. Expenses. Subject to Section 6.9 hereof, the Trustees shall
have the power to incur and pay any expenses which in the opinion of the
Trustees are necessary or incidental to carry out any of the purposes of the
Trust, and to pay reasonable compensation from the funds of the Trust to
themselves as Trustees. The Trustees shall fix the compensation of all
officers, employees and Trustees.
Section 3.9. Manner of Acting; By-Laws. Except as otherwise provided
herein or in the By-Laws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees at which a quorum is
present, including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of a majority of the
Trustees. The Trustees may adopt By-Laws not inconsistent with this Declaration
to provide for the conduct of the business of the Trust and may amend or repeal
such By-Laws to the extent such power is not reserved to the Shareholders.
Section 3.10. Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees, or
agents, the Investment Adviser, Distributor, Administrator, selected dealers or
independent contractors of the Trust against all claims arising by reason of
holding any such position or by reason of any action taken or omitted by any
such Person in such capacity, whether or not constituting negligence, and
whether or not the Trust would have the power to indemnify such Person against
such liability; (e) establish pension, profit-sharing, Share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees or
agents of the Trust; (f) to the extent permitted by law, indemnify any person
with whom the Trust has dealings, including any Investment Adviser,
Administrator, Custodian, Distributor, Transfer Agent, Shareholder Servicing
Agent or dealer, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
fiscal year of the Trust or any series and the method by which its accounts
shall be kept; and (i) adopt a seal for the Trust,
<PAGE>
provided, that the absence of such seal shall not impair the validity of any
instrument executed on behalf of the Trust.
Section 3.11. Principal Transactions. Except in transactions permitted by
the 1940 Act or by any order of exemption issued by the Commission, the Trustees
shall not, on behalf of the Trust, buy any securities (other than Shares) from
or sell any securities (other than Shares) to, or lend any assets of the Trust
to, any Trustee or officer of the Trust or any firm of which any such Trustee or
officer is a member acting as principal, or have any such dealings with any
Investment Adviser, Administrator, Shareholder Servicing Agent, Custodian,
Distributor or Transfer Agent or with any Interested Person of such Person; but
the Trust may, upon customary terms, employ any such Person, or firm or company
in which such Person is an Interested Person, as broker, legal counsel,
registrar, transfer agent, dividend disbursing agent or custodian and may pay
the proceeds of any redemption of Shares by such Person or Interested Person by
a distribution in kind of portfolio securities held by the Trust.
Section 3.12. Trustees and Officers as Shareholders. Except as
hereinafter provided, no officer, Trustee or member of any advisory board of the
Trust, and no member, partner, officer, director or trustee of the Investment
Adviser, Administrator or Distributor, and no Investment Adviser, Administrator
or Distributor of the Trust, shall take long or short positions in the
securities issued by the Trust. The foregoing provision shall not prevent:
(a) The Distributor from purchasing Shares from the Trust if such purchases
are limited (except for reasonable allowances for clerical errors, delays and
errors of transmission and cancellation of orders) to purchases for the purpose
of filling orders for Shares received by the Distributor and provided that
orders to purchase from the Trust are entered with the Trust or the Custodian
promptly upon receipt by the Distributor of purchase orders for Shares, unless
the Distributor is otherwise instructed by its customer;
(b) The Distributor from purchasing Shares as agent for the account of the
Trust;
(c) The purchase from the Trust or from the Distributor of Shares by any
officer, Trustee or member of any advisory board of the Trust or by any member,
partner, officer, director or trustee of the Investment Adviser, Administrator
or Distributor at a price not lower than the net asset value of the Shares at
the close of business on the day of such purchase, provided that any such sales
are only to be made pursuant to a uniform offer described in the
<PAGE>
current prospectus or statement of additional information for the Shares being
purchased; or
(d) The Investment Adviser, the Distributor, the Administrator, or any of
their officers, partners, directors or trustees from purchasing Shares prior to
the effective date of the Trust's Registration Statement under the Securities
Act of 1933, as amended, relating to the Shares.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR, TRANSFER AGENT
AND SHAREHOLDER SERVICING AGENTS
Section 4.1. Investment Adviser. Subject to a Majority Shareholder Vote
of the Shares of each series affected thereby, the Trustees may in their
discretion from time to time enter into one or more investment advisory or
management contracts whereby the other party to each such contract shall
undertake to furnish the Trust such management, investment advisory, statistical
and research facilities and services, and such other facilities and services, if
any, with respect to one or more series of the Trust, as the Trustees shall from
time to time consider desirable and all upon such terms and conditions as the
Trustees may in their discretion determine. Notwithstanding any provision of the
Declaration, the Trustees may delegate to the Investment Adviser authority
(subject to such general or specific instructions as the Trustees may from time
to time adopt) to effect purchases, sales, loans or exchanges of assets of the
Trust on behalf of the Trustees or may authorize any officer, employee or
Trustee to effect such purchases, sales, loans or exchanges pursuant to
recommendations of the Investment Adviser (and all without further action by the
Trustees). Any of such purchases, sales, loans or exchanges shall be deemed to
have been authorized by all the Trustees. Such services may be provided by one
or more Persons.
Section 4.2. Distributor. The Trustees may in their discretion from time
to time enter into one or more distribution contracts providing for the sale of
Shares whereby the Trust may either agree to sell the Shares to the other party
to any such contract or appoint any such other party as its sales agent for such
Shares. In either case, any such contract shall be on such terms and conditions
as the Trustees may in their discretion determine, provided that such terms and
conditions are not inconsistent with the provisions of the Declaration or the
By-Laws; and such contract may also provide for the repurchase or sale of Shares
by such other party as principal or as agent of the Trust and may provide that
such other party may enter into selected dealer and sales agreements with
registered securities
<PAGE>
dealers and depository institutions to further the purpose of the distribution
or repurchase of the Shares. Such services may be provided by one or more
Persons.
Section 4.3. Administrator. The Trustees may in their discretion from
time to time enter into one or more administrative services contracts whereby
the other party to each such contract shall undertake to furnish such
administrative services to the Trust as the Trustees shall from time to time
consider desirable and all upon such terms and conditions as the Trustees may in
their discretion determine, provided that such terms and conditions are not
inconsistent with the provisions of this Declaration or the By-Laws. Such
services may be provided by one or more Persons.
Section 4.4. Transfer Agent and Shareholder Servicing Agents. The
Trustees may in their discretion from time to time enter into one or more
transfer agency and shareholder servicing contracts whereby the other party to
each such contract shall undertake to furnish such transfer agency and/or
shareholder services to the Trust or to Shareholders of the Trust as the
Trustees shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may in their discretion determine, provided that such
terms and conditions are not inconsistent with the provisions of this
Declaration or the By-Laws. Such services may be provided by one or more
Persons. Except as otherwise provided in the applicable shareholder servicing
contract, a Shareholder Servicing Agent shall be deemed to be the record owner
of outstanding Shares beneficially owned by customers of such Shareholder
Servicing Agent for whom it is acting pursuant to such shareholder servicing
contract.
Section 4.5. Parties to Contract. Any contract of the character described
in Section 4.1, 4.2, 4.3 or 4.4 of this Article IV or any Custodian contract as
described in Article X of the By-Laws may be entered into with any Person,
although one or more of the Trustees or officers of the Trust may be an officer,
partner, director, trustee, Shareholder, or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable by
reason of the existence of any such relationship; nor shall any Person holding
such relationship be liable merely by reason of such relationship for any loss
or expense to the Trust under or by reason of any such contract or accountable
for any profit realized directly or indirectly therefrom, provided that the
contract when entered into was not inconsistent with the provisions of this
Article IV or the By-Laws. The same Person may be the other party to contracts
entered into pursuant to Sections 4.1, 4.2, 4.3 and 4.4 above or any Custodian
contract as described in Article X of the By-Laws, and any individual may be
financially interested or otherwise
<PAGE>
affiliated with Persons who are parties to any or all of the contracts mentioned
in this Section 4.5.
Section 4.6. Plans of Distribution. The Trustees may in their discretion
authorize the Trust, on behalf of one or more series or classes of Shares, to
adopt or enter into a plan or plans of distribution and any related agreements
whereby the Trust or series or class may finance directly or indirectly any
activity which is primarily intended to result in sales of Shares or any
distribution activity within the meaning or Rule 12b-1 (or any successor rule)
under the 1940 Act. Such plan or plans of distribution and any related
agreements may contain such terms and conditions as the Trustees may in their
discretion determine, subject to the requirements of the 1940 Act and any other
applicable rules and regulations.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1. No Personal Liability of Shareholders, Trustees, etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability, he shall not, on account thereof, be
held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall
not exclude any other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to indemnify
or reimburse a Shareholder in any appropriate situation even though not
specifically provided herein. Notwithstanding any other provision of this
Declaration to the contrary, no Trust Property shall be used to indemnify or
<PAGE>
reimburse any Shareholder of any Shares of any series other than Trust Property
allocated or belonging to that series.
Section 5.2. Non-Liability of Trustees, etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties.
Section 5.3. Mandatory Indemnification; Insurance. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is or has been a Trustee or officer of the Trust shall
be indemnified by the Trust, to the fullest extent permitted by law (including
the 1940 Act) as currently in effect or as hereafter amended, against all
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim", "action", "suit", or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust or the Shareholders by reason of a
final adjudication by the court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a Trustee or
officer or other disposition not involving a final
<PAGE>
adjudication as provided in paragraph (b)(i) or (b)(ii) above resulting in a
payment by a Trustee or officer, unless there has been either a determination
that such Trustee or officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office by the court or other body approving the settlement or other
disposition or by a reasonable determination, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that he did not engage
in such conduct:
(A) by vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in office
act on the matter); or
(B) by written opinion of independent legal counsel.
(c) Subject to the provisions of the 1940 Act, the Trust may maintain
insurance for the protection of the Trust Property, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability (whether or not the Trust would have
the power to indemnify such Persons against such liability), and such other
insurance as the Trustees in their sole judgment shall deem advisable.
(d) The rights of indemnification herein provided shall be severable, shall
not affect any other rights to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a Person who has ceased to be such a Trustee
or officer and shall inure to the benefit of the heirs, executors and
administrators of such Person. Nothing contained herein shall affect any rights
to indemnification to which personnel other than Trustees and officers may be
entitled by contract or otherwise under law.
(e) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to indemnification
under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or an independent legal counsel in a written opinion, shall
determine, based upon a review of
<PAGE>
readily available facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the recipient ultimately will be found entitled to
indemnification.
As used in this Section 5.3 a "Disinterested Trustee" is one (i) who is not
an "Interested Person" of the Trust (including anyone who has been exempted from
being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.
Section 5.4. No Bond Required of Trustees. No Trustee shall be obligated
to give any bond or other security for the performance of any of his duties
hereunder.
Section 5.5. No Duty of Investigation; Notice In Trust Instruments, etc.
No purchaser, lender, Shareholder Servicing Agent, Transfer Agent or other
Person dealing with the Trustees or any officer, employee or agent of the Trust
shall be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer, employee or agent or
be liable for the application of money or property paid, loaned, or delivered to
or on the order of the Trustees or of said officer, employee or agent. Every
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking, and every other act or thing whatsoever executed in
connection with the Trust shall be conclusively presumed to have been executed
or done by the executors thereof only in their capacity as Trustees under the
Declaration or in their capacity as officers, employees or agents of the Trust.
Every written obligation, contract, instrument, certificate, Share, other
security of the Trust or undertaking made or issued by the Trustees shall recite
that the same is executed or made by them not individually, but as Trustees
under the Declaration, and that the obligations of any such instrument are not
binding upon any of the Trustees or Shareholders individually, but bind only the
trust estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind any of
the Trustees or Shareholders individually. The Trustees shall at all times
maintain insurance for the protection of the Trust Property, Shareholders,
Trustees, officers, employees and agents in such amount as the Trustees shall
deem adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
Section 5.6. Reliance On Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with
<PAGE>
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust, upon an opinion of
counsel, or upon reports made to the Trust by any of its officers or employees
or by the Investment Adviser, the Distributor, an Administrator, a Custodian,
the Transfer Agent, any Shareholder Servicing Agent, selected dealers,
accountants, appraisers or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1. Beneficial Interest. The interest of the beneficiaries
hereunder may be divided into transferable Shares, which may be divided into one
or more series or classes of such series as provided in Section 6.9 hereof.
Each such series shall have such class or classes of Shares as the Trustees may
from time to time determine. The number of Shares authorized hereunder is
unlimited. All Shares issued hereunder including, without limitation, Shares
issued in connection with a dividend in Shares or a split of Shares, shall be
fully paid and non-assessable.
Section 6.2. Rights of Shareholders. The ownership of the Trust Property
of every description and the right to conduct any business described herein are
vested exclusively in the Trustees, and the Shareholders shall have no interest
therein other than the beneficial interest conferred by their Shares, and they
shall have no right to call for any partition or division of any property,
profits, rights or interests of the Trust nor can they be called upon to assume
any losses of the Trust or suffer an assessment of any kind by virtue of their
ownership of Shares. The Shares shall be personal property giving only the
rights specifically set forth in the Declaration. The Shares shall not entitle
the holder to preference, pre-emptive, appraisal, conversion or exchange rights,
except as the Trustees may determine with respect to any series of Shares or
class thereof.
Section 6.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and the
Shareholders. It is not the intention of the Trustees to create a general
partnership, limited partnership, joint stock association, limited liability
company, corporation, bailment or any form of legal relationship other than a
trust. Nothing in the Declaration shall be construed to make the Shareholders,
either by themselves or with the Trustees, partners or members of a joint stock
association.
<PAGE>
Section 6.4. Issuance of Shares. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, and on such terms as the Trustees may deem best, and may in such
manner acquire other assets (including the acquisition of assets subject to, and
in connection, with the assumption of liabilities) and businesses. In
connection with any issuance of Shares, the Trustees may issue fractional
Shares. The Trustees may from time to time divide or combine the Shares of any
series or class into a greater or lesser number without thereby changing their
proportionate beneficial interests in Trust Property allocated or belonging to
such series or class. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or fractions of a Share.
Section 6.5. Register of Shares. A register or registers shall be kept at
the principal office of the Trust or at an office of the Transfer Agent or any
one or more Shareholder Servicing Agents which register or registers, taken
together, shall contain the names and addresses of the Shareholders and the
number of Shares held by them respectively and a record of all transfers
thereof. Such register or registers shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-Laws
provided, until he has given his address to the Transfer Agent, the Shareholder
Servicing Agent which is the agent of record for such Shareholder, or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of Share certificates and promulgate appropriate rules and regulations as to
their use.
Section 6.6. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees, the Transfer Agent or
the Shareholder Servicing Agent which is the agent of record for such
Shareholder, of a duly executed instrument of transfer, together with any
certificate or certificates (if issued) for such Shares and such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on
the register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all
<PAGE>
purposes hereunder and neither the Trustees nor any Transfer Agent, Shareholder
Servicing Agent or registrar nor any officer, employee or agent of the Trust
shall be affected by any notice of the proposed transfer. Any person becoming
entitled to any Shares in consequence of the death, bankruptcy, or incompetence
of any Shareholder, or otherwise by operation of law, shall be recorded on the
register of Shares as the holder of such Shares upon production of the proper
evidence thereof to the Trustees, the Transfer Agent or the Shareholder
Servicing Agent which is the agent of record for such Shareholder; but until
such record is made, the Shareholder of record shall be deemed to be the holder
of such Shares for all purposes hereunder and neither the Trustees nor any
Transfer Agent, Shareholder Servicing Agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
Section 6.7. Notices. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 6.8. Voting Powers. The Shareholders shall have power to vote
only (i) for the removal of Trustees as provided in Section 2.2 hereof, (ii)
with respect to any investment advisory or management contract as provided in
Section 4.1 hereof, (iii) with respect to termination of the Trust or a series
or class thereof as provided in Section 9.2 hereof, (iv) with respect to any
amendment of this Declaration to the extent and as provided in Section 9.3
hereof, (v) with respect to any merger, consolidation or sale of assets as
provided in Sections 9.4 and 9.6 hereof, (vi) with respect to incorporation of
the Trust or any series to the extent and as provided in Sections 9.5 and 9.6
hereof, (vii) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or a series thereof or the Shareholders of either, (viii) with
respect to any plan adopted pursuant to Rule 12b-1 (or any successor rule) under
the 1940 Act, and related matters, and (ix) with respect to such additional
matters relating to the Trust as may be required by the Declaration, the By-Laws
or any registration of the Trust with the Commission (or any successor agency)
or any state, or as the Trustees may consider necessary or desirable. Unless
the Trustees determine that each Share will entitle Shareholders to one vote per
Share, on any matter submitted to a vote of Shareholders of any series or class,
each dollar of net asset value (number of Shares owned times net asset value per
Share of such series or class, as applicable) shall be
<PAGE>
entitled to one vote on any matter on which such Shares are entitled to vote and
each fractional dollar amount shall be entitled to a proportionate fractional
vote, except that Shares held in the treasury of the Trust shall not be voted.
Shares shall be voted by individual series on any matter submitted to a vote of
the Shareholders of the Trust except as provided in Section 6.9(g) hereof. The
Trustees may in conjunction with the establishment of any further series or any
classes of Shares, establish conditions under which the several series or
classes of Shares shall have separate voting rights or no voting rights. There
shall be no cumulative voting in the election of Trustees. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required by law, the Declaration or the By-Laws to be taken by
Shareholders. At any meeting of Shareholders of the Trust or of any series of
the Trust, a Shareholder Servicing Agent may vote any shares as to which such
Shareholder Servicing Agent is the agent of record and which are not otherwise
represented in person or by proxy at the meeting, proportionately in accordance
with the votes cast by holders of all shares otherwise represented at the
meeting in person or by proxy as to which such Shareholder Servicing Agent is
the agent of record. Any shares so voted by a Shareholder Servicing Agent will
be deemed represented at the meeting for quorum purposes. The By-Laws may
include further provisions for Shareholder votes and meetings and related
matters.
Section 6.9. Series Designation and Classes of Shares. As set forth in
Appendix I hereto, the Trustees have authorized the division of Shares into
series and series into classes, as designated and established pursuant to the
provisions of Appendix I and this Section 6.9. The Trustees, in their
discretion, may authorize the division of Shares into one or more additional
series, and the different series shall be established and designated, and the
variations in the relative rights, privileges and preferences as between the
different series shall be fixed and determined by the Trustees upon and subject
to the following provisions:
(a) All Shares shall be identical except that there may be such variations
as shall be fixed and determined by the Trustees between different series or
classes thereof as to purchase price, right of redemption and the price, terms
and manner of redemption, and special and relative rights as to dividends and on
liquidation.
(b) The number of authorized Shares and the number of Shares of each series
or class of each series that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
reacquired of any series into one or more series that may be established and
<PAGE>
designated from time to time. The Trustees may hold as treasury shares (of the
same or some other series), reissue for such consideration and on such terms as
they may determine, or cancel any Shares of any series reacquired by the Trust
at their discretion from time to time.
(c) All consideration received by the Trust for the issuance or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income and earnings thereon,
profits therefrom, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series, and shall be so recorded upon the books of account
of the Trust. In the event that there are any assets, income, earnings,
profits, proceeds, funds or payments which are not readily identifiable as
belonging to any particular series, the Trustees shall allocate them to and
among any one or more of the series established and designated from time to time
in such manner and on such basis as the Trustees, in their sole discretion, deem
fair and equitable. Each such allocation by the Trustees shall be conclusive
and binding upon the Shareholders of all series for all purposes. No
Shareholder of any particular series shall have any claim on or right to any
assets allocated or belonging to any other series of Shares.
(d) The assets belonging to each particular series shall be charged with
the liabilities of the Trust in respect of that series and all expenses, costs,
charges and reserves attributable to that series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be allocated and
charged by the Trustees to and among any one or more of the series established
and designated from time to time in such manner and on such basis as the
Trustees, in their sole discretion, deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all series for all purposes.
Each class shall bear the expenses of payments under any distribution, service,
and shareholder servicing agreements and plans entered into by or on behalf of
the series with respect to that class, and any other expenses that are properly
allocated to such class in accordance with the 1940 Act or any rule or order
issued thereunder and applicable to the Trust or such series. The Trustees
shall have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and
<PAGE>
binding upon the Shareholders. Under no circumstances shall the assets
allocated or belonging to any particular series be charged with liabilities,
expenses, costs, charges or reserves attributable to any other series. All
Persons who have extended credit which has been allocated to a particular
series, or who have a claim or contract which has been allocated to any
particular series, shall look only to the assets of that particular series for
payment of such credit, claim or contract.
(e) The power of the Trustees to invest and reinvest the Trust Property
allocated or belonging to any particular series shall be governed by Section 3.2
hereof unless otherwise provided in the instrument of the Trustees establishing
such series which is hereinafter described.
(f) Each Share of a series shall represent a beneficial interest in the net
assets allocated or belonging to such series only, and such interest shall not
extend to the assets of the Trust generally. Dividends and distributions on
Shares of a particular series or class thereof may be paid with such frequency
as the Trustees may determine, which may be monthly or otherwise, pursuant to a
standing vote or votes adopted only once or with such frequency as the Trustees
may determine, only to the Shareholders of that series or class, as the case may
be, from such of the income and capital gains, accrued or realized, from the
assets belonging to that series, as the Trustees may determine, after providing
for actual and accrued liabilities. All dividends and distributions on Shares
of a particular series or class thereof shall be distributed pro rata to the
Shareholders of that series or class as appropriate in proportion to the number
of Shares of that series or class thereof held by such Shareholders at the date
and time of record established for the payment of such dividends or
distributions. Shares of any particular series of the Trust may be redeemed
solely out of Trust Property allocated or belonging to that series. Upon
liquidation or termination of a series of the Trust, Shareholders of such series
shall be entitled to receive a pro rata share of the net assets of such series
only. A Shareholder of a particular series of the Trust shall not be entitled
to commence or participate in a derivative or class action on behalf of any
other series of the Shareholders of any other series of the Trust.
(g) Notwithstanding any provision hereof to the contrary, on any matter
submitted to a vote of the Shareholders of the Trust, all Shares then entitled
to vote shall be voted by individual series or classes (i) to the extent
required by the 1940 Act or any rule thereunder or (ii) when the Trustees have
determined that the matter affects only the interests of Shareholders of such
series or classes thereof.
<PAGE>
(h) The establishment and designation of any series of Shares shall be
effective upon the execution by a majority of the Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such series and any class thereof, or as otherwise provided in
such instrument. At any time that there are no Shares outstanding of any
particular series previously established and designated, the Trustees may by an
instrument executed by a majority of their number abolish that series and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration.
(i) Notwithstanding anything in this Declaration to the contrary, the
Trustees may, in their discretion, authorize the division of Shares of any
series into Shares of one or more classes or subseries of such series. All
Shares of a class or a subseries shall be identical with each other and with the
Shares of each other class or subseries of the same series except for such
variations between classes or subseries as may be approved by the Board of
Trustees and be permitted under the 1940 Act or pursuant to any exemptive order
or rule issued by the Commission.
ARTICLE VII
REDEMPTIONS
Section 7.1. Redemptions. In case any Shareholder at any time desires to
dispose of his Shares, he may deposit his certificate or certificates therefor,
duly endorsed in blank or accompanied by an instrument of transfer executed in
blank, or if the Shares are not represented by any certificate, a written
request or other such form of request as the Trustees may from time to time
authorize, at the office of the Transfer Agent, the Shareholder Servicing Agent
which is the agent of record for such Shareholder, or any bank or trust company,
either in or outside of the Commonwealth of Massachusetts, which is a member of
the Federal Reserve System and which the said Transfer Agent or the said
Shareholder Servicing Agent has designated in writing for that purpose, together
with an irrevocable offer in writing in a form acceptable to the Trustees to
sell the Shares represented thereby to the Trust at the net asset value per
Share thereof, next determined after such deposit as provided in Section 8.1
hereof. Payment for said Shares shall be made to the Shareholder within seven
days after the date on which the deposit is made, unless (i) the date of payment
is postponed pursuant to Section 7.2 hereof, or (ii) the receipt, or
verification of receipt, of the purchase price for the Shares to be redeemed is
delayed, in either of which events payment may be delayed beyond seven days.
<PAGE>
Section 7.2. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment of the
redemption proceeds for the whole or any part of any period (i) during which the
New York Stock Exchange is closed other than customary week-end and holiday
closings, (ii) during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result of which disposal
by the Trust of securities owned by it is not reasonably practicable or it is
not reasonably practicable for the Trust fairly to determine the value of its
net assets, or (iv) during which the Commission for the protection of
Shareholders by order permits the suspension of the right of redemption or
postponement of the date of payment of the redemption proceeds; provided that
applicable rules and regulations of the Commission shall govern as to whether
the conditions prescribed in (ii), (iii) or (iv) exist. Such suspension shall
take effect at such time as the Trust shall specify but not later than the close
of business on the business day next following the declaration of suspension,
and thereafter there shall be no right of redemption or payment of the
redemption proceeds until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened or the period specified in (ii) or
(iii) shall have expired (as to which, in the absence of an official ruling by
the Commission, the determination of the Trustees shall be conclusive). In the
case of a suspension of the right of redemption, a Shareholder may either
withdraw his request for redemption or receive payment based on the net asset
value existing after the termination of the suspension.
Section 7.3. Redemption of Shares; Disclosure of Holding. If the Trustees
shall, at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares has or may become concentrated in any Person to an extent
which would disqualify the Trust, or any series of the Trust, as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), then the Trustees shall have the power by lot or other means deemed
equitable by them (i) to call for redemption by any such Person a number of
Shares of the Trust, or such series of the Trust, sufficient to maintain or
bring the direct or indirect ownership of Shares of the Trust, or such series of
the Trust, into conformity with the requirements for such qualification, and
(ii) to refuse to transfer or issue Shares of the Trust, or such series of the
Trust, to any Person whose acquisition of the Shares of the Trust, or such
series of the Trust, would result in such disqualification. The redemption shall
be effected at the redemption price and in the manner provided in Section 7.1
hereof.
<PAGE>
The Shareholders of the Trust shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
of the Trust as the Trustees deem necessary to comply with the provisions of the
Code, or to comply with the requirements of any other authority. Upon the
failure of a Shareholder to disclose such information and to comply with such
demand of the Trustees, the Trust shall have the power to redeem such Shares at
a redemption price determined in accordance with Section 7.1 hereof.
Section 7.4 Redemptions of Accounts of Less Than Minimum Amount. The
Trustees shall have the power, and any Shareholder Servicing Agent with whom the
Trust has so agreed (or a subcontractor of such Shareholder Servicing Agent)
shall have the power, at any time to redeem Shares of any Shareholder at a
redemption price determined in accordance with Section 7.1 hereof if at such
time the aggregate net asset value of the Shares owned by such Shareholder is
less than a minimum amount as determined from time to time and disclosed in a
prospectus of the Trust or in the Shareholder Servicing Agent's (or
sub-contractor's) agreement with its customer. A Shareholder shall be notified
that the aggregate value of his Shares is less than such minimum amount and
allowed 60 days to make an additional investment before the redemption is
processed.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
The Trustees, in their absolute discretion, may prescribe and shall set
forth in the By-Laws or in a duly adopted vote or votes of the Trustees such
bases and times for determining the per Share net asset value of the Shares or
net income, or the declaration and payment of dividends and distributions, as
they may deem necessary or desirable.
ARTICLE IX
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
Section 9.1. Duration. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
Section 9.2. Termination of Trust. (a) The Trust may be terminated (i) by
a Majority Shareholder Vote of its Shareholders, or (ii) by the Trustees by
written notice to the Shareholders. Any series or class of the Trust may be
terminated (i) by a
<PAGE>
Majority Shareholder Vote of the Shareholders of that series or class, as the
case may be, or (ii) by the Trustees by written notice to the Shareholders of
that series or series, as the case may be. Upon the termination of the Trust or
any series of the Trust:
(i) The Trust or series of the Trust shall carry on no business except for
the purpose of winding up its affairs;
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
series of the Trust and all the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or series of the Trust shall have
been wound up, including the power to fulfill or discharge the contracts of the
Trust, collect the assets of the Trust or series of the Trust, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part of the
remaining Trust Property of the Trust or series of the Trust to one or more
Persons at public or private sale for consideration which may consist in whole
or in part of cash, securities or other property of any kind, discharge or pay
the liabilities of the Trust or series of the Trust, and to do all other acts
appropriate to liquidate the business of the Trust or series of the Trust;
provided, that any sale, conveyance, assignment, exchange, transfer or other
disposition of all or substantially all of the Trust Property of the Trust or
series of the Trust shall require Shareholder approval to the extent provided in
Section 9.4 hereof; and
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property of the Trust or series of the Trust, in
cash or in kind or partly in cash and partly in kind, among the Shareholders of
the Trust or series of the Trust according to their respective rights.
(b) After termination of the Trust or series of the Trust and distribution
to the Shareholders of the Trust or series of the Trust as herein provided, a
majority of the Trustees shall execute and lodge among the records of the Trust
an instrument in writing setting forth the fact of such termination, and the
Trustees shall thereupon be discharged from all further liabilities and duties
hereunder with respect to the Trust or series of the Trust, and the rights and
interests of all Shareholders of the Trust or series of the Trust shall
thereupon cease.
Section 9.3. Amendment Procedure. (a) This Declaration may be amended by
a Majority Shareholder Vote of the Shareholders or by any instrument in writing,
without a meeting, signed by a
<PAGE>
majority of the Trustees and consented to by the holders of not less than a
majority of the Shares of the Trust. The Trustees may also amend this
Declaration without the vote or consent of Shareholders, except that no
amendment can be made by the Trustees to impair any voting or other rights of
Shareholders prescribed by federal or state law. Without limiting the foregoing,
the Trustees may amend this Declaration (i) to designate series in accordance
with Section 6.9 hereof; (ii) to change the name of the Trust or any series or
class; (iii) to supply any omission, to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or to conform this
Declaration to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code of 1986, as amended; (iv) to change the state or other jurisdiction
designated herein as the state or other jurisdiction whose laws shall be the
governing law hereof; (v) to eliminate or modify any provision of this
Declaration which (a) incorporates, memorializes or sets forth an existing
requirement imposed by or under any federal or state statute or any rule,
regulation or interpretation thereof or thereunder or (b) any rule, regulation,
interpretation or guideline of any federal or state agency, now or hereafter in
effect, including without limitation, requirements set forth in the 1940 Act
(and interpretations thereof), to the extent any change in applicable law
liberalizes, eliminates or modifies any such requirements; (vi) to effect such
changes herein as the Trustees find to be necessary or appropriate (A) to permit
the filing of this Declaration under the laws of such state or other
jurisdiction applicable to trusts or voluntary associations, (B) to permit the
Trust to elect to be treated as a "regulated investment company" under the
applicable provisions of the Internal Revenue Code of 1986, as amended, or (C)
to permit the transfer of shares (or to permit the transfer of any other
beneficial interests or shares in the Trust, however denominated); and (vii) to
make any and all such further changes or modifications to this Declaration as
the Trustees find to be necessary or appropriate, any finding of the Trustees
referred to in the foregoing clause (vi) or this clause (vii) to be conclusively
evidenced by the execution of any such amendment by a majority of the Trustees,
but the Trustees shall not be liable for failing so to do.
(b) No amendment which the Trustees have determined would affect the
rights, privileges or interests of holders of a particular series of Shares, but
not the rights, privileges or interests of holders of all series of Shares
generally, and which would otherwise require a Majority Shareholder Vote under
paragraph (a) of this Section 9.3, may be made except with the vote or consent
by a Majority Shareholder Vote of Shareholders of such series.
<PAGE>
(c) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without any
requirement of approval by Shareholders to either invest all or a portion of the
Trust Property, or sell all or a portion of the Trust Property and invest the
proceeds of such sales, in another investment company that is registered under
the 1940 Act.
(d) Notwithstanding any other provision hereof, no amendment may be made
under this Section 9.3 which would change any rights with respect to the Shares,
or any series of Shares, by reducing the amount payable thereon upon liquidation
of the Trust or by diminishing or eliminating any voting rights pertaining
thereto, except with the Majority Shareholder Vote of the Shares or that series
of Shares. Nothing contained in this Declaration shall permit the amendment of
this Declaration to impair the exemption from personal liability of the
Shareholders, Trustees, officers, employees and agents of the Trust or to permit
assessments upon Shareholders.
(e) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid, and executed by a majority of the Trustees, shall be
conclusive evidence of such amendment when lodged among the records of the
Trust.
(f) Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration may be amended in any respect by the affirmative vote of a
majority of the Trustees or by an instrument signed by a majority of the
Trustees.
Section 9.4. Merger, Consolidation and Sale of Assets. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property (or all or substantially all of the Trust Property allocated or
belonging to a particular series of the Trust) including its good will, upon
such terms and conditions and for such consideration when and as authorized at
any meeting of Shareholders called for such purpose by the vote of the holders
entitled to vote two-thirds of the outstanding voting securities of all series
of the Trust voting as a single class, or of the holders entitled to vote two-
thirds of the outstanding voting securities of the affected series of the Trust,
as the case may be, or by an instrument or instruments in writing without a
meeting, consented to by such holders, as the case may be; provided, however,
that if such merger, consolidation, sale, lease or exchange is recommended by
the Trustees, the vote or written consent by Majority Shareholder Vote
<PAGE>
shall be sufficient authorization; and any such merger, consolidation, sale,
lease or exchange shall be deemed for all purposes to have been accomplished
under and pursuant to the statutes of the Commonwealth of Massachusetts.
Nothing contained herein shall be construed as requiring approval of
Shareholders for any sale of assets in the ordinary course of the business of
the Trust.
Section 9.5. Incorporation, Reorganization. The Trustees may, without the
consent or vote of Shareholders, cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction, or any other
trust, unit investment trust, partnership, association or other organization to
take over all of the Trust Property or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust Property to any such corporation, trust, partnership,
association or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization in which the Trust holds or is about to acquire
shares or any other interest. Subject to Section 9.4 hereof, the Trustees may
also cause a merger or consolidation between the Trust or any successor thereto
and any such corporation, trust, partnership, association or other organization
if and to the extent permitted by law. Nothing contained in this Section 9.5
shall be construed as requiring approval of Shareholders for the Trustees to
organize or assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
Section 9.6. Incorporation or Reorganization of Series. The Trustees may,
without the consent or vote of Shareholders, sell, lease or exchange all of the
Trust Property allocated or belonging to that series, or cause to be organized
or assist in organizing a corporation or corporations under the laws of any
other jurisdiction, or any other trust, unit investment trust, partnership,
association or other organization, to take over all of the Trust Property
allocated or belonging to that series and to sell, convey and transfer such
Trust Property to any such corporation, trust, unit investment trust,
partnership, association, or other organization in exchange for the shares or
securities thereof or otherwise.
ARTICLE X
REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS
<PAGE>
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Filing. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and in
such other place or places as may be required under the laws of the Commonwealth
of Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall state or be
accompanied by a certificate signed and acknowledged by a Trustee stating that
such action was duly taken in the manner provided herein, and unless such
amendment or such certificate sets forth some later time for the effectiveness
of such amendment, such amendment shall be effective upon its filing. A
restated Declaration, integrating into a single instrument all of the provisions
of the Declaration which are then in effect and operative, may be executed from
time to time by a majority of the Trustees and shall, upon with the Secretary of
the Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may thereafter be referred to in lieu of this original
Declaration and the various amendments thereto.
Section 11.2. Governing Law. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said Commonwealth.
Section 11.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 11.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, is a Trustee hereunder or
officer of the Trust certifying to: (i) the number or identity of Trustees or
Shareholders, (ii) the due authorization of the execution of any instrument or
writing, (iii) the form of any vote passed at a meeting of Trustees or
Shareholders, (iv) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration,
<PAGE>
(v) the form of any By-Laws adopted by or the identity of any officers elected
by the Trustees, or (vi) the existence of any fact or facts which in any manner
relates to the affairs of the Trust, shall be conclusive evidence as to the
matters so certified in favor of any Person dealing with the Trustees and
officers and their successors.
Section 11.5. Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any such provision is in conflict
with the 1940 Act, the regulated investment company provisions of the Internal
Revenue Code of 1986, as amended, or with other applicable laws and regulations,
the conflicting provision shall be deemed never to have constituted a part of
this Declaration; provided however, that such determination shall not affect any
of the remaining provisions of this Declaration or render invalid or improper
any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
Section 11.6. Principal Office. The principal office of the Trust until
further changed by the Trustees is 60 State Street, Boston, Massachusetts 02109.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
15th day of August, 1996.
/s/ Christopher J. Kelley
Christopher J. Kelley
as Trustee
and not individually
Boston, Massachusetts
/s/ Richard W. Ingram
Richard W. Ingram
as Trustee
and not individually
Boston, Massachusetts
<PAGE>
/s/ John E. Pelletier
John E. Pelletier
as Trustee
and not individually
Boston, Massachusetts
<PAGE>
Commonwealth of Massachusetts [top brace]
[extension]
[middle brace] ss
[extension]
County of Suffolk [bottom brace]
August 15, 1996
Then personally appeared the above-named Christopher J. Kelley, Richard W.
Ingram and John E. Pelletier, who severally acknowledged the foregoing
instrument to be their free act and deed.
Before me,
/s/ Jean M. O'Leary
Notary Public
My commission expires: 11/22/96
<PAGE>
Appendix I
JPM SERIES TRUST
Establishment and
Designation of Series and Classes of Shares of
Beneficial Interest (par value $0.001 per share)
Pursuant to Section 6.9 of the Declaration of Trust, dated as of August 15,
1996 (the "Declaration of Trust"), of JPM Series Trust (the "Trust"), the
Trustees of the Trust hereby establish and designate three initial series of
Shares (as defined in the Declaration of Trust) (each such series a "Fund" and
collectively the "Funds") and the classes into which the Shares of each Fund are
divided to have the following special and relative rights:
1. The Funds shall be designated as follows:
Tax Aware Active Equity Fund
Tax Aware Research Enhanced Index Fund
California Bond Fund
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933. Each Share of a Fund shall be redeemable,
shall be entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote in respect of a fractional dollar amount) on
matters on which Shares of the Fund shall be entitled to vote, shall represent a
pro rata beneficial interest in the assets allocated or belonging to the Fund,
and shall be entitled to receive its pro rata share of the net assets of the
Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration of Trust. The proceeds of sales of Shares of a Fund, together with
any income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to that Fund, unless otherwise required by law.
3. Tax Aware Active Equity Fund, Tax Aware Research Enhanced Index Fund
and California Bond Fund shall each be divided into three classes of Shares
designated "Pierpont Shares" and "JPM Institutional Shares", respectively.
4. Shares of each class shall be entitled to all the rights and
preferences accorded to Shares under the Declaration of Trust.
<PAGE>
5. The number of Shares of each class designated hereby shall be
unlimited.
6. Shareholders of each class shall vote separately on any matter to the
extent required by, and any matter shall be deemed to have been effectively
acted upon with respect to that class as provided in, Rule 18f-2 or Rule 18f-3,
as from time to time in effect, under the Investment Company Act of 1940, as
amended (the "1940 Act"), or any successor rule, and by the Declaration of
Trust. Shareholders of any class may vote together with shareholders of any
other class on any matter for which the interests of the classes do not
materially differ, and shareholders of all classes of all Funds may vote
together on Trust-wide matters.
7. The Trust's assets and liabilities shall be allocated among the Funds
and the classes thereof as set forth in Section 6.9 of the Declaration of Trust.
8. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate assets and expenses,
to change the designation of any Fund or class now or hereafter created, or
otherwise to change the special and relative rights of any such Fund or class.
<PAGE>
Exhibit 2
BY-LAWS OF
JPM SERIES TRUST
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration", "Distributor", "Investment
Adviser", "Majority Shareholder Vote", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property" and "Trustees" have the
respective meanings given them in the Declaration of Trust of JPM Series
Trust dated as of August 15, 1996.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the principal
office of the Trust shall be 60 State Street, Suite 1300, Boston Massachusetts
02109.
Section 2. Other Offices. The Trust may have offices in such other places
outside as well as within the Commonwealth of Massachusetts as the Trustees may
from time to time determine.
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. A meeting of Shareholders may be called at any time
by a majority of the Trustees and shall be called by any Trustee upon written
request, which shall specify the purpose or purposes for which such meeting is
to be called, of Shareholders holding in the aggregate 10% or more of the voting
securities entitled to vote on the matters specified in such written request.
Any such meeting shall be held within or without the Commonwealth of
Massachusetts on such day and at such time as the Trustees shall designate. The
presence at any meeting of Shareholders, in person or by proxy, of Shareholders
entitled to cast a majority of the votes thereat shall be a quorum for the
transaction of business. The holders entitled to cast a majority of voting
securities at the meeting and present thereat, in person or by proxy, whether or
not constituting a quorum, or, if no Shareholder entitled to vote is present
thereat, in person or by
<PAGE>
proxy, any Trustee or officer present thereat entitled to preside at such
meeting, may adjourn the meeting sine die or from time to time. Any
business that might have been transacted at the meeting originally called
may be transacted at any such adjourned meeting at which a quorum is present.
Whenever a matter is required to be voted by Shareholders of the Trust in
the aggregate under Section 6.8 and Section 6.9 and Section 6.9(g) of the
Declaration, the Trust may either hold a meeting of Shareholders of all series,
as defined in Section 6.9 of the Declaration, to vote on such matter, or hold
separate meetings of Shareholders of each of the individual series or classes to
vote on such matter, provided that (i) such separate meetings shall be held
within one year of each other, (ii) a quorum with respect to the individual
series or class shall be present at each such separate meeting and (iii) a
quorum consisting of the holders of a majority of all Shares of the Trust
entitled to vote in person or by proxy shall be present in the aggregate at such
separate meetings, and the votes of Shareholders at all such separate meetings
shall be aggregated in order to determine if sufficient votes have been cast for
such matter to be voted.
Section 2. Notice of Meetings. Notice of all meetings of Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder entitled to vote at such meeting at his
address as recorded on the register of the Trust, mailed at least 10 days and
not more than 90 days before the meeting. Any adjourned meeting may be held as
adjourned without further notice. No notice need be given to any Shareholder
who shall have failed to inform the Trust of his current address or if a written
waiver of notice, executed before or after the meeting by the Shareholder or his
attorney thereunto authorized, is filed with the records of the meeting.
If separate meetings are held for Shareholders of each of the individual
series or classes to vote on a matter required to be voted on by Shareholders of
the Trust in the aggregate, as provided in Article III, Section 1 above, notice
of each such separate meeting shall be provided in the manner described above in
this Section 2.
Section 3. Record Date. For the purpose of determining the Shareholders
who are entitled to notice of and to vote at any meeting, or to participate in
any distribution, or for the purpose of any other action, the Trustees may from
time to time close the transfer books for such period, not exceeding 30 days, as
the Trustees may determine; or without closing the transfer books the Trustees
may fix a date not more than 90 days prior to the date of any meeting of
Shareholders or distribution or other action as a
<PAGE>
record date for the determination of the persons to be treated as
Shareholders of record for such purpose.
If separate meetings are held for Shareholders of each of the individual
series or classes to vote on a matter required to be voted on by Shareholders of
the Trust in the aggregate, as provided in Article III, Section 1 above, the
record date of each such separate meeting shall be determined in the manner
described above in this Section 3.
Section 4. Shareholders Entitled to Vote. If, pursuant to Section 3
hereof, a record date has been fixed for the determination of Shareholders
entitled to notice of and to vote at any Shareholders' meeting, each Shareholder
shall be entitled to vote, in accordance with the applicable provisions of the
Declaration, in person or by proxy, each Share or fraction thereof standing in
his name on the register of the Trust at the time of determining net asset value
on such record date.
Section 5. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a vote of a majority of the Trustees, proxies may be solicited in
the name of the Trust or one or more Trustees or officers of the Trust. Only
Shareholders of record shall be entitled to vote. On any matter submitted to a
vote of Shareholders, each dollar of net asset value (number of Shares owned
times net asset value per Share of such series or class, as applicable) shall be
entitled to one vote on any matter on which such Shares are entitled to vote and
each fractional dollar amount shall be entitled to a proportionate fractional
vote. When any Share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be considered received in respect of such Share. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of any other person as regards the charge or management of such Share,
such Share may be voted by such guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy. The
placing of a Shareholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained
<PAGE>
pursuant to procedures reasonably designed to verify that such instructions
have been authorized by such Shareholder shall constitute execution of such
proxy by or on behalf of such Shareholder.
Section 6. Inspection of Records. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted shareholders of
a Massachusetts business corporation.
Section 7. Action without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such smaller or larger proportion thereof as
shall be required by law, the Declaration or these By-Laws for approval of such
matter) consent to the action in writing and the written consents are filed with
the records of the meetings of Shareholders. Such consent shall be treated for
all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the Chairman or by any
Trustee. Notice of the time and place of each meeting other than regular or
stated meetings shall be given by the Secretary or an Assistant Secretary or by
the officer or Trustee calling the meeting and shall be mailed to each Trustee
at least two days before the meeting, or shall be telegraphed, cabled, or
wirelessed to each Trustee at his business address, or personally delivered to
him at least one day before the meeting. Notice of a meeting need not be given
to any Trustee if a written waiver of notice, executed by him before or after
the meeting, is filed with the records of the meeting, or to any Trustee who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. A notice or waiver of notice need not specify the
purpose of any meeting. The Trustees may meet by means of a telephone
conference circuit or similar communications equipment by means of which all
persons participating in the meeting can hear each other, which telephone
conference meeting shall be deemed to have been held at a place designated by
the Trustees at the meeting. Participation in a telephone conference meeting
shall constitute presence in person at such meeting. Any action required or
permitted to be taken at any meeting of the Trustees may be taken by the
Trustees without a meeting if a majority of the Trustees consents to the action
in writing and the written consents are
<PAGE>
filed with the records of the Trustees' meetings. Such consents shall be
treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees
present in person at any regular or special meeting of the Trustees shall
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Declaration or these By-Laws) the act of a
majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
Section 3. Term of Office and Mandatory Retirement. Any Trustee who has
served two five-year terms (whether such terms are consecutive or
nonconsecutive) shall, automatically and without action of such Trustee or the
remaining Trustees, be deemed to have retired, effective on the last day of the
second term. Any Trustee who has attained the mandatory retirement age of 70
shall, automatically and without action of such Trustee or the remaining
Trustees, be deemed to have retired, effective on the date of that Trustee's
70th birthday.
ARTICLE V
COMMITTEES, ADVISORY BOARD AND CHAIRMAN
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than two Trustees to hold office at the
pleasure of the Trustees. While the Trustees are not in session, the Executive
Committee shall have the power to conduct the current and ordinary business of
the Trust, including the purchase and sale of securities and the designation of
securities to be delivered in-kind upon redemption of Shares of the Trust, and
such other powers of the Trustees as the Trustees may, from time to time,
delegate to the Executive Committee except those powers which by law, the
Declaration or these By-Laws the Trustees are prohibited from so delegating.
The Trustees may also elect from their own number other Committees from time to
time and may determine the number composing such Committees, the powers
conferred upon the same (subject to the same limitations as with respect to the
Executive Committee) and the term of membership on such Committees. The
Trustees may designate a chairman of any such Committee. In the absence of such
designation a Committee may elect its own chairman.
Section 2. Meeting, Quorum and Manner of Acting. The Trustees may (i)
provide for stated meetings of any Committee,
<PAGE>
(ii) specify the manner of calling and notice required for special meetings
of any Committee, (iii) specify the number of members of a Committee
required to constitute a quorum and the number of members of a Committee
required to exercise specified powers delegated to such Committee, (iv)
authorize the making of decisions to exercise specified powers by written
assent of the requisite number of members of a Committee without a meeting,
and (v) authorize the members of a Committee to meet by means of a telephone
conference circuit.
Each Committee shall keep regular minutes of its meetings and records of
decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of the Trust.
Section 3. Advisory Board. The Trustees may appoint an Advisory Board to
consist in the first instance of not less than three members. Members of such
Advisory Board shall not be Trustees or officers and need not be Shareholders.
A member of such Advisory Board shall hold office for such period as the
Trustees may by vote provide and may resign therefrom by a written instrument
signed by him which shall take effect upon its delivery to the Trustees. The
Advisory Board shall have no legal powers and shall not perform the functions of
Trustees in any manner, such Advisory Board being intended merely to act in an
advisory capacity. Such Advisory Board shall meet at such times and upon such
notice as the Trustees may by vote provide.
Section 4. Chairman. The Trustees may, by a majority vote of all the
Trustees, elect from their own number a Chairman, to hold office until his
successor shall have been duly elected and qualified. The Chairman shall not
hold any other office. The Chairman may be, but need not be, a Shareholder. The
Chairman shall preside at all meetings of the Trustees and shall have such other
duties as from time to time may be assigned to him by the Trustees.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, each of whom shall be elected by the
Trustees. The Trustees may elect or appoint such other officers or agents as
the business of the Trust may require, including one or more Vice Presidents,
one or more Assistant Treasurers, and one or more Assistant Secretaries. The
Trustees may delegate to any officer or committee the power to appoint any
subordinate officers or agents.
<PAGE>
Section 2. Term of Office and Qualifications. Except as otherwise
provided by law, the Declaration or these By-Laws, each of the President, the
Treasurer and the Secretary shall hold office until his respective successor
shall have been duly elected and qualified, and all other officers shall hold
office at the pleasure of the Trustees. The offices of Vice President,
Secretary and Treasurer shall not be held by the same person, and the offices of
President and Secretary shall not be held by the same person. The President
shall not hold any other office. Except as above provided, any two offices may
be held by the same person. Any officer may be, but does not need be, a Trustee
or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer with or without cause by a vote of a
majority of the Trustees. Any officer or agent appointed by any officer or
committee may be removed with or without cause by such appointing officer or
committee.
Section 4. Powers and Duties of the President. The President, unless a
Chairman is so elected by the Trustees, shall be the principal executive officer
of the Trust. Subject to the control of the Trustees and any committee of the
Trustees, the President shall at all times exercise a general supervision and
direction over the affairs of the Trust. The President shall have the power to
employ attorneys and counsel for the Trust and to employ such subordinate
officers, agents, clerks and employees as he may find necessary to transact the
business of the Trust. The President shall also have the power to grant, issue,
execute or sign such powers of attorney, proxies or other documents as may be
deemed advisable or necessary in the furtherance of the interests of the Trust.
The President shall have such other powers and duties as, from time to time, may
be conferred upon or assigned to him by the Trustees.
Section 5. Powers and Duties of Vice Presidents. In the absence or
disability of the President, the Vice President or, if there are more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees or the President.
Section 6. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. The Treasurer shall
deliver all property of the Trust which may come into his possession to such
custodian as the Trustees may employ pursuant to Article X hereof. The
Treasurer shall render a statement of condition of the finances of the Trust
<PAGE>
to the Trustees as often as they shall require the same and shall in general
perform all the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by the Trustees. The
Treasurer shall give a bond for the faithful discharge of his duties, if
required to do so by the Trustees, in such sum and with such surety or
sureties as the Trustees shall require.
Section 7. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Shareholders in proper books provided for
that purpose; shall keep the minutes of all meetings of the Trustees; shall have
custody of the seal, if any, of the Trust; and shall have charge of the Share
transfer books, lists and records unless the same are in the charge of the
Transfer Agent. The Secretary shall attend to the giving and serving of all
notices by the Trust in accordance with the provisions of these By-Laws and as
required by law; and subject to these By-Laws, shall in general perform all the
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the Trustees.
Section 8. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from
time to time may be assigned to him by the Trustees. Each Assistant Treasurer
shall give a bond for the faithful discharge of his duties, if required to do so
by the Trustees, in such sum and with such surety or sureties as the Trustees
shall require.
Section 9. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all of the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
Section 10. Compensation of Officers, Trustees and Members of the Advisory
Board. Subject to any applicable law or provision of the Declaration, the
compensation of the officers, Trustees and members of the Advisory Board shall
be fixed from time to time by the Trustees or, in the case of officers, by any
committee of officers upon whom such power may be conferred by the Trustees. No
officer shall be prevented from receiving such compensation as such officer by
reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
<PAGE>
The Trust may have different fiscal years for its separate and distinct
series. Each such fiscal year shall be determined by the Trustees, provided
that the Trustees (or the Treasurer subject to ratification by the Trustees) may
from time to time change any fiscal year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe. Any
officer or Trustee of the Trust shall have authority to affix the seal of the
Trust to any document requiring the same but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair, nor shall the lack of a seal for the Trust impair, the validity of,
any document, instrument or other paper executed and delivered by or on behalf
of the Trust.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been telefaxed,
telegraphed, cabled, wirelessed or submitted for delivery by courier for the
purposes of these By-Laws when it has been delivered to a representative of any
telefax, telegraph, cable or wireless company or courier service with
instruction that it be telefaxed, telegraphed, cabled, wirelessed or delivered.
Any notice shall be deemed to be given at the time when the same shall be
mailed, telefaxed, telegraphed, cabled, wirelessed or sent by courier.
ARTICLE X
CUSTODIAN
Section 1. Appointment and Duties. The Trustees shall at all times employ
one or more banks or trust companies having a capital, surplus and undivided
profits of at least $5,000,000 as custodian with authority as the Trust's agent,
but subject to such restrictions, limitations and other requirements, if any, as
may be contained in the Declaration, these By-Laws and the 1940 Act:
<PAGE>
(i) to hold the securities owned by the Trust and deliver the same upon
written order;
(ii) to receive and receipt for any monies due to the Trust and deposit the
same in its own banking department or elsewhere as the Trustees may direct;
(iii) to disburse such funds upon orders or vouchers;
(iv) if authorized by the Trustees, to keep the books and accounts of the
Trust and furnish clerical and accounting services; and
(v) if authorized by the Trustees, to compute the net income of the Trust
and the net asset value of Shares of each series and class;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees. Subject to the
approval of the Trustees, the custodian may enter into arrangements with
securities depositories. All such custodial, sub-custodial and depository
arrangements shall be subject to, and comply with, the provisions of the 1940
Act and the rules and regulations promulgated thereunder.
Section 2. Central Certificate System. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or with such other person as may be permitted
by the Commission, or otherwise in accordance with the 1940 Act, pursuant to
which system all securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities,
provided that all such deposits shall be subject to withdrawal only upon the
order of the Trust or its custodian.
Section 3. Acceptance of Receipts in Lieu of Certificates. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to accept written
<PAGE>
receipts or other written evidences indicating purchases of securities held
in book-entry form in the Federal Reserve System in accordance with
regulations promulgated by the Board of Governors of the Federal Reserve
System and the local Federal Reserve Banks in lieu of receipt of
certificates representing such securities.
Section 4. Successor Custodian. The Trust shall upon the resignation or
inability to serve of its custodian or upon change of the custodian:
(i) in case of such resignation or inability to serve, use its best efforts
to obtain a successor custodian;
(ii) require that the cash and securities owned by the Trust be delivered
directly to the successor custodian; and
(iii) in the event that no successor custodian can be found, submit to the
Shareholders, before permitting delivery of the cash and securities owned by the
Trust otherwise than to a successor custodian, the question whether the Trust
shall be liquidated or shall function without a custodian.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or new
By-Laws may be adopted (a) by the Shareholders by a Majority Shareholder Vote,
or (b) by the Trustees, provided, however, that no By-Law may be amended,
adopted or repealed by the Trustees if such amendment, adoption or repeal
requires, pursuant to law, the Declaration or these By-Laws, a vote of the
Shareholders.
